Series prac test question?

or Register to post new content in the forum

12 RepliesJump to last post



  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Oct 16, 2005 3:54 pm

Was taking a practice test today and got a question:

Which is the following are governed by the Prudent Man rule?

I: Trustee
II: Executor
III: Custodian
IV: Regged Rep who has been granted discretionary authority


Which is it? I don’t remember ever reading about this and can’t find it in the book. Thanks


Oct 16, 2005 4:44 pm

It’s definitely a trustee and definitely not a custodian, so through the process of elimination, the answer has to be A.

Oct 16, 2005 5:11 pm

it’s actually B, if im not mistaken it asking in simple mans terms who should be more carefull when making decision with authority

Oct 16, 2005 7:14 pm


OK, Marc, with apologies for all the confusion here is some clarification.  The Prudent Man rule applies to investment decisions made by FIDUCIARIES, i.e., trustees and executors.  A custodian has NO DISCRETION over investments and CANNOT thus be held to the Prudent Man rule.

The answer is A...of that I am confident.  Moonlight, you couldn't be more wrong.  Sonny, you are closer, but custodians have no investment responsibility, so that's not going to work either, and yes, you could be wrong.  When you're not sure, you shouldn't guess when someone's test results are at stake.

Here's the link...y'all ever consider Googling it rather than guessing?!!

Where's Bill Singer when you need him?!!

Oct 17, 2005 11:11 am

This is straight out of EDJ:


1.) Administrator

2.) Executor

3.) Trustee

4.) Guardian

5.) Custodian

Right next to that is Rules for fiduciaries:

1.) Prudent Man Rule

2.) The Legal List Rule

I am very confident the answer is, as per Sonny, D.

Since when do custodians not have Discretion?

Oct 17, 2005 3:35 pm

A financial institution that holds in custody and for safekeeping the securities and other assets of a third party.

I see nothing about discretion here.  Having worked in the trust industry in a prior life, I can tell you that custodians do not have investment discretion.  The fact that the EDJ training manual implies otherwise gives me no comfort that it is right.  Have you even had an IRA CUSTODIAN exercise investment discretion over a customer's investments?!!

Guys, I'm chillin', but I'm still confident that custodians have no discretion over investments and are thus, NOT subject to the prudent man rule.  I'm still stickin' with A...

Oct 17, 2005 6:22 pm

Sonny, with apologies to Marc and the rest of you posting here, I'm throwing in the towel.  I can't come up with a rational answer why number IV wouldn't be subject.  The only thing I can guess is that the custodian referenced is not a financial institution custodian, but rather a custodian under the UTMA or UGMA, which, yes, would be subject to PMR.  Why the type of custodian is not better defined is beyond me, as the term custodian obviously means differenty things to different people.  Obviously, an IRA custodian (which merely safeguards assets) is much different than a custodian under UTMA (which is responsible for investment decisions for a minor), and the question ignores this possibility.

I'm eating crow and changing my answer to D, but they'd better define custodian in this context or the school janitor will be subject to the prudent man rule.

Oct 17, 2005 9:29 pm

I’m almost certain the answer is D.  I just took the 66, did quite
well on it, and D is the answer I would’ve chosen.  It all of
them.  In fact I think that question might have actually been on
the test.  Of course, they dont let you see the answers afterwards
so we’ll never know.  Doesn’t your practice test have the answers

Oct 18, 2005 4:43 am

Many thanks guys for hashing this out for me I agree fully as this question was taken from the Dearborn practice cd which I’m am required to take once a day pretty much. The worst question I’ve seen so far is as follows:

Yield based options expire on the Saturday:

A) following the third Friday of the month
B) preceding the third Wednesday of the month
C) following the third Friday of the month
D) preceding the third Friday of the month

Anyway, I was taking the stc tests and scoring about a 76 average but now they (employer) has said I have to use only Dearborn materials at present, and when I took my DB test yesterday I got a 68… Sorry just venting at my frustration… I go for my S7 on the 26th…


Oct 20, 2005 4:28 am


Well at least you have a 50/50 chance of getting it right. Don’t get too freaked out. Keep practicing and you will pass the test. If its the same as the edj material the questions are a bit tougher than on the actual s7. I recieved some excellent advice which is in a later thread called …       Series 7 and EDJ training … Its the forth page back on rookies and trainees.



Thats awesome, I’m definitly paying attention to it. I got on Wed of next week… I just broke into the 70ies using Dearborn… I am really not a big fan at all of it’s test prep materials… but ML is requiring me to use them so I don’t really have a choice. Any pretest cramming tips sonny?

Oct 20, 2005 10:44 am

I know you asked Sonny, but I'll give you two pieces of advice from someone who scored a 96% (241/250) on the 7, even though it was a few years ago...

1.  Spend at least most of your time on practice tests...only refer to the books when you need clarification on a topic you truly do not understand.  The practice tests will help you with memorization and they closely approximate the real thing, even though some of the questions are poorly written.

2.  Focus heavily on areas where you are scoring poorly and once you have those areas covered, go back to reviewing all of the material.

Sonny, your turn...

Oct 21, 2005 5:20 am

[quote=SonnyClips]Couldn’t have said it better myself. Could have done better on the test though 80%. Only thing I did differently is I followed Maybeeeeeee’s advice and wrote things down I was having trouble on. This helped me because I tend to watch tv while I study .



I have the same problem hahaha… But latly I’ve been managing to turn it off… I do use the same method of writing things I don’t rememmber the answer to and somehow that always helps me remember it. Scored a 66 on my prac test two days ago and a 72% yesterday… we’ll see what I can get today while working cause hopfully it’s poker night tonight, so I get to relax