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Series 7 study materials
Series 7 study resources

Series 7 practice questions

One question at a time. Build your Series 7 understanding.

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Question 1Seeks Business for the Broker-Dealer from Customers and Potential Customers

Under federal telemarketing rules, a registered representative making an unsolicited cold call to a prospective retail customer at home may place the call only between:

  1. 8:00 a.m. and 5:00 p.m. Eastern Time
  2. 8:00 a.m. and 9:00 p.m. local time of the person being called Correct answer.
  3. 7:00 a.m. and 10:00 p.m. local time of the caller's office
  4. 9:00 a.m. and 8:00 p.m. in the called party's time zone

Explanation

The Telemarketing Sales Rule restricts telephone solicitations to the hours of 8:00 a.m. through 9:00 p.m. measured by the called party's local time. Firms must also honor the national Do Not Call Registry and their own internal do-not-call lists.

Question 2Seeks Business for the Broker-Dealer from Customers and Potential Customers

A custodian opens an UTMA account for a 10-year-old child. When the child reaches the age of majority under the applicable state law, the assets in the account:

  1. remain under the custodian's control until the minor reaches age 25 in every state, regardless of state law.
  2. become the minor's property, and the minor controls the account at the age of majority. Correct answer.
  3. must be liquidated if the minor does not claim the assets by age 21.
  4. must be transferred to the donor when the minor reaches the age of majority.

Explanation

Contributions to an UGMA/UTMA account are irrevocable gifts that belong to the minor, and the custodianship ends when the minor reaches the age of majority or termination age set by the state (generally 18 to 25). At that point the former minor controls the account and may use the assets for any purpose.

Question 3Seeks Business for the Broker-Dealer from Customers and Potential Customers

Under its customer identification program, a broker-dealer opening a new account for an individual customer must obtain, at a minimum:

  1. the customer's name, Social Security number, and current marital status.
  2. the customer's name, employer, annual income, and current credit score.
  3. the customer's name, net worth, and stated investment objective for the account.
  4. the customer's name, birth date, address, and taxpayer ID number. Correct answer.

Explanation

The CIP rules require a firm to collect the customer's name, date of birth (for individuals), address, and identification number before opening an account, and to verify that identity through documentary or non-documentary means. Income, net worth, and objectives are gathered for suitability and profiling purposes rather than identity verification.

Question 4Seeks Business for the Broker-Dealer from Customers and Potential Customers

Two unrelated individuals open a joint account registered as tenants in common. If one of the owners dies, that owner's interest in the account:

  1. is frozen until the estate's personal representative gives written consent to the transfer.
  2. goes to the decedent's estate and passes under the will or intestacy law. Correct answer.
  3. is split equally between the survivor and the decedent's heirs.
  4. passes automatically to the surviving co-owner.

Explanation

A tenancy in common carries no right of survivorship, so a deceased owner's fractional interest becomes part of that owner's estate and is distributed according to the will or state intestacy rules. Only joint tenants with right of survivorship pass the decedent's share automatically to the survivor.

Question 5Seeks Business for the Broker-Dealer from Customers and Potential Customers

FINRA Rule 2210 classifies a written sales piece that a firm distributes to 20 retail investors over a 30-calendar-day period as:

  1. correspondence, which is subject to supervision but not pre-use approval. Correct answer.
  2. a retail communication requiring principal approval before first use.
  3. a public appearance, because it was directed at individual investors.
  4. institutional sales material, since fewer than 25 investors received the piece.

Explanation

Correspondence is any written or electronic communication sent to 25 or fewer retail investors within any 30-calendar-day period; it must be reviewed and supervised but does not require principal approval before it goes out. Once a piece reaches more than 25 retail investors in that window, it becomes a retail communication subject to pre-use principal approval.

Question 6Seeks Business for the Broker-Dealer from Customers and Potential Customers

A representative wants to send a flyer describing the firm's account types and fee schedule to 500 retail prospects. Under FINRA Rule 2210, the flyer must first be:

  1. approved by a registered principal of the firm. Correct answer.
  2. filed with FINRA's Advertising Regulation Department at least 10 business days before use.
  3. approved by the firm's compliance department and FINRA.
  4. reviewed by a supervisory analyst holding a Series 16 registration.

Explanation

Retail communications must be approved by a registered principal before first use, and the firm must keep the approval on file. Pre-use filing with FINRA applies only to narrow categories, and supervisory analyst review is triggered by material that recommends equity or debt securities.

Question 7Seeks Business for the Broker-Dealer from Customers and Potential Customers

Under Regulation Best Interest, before recommending a mutual fund to a retail customer, the representative must:

  1. recommend the lowest-cost share class available anywhere in the market.
  2. recommend only products that the firm has placed on its approved product list.
  3. obtain the customer's signed acknowledgment that every recommendation is suitable for the account.
  4. understand the product's risks and costs and consider reasonably available alternatives. Correct answer.

Explanation

The care obligation requires the representative to understand the potential risks, rewards, and costs of the recommendation and to consider reasonably available alternatives in light of the customer's investment profile. Cost is a factor but the rule does not demand the single cheapest product regardless of the customer's objectives.

Question 8Seeks Business for the Broker-Dealer from Customers and Potential Customers

Under FINRA Rule 3220, a representative may give a gift to an employee of a corporate customer in connection with that customer's business only if:

  1. the employee has signed a written acknowledgment of the gift.
  2. the gift is approved in advance by the customer's compliance officer.
  3. its value does not exceed $100 per person per year. Correct answer.
  4. the gift is a noncash item, since only cash gifts are limited.

Explanation

Rule 3220 caps gifts of any kind given to employees or agents of customers and prospective customers at $100 per person per year when the gift relates to the recipient employer's business. The rule does not distinguish between cash and noncash items, and customer approval does not raise the limit.

Question 9Seeks Business for the Broker-Dealer from Customers and Potential Customers

A representative wants to borrow $15,000 from a customer who is not a family member. Under FINRA rules, the loan is permitted only if:

  1. the loan is documented by a promissory note bearing a market rate of interest and a maturity date.
  2. the firm's written procedures permit it and the firm pre-approves in writing. Correct answer.
  3. the customer signs a statement that the loan is voluntary and unsolicited.
  4. the amount is less than the representative's annual compensation.

Explanation

FINRA Rule 3240 restricts borrowing from or lending to customers; for a customer who is not an immediate family member and not a lending institution, the firm must have written procedures allowing the arrangement and must give prior written approval. Documentation, voluntariness, and loan size do not substitute for firm authorization.

Question 10Seeks Business for the Broker-Dealer from Customers and Potential Customers

A registered representative would like to share in the gains and losses of a customer's account. FINRA rules generally allow this only when:

  1. the representative personally manages the account and waives all advisory fees for the customer.
  2. the account has appreciated by at least 10% since the position was opened.
  3. the customer and firm consent in writing, and the share matches the rep's contribution. Correct answer.
  4. the customer is an accredited investor and signs a written risk disclosure.

Explanation

Sharing in a customer's account is permitted only if the customer authorizes it in writing, the firm approves it in writing, and the representative's share is proportionate to the capital the representative has contributed. Without all three elements the arrangement is prohibited.

Question 11Seeks Business for the Broker-Dealer from Customers and Potential Customers

Under the SEC's identity theft red flags rules, a broker-dealer must maintain a written program that, among other things, will:

  1. run a credit check on every new customer before the account is funded.
  2. report suspicious address changes to the SEC within one business day.
  3. verify customer identity by obtaining a notarized copy of a government ID.
  4. identify patterns and activities that signal possible identity theft. Correct answer.

Explanation

A firm's identity theft prevention program must identify relevant red flags, detect them, respond appropriately, and update the program periodically, with oversight by the board or a designated committee. The rules call for risk-based controls rather than a single mandated verification method or specific reporting deadline to the SEC.

Question 12Seeks Business for the Broker-Dealer from Customers and Potential Customers

Under Regulation S-P, a broker-dealer that has established a customer relationship must:

  1. post its privacy policy on the firm's website in place of delivering it to customers.
  2. give the customer an initial privacy notice and an annual notice while the relationship lasts. Correct answer.
  3. deliver a privacy notice only when the customer requests one in writing.
  4. obtain the customer's written consent before sharing nonpublic information with its clearing firm.

Explanation

Regulation S-P requires delivery of a clear privacy notice when the customer relationship begins and at least annually thereafter for as long as the relationship continues. Disclosure to a clearing firm for processing is a permitted use that does not require written consent.

Question 13Seeks Business for the Broker-Dealer from Customers and Potential Customers

A retail communication contains a client's statement praising her representative's performance. FINRA rules require the firm to disclose that:

  1. the client has agreed to be contacted by prospective clients about her own results.
  2. all clients of the representative earned similar returns over the same period.
  3. the client's full name, address, and account performance must be provided.
  4. the results may not be typical of other clients and, if paid, that it was paid. Correct answer.

Explanation

A testimonial in a retail communication must be accompanied by disclosure that it may not be representative of other clients' experience and, if the person giving it was paid more than $100, that it is a paid testimonial. The rule does not require publishing the client's contact details or implying that all clients achieved similar results.

Question 14Seeks Business for the Broker-Dealer from Customers and Potential Customers

A representative proposes to pay an unlicensed accountant $500 for each client the accountant refers who opens an account. This arrangement is:

  1. prohibited, because paying transaction-based compensation to an unregistered person is not allowed. Correct answer.
  2. permissible if the payment is a flat fee rather than a percentage of the account's assets.
  3. prohibited only when the accountant is also a customer of the firm.
  4. permissible if the accountant discloses the payment to the referred client in writing before the account is opened.

Explanation

FINRA Rule 2040 bars firms and their associated persons from paying transaction-based compensation to unregistered persons acting as finders, because compensation that depends on a transaction creates sales-incentive concerns without registration and supervision. A per-client payment triggered by account opening is transaction-based regardless of whether it is styled as a flat fee.

Question 15Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A customer tells her representative to buy whatever securities the representative thinks are best, without naming any specific security. Before the representative may place such orders, the customer must do which of the following?

  1. Sign a written power of attorney that the firm accepts Correct answer.
  2. Fund the account with cash instead of marginable securities
  3. Sign a new account form naming growth as the objective
  4. Give the authorization orally, with the call recorded

Explanation

Trading without the customer specifying the security, the amount, or the action is an exercise of discretion, which requires the customer's written authorization (typically a limited power of attorney) plus the firm's approval of the account as discretionary. Oral instructions or an objective listed on the new account form do not grant that authority.

Question 16Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A joint account is registered as joint tenants with right of survivorship. When one of the owners dies, what happens to that owner's interest in the account?

  1. It passes automatically to the surviving owner Correct answer.
  2. It passes under the deceased owner's will after probate
  3. It is divided equally among the deceased owner's heirs
  4. It is frozen until the deceased owner's estate is settled

Explanation

Each joint tenant with right of survivorship owns an undivided interest, and on death that interest passes outside probate directly to the surviving tenant. The deceased owner's will and heirs have no claim on the account.

Question 17Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A customer intends to pay for every securities purchase with her own funds by the settlement date and does not want to borrow. Which account type is appropriate for her?

  1. A cash account, because no borrowing is involved Correct answer.
  2. A wrap fee account, because trading costs are bundled
  3. A discretionary account, because the firm places the orders
  4. A margin account, because settlement is guaranteed by the firm

Explanation

A cash account requires full payment for each purchase by the settlement date and permits no borrowing of funds. Borrowing to buy securities is the defining feature of a margin account.

Question 18Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A customer wants her nephew to be able to buy and sell securities in her account but does not want him to withdraw cash or securities. What should the firm obtain?

  1. A beneficiary designation form naming the nephew
  2. A limited power of attorney covering trading only Correct answer.
  3. A full power of attorney naming the nephew as attorney-in-fact
  4. A joint account agreement adding the nephew as a tenant

Explanation

A limited power of attorney, often called a trading authorization, lets the named person enter orders while withholding any power to withdraw assets or direct disbursements. A full power of attorney would give exactly the withdrawal rights the customer wants to avoid.

Question 19Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A corporation wants to open a brokerage account and have two of its officers enter orders. Which document should the firm obtain to establish who may act for the corporation?

  1. A corporate resolution naming the authorized individuals Correct answer.
  2. A trust certification naming the two officers as trustees of the entity
  3. A new account form signed by each officer personally
  4. A partnership agreement signed by the officers

Explanation

Corporate accounts require evidence of the entity's existence plus a corporate resolution or comparable authorization identifying the officers empowered to trade the account. Anyone not named in that authorization may not enter orders for the corporation.

Question 20Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A trustee wants to open a brokerage account in the name of a revocable living trust. What should the firm obtain before opening the account?

  1. A corporate resolution from the trustee's employer authorizing the trust to open the account
  2. A personal guaranty from the trustee covering any account losses
  3. Signed consent forms from each of the trust's named beneficiaries
  4. Trust document or certification and the trust's tax identification number Correct answer.

Explanation

The trust itself is the customer, so the firm verifies the trust's legal existence and the trustee's authority, usually with the trust document or a trustee certification, together with the trust's taxpayer identification number. The account is registered in the trust's name rather than the trustee's.

Question 21Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

Under FINRA Rule 4512, when a firm opens a non-institutional account for a natural person, it must make reasonable efforts to obtain which of the following?

  1. Written consent for the firm to share account data with its affiliates
  2. A copy of the customer's most recent federal tax return
  3. The name and contact details of a trusted contact person Correct answer.
  4. The customer's beneficiary designations for every position

Explanation

Rule 4512 requires reasonable efforts to obtain the name and contact information of a trusted contact person who may be reached about possible exploitation or concerns regarding the customer's health. If the customer declines to provide it, the firm must document that fact.

Question 22Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

Under FINRA's know-your-customer rule, a member firm must exercise reasonable diligence to learn which of the following?

  1. The identity of every security the customer bought or sold in the past five years
  2. Essential facts about the customer and anyone authorized on the account Correct answer.
  3. The customer's complete employment history for the preceding ten years
  4. The net worth of every member of the customer's immediate household

Explanation

FINRA Rule 2090 requires reasonable diligence to know and retain the essential facts about every customer and every person with authority to act on the customer's behalf. Those facts support the suitability of recommendations made later.

Question 23Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A customer is saving for a down payment on a house he plans to buy in about one year and wants no risk to that money. Which investment objective fits these funds?

  1. Aggressive growth, to build the down payment faster than a savings account
  2. Speculation, because the time horizon is short
  3. Capital preservation, because principal must be intact when needed Correct answer.
  4. Current income, because he will need cash monthly

Explanation

A short time horizon combined with an absolute need for the money points to capital preservation, where keeping principal intact and liquid until it is needed is the priority. Objectives that accept market risk are unsuitable for funds required on a fixed near-term date.

Question 24Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

Before a customer's first transaction in a margin account, the firm must do which of the following?

  1. Receive the customer's separate written consent to lend any shares held
  2. Obtain a signed margin agreement and approve the account Correct answer.
  3. Confirm that the customer has at least ten years of investing experience
  4. Obtain the beneficiary's signature on the account application

Explanation

Opening a margin account requires the customer's signed margin agreement containing the credit and hypothecation provisions, the firm's approval of the account for margin, and satisfaction of the initial margin requirement. Trading on credit may not begin until those steps are complete.

Question 25Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A grandparent deposits $20,000 into an UGMA custodial account for a grandchild. Which statement about the deposit is correct?

  1. It may be revoked by the grandparent if the child's needs change
  2. It must be returned to the grandparent when the child reaches majority
  3. It is an irrevocable gift that belongs to the child Correct answer.
  4. It may be used by the custodian to pay the custodian's own expenses

Explanation

Contributions to a custodial account are irrevocable gifts, and the assets legally belong to the minor from the moment of deposit. The custodian manages the property solely for the minor's benefit and cannot reclaim or spend it.

Question 26Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A general partnership wants to open a brokerage account, and two partners will enter orders for it. What should the firm obtain?

  1. Each partner's personal financial statement and a guaranty of account losses
  2. A corporate resolution certified by the partnership's corporate secretary
  3. A joint tenants with right of survivorship agreement signed by every partner
  4. The partnership agreement and a resolution naming the authorized partners Correct answer.

Explanation

A partnership account requires the partnership agreement plus evidence of which partners are authorized to act for the entity, and the account is registered in the partnership's name with its own taxpayer identification number.

Question 27Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A representative is building an investment profile for a new retail customer. Which set of factors is most directly relevant to recommending an appropriate asset allocation?

  1. The commissions paid last year and the firm's revenue targets
  2. Time horizon, risk tolerance, liquidity needs, and experience Correct answer.
  3. The customer's age and the firm's current research ratings
  4. The customer's employer's stock performance and local real estate trends

Explanation

Suitability analysis rests on the customer's own profile: financial situation and needs, tax status, investment objectives, experience, time horizon, liquidity needs, and risk tolerance. Firm economics and market themes do not substitute for those customer-specific facts.

Question 28Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A customer has just been approved for an options account. What is required of the options account agreement?

  1. It must be signed and returned before the first options trade is placed
  2. It must be filed with FINRA before any options order is entered
  3. It must be signed and returned within 15 days of approval Correct answer.
  4. It must be renewed and signed again at the start of each year

Explanation

The customer must sign and return the options agreement within 15 days after the account is approved. Orders may be accepted during that window, but the account is restricted if the signed agreement does not come back in time.

Question 29Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

Under Regulation Best Interest, the care obligation requires a representative recommending a security to a retail customer to do which of the following?

  1. Recommend only the lowest-cost product available in that category
  2. Guarantee that the recommendation will outperform its benchmark
  3. Consider reasonably available alternatives and their costs Correct answer.
  4. Obtain the customer's written approval before each recommendation

Explanation

The care obligation requires the representative to understand the product's risks, rewards, and costs and to consider reasonably available alternatives, including their costs. Cost is one factor in the analysis, but the cheapest product is not automatically required.

Question 30Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A firm reasonably suspects that a senior customer is being financially exploited and wants to delay a requested disbursement from the account. Under FINRA Rule 2165, the firm may do which of the following?

  1. Hold the disbursement indefinitely until the customer provides a written release
  2. Freeze the entire account and refuse all trades for at least 30 calendar days
  3. Hold the disbursement up to 15 business days, extendable by 10 more Correct answer.
  4. Hold the disbursement only if a court has already appointed a guardian

Explanation

Rule 2165 permits a temporary hold on disbursements of funds or securities when exploitation is reasonably suspected, initially for 15 business days and for up to 10 additional business days, with notice to the trusted contact person and required recordkeeping.

Question 31Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A firm plans a quarterly contest that pays cash prizes to the representatives who sell the most of a newly launched proprietary fund. Under Regulation Best Interest, this contest is:

  1. Permitted, as long as the prize is disclosed to retail customers in writing
  2. Permitted, as long as the fund is suitable for each purchaser's profile
  3. Prohibited, because it creates an incentive to favor the firm's product Correct answer.
  4. Permitted, as long as the firm's supervisors approve the contest in advance

Explanation

The conflict of interest obligation prohibits sales contests, sales quotas, bonuses, and non-cash compensation based on the sale of specific securities within a limited period, because they create incentives to recommend products for reasons other than the customer's best interest.

Question 32Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

A representative has recommended frequent trades in a customer's account. Under FINRA Rule 2111, the quantitative suitability obligation requires the representative to have a reasonable basis to believe which of the following?

  1. A series of recommended transactions is not excessive Correct answer.
  2. The account holds at least five different asset classes
  3. The customer reviewed every confirmation before settlement
  4. Each trade was profitable for the customer before commissions

Explanation

Quantitative suitability asks whether a series of recommendations, viewed together in light of the customer's investment profile, is excessive, even when each individual recommendation is suitable on its own. It is the obligation that addresses excessive trading.

Question 33Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer's account holds only fully paid common stock, and no trades or other activity occur during the quarter. Under FINRA rules, how often must the firm send this customer an account statement?

  1. At least monthly
  2. Only in quarters with trading activity
  3. At least semiannually
  4. At least quarterly Correct answer.

Explanation

FINRA Rule 2231 requires a member firm to send account statements to customers at least once every calendar quarter, regardless of whether the account had activity. More frequent statements are permitted but are not required for an inactive cash account holding only long stock.

Question 34Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A representative executes a purchase of common stock for a customer in a cash account. Under SEC Rule 10b-10, when must the written confirmation be delivered?

  1. Within five business days after settlement
  2. At or before the settlement date Correct answer.
  3. Only after the customer requests one
  4. Within ten business days after the trade date

Explanation

Rule 10b-10 requires a broker-dealer to give or send a written confirmation at or before the completion of the transaction, which means settlement. Delivery is mandatory and never depends on a customer request.

Question 35Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A firm has just approved a new customer's account for options trading. What does FINRA require the firm to do with the Options Disclosure Document (ODD)?

  1. Furnish it and seek the customer's signed acknowledgment Correct answer.
  2. Deliver it only to customers who write uncovered options
  3. File it with FINRA before the customer's first order
  4. Deliver it within 30 days after the first options trade

Explanation

FINRA Rule 2360 requires the firm to furnish the ODD to each options customer at or before account approval and to make reasonable efforts to obtain the customer's signed acknowledgment of receipt. The customer must have the document before the account is used for options trading.

Question 36Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer registers her individual brokerage account as transfer on death (TOD) and names her two adult children as beneficiaries. What happens to the account assets when she dies?

  1. They pass through her probate estate before distribution
  2. They pass to the named beneficiaries without probate Correct answer.
  3. They pass to her estate to be divided by her executor
  4. They are liquidated and held until the estate is settled

Explanation

A TOD registration causes the account to pass directly to the named beneficiaries at death, bypassing probate. The beneficiaries typically need only provide proof of death and identification to claim the assets.

Question 37Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

An individual account holder dies, and her will names an executor. Which document best establishes that person's legal authority over the account?

  1. A certified copy of the death certificate
  2. A signed copy of the will itself
  3. A stock power signed by the deceased customer
  4. Letters testamentary issued by the court Correct answer.

Explanation

The court appoints the executor and issues letters testamentary, which the firm relies on as proof of authority to act for the estate. A will shows testamentary intent but does not itself empower the executor to transact.

Question 38Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A firm opens a brokerage account for a new individual customer. Under FINRA Rule 4512, the firm must:

  1. Obtain the trusted contact's written consent to serve
  2. Require the customer to sign a durable power of attorney
  3. Collect the trusted contact's Social Security number
  4. Make reasonable efforts to obtain a trusted contact person Correct answer.

Explanation

Rule 4512 requires firms to make reasonable efforts to obtain the name and contact information of a trusted contact person for accounts held by natural persons. The trusted contact is contacted only in limited circumstances and has no authority over the account.

Question 39Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer buys $20,000 of common stock in a newly opened margin account. Under Regulation T, how much must the customer deposit?

  1. $20,000
  2. $5,000
  3. $2,500
  4. $10,000 Correct answer.

Explanation

Regulation T sets the initial margin requirement for common stock at 50% of the purchase price, so the customer must deposit $10,000 on a $20,000 purchase. The broker-dealer finances the remaining balance against the collateral.

Question 40Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer who will be traveling abroad for three months asks her representative to hold her account mail. What does the firm need?

  1. Nothing more than a verbal request from the customer
  2. The customer's written instructions, documented under firm procedures Correct answer.
  3. A court order authorizing the arrangement
  4. Approval from FINRA's district office

Explanation

Firms may hold customer mail only when the customer requests it in writing and the arrangement is documented under supervisory procedures. Holding mail without written authorization can conceal account activity and violate supervision and recordkeeping obligations.

Question 41Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer closes her brokerage account. Under SEC Rule 17a-3, how long must the firm keep that customer's account records?

  1. Two years after the account is closed
  2. Ten years after the account is closed
  3. Six years after the account is closed Correct answer.
  4. Three years after the account is closed

Explanation

Rule 17a-3 requires account records to be preserved for six years after the account is closed. During the first two of those years the records must be kept in an easily accessible place.

Question 42Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer wants to give her daughter 200 shares of stock that she holds in certificate form. To have the shares re-registered, the firm will ask the customer to sign:

  1. A new account application for the daughter alone
  2. A stock power with a signature guarantee Correct answer.
  3. A corporate resolution
  4. Letters testamentary

Explanation

Re-registering certificates requires the owner to sign a stock power, and the signature must be guaranteed so the transfer agent can verify authenticity. An account application for the recipient opens an account but does not transfer title to the shares.

Question 43Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer emails the firm complaining that her representative placed unauthorized trades in her account. Under FINRA Rule 4513, the firm must keep a record of this complaint for at least:

  1. Two years
  2. Six years
  3. Four years Correct answer.
  4. Three years

Explanation

Rule 4513 requires firms to create and preserve a record of each written customer complaint for at least four years. The record must identify the complainant, the date, and the substance of the complaint.

Question 44Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer deposits $25,000 in cash into her brokerage account. What must the firm do?

  1. File a Currency Transaction Report within 15 calendar days Correct answer.
  2. File a Currency Transaction Report before accepting the cash
  3. File a Suspicious Activity Report on the same business day
  4. No filing, because the deposit is below $100,000

Explanation

Currency transactions exceeding $10,000 must be reported to FinCEN on a Currency Transaction Report, generally within 15 calendar days of the transaction. The filing is routine and does not by itself suggest suspicious activity.

Question 45Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A representative learns that the firm filed a Suspicious Activity Report about a customer's transactions. How should the representative handle this information with the customer?

  1. She must not disclose the report to the customer Correct answer.
  2. She must inform the customer within 30 days
  3. She may confirm it if the customer asks directly
  4. She must have the customer sign a copy of the report

Explanation

SAR confidentiality rules prohibit disclosing that a report was filed, or anything that would reveal the filing, to the subject of the report. The prohibition binds all firm personnel and does not expire.

Question 46Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer moves her account to a new broker-dealer through the Automated Customer Account Transfer Service. Under FINRA Rule 11870, within how many business days must the delivering firm validate or take exception to the transfer instruction?

  1. Ten business days
  2. Five business days
  3. Three business days Correct answer.
  4. One business day

Explanation

The delivering firm must validate the transfer instruction or take exception within three business days of receiving it. If it fails to act within that window, the transfer may proceed without its affirmation.

Question 47Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer owns shares of a company that are held in street name at her broker-dealer. Which statement about proxy voting is correct?

  1. The transfer agent votes the shares on the customer's behalf
  2. The firm votes the shares for management unless the customer objects
  3. The firm forwards the materials and the customer votes Correct answer.
  4. The firm votes the shares as it sees fit in the customer's interest

Explanation

Beneficial owners retain the right to vote shares held in street name, and the firm must forward proxy materials and other issuer communications so the customer can vote. The firm may not vote those shares absent the customer's direction.

Question 48Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A representative sells 100 shares of ABC to a customer from the firm's own inventory. What must the confirmation disclose?

  1. That the customer may cancel the trade within five days
  2. That no markup was charged on the transaction
  3. That the firm acted as an agent for the customer
  4. That the firm acted as a principal in the transaction Correct answer.

Explanation

Rule 10b-10 requires the confirmation to state whether the broker-dealer acted as agent for the customer or as principal for its own account. When the firm sells from inventory it acts as principal, and the price reflects a markup.

Question 49Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A representative wants to serve as a paid director of a local bank that has no connection to her firm. Under FINRA rules, she must:

  1. Resign from her firm before accepting the position
  2. Take no action, since the position involves no securities
  3. Give her firm prior written notice of the activity Correct answer.
  4. Obtain FINRA's approval before accepting the position

Explanation

FINRA Rule 3270 requires a representative to give the firm prior written notice of any outside business activity for compensation. The firm then determines whether the activity creates conflicts and whether additional limits apply.

Question 50Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

Under Regulation Best Interest, when must a firm deliver Form CRS to a retail investor?

  1. Only upon the investor's written request
  2. Within 30 days after the account is opened
  3. Annually with the customer's tax reporting statement
  4. At or before a recommendation or account opening Correct answer.

Explanation

Form CRS must be delivered before or at the earliest of a recommendation to the retail investor, the opening of a brokerage account, or entering into an advisory contract. It summarizes the relationship, services, fees, and conflicts.