FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
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. After the registered representative reviews the new account form, what is the next mandatory step before any trades can be executed in the account?
- AHave the client sign a suitability agreement acknowledging their investment objectives.
- BWait for the account to be funded with the initial deposit.
- CSend the client a copy of the new account form for their records.
- DObtain principal approval for the new account.
Show answer & explanationAnswer & explanation
Correct answer: D. Obtain principal approval for the new account.
Before any trades can be executed in a new account, FINRA rules require that a principal (supervisor) review and approve the new account form. This ensures that the account is suitable for the client and that all regulatory requirements have been met.
Why the other options are wrong
- A. Clients typically acknowledge objectives on the new account form, but a separate 'suitability agreement' is not a mandatory pre-trade step.
- B. While funding is necessary for trades, principal approval is a regulatory prerequisite that must occur even before the funding is processed in some firm's workflows, and certainly before any trading occurs.
- C. Sending a copy is good practice but not a mandatory step before executing trades.
New Account Principal Approval
FINRA rules mandate that a principal (supervisor) review and approve all new account forms before the first trade can be executed in the account, ensuring compliance and suitability.
- Mandatory regulatory step
- Must occur before first trade
- Principal reviews for completeness and suitability
- Ensures compliance with firm policies and FINRA rules
Memory trick: No principal, no play; approval is the key to trade today.