Series 62 Study Textbook

Understanding Customer Accounts On The Series 62 Exam
Corporate Securities Limited Representative

One of the keys to passing the series 62 exam is to make sure that you have a complete understanding of how customer accounts will be tested on the Series 62 Exam. This article which was produced from material contained in our series 62 textbook and will help you master the material so that you pass the series 62 exam.


Introduction

Prior to executing a customer's order, the firm must open an account for the customer. The representative opening the account should try to obtain all vital financial information relating to the customer. Series 62 candidates can expect to see 10 to 20 questions dealing with customer accounts on their exam.

Prior to opening an account for any new customer, a registered representative must complete and sign a new account form. Account ownership is divided into five main types:

  • Individual
  • Joint
  • Corporate
  • Trust
  • Partnership

The registered representative should try to obtain as much information about the customer as possible. The representative should obtain:

  • Full name and address
  • Home and work phone numbers
  • Social security or tax ID number
  • Employer, occupation, and employer's address
  • Net worth
  • Investment objectives
  • Estimated annual income
  • Bank / brokerage firm reference
  • Whether they are employed by a bank or broker dealer
  • Any third party trading authority
  • Citizenship
  • Legal age
  • How account was obtained
  • Whether client is officer, Director, or 10% stockholder of a publicly traded company.

All new accounts must be accepted and signed by a principal of the firm. The principal must accept the account in writing for the firm either before or promptly after the first trade is executed. The principal accepts the account by signing the new account card. The representative also must sign the new account card as evidence that they introduced the account to the firm. Once the account is opened the firm must send the customer a copy of the new account form within 30 days of the opening of the account and within 30 days of any material change in the customer's information. Firms are also required to verify the account information at least once every 36 months. The customer never has to sign anything to open a new cash account. However, some firms have the customer sign a customer agreement when they open a new account, but this is not required. The customer agreement will state the policies of the firm and will usually contain a pre dispute arbitration clause. The pre dispute clause requires that any potential dispute arising out of the relationship be settled in binding arbitration. A firm may also have the customer sign a signature card. A signature card will allow the firm to verify the customer's written instructions that are sent in to the firm.

Customers who do not wish to disclose financial information may still open an account, if there is reason to believe that the customer can afford to maintain the account. All registered representatives should update the customer's information regularly and note any changes in the following:

  • Address
  • Phone number
  • Employer
  • Investment objectives
  • Marital status

Registered representatives are also required to maintain an accurate and up to date listing of all of their customer's transactions and investment holdings.

Customers are not required to provide their educational background when opening an account.

Holding Securities

When an investor opens an account they must decide where they want their securities to be held. The following methods are available:

  • Transfer and ship
  • Transfer and hold in safekeeping
  • Hold in street name
  • Receipt versus payment / Delivery versus payment RVP / DVP

Transfer and Ship

Securities that are to be transferred and shipped will be registered in the customer's name and will be sent to the customer's address of record.

Transfer and Hold in Safekeeping

Securities that are to be transferred and held in safekeeping will be registered in the customer's name and will be held by the brokerage firm. The broker dealer may charge a fee for the safekeeping of the securities.

Hold in Street Name

Securities that are held in street name are registered in the name of the brokerage firm as the nominal owner of the securities and the customer is the beneficial owner. Most securities are held in this manner to make transfer of ownership easier.

Receipt Vs. Payment / Delivery Vs. Payment RVP / DVP

These accounts are normally reserved for trusts and other institutional accounts that require that securities be delivered prior to releasing payment for the securities. These accounts are set up as cash on delivery or COD accounts.

Also, at the time the customer opens the account, they will decide what they want to do with the distributions from the account. Investors may have the distributions sent directly to them or they may have them reinvested or swept into a money market account.

Mailing Instructions

All confirmations and statements will be sent to the customer's address of record. Statements and confirmations may be sent to an individual with power of attorney if the duplicates are requested in writing. A customer's mail may be held by a brokerage firm for up to two months if the customer is traveling within the US and for up to three months if the customer is traveling outside the US.