A 28-year-old client executes five day trades in four business days. Your compliance officer flags the account. The client has $15,000 in equity. Can they keep trading? No. The $25,000 minimum is non-negotiable. One number, one rule, and it shows up on every Series 7 exam.
Individual accounts have one owner with full control. Joint accounts come in two forms that matter for the exam.
Joint Tenants with Right of Survivorship (JTWROS) means the surviving owner inherits the entire account automatically. No probate needed. This is the default for married couples in most states.
Tenants in Common (TIC) means each owner holds a specific percentage. When one dies, their share passes through their estate, not to the other owner. A TIC owner can leave their 60% to a nephew and the other owner gets nothing beyond their own 40%.
KEY: JTWROS = automatic to survivor. TIC = through the estate. The exam tests this distinction constantly.
Community property states add a wrinkle. Each spouse owns an undivided half of marital assets.
Common mistakes
- Using the wrong pattern day trading threshold. The rule is 4 day trades in 5 business days, not 3 in 5 or 5 in 5. The minimum equity is $25,000, not $10,000 or $50,000. Trap: $10,000 appears as a distractor because it sounds like a round regulatory minimum.
- Applying the 10% early withdrawal penalty to 457(b) plans. A 45-year-old government employee takes a distribution after separation from service. Candidates pick the answer with "ordinary income tax plus 10% penalty." Wrong. 457(b) plans never impose the 10% early withdrawal penalty. The correct answer is ordinary income tax only.
- Letting a non-spouse beneficiary roll an inherited IRA into their own. Only surviving spouses can roll an inherited IRA into their own IRA. Non-spouse beneficiaries must keep it as an inherited IRA and follow the 10-year rule. Trap: "Roll into her own IRA to defer RMDs" sounds helpful but is not permitted.
Bottom line
- Pattern day trader = 4+ day trades in 5 business days, with a $25,000 minimum equity requirement
- JTWROS passes the entire account to the survivor automatically; TIC passes each owner's share through their estate
- A trust account is titled to the trust and traded only by the trustee; where the trust document is silent the Uniform Prudent Investor Act governs, judging the portfolio as a whole and requiring diversification absent special circumstances
- DVP/RVP = simultaneous delivery and payment, institutional accounts only
Exam shortcut
When a question involves a government employee under 59 1/2 taking a plan distribution, check the plan type first. If it is a 457(b), eliminate every answer that mentions a 10% penalty. For account registration, remember "JTWROS = survivor gets all, TIC = estate gets their share." For CIP, count to four: name, birthday, address, ID number. If the answer lists a fifth item, it is wrong.
The full lesson (about 3,793 words, 25 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- B6
- B7
- B8
- B9
- B10
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