Chapter 8, ALL

What is Prospecting for New Customers?

The process of building a customer base by making unsolicited telephone calls (cold calling or telemarketing), regulated by Federal and FINRA rules.

What are the calling hours permitted under the Telephone Consumer Protection Act (Cold Calling Act)?

Telephone solicitations may only be placed between 8 a.m. and 9 p.m. local time of the party called.

What information must a caller provide during a solicitation call?

The identity of the caller and a telephone number or address at which the caller or firm may be contacted.

What must firms do if a person says they do not want to be called again?

Maintain a permanent in-house “Do Not Call” list and compare it against the national “Do Not Call” list.

What written policy must firms maintain for cold calling?

A written policy available on demand for maintaining a “Do Not Call” list, with customer account numbers encrypted.

Who must be trained on the use of the “Do Not Call” list?

All personnel engaged in telephone solicitations.

What type of auto-dialing is prohibited?

Auto-dialing with prerecorded messages to residences, healthcare facilities, and radio common carriers (e.g., cell phones).

What does the Cold Calling Act say about unsolicited fax ads?

They are prohibited, and any fax sent must include: the date/time sent, the sender’s identity, and the sender’s telephone number.

What does not need to be included on a fax under the Act?

The number of pages in the fax.

When does the “Do Not Call” restriction not apply?

When there is a prior business relationship within the last 18 months, such as trades, interest, or dividends.

Do cold calling restrictions apply to non-profit organizations?

No, they are exempt.

Do telemarketing rules apply to wireless numbers?

Yes, all provisions apply.

Can firms outsource telemarketing?

Yes, but the firm remains responsible for compliance with all telemarketing rules.

What can unregistered cold callers do?

Send investment literature, set up appointments with registered representatives, and invite prospects to firm-sponsored events.

What can unregistered cold callers NOT do?

They cannot pre-qualify or profile prospects.

Prospecting for New Customers

Building a client base by making unsolicited telephone calls, also known as cold calling or telemarketing.

Cold Calling Act (Telephone Consumer Protection Act)

Federal law regulating telemarketing calls, including time restrictions, required disclosures, and “Do Not Call” rules.

Permitted Calling Hours

Telephone solicitations may only occur between 8 a.m. and 9 p.m. local time of the recipient.

Required Caller Information

Caller must provide their identity and a telephone number or address where the caller or firm may be reached.

Do Not Call List

A permanent in-house list maintained by firms of people who have opted out of future calls; must be compared to the national “Do Not Call” list.

Written Policy Requirement

Firms must maintain a written policy, available on demand, for handling “Do Not Call” requests and encrypt customer account numbers.

Training Requirement

All personnel engaged in solicitations must be trained on the “Do Not Call” list policies.

Auto-Dialing Ban

Auto-dialing with prerecorded messages is prohibited to residences, healthcare facilities, and cellular phones.

Junk Fax Rule

Prohibits unsolicited fax advertisements unless they contain the date/time sent, the sender’s identity, and the sender’s telephone number.

Prior Business Relationship Exception

Exempts firms from the “Do Not Call” restriction if an account had activity (trade, interest, dividends) in the last 18 months.

Non-Profit Exemption

Cold calling rules do not apply to non-profit organizations.

Wireless Numbers Rule

Telemarketing provisions also apply to wireless numbers.

Outsourcing Telemarketing

Firms may outsource, but remain responsible for compliance.

Unregistered Cold Callers (Allowed Activities)

Can send literature, set appointments, and invite prospects to events.

Unregistered Cold Callers (Prohibited Activities)

Cannot pre-qualify or profile prospects.#

Test

Test

What FINRA notice provides guidance on handling senior customers?

Regulatory Notice 07-43

What should a firm determine at the opening of a senior account?

Whether the customer has an executed durable power of attorney

If a senior develops dementia, what legal authority is required to manage the account?

Court-approved guardianship

What are examples of inappropriate investments for senior investors?

Products with withdrawal penalties or lack of liquidity (e.g., deferred variable annuities, equity-indexed annuities, limited partnerships), variable life products, complex structured products, home equity loans for investing, early retirement withdrawals for high-risk investments

Are high-pressure sales tactics allowed for seniors?

No, tactics like “limited time offer” or “you must sign today” are prohibited

What is required to use a “Senior Designation” such as “Retirement Specialist”?

RR must be accredited (CRPC, CFP, etc.) and firm approval is required

Who is considered a “specified adult” under FINRA Rule 2165?

Individuals 65+ or individuals 18+ with mental/physical impairments unable to protect their interests

What action may a firm take if financial exploitation of a specified adult is suspected?

Place a temporary hold on disbursement of funds or securities and transactions for up to 15 business days, extendable by 30 days if reported to state authorities

How soon must a firm contact authorized individuals after a temporary hold?

Within two business days

Who can a firm contact regarding concerns about possible financial exploitation?

The “trusted contact person” designated on the account

Regulatory Notice 07-43

FINRA guidance on the proper handling of senior customers by member firms.

Durable Power of Attorney

Legal authorization granted by a person of sound mind to another to act on their behalf.

Guardianship

Court-approved authority required when a senior cannot manage their own account due to incapacity or dementia.

Senior Designation

Accredited title, such as “Retirement Specialist,” that RRs may use with firm approval.

Inappropriate Investments for Seniors

Investments with withdrawal penalties, illiquidity, high risk, or unsuitable for seniors’ financial needs.

FINRA Rule 2165

Rule requiring firms to have procedures to detect, prevent, and respond to financial exploitation of specified adults.

Temporary Hold

Firm-imposed hold on account funds or transactions to prevent financial exploitation, up to 15 business days, extendable by 30 days with state notification.

Trusted Contact Person

Individual authorized to be contacted regarding actual or potential financial exploitation of a senior or specified adult.

What is the purpose of the New Account Report Form?

To collect essential customer information as part of the “Know Your Customer” rule, ensuring proper servicing, compliance, and authority verification.

What does FINRA Rule 2090 (Know Your Customer Rule) require?

That firms use reasonable diligence to know and retain essential facts about each customer and their account authority.

What are “essential facts” under Rule 2090?

Facts that allow an RR to service the account, follow handling instructions, verify authority, and comply with laws/regulations.

Can an account be opened in a third party’s name, alias, or a minor’s name?

No, accounts must be opened in the actual customer’s name.

What is a Numbered Account?

An account identified only by a number or symbol, requiring a written statement attesting to ownership. False names are prohibited.

Is a P.O. Box acceptable as a residential address?

No, but it can be used for mailing. APO/FPO addresses are acceptable.

What alternative address can be used if a customer has no residence or business address?

The address of next of kin or another contact person.

What personal information must be collected for account opening?

Name, address, email, phone numbers, SSN/Tax ID, DOB, citizenship, occupation/employer, annual income, net worth, and bank references.

What ID requirements must be met to open an account?

Customers must provide government-issued photo ID and be checked against terrorist lists.

What is a Trusted Contact Person under FINRA Rule 4512?

An optional contact who may be reached to confirm customer information, discuss health, disclose account issues, or identify guardians/executors.

What customer information is NOT required to open an account?

Educational background, names of other broker-dealers, prior tax returns/brackets, or beneficiary designations.

What information demonstrates diligence in account opening?

Investment objectives, employment status, income, net worth, liquid net worth, marital status, dependents, and age.

Who must approve the New Account Report Form?

The Branch Manager or Principal. The RR and customer signatures are not required.

What does the USA PATRIOT Act require to open an account?

Customer’s full name, DOB, street address, and taxpayer ID number.

What happens if a customer refuses to provide required Patriot Act information?

The account cannot be opened.

How soon must customer account information be sent after opening?

Within 30 days.

How often must customer account information be updated?

At least once every 36 months, or within 30 days of a reported change.

How long must customer account records be kept after account closure?

Six years.

When must a principal or supervisor review account transactions?

All transactions must be reviewed and initialed by a principal or supervisory person.

When must an RR update customer records?

When employment, income, address, investment objectives, or securities positions change.

New Account Report Form

Document required to open an account, used to collect essential facts under the Know Your Customer Rule.

Know Your Customer Rule (FINRA Rule 2090)

Requires firms to use diligence to know essential facts about every customer and their account authority.

Essential Facts

Information allowing an RR to service the account, follow instructions, confirm authority, and remain compliant.

Numbered Account

Account identified by number/symbol; requires a written ownership statement; false names not allowed.

Residential Address Rule

P.O. Boxes are not valid addresses but may be used for mailing; APO/FPO addresses are acceptable.

Alternative Address

If no residence exists, next of kin or other contact person’s address may be used.

Customer Identification Requirements

Name, DOB, address, SSN/Tax ID, citizenship, employment details, income, net worth, references, and government-issued ID.

Trusted Contact Person (FINRA Rule 4512)

Optional person authorized for account-related concerns like financial exploitation, contact updates, or guardianship.

Information Not Required

Education, names of other broker-dealers, past tax returns/brackets, or beneficiary designations.

Diligence in Opening Accounts

Includes investment objectives, employment status, income, net worth, liquid assets, marital status, dependents, and age.

Approval of New Accounts

Requires Branch Manager or Principal signature; RR and customer signatures not required.

USA PATRIOT Act Requirements

Full legal name, DOB, street address, and taxpayer identification number are mandatory.

Patriot Act Non-Compliance

If a customer refuses required information, the account cannot be opened.

Customer Account Information Timelines

Must be sent within 30 days of opening, updated every 36 months, or within 30 days of change.

Record Retention Rule

Customer account records must be maintained for six years after account closure.

Principal Review Requirement

All account transactions must be reviewed and initialed by a principal/supervisory person.

Customer Profile Updates

Required when there are changes in employment, income, address, investment objectives, or securities positions.#

What is an Individual Account?

An account opened for one person only, referred to as a “natural person,” not a corporation or organization.

What is a Joint Tenants With Rights of Survivorship (JTWROS) account?

An account for two or more people, usually spouses, where ownership passes to the survivor upon death of one owner.

What happens if one party dies in a JTWROS account?

The surviving tenant becomes sole owner of the securities after presenting a death certificate and affidavit of domicile.

What is a Tenants in Common account?

A joint account where if one tenant dies, their interest passes to their estate, not the other owner.

What is a Transfer on Death (TOD) account?

An account that passes assets directly to beneficiaries upon death of the owner, avoiding probate.

What is required for a Corporation to open a securities account?

A Certified Copy of the Corporate Resolution, Articles of Incorporation, and possibly By-laws or Charter, authorizing specific persons to trade.

Who must sign to open a Limited Partnership account?

The General Partner(s), not the limited partners.