Ethics, fraud, penalties

Front running

Placing an order in your own account ahead of a customer order

Blanket Reccomendations

Recommending the same security to all of your clients - not allowerd

How much do you need in your brokerage account for a loan on margin

$5,000

Criminal penalties under USA

$5,000 and 3 years

Who can an IAr borrow money from

An adviser may only borrow from a client that is in the business of loaning money, such as a bank or broker-dealer, or a client that is affiliated with the adviser

Do non-agents still abide by anti-fraud provisions of USA?

YES

Can an agent solicit transaction in exempt unregistered secs

Yes

Can an IAR borrow money from clients

Yes, if they are affiliated

Can an agent loan money to a client

Yes, if they are in the lending business. Loan against value of securities in their portfolio - MARGIN

What happens if you make a guarantee of profit to a client

It is a civil violation, and not criminal, so no prison sentence

Who are municipal securities suitable for

High income people looking for tax relief

Is it ever ok for 2 agents from unrelated firms to share commission

If an exception is granted by admin

What can a seller do if they find out they realize they sold securities illegally

If the seller of a security discovers that he made an illegal sale, he may offer to repurchase the security at the price paid plus, not less, interest charges. This offer of rescission is held open for 30 days. The buyer of the securities may not sue if he failed to accept or reject the offer within that time period.

What is necessary for "fruad"

Intent to deceive

What must be done with client complaints - punishment if you don't?

Must be brought to supervisor - violation of USA otherwise

Suitability

Must know client's financial status, investment objectives, and ability to assume risk before making reccomendations

Private placement suitability concerns

Not liquid, so bad for retiring people

What can a buyer do if they find out they were sold securities illegally

Sue for original cost

What to do if a client refuses to give any financial info or discuss objectives? recommendations

only take unsolicited orders

Ok or not? )An elderly client with an individual account is in the hospital and her daughter calls the agent to request a liquidation of assets to provide $10,000 for the payment of medical expenses. The agent refuses to place the order.

the agent acted correctly in refusing the order from someone other than the owner. The daughter had neither been legally authorized by the client to act in the account, nor had a court appointed her as guardian. This is a common problem when an account owner becomes incapacitated.

Ok or not? After a client's death, an agent receives instruction from a court-appointed administrator to liquidate the account; the agent sells all securities in the account at a loss.

yes

ok or not? A client sends a letter about an extended business trip stating that in her absence, she wants the agent to accept orders from her husband, which the agent does

yes. the client authorized in writing, a third party, the husband, to make decisions in her account and the administrator has been properly authorized, by the court, to manage the assets and make decisions

USA Criminal 5-5-3

5 year statute of limitations, 5k max fine, 3 year jail sentence

Why is this bad Sharing in profits of an account as a reward for the agent's recommendations exceeding the S&P 50

This is not the same as sharing in the profits of an account with consent of the client and the employing broker-dealer, because this is based on the performance of the agent's recommendations and not on a mutually agreed sharing arrangement.

Under the Uniform Securities Act, an agent who deliberately gives a fictitious quote to a customer: A)has committed a fraudulent and misleading business practice. B)is committed to selling or buying only 100 shares at that price. C)must execute at the price quoted regardless of the market. D)is guilty of a felony and subject to criminal penalties.

A)has committed a fraudulent and misleading business practice. Disseminating false or misleading quotes is a prohibited practice under the USA, but is not necessarily a felony. Trades must be executed at market prices, not fictitious or fabricated prices.

In which of the following situations did an agent commit fraud? A)An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved. B)An agent sold an excellent growth company to a client by omitting immaterial information​ during the discussion, so as not to distract the client from purchasing a suitable security. C)On review of his files, an agent discovered he had sold a nonexempt, unregistered security​ to a retail client​. D)A client claims an agent sold him unsuitable securities.

A)An agent knowingly sold a nonexempt, nonregistered security to a retail client who could well afford the risk involved. Fraud requires the intent to deceive. The agent knowingly deceived the client by selling unregistered securities, therefore committing a securities fraud. An agent is not required to discuss all information, only that which is material information. The term retail client refers to individual or non-institutional clients.

Which of the following would be considered fraud under the Uniform Securities Act? A)An agent knowingly sold a nonregistered security because he thought it would eventually become registered. B)Using a private subscription to an online Internet legal records service, an agent discovers that a company is about to file for bankruptcy and immediately calls her clients recommending they liquidate their holdings. C)An agent has a large number of clients in a security in which she trades frequently for her own account with no attempt to create an inaccurate impression of trading volume. D)An agent knowingly sells securities in a publicly traded company in which his family has a beneficial ownership.

A)An agent knowingly sold a nonregistered security because he thought it would eventually become registered. Fraud occurs when a person covered under the USA knowingly violates a provision of the law; the agent knew the security was not registered and fraudulently sold it.

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

A)Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization. It is an unethical practice for an agent of a broker-dealer to effect securities transactions not recorded on the books of the employing broker-dealer unless prior written authorization is secured. Broker-dealers, acting in the capacity of underwriters, not their agents, must make a bona fide public offering in underwritings.

ane Smith, manager of the underwriting department at XYZ Securities, has asked her good friend, Bob Jones, an agent with AAA Securities, to help her sell some securities that are part of a private placement her firm is leading. Bob asked for and received permission from his firm to participate in the offering. Records relating to any of Bob's transactions in this security must be kept by: Jane's firm, XYZ Securities. Bob's firm, AAA Securities. Jane, personally. Bob, personally. A)I and II. B)III and IV. C)II only. D)II and IV.

A)I and II. If AAA Securities approves of Bob's participation in the transaction, it must record any of his trades on their books and records. Since Jane's firm, XYZ Securities, is distributing this offering, it would keep records of all transactions, not just Bob's. Agents are never required to keep records of this nature, only the firms are.

Adell, 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 Uniform Securities Act: -building projects are not appropriate for retirees who typically need immediate income. -private placements are not usually appropriate for retiring individuals because they are not liquid. -no rule has been violated because the customer has only been offered the product. -if the customer lives in Puerto Rico, the proposed investment may be suitable because there may be a ready market. A)I and II. B)II and IV. C)II and III. D)I and III.

A)I and II. This is not a suitable recommendation for a social worker about to retire. Based on the information given, one 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.

When an Administrator issues a final order, an agent subject to the order may: obtain a review of the order in an appropriate court of law. request that additional evidence be presented to the court. request a hearing 90 days after the final order. not appeal a court's decision. A)I and II. B)III and IV. C)II and III. D)I and III.

A)I and II. An agent subject to a final order of an Administrator has the right to have the order reviewed by an appropriate court in the state. If the court finds that the circumstances warrant such action, additional evidence may be submitted by any party to the case. An agent subject to an order must file for a judicial review of the Administrator's final order within 60 days.

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: unsuitable and unethical. a securities felony. grounds, in extreme cases, for suspension or revocation of the agent's license. outside regulatory jurisdiction. A)I and III. B)IV only. C)I only. D)II and III.

A)I and III. Municipal bonds provide a fixed income, but they are generally suitable only for high tax-bracket individuals. In this case, such a recommendation is probably unethical and could result in suspension or revocation of the registered agent's license.

NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents lists which of the following as a prohibited business practice by a broker-dealer? -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. -Charging a higher than usual commission on a thinly-traded stock. -Entering into a transaction with a customer at a price not related to the current market price. -Segregating customers' fully paid-for securities. A)I and III. B)II only. C)I, II and IV. D)I only.

A)I and III. The broker-dealer 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's Statement of Policy. The nature of thinly traded stocks makes higher than usual commissions acceptable as long as disclosure is made. Broker-dealers must segregate customers' fully paid-for securities.

Under the Uniform Securities Act, a civil suit to recover damages may not be brought by an advisory client if: the client realized the improper advice was rendered more than two years ago. the adviser has died. the client willingly signed a statement waiving the adviser's compliance with the provision of the act on which the suit is based. A)I only. B)I and II. C)I, II and III. D)II and III.

A)I only. The statute of limitations for civil cases is 2 years after discovery or 3 years after the event, whichever is sooner. The death of neither the adviser nor the client removes a cause of action for civil liability, and clients may not waive an adviser's compliance with the rules.

A client with a margin account notifies an agent of his vacation next week. The day after the client departs, there is a substantial market sell off, and the drop in the value of the client's portfolio requires additional margin in the client's account immediately. Which of the following actions of the agent would be prohibited? - Transferring funds from the client's spouse's account to meet the margin maintenance call. - Lending the client sufficient funds to meet the margin maintenance call. - Contacting the client's banker and arranging a loan on behalf of the client to meet the margin maintenance call. - Doing his best to reach the client, and, if unsuccessful, notifying his principal, in order that sufficient securities in the account be liquidated to meet the margin maintenance call. A)I, II and III B)II, III and IV C)I, II, III and IV D)II and III

A)I, II and III If the client cannot be reached, or otherwise does not come up with funds, the only way to satisfy the margin maintenance call is through the liquidation of shares in the account. The broker-dealer determines which securities are to be liquidated. None of the other actions described here would be permitted. An agent can never lend money to a client, nor may loans be arranged through banks. To transfer funds from another account, permission of all owners of that account must be obtained.

A client with a margin account notifies an agent of his vacation next week. The day after the client departs, there is a substantial market sell off, and the drop in the value of the client's portfolio requires additional margin in the client's account immediately. Which of the following actions of the agent would be prohibited? Transferring funds from the client's spouse's account to meet the margin maintenance call. Lending the client sufficient funds to meet the margin maintenance call. Contacting the client's banker and arranging a loan on behalf of the client to meet the margin maintenance call. Doing his best to reach the client, and, if unsuccessful, notifying his principal, in order that sufficient securities in the account be liquidated to meet the margin maintenance call. A)I, II and III B)II, III and IV C)I, II, III and IV D)II and III

A)I, II and III If the client cannot be reached, or otherwise does not come up with funds, the only way to satisfy the margin maintenance call is through the liquidation of shares in the account. The broker-dealer determines which securities are to be liquidated. None of the other actions described here would be permitted. An agent can never lend money to a client, nor may loans be arranged through banks. To transfer funds from another account, permission of all owners of that account must be obtained.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may borrow money from which of the following clients? A broker-dealer not affiliated with the adviser. A bank not affiliated with the adviser. A mutual fund not affiliated with the adviser. A corporation affiliated with the adviser. A)I, II and IV. B)I and IV. C)I, II, III and IV. D)II and III.

A)I, II and IV. An adviser may only borrow from a client that is in the business of loaning money, such as a bank or broker-dealer, or a client that is affiliated with the adviser.

According to NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-dealers and Agents, which of the following business practices are dishonest or unethical and may constitute grounds for denial, suspension, or revocation of an agent's registration? -Executing a transaction on behalf of a customer without authorization to do so. -Sharing in profits or losses in the account of any customer without the written authorization of the customer and the broker-dealer which the agent represents. -Splitting commissions from a securities purchase or sale with an agent of a different broker-dealer, or a broker-dealer not under direct or indirect common control. -Recommending securities that possess a high probability of loss and a low probability of gain. A)I, II, III and IV. B)I and II. C)I, II and III. D)II and III.

A)I, II, III and IV. According to NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, it is a dishonest or unethical business practice to execute a transaction on behalf of a customer without authorization to do so; share in profits or losses in the account of any customer without the written authorization of the customer and the broker-dealer that the agent represents; and split commissions or profits from the purchase or sale of securities with any person not also registered as an agent for the same broker-dealer, or a broker-dealer under direct or indirect common control. It would likely be considered dishonest or unethical for an agent to sell securities that possess high probabilities of loss and low probabilities of gain .

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

A)I, II, III and IV. All of these are permissible actions. Exempt securities are unregistered because they are exempt and solicitations for trades are no problem. Sharing in the profits in an account with a customer is permitted under these conditions, and splitting commissions with agents of the same broker-dealer or different broker-dealers under common control is also permitted. However, two registered agents representing nonaffiliated broker-dealers may never share commissions. The Uniform Securities Act does permit commission charges to reflect the quality and quantity of services provided to the client.

Which of the following are exempt from registration under the Uniform Securities Act? -Preferred stock issued by ZXZ Corporation, whose common stock is traded on the New York Stock Exchange. -Common stock issued by a national bank. -Equipment trust certificates issued by a railroad company regulated by a state or federal agency. -A debenture traded in the over-the-counter market issued by a corporation whose common stock trades on the NYSE. A)I, II, III and IV. B)II, III and IV. C)II and III. D)I only.

A)I, II, III and IV. All the securities listed are exempt from registration under the Uniform Securities Act. Preferred stock issued by corporations whose common stock trades on the NYSE is a federal covered security and is exempt from registration with the states. The same is true for a debenture of a company registered on the NYSE even though the debenture is traded over the counter. The issuers of equipment trust certificates (railroads) are regulated by other agencies, and issuers of bank securities (commercial banks) are regulated by the Federal Reserve and Office of the Comptroller of Currency (OCC); their securities are exempt from registration by the states. The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual regulation of securities.

Under NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents, which of the following activities (if performed by an agent) are considered fraudulent, dishonest, or unethical? Executing a transaction in a margin account without securing an executed written margin agreement from the customer, promptly after the initial transaction in the account. Executing a transaction either with or for a customer at a price not reasonably related to the current market price. Guaranteeing a customer against loss on securities purchased. Personally providing safekeeping and custodial services for clients' cash and securities. A)I, II, III and IV. B)II and IV. C)I, II and III. D)I and IV.

A)I, II, III and IV. An agent may not take personal possession of clients' cash and securities. The agent's firm, however, can provide safekeeping and custodial services. Agents must execute trades at prices related to current market prices and may not guarantee the performance of a security. An agent may execute a trade in a margin account providing the agent receives a written margin agreement promptly after the initial trade.

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

A)II and III.

An investment adviser representative must exercise due diligence to obtain what information before recommending the sale or purchase of a security to a customer? Verification that the customer has at least three years' trading experience. Changes in the customer's investment objectives (if any) since the account was opened. Changes in the customer's financial situation (if any) since the account was opened. Changes in marital status. A)II and III. B)II and IV. C)I and IV. D)I and III.

A)II and III. Before making a recommendation, the investment adviser representative must exercise due diligence in finding out the customer's present and future financial needs, as well as any changes in his investment objectives and financial condition since the account was opened.

Under the Uniform Securities Act, which of the following statements are TRUE regarding private placements? They are offered to no more than 10 persons in a state in a 12-month period. They may be offered to an unlimited number of institutional investors. Institutional buyers need not be purchasing for investment. A)II and III. B)I and II. C)I and III. D)I, II and III.

A)II and III. Private placements are transactions resulting from offers to no more than ten noninstitutional persons in 12 months for investment purposes only. The offeror must be convinced that buyers are purchasing for investment. This means no immediate resale intentions are allowed on the buyer's part. No commissions may be paid, directly or indirectly, for these transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than ten persons. (Remember that the term person is defined very broadly in the act.)

An agent would be engaging in a prohibited business practice under the Uniform Securities Act if he made recommendations: that had not been approved by the Administrator. that were based on material nonpublic information. that were based on material public information. of a blanket nature. A)II and IV. B)I and III. C)II and III. D)I and IV.

A)II and IV. Material nonpublic (inside) information may never be used by any securities professional. Blanket recommendations are those where individual suitability is ignored and all clients receive the same suggestions, whether suitable or not. Recommendations are never approved by the Administrator and material information available to the public is acceptable for use.

an agent would be engaging in a prohibited business practice under the Uniform Securities Act if he made recommendations: -that had not been approved by the Administrator. -that were based on material nonpublic information. -that were based on material public information. -of a blanket nature. A)II and IV. B)I and III. C)II and III. D)I and IV.

A)II and IV. Material nonpublic (inside) information may never be used by any securities professional. Blanket recommendations are those where individual suitability is ignored and all clients receive the same suggestions, whether suitable or not. Recommendations are never approved by the Administrator and material information available to the public is acceptable for use.

Under the NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, in which of the following situations has an agent acted properly in placing an order for a client's account? -The client agrees with an agent's recommendation of a particular security and the amount that should be purchased. The client then tells the agent to proceed with the purchase when the timing seems best. Since the market as a whole is dropping, the agent waits two weeks until the economy looks brighter before making the purchase. The agent does not have written discretionary authority. -The agent obtains written discretionary authority to manage the client's account. -The agent then proceeds to restructure the entire account without further consultation with the client. -The agent obtains an existing client's oral agreement that shares of XYZ fund are a good buy right now. The client gives the agent verbal authority to determine how much of his account should be allocated to XYZ shares. Without written discretionary authority, the agent places an order. -A client supplies the agent with written trading authorization. The client proceeds to request the agent to purchase $7,000 of any ADR that would be appropriate for the account. The agent goes ahead and purchases $7,000 of a Taiwanese computer chip company's ADRs. A)II and IV. B)II and III. C)I and III. D)I and IV.

A)II and IV. Written authority is necessary to restructure an account without client consultation. This is one of the benefits of a discretionary account; the flexibility it gives to the agent. Once the client has supplied the written authorization, the agent has the ability to select any or all of the asset, the action, or the amount. When the client says, "buy $7,000 worth of an appropriate stock", the amount and the action have already been determined; all the agent has to do is select the asset. Authority to use discretion may be given orally if the discretion relates only to the price or the time at which an order regarding a specified amount of a particular security will be executed, but time and price discretion is only good for that day. Oral authority is not sufficient when the agent is using discretion to determine the amount of a security to be purchased.

Which of the following is (are) unethical business practices if conducted by a broker-dealer? Acting as agent for both buyer and seller on a transaction. Conducting transactions that do not result in the transfer of ownership between buyers and sellers. Trading securities between house accounts and customer accounts to create trading volume or the appearance of interest in a security. Engaging in trades between other broker-dealers to increase or decrease the price of securities. A)II, III and IV. B)I only. C)III and IV. D)I and II.

A)II, III and IV. A broker-dealer may act as agent for both buyer and seller in a transaction. All the other activities represent market manipulation and are therefore unethical practices.

Which of the following statements regarding brokerage and advisory activities under the USA are TRUE? It is not unlawful for an investment adviser or broker-dealer to employ any device, scheme, or artifice to defraud in the sales of securities to institutional investors because the USA is designed to protect individual investors. Under the USA, it is unlawful for an investment adviser to deceive a person when not providing advice to that person. Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities. A)III and IV B)I and III C)I and II D)II and IV

A)III and IV Explanation Sanctions for violations are administrative proceedings, judicial injunctions, and civil and criminal prosecutions. It is also true that any individual, whether technically defined as an adviser or not, may not deceive another person when providing investment advice if he is compensated for providing the advice. However, the Uniform Securities Act has no jurisdiction over an investment adviser when the deceitful action occurs in a non-advisory situation, such as social interaction.

Which of the following statements regarding brokerage and advisory activities under the USA are TRUE? I. It is not unlawful for an investment adviser or broker-dealer to employ any device, scheme, or artifice to defraud in the sales of securities to institutional investors because the USA is designed to protect individual investors. II. Under the USA, it is unlawful for an investment adviser to deceive a person when not providing advice to that person. III. Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. IV. It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities. A)III and IV B)I and III C)I and II D)II and IV

A)III and IV Sanctions for violations are administrative proceedings, judicial injunctions, and civil and criminal prosecutions. It is also true that any individual, whether technically defined as an adviser or not, may not deceive another person when providing investment advice if he is compensated for providing the advice. However, the Uniform Securities Act has no jurisdiction over an investment adviser when the deceitful action occurs in a non-advisory situation, such as social interaction.

All of the following practices are prohibited by the Uniform Securities Act EXCEPT: borrowing money from a customer without the customer's written permission. failing to determine the suitability of an investment for a customer. offering rescission. telling a customer that past history of an investment is not indicative of future results. A)III and IV. B)I and II. C)II and III. D)II and IV.

A)III and IV. Offering rescission and explaining that past performance is not necessarily a predictor of the future are permissible actions under the USA.

Which of the following financial instruments of XYZ Oil Corporation, whose shares are traded on the New York Stock Exchange, is NOT exempt from registration with the state? A)Interests in oil and gas limited partnership units in which XYZ is the general partner. B)XYZ debentures listed on the New York Stock Exchange. C)XYZ bonds issued and sold in the United Kingdom only. D)Convertible preferred stock issued by XYZ Oil Corporation.

A)Interests in oil and gas limited partnership units in which XYZ is the general partner. XYZ's participation as a general partner of an oil and gas limited partnership does not qualify the issue as exempt from state registration. XYZ's direct debt and preferred stock are exempt under the Uniform Securities Act.

If a customer asks an agent for advice in choosing a balanced mutual fund for an IRA; the agent may make which of the following statements? A)Last year, ABC Mutual Fund was up 40%, but over the last ten years it has had both up and down periods. The potential for gain does exist; however, there is no guarantee as to how much gain or loss will occur. B)Last year, ABC Mutual Fund was up 40% and based on past performance, the trend should continue making it suitable for an IRA. C)ABC Mutual Fund is such a good buy that I will guarantee against any losses personally. D)A profit is guaranteed in an ABC Mutual Fund over a long period of time, and based on past performance, it is a good investment for an IRA

A)Last year, ABC Mutual Fund was up 40%, but over the last ten years it has had both up and down periods. The potential for gain does exist; however, there is no guarantee as to how much gain or loss will occur. The agent factually pointed out the fund was up last year and indicated the risks involved. The agent should not indicate that past performance will continue, cannot guarantee good performance will continue, and cannot guarantee a client against losses.

If a customer asks an agent for advice in choosing a balanced mutual fund for an IRA; the agent may make which of the following statements? A)Last year, ABC Mutual Fund was up 40%, but over the last ten years it has had both up and down periods. The potential for gain does exist; however, there is no guarantee as to how much gain or loss will occur. B)Last year, ABC Mutual Fund was up 40% and based on past performance, the trend should continue making it suitable for an IRA. C)ABC Mutual Fund is such a good buy that I will guarantee against any losses personally. D)A profit is guaranteed in an ABC Mutual Fund over a long period of time, and based on past performance, it is a good investment for an IRA.

A)Last year, ABC Mutual Fund was up 40%, but over the last ten years it has had both up and down periods. The potential for gain does exist; however, there is no guarantee as to how much gain or loss will occur. The agent factually pointed out the fund was up last year and indicated the risks involved. The agent should not indicate that past performance will continue, cannot guarantee good performance will continue, and cannot guarantee a client against losses.

Which of the following is NOT a prohibited practice under the Uniform Securities Act?. A)Selling stock rights received in a client's account at the direction of the client. B)Failing to identify a customer's financial objectives. C)Borrowing money or securities from the account of a former banker with express written permission. D)Supplying funds to a client's account only when or if it declines below a pre-agreed-upon level.

A)Selling stock rights received in a client's account at the direction of the client. It is permissible to sell rights, which are securities. Borrowing money or securities from other than a bank or broker-dealer in the business of lending, failing to identify a customer's financial objectives, and guaranteeing a customer's account against losses are prohibited practices.

an individual with $100,000 to invest will require these funds in six 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 invest in a Treasury bill on the basis of its safety. B)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. C)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. D)The agent convinced the client to invest in an IPO on the basis of its high growth prospects.

A)The agent convinced the client to invest in a Treasury bill on the basis of its safety. Investment in a Treasury bill is the only suitable investment among the choices listed. Purchase of annuities and a real estate partnership are long-term investments not suitable to an individual who wants to invest funds on a short-term basis. Although an IPO may be liquid, it is not suitable for short-term funds earmarked for the purchase of a house because there is too much risk to the principal.

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

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

Violations of the Uniform Securities Act carry a criminal penalty of imprisonment for up to how many years? A)Three years. B)One year. C)Ten years. D)Five years.

A)Three years. Conviction for willful violations of the act or for knowingly filing a fraudulent document under the act carries maximum penalties of three years in jail and/or $5,000 in fines.

violations of the Uniform Securities Act carry a criminal penalty of imprisonment for up to how many years? A)Three years. B)One year. C)Ten years. D)Five years.

A)Three years. Conviction for willful violations of the act or for knowingly filing a fraudulent document under the act carries maximum penalties of three years in jail and/or $5,000 in fines.

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

A)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.

When may an agent use the term guaranteed when describing a specific security issue? A)When there is a third party other than the issuer providing a guarantee for the payment of interest and principal. B)When the security is investment grade. C)Only if the agent knows the issuer is an NYSE listed company. D)When there is a third party other than the issuer providing a guarantee that the security may be sold at a price higher than its cost.

A)When there is a third party other than the issuer providing a guarantee for the payment of interest and principal. Under the Uniform Securities Act, the term guaranteed means that the interest and principal (in the case of a debt security) or the dividends (in the case of an equity security) are guaranteed by some other third party. Of course, the guarantee is only as good as the guarantor. Capital appreciation is never guaranteed.

Your advisory customer calls to check on her account value at 9:00 am but you were unavailable at the time. It is now 2:00 pm and you are able to call her back. If between 9:00 am and 2:00 pm her account value dropped from $711,500 to $710,000, what should you tell her? A)Your account is valued at $710,000 at this time. B)Your account was down to $699,700 earlier today but is up to $711,500. C)Your account value cannot be determined until the market closes. D)Your account has a value of $711,500.

A)Your account is valued at $710,000 at this time. All other choices are clearly a misrepresentation of account status.

Deliberately failing to disclose sufficient information pertinent and relevant to a client making an informed investment decision is: A)a fraudulent business practice because a client must have sufficient information to make a rational decision. B)a misuse of material inside information. C)churning an account without discretion. D)effecting transactions without specific authority.

A)a fraudulent business practice because a client must have sufficient information to make a rational decision. Failure to disclose sufficient information for a client to make an informed investment decision is a fraudulent practice. The other choices are prohibited practices but not necessarily fraudulent.

As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be A)a prohibited guarantee against loss B)a violation of the antifraud provisions of the Uniform Securities Act C)an offer that could only be made to accredited investors D)a right of rescission

A)a prohibited guarantee against loss Offering to buy back a stock at its original cost, even without paying interest, it a prohibited guarantee against loss. Rescission is only when there was something improper about the sale. Technically, this offer is not a case of fraud and, in any event, we must always select the answer that best addresses the question—in this case, a guaranteed price.

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

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

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm's Website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would: A)be permitted to contact your clients with this recommendation right now. B)be required to send your clients to the firm's Website before making any comments regarding this security. C)be permitted to contact your clients with this recommendation tomorrow. D)not be permitted to contact your clients until it was determined that the report was general public knowledge.

A)be permitted to contact your clients with this recommendation right now. A firm's internal research is not considered inside information. Clients may be contacted as soon as the IAR has access to the report. What is prohibited would be for the IAR to purchase this stock personally before release of the report and then contact clients.

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm's website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight, this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would: A)be permitted to contact your clients with this recommendation right now. B)be required to send your clients to the firm's Website before making comments regarding this security. C)not be permitted to contact your clients until it was ascertained that the report was general public knowledge. D)be permitted to contact your clients with this recommendation tomorrow.

A)be permitted to contact your clients with this recommendation right now. A firm's internal research is not considered inside information. Clients may be contacted as soon as the IAR has access to the report. What is prohibited would be for the IAR to purchase this stock personally, before release of the report, and then contact clients.

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

A)bring the customer complaint to a supervisory person immediately. Failure to bring customers' written complaints to the attention of the agent's supervisor is prohibited.

The wife of a customer calls an agent to sell $25,000 worth of securities for a down payment on a house. Although the account is in her husband's name, she says her husband told her to sell the securities. To comply with NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, the agent should: A)call the husband immediately and confirm the order. B)sell as instructed. C)tell the couple that the purchase of a house is a bad investment. D)get permission from his principal.

A)call the husband immediately and confirm the order. An agent may not accept an order from the wife of the customer unless the customer has granted written trading authorization to her. An agent may not accept an order from a spouse, or anyone else for that matter, unless that person has written third party trading authority.

Anderson is a longtime customer of Baird, an agent of Gibraltar Securities. Anderson mentioned that if the common stock of GEMCO, a component of the Dow Jones Industrial Average, drops ten 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 unauthorized trading. B)engaged in the prohibited practice of front running. C)engaged in the prohibited practice of unsuitable trading. D)acted ethically in fulfilling her client's wishes.

A)engaged in the prohibited practice of unauthorized trading. Regardless of any conversation the agent has with the customer, in the absence of discretionary power (trading authorization), trades placed in the customer's account without the customer's specific consent constitute the prohibited practice of unauthorized trading. Given the customer's history of trading large-cap stocks, the transaction does not appear unsuitable. Front running refers to the prohibited practice of placing house orders ahead of customer orders.

If a person not registered in a state knowingly makes a misleading filing with the Administrator, that person may be: A)fined $5,000. B)fined $10,000. C)imprisoned for 5 years. D)excused from liability, because the person is not registered.

A)fined $5,000. Willful violation is punishable by a fine of up to $5,000, imprisonment of up to 3 years, or both. A state Administrator has jurisdiction over any transaction conducted in that state and over all applications filed in the state.

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)free lunch. B)senior seminar. C)wealth preservation session. D)lunch and learn.

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

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)in the absence of company policy to the contrary, open the account, but limit transactions to unsolicited orders B)refuse to open the account C)proceed with opening the account, but limit recommendations to conservative investments D)seek permission to consult with the client's fiduciary team including accountants and attorneys to obtain the financial information

A)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 information. The broker-dealer, through its principals, may decide whether to accept business from a client refusing to provide financial information. In the absence of financial information, neither the firm nor the agent has the means to determine client suitability. Thus, the firm may only accept unsolicited orders from this client.

You receive a note from your firm congratulating you on passing the exam and indicating that they have received notice from the Administrator that your registration as an agent is effective. At this point, you could NOT A)indicate to prospects that you are approved by the state B)begin to accept orders from clients resident in the state C)state that you have passed the required licensing exams. D)begin to prospect for new clients in the state

A)indicate to prospects that you are approved by the state Becoming a registered securities agent with the state does not infer or imply any sort of approval of you or your credentials. Once the firm has told you that you have an effective registration, you can commence doing those things that are permitted to licensed agents.

Your client maintains a small cash account at the firm. One typical broker-dealer fee that would not be charged to this client is A)margin interest on the debit balance B)a charge if the client asks to have funds wired C)an account maintenance charge D)the fee for transferring certificates

A)margin interest on the debit balance In a cash account, you can't have margin activity, so there can't be a margin interest charge.

An elderly widower explains to his investment adviser representative that he requires his investments to provide the maximum current income. The IAR should recommend a: A)mutual fund that matches the investor's stated objective. B)zero-coupon bond. C)growth fund. D)Widow Fund, structured specifically for this type of investor.

A)mutual fund that matches the investor's stated objective. Recommendations should always be investments that match the investor's stated objective. Growth funds are not designed to meet the requirement of providing maximum current income. Zero-coupon bonds do not pay out any interest until maturity and, therefore, are unsuitable for an investor looking for current income. Although the name of a fund should bear a resemblance to its objective, the investor and the IAR should read the fund's prospectus carefully to ensure that the fund's objective matches the investor's.

An agent has a client who is relatively new to investing in securities having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended and its market price has recently fallen by over 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upwards with the market. Under the NASAA Statement of Policy of Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this action is: A)prohibited as it is equivalent to giving fictitious quotations. B)prohibited as the agent has a fiduciary responsibility to the client to manage the account in her best interests. C)prohibited unless the agent receives permission from a designated supervisor. D)permitted because the client is not selling anytime soon and why cause her to be upset.

A)prohibited as it is equivalent to giving fictitious quotations. Fictitious quotations, not giving accurate prices, is a dishonest and unethical practice, even when done to make the client feel better.

Functioning responsibly as an agent requires disclosure of any potential conflicts of interest that could arise from a securities recommendation. Examples of potential conflicts of interest that must be disclosed to clients would include all of the following EXCEPT A)recommending shares of a pharmaceutical company that manufactures a drug that the agent takes for chronic indigestion B)recommending a variable annuity where the insurance company is offering a trip to Australia for any agent meeting a specified sales volume C)recommending a purchase of a mutual fund whose underwriter is affiliated with the agent's broker-dealer D)recommending shares of a corporation where an immediate family member of the agent is a control person

A)recommending shares of a pharmaceutical company that manufactures a drug that the agent takes for chronic indigestion There is no conflict when a stock is recommending a stock where the agent uses a product sold by the company unless we can see some direct or indirect benefit to the agent if the client purchases the stock.

The Uniform Securities Act provides for all of the following EXCEPT: A)specific civil penalties for up to three times the amount of money invested for willful violation of the act. B)criminal penalties for violations of the act. C)subpoena power for the state Administrator. D)exemption from registration for federal covered securities.

A)specific civil penalties for up to three times the amount of money invested for willful violation of the act. The Uniform Securities Act provides for criminal penalties of up to three years in prison and/or $5,000 in fines. The act describes civil liability, not specific civil penalties. Civil liability includes interest costs, rescission of trade, payment of attorney's fees, and return of principal invested. The act makes no reference to penalties of three times the amount of money invested. The Uniform Securities Act does provide the state Administrator with the power to issue subpoenas.

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)the length of time the business relationship has existed. B)objectives of the client. C)account activity. D)character of the account.

A)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 for churning.

When a security is registered with the Administrator, it means that A)the security may be legally sold in the state B)it is now exempt from the advertising filing requirements of the USA C)it is probably a federal covered security D)the Administrator has approved of the issue

A)the security may be legally sold in the state We can never misrepresent a security's registration. The Administrator, in registering a security, declares that the security is legal for sale in the state. Never use the word approved when referring to registration of a security or a securities professional. Only exempt securities and exempt transactions are exempt from the advertising filing requirements, and federal covered securities don't register with the Administrator; they notice file.

For larger accounts, a broker-dealer is least likely to waive its normal fee for A)transferring the account to another broker-dealer B)safekeeping of funds or securities in the account C)wiring funds to the client's bank D)the annual account maintenance charge

A)transferring the account to another broker-dealer Although there is no official standard, larger accounts tend to have many of the smaller fees waived. However, if the client is moving the account to another firm, it is likely that the transfer fee will be charged.

An agent sells her customer $10,000 of 15-year U.S. Treasury bonds. If the agent tells the customer this is the best investment due to the absolute safety of Treasury securities, the agent has acted: A)unlawfully, because the term "absolute safety" implies that the customer cannot lose money. B)unlawfully, because allocating the customer's entire $10,000 into bonds ignores the customer's need for diversification. C)lawfully, because Treasury securities are the safest among all domestically available debt instruments. D)lawfully, because Treasury securities carry no default risk.

A)unlawfully, because the term "absolute safety" implies that the customer cannot lose money. Implying or stating to customers that they cannot lose money when investing in a marketable security is prohibited. Although Treasury securities carry no default risk, the customer faces potential interest rate risk, particularly in light of the bonds' 15- year maturity.

Jackie Jackson is an agent with Hamilton Securities Co., an SEC registered broker-dealer. Jackie's father, Andy, founded a start-up venture several years ago and the company, with Andy as its CEO, had its initial public offering 4 months ago. For Jackie to recommend shares of this company to clients, Jackie A)would have to disclose the potential conflict of interest B)would have to obtain written consent of the client before completing the sale C)must receive approval from a supervisory person of Hamilton Securities Co. before making this recommendation D)must apply a stricter suitability standard to this company because it is so new

A)would have to disclose the potential conflict of interest When an immediate family member is in a control position with a recommended security, the agent must make disclosure of the potential conflict of interest. Consent of the client is not required, and we don't have enough information to know anything about the risk profile of this company that would require greater a suitability standard. Trades are approved by principals, not recommendations.

First thought when you see any potential Conflict of interest

Answer is to report it to client

Selling Away

Any kind of sale, regardless of how small or insignificant, without notifying the BD

Walt and Bryan are old friends who are agents with different broker-dealers. Bryan attends one of Walt's investment seminars and, at a prearranged point in the presentation, stands up and exclaims that his rich brother-in-law wisely purchased the same investment. This action is: A)only problematic if someone invests in the product and loses money. B)a deliberate attempt to mislead and deceive investors. C)a dubious sales practice but not strictly prohibited. D)a legitimate sales tactic known as priming the pump.

B)a deliberate attempt to mislead and deceive investors. This tactic is a deliberate attempt to mislead investors, get them to invest, and is expressly prohibited.

An agent of a broker-dealer 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 loan is repaid within 30 days B)If the client has $5,000 in her brokerage account C)If the loan is less than $1,000 D)If the client is agent's niece

B)If the client has $5,000 in her brokerage account Loans may be made to clients if the person making the loan is in the lending business. Broker-dealers are permitted to lend money against securities held in client's portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.

Under the USA, what are the maximum penalties for a securities-related felony? A)$5,000 and five years' imprisonment. B)$5,000 and three years' imprisonment. C)$3,000 and three years' imprisonment. D)$3,000 and five years' imprisonment.

B)$5,000 and three years' imprisonment. Under the USA, the maximum penalty is $5,000 and/or three years' imprisonment for a securities-related felony.

the criminal penalty for violations of the Uniform Securities Act is: A)$500 fine, 6 months imprisonment, or both. B)$5,000 fine, 3 years imprisonment, or both. C)$2,000 fine, 2 years imprisonment, or both. D)$1,000 fine, 1 year imprisonment, or both.

B)$5,000 fine, 3 years imprisonment, or both. Persons convicted of willful violations of the act or of knowingly filing a fraudulent document under the act may be subject to imprisonment of 3 years, fines of up to $5,000, or both.

Under the Uniform Securities Act, violations of the act may result in criminal penalties of up to: A)$10,000. B)$5,000. C)$50,000. D)1000

B)$5,000. Persons convicted of willful violations of the act or knowingly filing a fraudulent document under the act may be subject to imprisonment and/or fines for each violation. The maximum penalties are three years in jail and/or $5,000 in fines. The statute of limitations under the Uniform Securities Act is five years.

If an investment adviser representative commits a criminal violation of the Uniform Securities Act, he is subject to legal action for: A)there is no statute of limitations under the act. B)5 years after the alleged violation. C)10 years after the alleged violation. D)3 years after the alleged violation.

B)5 years after the alleged violation. Under the criminal provisions of the Uniform Securities Act, no indictment may be returned more than 5 years after the alleged violation.

Under the USA, an agent may file for a review of an Administrator's revocation order within how many days of revocation? A)270 days. B)60 days. C)90 days. D)30 days.

B)60 days. An agent may appeal a final order of the state Administrator but a written petition must be filed with the appropriate court within 60 days of the entry of the Administrator's order.

Which of the following would NOT be an example of market manipulation? A)A principal in a broker-dealer leaks a rumor that ABC is going to acquire LMN—after a few days, the broker-dealer sells short LMN for its own account B)A specialist on the NYSE buys and sells stock for his own account C)Three market makers intentionally start buying and selling the same security simultaneously in their own accounts D)A wash trade

B)A specialist on the NYSE buys and sells stock for his own account A specialist that buys or sells for its own account is not engaged in market manipulation. The function of a specialist is to act as a broker for orders that other members left with them, and to act as a dealer in buying and selling for their own account. Market makers who buy and sell the same security simultaneously in their own accounts are manipulating the market by creating false trading volume. A principal in a broker-dealer that trades on a rumor that he leaked is manipulating the market for personal gain.

If convicted of a willful violation of the Uniform Securities Act, an agent is subject to: A)a fine of $10,000. B)a fine of $5,000, imprisonment for three years, or both. C)imprisonment for five years. D)disbarment.

B)a fine of $5,000, imprisonment for three years, or both. Under the USA, the maximum criminal penalty is a fine of $5,000, three years in jail, or both.

Baird, a registered agent, receives an order from Miller, her customer, for an unusually large order of common stock in XYZ Incorporated. He states that he overheard the CFO of XYZ, Inc. telling his golfing partner that XYZ was close to being acquired by Monolith Communications, Incorporated. In light of ethical standards under the Uniform Securities Act, which of the following actions is most acceptable? A)Within the trading day, Baird recommends XYZ to 20 of her customers who have indicated aggressive growth as their main trading objective. B)Baird tells her immediate supervisor (principal) of Miller's intent to trade based upon nonpublic (inside) information. C)Baird takes Miller's order and does not discuss the conversation she has with Miller regarding XYZ and Monolith with anyone. D)Baird purchases 1,000 shares of XYZ for her personal account.

B)Baird tells her immediate supervisor (principal) of Miller's intent to trade based upon nonpublic (inside) information. Baird should inform the firm that a customer wishes to trade a security using inside (nonpublic) information. Under no circumstances should Baird trade for her own account using inside information or use such information as the basis for recommendations to customers. Because Miller's order may cause Baird's employer to violate securities law, she should bring Miller's order to the attention of her supervisor.

An agent's customer says that ABC Corporation is about to be bought out. The customer wishes to place an order to buy ABC common stock based upon this yet unreleased information, which he claims he learned from an officer in the company. How should the agent respond in this situation? A)Discuss the matter with other, more experienced agents of the firm to evaluate the validity of the information. B)Bring the information to the attention of the firm's supervisory principal named to handle such matters in the Supervisory Procedures Manual. C)Accept the customer's order and mark it solicited. D)Bring the information to the attention of the State Securities Administrator.

B)Bring the information to the attention of the firm's supervisory principal named to handle such matters in the Supervisory Procedures Manual. The customer seeks to place an order based on inside information or rumor. The agent should not accept the order before discussing it with her supervisor/principal. Under no circumstances should the agent repeat the information to fellow agents. There is no requirement that such information be reported to the state securities Administrator.

If John Good, a properly registered investment adviser, opens his own office and hires several representatives to work for him, his business card may NOT read. A)Good and Associates Investment Advisers, Inc. B)Good Performance Advisers, Inc. C)Good's Investment Advisers, Inc. D)John Good Investment Advisers, Inc.

B)Good Performance Advisers, Inc. John Good, a registered investment adviser, cannot put on his business card "Good Performance Advisers." In this instance, the word Good can be interpreted as an adjective modifying the word performance, as opposed to John's given name, Good. An adviser cannot present himself to the public in terms that can be misleading or interpreted as exaggerating performance. The other three choices are appropriate because they do not use the term Good as an adjective touting the results of the adviser, but as the name of the adviser.

A customer wants to sell a security she owns because she read a discouraging report about the issuer's future. Before placing the customer's order, the agent enters a sell order for himself. Under what circumstances can he do this? A)He can do this as long as the order was entered promptly after his and there is no price disparity between the orders. B)He can never do this because this is unethical. C)He can never do this because this is a type of market manipulation known as a wash trade. D)He can do this as long as the customer's order was placed promptly after his.

B)He can never do this because this is unethical. The agent or the firm is prohibited from executing an order in its own account ahead of a customer order. That is a prohibited practice called front running.

Which of the following statements may be made by an agent of a broker-dealer? I am a registered agent for the XYZ broker-dealer. I am a registered agent for the XYZ broker-dealer, meaning my qualifications have been approved by the appropriate regulatory agencies. This security I am recommending to you is registered on both the state and federal level. This security I am recommending to you is registered on both the state and federal level, meaning that both the SEC and the appropriate states have given their approval of this issue. A)I and IV B)I and III C)II and III D)II and IV

B)I and III Securities professionals are not permitted to misrepresent their qualifications by stating or insinuating that their registration implies any kind of approval of their qualifications by any regulatory body. The same holds true when it comes to the registration status of any security.

Which of the following statements regarding the handling of discretionary accounts are TRUE? -Discretionary accounts must be reviewed frequently by the designated supervisory person. -An investment adviser representative may decide, without discretionary authority, the security to buy or sell and the amount to buy or sell. -A husband or wife may at any time exercise discretionary authority in the spouse's account without specific written authorization. -An investment adviser representative may decide, without discretionary authority, the time at which to execute a trade. A)II and IV. B)I and IV. C)II and III. D)I and III.

B)I and IV. Discretionary accounts must be reviewed frequently by the designated supervisory person, and an investment adviser representative may decide both the time and price at which to execute a trade without discretionary authority. Only if he is to decide action (whether to buy or sell), asset (what to buy or sell), or amount (how much to buy or sell) is discretionary authority required.

If an agent, broker-dealer, investment adviser or investment adviser representative is found to be in violation of the provisions of the Uniform Securities Act, penalties could include: administrative action. fines. imprisonment. A)I and/or II only. B)I, II and/or III. C)II and/or III only. D)I and/or III only.

B)I, II and/or III. Those securities professionals found guilty of violating the USA could face various sanctions from the Administrator, including a fine and/or jail sentence.

The underwriter, issuer, broker-dealer, investment adviser, and agent agree to defraud customers. Which of the following is subject to civil and criminal penalties? The underwriter. The issuer. The broker-dealer. The investment adviser. A)I, III and IV. B)I, II, III and IV. C)I, II and III. D)II and IV.

B)I, II, III and IV. Any person who violates the Uniform Securities Act may be subject to civil and criminal penalties. In this situation, all parties have agreed to fraud violations of the act; therefore, all involved may have both criminal and civil penalties imposed upon them.

Under the Uniform Securities Act, which of the following would constitute a fraudulent practice in connection with a sale or offer of securities? Susan tells a client that she is good friends with the CFO of a listed company and has the "inside track" on what is going on. Susan has never met the CFO. John makes a material misstatement during a sale, but the sale is not made. Joe omits material facts while making an offer, but the client makes money on the securities. Harold, who is excluded from the definition of investment adviser, omits material facts during an offer. A)III and IV. B)I, II, III and IV. C)II and IV. D)I and III.

B)I, II, III and IV. Failure to state material facts that are known to the agent or adviser and which would make other statements not misleading is fraudulent. Securities professionals may not be deliberately selective of which material facts to present to clients or prospective clients. In recommending the purchase or sale of a security, misleading or untrue statements of material facts include inaccurate market quotations; incorrect statements of earnings or projected earnings; inaccurate statements of commissions, mark-up, mark-down, or other charges; implying approval by the SEC or state Administrator; using rumors or inside information to induce transactions; indicating approval of a security by any regulatory body; or failure to describe important facts or risks.

Securities industry rules require that securities professionals disclose all potential conflicts of interest to their clients. Examples of potential conflicts of interest include offering a proprietary product an agent having a financial interest in a recommended security a broker-dealer publishing a favorable research report after underwriting the issuer's stock offering the sponsor of a mutual fund offering a trip to Key West for all agents reaching a minimum sales level of any of the sponsor's funds A)I and III B)I, II, III, and IV C)II and IV D)I, III, and IV

B)I, II, III, and IV All of these represent the potential for a conflict of interest that must be disclosed to clients.

When communicating with a client, an agent is prohibited from: I.promising free services that will be provided by a third party. II. representing, as fact, information that is based on speculative rumor. III. holding himself out as qualified by FINRA. IV. offering a referral to a qualified tax or legal professional. A)II and IV. B)II and III. C)I and IV. D)I and III.

B)II and III. A bona fide offer of a free service is permissible even if a third party delivers it. An agent may provide referrals to a tax professional without restriction. An agent cannot imply that FINRA has qualified him as an investment professional. Representing rumor as fact is a serious misrepresentation and violation of the USA.

Which of the following are not considered violation(s) of the Uniform Securities Act? Deliberately failing to follow a customer's instructions. Bringing a customer's written complaint to the attention of the agent's employer. Effecting a transaction with an investor that is not recorded on the books of a firm with the advance written approval of the firm's principal. Soliciting orders for unregistered, nonexempt securities. A)I and IV. B)II and III. C)III and IV. D)I and II.

B)II and III. Failure to bring a customer's written complaint to the firm's attention is a violation of the USA. If the transaction is approved by the firm's principal in advance, it may be effected for an investor that is not otherwise recorded on the books of the firm. Deliberately failing to follow a customer's instructions and soliciting orders for unregistered, nonexempt securities are also violations of the USA.

Which of the following activities are prohibited practices under the principles of the Uniform Securities Act? Buying and selling the same stock on the same day on different exchanges. Offering shares of an unregistered, nonexempt security to customers. Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered. A)I, II and III. B)II and III. C)II only. D)I only.

B)II and III. Unless qualifying for an exemption, broker-dealers and agents must be registered in each state where offers or sales occur. Also, every security must be registered unless it is an exempt security. Buying a security on one exchange and selling it on another is an arbitrage activity and not a violation of the USA. Although the Canadian government bond is an exempt security, the agent must be properly licensed in each state in which an offer to sell is being made.

If an agent unknowingly sold securities that were not properly registered in the state, the agent: -has committed fraud. -is subject to civil action. -is subject to criminal sanctions for up to five years from the date of sale. -engaged in a prohibited business practice. A)I and IV. B)II and IV. C)I and III. D)II and III.

B)II and IV. For an agent to commit fraud, the agent must knowingly deceive a client. Because the agent unknowingly sold securities that were not properly registered, the agent did not commit a crime and is not subject to criminal sanctions or the 5-year statute of limitations for criminal offenses. The sale of unregistered nonexempt securities is a prohibited business practice subjecting the agent to potential civil and administrative action, even when done unknowingly.

Under the Uniform Securities Act, which of the following statements is (are) TRUE regarding civil liability of advisers and broker-dealers? The statute of limitations for civil liability is 5 years. A lawsuit against a broker-dealer or adviser can be avoided if restitution, costs, and interest are paid to a client. If restitution is made to a client by a broker-dealer, the Administrator may not prosecute the securities violation. A)I and II. B)II only. C)II and III. D)I only.

B)II only. Do not confuse the statute of limitations for criminal prosecution (five years) with the statute of limitations for civil liability (three years from the date of the event or two years from discovery, whichever occurs first). Since civil liability under the act is limited to restitution, costs, and reasonable interest, a lawsuit could be avoided by a return of the investor's funds plus interest. Payment of restitution to a client does not prevent the Administrator from prosecution for violating the provisions of the act.

Which of the following activities would be prohibited for an agent? Executing a transaction in a discretionary account. Charging a larger than average commission on certain transactions. Soliciting sales of a non-exempt security not yet registered. A)II only. B)III only. C)II and III. D)I, II and III.

B)III only. An agent is prohibited from soliciting sales of a security that has not been registered. An agent is not prohibited from executing a transaction in an account over which he has been granted discretionary authority. An agent may also charge higher than average commissions on certain transactions typically involving low market volume securities and penny stocks among others.

Which of the following is a fraudulent or prohibited activity for an agent under the Uniform Securities Act? A)Using the dividends paid in the last 12 months to determine the current yield of a common stock. B)Implying that registration of a security means approval of the security. C)Stating that zero-coupon bonds pay no current interest. D)Selling common stock to a customer with income objective

B)Implying that registration of a security means approval of the security. Registration of a security with the SEC or the state implies neither approval nor disapproval. To state otherwise is fraudulent. Dividends paid in the last 12 months determine the current yield of a common stock. Selling common stock to a customer with income objectives is not a fraudulent activity if suitable to the client's objectives. Zero-coupon bonds pay no current interest and to state so is not a fraudulent activity.

Watson, a customer of Gibraltar Securities, wishes to place an order to buy 50 shares of a thinly traded stock priced at $8 per share. Because the stock is so thinly traded, Gibraltar Securities feels it needs to charge Watson a commission of $100 to justify the time it must spend locating a seller of the stock. Which of the following statements best describes this action? A)A commission of $100 on a transaction involving $400 worth of stock would generally not be deemed excessive. B)It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction, provided Gibraltar informed Watson of the $100 commission prior to the transaction and Watson chose to proceed with the trade. C)Gibraltar Securities is not required to disclose the amount of commission in advance to Watson. However, it must receive clearance from the Administrator before charging commission in amounts exceeding 10% of the value of the securities traded under the transaction. D)It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction.

B)It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction, provided Gibraltar informed Watson of the $100 commission prior to the transaction and Watson chose to proceed with the trade. It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction, provided Gibraltar informed Watson of the $100 commission prior to the transaction and Watson proceeded with the trade. However, charging larger than normal commissions without informing the customer of such intent in advance is a prohibited practice under the Uniform Securities Act. There is no requirement for administrative clearance prior to charging larger than normal commissions.

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

B)Length of association with the agent. If the agent induces a client to trade securities in transactions that are excessive in size or frequency in view of the financial resources, investment objectives, and character of the client's account, the agent has engaged in unethical conduct. Remember, the suitability provisions of NASAA's policy require that, before making recommendations, agents make reasonable inquiry as to the client's financial situation, investment objectives, and needs. The recommendation must be suitable in light of any information known to the agent. The length of association with the agent is not relevant to these requirements.

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)Arrange for the firm to give the client another loan. B)Make every reasonable attempt to contact the client. C)Arrange for a different client to give his client a loan. D)Deposit funds into the client's account on behalf of the client.

B)Make every reasonable attempt to contact the client. In this instance all that the agent can do is to try to contact the client. The agent cannot arrange for a loan or deposit her own funds into the client's account.

Which of the following is required for a preorganization subscription to be an exempt transaction? A)There may be no more than 15 subscribers. B)No commission has been paid. C)Full payment has been made. D)Prior notification of intent to incorporate must be given to the Administrator.

B)No commission has been paid. A preorganizational subscription is an exempt transaction if there are no more than ten subscribers and no commissions are paid, either directly or indirectly. The subscribers make no payments until they purchase the underlying security.

The Administrator from State A feels that Mr. Smith, who is registered in State A, is mishandling client's accounts. Can the Administrator arrest Mr. Smith? A)Yes, but there must be solid proof of wrongdoing. B)No, Administrators are not allowed to make arrests. C)Yes, but it must be in the public's best interest. D)

B)No, Administrators are not allowed to make arrests. State Administrators do not make arrests, but they have the authority to report certain activities to the proper authorities who will make an arrest if necessary.

the Administrator from State A feels that Mr. Smith, who is registered in State A, is mishandling client's accounts. Can the Administrator arrest Mr. Smith? A)Yes, but there must be solid proof of wrongdoing. B)No, Administrators are not allowed to make arrests. C)Yes, but it must be in the public's best interest. D)Yes, as long as there is probable cause.

B)No, Administrators are not allowed to make arrests. State Administrators do not make arrests, but they have the authority to report certain activities to the proper authorities who will make an arrest if necessary.

An agent recommends an investment company that has gained 20% per year. What statement may she use in describing the investment company to a prospective client? A)We have professional managers, so you cannot lose money. B)Past performance is no assurance that similar results will be obtained in the future. C)We can guarantee you a minimum of 10% return. D)I have been checked out by the SEC and tested by NASAA, so you know my company is sound.

B)Past performance is no assurance that similar results will be obtained in the future. Advertising that guarantees future performance is prohibited. It is also unethical for an agent to misrepresent through exaggeration, falsification, or omission the qualification of the fund's adviser or its employees. Implying that the SEC or NASAA has approved or validated the programs of an agent or investment company is unethical.

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

B)Personally raising capital, without written authorization from the broker-dealer, for a new high-tech venture being run by the agent's former college roommate. By attempting to effect securities sales by circumventing his broker-dealer, the agent has committed the prohibited practice of a private securities transaction, referred to as selling away. Failure to disclose a material fact would be prohibited, but nonmaterial facts do 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.

Thomas Smith, a registered agent of XYZ Broker-Dealer, believed that his client's security was overvalued. If Smith exaggerated the amount by which the security was overpriced to protect the client from a downturn in the price of the security, each of the following statements is true EXCEPT: A)Smith engaged in fraud in connection with the sale of a security. B)Smith provided investment advice while acting in a sales capacity, which is a prohibited practice. C)Smith made an untrue statement in connection with the sale of a security. D)Smith acted in a dishonest and unethical manner.

B)Smith provided investment advice while acting in a sales capacity, which is a prohibited practice. Smith acted in a dishonest and unethical manner, made an untrue statement in connection with the sale of a security, and engaged in fraud in connection with the sale of a security. The advice to sell the securities was good investment advice, but the sales method was fraudulent.

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

B)The bonds are guaranteed as to principal and interest payments by the U.S. government. Stating that the bonds are guaranteed as to principal and interest payments by the U.S. 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 credit union is issuing participation units in this state. Which of the following statements relating to the Uniform Securities Act is TRUE? A)Any advertisement for the issue must be filed with the Administrator. B)The issue is subject to the antifraud provisions of the Act. C)Registration may be done by qualification. D)This is a federal covered security.

B)The issue is subject to the antifraud provisions of the Act Even though interests in a credit union are normally exempt securities, the exemption does not apply to the antifraud provisions of the Act. .

Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A)There may be no more than ten subscribers. B)The offer of the security may not be advertised. C)No commission may be paid to anyone for soliciting potential subscribers. D)No payment may be made by any subscriber.

B)The offer of the security may not be advertised. There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised.

An agent receives a blank check from a client for a purchase of the ABC Mutual Fund, and is directed to fill in the proper amount. The agent deposits the client's check in his personal checking account pending the next calculation of NAV for the mutual fund, at which point the agent plans on writing a replacement check from his account. Which of the following statements regarding the agent's actions is TRUE? A)This is permitted if the agent reports the deposit to the Administrator. B)This is an example of commingling and is prohibited. C)This is an example of commingling and is not prohibited with prior authorization from the client. D)This transaction is permitted in accordance with the Uniform Securities Act.

B)This is an example of commingling and is prohibited. Under the USA, placing client securities and funds in an agent's account is prohibited; this is called commingling.

Under the Uniform Securities Act, an agent may not make which of the following statements to a customer? A)This security has been registered with the Administrator. B)This security is approved for sale by the Administrator. C)This security is exempt from registration. D)This security is registered with the state.

B)This security is approved for sale by the Administrator. The state Administrator does not approve securities.

Each of the following is a not a prohibited practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents EXCEPT A)a broker-dealer placing an order in a customer's account that was received from an authorized third party B)a broker-dealer failing to disclose that the firm is affiliated with the issuer of a recommended security C)a broker-dealer obtaining a mortgage for its new building from a bank that is a client of the firm D)a broker-dealer charging a higher-than-normal commission on a trade involving a thinly traded stock

B)a broker-dealer failing to disclose that the firm is affiliated with the issuer of a recommended security Watch out for the negatives. The question is looking for the prohibited practice, and failing to disclose the affiliation with the issuer of a recommended security violates the requirement to disclose any potential conflict of interest. Each of the other choices complies with the rules and would be permitted.

The Seeking Alpha Growth Fund directs a sizeable portion of its portfolio executions to your broker-dealer. If the firm has this fund on its highly recommended list, this would be A)allowed only when the investment company uses more than 1 broker-dealer to sell its shares B)a conflict of interest that would have to be disclosed C)prohibited only if selling shares and executions for the portfolio by the member takes place on the same business day D)allowed without restriction

B)a conflict of interest that would have to be disclosed Recommending shares of a fund when the broker-dealer is aware that a policy exists to direct brokerage to them is an obvious conflict of interest and would have to be disclosed.

If an agent misrepresents the price of a customer's stock by $10 per share to encourage the client to sell, this activity is: A)a misrepresentation but not a fraudulent act. B)a misrepresentation and a fraudulent act. C)allowed if the agent views the difference as a service charge. D)allowed if the customer ultimately makes a profit in the account.

B)a misrepresentation and a fraudulent act. The agent has committed a fraudulent act by willfully misrepresenting the value of the stock to encourage the customer to sell a security.

Under the Uniform Securities Act, all of the following are prohibited in a sale EXCEPT: A)telling a client that her stock is a sure candidate for a takeover bid. B)a statement by the agent that the security will be listed on an exchange within 1 year after the company announced its intention to do so. C)telling a client that he is trading commission free when, in actuality, your firm is acting as a principal and placing a mark-up on his trades. D)an agreement by the agent to repurchase the security from the customer for the same price at a future date.

B)a statement by the agent that the security will be listed on an exchange within 1 year after the company announced its intention to do so. An agent cannot guarantee to buy back the securities at the same price, cannot claim there are no transaction costs when the firm charges a mark-up, and cannot make exaggerated statements relating to future activity in a security. However, the agent may state that the company intends to list its shares on an exchange if this is a fact.

Under the Uniform Securities Act, it is not considered unlawful if an agent: A)made an untrue statement of a material fact. B)actively solicited orders in unregistered exempt securities. C)deliberately failed to follow a customer's instructions. D)omitted a material fact because she knew she did not have time to cover everything in a short presentation.

B)actively solicited orders in unregistered exempt securities. Securities that do not require registration under the USA are exempt securities. Although the securities are exempt from registration, thereby making the solicitation permitted, the agent who makes the solicitation and the broker-dealer must be registered. An agent may not make an untrue statement of a material fact, omit a material fact, or deliberately fail to follow a customer's instructions.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A)charges for late payments B)advisory fees C)account inactivity fee D)issuance of a stock certificate

B)advisory fees here are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

A long-time customer is a mid-level accounting department employee of a medium-sized local company and has invested exclusively in large-cap stock mutual funds. If this customer instructs you to buy 10,000 shares of his company's stock, you should: A)refuse the order because it is outside the customer's normal investment pattern. B)bring the order to the attention of your supervisor because it may reflect a trade based on inside information. C)accept the order without qualification. D)accept the order but mark it as unsolicited.

B)bring the order to the attention of your supervisor because it may reflect a trade based on inside information. While the customer might not be involved in insider trading, the transaction has the characteristics of a trade based on inside information and must be reported to a supervisor before any further action is taken.

In general, a broker-dealer will disclose any changes to its fee schedule A)when requested by the client B)by notifying clients of the change in advance C)to the Administrator and then to the clients D)within 30 days following the change

B)by notifying clients of the change in advance Most broker-dealers disclose fee changes at least 30 days in advance and there is no requirement whatsoever to notify the Administrator.

Excessive activity in a customer's account primarily for the purpose of generating excess commissions for the agent is referred to as A)commingling B)churning C)hypothecating D)selling dividends

B)churning Excessive activity for the purpose of generating commissions is known as churning.

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 a written statement of indemnification from the customer before effecting the unsuitable trade. B)complete the trade. C)obtain prior approval from one of the firm's general securities sales principals before effecting 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.

B)complete the trade. If a client insists that a trade be 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.

Your client has given you discretionary authority to trade her account with a beginning balance of $100,000. Market conditions have been volatile for the past 6 months, and her primary objective is long-term growth with low to moderate risk. A review of the account at the end of that period shows that while the Dow Jones Industrial Average has dropped by 2.2%, the client's account value is $105,300. During the period, if commissions from trading totaled a bit over $6,000, it is likely that your principal will A)suggest that you contact the client about investing more money with the firm B)discuss the possibility that you may have been churning the account C)inquire as to why a $100,000 account only generated $6,000 in commissions in a 6-month period D)congratulate you on helping your client beat the averages

B)discuss the possibility that you may have been churning the account Churning can occur even when an account makes money. If the amount of commissions generated is out of line with the account's objectives and resources (and 12% annual charges, in this case), churning will probably be suspected.

When opening an account at a broker-dealer, if the most recent copy of the firm's fee schedule is not available, NASAA recommends that the client A)selects another broker-dealer and opens the account there B)does not place any assets in the account until it is provided C)promptly notifies the Administrator of the firm's failure to comply D)goes ahead with the account opening but refrains from trading until its receip

B)does not place any assets in the account until it is provided Fees are typically disclosed when a customer account is opened. Clients should ask for the fee schedule and make sure it's up to date. If it is not readily available, clients should not place any assets until it is provided. NASAA believes that clients have the right to know the fees in advance.

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

B)for two individuals employed by the same broker-dealer and with the same category of license to share in commissions without telling the client. Properly registered individuals employed by the same or affiliated broker-dealers 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 clients 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.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, when a dealer makes an offer to sell: A)he must have acquired that stock at a price below the quote. B)he must be prepared to sell at that price. C)he must be prepared to buy at that price. D)he must have acquired that stock at a price above the quote.

B)he must be prepared to sell at that price. When a dealer makes a quote, it must be honored. If accepted, the dealer must sell at the quoted offering price or buy at the quoted bid price.

A customer asks an agent for a valuation of his securities portfolio. Because the agent does not want to cause the customer to panic and sell his shares at a loss, the agent inflates the value of the stock. Under the Uniform Securities Act, this action is: A)permitted because the agent was not recommending a transaction. B)not permitted because the agent must not deceive the customer by misstating a material fact. C)not permitted because the agent must not attempt to influence the market value of a security. D)permitted because the agent determined that selling the securities was not suitable.

B)not permitted because the agent must not deceive the customer by misstating a material fact. An agent must not deceive a customer by misstating a material fact. Furthermore, ethical behavior is not limited to the recommendation of actual trades. However, misinforming the customer does not constitute market manipulation.

An agent overhears a rumor and wishes to use that information to convince all of her clients to purchase a security. Under the Uniform Securities Act, the agent may: A)recommend the security if the source of the rumor came from a reliable source. B)not recommend the security. C)recommend the security if it is an appropriate investment. D)recommend the investment if the rumor is based on material inside information.

B)not recommend the security. The agent is prohibited from using information, such as a rumor, that has no basis in fact. In addition, the agent recommended this stock to all of her clients without concern for suitability.

The Administrator can bring a case against an agent and have the court require the agent to: A)retake an exam. B)pay back a client. C)move out of the state. D)resign from his current employment.

B)pay back a client. The Administrator may bring a case to court where the agent is found civilly liable. In that case, restitution may be ordered by the court. The Administrator does not have to go to court to require the agent to retake a qualification exam.

the Administrator can bring a case against an agent and have the court require the agent to: A)retake an exam. B)pay back a client. C)move out of the state. D)resign from his current employment.

B)pay back a client. The Administrator may bring a case to court where the agent is found civilly liable. In that case, restitution may be ordered by the court. The Administrator does not have to go to court to require the agent to retake a qualification exam.

If an investment adviser tells a client that a stock has doubled in the past year and, even though past performance is no assurance of future results, he is sure it will double, this statement is: A)prohibited because the investment is not suitable for the client. B)prohibited as a likely exaggeration. C)permissible due to the disclaimer of future performance. D)permissible if the adviser has performed due diligence on the stock.

B)prohibited as a likely exaggeration. Regardless of disclosure of the uncertainty of future performance of an investment, an investment adviser may not make potentially exaggerated claims.

As a registered investment adviser, you have managed $10 million of a customer's funds for several years. The customer asks you to prepare a trust for his children, transfer $3 million of his funds into the trust, and to trade the trust with the same objectives as the existing account. You should: A)prepare the trust, transfer funds, and begin investing. B)refer the customer to an attorney that can set up the trust. C)explain to the customer that trusts cannot be traded. D)tell the customer to contact a tax specialist.

B)refer the customer to an attorney that can set up the trust. The best choice is to have the customer contact a qualified attorney to set up a trust.

An agent at a broker-dealer firm is excited about new earnings projections he received from TechEd, which sells at a market value of $10, has paid a $1 dividend this past year, and its earnings projections for the next year amount to an increase of 30%. The agent calls his clients to solicit purchases of TechEd stock and says if they buy now at $10 per share they will realize a profit of 30%. The agent should: A)practice due diligence and call TechEd to verify that these earnings predictions are still current. B)refrain from making this statement because it is a misrepresentation. C)not say anything yet because this is inside information. D)show his clients how he came to his calculations, sending them charts that have been approved by his principal.

B)refrain from making this statement because it is a misrepresentation. This is a clear case of misrepresenting earnings projections and the agent must immediately stop this activity.

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

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, a securities agent may NOT: A)be licensed by both an independent insurance company and a securities broker-dealer. B)simultaneously represent two different unrelated broker-dealers in the same transaction. C)be registered with a licensed real estate broker as well as with a licensed securities broker-dealer. D)be registered with two broker-dealers under common control.

B)simultaneously represent two different unrelated broker-dealers in the same transaction. A registered agent may not simultaneously represent two different, unrelated broker-dealers in the same transaction. Under current regulations, only a few states allow agents to have dual registrations with more than one broker-dealer, unless those broker-dealers are under common management. In those cases, the agent may only represent one of the broker-dealers in any single transaction. Agents of broker-dealers may be simultaneously registered with real estate agencies, insurance companies, and with two broker-dealers, provided the broker-dealers are under common ownership or control or the arrangement has been authorized by the Administrator.

An agent is licensed to sell variable annuities. An insurance company, whose products are available through the agent's broker-dealer, is offering an all-expense paid trip to Panama City Beach to any individual who places at least $1 million of clients' money into one of the company's deferred variable annuities. In order to recommend this company's products to clients, A)the agent shall offer the client a rebate of a portion of the commission earned B)the agent shall disclose the potential conflict of interest C)disclosure of the risks inherent in variable annuities shall be made D)consent of the insurance company is required

B)the agent shall disclose the potential conflict of interest Anytime there is an incentive involved in a security offering, the potential conflict of interest shall be disclosed to the potential investor. Rebates of commissions on variable insurance contracts are not permitted under both securities and insurance regulations. What about the risk disclosure? Yes, that must be made, but, does that really address the question? Sometimes there is a 2nd choice that could also be correct (as in this case). However, you must always answer within the context of the question—what do you do when there is an incentive offered?

Great Western Securities, Inc., (GWSI), a registered broker-dealer, is also the distributor for the Westcore Value Fund. When an agent registered with GWSI recommends the purchase of the Westcore Value Fund, A)the agent shall ensure that the fund's sales charge is fair and reasonable B)the agent shall disclose the potential conflict of interest to the client. C)the agent shall obtain the approval of a designated supervisor before making the recommendation D)the agent is committing an unethical business practice by recommending an affiliated entity

B)the agent shall disclose the potential conflict of interest to the client. Anytime a broker-dealer is also the distributor of a mutual fund, disclosure of the potential conflict of interest shall be made whenever that fund is recommended to the firm's clients. Agents have nothing to do with the sales charge levied by a mutual fund—that is stated in the fund's prospectus.

A broker-dealer publishes a list of securities it approves for inclusion in IRAs. This means A)the broker-dealer has committed an unethical business practice because use of the word approved is prohibited B)the broker-dealer has evaluated these securities and believes they would be suitable for inclusion for retirement planning C)an agent for the broker-dealer can place these in clients' IRAs knowing that the suitability requirements have been met D)the broker-dealer has consulted with the regulatory bodies and has received approval from them to recommend these securities for IRAs

B)the broker-dealer has evaluated these securities and believes they would be suitable for inclusion for retirement planning Approved is an odd word in this industry. It can never be used with reference to any regulator commenting on the status of a security or an individual. However, a broker-dealer creating an approved list of securities is not unethical or prohibited as long as it is clear that it is the BD and not any regulator granting the approval. Even though the firm has listed these securities as suitable for IRAs, that does not relieve the individual agent of verifying the suitability for each clients for whom they are recommended.

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 Uniform Securities Act, the agent should: A)construct a growth-oriented portfolio. B)urge the customer to reconsider his investment strategy. C)invest in an ultraconservative portfolio of municipal bonds. D)invest the money in high-tech securities because of their unlimited potential.

B)urge the customer to reconsider his investment strategy. Making unsuitable recommendations to customers is prohibited, and this investor's time frame is unrealistic because the customer cannot meet his objectives in the time allotted. Investment in high-tech securities is unsuitable. Advising the customer to invest in an ultraconservative portfolio of municipal bonds will not meet the customer's objective of capital growth. The agent should advise the customer to reconsider his investment objectives.

This morning's financial section of your newspaper has an article discussing several significant material facts relating to a stock held in the portfolio of several of your clients. You would be able to share these facts with your clients: A)only if the statement without this fact would make your previous statements misleading. B)with or without the issuer's permission. C)only if the customer did not work for the issuer and did not know this information. D)under no circumstances until the clients have had a chance to read the article themselves.

B)with or without the issuer's permission. Public information may be disseminated with or without the permission of the issuer, even if it is material information that casts the issuer in an unfavorable light.

Right of rescission

Buy back a security at original purchase price plus interest, if realized the sale was illegal

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

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

Under the civil liabilities section of the Uniform Securities Act, how long does a client have to sue an investment adviser after the advice is given? A)5 years. B)6 months. C)3 years. D)1 year.

C)3 years. Do not confuse the statute of limitations for criminal prosecution and punishment with the statute of limitations for civil liability. The civil liability statute of limitations is three years from the event or two years from discovery, whichever occurs first. The statute of limitations for criminal prosecution or punishment is five years.

The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket? A)Customer name, execution price, time of order entry, and time of execution or cancellation. B)Account number, customer address, time of order entry, and terms and conditions of the order. C)Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order. D)Customer name, customer address, execution price, time of execution or cancellation.

C)Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order. This is one of those questions where the best way to find the answer is by determining what is NOT correct. Customer name and/or address would never be on an order ticket and that knocks out three of the choices. The account number (not name), the execution price (once the order is completed), the time of entry and execution (or cancellation if it is a day order that is not executed) and the terms and conditions (limit, market, stop, etc.) are all on the order ticket.

Which of the following must be disclosed during a transaction recommendation under the Investment Advisers Act of 1940? A)All facts. B)All facts needed to assess the risks of an investment. C)All material facts. D)All facts in the prospectus.

C)All material facts. It is a violation of the act for any person willfully or knowingly to make untrue statements of a material fact or omit to state a material fact in connection with a securities recommendation by an adviser. A material misstatement is one that may have an effect on an issuer's future financial prospects or the market value of its securities or may influence the decision of a customer.

An agent engaging in which of the following activities would most likely be guilty of churning? A)Commingling. B)Market timing. C)Excessive trading in a client's account. D)Bond swapping.

C)Excessive trading in a client's account. Churning is determined by analyzing whether the transactions of purchase or sale were excessive in size or frequency in view of the financial resources and character of a customer's account. Bond swapping is a popular tax saving strategy and many technical analysts use market timing for their purchases and sales. Commingling the customer's and firm's funds, while certainly prohibited, is definitely not churning.

Which of the following statements best reflects how front running is regarded by NASAA? A)Front running is a prohibited practice for the agent, but not for the broker-dealer. B)Front running is a prohibited practice for the broker-dealer, but not for the agent. C)Front running is a prohibited practice for all securities industry professionals because it subordinates the interest of the customer. D)Front running is not a prohibited practice under the Uniform Securities Act and is considered normal practice in the securities industry.

C)Front running is a prohibited practice for all securities industry professionals because it 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.

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include a charge when a client requests that a stock certificate be issued in his name a commission charge when a client buys a security on a listed exchange the interest charged by the firm on money owed by customers in their margin accounts fees for providing advisory services to high net worth individuals A)I and IV B)III and IV C)I and III D)II and III

C)I and III If we know what charges are not included in the fee disclosure, it is easy to recognize those that are. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

In meeting the suitability requirements of securities regulations, investment adviser representatives should: -recommend appropriate investments to their clients. -guarantee their clients against losses for performance that does not match such benchmark indexes as the S&P 500. -inquire about their client's financial condition, investment knowledge and experience, and investment goals. -limit questions to client's interest in specific securities. A)III and IV. B)I and II. C)I and III. D)II and III.

C)I and III. In meeting the suitability requirements of securities regulations, investment adviser representatives should only recommend appropriate investments to their clients and must inquire about their client's financial condition, investment knowledge and experience, and investment goals.

Which of the following activities are allowable activities of an agent? Borrowing money from a colleague at the agent's broker-dealer. Borrowing money from a client at the broker-dealer. Splitting commissions with another agent at the broker-dealer. Establishing a joint account with a customer without consent of the broker-dealer. A)I, II, III and IV. B)I, II and III. C)I and III. D)II only.

C)I and III. Splitting commissions with another agent at the same broker-dealer is an allowable activity, as is borrowing money from colleagues and lending institutions. It is a prohibited practice to borrow money from a client not in the lending business or establish a joint account with a client without written permission from the broker-dealer and the client.

An agent mistakenly sold an unregistered, nonexempt security to a customer. Which of the following actions should the broker-dealer take? Offer to buy the security back from the customer. Ask the customer to sign a customer agreement. Register the stock by notification. Offer to pay interest at an annual rate determined by the Administrator, less income paid, from the date the security was purchased. A)I, II, III and IV. B)I and III. C)I and IV. D)II and III.

C)I and IV. In the case of an agent who mistakenly sells an unregistered, nonexempt security, the broker-dealer should offer to buy back the security from the customer and pay the customer interest on the amount invested in the security for the period from the original purchase to the resale back to the firm, minus any income or profit realized by the client on the security. This is known as the right of rescission.

John, an investment adviser, employs an investment adviser representative who is found guilty of defrauding many of the firm's clients over a long period of time. Which of the following is (are) TRUE under the Uniform Securities Act? The investment adviser representative is subject to criminal penalties specified in the act and to civil liabilities resulting from clients who sue as a result. John may be subject to civil liabilities resulting from actions taken by the investment adviser representative. John is not subject to civil liabilities as a supervisor if he can prove that he had no knowledge of the actions of the representative and while exercising reasonable care, he could not have had knowledge of the violations. A)I and III. B)I and II. C)I, II and III. D)II and III.

C)I, II and III. Persons convicted of willful violations are subject to the criminal penalties specified in the act (three years and/or $5,000 fine). Thus, the representative is subject to criminal penalties and civil liabilities resulting from clients who sue him for loss of money. The act subjects to civil liabilities any person supervising those who violate the law. However, a supervisor may not be held liable for the actions of those whom he supervises if it can be proved that the supervisor used reasonable care to discover and prevent the violations and has no knowledge of the violations.

ohn, an investment adviser, employs an investment adviser representative who is found guilty of defrauding many of the firm's clients over a long period of time. Which of the following is (are) TRUE under the Uniform Securities Act? -The investment adviser representative is subject to criminal penalties specified in the act and to civil liabilities resulting from clients who sue as a result. -John may be subject to civil liabilities resulting from actions taken by the investment adviser representative. -John is not subject to civil liabilities as a supervisor if he can prove that he had no knowledge of the actions of the representative and while exercising reasonable care, he could not have had knowledge of the violations. A)I and III. B)I and II. C)I, II and III. D)II and III.

C)I, II and III. Persons convicted of willful violations are subject to the criminal penalties specified in the act (three years and/or $5,000 fine). Thus, the representative is subject to criminal penalties and civil liabilities resulting from clients who sue him for loss of money. The act subjects to civil liabilities any person supervising those who violate the law. However, a supervisor may not be held liable for the actions of those whom he supervises if it can be proved that the supervisor used reasonable care to discover and prevent the violations and has no knowledge of the violations.

Under the Uniform Securities Act, which of the following agents are in violation of the act? An agent persuades a client to cosign for a loan and does not disclose that he is facing financial difficulties. An agent's customer instructs her to buy shares in ABC Pharmaceuticals. ABC is experiencing financial troubles, so the agent buys shares in XYZ Health Care instead. An agent purchases shares of a new issue and hopes to cause the price of the shares to rise by recommending that all her clients purchase the stock. She does not tell clients that she owns the stock. A)I and II. B)II and III. C)I, II and III. D)I and III.

C)I, II and III. The antifraud provisions of the USA prohibit any deceptive act by an agent in the course of business with a client. Even if the disclosure is made, one may not borrow from a client unless the client is in the business of lending money. This fact has not been disclosed in this question, so it cannot be assumed.

Which of the following statements regarding civil liabilities under the Uniform Securities Act are TRUE? In a fraudulent securities transaction, the customer is entitled to recover the amount of the transaction with interest at a rate set by the Administrator, less any income earned on the security plus attorney's fees. Causes of action under the USA survive the death of either plaintiff or defendant. No suit may be initiated more than three years after the transaction or two years after the discovery of the violation, whichever occurs first. Rights and remedies in this act are in lieu of any others that exist under other laws. A)II, III and IV. B)III and IV. C)I, II and III. D)I and II.

C)I, II and III. The rights and remedies under the Uniform Securities Act exist in addition to any other rights and remedies that exist under other laws. Civil liabilities of the Uniform Securities Act allow for the recovery of the amount of the transaction with interest at a rate set by the Administrator, less any income earned on the security plus attorney's fees. Every cause of action under this provision survives the death of either plaintiff or defendant. No suit may be initiated more than three years after the transaction or two years after the discovery of the violation, whichever occurs first.

The antifraud provisions of the USA apply to: registered securities. exempt securities. federal covered securities. rescission offers for securities transactions. A)I only. B)I, III and IV. C)I, II, III and IV. D)II only.

C)I, II, III and IV. As long as a security is involved, there are no exceptions to the antifraud provisions of the USA.

Which of the following activities are prohibited or fraudulent for agents? Stating that a specific stock always follows the performance of the Dow Jones Average. Stating that the agent will always follow the client's account and recommend changes prior to a market shift. Recommending speculative, low-priced stocks with no knowledge of client's financial condition. Stating that the client will always make money investing prior to quarterly reports. A)I and IV. B)I and II. C)I, II, III and IV. D)I and III.

C)I, II, III and IV. Under the Uniform Securities Act, agents are prohibited from making performance guarantees or unsuitable recommendations, as well as making promises that cannot be kept.

Disclosure to customers of a broker-dealer's control relationships is required in agency transactions principal transactions exempt transactions A)I and II B)I and III C)I, II, and III D)II only

C)I, II, and III The nature of any control relationship or conflict of interest must be disclosed to customers, regardless of the capacity in which the firm acted or the type of transaction made.

An agent encourages his client to buy 1,000 shares of RB, Inc. (RBI), on the NYSE and simultaneously sell the shares at a slightly higher price on the AMEX. The agent receives a separate commission for each transaction. Under the USA, this strategy is which of the following? Prohibited. Permissible. Arbitrage. Churning. A)I and IV. B)I and III. C)II and III. D)II and IV.

C)II and III. The investment strategy in which an investor buys a security on one exchange and simultaneously sells it on another to take advantage of a temporary price disparity is known as arbitrage and is permissible.

Which of the following statements regarding the Uniform Securities Act are TRUE? Criminal penalties for violations of the USA are punishable by fines of up to $10,000, imprisonment for up to five years, or both. If the sale of a security is in violation of the USA, the buyer may sue the selling broker-dealer to recover the money paid for the security. If the seller of a security discovers that he made an illegal sale, he may offer to repurchase the security at the price paid less interest charges. The buyer of securities may not sue if within 30 days of receipt, he failed to accept or reject a written offer from the seller to rescind the trade and to refund the money with interest added. A)I and II. B)II and III. C)II and IV. D)I and III.

C)II and IV. If the sale of a security is in violation of the USA, the buyer may sue the seller to recover the money paid for the security. If the seller of a security discovers that he made an illegal sale, he may offer to repurchase the security at the price paid plus, not less, interest charges. This offer of rescission is held open for 30 days. The buyer of the securities may not sue if he failed to accept or reject the offer within that time period. Criminal penalties for violations of the USA are punishable by fines of up to $5,000, imprisonment for up to three years, or both.

An application to register securities may be filed under the USA by a(n): agent of a broker-dealer. broker-dealer acting on behalf of the issuer. person on whose behalf the offering is made. issuer. A)II and IV. B)I, II, III and IV. C)II, III and IV. D)I only.

C)II, III and IV. Registration statements may be filed by a broker-dealer, a person on whose behalf the offering is made (e.g., a offering made by a large shareholder), or more commonly, the issuer.

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

Which of the following may NOT be used as the basis for a recommendation to customers? A)The best estimate of the agent's firm regarding the potential movement of a stock. B)Recommendations of private firms charging special fees for their research. C)Information obtained while acting in a fiduciary capacity for a corporation that indicates the strong possibility of future mergers. D)Recommendations of major financial publications generally available through newsstand purchases.

C)Information obtained while acting in a fiduciary capacity for a corporation that indicates the strong possibility of future mergers. State and federal regulations prohibit actions based on inside information, particularly the use of information obtained while acting in a fiduciary capacity. Recommendations can be based on the best estimate of the agent's firm, provided there is an adequate and factual basis for such recommendation. Recommendations can also be based on major recognized financial publications and by private firms who charge fees for their research.

Which of the following statements regarding an investment adviser representative is TRUE? A)It is unlawful under the USA for an adviser to deceive another person when engaged in nonsecurities-related activities. B)The investment adviser representative is not subject to the antifraud provisions of the USA when engaged in securities sales activities. C)It is unlawful under the USA for an investment adviser representative to deceive another person when engaged in securities-related sales activities. D)The investment adviser representative is exempt from the USA's antifraud provisions if the adviser has fewer than three clients residing in the state.

C)It is unlawful under the USA for an investment adviser representative to deceive another person when engaged in securities-related sales activities. It is unlawful under the USA for an investment adviser representative to deceive another person when engaged in securities-related sales activities. The antifraud provisions of the USA apply to any person advising another person for compensation as to the value of securities. Broker-dealers and agents, although not technically defined as advisers, are subject to the same restrictions on prohibited advisory practices when they are engaged in advisory activities. It may be unlawful to deceive another person when engaged in nonsecurities-related activities, but that would come under other legislation, not the USA.

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

C)Matched orders violate trading rules because they create the illusion of trading volume where such volume would not otherwise occur. Matched orders occur when market participants agree to buy and sell securities among themselves to create the appearance of activity or trading in a security. Increased volume in a security can induce unsuspecting investors to purchase the security, thereby bidding up the price. As the price rises, participants who initiated the matched orders sell their securities at a profit.

Under the Uniform Securities Act, which of the following statements regarding the use of material facts is TRUE? A)Restrictions apply only to sales as to the use of material facts, not to the purchases of securities. B)The client is the final arbiter on what is material and what is not. C)Omitting material facts when selling securities is a fraudulent and unethical practice. D)The agent must not use material facts unless they are the only ones available.

C)Omitting material facts when selling securities is a fraudulent and unethical practice. Material facts are essential to making informed investment decisions; to omit them is fraudulent or deceitful. The agent must insure that all relevant material facts are presented.

An agent was soliciting sales in XYZ stock six months ago when the market value was $16 per share. One of the agent's more aggressive clients did not purchase the stock at the time. The agent has read that there is a class action lawsuit pending against XYZ, and the market value has dropped to $5 per share. If the client were to contact the agent now and ask to purchase XYZ stock, what should he say or do in accordance with the Uniform Securities Act? A)Enter the order. B)Refuse the order. C)Point out that the company has the lawsuit pending. D)Point out that the price has dropped and that the client can purchase almost three times the number of shares than on the original date he was first contacted.

C)Point out that the company has the lawsuit pending. Agents and broker-dealers must state all material information about a security.

A broker-dealer is a member of the underwriting syndicate for a new stock issue. As a result of great public interest, it appears that the offering will be oversubscribed. Which of the following activities of the firm would likely cause the Administrator to take action? A)Running a tombstone advertisement in the business section of the local newspaper. B)Accepting indications of interest from noninstitutional clients. C)Retaining a small portion of the firm's allotment with the hope of realizing capital appreciation. D)Providing new clients with a preliminary prospectus.

C)Retaining a small portion of the firm's allotment with the hope of realizing capital appreciation. Although the concept of retaining shares of IPOs is not specifically addressed in the USA (it is a FINRA prohibition), the Administrator is empowered to act whenever a person registered in the state violates the rules of any regulatory body

Which of the following sales would be exempt from the antifraud provisions of the USA? A)Sale of an exempt security in an exempt transaction. B)Sale of an exempt security. C)Sale of an index annuity. D)Sale of a nonexempt security.

C)Sale of an index annuity. The antifraud statutes of the USA apply only to securities. An index annuity is not a security. However, the sale would be subject to the anti-fraud provisions of the state insurance code.

An agent at a social gathering overhears that the chairman of a large manufacturing firm has engaged in erratic behavior. The agent calls his customers who own shares of the corporation and tells them to liquidate their positions. Under the Uniform Securities Act, which of the following statements is TRUE? A)The agent may have made an error as to the effect of the rumor, so he should wait until he has a better feel for the situation. B)This action is based on material inside information, so he must inform all of his customers of this fact. C)The agent's action constitutes a prohibited use of rumor to induce a purchase or sale of securities. D)This action is legal provided the agent contacts 12 or fewer customers.

C)The agent's action constitutes a prohibited use of rumor to induce a purchase or sale of securities. Repeating rumors is both misleading and a prohibited business practice under the USA, and an agent should not recommend securities transactions to his customers on the basis of rumors. The information provided is insufficient to determine if this is material inside information-the chairman of the company may be having some disturbing problems, but it is not clear from this question if this is truly inside information or matter of public record. The number of customers involved is not relevant.

If an agent solicits a client to purchase nonexempt, unregistered securities, and the solicitation results in a sale, which of the following statements is NOT true? A)The broker-dealer may be sued if the client loses money, but if money is made the client may keep it. B)The agent may be subject to civil penalties. C)The employing broker-dealer must offer the right of rescission within 30 days of discovery. D)The broker-dealer who employs the agent may be sued.

C)The employing broker-dealer must offer the right of rescission within 30 days of discovery. There is no specified time limit on when the right of rescission must be offered. The 30-day period is the length of time the client has, after receiving the notice, to accept or reject the offer. Agents are prohibited from soliciting sales for unregistered, nonexempt securities and any broker-dealer who employs an agent who does so may be sued. The agent may also be subject to civil penalties. Both agents and their broker-dealers may be sued when a sale results from an improper solicitation. If money is made, the client may keep it.

Under the Uniform Securities Act, an agent may NOT make which of the following statements to a customer? A)This security is not registered with the Administrator. B)This security is registered with the state. C)This security is approved by the Administrator. D)This security is exempt from registration.

C)This security is approved by the Administrator. The state Administrator does not approve any security.

Which of the following is the most appropriate action for an agent to take after receiving a written complaint letter from a client? A)Commence a thorough investigation and provide a report of the results to the agent's employer. B)Place a telephone call to the client to resolve the issue. C)Turn the letter over to the agent's supervisor. D)Forward the complaint to the Administrator and maintain a copy in the agent's records.

C)Turn the letter over to the agent's supervisor. Any agent or investment adviser representative receiving a written customer complaint is required to turn the complaint over to their supervisor without delay.

Each of the following would represent a potential conflict of interest EXCEPT A)an agent of a broker-dealer making a recommendation of a stock of a company in which the agent has a financial interest B)a broker-dealer writing a favorable research report about a company that was recently the subject of an IPO managed by the firm C)a broker-dealer writing a favorable research report about a company that was recently the subject of an IPO managed by another firm D)an agent limiting recommendations to mutual funds distributed by the agent's broker-dealer

C)a broker-dealer writing a favorable research report about a company that was recently the subject of an IPO managed by another firm Preparing a favorable research report about a company whose IPO was underwritten by another broker-dealer would not appear to be considered a conflict of interest.

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

C)accept unsolicited orders only 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.

Mildred Peabody, a retired schoolteacher, has heard about enormous profits made recently in Internet stocks. She calls her agent at her broker-dealer and instructs the agent to liquidate her AAA-rated municipal bond position and use the proceeds to buy two Internet stocks that have recently experienced significant price volatility. In this situation, the agent should: A)refuse the trade because it is not suitable for a retiree. B)accept the order because agents are obligated to follow instructions from their customers. C)advise the customer that the Internet stocks are not suitable in light of that customer's circumstances and execute the order only following written acknowledgement from the customer that the agent did not solicit that trade. D)refer the customer to a supervisory principal of the broker-dealer.

C)advise the customer that the Internet stocks are not suitable in light of that customer's circumstances and execute the order only following written acknowledgement from the customer that the agent did not solicit that trade. It appears that pursuing this strategy would be a mistake for this client. However, if after being informed of the unsuitability of a particular trade a customer still insists that an order be entered, the agent must follow the customer's instructions as directed. However, because the question asks for what the agent should do, best practices in the industry suggest that the trade be executed only after obtaining written acknowledgment that the trade was not solicited by the agent.

An agent who carefully evaluates a client's risk tolerance, financial situation, and investment objectives engages in an unethical practice when he: A)buys or sells securities with exceptionally high commissions or transaction costs. B)underestimates a company's interest rate risk as a result of cautious accounting practices recently adopted by the company. C)automatically recommends securities that are highly regarded by other agents in the office. 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.

C)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 provided 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.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A)account maintenance fees B)charges for wiring funds C)commissions on unsolicited trades D)account transfer fees

C)commissions on unsolicited trades There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

An investment adviser subsidiary of a broker-dealer is the subject of a civil lawsuit alleging a fraudulent sale of securities to a customer. Under the Uniform Securities Act, the brokerage firm may not be held jointly liable for the violation if the firm: A)discussed the purchase with the customer. B)received payment or another benefit from the transaction. C)could not have reasonably known about the transaction. D)has a record of similar violations.

C)could not have reasonably known about the transaction. In general, supervisors and employers may be held jointly liable for violations committed by any person under their direct or indirect control. This includes a firm that is in a position to manage or influence the activities of a subsidiary firm. The controlling firm may be released from liability if it establishes that it did not and could not know of the violation.

When the compensation arrangements or incentives for the broker-dealer or its agents could affect whether employees recommend or offer a particular security or transaction to a client, it is required that the firm A)only accept unsolicited orders for that security B)sell as much of that security as possible to maximize the firm's earnings C)disclose the potential conflict of interest D)refuse to recommend that security

C)disclose the potential conflict of interest There are certain products that carry higher compensation rewards to the broker-dealer than do others of a similar nature. This presents a potential conflict of interest, should the firm recommend these over others. There is nothing illegal about doing so, as long as disclosure of the conflict is made to the client.

Jack, a registered investment adviser will take the Certified Financial Planner Examination when it is offered in two months. He is currently enrolled in an educational program to prepare for the exam. He has just run out of business cards. Because he is confident that he will pass the exam through diligent study, Jack begins to use new business cards with the letters CFP following his name. This would be: A)prohibited as a conflict of fundamentals. B)permissible because Jack is enrolled in an appropriate education program. C)prohibited as an exaggerated claim. D)permissible because designations are not licenses.

C)prohibited as an exaggerated claim. Indicating that an adviser holds a recognized financial services credential, when that is not so, is an example of an exaggerated claim and prohibited.

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

C)executing a transaction in a nonexempt security in a discretionary account. Once a discretionary account has been properly documented, the agent handling the account can trade exempt and nonexempt securities. Nothing in this answer choice implies that the nonexempt security is unregistered. All transactions, no matter in exempt or nonexempt securities, must be recorded on the books of the broker-dealer. As a general rule, initial public offerings tend to be on the speculative side, suitable for aggressive, not conservative investors. Therefore, even with the client's authorization, this trading profile would be unsuitable and, as a result, a prohibited activity. Sharing in profits of an account as a reward for exceeding the S&P 500 (or any other benchmark) is prohibited under any circumstance. This is not the same as sharing in the profits of an account with consent of the client and the employing broker-dealer, because this is based on the performance of the agent's recommendations and not on a mutually agreed sharing arrangement.​

According to NASAA's Statement of Policies Regarding Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent may: A)not exercise discretionary authority until 30 days after receipt of a written power of attorney from the client. B)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. C)exercise discretionary investment authority over an account providing the client provides written discretionary authority. D)not recommend a specific professional money manager to those clients who want professional investment management services.

C)exercise discretionary investment authority over an account providing the client provides written discretionary authority. NASAA's Statement of Policy Regarding Dishonest or Unethical Business Practices of Broker-Dealers and Agents allows agents to exercise discretionary investment authority over an account 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 clients who want their funds professionally managed. There is no requirement that discretionary authority cannot be exercised until a 30-day waiting period has transpired.

The statute of limitations for criminal offenses under the USA is: A)ten years. B)two years. C)five years. D)three years.

C)five years. Remember the sequence 5-5-3: 5-year statute of limitations, $5,000 maximum fine, and imprisonment for up to three years.

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)may be acting on material inside information. C)has probably violated the Uniform Securities Act's suitability standards. 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.

C)has probably violated the Uniform Securities Act's suitability standards. If interest rates fall as the agent guesses, debt 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 U.S. Treasury bonds, with the highest degree of safety available, are not always suitable based upon the specific objectives of the investor.

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

C)immediately reply to the client in writing. When a broker-dealer 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 acknowledgment to the client that the complaint has been received.

An agent's former college roommate urges him to invest capital in his privately owned toy company, which has no plans to issue its securities to the general public (it intends to stay private). The agent and his spouse invest in the business but the agent neither recommends investment in the company to any of his customers, nor does he discuss this private investment with his firm. In this situation the agent has acted: A)unlawfully, because the issuer had no intention to offer securities to the general public. B)unlawfully, because the transaction involved unregistered, nonexempt securities. C)lawfully, because ​agents and their spouses are permitted to invest as desired when there is no conflict of interest. D)unlawfully, because the agent did not receive permission from the firm (broker-dealer) prior to entering the transaction.

C)lawfully, because ​agents and their spouses are permitted to invest as desired when there is no conflict of interest. The agent acted lawfully in all cases because there does not appear to be any conflict of interest.

Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is: A)only unethical if investors lose money in the investment. B)an illegitimate sales tactic. C)not an unethical sales practice. D)only unethical if Bryan sells his shares after informing his clients of his intention to do so.

C)not an unethical sales practice. This practice is ethical providing it is accurate and not employed in a coercive manner. It would be expected that when Bryan decides to sell his position, he would not do so prior to notifying his clients with a position in that stock. Otherwise, this would be an ethical problem.

An agent has a client who is relatively new to investing in securities having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended, and its market price has recently fallen by over 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upwards with the market. Under the NASAA Statement of Policy of Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this action is: A)prohibited unless the agent receives permission from a designated supervisor. B)permitted because the client is not selling anytime soon and there is no need to cause her to be upset. C)prohibited as it is equivalent to giving fictitious quotations. D)prohibited as the agent has a fiduciary responsibility to the client to manage the account in her best interests.

C)prohibited as it is equivalent to giving fictitious quotations. Fictitious quotations, not giving accurate prices, is a dishonest and unethical practice, even when done to make the client feel better.

An agent puts together a recommendation for a customer but is unable to attend the meeting. Another agent from the firm meets with the customer and presents the recommendation, but omits some material facts. According to the Uniform Securities Act, this is: A)permitted if the second agent was unaware of the omission. B)permitted if the second agent receives no compensation for presenting the recommendation. C)prohibited. D)permitted if the recommendation pertains to an exempt security.

C)prohibited. The agent making a recommendation to a customer is responsible for presenting all of the material facts. Material facts must be presented to a customer regardless of the type of security sold or whether a commission is to be earned or not. Remember, a material fact is one that is critical to the investment decision making of a client.

A securities trade is made. Under normal circumstances, all of the following would be noted on the order ticket EXCEPT: A)the time stamp of the time of order submission. B)the account number. C)the name of the individual who transmitted the order. D)the registered agent who accepted the order.

C)the name of the individual who transmitted the order. Transmitting an order is a clerical function and we don't put that on the order ticket. A typical ticket will include: the account for which the trade is being made, the registered individual placing the order for the client, time stamps for entering and execution (or cancellation), execution price, and terms and conditions of the order (market, limit, etc.).

The statute of limitations for civil liability under the USA is: A)two years after the discovery or three years after the action, whichever is later. B)two years after discovery of the action. C)two years after the discovery or three years after the action, whichever is sooner. D)three years after the action.

C)two years after the discovery or three years after the action, whichever is sooner. The statute of limitation for civil restitution from an agent or broker-dealer for an illegal transaction is two years after the discovery or three years after occurrence, whichever is sooner.

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 Uniform Securities Act, this is considered a(n): A)wash trade. B)matching activity. C)unsuitable transaction. D)acceptable transaction.

C)unsuitable transaction. Income-oriented clients 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 recommends the purchase of a technology company with an impressive growth record, but fails to inform the client that the company's technology will become obsolete pending the approval of a competitor's patent, the agent has: A)committed a prohibited business practice by selling an unsuitable investment. B)not violated the Uniform Securities Act because no untrue statements were made. C)violated the Uniform Securities Act. D)not committed a prohibited business practice.

C)violated the Uniform Securities Act. The agent has violated the Uniform Securities Act by fraudulently omitting material information in the sale of a security.

In a discussion with one of his clients, an agent describes a stock offering that occurs in a neighboring state. The client is excited about the company's prospects and tells the agent he would like to buy 500 shares. The agent replies that the security is unregistered and nonexempt, and the only way he would be permitted to sell it is if the client agrees to sign a waiver releasing the agent from responsibility. This signed waiver: A)is an excellent way to sell unregistered nonexempt securities in your state. B)would have to be approved by the agent's supervisor prior to the sale being made. C)will neither make the trade legal nor relieve the agent of liability. D)must be on a form designated by the Administrator to be effective.

C)will neither make the trade legal nor relieve the agent of liability. If an issue is nonexempt and not registered in this state, no agent is permitted to make a sale. There are never any situations on the exam where a waiver is the correct course of action.

An agent may determine which securities to purchase or sell for a client when A)written discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction B)written or oral discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction C)written discretion authority has been received by the broker-dealer before executing the first discretionary transaction D)written or oral discretion authority has been received by the broker-dealer before executing the first discretionary transaction

C)written discretion authority has been received by the broker-dealer before executing the first discretionary transaction No broker-dealer or any of its employees shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer. It is an investment adviser who may act with oral consent for a period of 10 days from the initial discretionary trade.

What are the three fees not disclosed in a Fee Disclosure Document

Commissions, MArk up/down, advisory fees for firm also registered as investment advisers

Way to determine churning by comparing account value and comissions

Compare them, see % of commissions

If an investment adviser representative is engaged in criminal activity while violating a rule under the Uniform Securities Act, but had no knowledge of the rule violated, the maximum penalty that may be imposed is a: A)three years in prison and a fine of three times the amount of the loss. B)$5,000 fine and three years in prison. C)$10,000 fine and two years in prison. D)$5,000 fine.

D)$5,000 fine. The maximum penalty for criminal violations is $5,000 and/or 3 years imprisonment. However, no prison sentence can be imposed if the person can prove he had no knowledge of the rule being violated.

The Uniform Securities Act requires that an administrative order appeal must be requested within how many days after the order has been entered? A)15 days. B)45 days. C)30 days. D)60 days.

D)60 days. Any person who receives an order from the Administrator can petition the court to change or set aside the order, but an appeal must be filed within 60 days after the order was entered.

Which of the following statements regarding the powers of the Administrator under the USA would NOT be true? A)In the case of non-compliance, the Administrator may apply to a court of competent jurisdiction for the issuance of an injunction. B)The administrator may issue cease and desist orders. C)Denial of registration may take place in the event of the filing of an incomplete application. D)A final order of the Administrator may not be appealed.

D)A final order of the Administrator may not be appealed. Final orders of the Administrator may be appealed to the appropriate court within 60 days of the issuance of the order.

All of the following actions, if performed by a registered agent, would be considered a prohibited activity under the Uniform Security Act EXCEPT: A)The agent backdates customer confirmations in order to enable the client to achieve a long-term holding period, thereby saving considerable income taxes. B)The client informs the agent that the appropriate written discretionary authorization forms are being hand-couriered to the agent and should arrive within the hour. Knowing the required paperwork is on its way, the agent begins discretionary trading in the account. C)The agent saves the client money by deliberately withholding the client's buy order for a stock when the agent sees the stock price is trending down. When the order is finally placed later in the day, the execution price is $1 less than when the agent received the order. D)Accepting an order from a client wishing to purchase a nonexempt security that is not properly registered in the state.

D)Accepting an order from a client wishing to purchase a nonexempt security that is not properly registered in the state. An unsolicited order is an exempt transaction so accepting this from the agent's client would not be a prohibited practice. There is never a case when backdating of confirmations is permitted, even by 1 day. No discretionary activity may take place until the written authorization is actually received by the firm. Although an agent can use discretion as to time and price without written authority, oral instructions from the client are required and nothing in the question indicates that the client instructed the agent to "buy when you think the price is right."

Which of the following would NOT be considered a fraudulent practice under the Uniform Securities Act? A)An adviser omits a material fact, but the sale is not made. B)An adviser tells a client that registered securities are approved by the SEC. C)An adviser omits a material fact to a client during the sales presentation, but the client ends up making money. D)An adviser correctly advises a client, but the client ends up losing money.

D)An adviser correctly advises a client, but the client ends up losing money. There is no fraud in the case of an adviser whose clients lose money in the absence of any willful violations. Examples of fraud under the Uniform Securities Act include inaccurate market quotations; incorrect statements of earnings or projected earnings; inaccurate statements of commissions, mark-ups, mark-downs, or other charges; implying approval by the SEC or Administrator; using rumors or inside information to induce transactions; indicating approval of a security by a regulatory body; and failure to describe important facts or risks.

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

D)Artificially creating the impression of market activity. Securities regulations prohibit an agent from engaging in manipulative and deceptive devices 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 in Illinois, Missouri, and Iowa has a client move from Chicago to Detroit on July 1, 2012. On September 1 of that year, he buys 100 shares of a nonexempt security in a nonexempt transaction. On August 1, 2013, the client discovered that the agent's firm never licensed him in Michigan and therefore, he is subject to civil liability to the purchaser. The statute of limitations for this sale runs out: A)September 1, 2014. B)August 1, 2016. C)September 1, 2015. D)August 1, 2015.

D)August 1, 2015. The statute of limitations for civil liability is the earlier of 3 years after the date of the sale, or 2 years after discovery of the violation. In this case, the earliest date is 2 years after the discovery date of August 1, 2013.

An agent learns of material, inside information regarding a company that is publicly held. Which of the following with respect to the information would NOT violate the Uniform Securities Act? A)Discussing the information at a seminar but not making an investment recommendation. B)Trading for the agent's personal account based on this information. C)Soliciting orders based on this information. D)Discussing the situation with a superior or compliance officer in the agent's firm.

D)Discussing the situation with a superior or compliance officer in the agent's firm. Discussing the situation with a superior or compliance officer is the appropriate action. An agent may not solicit or trade on the basis of material inside information. Discussing material inside information in a public forum is prohibited, regardless of investment recommendations.

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

D)Failing to follow a customer's instructions. Deliberate disregard for a customer's instructions is a violation under the USA. Not charging commissions or markups is not a violation of the USA. Failing to state a material fact is a violation of the USA, but failure to state every fact is not required.

Which of the following activities are the responsibilities of an agent? Determining a customer's suitability for investing. Describing the characteristics and benefits of various security products. Offering tax advice and assisting customers in completing tax returns. Personally holding a customer's securities for a future transaction. A)III and IV. B)I and III. C)II and IV. D)I and II.

D)I and II. An agent is responsible for determining customer suitability and for explaining different investment products to customers. Offering tax advice and filling out tax returns are not the functions of an agent; they are the functions of a qualified tax expert or an accountant. An agent should not personally have possession of a client's securities.

It would not be considered an unethical and dishonest business practice for an agent registered with a broker-dealer to divide or otherwise split the agent's commissions, profits or other compensation from the purchase or sale of securities: with any person also registered as an agent for the same broker-dealer. with any person also registered as an agent for a broker-dealer under direct or indirect common control. as long as the arrangement is in writing. as long as the client has approved of the sharing arrangement. A)I, II, III and IV. B)I, II and III. C)III and IV. D)I and II.

D)I and II. NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents permits commission sharing as long as the agents are properly registered with the same broker-dealer or one under common control. There is no requirement for the arrangement to be in writing and the customer has no say so in this matter.

According to the Investment Company Act of 1940, which of the following recommendations may an investment adviser make regarding an investment in mutual funds? "I recommend that you read the prospectus to find out if this fund's objective matches yours." "A mutual fund's return is not guaranteed, so the value of your investment may go up or down." "Because their portfolios are diversified, mutual funds are one of the safest investments." "If this fund's performance is down this month, I recommend that you move your money to a similar fund that's performing better." A)III and IV. B)II and III. C)I and IV. D)I and II.

D)I and II. The adviser can recommend that the client read the prospectus and indicate to the client that mutual funds possess risk. The fact that portfolios are diversified does not make them the safest investments. Risks should be clearly identified. The adviser should not recommend short-term switching between funds because the client may incur substantial charges.

According to the Investment Company Act of 1940, which of the following recommendations may an investment adviser make regarding an investment in mutual funds? "I recommend that you read the prospectus to find out if this fund's objective matches yours." "A mutual fund's return is not guaranteed, so the value of your investment may go up or down." "Because their portfolios are diversified, mutual funds are one of the safest investments." "If this fund's performance is down this month, I recommend that you move your money to a similar fund that's performing better." A)III and IV. B)II and III. C)I and IV. D)I and II.

D)I and II. The adviser can recommend that the client read the prospectus and indicate to the client that mutual funds possess risk. The fact that portfolios are diversified does not make them the safest investments. Risks should be clearly identified. The adviser should not recommend short-term switching between funds because the client may incur substantial charges.

An agent has been recommending that customers buy common stock in XYZ Company. If on a visit to XYZ he overhears unreleased news that XYZ has just lost its biggest account, the agent should: discuss the situation with his supervisory principal. continue to recommend the security to customers and prospects. stop recommending the security to customers and prospects. sell the stock short in his brother's account. A)I only. B)III only. C)I, III and IV. D)I and III.

D)I and III. Whenever an agent has concerns about matters involving the broker-dealer's customers, such concerns should be shared with the agent's supervising principal. It is appropriate that the agent stop recommending XYZ stock to customers and prospects.

Which of the following activities are prohibited under the Uniform Securities Act? Engaging in a practice not expressly forbidden by the act but defined as unethical by the Administrator in a rule. Omitting a material fact when soliciting a client. Selling recommended securities to a client from one's own account without disclosing this fact to the client. A)II and III. B)I and II. C)I and III. D)I, II and III.

D)I, II and III. A practice that is not expressly forbidden by the act but defined as unethical by the Administrator, the deliberate omission of a material fact when soliciting a client, and selling recommended securities to a client from one's own account without disclosing this fact to the client are all prohibited.

The Uniform Securities Act provides for both civil and criminal prosecution. In which of these cases might an agent face civil liability? A sale was made of an unregistered nonexempt security. During a sales presentation, the agent misstated a material fact which resulted in the prospect deciding to make the purchase. The agent was included in the judgment along with the broker-dealer for a civil infraction. A)II and III. B)I and III. C)I and II. D)I, II and III.

D)I, II and III. These are all cases for civil, not criminal liability. Unless it can be proven that the agent acted willfully and with knowledge, it is hard to have a criminal case.

Violations of the Uniform Securities Act may result in: suspension or revocation. criminal penalties. civil liabilities. A)II and III. B)I and II. C)I and III. D)I, II and III.

D)I, II and III. Violators of the Uniform Securities Act are subject to suspension or revocation of their securities industry registration, criminal penalties, and civil liabilities.

When an agent engages in a fraudulent or prohibited practice, the Uniform Securities Act provides for: criminal liability. civil liability. revocation or suspension of registration. A)I and/or II only. B)II and/or III only. C)I and/or III only. D)I, II and/or III.

D)I, II and/or III. Should a registered agent engage in fraudulent or prohibited practices, the agent may be subject to criminal and civil liability as well as suspension or revocation of registration. The agent can be fined, sentenced to prison, and have his license suspended or revoked.

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

D)I, II, III and IV All of these would be considered a prohibited practice.

Which of the following transactions are prohibited? Borrowing money or securities from a high net-worth customer. Selling speculative or hot issues to a retired couple of modest means on a fixed income. Failing to follow a customer's orders to prevent investment in a security not adequately covered by well-known securities analysts. Backdating confirmations for the benefit of the client's tax reporting. A)I and II. B)II and III. C)I, II and III. D)I, II, III and IV.

D)I, II, III and IV. An agent may not borrow money or securities from a customer unless that customer is a bank or broker-dealer in the business of lending money and/or securities. Selling speculative or hot issues to a retired couple of modest means is an unsuitable transaction because it is not consistent with the client's objectives. An agent must follow legal orders of the customer, even if the agent believes the order is unwise. An agent may not backdate confirmations for the benefit on the client.

Your client, Jack, is 24 years old and a recent college graduate. His grandparents have given you written instructions to transfer several of the municipal bonds in their portfolio into Jack's account. Which of the following is TRUE? -You should recommend that they select a more suitable investment to give to their grandson. -You should execute the grandparents' instructions immediately. -You should suggest they discuss their future gifting plans with a tax and estate planning professional. -You should call Jack and advise him that the gift is not suitable. A)II only. B)I, II and III. C)I and II. D)I, II, III and IV.

D)I, II, III and IV. The IAR has a fiduciary duty to both Jack and the grandparents and is obligated to inform them that municipal bonds are not a suitable investment for Jack. However, the agent must also execute the written instructions even if he feels the transaction is unsuitable. Often, an agent will have the client acknowledge in writing that the agent has advised against such action on the basis of unsuitability. The agent should recommend that the clients seek independent counsel to plan for future gifting.

According to the Uniform Securities Act, a person who sells securities in violation of state securities laws is civilly liable for which of the following? Principal. Interest. Court costs. Attorney's fees. A)II and III. B)I and IV. C)I and II. D)I, II, III and IV.

D)I, II, III and IV. The person illegally selling the securities is liable for the purchase price of the securities plus interest from the date of purchase, court costs, and reasonable attorney's fees. Punitive damages will not be assessed.

Prohibited business practices under the Uniform Securities Act would include: failure to state material facts. trading on inside information. failing to forward a complaint letter to the agent's supervisor. sharing commissions with an agent of a nonaffiliated broker-dealer. A)I and II. B)III and IV. C)I, II and III. D)I, II, III and IV.

D)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 broker-dealer, but not one with which there is no affiliation, is permitted.

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

D)II and III This question is tricky. The key here is that agents have no responsibility for delivering customer securities. That is an obligation of the broker-dealer.

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

D)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 transaction as would be the sale to a financial institution. Day trading in an account with long-term growth as an objective would constitute unsuitable activity and, therefore, is prohibited under USA. Sharing commissions is only permitted with agents of the same or affiliated broker-dealers. 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.

In cases of fraudulent sales practices or advice with respect to securities, state securities Administrators may: not take enforcement action against federal covered investment advisers. take enforcement action against federal covered investment advisers. not take enforcement action against state registered investment advisers. take enforcement action against state registered investment advisers. A)I and III. B)II and III. C)I and IV. D)II and IV.

D)II and IV. State securities Administrators have jurisdiction over any securities transaction or investment advice that involves fraud, whether or not the person involved is a federal covered investment adviser. If it involves a security, there are no exemptions from the Uniform Securities Act for fraud.

Which of the following sales would be exempt from the antifraud provisions of the Uniform Securities Act? A)Sale of a nonexempt security. B)Sale of an exempt security. C)Sale of an exempt security in an exempt transaction. D)Sale of whole life insurance.

D)Sale of whole life insurance. The antifraud statutes of the USA apply only to securities. Whole life insurance is not a security. However, the sale would be subject to the anti-fraud provisions of the state insurance code.

The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, the maximum that a purchaser would be entitled to claim would be: the original consideration paid for the security or the current market value, whichever is greater. interest at the state's legal rate. attorney's fees. court costs. A)III and IV. B)I and II. C)I, II, III and IV. D)II, III and IV.

D)II, III and IV. In the event of a civil judgment, the purchaser is able to claim for a return of the original investment, not current market, plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the broker-dealer or agent is liable for courts costs and attorney's fees.

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

D)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 factor.

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

D)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 the nonpublished reports of his firm's securities analysts as a basis for recommendations providing the nonpublished reports do not contain inside information.

All of the following are unethical business practices for an agent of a broker-dealer EXCEPT: placing an order to purchase or sell a security for a client's account without specific authority to do so. placing an order to purchase or sell a security for a client's account per the instruction of a third party, without having first obtained a written third-party trading authorization from the client. borrowing money or securities from a client who is a broker-dealer, an affiliate of the broker-dealer, or a financial institution engaged in the business of loaning funds. deliberately misinforming a client regarding the agent's age. A)I, II and III. B)II and IV. C)I only. D)III only.

D)III only. Placing an order to purchase or sell a security for a client's account without authority to do so, and placing an order to purchase or sell a security for the account of a client upon instruction of a third party, without first having obtained a written third-party trading authorization from the client, are both unethical business practices. Borrowing money or securities from a client is unethical unless the client is a broker-dealer, an affiliate of the firm, or a financial institution engaged in the business of loaning funds. Deliberately misinforming a client regarding the agent's age is also an unethical business practice.

An investor files a suit against the agent handling his account. While the suit is in progress, the investor dies. In regard to the lawsuit, which of the following is TRUE? A)The death of the defendant cancels the legal action. B)If the account was registered in the client's name only, the beneficiary continues the suit. C)The death of the plaintiff cancels the legal action. D)If the account was registered in the client's name only, the executor of his estate continues the suit.

D)If the account was registered in the client's name only, the executor of his estate continues the suit. Death of either party to the suit does not cancel a civil suit. As the person responsible for the affairs of the estate, the executor will continue the legal action.

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)Upon notification to his firm. D)If the customer is a bank.

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

Which of the following statements regarding the antifraud provisions of the USA is TRUE? A)The only securities exempt from the provisions are those issued by national governments or political subdivisions of countries that maintain diplomatic relations with the United States. B)Exempt securities are not subject to the antifraud provisions of the USA. C)The only securities exempt from the provisions are those that are properly registered under blue-sky laws. D)No securities are exempt from the antifraud provisions of the act.

D)No securities are exempt from the antifraud provisions of the act. Neither exempt nor nonexempt securities are ever exempt from the USA's antifraud provisions.

Under the rules of the Investment Advisers Act of 1940, which of the following is an acceptable third-party trading authority? A)Frank orally declares to his investment adviser that his lawyer has full authority to trade on his account. Later, the lawyer calls to place an order on Frank's behalf and properly identifies himself to the investment adviser. B)George tells his accountant that he has authority to trade for him. The accountant then calls the investment adviser for an order. C)John tells his investment adviser that he has full confidence in his wife's ability to manage his money. Later, she calls the adviser to place an order for him. D)Phil sends his investment adviser written notice that his attorney has authority to execute trades on his behalf. Later, his lawyer places an order on Phil's account.

D)Phil sends his investment adviser written notice that his attorney has authority to execute trades on his behalf. Later, his lawyer places an order on Phil's account. Placing an order for a client on the instructions of a third party is called third-party trading authority. In order to place an order for the client's account on the instruction of a third party, prior written authority must be obtained by the adviser from the client. Placing a third-party order without written authorization would not only be unethical conduct, the adviser would also incur civil liability to the client for any losses incurred. An investment adviser may not even accept orders from a client's spouse without written authorization. Only Phil's procedure was correct because he did provide written authorization for his lawyer to execute trades on his behalf.

Agent A with Firm Y and Agent B with Firm Z conduct a joint seminar. They agree to share the commissions on any resulting business. Under the Uniform Securities Act, which of the following statements regarding sharing commissions is CORRECT? A)Sharing commissions that are a result of a joint seminar is never permitted. B)In this instance, sharing of commissions could only be done with the approval of both firms. C)Only an agent who makes a sale is eligible to earn a commission. D)Sharing of commissions by agents of two unrelated firms is prohibited.

D)Sharing of commissions by agents of two unrelated firms is prohibited. Unless an exception is granted by the Administrator, it is prohibited for an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.

A client approaches an agent about investing in a risky security and insists on doing so even when told by the agent that the security is not suitable for that client. What should the agent do? A)The agent should contact a supervisor and accept the order only with the supervisor's approval. B)The agent should refuse the transaction because it is unsuitable for the client. C)The agent should suggest that the client engage the services of another broker-dealer. D)The agent should explain the risks of investing and, if the client still insists, place the order and mark it unsolicited.

D)The agent should explain the risks of investing and, if the client still insists, place the order and mark it unsolicited. When a client wishes to enter an order for a security that, at least in the eyes of the agent handling the account, is unsuitable, an attempt should be made to educate the client as to the risks involved. However, if the customer still insists, the order may be placed but should be marked unsolicited.

If an agent unknowingly sells an unregistered, nonexempt security and discovers the error afterward, what action is most appropriate? A)Compensate the client for any losses through a waiver of future brokerage or investment advisory fees. B)Have the client offer to sign a waiver accepting the sale as legal. C)Immediately register the security in the state and notify the Administrator. D)The agent should notify the appropriate supervisor who then, on behalf of the firm, will offer (in writing) to repurchase the security and pay a reasonable rate of interest minus any income derived from the security.

D)The agent should notify the appropriate supervisor who then, on behalf of the firm, will offer (in writing) to repurchase the security and pay a reasonable rate of interest minus any income derived from the security. The broker-dealer may offer to rescind the trade by offering (in writing) to repurchase the security and pay a reasonable rate of interest minus any income derived from the security. An agent may not suspend provisions of the USA whether the client agrees or not.

James Jones, quarterback for a National Football League franchise team, deliberately misstated material information in the private sale of securities he owned. Jones claims he is not subject to the antifraud provisions of the Uniform Securities Act because he is not a registered agent and, secondly, the securities involved are exempt from registration requirements of the act. Which of the following statements is TRUE? A)The antifraud provisions of the USA do not apply to Jones because he is not suitably trained nor does he have a securities license. B)As a professional athlete, Jones is not in the securities business and is therefore not subject to the antifraud provisions of the act. C)Jones's failure to accurately state material facts does not constitute fraud because the securities he sold were exempt from registration. D)The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security.

D)The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security. The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security, even in the case of an isolated nonissuer transaction like this. While Jones, as a private individual, is not subject to the registration provisions of the act, he is liable for fraud when selling securities, whether registered or not. The fact that Jones is not trained in the securities business does not exempt him from the prohibition against fraud when engaged in the sale of securities.

ames Jones, quarterback for a National Football League franchise team, deliberately misstated material information in the private sale of securities he owned. Jones claims he is not subject to the antifraud provisions of the Uniform Securities Act because he is not a registered agent and, secondly, the securities involved are exempt from registration requirements of the act. Which of the following statements is TRUE? A)The antifraud provisions of the USA do not apply to Jones because he is not suitably trained nor does he have a securities license. B)As a professional athlete, Jones is not in the securities business and is therefore not subject to the antifraud provisions of the act. C)Jones's failure to accurately state material facts does not constitute fraud because the securities he sold were exempt from registration. D)The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security.

D)The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security. The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security, even in the case of an isolated nonissuer transaction like this. While Jones, as a private individual, is not subject to the registration provisions of the act, he is liable for fraud when selling securities, whether registered or not. The fact that Jones is not trained in the securities business does not exempt him from the prohibition against fraud when engaged in the sale of securities.

Which of the following statements regarding an agent's authority to place orders for a client's account under NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents is TRUE? A)Written approval from the client authorizing a stated amount of a specified security is required before placing an order. B)The agent is not required to obtain authorization to place orders for a client's account unless a conflict of interest is involved. C)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. 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.

An investment adviser who has not been given discretionary authority notices a stock's value declining in a client's portfolio. The adviser is unable to contact the client and sells the stock to prevent the loss. Which of the following statements is TRUE regarding this situation? A)It is proper to make the transaction to prevent the loss. B)It is proper to make the transaction provided the loss would have been more than $5,000. C)The investment adviser acted unethically by purchasing the stock in the first place. D)The investment adviser is acting unethically by selling the stock without the client's permission.

D)The investment adviser is acting unethically by selling the stock without the client's permission. Unauthorized trading, as is the case when discretionary authority has not been given, is unethical conduct. Unless authority is granted in writing, trading the stock is not allowed. Best intentions aside, the adviser's actions were unauthorized and illegal.

Why does matched trading result in painting the tape? A)Matched orders will appear on the OTC Link. B)Matched orders generally result in meaningful profits for such traders. C)Matched orders are generally executed outside of normal trading hours. 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. A matched trade is an order to buy or sell securities that is entered with knowledge that a matching order on the opposite side of the transaction has been or will be entered for the purpose of (1) creating a false or misleading appearance of active trading in any publicly traded security or (2) creating a false or misleading appearance with respect to the market for any such security.

In which of the following circumstances is a registered investment adviser's use of the word guarantee ethical when meeting with a client? A)The use of the term guarantee is prohibited in all situations described above. B)To state that his firm has guaranteed performance results as evidenced by performance statistics from the past five years. C)To offer a guarantee of performance at a minimum level and will return fees collected if that performance is not achieved. D)To describe principal and interest payments on U.S. government securities as guaranteed.

D)To describe principal and interest payments on U.S. government securities as guaranteed. The use of the term guaranteed with regard to principal and interest payments on U.S. government securities is permitted. An adviser cannot guarantee performance and cannot offer to return fees if that level is not reached.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, when may an investment adviser be given discretionary power to buy or sell securities for a client? A)Only when the authority is specific, provided in advance, and specifies the amount, type, and timing of the transaction. B)Never. C)If authority is given within one month after the discretionary act. D)When authority is given by an advisory contract or a separate document.

D)When authority is given by an advisory contract or a separate document. Discretionary authority must be in written form either by advisory contract or a separate document. Investment advisers and their representatives have the ability to exercise discretion with oral authority for a period of 10 business days (not one month) from the initial discretionary trade in the account. The only exception is when the discretion relates to time and/or price because, under the law, that is not considered to be discretion.

An agent wishes to be able to share in the profits and losses in a customer's account. Which of the following requirements must be met? A)The agent must also be registered as an investment adviser representative. B)Sharing may only be done once written discretionary authorization from the client has been received. C)The client must have either a net worth of at least $2 million or $1 million in assets invested with the agent. D)Written consent must be obtained from the client and the employing broker-dealer.

D)Written consent must be obtained from the client and the employing broker-dealer. Agents may share in the profits and losses in an account with their clients if consent has been received from both the client and the employing broker-dealer. There are no conditions under which an investment adviser representative may share in the profits or losses of an investment advisory client.

All of the following are prohibited practices under the Uniform Securities Act EXCEPT: A)an agent suggests that his client make payment for a securities purchase to the agent who will then obtain a cashier's check to bring to the broker-dealer. B)broker-dealers filling orders for proprietary accounts ahead of customer accounts. C)spreading false rumors about an impending merger or acquisition after taking a long position in the subject security. D)a market maker of a broker-dealer buys and sells securities for the account of the firm acting as a principal in the trades.

D)a market maker of a broker-dealer buys and sells securities for the account of the firm acting as a principal in the trades. Market makers act as principals, buying and selling stocks in which they make a market. However, should that market maker, or anyone else, place the firm's order ahead of a customer that would be prohibited.

If a broker-dealer offers or recommends products for which the firm receives greater fees or compensation than other products, it would be considered A)misrepresenting the registration status of a security B)arbitrage C)churning D)a potential conflict of interest

D)a potential conflict of interest There are certain products that carry higher compensation rewards to the broker-dealer than do others of a similar nature. This presents a potential conflict of interest, should the firm recommend these over others. There is nothing illegal about doing so, as long as disclosure of the conflict is made to the client.

All of the following situations are exempt transactions complying with the requirements of the USA EXCEPT: A)the executor of an estate liquidates 1,000 shares of IBM held by the estate. B)Mammoth Mutual Fund purchased 250,000 shares of common stock in a nonissuer transaction. C)broker-dealer A has put together a syndicate of 15 insurance companies and pension funds to purchase the entire issue of XYZ Corporation's preferred stock. D)broker-dealer B offers a private placement to 15 regular public customers and closes the offering at the end of 30 days.

D)broker-dealer B offers a private placement to 15 regular public customers and closes the offering at the end of 30 days. Under the Uniform Securities Act, an unregistered private placement may be offered to no more than ten prospective purchasers, with the exception of financial institutions and other broker-dealers. Transactions by executors, the sheriff, marshals, receivers, trustees in bankruptcy, guardians, or conservators are exempt. Sales to financial institutions, such as mutual funds and insurance companies, are also exempt.

According to the Uniform Securities Act, market manipulation includes all of the following EXCEPT: A)giving a false quote. B)buying and selling intentionally to show market activity. C)pegging. 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 is an accepted business practice.

Under the USA, the term guaranteed refers to all of these EXCEPT: A)interest. B)principal. C)dividends. D)capital gains.

D)capital gains. When a security is guaranteed, that means that someone other than the issuer has guaranteed timely payment of interest and principal on a debt security, or the payment of dividends on an equity security. No one ever guarantees that the investor will have a capital gain.

All of the following practices are unethical under the NASAA Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents EXCEPT: A)executing any transaction in a margin account without receiving a properly executed written margin agreement promptly after the initial transaction. B)using deceptive or misleading advertising or sales presentations. C)effecting any transaction in a security that involves no change in beneficial ownership. D)charging higher commissions than normal for executing thinly traded foreign securities.

D)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 NASAA's Statement of Policy.

An agent opens an account for a new customer and executes trades in the account. Three weeks later the account has a significant profit. The customer's husband calls and directs the agent to liquidate the account because his wife has lost her job. Under the Uniform Securities Act, the agent can: A)liquidate the holdings in the account as a result of the change in the client's financial circumstances. B)write the customer a personal check for the original amount and keep the appreciation as commissions. C)accept the husband's instructions. D)do nothing without instructions from the client herself.

D)do nothing without instructions from the client herself. The only individual who can place an order in an individual account is the person who owns the account. The agent cannot accept the husband's order without the wife's prior written trading authorization.

If Ann Smith, an agent with ABC Securities, Inc., sold a security to a federal covered investment company, this sale would be considered an example of a(n): A)sale of an exempt security. B)agent exemption from registration. C)broker-dealer registration exemption. D)exempt transaction in a security.

D)exempt transaction in a security. Smith's sale of the security to a federal covered investment company is an example of an exempt transaction, not an exempt security. These transactions are exempt from the advertising and sales literature filing requirements under the Uniform Securities Act.

All of the following activities could result in the revocation of an agent's registration EXCEPT: A)excessively trading for the purpose of generating commissions. B)borrowing from retail customers. C)making recommendations based on material nonpublic inside information. D)failing to state all known facts about an investment when presenting it to a client.

D)failing to state all known facts about an investment when presenting it to a client. Failure to state all known facts about an investment is not a violation of the Uniform Securities Act; omitting material facts, however, would be a violation of the act. Excessive trading, making recommendations on material nonpublic information, and borrowing from retail customers are prohibited business practices that could result in revocation of a registration.

Under the antifraud provisions of the Uniform Securities Act, agents are prohibited from all of these EXCEPT: A)engaging in any practice that the Administrator defines by rule as unethical. B)employing any device, scheme, or artifice to defraud. C)engaging in any fraudulent or deceitful practice in the normal course of business. D)failing to state nonmaterial facts.

D)failing to state nonmaterial facts. Nonmaterial facts are those which do not impact an investor's decision making process. Omitting them would not be a fraudulent activity as would be the case if the facts were material.

If a person who is not an agent or broker-dealer makes a false statement of material fact in connection with the sale of a security, that person: A)will probably be arrested by the administrator. B)is not covered by the Uniform Securities Act. C)has not violated the Uniform Securities Act if the sale was made to an institutional account. D)has violated the antifraud provisions of the Uniform Securities Act.

D)has violated the antifraud provisions of the Uniform Securities Act. The Uniform Securities Act makes it illegal for any person to commit a fraudulent act in connection with the sale or offer for sale of a security, not just agents and broker-dealers. The Administrator does not have the power to arrest anyone. He may bring the case to the attention of the Attorney General of the State who can issue a warrant for the arrest.

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 Uniform Securities Act. 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)appropriate providing the client does not request a rescission of the sale. D)illegal because provisions of the Uniform Securities Act cannot be waived.

D)illegal because provisions of the Uniform Securities Act cannot be waived. The agent's sale of the security is illegal because provisions of the Uniform Securities Act cannot be waived.

A client of a broker-dealer files a civil suit claiming damages for sale of an unregistered security. During the proceedings, the client suffers a fatal stroke. The suit: A)has no basis, as a civil suit may not be brought for this reason. B)is continued by the deceased's spouse. C)is dismissed. D)is continued by the deceased's executor.

D)is continued by the deceased's executor. Death of a party to a suit does not end the suit. Unless the account was specified as a joint account with rights of survivorship, the executor of the deceased's estate will continue the suit.

According to the Uniform Securities Act, all of the following are violations of suitability requirements EXCEPT failing to A)determine the customer's ability to assume risk B)identify customer objectives 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 Failure to identify objectives or to obtain corresponding financial information is considered contrary to the know-your-customer rule. Agents should ask if the customer has a will but failing to do so is not a violation of suitability requirements.

A sale of a security has been made by an agent not registered in the state. The agent is brought to court by the Administrator. The court has the power to require the agent to: A)go to prison for a period not to exceed three years. B)terminate his current registration. C)requalify by taking the agent's licensing exam again. D)make the client whole.

D)make the client whole. The Administrator may bring a case to court where the agent is found civilly liable. In that case, restitution may be ordered by the court. The Administrator does not have to go to court to require the agent to retake a qualification exam. Civil cases like this would not result in a prison sentence.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A)safekeeping of customer funds and securities B)the cost of overnight delivery services C)interest on debit balances in margin accounts D)markups and markdowns on trades done as a principal

D)markups and markdowns on trades done as a principal There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

A broker-dealer holds fully paid-for customer securities for safekeeping. Under the NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, the broker-dealer: A)would be in violation unless a properly executed margin agreement was in effect. B)does not have to obtain client consent to lend them to make delivery on short sales. C)must pay interest to the clients. D)must segregate them.

D)must segregate them. Any securities held in custody by a broker-dealer (or, for that matter, an investment adviser), must be segregated from those belonging to the broker-dealer (or investment adviser). To do otherwise would be to commit the prohibited practice of commingling. Fully paid securities may be loaned out, but only with customer permission.

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 civil case. B)legal. C)legal but only in a criminal case. D)null and void.

D)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.

You are an agent for a fully licensed broker-dealer and one of your clients is the chairman of a drug company who tells you that the government will shortly disapprove a patent for a new drug. According to the Uniform Securities Act, you should: A)tell your best customers to sell their holdings of the corporation immediately. B)contact the SEC because you have inside information. C)sell the company's shares short for your discretionary customer accounts. D)promptly inform your supervisor.

D)promptly inform your supervisor. If you receive inside information, you should inform your supervisor immediately so that he may take the appropriate steps to avoid any transaction that may be construed to violate the Uniform Securities Act. An agent cannot lawfully trade on inside information and is not obligated to inform the SEC.

An agent receives a phone call from a customer's husband who does not have trading authorization over his 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)accept the order and carry out his client's wishes. B)accept the order only if the husband faxes or emails an immediate release to the broker-dealer. C)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. D)refuse the order because the husband is not authorized to enter orders for his wife's individual account.

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

Alice Allison, an agent with Winmore Securities, a registered broker-dealer, introduced some of her clients to an old college friend who was raising funds for a new start-up venture. Those who invested in the deal did so by having Alice transfer funds from their account at Winmore to the start-up. Alice did not charge or receive any compensation for doing this. Because of this limited role, Alice did not notify her supervisor at Winmore. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, Alice has engaged in the unethical business practice of A)sharing in accounts B)churning C)front running D)selling away

D)selling away As limited as Alice's activity appears to be, this would be considered arranging for a securities transaction "away" from her broker-dealer. This would be permitted if Alice had received written authorization in advance from her employing broker-dealer.

fter a string of losing recommendations, an agent's client is threatening to close the account and move it to a competing broker-dealer. In an effort to save the account, the agent promises a return of no less than 10% over the next 12 months and offers to make up any deficit personally. In so doing, A)the agent has acted wisely in an effort to keep the account for the firm B)it is possible that the agent could receive a prison term of as long as 3 years C)the agent must be certain to deposit sufficient funds in escrow to guarantee the promise D)the agent has violated the prohibition against performance guarantees

D)the agent has violated the prohibition against performance guarantees There is just no way a securities professional can offer a guarantee like this. Although a violation, it is a civil one, not criminal and, therefore, the agent is not eligible for a prison sentence.

Transparency - Fee schedule

Obtaining a fee schedule should be easy for customers. AKA access without logging in to a site or needing a password.

An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act, A)a guaranteed security only guarantees payment of interest or dividends B)the agent is possibly committing fraud C)agents should always recommend securities that are familiar to the investor D)the agent is describing a guaranteed security

D)the agent is describing a guaranteed security A guaranteed security is one where the interest and principal (in the case of a bond) are guaranteed by a third party. If a guaranteed stock, it is the dividends that are the subject of the third-party guarantee. With tens of thousands of publicly traded securities, it is unlikely that your client will be familiar with most of them, but that doesn't prohibit the agent from making the recommendation if suitable.

ABC Furniture Company wishes to raise capital by issuing some securities in its home state. The CEO of the company feels that registration with the Administrator is unnecessary because the issue is exempt. Should ABC be ordered to appear at a hearing, the burden of proving its issue is exempt is on: A)the hearing panel. B)the CEO. C)the Administrator. D)the company.

D)the company. In any case where there is a question as to the legality of a specific exemption, the burden of proof is always on the party requesting the exemption.

According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts, A)as long as the schedule is available in electronic form, it is not necessary to provide a paper version to retail customers B)the schedule should be made available on the broker-dealer's public website and should be password protected C)fee schedules should only be delivered by hand or postal mail to reduce cyber security threats D)the schedule should be made available on the broker-dealer's public website without requiring any login or password

D)the schedule should be made available on the broker-dealer's public website without requiring any login or password Transparency requires that obtaining the fee schedule should be a simple process for retail customers and prospects. That means access without logging in to the broker-dealer's website or needing a password. Paper copies should always be available and cyber security is not a threat because there is no confidential information included.

One of the features of a broker-dealer is that they sometimes maintain an inventory of securities, even when not in the role of market maker. If a broker-dealer 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 and Unethical Business Practices of Broker-Dealers and Agents might consider: A)this may only be done if the broker-dealer makes adequate disclosure to clients who purchase the stock. B)this prohibited because broker-dealers may not offer stock to the public from their own inventory. C)this not prohibited because with thinly traded stocks, one expects there to be a wide spread. D)this prohibited because the offering price does not bear a reasonable relationship to the current market.

D)this 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.

From the date of discovery, how many years is the statute of limitations in place for civil offenses covered under the USA? A)ten years. B)one year. C)five years. D)two years.

D)two years Under the civil provisions, the statute of limitations extends for two years from the discovery of the offense or three years after the act occurred, whichever comes first. .

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

D)under no circumstance Excessive trading activity in an account is called churning and is a prohibited practice.

NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers 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)if the investor is considered an accredited investor under SEC Rule 501. B)when the account has outperformed the S&P 500 index. 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.

A risk-averse investor wants to invest in Treasury securities. The investor's agent recommends Treasury notes, pointing out that federal government-backed securities are default-free securities not subject to interest rate risk. In the above situation the agent has acted: A)lawfully because Treasury notes carry no risk of principal default. B)lawfully because Treasury notes are suitable for a risk-averse customer and are free of all investment risk. C)unlawfully because Treasury notes are unsuitable for a risk-averse customer. D)unlawfully because the agent failed to disclose that the investor carries interest rate risk.

D)unlawfully because the agent failed to disclose that the investor carries interest rate risk. Although Treasury securities (such as T-notes issued by the federal government) do not carry default risk, the customer who buys them bears interest rate risk because the value of the notes will fall if interest rates rise. The agent has acted unlawfully in not disclosing this risk to the customer.

A customer buys 200 shares of a common stock at $30 per share. On a day when the stock's price is down $5, the customer calls her agent and inquires as to its current price, and the agent tells her the price is around where she bought it. In the next few weeks, the stock's price turns around and the customer liquidates the shares at $35 per share realizing a $5 per share profit excluding commission. In the above situation, the agent has acted: A)lawfully, because he prevented the customer from losing a profit opportunity. B)lawfully, because the interim price fluctuation did not impact the customer's results. C)unlawfully, because the customer could easily discern that the price quoted by the agent did not match readily available quotes in the financial media. D)unlawfully, because accurate quotes must be provided to the customer at all times.

D)unlawfully, because accurate quotes must be provided to the customer at all times. The agent must provide customers with accurate market quotes at all times.

Pat Conway, a risk-averse investor, has never invested money outside of bank instruments. Recognizing Pat's conservative nature, his agent recommends Treasury notes, pointing out that federal government-backed securities are riskless securities. In the above situation, the agent has acted: A)unlawfully, because Treasury notes are unsuitable for a risk-averse customer. B)lawfully, because Treasury notes are suitable for a risk-averse customer. C)lawfully, because Treasury notes carry no risk of principal default. D)unlawfully, because the agent failed to disclose that the customer retains interest rate risk.

D)unlawfully, because the agent failed to disclose that the customer retains interest rate risk. Although Treasury securities (such as T-notes) issued by the federal government do not carry default risk, the customer who buys them retains interest rate risk because the value of the notes will fall if interest rates rise. The agent has acted unlawfully in not disclosing this to the customer.

An agent has raised capital from his customers with which he and his brother-in-law will build a small shopping center (although the broker-dealer with whom he is registered is not aware of his actions). The customers who contributed the capital received certificates of ownership in the shopping center as well as full disclosure of their risks and participation in income from renting mall space to retail businesses. In the above situation, the agent has acted: A)lawfully, because risks of the transaction were disclosed to the customers in writing. B)unlawfully, because the agent's brother-in-law is not a registered agent (sales representative). C)lawfully, because interests in a shopping mall are not securities. D)unlawfully, because the agent gave his broker-dealer no opportunity to supervise his activities relative to its customers.

D)unlawfully, because the agent gave his broker-dealer no opportunity to supervise his activities relative to its customers. The agent has acted unlawfully in effecting private securities transactions involving the broker-dealer's customers without proper supervision by the firm. Interests in a shopping center generally fall under the definition of a security.

If an agent chooses to appeal an Administrator's order, the agent must file for review of the order with the appropriate court: A)immediately. B)within 30 days of order entry. C)within 180 days of order entry. D)within 60 days of order entry.

D)within 60 days of order entry. Under the USA, a registered person has up to 60 days to appeal any disciplinary finding by the state Administrator.

When are written and oral authority needed to make transactions in client's account?

Oral is enough to authorize a specific order. Written is needed for discretion, aka agent deciding on their own

Can any provision of USA (ex: right to sue) every be waived, like by having them sign a form

Never. Regardless of if the client consents.

Can the USA do anything to an adviser who lies to someone, but not in regards to investing advice

No

T-Note risks

No default risk, but do have interest rate risk - aka if interest rates go up, value goes down

Civil penalties under USA

No specific penalties mentioned, but it does mention liabilities interest costs, rescission of trade, payment of attorney's fees, and return of principal invested

Ok or not? A)A client asks the agent to buy 1,000 shares of a specific high-quality technology stock this week for her nondiscretionary account. The agent places an order promptly for 1,500 shares because the market has begun to take off. By the end of the day, the stock is 5 points higher than the purchase price.

No. The agent exercised unauthorized discretion by changing the client's order for 1,000 shares without having trading authorization or power of attorney. This is a violation of ethical practice.

Can an agent provide safekeeping and custodial services for a client's cash and securities?

No. The firm can, but not the agent themself.

who is guilty of insider trading violations— a corporate officer of the issuer who divulges material inside information to a friend, but no transaction takes place, or an agent who executes a trade for a client who is acting on inside information?

Simply giving someone inside information, although imprudent, is not a violation of the law. Only when the information is used for trading does a violation occur. In our question, the agent is in violation for accepting an order on the basis of material nonpublic information that results in a trade

What are matched orders?

When people agree to buy and sell to create appearance of activity

Material inside information

any information about a company that has not been communicated to the general public and that would likely affect the value of a security. Even if you acquire the information "accidentally," you cannot use it until it becomes public.