Series 7 Accounts and Suitability Practice Questions

Correct answer: D. Reasonable-basis suitability only

FINRA Rule 2111 imposes three obligations: reasonable-basis suitability (the product must be suitable for at least some investors based on reasonable diligence), customer-specific suitability (suitable for this particular customer's profile), and quantitative suitability (a series of recommended transactions is not excessive). Here, only reasonable-basis suitability is satisfied because the representative never evaluated this client's specific profile.

• AA. Incorrect. Customer-specific suitability requires the representative to weigh the recommendation against this client's age, finances, objectives, risk tolerance and experience. The stem says that assessment was never done, so this obligation is unmet.
• BB. Incorrect. Pairing reasonable-basis with customer-specific suitability fails because the customer-specific half is unmet. The representative never evaluated this client's profile, so the recommendation cannot be shown to fit this client.
• CC. Incorrect. Quantitative suitability looks at whether a series of recommendations is excessive given the client's profile, and it applies when the representative controls the account. A single product recommendation says nothing about trading volume, so this is not the obligation the facts satisfy.
• DD. Correct. Reasonable-basis suitability requires the representative to understand the product and have a reasonable basis to believe it is suitable for at least some investors, which the stem says was met. The customer-specific obligation fails because the client's profile was not evaluated. Quantitative suitability is not implicated by one recommendation.

• Source: FINRA Rule 2111, accessed October 2026

Correct answer: C. Concentration, liquidity, tax lots, risk tolerance and the possibility shares may be called away

A covered call earns premium but keeps most of the downside, caps the upside and can force a taxable sale. With a 70% concentration the adviser should weigh concentration, liquidity, tax lots, risk tolerance and assignment.

• AA. No minimum holding period is required to write a covered call; this does not address suitability.
• BB. Premium cushions only a small part of a decline and leaves substantial downside risk.
• CC. These factors capture the risks and tax consequences relevant to a concentrated retiree.
• DD. Contract mechanics matter little compared with the client's overall situation and risks.

• Source: FINRA Rule 2111 (Suitability), accessed October 2026
• Source: SEC Regulation Best Interest (17 CFR 240.15l-1), accessed October 2026

Correct answer: B. FINRA new-issue restrictions can prohibit allocations to restricted persons, absent a relevant exception.

FINRA Rule 5130 restricts new-issue purchases and allocations involving restricted persons, which include broker-dealer personnel. Eligibility and any exception must be reviewed before purchase at the offering price.

• AA. Industry registration gives no allocation priority and in fact can make the person restricted.
• BB. Rule 5130 can bar sales to restricted persons unless an exception applies.
• CC. The restrictions apply to the initial allocation at the offering price, before trading begins.
• DD. Broker-dealers and their associated persons are the core group the rule covers.

• Source: FINRA Rule 5130, accessed October 2026

Correct answer: A. Disclosure Obligation, Care Obligation, Conflict of Interest Obligation, and Compliance Obligation

Reg BI is built on four component obligations: Disclosure, Care, Conflict of Interest, and Compliance. Each imposes distinct duties. For example, Disclosure requires written disclosure of material facts and conflicts, while Compliance requires the firm to establish and enforce written policies reasonably designed to achieve compliance with the rule as a whole.

• AA. Regulation Best Interest is built on exactly these four components: Disclosure, Care, Conflict of Interest, and Compliance Obligations.
• BB. Reg BI replaced the old suitability standard rather than incorporating it as a named component, and this list omits the Conflict of Interest Obligation that Reg BI actually requires.
• CC. Care, Loyalty, and Prudence are terms more associated with fiduciary/ERISA duties, not the specific four named obligations that make up Reg BI.
• DD. Confidentiality and Recordkeeping Obligations are not among Reg BI's four defined components.

• Source: SEC Regulation Best Interest (17 CFR 240.15l-1), accessed October 2026

Correct answer: A. Establish, maintain, and enforce written policies and procedures reasonably designed to identify this conflict, and to eliminate sales contests, sales quotas, bonuses, and non-cash compensation based specifically on the sale of specific securities within a limited time

The Conflict of Interest Obligation requires policies reasonably designed to identify and address conflicts through disclosure, mitigation, or elimination as appropriate. But the rule goes further for certain high-risk incentives: firms must specifically eliminate sales contests, sales quotas, bonuses, and non-cash compensation tied to the sale of specific securities within a limited time. Disclosure alone is not sufficient for this category.

• AA. Reg BI's Conflict of Interest Obligation specifically requires firms to identify and, for compensation tied to sales of specific securities within a limited period, eliminate such incentives (sales contests, quotas, bonuses, non-cash comp) rather than merely manage or disclose them.
• BB. Disclosure alone does not satisfy the obligation for this category; a time-limited, security-specific incentive must be eliminated, not merely disclosed to customers.
• CC. Suspending all proprietary sales is an overcorrection not required by Reg BI; the rule targets the specific incentive structure tied to a security within a limited window, not proprietary sales generally.
• DD. Reg BI specifically requires that sales contests, quotas, bonuses and non-cash compensation tied to specific securities within a limited time be eliminated, so mitigation through supervision alone falls short.

• Source: SEC Regulation Best Interest (17 CFR 240.15l-1), accessed October 2026

Correct answer: B. It passes to the deceased partner's estate, per his will or intestacy law, since TIC carries no right of survivorship.

Tenants in Common ownership has no automatic right of survivorship. Each owner's interest is a distinct, separately transferable property right that passes through their estate. This contrasts with JTWROS, where a deceased owner's share passes automatically to the surviving joint owner(s).

• AA. Automatic passage to the survivor by right of survivorship describes JTWROS, not Tenants in Common, which carries no such right.
• BB. TIC ownership carries no right of survivorship, so the deceased partner's share passes to their estate, distributed per will or intestacy law.
• CC. TIC shares aren't necessarily equal and don't get redistributed equally on the books; the decedent's share passes through the estate.
• DD. The account isn't frozen indefinitely; the decedent's portion transfers to the estate while the surviving partner retains their own share, subject to normal estate administration.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026