Series 63: Section 4: Communication with Customers and Prospects

Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered what?

Adoption

What is affinity fraud?

Affinity fraud targets members of identifiable groups, such as the elderly, or religious or ethnic communities. - groups with similar interests - mostly used with social media

What is one unethical business practice under NASAA's policies for an investment adviser to charge fees

An IA to charge fees based on a percentage of the change in value of funds from quarter to quarter fees based on a share of appreciation in an account are prohibited.

typically, a broker-dealer's fee schedule is disclosed when?

At the time of account opening

What is this an example of? when a broker-dealer has discretion over a client's account and purchases securities for that account that are issued by the firm or an affiliated company.

Conflict of interest

What needs to happen is an IA recommended investments are being sold as principal by the representative's own firm

Disclose information to the client prior to transaction

A third-party post has been made on a broker-dealer's Facebook page. If the firm has involved itself in the preparation of the content, this would be known as

Entanglement

This is when the firm (or one of its representatives) contributes to the third-party information and then posts it.

Entanglement

Content that is generally real-time communications

Interactive Content EX: Emails sent to Clients Comments on a facebook posting Tweets

When a security is registered with the Administrator, it means that

It can now be legally sold in the state

Under what rule must all contracts, both initial and renewal, must be in writing?

NASAA Model Rule

What is an An agnostic compensation grid is sometimes referred to as what? and what is the purpose?

Neutral grid That is, regardless of the product being sold, the compensation level is the same.

is there margin activity in a cash account at a BD?

No, so margin fees do not apply to cash accounts

A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?

Options One question asked on a new options account form that is not required on a normal brokerage account opening is investment experience and knowledge (e.g., number of years, size, frequency, and type of transactions) for options, stocks and bonds, commodities, and other financial instruments.

What kind of content can only be changed by the originator (or someone under that person's control).

Static Content

content that remains posted until it is changed by the firm or individual who established the account.

Static Content EX: A broker dealer's profile posted on Facebook

What is Guaranteed for guaranteed stocks and guaranteed bonds?

Stock - dividends Bond - Payments and interest

The most common way in which to distinguish whether social media content is static or interactive is how?

The ability for others to change it

How do Federal securities register

They notice File

An unregistered security that is not a federal covered security may not be sold unless it or the transaction is what?

Transaction is exempt

In their advertising campaigns, investment advisers are prohibited from doing what?

Using testimonials, guaranteeing future performance, and exaggerating the capabilities of the firm and its personnel are unethical.

Whenever the adviser is acting as principal or agent in any transaction recommended to a client, What is needed of the client prior to completion of the transaction.

Written Approval

Defined as a firm's endorsement of the content of a third-party site. The firm is responsible for the content of the linked information and must be sure that it complies with the firm's policies.

adoption

There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. What are they?

commissions markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

According to the Uniform Securities Act, the investment adviser brochure must include the business backgrounds of

each member of the investment committee or group that determines general investment advice to be given to clients must be included in Part 2 of Form ADV and in the disclosure brochure

Investors open margin accounts to

leverage their investment dollars Margin accounts employ the use of leverage—borrowed money. If the investment is successful, the leverage magnifies returns. However, if unsuccessful, the losses are magnified and can even be greater than the amount invested.

Although there is no official standard, larger accounts tend to have what waived?

many of the smaller fees waived such as - safekeeping of funds or securities in the account the annual account maintenance charge wiring funds to the client's bank

According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts

the schedule should be made available on the broker-dealer's public website without requiring any login or password Transparency requires that obtaining the fee schedule should be a simple process for retail customers and prospects.

Guaranteed Security

where the interest and principal (in the case of a bond) are guaranteed by a third party.