Series 7 Chp 1

True or False: There are no suitability requirements for institutional investors.

False. Although they differ from retail requirements, suitability requirements do apply to institutional investors.

In making a suitability determination for an institution, what are some concerns a BD may have?

The institution's ability to evaluate investments; use of its own judgment in the past; its use of an outside adviser

When dealing with institutional client suitability, what are two important considerations?

The client's ability to evaluate independently the risk and the extent to which they are exercising that ability.

Progressive taxes are also referred to as ____________ taxes.

Progressive taxes are also referred to as graduated taxes.

What is the maximum tax rate for long-term capital gains tax?

20%

How large can a gift be between spouses and remain exempt from the gift tax?

An unlimited amount

True or False: BDs are responsible for determining client suitability and providing best execution.

True

To determine suitability, what information must be obtained to complete an investor's profile?

Age, current investments, tax rate, objectives, investment experience, time horizon, liquidity, needs, risk tolerance

What is some of the important information to obtain when opening a new client’s account?

Name, address, age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience

Is a gift of $38,000 per married couple, per year, exempt from gift tax?

Is a gift of $38,000 per married couple, per year, exempt from gift tax?

True or False: A BD has no responsibility to determine suitability for institutional investors.

False. A BD is never relieved of its suitability obligation.

What should an agent consider when determining suitability for an institutional client?

Whether the client is acting independently and has the capability to understand the risks

What is not pertinent when opening an account, a client’s educational or financial background?

Educational background

Sales tax is an example of a _____________________ tax.

Sales tax is an example of a regressive or flat tax.

True or False: Suitability rules do not apply when clients makes their own investment decisions.

True

Regressive taxes are also referred to as _______ taxes.

Regressive taxes are also referred to as flat taxes.

Is a gift of $19,000 per person, per year, exempt from gift tax?

Yes

What three suitability obligations does FINRA impose on broker-dealers?

1) Reasonable basis 2) Customer specific 3) Quantitative

Income and estate tax are examples of a ___________ or __________ tax.

Income and estate tax are examples of a progressive or graduated tax.

True or False: FINRA's suitability rules for institutions are less stringent when compared to the rules for retail investors.

True

An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in ______________.

An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in interest rates.

What is the formula for calculating an individual's personal discretionary income?

Income - Expenses = Discretionary Income

List some important considerations when determining the suitability of recommendations made to customers.

Investment objectives, financial situation, risk tolerance, tax status

Why is a client's profession relevant when determining suitability?

It may indicate the client's level of sophistication and the potential need for liquidity