Background

Tom and Sharon Brown are not happy with their current investment advisor. They are seeking investment management and financial advisory services from someone they can trust. You are a registered investment advisor in your home state of Kansas. You have been in business for seven years and work with a select group of 70 clients. You offer financial and investment planning advice for either a percentage of assets under management or hourly fees. During the initial meeting with the Browns, you gather the following financial information:

Personal Data & Background Information

Primary Contact: Tom Brown Age: 53 Occupation/Title: Operations Management / VP of Operations

Secondary Contact: Sharon Brown Age: 56 Occupation: Home Maker

Children: Tom does not have any children of his own. Sharon has three children in college from her previous marriage; Maggie, 18; Shelby, 20; Candy, 22.

Marital Status: Comfortably married for eight years.

Relevant Financial Information

The Browns estimated net worth is $3 million. The majority of their financial wealth is allocated among Individual Retirement Accounts, Toms 401(k) plan, and a taxable investment account.

Sharon was widowed in her first marriage and the majority of the savings in the taxable account is life insurance proceeds. The account is a joint account and Sharon hopes to use a portion of the savings to help her girls purchase their first home. They have a 529 plan for college expenses.

Tom has an above average risk tolerance and Sharon leans more toward conservative, low risk investments.

Financial Objectives

Seek and find a reputable, ethical investment advisor to aid in their wealth accumulation and financial development.

Both have had undesirable experiences in the past working with other financial planning professionals and seek to understand the regulatory and ethical requirements for financial planners.

Work with an advisor to help them agree on an investment strategy to preserve their savings for future retirement.

9. As an investment advisor, you are required by the Investment Advisor Act of 1940 to provide the Browns with information regarding the background and practices of your business. How often are you required to deliver this information?

a) Only once at the beginning of the advisory relationship.

b) At the beginning of the relationship, and semi-annually there after.

c) At the beginning of the relationship, and annually there after.

d) At the beginning of the relationship, and every time you make an update.

10. Sharon, whom you never spoke with following the first client meeting (Tom handles all the financial affairs), calls to inform you that she is filing for divorce. She has asked you to notify her if Tom requests to withdraw funds from the jointly held taxable account. You:

a) Explain to Sharon that you represent Tom because he is the primary contact on the accounts

b) Suggest to Sharon that she open a new account and transfer half the account balances

c) Put a "hold" on the accounts to prevent future withdrawals from either party

d) Follow the requests made by Sharon within the limits of joint account ownership