A corporate profit-sharing plan must be set up under
A) a beneficial ownership.
B) an administrator.
C) a trust.
D) a conservatorship. correct answers trust
A customer opens an account, and payment and delivery instructions are established. Beyond the opening of the account, these instructio...
Series 7 || Questions and 100% Verified Answers.
A corporate profit-sharing plan must be set up under
A) a beneficial ownership.
B) an administrator.
C) a trust.
D) a conservatorship. correct answers trust
A customer opens an account, and payment and delivery instructions are established. Beyond the
opening of the account, these instructions may
A) be changed at any time for all transactions going forward.
B) be changed for individual transactions, or going forward, for all transactions.
C) not be changed unless a new account is established.
D) be changed for individual transactions only. correct answers B
Once payment and delivery instructions are established at the time the account is opened, they
can be changed for any individual transaction or for all transactions going forward.
LO 1.a
A new account is opened at your firm and you notice that there is a trusted contact person form
attached to the documentation. You could safely surmise that this is an account for
A) a minor.
B) a trust.
C) a corporation.
D) a specified adult. correct answers D
Per FINRA Rule 2165, a specified adult "is a natural person age 65 or older or a natural person
age 18 or older who the member reasonably believes has a mental or physical impairment that
makes the individual unable to protect his own interests." FINRA requires members to make
reasonable efforts to obtain the name of and contact information for a trusted contact person.
This person must be someone age 18 or older who may be contacted about the customer's
account. The rules do not require a customer to provide trusted contact information, only that the
firm make the effort.
LO 1.d
Which of the following persons must sign a stock or bond power to effect good delivery of
securities sold from an account set up under the Uniform Transfer to Minors Act?
A) Minor
B) Parent
C) Donor
D) Custodian correct answers D
The custodian must sign securities in a custodial account to effect good delivery.
LO 1.b
,A retiree is paid an annual amount equal to 30% of the average of his last three years' salary.
Which of the following retirement plans offers this type of payment?
A) Defined benefit
B) Profit-sharing
C) Defined contribution
D) Deferred compensation correct answers A
A defined benefit retirement plan establishes, in advance, the payout to be received by the
retiree.
LO 1.h
One of your clients has appointed his daughter as the trusted contact person per FINRA Rule
2165. She contacts you to explain that her father's cognitive abilities are declining. Because of
that, before it gets too late, she wants to know what can be done to give her control over the
account. It is likely that the best suggestion would be to have her father sign
A) the discretionary power authorization.
B) a limited power of attorney.
C) a durable power of attorney.
D) a full power of attorney. correct answers C
A durable power of attorney is used when the account owner has diminished physical or mental
capacity. It is durable because it survives the client becoming legally incompetent (but does not
survive death).
LO 1.d
For which of the following business structures is the income taxed to the business?
A) A general partnership
B) An S corporation
C) A limited partnership
D) A C corporation correct answers D
Partnerships, limited or general, and S corporations do not pay income tax. Any income earned
by the business flows through to the owners. On the other hand, C corporations are taxable
entities and must pay tax on their income before they can distribute dividends to shareholders.
LO 1.c
When an investor opens a new account at a member firm, FINRA rules require
A) the signature of the principal signifying that the account has been accepted.
B) the applicant's Social Security number.
C) the applicant's date of birth.
D) the applicant's signature. correct answers A
The only signature required on the new account form for an individual client is the signature of
the partner, officer, or manager (a registered principal) denoting that the account has been
accepted in accordance with the member's policies and procedures for acceptance of accounts. It
is the customer identification program (CIP) that requires the date of birth and Social Security or
,tax ID number. All FINRA requires is a statement that the applicant is of legal age. FINRA states
that each member shall also make reasonable efforts to obtain, prior to the settlement of the
initial transaction in the account, the applicant's Social Security or tax ID number. Please notice
that the question is differentiating between what is "need to know" and what is "nice to know."
LO 1.d
If a 40-year-old customer earns $65,000 a year, and his 38-year-old spouse earns $40,000 a year,
how much may they contribute to IRAs?
A) They may not contribute because their combined income is too high.
B) Only the higher wage earner may contribute to an IRA.
C) They may contribute up to the maximum annual allowable dollar limit split evenly between
both accounts.
D) They may each contribute 100% of earned income or the maximum annual allowable dollar
limit, whichever is less, to an IRA. correct answers D
Regardless of the amount, individuals or couples may contribute to their IRAs if they have
earned income. Each is entitled to contribute 100% of earned income up to the maximum
allowed. However, if either or both of them are covered under a qualified plan, limits may exist
on the deductibility of the contributions.
LO 1.g
cash account correct answers brokerage account in which securities are paid for in full
IRAs can only be opened as a ____ acct. correct answers cash acct
401ks can only be opened as a ____ acct. correct answers cash acct
Coverdell's and ESA's can only be opened as a _____ account correct answers cash
In a margin account, customers pay interest on the ________ balance. correct answers borrowed
balance (difference between the purchase price and the amount of money put in is a loan)
Margin Account correct answers account at a brokerage firm that requires a substantial deposit of
cash or securities and permits the purchase of other securities using credit granted by the
brokerage firm
buying securities on margin correct answers the securities firm lends the necessary funds at the
time of purchase with the securities in the portfolio serving as collateral for the loan
margin correct answers the minimum amount of equity a customer
to open this type of account the customer must meet certain minimal suitability requirements
correct answers margin account
Fee-Based Accounts correct answers -charge a single fee (either fixed or percentage of assets)
instead of commission based charged for brokerage services.
, -Fee based accounts are appropriate only for investors who engage in at least a moderate level of
trading activity
-Accounts with low level of trading activity may be better off with commission based charges
what level of trading is appropriate for a fee based account? correct answers at least a moderate
level of trading
what level of trading is appropriate for a commission-based account? correct answers low level
of trading
a benefit of fee based account reduce the likelihood of this abusive sales practice: correct
answers churning
churning correct answers excessive buying and selling of securities to generate commissions
Excessive buying and selling of securities to generate commissions when it does not meet the
customer's investment goals is called correct answers churning
Reverse Churning correct answers The practice of placing clients who trade infrequently in fee-
based accounts
-disadvantages the client
-low trading is better for commissioned accounts
are fee based accounts wrap-fee accounts? correct answers no
Wrap fee account correct answers firms that provide a group of advisory services in addition to
brokerage services and charge a single fee (usually a % of assets)
Prime Brokerage Account correct answers institution that selects 1 member firm to provide
custody, trading and other services (prime broker) while other firms (executing broker) will
execute most trades placed by the customer.
to open a prime brokerage account for a customer, a the prime broker must correct answers sign
an agreement with the customer, spelling out the contract terms and names the executing brokers
the benefit of having a prime brokerage account correct answers provides the client with the
ability to trade w/ multiple brokerage houses while keeping a central main account with their
cash & securities
day trader correct answers an individual who buys and then later sells stocks and other securities
in the same day to take advantage of intraday price movements
pattern day trader correct answers one who executes four or more day trades in a five business
day period
-minimum requirement: $25k in the day of trade
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