A new client walks in with $200,000 to invest, wants margin, has a teenage daughter she'd like to save for college for, and just inherited cash from an uncle in Panama. Every piece of that conversation triggers a different rule: account type, CIP, suitability, Reg BI, AML monitoring, and recordkeeping. Knowing which rule attaches to which fact is the SIE in one paragraph.
A cash account requires the customer to pay in full for securities by settlement (T+1 for equities and corporate bonds). No borrowing. Retirement accounts, custodial accounts, and most trusts must be cash accounts.
A margin account lets the customer borrow from the broker-dealer to buy securities. The customer signs a margin agreement (the credit agreement), a hypothecation agreement (pledging securities as collateral), and optionally a loan consent agreement (permitting the firm to lend out the securities). Initial margin is 50% under Regulation T for marginable equities. FINRA Rule 4210 sets maintenance margin at 25% for long positions and 30% for short positions.
Common mistakes
- Filing a CTR for a $9,500 cash deposit. The threshold is over $10,000, not $5,000 or $10,000 exactly. $9,500 might trigger a SAR for structuring, but not a CTR.
- Confusing JTWROS with TIC. Survivor takes all in JTWROS; the decedent's share goes to the estate under TIC.
- Believing Roth IRAs require RMDs. Roth IRAs have no lifetime RMDs for the original owner. Roth 401(k)s lost their RMD requirement in 2024.
Bottom line
- CIP requires name, DOB, address, and SSN/TIN at account opening, verified within a reasonable time; records kept 5 years after closure
- CTR triggers on cash transactions over $10,000 in a single day (FinCEN Form 112); SARs cover suspicious activity $5,000+, filed within 30 days with absolute confidentiality
- Reg T sets initial margin at 50%; FINRA maintenance is 25% long / 30% short
- RMDs begin at age 73 for traditional IRAs and most employer plans; Roth IRAs have no lifetime RMDs; penalty is 25% of the shortfall (10% if cured)
Exam shortcut
CTR = Cash, $10,000+, 15 days. SAR = Suspicious, $5,000+, 30 days, silent. Same agency (FinCEN), different triggers. Margin = 50/25/30: 50% initial (Reg T), 25% maintenance long, 30% maintenance short. Memorize as a three-number string. Reg BI four obligations spell DCCC: Disclosure, Care, Conflict, Compliance. Retail customers only. ERISA coverage in one question: who sponsors it. Private employer = covered. Government or church = excluded.
The full lesson (about 3,519 words, 23 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C15
- C16
- C17
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