Unit 5: Opening and Servicing Customer Accounts Flashcards
Opening Accounts
- name
- DOB
- address
- SS #
** signature of client not required
Types of Account Ownership
- individual
- joint
- corporate
- partnership
Trading Authorization - Power of Attorney
- accounts may be opened with someone other than the owner having the authority to buy and sell securities
- Discretionary: registered representative, need principal approval
(if there is one of these 3 things missing it is discretionary….authority to decide action - buy or sell, asset - which security and amount) - Custodial: competent adult to act on behalf of child/beneficiary (UGMA, UTMA accounts one-to-one, no limit on gifts but gift tax)
- Fiduciary: third party legally appointed
Payment Methods
- margin account: borrow $
2. cash account: pay full purchase price
Interpositioning
- results in a less favorable price to the customer as the third party will trade at inside market for themself
COD Orders
Cash on Delivery
- payment for securities purchased or delivery of securities sold is to be made by an agent bank
Opening Accounts for employee of another member firm
- account holder must be advised in writing that his employer will be notified of this account
- employer must receive written notification that the account is being opened
- if employer request duplicate confirmations, they must be sent
Individual Account
- one beneficial owner
- only person who can control investments within the account & request distributions of cash or securities from the account
- transfer on death: allows account holder to specify who is to receive the account on his death
Joint Account
- two or more adults named as co-owners
- tenants in common or joint tenants with right of survivorship
- checks must be payable and endorsed by both parties
- any party may make a trade
Private Securities Transactions (PSTs)
any sale of securities outside an associated person’s regular business and his employing member
- provide written notice to employer
- describe in detail the proposed transaction
- describe in detail his proposed role in transaction
- disclose if he will or may receive compensation or the transaction
Outside Business Activities
need prior written notice to receive compensation as a result of any business activity outside scope of their employer firm
Violations of Fair Dealing
- recommending any investment unsuitable for customer’s financial situation and risk tolerance
- short-term trading of mutual funds
- fraudulent acts of forgery or ommission
Churning
excessive trading to generate commission
abuse of fiduciary responsibility
Wrap accounts
- account that holds all of a customer’s assets and is managed for a flat fee or percentage of the assets being managed
5 Types of Lending arrangements permitted
- immediate family relationship
- customer in the business of lending $
- customer and representative are both registered persons with same firm
- customer and representative have a personal relationship outside broker-customer relationship
- customer and representative have a business relationship outside broker-customer relationship
Misrepresentation
- qualifications, experience, and education
- nature of services offered
- fees to be charged
Directed Brokerage Arrangements
- prohibited by FINRA
- prevents a mutual fund from choosing a broker/dealer for the execution of portfolio trades based on the amount of commissions the broker/dealer generates by selling the fund’s shares
Terms of Prohibited Market Manipulation
- painting the tape
- wash sales
- matched purchases
- capping
- pegging
Front Running
- unethical
- broker/dealer placing a personal order ahead of a previously received customer order
Breakpoint Sale
encouraging a purchase below the amount that would qualify for reduction in sales load
Criminal Penalties
- fined up to $1 million and prison for up to 10 yrs
- up to 2.5 million fine for broker/dealers
Code of Procedure
- created to deal with alleged violations of SRO rules and federal securities laws
- trade practice complaints
- 25 days after receiving complaint to file an answer
- 60 days to make a decision
- 25 days to make an appeal
- 21 days to schedule prehearing conference
Uncontested Offer
Contested Offer
form of plea bargain initiated by the accused
Acceptance, Waiver and Consent (AWC)
form of plea bargain initiated by the prosecution (FINRA)
Code of Arbitration Procedure
- offers participants a relatively easy method of settling disputes at a cost that is lower than formal procedures
- 45 days to respond
- dispute needs to be about $50,000 or less
- monetary awards must be paid within 30 days of decision date
- statue of limitations: 6 + years
- member vs. member
- member vs. associated person
- associated person vs. associated person
USA Patriot Act of 2001
- US Treasury Department is lead agency for developing regulations in connection with anti-money laundering programs and requires broker/dealers to establish internal compliance procedures to detect abuses
- Customer Identification Program to verify identity of any new customer
Currency Transaction Reports (CTRs)
- Bank Secrecy Act requires financial institutions to report currency transactions over $10,000 in a single day
Suspicious Activity Reports
- broker/dealers are required to file these reports involving transactions of $5,000 or more when financial behavior appears commercially illogical and serves no apparent reasonable business or legal purpose
Anti-Money Laundering Rules
- money laundering allows criminals to hide and legitimize proceeds derived from illegal sources
- 3 stages: Placement, Layering, Integrating
Office of Foreign Assets Control
- US Treasury
- maintains a list of individuals and entities viewed as a threat to the US
New Account Form
- must be updated no less frequently than every 3 years
- must be sent to the customer within 30 days after account opening for verification of details
