Series-7 - Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives (9% of the exam) - Section 2.4

Identify the supervisory review, approval, and documentation required to open and maintain accounts, and the circumstances for restricting or closing an account.

Identify the principal review and approval that FINRA Rules 3110 and 3120 require for opening and maintaining customer accounts, and the documentation that must accompany it. Recognise the circumstances under which a firm may refuse, restrict, or close an account, and the rules governing the physical receipt and safeguarding of cash, checks, and securities.

FINRA Rule 3110SupervisionAccount approvalSupervisory control system

Practice question for this objective

Free sampleOpens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectivesmedium

Under FINRA Rule 4512, which signature requirement applies when a firm opens an ordinary cash account for a retail customer?

AThe account record must carry the signature of the associated person who introduced the account and the signature or approval of a principal, but the customer's own signature is not required to open a cash account. Correct
BThe customer must personally sign the new account form before any transaction is entered, and no principal approval is needed until the first trade settles.
COnly a principal signature is required, and the identity of the associated person handling the account need not appear on the record.
DNo signatures of any kind are required because the account record is purely informational and carries no supervisory function.

FINRA Rule 4512 requires the associated person's signature and principal approval on the account record, but not a customer signature to open a cash account. The rule frames the account record as a supervisory document: it must name and be signed by the associated person and be approved by a principal, whereas a retail customer need not sign to open an ordinary cash account.

Why A is correct: Rule 4512 requires the record to identify and be signed by the associated person responsible for the account and to show principal approval, while a customer signature is not a condition of opening a cash account.

Why B is wrong: This overstates the customer's role and understates the principal's; a customer signature is not required to open a cash account, and principal approval is required, not deferred to settlement.

Why C is wrong: Principal approval is indeed required, but the rule also requires the account record to identify the associated person, so omitting that person is a compliance gap.

Why D is wrong: This ignores the supervisory purpose of the record; the associated person's signature and principal approval are both required under the rule.

See more Series-7 practice questions, answers explained.

Exam traps in Opens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectives

Answers that look right on this material and are not. Each one is a distractor from a different question in the Series-7 bank for this domain.

No supervisory approval is needed until the customer places and settles a first purchase or sale in the account.
Why it is wrong: It is tempting because trading triggers many reviews, but the account itself must be approved by a principal at opening; approval is not postponed until a trade settles.
The customer must sign the new account form before any transaction may be entered in the account.
Why it is wrong: It is tempting because customers sign many documents, but a cash account can be opened and traded without the customer's signature on the new account form itself.
For three years measured from the date the account was first opened, after which the records may be discarded.
Why it is wrong: It is tempting because three years is a common retention period for many broker-dealer records, but customer account records must be kept longer and the clock runs from closing, not opening.

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