Series 63 Crunch Time Facts and Missed Exam Questions
If an agent sells exempt securities in a state - what must have occured?
The agent must have been registered in that state
When registering securities, what must be disclosed?
The amount to be offered in the state must be disclosed, but not the aggregate amount being offered
What is NOT included on a bond confirmation?
The bond's rating
If an agent changes employment from one broker-dealer to another, what must happen?
The former employer notifies FINRA by filing Form U5 and the new employer notifies FINRA by filing a Form U4
Term life policy extended beyond the term period - what will happen?
The premium will increase
UTMA Account
The securities in an UTMA account are the PROPERTY OF THE MINOR. The custodian, who is typically a family member, makes the investment decisions
In lieu of a surety bond, what can the Administrator accept?
They can accept cash and/or securities
IAs responsibility?
They have a fiduciary responsibility to act in their client's best interest
How long must BDs maintain books, records, and correspondence as required by the Admin?
Three years; easily accessible for the first two years. This is any advertising, sales literature, or other comms that have been disseminated to existing or prospective clients. FILE WITH THE ADMIN ANY REQUIRED FINANCIAL REPORTS, WITH AMENDMENTS FOR MATERIAL CHANGES FILED PROMPTLY (W/IN 30 DAYS)
What are exceptions for IAs to provide a brochure?
Unless the client is a registered investment company or the contract that is entered into with a client who received advice based on impersonal advisor service that costs less than $500 per year
Registration by Coordination
Used for interstate offerings
Registration by Qualification
Used for intrastate offerings and requires the most documentation
Transfer on Death (TOD) Account Designation
Used to avoid probate, NOT estate taxes
How long does the IA have to return client funds to not have custody?
Within 3 business days
Endowment policy - security?
Yes
Options on futures and commodities - securities?
Yes
May a BD comingle clients' cash and securities with their own?
Yes to cash; NO to securities. IAs can NEVER COMINGLE
May IAs exercise discretionary authority?
Yes, based on clients verbal approval for 10 days. After the 10 days, it must be in writing
A solicitor for an IA - does he/she need to register?
Yes, must register with the Administrator
May an agent split commissions with another agent?
Yes, provided both agents work at the same BD and the BDs are registered in the same state
Can a BD provide a client's confidential information to another person?
Yes, the BD is permitted to provide a client's confidential client information to another person if t's required to do so by law or if it has received the client's approval
If a BD has an office in a state, must they register in the state?
Yes, they must register in the state.
May IAs charge a performance fee?
Yes, to qualified clients (ie. those with at least $1mm AUM or a net worth of more than $2.1mm)
What is the UPIA based off of?
Based on the Modern Portfolio Theory and emphasized the trade-off between risk and reward
Other names for the Administrator
Commison, Commisioner, or Secretary
BD Recordkeeping
Correspondences are kept for 3 years; easily accessible for 2 years
When do registrations for financial professionals expire?
December 31
For a 529 plan - are equities suitable?
Equities are suitable if the child will not be attending college for many years. However, when the child is one-year away from attending college, short-term bonds become more suitable
Private placement - need to be registered?
Exempt from registration in a state if it's offered to no more than 10 non-institutional investors within a 12-month period
Securities issued by an insurance company
Exempt from registration, but this does not include variable annuities or variable life insurance
Federal covered securities - do they have to go through state registration?
Federal covered securities are exempt from state registration
Form U6
Filed with regulators to report civil, criminal, or regulatory actions
Correcting Amendment
Filed with the Administration if information in a registration statement becomes inaccurate
Are foreclosures and tax liens reported on the form U4?
Foreclosures are NOT reported; tax liens ARE reported
If an IA has custody of client funds and/or securities - what must be filed and by who?
Form ADV-E must be filled by the independent CPA that audits the IA
For agents and IARs to register, what must be filed with FINRA?
Form U4
What does an adviser's net work EXCLUDE?
Home furnishings or automobiles
AUM between 100-110m
IA may choose to register with the SEC or State Administrator(s)
Where must soft-dollar arrangements be disclosed?
IA's ADV Part 2 or on its Brochure
Agent switching BDs and paying fees?
If an agent initially registered with BD A but then changes to BD B within the same calendar year, they may be required to pay another registration fee which IS NOT PRORATED
Form U5
If an agent leaves one BD to begin employment with another BD, the original BD must file Form U5 to notify the Administrator that the agent is no longer associated with the firm. Form U5 is filed to notify FINRA of the termination of an agent's employment; the form is filed by the former employing B/D. However, if the agent becomes aware that the B/D did not file it, it becomes the agent's responsibility.
At which AUM do you need to withdraw your federal registration to register at the state level?
If you fall below $90m - you must register at the state level and file an ADV-W. FCA may be subject to Notice Filing in the state(s) in which it has an office
NASAA Members
Includes 67 entities, including all the states, DC, US territories, Canada, and Mexico
Accredited Investors under Reg. D
Individuals who have a net worth over $1m or annual income of $200k (300k with a spouse)
Registration by Filing
Is NOT used for an IPO and is not available for use in all states
Performance guarantee
It is a violation to state that an investment will not lose value
When is an agent's registration effective
It is effective 30 days after filing
When is registration withdrawal effective
It is effective 30 days after filing
What must happen if an agent receives extraordinary compensation (bonus) on the sale of a security
It's considered a conflict of interest and must be disclosed in advance
Exclusions from IAs (Hint: LATE)
Lawyers, Accountants, Teachers, and ENgineers
Canadian BDs and registration
Limited registration is granted to Canadian BDs and their agents, but is not available to Mexican BDs and their agents
Mandy is an employee of the Indiana Toll Authority. Her boss, a high ranking official with the municipality, asks her to help sell the municipality's revenue bonds to some institutional clients as well as a few retail investors. How is this situation viewed by the USA?
Mandy does not meet the definition of an agent under any circumstances - Under the Uniform Securities Act, an agent is any individual (other than a broker-dealer) who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Excluded from the definition is an individual who represents an issuer in effecting transactions in certain exempt securities or who represents an issuer in exempt transactions. Since Mandy is representing an issuer and selling a certain type of exempt security (securities issued by municipalities), she would not meet the definition of agent under any circumstances (whether selling to institutional and/or retail investors). (89370)
If an IA receives a rebate from an agent, where must it be disclosed?
Must be disclosed on the IA's Form ADV
Where/with who must BDs be registered?
Must be registered with the SEC, as well as with an state in which it has resident retail clients
IAs to Investment Companies - who do they register to?
Must register with the SEC regardless of the amount of assets under management
AUM above $110m - who do you register with?
Must register with the SEC- Federal Covered Adviser
AUM with less than 100m
Must register with the state Administrator(s)
NSMIA
National Securities Market Improvement Act. Prohibits states from requiring the registration of federal covered securities and federal covered advisers
Can agents underline or summarize a prospectus?
No
Can an agent liquidate a position based solely on the recommendation to sell in a research report?
No
Could a subscription to the WSJ be obtained with soft dollars?
No
Futures and commodities - securities?
No
Withholding material information from presentations and seminars - is this okay?
No - it is unacceptable and prohibited to withhold material information from either written or verbal presentations and seminars
Can IA contracts include an exculpatory (hedge) clause?
No!
Can BDs alter or summarize any document that's filed with the SEC?
No, BDs are GENERALLY PROHIBITED from altering or summarizing any document that's filed with the SEC
Selling units in a Canadian limited partnership - exempt transaction?
No, NOT an exempt transaction
When a trade is executed, is principal approval required?
No, principal approval is NOT required when a trade is executed
Are state-registered advisers required to file documents with the SEC?
No, state-registered advisers are not required to file documents with the SEC
Under the UPIA, are there any categorical restrictions regarding the types of investments hat an IA may recommend
No, there are no categorical restrictions
Church bonds - registered?
No, they are exempt from registration
Does a person who represents an issuer by selling exempt securities or engage in exempt transactions considered an agent?
No, they are not considered an agent and are not required to register as such.
Can charts and quotes from customers be posted on social media?
No, they cannot be posted on social media.
NASAA
North American Securities Administrators Association - responsible for updating the USA
Universal life insurance - security or not?
Not a security
Fixed annuities - security or not?
Not a security and therefore are not subject to USA
Under the Uniform Securities Act, an employee of a municipal issuer selling securities to the public is considered:
Not an agent - A person representing a municipal issuer is not considered an agent and would not be subject to registration. If the securities were not exempt, the employee would be subject to registration. (89374)
If a customer posts a positive tweet, what can the advisor do?
Nothing. It is not permitted to be retweeted.
When and how often is a Consent to Service of Process filed?
Only filed once (at the time of initial registration)
Timing of order ticket supervision/approval
Order tickets are not required to be preapproved, but they must be reviewed by a supervisor either at or before the end of the day
Bonding Requirement
Posted to cover the cost of lawsuits. Required for BDs/agents/etc. that have custody of or discretionary control over clients funds and securities. Must be maintained for as long as BD/IA is in business, plus three years thereafter. In lieu of a bond, cash or securities may be deposited (amount and type determined by the Admin).
Fundamental benefit of purchasing municipal securities
Receipt of interest income which is tax-exempt; however, municipals are not risk-free investments
Where must IARs register?
Register in any state in which they have a place of business
When must a BD report a deficiency for their minimum net capital requirement?
Report to SEC, FINRA, states that they are registered within ONE BUSINESS DAY. They must submit a statement of financial condition by the next business day and obtain a surety bond to make up the deficiency.
When is a notice filing needed?
Required for issuers of investment company shares and private placements conducted under Rule 506 of Reg. D
Betty owns and operates Right Choice Advisers, a small investment advisory firm registered with the states of Oregon, Washington, and California. Betty decides to sell 60% of her shares to another investment adviser and retire. This transaction would require the approval of:
Right Choice's clients - An investment adviser may not assign a client's contract to another investment adviser without the client's consent. An assignment includes the acquisition of the majority of the adviser's stock by another entity. (89365)
Securities issued by a Canadian municipality versus Canadian corp - what's the difference?
Securities issued by a Canadian muni are exempt from registration, but not securities issued by a Canadian corporation
Rule 147
Securities sold in only one state are EXEMPT from federal registration
Certificate of interest in a mining lease - security or not?
Security
Viatical investments - security or not?
Security
Consent to Service of Process - what does it do
Appoints an Administrator as the registrant's attorned for service of legal papers
When must clients of an IA receive a brochure?
At least 48 hours before signing a contract or at the time of signing the contract - clients must be given the opportunity to cancel the contract w/in 5 days if they receive the brochure at the time of signing
Regulation A+
Allows an issuer to raise capital of up to $75m. Since some Reg A+ offerings may be subject to both state and federal registration, the are NOT federal covered securities
Commodity pool and an agent's involvement
Although a commodity pool is not considered a security, an agent's involvement with the pool is considered an OBA and they must notify their employing BD
Customers that have a deficiency in a margin account
An agent is not permitted to lend personal funds to a customer who has such deficiency
Definition of a person
Any legal entity that is not deceased, NOT a minor and is not mentally incompetent
How long are IA records kept?
5 years - 2 years are easily accessible
Definition of a state - who is considered a state?
50 States, DC, US Territories, but DOES NT INCLUDE, British VI, Mexico, or Canada
Classic example of market manipulation
A CEO of a publicly traded company reporting a loss in one quarter in order to inflate earnings for the next quarter
When is an IA Firm exempt from registration?
Adviser with no place of business in a state and ALL CLIENTS ARE FINANCIAL INSTITUTIONS AND HAS NO MORE THAN FIVE NON-INSTITUTIONAL CLIENTS IN THE STATE WITHIN THE LAST 12 MONTHS
Which types of advertisements are IAs required to keep a copy of?
All advertisements that are sent to two or more people
