S63: Questions I Got Wrong

A broker-dealer is registering a new issue with the Administrator of State A. What information must be sent to the Administrator? 1) The number of shares 2) The Articles of Incorporation 3) The financials 4) The tax identification number filed with the IRS

1,2,3

According to the Uniform Securities Act, a security is said to be guaranteed as to: 1) Prevention of investment loss 2) Interest 3) Dividends 4) Principal

2,3,4

Under the Uniform Securities Act, which of the following persons is a broker-dealer in State B?

A broker-dealer that is registered in State A, where its only office is located, and has only three retail clients who are residents of State B

Which of the following securities is NOT federal covered?

A hedge fund that is offered under Section 504 of Regulation D

Which of the following activities is considered a prohibited business practice by a broker-dealer? A) Stating to a client that the offering price of a security is the current market price, if the broker-dealer is the only market maker in that security B) Stating to a client that the offering price is the current market price, if the broker-dealer is part of an underwriting syndicate in that security C) Stating that the price at which it is offering to sell a security to a client is the current market price if the broker-dealer is one of five registered market makers in that security D)Stating that the price at which it is offering to sell a security to a client is the current market price if the security is listed on the New York Stock Exchange

A) If a broker-dealer represents that a security is being offered at a price that represents the current market price, the broker-dealer must have reasonable grounds for making this statement to a client. If the broker-dealer is the only person that is willing to buy or sell a security, the prices it is quoting may not be considered the current market price. If a broker-dealer made this statement to a client without proper disclosure of this fact, it would be considered an unethical business practice. (67294)

According to the Uniform Prudent Investor Act (UPIA), a trustee is prohibited from making which of the following investments on the trust's behalf? A) second mortgage on property owned by a real estate partnership for which the trustee is the general partner B) Shares in a publicly traded Fortune 500 company on whose board of directors the trustee serves C) Non-traded real estate investment trusts (REITs) D) Collateralized mortgage obligations (CMOs)

A) The UPIA does not categorically prohibit any class of investments. Thus, a trustee could invest a portion of trust assets in CMOs or non-traded REITs, or second mortgages. A trustee is a fiduciary and, as with all fiduciaries, has a duty of loyalty. He is not permitted to use the trust to pursue his own financial interests. For that reason, it is a conflict of interest for the trustee to use the trust's assets to get a second mortgage for a piece of property in which he has a significant interest. Although buying shares of a Fortune 500 company on whose board the trustee serves is a conflict of interest, it is not as significant as the breach of fiduciary duty. (32351)

According to the Uniform Securities Act, which of the following persons is considered a broker-dealer in State B? A ) sole proprietor located in State A who has several clients in State B) A corporation that is domiciled in State B, but also issues securities within that state C) A brokerage firm that is registered in State A, but does not have an office in State B and engages in business exclusively with other broker-dealers in State B D) An agent who is employed by a brokerage firm in State A and who cold-calls clients in State B

A) A sole proprietor can be a broker-dealer. If a sole proprietor is located in State A and chooses to effect transactions for clients in State B, he must register in as a broker-dealer in State B. Agents and issuers are specifically excluded from the definition of a broker-dealer. Also, if a firm is registered in a state as a broker-dealer, but has no place of business in another state and only effects securities transactions with institutions in that state are excluded from the broker-dealer definition. (32368)

Kelly, an adviser with FairTrade Investments, would like to recommend numerous individual emerging markets high-yield bond funds to some of her more aggressive accounts. Since Kelly focuses on equity investments, she would like to use an outside adviser that specializes in fixed-income investments to help in the selection process. In this situation, which of the following statements is TRUE under the UPIA? A) Kelly may delegate her investment decision-making authority as long as the manager's recommendations meet the client's objective B) Kelly may delegate her investment decision-making authority once each client signs a third-party indemnity waiver form C) An adviser may use an outside resource, provided the expert is given full documentation regarding each client, prior to making any recommendations D) Kelly is expressly prohibited from using outside experts, since any fees paid would increase a client's management cost

A) If Kelly believes it would be in the best interest of her client, she is permitted to delegate investment functions to a competent third party. However, FairTrade remains the fiduciary on the account and therefore is ultimately responsible for all decisions made. (89835)

An agent has willfully violated a provision of the Uniform Securities Act. If the agent can prove she had no prior knowledge of the rule violated, which of the following choices is the maximum penalty? A) $5,000 fine B) No maximum penalty C) $5,000 fine and three years in prison D) $10,000 fine and five years in prison

A) $5,000 fine The maximum criminal penalty is a $5,000 fine and three years in prison. Under the Act, there can be no prison sentence imposed if the person can prove she had no prior knowledge of the rule. (75654)

The maximum civil penalty for insider trading violations is:

A) $5,000,000 and/or 20 years in prison B) $25,000,000 C) $10,000 and/or five years in prison D) Treble damages

A broker-dealer is attempting to expand its client base and has decided to utilize the services of its current interns to call prospective clients and discuss several investment opportunities with them, including mutual funds and unit investment trusts. This practice is: A) Acceptable if the interns are registered since they're talking to potential clients about investment opportunities B) Not acceptable even if the interns are registered C) Acceptable since the accounts will be given to a registered agent once they're obtained D) Not acceptable under any circumstances

A) Acceptable if the interns are registered since they're talking to potential clients about investment opportunities

A high-ranking executive wants to sell his shares of his company's stock. The company is about to announce its quarterly earnings. The executive may sell this stock: A) After the company issues a press release stating its earnings B) Before the company issues a press release stating its earnings C) If permission is received from the Administrator D) Under no circumstances

A) After the company issues a press release stating its earnings

When registering as an agent, which of the following information is NOT required on the U4 Form? A) Consent to Service of Process B) Any conviction of a misdemeanor involving a security C) The agent's financial condition D) The state or province of birth

A) Consent to Service of Process

A person working for a broker-dealer gives information relating to prices and sales of securities but receives no direct compensation related to these activities. This individual: A) Does not need to be licensed B) Must be licensed as a broker-dealer C) Must be licensed as an agent D) Must be licensed as an investment adviser representative

A) Does not need to be licensed An individual employed by a broker-dealer who gives information relating to prices and sales of securities, but who does not receive transaction-related compensation, does not need to be licensed as an agent. (75467)

Under the Investment Advisers Act, all the following statements are TRUE regarding investment adviser solicitors, EXCEPT: A) Solicitors for federal covered advisers are required to register B) Solicitors may not function as solicitors if they are under suspension C) Fees paid to the solicitor that increases the clients' cost must be disclosed )D Disclosure is required for officers and directors of the adviser acting as solicitors

A) Solicitors for federal covered advisers are required to register Investment advisers are allowed to hire solicitors and pay them a fee in order to obtain new clients. Under the Investment Advisers Act, the adviser hiring the solicitor must be registered but not the solicitor. The solicitor must not be subject to outstanding SEC orders suspending or barring the solicitor's activities. The adviser must disclose the nature of the relationship between the adviser and the solicitor and any additional compensation paid because of this relationship. If officers, directors, or employees of the adviser are acting as solicitors, this must also be disclosed. (89838)

An investment adviser representative was the subject of a customer complaint two years ago in the state of Idaho and resigned his position as a result. The Administrator conducted an investigation, the results of which were not made public. He is currently applying for a mortgage for a new home in Boise. The bank where he is applying requests his employment history and contacts the investment adviser for verification. The personnel manager at the firm is reluctant to give the bank any information about its former employee and directs the bank to contact the state Administrator. When the bank calls the Administrator, what information can it expect to receive? A) The Administrator will not release any details of the complaint B) The Administrator will provide the details of the complaint since it was securities-related C) The Administrator will contact the investment adviser for authorization to release the information D) The adviser must contact the Administrator for approval to release the information to the bank

A) The Administrator will not release any details of the complaint According to the Uniform Securities Act, neither the Administrator nor any of his officers or employees may disclose nonpublic information obtained in the course of performing their duties, except among themselves or when it is necessary as part of a proceeding or investigation

An investment adviser representative advises a client in a low income tax bracket to purchase municipal securities. Which of the following statements best describes this action? A) The advice by the representative is unethical B) Advice concerning tax-free securities is excluded from the provisions of the Investment Advisers Act of 1940 C) The action constitutes fraud D) The Administrator has no jurisdiction over municipal securities unless the securities are out-of-state bonds

A) The advice by the representative is unethical

A new client approaches an agent regarding opening a new account but refuses to discuss his financial status. The agent should:

Accept only unsolicited orders until more information is known

A family trust in State A was established 35 years ago. There are now 15 beneficiaries. According to the Uniform Prudent Investor Act, the interests of which beneficiary(ies) are paramount in determining the trust's investment strategy?

All beneficiaries regardless of generation

Under the Uniform Securities Act, a state's Administrator may require the filing of which of the following documents by rule or order? I) Form letters II) Pamphlets and/or circulars III) A prospectus

All of them

Under the Uniform Securities Act, which of the following would NOT be considered an offer? I) Pledging securities to collateralize a loan II) A tombstone advertisement III) A sale of securities for value

All of them

Which of the following activities is an exempt transaction according to the Uniform Securities Act?

An agent sells securities that are listed on the Toronto Stock Exchange

Which of the following persons is NOT excluded from the definition of a broker-dealer under the Uniform Securities Act?

An investment adviser

Decisions settled by arbitration:

Are binding upon all parties to the arbitration

An agent unknowingly misrepresents the risk associated with a security. Under the Uniform Securities Act, which of the following statements is correct? A) This is considered an act of fraud B) Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action C) Unknowingly making misrepresentations will result in the denial, suspension or revocation of the agents registration D) Unknowingly making misrepresentations regarding securities must be reported to the Administrator

B)

H&H Securities is a broker-dealer registered in State B. Several material pieces of information contained in the documents it filed with the Administrator have recently become inaccurate as the result of a merger. What must H&H do in order to comply with the USA? A) H&H must cease doing business until a new registration application is approved by the state B) H&H must file an amendment promptly with the Administrator of State B C) H&H should e-mail the Administrator's office, but is not required to update its previous filings until December 31 D) H&H has a 90-day grace period to submit an amendment to the Administrator of State B

B)

A client of an agent has recently sold a home. Before making an investment decision, the client suggests that the agent hold the money in safekeeping. Which of the following is TRUE of this arrangement? A) In order to act as a custodian for the client's money, the agent must have a power of attorney B) Agents are prohibited from acting as a custodian for money C) Before agreeing to accept the client's money, the agent must have written approval from their broker-dealer D) When acting as a custodian for a client's money, the agent must post a bond and notify the Administrator

B) According to the NASAA Model Rule—Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent may not take custody of a customer's money or securities. Only a broker-dealer may act as a custodian for customers' money or securities. (88918)

Under the Uniform Securities Act, which of the following is NOT TRUE concerning the state registration of an agent? A) An agent can only sell securities that have been properly registered in a state or qualify for an exemption from registration B) An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year C) An agent can only solicit business in a state if both the agent and broker-dealer are registered in that state D) If an agent leaves a broker-dealer to go to another broker-dealer, the agent and both broker-dealers must notify the Administrator of the change

B) All agent, broker-dealer, investment adviser, and investment adviser representative licenses expire on December 31st each year and must be renewed in order to be effective. Renewal is accomplished by the payment of a filing fee. (89208)

A broker-dealer is registered in both State A (where it has an office) and State B (where it doesn't have an office). If the Administrator of State B determines that the broker-dealer is insolvent, what action can it take? A) None. It must defer to the Administrator in State A. B) It can revoke the registration of the broker-dealer in State B. C) It can request that the broker-dealer post a surety bond. D) It can revoke the broker-dealer's registration in all states, since the Administrator has broad enforcement powers.

B) If a broker-dealer is insolvent, a state Administrator can suspend or revoke the broker-dealer's registration. However, State Administrators only have the authority to revoke registrations that they have issued (i.e., only in their state). (15412

An investment adviser representative and a client have similar financial resources, investment goals, and risk tolerance. However, although the IAR recommends penny stocks as a small part of her client's portfolio, she would never consider investing in such securities herself. Which of the following statements is TRUE? A) As long as the recommendations to her clients are suitable for them, it does not matter what the IAR chooses to include in her portfolio B) The IAR should tell her client that the recommendation is inconsistent with her own investment policy C) An IAR is not allowed to reveal to a client what is in her personal portfolio D) Penny stocks are never suitable investments

B) An investment adviser whose personal investing is inconsistent with recommendations made to clients generally has an obligation to disclose this to them. (67252) (89209)

An IAR receives a tweet with a link to an article about a promising new tech company. The IAR retweets the link with the following message "Interesting article about a new tech startup." It is discovered later that the article was published by a stock promoter who falsified several key pieces of information. Neither the IAR nor the adviser had any knowledge that the content was falsified. One of the IAR's twitter followers invested in the company's stock based on the article and sustained a large loss. Can the adviser or the IAR be held responsible for the misleading statements in the article? A) Yes, they have both become entangled with these statements B) Yes, they have adopted the content C) Yes, under the fiduciary theory D) Only if the purchaser bought the stock through an affiliated broker-dealer

B) By retweeting the link to the article, the IAR has adopted the content. There is a possibility that the IAR and the advisory firm could be held liable for the purchaser's losses. (88908)

An investment adviser's compensation could be based on: A) A share of capital gains B) Any agreement that the client and investment adviser mutually sign C) A percentage of capital appreciation of the net assets in the client's account D) A percentage of the value of the fund averaged over a prescribed period

B) Any agreement that the client and investment adviser mutually sign

An agent's customer places an order and tells the agent to buy XYZ stock "when the price is right." The customer goes out of town on business and cannot be reached when the agent learns of news about XYZ which the agent believes will drive the price of the stock up. Which of the following actions should the agent take? A) Buy the stock for the customer at the current market price. B) Do nothing until the customer can be reached. C) Asks for discretionary authority over the account from the her broker-dealer's Compliance Department. D) Purchase the shares for her own account and later sell the shares to the customer at the purchase price if the customer agrees.

B) Do nothing until the customer can be reached. NASAA's Model Rules prohibit an agent from executing a trade without written authorization or exercising discretionary trading authority without the prior written authorization of the client. Discretion that's limited to the time and/or price of execution can be given to an agent, but only until the end of a trading day. For any time exceeding one day, the authorization must be in writing in the form of a discretionary account.(15601)

An agent of a broker-dealer A is located in State A. He would also like to register as an agent for broker-dealer B, an unaffiliated broker-dealer, in both States A and B. Which of the following statements is TRUE? A) This would be considered an unethical business practice B) Dual agency is generally not allowed, but is permitted in certain states C) The agent could register only as a dual agent if the State Securities Administrator granted a waiver D) The agent could register in both states without restriction

B) Dual agency is generally not allowed, but is permitted in certain states

An adviser that maintains social media sites with business-related content must keep records concerning these sites for at LEAST: A) The life of the advisory firm plus three years B) Five years C) Three years D) Two years

B) Five years

Under the Uniform Securities Act, which of the following statements is NOT TRUE regarding a cease-and-desist order? A) It is enacted when or before a violation has occurred B) It must have come from the SEC C) It must have been authorized by the Administrator D) It may be applied to an investment adviser

B) It must have come from the SEC

The Administrator of State P requests that the Administrator of State Q issue a cease-and-desist order. May the Administrator of State Q grant this request? A) Only if the person against whom the order is being issued is a resident of State Q B) Only if the Administrator of State Q believes that the laws of that state are being violated, or will be violated C) Only if there is a reciprocal agreement between to the states D) Not under any circumstances

B) Only if the Administrator of State Q believes that the laws of that state are being violated, or will be violated

Which of the following actions by an agent of a broker-dealer is considered an unethical business practice? A) Placing a discretionary order in a margin account B) Selling shares in a friend's business, outside the agent's normal course of employment C) Soliciting a client to sell a specific security while simultaneously recommending to another client to buy the same security D) Accepting an unsolicited trade for an unregistered, nonexempt security

B) Selling shares in a friend's business, outside the agent's normal course of employment

All of the following books and records must be readily available at a branch office, EXCEPT: A) Customer account agreements B) The broker-dealer's audited financial statements C) Order tickets D) Compensation records for agents

B) The broker-dealer's audited financial statements Broker-dealers must maintain all of these records. However, certain records should be maintained at a branch or local office so that an examiner can easily access them. These records include customer account information, suitability information, customer complaints, order tickets, sales blotters and the personnel and compensation records of the agents assigned to that office. Note that not all of these records need to be physically stored at the branch. The office, however, must have a way of quickly retrieving them and making them available to examiners. (88935)

A person is applying for registration as an agent. The applicant filed for bankruptcy nine years ago. The person's home is currently in foreclosure, and there is a tax lien on the property. As if that's not enough, he also has an unsatisfied judgement against him. Which of these issues is the agent NOT required to disclose? A) The unsatisfied judgement B) The foreclosure C) The bankruptcy D) The tax lien

B) The foreclosure On Form U4, all applicants for registration must disclose any personal bankruptcies, or bankruptcies of entities that they controlled, if the bankruptcies occurred within the last 10 years. Applicants must also disclose all unsatisfied judgments and tax liens. In this question, the foreclosure proceedings are not required to be disclosed on Form U4. The responsibility to disclose these financial events continues as long as the person is registered. A bankruptcy, tax lien, or unsatisfied judgment needs to be disclosed within 30 days after it occurs. FINRA has fined and temporarily suspended persons who have failed to promptly make these disclosures. (32316)

In which of the following situations does the registration of a broker-dealer result in an Administrator automatically registering an individual of the firm as an agent? A) The individual is an attorney who represents the firm B) The individual is a director of the broker-dealer and is actively engaged in the business of the firm C) The individual is an agent of the broker-dealer and is registered in another state D) The individual had been previously employed by the broker-dealer

B) The individual is a director of the broker-dealer and is actively engaged in the business of the firm

An advertisement is printed in State A and circulated in State B. A client in State B feels that she has been treated in an unethical manner by the agent who created the advertisement. Which state has the authority to investigate the agent?

Both A & B

Which of the following statements is NOT TRUE concerning the registration requirements of securities professionals?

Broker-dealers that have no place of business in a state and limits their agents to selling exempt securities in a state, are not required to register

A broker-dealer is opening securities accounts for retail customers at a bank branch. According to the NASAA Model Rules for Sales of Securities at Financial Institutions, what must the broker-dealer's agents do as part of the account opening process? A) Verify that the client is a qualified investor B) Provide the client with a written copy of the networking arrangement between the broker-dealer and the bank C) Make a reasonable attempt to obtain a written acknowledgement from the client that he has received the disclosures required under this rule D) Notify the client of the address and telephone number of the state securities Administrator where he can lodge complaints

C)

Which of the following is NOT defined as an IAR? A) A person who gives advice and is employed by an investment adviser B) A person who solicits new business for an investment adviser C) A person that manages portfolios and assets for its clients D) A person who manages IARs at an investment advisory firm

C) A person who manages portfolios could be an individual or a business. However, if the person is a business (firm), it's considered an investment adviser, not an investment adviser representative (IAR). All of the other choices are individuals and are considered IARs. (15446)

A customer's investment objectives are capital preservation and current income. The agent recommends that the client purchase an S&P 500 Index fund. The agent then advises the client to sell shares in the fund every two weeks to generate income. According to NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, the agent's recommendations represent: A) Churning B) Unsuitability C) Unauthorized trading D) Front-running

C) An S&P 500 Index fund is not a suitable investment for someone whose investment objectives are capital preservation and current income. Arguably, the agent has also churned the account, choice (a), by advising the client to sell shares in the fund every two weeks, that should otherwise be a long-term investment. However, choice (b) is the best answer here since the fund was not a suitable recommendation in the first place. Choice (c), unauthorized trading, takes place when an agent places an order from a client without permission. Choice (d), front-running, is an illegal practice where an agent buys or sells a security hoping to benefit from a large order placed by a client. (89260)

An agent's customer sends her an order indicating that he wants to purchase 100 shares of BCD stock, which has been listed on a national exchange for the last 10 years. According to NASAA regulations, what's the prospectus delivery requirement for this purchase? A) Prior to confirming the trade, the customer must receive delivery of the prospectus. B) Once the order is entered, delivery of the prospectus must be made within one business day. C) Delivery of the prospectus is not required in this situation since BCD's shares are not a new issue. D) Once payment has been received from the customer, prospectus delivery must be made within five business days.

C) A prospectus must be delivered by no later than the confirmation of the purchase of a "new" issue. However, since the transaction in this question is a secondary market transaction, there is no prospectus delivery requirement.(15592)

The term agent includes a person who represents an issuer in transactions involving: A) Exchange-listed securities B) Investment company shares C) Foreign stock D) Qualified purchasers

C) In general, individuals who represent and issuer are only considered agents and required to register as such if the securities they're selling need to be registered. In other words, individuals who represent issuers of exempt securities or those distributing securities through exempt transactions are not considered agents. Exchange-listed securities and investment company shares are exempt as federal covered securities, while securities sold to qualified purchasers are exempt from registration under the Uniform Securities Act (USA) as an exempt transaction. However, there's no specific exemption for an issuer of foreign stock. An individual who represents the issuer of foreign stock is required to register as an agent in any state(s) in which the securities are being sold. (17253)

In an effort to drum up new business, Braintree Advisers would like to publish a list of its past recommendations. Which of the following best describes Braintree's obligations according to the USA? A) The list must cover all recommendations made by Braintree within the past fiscal quarter B) The list must cover all recommendations made by Braintree to retail accounts during the prior six months C) A minimum one-year time frame must be used by Braintree when publishing a list of recommendations D) Braintree may publish a list of its most favorable recommendations; provided it is based on an investment period of at least one year and the list is maintained for a minimum of three years

C) A minimum one-year time frame must be used by Braintree when publishing a list of recommendations

IA Incorporated is an investment adviser. BD Securities is a brokerage firm with offices down the hall. IA Incorporated and BD Securities have an agreement under which IA directs brokerage transactions to BD and receives a 15% rebate on the commissions that BD charges. This arrangement is: A) A conflict of interest and an unethical business practice B) Acceptable, provided BD is also registered as an investment adviser C) Acceptable, provided IA discloses the arrangement to its clients in writing D) Acceptable, provided the arrangement is in writing and filed with the Administrator

C) Acceptable, provided IA discloses the arrangement to its clients in writing

Under what circumstances may the Administrator of State X issue a cease-and-desist order on behalf of the Administrator of State Y? A) Only when the agent involved is also registered in State X B) Only if the Administrator in State X receives a written request from the Administrator of State Y C) Never D) Anytime the Administrator of State X believes that the agent is about to violate the law in State X

C) Never

Broker-Dealer X just hired a new agent. The agent has two existing securities accounts: an IRA account with a large mutual fund group in which he may only purchase this these types of securities and a regular account with Broker-Dealer Y. The agent must: A) Immediately close both of the existing securities accounts, open an account with Broker-Dealer X and transfer all the assets to this new account B) Notify the State Administrator on Form U4 about the existing accounts C) Notify Broker-Dealer Y that the agent is now employed by Broker-Dealer X D) Notify both the mutual fund group and Broker-Dealer Y that the agent is now associated with Broker-Dealer X

C) Notify Broker-Dealer Y that the agent is now employed by Broker-Dealer X

Under the Uniform Securities Act, which of the following persons automatically becomes registered as an investment adviser representative when the investment adviser's registration becomes effective? A) Only individuals who have been investment adviser representatives in another state B) All officers, directors, and partners of the investment adviser C) Only those officers, directors, and partners with management responsibilities D) Any person who performs clerical service for the investment adviser

C) Only those officers, directors, and partners with management responsibilities

How long does a broker-dealer need to maintain records of customer suitability information? A) Three years B)Five years C) Six years D) As long as the broker-dealer is in business

C) Six years The broker-dealer must keep records of customer suitability information for at least six years from the time the information was last updated or the account is closed. (88929)

Which of the following may be grounds for denial of the registration of an agent? A) Filing a Consent to Service of Process B) The agent was previously registered with another broker-dealer C) The agent fails to pay a registration fee D) The agent was convicted of a misdemeanor

C) The agent fails to pay a registration fee Along with the application and a Consent to Service of Process, the agent must pay a registration fee. A misdemeanor conviction may be grounds for denial, but only if the misdemeanor conviction was securities related (i.e., not just any misdemeanor). (32357)

How does an Administrator determine whether excessive trading has occurred in a customer's account? A) The client's financial situation B) The frequency of unsolicited trades in the account C) The suitability of solicited trades in the account D) The suitability of unsolicited trades in the account

C) The suitability of solicited trades in the account Churning or excessive trading is a prohibited activity. To determine whether churning has occurred, regulators typically examine the suitability of solicited trades (i.e., those which were recommended by agents of a broker-dealer). Unsolicited trades are executed at the client's own volition, without advice from an agent of a broker-dealer, and are irrelevant for churning determination. (15451)

An order ticket does NOT need to include which of the following pieces of information when it is created? A) The account number B) The time of receipt C) The time of execution D) Whether the order was solicited or unsolicited

C) The time of execution An order ticket must include the number of the account for which the order was taken, choice (a). It must also include the time the order was received from the client, choice (b), and whether the order was solicited or unsolicited, choice (d). The ticket does not need to include the time of execution when it is first created. (That information will be added later unless the order is not executed for some reason.) (89256)

An agent has been given the login and password for a client's account. The client has provided written authorization for the agent to login and place trades in the client's account. This activity is considered: A) Acceptable, provided the authorization was filed with the Administrator. B) Acceptable, provided the broker-dealer's policies allow for it. C) Unacceptable, since it likely violates the terms of service of the broker-dealer's online account access system. D) Unacceptable, since it's strictly prohibited under the Uniform Securities Act.

C) Unacceptable, since it likely violates the terms of service of the broker-dealer's online account access system Since the agent is logging into the website using the client's credentials, it's impossible to determine which transactions were entered by the agent and which were entered by the customer. Since broker-dealers cannot identify whether trades were fraudulent, they prohibit the sharing of usernames and passwords in their terms of service. (15447)

Which of the following persons would be considered an investment adviser representative under the Uniform Securities Act? A) A registered representative with BareBones Brokerage who occasionally offers complimentary tax and financial planning advice to clients B) An office manager of an advisory firm who manages sales associates C) lawyer who refers business to an advisory firm and receives a referral fee D) All of the above

C) lawyer who refers business to an advisory firm and receives a referral fee

Which of the following activities is NOT considered an unethical business practice for a broker-dealer?

Charging fees for transferring, safekeeping, and custody of securities

An agent's recommendations have made a client a lot of money over the last two years. The client is so pleased that he tells the agent that she can keep 5% of any gains in his account from now on. Which of the following statements is TRUE? A) This is acceptable as long as the broker-dealer and the client agree in writing B) This is acceptable if the broker-dealer is also registered as an investment adviser C) This is not acceptable unless the agent is also registered as an IAR D) This is not acceptable since it is considered to be sharing in the client's profits

D

A client purchases $15,000 worth of a thinly traded stock. Three weeks later the stock is worth $5,000 and the client sells the stock at a loss. The agent tells the client that he will be allowed to purchase shares of a new issue that is oversubscribed to make up for the $10,000 loss. Which of the following statements is TRUE concerning the action taken by the agent? A) This is allowed if the agent's supervisor approves the transaction B) This is allowed if the client is permitted to buy oversubscribed issues C) This is allowed if the client has a discretionary account D) This is considered an unethical business practice

D) If an agent or broker-dealer guarantees a customer against a loss, it is considered an unethical business practice. The fact that the client might have a discretionary account or a supervisor approved the transaction is irrelevant. (75695)

You are employed by a bank with the title financial adviser. In your capacity at the bank, you are required to hold a general securities registration in order to provide information on securities and to process orders. Your sponsoring broker-dealer is an affiliated firm owned by the bank holding company that also owns the bank you work for. A client comes to the bank seeking advice on certificates of deposit offered by the bank as well as mutual fund investments. Under the Uniform Securities Act, which of the following choices BEST describes what you are allowed to do when giving advice to the client? A) You are not allowed to advise the client since the bank is not an investment adviser B) You may give the client advice only on the mutual funds since certificates of deposit are governed by banking rules and you are registered with a broker-dealer C) You may not give advice on the certificates of deposit since the bank is not a registered investment adviser D) You may give the client advice since the broker-dealer and the bank are excluded from the definition of an investment adviser

D) Since both the bank and the broker-dealer are excluded from the definition of an investment adviser, you may provide advice on these products without registering as an investment adviser or investment adviser representative. You are acting within the scope of your employment with the broker-dealer. (89554)

Which of the following statements is TRUE regarding an options account? A) Before entering an options order, the customer must return the signed options account agreement B) Before entering an options order, the Registered Options Principal (ROP) must receive the Options Disclosure Document C) Before entering an options order, the customer must return the options account agreement D) Before entering an options order, the broker-dealer must deliver the Options Disclosure Document to the cusomter

D) When opening an options account, the customer must receive the Options Disclosure Document. This document must be sent to the customer no later than the time the Registered Options Principal approves the account for trading. The firm may not enter an order for the customer until the account is approved for trading. Thus, the firm must send the document to the customer before the customer's first options order is entered. The customer has 15 days to return the options account agreement. (88932)

A wealthy, retired executive whose health is failing, would like her nephew, an IAR, to manage her affairs. Which of the following documents would be required, for her nephew to have investment authority currently, and retain control over the account in the event his aunt becomes incapacitated or deceased? A) Full power of attorney and designation as executor B) Full power of attorney and durable power of attorney C) Durable power of attorney D) Durable power of attorney and designation as executor

D) The IAR should secure a durable power of attorney to address the failing health of his aunt. The durable power of attorney will continue to be in force in the event of the aunt's becoming incapacitated. The executive should also create or amend her will to appoint her nephew as the executor of her estate in the event of her death. (89285)

A bank president is selling his bank's debentures to banking clients. In this capacity, he is considered to be: A) A broker-dealer B) An agent of the issuer C) An agent of the broker-dealer D) Excluded from the definition of agent

D) Excluded from the definition of agent Those persons representing the issuer, who are involved in the direct marketing of certain exempt securities, are excluded from the definition of a securities agent. This includes persons representing the issuers of bank securities, commercial paper, municipal bonds, securities of other governmental bodies, and employee benefit plans (A full, detailed list is included in your Study Manual and we recommend that you review that list before your exam). In this scenario, since the bank president is selling his own bank's securities, these securities are exempt. This is why he is not an agent of the issuer. (89524)

Under the Uniform Securities Act, which of the following constitutes grounds to warrant the issuance of an injunction restraining the sale of securities? I) The failure to make a required report regarding securities II) The making of false, fraudulent, or misleading representations III) The failure to disclose the speculative nature of securities offered A) I and II only B) I and III only C) II and III only

D) I, II, and III

According to the Uniform Securities Act, the application process for an investment adviser may include: A) Meeting a capital requirement equal to at least 2% of the assets managed B) Filing contracts with the Administrator C) Making a daily determination of the value of each account D) Posting a notice in a newspaper that the adviser is an applicant for registration

D) Posting a notice in a newspaper that the adviser is an applicant for registration An applicant may be required to give public notice that it is seeking registration as an investment adviser. (62132) (89238)

Which of the following books and records would be the LEAST important for an auditor to review during an examination of a local or branch office? A) Customer suitability information B) Order tickets and trade blotters C) Personnel records D) Prospectuses and subscription agreements

D) Prospectuses and subscription agreements Customer suitability information, personnel records, order tickets and trade blotters should be maintained at the local or branch office. An auditor examining a local or branch office would be most likely to need these types of documents to conduct the examination. (15379)

An agent receives a letter from an irate client. The letter is the fifth in the last six months and the language is abusive. The agent forwards it to his supervisor. The supervisor decides against a reply and discards the letter. In this instance, which of the following statements is TRUE? A) The supervisor is entitled to decide how to handle such situations B) If the supervisor forwards the complaint to the Administrator, this is acceptable C) The Uniform Securities Act requires that all material complaints be forwarded to the Administrator D) The Uniform Securities Act requires that a response be made to all written complaint

D) The Uniform Securities Act requires that a response be made to all written complaint

At Amazon Brokerage Services, which is located in Arizona, Sandy and her sister Sally work as agents. Sandy recently contacted a referral who currently works in Arizona, but maintains a primary residence in Nevada for tax purposes. Sandy is not registered in Nevada, but Sally is. Since the account may be a multimillion dollar, actively traded account, Sandy wants to have the account serviced by her sister, while she splits the commissions. How should this be handled? A) This is permissible since both agents are employed by the same firm B) This is permissible since the sale would go under Sally's registration C) Commission splitting is not permissible under any circumstances D) This is not permissible since Sandy is not registered in Nevada

D) This is not permissible since Sandy is not registered in Nevada

An agent receives insider information about a stock. Out of nowhere, a customer calls her and places an order to sell the same stock. The agent must:

Execute the client order without mentioning the information

An advisory fee that increases and decreases proportionately with the investment record of an appropriate securities indexis called a(n):

Fulcrum fee

An agent holding full discretionary authority over a customer's account may: I) Buy or sell securities in the account without consulting the customer II) Receive a fee for using his discretion in trading the account III) Withdraw money from the account IV) Borrow assets from the customer's account

I & III

A broker-dealer is registered in State A. Which TWO of the following statements are TRUE regarding the examination of that broker-dealer's records by the Administrator of State A? I) The Administrator may examine the broker-dealer's records even if they are located in State B II) If the records are located in State B, the Administrator ofState A must obtain the consent of the Administrator of State B to examine the records III) The Administrator may examine the broker-dealer's records under any circumstances IV) The Administrator may examine the broker-dealer's records with good reason

I & IV

Which TWO of the following choices describe an unethical business practice? I) An agent tells clients that the broker-dealer will rebate their commissions if an IPO does not increase by 10% during its first month of trading II) An agent tells clients to purchase shares in a company based on the research report the broker-dealer just issued III) An agent who has insider information about a stock executes a client's unsolicited order for that stock IV) An agent highlights the important parts of a prospectus at the client's request

I and IV

Paul is an investment adviser representative for Bruce Asset Management, a federal covered investment adviser. Although Paul's office is located in State A, he conducts business with clients from State A, State B, and State C. Which of the following choices reflect(s) the state registration requirements in this situation? I) Bruce Asset Management must be registered in State A II) Paul must be registered in State A III) Paul must be registered in State B and State C. IV) Bruce Asset Management must be registered in State B and State C

II

Under the Uniform Securities Act, which TWO of the following practices are prohibited? I) Accepting orders from a client's brother with written, third-party authorization II) Recommending securities without regard for the client's financial resources III) Quoting a price that is marked up from the current offering price IV) Crediting a portion of mutual fund's sales load back to a client's account

II & IV

Under the Uniform Securities Act, which of the following issuers are NOT required to file a registration statement with the state Administrator? I) Companies with stock quoted on the Over-The-Counter Bulletin Board (OTCBB) II) Federal savings and loan associations III) Registered investment companies IV) Companies registered with the Securities and Exchange Commission (SEC)

II and III Choice (II) is an exempt issuer and would not be required to file a registration statement. Choice (III) is an issuer of federal covered securities and would not be required to file a registration statement. It may, however, need to notice-file with the Administrator. Notice filing applies to certain federal covered securities. The notice filing includes the Consent to Service of Process, payment of a filing fee, and may include copies of material filed with the SEC as part the issuer's federal registration. This is NOT considered a registration. With regards to choices (I) and (IV), companies that register with the SEC may still be required to file a registration statement with the Administrator -- for example, securities that are quoted on the Over-The-Counter Bulletin Board (OTCBB). (89577)

Which of the following situations would constitute an assignment of an investment advisory contract requiring client approval? i) The investment adviser is a partnership with three partners, one of whom dies ii) The investment adviser is a partnership with seven partners, three of whom retire, while another dies iii) The investment adviser changes from a sole proprietorship to a LLC iv) A corporation acquires 60% of the assets of the broker-dealer parent of an investment adviser

II, III, and IV An investment advisory contract may not be assigned without a client's consent. Any action that causes a change in the adviser's management, organizational structure, or control is considered an assignment, such as the acquisition of 60% of a partnership's assets by a corporation. If the adviser is organized as a partnership, the death, resignation or retirement of a minority of the partners does not constitute a change of control or management—roman numeral (I). However, the investment adviser does need to notify its clients if the composition of the partnership changes. (89300)

Which following statements about new customer accounts are TRUE? I) A customer may use a P.O. Box as the address of record when opening a new account II) The broker-dealer must obtain the customer's suitability information before the first transaction in the account is executed III) All accounts must be approved by a registered principal IV) The customer's new account information must be kept for at least 6 years

III & IV A customer may not use a P.O. Box to open an account. (The customer may have his mail be sent to a P.O. Box if he wants.) Broker-dealers and their agents must make a reasonable attempt to obtain suitability information about a customer, but they are not required to do so. The regulators recognize that some customers may refuse to provide this information. However, without suitability information, it will be very difficult for the agent to make any recommendations to the customer. A qualified principal of the firm must approve all new accounts, and the customer's new account information must be kept for at least 6 years after it is last updated, or the account is closed. (88902)

Bonds may be required of all of the following entities, EXCEPT:

Investment advisers who do not have discretionary authority or custody of client funds or securities

Under the Uniform Securities Act, an institutional investor:

Is designated by rule or order of the Administrator

John is an agent who just opened an account for Mary, a new client. Unfortunately, Mary is very tight-lipped about her finances. She gives John very little information, saying only that she is a conservative investor whose objective is growth. What type of securities may John recommend for her account?

Mutual funds that meet her risk tolerance and investment objective

A client buys unregistered securities at the suggestion of an agent. The agent has the client sign a waiver as to the noncompliance of the transaction with law, absolving the agent of any wrongdoing. The waiver the client signed is:

Null and void

The Administrator of State P requests that the Administrator of State Q issue a cease-and-desist order. May the Administrator of State Q grant this request?

Only if the Administrator of State Q believes that the laws of that state are being violated, or will be violated

A woman owns a very successful bike shop and plans to conduct a public offering of shares in order to expand her business. She will assist in marketing the shares, but will not receive direct compensation for her efforts. According to the Uniform Securities Act, the owner must:

Register the securities

Which of the following choices warrants the denial of registration by the Administrator? A) The registrant was arrested for insider trading B) The registrant was charged in a stock manipulation scheme C) The registrant was convicted of a drug-related felony D) The registrant was convicted of a misdemeanor

The Administrator may deny registration for any felony conviction, not just those involving securities. Registration can also be denied if there is a misdemeanor conviction involving securities. Being arrested or charged with a criminal act falls short of being convicted. (75521)

An agent is concerned that many customers do not bother to read the prospectus before investing in a mutual fund. Under SEC rules, the agent may take which of the following actions to help his clients become better-educated investors?

The agent may give clients a summary prospectus

An agent of a broker-dealer executes a securities transaction that is not recorded on the broker-dealer's books and records. According to NASAA Statements of Policy, this would NOT be an unethical business practice if the agent had done which of the following?

The agent received the broker-dealer's written authorization prior to the execution of the transaction

An agent for a broker-dealer finds a handwritten note on her desk left by a client. The note states that the client is unhappy with the recommendations the agent made recently. The agent recommended stocks that the firm's research department had on its buy list. The client lost money on some of the recommendations that she accepted. Which of the following statements is TRUE regarding this situation?

The note should be given to a principal

A woman in State A is reading a daily financial newspaper that contains an advertisement that could be interpreted as an offer to sell securities. The newspaper is published in State B, but its circulation is spread evenly throughout the United States. According to the Uniform Securities Act, which of the following statements is TRUE regarding the advertisement?

The offer is made in neither State A nor State B

Advertising and sales-related materials would need to be filed with the Administrator in which of the following circumstances?

The securities are listed on a foreign exchange

If a bank owns a broker-dealer subsidiary, what would its registration requirements be under the USA?

The subsidiary would need to register in any state in which it planned to do business

An agent overhears that the chairman of a large manufacturing firm may be ousted because of erratic social behavior. The agent decides to call all clients who own shares of the manufacturing corporation and tell them to liquidate their positions. Under the Uniform Securities Act, which of the following statements is TRUE?

This action constitutes an unconfirmed rumor to induce a purchase or sale

An agent takes the prospectus for a new issue and creates a marketing piece that includes all the positive facts from the prospectus but none of the risk factors. According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, the agent may give this marketing piece to a client:

This type of communication may never be provided to a client

An agent for a broker-dealer is registered in State A. The agent has a prospective client who lives in State B and wants to open an account, but neither the agent nor the broker-dealer is registered in State B. The agent suggests that the client use her parents' address to open the account since they reside in State A and she is currently visiting them. May the broker-dealer open the account?

Under no circumstances

Monty has been following PQRS Company ever since Broker-Dealer B recommended the stock two months ago. Monty has been discussing with his agent, Vanessa, the possibility of buying the stock. It is obvious to Vanessa that Monty has been doing a lot of his own research on the company. However, she notes that he does not seem to be aware that the company has recently sold off one of its most successful divisions. Monty seems ready to enter a buy order for the stock. Which of the following statements is TRUE?

Vanessa must disclose the sale of the division since it is a material fact

Which of the following choices does not meet the definition of a security under the Uniform Securities Act?

Whole life insurance policies