Question 1
Multiple ChoiceWhich item is generally not required when completing a new brokerage account form?
Explanation
A new account form generally requires identifying and employment information, including the customer’s physical address, citizenship, and employer. Marital status may be requested by a firm, but it is not a required item.
Why the Other Answers Are Incorrect
Citizenship, physical address, and employer information are required parts of the customer identification and new account process.
Question 2
Multiple ChoiceBefore a customer enters the first options trade in an account, which action is not required to have already occurred?
Explanation
The customer must complete the new account process, receive the options disclosure document, and obtain account approval before entering the first options trade. However, the signed options agreement may be returned after approval, provided it is received within 15 days.
Why the Other Answers Are Incorrect
Completion of the new account form, delivery of the options disclosure document, and approval by a designated options supervisor must occur before the customer’s first options transaction.
Question 3
Multiple ChoiceA customer’s margin account falls below the broker-dealer’s maintenance requirement, and the customer does not deposit the additional funds requested. The broker-dealer may
Explanation
If a customer fails to satisfy a margin call, the broker-dealer may choose which securities to liquidate to bring the account back into compliance. The customer does not have the right to determine which positions will be sold.
Why the Other Answers Are Incorrect
The broker-dealer is not required to lend additional funds or grant an extension. It also does not have to sell only the security responsible for the decline.
Question 4
Multiple ChoiceBefore opening which type of account must a broker-dealer provide the customer with a document explaining risks such as losing more than the amount deposited and having securities sold without prior notice?
Explanation
A customer opening a margin account must receive a margin risk disclosure document. The disclosure explains that borrowing to purchase securities can magnify losses and that the broker-dealer may liquidate securities to satisfy a maintenance call without first consulting the customer.
Why the Other Answers Are Incorrect
Joint, custodial, and wrap fee accounts do not require the specific margin risk disclosure document unless margin privileges are also added to the account.
Question 5
Multiple ChoiceWhen must a prospective options customer receive the Options Clearing Corporation’s options disclosure document?
Explanation
The options disclosure document must be delivered to the customer at or before the time the account is approved for options trading. It explains the characteristics and risks of standardized options.
Why the Other Answers Are Incorrect
Delivery with the first trade confirmation or monthly statement would occur too late. The 15-day deadline applies to the customer’s signed options account agreement, not to delivery of the options disclosure document.
Question 6
Multiple ChoiceA customer is preparing to place an initial options transaction. When must the broker-dealer provide the customer with the options disclosure document?
Explanation
The options disclosure document must be delivered before the customer’s first options trade or at or before the time the account is approved for options trading. The document explains the characteristics and risks of standardized options.
Why the Other Answers Are Incorrect
Delivery with the first confirmation or after the trade would occur too late. The 15-day deadline applies to the signed options agreement, not to the options disclosure document.
Question 7
Multiple ChoiceUnder NASAA’s Model Rule on Unethical Business Practices of Investment Advisers and Investment Adviser Representatives, an advisory agreement between a state-registered investment adviser and a client must
Explanation
Investment advisory contracts, including renewals, must be in writing under the NASAA Model Rule. The agreement should clearly describe the advisory relationship and its terms.
Why the Other Answers Are Incorrect
An adviser may not project or guarantee future investment performance. Advisory fees may be based on factors such as assets under management and do not have to remain fixed. NASAA does not require every advisory contract to renew annually.
Question 8
Multiple ChoiceWhich compensation arrangement for an investment adviser would most likely violate the Uniform Securities Act?
Explanation
An investment adviser may not guarantee a client against loss. The client’s agreement does not make the guarantee permissible.
Why the Other Answers Are Incorrect
Investment advisers may charge reasonable flat fees, hourly fees, or fees based on assets under management. Different clients may also be charged under different fee structures when the arrangements are fair, reasonable, and properly disclosed.
Question 9
Multiple ChoiceWhich information would not satisfy customer identification program requirements when opening an account?
Explanation
A customer identification program requires a physical residential or business address. A post office box may be used as a mailing address, but it cannot replace the required physical address.
Why the Other Answers Are Incorrect
The customer’s name, date of birth, and taxpayer identification number are required identifying information under customer identification program rules.
Question 10
Multiple ChoiceUnder the Uniform Securities Act, an investment advisory contract must
Explanation
An investment advisory contract must be in writing and describe the advisory fees, including how those fees are determined.
Why the Other Answers Are Incorrect
The contract does not have to list every state where the adviser is registered. There is no six-month penalty-free cancellation requirement. An advisory contract may not be assigned without the client’s consent, but approval from the Administrator is not required.