FINRA Series 7 / SIE Exams Series 7: Customer Accounts, Suitability, and Margin Syllabus

Series 7: Customer Accounts, Suitability, and Margin syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Series 7: Customer Accounts, Suitability, and Margin in FINRA Series 7 / SIE Exams, not a summary of it.

1. 1

   Opening and Maintaining Accounts

   3 topics

   • New Account Requirements
     • Required customer information and Reg BI Form CRS
     • Numbered, fee-based, and wrap accounts
   • Options Account Requirements
     • Options account approval and the options agreement
     • Options Disclosure Document (ODD) delivery timing
   • Account Transfers and Death
     • ACATS transfer procedures
     • Handling deceased customer accounts
2. 2

   Suitability and Recommendations

   3 topics

   • Regulation Best Interest
     • Care, disclosure, conflict of interest, and compliance obligations
     • Best interest versus suitability standards
   • Customer Profile and Investment Objectives
     • Risk tolerance, time horizon, and liquidity needs
     • Income, growth, preservation, and speculation objectives
   • Portfolio Strategies and Allocation
     • Diversification and asset allocation
     • Dollar-cost averaging and modern portfolio theory
3. 3

   Margin Accounts

   3 topics

   • Margin Fundamentals
     • Regulation T initial requirement and minimum equity
     • Long market value, debit balance, and equity
   • Maintenance and Calls
     • FINRA maintenance margin for long and short accounts
     • Maintenance calls and special memorandum account (SMA)
   • Short Account Margin
     • Credit balance and short market value
     • Restricted accounts and buying power
4. 4

   Taxation of Investments

   3 topics

   • Capital Gains and Losses
     • Short-term versus long-term treatment
     • Cost basis, wash sale rule, and netting
   • Investment Income Taxation
     • Qualified versus ordinary dividends
     • Taxation of interest income
   • Retirement and Education Accounts
     • Traditional and Roth IRAs and contribution limits
     • Qualified plans: 401(k), 403(b), and ERISA
     • 529 plans and Coverdell ESAs

Series 7: Customer Accounts, Suitability, and Margin flashcards for FINRA Series 7 / SIE Exams

23 of 50 cards from the Series 7: Customer Accounts, Suitability, and Margin deck — real questions with worked answers.

1. What four pieces of customer information must a new account form capture to satisfy FINRA's basic identification and suitability requirements?

   Customer's full name and address, Social Security/tax ID number, employment status/occupation, and financial information (income, net worth, investment objectives).

2. Under the USA PATRIOT Act Customer Identification Program (CIP), what minimum information must a firm collect and verify before opening an account?

   Name, date of birth, physical address (no PO boxes), and Social Security or taxpayer ID number; the identity must then be verified, often against OFAC/SDN lists.

3. Who must sign a new account form, and whose signature is NOT required?

   The registered representative and a principal (for approval) must sign. The customer's signature is NOT required to open a cash account (it is required for margin and options accounts).

4. What is the difference between a discretionary account and a fee-based (wrap) account?

   A discretionary account lets the RR choose security, amount, and action (buy/sell) without prior approval for each trade; a fee-based account charges one annual fee for advice/transactions but still requires customer authorization for trades unless also discretionary.

5. What three elements ('A, B, C') must a customer specify for an order NOT to be considered discretionary?

   Action (buy or sell), the specific Asset/security, and the Amount (number of shares). If the customer specifies these, only timing/price discretion remains, which does not require a discretionary agreement.

6. What documentation and approval are required to open a discretionary account?

   A signed written trading authorization (power of attorney) from the customer and written approval by a principal; the account must be reviewed frequently to prevent churning.

7. Before the FIRST options transaction, what document must be delivered to the customer, and by when must the signed options agreement be returned?

   The Options Disclosure Document (ODD/'Characteristics and Risks of Standardized Options') must be delivered at or before account approval; the signed options agreement must be returned within 15 days of account approval.

8. Who must approve an options account, and what is special about that role?

   A Registered Options Principal (ROP) must approve the account in writing based on suitability before any options trades occur.

9. In what order are options account documents typically completed relative to the first trade?

   1) ODD delivered, 2) ROP approves account, 3) trading may begin, 4) signed options agreement returned within 15 days. The agreement can be signed after the first trade but the ODD must come first.

10. What is ACATS and what is its standard transfer timeline?

    The Automated Customer Account Transfer Service moves accounts between firms. The carrying (delivering) firm has 1 business day to validate the transfer instruction and 3 business days to complete the transfer after validation.

11. When a customer requests an ACAT transfer, what must the receiving (carrying-in) firm do, and may the old firm freeze the account?

    The receiving firm submits the transfer instruction (TIF); the delivering firm validates within 1 business day. The delivering firm may freeze positions during transfer but cannot delay beyond the prescribed timeline without valid reason.

12. What happens to a Joint Tenants With Right of Survivorship (JTWROS) account when one owner dies?

    The deceased's interest passes automatically to the surviving tenant(s), bypassing probate; the account does not go to the estate.

13. What happens to a Tenants in Common (TIC) account when one owner dies?

    The deceased owner's fractional share passes to their estate (and heirs per the will/probate), NOT automatically to the surviving co-owner(s).

14. What steps must a firm take upon being notified of a customer's death?

    Cancel all open (GTC/day) orders, freeze the account, mark it 'deceased,' and await proper legal documents (death certificate, letters testamentary, inheritance tax waivers) before releasing assets.

15. What is Regulation Best Interest (Reg BI) and to whom does it apply?

    An SEC rule (effective June 30, 2020) requiring broker-dealers and associated persons to act in the retail customer's best interest when making a recommendation, without placing the firm's interests ahead of the customer's.

16. What are the four component obligations of Regulation Best Interest?

    Disclosure Obligation, Care Obligation, Conflict of Interest Obligation, and Compliance Obligation.

17. What is Form CRS and when must it be delivered?

    The Customer/Client Relationship Summary; a brief disclosure of services, fees, conflicts, and disciplinary history that must be delivered to retail investors at or before the recommendation, account opening, or first engagement.

18. What three components make up the Care Obligation under Reg BI?

    Understanding the risks/rewards/costs of the recommendation; having a reasonable basis it is in the customer's best interest; and ensuring a series of transactions is not excessive (no churning).

19. Under FINRA suitability/Reg BI, what are the three main suitability obligations?

    Reasonable-basis suitability (the product is suitable for some investors), customer-specific suitability (suitable for this particular customer), and quantitative suitability (the series of transactions is not excessive).

20. List the common customer investment objectives a Series 7 rep must match to recommendations.

    Preservation of capital/safety, current income, growth (capital appreciation), speculation, liquidity, and tax advantages (tax reduction/deferral).

21. What financial factors define a customer's investment profile for suitability purposes?

    Age, financial situation/needs, tax status, investment objectives, investment experience, time horizon, liquidity needs, and risk tolerance.

22. What is the difference between systematic risk and unsystematic risk?

    Systematic (market) risk affects the entire market and cannot be diversified away (e.g., market, interest-rate, inflation risk). Unsystematic risk is specific to one company/sector and can be reduced through diversification.

23. Which investment is most suitable for a customer whose primary objective is current income with safety?

    Investment-grade bonds, government securities, or money-market instruments; for somewhat higher yield with safety, blue-chip dividend-paying stocks or utility stocks.

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