WANT TO PASS THE SIE EXAM? KNOW THE INS AND OUTS OF FEE BASED ACCOUNTS
Planning to sit for the SIE exam soon? Don't go into the test without familiarizing yourself with fee-based accounts. These are securities accounts where the broker charges one yearly fee that includes commissions, investment advice, and pretty much all other miscellaneous fees and expenses.
The brokerage firm charges a percentage fee on the daily assets in the account. Thus the calculation of fees is made daily, but deducted usually on a quarterly basis. For example if the annual percentage fee for an account is two percent, the brokerage firm will calculate a daily fee using 1/365 times two percent, or .02, times the assets in the account as of the close of trading on any given day. This fee is also charged for Saturdays and Sundays, and also for other non-business days, such as holidays.
The SEC includes fee-based accounts as one of its targets for its broker inspection and visitation. It has found many cases where brokers have enrolled customers in fee-based accounts, also called wrap-fee accounts, to the detriment of the customer. Therefore, avoid recommending wrap-fee accounts indiscriminately. Before you put a customer into one of these accounts, create a written record why you believe that a wrap-fee account is suitable and beneficial for the particular customer. These accounts are beneficial only for those customers who otherwise effect a lot of trades in their accounts and spend lots of dollars on commissions. If a customer does few trades and spends few dollars, don't recommend wrap-fee accounts.
We indicate above only a small example on our treatment on Fee-Based Accounts. Bob Eder's book, Study for the Securities Industry Essentials (SIE) Exam, covers these wrap-fee accounts in detail in Chapter 10 on Special Accounts.
Here is the link to FINRA's Study Outline for the SIE exam. See Section 3.2.1, entitled Account Types and Characteristics.
Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. He is a member of the Utah State Bar, currently on inactive status.
The brokerage firm charges a percentage fee on the daily assets in the account. Thus the calculation of fees is made daily, but deducted usually on a quarterly basis. For example if the annual percentage fee for an account is two percent, the brokerage firm will calculate a daily fee using 1/365 times two percent, or .02, times the assets in the account as of the close of trading on any given day. This fee is also charged for Saturdays and Sundays, and also for other non-business days, such as holidays.
The SEC includes fee-based accounts as one of its targets for its broker inspection and visitation. It has found many cases where brokers have enrolled customers in fee-based accounts, also called wrap-fee accounts, to the detriment of the customer. Therefore, avoid recommending wrap-fee accounts indiscriminately. Before you put a customer into one of these accounts, create a written record why you believe that a wrap-fee account is suitable and beneficial for the particular customer. These accounts are beneficial only for those customers who otherwise effect a lot of trades in their accounts and spend lots of dollars on commissions. If a customer does few trades and spends few dollars, don't recommend wrap-fee accounts.
We indicate above only a small example on our treatment on Fee-Based Accounts. Bob Eder's book, Study for the Securities Industry Essentials (SIE) Exam, covers these wrap-fee accounts in detail in Chapter 10 on Special Accounts.
Bob Eder's book, Study for the Securities Industry Essentials (SIE) Exam, can help you prepare for the SIE test. It is available through Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.
Here is the link to FINRA's Study Outline for the SIE exam. See Section 3.2.1, entitled Account Types and Characteristics.
Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. He is a member of the Utah State Bar, currently on inactive status.
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