Wrong Answers Series 63

Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions A) is an unethical trade practice. B) would be allowable if both parties were registered as agents for the same or affiliated broker-dealers. C) on variable annuity sales is allowable only if the agents involved are both licensed in life insurance and maintain their securities licenses at the same or affiliated broker-dealers. D) is permissible at all times.

C You must be licensed in both insurance and securities to sell variable annuities or to split commissions. Commissions on securities transactions may only be split with registered agents of the same or affiliated broker-dealers.

An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation? A) Buying call options B) Municipal bonds C) An oil and gas exploration program that you know is going to strike D) Large-cap income stocks

D This customer needs income. Of the answers provided, the large-cap stocks would be the most suitable because they would provide income while maintaining relative safety. Although the municipal bonds are probably safer, the benefits of their tax-free income would probably be lost on a client with no independent income. In general, stay away from municipal bonds as a suitable investment unless the question indicates a high tax bracket for the investor.

Under the Uniform Securities Act, which of the following concerning the withdrawal of an agent's registration is not true? A) Absent any disciplinary proceedings, withdrawal is effective 30 days after application. B) At the Administrator's discretion, disciplinary proceedings may delay effectiveness of a withdrawal application indefinitely. C) Disciplinary proceedings may be taken against an agent after the agent's withdrawal is effective. D) Absent any disciplinary proceedings, withdrawal is effective 60 days after application.

D Under the USA, withdrawals of registration are generally effective on the 30th day after filing, unless a disciplinary action is instituted. The Administrator may institute a revocation or suspension proceeding within one year after an agent's withdrawal has become effective.

An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is true? A) The sale was legal because the bond is not required to be registered for sale in State X. B) The sale was illegal because municipal revenue bonds are not exempt securities. C) The sale was illegal because the bond is not registered for sale in State X. D) The sale was legal because the sale took place in State X to a resident of that state.

A Any municipal bond is considered an exempt security under the Uniform Securities Act. Therefore, the sale of an exempt unregistered security by a properly registered agent is perfectly legal. If you selected the choice that the sale was legal because it took place in State X to a resident of that state, you are missing the point. The question is focused on the security, not the agent. In addition, that choice implies that the sale of any unregistered security, exempt or nonexempt, made by a properly registered agent is legal and that is not so in the case of those that are obligated to register.

Differences between static and interactive content on social media include the fact that A) investment advisers can only publish interactive content. B) only static content can be reformatted by others. C) only interactive content can be modified by persons other than the originator. D) only static content can be changed by the person who originated it.

C Interactive content can be reused by others and can be modified by them. Both static and interactive content can be changed by its originator, but interactive can also be changed by others. Investment advisers and broker-dealers can publish content that is static or interactive.

Northwestern Options Traders (not) is a broker-dealer registered with the SEC. not is also registered in eight states. With regard to not's net capital requirements, A) not needs to meet the average of the net capital requirements of the eight states. B) the firm will have to meet the net capital requirements of each state. C) the firm need only meet the requirements of the SEC. D) not needs to meet only the net capital of the state in which its principal office is located .

C

When applying for registration as an agent, all of the following information must be submitted to the Administrator except A) citizenship information. B) a record of a securities-related misdemeanor conviction within the most recent 10 years. C) the applicant's financial statements. D) the applicant's proposed method of doing business.

C Financial statements are required of registrants who are business entities, such as broker-dealers and investment advisers. No such information is required of agents. If the misdemeanor was not securities-related, it would not have to be reported.

Under the Uniform Securities Act, a state securities Administrator can start an investigation against a registrant even if a violation has not yet occurred. I) subpoena witnesses living in the Administrator's state only. II) subpoena witnesses living outside the state. III) begin an investigation only after a violation of the act has occurred.

I and III Under the USA, the Administrator has a broad investigative authority and may begin an investigation against a registrant before a violation has occurred and may subpoena witnesses in any state.

The Uniform Securities Act defined many terms. Among them is the term sale. Which of the following would be included in the definition of sale? I) An offer of common stock in a new issue properly registered or exempt from registration in the state II) A gift of assessable stock III) An investor exercising preemptive rights previously received directly from the issuer IV) An investor electing to forgo a cash dividend and receive the equivalent in stock instead

II and III A gift of assessable stock is always considered a sale. Although the receipt of preemptive rights is not a sale, the exercise of them is. An offer does not become a sale until the exchange of consideration. Choosing to take a stock dividend rather than a cash dividend is not a sale.

If, in the opinion of the Administrator, an agent is about to engage in a prohibited activity, the Administrator may

If the Administrator suspects a prohibited action is about to take place, a cease and desist order will be issued in an attempt to prevent that activity. Should the agent refuse to halt, then the Administrator can apply to the courts for an injunction. Suspension of registration takes place after a hearing, and the Administrator does not have the power to arrest anyone.

MaryJo Barkley is the CEO of MJB Securities. MJB is distributing an offering of ABC common stock to investors. Barkley has been telling potential investors that the registration of the stock indicates approval by the state. Under the Uniform Securities Act, she is committing misrepresentation of A) registration. B) qualification. C) authorization. D) material information.

Stating that a securities offering has been approved by a regulatory body is misrepresentation of the registration of the security. Material information deals with information about the issuer, not the fact that the securities are registered.

Private placements

exempt transaction, but not exempt security

In response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include

financial planners and pension consultants.

Except as limited by the Securities Exchange Act of 1934, the state securities Administrator may require, by rule or order, that broker-dealers make or maintain all of the following records except A) papers and memoranda. B) emails containing unsolicited testimonials. C) account ledgers. D) blotters and books.

B

In conducting investigations, the Administrator may not A) require a person to file a statement in writing and under oath. B) make investigations outside the state to determine whether violations of the Uniform Securities Act have occurred in that other state. C) make investigations both inside the state and in other states to determine whether violations of the Uniform Securities Act have occurred in his state. D) publish information of any violation over the vigorous objections of a violator.

B

An agent engages in a practice prohibited under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by doing any of the following except A) borrowing money from his father, who is a client, and making full disclosure to the employing broker-dealer. B) recording small transactions with clients on the books of the employing broker-dealer. C) sharing in profits and losses with clients and making full disclosure of this arrangement to the employing broker-dealer. D) not disclosing risks of a transaction to an unsophisticated client who would not understand the explanation.

B All transactions, regardless of size, must be recorded on the broker-dealer's (BD's) books unless consent has been received from the BD to do otherwise. Borrowing money from a client is a prohibited practice unless the client is in the business of lending money, whether disclosure is made to the employer or not. Sharing in profits and losses with clients is allowed only with written authorization of the client and the employing BD. If the client would not understand the risks, then, in all probability, the recommendation is unsuitable.

In some instances, rather than using an investment banker to distribute its securities to the public, an issuer will hire a sales force or use its own employees to make the sales. The individuals involved in the selling in this state would not be defined as agents under the Uniform Securities Act if selling on behalf of which of the following issuers? A) A credit union organized and supervised under the laws of this state B) A savings institution organized and supervised under the laws of any state C) A building and loan association organized under the laws of any state and authorized to do business in this state D) A federal savings and loan association

A Although each of the answer choices meets the USA's definition of exempt security, the savings institution is the only issuer where the act grants an exemption from the definition of agent to those individuals selling on its behalf. Please note that a savings institution is not the same as a savings and loan or building and loan association.

An individual may not act as an agent for more than one broker-dealer A) unless the Administrator, by rule or order, authorizes such employment. B) under any circumstances. C) unless the broker-dealers are exchange members. D) unless the broker-dealers are unrelated.

A An individual may only act as an agent for multiple broker-dealers if they are affiliated with each other. If the BDs are unrelated, an agent may not work for them unless the state securities Administrator, by rule or order, authorizes such employment.

According to the Uniform Securities Act, under which of the following circumstances may an Administrator cancel an agent's registration? A) The agent is judged to be mentally incompetent. B) The Administrator determines it would be in the public interest. C) The agent has admitted to selling unregistered exempt securities to individual clients. D) The agent is the subject of an insider trading lawsuit.

A Cancellation is a nonpunitive action of the Administrator. That is, the agent did not do anything wrong. Registration may be canceled by the Administrator if the registered individual has been judged mentally incompetent.

When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is A) the ability of the customer to move funds out of the account on multiple occasions. B) that the account is in the name of an institutional customer. C) the ability of the customer to make a one-time wire to a foreign bank account owned by a family member. D) if the customer owns the underlying security on which the call option is sold.

A A covered account is an account, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions. Where the money goes is less of a factor than the frequency of transactions. The only time when a single-transaction account might be covered is if there is reason to believe that the identity of the customer is at risk—not likely when wiring to a family member. Institutions are not included in the definition, and owning the stock underlying the sale of a call option means the option is covered—totally different from the topic here.

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within

15 days When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's final order must be filed within 60 days.

Which of the following is least likely to appear on a broker-dealer's application submitted to the Administrator? A) The number of agents employed by the broker-dealer B) The form of business organization C) Disclosure of any charge, conviction, or guilty plea to any felony D) Proposed method of doing business

A

As defined in Section 402 of the Uniform Securities Act, which of the following is not an exempt transaction? A) The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered broker-dealer B) A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid C) A sale of securities by the executor of an estate D) The sale of a non-Nasdaq over-the-counter stock to a closed-end investment company

A In the case of a U.S. government security, the security is exempt, but the transaction is not. The USA does not care about the wealth of the individual; unless specifying the order was unsolicited or the individual was acting in the capacity of an executor (or similar circumstance), sales to individuals are never exempt transactions. All of the other choices are exempt transactions because they are either to an institutional investor, to existing owners for no consideration, or by a fiduciary.

Fast Growth Securities, Inc. (FGSI), a member of the Financial Industry Regulatory Authority (FINRA), has its main office in State A and is therefore A) required to register as a broker-dealer in State A with the State A Administrator. B) only required to register in those states where FGSI maintains a place of business. C) not required to register in any other state in which it does business. D) registered by FINRA exempting the requirement to register with the State A Administrator.

A Securities firms that are members of FINRA are registered with the SEC and must register as broker-dealers in the states in which they maintain a place of business. Under the USA, BDs are firms engaged in the business of effecting security transactions in customer or proprietary accounts. A BD is not a registered investment adviser, although many broker-dealers own separate legal entities that are IAs. FINRA does not license its members to conduct business in the states; the state securities licensing agent is the state securities Administrator. Although a BD must register in any state where it maintains a place of business, that is not exclusive. That is, if the BD does business with retail customers in a state, the presence or absence of a place of business does not have an impact on the requirement to register in that state.

A state-registered investment adviser is the subject of an injunction requested by the Administrator. As a result, A) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. B) the registration of the investment adviser's investment adviser representatives will be suspended. C) a hearing must be granted within 15 days after receipt of a written request from the investment adviser. D) the registration of the investment adviser will be suspended.

A The Administrator does not have the legal power to compel compliance with the cease and desist order. To compel compliance in the face of a person's resistance, the Administrator must apply to a court of competent jurisdiction for an injunction. If the court issues a temporary or permanent injunction, upon the request of the Administrator, a receiver or conservator may be appointed over the defendant's assets. The injunction merely forces the investment adviser (or whomever is the subject) to cease the specified activity. It does not cancel any registrations. That could happen if the defendant refuses to obey the injunction and further legal action is taken. The 15-day hearing rule applies to summary orders, not cease and desist.

Which of the following statements regarding registration provisions is not true? A) The Administrator may not, as a condition of registration by qualification or coordination, require that the security be deposited in escrow and the proceeds be impounded until the issuer receives a specified amount. B) The Administrator may, by order, permit omission of items of information or documents from a registration statement. C) Every registration must specify the total amount of securities offered, the states in which offering is to be made, and any adverse order or judgment by a regulatory authority. D) The Administrator may, as a condition of registration by qualification or coordination, rule that the securities may only be sold on a specified form of subscription and that a signed copy be filed with the Administrator.

A The Administrator may, as a condition of registration by qualification or coordination, require the security to be deposited in escrow and the proceeds to be impounded until the issuer receives a specified amount. It is true that every registration must specify the amount of securities to be sold in the state, the states in which offering is to be made, and any adverse order or judgment of a regulatory authority. The Administrator may, by order, permit omission of any item of information or document from a registration statement. The Administrator may, as a condition of registration by qualification or coordination, rule that the securities may only be sold on a specified form of subscription and that a signed copy be filed with the Administrator.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent could not A) borrow money from a client pursuant to a written agreement with the client and with the permission of the broker-dealer. B) select the specific security to be purchased in a discretionary account. C) sell shares of a new issue to a client. D) open a joint account with a family member.

A The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents is quite clear that agents can borrow money only from a client who is in the money-lending business, such as a bank or credit union.

The Uniform Securities Act provides for all of the following except A) specific civil penalties for up to three times the amount of money invested for willful violation of the act. B) criminal penalties for violations of the act. C) subpoena power for the state Administrator. D) exemption from registration for federal covered securities.

A The Uniform Securities Act (USA) provides for criminal penalties of up to three years in prison and/or $5,000 in fines. The act describes civil liability, not specific civil penalties. Civil liability includes interest costs, rescission of trade, payment of attorney's fees, and return of principal invested. The act makes no reference to penalties of three times the amount of money invested (treble damages). The USA does provide the state Administrator with the power to issue subpoenas.

In reference to an investment adviser's dealings with clients, which of the following would be included in the Uniform Securities Act's definition of institutional client? A) An employee benefit plan with assets of $1 million B) An individual meeting the qualified client requirements C) An individual meeting the accredited investor requirements D) A corporation whose stock is listed on the New York Stock Exchange

A The Uniform Securities Act includes in the definition of institutional client of an investment adviser investment companies as defined in the Investment Company Act of 1940, other investment advisers, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than $1 million, and governmental agencies or instrumentalities. Note that individuals, regardless of wealth or sophistication, are not defined as institutions. A stock's trading location has nothing to do with being defined as an institution. Unless information was supplied about the nature of the NYSE-listed corporation, we cannot determine if it meets the definition.

The sole proprietor of an insurance business that exclusively provides advice on fixed-income annuity contracts A) need not register under any securities laws. B) must register as an investment adviser under the Investment Advisers Act of 1940. C) must register as an investment adviser representative under the Uniform Securities Act. D) must register as a broker-dealer with the SEC.

A The sole proprietor of an insurance business need not register under the Uniform Securities Act or Investment Advisers Act. He provides advice on fixed-income annuities only, which are insurance products, not securities. Regulations under the USA, as well as federal securities laws, only apply to securities.

when does registration become effective?

A registration is effective at noon, 30 days after the application has been filed if there is no denial or stop order in process. Registrations of securities professionals expire on December 31, unless renewed. If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.

If AAA Investment Advisers has entered into a written advisory contract with a client that contains a discretionary power, all of the following information must be stated in the contract except A) AAA Investment Advisers shall be the only party eligible to make investment decisions in the account. B) consent of the client is required for AAA Investment Advisers to assign the contract to another manager or adviser. C) the amount of the fee AAA Investment Advisers charges annually on the value of assets under management. D) AAA Investment Advisers has discretionary authority to make investment decisions on behalf of the client.

A) The discretionary power authorizes the investment adviser to make the investment decisions without prior approval of the client. However, nothing in that power prohibits the client from personally making the decision to buy or sell any assets in the account.

To sell securities, an agent must be registered as an agent in his state of residence where he sells securities. each state in which he actually sells securities. every state where his employing broker-dealer is registered. each state where he offers the sale of securities to retail clients.

Agents must be registered in each state where they are selling or offering to sell securities; they do not need to be registered in every state where the employing broker-dealer is registered.

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) the investment adviser has a small office in the state. B) he conducts frequent public seminars in the state. C) he deals only with investment companies located in the state. D) he has a time-share in the state.

B 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 IA, has an office in the state, is of no relevance to the IAR.

Which of the following regarding the registration of investment advisers and their representatives is true? A) An investment adviser representative, terminated his employment with ABC Advisers and, six months later, was employed as an advisory representative by KLM, a federal covered adviser. Each firm is required to notify the Administrator of each event. B) ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm six months ago. ABC must notify the Administrator of this association promptly. C) ABC Advisers, Inc., is an investment advisory firm registered with the Administrator. Therefore, its representatives must notify the Administrator whenever there is a termination. D) XYZ Advisers, Inc., is a federal covered investment adviser registered with the SEC. Therefore, its representatives do not register with the Administrator.

B Only state-registered investment advisory firms are required to notify the appropriate state Administrator when employment is terminated or begun. In the case of investment adviser representatives of federal covered advisers, notification is the responsibility of the IAR. IARs of both state and federal registered investment advisers must be registered with the appropriate state Administrator(s), unless otherwise exempted. In the case of agents, both the broker-dealers and the agents must notify the Administrator.

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) The options account agreement must be received within 15 days after the customer's account has been approved. B) Margin account agreements must be received before the first margin trade in the account. C) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. D) Written discretionary account authorization must be received by a broker-dealer before exercising discretion.

B 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 broker-dealer registered in State X has several clients in State Y. If the firm does not have a place of business in State Y, registration in State Y would be required if one of those clients is A) a registered investment company. B) an investment adviser registered in State Y. C) a broker-dealer registered in State Y. D) a bank authorized to do business in State Y.

B The Uniform Securities Act provides that a broker-dealer with no place of business in a state is not defined as a BD in that state if its customers are exclusively institutional investors or other BDs. Banks and registered investment companies are in the list of institutional investors. When there is a client who is an investment adviser, the exclusion is lost.

Royal Securities is a broker-dealer registered in Province A. Some of Royal's retail customers have made a permanent move to State M. If Royal wishes to maintain the customer relationship, it A) must register as any U.S.-based broker-dealer would when there are retail investors in the state. B) must register under the limited registration program available to Canadian broker-dealers. C) may continue the relationship as it would with any Canadian citizen as long as it keeps its registration active in Province A. D) need not register in State M if there is no place of business there and the customers are visiting the state.

B The rules for Canadian broker-dealers are spelled out in the Uniform Securities Act. If the Canadian client is in the U.S. on a temporary basis, the BD must use the limited registration process. If the Canadian client makes a permanent change of residence to the U.S., once again, the limited registration process must be followed. Although it does not affect the answer, as a point of information, because these customers have made a permanent move,, the Canadian BD's relationship with the customer is limited to activity in the customer's RRSP (retirement plan similar to our IRA). When the move is temporary, such as a visit to the southern U.S. for the winter, as long as the BD has the limited registration, the BD can conduct business as normal (any kind of account).

Under the Uniform Securities Act, a sale includes all of the following except A) a disposition of a security for value. B) a pledge of securities for the purpose of obtaining a margin loan. C) a contract of sale. D) a contract to sell.

B Under the Uniform Securities Act, a sale includes every contract of sale, contract to sell, or disposition of a security for value. A pledge of securities is not a sale because the title to the shares is not transferred; it is merely assigned.

Agent A with Firm Y and Agent B with Firm Z conduct a joint seminar. They agree to share the commissions on any resulting business. Under the Uniform Securities Act, which of the following statements regarding sharing commissions is correct? A) Sharing commissions that are a result of a joint seminar is never permitted. B) Sharing of commissions by agents of two unrelated firms is prohibited. C) In this instance, sharing of commissions could only be done with the approval of both firms. D) Only an agent who makes a sale is eligible to earn a commission.

B Unless an exception is granted by the Administrator, it is prohibited for an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.

Aisha is registered as an agent with Integrity Investment Associates (IIA), a broker-dealer registered in State Z. One of Aisha's customers has offered her a position managing a nursing home at twice her current compensation rate. She gives notice to her manager at IIA. Under the Uniform Securities Act, notification of the termination must be made to the State Z Administrator by A) IIA. B) Aisha and IIA. C) Aisha and the new employer. D) Aisha.

B When an agent terminates her registration with a broker-dealer, both the agent and the BD must notify the Administrator. When that agent wishes to register with a different BD, that firm must also make notification. In this case, the new employer is not a BD. Therefore, it is only the agent and the BD who make the notification. We think it easiest to remember that the first letter of agent (A) tips you off that all of the registered parties involved must notify the Administrator of a termination and registration.

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. Because of this, when performing an examination of the IA, the Administrator not only will look for disclosure-related items in the disclosure document (the brochure), but may also check for proper disclosure in the adviser's A) tax returns. B) seminar materials. C) contracts with vendors. D) income statement.

B When it comes to the relationship between an investment adviser (IA) and its clients, full disclosure of all relevant information is required. In addition to the brochure, the Administrator is empowered to check communications with the public, such as seminars and advertising. The website would be included as well. Contracts with clients must have full disclosure, but there is no firm-client relationship requiring disclosure of contracts with the IA's suppliers, the IA's income statement, or its tax returns.

Peterson Financial Planning is a small personal financial planning partnership in Missouri that has $10 million in assets under management. As a result of the Dodd-Frank Act, which of the following statements best describes the registration requirement for Peterson Financial Planning? A) Peterson Financial Planning is required to register as an investment adviser with the SEC and to notify the Administrator of the Missouri Department of Securities of its operation. B) Peterson Financial Planning is required to register as an adviser with the Administrator of the Missouri Department of Securities. C) Peterson Financial Planning is required to register as an adviser with both the SEC and the Administrator of the Missouri Department of Securities. D) Peterson Financial Planning is required to register as an investment adviser with the SEC but has no requirement to register with the Administrator of the Missouri Department of Securities.

B With less than $25 million under management, Peterson Financial Planning is considered a small investment adviser and must register with the state. Advisers managing at least $25 million but less than $100 million are considered mid-size IAs and, unless qualifying for an exception, must also register with the state. IAs with at least $100 million in AUM, but not $110, register with the SEC or the state. Once the $110 million level is reached, SEC registration is mandatory.

Alice, an agent with Winmore Securities, a registered broker-dealer, introduced some of her clients to an old college friend who was raising funds for a new start-up venture. Those who invested in the deal did so by having Alice transfer funds from their accounts at Winmore to the start-up. Alice did not charge or receive any compensation for doing this. Because of this limited role, Alice did not notify her supervisor at Winmore. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, Alice has engaged in the unethical business practice of A) sharing in accounts. B) selling away. C) front running. D) churning.

B . selling away As limited as Alice's activity appears to be, this would be considered arranging for a securities transaction "away" from her broker-dealer (BD). This would have been permitted if Alice had received written authorization in advance from her employing BD.

Under the Uniform Securities Act, an individual is subject to registration as an agent if he engages in transactions between an issuer of a nonexempt security and A) savings institutions or trust companies. B) the underwriters. C) an individual investor with assets in excess of $5 million. D) an insurance company.

C A person representing an issuer in an exempt transaction does not have to register as an agent. Transactions between an issuer and an underwriter, an insurance company, or a banking institution are exempt. Transactions with investors, not meeting the definition of institutional investor, even a wealthy investor, are not exempt and require registration as an agent.

The Uniform Securities Act excludes from the definition of agent individuals who represent certain issuers in the sale of their securities. An individual representing which of the following issuers qualifies for that exclusion? A) The Equity Life Insurance Company of Springfield B) The First Federal Credit Union of Springfield C) The Second National Bank of Springfield D) The Springfield Gas and Electric Company

C Although the securities issued by all of these entities are exempt from registration under the Uniform Securities Act, the only issuer listed where the exclusion is granted is the bank.

Which of the following sales would be exempt from the antifraud provisions of the Uniform Securities Act? A) Sale of an exempt security in an exempt transaction B) Sale of a nonexempt security C) Sale of a modified endowment policy D) Sale of an exempt security

C As long as it is a security, the USA's antifraud provisions apply. But a modified endowment insurance policy is not a security.

According to the Uniform Securities Act, a state-registered investment adviser may have custody of a customer's funds and securities if A) it has received permission from the SEC. B) it has received the permission of the Administrator. C) the Administrator has been informed of the custody. D) it does not share in the capital gains of the account.

C As long as retaining custody of funds is not prohibited, a state-registered investment adviser may have custody of a customer's account after providing notice to the Administrator. Notice to the SEC is not required for federal covered advisers who maintain custody (but that will not be tested).

The NASAA Model Rule on investment adviser brochures contains one condition where verification of receipt of a readable copy of the brochure and supplements by the customer is required. That is the case A) when the investment adviser will be maintaining custody of customer funds and securities. B) of an annual delivery to an existing client in electronic form. C) of an initial delivery to a potential client in electronic form. D) of an initial delivery to a potential client in paper form.

C Delivery of the brochure and related supplements may be made electronically if the investment adviser, in the case of an initial delivery to a potential client, obtains a verification that a readable copy of the brochure and supplements was received by the client.

An applicant for registration as a broker-dealer realized that material information was omitted from the initial application. In that case, A) the 30-day period is tolled and picks up once the omitted material is submitted. B) the application will likely be permanently rejected. C) the 30-day period begins when the application containing that information is submitted. D) the 30-day period begins with the initial application and the omission has no effect as long as the missing information is submitted during that period.

C Registration as a broker-dealer (or any securities professional) takes effect at noon of the 30th day after submission of a complete application. If the initial application has omitted material information, the 30-day period begins with the filing of the corrected application.

A new issue is being sold by a registered broker-dealer. An agent for the firm prepares a sales brochure that contains only positive information gleaned from the prospectus. The sales brochure is handed out along with a copy of the effective prospectus. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this is A) permitted because the agent is delivering the prospectus along with the sales brochure. B) prohibited because a sales brochure may never accompany a prospectus. C) prohibited because material information is being omitted. D) permitted because the sales brochure contains information found only in the prospectus.

C Sure, the sales piece is being handed out with the prospectus, but the folks at NASAA were not born yesterday. They know the client will most likely ignore the hard-to-read prospectus and just focus on the glossy, slick-looking brochure. That is why this is a prohibited practice—disclosure of the risks and expenses will be left out.

State securities laws generally limit agents to employment with a single broker-dealer unless A) permission has been granted by the SEC. B) permission is received from both broker-dealers, regardless of Administrator approval. C) the Administrator, by rule or order, authorizes employment with more than one broker-dealer. D) multiple employment is widespread and does not require specific Administrator approval.

C The USA generally limits agents to single employment unless the Administrator, by rule or order, authorizes multiple affiliations.

NASAA has created a template for registered broker-dealers to disclose their fee schedules to existing and prospective customers. Which of the following charges would not be disclosed? A) Charges for obtaining a stock or bond certificate B) Postage and handling fees C) The broker-dealer's commission schedule D) Account transfer fees

C There are three items that are not part of the broker-dealer (BD) fee disclosure document. Those are commissions; markups and markdowns; and advisory fees (for those BDs that are also investment advisers).

What document must accompany an initial registration application for those natural persons required to register under the Uniform Securities Act?

Consent to service of process

A broker-dealer is registered in all 50 states. Which of the following statements is correct regarding the firm's obligations for maintaining books and records? A) The broker-dealer must satisfy the requirements of the most stringent state. B) The broker-dealer must satisfy the requirements of the state in which the majority of its agents are registered. C) The broker-dealer must satisfy the requirements of the Administrator for the state in which their principal office is located. D) The broker-dealer need only satisfy the requirements of the SEC.

D

An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following is not required on the new account form? A) Citizenship B) Physical address C) Name of the employer D) Number of dependents

D

The document that gives the Administrator the right to process complaints against a registrant is known as

Consent to service of process

Lucy, an agent of XYZ Securities, works out of an office in Ohio. She calls her client Clark, an individual investor and a resident of Kansas, and recommends that Clark purchase 500 shares of Perfect Pasta, Inc. common stock. Lucy read a report that Perfect Pasta plans to introduce a low carbohydrate pasta into the marketplace. Perfect Pasta, Inc., common stock is neither exchange traded nor traded on Nasdaq. At the time Lucy makes the recommendation, the stock is not registered with the Securities Departments of Ohio or Kansas. Which of the following statements best reflects this transaction? A) Lucy has not violated the Uniform Securities Act because the transaction with Clark is an exempt transaction. B) Lucy has violated the Uniform Securities Act because Perfect Pasta, failed to register its stock with the Securities Departments in both Kansas and Ohio. C) Lucy has violated the Uniform Securities Act because Perfect Pasta, failed to register its stock with the Securities Department in Ohio. D) Lucy has violated the Uniform Securities Act because she solicited an order in an unregistered nonexempt security.

D

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser's fee A) may not be based on a percentage of the client's assets under management. B) is not subject to regulatory oversight by the Administrator if the client may be considered financially sophisticated. C) must reflect the amount of time the investment adviser spends managing a client's account. D) may be considered unreasonable if it is not competitive with fees charged by other investment advisers for essentially the same services.

D A fee could be considered excessive if it were substantially higher than that charged by other investment advisers (IAs) for performing similar services. The Administrator may research fees charged by various IAs for purposes of comparison. Whether clients have agreed to the fee or done their own price-shopping is irrelevant in determining if an IA's fee is unreasonable.

On determining that a registrant or applicant for registration is no longer in existence or has ceased doing business as either an agent or a broker-dealer, the Administrator may cancel or suspend the registration. B) revoke the registration. C) issue a cease and desist order. D) cancel the registration or application.

D A registration may be canceled if the registrant cannot be located, is found mentally incompetent, or has disbanded. This is known as nonpunitive termination of registration. Suspension, revocation, and a cease and desist order are for violations of the Uniform Securities Act.

An Administrator has jurisdiction over an offer to sell securities if it is made in a newspaper published out of his state A) with at least two-thirds of its circulation in the state. B) with at least half of its circulation in the state. C) with at least a third of its circulation in the state. D) under no circumstances.

D A state Administrator never has jurisdiction over a securities offering made in a bona fide newspaper published out of state. However, the Administrator has jurisdiction if the paper is published in his state. There is an exception to that when two-thirds or more of the paper's circulation is out of that state.

Transactions involving certain persons are included in the Uniform Securities Act's definition of exempt transaction. Transactions involving which of the following persons would not be exempt transactions? A) A sheriff or a marshal B) A trustee of an irrevocable trust C) A court-appointed guardian D) A trustee in bankruptcy

D Although the term trustee is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy.

Asher is registered as an agent with ABC Securities, a registered broker-dealer in State H. If Asher wanted to also register with XYZ Securities, it would be permitted under the Uniform Securities Act as long as A) Asher submits a properly completed Form U4 to the State H Administrator. B) XYZ is registered in a state other than State H. C) Asher, ABC, and XYZ notify the State H Administrator. D) ABC and XYZ are affiliated by direct or indirect common control.

D An individual may not act at any one time as an agent for more than one broker-dealer or for more than one issuer, unless the BDs or issuers for whom the agent acts are affiliated by direct or indirect common control or the Administrator grants an exception. Don't confuse termination of registration and re-registration with a new firm with this question. Asher wants a multiple registration.

The RAN Corporation's common stock is listed on the New York Stock Exchange. To raise additional working capital, RAN's board of directors has authorized the sale of $75 million in subordinated debentures. Under the Uniform Securities Act, which of the following is not a true statement? A) The Administrator can require that the issuer provide a notice filing in the state. B) The Administrator may require payment of a filing fee prior to sales taking place in the state. C) The Administrator can bring an enforcement action against the issuer if it is deemed that the issue is fraudulent. D) The Administrator can require the RAN Corporation to register the debentures prior to an offering in the state.

D Because the RAN Corporation's common stock is listed on the NYSE, it—and any security equal or senior to it—is a federal covered security. As such, the state has no registration authority over the security. However, notice filing and payment of fees may be required. The Administrator always has the power to enforce antifraud statutes.

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) Maintaining an under-the-radar system of monitoring social media use by its agents to determine compliance with NASAA's rules C) Requiring that only those in a supervisory role need to recognize the difference between business and nonbusiness communications D) Training both supervisory personnel and agents on the difference between interactive and static content

D 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 and between business and nonbusiness 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.

Strategic Capital Asset Managers (SCAM) is an investment adviser registered in five states. In lieu of preparing a fancy brochure, SCAM is permitted to provide its clients with a copy of its A) annual renewal form provided to the SEC. B) Form ADV Part 2, Appendix 1. C) Form ADV Part 1 and Part 1B. D) Form ADV Part 2A and Part 2B.

D The Form ADV Part 2 (both parts) is acceptable for use as the firm's brochure. Part 1 is for registration purposes, and Part 1B is only used by state-registered advisers (as this firm is). Part 2, Appendix 1 is used for investment advisers (IAs) who offer wrap fee programs. As a state-registered IA, SCAM does not file any forms with the SEC.

Under the Uniform Securities Act, each of the following is specifically excluded from the definition of a broker-dealer except A) an issuer. B) an agent. C) an international bank. D) an investment adviser.

D The USA specifically excludes agent/issuers and banks, international or domestic, from the definition of a broker-dealer. Investment advisers may have to register as BDs if their method of operation requires it.

Under the Uniform Securities Act, a client may sue an agent A) only if the agent is still alive. B) only if the broker-dealer goes out of business. C) for up to five years from the date of the violation. D) unless the agent's broker-dealer offers to return the client's purchase price plus interest.

D If the agent's broker-dealer offers rescission to the client, the client generally will not initiate a suit because there is nothing to be gained beyond what will be received through rescission. Five years is the statute of limitations for criminal activity and this is civil.

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office, A) the investment adviser representative and the federal covered advisers must notify the Administrator promptly. B) the investment adviser representative and the employing adviser must notify the Administrator promptly. C) only the terminating investment adviser must notify the Administrator. D) only the investment adviser representative must notify the Administrator promptly.

D If you are working for a registered investment adviser within a specific state, that state securities Administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the state securities Administrator of your employment. A federal registered IA is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered IA, it becomes your duty to notify the state securities Administrator that you are working there, as well as when you terminate.

Under the Uniform Securities Act, all of the following are exempt transactions except A) isolated nonissuer transactions. B) a transaction executed by a trustee in bankruptcy. C) unsolicited customer orders. D) a sale of a primary offering registered with the SEC.

D 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 transactions; 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.

Under the provisions of the Uniform Securities Act, a securities agent may not A) be registered with two broker-dealers under common control. B) be registered with a licensed real estate broker as well as with a licensed securities broker-dealer. C) be licensed by both an independent insurance company and a securities broker-dealer. D) accept an unsolicited order for an exempt security from a retail client of the broker-dealer who resides in a state in which the agent is not registered.

D In order to accept an order from a retail client who lives in a state, the agent must be registered in that state. It makes no difference if the transaction (unsolicited order) or security is exempt; registration as an agent in the state is still required. Agents of broker-dealers may be simultaneously registered with real estate agencies, insurance companies, and two BDs, provided the BDs are under common ownership or control or the arrangement has been authorized by the Administrator.

Which of the following statements relating to notice filing are correct? It is available only to federal covered securities. A notice filing is effective for one year, beginning from the later of filing with the Administrator or the effective date determined by the SEC. Renewal is accomplished by filing with the state a copy of records filed with the SEC, along with a signed consent to service of process. Failure to pay required fees could lead to the issuance of a stop order. A) I, II, III, and IV B) I and III C) II, III, and IV D) I, II, and IV

D Notice filing is only available to securities that meet the definition of federal covered security. Just as with other registrations under the act, a registration is effective for a one-year period. In this case, it is the later of the filing with the state or the SEC effective date that sets the clock. The initial filing requires a consent to service of process that may be incorporated by reference into the renewals. A consent to service of process need not be renewed annually because it remains on file. Any time fees are not paid, the Administrator will take action.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, advertisements must comply with rules set out under the Investment Advisers Act of 1940. Those rules include A) a prohibition against showing the adviser's past performance. B) a requirement that a copy of all advertisements be sent to the SEC at the time they are disseminated to the public. C) a prohibition against reduced-fee introductory offers. D) requiring a written agreement betwee an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser.

D State-registered investment advisers must comply with the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers. That model rule states that, when it comes to advertising, IAs and their IARs must comply with the rules of the Investment Advisers Act of 1940. The SEC Model Marketing Rule for Investment Advisers incorporated significant amendments to the Advisers Act. Among the requirements of the rule is that an adviser who compensates a non-affiliated third party promoter for endorsing the services of the IA must have a written agreement with that promoter if the compensation will exceed $1,000 over a 12-month period. Advertisements may not contain false statements, refer selectively to past recommendations, refer to a chart or device for evaluating securities without explaining its limitations and difficulties, or offer anything free of charge if in fact there will be some requirement, however minor, for obtaining the free item. There is no federal filing requirement for advertisements of investment advisers (although filing may be required by the state Administrator). As long as the past performance is displayed in a manner consistent with the rules, there is no problem.

NASAA has created a Model Rule dealing with the creation of and delivery requirements for an investment adviser brochure. Which of the following statements correctly identify the delivery requirements? A) The brochure may be delivered to prospective and new advisory clients at least 48 hours prior to entering into the advisory contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract. B) Annual delivery of the brochure to prospective clients must be made within 120 days of the end of the adviser's fiscal year. C) The brochure may be delivered to prospective and new advisory clients no later than 48 hours after entering into the advisory contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract. D) The brochure may be delivered to prospective and new advisory clients at the time of entering into any such contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.

D The latest time for delivery of the initial brochure is at the time of entry into the advisory contract. The Model Rule permits that as long as there is a provision for the client to have a penalty-free withdrawal right within five business days of entering the contract. That right can be abrogated if the brochure is delivered at least 48 hours in advance. However, the rule does not mandate the early delivery. By doing so, the adviser is relieved of providing the penalty-free withdrawal. The annual delivery is within 120 days of the end of the adviser's fiscal year, but that is only to existing, not prospective, clients (read carefully).

Under the Uniform Securities Act, which of the following is not a reason for canceling an agent's registration? A) The agent cannot be located after a reasonable search. B) The agent has been found by a court to be mentally incompetent. C) The agent has ceased to do business as an agent. D) The agent has engaged in an unethical business practice.

D The other choices are causes for cancellation, which is not intended to be punitive. Engaging in unethical business practices is a cause for disciplinary action by the Administrator, court-imposed penalties, criminal prosecution, and civil legal remedies.

NASAA has created a template for registered broker-dealers to disclose their fee schedules to existing and prospective customers. For those broker-dealers that are also registered as investment advisers, which of the following charges would not be disclosed? A) Charges made when a customer transfers the account to another broker-dealer B) Interest charged on borrowed money in margin accounts C) Charges for wiring funds D) Advisory fees

D There are three items that are not part of the broker-dealer (BD) fee disclosure document. Those are commissions; markups and markdowns; and advisory fees (for those BDs that are also investment advisers).

Under the Uniform Securities Act, all of the following are included in the definition of the term exempt transactionexcept A) a sale of nonexempt securities to a broker-dealer. B) a sale of securities to a bank. C) a sale of unregistered nonexempt securities in an unsolicited transaction. D) a sale of securities to an individual investor with a net worth of more than $5 million.

D Unless there was something specified in the question or the answer choice to indicate that the transaction met one of several specific conditions (e.g., isolated nonissuer, fiduciary, unsolicited, and so forth), sales to individuals, regardless of their wealth, are not exempt transactions. If the transaction is truly unsolicited (and the Administrator has the power to verify that), it is an exempt transaction. Transactions with financial institutions such as banks, savings and loans, and insurance companies are exempt. Although not specifically a financial institution, the USA also considers sales to broker-dealers to be exempt transactions.

Under the Uniform Securities Act, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in

D) giving a seminar on the benefits of whole life insurance versus term insurance. A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Insurance, unless variable, is not a security.

Under the Uniform Securities Act, requirements for registration may include which of the following? I) An announcement of the application for registration in one or more newspapers in the state II) Minimum capital requirements for broker-dealers who do not have custody of client securities or funds III) A surety bond for agents who have custody of client securities or funds

I and II A published announcement may be required by the Administrator. The Administrator may also establish minimum capital requirements for broker-dealers, whether or not they maintain custody. However, the Administrator may require a bond only of persons who have custody or discretion. Agents may never have custody; only BDs and investment advisers are permitted to do so.

Securities exempt under the Uniform Securities Act are exempt from I) registration requirements. II) antifraud provisions of state securities laws. III) sales and advertising literature filing.

I and III

Under NASAA Model Rule on Custody Requirements for Investment Advisers, which of the following are violations of the requirements for advisers who have custody of client securities or funds? I) An adviser deposits client funds into its own bank account, making a careful record of the amount of funds belonging to each client. II) An adviser allows a CPA to conduct an unscheduled audit of all client securities and funds in the adviser's custody. III) Once a year, an adviser sends each client a report on the securities and funds in the adviser's custody.

I and III Client funds must be deposited in separate bank accounts. Each year, accounts must be audited by an independent public accountant in an unannounced examination. Clients must receive statements quarterly (not yearly). Clients must also be notified in writing of the location of their property and any change in that location. Client securities must be properly segregated and identified.

Under the Uniform Securities Act, a private placement is considered an exempt transaction when directed I) to no more than 10 noninstitutional persons. II) to no more than 15 noninstitutional persons. III) in 9 consecutive months. IV) in 12 consecutive months.

I and IV An exempt transaction is considered a private placement when directed to no more than 10 noninstitutional persons in a 12-consecutive-month period. Furthermore, purchasers must agree that they are purchasing for investment purposes only, not for immediate resale. No such holding restrictions apply to institutional buyers of a private placement.

Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? I) An office from which the representative regularly provides advisory services to clients II) A location published in a professional directory, indicated on business cards, or found in a telephone book that identifies it as a place where the representative will be available to meet or communicate with clients III) A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business IV) A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business

I, II, III The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services; solicits, meets with, or otherwise communicates with clients; or any other location held out to the public as a location where the representative will do any of these activities. The frequency of use is not a factor. Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. A hotel room is not included when it is not advertised and used only with existing clients, presumably when the adviser is traveling through their state.

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 registration is automatically renewed one year after approval, provided no violations occurred during the year.

II and III 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 BD. A registration statement can be filed by an issuer itself, any other person on whose behalf the offering is to be made, or a BD. Registration of an agent is not effective when the agent is not associated with a BD registered under the act. Registrations of securities professionals expire December 31, unless renewed, regardless of violations.

The NASAA Model Rule on Custody applies to certain

Investment Advisers The custody rules are limited to those investment advisers who maintain custody of customer funds and/or securities. Broker-dealers are covered under the SEC's Customer Protection Rule. Agents and IARs never maintain custody of customer assets.

notice filing

Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.

Jaquan is busy completing his Form U4. Jaquan is applying to be

Registration as an agent of a broker-dealer is most commonly effected by submitting a complete Form U4.

If an issuer of a nonexempt security wants to register simultaneously with the state and the SEC, which method would be used?

Registration by coordination Registration by coordination is done concurrently with registration at the federal level. Registration by qualification is the method for local companies sold only within the state.

Registration by qualification is effective

Registration by qualification is effective when determined by the Administrator. Qualification is the only form of registration where the timing of the effective date is determined by the Administrator.

An agent solicits orders for a primary offering of a nonexempt security in his home state. Within days, he learns that the underwriting is not registered in that state. Relieved that no customer orders were placed, he ceases soliciting orders in this security. In this situation, the agent has acted

Soliciting orders in unregistered nonexempt securities is unlawful, regardless of whether or not orders are placed. Stopping was the correct action, but that does not relieve him of his initial error.

Delivery of the brochure and related brochure supplements required by subsections of the NASAA Model Rule on investment adviser brochures need not be made to clients who receive only impersonal advice and who pay less than

The brochure rule creates exemptions from the delivery requirement in two cases. The first is when the service rendered meets the definition of impersonal advisory services and the annual fee is less than $500. The other is when the advisory contract is with a registered investment company such as an open-end or closed-end fund.

Margin is borrowing money from a broker-dealer to buy a stock, using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock?

The hypothecation agreement gives permission to the broker-dealer (BD) to pledge a customer's margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the BD on the basis of the loan value of these securities.

Alex Garrding owns 100 shares of Utopia Medical Supplies, Inc., a corporation whose stock trades on the New York Stock Exchange. If Garrding sells those shares to his friend Rollins Westerfield, it would meet the Uniform Securities Act's definition of

a nonissuer transaction. A nonissuer transaction is one where the proceeds from the sale do not go to the issuer. Because Garrding is selling to Westerfield, Garrding is the one receiving the money, not Utopia Medical Supplies (the issuer). There is nothing illegal about an individual who owns a security selling it to a friend, neighbor, relative, or stranger. In the same manner you do not need a real estate license to sell your home, you do not need a securities license to sell stock you own. Furthermore, the Uniform Securities Act does not define a trade on a listed exchange (or a listed exchange for that matter).

The only financial requirement that the Administrator may place upon a person applying for registration as an agent is

a surety bond if the agent will be exercising discretion over customer accounts. Unlike broker-dealers or investment advisers, agents do not have to meet any kind of financial means test: no minimum income, minimum net worth, or net capital. In the event the agent will be exercising discretion, the USA permits the Administrator to require posting of a surety bond. Agents are not permitted to maintain custody of customer funds or securities.

A type of fraud using social media where the fraudster pretends to be a member of a group, sometimes using respected leaders of the group to spread the word about the scheme, is known as

affinity fraud

Under the Uniform Securities Act, which of the following is excluded from the definition of investment adviser? I) A bank II) An investment adviser representative III) A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain IV) An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940

all four Banks, IARs, federal covered advisers, and lawyers are all specifically excluded from the definition of investment adviser. Any investment adviser under contract to manage a regulated investment company must register with the SEC and is, therefore, a federal covered adviser (regardless of where they have an office). Remember that the law makes a distinction between investment advisers and their representatives and that certain professions are excluded from the definition if the investment advice provided is solely incidental to the practice of that profession. Making suggestions as to how to invest proceeds from a legal settlement would certainly appear to be incidental to the practice of law. Banks are given a blanket exclusion.

Under the Uniform Securities Act, the definition of an investment adviser does not include investment adviser representatives. lawyers and accountants whose investment advisory services are solely incidental to their practices. broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided. federal covered investment advisers.

all of the above

Under the Uniform Securities Act, when an agent changes broker-dealers, who must notify the Administrator? The agent The former employer broker-dealer The new broker-dealer

all three

Under the Uniform Securities Act, an Administrator who believes a violation has occurred or is about to occur may I) issue a cease and desist order without a prior hearing. II) bring action to obtain an injunction and have a receiver appointed over the alleged violator's accounts. III) seek a court order requiring the alleged violator to make restitution to others.

all three Whenever it appears to the Administrator that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of the Uniform Securities Act or any rule or order, he may, at his discretion, bring either or both of the following remedies: Issue a cease and desist order, with or without a prior hearing against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity. Bring an action in the appropriate court to enjoin the acts or practices to enforce compliance with this act or any rule or order hereunder. Upon a proper showing, a permanent or temporary injunction will be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. In addition, upon a proper showing by the Administrator, the court may enter an order of rescission, restitution, or disgorgement directed to any person who has engaged in any act constituting a violation of any provision of this act or any rule or order hereunder.

A fraudulent transaction was initiated by an agent in Indiana by contacting a client residing in Iowa. After evaluating the offer, the client agreed to purchase the recommended security while vacationing in Florida. Which Administrator(s) has (have) jurisdiction? The Indiana Administrator The Iowa Administrator The Florida Administrator

all three Activities that originate in a state, are directed into a state, or are accepted in a state fall under the jurisdiction of the Administrator of each of those states.

An agent is very satisfied with the work being done by his unregistered sales assistant and would like to compensate her with 5% of his commissions. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would be

an unacceptable practice because only registered agents may receive sales-related compensation. Nothing fancy here—you can't get paid for securities sales unless you are licensed. Isn't that why you are taking this exam?

In general, a broker-dealer will disclose any changes to its fee schedule

by notifying clients of the change in advance. - no requirement to let Administrator know

Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator

do not apply

A Canadian broker-dealer with no offices in this state has a Canadian client who is on a temporary work assignment in this state. To accept orders from this client, the broker-dealer must

file an application for limited registration with the Administrator in the form required by the jurisdiction in which it has its head office. file a consent to service of process. provide the Administrator with evidence that it is currently in good standing as a broker-dealer in the jurisdiction from which it is effecting securities transactions. be a member of a recognized self-regulatory association or stock exchange in Canada.

A client of a broker-dealer discovers that the agent handling the account has forged the customer's signature on several checks and taken the money. In the event the agent cannot provide the funds to repay the customer, protection is offered in the form of

surety bond From time to time, there are stories about securities professionals who commit crimes such as forgery. Broker-dealers protect their customers by purchasing a surety bond. This is a form of insurance policy that pays the claimant (the customer) for cases like this. FDIC insurance is limited to banking institutions.

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,

this is permissible if the broker-dealer is properly registered in Alberta, deals only with existing clients, and registers in each of the states where the clients are vacationing. 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. The snowbird exemption does not apply to Canadian BDs and their agents as it does to broker-dealers and agents domociled in the United States.

Under the Uniform Securities Act, if no stop order is pending, a registration under coordination will become effective

when the issue is declared effective with the SEC.

NASAA has created a Model Rule dealing with the creation of and delivery requirements for an investment adviser brochure. Under that rule, existing customers of the adviser, unless exempt, should expect to receive a copy of the adviser's brochure

within 120 days of the end of the investment adviser's fiscal year. The delivery requirement is 120 days after the end of the adviser's fiscal year. Because state-registered investment advisers renew their registration each December 31, for exam purposes, their fiscal year is always the calendar year. Within 90 days after the end of the fiscal year, the adviser must submit its annual updating amendment and other information to the Administrator. Although the brochure must be delivered no later than the time of entering the contract, this question is referring to an existing customer, so that initial delivery requirement is past history.