SIE Exam: Customer Accounts

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When are cold calls permitted?
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Terms in this set (58)
When are cold calls permitted?
Between 8am and 9pm in the time zone of the person being called
Are broker-deals required to maintain a record of new account forms?
Yes
What is an introducing firm?
Has a direct relationship with the client -- can open accounts and accept customer orders

Does not handle customer assets or actual trade
What is a clearing firm?
Responsible for processing and selling customer transactions, maintaining custody of customer cash and securities
What is free-riding?
When an investor sells her securities without ever paying for them
What is necessary to execute short sales?
A margin account
What does Regulation T require for the short sale of securities?
Customers must deposit at least 50% of purchase price in equity and can borrow remaining 50% from broker-dealer
Which securities can be purchased on margin?
Exchange-listed stocks
OTC stocks
Bonds
Closed-end funds
ETFs
LEAPS options with 9+ months to expiration
What is a hypothecation agreement?
A customer agrees to pledge the securities in the account as collateral for a loan
When is a trade considered discretionary?
When a rep decides any one of the following:
1. Action: whether to buy or sell
2. Asset: which security to buy
3. Amount: number of shares
What is necessary for discretionary transactions to be executed?Power of attorneyWhat is an individual account?The owner has trading authority -- a non-account holder can only trade if approved in writing by account holderWhat is a joint account?Account with 2+ owners, two unrelated adults can open a joint account, but a parent and minor child cannotWhat is a joint tenants in common (TIC) account?Each account holder owns a specific % of the assets Two siblings who want to open an account together but leave assets to respective spouses should open this type of accountWhat is a joint tenants with rights of survivorship (JTWROS) account?All owners own 100% of assetsCan a minor open an individual account or be part of a joint account?No, but she can be part of a UGMA or UTMACan a minor trade in any type of account?NoWhose social security number is required for a UGMA or UTMA account?The minor's numberCan the assets in a UGMA/UTMA account be transferred to another child's account?NoCan gifts made into a child's account be revoked?NoWhat is a benefit of a trust?Allows the trust creator to limit or restrict the use of assets (for example, to education)How often must customer account statements be sent?Quarterly, but monthly if there is any account activityWhen does a trade confirmation have to be sent?On or before the settlement dateWhat is the DTCC?A clearing corporation that helps facilitate the exchange, payment, and settlement of tradesHow long can a firm hold on to a customer's mail?For up to 3 months -- this request must be in writingWhat does Regulation S-P require?Requires firms to provide clients with privacy notices at account opening and annually after thatIs the SIPC an agency of the US government?No, it is a non-profit organizationWhat does SIPC cover?Protects customers' cash and securities from a broker-dealer failure (not from market loss)What does SIPC not protect?Does not protect non-securities such as commodities or futuresHow much does SIPC cover?Up to $500,000 in total, but no more than $250,000 in cashWhat are qualified plans?- Pre-tax contributions - Tax-deferred growth - Taxable distributionsAre distributions taxable under a qualified plan?Yes, all distributions are taxable as ordinary incomeWhat does the ERISA apply to?Only private, employer-sponsored plans (not public workers or government employees)What type of plan is a pension plan?A defined benefit planAre defined contribution plans qualified plans?Yes, so they have tax-deductible contributions and tax-differed growthWhat are Keogh plans?Allows self-employed individuals to contribute to retirementWho can contribute to a SEP-IRA?Only the employer, NOT the employeeWhat is a non-qualified plan?- After-tax contributions - Tax-deferred growth - Only growth is taxed when distributions are takenCan an individual contribute to both a corporate plan and IRA?YesWhat type of income can be contributed to an IRA?Only earned income, investment income cannot be usedIs it smart to put municipal bonds in an IRA?No, because the bond is already tax-freeDo tax-deductible, traditional IRAs work more like qualified or non-qualified plans?Work like qualified plansDo non-deductible, traditional IRAs work more like qualified or non-qualified plans?Work like non-qualified plansWhat is a rollover?When an individual moves their IRA investments from one plan provider to another -- must be completed within 60 days to avoid potential tax liabilities and early withdrawal penaltiesIf an individual has multiple IRAs, what are the contribution limits?Limits apply to all IRAs in the aggregateWhat are the characteristics of a Roth IRA?- After-tax contributions - Qualified distributions are tax-freeWhat are qualified distributions for a Roth IRA?Must be at least 59.5 years and money must have been in the plan for at least 5 yearsWhat is a guaranteed investment contract (GIC)?An insurance contract that functions like a time deposit -- guaranteed rate of interest and return of principalWhat is the greatest risk of a fixed annuity?Purchasing power risk -- fixed payments may not keep up with inflationWho can variable annuities be sold by?Individuals with both insurance and securities licensesWill payouts from a variable annuity fluctuate?Yes, each month based on the performance of her separate accountWhat is a 403(b) plan?Allows eligible individuals (i.e. non-profit or government employees) to make tax-deductible contributions to the planWho are variable annuities most appropriate for?Individuals who have maximized contributions to their other retirement vehiclesWho are variable annuities not suitable for?Those requiring liquidityWhat is the maximum amount allowed to contributed to 529 plans?Varies by stateHow are 529 plans similar to Roth IRAs?Both offer after-tax contributions, tax-free growth, tax-free distributionsWhat is an advantage of opening an in-state tax plan?Could have tax advantagesAre Coverdell or 529 plans more popular?Even though they have same tax treatment, 529 plans are more popular because they have higher contribution limit