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Question 1 of 10
1. Question
Which of the following statements is true regarding Variable contracts of an insurance company?
I. The rule applies only to variable contracts, which are defined as “contracts providing for benefits or values
II. Whole life insurance contracts would not be governed under this rule
III. A universal life insurance policy is credited with a rate declared by the insurance carrier
IV. This rate is often determined based on the performance of the carrier’s general accountCorrect
Variable contracts of an insurance company
FINRA Rule 2320 Variable Contracts of an Insurance Company applies only to variable contracts, which are defined as “contracts providing for benefits or values which may vary according to the investment experience of any separate or segregated account or accounts maintained by an insurance company.” Whole life insurance contracts, in which the cash value is determined based on the age and gender of the insured in relation to the face amount of the contract, would not be governed under this rule. Along the same lines, a universal life insurance policy is credited with a rate declared by the insurance carrier. This rate is often determined based on the performance of the carrier’s general account, the assets of which back the liability from the policy.Incorrect
Variable contracts of an insurance company
FINRA Rule 2320 Variable Contracts of an Insurance Company applies only to variable contracts, which are defined as “contracts providing for benefits or values which may vary according to the investment experience of any separate or segregated account or accounts maintained by an insurance company.” Whole life insurance contracts, in which the cash value is determined based on the age and gender of the insured in relation to the face amount of the contract, would not be governed under this rule. Along the same lines, a universal life insurance policy is credited with a rate declared by the insurance carrier. This rate is often determined based on the performance of the carrier’s general account, the assets of which back the liability from the policy. -
Question 2 of 10
2. Question
Which of the following statements is true regarding FINRA Rule 2320?
I. It states that no member who is a principal underwriter is permitted to sell variable contracts through a different broker dealer unless the following conditions are met
II. The broker dealer through which the underwriter is selling mustn’t be a member
III. There must be an existing sales agreement in place between the underwriter and the broker dealer
IV. No member who is a principal underwriter is permitted to sell variable contracts through a different broker dealer unless the following conditions are met – is stated in itCorrect
FINRA Rule 2320 states that no member who is a principal underwriter is permitted to sell variable contracts through a different broker dealer unless the following conditions are met:
1. The broker dealer through which the underwriter is selling must be a member; and
2. There must be an existing sales agreement in place between the underwriter and the broker dealer.Incorrect
FINRA Rule 2320 states that no member who is a principal underwriter is permitted to sell variable contracts through a different broker dealer unless the following conditions are met:
1. The broker dealer through which the underwriter is selling must be a member; and
2. There must be an existing sales agreement in place between the underwriter and the broker dealer. -
Question 3 of 10
3. Question
Which of the following statements is not included in FINRA Rule 2320?
I. No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated
II. No member or person associated with a member shall accept any compensation from an offeror in the form of securities
III. Members are obligated to maintain records of all compensation received by the member or its associated persons
IV. Any member or associated person will make or receive payments of cash compensationCorrect
FINRA Rule 2320 provides for certain restrictions and limitations on the circumstances and types of compensation that can be paid to members and
associated persons for the sale of variable contracts, as follows:
1. No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated.
2. No member or person associated with a member shall accept any compensation from an offeror in the form of securities.
3. Members are obligated to maintain records of all compensation received by the member or its associated persons and such records shall include the
names of the offerors, names of the associated persons, and amounts of cash and non-cash compensation.
4. No member or associated person shall make or receive payments of non-cash compensation, unless some incidents happenIncorrect
FINRA Rule 2320 provides for certain restrictions and limitations on the circumstances and types of compensation that can be paid to members and
associated persons for the sale of variable contracts, as follows:
1. No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated.
2. No member or person associated with a member shall accept any compensation from an offeror in the form of securities.
3. Members are obligated to maintain records of all compensation received by the member or its associated persons and such records shall include the
names of the offerors, names of the associated persons, and amounts of cash and non-cash compensation.
4. No member or associated person shall make or receive payments of non-cash compensation, unless some incidents happen -
Question 4 of 10
4. Question
Which of the following statements is true regarding Members’ responsibilities regarding deferred variable annuities?
I. This rule applies to recommended purchases and exchanges of deferred variable annuities
II. A member must have the application package approved by a registered principal before submitting a customer’s application
III. A member must implement procedures for surveillance to determine if associated persons have rates of effecting deferred variable annuity exchanges
IV. A member mustn’t develop and document training policies or programs designed to ensure that associated personsCorrect
Members’ responsibilities regarding deferred variable annuities
Application – this rule applies to recommended purchases and exchanges of deferred variable annuities and recommended initial subaccount allocations.
Principal review and approval – before submitting a customer’s application to an insurance company for processing, a member must have the application package approved by a registered principal.
Supervisory procedures – a member must implement procedures for surveillance to determine if associated persons have rates of effecting deferred variable annuity exchanges that raise for review, whether such rates are consistent with FINRA or SEC rules.
Training – a member must develop and document training policies or programs designed to ensure that associated persons who effect and registered persons who review transactions of deferred variable annuities are compliant.Incorrect
Members’ responsibilities regarding deferred variable annuities
Application – this rule applies to recommended purchases and exchanges of deferred variable annuities and recommended initial subaccount allocations.
Principal review and approval – before submitting a customer’s application to an insurance company for processing, a member must have the application package approved by a registered principal.
Supervisory procedures – a member must implement procedures for surveillance to determine if associated persons have rates of effecting deferred variable annuity exchanges that raise for review, whether such rates are consistent with FINRA or SEC rules.
Training – a member must develop and document training policies or programs designed to ensure that associated persons who effect and registered persons who review transactions of deferred variable annuities are compliant. -
Question 5 of 10
5. Question
Which of the following statements is true regarding Tax treatment for deferrals, earnings on deferrals, and benefit distributions?
I. Within a non-qualified deferred compensation plan, an employee’s deferrals of compensation are not taxed as income
II. It is important to note that FICA taxes (social security and Medicare) are no longer taken from the employee’s pay at the time of deferral
III. The notional account into which the employee has deferred compensation grows tax-deferred until the time of distribution
IV. At the time of distribution, the payment isn’t treated as ordinary incomeCorrect
Tax treatment for deferrals, earnings on deferrals, and benefit distributions
Within a non-qualified deferred compensation plan, an employee’s deferrals of compensation are not taxed as income. However, it is important to note that FICA taxes (social security and Medicare) are still taken from the employee’s pay at the time of deferral. The notional account into which the employee has deferred compensation grows tax-deferred until the time of distribution. At the time of distribution, the payment is treated as ordinary income.Incorrect
Tax treatment for deferrals, earnings on deferrals, and benefit distributions
Within a non-qualified deferred compensation plan, an employee’s deferrals of compensation are not taxed as income. However, it is important to note that FICA taxes (social security and Medicare) are still taken from the employee’s pay at the time of deferral. The notional account into which the employee has deferred compensation grows tax-deferred until the time of distribution. At the time of distribution, the payment is treated as ordinary income. -
Question 6 of 10
6. Question
Which of the following statements is false regarding Borrowing from or lending to customers?
I. The member maintains written procedures for such transactions
II. The borrowing or lending arrangement is with a customer who is immediate family or with a customer
III. The customer is an unregistered person with the same member firm
IV. The lending arrangement is based on a personal relationship with the customerCorrect
Borrowing from or lending to customers
As stated in FINRA Rule 3240, borrowing from or lending to customers is prohibited unless:
1. The member maintains written procedures for such transactions
2. The borrowing or lending arrangement is with a customer who is immediate family or with a customer who is a financial institution in the business of
providing credit or loans
3. The customer is a registered person with the same member firm
4. The lending arrangement is based on a personal relationship with the customer
5. The lending arrangement is based on a business relationship outside of the broker-customer relationship.Incorrect
Borrowing from or lending to customers
As stated in FINRA Rule 3240, borrowing from or lending to customers is prohibited unless:
1. The member maintains written procedures for such transactions
2. The borrowing or lending arrangement is with a customer who is immediate family or with a customer who is a financial institution in the business of
providing credit or loans
3. The customer is a registered person with the same member firm
4. The lending arrangement is based on a personal relationship with the customer
5. The lending arrangement is based on a business relationship outside of the broker-customer relationship. -
Question 7 of 10
7. Question
Which of the following statements is false regarding Limitations imposed on dealing with non-member brokers or dealers?
I. NASD Rule 2420 states that non-members shall deal with members at the same prices, fees, and terms and commissions as in their dealings with the general public
II. In any transaction with any non-member broker or dealer, allow or grant to such non-member broker or dealer any selling concession, discount, or other
allowance allowed by such member to a member of a registered securities association
III. Join with any non-member broker or dealer in any syndicate or group contemplating the distribution to the public of any issue of securities or any
part thereof
IV. Sell any security to or buy any security from any non-member broker or dealer except at the same price at which at the time of such transaction such
member would buy or sell such securityCorrect
Limitations imposed on dealing with non-member brokers or dealers
NASD Rule 2420 states that members shall deal with non-members at the same prices, fees, and terms and commissions as in their dealings with the general public. Additionally, the rule states that no member shall:
1. In any transaction with any non-member broker or dealer, allow or grant to such non-member broker or dealer any selling concession, discount, or other
allowance allowed by such member to a member of a registered securities association and not allowed to a member of the general public
2. Join with any non-member broker or dealer in any syndicate or group contemplating the distribution to the public of any issue of securities or any
part thereof
3. Sell any security to or buy any security from any non-member broker or dealer except at the same price at which at the time of such transaction such
member would buy or sell such security, as the case may be, from or to a person who is a member of the general public not engaged in the investment
banking or securities businessIncorrect
Limitations imposed on dealing with non-member brokers or dealers
NASD Rule 2420 states that members shall deal with non-members at the same prices, fees, and terms and commissions as in their dealings with the general public. Additionally, the rule states that no member shall:
1. In any transaction with any non-member broker or dealer, allow or grant to such non-member broker or dealer any selling concession, discount, or other
allowance allowed by such member to a member of a registered securities association and not allowed to a member of the general public
2. Join with any non-member broker or dealer in any syndicate or group contemplating the distribution to the public of any issue of securities or any
part thereof
3. Sell any security to or buy any security from any non-member broker or dealer except at the same price at which at the time of such transaction such
member would buy or sell such security, as the case may be, from or to a person who is a member of the general public not engaged in the investment
banking or securities business -
Question 8 of 10
8. Question
Which of the following statements is true regarding Transactions between members and non-members (IM-2420-1)?
I. Certain non-members of the Association are: persons included from the definition of member in Rule 0120, expelled dealers, suspended dealers, broker or
dealer with registration revoked by the SEC
II. The Rule does not apply to exempted securities defined in Section 3(a)(12) of the Act
III. The Rule does not apply to transactions enacted on an exchange
IV. A non-member is not to participate in a selling group with a member to acquire and distribute an issue of securitiesCorrect
Transactions between members and non-members (IM-2420-1)
A. Certain non-members of the Association are: persons excluded from the definition of member in Rule 0120, expelled dealers, suspended dealers, broker or
dealer with registration revoked by the SEC, and a broker or dealer with membership cancelled or resigned.
B. Exempted securities/transactions – the Rule does not apply to exempted securities defined in Section 3(a)(12) of the Act. The Rule does not apply to
transactions enacted on an exchange.
C. Over-the-counter transactions in securities other than exempted securities – a member is not to participate in a selling group with a non-member to acquire and distribute an issue of securities.Incorrect
Transactions between members and non-members (IM-2420-1)
A. Certain non-members of the Association are: persons excluded from the definition of member in Rule 0120, expelled dealers, suspended dealers, broker or
dealer with registration revoked by the SEC, and a broker or dealer with membership cancelled or resigned.
B. Exempted securities/transactions – the Rule does not apply to exempted securities defined in Section 3(a)(12) of the Act. The Rule does not apply to
transactions enacted on an exchange.
C. Over-the-counter transactions in securities other than exempted securities – a member is not to participate in a selling group with a non-member to acquire and distribute an issue of securities. -
Question 9 of 10
9. Question
Which of the following statements is true regarding Prime rate, public offering price, rights of accumulation, service fees, and funds of funds?
I. “Public offering price” shall mean a public offering price as set forth in the prospectus of the issuing company
II. “Rights of accumulation” shall mean a scale of increasing sales charges in which the sales charge applicable to the securities being purchased is based upon the aggregate quantity of securities previously purchased or acquired and then owned plus the securities being purchase
III. “Service fees” shall mean payments by an investment company for personal service and/or the maintenance of shareholder accounts
IV. A “fund of funds” is an investment company that acquires securities issued by the governmentCorrect
Prime rate, public offering price, rights of accumulation, service fees, and funds of funds
“Prime rate” shall mean the most preferential interest rate on corporate loans at large U.S. money center commercial banks. “Public offering price” shall mean a public offering price as set forth in the prospectus of the issuing company. “Rights of accumulation” shall mean a scale of reducing sales charges in which the sales charge applicable to the securities being purchased is based upon the aggregate quantity of securities previously purchased or acquired and then owned plus the securities being purchased. “Service fees” shall mean payments by an investment company for personal service and/or the maintenance of shareholder accounts. A “fund of funds” is an investment company that acquires securities issued by any other investment company registered under the Investment Company Act of 1940 in excess of the amounts permitted under the act.Incorrect
Prime rate, public offering price, rights of accumulation, service fees, and funds of funds
“Prime rate” shall mean the most preferential interest rate on corporate loans at large U.S. money center commercial banks. “Public offering price” shall mean a public offering price as set forth in the prospectus of the issuing company. “Rights of accumulation” shall mean a scale of reducing sales charges in which the sales charge applicable to the securities being purchased is based upon the aggregate quantity of securities previously purchased or acquired and then owned plus the securities being purchased. “Service fees” shall mean payments by an investment company for personal service and/or the maintenance of shareholder accounts. A “fund of funds” is an investment company that acquires securities issued by any other investment company registered under the Investment Company Act of 1940 in excess of the amounts permitted under the act. -
Question 10 of 10
10. Question
Which of the following statements is true regarding Asset based sales charge, deferred sales charge, and front-end sales charge?
I. An “asset based sales charge” is a sales charge that is added to the net assets of an investment company and does not include a service fee
II. Asset-based sales charges may not exceed 2.75%
III. A “deferred sales charge” is any amount properly chargeable to sales or promotional expenses that is paid by a shareholder after purchase but before or upon redemption
IV. A “front-end sales charge” is a sales charge that is included in the public offering price of the shares of an investment companyCorrect
Asset based sales charge, deferred sales charge, and front-end sales charge
An “asset based sales charge” is a sales charge that is deducted from the net assets of an investment company and does not include a service fee. Asset-based sales charges may not exceed 0.75%. A “deferred sales charge” is any amount properly chargeable to sales or promotional expenses that is paid by a shareholder after purchase but before or upon redemption. A “front-end sales charge” is a sales charge that is included in the public offering price of the shares of an investment company.Incorrect
Asset based sales charge, deferred sales charge, and front-end sales charge
An “asset based sales charge” is a sales charge that is deducted from the net assets of an investment company and does not include a service fee. Asset-based sales charges may not exceed 0.75%. A “deferred sales charge” is any amount properly chargeable to sales or promotional expenses that is paid by a shareholder after purchase but before or upon redemption. A “front-end sales charge” is a sales charge that is included in the public offering price of the shares of an investment company.