S63 - 3/3

Which of the following statements describes a person who, while providing investment advice on a regular basis but not charging fees, would be considered an adviser under Release IA-1092? A) A financial planner sold his business and spends his time consulting with pension plans on whether to retain or hire new investment managers based on their performance. He does not charge fees; however, those managers retained as a result of his recommendations routinely provide him with noncash benefits such as vacations, computers, and office space. B) The secretary of the U.S. Treasury, as part of her official duties, comments on conditions in the financial markets and their future investment implications. C) A retired chief investment officer of a well-known investment management company, without compensation, writes a column in a general circulation newspaper commenting on the value of investing in equity securities; many readers find his advice useful and become clients of his former investment management company. D) A wealthy college professor gives free lectures on sound investment practices and makes specific securities recommendations based on a quantitative model he has developed.

A) A financial planner sold his business and spends his time consulting with pension plans on whether to retain or hire new investment managers based on their performance. He does not charge fees; however, those managers retained as a result of his recommendations routinely provide him with noncash benefits such as vacations, computers, and office space. If an individual is in the business of providing advice and receives any economic benefit, such benefit is considered compensation under Release IA-1092. Because the financial planner is in the business of giving advice to pension plans, actually provides that advice, and is compensated for it, he meets all three elements in the definition of an adviser. The noncash benefit, as in this case, need not come directly from the beneficiary of the services to be considered compensation. The college professor, the chief investment officer, and the secretary of the Treasury do not receive separate compensation, nor are they in the business of providing investment advice. LO 3.b

A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer does no business in that state other than with A) other broker-dealers. B) investment advisers registered in that state. C) accredited investors. D) a maximum of five retail investors over a 12-month period.

A) other broker-dealers. A broker-dealer must be registered in every state it sells or offers to sell securities unless it is excluded from the definition under the USA. If a BD has no office in a particular state and no business is done in that state other than with other BDs, registration there is not required. If the BD's only clients are institutions, the exclusion applies as well. The definition of accredited investor includes institutions, but also includes individuals reaching certain financial standards. Because the choice did not specify institutional accredited investors, the exclusion doesn't work for this BD. There is no de minimis exemption for BDs like there is for investment advisers and their representatives. We know it looks strange, but if a BD's only clients in a state where the BD does not maintain a place of business are registered IAs, the exclusion does not apply. LO 2.b

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

A) under no circumstances. 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. LO 5.a

An agent based in Alabama directs a solicitation to a customer who lives in Connecticut while the customer is temporarily in Indiana. The customer does not accept the offer until he arrives back in Connecticut. According to the Uniform Securities Act, the Administrators of which of the following states have jurisdiction? A) Indiana and Connecticut B) Alabama and Indiana C) Alabama, Connecticut, and Indiana D) Alabama and Connecticut

C) Alabama, Connecticut, and Indiana The Administrator from any state from which an offer is made, directed, or accepted has jurisdiction over the offer. LO 5.a

If two agents of a broker-dealer agree to work together in a partnership to solicit business and they agree to split commissions, this practice is A) permitted only if their supervisor audits the partnership's financial performance. B) in violation of the Uniform Securities Act's prohibition against sharing in the profits of an account. C) permitted. D) not permitted under the terms of the Uniform Securities Act.

C) permitted. There is nothing in the USA that prohibits agents registered with the same broker-dealer (BD) from forming a partnership to conduct business or solicit clients. Under the USA, a supervisor of the firm need not audit the financial performance of such an arrangement. It is considered an unethical business practice for agents who are not licensed with the same or affiliated BDs to share commissions. LO 7.b

All of the following actions must be completed prior to customers entering their first option trade except A) completion of the new account form. B) approval by a designated options supervisor. C) receipt of a completed options agreement. D) delivery of the options disclosure document (ODD).

receipt of a completed options agreement. D) Customers do not have to complete (sign) the options agreement prior to entering an order. Under current rules, the agreement must be signed and returned by the customer within 15 days of account approval. LO 6.e