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SIE Exam > Unit 6: Customer Accounts > Flashcards

Unit 6: Customer Accounts Flashcards

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SIE Exam flashcards
1
Q

An ______ account has one beneficial owner. The account holder is the only person who can control the investments within the account and request distributions of cash or securities from the account.

A

individual

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2
Q

In a _____ account, two or more adults are named on the account as co-owners, with each being allowed some form of control over the account.

A

joint

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3
Q

Types of Non-Qualified Accounts:

A

Individual, Joint, Business, Fiduciary

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4
Q

Types of Joint Accounts:

A

Tenants in Common (TIC) or Joint Tenants With Right of Survivorship (JTWROS)

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5
Q

_______ account agreements provide that any or all tenants may transact business in the account. Checks must be made payable to the names in which the account is registered and endorsed for deposit by all tenants,

A

Joint

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6
Q

______ ownership provides that a deceased tenant’s fractional interest in the account is retained
by that tenant’s estate and is not passed to the surviving tenant(s

A

TIC

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7
Q

_____ ownership stipulates that a deceased tenant’s interest in the account passes to the surviving tenants). All tenants in the account have an undivided interest in the account. Effectively, all tenants own all of the account equally. If one tenant dies, then the account remains the property of all the surviving tenants.

A

Joint Tenants With Right of Survivorship (JTWROS)

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8
Q

______ is a designation that an owner may add to an account that allows the owner to pass all or a portion of the account to a named beneficiary or beneficiaries at death. This account designation avoids probate (i.e., having the decedent’s will declared genuine by a court of law) because the estate is bypassed.

A

Transfer on death (TOD)

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9
Q

If a person who is not an owner is given any authority over the account, the customer must file written authorization with the broker-dealer (BD) giving that person access to the account. This trading authorization usually takes the form of ______.

A

a power of attorney (POA)

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10
Q

A _____ grants the appointed person the power to deposit or withdraw cash or securities and make investment decisions for the account. The person appointed has much the same power over the account as the owner of the account

A

full power of attorney (FPOA)

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11
Q

All power of Attorney end with of the person who granted POA

A

the death

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12
Q

A ______ allows the appointed person to have some, but not total,
control over an account. The document specifies the level of access the person may exercise.
-allows the entering of buy and sell orders but no withdrawal of assets.

A

limited power of attorney ( LPO A )

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13
Q

An account opened for a ____ is effectively the property of the business owner. The account may have a business name associated with it, in addition to the owner’s name. Most firms will have an additional form to add a fictitious business name to the account. These are sometimes called d/b/a accounts, which stands for “doing business as.”

A

sole proprietor

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14
Q

a partnership is an unincorporated association of _____ individuals.

A

two or more

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15
Q

The partnership must:

A

have a written partnership agreement and an authorization from the partners stating which of the partners can make transactions for the account.
If the partnership desires a margin account, the partnership agreement must not have language prohibiting margin.

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15
Q

Corporations, like individuals, may desire to open a brokerage account. When opening an account for a corporation, a firm must obtain a copy of the corporate charter, as well as a corporate resolution. The ____ that the corporation does exist, and the _____ authorizes both the opening of the account and the officers designated to enter orders.The corporate resolution is a resolution of the board of directors.

A

charter is proof
resolution

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16
Q

A resolution of a corporate account must contain:

A

the business’s legal right to open an investment account;
* an indication of any limitations that the owners, stockholders, a court, or any other entity has placed on the securities in which the business can invest; and
the name of the individual who will represent the business in transactions involving the account.

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17
Q

Types of Business Customer Accounts:

A

Sole Proprietor, Partnerships, Corporate Accounts

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18
Q

Types of Fiduciary Customer Accounts:

A

Trust
limited power of attorney ( LPO A )
Full power of attorney ( FPO A )
Custodial

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19
Q

Types of Trusts:

A

Living and Decedent’s Trusts
Revocable Trust- can be changed if grantor is alive
Irrevocable Trust- Cant be modified

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20
Q

Accounts set up for minors can be established under either the Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UT’MA). These accounts require an adult to act as___ for a minor (the beneficial owner).

A

custodian

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21
Q

Rules of a Custodial Account:

A

An account may have only one custodian and one minor or beneficial owner.
* Only an individual can be a custodian for a minor’s account.
A minor can be the beneficiary of more than one account, and a person may serve as custodian for more than one account, as long as each account benefits only one minor.
The donor of securities can act as custodian or can appoint someone else to do so.
Unless they are acting as custodians, parents have no legal control over acustodial account or the securities in it.

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22
Q

The custodian has full control over the minor’s account and can:

A
  • buy or sell securities;
    exercise rights or warrants; or
  • liquidate, trade, or hold securities.
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23
Q

UTMA accounts allow for real estate to be titled in custodial name; ___ accounts do not.
_____ accounts may be held in custodial name until the beneficiary turns 25 (21 in some states); UGMA accounts are available to the minor at age of majority for the state.
As of this writing, only one state still offers ____ accounts, while all the others allow UTMA accounts.

A

UGMA
UTMA
UGMA

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24
Q

_________-also called Education IRAs- allow after-tax contributions of up to $2,000 per student per year for children until age 18. Contribution limits may be reduced or eliminated for higher-income taxpayers. Growth and income within the portfolio are deferred. There is no tax deduction for these contributions.

A

Coverdell Education Savings Accounts (Coverdell ESAs)

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25
Q

A _____ is any person legally appointed and authorized to represent another person, act
on her behalf, and make whatever decisions are necessary to the prudent management of her account.

A

fiduciary

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26
Q

____ have a built in tax break

A

Qualified accounts

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27
Q

Types of Qualified accounts:

A

Individual Retirement Accounts (IRAs)
Traditional IRAs
Defined Benefit Plans (Traditional Pension Plans)
Defined Contribution Plans

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28
Q

Individual Retirement Accounts (IRAs) Contributions and withdrawals:

A

from earned income up to a maximum
spousal option
tax deferred growth
contributions are tax deductions

10% penalty before 59 and. half years old
required minimum distributions at 72 years old
ordinary income at withdrawl

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29
Q

Roth IRAs Contributions and withdrawals:

A

from earned income up to a maximum
spousal option
tax deferred growth
contributions are NOT deductable

10% penalty before 59 and. half years old
no taxes at withdrawal
no required minimums

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30
Q

Employer Sponsored Retirement Plans

A

Defined Benefit Plans (Traditional Pension Plans)- benefit is defined upfront by the employer
Defined Contribution Plans- ex: 401k, 403 (b)

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31
Q

Types of Brokerage Accounts

A

Cash and Margin

32
Q

A _____ account is the basic type of investment account. Anyone eligible to open an investment account can open a cash account. In a cash account, a customer pays in full for
any securities purchased. Payment is expected by the end of theday on the settlement date.

A

cash

33
Q

Trading on ____ is a common practice in the securities industry. It allows customers to increase their trading capital by borrowing either cash or securities through their BDs.

A

margin

34
Q

There are two types of margin accounts:

A

long and short.

34
Q

In a ___ margin account, customers purchase securities and pay interest on the money borrowed until the loan is repaid. I

A

long

35
Q

In a ____ margin account, stock is borrowed and then sold short, enabling the customer to profit if its value declines.

A

short

36
Q

Margin accounts offer some advantages for customers. Consider that, in a margin account, a customer can:

A

purchase more securities with a lower initial cash outlay and
leverage the investment by borrowing a portion of the purchase price.

37
Q

______ is the pledging of customer securities as collateral for margin loans. This agreement must be signed by a customer who wants to open a margin account. This agreement is generally contained within the margin agreement, so customers are giving permission for this process to occur when they sign the margin agreement.

A

Hypothecation

38
Q

After a customer pledges securities to the BD by signing the margin agreement, the BD _____ the securities as collateral for a loan from a bank.

A

rehypothecates (repledges)

39
Q

Accounts That May Have a Margin Feature:

A

individual and joint accounts
Corporate and partnership accounts
Trust and other fiduciary accounts

40
Q

There are three forms associated with adding margin borrowing to an account:

A

an account application, a credit agreement, a hypothecation agreement, and a consent to loan agreement (but not regulatory).

41
Q

the _____ agreement allows the securities in the account to be pledged for the loan and gives permission to the BD to repledge customer margin securities as collateral.

A

hypothecation

42
Q

The _____ agreement discloses the terms of the credit extended by the BD, including the method of interest computation and situations under which interest rates may change.

A

credit

43
Q

The _____ form gives permission to the firm to loan the customer’s margin securities to other customers or BDs, usually to facilitate short saleswhere securities need to be borrowed.

A

loan consent

44
Q

before opening a margin account, BDs must provide customers with a ______.

A

risk disclosure document

45
Q

The following may be purchased on margin and used as collateral:

A

Exchange-listed stocks and bonds
Nasdaq stocks
Over-the-counter (OTC) issues approved by the Federal Reserve Board (FRB) for margin Warrants

46
Q

The following cannot be purchased on margin and cannot be used as collateral for a margin
oan:

A

Options (both calls and puts)
Rights
Non-National Market System (non-NMS) securities and OTC issues not approved by the
FRB
Insurance contracts

47
Q

_____ is the amount of equity that must be deposited to buy securities ni a margin account.
____ refers to securities that can be used as collateral in a margin account.

A

Margin
Marginable

48
Q

_______ states that a deposit of 50% of the market value of the purchase is required. _____ has an initial requirement of $2,000 or 100%, whichever is less.

A

Regulation T
FINRA

49
Q

The customer is required to deposit the _____ of the Regulation T requirement or the FINRA minimum.

A

greater

50
Q

Most customer accounts are ______ based, meaning that a ______ is charged for each transaction.

A

commission

51
Q

In a ______account, the customer pays a set fee, either monthly or quarterly, for all trading in the account. Best suitable for active traders who trade frequently

A

fee-based

52
Q

If a representative or communication from aBD recommends the purchase ofa specific security to a customer, the trade is ______.

A

solicited

53
Q

Solicited trades must:

A

be marked as solicited on the trade ticket (order form). Marking a solicited trade as unsolicited is a regulatory violation.

54
Q

If a client places a trade that has not been suggested by the BD or a representative, it will
be considered ______.

A

unsolicited

55
Q

A customer may grant trading authority to an R to place trades in their account without preauthorization from the customer. This is a ____ trade.

A

discretionary

56
Q

What constitutes a discretionary trade?

A

An action (buy or sell)
The amount of the trade (shares or dollars)
The specific asset to be traded (what you are buying or selling)

If the representative chooses one or more of the three “A” elements without the client’s specific agreement, it is a discretionary trade.

57
Q

Exercising discretion requires:

A

specific authorization to place such trades. Discretionary authority is a type of POA granted by the customer to the RR. These trades must be marked as discretionary; failure to do so is a serious violation.

58
Q

Allowing the representative to choose the time or the price at which a trade is executed is ____

A

not considered discretion. This is called time and price authority.

59
Q

In order for a discretionary trade to be properly entered:

A

the client must agree, in writing, to grant a representative discretionary trading authority and
a principal of the firm must, in writing, approve the discretionary trading authority. Discretionary trades must be approved by a principal promptly after entry.

59
Q

_____ accounts are accounts for which firms provide a group of servicess such as asset allocation, portfolio management, executions, and administration–for a single fee.

A

Wrap

60
Q

Wrap accounts are generally _______. This means that the BD must meet the fiduciary requirements under the Investment Advisers Act of 1940 and must register as an
investment adviser under state or federal law.

A

investment advisory accounts

61
Q

Adding discretion to an account requires written approval from:

A

the customer and the principal

62
Q

To meet a Regulation T margin call, a customer would have how long?

A

Settlement plus two additional business days

63
Q

Under Regulation T, payment must be made ____ business days after the settlement date

A

two

64
Q

Rules of a Margin Call agreement

A

customers can lose more money than initially deposited.
customers are not entitled to an extension of time to meet a margin call.
firms can increase their in-house margin requirements without advance notice.

65
Q

When meeting a Regulation T margin call with CASH, ___% of the call must be deposited. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made This is because securities are only marginable to __% of their value.

A

100%
50%

66
Q

In a defined contribution plan

A

the benefit amount is variable.
the contribution amount is fixed.

67
Q

Minimum maintenance requirements in a long margin account is

A

25%

68
Q

Margin calls can be met with deposits of

A

cash or fully paid for marginable securities.

69
Q

Borrowing money to buy securities can only be done in a ______ account.

A

margin

70
Q

Investors who choose to sell short eligible securities must satisfy Federal Reserve Board (FRB) margin requirements to do so. The margin requirement is a deposit of _____ of the sale proceeds in the customer’s margin account.

A

50%

71
Q

Corporate accounts may trade on margin if

A

only if it is not listed as being restricted from doing so in the corporate charter.

72
Q

No borrowing can take place in a margin account without at least _____ in equity. It is only necessary to pay in full when the purchase is less than $2,000

A

$2,000

73
Q

The new account form must be signed by those partners ____, not by all the partners.

A

authorized to trade

74
Q

What are the following are benefits of Coverdell Education Saving Accounts:

A

they are available for use for K–12.
they can be transferred to a sibling if not used by the original beneficiary.
withdrawals are tax free if used for qualified education expenses.

75
Q

Individual retirement accounts allow a catch-up contribution of $1,000 to be made into the account for those who are

A

50 years old or over.

SIE Exam (13 decks)

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