FINRA Series 7 — All Questions

In a joint tenants with rights of survivorship (JTWROS) account, when one owner dies:

• a.The estate must immediately sell every security in the account and distribute the cash
• b.The deceased owner's interest passes automatically to the surviving owner(s)✓
• c.The account converts to a corporate account
• d.The account is frozen permanently

In a JTWROS account, the surviving owner automatically inherits the deceased owner's interest in the account, bypassing probate. This contrasts with tenants in common, where a deceased owner's share passes to that owner's estate according to their will or state law.

A custodial account established under the Uniform Transfers to Minors Act (UTMA) has which feature?

• a.There is one custodian and one minor, and the assets belong to the minor✓
• b.Two or more minors may be named together as equal co-owners of the single account
• c.The account may be opened and funded only by the minor's grandparent or other ancestor
• d.The custodian owns the assets personally

A UTMA account has a single custodian managing assets for a single minor, and the assets legally belong to the minor. The custodian manages the account for the minor's benefit and must act prudently; control transfers to the minor upon reaching the age of majority set by state law.

To exercise discretion in a customer's account, a registered representative must first obtain:

• a.Approval from the OCC
• b.A margin agreement
• c.Only a spoken verbal instruction from the customer for each individual trade beforehand
• d.Prior written authorization from the customer and firm approval of the account✓

Discretionary authority (choosing the security, the amount, or whether to buy or sell without consulting the client on each order) requires the customer's prior written authorization and the firm's written acceptance of the account. Each discretionary order must be marked as such and the account must be reviewed frequently by a principal.

Under Regulation T, the initial margin requirement for a purchase of marginable common stock is currently:

• a.25% of the purchase price
• b.50% of the purchase price✓
• c.100% of the purchase price
• d.10% of the purchase price

Regulation T, set by the Federal Reserve Board under the Securities Exchange Act of 1934, currently requires an initial margin deposit of 50% of the purchase price for marginable equity securities. The remaining amount may be borrowed from the broker-dealer through the margin account.Securities Exchange Act of 1934

A customer buys $20,000 of marginable stock in a margin account. Under Regulation T at 50%, how much must the customer deposit?

• a.$10,000✓
• b.$5,000
• c.$2,000
• d.$20,000

The Regulation T initial requirement of 50% applies to the $20,000 purchase, so the customer must deposit $10,000. The broker-dealer may lend the remaining $10,000, which becomes the debit balance in the margin account.Securities Exchange Act of 1934

FINRA's minimum maintenance margin requirement for a long stock position is:

• a.10% of the current market value
• b.5% of the current market value
• c.25% of the current market value✓
• d.50% of the current market value

FINRA rules require that equity in a long margin account be maintained at no less than 25% of the current market value of the securities. If the account's equity falls below this maintenance level, the firm issues a maintenance (house or FINRA) margin call for additional funds.

A customer holds long stock with a current market value of $40,000 and a debit balance of $32,000. Using the 25% maintenance requirement, what is the status of the account?

• a.A maintenance call is triggered because equity of $8,000 is below the $10,000 required✓
• b.A call is triggered because the debit exceeds market value
• c.No call; equity exceeds the requirement by $8,000
• d.No call; equity exactly equals the requirement

Equity equals market value minus the debit balance: $40,000 - $32,000 = $8,000. The maintenance requirement is 25% of the $40,000 market value, or $10,000. Because equity of $8,000 is below the $10,000 minimum, the account is deficient by $2,000 and a maintenance call is triggered.

In a short margin account, the customer profits when:

• a.The price of the borrowed and sold security declines✓
• b.Prevailing market interest rates decline broadly across all maturities
• c.The price of the shorted security rises steadily above the original sale price
• d.The company raises the cash dividend paid on the shorted common stock

A short seller borrows shares, sells them, and hopes to buy them back later at a lower price. The position profits when the security's price declines. Because a stock's price can rise without limit, short positions carry theoretically unlimited loss potential and are subject to margin requirements.

A traditional Individual Retirement Account (IRA) offers which primary tax feature?

• a.No contribution limits
• b.Potentially tax-deductible contributions with tax-deferred growth until withdrawal✓
• c.Contributions made only by employers
• d.Completely tax-free withdrawals of all earnings regardless of the owner's age at withdrawal

Traditional IRA contributions may be tax-deductible depending on income and workplace plan coverage, and earnings grow tax-deferred. Withdrawals in retirement are taxed as ordinary income, and required minimum distributions apply. Early withdrawals before age 59 1/2 are generally subject to a penalty plus tax.Internal Revenue Code

A Roth IRA differs from a traditional IRA primarily because a Roth:

• a.Requires that mandatory distributions from the account must begin at age fifty exactly
• b.Has no annual contribution limit
• c.Is funded with after-tax dollars, and qualified withdrawals are tax-free✓
• d.Allows fully tax-deductible contributions in the same year that they are actually made

Roth IRA contributions are made with after-tax dollars and are not deductible, but qualified distributions of both contributions and earnings are entirely tax-free if the account has been held five years and the owner is at least 59 1/2. Roth IRAs also are not subject to required minimum distributions during the owner's lifetime.Internal Revenue Code

A withdrawal from a traditional IRA before age 59 1/2 is generally subject to:

• a.Ordinary income tax plus a 10% early withdrawal penalty, unless an exception applies✓
• b.A flat early-withdrawal penalty only, with no ordinary income tax due on the amount withdrawn
• c.No tax and no penalty
• d.Only state tax

Early distributions from a traditional IRA taken before age 59 1/2 are generally taxed as ordinary income and are also subject to a 10% penalty. Certain exceptions, such as qualified first-home purchases, higher education, or disability, may waive the penalty but not the ordinary income tax.Internal Revenue Code

A 401(k) plan is a type of:

• a.A municipal savings bond program offered specifically to government workers
• b.An individual retirement account carrying no employer involvement whatsoever
• c.A federal government pension plan fully guaranteed by the U.S. Treasury
• d.Employer-sponsored defined contribution retirement plan✓

A 401(k) is an employer-sponsored defined contribution plan in which employees defer part of their salary, often with employer matching, into investment accounts. The retirement benefit depends on contributions and investment performance, unlike a defined benefit plan that promises a set payout. ERISA governs these workplace plans.Employee Retirement Income Security Act

Under Regulation Best Interest (Reg BI), when a broker-dealer makes a recommendation to a retail customer, it must:

• a.Guarantee the retail customer a profit on the recommended transaction and personally cover any losses incurred
• b.Avoid disclosing any conflicts of interest
• c.Act in the retail customer's best interest and not place its own interests ahead of the customer's✓
• d.Recommend only proprietary products

Regulation Best Interest, adopted under the Securities Exchange Act of 1934, requires broker-dealers to act in the retail customer's best interest at the time a recommendation is made and not to put the firm's financial interests ahead of the customer's. It includes disclosure, care, conflict-of-interest, and compliance obligations.Securities Exchange Act of 1934

When determining whether a recommendation is suitable, a registered representative must consider the customer's:

• a.Investment objectives, financial situation, risk tolerance, and time horizon✓
• b.Favorite industries only
• c.Zip code and gender
• d.The firm's current inventory needs and its goal of reducing unwanted proprietary positions

Suitability and the care obligation under Reg BI require the representative to understand the customer's investment profile, including objectives, financial situation and needs, risk tolerance, time horizon, liquidity needs, and experience. Recommendations must fit that profile rather than the firm's interests.

Before a customer may trade options, the firm must:

• a.Only collect a signed margin agreement
• b.Obtain approval from a designated options principal and deliver the options disclosure document (ODD) at or before account approval✓
• c.Wait until after the first trade to send disclosures
• d.Guarantee the customer against loss

Opening an options account requires that a Registered Options Principal approve the account based on the customer's suitability information, and the firm must furnish the options disclosure document (the ODD) at or before approval. The customer must also return a signed options agreement, generally within 15 days of approval.

A tenants in common (TIC) account differs from JTWROS because in a TIC account:

• a.The account cannot hold securities
• b.Both owners must have equal percentage interests
• c.Only one owner may enter orders
• d.A deceased owner's fractional interest passes to that owner's estate, not automatically to the co-owner✓

In tenants in common, each owner holds a divided fractional interest, which need not be equal, and upon death that interest passes to the owner's estate rather than automatically to the surviving co-owner. JTWROS, by contrast, provides automatic survivorship to the surviving owner.

A customer buys stock in a cash account for $10,000 with the intent to pay for it by selling the same securities before paying. This practice is known as and prohibited as:

• a.Freeriding, which violates Regulation T✓
• b.A completely legitimate day trade that is fully permitted in any cash account
• c.A permissible good-faith deposit arrangement that fully satisfies Regulation T
• d.A short sale against the box made using fully paid-for long shares

Freeriding occurs when a customer buys securities in a cash account and sells them without ever paying for the purchase, using sale proceeds to cover the buy. This violates the Federal Reserve's Regulation T, and the penalty is typically freezing the account for 90 days, requiring cash up front for purchases.Securities Exchange Act of 1934

A Coverdell Education Savings Account (ESA) is designed primarily to:

• a.Allow after-tax contributions to grow tax-free for qualified education expenses✓
• b.Fund a home purchase
• c.Replace a 401(k) plan
• d.Provide a stream of fully guaranteed retirement income beginning at a chosen future age

A Coverdell ESA lets contributors make nondeductible (after-tax) contributions that grow tax-free, with tax-free withdrawals when used for qualified education expenses. Contribution limits and income phase-outs apply, and funds generally must be used by the time the beneficiary reaches a set age.

A 529 college savings plan offers which key tax advantage?

• a.Tax-deferred growth and tax-free withdrawals when used for qualified education expenses✓
• b.Federal tax deduction for all contributions
• c.Guaranteed investment returns
• d.Tax-free withdrawals for any purpose

A 529 plan provides tax-deferred growth and federal-tax-free withdrawals when funds are used for qualified education expenses; some states also offer a state tax deduction for contributions. Nonqualified withdrawals of earnings are taxed and subject to a penalty.

When a customer opens a new account, the registered representative is generally required to:

• a.Immediately grant discretionary authority
• b.Require the customer to trade on margin
• c.Obtain essential facts about the customer and have a principal approve the account✓
• d.Guarantee the customer a stated minimum rate of return on every recommended investment

Firms must gather essential facts about each customer at account opening, including identity, financial background, and investment objectives, and a principal must review and approve the new account. This information supports suitability, Reg BI, and know-your-customer obligations.

In a margin account, the credit agreement, hypothecation agreement, and (optionally) the loan consent form together permit the firm to:

• a.Extend credit, take a lien on the customer's securities, and (with consent) lend out those securities✓
• b.Make the customer a partner in the firm
• c.Guarantee the account against loss
• d.Waive all margin requirements

The credit (margin) agreement sets the terms of the loan, the hypothecation agreement lets the firm pledge the customer's securities as collateral, and the loan consent agreement (optional) allows the firm to lend the customer's securities to others. These documents are required to establish a margin account.

A pattern day trader is generally required to maintain minimum equity in a margin account of at least:

• a.$25,000✓
• b.$10,000
• c.$2,000
• d.$100,000

FINRA rules require an account designated as a pattern day trading account (four or more day trades within five business days meeting the threshold) to maintain minimum equity of at least $25,000. This amount must be in the account before day trading may continue and provides an added cushion for the frequent intraday activity.Securities Exchange Act of 1934

A required minimum distribution (RMD) from a traditional IRA generally must begin:

• a.Only upon the death of the original account owner, after which the named heirs must withdraw
• b.At age 50
• c.At the RMD age set by current tax law, after which annual distributions are required✓
• d.When the account reaches $1 million

Traditional IRAs require the owner to begin taking required minimum distributions once they reach the RMD age set by current tax law. Failing to take the full RMD results in a tax penalty on the shortfall. Roth IRAs are not subject to RMDs during the original owner's lifetime.Internal Revenue Code

A customer's investment objective of 'capital preservation' would best be served by recommending:

• a.Highly leveraged limited partnerships and speculative oil-and-gas drilling programs
• b.Uncovered option writing
• c.Speculative small-capitalization growth stocks that carry high price volatility
• d.High-quality short-term debt instruments and money market securities✓

A capital preservation objective prioritizes protecting principal over growth, favoring high-quality, short-term, liquid instruments such as Treasury bills and money market securities. Speculative equities and leveraged or uncovered option strategies carry too much risk of loss for this objective.

A customer with a long-term retirement horizon and a growth objective, comfortable with volatility, would most suitably be recommended:

• a.A diversified portfolio weighted toward equities✓
• b.All of the account's assets placed into one single speculative growth stock
• c.Only short-term U.S. Treasury bills held all the way to their maturity dates
• d.Only short-term bank certificates of deposit held until they fully mature

A long time horizon combined with a growth objective and tolerance for volatility supports an equity-weighted, diversified portfolio, which historically offers higher long-term returns. Concentrating in a single stock violates diversification principles, while holding only short-term instruments would not meet the growth objective.

A customer buys $30,000 of marginable stock in a margin account meeting the Reg T 50% requirement. If the market value later rises to $40,000, the equity in the account is:

• a.$40,000
• b.$15,000
• c.$25,000✓
• d.$20,000

At purchase the customer deposits 50% of $30,000 = $15,000 equity and borrows $15,000 (the debit balance, which stays fixed). Equity always equals market value minus the debit: $40,000 - $15,000 = $25,000. Trap: $15,000 (choice b) is the original equity and the unchanged debit, not the current equity.Securities Exchange Act of 1934

Under Regulation T, which of the following must generally be purchased for cash rather than on margin at initial purchase?

• a.Exchange-listed NYSE common stock trading above five dollars per share in round lots
• b.New issues (for roughly the first 30 days) and standard listed options✓
• c.Actively traded Nasdaq National Market System stocks that are marginable securities
• d.U.S. Treasury notes

Regulation T makes new issues non-marginable for about 30 days, and standard listed options (nine months or less to expiration) must be paid in full. Established exchange-listed and Nasdaq equities and U.S. government securities are marginable; choices a, c, and d are the classic marginable categories.Securities Exchange Act of 1934

FINRA rules direct firms, at account opening, to make a reasonable effort to obtain the name of a 'trusted contact person' primarily to:

• a.Grant that person authority to place trades in the account
• b.Guarantee the account against investment loss
• c.Make that person a co-owner of the account
• d.Help the firm respond to suspected financial exploitation or diminished capacity, especially for senior investors✓

Under FINRA Rules 4512 and 2165, the trusted contact lets a firm reach someone if it suspects financial exploitation or diminished capacity, and it may place a temporary hold on suspicious disbursements. The trusted contact receives no trading authority and no ownership interest, ruling out choices a and c.FINRA Rule 4512

A customer buys $24,000 of marginable stock in a margin account. Under Regulation T at 50%, how much must the customer deposit?

• a.$6,000
• b.$24,000
• c.$12,000✓
• d.$2,000

Regulation T (Federal Reserve, under the Securities Exchange Act of 1934) requires a 50% initial deposit on marginable equities: 50% x $24,000 = $12,000. The broker-dealer may lend the remaining $12,000, which becomes the debit balance.

A customer's long margin account shows a market value of $60,000 and a debit balance of $40,000. Using the 25% maintenance requirement, the account is:

• a.Not subject to a call; equity of $20,000 exceeds the $15,000 minimum✓
• b.Subject to a maintenance call of $5,000
• c.Subject to an immediate maintenance call for $2,000 because the account's equity has dropped beneath the required level
• d.Exactly at the requirement with no excess

Equity = market value - debit = $60,000 - $40,000 = $20,000. Minimum maintenance = 25% x $60,000 = $15,000. Because $20,000 equity exceeds $15,000, no maintenance call is triggered and the account has a $5,000 cushion (FINRA maintenance rule).

A customer's long margin account has a debit balance of $18,000. At what market value would a maintenance call be triggered under the 25% requirement?

• a.$60,000
• b.$13,500
• c.$24,000✓
• d.$18,000

A long account hits the maintenance minimum when equity = 25% of market value, i.e., market value = debit / 0.75 = $18,000 / 0.75 = $24,000. Below $24,000 in market value, equity falls under 25% and a maintenance call is issued.

A customer sells short $30,000 of stock and meets the Reg T 50% requirement. If the stock's market value later rises to $35,000, the equity in the short account is:

• a.$10,000✓
• b.$5,000
• c.$15,000
• d.$45,000

The credit balance = short sale proceeds + Reg T deposit = $30,000 + $15,000 = $45,000 (fixed). Equity in a short account = credit balance - current short market value = $45,000 - $35,000 = $10,000. Rising prices reduce a short seller's equity.

FINRA's minimum maintenance requirement for a short stock position is:

• a.35% of the short market value
• b.50% of the short market value
• c.25% of the short market value
• d.30% of the short market value✓

For short positions FINRA requires maintenance equity of at least 30% of the current market value of the securities sold short, higher than the 25% used for long positions because a short's loss potential is unlimited as prices rise.

A short margin account has a credit balance of $45,000. A maintenance call would be triggered when the short market value rises to approximately:

• a.The credit balance divided by 1.30, about $34,615✓
• b.Equal to the credit balance, $45,000
• c.Zero
• d.The credit balance divided by 0.75

A short account reaches the 30% maintenance minimum when equity = 30% of short market value, i.e., short market value = credit balance / 1.30 = $45,000 / 1.30 = about $34,615. Above that value, equity falls below 30% and a call is issued.

A long margin account has a market value of $50,000 and a debit balance of $20,000. How much SMA (excess equity) does the account have?

• a.$10,000
• b.$5,000✓
• c.$25,000
• d.$30,000

Equity = $50,000 - $20,000 = $30,000. The Regulation T requirement is 50% x $50,000 = $25,000. SMA (special memorandum account / excess equity) = equity - Reg T requirement = $30,000 - $25,000 = $5,000.

An account has $5,000 of SMA. Under Regulation T at 50%, the additional buying power this SMA provides is:

• a.$2,500
• b.$10,000✓
• c.$5,000
• d.$20,000

Buying power = SMA / Reg T rate = $5,000 / 0.50 = $10,000. Each dollar of SMA supports two dollars of new marginable stock because the customer need only post 50% of the purchase.

To open a margin account, a customer must generally deposit minimum equity of:

• a.$2,000, or 100% of the purchase price if the purchase is less than $2,000✓
• b.$10,000, which is described as the fixed minimum equity the SEC requires to open any new margin account
• c.$25,000
• d.$5,000

FINRA rules require minimum equity of $2,000 to open a margin account, but a customer is never required to deposit more than 100% of the purchase price. The separate $25,000 minimum applies to pattern day trading accounts.

Under Regulation T, standard listed options with nine months or less to expiration:

• a.Must be paid for in full because such options are not marginable✓
• b.Are entirely exempt from Regulation T and may be carried in the account with no deposit whatsoever
• c.Require only a 25% deposit
• d.May be purchased on 50% margin

Listed options with nine months or less until expiration are not marginable and must be paid for in full under Regulation T. Only long-term options (LEAPS with more than nine months) may be purchased on margin, at a higher requirement.

A pattern day trader must maintain minimum equity in the margin account of at least:

• a.$25,000✓
• b.$10,000
• c.$100,000
• d.$2,000

FINRA rules require an account flagged as a pattern day trading account (four or more day trades within five business days meeting the threshold) to keep minimum equity of $25,000, which must be in the account before day trading may continue.

A customer buys $10,000 of marginable stock in a new margin account. The Regulation T call amount is:

• a.$10,000
• b.$5,000✓
• c.$2,500
• d.$2,000

The Regulation T initial requirement is 50% of the purchase: 50% x $10,000 = $5,000. The customer deposits $5,000 and the firm may lend the remaining $5,000 as the debit balance.

A transfer on death (TOD) registration on an individual brokerage account:

• a.Freezes the account during the owner's lifetime
• b.Is available only for retirement plans
• c.Lets account assets pass directly to named beneficiaries at death, avoiding probate, while the owner keeps full control during life✓
• d.Immediately makes each named beneficiary a current co-owner of the account with full authority to place trades during the owner's lifetime

A TOD designation names beneficiaries who receive the account at the owner's death without probate, but the beneficiaries have no rights and no control while the owner is alive. The owner may change the beneficiaries or trade freely at any time.

To open a corporate cash account, a firm generally must obtain:

• a.The personal income tax return of the chief executive officer along with a signed statement of that officer's personal net worth
• b.Nothing beyond a verbal approval from an officer
• c.A corporate resolution or authorization identifying who is empowered to trade for the corporation✓
• d.A margin agreement in every case

A corporate account requires documentation, typically a corporate resolution or account authorization, naming the individuals authorized to act on the corporation's behalf. Margin trading by a corporation additionally requires that the charter or bylaws permit it.

In a trust account, the person who enters transactions must:

• a.Provide no documentation to the firm
• b.Let the beneficiary place all trades
• c.Avoid holding any marketable securities, since trust accounts are legally restricted to holding cash and bank deposits only
• d.Act as a fiduciary, following the trust document and the prudent-investor standard✓

The trustee is a fiduciary who must manage the account solely for the beneficiaries' benefit, in accordance with the trust instrument and applicable prudent-investor standards. The firm obtains the trust documents to confirm the trustee's authority and any investment limits.

A 'numbered' or 'street name' confidentiality-titled account:

• a.Requires a signed written statement of ownership kept on file by the firm✓
• b.Needs no owner identification
• c.Is functionally the same as a fully anonymous numbered account for which the firm keeps no record of ownership at all
• d.Is illegal under all circumstances

A firm may title an account by number or symbol for privacy, but the customer must sign a written statement attesting to ownership, which the firm retains. The customer's true identity is fully known to the firm; it is not anonymous.

A registered representative chooses only the price or time at which to execute an order the customer has already specified (as to security, amount, and buy/sell). This authority:

• a.Is not considered 'discretion' and does not require prior written authorization✓
• b.Is a prohibited practice
• c.Requires prior written discretionary authority like full discretion
• d.Makes the account permanently discretionary

Selecting only the price and/or time of execution for an otherwise fully specified customer order is 'time and price discretion' and is not treated as discretionary trading, so no written discretionary authorization is required. Choosing the security, amount, or whether to buy or sell would require written discretion.

A gift made into a UTMA custodial account is:

• a.Owned by the custodian personally
• b.Fully revocable by the donor at any time, allowing the contributed assets to be returned to the donor on demand
• c.Permitted to be traded on margin
• d.An irrevocable gift belonging to the minor, managed by one custodian until the minor reaches the age of majority✓

Contributions to a UTMA account are irrevocable gifts that legally belong to the minor; the single custodian manages the assets prudently for the minor's benefit until control transfers at the state's age of majority. Custodial accounts are cash accounts and cannot trade on margin.

To open an account for a general partnership, the firm generally requires:

• a.A corporate charter and set of bylaws identifying the specific officers who are authorized to act for the entity
• b.No documentation at all
• c.A trust indenture
• d.A partnership agreement identifying who is authorized to trade for the partnership✓

A partnership account requires a copy of the partnership agreement, which names the partners authorized to transact and any limits on their authority, so the firm can confirm who may act for the partnership.

Under the 60-day rollover rule for retirement accounts:

• a.The deadline is 90 days
• b.Funds distributed from a retirement plan must be redeposited into another qualifying plan within 60 days to avoid current tax and penalty✓
• c.The deadline is 30 days
• d.There is no fixed time limit to redeposit distributed retirement funds, provided the owner eventually rolls the money into another qualified plan

In an indirect (60-day) rollover, the account owner receives the distribution and must redeposit it into another qualifying retirement account within 60 days, or the amount becomes taxable (and possibly penalized). Only one such rollover is generally permitted per 12-month period per individual.

A SEP IRA is best described as:

• a.A simplified employer-sponsored plan funded by employer contributions to employees' IRAs✓
• b.The same as a Roth IRA
• c.A plan funded only by employee pre-tax salary deferrals, with no employer contributions permitted under the plan rules
• d.A federal government pension plan

A Simplified Employee Pension (SEP) IRA lets an employer (including a self-employed person) make tax-deductible contributions directly into IRAs established for eligible employees. Contributions come from the employer, and the accounts are owned by the employees.

A direct (trustee-to-trustee) transfer between retirement accounts is:

• a.Always treated as a fully taxable distribution that must be reported to the IRS in the year of the transfer
• b.Subject to a 10% penalty
• c.Not limited in frequency and is not a taxable event✓
• d.Limited to once every 12 months

In a direct trustee-to-trustee transfer, funds move between custodians without the owner taking possession, so it is not a taxable distribution and there is no limit on how often it may be done. The once-per-year limit applies to indirect 60-day rollovers, not direct transfers.

Regarding required minimum distributions (RMDs), a Roth IRA:

• a.Requires all IRAs to be emptied by age 59 1/2
• b.Is not subject to RMDs during the original owner's lifetime✓
• c.Requires that required minimum distributions begin at age 50 for the original account owner without exception
• d.Begins RMDs as soon as the account is opened

Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions during the original owner's lifetime, allowing the funds to keep growing tax-free. RMD rules can apply to beneficiaries who inherit a Roth.

Form CRS (the client or customer relationship summary) is:

• a.A federal income tax reporting form that details the retail investor's realized gains, realized losses, and total advisory fees paid for the year
• b.A brief relationship summary disclosing the firm's services, fees, conflicts, and standard of conduct, delivered to retail investors✓
• c.The options disclosure document
• d.A margin agreement

Form CRS is a short relationship summary that broker-dealers and investment advisers must deliver to retail investors, describing services, fees and costs, conflicts of interest, the applicable standard of conduct, and disciplinary history. It complements Regulation Best Interest.

Regulation Best Interest (Reg BI) is built on how many core obligations for broker-dealers?

• a.Four obligations: disclosure, care, conflict of interest, and compliance✓
• b.A single overarching disclosure requirement that entirely replaces the older customer suitability standard
• c.A guarantee against loss
• d.Only a suitability review

Reg BI comprises four component obligations: the disclosure obligation, the care obligation, the conflict-of-interest obligation, and the compliance obligation. Together they require a broker-dealer to act in a retail customer's best interest when making a recommendation.

The suitability obligation to an institutional customer:

• a.Never applies to institutions
• b.Is prohibited
• c.May be met when the institutional customer affirmatively indicates it is exercising independent judgment and is capable of evaluating investment risks✓
• d.Requires exactly the same customer-specific documentation and full investment-profile analysis as an individual retail account in every single case, without any exception

For institutional customers, the customer-specific suitability obligation can be satisfied if the firm reasonably believes the customer is capable of independently evaluating the risks and the customer affirmatively states it is exercising independent judgment. The firm still must have a reasonable basis for believing the recommendation is suitable in general.