Opening Customer Accounts

Question 1

Five requirements for a new customer account

Answer 1

Name
Residence (not PO box)
Legal age y/n
Name of RR
Signature of partner or principal

Question 2

Before settlement date of first transaction, RR must make reasonable effort to obtain…

Answer 2

Taxpayer ID number
Occupation and employer name and address
Whether customer associated with another member
(Except for institutional accounts or where only transactions are non recommended investment co shares (ie. Mutual funds)

Question 3

Institutional account is

Answer 3

Bank
Savings and loan
Insurance company
Registered investment company
Registered investment advisor
Person with total assets >$50m

Question 4

Record keeping requirement

Answer 4

6 years from last update or date account closed

Question 5

Additional non-enforceable SEC record info

Answer 5

Annual income
Net worth excluding principal residence
Investment objectives

Question 6

Can a principal refuse to open an account if there’s insufficient information to assess suitability?

Answer 6

Yes

Question 7

Is educational background required information?

Answer 7

No

Question 8

Is suitability or profitability the determinant of fair dealing?

Answer 8

Suitability
(Based on information disclosed)

Customer agreement to a recommendation does not make it automatically suitable

Question 9

What are the three main suitability obligations?

Answer 9

Reasonable basis (recommendation suitable for at least some customers)

Customer specific

Quantitative obligation (series of recommended transactions not excessive)

Question 10

Of the three suitability obligations - which does not apply to institutional customers?

Answer 10

Customer specific - provided there’s a reasonable basis for assuming institution is capable of evaluating and it has affirmatively stated it is exercising independent judgement.

Question 11

What are blue sky laws in relation to customer accounts?

Answer 11

If a customer moves to a new state, firm must be registered there

Question 12

What’s difference between tenants in common and joint tenants with rights of survivorship?

Answer 12

On death of a tenant, open orders are cancelled and deceased’s assets frozen until executor intervenes. Each share goes to individual estates.

JTWROS sees entire account go to survivor.

Question 13

What different documents are needed for a margin account than for a cash account?

Answer 13

Written margin agreement so bank can pledge securities as collateral

Question 14

What documents does a discretionary account require?

Answer 14

Written power of attorney

Question 15

If an instruction is to buy/sell a specific amount of security, with price and time left open, is it discretionary?

Answer 15

No - but must be executed that day

Question 16

Key aspects of a custodian (for a minor)’s fiduciary duty?

Answer 16

Act as “prudent man”
No speculative investments
No trading on margin

(Note no liability for losses if all of these are followed)

Question 17

An account for “James Doe TOD John Doe” means…

Answer 17

Transfer on death, avoiding probate, but still subject to estate taxes

Question 18

When a receiving firm initiates a customer account transfer, what happens?

Answer 18

Sends request to carrying firm
Carrying firm cancels open orders, closes to new orders
Within three days of validation, complete the transfer

Question 19

What are firm obligations on opening an account for an RR of another member firm? (List three)

Answer 19

1. Notify other firm
2. Send duplicate confirmations and statements if requested
3. Notify the RR that it will do this

(Once approved to open an account, executing firm does not need prior approval for any orders)

Question 20

What are RR requirements when opening an account with a firm other than his employer?

Answer 20

Where account is with a FINRA member, notify employer and executing firm.

Question 21

What is FinCen Form 104?

Answer 21

Currency Transaction Report or CTR for any transaction over $10k or cumulative total of $10k in any one day

Question 22

What is the trigger for a CMIR?

Answer 22

Transporting more than $10k in or out of the US

Question 23

What’s the trigger for a SAR?

Answer 23

Transaction or group of transactions of $5k or more where there is suspicion of violating federal laws, illegal activity, structuring to evade reporting, or transaction has no apparent or legitimate business purpose

Question 24

What are four features of a mandatory AML Compliance Program?

Answer 24

Written policies
Designated compliance officer
Ongoing training
Independent audit

All should be approved by a member of senior management

Question 25

What is required under a CIP?

Answer 25

``` Customer Identification Program: Name Date of birth Address ID number (tax ID, passport for non US citizen, alien ID card number...) ``` Retain for five years post closing account / check against Treasury OFAC lists

Question 26

What is needed at opening of a COD account?

Answer 26

Special delivery instructions to the bank and assurance that bank will be given notice and instructions for each transaction (Securities must be delivered promptly - no later than 35 days post trade)

Question 27

What's the minimum frequency for statements?

Answer 27

Quarterly BD may hold for up to two months when travelling domestically, and three months travelling abroad Longer if valid reason provided

Question 28

What happens to a PoA on death?

Answer 28

Cancelled

Question 29

Is a spousal IRA a joint account?

Answer 29

No

Question 30

If a BD is underwriting an issue, can it purchase that issue in a discretionary client account?

Answer 30

Yes, if suitable, but must notify customer in writing prior to completing the transaction

Question 31

When must privacy notices be sent?

Answer 31

When an account opened and annually thereafter.

Question 32

What's the status of gifts to a UGMA or UTMA account?

Answer 32

Irrevocable. Become property of the minor. | Custodian cannot receive management fee if they made the gift into the account.

Question 33

What's required for opening a corporate account?

Answer 33

- corporate charter - corporate resolution - new account form

Question 34

Can covered call writing be executed in a minor's account?

Answer 34

Yes. Along with purchasing new issues. No margin account activity or long or short futures positions.

Question 35

What happens to UTMA account at age of majority?

Answer 35

Account transfers to individual's name. Securities transferred into their name. Cannot continue as custodial account (third party trading authorisation could be granted)

Question 36

Can RR share in profits and losses?

Answer 36

Yes, with permission, and in direct proportion to contribution (exemption from proportion requirement if the account is with family member)

Question 37

What's an affidavit of domicile used for?

Answer 37

Transfer securities owned by a dead person

Question 38

Can a UTMA custodian sign a power of attorney granting an RR authorisation on an account?

Answer 38

No

Question 39

How often must customers be notified of their free credit balance?

Answer 39

At least quarterly. Notice must state funds are not segregated.