Chapter 4 Practice Question Answers
1. Answer: D. FINRA 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. A customer who wishes to purchase a security based on her own research, without a recommendation from an adviser or representative, is not subject to suitability requirements. Thus, the rep could make the trade for this customer. None of the other proposed trades could be made without first fulfilling FINRA’s suitability requirements.
3. Answer: A. Season tickets to a sporting event would likely 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, since it is not frequent or excessive in nature, would be 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: A. Once an MRVP letter is approved by the NAC, the maximum allowable penalty is $2,500.
6. Answer: D. As long as an agent’s broker-dealer has written procedures allowing certain type