Series 10: Customer Accounts

Series 10 Customer Accounts questions help you isolate one part of the FINRA outline before returning to a mixed practice test. The questions below are original Securities Prep practice items aligned to this topic and are not copied from any exam sponsor.

Topic snapshot

Sample questions

Question 1

When reviewing a retail customer’s new account investment profile before approving the account, which statement is most accurate?

• A. A principal may approve if the customer signs the new account form, even if key profile items are blank.
• B. If objectives and risk tolerance conflict, the principal may rely on the registered representative’s verbal clarification without updating the form.
• C. A principal should resolve and document any missing or conflicting profile items before approval.
• D. If liquidity needs are inconsistent with the stated time horizon, the principal should approve and address it at the next periodic update.

Best answer: C

Explanation: Supervisory approval should not occur until the investment profile is complete and internally consistent, with discrepancies addressed and documented.

Before a principal approves a new account, the investment profile must be complete and make sense as a whole. If objectives, risk tolerance, liquidity needs, or time horizon are missing or inconsistent, the principal should have the issue resolved and ensure the firm’s records reflect the clarified information. Approval should be based on documented, consistent information—not assumptions or later follow-up.

The core supervisory responsibility in new account approval is to confirm that the investment profile information is both complete and internally consistent. A principal should look for red flags such as high-risk objectives paired with a low risk tolerance, short time horizons paired with “long-term growth,” or high liquidity needs paired with “illiquid/long-term” objectives.

If a profile is missing key elements or contains conflicts, the principal should:

• obtain clarification (often through the representative, and sometimes directly from the customer per firm process)
• update the firm’s records so the clarified profile is captured
• document the resolution and then approve the account

The key takeaway is that a signed form or an informal verbal explanation does not substitute for a complete, consistent, documented investment profile at approval time.

• The idea that a customer signature cures missing profile data fails because supervisory approval must be based on complete information.
• Relying on a verbal clarification without updating the record leaves the account documentation incomplete/inconsistent.
• Deferring resolution of a clear inconsistency until a future update permits account activity on an unvalidated profile.

Question 2

A branch principal reviews an exception report for a newly opened retail account.

Customer profile: age 74, retired, investment objective “income/preservation,” liquid net worth $300,000, limited trading experience.

Activity in first 10 business days: the rep recommends and processes purchases of a leveraged ETF totaling $120,000 and documents “client wants higher returns.” The principal approves the trades without contacting the customer or documenting why the activity fits the profile, even though the firm’s WSP states that leveraged ETFs for conservative/limited-experience customers require heightened review and principal sign-off with documented rationale.

If this control failure continues, what is the most likely outcome?

• A. The firm is likely to face findings for inadequate supervision and heightened-review failures, increasing the chance of customer complaints/remediation for unsuitable complex-product activity
• B. No supervisory issue exists because the principal approved the orders before execution
• C. The only likely consequence is a minor recordkeeping issue, since suitability is solely the registered representative’s responsibility
• D. The trades will be reversed automatically by the clearing firm because leveraged ETFs cannot be sold to retirees

Best answer: A

Explanation: Ignoring documented triggers for heightened review of complex products creates a foreseeable supervisory gap that commonly leads to unsuitable-sales complaints and regulatory deficiency findings.

Leveraged ETFs are complex, higher-risk products that commonly require heightened review when the customer profile shows conservative objectives and limited experience. When a supervisor ignores firm red flags and fails to document the rationale for approval, the firm’s supervisory system is weakened and the activity is more likely to result in unsuitable recommendations, customer harm, and regulatory findings.

Heightened review is designed to catch mismatches between a customer’s profile and higher-risk or complex product activity, especially when the activity is large, early in the relationship, or inconsistent with stated objectives. Here, a conservative, limited-experience retiree is quickly placed into a large leveraged ETF position, and the principal bypasses the firm’s own heightened-review trigger and documentation requirements. If that pattern continues, the firm has a predictable failure-to-supervise exposure: the same red flags that should have prompted escalation will also support a later claim that the firm did not have (or did not implement) reasonable supervisory controls. The practical consequence is higher likelihood of customer complaints/arbitration and regulatory exam findings requiring remediation and strengthened WSP adherence.

• The fact that a principal “approved” a trade does not cure a failure to perform required heightened review and documentation.
• Clearing firms do not generally auto-reverse trades based solely on a customer being retired; supervision remains the introducing firm’s responsibility.
• Suitability/Reg BI care obligations and supervision are shared; firms can be cited when supervisors ignore red flags or WSP-required escalation.

Question 3

A firm’s WSP requires a margin escalation when either condition is met: (1) 3 or more margin calls in any rolling 90-calendar-day period, or (2) aggregate margin call amounts in any rolling 30-calendar-day period are $25,000 or more. When escalation is triggered, the account must be placed on restricted margin pending review (no new margin purchases; deposits required before additional buying power is used).

Exhibit: Margin call log (Acct 83QH, retail customer)

Date        Call amount  Met?
May 3, 2026   $12,000    Yes
May 18, 2026  $9,500     Yes
May 28, 2026  $6,000     Not yet (due June 2)

As the supervising principal, what is the most appropriate action now?

• A. Escalate and place the account on restricted margin pending review
• B. Continue normal monitoring because the largest single call is under $25,000
• C. Defer escalation because only $15,500 of calls fall within the most recent 30 days
• D. Send a margin education letter and take no additional supervisory action

Best answer: A

Explanation: The rolling 30-day aggregate is $27,500 ($12,000 + $9,500 + $6,000), triggering WSP escalation and restricted margin.

The supervisor must apply the firm’s written escalation triggers to repeated margin deficiencies. Adding the three call amounts within the rolling 30-day window yields $27,500, which exceeds the $25,000 threshold. That requires escalation and restricting further margin activity pending a supervisory review.

This tests supervision of repeated margin deficiencies using the firm’s stated escalation thresholds. The three margin calls shown are all within a rolling 30-calendar-day period, so their amounts must be aggregated and compared to the WSP trigger.

• Compute rolling 30-day aggregate: $12,000 + $9,500 + $6,000 = $27,500
• Compare to WSP threshold: $27,500 \(\ge\) $25,000

Because the trigger is met (and it is also the third call within 90 days), the principal should escalate per WSP and implement restricted margin controls (e.g., no new margin purchases; require deposits) while conducting the required account review and documenting heightened supervision.

• Continuing because the largest single call is under $25,000 misreads an aggregate threshold as a per-call limit.
• Using only $15,500 reflects an incorrect lookback calculation; all three calls fall within 30 calendar days.
• An education letter alone does not satisfy a triggered WSP escalation or the required restriction pending review.

Question 4

A new sales supervisor must update the firm’s WSPs after internal audit found inconsistent handling of margin deficiencies and little evidence of follow-up. The firm wants a framework that is easy to supervise and defend on exam/inspection.

Two proposed approaches are below.

Framework 1 (branch-attestation): Branch managers review a weekly margin call list, email “reviewed,” and rely on reps to contact customers; there are no defined escalation triggers, and extensions/forced liquidations are handled case-by-case.

Framework 2 (risk-based exception supervision): A daily automated exception report shows new and aged margin deficiencies, extensions, margin liquidation activity, and any overrides; a principal documents daily review in the system; escalation triggers are specified (e.g., restrictions/credit escalation as calls age, repeat-call thresholds trigger account review), and required actions/approvals are retained.

Which approach is the most defensible margin supervision control framework, based on the single most important differentiator in the scenarios?

• A. Framework 1, because branch managers are closest to the customer relationship
• B. Framework 2, because it shifts margin deficiency handling to the registered representative
• C. Framework 2, because it defines documented monitoring cadence and escalation triggers
• D. Framework 1, because weekly review is sufficient if reps document customer contact

Best answer: C

Explanation: A defensible margin control framework requires documented, ongoing exception monitoring with clear escalation triggers and retained evidence of principal review.

Framework 2 is more defensible because it pairs written margin policies with a specific monitoring cadence and objective escalation triggers, and it creates auditable evidence of principal review and follow-up. Margin supervision is best supported by exception-based surveillance (new/aged calls, extensions, overrides) and documented outcomes rather than informal attestations.

The core supervisory control in margin accounts is demonstrating that the firm actively monitors margin risk and consistently applies pre-defined responses when deficiencies occur. A framework built on daily exception reporting and documented principal review is more defensible because it is measurable (what was reviewed, when), repeatable (same triggers apply to all accounts), and auditable (records of calls, extensions, overrides, and resulting actions are retained).

By contrast, a weekly “reviewed” email with case-by-case handling lacks (1) a clear cadence tied to fast-moving margin exposures, (2) objective escalation triggers for aging or repeat deficiencies, and (3) reliable evidence that required actions occurred. The key takeaway is that margin WSPs should specify who reviews what, how often, what exceptions require action, and how escalation/approvals are documented.

• The branch-attestation approach sounds practical, but it does not establish specific escalation triggers or an auditable principal review trail.
• Relying on reps’ notes of customer contact does not replace supervisory exception monitoring and standardized follow-up when calls age or recur.
• A framework is weakened (not strengthened) if it implies margin deficiency handling is primarily delegated to the rep without principal-controlled triggers and approvals.

Question 5

A registered rep submits an electronic account-maintenance request to change a long-standing retail customer’s address from a street address to a P.O. Box and to switch all statements and confirmations to paper delivery at that P.O. Box. The request includes no supporting documentation and no note explaining why the customer wants the change.

Under the firm’s WSPs, any request to add or replace an address with a P.O. Box is treated as a “non-standard address change” and must be supported by documented verification and supervisory approval before updating the account record.

As the supervising principal, what is the best next step?

• A. Obtain and document verification of the customer’s physical residence and the P.O. Box request, then approve the change before it is processed
• B. Process the address change immediately and perform a periodic review of address changes at month-end
• C. Update the address but place the account on hold for all trading until the next branch inspection
• D. Reject any P.O. Box request and require the customer to use a street address for all purposes

Best answer: A

Explanation: Non-standard address changes require documented verification (including a physical residence for CIP) and principal approval before updating the official account record.

A P.O. Box can be used as a mailing address, but it does not replace the need to maintain a verified physical residence address for the customer. When the firm designates P.O. Box changes as non-standard, the supervisor must ensure the request is verified, documented, and approved before the account record is changed. This preserves CIP/KYC integrity and creates an audit trail for a high-risk maintenance item.

The core supervisory control is to prevent unverified address changes (a common red flag for account takeover, diversion of correspondence, or evasion of CIP/KYC). A P.O. Box may be acceptable as a mailing address, but the firm still must maintain a verified physical residence address, and WSPs may require heightened review.

A sound sequence is:

• Contact the customer (or use an approved secure channel) to confirm the request and reason
• Obtain/document verification evidence, including the customer’s physical residence address
• Principal reviews the evidence and approves (or rejects) before the record is updated
• Document the approval and retain supporting records in the account file

The key point is not to update the official address record until verification and supervisory approval are complete.

• Processing first and reviewing later defeats the WSP control and leaves the firm with an unverified address of record.
• Flatly prohibiting any P.O. Box ignores that a P.O. Box can be permitted as a mailing address when the physical residence is still maintained and verified.
• Holding all trading until a branch inspection is an unrelated, delayed control and does not substitute for immediate verification and approval documentation.

Question 6

When opening a brokerage account for a corporation, which description best defines a corporate resolution for purposes of ensuring the account registration and trading authority are properly documented?

• A. A state-issued filing that creates the corporation and lists its registered agent
• B. A board-adopted document that identifies authorized persons and the actions they may take for the account
• C. A certification that lists the corporation’s beneficial owners to satisfy CIP/AML requirements
• D. A customer agreement that sets margin and arbitration terms for the account

Best answer: B

Explanation: A corporate resolution is used to evidence who is authorized to open and transact in the corporate account and what authority they have.

A corporate resolution is the key internal corporate document that clarifies who may act for the corporation with the broker-dealer. It supports accurate account registration and establishes which officers or agents are authorized to open the account and place trades or transfer funds.

For a corporate account, the firm must be able to match the account title/registration to the customer’s legal form and also document who has authority to act. A corporate resolution (or equivalent written authorization) is typically adopted by the board (or other governing body) and provided to the broker-dealer to evidence:

• the corporation’s decision to open/maintain the account
• the specific officers/agents authorized to trade, move money, and receive information
• any limits on that authority (e.g., dual signatures, restricted disbursements)

Formation documents or CIP/beneficial ownership information may be required for other purposes, but they do not substitute for clear trading and account-authority documentation.

• The state formation filing supports existence of the entity, but it typically does not identify who is authorized to transact in the brokerage account.
• The customer agreement governs account terms, but it does not establish corporate authority to act on behalf of the entity.
• Beneficial ownership/CIP documentation is an AML control and is separate from documenting who has trading or disbursement authority.

Question 7

A retail customer’s margin account has an initial margin deficiency after a June 3, 2025 purchase of $60,000 of equity. Per the firm’s WSPs, the initial margin call is due by close of business June 9, and any extension must be approved by the margin department (and, if applicable, requested from the firm’s DEA) and documented in the account file, including the customer’s response. On June 6, the registered rep tells you the customer “promised to wire funds next week” and asks to “just give them until June 12” without submitting an extension request.

As the sales supervisor, what is the BEST supervisory action?

• A. Immediately liquidate the account on June 6 to eliminate the deficiency and avoid any need to document an extension
• B. Freeze the account for new purchases until the customer wires funds, but take no further action unless the customer misses the June 12 date
• C. Allow the rep to rely on the customer’s verbal promise and extend the due date to June 12, documenting only the rep’s notes in the CRM
• D. Require a formal, documented extension request through the margin department, notify the customer of the decision in writing, and if the call is not met by the deadline (or extension is not approved), promptly liquidate sufficient securities and document all actions

Best answer: D

Explanation: Margin call deadlines may not be informally extended; extensions and customer responses must be approved (when permitted) and documented, with liquidation if the call is unmet.

Margin supervision requires timely calls and disciplined control of any extensions. A supervisor should ensure any extension is routed for the required approvals, fully documented, and clearly communicated to the customer. If the call is not satisfied by the applicable deadline, the firm must take prompt remedial action (typically liquidation) and document the customer’s response and the firm’s actions.

The core supervisory duty is to ensure margin calls are met on time and that any extension of time is handled through the firm’s required approval process with complete documentation. A rep’s verbal assurance is not a control; the firm needs an auditable record showing the call due date, whether an extension was permitted and approved (including any required DEA involvement), how the customer was notified, and what the customer did in response.

Practically, the supervisor should:

• Route the extension request to the margin department per WSPs (and ensure any required external approval is obtained)
• Document the decision and customer communications in the account records
• Set follow-up to the original/approved deadline and, if unmet, liquidate sufficient securities promptly and record the liquidation

The key takeaway is that extensions cannot be “informal,” and failing to act by the deadline creates both regulatory and credit-risk problems.

• Relying on a verbal promise and informal notes bypasses required approvals and does not create adequate extension documentation.
• Immediate liquidation may be premature when the firm’s process allows time to meet the call or seek an approved extension.
• Freezing purchases does not satisfy the requirement to meet the call by the stated deadline or to document an approved extension and customer response.

Question 8

A registered representative submits an outgoing wire request from a retail customer’s account, signed by the customer’s attorney-in-fact. You are the OSJ principal approving the disbursement.

Exhibit: Account maintenance screen (POA + wire request)

Acct: 82J4  Reg: Individual
POA on file: Yes
Agent: Dana Lee
POA type: Limited
Authorized activities (per POA):
  - Trading authorization: YES
  - Withdrawals/funds transfers: NO
  - Checkwriting: NO
Wire request (pending):
  Amount: $75,000
  Destination: Third-party business (not titled to customer)
  Signature on request: Dana Lee (AIF)

Based on the exhibit, which interpretation is supported and should drive your decision?

• A. The wire can be approved because any POA on file permits disbursements requested by the agent
• B. The wire cannot be approved under this POA because it does not authorize withdrawals or funds transfers
• C. The wire must be approved because the POA authorizes trading, which includes moving funds out of the account
• D. The wire can be approved as long as the agent’s signature matches the firm’s POA signature card

Best answer: B

Explanation: The exhibit shows a limited POA with trading authority only and explicitly no withdrawals/funds transfers, so the agent’s signature is insufficient for the wire.

A principal must confirm that a power of attorney is valid and that the requested action is within its scope before permitting activity. The exhibit explicitly limits the agent’s authority to trading and states that withdrawals/funds transfers are not permitted. Because the request is a third-party wire (a funds transfer), it cannot be approved based on this POA.

The supervisory task is to validate both the existence of the POA and the specific authority it grants before allowing a trade or disbursement. Here, the account record shows a limited POA where the agent is permitted to place trades but is expressly not permitted to withdraw or transfer funds. A wire request—especially to a third party—is a disbursement, so the principal should not approve it on the agent’s signature alone. The firm should require customer authorization (or a properly executed POA that specifically authorizes disbursements) and follow any heightened verification steps in WSPs for third-party transfers.

Key takeaway: “POA on file” is not enough; the permitted activities must match the requested action.

• Treating any POA as blanket disbursement authority ignores the exhibit’s explicit “NO” for withdrawals/funds transfers.
• Signature matching may be a control, but it cannot expand authority beyond the POA’s documented scope.
• Trading authority does not imply authority to move cash out of the account, particularly to a third party.

Question 9

You are the designated supervisor reviewing retail account activity flagged by surveillance. The customer is age 68 with an investment objective of “income/preservation,” moderate risk tolerance, and a 10-year horizon. The account is cash-only (no margin, no options). The registered rep says the customer “likes staying active” and wants to keep placing frequent trades.

Exhibit: Prior 30 calendar days (account value approx. $95,000)

Total trades: 46 (23 buys, 23 sells)
Primary products: 3 sector ETFs, 2 large-cap stocks
Typical holding period: 1–5 trading days
Total commissions/fees: $5,420
Net realized P/L (excluding costs): -$780

As the supervisor deciding whether to escalate and consider restrictions, which risk/limitation should carry the MOST weight?

• A. Higher likelihood of routine settlement fails under T+1
• B. Potential excessive trading (churning) inconsistent with stated objectives
• C. Pattern day trader status being triggered by the activity
• D. Lack of diversification because only a few names were traded

Best answer: B

Explanation: High trade frequency, short holding periods, and high costs relative to equity are classic excessive-trading red flags that warrant escalation and possible restrictions.

The account’s stated objective is income/preservation, yet the trading shows rapid in-and-out activity with substantial costs in a short period. That combination is a primary supervisory red flag for excessive trading and potential churning, which requires escalation, customer contact, and heightened supervision or restrictions. The key issue is the suitability and cost/benefit of the activity for this customer profile.

A principal’s core supervisory decision here is recognizing an excessive-trading pattern and acting before it becomes a sales-practice violation or complaint. Short holding periods, frequent buy/sell “round trips,” and high commissions/fees relative to account equity—especially in an account with conservative objectives—are classic indicators that the trading may be primarily generating costs rather than serving the customer’s stated goals.

Appropriate escalation typically includes:

• Contacting the customer to confirm objectives and understanding of costs/risks
• Reviewing whether the activity is in the customer’s best interest and consistent with the account profile
• Implementing heightened supervision and, if warranted, restricting trading pending review

Other risks may exist, but they do not outweigh the direct sales-practice concern raised by the frequency, size, and cost of the transactions versus the customer’s profile.

• Settlement concerns under T+1 are not the central sales-practice issue when the account is cash-only and the red flags point to cost-driven trading.
• Pattern day trader rules generally relate to margin accounts and are not the main supervisory limitation in this fact pattern.
• Concentration can be a risk factor, but there is no standalone “diversification requirement,” and it is secondary to the excessive-trading indicators shown.

Question 10

A firm adds an automated “excessive activity” surveillance report for retail accounts. Each month it annualizes trading for the prior 90 days and flags any account with both (1) turnover above 6 and (2) estimated commissions/markups and other transaction costs above 20% of average equity. Flagged accounts must be reviewed by a principal, who may contact the customer and impose trade pre-approval or other restrictions.

Which supervision objective does this control feature best match?

• A. Ensure mutual fund breakpoint discounts are applied
• B. Detect potential AML structuring through deposits and withdrawals
• C. Verify best execution by comparing venues and quotes
• D. Detect potential churning and require escalation/restrictions

Best answer: D

Explanation: The report is designed to identify excessive trading using frequency/size metrics and trigger principal intervention.

The described tool measures trading intensity and transaction-cost burden relative to account equity, then requires principal review and possible limits on future trading. That is a classic supervisory control to detect and address potential excessive trading (churning) concerns, including escalation, customer contact, and account restrictions when warranted.

Excessive trading supervision focuses on whether the frequency and size of transactions are inconsistent with the customer’s profile and create an unreasonable cost burden. Surveillance metrics like annualized turnover and cost-to-equity (transaction costs as a percentage of average equity) are designed to surface accounts where activity levels may indicate churning or unsuitable in-and-out trading.

When the report flags an account, a principal’s role is to investigate and document the basis for the activity and, if concerns remain, take appropriate action such as:

• contacting the customer to confirm objectives and understanding
• heightened monitoring and documentation
• imposing trade pre-approval, reduced activity limits, or other restrictions

Controls aimed at cash movement (AML), execution quality, or sales-charge breakpoints address different supervisory risks.

• The option focused on AML structuring relates to patterns in cash movements, not turnover and cost-to-equity from trading activity.
• The option about best execution is tied to quote/venue review, not customer-level cost burden and frequency metrics.
• The option about breakpoint discounts addresses mutual fund sales charges, not excessive trading patterns across transactions.

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