SIE Customer Accounts and Suitability 1 — Questions and Answers
Question 1: Which document must be completed before a new brokerage account is opened?
- Options Disclosure Document
- New Account Form (customer profile) (Correct answer)
- Regulation T margin agreement
- SIPC membership form
Correct answer: New Account Form (customer profile)
A new account form collecting the customer's financial information, investment objectives, and risk tolerance must be completed before trading.
Question 2: What is the 'suitability' obligation under FINRA rules?
- Firms must offer the lowest-cost products available
- Recommendations must be appropriate based on the customer's financial profile and objectives (Correct answer)
- All customers must be offered the same investment options
- Brokers must guarantee a minimum return on recommendations
Correct answer: Recommendations must be appropriate based on the customer's financial profile and objectives
FINRA's suitability rule requires that investment recommendations be appropriate for the specific customer based on their financial situation and goals.
Question 3: A discretionary account allows a broker to:
- Trade customer funds without prior approval for each transaction (Correct answer)
- Charge higher commissions than standard accounts
- Bypass suitability requirements
- Open accounts for minors without custodian approval
Correct answer: Trade customer funds without prior approval for each transaction
Discretionary accounts grant the broker written authority to make trades without contacting the customer for each decision.
Question 4: A joint tenancy with right of survivorship (JTWROS) account means:
- Each owner can only access their proportional share
- Upon one owner's death, their share passes to the surviving owner(s) (Correct answer)
- The account is subject to probate upon any owner's death
- Owners can designate different beneficiaries for their share
Correct answer: Upon one owner's death, their share passes to the surviving owner(s)
In a JTWROS account, when one owner dies, ownership automatically passes to the surviving account holder(s) outside of probate.
Question 5: What is the primary purpose of the USA PATRIOT Act requirement for customer identification programs (CIP)?
- To prevent market manipulation
- To prevent tax evasion on investment gains
- To verify customer identity and prevent money laundering (Correct answer)
- To ensure customers meet accredited investor standards
Correct answer: To verify customer identity and prevent money laundering
CIP requirements under the PATRIOT Act require firms to verify customer identity to combat money laundering and terrorist financing.
Question 6: Under Regulation T, the initial margin requirement for purchasing equity securities is:
- 25%
- 50% (Correct answer)
- 75%
- 100%
Correct answer: 50%
Regulation T, set by the Federal Reserve, requires customers to deposit at least 50% of the purchase price of marginable securities.
SIE Customer Accounts and Suitability 1
Which document must be completed before a new brokerage account is opened?