Before recommending investments, establish who owns the money, who can direct trades, and how the account is taxed. When informing customers of account types, explain each one's costs, services, disclosures and restrictions.
A brokerage account generally charges for transactions. An advisory account provides investment advice for a fee, often based on assets and payable even without trading. Compare expected activity, monitoring and total costs before recommending a fee-based relationship. Regulation Best Interest covers retail account recommendations. Deliver the Customer Relationship Summary (CRS), issued as Form CRS, by the earliest required recommendation, order or brokerage-account opening.
Prime brokerage lets an institutional customer use several executing brokers while one firm coordinates custody, clearing and financing. Verify eligibility and written agreements; it is unnecessary for an ordinary mutual-fund account. Prime-brokerage arrangements
Account registration identifies the legal owner and determines whose instructions, restrictions and succession rights apply:
- Individual: One person owns the account.
- Joint tenants with right of survivorship (JTWROS): Owners generally have equal interests; a deceased owner's interest passes to surviving owners.
Common mistakes
- Treating a 40% tenants-in-common interest as automatically passing to the surviving co-owner. It passes through the deceased owner's estate.
- Using the former $7,000 IRA ceiling for 2026. The base limit is $7,500.
- Treating 20% withholding as a rollover penalty. It is prepaid tax, as Example 2 shows.
Bottom line
- JTWROS provides survivorship; tenants in common does not.
- Rule 4512 governs customer information and requires reasonable efforts to obtain trusted contacts for noninstitutional accounts.
- Rule 4514 requires written negotiable-instrument consent; Rule 4515 controls order-account designation changes.
- The 2026 combined IRA limit is $7,500, or $8,600 from age 50, subject to compensation.
Exam shortcut
Read the verb first: “own,” “trade,” “withdraw” and “inherit” test different authority and tax rules. For money movements, identify the source account, recipient and destination before considering any deadline. Circle age, birth year and beneficiary relationship. These facts select the distribution rule before you calculate tax. When an answer calls all withdrawals taxable, look for after-tax basis. When it calls all Roth withdrawals qualified, check both clocks.
The full lesson (about 3,078 words, 22 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- B3
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