Series 63 Comprehensive Exam 2.0
Which of the following would be exempt from the sales literature and advertising filing requirements found within the Uniform Securities Act and NASAA Statements of Policy and Model Rules? A A brochure on Treasury bonds B An ad for whiskey warehouse receipts C A form letter used to prospect for new investors in IPOs D A brochure on corporate bonds
A A brochure on Treasury bonds The Administrator may require the filing of sales literature (including form letters) and advertising for non-exempt securities. Advertising and sales literature for exempt securities are not subject to the filing requirements. Individual correspondence is not subject to filing with the Administrator, but form letters, as a type of sales literature, are.
Which of the following statements is correct regarding broker-dealer registration in a state they wish to do business in? A A broker-dealer with branch offices in a state must be registered in that state B A broker-dealer with no branch offices in a state but only wants to facilitate a transaction of securities with the issuer of those securities in the state, is required to register in that state C A broker-dealer with no branch offices in a state and wanting to deal only with institutional investors in the state is required to register in that state D A broker-dealer with up to three branch offices in a state is exempt from registration in that state even though they do business in that state
A A broker-dealer with branch offices in a state must be registered in that state Regardless of how many offices a broker-dealer has in a state, as long as there is at least one, the BD must register in that state to do business there. However, if there are no branch offices in the state, the broker-dealer is excluded from registration there if it does business only with other BDs, intuitional investors, or the issuer of a security involved in a transaction of those securities.
All the following are not considered broker-dealers under the Uniform Securities Act, except: A A person, not an agent, who acts as a market maker in several Nasdaq securities B A partnership formed for the purpose of oil exploration, which raises capital by selling equity interests in the partnership C A dentist trading OTC securities in their IRA D An individual who provides advice about the investment merits of exchange-traded funds in exchange for a monthly fee
A A person, not an agent, who acts as a market maker in several Nasdaq securities A broker-dealer is any person who is in the business of effecting securities transactions for their own account or for the accounts of others. Of the choices given, one is an investment adviser (providing advice for a fee), one is an investor managing their own retirement account (not in the business of effecting securities trades) and one is an issuer (the oil drilling partnership.) Only the market maker meets the definition of a broker-dealer.
Unless exempt or excluded, an investment adviser and investment adviser representative must always be registered: A In the states in which they conduct business B In the state of their principal residence only C In the counties where they transact business D With NASAA
A In the states in which they conduct business An investment adviser and an investment adviser representative must always be registered in a state in which they transact securities business, unless they are exempt from registration. A federally covered adviser is excluded from the definition under state law and is exempt from registration requirements under federal law. Therefore, they are not required to be registered in the state, but may be required to notify the Administrator in that state. However, the investment adviser representative must be registered in the state, even if the investment adviser representative works for a federally covered adviser.
A research analyst recently informed a broker-dealer agent that company X was going to announce very disappointing earnings. The agent immediately sold all 5,000 shares of X's common stock that was held in a discretionary account. Two days later, earnings were announced and the stock's price lost 50% of its value. Under the Uniform Securities Act, which violation has occurred? A Insider trading B Front running C Selling away D Parking
A Insider trading
A financial professional who is in the principal business of rendering investment advice for a fee, by offering investment supervisory services, has recently joined an investment advisory firm. Under the Investment Advisers Act of 1940, this financial professional is considered to be, and may use as a professional title, which of the following? A Investment counsel B Investment adviser representative C Registered representative D Registered investment adviser
A Investment counsel The term "investment counsel" may only be used if 2 criteria or standards are met. An adviser must be in the principal business of acting as an investment adviser and a substantial amount of business must come from providing investment supervisory services. Note that meeting these conditions does not allow an individual or a firm to use the designations RR, RIA or IAR unless they are properly registered as such.
Subsequent to the issuance of a stop order, the Administrator may do which of the following until all questions are resolved and disclosed? A Postpone or suspend the effective date of registration B Allow the registration to go forward C Revoke or suspend an underwriter's license D Revoke an issuer's license
A Postpone or suspend the effective date of registration When an Administrator issues a stop order, the Administrator may postpone or suspend the effectiveness of a registration until all questions relevant to the stop order are disclosed.
A new client just opened a margin account with EFG Capital Management and is ready to place their first trade. When does the broker-dealer need to obtain a signed margin agreement from this client? A Promptly after the initial transaction in the account B A signed margin agreement is not required C Within 3 business days of the initial transaction in the account D Before the initial transaction in the account
A Promptly after the initial transaction in the account It is a violation to execute any transaction in a margin account without securing from the customer a properly executed (signed) written margin agreement promptly after the initial transaction in the account.
Which of the following broker-dealers is not exempt from registration in State B? A S Broker-Dealer, located in State A, processing trades for a client who lives in State B B T Broker-Dealer, located in State A, processing trades for an existing customer of T who is in State B temporarily C R Broker-Dealer, located in State A, conducting transactions for H Broker-Dealer located in State B D M Brokerage, located in State A which is assisting ABC Corporation, located in State B, with an IPO
A S Broker-Dealer, located in State A, processing trades for a client who lives in State B The only firm required to register as a broker-dealer in State B would be S BD. Since they are processing trades for a customer who lives in State B, S must be registered in State B. An easy way to remember this is the following: A broker-dealer is a broker-dealer as soon as they open an office in a state and/or they deal with retail customers who live in that state.
Regarding a customer's discretionary account at a broker-dealer, which of the following is true? A The customer must have given prior written authorization, a principal must have given prior written approval to accept the account and a principal must approve each discretionary transaction promptly after it is executed B The customer must have given prior written authorization, a principal must have given prior written approval to accept the account and the customer must be given the opportunity to reject any discretionary transaction prior to the end of the business day during which it occurred C The agent or registered representative having discretion must direct the customer to give their authorization for each transaction prior to when it will occur, and a principal must review each discretionary transaction within a timely manner, but no later than the end of the next business day D The customer must have given prior written authorization, a principal must have given prior written approval to accept the account and the customer must give prior approval before each discretionary transaction is entered
A The customer must have given prior written authorization, a principal must have given prior written approval to accept the account and a principal must approve each discretionary transaction promptly after it is executed In order for a discretionary power in a customer's account to exist, the customer must give prior written approval. The account must also be accepted by the broker-dealer which must be done in writing by a principal. For brokerage accounts, discretionary trades must be approved by a principal promptly after each trade is executed. "Promptly" is generally interrupted to mean no later than the end of the business day on which the trade occurred.
An investment adviser representative (IAR) uses the internet to distribute general information about products they have used for clients such as variable annuities, options, and exchange-traded funds. Regarding these internet communications, which of the following is true? A These types of communications are not considered transacting business in a state but do require review and approval of the firm B These types of communications are considered transacting business in a state and therefore do require review and approval of the firm C These types of communications are considered transacting business in a state but because of the general nature of the communications do not require review and approval of the firm D These types of communications are not considered transacting business in a state and therefore do not require review and approval by the firm
A These types of communications are not considered transacting business in a state but do require review and approval of the firm These types of general communications that speak only to services or products offered and do not involve effecting or attempting to effect securities transactions or rendering personalized advice regarding securities, are not considered "transacting business" in a state. However, the firm is responsible to ensure that the information is accurate and not misleading, and in that light, review of the communications and approval is required.
Which of the following is not required to register as a broker-dealer in New York state? A A Canadian broker-dealer with a small office in upstate NY that effects transactions for their existing clients B A firm with no place of business in NY that effects transactions in the state exclusively with the issuer of the securities involved in the transactions C A firm located in Manhattan that provides advice on the acquisition of companies for a commission D A firm headquartered in Pennsylvania that effects transactions for a small number of retail investors that live in New York
B A firm with no place of business in NY that effects transactions in the state exclusively with the issuer of the securities involved in the transactions Any person engaged in the business of effecting transactions in securities for the accounts of others or for its own account may be considered a broker-dealer under the USA. The easiest way to remember the registration requirements for broker-dealers is that broker-dealers MUST register in any state they maintain an office, and/or a retail client resides in the state. There are several broker-dealer exclusions and 1 exemption to remember. To be excluded from the definition, 2 conditions must be met. The first condition is no place of business in the state. The second condition is based on who the customers are: the customer must be either an institution or only in the state temporarily. These are known as the institutional exclusion and the snowbird exclusion. Broker-dealers only have 1 exemption, the Canadian exemption. The Canadian firm must be registered as a broker-dealer in Canada and cannot have a place of business in the state. Canadian broker-dealers and their agents may not solicit new clients in a state under this exemption, they are only permitted to work with their existing clients. If the Canadian firm has a location in the state, or if they are soliciting new clients, the registration process must be followed. M&A advisers or finders could be defined as broker-dealers. If the M&A professional is being compensated on the closing of the deal, they are defined as broker-dealers.
An investment adviser recognizes that there will undoubtedly be occasions where it will be in the best interest of one of their clients to purchase the same securities that others, who are also clients, want to sell at the same time. The IA therefore would like all clients to give the IA complete authority to perform agency cross transactions. In this situation, the IA would not need to obtain the client's permission prior to each trade. This authority is known as: A Principal authorization to give a recommendation of a security to one client when another client wants to sell the security which is permissible B Blanket authorization to do agency cross transactions and is permissible C Blanket authorization to do agency cross transactions and is not permissible D Dealer authorization to give a sell recommendation of a security to one client when another client wants to purchase the security which is not permissible
B Blanket authorization to do agency cross transactions and is permissible This is an example of a blanket authorization to do agency cross transactions. This occurs when the IA matches 2 clients for the same transaction. A blanket authorization allows an IA to execute agency crosses for clients without notifying the client prior to each trade. Agency cross transactions, and the blanket authorizations to do them, are permissible under the Investment Advisers Act of 1940.
Which of the following statements is true regarding the financial requirements for investment advisers? I Investment advisers with custody of customer assets must maintain a net worth of not less than $35,000 II Investment advisers with discretionary authority over customer assets must maintain a net capital of not less than $35,000 III Investment advisers with custody of customer assets must maintain a net worth of not less than $100,000 IV Investment advisers with discretionary authority over customer assets must maintain a net worth of not less than $10,000 A II and III B I and IV C II and IV D I and II
B I and IV Investment advisers who have discretionary authority over customer funds but who do not have custody of said funds must maintain a net worth of at least $10,000 and file an unaudited balance sheet with the State Administrator. If an IA takes custody of customer assets, the required net worth jumps to $35,000 and the firm must file an audited balance sheet with the State Administrator.
Regarding the purchase for, or sale of securities from an investment adviser's account when the other side of the transaction is a client of the IA, which of the following is true? A Known as a principal transaction, only a purchase from a client for a firm's inventory is allowed with no disclosure or consent required B Known as principal transactions, either is allowable when the proper procedures have been followed; advance disclosure and prior written consent C Known as principal transactions, both are deemed to be conflicts of interest and prohibited D Known as a principal transaction, only a sale to a client from a firm's inventory is allowed with no disclosure or consent required
B Known as principal transactions, either is allowable when the proper procedures have been followed; advance disclosure and prior written consent A principal transaction is one where a firm either purchases securities for its own account from a client, or a firm sells securities from its own account to a client. Both are allowable when the proper procedures are followed; advance written disclosure to the client and prior written consent from the client for each transaction.
An investment adviser representative (IAR) assures a client that a recommended investment is sound, aligns with the client's risk tolerance and investment objectives, and if not profitable within 3 months will be redeemed by the firm for the full cost of the transaction minus commissions. This would be: A Prohibited only because the redemption by the firm does not include the cost of commissions B Prohibited as a recognized attempt to guarantee a profit or guarantee against a loss C Allowed because it is the firm, not the IAR, who is guaranteeing against a loss D Allowed as it is within the time period (3 months) both FINRA and the USA allow for when guaranteeing against a loss
B Prohibited as a recognized attempt to guarantee a profit or guarantee against a loss Under no circumstances may clients be guaranteed a profit on any transaction. Nor may an agent, IAR, or firm share in client losses as a way of guaranteeing the client against a loss.
In a case where a broker-dealer learns that one of its agents has sold unregistered, non-exempt securities through a non-exempt transaction, the broker-dealer may send the purchaser a letter of: A Annulment B Rescission C Cancellation D Restitution
B Rescission If a broker-dealer learns that one of its agents has engaged in an unlawful transaction, the firm will likely send the affected buyer a letter offering to repurchase the securities at the buyer's original purchase price, plus interest, minus any income (such as dividends or interest) that the customer received while holding the securities. This letter is known as a letter of rescission.
An agent registered with the state is also known as: A Investment adviser representative B Securities salesperson C Broker-dealer D Inside trader
B Securities salesperson An agent must register with the state according to the USA and is also known as a sales representative or registered representative.
When using registration by notification, all the following would be included, except: A Statement of the company's eligibility B The name and address of all investors C Copy of the offering circular and prospectus filed with the SEC D Consent to service of process
B The name and address of all investors The name and address of all investors is not required.
Which of the following is not considered an exempt security according to the USA? A 15-year Mexico bond B 15-year Toronto, Ontario, Canada bond C 15-year Mexico City bond D 15-year Paris, Texas GO bond
C 15-year Mexico City bond Bonds issued by recognized foreign governments, such as the Mexican national government, are exempt from state registration. Bonds issued by Canadian national and municipal governments are also exempt from registration in a state. In addition, bonds issued by a U.S. municipality are exempt. Bonds issued by municipalities outside the U.S. and Canada would have to register with a state.
Which of the following would most likely be considered an unreasonable advisory fee? A A fee of $299 per year for accounts with market values above $250,000 or $199 per year for accounts with market values below $250,000 B A fee of $75 per hour C A fee of 1% of annual gains D A fee of 1% of AUM
C A fee of 1% of annual gains Investment advisers are prohibited from being compensated based directly on profits. A fee based on a percentage of total assets under management (AUM) is permitted since AUM takes into consideration both gains and losses in the account.
All the following are correct concerning registration of securities with the Administrator, except: A The Administrator may require the filer to submit updated information not more than quarterly after its registration becomes effective B Registration remains effective for 1 year from the effective date C A registration may be withdrawn prior to its effective date for a full refund of registration fees D The fee for registering securities is typically a percentage of the offering price of the securities to be sold in the state
C A registration may be withdrawn prior to its effective date for a full refund of registration fees If a registration statement is withdrawn before the effective date, or a pre-effective stop order is issued under the USA, the Administrator shall retain all or a part of the fee paid.
An adviser receives securities from a client that should have been delivered to the clearing firm. Nine days later, when the adviser realizes they've received the securities by mistake, they immediately forward them to the clearing firm. Which of the following is accurate? A A violation has occurred; inadvertent custody has taken place because the adviser did not return the securities to the client as this is the only allowable resolution to having mistakenly accepted them B There is no violation; custody did not occur because the adviser forwarded the securities to the third party for whom they were intended to be delivered to within the allowable time frame C A violation has occurred; custody is deemed to have taken place as the securities were not forwarded within the allowable time frame D There is no violation; even though inadvertent custody occurred, the only possible resolution took place within the allowable time frame
C A violation has occurred; custody is deemed to have taken place as the securities were not forwarded within the allowable time frame To avoid being deemed to have taken custody of the securities, the adviser has 3 business days to either return them to the client or forward them to the third party for whom they were intended. If this procedure is followed, the adviser would not be deemed to have taken custody and no violation has occurred. However, in the scenario posed above, the correction didn't take place within the allowable time frame; 3 business days. Therefore, it is a violation because it will be deemed that custody did occur.
ABC Investment Advisers provides investment advisory services to retail customers in State A, where it maintains an office. ABC also provides the same services to 4 retail customers in State B but has no office in the state. Which is true regarding ABC? A ABC is considered an investment adviser in State B and must register there B ABC is excluded from the definition of investment adviser in State B C ABC is an investment adviser in State B, but is exempt and not required to register there D ABC is a federal covered adviser
C ABC is an investment adviser in State B, but is exempt and not required to register there ABC meets the de minimis exemption from the registration requirement. According to this exemption a firm is an investment adviser but is not required to register in a state where it has no place of business and deals with no more than 5 non-institutional clients in the state during the preceding 12 months.
Which of the following may be denied registration by the Administrator? A An individual who was convicted of petty theft 15 years ago B An individual who had their license suspended by the Financial Conduct Authority in the UK 8 years ago C An individual who was the subject of a temporary injunction from engaging in the securities business D An individual who was investigated for money laundering 6 years ago
C An individual who was the subject of a temporary injunction from engaging in the securities business There are many reasons the Administrator may deny, suspend, or revoke the registration of a person. If it is in the best interest of the public and the applicant has been permanently or temporarily enjoined by any court from engaging in the securities business, the Administrator may deny, suspend, or revoke their registration. The Administrator may also deny, revoke, or suspend the registration of an individual if it is in the public interest and the individual has, within the past 10 years, been convicted of any felony or of a securities-related misdemeanor. An individual that was suspected, accused, or investigated of wrongdoing is not the same thing as being convicted. An individual that is the subject of any action from a foreign jurisdiction denying, suspending, or revoking their right to transact securities business in that jurisdiction within the last 5 years may be denied registration by the Administrator.
All the following are true characteristics of registration by qualification, except: A Used when registering a security in only one state B Used when a federal filing is not in effect C Can be used for any exempt security D Usually used for intrastate filings
C Can be used for any exempt security Registration by qualification is used for a non-exempt security. It is used by an issuer who will NOT be registering at the federal level. Remember, an exempt security is exempt from registering in the state.
All the following involve offers and sales, except: A An investor sells 100 shares of exempt stock to their neighbor B An investor gives their nephew 100 shares of assessable stock as a graduation gift. C Company A issues a stock dividend to current shareholders D A car dealer gives shares of GM stock with every car purchased
C Company A issues a stock dividend to current shareholders Stock dividends are not defined as sales or offers. A car dealer giving shares of GM stock with every car purchased is considered a sale because the shares are part of the purchase. The investor giving their nephew 100 shares of assessable stock is considered a sale because the investor receives value for the shares; the avoidance of future fees.
When must an investment adviser renew their state registration? A Every 2 years B December 31st of the year following its initial registration's effective date C December 31st, then annually thereafter D After 12 months, then annually thereafter
C December 31st, then annually thereafter Registrations and notice filings expire annually on December 31, unless renewed. An application for renewal requires an annual filing fee.
All the following are securities, except: A ADRs B Whiskey warehouse receipts C Fixed annuities D Stock warrants
C Fixed annuities Traditional nonvariable insurance policies and fixed annuities are not securities. Variable annuities and variable insurance policies are securities. Whiskey warehouse receipts are securities.
A customer has set up an irrevocable living trust and has named two beneficiaries. The first named beneficiary is to receive the income generated from the trust and the second beneficiary will receive the balance of the trust upon the first beneficiary's death. Which of the following would be true regarding the trustee's fiduciary responsibility? I When making investment decisions, the trustee should rely on any hierarchy provisions or statements of intent included in the trust document II When making investment decisions, the trustee should make sure that the interests of all beneficiaries are considered equally III In the absence of hierarchies or statements of intent in the trust document, the trustee should give priority to the needs or wishes of the majority beneficiary, or income beneficiary, first IV In the absence of hierarchies or statements of intent in the trust document, the trustee should consider the interests of all beneficiaries when making investment decisions A II B I and III C I and IV D IV
C I and IV A trustee in a trust account is always expected to act as a fiduciary and in accordance with the terms set out in the documents that created the trust. In many cases, the grantor of a trust will include a statement of intent in the trust document to specify how the needs of multiple beneficiaries should be balanced. In the absence of such instructions, the trustee should exercise their own best judgment, but should consider the interests of all beneficiaries in their decisions.
An agent would like to share in the profits and losses of an account of a customer who happens to be a close friend. According to NASAA, which of the following correctly addresses this relationship? I Strictly prohibited II Permitted with written authorization of the Administrator III Permitted with written authorization of the customer IV Permitted with written authorization of the RR's (agent's) broker-dealer A I only B II only C III and IV D II, III, and IV
C III and IV RRs (agents) may not share directly or indirectly in profits and losses in customer accounts without the written authorization of the customer and the representative's broker-dealer. Written authorization of the Administrator is NOT a requirement. Under no circumstances may an RR or a broker-dealer share in customer losses as a way to guarantee the client against a loss, nor may clients be guaranteed a profit on any transaction.
Which of the following persons are considered agents as defined in the Uniform Securities Act? A Individuals representing issuers in transactions with employees, and no commission is received B Individuals representing issuers of certain exempt securities C Individuals representing issuers in securities transactions D Individuals representing issuers in exempt transactions
C Individuals representing issuers in securities transactions Individuals representing broker-dealers and issuers in securities transactions are defined as agents under the Uniform Securities Act. There are some exclusions. They are: (1) individuals representing issuers of certain exempt securities, (2) individuals representing issuers in exempt transactions, and (3) individuals representing issuers in transactions with employees (where no commissions are involved).
Pursuant to the USA, which of the following is incorrect as it pertains to records that must be retained and preserved by a broker-dealer or investment adviser? A Customer account files, memos, and correspondence must be preserved B Order tickets, financial statements, and accounting records must be retained C Telephone records showing the phone calls made and received must be retained D Records must be preserved for 3 years for a broker-dealer and 5 years for an investment adviser
C Telephone records showing the phone calls made and received must be retained Telephone invoices are not required to be retained.
Which of the following does not align with the standards of prudent investing as outlined in the Uniform Prudent Investors Act (UPIA)? A A portfolio should be measured by its total return and not that of a single security or investment B Fiduciaries can delegate investment functions to others, as long as safeguards are put into place C Trustees must select conservative, low risk investments such as those considered investment grade D Fiduciaries are expected to diversify client investments to reduce investment risks
C Trustees must select conservative, low risk investments such as those considered investment grade Fiduciaries are not limited to, nor mandated to select low risk or conservative investments under the UPIA. Instead, the UPIA states that high standards of prudence must be applied to any investment, and in the case of trustees, investment decisions should be based upon the needs of the beneficiaries to the trust. All the remaining selections are true regarding their alignment with the UPIA.
If a violation is suspected, initiating an investigation outside the Administrator's state is: A Outside of the Administrator's authority B Permitted only following a hearing C Within the Administrator's authority D A violation of the Uniform Securities Act
C Within the Administrator's authority If the Administrator discovers or suspects a violation of the Uniform Securities Act, the USA gives the State Securities Administrator broad powers to initiate or conduct investigations in or out of the Administrator's state.
All the following are considered persons under the USA, except: A The U.S. government B An IAR registered in State A who represents ABC Investment Advisers C XYZ Corporation, located in State A D A 15-year-old child prodigy who tries to predict the future in the financial markets
D A 15-year-old child prodigy who tries to predict the future in the financial markets According to the Act, individuals and entities are considered persons. A minor, someone who is deceased, and someone who has been declared mentally incompetent are excluded from the definition of a person under the USA.
A client agrees to share in an account, both profits and losses equally with an agent. The agent will put up 45% of the proceeds and the customer will put up 55%. The agreement between them is in writing and the employing firm approves the agreement in writing as well. Under the Uniform Securities Act (USA) this agreement is: A Allowable because the agreement specifies profits and losses equally even though funding the account is disproportionate B Prohibited because funding was disproportionate, with the agent contributing less than the client C Prohibited because even though the firm may have approved it, it is considered a misuse of customer assets and an unethical business practice to share in customer accounts D Allowable because both parties, agent and client agree, and the firm has given approval
D Allowable because both parties, agent and client agree, and the firm has given approval Agents and IARs may not share directly or indirectly in profits and losses in client accounts without prior written agreement between the client and the agent and approval of the employing firm. Therefore, in the above scenario all conditions to allow the sharing have been met and under the USA it would be allowed. While FINRA guidelines state that any sharing must be proportionate to the contributions made to the account, the USA doesn't address proportionate sharing, only that the sharing must be approved. Therefore, the conditions have been met under the USA.
Which of the following is not a permissible soft-dollar expenditure? A Seminar tuition B Investment research software C Investment publication subscription D Computer
D Computer Overhead expenses of the adviser, including office space, computers, furniture, and clerical assistance, are not permitted.
An investment adviser is opening a wrap account with a new customer and will require the customer to prepay the first year's fee. Which of the following is the IA not required to deliver to the customer? A Form ADV Part 2B B Form ADV Part 2 - Appendix 1 C A disclosure of the wrap fee D Form ADV Part 1
D Form ADV Part 1 Form ADV Part 2 consists of two parts: Part 2A contains disclosure information about the investment advisory firm itself, while Part 2B, also called the brochure supplement, contains information about individual representatives of the firm. Advisers who charge wrap fees send customers Part 2A - Appendix 1; instead of the normal Part 2A. Appendix 1 discloses the features and expenses specific to wrap fee arrangements. Advisers need not give customers the ADV Part 1.
A partnership firm was created for the purpose of providing investment advisory services to high net worth individuals. The head of the firm's equity research department also personally provides portfolio management services to the firm's largest clients. Which of the following documents would be provided to these clients to meet the disclosure requirements regarding this person's background? A The partnership's prospectus B Form ADV Part 1 C Form ADV Part 2A D Form ADV Part 2B
D Form ADV Part 2B Under the "brochure rule", An investment adviser must provide its clients with a written disclosure document, called the brochure. This document may be a copy of the adviser's ADV Part 2 (both 2A and 2B), or it may be a separate document that contains at least the same information as ADV Part 2. Certain information must be provided in Part 2B, called the brochure supplement, about each investment adviser representative providing advisory services to customers. Information about each IAR includes education, business history, disciplinary history, outside business activities, compensation, and supervision.
Which of the following are not true regarding an agency cross transaction? I The customer must be sent a quarterly summary of all agency cross transactions in the account II The customer cannot give the investment adviser blanket authorization III The adviser can recommend an agency cross transaction to both the buyer and the seller A I and III B II and III C I and II D I, II, and III
D I, II, and III All these activities are not true regarding agency cross transactions. A customer must be sent an annual summary of agency cross transactions in the account. A customer may give blanket authorization to the investment adviser that may be revoked by the customer at any time. Finally, the investment adviser can only recommend the transaction to the buyer or seller. The investment adviser cannot recommend both sides of the trade.
An agent of a broker-dealer registered and located in State A, has called a client that lives in State B. The call is forwarded to State C where the client has been working for the last 2 weeks. When contacted, the client agrees to invest $25,000 in XYZ Growth Fund. If the confirmation is sent to the client's vacation home in State D, which Administrator(s) will have jurisdiction over the sale? I State A II State B III State C IV State D A I and II B I and III C I, II, III, and IV D I, II, and III
D I, II, and III An Administrator has authority over any sale that originated in their state, was directed into their state, or was accepted in their state. Therefore State A, State B, and State C have potential jurisdiction over this transaction. It is irrelevant where the confirmation is sent.
Investment advisers, as fiduciaries, must disclose to clients any and all material facts in which the adviser may have a conflict of interest. An investment adviser must implement policies and procedures to identify, disclose, and mitigate its conflicts of interest. Which of the following practices between an investment adviser and its clients would be considered a breach of its fiduciary responsibilities? I) An adviser recommends investment in a mutual fund family and receives a portion of revenues from a broker-dealer who sells these funds. The payment of revenues was not mentioned in the firm's Form ADV II) An adviser lends money to a client, giving full and fair written disclosure of the terms of the loan and detailed interest charges, including an amortization schedule III) A broker-dealer provides an investment adviser with a subscription to an online database that provides research data on publicly traded corporations. In exchange for this subscription, the adviser will direct a portion of its orders to the broker-dealer, for which the BD will charge a commission IV) An adviser to a pension fund recommends the pension fund include Class A shares, when the plan is of sufficient size that it qualifies for Institutional Class shares, which offer lower 12b-1 fees A III and IV B II and III C I and II D I, II, and IV
D I, II, and IV An adviser must disclose any potential conflict of interest. By not including a payment received from the sale of a particular mutual fund, the firm has omitted a material conflict of interest. It is considered an unethical practice for an adviser to lend money to a client, even with full and fair disclosure. An adviser also fails in its fiduciary obligation to get the best terms and execution for its clients by steering the client towards shares with higher 12b-1 fees, some of which may be passed to the adviser. The adviser caused the client to pay fees it could have avoided. A broker-dealer offering to give something of value to an investment adviser in exchange for the adviser's transaction business is known as a soft dollar arrangement. This arrangement presents no conflict of interest, as long as the adviser's clients are the direct beneficiary of this arrangement. By providing a subscription to an online research service, the adviser can now offer better insight and information to its clients.
Which of the following persons would be required to register as an agent under the Uniform Securities Act? I The CFO of a bank holding company, selling their employer's stock to the general public II A life insurance salesperson who limits their solicitations to fixed annuities III A State A-based salesperson who sells debt obligations for the city of Paris, France IV A secretary at Big W Investments, who only accepts unsolicited orders when their boss is away on business A II and IV B I and III C I and II D I, III, and IV
D I, III, and IV An employee of a bank selling the bank's securities to the public would not be considered an agent, but an employee of a bank holding company would. The life insurance salesperson is not selling securities while the secretary is. With the exception of those issued by Canadian political subdivisions, only securities from a national government are exempt. Paris is a city, not a country; so this salesperson is working for a non-exempt issuer and must register as an agent.
The Uniform Securities Act does not require the registration of: A Investment adviser representatives B Agents C Broker-dealers D Issuers
D Issuers The Uniform Securities Act requires the registration of broker-dealers and their agents, investment advisers and their investment adviser representatives, and securities.
XYZ Investments is not required to register as an investment adviser in a state if: A It has a place of business in the state but advises only foreign institutional investors B It has no place of business in the state and advises only 10 clients, 4 of whom are institutional investors C It has a place of business in the state but is affiliated with a broker-dealer D It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
D It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.
Under the Uniform Securities Act, which of the following investment adviser advertisements are prohibited? A Use of charts or formulas that clearly do not forecast results B Offering free services with the intention of delivering those services C Disclosing that gains are not guaranteed D Paid testimonials without a written agreement
D Paid testimonials without a written agreement Paid testimonials are allowed in advertising for investment advisers if the proper disclosures are made, they are supervised, and there is a written agreement. This does not mention the de minimis compensation exemption and would therefore, require a written agreement.
The Uniform Securities Act: A Replaces state blue sky laws B Regulates interstate securities transactions C Supersedes the federal securities regulations D Provides a set of model securities laws for enactment by states
D Provides a set of model securities laws for enactment by states The Uniform Securities Act is a set of model securities laws. The state securities laws exist in conjunction with and not in place of federal securities laws. Whenever there is a conflict between federal and state securities law, federal law applies. All state securities laws are referred to as blue sky laws, including those modeled after the Act. The Act regulates securities transactions that occur in whole or in part in a particular state.
The definition of an investment adviser includes which of the following? A Publisher of bona-fide newspapers of general and paid circulation B Publisher of bona-fide financial magazines C Business and financial publication with specific stock forecasts D Publisher of financial advice with specific recommendations for each client
D Publisher of financial advice with specific recommendations for each client Publishers of financial advice are considered investment advisers if the advice is applied to specific client investment situations. The term investment adviser does not include publishers or columnists of any generally circulated magazine, newspaper, or other business or financial publication that does not give advice on the basis of the specific investment situation of each client.
A registered representative likes to remind their clients when a security will be going ex-dividend so that they can purchase it before that date and receive the dividend. The RR does this routinely regardless of the prospects for the stock, short or long term. In other words, it's an investment strategy geared toward collecting periodic income in the form of dividends, rather than a growth-based strategy. Additionally, the RR knows that clients love buying a security and then seeing the dividend hit their accounts so soon after the purchase. This is: A Selling dividends, a fraudulent practice that could subject the RR to civil penalties B Selling dividends, a fraudulent practice that could subject the RR to criminal penalties C Good salesmanship that is nether unethical or fraudulent because collecting the dividend is in the client's best interest D Selling dividends, an unethical practice that could subject the RR to civil penalties
D Selling dividends, an unethical practice that could subject the RR to civil penalties What is shown here is an unethical practice known as selling dividends. This is encouraging investors to purchase securities just prior to the payment of a dividend, implying that the investor will receive an immediate return on capital. When in reality the security's price will be adjusted downward by the amount of the dividend paid, making the return net even. Additionally, the dividend received is considered taxable income.
According to the recordkeeping requirements for investment advisers, which of the following is true regarding the preservation of an investment adviser's records other than those required to be maintained for at least 3 years after termination of the firm? A The majority of records must be kept at the firm's principal office for no less than 3 years, the first 2 in an easily accessible location B The firm's records must be maintained in the firm's principal office for the first 2 years, and afterwards may be stored in a warehouse for no less than 5 years C All books and records must be maintained for a minimum of 2 years in the firm's principal office, and afterwards for no less than an additional 5 years in an easily accessible location D Such records must be maintained in an easily accessible place for at least 5 years, the first 2 in the firm's principal office
D Such records must be maintained in an easily accessible place for at least 5 years, the first 2 in the firm's principal office NASAA's recordkeeping requirements for investment advisers states that the majority of a firm's books and records must be held in an easily accessible place for a minimum of 5 years total, and for the first 2 of those 5 years must be at the firm's principal office. Records may not be stored in a warehouse, as they would no longer be easily accessible. These rules do not apply to the investment adviser's minute books, stock certificate books, partnership agreements, or articles of incorporation, as these documents must be kept for the life of the firm plus 3 years.
When an agent of a broker-dealer has a client who moves to a state that the agent is not registered in, the agent may continue to do securities transactions with the client for up to 60 days, a grace period, during which time registration can be completed. In order for the 60-day grace period to apply in a state, which of the following is true? A The agent must simply be eligible to register in the state with no requirement to be registered with any securities association or a broker-dealer in any other state B There is no registration eligibility required beyond filing the application to register as long as the agent is registered with a securities association such as FINRA in at least one state, and the broker-dealer of the agent is registered in that same state C There is no registration eligibility required beyond filing the application to register as long as the agent is associated with a broker-dealer already registered in that same state D The agent must be eligible to register in the state, registered with a securities association such as FINRA in at least one state, and the broker-dealer of the agent must be registered in that same state
D The agent must be eligible to register in the state, registered with a securities association such as FINRA in at least one state, and the broker-dealer of the agent must be registered in that same state In order for the 60-day grace period to apply, which allows the agent to continue to engage in securities transactions with the client, 3 conditions must be met: 1. The agent must be eligible to register in the state in which the existing customer is located. 2. The agent must be registered with a registered securities association (i.e., FINRA) in at least one state. 3. The broker-dealer of the agent must be registered in that same state.
Which of the following allows an individual to use the term or professional title of investment counsel? A The individual performs investment supervisory services and is properly registered as a registered investment adviser (RIA) B The individual performs investment supervisory services and is properly registered as an investment adviser representative (IAR) C The individual performs investment supervisory services which may be no more than ancillary to their main business D The individual performs investment supervisory services for a firm where providing advice is a substantial part of the firm's business
D The individual performs investment supervisory services for a firm where providing advice is a substantial part of the firm's business The professional title "investment counsel" may be used by any adviser that meets 2 criteria or standards; the adviser performs investment supervisory services and providing advice is a substantial part of, or the primary business of the firm. While other special qualifications or registrations may exist, they are not required.
Consider the following scenario: A customer of a broker-dealer is visiting a friend who resides in a state the broker-dealer is not registered in. The customer and friend are convinced that a security will soon be rising in value. The customer calls their registered representative to place a buy order and the friend asks to open an account immediately so that they can do the same. Which of the following is correct? A The order can be facilitated for both the existing customer and the friend without the BD registering there because the orders were not solicited B Neither an order for the existing customer or the friend could be facilitated because unsolicited orders cannot be taken from a state the BD is not registered in C Neither an order for the existing customer or the friend could be facilitated because the BD is not registered there D The order can be facilitated for the existing customer, but the BD would need to register in the state before facilitating any order for the friend who is a resident there
D The order can be facilitated for the existing customer, but the BD would need to register in the state before facilitating any order for the friend who is a resident there Even though the BD has no place of business in the state, it can facilitate an order for an existing client who is visiting the state. However, to solicit business from, or facilitate business for, any new customer who is a resident of that state, the BD must be registered in the state.
When may civil suits be brought against violators of the Act? A Up to 3 years after the discovery of the violation or up to 5 years after the violation, whichever occurs sooner B Up to 5 years after the violation C Up to 3 years after the violation D Up to 2 years after the discovery of the violation or up to 3 years after the violation, whichever occurs sooner
D Up to 2 years after the discovery of the violation or up to 3 years after the violation, whichever occurs sooner The statute of limitations is 2 years after discovery and 3 years after the violation, whichever is sooner.
What type of client account compensates the investment adviser or sponsor with a flat fee for their advisory and order execution services? A Flat-fee account B Advisory-fee account C Fixed-fee account D Wrap account
D Wrap account When a client pays the investment adviser or sponsor a flat fee for their advisory and order execution transactions, it is called a wrap account.
