FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsEasy
A client is opening a new brokerage account and provides all necessary information, including their name, address, date of birth, Social Security Number, and investment objectives. Which of the following is REQUIRED before the firm can execute the client's first trade?
- AThe client's signature on the new account form.
- BSubmission of the client's initial deposit.
- CApproval of the new account by a principal.
- DVerification of the client's identity through a reliable source.
Show answer & explanationAnswer & explanation
Correct answer: C. Approval of the new account by a principal.
Before the first trade can be executed in a new account, a principal of the firm must review and approve the account. While other steps like client signature, identity verification, and initial deposit are important, principal approval is the specific requirement directly preceding the first trade.
Why the other options are wrong
- A. The client's signature is usually required for account opening but not necessarily the final step before the first trade.
- B. An initial deposit is required to fund the account, but the account must be approved by a principal first.
- D. Verification of identity is part of the Customer Identification Program (CIP) and occurs during account opening, but principal approval is required specifically before the first trade.
New Account Principal Approval
FINRA rules require that a registered principal of the firm review and approve every new account prior to the execution of the first transaction.
- Mandatory step for all new accounts.
- Must occur before the first trade.
- Ensures compliance with firm policies and regulations.
Memory trick: A principal's 'GO' signal is needed before the first trade takes off.