WMS Documentation & Legal Requirements 2 — Questions and Answers
Question 1: Under Regulation Best Interest (Reg BI), broker-dealers must provide clients with which document before or at the time of a recommendation?
- Form ADV Part 2
- Form CRS (Client Relationship Summary) (Correct answer)
- FINRA BrokerCheck report
- Prospectus
Correct answer: Form CRS (Client Relationship Summary)
Reg BI requires broker-dealers to deliver Form CRS to retail customers at the beginning of the relationship.
Question 2: A wealth manager wants to update a client's investment policy statement (IPS) after a significant life event. What is the primary purpose of revising the IPS?
- To satisfy annual regulatory filing requirements
- To realign the written strategy with the client's current goals and risk tolerance (Correct answer)
- To document the advisor's compensation structure
- To update the client's tax identification number
Correct answer: To realign the written strategy with the client's current goals and risk tolerance
The IPS should be revised whenever the client's circumstances change materially to ensure the written strategy remains aligned with current objectives.
Question 3: Which provision in the USA PATRIOT Act requires financial institutions to verify the identity of new clients?
- Bank Secrecy Act Section 326
- Customer Identification Program (CIP) (Correct answer)
- Anti-Money Laundering Safe Harbor Rule
- OFAC Screening Mandate
Correct answer: Customer Identification Program (CIP)
The Customer Identification Program (CIP) rule requires firms to collect and verify identifying information before establishing an account.
Question 4: A trust document names a successor trustee. Under what circumstance does the successor trustee typically assume authority?
- Upon the original trustee's request for a vacation
- When the original trustee becomes incapacitated, resigns, or dies (Correct answer)
- At the end of each calendar year
- When the beneficiary turns 18
Correct answer: When the original trustee becomes incapacitated, resigns, or dies
A successor trustee steps in only when the original trustee can no longer serve due to incapacity, resignation, or death.
Question 5: What does a 'springing' durable power of attorney mean?
- It takes effect immediately upon signing
- It becomes effective only upon a specified triggering event, typically incapacity (Correct answer)
- It expires after one year unless renewed
- It grants unlimited authority to the agent
Correct answer: It becomes effective only upon a specified triggering event, typically incapacity
A springing POA 'springs' into effect upon a defined condition, most commonly the principal's legal incapacity.
Question 6: When must a financial institution file a Suspicious Activity Report (SAR) after initially detecting suspicious activity?
- Within 15 calendar days
- Within 30 calendar days (Correct answer)
- Within 60 calendar days
- Within 90 calendar days
Correct answer: Within 30 calendar days
FinCEN requires SAR filing within 30 calendar days of detecting the facts that constitute a basis for the report.
Question 7: Which document establishes the legal authority for a health care proxy to make medical decisions on behalf of an incapacitated individual?
- Revocable living trust
- Health Care Power of Attorney (HCPOA) (Correct answer)
- Financial durable power of attorney
- Letter of instruction
Correct answer: Health Care Power of Attorney (HCPOA)
A Health Care Power of Attorney designates an agent specifically empowered to make medical decisions when the principal is incapacitated.
WMS Documentation & Legal Requirements 2
Under Regulation Best Interest (Reg BI), broker-dealers must provide clients with which document before or at the time of a recommendation?