- A client grants his son a durable power of attorney over his brokerage account. This authorization is unique because it:
Answer: remains in effect even if the client becomes legally incapacitated.
A key feature of a durable power of attorney is that it survives the legal incapacitation or disability of the grantor. A non-durable power of attorney would terminate upon the grantor's incapacitation.
- Which of the following is necessary for a corporate account setup to evidence who owns the account's assets?
Answer: Account registration in the corporation's name with supporting entity documents
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of account registration and supporting entity documents is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- A registered representative is reviewing a new account application for a discretionary account. Who must sign the new account form?
Answer: The registered representative and the approving principal only
FINRA rules require that new account forms be signed by the registered representative handling the account and the approving principal. While it is good business practice, there is no SRO rule requiring the client's signature on a standard new account form (though they must sign other documents like the options or margin agreement).
- When opening a corporate account, which step best supports suitability and account profile requirements?
Answer: Collecting investment objectives and financial information for the entity
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of collecting suitability information like investment objectives is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- A corporation wants the broker to decide trade timing only; what documentation is required when opening a discretionary account?
Answer: Written discretionary authority and principal approval before discretion begins
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like written discretionary authority for timing discretion is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- Which of the following is necessary for a corporate account setup to permit trading by a non-officer employee?
Answer: A corporate resolution or written authorization naming that employee
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like corporate resolutions for non-officer trading is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- An executor wishes to transfer securities from a deceased client's individual account into the name of the estate. Which set of documents is required for the firm to process this request?
Answer: A certified copy of the death certificate, letters testamentary, and an inheritance tax waiver (if applicable).
To transfer assets from a deceased person's account, the firm must receive proper legal documentation. This includes a certified copy of the death certificate to prove death, letters testamentary to prove the executor's authority, and possibly a state-specific inheritance tax waiver to release the assets.
- A client calls her representative and says, 'Please buy 100 shares of ABC for me sometime today if you think the price is good.' For the representative to accept this order, which of the following is required?
Answer: No special authorization beyond the new account form
This is a 'not-held' order. The client has specified the asset (ABC), the action (buy), and the amount (100 shares). The discretion is limited to time and/or price of execution for that day only. Not-held orders do not require written discretionary authority and can be accepted on a standard account.
- To open a brokerage account for a general partnership, the firm is required to obtain a copy of the partnership agreement. What is the primary purpose of this document in the account opening process?
Answer: To identify the partners authorized to conduct transactions for the account.
The partnership agreement specifies the business of the partnership and names the general partner(s) who have the authority to act on its behalf, including opening accounts and executing trades. The firm must obtain this document to know who can legally transact for the partnership.
- A customer wishes to open a numbered account to maintain a degree of privacy. Under FINRA's Know Your Customer (KYC) rule, the brokerage firm must:
Answer: obtain a written statement from the customer attesting to ownership of the account.
Firms are permitted to open numbered accounts. However, they are still required to identify the customer and must obtain a signed written statement from the client attesting to the ownership of the account. All standard KYC and CIP requirements apply; the number or symbol is simply used on statements and confirmations.
- Discretionary authority granted by a client to a registered representative via a limited power of attorney automatically terminates upon:
Answer: the death of the client.
Any power of attorney automatically terminates upon the death of the grantor (the client). While a POA also terminates upon the death or incapacity of the agent (the registered representative), the death of the client is the most fundamental termination event since the client can no longer legally grant authority.
- Which of the following is necessary for a corporate account setup when the corporation is a partnership?
Answer: A partnership agreement identifying partners and authority
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like partnership agreements is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- During corporate brokerage account setup, which document authorizes officers to open and trade the account?
Answer: A corporate resolution identifying authorized signers
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like corporate resolutions and powers of attorney is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- A well-known public figure wishes to open an account but requests that it be identified only by a symbol or number for privacy reasons. Under FINRA rules, this is permissible provided that the firm:
Answer: Receives a written statement from the customer attesting to the ownership of the account.
When you encounter questions about account privacy accommodations on the Series 7, focus on FINRA's balance between customer privacy and regulatory compliance. Firms must still maintain proper records and establish customer identity, even when using coded accounts.
The correct approach for symbol or number accounts is found in answer D. FINRA rules permit these privacy arrangements as long as the firm receives a written statement from the customer attesting to account ownership. This written attestation creates the necessary paper trail for regulatory purposes while allowing the desired anonymity. The firm can then maintain records linking the symbol/number to the actual beneficial owner internally.
Answer A is incorrect because waiving paper confirmations and statements doesn't address the core requirement for proper account identification and recordkeeping. Answer B creates a fictional requirement - there's no special SEC filing needed for coded accounts. The SEC doesn't need to know the beneficial owner's identity upfront. Answer C misrepresents how institutional accounts work. Institutional designation doesn't exempt accounts from Customer Identification Program (CIP) rules, and a public figure's personal account wouldn't qualify as institutional anyway.
The key distinction here is that privacy accommodations don't eliminate compliance obligations - they modify how those obligations are met. The firm still needs proper documentation establishing who owns the account, just not necessarily on every piece of correspondence.
Remember this pattern: FINRA often allows privacy measures when proper written documentation exists to satisfy regulatory requirements. Look for solutions that balance customer needs with compliance obligations rather than answers that completely waive regulatory protections.
- During corporate account opening, which document helps establish the account's tax reporting status for the entity?
Answer: Form W-9 completed for the corporate taxpayer ID
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like Form W-9 for tax reporting is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- A corporate account is opened online; what must the firm do if CIP verification cannot be completed promptly?
Answer: Follow its CIP procedures, possibly restricting activity until verified
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of CIP procedures for online accounts is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- The Chief Financial Officer of a corporation wants to open a new account to write covered calls against a large stock position held by the company. What documentation must the registered representative obtain from the corporation before the account can be approved for this strategy?
Answer: A certified copy of the corporate charter and a corporate resolution specifying which individuals are authorized to trade.
When a corporation wants to open an options trading account, you're dealing with entity account documentation requirements, which are more complex than individual accounts. The key principle is that corporations need proper legal authorization and clear identification of who can act on behalf of the entity.
For corporate options accounts, broker-dealers must obtain two critical documents. First, a certified copy of the corporate charter establishes the corporation's legal existence and basic powers. Second, a corporate resolution is essential because it specifically identifies which individuals have authority to trade options on behalf of the corporation. This resolution protects both the firm and the corporation by clearly defining who can make trading decisions.
Answer C is correct because it includes both required documents: the certified copy of the corporate charter and the corporate resolution specifying authorized traders.
Answer A is wrong because while the corporate charter is needed, a margin agreement alone isn't sufficient documentation for options trading authority. Answer B fails because although corporate resolutions and options agreements are important, the corporate charter is the foundational document that must be obtained first. Answer D is incorrect because an affidavit of domicile and board member list don't establish trading authority or the corporation's legal powers.
Remember this pattern: corporate accounts always require both proof of legal existence (charter/articles of incorporation) and proof of trading authority (corporate resolution). The resolution must specifically name authorized individuals, not just reference titles like "CFO," since corporate officers can change.
- A corporate client wants duplicate confirms sent to its attorney; what documentation is typically required?
Answer: A written third-party authorization from an authorized officer
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like third-party authorizations is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- For a corporate discretionary account, what internal approval is generally required before the rep can begin trading?
Answer: Principal approval of the discretionary account and authority
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of internal approvals like principal approval for discretionary accounts is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
- For corporate account setup, which document typically proves the corporation's legal existence and formation state?
Answer: A certificate of incorporation or similar formation document
This question tests Series 7 candidates' understanding of required account documentation and authorizations necessary for opening various account types. Identifying the correct documents and authorizations is crucial for compliance with regulatory standards and proper account management. In the specific scenario presented, understanding the role of documents like certificates of incorporation is essential. The correct answer is based on standard regulatory requirements for account types, illustrating compliance with FINRA and SEC regulations. A common misconception is choosing an incorrect or irrelevant document type, which can lead to compliance issues. To help candidates, emphasize the importance of familiarizing with account-specific documentation and maintaining up-to-date knowledge of regulatory changes. Practice identifying key documents and understanding their purpose in account management.
