Series 6

Exam Alert: FINRA provides guidance on new communication rules

FINRA has provided guidance on its new communication rules. The guidance addresses various questions and details about the new rules. The rules take effect February 4, 2013. Continue reading

On February 4, 2013, the new communication rules described in this alert will take effect. FINRA has provided guidance on the new rules. This guidance provides that:

-educational material provided to other broker-dealers is considered “institutional communication,” not “internal communication”

-a firm’s one-year period of needing to file all public retail communication in 10 business days in advance now begins when the firm’s FINRA membership becomes active; free writing prospectuses may instead be filed within 10 business days of first use

-retail communications regarding “registered structured products” must be filed within 10 days of first use; examples of “registered structured products” include “exchange-traded notes that are not registered under the Investment Company Act but are registered under the Securities Act, registered reverse convertibles, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features”

-disclosure requirements for recommendations do not apply when discussing the past performance of a mutual fund

-a sales script used in a seminar is considered retail communication if the script is used with more than 25 retail investors in a 30-day period – this means that the firm must approve the script before use

-a firm’s name must be disclosed in scripted public appearances (both in the script and on any slide presentations or brochures used)

The guidance also addresses transitional issues for implementing the new rules.

Source: Regulatory Notice 13-03: FINRA Provides Guidance on New Rules Governing Communications With the Public

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99.

Exam Alert: SEC requires broker-dealers to search for lost holders of securities

On December 21, 2012, the SEC approved new rules that require broker-dealers to conduct searches for holders of securities with whom they have lost contact. The new rules also requires “paying agents” (certain issuers, broker-dealers, transfer agents, and other entities) to notify certain persons in writing when the paying agent has sent the person a check that has not been negotiated. Continue reading

On December 21, 2012, the SEC approved new rules that require broker-dealers to conduct searches for holders of securities with whom they have lost contact. Currently, transfer agents are required to conduct such searches – the rule will expand the requirement to broker-dealers.

The new rules also requires “paying agents” (certain issuers, broker-dealers, transfer agents, and other entities) to notify certain persons in writing when the paying agent has sent the person a check that has not been negotiated. This notification is not required if the value of the check is less than $25.

The new rules will become effective 60 days after the date of publication of the release in the Federal Register.

Source: SEC Release 2012-277: SEC Approves New Rules Regarding Lost Holders of Securities

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, and Series 99.

Study Question of the Week: December 20, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 82):

A Oregon hazelnut farm exports all of their hazelnuts to China and a Chinese trampoline manufacturer exports all of their trampolines to the U.S. Which of the following is true?

Answers:

A: Both the hazelnut farm and the Chinese trampoline manufacturer prefer a strong dollar

B: Both the hazelnut farm and the Chinese trampoline manufacturer prefer a weak dollar

C: The hazelnut farm prefers a strong dollar and the Chinese trampoline manufacturer prefers a weak dollar

D: The hazelnut farm prefers a weak dollar and the Chinese trampoline manufacturer prefers a strong dollar

Correct Answer: D

Rationale: To get this kind of question correct, think about where the goods are being sold. Groups that sell goods in the U.S. prefer a strong dollar. Foreign exporters and U.S. importers both sell goods in the U.S. so they prefer a strong dollar. In contrast, groups that sell goods in a foreign country prefer a weak dollar. Foreign importers and U.S. exporters sell goods in a foreign country so they prefer a weak dollar. The hazelnut farm is selling their goods outside of the U.S. so they prefer a weak dollar. The Chinese trampoline manufacturer is selling their goods in the U.S. so they prefer a strong dollar.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA provides additional guidance on suitability rule

FINRA has provided additional guidance on its suitability rule. The new guidance redefines the terms “customer” and “investment strategy” and clarifies when the rule applies to recommendations involving non-security investments. FINRA has also created a webpage that addresses suitability issues. Continue reading

FINRA has provided additional guidance on its suitability rule (original guidance covered here). The new guidance redefines the terms “customer” and “investment strategy” and clarifies when the rule applies to recommendations involving non-security investments. FINRA has also created a webpage that addresses suitability issues.

The guidance states that “in general, for the purposes of the suitability rule, the term customer includes a person who is not a broker or dealer who opens a brokerage account at a broker-dealer or purchases a security for which the broker-dealer receives or will receive, directly or indirectly, compensation even though the security is held at an issuer, the issuer’s affiliate or a custodial agent (e.g., ‘direct application’ business, ‘investment program’ securities, or private placements), or using another similar arrangement.” The suitability rule only applies to a recommendation made to a potential investor if the potential investor becomes a customer.

An “investment strategy” refers to a recommendation to invest in specific types of securities. However, a recommendation to invest in “equity” or “fixed income” securities would not generally be considered an investment strategy – the type of security must be more specific than those categories. An explicit recommendation to hold securities would be considered an investment strategy, as would a recommendation to continue an existing investment strategy.

The suitability rule only applies to non-security investments to the extent that the non-security investment is involved with a securities transaction (e.g. recommending that a customer sell a non-security investment to buy securities, or vice versa). The notice also provides comments on broker-dealer supervisory obligations regarding investment strategies that involve both securities and non-security investments.

Source: FINRA Regulatory Notice 12-55: Guidance on FINRA’s Suitability Rule

This alert applies to the Series 6, Series 79, Series 62, Series 24, Series 26, Series 55, Series 99, Series 7, and Series 82.

Study Question of the Week: November 8, 2012 Edition

This week’s exam study question from the Solomon Online Exam Simulator question database is now available. This week’s exam question is relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 65, Series 66, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section below.

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 65, Series 66, and Series 82):

A couple has just had a baby and they want to start saving for college. What option does NOT offer the opportunity for their investment to grow free of federal taxes?

Answers:

A: Education Savings Account

B: UGMA/UTMA Account

C: 529 College Savings Plan

D: 529 Prepaid Tuition Plan

ANSWER & RATIONALE

Correct Answer: B

Rationale: Unlike the other options, UGMA/UTMA (Uniform Gifts to Minors Act/Uniform Transfers to Minors Act) accounts are subject to federal income and capital gains taxes.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

ANSWER – Study Question of the Week: October 23, 2012 Edition

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale. Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99. Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99):

Which of the following is true of UGMA/UTMA accounts?

I. Only family members may contribute to a UGMA/UTMA
II. Annual contribution limit of $13,000 per year, per child
III. Assets may only be used for education expenses
IV. Earnings reported under adult custodian’s tax identification

Answers:

A: I, II

B: III, IV

C: II, III

D: None of the choices listed

Correct Answer: D

Rationale: Anyone may contribute to a Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) account and there are no contribution limits. Assets in UGMA/UTMA accounts may be used for any purpose and earnings are reported on the minor’s social security account, not the custodian’s.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: October 23, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available (Relevant to Series 6, 7, 65, 66, 24, 26 and 99). Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Happy studying!

Question (Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99):

Which of the following is true of UGMA/UTMA accounts?

Answers:

A: I, II

B: III, IV

C: II, III

D: None of the choices listed

Exam Alert: SEC identifies concerns, good practices regarding nonpublic information

On September 27, 2012, the SEC identified situations ripe for abuse of inside information at broker-dealers so that industry professionals will know what to avoid. The SEC also provided examples of good policies put in place at some broker-dealers that minimize the risk of insider trading violations. Continue reading

Potentially problematic situations include the following:

-Lots of informal, undocumented interaction between departments with MNPI (material nonpublic information) and sales/trading departments that could abuse that information

-Having senior executives that supervise multiple departments and could spread MNPI from one department to another without oversight, due to being “above” the information barriers

-Lack of review of situations where MNPI is provided from one department to another for business purposes

-Lack of review of trading in customer and affiliate accounts

-Lack of review of situations where MNPI is received from an outside source

Effective practices included:

-Having a system that distinguishes MNPI based on source or type of information (possibly even having individualized reports specific to certain pieces of information)

-Expanded review of potential misuse of MNPI, including looking at trading in swaps, loans, components of pooled securities (such as UITs and ETFs), warrants, and bond options

-Monitoring access to electronic sources of MNPI to see which employees access the information

-Monitoring access levels granted via key cards and computer networks to ensure that only authorized personnel have access to restricted areas

Source: SEC Issues Report on Brokerage Firms’ Handling of Confidential Information (SEC Release 2012-200)

This alert applies to the Series 24, Series 26, Series 6, Series 7, Series 55, Series 62, Series 79, Series 82, Series 99, Series 63, Series 65, Series 66, and Series 56.

Exam Alert: Department of Labor requires additional disclosure to 401(k)-type plan participants

The U.S. Labor Department has released a final rule that will require the administrators of 401(k)-type retirement plans to provide additional information to plan participants. The rule states that investment of plan assets is a fiduciary act governed by fiduciary standards. The rule requires that if a plan gives investment responsibilities to its participants, that the plan administrator must regularly inform them of those responsibilities. The plan administrator must also provide specified plan-related information and investment-related information, as detailed below. Continue reading

Plan-related information consists of three categories:

-general plan information (structure and mechanics of the plan),

-administrative expense information (fees deducted from all accounts), and

-individual expense information (fees charged for individual actions).

This information must be given to participants on or before the date they can first direct their investments, and annually thereafter. Participants must also receive quarterly statements showing the actual charges for plan-related fees and expenses and a description of services provided.

Investment-related information includes –

For investments with a fixed rate of return:

-the annual rate of return

-the term of the investment

For investments that do not have a fixed rate of return:

-1-, 5-, and 10-year returns

-name and returns of an appropriate broad-based securities market index over the same 1-, 5-, and 10-year periods

-total annual operating expenses as a percentage of assets and as a dollar amount per $1000 invested

For all investments:

-any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment

-an address for a website that provides current, specific, additional information

-a general glossary of terms

Investment-related information must be given to participants on or before the date they can first direct their investments, and annually thereafter. It must be provided in a comparative format, such as a chart.

Additional stipulations:

-The rule protects the plan administrator from liability for the completeness and accuracy of information given to participants if the administrator reasonably and in good faith relied on information given by a service provider.

-A participant must be given any materials the plan receives for that participant’s investments regarding voting, tender, or similar rights.

-Upon request, the plan administrator must give disclosure documents associated with an investment (prospectuses, financial reports, statements of valuation and of assets held).

The initial annual disclosure required under the rule must happen by August 30, 2012. The initial quarterly disclosure required under the rule must happen by November 14, 2012.

Source: Final Rule to Improve Transparency of Fees and Expenses to Workers in 401(k)-Type Retirement Plans (DOL Fact Sheet)

This alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, Series 65, Series 66, and Series 82 – these exams address ERISA considerations.

Exam Alert: Test takers with limited English proficiency must submit a form to FINRA to receive extra time

Effective September 1, 2012, FINRA will implement a new policy for providing additional time to people with limited English proficiency on qualification exams and on Regulatory Element Continuing Education sessions. The new policy requires that people requesting additional time must submit an LEP Request Form to FINRA and receive confirmation from FINRA that the form has been processed before scheduling the exam or Continuing Education session. Continue reading

This new policy replaces the current policy covering people who speak English as a second language. Test center personnel will no longer be authorized to provide additional time to people who speak English as a second language or to people with limited English proficiency.

A person is considered to have “limited English proficiency” if they “(1) do not speak English as their primary language; and (2) have limited ability to read, speak, write and understand the English language.”

Further details on the new policy may be found on FINRA’s website.

Sources:

FINRA Information Notice 8/1/2012

Candidates with Limited English Proficiency (FINRA website)

This alert applies to all FINRA-administered exams. This includes (among others) the Series 24, Series 26, Series 6, Series 7, Series 55, Series 62, Series 79, Series 82, Series 99, Series 56, Series 63, Series 65, and Series 66.