FINRA Series 6 — All Questions

Which of the following qualifies as a single person eligible to aggregate purchases for a breakpoint?

• a.A parent buying in a UTMA account for one minor child, combined with the parent's own account✓
• b.A group of coworkers pooling funds
• c.Several unrelated partners in a partnership formed to get the discount
• d.An investment club pooling members' money to buy a single fund position together as a group for a shared discount

Breakpoint aggregation covers an individual, a married couple, and their minor children's custodial accounts as one household. Clubs, partnerships, and groups formed mainly to obtain a discount are excluded (FINRA Rule 2341).

When a shareholder elects automatic reinvestment of fund dividends and capital gains, the distributions buy additional shares at:

• a.The public offering price less the breakpoint discount
• b.The public offering price less half the normal load
• c.Net asset value, no sales charge✓
• d.The offering price locked in at the original purchase

Distributions that a shareholder elects to reinvest buy additional shares at net asset value with no sales charge. FINRA Rule 2341(d)(6)(B) bars a member from selling shares of a fund that imposes a front-end or deferred sales charge on shares bought through reinvestment of dividends (for funds registered since April 2000), so the shareholder compounds without a new load. A breakpoint reduction, a half load and a price locked to the original purchase all keep some sales charge in the transaction.FINRA Rule 2341(d)(6)(B)

On the ex-date of a mutual fund's capital gains distribution, the fund's net asset value per share, all else equal:

• a.Doubles
• b.Falls by the amount of the distribution✓
• c.Is unchanged
• d.Rises by the amount of the distribution

A distribution transfers value from the fund to shareholders, so NAV drops by the per-share distribution on the ex-date. This is why selling dividends, urging a purchase just before a distribution, offers no real economic gain.

A fund has total assets of $525,000,000, total liabilities of $25,000,000, and 40,000,000 shares outstanding. Its NAV per share is:

• a.$12.50✓
• b.$20.00
• c.$13.75
• d.$13.13

NAV per share = (total assets - total liabilities) / shares outstanding = ($525,000,000 - $25,000,000) / 40,000,000 = $500,000,000 / 40,000,000 = $12.50 (Investment Company Act of 1940). Ignoring liabilities overstates it at about $13.13.

A customer invests $10,000 at a public offering price of $25.00 per share (the sales charge is already reflected in that price). Ignoring fractions, how many shares are purchased?

• a.400✓
• b.250
• c.375
• d.500

Shares = amount / POP = $10,000 / $25.00 = 400 shares. Because the load is embedded in the $25.00 POP, no separate sales-charge deduction is made.

A fund may impose the maximum 8.5% sales charge only if it offers investors:

• a.A letter of intent, a CDSC, and rights of accumulation
• b.A no-load class and daily liquidity
• c.Breakpoints, rights of accumulation, and reinvestment of distributions at NAV✓
• d.A guaranteed return, breakpoints, and monthly statements that are sent to every shareholder each and every month

FINRA Rule 2341 conditions the 8.5% ceiling on the fund providing breakpoints, rights of accumulation, and reinvestment of distributions at NAV; a fund lacking any of these must charge less. No fund may guarantee a return.

A customer wants to invest $49,000 in a fund whose next breakpoint is at $50,000. The representative processes it without mentioning the breakpoint. This is:

• a.Switching, requiring principal approval
• b.Acceptable, because breakpoints start above $100,000
• c.Acceptable, because the customer named the amount
• d.Breakpoint selling, a prohibited practice✓

Selling just below a breakpoint without disclosing that a slightly larger purchase would cut the sales charge is breakpoint selling, prohibited under FINRA Rule 2341. The customer naming the amount does not excuse the representative's duty to disclose.

Rights of accumulation allow an investor to:

• a.Commit to future purchases within 13 months to keep a discount
• b.Add the current value of existing holdings to a new purchase to reach a breakpoint, with no deadline✓
• c.Count purchases in unrelated fund families toward a breakpoint
• d.Eliminate the sales charge on all future purchases once the first breakpoint is reached, and apply to every later purchase made in the fund family

Rights of accumulation let existing holdings count toward a new purchase's breakpoint, and there is no time limit (FINRA Rule 2341). Committing to future purchases within 13 months describes a letter of intent instead.

A letter of intent for mutual fund breakpoints:

• a.Lets purchases in any fund family count toward the goal
• b.Is a binding contract the investor must complete or forfeit the discount
• c.Covers 24 months and cannot be backdated
• d.Covers 13 months and may be backdated up to 90 days to include a recent purchase✓

An LOI pledges a stated investment within 13 months for a reduced sales charge and may be backdated as much as 90 days to include a recent purchase (FINRA Rule 2341). It is not binding; unmet, the fund liquidates escrowed shares to collect the higher charge.

Which statement about Class B mutual fund shares is accurate?

• a.They pay no ongoing 12b-1 fee, because the sales charge is collected through the deferred charge instead
• b.They carry a front-end load that shrinks with purchase size and have the lowest annual expenses of any class
• c.They carry a level deferred charge for as long as the shares are held and never convert to another class
• d.They carry a contingent deferred sales charge that declines each year and typically convert to Class A after a set period✓

Class B shares are sold without a front-end load but carry a contingent deferred sales charge that steps down over several years, often six, and then ends, after which they usually convert to lower-cost Class A shares. During that time they bear a 12b-1 fee higher than Class A, so the deferred charge does not replace ongoing fees. A front-end load and the lowest annual expenses describe Class A, and a charge that never converts, with higher annual expenses indefinitely, describes Class C.

A fund may call itself no-load only if:

• a.It waives the front-end charge but may still impose a contingent deferred sales charge and unlimited 12b-1 fees
• b.It has no 12b-1 plan of any kind and no contingent deferred sales charge
• c.Its combined annual asset-based sales and service charges do not exceed 0.25% of average net assets✓
• d.It charges no more than a 3% front-end load and keeps 12b-1 fees at 0.25% or less

Rule 2341(d)(4) bars calling a fund no load if it has any front-end or deferred sales charge, or if its combined sales-related and service charges exceed 0.25% of average net assets a year. A plan at or under that level is allowed, so a fund need not have no 12b-1 plan at all, a contingent deferred sales charge or unlimited 12b-1 fees disqualify it, and even a small front-end load disqualifies it.FINRA Rule 2341(d)(4)

The Securities Act of 1933 is chiefly concerned with:

• a.Regulating trading in outstanding securities on the exchanges and over-the-counter, and registering the broker-dealers who handle it
• b.Requiring full and fair disclosure through registration and a prospectus when securities are first offered to the public✓
• c.Requiring public companies to file periodic reports, such as annual and quarterly reports, once their securities are trading
• d.Defining investment companies and regulating how mutual funds are organized and operated

The 1933 Act governs the primary market: new offerings must be registered and a prospectus delivered so investors get full and fair disclosure. Regulating trading of outstanding securities, registering broker-dealers and requiring ongoing periodic reports come from the Securities Exchange Act of 1934, and the regulation of mutual funds comes from the Investment Company Act of 1940.Securities Act of 1933, Section 5 (15 U.S.C. 77e)

SEC registration of a securities offering means that:

• a.The SEC has judged the offering suitable for retail investors and approved it as a sound investment on its merits
• b.The SEC certifies the issuer's financial strength and its ability to repay investors
• c.The SEC has independently verified the facts in the prospectus and guarantees that every material statement in it is accurate and complete
• d.The issuer has filed the required disclosure and the SEC has not objected; the SEC does not approve the offering or vouch for its merits✓

Registration is a disclosure filing, not an endorsement: the issuer has filed the required information and the SEC has not objected, but the SEC does not approve the offering, certify the issuer's finances, verify the prospectus or vouch for its merits, and telling a customer otherwise is unlawful (Securities Act of 1933 Section 23). Every prospectus carries a legend to that effect.Securities Act of 1933, Section 23 (15 U.S.C. 77w)

The Securities Exchange Act of 1934 is primarily responsible for:

• a.Requiring a prospectus for every new issue
• b.Setting 401(k) contribution limits
• c.Creating the SEC and regulating the secondary market, broker-dealers, and exchanges✓
• d.Defining the three classes of investment companies

The 1934 Act created the SEC and gave it authority over trading markets, broker-dealer registration, public-company reporting, and market manipulation. New-issue prospectus rules belong to the 1933 Act.

Which security is exempt from the registration requirements of the Securities Act of 1933?

• a.U.S. Treasury securities✓
• b.Shares of a new open-end investment company
• c.Common stock of a listed company
• d.Units of a corporate-bond unit investment trust

U.S. government and municipal securities are exempt from the registration requirements of the 1933 Act, though the antifraud provisions still apply. Investment company shares, including UIT units, must be registered and sold with a prospectus.

During the cooling-off period of a registered offering, a representative may:

• a.Send a preliminary prospectus and accept non-binding indications of interest✓
• b.Accept a binding order and payment from a customer who has read the preliminary prospectus
• c.Send written confirmations to customers who placed orders at the expected offering price
• d.Sell shares to institutional customers, because the waiting-period limits apply only to retail investors

Between filing and effectiveness, only a preliminary prospectus (red herring) and non-binding indications of interest are permitted (Securities Act of 1933). Accepting a binding order or payment and confirming a sale would be selling before effectiveness, and the waiting-period limits protect every kind of buyer, institutional or retail. Sales may occur only after the registration is effective and the final prospectus is available.Securities Act of 1933, Section 5 (15 U.S.C. 77e)

Under the Investment Company Act of 1940, independent (non-interested) directors must make up at least what portion of a fund's board?

• a.40%✓
• b.51%
• c.10%
• d.25%

The Act requires at least 40% of directors to be non-interested so shareholder interests are represented when advisory contracts are reviewed. Many funds voluntarily exceed this statutory floor.

Before a newly formed open-end fund may offer shares to the public, the Investment Company Act of 1940 requires:

• a.500 shareholders and a bank charter
• b.A five-year performance record
• c.FINRA board approval of the fund's existence
• d.At least $100,000 of net assets and at least 100 shareholders✓

The Act sets a seed-capital requirement of $100,000 in net worth and a 100-shareholder minimum before a public offering may begin. A new fund by definition has no track record.

Changing a fund's fundamental investment objective requires:

• a.Thirty days' written notice, with no vote
• b.SEC approval, with no shareholder vote
• c.A majority vote of the board of directors only
• d.Approval by a majority vote of the fund's outstanding shares✓

A change in a fundamental objective or policy is reserved to shareholders and requires a majority vote of outstanding voting securities (Investment Company Act of 1940). Investors bought a stated strategy, so the board alone cannot redirect their money.

A fund's investment advisory contract must be:

• a.Approved by the investment adviser itself
• b.Approved once and then continue automatically for the life of the fund, with no further shareholder or board involvement required once it is first put in place
• c.Filed with and approved by the Federal Reserve
• d.Approved initially by shareholders and the board, then renewed at least annually by the board, including a majority of the independent directors✓

The Investment Company Act of 1940 ties adviser compensation to review: initial shareholder and board approval, then annual renewal by the board including a majority of non-interested directors. It does not renew automatically.

The Investment Company Act of 1940 generally prohibits an affiliated person, such as the adviser, from:

• a.Selling securities to, or buying securities from, the fund for the affiliate's own account✓
• b.Receiving any advisory fee for the portfolio-management services the affiliate provides under the contract
• c.Attending the fund's board meetings
• d.Voting fund shares the affiliate personally owns

To curb self-dealing, the Act bars affiliates from principal transactions with the fund. Affiliates may still vote shares they own, attend board meetings, and receive contractually approved advisory fees.

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)