General Securities Representative (Series 7) Practice Exam

What steps must a firm take upon the death of an account owner?

1. Close the account immediately

2. Cancel all open orders and freeze the account

3. Mark the account inactive

4. Notify the beneficiaries

The correct answer is: Cancel all open orders and freeze the account

Upon the death of an account owner, it is standard practice for a firm to cancel all open orders and freeze the account. This step is essential to safeguard the assets within the account during the transition period following the owner's death. By freezing the account, the firm prevents any unauthorized transactions or withdrawals that could complicate the settling of the estate and the distribution of assets. The cancellation of open orders ensures that no trades are executed that the deceased account holder may have intended, providing a level of protection for the estate. Once the account is frozen, the firm will typically await further instructions, such as the identification of beneficiaries or the executor of the estate, allowing for a proper legal process to follow. While marking the account inactive or notifying beneficiaries are steps that may eventually occur, they come after the preliminary action of canceling orders and freezing the account to maintain the integrity of the account's holdings during this sensitive period. Closing the account immediately does not allow for the proper resolution of the account's assets, which is why this option is not appropriate.