Series 63 practice test
In response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include: A) life insurance agents and pension consultants B) broker-dealers offering wrap fee programs and life insurance agents C) financial planners and pension consultants D) broker-dealers offering wrap fee programs and financial planners
(C)
Under the Uniform Securities Act, the definition of a broker-dealer includes: A) a person in the business of effecting securities transactions in its own account or for the accounts of others B) a trust company when executing transactions in accounts in which it does not act in a fiduciary capacity C) an authorized representative of the issuer who receives a commission D) an agent handling principal transactions with major institutional clients
A broker-dealer is defined as any person in the business of making trades in its own account or for the accounts of others. Reference: 1.2 in the License Exam Manual (A)
A consent to service of process required by an Administrator is: A) an agreement to perform all services and duties that the Uniform Securities Act (USA) requires of those individuals covered by the USA B) an agreement whereby a registrant will be bound by any legal action or subpoena served on the Administrator as if it had been served on the registrant C) a legal procedure that authorizes the Administrator to issue injunctions D) a formal statement declaring that an investment adviser will comply with all advertising requirements of the USA
A consent to service is a formal legal agreement whereby a registrant will be bound by a legal action or subpoena served on the Administrator as if it had been served on the registrant. A consent to service is not an authorization to issue an injunction. Reference: 1.2.2.2 in the License Exam Manual (B)
An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act: A) agents should always recommend securities that are familiar to the investor B) the agent is describing a guaranteed security C) the agent is possibly committing fraud D) a guaranteed security only guarantees payment of interest or dividends
A guaranteed security is one where the interest and principal (in the case of a bond) are guaranteed by a third party. If a guaranteed stock, it is the dividends that are the subject of the third-party guarantee. With tens of thousands of publicly traded securities, it is unlikely that your client will be familiar with most of them, but that doesn't prohibit the agent from making the recommendation if suitable. (B)
Under the Uniform Securities Act, an accountant who charges hourly fees for securities recommendations in the regular course of his accounting practice is A) not included in the definition of an investment adviser because he receives an hourly rate instead of a commission B) included in the definition of an investment adviser because accountants are not among the professionals excluded from the definition C) not included in the definition of an investment adviser because he is an accountant D) included in the definition of an investment adviser because he is compensated for giving investment advice in the regular course of business
An accountant who gives advice in the course of business and receives compensation, hourly or not, for providing the advice in the regular course of business falls within the definition of an investment adviser under the Uniform Securities Act. To be excluded, the advice must be on an incidental basis. Reference: 1.5.2 in the License Exam Manual (D)
Under the Uniform Securities Act, an individual representing an issuer in the sale of which of the following securities would NOT have to register as an agent? Short term highly rated commercial paper Municipal bond U.S. bank issue Investment contract issued in connection with an employee's stock purchase, savings, pension, profit-sharing, or similar benefit plan A) I and II B) I, II, III and IV C) III and IV D) I and IV
An individual is not an agent subject to registration when representing the issuer in each of the cases cited. Reference: 1.3.2.1 in the License Exam Manual (B)
Which of the following persons is defined as an agent by the Uniform Securities Act? A) Secretary of a branch office sales manager B) Clerk at a broker-dealer who is authorized to take orders C) Silent partner of a broker-dealer D) Broker-dealer executive who does not solicit, supervise, or transact securities business
Anyone who solicits or receives an order while representing a broker-dealer is an agent. Silent partners, administrative personnel, and executives of broker-dealers with no sales or securities-related supervisory responsibilities are not agents under the terms of the USA. Reference: 1.3.1 in the License Exam Manual (B)
An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told which of the following? A) No registration is necessary if no commission or other remuneration is paid or given directly or indirectly. B) Registration is required only if an offer is directed, accepted, and paid for in that state. C) No registration is necessary in the other state provided the agent's activities are limited exclusively to effecting transactions in certain exempted securities. D) If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately.
Both the broker-dealer and the agent must be registered in the state where business is to be transacted, unless they both qualify for an exemption from registration in that state (e.g., they have no place of business in the state and their only clients are institutions). At the time the broker-dealer is registered in a state, officers, directors, or partners of the firm who act as agents will be automatically registered as agents. Reference: 1.2.2.3 in the License Exam Manual (D)
A registered broker-dealer offers investment advice as an incidental part of its commission business. One of its agents charges for investment advice as a freelance investment adviser outside the scope of his employment at the firm. Which of the following statements are TRUE? The broker-dealer must register as an investment adviser. The agent must register as an investment adviser. The agent need not register as an investment adviser. The broker-dealer need not register as an investment adviser. A) II and IV B) III and IV C) I and III D) I and II
Broker-dealers who offer advice as an incidental part of their commission business are excluded from the definition of investment adviser under both state and federal law. Therefore, they are not required to register as investment advisers. However, if agents provide investment advice outside the scope of their employment at the broker-dealer, registration as an investment adviser is generally going to be required. Reference: 1.5.2 in the License Exam Manual (A)
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the Release, which of the following would NOT be included in the definition? A) Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's' royalties into appropriate investments as market conditions dictate B) Financial planners who prepare comprehensive financial plans for families and individuals C) Commercial banks offering a full range of advisory services for their high-net-worth clients D) Persons who receive a nominal fee for assisting employee benefit plan administrators in selecting investment managers for the plan's assets
Commercial banks are always excluded from the definition of investment adviser. Once the entertainment agent makes investment decisions for a client who is paying fees for overall services rendered, that individual now comes under the IA-1092 definition of investment adviser. Similarly, any person who is compensated for giving investment-related advice to employee benefit plans is considered a pension consultant and is required to register under IA-1092. Also included are financial planners if they are being compensated for advice on securities. (On the exam, a comprehensive financial plan always includes investment advice.) Reference: 1.5.1 in the License Exam Manual (C)
Under the Uniform Securities Act, all of the following are exempt from state registration as investment advisers EXCEPT A) publishers of financial publications that are not addressed to clients' specific individual investment situations B) a financial planner who provides fee-based investment advisory services to clients and currently has a total of $18 million in assets under management C) investment advisers with no office in the state who only advise employee benefit plans with assets of not less than $1 million D) investment adviser representatives
Financial planners who provide fee-based investment advisory services to the public generally must register with their state securities Administrator as long as their total assets under management are less than $100 million. Investment advisers with no office in the state, who only advise employee benefit plans with assets of $1 million or more, need not register with state securities Administrators. Investment adviser representatives do not register as investment advisers but as investment adviser representatives. Financial publishers who do not publish specific investment advice are exempt from state registration. Reference: 1.5.3.1 in the License Exam Manual (B)
State securities Administrators may NOT impose which of the following? A) Surety bond, minimum net capital levels, or both on broker-dealers with custody of client funds and securities B) Minimum net capital requirements on broker-dealers C) Bonding requirements for registered agents D) Minimum net worth levels on registered investment adviser representatives
Individuals registered as investment adviser representatives (or agents) never have to meet net worth or net capital standards. Broker-dealers and investment advisers have to meet net capital or net worth requirements. Broker-dealers with custody can, at the discretion of the Administrator, post a surety bond in lieu of minimum net capital requirements. Reference: 1.6.1.1 in the License Exam Manual (D)
An individual representing the issuer in the sale of that issuer's securities to the public would have to register in this state if A) the issuer is a federal savings and loan association authorized to do business in this state B) the transaction is exempt C) the issuer is a bank organized under the laws of the United States D) the issuer is the state of Idaho
Individuals representing an issuer in the sale of its securities are exempt from registration if the security is 1 of 5 specified exempt securities or if the transaction is exempt. Securities issued by a federal savings and loan are not in the list of 5. Reference: 1.3.2.2 in the License Exam Manual (A)
The Uniform Securities Act holds that persons performing certain activities shall be registered as investment adviser representatives. That requirement would apply to which of the following? A) John, who opens an investment advisory firm where he devotes his time exclusively to management responsibilities as the sole proprietor of the firm B) Paul, who works for a life insurance company soliciting individuals to purchase variable annuities and variable life insurance C) Margaret, who works as a registered agent for a nationally known broker-dealer and deals exclusively with recommending investments for client's IRAs D) Mark, who is employed at AAA Broker-Dealers earning commissions on transactions made based on research conducted by his firm's securities analyst
John, as the owner of a sole proprietorship investment adviser, will be the only investment adviser representative when his advisory firm registers as an investment adviser. Remember, unlike FINRA, NASAA has no separate management designation as a principal; all supervisory personnel are IARs. Selling variable contracts of an insurance company requires registration as an agent as well as an insurance license, but, unless something is stated regarding compensation for advice, there is no advisory relationship here. Margaret does not need to register as an investment adviser representative because she functions as a registered agent for a broker-dealer. If she sold investment advice for the broker-dealer's investment management subsidiary, she then would have to register as an investment adviser representative. An agent of a broker-dealer earning commissions on security sales is not an IAR even if his primary selling tool for the brokerage business is the firm's outstanding research department. Reference: 1.6 in the License Exam Manual (A)
A state-registered broker-dealer must keep business records available for examination by the Administrator: A) indefinitely B) for 5 years C) for a term specified by the Administrator D) for 3 years
Records must be preserved for 3 years. However, the Administrator may prescribe a different period for certain types of records. Reference: 1.2.3 in the License Exam Manual (D)
Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A) because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them B) Sharon must be registered in State X in order to accept the order C) because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X D) because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X
Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state which is the domicile of a client placing an order. One does not have to be registered as an agent in every state the BD is, only in those where she expects clients to reside. Reference: 1.3.3 in the License Exam Manual (B)
Global Investment Strategies (GIS) is a broker-dealer registered in 6 states. GIS would have to meet the financial and recordkeeping requirements of A) each of the states in which GIS maintains a place of business B) the state with the most lenient requirements C) the Securities and Exchange Commission D) the state with the most stringent requirements
States can never impose requirement that exceed those of the SEC. We know this broker-dealer is SEC registered because once a firm registers in more than 1 state, it has to register on the federal level as well. Reference: 1.2.3.1.1 in the License Exam Manual (C)
XYZ Securities Co. is simultaneously registering as a broker-dealer with the SEC and several states. Which of the following statements regarding its registration under the Uniform Securities Act is CORRECT? A) State registrations expire annually on December 31. B) State registrations expire annually on the anniversary of the effective date of the broker-dealer's initial registration with the SEC. C) XYZ's registration in the various states will be accomplished through coordination. D) Once XYZ registers in a specific state, its registration is permanent unless revoked, canceled, or terminated.
State registration for all categories of securities professionals expires on December 31 of each year. It is securities that register using coordination, not securities professionals. Reference: 1.2.2.3 in the License Exam Manual (A)
Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) Margin account agreements must be received before the first margin trade in the account. B) The options account agreement must be received within 15 days after the customer's account has been approved. C) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. D) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade.
The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt. (A)
Under the Uniform Securities Act, an issuer is any person who issues or proposes to issue a security for sale to the public. According to the USA, which of the following is NOT an issuer? A) The AAA Manufacturing Company, which proposes to offer shares to the public but has not yet commenced the offering B) The City of Chicago, which is involved in a distribution of school district general obligation bonds C) The Energy Resources Partnership, which issues certificates of interest or participation in its oil, gas, and mining titles D) The United States government, which proposes to offer Treasury bonds
Under the Uniform Securities Act, an issuer is any person who issues or proposes to issue a security. However, with respect to certificates of interest or participation in oil, gas, or mining titles or leases, there is not considered to be any issuer even though those certificates are included in the definition of "security." Examples of issuers are a municipality such as the city of Chicago, which issues tax-exempt highway improvement bonds; the AAA Manufacturing Company, which proposes to offer shares to the public even though it has not completed the offering; and the United States government, when it proposes to offer Treasury bonds. Reference: 1.1.10 in the License Exam Manual (C)
Criminal penalties for violations of the Uniform Securities Act include: A) imprisonment for 3 years and/or fines of up to $5,000, regardless of whether the violator had knowledge of the rule or order B) fines of up to $5,000 and/or imprisonment for up to 5 years C) fines of up to $5,000 or imprisonment, regardless of whether an indictment had been returned more than 5 years after the alleged violation D) fines of up to $5,000 and/or imprisonment for up to 3 years
Under the Uniform Securities Act, penalties can include fines for up to $5,000 or imprisonment for up to 3 years, or both. No person, however, may be imprisoned for violation if he proves that he had no knowledge of the rule or order. No indictment can be returned later than 5 years after the alleged violation. (D)
Which of the following persons is NOT an associated person of an investment adviser? A) A third-party solicitor who refers accounts to an adviser for a fee B) The parent broker-dealer of an investment advisory firm C) A graphic design consultant who prepares a broker-dealer's research publications D) A senior officer of an investment adviser responsible for marketing as opposed to investment advisory services
Under the terms of the USA, a graphic design consultant who prepares a broker-dealer's research publications is not an associated person of an investment adviser. Senior officers, third-party solicitors, and parent broker-dealers are all defined as associated persons under the Uniform Securities Act. Reference: 1.6 in the License Exam Manual (C)
Under the USA, the term guaranteed refers to all of these EXCEPT A) capital gains B) interest C) principal D) dividends
When a security is guaranteed, that means that someone other than the issuer has guaranteed timely payment of interest and principal on a debt security, or the payment of dividends on an equity security. No one ever guarantees that the investor will have a capital gain. Reference: 1.1.14 in the License Exam Manual (A)
A person registered as an agent for a broker-dealer doing business only in 1 state decides to voluntarily terminate the registration. Which of the following statements is correct? A) Because the termination is voluntary, notification to the Administrator is not required. B) Only the agent must notify the Administrator. C) Both the agent and the broker-dealer must notify the Administrator. D) Only the broker-dealer must notify the Administrator.
When an agent begins or terminates a connection with a broker-dealer (or issuer), or begins or terminates those activities that make him an agent, the agent as well as the broker-dealer (or issuer) must promptly notify the Administrator. Reference: 1.3.4.1 in the License Exam Manual (C)
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 would only be permitted if the trades were executed through an affiliated domestic broker-dealer who is licensed in those states B) this is permissible if the broker-dealer is properly registered in Alberta, deals only with existing clients, and registers in each of the states C) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the U.S D) this is permissible only if the broker-dealer is registered with the SEC
this is permissible if the broker/dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states. (B)