Series 6 Accounts and Customer Profile Practice Questions
Question 1
Which of the following is NOT permitted in a UTMA custodial account?
- A. Buying shares of an open-end mutual fund for the minor's benefit with cash in the account
- B. Reinvesting fund dividends and capital gains distributions in additional shares of the same fund
- C. Buying securities on margin against the account's holdings
- D. Having the custodian sell some securities to rebalance the minor's portfolio after a market move
Show answer and explanation
Correct answer: C. Buying securities on margin against the account's holdings
Custodial accounts must be cash accounts. The custodian may buy, sell and reinvest within the prudent-investor standard, but may not borrow on margin or commit the minor to speculative strategies such as uncovered options.
- A. Wrong: buying mutual funds is a typical, permitted use of a UTMA account.
- B. Wrong: reinvestment is permitted and is ordinary practice.
- C. Correct: margin borrowing is not allowed in a custodial account.
- D. Wrong: the custodian may sell and rebalance, subject to acting prudently for the minor.
Question 2
Which statement about a transfer on death (TOD) registration on an individual account is correct?
- A. The beneficiary becomes a co-owner and may enter trades once the registration is accepted.
- B. The assets pass according to the owner's will, and the beneficiary designation serves as a guide to the executor.
- C. The beneficiary must co-sign for withdrawals and for changes in the account's investments.
- D. The beneficiary has no rights to the account while the owner is alive, and the assets never pass through probate.
Show answer and explanation
Correct answer: D. The beneficiary has no rights to the account while the owner is alive, and the assets never pass through probate.
A TOD beneficiary has no ownership, signature or trading rights during the owner's lifetime. At death the assets pass directly to the named beneficiary, avoiding probate, and the owner may change the beneficiary at any time.
- A. Wrong: the beneficiary is not a co-owner while the owner lives.
- B. Wrong: the TOD designation supersedes the will for that account.
- C. Wrong: a TOD beneficiary has no signature rights while the owner is alive.
- D. Correct: the owner keeps full control, and TOD assets bypass probate.
Question 3
Which statement correctly compares a Roth IRA with a traditional IRA?
- A. Roth contributions are tax-deductible in the year made, and qualified distributions are taxed as ordinary income.
- B. Roth contributions are after-tax, and the original owner takes no lifetime required minimum distributions.
- C. Roth earnings are taxed each year as they accumulate, while traditional IRA earnings stay tax-deferred.
- D. Roth owners must begin required minimum distributions at the same age as traditional IRA owners do.
Show answer and explanation
Correct answer: B. Roth contributions are after-tax, and the original owner takes no lifetime required minimum distributions.
Roth IRA contributions are not deductible, and qualified distributions are tax-free. The original Roth owner has no lifetime required minimum distributions, unlike a traditional IRA owner.
- A. Wrong: this reverses the tax treatment; it describes a traditional IRA.
- B. Correct: after-tax contributions and no lifetime RMDs for the original owner are Roth features.
- C. Wrong: earnings in both IRA types grow tax-deferred inside the account.
- D. Wrong: the original owner of a Roth IRA is not subject to lifetime RMDs.
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Under FINRA's rule on deferred variable annuity recommendations, within what period must a registered principal review and determine whether to approve the application?
- A. Within one business day after the application is signed by the customer and the premium is submitted
- B. Within thirty calendar days after the contract's free-look period has ended for the customer
- C. Within three business days after the contract is issued by the insurance company
- D. Within seven business days after the application is received at the office responsible for supervision
Show answer and explanation
Correct answer: D. Within seven business days after the application is received at the office responsible for supervision
The variable annuity rule requires principal review of a deferred variable annuity application, and a decision whether to approve, within seven business days after the member's supervisory office receives a complete application package.
- A. Wrong: one business day is not the rule's period.
- B. Wrong: waiting until after free look would be too late; review must occur before the contract matures into a settled sale.
- C. Wrong: review is tied to application receipt, not contract issuance.
- D. Correct: seven business days from receipt of the application.