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

KYC requirements mandate collecting comprehensive customer information including personal identification, financial status, investment experience, and investment objectives to ensure suitable recommendations.

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

In a discretionary account, the broker has written authorization to make investment decisions (select security, price, quantity, and timing) on the client's behalf without calling for approval on each transaction.

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

Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts are custodial accounts allowing adults to hold and manage securities gifted to minors until they reach legal adulthood.

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

In a Joint Tenants with Right of Survivorship (JTWROS) account, if one account holder dies, their share automatically passes to the surviving joint tenant(s) without going through probate.

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

FINRA Rule 4512 requires broker-dealers to make reasonable efforts to obtain the name and contact information of a trusted contact person for non-institutional customer accounts, to help protect vulnerable customers.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Customer Accounts & Suitability