FINRA Series 6 — All Questions

A closed-end fund's shares trade at a discount to net asset value. The board wants to sell new common shares to the public at $9.50 when NAV is $10.40. Which condition lets it do so under Section 23(b)?

• a.The approval of a majority of the fund's independent directors
• b.A 60-day waiting period after notice to the SEC and the exchange
• c.A prospectus disclosure of the discount and the resulting dilution
• d.The consent of a majority of the fund's common stockholders✓

Section 23(b) bars a closed-end fund from selling common stock below current NAV, net of any distributing commission or discount, unless an exception applies. The exceptions include an offering to existing stockholders, the consent of a majority of common stockholders, conversion of a convertible security, and an SEC-permitted case. Board approval, disclosure and a waiting period are not among them, however careful the disclosure.Investment Company Act of 1940 Section 23(b)

Which method may a closed-end fund use to buy back its own common shares under Section 23(c) without a special SEC order?

• a.Exchange purchases, after telling stockholders within six months that it plans to buy✓
• b.A negotiated purchase from the adviser's affiliates at a discount to the market price
• c.A private purchase from the five largest holders at a single agreed price
• d.A purchase at NAV on any business day, as an open-end fund redeems its shares

Section 23(c) allows a closed-end fund to repurchase its stock on an exchange or other open market if it has informed stockholders, within the preceding six months, of its intention to buy. It may also buy through a tender offer open to all holders of the class. Negotiated purchases from affiliates or large holders discriminate among holders and need SEC permission. Redeeming at NAV on demand is the open-end mechanism, not a closed-end one.Investment Company Act of 1940 Section 23(c)

Which description of how a registered fund chooses its independent public accountant matches Section 32(a)?

• a.The full board selects by written consent, and the SEC must approve the choice before it takes effect
• b.Independent directors select by majority vote in person, and shareholders ratify or reject at the next annual meeting✓
• c.The adviser selects the accountant, and the full board ratifies the choice at its next quarterly meeting
• d.Shareholders select by a majority of shares outstanding, and the independent directors ratify the vote

Section 32(a) requires the accountant to be selected by a majority of the directors who are not interested persons, voting in person at a meeting, with the selection submitted to shareholders for ratification or rejection at their next annual meeting if one is held. Shareholders may also end the engagement without penalty by a majority vote of the outstanding voting securities. The adviser has no selection role, the order of selection and ratification is not reversed, and the SEC does not approve the accountant.Investment Company Act of 1940 Section 32(a)

A shareholder claims a fund's principal underwriter charged an excessive front-end sales load on the shareholder's purchase. Can the shareholder bring this claim under Section 36(b)?

• a.Yes, but only after the SEC has first brought its own action over the sales load
• b.No, because Section 36(b) excludes sales loads paid when acquiring fund shares✓
• c.Yes, because the underwriter owes a fiduciary duty on all compensation it receives
• d.No, because Section 36(b) lets only the SEC and not shareholders bring suit

Section 36(b) gives an adviser a fiduciary duty over the compensation it and its affiliates receive from the fund, and lets the SEC or a security holder, suing on the fund's behalf, enforce it. Section 36(b)(4) excludes sales loads for the acquisition of fund shares, which are policed instead by the FINRA sales-charge rule. Shareholders may sue under the section, so the claim that only the SEC can is wrong, and no prior SEC action is required.Investment Company Act of 1940 Section 36(b)

A portfolio manager becomes an access person of a fund's adviser on Monday, March 2, 2026. By what date must the initial holdings report be filed under Rule 17j-1?

• a.Monday, March 16, 2026, which is 10 business days later
• b.Thursday, April 16, 2026, which is 45 days later
• c.Wednesday, April 1, 2026, which is 30 days later
• d.Thursday, March 12, 2026, which is 10 days later✓

Rule 17j-1(d)(1)(i) requires the initial holdings report no later than 10 days after the person becomes an access person, counted in calendar days, so March 12. The rule counts calendar days, not business days. Thirty days is the deadline for quarterly transaction reports. The 45-day figure is how recent the reported holdings data may be, not the filing deadline.17 CFR 270.17j-1(d)(1)(i)

An access person of a fund's adviser buys shares of a covered security on August 20, 2026. By what date is the quarterly transaction report covering the purchase due under Rule 17j-1?

• a.September 30, 2026, because the report is due by the end of the quarter in which the trade occurred
• b.October 30, 2026, which is 30 days after the quarter ends✓
• c.November 14, 2026, 45 days after the quarter ends, the same period that applies to annual holdings reports
• d.September 19, 2026, 30 days after the trade date, because the clock runs from the transaction

Rule 17j-1(d)(1)(ii) requires the quarterly transaction report no later than 30 days after the end of the calendar quarter. The August 20 purchase falls in the quarter ending September 30, so the report is due October 30, 2026. The report is not due by quarter-end, and the clock does not start on the trade date. The 45-day figure in the rule is how current the information in an initial or annual holdings report must be, not the quarterly transaction deadline.17 CFR 270.17j-1(d)(1)(ii)

A fund adviser's portfolio manager wants to invest in a private offering sold under Rule 506 of Regulation D. What must she do under Rule 17j-1?

• a.Get the SEC's consent before buying any limited-offering interest
• b.Report the purchase after quarter-end, with no prior approval needed
• c.Obtain approval from the fund or its adviser before buying✓
• d.Wait until the offering is registered with the SEC before buying

Rule 17j-1(e) requires investment personnel to obtain approval from the fund or its adviser before acquiring beneficial ownership of securities in an initial public offering or a limited offering, and Rule 506 offerings are limited offerings. After-the-fact reporting alone does not satisfy a pre-clearance rule. The rule does not require registration or SEC consent, and the interest is not barred outright.17 CFR 270.17j-1(e)

Under Rule 38a-1, which approval is required before a fund's chief compliance officer may be removed from his or her responsibilities?

• a.The fund's board, including a majority of the independent directors✓
• b.The fund's investment adviser, which employs and pays the compliance officer
• c.The SEC staff, after written notice of the proposed removal
• d.A majority of the fund's outstanding voting shares at a meeting

Rule 38a-1(a)(4)(ii) allows the CCO to be removed only by action of, and with the approval of, the fund's board including a majority of the directors who are not interested persons. The same standard applies to the CCO's designation and compensation. Putting the decision with the adviser would defeat the officer's independence, and neither shareholders nor the SEC staff has an approval role.17 CFR 270.38a-1(a)(4)

A fund has 1,000,000 shares outstanding. A shareholder meeting is held with 600,000 shares present or represented by proxy. What is the smallest number of votes cast in favor that makes a majority of the outstanding voting securities?

• a.At least 402,000 shares, which is 67% of the shares present✓
• b.At least 670,000 shares, which is 67% of all shares outstanding
• c.More than 500,000 shares, which is over half of the shares outstanding
• d.More than 300,000 shares, which is a majority of those present

Section 2(a)(42) defines a majority of the outstanding voting securities as the lesser of two tests: 67% or more of the shares present, if more than half of the outstanding shares are present, or more than 50% of the outstanding shares. Here 600,000 shares are present, which is more than half, so the first test applies: 67% of 600,000 is 402,000. The second test needs more than 500,000, which is the larger number, so it does not control. A simple majority of those present, and 67% of all outstanding shares, are not the statutory tests.Investment Company Act of 1940 Section 2(a)(42)

A lawyer whose firm served as the fund's legal counsel until 18 months ago is nominated to the board as an independent director. How is she treated under the Investment Company Act of 1940?

• a.She is an interested person, because her firm was fund counsel in the last two completed fiscal years✓
• b.She is not an interested person, unless she personally owns shares of the fund or its adviser
• c.She is not an interested person, because only a lawyer now retained by the fund is covered
• d.She is not an interested person, because the engagement with her firm ended over a year ago

Section 2(a)(19)(A) treats as interested persons any person, or partner or employee of any person, who at any time since the beginning of the last two completed fiscal years acted as legal counsel for the fund. An engagement that ended 18 months ago falls inside that look-back. A current engagement is not required, a one-year cutoff is not the rule, and share ownership is a separate test rather than a condition for counsel.Investment Company Act of 1940 Section 2(a)(19)

Two funds advised by the same adviser want to trade a listed stock directly with each other. Which condition must be met for the cross trade to qualify for the Rule 17a-7 exemption?

• a.The trade is priced at the average of the two funds' purchase costs, adjusted for fees
• b.The trade is priced at last night's NAV, plus a fee paid to the adviser
• c.The trade goes through the adviser's affiliated broker at a customary commission
• d.The trade is at the independent current market price, with no commission paid✓

Rule 17a-7 exempts certain purchases and sales between affiliated funds from Section 17(a) if the trade is for cash against prompt delivery, is made at the independent current market price, is consistent with each fund's policy, and involves no brokerage commission, fee or other remuneration other than customary transfer fees. The board must also adopt procedures and determine at least quarterly that cross trades complied. Pricing at cost basis or at NAV is not market price, and paying a commission to an affiliate is exactly what the exemption does not allow.17 CFR 270.17a-7

A management company pays a dividend funded partly from paid-in capital. How does Rule 19a-1 require the source of the payment to be disclosed?

• a.In the Form 1099-DIV the fund sends to shareholders after year end
• b.In the fund's next semiannual report to shareholders only
• c.On the same check stub that reports the payment
• d.On a separate paper stating the per-share amount from each source✓

Section 19(a) requires a written statement of source when a dividend comes from anything other than net income. Rule 19a-1(a) requires the statement to be made on a separate paper and to show clearly what portion of the per-share payment comes from net income, accumulated undistributed net profits from sales of securities, and paid-in surplus or other capital. A Form 1099-DIV is a year-end tax report, not the notice that accompanies the payment. A later shareholder report or a note on the check stub or another document does not meet the separate-paper requirement.17 CFR 270.19a-1(a)

Which distribution by a registered fund requires a written statement of source under Section 19(a)?

• a.A dividend paid entirely from net income earned in the preceding fiscal year
• b.A dividend paid entirely from net income earned in the current fiscal year
• c.A dividend paid entirely from accumulated undistributed net income
• d.A dividend paid partly out of paid-in capital or similar capital sources✓

Section 19(a) requires the written statement when a dividend is paid wholly or partly from any source other than accumulated undistributed net income, or net income for the current or preceding fiscal year, in each case not counting securities-sale profits. A dividend drawn partly from paid-in capital is outside those sources, so the statement is required. Dividends paid entirely from the three listed income sources need no such statement.Investment Company Act of 1940 Section 19(a)

A mutual fund taxed as a regulated investment company paid a capital gain distribution in June and proposes a second one in December of the same taxable year. Under Rule 19b-1, the second distribution is generally:

• a.Prohibited, since only one capital gain dividend is allowed a year, apart from limited exceptions✓
• b.Permitted if the second distribution is paid at least six months after the first
• c.Permitted if the December gains come from securities sold after the first payout
• d.Permitted if a majority of the fund's independent directors approves it in advance

Section 19(b) bars distributions of long-term capital gains more often than the SEC's rules allow, and Rule 19b-1(a) limits a regulated investment company to one capital gain dividend per taxable year, plus a limited supplemental distribution and certain other exceptions. The statute's 12-month wording is the outer limit, not the rule's test. Board approval and a different source of gains do not create an exception.17 CFR 270.19b-1(a)

A fund has made its one capital gain distribution for the taxable year. Under Rule 19b-1, for which purpose may it make one additional capital gain distribution?

• a.To avoid the federal excise tax on undistributed income✓
• b.To satisfy the 90 percent income test for regulated investment company status
• c.To pass along gains the fund realized after its fiscal year ended
• d.To offset a NAV drop after heavy redemptions

Rule 19b-1(f) lets a registered investment company make one additional distribution of long-term capital gains for a taxable year when it is made, in whole or in part, to avoid tax under section 4982 of the Internal Revenue Code, the excise tax on undistributed income. The 90 percent income test is a source-of-income condition for regulated investment company status, not a reason for an extra distribution. Gains realized after the year ends belong to the next taxable year, and a NAV decline after redemptions is not a recognized reason for an extra distribution.17 CFR 270.19b-1(f)

Under Rule 12b-1, how often must persons authorized to direct payments under a fund's distribution plan give the board a written report of the amounts spent and their purposes?

• a.At least quarterly, with the directors reviewing it✓
• b.At least monthly, to the independent directors only
• c.At least annually, at the time the plan is renewed
• d.At least semiannually, along with the shareholder report

Rule 12b-1(b)(3)(ii) requires the plan to provide that anyone authorized to direct payments under it must give the board a written report of the amounts expended and the purposes at least quarterly, and the directors must review it. The annual vote to continue the plan is a separate requirement, and the rule sets no monthly or semiannual schedule.17 CFR 270.12b-1(b)(3)(ii)

Before a fund's board votes to implement or continue a 12b-1 plan, what must the directors conclude?

• a.That the plan's charges will be lower than the charges of comparable funds' plans
• b.That the plan will bring in enough new assets to cover the plan's own annual cost
• c.A reasonable likelihood that the plan will benefit the fund and its shareholders✓
• d.That the plan will lower the fund's total expense ratio within the first full year

Rule 12b-1(e) allows a plan to be implemented or continued only if the directors who vote for it conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties, that there is a reasonable likelihood the plan will benefit the company and its shareholders. The rule does not require a guaranteed expense reduction, a particular asset gain, or a comparison with peer funds, though directors may weigh those factors.17 CFR 270.12b-1(e)

A fund's board wants to raise spending under its 12b-1 plan from 0.25% to 0.50% of average net assets. Under Rule 12b-1, what approval is required?

• a.Approval of a majority of the independent directors, acting on their own
• b.Shareholder approval, as a material increase in spending needs one✓
• c.Approval of the SEC staff, after a 60-day review of the plan
• d.Approval of the fund's principal underwriter and a majority of its full board

Rule 12b-1(b)(4) requires the plan to provide that it may not be amended to increase materially the amount spent for distribution without shareholder approval, and that other material amendments be approved by the board and by the independent directors. Doubling the rate is a material increase. The independent directors' vote is necessary for other material amendments but cannot replace the shareholder vote here. The underwriter and the SEC staff have no approval role.17 CFR 270.12b-1(b)(4)

How long must a fund preserve copies of its 12b-1 plan, related agreements and reports under Rule 12b-1?

• a.At least five years from the date of the record, with the first two years readily accessible
• b.At least three years from the date of the record, the first two years available to regulators on request
• c.At least six years from the date of the record, with the entire period kept readily accessible
• d.At least six years, with the first two easily accessible✓

Rule 12b-1(f) requires a fund to preserve copies of any plan, agreement or report for at least six years from its date, with the first two years in an easily accessible place. Five years with two accessible is the Rule 38a-1 compliance record standard, which is a different rule. Three years is the usual broker-dealer period under Rule 17a-4(b). Keeping the whole six years easily accessible is not required.17 CFR 270.12b-1(f)

A fund's adviser proposes to send more of the fund's portfolio trades to a broker-dealer that sells many of the fund's shares, as a reward for its sales effort. Under Rule 12b-1(h), this arrangement is:

• a.Permitted if the commissions are no higher than those other brokers charge
• b.Prohibited, since portfolio trades may not reward a broker for selling fund shares✓
• c.Permitted if the independent directors review and approve it every quarter
• d.Permitted only if the broker is not an affiliate of the adviser or the distributor

Rule 12b-1(h)(1) bars a fund from compensating a broker-dealer for promoting or selling its shares by directing it portfolio transactions or the commissions and other remuneration from them. Competitive commissions, board review, and the broker's independence from the adviser do not cure the problem, because the prohibition turns on using the trades as a reward for sales.17 CFR 270.12b-1(h)

A fund wants to waive its sales charge for employees of its investment adviser. Under Rule 22d-1, the waiver is allowed as a scheduled variation if:

• a.It applies uniformly to all offerees in the class and is described in the prospectus✓
• b.Each selling dealer sets its own waiver, subject to a limit the dealer chooses
• c.The SEC staff approves each waiver in writing before the first sale is made
• d.It is added to the prospectus within a year after the first waiver is granted

Section 22(d) requires redeemable fund shares to be sold at the current public offering price in the prospectus. Rule 22d-1 exempts scheduled variations in, or elimination of, the sales load for particular classes of investors if the variation is applied uniformly to all offerees in the class, described to existing shareholders and prospective investors, and added to the prospectus and statement of additional information before it is made available. The one-year period in the rule is only for advising existing shareholders of a new variation, not for revising the prospectus. Case-by-case waivers by dealers are the discretion the section forbids, and no SEC approval is needed for each waiver.17 CFR 270.22d-1

Section 22(d) of the Investment Company Act of 1940 requires a dealer selling redeemable fund shares to the public to sell at:

• a.A price at least 5% below the public offering price, set by the dealer
• b.Any price negotiated with the customer, up to the maximum sales charge
• c.The current public offering price stated in the fund's prospectus✓
• d.Net asset value next computed, with the sales charge paid separately

Section 22(d) is a retail price maintenance provision: a fund, its principal underwriter and its dealers must sell redeemable securities at the current public offering price described in the prospectus, apart from sales through an underwriter or dealer and exceptions made by SEC rule such as Rule 22d-1. Dealers therefore cannot negotiate their own prices, even within the maximum charge. Forward pricing at the next-computed NAV is a separate rule that governs when the price is set.Investment Company Act of 1940 Section 22(d)

A representative recommends six fund switches for a retail customer over eight months. Each switch can be defended alone, but the sales charges have eroded the account and the customer's goals never changed. Which Regulation Best Interest obligation is most directly at issue?

• a.The Disclosure Obligation, which is met once each trade's charges appear on the confirmation
• b.The Care Obligation, which tests whether a series of transactions is excessive taken together✓
• c.The Compliance Obligation, which governs only the firm's written supervisory procedures
• d.The Conflict of Interest Obligation, which reaches only sales contests and quotas on products

Rule 15l-1(a)(2)(ii)(C) requires a reasonable basis to believe that a series of recommended transactions, even if in the customer's best interest when viewed in isolation, is not excessive and is in her best interest when taken together in light of her investment profile. A pattern of switches that erodes the account fails that test even if every single switch could be justified. The Disclosure Obligation concerns what is told to the customer, not whether the activity is excessive. The Compliance Obligation requires written policies and does not itself test a recommendation. The Conflict of Interest Obligation covers more than contests and quotas, but it is not the obligation that tests excessive activity.17 CFR 240.15l-1(a)(2)(ii)(C)

Before a firm's representatives may recommend a complex structured note to any retail customer, the Care Obligation requires reasonable diligence to understand the note's risks, rewards and costs and a reasonable basis to believe that the note:

• a.Is issued by a company with an investment grade debt rating
• b.Costs less than every comparable note offered by other issuers
• c.Could be in the best interest of at least some retail customers✓
• d.Is in the best interest of every retail customer meeting the account minimum

Rule 15l-1(a)(2)(ii)(A) requires the firm to understand the potential risks, rewards and costs of a recommendation and to have a reasonable basis to believe it could be in the best interest of at least some retail customers. That is a product-level screen; the customer-specific test under (a)(2)(ii)(B) then asks whether it is in the best interest of the particular customer. The product need not suit every customer. Cost is a factor to weigh, but the rule does not require the cheapest product. Nothing in the rule makes an investment-grade rating a condition.17 CFR 240.15l-1(a)(2)(ii)(A)

Under the Disclosure Obligation of Regulation Best Interest, when must a broker-dealer give the retail customer the required full and fair written disclosure?

• a.At account opening, with nothing more for later recommendations
• b.Prior to or at the time the recommendation is made, and in writing✓
• c.After the trade settles, in the next account statement sent to the customer
• d.Only when the customer asks for it, after the recommendation

Rule 15l-1(a)(2)(i) requires the broker-dealer, prior to or at the time of the recommendation, to give the retail customer in writing full and fair disclosure of all material facts about the scope and terms of the relationship and about conflicts of interest associated with the recommendation. Disclosure after the trade settles comes too late to inform the decision. An account-opening document alone does not cover conflicts tied to later recommendations. The duty is not triggered by a customer request.17 CFR 240.15l-1(a)(2)(i)

A firm pays its representatives a 2.0% payout on its proprietary funds and 1.0% on all other funds. Under the Conflict of Interest Obligation, what must the firm's written policies do about this payout difference?

• a.Report the payout schedule to FINRA each quarter, which cures the conflict
• b.Identify the conflict and mitigate the incentive, in addition to disclosing it✓
• c.Eliminate the payout difference, since every compensation conflict must be removed
• d.Disclose the payout in the Form CRS and take no other step to address the incentive

Rule 15l-1(a)(2)(iii)(B) requires written policies reasonably designed to identify and mitigate conflicts that create an incentive for an associated person to put the firm's or his own interest ahead of the customer's. The disclosure obligation in paragraph (a)(2)(iii)(A) also applies, but it is not the whole obligation. Only certain practices, such as time-limited sales contests, quotas, bonuses and non-cash compensation tied to specific securities, must be eliminated under paragraph (a)(2)(iii)(D); an ordinary payout difference need not be. Reporting a schedule to FINRA does not mitigate anything.17 CFR 240.15l-1(a)(2)(iii)(B)

A firm's representatives may recommend only the firm's own proprietary funds. What does Regulation Best Interest require of the firm about that limitation?

• a.Nothing further, since a limited product menu is exempt from the Conflict of Interest Obligation
• b.Mention the limitation orally once a year, with no policies to prevent biased advice
• c.Identify and disclose the limitation and its conflicts, and prevent it from skewing recommendations✓
• d.Remove the limitation, because a firm may never restrict the investments it will recommend

Rule 15l-1(a)(2)(iii)(C) requires written policies reasonably designed to identify and disclose any material limitations on the securities or strategies that may be recommended, and the conflicts those limitations create, and to prevent them from causing recommendations that put the firm or representative ahead of the customer. A limited menu is allowed, so the firm need not remove it. It is not exempt from the obligation. An occasional oral mention without preventive policies falls short of both the written-disclosure and policy requirements.17 CFR 240.15l-1(a)(2)(iii)(C)

A representative advises a retail customer to roll her 401(k) into a new brokerage IRA at the representative's firm. Which statement about Regulation Best Interest is correct?

• a.Reg BI applies only after the IRA is funded and a trade in it has been recommended
• b.Reg BI applies only if the 401(k) holds securities from the firm's own fund family
• c.The rollover advice is itself covered, because recommendations of an account type are included✓
• d.Reg BI covers only recommendations of specific securities, so advice on account type is outside it

Rule 15l-1(a)(1) applies to a recommendation of any securities transaction or investment strategy involving securities, and the text states that this includes account recommendations. Advising a rollover into a brokerage IRA recommends an account type, so the best interest obligation attaches at that point, before any trade. It does not wait for funding or a later trade recommendation, and it does not depend on which fund family the old plan held.17 CFR 240.15l-1(a)(1)

A retail customer phones the firm, names a stock she has researched, and places a buy order. The representative makes no suggestion. Does the Reg BI best interest obligation attach to this order?

• a.Yes, because the rule covers every retail transaction the firm executes, solicited or not
• b.Yes, because the firm must still confirm the order fits her investment profile first
• c.No, because no recommendation was made, and the obligation depends on one✓
• d.Yes, unless she signs a written waiver giving up the best interest protection

Rule 15l-1(a)(1) applies when a broker-dealer or its associated person makes a recommendation to a retail customer. A genuinely unsolicited order has no recommendation behind it, so the best interest obligation is not triggered, although the firm's other duties, such as best execution, still apply. The rule does not extend to every order the firm executes, the investment-profile check belongs to the care obligation that attaches to a recommendation, and no waiver is needed because the obligation never arises.17 CFR 240.15l-1(a)(1)

A representative recommends a stock to the owner of an operating company. The purchase will be made in the company's own account with business cash. Which conduct standard governs the recommendation?

• a.Reg BI, because the company's owner is a natural person who made the decision
• b.FINRA Rule 2111, because the account is a company's and not used for personal purposes✓
• c.Reg BI, because any customer that is not an institution is a retail customer
• d.The Advisers Act fiduciary standard, because personalized advice was given

Rule 15l-1(b)(1) defines a retail customer as a natural person, or a natural person's legal representative, who uses the recommendation primarily for personal, family or household purposes. A company's account funded with business cash is neither, so Reg BI does not govern, and FINRA Rule 2111 continues to apply because Supplementary Material .08 removes only recommendations subject to Reg BI. The owner's personal involvement does not change the purpose or the account holder, and Reg BI has no rule that treats every non-institutional customer as retail. The Advisers Act fiduciary standard applies to investment advisers, not to a broker-dealer representative making a recommendation.FINRA Rule 2111; 17 CFR 240.15l-1(b)(1)

An existing brokerage customer asks about moving her employer 401(k) to an IRA, and the representative recommends a rollover into a new IRA at the firm. When must the firm deliver its current Form CRS to her?

• a.Only if she asks for a copy, which the firm must then supply within 30 days
• b.Before or at the time of the rollover recommendation, even though she is an existing customer✓
• c.Within 30 days after the new IRA is opened, with the first account statement
• d.Not at all, because she received a Form CRS when she opened her first account

Rule 17a-14(c)(2)(ii) requires delivery of the current Form CRS to an existing retail customer before or at the time the firm recommends that she roll over assets from a retirement account into a new or existing account or investment. The same paragraph also covers opening a different type of account and recommending a new service or investment not held in an existing account. An earlier delivery does not excuse the new trigger, and a post-opening delivery is late. The 30-day rule applies to requests and does not replace the trigger.17 CFR 240.17a-14(c)(2)(ii)

Under the Form CRS instructions, how soon must a firm update and refile its relationship summary once information in it has become materially inaccurate?

• a.By the next annual updating amendment, whenever that falls
• b.Within 10 business days, with an exhibit only if the SEC requests it
• c.Within 60 days, matching the period for telling existing customers
• d.Within 30 days, filed with an exhibit that highlights the changes✓

General Instruction 8.A requires the firm to update the summary and file it within 30 days whenever information in it becomes materially inaccurate, and the filing must include an exhibit highlighting the changes. The 60-day figure is the separate period in Instruction 8.B for communicating the changes to existing retail customers. Waiting for an annual update is not permitted for a material inaccuracy, and no 10-business-day period exists.Form CRS, General Instruction 8.A

After a firm amends its Form CRS, how must it tell its existing retail customers about the changes, and by when?

• a.By waiting for each customer's next account statement, whenever issued
• b.By delivering the amended form or other disclosure within 60 days, at no charge✓
• c.By posting it on its website only, since direct delivery is not needed
• d.By mailing the amended form within 30 days, charging only the cost of copying and postage

Rule 17a-14(c)(4) requires the firm to communicate changes to each existing retail customer within 60 days after the amendments are required to be made and without charge. The firm may deliver the amended Form CRS or convey the information in another disclosure it delivers to the customer. A website posting is a separate duty under (c)(3) and does not replace direct communication. The 30-day figure is the filing period, and a charge or an open-ended wait is not allowed.17 CFR 240.17a-14(c)(4)

A firm mails a new retail customer a paper package containing the account agreement, a fee schedule and its Form CRS. Where must the relationship summary appear?

• a.First among the documents delivered to the customer at that time✓
• b.Anywhere in the package, if the cover letter notes that it is included
• c.Second, immediately after the account agreement that the customer signs
• d.Last, as an attachment placed after the account agreement and fee schedule

General Instruction 10.D provides that when the relationship summary is delivered in paper format as part of a package of documents, the firm must make sure it is the first among any documents delivered at that time. Burying it at the back or relying on a cover letter mention defeats the purpose of putting it in front of the investor before the other paperwork. Placing it after the account agreement is also not first.Form CRS, General Instruction 10.D

A retail investor asks a broker-dealer for a copy of its current Form CRS. Within what period must the firm deliver it?

• a.Within 60 days of the request, as it does for telling customers of amendments
• b.At the investor's next account statement, whenever that statement is issued
• c.Within 30 days of receiving the request, and the firm may not charge for the copy✓
• d.Within 5 business days of the request, with a fee limited to printing cost

Rule 17a-14(c)(5) requires delivery of a current Form CRS to a retail investor within 30 days upon request, and General Instruction 1.C requires a copy to be available upon request without charge. The 60-day period applies to communicating amendments to existing customers, not to requests. There is no five-business-day deadline, and delivery cannot be postponed to a future statement.17 CFR 240.17a-14(c)(5)

A member recommends a bond to an institutional account. Customer-specific suitability under Rule 2111(b) is satisfied if the member reasonably believes the customer can evaluate investment risks independently and the customer:

• a.Signs a waiver of suitability protections that the customer's board of directors has approved
• b.Affirmatively indicates it is exercising independent judgment in evaluating recommendations✓
• c.Has held an account at the member for at least five consecutive years without a complaint
• d.Reports total assets above $50 million on the member's most recent account form

Rule 2111(b) sets two conditions for an institutional account: the member has a reasonable basis to believe the customer can evaluate investment risks independently, both in general and for the particular transactions, and the customer affirmatively indicates that it is exercising independent judgment in evaluating the member's recommendations. The $50 million threshold appears in the Rule 4512(c) definition of an institutional account, but it is not the second condition. Account tenure is not a test. The rule does not call for a blanket waiver of protections.FINRA Rule 2111(b)

A representative with no discretion and no control over a non-retail customer's account recommends a series of trades that, taken together, produce turnover and costs far beyond what the customer's profile supports. Can Rule 2111 quantitative suitability apply?

• a.No, because the rule tests each recommended transaction individually and never as a series
• b.Yes, but only if the trades were executed in a discretionary account approved by a principal
• c.Yes, because actual or de facto control is no longer an element of quantitative suitability✓
• d.No, because quantitative suitability applies only when the member has actual or de facto control

Rule 2111.05(c) asks whether a series of recommended transactions, even if suitable when viewed in isolation, is excessive and unsuitable for the customer when taken together in light of the customer's investment profile. FINRA removed the control element from the quantitative obligation effective June 30, 2020, so a representative without control can still be liable. The control requirement belongs to the earlier version of the rule. The rule expressly looks at a series of transactions, and it does not require a discretionary account.FINRA Rule 2111.05(c)

A representative tells a non-retail customer to keep holding a large position in a single stock rather than diversify. Does Rule 2111 reach that advice?

• a.No, because suitability covers only recommendations to buy, sell or exchange a security
• b.Yes, but only if the representative earns a commission on the position each period
• c.Yes, because a recommendation to hold is an investment strategy under the rule✓
• d.No, because advice to keep an existing position is market commentary, not a recommendation

Rule 2111.03 says the phrase investment strategy involving a security or securities is to be interpreted broadly and includes an explicit recommendation to hold a security. Advice to keep a concentrated position is therefore a recommendation that must meet the suitability obligations for a customer outside Reg BI. The rule is not limited to buy, sell or exchange recommendations, and the compensation the representative earns does not decide whether it is a recommendation.FINRA Rule 2111.03

A firm last inspected one of its offices of supervisory jurisdiction (OSJ) in March 2025. What does Rule 3110 require for 2026?

• a.No inspection until March 2028, because every branch is on the same three-year cycle
• b.An inspection in 2026 or 2027, since the firm may pick either year within a two-year window
• c.An inspection by March 2026, because the annual cycle runs from the date of the last inspection
• d.An OSJ inspection during calendar year 2026, since the annual requirement runs on a calendar-year basis✓

Rule 3110(c)(1)(A) requires the member to inspect every OSJ, and any branch office that supervises non-branch locations, at least annually, on a calendar-year basis. That means an inspection must take place in each calendar year, so 2026 needs one even though the last one was in March 2025. The rolling twelve-month reading is not what the rule says. The three-year cycle belongs to non-supervisory branch offices under (c)(1)(B), not to an OSJ. No two-year window exists.FINRA Rule 3110(c)(1)(A)

A firm plans to hire an experienced representative who starts next Monday. Under Rule 3110(e), when must the firm investigate the applicant's good character, business reputation, qualifications and experience?

• a.Within 30 days after the firm files the person's Form U4 with FINRA
• b.Before the person's first customer trade, though the U4 may be filed earlier
• c.Before it applies to register the person, and before the Form U4 is filed✓
• d.Within 60 days after the person's first day on the firm's payroll

Rule 3110(e) requires the member to ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the member applies to register that person with FINRA. Waiting until after the Form U4 is filed is too late. The 30-day period in the rule applies to verifying the accuracy of the Form U4, which is a separate step. A deadline tied to the first day of work or first trade does not match the rule.FINRA Rule 3110(e)

A firm files a new representative's Form U4 on June 1. By what date must it have verified the accuracy of the information in that Form U4 under Rule 3110(e)?

• a.July 31, because the limit is 60 calendar days from filing
• b.July 1, which is 30 calendar days after the form is filed✓
• c.June 15, because the limit is two weeks from filing
• d.September 1, because the limit is 90 calendar days from filing

Rule 3110(e) requires the member to verify the accuracy and completeness of the Form U4 no later than 30 calendar days after the form is filed. June 1 plus 30 calendar days is July 1. The 60-day figure is the separate period for reviewing the applicant's prior registration documents, so it is the right number for the wrong step. Neither 90 days nor two weeks appears in the rule.FINRA Rule 3110(e)

Under Rule 3120, the designated principal's annual report to senior management must detail which of the following?

• a.Every customer complaint received during the year, with the resolution reached for each one
• b.The supervisory controls, test results with significant exceptions, and amended procedures✓
• c.Each registered representative's total commissions for the year, ranked from highest to lowest
• d.The firm's net capital computation for each month of the prior year, with its FOCUS filings

Rule 3120(a) requires a report, at least annually, detailing the member's system of supervisory controls, a summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response. A tabulation of complaint reports made to FINRA is added only for larger firms under paragraph (b), and it covers reports made to FINRA rather than every complaint received. Net capital and representative compensation are not part of the report.FINRA Rule 3120(a)

A member reported $240 million in gross revenue for calendar year 2025. What must its 2026 Rule 3120 report to senior management include beyond the standard content?

• a.A CEO certification of its compliance processes in place of the principal's annual report
• b.Nothing more, because the added content applies only at $1 billion or more in gross revenue
• c.A tabulation of every complaint received, reported or not, plus an audit by an outside accountant
• d.A tabulation of its complaint and investigation reports to FINRA, plus a six-area compliance discussion✓

Rule 3120(b) applies to a member that reported $200 million or more in gross revenue in the preceding calendar year, so $240 million for 2025 triggers it for the 2026 report. The report must add a tabulation of the reports on customer complaints and internal investigations made to FINRA during the preceding year and a discussion of the firm's compliance efforts in six areas, including antifraud and sales practices, supervision and anti-money laundering. The $1 billion figure is not in the rule. The CEO certification is a separate Rule 3130 duty and does not replace the report.FINRA Rule 3120(b)

A member names a principal as its chief compliance officer under Rule 3130. How must the member identify that person to FINRA?

• a.Specifically, on Schedule A of Form BD, as one of its designated principals✓
• b.On its Form CRS, which must name the principal handling compliance
• c.In the annual audited report the firm files under SEC Rule 17a-5 each year
• d.On Form U5, filed when the principal accepts the compliance role at the firm

Rule 3130(a) requires each member to designate and specifically identify to FINRA, on Schedule A of Form BD, one or more principals to serve as chief compliance officer. Form U5 reports the end of a person's registration with a firm, not a new role. Form CRS is a customer disclosure document, and it does not name the compliance officer. The Rule 17a-5 annual report is a financial filing and is not where the designation is made.FINRA Rule 3130(a)

A member's CEO is about to sign the annual compliance certification under Rule 3130. Which statement must the CEO be able to make?

• a.That no complaint against the firm was reported to FINRA in the preceding year
• b.That the CEO met with the CCO within the preceding 12 months to discuss the processes✓
• c.That the chief compliance officer reviewed each representative's trades and found no violations
• d.That the CEO personally tested every written supervisory procedure during the preceding year

Rule 3130 requires the CEO to certify that the member has processes to establish, maintain, review, test and modify its compliance policies and written supervisory procedures, and that the CEO has conducted one or more meetings with the chief compliance officer in the preceding 12 months to discuss them. The certification does not require the CEO to test procedures personally. It does not promise that no violations occurred, and it says nothing about the absence of complaints.FINRA Rule 3130(b)-(c)

A Series 6 representative wants to open a brokerage account at another firm for her own trading in stocks. What does Rule 3210 require?

• a.Her employer's prior written consent, and written notice to the other firm✓
• b.Her employer's consent, with any notice to the other firm left to her discretion
• c.Written notice to her employer within 30 days after the account opens, and nothing more
• d.Approval only if the account is a margin account, since cash accounts are exempt

Rule 3210(a) bars an associated person from opening an account at another member or financial institution in which securities transactions can be effected and in which she has a beneficial interest, without the employer's prior written consent. Under paragraph (b) she must also notify the executing firm in writing of her association before the account is opened. Notice after the fact does not satisfy the rule. The notice to the other firm is not optional, and the rule covers cash accounts as well as margin accounts.FINRA Rule 3210(a)-(b)

A Series 6 representative wants to open an account at an unaffiliated broker-dealer that will be used only to buy and sell open-end mutual fund shares. Is the Rule 3210 consent-and-notice process required?

• a.No, because accounts limited to redeemable shares of registered investment companies are outside the rule✓
• b.Yes, because the rule covers every account in which she has a beneficial interest, whatever it holds
• c.No, but only if the account balance stays under $25,000 for as long as the account is open
• d.Yes, but only the notice to the other firm, since her employer's consent is not needed for funds

Rule 3210.03 provides that the rule does not apply to accounts in which transactions are limited to certain products, including redeemable securities of registered investment companies such as open-end mutual funds, as well as unit investment trusts, municipal fund securities and variable contracts. A fund-only account therefore needs neither the employer's consent nor the notice. The rule does not cover every account regardless of holdings, and the exclusion has no dollar threshold.FINRA Rule 3210, Supplementary Material .03

A representative tells a nervous customer, "Buy this fund, and if it ever falls below what you paid, I will make up the difference from my own pocket." Can the firm approve the promise in writing so that it becomes permissible?

• a.Yes, if the customer signs a document acknowledging that the promise is not binding
• b.Yes, if the representative's firm approves the promise in writing before the purchase
• c.No, since guaranteeing a customer against loss is prohibited, with no route for firm approval✓
• d.Yes, but only if the promise covers no more than the commissions the representative earned on that purchase

Rule 2150(b) states that no member or person associated with a member shall guarantee a customer against loss in connection with any securities transaction or in any securities account. The text has no exception for firm approval, a customer acknowledgment or a cap tied to commissions, so the promise is improper however it is documented and whoever would fund it.FINRA Rule 2150(b)

A representative and an unrelated customer agree to share in the customer's account. The customer contributes $80,000 and the representative $20,000, and both the firm and the customer have given prior written authorization. Which sharing arrangement satisfies Rule 2150(c)?

• a.The representative takes 20% of profits, and the customer bears losses
• b.Any split they agree on, since the customer's authorization is what controls
• c.The representative takes 20% and the customer 80% of profits and losses✓
• d.A 50/50 split of profits and losses, because both parties agreed in writing

Rule 2150(c) allows sharing in a customer's account only with the prior written authorization of the member and of the customer, and the sharing must be in direct proportion to the financial contributions made to the account. The representative's $20,000 is 20% of the $100,000 total, so the representative takes 20% of the profits and bears 20% of the losses. Only an immediate family account escapes the proportion requirement. A 50/50 split, a profits-only share and a freely chosen split all depart from direct proportion.FINRA Rule 2150(c)

A firm files a new representative's application for registration on March 3. By what date must the firm review the applicant's prior Form U5 under Rule 3110(e), or show FINRA it made reasonable efforts to do so?

• a.April 2, which is 30 days counted from the filing
• b.March 17, which is only 14 days after the filing
• c.June 1, which is 90 days measured from the filing
• d.May 2, which is 60 days after the filing date✓

Rule 3110(e) requires the member to review the applicant's prior registration documents, such as the Form U5, within 60 days of the filing date of the application for registration, or demonstrate to FINRA that it made reasonable efforts to do so. March 3 plus 60 days is May 2, counting 28 days to March 31, 30 more to April 30 and 2 more. The 30-day period is the separate Form U4 accuracy check, and neither 90 nor 14 days appears in the rule.FINRA Rule 3110(e)