Series 7 Customer Accounts: Accpunt Basics

Front 1

Basic Information required on New Account Form

Back 1

Name* & Address*
Cash or Margin Account
DOB*
SS*
Occupation & Employer

Front 2

Other Required Information past Basic

Back 2

Citizenship
Officer, Director, or 10% Shareholder (must be disclosed)

Front 3

CIP

Back 3

Customer Identification Program - Required verification - Put in place so that terrorists could not open bank or brokerage accounts in US

Front 4

SIPC

Back 4

Securities Investor Protection Corporation - notified in writing at time of account opening - protection against broker dealer failure

Front 5

Is it required that a customer sign an arbitration agreement?

Back 5

No - However, most firms require it. If signed, customer must be provided with a copy within 30 days of signing.

Front 6

FINRA Rule 2090

Back 6

"Know your customer"

Front 7

Essential Facts for FINRA Rule 2090

Back 7

1 - Effectively service the customer's account
2 - Act in accordance with and special handling instruction
3 - Understand authority of each person acting on behalf of the customer
4 - Comply with applicable laws, regulations and rules

Front 8

SEC New Customer Information

Back 8

- Name*
- Tax ID name*
- Address*
- DOB*
- Phone Number
- Occupation
- Income
- Net Worth (excluding primary residence)
- Investment Objectives
- Signature of person responsible for account
- Signature of customer (if discretionary)

Front 9

When must the customer verify the account profile if it was opened over the phone

Back 9

Within 30 days

Front 10

How often must the account profile be sent for review?

Back 10

Every 36 months

Front 11

FINRA Rule 2111 - Must have a reasonable basis to believe that a recommneded transaction or investment strategy is ____________ for the customer, based on the information obtained to ascertain the customer's investment profile

Back 11

FINRA Rule 2111 --- Suitable

Front 12

FINRA Investment Profile Information

Back 12

- Investment Objectives
- Investment Experience
- Customer Age
- Other Investments
- Financial Situation and Needs
- Tax Status
- Investment Time Horizon
- Liquidity Needs
- Risk Tolerance
- Any other information disclosed by customer

Front 13

What are the 3 main components of to determining suitability?

Back 13

1 - Reasonable Basis Suitability
2 - Customer Specific Suitability
3 - Quantitative Suitability

Front 14

Reasonable Basis Suitability

Back 14

"Big Picture"
"Makes sense for the "right" investor"
In practice - prepare recommended list of products and strategies
- Fully under obligation to understand features, returns, risks, and costs associated with any product

Front 15

Customer Specific Suitability

Back 15

Must have a reasonable basis to recommend transaction ro strategy based off of "investment profile"

Front 16

Quantitative Suitability

Back 16

cannot "churn" an account with excessive trading with main intent of gaining more commissions

Front 17

Suitability Rules Do Not Apply To:

Back 17

1. Institutional Customers
2. Unsolicited trades
3. Investment Analysis Tools

Front 18

Structured Products have _________ suitability and ___________ suitability determinations

Back 18

Reasonable basis and Customer specific

Front 19

Define Day Trader

Back 19

4 or more day trades in 5 business days or less

Front 20

Day Trading Disclosure

Back 20

- Risk
- Awareness of exaggeratted potential profits
- Knowledge of markets and firm operations
- Generation of substantial commissions to firm promoting
- Margin losses
- Person who day trades for other must be an RIA or Broker-dealer

Front 21

Day Trading Suitability

Back 21

- Investment Objectives
- Investment Trading Experience & Knowledge
- Financial profile
- Tax status
- Age, marital status, and number of dependants

Front 22

If the member firm knows that one of its accounts that is not qualified to day trade is in fact day trading, it must approve account for day trading when?

Back 22

As soon as possible, but no later than 10 days following date that member knew account was engaging in day trading

Front 23

Non-Managed Fee Based Accounts (NMFBA)

Back 23

FINRA wrote this because it found that some member firms were placing customers into a fee based account when it would have been more appropriate (cheaper) for those to be paying a commission charge on each trade

Front 24

How often should a member firm monitor account activity for appropriateness of account

Back 24

every 12 months at least

Front 25

Red Flags - Unsuitable Recommendations for Senior Citizens

Back 25

- Variable Annuities, Equity Index Annuities, Real Estate LLC
- Variable Life Settlements
- Complex structured products (CMOs)
- Mortgage Residence to obtain investment funds
- Usage of retirement savings to invest in high risk investments

Front 26

To Open an Options Account customer is asked what specific questions?

Back 26

- Investment Objective
- Investment Experience
- Financial Situation
- Financial Needs
- Marital Status
- Net Worth
- Liquid Net Worth
- Annual Income

Front 27

If all items are not answered on Options account form, who decides if account can be opened?

Back 27

Approving Manager

Front 28

When is the Options account agreement supposed to be signed and returned?

Back 28

no later than 15 days after the account is opened.

Front 29

Any changes to Financial Status require signatures of whom?

Back 29

RR --> Registered Rep
ROP --> Registered Options Principal (manager of branch office)

Front 30

Before making a Municipal recommendation, a broker dealer must:

Back 30

- have reasonable grounds for making recommendation, based upon information available from issuer
- have reasonable grounds to believe that recommendation is suitable for customer

Front 31

If a customer refuses to disclose financial status, what happens in regards to a MSRB?

Back 31

- account can be opened
- cannot recommend
- CAN make unsolicited trade

Front 32

Who can officially approve new accounts?

Back 32

- FINRA branch manager who has passed Series 9 and 10

Front 33

What does Series 24 cover

Back 33

- Broad supervisor role
- approve customer accounts
- trade stocks and muni's
- cannot approve options accounts

Front 34

Options accounts can be approved by whom?

Back 34

- ROP #4 or #9 and 10

Front 35

Muni Bond Accounts can be approved by whom?

Back 35

- Muni principal with #53, 9/10, or #24

Front 36

When must a customer sign the Margin Agreement?

Back 36

At or prior to settlement of first trade in the account

Front 37

Joint Tenancy with Rights of Survivorship

Back 37

- undivided interest in account
- Tenants of Entirety
- most common between husband and wife

Front 38

Tenancy in Common

Back 38

- each party specifies a % interest in the account
- if person dies, portion is included in estate and passed on in a will
- most common in partnerships

Front 39

TODs are used by Whom?

Back 39

Elderly Adults & Second Marriages

Front 40

Durable versus Non Durable Power of Attorney

Back 40

Durable: mentally incompetant, POA retains control

Non Durable: mentally incompetnet, power ceases

Front 41

Types of Fiduciary Accounts

Back 41

- Trust
- Guardian
- Administrator of Estate
- Conservator for Incompetent
- Executor of Estate
- Receiver in BK

Front 42

What are the 4 prinicpal items chosen for performing a trade for a customer?

Back 42

- Size of trade
- Security
- Price of Execution
- Time of Execution

Front 43

When is an account considered discretionary?

Back 43

if the broker choses more than the price and time of execution

Front 44

Rules for Custodian Accounts in UGMA

Back 44

- Any adult can open custodian account for a minor without relation
- All securites must be registered in account name (no bearer)
- No Free credit balances (cash must be put into a registered fund, ie money market)
- One custodian for one minor
- Cash account only --> no margin
- Gifts are irrevocable
- SS of minor is on account
- Custodian must act as would a "prudent man"
- At legal age, account must be transferred
- No third party trading authority

Front 45

What law supersedes UGMA?

Back 45

UTMA --> Uniform Transfers to Minors Act

Front 46

UTMA allows what kind of assets to be transferred in?

Back 46

- real estate
- fine art
- copyrights and patents
- Basically any kind of asset

Front 47

UTMA vs UGMA on account transfer age

Back 47

- UGMA --> legal age (usually 18)
- UTMA --> allows state to set (usually 21)

Front 48

What is a wrap account?

Back 48

an account where all account services , including trade executions, asset allocation and portfolio rebalancing are included under the annual management fee

Front 49

What licenses are required to manage a wrap account?

Back 49

7 & 65 or 66

Front 50

When are confirms sent to the customer after a trade?

Back 50

no later than the day after the trade

Front 51

How often must statements be sent to customer?

Back 51

Monthly if a trade took place

Quarterly if no trading activity has occurred

Front 52

How long can mail be held if customer is traveling?

Back 52

Domestic = 2 months
International = 3 months

Front 53

How are complaints recorded?

Back 53

- Must be written
- must send written acknowledgment no later than 15 days to customer

Front 54

Closing or Transferring an Account

Back 54

- Positions validated in 1 day
- Another 3 days to transfer

Front 55

What is the procedure when there is a death of a customer?

Back 55

- Cancel all open orders
- Freeze the account from removal of assets
- Note that customer is "Deceased" with the date on the account
- Await further instructions from the executor of the estate

Front 56

Once an account is closed, how long must new account forms be retained?

Back 56

3 years

Front 57

Once an account is closed, how long must customer statements be retained?

Back 57

6 years

Front 58

What does the Patriot Act require firms and financial institutions to do?

Back 58

- establish written anti-money laudering programs
- provide ongoing training to all employees in procedures to prevent money laundering; report suspicious transactions and activity

Front 59

In order to open a new account for a customer, the customer's name, dob, address and tax id must be:

Back 59

1. obtained prior to account opening
2. independantly verified within a reasonable time before or after account opening

Front 60

To open an options account, the customer must receive the Options disclosure document:

Back 60

at or prior to opening the account

Front 61

Which of the following signatures must appear on the New Account Form?

Back 61

Registered Rep and Manager or Principal

Front 62

Stock held in a custodian account is the subject of a rights offering. Which of the following actions are appropriate?

Back 62

- Selling the rights and reinvesting the proceeds
- Donating the funds required to exercise the rights
- Selling another security in the account and using the proceeds to exercise the rights

Front 63

The MSRB requires that if an employee of another municipal broker-dealer wishes to open an account at your firm:

Back 63

Duplicate copies of each confirmation must be sent to the employer

Front 64

In order to determine suitability for a day trading account, the member firm must ascertain the essential facts relative to the customer's:

Back 64

- Investment objectives
- Investment and trading experience
- Financial Situation, including tax status
- Age, marital status and number of dependents

Front 65

An individual customer places an order with a broker at 12:30 PM ET to "buy 10,000 shares of ABC stock whenever you think the time is best". This order:

Back 65

- must be entered immediately by the representative as a "market-not held" order

- must be filled by the close of the market on that trading day

Front 66

In order to recommend non-managed fee based account to a customer, under FINRA rules, the customer must be provided with a disclosure document when?

Back 66

At or prior to, account opening

Front 67

A durable power of attorney signed by a customer is:

Back 67

- Terminated upon death of customer

- remains in force upon mental incapacitation of the customer

Front 68

What is the purpose of OFAC (Office of Foreign Assets Control)?

Back 68

impose economic sanctions against hostile foreign countries and groups