Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives — Series 6 practice questions

A decedent's will leaves 'all assets' to his sister, but his 401(k) beneficiary form (never updated) names his ex-spouse. Absent a specific plan or state law override, which generally controls the 401(k) proceeds?

1. The will, since it was the most recently signed document
2. State intestacy law, since the will and beneficiary form conflict
3. A probate court must decide based on the decedent's likely intent
4. The beneficiary designation on file with the plan, regardless of the will's language

Answer: D — The beneficiary designation on file with the plan, regardless of the will's language

D) Correct: beneficiary designations are contractual and generally control over a will's general language, absent specific plan rules or state law overrides. A) A will's residuary clause typically doesn't override a specific beneficiary designation. B) Intestacy law applies when there's no will and no valid beneficiary form. C) This isn't primarily a probate-court judgment call — beneficiary forms control by contract.

An employee with 16 years of service at a qualifying 403(b) employer wants to know about additional catch-up contributions beyond the standard age-50 catch-up. What applies?

1. A long-service catch-up may be available in addition to the age-50 catch-up, subject to plan and IRS limits
2. No additional catch-up exists beyond age-50 for any 403(b) participant
3. The employee must roll the account into a 401(k) to access any catch-up
4. Catch-up contributions are only available to participants under age 40

Answer: A — A long-service catch-up may be available in addition to the age-50 catch-up, subject to plan and IRS limits

A) Correct: certain 403(b) plans permit a service-based catch-up for long-tenured employees, on top of the standard age-50 catch-up. B) Understates available catch-up options unique to 403(b) plans. C) A rollover isn't required; it's a feature of eligible 403(b) plans themselves. D) Catch-ups generally apply to older, not younger, participants.

Which statement about a UTMA custodial account is MOST accurate?

1. The custodian retains ownership of the assets even after the minor reaches majority
2. UTMA accounts may hold only cash, never securities
3. Assets become the property of the minor upon reaching the state's specified age of majority
4. A UTMA account requires two custodians at all times

Answer: C — Assets become the property of the minor upon reaching the state's specified age of majority

C) Correct: UTMA assets legally belong to the minor from the start, but the custodian controls them until the minor reaches the state-specified age of majority. A) Custodianship ends at majority; the custodian never retains ownership. B) UTMA allows a broad range of asset types, not cash only. D) A single custodian is standard.

A discretionary account requires:

1. Verbal permission and a supervisor's mental note
2. A written waiver of the customer's suitability rights
3. Written customer authorization and firm acceptance
4. Approval from the SEC before the first trade placed

Answer: C — Written customer authorization and firm acceptance

A) Verbal is insufficient. B) Suitability cannot be waived. C) Correct — Written authorization and firm acceptance are required. D) SEC does not pre-approve accounts.

What is the purpose of a registered principal's review and approval of a new account form before the first trade?

1. To confirm the account information supports a reasonable basis for future suitable recommendations
2. To verify the customer's handwriting matches their driver's license
3. To calculate the customer's expected lifetime account value
4. To set the customer's initial mutual fund allocation automatically

Answer: A — To confirm the account information supports a reasonable basis for future suitable recommendations

A) Correct: principal review of the NAF confirms sufficient customer information is on file to support suitable future recommendations. B) Handwriting verification isn't the substantive purpose of principal review. C) Principals don't calculate a projected lifetime value as part of NAF approval. D) NAF approval doesn't set fund allocations.

A grandparent names her three children as per stirpes beneficiaries of a mutual fund account. One child predeceases her, leaving two children of his own (the grandparent's grandchildren). How are proceeds distributed?

1. The deceased child's share is forfeited and split between the two surviving children
2. All proceeds pass equally to the three surviving grandchildren regardless of parent
3. The deceased child's share passes down equally to his two children (the grandparent's grandchildren)
4. The account passes entirely to the surviving children, bypassing all grandchildren

Answer: C — The deceased child's share passes down equally to his two children (the grandparent's grandchildren)

C) Correct: per stirpes means a deceased beneficiary's share flows down to their own descendants, so the two grandchildren split their late parent's one-third share. A) Per stirpes prevents forfeiture to siblings; it redirects the share downward instead. B) Only the deceased child's descendants inherit his share. D) The predeceased child's line of descendants is not bypassed under per stirpes.

A new account customer is a nonresident alien with no U.S. tax residency. Which form should the firm collect instead of a Form W-9?

1. Form W-8BEN, certifying foreign status
2. Form U4, used for registered representative registration
3. Form CRS, used for retail relationship disclosure
4. Form 1099-B, used for cost-basis reporting

Answer: A — Form W-8BEN, certifying foreign status

A) Correct: Form W-8BEN certifies foreign status and applicable treaty withholding for nonresident aliens. B) Form U4 is a rep registration form. C) Form CRS is a relationship-summary disclosure, not a tax form. D) Form 1099-B reports proceeds/cost basis after a sale, not at account opening.

The 8.5% maximum mutual fund sales charge requires the fund offer:

1. Only Class A shares with a fixed front-end load
2. Institutional shares to all account types offered
3. A minimum initial investment of $100,000 in fund
4. Rights of accumulation and NAV reinvestment

Answer: D — Rights of accumulation and NAV reinvestment

A) Class A alone is insufficient. B) Institutional access is unrelated. C) No such minimum is required. D) Correct — Rule 2341 conditions the 8.5% cap on such shareholder benefits.

A firm's rep is about to make her first specific investment recommendation to a brand-new retail customer. At what point must Form CRS be delivered?

1. Before or at the time of the first recommendation
2. Only if the customer requests it in writing
3. Within 30 days after the account is funded
4. At the end of the first calendar year of the relationship

Answer: A — Before or at the time of the first recommendation

A) Correct: Form CRS must be delivered before or at the time a firm first recommends an account type, transaction, or strategy. B) Delivery isn't contingent on a customer request. C) 30 days after funding is too late relative to the recommendation trigger. D) Year-end delivery would occur long after the recommendation, violating the timing requirement.

A grandparent wants to fund a K-12 private school tuition expense for a grandchild using a tax-advantaged education account. Compared to a 529 plan, what is a KEY limitation of a Coverdell ESA?

1. Coverdell contributions have no annual dollar limit
2. Coverdell funds cannot be used for K-12 expenses at all
3. Coverdell accounts cannot be opened by grandparents
4. Coverdell has a low annual contribution limit ($2,000) and income-based eligibility phase-outs

Answer: D — Coverdell has a low annual contribution limit ($2,000) and income-based eligibility phase-outs

D) Correct: Coverdell's $2,000 annual limit and income phase-outs are significant constraints compared to a 529's much higher effective contribution capacity. A) Coverdell does have an annual limit. B) Coverdell funds CAN be used for K-12 expenses. C) Grandparents can generally open or fund Coverdell accounts subject to income limits.

When must Form CRS be delivered to a new retail customer?

Before or at the time the firm first recommends an account type, a securities transaction, or an investment strategy — effectively at or before the first substantive recommendation.

How long must a firm retain a customer's account opening documents after the account closes?

Generally at least 6 years after the account is closed, consistent with SEC Rule 17a-4's baseline retention period for account records.

What is required when opening a discretionary account?

Written customer authorization, written firm acceptance, and ongoing supervisory review. Must indicate discretion on Form U4 if applicable.

Is KYC a one-time or an ongoing obligation?

Ongoing — FINRA Rule 2090 requires reasonable diligence at account opening and through the life of the account, updated as material facts about the customer change.