CRFA Ethics
Please complete the quiz below, print, and fax back to
(405) 376-2650.
1.You showed a client how she could reduce the income tax on her Social Security benefits. Now she asked you to prepare her tax return. It’s a simple one that would take less than an hour of your time, and you would pick up $200. What should you do?
Your answer:
- As long as you have software that guarantees the accuracy, it’s okay to do it.
- Show your client how to do the return herself.
- Refer her to an accountant who gives you a commission.
- If you are not properly licensed and have not received approval from your company or B/D, you must refuse the work.
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2.Your client, Bert, referred you to his best friend and neighbor, Ernie. Ernie forgets to bring in his tax return to the first appointment. He tells you that you could just use the information from Bert’s since both retired from similar jobs at the same company. What should you do?
Your answer:
- Continue with the appointment and do the best you can with what you have.
- Pull out Bert’s return and review with Ernie just to confirm what he said.
- Pull out a blank return and ask Ernie to estimate his income and deductions.
- Tell Ernie that you can’t help him without seeing his tax return.
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3.Which one of the following is not the state’s responsibility in regulating the insurance industry?
Your answer:
- Licensing insurance companies
- Licensing agents
- Monitoring marketing practices of insurance companies
- Monitoring income tax returns of agents.
______
4.Which one of the following generally does not fall within the federal government’s regulatory responsibility?
Your answer:
- Tax provisions
- Rebating
- Insurance products that are considered securities
- Pensions
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5.Which gives the federal government the power to oversee state regulation of the insurance industry?
Your answer:
- ERISA
- The U.S. Supreme Court
- The McCarran-Ferguson Act
- TEFRA
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6.Which one of the following is not part of state insurance laws?
Your answer:
- The policy forbidding policy replacements
- The requirement that only approved policies may be sold
- The policy against rebating
- The prohibition against misrepresentation
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7.Which one of the following is not a characteristic of implied authority?
Your answer
- It is not specifically spelled out
- It is the general customs of the business
- It is not contractually provided
- It is not intended to be given by the insurer
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8.To get numbers up, an insurance company’s sales manager secretly allowed its agents to tell prospects that they could never lose money with EIAs. This insurer has given which type of authority to its agents?
Your answer:
- Apparent
- None
- Express
- Implied
______
9.During the approach part of the sale process, what must you never do?
Your answer:
- Tell the prospect whatever is necessary to get the appointment
- Buy the prospect something to drink
- Offer to call the prospect to set up a time to meet
- Hand the prospect your business card
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10.Why is there an ethical problem in using terms such as private pension?
Your answer:
- Such plans can only be used with cash value policies
- Such plans are not approved by ERISA
- It is not a problem since clients will own the policy
- It is unfamiliar to the general public and hides the point that it is a life insurance policy
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11.A client should be able to hold onto a deferred, variable annuity until at least:
Your answer:
- The free-look period has expired
- 10 years
- He or she has retired
- The surrender charge period has ended
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12.Which are penalties that clients might possibly have to pay if they take an early withdrawal from a deferred, variable annuity?
Your answer:
- Surrender charges
- A 10% IRS tax penalty
- Both a and b
- None of the above
______
13.The Free-Look provision:
Your answer:
- Is an optional benefit of a variable annuity
- A tax implication of a variable annuity
- Gives clients a set time to review insurance-related products and request a full premium refund without giving a reason
- Guarantees that a variable annuity will not lose money during this period
______
14.Which of the following is a tax characteristic of a deferred, variable annuity?
Your answer:
- Earnings grow tax-free
- Earnings are taxed as ordinary income when withdrawn
- Earnings are taxed as capital gains when withdrawn
- Beneficiaries receive the proceeds at the step-up in basis amount
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15.You should generally consider deferred, variable annuities as:
Your answer:
- Low risk investments
- Long-term investments
- Short-term investments
- A source of current income
______
16.When recommending a deferred, variable annuity, you must:
Your answer:
- Emphasize the living benefits
- Be sure the annuity, including optional features, riders and subaccounts, is suitable
- Emphasize the death benefits
- Emphasize the tax savings
______
17.Which of the following deferred, variable annuity costs and fees can you ignore disclosing to a client?
Your answer:
- None of the answers below
- Cost of optional features
- M&E and administration fees
- Surrender charges
______
18.You have helped clients reduce their projected estate taxes; therefore, as a registered representative or insurance agent, you can tell prospects that you are an estate planner.
Your answer:
- Only if you can document what you have done for other clients
- Not under any circumstances
- Only if you have the software to show before and after comparisons
- Only if you have an attorney to refer clients to
______
19.You plan to offer a deferred annuity to a client as a way to reduce her current income taxes. What is one long-term characteristic of the annuity that you must include in your presentation?
Your answer:
- First-year bonus
- Some day, she or her beneficiaries will be responsible for the income tax on the annuity’s deferred gains
- Your commission
- Earnings will grow tax-free
______
20.A prospect wants to buy one of your company’s in-house mutual funds that recently received a favorable review in a financial publication. He won’t, however, disclose any of his financial information. What should you do?
Your answer:
- Make him sign a disclosure that you’ll prepare
- Tell him that you cannot accept his business
- Take his check and have him sign a blank application
- Make up figures to put on the application
______
21.A 65-year-old prospect called and wants to drop off a check for the variable annuity you proposed last week. You’ve been out of prospectuses for two weeks. What should you do?
Your answer:
- Offer to go to his house as soon as the prospectuses arrive
- Take his check and have him sign the application
- Tell him not to date the check
- Don’t date the application
______
22.You have an insurance license and an NASD Series 6 license. A long-time client shows you a portfolio of stocks that she just inherited. She plans to leave today for a four-week cruise and asks for your advice. You know that an EIA would be better for her. What should you do?
Your answer:
- Take the business and get with another advisor in your office who has a Series 7 license when he comes in tomorrow.
- Since you know her financial situation, make the recommendation and accept the business.
- Don’t date any of the paper work.
- Tell her that you’ll have to wait until she returns.
______
23.A client does not like his mutual fund’s volatility and the tax he pays on distributed capital gains. You believe that an EIA would better meet his needs. Which should you NOT do?
Your answer:
- Explain that the EIA will give the same returns as the mutual fund but without the downside risk
- Explain the tax benefits of an annuity
- Disclose the annuity’s fees
- Explain that he can name a beneficiary
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24.You just read in a well-known financial magazine that a mutual fund you frequently recommend has the highest 30-day return in its category. How can you use that information?
Your answer:
- Send copies to all your clients
- Bring it up at your next retirees seminar
- Send it to your compliance department and ask permission to use the article
- Tell your clients that your recommendations are better than that of other advisors
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25.You made an LTCI presentation to a retired engineer. He did some comparison shopping and brought in a proposal from another company that is $200 less expensive. What is one thing that you should NOT do?
Your answer:
- Write him a $200 check if he signs up today
- Bring in your manager
- Offer to compare the two proposals
- Tell him that’s the best you can do
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Complete your name, e-mail, and date in the space below:
Name: ______
E-Mail: ______
Date: ______
Print and fax back to (405) 376-2650 to get CE credit for this course upon a passing grade.
If you have any questions, please e-mail .