S7 Customer Accounts

One of your clients has asked for the requirements for having duplicate confirmations and statements for his account be sent to his CPA. To accomplish this, the client

• may only have duplicates sent to the trusted contact person on the account.

• must complete and sign the duplicate statement/confirm request form.

• must give the CPA a limited power of attorney over the account.

• must give the CPA a full power of attorney over the account.

Answer explanation

A client may have duplicates of trade confirmation, account statements, or both sent to a third party. Member firms have forms authorizing this action that must be completed and signed by the customer. At any time, the client may withdraw the authorization, change the authorization, or add authorized recipients. The trusted contact person under FINRA Rule 2165 does not receive these unless the client completes the proper form.

An outstanding municipal bond issue has the following characteristics: 7.50% coupon, maturity in 20 years, puttable in five years at 100, callable at 102 in 10 years, declining in a straight line to maturity, and yield to maturity is 6.50%. The issue should now be quoted

• 
  yield to call at par.

• yield to call at 102.

• yield to maturity.

• yield-to-put.

Answer explanation

Because the bond issue is selling at a premium, the yield to call is less than the yield to maturity. The bonds must be quoted as yield to call at the earliest maturity, which would be the 10-year call at 102. If the bonds were selling at a discount, yield to maturity would be the proper quote. Yield-to-put is not required to be quoted.

Which of the following must be in a readily available location for two years?

• Customer ledgers

  
  

• All of these

  
  

• Customer complaints

  
  

• Blotters

  • 
    

Answer explanation

Customer complaints, blotters, and customer ledgers for the two most recent years must be in a readily accessible location.

An arbitration proceeding involving a customer in an amount over $100,000 has been agreed to. In such an arbitration dispute, which of the following is true?

• The customer can request that all three of the arbitrators selected be from the public sector.

  
  

• Disputes in amounts greater than $100,000 are always heard by a single arbitrator.

  
  

• Both parties must agree before three arbitrators can be used in disputes involving amounts greater than $100,000.

  
  

• Only nonpublic (industry) arbitrators can be used for disputes in amounts greater than $100,000.

Answer explanation

In disputes involving a customer for amounts greater than $100,000, three arbitrators will be used unless both parties agree to one. In the case where three arbitrators are used, the customer can request that all three arbitrators be selected from the public sector.

Which of the following would not be considered institutional communications with the public?

• A letter to a municipality offering your firm's services as an underwriter

  
  

• A communication with an individual designated to act on behalf of your institutional customer

  
  

• A letter to another broker-dealer

  
  

• An internal memo promoting a new product that will be offered to your firm's institutional customers only

  • 
    

Answer explanation

Institutional communications specifically exclude internal communications. Communications with another member firm, a government entity such as a municipality, or with someone designated to act on behalf of one of your firm's institutional customers would all fall within the definition of institutional communications.

An amended U-4 filing is required for a registered person for all of the following reasons except

• change in marital status.

  
  

• a deficiency in a prior filing.

  
  

• conviction of a felony.

  
  

• change of residence address.

  • 
    

Answer explanation

Marital status is not a required disclosure item on Form U-4. All the other events listed require an amended filing.

Melody Smith redesigned a previously approved marketing letter that she plans to distribute individually to high-net-worth customers. The letters will be personalized with names and details and not distributed by bulk email. She concluded that there was no need for principal approval. Smith is

• not in violation because the letters are printed and sent out through the postal system rather than being sent as a bulk email, thus it would not fall under the definition of retail communication but rather correspondence which does not require this level of principal approval.

  
  

• in violation of the rules, because despite the fact that the letters had personal touches, it is still a form letter for marketing that is being sent to numerous individuals.

  
  

• not in violation because she selected only high-net-worth individuals who are actually considered institutional, so she does not require principal approval.

  
  

• in violation because this is considered retail communication because Melody is actually soliciting and all forms of solicitation are deemed retail no matter to how many people it is directed.

  • 
    

Answer explanation

The marketing letter is a form letter which is being sent to numerous individuals and is thus considered retail communication. Retail solicitations require prior principal approval. Putting in slight personalized effects does not make each letter materially distinct communication. Whether electronic or physical, the same rules apply to the content. Just because these clients are high net worth does not mean that they meet the definition of institutional investors.

A registered representative may never

• act as a buyer's agent.

  
  

• act as a broker.

  
  

• act as a sales agent.

  
  

• approve advertising.

  • 
    

Answer explanation

Advertising or sales pieces are considered to be a form of communication with the public. All such pieces must be approved by a principal of the member firm.

Guarantees on insurance products

• must be specific to the insurance contract and not associated investments.

  
  

• are not allowed.

  
  

• are permissible for principal values in the separate account.

  
  

• are only permissible for companies with an A+ rating from A.M. Best.

  • 
    

Answer explanation

Guarantees are only permissible for the specific guarantees within an insurance contract. Companies cannot guarantee returns or even principal values in investments, including separate accounts. While high ratings may indicate stability and quality in a company, they cannot be used to make a guarantee.

Which of the following do not represent communications with the public?

• Billboards

• internal memos

• market letters

• research reports

Answer explanation

Each of the terms qualifies as either a form of advertising or sales literature except internal memos, which are communication pieces intended only for use within the broker-dealer and not for public distribution.