Midterm #1
An investment adviser registered with the SEC under the Investment Advisers Act of 1940 changes from an S Corporation to a C Corporation. Which statement is TRUE? A. An amendment to Form ADV must be filed promptly with the SEC B. An amendment to Form ADV must be filed with the SEC within 15 days C. An amendment to Form ADV must be filed with the SEC within 30 days D. An amendment to Form ADV must be filed with the SEC within 90 days
A. An amendment to Form ADV must be filed promptly with the SEC
Under the Uniform Securities Act, all of the following statements about penalties are true EXCEPT: A. Criminal liability may be offset by rescission B. Civil liability may be offset by rescission C. the statute of limitations on criminal actions is 5 years D. the statute of limitations on civil actions is 3 years
A. Criminal liability may be offset by rescission
A broker-dealer is a syndicate member in a best efforts underwriting of ABC Common stock. The issue is oversubscribed. The broker-dealer may allocate sales of the issue to: I employees of the issuer II employees of the broker-dealer III officers of the issuer IV officers of the broker-dealer A. I and III B. I and IV Incorrect Answer C. II and III D. II and IV
A. I and III
Administrators can require minimum Net Capital and Net Worth for: A. Investment Advisers B. Investment Adviser Representatives C. Issuers D. Agents
A. Investment Advisers
A registered securities agent has been contacted by an independent venture capitalist to obtain customers for a private placement that he is forming. Which statement is TRUE? A. The agent is prohibited from directing customers to the venture capitalist B. The agent is permitted to direct customers to the venture capitalist without restriction C. The agent is permitted to direct customers to the venture capitalist with the permission of the Administrator D. The agent is permitted to direct customers to the venture capitalist if the agent has posted a surety bond
A. The agent is prohibited from directing customers to the venture capitalist
An agent accepts an unsolicited telephone order from a new customer to buy 200 shares of a listed common stock. The salesman has the order executed and then forwards the new account form, with the executed order ticket, to the manager. Under the Uniform Securities Act, which statement is TRUE? A. The agent's actions are prohibited since the account must be approved by the manager prior to opening B. The agent's actions are prohibited since the customer must open a new account in person C. The agent's actions are allowed as long as the manager approves of the first trade D. The agent acted properly
A. The agent's actions are prohibited since the account must be approved by the manager prior to opening
An investment adviser, age 33 and married, needs cash for the down payment to buy her first house. She asks her father if he can "help out" with the down payment. Her father is one of her advisory clients. Which statement is TRUE about this situation? A. The investment adviser can accept the money from her father if he gives it as a gift B. The investment adviser can accept the money from her father if he gives it as a loan C. The investment adviser cannot accept the money from the father, whether given as a loan or a gift D. The investment adviser can only accept the money from her father if there is a written agreement that details the terms and conditions
A. The investment adviser can accept the money from her father if he gives it as a gift
An investment adviser has an institutional customer that wishes to sell 5,000 shares of ABC Stock. The adviser believes that ABC Stock would be a suitable investment for another institutional client. The adviser wishes to arrange a trade between the 2 institutions at the current market price, for which the adviser would charge a token fee. Because there will be no brokerage commissions, the institutional customers will get a better execution price. Which statement is TRUE about this? A. This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client B. This is not permitted because of the conflict of interest that exists if an investment adviser that recommends a transaction as a fiduciary then acts as the broker, executing that transaction for a fee C. This is permitted because both of the customers are getting a better execution than if they went to the market for a fill D. This is not permitted because a fee is being charged
A. This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client
An individual that has not yet passed the appropriate State licensing examination for agent registration in a State would be permitted to: A. answer a phone call from a client B. make a recommendation to a client C. make a cold call to a potential client D. write an order ticket for an unsolicited client order
A. answer a phone call from a client
An investment adviser is a private fund adviser that is not required to register with the SEC. It has a pool of qualified investors and wants to add to the pool to increase its customer base and assets under management. In order to retain its exempt pool status, the investment adviser: A. can only solicit potential investors who are qualified B. can solicit potential investors who are either qualified or non-qualified as long as the number of investors solicited is limited to a maximum of 50 persons C. can solicit as many potential investors as desired as long as there are no more than 100 investors in the private fund D. must start a new private fund
A. can only solicit potential investors who are qualified
A customer wishes to place a buy order for a security that has not been registered with the SEC. The purchase order can be filled if the security: A. is exempt from SEC registration B. is traded by at least 2 market makers C. has been trading in the market for at least 1 year D. is sold to professional investors
A. is exempt from SEC registration
Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following information EXCEPT: A. name of market where trade was executed B. person who placed the order C. name of account for which order was entered D. person connected with the Investment Adviser who recommended the transaction to the client
A. name of market where trade was executed
A broker-dealer that is registered in Canada and that is not registered in any State may effect transactions in Canadian securities: A. with any existing customer that is a Canadian citizen who is vacationing in the United States B. with a new customer that is a Canadian citizen who is vacationing in the United States C. with any Canadian citizen located in any part of the United States D. only in the Canadian provinces and not in the United States
A. with any existing customer that is a Canadian citizen who is vacationing in the United States
An investment adviser is "bought out" by another advisory firm. Which statement is TRUE? A. The sale must be approved by the State Administrator prior to the accounts being moved to the acquiring firm B. Each customer of the "bought out" investment adviser must give prior approval for his or her account to be moved to the acquiring firm C. A majority of the customers of the "bought out" investment adviser must give prior approval for all of the accounts to be moved to the acquiring firm D. There is no requirement for approval from either the State Administrator or the customers
B. Each customer of the "bought out" investment adviser must give prior approval for his or her account to be moved to the acquiring firm
Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Broker-dealers are subject to post-registration requirements II Broker-dealers are not subject to post-registration requirements III Agents of broker-dealers are subject to post-registration requirements IV Agents of broker-dealers are not subject to post-registration requirements A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Which of the following is prohibited in an advisory contract under NASAA rules? A. Custody Provision B. Liquidated Damages Provision C. Non-Assignment Provision D. Discretionary Authority Provision
B. Liquidated Damages Provision
Under the provisions of the Uniform Securities Act, required records for broker-dealers must be kept in accordance with the provisions of the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Investment Advisers Act of 1940 D. Uniform Securities Act as adopted in that State
B. Securities Exchange Act of 1934
Which of the following is prohibited in a margin account? A. Buying stocks without making full payment B. Selling short securities that cannot be borrowed by settlement C. Buying and selling the same security on the same day D. Depositing fully paid securities as collateral to buy other marginable securities
B. Selling short securities that cannot be borrowed by settlement
Instead of charging a customer a per trade commission charge, a broker-dealer wants to charge its customers that are active traders a flat monthly fee equal to 8% of the value of monthly trades. The broker-dealer identifies its active traders and tells them of the new arrangement. Which statement is TRUE? A. The fee arrangement is permitted because the customers were notified of the change B. The fee arrangement is prohibited because the monthly fee is excessive C. The fee arrangement is prohibited because broker-dealers are only permitted to charge commissions for trades performed D. The fee arrangement is permitted without restriction
B. The fee arrangement is prohibited because the monthly fee is excessive
Which of the following persons is LEAST likely to be defined as an investment adviser? A. A Certified Public Accountant who makes recommendation to customers of portfolio allocations in their 401(k) accounts after preparing their tax returns B. The publisher of an investment newsletter specializing in making small cap stock recommendations that is distributed to paid subscribers monthly C. A lawyer who offers financial planning services only to its existing customers at a discounted rate as compared to the rate charge to the customers for legal services D. A financial planner that sets up a website that includes a retirement calculator that, based on customer input to a series of questions, creates a basic financial plan at no charge to the customer; the site includes advertisements placed by brokerage firms and insurance companies.
B. The publisher of an investment newsletter specializing in making small cap stock recommendations that is distributed to paid subscribers monthly
A solicitor for a Registered Investment Adviser is compensated by earning a percentage of the advisory fee. Which statement is TRUE? A. The solicitor is required to be registered with the SEC as either an investment adviser or an investment adviser representative to receive such a payment B. The solicitor is required to be registered in the State as either an investment adviser or an investment adviser representative to receive such a payment C. The solicitor must be registered with both the SEC and the State as either an investment adviser or an investment adviser representative to receive such a payment D. The solicitor is neither required to be registered with the SEC nor the State as an investment adviser or investment adviser representative to receive such a payment
B. The solicitor is required to be registered in the State as either an investment adviser or an investment adviser representative to receive such a payment
Federal law says that State law can never supersede Federal law. A former employee of a federal covered adviser reports to the State Administrator that the investment adviser tears up written customer complaints that allege fraud. The State Administrator can: A. do nothing because only Federal law applies B. conduct an audit of the adviser's books and records C. require the adviser to keep additional records than those required by the Investment Advisers Act of 1940 D. imprison the adviser for fraud
B. conduct an audit of the adviser's books and records
Mutual funds must send their financial statements to shareholders: A. annually B. semi-annually C. quarterly D. monthly
B. semi-annually
All of the following are "issuer" transactions EXCEPT the: A. sale of a new issue of bonds by a corporation B. trade of 100 shares of stock on an exchange floor C. sale of mutual fund shares to a customer D. sale of Treasury Bills by the U.S. Government
B. trade of 100 shares of stock on an exchange floor
Who can make a loan to a Registered Investment Adviser? A. A customer with a net worth of $2 million B. A customer that is another registered investment adviser C. A customer that is a bank D. A customer that is a broker-dealer
C. A customer that is a bank
All of the following statements are true regarding persons that transact business in a State EXCEPT: A. Investment advisers must register in the State B. Investment adviser representatives must register in the State C. Federal covered advisers must register in the State D. Representatives of federal covered advisers must register in the State
C. Federal covered advisers must register in the State
Which of the following are considered to be "compensation" to an investment adviser under the Investment Advisers Act of 1940? I Commissions paid to the investment adviser for executing recommended securities transactions II Commissions paid to the adviser on recommended insurance purchases III Payments made by the issuer to the adviser for recommending the issuer's securities IV Profits on securities positions held by the adviser where the adviser recommended those securities to its customers A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
C. I, II, III
An investment adviser that claims that it is a "fee only" adviser could be compensated based on: I a percentage of assets under management II a flat annual or hourly fee for all work performed for wealthy investors III 12b-1 fees paid by mutual funds IV a performance based fee for wealthy investors A. I, II, III B. III and IV C. I, II, IV D. I, II, III, IV
C. I, II, IV
A salesperson is offering promissory notes for a company selling coffee at drive-through kiosks. The notes pay a 13% interest rate and mature within 9 months. The salesperson tells a potential investor that the notes are "risk-free" and that the kiosks are collateral that secure the note. The salesperson is not registered in the State and the notes are not registered in the State. Which statements are TRUE? I There is no requirement for the promissory notes to be registered in the State because they are exempt securities due to the fact that their maturity does not exceed 9 months II The offer is a violation of State law because the salesperson must be registered or licensed in the State and the promissory notes must be registered in the State III The offering is fraudulent because the notes are not "risk-free" and promissory notes are not backed by collateral IV The offering is a violation of State law because the promissory notes are an unsecured obligation that cannot be backed by collateral A. I and III B. I and IV C. II and III D. II and IV
C. II and III
The Securities Exchange Act of 1934 requires that: I there are 3 SEC Commissioners II there are 5 SEC Commissioners III SEC Commissioners have no outside work and cannot trade their own accounts IV SEC Commissioners cannot be affiliated with any political party A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Under NASAA rules, the Form ADV filed with the State must be: I updated quarterly II updated annually III sent to customers if the update is material IV sent to other investment advisers if the update is material A. I and III B. I and IV C. II and III D. II and IV
C. II and III
A violation of the Uniform Securities Act occurs if statements made about a security are: I true, but omit non-material facts II true, but omit material facts III untrue, but include material facts IV untrue, but include non-material facts A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
C. II, III, IV
To be registered as an agent in a State, the Administrator can require which of the following? I Minimum Net Capital II Minimum Surety Bond Coverage III Minimum grade on a qualification examination IV Payment of filing fees A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
C. II, III, IV
Under the Securities Act of 1933, all of the following signatures are obtained and found in a registration statement for a new issue offering EXCEPT the signature of the: A. Chief Executive Officer of the issuer B. Chief Financial Officer of the issuer C. Initial purchasers of the issue D. Lawyers for the issuer
C. Initial purchasers of the issue
An offering of fractional interests in oil and gas programs would be registered in a state by: A. Filing B. Coordination C. Qualification D. Any of the above
C. Qualification
A broker-dealer and agent located and registered in State A have a client that resides in State A. State B is just across the river from State A, and the agent and customer meet at a restaurant in State B to discuss the customer's portfolio. The agent frequently recommends this restaurant to his clients because it has excellent food and reasonably priced drinks. Neither the broker-dealer nor the agent are registered in State B. At the meeting, the agent recommends that the customer buy XYZ stock. The client is not interested in the recommendation, but he has heard about DEF stock from a wealthy friend and tells his agent to buy 1,000 shares of DEF. The agent telephones the order to his assistant in the office in State A. The order is immediately executed and confirmed verbally over the telephone by the assistant to the agent, who informs the client while at the table in the restaurant in State B that the trade is done. The client writes a check to the agent, thanks him, and leaves. Which statement is TRUE? A. Only the Administrator of State A has jurisdiction over this transaction B. Only the Administrator of State B has jurisdiction over this transaction C. The Administrators of both State A and State B have jurisdiction over this transaction D. Neither Administrator has jurisdiction over this transaction because the trade was unsolicited
C. The Administrators of both State A and State B have jurisdiction over this transaction
A registered representative with a broker-dealer makes recommendations of securities to a customer, and charges a commission on each trade. Which statement is TRUE? A. This person must register with the State as an investment adviser representative B. This person must register with the State as an investment adviser C. This person is excluded from the definition of an investment adviser D. This person is defined as an investment adviser, but is exempt from registration
C. This person is excluded from the definition of an investment adviser
Under the Uniform Securities Act, if an agent withdraws his or her registration, the withdrawal becomes effective: A. immediately B. after 10 days C. after 30 days D. only when the Administrator so allows
C. after 30 days
A money market fund that charges .10% of annual management fees and .20% of annual 12b-1 fees: A. cannot be called "no-load" because the total of these fees exceeds .25% B. cannot be called "no-load" because such funds cannot charge 12b-1 fees C. can be called "no load" D. can be called "low load"
C. can be called "no load"
A 75-year old investor calls his securities agent, wanting to buy 1,000 shares of a high risk stock. To fund the investment, the customer is going to liquidate some certificates of deposit that he uses for current income. The registered representative should: A. execute the trade as instructed B. refuse to execute the trade since it is not suitable C. explain to the customer that the trade is not suitable and get a signed non-solicitation letter from the customer before accepting the order D. refer the customer to the manager
C. explain to the customer that the trade is not suitable and get a signed non-solicitation letter from the customer before accepting the order
A customer has an account with an Investment Adviser Representative. The customer and his father, who is a professional investor, have a scheduled meeting with the IAR. Two weeks later, the father calls and asks about his son's tax situation. The IAR should: A. tell the father verbally the information requested B. respond to the father in writing and send a copy of the letter to the son C. obtain permission of the son before making any disclosures D. open an account for the father before making any disclosures
C. obtain permission of the son before making any disclosures
An agent has heard from a good friend that "ACME Fund has taken a large position in ABC stock." Based on this, the agent calls all of her customers with the recommendation that ABC stock be purchased immediately. This action is: A. permitted without restriction B. permitted only if the agent files a disclosure form with the Administrator C. prohibited, since this recommendation was made based upon a rumor D. prohibited, since this recommendation was made based upon inside information
C. prohibited, since this recommendation was made based upon a rumor
An investment adviser has been asked by many of his customers to help with preparation of their tax returns. The adviser does not have much experience with tax preparation. The adviser: A. can take on the tax preparation work if he discloses his lack of competence to the client B. can take on the tax preparation work if he educates himself in the applicable tax laws C. should refer the client to a qualified tax preparer D. can take on the tax preparation work if he includes this service in his advertising
C. should refer the client to a qualified tax preparer
Which of the following information would NOT be found in a registration statement for a security that is going to be registered by qualification in a State? A. Current equity and debt capital of the issuer B. Description of issuer's business, product lines and competitive environment C. Use of proceeds of the offering D. Analysis of company profitability as compared to industry norms
D. Analysis of company profitability as compared to industry norms
Investment advisers are permitted to accept which of the following from broker-dealers in return for directing their portfolio trades to that broker-dealer? I Asset allocation software provided by the broker-dealer II Recommendations of securities made by that broker-dealer III Research reports provided by the broker-dealer A. II only B. III only C. II and III D. I, II, III
D. I, II, III
Under the Investment Advisers Act of 1940, to determine if a person is "in the business" of giving investment advice, which of the following statements are TRUE? I The individual regularly gives advice on securities II The advice is rendered about securities III The individual receives compensation for giving advice on securities A. I only B. I and III only C. II and III only D. I, II, III
D. I, II, III
Under the Investment Advisers Act of 1940, which of the following are included in the Form ADV Part 1 filed with the SEC? I A list of the officers of the advisory firm II A list of the shareholders of the advisory firm III The States in which the advisory firm is registered A. I only B. I and II C. III only D. I, II, III
D. I, II, III
Under the Uniform Securities Act, the definition of "guaranteed" means that the security is guaranteed by another party as to payment of: I dividends II interest III principal A. I only B. II only C. III only D. I, II, III
D. I, II, III
Which of the following are required to have anti-money laundering programs? I Broker-dealers II Federal covered advisers III State-registered advisers A. I only B. I and II only C. II and III only D. I, II, III
D. I, II, III
An investment adviser may be compensated with which of the following? I Wrap fees charged to customers for all services rendered by the adviser II Soft dollars paid by an executing broker to the adviser in return for trades sent to the broker by the adviser III 12b-1 fees paid by a mutual fund to the adviser based on annual net assets IV Commissions paid to an affiliated broker-dealer on trades recommended by the adviser A. I and II B. III and IV C. I, II, III D. I, II, III, IV
D. I, II, III, IV
The Uniform Securities Act covers: I Registration of securities in each State II Registration of broker-dealers in each State III Registration of investment advisers in each State IV Registration of agents of broker-dealers and investment advisers in each State A. I and II B. III and IV C. II, III, IV D. I, II, III, IV
D. I, II, III, IV
Private placements are exempt transactions under the Securities Act of 1933 under the provisions of: A. Regulation A B. Regulation B C. Regulation C D. Regulation D
D. Regulation D
An attorney that has been appointed executor of a deceased customer's estate contacts an investment adviser in a State to invest and manage the estate's financial assets until they are distributed to the heirs. The attorney offers to pay an advisory fee that is based on a percentage of assets under management. Which statement is TRUE regarding this arrangement? Incorrect Answer A. The advisory contract must be approved by the probate court judge prior to the adviser taking control of the financial assets B. The advisory contract must be approved by the heirs prior to the adviser taking control of the financial assets C. The contract is null and void because executors are not permitted to delegate investment and management functions over estate assets D. The contract is valid as long as the adviser exercises reasonable care to comply with the terms of the delegation
D. The contract is valid as long as the adviser exercises reasonable care to comply with the terms of the delegation
An investment adviser prepares an advertisement that will be used in newspapers in a large city. Under NASAA rules, the advertisement would be permitted to contain a(n) A. testimonial from a famous client of the firm B. offer of free research given to any customer that signs an investment contract C. listing of the firm's "Top 10 Picks" showing performance over the past year D. a toll-free number to call for more information
D. a toll-free number to call for more information
If the Administrator prohibits investment advisers in that State from taking custody of customer funds or securities, then the investment adviser would NOT be permitted to: A. accept a check from the customer in payment of the adviser's fee B. accept cash from the customer in payment of the adviser's fee C. accept securities from a customer if the adviser is also a registered broker-dealer in that State D. accept securities from a customer that are registered in customer name
D. accept securities from a customer that are registered in customer name
