Series 9/10 Practice Exam

1. A supervisor is establishing the framework a branch will use to supervise its registered representatives. What document must the firm create and maintain?

• A. Written supervisory procedures reasonably designed to achieve compliance with applicable rules
• B. A marketing plan approved by the board
• C. A list of the firm's most profitable representatives
• D. A schedule of commission rates by product

2. What is the general requirement for a firm to conduct an internal inspection of a branch office where retail business is conducted?

• A. Periodic inspection on a cycle set by the firm's risk assessment, with offices of supervisory jurisdiction inspected at least annually
• B. Inspection only when a customer complaint is received
• C. Inspection once every ten years
• D. No inspection is required if the branch has no complaints

3. A supervisor conducting a branch inspection reviews the branch manager's own customer accounts. What conflict must the firm address?

• A. A person may not supervise their own activities, so the inspection of a producing manager's accounts must be conducted by someone independent
• B. No conflict exists because the manager is a registered principal
• C. The manager may review their own accounts if they document the review
• D. The conflict is resolved by having the manager's assistant perform the review

4. A firm must designate an office as an office of supervisory jurisdiction. Which activity conducted at a location triggers that designation?

• A. Final approval of new accounts, or review and endorsement of customer orders
• B. Any location where a registered representative maintains a desk
• C. Only the firm's headquarters
• D. Only locations with more than twenty registered persons

5. A supervisor is establishing the firm's anti-money laundering program. Which element is required?

• A. A designated compliance officer, written policies, ongoing training, and independent testing
• B. A designated compliance officer only
• C. Annual training with no testing requirement
• D. Reliance on the clearing firm's program with no firm program of its own

6. A supervisor identifies a pattern of transactions with no apparent business purpose in a customer account. What is the appropriate action?

• A. Escalate for suspicious activity evaluation and possible reporting, without alerting the customer
• B. Ask the customer to explain why a report may be filed
• C. Close the account and take no further action
• D. Take no action unless a single transaction exceeds a dollar threshold

7. A supervisor must certify annually regarding the firm's compliance processes. Who is responsible for that certification?

• A. The chief executive officer, based on a process that includes consultation with the chief compliance officer
• B. The chief compliance officer alone
• C. Each branch manager independently
• D. The firm's outside auditor

8. A supervisor learns of a potential violation by a representative. What does a reasonable supervisory response require?

• A. Prompt investigation, appropriate follow-up including remediation and discipline, and documentation of the actions taken
• B. Noting the concern and awaiting a regulatory inquiry
• C. Delegating the entire matter to the representative's own explanation
• D. Terminating the representative without inquiry

9. What defense is generally available to a supervisor charged with failure to supervise?

• A. That the supervisor was unaware of the rule at issue
• B. That the firm had reasonable procedures and systems in place and the supervisor reasonably discharged the duties those procedures assigned
• C. That the representative concealed the conduct skillfully
• D. That the firm was profitable during the period

10. A supervisor is reviewing the firm's obligation to report certain events to the regulator. Which event requires prompt reporting?

• A. The firm or an associated person being subject to a written customer complaint alleging theft or misappropriation of funds
• B. A routine change in a representative's residential address
• C. A customer closing an account for ordinary reasons
• D. A decline in the firm's revenue

11. A supervisor must decide how long to retain the firm's written supervisory procedures after they are superseded.

• A. They must be retained for the period the records rules require, so prior versions remain available for examination
• B. Superseded versions may be discarded immediately
• C. Only the current version must ever be retained
• D. Retention is at the supervisor's discretion

12. A branch representative has accumulated several customer complaints alleging aggressive sales tactics within a short period, though none has yet been adjudicated. What is the appropriate supervisory response to this pattern?

• A. Place the representative under a tailored heightened supervision plan while the concerns are evaluated
• B. Wait for a regulatory finding before altering supervision
• C. Transfer the representative to another branch to give him a fresh start
• D. Reduce the representative's commission payout as the sole response

13. A firm's compliance department is planning its required annual compliance meeting. Which population must participate in this meeting?

• A. Only branch office managers and principals
• B. Only representatives with disciplinary histories
• C. Each registered representative and registered principal of the firm
• D. Only employees who joined the firm during the year

14. A busy sales manager delegates daily trade blotter review to a qualified assistant principal. Months later, problematic trading surfaces that the assistant repeatedly overlooked. How is the delegating manager's responsibility affected?

• A. Delegation transferred all responsibility to the assistant principal
• B. The manager remains responsible because delegation requires reasonable follow-up to ensure the delegated function is being performed
• C. Responsibility shifted to the firm's compliance department automatically
• D. The manager is excused if the assistant held the proper license

15. A branch manager personally services a large book of retail customers while also supervising the branch. Under a sound supervisory structure, who should review this producing manager's own sales activity?

• A. The manager himself, since he holds a principal registration
• B. A junior representative in the same branch
• C. No one, because branch managers are exempt from review
• D. A qualified senior principal who is independent of the producing manager's own production

16. A branch opens a stream of new retail accounts each week. Under the firm's supervisory system, what treatment must each new account receive?

• A. Automatic activation once the customer signs the application
• B. Review only if the first trade exceeds a size threshold
• C. Approval by the customer's own representative
• D. Review and acceptance by a qualified registered principal in accordance with the firm's procedures

17. A representative works primarily from a home office that is not held out to the public and where no customer funds are handled. How should the firm treat this location in its supervisory system?

• A. Ignore it because unregistered locations are outside the supervisory system
• B. It remains subject to the firm's supervision and to periodic, risk-based inspection even though it is not a branch office
• C. Treat it as an office of supervisory jurisdiction automatically
• D. Require the representative to cease all work from home

18. A firm files a suspicious activity report concerning transactions in a customer's account. The customer's attorney later calls the branch demanding to know whether any such report was filed. What may the firm disclose?

• A. The filing may be confirmed once the customer signs a release
• B. A copy may be provided to the attorney upon written request
• C. Nothing — the firm is prohibited from disclosing the existence of the report to the customer or the customer's representatives
• D. Only the filing date may be revealed

19. Under a firm's customer identification program, what must the firm do when a new individual customer opens an account?

• A. Collect identifying information such as name, date of birth, address, and identification number, and verify the customer's identity within a reasonable time
• B. Obtain a credit report before any account may be opened
• C. Photograph the customer at the branch
• D. Verify identity only for accounts that will trade on margin

20. A retail customer asks how she would reach the firm and access her assets if a disaster shut down its main offices. What obligation does the firm have on this subject?

• A. None, because contingency planning is voluntary
• B. The firm must maintain a business continuity plan and disclose a summary of it to customers
• C. The firm need only insure its office buildings
• D. The firm must share its full internal contingency procedures on request

21. A supervisor is reviewing the firm's handling of nonpublic personal information about retail customers. Which combination of obligations applies to the firm?

• A. Customer data may be sold freely once an account is closed
• B. Privacy obligations apply only to institutional accounts
• C. The firm may share customer data with any marketer that signs a confidentiality agreement
• D. The firm must safeguard customer records, deliver required privacy notices, and honor applicable opt-out rights before sharing with nonaffiliated third parties

22. A firm outsources its trade confirmation mailing and parts of its books-and-records processing to a third-party vendor. What is the supervisory consequence of this outsourcing?

• A. The firm remains fully responsible for the outsourced functions and must conduct due diligence and ongoing oversight of the vendor
• B. Regulatory responsibility transfers to the vendor under the service contract
• C. The functions are no longer subject to regulatory requirements
• D. Oversight is required only if the vendor is located overseas

23. A firm's investment banking group is quietly advising an issuer on an unannounced acquisition. Compliance wants to monitor firm and employee trading in the issuer's securities without signaling to anyone that something is pending. Which tool fits this purpose?

• A. Publishing the issuer on the firm's restricted list
• B. Announcing a firmwide trading ban in the security
• C. Placing the issuer on a confidential watch list monitored by compliance
• D. Sending a notice to all customers holding the security

24. Beyond maintaining written supervisory procedures, what does a firm's system of supervisory controls require with respect to those procedures?

• A. Filing the procedures with the regulator for pre-approval each year
• B. Distributing the procedures to customers annually
• C. Testing and verifying that the procedures are reasonably designed, and reporting on the system to senior management
• D. Outsourcing the procedures to an independent consultant

25. At a small branch, the resident principal is also the representative on several large retail accounts, and the daily trade review queue includes his own transactions. How must the firm handle the review of those transactions?

• A. Route his transactions to another qualified principal so he does not review his own activity
• B. Allow self-review as long as it is documented
• C. Exempt his transactions from daily review entirely
• D. Have his sales assistant initial the reviews

26. A branch receives an emailed request, apparently from a longtime customer, to wire a large sum to a third party's overseas account, attaching a signed letter of authorization. Before releasing funds, what should the supervisory procedures require?

• A. Immediate processing because a signed authorization is attached
• B. Processing if the email address matches the one on file
• C. Denial of all third-party wires as a matter of policy
• D. Independent verification of the request's authenticity, such as a callback to the customer at a known number, plus scrutiny for fraud red flags

27. An operations employee notices a customer routing funds through a series of unrelated third-party accounts in a pattern that makes no business sense. To whom should this observation be escalated under the firm's program?

• A. The branch's most senior producing representative
• B. The customer, to request an explanation directly before any internal step
• C. The firm's marketing department
• D. The firm's designated anti-money laundering compliance officer

28. A firm discovers that an intruder accessed a database containing customer names, account numbers, and Social Security numbers. What does a properly supervised response look like?

• A. Activate the incident response plan, contain and assess the breach, and make the notifications the firm's procedures and applicable requirements call for
• B. Delete the affected database to eliminate the evidence
• C. Take no action unless customers complain of losses
• D. Publicly deny that any incident occurred while investigating quietly

29. A large firm cannot manually read every one of the millions of business emails its personnel send each year. Which electronic correspondence review approach can satisfy its supervisory obligations?

• A. Reviewing only emails that customers later complain about
• B. Reading every message in full with no sampling permitted
• C. A documented risk-based approach combining lexicon screening with sampling of message traffic
• D. Reviewing only messages sent by unregistered staff

30. A firm's operations principal reports that a processing failure may have caused customer funds reserved for clients to be used in the firm's own business for several days. What must the supervisor overseeing this area do?

• A. Log the issue for discussion at the next quarterly meeting
• B. Escalate the matter immediately to the firm's financial and compliance leadership so the segregation failure is assessed and corrected without delay
• C. Wait to see whether the shortfall recurs next month
• D. Treat it as immaterial if no customer noticed

31. A growing firm has recently hired a large proportion of its sales force from a firm that was expelled for sales-practice fraud. What supervisory consequence can this hiring pattern trigger?

• A. Nothing, provided each individual passed the qualification exams
• B. An automatic ban on hiring any additional representatives
• C. Loss of the firm's membership without any process
• D. An obligation to adopt special supervisory procedures for its sales activity, including recording of representatives' telephone conversations with customers

32. A firm is arranging the required independent testing of its anti-money laundering program. Who may perform this testing?

• A. The AML compliance officer who runs the program day to day
• B. Any employee who volunteers, regardless of reporting lines
• C. No one, because AML programs are exempt from testing
• D. Qualified internal personnel independent of the AML function, or a qualified outside party

33. During a periodic review, a supervisor notices repeated transfers of funds from an elderly customer's account to an outside account that public records link to the customer's representative. What does this pattern demand?

• A. No action, because customers may send funds wherever they wish
• B. Immediate investigation as a potential misappropriation, with escalation under the firm's procedures
• C. A reminder email to the representative about documentation standards
• D. Closure of the customer's account without inquiry

34. A firm seeks municipal securities business from a city whose treasurer is running for reelection. A managing director asks whether he may make a sizable personal contribution to the treasurer's campaign. What should supervision flag?

• A. Contributions are purely personal and never affect the firm
• B. Only contributions made in the firm's name matter
• C. Pay-to-play restrictions, under which certain personal contributions to officials who can award municipal business may bar the firm from that business for a period
• D. A requirement that contributions be routed through the syndicate desk

35. A firm maintains accounts from which customers can direct payments and withdrawals. Which program addresses the risk that an impostor uses stolen personal information to take over such an account?

• A. An identity theft red flags program that identifies, detects, and responds to warning signs on covered accounts
• B. The firm's advertising review program
• C. The continuing education program
• D. The annual branch inspection calendar alone

36. A customer hands a representative a personal check for an investment, written out to the representative's own name at the representative's suggestion for convenience. What should happen when a supervisor learns of this?

• A. Nothing, if the representative promptly endorses the check to the firm
• B. The practice must be stopped and investigated immediately, because customer payments must never be made payable to the individual representative
• C. The check may be accepted if under a modest amount
• D. The customer should be charged a processing fee

37. A compliance analyst proposes aggregating all customer complaints quarterly by representative, product, and branch. What supervisory value justifies this exercise?

• A. It replaces the need to respond to individual complaints
• B. It exists only to prepare marketing statistics
• C. It lets the firm delete duplicate complaints from its records
• D. Trend analysis can reveal patterns — a representative, product, or office generating disproportionate complaints — that individual complaint handling would miss

38. An assistant branch manager resigns on Friday afternoon. The following week, her login credentials still allow remote access to customer account records. What control failed?

• A. The annual compliance meeting requirement
• B. The firm's advertising approval workflow
• C. Prompt termination of systems access for departed personnel, part of safeguarding customer records
• D. The continuing education deadline schedule

39. A supervisor is reviewing a registered representative's Form U4 disclosure obligations. Within what general timeframe must a reportable event be disclosed by amendment?

• A. Within 30 days of learning of the event
• B. Within 90 days of the event
• C. At the next annual compliance meeting
• D. Only upon request from a regulator

40. A firm is hiring a registered representative from another member. What background investigation obligation applies?

• A. The firm must investigate the applicant's good character, business reputation, qualifications and experience, including obtaining the prior Form U5
• B. No investigation is required if the applicant is already registered elsewhere
• C. The firm may rely entirely on the applicant's own representations
• D. The firm must wait one year before hiring from a competitor

41. A registered representative's registration has been inactive for more than two years. What is the general consequence?

• A. The qualification examination must generally be retaken unless a continuing education program preserves eligibility
• B. The registration reactivates automatically upon rehire at any time
• C. The person may never register again
• D. Only a supervisor's attestation is required

42. A supervisor must ensure registered persons complete continuing education. What are the two components of the program?

• A. A regulatory element administered on a required cycle, and a firm element the member designs annually
• B. A product element and a marketing element
• C. An examination element and an interview element
• D. A single annual seminar hosted by the regulator

43. A supervisor learns that a registered representative has an outside business activity. What must occur?

• A. The representative must provide prior written notice, and the firm must evaluate and record the activity
• B. No action is needed if the activity is unrelated to securities
• C. The activity is prohibited in all circumstances
• D. Notice is required only if the activity generates more than a stated income

44. A supervisor is reviewing whether a representative's proposed private securities transaction may proceed. What distinguishes the required handling when the representative will receive selling compensation?

• A. The firm must approve or disapprove in writing, and an approved transaction is recorded on the firm's books and supervised as if it were firm business
• B. Only notice is required, with no firm decision
• C. Compensated transactions are always prohibited
• D. Approval may be given verbally

45. A supervisor is asked to approve an arrangement in which a representative shares commissions with an unregistered person. What is the general rule?

• A. Sharing transaction-based compensation with an unregistered person is generally prohibited
• B. It is permitted if the unregistered person is a relative
• C. It is permitted if the customer consents in writing
• D. It is permitted if the amount is under a stated threshold

46. A supervisor is asked to approve the firm's participation in a customer's outside investment club that trades securities. What should be evaluated first?

• A. Whether any associated person's involvement constitutes an outside business activity or private securities transaction requiring notice and approval
• B. Only whether the club is profitable
• C. Only the club's membership size
• D. Nothing, since customer activities are outside supervision

47. A firm is onboarding a new operations employee who will handle customer securities certificates. Which screening requirement applies to this associated person?

• A. None, because operations staff are outside all screening rules
• B. Only a standard credit check
• C. Fingerprinting for a criminal-history check, as required for personnel who handle securities, funds, or related books and records
• D. A qualification examination in sales supervision

48. A firm wants to hire an experienced trader who was convicted of a securities-related felony a few years ago. What is the effect of that history on his prospective association with the firm?

• A. It is irrelevant once any criminal sentence is complete
• B. It only requires an additional qualification exam
• C. He is subject to statutory disqualification, and the firm must obtain regulatory approval through an eligibility proceeding before he may associate
• D. It bars him from the industry permanently with no avenue for relief

49. A firm terminates a representative after concluding he falsified customer documents, but the branch manager suggests recording the departure as voluntary to help him find a new job. What is wrong with this suggestion?

• A. Nothing, because termination characterizations are discretionary
• B. It is acceptable if the representative signs a release
• C. The termination filing must disclose the true reason; a sanitized filing misleads regulators and future employers and violates the firm's reporting obligations
• D. The only issue is the timing of the filing

50. An unregistered sales assistant supports two busy representatives. Which set of activities may the assistant lawfully perform?

• A. Recommending only conservative securities to existing clients
• B. Clerical and administrative tasks, but not soliciting business, recommending securities, or accepting customer orders
• C. Prospecting for new accounts by telephone if reading from a script
• D. Accepting unsolicited orders when the representatives are at lunch

51. A firm promotes its top-producing representative to run a branch, where she will approve new accounts and review trades. She holds only representative-level registrations. What must occur before she performs these functions?

• A. Nothing, because branch appointments are internal personnel matters
• B. She needs only a letter of delegation from the compliance department
• C. Her production record can substitute for the supervisory qualification
• D. She must register as a principal and pass the applicable principal qualification requirements to perform supervisory functions

52. A representative fails to complete his required continuing education Regulatory Element within the prescribed window. What is the consequence while the requirement remains unmet?

• A. A fine is imposed but registered activity may continue
• B. His registration becomes CE-inactive, and he may not perform any registered functions or receive related compensation until he completes the training
• C. His registration is permanently revoked
• D. Only new-customer solicitation is restricted

53. A former representative left the industry to run a restaurant, but his old firm keeps his registration active by listing him as an associated person even though he performs no securities functions and has no intention of returning. What is this arrangement?

• A. Prohibited parking of a registration for someone not functioning in the securities business of the firm
• B. A permitted courtesy registration for alumni
• C. Acceptable if he pays his own registration fees
• D. Required to preserve his customers' account history

54. A representative is named as a respondent in a customer-initiated arbitration alleging misrepresentation in the sale of bonds. What obligation does this event create with respect to his registration record?

• A. No obligation until the arbitration concludes
• B. His registration form must be amended to disclose the reportable event within the required timeframe, and the supervisor should confirm the filing occurs
• C. Disclosure is needed only if he loses the case
• D. The event is disclosed only on the firm's own filings, never the individual's

55. A supervisor learns during a routine conversation that one of her representatives filed for personal bankruptcy last month and never mentioned it to the firm. Why does this matter to the supervisory function?

• A. It does not; personal finances are entirely private
• B. It matters only if customers learn about it
• C. Bankruptcy automatically terminates his registration
• D. A personal bankruptcy is a disclosable financial event requiring a registration form amendment, and the supervisor must ensure it is reported

56. A registered representative also serves as an investment adviser representative of an unaffiliated advisory firm, directing securities transactions for advisory clients away from his broker-dealer. How should his firm analyze this arrangement?

• A. As a hobby exempt from any notice requirements
• B. As permissible without review because advisory work is regulated elsewhere
• C. As prohibited under all circumstances
• D. As both an outside business activity and, to the extent securities transactions occur away from the firm, potential private securities transactions requiring notice and firm evaluation

57. A retiring representative asks to keep receiving trail commissions on the book of business she built. Under what condition can the firm continue paying her after she leaves the industry?

• A. Never, because payments to former representatives are always barred
• B. Under a bona fide contract entered into while she was registered, covering continuing commissions on business she generated, with no new business solicited after retirement
• C. Only if she keeps making occasional sales to her old clients
• D. Only if payments are routed through her spouse

58. A firm wants to keep an experienced back-office executive registered as a representative even though her current role involves no sales activity, so she can move between roles flexibly. Is this permissible?

• A. No, registration always requires current sales duties
• B. Only if she requalifies by examination every year
• C. Yes — permissive registration is allowed for such personnel, but the firm must still assign supervision and include her in compliance obligations like continuing education
• D. Yes, and she is exempt from all compliance obligations while non-producing

59. A supervisor discovers that a representative maintains a personal brokerage account at another firm that he never disclosed to his employer. Why do the rules require disclosure of such outside accounts?

• A. So the employer firm can monitor the account for insider trading, front running, and other misconduct that outside trading could conceal
• B. Because representatives may never invest personally
• C. To let the employer charge fees on outside assets
• D. Only to verify the representative's net worth annually

60. An unregistered management trainee, eager to build a future book, begins messaging his social network that he can get friends 'into great investments' at the firm and asks them to contact him to open accounts. What should the supervisor do upon discovering this?

• A. Permit it as long as no trades have occurred yet
• B. Congratulate the initiative and forward the leads to registered staff
• C. Require the trainee to add a disclaimer to future posts
• D. Stop the activity immediately, because soliciting securities business requires registration, and address the violation under firm procedures

61. A registered representative is called to extended active military duty. How do the registration rules treat her status while she serves?

• A. Her registration terminates immediately upon deployment
• B. She must retake all qualification exams upon return regardless of timing
• C. Her firm must file a termination notice within days of deployment
• D. Her registration is placed in a special inactive status that preserves it during the period of active service

62. The sole registered principal of a small branch resigns with two weeks' notice. The firm cannot permanently replace him before he leaves. What must the firm do about supervision of the branch?

• A. Designate another qualified principal — even one located elsewhere — to assume supervisory responsibility so coverage never lapses
• B. Let the branch operate unsupervised until a permanent hire is made
• C. Promote the senior representative into the role immediately without principal qualification
• D. Suspend all branch communications but continue trading normally

63. As part of its supervisory system, a firm requires every registered person to complete an annual attestation covering outside activities, outside accounts, and compliance with firm policies. What supervisory purpose does this attestation serve?

• A. It surfaces undisclosed conflicts and activities, creates accountability, and gives supervisors a periodic checkpoint to update each person's risk profile
• B. It fulfills the firm's obligation to inspect branch offices
• C. It substitutes for all transaction surveillance
• D. It transfers compliance liability to the individual signer

64. During a new hire's onboarding, the firm's background review reveals that the incoming representative made a compromise with creditors two years ago that does not appear on his registration form. What must the supervisor ensure?

• A. Nothing, because pre-hire events belong to the prior firm
• B. The event is noted only in an internal file
• C. That the registration form is amended to disclose the event accurately, and that the omission itself is evaluated
• D. That the representative repays the creditors before starting work

65. A representative deliberately omitted a reportable regulatory action from his registration form for years, believing it would cost him job offers. Beyond the original action itself, what additional consequence can the deliberate omission create?

• A. Willfully failing to disclose material information on the registration form can itself result in statutory disqualification
• B. None, because omissions merge into the underlying event
• C. Only a modest late-filing fee applies
• D. The omission is excused if no customer was harmed

66. One representative spends weekends as a paid salesman at his cousin's car dealership; another invests her own savings in rental property she manages passively with no compensation from anyone else. Which representative must provide the firm prior written notice of an outside business activity?

• A. Only the car salesman, because compensated outside employment requires notice, while passive personal investments generally do not
• B. Both representatives equally
• C. Neither, because weekend activities are exempt
• D. Only the rental property investor

67. A supervisor is designing a review of a branch's discretionary accounts. What review obligation applies?

• A. Frequent review of discretionary accounts by a designated principal to detect excessive trading
• B. Annual review only, since the customer granted authority
• C. No review, because discretion transfers responsibility to the representative
• D. Review only when the customer complains

68. A supervisor reviews a proposed communication that will be distributed to more than 25 retail investors within 30 calendar days. How is this classified?

• A. A retail communication, subject to principal approval before use
• B. Correspondence, subject only to post-use review
• C. An institutional communication, exempt from retail standards
• D. A private placement memorandum

69. A representative wants to send a research-based email to 12 retail clients. What supervisory treatment applies?

• A. It is correspondence, subject to the firm's review and supervision procedures rather than pre-approval
• B. It requires principal pre-approval as a retail communication
• C. It requires filing with the regulator before use
• D. It is exempt from any supervisory review

70. A supervisor reviews a retail communication that projects the future performance of a recommended security. What is the general rule?

• A. Projections of performance are generally prohibited in retail communications, with narrow exceptions
• B. Projections are permitted if labeled as estimates
• C. Projections are permitted if based on past performance
• D. Projections are permitted if a principal approves them

71. A supervisor receives a written customer complaint alleging unauthorized trading. What is the required handling?

• A. Record it in the complaint file, investigate, report it as required, and amend the representative's Form U4 if the criteria are met
• B. Resolve it informally with the customer and discard the letter
• C. Forward it to the representative to answer directly without firm involvement
• D. Take no action unless the customer files an arbitration claim

72. A supervisor is reviewing the firm's obligation to send account statements to customers. What is the general frequency requirement?

• A. At least quarterly, and monthly for accounts with activity during the month
• B. Annually only
• C. Only when the customer requests one
• D. Weekly for all accounts

73. A customer asks that duplicate confirmations and statements be sent to a third party. What supervisory step is required?

• A. Obtain the customer's written instruction and retain it, and consider whether the arrangement signals a conflict
• B. Accept a verbal instruction from the customer
• C. Refuse all third-party duplicates
• D. Send duplicates only to the representative

74. A supervisor must handle a customer's request to transfer their account to another firm. What is the general obligation?

• A. Expedite the transfer and validate or take exception promptly; the transfer may not be delayed to retain the account
• B. Delay the transfer while the representative attempts to retain the customer
• C. Require the customer to close all positions first
• D. Refuse the transfer if the account has an outstanding balance of any size

75. A supervisor is designing controls over the review of correspondence. What approach satisfies the requirement?

• A. A documented risk-based method such as lexicon-driven surveillance and sampling, applied consistently and evidenced
• B. Reading every message before it is sent, with no exceptions
• C. Reviewing only messages the representative flags
• D. Relying on annual attestations from representatives

76. A supervisor is reviewing new account documentation. Which information must be obtained for a retail account before or promptly after opening?

• A. Customer name and residence, whether of legal age, and the names of associated persons responsible for the account, with additional profile information for recommendations
• B. Only the customer's name and telephone number
• C. Only the customer's tax identification number
• D. Only an acknowledgment of the firm's privacy notice

77. A supervisor is reviewing a representative's use of a personal messaging application to discuss securities business with customers. What is the concern?

• A. Business communications on unapproved channels escape the firm's retention and supervision obligations
• B. There is no concern if the content is accurate
• C. There is no concern because personal devices are outside firm authority
• D. The concern is limited to the cost of the application

78. A supervisor reviews a customer's request to designate a trusted contact person. What is the firm's obligation?

• A. Make reasonable efforts to obtain the name and contact information of a trusted contact when opening or updating an account
• B. Require a trusted contact before the account may be opened
• C. Obtain a trusted contact only for customers over a stated age
• D. Treat the trusted contact as holding trading authority

79. A branch wants to distribute a newly drafted brochure promoting the firm's bond ladder strategy to its retail mailing list. What must happen before the brochure is first used?

• A. Nothing, if the brochure contains no performance figures
• B. An appropriately qualified registered principal must approve the brochure before its first use
• C. The drafting representative must simply initial the final version
• D. The brochure must be mailed to the regulator for pre-clearance in all cases

80. A firm prepares a detailed strategy piece that will be sent exclusively to bank trust departments and large pension plans. How does the required supervisory treatment differ from a retail piece?

• A. Institutional communications need not be pre-approved by a principal before use, provided the firm has procedures, training, and surveillance for them and the material is not distributed to retail investors
• B. Institutional communications are entirely outside the firm's supervisory system
• C. Institutional communications require pre-approval while retail pieces do not
• D. There is no regulatory distinction between the audiences

81. A representative maintains a professional social media presence: a static profile page describing his services, plus frequent real-time interactive posts responding to followers. How do the supervision requirements differ between the two?

• A. Both require pre-approval before every individual post
• B. Neither is subject to any supervision because social media is personal
• C. The static profile content is treated like a retail communication requiring principal approval, while interactive real-time posts are supervised after the fact like correspondence
• D. Only posts that mention specific securities are ever reviewed

82. A draft marketing email tells prospects that a recommended strategy 'guarantees steady returns with no possibility of losing money.' What should the reviewing principal do with this language?

• A. Approve it if the strategy has historically been profitable
• B. Reject it, because promising guaranteed returns and the absence of loss is false and misleading for any securities strategy
• C. Approve it with a footnote citing past results
• D. Approve it for existing customers only

83. A proposed retail flyer for a high-yield bond fund lists its income, its experienced management team, and its convenient monthly distributions, with no other substantive content. What defect should the reviewing principal identify?

• A. The flyer is too short to qualify as a communication
• B. Monthly distributions may not be mentioned in retail material
• C. The management team may not be described without their consent
• D. The flyer presents only benefits and omits the material risks, violating the requirement that communications be fair and balanced

84. A firm wants to run introductory advertising about options strategies aimed at prospects who have not yet received the options disclosure document. What constraint applies to this advertising?

• A. It may include projected options returns if labeled hypothetical
• B. It may recommend specific options positions to act on immediately
• C. No options advertising of any kind is ever permitted
• D. It is limited to general, educational descriptions of options, and must tell readers how to obtain the disclosure document before more detailed promotion can be directed at them

85. A representative plans a public retirement-income seminar using slides he built himself and intends to improvise additional product recommendations if the audience seems receptive. What supervisory problems does this plan raise?

• A. None, because live events are exempt from communication rules
• B. The slides are retail communications requiring principal approval before use, and improvised product pitches would bypass the review the content rules require
• C. Only the seminar invitation needs review, not the slides
• D. The seminar is permissible if attendance is free

86. A firm distributes a third-party research report on a stock to its retail customers under cover of the firm's own branding. What responsibility does the firm assume for the report?

• A. None, because the content was created by an outside author
• B. Responsibility only for typographical accuracy
• C. The firm adopts the material it distributes and is responsible for reviewing it and ensuring it meets content standards
• D. Responsibility passes to the customers who read it

87. A supervisor is evaluating whether trading in a customer account is excessive. Which measures are most relevant?

• A. Turnover rate and cost-to-equity ratio, considered against the customer's objectives and resources
• B. The total number of trades alone, with no reference to account size
• C. Whether the account has produced a profit
• D. The representative's ranking among branch producers

88. A supervisor reviews a representative's recommendation of a complex product to a retail customer. What must the suitability analysis include?

• A. A reasonable basis that the product is suitable for some investors and that it is suitable for this particular customer
• B. Only that the customer signed an acknowledgment of risk
• C. Only that the product is registered with the SEC
• D. Only that the customer requested the product

89. A representative recommends that a customer liquidate a mutual fund position held eight months and purchase a similar fund from a different family, incurring a new sales charge. What supervisory concern arises?

• A. Potential switching, which requires scrutiny of the rationale and of the costs imposed on the customer
• B. No concern, since the customer may hold any fund they choose
• C. No concern, provided the new fund has better past performance
• D. The transaction is automatically prohibited

90. A supervisor is reviewing employee trading in a security about which the firm possesses material nonpublic information. Which control addresses this directly?

• A. Maintaining restricted and watch lists with surveillance of employee and proprietary trading
• B. Requiring employees to trade only through the firm
• C. Prohibiting all employee securities ownership
• D. Publishing the firm's deal pipeline internally

91. A supervisor is reviewing markups on principal transactions in thinly traded debt securities. What standard applies?

• A. Markups must be fair and reasonable considering all relevant circumstances, measured from the prevailing market price
• B. Any markup under 5 percent is automatically acceptable
• C. Markups are unregulated in principal transactions
• D. Markups are measured from the firm's own cost in all cases

92. A supervisor discovers that a representative accepted an order from a customer's spouse who holds no trading authority. How should this be handled?

• A. Treat it as an unauthorized transaction, investigate, remediate with the customer, and address the representative's conduct
• B. Ratify the trade if the customer does not object
• C. Take no action because the spouse is family
• D. Have the spouse sign a trading authorization after the fact

93. A supervisor reviews a representative's sale of a variable annuity to a 79-year-old customer with a long surrender period. What is the central concern?

• A. Whether the surrender period and liquidity terms are suitable given the customer's age, time horizon and need for access to funds
• B. Whether the product produced the highest commission available
• C. Whether the insurer has the largest market share
• D. Nothing, since annuities are insurance products outside supervision

94. A representative is selling securities in a private placement to firm customers. What supervisory obligation applies to the offering itself?

• A. The firm must conduct reasonable due diligence on the offering and have a reasonable basis to believe it is suitable for at least some investors
• B. No diligence is required because the offering is exempt from registration
• C. Diligence is required only if a customer asks for it
• D. The issuer's representations may be relied on without independent inquiry

95. A supervisor reviews the firm's obligation regarding gifts given to employees of an institutional customer. What limit generally applies?

• A. 100 dollars per recipient per year for gifts in relation to the business of the recipient's employer, with records maintained
• B. 500 dollars per recipient per year
• C. No limit for institutional customers
• D. No limit provided the gifts are disclosed annually

96. A supervisor is asked whether a customer's stated objective alone establishes suitability for a recommendation. What is the correct view?

• A. No; the objective is one factor alongside financial situation, risk tolerance, time horizon, liquidity needs and experience
• B. Yes; a stated objective is dispositive
• C. Yes, provided the objective is documented in writing
• D. No; only age and net worth matter

97. A supervisor identifies that a representative has been designating trades as unsolicited when the representative in fact recommended them. Why is this significant?

• A. It falsifies firm records and evades suitability review by removing the trade from recommendation-based supervision
• B. It has no supervisory consequence, since the customer approved each trade
• C. It only affects the commission calculation
• D. It is acceptable if the customer later agrees the trade was their own idea

98. A supervisor must decide whether a proposed transaction constitutes a prohibited practice because the firm would trade ahead of a customer's large order. What is this called?

• A. Front running, which is prohibited
• B. Bona fide market making
• C. A permitted proprietary hedge in all circumstances
• D. Best execution

99. A supervisor is reviewing allocations of a hot new issue among customer accounts. What practice is prohibited?

• A. Allocating shares to accounts of restricted persons, or conditioning allocations on the customer's agreement to buy other securities
• B. Allocating pro rata among indicating customers
• C. Declining to allocate to a customer whose profile does not fit the issue
• D. Documenting the allocation methodology in advance

100. A supervisor notices that a customer approved only for covered call writing has begun entering uncovered short call orders. What is the supervisor's obligation?

• A. Block the activity until the account is reviewed and, if appropriate, formally approved for the higher-risk strategy tier
• B. Permit the trades since the account already has options approval
• C. Permit the trades if the customer signs a risk acknowledgment afterward
• D. Permit the trades if the account has sufficient equity