S-12 Client Relations and Account Management

Question 1

When opening a new account, a broker-dealer must obtain which of the following from the customer?

Accepted Answer

Name, address, date of birth, and Social Security Number (or taxpayer ID)

Answer

FINRA rules and CIP requirements mandate collecting name, address, date of birth, and taxpayer identification number for new accounts.

Question 2

A 'discretionary account' allows:

Accepted Answer

The broker to make trading decisions without contacting the customer for each trade

Answer

In a discretionary account, the registered representative has written authorization to make trading decisions (security, quantity, price) without prior customer approval for each trade.

Question 3

Which type of account allows assets to transfer directly to a named beneficiary upon the account holder's death without going through probate?

Accepted Answer

Transfer on Death (TOD) account

Answer

A Transfer on Death (TOD) account designates a beneficiary who receives the assets directly upon the account holder's death, bypassing probate.

Question 4

Under FINRA's suitability rule, a registered representative must have reasonable basis to believe a recommendation is suitable based on all of the following EXCEPT:

Accepted Answer

Customer's neighbor's investment strategy

Answer

Suitability is based on the individual customer's profile — including age, risk tolerance, financial situation, and objectives — not on what others are doing.

Question 5

A registered representative receives a tip about a company from a friend at that company. Trading on this information would be an example of:

Accepted Answer

Insider trading

Answer

Trading securities based on material, nonpublic information obtained from a company insider constitutes insider trading, which is illegal under SEC Rule 10b-5.

S-12 Test Practice Test

S-12 Test Practice Test

S-12 Client Relations and Account Management