FINRA Series 6 — All Questions

A trustee instructs a representative to open a trust account and begin trading. What should the firm obtain first?

• a.A corporate resolution from the trustee's employer
• b.Nothing, since any trustee has unlimited authority
• c.The trust document or a certification of trustee powers✓
• d.The beneficiary's signature on every order placed

The firm must confirm the trustee's authority and any limits, usually from the trust document or a certification of trust. Beneficiary signatures are not required for each order. A corporate resolution applies to a corporate account. Trustee authority depends on the document, so it is not unlimited.

A representative recommends a leveraged ETF to a retiree who plans to hold it for several years. What is the concern?

• a.Leveraged ETFs cannot be sold to retirees under federal law
• b.Daily resets can make multi-year results diverge sharply✓
• c.Leveraged ETFs pay no dividends under any circumstances
• d.Leveraged ETFs carry no market risk because they are hedged

FINRA has warned that leveraged and inverse ETFs reset daily and compounding can make multi-day results differ sharply from the index, so they are typically unsuitable for retail investors who hold them longer than a day. No law bars sales to retirees. Dividends are not the issue. These funds amplify market risk.FINRA Regulatory Notice 09-31

A client asks whether Reg BI makes her broker a fiduciary. What is the accurate answer?

• a.No, because Reg BI is only a disclosure requirement
• b.Yes, it is identical to the Advisers Act fiduciary duty
• c.Yes, and it requires ongoing monitoring of the account
• d.No; it is a best-interest standard, not a fiduciary duty✓

Reg BI imposes a best-interest standard that goes beyond suitability and disclosure, yet the SEC did not make it identical to the Advisers Act fiduciary duty. It does not require ongoing monitoring unless agreed. It is more than a disclosure rule, since the care and conflict obligations require action.SEC Regulation Best Interest

A customer phones and asks the firm to wire $20,000 to a third party whose name the firm has never seen. What is the best practice?

• a.Refuse every third-party wire request without exception
• b.Process it after replying to the email that came with the request
• c.Verify it by calling the number already on file✓
• d.Process it right away, since the caller knew the account number

A callback using established contact information confirms the instruction came from the customer and protects against fraud. Knowing an account number is not proof of identity. Replying to an email that arrived with the request could confirm only the fraudster. Third-party wires are permitted when verified, so a blanket refusal is unnecessary.

A customer wants a way to give money for a grandchild's education while keeping control over withdrawals and the right to take the money back. Which account fits?

• a.A UGMA custodial account in the child's name
• b.An outright gift of fund shares to the grandchild
• c.A UTMA custodial account in the child's name
• d.A 529 plan, in which the owner keeps control✓

A 529 account owner keeps control over distributions and can even take the money back, with tax and penalty on earnings. UTMA and UGMA accounts are irrevocable gifts, and the child takes control at the age of majority. An outright gift also gives up ownership entirely, which is the opposite of what the grandparent wants.

How often must a broker-dealer furnish customers with an account record for review and correction?

• a.Within 30 days of opening, then at least every 36 months✓
• b.Within 30 days of opening, then only when requested
• c.Within 30 days of opening, then at least every 24 months
• d.Within 30 days of opening, then at least every 12 months

Rule 17a-3(a)(17) requires the account record to go to the customer within 30 days of opening and at least every 36 months afterward, for accounts where suitability applies. An annual cycle is stricter than the rule. Twenty-four months is also shorter than required. Sixty months would exceed the 36-month maximum.SEC Rule 17a-3(a)(17)

A variable annuity owner wants the death benefit to reach her children without going through probate. What should she do?

• a.Name her estate as the beneficiary
• b.Name the insurance company as beneficiary
• c.Leave the beneficiary line blank
• d.Name them as beneficiaries on the contract✓

Proceeds of an annuity or life policy payable to a named beneficiary pass by contract, outside probate. Naming the estate sends the proceeds through probate. A blank beneficiary line usually defaults to the estate. The insurer would keep the proceeds, which defeats her purpose.

A client needs current income and preservation of principal over the next three years. Which investment is most consistent with that objective?

• a.A short-term fund of investment-grade bonds✓
• b.A leveraged ETF concentrated in a single sector
• c.A commodity-linked note with issuer credit risk
• d.A small-cap growth fund focused on appreciation

A short-term investment-grade bond fund focuses on income, with lower price swings, which matches a three-year horizon and a principal-preservation goal. A leveraged sector ETF magnifies volatility. A small-cap growth fund emphasizes appreciation, not income. A commodity-linked note carries commodity price and issuer credit risk.

A new customer declines to name a trusted contact person when opening a mutual fund account. What may the firm do?

• a.Open the account and keep making reasonable efforts to obtain the name✓
• b.Enter the representative as the trusted contact
• c.Enter the customer's spouse without asking the customer
• d.Refuse to open the account because the rule requires a named contact

Rule 4512 requires the firm to make reasonable efforts to get a trusted contact's name and contact details, but the absence of one does not prevent opening the account. The firm may not make the contact a condition. A representative or an unconsented spouse is not the customer's choice and would defeat the purpose, which is to have someone the customer trusts.FINRA Rule 4512(a)(1)(F)

Who must sign the customer account record to show the account was accepted under the firm's account acceptance procedures?

• a.The customer's trusted contact person
• b.A partner, officer or manager of the firm✓
• c.A transfer agent for the fund
• d.The soliciting representative acting alone

Rule 4512 requires the signature of a partner, officer or manager to show the account was accepted under the firm's procedures. The trusted contact is a third party to the firm, so signing is not part of that role. A representative acting alone has no authority to accept for the firm. A transfer agent works for the fund and has no role in the firm's account acceptance.FINRA Rule 4512(a)(1)(D)

After a firm sends a customer the account record within 30 days of opening an account, how often must it furnish an updated copy?

• a.Only when the customer asks in writing
• b.At intervals of no more than 12 months
• c.At intervals of no more than 36 months✓
• d.At intervals of no more than 24 months

Rule 17a-3(a)(17) requires the firm to send an updated account record at least every 36 months after the initial 30-day mailing. Twelve and twenty-four months are shorter than the rule requires, though a firm may choose them. The duty does not depend on a customer request.17 CFR 240.17a-3(a)(17)

A customer notifies the firm of a new mailing address. Within what time must the firm send a notice of the change to the customer's old address?

• a.10 days
• b.90 days
• c.60 days
• d.30 days✓

The firm must send the notice of the name or address change within 30 days of being told, so that the customer is alerted if someone else made the change. Ten days is shorter than the rule requires, while sixty and ninety days are too long.17 CFR 240.17a-3(a)(17)

A representative wants the customer's authority to submit a check drawn on the customer's bank account to buy fund shares. What does the rule require?

• a.Approval from the firm's principal alone, with no customer paperwork
• b.Nothing, if the purchase is under $1,000
• c.Express written authorization, which can be the customer's signature on the check✓
• d.Verbal consent noted on the order ticket by the representative

Rule 4514 requires express written authorization from the customer to obtain or submit a check or similar negotiable paper drawn on the customer's account, and the customer's signature on the check can serve as the authorization. A verbal note does not satisfy it. A principal cannot authorize in the customer's place. There is no dollar-amount exemption.FINRA Rule 4514

After an order is entered, a representative asks to move the trade from a customer's account to the firm's error account. Who must authorize the change?

• a.The customer, by telephone, with no record kept
• b.A registered principal designated by the firm, who documents the essential facts in writing✓
• c.The compliance department, which may document the reasons later
• d.The representative's branch assistant, who notes the change on the ticket

A change in account name or designation requires authorization by a qualified, registered principal designated by the firm, who must be told the essential facts and record them in writing. An assistant has no such authority. The customer's consent does not substitute for the principal's. Documentation must be made when the change is approved, not later.FINRA Rule 4515

A carrying firm has validated a customer's transfer instruction. Within what time must it complete the account transfer?

• a.Five business days after the firm validates the instruction
• b.Three business days after validation✓
• c.Ten calendar days after the instruction is received
• d.One business day after validation

The carrying firm must validate or take exception within one business day, then complete the transfer within three business days after validation. One business day is the validation deadline, not the completion time. Five business days and ten calendar days are longer than the rule allows.FINRA Rule 11870

At the opening of an account, FINRA's know-your-customer rule requires a firm to use reasonable diligence to learn:

• a.Only the customer's stated risk tolerance and investment objectives
• b.The essential facts about the customer and the authority of anyone acting for the customer✓
• c.The customer's net worth, proven by the most recent tax return
• d.The financial profile of each of the customer's relatives

Rule 2090 requires reasonable diligence to know the essential facts about every customer and the authority of each person acting on the customer's behalf. Risk tolerance and objectives are part of the suitability profile under other rules and do not capture the whole duty. Tax returns are not required. Relatives' finances are outside the rule.FINRA Rule 2090

A customer signs a limited trading authorization in favor of her representative. Which action is outside the authority?

• a.Exchanging one fund's shares for another fund's in the same family
• b.Withdrawing cash from the account and mailing a check to the representative✓
• c.Buying shares of a fund that the representative has selected for the customer
• d.Selling shares of a fund that the customer already holds in the account

A limited trading authorization permits buying and selling in the account; it never permits taking money or securities out. The representative cannot withdraw cash and pay it to himself. Selecting a fund, selling holdings and exchanging within a family are all trades within the authority, and any discretionary trading needs the customer's written authorization and the firm's written acceptance.FINRA Rule 3260

A broker-dealer closes a customer's account. How long must it keep the identifying information collected under its customer identification program?

• a.One year after closing
• b.Seven years after the account was opened
• c.Five years after the account is closed✓
• d.Three years after closing

The identifying information must be kept for five years after the account closes. One and three years are shorter than the rule allows. A seven-year period measured from the opening date could expire while the account is still open, and it is not the rule.31 CFR 1023.220(a)(3)

A brokerage fails. A customer has $420,000 of securities and $180,000 of cash in one account. How much does SIPC protect?

• a.$500,000✓
• b.$600,000
• c.$420,000
• d.$250,000

SIPC protects up to $500,000 per customer in a separate capacity, including no more than $250,000 of cash. The cash of $180,000 is within its sub-limit, so the covered total is $500,000, and the remaining $100,000 is an unprotected claim. Paying the full $600,000 ignores the cap. Covering only the securities or only the cash sub-limit understates the protection.Securities Investor Protection Act

When must a broker-dealer give a new customer its initial privacy notice?

• a.At the end of the customer's first year of service
• b.By the time the customer relationship is established✓
• c.Only if the firm will share information with nonaffiliates
• d.Within 30 days after the customer's account is opened

The initial notice is due no later than when the customer relationship is established, with narrow exceptions that allow a reasonable delay. A 30-day grace period is not part of the general rule. The notice is required whether or not the firm shares information. Waiting a year would leave the customer uninformed during the period when information is collected.Regulation S-P, 17 CFR 248.4

A firm wants to share a customer's nonpublic personal information with a nonaffiliated marketing company. What must it do first?

• a.Nothing, since a service contract allows sharing with any company
• b.Get the customer's signed opt-in consent on a principal-approved form
• c.Send notice after sharing begins so the customer can stop it later
• d.Give an opt-out notice and a reasonable time to opt out first✓

Before sharing with a nonaffiliate outside the exceptions, the firm must give the opt-out notice and a reasonable opportunity to opt out, and the regulation gives 30 days as an example. Sharing needs no signed opt-in, but it cannot start without the opt-out step. Notice after sharing starts is too late.Regulation S-P, 17 CFR 248.10

Which statement describes a transfer-on-death registration on a brokerage account?

• a.The beneficiary and owner hold equal shares with a right of survivorship
• b.The beneficiary owns the securities now and may sell them during the owner's life
• c.At death, the securities pass to the named beneficiary outside probate✓
• d.The securities pass through probate under the terms of the owner's will

With a transfer-on-death designation the owner keeps full control, and the securities pass to the beneficiary at death without going through probate. The beneficiary has no present rights, so the beneficiary cannot sell during the owner's life. Passing under a will means probate, which the designation avoids. Equal ownership with survivorship describes a joint account.Transfer on death registration

A firm is opening a brokerage account for a general partnership. Which document should it obtain?

• a.A corporate resolution signed by the board of directors and the secretary
• b.A trust certification naming the current and successor trustees
• c.The partnership agreement, showing which partners may trade✓
• d.Each partner's personal tax return, which proves identity

The partnership agreement shows the partners and which of them may act for the partnership. Tax returns are not an account opening document. A corporate resolution and a trust certification belong to corporate and trust accounts and describe entities the customer is not.Account opening documentation

An executor wants to open an account for a decedent's estate. Which document shows the executor's authority?

• a.The decedent's durable power of attorney, signed before death
• b.The decedent's most recent account statement from the firm
• c.Letters testamentary issued by the probate court✓
• d.The death certificate issued by the county health office

Letters testamentary are the court's grant of authority to the executor. A death certificate proves the death, but it does not name who may act. A power of attorney ends at death, so it gives no authority over the estate. An account statement shows holdings and not authority.Account opening documentation

A 58-year-old customer inherits $300,000 and asks her representative what to do with it. What should the representative do first?

• a.Move the money into a money market fund for a year
• b.Update her investment profile before making any recommendation✓
• c.Recommend the fund she already owns, since she is familiar with it
• d.Recommend the fund with the highest sales charge to cover advice

A wealth event changes the customer's finances, so the representative should refresh her goals, time horizon and risk tolerance before recommending anything. Recommending the fund she already owns because it is familiar skips the care obligation and risks concentration. Parking the money in a money market fund for a year presumes needs that have not been learned. A higher sales charge is a conflict, not a reason.Regulation Best Interest, 17 CFR 240.15l-1

A customer buys $40,000 of fund shares, then within days asks to redeem and send the check to an unrelated third party abroad. What should the representative do?

• a.Escalate to the AML compliance officer and do not alert the customer✓
• b.Process the redemption after confirming the customer's identification
• c.Tell the customer that the firm may file a suspicious activity report
• d.Refuse the request and close the account without making an internal report

Rapid in-and-out activity paid to an unrelated third party abroad is a money laundering red flag that belongs with the AML compliance officer. A SAR is confidential, so telling the customer is prohibited. Checking identification alone misses the red flag. Refusing and closing without a report leaves the firm's own filing duty unmet.31 CFR 1023.320; FINRA Rule 3310

A standalone broker-dealer prepares its relationship summary, Form CRS. What is the page limit?

• a.Six pages
• b.Four pages
• c.One page
• d.Two pages✓

A standalone broker-dealer's Form CRS is limited to two pages. Four pages is the limit for a dual registrant that is both a broker-dealer and an investment adviser. One and six pages are not limits in the form instructions.17 CFR 240.17a-14; Form CRS

A customer plans to buy and hold three mutual funds for 10 years and expects to trade rarely. A representative proposes an asset-based fee account. What must the representative consider?

• a.Whether the fee account allows more frequent trading
• b.Whether a commission account would cost the customer less over the holding period✓
• c.Nothing, because fee-based accounts always cost less
• d.Only the representative's higher compensation under the fee

The care obligation requires the representative to consider the cost of the account type for this customer, and a buy-and-hold customer might pay less in commissions than in annual fees. Assuming one structure is always cheaper skips that analysis. Compensation is a conflict to manage, not a basis for the choice. Frequent trading is not what this customer wants.Regulation Best Interest, 17 CFR 240.15l-1

In 2026, a 52-year-old with $90,000 of earned income wants to make the maximum IRA contribution. What is the limit, ignoring deductibility?

• a.$7,500
• b.$8,600✓
• c.$15,500
• d.$8,500

The 2026 IRA limit is $7,500, and people 50 and older may add a $1,100 catch-up, for $8,600. The base alone leaves out the catch-up. A $1,000 catch-up is the older figure and gives $8,500. The $15,500 total adds the larger 401(k) catch-up, which does not apply to IRAs.IRC Section 219

In 2026, a 61-year-old participant wants to make the maximum elective deferral to a 401(k). The base limit is $24,500, the age-50 catch-up is $8,000, and the ages 60-63 catch-up is $11,250. What is the limit?

• a.$35,750✓
• b.$24,500
• c.$43,750
• d.$32,500

A participant aged 60 through 63 gets the higher catch-up in place of the age-50 catch-up, so the limit is $24,500 plus $11,250, or $35,750. Using the $8,000 catch-up gives $32,500, which misses the special rule. The base alone skips the catch-up. Adding both catch-ups gives $43,750, but only one applies.IRC Section 402(g)

An employee's 401(k) plan allows loans, and her vested balance is $70,000. What is the most she can borrow?

• a.$35,000✓
• b.$50,000
• c.$10,000
• d.$70,000

The limit is the lesser of 50% of the vested balance or $50,000, which here is $35,000. The $50,000 cap applies only when half the balance is larger than that. Borrowing the full balance is not allowed. The $10,000 figure applies only when half of the vested balance is smaller than $10,000.IRC Section 72(p)

A participant receives a $50,000 distribution from a former employer's 401(k) paid directly to her, and 20% is withheld. How much must she add from other funds within 60 days to roll over the full $50,000?

• a.$0
• b.$25,000
• c.$10,000✓
• d.$5,000

The plan withheld 20%, or $10,000, so she received only $40,000, and she must replace the $10,000 from other money to roll the whole amount. The 10% rate that applies to IRA distributions would give $5,000, but plan distributions carry mandatory 20% withholding. Rolling only what she received leaves $10,000 taxable. A $25,000 top-up has no basis. A direct trustee-to-trustee transfer would have avoided the problem.IRC Section 3405(c)

A 40-year-old takes $10,000 from a Traditional IRA for a first-time home purchase. How is the withdrawal taxed?

• a.Taxable income, but the 10% additional tax is waived✓
• b.Completely tax-free because the money is used to buy a home
• c.Taxed only at the long-term capital gains rate for assets held over a year
• d.Included in income and also subject to the 10% additional tax

Traditional IRA distributions are taxable income, and the first-time homebuyer exception waives only the 10% additional tax, up to $10,000 over a lifetime. The withdrawal is not tax-free just because the money buys a home. Because the additional tax is waived, taxing it twice is wrong. IRA distributions are ordinary income and never get capital gains treatment.IRC Section 72(t)

An employee exercises 200 nonqualified stock options with a $20 exercise price when the stock trades at $35. How much ordinary income is recognized at exercise?

• a.$3,000✓
• b.$7,000
• c.$0, until the shares are sold
• d.$4,000

The spread is $15 per share, so 200 shares produce $3,000 of compensation income at exercise. Deferring until sale describes an incentive stock option for regular tax. The $7,000 total is the full market value and the $4,000 total is the strike cost, neither of which is the spread.IRC Section 83

A representative holds written discretionary authority over a customer's mutual fund account, and the firm accepted the account as discretionary in writing. Which step does FINRA Rule 3260 still require?

• a.A principal approves the first discretionary trade in writing, and the authorization then covers later orders
• b.The customer countersigns a confirmation of each discretionary trade within ten days after its trade date
• c.A principal examines the account only when the customer's investment profile is next updated, every 36 months
• d.A principal approves each discretionary order promptly in writing and reviews the account at frequent intervals✓

Written authority from the customer is only the starting point. Rule 3260(c) has the firm, through a principal or designee, approve each discretionary order promptly in writing and review all discretionary accounts at frequent intervals, because the representative is exercising judgment without asking the customer first. Customer countersignature of each trade would defeat the purpose of discretion and is not the rule. A review tied to the 36-month account-record cycle is far too infrequent. Approving only the first trade ignores the order-by-order approval requirement.FINRA Rule 3260(c)

A 16-year-old earned $4,200 mowing lawns in 2026 and has no other income. Her parent opens a custodial Roth IRA for her. If she is otherwise eligible, what is the most that can be contributed for her for 2026?

• a.$4,200, because the limit is her compensation whenever that is less than the dollar limit✓
• b.$7,500, the full annual limit, because a parent may fund the account whatever the child earned
• c.$0, because a minor cannot own an IRA even when a parent acts as custodian for her
• d.$3,300, which is the dollar limit reduced by the amount she earned from the lawn work

An IRA contribution cannot exceed the owner's taxable compensation for the year, so the limit is the lesser of compensation or the 2026 limit of $7,500; here that is $4,200. The money can come from the parent, but the cap is still her earnings. The full limit would apply only to someone with at least $7,500 of compensation. Subtracting her earnings from the limit has no basis in the rules. A minor with earned income can have an IRA; a parent serves as custodian until she reaches the age of majority.IRC Sections 219(b)(1) and 408A(c)

Two parents want one UTMA account for their twin sons, naming both parents as co-custodians. How should the firm respond?

• a.Open it with the mother as sole custodian for both boys and split the income between them on the Form 1099
• b.Open it as requested, because the twins are siblings and can share one account and one taxpayer identification number
• c.Open it in both parents' names as joint custodians, so that either one may sign on the account alone
• d.Explain that each custodianship has one minor and one custodian, so each twin needs his own account✓

Under the Uniform Transfers to Minors Act, custodial property is held for one minor by one custodian, and the minor is the owner and taxpayer under his own Social Security number. Each son therefore needs his own account, and each account has a single custodian who can be named with a successor. Combining the boys, adding a co-custodian, or splitting income on one tax form all treat the account as something the Act does not create.Uniform Transfers to Minors Act (state enactments)

A firm opens a brokerage account for a closely held corporation. Under FINRA Rule 4512, which item must the firm obtain for this entity account?

• a.The name of each person authorized to act for the corporation, listed on the account record✓
• b.The signature of every shareholder on the account agreement, acknowledging the investment risks
• c.Three years of audited financial statements, kept in the corporation's account file
• d.A personal guarantee from the corporation's president covering any account losses

For an entity account, Rule 4512 requires the firm to obtain the name of each person authorized to transact business for the entity, along with the other basic account information and a principal's signature accepting the account. Shareholder signatures are not part of that rule; the corporation acts through its authorized officers. Audited statements and personal guarantees are credit or business decisions a firm may make, but the rule does not require either.FINRA Rule 4512(a)(1)

A customer asks to use money in her Traditional IRA to pay premiums on a whole life insurance policy. How should the representative respond?

• a.Allow it as a tax-free Section 1035 exchange of the IRA assets into the new life policy
• b.Allow it as long as the annual premium does not exceed the yearly IRA contribution limit
• c.Allow it if the IRA is named as both the owner and the beneficiary of the policy being bought
• d.Explain that IRA money cannot buy life insurance, although an annuity contract can be held in an IRA✓

The Internal Revenue Code provides that no part of the trust funds of an IRA may be invested in life insurance contracts. Naming the IRA as owner and beneficiary does not change that. Section 1035 covers exchanges of insurance and annuity contracts, not the movement of IRA money into a policy. A premium capped at the contribution limit is still a prohibited investment. Annuity contracts are allowed in an IRA, which is why the correct answer separates the two.IRC Section 408(a)(3)

A registered representative at Firm A wants to open a personal account at Firm B, another broker-dealer, to trade individual stocks. What does FINRA Rule 3210 require?

• a.Firm B's written consent alone, because the executing firm is the only one that supervises the account
• b.Firm A's prior written consent, plus his written notice to Firm B of his association with Firm A✓
• c.FINRA's written approval of the account, and then Firm A's notice to Firm B on the representative's behalf
• d.Written notice to Firm A within 30 days after the account opens, with no consent needed from Firm A

Rule 3210 requires the associated person to obtain the employer member's prior written consent before opening the account and to tell the executing member in writing, before opening it, that he is associated with the employer. The 30-day period applies only to accounts that already existed when the person became associated. FINRA does not approve individual accounts, and the executing firm's consent alone does not satisfy the employer's right to know. Accounts limited to fund shares, unit investment trusts, and similar products are treated differently, which is why the question uses individual stocks.FINRA Rule 3210

An adult daughter asks to take over trading in her father's account after a court appointed her his conservator because of dementia. What should the firm obtain first?

• a.A letter from his physician confirming the diagnosis, which the firm may accept in place of the court order
• b.The daughter's own statement of income and net worth, since the account will be reopened in her name
• c.A certified copy of the court order appointing her, so the firm can confirm her authority and its scope✓
• d.A new power of attorney signed by the father, with his signature witnessed by two of the firm's employees

A conservator's authority comes from the court, so the firm needs a certified copy of the order to know who may act and what the appointment permits; Rule 2090 requires the firm to know the authority of each person acting for a customer. A power of attorney the father signed after losing capacity would not be valid. A physician's letter proves a medical condition, not legal authority. The account stays in the father's name, so the daughter's finances are not the issue.FINRA Rule 2090

A representative with written discretion moves an $80,000 customer account among four fund families three times in a year, each time paying a front-end load, with no change in the customer's objectives. What is the problem?

• a.It is a violation only if the representative personally keeps more than 5% of the commissions
• b.None, because written discretionary authority lets the representative make any trade he considers appropriate
• c.The trading may be excessive in frequency for the account, which Rule 3260(a) prohibits despite the discretion granted✓
• d.It is a violation only if the customer files a written complaint about the account's trading

Rule 3260(a) bars transactions in a discretionary account that are excessive in size or frequency in light of the account's financial resources and character. Repeated switching that generates new sales charges without a change in the customer's needs is a classic example, and the grant of discretion does not excuse it. The rule is violated by the pattern of trading itself, not by a complaint or by a specific share of the commissions kept by the representative.FINRA Rule 3260(a)

A customer owns a $450,000 home with no mortgage, $280,000 in investments, and $40,000 in savings, and has no debts. What net worth belongs on the account record under SEC Rule 17a-3?

• a.$280,000, which counts only the investment assets and leaves out the cash
• b.$40,000, which counts only the cash that is immediately available
• c.$320,000, because the value of the primary residence is excluded✓
• d.$770,000, which counts the home along with the investments and savings

The account record asks for net worth excluding the value of the primary residence. Here that is $280,000 of investments plus $40,000 of savings, or $320,000. Including the house gives $770,000. Counting only the investments, or only the cash, understates the figure because net worth covers all assets less liabilities apart from the home.17 CFR 240.17a-3(a)(17)(i)(A)

A new customer declines to give her annual income and net worth for the account record. Under SEC Rule 17a-3, what does the missing information mean for the firm?

• a.The firm must enter estimates for both figures based on the representative's judgment
• b.The firm must refuse to open the account until she supplies both figures
• c.The firm is excused from obtaining it because the customer refused to provide it✓
• d.The firm may open the account only as a cash account limited to money market funds

The account-record rule provides that a customer's neglect, refusal, or inability to provide required information excuses the firm from obtaining it. The firm is not required to turn away the customer, and it should not invent figures and record them as if the customer had supplied them. The rule does not restrict the account to money market funds. Other obligations, such as Regulation Best Interest, still require the representative to consider the information that is available before recommending anything.17 CFR 240.17a-3(a)(17)(i)(C)

A customer telephones to change her account's stated investment objective from income to growth. What must the firm do under SEC Rule 17a-3?

• a.Send her and her representative a copy of the updated record within 30 days of receiving notice✓
• b.Obtain her signed approval before the change takes effect, and send nothing to her afterward
• c.Wait for the next 36-month mailing, because no earlier copy of the record is needed by anyone
• d.Send notice of the change only to her old address, the way a change of address is handled

When an account's investment objectives change, the firm must furnish a copy of the updated account record to each customer and to the associated person responsible, on or before the 30th day after it receives notice of the change. That is separate from the address-change notice, which goes to the old address, and from the periodic 36-month mailing. A signed pre-approval is not what the rule demands; the copy gives the customer a chance to correct the record.17 CFR 240.17a-3(a)(17)(i)(B)(3)

A customer provides a trusted contact person when opening an account. What must the firm give the customer under FINRA Rule 4512?

• a.A request to verify the trusted person's age with government photo identification kept for six years
• b.Written disclosure that the firm may contact the trusted person about possible exploitation✓
• c.A commitment that duplicate confirmations and statements will be mailed to the trusted person each quarter
• d.A power of attorney form, which the trusted person signs so that the firm may act on that person's instructions

Supplementary Material .06 to Rule 4512 requires the firm to disclose in writing that it is authorized to contact the trusted person and disclose information to address possible financial exploitation, to confirm contact information, and for certain other purposes. A trusted contact has no authority to transact or to receive statements, so a power of attorney or duplicate mailings misdescribe the role. The rule does not call for photo identification retained for six years.FINRA Rule 4512.06

A representative believes a 78-year-old customer's caregiver is pressuring her into wire transfers. The firm places a temporary hold on a disbursement under Rule 2165. What must follow?

• a.Notice to authorized parties and the trusted contact, generally within two business days, and an internal review✓
• b.Notice to the caregiver alone, since the caregiver is the person who has been handling the wires
• c.Written consent from the customer within two business days, or the firm must lift the hold at once
• d.Notice to FINRA beforehand, with the hold taking effect only after FINRA approves it in writing

Rule 2165 lets a firm place a temporary hold when it reasonably believes financial exploitation of a specified adult has occurred, is occurring, or will be attempted. After placing the hold, it must notify all parties authorized to transact on the account and the trusted contact, if one exists and is not suspected, within two business days, and promptly begin an internal review. FINRA approval and customer consent are not conditions of the hold. Telling only the suspected caregiver would defeat the purpose.FINRA Rule 2165(b)

A new customer opening an individual account gives only a post office box as her address. For the firm's customer identification program, what should the firm obtain?

• a.Her employer's P.O. box, which the rule treats the same way as a residential address
• b.A recent utility bill, which substitutes for the address the firm would otherwise collect
• c.Nothing further, because any mailing address meets the address element for an individual customer
• d.A residential or business street address, since a P.O. box alone does not qualify✓

The customer identification program rule requires, for an individual, a residential or business street address. A person with no street address may instead give an APO or FPO box number or the street address of next of kin or another contact individual, but a P.O. box does not satisfy the element. An employer's box does not help, and a utility bill might be a way to verify an address; it does not replace collecting one.31 CFR 1023.220(a)(2)

A customer opens an account only to buy open-end fund shares, and the firm will make no recommendations. Which statement about FINRA Rule 4512 is correct?

• a.Every item in the rule applies in full, because every broker-dealer account needs the same information on file
• b.Only the trusted contact requirement is waived, while all of the other items remain required
• c.Every item in the rule is waived, including the customer's name, residence, and legal age
• d.The reasonable-efforts items such as occupation and employer do not apply to this kind of account✓

Rule 4512(a)(2) lists additional information the firm must make reasonable efforts to obtain, including occupation, employer, and whether the customer is associated with another member. By its terms, that list excludes accounts in which investments are limited to open-end fund shares that are not recommended by the firm or its associated persons. The basic items, such as name, residence, legal age, and the trusted contact request, are not excluded.FINRA Rule 4512(a)(2)

A customer has held an account for five years and has placed every order herself, with no recommendations from the firm. Must the firm keep sending her the 36-month account record?

• a.No, but only if the customer waives the mailing in writing and the waiver is renewed every year
• b.Yes, but the firm must send it each year instead, because the account is self-directed
• c.Yes, every natural person's account must receive the record at least once every 36 months, with no exceptions
• d.No, because the requirement does not apply when no suitability determination was required in 36 months✓

The furnishing requirement in Rule 17a-3(a)(17) does not apply to an account for which, within the last 36 months, the firm has not been required to make a suitability determination under the federal securities laws or an SRO rule. A self-directed account with no recommendations fits that description. The record is not sent annually, and no written waiver is needed because the rule itself removes the obligation. Once the firm recommends something again, the requirement returns.17 CFR 240.17a-3(a)(17)(i)(D)