FINRA SIE - Securities Industry Essentials Exam (SIE)

Step by Step Explanation:

403(b) Accounts: These tax-advantaged retirement plans are specifically for employees of public schools, tax-exempt organizations, and certain other nonprofit employers, such as hospitals.

Incorrect Options:

Volunteer Workers: Ineligible unless they are also employees.

Small Business Owners and Military Personnel: These groups typically qualify for other retirement plans, not 403(b).

FINRA prohibits the payment of referral fees or splitting of commissions with individuals who are not registered with a broker-dealer. However, taking a friend out to dinner as a gesture of gratitude is allowed, as it does not involve cash or monetary compensation directly tied to the referral.

C is correct because non-monetary expressions of gratitude (like a dinner) are permitted under FINRA rules.

A is incorrect because commission splitting with unregistered individuals is prohibited.

B is incorrect because paying referral fees is also prohibited without registration.

D is incorrect because giving prepaid credit cards tied to commission income violates compensation rules.

In a UTMA account, the minor is the legal owner of the account. The custodian (in this case, the attorney) manages the account until the minor reaches the age of majority specified by state law.

C is correct because the grandson (the minor) is the account’s legal owner.

A is incorrect because the attorney is the custodian, not the owner.

B is incorrect because the grandfather established the account but does not own it.

D is incorrect because the parent does not have ownership unless explicitly named as the custodian.

Step by Step Explanation:

FINRA Rule 3150: Permits firms to hold customer mail only with written instructions specifying the duration, which cannot exceed three months unless there are exceptional circumstances.

Incorrect Options:

A: Holding mail is not prohibited if done in compliance with FINRA rules.

C & D: Oral instructions or RR discretion are not sufficient; written authorization is mandatory.

Step by Step Explanation:

FINRA Rule 2210: Firms are prohibited from suggesting or implying FINRA's endorsement or approval in any advertising materials.

Approvals: Even if a principal or FINRA approves the content, such a statement remains impermissible.

Key Point: FINRA's role is to regulate, not to endorse firms or their marketing.

Step by Step Explanation:

MSRB Rule G-37: Requires municipal securities dealers to report contributions to the MSRB, even if the amount is below the $1,000 threshold that would trigger a two-year prohibition on municipal business.

Incorrect Options:

SEC and FINRA: Not involved in reporting political contributions for municipal securities.

Step by Step Explanation:

Publicly Traded Limited Partnerships (PTPs): Represent ownership stakes, which categorize them as equity securities. PTPs often involve sectors like real estate or energy.

Incorrect Options:

A: Mutual funds are pooled investment vehicles, not partnerships.

C: Fixed-income securities are debt instruments like bonds.

D: Derivatives include options or futures, not ownership stakes.

An unrealized gain occurs when the value of an asset increases but has not yet been sold. If the customer sells the stock, the unrealized gain becomes a realized gain.

B is correct because the increase in value without selling the stock is an unrealized gain.

A is incorrect because interest income refers to earnings from fixed-income securities.

C is incorrect because operating profit relates to a company’s earnings, not an investor’s portfolio.

D is incorrect because "out of the money" is a term used for options, not stocks.

Buying a put option gives the investor the right to sell a stock at a specific strike price, effectively setting a floor for potential losses if the stock price declines. This is a common risk-management strategy.

A is correct because buying puts limits downside risk while retaining the potential for upside gains.

B is incorrect as buying puts is a bearish strategy, not one used during upward momentum.

C is incorrect because selling call options does not hedge losses; it is a speculative or income-generating strategy.

D is incorrect because buying calls is a bullish strategy, used during upward momentum, not downward.