Series 63 Practice Test Missed Qs
The Uniform Securities Act provides an exclusion from the definition of an agent under certain specified conditions for those persons representing an issuer in the sale of its securities. An individual representing the issuer in the sale of that issuer's securities to the public would not qualify for that exclusion and have to register if A) the issuer is a Canadian provincial government. B) the issuer is a savings institution organized and supervised under the laws of any state. C) the issuer is a federal credit union. D) the transaction is exempt.
C) the issuer is a federal credit union. Individuals representing an issuer in the sale of its securities are exempt from registration if the security is one of five specified exempt securities or if the transaction is exempt. Securities issued by a federal credit union are not in the list of five specified in your License Exam Manual. LO 2.f
Associated Wealth Managers (AWM) is registered with the Administrator as a registered investment adviser. Therefore, if there have been any material changes, AWM must send a copy of its brochure or a summary of the changes A) to all nonexempt clients within 60 days of the end of its fiscal year. B) to all nonexempt clients within 90 days of the end of its fiscal year. C) to all nonexempt clients within 120 days of the end of its fiscal year. D) within 7 days of receiving a request from a client.
C) to all nonexempt clients within 120 days of the end of its fiscal year. Whether the firm is a state or federal covered investment adviser (IA), if there have been material changes, a copy of the IA's brochure or a summary of the changes must be sent to all clients no later than 120 days after the close of the IA's fiscal year. Most material changes must be sent to the Administrator by filing an amended Form ADV promptly, but this question's responses are limited to customers. LO 6.b
A registered broker-dealer is under common control with a registered investment adviser. An individual who is an agent of the broker-dealer and an investment adviser representative of the adviser has a client with $250,000 under an asset management program. This individual calls the client and suggests the purchase of 500 shares of RMBM common stock as an appropriate addition to the portfolio. The broker-dealer is a market maker in RMBM, and the sale will be made as a principal, a fact that is disclosed to the client on the trade confirmation. In this situation, the registered person has acted A) unethically in that any stock the broker-dealer is a market maker in is probably not suitable for a managed money client. B) ethically in that the disclosure of capacity was made on the confirmation. C) unethically in that investment advisers are required to make written disclosure and receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. D) ethically in that the disclosure of capacity is not necessary when executing trades in managed accounts.
C) unethically in that investment advisers are required to make written disclosure and receive the advisory client's consent PRIOR to completion of a trade where the firm or an affiliate will be acting in a principal capacity. The rules regarding investment advisers and account trading are much stricter than those for broker-dealers because of the fiduciary responsibility of the adviser. Any action that results in a transaction in which the firm or an affiliate acts in either a principal or agent capacity requires the adviser to provide written disclosure of that fact to the client and obtain approval from the client PRIOR to completion of the transaction. That approval may be oral or written. LO 7.d
A state-registered investment adviser is the subject of an injunction requested by the Administrator. As a result, A) a hearing must be granted within 15 days after receipt of a written request from the investment adviser. B) the registration of the investment adviser's investment adviser representatives will be suspended. C) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. D) the registration of the investment adviser will be suspended.
C) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. The Administrator does not have the legal power to compel compliance with the cease and desist order. To compel compliance in the face of a person's resistance, the Administrator must apply to a court of competent jurisdiction for an injunction. If the court issues a temporary or permanent injunction, upon the request of the Administrator, a receiver or conservator may be appointed over the defendant's assets. The injunction merely forces the investment adviser (or whomever is the subject) to cease the specified activity. It does not cancel any registrations. That could happen if the defendant refuses to obey the injunction and further legal action is taken. The 15-day hearing rule applies to summary orders, not cease and desist. LO 5.b
Which of the following emails sent using the broker-dealer's account has no retention requirement? A) An email to a customer confirming a meeting to discuss the customer's portfolio, a spreadsheet of which is attached B) An email to select customers informing them of a new issue about to become public C) An email to all customers informing them of a fee change D) An email confirming a dinner reservation at a local restaurant with one of the firm's customers
D) An email confirming a dinner reservation at a local restaurant with one of the firm's customers Electronic communication, such as email, it treated the same as hard copy on paper. Confirming a dinner reservation, even with a customer, is personal correspondence and has no retention requirements. If, as is the case with the confirmation of the meeting to discuss the customer's portfolio, the dinner email specified that business would be discussed, that changes the story. Promoting any security and changes to fees are part of the firm's business communication and need to be retained. LO 2.c
Exempt securities are excused from the registration requirements of the Uniform Securities Act. In addition, they do not have to file advertising and sales literature with the Administrator. Which of the following are included in the definition of exempt securities under the Uniform Securities Act? I. Common stock, not listed on any regulated exchange, purchased by an open-end investment company registered under the Investment Company Act of 1940. II. Preferred stock issued by a bank authorized to do business in this state. III. Municipal bonds issued by a Canadian city. IV. The sale of U.S. Treasury bonds to a retail client. A) I and III B) II, III, and IV C) I and II D) II and III
D) II and III The question is looking for an exempt security, a noun. Do not confuse that with an exempt transaction, a verb. Any security issued by a bank authorized to do business in the state is an exempt security. Any security issued by a Canadian governmental polity is an exempt security. Common stock not listed on any regulated exchange and purchased by an open-end investment company is an exempt transaction and anyway, that common stock is not an exempt security. Although Treasury bonds are an exempt security, the sale of them to a retail client is a nonexempt transaction. If there is a purchase or a sale (a transaction), depending on how it is done or the nature of the other side of the transaction, it may be exempt or nonexempt. For example, the sale of the Treasury bonds to a bank (an institution) would be an exempt transaction, but that is not the case when the sale is to a retail client. LO 4.f
The Uniform Securities Act excludes which of the following persons from the definition of broker-dealer? I. One who is engaged in the business of effecting transactions in securities for the account of others or for his own account II. One who has no office in the state and deals with a maximum of five individual clients during any 12-month period III. One who has no office in the state and deals exclusively with other broker-dealers and investment companies in this state IV. An issuer of securities who hires agents to distribute its new issue of stock A) I and IV B) II and III C) I and II D) III and IV
D) III and IV A broker-dealer with no place of business in the state, dealing exclusively with institutional clients, such as investment companies, as well as other broker-dealers, is excluded from the definition. An issuer is never defined as a broker-dealer. There is no de minimis exemption for broker-dealers similar to the one for investment advisers. LO 2.b
Alice Worthington is a registered agent with a broker-dealer. She is highly successful at bringing new clients to the firm. Although some of her techniques tend to be in conflict with the firm's compliance policies, the revenue generated by these new clients is considered to be worth taking the risk. One of Worthington's customers complains to the Administrator that she believes trades have been made without her authorization and conversion of the proceeds has taken place. After an investigation, Worthington is found guilty and her registration is revoked. This would most likely A) cause the broker-dealer to assign one of the firm's officers to handle this customer's account. B) result in a disciplinary action against Worthington for unauthorized trading in a customer's account. C) cause the broker-dealer to close this customer's account. D) result in a disciplinary action against the broker-dealer for failure to supervise Worthington.
D) result in a disciplinary action against the broker-dealer for failure to supervise Worthington. Under normal cases of unethical or dishonest actions of an agent, the employing broker-dealer is not held responsible. However, when there is a clear case of failure to supervise, such as looking the other way when an agent engages in practices that conflict with the firm's compliance policies, action can be taken against the BD. It could be a fine, a suspension, or even a revocation of the firm's registration. The question tells us that Worthington's registration has already been revoked—the disciplinary action has already occurred. There certainly would have to be another agent assigned to the customer account, but there is no reason it would have to be an officer. It is more likely the customer would close her account rather than the reverse. LO 2.d
Which of the following individuals would be most likely to be willing to sell securities for the benefit of the issuer without receiving any compensation based upon those sales? A) A member of the issuer's board of directors B) A registered broker-dealer concentrating on investment banking C) An investment adviser representative D) A salaried individual working in the broker-dealer's order room
A) A member of the issuer's board of directors It is common for small companies to sponsor their own public offering using officers and board members who generally are willing to sell the shares without receiving any compensation. LO 2.f
Which of the following transactions would be exempt from the advertising and sales literature filing requirements of the Uniform Securities Act? A) A retired customer calls an agent and enters an order to purchase 1,000 shares of a low-priced stock traded on the Nasdaq Stock Market. B) A broker-dealer sells an unregistered issue to a maximum of 10 individuals during any 12-month period. C) A preorganization certificate is sold for which the only compensation is on sales to institutional clients. D) A client purchases 2,000 shares of a Canadian mining company after her agent suggested the stock would be an appropriate investment for one looking for an aggressive position.
A) A retired customer calls an agent and enters an order to purchase 1,000 shares of a low-priced stock traded on the Nasdaq Stock Market. Securities that are exempt from registration, either because of the security or the transaction, are also exempt from the advertising and sales literature filing requirements. The key to the question is finding the exempt transaction. Any unsolicited transaction, regardless of the nature of the security, is exempt. Private placement transactions are limited to 10 offerees, not purchasers. Sure, it is possible that the BD approached just 10 prospects and they all bought, but not on the exam. It has to be limited to 10 offerees. No payment is made on preorganization certificates so there can't be any compensation. Once an agent suggests a security, the transaction can no longer be considered unsolicited. LO 4.f
Which of the following is not exempt from registration as an investment adviser or an investment adviser representative in the state in which a place of business is maintained? I. A certified financial planner who prepares financial plans and whose only compensation is commissions II. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients III. A broker-dealer exclusively engaged in retail securities transactions in the state IV. The SWW Growth Fund, a mutual fund with an office and shareholders in the state A) I and II B) I, II, III, and IV C) III and IV D) I only
A) I and II A certified financial planner who prepares financial plans for commissions must register in the state as either as an investment adviser (if working as a sole proprietor) or an investment adviser representative. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act. LO 3.e
Which of the following statements regarding the brochure delivery requirements of the NASAA Model Rule for investment advisers are true? I. The brochure must be updated each time Part 1A of Form ADV is updated. II. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500. III. A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. A) II and III B) I and III C) I and II D) I, II, and III
A) II and III Because the information in the brochure is derived from Part 2A of the Form ADV, changes to Part 1A will not necessarily apply to items that are important to the client. Therefore, stating that the brochure must be updated whenever there is a change to Part 1A would not be correct. The NASAA Model Rule requires that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. If there are no material changes, a brochure does not have to be sent. The brochure delivery requirements do not apply to customers that are investment companies or clients of impersonal services (those that do not purport to meet the investment objectives or needs of specific clients), as long as the cost of the service is less than $500 per year. LO 6.b
Under the Uniform Securities Act, the Administrator has the power to deny an individual's application for registration as an agent if it is in the public interest and which of the following applies? A) The applicant has been convicted of a felony within the past 10 years. B) The applicant fails to file a financial statement with the application. C) The applicant is not a citizen of the United States. D) The applicant has no prior experience in the securities industry.
A) The applicant has been convicted of a felony within the past 10 years. Conviction of any felony or investment-related misdemeanor within the past 10 years is a cause for denial of registration. Lack of experience is not relevant and no agent is required to file financial reports with the Administrator. Citizenship is disclosed on the application, but one does not have to be a U.S. citizen to become registered. LO 5.b
An agent at a broker-dealer firm is excited about new earnings projections he received from TechEd, which sells at a market value of $10; it paid a $1 dividend this past year, and its earnings projections for the next year amount to an increase of 30%. The agent calls his clients to solicit purchases of TechEd stock and says if they buy now at $10 per share, they will realize a profit of 30%. The agent should A) refrain from making this statement because it is a misrepresentation. B) show his clients how he came to his calculations, sending them charts that have been approved by his principal. C) practice due diligence and call TechEd to verify that these earnings predictions are still current. D) not say anything yet because this is inside information.
A) refrain from making this statement because it is a misrepresentation. This is a clear case of misrepresenting earnings projections, and the agent must immediately stop this activity. LO 7.a
Which of the following would be considered an unethical business practice? A) Broker-dealers charging larger than ordinary commissions on certain transactions. B) Agents correcting bona fide execution errors in their customer's accounts. C) Broker-dealers sending retail clients an email 30 days in advance of a change to fees. D) Agents exercising discretion in discretionary accounts.
B) Agents correcting bona fide execution errors in their customer's accounts. When a good-faith error is made, only the firm can make the correction; the regulators are concerned that giving that power to an agent could lead to covering up unethical activity. When the security involved in the trade is thinly traded (inactive), it is customary to charge a higher commission to cover the added expense. Broker-dealers are required to deliver a copy of their fee schedule no later than account opening. When changes are made, notice must be given at least 30 days in advance and may be done electronically (by email or posting on the firm's website). In a discretionary account, agents are authorized to exercise their discretion—that is the point of the account. LO 6.d
Kapco Advisers is a federal covered investment adviser with its principal office in New York City and several offices in New Jersey. Joe Segal, who lives in Manhattan, is an investment adviser representative with the firm and has the responsibility for serving those clients of Kapco who winter in Florida. In order to do so, Joe takes a hotel suite in Miami Beach for one week in December, in Boca Raton for one week in January, and in West Palm Beach for one week in February. Segal uses these facilities to meet solely with existing clients. Which of the following statements is correct regarding Segal's registration status under the Uniform Securities Act? A) Because Joe is meeting with individual clients, he must be registered as an investment adviser representative in the state of Florida. B) Because Joe is meeting solely with existing clients who are not permanent Florida residents, he does not have to register as an investment adviser representative in the state of Florida. C) Because Joe is employed by a federal covered adviser, he is only required to register with the SEC. D) Because the hotel suites are listed in Joe's name, he must register as an investment adviser representative in the state of Florida.
B) Because Joe is meeting solely with existing clients who are not permanent Florida residents, he does not have to register as an investment adviser representative in the state of Florida. Under the USA, as long as the firm (or the IAR) does not have a place of business in the state and they are only dealing with existing clients who are temporarily in the state, no registration is required. Using a hotel suite to meet with existing clients is not considered having a place of business in the state. Registration as an investment adviser representative is solely on the state level, not with the SEC or FINRA. LO 3.e
To mitigate the potential damage to the firm and its employees, broker-dealer policies regarding the use of social media should be in writing and communicated I. firm wide. II. clearly describing the monitoring tools to be used by the firm. III. clearly defining each employee's responsibilities. IV. recommending criminal prosecution of any employee who fails to follow the policies. A) I, II, III, and IV B) I, II, and III C) I and III D) II and IV
B) I, II, and III Criminal prosecution for failure to follow a policy is probably a bit harsh without knowing the full details of the severity of the problem. LO 6.f
A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened? A) Discretionary B) Options C) Margin D) Retirement
B) Options One question asked on a new options account form that is not required on a normal brokerage account opening is about investment experience and knowledge (e.g., number of years, size, frequency, and type of transactions) for options, stocks and bonds, commodities, and other financial instruments. LO 6.e
Under the Uniform Securities Act, in which of the following cases would an individual employed by a broker-dealer be required to register as an agent in a state? A) While on vacation in the state, the individual calls a number of his clients to discuss the broker-dealer's current recommendations. B) The individual supervises agents registered in that state but does not have any dealings with retail clients in the state. C) The broker-dealer has no place of business in the state and the only clients the broker-dealer has are savings institutions. D) One of the agent's clients has been visiting her grandchildren in the state for more than 30 days.
B) The individual supervises agents registered in that state but does not have any dealings with retail clients in the state. Under the Uniform Securities Act, individuals who supervise registered agents in a state must be licensed as agents themselves. It is not necessary to handle client accounts; supervision is enough to require registration. A broker-dealer with no place of business in a state whose only clients are institutional investors, such as savings institutions, is not a broker-dealer in the state. Therefore, those individuals serving the clientele do not register as agents because there is no registered broker-dealer. If grandma moved to the state, once she was a permanent resident for longer than 30 days, registration would be required. LO 2.g
Which of the following is not exempt from registration as an investment adviser representative in the state in which they conduct business? A) A mutual fund company with offices and clients in the state B) An insurance agent who prepares comprehensive insurance needs analyses and receives commissions on any insurance products purchased by his clients C) A Certified Financial Planner who prepares comprehensive financial plans for her clients and whose only compensation is commissions D) A broker-dealer with extensive business in the state
C) A Certified Financial Planner who prepares comprehensive financial plans for her clients and whose only compensation is commissions A Certified Financial Planner who prepares comprehensive financial plans for commissions must register in the state as an investment adviser representative. In this case, the individual is holding herself out as offering investment advice because, at least in the eyes of the Uniform Securities Act, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions received are considered indirect compensation for the rendering of investment advice. Preparing a life insurance needs analysis does not involve securities so this individual would not be considered an IAR. If you are thinking, "What if the product involved is variable life insurance (as security)?" do not read anything extra into the question. If the product is a variable insurance product, the question will indicate that. Broker-dealers and mutual fund companies are not investment advisers under the USA. LO 3.e
Under the Uniform Securities Act, registration with the state as either an investment adviser or investment adviser representative would be required of which of the following? I. An individual employed by an investment adviser who is responsible for supervising the firm's client-facing analysts, but who personally offers no advice to any client II. A firm registered as an investment adviser in States C and D with offices in no other state that offers investment advice to an insurance company in State M III. An agent with a broker-dealer who offers wrap fee programs charging an annual fee with a sliding scale based on assets under management IV. An individual offering financial advice on behalf of the Fourth Second National Bank of Columbus A) II and IV B) I and IV C) I and III D) II and III
C) I and III Supervisors of those who render advice must themselves be registered as IARs. While there is an exclusion in the law for broker-dealers and their agents, that exclusion is lost for firms that receive special compensation such as with a wrap fee program. An investment adviser with no place of business in State M does not register if its only clients are institutions, such as insurance companies. Banks and trust companies are specifically excluded from the definition of investment adviser by the USA so they could not have any IARs. LO 3.d
GEMCO Securities, a broker-dealer registered with the Administrator, was bought out by KAPCO Investments, Inc., who has never been registered in this state as a broker-dealer. If the deal closed on July 15, 2020, which of the following statements is correct? I. KAPCO would have to file an application along with a consent to service of process and the appropriate fee. II. KAPCO would have to file an application along with a consent to service of process, but would not need to submit a fee. III. GEMCO would have to renew its registration on December 31, 2020. IV. The Administrator would be able to initiate proceedings against GEMCO until July 15, 2021. A) I and IV B) II, III, and IV C) II and IV D) I and III
C) II and IV In the case of a successor firm, no fee is required, but an application with a consent to service of process is. Because this, in effect, represents a termination of GEMCO's registration, there will be no renewal (although KAPCO must renew on December 31, 2020). Any termination of registration for a securities professional grants the Administrator a one-year period during which jurisdiction remains. LO 2.c
Tamar is an investment adviser representative for Retirement Solutions of American (RSA), a wholly owned subsidiary of Southeast Retirement Solutions (SRS), a broker-dealer registered in a number of southeastern states. Tamar is also a registered agent with SRS. If one of Lamar's advisory clients sends a check made payable to SRS for a stock purchase, under NASAA's Model Rule on Custody by Investment Advisers, A) Tamar would have to post a surety bond in the amount of $35,000. B) RSA would be in violation of the NASAA requirement to use a qualified custodian. C) RSA is considered to be maintaining custody of client funds and securities. D) Tamar must return the check and request a replacement check made payable to RSA.
C) RSA is considered to be maintaining custody of client funds and securities. Under the NASAA Model Rule, when an investment adviser uses an affiliated broker-dealer as its qualified custodian, the adviser is considered to be maintaining custody. Therefore, receipt of a check made payable to the BD is acceptable (it does not have to be forwarded). The check would not be payable to the investment adviser (RSA) because it is for a securities transaction and that would be through the broker-dealer (SRS). IARs would never take custody, and there is no bonding requirement for IARs. LO 8.a
Under securities industry regulations, all of the following are prohibited when attempting to make a sale except A) telling a client that he is trading commission free when, in actuality, the firm is acting as a principal and placing a markup on his trades. B) an agreement by the agent to repurchase the security from the customer for the same price at a future date. C) a statement by the agent that the security will be listed on an exchange within a year after the company announced its intention to do so. D) telling a client that her stock is a sure candidate for a takeover bid.
C) a statement by the agent that the security will be listed on an exchange within a year after the company announced its intention to do so. An agent cannot guarantee to buy back the securities at the same price, cannot claim there are no transaction costs when the firm charges a markup, and cannot make exaggerated statements relating to future activity in a security. However, the agent may state that the company intends to list its shares on an exchange if this is a fact. LO 6.d
