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

The Series 7: Customer Accounts, Suitability, and Margin syllabus for FINRA Series 7 / SIE Exams in full: 4 chapters, 12 topics and 25 sub-topics, every one listed below, plus 50 Series 7: Customer Accounts, Suitability, and Margin flashcards with answers.

4Chapters
12Topics
25Sub-topics
50Flashcards

Series 7: Customer Accounts, Suitability, and Margin syllabus: all 4 chapters

Expand any chapter to see its topics and sub-topics.

  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. 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. 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. 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

FINRA Series 7 / SIE Exams Series 7: Customer Accounts, Suitability, and Margin flashcards — 50 questions with 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).

Show the other 30 Series 7: Customer Accounts, Suitability, and Margin flashcards

  1. 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.

  2. 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.

  3. 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.

  4. What is dollar cost averaging and what is its key benefit?

    Investing a fixed dollar amount at regular intervals regardless of price; it results in a lower average cost per share than the average of the prices paid because more shares are bought when prices are low.

  5. Contrast strategic asset allocation with tactical asset allocation.

    Strategic allocation sets fixed target percentages across asset classes and rebalances back to them periodically; tactical allocation actively shifts allocations to exploit short-term market opportunities.

  6. What is the difference between defensive and cyclical (aggressive) stocks?

    Defensive stocks (food, utilities, pharma) hold value through economic downturns; cyclical stocks (autos, steel, durable goods) rise and fall with the business cycle.

  7. What does Regulation T require for the initial margin deposit on a stock purchase, and what is the current percentage?

    Reg T (set by the Federal Reserve) requires an initial margin deposit of 50% of the purchase price of marginable securities.

  8. What is the FINRA minimum equity requirement to open a long margin account, and what is the minimum maintenance margin for a long account?

    Minimum to open: $2,000 (or 100% if the purchase is less than $2,000). Minimum maintenance margin: 25% of the long market value (LMV).

  9. What documents make up a margin (credit) account agreement?

    The credit agreement (terms/interest), the hypothecation agreement (pledging securities as collateral), and the optional loan consent agreement (allowing the firm to lend out the customer's securities).

  10. What is the formula for equity in a long margin account?

    Equity = Long Market Value (LMV) − Debit Balance (DR). The debit balance is the amount borrowed and stays constant; equity changes as market value changes.

  11. In a long margin account, what is Special Memorandum Account (SMA) and how is it created?

    SMA is a line of credit representing excess equity above the 50% Reg T requirement. It is created when LMV rises (equity exceeds 50% of LMV); SMA does not decrease when market value falls.

  12. How do you calculate excess equity / SMA in a long margin account?

    SMA = Equity − (50% × LMV). Excess equity above the Reg T initial requirement becomes SMA, usable as buying power.

  13. What is the buying power of $1 of SMA in a long account at 50% Reg T?

    $1 of SMA provides $2 of buying power (SMA ÷ Reg T rate = SMA ÷ 0.50 = 2 × SMA).

  14. At what long market value does a long margin account reach the 25% maintenance level? Give the formula.

    Maintenance is reached when LMV = Debit Balance ÷ 0.75 (i.e., LMV × 0.25 = equity). At that point equity equals exactly 25% of LMV.

  15. What is a margin maintenance call (house/Reg T call) and what must the customer do?

    A demand for additional funds when equity falls below the maintenance requirement. The customer must deposit cash or marginable securities to restore the required equity, typically within the firm's stated deadline.

  16. What is a Regulation T (federal) call versus a maintenance call?

    A Reg T call is the initial 50% deposit due on a new purchase (payment due in 2 business days, T+2, with extensions possible). A maintenance call occurs later when existing equity drops below the 25%/30% maintenance minimum.

  17. What is the minimum equity to open a SHORT margin account and the minimum maintenance margin for short positions?

    Minimum to open a short account: $2,000. Minimum maintenance margin for shorts: 30% of the short market value (SMV).

  18. How is equity calculated in a short margin account?

    Equity = Credit Balance (CR) − Short Market Value (SMV). The credit balance (sale proceeds + Reg T margin) stays constant; equity rises as SMV falls and falls as SMV rises.

  19. At what short market value does a short margin account hit the 30% maintenance requirement? Give the formula.

    Maintenance is reached when SMV = Credit Balance ÷ 1.30. At that point equity equals 30% of the short market value.

  20. What special maintenance rule applies to short positions in low-priced stocks?

    For stocks priced under $5, maintenance is the greater of $2.50 per share or 100% of market value; for stocks $5 and above, the greater of $5 per share or 30% of market value.

  21. What is the holding period that distinguishes a short-term from a long-term capital gain, and why does it matter?

    Held one year or less = short-term (taxed at ordinary income rates); held more than one year = long-term (taxed at preferential rates of 0%, 15%, or 20%).

  22. How are capital gains and losses netted for tax purposes?

    Short-term gains/losses are netted together and long-term gains/losses are netted together; then the two are netted against each other to produce a net short-term or net long-term result.

  23. What is the maximum net capital loss an individual may deduct against ordinary income per year, and what happens to the excess?

    Up to $3,000 of net capital losses may be deducted against ordinary income per year; any excess is carried forward indefinitely to future tax years.

  24. What is the wash sale rule?

    A capital loss is disallowed if the investor buys the same or a substantially identical security within 30 days before or after the sale (a 61-day window). The disallowed loss is added to the cost basis of the replacement shares.

  25. How are qualified dividends taxed versus non-qualified (ordinary) dividends?

    Qualified dividends are taxed at long-term capital gains rates (0/15/20%) if the holding-period requirement is met; non-qualified dividends are taxed at ordinary income rates.

  26. How is interest from municipal bonds, Treasury securities, and corporate bonds taxed at the federal and state levels?

    Municipal bond interest: federally tax-exempt (often state-exempt if in-state). Treasury interest: federally taxable but state/local exempt. Corporate bond interest: fully taxable at federal, state, and local levels.

  27. What is the difference in tax treatment between a Traditional IRA and a Roth IRA?

    Traditional IRA: contributions may be tax-deductible, growth is tax-deferred, withdrawals are taxed as ordinary income. Roth IRA: contributions are after-tax (non-deductible), growth and qualified withdrawals are tax-free.

  28. What is the age for required minimum distributions (RMDs) and the penalty for not taking them, for a Traditional IRA?

    RMDs must begin by April 1 of the year after turning 73 (under SECURE Act 2.0). Failing to take the RMD triggers a penalty of 25% (reduced to 10% if corrected timely) of the shortfall. Roth IRAs have no RMDs during the owner's lifetime.

  29. What is the penalty for early (pre-59½) withdrawals from a Traditional IRA, and name two exceptions.

    A 10% early-withdrawal penalty plus ordinary income tax. Exceptions include first-time home purchase (up to $10,000), qualified higher-education expenses, death, disability, and certain medical expenses.

  30. Compare a Coverdell ESA and a 529 plan for education savings.

    Coverdell ESA: limited annual contribution ($2,000/year), income limits, usable for K-12 and college, must be used by age 30. 529 plan: high contribution limits, no income limits, state-sponsored, tax-free growth for qualified education expenses, donor retains control.

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

What is in the FINRA Series 7 / SIE Exams Series 7: Customer Accounts, Suitability, and Margin syllabus?

FINRA Series 7 / SIE Exams Series 7: Customer Accounts, Suitability, and Margin is split into 4 chapters: Opening and Maintaining Accounts, Suitability and Recommendations, Margin Accounts and Taxation of Investments. Together they contain 12 topics and 25 sub-topics.

How many chapters are in FINRA Series 7 / SIE Exams Series 7: Customer Accounts, Suitability, and Margin?

4 chapters, containing 12 topics and 25 sub-topics. The largest chapter is Opening and Maintaining Accounts, with 3 topics.

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

Yes — a 50-card Series 7: Customer Accounts, Suitability, and Margin deck, printed in full in the flashcards section of this page and available in the Examius app with spaced repetition. The free plan covers one exam of your choice, including its flashcards; Examius Pro, a one-time purchase, unlocks every other exam and deck.