Stock Broker Customer Accounts & Suitability

Question 1

What information must a broker-dealer gather before opening a new customer account under the 'know your customer' (KYC) rule?

Accepted Answer

Name, address, date of birth, Social Security number, financial situation, investment objectives, and risk tolerance

Answer

Only the customer's name and phone number

Answer

Only investment objectives

Answer

Name and bank account number only

Question 2

What is a 'discretionary account' and what special requirement does it have?

Accepted Answer

An account where the broker can make trading decisions without prior customer approval for each trade; requires written authorization from the customer

Answer

An account with automatic monthly contributions; requires a minimum balance

Answer

An account for minors; requires parental consent

Answer

An account for options trading; requires options agreement

Question 3

What is a UGMA/UTMA account?

Accepted Answer

A custodial account where an adult manages assets gifted to a minor until the minor reaches the age of majority

Answer

A retirement account for union members

Answer

An account for undocumented investors

Answer

A joint account between unrelated business partners

Question 4

Which type of account allows married couples to hold securities jointly with the right of survivorship, so that assets automatically transfer to the surviving spouse?

Accepted Answer

Joint tenants with right of survivorship (JTWROS)

Answer

Tenants in common

Answer

Community property account

Answer

Individual account

Question 5

Under FINRA Rule 4512, broker-dealers must make 'reasonable efforts' to obtain which information for non-institutional customer accounts?

Accepted Answer

The name of a trusted contact person

Answer

Tax returns for the past 3 years

Answer

Employment history for 10 years

Answer

A credit score from a major bureau

Question 6

What is an IRA (Individual Retirement Account) and what is the key tax benefit of a Traditional IRA?

Accepted Answer

A personal retirement account where contributions may be tax-deductible and earnings grow tax-deferred until withdrawal

Answer

A corporate pension plan; employer contributions are tax-free

Answer

A government-sponsored savings bond; interest is federally tax-free

Answer

A health savings account; withdrawals for medical expenses are tax-free