Study guide
The Series 7 begins where the job begins: finding customers and bringing them into the firm. This maps to FINRA's first two content-outline job functions, together worth roughly 20 of the exam's 125 scored questions. This chapter covers the communications rules that govern what a representative may say publicly, the documentation behind every account type, and the account-opening mechanics for options, margin, and transfers.
Communications with the Public
FINRA Rule 2210 classifies firm communications by audience, and the classification drives the approval and filing requirements. A retail communication is any written or electronic message distributed or made available to more than 25 retail investors within any 30-calendar-day period. Correspondence is 25 or fewer retail investors within 30 days. Institutional communications go only to institutional investors. Retail communications generally must be approved by a registered principal before first use. Correspondence and institutional communications require supervision rather than pre-approval. Social media follows the same logic: static content is retail; interactive real-time content is correspondence-like.
New Account Documentation and Ownership Types
Every account starts with a new account form collecting identity, employment, and financial profile. Ownership structure matters: JTWROS passes to survivors automatically; TIC passes through the deceased's estate. TOD lets an individual account pass to named beneficiaries outside probate. UGMA/UTMA custodial accounts hold an irrevocable gift for a minor. Discretionary accounts require prior written authorization and principal acceptance.
CIP, Know-Your-Customer and Suitability
CIP under the PATRIOT Act requires name, DOB, address, and ID number, verified and retained 5 years. Rule 2090 requires reasonable diligence to know essential customer facts. Rule 2111 suitability rests on reasonable-basis, customer-specific, and quantitative suitability. Firms must make reasonable efforts to obtain a trusted contact person and may place temporary holds when exploitation is suspected.
Opening Options Accounts (FINRA Rule 2360)
A Registered Options Principal must approve the account before the first options order. The ODD must be delivered at or before approval. The signed options agreement is due within 15 days after approval; trading may begin before it's returned, but the account goes to closing-only if it's late.
Account Transfers via ACATS
Customer signs a TIF; carrying firm validates or takes exception within one business day, then completes transfer within three business days after validation (Rule 11870). Assets transfer in kind. CIP verification is a separate obligation of the receiving firm.
Key terms
- Retail communication
- — Distributed to more than 25 retail investors within 30 days; needs principal pre-approval.
- Correspondence
- — 25 or fewer retail investors within 30 days; supervised, not pre-approved.
- Institutional communication
- — Distributed only to institutional investors; supervision, not pre-approval.
- Registered Options Principal (ROP)
- — Must approve an options account before the first order.
- Options Disclosure Document (ODD)
- — Must be delivered at or before account approval for options trading.
- JTWROS
- — A deceased owner's interest passes automatically to survivors.
- Tenants in common (TIC)
- — Each owner's share passes to their estate, not co-owners.
- Customer Identification Program (CIP)
- — PATRIOT Act requirement to collect/verify identity information.
- Suitability (Rule 2111)
- — Reasonable-basis, customer-specific, and quantitative obligations.
- ACATS
- — One business day to validate, three to complete transfer.
Exam tips
- Count the audience: >25 retail investors in 30 days = retail communication needing pre-approval.
- Static social media = retail communication; real-time interactive posts = correspondence-like.
- Options sequence: ODD before/at approval, approval before first order, signed agreement within 15 days after.
- ACATS: one day to validate, three days after that to complete.
- CIP belongs to the receiving firm, not the carrying firm.
- JTWROS survives to co-owners; TIC passes through the estate.