SERIES 6: Section 4 ... Marketing, Prospecting, & Sales Presentation
the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions to incur the higher sales charge.
A breakpoint sale is:
permitted as long as there is nothing misleading about the name.
A broker-dealer member firm of FINRA would like to conduct business under another name. The use of a DBA is:
a back-end sales charge that decreases the longer the investor holds the shares.
A contingent deferred sales charge is best described as:
6.25%
A customer invests $35,000 in a fund with breakpoints as shown below: $25,000 - $49,000 - 7% $50,000 - $99,000 - 6.25% If she has signed a letter of intent for a total of $50,000, what is her sales charge on the $35,000 initial investment?
Shares will be redeemed at a price equal to the next calculated net asset value.
A customer purchases 1,000 ABC mutual fund Class A shares and wishes to redeem the shares 30 days later. Which of the following will occur?
$50.
A customer wishes to redeem 1,000 shares of a mutual fund. The NAV and POP are $10, and a redemption fee of 0.5% will be charged. How much will the customer pay in redemption fees? ** The question did not ask how much he would receive upon redemption, but how much he would pay in redemption fees. Mutual fund shares are redeemed at the NAV (bid): 1,000 shares × $10 each = $10,000. $10,000 × .005 (.5% redemption fee) = $50.
buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in one year and .75 12b-1 fee.
A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to:
the name of the broker-dealer placing the ad, but not the name of the investment company.
A generic ad for an investment company placed by a broker-dealer would contain:
The fund may halt redemption during the time the letter of intent is in effect.
A letter of intent for a mutual fund does NOT contain which of the following provisions?
$8.30.
A mutual fund has a net asset value (NAV) of $7.80 per share, and the fund pays its underwriter a concession of $0.12 per share. If the fund has a sales load of $0.50 per share and an administrative fee of $0.15 per share, how much does the investor pay per share to purchase a Class A share of this fund?
at the discretion of investment company management.
A mutual fund may temporarily suspend the redemption provision under all of the following circumstances EXCEPT:
A breakdown schedule
A mutual fund prospectus displays which of the following?
an application to invest.
A national financial magazine advertisement for ABC mutual funds is permitted to include all of the following EXCEPT:
Announcement on television that your firm's offices have moved.
A registered representative at your firm made a public appearance that was not subject to the rules of conduct regarding public appearances. Which of the following might it have been?
II and IV.
A registered representative is hosting a seminar to solicit sales of a specific mutual fund. He has highlighted features of the fund in the prospectuses he will hand out and has prepared summary sheets of the prospectus for distribution. Regarding this situation, which of the following statements are TRUE? I. It is acceptable to highlight the key points in the prospectus. II. A prospectus may not be highlighted. III. Distributing summary sheets of a prospectus is acceptable. IV. The representative may not distribute summary sheets of the prospectus.
The fund has had a positive performance in the last few years.
A registered representative making a sales presentation based on performance statements and charts is permitted to make which of the following observations?
a violation of the Conduct Rules.
A registered representative tells his client, "Because this investment made a 5% return for the last 20 years, it should easily do so again next year." This constitutes:
sending a copy of a newspaper article (with supervisory approval) about a company whose stock is being solicited.
All of the following actions are potential violations EXCEPT:
prospectuses.
All of the following are considered public communications EXCEPT:
internal memos
All of the following are included under the term retail communication EXCEPT
it must have prior principal approval
All of the following are true regarding institutional communications EXCEPT
literature on an investment company that includes a ranking prepared by the member firm
All of the following communications may be filed with FINRA by an established firm at least 10 business days after use EXCEPT
a training presentation that is marked for internal use only
All of the following items require review by a principal of the member firm EXCEPT
performance predictions.
All of the following may be included in mutual fund communications with the public EXCEPT:
an investment club.
All of the following may receive breakpoint discounts EXCEPT:
A radio spot saying that offices have moved.
All of the following would be subject to the Conduct Rules regarding public appearances EXCEPT:
II and III.
An investor has $250,000 to invest in mutual funds. Which of the following would be appropriate statements to make to him? I. Buying a no load fund will insure better performance in the long run. II. If you purchase Class B shares, you will have no load now, but you will probably incur higher operating costs. III. A purchase of Class A shares in this quantity will probably lead to a reduction in sales charge.
deducted from the lower of the original cost or the NAV when those shares are redeemed.
An investor in Class B shares with a 7 year contingent deferred sales charge liquidates shares four years after purchase. The CDSC is:
The exchange is considered a taxable event that must be recognized in the current year.
An investor owns $10,000 of shares in ABC bond fund. Due to a change in his financial situation, he wishes to exchange the bond fund shares for shares in ABC's aggressive growth fund. Which of the statements below correctly describes the tax consequences of this action?
$2,410.
An investor redeems 200 shares of ABC Fund, which has no redemption fee. If the quote is $12.05 bid $13.01 asked, what amount will the investor receive? ** If a mutual fund has no redemption fee, the investor will receive the bid price per share (net asset value) multiplied by the number of shares being redeemed. In this case, the investor would receive $2,410 ($12.05 × 200 shares).
$3,540.
An investor redeems 300 shares in ACE Fund. When the investor bought the shares at $12, the NAV was $11.08. If the current POP is $12.50 and the NAV is $11.80, the investor receives: ** Shares are redeemed at NAV. If the investor redeems 300 shares at an NAV of $11.80, he receives $3,540 (300 × $11.80).
Class A shares.
An investor with a long time horizon and $100,000 to invest would most likely be interested in:
front-end load.
Class A shares of a mutual fund have a:
Mutual fund advertisements placed by a broker-dealer that became a member of FINRA 7 months ago
Filing at least 10 business days before first use is required for which of the following?
retail communication
Filing with FINRA is required for mutual fund-related
II and IV.
If a registered representative wishes to distribute a copy of a national magazine article about the GAON Mutual Fund, which of the following statements is CORRECT? I. Because this material is already in the public domain, it is excluded from the rules on communication with the public. II. This material meets the definition of an independently prepared reprint. III. The article may be used without prior approval of a principal of the member firm. IV. The article may not be sent without prior or concurrent delivery of the GAON Fund prospectus.
a registered principal.
If a registered representative wishes to place an advertisement in a local newspaper offering her services as a mutual fund representative for XYZ Funds, the advertisement must be approved by:
II and III.
If an investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are TRUE? I. He may discuss the investment returns of the mutual fund in general, provided he does not use a specific time frame. II. He may discuss the investment returns of the mutual fund using a specific time frame. III. He must disclose all material facts regarding the mutual fund to the audience. IV. He may emphasize the positive aspects of the mutual fund and refer prospective investors to the prospectus for further details.
to FINRA member firms engaged in the investment banking or securities business.
In general, the Conduct Rules permit selling concessions and discounts:
II and IV.
In making a sales presentation to a prospective customer, a registered representative selling open-end investment company shares may compare the shares to a savings account at a bank if: I. it is pointed out that mutual funds have the advantage of federal backing. II. the risk of share price fluctuation is discussed. III. it is pointed out that mutual funds have the advantage of higher liquidity. IV. a statement is made concerning variability of dividend returns.
This product gives you the possibility of a greater death benefit in exchange for accepting investment risks.
In promoting a variable life insurance contract to a customer, which of the following statements would be permissible?
II and III.
In recommending securities to customers, a FINRA member firm must do which of the following? I. Guarantee that future performance will match or exceed past performance. II. Have a suitable basis for recommendations. III. Disclose or offer to disclose supporting documentation. IV. Offer to reimburse execution costs associated with recommendations.
I and II
Institutional communications include all of the following EXCEPT I. informational material on a new mutual fund offered by a registered investment company intended for use by registered sales personnel only II. television appearances by an officer of a member firm III. a recommendation report prepared for an insurance company IV. a research report specifically prepared for a Section 457 plan with 100 participants
the risks inherent in the investment.
Investment recommendations must be fully explained, with special emphasis placed on:
90 days
Letters of intent may be backdated up to how many days?
a deferred sales load.
Mutual fund Class B shares assess:
Class C shares.
Mutual fund shares that carry a level load are:
the address where a check to purchase shares is to be mailed.
Mutual fund tombstone advertisements complying with SEC Rule 482 may include all of the following information EXCEPT:
the highest sales charge.
Performance charts of a particular mutual fund must be based on an assumption that the investor paid:
must include assurances or guarantees regarding investment performance.
Recommendations to a customer:
AAA bonds to a client who has income as an objective.
Selling which of the following is NOT a violation of the Conduct Rules?
convert shares to a different mutual fund within the family of funds on a dollar-for-dollar basis.
Some mutual funds that are in a family of funds managed by the same company offer an exchange privilege. This privilege gives a shareholder the right to:
exchange shares of one mutual fund for those of another within the same fund family, at net asset value.
Some open-end investment companies offer their investors a conversion privilege, which permits an investor to:
combine the investments of one fund with another in the same fund family to reach a breakpoint.
Some open-end investment companies offer their investors combination privileges which permit an investor to:
$375.
The GEM Fund Group offers a combination privilege and has breakpoints for its Class A shares as follows: $10,000 - $24,999 4% $25,000 - $49,999 3% $50,000 - $99,999 2% $100,000 - $249,999 1.5% $250,000 - $499,999 1.0% $500,000 and over 0.0% If your client signs a letter of intent for $100,000 and makes an initial deposit of $25,000, the amount of sales charge on that purchase would be: ** When one signs a letter of intent, the sales charge is applicable to the dollar amount designated in the letter. In this case, the amount of $100,000 has a 1.5% sales load; 1.5% × $25,000 invested equals a $375 sales charge on the initial purchase.
With the size of the companies in KLP's portfolio, you can be sure that your fund shares will at least hold steady in value.
The KLP Fund is a blue-chip growth mutual fund that concentrates on the stock of manufacturing companies that have total capitalization of at least $7.5 billion. Bid prices on KLP shares have shown mild to moderate growth in recent years. In addressing a client for whom the fund appears to be a suitable investment, which of the following statements would NOT be permissible?
II and IV.
The NAV of a mutual fund Class A share: I. must be calculated at least twice per business day. II. can never be higher than the POP. III. can never be equal to the POP. IV. can never be so much lower than the POP that the difference exceeds 8.5% of the POP.
I and II
The following testimonial appears in an advertisement for the ABC International Growth Fund; "The ABC International Growth Fund has been an excellent investment for me and my family and I recommend it to anyone seeking more than 10% average annual returns over the next five to ten years." Walt White, International traveler. Which of the following are TRUE? I. If Walt was compensated more than $100 for the testimonial, disclosure is required. II. A disclosure that past performance does not indicate future performance is required. III. The ABC International Growth fund is appropriate for any investor seeking more than 10% average annual returns over the next five to ten years IV. Walt's title qualifies him to give advice on international investments because of his extensive experience and knowledge of international travel.
I and IV
To charge an 8.5% sales load, a mutual fund must offer all of the following rights and privileges EXCEPT I. conversion (exchange) II. breakpoints III. rights of accumulation IV. redemption checks sent within 7 days of request
Father and his 35-year-old son investing in separate accounts.
To qualify for the quantity discount, which of the following could NOT be defined as a person?
Correspondence to 25 or fewer retail investors within any 30 calendar-day period
Under the rules on communication with the public, review of which of the following by a principal may take place either before or after distribution?
The name is filed with both FINRA and SEC.
Under what circumstances may a member firm use a fictional name or DBA (doing business as) in its communications?
I and II.
Under which of the following circumstances could a member firm make alterations to an article on securities before using it as an independently prepared reprint? I. The member firm could alter the presentation format to make it consistent with regulatory standards. II. The member firm could correct the reported number of shares being offered if the original article stated the number incorrectly. III. The member firm could make alterations, provided the article was commissioned by the issuer, not the member firm itself. IV. The member firm could make alterations of content as long as the publisher of the article was an affiliate of either the issuer or the member firm.
The redemption value of mutual fund shares fluctuates according to the fund's portfolio value.
When an agent explains mutual funds to a prospective investor, which of the following statements may be made?
state of incorporation of the companies.
When comparing investment alternatives, all of the following must be considered EXCEPT:
II and III.
Which of the following are TRUE about testimonials used in a public communication? I. The person giving the testimonial must not be paid. II. If the person giving the testimonial received compensation in excess of $100, this must be indicated. III. It must be clearly stated that the listener's experience may be different from that described in the testimonial. IV. The qualifications of the person giving the testimonial need not be given.
I and III.
Which of the following are features of Class C mutual fund shares? I. Typically charge no front-end load. II. Typically charge a front-end load. III. Typically impose lower CDSCs than Class B shares for a shorter period. IV. Typically convert to Class A shares after they are held for a defined period of time.
Form letter sent to 10 prospective retail customers every week
Which of the following communications are subject to principal approval before first use?
I and IV.
Which of the following constitute a public appearance? I. Interactive electronic forum. II. Radio advertisement. III. Television commercial. IV. Television interview.
Net asset value plus the underwriter's concession.
Which of the following describes the price of a Class A mutual fund share paid by a dealer on contract with the fund's underwriter?
I and II
Which of the following entities must review retail communications for investment company shares prepared by principal underwriters? I. Principal of the underwriting broker-dealer distributing the shares II. FINRA III. SEC IV. NYSE
FINRA.
Which of the following entities must review retail communications to be used by a member firm in connection with the offering of investment company shares?
Letter sent this month to 50 prospective customers offering advice about a stock
Which of the following forms of written communication must a principal approve before use?
A report created and sent to the firm's institutional customers only
Which of the following is NOT considered retail communication?
I and IV
Which of the following is a form of retail communication? I. A form letter sent to more than 25 prospective retail customers within a 30-day period II. A letter to a prospect outlining the details of a recent meeting III. An email sent to 30 banks promoting a new service of the broker-dealer IV. A form letter sent to 20 prospective retail investors and 20 existing customers within a 30-day period
A registered representative in California places several cold calls at 7:00 pm Pacific time to prospective customers in New York.
Which of the following is a violation of the Telephone Consumer Protection Act of 1991?
Wall Street Journal article on investing
Which of the following is classified as an independently prepared reprint (IPR)?
I and II.
Which of the following must be reviewed and approved by a principal before it may be sent out? I. A communication sent to 36 prospective customers this week, recommending a new mutual fund II. A communication sent to 36 of the firm's existing customers this week, introducing a new service offered by the firm III. A communication sent to 36 of the firm's registered representatives, recommending a new sales approach IV. A communication sent only to 36 institutional customers, recommending a security in which the firm makes a market
I and II.
Which of the following mutual fund share classes are specially suited to investors that have long-term objectives? I. Class A shares for investors that have a large amount to invest. II. Class B shares for investors that have a small amount to invest. III. Class A shares for investors that have a small amount to invest. IV. Class C shares.
I and III.
Which of the following services must a mutual-fund sponsor offer to be permitted to charge the maximum allowable sales charge for the fund shares? I. Rights of accumulation. II. Conversion and exchange privileges. III. Price breakpoints offering reduced sales charges for larger purchases. IV. The right to purchase fractional shares.
I and IV.
Which of the following share classes have a back-end load? I. Class B. II. Class A. III. No-load shares. IV. Class C.
II and IV.
Which of the following share classes typically have a higher expense ratio than Class A shares? I. No-load shares. II. Class B shares. III. Front-end load shares. IV. Class C shares.
I and II.
Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE? I. The material used to solicit the sale of mutual fund shares requires prior approval by a principal of the firm. II. FINRA must review all mutual fund retail communications within three days of its first use. III. If the mutual fund sponsor has had the literature reviewed by FINRA in advance, other firms need not submit it. IV. FINRA must review all mutual fund sales literature within seven days of its first use.
Our managers are dedicated to giving you the very best service.
Which of the following statements could legally appear in mutual fund communications with the public?
I and III.
Which of the following statements regarding a mutual fund omitting prospectus are TRUE? I. It does not have certain information contained in a full prospectus. II. It may contain an application to invest. III. It is a form of advertising. IV. It need not contain information on how to obtain a full prospectus.
I and IV.
Which of the following statements regarding investment companies are TRUE? I. Investment companies may offer breakpoints provided they are offered uniformly. II. Investment companies may tell their customers that the role of the custodian is to supervise the sale and purchase of portfolio securities. III. Investment companies must send all advertisements to FINRA within 30 days of their first use. IV. The Securities Act of 1933 requires that a prospectus be provided in conjunction with the solicitation of orders for mutual fund shares.
II and III
Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? I. The letter can cover a period totaling 16 months. II. The letter may be backdated 90 days. III. Some shares purchased are held in escrow until the letter is completed. IV. During the period covered by the letter, the customer may not redeem his shares.
II and IV.
Which of the following steps must a representative take when making cold calls? I. Strike the names of uninterested prospects off of the call list. II. Inform prospects of the firm's name and telephone number or address. III. Limit calls to between 8:00 am and 10:00 pm of the time zone in which prospects are located. IV. Not call prospects who have made a Do-Not-Call request.
The fund does not offer breakpoints.
Which of the following would prevent a mutual fund with a front- end load from charging as much as 8.5% of POP as a sales charge?
A RR uses outside electronic addresses and Twitter among other sources to communicate with clients and provides copies to the firm.
With regard to social media used for communication, all of the following would result in regulatory sanctions, EXCEPT:
a principal of the firm.
Written recommendations prepared by a research department for dissemination to the public need prior approval of:
The minimum death benefit is guaranteed.
You are preparing a sales presentation for a customer whose portfolio you think would best be served by variable life insurance. You are considering several statements you might wish to make. Which of the following would be permitted?
Encourage the customer to sign a letter of intent.
You have a client with $15,000 to invest in a mutual fund whose first breakpoint is at $25,000. Which of the following would be ways to enable the client to obtain the reduced sales charge applicable at that breakpoint?
5% on each purchase, 0% deferred sales load
Your client is interested in purchasing the Class A shares of the BACH Investment Company, whose maximum sales charge is 5%. Which of the following choices best describes the sales load she would probably be charged on her purchase of the BACH?
II and III.
Your client owns shares of the RAN Fund, an open-end investment company with an objective of aggressive growth. If the client wished to redeem a portion of her holdings: I. the RAN Fund will find another investor to purchase the shares redeemed. II. the mutual fund would send her a check within seven days of her redemption request. III. any fees or concessions earned by the firm would be returned to the underwriter if the redemption occurs within seven days of the original sale IV. she would have to pay a penalty for redeeming less than the entire account.
Class A.
Your customer has inherited $50,000, with which he would like to make a onetime, long-term investment for growth. Of the funds you recommend to him, he has selected one that offers A-, B-, and C-class shares. Which should he purchase?
A contingent deferred sales charge.
Your customer has redeemed some of his mutual fund shares, but finds that the price he received is somewhat less than was reported as the NAV of his fund in the newspaper the next day. The most likely reason for this is which of the following?
He must declare $12,000 as a taxable gain upon exchange into the ACE income fund.
Your customer originally invested $20,000 into the ACE Growth Fund and has reinvested dividends and gains of $8,000. His shares in ACE are now worth $40,000. He exchanges his investment to the ACE Income Fund. Which of the following statements is TRUE? ** The exchange privilege offers exchange without an additional sales charge, but the exchange is still taxable. The customer is taxed on the gain of $12,000 ($40,000 − $28,000). The taxes on $8,000 (dividends and capital gains) were taxed in the years distribution took place.
both the job opportunity and the industry itself be represented honestly.
Your firm is doing interviews of the top candidates from among those who responded to a recruiting advertisement. Advertising rules require that:
He will receive a reduced load on $13,200 worth of the shares.
client invests $2,200 in an open-end investment company and signs a letter of intent for a $10,000 breakpoint. If he deposits $11,000 6 months later, which of the following statements is TRUE?
