Examkin

Question

Difficulty: HardCustomer Account Types and Ownership Structures

A registered representative at a member broker-dealer is conducting a documentation and compliance review for several new customer accounts, including an UGMA custodial account, a corporate account, a joint Tenants in Common (TIC) account, and a discretionary individual account. Which of the following statements regarding the legal ownership structures and authorization requirements for these customer accounts are CORRECT?

  1. In an UGMA custodial account, all assets must be held under the name of a single custodian for the benefit of one minor, and trading on margin is strictly prohibited.Answer
  2. Establishing a corporate brokerage account requires a corporate resolution passed by the board of directors to identify the officers authorized to execute transactions on the account.Answer
  3. C
    In a joint account registered as Tenants in Common (TIC), if one account owner dies, the deceased owner's share of the account assets automatically transfers to the surviving owner outside of probate.
  4. D
    A customer granting a third party a limited power of attorney (LPOA) allows that third party to execute buy and sell orders as well as withdraw cash and securities from the account.

Answer

The correct statements are that UGMA custodial accounts must be held for a single minor under one custodian without margin trading privileges, and that opening a corporate brokerage account requires a corporate resolution specifying authorized traders.
The statements concerning UGMA custodial accounts and corporate account documentation are correct. UGMA accounts strictly mandate one minor beneficiary and one custodian, prohibiting margin trading. Corporate accounts require a formal corporate resolution passed by the board of directors to authorize designated representatives to trade on the account.

Step-by-Step Solution

1
Evaluate the rules governing UGMA/UTMA custodial accounts.
Confirm that custodial accounts are limited to one custodian and one minor, and margin trading is barred due to fiduciary duty requirements.
UGMA/UTMA rules enforce strict fiduciary standards to safeguard assets held for a minor beneficiary.
2
Analyze documentation required for corporate account setup.
Confirm that a corporate resolution is required to verify board authorization of designated trading officers.
Broker-dealers must verify legal authority from the governing body of a legal entity before accepting orders.
3
Distinguish between Tenants in Common (TIC) and Joint Tenants with Rights of Survivorship (JTWROS).
Identify that automatic transfer to a surviving owner is a feature of JTWROS, whereas TIC assets pass to the decedent's estate.
TIC accounts preserve proportional ownership for the decedent's legal heirs rather than conferring survivorship rights upon co-owners.
4
Distinguish between Limited Power of Attorney (LPOA) and Full Power of Attorney (FPOA).
Determine that trading-only authority is limited, while asset withdrawal authority requires full power of attorney.
LPOA explicitly restricts third parties from disbursing or transferring assets out of the customer's account.

Key Concept

Customer Account Types, Documentation, and Ownership Rules under FINRA/SEC Regulations
Estimated Time:2m 0s
Rate this question

Topics

Customer Account Types and Ownership Structures