Stock Broker Customer Accounts & Suitability 3

Question 1

What is a 'power of attorney' (POA) in the context of brokerage accounts?

Accepted Answer

A document granting a designated person authority to make investment decisions on behalf of the account owner

Answer

A power of attorney grants a designated person (the attorney-in-fact) the legal authority to act on behalf of the account owner, including making investment decisions, deposits, and withdrawals.

Question 2

What is the purpose of a 'new account form' (NAF) in the broker-dealer registration process?

Accepted Answer

To collect comprehensive customer financial and personal information required for KYC compliance and suitable recommendations

Answer

The new account form collects required customer information including identity, financial background, investment objectives, and risk tolerance, forming the foundation for KYC compliance and suitable investment recommendations.

Question 3

What is a 'margin agreement' and what three components does it typically include?

Accepted Answer

A contract governing margin account use; hypothecation agreement, loan consent, and credit agreement

Answer

A margin agreement governing credit accounts typically includes the hypothecation agreement (pledging securities as collateral), loan consent (allowing the broker to lend the securities), and a credit agreement (terms of the loan).

Question 4

Which type of account registration passes assets directly to named beneficiaries upon the account holder's death, bypassing probate?

Accepted Answer

Transfer on Death (TOD) or Payable on Death (POD) designation

Answer

A Transfer on Death (TOD) or Payable on Death (POD) designation allows account assets to pass directly to named beneficiaries upon the account holder's death, completely bypassing the probate process.

Question 5

What is the SIPC (Securities Investor Protection Corporation) and what does it protect?

Accepted Answer

A non-profit membership corporation that protects customers of failed broker-dealers by restoring missing cash and securities up to $500,000

Answer

SIPC is a non-profit corporation that protects customers of financially failed broker-dealers by restoring missing cash and securities up to $500,000 per customer (with a $250,000 cash sublimit) — it does not cover investment losses.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Customer Accounts & Suitability 3