Know Your Customer
Which of the following is a financial consideration?
A) A customer's marital status
B) A customer's monthly debt service
C) A customer's alma mater
D) A customer's age
B
A customer's monthly debt service
Regulation BI requires the disclosure are of all the following, except:
A) All fees and/or costs associated with a recommendation
B) All conflicts of interest associated with the recommendation
C) The trading capacity of the financial professional in conjunction with the recommendation
D) All facts associated with a recommendation
D
All facts associated with a recommendation
Which of the following would be appropriate recommendations for a customer looking for income?
A) Warrant
B) Income bond
C) Utility fund
D) Long call option
C
Utility fund
If an elderly widower wants his investments to provide high current income, the representative should recommend
A) A zero-coupon bond.
B) The ABC widow fund.
C) A mutual fund that matches the investor's stated objective.
D) A growth fund.
C
A mutual fund that matches the investor's stated objective.
A registered representative analyzes a growth stock on his firms list of approved securities to recommend. He compares the risks and benefits of the security to one of his clients suitability profile and determines the security is suitable. What statement is true?
A) The representative followed FINRA’s qualitative suitability guideline
B) This is a blanket recommendation, which is an unethical action
C) The representative followed finance customer-specific suitability guideline
D) The firm is engaging in an unethical activity by creating a list of approved securities
C
The representative followed finance customer-specific suitability guideline
A registered representative is preparing a profile on one of his customers. Which of the following should he list as a nonfinancial consideration?
A) The amount of money in the customer's savings accounts
B) The customer's yearly salary
C) The amount of money the customer is willing to risk
D) The customer's monthly discretionary income
C
The amount of money the customer is willing to risk
Which of the following is NOT a rule or requirement imposed by Regulation BI?
A) Recommendations of proprietary products are prohibited
B) Sales contests based on the sale of a specific product must be eliminated
C) All material facts related to a recommendation must be disclosed
D) Recommendations involving personal ties to the representative are not prohibited, but require thorough disclosures
A
Recommendations of proprietary products are prohibited
A 26-year-old with $5,000 is seeking a secure place to invest the amount and begin a periodic investment plan. He is willing to take some risk, but he is uncomfortable with the thought of losing money. He would prefer moderate overall returns rather than high returns accompanied by high volatility. Which of the following mutual funds is the most suitable for this customer?
A) ABC Balanced Fund
B) ATF Capital Appreciation Fund
C) ATF Biotechnology Fund
D ATF Overseas Opportunities Fund
A
ABC Balanced Fund
Your customer seeks capital growth but is concerned about execution costs. Which of the following funds would be most suitable for him?
A) International fund
B) Balanced fund
C) Growth fund
D) Index fund
D
Index fund
Which of the following is a customer probably referring to when he speaks of safety in investments?
A) Long-term capital growth
B) Preservation of capital
C) Steady current income
D) Reducing inflation risk
B
Preservation of capital
All of the following are financial considerations except
A) Debt payments.
B) Mortgage balance.
C) Risk tolerance.
D) Value of investments.
C
Risk tolerance.
A registered representative makes a recommendation to a retail client to purchase shares of a variable annuity. According to the conflict of interest obligation of Regulation BI, all of the following must be disclosed to the client, EXCEPT:
A) Fees and/or costs associated with the recommendation
B) The representative’s projected annual compensation the year the recommendation is made
C)Material facts related to the relationship with the client
D) The scope of services provided as related to the recommendation
B
The representative’s projected annual compensation the year the recommendation is made
An investor has a portfolio diversified among many different asset classes. If there was an immediate need for cash, which of the following would probably be the most liquid?
A) XYZ International Stock Mutual Fund
B) QRS Money Market Mutual Fund
C) CDL Common Stock Mutual Fund
D) Cash value from a variable life insurance policy
B
QRS Money Market Mutual Fund
Your customers, ages 60 and 58, are married and have raised three children. Both want to retire this year. They have accumulated a nest egg of about $1 million, which they will use to travel around the world, pursue their hobbies, and care for each other's health. Both are concerned about rising inflation and are comfortable with a reasonable level of risk. Which of the following mutual funds is the most suitable for these customers?
A) ABC Investment-Grade Bond Fund
B) LMN Cash Reserves Money Market Fund
C) LMN Growth & Income Fund
D) XYZ Government Income Fund
C
LMN Growth & Income Fund
An investor who purchases stock in two technology companies with high projected earnings and growth potential, but little performance history is considered
A) A defensive investor.
B) An aggressive investor.
C) A conservative investor.
D) A passive investor.
B
An aggressive investor.
When a registered representative is deciding on the suitability of a particular investment for a customer, that customer's need for liquidity is
A) Only necessary to be determined if the customer is planning on retirement.
B) An important element to be considered.
C) Only important if the customer has no other liquid investment.
D) Not necessary to be determined.
B
An important element to be considered.
A representative meets with a customer. After discussing some aspects of their account, the customer submits an unsolicited trade to buy common stock. The representative executes the trade and the meeting ends. Later that day, the customer discovers the representative’s father is the CEO of the company they bought stock in. According to Regulation BI, which of the following statements is true?
A) The representative acted ethically if the family relationship was public knowledge
B) The representative acted unethically by not gaining principal approval prior to the trade
C) The representative acted ethically, and no disclosure was required
D) The representative acted unethically by not making proper disclosures
C
The representative acted ethically, and no disclosure was required
Your customer is a retired widower, age 72, seeking a moderate level of current income to supplement his Social Security benefits and his company pension plan. He has a very conservative attitude toward investments. An equally important investment goal for him is capital preservation. Which of the following mutual funds is the most suitable for this customer?
A) ABC Investment-Grade Bond Fund
B) LMN Government Income Fund
C) ACE Equity Income Fund
D) ABC Balanced Fund
B
LMN Government Income Fund
Your client informs you that he has recently sold his home and is constructing a new one. He has approximately $150,000 in proceeds from the sale, on which he would like to earn a return. The funds must be available in about six months to pay the contractor. Which of the following might you suggest?
I) ABC 8% preferred stock, callable at par in five months
II) U.S. 5% Treasury bond, maturing in six months
III) Banker's acceptance
IV) XYZ common stock, listed on the NYSE
A) I and III
B) II and III
C) III and IV
D) I and II
B
II and III
As per FINRA rules, it registered representative analyzes securities to determine if they're suitable for any of their clients. If the security is not suitable, they disregard it and continue to search for suitable securities prior to interacting with clients. What suitability obligation forced by FINRA is the representative adhering to?
A) Quantitative
B) Reasonable-basis
C) Customer-specific
D) Qualitative
B
Reasonable-basis
During a fact-finding interview with a potential client, your client information sheet is used to list detailed financial information. Which of the following items would be relevant in determining a prospect's net worth?
A) $78,000 current IRA balance
B) $225,000 annual income
C) A potential inheritance
D) Recently paid off $3,000 credit card balance
A
$78,000 current IRA balance
A broker dealer employees a registered representative that is married to the CEO of ABC industries, large publicly traded company. In order for the representative to make a recommendation of ABC industries common stock, regulation BI enforces which of the following rules?
A) The conflict of interest must be disclosed if the recommendation is made to a retail investor
B) There's no conflict of interest that must be disclosed
C) The conflict of interest must be disclosed if the recommendation is made to any investor
D) The conflict of interest must be disclosed if the recommendation is made to an institutional investor
A
The conflict of interest must be disclosed if the recommendation is made to a retail investor.
An investor has decided to pursue a speculative investment program. Which of the following securities most closely reflect this investment objective?
I) Growth stocks
II) Blue-chip stocks
III) Investment-grade corporate bonds
IV) High-yield corporate bonds
A) I and IV
B) I and III
C) II and III
D) II and IV
A
I and IV
Your client, age 28, has just begun to consider investing outside of her employer's 401(k) plan. She's saved $25,000 to allocate toward some capital appreciation and some income. She prefers an investment with moderate risk and some downside protection if the stock market falls. With investing being new to her, she wants to note that she understands and is comfortable with moderate risk as stated, only. Given what has been conveyed, which of the following would be the most suitable?
A) Specialized fund
B) Equity income fund
C) Equity index fund
D) Balanced fund
D
Balanced Fund
A defensive investment strategy would be best described as one where the investor builds a portfolio consisting largely of
A) Public utilities, food manufacturers, and tobacco companies.
B) Rights, warrants, and options.
C) Stock in companies doing business with the U.S. department of defense.
D) Technology firms.
A
Public utilities, food manufacturers, and tobacco companies.