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Flashcards in Reg R: RNDIP Deck (22):
1

What are the three minimum disclosure requirements that are required for retail nondeposit investment customers so that they are away of the nature and risks associated with the investment?

Investments
- are not insured by the FDIC
- are not deposits or obligations of the institution and are not guaranteed by the bank
- are subject to investment risk, including loss of the principal

2

How and when are the disclosures provided for the following:
- During the sales presentation
- When providing investment advice concerning nondeposit investment advice
- Before the opening of an investment account
- Advertisements

- orally during the sales presentation
- orally when providing investment advice concerning nondeposit products
- orally and in writing before the opening of an investment account
- in all advertisements

3

Customers must do what when they receive the disclosures?

Customers must acknowledge the disclosures in writing with a statement that the customer understands the disclosures

4

What is the abbreviated disclosure that may be used on advertisements?

Not FDIC Insured, No Bank Guarantee, May Lose Value.

5

In regards to product naming conventions, are there any specific requirements as far as how a NDIP is named?

Yes, it must not have a name that is identical or similar to names of a depository institution or retail deposit product.

6

Definition: A natural person who individually or jointly with a spouse has a net worth of at least $5 million, excluding a primary residence and associated liabilities.

High-net-worth customer

7

Definition: A corporation, partnership, LLC, trust or other non-natural person that has, or is controlled by a non-natural person that has, at least
$10 million in investments, or
$20 million in revenue, or
$15 million in revenue if the bank employee refers the customer to the broker for investment banking services.

Institutional customer

8

Definition: A test that may be satisfied if the amount of "relationship compensation" it earns constitutes specified percentages of the total compensation received on its trust and fiduciary accounts.

Chiefly compensated test

9

T/F: Trust and fiduciary activities are exempt from registration if the trust department is chiefly compensated for the transaction according to the rule.

T

10

Which of the following is NOT a requirement of the Interagency Statement on Retail Sales of Nondeposit Investments?

a. That employees selling nondeposit investments receive special training on the products they sell
b. That all bank employees receive special training on the nondeposit investment products sold by the bank
c. That employees selling nondeposit investments ensure that the product is suitable to the customer purchasing it
d. That the history of employees selling nondeposit investments be checked before their employment

b. That all bank employees receive special training on the nondeposit investment products sold by the bank

This is the only answer not required by the policy statement.

11

Which of the following bank products is NOT subject to the disclosure provisions of the Interagency Statement on Retail Sales of Nondeposit Investment Products?


a. Fixed-rate annuities
b. Variable-rate annuities
c. Variable-rate savings accounts
d. Mutual funds

c. Variable-rate savings accounts

The savings account is a deposit; the guidance only applies to nondeposits.

12

State National Bank has a Web site on which it advertises all of its products. One page of the Web site is devoted to the products of its affiliate, State National Investment Products, Inc. The affiliate sells uninsured mutual funds and various other investments not insured by the FDIC. What are State National’s responsibilities for this advertising?

a. None. The affiliate is responsible.
b. None. Because it is a Web site, the advertising rules do not apply.
c. The bank must make sure the FDIC logo is properly placed.
d. The bank must make sure that the noninsured disclosures are on this page and that the FDIC logo does not appear.

d. The bank must make sure that the noninsured disclosures are on this page and that the FDIC logo does not appear.

13

A bank is considering canceling its agreement with a broker to which it currently leases space in its lobby. The new plan would include an agreement with a different broker, but bank employees would complete product sales. What should the compliance manager do FIRST?

a. Establish a licensing program for bank employees
b. Establish a training plan for employees who will be selling the nondeposit investment products
c. Obtain copies of SEC and NASD rules regarding nondeposit investment products
d. Determine the additional compliance risk for the bank as a result of this change

d. Determine the additional compliance risk for the bank as a result of this change

When considering a change of practice of this magnitude, it is best to assess the compliance risk before going forward

14

What is the broker-dealer network exception?

Allows the bank to enter into a contractual or other written arrangement with a registered broker-dealer, where the registered broker-dealer will offer brokerage services to the bank's customers.

15

Under the broker-dealer network exception, can the broker-dealer compensation the referring employee directly?

No. The broker-dealer may pay the bank, who may then compensate the referrer, but the broker-dealer is prohibited from compensating unregistered employees.

16

The bank may pay its employee a referral fee of more than a nominal amount for referring an _______ customer or ________ customer to a broker-dealer under a networking agreement with the bank.

Institutional
High-net-worth

17

Under the Interagency Statement on Retail Sales of Nondeposit Investment Products, what may a bank teller do?

a. Discuss the past performance of a bank-related mutual fund
b. Transfer mutual fund shares from an investment savings account to an IRA account
c. Take the business card of a customer who has asked to purchase a bank related mutual fund and give it to a licensed representative
d. Assist a customer in determining eligibility to purchase a bank-related mutual fund

c. Take the business card of a customer who has asked to purchase a bank related mutual fund and give it to a licensed representative

18

Which of the following is a high-net-worth customer?

a. An individual with $5 million in assets, including her home
b. A corporation with $15 million in revenues
c. A couple with a net worth of $10 million
d. An individual who is not acting with his spouse, with $1 million in assets and another $3 million in community property

c. A couple with a net worth of $10 million

An individual's net worth is calculated by subtracting the value of their primary residence. An individual acting without a spouse will have net worth calculated with community property. A corporation cannot be a ''high-net-worth'' individual. It must be a natural person.

19

Which of the following advertising activities indicate that a bank would NOT be exempt from SEC registration requirements?

a. Listing its securities transfer services as a service the bank provides for IRA accounts along with other IRA benefits
b. Listing its securities services for trust accounts in the bank's extensive trust services brochure
c. Mentioning in a print advertisement that the bank provides accommodation securities trades for its regular custodial accounts
d. Stating in an advertisement concerning employee benefit plan services that the bank provides securities brokerage services for employee benefit plan accounts

c. Mentioning in a print advertisement that the bank provides accommodation securities trades for its regular custodial accounts

Advertisements generally can list a bank's securities services (such as order taking and safekeeping) when providing a broader description of a service. However, advertisements for custodial services NOT involving employee benefit, IRAs, and similar accounts may NOT state that the bank provides order-taking services for custodial accounts.

20

Which of the following is NOT a requirement when a bank pays an employee a fee for referring a high-net-worth or institutional customer to a broker?

a. The bank must have a written agreement with the broker
b. The bank must give a disclosure to the customer
c. The bank must reasonably believe that the customer is a high net worth or institutional customer
d. The employee must be registered with the bank's regulatory agency

d. The employee must be registered with the bank's regulatory agency

Bank employees do not have to be registered with any federal government agency, and, in fact, to pay a bank employee a referral fee, the employee cannot be registered, required to be registered or approved by any self-regulatory agency.

21

Under the Interagency Statement on Retail Sales of Nondeposit Investment Products what disclosure must the bank’s investment sales representative make to the customer?

a. The bank's regulatory agency
b. The sales commission resulting from the investment purchase
c. That the investment product is not guaranteed by the bank
d. The arbitration procedure for resolving disputes over investment advice

c. That the investment product is not guaranteed by the bank

This is the only answer choice that is a required disclosure.

22

Which of the following bank policies does NOT comply with the Interagency Policy Statement on the Retail Sales of Nondeposit Investments?

a. Supervisors and sales personnel will receive compensation based on the volume of sales each department achieves as well as the effectiveness of the department's ability to find suitable investments for customers.
b. All bank employees engaged in the sale of nondeposit investments will provide the bank's required disclosures to all customers before the purchase of a nondeposit investment product.
c. No teller will discuss nondeposit investment products with a bank customer.
d. Tellers and new accounts personnel will receive a $25 fee for all customers referred to the nondeposit investment department on the customer's purchase of an investment product.

d. Tellers and new accounts personnel will receive a $25 fee for all customers referred to the nondeposit investment department on the customer's purchase of an investment product.

Referral fees paid to bank employees should not be based on the customer's purchase of the product. The other answers are consistent with the policy statement.