FINRA Continuing Education

• An RR who does not follow the procedures for opening a new IRA account
• An RR who fails to gather and submit all required paperwork, including an Adoption Agreement, before trading in an IRA account is allowed to begin
• An RR who does not take his client’s investment objectives and risk tolerance into consideration before recommending a product
Learning Objectives
• The difference between Traditional IRAs, Roth IRAs, and SEP IRAs, and catch-up contributions
• Account approval, purpose of Adoption Agreement
• Suitability analysis importance

SEP IRA
• It is a defined contribution plan
• The employer may contribute to the plan
Structured products
• May be listed on a national exchange
• They have fixed maturities
• May offer access to investments in markets that are not readily available to retail investors
• They generally include an embedded option agreement
• Principal value will fluctuate prior to maturity
• Adan may not be able to sell the note prior to maturity
Catch-up contributions
• MAY be spread throughout the year
• Have a specified dollar amount
• Retirement plan participants who are 50 years of age or older may take catch up contributions
• 401 (k) plan participants must make catch up contributions through elective deferrals
• Owners of traditional or Roth IRA’s can make catch up contributions until the due date on their tax return
Adoption Agreement
• To authorize the broker-dealer to administer the IRA
• To certify Adam’s eligibility to open the IRA
Successfully open account
• Understand all the requirements necessary to open the IRA
• Followed procedures for opening accounts, including collecting the Adoption Agreement
New account opening
• Client’s name and physical address
• Taxpayer identification number for U.S. persons
• Name of RR responsible for the account
Before client’s first trade
• Client’s occupation
• The name of the client’s employer
Valid basis for a complaint
• Adam places an order, but Simon calls 3 days later to say it wasn’t executed
• The price on Adam’s confirmation is different from what Simon told him over the phone
• Adam lost market opportunity because he was never told an Adoption Agreement was needed
Before recommendation of structured products
• Adam’s limited investment experience
• The source of funds for the investment
• Adam’s desire to increase his retirement savings
Customer Identification Program
• B/D are responsible for establishing CIP procedures
• The customer’s identification is verified prior to the first trade
• Tax identification number
• Customer name
• Date of birth
• Obligation begins at the beginning of the customer-broker relationship
• Handling special instructions for the customer’s account
• Conducting reasonable due diligence
• Maintaining the essential facts about the customer
Joint Tenants with Rights of Survivorship
• The account information can be accessed by both husband and wife
• Trades in the account can be entered by husband or wife
• The other owner owns the assets when the one account owner dies
Tenants in Common
• The decedent’s interest in the account becomes part of that tenant’s estate
• The account is controlled by 2 or more individuals
• Each tenant has trading authority in the account
529 custodial account
• The custodian makes the investment decisions for the child
• The funds in the account can be spent on anything for the child’s benefit
• The transfer of control occurs when the child reaches the age of majority
• The account proceeds can be used for any purpose
• The age of majority varies from state to state
529 Plan
• The beneficiary may be changed from one family member to another
• The funds can be used to pay for college tuition
529 Plan contributions
• The plan contribution limits are determined by each state’s plan
• The investment earnings from the account are excluded from gross income if certain conditions are met
Margin Account
• Interest rates may vary when borrowing money to purchase stock on margin
• Customers can borrow money to purchase securities on margin
• Securities in a margin account are used as collateral
Margin Risk
• Customers can lose more than what was originally deposited in the account
• Broker-dealers can sell securities in a customer’s account to cover a margin call
• Broker-dealers may sell securities to meet a margin call without first notifying the customer
Margin Requirements
• Broker-dealers may need to liquidate a stock held in a customer’s account if the customer fails to satisfy a margin call
• Broker-dealers may raise margin requirements for certain volatile positions held in a customer account
• Customers are required to deposit a minimum of $2,000, or, if less, 100% of the purchase price of the initial transaction
Tolerance for investment risk
• Household expenses
• Age
• Goals and objectives
RR’s Consideration of an Ethical dilemma
• The firm’s code of conduct
• How ethical principles apply to the RR’s conduct
• Consulting with the RR’s supervisor
Ethical principles
• Doing no harm to the profession
• Maintaining confidentiality
• Fairness to the customer
Municipal Finance Professional
• Any RR who is both a municipal securities professional and a supervisor of an associated person who is primarily engaged in municipal securities underwriting
• An individual in an executive position up to and including the CEO of a broker-dealer that is engaged in municipal securities business
• An RR who is primarily engaged in municipal securities underwriting
Pay-to-Pay violation
• Equipment valued at $500
• Office space valued at $750
• A cash contribution of $1,000
How often can an MFP contribute up to $250 to a political campaign?
• Once per election cycle
Conflict of interest with political contributions
• Does it appear that something is expected in return for the contributions?
• Are the contributions permissible according to the Big Deal Securities’ code of conduct
• Should my supervisor be consulted for guidance before soliciting contributions?
Code of conduct subjects
• Political contributions
• Entertainment policy
• Harassment and intimidation
Likely a breach of a broker-dealer’s code of conduct
• An undisclosed trading account
What could be considered an outside business activity?
• An investment-related activity that is exclusively charitable
• An engagement as a director of a publicly-held company
What Outside Business Activities (OBA) that could result in a conflict of interest?
• An OBA that benefits from the solicitation of clients of the RR’s broker-dealer
• An OBA involving investment management for a non-profit organization which is a client of the firm
• An OBA in which the RR’s activities are perceived by clients to be endorsed by the firm
Golf outing
• Can give the appearance that someone expects a quid pro quo from the candidate
• It appears that someone’s coworkers violated the firm code of conduct
• It could be deemed to be a political contribution
Which gifts would violate industry gifts and gratuities rules?
• A spa weekend at a resort
• A $1,000 wedding gift
Permissible under industry gifts and gratuities rules
• Giving a client an umbrella with the firm’s logo imprinted on it
• Buying a client a $10 breakfast at a local diner
What MUST be reported on an RR”s Form U4?
• An outside business activity
• A written complaint about missing funds
Typically on a Form U4
• Employment history and outside business activities
• Bankruptcy filings, liens, and judgments
If an MFP makes a political contribution in excess of $250 to a candidate for whom he is entitled to vote and who may influence the awarding of municipal business, for how long is the RR’s broker-dealer prohibited from engaging in the municipal securities business?
• Two years
Which of the following actions may a broker-dealer take with a whistleblower?
• Ensure that there is no retaliation against the whistleblower
Which of the following violations would a whistleblower at a broker-dealer be likely to report?
• Fraud
• Conflicts of interest
• Money laundering
Form U-5 purpose
• To terminate the registration of an individual in the appropriate jurisdictions and/or self-regulatory organizations
Institutional Exemption
• The customer must indicate that it is exercising independent judgment in evaluating recommendations
• The customer must meet the regulatory definition of an institutional client
• The broker dealer must have a reasonable basis to believe that the customer can independently evaluate investment risks
Alternative Investments
• They may hedge market risk by using complex trading strategies
• They may be illiquid and not publicly traded
• They may be sold to institutional investors

Non-traded REIT
• They may have lock-up periods
• They may have high front-end and other associated costs
Endowment Funds
• Withdrawals from an endowment fund can be used for ongoing operations or other purposes
• They are often used by non-profit entities like universities, hospitals, and churches
• They are funded by donations, which are tax-deductible for donors
Exchange Traded Notes
• They are not registered under the Investment Company Act of 1940
• They incur annual fees
Why would an alternative investment have a lock-up period?
• To enable portfolio managers to keep less cash on hand
• To support the investment strategy of the fund
• To prevent losses due to forced sales made to meet the cash requirements of existing investors
Which of the following are important considerations for ETN investors?
• The creditworthiness of the issuer
• The liquidity of the secondary market
• They may be leveraged and volatile
Return on investment
• It is a popular and versatile performance measure
• It is expressed as a percentage or a ratio
• It is a measure used to evaluate the performance of an investment
Which could have a lock-up period?
• A hedge fund
• A non-traded REIT
Qualified Institutional Buyer (QIB)
• A savings and loan with a net worth of $35 million

Concentration limits
• Percentage of investments held in alternative investments
• Percentage of an investor’s liquid net worth
Advantages of investing in a non-traded REIT
• They pool the capital of numerous investors
• When interest rates are low, they may offer attractive yields
Alternative investments
• They may have lock-up periods, concentration limits, and high fees
• Most are held by institutional investors or accredited, high-net-worth individuals
• They are usually complex, may be illiquid, and may be subject to limited regulation
Cooling off period in investment contract
• It allows either party to release themselves without penalty
• It allows both parties to do further research on the contract
• It allows either party to release themselves from the obligation
Which investments would have a subscription agreement?
• A hedge fund
• A non-traded REIT
Things investors should know before purchasing a non-traded REIT
• Should a non-traded REIT go public, it may trade at a price which is lower than its current valuation
• The initial investment is not guaranteed and may increase or decrease in value
• Reinvested dividends are generally subject to the same redemption policies as the original investment
Information in the subscription agreement
• The subscriber’s tax identification number
• The address of record for the subscriber
• The subscriber’s financial status
How may a broker-dealer provide a client with the ability to release themselves from an investment contract in an alternative investment?
• By offering investments with a cooling-off period