Chapter 1 Flashcards
(18 cards)
What must a registered representative (RR) collect before initiating trades with a prospective customer?
Detailed information about the customer
This is to comply with federal laws and self-regulatory organization (SRO) rules.
What is the primary purpose of a self-regulatory organization (SRO)?
To maintain fair and orderly securities markets and establish rules for protecting investors.
Which SRO oversees the over-the-counter (OTC) market?
The Financial Industry Regulatory Authority (FINRA).
What is the purpose of developing a customer profile?
To make suitable recommendations based on the customer’s needs, financial circumstances, and investment objectives.
How often should a customer profile be updated?
Regularly, due to any changes in a customer’s circumstances and needs.
What must an RR consider when making investment recommendations?
The type, size, and frequency of the recommendations.
What important information must an RR determine about a prospect before establishing a relationship?
The current state of the prospect’s finances.
True or False: An RR can make assumptions about a customer’s finances if they refuse to provide certain information.
False.
What is Regulation Best Interest (Reg BI)?
A package of rulemakings adopted by the SEC to enhance the quality and transparency of retail customers’ relationships with broker-dealers and investment advisers.
What does Reg BI require from recommendations made to retail customers?
They must be in the customer’s best interest and not place the interests of the firm ahead of the customer.
Who qualifies as a retail customer under Reg BI?
A natural person or their non-professional legal representative who receives a recommendation for a securities transaction primarily for personal, family, or household purposes.
What is the Client Relationship Summary (Form CRS)?
A disclosure document that broker-dealers must provide to retail customers, summarizing the nature of their relationship in an easy-to-understand format.
When must new retail investors receive Form CRS?
By the time they open a brokerage account, place an order, or receive a new recommendation.
What are the four specific obligations brokerage firms must fulfill under Reg BI?
- Disclosure
- Care
- Conflicts of interest
- Compliance
What is the difference between a ‘retail customer’ under Reg BI and an ‘institutional customer’ under FINRA?
Reg BI does not establish a dollar limit for retail customers, while FINRA defines an institutional customer as a natural person with total assets of at least $50 million.
What is prohibited under Regulation BI regarding sales contests?
All sales contests, quotas, bonuses, and non-cash compensation tied to specific securities sales within a limited period.
Fill in the blank: The SEC has stated that using the term _______ in a title is a violation of the disclosure obligation unless the broker-dealer is dually registered.
adviser or advisor
What is the purpose of the training and education meetings allowed under Reg BI?
To improve knowledge, provided attendance is not based on selling certain products within a limited period.
