FINRA Series 6 — All Questions

A fund's 12b-1 distribution plan must be:

• a.Guaranteed to improve the fund's performance
• b.Approved by the SEC each year before use, which reviews and clears every distribution plan annually
• c.Approved initially and renewed at least annually by the board, including a majority of the non-interested directors, and terminable by them or by a shareholder vote✓
• d.Unlimited in the amount it may charge

A 12b-1 plan needs board approval, annual renewal by a board including a majority of independent directors, and can be ended by those directors or by shareholders (Investment Company Act of 1940). FINRA separately caps the charges.

Regulation Best Interest imposes four component obligations on a broker-dealer recommending securities to a retail customer. They are:

• a.Know-Your-Customer, Anti-Money-Laundering, Privacy, and Advertising
• b.Disclosure, Care, Conflict of Interest, and Compliance✓
• c.Suitability, Diversification, Liquidity, and Disclosure
• d.Registration, Reporting, Recordkeeping, and Renewal

Reg BI requires firms to act in the retail customer's best interest through the Disclosure, Care, Conflict of Interest, and Compliance obligations, a standard above the older suitability rule.

Form CRS (the Customer or Client Relationship Summary) must:

• a.Be delivered to institutional clients at account opening, summarizing the firm's services, fees, and conflicts of interest
• b.Be delivered within 30 days after the first trade, summarizing services, fees, and the firm's disciplinary history
• c.Be delivered to retail investors, summarizing services, fees, conflicts, standard of conduct, and disciplinary history✓
• d.Be signed by a supervising principal and refiled with the SEC before each trade made in a retail investor's account

Form CRS is a short relationship summary that a broker-dealer must deliver to each retail investor, before or at the earliest of a recommendation, an order, or the opening of a brokerage account. It describes the firm's services, fees, conflicts of interest, legal standard of conduct, and disciplinary history (Regulation Best Interest and Rule 17a-14). It is aimed at retail investors, not institutional clients, and waiting until after the first trade is too late. The firm files the form once with the SEC through the Central Registration Depository and amends it when facts change; it is not signed and refiled before each trade.17 CFR 240.17a-14

FINRA's gift rule limits gifts given in connection with the recipient's business to a maximum of:

• a.No limit if the gift is disclosed
• b.$300 per person per year✓
• c.$500 per person per year
• d.$100 per person per year

Effective March 30, 2026, FINRA Rule 3220 raised the gift limit from its long-standing $100 to $300 per recipient per year for gifts tied to the recipient's business. Disclosure does not raise the ceiling.

Before participating in a private securities transaction away from the firm for compensation, a representative must:

• a.Obtain the customer's verbal consent
• b.Give prior written notice to the employing firm and receive the firm's written approval✓
• c.Keep a personal record only of the transaction in a file the representative keeps privately
• d.Inform the firm after the deal closes

Selling away for compensation requires prior written notice and the firm's written approval, after which the firm supervises the activity (FINRA Rule 3280). Unapproved selling away is a serious violation.

A registered representative who takes a paid weekend job unrelated to securities must:

• a.Provide prior written notice to the employing member firm✓
• b.Do nothing, since a weekend job unrelated to securities is not an outside business activity
• c.Notify the firm within 30 days after starting the job, since prior notice applies only to securities work
• d.Obtain FINRA's written approval before starting the job and then notify the firm

Under FINRA Rule 3270 any outside business activity for compensation requires prior written notice to the member firm so it can assess conflicts, even when the work is unrelated to securities. Notice after the fact does not satisfy the rule, FINRA does not pre-approve the job, and the registration does not have to be given up. The firm may impose conditions; silence is the violation.FINRA Rule 3270

A representative wants to borrow $5,000 from a customer who is not a family member or a financial institution. This is:

• a.Permitted as long as the interest rate is at market
• b.Permitted with the branch manager's verbal approval
• c.Generally prohibited unless it fits a narrow permitted category and the firm's written procedures allow and approve it✓
• d.Always permitted if repaid within 30 days so long as the customer agrees to the short repayment schedule agreed to in writing

Borrowing from or lending to customers is generally prohibited unless it fits a limited exception (such as family or a lending institution) and the firm's procedures permit and approve it (FINRA Rule 3240). Quick repayment or a market rate does not cure the conflict.

A representative offers to personally reimburse any first-year losses in a nervous customer's account. This is:

• a.Acceptable if documented in the client file
• b.Acceptable with written branch-manager approval
• c.Prohibited, because a registered person may not guarantee a customer against loss✓
• d.Acceptable for accounts under $25,000

Guaranteeing a customer against loss misrepresents investment risk and is flatly prohibited (FINRA Rules). No documentation, supervisory approval, or account size makes the promise permissible.

A registered representative is permitted to share in the gains and losses of a customer's account only when:

• a.The representative contributes at least 50% of the account's capital and tells the firm afterward
• b.The customer gives verbal permission and the firm records the conversation
• c.The representative is a registered principal of the firm and discloses the arrangement
• d.The firm and the customer give prior written approval and sharing is proportionate to the representative's financial contribution✓

A representative may share in an account's gains and losses only with prior written authorization from both the member firm and the customer, and only in direct proportion to the representative's financial contribution to the account. A 50% contribution does not by itself authorize sharing, verbal permission is never enough, and holding a principal's registration does not remove the written-approval requirement.

Urging a customer to buy fund shares just before a distribution to capture it is prohibited because:

• a.The customer must then hold the shares for 12 months
• b.Distributions cannot be paid for the first 30 days after purchase
• c.Funds may distribute only once a year
• d.The NAV falls by the distribution amount, so the customer gains nothing and incurs a current tax liability✓

Selling dividends is deceptive: the NAV drops by the distribution on the ex-date, leaving total value unchanged but creating an immediate taxable event (FINRA Rules). The customer is worse off after tax.

Repeatedly redeeming a customer's shares in one fund family and reinvesting in a similar fund at another family, generating a new sales charge each time, is:

• a.Switching, which is prohibited absent a documented customer benefit✓
• b.Front-running, the recognized term for repeatedly moving a customer between fund families
• c.Rights of accumulation
• d.Selling dividends

Moving a customer between funds with substantially similar objectives solely to generate sales charges is switching, prohibited without a documented benefit (FINRA Rules). Front-running and selling dividends are different violations.

A representative learns a customer is about to place a large buy order and immediately buys the same security in a personal account. This is:

• a.Permitted if the personal order is smaller than the customer's
• b.Permitted, since personal trades are separate from customer business
• c.Permitted if disclosed to a supervisor afterward
• d.Front-running, a prohibited practice✓

Trading ahead of a customer's known block order to profit from the expected price move misuses confidential information and is prohibited regardless of size or after-the-fact disclosure (Securities Exchange Act of 1934).

Which practice would most likely be viewed as a prohibited practice by a registered representative?

• a.Documenting a customer's risk tolerance before a recommendation
• b.Recommending a breakpoint-qualified Class A purchase
• c.Depositing a customer's check into the representative's own bank account overnight before forwarding it✓
• d.Delivering the fund's current prospectus to a customer

Commingling customer funds with a representative's personal funds, even briefly, is a serious violation that can amount to conversion (FINRA Rules). Customer checks must be forwarded promptly to the firm.

A written message distributed to more than 25 retail investors within any 30 calendar-day period is classified as:

• a.A retail communication✓
• b.An institutional communication
• c.Correspondence, the category for up to 100 retail recipients
• d.An internal communication outside the scope of Rule 2210

Rule 2210(a)(5) defines a retail communication as any written, including electronic, communication distributed or made available to more than 25 retail investors within any 30 calendar-day period. Crossing that threshold triggers principal approval before use and, for some pieces, filing. Correspondence is the category for 25 or fewer retail investors, not 100. An institutional communication goes only to institutional investors, so a message reaching retail investors cannot qualify. An internal communication stays inside the firm and is not what is described here.FINRA Rule 2210(a)(5)

A representative emails the same market update to 20 individual retail clients in one month. This communication is categorized as:

• a.A retail communication that must be filed with FINRA within 10 business days of first use
• b.Correspondence, subject to supervision and review procedures✓
• c.A retail communication needing principal approval
• d.An institutional communication, since the clients who received it are all existing customers

Twenty retail recipients in a month is 25 or fewer, so the email is correspondence under Rule 2210(a)(2). Correspondence must be supervised and reviewed under the firm's procedures but does not need principal approval before use or a FINRA filing. Pre-use approval and the filing rules apply to retail communications, which require more than 25 retail recipients in 30 days. An institutional communication goes only to institutional investors, and being an existing customer does not make a person one.FINRA Rule 2210(a)(2)

A communication qualifies as an institutional communication when it is distributed only to:

• a.Employees of the member firm
• b.Any customer with an account over $250,000
• c.Retail prospects who have signed a suitability waiver
• d.Institutional investors such as banks, insurers, and registered investment companies✓

The institutional category depends on the recipient's type, not on account size or paperwork (FINRA Rule 2210). A wealthy individual is still a retail investor.

Retail communications generally must be:

• a.Approved by an appropriately registered principal before first use or filing✓
• b.Approved by the customer in writing
• c.Reviewed by the fund's board of directors
• d.Approved by the SEC before use, which must clear all sales literature before a firm distributes it

A registered principal must approve retail communications before use or filing (FINRA Rule 2210). The SEC does not pre-approve sales material, and customers never approve communications aimed at them.

A member firm must retain records of its communications with the public for:

• a.Six years, the first two being readily accessible
• b.For the life of the enterprise, like the minute books
• c.Three years, with the entire period readily accessible
• d.Three years, the first two of which must be easily accessible✓

Rule 17a-4(b)(4) requires a broker-dealer to preserve its communications, including those covered by FINRA Rule 2210, for at least three years, with the first two years in an easily accessible place. Six years is the period for core records such as ledgers under Rule 17a-4(a), not general communications. Life-of-enterprise retention applies to corporate documents such as articles and minute books. Only the first two years, not the whole three, must be easily accessible.17 CFR 240.17a-4(b)(4); FINRA Rule 2210(b)(4)

Which is an acceptable way to present a fund's past performance in a retail communication?

• a.Showing only the fund's best three-year period, chosen because it ended at a market peak
• b.Calling a bond fund's yield guaranteed because it holds only Treasury and agency securities
• c.Showing standardized average annual total returns for 1-, 5-, and 10-year periods, or since inception✓
• d.Showing the fund's best calendar-year return in large type, with the 1-, 5-, and 10-year returns in small footnote type

Standardized average annual total returns for the 1-, 5-, and 10-year periods (or since inception if the fund is newer), current to the most recent calendar quarter-end, give investors a fair basis for comparison under SEC Rule 482 and FINRA Rule 2210. Picking only the best period is cherry-picking. A fund's yield cannot be called guaranteed, even if its holdings are government securities, because the fund's own yield and share price still vary. The required standardized returns must also be shown with equal prominence, so burying them in small print behind a best-year figure is not acceptable.FINRA Rule 2210(d)(1)(F); 17 CFR 230.482(d)(3)

A firm wants to use a customer testimonial in a retail communication. The rule requires that:

• a.The testimonial be filed with FINRA at least 10 days before first use
• b.The testimonial come only from a customer who made a profit on the investment
• c.The firm disclose the customer's actual returns and the annualized returns for the past one-, five- and ten-year periods
• d.The communication disclose that the testimonial may not be representative and is no guarantee of future performance✓

Testimonials are allowed in retail communications when the communication discloses that the testimonial may not be representative of other customers' experience and is no guarantee of future performance, and, where the customer was paid, that fact too (FINRA Rule 2210). Filing in advance, limiting testimonials to profitable customers and publishing multi-year returns are not what the testimonial provision requires. A testimonial about technical aspects of investing also needs a statement of the speaker's qualifications.FINRA Rule 2210(d)(6)(B)

A customer brings in $12,000 of cash and deposits it on a single business day. What must the firm file?

• a.Nothing, because the deposit is under $25,000
• b.A Suspicious Activity Report only
• c.A Currency Transaction Report✓
• d.Form 1099-B with the IRS

Cash transactions over $10,000 in one business day trigger a Currency Transaction Report under the Bank Secrecy Act, whether or not anything seems suspicious. A SAR is required only when the activity itself raises suspicion.

After a firm files a Suspicious Activity Report on a customer, the firm:

• a.May notify the customer with the customer's written consent
• b.Must give the customer a copy within 10 business days
• c.Must close the account immediately
• d.Must not notify the customer that a SAR was filed✓

Tipping off a customer about a SAR filing is prohibited because it would compromise any investigation (Bank Secrecy Act). SARs generally cover suspicious transactions of $5,000 or more and are filed with FinCEN.

A firm's customer identification program must, at a minimum, collect from a new individual customer:

• a.Passport number and two professional references
• b.Employer, annual income, and net worth
• c.Credit score and marital status
• d.Name, date of birth, physical address, and taxpayer identification number✓

The CIP requires name, date of birth, a street address, and a government identification number to form a reasonable belief about identity (USA PATRIOT Act). Income and net worth are gathered for suitability, not identity.

Before opening an account, a firm must check the customer's name against the Specially Designated Nationals list maintained by:

• a.FINRA's Central Registration Depository
• b.The Municipal Securities Rulemaking Board
• c.The Securities Investor Protection Corporation
• d.The Office of Foreign Assets Control✓

OFAC publishes the Specially Designated Nationals list, and firms may not do business with parties on it (USA PATRIOT Act). The CRD holds registration records, the MSRB writes municipal rules, and SIPC provides limited account protection.

The stage of money laundering at which illicit cash is first introduced into the financial system is called:

• a.Layering
• b.Placement✓
• c.Reconciliation
• d.Integration

Placement is the entry point where dirty cash first enters the system; layering then obscures its origin and integration returns it looking legitimate (Bank Secrecy Act). Structuring deposits just under $10,000 is a placement tactic.

In which situation does the Securities Investor Protection Corporation (SIPC) protect a customer?

• a.The customer is defrauded by a private individual outside any brokerage
• b.A mutual fund the customer owns declines in value during a broad market downturn that reduces the account balance in any given year
• c.A member broker-dealer fails and customer cash and securities are missing, up to $500,000 including a $250,000 cash limit✓
• d.The overall market falls into a bear market

SIPC steps in when a member broker-dealer becomes insolvent and customer property is missing, covering up to $500,000 per customer with a $250,000 cash sublimit (Securities Investor Protection Act). It does not insure market losses.

Which statement about a mutual fund summary prospectus is correct?

• a.Eliminates the need to make any other prospectus or fund report available to investors
• b.Is a short document that satisfies prospectus delivery if the full statutory prospectus is available online and sent on request✓
• c.May be delivered only to investors who buy directly from the fund, not through a broker-dealer
• d.Must be filed with the MSRB rather than the SEC before it can be delivered

The summary prospectus gives key facts in a few pages and satisfies delivery when the full statutory prospectus, statement of additional information and reports are posted online and sent on request. It does not replace those documents, it can be delivered through intermediaries, and mutual fund filings go to the SEC, not the MSRB (Securities Act of 1933 Rule 498).Securities Act Rule 498 (17 CFR 230.498)

Under ERISA, private-sector employer retirement plans are required to:

• a.Be offered to government and church employees
• b.Follow fiduciary standards and minimum participation, vesting, and funding rules to protect participants✓
• c.Invest exclusively in the employer's own stock
• d.Guarantee participants a fixed annual return

ERISA imposes fiduciary duties and minimum eligibility, vesting, and funding standards. Concentrating a plan entirely in employer stock would breach diversification and prudence duties; government and church plans are generally exempt.

Under FINRA's anti-reciprocal rule, a broker-dealer may NOT:

• a.Execute portfolio transactions for a fund whose shares it also sells, provided no sales were favored because of the commissions it earns
• b.Pay its representatives compensation based on their total sales of fund shares, provided the plan is not designed to favor particular funds
• c.Sell shares of funds run by unaffiliated advisers that compete directly with the firm's own proprietary fund lineup, if the sales are suitable
• d.Favor the sale of a particular fund's shares because the fund directs portfolio brokerage commissions to the firm✓

FINRA Rule 2341(k)(1) bars a firm from favoring or disfavoring the sale of a fund's shares on the basis of brokerage commissions it receives or expects, and (k)(2) bars it from selling shares of a fund that directs portfolio transactions to a broker in return for promoting the fund. The rule expressly allows a firm to execute portfolio transactions for a fund whose shares it sells, and to pay representatives based on their total fund sales, as long as the arrangement is not designed to favor particular funds. Selling competing funds from unaffiliated advisers is not restricted by the anti-reciprocal rule.FINRA Rule 2341(k)(1)

FINRA's telemarketing rule generally prohibits an unsolicited cold call to a prospective customer's residence:

• a.Before 9:00 a.m. or after 5:00 p.m. in the called party's local time
• b.Before 8:00 a.m. or after 9:00 p.m. in the called party's local time, even when the customer already does business with the firm
• c.Before 8:00 a.m. or after 9:00 p.m. in the firm's local time, unless the customer has an existing relationship with the firm
• d.Before 8:00 a.m. or after 9:00 p.m. in the called party's local time, absent an existing relationship or consent✓

FINRA Rule 3230 restricts unsolicited telemarketing calls to a residence to between 8:00 a.m. and 9:00 p.m. in the called party's local time, not the caller's, and requires honoring do-not-call requests. The restriction is lifted where there is an established business relationship or prior consent, and the limits do not use a 9-to-5 window.FINRA Rule 3230(a)(1)

A representative repeatedly redeems a customer's shares in one mutual fund family and reinvests the proceeds in a similar fund at another family, generating a new sales charge each time with no benefit to the customer. This practice is called:

• a.Switching, an improper practice✓
• b.Selling dividends, recommending a fund purchase just before the record date to capture its payout
• c.Breakpoint selling, steering a customer to purchases just below a sales-charge reduction
• d.Front-running, trading ahead of a customer's order to benefit the representative's own account

Moving a customer between funds with substantially similar objectives solely to generate additional sales charges is switching, and without a documented benefit to the customer it is an improper practice. Selling dividends is recommending a purchase shortly before a distribution so the customer pays for income already earned. Breakpoint selling is steering a purchase just under the amount that would reduce the sales charge. Front-running is trading ahead of a known customer order, which is not what happens here.FINRA Rules

Before a newly formed open-end fund may make its first public offering of shares, the Investment Company Act of 1940 requires:

• a.A net worth of at least $500,000 and at least 100 shareholders of record
• b.A five-year performance record filed with the SEC
• c.Approval of the fund's organization by a majority of the state securities administrators
• d.A net worth of at least $100,000, or firm commitments from up to 25 buyers that bring it to that level✓

Section 14(a) of the 1940 Act sets a seed-capital rule: the fund must have a net worth of at least $100,000 before its public offering, or the SEC must be satisfied that commitments from no more than 25 responsible persons will bring it to that amount. The statute has no shareholder-count test, a larger $500,000 minimum, or performance-record requirement, and a brand-new fund by definition has no track record. Funds register with the SEC, not with state administrators or a FINRA or NASAA board.Investment Company Act of 1940, Section 14(a) (15 U.S.C. 80a-14(a))

A representative holds only the Series 6 license. Which sale is the representative permitted to make?

• a.Shares of a closed-end fund already trading on an exchange
• b.Listed call options on a mutual fund's largest stock holdings
• c.Shares of a corporation's common stock from the firm's inventory
• d.Shares of a closed-end fund during its original public offering✓

The Series 6 covers redeemable securities of registered investment companies, variable contracts, and closed-end fund shares only during the original distribution. Once a closed-end fund trades in the secondary market, selling its shares requires a broader license, as do stocks and options.FINRA Rule 1220(b)(7)(A)

A candidate passes the Securities Industry Essentials (SIE) Exam but does not become associated with a firm. How long does the SIE result remain valid?

• a.Indefinitely, because the SIE is a one-time requirement
• b.Four years from the date the candidate passed the exam✓
• c.Three years from the date the candidate passed the exam
• d.Two years from the date the candidate passed the exam

An SIE result stays valid for four years. If the candidate does not pass a related top-off exam such as the Series 6 and register within that period, the SIE must be retaken.FINRA Rule 1210; SIE

Regulation Best Interest applies when a broker-dealer recommends a securities transaction to a:

• a.corporation with over $10 million in assets that is investing money for its treasury
• b.natural person using the advice mainly for personal, family, or household purposes✓
• c.registered investment adviser that is buying securities for the advisory clients it serves
• d.municipal issuer that is hiring the firm to underwrite its new general obligation bond issue

Reg BI covers recommendations to retail customers: natural persons (and their legal representatives) using the recommendation primarily for personal, family, or household purposes. Institutional and business investors fall outside it, and the rule's definition turns on the recommendation, not on whether an account is open.Regulation Best Interest, 17 CFR 240.15l-1

Under the Care Obligation of Regulation Best Interest, how must a representative treat the cost of a recommended fund?

• a.As one factor to weigh, but not the only one that decides the recommendation✓
• b.As the deciding factor, so the lowest-cost fund must always be recommended
• c.As a factor only when the customer asks about the fees in writing
• d.As irrelevant, so only the fund's past performance may be considered

Reg BI requires reasonable diligence, care, and skill, and cost must be considered along with other factors such as the customer's objectives and the product's features. The rule does not require the cheapest product in every case, and it does not let the representative ignore cost.Regulation Best Interest, 17 CFR 240.15l-1(a)(2)(ii)

A broker-dealer must give a retail investor its Form CRS (customer relationship summary). When is it due, and how long may it be?

• a.Only when the customer requests it in writing, and no longer than ten pages in length
• b.At or before a recommendation, order, or account opening, and two pages or fewer✓
• c.At the end of each year with the account statement, and no longer than four pages
• d.Within 30 days after the account is opened, and no longer than one page in length

Form CRS must be delivered to a retail investor before or at the earliest of a recommendation, an order, or opening an account, and a broker-dealer's form is limited to two pages. It is not a post-opening or annual delivery item.Form CRS, 17 CFR 240.17a-14

A firm places a temporary hold on a disbursement from a 70-year-old customer's account because it suspects financial exploitation. The initial hold may last up to:

• a.10 business days, extendable by 5 more with a reasonable belief of exploitation
• b.15 calendar days, extendable by 15 more calendar days with the customer's consent
• c.30 business days, with no further extension allowed even if exploitation continues
• d.15 business days, extendable 10 more with a reasonable belief of exploitation✓

Rule 2165 permits a hold of up to 15 business days when a firm reasonably believes a specified adult (age 65 or older, or impaired) is being exploited. The firm may extend it by 10 business days, and a further 30 business days if it reports the matter to a state regulator or agency or a court. The extensions do not need the customer's consent.FINRA Rule 2165

When a firm opens a non-institutional account, it must make reasonable efforts to get the name and contact information of a trusted contact person. What if the customer declines to provide one?

• a.The firm may open the account only with a principal's written approval
• b.The firm must refuse to open the account until a contact is named
• c.The firm may open the account, and it need not refuse the business✓
• d.The firm must name its own representative as the trusted contact

Rule 4512 requires the firm to ask for a trusted contact person, but the customer is not obliged to provide one, so the account may still be opened. The contact is for reaching a person when exploitation or a health concern is suspected, not for authorizing trades.FINRA Rule 4512

A firm wants to share a customer's nonpublic personal information with a nonaffiliated company so that the company can market its own products. What must the firm do first?

• a.Share it freely, since an opt-out right applies only to affiliates
• b.Give the customer a privacy notice and a reasonable chance to opt out✓
• c.Obtain the customer's written opt-in consent before any sharing
• d.Notify the SEC and wait 30 days before sharing the information

Reg S-P requires a privacy notice and an opportunity to opt out before nonpublic personal information goes to nonaffiliated third parties, apart from the exceptions such as processing transactions. Opt-in consent is not the standard, and no SEC notice period applies.SEC Regulation S-P

Under FINRA Rule 3310, how often must a firm that executes customer transactions have its anti-money laundering program tested by independent personnel?

• a.Every three years, if no violations
• b.After each suspicious activity report
• c.Every two years, for every firm
• d.At least once each calendar year✓

A firm that does business with the public must test its AML program every calendar year, using qualified independent personnel or an outside party. Testing every two years is allowed only for firms that do not execute transactions for customers or hold customer accounts.FINRA Rule 3310

A broker-dealer detects suspicious activity of at least $5,000 and identifies a suspect. By when must it file the suspicious activity report?

• a.10 business days after the transaction takes place
• b.30 calendar days after the initial detection of the facts✓
• c.15 calendar days after the activity is first noticed
• d.60 calendar days after the activity is first noticed

A broker-dealer must file a SAR within 30 calendar days of initially detecting facts that may be reportable. If no suspect has been identified, it may take up to 60 days. The 15-day period belongs to currency transaction reports.31 CFR 1023.320; FinCEN

A customer deposits $9,000 in cash on Monday and $9,000 in cash on Tuesday, apparently to stay under $10,000. This pattern is called:

• a.churning, which is excessive trading to generate commissions
• b.integration, which returns the cash as legitimate income
• c.structuring, which may require a suspicious activity report✓
• d.layering, which is the first stage of money laundering

Splitting cash transactions to avoid the $10,000 currency reporting threshold is structuring, a crime in itself, and a red flag for a SAR. Layering and integration are stages of laundering. Churning concerns trading activity.31 CFR 1010.311; structuring

For how long must a firm keep the record of written customer complaints that it must maintain under FINRA Rule 4513?

• a.At least six years
• b.At least two years
• c.Until the firm closes
• d.At least four years✓

Rule 4513 requires a record of written customer complaints to be kept for at least four years. Six years is the general FINRA Rule 4511 default for books and records without a specified period, which a candidate may confuse with it.FINRA Rule 4513

A firm gives a new customer the account record within 30 days of opening the account. At what interval afterward must it furnish an updated account record?

• a.At intervals of no more than 24 months
• b.At intervals of no more than 36 months✓
• c.At intervals of no more than 12 months
• d.At intervals of no more than five years

Rule 17a-3(a)(17) requires the account record to be sent to the customer within 30 days of opening and at least every 36 months after that, with a request that the customer report changes. The other periods are not what the rule sets.SEC Rule 17a-3(a)(17)

A fund company issues a retail communication about a mutual fund. Under FINRA Rule 2210, when must it be filed with FINRA?

• a.Within 30 calendar days after first use
• b.At least 10 business days before first use
• c.Within 10 business days after first use✓
• d.Only when FINRA requests it in writing

Retail communications that promote registered investment companies are filed within 10 business days of first use. A pre-use filing is required only in special cases, such as during a new member's first year of membership.FINRA Rule 2210(c)(2)

A representative's draft mutual fund brochure for the public shows a chart of the fund's projected returns over the next five years. How should the firm respond?

• a.Reject it, because projections of performance are generally prohibited✓
• b.Approve it, once it has been filed with FINRA 10 business days earlier
• c.Approve it, if the chart shows a low estimate and a high estimate
• d.Approve it, because a principal may approve any projection that is labeled

A retail communication must be approved by a registered principal before use, but Rule 2210 prohibits predictions or projections of performance, apart from a few exceptions such as an hypothetical illustration of mathematical principles. Labeling the chart or showing a range does not cure it.FINRA Rule 2210(b), (d)

A representative sends the same market commentary by email to 40 retail customers in one 30-day period. Under Rule 2210, the message is a:

• a.retail communication, because it reaches more than 25 retail investors✓
• b.retail communication, but only when it recommends a security
• c.institutional communication, because it relates to the markets generally
• d.correspondence, because email is an individualized medium of contact

Rule 2210 defines correspondence as communications to 25 or fewer retail investors in 30 days, and a retail communication as one distributed to more than 25. The medium does not decide the category, and a recommendation is not required.FINRA Rule 2210(a)

A fund named the Municipal Income Fund wants to stop investing 80% of its assets in municipal securities. What must it first do?

• a.Give shareholders 60 days' notice before changing the 80% policy✓
• b.Give shareholders 10 days' notice, then change the policy
• c.Rename the fund within 30 days after the change takes effect
• d.Obtain approval from a majority of shareholders at a meeting

Rule 35d-1 requires a fund whose name suggests a type of investment to invest at least 80% of assets that way. It may change the policy only if it gives shareholders 60 days' notice, unless the policy is fundamental, in which case shareholders must approve it.Rule 35d-1 under the Investment Company Act of 1940

Under the SEC's liquidity risk management rule, an open-end fund (other than a money market fund) may not acquire an illiquid investment if, afterward, illiquid investments would exceed:

• a.25% of the fund's net assets
• b.15% of the fund's net assets✓
• c.35% of the fund's net assets
• d.5% of the fund's net assets

Rule 22e-4 caps illiquid investments, those that cannot be sold within seven days without significantly changing their market value, at 15% of net assets. Money market funds follow a separate 5% limit, so 5% is not the general figure.Rule 22e-4 under the Investment Company Act of 1940