Chapter 7 - Customer Accounts

Question 1

Opening a customer account

Answer 1

A P.O. box is not allowed.

We collect employer information because we need to know if they are associated with a bank or a broker-dealer. That may preclude them from purchasing certain investments.

Customer profile information must be sent within 30 days and be signed and returned by the customer within 30 days. If not returned, it is deemed approved.

No customer signature is required to open a cash account.

Customer information must be verified every 36 months.

Question 2

Customer Agreement

Answer 2

Firms have clients sign a customer agreement to enter into a pre-dispute agreement.

Question 3

Holding Customer Securities

Answer 3

DVP/RVP: 35 days to settle the transaction.

Question 4

5 Types of Accounts

Answer 4

1. Individual
2. Joint
3. Corporate
4. Trusts
5. Partnership

Question 5

Accepting new accounts

Answer 5

All new accounts must be accepted and signed by a principal of the firm.

Question 6

Transfer and ship

Answer 6

Securities that are to be transferred and shipped will be registered in the customer’s name and the certificates will be sent to the customer’s address of record.

Question 7

Transfer and hold in safe-keeping

Answer 7

Customers may now elect to hold security is registered in their names electronically in book-entry form through the direct registration system (DRS).

Question 8

Hold in street name

Answer 8

Securities that are held in street name or registered in the name of the brokerage firm as the nominal owner of the securities and the customer is the beneficial owner.

Question 9

Individual account

Answer 9

An individual account is an account that is owned by one person. That person receives all of the distributions from the account.

Question 10

Joint Account

Answer 10

A joint account is an account that is owned by two or more adults. All parties must endorse all securities, and all parties must be alive. Checks drawn from the account must be made out in the name of all of the parties.

Question 11

Joint tenants with rights of survivorship (JTWROS)

Answer 11

All assets are transferred into the name of the surviving party in the event of one tenant’s death.

Question 12

Joint tenants in common (JTIC)

Answer 12

The assets of the tenant who has died become the property of the decedent’s estate. They do not become the property of the surviving tenant. Assets may be owned and divided unequally.

Question 13

Testamentary trusts

Answer 13

Trusts established under the terms of a Will or known as testamentary trusts.

Question 14

Operating a discretionary account

Answer 14

Must have the 3 A’s:

1. Asset to be purchased or sold
2. Amount of the securities to be purchased or sold
3. Action to be taken: buy/sell

The principle of the firm is except the account and review it more frequently to ensure against abuses. The customer is required to sign a limited power of attorney that awards discretion to the registered representative good up to three years.

Question 15

Uniform Gift to Minors Act (UGMA)

Answer 15

All UGMA accounts must have:

• One custodian
• One minor
• UGMA in the account title
• State in the account title

Question 16

Uniform Transfer to Minors Act (UTMA)

Answer 16

In a UTMA, the custodian may determine when the assets become the property of the child. The maximum age is 25 years old.

Question 17

FINRA rule 3210

Answer 17

Regulates the opening of brokerage accounts by employees of broker-dealers. This rule requires an employee of a broker-dealer who wishes to open an account at another broker-dealer to obtain the employer’s written permission prior to opening the account.

Question 18

Prime brokerage account

Answer 18

The client must have at least $500,000 in equity. If the account is managed by a registered investment advisor, the minimum account equity is $100,000.

Question 19

Opening Margin accounts

Answer 19

The investor is required to deposit a portion of the securities’ purchase price and may borrow the rest from the broker-dealer. Regulation T of the securities exchange act of 1934 gives authority to regulate the extension of credit for securities purchases.

The customer will be asked to sign the following:

• Credit agreement
• Hypothecation agreement
• Loan consent

Question 20

Regulation S-P

Answer 20

Requires that the firm maintain adequate procedures to protect the financial information of its customers. Firms must guard against unauthorized access to customer financial information and must employ policies to ensure its safety.

Regulation S-P also states that a firm may not disclose non-public personal information to non-affiliated companies for clients who have opted out of the list. (not applicable to sharing with an affiliated company)