66 Wrong
Kapco Investment Advisers currently has $138 million in assets under management and has offices in Colorado and Utah. Kapco's only clients in Utah are 2 insurance companies domiciled in that state. Kapco has no office in New Mexico but does service the accounts of 3 middle-class individuals. Kapco recently has opened an advisory account for a pension plan for a corporation located in Montana. Under the Uniform Securities Act, Kapco would have to register with: A) the SEC. B) the Administrator in the states of Colorado and Utah. C) the Administrator in each state in which it does business. D) the Administrator in the states of Montana and New Mexico.
A. With $138 million in assets under management, Kapco is a federal covered investment adviser and is only required to register with the SEC.
Which of the following investment advisers would be permitted to use the term "investment counsel"? A) A firm whose exclusive business is placing clients' assets into model portfolios. B) A professional providing a market timing service with an annual subscription fee of $995; this service attempts to maximize profits by suggesting entry and exit points for over 100 listed stocks. C) A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice. D) An investment adviser who has been admitted to the bar in the state in which the firm's principal office is located.
A. To use the term "investment counsel", two criteria must be met. First, the principal business of the adviser must be the rendering of investment advice. Second, the nature of the advice must meet the definition of investment supervisory service. That means giving continuous investment advice to clients based on their individual needs. That is frequently accomplished by selecting model portfolios most appropriate to the client's needs. The financial planner clearly is not principally in the business of offering investment advice because he describes his service as offering a wide range of services, of which advice is only a part. The exam frequently uses that wording to indicate that advice is not the principal activity. While the publisher's principal business activity may be offering advice, nothing about the description indicates that individual client accounts are being monitored.
An individual has a substantial vested interest in his 401(k) plan at work. Which of the following is NOT an exception to the premature distribution penalty tax? A) Distribution to pay medical expenses that exceed 7.5% of adjusted gross income. B) Distribution made to purchase a principal residence. C) Distribution made pursuant to a qualified domestic relations order. D) Distribution because of an employee's death or disability.
B. Although individuals can make penalty-free withdrawals from an IRA to purchase a principal residence, this exception does not apply to withdrawals from a 401(k) plan. The penalty for withdrawals from a 401(k) plan taken before age 59½ is waived only in the cases of death, disability, qualified domestic relations orders (QDROs), medical expenses, certain period payments, and corrections of excess contributions.
Under the Investment Advisers Act of 1940, a person who falls within the definition of an investment adviser must register with the SEC unless the adviser's only clients. A) consist of individuals with net worth in excess of $5 million. B) are insurance companies. C) do not exceed 25 in number during the preceding 12 months. D) are confined to employees of the federal government.
B. Among its exemptions, the Investment Advisers Act of 1940 grants an exemption from registration for those investment advisers whose only clients are insurance companies. The de minimis requirement only applies to foreign advisers.
An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose: A) the scheduled premium policy because earnings do not affect the contract's face amount. B) the flexible premium policy because earnings of the contract directly affect the face value of the policy and earnings can never be negative. C) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount. D) the flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value.
C. A scheduled premium variable life contract is issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract.
A registered investment adviser hires his friend to act as an adviser solicitor on his behalf. The friend asks if he is required to identify his affiliation with the adviser when contact is made to potential customers. If the adviser says that such disclosure is not required, he is not in violation of provisions of the Investment Advisers Act of 1940, which require disclosure of a relationship between an investment adviser and an investment adviser solicitor, if: A) the friend is an employee of the advisory firm. B) There are no exceptions. C) the solicitations are for impersonal advisory services. D) the friend is a client of the adviser's firm.
C. Disclosure of the relationship between an investment adviser and a solicitor is required unless the service involves impersonal advisory services only. An example of an impersonal advisory service is a newsletter that makes the same general recommendations to all readers.
