Questions

NASAA has created a Model Rule dealing with the creation of and delivery requirements for an investment adviser brochure. Which of the following statements correctly identify the delivery requirements? A) The brochure must be delivered to prospective and new advisory clients no later than entering into the advisory contract. B) The brochure must be delivered to prospective and new advisory clients at least 48 hours prior to entering into the advisory contract. C) The brochure must be delivered to prospective and new advisory clients no later than 48 hours after entering into the advisory contract. D) Annual delivery of the brochure to existing clients must be made within 90 days of the end of the adviser's fiscal year.

A) The brochure must be delivered to prospective and new advisory clients no later than entering into the advisory contract. - The initial delivery requirement is no later than the date of entry into the advisory contract. - The 48-hour rule deals with an advance delivery to avoid having to honor a five-day penalty-free withdrawal. - The annual delivery date is within 120 days of the end of the adviser's year. - The 90-day requirement is for the annual updating amendment to the Administrator.

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) 15 days. B) 45 days. C) 30 days. D) 60 days.

A) 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

Which of the following transactions is NOT exempt under the Uniform Securities Act? A) A broker/dealer makes an offer in a private placement to 15 noninstitutional investors in a state within a 30-day period. B) The executor of an individual's estate liquidates a portion of the common stock held in the estate. C) A mutual fund purchases 5% of a stock issue offered by ABC Corp. D) A broker/dealer offers an entire new issue to 5 bank clients exclusively

A) A broker/dealer makes an offer in a private placement to 15 noninstitutional investors in a state within a 30-day period. - Transactions with executors of estates, institutions, and investment companies are all defined as exempt transactions under the Uniform Securities Act. - A private placement is exempt so long as the securities are offered to no more than 10 non-institutional clients during a 12 month period. - An offering to 15 non-institutional investors exceeds the threshold of 10 and is therefore not a state private placement.

For purposes of safeguarding customer information, which of the following would be considered a covered account? A) A margin account in the name of the Interglobal Hedge Fund B) An account in the name of the Wells Morgan Bank C) A margin account in the name of Mary Beth Simmons D) An account in the name of the State of X employee pension fund

C) A margin account in the name of Mary Beth Simmons - The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.

Which of the following would be least likely to meet the cyber security definition of a covered account? A) A customer with a margin account at a broker-dealer B) An account with a registered investment company that permits the owner to wire funds to a third party C) A customer with an automobile loan at a bank D) A business account held by a company listed on the NYSE

D) A business account held by a company listed on the NYSE - In general, business accounts are not included in the term covered account. - There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. - That is unlikely to be the case with a listed company.

Which of the following are defined as securities under the Uniform Securities Act? I Real estate investment trust certificates II Preorganization subscription agreements III Shares of treasury stock IV Voting-trust certificates issued by a corporation undergoing a reorganization

- All of the choices listed are defined as securities under state law. We believe the best thing for you to do is remember those few things that are not securities.

A pension fund manager who manages a $35 million dollar account must register with which of the following? A) The state B) SEC C) Both the state and the SEC D) Either the state or the SEC

A) The state - Under the Dodd-Frank Act, pension fund managers who manage $200 million or more are eligible to register with the SEC, so in this case, they would register with the state.

Which of the following persons with an office in the state is excluded from the Uniform Securities Act's definition of broker-dealer? A) A person engaged in the business of making short-term loans to individuals resident in the state B) A person whose only securities transactions in the state are with issuers of those securities C) A person engaged in the business of effecting securities transactions for individuals resident in the state D) A person engaged in the business of effecting securities transactions for banks and other institutional investors domiciled in the state

A) A person engaged in the business of making short-term loans to individuals resident in the state - A person performing the functions of a broker-dealer cannot qualify for an exclusion from the USA's BD definition whenever there is a place of business in the state. - However, the business of lending money to individuals is not part of the definition of the role of a BD.

According to the North American Securities Administrators Association's (NASAA's) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is not unethical? A) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without express written discretionary authority. B) Within the first 10 days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client. C) An agent sold shares at a price less than authorized by a client. D) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares.

A) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without express written discretionary authority. - An agent of a broker-dealer (BD) may exercise discretion in deciding the time or the price at which a sale takes place during the trading day without express written discretionary authority. - Such action is not unethical because time and price are not considered true discretion. - An agent may not exercise discretion over the number of shares to be sold without prior written discretionary authority. - Oral discretion is only permitted for investment advisers and their representatives (never BDs or agents) during the first 10 business days after the initial discretionary transaction in the account.

Promising Future Retirement Success (PFRS) is a state-registered investment adviser whose only activity is sponsoring wrap fee accounts. In line with the NASAA Model Rule on investment adviser brochures, PFRS shall deliver a copy of its A) Form ADV Part 2A Appendix 1 wrap fee brochure prior to or concurrently with the initial entry into an advisory agreement. B) Form ADV Part 1B. C) fee disclosure document as set forth in the NASAA fee disclosure template as its brochure. D) brochure, which may be a copy of Form ADV Part 2A of its Form ADV or written documents containing the information required by Part 2A of Form ADV.

A) Form ADV Part 2A Appendix 1 wrap fee brochure prior to or concurrently with the initial entry into an advisory agreement. - When an investment adviser's (IA's) only activity is sponsoring or participating in wrap fee accounts, its brochure is Form ADV Part 2A, Appendix 1. - If PFRS offered other advisory services, then, in addition to Appendix 1, the normal brochure delivery requirements are in effect. - Form ADV Part 1B is used only by state-registered IAs (as PFRS is), but that has nothing to do with the brochure rule. - Likewise, the NASAA fee disclosure template is for use by broker-dealers and is not a substitute for an IA's brochure.

The Uniform Securities Act excludes from the definition of agent individuals who represent certain issuers in the sale of their securities. An individual representing which of the following issuers qualifies for that exclusion? A) GEMCO Finance Corporation that issues AAA-rated 30-day commercial paper in $100,000 minimum denominations B) The Midwest Farmers Cooperative, a nonprofit membership cooperative issuing securities solely to members of that cooperative C) The Eastern Pacific Railroad issuing equipment trust certificates for the purpose of upgrading its fleet of locomotives D) FINCO Finance Corporation that issues AAA-rated 330-day commercial paper in $25,000 minimum denominations

A) GEMCO Finance Corporation that issues AAA-rated 30-day commercial paper in $100,000 minimum denominations - Among the cases where an individual representing the issuer of an exempt security is excluded from the definition of an agent is commercial paper in the three highest rating grades (AAA is the highest) with no more than a 270-day maturity and a minimum denomination of $50,000. - Although railroad equipment trust certificates and membership-only sales of securities issued by cooperatives are exempt securities, they are not included in the list of those eligible for the agent's exclusion. - Please check you LEM for that list.

Which of the following criteria would most likely be used to determine if an agent is engaged in churning or excessive trading in violation of NASAA's statements of unethical business practices? A) Many transactions in a customer's account were not suitable to the customer's objectives. B) The agent's firm acted in the capacity of a broker in the transaction. C) The customer has not provided the agent written trading authority D) The agent received compensation on transactions conducted on behalf of clients.

A) Many transactions in a customer's account were not suitable to the customer's objectives. - Churning is defined as excessive trading in a discretionary account solely to generate commissions. - To constitute churning the trading must be in excess of a specific customer's usual trading habits. - One indicator of potential churning is if a client is executing a large number of transactions that are not consistent with the customer's investment objectives.

An agent of a broker-dealer maintains wrap fee accounts for several customers of the firm. Which of the following registrations is required? A) The firm must register as an investment adviser. B) Only the registered principal would need to be registered in the state(s) in which they do business. C) Neither the broker-dealer nor the agent is required to have any license other than their regular securities licenses. D) The agent must be registered as an investment adviser.

A) The firm must register as an investment adviser. - Once a broker-dealer handles wrap fee accounts, it loses the exclusion from the definition of investment adviser. - Therefore, the firm must be registered with either the state or the SEC. - Registration as an investment adviser representative is required for the agents handling these accounts.

As defined in the Uniform Securities Act, in which of the following cases would an investment adviser not be considered to be maintaining custody? A) The investment adviser receives a check made payable to the IA and returns it within three business days. B) The investment adviser has direct control over the client's securities. C) The investment adviser has indirect control over the client's securities. D) The investment adviser keeps client securities in street name.

A) The investment adviser receives a check made payable to the IA and returns it within three business days. - lease remember the following: There are three cases that would not be custody revolving around the three-business-day rule. They are as follows: 1) Receiving a check made payable to a third party and forwarding that to the third party within three business days 2) Receiving a check made payable to the IA and returning it within three business days 3) Receiving securities from a client and returning them within three business days If the IA has direct or indirect control over any client assets, that would be custody. - Holding securities in street name is direct control. Discretion is not custody because the IA doesn't have any physical control, only the ability to make buy and sell decisions in the account.

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) Yes, no registration is necessary. B) No, this cannot be done. C) Yes, if all clerical staff are registered as agents for the firm. D) Yes, if all of the agents agree to it.

A) Yes, no registration is necessary. - Bonuses based on a broker-dealer's profits may be payable to nonregistered clerical help as long as there is no direct relationship to any specific sales.

Under the Uniform Securities Act, it is legal for an investment adviser representative to tell a client that A) a registered security may lawfully be sold in that state. B) an exempt security is not required to be registered because it is safer than a nonexempt security. C) her qualifications have been found satisfactory by the Administrator. D) a registered security has been approved for sale in the state by the Administrator.

A) a registered security may lawfully be sold in that state. - An IAR may indicate that a security is registered or is exempt from registration; all of the other statements are prohibited.

As appropriate for the scale and complexity of a firm's business, elements of an effective practice framework for managing conflicts of interest include all of the following except A) ensuring that the firm remains solvent for protection of customers and employees alike. B) training staff to identify and manage conflicts in accordance with firm policies and procedures. C) establishing mechanisms to identify conflicts in a firm's business as it evolves. D) avoiding severe conflicts, even if that avoidance means foregoing an otherwise attractive business opportunity.

A) ensuring that the firm remains solvent for protection of customers and employees alike. - Managing conflicts of interest does not take into consideration making enough money to remain solvent.

SEC Regulation S-ID describes a broker-dealer's or investment adviser's duties regarding the detection, prevention, and mitigation of identity theft. The rule applies to an investment adviser when it A) is permitted to direct transfers or payments from accounts belonging to individuals to third parties upon the individuals' instructions. B) has the ability to direct execution of advisory client transactions to favored broker-dealers. C) receives performance-based compensation. D) receives soft dollar compensation as described in Section 28(e) of the Securities Exchange Act of 1934.

A) is permitted to direct transfers or payments from accounts belonging to individuals to third parties upon the individuals' instructions. - Investment advisers who have the ability to direct transfers or payments from accounts belonging to individuals to third parties upon the individuals' instructions, or who act as agents on behalf of the individuals, are susceptible to the same types of risks of fraud as other financial institutions. - Therefore, compliance with Regulation S-ID is required.

Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except A) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. B) changes to the fee schedule must be announced in advance. C) it must be up to date. D) changes to the fee schedule may be shown on the firm's website.

A) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. - There is no requirement that the fee schedule be filed with the Administrator. - It must be up to date, and any changes must be announced in advance (usually a minimum of 30 days). - There are a number of ways to disclose the fees—the firm's website is one of them.

Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals except A) members of AT's board of directors who are active in the firm's business. B) those exercising discretion over assets of clients in this state, even if no direct contact is involved. C) those providing investment advice and having direct contact with retail clients in the state. D) those providing investment advice and having direct contact with institutional clients in the state.

A) members of AT's board of directors who are active in the firm's business. - Unless the individual has direct contact with clients (retail or institutional) or exercises discretion, a copy of the Part 2B brochure supplement for each individual is not required. - This would include officers and members of the board of directors. - Of course, if any of these individuals have direct client contact or exercise discretion, a supplement for them would need to be prepared.

The NASAA Model Rule on investment adviser brochures contains one condition where verification of receipt of a readable copy of the brochure and supplements by the customer is required. That is the case A) of an initial delivery to a potential client in electronic form. B) of an annual delivery to an existing client in electronic form. C) of an initial delivery to a potential client in paper form. D) when the investment adviser will be maintaining custody of customer funds and securities.

A) of an initial delivery to a potential client in electronic form. - Delivery of the brochure and related supplements may be made electronically if the investment adviser, in the case of an initial delivery to a potential client, obtains a verification that a readable copy of the brochure and supplements was received by the client.

Included in the Uniform Securities Act's definition of exempt transaction would be any transaction by any of the following except A) one by a trustee of an irrevocable trust. B) one by a trustee in bankruptcy. C) one by a guardian. D) one by a marshal.

A) one by a trustee of an irrevocable trust. - Although the term trustee is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy.

An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is A) unethical. B) acceptable, provided the securities are used as collateral for the loan. C) acceptable, provided the loan is made under the provisions of Regulation T of the Federal Reserve. D) acceptable, provided the securities are used as collateral for the loan and the loan conforms to the provisions of Regulation T.

A) unethical. - An investment adviser cannot lend money to a customer unless the loan is made through a regulated lender such as an affiliated broker-dealer or an affiliated bank.

Alice Worthington is a registered agent with a broker-dealer. She is highly successful at bringing new clients to the firm. Although some of her techniques tend to be in conflict with the firm's compliance policies, the revenue generated by these new clients is considered to be worth taking the risk. One of Worthington's customers complains to the Administrator that she believes trades have been made without her authorization and conversion of the proceeds has taken place. After an investigation, Worthington is found guilty and her registration is revoked. This would most likely A) result in a disciplinary action against the broker-dealer for failure to supervise Worthington. B) cause the broker-dealer to assign one of the firm's officers to handle this customer's account. C) cause the broker-dealer to close this customer's account. D) result in a disciplinary action against Worthington for unauthorized trading in a customer's account.

A) result in a disciplinary action against the broker-dealer for failure to supervise Worthington. - Under normal cases of unethical or dishonest actions of an agent, the employing broker-dealer is not held responsible. - However, when there is a clear case of failure to supervise, such as looking the other way when an agent engages in practices that conflict with the firm's compliance policies, action can be taken against the BD. - It could be a fine, a suspension, or even a revocation of the firm's registration. - The question tells us that Worthington's registration has already been revoked—the disciplinary action has already occurred. - There certainly would have to be another agent assigned to the customer account, but there is no reason it would have to be an officer. - It is more likely the customer would close her account rather than the reverse.

A broker-dealer registered in States P, S, and U has several clients in State C. If the firm does not have a place of business in State C, the firm would avoid the need to register in State C if its only clients in the state are A) savings and loan associations. B) high-net-worth individuals. C) registered as investment advisers in State C. D) individuals registered as agents with other broker-dealers.

A) savings and loan associations. - The Uniform Securities Act provides that a broker-dealer with no place of business in a state is not defined as a BD in that state if its customers are exclusively institutional investors or other broker-dealers. - Savings and loan associations, banks, and trust companies are part of the institutional definition. - No individuals qualify, regardless of net worth or affiliation with securities firms. - Although the exclusion applies when the clientele is limited to other BDs, it does not hold true when the clients are investment advisers.

Under the USA, an individual is NOT an agent if he is employed by a broker/dealer and only A) serves as a partner, officer, or director of the firm with exclusive responsibility for information technology B) trades for the firm's market-making account C) represents the broker/dealer in effecting transactions between the issuer and underwriter D) accepts unsolicited orders

A) serves as a partner, officer, or director of the firm with exclusive responsibility for information technology - Partners, officers, and directors of a broker-dealer are considered agents if they are involved in the purchase or sale of securities. - They are also required to register if they supervise agents. - All individuals who are employed by the broker-dealer and are involved in securities transactions are required to register as agents of the broker-dealer

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) the agent is describing a guaranteed security. B) the agent is possibly committing fraud. C) a guaranteed security only guarantees payment of interest or dividends. D) agents should always recommend securities that are familiar to the investor.

A) 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 a client will be familiar with most of them, but that doesn't prohibit the agent from making the recommendation if suitable.

Under the Uniform Securities Act, if no stop order is pending, a registration under coordination will become effective A) two business days after filing of the documents with the Administrator. B) when the issue is declared effective with the SEC. C) when the issue is declared effective by FINRA. D) when declared by the Administrator.

B) when the issue is declared effective with the SEC. - The registration method known as coordination contemplates that state registration, in the absence of a stop order, becomes effective simultaneously with the federal effective date declared by the SEC.

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

B) A Certified Financial Planner who prepares comprehensive financial plans for her clients and whose only compensation is commission - A Certified Financial Planner who prepares comprehensive financial plans for commissions must register in the state as an investment adviser representative. - In this case, the individual is holding herself out as offering investment advice because, at least in the eyes of the Uniform Securities Act, there is no such thing as a comprehensive financial plan that does not involve securities. - The commissions received are considered indirect compensation for the rendering of investment advice. - Preparing a life insurance needs analysis does not involve securities so this individual would not be considered an IAR. **If you are thinking, "What if the product involved is variable life insurance (as security)?" do not read anything extra into the question. If the product is a variable insurance product, the question will indicate that. Broker-dealers and mutual fund companies are not investment advisers under the USA.**

Which of the following activities would require the registration of the solicited security? A) A broker/dealer conducts a seminar at which sales are made of fixed annuities. B) A registered representative calls a client to encourage her to purchase shares in a bank holding company. C) On an unsolicited basis, a client calls his registered representative to purchase municipal bonds. D) A broker/dealer sells bonds to an investment company.

B) A registered representative calls a client to encourage her to purchase shares in a bank holding company. - This question refers to exempt transactions. - Transactions with investment companies, unsolicited orders, and transactions in exempt securities (such as fixed annuities), are all examples of exempt transactions. - Transactions where a registered representative solicits a trade with a retail client are non-exempt.

Under the Uniform Securities Act, which of the following are not excluded from the definition of broker-dealer? A) Issuers of securities B) Persons who effect securities transactions as part of a regular business solely for their own accounts C) Agents D) Banks

B) Persons who effect securities transactions as part of a regular business solely for their own accounts - Although broker-dealers generally act on behalf of others as well as themselves, there are cases where firms strictly trade for their own positions, such as over-the-counter market makers.

A broker-dealer suddenly incurs a liability that materially affects its net capital. Which of the following statements under the Uniform Securities Act is true? A) The broker-dealer need not file an amendment to its registration if it is scheduled for an examination by the Administrator. B) The broker-dealer must promptly notify the Administrator. C) The broker-dealer is not required to file an amendment to its registration with the Administrator. D) The broker-dealer need only be sure that the next scheduled filing with the Administrator reflects the change.

B) The broker-dealer must promptly notify the Administrator. - Prompt notification is required when a broker-dealer faces a potential financial impairment.

Under the Uniform Securities Act, the term broker-dealer would include A) an issuer distributing its own common stock offering. B) a person with no office in the state who sells variable life insurance policies to no more than five retail investors residing in the state during any 12-month period. C) agents registered under the act who from time to time sell stock from their personal brokerage accounts. D) a person with no office in the state who effects securities transactions with over 25 different insurance companies domiciled in the state

B) a person with no office in the state who sells variable life insurance policies to no more than five retail investors residing in the state during any 12-month period. - Although the person has no office in the state, securities transactions are effected with individual residents of the state. - Under the USA, this person is defined as a broker-dealer. - Remember, variable insurance products such as variable life and variable annuities are securities. - There is no de minimis exemption for BDs. - A person is exempt from the definition of broker-dealer if there is no office in the state and securities trades are confined to institutional clients such as insurance companies, without a numerical limit, or existing individual clients not residents of that state. The agents are merely selling their own stock as would any other individual. - Doing so does not make one a broker-dealer. Issuers usually use BDs to distribute their stock offerings, and when they do it themselves, they are still issuers, not BDs.

Under the Uniform Securities Act, all of the following are exempt transactions except A) a transaction executed by a trustee in bankruptcy. B) a sale of a primary offering registered with the SEC. C) isolated nonissuer transactions. D) unsolicited customer orders.

B) a sale of a primary offering registered with the SEC. - In almost every instance, an issuer transaction—that is, one for the benefit of the issuer—will not be considered an exempt transaction. - Exempt transactions include isolated nonissuer transactions; transactions between an issuer and an underwriter; transactions by an executor, administrator, sheriff, marshal, trustee in bankruptcy, guardian, or conservator; any sale or offer to a bank, savings institution, investment company, or other financial institution; and private placement

The president of a manufacturing company sells shares of the company's common stock to the public and receives a commission substantially lower than others selling that stock. Under the Uniform Securities Act, the president is acting A) as a broker-dealer. B) as an agent of the issuer. C) in a capacity that excludes her from the definition of an agent. D) as an agent of a broker-dealer.

B) as an agent of the issuer. - There is an exemption from the definition of agent for an individual effecting transactions with existing employees, partners, or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in the state. - That exemption is lost in our question because the president is receiving commissions. - The other exemptions apply when the individual is representing the issuer in an exempt transaction or the issuer is one of the five listed categories of exempt securities stated in your LEM.

One way to make money is to buy low and sell high. If an investment adviser has developed a proprietary charting system that has had a very high degree of success in picking stocks near their market bottoms, any advertisement about the system must A) provide customer testimonials evidencing their satisfaction with the system. B) indicate that there are limitations and difficulties to using the system. C) indicate the length of time the system has been in play. D) show performance for at least the past 12 months, including both winners and losers.

B) indicate that there are limitations and difficulties to using the system. - Anytime you see a question dealing with advertising a charting system (or investment formula, etc.), always look for limitations and difficulties in the answer.

An individual is registered as an agent with a broker/dealer that has recently begun offering wrap fee programs to its clients. To offer such wrap accounts to the public, the agent must A) register with the SEC as an investment adviser B) register with the state as an investment adviser representative C) register with the state as an investment adviser D) register with the SEC as an investment adviser representative

B) register with the state as an investment adviser representative - Under a wrap fee program, a firm charges a customer one fee for the cost of trading (brokerage services) and the cost of advice. By selling both brokerage and advice the firm is required to register as both a broker-dealer and an investment adviser. - The firm's employees, who are offering the programs, are required to register as investment adviser representatives. **Registration as an investment adviser representative is always at the state level.** - Knopman Note: A fee-based account is not the same as a wrap account, and would not require registration as an IA or IAR

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, advertisements must comply with rules set out under the Investment Advisers Act of 1940. Those rules include A) a prohibition against reduced-fee introductory offers. B) requiring a written agreement betwee an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser. C) a prohibition against showing the adviser's past performance. D) a requirement that a copy of all advertisements be sent to the SEC at the time they are disseminated to the public.

B) requiring a written agreement between an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser. - State-registered investment advisers must comply with the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers. That model rule states that, when it comes to advertising, IAs and their IARs must comply with the rules of the Investment Advisers Act of 1940. The SEC Model Marketing Rule for Investment Advisers incorporated significant amendments to the Advisers Act. Among the requirements of the rule is that an adviser who compensates a non-affiliated third party promoter for endorsing the services of the IA must have a written agreement with that promoter if the compensation will exceed $1,000 over a 12-month period. - Advertisements may not contain false statements, refer selectively to past recommendations, refer to a chart or device for evaluating securities without explaining its limitations and difficulties, or offer anything free of charge if in fact there will be some requirement, however minor, for obtaining the free item. There is no federal filing requirement for advertisements of investment advisers (although filing may be required by the state Administrator). As long as the past performance is displayed in a manner consistent with the rules, there is no problem.

In instances where an investment adviser has custody or possession of clients' funds or securities, it must comply with A) the National Securities Markets Improvement Act of 1996 (NSMIA). B) the NASAA Model Rule on Custody. C) the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers. D) the SEC's Customer Protection Rule.

B) the NASAA Model Rule on Custody. - There are cases on the exam where the correct answer should be obvious. - If an investment adviser (IA) has custody, it must comply with the rule on custody. - The SEC's Customer Protection Rule applies only to broker-dealers, not IAs.

When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is A) if the customer owns the underlying security on which the call option is sold. B) the ability of the customer to move funds out of the account on multiple occasions. C) the ability of the customer to make a one-time wire to a foreign bank account owned by a family member. D) that the account is in the name of an institutional customer.

B) the ability of the customer to move funds out of the account on multiple occasions. - A covered account is an account, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions. - Where the money goes is less of a factor than the frequency of transactions. - The only time when a single-transaction account might be covered is if there is reason to believe that the identity of the customer is at risk—not likely when wiring to a family member. Institutions are not included in the definition, and owning the stock underlying the sale of a call option means the option is covered—totally different from the topic here.

Authorized Retirement Investments (ARI) is a registered broker-dealer. ARI publishes a list of securities it approves for inclusion in IRAs. This means A) an agent for the broker-dealer can place these in clients' IRAs, knowing that the suitability requirements have been met. B) the broker-dealer has evaluated these securities and believes they would be suitable for inclusion for retirement planning. C) the broker-dealer has consulted with the regulatory bodies and has received approval from them to recommend these securities for IRAs. D) 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. - 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 (BD) 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 client for whom they are recommended.

All of the following statements regarding the disclosure investment adviser brochure rule of the Uniform Securities Act are true except A) the brochure rule permits advisers to deliver the disclosure brochure when the client enters the contract, provided the client is allowed to cancel the contract without penalty within five business days. B) the disclosure brochure must be signed by an officer or partner of the firm. C) the disclosure brochure must contain essentially the same information as is contained in Form ADV Part 2A and, if applicable, Part 2B. D) the disclosure brochure must be delivered no later than 48 hours before entering into an advisory contract for there to be no requirement to offer a five-day refund right.

B) the disclosure brochure must be signed by an officer or partner of the firm. - An officer or partner of the firm need not sign the disclosure brochure. - The investment adviser's disclosure brochure must contain the relevant information from Form ADV Part 2A and, for those where it applies, Part 2B. - The rule does permit advisers to deliver the brochure when the client enters the contract, provided the client is allowed to cancel the contract without penalty within five business days; otherwise, the brochure must be delivered no later than 48 hours before entering into an advisory contract.

A state-registered investment adviser is the subject of an injunction requested by the Administrator. As a result, A) the registration of the investment adviser will be suspended. B) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. C) the registration of the investment adviser's investment adviser representatives will be suspended. D) a hearing must be granted within 15 days after receipt of a written request from the investment adviser.

B) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. - The Administrator does not have the legal power to compel compliance with the cease and desist order. - To compel compliance in the face of a person's resistance, the Administrator must apply to a court of competent jurisdiction for an injunction. - If the court issues a temporary or permanent injunction, upon the request of the Administrator, a receiver or conservator may be appointed over the defendant's assets. - The injunction merely forces the investment adviser (or whomever is the subject) to cease the specified activity. - It does not cancel any registrations. - That could happen if the defendant refuses to obey the injunction and further legal action is taken. - The 15-day hearing rule applies to summary orders, not cease and desist.

The ABC Banking Corporation owns a controlling interest in the stock of the ABC Bank, the ABC Mortgage Company, and the ABC Trust Company. Which of the following terms most likely describes the ABC Banking Corporation? A) A hedge fund B) A bank investment company C) A bank holding company D) A specialized mutual fund

C) A bank holding company - A holding company is a corporation that seeks control through a sizeable stake in the ownership of the voting stock of another company or companies. - This gives it control over management, generally by having seats on the board of directors. - The most common holding company on the exam is the bank holding company, where the companies owned are banks or bank-related businesses such as mortgage companies

When a security is sold in a manner that creates an exemption from registration in a state, it is A) an illegal transaction. B) a federal transaction. C) an exempt transaction. D) an exempt security.

C) an exempt transaction. - An exempt transaction is one where the security involved in the transaction does not require registration. - The determining factor is either how it is sold or to whom it is sold. - This question does not describe an exempt security because we are told it is the way in which it is sold that creates the exemption. - At this point, we are only concerned with definitions. In Unit 4, we'll go much deeper.

The Uniform Securities Act would not require which of the following to be registered as an agent of a broker-dealer? A) An employee of a broker-dealer whose major function is to take orders from the public on behalf of the firm's partners B) A partner in a broker-dealer who actively manages the firm's day-to-day operations C) A partner who has contributed most of the capital of the firm but takes no part in its activities D) An employee of a broker-dealer who only trades securities for the broker-dealer's institutional accounts

C) A partner who has contributed most of the capital of the firm but takes no part in its activities - The Uniform Securities Act defines an agent as "any individual, other than a broker-dealer, who represents a BD or issuer in effecting or attempting to effect purchases or sales of securities." - Regardless of the amount of the capital contribution, if you're not involved with securities transactions (or supervising them), you're not an agent. - Employees who take orders from the public on behalf of the partners of BDs and who trade securities for the accounts of BDs must register as agents.

Under the Uniform Securities Act, who automatically becomes registered as an agent when a broker-dealer firm's registration becomes effective? A) Any individual who has contributed capital to fund the organization B) All individuals for whom an agent's application has been filed C) Any partner, officer, or director of the firm who is active as an agent in the firm's securities business D) Any individual who directly handles securities

C) Any partner, officer, or director of the firm who is active as an agent in the firm's securities business - Individuals who are active as agents in a broker-dealer's securities business and are listed on Form BD as officers, directors, or partners, are automatically registered as agents when a BD becomes registered in another state.

Andrew voluntarily leaves his position as an agent with Gibraltar Securities. Which of the following best describes the reporting requirements relative to this termination? A) Only the firm must notify the Administrator, and it must do so within 30 days of Andrew's resignation. B) Only Andrew must notify the Administrator, and he must do so within 30 days of his resignation. C) Both Andrew and the firm must notify the Administrator of Andrew's resignation promptly. D) Notification to the Administrator is not required, presuming that Andrew was not terminated for cause.

C) Both Andrew and the firm must notify the Administrator of Andrew's resignation promptly. - On termination of an agent from a firm with which he is registered, both the agent and the firm must notify the Administrator of such termination promptly.

All of the following are exempt transactions as defined under the Uniform Securities Act except A) Broker-dealer A has put together a syndicate of 15 broker-dealers to purchase the entire issue of XYZ Corporation's preferred stock. B) the executor of an estate liquidates 1,000 shares of IBM held by the estate. C) Broker-dealer B offers a private placement to 15 regular public customers and closes the offering at the end of 30 days. D) Mammoth Mutual Fund purchased 250,000 shares of common stock in a nonissuer transaction.

C) 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 10 prospective purchasers, with the exception of financial institutions and other broker-dealers. - Transactions by executors, the sheriff, marshals, receivers, trustees, guardians, or conservators are exempt. - Sales to financial institutions, such as mutual funds and insurance companies, are also exempt.

While several methods of registration are described under the Uniform Securities Act, which of the following would be most appropriate for federal covered securities? A) Mobilization B) Coordination C) Notice filing D) Qualification

C) Notice filing - Federal covered securities (those listed on the NYSE, the NYSE American LLC [formerly known as the American Stock Exchange], the Nasdaq Stock Market, and investment companies registered under the Investment Company Act of 1940) are exempt from registration under the USA. - However, the states are permitted to assess fees, and most require filing of certain information. - This is notice filing and most commonly occurs with investment companies registered under the Investment Company Act of 1940.

An agent of a broker-dealer has been asked by a friend to assist with the sale of a bond offering that the friend's religious organization is conducting. The agent is willing to participate and will not accept any compensation for his time. Which of the following statements is correct? A) If the agent does not accept any compensation, he may participate in the offering without disclosing the activity to his broker-dealer. B) Upon receipt of notification from the agent, the broker-dealer must reach out to the religious organization and disclose any disciplinary events on the agent's record. C) Participation in this activity, whether for compensation or not, would be prohibited unless prior written authorization is received from the broker-dealer. D) The agent may participate if the religious organization is notified that he works for a broker-dealer, and thus a conflict of interest may exist, which must be disclosed to his broker-dealer clients.

C) Participation in this activity, whether for compensation or not, would be prohibited unless prior written authorization is received from the broker-dealer. - This is an example of a private securities transaction, or a trade made "off the books of a broker-dealer". - To be permitted, these transactions must be approved in writing by the firm in advance. - Otherwise, it is deemed a violation of NASAA standards.

Under the Uniform Securities Act, which of the following is not a reason for canceling an agent's registration? A) The agent has been found by a court to be mentally incompetent. B) The agent cannot be located after a reasonable search. C) The agent has engaged in an unethical business practice. D) The agent has ceased to do business as an agent.

C) The agent has engaged in an unethical business practice. - The other choices are causes for cancellation, which is not intended to be punitive. - Engaging in unethical business practices is a cause for disciplinary action by the Administrator, court-imposed penalties, criminal prosecution, and civil legal remedies.

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

C) 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.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser's fee A) may not be based on a percentage of the client's assets under management. B) must reflect the amount of time the investment adviser spends managing a client's account. C) may be considered unreasonable if it is not competitive with fees charged by other investment advisers for essentially the same services. D) is not subject to regulatory oversight by the Administrator if the client may be considered financially sophisticated.

C) may be considered unreasonable if it is not competitive with fees charged by other investment advisers for essentially the same services. - A fee could be considered excessive if it were substantially higher than that charged by other investment advisers (IAs) for performing similar services. - The Administrator may research fees charged by various IAs for purposes of comparison. Whether clients have agreed to the fee or done their own price-shopping is irrelevant in determining if an IA's fee is unreasonable.

State securities Administrators may require all of the following except A) bonding requirements for registered agents who exercise discretion in customer accounts. B) minimum net capital requirements on broker-dealers. C) minimum recordkeeping retention periods by registered investment adviser representatives. D) minimum net worth levels on investment advisers with custody of client funds and securities.

C) minimum recordkeeping retention periods by registered investment adviser representatives. - Individuals registered as investment adviser representatives (or agents) never have to meet recordkeeping standards. - Broker-dealers and investment advisers have to meet net capital or net worth requirements.

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 problematic if Bryan sells his shares after informing the other investors. B) only problematic if investors lose money in the investment. C) not an unethical sales practice. D) an illegitimate sales tactic.

C) not an unethical sales practice. - This practice is ethical, provided 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 employee of an issuer who sells the issuer's common stock exclusively to trust companies and savings institutions is A) an agent of the issuer and must be registered as such. B) a broker-dealer and must be registered as such. C) not required to register as an agent of the issuer. D) an officer of the issuer and is automatically registered as an agent

C) not required to register as an agent of the issuer. - Among the exceptions from the definition of an agent is when representing issuers in an exempt transaction (in this case, transactions with trust companies and savings institutions). Therefore, no registration is required.

Under the Uniform Securities Act, all of the following must be disclosed in an investment advisory contract except A) a provision prohibiting the investment adviser from being compensated based on a share of capital gains. B) whether or not discretion will be exercised. C) other states in which the investment adviser is registered. D) the manner in which the advisory fee will be computed.

C) other states in which the investment adviser is registered. - There is no requirement to advise clients of any other states in which the investment adviser is represented. - The presence (or absence) of discretion must always be disclosed. - Unless the question specifically refers to the rare cases when performance fees are permitted, always read the question as if they are prohibited.

A federal covered investment adviser is a person A) exempt from regulation under the Securities Exchange Act of 1934. B) registered with the North American Securities Administrators Association (NASAA). C) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940. D) registered under the Uniform Securities Act.

C) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940. - The term federal covered investment adviser refers to a natural person or entity registered under the Investment Advisers Act of 1940 or excluded from the definition under that act. - A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the NSMIA and the Uniform Securities Act. - Federal covered investment advisers are not exempt from the antifraud provisions of the USA. - Investment advisers, whether state-registered or federal covered, do not register with NASAA.

The Administrator may, by rule, A) require an agent to waive provisions of the Uniform Securities Act when it is in the best interest of the customer. B) suspend the registration of a federal covered adviser because the firm does not require that its advisory contracts be in writing. C) require investment advisers registered in that state to provide notice of plans to take custody of client funds. D) suspend federal law if the Administrator believes it to be in the public interest.

C) require investment advisers registered in that state to provide notice of plans to take custody of client funds. - The Administrator has considerable discretion to make rules or issue orders. - Specifically, the USA allows the Administrator to require IAs registered in her state to provide notification of intent to maintain custody. - However, the USA does not allow the Administrator to waive provisions of the USA, nor can the Administrator suspend federal law. - Although the advisory contracts of state-registered IAs must be in writing, the NSMIA took away the power of the states to regulate federal covered advisers except in the case of a violation of the antifraud statutes.

Under the Uniform Securities Act, all of the following could be cause for disciplinary review action by the state securities Administrator except A) Ed is suspended from conducting business in the securities industry for a period of 6 months by FINRA. B) Joe files an application for registration as an investment adviser and omits the fact that he was convicted of fraud 12 years ago. C) the ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors. D) Tom, a registered investment adviser, fails to disclose that he recently filed for bankruptcy protection.

C) the ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors. - Investment advisers may employ investment adviser representatives as independent contractors. This is very common for independent financial planners. - Even though the Administrator's power to deny a registration is limited to convictions within the past 10 years, being charged with or being convicted of any felony or a securities-related misdemeanor requires disclosure. - Similarly, failing to disclose a bankruptcy filing is cause for disciplinary action on the part of the Administrator. - Administrators are sensitive to actions by other industry regulators, so a suspension by FINRA (may say NASD on your exam) could also lead to taking action.

Trade confirmations sent by broker-dealers to their customers must always include A) the tax identification number of the customer. B) the current market price of the security traded. C) the amount of commission charged. D) the amount of markup or markdown charged.

C) the amount of commission charged. - Commissions must always be disclosed. - Markup or markdown has to be disclosed under certain, but not all, situations. - The trade price, not the current market price, is always disclosed.

Which of the following statements relating to the registration requirements of broker-dealers is true? A) If an amendment to the registration is subsequently filed, the registration becomes effective 15 days after the amendment is filed. B) A registration is automatically effective at noon, 30 days after the application has been filed. C) Registrations of securities professionals expire 1 year after their effective date, unless renewed. D) A registration becomes effective at noon, 30 days after the application has been filed, provided the registration is not in the process of denial.

D) A registration becomes effective at noon, 30 days after the application has been filed, provided the registration is not in the process of denial. - A registration is effective at noon, 30 days after the application has been filed if there is no denial or stop order in process. - Registrations of securities professionals expire on December 31, unless renewed. - If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.

Which of the following persons meets the Uniform Securities Act's definition of an agent? A) Hugo, who has been hired by the local public utility to accept orders to purchase the company's bonds submitted by existing customers B) Hélène, who is employed by the city government to solicit city residents to purchase the newly issued library funding bond C) Hercule, who has been hired by the local savings institution to solicit purchase of shares of the institution's new public offering D) Henri, who has been hired by the local public utility to solicit purchases of the company's bonds from existing customers

D) Henri, who has been hired by the local public utility to solicit purchases of the company's bonds from existing customers - The securities issued by the local public utility are exempt from registration with the Administrator. - However, they are not included in the list of exempt securities excluding individuals from the agent definition when their role is soliciting the sale of those securities. - The Uniform Securities Act excludes from the definition of agent an individual who represents the issuer in an exempt transaction. **Probably the most common exempt transaction is when the customer initiates the trade. That would be the case for Hugo, who is simply responding to customers' unsolicited orders.** **The exclusion also applies when representing the issuer of certain exempt securities, such as savings institutions and municipal governments. Please learn the list in your LEM.**

Under the Uniform Securities Act, which of the following is not a requirement for a preorganization subscription to be an exempt transaction? A) No commission may be paid to anyone for soliciting potential subscribers. B) There may be no more than 10 subscribers. C) No payment may be made by any subscriber. D) The offer of the security may not be advertised.

D) 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

o transact business in a state as an investment adviser representative, a person must A) have passed the Series 63 agent exam and the appropriate NASAA exam for IARs. B) be an associated person of an investment adviser who maintains a place of business in the state. C) be registered as a representative of an investment adviser and have passed the appropriate FINRA exam for IARs. D) be registered as a representative of an investment adviser and have passed the appropriate NASAA exam for IARs.

D) be registered as a representative of an investment adviser and have passed the appropriate NASAA exam for IARs. - To transact business in a state as an investment adviser representative, a person must be registered as a representative of an investment adviser and have passed either the NASAA Series 65 or Series 66 exam. - One is not considered a registered IAR as a result of passing the Series 63 agent exam. - Although the IA that the IAR is associated with must be registered in a state for the IAR to become registered, there is no requirement that either have a place of business in the state.

Main Street Investors (MSI) is a broker-dealer registered in State T. It has no offices in State O, although it does do business in that state. Under the Uniform Securities Act, registration in State O is required if the client is A) a bank. B) a mutual fund. C) an issuer whose securities are involved in the transactions. D) employed by an insurance company.

D) employed by an insurance company. - Broker-dealers with no place of business in a state are not required to register in that state if their only clients in that state are institutions, such as banks, investment companies, and insurance companies. - When the client is the issuer of the security involved in the transaction, the exclusion also applies. - However, if there is even one noninstitutional (retail) client, regardless of the nature of the individual's employer, registration is required.

A broker-dealer is running a sales contest offering a bonus to any agent who sells a specified amount of a money market mutual fund. An agent is only a few sales short of reaching the target. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it is prohibited for the agent to A) ask the members of his golf foursome to purchase fund shares to help him reach the goal. B) participate in this contest. C) contact existing clients and suggest that they refer family members who might open accounts. D) imply that the money market fund is similar to a savings account.

D) imply that the money market fund is similar to a savings account. - NASAA has a special Statement of Policy dealing with unethical business practices related to investment companies. - One of the provisions considers it unethical to compare money market mutual funds to savings accounts. - The nature of money market funds is such that there generally would not be any suitability problems recommending friends or having clients ask others to open an account with you

Under the Uniform Securities Act, a person representing the issuer is not considered an agent in any of the following transactions except A) promissory notes, drafts, or bankers' acceptances with a maturity of nine months or less. B) investment contracts issued in connection with an employee's stock purchases, savings, pension, profit-sharing, or similar employee benefit plan. C) when the transactions are exempt. D) nonexempt, initial public offerings confined to a single state of registration.

D) nonexempt, initial public offerings confined to a single state of registration. - Persons who represent issuers of nonexempt securities in an offering of their securities, whether issues are confined to their state of registration or not, are agents under the USA. - An individual who represents an issuer in either the sale of certain exempt securities, such as short-term paper, or in an exempt transaction is excluded from the definition of agent.

Perpetual Investment Returns (PIR), a registered investment adviser in four states, has had no material changes to the information in its Form ADV Part 2 from the previous year. That means PIR is A) not required to deliver a copy of its brochure to those receiving impersonal advisory services at an annual charge of less than $500. B) not required to deliver a copy of its brochure to prospective and existing clients. C) required to deliver a copy of its brochure to existing clients within 120 days of the end of its fiscal year. D) not required to deliver a copy of its brochure to existing clients.

D) not required to deliver a copy of its brochure to existing clients. - The NASAA Model Rule dealing with investment adviser brochures states that if there are no material changes to the previous year's brochure (remember, Form ADV Part 2 is the basis of the brochure), the annual delivery requirement to existing clients is waived. - However, that does not affect new or prospective clients. - Obviously, they do not have last year's brochure. - It is true that those receiving impersonal advisory services at a cost of less than $500 per year do not require brochure delivery, but that does not answer the question. - The question focuses on the fact that there has been no material change during the year. - Even with material changes, those clients would not receive a brochure.

First Securities Advisers, Inc., a subsidiary of First Securities Broker-Dealers, Inc., requires customers to have a minimum of $250,000 under management and charges them 1% in advisory fees based on the amount of assets in their accounts. Clients also pay commissions for securities transactions in their accounts at First Securities Broker-Dealers, Inc. First Securities Advisers, Inc., has A) violated the prohibition against charging performance fees. B) violated the Uniform Securities Act by charging excessive advisory fees. C) violated the Uniform Securities Act by charging commissions in addition to advisory fees. D) not violated the prohibition against performance fees.

D) not violated the prohibition against performance fees. - First Securities Advisers, Inc., has not violated the prohibition against charging performance fees because it did not base its fees on a share of capital gains or losses in their clients' accounts. - First Securities charged on the basis of assets under management. - The 1% in advisory fees charged appears reasonable. - The commissions charged by the affiliated broker-dealer have nothing to do with the question. - The client would have to pay commissions wherever the transactions were executed.

A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately A) notify the Administrator. B) suspend the agent involved until the complaint is resolved. C) notify NASAA. D) reply to the client in writing.

D) reply to the client in writing. - When a broker-dealer (BD) receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. - Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received. - This is an internal matter and the BD has no reason to notify the Administrator. - There is no reason to immediately suspend an agent over a complaint—at least not until wrongdoing has been proven.

According to the Uniform Securities Act, a state-registered investment adviser may have custody of a customer's funds and securities if A) it does not share in the capital gains of the account. B) it has received permission from the SEC. C) it has received the permission of the Administrator. D) the Administrator has been informed of the custody.

D) the Administrator has been informed of the custody. - As long as retaining custody of funds is not prohibited, a state-registered investment adviser may have custody of a customer's account after providing notice to the Administrator. - Notice to the SEC is not required for federal covered advisers who maintain custody (but that will not be tested).

The Uniform Securities Act grants an Administrator a great deal of authority. Those powers include all of the following except A) the power to have the court appoint a receiver for the defendant's assets after the issuance of an injunction. B) the power to seek court orders for the payment of restitution against any violators of the act. C) the power to issue a cease and desist order with or without prior hearings. D) the power to impose fines for criminal violations of the act up to $5,000.

D) the power to impose fines for criminal violations of the act up to $5,000. - The Administrator does not have the power to invoke criminal penalties (three years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts. - The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing. - The Administrator may apply to a court for a temporary or permanent injunction, for restitution to investors, or to have the court appoint a receiver for a violator's assets, or refer charges to the state attorney general or district attorney for prosecution.

Which of the following are not included in the definition of an agent in the Uniform Securities Act? I A licensed broker-dealer II An officer of an issuer who only represents the issuer in selling shares to a broker-dealer underwriting the company's securities III An officer who represents an issuer of non-exempt securities in the sale of those securities to the public without receiving any compensation IV An employee of a broker-dealer whose only transactions are with institutional clients

I A licensed broker-dealer II An officer of an issuer who only represents the issuer in selling shares to a broker-dealer underwriting the company's securities - An agent is an individual—other than a broker-dealer—who represents a BD or issuer in securities transactions. - An officer—or any other employee—of a company who represents her company in transactions with an underwriter is not included in the term agent because the transaction is exempt. - In the case of those individuals, officer or not, who represent an issuer of non-exempt securities, registration as an agent is always required unless the transaction is exempt. - Compensation is only a factor when selling the issuer's securities to employees. An employee of a BD who engages in securities transactions with any clients, institutional or not, is an agent under the act.

Under the Uniform Securities Act, requirements for registration may include which of the following? I An announcement of the application for registration in one or more newspapers in the state II Minimum capital requirements for broker-dealers who do not have custody of client securities or funds III A surety bond for agents who have custody of client securities or funds

I An announcement of the application for registration in one or more newspapers in the state II Minimum capital requirements for broker-dealers who do not have custody of client securities or funds - A published announcement may be required by the Administrator. - The Administrator may also establish minimum capital requirements for broker-dealers, whether or not they maintain custody. - However, the Administrator may require a bond only of persons who have custody or discretion. - Agents may never have custody; only BDs and investment advisers are permitted to do so.

Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? I An office from which the representative regularly provides advisory services to clients II A location published in a professional directory, indicated on business cards, or found in a telephone book that identifies it as a place where the representative will be available to meet or communicate with clients III A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business IV A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business

I An office from which the representative regularly provides advisory services to clients II A location published in a professional directory, indicated on business cards, or found in a telephone book that identifies it as a place where the representative will be available to meet or communicate with clients III A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business - The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services; solicits, meets with, or otherwise communicates with clients; or any other location held out to the public as a location where the representative will do any of these activities. - The frequency of use is not a factor. - Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. - A hotel room is not included when it is not advertised and used only with existing clients, presumably when the adviser is traveling through their state.

Which of the following statements relating to notice filing are correct? I It is available only to federal covered securities. II A notice filing is effective for one year, beginning from the later of filing with the Administrator or the effective date determined by the SEC. III Renewal is accomplished by filing with the state a copy of records filed with the SEC, along with a signed consent to service of process. IV Failure to pay required fees could lead to the issuance of a stop order.

I It is available only to federal covered securities. II A notice filing is effective for one year, beginning from the later of filing with the Administrator or the effective date determined by the SEC. IV Failure to pay required fees could lead to the issuance of a stop order. - Notice filing is only available to securities that meet the definition of federal covered security. - Just as with other registrations under the act, a registration is effective for a one-year period. In this case, it is the later of the filing with the state or the SEC effective date that sets the clock. - The initial filing requires a consent to service of process that may be incorporated by reference into the renewals. - A consent to service of process need not be renewed annually because it remains on file. - Any time fees are not paid, the Administrator will take action.

Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following? I Permanent revocation of a registration II Bar from employment with any registrant III Restriction on a registrant's performance of any activity in the advisory or brokerage business

I Permanent revocation of a registration III Restriction on a registrant's performance of any activity in the advisory or brokerage business - Once the registrant is found guilty at a hearing, the Administrator is authorized to take any of the listed actions against a person's registration.

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

I a charge when a client requests that a stock certificate be issued in his name. III the interest charged by the firm on money owed by customers in their margin accounts. - If we know what charges are not included in the fee disclosure, it is easy to recognize those that are. There are three 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.

Examples of identity theft include I taking over an individual's credit card account. II applying for new credit cards in the compromised individual's name. III lending money in the name of the compromised individual. IV purchasing lottery tickets in the name of another individual.

I taking over an individual's credit card account. II applying for new credit cards in the compromised individual's name. - When an individual's identity is stolen, it is common to find that the thief takes over the current credit card accounts and also applies for new ones. - Identity thieves borrow money in the name of the compromised individual; they don't lend it, and although buying a lottery ticket in the name of someone else could help evade taxation on a big prize, the publicity attached to the winning ticket would certainly not be something the thief would relish.

An investment adviser maintains custody of customer's funds and securities. In order to comply with the Uniform Securities Act, the adviser must, at least quarterly, send written notice to each custodial client stating I the location of the assets under custody. II the changes to the location of the assets under custody. III the amount of prepaid fees to be refunded upon early termination of the contract. IV the value of the assets under custody.

I the location of the assets under custody. IV the value of the assets under custody. - Under both state and federal laws, investment advisers maintaining custody of customers' funds and securities must notify their clients no less frequently than quarterly of the location of the assets and their value. - If there should be a change to their location, it must be communicated promptly

A person registering as a broker-dealer with the Administrator must disclose its form of business organization. Which of the following are permitted forms? I Sole proprietorship II Corporation III Partnership IV Limited liability company (LLC)

I, II, III, IV - Although it is very rare to find a broker-dealer structured as a sole proprietorship, it is a permitted form of business structure (along with all of the other choices).

Which of the following are exempt from state registration? I A bond issued by the city of San Jose, Costa Rica II An isolated nonissuer transaction III A transaction by an administrator of an estate IV A transaction with no commissions, directed by the offeror over the period of one year, to no more than 50 retail investors in the state who buy the security for investment purposes only

II An isolated nonissuer transaction III A transaction by an administrator of an estate - Isolated nonissuer transactions and transactions by an administrator of an estate are included in the list of exempt transactions. - With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities. - Perhaps you read too quickly and thought it was San Jose, California (which would be exempt). - There is a limited-offering exemption, but it is limited to no more than 10 retail (noninstitutional) investors in a 12-month period.

As defined in the Uniform Securities Act, the term exempt security would apply to which of the following? I The sale of a municipal bond to an insurance company authorized to do business in this state II Bonds issued by the local electric power company III The purchase of a U.S. Treasury bill by an investment company registered under the Investment Company Act of 1940 IV Equipment trust certificates issued by a railroad engaged in interstate commerce

II Bonds issued by the local electric power company IV Equipment trust certificates issued by a railroad engaged in interstate commerce - Securities issued by regulated public utilities and common carriers are exempt under the Uniform Securities Act. - The sale of a security to an insurance company and the purchase of a Treasury bill by an investment company are exempt transactions involving exempt securities. - You must be able to differentiate between an exempt security and an exempt transaction. - The key word is transaction. In order for it to be an exempt transaction, there has to be an action—either a purchase or a sale.

The Administrator may, by rule or by order, prescribe the filing of financial reports by which of the following persons registered in his state? I Agents II Broker-dealers III Investment advisers

II Broker-dealers III Investment advisers - Only broker-dealers and investment advisers are required to file financial reports. Unlike a BD or IA, agents (or IARs) have no financial reporting requirements. - It is the business entity, not the employees, whose financial records are of interest to the regulators.

Under the Uniform Securities Act, if an investment adviser takes custody of client assets, which of the following statements are true? I Clients must receive monthly statements. II Clients must receive quarterly statements. III The adviser must be audited at least annually. IV The adviser must be audited at least semiannually.

II Clients must receive quarterly statements. III The adviser must be audited at least annually. - If an investment adviser (IA) takes custody of client assets, those assets must be segregated from those of the IA. - Clients must be sent statements quarterly, and the IA must be audited at least annually by an independent accountant.

According to the Uniform Securities Act's rules for an investment adviser with custody of customer assets, which of the following statements are true? I The Administrator must give written approval before the investment adviser may hold customer assets in custody. II Customer assets must not be commingled with assets of the investment adviser. III An investment adviser who has discretion over customer accounts is deemed to have custody. IV Every three months, the investment adviser must send an itemized account statement to each customer whose assets are held in custody.

II Customer assets must not be commingled with assets of the investment adviser. IV Every three months, the investment adviser must send an itemized account statement to each customer whose assets are held in custody. - Customer assets held in custody by an investment adviser (IA) must be segregated, and the firm must send a statement every three months. - If there is no rule prohibiting custody, the Administrator must be notified that the IA has custody; approval is not necessary. - Discretion is not the same as physical custody.

Under the Uniform Securities Act, the term person would include any natural person who has a I valid U.S. passport. II a political subdivision. III an unincorporated association. IV an inter vivos trust.

II a political subdivision. III an unincorporated association. IV an inter vivos trust. - The term person has an extremely broad definition. - It is best to remember the three things that are not persons: minors, individuals who have been judged incompetent, and deceased individuals. - Minors can have passports; any natural person would include them and they are not persons under the act.

Which of the following is NOT a violation of the Uniform Securities Act? I. An investment advisory partnership admits an economist to a major partnership position without announcing the appointment to the general public or communicating the change to clients who invest funds with the partnership. II. An investment advisory partnership severs a majority partner from the firm without informing the general public or clients who invest funds with the partnership. III. A brokerage corporation that manages client funds on a discretionary basis hires a prominent portfolio manager to oversee discretionary accounts without informing clients or the investing public. IV. An investment advisory partnership assigns accounts to another firm when the accounts fall below a minimum level. The assigned accounts are informed of the assignment by the new investment adviser.

III A brokerage corporation that manages client funds on a discretionary basis hires a prominent portfolio manager to oversee discretionary accounts without informing clients or the investing public. - The Uniform Securities Act requires that clients be notified of a change in minority interest within a partnership. - It also requires that clients consent to maintaining their accounts upon a change of majority interest in a partnership. - Also, client's accounts cannot be assigned to other investment advisers without consent prior to doing so

Which of the following would be required to register as an agent under the Uniform Securities Act? I An officer of a broker-dealer who does not deal with customers or supervision of sales II A director of a broker-dealer who is not involved in day-to-day operations III A trader who is authorized to handle customer orders IV An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades

III A trader who is authorized to handle customer orders IV An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades - An agent is an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. - Prequalifying clients requires registration. - Officers and directors are not agents if they are not involved in the transactions of securities with the public. - Under the USA, even though the term principal may be used to refer to a supervisory person, there is no separate registration category for these people. - They are licensed as agents, just like you.

An investment adviser is preparing an advertisement. Which of the following would be acceptable? I An endorsement on radio or TV from a celebrity who is a client of the firm II Identifying the firm's best investment recommendations for the past 6 months III Offering to provide the firm's investment recommendations for the past 12 months IV Promoting the firm's system of charts and formulas while mentioning their limitations and difficulties

III Offering to provide the firm's investment recommendations for the past 12 months IV Promoting the firm's system of charts and formulas while mentioning their limitations and difficulties - Any mention of investment recommendations in any adviser advertisement must always include all recommendations (not just good ones) made over the course of the last 12 months. - If the adviser uses charts or formulas, any mention of them must always include a statement to the effect that they have limitations and may be difficult to use. Now it gets tricky. - There is a distinction between a testimonial and an endorsement. That is, clients of the firm give testimonials. - Endorsements are given by third parities who do not have an account relationship with the investment adviser but who are being paid to say nice things. - Will the exam be this tricky? We don't know, but it is good to be prepared just in case.

National Securities Markets Improvements Act of 1996 Purpose...

- The NSMIA's purpose is to eliminate dual registration - The Uniform Securities Act is not the actual law of any state or territory. - Rather, it is model legislation that states use as a guide in drafting their own securities laws. - Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. - The Series 63 exam's content is the responsibility of NASAA.

Unless qualifying for an exemption, which of the following advisory fee structures is not allowed under the Uniform Securities Act? A) Fees based on a fixed dollar schedule tied to the value of funds under management B) Fees based on a percentage of the change in value of funds from quarter to quarter C) Fees based on a percentage of the aggregate value of funds under management D) Fees based on an hourly rate

B) Fees based on a percentage of the change in value of funds from quarter to quarter - Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. - The other choices are acceptable fee structures.

Magnum Manufacturing Company (MMC) wishes to raise capital through a public offering of its common stock. When filing the required paperwork with the Administrator, MMC is legally referred to as A) the applicant. B) the registrant. C) the petitioner. D) the filer.

B) the registrant. - When an issuer files the registration papers with the Administrator, the USA refers to that person as the registrant. - Any person wishing to register in any capacity, whether a broker-dealer, investment adviser, agent, or investment adviser representative, is legally referred to as the registrant.

A broker-dealer registered in State X has several clients in State Y. If the firm does not have a place of business in State Y, the firm would avoid the need to register in State Y if its only clients in the state are A) individual family members of the broker-dealer's CEO. B) trust companies. C) registered investment advisers. D) trusts.

B) trust companies. - The Uniform Securities Act provides that a broker-dealer with no place of business in a state is not defined as a BD in that state if its customers are exclusively institutional investors or other BDs. - Banks, including trust companies, are in the list of institutional investors. - A trust and an investment adviser are not in the listing of qualifying institutions. - An individual family member of the officer of a BD is not an institutional investor and does not exempt the BD from the state's registration requirements.

Under the Uniform Securities Act, registration by coordination becomes effective A) in 10 days. B) when the registration with the SEC becomes effective. C) in 30 days. D) immediately.

B) when the registration with the SEC becomes effective. - Registration by coordination becomes effective at the same time it is released (made effective) by the SEC, provided it was filed with the Administrator (in most states) at least 10 days before the SEC effective date.

The Uniform Securities Act defines an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities as A) a securities salesperson. B) a financial advisor. C) an agent. D) a registered representative.

C) an agent. - It is FINRA and the SEC who use the term registered representative. The USA always refers to this individual as an agent.

If a state-registered investment adviser moves to another location, the Administrator must be notified A) within 30 days. B) within 7 days. C) within 15 days. D) promptly.

D) promptly. - An address change must be communicated promptly to the Administrator.

The NASAA Model Brochure Rule for investment advisers states that delivery of the brochure and related brochure supplements need not be made to I clients who receive only impersonal advice and who pay less than $500 in fees per year. II individual clients meeting the definition of accredited investor. III an investment company registered under the Investment Company Act of 1940. IV an employee benefit plan with assets in excess of $1 million.

I clients who receive only impersonal advice and who pay less than $500 in fees per year. III an investment company registered under the Investment Company Act of 1940. - The brochure rule creates exemptions from the delivery requirement in two cases. - The first is when the service rendered meets the definition of impersonal advisory services and the annual fee is less than $500. - The other is when the advisory contract is with a registered investment company such as a mutual fund.

Securities issued by which of the following are exempt from registration? I Any savings and loan association organized under the laws of any state II Any bank organized and supervised under the laws of any state III Any bank organized under the laws of the United States IV Any federal credit union

II Any bank organized and supervised under the laws of any state III Any bank organized under the laws of the United States IV Any federal credit union - The securities issued by national banks, state-chartered banks, and federal credit unions are exempt from registration under the USA. - Federal savings and loan associations are as well. - But those savings and loan associations organized under state laws are only exempt if the S&L is authorized to do business in this

The Uniform Securities Act excludes from the definition of agent individuals who represent certain issuers in the sale of their securities. An individual representing which of the following issuers does not qualify for that exclusion? A) A federally chartered credit union B) A savings institution organized and supervised under the laws of any state C) A Canadian province D) A bank organized under the laws of the United States

A) A federally chartered credit union - All of these securities are included in the Uniform Securities Act's listing of exempt securities. - However, the exclusion granted to individuals representing issuers of exempt securities does not apply to every exempt security. - One of the categories missing from the list of those eligible is credit unions, whether they be under federal or state regulation.

The Administrator of State X receives a phone call warning that, within the next couple of weeks, a scam is going to be perpetrated in his state by someone from State Y. The tipster even supplies the Administrator with names of people who will be involved and ends the conversation by telling the Administrator that he himself is a resident of State Z. Which of the following would most likely be done? A) The State X Administrator would immediately begin an investigation. B) The State X Administrator would contact a court of competent jurisdiction to obtain an injunction. C) Because several states are involved, the Administrator must turn this information over to the SEC. D) The State X Administrator would publish a warning to all residents.

A) The State X Administrator would immediately begin an investigation. - It's the old saying, "Where the Administrator smells smoke, he can go looking for the fire."

Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser? A) DEF Fund managers, a corporation managing an unregistered hedge fund with $10 million in assets B) GHI Consultants, a sole proprietorship, managing $89 million belonging to high-net-worth individuals C) ABC Money Managers, a partnership with $385 million under management D) Retire in Luxury Pension Plan Consultants advising several corporate retirement plans with combined total assets of $145 million

C) ABC Money Managers, a partnership with $385 million under management - It makes no difference what the structure of the adviser is. As long as the assets under management are $110 million or more, SEC registration is required. - If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered, regardless of size. - The hedge fund is an unregistered fund, so the rule does not apply to it. - Under the Dodd-Frank Act, the pension consultant must have $200 million under management to be eligible to be federal covered

Under the Uniform Securities Act, all of the following are included in the definition of the term exempt transaction except A) a sale of unregistered nonexempt securities in an unsolicited transaction. B) a sale of securities to a bank. C) a sale of securities to an individual investor with a net worth of more than $5 million. D) a sale of nonexempt securities to a broker-dealer.

C) a sale of securities to an individual investor with a net worth of more than $5 million. - Unless there was something specified in the question or the answer choice to indicate that the transaction met one of several specific conditions (e.g., isolated nonissuer, fiduciary, unsolicited, and so forth), sales to individuals, regardless of their wealth, are not exempt transactions. - If the transaction is truly unsolicited (and the Administrator has the power to verify that), it is an exempt transaction. - Transactions with financial institutions such as banks, savings and loans, and insurance companies are exempt. - Although not specifically a financial institution, the USA also considers sales to broker-dealers to be exempt transactions.

A very conservative client has a small retirement account. Which of the following would be inappropriate for this account? A) Investing in exempt securities B) Following a model conservative portfolio C) Performing a reallocation of assets on an annual basis D) Excessive trading

D) Excessive trading - Good test-taking techniques make this question a snap. - The word excessive always implies something wrong. - In this case, churning the account would be improper. - NASAA frequently omits critical words in their questions. - For example, what does investing in exempt securities really mean? - To NASAA, it means government securities or similar high-quality, safe investments. - The truth is, there are certain exempt securities that can carry too much risk for this investor, but you have to play NASAA's game and answer it the way they want.

Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser except A) a federal covered adviser. B) broker-dealers and their agents. C) banks. D) a person in the business of providing advice on municipal bonds for compensation.

D) a person in the business of providing advice on municipal bonds for compensation. - Although municipal bonds are exempt securities, that only refers to their exemption from registration with the state or SEC. - Any person who is in the business of giving advice on securities would be defined as an IA and, therefore, would require registration. - Although most federal covered advisers meet the general definition of an investment adviser, federal covered advisers are specifically excluded from the definition in the Uniform Securities Act. - That is why covered advisers do not have to register with the Administrator.

An agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be I unsuitable and unethical. II a securities felony. III grounds, in extreme cases, for suspension or revocation of the agent's license. IV outside regulatory jurisdiction.

I unsuitable and unethical. III grounds, in extreme cases, for suspension or revocation of the agent's license - 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.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? I They must be renewed on an annual basis. II They must describe the amount of any prepaid fees that will be returned to the client in the event the contract is terminated. III They must prohibit the use of discretion without the client's authorization.

II They must describe the amount of any prepaid fees that will be returned to the client in the event the contract is terminated. III They must prohibit the use of discretion without the client's authorization. - There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. - An advisory contract must describe the amount of any prepaid fees that will be returned to the client if the contract is terminated and must prohibit discretion without the client's consent.

A broker-dealer with an office in this state must register as an investment adviser if it charges I commissions for selling securities. II commissions for selling securities while offering investment advice incidental to the sale of the securities. III a fee for selling investment research and additional fees in the form of commissions for the sale of securities. IV fees for investment research sold exclusively to institutions located in this state

III a fee for selling investment research and additional fees in the form of commissions for the sale of securities. IV fees for investment research sold exclusively to institutions located in this state - A broker-dealer must register as an investment adviser if it charges a fee for selling investment research or any other form of investment advice, even to institutions. - If a person is in the business of selling research for a fee, that person or firm must register as an IA. - If a BD charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the BD need not register as an IA because it is not compensated for the research.

In which of the following situations is an agent committing a prohibited practice? A) Accepting an order from the customer's brother to purchase a security in the customer's 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) Accepting a customer's order to purchase an unregistered nonexempt security D) Buying a security on one exchange and simultaneously selling it on another to take advantage of a price disparity

A) Accepting an order from the customer's brother to purchase a security in the customer's account while awaiting written receipt of trading authority - Written receipt of trading authority is required before conducting any trade on an order entered by someone other than the customer. - 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. - Even though the security is nonexempt and is unregistered, this is an unsolicited order, and that makes it an exempt transaction.

On the Series 63 exam, the term solicitor is used to describe persons who refer business to A) investment advisers. B) agents. C) institutions. D) broker-dealers.

A) investment advisers. - As found in the Uniform Securities Act, and therefore relevant to this exam, solicitors are persons who refer business to investment advisers. - There is no comparable term for those referring business to broker-dealers and their agents.

Which of the following must register as an agent? A) An employee of the Fed whose job is selling Treasury bonds to the public B) An individual representing a broker-dealer who sells commercial paper C) An individual who is paid a commission to sell FDIC-insured certificates of deposit for ABC National Bank D) An individual who sells commercial paper for ABC National Bank

B) An individual representing a broker-dealer who sells commercial paper - An individual who represents a broker-dealer selling commercial paper must register under the USA. Though the securities (commercial paper) are exempt, the representative must be registered as an agent of the BD. - An individual who sells commercial paper for ABC National Bank would not have to register because the bank is excluded from the definition of broker-dealer. - An employee of the federal government need not register with the state because he represents an issuer of exempt securities. - An individual who is paid a commission to sell certificates of deposit for a commercial bank does not have to register as an agent because he is not selling a security.

Which of the following individuals would meet the definition of agent as stated in the Uniform Securities Act? A) Judy is representing the Dominion of Canada in the sale of a 20-year bond. B) James is representing the Main Street Savings and Loan Association of Columbia. C) Jose is representing the government of Guatemala in the sale of an 8-year note. D) Jill is representing the Broad Street Savings Institution of Columbus.

B) James is representing the Main Street Savings and Loan Association of Columbia - In certain cases, individuals representing the issuer in the sale of its securities are not defined as agents. - That would be the case if the issuer is included in the specific group of issuers of exempt securities listed in the USA (and your LEM). - Issues of the Dominion of Canada, as well as of foreign governments with which the U.S. has diplomatic relations, are in the group. **So are banks and savings institutions, but not savings and loan or building and loan associations.**

If Wallace resigned his position as an agent with Rockland Securities to work for Gibraltar securities, which of the following parties must notify the Administrator of Wallace's move? A) Rockland Securities B) Wallace, Rockland, and Gibraltar C) Gibraltar Securities D) Wallace

B) Wallace, Rockland, and Gibraltar - When an agent with one broker-dealer resigns and affiliates with another, both BDs and the agent must notify the Administrator of the change in registration. - Notification is accomplished by filing Forms U5 and U4 with FINRA's Central Registration Depository (CRD).

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) select another broker-dealer and open the account there. B) not place any assets in the account until it is provided. C) go ahead with the account opening but refrain from trading until its receipt. D) promptly notify the Administrator of the firm's failure to comply.

B) not place any assets in the account until it is provided. - It is proper for fees to be disclosed at the time a customer account is opened. - If not presented, 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 into the account until it is provided. NASAA believes that clients have the right to know the fees in advance. - Please note that this is only a recommendation from NASAA; it is not a rule and investors are free to choose to ignore it.

As defined in the Uniform Securities Act, which of the following persons is included in the term agent? A) An individual who represents an issuer in an exempt transaction B) An individual who sells to public investors the sovereign debt securities of a foreign government with which the United States has diplomatic relations in the capacity of an employee of that government C) An individual, employed by a broker-dealer, who sells NYSE-listed securities exclusively to institutional clients D) A broker-dealer who sells registered securities to the general public

C) An individual, employed by a broker-dealer, who sells NYSE-listed securities exclusively to institutional clients - An agent, under the Uniform Securities Act, is a person (an individual) who sells securities to both retail and institutional members of the public. - The term agent is not applicable to a person who represents an issuer in an exempt transaction or in the sale of certain exempt securities, such as those issued or guaranteed by a foreign government with which the United States has diplomatic relations. - The term agent specifically excludes broker-dealers.

One way that a financial institution participates in the fight against money laundering is through the filing of A) FBI Form FD-772. B) IRS Form 1040ML when money laundering is suspected. C) FinCEN Form 104 for large deposits. D) FinCEN Form 112 for large cash transactions.

D) FinCEN Form 112 for large cash transactions. - The form filed with the Financial Crimes Enforcement Network (FinCEN) is Form 112. - It replaced Form 104 years ago, and there is no IRS Form 1040ML. - FBI Form FD-772 is a foreign-travel request form for FBI agents.

An investment adviser would be exempt from registration under the Uniform Securities Act if it had no place of business in this state and its only clients were I banks. II insurance companies. III registered investment companies. IV other investment advisers.

I banks. II insurance companies. III registered investment companies. IV other investment advisers. - As long as the investment adviser does not maintain a presence in this state and its only clients are broker-dealers, other IAs, or institutional clients, it is exempt from registration in this state. - Indeed, if its only clients are registered investment companies, it must register with the SEC and is a federal covered IA.

Before taking any disciplinary action, with respect to a registration under the Uniform Securities Act, the Administrator must always do which of the following? I Obtain the approval of the appropriate state court. II Find that the action is in the public interest. III Cite a cause listed in the act.

II Find that the action is in the public interest. III Cite a cause listed in the act. - Disciplinary actions, with respect to registration, may be taken by the Administrator after a finding of public interest and cause. - Court orders are required only for legal action, such as seeking an injunction or appointment of a receiver over an adviser's assets.

Pinnacle Asset Management (PAM) is an SEC-registered broker-dealer. PAM is also registered in more than 25 states. The net capital rule of the SEC requires PAM's net capital to be at least $50,000, and at its most recent calculation, it had net capital of $58,000. One of the states where PAM is registered has a bonding requirement of $60,000. To be in compliance, A) PAM would not be required to post a surety bond. B) PAM would need to post a surety bond of $50,000. C) PAM would need to post a surety bond of $60,000. D) PAM would need to post a surety bond of $63,000.

A) PAM would not be required to post a surety bond. - The first thing to remember is that no state can require bonding or financial requirements in excess of those of the SEC. - A state with a higher bonding requirement can apply that only to broker-dealers who are not SEC registered. - The second point is that any SEC-registered BD whose net capital exceeds the SEC's requirement has no obligation to post a surety bond.

When an Administrator acts summarily to suspend the registration of a security, which of the following statements is true under the Uniform Securities Act? A) The registrant must be promptly notified of the action and given an opportunity for a hearing. B) The suspension will not go into effect until after a hearing. C) Broker-dealers may only accept unsolicited orders during the period of suspension. D) A hearing must be held within 10 days of written request by the registrant.

A) The registrant must be promptly notified of the action and given an opportunity for a hearing. - Acting summarily means acting without prior notice. - An Administrator who has grounds may postpone or suspend a registration by issuing a stop order. - The registrant must be promptly notified of the action and of the opportunity for a hearing. - The hearing must be held within 15 days of a written request, and the suspension will remain in effect until final disposition. - Even though unsolicited orders are exempt transactions, once a registered security has been the subject of a summary suspension, all trading in that security is halted.

The Uniform Securities Act does not grant the Administrator the authority to commence an action against a broker-dealer registered in her state based upon A) a shareholder, with no management role in the broker-dealer, being unable meet his financial obligations as they come due. B) discovering the firm has liabilities that exceed its assets. C) learning that nine years ago, the Administrator of another state found that the president of the firm violated the securities laws of that other state. D) suspicion that the broker-dealer has violated the securities laws of her state.

A) a shareholder, with no management role in the broker-dealer, being unable meet his financial obligations as they come due. - An Administrator cannot bring an action against a broker-dealer (BD) organized as a corporation because one of its shareholders is financially unstable. - Even if the individual had a management role in the BD's operations, it would be unlikely the Administrator would take action against the firm, only the individual. - Violation of another state's securities laws within the past 10 years by the president of the firm might be cause for action against a BD; so is insolvency of the firm, defined as having liabilities in excess of one's assets or the inability to meet financial obligations as they come due. - Most actions begin with suspicion of wrongdoing; that is why the Administrator has the power to investigate and subpoena witnesses.

A type of fraud using social media where the fraudster pretends to be a member of a group, sometimes using respected leaders of the group to spread the word about the scheme, is known as A) affinity fraud. B) relationship fraud. C) ethnic fraud. D) group fraud.

A) affinity fraud. - This is a classic definition of how affinity fraud operates. Although it is frequently aimed at ethnic groups, there is no such term as ethnic fraud.

According to the Uniform Securities Act, the investment adviser brochure must include the business backgrounds of A) each member of the investment committee or group that determines general investment advice to be given to clients. B) affiliated broker-dealers. C) all employees of the adviser. D) institutional clients.

A) each member of the investment committee or group that determines general investment advice to be given to clients. - The business backgrounds of these key individuals must be included in Part 2 of Form ADV and in the disclosure brochure. - The business backgrounds of other employees, affiliated broker-dealers, and institutional clients need not be included in the brochure.

An individual functioning as an investment adviser representative for a federal covered adviser with no place of business in this state would be required to register in this state if A) he conducts frequent public seminars in the state. B) he has a time-share in the state. C) he deals only with investment companies located in the state. D) the investment adviser has a small office in the state.

A) he conducts frequent public seminars in the state. - One of the provisions dealing with federal covered investment advisers is that states have no registration jurisdiction over their investment adviser representatives unless the IAR has a place of business in the state. - It makes no difference what kind of clients the IAR serves. Under the Uniform Securities Act, conducting seminars open to the public in a state is considered to be having a place of business in the state. - A time-share or vacation home has nothing to do with the IAR's advisory service. - The fact that the employer, the IA, has an office in the state, is of no relevance to the IAR.

Under the Uniform Securities Act, the Administrator has the power to do all of the following except' A) indict offenders. B) subpoena witnesses. C) administer oaths. D) take evidence.

A) indict offenders. - The Administrator has the power to administer oaths, subpoena witnesses, and take evidence. - The Administrator also has the power to compel testimony and require the production of books and records. - However, while the Administrator is authorized to refer violations for possible criminal prosecution, the actual powers of criminal prosecution belong to others. **For example, indicting offenders is the function of a grand jury.**

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

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

Under the Uniform Securities Act, all of the following issues would be exempt from registration except A) stock issued by an insurance company not offering policies in this state. B) stock issued by a savings and loan association authorized to do business in this state. C) bonds issued by the city of New Orleans. D) an investment contract issued in connection with an employee stock purchase plan.

A) stock issued by an insurance company not offering policies in this state. - Had the insurance company been authorized to do business in this state, its securities offering would be exempt.

Omega Tav Securities (OTS), a FINRA member broker-dealer, is registered in seven southern states. Regarding financial requirements, OTS must meet those of A) the SEC. B) the state in which the most agents are registered. C) the state in which the principal office of the member is located. D) the state where most of the firm's clients reside.

A) the SEC. - In all cases, a broker-dealer member of FINRA is also registered with the SEC. - As such, when it comes to financial requirements, bonding, recordkeeping, and so forth, the SEC's requirements always trump those of the states.

One of your customers has inherited 2,000 shares of Shortline Railroad guaranteed preferred stock. Being wary of the term guaranteed, you are asked for its meaning in this context. You would explain that A) the dividend payments on this stock are guaranteed by someone other than the issuer. B) the dividends on this stock are guaranteed to increase to keep pace with inflation. C) the dividends on this stock are guaranteed by the Shortline Railroad. D) shareholders are guaranteed against loss of principal.

A) the dividend payments on this stock are guaranteed by someone other than the issuer. - The Uniform Securities Act defines a guaranteed security as one whose interest and principal (if a debt security) and dividends (if an equity security) are guaranteed by someone other than the issuer. **However, in the case of a stock, there are no guarantees to the capital value.**

An agent submits a list of recommendations to a customer that includes five different securities on the broker-dealer's current list of favorite investments. The customer chooses to buy a round lot of one of the five securities recommended (a stock in which the agent's broker-dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act? A) No, the markup schedule is set and cannot be changed for an individual trade. B) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. C) Yes, markup schedules are dependent upon the type of security, broker-dealer risk, services that the broker-dealer provides, and effort in acquiring the security. D) Yes, it is allowable, but proper disclosure is required.

B) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. - Higher than average markups or commissions are not prohibited if they are justifiable and disclosed. - However, in this case, there would appear to be no justification because the customer bought a round lot, the normal trading unit of stock. - The firm is a market maker, so the security is being sold from their inventory and the stock is on the company's recommended list.

Under the Uniform Securities Act, all of the following are securities except A) a real estate investment trust. B) a trade confirmation for the purchase of 100 shares of a listed common stock. C) a put or call traded on a national exchange relating to foreign currency. D) a bank-issued certificate representing an interest in a foreign security.

B) a trade confirmation for the purchase of 100 shares of a listed common stock. - A confirmation of a securities trade is not a security; it is merely a document that verifies trade information. - Puts, calls, or other options traded on major exchanges that relate to foreign currency are securities under the act. - A certificate issued by a bank representing ownership in a foreign security, better known as an American depositary receipt (ADR), is a security.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent could not A) open a joint account with a family member. B) borrow money from a client pursuant to a written agreement with the client and with the permission of the broker-dealer. C) select the specific security to be purchased in a discretionary account. D) sell shares of a new issue to a client.

B) borrow money from a client pursuant to a written agreement with the client and with the permission of the broker-dealer. - The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents is quite clear that agents can borrow money only from a client who is in the money-lending business, such as a bank or credit union.

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under current regulations, this activity requires written A) consent of and disclosure to the client before the execution of the transaction. B) disclosure to the client and consent prior to completion of the transaction. C) disclosure to the client. D) consent of the client.

B) disclosure to the client and consent prior to completion of the transaction. - Unlike broker-dealers, investment advisers must obtain the consent of and make written disclosure to the client of the intent to act as agent or principal in any transaction with that advisory client. - SEC Release IA-1732 requires that this be accomplished before the completion of the transaction, where completion is defined as the settlement date. - The client consent may be oral or written

The Uniform Securities Act is A) a series of regulations applying to securities transactions in interstate commerce. B) model legislation passed in 1956 in an effort to unify state securities laws. C) model legislation passed in 1956 that enabled states to dispense with the need to create their own securities laws. D) the prototype used by the SEC for developing federal securities laws.

B) model legislation passed in 1956 in an effort to unify state securities laws. - In 1956, the National Conference of Commissioners on Uniform State Laws (NCCUSL), a national organization of lawyers devoted to unifying state laws, drafted the original Uniform Securities Act (USA) as model legislation for the separate states to adopt. - It is used as a template, but each state legislature must approve of the specific laws in effect in that state. - Interstate commerce involves the SEC and the USA has no impact on federal securities regulations.

Some registered investment advisers are federal covered, while others register on a state-by-state basis. In the case of a state-registered investment adviser having its only office in State O with no offices in any other state, the authority of the office of the Administrator would include A) requiring the IA to renew its consent to service of process when paying the annual fee. B) requiring IARs to pass a qualification exam. C) requiring each IAR to provide a statement of financial condition. D) the Administrator of State I requiring registration of IARs who make telephone calls to residents of State I.

B) requiring IARs to pass a qualification exam. - As you know from being here right now, this test is required by the Administrator. - What about the State I Administrator? Well, maybe the IARs are making five or fewer calls in any 12-month period. - Maybe they are calling institutional clients domiciled in State I. - In any event, if you have to choose between an answer that is 100% right all of the time (qualification exams) and one that is right only under certain conditions, go for the 100%.

An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several that she feels are equally suitable for the client, but one of the companies is offering a trip for two to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent A) will probably be disciplined for failure to disclose the potential conflict of interest. B) should pack her bags for the trip; she earned it. C) should only sell what is suitable for the client based on all available information. D) should pack her bags and leave the firm before the compliance department learns of her actions.

B) should pack her bags for the trip; she earned it. - The annuity recommended by the agent is offering an incentive. - The agent is clearly disclosing that fact to the client, and if the client goes ahead and makes the purchase, it is with full knowledge of the potential conflict of interest. - The question states that the agent considers this annuity, along with others, to be suitable.

The SEC rule designed to safeguard customer securities and funds held by a broker-dealer and to prevent investor loss or harm in the event of a broker-dealer's failure is A) the Customer Safeguard Rule. B) the Customer Protection Rule. C) the SIPC insurance program. D) the SEC Net Capital Rule.

B) the Customer Protection Rule - On the exam, the assumption is that every broker-dealer is registered with the SEC as well as the appropriate states. - That is why so much of broker-dealer regulation is based upon SEC rules. - SEC Rule 15c3-3 (not tested by number) is better known as the Customer Protection Rule. - If a broker-dealer is forced into liquidation (liabilities exceed assets), the rule protects customers by ensuring the BD will have sufficient assets to meet obligations to customers for securities and funds. - Protection for securities is through the requirement to maintain possession or control of customer's securities. - Protection for funds is accomplished by requiring every covered BD to maintain a special reserve account solely for the benefit of customers. - There are no specifics asked on the exam, only the general knowledge of what the rule is about.

An investment adviser registered with the state who maintains custody of customer funds and securities is generally required to provide the Administrator with a surety bond in the minimum amount of $35,000. The bond provides protection to advisory clients when A) the investment adviser is operating at a loss. B) the investment adviser or one of its representatives converts customer funds for personal use. C) the Administrator in one of the states where the investment adviser does business determines that the firm is not properly registered in that state. D) a customer following recommendations made by the investment adviser loses more than the fees charged for the advice.

B) the investment adviser or one of its representatives converts customer funds for personal use. - A surety bond is a form of insurance policy protecting customers of an investment adviser from losses due to the IA or one of its IARs committing a criminal act, such as theft of a customer's money. - It has nothing to do with losses in the market or the advisory firm losing money.

An agent licensed in Illinois, Missouri, and Iowa has a client move from Chicago to Detroit on July 1, 2020. On September 1 of that year, he buys 100 shares of a nonexempt security in a nonexempt transaction. On August 1, 2021, the client discovered that the agent's firm never licensed him in Michigan; therefore, he is subject to civil liability to the purchaser. The statute of limitations for this sale runs out A) August 1, 2024. B) September 1, 2022. C) August 1, 2023. D) September 1, 2023.

C) August 1, 2023. - The statute of limitations for civil liability is the earlier of three years after the date of the sale or two years after discovery of the violation. - In this case, the earliest date is two years after the discovery date of August 1, 2021, which is August 1, 2023.

Which of the following individuals would meet the definition of agent as stated in the Uniform Securities Act? A) Luz is representing the government of Peru in the sale of bonds with a 30-year maturity. B) Larry is representing the Third First National Bank in the sale of a new bond to raise operating capital. C) Lisa is representing the Bailey Brothers Building and Loan Association in the sale of a new issue of its stock. D) Lorne is representing the U.S. Treasury in the sale of 5-year notes.

C) Lisa is representing the Bailey Brothers Building and Loan Association in the sale of a new issue of its stock. - In certain cases, individuals representing the issuer in the sale of its securities are not defined as agents. - That would be the case if the issuer is included in the specific group of issuers of exempt securities listed in the USA (and your LEM). - Issues of the U.S. Treasury as well as foreign governments with which the U.S. has diplomatic relations are in the group. **So are banks and savings institutions, but not savings and loan or building and loan associations.**

Different types of accounts have different times for receipt of customer information. Which of the following does not correctly state the required time for the specified account? A) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. B) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. C) Margin account agreements must be received before the first margin trade in the account. D) The options account agreement must be received within 15 days after the customer's account has been approved.

C) Margin account agreements must be received before the first margin trade in the account. - The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. - All of the other choices are correct regarding the relevant time of receipt.

A natural person with at least $5 million in investments meets the definition of A) an accredited investor. B) a qualified client. C) a qualified purchaser. D) an institutional investor.

C) a qualified purchaser. - When it happens that more than one choice could be correct, you must always choose the one that most accurately defines the question. - Although an individual with $5 million in investments would probably meet the requirements of a qualified client or an accredited investor, the more specific answer is the qualified purchaser. - That is the only choice where there is a $5 million minimum. Individuals are never institutions.

The Uniform Securities Act refers to a broker-dealer by using the language any person. Although that is a broad term, it would be unusual to find a broker-dealer structured as A) a corporation. B) a partnership. C) a sole proprietorship. D) a limited liability company (LLC).

C) a sole proprietorship. - While legally permitted, it is very rare to find a sole proprietorship broker-dealer. - At last count, less than 5 of the 3,000+ BD members of FINRA are sole proprietorships. - There are a number of legal and operational reasons for that, but none are testable.

A program under which a client is charged a specified fee or fees, not based directly on transactions in the client's account, for investment advisory services and execution of client transactions is A) an advisory account program. B) a mutual fund. C) a wrap fee program. D) a managed account.

C) a wrap fee program. - Wrap fee programs are offered by broker-dealers who are also registered as investment advisers. - The programs wrap together the primary services offered by each type of professional. - IAs get paid for giving advice and - BDs get paid for executing transactions. - When the charges for these two activities (plus several others) are wrapped into a package with a fee, generally based on the size of the account, it is a wrap fee account or wrap fee program. - There is such a thing as a managed account, but it is somewhat different and is unlikely to be a correct answer on the exam.

The Uniform Securities Act considers all of the following to be investment advisers subject to registration in the state except A) an investment adviser with no place of business in the state who advises wealthy retail customers in the state on a fee basis only. B) an investment adviser with a place of business in the state whose total fee income in the state amounts to $150. C) an investment adviser with no place of business in the state who, in the state, only provides advice on fixed annuities. D) an investment adviser with a place of business in the state who only provides advice on mutual funds.

C) an investment adviser with no place of business in the state who, in the state, only provides advice on fixed annuities. - Because fixed annuities are not securities, advising on them does not require registration. - Unless the investment adviser is federal covered, any IA with a place of business in the state, no matter to whom the advice is sold or the nature of the security that is the subject of the advice, is required to register with the state. - An IA with no place of business in the state is only exempt if the advice is given to certain institutional-type clients, not individuals, wealthy or not.

The NASAA Model Rule on agency cross transactions requires that an investment adviser send a written disclosure document to affected clients (including such items as the total number of agency cross transactions during the period for the client and the total amount of all commissions or other remuneration the investment adviser received in connection with agency cross transactions for the client during the period) no less frequently than A) within a reasonable period of time following any transaction made in reliance upon this rule. B) semiannually. C) annually. D) quarterly.

C) annually. - The NASAA Model Rule requires that these disclosures regarding agency cross transactions by an investment adviser (IA) be made no less frequently than annually. - Most students choose quarterly and with good reason—you've seen quarterly requirements before. - For example, when an IA maintains custody of client assets, reports must be sent no less frequently than quarterly. - Broker-dealers must send account statement to clients no less frequently than quarterly. **When there is a new issue, the Administrator can request reports on a quarterly basis. But this is different and the rule says annually.**

An agent has inside information on a public corporation that will probably cause the price of the stock to fall when it becomes generally known. A good customer calls with an order to buy a large amount of that stock. The agent should A) enter a sell order on the customer's behalf along with the buy order in order to cover the customer's losses. B) ignore the order. C) discuss the matter with the broker-dealer's compliance officer. D) tell the customer the inside information and let him decide what to do.

C) discuss the matter with the broker-dealer's compliance officer. - None of the other alternatives is satisfactory. The agent may not ignore the order, enter an unauthorized order for the account, or pass on inside information. - When in doubt, check with your broker-dealer's compliance officer.

Under the Uniform Securities Act, the Administrator is empowered to do all of the following except A) publish information relating to violations committed in the state. B) issue a cease and desist order. C) file a civil suit against a broker-dealer who sold an unregistered nonexempt security to a resident of this state. D) require an agent to submit a written statement relating to an investigation.

C) file a civil suit against a broker-dealer who sold an unregistered nonexempt security to a resident of this state. - If you follow our exam-tips blog, you know that we have a poor opinion of some of NASAA's questions. This is a prime example. - Nowhere in the Uniform Securities Act does it specifically state that the Administrator may initiate a civil action. - However, if you check the court dockets of many states, you will see that, in fact, a number of civil cases have been brought by the Administrator. - When you have a question like this, you get it right by knowing that, without question, the Administrator is empowered to perform the other listed actions.

ABC Advisers is in the business of providing investment advice to retail customers. ABC's only office is in State A. Three of ABC's customers are residents of State B, but ABC is not required to register in that state. The most probable reason is because ABC Advisers A) is registered with FINRA. B) limits its business in State B to accredited investors. C) is exempt from registration in State B. D) is excluded from the definition of an investment adviser.

C) is exempt from registration in State B. - When an investment adviser does not have a place of business in a state and deals with five or fewer retail residents of that state, the de minimis exemption applies. - ABC would be defined as an IA, but is exempt from registration in this specific state. IAs do not register with FINRA. - In general, accredited investors will not be a correct answer on the exam. - Because the question tells us ABC deals solely with retail investors, individuals who are accredited investors are still retail clients. - If ABC had six or more of them in State B, the exemption would no longer apply. There is more coverage of this in Lesson 3.1.

Janice is applying for registration as an agent with a broker-dealer. Twenty years ago, she was present at an altercation that resulted in the death of one of her friends. At the time, she was arrested and charged with felony assault. Witnesses later supported Janice's claim that she was just a bystander and the charges were dropped. Janice A) does not have to disclose the arrest on her Form U4 because the charges were dropped. B) should probably discard the application because an arrest for a felony is cause for statutory disqualification. C) must disclose the arrest on her Form U4. D) does not have to disclose the arrest on her Form U4 because the incident was more than 10 years ago.

C) must disclose the arrest on her Form U4. - Disclosure of any charge, arrest, or conviction of, or guilty plea to, any felony is required. The Form U4 asks, "Have you ever . . . ," so there is no time limit. - If Janice had been found guilty of the felony charge, then it could lead to a statutory disqualification, but that is generally limited to the most recent 10 years.

Differences between static and interactive content on social media include the fact that A) only static content can be reformatted by others. B) investment advisers can only publish interactive content. C) only interactive content can be modified by persons other than the originator. D) only static content can be changed by the person who originated it.

C) only interactive content can be modified by persons other than the originator. - Interactive content can be reused by others and can be modified by them. - Both static and interactive content can be changed by its originator, but interactive can also be changed by others. I - Investment advisers and broker-dealers can publish content that is static or interactive.

An investment adviser representative is assuring clients of steady returns on an investment. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is A) prohibited because the customer may still experience loss. B) acceptable if the security being recommended is an investment-grade bond. C) prohibited because the IAR is guaranteeing a profit. D) acceptable if the client has been made aware of the risks.

C) prohibited because the IAR is guaranteeing a profit. - Assuring a steady rate of return is considered to be guaranteeing performance, a practice prohibited under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers. Even in the case of an investment-grade bond, returns can never be assured.

A new agent is having a hard time making sales. In order to be more productive, he offers to share in any losses with clients. And, on the other hand, he will share in their profits as well. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this is A) permitted if the broker-dealer authorizes this activity. B) prohibited, as investment adviser representatives are not allowed to share in client accounts. C) prohibited, unless the client gives written authorization and approval is granted by the broker-dealer. D) permitted if the client has given verbal authorization to the agent.

C) prohibited, unless the client gives written authorization and approval is granted by the broker-dealer. - There are two requirements that must be met in order for an agent to share in the profits or losses in a client's account: both the client and the employing broker-dealer must give written authorization. - Unless both of these are present, the practice is prohibited. - No, IARs cannot share, but the question specifically refers to an agent.

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that the CIP A) requires a residence address for individuals while the regulatory bodies will accept a PO Box. B) requires a statement of the customer's goals while the regulators only require current financial information. C) requires date of birth while the regulators only require proof of legal age. D) only applies to individuals while the rules of the regulators apply to retail and institutional accounts.

C) requires date of birth while the regulators only require proof of legal age. - The CIP requires the actual date of birth, not just proof of legal age. - The CIP has no interest in the goals of the investor, just the identity. - In both cases, a PO Box may only be used after supplying a physical residence address, and both the CIP and the rules of the regulators apply to retail and institutional accounts.

In order for the Administrator to suspend an agent's registration, compliance with the requirements of the Uniform Securities Act would not require that A) the agent be presented with an opportunity for a hearing. B) notification be given to the employing broker-dealer of the final order. C) the agent receive court-appointed defense counsel if she can't afford her own. D) notice be given of the proposed action and hearing.

C) the agent receive court-appointed defense counsel if she can't afford her own. - The Administrator may, by order, summarily postpone or suspend registration, pending final determination of any proceeding under the USA. - The hearing is not in a formal court, so there is no court to appoint defense counsel. The agent is permitted to appear with counsel (we hope this never happens to you, but it is a good idea to be represented by an experienced securities lawyer). - However, it is the agent's responsibility to pay for that service. - Upon the entry of the order, the Administrator shall promptly notify the applicant or registrant (as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative) that it has been entered, of the reasons therefor, and that the matter will be set down for a hearing within 15 days after the receipt of a written request. - Because the law states that the employer will be notified once the action commences, it should be obvious that once the suspension order becomes final, the employer will be notified of that fact.

Unless exempt, all state-registered investment advisers must provide prospective and existing customers with a disclosure document. This document is most commonly called A) the investment adviser's disclosure document. B) the written advisory contract. C) the investment adviser's brochure. D) the 48-hour rule.

C) the investment adviser's brochure. - Unless otherwise exempted, an investment adviser registered under the Uniform Securities Act shall furnish each advisory client and prospective advisory client with a brochure. - The initial brochure must be furnished not later than the entry of the advisory contract. - Annually, unless there have been no material changes, the brochure is delivered within 120 days of the end of the adviser's fiscal year.

An agent wishes to share commissions with an administrative assistant who provides many useful services. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) this is permitted if there is a written agreement between the agent and the administrative assistant that has been signed by the broker-dealer. B) this is permitted only if the administrative assistant is employed by the same or affiliated broker-dealer. C) this is permitted if the assistant is properly licensed. D) administrative personnel may never receive sales-related compensation.

C) this is permitted if the assistant is properly licensed. - Sharing (splitting) of commissions is permitted when the parties are both properly registered and are employed by the same or affiliated broker-dealers.

Which of the following persons does not meet the definition of providing investment advice as a business outlined in SEC Release IA-1092? A) An accountant who charges clients an additional fee for providing investment advice B) A financial planner who provides specific investment advice as part of his fee-based services and also makes specific securities recommendations to his clients in his capacity as an agent for a broker-dealer C) An attorney who advertises the availability of investment advice D) A management consultant whose only investment advice is suggesting to a couple of small business clients who had invested their surpluses in speculative securities that they should find something less risky

D) A management consultant whose only investment advice is suggesting to a couple of small business clients who had invested their surpluses in speculative securities that they should find something less risky - The management consultant's advice to clients is more like personal opinion than investment advice as a business. - In the other three choices, investment advice is offered as part of the individual's regular business. - Lawyers, accountants, teachers, and engineers (LATE) are not generally considered investment advisers, provided the advice is incidental to their regular profession.

Which of the following is a prohibited practice under state securities law? A) Failure to include the broker-dealer's commission schedule on the fee disclosure document B) Making recommendations on the basis of in-house analysts' reports C) Soliciting orders from retail customers for exempt securities D) Failing to obtain prior written authority for orders from a third party

D) Failing to obtain prior written authority for orders from a third party - Orders from a third party (someone other than the client) can only be accepted when the broker-dealer has received a written trading authorization form from the client. - Soliciting orders for a security that is exempt from registration is a normal business practice. - An agent may use the in-house reports of his firm's securities analysts as a basis for recommendations, provided the reports do not contain inside information. - The NASAA fee schedule template specifically excludes commissions, markups and markdowns, and advisory fees.

Which of the following is not an exempt transaction as defined in Section 402 of the Uniform Securities Act? A) Sale of XYZ common stock, traded on the OTC Bulletin Board, to an individual investor by the executor of an estate B) Sale of common stock by the county sheriff at the request of the state securities Administrator C) Corporate bond sale to an insurance company D) Isolated sale of a corporate bond on behalf of the bond's issuer

D) Isolated sale of a corporate bond on behalf of the bond's issuer - First of all, don't panic when you see a section number. Just answer the question based on the specific topic, in this case, the definition of an exempt transaction. - An isolated sale of a corporate bond on behalf of the bond's issuer is not exempt. - Under the USA, only isolated nonissuer transactions are exempt. - In this question, the transaction is on behalf of the issuer, so this transaction is not exempt. - The sale of a corporate bond to an insurance company is the sale of a security to a financial institution; this is an exempt transaction. - A sale of common stock by the executor of an estate or by the county sheriff is considered a fiduciary transaction and is exempt regardless of the client or the type of security.

Which of the following statements concerning the snowbird exemption is true? A) It applies only when the clients of the broker-dealer seeking the exemption are institutions or other broker-dealers. B) A broker-dealer cannot make use of the snowbird exemption in more than two states during any 12-month period. C) Once the individual existing client has been in the state more than 30 days, the exemption is lost and registration is required. D) It applies only when the broker-dealer does not maintain a place of business in the state in which the exemption is sought.

D) It applies only when the broker-dealer does not maintain a place of business in the state in which the exemption is sought. - The snowbird exemption applies when a broker-dealer (or other securities professional) does not have a place of business in a state and its only clients in the state are existing clients temporarily in the state. - The Uniform Securities Act does not define temporarily, but for practical (and exam) purposes, there is no time limit. - The only concern is when that visiting or vacationing client decides to change their permanent residence address to that state. - The most common evidence of that is a new voter registration or drivers license

Which of the following statements best describes the effect of the NSMIA of 1996 on securities regulation? A) Provided for the registration of intrastate securities B) Established the need for dual registration of securities C) Increased the power of state securities Administrators over registration of securities D) Preempts state registration of covered securities

D) Preempts state registration of covered securities - The National Securities Markets Improvement Act preempts state registration of covered securities. - On the exam, the word federal is sometimes omitted, but covered still means federal covered securities. State Administrators may not impose registration requirements on securities that are subject to federal regulation. - This has had the effect of reducing their power, not increasing it. - Unlike the NSMIA's effect on investment advisers where there is no longer dual registration, the requirement to register as a securities offering on both the state and federal levels still exists for those securities that are not federal covered. - Registration for intrastate securities goes back to the earliest of the blue-sky laws, well before the NSMIA

Which of the following could be a reason for the Administrator to deny an applicant's registration as an investment adviser representative? A) The Administrator discovers that the applicant failed to note a 30-day driver's license suspension caused by excessive speeding tickets in a 12-month period. B) The applicant is not a citizen of the United States of America or the Dominion of Canada. C) The applicant plans to exercise discretion but does not post a surety bond. D) The applicant is insolvent.

D) The applicant is insolvent. - One of the disqualifying conditions when applying for registration is insolvency, meaning that his liabilities exceed his assets, in the sense that he cannot meet his obligations as they mature. - Agents will generally need to post a surety bond if they are exercising discretion, but there are no bonding requirements for IARs. - Non-securities-related misdemeanors do not have to be included in the application. - Although citizenship must be disclosed, there is no requirement that the applicant be a citizen of the U.S. or Canada.

Online Securities Trading, Inc. (OSTI) is a broker-dealer registered in several states. Their initial website was created two years ago. Due to an increase in customer "hits," OSTI has revised its website. Under the Uniform Securities Act, what copy will be retained in the records? A) Both the original and the revised website for three years from today B) The original website can be discarded and the new one kept for three years C) As an electronic record, there are no filing requirements. D) The original website for another year and the revision for three years

D) The original website for another year and the revision for three years - Websites are treated as any other advertisement. The original site design is kept for three years, and, whenever revised, the new copy is maintained and starts a new retention requirement for that copy. - Therefore, a broker-dealer will likely have several different versions in its advertising file at the same time.

When the Uniform Securities Act refers to unsolicited orders, which of the following is true? A) A client may not purchase, at her own initiative, securities trading in the secondary market if the agent is otherwise prohibited from soliciting the order. B) If the order ticket is appropriately marked, the Administrator may not challenge a broker-dealer's assertion that the order was unsolicited. C) Under certain conditions, an Administrator may prohibit a broker-dealer registered in the state from accepting any unsolicited orders. D) Unsolicited orders are defined as exempt transactions under the Uniform Securities Act.

D) Unsolicited orders are defined as exempt transactions under the Uniform Securities Act. - A client has the right to buy or sell whatever she may desire. - The issue becomes who initiates the trade. An unsolicited transaction may be executed by an agent if it is the client who asks for the trade. - The trade ticket should be marked as unsolicited. The state securities Administrator has the right to seek verification from the client that the trade was, in fact, unsolicited. - The security involved in the trade can be one that is nonexempt and unregistered in the state.

An individual has been hired by an issuer to assist in the selling of securities it is issuing to residents of State V. The individual would be defined as an agent under the Uniform Securities Act if the issuer is A) the city of Regina, Saskatchewan (Canada). B) a trust company organized and supervised under the laws of State V. C) issuing commercial paper in minimum denominations of $1 million with an AA rating and a three-month maturity. D) a federal credit union.

D) a federal credit union. - When an individual represents the issuer of certain exempt securities in the sale of those securities to the public, that individual is not included in the USA's definition of agent. - Credit unions are not in that list, so those individuals are agents and must be registered as such. - Individuals representing banks, including savings institutions and trust companies when organized and supervised under the laws of any state (not necessarily the state in which the securities will be sold), are not agents. - If the agent represents the issuer of commercial paper meeting the exemption requirements of the USA ($50,000 minimum denomination, top three grades, and maximum nine-month maturity), that individual is not an agent. - Finally, representing the United States or Canadian federal government, or any of their political subdivisions, excludes one from the definition of agent.

A retail customer of an investment adviser has at least $1.1 million under management with that adviser. That would make this individual A) an institutional investor. B) an accredited investor. C) a qualified purchaser. D) a qualified client.

D) a qualified client. - As a law exam, there are similar terms that have different meaning. - This question relates to three of those, but only one choice is correct. Those natural persons with $1.1 million or more under the management of an investment adviser are deemed to be qualified clients. - There is no assets under management requirement for a qualified purchaser, but the net worth requirement is substantially higher than that of a qualified client. - There is no assets under management requirement for an accredited investor, but having $1.1 million with the adviser does not necessarily mean the individual meets the $1 million net worth requirement. - The question states it is a retail customer (an individual); they are never defined as institutions.

Under the Uniform Securities Act, all of the following are improper actions except A) excessive transaction costs. B) a two-month delay in delivering the security to the customer. C) an agreement by the agent to repurchase the security from the customer for the same price at a future date. D) a statement by the agent that the security will be listed on an exchange once the company announces its intention to do so.

D) a statement by the agent that the security will be listed on an exchange once the company announces its intention to do so. - An agent cannot guarantee to buy back the securities at the same price, cannot delay delivery for an excessive period of time, and cannot hide unusual transaction costs from a customer. - However, the agent may state that the company intends to list its shares on an exchange if this is a fact.

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 Uniform Securities Act, the agreement is A) legal but only in a civil case. B) legal but only in a criminal case. C) legal. 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.

KAPCO Advisers, a registered investment adviser, recommends the purchase of 100 shares of GEMCO common stock to one of its advisory clients. The client accepts the recommendation and the sale is made from KAPCO's inventory. This transaction A) could only be done through a registered broker-dealer. B) could be made without restriction, as long as the markup on the GEMCO stock was fair and reasonable. C) would be considered unethical. D) required both written disclosure to and the consent of the client prior to the completion of the transaction.

D) required both written disclosure to and the consent of the client prior to the completion of the transaction. - Industry rules require that investment advisers make disclosure when acting as principals (from inventory) or agents in a transaction with an advisory client. - This disclosure must be made in writing—furthermore, client consent to acting in this capacity must be obtained before the completion of the transaction. - The client consent may be oral or written.

A broker-dealer would likely have to register in a state when A) individual residents of that state are able to view a listing of the firm's office locations on the firm's website. B) the firm does not maintain a place of business in the state and only deals with banks. C) one of the firm's agents sends an email to a resident of that state. D) the firm's website provides a list of recommendations based on general criteria such as income or growth.

D) the firm's website provides a list of recommendations based on general criteria such as income or grow - Understanding that internet websites do not stop at state lines, NASAA has established a Model Rule for determining when registration in a state is required. When that website contains specific recommendations, it is likely that registration will be required. - A simple listing of office locations would not. Without knowing the contents of the agent's email, we cannot tell if that would be considered doing securities business in the state. - Obviously, if the agent is corresponding with a friend about last night's game scores, that would not trigger the need for registration on the part of either the BD or the agent. - One of the exclusions under the USA is having no place of business in the state and limiting the clientele to institutions, such as banks.

Which of the following are not exempt from registration as an investment adviser representative in the state in which they maintain a place of business? I A certified financial planner who prepares comprehensive 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

I A certified financial planner who prepares comprehensive 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 - A certified financial planner who prepares comprehensive financial plans for commissions must register in the state as an investment adviser representative because the commissions represent compensation for advice on securities. In the language of the industry, comprehensive financial plans include advice on securities. - An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an IAR 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.

Which of the following meets the definition of churning? I Encouraging customers to make frequent changes in their holdings in an effort to maximize commissions II Excessive activity in a customer's discretionary account III Transactions that are excessively large considering the customer's financial situation

I Encouraging customers to make frequent changes in their holdings in an effort to maximize commissions II Excessive activity in a customer's discretionary account III Transactions that are excessively large considering the customer's financial situation - All three options describe churning.

Which of the following securities are exempt from state registration and filing of advertising materials? I New York City municipal revenue bonds II Montreal bonds guaranteed by the province of Quebec III Preferred stock of the National Bank, N.A., a member of the Federal Reserve System IV Preferred stock of Local County Bank, organized and regulated solely by the banking laws of the state of Illinois

I New York City municipal revenue bonds II Montreal bonds guaranteed by the province of Quebec III Preferred stock of the National Bank, N.A., a member of the Federal Reserve System IV Preferred stock of Local County Bank, organized and regulated solely by the banking laws of the state of Illinois - Any security issued by a bank that is federally regulated is exempt under the USA. - State banks are exempt if regulated by that state. - Municipal bonds are exempt if issued by a municipality in the United States or Canada.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following are required for an agent to lawfully share in the profits of a customer's account? I The customer's written approval II The broker-dealer's written approval III Sharing in proportion to the agent's financial contribution to the account

I The customer's written approval II The broker-dealer's written approval - To share in a customer's account, written authorization of both the client and the broker-dealer need to be obtained. - Unlike FINRA rules, there are no requirements for proportionate sharing.

Under the Uniform Securities Act, which of the following are considered a sale or an offer to sell? I The gift of assessable common stock II The gift of nonassessable stock III The sale of a warrant to purchase stock

I The gift of assessable common stock II The gift of nonassessable stock - The gift of assessable stock (a rarity) is considered both an offer and a sale under the USA because the recipient could be assessed in the event of company bankruptcy. - The sale of a warrant is legally no different from the sale of the stock.

A client is interested in purchasing a thinly traded equity security where, due to the extra effort involved in obtaining the issue, the commission charged will be somewhat higher than normal. The compensation to the broker-dealer must be disclosed I before the order is placed. II at the time of trade execution. III in the prospectus. IV on the trade confirmation.

I before the order is placed. IV on the trade confirmation. - Commissions are always disclosed on the trade confirmation. - In this specific case, NASAA wants you to understand thinly traded issues will probably carry a higher than usual commission. In those cases, disclosure must be made before the trade is made

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 I discuss the situation with his supervisory principal. II continue to recommend the security to customers and prospects. III stop recommending the security to customers and prospects. IV sell the stock short in his brother's account.

I discuss the situation with his supervisory principal. III stop recommending the security to customers and prospects. - 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.

Under the Uniform Securities Act, the term agent would include an individual who sells I exempt securities on behalf of a broker-dealer in an exempt transaction. II non-exempt securities on behalf of a broker-dealer in an exempt transaction. III securities on behalf of an issuer in an exempt transaction. IV revenue bonds as a representative of the city water authority.

I exempt securities on behalf of a broker-dealer in an exempt transaction. II non-exempt securities on behalf of a broker-dealer in an exempt transaction. - Anyone who sells securities on behalf of a broker-dealer is defined as an agent. - Those who sell on behalf of an issuer are excluded from the definition under certain circumstances. - If the transaction is exempt or the security is one of a specified group of exempt securities, such as municipal bonds (general obligation or revenue), the individual is not defined as an agent under the Uniform Securities Act.

Under the Uniform Securities Act, an Administrator who believes a violation has occurred or is about to occur may I issue a cease and desist order without a prior hearing. II bring action to obtain an injunction and have a receiver appointed over the alleged violator's accounts. III seek a court order requiring the alleged violator to make restitution to others.

I issue a cease and desist order without a prior hearing. II bring action to obtain an injunction and have a receiver appointed over the alleged violator's accounts. III seek a court order requiring the alleged violator to make restitution to others. - Whenever it appears to the Administrator that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of the Uniform Securities Act or any rule or order, he may, at his discretion, bring either or both of the following remedies: - Issue a cease and desist order, with or without a prior hearing against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity. - Bring an action in the appropriate court to enjoin the acts or practices to enforce compliance with this act or any rule or order hereunder. Upon a proper showing, a permanent or temporary injunction will be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. In addition, upon a proper showing by the Administrator, the court may enter an order of rescission, restitution, or disgorgement directed to any person who has engaged in any act constituting a violation of any provision of this act or any rule or order hereunder.

Under the NSMIA, the term federal covered adviser includes a person I registered with the SEC under the Investment Advisers Act of 1940. II registered as an investment adviser in two or more states. III excluded from the definition of an investment adviser under the Investment Advisers Act of 1940. IV required to register with the state Administrator.

I registered with the SEC under the Investment Advisers Act of 1940. III excluded from the definition of an investment adviser under the Investment Advisers Act of 1940. - The NSMIA defines a federal covered adviser as a person who is either required to register with the SEC under the Investment Advisers Act of 1940 or who is specifically excluded from the definition of investment adviser under that act. Registration with the state Administrator is not required of a federal covered adviser.

Farrier and Nail has applied for registration as a broker-dealer in the state. The application is required to contain I the business history of the firm's principal officers. II the types of business the firm is engaged in. III information obtained from a recognized credit reporting agency on each of the firm's principal officers. IV a record of any conviction of any principal officer for any misdemeanor within the previous 10 years.

I the business history of the firm's principal officers. II the types of business the firm is engaged in. - Form BD inquires about the business history of the firm's principal officers. - The form also has a "check the box" listing literally from A to Z to indicate the types of business the firm is (or plans to be) engaged in. - There are no credit reports on individuals, even those serving in an executive capacity. - The only misdemeanors appearing on Form BD are those involving investments or an investment-related business or bribery, forgery, extortion, or similar offenses. - Other misdemeanors, even when there is a conviction, are not disclosed.

According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following business practices are dishonest or unethical? I Executing a transaction on behalf of a customer without authorization to do so II Sharing 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 III 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 IV Disregarding a customer complaint received by email because it is not in writing

I, II, III, IV - According to NASAA's Statement of Policy on Dishonest or 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 (BD) that the agent represents; and split commissions or profits from the purchase or sale of securities with any person not registered as an agent for the same BD, or a BD under direct or indirect common control. - Customer complaints received electronically (email) are considered to be in writing.

A Canadian broker-dealer with no offices in this state has a Canadian client who is on a temporary work assignment in this state. To accept orders from this client, the broker-dealer must I file an application for limited registration with the Administrator in the form required by the jurisdiction in which it has its head office. II file a consent to service of process. III provide the Administrator with evidence that it is currently in good standing as a broker-dealer in the jurisdiction from which it is effecting securities transactions. IV be a member of a recognized self-regulatory association or stock exchange in Canada.

I, II, III, IV - For a Canadian broker-dealer with no offices in this state to do business with Canadian residents who are temporarily in this state, it must apply for a special limited registration. - Filing involves all of the choices listed. In essence, - Canadian BDs and agents have a limited form of the snowbird exemption.

The Uniform Securities Act defined many terms. Among them is the term sale. Which of the following would be included in the definition of sale? I An offer of common stock in a new issue properly registered or exempt from registration in the state II A gift of assessable stock III An investor exercising preemptive rights previously received directly from the issuer IV An investor electing to forgo a cash dividend and receive the equivalent in stock instead

II A gift of assessable stock III An investor exercising preemptive rights previously received directly from the issuer - A gift of assessable stock is always considered a sale. - Although the receipt of preemptive rights is not a sale, the exercise of them is. - An offer does not become a sale until the exchange of consideration. - Choosing to take a stock dividend rather than a cash dividend is not a sale.

A security has been registered under qualification. Which of the following statements are correct? I The registration is valid for one year from the effective date. II The registration is valid for one year from the effective date, unless the underwriter or issuer still has some unsold shares. III The registration is valid until the next December 31. IV The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation are not changed.

II The registration is valid for one year from the effective date, unless the underwriter or issuer still has some unsold shares. IV The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation are not changed. - A registration under qualification is good for one year from the effective date, unless the issuer or underwriter still has unsold shares. - In that case, it may be extended until those shares are sold. - The offering could be enlarged as long as the share price is not changed. - Another requirement, not in this question, is that the underwriting commissions cannot be changed. - So, why isn't Choice I part of the correct answer? Because on the exam, when you are given two answers that are correct statements, you must choose the one that is the most correct; the one that more completely tells the story.

NASAA has created a Model Rule dealing with the creation of and delivery requirements for an investment adviser brochure. Unless qualifying for an exception, a registered investment adviser shall deliver, I within 90 days of the end of its fiscal year, a free updated brochure and related brochure supplements, which include or are accompanied by a summary of material changes. II within 120 days of the end of its fiscal year, a free updated brochure and related brochure supplements, which include or are accompanied by a summary of material changes. III within 120 days of the end of its fiscal year, a summary of material changes that includes an offer to provide a copy of the updated brochure and supplements and information on how the client may obtain a copy of the brochures and supplements. IV not later than entering into a new advisory agreement, a summary of material changes that includes an offer to provide a copy of the updated brochure and supplements and information on how the client may obtain a copy of the brochures and supplements.

II within 120 days of the end of its fiscal year, a free updated brochure and related brochure supplements, which include or are accompanied by a summary of material changes. III within 120 days of the end of its fiscal year, a summary of material changes that includes an offer to provide a copy of the updated brochure and supplements and information on how the client may obtain a copy of the brochures and supplements. - The rule calls for delivery of the current brochure and current summary of material changes at or before entering into the advisory contract. - There is no offer to provide a copy of updated materials because the current brochure and summary have just been delivered. - On an annual basis, the brochure or supplement describing material changes is delivered within 120 days of the end of the investment adviser's fiscal year.

Different types of accounts have different times for receipt of customer information. Which of the following correctly state the required time for the specified account? I Margin account agreements must be received before the first margin trade in the account. II Margin account agreements must be received promptly after the first margin trade in the account. III Options account approval must be received in writing at or before the initial options trade. IV The options account agreement must be received 15 days before the customer's account has been approved.

III Options account approval must be received in writing at or before the initial options trade. IV The options account agreement must be received 15 days before the customer's account has been approved. - The NASAA policy is that the signed margin agreement must be received by the broker-dealer promptly after the initial margin trade in the account. - In the case of an options account, approval of the account in writing is required at or before the time of the first options trade. - The 15-day requirement is after approval, not before. It will be helpful to remember these requirements—at least one of them is likely to appear on your exam