Section 3 Flashcards
(105 cards)
1
Q
If a fund uses its annual report as sales literature, it must be filed with FINRA, approved by a registered principal of the broker/dealer and accompanied by a prospectus.
A
If a fund uses its annual report as sales literature, it must be filed with FINRA, approved by a registered principal of the broker/dealer and accompanied by a prospectus.
2
Q
Advertising is defined as any materials designed for use in a public medium to solicit business, such as radio, TV, newspapers, etc.
A
Advertising is defined as any materials designed for use in a public medium to solicit business, such as radio, TV, newspapers, etc.
3
Q
Sales literature means any written communication generally available to the public, other than advertising, and must be accompanied by a prospectus.
A
Sales literature means any written communication generally available to the public, other than advertising, and must be accompanied by a prospectus.
4
Q
R/Rs can take indications of interest under a preliminary prospectus, but may not take orders.
A
R/Rs can take indications of interest under a preliminary prospectus, but may not take orders.
5
Q
Selling away is prohibited unless a R/R notifies his or her firm in writing.
A
Selling away is prohibited unless a R/R notifies his or her firm in writing.
6
Q
The outside business activities of a R/R do not include acting in a passive role as a limited partner.
A
The outside business activities of a R/R do not include acting in a passive role as a limited partner.
7
Q
Advertising on mutual funds must be filed within 10 days of first use with FINRA.
A
Advertising on mutual funds must be filed within 10 days of first use with FINRA.
8
Q
Fund advertising and sales literature must contain the name of the FINRA member.
A
Fund advertising and sales literature must contain the name of the FINRA member.
9
Q
The Statement of Additional Information (SAI) must be given (in addition to a prospectus) to any client upon request.
A
The Statement of Additional Information (SAI) must be given (in addition to a prospectus) to any client upon request.
10
Q
A Statement of Additional Information must be given out upon the request of any client who buys a variable product, even if they elect to invest their monies in the ‘fixed account.’
A
A Statement of Additional Information must be given out upon the request of any client who buys a variable product, even if they elect to invest their monies in the ‘fixed account.’
11
Q
A R/R who overhears inside information is not in violation as long as they don’t use the information themselves or pass it on to others who use it.
A
A R/R who overhears inside information is not in violation as long as they don’t use the information themselves or pass it on to others who use it.
12
Q
An investment company advertisement may never contain an application to invest.
A
An investment company advertisement may never contain an application to invest.
13
Q
Mutual fund sales literature containing quotations of current yield must also contain total return
information.
A
Mutual fund sales literature containing quotations of current yield must also contain total return
information.
14
Q
R/Rs are permitted to state that they are required to disclose all material facts.
A
R/Rs are permitted to state that they are required to disclose all material facts.
15
Q
When the SEC makes a new security registration effective, it means that no omissions were found in the registration statement. The SEC does NOT pass on the merits of a new security, approve the accuracy of the registration statement or approve its adequacy.
A
When the SEC makes a new security registration effective, it means that no omissions were found in the registration statement. The SEC does NOT pass on the merits of a new security, approve the accuracy of the registration statement or approve its adequacy.
16
Q
Your Registered Principal must approve all orders (including wire orders).
A
Your Registered Principal must approve all orders (including wire orders).
17
Q
When comparing mutual funds to bank CDs, a R/R may state that funds are viable alternatives to CDs,
but may NOT state that funds offer better performance than CDs.
A
When comparing mutual funds to bank CDs, a R/R may state that funds are viable alternatives to CDs,
but may NOT state that funds offer better performance than CDs.
18
Q
R/Rs must give clients a prospectus when discussing the merits of a particular mutual fund, but NOT when discussing mutual funds or securities in general.
A
R/Rs must give clients a prospectus when discussing the merits of a particular mutual fund, but NOT when discussing mutual funds or securities in general.
19
Q
A Mutual fund prospectus must include a fee table and the fund’s track record.
A
A Mutual fund prospectus must include a fee table and the fund’s track record.
20
Q
Broker/dealers must keep records of all correspondence for three (3) years.
A
Broker/dealers must keep records of all correspondence for three (3) years.
21
Q
In regards to a private placement, commissions, finders fees and reimbursed expenses are all considered to be compensation. However, registration fees are not, since private placements are exempt from registration under Regulation D.
A
In regards to a private placement, commissions, finders fees and reimbursed expenses are all considered to be compensation. However, registration fees are not, since private placements are exempt from registration under Regulation D.
22
Q
Under FINRA rules, non-cash compensation may include gifts, travel expenses and educational expenses. Commissions are considered to be cash compensation.
A
Under FINRA rules, non-cash compensation may include gifts, travel expenses and educational expenses. Commissions are considered to be cash compensation.
23
Q
R/Rs may share commissions with other R/Rs who are registered with the same firm.
A
R/Rs may share commissions with other R/Rs who are registered with the same firm.
24
Q
Aunts and uncles are NOT considered to be immediate family unless they are dependent upon the R/R for
support.
A
Aunts and uncles are NOT considered to be immediate family unless they are dependent upon the R/R for
support.
25
Mutual fund rating services are not required to follow FINRA/SEC guidelines.
Mutual fund rating services are not required to follow FINRA/SEC guidelines.
26
Shares in an open-end mutual fund may never be sold without a prospectus, even if an investor has a history of buying them.
Shares in an open-end mutual fund may never be sold without a prospectus, even if an investor has a history of buying them.
27
Customer complaints must be kept on file by member firms for four years.
Customer complaints must be kept on file by member firms for four years.
28
The clients a registered representative develops while employed by a broker/dealer are the property of the
broker/dealer.
The clients a registered representative develops while employed by a broker/dealer are the property of the
broker/dealer.
29
Hypothetical illustrations using assumed rates of return may be used to demonstrate the way a variable life insurance policy operates.
Hypothetical illustrations using assumed rates of return may be used to demonstrate the way a variable life insurance policy operates.
30
Hypothetical illustrations may not be used to project or predict investment results.
Hypothetical illustrations may not be used to project or predict investment results.
31
A hypothetical illustration for variable life insurance may use any combination of assumed investment
returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate.
A hypothetical illustration for variable life insurance may use any combination of assumed investment
returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate.
32
Although the maximum assumed rate of 12% may be acceptable, members are urged to assure that the maximum rate illustrated is reasonable considering market conditions and the available investment options.
Although the maximum assumed rate of 12% may be acceptable, members are urged to assure that the maximum rate illustrated is reasonable considering market conditions and the available investment options.
33
The purpose of the required 0% rate of return is to demonstrate how a lack of growth in the underlying investment accounts may affect policy values and to reinforce the hypothetical nature of the illustration.
The purpose of the required 0% rate of return is to demonstrate how a lack of growth in the underlying investment accounts may affect policy values and to reinforce the hypothetical nature of the illustration.
34
The illustrations must reflect the maximum (guaranteed) mortality and expense charges associated with the policy for each assumed rate of return.
The illustrations must reflect the maximum (guaranteed) mortality and expense charges associated with the policy for each assumed rate of return.
35
Current charges may be illustrated in addition to the maximum charges.
Current charges may be illustrated in addition to the maximum charges.
36
Preceding any illustration there must be a prominent explanation that the purpose of the illustration is to show how the performance of the underlying investment accounts could affect the policy cash value and death benefit.
Preceding any illustration there must be a prominent explanation that the purpose of the illustration is to show how the performance of the underlying investment accounts could affect the policy cash value and death benefit.
37
The explanation must also state that the illustration is hypothetical and may not be used to project or predict investment results.
The explanation must also state that the illustration is hypothetical and may not be used to project or predict investment results.
38
Telemarketing rules do not apply to your current clients.
Telemarketing rules do not apply to your current clients.
39
If a person asks to be added to the firm’s do-not-call list they are on the list for an indefinite period of
time.
If a person asks to be added to the firm’s do-not-call list they are on the list for an indefinite period of
time.
40
Telemarketing rules prohibit cold calls be made outside the hours of 8am to 9pm of the times zone in which you are calling to.
Telemarketing rules prohibit cold calls be made outside the hours of 8am to 9pm of the times zone in which you are calling to.
41
The cold call rules do not apply to a person who has made an inquiry to the firm within the previous three
The cold call rules do not apply to a person who has made an inquiry to the firm within the previous three
42
The use of the FINRA logo is prohibited by anyone but FINRA.
The use of the FINRA logo is prohibited by anyone but FINRA.
43
The SEC does not evaluate the merits of a security, nor do they pass on the accuracy or adequacy of the information in a prospectus.
The SEC does not evaluate the merits of a security, nor do they pass on the accuracy or adequacy of the information in a prospectus.
44
Advertising that refers to mutual fund “rankings” must disclose whether the ranking takes into account sales charges, the fund category and the number of funds in the category.
Advertising that refers to mutual fund “rankings” must disclose whether the ranking takes into account sales charges, the fund category and the number of funds in the category.
45
If a member firm wants to refer to its past recommendations, it may do so only if it shows all of its recommendations of the same type for the previous 12 months.
If a member firm wants to refer to its past recommendations, it may do so only if it shows all of its recommendations of the same type for the previous 12 months.
46
All advertising and sales literature pertaining to mutual funds must be filed with FINRA no later than 10 business days after first use.
All advertising and sales literature pertaining to mutual funds must be filed with FINRA no later than 10 business days after first use.
47
Sales literature that contains mutual fund performance information, except for money market funds, must contain total return data for 1, 5 and 10 year periods.
Sales literature that contains mutual fund performance information, except for money market funds, must contain total return data for 1, 5 and 10 year periods.
48
Retail Communication includes any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.
Retail Communication includes any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.
49
A sales script is considered a retail communication under FINRA Rule 2210 (assuming the script is used with more than 25 retail investors within any 30 calendar-day period).
A sales script is considered a retail communication under FINRA Rule 2210 (assuming the script is used with more than 25 retail investors within any 30 calendar-day period).
50
FINRA Rule 2210 excludes from the definition of institutional communication a firm’s internal communication.
FINRA Rule 2210 excludes from the definition of institutional communication a firm’s internal communication.
51
If a firm uses materials to train or educate registered representatives of other broker/dealers (whether affiliated or not), the material would be considered an institutional communication.
If a firm uses materials to train or educate registered representatives of other broker/dealers (whether affiliated or not), the material would be considered an institutional communication.
52
The firm is required to approve prior to use all retail communications.
The firm is required to approve prior to use all retail communications.
53
“Retail investor” includes any person other than an institutional investor, regardless of whether that person has an account with the firm. The term “retail investor” includes existing as well as prospective clients.
“Retail investor” includes any person other than an institutional investor, regardless of whether that person has an account with the firm. The term “retail investor” includes existing as well as prospective clients.
54
Correspondence includes any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
Correspondence includes any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
55
Seminar scripts are considered to be retail communications under FINRA Rules if they are made available to more than 25 retail investors within a 30 calendar-day period.
Seminar scripts are considered to be retail communications under FINRA Rules if they are made available to more than 25 retail investors within a 30 calendar-day period.
56
Seminar handouts provided to 25 or fewer retail investors within a 30 calendar-day period would be considered correspondence.
Seminar handouts provided to 25 or fewer retail investors within a 30 calendar-day period would be considered correspondence.
57
A “market letter” distributed to 25 or fewer retail investors within a 30 calendar-day period would be considered correspondence.
A “market letter” distributed to 25 or fewer retail investors within a 30 calendar-day period would be considered correspondence.
58
A “market letter” distributed to more than 25 retail investors within a 30 calendar-day period would be a retail communication.
A “market letter” distributed to more than 25 retail investors within a 30 calendar-day period would be a retail communication.
59
Member firms must supervise “market letters” in the same manner as correspondence, unless the communication makes any financial or investment recommendation.
Member firms must supervise “market letters” in the same manner as correspondence, unless the communication makes any financial or investment recommendation.
60
FINRA Rule 2210 does not include a firm’s internal communications within the definition of institutional communications. Firms are still required to supervise these communications, including those that are used to train and/or educate registered representatives.
FINRA Rule 2210 does not include a firm’s internal communications within the definition of institutional communications. Firms are still required to supervise these communications, including those that are used to train and/or educate registered representatives.
61
RRs may not alter a prospectus in any way, nor tell a customer to disregard its contents.
RRs may not alter a prospectus in any way, nor tell a customer to disregard its contents.
62
FINRA requires that retail communications (this generally includes advertisements and sales literature) be approved by a registered principal and be retained for three years.
FINRA requires that retail communications (this generally includes advertisements and sales literature) be approved by a registered principal and be retained for three years.
63
Form letters and photo copies of articles distributed to more than 25 retail investors within any 30 day calendar period are considered to be retail communications and are subject to approval and filing requirements under FINRA’s Rule 2210.
Form letters and photo copies of articles distributed to more than 25 retail investors within any 30 day calendar period are considered to be retail communications and are subject to approval and filing requirements under FINRA’s Rule 2210.
64
Communications may not imply that a broker/dealer’s activities, products or business conduct have been endorsed by any regulatory body.
Communications may not imply that a broker/dealer’s activities, products or business conduct have been endorsed by any regulatory body.
65
SEC Rule 482 states that an application to invest may not be contained in a mutual fund advertisement.
SEC Rule 482 states that an application to invest may not be contained in a mutual fund advertisement.
66
RRs may receive gifts from mutual fund distributors if the gift is worth no more than $100. However,
gifts may not be conditioned on attaining a sales target.
RRs may receive gifts from mutual fund distributors if the gift is worth no more than $100. However,
gifts may not be conditioned on attaining a sales target.
67
Mutual fund sales literature may contain performance data, including current yield and total return, but cannot imply that past performance will be repeated in the future.
Mutual fund sales literature may contain performance data, including current yield and total return, but cannot imply that past performance will be repeated in the future.
68
When referring to mutual fund rankings any symbols used must be explained.
When referring to mutual fund rankings any symbols used must be explained.
69
For rankings based on yield, the SEC standardized yield must be used.
For rankings based on yield, the SEC standardized yield must be used.
70
The SEC standardized yield is complex. Basically, it uses a fund’s net income over the preceding 30 days (as filed with the SEC) to project an annualized yield. It cannot be used as an indicator of future earnings, but it is a good yield to use for comparison purposes.
The SEC standardized yield is complex. Basically, it uses a fund’s net income over the preceding 30 days (as filed with the SEC) to project an annualized yield. It cannot be used as an indicator of future earnings, but it is a good yield to use for comparison purposes.
71
SEC yields include the actual amount of interest earned adjusted by any gain or loss realized due to the return of principal, less expenses and the maximum offering price calculated on a 30-day month-end basis.
SEC yields include the actual amount of interest earned adjusted by any gain or loss realized due to the return of principal, less expenses and the maximum offering price calculated on a 30-day month-end basis.
72
Advertisements made generally available to the public offering employment with a member firm must comply with the same rules that govern retail communications, meaning that they must be approved by a registered principal, kept on file for three years and filed with FINRA.
Advertisements made generally available to the public offering employment with a member firm must comply with the same rules that govern retail communications, meaning that they must be approved by a registered principal, kept on file for three years and filed with FINRA.
73
Sales literature sent to prospective clients of an open-end mutual fund must be accompanied or preceded by a prospectus.
Sales literature sent to prospective clients of an open-end mutual fund must be accompanied or preceded by a prospectus.
74
A mutual fund prospectus must be given to prospective customers no later than the time of solicitation. On unsolicited orders, the latest time to give out a prospectus is with the confirmation.
A mutual fund prospectus must be given to prospective customers no later than the time of solicitation. On unsolicited orders, the latest time to give out a prospectus is with the confirmation.
75
A communication that does not specifically refer to securities by name does not constitute an offer to sell and is known as generic advertising.
A communication that does not specifically refer to securities by name does not constitute an offer to sell and is known as generic advertising.
76
E-mail to a particular client is considered to be correspondence and is subject to review under the firm’s supervisory procedures, whether it is sent from the firm or from the R/R’s home. However, a group e- mail sent to more than 25 retail investors within any 30 day calendar period is considered to be retail communication, not correspondence.
E-mail to a particular client is considered to be correspondence and is subject to review under the firm’s supervisory procedures, whether it is sent from the firm or from the R/R’s home. However, a group e- mail sent to more than 25 retail investors within any 30 day calendar period is considered to be retail communication, not correspondence.
77
Letters sent to 25 or less retail investors within any 30 calendar-day period discussing their specific portfolios are not considered to be retail communication. These letters would be considered to be correspondence.
Letters sent to 25 or less retail investors within any 30 calendar-day period discussing their specific portfolios are not considered to be retail communication. These letters would be considered to be correspondence.
78
A web page where a member firm lists all the products they offer would be considered to be a retail communication, since the general public can view it (and the general public is more than 25 retail investors within a 30 calendar-day period).
A web page where a member firm lists all the products they offer would be considered to be a retail communication, since the general public can view it (and the general public is more than 25 retail investors within a 30 calendar-day period).
79
There is no requirement that a B/D firm approve or review each piece of correspondence. Most B/D firms use sampling techniques to satisfy their correspondence review obligation instead.
There is no requirement that a B/D firm approve or review each piece of correspondence. Most B/D firms use sampling techniques to satisfy their correspondence review obligation instead.
80
The Securities Act of 1933 requires that a person seeking damages must take action within one year of discovery but no later than three years after the actual transaction.
The Securities Act of 1933 requires that a person seeking damages must take action within one year of discovery but no later than three years after the actual transaction.
81
Under FINRA Rules, chat room discussions are considered to be public appearances. A chat room discussion may also be referred to as an interactive electronic forum.
Under FINRA Rules, chat room discussions are considered to be public appearances. A chat room discussion may also be referred to as an interactive electronic forum.
82
Firms must establish written policies and procedures to supervise public appearances.
Firms must establish written policies and procedures to supervise public appearances.
83
Scripts, slides, handouts or other written (including electronic) materials used in connection with public
appearances are considered communications under FINRA Rule 2210.
Scripts, slides, handouts or other written (including electronic) materials used in connection with public
appearances are considered communications under FINRA Rule 2210.
84
Under FINRA Rules, an instant message sent by a R/R to a customer containing portfolio recommendations is considered to be correspondence which is subject to review by a principal of the firm.
Under FINRA Rules, an instant message sent by a R/R to a customer containing portfolio recommendations is considered to be correspondence which is subject to review by a principal of the firm.
85
An instant message may be considered a retail communication or correspondence depending upon the number and type of person to whom it is sent. If sent to more than 25 retail customers within any 30 calendar-day period, it is a retail communication. If sent to 25 or fewer retail customers within any 30 calendar-day period, then it is considered to be correspondence.
An instant message may be considered a retail communication or correspondence depending upon the number and type of person to whom it is sent. If sent to more than 25 retail customers within any 30 calendar-day period, it is a retail communication. If sent to 25 or fewer retail customers within any 30 calendar-day period, then it is considered to be correspondence.
86
Limited securities principals (Series 26) may only approve sales literature for investment company products.
Limited securities principals (Series 26) may only approve sales literature for investment company products.
87
Retail communications need to be approved by a registered principal and kept on file for three years from date of last use.
Retail communications need to be approved by a registered principal and kept on file for three years from date of last use.
88
Records relating to retail communications must include the name of the registered principal, his/her CRD number and the date that approval was given.
Records relating to retail communications must include the name of the registered principal, his/her CRD number and the date that approval was given.
89
Retail and institutional communications must be kept in a separate file for a period beginning on the date of first use and ending three years from the date of last use.
Retail and institutional communications must be kept in a separate file for a period beginning on the date of first use and ending three years from the date of last use.
90
FINRA’s Advertising Department does not approve advertising. “Reviewed by FINRA” or “FINRA Reviewed” are both acceptable ways to reference that a communication has been reviewed by FINRA.
FINRA’s Advertising Department does not approve advertising. “Reviewed by FINRA” or “FINRA Reviewed” are both acceptable ways to reference that a communication has been reviewed by FINRA.
91
Recommendations to customers must be suitable and disclose all conflicts of interest.
Recommendations to customers must be suitable and disclose all conflicts of interest.
92
Past performance does not guarantee future results.
Past performance does not guarantee future results.
93
Firms must maintain a separate file containing all communications and correspondence, including outgoing electronic securities correspondence, for three years.
Firms must maintain a separate file containing all communications and correspondence, including outgoing electronic securities correspondence, for three years.
94
Member firms who have not previously filed advertising with FINRA must file retail communications (this includes print or public media advertisements and generally accessible websites) at least 10 days prior to first use and must continue to file all retail communications 10 business days before use for their first year of FINRA membership.
Member firms who have not previously filed advertising with FINRA must file retail communications (this includes print or public media advertisements and generally accessible websites) at least 10 days prior to first use and must continue to file all retail communications 10 business days before use for their first year of FINRA membership.
95
If during the first year of membership a firm distributes a retail communication that is considered a free writing prospectus under SEC rules and that has been filed with the SEC pursuant to the Securities Act of 1933, the firm may file this specific retail communication within 10 business days of first use, rather than 10 business days prior to first use.
If during the first year of membership a firm distributes a retail communication that is considered a free writing prospectus under SEC rules and that has been filed with the SEC pursuant to the Securities Act of 1933, the firm may file this specific retail communication within 10 business days of first use, rather than 10 business days prior to first use.
96
A new firm’s one year filing period commences on the date reflected in the Central Registration Depository (CRD) system as the date FINRA membership became effective.
A new firm’s one year filing period commences on the date reflected in the Central Registration Depository (CRD) system as the date FINRA membership became effective.
97
All member firms must establish written supervisory procedures to ensure that representatives are properly trained in the use and maintenance of the firm’s do-not-call list.
All member firms must establish written supervisory procedures to ensure that representatives are properly trained in the use and maintenance of the firm’s do-not-call list.
98
A website is considered to be a retail communication.
A website is considered to be a retail communication.
99
An email sent to a more than 25 retail customers within a 30 calendar-day period is considered to be a retail communication.
An email sent to a more than 25 retail customers within a 30 calendar-day period is considered to be a retail communication.
100
An email sent to 25 or fewer retail customers within a 30 calendar-day period is considered to be correspondence.
An email sent to 25 or fewer retail customers within a 30 calendar-day period is considered to be correspondence.
101
The maximum AIR (assumed investment rate) that can be used to illustrate returns on a variable life contract is 12%. An AIR of 0% must also be used.
The maximum AIR (assumed investment rate) that can be used to illustrate returns on a variable life contract is 12%. An AIR of 0% must also be used.
102
Market letters and research reports are considered to be retail communications.
Market letters and research reports are considered to be retail communications.
103
Telephone book ads are considered to be retail communications.
Telephone book ads are considered to be retail communications.
104
Prospectuses are not considered to be communications.
Prospectuses are not considered to be communications.
105
The SEC’s computation of average annual total return assumes the reinvestment of dividend and capital gain distributions.
The SEC’s computation of average annual total return assumes the reinvestment of dividend and capital gain distributions.
