S63 - Chapter 4
A) this is the loan consent agreement No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional.
A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that A) this is the loan consent agreement B) this is the credit agreement C) this is the hypothecation agreement D) if the client does not sign the document, the account cannot be opened
B) unlawfully in that investment advisers are required to make written disclosure as well as receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. The rules regarding investment advisers and account trading are much stricter than those for broker-dealers because of the fiduciary responsibility of the adviser. Any action that results in a transaction in which the firm or an affiliate acts in either a principal or agent capacity requires the adviser to provide written disclosure of that fact to the client and obtain approval from the client prior to completion of the transaction.
A registered broker-dealer is under common control with a registered investment adviser. An individual who is an agent of the broker-dealer and an investment adviser representative of the adviser has a client with $250,000 under an asset management program. This individual calls the client and suggests the purchase of 500 shares of RMBM common stock as an appropriate addition to the portfolio. The broker-dealer is a market maker in RMBM, and the sale will be made as a principal, a fact that is disclosed to the client on the trade confirmation. In this situation, the registered person has acted: A) lawfully in that the disclosure of capacity was made on the confirmation. B) unlawfully in that investment advisers are required to make written disclosure as well as receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. C) lawfully in that disclosure of capacity is not necessary when executing trades in managed accounts. D) unlawfully in that any stock the broker-dealer is a market maker in is probably not suitable for a managed money client.
A) the schedule should be made available on the broker-dealer's public website without requiring any login or password Transparency requires that obtaining the fee schedule should be a simple process for retail customers and prospects. That means access without logging in to the broker-dealer's website or needing a password. Paper copies should always be available and cyber security is not a threat because there is no confidential information included.
According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts, A) the schedule should be made available on the broker-dealer's public website without requiring any login or password B) as long as the schedule is available in electronic form, it is not necessary to provide a paper version to retail customers C) fee schedules should only be delivered by hand or postal mail to reduce cyber security threats D) the schedule should be made available on the broker-dealer's public website and should be password protected
C) 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.
An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several which she feels are equally suitable for the client, but one of the companies is offering a trip for 2 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) should pack her bags and leave the firm before the compliance department learns of her actions B) will probably be disciplined for failure to disclose the potential conflict of interest C) should pack her bags for the trip; she earned it D) should only sell what is suitable for the client based on all available information
C) written discretion authority has been received by the broker-dealer before executing the first discretionary transaction No broker-dealer or any of its employees shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer. It is an investment adviser who may act with oral consent for a period of 10 days from the initial discretionary trade.
An agent may determine which securities to purchase or sell for a client when A) written or oral discretion authority has been received by the broker-dealer before executing the first discretionary transaction B) written or oral discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction C) written discretion authority has been received by the broker-dealer before executing the first discretionary transaction D) written discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction
D) Marital status Although most new account forms do ask for marital status, it is not a required item as are the other choices given here.
An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following information would NOT be required on the new account form? A) Physical address B) Name of employer C) Citizenship D) Marital status
A) charging a fee for investment advice and then earning commissions on recommended trades without disclosing the nature of the dual relationship When acting as a representative of an investment adviser as well as a broker-dealer, the relationship must be disclosed. IARs are permitted to recommend proprietary products only but must make disclosure of that fact.
An investment adviser representative is prohibited from A) charging a fee for investment advice and then earning commissions on recommended trades without disclosing the nature of the dual relationship B) disclosing to clients that he is not buying the security being recommended to them for his personal account C) recommending proprietary products only D) as part of a comprehensive financial plan, selling a life insurance policy to an advisory client issued by a company he represents, even with disclosure to the client
B) an investment adviser will be acting in the capacity of a principal In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity, (acting as a broker [agency] or dealer [principal]) on the trade confirmation, but not consent, is needed.
Consent of the client before completion of a trade made between the firm and a client must be made when A) a broker-dealer will be acting as a contra-party to the trade B) an investment adviser will be acting in the capacity of a principal C) a broker-dealer will be acting in the capacity of a principal D) a broker-dealer will be acting in the capacity of an agent
D) II and IV
Differences between static and interactive content on social media include I. Only static content can be reused by others II. Only static content needs pre-approval III. Only static content can be changed by the person who originated it IV. Only interactive content can be commented on by others A) I and IV B) I and III C) II and III D) II and IV
A) Margin account agreements must be received before the first margin trade in the account. 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.
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) Margin account agreements must be received before the first margin trade in the account. B) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. C) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. D) The options account agreement must be received within 15 days after the customer's account has been approved.
B) transferring the account to another broker-dealer
For larger accounts, a broker-dealer is least likely to waive its normal fee for A) wiring funds to the client's bank B) transferring the account to another broker-dealer C) safekeeping of funds or securities in the account D) the annual account maintenance charge
A) 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 settlement date.
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) disclosure to the client and consent prior to completion of the transaction B) disclosure to the client C) consent of and the disclosure to the client before the execution of the transaction D) consent of the client
A) shall obtain client consent before completion of the transaction
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall obtain client consent before completion of the transaction B) may not charge a commission on the transaction C) shall notify the Administrator of its capacity in the proposed transaction D) shall disclose the agency capacity before the transaction
D) margin interest on the debit balance In a cash account, you can't have margin activity, so there can't be a margin interest charge.
Your client maintains a small cash account at the firm. One typical broker-dealer fee that would not be charged to this client is A) an account maintenance charge B) a charge if the client asks to have funds wired C) the fee for transferring certificates D) margin interest on the debit balance
D) I and III There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are 1. commissions 2. markups and markdowns 3. advisory fees for those first that are also registered as investment advisers.
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 A) II and III B) I and IV C) III and IV D) I and III
B) at or before account approval. All prospective options customers must receive a copy of the ODD at or before the time the account is approved to trade options. It is the options account agreement that must be signed and returned to the broker-dealer within 15 days of account approval.
Under industry rules, customers who wish to trade options must receive a copy of the Options Disclosure Document (ODD): A) at or before the mailing of the confirmation representing the first options trade. B) at or before account approval. C) within 15 days of account approval. D) at or before the mailing of the next monthly statement.
D) annually whether or not the adviser has custody or discretion
Under the USA, an investment adviser's current clients must be delivered a brochure A) quarterly if the adviser has both discretion and custody B) annually, but only if the adviser has neither custody nor discretion C) within 48 hours of renewal D) annually whether or not the adviser has custody or discretion
A) 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.
Unless qualifying for an exemption, which of the following advisory fee structures is NOT allowed under the USA? A) Fees based on a percentage of the change in value of funds from quarter to quarter B) Fees based on a percentage of the aggregate value of funds under management C) Fees based on a fixed dollar schedule tied to the value of funds under management D) Fees based on an hourly rate
B) adoption A firm will be responsible for the content of a linked third-party site if the firm "adopts" its content on any of the firm's sites
Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered A) estrangement B) adoption C) fulfillment D) entanglement
D) Training both supervisory personnel and agents on the difference between interactive and static content At a minimum, a firm that permits use of social media sites must hold annual (TWICE A YEAR NOT NECESSARY) training as part of its continuing education obligations.
Which of the following conditions would most likely meet compliance standards of state regulators? A) Requiring only those in a supervisory role need to recognize the difference between business and non-business communications. B) Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules. C) At a minimum, a firm that permits use of social media sites, holding biennial training as part of its continuing education obligations. D) Training both supervisory personnel and agents on the difference between interactive and static content
B) Unless there are no material changes, it must be delivered to clients annually. Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients within 120 days of the end of the adviser's fiscal year. If it is not delivered 48 hours in advance of the initial contract, the client has a 5-day penalty-free termination clause. It does not accompany the brochure-it is the brochure.
Which of the following statements regarding Form ADV Part 2 is TRUE? A) It must be delivered no later than 48 hours prior to entering into an investment advisory contract. B) Unless there are no material changes, it must be delivered to clients annually. C) It must be delivered no later than receipt of the client's funds. D) It must always accompany the investment adviser's brochure.
C) Quarterly fee based on account performance Fixed annual fees, wrap fees, fees based on a percentage of assets under management, and commissions from trades effected for clients are acceptable forms of compensation. Unless the question specifically refers to the conditions under which performance-based compensation is permitted, assume it is not.
Which of the following types of compensation is an investment adviser prohibited from accepting? A) Annual fee as a fixed dollar amount B) Annual fee based on a percentage of assets under management C) Quarterly fee based on account performance D) Commissions on trades effected for clients
