Series 63 missed questions UPDATED
Under the Uniform Securities Act, the state Administrator may by order deny, suspend or revoke an investment adviser's registration for A) conviction for a securities-related misdemeanor more than 15 years ago B) violation of another state's securities laws within the last 5 years C) conviction for a nonsecurities-related felony more than 15 years ago D) lack of experience as an investment adviser
B, A violation of any state or federal securities or commodities law within the last 10 years is grounds for denial, suspension, or revocation of registration by order. This means that no hearing is required. Convictions are grounds for administrative action only if they occurred within the past 10 years. Lack of experience is not sufficient cause for revoking or denying registration.
Which of the following can be substituted for a surety bond? A) Cash or commodities B) Commodities, cash, or securities C) Cash or marketable securities D) Real estate
C, The Administrator may, by rule or order, require registered broker-dealers, agents, and investment advisers who have custody of (BDs and IAs) or discretionary authority over client funds or securities to post bonds in amounts as the Administrator may prescribe, subject to the limitations of section 15 of the Securities Exchange Act of 1934 (for broker-dealers) and section 222 of the Investment Advisers Act of 1940 (for investment advisers). An appropriate deposit of cash or securities shall be accepted in lieu of any bond required.
Under the Uniform Securities Act, which of the following is NOT excluded from the definition of broker-dealer? A) Agents B) Issuers of securities C) A person with an office in this state whose securities business is limited to effecting transactions with institutional investors D) A broker-dealer domiciled in another state, having no offices in this state, dealing exclusively with broker-dealers in this state
C, The definition of a broker-dealer is a person in the business of effecting transactions in his account or for the account of others. If the person has an office in this state, regardless of who the clients are, registration with this state is necessary. Under the USA, one is not defined as a broker-dealer if there is no office in the state and transactions are limited in this state to other broker-dealers.
Under the Uniform Securities Act, all of the following are prohibited in a sale EXCEPT A) a 2-month delay in delivering the security to the customer B) an agreement by the agent to repurchase the security from the customer for the same price at a future date C) excessive transaction costs D) a statement by the agent that the security will be listed on an exchange once the company announced its intention to do so
D, An agent cannot guarantee to buy back the securities at the same price, cannot delay delivery for an excessive period of time, and cannot hide unusual transaction costs from a customer. However, the agent may state that the company intends to list its shares on an exchange if this is a fact.
Which of the following statements are TRUE? I. It is unlawful for anyone to conduct business as a broker-dealer in a state unless also registered as an agent. II. A registration statement may be filed by an issuer itself, a broker-dealer, or any other person on whose behalf the offering is to be made. III. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act. IV. An agent's registrations are automatically renewed 1 year after approval, provided no violations occurred during the year. A) II and III B) II and IV C) I and III D) I and IV
A, It is unlawful for anyone to conduct business as a broker-dealer in a state unless properly registered as such; an agent is not a broker-dealer. A registration statement can be filed by an issuer itself or any other person on whose behalf the offering is to be made, or by a broker-dealer. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act. Registrations of securities professionals expire December 31 unless renewed, regardless of violations.
A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients. If the IA is found to have been in violation of the Uniform Securities Act, this may result in I. a $10,000 fine per violation II. a receiver being appointed over the adviser's assets III. a prison term of 5 years per violation IV. the requirement that the investment adviser make restitution to the victims A) II and IV B) I and III C) I and II D) III and IV
A, The Administrator may appoint a receiver over the investment adviser's assets and require the IA to make restitution to the victim. The maximum fine for a violation of the USA is $5,000 and the maximum prison term is 3 years.
A Canadian broker-dealer is registered in the Province of Alberta. The firm has clients who vacation in Arizona, New Mexico and Texas and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act, A) this is permissible if the broker-dealer is properly registered in Alberta, deals only with existing clients, and registers in each of the states B) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the U.S C) this is permissible only if the broker-dealer is registered with the SEC D) this would only be permitted if the trades were executed through an affiliated domestic broker-dealer who is licensed in those states
A, The Uniform Securities Act provides for a type of limited registration for Canadian broker-dealers and their agents. They must be properly registered in their home Canadian province, file a consent to service of process, and file the appropriate application form.
Which of the following are required to register with a state Administrator? A) Investment adviser representatives of federal covered advisers who have a place of business in the state and limit their clientele to employee benefit plans with a minimum of $10 million in assets B) A person that only provides impersonal investment advice through newspaper columns, magazine articles, or a financial publication of general and regular circulation C) An investment adviser who has no place of business in the state and has fewer than 6 advisory clients in the state D) An employee of a federal covered investment adviser who has no natural person clients and is limited to performing administrative functions
A, The investment adviser representatives of a federal covered adviser are required to register in each state in which they have a place of business, even if the only clients are institutions. The act provides a de minimis standard exemption from state registration for advisers who have no place of business in a state and have fewer than 6 retail clients resident in that state. Under state law, the publication of investment advice that does not provide advice based on the specific investment situation of each client excludes the publisher from the definition of an investment adviser. A person employed and supervised by an investment adviser who is not an investment adviser representative with natural person clients and whose work is confined to clerical or administrative functions is not required to register with state Administrators.
Under the Uniform Securities Act, which of the following would NOT be an appropriate cause for an agent's registration to be canceled by the Administrator? A) The agent is found by a court to have violated a securities statute. B) The agent is found by a court to be mentally incompetent. C) The agent cannot be located after reasonable search. D) The agent has died.
A, The key word is canceled. The Administrator would cancel an agent's registration in the event of death or mental incompetence of the registrant. Failure to locate an agent, such as mail being returned without a forwarding address, is also a cause for cancellation. Cancellation carries no connotation of wrongdoing; for violations, the appropriate action is revocation.
According to the Uniform Securities Act, all of the following would be an unlawful activity for an investment adviser EXCEPT A) Entering into a written contract with a client B) Entering into an investment advisory contract that provides specifically for compensation based on a share of capital appreciation of the customer's funds C) Taking custody of a customer's securities or funds without notifying the Administrator, even though the Administrator has no rule that prohibits such custody D) Entering into an investment advisory contract that does not mention the compensation arrangements
A, Under the USA, any contract between an investment adviser and client must be in writing. Although there are cases where performance-based compensation is permitted, unless the question specifically refers to that exception, the action is prohibited.
Under the Uniform Securities Act, which of the following is an investment adviser? A) Jane advises customers regarding the value of gold and silver coins. B) Jill is an attorney specializing in estate planning who, as a side job, structures portfolios for the beneficiaries of her deceased clients at a reduced fee. C) The Trust Department of ABC Bank provides investment advice to its clients. D) Tom writes a newspaper column that analyzes and recommends securities.
B, Although an attorney is generally excluded, Jill is giving investment advice for a fee in a manner that is not incidental to her legal practice. Jane's advice does not concern securities; banks are excluded from the definition; Tom's advice is not specific on the basis of the situation of each client (impersonal advice).
Under the USA, all of the following are exempt transactions EXCEPT A) transaction executed by a trustee in bankruptcy B) a sale of a primary offering registered with the SEC C) isolated nonissuer transactions D) unsolicited customer orders
B, In almost every instance, an issuer transaction-that is, one for the benefit of the issuer-will not be considered an exempt transaction. Exempt transactions include isolated nonissuer transaction; transactions between an issuer and an underwriter; transactions by an executor, administrator, sheriff, marshal, trustee in bankruptcy, guardian, or conservator; any sale or offer to a bank, savings institution, investment company, or other financial institution; and private placements.
A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash to purchase securities using marginable securities in the account as collateral. Which of the account documents authorizes the use of those securities as collateral for that loan? A) The secured agreement B) The credit agreement C) The hypothecation agreement D) The loan consent agreement
B, It is the credit agreement, sometimes referred to as the margin agreement, which contains all of the terms of the loan. In addition to explaining how the interest is charged and the right of the firm to liquidate collateral if a call for additional funds is not made, the credit agreement contains the terminology which authorizes the broker-dealer to use the value of the account as collateral for the margin loan made by the BD to the client.The hypothecation agreement permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement.
When an agent is discussing possible discounts related to the purchase of mutual funds shares, she would be referring to A) reinvestment of distributions B) breakpoints C) no-load funds D) an unethical practice
B, NASAA has published a Statement of Policy dealing with unethical practices in the sale of investment company products. One of the requirements under the Policy is to inform clients of reduced sales charges available when reaching a breakpoint.
Each of the following statements is true EXCEPT A) the Uniform Securities Act is a template rather than the actual law of any state or territory of the United States B) the National Securities Markets Improvement Act of 1996 (NSMIA) requires states and the federal government to have identical registration requirements C) NASAA is responsible for the content of the Series 63 exam D) the state securities administrator takes responsibility for the enforcement and administration of a state's securities law
B, NSMIA's purpose is to eliminate dual registration, not to require identical laws. The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. The Series 63 exam's content is the responsibility of NASAA.
Under the provisions of the Uniform Securities Act, securities exempt from registration requirements include I. securities issued by the U.S. government II. securities issued by a building and loan association organized under the laws of any state and authorized to do business in this state III. bonds issued by an insurance company organized under the laws of any state and authorized to do business in this state A) I and II B) I, II, and III C) I only D) II and III
B, Securities exempt from registration requirements include securities issued by the state or U.S. government; securities issued by foreign governments with whom the U.S. maintains diplomatic relations; and any securities issued by savings and loan or building and loan associations, insurance companies, and credit unions authorized to do business in this state.
The term "agent", as defined in the Uniform Securities Act, would not include which of the following individuals? A) One who represents a registered broker-dealer selling unregistered exempt securities B) One who represents an issuer in effecting exempt transactions C) One who represents a registered broker-dealer selling securities listed on the NYSE to individual clients D) One who represents an issuer of any exempt security
B, The USA defines an agent as an individual representing a broker-dealer or an issuer in the sale of securities. This exam will never have a case of an individual selling on behalf of a broker-dealer excluded from that definition. The securities listed on the NYSE are exempt from state registration because, under the NSMIA, they are federal covered securities. But anyone selling securities, exempt or not, while representing a registered broker-dealer must be licensed as an agent of that broker-dealer. The only case in which an individual selling securities as a representative of an issuer is always excluded from the definition of agent is when the transactions are exempt. There are 5 different categories of exempt securities where this exclusion applies as well, but it doesn't apply to all exempt securities.
According to the Uniform Securities Act, which of the following is NOT an exempt transaction? A) Bonds with a rating below investment grade are sold to the ABC High Yield Bond Fund B) A broker-dealer makes an offer of private placement securities to 15 individual investors within a 30-day period C) A broker-dealer sells an entire new issue of shares traded on the OTC Bulletin Board to 5 bank clients D) The executor of an individual's estate liquidates individual stocks and invests the proceeds in a money market account at a bank
B, The Uniform Securities Act defines a private placement as an offering made to no more than 10 noninstitutional investors in a 12-month period. If a private placement complies with this restriction, it is an exempt transaction. Although the OTC Bulletin Board shares are nonexempt, transactions with banks are exempt.
Walt and Bryan are old friends who are agents with different broker-dealers. Bryan attends one of Walt's investment seminars and, at a prearranged point in the presentation, stands up and exclaims that his rich brother-in-law wisely purchased the same investment. This action is A) a dubious sales practice but not strictly prohibited B) a deliberate attempt to mislead and deceive investors C) a legitimate sales tactic known as priming the pump D) only problematic if someone invests in the product and loses money
B, This tactic is a deliberate attempt to mislead investors, get them to invest, and is expressly prohibited.
XYZ Securities is a broker-dealer based in Wisconsin with offices in no other state. In addition to its Wisconsin clients, XYZ has 30 retail customers living in Illinois. During the winter, if 10 existing customers vacation in Florida for up to 7 weeks at a time, XYZ Securities is a broker-dealer in A) Wisconsin, Illinois, and Florida B) Wisconsin and Illinois C) all states having enacted the USA D) Wisconsin only
B, Under the USA, XYZ Securities is a broker-dealer in Wisconsin because it maintains an office there. XYZ Securities is also a broker-dealer in Illinois because with 30 Illinois retail (non-institutional) customers, registration is required even if there is no physical office in Illinois. Because none of XYZ's clients has taken up residence in Florida, such clients are transients rather than residents. Thus, XYZ Securities is not a broker-dealer in Florida subject to the state's registration requirements.
Under the Uniform Securities Act, investment advisory contracts A) cannot be assigned without the Administrator's approval B) must contain a description of fees C) are cancelable without penalty for 6 months after the customer signs D) must list each state in which the adviser is registered
B, Under the USA, all advisory contracts must be in writing and contain descriptions of how fees are determined. Contracts are valid upon signing, need not list all states in which an adviser is registered, and cannot be assigned without the client's approval. Administrator approval is not required.
Which of the following statements regarding Form ADV Part 2 is TRUE? A) It must be delivered no later than receipt of the client's funds. B) Unless there are no material changes, it must be delivered to clients annually. C) It must always accompany the investment adviser's brochure. D) It must be delivered no later than 48 hours prior to entering into an investment advisory contract.
B, Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients within 120 days of the end of the adviser's fiscal year. If it is not delivered 48 hours in advance of the initial contract, the client has a 5-day penalty-free termination clause. It does not accompany the brochure-it is the brochure.
A client of an investment adviser is thrilled with her portfolio's results and posts a note on her bridge club's cork board suggesting that some of the other members would probably benefit from the adviser's skills. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) if the investment adviser learns of the posting, it is not necessary to ask the client to remove it B) this would not be permissible because it is clearly a testimonial C) this would be permissible because it was done without the knowledge of the adviser D) cork boards are not considered social media and that is the only place where testimonials are prohibited
C , There is a limit as to how far an investment adviser or IAR can go to prevent clients from giving testimonials. After all, as in so many businesses, referrals are a key to growth. As long as this note was posted without any knowledge of the IA (or IAR), there is no problem. However, once the IA (or IAR) finds out about it, a request must be made to remove it. The prohibition on testimonials is not limited to social media.
According to the Uniform Securities Act, a person representing an issuer in the sale of which of the following securities would have to be registered as an agent? A) Securities issued by the Government of Brazil B) Municipal bonds C) Securities issued by a federal credit union D) Securities of a federally chartered bank
C, An individual is exempt from registering as an agent only when representing the issuer in one of the limited group of five exempt securities, or in any exempt transaction. Oddly enough, a federal credit union is not on that list.
The Uniform Securities Act mandates that contracts between investment advisers and their clients I. be in writing II. provide that no discretion may take place without prompt notification to the client III. disclose the method of compensation IV. include steps the adviser plans to take to reach the client's objectives A) II and IV B) I and II C) I and III D) III and IV
C, Any contract must disclose the method of compensation. The USA requires that initial and renewal contracts be in writing. If discretion is to be exercised, it requires consent of the client, not notification. The contract does not necessarily describe any of the investment adviser's plans for reaching the client's goals.
Which of the following sales would be exempt from the antifraud provisions of the Uniform Securities Act? A) Sale of a nonexempt security B) Sale of an exempt security C) The sale of a modified endowment policy D) Sale of an exempt security in an exempt transaction
C, As long as it is a security, the USA's anti-fraud provisions apply. But a modified endowment insurance policy is NOT a security.
Which of the following sales would be exempt from the antifraud provisions of the USA? A) Sale of a nonexempt security B) Sale of an exempt security in an exempt transaction C) Sale of a term life insurance policy D) Sale of an exempt security
C, As long as it is a security, the USA's anti-fraud provisions apply. But a term life insurance policy is NOT a security.
The Uniform Securities Act considers all of the following to be investment advisers subject to registration in the state EXCEPT A) an investment adviser with a place of business in the state who only provides advice on mutual funds B) an investment adviser with a place of business in the state whose total fee income in the state amounts to $150 C) an investment adviser with no place of business in the state who, in the state, only provides advice on fixed annuities D) an investment adviser with no place of business in the state who advises wealthy retail customers in the state on a fee basis only
C, Because fixed annuities are not securities, advising on them does not require registration. Unless the investment adviser is federal covered, any investment adviser with a place of business in the state, no matter to whom the advice is sold or the nature of the security that is the subject of the advice, is required to register with the state. An investment adviser with no place of business in the state is only exempt if the advice is given to certain institutional type clients, not individuals, wealthy or not.
Which of the following conditions would most likely meet compliance standards of state regulators? A) At a minimum, a firm that permits use of social media sites, holding biennial training as part of its continuing education obligations. B) Requiring only those in a supervisory role need to recognize the difference between business and non-business communications. C) Training both supervisory personnel and agents on the difference between interactive and static content D) Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules.
C, Before allowing associated persons to use social media for business purposes, a firm's policies and procedures must provide for personnel training and education relating to the parameters of permitted use. Both supervisory personnel and agents need to understand the difference between interactive and static content, between business and non-business communications. A firm should consider requiring training in the use of social media before permitting use. At a minimum, a firm that permits use of social media sites must hold annual training as part of its continuing education obligations.
John, a newly registered agent with a broker-dealer in Illinois, violated the Uniform Securities Act if he A) deliberately omitted the number of employees at a corporation making its first issue of securities to the public because he did not consider that fact relevant to the investor's decision making process B) told his clients, against his better judgment, that past performance is no guarantee of future performance C) knowingly sold revenue bonds as general obligation bonds because he wanted his best client to earn additional interest without taking on significantly higher risk D) mistakenly told a client that the dividend yield on a common stock selling at $75 per share was 5%, though he accurately indicated that the dividend payment was $.75 per quarter
C, Knowingly selling revenue bonds as general obligation bonds is a misstatement of material fact and therefore fraudulent. An agent, when making a sale to a client, need not include all facts, such as the number of employees. The agent must not deliberately fail to mention the material facts regarding the nature of the investment. For example, it is not fraud to make a mathematical mistake, such as inadvertently misquoting the dividend yield on a common stock as 5% when in fact it is 4%, while accurately indicating that the actual dividend payment is $.75 per quarter. An agent may never state that past performance is expected to be replicated.
Which of the following statements regarding agent registration under the Uniform Securities Act are TRUE? I. In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day after the filing of a completed application. II. The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. III. The administrator may request the agent furnish a statement of assets and liabilities. IV. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments. A) III and IV B) II and III C) I and IV D) I and II
C, Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments, the clock starts over again with the filing of those amendments. Agents do not have financial requirements and the Administrator has a maximum of one year after termination to initiate any actions.
An individual functioning as an investment adviser representative for a federal covered adviser, with no place of business in this state, would be required to register in this state if A) he had a time-share in the state B) the investment adviser had a small office in the state C) he conducts frequent public seminars in the state D) he only dealt with investment companies located in the state
C, One of the provisions dealing with federal covered investment advisers is that states have no registration jurisdiction over their investment adviser representatives unless the IAR has a place of business in the state. It makes no difference what kind of clients the IAR serves. Under the Uniform Securities Act, conducting seminars open to the public in a state is considered to be having a place of business in the state. A time-share or vacation home has nothing to do with the IAR's advisory service. The fact that the employer, the investment adviser, has an office in the state, is of no relevance to the IAR.
The Uniform Securities Act mandates that contracts between investment advisers and their clients I. be in writing II. provide that no discretion may take place without prompt notification to the client III. disclose the method of compensation IV. include steps the adviser plans to take to reach the client's objectives A) II and IV B) III and IV C) I and III D) I and II
C,Any contract must disclose the method of compensation. The USA requires that initial and renewal contracts be in writing. If discretion is to be exercised, it requires consent of the client, not notification. The contract does not necessarily describe any of the investment adviser's plans for reaching the client's goals.
Joan, who has a PhD in economics, has been employed as an agent by Gibraltar Securities for the past 15 years. Missing academic life, she resigns from the broker-dealer and accepts a position as an economics professor at a state university. Which, if any party, is required to notify the state securities Administrator of this change? A) No party, because Joan's termination is voluntary and not for cause B) Only the securities firm C) Only Joan D) Both Joan and the firm
D, Both the agent and the broker-dealer are required to notify the Administrator promptly.
A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that A) if the client does not sign the document, the account cannot be opened B) this is the hypothecation agreement C) this is the credit agreement D) this is the loan consent agreement
D, No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional.
State securities law generally limits agents to employment with a single broker-dealer unless A) multiple employment is widespread and does not require specific Administrator approval B) permission is received from both broker-dealers regardless of Administrator approval C) permission has been granted by the SEC D) the Administrator, by rule or order, authorizes employment with more than one broker-dealer
D, The USA generally limits agents to single employment unless the Administrator, by rule or order, authorizes multiple affiliations.
Mr. Thompson is a registered agent with First Securities Corporation, a broker-dealer registered in, among other states, Illinois and Ohio. Ms. Gordon is one of Mr. Thompson's best clients and she will be spending the months of January and February in Palm Springs, California, rather than Chicago. She asks if there is a First Securities Corporation office nearby that she can visit to watch the Ticker Tape and is informed that the firm has no offices in California. During her stay, Mr. Thompson calls Ms. Gordon on a number of occasions with stock recommendations, some of which result in sales. Which of the following statements regarding the licensing and registration requirements of the Uniform Securities Act are TRUE? I. Mr. Thompson is violating the USA if he is not registered in California. II. Mr. Thompson is not violating the USA if he is not registered in California. III. First Securities Corporation is violating the USA if it is not registered in California. IV. First Securities Corporation is not violating the USA if it is not registered in California. A) I and III B) I and IV C) II and III D) II and IV
D, The USA only requires that an agent be licensed in the state of residence of the client. The act recognizes that people travel and, as long as there is no change of legal residence, registration in California would not be required. The definition of broker-dealer excludes an entity without an office in the state that does no business with residents who are members of the public. Because Ms. Gordon is not a California resident, the firm is not required to be registered in that state.
Under the Uniform Securities Act, all of the following must be disclosed in an investment advisory contract EXCEPT A) the manner in which the advisory fee will be computed B) whether or not discretion will be exercised C) a provision prohibiting the investment adviser from being compensated based on a share of capital gains D) other states in which the investment adviser is registered
D, There is no requirement to advise clients of any other states in which the investment adviser is represented. The presence (or absence) of discretion must always be disclosed. Unless the question specifically refers to the rare cases when performance fees are permitted, always read the question as if they are prohibited.
