Finra Series 6 Unit 1, Chapters 1-4

Front 1

Registered Representative

Back 1

Brokers/salespeople, traders and investment bankers are referred to as this. Limited representatives and not permitted to sell individual stocks and bonds.

Front 2

Principals

Back 2

They are Series 24 or 26 licensed; Branch managers and supervisors are referred to as this.

Front 3

Qualification to be a Registered Representative

Back 3

Any felony or securities or money related misdemeanor conviction within the last ten years will disqualify you from becoming this. Please note you must be convicted, not simply indicted or accused of a crime.

Front 4

Series 6 or 7

Back 4

To sell insurance, annuities and other variable products you need to have this.

Front 5

Series 6 Products Permitted to Sell

Back 5

Mutual Funds (open-ended), Unit investment Trusts, Exchange Traded Funds (New Issues), Face Amount Certificate Companies, Closed-end Funds (New Issues), Variable Insurance Products (w/appropriate insurance license).

Front 6

Series 6 Not Permitted to Sell

Back 6

Individual Stocks and Bonds, Options, Warrants and Rights, Closed-end Funds (Secondary Market), Unit investment funds in the secondary market.

Front 7

Series 63 license

Back 7

Also called "Blue Sky" Registration

Front 8

Regulatory Element Training - Recerification

Back 8

RRs (Registered Representatives) are required to do this on the second anniversary of their initial securities registration and every three years thereafter (2nd, 5th, 8th, 11th anniversary, etc).

Front 9

Form U5

Back 9

Employers are required to file this when RRs leave the company or firm.

Front 10

Two year Grace Period

Back 10

The amount of time for a Registered Representative to rejoin the industry before the series 6 license expires.

Front 11

Chapter 2 - Know Your Customer Rule

Back 11

RRs need to obtain as much background information prior to making a recommendation, also known as this.

Front 12

Discretionary Income

Back 12

Total Income - expenses equals this.

Front 13

Net Worth

Back 13

Assets (owns) - Liabilities (owes) equals this.

Front 14

Marginal Rate

Back 14

This is the amount paid on the last dollar earned. A person in the 28% bracket would pay $28 dollars of tax on his $100 of income. ($100 x .28 = $28)

Front 15

Bond buyers

Back 15

These are like banks. They lend money and demand interest

Front 16

Stock buyers

Back 16

These are business owners. They invest money and hope for profits and price appreciation.

Front 17

Capital Risk

Back 17

This term applies to your principal (the original amount of the investment).

Front 18

Market Risk (systematic risk)

Back 18

This is the possibility that the value of the investment will fall due to a decline in the market as a whole.

Front 19

Diversification

Back 19

This is the concept of investing in several different securities.

Front 20

Non-Systematic Risk

Back 20

This represents the risk associated with a security that is not related to the return of the overall market.

Front 21

Selection Risk

Back 21

This is the type of risk regards purchasing stocks that do poorly.

Front 22

Liquidity Risk

Back 22

This is the risk that you may need to sell your investment at an inopportune time.

Front 23

Beta

Back 23

This is used to measure volatility (how much stocks go up and down in price) as compared to the market as a whole.

Less than 1, Equal to, and More than 1.

Front 24

Credit (Default Risk)

Back 24

This is the possibility that an issuer will be unable to pay back the interest and/or principal due to its creditors.

Front 25

Interest-Rate Risk

Back 25

This is the term used for fluctuations in a bond's price due to changes in the general level of interest rates.

Front 26

U.S. Treasuries (U.S. Government Bonds)

Back 26

These are free of credit risk. This does not mean these are totally risk free. You could still lose money due to interest-rate risk if you need to sell the bond prior to maturity.

Front 27

Call Risk

Back 27

This risk is the possibility that the issuer of a bond will pay you back before the stated maturity.

Front 28

Reinvestment Risk

Back 28

This risk is the possibility that a bondholder will not reinvest their interest payments at an attractive rate.

Front 29

Inflation (Purchasing-Power) Risk

Back 29

This means your money will likely buy less in the future than it does now. Bond investments also do not protect against this.Equity holdings may preserve your customer's purchasing power.

Front 30

Currency (Exchange) Risk

Back 30

This risk is encountered by investors in foreign securities and occurs as the value of foreign currencies fluctuate against the U.S. dollar.

Front 31

Legislative Risk

Back 31

This risk deals with a change in the law that can have a major impact on a company's business prospects.

Front 32

Social or Political Risk

Back 32

This type of risk exists when a change in government or social unrest in a country will negatively affect your investment.

Front 33

Growth

Back 33

These investors do not need current income. They are more concerned with the future as opposed to the present. These investors are seeking to increase the size of their portfolio over the long term.

Front 34

Speculation

Back 34

Investors seeking very large returns willing to take on very big risks are these.

Front 35

Suitability

Back 35

This, not profitability, is the major regulatory concern when making recommendations.

Front 36

Middle Road - Growth & Speculation

Back 36

Many investors do not fit neatly into one category or another. It is up to the investor to tailor investment advice to the customer's for their unique needs and circumstances.

Front 37

Prospecting

Back 37

Is a term used by RRs who are searching for new customers.

Front 38

Telephone Consumer Protection Act of 1991(TCPA) Stipulations

Back 38

The following stipulations should be followed: 1) All calls must be done between 8a - 9p ( customer time). 2) RRs must state their name, name of the firm, purpose of the call, and provide a return number or address where they can be reached. 3) RRs cannot harrass, annoy, or abuse a prospect. 4) Prospects not wishing to be contacted must be placed on a "do-not-call" list.

Front 39

Exceptions of TCPA of 1991

Back 39

Existing customers and help/information "call in" lines are exempt from the time constraints imposed by this.

Front 40

Product Recommendation

Back 40

Remember to "know your customer" prior to making a recommendation.

Front 41

Investment Disclosures

Back 41

1) Investments are NOT FDIC insured

2)Investments are subject to investment risk and may lose value

3) Investments are not bank deposits and are not guaranteed by the bank.

Front 42

Opening Accounts-Minimum Requirements

Back 42

Regulators will allow accounts to be opened with minimal amount of information, such as: 1) Name; 2)Residential Address (PO Box not sufficient); 3)Date of Birth; 4)Social Security Number (Non-U.S. persons may supply Tax ID#, Passport#, alien ID card or similar number); 5)Signature of Principal.

Exceptions: Customers are not required to sign a new account form.

Front 43

Other Information Requirements

Back 43

Most of the information needed to "know your customer" (income, assets, tax situation, objectives, risk tolerance, etc.) need not be obtained prior to opening an account.

Info that you must try to obtain: Customer occupation and employer, Any additional background info to comply with your customer rule, If the customer is associated with a FINRA member firm, and Citizenship.

Front 44

Recordkeeping

Back 44

A record of all of the identification info (e.g., ID number) obtained from a customer must be kept for 5 years after account is closed. Records regarding info that verifies a customer's identity must be retained only for 5 years after the record is made.

Front 45

Notice to Customers

Back 45

A broker-dealer must provide notice to customers that it is requesting information to verify their identities.

Front 46

Opt-Out Provisions

Back 46

Consumers must be given the ability to do this from the firm's policies on disclosing non-public financial information to non-affiliated third parties.

Front 47

Individual Account

Back 47

These are owned and controlled by one person. Unless the customer provides written permission to the contrary, the owner is the only person allowed to authorize transactions in the account.

Front 48

Transfer on Death Account

Back 48

Is an individual account with a named beneficiary or beneficiaries. The purpose of a this account is to facilitate the transfer of assets to beneficiaries upon death of the account holder.

Front 49

Joint Accounts

Back 49

These are opened by two or more individuals. There are two types of joint accounts: Joint Tenants With Rights of Survivorship, and Joint Tenants in Common.

Front 50

Joint Tenants with Rights of Survivorship (JTWROS)

Back 50

Upon one of the joint owner's death the survivor gets everything.

Front 51

Tenants in Common (TIC/JTIC)

Back 51

Upon one of the joint owner's death, the survivor keeps their half of the account and the other named beneficiary will receive the assets.

Front 52

Tax reporting for Joint Accounts

Back 52

All taxable events occurring in a join account are reported under one social security number.

Front 53

Joint Account Ownership

Back 53

If one of the joint owners wishes to make changes to the account, we must follow the request. If one of the joint owners requests to cut a check in their name, you must deny the request as written permission was not received from other joint owner.

Front 54

Accounts for Children

Back 54

As minors, children are not able to enter into legally binding contracts and would be able to disavow (effectively cancel) any losing trades in brokerage accounts they control. By appointing an adult as custodian the adult is charged with making investment decisions and to protect the interests of the child. The adult custodian serves as the minor's legal representative until the child becomes of legal age.

Front 55

UGMA/UTMA

Back 55

Custodial accounts are usually set up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). These acts are designed to protect the interests of the children.

Front 56

Custodial Account Registration

Back 56

Custodial Accounts are registered as follows: Parent's name (adult) custodian for child's name (child/minor) under the Uniform Gifts to Minors Act of the State of (your State).

Front 57

Custodian

Back 57

There is no requrement that a custodian be a blood relative of the child. In some unfortunate family situations, (think child movie stars and athletes) the court may even appoint a custodian to protect a child from unscrupulous parents.

Front 58

Uniform Prudent Investors Act (UPIA)

Back 58

This Act establishes standards for fiduciaries. As fiduciaries, custodians are required to protect the interests of the child. Under this Act, the portfolio must be invested in a prudent and diversified manner.

Front 59

Funds in Children Accounts

Back 59

Any person can contribute an unlimited amount of money into an UGMA/UTMA account for a child. Any assets in an UGMA/UTMA are the property of the child and any gifts given to the child are irrevocable. UGMA/UTMA accounts are not joint accounts. All property belongs to the child.

Front 60

Age of Majority

Back 60

When the child reaches legal adulthood, the custodial account is closed.

Front 61

UGMA/UTMA Accounts Overview

Back 61

Details to remember: 1) Payment of taxes is the responsibility of the child; 2) Earnings subject to "Kiddie Tax"; 3) Gifts irrevocable; 4) Control is transferred at the age of majority.

Front 62

Corporate Accounts

Back 62

These are considered to be persons in the eyes of the law and are able to open brokerage accounts. When opening an account you are required to obtain a copy of the corporate resolution. The corporation must designate the individuals who are allowed to enter orders in the account and act on behalf of the company.

Front 63

Trade on Margin

Back 63

In certain cases, where the company wants to borrow money from their broker, or engage in certain risky trading strategies, referred to as options contracts, a copy of the corporate charter is also required.

Front 64

Partnership Accounts

Back 64

Is a business structure where individuals work together and split the profits or losses of their labors. These accounts are similar to a very large joint account. As with a corporate account, only certain individuals are designated to trade for the partnership.

Front 65

Power of Attorney (POA)

Back 65

The customer must provide the RR with written permission or power of attorney (POA) authorizing a third party to perform certain functions. There are two basic types: limited POA-allowing someone to enter buy or sell orders into the account and full POA-allowing the designated individual to enter orders into the account but also to deposit/remove cash.

Front 66

Limited Power of Attorney (POA)

Back 66

An authorized third party can buy and sell securities. Frequently a customer will give a broker trading authority in an account via limited POA- this is referred to as giving the broker discretion.

Front 67

Full Power of Attorney (POA)

Back 67

An authorized third party can buy/sell securities, remove money from the account, and remove securities for the account.

Front 68

Time/Price Exception (Price Discretion)

Back 68

Letting a RR select the time and price is often referred to as giving them price discretion. RRs are able to exercise time/price discretion granted verbally for that trading day only; in order to stay in force beyond one day, instructions must be in writing.

Front 69

Discretionary Control

Back 69

This type of control over an account must be given to an RR in writing and approved by his manager. With one small rxception, clients may not verbally authorize a broker to have discretion. There is an exception.

Front 70

Discretion Don'ts

Back 70

This does not give the broker permission to trade as often as he/she wishes, or to buy and sell whatever security he/she wants. RRs exercising this are still bound by objectives of the account. Suitability and tax considerations continue to apply.

Front 71

Discretionary Accounts

Back 71

These are subject to all suitability provisions.

Front 72

Unsolicited Trades

Back 72

All trades that are executed based on a customer request should be marked as this.

Front 73

Wrap Accounts

Back 73

These are not a product of a broker-dealer, they are the product of an investment advisor firm. A broker-dealer may not offer investment advisory services. However, it can apply with the SEC, separately from its broker dealer status, to become an investment advisor. In order to sell this, you need to obtain a Series 65 or 66 license.

Front 74

Wrap Account Taxation

Back 74

Trades in this account may be subject to capital gain taxation; dividend distributions are taxed as ordinary income.

Front 75

"Blue Sky" Registration

Back 75

This refers to state registration. The firm, the RR, and the security being sold may all have to be registered in a given state.

Front 76

Financial Changes

Back 76

RRs should amend/update account paperwork for any customer who has experienced a major financial change.

Front 77

Negotiable instruments

Back 77

A BD or RR cannot submit for payment a check or similar instrument drawn on a customer's account without that person's written authorization; authorization is typically indicated simply by the customer's signature on the negotiable instrument itself.