Try 10 focused Series 22 questions on Account Opening, with explanations, then continue with the full Securities Prep practice test.
Series 22 Account Opening 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.
| Item | Detail |
|---|---|
| Exam | FINRA Series 22 |
| Official topic | Function 2 — Opens Accounts After Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives |
| Blueprint weighting | 8% |
| Questions on this page | 10 |
A prospective customer living in Canada is a Canadian citizen (not a U.S. person) who wants to open an individual account to buy units in a U.S. non-traded real estate DPP being offered by your broker-dealer on a best-efforts basis. The customer’s objective is current income and they acknowledge the investment is illiquid and may generate a Schedule K-1. The customer asks why the firm “needs extra paperwork” compared with a U.S.-based investor.
What is the single best action and communication by the DPP representative?
Best answer: C
Explanation: A non-U.S. person typically requires additional identity and tax documentation to satisfy CIP/KYC and withholding/reporting obligations before the account can be opened.
When a customer is a foreign resident and not a U.S. person, firms commonly require additional documentation before opening the account to meet CIP/KYC identity verification and to document tax status for U.S. withholding and reporting. A W-8BEN (as applicable) and reliable documentary evidence help the firm form a reasonable belief it knows the customer’s identity and applies the correct tax treatment for distributions.
The key issue is that foreign residency/citizenship can change what the firm must collect to open an account and how the customer is treated for U.S. tax withholding/reporting. For a non-U.S. person, the firm typically needs (as applicable) a W-8 series form to document foreign status and supporting documentation (e.g., government-issued passport/ID and proof of foreign address) to satisfy CIP/KYC and sanctions-screening controls. These steps are completed before the account is opened and before processing a DPP subscription so the firm can verify identity, maintain required records, and apply appropriate withholding/reporting on U.S.-source income that may flow through the DPP. The closest trap is trying to proceed first and “fix” documentation later, which creates an account-opening compliance gap.
A 58-year-old customer wants to invest $75,000 from his former employer’s 401(k) into a DPP offering through your firm. He says he will request a distribution check made payable to him and then “send it in with the subscription documents.”
As the representative, what is the best next step in the correct sequence?
Best answer: A
Explanation: A direct rollover to an IRA custodian helps avoid withholding and potential early-distribution consequences and aligns the subscription with the IRA as purchaser.
Using qualified retirement plan assets for a DPP generally requires proper rollover/transfer handling and correct registration. A direct rollover (trustee-to-trustee) to an IRA custodian with the check payable to the custodian FBO the customer helps avoid mandatory withholding and potential tax/penalty issues. It also ensures the IRA—not the individual—is the actual subscriber/purchaser.
The core issue is how retirement plan distributions and rollovers affect funding and registration for a DPP subscription. If a 401(k) distribution is made payable to the participant, it is typically treated as a distribution that can trigger mandatory withholding and may create taxes/penalties if not properly rolled over. A direct rollover (trustee-to-trustee) sends the money directly to an IRA custodian (often as a self-directed IRA) and keeps the transaction aligned with retirement-account rules.
In practice, the representative should:
The key takeaway is to avoid taking and depositing plan proceeds personally when the intent is retirement-account investing.
A customer is opening a new account to purchase interests in a DPP. The firm’s electronic account-opening package includes the following clause.
Exhibit: Subscription agreement (excerpt)
Customer Identification / KYC Information:
Subscriber must provide: (i) legal name, (ii) residential street address,
(iii) date of birth, (iv) taxpayer ID (SSN or other), and (v) occupation/
employer and source of funds.
Subscriber also represents that the information is true and may be verified.
Which interpretation is best supported by the exhibit and standard broker-dealer practice at account opening?
Best answer: A
Explanation: The listed items are core CIP identifiers plus KYC elements (e.g., occupation and source of funds) used to verify identity and support customer screening.
The exhibit lists core identity data (name, address, date of birth, taxpayer ID) that supports a firm’s Customer Identification Program (CIP) and notes that the information may be verified. It also includes customer-profile items like occupation/employer and source of funds, which are commonly collected for KYC screening and AML-related monitoring at account opening.
At account opening, customer screening is designed to help a firm form a reasonable belief it knows the true identity of the customer and to gather baseline KYC information used to understand the customer’s profile and detect higher-risk or suspicious activity. The exhibit specifically calls for CIP-style identifiers (legal name, residential address, date of birth, taxpayer ID) and adds KYC/AML-oriented items (occupation/employer and source of funds), while stating the information may be verified. Those features support an interpretation focused on identity verification and customer screening—not on product pricing or tax allocation mechanics.
Which statement is most accurate about opening a new customer account at a broker-dealer for potential DPP purchases?
Best answer: C
Explanation: New accounts require core customer identification and profile information plus any required agreements/authorizations to be in place before the firm processes transactions.
Opening a customer account requires the firm to establish a new account record with key customer identifying information and to understand the customer’s financial profile and investment objectives. The firm also must have the necessary account agreements and authorizations in place so the account can be operated and transactions can be accepted and processed appropriately.
At account opening, a broker-dealer must create a new account record that captures core customer information used for identification and for evaluating whether future recommendations are appropriate. In practice this includes collecting required identifying data (consistent with the firm’s CIP procedures) and gathering customer profile information such as financial status and investment objectives. The firm must also obtain the agreements and authorizations needed to operate the account (often via signed or electronically accepted documents) before it accepts and processes orders.
The key takeaway is that account opening is not just paperwork for a specific product; it is the firm’s baseline process for customer identification, customer profile collection, and required account documentation.
A customer opening a new account is age 40, has one dependent, and has $50,000 in liquid assets. He expects to use $40,000 as a home down payment in 12–18 months, but also wants “real estate income.”
Exhibit: Offering comparison (summary)
Based on the customer’s profile, which offering best matches the decisive suitability factor in this scenario?
Best answer: A
Explanation: The customer’s near-term down-payment need makes relative liquidity the decisive factor, and only the non-traded REIT offers any repurchase feature.
The customer has a specific, near-term liquidity need (a home down payment in 12–18 months), which is a critical additional profile factor for DPP suitability. Between the two choices, the non-traded REIT is the better match because it is the only program described with any repurchase feature, even though it is limited and not guaranteed.
Liquidity needs and time horizon can override a customer’s general interest in “income” when evaluating DPP suitability. Here, the customer expects to need most of his liquid assets for a down payment within 12–18 months, so tying up funds in an illiquid, long-term program is a major concern.
Given the exhibit, the private real estate LP has multiple features that heighten liquidity risk (no redemption program, limited transferability, and possible additional capital contributions). The non-traded REIT is still generally illiquid, but it at least includes a share repurchase plan and eliminates capital-call risk in the summary, making it the better match to the decisive factor presented.
A repurchase plan is not a promise of liquidity, but it is a meaningful differentiator versus no redemption feature at all.
Under a broker-dealer’s Customer Identification Program (CIP), which set of information must be obtained from an individual customer before opening a new account?
Best answer: B
Explanation: CIP requires these four identifying items to be collected for an individual before an account is opened.
CIP is the account-opening requirement focused on verifying a customer’s identity. For an individual, the firm must obtain the customer’s name, date of birth, address, and an identification number (e.g., SSN) before opening the account. Other financial-profile items may be collected for suitability, but they are not the core CIP identifiers.
CIP (part of a firm’s AML program) requires the broker-dealer to collect enough identifying information to form a reasonable belief it knows the true identity of each customer. For an individual opening a new account, the core CIP data elements are: name, date of birth, a physical address, and an identification number (typically a taxpayer identification number such as an SSN). Additional information like employment, investment experience, or financial condition may be collected on the new account form for suitability and supervision, but those items do not replace the required CIP identifiers.
A customer is opening a new brokerage account specifically to purchase interests in a real estate DPP. The representative has collected the customer’s identifying information and completed the firm’s new account form (financial profile, investment objectives, and risk tolerance).
Which option best matches the supervisory approval/documentation requirement that must be satisfied before the first DPP transaction can be accepted in the account?
Best answer: D
Explanation: A registered principal must approve the completed new account documentation before the first transaction is effected.
Broker-dealers must supervise the opening of new accounts, including ensuring required documentation is complete and reviewed. A key control is registered principal approval of the new account record before any initial transaction, including a DPP purchase, is processed. This ties supervision directly to the account-opening documentation that must be maintained in the firm’s records.
The core account-opening control tested here is supervisory review of the new account record. Before the first transaction is accepted, the broker-dealer typically requires that a registered principal review the completed new account documentation (e.g., customer identifying information and the customer’s financial profile and objectives) and approve the account for activity. This approval is part of the firm’s supervision and recordkeeping framework and helps ensure accounts are opened with complete, accurate information and appropriate oversight before DPP subscriptions (or any securities transactions) are processed. Offering-document delivery and issuer paperwork may be required for the transaction, but they do not replace the broker-dealer’s required supervisory approval of the new account record.
A registered rep discusses a nontraded real estate DPP with a customer who is accredited and wants to invest $75,000 from a brokerage account. The customer is age 63, was recently laid off, has two dependents in college, carries a large mortgage, and says she may need access to these funds within 12–18 months if she does not find new employment. She has limited experience with illiquid alternative investments.
Which action best aligns with suitability/best-interest standards for DPP recommendations?
Best answer: B
Explanation: Material profile factors (employment, dependents, mortgage, and near-term liquidity need) can make an illiquid DPP unsuitable even if the customer is accredited.
DPP suitability requires more than meeting an eligibility or accreditation standard. The customer’s age, recent job loss, dependents, mortgage obligations, limited alternative-investment experience, and stated 12–18 month liquidity need are material factors that can conflict with an illiquid DPP. The rep should update and document the profile and align the recommendation (or non-recommendation) with those constraints, using supervisory escalation as required.
A DPP representative must evaluate whether a customer can reasonably bear the key product features of a DPP—especially limited liquidity and longer time horizons—based on the customer’s full investment profile. Here, the customer’s recent unemployment, dependents’ expenses, significant housing debt, limited experience with illiquid alternatives, and stated need to access funds within 12–18 months are all additional profile factors that directly increase liquidity risk and the likelihood of needing to sell at an inopportune time (or being unable to access funds). The appropriate action is to update the customer profile, clarify and document liquidity/time-horizon needs, and, if those needs are confirmed, avoid recommending the illiquid DPP and follow firm supervision/escalation requirements. Eligibility or a signed risk acknowledgement does not substitute for a suitability/best-interest analysis.
A customer is opening a new brokerage account specifically to purchase units of a nontraded REIT DPP. The customer says, “If something goes wrong, I want the ability to take the firm to court and be part of a class action.” The new account packet includes a predispute arbitration agreement.
Which tradeoff is the most important for the representative to disclose before the customer signs?
Best answer: B
Explanation: A predispute arbitration agreement primarily trades away the ability to litigate in court (including jury trial and often class actions) in favor of arbitration, which must be clearly disclosed.
A predispute arbitration agreement sets the forum for resolving future disputes with the broker-dealer. The key tradeoff is that the customer generally gives up the right to sue in court (including a jury trial and often participation in class actions) and agrees to arbitration, which must be presented clearly and prominently before signing.
Predispute arbitration agreements are used in brokerage account documentation to require that most future customer disputes be handled in arbitration rather than through court litigation. Because this changes how a customer can pursue remedies, the representative must ensure the customer receives clear, understandable disclosure of the practical effects before signing—most importantly that the customer is agreeing to arbitration and typically giving up the right to a court trial (including a jury trial) and often the ability to be part of a class action.
The other listed items are real DPP investment risks, but they are not the distinctive “tradeoff” created by the arbitration agreement, which is about the dispute-resolution process, not product performance.
A customer has an individual brokerage account and wants to (1) change the account registration to a joint account with a spouse and (2) internally transfer funds from the existing account to purchase units of a new DPP offering.
Exhibit: Offering excerpt (USD)
| Item | Amount |
|---|---|
| Customer subscription amount | $50,000 |
| Selling commission | 7% |
| Dealer manager fee | 2% |
| Minimum net investment (after upfront fees) | $45,000 |
Assume upfront fees are deducted from the subscription amount. Rounded to the nearest dollar, which action should the registered representative take to properly proceed?
Best answer: D
Explanation: The net investment is $50,000 \(\times 0.91\) = $45,500, and a registration change/internal transfer must be documented and supervisor-approved before processing.
The subscription’s net investment is $50,000 less 9% upfront fees, or $45,500, which meets the offering’s $45,000 minimum net requirement. Even when the dollars work, changing account registration and journaling assets are material account changes that require proper documentation (new registration/authorizations) and supervisory review before the order is submitted.
Account registration changes and internal transfers can change who legally owns the assets and who is authorized to act, so firms require documentation and supervisory review to evidence customer intent and ensure proper approvals before a transaction is processed. Here, the rep should first determine the subscription satisfies the offering’s minimum net investment:
\[ \begin{aligned} \text{Upfront fees} &= 7\% + 2\% = 9\% \\ \text{Net investment} &= USD 50{,}000 \times (1 - 0.09) = USD 45{,}500 \end{aligned} \]Because $45,500 exceeds the $45,000 net minimum, the gating issue is operational/compliance: completing the new joint registration and written transfer instructions and routing for principal review before submitting the subscription.
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