Exam Review, 2019

The go-to guide to acing the Series 26 Exam!

Passing the Investment Company Products/Variable Contracts Limited Principal Qualification Exam (Series 26) qualifies an individual to operate as a principal responsible for supervising and managing a firm and its agents conducting business in open-end mutual funds, variable annuities, and life insurance. The exam covers hiring and qualification, training of representatives, supervision, sales practices, and business processing and recordkeeping rules. A principal must have passed the Series 6 or Series 7 Exams prior to taking the Series 26.

Created by the experts at The Securities Institute of America, Inc., Wiley Series 26 Exam Review 2019 arms you with everything you need to pass this long 110-question multiple-choice test. Designed to help you build and fine-tune your knowledge of all areas covered in the exam and to guarantee that you're prepared mentally and strategically to take the test, it provides:

• Dozens of examples
• Assorted practice questions for each subject area covered in the exam
• Priceless test-taking tips and strategies
• Helpful hints on how to study for the test, manage stress, and stay focused

Wiley Series 26 Exam Review 2019 is your ticket to passing the Series 26 test on the first try—with flying colors!

Wiley empowers learners, researchers, universities, and corporations to achieve their goals in an ever-changing world. For over 200 years, Wiley has been helping people and organizations develop the skills and knowledge they need to succeed. Wiley develops digital education, learning, assessment, and certification solutions to help universities, businesses, and individuals move between education and employment and achieve their ambitions. By partnering with learned societies, we support researchers to communicate discoveries that make a difference. Our online scientific, technical, medical, and scholarly journals, books, and other digital content build on a 200-year heritage of quality publishing.

ABOUT THE SERIES 26 EXAM xi

ABOUT THIS BOOK xv

ABOUT THE TEST BANK xvii

ABOUT THE SECURITIES INSTITUTE OF AMERICA xix

CHAPTER 1 BROKERAGE OFFICE PROCEDURES 1

Hiring New Employees 1

Resignation of a Registered Representative 3

Registration Exemptions 4

Persons Ineligible to Register 4

Disciplinary Actions against a Registered Representative 5

Termination for Cause 6

Outside Employment 7

Private Securities Transactions 7

Gift Rule 7

Sharing in a Customer’s Account 8

Borrowing and Lending Money 9

Order Tickets 9

Executing an Order 9

Becoming a Stockholder 11

Close Outs 15

Dividend Distribution 21

Pretest 25

CHAPTER 2 RECORD KEEPING, FINANCIAL REQUIREMENTS, AND REPORTING 29

Types of Records 29

Storage Requirements 31

Financial Requirements 35

Pretest 49

CHAPTER 3 RECOMMENDATIONS TO CUSTOMERS 55

General Guidelines 55

Suitability Standards 56

Mutual Fund Suitability 57

Exchange-Traded Funds (ETFs) 61

Periodic Payment Plans 63

Mutual Fund Current Yield 63

Suitability 63

Fair Dealings with Customers 63

Recommendations to an Institutional Customer 67

Short Sales in Connection with Recommendations 68

Issuing Research Reports 68

Regulation FD (Fair Disclosure) 71

Recommendations through Social Media 71

Pretest 75

CHAPTER 4 GENERAL SUPERVISION 79

The Role of the Principal 79

Supervisor Qualifications and Prerequisites 80

Continuing Education 81

Tape Recording Employees 83

Heightened Supervisory Requirements 83

Information Obtained from an Issuer 84

Customer Complaints 84

Investor Information 85

Member Offices 85

Currency Transactions 88

The Patriot Act 88

Identity Theft 90

FINRA Rules on Financial Exploitation of Seniors 91

Pretest 93

CHAPTER 5 CUSTOMER ACCOUNTS 97

New Accounts 97

Holding Securities 99

The Depository Trust Company (DTC) 100

Mailing Instructions 101

Types of Account Ownership 101

Trading Authorization 103

ABLE Accounts 108

Accounts for Employees of Other Broker Dealers 109

Numbered Accounts 110

Prime Brokerage Accounts 110

Account Transfer 110

Margin Accounts 112

Day Trading Accounts 113

Commingling Customers’ Pledged Securities 114

Wrap Accounts 114

Regulation S-P 114

Pretest 117

CHAPTER 6 INVESTMENT COMPANIES 121

Investment Company Philosophy 121

Types of Investment Companies 122

Investment Company Registration 125

Investment Company Components 127

Mutual Fund Distribution 129

Mutual Fund Prospectus 130

Anti-Reciprocal Rule 133

Valuing Mutual Fund Shares 133

Sales Charges 135

Taxation of Mutual Funds 142

Voting Rights 147

Yields 147

Portfolio Turnover 148

Purchasing Mutual Fund Shares 148

Withdrawal Plans 151

Recommending Mutual Funds 152

Structured Retail Products/SRPs 153

Pretest 155

CHAPTER 7 VARIABLE ANNUITIES, LIFE INSURANCE, AND RETIREMENT PLANS 159

Annuities 159

Life Insurance 169

Health Savings Accounts 175

Retirement Plans 176

Death of an IRA Owner 181

ERISA 404C Safe Harbor 189

Department of Labor Fiduciary Rules 189

Pretest 191

CHAPTER 8 SECURITIES INDUSTRY RULES AND REGULATIONS 195

Issuing Securities 195

The Securities Exchange Act of 1934 198

The National Association of Securities Dealers (NASD) 201

Becoming a Member of FINRA 203

Foreign Broker Dealers 205

Compensation Paid to Unregistered Persons 205

Registration of Agents/Associated Persons 206

Retiring Representatives/Continuing Commissions 207

State Registration 207

Communications with the Public 207

Securities Investor Protection Corporation Act of 1970 (SIPC) 213

The Securities Acts Amendments of 1975 215

The Insider Trading & Securities Fraud Enforcement Act of 1988 215

Telemarketing Rules 216

The Penny Stock Cold Call Rule 217

Violations and Complaints 218

Political Contributions 222

Investment Adviser Registration 223

Investment Adviser Representatives 225

Investment Adviser Advertising and Sales Literature 226

Investment Adviser Brochure Delivery 227

Soft Dollars 227

Broker Dealers on the Premises of Other Financial Institutions 229

The Uniform Securities Act 230

Sarbanes-Oxley Act 230

SEC Regulation S-K 232

SEC Regulation M-A 233

The Hart-Scott-Rodino Act 234

FINRA Rule 5150 (Fairness Opinion) 235

SEC Regulation S-X 235

Pretest 237

ANSWER KEYS 241

GLOSSARY OF EXAM TERMS 249

INDEX 315

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.