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Question 1 of 10
1. Question
Which of the following statements is not included in Essential facts concerning every customer?
Correct
Essential facts concerning every customer
The four “essential facts” contemplated in FINRA Rule 2090-Know Your Customer are those required to (i) effectively service the customer’s account, (ii) act in accordance with any special handling instructions for the account, (iii) understand the authority of each person acting on behalf of the customer, and (iv) comply with applicable laws, regulations, and rules.Incorrect
Essential facts concerning every customer
The four “essential facts” contemplated in FINRA Rule 2090-Know Your Customer are those required to (i) effectively service the customer’s account, (ii) act in accordance with any special handling instructions for the account, (iii) understand the authority of each person acting on behalf of the customer, and (iv) comply with applicable laws, regulations, and rules. -
Question 2 of 10
2. Question
Which of the following statements is true regarding Suitability?
Correct
Suitability
FINRA Rule 2111-Suitability states that an adviser must have a reasonable basis to believe that the investment(s) he is recommending is suitable for the investor based upon the information collected during the due diligence process including age, other investments, financial objectives, tax status, investment experience, time horizon, liquidity needs, and risk tolerance.Incorrect
Suitability
FINRA Rule 2111-Suitability states that an adviser must have a reasonable basis to believe that the investment(s) he is recommending is suitable for the investor based upon the information collected during the due diligence process including age, other investments, financial objectives, tax status, investment experience, time horizon, liquidity needs, and risk tolerance. -
Question 3 of 10
3. Question
Which of the following statements is true regarding new FINRA Rule 2111?
Correct
The new FINRA Rule 2111 expands upon the previous NASD Rule 2310 by specifying the factors to be considered in developing the investment profile, including an investor’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information disclosed by the investor. This is an important expansion because the delineation of these factors provides more clarity for advisers on the most important factors that need to be considered for each investor to which they make a recommendation.
Incorrect
The new FINRA Rule 2111 expands upon the previous NASD Rule 2310 by specifying the factors to be considered in developing the investment profile, including an investor’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information disclosed by the investor. This is an important expansion because the delineation of these factors provides more clarity for advisers on the most important factors that need to be considered for each investor to which they make a recommendation.
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Question 4 of 10
4. Question
Which of the following statements is true regarding Payments to the annuitant, guarantees, risks, and contract holder objectives?
Correct
Payments to the annuitant, guarantees, risks, and contract holder objectives
One of the primary differences between fixed and variable annuities, and the mostnotable to policy owners, is that a fixed annuity provides for a guaranteed, level payment, while a variable annuity’s payment will fluctuate based upon the performance of underlying subaccount investments. The fixed annuity will provide the investor with certain guarantees as to minimum rates and charges, so that an investor can plan a minimum benefit distribution. A variable annuity, however, is only guaranteed with respect to maximum charges.Incorrect
Payments to the annuitant, guarantees, risks, and contract holder objectives
One of the primary differences between fixed and variable annuities, and the mostnotable to policy owners, is that a fixed annuity provides for a guaranteed, level payment, while a variable annuity’s payment will fluctuate based upon the performance of underlying subaccount investments. The fixed annuity will provide the investor with certain guarantees as to minimum rates and charges, so that an investor can plan a minimum benefit distribution. A variable annuity, however, is only guaranteed with respect to maximum charges. -
Question 5 of 10
5. Question
Which of the following statements is false regarding Types of variable annuities?
Correct
Types of variable annuities
An immediate variable annuity is one in which the initial contribution into the annuity is converted into annuitization units, which then increase or decrease in value depending upon the investment performance of underlying subaccount allocations and payments begin to occur immediately. In a deferred annuity, however, the initial contribution is converted into accumulation units, which are not paid out until some specified period of time and continue to increase or decrease in value, depending upon investment performance.Incorrect
Types of variable annuities
An immediate variable annuity is one in which the initial contribution into the annuity is converted into annuitization units, which then increase or decrease in value depending upon the investment performance of underlying subaccount allocations and payments begin to occur immediately. In a deferred annuity, however, the initial contribution is converted into accumulation units, which are not paid out until some specified period of time and continue to increase or decrease in value, depending upon investment performance. -
Question 6 of 10
6. Question
Which of the following statements is true regarding pay annuities?
Correct
Single pay annuities are funded with one initial payment at the time of issue. Single pay annuities can be either immediate or deferred annuities. Periodic payment annuities are funded over a series of periodic payments and could only be utilized within a deferred annuity.
Incorrect
Single pay annuities are funded with one initial payment at the time of issue. Single pay annuities can be either immediate or deferred annuities. Periodic payment annuities are funded over a series of periodic payments and could only be utilized within a deferred annuity.
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Question 7 of 10
7. Question
Which of the following statements is false regarding Features of variable annuity contracts?
Correct
Features of variable annuity contracts
The four key features of a variable annuity contract are tax-deferred accumulation, ownership interests, voting rights, and distribution options. Contract values within a variable annuity contract grow on a tax-deferred basis, meaning that more funds remain invested to reap the benefits of compound interest right up until such time as it is paid out. Annuities are typically owned by the individual expecting to receive the ultimate benefit payments, but a beneficiary must also be maintained on file so that, in the event of a death of a contract holder, the proceeds can be paid to the proper individuals.Incorrect
Features of variable annuity contracts
The four key features of a variable annuity contract are tax-deferred accumulation, ownership interests, voting rights, and distribution options. Contract values within a variable annuity contract grow on a tax-deferred basis, meaning that more funds remain invested to reap the benefits of compound interest right up until such time as it is paid out. Annuities are typically owned by the individual expecting to receive the ultimate benefit payments, but a beneficiary must also be maintained on file so that, in the event of a death of a contract holder, the proceeds can be paid to the proper individuals. -
Question 8 of 10
8. Question
Which of the following statements is true regarding Features of variable annuity contracts?
Correct
Features of variable annuity contracts
A variable annuity contract holder has similar voting rights to a variable life insurance policyholder, in that the contract holder can vote to elect the
board of directors of the issuing company. Finally, variable annuities offer a number of distribution options, ranging from payments in a lump sum or over a specified number of years or even a life annuity, which provides for the payment of benefits over the remaining life of the contract holder.Incorrect
Features of variable annuity contracts
A variable annuity contract holder has similar voting rights to a variable life insurance policyholder, in that the contract holder can vote to elect the
board of directors of the issuing company. Finally, variable annuities offer a number of distribution options, ranging from payments in a lump sum or over a specified number of years or even a life annuity, which provides for the payment of benefits over the remaining life of the contract holder. -
Question 9 of 10
9. Question
Which of the following statements is true regarding Section 1035 of the Internal Revenue Code?
Correct
Variable annuities can be exchanged tax-free for another variable annuity contract. This is an important provision that allows investors who may have a significant amount of taxable gain over cost basis to move into a newer policy with lower charges, if available. Many variable annuity contracts, in an effort to improve performance in early years and to entice investors to keep their contracts for at least a given period of time, will apply either enhancements or surrender charges to the value of the contract.
Incorrect
Variable annuities can be exchanged tax-free for another variable annuity contract. This is an important provision that allows investors who may have a significant amount of taxable gain over cost basis to move into a newer policy with lower charges, if available. Many variable annuity contracts, in an effort to improve performance in early years and to entice investors to keep their contracts for at least a given period of time, will apply either enhancements or surrender charges to the value of the contract.
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Question 10 of 10
10. Question
Which of the following statements is false regarding variable annuity contracts?
Correct
Many variable annuity contracts will contain a level sales charge that is applied to deposits into the contract. This sales charge is used to compensate the broker who sold the contract and to cover the costs associated with issuing the contract. The maximum amount of this sales charge must be specified in the contract. A contingent deferred sales charge may impact the amount that a contract holder would receive upon surrender.
Incorrect
Many variable annuity contracts will contain a level sales charge that is applied to deposits into the contract. This sales charge is used to compensate the broker who sold the contract and to cover the costs associated with issuing the contract. The maximum amount of this sales charge must be specified in the contract. A contingent deferred sales charge may impact the amount that a contract holder would receive upon surrender.