2: SUITABILITY INFO AND APPROVALS (77)

Question 1

3 obligations under Rule 2111 (suitability) when reccomending a transaction or investment strategy

Answer 1

RCQ

1) reasonable-basis suitability
2) customer-specific suitability
3) quantitative suitability

Question 2

Would liquidity be considered an investment contraint?

Answer 2

Yes

Question 3

Is time horizon an investment constraint?

Answer 3

Yes

Question 4

Does an RR have to obtain approval from FINRA to exercice descretion over a client account?

Answer 4

No

Question 5

What is the formula for finding out a customer’s net worth?

Answer 5

assets - liabilities = net worth

Question 6

What does Rule 2111 have to do with?

Answer 6

Suitability

Question 7

What is the loan consent agreement for

Answer 7

Letting a BD loan the securities in a margin account to use for short sells

Question 8

Restrictions on custodians in a custodial account buying a new issue

Answer 8

None

They can buy new issue shares

Question 9

One of the most important roles played by registered representatives is making suitable recommendations to their customers. Doing that requires gathering as much information about the customers as possible. Which of the following factors would likely be the least important when dealing with a couple in their late twenties with two children?

A)
Values
 B)
Education goals for the children
 C)
Current employment stability
 D)
Expected retirement age

Answer 9

D) expected retirement age
> too far out

Explanation
Although saving for retirement is the single most common investment objective, determining an expected retirement age for a couple this young is unrealistic—it is just too far away to make an accurate determination. Meeting the children’s educational needs is something that needs to be addressed now. Knowing the reliability of the family’s income stream is critical for financial planning. Selecting investments matching the customers’ attitudes is necessary to ensure that their values are being met.

LO 2.b

Question 10

If a customer wants to place an order for a specific municipal bond and provides the bond’s issuer, coupon, maturity date, and CUSIP number, but she has not disclosed her financial objectives or tax status, the representative must

A)
determine whether the transaction is suitable.
B)
recommend a different bond of the same issuer with a higher rating.
C)
execute the order and mark it unsolicited.
D)
refuse the order.

Answer 10

c) execute and mark unsolicited

Explanation
When a customer wants to buy a specific municipal bond and possesses all of the bond’s material information, Municipal Securities Rulemaking Board Rule G-19 allows the representative to execute the order and mark it unsolicited. The representative may not recommend any municipal bond without first knowing the customer’s financial objectives and tax status.

LO 2.b