Quiz 5
Which of the following choices is not considered a security? A variable annuity set up as a retirement plan Call options on a gold futures contract American Depositary Receipts A Treasury bond futures contract
A Treasury bond futures contract Under the Uniform Securitiess Act, futures contracts are not securities. However, options on commodity futures contracts are considered securities. Variable products (annuities and life insurance policies) and ADRs are also defined as securities.
Moral Financial Planning Services is a small investment adviser whose main office is located in Kennebunkport, Maine. It has two retail clients in Maine and six retail clients that live in Vermont. It also has 10 clients located in New Hampshire (four individuals and six institutions). Its most important client is the Haley Trust Company, which is located in Hyannis Port, Massachusetts. Moral Financial just opened a small satellite office there in order to better service this client. Moral must register as an investment adviser in which of the following states? I. Maine II. Massachusetts III. New Hampshire IV. Vermont I and II only I and III only III and IV only I, II, and IV only
I, II, and IV only Moral must register in Maine and Massachusetts since a firm must register in any state in which it maintains an office regardless of the number of clients it has. Moral must also register in every state in which it has more than five retail clients—it has six retail clients in Vermont. It does not need to register in New Hampshire since only four of its clients there are retail investors—the other six are institutions and the firm does not maintain an office in that state.
A partner of an investment adviser may put all of the following information on her business card, EXCEPT the designation: CPA IAR CFP MBA
IAR The initials IAR (investment adviser representative) may not be used. The abbreviation could signify that the individual has met some type of regulatory qualification. The use of the designation IAR is improper since it is not a designation approved by any professional organization. An IAR only needs to file with the state Administrator. A CPA (certified public accountant) and a CFP (certified financial planner) may be abbreviated since this qualification requires a person to meet specific standards and pass a number of examinations. MBA (Master of Business Administration) may also be abbreviated since the person has obtained a degree from a college or university.
A soon-to-be-registered agent may take which of the following actions? I. Accept unsolicited orders II. Invite prospective clients to seminars III. Provide research reports to other agents for use with their clients IV. Cold-call potential clients and provide quotes I and II II and III only I, II, and III only I, II, and IV only
II and III only A broker-dealer may not allow an unregistered individual to act as an agent unless the agent is exempt. The soon-to-be-registered agent in this scenario may not accept orders, solicited or unsolicited, be compensated based on sales, or cold-call clients. Inviting clients to seminars and providing research to other agents are not considered activities associated with an agent.
Which of the following investments would be MOST suitable for an estate account? a. Commercial paper b. Treasury bonds c. Preferred stock d. Nonnegotiable CDs
a. Commercial paper
A father makes a gift of XYZ stock to his daughter. Two years ago, the father purchased the stock for $5,000 and, at the time of the gift, the stock was worth $10,000. If the daughter sells the stock 10 months later for $12,000, what is the tax implication? a.A long-term capital gain of $7,000 b.A long-term capital gain of $2,000 c.A short-term capital gain of $2,000 d.Since the gifted amount is under the gift tax limit, it is a tax-free event.
a. A long-term capital gain of $7,000 When a person receives a gift of stock, the recipient's cost basis is the donor's cost basis or the stock's current market value, whichever is less. The stock was originally purchased by the father for $5,000, but was then given as a gift to the daughter when its current market value was $10,000. Since the original cost basis ($5,000) was less than the current market value ($10,000), the original cost basis is used to determine the gain or loss when the stock is sold. In this question, the daughter subsequently sells the stock for $12,000; therefore, she has a resulting capital gain. To determine the ultimate tax implication, the daughter's holding period is based on the donor's holding period. Since the donor had held the stock for two years prior to the gift, the daughter's holding period is considered long-term. By using the original cost basis of $5,000 and comparing it to the proceeds of $12,000, the result is a long-term capital gain of $7,000 ($12,000 - $5,000).
The Administrator may require the filing of advertisements related to which of the following securities? a. An oil lease certificate of interest b. Common stock offered to existing shareholders c. An insurance company's guaranteed investment contract d. Mutual fund shares
a. An oil lease certificate of interest A certificate of interest is a security regulated by the Administrator along with its advertising. Advertisements sent to existing stockholders, as well as those related to investments issued by an insurance company, are exempt from filing. Also, mutual fund advertising is regulated by FINRA, not by a state Administrator
All of the following are characteristics of forward contracts, EXCEPT: a. Delivery and settlement of the contracts occurs immediately b. The contracts are negotiated off of an exchange c. The contracts cannot be offset d. The amount and type of the delivered commodity are negotiable
a. Delivery and settlement of the contracts occurs immediately A forward contract is an agreement to buy and sell commodities at a future time and place. Forwards are over-the-counter contracts that will be negotiated off of a futures exchange. All aspects of the contract are negotiated between the buyer and seller, including the price, type of commodity, and amount, as well as the time and place of delivery.
According to the NASAA Recordkeeping Requirements for Investment Adviser Model Rule, an IA is required to maintain a record of the names and addresses of any person to whom it has sent any notice, circular, advertisement, offering, report or publication if the number of persons is: a.10 or fewer b.10 or more c.More than 10 d.Less than 10
a.10 or fewer An investment adviser is required to maintain a record of the names and addresses of any person to whom it has sent any notice, circular, advertisement, offering, report or publication if the number of persons is 10 or fewer. Therefore, if an IA distributes communication to more than 10 persons, it is not required to maintain a record of names and addresses of the persons to whom it was sent. The belief is that it may be too burdensome for an IA to maintain an extensive list of the names and addresses if the communication is sent to more than 10 persons. As a reminder, any communication that is sent to two or more persons is considered advertising.
An investment company has entered into a contract with an investment adviser. The investment adviser seeks to have an exculpatory provision included in the contract. According to the Investment Advisers Act of 1940, which of the following statements is TRUE? a.Exculpatory provisions are prohibited in any contract b.The contract is valid only when exculpatory provisions are included c.A majority of shareholders would need to approve the exculpatory provisions of the contract d.In order for an exculpatory provision to be allowed, the SEC would need to approve the contract
a.Exculpatory provisions are prohibited in any contract
If TopJob Advisers has limited discretionary authority over client funds, it is required to: a.Prepare a balance sheet and file it with the Administrator b.Prepare a balance sheet that is audited by an independent CPA and file it with the Administrator c.Prepare a balance sheet only if the majority of the firm's clients are qualified pension plans d.Prepare an audited balance sheet and provide its books and records to be spot checked by the Administrator, but only if 72 hours' advance notice is provided
a.Prepare a balance sheet and file it with the Administrator. If a registered investment adviser has discretionary authority over client funds or securities, it is required to file a balance sheet; however, the balance sheet is not required to be audited. An audited balance sheet is required to be created and filed if an adviser has custody or full discretion.
An investment adviser's application for registration indicates that it will base its investment decisions on non-financial criteria, including psychic readings. According to the Uniform Securities Act, which of the following statements BEST describes the Administrator's power? a.The Administrator may deny or postpone a registration only for the reasons that are specified in the law. b.The Administrator may act in the public's best interest and deny the registration. c.The Administrator must review the track record of the applicant in order to determine the feasibility of this criteria for investing. d.The Administrator should encourage the adviser to use alternative methods of analysis and grant registration if there is a reasonable basis for this methodology
a.The Administrator may deny or postpone a registration only for the reasons that are specified in the law. The state Administrator may only cite reasons that are found in state law to disqualify a person from registration (e.g., a felony conviction, violation of commodities laws, misleading statements, etc.). The law does not make reference to the specific analytical methods that IAs may use to determine their investment decisions. Instead, an Administrator's requirement is for investment advisers to disclose the methods that they will use.
If information in an adviser's brochure becomes materially inaccurate, the adviser must file a(n): a.Updating amendment promptly b.Updating amendment within 90 days c.Annual amendment of Part 2 d.Updating amendment within 120 days
a.Updating amendment promptly Any materially inaccurate information in the brochure must be corrected by filing an updating amendment promptly by substituting pages in ADV Part 2 or affixing a sticker. Part 2 is filed by a state-registered adviser with the Administrator. For a federal covered adviser, Part 2 is not filed with the SEC, but retained on file.
Which of the following statements is NOT TRUE concerning the registration requirements of securities professionals? a. Broker-dealers with no place of business in a state and a limited number of noninstitutional clients in a state must register b. Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register c. Investment advisers with no place of business in a state and whose only clients are institutional investors in a state need not register d. Investment advisers with no place of business in a state and a limited number of noninstitutional clients need not register
b. Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register. There is no exemption from registration for broker-dealers that have no place of business in a state and who limit their agent's activities to selling exempt securities. It is the securities that are exempt, not the agents selling those securities. Investment advisers that have no place of business in a state may still do business in that state without registering provided they limit their advice to institutional clients or no more than five noninstitutional clients in that state. There is no de minimis exemption for broker-dealers that have no place of business in a state and a limited number of noninstitutional clients.
Under the NASAA Recordkeeping Requirements for Investment Advisers Model Rule, all electronic communications and their amendments must be maintained by the adviser for how long if distributed directly or indirectly and to how many persons? a.Three years if sent to two or more persons b.Five years if sent to two or more persons c.Three years if sent to ten or more persons d.The life of the firm if sent to thirty-five or more persons
b. Five years if sent to two or more persons According to NASAA Recordkeeping Requirements for Investment Advisers Model Rule, all investment adviser records must be maintained for not less than five years, the first two years in the principal office of the adviser, including those made by electronic media (Web sites, e-mail, etc.) if directly or indirectly sent to two or more persons.
A project manager is evaluating a project and determines that she needs an internal rate of return of 10%. Currently, the project has a positive net present value (NPV). Based on this information, the project's estimated internal rate of return (IRR) must be: a. Lower than 10% b. Greater than 10% c. Equal to 10% d. Impossible to determine based on the information provided
b. Greater than 10% When using the net present value calculation to determine if a project is a viable investment, a required minimum rate of return is established. In order for it to be viable, the cash contributed to the project plus the required rate of return need to be paid out of the project. If the NPV is positive, then the rate of return earned on the project is greater than required. However, if the NPV is negative, then the rate of return earned on the project is less than required.
An IAR is analyzing various fixed-income securities for a client's portfolio. She notes that the yield curve is normal. This indicates that: I. Short-term bonds are yielding more than long-term bonds II. Short-term bonds are yielding less than long-term bonds III. The economy is expanding too rapidly IV. Long-term bonds are yielding more than short-term bonds V. Short-term bonds and long-term bonds are moving toward parity a. I and IV only b. II and IV only c. III and V only d. V only
b. II and IV only A normal yield curve occurs when yields on long-term bonds are greater than yields on short-term bonds. Another way to understand normal yield curves is to remember that the longer the maturity of a bond, the more the yield investors demand for the additional time risk. Normal yield curves are generally understood to indicate a healthy economy. Alternate terms for a normal yield curve are positive, ascending, or upward sloping.
If a portfolio manager is focused on keeping a client's assigned asset allocation properly balanced over the long term, she is using a: a. Tactical asset allocation strategy b. Strategic asset allocation strategy c. Risk management approach of laddering d. Rebalancing approach
b. Strategic asset allocation strategy Strategic asset allocation attempts to maintain the assigned allocation over a long period and is more passive in nature than a tactical asset allocation strategy. Portfolio rebalancing does not describe a strategy; instead, it is the adjustment of a portfolio in preparation for an investment strategy. Laddering is considered diversifying a bond portfolio by staggering the maturity dates of the bonds in an attempt to manage interest-rate risk.
In order to determine the suitability of a potential investor for a limited partnership, which of the following forms would the client complete? a. The partnership agreement b. The subscription agreement c. A private placement memorandum d. The certificate of limited partnership
b. The subscription agreement Many states require potential partners to complete a subscription agreement, in order to determine their suitability as it relates to income, net worth, investment experience, and an understanding of investment risk. A certificate of limited partnership is filed by the general partner when setting up the partnership. The partnership agreement discloses the rights and duties of the partners. A private placement memorandum is given to investors in a private placement, in lieu of a prospectus.
According to the Uniform Securities Act, which of the following choices would meet the definition of a broker-dealer in State A? a. The trust department of the Merchants Bank located in State A b. Woodwyle Incorporated, a broker-dealer located in State B that conducts transactions for a customer who has moved to State A c. A person located in State A, who is in the business of providing advice relating to securities d. An agent located in State A, who effects securities transactions for his own account or the account of others
b. Woodwyle Incorporated, a broker-dealer located in State B that conducts transactions for a customer who has moved to State A Woodwyle is defined as a broker-dealer and must be registered in the state to conduct business with existing customers who have moved to the state. An agent not registered in the state has 60 days to obtain registration in the state, provided the broker-dealer is registered in the state, the agent is registered in at least one state, and is not disqualified from registration in the state.
Which of the following terms is NOT specifically defined under the Uniform Securities Act? a.Broker-dealer b.Broker-dealer representative c.Investment adviser d.Investment adviser representative
b.Broker-dealer representative 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 broker-dealer representative. An investment adviser representative is a person employed by an investment adviser who provides investment advice.
An agent who holds full discretionary authority over a customer's account may: I. Buy or sell securities in the account without consulting the customer II. Receive a fee for using his discretion in trading the account III. Withdraw money from the account IV. Borrow assets from the customer's account a.I only b.I and II only c.I and III only d.II and IV only
c. I and III only An agent who has been granted full discretionary authority over a customer's account may buy or sell securities in the account without consulting the customer and may withdraw money from the customer's account. However, even if an agent has been granted discretionary authority, he may not receive a fee for using his discretion in trading the customer's account and may not borrow the client's assets.
Under the Uniform Securities Act, the sale of limited partnership interests to a bank is exempt from: I. The antifraud provisions II. The registration requirements III. The filing requirement for advertisements a. I only b. II only c. II and III only d. I, II, and III
c. II and III only Any sale of securities to an institution (e.g., a bank) is considered an exempt transaction under the USA. This exempts the securities from registration and any related advertising from being filed with the Administrator. However, no person, security, or transaction is exempt from the antifraud provisions of the Uniform Securities Act.
Which of the following forms would a publicly traded corporation typically file with the SEC during its lifetime? I. SEC Form 1092 II. Form 10-K III. Form 8-K IV. Form 10-Q a. I and III only b. I, II, and III only c. II, III, and IV only d. I, II, III, and IV
c. II, III, and IV only Publicly traded companies disclose their annual financial reports on Form 10-K and quarterly reports on Form 10-Q. Public companies must also report certain material corporate events on a more current basis. Form 8-K is the current report companies must file with the SEC to announce major events that shareholders should be informed about. SEC Release 1092 was published by the SEC to provide guidance to investment advisers.
Under the Uniform Securities Act, which of the following statements are NOT TRUE concerning an Administrator taking disciplinary action against a person? I. There must be written findings of fact and conclusions of law. II. The Administrator may take action against a person with or without the opportunity for a hearing. III. The Administrator does not need to provide the person with prior written notice. IV. The Administrator's order may be appealed if the person files a petition in court within 90 days. a. I and IV only b. II and III only c. II, III, and IV only d. I, II, III, and IV
c. II, III, and IV only The Administrator must provide a person with prior written notice, an opportunity for a hearing, and written findings of fact and conclusions of law when taking disciplinary action against a person. The Administrator's order may be appealed if the person files a petition in state court within 60 days.
Sharpshooter Investments (a broker-dealer) has submitted its registration paperwork to the state Administrator. According to the Uniform Securities Act, its registration will become effective at: a. Noon on the 10th day after filing b. Noon on the 20th day after filing c. Noon on the 30th day after filing d. Midnight on the 30th day after filing
c. Noon on the 30th day after filing Assuming a broker-dealer applicant has submitted all required documentation, its registration becomes effective at noon on the 30th day after filing with the state. The Administrator does have the power to grant an earlier effective date, and may defer the effective date until the 30th day after the filing of any amendment to the initial application.
Bob Bender is an investment adviser representative for Bender Investments, a firm founded by his great grandfather several decades ago. Over the years, he has held several positions with the firm. In which of the following job capacities would Bob NOT have been required to register as an IAR? a. Supervising representatives employed by Bender b. Negotiating investment advisory contracts with institutions c. Preparing tax documentation for some of Bender's customers d. Managing portfolios for a select group of clients who are old family friends
c. Preparing tax documentation for some of Bender's customers Investment adviser representatives (IARs) are defined as employees of investment advisers (IAs) who negotiate the sales of advisory services, manage client portfolios, make recommendations regarding securities, or manage other employees involved in any of these functions. Bob would have been exempt from registration in his tax preparation role, since this would have been considered a clerical function.
The plan documents of a qualified retirement plan require that the investment manager purchase securities issued by the plan's sponsor. These are securities that a prudent investor clearly would not purchase. What is the only course of action that the investment adviser may take in order to avoid violating the fiduciary responsibility provisions of ERISA? a. Purchase the securities b. Purchase only a small amount of the securities c. Refuse to purchase the securities d. Appeal to the Department of Labor for an individual exemption from the prohibited transaction rules
c. Refuse to purchase the securities ERISA states that a fiduciary must follow the terms of the plan documents unless these documents are inconsistent with ERISA. In this case, purchasing these securities would violate the prudent expert standard of ERISA. Thus, the plan documents are in conflict with ERISA and the investment adviser should not follow them. An adviser that did purchase the securities could be held liable for violating a fiduciary duty.
If a portfolio manager has a diversified portfolio of large-cap stocks, it would use index options to reduce which of the following risks? a. Timing risk b. Interest-rate risk c. Systematic risk d. Nonsystematic risk
c. Systematic risk If a portfolio manager wants to hedge a diversified stock portfolio from systematic (market) risk, it could buy puts or sell call options on the index. If the market declines as a whole, the puts would provide the best hedge by becoming more valuable and would offset the risk. In the event the overall market declines, the call options would provide only limited protection through the collection of the premium on the expiring call options.
Quandry Financial Corporation is an investment advisory firm with three partners and ten associates. All of the partners have earned a CFP (Certified Financial Planner) designation. The associates are attending CFP classes, but have not yet earned the designation. Quandry has published an advertisement that states, "All of our partners have completed the CFP certification program." Which of the following statements is TRUE? a. This is unethical since investment advisers may not advertise their qualifications b. This is unethical since it implies that all of the firm's employees are CFPs, which is misleading c. This is acceptable since the statement is literally true d. This is acceptable since the content of adviser advertisements is not regulated
c. This is acceptable since the statement is literally true Under NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers, it is unethical to misrepresent the qualifications of the adviser or any employee. Advisers must consider how the wording of their ads will be interpreted by the public and how it could be misleading. Since the advertisement states that the partners, not all employees, have earned their CFP certification, this is acceptable since the statement is true.
Which of the following choices would NOT meet the definition of an exempt transaction? a. A transaction by a trustee involved in a bankruptcy b. An unsolicited nonissuer transaction with a retail investor c. Transactions between an issuer and retail investors d. A transaction executed by a bona fide pledgee
c. Transactions between an issuer and retail investors Any transactions by trustees involved in a bankruptcy--sheriffs, marshals, guardians, and other fiduciaries are considered exempt transactions. Unsolicited nonissuer transactions whether with retail or institutional investors and transactions executed by a bona fide pledgee are also considered exempt transactions. However, transactions between issuers and retail investors are not exempt from registration. A transaction between an issuer and underwriter would be an exempt transaction.
Which of the following is NOT TRUE regarding a viatical settlement contract? a.The rate of return cannot be determined before the insured dies b.The inability to accurately calculate the actual life expectancy of the insured c.An investment in a viatical settlement contract is considered to be liquid d.If the insured lives longer than expected, the investor is required to pay the premiums to keep the policy in force
c.An investment in a viatical settlement contract is considered to be liquid With a viatical settlement contract, if the insured lives beyond life expectancy, the investor is required to continue to pay the insurance premiums. Since the death of the insured is ultimately unpredictable, the future financial commitment is unknown. A viatical settlement contract is not a liquid investment as there is not a secondary market for such investments.
Jill has created a revocable trust to provide for the support of her adult child. The trust has generated $20,000 in income during the year and is invested in a wide variety of stocks and bonds. Which of the following statements concerning this trust is TRUE? a.Jill controls the assets in the trust b.The trust must be structured as a living trust c.The trust will become irrevocable upon Jill's death d.All of the above
d. All of the above A revocable trust must be established as a living trust since the donor retains control over the assets. This type of trust does not reduce the donor's potential estate tax liability. With an irrevocable trust, the donor loses control of the assets but the assets will not be included as part of the donor's estate. This is the trade-off between the two types retain control and potentially pay more taxes (revocable trust) or lose control and potentially pay less in taxes (irrevocable trust)
According to the Uniform Securities Act, which of the following investment adviser representatives (IARs) is considered to have custody of customer funds? a.An IAR who receives a customer check in the mail that is made payable to a broker-dealer b.An IAR who receives a customer's permission to place trades in her account c.An IAR who also acts as an agent for a broker-dealer and earns commissions d.An IAR who has been hired by a customer to act as the trustee for the customer's account
d. An IAR who has been hired by a customer to act as the trustee for the customer's account Trustees are responsible for the care, custody, and control of the assets of someone else. An IAR acting as a trustee has check-writing privileges in his customer's account and is considered to have custody of the customer's assets. As in choice (a), if an IAR receives a customer check made payable to a third party, he avoids any custody issues by returning it to the customer within three business days. Simply having discretionary authority to make investment decisions (limited discretion) does not meet the threshold for custody.
Which of the following products is NOT a derivative? a. LEAPS b. CMOs c. Swaps d. ETFs
d. ETFs An Exchange-Traded Fund (ETF) is a type of investment company, where investors' money is pooled and invested in securities. Investors in ETFs can buy shares in the secondary market. The shares are priced according to the performance of the portfolio of securities purchased. An ETF is NOT a derivative, since its value is not based on a specific security, but on the entire portfolio. Long-Term Equity Anticipation Securities (LEAPS) are long-term call or put options and are derivatives. A swap and a collateralized mortgage obligation (CMO) are both derivatives.
According to the Investment Advisers Act, in order to register as an investment adviser with the SEC, which of the following choices is required? a. File a consent to service of process, pay a fee, and individually register all employees b. File Part 1 of Form ADV c. File Part 1 of Form ADV and produce a surety bond d. File Part 1 and Part 2 of Form ADV
d. File Part 1 and Part 2 of Form ADV In order to register as an investment adviser with the SEC, the applicant must file Part 1 and Part 2 of Form ADV with the SEC. Individual registration of employees with the SEC is not required.
All of the following are characteristics of futures contracts, EXCEPT: Most of the contract's terms are set by the buyer and the seller The amount of the commodity being traded is standardized Prices are negotiated between the buyer and the seller The buyer of a futures contract cannot be forced to take delivery a. I only b. I and II only c. II and III only d. I and IV only
d. I and IV only A futures contract is an agreement to buy or sell a specific amount of a commodity or financial instrument. Most of the contract's terms, such as the size of the contract, the point of delivery, the delivery month, and the grade of the underlying security or commodity are set by the exchange on which it trades. Although futures contracts may be offset, they differ from options because the buyer of futures contract may be forced to take delivery.
When calculating a fixed-income security's discounted cash flow, which of the following statements is/are TRUE? I. A bond trading at a discount to its discounted cash flow value is undervalued. II. A bond trading at a premium to its discounted cash flow value is overvalued. III. Discounted cash flow calculations can determine fair market values for a fixed-income security. IV. Discounted cash flow takes into account current interest rates of comparably priced bonds. a. I only b. I and III only c. I, II, and III only d. I, II, III, and IV
d. I, II, III, and IV Discounted cash flow analysis is a way of estimating the fair market value of an investment based upon its projected cash flows. If the market price of a bond is trading at a price greater than the value predicted based on the discounted cash flow calculation, it is overvalued. If the market price of a bond is trading at a price less than predicted by DCF, then it is undervalued. The DCF calculation takes into consideration the current interest rates found in the market for bonds of similar maturities and risk.
A customer's investment policy statement may contain which of the following? Expectations related to the markets Analysis of risks and rewards Asset allocation models a. I only b. I and II only c. II and III only d. I, II, and III
d. I, II, and III A customer's investment policy, which details how the customer's money is to be managed, may include all of these items.
Which of the following is NOT included in the adjusted gross income (AGI) of a customer? a. Salary, tips, and bonus b. Alimony support payments that are received from an ex-spouse c. Dividends received from stock d. Interest received from a municipal bond investment
d. Interest received from a municipal bond investment. A client's federal adjusted gross income (AGI) consists of her taxable income. Examples of taxable income include a client's salary, tips, bonuses, alimony received, and dividends. Since municipal bond interest is tax-free, it is not a part of the AGI.
Under what circumstances may a variable annuity be recommended as a short-term investment? a. Only where the annuity is a no-load contract b. Only if the annuity is being purchased inside of a 403(b) plan c. Only if the client signs a nonbinding CDSC reduction agreement d. Never, since this practice is prohibited under industry rules
d. Never, since this practice is prohibited under industry rules
According to the Uniform Securities Act, when do all broker-dealer registrations expire? a. When all offices in the state are closed b. When the broker-dealer no longer has any clients in the state c. On the anniversary date of their original registration filing d. On December 31
d. On December 31 Under the Uniform Securities Act, all registrations expire annually on December 31. Thereafter, they must be renewed by the firm.
To help a friend who needs to raise capital to start a new business, an agent markets his friend's limited partnership interests to some of his brokerage clients. The agent collects a commission from the sale of the interests, but has not told his broker-dealer about the sales. The agent's actions are best described as: a. Unauthorized trading in customers' accounts b. Churning in customers' accounts c. Selling unregistered securities d. Selling away
d. Selling away Selling away is defined as an agent executing trades without the knowledge of his broker-dealer. Selling away most often occurs when an agent deals in a private placement outside his normal course of business. Participating in a private placement is acceptable provided the agent's employer is given notice.
Which feature of a deferred compensation plan is generally considered to be a disadvantage? a. The plan must be made available to all employees regardless of tenure b. The plan has a short vesting period c. Unless the plan is funded by the end of the year, the employer will be subject to harsh penalties for breaching its fiduciary duty d. The plan is not tax-deductible
d. The plan is not tax-deductible Deferred compensation plans are nonqualified and funded with after-tax dollars. These plans are not available to all employees and do not require immediate funding.
All of the following statements are NOT TRUE, EXCEPT: a. Variable life, as with universal life, gives the policyholder the flexibility to change the death benefit and the premium payments b. Universal life, as with variable life, gives the policyholder flexibility in changing how the cash value is invested c. Variable life, as with whole life, has fixed premiums and a fixed death benefit d. Variable life, as with whole life, has fixed premiums paid at fixed intervals
d. Variable life, as with whole life, has fixed premiums paid at fixed intervals While universal life allows the policy owner to change the premiums and/or the death benefit, variable life has fixed premiums and a fixed minimum death benefit. The actual death benefit on a variable life policy is not changed by a decision of the policyholder but, instead, as a result of growth in the subaccounts. Universal life has a minimum interest rate and an actual rate that could be higher, but it is determined by the insurance company, not the policyholder. Variable life and whole life are the same in having fixed premiums paid at fixed intervals.
An investment adviser's client base is limited to insurance companies. If the adviser has its only office in State A, with whom must it register? a. With the SEC under the Investment Advisers Act of 1940 and with State A using the coordination method under the Uniform Securities Act b. With the SEC under the Investment Advisers Act of 1940 and notice file with State A c. With the SEC under the Investment Advisers Act of 1940 only d. With State A under the Uniform Securities Act, but not with the SEC under the Investment Advisers Act of 1940
d. With State A under the Uniform Securities Act, but not with the SEC under the Investment Advisers Act of 1940. In this example, since the investment adviser is dealing exclusively with insurance companies, it is exempt from registration under the Investment Advisers Act of 1940. However, the IA would likely be required to register in State A because it has an office there.
An equity-indexed annuity is a type of: a.Variable annuity that tracks the S&P 500 Index b.Variable annuity that tracks the DJIA c.Fixed annuity that tracks the performance of a designated mutual fund d.Fixed annuity that offers the potential for greater returns
d.Fixed annuity that offers the potential for greater returns. An equity-indexed annuity is a type of fixed (non-variable) annuity; therefore, SEC registration is not required for these contracts. The owner receives a guaranteed minimum rate of return, but has significant upside potential since the annuity's return is tied to a benchmark index (e.g., the S&P 500 Index. If the index underperforms, the investor will simply receive the minimum rate. On the other hand, if the index performs well, the investor will receive the indexed return based on contractual provisions.
According to Reg. T, if a client fails to pay for securities by the fifth business day following the trade date, the client's account will be: a.Closed b.Restricted for 90 days c.Suspended for 90 days d.Frozen for 90 days
d.Frozen for 90 days According to Reg. T, if a client fails to make payment for securities being purchased by the fifth business day following the trade date, and an extension has not been granted by FINRA, the client's account will be frozen for 90 days. During the 90-day frozen period, trading may occur in the client's account; however, any purchases that are made during the frozen period must be fully paid for in advance. In other words, no credit (margin) may be extended to the customer for 90 days.
