progress quiz (chapter 1-4)

A security issued by a U.S. municipality is considered a(n): A) Federal covered security B) Exempt security C) Exempt transaction D) Exempt issuer

Answer is B.Even though a U.S. municipality is an exempt issuer, this question asks you to identify the status of the security. Securities issued by a U.S. municipality are exempt securities.

William is an agent with a broker-dealer and is registered presently in three states. One of William's clients informs him that he is moving to a state where neither William nor his firm is registered. Which of the following statements is TRUE regarding William's registration in the new state? A) William must register in the new state and receive verification from the state Administrator that the registration is effective before conducting any new business with the client. B) William must file a Consent to Service of Process with the state. C) William is not eligible to register in the new state until his broker-dealer is registered in that state . D) William would be permitted to transact business in the new state immediately.

Answer is C. An agent may transact business in a state in which he is not currently registered under certain circumstances. The employing broker-dealer must be registered in the state, and the individual must be registered in at least one other state. Since his broker-dealer is not registered, William is not eligible for registration.

Which of the following choices is a broker-dealer in State B? A) An agent in State A who contacts a client in State B B) A corporation that sells commercial paper every other week in State B C) A broker-dealer registered in State A, where its only office is located, which has three individual clients in State B D) A bank trust department that buys and sells securities for its customers

Answer is C. Agents, issuers, and banks are not broker-dealers. Also, a person with no place of business in a state, who deals only with institutional investors, is not a broker-dealer. If a firm deals with individuals, it would be considered a broker-dealer, even if it did not have an office in the state.

A broker-dealer registered in Georgia sells a security listed on Nasdaq. The transaction takes place in the secondary market between two clients who are Georgia residents. According to the USA, which of the following statements is TRUE? A) The Administrator in Georgia may not require any filing of information about the broker-dealer or issuer B) The issuer would be required to register the security in Georgia C) The security is not required to be registered in Georgia D) The broker-dealer would be required to register the security in Georgia

Answer is C. This is an example of an exempt transaction since it is considered a nonissuer transaction executed by a registered broker-dealer where the security is listed on a national securities exchange.

Which of the following situations would NOT require an adviser to provide customers with an annual audited balance sheet? A) Having custody of client assets B) Receiving substantial prepayment of advisory fees C) Having full discretionary power over the client's account D) None of the above

Answer is D. Investment advisers who have custody of client assets, or who receive substantial prepayment of advisory fees, or who have full discretion over client accounts, are required to provide an audited annual balance sheet to their clients.

A firm, located in State Y, has been hired to evaluate the investment manager of a pension plan whose office is in State Z. The firm must advise the pension plan whether to retain the investment manager or hire a new one. Under the Uniform Securities Act, does the firm meet the definition of an investment adviser? A) Yes, because a fee is being charged for the firm's services as a consultant B) No, because the firm is not making investment recommendations regarding a portfolios C) Yes, because the firm advising the pension plan owner and not the participants D) No, because the firm is servicing an institutional investor

Answer is D. Under the Uniform Securities Act, an adviser that has no place of business in a state and whose clients are only institutional investors (e.g., pension plans), are exempt from the registration requirements.

With reference to the Uniform Securities Act, when does an agent's registration become effective? A) 31-Dec B) As soon as the agent passes the exam C) 60 days after filing the application D) 30 days after filing the application

Answer is D. Under the Uniform Securities Act, registrations become effective at noon on the 30th day after filing the application.

Which TWO of the following statements are TRUE regarding a broker-dealer acting as a dealer/market maker? I. The broker-dealer buys for or sells from its own inventory. II. The broker-dealer earns commissions for executing transactions. III. The broker-dealer is acting as a principal. IV. The broker-dealer is acting in an agency capacity.

answer is 1 and III. A market maker is a broker-dealer that stands ready to buy or sell a specific stock for its own inventory (its own account). The price it is willing to pay for the stock is its bid price, while its ask or offer price represents the price at which it is willing to sell stock (to other dealers). As principals in transactions, market makers do not charge commissions. Commissions are charged when firms act as brokers (agents).

Which of the following statements is/are TRUE of exempt securities under the Uniform Securities Act? I. If state rules regarding an exemption are more restrictive than federal rules, then state rules would govern. II.Any security exempt under federal regulations is also exempt under the Uniform Securities Act. III.An exempt security is one that is not subject to the antifraud provisions of the Uniform Securities Act. IV.Federal regulations always supersede state rules.

answer is 1 only. When the rules overlap, the most restrictive rule applies. A security can be exempt under federal law but not state law, and vice versa. No security is exempt from the antifraud provisions of the USA.

An investment adviser with no place of business within a state will not be required to register with the Administrator under which of the following conditions? A) The adviser will provide advice to four individual clients. B) The adviser has been in business for 10 years. C) The adviser will provide advice only to accredited investors. D) The adviser will provide advice only to 401(k) plans with assets of at least $500,000.

answer is A. An adviser with no place of business in a state, who only provides advice to mutual funds (a type of investment company), other investment advisers, broker-dealers, banks, trust companies, insurance companies, savings and loan associations, employee benefit plans such as a 401(k), where the minimum amount of the assets is $1,000,000, is exempt from registration. An adviser with no place of business who only advises four individual clients would meet the de minimis exemption.

A brokerage firm executes an existing customer's order by locating a contra-party and charges the client a commission for executing the trade. In what capacity was the firm acting? A) Broker B) Dealer C) Facilitator D) Auctioneer

answer is A. Brokers charge commissions. The firm is acting in the capacity of a broker on the transaction since it was representing its client by locating someone willing to take the other side of the trade. Firms acting as brokers in trades earn a commission. If the firm had traded the security for or from inventory and there was a markup or markdown, it would have been acting in the capacity of a dealer.

A firm acting in the capacity of a dealer/market maker will: A) Add markups or markdowns to all client trades B) Add commissions to all client trades C) Assist clients by locating the other side of the transaction D) Collect a sales charge on all transactions

answer is A. Dealers charge markups/markdowns. When acting as a dealer/market maker, a broker-dealer does not charge a commission. A dealer/market maker either buys into inventory or sells out of inventory and charges a markup or a markdown. The broker-dealer will mark up from the offer price (asked) when selling and will mark down from the bid when buying.

Which of the following statements is TRUE of an investment adviser that maintains custody of client funds or securities? A) It must initiate Form ADV-E. B) It must complete Form ADV-W. C) It must arrange for an independent public account to audit these assets on a regular basis at least every three years. D) Choices (a) and (c) are both correct.

answer is A.All registered investment advisers who have custody of client securities or funds must have an independent public accountant to conduct surprise audits of these assets at least once every calendar year. The adviser also must initiate Form ADV-E and give it to the accountant, who then submits it to the regulators with a copy of the audit report attached. Form ADV-W must be filed by advisers that want to withdraw their registration or register with a different regulator.

Which of the following terms is NOT specifically defined under the Uniform Securities Act? A) Broker-dealer B) Registered representative C) Investment adviser D) Investment adviser representative

answer is B. An agent is defined as a person who is employed by a broker-dealer or issuer to sell securities. There is no mention of the term registered representative under the USA. This term is used in federal law. An investment adviser representative is a person employed by an investment adviser who provides investment advice.

All of the following transactions are considered exempt under the Uniform Securities Act, EXCEPT: A) A nonissuer transaction effected through a broker-dealer on an unsolicited basis B) Any transaction directed to a maximum of 15 retail (noninstitutional) investors C) A nonissuer transaction of a security filed under the Investment Company D) Any transaction between an issuer and an underwriter

answer is B. Choice (b) may appear to be a private placement however, the maximum number of retail (noninstitutional) investors is 10, not 15. Any nonissuer transaction of a security registered under the Investment Company Act, or any transaction between an issuer and an underwriter would be considered exempt transactions. Additionally, unsolicited transactions effected through a broker-dealer are exempt.

Under the Uniform Securities Act, which of the following issuers are NOT exempt from registration with the state Administrator? A) Not-for-profit corporations B) For-profit corporations C) Corporations with stock listed on Nasdaq D) Federal savings and loan associations

answer is B. Stock issued by a for-profit corporation is not exempt and is subject to registration.

Which of the following statements is TRUE regarding the Consent to Service of Process? A) It must be renewed every year. B) It is used for receiving and processing noncriminal complaints. C) Filing is optional. D) None of the above

answer is B. The Consent to Service of Process appoints the state Administrator to serve as the applicant's attorney for the purpose of receiving and processing noncriminal complaints. It is required of all registrants when they file for registration in a state.

An officer of GTO Company is selling his company's convertible debentures to the public. In this capacity, the officer is: A)A broker-dealer B)An agent of the issuer C)An agent of a broker-dealer D)Excluded from the definition of an agent

answer is B. Unless the transaction or the security is exempt, a person who represents an issuer in the sale of securities is considered an agent of the issuer. There is no indication in this question that the transaction or the security is exempt.

Under the Uniform Securities Act, an employee of a municipal issuer selling securities to the public is considered: A) An agent of the issuer and is subject to registration B) An agent of the issuer and is not subject to registration C) An agent of a broker-dealer D) Not an agent

answer is D, not an agent. A person representing a municipal issuer is not considered an agent and would not be subject to registration. If the securities were not exempt, the employee would be subject to registration.

Under the Uniform Securities Act, which of the following statements is TRUE concerning the registration of an investment adviser? A) An investment adviser who maintains an office in a state and whose clients are all savings and loan associations is exempt from registration. B) An investment adviser who does not maintain an office in a state and whose clients are all savings and loan associations is not exempt from registration. C) An investment adviser who does not maintain an office in a state and whose clients are all accredited investors is exempt from registration. D) An investment adviser who does not maintain an office in a state who has seven clients who are residents of that state is not exempt from registration.

answer is D. An investment adviser is exempt from registration if the adviser has no office in a state and has clients who are all institutional investors (savings and loan associations), or does not have more than five retail clients who are residents of that state. Not all accredited investors are institutional investors.

Under the Uniform Securities Act, which of the following items is a security? A) Fixed annuity B) Precious metals C) A commodity futures contract D) Stock issued by a foreign company, but listed on the NYSE

answer is D. Stock of a foreign company which is trading in the U.S. is called an American Depositary Receipt (ADR) and is considered a security.

Which of the following statements is TRUE regarding surety bonds? A) It is always required of broker-dealers registering under the USA. B) It is always required of investment advisers registering under the USA. C) It must always be issued by a bonding company. D) The Administrator may allow a deposit of cash or securities.

answer is D. The surety bond is posted by a registrant to cover the cost of possible legal actions arising from violating the USA. Some broker-dealers and investment advisers may be granted a waiver for the surety bond. A deposit of cash or securities may be accepted in lieu of the bond, but the amount and type of securities will be determined by the Administrator.

According to the Uniform Securities Act, which of the following statements is/are TRUE concerning private placements? I. The offer may not be made to more than 10 persons in that state during any 12-month period. II. The offer may not be made to more than 35 persons in that state during any 12-month period. III. The offer may be made to any number of institutional investors during any 12-month period. IV. Commissions may not be paid if the buyers are noninstitutional customers.

answer is I, III, and IV Under the Uniform Securities Act, any transaction involving no more than 10 persons (there is no limit on institutional accounts) is considered an exempt transaction, known as a private placement, if the following conditions are met. The seller believes that all the noninstitutional buyers are purchasing for investment purposes only. No commission or other remuneration is paid for soliciting noninstitutional buyers. Choice (II) refers to a condition for private placements under Regulation D of the Securities Act of 1933, the federal act.

Which of the following choices would be considered a person under the USA? A) A customer B) A broker-dealer C) An estate D) An issuer

answer is all of the above

Which of the following transactions are exempt from the antifraud provisions of the Uniform Securities Act (USA)? A) Unsolicted transactions involving a private placement B) Unsolicited nonissuer transactions C) Transactions with financial institutions D) None of the above

answer is d. Certain transactions may be exempt from the registration requirements of the USA; however, no transaction is ever exempt from the antifraud provisions of the Act.

According to the Uniform Securities Act, when does the registration of a financial professional become effective? A) At noon on the 10th day after filing B) At noon on the 20th day after filing C) At noon on the 30th day after filing D) At midnight on the 30th day after filing

at noon on the 30th day after filing

Robert works part-time for JJ Financial Planning, where he develops financial plans for clients. He asks clients a series of questions about their current finances and investment objectives, and uses their answers to create customized financial plans. These plans often include recommendations that they purchase insurance or variable annuities, opening IRAs or other types of retirement accounts. Robert charges a fee for the plans, but he does not earn commissions for selling clients variable annuities and insurance to implement their plans. Is Robert an investment adviser representative?

yes, he is an investment adviser representative. Robert is performing these activities as an employee of JJ Financial Planning. Assuming that his firm is registered as an investment adviser, Robert would be defined as an investment adviser representative, while JJ Financial Planning would be the investment adviser.