Client Relations and Account Management Flashcards

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

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

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

A 'discretionary account' allows:

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

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

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

Answer: Transfer on Death (TOD) account

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

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:

Answer: Customer's neighbor's investment strategy

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

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

Answer: Insider trading

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

What is the primary purpose of sending a trade confirmation to a customer?

Answer: To provide details of the executed transaction, including price, quantity, and commissions

Trade confirmations are legally required documents that inform customers of the specific details of each transaction executed on their behalf.