Dishonest and Unethical Business Practices of Broker Dealers and Agents

A client's investment objective is safety of principal and income, and the client places an order with his agent to buy a speculative investment. The agent strongly encourages the customer to reconsider as he believes that the transaction would be unsuitable. If the customer insists that the trade proceed, the agent should: A) Obtain prior approval from one of the firm's general securities sales principals before effecting the trade. B) obtain a written statement of indemnification from the customer before effecting the unsuitable trade. C) Complete the trade D)Refuse to make the unsuitable trade, notify the customer of this by telephone, then send written notification by first-class mail or other prompt means.

C) Complete the trade If a client insists that a trade by done, then the agent should execute it. The firm may choose to protect itself by having the customer sign a nonsolicitation letter before effecting the trade.

A customer needs $10,000 to pay for a new house within the next year, His agents suggests that he invest in a stock that has been performing extremely well the past year and assures the customer that he cannot go wrong. According to the USA, this is an: I. unethical business practice II. Example of guaranteeing a profit III. Example of flamboyant language IV. Unsuitable investment A) I and III B) II and III C) I, II, III, and IV D) I and II

C) I, II, III, and IV

Sally Megabyte is an agent with a BD. She used her degree in computer science to develop her own stock picking software program. Back testing has shown that the program is likely to produce returns that beat the overall market. As a result, Sally plans to use this program for each of her clients. Sally: A) is engaging in an unethical business practice B) is going to make her clients very happy C) must make the details of how the program works available to all who request it D) is violating suitability requirements

D) is violating suitability requirements

A BD holds fully paid for customer securities for safekeeping. Under the NASAA Statement of policy on Unethical and Dishonest Business Practices of BDs and Agents, the BD: A) must segregate them B) may lend them to make delivery on short sales C) must pay interest to the client's D) would be in violation unless a properly executed margin agreement was in effect

A) must segregate them Any securities held in custody by a BD belonging to the BD. To do otherwise would be to commit the prohibited practice of commingling. Fully paid securities may not be loaned out, only those collateralizing a debit balance may be and then, only with customer permission.

An agent has a new client who is prone to tergiversation. As such, it would probably make sense to: A) obtain permission from both the client and the BD before sharing in the profits and losses in the acct. B) accept unsolicited orders only. C) make recommendations on a frequent basis D) open a discretionary account

A) obtain permission from both the client and the BD before sharing in the profits and losses in the acct Those who tergiversate repeatedly change their attitude or opinions. As a consequence, the client who likes an agent's recommendation one day may quickly change his mind the next. Therefore, the agent could be placed in an untenable position, being unable to satisfy the client. To avoid this possibility, it would be most sensible to leave all the decisions to the client and only accept unsolicited orders.

An agent receives a phone call from a customer's husband who does not have trading authorization over the wife's account. His wife is stranded while traveling and has asked him to instruct the agent to buy 1,000 shares of XYZ stock in her individual account to take advantage of a price drop. In the above situation, the agent should: A) refuse the order because the husband is not authorized to enter orders for his wife's account. B) refuse the order because the customer should buy the security for the long term rather than purchase the stock because of a temporary price drop C) accept the order only if the husband dates or emails an immediate release to the BD D) accept the order and carry out his client's wishes.

A) refuse the order because the husband is not authorized to enter orders for his wife's account. The agent must refuse the order because the customer did not supply prior written trading authorization. The USA prohibits the acceptance of orders on behalf of customers from persons who have not been granted third-party trading authority in writing.

According to NASAA Statement of Policy on Dishonest or Unethical Business Practices of BD and Agents, which of the following practices is NOT unethical? A) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares B) An agent of a BD exercised desecration in deciding the time that a sale took place during the trading day without expressed written discretionary authority C) within the first ten days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client D) An agent sold shares at a price less than authorized by a client

B) An agent of a BD exercised desecration in deciding the time that a sale took place during the trading day without expressed written discretionary authority

An agent would be engaged in a prohibited practice if he: I. shared commissions with other agents of his BD II. Sold a nonexempt, unregistered security to a CPA who specialized in auditing financial insitutions. III. Shared both the gains and losses in a client's account with written approval of both the client and the employing BD IV. aggressively traded a discretionary account on a daily basis with long-term growth as an objective A) I and IV B) II and IV C) I, II, III, and IV D) I and II

B) II and IV An agent cannot lawfully sell an unregistered, nonexempt security unless in an exempt transaction. The sale to the CPA is not an exempt transactions would be the sale to a financial institution, Dsay trading in an account with long-term growth as an objective would constitute unsuitable activity and, therefore, is prohibited under the USA. Sharing commissions is only permitted with agents of the same or affiliated BDs. Remember that investment adviser representatives may never share in the gains and losses in a customer's account in the same fashion that agents can.

The unethical business practice of purchasing and selling a security for the purpose of creating an appearance of market activity is known as: A) arbitrage B) matched orders C) front running D) spinning

B) matched orders

If the Administrator were to examine the actions of a particular agent to determine if the agent engaged in churning a client's account, focus would be placed upon: A) the length of time the account had been opened. B) the client's objectives, financial resources, and the character of the account. C)the number of complaints received relating to that agent. D) the amount of profits generated in the client's account

B) the client's objectives, financial resources, and the character of the account. Churning is the practice of generating commissions through excessive trading in a client's account. In order to determine what is excessive, the regulators will look at the client's investment objectives, financial resources, and the character of the account.

A customer has filed a complaint with the Administrator that alleges churning in his account. When investigating the case, mitigating factors would include all of the following EXCEPT: A) account activity B) the length of time the business relationship has existed C) character of the account D) objectives of the client

B) the length of time the business relationship has existed Regardless of long the account has been open, or how well you know the client, this is not a reasonable defense or churning

The USA permits excessive trading activity that generates high commissions and low returns in a customer's account: A) that is discretionary B) under no circumstances C) with written permission of the customer D) when it is consistent with the customer's needs.

B) under no circumstances Excessive trading activity in an account is called churning and is a prohibitive practice

Which of the following statements are TRUE of a discretionary account? I. It must be approved by a principal of the firm. II. It must be reviewed frequently III. A discretionary order may be placed once the customer has placed a power of attorney in the mail. IV. It must be approved by the SEC A) I and III B) III and IV C) I and II D) II and IV

C) I and II A new discretionary account must first be approved by a principal, orders must be approved on the day of the trade, and the account must be reviewed frequently for suitability

Adele, a retiring social worker, has some money to invest. An agent suggests she look into investing in a private placement security that is raising money to build apartment buildings in Puerto Rico. According to the USA: I. building projects are not appropriate for retirees who typically need immediate income. II. Private placements are not usually appropriate for retiring individuals because they are not liquid. III. No rule has been violated because the customer has only been offered the product. IV. If the customer lives in Puerto Rico, the proposed investment may be suitable because there may be a ready market. A) I and III B) II and IV C) I and II D) II and III

C) I and II This is not a suitable recommendation for a social worker about to retire. Based on the info given, on would expect that her objectives would be income with a high degree of safety, yet this building project will give her neither. Additionally, the private placement suffers from a lack of liquidity, something that could be an important factor in Adell;s future.

Which of the following actions by an agent would be an unethical practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents? A) An agent with discretionary authority enters a buy order for a security when it's price is rising. B) Telling a customer that the investment being recommended will be sold from the inventory of the agent's firm. C) Splitting commissions with a customer service representative who is not registered but works for the same firm. D) Recommending securities that result in losses in the customer's account

C) Splitting commissions with a customer service representative who is not registered but works for the same firm. Commissions can be received by only those with the appropriate registrations. A nonregistered person cannot participate in transaction-based compensation. We can never guarantee that our recommendations will be successful and sometimes they do result in losses.

If an agent has secured a signed statement from a customer that waives the customer's right to sue for a transaction in violation of the USA, the agreement is: A) legal but only In a criminal case. B) legal C) null and void D) legal but only in a civil case

C) null and void The USA explicitly states that no provision of the act may be waived, whether the client consents to the waiver or not.

Under the USA, which of the following activities is an example of churning? A) Bond swap B) A client engaging in day trading C) Frequent purchases one day and sales of the same stock the next day to make changes in a client's portfolio in order to align with a customer's investment objectives. D) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter.

D) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter. Churning is defined as excessive activity Ina. Customer's account for the purpose of generating commissions. Because Class A mutual funds carry a front-end load and are considered long-term investment vehicles, frequent trades constitute churning. Frequent purchases one day and sales of the same stock the next day in order to align with a customer's investment objectives is not necessarily churning if it is done for the benefit of the customer. A bond swap is not churning;it is generally done for tax purposes. If the client is initiating the day trades, the agent is not the one doing the trading so no churning is taking place.

Under the USA, it is permissible for an agent to: I. solicit transactions in unregistered exempt securities II. Share in the profits in an account with a customer with written permission of the customer and the BD III. split commissions with another agent at an affiliated BD. IV. Charge larger commissions because of a larger array of services the agent's firm offers A) I, III, and IV B) I only C) I and II D) I, II, III, and IV

D) I, II, III, and IV

Why does matched trading result in painting the tape? A) Matched orders generally result in meaningful profits for such traders B) Matched orders are generally executed outside of normal trading hours C) matched orders will appear on the OTC link D) The phony trades make the stock appear more frequently on stock tickers

D) The phony trades make the stock appear more frequently on stock tickers

One of the features of a BD is that they sometimes maintain an inventory of securities market, even when not in the role of market maker. If a BD has shares of a somewhat speculative , thinly traded stock in their inventory whose last reported trade was several days ago at $4 per share and the firm were to offer their shares at 10 per share, the NASAA Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents might consider: A) this prohibited because BDs may not offer stock to the public from their own inventory B) this is not prohibited because with thinly traded stocks, one expects there to be a wide spread C) this may only be done if the BD makes adequate disclosure to client's who purchase the stock D) this prohibited because the offering price does not bear a reasonable relationship top the current market

D) this is prohibited because the offering price does not bear a reasonable relationship to the current market. Yes it is always possible that in just a couple of days, this company's stock may have increased by 250%, but there is nothing in the question to indicate that. Yes, thinly traded stocks tend to have wider spreads, but not like this

Under the USA, the term guaranteed refers to all of these EXCEPT: A) Capital Gains B) Interest C) Principal D) Dividends

A) Capital Gains When a security is guaranteed, that means that someone other than the issuer has guaranteed timely payment if interest and principal on a debt security, or on the payment of dividends on an equity security.

Which of the following is an unlawful activity for an agent? A) Stating a belief that a security's price will fall B) Artificially creating the impression of market activity C) Stating that a security's registration has been declared effective by the SEC D) Stating a belief that a security's price will rise

B) Artificially creating the impression of market activity Securities regulations prohibit an agent from engaging in manipulative and deceptive deices in the trading of securities, such as misleading investors with the false appearance of active trading in a security. Stating that a registration is effective is fine as long as it is true. An agent may state a belief in the future price movement of a security, up or down, as long as no guarantees are given.

An agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be: I. Unsuitable and unethical II. A securities felony III. Grounds, in extreme cases, for suspension or revocation of the agent's license IV. Outside regulatory jurisdiction A) I only B) I and III C) IV only D) II and III

B) I and III

NASAA's Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents lists which of the following as prohibited business practice by a BD? I. Informing a customer that the price of a security is the current market price when the broker is the only party to offer a quote on the stock II. Charging get a higher than usual commission on a thinly traded stock III. Entering into a transaction with a customer at a price not related to the current market price. IV. Segregating customer's fully paid for securities A) I, II, and IV B) I and III C) I only D) II only

B) I and III The BD must have reasonable grounds for an offering price when it is the only party issuing a quotation. Entering into a transaction with a customer at a price not related to the current market price is a prohibited transaction under NASAA. The nature of thinly traded stocks makes higher than usual commissions acceptable as long as disclosure is made. BDs must segregate customer's gully paid for securities

In which of the following situations is an agent committing a prohibitive practice? A) Buying a security on behalf of a customer and then reselling it before the customer has paid for it. B) Using discretion to purchase a security in a discretionary account while awaiting written receipt of trading authority C) Allowing the customer to place an order to sell 100 shares of ABC in the client's discretionary of a price disparity D) Buying a security on one exchange and simultaneously selling it on another to take advantage of a price disparuty

B) Using discretion to purchase a security in a discretionary account while awaiting written receipt of trading authority Written receipt of trading authority is required before conducting any trade on a discretionary basis. Oral authorization is not sufficient; it must be in writing. It is not a prohibited practice to sell a security before the customer has paid for it ( day trading), and arbitrage (buying securities on one exchange and selling them on another to take advantage of temporary price differences) is also an acceptable practice. Although the agent may have trading authority in a discretionary account, nothing prohibits the client from making his own trades

Which of the following activities by a registered agent of a BD would constitute a prohibited practice under the USA? A) refusing to lend money to client's B) informing a customer of a negative research report recently published on a stock that represents the client's largest holding C) Personally raising capital, without written authorization from the BD, for a new high-tech venture being run by the agent's former college roommate D) Failing to disclose a non material fact.

C) Personally raising capital, without written authorization from the BD, for a new high-tech venture being run by the agent's former college roommate By attempting to effect securities sakes by circumventing his BD, the agent has committed the prohibited practice of a private securities trasaction, referred to as selling away. Failure to disclose a material fact would be prohibited, but no material facts drop not carry that burden. One would expect an agent to keep the client informed regarding news about securities held in the account, and agents would be expected to refuse to make loans to customers because that is a prohibited practice

Under the MASAA Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents, it would be considered a prohibited for a BD to: A) maintain an office in the state, but fail to register with the Adminstrator B) fail to maintain the required net capital C) have a history of repeatedly delaying the delivery of securities of its customers D) inform customers that past performance is no guarantee of future results

C) have a history of repeatedly delaying the delivery of securities to its customers. BDs are obligated to make prompt delivery of securities to their clients. Failing to maintain the required net capital, or failing to register are violations of the law, not a prohibited business practice

Conducting excessive transactions for a single customer is known as: A) reciprocating B) overselling C) libel D) churning

D) Churning

If the Administrator were examining the actions of a particular agent to determine whether the agent engaged in churning a client's account, focus would be placed upon the: A) amount of profits generated in the client's account B) length of time the account had been opened C) number of complaints received relating to that agent D) client's objectives, financial resources, and the character of the account

D) Client's objectives, financial resources, and the character of the account Churning is the practice of generating commissions through excessive trading in a client's account. To determine what is excessive, the regulators will look at the client's investment objectives, financial resources, and the character of the account.

Which of the following activities would be considered a prohibited practice under the NASAA Statement of Policy on Unethical or Dishonest Business practices of BDs and agents? I. An agent purchases a suitable stock for a client's acct prior to receiving written discretionary authorization II. An agent opens a brokerage account at his employing BD in his wife's maiden name in order to purchase an IPO being underwritten by the firm III. In order to meet production quotas, an agent opens several acts under fictitious names IV. Executing any transaction in a margin acct. without securing from the customer a properly executed written margin agreement promptly after the initial transaction in the account A) II and III B) I,II, and III C) I and IV D) I, II, III, and IV

D) I, II, III, and IV

Discretion is exercised when securities professionals determines all of the following EXCEPT: A) to buy or sell a particular security B) Dollar amount of trade C) Number of Shares D) time or price

D) Time or Price Determining over the time or Price of an order does not constitute discretion. The selection of the number of shares or the dollar amount of a trade constitutes discretion. When a registered securities professional determines what to buy or sell or the number of shares to be bought or sold, that person is exercising discretion.

According to the USA, all of the following are violations of suitability requirements EXCEPT failing to A) identify customer objectives B) determine the customer's ability to assume risk C) make reasonable inquiry of the customer's security holdings D) know the terms and conditions of the customer's will

D) know the terms and conditions of the customer's will

Watson, a customer of Baird (an agent of Gilbraltar Securities), is considering the purchase of 2,000 shares of Kansas Plains Gas and Electric company stock. Watson has stock in 10 other utilities companies in his portfolio, and this stock trades on the Chicago Stock Exchange (CHX). Baird tells Watson that the company has been increasing its dividend for the past 19 years and will surely continue to do so. Which of the following statements best reflects this situation? A) Baird has acted unethically, misleading Watson by implying that increased dividend distributions from Kansas Plains Gas and electric Company are a sure thing. B) Baird has acted ethically because she did not guarantee profits or the absence of potential loss to Watson. C) Baird has acted ethically in recommending the purchase of a stock with a long history of dividends. D) Baird has acted unethically because she made an unsuitable recommendation to Watson

A) Baird has acted unethically, misleading Watson by implying that increased dividend distributions from Kansas Plains Gas and electric Company are a sure thing. The agent has acted unethically, misleading the customer by implying that increased dividend distributions from the utility corporation are guaranteed. Given the customer's history of purchasing stock in other utilities, nothing in the question indicates that the trade is unsuitable for the customer.

Which of the following statements best reflects how front running is regarded by NASAA? A) Front Running is a prohibited practice for all securities industry professionals because t subordinates the interest of the customer. B Front Running is not a prohibited practice under the USA and is considered normal practice in the securities industry C) Front running is a prohibited practice for the BD, but not for the agent D) Front running is a prohibited practice for the agent, but not for the BD

A) Front Running is a prohibited practice for all securities industry professionals because t subordinates the interest of the customer. Front running is a prohibited practice for all securities industry professionals because it subordinates the interest of the customer

Abel Kane is an agent for Garden City Securities, a BD registered with the SEC and all 50 states. It would be considered an unethical or dishonest business practice for Mr. Kane to I, fail to make prompt delivery of certificates when requested by the customer. II. Fail to obtain written authorization for a discretionary acct prior to the first trade in that acct. III.accept an order from a client's spouse without trading authorization prior or receiving the order IV. Share commissions with another agent registered with Garden City Securities. A) II and III B) I, II, and III C) I and IV D) III and IV

A) II and III Agents have no responsibility for delivering customer securities. That is an obligation of the BD.

Under the USA, when one is referring to a security that is guaranteed, the guarantee applies to: I. Capital gains to be expected by holding the specified security II. Dividends to be paid on the specified stock. III. Interest and principal payment on the specified bond. IV. Reimbursement by the firm for any losses suffered while holding that security. A) II and III B) I and IV C) II and IV D) I and III

A) II and III The USA defines the term guaranteed as meaning guaranteed as to payment of principal, interest, or dividends.

Which of the following would be prohibited practices under the state securities law? I. Soliciting orders for exempt securities. II. Making recommendations on the basis of nonpublished analysts' reports. III. Failing to inform a client of unusually high commissions because the client does not complain IV. Failing to obtain prior written authority for orders from a third party A) III and IV B) I and III C) I and II D) I, II, and III

A) III and IV Failing to inform a client of unusually high commissions and not obtaining prior written approval for orders from a third party are prohibited practices. Soliciting orders for a security that is exempt from registration is a normal business practice. An agent may use nonpublished reports of his firms securities analysts as a basis for recommendations providing the nonpublished reports do not contain inside info.

An agent of a BD has a client who lost her job but will be starting a new job in three weeks. The client is in need of $900 for the three week gap. Under what circumstances may the agent arrange a loan for the client? A) If the client has $5,000 in her brokerage account B) If the loan is repaid within 30 days C) If the loan is less then $1,000 D) If the client is agent's niece

A) If the client has $5,000 in her brokerage account

Which of the following statements regarding matched orders is TRUE? A) Matched orders violate trading rules because they create the illusion of trading volume where such volume would not otherwise occur. B) Advisers should pursue matched orders because they mirror an investor's trading objectives and time horizon C) Matched orders reflect the timing of capital gains to be offset by capital losses and are considered an effective and permissible tax minimization strategy. D) Matched orders are a prohibited practice because they entail allocation of IPO stock in proportion to the level of customer trading activity.

A) Matched orders violate trading rules because they create the illusion of trading volume where such volume would not otherwise occur

An agent receives a notice of execution for 500 shares on a customer's order for only 400 shares. Which of the following actions could he take? A) Report the problem immediately to his supervisor B) Promptly sell the 100 share overage at the best available price. C) Break the trade within five minutes, enter a corrected order, and place the transaction on the error log. D) Promptly report the execution of 500 shares to the customer and waive commissions on the overage.

A) Report the problem immediately to his supervisor Agents generally do not fix errors. Agents should report errant trades to a supervising principal immediately.

If an agent is assigned to an account previously handled by an agent who has since left the firm, which of the following actions should the agent take first? A) Verify the account info B) Require the customer to sign a trading authorization naming the agent as the party with authority C) Suggest the customer buy one of the stocks the firm is currently recommending D) Liquidate the portfolio for immediate reinvestment in stocks the firm is currently recommending

A) Verify the account info The agent must verify and update client info before recommending trades. Without knowledge of the client's needs and financial profile, the agent cannot make suitable recommendations

Under the NASAA's Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents, when may an agent be given discretionary power to buy or sell securities for a client? A) when authority is given by a written document. B) Never. C) If authority is given within one week after the discretionary act. D) Only when the authority is specific, provided in advance, and specifies the amount, type, and timing of the transaction.

A) When authority is given by a written document Discretionary authority must be in written form. The only exception is when the discretion relates to time and/or price because, under the law, that is not considered to be discretion.

If a new customer will not state investment objectives and will not provide a financial statement, the agent may: A) accept unsolicited orders until the customer's suitability is determined B) sell only securities listed on a national exchange. C) solicit orders for any security without restrictions D) sell only stocks recommended by the BD

A) accept unsolicited orders until the customer's suitability is determined. The only type of transaction that may be executed for a customer of unknown financial status is one that is customer initiated- an isolated trade

After receiving complaint letters from an irate customer, the agent decides against a reply and is cards the letters. Under the USA, the: A) agent must forward all written complaints to a supervisory person. B) agent must forward material complaints to the Administrator. C) Administrator may, by rule, dictate how this should be handled. D) agent is entitled to decide how to handle such situations.

A) agent must forward all written complaints to a supervisory person The USA requires an agent to forward written complaints to a person who supervises that agent. Complaints need not be forwarded to the state securities Administrator

An agent who carefully evaluates a client's risk tolerance, financial situation and investment objectives engages in an unethical practice when he: A) automatically recommends securities that are highly regarded by other agents in the office B) buys or sells securities with exceptionally high commissions or transaction costs. C) underestimates a company's interest rate risk as a result of cautious accounting practices recently adopted by the company D) fails to discuss a company's working capital position (because the client does not want to be bothered by details) if the securities are fundamentally suitable for his portfolio

A) automatically recommends securities that are highly regarded by other agents in the office It is a prohibited practice to automatically recommend securities without having a reasonable basis for the recommendation; other agents recommending the security is not a reasonable basis for recommendation. Purchasing securities with high transaction costs is not prohibited that disclosure is made to the client. An agent is not required to describe all facts surrounding an investment, but he must present all those that are material. Regarding estimates of a company's interest rate risks, the representative did not misrepresent a material fact that would have otherwise precluded the client from purchasing the security

If a customer is upset with her agent and sends him a letter of complaint, under the USA, the agent should: A) bring the customer complaint to a supervisory person immediately B) do nothing C) call the customer, apologize, and attempt to correct the problem D) tell the customer he is willing to make recession.

A) bring the customer complaint to a supervisory person immediately

All of the following industry violations would probably constitute fraud EXCEPT: A) charging unreasonable commissions B) omitting material facts in the offer/sale of securities C) misrepresentation of the status of a client's account D) inaccurate market quotations

A) charging unreasonable commissions

A BD informs a client that they do not intend to abide by all of the provisions of the USA. They have the client sign a waiver that specifically prohibits the client from entering a suit against the firm. The client's signature is properly witnessed and notarized A) client's cannot waive their legal rights. B) Because the client signed the agreement, a suit against the firm will have no legal standing C) This waiver is only effective if a copy is filed and registered with the Administrator. D) The client will only be able to sue in the case of fraud.

A) clients cannot waive their legal rights Never is a waiver acceptable

A BD receives a written complaint from on of its customers. The most appropriate action to take is to: A) immediately reply to the client in writing B) immediately freeze the client's account C) immediately notify the Administrator D) immediately notify NASAA

A) immediately reply to the client in writing When a BD receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgement to the client that the complaint has been received.

A client who has a margin account is out of town for a week. The securities in the client's account fall dramatically, which requires the client to make immediate deposits into the account. Which of the following can the agent do to assist the client? A) make every reasonable attempt to contact the client B) Deposit funds into the client's account on behalf of the client C) Arrange for a different client to give his client a loan D) arrange for the firm to give the client another loan

A) make every reasonable attempt to contact the client

The USA prohibits BDs from engaging in activity that has the effect of manipulating stock market prices. These would include: A) matched orders B) higher than reasonable commissions or markups C) selling unregistered nonexempt securities D) churning

A) matched orders Although all of these practices are prohibited, only matched orders are an attempt to manipulate market prices

It would be considered a prohibited activity for an agent to engage in any of the following activities EXCEPT: A) sharing in profits of an account as a reward for the agent's recommendations exceeding the S&P 500 B) executing a transaction in a nonexempt security in a discretionary account. C) failing to record exempt transactions on the BD's books and records. D) trading in the account of a conservative client exclusively in initial public offerings with proper trading authorization from the client

B) Executing a transaction in a nonexempt security in a discretionary account.

Which of the following practices violates the USA? A) Failing to charge a markup B) Failing to follow a customer's instructions C) Failing to state every fact D) Deliberately not charging a commission

B) Failing to follow a customer's instructions

One of the most prevalent schemes abusing seniors is one where the individual or couple receives an invitation to attend an educational seminar held at an upscale location. This scheme is commonly referred to as: A) lunch and learn B) free lunch C) senior seminar D) wealth preservation session

B) Free lunch There is probably no other area of abuse directed at seniors that has received the attention of the "free lunch" seminars.

Prohibited business practices under the USA and the NSAA Statement of Policy on Dishonest or Unethical Business Practices of Broker Dealers and Agents include: I. Failure to state material facts II. Trading on inside information III. failing to forward a complaint letter to the agent's supervisor IV. Sharing commissions with an agent of a nonaffiliated B/D A) III and IV B) I, II, III, and IV C) I, II, and III D) I and II

B) I, II, III, and, IV Failure to state material facts and trading on inside information are prohibited business practices. Forwarding complaint letters to your supervisor is required; sharing commissions with an agent licensed with the same or affiliated BD, but not one with which there is no affiliation, is permitted.

Which of the following activities are prohibited under the USA? I. Engaging in a practice not expressly forbidden by the act but defined as unethical by courts, self-regulatory organizations such as FINRA (NASD), or both II. Deliberately omitting a material fact when soliciting a client III. Selling recommended securities to a client from one's own account without disclosing this fact to the client A) I and III B) I, II, and III C) II and III D) I and II

B) I, II, and III The USA gives the Administrator, and self-regulatory organizations, the power to define certain practices as unethical with the same force as those spelled out in the act. Omitting a material fact is specifically prohibited under the act. BDs must always disclose the capacity in which they acted in a transaction

Which of the following actions would constitute a violation of the USA? I. Purchasing a convertible security and simultaneously selling short the underlying common stock for profit. II. Purchasing a security on an exchange and simultaneously selling it on another exchange to improve trading volume III. Executing a trade for a customer at a price that is unrelated to the current market IV. Executing a trade for a customer at the best available price without the customer's knowledge A) I, II, III, and IV B) II, III, and IV C) III and IV D) I and II

B) II, III, and IV The practice of buying a security on one exchange and simultaneously selling it on another exchange to create an appearance of trading activity is manipulative, not arbitrage. Purchasing a convertible security and simultaneously selling short the underlying common for profit is another form of arbitrage and is perfectly legal. Executing a trade for a customer ate price that is unrelated to the current market, and executing a trade without the knowledge of the customer are prohibited.

With regard to the NASAA Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents, proscribed actions would include: I. Accepting an order from a third party after written trading authorization has been received II forwarding a written complaint from a customer to the appropriate supervisory person III. offering to repurchase a security at its original cost if it does not increase in value IV. Borrowing money from a client who was the agent's college roommate A) II and IV B) III and IV C) I and II D) I, II, and IV

B) III and IV Prohibited actions under the policy would be guaranteeing a client against loss by agreeing to repurchase a security at its cost and borrowing money from a client who is not in the money-lending business.

The USA would permit an agent to use the term " guaranteed" to refer to : I. A security that is backed by the US gov't II. A bond that is backed by the taxing power of a governmental body. III. A bond whose interest and principal payments are guaranteed by someone other than the issuer. IV. A stock whose dividend payments are guaranteed by someone other than the issuer. A) II and IV B) III and IV C) I and III D) I and II

B) III and IV Under the USA, the term "guaranteed" refers to guarantee of interest, principal, or dividends by a party other than the issuer.

Under the USA, a guaranteed security is protected by someone other than the issuer against loss of all of these EXCEPT: A) interest on debt securities B) principal on equity issues C) dividends on equity securities D) principal repayment at maturity on debt securities

B) Principal on equity issues Guarantees generally apply to income from the security (dividends or interest) and to payment of the principal amount at maturity. Third-party guarantees do not provide against market loss. Please note that capital gains are never included in this type of guarantee.

An individual with $100,000 to invest will require these funds in 6 months for the purchase of a house. In which of the following circumstances did the agent act CORRECTLY? A) The agent convinced the client to purchase a $100,000 lump sum annuity on the basis of its security and backing by an insurance company B) The agent convicted the client invest in a Treasury bill on the basis of its safety C) the agent convinced the client to invest in an IPO on the basis of its high growth prospects D) The agent convinced the client to invest in a real estate partnership as a hedge against the rise of real estate values until the client purchases the house.

B) The agent convicted the client invest in a Treasury bill on the basis of its safety

Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his BD employer? A) The securities are exempt under the USA B) The transactions are authorized in writing by the BD before execution of the transactions. C) The customer is a member of the agent's immediate family D) The agent will receive no compensation

B) The transactions are authorized in writing by the BD before execution of the transactions. Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices of BDs and Agents, it would be considered contrary to the standards imposed for an agent to effect securities not recorded on the regular books or records of the BD which the agent represents, unless the transactions are authorized in writing by the BD before execution of the transaction.

All of the following practices are unethical under the NASAA except: A) using deceptive or misleading advertising or sales presentations B) charging higher commissions than normal for executing thinly traded foreign securities C) executing any transaction in a margin account without receiving a properly executed written margin agreement promptly after the initial transaction D) effecting any transaction in a security that involves no change in beneficial ownership

B) charging higher commissions than normal for executing thinly traded foreign securities It is not an unethical practice to charge higher commissions for trades that are difficult to execute, such as trading a thinly traded foreign security . The other activities are unethical business practices prohibited by the NASAA.

According to NASA's Statement of Policies Regarding Dishonest or Unethical Business Practices of BDs and Agents, an agent may: A) not recommend a specific professional money manager to those client's who want professional investment management services B) exercise discretionary investment authority over an account providing the client provides written discretionary authority C) not exercise discretionary authority until 30 days after receipt of a written power of attorney from the client. D) borrow funds from a client only if the debt is formally documented and possesses a fixed maturity date, a stated rate of interest , and a schedule of repayment

B) exercise discretionary investment authority over an account providing the client provides written discretionary authority NASAA allows agents to exercise discretionary authority providing the client grants written discretionary authority. An agent may not borrow money from a client unless the client is a financial institution in the business of lending money. There is nothing in NASAA's policy that prohibits an agent from recommending money managers to client's who want their funds professionally managed. There is no requirement that discretionary authority cannot be exercised until a 30-day waiting period has transpired

If a licensed agent believed that interest rates were about to fall and contacts all of her clients and suggests they purchase high quality debt securities with long term maturities, this action: A) is probably not in violation of any suitability standards as long as the bonds are of high quality B) has probably violated the USA's suitability standards C) may be acting on material inside info D) is in error as a drop in interest rates will cause bond prices to fall, leading to a loss in the client's accounts

B) has probably violated the USA's suitability standards. If interest rates fall as the agent guesses, dent securities with long-term maturities will increase in price. However, the agent is at fault for making the same recommendation to all of her clients, as the same product cannot be suitable for everyone. This may be referred to as a blanket recommendation on the exam. Even US Treasury bonds, with the highest degree of safety available, are not always suitable based upon the specific objectives of the investor.

If an investor bought stock on one exchange and sold it at higher price on another exchange, this practice constitutes a(n): A) offense punishable by three years in the county jail B) perfectly acceptable market arbitrage C) violation under both the USA and federal law D) violation of the USA

B) perfectly acceptable arbitrage This common practice is perfectly acceptable. Arbitrage is the practice of buying on one exchange and selling on another to take advantage of market disparities

An income-oriented customer has a discretionary account with an agent. If the agent purchases speculative growth stock on behalf of the customer, under the USA, this is considered a(n): A) acceptable transaction B) Unsuitable transaction C) wash trade D) Matching activity

B) unsuitable transaction Income-Oriented client authorize their agents to buy income-producing securities, not speculative securities. Purchasing speculative securities would be considered an unsuitable transaction and inconsistent with the account's objectives.

If an agent thinks that a technology stock is undervalued and actively solicits all customers, which of the following is TRUE of the agent? I. He did not violate the USA if all material facts are disclosed II. He committed an unethical sales practice because the firm has not recommended this technology stock III. He committed an unethical business practice IV. He did not commit a violation if all client's are accurately informed of the price of the stock. A) I and II B) I and IV C) III only D) II and IV

C) III only Agents must always determine suitability before soliciting purchases or sales. An investment cannot be suitable for all of your clients; therefore, the practice of blanket recommendation is unethical.

Under which of the following circumstances may an agent borrow money from a customer? A) Under no circumstances B) With written permission from NASAA C) If the customer is a bank D) Upon notification to his firm

C) If the customer is a bank An agent may borrow funds from a client who is in the business of lending money.

An agent has municipal bonds available at a favorable price for the next five minutes, and a customer who expressed interest in purchasing municipal bonds for his account. These bonds appear perfectly suited to the customer's objectives but the agent cannot get in contact with the customer. What should the agent do? A) Put the bonds in the customer's account B) Place the bonds in the customer's account, mark the order ticket pending, and send a fax. C) Do nothing without the customer's authorization. D) Purchase the bonds for the agent's account for a later resale to customer

C) Do nothing without the customer's authorization It is a prohibited practice to take action in a customer's account without the customer's direction unless the account has been approved for discretionary trading.

Which of the following is an unethical practice for agents of BDs? A) Effecting securities transactions not recorded on the books of the employing BD with the employing BD's approval in writing B) Failure to make a bona ride public offering of all securities acquired as an underwriter. C) Effecting securities transactions not recorded on the books of the employing BD without prior written authorization. D) Borrowing money from a commercial bank that has investment accounts at the BD.

C) Effecting securities transactions not recorded on the books of the employing BD without prior written authorization. It is an unethical practice for an agent of a BD to effect securities transactions not recorded on the books off the employing BD unless prior written authorization is secured. BDs, acting in the capacity of underwriters, not their agents, must make a bona ride public offering in under writings.

Which of the following is the LEAST suitable mutual fund transaction? A) Encouraging an investor in a high-tax bracket with an income objective to invest in a municipal bond fund B) Encouraging a retired 65-year-old investor to invest a small percentage of his savings in a large cap growth fund. C) Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence. D) Encouraging an investor in his early 30's to invest in an emerging markets mutual fund.

C) Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence. Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence is not in the client's best interest, as the client might be subject to additional sales charges.

When it comes to borrowing and lending money, the USA prohibits activity that would compromise the objectivity of securities professionals. Which of the following is (are) NOT prohibited practice(s)? I. A BD lending money to a client to purchase additional securities. II. An agent taking out a car loan fr9om a bank whose branch manager is a client of that agent. III. An investment adviser borrowing money from an affiliated BD IV. An investment adviser lending money to a client to enable that client to maintain the minimum required asset level in the account A) II and IV B) I and III C) I, II, and III D) I, II, III, and IV

C) I,II, and III Borrowing and lending is generally permitted when the lender is in the business of lending money and when the borrower borrows from someone in the business of lending money. Banks are the most common lenders, but BDs are also in that business. When a client has a margin account, the BD is lending money to that customer to purchase additional securities. The fact that the branch manager is a client of the agent who is borrowing money does not change this situation as the loan is from the bank, not the manager. Loans are also permitted between affiliates.

The NASAA Statement of Policy on Unethical Business Practices of BD and Agents describes many actions considered by NASAA to be prohibited under the intent of the USA, as amended. Under the Statement of Policy, which pf the following actions would be a prohibited practice? I. Stating material facts in such a manner that they may be easily understood by a prospective client. II. Making unsuitable investment recommendations even when the client agrees with your assessment. III. Exercising discretion without written authority IV. Using inside info, but only if the client makes money as a result of the trade. A) III and IV B) I and II C) II and III D) I and III

C) II and III No BD or agent may exercise in a client's account without having received prior written authorization.

When a BD engages in a customer transaction from its own account, which of the following statements are TRUE? I. Partners of the BD are trading in their personal accounts II. The BD is trading from its inventory with customers III. The BD must disclose its capacity as a principal in the transaction IV. The BD must disclose its capacity as agent in the transaction A) I and IV B) I and III C) II and III D) III and IV

C) II and III The USA defines a BD as a legal person (entity) engaging in the business of effecting securities transactions for the account of others or for its own account. In this context, trading for its own account means that the BD is trading from its inventory with customers. The BD has an ethical responsibility to disclose its capacity as a principal in the transaction. When trading for its own account, a BD is functioning as a principal or dealer. When trading for the accounts of others with no participation as a direct party to the trade, a BD functions in an agency capacity.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents, what factors are considered in determining whether excessive trading has occurred? I. The length of time the account has been opened. II. The frequency of trading III. The amount of trading IV. The financial condition of the account and the financial resources and goals of the client A) III and IV B) I and II C) II, III, and IV D) I, II, III, and IV

C) II, III, and IV In determining whether excessive trading has occurred, consideration must be given to the amounts and frequency of trading in view of the financial resources, investment objectives, and character of the client's account. All factors must be considered together and not individually. Frequent trading and trading large amounts are not wrong in and of themselves; they are permitted if suitable for that particular customer. The length of time the account has been opened would not be a factor.

A customer representing an institution calls the securities agent to complain that security bought one year ago is showing a loss. The customer's Jon will be lost unless he is able to get out of the security at break even or a small loss. The market is 78-81 in the security and the customer's cost is 85. The agent can legally: A) offer to buy the security at 85 is the customer agrees to buy another security in its place B) execute the trade at 81, but show the confirmation at 85 C) sell the security at the best available bid price in the market D) buy back the security at 85 and place another security in the account at a price high enough top cover the loss.

C) Sell the security at the best available bid price in the market. While the agent's inclination might be to repurchase this security, the USA states that such an act may be fraudulent. It also states that any market or price manipulation of a security or any false quotations of executed trades is strictly forbidden. The only appropriate action is to attempt to obtain the best execution for the client. That would mean selling at the best available bid price in the market.

An agent sells his client ten US government bonds due to mature in 30 years. According to NASAA's Statement of Policy on Unethical or Dishonest Business Practices of BDs and Agents, which of the following statements may the agent legally make? A) The US government guarantees that principal and interest payments will keep pace with inflation B) There is no way to lose money on the safest security on earth. C) The bonds are guaranteed as to principal and interest payments by the US government. D) The full faith and credit backing of the US government means virtually no chance of loss

C) The bonds are guaranteed as to principal and interest payments by the US government. Stating that the bonds are guaranteed as to principal and interest payments by the US government is an accurate statement of fact. A client can lose money on government bonds should interest rates rise after he purchases the bonds. The government does not guarantee that the principal and interest will keep up with inflation

A customer within one year of retirement informs his agent that he wants to use the equity in his house to make enough money within the year to fully fund his retirement. According to the USA, the agent should: A) invest the money in high-tech securities because of their unlimited potential B) construct a growth-oriented portfolio C) urge the customer to reconsider his investment strategy D) invest in an ultraconservative portfolio of municipal bonds

C) Urge the customer to reconsider his investment strategy

The NASAA Statement of Policy on Unethical or Dishonest Business Practices of BDs and Agents contains an extensive list of prohibited practices. However, it would not be considered a violation: A) to borrow money from a client who is not in the lending business. B) when a BD sells a security out of inventory to a retail customer and indicates on the confirmation that the firm acted in an agency capacity C) for two individuals employed by the same BD and with the same category of license to share in commissions without telling the client D) if a properly registered agent were to share in the profits and losses in a customer's account proportionate to the amount of time the agent devoted to handling the account.

C) for two individuals employed by the same BD and with the same category of license to share in commissions without telling the client Properly registered individuals employed by the same or affiliated BDs are permitted to split their commissions. Since there is no additional cost to the client, this action does not have to be reported.Sharing with client's may only based on the proportion of funds invested in the account and a BD selling out of inventory must disclose that the firm acted in a principal capacity. No BD or agent may ever borrow money from a client who is not in the money lending business.

An agent wants to sell a highly valuable unregistered, nonexempt security to a customer. The agent has the client sign a waiver indicating that the security is not registered so the security may be sold legally per the USA. This sale of the security is: A) perfectly legal with disclosure and waiver on registration B) perfectly legal because unregistered nonexempt securities need not be registered. C) illegal because provisions of the USA cannot be waived. D) appropriate providing the client does not request a rescission of the sale

C) illegal because provisions of the USA cannot be waived. The agent's sale of the security is illegal because provisions of the USA cannot be waived

According to NASAA's Statement of Policy on Unethical or Dishonest Business Practices of BDs and Agents, all of the following practices are considered unethical for an agent EXCEPT: A) selling 3,000 shares of ABC at a price the agent determines is the best the client can get, without oral or written discretionary authority. B) receiving written discretionary authority from a client within 10 business days of first executing a discretionary trade with oral authority from the client. C) selling 3,000 shares of ABCas directed by a client at a price that the agent determines, without oral or written discretionary authority. D) determining the quantity of a specific security to purchase once the client has designated that security and the action to be taken.

C) selling 3,000 shares of ABCas directed by a client at a price that the agent determines, without oral or written discretionary authority. It is not unethical for an agent to choose time and price of a trade as long as the client has determined the asset, the action, and the amount. Discretionary authority must be received by agents in writing prior to any discretionary trading taking place in the account.

An adviser's client account indicates daily trading with rapid portfolio turnover. Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents, this would NOT be considered excessive trading activity (Churning) if: A) the client's account shows a profit. B) the client has approved each trade. C) the client's investment objective is quick return, the client has the financial resources necessary for such activity , and the agent uses a sophisticated technical program designed to cut losses and take profits quickly. D) each security purchased is suitable for the client.

C) the client's investment objective is quick return, the client has the financial resources necessary for such activity , and the agent uses a sophisticated technical program designed to cut losses and take profits quickly. The statement of policy determines whether the trading is excessive by evaluating the client's investment objectives, financial resources, and the character of the client's account. While such trading activity is not suitable for everyone, there are some clients for whom such activity would be suitable. Having client approval for each trade does not necessarily eliminate the requirement to only make suitable recommendations, nor does it excuse excessive trading. A security may be a suitable purchase for a client, but not be suitable for rapid trading. To be sure, there is a greater likelihood of a churning case when the client has lost money, but there have been many cases where even when a profit has been made, churning has been the verdict.

A 78-year-old retiree has a $100,000 CD maturing and is dissatisfied with current yields on CDs. Aside from Social Security and a monthly pension, the $100,000 is his total liquid net worth. The agent recommends investing the funds in a single premium immediate variable annuity and allocating funds to the separate account as follows: Medical Tech: $10,000 High yield Corporate: $40,000 Growth and Income: $50,000 the agent's recommendation is: A) suitable provided the customer agrees with the recommendation B) suitable because it appears probable to increase the value of his holdings as well as to generate increased income. Unsuitable primarily because of the customer's age, objectives, and risk tolerance D) unsuitable primarily because of the customer's probably liquidity needs.

C) unsuitable primarily because of the customer's age, objectives, and risk tolerance With half of the investment allocated to medical technology and high yield separate accounts, which carry a higher risk, the allocation seems unsuitable for a 78-year-old needing this monthly income.

One of the prohibited practices under the USA is market manipulation. Which of the following are examples of a BD engaging in that practice? I. Arbitrage II. Churning III. Matched Orders IV. Wash trades A) I and IV B) I and III C) II and IV D) III and IV

D) III and IV Matched orders occur when one or more BDs engage in buying and selling between themselves for the purpose of creating the misleading appearance of increased activity in a security. A wash trade is an attempt to manipulate a security's price by creating an apparent interest in the security that really does not exist. Arbitrage is the simultaneous buying and selling of the same security in different markets to take advantage of different prices. It is not a form of market manipulation. Churning is a prohibitive activity, but has nothing to do with the market, just a client's account

The USA prohibits which of the following? I. Agents exercising discretion in discretionary accounts. II. BDs charging larger than ordinary commissions on certain transactions III. Agents soliciting orders for unregistered nonexempt securities. A) I, II, and III B) II and III C) I and II D) III only

D) III only The USA prohibits soliciting orders for unregistered, nonexempt securities. The act does not prohibit agents from exercising discretion or from charging larger than ordinary commissions when justified.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of BDs and Agents, which of the following is NOT considered when determining excessive trading in a client's account? A) investment objectives of the client B) Client's financial status C) Character of the account D) Length of association with the agent

D) Length of association with the agent

Which of the following statements regarding an agent's authority to place orders for a client's account under the NASAA's Statement of Policy on Unethical or Dishonest Business Practices of BDs and Agents is TRUE? A) The agent may, without the client's approval, place a sell order for the purpose of avoiding losses but may not place a buy order without the client's authorization. B) The agent is not required to obtain authorization to place orders for a client's account unless a conflict of interest in involved. C) Written approval from the client authorizing a stated amount of a specified security is required before placing an order. D) The client's oral approval is sufficient for a specific order

D) The client's oral approval is sufficient for a specific order Oral approval from the client authorizing a stated amount of a specified security is sufficient to place an order. An Agent must receive authority to place orders for a client whether or not there is a conflict of interest. Written approval from the client authorizing a stated amount of a specified security is not required before placing the order. However, written authority is necessary for the agent to exercise discretion in the account.

According to the USA, market manipulation includes all of the following EXCEPT: A) buying and selling intentionally to show market activity B) pegging C) giving false quote D) buying on one exchange and selling on another

D) buying on one exchange and selling on another Buying on one exchange and selling on another is called arbitrage, not market manipulation, and it's an accepted business practice.

Anderson is a longtime customer of Baird, an agent of Gilbraltar Securities. Anderson mentioned that if the common stock of GEMCO drops 10 points, he might consider buying it. Anderson has a long history of trading high-quality large-cap stocks with Baird in his nondiscretionary account. If GEMCO stock falls by ten points but Anderson cannot be reached and Baird purchases the stock in Anderson's account, Baird has: A) engaged in the prohibited practice of unsuitable trading B) engaged in the prohibited practice of front running C) acted ethically in ful filling her client's wishes D) engaged in the prohibited practice of unauthorized trading

D) engaged in the prohibited practice of unauthorized trading

An agent is assisting a prospective client in opening an account. The individual refuses to provide his net worth and annual income. The agent should A) proceed with opening the account, but limit recommendations to conservative investments B) seek permission to consult with the client's fiduciary team including accountants and attorneys to obtain the financial info C) refuse to open the account D) in the absence of company policy to the contrary, open the account, but limit transactions to unsolicited orders.

D) in the absence of company policy to the contrary, open the account, but limit transactions to unsolicited orders. An agent must attempt to obtain client financial info. The BD, through its principals, may decide whether to accept business from a client refusing to provide financial info. In the absence of financial info, neither the firm nor the agent has the means to determine client suitability. Thus the firm may only accept unsolicited orders from this client.

Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and life insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions: A) is an unethical trade practice B) in variable annuities is allowable only if the agent's involved are both licensed to sell life insurance and maintain securities licenses with BDs registered with the Administrator C) would be allowable if the securities representatives receives at least 60% of the commissions and the insurance agent receives no more than 40% D) in variable annuities is allowable only if the agent's involved are both licensed to sell life insurance and maintain their securities licenses at the same time or affiliated BDs

D) in variable annuities is allowable only if the agent's involved are both licensed to sell life insurance and maintain their securities licenses at the same time or affiliated BDs You must be licensed in both insurance and securities to sell variable annuities or to split commissions. Commissions on securities transactions may only be split with registered agents of the same or affiliated BDs

If a new customer opens an account with a BD and tells the agent to buy investments at his discretion, before engaging in any transactions in the account, the agent must: A) have the customer supply letter of credit from a bank B) designate which investments will be purchased C) register as an investment adviser D) receive a written discretionary power from the customer.

D) receive a written discretionary power from the customer. Because the agent will be acting with discretion, a written power of attorney must be obtained from the customer before transactions can occur. This power is referred to as discretionary power.

NASAA's Statement of Policy on Unethical or Dishonest Business Practices of BDs and Agents prohibits excessive activity in the account of a client for the purpose of generating commissions. This activity, frequently referred to as churning, would likely be excused: A) when the account has outperformed the S&P 500 B) if the Nestor is considered an accredited investor under SEC Rule 501 C) when the agent has been granted discretionary authority D) under no circumstances

D) under no circumstances Churning, the practice of excessive activity in a client's account for the purpose of generating commissions, is never an excusable practice.

Which of the following statements regarding email communications are correct? I. They are sometimes referred to as electronic communications II. Customer complaints received by email are not considered to be in writing III. Once received and reviewed, they may be discarded IV. They must be retained in the same fashion as any other on record A) II and III B) I and II C) III and IV D) I and IV

D. III and IV Emails are generally referred to as electronic communications on the exam and meet the rewuirement for customer complaints to be in writing. Just as with any other written record, these must be kept for the time periods specified in the USA.

While making a sales presentation of a mutual fund, the registered agent states to a customer that reinvesting the dividends will ensure selling shares at a profit. Making such a statement is: A) misleading and may result in proceedings against the representative B) allowed if the representative does not use the word "guarantee" in the presentation. C) allowed if the representative does not put the statement in writing D) allowed if the representative explains to the customer that reinvested dividends are still subject to federal income tax

This statement is misleading at best. It is untrue in most cases and, therefore, in violation of the act.