Free Series 7 Customer Accounts Practice Questions

Topic summary

Customer account questions decide who can act, what must be approved, and which facts must be collected before a recommendation. Read the account type before reading the product.

Common traps

• Assuming verbal permission is enough for discretionary trading.
• Treating account registration and trading authority as the same thing.
• Forgetting that margin, options, and discretionary activity need special approval.
• Skipping customer profile facts before evaluating suitability.

Free sample questions

1. Before a representative may exercise discretion in a customer's account, what is generally required? Correct answer: Written customer authorization and firm approval. Discretionary authority generally requires written customer authorization and firm acceptance or approval before discretionary trading occurs.
2. For a basic cash brokerage account, which signature is generally required on the new account form? Correct answer: Registered representative and principal. A standard new account form is signed by the representative and approved by a principal. Customer signatures are required for certain agreements, such as margin or options documents, not every cash account form.
3. Which documents are central to opening a margin account? Correct answer: Credit agreement and hypothecation agreement. Margin accounts require documents covering the loan terms and pledge of securities as collateral. Loan consent is separate and generally optional.
4. Before a customer trades options, what is generally required? Correct answer: Options account approval and delivery of the ODD. Options trading requires account approval under the firm's options procedures and delivery of the Options Disclosure Document at or before approval.
5. A trustee wants to trade on margin, but the trust document is silent on margin. What is the key issue? Correct answer: Whether the trust document grants authority. A trustee's authority comes from the trust document and fiduciary duties. Silence about margin or speculation can make the activity impermissible or unsuitable.
6. A corporation opens an account. What document usually identifies who may trade for the corporation? Correct answer: Corporate resolution. A corporate resolution identifies authorized persons and may need to specify authority for activities such as margin or options trading.
7. What is the primary purpose of a transfer-on-death registration? Correct answer: Transfer assets to named beneficiaries after death. TOD registration directs account assets to named beneficiaries after death. It does not grant trading authority or guarantee returns.
8. In a joint tenants with right of survivorship account, what happens when one owner dies? Correct answer: The surviving owner generally receives the deceased owner's interest. JTWROS includes survivorship. The deceased owner's interest generally passes to the surviving owner rather than through the deceased owner's estate.
9. Which fact is part of the customer profile used for suitability? Correct answer: Investment objective. Investment objective, risk tolerance, time horizon, liquidity needs, tax status, income, net worth, and experience are core profile facts used for recommendations.
10. A third party wants to enter orders for a customer's account. What should the firm verify first? Correct answer: Valid trading authorization or power of attorney. A person entering orders for someone else's account needs proper authorization. Account ownership alone does not automatically give every third party trading authority.