Series 63 Final Exam 3
A no-load mutual fund may not have any front-end sales charges (loads) or any CDSC (back-end loads), but it may have a __________ fee as long as this fee does not total more than ________ of the fund's average annual net assets.
12b-1 25bps
When trading on margin, clients are required to deposit: A. 50% of the market value of the security B. 25% of the amount of money borrowed C. 50% of the amount of money borrowed D. 25% of the market value of the security
A. 50% of the market value of the security
A hedge fund is being sold to investors as a private placement under Regulation D. An agent believes that this fund would be an excellent investment opportunity for several of his clients. The agent may discuss the fund with which of the following clients? A. A middle-aged couple who are both physicians with a joint annual income of $400,000 B. A newly retired man, whose annual income last year was $200,000 C. A couple that just won the lottery, which made this year's annual income $500,000, and whose net worth is $550,000 D. A young, aggressive investor with a net worth of $500,000 and an annual income of $150,000
A. A middle-aged couple who are both physicians with a joint annual income of $400,000
An investment adviser is entering into a contract with a new client. The adviser wants to include a provision in the contract that says it will be compensated based on a share of the capital gains or capital appreciation of the account. According to the NASAA Model Rule on Performance-Based Compensation Exemption for Investment Advisers, the adviser may insert this provision in the contract if the client is: A. A natural person who has a net worth of $2.1 million excluding the value of that person's primary residence B. A natural person who together with a spouse has a net worth of $2.5 million including $1 million in home equity C. A company that will have $500,000 under management with the adviser once the contract is signed D. An employee of the investment adviser who is the assistant to one of the partners
A. A natural person who has a net worth of $2.1 million excluding the value of that person's primary residence
Which of the following choices is NOT a security? A. A universal life insurance policy B. A variable universal life insurance policy C. A voting trust certificate D. A mining trust
A. A universal life insurance policy
Which of the following statements is NOT TRUE? A. Agent refers to a person who represents an issuer in an exempt transaction B. An agent may not promise a client that any investment will always result in a profit C. If an agent recommends a security to a client, this security must be suitable for the client in relation to the client's investment objectives D. If an agent receives insider information, the appropriate action would be to report the news to a supervisor and ask the supervisor for advice
A. Agent refers to a person who represents an issuer in an exempt transaction *Under the USE, agent means any individual other than a BD who represents a BD or issuer in effecting or attempting to effect purchases or sales of securities
Which of the following securities offerings would use registration by coordination? A. An IPO that will be distributed in 12 states and not listed on any of the national exchanges B. An IPO that will be listed on the New York Stock Exchange C. An IPO that will be distributed to the residents of one state only D. An offering of preferred stock by an issuer whose stock currently trades on the Nasdaq Global Market
A. An IPO that will be distributed in 12 states and not listed on any of the national exchanges
Under the Uniform Securities Act, which of the following statements is NOT TRUE concerning the state registration of an agent? A. An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year B. An agent may only solicit business in a state if both the agent and broker-dealer are registered in that state C. If an agent leaves a broker-dealer to go to another broker-dealer, the agent and both broker-dealers must notify the Administrator of the change D. An agent may only sell securities that have been properly registered in a state or qualify for an exemption from registration
A. An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year
Monetary disputes between registered persons and their customers are usually settled by: A. Arbitration B. The federal courts C. The SEC D. The state courts
A. Arbitration
A fraudulent transaction was initiated by an agent in State Y with a customer who lives in State X. The transaction took place in State Z, where the customer was visiting a relative. Under the Uniform Securities Act, which Administrators have authority over the transaction? 1. The State X Administrator 2. The State Y Administrator 3. The State Z Administrator A. I, II, and III B. I and II only C. I and III only D. II and III only
A. I, II, and III
Under the Uniform Securities Act, which of the following statements is/are FALSE concerning the definition of a broker-dealer? 1. A person who has no place of business in a state and effects transactions only with institutional buyers is not considered a broker-dealer 2. A person who has no place of business in a state and effects transactions only with other broker-dealers is not considered a broker-dealer 3. A person who has no place of business in a state and effects transactions with fewer than five clients is not considered a broker-dealer 4. A person who has a place of business in State A and selling to existing clients who are temporarily in State B is considered to be a broker-dealer in State A A. III only B. I and III only C. II and IV only D. I, II, and IV only
A. III only *There is no de minimis exemption from the definition of a broker-daler.. Choices I, II and IV are true because the definition of a broker-dealer does not include a person who has no place of business in a state, deals exclusively with other BDs, institutional clients, and existing clients visiting another state
An investment advisory firm has done extensive research on the pharmaceutical industry and is in the process of buying shares of several companies. Many of the stocks are speculative issues but several of the firm's accounts are conservative. According to the Uniform Securities Act, the placement of shares in any of the clients' accounts: A. Is permitted as long as it is consistent with the clients' objectives B. Is acceptable as long as the shares reduce the overall risk of the portfolio C. Is permitted if it represents a small portion of the clients' portfolio D. Is acceptable because the investment adviser did extensive research
A. Is permitted as long as it is consistent with the clients' objectives
A client has a $5,000,000 account with an objective of income only. Under the Uniform Securities Act, an agent who has discretionary authorization for the account could: A. Not buy a speculative stock without the client's approval B. Not purchase equities in the account C. Speculate with any amount that could be reasonably justified D. Speculate with 5% of the client's assets
A. Not buy a speculative stock without the client's approval
In reviewing prices for a mutual fund, an investor notices that the fund has three listings, one for Class A shares, another for Class B shares, and a third for Class C shares. The distinctions among the three classes of shares would most likely reflect different: A. Sales charges and 12b-1 fees B. Distribution arrangements C. Minimum purchase requirements D. Investment objectives
A. Sales charges and 12b-1 fees
According to the NASAA Model Rules for Sales of Securities at Financial Institutions, a networking arrangement between a financial institution and a broker-dealer must: A. Set forth the compensation schedule for both parties B. Be filed with the state securities Administrator C. Be renewed every year by December 31 D. Specify which functional regulator will be in charge of examining the broker-dealer's operations at the financial institution
A. Set forth the compensation schedule for both parties
Micro Manager Partners is an investment advisory firm. Micro is creating a new standard contract for its advisory clients. Which of the following clauses should NOT appear in the contract? A. The Client agrees to pay a quarterly fee to the Adviser consisting of (i) .25% times the value of the portfolio at the end of each quarter, plus (ii) 2% of any increase in the value of the portfolio compared to the end of the previous quarter. Part (ii) of the fee will not be assessed if the portfolio declines in value B. The Adviser [Micro] will provide the following services to the Client: management of the Client's portfolio on a discretionary basis, quarterly written summaries of account activity, and quarterly personal review of the Client's assets under management of the Adviser C. The Adviser may not assign this contract to another party without the prior written consent of the Client D. If any partner leaves the business of the Adviser, or if the Adviser adds any partner, the Adviser will notify the Client within a reasonable period, but not more than ten business days after any such change
A. The Client agrees to pay a quarterly fee to the Adviser consisting of (i) .25% times the value of the portfolio at the end of each quarter, plus (ii) 2% of any increase in the value of the portfolio compared to the end of the previous quarter. Part (ii) of the fee will not be assessed if the portfolio declines in value
An agent received a written complaint from a client. The next day, the client called the agent to apologize for the anger and tells the agent to disregard it. Which of the following statements is TRUE? A. The agent must forward the complaint to a supervisor B. The agent may disregard the complaint since the client rescinded verbally within 24 hours C. The agent may not contact the client until the issue is resolved D. The agent must forward the complaint to a supervisor who will then file it with the state Administrator
A. The agent must forward the complaint to a supervisor
An agent of a broker-dealer executes a securities transaction that is not recorded on the broker-dealer's books and records. According to NASAA Statements of Policy, this would NOT be an unethical business practice if the agent had done which of the following? A. The agent received the broker-dealer's written authorization prior to the execution of the transaction B. The agent received the broker-dealer's written authorization after the execution of the transaction C. This type of transaction is considered an unethical business practice regardless of receiving the broker-dealer's authorization D. The agent received the broker-dealer's oral authorization to execute the transaction
A. The agent received the broker-dealer's written authorization prior to the execution of the transaction
Ron X, an agent, offered and sold an unregistered security to several of his clients in State W. These clients subsequently lost a considerable amount of money in this investment. Under the Uniform Securities Act, which of the following statements is TRUE? A. The clients may initiate a civil lawsuit to recover their losses B. This is a violation of the Securities Act of 1933 C. The Administrator may initiate a civil lawsuit D. While unethical, this is not a violation of the Uniform Securities Act
A. The clients may initiate a civil lawsuit to recover their losses
By definition, an agent is an ___________________ not a __________________. A sales agent of a broker-dealer is an _________________. It does not matter whether the securities are covered under a federal exemption or not, if administrative personnel are authorized to take orders, they are __________________.
Agent is an individual not a firm. A sales agent of a broker-dealer is an agent. If administrative personnel are authorized to take orders, they are agents.
All of the following practices are prohibited, EXCEPT: A. Recommending securities based on assumptions about the client's financial resources B. A sales assistant relays a message that a customer wishes to buy securities C. Accepting verbal instructions from a client granting power-of-attorney to a spouse D. A broker-dealer enters a discretionary order to buy shares of a security for which a client gave verbal authorization 10 days earlier
B. A sales assistant relays a message that a customer wishes to buy securities
Which of the following persons is NOT excluded from the definition of a broker-dealer under the Uniform Securities Act? A. An issuer B. An investment adviser C. A bank D. An agent
B. An investment adviser
Under the Uniform Securities Act, which of the following activities of an investment adviser would constitute impersonal advisory services? A. Telling a client that investment XYZ will meet her investment objectives B. Giving a client a list of mutual funds with the lowest expense ratios for the past five years C. Providing clients with a recommended list of mutual funds for their retirement accounts D. Telling a client to buy municipal bonds in order to reduce her tax liability
B. Giving a client a list of mutual funds with the lowest expense ratios for the past five years
Sales of viatical investments can be made only to suitable investors. Which TWO of the following investors are considered suitable? 1. An accredited investor under Regulation D 2. Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000 3. Anyone who is in the highest marginal tax bracket and is in need of liquidity 4. Anyone who has been specifically approved by the state Administrator A. III and IV B. I and II C. II and III D. I and III
B. I and II
Under the Uniform Securities Act, a state's Administrator may require the filing of which of the following documents by rule or order? 1. Form letters 2. Pamphlets and/or circulars 3. A prospectus A. II and III only B. I, II, and III C. I and II only D. I and III only
B. I, II, and III
All the following descriptions would meet the definition of agent under the Uniform Securities Act, EXCEPT: 1. A sales representative of a broker-dealer who sells only securities covered under a federal exemption 2. An assistant to a sales agent who takes orders when the agent is not available 3. A subsidiary of a bank, registered as a broker-dealer that sells nonexempt securities to the public 4. A broker-dealer that sells only exempt securities within the state A. I and II only B. III and IV only C. II and IV only D. I and IV only
B. III and IV only
LMRT is a broker-dealer registered in State J. An existing client of the firm who is a resident of State J is on a ski vacation in State C. Under the Uniform Securities Act, if a securities transaction is effected with the client in State C, LMRT would: A. Need to register as a broker-dealer in State C B. Not be required to register as a broker-dealer in State C if it has no office there C. Not be required to register as a broker-dealer in State C if the client signed an agreement D. Not need to register as a broker-dealer in State C if the agent selling the securities was registered in State C
B. Not be required to register as a broker-dealer in State C if it has no office there
An agent is employed by a broker-dealer. Both the agent and the broker-dealer are registered in State X. The agent wants to begin soliciting high net worth retail clients in State Y, where she already has many institutional customers. The CEO of the broker-dealer, who is also the firm's chief compliance officer, approves the agent's activities. The agent may start soliciting retail clients in State Y: A. Who are qualified purchasers only B. Only after she is registered in State Y C. As soon as possible, since the firm has approved her activities D. Immediately, since she is exempt from registration there as long as the broker-dealer is not registered in State Y
B. Only after she is registered in State Y
Which of the following investors may be charged performance fees by investment advisers? A. Accredited investors under Regulation D B. Qualified clients C. None, since investment advisers are prohibited from charging performance fees D. Exempt investors
B. Qualified clients
Under the Uniform Securities Act, when would the sale of an unregistered, nonexempt security not be a violation? A. The transaction was reviewed by the customer's attorney B. The customer provided a written statement that the order was unsolicited C. Under no circumstances D. The customer had signed an agreement not to prosecute
B. The customer provided a written statement that the order was unsolicited
The state Administrator has suspended Heathrow Securities, a broker-dealer. Which of the following statements concerning the broker-dealer is TRUE? A. The only activity the firm may not participate in is new issue distributions B. The firm may apply to the state court for a review of the order C. The firm is allowed to accept unsolicited orders D. The firm may continue business as usual during the appeal process
B. The firm may apply to the state court for a review of the order
Under the Uniform Securities Act, which of the following sale would be considered a nonissuer transaction? A. The sale of a new issue in a private placement B. The sale of an outstanding security on the New York Stock Exchange C. The sale of a security executed by an agent of the issuer D. A primary offering sold by a broker-dealer
B. The sale of an outstanding security on the New York Stock Exchange
An agent takes the prospectus for a new issue and creates a marketing piece that includes all the positive facts from the prospectus but none of the risk factors. According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, the agent may give this marketing piece to a client: A. Only if the issue is exempt B. This type of communication may never be provided to a client C. Only if the prospectus is included D. Only if it is approved by a principal and filed with an Administrator
B. This type of communication may never be provided to a client
An unregistered agent who is an employee of a licensed broker-dealer is allowed to sell exempt securities to the public: A. Because the security is exempt B. Under no circumstances C. If it is an exempt transaction D. If the employee is not paid a salary or commission
B. Under no circumstances
An instrument that permits legal documents served to the Administrator to have the same force as if served to an agent is called: A. A letter of rescission B. A surety bond C. Habeas corpus D. A Consent to Service of Process
D. A Consent to Service of Process
Many hedge funds are issued as private placements under Regulation D. In order to qualify for the exemption, they must be offered only to __________________ investors and/or no more than _____ non-accredited investors.
accredited 35
Which of the following choices is not considered a security? A. Call options on a gold futures contract B. A variable annuity set up as a retirement plan C. American Depositary Receipts D. A Treasury bond futures contract
D. A Treasury bond futures contract
Which of the following persons is NOT considered an investment adviser representative under the Uniform Securities Act? A. A person who solicits advisory services and private offerings for accredited investors B. An accountant who offers a separate service for securities advice based on his clients' tax situation C. A person who assists clients by entering orders for securities transactions D. A person who makes recommendations about municipal securities at an investment advisory firm
C. A person who assists clients by entering orders for securities transactions
An agent may NOT: A. Call an existing client before 8:00 a.m. B. Sell non-registered, exempt securities C. Call a prospective client after 9:00 p.m. D. Split commissions with another agent who works for an affiliated firm
C. Call a prospective client after 9:00 p.m.
Chris is an agent with D&D Securities. The Administrator has revoked Chris' registration for unsuitability and churning. Based on these facts, which of the following statements is TRUE? A. D&D's registration is automatically revoked as well as the registrations of all of its other agents B. D&D's registration is automatically revoked as well C. D&D's registration may be suspended as well if the Administrator determines that D&D failed to properly supervise Chris D. D&D has 30 days to request a hearing or voluntarily withdraw its registration
C. D&D's registration may be suspended as well if the Administrator determines that D&D failed to properly supervise Chris
An agent receives insider information about a stock. Out of nowhere, a customer calls her and places an order to sell the same stock. The agent must: A. Tell the client that she must refuse the order because of the insider information B. Tell the client about the insider information before executing the order C. Execute the client order without mentioning the information D. Refuse to accept the order without additional explanation
C. Execute the client order without mentioning the information
A broker-dealer is a registered market maker in a Nasdaq security. The broker-dealer's current quote states that the firm is prepared to sell to clients 200 shares at $21.00 per share and buy from clients 200 shares at $20.50 per share. Which of the following activities by the broker-dealer would NOT be considered an unethical or dishonest business practice? A. Failing to buy 200 shares from a client at $20.50 per share B. Failing to buy 100 shares from a client at $20.50 per share C. Failing to sell 200 shares to a client at $20.75 per share D. Failing to sell 100 shares to a client at $21.00 per share
C. Failing to sell 200 shares to a client at $20.75 per share
An investment adviser is registered in State A and State B. A broker-dealer is registered only in State A. The client of the investment adviser is a resident of State B. The investment adviser asks the broker-dealer to purchase a nonexempt security, which is registered in State B, for the advisory client. The broker-dealer: A. May accept the order as long as this practice does not occur with any regularity B. May accept the order only if the client places the order C. May accept the order if the broker-dealer has no place of business in State B D. Should refuse the order because the broker-dealer is not registered in the state in which the client resides
C. May accept the order if the broker-dealer has no place of business in State B
John is an agent who just opened an account for Mary, a new client. Unfortunately, Mary is very tight-lipped about her finances. She gives John very little information, saying only that she is a conservative investor whose objective is growth. What type of securities may John recommend for her account? A. Anything as long as it's not too speculative B. None whatsoever C. Mutual funds that meet her risk tolerance and investment objectives D. Money-market securities only
C. Mutual funds that meet her risk tolerance and investment objectives
An agent just received insider information that Company X has been awarded a huge government contract. The CEO of Company X is expected to announce this information to the public tomorrow. All of a sudden, the agent receives a call from one of his long-time clients telling him to purchase shares in Company X for the client. What should the agent do? A. Accept the order and recommend that the client purchase additional shares B. Refuse the order and tell the client why C. Process the client's order without disclosing the information D. Hold the order until tomorrow
C. Process the client's order without disclosing the information
According to the Uniform Securities Act, if an employee of an issuer is soliciting employees of that issuer for the purpose of selling securities, which of the following statements is TRUE? A. The employee would never be considered an agent of the issuer B. The employee could receive commissions without being registered as an agent C. The employee would be considered an agent if she received commissions or other remuneration D. If the employee was an officer or director of the issuer, she could receive commissions and would not be considered an agent
C. The employee would be considered an agent if she received commissions or other remuneration
According to the Uniform Prudent Investor Act (UPIA), what would be of LEAST concern to an investment adviser? A. Tax implications of recommendations and strategies B. Current market conditions C. The length of the adviser's contract and amount of fees collected D. The possibility of a future increase in the rate of inflation
C. The length of the adviser's contract and amount of fees collected
Mr. Brown is a client who must fulfill a $300,000 obligation in two years. He currently has the $300,000 and would like your advice on how to invest these funds temporarily. Which of the following choices should you advise? A. A Treasury bond fund B. AAA municipal bonds C. U.S. government securities D. High-quality debentures
C. U.S. government securities
When must action be taken for recovery on a transaction made in violation of a registration provision? A. Within three years of notification B. Within two years of occurrence or three years of discovery, whichever occurs last C. Within three years of occurrence or two years of discovery, whichever occurs first D. Within five years of notification
C. Within three years of occurrence or two years of discovery, whichever occurs first
Registration by ________________ is typically used by an issuer that is conducting an IPO of securities that will not be listed on an exchange and that needs to register its securities at both the state and federal level.
Coordination
According to the Uniform Securities Act, which of the following investment advisers would be exempt from registration? A. An adviser with no place of business in the state and only six clients who have a net worth of at least $1 million each B. An adviser with no place of business in the state, with 10 clients, all of whom are accredited investors C. An adviser with an office in the state, with five or fewer retail clients D. An adviser with no place of business in the state and fewer than six retail clients
D. An adviser with no place of business in the state and fewer than six retail clients
Prior felony convictions must be disclosed on Form U4 if the conviction occurred: A. Within the last 10 years B. Within the last two years C. Within the last five years D. At any time
D. At any time
An advertisement is printed in State A and circulated in State B. A client in State B feels that she has been treated in an unethical manner by the agent who created the advertisement. Which state has the authority to investigate the agent? A. Since this involves an interstate transaction, only the SEC has jurisdiction B. State B only since the client is a resident of that state C. State A only since the advertisement was printed in that state D. Both States A and B
D. Both States A and B
Under what circumstances may an agent registered in State A sell securities to an investor who is a resident of State B? A. The security is exempt from registration in State B and the order is unsolicited B. The investor states that he is in the process of moving back to State A C. The security is exempt from registration in State B and the agent receives no compensation D. Both the agent and broker-dealer are registered in that state
D. Both the agent and broker-dealer are registered in that state
A broker-dealer's registration may be revoked or suspended if the Administrator determines that this action is in the public interest and the: A. Broker-dealer's controlling partner has declared personal bankruptcy B. Broker-dealer has engaged in ethical business practices C. Broker-dealer withdrew its registration in another state D. Broker-dealer violated federal commodities laws within the past 10 years
D. Broker-dealer violated federal commodities laws within the past 10 years
An investment adviser representative is managing a portfolio for a client on a discretionary basis. The client's objective is conservative growth. According to prudent investor standards, which of the following statements is TRUE about including options in such a portfolio? A. Options are never appropriate in a conservative portfolio B. Options are appropriate only if the investor has previous personal experience investing in options C. Options strategies are appropriate for conservative portfolios as long as they are profitable D. Certain types of options strategies may be appropriate as part of a conservative portfolio
D. Certain types of options strategies may be appropriate as part of a conservative portfolio
A broker-dealer keeps customer-owned, street-name securities and the broker-dealer's securities together in a way that may not clearly indicate who owns which shares. This could be considered: A. Conversion B. Sharing in profits and losses with a customer C. A fraudulent act D. Commingling
D. Commingling
According to the Uniform Securities Act, which of the following actions accomplishes renewal of an agent's license A. Making an announcement in a publication distributed in that state B. Participation in Continuing Education C. Passing an examination D. Paying a fee
D. Paying a fee
A broker-dealer agent enters an order ticket for a customer. The order ticket must contain all of the following information, EXCEPT the: A. Price of the security at the time of execution B. Time of entry C. Agent's identifying information D. Price of the security at the time of receipt
D. Price of the security at the time of receipt
All of the following practices are prohibited, EXCEPT: A. Sharing in the profits of a client's account without any contribution to the account B. Executing a solicited order for an unregistered, nonexempt security C. Excessive trading in a client's account D. Sharing of a commission on a trade by two agents of a broker-dealer
D. Sharing of a commission on a trade by two agents of a broker-dealer
In a soft-dollar arrangement between an adviser and a broker-dealer, the broker-dealer would be permitted to pay: A. The cost of a coach flight for a portfolio manager to attend a conference B. A percentage of the salaries of the adviser's internal research staff C. The cost of computer terminals used to deliver market data services D. The cost of a conference concerning the future of the computer software industry
D. The cost of a conference concerning the future of the computer software industry
ACE Investments is a registered investment adviser. Which of its employees are considered investment adviser representatives? A. The senior partners B. The custodial staff C. The clerical staff D. The portfolio managers
D. The portfolio managers
Clients may sure on the basis that the security was not registered and subsequently attempt to recover their _____________________ _____________.
financial losses
When opening a margin account, a customer must sign both a ______________________ agreement and a ____________ _________________ form.
hypothecation agreement and a margin account form
If a client's permanent residence is in State J, a trade in which the client is in State C when a securities transaction is effected is __________________. The broker-dealer does not need to register in State C because it does not have ___________________ there and the transaction is with an existing client who is in the state temporarily.
valid an office