Chapter 4 Practice Question Answers
- 1. Answer: D. Rule 2330 states that member firms that wish to recommend deferred variable annuities must make sure that the customer would benefit from certain features of these investments. The benefits include tax-deferred growth, death or living benefit, and annuitization. While customers are allowed to withdraw funds from a deferred variable annuity at any time, early withdrawals are usually subject to a surrender fee and tax penalties if made before the age of 59 1/2.
- 2. Answer: D. Rule 2830 prohibits all of these gifts from a mutual fund distributor to an associated person; specifically, any cash compensation (unless described in a current prospectus of the investment company), meals and tickets tied to a sales target, and reimbursement for meeting expenses incurred by anyone other than the associated person.
- 3. Answer: A. Season tickets to a sporting event would not be a permitted non-cash compensation arrangement, because it is considered frequent (every game) and extensive. One ticket to a sporting event, however, would be considered appropriate. Reimbursement for a meeting held by an offeror to educate or train associated persons is permitted. Likewise, an occasional meal or entertainment event, not frequent or excessive in nature, is permitted.
- 4. Answer: A. If the representative attends an entertainment event with a customer, it is considered “business entertainment” and is exempt from the $100 gift rule. Two $75 tickets in which a customer does not attend would not be considered business entertainment and would be subject to the $100 gift rule and at a total of $150, exceed the limit. A $125 holiday basket would exceed the $100 gift limit, as would a $150 stroller.
- 5. Answer: B. Minor rule violations are violations that FINRA views as minor and, therefore, not subject to heavy sanctions. If the National Adjudicatory Council accepts the respondent’s letter, the respondent will be fined an a