FINRA Series 26 Practice Test

Answer choices

1. A. Conduct a targeted review of the representative's recommendations and require customer-specific documentation showing why each recommendation satisfies the applicable best-interest standard.
2. B. Accept the pattern because consistency across customers demonstrates a standardized supervisory process.
3. C. Review only whether the fund is on the firm's approved list; customer circumstances are not relevant once due diligence is complete, and document the decision without performing the additional mutual-fund sales verification the cited authority calls for.
4. D. Approve future recommendations automatically if the representative's production remains below the branch average.

Wrong-answer review

• B. Accept the pattern because consistency across customers demonstrates a standardized supervisory process.: Incorrect. The proposed action does not satisfy the controlling rule or addresses the compliance issue at the wrong stage. Product approval is not a substitute for customer-specific recommendation supervision.
• C. Review only whether the fund is on the firm's approved list; customer circumstances are not relevant once due diligence is complete, and document the decision without performing the additional mutual-fund sales verification the cited authority calls for.: Incorrect. This would allow the deficient or prohibited practice to continue rather than satisfy the controlling requirement. Product approval is not a substitute for customer-specific recommendation supervision.
• D. Approve future recommendations automatically if the representative's production remains below the branch average.: Incorrect. This imposes an automatic result that the cited rule does not support; the required analysis is fact-specific. Product approval is not a substitute for customer-specific recommendation supervision.

Answer choices

1. A. Notify the trusted contact first because Rule 2165 never permits a firm to withhold notice from a designated contact, while leaving the underlying senior-investor protection deficiency in place until a later scheduled compliance review.
2. B. Do not notify the suspected trusted contact under the Rule 2165 notice exception, while providing required notice to other appropriate parties and continuing the internal review.
3. C. Release the hold because a suspected trusted contact prevents the firm from using Rule 2165's safe-harbor process.
4. D. Replace the trusted contact unilaterally and treat the replacement as authorized to transact in the customer's account.

Answer choices

1. A. Approve the sale because tax deferral is always beneficial regardless of the customer's circumstances.
2. B. Withhold principal approval until the file documents a reasonable basis for believing the customer would benefit from one or more features of the deferred variable annuity.
3. C. Approve if the customer's net worth exceeds $1 million because high net worth substitutes for Rule 2330 analysis, and document the decision without performing the additional variable-product sales verification the cited authority calls for.
4. D. Require only a signed prospectus receipt because delivery of disclosure documents satisfies the recommendation requirement.

Answer choices

1. A. File Form U4 for the chief executive officer because an individual registration form updates the firm's legal name, rather than completing the rule-specific broker-dealer registration control that addresses the identified risk.
2. B. File Form U5 for each registered person and then reopen their registrations under the new firm name.
3. C. Use Form BR exclusively because all broker-dealer amendments are processed as branch changes.
4. D. Ensure the firm files the appropriate Form BD amendment accurately and timely rather than treating the change as a Form BR event.

Answer choices

1. A. Use a format and media that comply with Exchange Act Rule 17a-4's electronic recordkeeping requirements.
2. B. Use any file format the branch manager prefers because FINRA has no requirements for electronically preserved broker-dealer records.
3. C. Convert every record to paper because Exchange Act Rule 17a-4 prohibits electronic preservation of required books and records.
4. D. Store required records only in the representative's personal cloud account as long as the files can be opened during an examination.

Answer choices

1. A. Change only the new supervisor's Form U4 because Form BR never identifies a branch supervisor or person in charge, while leaving the core branch-registration exception uncorrected under the firm's existing process.
2. B. Update the branch information through the appropriate Form BR amendment and ensure the supervisory designation and registrations are accurate.
3. C. Wait for the annual renewal cycle because changes to branch supervisory personnel are not reportable midyear.
4. D. File Form BDW for the former supervisor because branch-management changes require withdrawal of the broker-dealer.

Answer choices

1. A. Include targeted supervisory training in the Firm Element plan and document the training program and completion.
2. B. Exclude supervisory topics because the Firm Element may cover only representative-level sales content.
3. C. Wait for FINRA to assign the training because firms may not design their own Firm Element content.
4. D. Use the annual compliance meeting as the only permissible training response and omit the issue from the written plan.

Answer choices

1. A. Use an appropriately independent reviewer or otherwise satisfy Rule 3110's independence requirements so the inspection is not compromised by the producer's conflicts.
2. B. Allow the self-inspection because branch managers always have unrestricted authority to certify their own supervisory compliance.
3. C. Eliminate the inspection because a conflict of interest makes branch inspection impossible under FINRA rules.
4. D. Use customer satisfaction surveys as the sole inspection evidence because they remove the need for an independent internal review, while leaving the core supervisory-control and inspection exception uncorrected under the firm's existing process.

Answer choices

1. A. Automatically classify the candidate as statutorily disqualified because every officer shares the issuer's regulatory status.
2. B. Determine statutory-disqualification status from the candidate's own events and orders rather than treating the issuer's sanction alone as the candidate's disqualification.
3. C. Deny association permanently because knowledge of another person's misconduct is itself a statutory disqualification.
4. D. File an MC-400 automatically whenever a former employer has been the subject of an SEC enforcement action.

Answer choices

1. A. Keep the plan unchanged because Regulation S-P stops applying whenever customer data is hosted by an outside service provider.
2. B. Require customers to monitor every vendor themselves because outsourcing transfers the broker-dealer's safeguarding obligations to account holders.
3. C. Remove all service-provider contracts from compliance review because vendor security is a procurement issue unrelated to customer information.
4. D. Revise the program to address oversight and response to unauthorized access or use involving customer information maintained through relevant service providers.