Series 7 Exam Question 341: Answer and Explanation

Question: 341

One of your customers is interested in investing in an oil and gas limited partnership. As their registered rep, which of the following steps are you required to take?

I. Prescreen the customer.

II. Determine the economic soundness of the program.

III. Explain the risks of investing in limited partnerships.

IV. Have your customer fill out a partnership agreement.

• A. I and III
• B. I, II, and III
• C. II, III, and IV
• D. I, II, III, and IV

Correct Answer: B

Explanation:

B. Investors of limited partnerships bear additional risks, such as the possibility of money being tied up for a long period of time, little or no liquidity, the making of additional loans to the partnership, and so on. As a registered rep, you need to prescreen your customers to see whether they're a good match for the partnership. You should also look at the partnership and management itself to see whether they have a good track record and whether the partnership makes sense. You need to explain the risks to your customer and have your customer fill out a subscription agreement, not a partnership agreement. The subscription agreement needs to include a check, a signature giving the general partner power of attorney, financial statements, and so on.