Series 63-Ch.3

Which of the following information MUST be recorded on an unexecuted order ticket where the trade has been canceled? I Time of execution II Time of receipt III Time of cancellation IV Solicited or unsolicited A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

C

"Painting the tape" is the: StatusA A. illegal practice of effecting wash trades in thinly traded issues in a common trading pool StatusB B. illegal practice of matching buyers and sellers who want immediate trade executions StatusC C. legal practice of effecting both long sales and short sales subject to the "uptick" rule StatusD D. legal practice of taking both a stock and option position on the same "side of the market"

A

An agent has received significant information that is not generally known about a publicly traded company. The agent: StatusA A. cannot take any action StatusB B. can tell his clients to trade the security StatusC C. can tell his immediate family to trade the security StatusD D. can tell anyone to trade the security

A

Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that: A. is based on the investment adviser's business model including the size of the firm, types of services provided, and number of business locations B. ensures that key management personnel have been familiarized with the policies and procedures to be followed in the event of a significant business interruption C. designates the investment adviser's independent outside accountant as the person to take responsibility in the event of a significant business interruption D. announces to the public in local newspapers and on the internet the fact that a significant business interruption has occurred

A

Under the Prudent Investor Rule, investment decisions must be made based primarily on: StatusA A. an overall investment strategy that balances risk and return objectives StatusB B. maximization of investment return to provide for the future needs of the beneficiary StatusC C. avoidance of losses, even at the expense of a lowered investment return StatusD D. those securities stipulated by the State's Legal List

A

Under the Uniform Securities Act, a customer can give an agent discretion to trade orally if the: A. agent only decides the price and time of execution B. agent only decides the security to be traded C. customer is traveling for a limited time period D. agent only decides the size of the trade

A

Which of the following is the LAST step in opening a new account for a customer? A. Completing the new account form B. Executing the first transaction C. The manager signing new account form D. Completing the order ticket for first order

B

Which of the following is (are) violations of the Uniform Securities Act that can result in civil liability? I An investment adviser recommends the purchase of a non-exempt security that was unregistered, even though an exemption is not available II An investment adviser recommends the purchase of an exempt security that was unregistered to a customer III An investment adviser recommends a non-exempt security that is unregistered to a customer after being informed by his manager that the security was registered A. I only B. I and III C. II and III D. I, II, III

B

Which statements are TRUE about an adviser offering discounted rates? I An investment adviser is permitted to offer a discount from standard rates to selected categories of customers II An investment adviser is permitted to offer a discount from standard rates only if all customers are given the discount III The investment adviser can offer the discount as long as charges to all of the investment adviser's customers are fair and reasonable IV The investment adviser can offer the discount as long as the fact that discounts are offered is disclosed in the Form ADV Part 2A A. I and III B. I and IV C. II and III D. II and IV

B

Which statements are TRUE about the filing of the annual surprise audit results with the Administrator by investment advisers? I Only advisers that take custody must be audited II All advisers must be audited III Audit results must be filed with the Administrator within 60 days of completion of the audit IV Audit results must be filed with the Administrator within 120 days of completion of the audit A. I and III B. I and IV C. II and III D. II and IV

B

Investment advisers are prohibited from: I Assigning a customer's contract without permission II Charging a retainer fee III Charging commissions on trades effected for the client IV Changing partnership management without notifying clients A. I and II B. II and III C. I, III, and IV D. I, II, III, IV

C

A Chinese Wall must be maintained by a broker-dealer between investment banking and which of the following departments? I Research II Trading III Retail Sales IV Mergers and Acquisitions StatusA A. I and II StatusB B. III and IV StatusC C. I, II, III StatusD D. I, II, III, IV

C

A block trade is a trade of at least: StatusA A. 100 shares StatusB B. 1,000 shares StatusC C. 10,000 shares StatusD D. 100,000 shares

C

The sharing of commissions is allowed between which of the following individuals? I An unlicensed employee of a member firm and a licensed employee of a member firm II A licensed employee of a member firm and an insurance agent licensed only with the State Insurance Department III Two licensed employees of the same member firm StatusA A. I only StatusB B. II only StatusC C. III only StatusD D. I and III

C

Under the NASAA Statement of Policy, which of the following are unethical practices of investment advisers? I Telling a customer to buy or sell a security based upon a rumor heard about that security II Failing to disclose sources of compensation received from anyone other than that customer relating to rendering advisory services to that customer III Exercising discretion for a short time period upon oral instruction of a customer IV Charging a customer an advisory fee that is extremely high relative to fees charged by other advisers for similar services A. IV only B. I and III C. I, II, IV D. I, II, III, IV

C

Under the Prudent Investor Act, a fiduciary is: StatusA A. not permitted to delegate investment authority over trust assets StatusB B. obligated to make investments in securities that are rated "BBB" or better StatusC C. obligated to maximize overall portfolio return consistent with the level of risk assumed StatusD D. required to register with the Administrator in the State where the trust is formed

C

Under the Uniform Securities Act, an Investment Adviser MUST inform a client about: I Change of address II Addition of new partners to the advisory partnership III Change of phone number IV Addition of client accounts from another advisory firm that was "bought out" A. I and III B. II and IV C. I, II, III D. I, II, III, IV

C

Under the Uniform Securities Act, for an agent to share in the gains and losses of a customer account, which statements are TRUE? I The customer must agree to the arrangement in writing II The broker-dealer must agree to the arrangement in writing III The Administrator must agree to the arrangement in writing IV Sharing is permitted only in direct proportion to capital contributed to the account A. I and IV only B. II and III only C. I, II, and IV D. I, II, III, IV

C

A firm's market making desk, aware that the firm is about to publish a bullish research report on ABCD stock, purposefully increases its long position in order to satisfy anticipated retail demand. This action is: StatusA A. permitted without restriction StatusB B. permitted as long as the research report is released within 48 hours of the first trade made to increase the firm's position StatusC C. permitted as long as the market listing the stock is notified, in writing, of the impending research report StatusD D. prohibited

D

A broker-dealer offers 4 summer passes to an amusement park to each of its agents who sell at least $10,000 of bonds during the month of June. This action: StatusA A. is allowed StatusB B. is not allowed StatusC C. may trigger a "pay to play" disclosure to customers StatusD D. may trigger a "soft dollar" disclosure to customers

A

A client of an investment adviser brings his father to a consultation with his investment adviser representative to discuss investment alternatives for the father. The meeting is concluded. Two weeks later, the parent telephones the investment adviser representative, inquiring about the tax status of the client. The investment adviser representative should: StatusA A. refuse to disclose any information about the client StatusB B. disclose the requested information but communicate the father's request and the response given in a written communication to the client StatusC C. disclose the requested information but communicate the father's request and the response given to the investment adviser StatusD D. disclose the information

A

A compliance officer is informed by a representative that he has found a forged customer signature in the account papers that were returned by mail by a new customer who is opening an account. How quickly must the compliance officer report the incident? StatusA A. Promptly StatusB B. Within 7 business days StatusC C. Within 30 calendar days StatusD D. By the end of the fiscal quarter

A

A customer has a stated investment objective of safety of principal and a moderate level of income. The customer calls the agent, and tells the agent to buy a speculative new issue investment. The agent informs the customer that he believes that this transaction would be unsuitable. The customer says "Do it!" The agent should: A. do it B. refuse the transaction C. obtain prior approval of the Administrator before effecting the transaction D. obtain a written power of attorney from the customer before effecting the transaction

A

A customer has an individual account. Upon written request, the customer's account statements and confirmations may be received by whom? I The customer II One of the customer's immediate relatives III The customer's agent IV The customer's broker-dealer A. I only B. I or II C. III or IV D. I, II, III, IV

A

A market maker in ABCD stock is currently quoting the stock at: $42.00 Bid (500 shares); $43.00 Ask (1,000 shares) If the market maker receives a customer order to buy 800 shares of ABCD at $42.50, the market maker: A. must update its quote to: $42.50 Bid (800 shares); $43.00 Ask (1,000 shares) B. must update its quote to: $42.00 Bid (500 shares); $42.50 Ask (800 shares) C. must send the order to a stock exchange floor for execution D. is not required to take any action

A

A violation of the Uniform Securities Act will NOT occur if statements made about a security are: A. true, but omit non-material facts B. true, but omit material facts C. untrue, but include material facts D. untrue, but include non-material facts

A

All of the following are considered manipulative and prohibited practices EXCEPT: StatusA A. Arbitrage StatusB B. Churning StatusC C. Wash trades StatusD D. Painting the tape

A

All of the following individuals would be allowed to effect transactions in the account of a customer who is mentally incapacitated EXCEPT a(n): A. individual named in the customer's living will B. individual given a durable power of attorney C. conservator appointed by a court of law D. joint tenant that owns the account with the customer

A

All of the following information must be included on a customer confirmation EXCEPT: A. whether the transaction was solicited or unsolicited B. whether a payment for order flow was made C. the customer name and account number D. the price of execution

A

An Investment Adviser uses a third-party money manager to manage the accounts of his more sophisticated clients. These customers are older and are conservative in their objective, seeking current income and moderate growth. The third-party money manager has not achieved acceptable investment returns this year and changes its investment strategy the following year to aggressively trade speculative stocks, in an effort to improve performance. During the first quarter, using the new strategy, the customers' portfolios drop 15% in value and many of them write complaint letters to the Adviser. Which statement is TRUE? A. The Investment Adviser has failed to monitor the actions of the third party money manager and is liable for not determining the suitability of recommendations to customers B. The Investment Adviser is not responsible for the actions of the third party money manager and the customer complaint letters should be forwarded to that firm for response and resolution C. The Investment Adviser is liable to its customers for the 15% drop in the value of their accounts because it chose the money manager that was responsible for the loss D. The Investment Adviser has no liability for the 15% drop in value of the customers' accounts because the adviser cannot guarantee that profits will be achieved or that losses will be avoided

A

An adviser opens a new account for a client. The client gives the adviser $20,000 in cash to open the account. The adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days A. I and III B. I and IV C. II and III D. II and IV

A

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

An agent is prohibited from doing all of the following EXCEPT: A. performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged B. soliciting orders for non-exempt unregistered securities C. effecting transactions in a State where he is not registered, but the broker-dealer is registered D. effecting transactions in a State where the broker-dealer is not registered, but he is registered

A

An agent is soliciting customer orders for a new non-exempt issue that has been registered. The top officers of this company were previously associated with XYZ Company, a highly successful firm in the same industry. That firm's success was attributed to these individuals. Under the Uniform Securities Act, which statements by the agent are permitted? I "The top officers of this new firm were previously at XYZ Company" II "These top officers were responsible for the rapid growth of XYZ Company over the past 3 years" III "The top officers are experts in the field who made XYZ Company, their previous firm, into a gold mine" A. I and II B. II and III C. I, II, III D. None of the above

A

An agent may engage in which of the following? I Soliciting orders for exempt unregistered securities if he is registered in the State II Soliciting orders for non-exempt unregistered securities if he is registered in the State III Effecting transactions in a State where he is not registered, but the broker-dealer is registered IV Effecting transactions in a State where the broker-dealer is not registered, but he is registered StatusA A. I only StatusB B. I and II StatusC C. III and IV StatusD D. I, II, III, IV

A

An agent of a broker-dealer publishes a web page that offers a free suitability determination to each customer that fills out a form electronically. Furthermore, if the customer agrees to open an account, the site states that: "The first 10 trades will be free." Which statements are TRUE regarding this communication? I To publish this web page, the broker-dealer must be registered in each State where a customer completes the suitability determination II To publish this web page, the broker-dealer is not required to be registered in each State where a customer completes the suitability determination III To publish this web page, the agent must be registered in each State where a customer completes the suitability determination IV To publish this web page, the agent is not required to be registered in each State where a customer completes the suitability determination StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV

A

An agent receives physical certificates from a customer that the customer wishes to deposit to his brokerage account. Which statement is TRUE? A. The agent must forward the certificates to the broker-dealer immediately B. The agent must enter the certificates into street name and destroy the old certificates immediately C. The agent can accept the securities for safekeeping for no longer than 3 months D. Under no circumstances can a broker-dealer take physical custody of securities unless approval of the Administrator is obtained

A

An elderly customer has a stroke and is hospitalized, where he falls into a coma. The customer's adult son calls the agent and tells him that he wants to sell some securities out of his father's account to pay for the ongoing hospital bills. The representative should: A. do nothing B. go to the hospital and get the father's signed permission to sell the securities C. follow the son's instructions but remit the proceeds of the sale directly to the hospital to pay the medical bills D. follow the son's instructions as given

A

An individual that has not yet passed the appropriate State licensing examination for agent registration in a State would be permitted to: StatusA A. answer a phone call from a client StatusB B. make a recommendation to a client StatusC C. make a cold call to a potential client StatusD D. write an order ticket for an unsolicited client order

A

An investment adviser charges a fee equal to the greater of 1% of assets annually or $1,000. When examining the investment adviser, the Administrator would review this policy in relation to: A. accounts with balances under $20,000 B. accounts with balances over $20,000,000 C. accounts that give the adviser discretion D. new accounts as compared to existing accounts

A

An investment adviser directs its trades to a broker-dealer paying non-discounted rates. In return, the broker-dealer provides the adviser with proprietary investment analysis software that it has developed. This is a(n): A. soft dollar arrangement B. give-up clearing arrangement C. unethical practice D. silent interest

A

An investment adviser has determined that ABCD stock would be an appropriate investment for his client, but only if the price falls from the current level of $50 per share to $35 per share. What MUST the adviser do prior to placing an order to buy ABCD stock for the client's account? A. Obtain verbal authority for that specific transaction B. Obtain verbal authority to exercise discretion over the account C. Obtain verbal authority to exercise discretion only over price and time of execution in the account D. Secure an appointment as trustee over the account to formalize the fiduciary relationship

A

An investment adviser has developed 11 different investment strategies that use a combination of fundamental and technical factors to make investment decisions among both equity and fixed income investments. Based on the customer account profile, the adviser then uses one of 7 different algorithms that allocates the client's funds using these 11 investment strategies. The adviser has implemented a fee structure that charges a 1.10% annual management fee on assets invested, plus the adviser charges a fee of .50% of assets annually for use of the algorithms. The adviser provides each client with a flyer covering the adviser's 11 different investment strategies with disclosure of the 1.10% annual management fee. Under the NASAA Rule on Unethical Business Practices of Investment Advisers, this is: A. a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services B. a violation of the prohibition on charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser C. not a violation of the prohibition on charging unreasonable advisory fees, because the management fee was disclosed to the client D. not a violation of the NASAA Rule on Unethical Business Practices of Investment Advisers because the advisory fees are based on assets under management

A

An investment adviser is opening that day's mail and receives a check from a customer for $8,000, however the adviser shows no balance due from the customer - the check was mailed in error to the adviser. 5 business days later, the investment adviser mails the check back to the customer. Under NASAA rules, the investment adviser: I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received A. I and III B. I and IV C. II and III D. II and IV

A

An investment adviser is opening that day's mail and receives a check from a customer made out to the "Jones Cleaning Service" - the check was mailed in error to the adviser. 5 business days later, the investment adviser mails the check back to Jones Cleaning Service. Under NASAA rules, the investment adviser: I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received A. I and III B. I and IV C. II and III D. II and IV

A

An investment adviser representative (IAR) has an oral agreement with a customer to provide advisory services and has given the new customer a glossy brochure describing the adviser's services, but has forgotten to give the customer Part 2 of Form ADV. Which statement is TRUE? A. The customer must receive the Form ADV Part 2 and then has 2 days to sign the agreement B. The customer must be given the Form ADV Part 2 at the time of signing the agreement C. The oral agreement is binding because the customer received the glossy brochure D. The customer must receive the Form ADV Part 2 and then has 5 days to sign the agreement

A

An investment adviser representative has found an illiquid stock that seems overpriced and has heard that the company will issue bad financial news in about a week. He tells all his clients that they should enter orders to sell the stock. The investment adviser representative: StatusA A. has committed a violation of the Uniform Securities Act by inducing trading based on unverified information StatusB B. is not guilty of manipulating the stock if the price does not change after all of the clients sell that security StatusC C. must determine that the recommendation is a suitable investment for his clients StatusD D. has not violated any of the provisions of the Uniform Securities Act

A

An investment adviser representative is preparing a comprehensive investment plan for a customer. After completing the plan, the representative finds out that, unless precautions are taken, implementation of the plan could have severe tax consequences for the client. The first step that the investment adviser representative should take is to: A. refer the client to a tax consultant for plan review B. refer the client to a new investment adviser C. create a new investment plan for the client D. present the plan as created to the client

A

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 III 12b-1 fees paid by mutual funds IV commissions paid by broker-dealers A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

A

An investment advisory firm does its own research, using a group of dedicated employees and has a separate staff of investment adviser representatives (IARs) who solicit new accounts. In an effort to maintain confidentiality between the research staff and sales staff, the investment adviser MUST: StatusA A. establish a Chinese Wall between the research personnel and the sales personnel StatusB B. register both the research personnel and the sales personnel in each State where the IA's services are offered StatusC C. cross-train the research personnel and the sales personnel in each other's functions so that in the event of a confidentiality breach, one can take over the functions of the other StatusD D. establish two separate IA firms registered with the State with one only having research personnel and the other only having sales personnel

A

Annual audited reports are required to be sent by investment advisers to their clients if the adviser: I holds customer funds II has discretionary control under a full power of attorney over customer accounts III has solicited the customer for advisory business IV has a conflict of interest that has been disclosed to the customer A. I and II B. III and IV C. I, II, III D. I, II, III, IV

A

The Uniform Securities Act prohibits which of the following? I Guaranteeing of customer accounts II Discretionary customer accounts III Soliciting customer orders for unregistered exempt securities IV Soliciting customer orders for unregistered non-exempt securities A. I and IV B. II and III C. I, III, IV D. I, II, III, IV

A

The manager of a broker-dealer is discussing investment strategies with her in-house research assistant. The conversation leads to a discussion about a client for whom the broker-dealer is negotiating to underwrite a common stock offering. The research analyst tells the manager that she is preparing a report indicating that the company is having sales difficulties and is going to downgrade the stock from "Accumulate" to "Hold." What should the research analyst do? A. Wait until the status of the underwriting contract is resolved before taking any further action B. Issue the report as scheduled after changing the recommendation back to "Accumulate" C. Issue the report immediately D. Sell short the stock and then issue the report

A

Under NASAA rules, a customer must sign and return the margin agreement: A. promptly after the initial transaction in the account B. prior to settlement of the first trade in the account C. within 1 day of the first transaction in the account D. within 3 days of the first transaction in the account

A

Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that is based on the: StatusA A. investment adviser's business model including the size of the firm, types of services provided, and number of business locations StatusB B. itemized list provided by NASAA in the Model Rule StatusC C. requirements of the PATRIOT (Providing Appropriate Tools to Restrict, Interdict and Obstruct Terrorism) Act StatusD D. demographics of the Investment Adviser Representatives employed by the Investment Adviser

A

Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following information EXCEPT: A. time of execution of the order B. person who placed the order C. name of account for which order was entered D. name of broker-dealer to which the order was sent

A

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

Under what circumstances may an agent draw on a graph or chart in a mutual fund prospectus during a presentation to a customer? StatusA A. Under no circumstances StatusB B. When the drawing will help the customer to understand the presentation StatusC C. When the graph or chart appears misleading to the customer StatusD D. When a customer has drawn on the graph or chart

A

Which of the following are prohibited practices under NASAA guidelines? I An investment adviser lending money to a customer II An investment adviser lending money to a customer that is a relative III An investment adviser lending money to a customer through a bank affiliate IV A broker-dealer lending money to a customer where securities are collateral under Regulation T A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

A

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

A Registered Investment Adviser has discretionary control over 50 accounts that range in value from $200,000 to $1,500,000. She receives a free due diligence trip from a real estate limited partnership sponsor to inspect a property in Florida. She is enthusiastic about the investment potential and purchases a $50,000 real estate limited partnership unit in the property for each of her accounts. The RIA disclosed the fact that she received the free trip to each of her customers before making the purchases. Which statement is TRUE? A. This is unethical because taking the free due diligence trip and then buying the partnership units for her clients is a conflict of interest B. This is unethical because the adviser did not determine the suitability of the investment for each account C. This is unethical because the adviser violated her fiduciary responsibility to her clients D. This is an ethical business practice

B

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 all of the following EXCEPT: StatusA A. employees of the issuer StatusB B. employees of the broker-dealer StatusC C. employees of suppliers of the issuer StatusD D. persons who have no affiliation with the broker-dealer or issuer

B

A broker-dealer is offering an IPO to the public that is "hot." The broker-dealer withholds 15% of the shares to set aside for its future use. This action is: StatusA A. permitted because broker-dealers have discretion over IPO allocations StatusB B. prohibited because the broker-dealer is "free riding and withholding" StatusC C. permitted because the broker-dealer takes financial liability when performing an underwriting StatusD D. prohibited because the broker-dealer is not allowed to own stock in companies that go public

B

A customer wishes to buy 1 share of Walt Disney Company stock, which she intends to frame and give to her 6-year old nephew as a present. The stock is trading for $25 per share; however the commission for executing the trade will be $100 since this is an odd lot. Which statement is TRUE? A. Prior to buying the share, the written permission of one of the parents of the nephew must be obtained B. Prior to buying the share, the fact that the commission will be unusually high must be disclosed C. Prior to buying the share, another customer must be located to buy the remaining 99 shares, so that a round lot of 100 shares can be traded D. Prior to buying the share, the nephew must provide proof of identity so that the share can be registered in his name

B

A long-standing customer of a broker-dealer suffered a stroke and is in a coma. Who can place orders in the client's account? A An individual named as having a durable power of attorney over the client's account in a video document recorded by the client 15 years ago B An individual named as having a durable power of attorney over the client's account in a signed letter written 15 years ago C A document naming an individual as having a durable power of attorney over the client's account that the client has not signed D A letter written and signed by the client's spouse, naming the individual who has a durable power of attorney over the account

B

A mutual fund sponsor is holding a seminar at the convention center at a resort hotel near Disney World. The seminar will focus on the features of different bond funds offered by the fund sponsor. Which statement is FALSE about an investment adviser representative (IAR) attending the seminar? StatusA A. The fund can pay for the IAR's travel and accommodation expenses StatusB B. The fund can pay for the travel and accommodation expenses of the IAR's spouse StatusC C. The meeting must be educational and not promotional StatusD D. The nature of the conflict of interest must be disclosed to clients

B

A wrap account: A. allocates funding of a portfolio to include every major asset class so that each dollar invested "wraps around" a global portfolio B. includes management fees, advisory fees, and commission charges "wrapped" into a single fee assessed against the account C. seeks to hedge each portfolio position against market risk by "wrapping" the position with an appropriate option hedge D. invests solely in index funds so each $1 invested "wraps around" a diversified investment portfolio

B

After reviewing a large customer's account, an investment adviser determines that there is a conflict of interest between the adviser and the customer. Which action should be taken by the adviser? StatusA A. The adviser should refrain from giving the customer investment advice until the State Administrator has been notified of the conflict StatusB B. The adviser should notify the customer about the conflict in writing and let the customer decide what action to take, if any StatusC C. The adviser should terminate the relationship with the customer StatusD D. The adviser is under no obligation to take any action since it has a fiduciary relationship with the customer

B

All of the following are unethical practices under the NASAA Statement of Policy EXCEPT an investment adviser: StatusA A. borrowing securities from a client StatusB B. disclosing the educational background of its employees to a potential client StatusC C. disclosing its customers' names to a potential client StatusD D. recommending a security to a client based upon a rumor

B

All of the following events would result in an advisory contract being considered to have been transferred EXCEPT: A. a majority partner in the advisory firm dies B. a minority partner in an advisory firm sells his interest to another individual C. a controlling block of stock in the investment adviser is sold to another individual D. the contract is pledged as collateral for a loan

B

An IAR has opened an account for a new customer. The customer is "on the road" for 3-4 weeks per month and has given the IAR verbal authorization to trade her account on a discretionary basis. The IAR sends the customer a written power of attorney for signature and return. 1 week after opening the account, the IAR hears of a good investment opportunity and buys 500 shares of the XYZ stock at $50 for the customer's account. 3 weeks later, the stock declines and the IAR sells the stock at $30 per share. The customer never returned the signed power of attorney. Liability for the loss rests with the: A. customer B. investment advisory firm C. investment adviser representative D. all of the above

B

An Investment Adviser Representative engages in a policy of placing block trades for securities that he wishes to purchase, which are allocated to both the adviser's proprietary account and the adviser's customers' accounts. Which statement is TRUE? StatusA A. This is an unethical business practice under NASAA rules because advisers are not permitted to trade for their own proprietary accounts StatusB B. This is permitted if it leads to lower commission costs and higher potential rates of return StatusC C. This is an unethical business practice because the adviser is breaching his fiduciary duty to the customer StatusD D. This is permitted if the Administrator does not have a rule prohibiting the adviser from engaging in block trading

B

An Investment Adviser Representative has started a blog on the Internet to promote her services to interested parties. The blog discloses that the IAR is associated by DEF Advisers, an RIA registered in the State where the IAR is also registered and conducts business. Which statement is TRUE about this? StatusA A. This action is prohibited under NASAA rules because blogs can only be sponsored by RIAs, not IARs StatusB B. This action is prohibited because the RIA must approve the content of the blog and authorize its distribution StatusC C. This action is prohibited because FINRA has jurisdiction over Internet communications and FINRA approval is required StatusD D. This action is permitted because both the RIA and IAR are State-registered

B

An Investment Adviser Representative uses a graph/chart to illustrate investment results for a client. Which of the following MUST be disclosed by the IAR to the customer? A. The performance of prior recommendations over the past 5 years B. The fact that a chart, by itself, can be misleading and may not represent true performance C. The fact that prior performance as shown in the chart is an accurate predictor of future results D. The performance of the Standard and Poor's 500 Index over the same period

B

An agent is contacted by a new client that is moving his account from another broker-dealer because he suffered a large loss. The new customer is 80 years old, has $25,000 of annual income and has $117,000 of equity in his home. The customer's investment portfolio consists of $25,000 in a speculative stock mutual fund. This holding was originally worth $140,000. The BEST recommendation to the customer is to: A. continue to hold the speculative stock fund since it should recover its lost value over time B. sell that fund and buy another fund in the same family of funds C. buy another mutual fund in a different family with better performance D. buy a variable annuity to protect the customer from future losses

B

An agent of a broker-dealer "A" has been terminated and is associating with broker-dealer "B." The terminated agent agrees to turn over his clients to another agent at broker-dealer "A" in return for half of the commissions generated by those clients over the following year. This arrangement is: A. permitted because it was negotiated while both agents were working at broker-dealer "A" B. prohibited because during the life of the agreement, the agents will be working at different broker-dealers C. permitted as long as both agents were registered in the same State at the time that the agreement was negotiated D. prohibited because the transfer of a customer account at a broker-dealer from one agent to another requires the written consent of the customer

B

An agent of a broker-dealer works on weekends building racing cars. The side business is so successful that the agent's customers wish to invest in the venture. The agent incorporates his racing car building business and sells each of his racing car buyers a 1% interest. Which statement is TRUE? StatusA A. The agent has violated State law because the offering is not exempt in the State StatusB B. The agent has violated State law because the securities sales must be approved in writing, in advance, by the broker-dealer StatusC C. The agent has not violated State law because a 1% interest sold to each investor qualifies for a "de minimis" exemption StatusD D. The agent has not violated State law because private securities transactions are exempt

B

An agent persuades a client with a conservative risk tolerance to invest in speculative securities. On settlement date, he tells the client to sell those investments and use the proceeds to buy other speculative securities. This pattern continues for several months. This is called: StatusA A. selling away StatusB B. excessive trading StatusC C. front running StatusD D. free riding and withholding

B

An agent recommends that a customer buy shares of ACME Mutual Fund. The fund has a sales charge of 6%. The first breakpoint occurs at the $10,000 level, where the sales charge is reduced to 5%. The customer gives the agent a check for $8,500 to invest in the fund, which the agent forwards promptly for investment in ACME shares. Which statement is TRUE? A. The agent has acted properly by forwarding the customer's check promptly B. The agent has acted unethically because he did not make the client aware of the breakpoint C. The agent has acted unethically because he did not make the client aware of rights of accumulation D. The agent has acted unethically because he did not make the client aware of automatic dividend reinvestment

B

An individual works as both a registered agent for a broker-dealer and a representative of an investment adviser, both of which are owned by the same parent company. The individual's sister has started up a successful e-tailing company that she wishes to expand. She asks her brother to sell private placement units of her company to his customers in return for a 20% commission that she will pay. Which statement is TRUE? StatusA A. This action is prohibited because the commission amount to be paid is excessive StatusB B. The action cannot be taken unless the brother obtains written permission of the broker-dealer StatusC C. The partnership units cannot be sold to the agent's customers unless they are registered in the State StatusD D. The partnership units cannot be sold to the agent's customers unless separate records are kept covering these transactions

B

An investment adviser enters into an arrangement with a broker-dealer where the adviser, in return for directing trades to that broker-dealer, will receive payments for order flow. The payment, of one cent for each trade, is conditioned upon the adviser directing a minimum number of trades each month. Which statement is TRUE about this arrangement? StatusA A. This is a prohibited practice and violates that adviser's fiduciary responsibility to its clients StatusB B. This action on the part of the adviser is permitted only if it is disclosed in the Form ADV Part 2A ("Brochure") given to clients StatusC C. This action on the part of the adviser is permitted because it reduces the adviser's operating costs StatusD D. This action on the part of the adviser is permitted because it is based on a minimum number of trades occurring each month

B

An investment adviser has placed a block trade for 100,000 shares of ABCD stock. The trade is filled in 2 separate lots of 50,000 shares each, with one lot filled at $50.01 per share and the other lot filled at $50.03 per share. The adviser has developed a methodology of allocating shares purchased at the lowest price to clients with a history of referring other clients and to clients with more assets under management and has been doing this unknown to staff and clients for many years. The investment adviser is guilty of: StatusA A. failure to supervise StatusB B. breach of fiduciary duty StatusC C. failure to adhere to prudent investor standards StatusD D. insider trading

B

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

An investment adviser receives a check from a customer made out to the adviser that the customer sent to the adviser inadvertently. This adviser will NOT have taken custody as long as it returns the check to the customer within: A. 3 calendar days of receipt B. 3 business days of receipt C. 9 calendar days of receipt D. 9 business days of receipt

B

An investment adviser that is about to retire sells his business to 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 retiring investment adviser must give prior approval for their account to be moved to the acquiring firm C. The Securities and Exchange Commission must approve of the sale D. There is no requirement for approval from either the State Administrator, the customer, or the SEC

B

An investment adviser would be permitted to charge a 2% fee to clients based on all of the following EXCEPT: A. average assets under management over the calendar year B. increase in assets under management over the calendar year C. highest value of assets over the calendar year D. assets under management at the end of the year

B

For an adviser to charge a performance fee, the Investment Advisers Act of 1940 requires which minimum financial standards from customers? I A customer that deposits $1,000,000 or more with the adviser II A customer that deposits $2,100,000 or more with the adviser III A customer with a $1,000,000 or higher net worth IV A customer with a $2,100,000 or higher net worth A. I and III B. I and IV C. II and III D. II and IV

B

If an agent of a broker-dealer is also an agent of an affiliated investment adviser, disclosure must be made to any customer: StatusA A. if the fees charged to the customer are materially higher than those charged to other customers that are receiving similar services StatusB B. if the agent will receive a commission for executing trades for that customer that are directed to it by the affiliated advisory firm StatusC C. of the financial condition of the agent if custody will be taken of the customer's funds or securities StatusD D. of the registration status of the agent in the State where the securities transaction or advisory services occur

B

Joe Jones, the proprietor of Joe Jones Financial Planning Inc., which is registered as an investment adviser in New York State, has decided that he can expand his business by setting up an Internet website. He includes a questionnaire that solicits individuals to transmit information about their investment objective, financial situation, financial needs, risk tolerance level and investment time horizon, which he will use to create a financial model and plan for a fee. Which statement is TRUE? StatusA A. Joe Jones Financial Planning Inc. must register with the SEC as an investment adviser, but is not required to register as an investment adviser in each State where customers complete the questionnaire StatusB B. Joe Jones Financial Planning Inc. is not required to register with the SEC as an investment adviser, but the firm is required to register as an investment adviser in each State where customers complete the questionnaire StatusC C. Joe Jones Financial Planning Inc. is required to register with the SEC as an investment adviser, and the firm is required to register as an investment adviser in each State where customers complete the questionnaire StatusD D. Joe Jones Financial Planning Inc.'s current New York State registration is the only requirement

B

John Jones has an individual account at a broker-dealer. John calls his agent at the broker-dealer and states that he wishes to open an account for his brother Jake in his brother's name and buy 1,000 shares of DEF stock. Which statement is TRUE? A. The agent can open the account B. The agent can open the account only if the brother Jake gives authorization in writing C. The agent can open the account only if the manager approves in writing D. The account cannot be opened unless the brother Jake orally approves

B

Ms. Muffy Vanderbilt is an entrepreneurial socialite who has successfully worked as a fund raiser for a not-for-profit organization for the past 10 years. Because of her success at raising money and her extensive list of social contacts, she is recruited by an investment advisory firm to become a representative. Ms. Vanderbilt would be permitted to: I state to customers that she has 10 years of experience in the industry II use the title "investment adviser representative" on her business card III state to customers that she is registered as a representative with the SEC A. I only B. II only C. II and III D. I, II, III

B

NASAA Model Rule 502 (c) applies to: I State registered advisers in its entirety II State Covered advisers only to the extent that the conduct is fraudulent or deceptive III Federal Covered advisers in its entirety IV Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive A. I and III B. I and IV C. II and III D. II and IV

B

Obtaining the 4 critical pieces of information from a customer at account opening is part of the company's policies and procedures covering: StatusA A. Privacy of Customer Information StatusB B. Anti-Money Laundering StatusC C. Cybersecurity StatusD D. Business Continuity

B

Reports of cash transactions must be made to the Department of Treasury if the amount of cash received or paid exceeds: StatusA A. $5,000 StatusB B. $10,000 StatusC C. $25,000 StatusD D. $100,000

B

The CEO of a publicly traded company is a large client of an investment adviser representative. The CEO, who is a member of the prestigious River Rocks Country Club, tells the IAR that he will refer other club members to the IAR if the IAR will give the referred clients a discount, and will give the CEO the same discounted rate. Which statement is TRUE about this situation? A. The IAR is prohibited from giving a group of individuals a discount that is not being offered to all of the IAR's clients B. The IAR can offer the discount as long as the fact that non-club members pay a higher fee is disclosed in the Form ADV Part 2A C. The IAR can offer the discount as long as charges to all of the IAR's customers are fair and reasonable D. The IAR is prohibited from offering the CEO the discount since he or she is an existing client, but can offer the discounted rate to any new clients that belong to the country club

B

The portfolio construction most suitable for a pension fund seeking current income and safety of principal is: A. Treasury bonds, General Obligation bonds and covered call writing B. Treasury bonds, Corporate bonds and covered call writing C. Corporate bonds, Time deposits and naked call writing D. Treasury STRIPs, Corporate bonds and naked call writing

B

Under NASAA rules, an investment adviser representative could NOT personally borrow money from a: A. family member that does not have an account with the adviser B. family member that has an account with the adviser C. affiliated broker-dealer that is a customer of the adviser D. bank that is a customer of the investment adviser

B

Under Uniform State Law, advisory contracts: A. must be oral B. must be in writing C. may be either oral or in writing D. may be oral if documented in writing within 10 days of entering into the oral contract

B

Under the Uniform Securities Act, the threshold where a State-registered adviser is considered to have taken custody of client funds if it charges prepaid advisory fees, is: A. $200, 6 months or more in advance of rendering services B. $500, 6 months or more in advance of rendering services C. $1,000, 6 months or more in advance of rendering services D. $1,200, 6 months or more in advance of rendering services

B

Under the Uniform Securities Act, which statements are TRUE regarding investment advisers that take custody of customer funds? I The administrator must give written approval before an adviser can take custody of customer funds II The administrator can require a higher surety bond for advisers that take custody of customer funds III Statements of account must be sent to customers whose assets are held in custody at least quarterly A. I and II only B. II and III only C. I and III only D. I, II, III

B

Under the provisions of the Prudent Investor Act, all of the following statements are true regarding the management of trust accounts with multiple beneficiaries EXCEPT the fiduciary: StatusA A. must manage the trust impartially, taking into account the differing needs of the trust beneficiaries StatusB B. is judged based on the performance of each individual investment chosen in the account StatusC C. should seek to maximize portfolio performance and can assume extra risk consistent with the beneficiaries' investment objectives and needs StatusD D. is permitted to delegate investment decisions to qualified agents without needing consent of the beneficiaries

B

Under the provisions of the Prudent Investor Act, all of the following statements are true regarding the management of trust accounts with multiple beneficiaries EXCEPT the fiduciary: StatusA A. must manage the trust impartially, taking into account the differing needs of the trust beneficiaries StatusB B. must manage the trust to meet the needs of older beneficiaries before considering the needs of the younger beneficiaries StatusC C. should seek to maximize portfolio performance and can assume extra risk consistent with the beneficiaries' investment objectives and needs StatusD D. is permitted to delegate investment decisions to qualified agents without needing consent of the beneficiaries

B

Under the requirements of the Uniform Securities Act, if an adviser takes custody of a customer's funds or securities, the customer must be: I informed in writing of the safekeeping location at the time that custody is taken II given a written receipt for the funds or securities at the time that possession is taken III provided with monthly account statements IV provided with quarterly account statements A. I and III B. I and IV C. II and III D. II and IV

B

What is the best way to ensure that customer account information held at a broker-dealer is not stolen due to cyber theft? A. Require that the customer send a text message to the firm from a registered device before allowing access B. Maintain customer information in a secure website in encrypted form C. Purchase an adequate level of insurance to cover the full range of cyber risks D. Retain third party vendor to evaluate the firm's cyber risks

B

Which State-registered investment adviser MUST report that it takes custody on Form ADV? A. An adviser that is affiliated with a parent bank or trust company B. An adviser that directly deducts management fees each quarter from client accounts C. An adviser that has discretionary authority over client accounts under a limited power of attorney D. An adviser that receives payments from clients at the time that services are rendered

B

Which customer could be charged an advisory fee based on account performance? A. A customer that deposits $250,000 to be invested by the adviser B. A customer with a $2,500,000 net worth C. A customer that deposits $500,000 with the adviser D. Any of the above

B

Which form(s) MUST be signed by the customer in order to open a margin account? A. New Account Form B. Hypothecation Agreement C. Loan Consent Agreement D. All of the above

B

Which investment advisory fee arrangement would MOST likely be viewed as unreasonable for a client with a small amount of assets under management? A. Hourly rate B. Flat fee assessed for the year C. Assessment based on value of the account at the beginning of the month D. Assessment based on value of the account at the end of the month

B

Which of the following are permitted practices by an investment adviser under the NASAA Statement of Policy? I An adviser exercising discretion under verbal authority from a customer given 5 business days ago II An adviser placing an order to sell a position that is dropping rapidly in price without discretionary authority III An adviser selling all of a security position when the customer authorized the sale of only part of the position IV An adviser selecting the best time to sell a position when the customer authorized the sale A. I and III B. I and IV C. II and III D. II and IV

B

A Registered Investment Adviser charges a fee to customers based on a percentage of assets under management. The adviser invests customer funds solely in mutual funds that have a sales charge. Which statement is TRUE? A. The only disclosure that the adviser must make to the customer is the asset management fee B. The only disclosure that the adviser must make to the customer is the sales charge C. The adviser must disclose to the customer both the management fee and sales charge to the customer D. The adviser is not required to disclose to the customer neither the management fee nor the sales charge

C

A broker-dealer has a marketing agreement with a local bank and has located offices in each of the bank's branches. If a bank customer makes an inquiry about mutual funds offered by the broker-dealer in the branch, which of the following statements are TRUE? I Oral disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal II Written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal III Reasonable efforts must be made to obtain the customer's signature on a document acknowledging receipt of the appropriate risk disclosures IV Reasonable efforts must be made to obtain the customer's signature on an arbitration agreement covering any claims made by the customer of not knowing that the products being offered were securities and not bank products StatusA A. I and II only StatusB B. III and IV only StatusC C. I, II, III StatusD D. I, II, III, IV

C

A client of a RIA dies. His attorney calls the RIA and instructs him to sell 500 shares of ABC at the market and deposit the proceeds to the client's checking account. The RIA should: A. accept the trade verbally and follow the attorney's instructions B. get a copy of a power of attorney that authorizes the attorney to act on behalf of the client C. get a copy of the client's will to see what is allowed and what is not allowed D. require the attorney to send the instructions in writing either by e-mail or fax

C

A customer calls an agent to complain about the agent's handling of her account. The customer is not satisfied with the agent's response and calls the branch manager to complain. Under NASAA rules, this is: A. defined as a complaint that must be recorded and a resolution attempted because it was directed to a manager B. defined as a complaint that must be recorded and a resolution attempted because it was made verbally C. not defined as a complaint that must be recorded and a resolution attempted because it was made verbally D. not defined as a complaint that must be recorded and a resolution attempted because it was not filed with the State Administrator

C

A customer contacts an agent of a broker-dealer, asking for an investment that has no risk. The agent recommends the purchase of Treasury notes or bonds, stating that these are "riskless" securities. Which statement is CORRECT regarding this recommendation? A. The agent has not violated the Uniform Securities Act because Treasury securities are free from risk of default of either payment of interest or principal B. The agent has not violated the Uniform Securities Act because Treasury securities are free from interest rate or market risk C. The agent has acted unethically because Treasury securities that are not a short term maturity have interest rate risk D. The agent has acted unethically because there are no securities that are completely free of risk

C

A customer enters a bank branch where he has a savings account and is approached by the branch manager who asks: "Are you interested in earning a higher rate of return than we offer on our savings accounts? Let me introduce you to our securities representative." If the customer opens a securities account, which disclosures are required to be made? I Securities products are not insured by the Federal Deposit Insurance Corporation II Securities products are not deposits or other obligations of financial institution III Securities products are subject to investment risks, including possible loss of principal IV Securities products are subject to taxation of income and capital gains StatusA A. I and II only StatusB B. III and IV only StatusC C. I, II, III StatusD D. I, II, III, IV

C

A customer has an individual account with a broker-dealer. The customer's wife calls and instructs the agent handling the account to "Sell out all positions and forward a check immediately; my husband is traveling and he needs a wire transfer." Under the Uniform Securities Act, the agent: A. should follow the wife's instructions B. may follow the wife's instructions only after getting written approval of the branch manager C. may follow the wife's instructions only if the husband had completed a third party trading authorization for the wife D. must open a separate account for the wife to perform the transaction

C

A customer holds 52% of ABCD Corp. common stock, a thinly traded stock listed in the OTCBB. The customer wishes to sell 1% of her holding and requests that the broker display her offering quote. Which statement is TRUE? A. The quote cannot be shown since only dealer offerings are listed in the OTCBB B. The dealer cannot enter the quote unless the State Administrator approves C. The dealer can enter the quote only if it is bona-fide D. The dealer can enter the quote without restriction

C

A customer invests $100,000 and opens a discretionary account with an agent specifying an investment objective of long-term growth. The agent decides that it is best to diversify and spreads the monies among a number of income funds within the same fund family. Which statement is TRUE? A. The agent acted prudently as it is best to diversify a portfolio to reduce risk B. The agent acted prudently as long as the manager approves of the transaction C. The agent acted inappropriately and fraudulently D. The agent's actions are acceptable if there is a profit on the investments made

C

A customer opens an account and tells the broker to do whatever is prudent. What should the broker do? A. The broker should only buy investment grade securities in the account B. The broker should only accept unsolicited transactions in the account C. The broker should obtain a signed power of attorney from the customer D. The broker should refuse to open the account

C

A customer sends a strongly worded written complaint to an agent, alleging that the agent made untrue statements that resulted in the customer buying a security that is now worthless. The agent believes that the letter has no merit, and places the letter in his file, with a notation that "No Action Taken." Under the Uniform Securities Act, which statement is TRUE? A. The agent has handled the complaint appropriately B. The agent has violated the Act, because all complaints must be reported to the Administrator C. The agent has violated the Act because all complaints must be reported to the broker-dealer D. The agent has violated the Act because the complaint must be submitted to binding arbitration

C

A customer submits a written complaint to your broker-dealer. Later, he changes his mind and asks that the complaint be returned. You should: A. do nothing unless the customer makes a written request B. return the original written complaint to the client C. return a copy of the complaint to the client and retain the original complaint in the firm's files D. return the original complaint to the client and retain a copy of the complaint in the firm's files

C

A customer wants to tie the amount paid to his broker to the performance of the recommendations made by that broker. The customer says: "For every recommendation that increases in value within 6 months, I will pay you twice the regular commission rate; for every recommendation that goes down in value, I will pay you half of the regular commission rate." This arrangement is A. permitted if it is documented in writing B. permitted if the securities involved are exchange listed C. prohibited because the commission cannot be based on account performance D. prohibited because the commission cannot differ for each customer

C

A customer wishes to make an investment in growth mutual funds for an Individual Retirement Account. All of the following statements by an agent are prohibited EXCEPT: A. "The fund has averaged a 20% annual growth rate in the past and is guaranteed to produce the same growth rate in the future" B. "Last year, the fund paid out dividends of $1.00 per share and capital gains of $.50 per share, for a total income yield of $1.50" C. "The fund yielded 20% last year and is expected to yield the same this year, though the actual yield may be more or less" D. "The fund is registered with the SEC, which has approved of the fund's shares"

C

A firm holds a joint cash account for a husband and wife. The wife calls the investment adviser representative and says "Sell 500 shares of ABC out of the account immediately and send a check for the proceeds made out to my name." The representative should inform the wife that: A. her instructions will be followed exactly B. the transaction requires approval of the husband since it is a joint account C. the trade can be performed but the check must be made out to both names on the account D. a written power of attorney must be on file to perform the trade

C

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

A mutual fund is offered with no up-front sales charge and no contingent deferred sales charge. It charges 50 basis points of 12b-1 fees annually. The fund publishes an advertisement stating that: "This is a no-load fund." Which statement is TRUE? A. The statement is true as presented B. This statement is misleading because no-load mutual funds cannot charge 12b-1 fees C. This statement is misleading because a no-load fund cannot charge more than 25 basis points of 12b-1 fees D. This statement is misleading because mutual funds are not permitted to advertise themselves as no-load funds

C

A new client wishes to open an account with an agent of a broker-dealer, but refuses to divulge any information regarding investment objectives, income, net worth or other investment holdings. Under the provisions of the Uniform Securities Act, the agent should: A. refuse to open the account B. only recommend securities on the Legal List C. only accept unsolicited orders from the customer D. make recommendations to the customer that are in compliance with the Prudent Man Rule

C

A representative is making a presentation to a married couple, ages 77 and 81, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy an equity indexed annuity (EIA). Which statements made by the representative would be misleading and fraudulent? I "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" II "I do not earn any commissions when I sell you an EIA" III "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" IV "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company" A. I and III B. I and II C. I, II, III D. I, II, III, IV

C

A retired elderly customer lives off the earnings from his modest retirement account, in addition to small pension payments that he receives from his former employer. The customer's nephew, who works at an electronics company that trades sporadically in the Pink Sheets, tells him that the company is coming out with a great new product and the stock would be a good investment. The customer wants your advice about buying some shares of the electronics company. The BEST advice would be to tell the customer that because: A. the recommendation came from a relative, it is probably a good one and he should buy the stock B. the recommendation came from an employee of the subject company, it is probably a good one and he should buy the stock C. of the customer's advanced age and limited resources, this type of speculative investment is not appropriate D. the recommendation did not originate from your brokerage firm, you cannot give the customer any guidance on this proposed transaction

C

An IAR meets with a client and enters into an agreement to provide advisory services. The IAR provides the customer with the adviser's brochure. After returning to her office, the IAR sees that the customer has failed to sign the contract and calls the customer from her office, stating that once she gets the contract signed, the adviser will allow her 2 days to withdraw from the contract and return her money if she is not happy. Which statement is TRUE about the IAR's actions? A. The IAR's actions are in compliance with the requirements of the "brochure rule" B. The IAR has violated NASAA rules because all customer signatures on advisory contracts must be made in the presence of a notary C. The IAR has violated NASAA rules because the customer must be given 5 business days after signature to terminate the contract without penalty D. The IAR has violated NASAA rules because the customer must be given the right to rescind for at least 30 calendar days from entering into either a verbal or written advisory contract

C

An Investment Adviser Representative enters into a contract with a new client for advisory services and provides the client with a glossy copy of Form ADV Part 2 (the "Brochure") and the Brochure Supplement. When he gets back to the office, he realizes that he forgot to have the client sign that the Brochure was received. The IAR: A. is not required to do anything because the customer received the Brochure and Brochure Supplement B. must have the customer sign within 48 hours that the Brochure was received C. must have the customer sign the contract and give the customer 5 business days to terminate the contract without penalty D. must rescind the contract immediately

C

An Investment Adviser Representative manages the accounts of high net worth individuals, with account sizes ranging from $500,000 to $10,000,000, on a discretionary basis. The representative has been contacted by a limited partnership promoter that is offering real estate partnerships that require a minimum $50,000 investment. The promoter offers the representative an all expenses paid trip for 2 to Las Vegas, where the partnership sponsor will be holding a seminar that covers all of the details of the investment. The representative wishes to perform due diligence on the offering and believes that taking the trip is important. The representative contacts each of his best clients and discloses the fact that he is taking the trip paid by the sponsor and buys a partnership unit for each of them. Which statement is TRUE? A. The representative's actions and disclosures to his customers appear to be appropriate B. The representative has failed to give full disclosure of the conflict of interest to his customers C. The representative has not adequately determined the suitability of the investment for each of his customers D. The representative has accepted a bribe from the partnership sponsor and is subject to criminal penalties

C

An Investment Adviser Representative wishes to set up a blog on the Internet to provide information to interested persons about current Federal and State regulatory events related to investment advisers. Which statement is TRUE about this? StatusA A. This action is prohibited under NASAA rules StatusB B. This action is permitted because the blog covers regulatory issues and is not promotional StatusC C. This action is permitted only if the Investment Adviser Representative obtains permission of the Investment Adviser firm StatusD D. This action is permitted only if the Investment Adviser Representative is affiliated with a Federal Covered Adviser

C

An Investment Adviser Representative writes a blog published on the Internet about how to achieve the best returns for clients, while minimizing risk. Which statement is TRUE about this? StatusA A. This can only be done if the Investment Advisory firm that employs the IAR approves of the content StatusB B. This can only be done if the Investment Advisory firm that employs the IAR authorizes the distribution of the communication StatusC C. This can only be done if the Investment Advisory firm that employs the IAR both approves the content and authorizes the distribution of the communication StatusD D. This action is prohibited

C

An Investment Adviser has developed a proprietary investment selection program that is based on a statistically validated and proven algorithm. The algorithm minimizes buy and hold investment strategies, and uses multiple data points to determine when to buy and sell the same security position intraday. The program has been tested and shown to produce consistent 20% returns. The Investment Adviser has a client base of around 100 individuals, with an average account size of $1,000,000. The clients range in age from 35 to 75. The Investment Adviser has discretion over these accounts and puts all of its clients into the automated trading program that it has developed. Why is this a violation of NASAA rules? A. Because the use of automated trading programs is a violation of NASAA rules B. Because automated intraday trading of securities will result in excessive trading and is a churning violation C. Because the automated trading strategy has not been shown to be suitable for each of the Investment Adviser's clients D. Because the Investment Adviser must register as a Broker-Dealer in order to implement an automated trading program`

C

An agent is conducting securities activities on the premises of a bank. Which statement is TRUE? StatusA A. Oral disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal StatusB B. Written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal StatusC C. Both oral and written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal StatusD D. This is an unethical business practice

C

An agent of a broker-dealer handles large institutional accounts on a discretionary basis. One of the institutional customers calls and states that: "The ABCD stock position that you recommended has declined by 20% in the last week and we have lost $200,000 on the position. I want you to sell the stock at the price that we paid; otherwise we will pull the account." Which action may be taken by the agent? A. The agent should place an order to sell the ABCD position at the current market price and then change the trade confirmation to reflect the execution of the order at the breakeven price B. The agent should sell the ABCD position to another institutional customer at the breakeven price C. The agent should sell the ABCD position at the current market price and reinvest the proceeds in another stock that is likely to appreciate over the short term D. The agent should buy the ABCD position at the breakeven price from the institutional customer and then hold the position personally for future price appreciation

C

An agent of a broker-dealer is soliciting potential clients to buy a new issue of corporate common stock. Which of the following is the agent PROHIBITED from doing? I Using the mails or other means of interstate commerce to offer the security to a potential client who resides in a State where the agent is registered II Offering the security to a potential client in another State where the agent is not registered III Selling the security to an existing client in a State where the agent is registered and then mailing the prospectus to that client IV Delivering a prospectus to an existing client who resides in a State where the agent is registered after the client expresses interest in buying the issue A. I and II only B. III only C. II and III only D. I, II, III, IV

C

An agent of a broker-dealer is told, in confidence, by the President of a publicly held corporation, that this quarter's sales have fallen drastically. Which action should the agent take? StatusA A. The agent should immediately disclose this information to the financial news media StatusB B. The agent should immediately disclose this information to the firm's proprietary trading desk StatusC C. The agent should consider the information to be "confidential" and not disclose it to anyone StatusD D. The agent should execute solicited customer orders to sell based on the information disclosed

C

In March, an investment adviser wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1st. In order to do this: I the investment adviser must amend the Form ADV filed with the State immediately II the investment adviser must amend the Form ADV filed with the State within 30 days III the adviser's customers must approve of the change by July 1st IV the adviser's customers are not required to approve the change A. I and III B. I and IV C. II and III D. II and IV

C

An agent of a broker-dealer maintains accounts for immediate family members, including an account for his brother-in-law. The agent is having a bad year, and his brother-in-law offers to lend him $20,000 until things get "better." Which statement is TRUE regarding this offer? A. As long as the loan amount is documented in writing and has a fixed repayment date and fixed interest rate, this is permitted B. As long as the terms of the loan are the same as would be offered in an arm's length transaction by an unaffiliated third party lender, this is permitted C. This offer cannot be accepted because borrowing money from a customer is an unethical business practice D. This offer cannot be accepted because borrowing money from family members that are customers is only permitted from direct family members - not from "in-laws"

C

An agent of a broker-dealer may: I charge a fee for investment advice in addition to any commission charged if a recommendation performs well II not charge a fee for investment advice in addition to any commission charged if a recommendation performs well III charge for clerical services where the charge is not based on performance IV not charge for clerical services A. I and III B. I and IV C. II and III D. II and IV

C

An agent of a broker-dealer publishes a web page that offers a free suitability determination to each customer that fills out a form electronically. Furthermore, if the customer agrees to open an account, the site states that: "The first month of trading will be free." Which statement is TRUE regarding this communication? StatusA A. This communication is permitted without restriction StatusB B. This communication is prohibited in each State StatusC C. This communication is permitted only if the broker-dealer and the agent are registered in each State where a customer completes the Web form StatusD D. This communication is permitted only if the broker-dealer and the agent are Federally registered

C

An agent of a broker-dealer: StatusA A. is prohibited from taking a second job StatusB B. can only take a second job if he or she gives written notice to the State Administrator StatusC C. can only take a second job if he or she gives written notice to the employer StatusD D. is permitted to take a second job as long as it is not with another registered broker-dealer

C

An agent omits to state material facts which are needed by an investor to make an informed decision. Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, this action is fraudulent: A. only if the statements refer to non-exempt securities B. only if the statements refer to exempt securities C. for both exempt and non-exempt securities D. only if the customer can prove damages

C

An agent promises an elderly potential customer that he will visit each weekend to discuss the customer's account performance if the customer opens an account. The agent travels extensively and is rarely in town on weekends. Which statement is TRUE? A. This statement is acceptable B. This statement must be given to the customer in writing to be acceptable C. This is a prohibited business practice D. This statement is allowed if the agent will arrange for another individual to visit the customer

C

An agent tells a customer interested in purchasing mutual funds that "because dividends are automatically reinvested in new shares, you can always sell at a profit." This statement is: A. acceptable as long as the agent does not guarantee that there will be profits B. acceptable since it does not make exaggerated claims for the fund C. prohibited under the Act since the statement is misleading D. acceptable since mutual funds are an exempt security

C

An elderly client is visiting an Investment Adviser Representative (IAR) in the IA's office. He tells the IAR that he is going to have major surgery and is concerned about the safety of his stock certificates that he keeps at home in a small fireproof box. The Investment Adviser Representative wishes to help the client out. Which of the following should the IAR NOT do? A. Drive the client to his house to retrieve the stock certificates and then take him to the bank used by the Investment Adviser where the client rents a safe deposit box in the client's name and deposits the securities B. Ask the client for the name of his attorney and then call him to ask for his opinion of what should be done in this situation C. Drive the client to his house to retrieve the stock certificates and then take him to the Investment Adviser's bank and place the certificates in the Investment Adviser's safety deposit box, making sure to write down all of the certificate numbers and other pertinent information D. Drive the client to his house to retrieve the stock certificates and then take him to his bank where the client rents an existing safe deposit box and deposit the securities

C

An individual that has not yet passed the appropriate State licensing examination for agent registration in a State would be permitted to: I call existing customers of the firm to solicit orders II call existing customers of the firm to invite them to seminars III make cold calls to potential customers and respond to their questions IV call other agents of the firm and offer them recommendations made by the firm StatusA A. I and II only StatusB B. I and III only StatusC C. II and IV only StatusD D. I, II, III, IV

C

An investment adviser buys 1,000 shares of ABC stock for his personal account. Shortly afterwards, the adviser buys 100,000 shares of ABC stock and allocates them to the customer accounts that he manages. This investment adviser has acted: StatusA A. ethically StatusB B. ethically as long as he discloses his ownership position to his customers StatusC C. unethically because he is front running his customers' accounts StatusD D. unethically because he is trading against his customers' accounts

C

An investment adviser has 3 managing partners and 3 investment adviser representatives. All of the partners have completed the Certified Financial Planner (CFP) program and received the designation. The 3 IARs have been enrolled in a CFP preparation course and are scheduled to take the next CFP exam. The IA publishes an advertisement that states: "All of our partners are Certified Financial Planners." This advertisement is: StatusA A. fraudulent and misleading StatusB B. unethical because an advertisement cannot include the qualifications of the firm's principals StatusC C. permitted since it is true StatusD D. permitted only after the IARs pass their CFP exams

C

Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider which of the following when investing and managing trust assets? I General economic conditions II Possible effects of inflation or deflation III Trading patterns of plan beneficiaries IV Investment tax consequences StatusA A. I and II only StatusB B. III and IV only StatusC C. I, II, IV StatusD D. I, II, III, IV

C

An investment adviser has developed a proprietary trading system that has consistently achieved 20% annual returns over the past 5 years. During this period, the Standard and Poor's 500 Index has increased by 10% per year. Other advisers that offer similar services charge an annual advisory fee equal to 5% of annual assets under management. This adviser wishes to charge an annual fee equal to 10% of assets under management since it believes that its services are superior. Which statement is TRUE? A. The 10% annual fee is reasonable because of the adviser's excellent track record B. The 10% annual fee is reasonable because the adviser has developed a trading system that is different from that used by other advisers C. The 10% annual fee is unreasonable because it is not comparable to other advisers that perform similar services D. The 10% annual fee is unreasonable because advisory fees must conform to the 5% Policy

C

An investment adviser may NOT be compensated with which of the following? A. Wrap fees charged to customers for all services rendered by the adviser B. Soft dollars paid by an executing broker to the adviser in return for trades sent to the broker by the adviser C. Bid-Ask spreads earned when position trades are executed D. Commissions paid to an affiliated broker-dealer on trades recommended by the adviser

C

An investment adviser purchases a research report from a bank's research department. This report may be distributed to the RIA's clients: StatusA A. under no circumstances StatusB B. verbally only; printed copies may not be distributed StatusC C. if the adviser discloses to his clients that the report was prepared by a third party StatusD D. if the adviser pays the bank for each person to whom the research report is distributed

C

An investment adviser representative prepares financial plans for clients and has been asked by many of them for tax advice. The representative has an undergraduate degree in business and took 1 course in tax law while in school. The investment adviser representative: A. can give tax advice to her clients but cannot accept separate payment for doing so B. can give tax advice to her clients because completing the college tax course makes her qualified to do so C. should refer her clients to a qualified tax preparer D. should refer her clients to the AICPA

C

An investment adviser representative receives a written complaint from a client about the handling of the client's account. Under the NASAA Statement of Policy on unethical practices, which statement is TRUE? A. A copy of the complaint must be filed promptly with the Administrator B. A copy of the complaint must be filed promptly with the SEC C. The complaint must be forwarded to a manager for resolution D. All of the above

C

An investment adviser that claims that it is a "fee only" adviser could NOT be compensated based on: A. a percentage of assets under management B. a flat annual or hourly fee for all work performed C. 12b-1 fees paid by mutual funds D. a performance based fee for wealthy investors

C

An investment adviser wishes to borrow money on behalf of his advisory business. Which statement is TRUE? A. The adviser is prohibited from borrowing money B. The adviser may borrow the money from any customers that have free credit balances in their accounts C. The adviser may borrow the money from a bank D. The adviser may borrow the money from any customer that gives written consent

C

An investment adviser would be considered to have custody of client funds if it: I received a check from a customer made payable to the custodian that was sent inadvertently and the adviser immediately forwards it to the custodian II received a check from a customer made payable to the adviser, who deposits it and opens an account for the client III received a power of attorney from a customer authorizing it to buy and sell securities on the customer's behalf IV received a power of attorney from a customer authorizing it to withdraw client funds or securities maintained with the custodian A. I and II B. III and IV C. II and IV D. I, II, III, IV

C

An investment adviser's research department is going to issue a report, changing its recommendation from "Buy" to "Hold" on XYZZ stock. The analyst that prepared the report wants to sell his XYZZ holding that he has in his personal account. Which statement is TRUE? StatusA A. The analyst can sell the stock immediately prior to the release of the research report without any further action needed StatusB B. The analyst can sell the stock immediately prior to the release of the research report if the investment adviser approves in writing StatusC C. The analyst is prohibited from selling the stock until the report is released StatusD D. The analyst can tell his associates to sell the stock prior to the release of the report

C

An investment advisory firm with $300,000,000 under management that is registered with the SEC as a federal covered adviser uses an unaffiliated broker-dealer to execute its customers' trades. In return for directing the trades to the broker-dealer, the broker-dealer provides the adviser with "free" research, but charges a higher commission rate than a discount broker. Which statement is TRUE? A. This is a prohibited and unethical practice B. The investment adviser is prohibited from paying commission rates to the executing broker-dealer that are higher than the commission rates charged by average of the 3 lowest-priced brokers used by the adviser C. The investment adviser is permitted to pay the higher commission rate as long as it is disclosed to customers that the value of research received is considered when choosing an executing broker D. The investment adviser is permitted to choose any broker-dealer to execute its customer transactions as long as the broker-dealer is completely independent of the investment adviser

C

Attaching any of the following to a prospectus delivered to a customer in connection with the purchase of a new non-exempt securities offering would be a violation of the Uniform Securities Act EXCEPT a(n): StatusA A. summary of the important points in the prospectus prepared by the broker-dealer offering the securities StatusB B. copy of the most recent advertisement published by the issuer in the mass media StatusC C. supplement that presents the issuer's most recent audited financial statements StatusD D. internal report prepared by the issuer that shows the next 12 months' sales projections

C

Customer privacy rules allow the disclosure of a specific customer's account information: A. under no circumstances B. to any third party that makes the request in writing C. to a third party as necessary to complete a transaction requested by that customer D. to any government agency that makes a request for information

C

The NASAA Statement of Policy regarding investment advisers that wish to exercise discretion in a customer account: A. requires that written power of attorney be obtained prior to the agent exercising discretion B. permits the agent to exercise discretion for up to 5 days upon the verbal authorization of the customer, as long as a written power of attorney is obtained by the end of that time period C. permits the agent to exercise discretion for up to 10 days upon the verbal authorization of the customer, as long as a written power of attorney is obtained by the end of that time period D. permits the agent to exercise discretion for up to 30 days upon the verbal authorization of the customer, as long as a written power of attorney is obtained by the end of that time period

C

The President of an investment advisory firm is also a registered representative of a broker-dealer. This fact is disclosed in the adviser's disclosure document. The President buys 50 partnership units for his clients who are suitable. The President does not disclose to the clients that he receives a commission on each partnership unit purchased by his clients. Under NASAA Rules on Unethical Business Practices for Investment Advisers and Federal Covered Advisers, is this permitted? A. Yes, because the President is properly registered as an agent of a broker-dealer and this fact is disclosed in the adviser's disclosure document B. Yes, because the adviser determined the suitability of the investment for each of his clients C. No, because the adviser should have specifically informed each client that he would earn a commission on each limited partnership unit sold D. No, because officers of investment advisers are not permitted to receive commissions on recommended transactions in addition to collecting an advisory fee

C

The fiduciary engaged in the administration of a trust finds that, under the directions of the trust document, there is a conflict of interest relating to a proposed investment. Under the provisions of the Prudent Investor Act, the fiduciary: A. should do nothing and permit the investment to be made B. is permitted to allow the investment as long as it is made in accordance with the Prudent Investor rule C. should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment D. should not permit the investment, otherwise the fiduciary is subject to liability for breach of fiduciary responsibility

C

The financial officer of a local not-for-profit religious organization calls an agent of a broker-dealer and says that: "If you split your commission and rebate ½ of it back to our church, I will tell all of our congregants to do business with you." Which statement is TRUE? StatusA A. The agent can accept the offer because the church is a not-for-profit organization StatusB B. The agent can accept the offer because the portion of the commission rebated to the church is a charitable contribution StatusC C. The agent cannot accept the offer because commissions can only be split with other agents that work at the same broker-dealer StatusD D. The agent cannot accept the offer because a church can only receive funds through voluntary charitable contributions

C

Under NASAA rules, advertisement by investment advisers: I can contain testimonials II cannot contain testimonials III can show the performance of previous recommendations IV cannot show the performance of previous recommendations StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV

C

Under NASAA rules, advertisements by investment advisers: I can contain testimonials II cannot contain testimonials III can unconditionally make an offer of free services IV cannot unconditionally make an offer of free services StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV

C

Under Regulation SP, customers must be given a privacy notice: StatusA A. prior to each recommendation StatusB B. prior to each trade execution StatusC C. prior to the first transaction StatusD D. with each statement of account

C

Under Uniform State Law, investment advisory contracts: I must be in writing II cannot allow for payment to the adviser based upon capital gains in the account III cannot allow for prepaid advisory fees IV cannot be assigned to another investment adviser without customer approval A. I and II only B. III and IV only C. I, II and IV D. I, II, III, IV

C

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following is(are) considered to be a manipulative and prohibited practice(s)? I Arbitrage II Churning III Painting the tape IV Wash trades StatusA A. I only StatusB B. II only StatusC C. II, III, IV StatusD D. I, II, III, IV

C

Under the NASAA Statement of Policy on unethical practices, all of the following investment advisers would be able to loan monies where securities are collateral for the loan EXCEPT an investment adviser that: A. has a registered broker-dealer that lends money to a customer through the broker-dealer affiliate B. is a subsidiary of a parent bank that lends money to a customer through the bank affiliate C. is a partnership that lends money to a customer under the provisions of Regulation T of the Federal Reserve Board D. is a corporation that lends money to its officers

C

Under the NASAA Statement of Policy on unethical practices, which of the following investment advisers would be able to loan monies where securities are collateral for the loan? I An investment adviser that has a registered broker-dealer that lends money to a customer through the broker-dealer affiliate II An investment adviser that is a subsidiary of a parent bank that lends money to a customer through the bank affiliate III An investment adviser that is a partnership lends money to a customer under the provisions of Regulation T of the Federal Reserve Board IV An investment adviser that is a corporation lends money to its officers A. I and II only B. III and IV only C. I, II and IV D. I, II, III, IV

C

Under the Uniform Securities Act, an investment adviser is prohibited from taking custody of a client's funds unless: A. the Administrator has issued a rule that permits such an action B. the investment adviser gives 10 days' advance notice to the Administrator of such an action C. in the absence of a rule prohibiting custody, the adviser gives the Administrator notice that it may take custody D. the investment adviser is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940

C

Which of the following are "critical" pieces of information that MUST be collected from a customer to open a new account? I Name II Date of Birth III Telephone Number IV Social Security Number A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

C

Which of the following must be included in an investment advisory contract under NASAA rules? I The fact that prepaid fees will not be returned if the contract is terminated early II The fact that assignment of the contract is only permitted with customer consent III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing fixed income securities may be higher than for managing equity securities A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV

C

Which statements are TRUE regarding investment advisory contracts under the Uniform Securities Act? I Assignment of the contract is not permitted unless the customer consents II If the investment adviser is a partnership, the death or withdrawal of a majority of the partners constitutes an assignment III If the investment adviser is a partnership, the death or withdrawal of a minority of the partners constitutes an assignment IV If the investment adviser is a partnership, the customer must be notified of any change in the membership of the partnership within a reasonable time A. I only B. II and IV only C. I, II, and IV D. I, II, III, IV

C

A customer of an investment adviser - Joe Jones - has an individual account that is managed on a discretionary basis. The advisory firm receives a subpoena from an attorney that is acting as an officer of the court, demanding the production of Joe Jones' account records pursuant to a divorce action filed by Joe's wife. Which statement is TRUE? StatusA A. The adviser must obtain the written permission of Joe Jones to release the information StatusB B. The adviser is only obligated to comply with the subpoena if it comes from the State Administrator as authorized by the Consent to Service of Process filed with the State when the adviser registered StatusC C. The adviser is only obligated to comply with the subpoena if it comes from the SEC, FINRA or other Federal authority StatusD D. The adviser must comply with the request promptly

D

All of the following are violations of the "suitability" rule EXCEPT: A. recommending speculative common stocks to a customer who has income objectives B. recommending to a customer who is 3 years from retirement that he get a second mortgage on his home to invest in growth stocks C. recommending trades of excessive size to a customer D. recommending municipal bond funds to a customer who seeks income that is exempt from Federal income tax

D

A Registered Investment Adviser has established an enviable track record and decides that it should increase its asset management fee to reflect the increased value of its services. The Adviser amends its contract to include a fee equal to 5% of assets under management, charged each month to the client. This fee structure is disclosed in the Form ADV Part 2 filed with the Administrator and each customer signs a new advisory contract. Which statement is TRUE? A. This action can be taken because the Administrator was notified of the increased fee B. This action can be taken because each customer signed a new contract that disclosed the increased fee C. This action cannot be taken because advisory fees cannot be charged monthly D. This action cannot be taken because the compensation to the Adviser is excessive

D

A Registered Investment Adviser wishes to prepare an advertisement that shows a satisfied customer stating "I made over 20% last year with my investment adviser; and I will make 20% this year." Which statement is TRUE? A. This advertisement can be used as shown B. This advertisement can be used only if it shows last year's 20% growth performance and excludes predictions regarding this year C. This advertisement can be used only if it shows the upcoming year's predicted 20% growth performance and excludes showing last year's actual 20% growth D. This advertisement cannot be used

D

A Registered Investment adviser recommends the placement of 25% of a customer's assets in mutual funds with an aggressive growth objective. The client objects to the idea. The RIA should: A. convince the client that the strategy is appropriate B. reduce the suggested allocation to 15% and only invest that amount C. maintain the 25% allocation and invest that amount D. find some other investment strategy

D

A broker-dealer is a subsidiary of a company that is listed on the New York Stock Exchange. An agent of the broker-dealer believes that the parent company's stock is a good investment and wants to recommend it to her customers. Which statement is TRUE about this? A. This is permitted without restriction because the parent company is publicly traded B. This is permitted because the parent company qualified for a blue chip exemption as it is NYSE-listed C. This is permitted only if the agent opens a joint account with the customer to purchase the recommended stock of the parent company D. This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation and it is disclosed in writing on the confirmation

D

A customer buys 500 shares of ABCD stock in a cash account and pays for the securities in full on settlement date. The customer requests that the broker-dealer transfer the securities into the customer's name and ship them to his home address. Which statement is TRUE? A. This request cannot be honored because equity securities are only issued in book-entry form B. This request cannot be honored because all customer securities must be held in a depository C. This request cannot be honored unless the customer makes it in writing D. This request should be honored as given

D

A customer buys shares of a stock that had its initial public offering 5 years ago. Which statement is TRUE regarding prospectus delivery? StatusA A. The prospectus must be delivered to the customer within 24 hours of confirmation StatusB B. The prospectus must be delivered to the customer within 3 business days of the transaction StatusC C. The prospectus must be delivered to the customer no later than settlement of the transaction StatusD D. A prospectus is not required because the initial public offering happened 5 years ago

D

A customer calls his agent on Friday after the markets have closed and tells him to sell his position in XYZ stock when the market opens on Monday. The customer is holding the XYZ shares at his home, but is leaving tomorrow on a 2 week vacation. The customer asks the broker to come over to his house tonight to pick up the securities. Under the Uniform Securities Act, the agent should: A. have the customer execute a stock power before taking custody B. put the stock in his personal safe deposit box over the weekend C. tell the customer to wait until he returns from the vacation to execute the trade D. not take custody of the securities but should have the customer send the securities directly to the brokerage firm by registered mail or delivery service

D

A customer wishes to open a margin account at a broker-dealer. The customer provides all of the necessary information to open the account, but refuses to sign the margin agreement when the agent gives it to the customer. Which statement is the correct course of action to be taken? A. The firm should approve the opening of the account since the customer provided all of the necessary information B. The agent should have the customer sign a waiver, obviating the need for the customer to sign a margin agreement C. The agent should sign the customer's name to the margin agreement, since all of the necessary information has been provided by the customer D. The account cannot be opened because the customer did not sign the margin agreement

D

A lawyer, representing one of your clients who has an individual account, calls and tells you that he has just been given trading authorization to effect securities transactions for the customer. He places an order to buy $10,000 worth of a stock which trades on the NYSE. Which statement is TRUE? A. You can submit the order as given as long as the branch manager approves of the transaction B. You can submit the order as long as you mark the order ticket "unsolicited" C. You can call the customer and, upon verbal confirmation that the lawyer has been given trading authorization, you can submit the order D. You can call the customer and ask him if he wants to buy the $10,000 worth of stock and, upon his verbal authorization, you can submit the order

D

A member firm is negotiating with an issuer to underwrite an add-on common stock offering and a registration statement has not yet been filed. A research analyst at the firm has been following the company for the past 5 years and now wishes to change the broker-dealer's rating from "Hold" to "Buy." The member firm should: StatusA A. issue the report in its normal fashion StatusB B. issue the report only to its best customers StatusC C. buy the stock in the market before issuing the report StatusD D. not issue the report until at least 3 days after the effective date

D

A registered securities agent solicits a customer to buy shares of stock that the agent personally owns. The customer buys 100 shares of the stock and sends a check made out to the agent. The agent does not record the trade on the books of the broker-dealer. This action is considered a(n): StatusA A. allowed exempt transaction StatusB B. prohibited exempt transaction StatusC C. allowed private securities transaction StatusD D. prohibited private securities transaction

D

A representative is making a presentation to a married couple, ages 75 and 77, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy an equity indexed annuity (EIA). Which statement made by the representative would NOT be misleading and fraudulent? A. "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" B. "EIAs can be redeemed at any time without penalty if you have an emergency cash need" C. "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" D. "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company"

D

A retired 81 year old customer has $36,000 of annual income from a pension and social security. She has no investments other than a fully-paid home worth $120,000. She has just inherited $75,000 that she would like to invest for supplemental monthly income with minimum default risk. The BEST recommendation is for the customer to purchase: A. AAA rated municipal bonds B. a variable annuity C. whole life insurance D. U.S. government bonds

D

A salesperson is offering a promissory note to a customer in a State of a start-up company that is developing a luxury resort in the Dominican Republic. All of the following statements made by the salesperson about this security are fraudulent EXCEPT: A. "The payment principal and interest on these notes is guaranteed by the Caribbean Regional Insurance Authority" B. "These are "prime quality" notes that are risk-free" C. "The securities are registered with the Dominican Republic Securities Commission and therefore are approved for sale" D. "These securities offer an above-market interest rate that is commensurate with the business risk of this venture"

D

All of the following State-registered advisers must file an annual audited financial statement with the Administrator within 120 days of completion of a surprise audit EXCEPT an adviser that: A. accepts $500 or more of prepaid advisory fees, 6 months or more in advance of rendering services B. uses a qualified custodian to hold customer assets C. maintains custody of customer assets D. exercises discretion in customer accounts under a limited power of attorney

D

All of the following actions by an agent are prohibited during a sales presentation EXCEPT: A. predicting specific future investment results B. omitting essential information C. omitting facts that can influence the investment decision D. showing past performance of the investment

D

All of the following are defenses against identity theft that must be used at a broker-dealer or investment adviser EXCEPT: StatusA A. encryption of data StatusB B. installation of anti-malware software StatusC C. password protection for system entry Correct D. cyber insurance

D

All of the following are relevant considerations when determining if a customer account has been churned EXCEPT: StatusA A. excessive size of transactions in the account StatusB B. transactions that are inconsistent with the customer's objective StatusC C. excessive frequency of transactions in the account StatusD D. transactions that are within the financial resources of the client

D

All of the following are tell-tale signs of promissory note fraud EXCEPT the: StatusA A. seller states that the notes offer guaranteed returns and safeguard the customer's principal StatusB B. investment offers rates of return that are higher than other similar investments StatusC C. notes are labeled as "prime" and are being issued by a start-up company StatusD D. notes are being offered by an investment professional that is familiar with the customer's financial situation

D

All of the following are unethical practices on the part of an investment adviser EXCEPT: A. assigning an investment contract without obtaining client consent B. acting as the executing broker in a transaction recommended to a customer without making disclosure of such C. altering an estate tax plan prepared by a customer's attorney to better fit the customer's investment situation D. appointing the adviser as trustee for a customer's trust account at the direction of the customer

D

All of the following are violations of the Uniform Securities Act EXCEPT an agent: StatusA A. of a broker-dealer telling a customer that by purchasing a bond with a 5% coupon, the customer will earn a 5% yield StatusB B. splitting profits evenly in a customer account where the customer has contributed all of the capital in the account StatusC C. backdating a trade confirmation so that the customer will get a better execution price StatusD D. refunding a customer's money for a transaction that violated the registration provisions of the Uniform Securities Act

D

All of the following information must be recorded on an order ticket EXCEPT: A. time of order receipt B. customer account name/number C. name of person entering the order D. time and date of execution

D

All of the following orders must be retained as a record by broker-dealers EXCEPT: A. executed orders B. unexecuted orders C. canceled orders D. subscription orders

D

An IAR has a customer with $1 million under management. The customer is experiencing a cash flow shortfall but does not want to liquidate part of the portfolio because it is performing so well. The client calls the IAR and asks for a short-term loan of $25,000. What should the IAR do? A. The IAR should lend the customer the money because the client has sufficient assets under management to ensure that the loan will be repaid B. The IAR should arrange for the customer to rehypothecate a sufficient amount of securities to a bank to secure the loan C. The IAR should co-sign a loan with the client at a bank D. The IAR should refuse the client's request

D

An adviser is permitted to exercise discretion over a customer account when such trades: A. are not too frequent in the account B. are not too large relative to the amount of capital in the account C. are effected only after new funding is placed in the account D. occur under a written power of attorney

D

An adviser that takes custody must file a copy of its surprise audit results with the State Administrator within: A. 60 days of year-end B. 60 days of completion of the examination C. 120 days of year-end D. 120 days of completion of the examination

D

An agent accepts an unsolicited telephone order from a new customer to buy shares of a NYSE stock at the current market price. The salesman executes the order and then forwards the new account form to the manager for the manager's signature. Which statement is TRUE? A. The agent's actions are allowed because the stock is listed on a recognized exchange B. The agent's actions are allowed as long as the stock purchased is consistent with the customer's investment objective C. The agent's actions are prohibited because the customer is required to sign the new account form before any trades are allowed D. The agent's actions are prohibited because the manager has to approve the opening of the account prior to the first trade

D

An agent of a broker-dealer has hired a sales assistant who is not registered. The sales assistant will answer the telephone, handle customer queries, and perform other clerical duties. All of the following arrangements for compensating the unregistered sales assistant are permitted EXCEPT: StatusA A. Hourly wage StatusB B. Performance bonus StatusC C. Annual salary StatusD D. Production bonus

D

An agent of a broker-dealer is opening a new client account. The agent has completed the new account application and the suitability determination. The customer has an investment objective of safety of principal and income. The agent makes an initial recommendation of a conservative blue chip stock with a track record of paying a consistent cash dividend. The customer accepts the recommendation. When must the commission charged on the transaction be disclosed to the customer? A. At the time that the order is placed B. At the time when the order is filled C. At the time when the account is opening D. On the confirmation of the transaction

D

An agent recommends that a customer buy shares of ZIZI Mutual Fund. The fund has a sales charge of 7%. The first breakpoint occurs at the $10,000 level, where the sales charge is reduced to 5%. The fund offers a letter of intent provision. The customer gives the agent a check for $9,500 to invest in the fund, which the agent forwards promptly for investment in ZIZI shares. Which statement is TRUE? A. The agent has acted properly by forwarding the customer's check promptly B. The agent has acted properly because he does not have a fiduciary obligation to the customer C. The agent has acted unethically because he did not make the client aware of the upcoming breakpoint D. The agent has acted unethically because he did not make the client aware of the upcoming breakpoint and the letter of intent provision

D

An agent that is employed by Merrill Lynch believes that the stock of the parent company (Bank of America), which has been trading at new lows on the NYSE, is ready for a rebound. She wants to recommend it to her customers. Which statement is TRUE about doing so? A. This is an unethical business practice and is prohibited B. This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation C. This is permitted only if existence of the relationship is disclosed in writing on the confirmation D. Both Choices B and C above

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? 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

An investment adviser has been experiencing a business decline due to a weak local economy and a weak investment outlook. To rebuild her business base, the investment adviser puts an advertisement in the local newspaper that says: "Because times are tough for all of us, we are offering, for a limited time only, a free investment consultation and free year-end tax preparation to anyone who signs a 1-year advisory contract for an introductory rate of only $25 per month." This is permitted: StatusA A. under no circumstances StatusB B. as long as the duration of the limited time offer is included in the advertisement StatusC C. as long as the adviser accepts all potential clients that respond to the offer made in the advertisement StatusD D. only if the word "free" is removed twice from the advertisement

D

An investment adviser has placed a block trade for 100,000 shares of ABCD stock. The trade is filled in 2 separate lots of 50,000 shares each, with one lot filled at $50.01 per share and the other lot filled at $50.03 per share. How should the investment adviser allocate the shares among clients that participated in the trade? StatusA A. The investment adviser's smaller accounts should be allocated the ABCD stock purchased at $50.03 per share and the larger accounts should be allocated the ABCD stock purchased at $50.01 per share StatusB B. The investment adviser's larger accounts should be allocated the ABCD stock purchased at $50.03 per share and the smaller accounts should be allocated the ABCD stock purchased at $50.01 per share StatusC C. The investment adviser should allocate the shares among clients participating in the trade using a random, non-preferential method, at either the $50.01 or $50.03 per share price StatusD D. The investment adviser should allocate the shares at an average price of $50.02 per share and distribute them equally among clients participating in the trade on a pro rata basis

D

An investment adviser has researched a privately held company and is extremely bullish on the company's prospects. She makes a personal investment of $100,000, for which the investment adviser received privately placed common stock with a Rule 144 restriction legend. One year later, the company goes public and the investment adviser, still being very bullish on the company, recommends the purchase of the IPO shares to her clients. Which statement is TRUE about this situation? StatusA A. The investment adviser has not violated any rules because she is making a recommendation that is consistent with her bullish opinion of the company StatusB B. The investment adviser has violated with FINRA IPO rule on free riding and withholding StatusC C. The investment adviser has violated the insider trading prohibition under the Securities Exchange Act of 1934 Correct D. The investment adviser has created a conflict of interest that must be disclosed to clients who receive the recommendation

D

An investment adviser is considered to "take custody" of funds or securities from a customer if it: A. exercises discretionary authority by placing trades of securities for that customer B. accepts a check from the customer made payable to the fund custodian to buy a mutual fund C. accepts commissions for effecting trades for that customer's account through an affiliated broker-dealer D. is appointed as trustee for a customer's trust account under a legally binding trust document

D

An investment adviser is marketing an unproven asset allocation program to customers that has not been validated by real-world testing. The adviser believes that the program works well and tells this to potential buyers, but has no data to support this claim. If the adviser sells this program to customers, then the adviser: A. must disclose the underlying algorithms used in the computer model to any buyer B. must determine that the computer model will generate suitable asset allocation recommendations to customers C. has not committed an unethical practice because the adviser believes in "good faith" that the program works well D. has committed an unethical business practice

D

An investment adviser is permitted to borrow money from which of the following clients? I An affiliated bank II An unaffiliated bank III An affiliated broker-dealer IV An unaffiliated broker-dealer A. I and II only B. II and IV only C. I and III only D. I, II, III, IV

D

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

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) StatusA A. testimonial from a famous client of the firm StatusB B. offer of free research given to any customer that signs an investment contract StatusC C. listing of the firm's "Top 10 Picks" showing performance over the past year StatusD D. a toll-free number to call for more information

D

An investment adviser representative manages a large portfolio for a wealthy customer, age 65. The portfolio contains a large holding of British securities and the adviser is worried that the British Pound may appreciate against the U.S. dollar. Which statement is TRUE regarding the use of currency futures to hedge against this risk? StatusA A. The Prudent Man Rule prohibits the use of futures contracts as investments StatusB B. Because futures contracts are inherently risky, their use would be in contravention of the Prudent Man Rule StatusC C. The Prudent Man Rule only applies to securities and not to futures, so the adviser cannot use them StatusD D. The Prudent Man Rule does not specify the types of investments that can be used, so futures could be suitable as a hedging instrument

D

An investment adviser representative wants to share in the gain and loss of a customer account. Under NASAA rules, this is: A. permitted if the IAR opens a joint account with the customer; contributes capital; and shares in proportion to the capital contributed B. permitted if the Administrator is notified that the Investment Adviser is taking custody C. permitted only if the Investment Adviser does not charge an advisory fee D. prohibited

D

As the first purchase in a new cash account, a customer buys a stock that has been trading in the secondary market in your State for 5 years in a solicited transaction. When must the prospectus be delivered to the customer? StatusA A. Upon learning about the security from the agent StatusB B. On the date of confirmation of the purchase StatusC C. On the date payment is made for the purchase StatusD D. There is no requirement to deliver a prospectus

D

Client information cannot be released to which of the following without written consent of the customer? StatusA A. A subpoena for information from the State court in a divorce proceeding against the customer StatusB B. A request for information made by the Internal Revenue Service StatusC C. A request for information made by FINRA StatusD D. A request for information made by a FINRA member firm

D

Due to an overall market decline, an investment adviser that imposes a .50% annual management fee on its clients is under financial pressure. To meet its expenses, the adviser wishes to increase its management fee to .65% for any new clients; the existing clients will see no change to the management fee charged. In order to do so, the adviser must: I file an ADV Part 2A with the Administrator within 30 days II provide the amended ADV Part 2A or a brochure to its new clients III provide the amended ADV Part 2A or a brochure to its existing clients at year end A. I only B. I and II only C. II and III only D. I, II, III

D

If a customer of a broker-dealer fails to pay for a securities purchase by the 4th business day from trade date, the customer's account must be: I restricted II frozen III for 30 days IV for 90 days A. I and III B. I and IV C. II and III D. II and IV

D

If a registered investment adviser takes custody of client funds or securities and deposits them with a custodian, which statements are TRUE? I The custodian must be "qualified" II The customer must be notified promptly in writing of the custodian's name, address and the manner in which the securities are held III The customer must be sent, at least quarterly, an account statement identifying all positions held and all transactions in the account during that period IV All client funds and securities positions must be verified at least annually by a certified public accountant on a surprise basis A. I and II B. III and IV C. I, II, III D. I, II, III, IV

D

If an adviser is suspicious about a customer's account activity and believes that there may be illegal activity, then the adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV

D

In order for a money market fund to be called "no load" it cannot charge any of the following EXCEPT: A. front-end load B. contingent deferred sales charge C. back-end load D. 12b-1 fees

D

In order for an Internet Communication of a Broker-Dealer Agent NOT to be considered to be an offering of securities in a State, which statement is FALSE? StatusA A. The communication must be limited to general information about products and services offered StatusB B. The communication must state that the broker-dealer or agent must be registered in that State to offer securities or to effect securities transactions StatusC C. If the communication is created by an agent, the affiliation of the agent with a broker-dealer or investment adviser must appear prominently StatusD D. The Administrator retains responsibility for reviewing and approving the content of any Internet Communication

D

In order for an agent to share in the gains and losses of a customer's account, all of the following statements are true EXCEPT the: A. client must approve in writing B. agent must approve in writing C. broker-dealer must approve in writing D. agent cannot invest any of his own funds into the account

D

In order for an investment adviser to be compensated with a performance fee, all of the following must be disclosed in writing EXCEPT: A. that the fee arrangement may create an incentive for the adviser to make investments that are riskier B. that the fee arrangement is based on both unrealized appreciation and realized capital gains C. the nature and significance of any index used as a comparative measure and the reason why the adviser believes that any comparative index used is appropriate D. that the fee computation can be based on periods ending no earlier than the last day of each calendar quarter

D

In order for an investment adviser to be compensated with a performance fee, which of the following must be disclosed in writing? I The periods that will be used to measure performance and their significance in the computation of the fee II That the fee arrangement is based on both unrealized appreciation and realized capital gains III The nature and significance of any index used as a comparative measure IV The reason why the adviser believes the use of any comparative index is appropriate. A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

D

In which of the following situations can a registered investment adviser (RIA) follow instructions without requiring a written power of attorney? A. When the spouse of a customer who has an individual account with the RIA, telephones the RIA, directing the RIA to close the account due to marital difficulties B. When the attorney of a customer who has an individual account with the RIA, telephones the RIA, directing the RIA to close the account due to unsatisfactory performance C. When the accountant of a customer who has an individual account with the RIA, telephones the RIA, directing the RIA to close the account due to unsatisfactory performance D. When the customer telephones the RIA, directing the RIA to close the account due to family difficulties

D

Sending out a blanket e-mail that makes recommendations of securities to a list of web addresses by a broker-dealer or agent is: StatusA A. permitted only if the securities have been registered in each State StatusB B. permitted only if the broker-dealer and agent are registered in each State StatusC C. permitted only if the list contains existing customers that have accounts at securities firms StatusD D. a prohibited and unethical practice

D

Strong "Know Your Customer" requirements are part of a firm's policies and procedures covering: StatusA A. Privacy of Customer Information StatusB B. Anti-Money Laundering StatusC C. Cybersecurity StatusD D. Business Continuity

D

The transmission of unsolicited recommendations to buy or sell securities through all of the following are "red flags" for fraud EXCEPT: StatusA A. Twitter StatusB B. Facebook StatusC C. Hot Stocks Chatroom StatusD D. Broker-Dealer Website

D

Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that covers all of the following items EXCEPT: A. the protection, backup, and recovery of books and records B. alternate means of communicating with customers, key personnel, employees, vendors, service providers and regulators, including providing notice to these persons of significant business interruption, cessation of business activities or death or unavailability of key personnel C. minimization of service disruptions and client harm that could result from a significant business disruption D. announcement to the public in local newspapers and on the internet the fact that a significant business interruption has occurred

D

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, all of the following are prohibited business practices EXCEPT: A. being deliberately selective in the information told to a customer B. giving inaccurate statements about an issuer's projected earnings C. telling a customer that a company is about to be listed on the New York Stock Exchange without knowing the truth of the statement D. telling a customer that a listed security being recommended is registered with the Securities and Exchange Commission

D

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following is (are) prohibited business practices? I Sharing commissions between a registered broker-dealer and an agent II Sharing gains in an account between an agent and a customer III Sharing inside information between an agent and a customer A. I only B. II and III C. I and III D. I, II, III

D

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following practices is (are) prohibited? A. Guaranteeing a customer against loss for non-exempt securities B. Guaranteeing a customer against loss for exempt securities C. Borrowing money from a customer D. All of the above

D

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following practices is prohibited? StatusA A. Buying a stock on one exchange and selling the stock short on another exchange to lock in a temporary price differential StatusB B. Using discretion as to when a customer order to buy 1,000 shares of a specific stock is placed StatusC C. Using discretion as to what security to buy with written authorization from a customer StatusD D. Using discretion as to what security to buy with oral authorization from a customer

D

Under the NASAA Statement of Policy, all of the following written disclosures by investment advisers to customers are permitted EXCEPT the fact that the: StatusA A. adviser executes its recommended transactions through an affiliated broker-dealer that receives commissions on each trade StatusB B. agents of the adviser may receive a commission on each recommended transaction that results in an execution StatusC C. adviser is the manager of a mutual fund that is recommended to customers StatusD D. adviser is obligated to refund any investment losses to customers up to the amount of the advisory fee charged

D

Under the Prudent Investor Act, a trustee's investment and management decisions should be evaluated: I based on each individual transaction II based on the context of the portfolio as a whole III as part of the investment strategy of each single trust beneficiary IV as part of the overall investment strategy for all beneficiaries of the trust A. I and III B. I and IV C. II and III D. II and IV

D

Under the Uniform Securities Act, a representative's registration in a State: StatusA A. means that the State Administrator approves of the individual StatusB B. also registers that individual with the Securities and Exchange Commission StatusC C. also registers that individual in each State that has adopted the Uniform Securities Act StatusD D. is effective only as long as the investment adviser is registered in that State

D

Under the Uniform Securities Act, an investment advisory contract could contain all of the following compensation arrangements EXCEPT: A. monthly fees based on a percentage of the total value of all assets being managed B. yearly fees based on a percentage of all assets being managed, inclusive of any capital gains achieved C. fixed fee levels depending on the total value of assets being managed D. fees based solely on capital gains achieved

D

Under the Uniform Securities Act, if an investment adviser wishes to take custody of customer funds or securities, it MUST: A. notify each customer of the location where the funds are held no later than on the first account statement sent to the customer B. submit to an annual audit conducted on a random basis by the Administrator C. perform a quarterly physical count of securities and funds held and reconciliation with the adviser's records D. hold the assets in either a bank or brokerage account where the adviser is the trustee acting for the benefit of the customer

D

Under the Uniform Securities Act, which of the following are allowed forms of investment adviser compensation? I Charging a flat fee only if the portfolio increases in value II Charging an hourly rate which includes the time it takes to get to the client's office and back III Charging a fee based upon a fixed percentage of assets under management IV Charging a flat fee per year regardless of the portfolio size A. I only B. III only C. II and IV D. II, III, IV

D

When can an agent represent that a mutual fund is "no load"? A. When the fund does not impose an up-front sales load B. When the fund does not impose a contingent deferred sales charge C. When the fund does not impose annual 12b-1 fees in excess of .25% D. When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%

D

Which State-registered investment advisers MUST report that they take custody on Form ADV? I An adviser that is affiliated with a parent bank or trust company II An adviser that directly deducts management fees each quarter from client accounts III An adviser that has discretionary authority over client accounts under a limited power of attorney IV An adviser that acts as a trustee for a client where the grantor of the trust is the client A. I and III B. I and IV C. II and III D. II and IV

D

Which of the following are required to have anti-money laundering programs? I Broker-dealers II Federal covered advisers III State-registered advisers StatusA A. I only StatusB B. I and II only StatusC C. II and III only StatusD D. I, II, III

D

Which of the following are requirements for an internet communication (a website) posted by a broker-dealer, agent, investment adviser or investment adviser representative? I The communication must be limited to the dissemination of general information on products or services II The communication must include a firewall or other implemented procedure to ensure that prior to any subsequent communication with prospective clients in the State, that the broker-dealer, agent, investment adviser, or investment adviser representative are registered in the State, or are exempt or excluded from registration III The communication must include a legend that states that: "The broker-dealer, agent, investment adviser or investment adviser representative may only transact business in the State if registered in the State or if exempted or excluded from registration" IV The communication must include a legend that states that: "Follow ups or individualized responses to persons in the State by the broker-dealer agent or investment adviser representative that involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with State registration requirements or an applicable exemption or exclusion." StatusA A. I and II only StatusB B. III and IV only StatusC C. I, II, III StatusD D. I, II, III, IV

D

Which of the following must be included in an investment advisory contract under NASAA rules? I The formula for computing the advisory fee II The amount of prepaid fees to be returned if the contract is terminated early III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing equity securities may be higher than for managing fixed income securities A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV

D

Which of the following statements is TRUE regarding paying a referral fee for investment advisory business to an unlicensed individual? A. A referral fee based on a percentage of assets invested is permitted if there is a prior written agreement between the unlicensed individual and the investment adviser B. A referral fee may be paid to an unlicensed individual only if a securities transaction results from the referral and there is a prior written agreement between the unlicensed individual and the investment adviser C. A fixed fee may be paid to an unlicensed individual for any referral D. The payment of referral fees to unlicensed individuals is prohibited

D

Which of the following statements may be made by an agent about a new securities issue that is being registered by coordination? A. "Because these securities are being registered with the Securities and Exchange Commission, you are guaranteed that the issue is safe" B. "Once registration is effective, this means that both the Administrator and the Securities and Exchange Commission have approved of the offering" C. "The issue is selling out fast to institutional investors" D. "The security is being registered in the State and with the Securities and Exchange Commission"

D

Which statement CAN be made to a customer under the provisions of the Uniform Securities Act? A. "If you purchase 20 year 6% Treasury Bonds at par, you are guaranteed to earn a 6% yield on the investment" B. "You should buy ABCD common stock now at $20 per share because it will go up to $35 per share once it publishes its next quarterly earnings report" C. "This REIT pays a 4% dividend. Buying it now means that you will receive the next scheduled dividend payment that will be made in 1 week" D. "Your investment portfolio needs to be rebalanced - you have appreciated stocks that should be sold, with the proceeds invested in long term corporate bonds"

D

Which statement is TRUE about the delivery of a final prospectus to the purchaser of a non-exempt new issue security? StatusA A. No final prospectus delivery is required if the investor is a substantial investment adviser StatusB B. No final prospectus delivery is required if the customer received the preliminary prospectus and is provided with the final pricing amendment StatusC C. A final prospectus must be delivered, at, or prior to, confirmation of sale, to any person that gave an indication of interest StatusD D. A final prospectus must be delivered, at, or prior to, confirmation of sale, to any person who purchases the issue

D

Which statement is TRUE about the retention of Internet advertising by broker-dealers? StatusA A. There is no requirement to retain copies of Internet advertising StatusB B. Only the current web pages must be retained by the broker-dealer StatusC C. All web pages created and displayed within the past 2 years must be archived StatusD D. All web pages that have ever been created and displayed must be archived

D

Which statement is TRUE under NASAA rules? Within 120 days of fiscal year end, the customer must be given a copy of the: A. Form ADV Part 1 B. Form ADV Part 2 C. Form ADV Part 1 only if there are material changes D. Form ADV Part 2 only if there are material changes

D

Which statements are TRUE? I Referral fees can be paid by an investment adviser to an unlicensed individual II Referral fees cannot be paid by an investment adviser to an unlicensed individual III Commissions can be shared by an agent of a broker-dealer with an unlicensed individual IV Commissions cannot be shared by an agent of a broker-dealer with an unlicensed individual StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV

D