S66 Missed Qs Exam 1

An investment adviser must record the personal securities transactions that are effected by its officers, directors, partners, and employees by no later than: QID:1506683 Mark For Review AThe day of the trade Monthly 10 days after the end of the calendar quarter DWithin 90 days of the adviser's fiscal year

10 days after the end of the calendar quarter According to NASAA's Model Rule for Recordkeeping Requirements for Investment Advisers, an adviser must maintain a record of each personal securities transaction in which the adviser, an IAR, an officer, director, partner, or employee acquires either direct or indirect ownership. These transactions must be recorded by no later than 10 days after the end of the calendar quarter in which the transaction occurred.

As an investment adviser, you are required to record and keep a record of every transaction in a security for a client's account within: QID:1507228 Mark For Review 10 days of the end of each quarter 10 days of the end of each quarter, excluding direct obligations of the U.S. government C20 days of the end of each quarter D20 days of the end of each quarter, excluding direct obligations of the U.S. government

10 days of the end of each quarter, excluding direct obligations of the U.S. government Under both the Investment Advisers Act and the Uniform Securities Act, investment advisers are required to keep a record of every securities transaction within 10 days of the end of the quarter in which the transaction took place. Transactions in direct obligations of the U.S. government are excluded from this requirement. (62968)

Under the Uniform Securities Act, an Administrator may deny registration to an agent because of findings that indicate the agent had been convicted of a felony within the past: QID:1507552 Mark For Review 10 years B20 years C25 years Unlimited period

10 years The Administrator may deny an agent's registration if she finds the individual has been convicted of a felony within the past 10 years. (62109)

Based on the past performance of XYZ stock, an investment adviser has determined that there is a 25% chance that in a bull market, XYZ stock will return 20%. In a flat market (50% probability), the return should be 5%. The likelihood of a bear market is 25%, and expected returns would be a loss of 10%. What is the expected return for XYZ stock? QID:1506945 Mark For Review 5% 10% C15% D20%

5% According to modern portfolio theory, the expected return is the sum of the weighted average of an investment's return. To find each weighted return, multiply the return by the likelihood of that return. For XYZ stock, the expected return is as follows. Return Likelihood Weighted Return20%x25%=5%5%x50%=2.5%(10%)x25%=(2.5%) Expected return = 5% (5% + 2.5% - 2.5%)

When trading on margin, clients are required to deposit: QID:1507549 Mark For Review 50% of the market value of the security 50% of the amount of money borrowed C25% of the market value of the security D25% of the amount of money borrowed

50% of the market value of the security The 1934 Securities Exchange Act, Regulation T, provided the Federal Reserve with the power to establish equity requirements when trading on margin. The current initial requirement when purchasing common stock is 50% of the market value of the security at the time of the transaction. (62703)

Under the Uniform Securities Act, which of the following transactions is NOT exempt from state registration? QID:1507229 Mark For Review AThe sale of securities by a sheriff An isolated, non-issuer transaction CA transaction executed on a national securities exchange A Rule 147 offering

A Rule 147 offering The Rule 147 (intrastate) exemption is a federal or SEC exemption and does not apply to the Uniform Securities Act. For that reason, an issuer conducting an offering of securities in one state is required to register the offering in that state. On the other hand, a transaction by a fiduciary, such as an executor, sheriff, marshal, guardian, trustee in bankruptcy, is exempt from state registration. Additionally, isolated, non-issuer transactions and transactions executed on the New York Stock Exchange, Nasdaq, or any other recognized national or regional exchanges are exempt from state registration. (89009)

Who would NOT be exempt from the definition of agent under the Uniform Securities Act? QID:1507553 Mark For Review AA NYC official who sells investment-grade GO bonds to the public A finance V.P. of a major appliance manufacturer who sells AAA bonds to the public CA finance officer of a biotech company who sells IPO stock to his company's investment banker A clerk processing 401(k) distributions for former coworkers

A finance V.P. of a major appliance manufacturer who sells AAA bonds to the public Sometimes employees of an issuer selling securities may be considered agents. Generally, an employee of an issuer selling stock to the public would be considered an agent under the USA. Exemptions occur when the employee sells exempt securities, such as municipal debt, or is involved in an exempt transaction, such as a sale of securities to an investment banker during an underwriting. Employees who simply process financial transactions for coworkers are exempt unless they receive additional compensation for these activities. (62889)

ction Advisers creates financial plans for clients. It generally implements these plans through Packaged Products Producers (PPP), a limited broker-dealer owned by Action. PPP offers a mix of mutual funds and variable annuities, but does not engage in transactions involving individual stocks or bonds. What information must be disclosed to Action's advisory clients? QID:1507538 Mark For Review A statement that the implementation of client financial plans may be limited because of the incomplete product selection available through PPP PPP's monthly net capital position CA statement that the plans implemented using only mutual funds and annuities will not be able to sufficiently offer diversification for most clients DA statement that the plan will probably have subpar performance due to the limited investment choices offered by PPP

A statement that the implementation of client financial plans may be limited because of the incomplete product selection available through PPP According to SEC Release IA-1092, an IAR/RR who intends to implement a plan using only products offered by a given broker-dealer must inform the client that the plan's implementation may be limited as a result. The IAR/RR should also disclose that PPP is a subsidiary of Action, since this is a conflict of interest. Mutual funds may provide sufficient diversification for many clients. (62290)

A limited partnership would be the least suitable for which of the following investors? QID:1506697 Mark For Review A widower investing the proceeds of his deceased spouse's life insurance policy, whose main objectives are current income and capital preservation BAn individual in his mid-forties investing a lump sum for retirement, whose main goal is capital appreciation and tax relief A retired investor with a high liquid net worth, whose main objectives are current income and tax relief DA young aggressive investor with a high income, whose main objectives are capital appreciation and speculation

A widower investing the proceeds of his deceased spouse's life insurance policy, whose main objectives are current income and capital preservation A limited partnership may not be a suitable investment for any of these individuals. The use of insurance proceeds are definitely the least suitable based on his circumstances and investment objectives. (32451)

Under NASAA's Statement of Policy on Unethical Business Practices, which of the following statements is TRUE regarding investment advisory fees charged to customers? QID:1506940 Mark For Review There is no limit on the fee charged, provided the customer agrees to the method of computation and the method is disclosed in writing to the client BInvestment advisory fees may not exceed an annual rate of 5% of the total assets under management, with assets valued at the end of the computation period Advisers may not charge fees that are unreasonably high in relation to fees charged by other advisers for similar services DAs long as the fees charged by an investment adviser (IA) are based on a percentage of the assets under management, and not on a percentage of profits, and are agreed to by the client, there is no limitation on the size of fees charged

Advisers may not charge fees that are unreasonably high in relation to fees charged by other advisers for similar services Although it is difficult to compare the advisory services provided to clients of different advisers, a general standard of reasonable fees is used to compare fees charged by various advisers. Fees that are obviously out of line with those charged for similar services are considered unethical. (62043)

During the day, Big Block Traders has taken down 100,000 shares of Vantage Holdings at $6.33, another 200,000 shares at $6.17, and then 327,000 shares at $6.54. When distributing these shares to its discretionary clients, which of the following allocation methods is acceptable? QID:1507207 Mark For Review AAllocating low cost shares to the largest clients BAllocating high cost shares to non-wrap accounts All clients should be given shares at a price that is near the firm's average daily cost All clients should be charged the average market price of the security for that date

All clients should be given shares at a price that is near the firm's average daily cost When examining a firm's method of allocating trades among its clients, the regulators main focus is on fairness. Of the given choices, the best approach is to give stock to all clients at a price that is near the firm's average daily cost (plus commissions/markups, etc.). The average market price for the security during the day is irrelevant since the firm's average daily cost may differ significantly from this price. (89006)

A client is interested in trading actively, purchasing on margin, and having broad exposure to the U.S. equity market. Which of the following investments is the LEAST suitable? QID:1506687 Mark For Review An S&P 500 Index mutual fund An S&P 500 Index ETF CA DJIA Index ETF DA closed-end fund

An S&P 500 Index mutual fund Open-end investment company (mutual fund) shares are not appropriate for short-term trading, do not trade on an exchange, and cannot be purchased on margin. On the other hand, most ETFs and closed-end fund shares trade on an exchange and allow the use of margin and short selling.

When dealing with a customer, a broker-dealer is quoting an offering price of $10.00 per share on a stock that is currently trading in the market at $6.00 per share. If the broker-dealer does not disclose the difference in prices to the customer, this would be considered: QID:1507218 Mark For Review AA typical example of a market maker adding a markup An unethical business practice since the quoted price is not related to the current market price CAn unethical business practice since the spread was not disclosed to the customer An ethical practice provided the customer is willing to pay the offering price

An unethical business practice since the quoted price is not related to the current market price This question contains an example of providing a quote that is not based on the contemporaneous market price. Even with proper disclosure, this is considered an unethical business practice. A market maker is prohibited from adding a large markup to a stock price in order to ensure a profit. The contemporaneous market price is the current price at which a firm is willing to effect a trade. (67532)

If a client executes a secondary market trade through a broker-dealer, what information must be disclosed to the client? QID:1506941 Mark For Review AThe brochure or Form ADV Part 2 A prospectus Any unusually excessive fees DThe reason that the trade was suitable

Any unusually excessive fees Broker-dealers and/or their agents are always required to notify their clients if the fees that they are going to be charged are excessive or out of the ordinary. Form ADV Part 2 or the brochure is actually a disclosure document that investment advisers provide to their clients; this is not used by broker-dealers. A prospectus is required only for new issues in the primary market, not when secondary market trades are executed through a broker-dealer. Although all securities recommendations should be suitable, there is no requirement to provide an explanation in advance as to why each trade is suitable. (89014)

A client who purchased a security from a broker-dealer has filed a lawsuit arguing that he is entitled to damages after discovering a material error on the firm's part. Which of the following is a reasonable defense to the suit? QID:1506934 Mark For Review AThere is no defense due to the fact that an error was discovered As the seller, the broker-dealer may attempt to prove that the firm did not know about the error and that reasonable care was taken to discover any errors CThe buyer must prove that the broker-dealer knew about the error and willfully exploited the error to make a sale As the seller, the broker-dealer may attempt to prove that the buyer knew of the error and, just to file a lawsuit, bought the security anyway

As the seller, the broker-dealer may attempt to prove that the firm did not know about the error and that reasonable care was taken to discover any errors As the seller, if the broker-dealer took reasonable care in checking the facts and made an unintentional, material error, it could make a reasonable defense against the lawsuit. The buyer is not required to prove what the broker-dealer knew. Instead, the buyer is only required to prove that the broker-dealer should have known about the error and that it was negligent. (75915)

The manager of the XYZ Fund is permitted to move assets between the stock and bond markets, depending on economic conditions. Last year the manager had 70% of the fund's assets invested in stocks while only 30% in bonds. This year she has reversed the ratio. XYZ fund is most likely a(n): QID:1507219 Mark For Review Asset allocation fund BHedge fund Balanced fund DEquity income fund

Asset allocation fund An asset allocation fund permits the manager to change investment strategies and vehicles, based on changing market/economic conditions. (62661)

If a client is long a large number of stocks in different industries, he may reduce the risk of a market decline by doing which of the following? QID:1506695 Mark For Review ASell S&P 500 Index calls BBuy S&P 500 Index calls Sell S&P 500 Index puts Buy S&P 500 Index puts

Buy S&P 500 Index puts By buying puts on the S&P 500 Index, the client has the right to receive cash, the in-the-money amount, should the market decline. Selling calls on the Index will provide the investor with income, but little protection. Buying calls gives the investor the right to receive cash, the in- the-money amount, should it increase. Selling puts obligates the investor to pay the in-the-money amount should it decline. (62047)

Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: QID:1507209 Mark For Review AOne year BThree years Five years There is no time limit for criminal violations

Five years The statute of limitations for criminal violations under the Act is five years. (62943)

Which of the following statements about barbell strategies is NOT TRUE? QID:1506689 Mark For Review AThe strategy consists of purchasing bonds with both short and long maturities, but no intermediate-term securities are included The short-term bonds will provide for quick cash to purchase new bonds upon maturity CA barbell strategy is used to take advantage of potential interest-rate changes Gains from the short-term maturities will offset losses in the long-term maturities

Gains from the short-term maturities will offset losses in the long-term maturities A barbell strategy consists of buying short-term and long-term bonds, but not intermediate-term bonds. The purchase of long-term bonds allows an investor to capture higher long-term interest rates. The short-term bond provides the opportunity to invest elsewhere if the bond market takes a downturn. There is no guarantee that any money made on the short end of the strategy will offset losses that could occur on the long end of the barbell. (63030)

According to the Uniform Securities Act, the Administrator may require federal covered advisers to: QID:1507536 Mark For Review ARegister in every state in which they have a branch office Give notice or notice file in any state where they transact business with six or more individual retail clients Register with the Administrator in any state where they transact business with six or more individual retail clients DDo nothing because the Administrator has no jurisdiction

Give notice or notice file in any state where they transact business with six or more individual retail clients The Administrator may require federal covered investment advisers to notice file if they transact business with more than five noninstitutional clients over a 12-month period. Notice filing is not a form of registration. Instead, it is the process of a federal covered adviser sharing information with the Administrator that it has filed with the SEC. (67640)

Which TWO of the following are considered exempt reporting advisers (ERAs)?Venture capital advisersPrivate fund advisers with assets under management of less than $150 millionFamily office advisersPrivate fund advisers with assets under management exceeding $150 million QID:1507541 Mark For Review I and II BI and III CII and III III and IV

I and II Venture capital advisers and private fund advisers with assets under management of less than $150 million are exempt from registration as an adviser with the SEC and/or state Administrator; however, they must still pay fees and report public information via the IARD/FINRA system.

An agent of a broker-dealer publishes a Web page that discusses the benefits of dollar cost averaging and why investors should invest with long-term goals in mind. If a customer in a state where the agent is not registered reads the Web site, which of the following legends must be on the Web site in order to take advantage of the safe harbor rule and not register in the state?The agent will only conduct business in the state if registered or exempted.Follow-ups will be handled only by agents who are registered or exempt.Internet advertising is exempt from state regulation and subject to SEC review.The rule number of the safe harbor being used is disclosed. QID:1506696 Mark For Review I and II only BI, II, and IV only CIII only IV only

I and II only According to NASAA's interpretive order concerning broker-dealers, investment advisers, broker-dealer agents, and investment adviser representatives, for the general dissemination of information on products and services, when advertising on the Internet an agent must include a legend in which it is clearly stated that (1) A broker-dealer agent or investment adviser representative in question may transact business in the state only if first registered, excluded, or exempted from state registration requirements. (2) Follow-up, or individualized responses to persons in this state by a broker-dealer agent or investment adviser representative that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with state registration requirements, or an applicable exemption or exclusion. The SEC is not the only entity that regulates Internet advertising, and there is no requirement to disclose rule numbers. (63014)

Which TWO of the following statements are TRUE regarding the contributions that are made to public charities and private foundations?Contributions that are made to public charities are tax-deductibleContributions that are made to public charities are non-deductibleContributions that are made to private foundations are tax-deductibleContributions that are made to private foundations are non-deductible QID:1507222 Mark For Review I and III BI and IV CII and III II and IV

I and III According to IRS rules, contributions that are made to either public charities or private foundations are tax-deductible (pre-tax).

Under ERISA, the Investment Policy Statement of a qualified plan: Defines the roles of the parties involved in the management of the plan Identifies specific asset classes to be offered in the plan Lists the criteria for the selection and performance requirements for each investment option Requires the fiduciary of the plan to be registered as an IA with the state Administrator

I, II, and III only The Investment Policy Statement of a qualified plan does not address the registration requirements or status of the fiduciary. However, under the Uniform Securities Act, an IA has fiduciary responsibility and is exempt from state registration if the plan's assets are at least $1 million and the IA has no place of business in the state. (89012)

Under the Uniform Securities Act, an Administrator who requires the posting of a surety bond MAY:Accept cashAccept securitiesUse discretion as to whether the type of securities and the amount of the deposit are appropriateDisallow the deposit of cash or securities instead of a bond QID:1506680 Mark For Review AI only I, II, and III only CI, II, and IV only I, II, III, and IV

I, II, and III only The state Administrator may accept a deposit of cash or securities in lieu of a surety bond. The Administrator may determine the type of securities acceptable for deposit but may not altogether disallow deposits of securities in lieu of a bond. (62987)

Which TWO of the following investments are NOT considered money-market instruments?A U.S. Treasury billA money-market mutual fundA convertible debentureA tax anticipation note QID:1506928 Mark For Review I and II BI and III II and III DII and IV

II and III Money-market securities are defined as debt instruments that have less than one year until maturity. U.S. Treasury bills and tax anticipation notes (TANs) are both short-term debt instruments and are considered money-market instruments. A money-market mutual fund is an instrument that issues common shares which represent an investor's ownership interest in a portfolio of money-market securities. Convertible debentures are debt instruments; however, since the maturity of the debentures is not provided in the answer, it should not be assumed to be one year or less. (89005)

Kyle and Christina have been friends since high school. Christina is an agent of a broker-dealer, while Kyle is a wealthy musician. Together they open a joint brokerage account. They each deposit $30,000 and agree to split any profits equally. What are the regulations for this arrangement? QID:1507539 Mark For Review AIt is acceptable as long as Kyle agrees to it in writing and releases Christina from all liability It is acceptable if Kyle, Christina, and Christina's broker-dealer agree to it in writing It is acceptable if Kyle and Christina's broker-dealer agree to it in writing; however, since Christina is an agent, she does not need to agree in writing DThis arrangement is never acceptable

It is acceptable if Kyle, Christina, and Christina's broker-dealer agree to it in writing In order to share in a customer's account, an agent must obtain permission from her employer and the customer. Since the agent will be investing, she is also considered a customer and will also be required to give permission. Additionally, profits and losses must be shared proportionately, based on the amounts both parties contribute to the account. (67656)

Ed and Stephan want to start a Web site design business. They are trying to decide what the best way is to organize the business. They want to protect their personal assets from any debts that the business incurs, but they also want to avoid being double-taxed on their profits. Based on these objectives, the BEST organizational structure for them to adopt would be a: QID:1507206 Mark For Review Limited partnership BGeneral partnership CC Corporation Limited liability company

Limited liability company The two main advantages of a limited liability company are that the owners cannot be held personally liable for the company's debts, and the IRS treats limited liability companies the same way as partnerships for tax purposes. Ed and Stephan can limit their liability but they can also avoid paying both corporate and personal income taxes on their profits, as they would otherwise need to do if they formed a C Corporation. A general partnership would not protect them from liability since all general partners are responsible for the partnership's debts. A limited partnership must have both a general partner and a limited partner, so only the limited partner would be protected from liability. (62560)

Which types of investments have historically shown a great deal of exposure to regulatory risk? QID:1506947 Mark For Review Limited partnerships Corporate bonds CCommon stocks DVariable annuities

Limited partnerships Regulatory risk is the possibility that changes in the law or regulations can have an adverse impact on the value of investments. Although all kinds of investments can be subject to regulatory risk, limited partnerships have historically been particularly vulnerable. For example, adverse changes in the tax laws in 1986 caused the value of many limited partnerships to drop. (62016)

Value investors would be interested in companies that have: QID:1507196 Mark For Review Low price earnings ratios High price earnings ratios CHigh price to book value DLow dividend yields

Low price earnings ratios Value investing is a method of identifying securities that are undervalued based on company fundamentals. Value stocks tend to have low stock prices in relationship to their earnings, a higher dividend yield than their industry peers, and, typically, trade at a price closer to or at a discount to the book value than their competitors. Value investors believe that the most undervalued companies should rebound and outperform the market. This, of course, assumes that the company is financially sound. (63012)

According to the Investment Advisers Act of 1940, when must an access person submit a transaction report? QID:1507548 Mark For Review ANo later than 10 days after the end of the calendar quarter in which the transaction was effected Promptly No later than 30 days after the end of each calendar quarter DWithin 90 days of the end of the adviser's fiscal year

No later than 30 days after the end of each calendar quarterThe Investment Advisers Act of 1940 requires an access person of an adviser to report his personal securities transactions by no later than 30 days after the end of each calendar quarter. On the other hand, the Uniform Securities Act requires an adviser to maintain a record of all personal securities transactions by no later than 10 days after the end of the calendar quarter.

What method of crediting an equity indexed annuity's returns is based on the index value over a specified period? QID:1507542 Mark For Review AAmerican style Capped CBinary Point-to-point

Point-to-point Equity index annuities (EIAs) provide returns that are based on the return of an equity index; however, if the market falls, they also provide a minimum rate of return. Insurance companies will credit the annuitants' accounts periodically. Some insurance companies credit their policyholders monthly, annually, or bi-annually, while others do it on a specific date (e.g., the starting point may be the value of the index on the date of issuance and the ending point is the value of the index on a particular date), which is referred to as "point-to-point." The amount of credited interest will then be based on the increase or decreased in the indexed value since the last time it was credited. (18611)

All of the following statements regarding the Capital Asset Pricing Model (CAPM) are TRUE, EXCEPT it: QID:1506681 Mark For Review Predicts future values for the stock Was developed to explain the behavior of security prices CProvides a mechanism to assess risk and return DIs based on the efficient market theory and assumes all investors act rationally

Predicts future values for the stock CAPM does not establish a price objective for the stock. All of the other statements regarding this theory are true. (62032)

Which of the following securities or transactions are subject to the registration provisions of the Uniform Securities Act (USA)? QID:1507204 Mark For Review AUnsolicited private placement transactions Unsolicited non-issuer transactions CTransactions with financial institutions Public offerings of securitie

Public offerings of securities Public sales (offerings) are typically subject to registration requirements. Private placements, unsolicited non-issuer transactions, and transactions with financial institutions are exempt from the registration provisions of the Uniform Securities Act. However, no transaction is ever exempt from the antifraud provisions of the Act. (32389)

Under the Uniform Securities Act, all of the following meet the definition of an agent, EXCEPT an individual who: QID:1507528 Mark For Review AWorks for a broker-dealer and sells exchange-listed securities Effects transactions in registered securities with the public CRepresents a broker-dealer in effecting securities transactions, but does not earn commissions Represents an issuer in effecting exempt transactions

Represents an issuer in effecting exempt transactions Without exception, an individual who represents a broker-dealer in effecting securities transactions is considered an agent. Also, if an individual represents an issuer and receives compensation for selling securities that have been subject to registration, she is an agent. However, if an individual represents an issuer in an exempt transaction, she is not considered an agent. Remember, if an individual represents a broker-dealer in effecting securities transactions, she must always register as an agent, even if she is involved in executing exempt transactions. To determine if an individual qualifies for an exception as an agent, determine who the individual represents— a broker-dealer or issuer. Exceptions are available for individuals who represent an issuer, but not for individuals representing a broker-dealer. (32469)

Which of the following is not a sector rotation strategy? QID:1506933 Mark For Review Investing in different industries that perform better based on the economic business cycle BInvesting in different countries' economies based on their ability to overperform CRotating assets between cyclical and counter-cyclical industries Rotating between long-term and short-term bonds

Rotating between long-term and short-term bonds Sector rotation refers to a strategy that attempts to time the movement of assets into different market sectors based upon the superior performance in those segments. For example, an investor who anticipates that one emerging economy will outperform another, or one industry group that is correlated with the market (cyclical) will outperform the market as the economy recovers. Rotating between long-term and short-term bonds will help an investor reduce the volatility of the portfolio but is not a sector rotation strategy. (62280)

If an agent unknowingly misrepresents the risk associated with a security, which of the following statements is correct according to the Uniform Securities Act? QID:1507540 Mark For Review AThis is considered an act of fraud. Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action. Unknowingly making misrepresentations will result in the denial, suspension, or revocation of the agent's registration. DUnknowingly making misrepresentations will result in the denial, suspension, or revocation of the registration of the security.

Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action. In this question, since the agent did not willfully intend to mislead an investor, unknowingly making misrepresentations regarding a security is not considered fraudulent. For this reason, the agent is not subject to disciplinary action by the Administrator. However, if the misrepresentations were intentional, the Administrator may deny, suspend, or revoke the agent's registration. If action is ever taken against an agent, it will not have an effect on the registration of the security. (89013)

The disadvantages of hedge funds for investors include all of the following choices, EXCEPT: QID:1506953 Mark For Review ALack of liquidity BLack of transparency Sophisticated investment strategies Complicated tax structures

Sophisticated investment strategies Some of the disadvantages of hedge funds are illiquidity, less transparency than other investments, and more complicated tax structures. An advantage of hedge funds for most investors is that they engage in sophisticated investment strategies. (63038)

An investment adviser has computed investment returns from clients over the past three years. Which of the following methods would be most useful for calculating the variance of returns that the clients have attained? QID:1507197 Mark For Review Standard Deviation Average Return CBlack-Scholes Model DSharpe Model

Standard Deviation Standard deviation is a statistical term used to characterize the dispersion of numerical measures in a given population. The standard deviation tells how tightly a set of values is clustered around the average. It is a measure of dispersal, or variation, in a group of numbers. Standard deviation provides a good indication of volatility. (62002)

Warren is a growth-oriented investor who is bullish on the long-term prospects of the U.S. stock market. He has diversified his portfolio in the following ways: individual stocks from various sectors, an S&P 500 Index fund, an aggressive growth fund, a fund of funds, and a variable annuity where he has invested in mid- and large-cap stock portfolios. What type of risk is his portfolio MOST subject to? QID:1506951 Mark For Review Capital risk BBusiness risk Systematic risk DInflation risk

Systematic risk Systematic risk is market risk. This is the risk that a decline in the overall market will cause a similar decline in an individual's portfolio. Systematic risk cannot be diversified away. Warren owns many kinds of stocks, in many different market segments and sectors. However, if the overall market declines, Warren's portfolio will be affected. Many of the stocks he owns may also subject Warren to business risk and capital risk. But the overriding concern in this portfolio is a general market decline taking Warren's portfolio with it. As an adviser, you might suggest that Warren consider investing some of his portfolio in bonds and other investments outside of the stock market. (62738)

NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that any fee arrangement based on capital gains or portfolio appreciation may only be used if which of the following disclosures is made in writing? QID:1506926 Mark For Review That the arrangement may cause the adviser to recommend strategies that encourage a client to take greater-than-normal risks BThat the arrangement always leads to lower fees over a long period That the arrangement never results in excessive fees DThe adviser must abstain from any such arrangement because the conflict of interest is too great

That the arrangement may cause the adviser to recommend strategies that encourage a client to take greater-than-normal risks As opposed to other fee arrangements, performance-based fees are more likely to encourage an adviser to take greater risks with a client's money in order to generate more fees. While performance-based fees are generally prohibited under the Uniform Securities Act, some state Administrators make exceptions. (67684)

Which of the following statements is TRUE regarding the state securities Administrator? QID:1507223 Mark For Review AThe Administrator may issue an injunction against a registered agent of a broker-dealer The Administrator may issue a cease-and-desist order to an agent of a broker-dealer without a hearing CFor due cause, the Administrator, may enjoin, or legally block, an agent's ability to conduct business in a particular state The Administrator may arrest any registered employee of a broker-dealer

The Administrator may issue a cease-and-desist order to an agent of a broker-dealer without a hearing Under the Uniform Securities Act, the state Administrator does not have the authority to issue an injunction or an enjoining order, nor may the Administrator arrest anyone or send him to jail. These orders must come strictly from a judge or court of law. The Administrator may, however, issue a cease-and-desist order to an entity under its jurisdiction. (62474)

An agent opens a new account for a client and enters a market order to buy 200 shares of XYZ. At the end of the day, the agent turns in a new account form and a copy of the order ticket for approval by the supervisor. Under the Uniform Securities Act, which of the following statements is TRUE? QID:1506939 Mark For Review AThe agent acted properly The agent needed approval for the new account prior to executing the first order This would be acceptable, provided the account opened was nondiscretionary and the transaction was unsolicited DThis would be acceptable if the order placed was deemed suitable for the client by the agent's principal

The agent needed approval for the new account prior to executing the first order Although prior approval from a supervisor is not required for every order, every new account must be approved by a supervisor prior to executing the first order. (62041)

An investment adviser will NOT violate NASAA's model rules by charging a different fee to different clients for the same advisory service if: QID:1507217 Mark For Review The fees are reasonable based on industry standards and are disclosed BIt discloses that the fees are negotiable It receives written acceptance from each client DIt provides separate and distinct contracts to each client

The fees are reasonable based on industry standards and are disclosed NASAA's model rules require that advisory fees be reasonable based on industry standards. Disclosing a fee and receiving written acceptance from a client does not assure that an adviser has met its fiduciary requirement. Even if a client agrees to an excessive fee, it is still excessive and may be a violation. (67625)

Which of the following should NOT be considered by an investment adviser that is managing the assets of a trust? QID:1507522 Mark For Review AHow inflation may impact the value of the trust's investments BThe general condition of the stock and bond markets The grantor's tax situation The beneficiary's investment needs and other financial resources

The grantor's tax situation The trustee has a fiduciary duty to manage the assets in a reasonable manner and to act in the best interest of the beneficiaries. The grantor endows the trust and, unless he is a beneficiary, is not considered a client. Therefore, the trustee would not consider the grantor's tax needs. (67500)

When using a solicitor, investment advisers must provide their clients with a separate written solicitor disclosure document. According to the Investment Advisers Act of 1940, all of the following are required to be included in the disclosure, EXCEPT: QID:1506937 Mark For Review The performance history of the investment adviser A description of the relationship between the investment adviser and the solicitor CA description of the compensation agreement between the investment adviser and the solicitor DThe name of the investment adviser for whom the solicitor is working

The performance history of the investment adviser Investment advisers are not required to disclose their performance history in the solicitor disclosure document. Instead, they are required to disclose the name of their firm, a description of the solicitor relationship, and the compensation arrangement. (67587)

Charlie Johnson owns a variable life insurance policy. Which of the following statements is TRUE concerning Mr. Johnson's policy? QID:1507208 Mark For Review AHe may not change how his contributions are invested once they are placed in a subaccount His payout is guaranteed by the insurance company The policy may establish a minimum death benefit DIf he dies, his beneficiary will pay all taxes on the policy

The policy may establish a minimum death benefit With a variable life insurance policy, the company usually establishes a minimum death benefit, which protects the investor in the event of poor performance in the separate account. The allocation of investments can be changed, although the contract may place limits on the number of changes per year. If Mr. Johnson died, his estate would pay the taxes. If the company guaranteed payments, it would be considered a fixed annuity. (62022)

The securities holdings report that an access person of an adviser is required to file with her firm's chief compliance officer does NOT include: QID:1506927 Mark For Review AThe type of securities held in her personal account The date that the person submits the report CThe name of the broker-dealer that maintains the person's account The prices paid to acquire the securities

The prices paid to acquire the securities The securities holdings report that an access person files with her firm's CCO include the types of securities held in her personal account, the date that the report is submitted, and the name of the broker-dealer that maintains her personal account. However, the price that is paid to acquire securities is actually included in a different report (the transaction report).

Under the Securities Exchange Act, a customer confirmation is NOT required to disclose: QID:1506938 Mark For Review AThe amount of commission to be received by the broker-dealer for executing an agency transaction BThe settlement date of the trade The capacity in which the broker-dealer is acting The time of the trade execution

The time of the trade execution The Securities Exchange Act requires broker-dealers to make specific disclosures on customer confirmations. Some of the required information includes the capacity in which the broker-dealer is acting (i.e., agency or principal), the amount of commission received by the broker-dealer for executing an agency trade, and the settlement date of the trade. The time of the trade execution is not required to be disclosed on a customer confirmation; however, it may be provided if the customer makes a specific request. (89015)

According to NASAA's Statement of Policy on Unethical Business Practices, all of the following information must be disclosed in an investment advisory contract, EXCEPT: QID:1507211 Mark For Review AWhether the contract grants the adviser discretionary authority over the client's account Whether the contract may be assigned to another registered investment adviser without the client's consent The amount of prepaid fees that will be returned if the contract is terminated DThe method(s) by which the adviser's fees will be calculated

Whether the contract may be assigned to another registered investment adviser without the client's consent NASAA's Statement of Policy on Unethical Business Practices provides that when an investment advisory contract is entering into or renewed, the following disclosures must be made:All fees and services providedThe term of the contractA formula for computing the advisory feeThe amount of prepaid fees to be returned in the event of an early termination of the contractThe fact that no assignment of the contract will be made without the consent of the clientWhether the contract grants discretionary power to the adviserThe fact that the fee for managing equity securities may be higher than for fixed-income securities Since contracts may not be assigned without the consent of the client, there can be no stipulation in the contract which permits this activity. (32434)

Bob is a business manager for professional athletes. As manager, he negotiates their contracts, pays their bills, and provides them with tax advice. When trying to minimize their tax liabilities, Bob will periodically provide advice relating to securities. He considers this advice to be incidental to the business management service he provides. According to the Investment Advisers Act, would Bob be considered an investment adviser? QID:1507221 Mark For Review ANo, the Act specifically excludes persons who provide financial services to athletes and entertainers No, since the investment advice is incidental to the business management service provided CYes, if Bob receives special compensation for the investment advice that he gives his clients Yes, SEC Release 1092 states that the Advisers Act applies to people who provide investment advice to athletes and entertainers

Yes, SEC Release 1092 states that the Advisers Act applies to people who provide investment advice to athletes and entertainers SEC Release 1092 states that sports and entertainment representatives who provide investment advice to their clients are investment advisers and subject to the Investment Advisers Act. The fact that the question refers to Bob as a business manager rather than a sports representative is not relevant. Advice that is incidental to a professional's services is limited to lawyers, accountants, teachers, and engineers. Entertainment and sports representatives who provide securities-related advice for compensation may not claim an exclusion from the definition of investment adviser. (79471)

The investment policy statement of a qualified retirement plan states that no more than 50% of the plan's assets may be invested in stocks. The investment manager places 65% of the plan's assets in stocks in order to take advantage of a bull market and increase the value of the plan's assets. Has the investment manager violated the fiduciary responsibility provisions of ERISA? QID:1507526 Mark For Review ANo, since an investment policy statement is a guideline BNo, since the investment manager took advantage of changing market conditions, which benefited the plan's overall return Yes, the investment manager's decision did not follow the prudent expert rule Yes, since the investment manager did not follow the stipulations of the investment policy statement

Yes, since the investment manager did not follow the stipulations of the investment policy statement This is an actual court case. The plan's trustees sued the investment manager who was held liable even though the plan's assets increased. (62146)

You have been approached by Steven to provide investment advice. Steven was recently named as executor of his uncle's estate and wants your assistance managing the investment portfolio pending disposition. Which of the following statements is TRUE? QID:1507214 Mark For Review You may accept the assignment The Uniform Securities Act prohibits executors from paying outside advisers CYour appointment requires approval of the judge overseeing the estate DYour appointment requires approval of the beneficiaries

You may accept the assignment You may accept the assignment. The executor is free to obtain any necessary outside advice in the exercise of his fiduciary duty. Permission of the court or heirs is not required. Regarding your advice, remember that the estate will be short-lived and, therefore, your focus should be mainly on safeguarding the assets for the benefit of the heirs. Long-term investments or speculative investments would generally not be suitable. (79693)