Series 26 Practice Exam.
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1. A principal reviewing the firm's designated error account notices a pattern where profitable trades are frequently moved into a representative's personal account while losing trades remain in customer accounts, all processed as after-the-fact corrections. What should this pattern prompt?

• A. A conclusion that no further review is needed once each trade ticket is signed
• B. Approval of the pattern as long as the representative documents each correction
• C. No concern, because error accounts exist specifically to allow flexible trade reallocation
• D. A closer investigation into potential misuse of the error account and trade allocation practices, since this pattern suggests possible favoritism rather than genuine corrections

2. A principal at a broker-dealer is reviewing a candidate's Form U4 amendment disclosing a recent customer complaint alleging unsuitable variable annuity recommendations. Which action reflects the principal's registration-oversight responsibility?

• A. Delete the disclosure if the customer later withdraws the complaint
• B. Wait until the complaint is resolved before updating any records
• C. Ensure the amendment is filed within the required timeframe and evaluate whether the disclosure affects the individual's continued registration status
• D. Forward the complaint directly to the customer's attorney for resolution

3. A firm is determining whether a location where producing managers approve new accounts and review order tickets must be designated as an Office of Supervisory Jurisdiction. Which factor is most relevant to that determination?

• A. Whether the office employs more than a fixed number of administrative staff
• B. Whether the office has a public-facing sign
• C. Whether the office generates the highest revenue in the region
• D. Whether supervisory functions such as account approval and order review are performed there

4. A firm's compliance department is designing its continuing education program and distinguishing between content mandated by the regulator for all registered persons and content the firm itself develops based on its business. Which distinction correctly describes this split?

• A. Only newly registered persons complete either component
• B. The regulator-mandated component addresses industry-wide topics, while the firm-specific component is tailored to the firm's products, services, and the roles of its personnel
• C. The firm-specific component replaces the regulator-mandated component once a registered person has significant experience
• D. Both components are identical and simply repeated annually

5. During onboarding, a new hire discloses that she also works part-time managing rental properties for a family member and receives compensation for that work. What should the principal do with this information?

• A. Approve it without review since it is a family arrangement
• B. Evaluate the activity under the firm's outside business activity procedures and determine whether approval, conditions, or denial is appropriate
• C. Ignore it because real estate is unrelated to securities
• D. Automatically deny registration because outside compensation is prohibited

6. A representative recommends that a customer surrender an existing variable annuity with several years remaining on its surrender charge schedule to purchase a new variable annuity with similar features and a fresh surrender period. As the reviewing principal, what is the primary suitability concern?

• A. Whether the new contract provides a genuine, documented benefit to the customer that outweighs the cost of surrender charges and restarting the surrender period
• B. Whether the customer signed the application within the required timeframe
• C. The concern is eliminated because both products are variable annuities
• D. Whether the representative earned a higher commission on the new sale

7. A customer holding mutual fund shares in the same fund family across two separate accounts wants to know whether both holdings can be combined to reach a lower sales charge on a new purchase. Which concept applies?

• A. Rights of accumulation, which allow combining the value of existing holdings within the fund family to determine the applicable sales charge
• B. Letter of intent, because it always requires a future purchase commitment
• C. Breakpoint sale, because the customer is combining accounts
• D. Dollar-cost averaging, because purchases occur over time

8. A principal reviewing trading activity notices a representative repeatedly moving the same customer's money between similar mutual funds within the same investment objective, generating new sales charges each time with no apparent change in the customer's needs. What should the principal investigate?

• A. Whether the pattern reflects unsuitable and excessive switching driven by generating additional sales charges rather than the customer's investment objectives
• B. Whether the funds involved had different portfolio managers
• C. Whether the representative's supervisor was copied on trade confirmations
• D. Whether the customer signed each switch form, which by itself resolves the concern

9. Before approving a variable annuity application, a principal reviews the customer's profile. Which combination of factors is most directly relevant to the suitability determination?

• A. The customer's preferred color scheme for account statements
• B. Liquidity needs, time horizon, tax status, and the customer's ability to bear the surrender charges and investment risk of the product
• C. Only the customer's age, without regard to other financial circumstances
• D. Only the size of the initial premium payment

10. A representative begins placing trades in a customer's account based on his own judgment about timing and price without contacting the customer for each transaction, and no written authorization or principal approval exists for this arrangement. What is the compliance issue?

• A. The arrangement is permitted informally between representative and customer
• B. Discretionary trading is being exercised without the required written authorization and principal approval of the account
• C. The issue only arises if the customer later complains
• D. There is no issue as long as the trades are profitable

11. A representative wants to distribute a flyer highlighting a mutual fund's past performance to prospective customers at a community event. What must occur before the flyer is used?

• A. A principal must review and approve the sales literature before its use with the public
• B. Approval is required only if the flyer will be distributed to more than a set number of people
• C. Only the fund company's marketing department needs to approve it
• D. Nothing, as long as the performance figures are accurate

12. A principal is establishing procedures for handling customer complaints alleging unsuitable sales of variable products. Which element should the procedures include?

• A. Waiting for a regulator inquiry before investigating
• B. Forwarding all complaints directly to arbitration without internal review
• C. A documented process for logging, investigating, and responding to the complaint, with escalation to compliance
• D. Automatically siding with the representative to avoid reputational harm

13. A firm's wholesaling division sponsors a sales contest that awards representatives extra compensation specifically for selling one particular variable annuity over comparable alternatives on the firm's product shelf. As the reviewing principal, what is the primary concern?

• A. The contest structure may create a conflict of interest that improperly incentivizes recommending one product over suitable alternatives
• B. The concern is resolved if the contest prizes are non-cash items
• C. There is no concern as long as the contest is disclosed to the sales force only
• D. The concern only applies to contests lasting longer than one quarter

14. A representative recommends an out-of-state 529 college savings plan to a customer without discussing whether the customer's home state offers a state income tax deduction for contributions to its own plan. What suitability issue does this raise?

• A. The recommendation may be unsuitable if it overlooks a material, quantifiable home-state tax benefit without a countervailing reason for the out-of-state choice
• B. The issue is resolved automatically because 529 plans are federally tax-advantaged
• C. The issue only matters if the customer itemizes deductions
• D. None, because all 529 plans offer identical benefits regardless of state

15. A representative recommends that a customer roll proceeds from a maturing unit investment trust into a new UIT series, generating a new sales charge, without evaluating whether comparable investment exposure could be maintained more cost-effectively. What should the principal assess?

• A. Whether the repeated sales charges from successive rollovers are justified by the customer's ongoing objectives rather than routine, cost-generating repetition
• B. Whether the new UIT has a different sponsor
• C. Whether the rollover occurred within one business day of maturity
• D. Nothing, since UIT rollovers are pre-approved by the sponsor's prospectus

16. A customer holding mutual fund Class B shares nearing the end of the contingent deferred sales charge period is being encouraged by a representative to exchange into Class A shares of the same fund family, which carries a new front-end sales charge. What should the principal evaluate?

• A. Only whether the fund family offers breakpoints on Class A shares
• B. Only whether the customer initiated the exchange request in writing
• C. Nothing, because exchanges within the same fund family are never subject to review
• D. Whether the exchange provides a genuine benefit, such as lower ongoing expenses, that justifies the new front-end charge given how close the Class B shares were to converting or losing their surrender charge

17. A representative recommends a variable annuity with an expensive guaranteed lifetime withdrawal benefit rider to a customer who has expressed no interest in guaranteed income and has substantial other guaranteed retirement income sources. What is the suitability concern the principal should raise?

• A. The added rider cost may not be justified given the customer's stated preferences and existing guaranteed income, making the recommendation potentially unsuitable
• B. The concern only applies if the customer is under a certain age
• C. There is no concern because riders always improve the contract's value
• D. The concern is resolved because riders are optional and can be dropped later

18. A representative recommends moving a customer's buy-and-hold mutual fund portfolio, which generates little trading activity, from a commission-based structure into an ongoing asset-based fee account. What should the principal consider in evaluating this recommendation?

• A. Nothing, since fee-based accounts are always preferable to commission accounts
• B. Whether the ongoing fee is reasonable in light of the customer's actual trading activity and the services provided, since a low-activity account may cost the customer more under a fee arrangement
• C. Only whether the customer signed the new account agreement
• D. Only whether the fee account offers more investment choices

19. A firm is deciding which variable annuity products from various insurers to make available to its representatives. What is a reasonable due diligence consideration for the principal overseeing the product shelf?

• A. Evaluating the products' features, costs, and the insurer's financial strength relative to the customer base the firm serves
• B. Selecting products solely based on which insurer pays the highest revenue-sharing to the firm
• C. Including every product any insurer offers to maximize representative flexibility
• D. Deferring entirely to individual representatives' personal preferences

20. A representative begins using a personal social media account to post about specific variable annuity products and to solicit new customers, without firm review of the content. What supervisory gap does this create?

• A. None, as long as the representative avoids naming specific product features
• B. Business-related social media content promoting specific products is a form of communication with the public that requires firm supervision and, where applicable, principal approval before use
• C. A gap only if a regulator specifically requests the posts
• D. None, because personal accounts are outside the firm's supervisory responsibility

21. A principal notices that a representative directs frequent, rapid transfers among a variable annuity's investment subaccounts for numerous customers, unrelated to any documented change in objectives. What practice should the principal investigate?

• A. Whether the pattern reflects market-timing or excessive trading among subaccounts that could harm long-term investors and violate the contract's transfer policies
• B. Nothing, since subaccount transfers within a variable annuity are usually free of charge
• C. Whether the annuity issuer profits from the frequency of transfers
• D. Whether the transfers were requested by phone or in writing

22. A firm's compliance officer is preparing the annual review of the firm's written supervisory procedures. What should this review confirm?

• A. That the procedures have not changed since the firm's founding
• B. That procedures are reviewed only when a new product line launches
• C. That the review is optional if no examinations occurred that year
• D. That the procedures remain reasonably designed to achieve compliance with applicable requirements given the firm's current business, and are updated where gaps are found

23. A compliance principal reviewing account activity notices a customer making a series of deposits each just under a threshold that would normally trigger currency reporting, followed by prompt transfers out of the account. What should the principal do?

• A. Treat the pattern as a potential red flag for structuring and evaluate whether a suspicious activity report is warranted
• B. Close the account immediately without any internal review
• C. Simply notify the customer that the pattern was noticed
• D. Take no action since each individual deposit was below any reporting threshold

24. During a significant business disruption affecting the firm's primary systems, a customer needs to access funds held in her account. What should the firm's business continuity planning have addressed?

• A. Only employees, not customers, need continuity provisions
• B. Access to funds during a disruption is not something a continuity plan needs to cover
• C. Customers should simply wait until systems are fully restored with no interim options
• D. Alternative means for customers to access funds and securities, or at least obtain information, during the disruption

25. A compliance officer is establishing retention practices for customer account records and business correspondence. Which principle should guide the retention schedule?

• A. Electronic communications are exempt from retention requirements
• B. Records may be discarded once an account is closed, regardless of any retention period
• C. Records and communications related to the customer relationship should be retained for the required period in an accessible, unalterable format
• D. Only records related to profitable trades need to be retained

26. A principal reviewing back-office operations confirms that customer free credit balances are held separately from the firm's own operating funds. Why is this segregation important?

• A. It is required only when the firm holds more than one type of security
• B. It has no real importance beyond bookkeeping convenience
• C. It is required only for institutional customer accounts
• D. It protects customer assets from being used for the firm's own business purposes or exposed to the firm's creditors

27. Each year, registered personnel must attend an interview or meeting covering compliance matters relevant to their activities. What does this yearly requirement chiefly accomplish?

• A. To discuss compliance and supervisory topics relevant to the representatives' activities, reinforcing the firm's supervisory program
• B. To celebrate the firm's top producers for the year
• C. To satisfy a purely social networking requirement among branches
• D. To announce new compensation grids exclusively

28. A new account agreement includes a clause requiring that most disputes between the customer and the firm be resolved through arbitration rather than court litigation. What should the principal confirm about this clause?

• A. That the clause is unenforceable and should be removed
• B. That the clause is properly disclosed to the customer and drafted consistent with applicable rules governing customer arbitration agreements
• C. That the clause applies only to disputes exceeding a large dollar amount
• D. That the clause allows the firm, but not the customer, to choose arbitration

29. A compliance principal notices a customer's account regularly receives incoming wire transfers from unrelated third parties, followed almost immediately by outgoing wires to different unrelated parties, with no apparent business purpose. What should this pattern prompt?

• A. Enhanced due diligence and consideration of whether the pattern warrants a suspicious activity report, given the lack of apparent business purpose
• B. No action, because wire transfers between different parties are common and unremarkable
• C. Immediate account closure without any documented review
• D. A request that the customer simply explain the transfers over the phone, with no further documentation

30. A firm's principal owner wants to make a subordinated loan to the firm to temporarily increase its regulatory capital before a large anticipated expense. What must occur before this loan can be counted as capital for net capital purposes?

• A. The loan only needs to be disclosed on the next annual audit
• B. The loan automatically counts as capital as soon as funds are deposited
• C. The loan agreement must meet specific structural requirements and receive the required prior approval before it can be treated as capital
• D. No special treatment is needed since it is an internal loan from the owner

31. A firm's compliance department maintains a program to detect and respond to signs that a customer's identity may have been stolen and used to open or access an account. What is a key feature such a program should include?

• A. A rule that only law enforcement, not the firm, can identify red flags
• B. A policy of ignoring address-change requests entirely
• C. Reliance solely on customer self-reporting of identity theft
• D. Defined red flags, such as suspicious account activity or mismatched identifying information, along with a documented response procedure when those red flags are detected

32. A customer contacts the firm noting that her account statement shows a mutual fund position she does not recall purchasing. What should the principal's review process include?

• A. Advising the customer that statements are never inaccurate
• B. Ignoring the discrepancy unless the customer files a formal written complaint
• C. Assuming a system error and simply removing the position from future statements
• D. Investigating the discrepancy by reviewing order tickets, confirmations, and account history to determine the cause and correct any error

33. A firm outsources its document imaging and storage function to a third-party vendor that will handle customer account records containing personal information. What should the firm's oversight of this arrangement include?

• A. Oversight only if the vendor is located outside the country
• B. A one-time review at contract signing with no further monitoring required
• C. Due diligence on the vendor's security and controls, along with an ongoing obligation to supervise the vendor's handling of customer records
• D. No oversight, since responsibility shifts entirely to the vendor once the contract is signed

34. During a background check, a principal discovers that a job candidate was permanently barred by a securities regulator in a prior enforcement action. What is the most appropriate registration determination?

• A. The firm may register the candidate after a probationary period of internal supervision
• B. The candidate is statutorily disqualified and generally cannot be registered absent regulatory relief
• C. The candidate may register in a non-supervisory role only
• D. The candidate may register immediately since the bar occurred at a different firm

35. A broker-dealer is onboarding a new associated person who will have access to customer funds and securities. Before the individual begins covered functions, the firm's registration process should include which step?

• A. Waiting until the individual passes all qualification exams before any background screening
• B. Relying solely on the candidate's self-reported employment history
• C. Completion of a fingerprint-based background check as part of the registration process
• D. Deferring the background check until the first customer complaint is received

36. A sales manager begins approving new account applications and reviewing registered representatives' correspondence before her principal registration has been approved. What is the compliance concern?

• A. She is performing supervisory functions before being properly registered as a principal
• B. The concern only applies if a customer complaint results from her review
• C. There is no concern because principal duties may be performed while an application is pending
• D. The concern is resolved as long as she passes the principal exam within the same year

37. A registered representative is terminated, and the branch manager drafts the termination filing describing the reason for departure. What principle should guide the language used in that filing?

• A. The filing should use vague language to avoid any possible dispute
• B. The filing should describe the reason in the most negative terms permitted to protect the firm
• C. The filing may omit the true reason if the representative requests it
• D. The filing should be accurate, complete, and specific enough to describe the true circumstances without unnecessary defamatory characterizations

38. A firm wants to promote an experienced sales assistant directly into a principal supervisory role without the individual ever having held a registered representative registration. What is the primary registration concern?

• A. The concern is resolved by having the individual co-sign forms with an existing principal indefinitely
• B. There is no concern since supervisory roles do not require prior registered representative experience
• C. Principal qualification generally presumes relevant registered representative experience and the applicable principal-level qualification exam, which the individual has not completed
• D. The concern only applies to firms with more than one branch office

39. A customer places an order for mutual fund Class A shares just below the dollar amount needed to reach the next sales-charge breakpoint, and the representative does not mention that a slightly larger purchase would qualify for a reduced sales charge. What sales practice violation has likely occurred?

• A. Churning, because multiple mutual fund purchases occurred
• B. A breakpoint sale, because the customer was not informed of an available sales-charge reduction reasonably close to the purchase amount
• C. A violation only if the fund company itself failed to disclose the breakpoint schedule
• D. No violation, because the customer chose the exact dollar amount

40. A representative encourages a customer to sign a letter of intent and backdate it to a date earlier than the actual purchases were made, in order to qualify retroactively for a breakpoint discount that would not otherwise apply. As the supervising principal, how should this be characterized?

• A. Permissible as long as the fund company approves the backdated form
• B. A falsification of records that should be escalated and not permitted, regardless of the favorable pricing outcome for the customer
• C. An acceptable customer accommodation since it benefits the customer
• D. A minor administrative matter not requiring escalation

41. A wholesaler for a variable annuity issuer offers a registered representative an expensive personal gift unrelated to any specific business entertainment, in exchange for favoring the wholesaler's product on a sales desk. As the reviewing principal, what is the concern?

• A. There is no concern because gifts from product sponsors are always permitted
• B. The gift may exceed permissible non-cash compensation and gift limits designed to prevent conflicts of interest in product recommendations
• C. The concern is resolved if the gift is reported on the representative's tax return
• D. The concern only exists if the representative discloses the gift publicly

42. A representative reports that an elderly customer's adult child, who is not authorized on the account, has begun directing the representative to liquidate positions and send proceeds to the child's personal account. What should the principal do?

• A. Simply note the request in the file without further action
• B. Take no action unless the customer personally calls to object
• C. Comply with the instructions since the child claims to be helping the parent
• D. Treat this as a potential financial exploitation red flag, decline to act on instructions from an unauthorized party, and escalate per the firm's senior investor protection procedures

43. A principal is designing supervisory procedures for reviewing registered representatives' business-related electronic messages with customers. Which approach best reflects sound supervisory practice?

• A. Establishing a risk-based review process with defined retention and documented review of correspondence, escalating items of concern
• B. Reviewing only messages that customers forward voluntarily
• C. Reviewing communications once a year regardless of volume or risk
• D. Allowing representatives to self-certify that their own messages were compliant

44. A representative recommends that a customer surrender an existing variable life insurance policy to purchase a new one with a lower current cost of insurance, without discussing the loss of the original policy's incontestability period or any surrender charges on the old policy. What should the reviewing principal require?

• A. A comparison documenting the costs, benefits, and risks lost and gained by the replacement, including surrender charges and the restarted incontestability period
• B. Approval without further inquiry since a lower cost of insurance is always beneficial
• C. Denial of the transaction outright without discussing it with the representative
• D. No additional documentation, since life insurance replacements are not subject to suitability review

45. A firm's telemarketing unit is making unsolicited calls to prospective customers to promote variable annuities. Which supervisory control should the principal ensure is in place?

• A. A control that only tracks the number of calls made per day
• B. No control is needed since variable annuities are exempt from telemarketing rules
• C. A process to screen against do-not-call registrations and maintain required calling records and time restrictions
• D. A control limited to recording the calls for training purposes only

46. Which element belongs in the written heightened-supervision plan a principal designs for a representative whose record shows repeated complaints plus a recent disciplinary action?

• A. More frequent, documented review of the representative's transactions and correspondence with defined escalation triggers
• B. Reduced review frequency to avoid appearing punitive
• C. Complete removal of any supervisory review since the discipline is already resolved
• D. A plan that applies only to the representative's largest accounts

47. A customer contacts the firm alleging that trades appeared in her account that she never authorized. As the principal investigating the complaint, what is an appropriate first step?

• A. Direct the representative to contact the customer privately to resolve it before any documentation is created
• B. Review order tickets, recorded lines if available, account activity, and any discretionary authorization on file, and document the investigation
• C. Reverse all trades in the account immediately without investigation
• D. Dismiss the complaint if the representative denies the allegation

48. A representative submits a new account application for a trust seeking to purchase a variable annuity, listing the trustee as the account owner. Before approving the account, the principal should confirm which item?

• A. That trust documentation supports the trustee's authority to enter the transaction and that the product is appropriate given the trust's purpose and terms
• B. Nothing beyond the trustee's signature on the application
• C. The personal investment objectives of the trust's beneficiaries only
• D. That the trust was established more than a specific number of years ago

49. A principal learns that a representative has been recommending that customers invest directly with him in a real estate venture he personally manages, outside of any firm-approved product, and receiving compensation for those investments. What should the principal do?

• A. Allow it to continue as long as customers sign a waiver releasing the firm from liability
• B. Treat this as a potential private securities transaction requiring firm notice, review, and possible recordkeeping and supervision even though it occurs away from the firm's approved products
• C. Take no action unless a customer specifically complains about losses
• D. Ignore it because the investment is real estate rather than a security

50. A compliance department is designing its branch office inspection program covering multiple locations with varying risk profiles. Which approach best reflects sound supervisory design?

• A. Announcing all inspections well in advance so branches can prepare
• B. Inspecting every branch on the exact same fixed schedule regardless of risk factors
• C. Limiting inspections to branches that have never had a customer complaint
• D. A risk-based inspection cycle that considers factors such as products sold, supervisory history, and complaint volume, including some unannounced inspections

51. A new customer opens an account to purchase mutual fund shares. Under the firm's anti-money laundering program, what must occur before the account can be considered properly opened?

• A. Identity verification applies only to accounts funded by wire transfer
• B. The firm must implement its customer identification program, verifying the customer's identity through documentary or non-documentary means
• C. Identity verification may be completed at any point within the following year
• D. Verification of identity is optional if the initial deposit is small

52. A firm updates its business continuity plan after a regional outage affected several branches. What obligation does the firm have regarding customers?

• A. The firm must give each customer a private briefing on the plan's technical details
• B. No obligation exists because business continuity plans are internal documents only
• C. The obligation applies only to institutional customers
• D. The firm must provide customers with a summary of how it will respond to a significant business disruption, including how customers can contact the firm

53. A firm discovers that an unauthorized party accessed a database containing customers' account numbers and personal information. As part of its cybersecurity incident response, what should the firm do?

• A. Delete the affected records to prevent further exposure
• B. Wait to see if any customer complains before taking any action
• C. Follow its incident response plan, which should include assessing the scope of the breach, containing the exposure, and evaluating notification obligations to affected customers and regulators
• D. Only notify senior management, with no further action required

54. A firm's financial and operations principal notices the firm's net capital is approaching a level requiring heightened regulatory notification. What is the underlying purpose of net capital requirements in this scenario?

• A. To calculate a firm's advertising budget
• B. To determine how much commission a firm may charge customers
• C. To ensure the firm maintains a sufficient liquid capital cushion to meet its obligations to customers and creditors, with early notification when that cushion becomes thin
• D. To set the maximum number of representatives a firm may register

55. A firm plans to share a customer's nonpublic personal financial information with an unaffiliated third-party marketing company. What must the firm do first?

• A. Wait until the customer specifically asks how their information is used
• B. Nothing, because sharing information with marketers is never restricted
• C. Obtain a court order authorizing the disclosure
• D. Provide the customer with notice and a reasonable opportunity to opt out before sharing the information with the unaffiliated third party

56. A principal reviewing trade reporting practices notices that transactions in a particular product are frequently reported to the appropriate reporting facility well after execution, with no documented reason for the delay. What is the compliance concern?

• A. There is no concern as long as the trades are reported by the end of the month
• B. The concern only applies to trades executed after normal business hours
• C. Delayed reporting is acceptable if the counterparty consents
• D. Untimely trade reporting undermines market transparency and may violate reporting timeliness requirements applicable to the transactions

57. A registered representative is convicted of a felony unrelated to securities business. What is the firm's obligation regarding this event?

• A. The firm has no obligation because the conviction is unrelated to securities activities
• B. The firm should only report the event if a customer is directly affected
• C. The firm may wait until the representative's next registration renewal to report it
• D. The firm must report the reportable event through the appropriate regulatory filing in a timely manner

58. A firm receives customer complaints at several branch offices. What practice should the firm follow regarding these complaints?

• A. Each branch may maintain its own separate, unreported complaint records
• B. Complaints should be logged centrally and tracked in a manner that allows the firm to identify patterns across representatives and branches
• C. Only complaints resulting in a monetary payment need to be logged
• D. Complaints should be discarded once resolved to keep records concise

59. A representative completes a variable annuity replacement application and is ready to send it to the issuing insurance company. What must happen before the application is transmitted?

• A. A principal must review and approve the application, including the suitability of the replacement, before it is transmitted to the insurance company
• B. The insurer's own underwriting review substitutes for the firm's principal review
• C. No firm-level review is required for replacement transactions specifically
• D. The application may be sent directly to the insurer, with principal review occurring afterward if needed

60. A firm has been distributing variable annuity sales literature to the public for several months. What recordkeeping obligation applies to this material?

• A. Only material that generated a customer complaint needs to be retained
• B. Retention is only required for literature distributed electronically
• C. No retention obligation applies once the material is no longer in active use
• D. The firm must retain copies of the sales literature, along with the required approvals, for the applicable retention period

61. A firm's investment banking division is working on a pending merger and shares that information internally. What control should the firm have in place to prevent misuse of this information by its retail sales force?

• A. No control is needed since retail representatives are unrelated to investment banking
• B. Information barriers and a restricted or watch list that limits access to and trading on material nonpublic information across relevant departments
• C. A control limited to a verbal reminder at the annual compliance meeting
• D. A control that only restricts trading by the investment bankers themselves