Ch5: Account Types & Registrations

What are the primary characteristics of a prime brokerage account?

An enterprise-level account for institutional investors, family offices, and hedge funds that provides custody, stock lending, and financial reporting activities.

How do advisory accounts and wrap accounts differ in terms of services provided?

An advisory account provides advice without brokerage execution, while a wrap account provides both advice and brokerage activities for a fee, usually based on assets under management (AUM).

What is the key difference between UGMA and UTMA accounts regarding allowed assets?

UGMA (Uniform Gifts to Minors Act) accounts hold mainly brokerage assets, whereas UTMA (Uniform Transfers to Minors Act) accounts can hold any type of assets.

What are the restrictions regarding beneficiaries and transfers in UGMA/UTMA accounts?

There is only one owner and beneficiary per account, accounts cannot have multiple minor beneficiaries even in the same household, and assets cannot be transferred between minors who are family members.

What characterizes Joint Tenancy with Rights of Survivorship (JTWROS)?

Each owner has an undivided interest in the entire property, and if one owner dies, their entire interest automatically passes to the surviving owners outside of probate.

How does Joint Tenants in Common (JTIC) handle ownership and death?

Each owner has a divisible interest, and if one owner dies, their share goes to their estate through probate rather than to the other owners.

Which types of accounts or legal entities do NOT go through probate?

Transfer on Death (TOD) accounts, Joint Tenancy with Rights of Survivorship (JTWROS) accounts, and Trusts (including Irrevocable trusts).

What are the liability characteristics of a sole proprietorship?

one owner, easy to create or dissolve, but unlimited personal liability (so someone could sue for everything you own, including personal assets)

What documents are required to open a corporate account?

A corporate charter and a corporate resolution.

What is the limitation on a Broker-Dealer (BD) if a customer opens an account without disclosing investment objectives?

The firm can open the account as a self-directed account but cannot solicit any transactions because it does not know if they are suitable.

What is the difference between Full Power of Attorney (POA) and Limited POA?

Limited POA allows the agent to only trade, and Full POA allows the agent to make trade AND make withdrawals from the account

What happens to a Power of Attorney (POA) designation when the account owner dies?

The POA terminates instantly upon the death of the owner.

In the context of Registered Representatives (RR), what does discretionary power allow the RR to choose?

The RR can choose the asset, the amount, or the action (buy/sell) of a trade.

What are the immediate steps taken by a firm upon the death of a customer?

The firm must cancel open orders, freeze the account and mark it deceased, and then await instructions from the estate’s executor.

If three owners (A, B, and C) have a JTWROS account and A dies, what is the result?

A's share is absorbed equally by the survivors, and B and C instantly become equal 50 / 50 owners of the entire account.

Partnership account:

two or more owners, unlimited personal liability, requires a partnership agreement

If a customer wants to open a new account with a BD without disclosing any investment objectives or financial status, the firm can …

open the account but not solicit any transactions (it is then a self-directed account, BD doesn’t make suggestions since doesn’t know if it’s suitable)

Durable POA:

A durable POA stays valid if the principal becomes incompetent, ends when the principal dies, and also ends if the agent becomes incompetent.

Investment advisors can get verbal POA for …, then need …

10 days

Only a … POA, approved by …, gives a __ __ power, with which they can choose …, and all discretionary transactions …

Only a written POA, approved by a principal, gives a RR discretionary power, with which they can choose either the asset, amount, or action of a trade, and all discretionary transactions must be promptly reviewed by a principal

… are typically required to open a corporate brokerage account

A corporate charter and corporate resolution

A hypothecation agreement is

a document signed by the customer that pledges the securities in the margin account as collateral for the margin loan.

Finder’s fees:

Finder’s fees: fees paid to someone who introduces parties to a financing transaction or business deal, and compensation depends on if they are registered or not

Unregistered finder →

only flat/hourly cash fee, no success‑based pay.

Registered BD finder →

may receive transaction‑based compensation and securities, and may solicit investors.

Commissions are … compensation and … be split with unregistered persons

transaction-based compensation and cannot be split with unregistered persons

If a margin loan is not repaid on time, the BD may

liquidate securities in the account to satisfy the loan

Gifts to spouses are

unlimited and not subject to gift taxes

Tax rules for loans from a 401k?

Loans from a 401k are generally not taxable if repaid according to plan rules

Employer matching contributions are/are not required for employee 401k plans

Employer matching contributions are not required for employee 401k plans

Contributions for a defined benefit plan require …, and they promise …

actuarial calculations, and they promise a fixed benefit based on salary and years of service

Customer account information must be updated

at least every 3 years

When a customer opens a new account, the completed new account form must be sent to them

within 30 days

… is required if a customer wants to change their investment objectives

Approval from a registered principal