Friday Study Set - Series 66

An investment adviser must meet the net worth requirements of the Administrator. When doing the computation, what assets would not be included?

For purposes of this Rule, the term "net worth" means an excess of assets over liabilities. But net worth does not include the following as assets: goodwill, franchise rights, patents, copyrights, marketing rights, and all other assets of intangible nature; home, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual; advances or loans to stockholders and officers in the case of a corporation; and advances or loans to partners in the case of a partnership.

If the Administrator wishes to conduct an examination of an investment adviser's books and records, how much advance notice must be given? A) None B) 30 days C) 15 days D) 60 days

A) None No advance notice is necessary for the Administrator to conduct an examination of the books and records of an investment adviser or a broker-dealer. The USA only requires that the examination be held during normal business hours of the registrant. U5LO2

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within A) 60 days B) 15 days C) 30 days D) 45 days

B) 15 days When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days. U5LO2

GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of A) 2 years B) 3 years C) 8 years D) 5 years

B) 3 years The USA specifies that all records, including electronic communications (emails), must be maintained for a minimum of 3 years. For investment advisers, the requirement is 5 years. U3LO5

An investment adviser hires 2 individuals to solicit new customers for the firm's wealth management service. Under the USA, A) they may begin soliciting as soon as they have passed their licensing examinations B) registration as investment adviser representatives is required C) soliciting is generally prohibited D) each of them would have to register as an investment adviser

B) registration as investment adviser representatives is required The definition of investment adviser representative includes individuals who solicit for the firm's advisory business. U2LO1

Which of the following statements is NOT true? I. A broker-dealer must be a firm or corporation (legal person) as opposed to a natural person (human being). II. An investment adviser must be a firm or a corporation as opposed to a natural person. III. An investment adviser representative (IAR) cannot, under any circumstances, be employed by a registered broker-dealer. A) I, II, and III B) II and III C) I and III D) I and II

A) I, II, and III A broker-dealer or investment adviser can be either a natural person (i.e., organized as a sole proprietorship) or a legal person (i.e., a corporation or partnership). There is no prohibition against an investment adviser representative also being licensed as an agent with a broker-dealer. U3LO1

Alpha-Beta Advisers (ABA) has its principal office in State X. ABA limits its clientele to insurance companies that are authorized to do business in State X. Which of the following best describes the registration requirements for ABA? A) State X only B) SEC only C) Neither the SEC nor State X D) Both the SEC and State X

A) State X only Dealing exclusively with insurance companies makes this advisory firm exempt from registering with the SEC. However, unlike those who are excluded from the definition of investment adviser, being exempt does not make ABA a federal covered adviser. Although advisers dealing solely with institutions, such as insurance companies, are not deemed to be investment advisers in the state, that only applies when there is no place of business in the state. Obviously, with its home office in State X, that does not apply to ABA, so it would have to register in that state. U1LO3

Under the Uniform Securities Act, the definition of a broker-dealer includes A) an agent handling principal transactions with major institutional clients B) a trust company when executing transactions in accounts in which it does not act in a fiduciary capacity C) a person in the business of making trades in his own account or for the accounts of others D) an authorized representative of the issuer who receives a commission

C) a person in the business of making trades in his own account or for the accounts of others A broker-dealer is defined as any person in the business of making trades in its own account or for the accounts of others. U3LO1

Under the Uniform Securities Act, requirements for registration as an investment adviser in a state include which of the following? I. The Administrator may require an announcement of the application for registration in one or more newspapers in the state. II. Minimum financial requirements for federal covered advisers with a place of business in the state who have custody of customer funds and/or securities, or have discretionary authority over customer accounts. IV. For those needing a surety bond, it must provide that any customer who can prove a violation is entitled to collect against the bond. A) I and III B) II and III C) I, II, and III D) I and II

A) I and III A published announcement may be required by the Administrator. The Administrator may not impose any financial requirements upon federal covered advisers (other than to pay a fee when notice filing). The USA has specific wording requiring that customers who can prove they were the subject of a violation by the IA are entitled to collect against the bond. U1LO5

A federal covered IA files a petition for bankruptcy. The firm must A) notify the Administrator immediately B) notify all of its clients immediately C) notify the SEC immediately D) do nothing until the court decides the disposition of the firm's assets

C) notify the SEC immediately As a federal covered investment adviser, the responsible regulatory body is the SEC. U1LO5

To be exempt under Rule 506(b) of Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of A) broker-dealers who offer the securities B) shares issued C) agents authorized to sell the security D) nonaccredited investors to whom the security is sold

D) nonaccredited investors to whom the security is sold Rule 506(b) of Regulation D provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. There is no limit to the number of shares that can be issued nor the number of accredited investors who may purchase the shares. It is Rule 506(c) of Regulation D that permits advertising as long as the issue is sold exclusively to accredited investors. U4LO3

As defined in the Uniform Securities Act, the term person would include I. a limited partnership II. a political subdivision III. an unincorporated association IV. the executor of an estate for a deceased individual A) II and III B) I, II, III, and IV C) I, II, and III D) I and IV

B) I, II, III, and IV All of these would be included in the USA's definition of person. Not included are a minor, a deceased person, or someone judged mentally incompetent. U1LO1

Under the Uniform Securities Act, an offer and sale does NOT exist if it is I. the result of a class vote by stockholders regarding a merger or consolidation II. a bona fide pledge or loan III. an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares IV. a gift of nonassessable securities A) I and II B) I, II, III, and IV C) I, II, and III D) II and IV

B) I, II, III, and IV The Uniform Securities Act specifically excludes all 4 choices from the definition of an offer and a sale. U5LO1

MidWest Advisory Services has $175 million in assets under management and has offices in 10 Midwest states. Regarding recordkeeping requirements, MidWest must meet those of A) the state with the most stringent financial requirements B) the state in which its principal office is located C) the SEC D) each state in which it has a place of business

C) the SEC With $175 million in AUM, MidWest is a federal covered adviser. As such, all financial requirements, bonding, recordkeeping, and so forth requirements are those of the SEC, not any of the states. U1LO5

A federal covered investment adviser has which of the following obligations regarding the state in which it maintains its principal place of business? I. It must notify the Administrator of its SEC registration. II. It must pay state-required filing fees. III. Its adviser representatives are exempt from state-required exams. IV. It must maintain net worth equal to the higher of federal requirements or those of the state. A) II only B) I and II C) I only D) I, II, III, and IV

B) I and II A federal covered investment adviser is required to notify the Administrator of its federal covered status and pay any state-required fees. The state may require examinations, such as the Series 65 or 66, but not a net worth in excess of that required under federal law. U1LO5

Each of the following statements about postregistration provisions is true EXCEPT A) investment advisers must comply with recordkeeping rules B) the securities Administrator does not have the authority to conduct an onsite examination of an investment adviser registered in his state if the adviser does not have an office in that state C) a registered investment adviser may be required to file advertisements D) a correcting amendment to the Form ADV must be filed with the Administrator if any information filed becomes inaccurate or incomplete

B) the securities Administrator does not have the authority to conduct an onsite examination of an investment adviser registered in his state if the adviser does not have an office in that state Administrators have the authority to conduct an onsite examination of a registered investment adviser, even if there is no place of business maintained in the Administrator's state. Under the Act, Administrators may require the filing of advertising used by broker-dealers and investment advisers, who must also comply with certain recordkeeping requirements and file correcting amendments. U1LO5

A registered broker-dealer offers investment advice as an incidental part of its commission business. One of its agents charges for investment advice as a freelance investment adviser outside the scope of his employment at the firm. Which of the following statements are TRUE? I. The broker-dealer must register as an investment adviser. II. The agent must register as an investment adviser. III. The agent need not register as an investment adviser. IV. The broker-dealer need not register as an investment adviser. A) I and III B) III and IV C) II and IV D) I and II

C) II and IV Broker-dealers who offer advice as an incidental part of their commission business are not required to register as investment advisers. However, if an agent provides investment advice outside the scope of employment at the broker-dealer, he must be registered. U1LO3

An investment adviser with no place of business in the state is exempt from registration with the state when making recommendations to all of the following EXCEPT A) AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities B) St. Amelia's college endowment fund C) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state D) Amalgamated Bank

C) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state An investment adviser with no place of business in the state is not exempt from registration with the state when making recommendations to individual accredited investors who are residents of that state, even when the securities being recommended are exempt from registration. The Uniform Securities Act exempts investment advisers with no place of business in the state who deal with certain institutional customers such as banks, insurance companies, investment management companies, and employee benefit plans with assets in excess of $1 million. College endowments and other nonprofit organizations also carry exempt status, but not wealthy individuals. An adviser advising an issuer on the quality of potential underwriters does not fall within the definition of investment adviser under the Uniform Securities Act and is therefore exempt from registration. U1LO3

The powers of the Administrator include the ability to determine A) surety bond requirements for investment advisers who do not exercise discretion or maintain custody B) maximum net capital requirements for broker-dealers C) minimum net worth requirements for agents who exercise discretion D) minimum net worth requirements for investment advisers

D) minimum net worth requirements for investment advisers The Administrator can determine minimum, not maximum, net capital for broker-dealers (but not in excess of SEC requirements) and, for investment advisers, net worth. If the investment adviser does not exercise discretion (or maintain custody), no surety bond is required. Agents who exercise discretion may need a surety bond, but not a minimum net worth. U1LO5

Regional Financial Services, LLC, is registered as an investment adviser in States A, B, C, and D. They have just filed an application for registration in State E. Registration of this investment adviser in State E automatically confers registration as an IAR in State E on A) clerical employees handling back-office operations B) any employee who is functioning as an IAR in State A, B, C, or D C) an employee who will be soliciting clients for the adviser in State E D) officers, partners, and directors of the firm who will be functioning in State E as IARs

D) officers, partners, and directors of the firm who will be functioning in State E as IARs Under the Uniform Securities Act, registration of an investment adviser in a state automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. U2LO3

Under IA-1092, an investment adviser I. makes advice his principal activity II. makes advice his regular activity III. is compensated directly for advice IV. is compensated directly or indirectly for advice A) I and IV B) I and III C) II and IV D) II and III

C) II and IV Under the SEC's release, the rendering of advice does not have to be a person's principal activity. Rather, it must be a regular activity, and compensation may be received directly or indirectly. U1LO2

A person is excluded from the definition of investment adviser under the Investment Advisers Act of 1940 if the investment advice and reports are restricted to A) bank and insurance company securities B) foreign securities C) U.S. government securities D) securities listed on a national stock exchange

C) U.S. government securities Among the exclusions found in the act is one for persons whose advice relates exclusively to securities issued or guaranteed by the U.S. government. U1LO3

A broker-dealer is registered in States A and B. An agent of theirs is registered in State A, and one of the agent's clients moves from State A to State C. If the agent wishes to continue to do business with this client, which of the following statements is CORRECT? A) Both the broker-dealer and the agent must register in State C. B) As long as they have 5 or fewer retail clients in State C, neither the broker-dealer nor the agent must register there. C) Only the broker-dealer must register in State C. D) Only the agent must register in State C.

A) Both the broker-dealer and the agent must register in State C. As long as a broker-dealer has at least 1 retail client in a state, registration is required. Furthermore, an agent cannot do business with a client who has become a resident of a state unless she is registered as an agent of a registered broker-dealer in that state. Unlike investment advisers, there is no de minimis exemption for broker-dealers and agents. U3LO4

Which of the following statements regarding the SEC's power to revoke the registration of an investment adviser is TRUE? A) Failure to adequately supervise a person associated with the adviser could be cause for the SEC to revoke the firm's registration. B) An investment adviser receiving substantial prepayment of fees from 50% of its clients that fails to include a copy of its balance sheet in its brochure delivered to all clients would give the SEC cause for beginning revocation proceedings. C) If it is determined that an investment adviser is insolvent, the SEC may revoke the registration. D) Revocation would occur, with appropriate notice, when a firm's annual updating amendment was received by the SEC 120 days after the end of the registrant's fiscal year.

A) Failure to adequately supervise a person associated with the adviser could be cause for the SEC to revoke the firm's registration. Failure to supervise, if proven, is one of the most common causes for disciplinary action against a broker-dealer or investment adviser. Insolvency is not a cause for revocation under the Investment Advisers Act of 1940, but it is for a state-registered investment adviser (it's tough to keep these straight; please see Appendix A). A late ADV annual updating amendment might be cause for some action but almost certainly not a revocation; it is not that serious an offense. The balance sheet would only have to be part of the disclosure statement (brochure) given to those from whom substantial prepayment of fees is received. U1LO6

Which of the following situations would require registration as an investment adviser? I. A broker-dealer provided investment research services to a customer and charged a fee for the service. II. An agent of a broker-dealer recommends the purchase of ABC securities to a customer, who then purchases 100 shares, and the agent earns a commission. III. A broker-dealer has its agents prepare complete financial plans for customers for a nominal fee. The plans recommend specific securities transactions, and when the customers place orders, the agents earn commissions on those securities transactions. IV. A broker-dealer charges its customers for collecting dividends and maintaining their accounts in addition to commission charges for transactions executed. A) I and III B) I only C) I, II, III, and IV D) I, III, and IV

A) I and III Under the Uniform Securities Act, broker-dealers and their agents are not defined as investment advisers if their performance is solely incidental to the conduct of a brokerage business, and no special compensation is received for the advisory services. A broker-dealer charging for research advice is charging for advisory services, which would require registration as an investment adviser. Preparing a complete financial plan for a customer goes beyond being solely incidental to conducting a brokerage business and would require registration as an investment adviser because a fee was charged, even if only a nominal one. Although not asked in this question, those agents would also have to register as IARs. Recommendations of securities purchases are incidental to conducting a brokerage business and would not require registration as an investment adviser if no fees are charged for the advice. Broker-dealers may charge for clerical services provided to customers, but clerical services are not considered investment advisory services. U1LO3

Which of the following statements regarding agent registration under the Uniform Securities Act are TRUE? I. In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day. II. The Administrator may initiate a disciplinary action within 2 years of an agent's withdrawal of registration. III. The administrator may request the agent furnish a statement of assets and liabilities. IV. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments. A) I and IV B) II and III C) III and IV D) I and II

A) I and IV Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments, the clock starts over again with the filing of those amendments. Agents do not have financial requirements, and the Administrator has a maximum of 1 year after termination to initiate any actions. U3LO5

The Uniform Securities Act authorizes the state Administrator to require I. either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations II. officers of investment advisers to pass a qualification examination III. an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state IV. investment adviser representatives to pass a qualification examination A) I, II, III, and IV B) I only C) I and II D) III and IV

A) I, II, III, and IV The state Administrator may require qualification examinations for officers of investment advisers, as well as its representatives, and may require them to publish an announcement in one or more newspapers published in the state. The Administrator may also require either an oral or written examination. U2LO3

Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from I. registering securities II. establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of 1934 III. establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law IV. registering investment advisers A) II and III B) I and III C) I and IV D) III and IV

A) II and III The NSMIA streamlined much of federal and state securities law and specifically prevented dual regulation. As a result, states may not impose capital, custody, and recordkeeping requirements that exceed requirements under federal securities law. States can register securities and investment advisers that are not covered by the registration requirements of federal legislation. U1LO5

Under the Securities Exchange Act of 1934, which of the following would NOT be considered associated with XYZ Corp., a broker-dealer? A) Robert, a client who owns 1,000 shares of XYZ's voting stock B) Arvin, one of XYZ's agents C) Brian, an XYZ vice president D) Paula, who is on XYZ's board of directors but who has no other connection with the firm

A) Robert, a client who owns 1,000 shares of XYZ's voting stock An associated person of a broker-dealer includes any partner, branch manager, officer, or director of a broker-dealer, including outside directors. It also includes employees such as account executives or sales representatives who are not clerks or ministerial personnel, and anyone who controls, is controlled by, or is under common control with the broker-dealer. Being a client of a broker-dealer or owning shares of the firm's stock does not make one an associated person, unless something in the choice indicated that this ownership put Robert into a position of control. U3LO3

Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A) Sharon must be registered in State X in order to accept the order B) because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X C) because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them D) because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X

A) Sharon must be registered in State X in order to accept the order Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state that is the domicile of a client placing an order. One does not have to be registered as an agent in every state the BD is, only in those where she expects clients to reside. U3LO5

Which of the following statements is CORRECT? A) State-registered investment advisers who have custody of clients' securities are required to provide audited balance sheets to their clients. B) A state-registered investment adviser collecting fees of $500 for 6 months or more in advance, is considered to be receiving a substantial prepayment. C) Federal covered investment advisers who have custody of clients' securities are required to provide audited balance sheets to their clients. D) Both state-registered and federal covered investment advisers who have custody of clients' securities are required to provide audited balance sheets to their clients.

A) State-registered investment advisers who have custody of clients' securities are required to provide audited balance sheets to their clients. It is only state-registered investment advisers who must provide audited balance sheets to clients for whom they maintain custody. In order to be considered a substantial prepayment of fees, state laws require that they be more than $500 for 6 or more months in advance. U1LO5

Which of the following is NOT included in Form ADV Part 2A? A) States in which the investment adviser is registered or intends to register B) Types of investments made by the adviser C) A description of how the adviser is compensated D) Investment policy of the adviser

A) States in which the investment adviser is registered or intends to register ADV Part 2A is the brochure that investment advisers must deliver to clients; it describes the investment adviser's fees, investment policies, and types of investments made. The states in which the adviser is registered or intends to be registered are not contained in ADV Part 2A. If the IA is registering with the SEC, on Part 1A, it lists only the largest 5 offices (in terms of numbers of employees). If state-registered, it lists each state it will be registering in or is already registered in. U1LO5

When would an individual employed by an issuer to sell its stock to the public have to register as an agent? A) When the employer is an insurance company B) When the employer is a savings institution C) When the employer is the U.S. Treasury D) When the transaction is exempt

A) When the employer is an insurance company The question is not looking for the exemption - it wants to know when the individual must register. There are two instances where an individual employed by the issuer to sell its securities is not considered an agent. The first is when the issuer is one of 5 specific named cases. That list includes savings institutions (banks), and the federal governments of the United States and Canada, as well as any of their political subdivisions. The list does not include insurance companies. The second case is when the securities are being sold in an exempt transaction. From a practical standpoint, the most common case where this occurs is when the issuer makes a private placement of its shares.

A person who renders investment advice solely with respect to securities issued by the U.S. government A) is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements B) need not be federal registered under the Investment Advisers Act of 1940 but must register in any state in which it has an office C) must be registered both with the SEC and the state D) is exempt from state registration under the Uniform Securities Act but must be federal registered under the Investment Advisers Act of 1940

A) is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements A person who renders advice solely with respect to securities issued or guaranteed by the U.S. government is excluded from the definition of investment adviser under the Advisers Act and is therefore a federal covered adviser under the NSMIA of 1996. U1LO3

A firm is registered as an investment adviser under the Investment Advisers Act of 1940. It has decided to raise its annual management fee from $1,500 to $1,800 and require that it be paid 1 year in advance instead of quarterly. The firm would A) now come under the requirement to include a balance sheet as part of its brochure B) need SEC permission to make this change C) continue doing business as before because the firm was already charging more than $1,200 per year D) be in violation of the law that prohibits pre-payments more than 6 months in advance

A) now come under the requirement to include a balance sheet as part of its brochure For federal covered investment advisers, a prepayment in excess of $1,200 and for periods of 6 months or more in advance (substantial prepayment) requires the adviser to submit an annual audited balance sheet as part of its ADV Part 2 (and brochure). Previously, even though the firm's fee was in excess of $1,200, because it was collected on a quarterly basis, the firm did not fall under the balance sheet rule. Had this been a state-registered IA, the answer would have been the same, even though the dollar limit is $500 rather than $1,200. That is for the reason given above—the former fee was charged quarterly and the substantial prepayment definition requires both exceeding a stated dollar amount ($500 or $1,200) and it being for 6 months or more in advance. U1LO5

Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these except A) securities issued under Rule 506(c) are federal covered, while those under Rule 506(b) are not B) all purchasers of the Rule 506(c) securities must be accredited investors as defined in Rule 501, whereas Rule 506(b) permits a limited number of sophisticated but not accredited investors C) general solicitation is permitted under Rule 506(c) offerings; no advertising is permitted under Rule 506(b) D) the issuer must take "reasonable steps" to verify that all purchasers are accredited investors in a 506(c) offering, while no such obligation falls upon issuers in a 506(b) offering

A) securities issued under Rule 506(c) are federal covered, while those under Rule 506(b) are not Under the NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either (b) or (c), is considered a federal covered security. Rule 506(c) permits advertising (general solicitation) but requires that the issuer take reasonable steps to assure all purchasers meet the accredited investor standard. In a Rule 506(b) offering, up to 35 non-accredited investors are permitted with no limit placed on the number of accredited investors. U4LO3

In which of the following cases is the exemption from registration with the SEC not based on the value of assets under management? A) An investment adviser with assets under management of less than $25 million B) An investment adviser that acts as an adviser solely to 1 or more venture capital funds C) An investment adviser that acts as an adviser solely to private funds and has assets under management in the United States of less than $150 million D) An investment adviser that acts as an adviser solely to 1 or more insurance companies

B) An investment adviser that acts as an adviser solely to 1 or more venture capital funds It is only in the case of the adviser to venture capital funds where there is no dollar limitation on AUM. Private fund advisers with AUM of $150 million or more must register, and "small" investment advisers, those with less than $25 million in AUM, are generally prohibited from SEC registration. If the investment adviser's only clients are insurance companies, the adviser is exempt from SEC registration even if the firm has billions in AUM. U1LO4

Which of the following is not included in the definition of broker-dealer as found in the Uniform Securities Act? A) Attorneys B) Banks C) Credit unions D) Investment advisers

B) Banks In the Uniform Securities Act, it specifically states: "Broker-dealer" means any person engaged in the business of effecting transactions in securities for the account of others or for his own account. "Broker-dealer" does not include (1) an agent, (2) an issuer, (3) a bank, savings institution, or trust company. Attorneys are excluded from the definition of investment adviser, as long as their advice is incidental to their legal practice, but that exclusion does not apply to the term "broker-dealer". Even though credit unions engage in banking activity, they are not included in the exclusion. Being an investment adviser does not exclude a person from the need to register as a broker-dealer if that person is performing the functions of a BD. U3LO2

Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they conduct business? I. A Certified Financial Planner who prepares financial plans and whose only compensation is commissions II. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients III. A broker-dealer with extensive business in the state IV. A mutual fund company with offices and clients in the state A) III and IV B) I and II C) I only D) I, II, III, and IV

B) I and II A Certified Financial Planner who prepares financial plans for commissions must register in the state as an investment adviser representative. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act. U2LO2

An investment adviser with $20 million under management exercises investment discretion over client portfolios. If the firm's accounting manager were to discover that the firm's net worth was only $8,500, the USA would require the firm to I. cancel all discretionary powers II. immediately raise an additional $1,500 III. send notice to the Administrator before the close of business on the day following discovery IV. send a financial report to the Administrator before the close of business on the day following the sending of notice A) II and III B) III and IV C) I and IV D) I and II

B) III and IV State-registered investment advisers maintaining discretion over client accounts must maintain a minimum net worth of $10,000. Any advisory firm whose net worth falls below required minimums is required to send notice to the Administrator no later than the close of business on the day following discovery. This notice must be followed up no later than the next business day with a complete financial report to the Administrator. U1LO5

Under the Investment Advisers Act of 1940, which of the following statements regarding an investment adviser's registration is TRUE? A) Registrations become effective in 30 days unless delayed by the SEC. B) If the investment adviser ceases to act as an adviser or goes out of business, the SEC will cancel the registration. C) Withdrawal from registration is done on Form ADV-W and takes effect 45 days after filing. D) Registrations expire on December 31 of each year.

B) If the investment adviser ceases to act as an adviser or goes out of business, the SEC will cancel the registration. Under the Investment Advisers Act of 1940, registrations become effective 45 days after filing, unless delayed by the SEC, and remain effective until withdrawn by the adviser or canceled, suspended, or revoked by the SEC. The SEC will cancel a registration if the investment adviser is no longer in existence or in the business. Although the ADV-W is the form for withdrawal, it becomes effective upon acceptance by the IARD, provided however that the investment adviser's registration continues for a period of 60 days after acceptance solely for the purpose of commencing a proceeding regarding any violation of the Act. Please note that this question deals with SEC-registered investment advisers. It is state-registered investment advisers who have a renewal date of December 31. Those registered under federal law can operate under a fiscal year with a renewal date other than December 31. U1LO5

Jefferson, Adams, and Washington (JAW) is a pension consulting firm whose only office is on Constitution Avenue in Washington, D.C. JAW has only one advisory client—a U.S. government employees pension fund with assets of $4 billion. What are this firm's registration requirements? A) It can only register with the SEC because the District of Columbia is not a state. B) It may choose to register with either the D.C. Administrator or the SEC. C) It does not have to register because its only client is the U.S. government. D) It must register with the SEC because the AUM is so high.

B) It may choose to register with either the D.C. Administrator or the SEC. Under the provisions of the Dodd-Frank Act of 2010, once a pension consultant's AUM reaches $200 million, it has the choice of state or SEC registration. Under the USA, the District of Columbia (along with Puerto Rico and any U.S. territory or possession) is included in the definition of state. If an investment adviser only gives advice on securities issued or guaranteed by the U.S. government, it is excluded from the definition of investment adviser and doesn't register anywhere, but that is not the same as having the government as your only client. U1LO5

Searching Out New Growth (SONG) is a venture capital fund. As such, all of the following statements are true EXCEPT A) SONG is not registered under the Investment Company Act of 1940 B) SONG must have less than $150 million in assets in the fund C) SONG's investment adviser is exempt from registration D) SONG only issues securities which are, except in extraordinary circumstances, non-redeemable

B) SONG must have less than $150 million in assets in the fund Although venture capital funds are included in the general definition of private funds, unlike the private equity fund, there is no ceiling on the size of the fund before the adviser loses the exemption. Advisers to VC funds are exempt from registration. The funds themselves do not register with the SEC under the Investment Company Act of 1940 (and don't register with the states as well). These investments do not offer ready liquidity. U1LO4

A broker-dealer registered with State A created a website 2 years ago to promote its services. Recently, they hired a new media person who totally redesigned the site. Under the recordkeeping requirements of the Uniform Securities Act, A) copies of both the original and the new website page must be maintained for 5 years after original use B) a copy of the original website page must be maintained for 3 years from original use C) a copy of the new website page must be maintained for a period of 3 years from the first use of the original site D) there are no requirements for storage of electronic data

B) a copy of the original website page must be maintained for 3 years from original use Websites are treated as would be any other advertisement. So, the original site design is kept for 3 years and, whenever revised, the new copy is maintained and starts a new retention requirement for that copy. Therefore, you will likely have several different versions in your advertising file at the same time. U3LO5

An investment adviser sends a notice offering a research report she has recently prepared to a group of 25 new members of the local Lions Club. Under the NASAA Model Rule on recordkeeping for investment advisers, the firm must keep a copy of the notice along with A) the date the Administrator approved the research report B) a memorandum describing the list and its source C) a copy of the full roster of the local chapter D) the names of those members to whom the report was sent

B) a memorandum describing the list and its source If an investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except if the notice, circular, or advertisement is distributed to persons named on any list, then the investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and its source. U1LO5

!!!! Under state law, all of the following investment advisers are exempt from registration except A) foreign private advisers with no place of business in the United States and less than $25 million in assets under management. B) advisers whose only clients are insurance companies. C) advisers solely to private funds with less than $150 million in assets under management in the United States. D) advisers solely to venture capital funds.

B) advisers whose only clients are insurance companies. It is the federal law, the Investment Advisers Act of 1940, that exempts investment advisers from registration if their only clients are insurance companies. State law does not have that exemption. Among other exemptions, the Uniform Securities Act exempts investment advisers whose only clients are private funds. This would include the foreign private advisers and advisers to venture capital funds. Please note that if the choice had said the investment adviser had no place of business in the state and the adviser's only clients were insurance companies (or several of the other institutional investors where the exemption applies), registration would not be required. U1LO4

A person who has no place of business in this state would not be considered a broker-dealer if he effects transactions in this state exclusively with all of the following except A) insurance companies. B) investment advisers. C) other broker-dealers. D) the issuers of the securities involved in the transaction.

B) investment advisers. The Uniform Securities Act excludes from the definition of broker-dealer, a person who has no place of business in this state if he effects transactions in this state exclusively with or through: i. the issuers of the securities involved in the transactions, ii. other broker-dealers, or iii. banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit-sharing trusts, or other financial institutions or institutional buyers. Please note that investment advisers are not included in this list. What is confusing is that the USA offers almost the exact same exclusion for investment advisers and that list includes other investment advisers as well as broker-dealers. U3LO2

Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who A) gives advice on federal covered securities B) is registered under section 203 of the Investment Advisers Act of 1940 C) serves as a consultant to pension funds with assets of $500 million D) does business on an interstate basis

B) is registered under section 203 of the Investment Advisers Act of 1940 All investment advisers registered under the Investment Advisers Act of 1940 are federal covered advisers. Doing business in more than one state (interstate) does not necessarily mean that the investment adviser is required to register with the SEC. As long as the AUM is under $100 million, the adviser registers with the appropriate states. Pension consultants are eligible to register with the SEC once their AUM reached $200 million, but it is not mandatory. U1LO5

A Canadian broker-dealer is registered in Province Q. The firm has clients who vacation in several New England states and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act, A) this would only be permitted if the trades were executed through an affiliated domestic broker-dealer who is licensed in those states B) this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing C) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the United States D) this is permissible only if the broker-dealer is registered with the SEC

B) this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing The Uniform Securities Act provides for a form of limited registration for Canadian broker-dealers wishing to do business with their clients who are vacationing or otherwise traveling through the United States. In order to qualify for the limited registration, the BD must be properly licensed in its home province and their only dealing in the states is with an existing client. U3LO5

Which of the following must register as an investment adviser under the Investment Advisers Act of 1940? A) A person who provides advice to insurance companies on their portfolios B) A person who provides advice to people who are investing in coin collections C) A person who provides advice to people who are investing in mutual funds registered under the Investment Company Act of 1940 D) A person who provides advice to people who are investing in antique furniture

C) A person who provides advice to people who are investing in mutual funds registered under the Investment Company Act of 1940 Investment advisers are defined by the Investment Advisers Act of 1940 as any person who, for compensation, engages in the business of advising others concerning the purchase or sale of securities. Investment companies, such as mutual funds, are securities, so this person would need to register. Because antiques and collectibles—such as coin collections—are not defined as securities, providing advice in this area does not require registration. A person who provides advice only to insurance companies is exempt from registration. U1LO3

Which of the following statements is TRUE? A) An individual may not buy or sell securities unless the transaction is made by a licensed broker-dealer or agents. B) In the sale of U.S. government securities, a misrepresentation or other fraudulent practice by an agent would not fall under the jurisdiction of the state security Administrator because these securities are exempt. C) An agent's registration may never be revoked without the opportunity for a hearing. D) All securities must be registered with the appropriate state Administrator.

C) An agent's registration may never be revoked without the opportunity for a hearing. The agent always has an opportunity for a hearing even though the Administrator has broad powers to revoke and/or suspend an agent's registration. While individuals who transact in U.S. government securities are not required to register, they are subject to the antifraud provisions of the Uniform Securities Act. U.S. government and municipal securities need not be registered. U5LO2

Kapco Advisers, a federal covered investment adviser operating on a calendar-year basis, published a list of recommended securities in January 2015. A copy of this must be maintained until at least A) December 31, 2017 B) January 31, 2020 C) December 31, 2020 D) January 31, 2017

C) December 31, 2020 Investment adviser records, including copies of advertisements, must be kept for at least 5 years from the end of the fiscal year in which the record originated—in this case, 5 years from the end of 2015. U1LO5

When a sale violates provisions of the Uniform Securities Act, which of the following statements regarding civil liabilities is (are) TRUE? I. A buyer may not sue for compensation later than 3 years after the sale. II. A rescission offer must include interest. III. A rescission offer must be at the current market price. A) II only B) I only C) I and II D) I, II, and III

C) I and II Rescission must occur by the earlier of 2 years after the discovery of the facts or 3 years after the occurrence. The offer of rescission is based on the price originally paid for the security plus interest at a rate determined by the Administrator (less any income received from that security). U5LO3

Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934? I. The SEC has jurisdiction over exchanges and SROs. II. The SEC has jurisdiction over broker-dealers, investment advisers, and associated persons that are required to be registered under federal law. III. The SEC has jurisdiction over banks and savings and loans regarding their securities activities. A) I only B) II only C) I and II D) I, II, and III

C) I and II The SEC was created by the Securities Exchange Act of 1934 and has the responsibility of administering all federal securities laws. The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans. U3LO1

While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are TRUE? I. In conducting an investigation, an Administrator can compel the testimony of witnesses. II. Investigations of serious violations must be open to the public. III. An Administrator in Illinois may only enforce subpoenas from South Carolina if the violation originally occurred in Illinois. IV. An Administrator may deny the registration of a securities professional who has been convicted of any felony within the past 10 years. A) III and IV B) II and III C) I and IV D) I and III

C) I and IV An Administrator can compel the testimony of witnesses when conducting an investigation. Investigation of serious violations need not be held in public. An Administrator in Illinois may enforce subpoenas from South Carolina whether the violation occurred in Illinois or not. Conviction for any felony within the past 10 years is one of a number of reasons that the Administrator may have for denying a license. U5LO2

Serenity Strategic Investments (SSI) is an investment adviser registered in four states. SSI's most previous annual updating amendment showed AUM of $108 million. Six months later, a favorable market resulted in SSI's AUM growing to $120 million. Unfortunately, several large clients left, so at the end of SSI's year, its AUM was down to $94 million. Which of the following statements is CORRECT? A) SSI must become registered with SEC within 90 days of exceeding $110 million. B) SSI may remain SEC registered as long as AUM is at $90 million or more. C) SSI remains state-registered because its AUM is less than $100 million. D) SSI has the choice of remaining state-registered or registering with the SEC.

C) SSI remains state-registered because its AUM is less than $100 million. The key to answering this question is remembering that, for purposes of SEC registration, it is the AUM (technically known as the RAUM - Regulatory AUM) shown on the annual updating amendment to the Form ADV that is the determining factor. We are told that SSI is state registered, something permitted when reported AUM is $108 million, although it was eligible to register with the SEC. The mid-year increase has no effect on registration, only that at the end of the year. Because SSI will report $94 million on the next annual update, it will remain state registered and does not have the option to register with the SEC because its AUM is below $100 million. The only time the $20 million buffer down to $90 million enables an investment adviser to remain registered with the SEC is just that—the IA is already registered with the SEC and can stay there. U1LO5

An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is TRUE? A) The sale was legal because the sale took place in State X to a resident of that state. B) The sale was illegal because municipal revenue bonds are not exempt securities. C) The sale was legal because the bond is not required to be registered for sale in State X. D) The sale was illegal because the bond is not registered for sale in State X.

C) The sale was legal because the bond is not required to be registered for sale in State X. Any municipal bond is considered an exempt security under the Uniform Securities Act. Therefore, the sale of an exempt unregistered security by a properly registered agent is perfectly legal. If you selected the choice that the sale was legal because it took place in State X to a resident of that state, you are missing the point. The question is focused on the security, not the agent. In addition, that choice implies that the sale of any unregistered security, exempt or nonexempt, made by a properly registered agent is legal and that is not so in the case of those which are obligated to register. U4LO3

To register a sole proprietorship as an investment adviser in a state, the application for initial registration (Form ADV) must be filed with the appropriate party. This application must include all of the following EXCEPT A) any information to be furnished or disseminated to any client or prospective client. B) a consent to service of process. C) a copy of the articles of incorporation for the business. D) the appropriate fees.

C) a copy of the articles of incorporation for the business. Articles of incorporation only apply to corporations. Sole proprietorships are not incorporated. To register as an investment adviser in a state, Form ADV is filed with the Administrator or with a central registration depository designated by the Administrator. The application must include, among other things, a consent to service of process, appropriate fees, and the brochure or any other information that will be used to solicit clients. Sole proprietorships are not incorporated. U1LO5

​As defined in the Investment Advisers Act of 1940, all of the following would be considered investment advisers EXCEPT A) a tax attorney who manages investment portfolios for 50 clients B) a civil engineer making investment decisions for $5 million held in escrow while a bridge for which she is the project manager is being constructed C) a professional plumber with excellent stock market skills who as a hobby and without pay, manages portfolios for 8 of his neighbors D) a portfolio manager who limits advice to municipal securities exclusively

C) a professional plumber with excellent stock market skills who as a hobby and without pay, manages portfolios for 8 of his neighbors The plumber would not be considered an investment adviser because two of the three "prongs" are missing—advice is not being given as part of a regular business and there is no compensation. While an exclusion from the definition applies to advisers limiting advice to U.S. government securities, no such exclusion operates for advisers limiting advice to municipal securities. Similarly, there is an exclusion for attorneys providing investment advice on an incidental basis, but 50 clients is not incidental. Engineers are excluded from the definition, provided their advice is incidental to their profession, but making investment decisions on the money in escrow is clearly not incidental.​ U1LO3

All of the following statements regarding registration of broker-dealers under the Uniform Securities Act are true EXCEPT A) broker-dealers with discretion over client accounts may be required to post a surety bond B) a successor firm is exempt from paying registration fees until the renewal date C) a successor firm is exempt from filing a consent to service of process until the renewal date D) no broker-dealer can be required to meet financial requirements in excess of those of the SEC

C) a successor firm is exempt from filing a consent to service of process until the renewal date When one firm succeeds another, no fees are due until renewal date. However, the successor firm must file a consent to service of process at the time it registers. Broker-dealers with discretionary authority may be required to post a surety bond or maintain minimum net capital. However, no state can impose financial or recordkeeping requirements that exceed those of the SEC. U3LO5

A federally chartered credit union is domiciled in Texas. The credit union is making an offering of securities in Nebraska. To comply with the Uniform Securities Act's exclusion from the definition of agent, any individual offering the security in Nebraska A) would have to be an employee of a broker-dealer registered in Nebraska B) would have to be an employee of a broker-dealer registered in Texas C) could not sell without being an agent D) would have to receive only nominal commissions

C) could not sell without being an agent It is unusual to have an answer set up this way, but it does happen sometimes on the exam—"to comply with"—and then there is no way to comply. First of all, the USA's exclusions from the definition of agent only apply to individuals working for the issuer, never broker-dealers. Then, the exclusion only applies when selling the following exempt securities in nonexempt transactions: - U.S. government and municipal securities; - Securities of governments with which the United States has diplomatic relationships; - Securities of U.S. commercial banks and savings institutions or trust companies (when not engaged in securities-related broker-dealer activities); - Commercial paper rated in the top three categories by the major rating agencies with denominations of $50,000 or more with maturities of nine months or less; - Investment contracts issued in connection with employee's stock purchase, savings, pensions, or profit-sharing plans. Selling other exempt securities, such as those issued by a federally chartered credit union, on behalf of the issuer, requires one to become registered as an agent of the issuer. Don't confuse this with the exemption offered in the case of exempt transactions. In that case, regardless of whether the security is exempt or not, if an individual's only sales activity while representing an issuer is in exempt transactions, then the exclusion from the definition of an agent applies. It is obviously a much broader exemption than when selling exempt securities. U3LO4

If an agent located in the Ogden, Utah, office of a broker-dealer wishes to solicit prospects residing in California, under the Uniform Securities Act, the agent would A) not have to register if the broker-dealer is registered in California B) be allowed to solicit if the securities are exempt C) have to register in California D) not have to register in California

C) have to register in California Typically, an agent, when representing the broker-dealer to solicit securities transactions, must register in every state where business is conducted even if the securities or the transactions are exempt. Of course, in order for the agent to do so, the broker-dealer must also be registered in that state. U3LO4

Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the U.S. government is A) required to be a registered investment adviser in the state B) required to be a registered agent in the state C) not required to be a registered investment adviser in the state D) required to be a registered investment adviser representative in the state

C) not required to be a registered investment adviser in the state This question is referring to a federal covered adviser. The futures contracts are not securities, but, of course, the U.S. government securities are. However, the Investment Advisers Act of 1940 specifically excludes from the definition of "investment adviser" a person whose securities advice is confined to securities issued or guaranteed by the Treasury. The fact that this person is excluded under the Investment Advisers Act of 1940 makes that person federal covered under the NSMIA and not subject to state regulation as an investment adviser. U1LO3

Under federal law, an application for becoming an associated person of a broker-dealer would be denied for an individual A) convicted of a felony 122 months ago B) accused of a securities-related felony 110 months ago C) pleading no contest to a misdemeanor involving a financial matter 65 months ago D) who is not a citizen of the United States

C) pleading no contest to a misdemeanor involving a financial matter 65 months ago An individual who is convicted of, or has pleaded guilty or no contest to, any felony or certain misdemeanors in the previous 10 years (120 months) is subject to statutory disqualification. Therefore, the misdemeanor involving a financial matter within the past 10 years is a cause for disqualification. A conviction made more than 10 years ago is part of the record but not cause for disqualification. One is presumed innocent until proven guilty so merely being accused is not the same as being convicted. There is no requirement that a registrant be a U.S. citizen. U3LO1

One of the exemptions from registration under state and federal law applies to investment advisers to private funds. One characteristic of all private funds is that A) they have no more than 100 investors B) their advisers are exempt from filing reports on Form ADV C) they are not registered as investment companies D) they have assets of less than $150 million

C) they are not registered as investment companies Private funds lose that distinction if they become registered as investment companies under the Investment Company Act of 1940. It is the adviser to a private fund who has a limitation on the amount of AUM, not the fund. In some cases, specifically when using the 3(c)(7) exemption, there is no limit to the number of investors. In many cases, the advisers to these funds, although exempt from registration, are considered exempt reporting advisers and must file a Form ADV Part 1 answering most of the questions on the Form. U1LO5

As the use of social media has mushroomed, most firms in the securities business have created and maintain websites. In addition to password-protected areas for existing clients, these websites generally have pages accessible to anyone. Which of the following statements could be on an investment adviser's website that would not be on that of a broker-dealer? A) The content found on this website has been approved by the SEC B) A statement that the firm is registered with the SEC under the Securities Exchange Act of 1934 C) The firm is a member of FINRA D) A statement that the firm is registered with the SEC under the Investment Advisers Act of 1940

D) A statement that the firm is registered with the SEC under the Investment Advisers Act of 1940 Investment advisers register with either the SEC or the state(s). Those who are registered with the SEC do so in compliance with the Investment Advisers Act of 1940. Broker-dealers cannot make that statement because they are registered with the SEC as required by the Securities Exchange Act of 1934. Neither can state that the website has been approved and FINRA membership is for broker-dealers only. Here is where a problem arises. Many of our students will be representing firms that are registered as broker-dealers and investment advisers. That is why it is so important to read the question carefully. It specifically refers to an investment adviser and makes no implication that the firm is also a broker-dealer. U3LO5

Under the Investment Advisers Act of 1940, which of the following are excluded from the definition of an investment adviser? A) Accountants who advise on securities (only) for a fee B) Insurance companies C) Attorneys who advise on securities (only) for a fee D) Banks and trust companies

D) Banks and trust companies The act excludes the following from the definition: banks or trust companies; publishers of bona fide publications of general circulation (newspapers and magazines); persons advising about certain securities (U.S. government or agency issues); broker-dealers not receiving special compensation for giving advice; and persons whose advice is incidental to their profession, such as lawyers, accountants, engineers, and teachers U1LO3

Which of the following statements regarding the differences between Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act of 1933 are TRUE? I. Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot. II. Rule 506(c) offerings are limited to 35 nonaccredited investors, while Rule 506(b) offerings do not have a limit. III. The bad actor provisions only apply to Rule 506(c) offerings. IV. Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings. A) III and IV B) I and II C) II and III D) I and IV

D) I and IV As long as the offering is limited exclusively to accredited investors, Rule 506(c) offerings may be publicly advertised; Rule 506(b) offerings can never be advertised. The limit of 35 nonaccredited investors applies to Rule 506(b); there is no limit on the number of accredited investors for either rule. Both rules are subject to the bad actor provisions. U4LO3

The Administrator may require which of the following from a federal covered adviser? I. copy of the IA's Form ADV II. filing of the IA's advertising in the state III. a listing of the IA's fee schedule IV. a filing fee A) I and II B) I, II, III, and IV C) II and III D) I and IV

D) I and IV Even though Administrators have limited jurisdiction over federal covered advisers, they can require filing of a copy of the information filed by that IA with the SEC (the Form ADV), as well as a filing fee. U1LO5

In defining an investment adviser under SEC Release 1A-1092, which of the following would meet the business standard? I. A person who advertises himself as an investment adviser II. A person who provides securities-related advice on a frequent or regular basis III. A person who receives separate or additional compensation for securities-related advice A) I and II B) II and III C) III only D) I, II, and III

D) I, II, and III To meet the business standard, persons must meet 3 criteria. First, they must hold themselves out (advertise) as persons who provide investment advice. Second, they must provide such advice on a frequent or regular basis, but it need not be their principal business activity. Third, they must receive separate or additional compensation for doing so. U1LO2

Which of the following persons are excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act? I. A broker-dealer with no office in the state that effects trades exclusively with other broker-dealers in the state II. A trust company with an office in the state that deals with the general public III. A broker-dealer with no office in the state that has no more than 5 retail clients resident in the state within the past year IV. A broker-dealer with no office in the state that effects securities trades exclusively with trust companies or other broker-dealers A) III and IV B) I, II, III, and IV C) I and II D) I, II, and IV

D) I, II, and IV As long as a broker-dealer does not have an office in the state, it is possible to qualify for exclusion from the definition. The primary requirement for the exclusion is that the broker-dealer confine trading to financial institutions or other broker-dealers. Unlike with investment advisers, there is no de minimis exemption for broker-dealers. Trust companies are excluded from the definition of broker-dealer. U3LO2

According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are TRUE? I. It must be filed with the state Administrator. II. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, 6 or more months in advance. III. Certain minimum business and education qualifications must be met before an investment adviser can file. IV. It may be used to satisfy the brochure requirements of the act. A) I, II, and III B) I, II, and IV C) I and IV D) II and IV

D) II and IV An investment adviser required to register with the SEC under the Investment Advisers Act of 1940 must submit its Form ADVs to the SEC. In some cases, the Form ADV will also be filed with the state Administrator, but that is state law, not a federal requirement. A balance sheet must be submitted with Part 2 if the adviser receives "substantial" prepayments of fees. Part 2 may be used as an investment adviser's disclosure brochure to clients. U1LO5

An IAR is registered in New York and Vermont. While working in his New York office, he places a call to the cell phone of one of his clients, who happens to be on vacation in Ohio. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Indiana. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, which Administrator does NOT have jurisdiction? A) New York B) Ohio C) Indiana D) Illinois

D) Illinois The Administrator has jurisdiction from the state in which the offer was made (NY), received (OH), and accepted (IN). Mailing of the certificate is of no consequence. U5LO1

What is the purpose of the Securities Exchange Act of 1934? A) It provides requirements relating to new issues. B) It provides standards among the states. C) It provides policies relating to unethical business practices. D) It regulates the persons involved in the secondary market.

D) It regulates the persons involved in the secondary market. - The Securities Exchange Act of 1934 was designed to regulate securities transactions, securities markets, and securities firms that trade in the secondary market. - The Securities Act of 1933 was designed to provide regulation in the new issue market. - Unethical business practices are covered in NASAA's Statements of Policy on Unethical Business Practices. - The Uniform Securities Act provides a model for the states. U3LO5

Long-Term Financial Solutions, Inc. (LTFSI), an investment adviser registered in five states, files a Form ADV-W indicating the business is closing. It is being acquired by another federal covered adviser, Gold and Sylver Advisers, LLC. Which of the following statements is correct? A) Gold and Sylver must notify all clients of LTFSI that their advisory contracts have been assigned. B) As the successor firm, Gold and Sylver Advisers must keep copies of the LTFSI corporate charter for at least three years after LTFSI's acquisition. C) Gold and Sylver will not have to amend their Form ADV Part 1 until the filing of their annual updating amendment. D) LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least three years after the acquisition.

D) LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least three years after the acquisition. When an investment adviser ceases to exist, either through going out of business or being succeeded by another firm (as is the case here), it is their responsibility to ensure that articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor be preserved until at least three years after termination of the enterprise. Although it is true the contracts have been assigned to the successor firm (Gold and Sylver), the consent for that had to be obtained by LTFSI. A change of this nature requires prompt amendment to the Form ADV Part 1. U1LO5

Form PF must be filed by A) SEC-registered advisers with no more than $150 million in private fund assets under management B) state-registered private fund managers, regardless of the amount of assets under management C) SEC-exempt reporting advisers D) SEC-registered advisers with at least $150 million in private fund assets under management

D) SEC-registered advisers with at least $150 million in private fund assets under management Form PF is the form used by those private fund managers who are registered with the SEC and whose private fund AUM reaches or exceeds the $150 million threshold. Exempt reporting advisers are, as the term implies, exempt from reporting. State-registered advisers don't report on the form because, among other things, if they reached the $150 million mark, they'd have to register with the SEC. U1LO4

Which of the following does NOT meet the compensation test for defining investment advisers under SEC Release 1A-1092? A) An insurance agent sells a life insurance policy and receives a commission on that policy. During the sale of the insurance policy, the agent provides some securities investment advice B) A real estate agent advertises that she will give free advice regarding investing the proceeds from the sale of any home she lists C) Subscription payments received by a publisher of a newsletter providing impersonal securities-related advice D) Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do

D) Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do Compensation may take the form of, but is not limited to, fees, payments for subscriptions, salaries, or commissions. Compensation does not have to be direct. The commission on the insurance policy is considered indirect compensation covering the investment advice given by the insurance agent. The same logic holds for the real estate agent—she doesn't give advice unless you list your home with her. Nothing in the neighbor's advice involves compensation. U1LO2

The Investment Advisers Act of 1940 would consider each of the following investment advisers to be exempt from registration EXCEPT A) an adviser whose only clients are venture capital funds B) an adviser whose only clients are insurance companies C) an adviser who maintains an office in only one state, advises only residents of that state (none of whom is a private fund), and gives advice relating solely to securities not traded on any national exchange D) an adviser whose only clients are banks

D) an adviser whose only clients are banks Advising banks only does not qualify one for the exemption. Advisers who only service insurance companies or venture capital funds are exempt, as are advisers performing intrastate who do not give advice to private funds or on listed securities. U1LO4

The National Securities Markets Improvement Act of 1996 (NSMIA) A) created the concept of fraud, as used in the Uniform Securities Act B) created a national market system C) overcame the restrictions of selling securities in interstate commerce D) defined the term "federal covered adviser"

D) defined the term "federal covered adviser" The NSMIA defined the term "federal covered adviser," referring to advisers who must register with the SEC or who are excluded from the definition of "investment adviser" under the Investment Advisers Act of 1940. Fraud is a legal concept and is prohibited by the Uniform Securities Act. Selling securities in interstate commerce is not fraudulent, provided the antifraud provisions securities laws are observed. The roots of a national market system began with the Securities Amendments Act of 1975. U1LO5

An investment adviser has its home office in Wisconsin. Its only business is with trust companies, large employee benefit plans, and insurance companies. It has no place of business in Colorado but provides investment advice to two Denver banks, both chartered under Colorado banking laws. There is a new Administrator in Colorado, and it is his opinion that this IA should be required to register in his state. A careful reading of Section 201 of the Uniform Securities Act would indicate that A) this firm would be exempt from registration with the Colorado Administrator because it is doing business in more than one state B) as long as the IA does not have an office in Colorado, there are no conditions that would mandate registration there C) the Administrator is correct and the firm must register D) the firm does not have to register because it has no place of business in the state and its only clients are registered financial institutions

D) the firm does not have to register because it has no place of business in the state and its only clients are registered financial institutions Section 201 of the Uniform Securities Act specifies the conditions under which one is an investment adviser in the state. Specifically excluded are those IAs with no place of business in the state who confine their advisory activities in the state to other investment advisers, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than one million dollars ($1,000,000), and governmental agencies or instrumentalities. If, however, in addition to the two banks, the firm did advisory business with more than 5 retail clients who were residents of Colorado, then even with no place of business in the state, it would have to register. U1LO3