Customer Accounts, Retirement Plans, and Suitability
Opening an account correctly determines who owns the assets, who may give instructions, who pays the tax, and where the money goes when someone dies. This chapter covers the ownership forms you will see on the exam, the retirement plans a Series 6 representative most often funds, the information required to make a recommendation, and the mechanics of maintaining and transferring accounts.
Ownership Forms
An individual account has one owner and one person authorized to trade. Joint accounts come in two flavors: joint tenants with rights of survivorship, where the survivor automatically takes full ownership, and tenants in common, where each owner may hold an unequal percentage that passes to that owner's estate. Custodial accounts under the Uniform Gifts or Transfers to Minors Acts hold property that legally belongs to the minor, registered under the minor's Social Security number, with one custodian and one minor per account and no joint custodians. Gifts into a custodial account are irrevocable, and control passes to the beneficiary at the state's termination age. Trust and corporate accounts require documentation establishing who has authority to act.
IRAs
Anyone with earned income may contribute to a Traditional IRA, but whether the contribution is deductible depends on income and whether the taxpayer or spouse participates in an employer plan. Growth is tax deferred, and distributions of deductible contributions and earnings are ordinary income. Withdrawals before age 59 1/2 add a 10% penalty unless a listed exception applies, and required minimum distributions must begin at the statutory age, currently 73 under SECURE 2.0 with a scheduled increase. A Roth IRA reverses the tax treatment: contributions are never deductible, but a qualified distribution is entirely tax free if the account has been open five years and the owner is at least 59 1/2, disabled, deceased, or buying a first home within limits. Roth contributions may be withdrawn at any time without tax or penalty, and the original owner faces no lifetime RMDs.
Employer Plans and Rollovers
A 401(k) is a defined contribution plan funded by employee salary deferrals, often with an employer match, where the eventual benefit depends on contributions and investment results. A 403(b) tax-sheltered annuity serves public school employees and staff of qualifying 501(c)(3) organizations. A SEP is funded entirely by employer contributions deposited into IRAs established for eligible employees, which makes it popular with small businesses and the self-employed. When a participant leaves an employer, a direct trustee-to-trustee transfer is almost always the better route: it avoids mandatory federal withholding, has no deadline, and has no frequency limit. An indirect rollover puts the check in the participant's hands and must be redeposited within 60 days, and IRA-to-IRA indirect rollovers are limited to one in any 12-month period.
Suitability and the Customer Profile
Before making a recommendation, a representative must gather and evaluate the customer's investment profile: age, financial situation and needs, tax status, investment objectives, experience, time horizon, liquidity needs, and risk tolerance. The recommendation must be in the customer's best interest, and the representative may not place personal compensation ahead of the customer's interest. In practice most exam scenarios hinge on time horizon and liquidity. A customer needing money within a year belongs in cash equivalents, not in a product with a multi-year surrender schedule. A young investor with a 30-year horizon can tolerate equity volatility and needs growth to outpace inflation. A customer building an emergency reserve needs a money market fund, not a high-yield bond fund.
Opening, Maintaining, and Transferring Accounts
For a standard retail cash account, the representative completes the new account form and a principal accepts the account; the customer's signature is not a regulatory requirement, though signatures are required for margin agreements, options accounts, and discretionary authority. The firm must send the customer a copy of the account record for verification within 30 days of opening and at least once every 36 months thereafter, and must update records when it learns of a material change. If a customer dies, the firm cancels open orders, freezes the account, and takes instructions only from the properly documented representative of the estate. Account transfers between firms run on a tight automated schedule, with validation within one business day and completion within three business days of validation, and assets move in kind whenever the receiving firm can hold them.
Last updated: July 2026