Series 63 Questions to Review

An Administrator may deny or revoke a security's exemption A) without a hearing if the issuer is given an opportunity for a hearing after the revocation B) for a federal covered security if its issuer is in violation of state law C) by providing the burden of proof that the exemption is not deserved D) if the Administrator determines that an exemption applicable to federal covered securities is inconsistent with state securities law

A (An Administrator may deny or revoke a security's exemption without a hearing if the issuer is given an opportunity for a hearing after the revocation. The issuer requesting an exemption must prove the exemption; this is not the responsibility of the Administrator. The Administrator may not revoke exemptions of federal covered securities.)

Under the Uniform Securities Act, which of the following negates a client's right to a civil suit for damages suffered from improper investment advice? A) The advice that is the subject of the suit was given more than 3 years ago. B) The client has died. C) The client willingly signed a statement waiving the adviser's compliance with the provision of the act on which the suit is based. D) The client rejected an offer of rescission within 30 days of receipt of the offer.

A (Under the statute of limitations found in the USA, a civil suit must be filed within 3 years of the alleged infraction, or 2 years from discovering the violation, whichever comes first. The death of the adviser or the client does not remove a cause of action for civil liability. Waivers to statements signed by the client, waiving the adviser's compliance with the provision of the act on which the suit is based, are never valid on the exam. If the client is not satisfied with the seller's computation of damages, the buyer is not prevented from bringing suit. In order to do so, the rescission offer must be rejected within 30 days so that the seller may know where he stands.)

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under current regulations, this activity requires written A) disclosure to the client and consent prior to completion of the transaction B) consent of the client C) disclosure to the client D) consent of and the disclosure to the client before the execution of the transaction

A (Unlike broker-dealers, investment advisers must obtain the consent of and make written disclosure to the client of the intent to act as agent or principal in any transaction with that advisory client. SEC Release IA- 1732 requires that this be accomplished before the completion of the transaction, where completion is defined as settlement date.)

A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to A) immediately reply to the client in writing B) immediately notify the Administrator C) immediately notify NASAA D) immediately suspend the agent involved until the complaint is resolved

A (When a broker-dealer receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received. This is an internal matter and the BD has no reason to notify the Administrator. There is no reason to immediately suspend an agent over a complaint—at least not until wrongdoing has been proven.)

All of the following statements regarding the selling of private placements under the USA are true EXCEPT that A) they can be offered to a maximum of 35 noninstitutional investors in 12 consecutive months B) no commission or other remuneration may be paid for soliciting noninstitutional buyers C) the seller must reasonably believe that all noninstitutional buyers are purchasing for investment purposes only D) they can be offered without limitation to institutional investors Explanation Under state law, a private placement can be offered to no more than 10 noninstitutional investors in 12 consecutive months. Reference: 2.3.2 in the License Exam Manual

A (they can be offered to a maximum of 35 noninstitutional investors in 12 consecutive months)

Under the Uniform Securities Act, a person who exclusively provides advice on commodities is A) an options representative B) not a registered investment adviser C) a registered insurance agent D) a registered investment adviser representative

B (A person who only provides advice on commodities is not a registered investment adviser. To be an investment adviser under the Uniform Securities Act, advice must be given on securities. The act specifically excludes commodities from the definition of security.)

Under the Uniform Securities Act, broker-dealers may NOT be required by the Administrator to A) promptly file a correcting amendment to any document on file with the Administrator which becomes inaccurate or incomplete in any material respect B) post a surety bond if they do not have investment discretion over client accounts or do not maintain custody of customer funds and/or securities C) file various financial reports D) publish an announcement of the application for registration in a newspaper

B (The question asks for something that cannot be required by the Administrator. The other choices are requirements you should memorize. The Administrator can require a bond only if registrants have custody or discretion.)

Any individual who represents an issuer in effecting transactions between the underwriter and the issuer A) must be registered as an investment adviser B) does not meet the definition of "agent" as promulgated under the Uniform Securities Act C) must be registered as an agent D) must be registered as an underwriter

B (Under the Uniform Securities Act, a person representing an issuer in securities transactions between an underwriter and an issuer is not deemed an agent and is exempt from the agent registration requirements of the act.)

An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told which of the following? A) Registration is required only if an offer is directed, accepted, and paid for in that state. B) No registration is necessary in the other state provided the agent's activities are limited exclusively to effecting transactions in certain exempted securities. C) If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately. D) No registration is necessary if no commission or other remuneration is paid or given directly or indirectly.

C

Under the terms of the Uniform Securities Act, which of the following is an investment adviser for purposes of state regulatory jurisdiction? A) A federal covered adviser with clients in the state B) An accountant located in the state who offers general securities advice as an incidental part of his business C) An investment subsidiary of a bank holding company located in the state that manages $70 million in assets D) A commercial bank with a place of business in the state that advises clients on investment matters

C (A bank holding company's investment subsidiary that manages less than $100 million in assets is an investment adviser subject to the Uniform Securities Act (USA). Under the language of the USA, a commercial bank is excluded from the definition of investment adviser whereas a bank holding company subsidiary is not. While a federal covered adviser is an investment adviser in practice (that is, it performs the functions of an investment adviser), it is excluded from the definition of an investment adviser under the USA to avoid duplicate regulation. An accountant located in the state that offers general securities advice as an incidental part of his business is not an investment adviser.)

You inform a customer that you are not allowed to solicit an order for a stock but will accept that customer's buy order if placed. This is A) an unsolicited trade B) an offer to sell only if it is accepted C) an offer to sell D) an offer to purchase

C (Under the Uniform Securities Act, the term "offer" is the solicitation of an offer. In this example, the agent is soliciting an offer from the customer to buy a security. A solicitation is considered to have occurred even if the customer fails to act on the solicitation.)

The Uniform Securities Act provides for civil penalties in the event of improper activities of agents. Under the act, the maximum that a purchaser would be entitled to claim would be I the original consideration paid for the security II interest at the state's legal rate III attorney's fees IV court costs A) III and IV B) I and II C) I, III, and IV D) I, II, III, and IV

D (In the event of a civil judgment, the purchaser is able to claim for a return of the original investment plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the agent is liable for court costs and attorney's fees.)

The term "sale" includes which of the following? I A contract of sale II A contract to sell III The disposition for value of an interest in a security IV A warrant (for common stock of the issuer) given with the purchase of a bond A) I, III, and IV B) I and III C) II and III D) I, II, III, and IV

D ("Sale", used interchangeably with "sell", is defined in the Uniform Securities Act as any contract of sale, any contract to sell, and any disposition of a security or interest in a security. The sale of a corporate bond is a sale with or without a warrant attached and involves the disposition of an interest in a security of the issuer. Because the distribution of the warrant is conditional upon the purchase of the bond, the acquisition of the warrant is considered to be a sale.)

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within A) 60 days B) 45 days C) 30 days D) 15 days

D (When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days.)

An investment adviser representative may perform which of the following functions? I. solicit for advisory business II. manage advisory accounts III. earn commissions on sales of recommended securities IV. supervise those who render advice

A (An IAR may not earn commissions on the sale of securities unless also registered as an agent. All of the other activities listed are permitted. Remember, unlike FINRA, there is no principal category of registration. In other words, there is no such thing as an investment adviser principal.)

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) Yes, no registration is necessary. B) Yes, if the entire clerical staff is registered as agents for the firm. C) Yes, if all of the agents agree to it. D) No, this cannot be done.

A (Bonuses based on a broker-dealer's profits may be payable to nonregistered clerical help as long as there is no direct relationship to any specific sales.)

Which of the following is NOT required to be disclosed in an investment advisory contract under the Uniform Securities Act? A) The adviser's past performance over a period of no less than the previous 12 months B) If applicable, a statement that the investment adviser will be exercising discretion in the account. C) The termination date of the contract D) The amount or manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination

A (The Uniform Securities Act does not require an investment advisory contract to disclose the IA's past performance.)

To protect the public, the Administrator may I. deny the registration of an agent with insufficient net capital II. require an applicant for registration as both a broker-dealer and an investment adviser to limit activities to those of a broker-dealer due to lack of qualifications to render investment advice III. require an applicant for registration to submit to an oral examination A) I, II, and III B) II and III C) I and II D) I and III

B (Agents never have a net capital requirement, but broker-dealers do. It is not uncommon for an Administrator to deny an application for registration as an investment adviser to a firm that does not appear to have the necessary qualifications. The Administrator will permit the firm to function as a broker-dealer, and resubmit its request for adviser status at a later time. While it is rare, the USA does reserve the right to require a potential registrant to submit to an oral examination in addition to or instead of a written test.)

Under the Uniform Securities Act, which of the following is an investment adviser? A) Tom writes a newspaper column that analyzes and recommends securities. B) Jill is an attorney specializing in estate planning who, as a side job, structures portfolios for the beneficiaries of her deceased clients at a reduced fee. C) Jane advises customers regarding the value of gold and silver coins. D) The Trust Department of ABC Bank provides investment advice to its clients.

B (Although an attorney is generally excluded, Jill is giving investment advice for a fee in a manner that is not incidental to her legal practice. Jane's advice does not concern securities; banks are excluded from the definition; Tom's advice is not specific on the basis of the situation of each client (impersonal advice).)

Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT A) banks B) a person in the business of providing advice on municipal bonds for compensation C) broker-dealers and their agents D) a federal covered adviser

B (Although municipal bonds are exempt securities, that only refers to their exemption from registration with the state or SEC. Any person who is in the business of giving advice on securities would be defined as an investment adviser and, therefore, would require registration.)

Included in the USA's definition of exempt transaction would be any transaction by any of the following EXCEPT one by A) a trustee in bankruptcy B) a trustee of an irrevocable trust C) a marshal D) a guardian

B (Although the term trustee is found in the list of persons engaged in exempt transaction, the USA limits it to trustees in bankruptcy)

An Administrator may issue a stop order if it is in the public interest and the A) registrant is not registered in all states in which the security is proposed to be registered B) registrant is subject to an administrative stop order of a neighboring state C) registrant refuses to pay the Administrator a personal fee in addition to filing fees D) Administrator disapproves of the quality of the products manufactured by the registrant

B (An Administrator has the authority under the USA to issue a stop order if a registrant is subject to a stop order in another state. The Administrator does not have the authority to approve or disapprove of the quality of products manufactured by a registrant. The Administrator may not use the office for personal gain and therefore may not request personal fees. The Administrator may not deny a registration on the basis of its lack of registration in other states.)

An IAR is registered in New York and Vermont. While working in his New York office, he places a call to the cell phone of one of his clients who happens to be on vacation in Ohio. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Indiana. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, jurisdiction resides with the Administrator of I. New York II. Ohio III. Indiana IV. Illinois A) II and III B) I, II, and III C) I and IV D) I, II, III, and IV

B (The Administrator has jurisdiction from the state in which the offer was made (NY), received (OH), and accepted (IN). Mailing of the certificate is of no consequence.)

Under the National Securities Markets Improvement Act of 1996, which of the following statements describe federal covered securities? I. A security registered under the USA II. A security registered under the Investment Company Act of 1940 III A security of a company regulated by the U.S. Federal Reserve Board IV A security issued by the U.S. government A) II and IV B) I and II C) II, III, and IV D) II and III

C (A federal covered security has a federally imposed exemption from state registration so selecting a choice that includes registering under the USA cannot be correct. The list includes most securities exempt from registration under the federal Securities Act of 1933 (those issued by the U.S. government and state and local governments as well as bank securities regulated by the Federal Reserve Board). In addition, it includes a number of securities registered with the SEC, primarily those traded on the exchanges and Nasdaq as well as investment companies registered under the Investment Company Act of 1940.)

The Uniform Securities Act grants an Administrator a great deal of authority. Those powers would include all of the following EXCEPT the power to A) have the court appoint a receiver for the defendant's assets after the issuance of an injunction B) seek court orders for the payment of restitution against any violators of the act C) impose fines for criminal violations of the act up to $5,000 D) issue a cease and desist order with or without prior hearings

C (The Administrator does not have the power to invoke criminal penalties (three years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts. The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing. The Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator's assets,; or refer charges to the state attorney general or district attorney for prosecution.)

An applicant for registration as an investment adviser discloses on its application to the Administrator that it plans to use palm readers to help determine which investments are most suitable for their clients. Under the Uniform Securities Act, the Administrator A) will probably turn to the SEC for guidance B) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit C) is empowered to deny this application for just cause D) may only justify denial for reasons listed in the Uniform Securities Act

D (A denial of registration must be based on the concept of law. There are stated reasons for denial, such as felony convictions, outstanding injunctions, and insolvency. Where in the USA does it say an adviser can't use palm readers, a ouija board, or a Magic 8 Ball? Although disclosure of methods of analysis is required, the Administrator is not empowered to pass judgment on the merits of those methods. The USA does state that the Administrator is empowered to "condition a particular applicant's registration as a broker-dealer upon his not transacting business as an investment adviser if the Administrator finds that he is not qualified as an investment adviser." But, nowhere in this question does it indicate that the applicant is, or is applying for, registration as a broker-dealer.)

Which of the following statements is (are) TRUE? I. A person with a place of business in the state who transacts business exclusively for the accounts of banks and savings institutions is not a broker-dealer under the Uniform Securities Act. II. A person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 who offers investment advice to individual investors residing in this state, and has less than $100 million in assets under management, is subject to the jurisdiction of the state Administrator. III. A person required to register as an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular business headquartered in this state, may be subject to notice filing fees required by the state Administrator. IV. Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration. A) I and IV B) II and III C) I and II D) III and IV

D (Under the NSMIA, any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a federal covered adviser. Therefore, regardless of the amount of money under management, the state has no jurisdiction. A federal covered adviser may be subject to payment of notice filing fees. Broker-dealers who supply investment advice incidental to their business and receive no special compensation for it are not investment advisers. A person who conducts business exclusively with banks and savings institutions is a broker-dealer under the USA if he has a place of business in the state. Had the person no place of business in the state and conducted business exclusively with banks and savings institutions, he would not be considered a broker-dealer subject to the regulatory control of the state Administrator.)

Under the USA, an investment adviser's current clients must be delivered a brochure A) annually whether or not the adviser has custody or discretion B) quarterly if the adviser has both discretion and custody C) within 48 hours of renewal D) annually​, but only​ if the adviser has neither custody nor discretion

Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients,(except those who are exempt from the brochure delivery requirements {impersonal advise costing less than $500 per year and investment companies registered under the Investment Company Act of 1940}), within 120 days of the end of the adviser's fiscal year. Custody or discretion is irrelevant to this question. Under the USA, all advisory contracts, both initial and renewal, must be in writing.

While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are NOT true? A) Investigations of serious violations must be open to the public. B) In conducting an investigation, an Administrator can compel the testimony of witnesses. C) An Administrator may, by order, deny the registration of a securities professional who has been convicted of any felony within the past 10 years. D) An Administrator in State A may only enforce subpoenas from State B if the alleged violation would be a violation of the State A's statutes.

A (An investigation of serious violations need not be held in public. An Administrator can compel the testimony of witnesses when conducting an investigation. An Administrator in State A may enforce subpoenas from another state only if the alleged violation would also be a violation in his state, as well. Conviction for any felony within the past 10 years is one of a number of reasons the Administrator may have for denying a license.)

Included in the term, federal covered security, would be A) a face amount certificate registered under the Investment Company Act of 1940 B) securities issued by a sovereign government having diplomatic relations with the United States C) state of Pennsylvania bonds trading in Pennsylvania D) a commodities futures contract

A (An investment company registered under the Investment Company Act of 1940 is one of the securities defined as federal covered under the NSMIA of 1996. Futures contracts, such as precious metals, collectibles, and real estate, may be used as investment vehicles but are generally not considered to be securities, so they could not be federal covered securities. Securities issued by a foreign government and municipal securities within the issuer's home state are not federal covered securities.)

Before taking any disciplinary action with respect to a registration under the Uniform Securities Act, the Administrator must always do which of the following? I. Obtain the approval of the appropriate state court II. Find that the action is in the public interest III. Cite a cause listed in the act A) II and III B) I, II, and III C) I and III D) I and II

A (Disciplinary actions with respect to registration may be taken by the Administrator after a finding of public interest and cause. Court orders are required only for legal action, such as seeking an injunction or appointment of a receiver over an adviser's assets.)

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following are required for an agent to lawfully share in the profits of a customer's account? I. The customer's written approval II. The broker-dealer's written approval III. The agent may share only in proportion to his or her own financial contribution to the account A) I and II B) I, II, and III C) II and III D) I and III

A (To share in a customer's account, written consent of both the client and the broker-dealer need to be obtained. Unlike FINRA rules, there are no requirements for proportionate sharing.)

According to the Uniform Securities Act, a person representing an issuer in the sale of which of the following securities would have to be registered as an agent? A) Securities of a federally chartered bank B) Securities issued by a federal credit union C) Securities issued by the Government of Brazil D) Municipal bonds

B (An individual is exempt from registering as an agent only when representing the issuer in one of the limited group of five exempt securities, or in any exempt transaction. Oddly enough, a federal credit union is not on that list.)

Under the USA, which of the following is considered a broker-dealer in a state? A) An agent effecting transactions for a broker-dealer B) XYZ broker-dealer with an office in the state whose only clients are insurance companies C) A broker-dealer with no place of business in the state who only does business with other broker-dealers D) First Federal Company Trust

B (Anytime the question tells you that there is a place of business in the state, regardless of who its clients are, the firm is considered a broker-dealer in that state and is required to register as such.)

Which of the following statements are TRUE? I. An agent may never be simultaneously employed by multiple broker-dealers. II. An agent must submit separate registrations for each broker-dealer with which he is registered. III. Certain states prohibit agents from dual or multiple registration. IV. An agent who sells securities in several states must be registered with different broker-dealers in each state. A) IV only B) I only C) II and III D) II, III, and IV

C (An agent must submit separate registrations for each broker-dealer with which he is registered, and an agent may be prevented from multiple registration in those states that prohibit dual or multiple registrations.)

Under the USA, the definition of "issuer" includes a(n) A) specialist on the floor of an exchange B) officer or director of a company traded at the NYSE C) person proposing to issue a security D) market maker for publicly traded securities

C (An issuer is any person who issues or proposes to issue any security for sale to the public. Stock exchange specialists, company directors, and market makers do not issue securities and therefore are not issuers.)

An agent wishes to share commissions with an administrative assistant who provides many useful services. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) this is permitted only if the administrative assistant is employed by the same or affiliated broker-dealer B) this is permitted if there is a written agreement between the agent and the administrative assistant that has been signed by the broker-dealer C) this is permitted if the assistant is properly licensed D) administrative personnel may never receive sales related compensation

C (Sharing (splitting) of commissions is permitted when the parties are both properly registered and are employed by the same or affiliated broker-dealers.)

Under the Uniform Securities Act, which of the following constitutes an offer of a security? A) Tombstone advertisement B) Stock dividend distributed to current shareholders C) Agreement between an issuer and an underwriter D) The delivery of a prospectus to a prospective purchaser

D (A prospectus is the document that offers a security for sale. A tombstone advertisement always states that in and of itself, it is not an offer to sell, that such an offer may only be made by prospectus, and where a prospectus may be obtained.)

Under the USA, all of the following issues would be exempt from registration EXCEPT A) stock issued by savings and loan association authorized to do business in this state B) bonds issued by the city of New Orleans C) an investment contract issued in connection with an employee stock purchase plan D) stock issued by an insurance company not offering policies in this state

D (Had the insurance company been authorized to do business in this state, its securities offering would be exempt.)

Under the Uniform Securities Act, a client may sue an agent A) only if the agent is still alive B) only if the broker-dealer goes out of business C) for up to 5 years from the date of the violation D) unless the agent's broker-dealer offers to return the client's purchase price plus interest

D (If the agent's broker-dealer offers rescission to the client, the client generally will not initiate a suit because there is nothing to be gained beyond what will be received through rescission. Five years is the statute of limitations for criminal activity and this is civil.)

Which of the following is required to register as a broker-dealer? A) A person who is in the business of effecting securities transactions for the accounts of others B) A savings and loan association C) A bank D) A trust company

D (A person buying and selling securities for customers' accounts is deemed a broker-dealer under the Uniform Securities Act and must be registered as such. Specifically excluded from the definition of a broker-dealer are banks, trust companies, and savings and loan associations.)

Under which of the following circumstances will a private placement fail to qualify for exemption from registration under the USA? A) A bank holding company purchases the offering for trading purposes rather than investment purposes. B) The offer is directed to only 5 individuals during any 12-month period. C) The seller reasonably believes that individual purchasers are buying for investment purposes rather than immediate resale. D) A modest commission is paid to the agents who sell the offering to noninstitutional clients.

D (A private placement will lose its exemption if those who sell the offering are paid commissions on sales to noninstitutional clients. For a private placement to be exempt, the offer cannot be directed to more than 10 persons during a 12-month period. In the case of noninstitutional buyers, the seller must reasonably believe (nice to have it in writing, but not required), they are purchasing the offering for investment purposes only. Institutional purchasers do not have to purchase the offering for investment purposes.)

An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several which she feels are equally suitable for the client, but one of the companies is offering a trip for 2 to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent A) should only sell what is suitable for the client based on all available information B) should pack her bags and leave the firm before the compliance department learns of her actions C) will probably be disciplined for failure to disclose the potential conflict of interest D) should pack her bags for the trip; she earned it

D (The annuity recommended by the agent is offering an incentive. The agent is clearly disclosing that fact to the client and, if the client goes ahead and makes the purchase, it is with full knowledge of the potential conflict of interest. The question states that the agent considers this annuity, along with others, to be suitable.)

An investment adviser who has no office in a state is exempt from registration in a state if, during any 12-month period, he has no more than how many retail clients in the state? A) 35 B) 10 C) 20 D) 5

D (There are provisions for exclusions from the definition of investment adviser in the Uniform Securities Act. Out-of-state advisers who have no place of business in the state are not defined as investment advisers if they have no more than 5 noninstitutional (retail) clients in this state in a 12-month period. This is known as the de minimis exemption.)

When a broker-dealer furnishes clearance, settlement, and custody services for an investment adviser who directs client brokerage transactions to that broker-dealer, the adviser is A) in violation of the UPIA B) in violation of NASAA's Model Rule C) exercising discretion in the accounts of those clients D) receiving soft dollar compensation

D (Under Section 28(e) of the Securities and Exchange Act of 1934 (and NASAA Policies), broker-dealers are permitted to provide services to investment adviser in exchange for directed securities transactions as long as the services benefit the clients.)

An individual currently registered in State A would not have to register as an agent in State B if he A) solicited only 5 individuals living in State B during a 12-month period B) received an unsolicited call from an existing customer currently on vacation in State B who wishes to purchase a particular stock C) made a offer of securities to a resident of State B who is an existing customer of the broker-dealer D) made solicitations for unregistered, exempt securities to residents of State B

B (As long as the agent is properly registered in the customer's state of residence, (and he must be if this is an "existing" customer), transactions made in another state being visited by the client do not require the registration of the agent. A customer living in State B can only be called by an agent registered in that state, whether or not the securities are exempt. There is no de minimis exemption for broker-dealers or agents.)

A friend of an agent wants to sell a security and asks if the agent can guarantee a certain price. The friend offers to share his profits with the agent in return for a guaranteed price. Is this practice permissible under the Uniform Securities Act? A) No, this is unethical because an agent cannot share profits with a customer. B) No, this is unethical because the agent cannot guarantee trade prices. C) Yes, it is permissible if it is disclosed as a joint proceeds transaction and has been approved in advance by his principal. D) No, this is an example of commingling.

B (This practice is not permissible under the USA because guaranteeing profits is unethical. Agents are allowed to share profits in a customer account under certain circumstances with the client and firm permission. Commingling is the act of combining customer assets with those of an agent.)

If an agent needs to borrow money for a business venture, which of the following customers could he borrow from? A) An established customer with whom the agent has been doing business for at least one year B) Borrowing from customers is always prohibited C) Any accredited investor D) A lending institution

D (Borrowing from a customer is strictly prohibited unless the customer is a lending institution.)

An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act, A) the agent is possibly committing fraud B) a guaranteed security only guarantees payment of interest or dividends C) the agent is describing a guaranteed security D) agents should always recommend securities that are familiar to the investor

C (A guaranteed security is one where the interest and principal (in the case of a bond) are guaranteed by a third party. If a guaranteed stock, it is the dividends that are the subject of the third-party guarantee. With tens of thousands of publicly traded securities, it is unlikely that your client will be familiar with most of them, but that doesn't prohibit the agent from making the recommendation if suitable.)

A broker-dealer with no place of business in the state would not be required to register with the Administrator unless one of its clients was A) a unit investment trust registered under the Investment Company Act of 1940 B) a savings institution C) an employee benefit plan with assets of less than $1 million D) another broker-dealer

C (As defined in the Uniform Securities Act, "Broker-dealer" does not include a person who has no place of business in this state if he effects transactions in this state exclusively with or through the issuers of the securities involved in the transactions, other broker-dealers, or banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, employee benefit plans with assets of at least $1 million, or other financial institutions or institutional buyers.)

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall notify the Administrator of its capacity in the proposed transaction B) may not charge a commission on the transaction C) shall obtain client consent before completion of the transaction D) shall disclose the agency capacity before the transaction

C (In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client Both of these are required before the completion of the transaction.)

Which of the following situations would require registration as an investment adviser? I. A broker-dealer provides investment research services to a customer and charges a fee for the service II. An agent of a broker-dealer recommends the purchase of ABC securities to a customer, who then purchases 100 shares, and the agent earns a commission III. An agent of a broker-dealer prepares a complete financial plan for a customer with a one-time charge of $950. The plan recommends specific securities transactions, which the customer orders. The agent earns commissions on the securities transactions IV. A broker-dealer charges its customers a fee for collecting dividends and account maintenance, in addition to commission charges for transactions executed A) I, II, III, and IV B) I and II C) I and III D) I, III, and IV

C (Under the Uniform Securities Act, broker-dealers and their agents are not defined as investment advisers if their performance is solely incidental to the conduct of a brokerage business, and no special compensation is received for the advisory services. A broker-dealer charging for research advice is charging for advisory services, which would require registration as an investment adviser. A charge for creating a comprehensive financial plan is considered to be a charge for investment advice, even if it is only a one-time expense. It could also be considered that the commissions earned from the recommendations are indirect compensation (which is still looked at as advisory compensation). Recommendations of securities purchases are incidental to conducting a brokerage business and would not require registration as an investment adviser if no fees are charged for the advice. Broker-dealers may charge for clerical services provided to customers, but clerical services are not considered investment advisory services.)

Agent A with Firm Y and Agent B with Firm Z conduct a joint seminar. They agree to share the commissions on any resulting business. Under the Uniform Securities Act, which of the following statements regarding sharing commissions is CORRECT? A) In this instance, sharing of commissions could only be done with the approval of both firms. B) Only an agent who makes a sale is eligible to earn a commission. C) Sharing of commissions by agents of two unrelated firms is prohibited. D) Sharing commissions that are a result of a joint seminar is never permitted.

C (Unless an exception is granted by the Administrator, it is prohibited for an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.)

All of the following securities are exempt from state registration EXCEPT A) securities issued by a registered investment company B) bonds issued by the Republic of Argentina C) municipal bonds D) unsolicited orders

D (Be careful. Unsolicited orders are exempt transactions, the others are exempt securities.Furthermore, the choice, unsolicited orders, is the only one that is not a security, exempt or not.)

A security has been registered under Qualification. Which of the following statements is CORRECT? I. The registration is valid for one year from the effective date. II. The registration is valid for one year from the effective date unless the underwriter or issuer still has some unsold shares. III. The registration is valid until the next December 31st. IV. The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed. A) I and III B) I and IV C) II and III D) II and IV

D (A registration under Qualification is good for one year from the effective date, unless the issuer or underwriter still has unsold shares. In that case, it may be extended until those shares are sold. The offering could be enlarged as long as the share price is not changed. Another requirement, not in this question, is that the underwriting commissions could not be changed. So, why isn't choice I part of the correct answer? Because on the exam, when you are given two answers that are correct statements, you must choose the one that is the "most" correct; the one that more completely tells the story.)

A fraudulent transaction was initiated by an agent in Indiana by contacting a client residing in Iowa. After evaluating the offer, the client agreed to purchase the recommended security while vacationing in Florida. Which Administrator(s) has (have) jurisdiction?The Indiana AdministratorThe Iowa AdministratorThe Florida Administrator A) II only B) I only C) I and II D) I, II, and III

D (Activities that originate in a state, are directed into a state, or are accepted in a state fall under the jurisdiction of the Administrator of each of those states.)

KAPCO Advisers, a registered investment adviser, recommends the purchase of 100 shares of GEMCO common stock to one of its advisory clients. The client accepts the recommendation and the sale is made from KAPCO's inventory. This transaction A) requires both written disclosure to and the consent of the client prior to the completion of the transaction B) can only be done through a registered broker-dealer C) would be considered unethical D) may be made without restriction as long as the markup on the GEMCO stock was fair and reasonable

A (Industry rules require that investment advisers made disclosure when acting as principals (from inventory) or agents in a transaction with an advisory client. This disclosure must be made in writing - furthermore, client consent to acting in this capacity must be obtained before the completion of the transaction.)

The term "agent", as defined in the Uniform Securities Act, would not include which of the following individuals? A) One who represents an issuer in effecting exempt transactions B) One who represents a registered broker-dealer selling securities listed on the NYSE to individual clients C) One who represents an issuer of any exempt security D) One who represents a registered broker-dealer selling unregistered exempt securities

A (The USA defines an agent as an individual representing a broker-dealer or an issuer in the sale of securities. This exam will never have a case of an individual selling on behalf of a broker-dealer excluded from that definition. The securities listed on the NYSE are exempt from state registration because, under the NSMIA, they are federal covered securities. But anyone selling securities, exempt or not, while representing a registered broker-dealer must be licensed as an agent of that broker-dealer. The only case in which an individual selling securities as a representative of an issuer is always excluded from the definition of agent is when the transactions are exempt. There are 5 different categories of exempt securities where this exclusion applies as well, but it doesn't apply to all exempt securities.)

The Uniform Securities Act would NOT require which of the following to be registered as agents of a broker-dealer? A) A partner who has contributed most of the capital of the firm but takes no part in its activities B) An employee of a broker-dealer whose major function is to take orders from the public on behalf of the firm's partners C) An employee of a broker-dealer who only trades securities for the broker-dealer's institutional accounts D) A partner in a broker-dealer who actively manages the firm's day-to-day operations

A (The Uniform Securities Act defines an agent as: "any individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities." Regardless of the amount of the capital contribution, if you're not involved with securities transactions (or supervising them), you're not an agent. Employees who take orders from the public on behalf of the partners of broker-dealers and who trade securities for the accounts of broker-dealers must register as agents.)

An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sale of its securities in a specific state? A) Registration B) Notice filing C) Qualification D) Coordination

B (Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.)

Registration by coordination automatically becomes effective with federal registration if all the following conditions are satisfied EXCEPT A) a consent to service of process is filed no later than 5 days after the effective date B) maximum and minimum proposed offering prices and maximum underwriting discounts and commissions have been on file for 2 full business days C) the registration has been on file with the Administrator for at least 10 days, or some other period designated by the Administrator D) no stop order is in effect

A (There is a requirement for a consent to service of process to be filed along with the registration statement, not after the effective date. Registration by coordination requires maximum and minimum proposed offering prices and maximum underwriting discounts and commissions on file for 2 full business days. It is also true that registration will become effective with federal registration if no stop order is issued, and that registration must be on file with the Administrator for at least 10 days.)

Under the Dodd-Frank Act of 2010, which of the following is required to register as an investment adviser on the state level? A) An adviser who manages client accounts with less than $100 million in value B) An adviser who acts as a pension consultant to employee benefit plans with assets of $200 million or more C) An adviser to investment companies registered under the Investment Company Act of 1940 D) An adviser who manages client accounts in excess of $100 million in value

A (Under the Dodd-Frank Act of 2010, only advisers who manage client assets that total less than $100 million are required to register with the state Administrators. Those who manage client assets of at least $110 million, advise registered investment companies, or act as pension consultants to large pension funds (at least $200 million in assets) are required (or are eligible, in the case of the pension consultant) to register with the SEC and are exempted from state registration. (There is a corridor between $100 and $110 million in which the adviser has a choice of state or federal registration.))

In order for a surety bond to meet the requirements of the Uniform Securities Act, it must provide that A) any customer who can prove a violation is entitled to collect against the bond B) because bonds are transferable, any agent's bond may be used to meet the obligation of another agent C) the bond must remain in force no less than two years after the withdrawal of registration D) it is in the form of cash or marketable securities

A (Under the USA, every bond shall provide for suit thereon by any person who has a cause of action under the provisions of the Act. The Administrator must accept cash or securities in lieu of the surety bond, but cash is not a requirement - the bond will do just fine.)

The registration of an investment adviser would automatically register investment adviser representatives who are I directors II officers III partners

B (Section 202 (a) of the Uniform Securities Act states, "Registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.")

Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. B) Margin account agreements must be received before the first margin trade in the account. C) The options account agreement must be received within 15 days after the customer's account has been approved. D) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade.

B (The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt.)

Which of the following would subject an agent to a denial of registration? I. An arrest for fraudulent behavior in selling securities to an insurance company 2 years ago II. Conviction of a securities-related misdemeanor eight years ago III. Losing a civil lawsuit three years ago that related to the agent's actions as a landlord IV. Failure to pay filing fees A) I, II, and III B) II and IV C) I and IV D) II, III, and IV

B (Conviction, not merely an arrest, for a misdemeanor involving securities within the past ten years, and failure to pay filing fees are grounds for denial. Loss of a civil suit not related to the securities industry is not a cause for denial to an agent or IAR.)

An agent learns of material, inside information regarding a company that is publicly held. Which of the following with respect to the information would NOT violate the Uniform Securities Act? A) Soliciting orders based on this information B) Discussing the situation with a superior or compliance officer in the agent's firm C) Trading for the agent's personal account based on this information D) Discussing the information at a seminar but not making an investment recommendation

B (Discussing the situation with a superior or compliance officer is the appropriate action. An agent may not solicit or trade on the basis of material inside information. Discussing material inside information in a public forum is prohibited, regardless of investment recommendations.)

Which of the following would be included in the Uniform Securities Act's definition of a "sale"? A) Conveying, for value, precious metals to a jewelry distributor B) Transfers, for value, of unit trusts to a nontaxable organization C) Donation of interests in rights, warrants, or options on a nonexempt security D) Sale of a large fixed annuity contract to a taxable institution

B (For a security to be sold, it must be exchanged for value. Fixed annuities and precious metals are not securities, so no security sale took place. Donating a security does not qualify as a sale.)

A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash to purchase securities using marginable securities in the account as collateral. Which of the account documents authorizes the use of those securities as collateral for that loan? A) The secured agreement B) The credit agreement C) The loan consent agreement D) The hypothecation agreement

B (It is the credit agreement, sometimes referred to as the margin agreement, which contains all of the terms of the loan. In addition to explaining how the interest is charged and the right of the firm to liquidate collateral if a call for additional funds is not made, the credit agreement contains the terminology which authorizes the broker-dealer to use the value of the account as collateral for the margin loan made by the BD to the client.The hypothecation agreement permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement.)

Under the Uniform Securities Act, the definition of an investment adviser does NOT include I. investment adviser representatives II. lawyers and accountants whose investment advisory services are solely incidental to their practices III. broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided IV. federal covered investment advisers A) I, II, and III B) I, II, III, and IV C) II and III D) I only

B (None of the above are included in the term "investment adviser" as used in the Uniform Securities Act. Federal covered advisers are regulated by the Securities Exchange Commission (SEC). The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual registration of investment advisers by federal and state authorities. If federal covered advisers were defined as investment advisers under the USA, then they would be subject to the same state registration procedures as local or state investment advisers.)

Which of the following securities are exempt from the registration provisions of the USA? I. Issue of a savings and loan association authorized to do business in this state II. General obligation municipal bond III. Bond issued by a company that has common stock listed on the New York Stock Exchange A) II and III B) I, II, and III C) I only D) II only

B (The USA exempts a number of different issues from registration, including securities issued by a bank, or anything that functions like a bank (e.g., a savings and loan or credit union). Securities issued by a governmental unit are always exempt. Securities listed on the New York Stock Exchange are part of a group known as federal covered securities that also includes those listed on the NYSE American LLC (formerly known as the American Stock Exchange) and Nasdaq Stock Market issues. If the common stock is listed, then any security of that issuer that is equal or senior in claim to the common is also considered exempt.)

Conceptual Financial Solutions (CFS), a broker-dealer registered in States S, B, F and G, has a television commercial broadcast on a station whose studio is located in State S. An individual client who resides in State B, makes an offer to buy based on that advertisement. The State B Administrator would have jurisdiction A) only if the security or the transaction was not exempt B) when CFS accepts the buyer's offer C) at the time the broadcast is received in State B D) when the client made the offer

B (The USA provides that a person in State B who makes an offer to buy as a result of an advertisement he sees in a paper published in State S (or a radio or television program originating in State S) may render the statute applicable in a specific state if the seller (CFS) then accepts the offer "in this state" (that is, State B). For our purposes a radio or television program is considered to originate in the state where the microphone or television camera is (State S) and therefore is typically only under the jurisdiction of that state's Administrator. However, when as a result of the advertisement, a resident of another state makes an offer, if it is accepted, then, because a transaction is considered to have taken place in that other state (State B in our question), the Administrator now has jurisdiction.)

Under the Uniform Securities Act, the term person would include I any natural person who has a valid U.S. passport II. a political subdivision III. an unincorporated association IV an inter vivos trust A) I, II, III, and IV B) II, III, and IV C) III and IV D) I and II

B (The term person has an extremely broad definition. It is best to remember the three things that are not persons: minors, individuals who have been judged incompetent, and deceased individuals. Minors can have passports; any natural person would include them and they are not persons under the act.)

NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents would likely consider which of the following to be prohibited activities? I. A client is rather insistent on purchasing a security deemed unsuitable by the agent. In an effort to dissuade the client, the agent furnishes several websites of analysts who have issued negative reports on that security ​ ​II. An agent takes an order from the client's attorney without written trading authorizatio​n ​III. An agent takes an order from the secretary of a nondiscretionary client who is too busy to give the order h​ersel​f ​IV. An agent encourages a client to acquire a security on the basis of research recently published by the broker-dealer for its institutional clients A) I and II B) I and III C) II and III D) II, III, and IV

C (An agent cannot take trading orders from anyone but the client unless he has written authorization on file. Using publicly available information to encourage a client to change their opinion about an unsuitable investment is acting in the client's best interest and there is nothing wrong with using "house" research reports to develop client recommendations, as long as they are suitable.)

Under the Uniform Securities Act, which of the following is excluded from the definition of investment adviser? I. A bank II. An investment adviser representative III. A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain IV. An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940 A) II and IV B) II and III C) I, II, III, and IV D) I, II, and III

C (Banks, IARs, federal covered advisers, and lawyers are all specifically excluded from the definition of investment adviser. Any investment adviser under contract to manage a regulated investment company must register with the SEC and is, therefore, a federal covered adviser (regardless of where they have an office). Remember that the law makes a distinction between investment advisers and their representatives and that certain professions are excluded from the definition if the investment advice provided is solely incidental to the practice of that profession. Making suggestions as to how to invest proceeds from a legal settlement would certainly appear to be incidental to the practice of law. Banks are given a blanket exclusion.)

Which of the following are not specifically excluded from the definition of an investment adviser under the Uniform Securities Act? I. An investment adviser representative of an advisory firm who makes securities recommendations on a regular basis for compensation II. A temporary employee hired to assist in administrative responsibilities of an advisory firm III. Any person who is a federal covered investment adviser IV. A person who, on a regular basis for compensation, offers specific investment advice to clients as to the value of securities A) II and III B) I and IV C) IV only D) II and IV

C (Clerical and ministerial personnel, full-time or temporary, are not included in the definition of either investment adviser representatives (supervised persons) or investment advisers. Other persons associated with an investment adviser, including officers of the firm, are generally considered to be investment adviser representatives. An investment adviser representative is not an investment adviser in the same manner that an agent is not a broker-dealer. A federal covered adviser is not, for definitional purposes, considered an adviser under the USA to avoid duplicate regulation by both the state and the federal government.)

First Securities Advisers, Inc., a subsidiary of First Securities Broker-Dealers, Inc., requires customers to have a minimum of $250,000 under management and charges them 1% in advisory fees based on the amount of assets in their accounts. Clients also pay commissions for securities transactions in their accounts at First Securities Broker-Dealers, Inc. First Securities Advisers, Inc., has A) violated the Uniform Securities Act by charging commissions in addition to advisory fees B) violated the Uniform Securities Act by charging excessive advisory fees C) not violated the prohibition against performance fees D) violated the prohibition against charging performance fees

C (First Securities Advisers Inc. has not violated the prohibition against charging performance fees because it did not base its fees on a share of capital gains or losses in their clients' accounts. First Securities charged on the basis of assets under management. The 1% in advisory fees charged appears reasonable. The commissions charged by the affiliated broker-dealer have nothing to do with the question. The client would have to pay commissions wherever the transactions were executed.)

According to the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following conditions must be met for an agent to share in the profits or losses of the customer's account? I. The agent has the employer's written consent II. The agent has the customer's written consent III. The agent has a capital stake invested in the account IV. The percentage of the profits/losses shared is proportionate to the agent's personal investment in the account A) I, II, and III B) II, III, and IV C) I and II D) I, II, III, and IV

C (In order for an agent to share in an account with a client, prior written consent of the client and the employer broker-dealer must be obtained. Unlike FINRA rules, there is no requirement that gains/losses be shared on a proportionate basis. Please do not confuse this point with a similar looking question asked about investment advisers. There are no circumstances under which an investment adviser may share with a customer in an account.)

An agent has more than 200 customers and after extensive research on initial public offerings issued by solar energy companies, she recommends that each customer purchase shares in Solargreen, Inc. If the agent discussed the risk of buying Solargen stock with each customer, the agent has acted A) lawfully, because the agent performed due diligence analysis on the recommended company B) lawfully, because the risk was presented to the customers C) unlawfully, because the recommendation does not consider the financial objectives of each customer D) unlawfully, because solar energy is an industry that is highly dependent on local weather conditions

C (In recommending the same stock to 200 customers, the agent failed to consider the investment objectives and financial ability of each customer. The chance that an initial public offering is suitable for all 200 of the agent's customers is virtually impossible. This is generally referred to as a blanket recommendation.)

Under the Uniform Securities Act, Laura Smith must register as an investment adviser representative unless she A) opens a financial planning business in which she is the sole owner and advises individual clients on the advisability of investing in securities B) sells her financial planning business in order to become a full-time employee of AAA Investment Advisers, Inc., where she advises clients whose net worth exceeds $5 million C) sells registered securities solely on a commission basis for a registered broker-dealer D) opens a sole proprietorship in Virginia and offers investment advice for a fee on an ongoing basis to residents of Virginia whose combined assets under management total $35 million

C (Laura Smith, as an employee of AAA Investment Advisers, Inc., must register in the state as an investment adviser representative. As the sole owner of a financial planning practice and an investment advisory proprietorship, Laura must register as an investment adviser representative. Please note that registration of the investment adviser entity automatically registers officers, partners, and so forth, who are already functioning as IARs. When Laura functions as an agent for a broker-dealer, she must register as an agent, not an investment adviser representative.)

A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that A) this is the hypothecation agreement B) if the client does not sign the document, the account cannot be opened C) this is the loan consent agreement D) this is the credit agreement

C (No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional.)

Which of the following is considered a sale of securities under the Uniform Securities Act? I Redemption of mutual funds shares worth $10,000 II Dividends of common stock for which no consideration was given for the dividends III With the approval of the board of directors, an exchange of common stock for the stock in another company under a merger IV Disposition of stock for which cash consideration is received A) II and IV B) I, II, and III C) I and IV D) II and III

C (Redemption of mutual fund shares is always treated as a sale by the redeeming shareholder. The exchange of securities in a merger is not considered a sale under the act. Any disposition (liquidation) of securities that involves cash consideration, or in which the shareholder has a choice of cash or securities, is a sale.)

When it comes to social media, agents need to understand the difference between interactive and static content. Which of the following would be considered static content? A) Emails sent to clients B) Comments on a Facebook posting C) A broker-dealer's profile posted on Facebook D) Tweets

C (Static content is content that remains posted until it is changed by the firm or individual who established the account. Interactive content is generally real-time communications, such as the other three choices shown here.)

Under the Uniform Securities Act, an offer is made in a state when I it originates in that state II it is broadcast by radio or TV from outside the state III it is contained in a newspaper published outside the state but delivered to an address in that state A) I and III B) II and III C) I, II, and III D) I only

D (An offer is made when it originates in a state. An offer is also considered to be made in a state when it is directed by the offerer to that state and is received at the place to which it is directed. However, offers received via a TV or radio broadcast that originated out of state or offers contained in a newspaper published out of state are specifically excluded.)

An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state A) up to 2 years after the broker-dealer voluntarily withdraws its registration B) based upon facts known to the Administrator at the time of the broker-dealer's initial registration C) upon discovery that the broker-dealer's license had been suspended in another state D) upon discovery that an agent of the broker-dealer is convicted of a felony violation involving securities fraud

C (Suspension (or revocation) of a broker-dealer's registration in another state is adequate cause for this state's Administrator to initiate the process to suspend the broker-dealer's registration in his state. A felony committed by an agent of the broker-dealer is not usually cause for the Administrator to initiate a proceeding against the broker-dealer. It is only when the question states that the individual is an officer, director, or partner of the firm, or the agent's actions are due to failure to supervise, that action against the firm will generally commence. The Administrator maintains jurisdiction over a license that has been withdrawn for a period of 1 year after the effective date of the withdrawal (it is FINRA who maintains jurisdiction for 2 years). It is only the discovery of new facts unknown to the Administrator at the time of initial registration that can lead to a proceeding.)

The Administrator of a state's securities department strongly believes that the registration statement for a security contains a substantial amount of misleading information and that investing in the security is likely to cause immediate and egregious harm to its investors. Under the following circumstances, the Administrator may A) revoke the registration statement, denying the applicant a hearing for an unlimited amount of time B) revoke or deny the registration statement and must schedule a hearing within 30 days of issuing the summary process order C) issue a stop order to deny or revoke the registration statement, but must provide the applicant with the opportunity for a hearing D) not revoke or deny the registration statement until a hearing takes place

C (The Administrator may deny or revoke the registration statement but must provide the applicant with an opportunity for a hearing. In addition, the Administrator must give appropriate prior notice to the applicant or registrant, the issuer, and the person on whose behalf the securities are to be or have been offered, and present written findings of fact and conclusions of law.)

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client I if the Administrator has not prohibited this practice II if the investment adviser has notified the Administrator that it has custody III as long as the adviser does not also have discretionary authority over the account A) I only B) II and III C) I and II D) I and III

C (The Administrator may prohibit investment advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing if the investment adviser has custody. However, custody has nothing to do with investment discretion.)

The Uniform Securities Act specifically exempts certain issues from the registration and advertising filing requirements of the act. Which of the following securities does NOT carry that exemption? A) Bank holding company stock B) Canadian government bond C) 6-month commercial paper with a top rating and sold in minimum denominations of $100,000 D) A debt issue of the District of Columbia

C (The securities of banks, trust companies, and savings institutions are exempt; the securities of bank holding companies are not. Commercial paper with a maturity of 270 days or less that is in the top 3 grades and has a minimum denomination of $50,000 is also included in the list of exempted securities. State and local issues are exempt and D.C. is considered a "state" under the USA.)

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A) charges for late payments B) issuance of a stock certificate C) advisory fees D) account inactivity fee

C (There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.)

An investor who resides in New York reads a newspaper ad for advisory services in a newspaper published in New Jersey. More than 80% of the newspaper's circulation is in the state of New York. According to the Uniform Securities Act, an offer has been made in A) New York B) New Jersey C) New Jersey and New York D) neither New Jersey nor New York

D (An offer is not made when a newspaper is circulated but not published in the state, or if it is published in the state but has more than two-thirds of its circulation outside of the state.)

When an Administrator acts summarily to suspend the registration of a security, which of the following statements is TRUE under the Uniform Securities Act? A) The suspension will not go into effect until after a hearing. B) Broker-dealers may only accept unsolicited orders during the period of suspension. C) A hearing must be held within 10 days of written request of the registrant. D) The registrant must be promptly notified of the action and given an opportunity for a hearing.

D (Acting summarily means acting without prior notice. An Administrator who has grounds may postpone or suspend a registration by issuing a stop order. The registrant must be promptly notified of the action and of the opportunity for a hearing. The hearing must be held within 15 days of a written request, and the suspension will remain in effect until final disposition. Even though unsolicited orders are exempt transactions, once a registered security has been the subject of a summary suspension, all trading in that security is halted.)

An agent wishes to be able to share in the profits and losses in a customer's account. Which of the following requirements must be met? A) Sharing may occur only in proportion to each party's financial contribution to the account. B) Written approval from the client must be received within 10 business days of the initial sharing in the account. C) The sharing arrangement must be approved by the Administrator. D) Written consent must be furnished by the client along with approval from the employing broker-dealer.

D (Agents are permitted to share in the profits and losses in an account with a client once written consent has been received from the client and the employing broker-dealer. Unlike FINRA rules, there is no requirement that the agent have a financial interest in the account.)

In general, the Administrator would require that a broker-dealer's social media policies A) be limited to defining the responsibilities of supervisory personnel B) be left up to the manager of each branch office C) be updated at least once every 3 years D) be committed to writing and communicated firmwide

D (Although NASAA does not yet have a Model Rule dealing with social media, individual states have developed policies, and most of them mirror FINRA's, which requires that a firm's social media policies be in writing and made known to all in the company. It is not just supervisory personnel who must know the policy; any employee is subject to it. Updating every 3 years is not nearly frequent enough in this dynamically changing industry.)

When it comes to advertising by investment advisers and their representatives, which of the following would be most likely to be acceptable to the Administrator? A) A "like" from a client on an investment adviser representative's Facebook page with a comment on the wonderful service the client received B) Offering prospective clients a free 3-month trial to the investment adviser's special investment formula that assures success C) Showing past performance over the past 12 months of a group of securities selected from all of the adviser's recommendations D) A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child.

D (Although investment advisers and their representatives are prohibited from using testimonials from clients, it has been determined that a Facebook "like" commenting on something of a non-business related manner, such as the birth of a child, a wedding anniversary, admiring photos posted of a vacation, and so forth, is not considered a testimonial. Commenting on the IAR's service would be a testimonial. When showing past performance, an investment adviser cannot "cherry-pick" the ones it wishes to show—all recommendations of similar types of securities (all common stock, or all bonds) must be shown. No securities professional can ever assure investment success—that would be considered a performance guarantee.)

An Administrator could use which of the following as a reason for issuing an order denying the registration of a security? I. The issuer's enterprise or method of business includes or would include activities which, although legal in the state of incorporation, are illegal in the Administrator's state. II The company has not been paying dividends. III The offering would be made with unreasonable amounts of underwriters' and sellers' discounts. A) III only B) I, II, and III C) I only D) I and III

D (An Administrator may deny the registration of a security when the activity to be conducted in the state is illegal. The underwriter's compensation may not be unreasonable. There is no requirement that dividends be paid in order to register a security.)

Under NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents, which of the following activities (if performed by an agent) are considered fraudulent, dishonest, or unethical? I. Executing a transaction in a margin account without securing an executed written margin agreement from the customer, promptly after the initial transaction in the account II. Executing a transaction either with or for a customer at a price not reasonably related to the current market price III. Guaranteeing a customer against loss on securities purchased IV. Personally providing safekeeping and custodial services for clients' cash and securities A) I, II, and III B) II and IV C) I and IV D) I, II, III, and IV

D (An agent may not take personal possession of clients' cash and securities. The broker-dealer, however, can provide safekeeping and custodial services. Agents must execute trades at prices related to current market prices and may not guarantee the performance of a security. An agent may execute a trade in a margin account providing the agent receives a written margin agreement promptly after the initial trade.)

As fiduciaries, investment adviser representatives owe their clients an affirmative duty of utmost good faith and full disclosure of all material facts. This affirmative duty of disclosure is required by the investment adviser representative in all of the following situations EXCEPT A) when the advice being provided is outside the scope of the services provided by the investment adviser and is not under supervision or control of a supervisory person B) when compensation is received from the affiliated broker-dealer for transactions that are executed through the brokerage house C) when a family member has a beneficial interest in a private medical equipment firm that the IAR recommends to a client D) when donating funds to a nonprofit medical research institute that owns securities the IAR has recommended

D (An investment adviser representative need not disclose donations to nonprofit organizations, even those with whom the IAR has a client relationship. In all of the other cases, even when outside of the scope of the investment adviser's business, an IAR must always make full disclosure to clients.)

Which of the following statements describes the powers of the Administrator over the issuance of orders? I. A final order may be appealed in the appropriate court within 60 days of the order being issued. II. Appeal of a final order will act as a stay of the order, unless a court of competent jurisdiction rules to the contrary. III. No final order may be issued without the opportunity for a hearing. IV. Final orders must receive approval from the state legislature. A) I and IV B) II and IV C) II and III D) I and III

D (Any final order of the Administrator may be appealed within 60 days of the order. The appeal does not act as a stay of the order. Only a court of competent jurisdiction may issue a stay of the order. Because the final order is similar to passing sentence, an opportunity for a hearing must be granted. The Administrator's orders are not related to the state legislature.)

Under the Uniform Securities Act, an investment adviser is exempt from registration if the person has no place of business in a state and does not direct communication I. to more than 5 noninstitutional clients II. to more than 15 noninstitutional clients III. within 9 consecutive months IV. within 12 consecutive months A) II and IV B) I and III C) II and III D) I and IV

D (As long as communications are directed to no more than 5 noninstitutional clients in a 12-consecutive-month period and the adviser does not have a place of business in the state, an exemption from registration is provided. This is the de minimis exemption and applies only to investment advisers and investment adviser representatives, not to broker-dealers or agents.)

Steven is registered as an agent with Maple Leaf Securities, a Canadian broker-dealer located in Toronto with no offices in the United States. One of Steven's clients has recently made a permanent move to Florida. Which of the following statements with respect to Steven is CORRECT? A) Under no circumstances is Steven permitted to have any dealings with this client once residence in Florida has been effective for more than 30 days. B) Steven and Maple Leaf Securities must register with both FINRA and the State of Florida. C) Steven 's current Canadian registration is sufficient to deal with a client who moves to another country. D) As long as the only dealings with this client are with a previously established Canadian tax qualified retirement plan, Steven only has to file an application and a consent to service of process.

D (Canadians have their equivalent of our IRA called an RRSP and, as long as the account is opened in Canada with a properly registered agent, that agent may continue to handle transactions in that account for clients who move out of the country.)

Each of the following statements is true EXCEPT A) the Uniform Securities Act is a template rather than the actual law of any state or territory of the United States B) the state securities administrator takes responsibility for the enforcement and administration of a state's securities law C) NASAA is responsible for the content of the Series 63 exam D) the National Securities Markets Improvement Act of 1996 (NSMIA) requires states and the federal government to have identical registration requirements

D (NSMIA's purpose is to eliminate dual registration, not to require identical laws. The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. The Series 63 exam's content is the responsibility of NASAA)

Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences? I. The private placement exemption places a limit on the number of sales to retail investors while the preorganization certificate places a limit on the number of offers to all investors. II. Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. III. It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate. IV. Commissions may be paid on the sale of a private placement to noninstitutional clients, while no remuneration is payable on the sale of a preorganization subscription. A) I and III B) I and IV C) II and IV D) II and III

D (No money changes hands in the sale of a preorganization certificate or subscription, while the seller receives payment in the case of a private placement. The state will consider a private placement an exempt transaction if it is anticipated that individual (noninstitutional) investors are purchasing for investment only, not immediate resale. No holding period restrictions are placed on preorganization certificates. Only in the case of a sale of a private placement to an institutional client is it permissible to pay commissions. Finally, choice I has it backwards. When referring to retail (noninstitutional) investors, there is a limit to the number of offers (10), while in the preorganization certificate, the number of sales (subscribers) is limited to 10 regardless of whether they are retail or institutional.)

Under the USA, a person representing the issuer is not considered an agent in any of the following transactions EXCEPT A) when the transactions are exempt B) investment contracts issued in connection with an employee's stock purchases, savings, pension, profit-sharing, or similar employee benefit plan C) promissory notes, drafts, or bankers' acceptances with a maturity of nine months or less D) nonexempt, initial public offerings confined to a single state of registration

D (Persons who represent nonexempt issuers of new securities, whether issues are confined to their state of registration or not, are agents under the USA. An individual who represents an issuer in either the sale of certain exempt securities, such as short-term paper, or in an exempt transaction, is excluded from the definition of agent.)

Which of the following would be an agent under the terms of the Uniform Securities Act? I A sales representative of a licensed broker-dealer who sells secondary securities to the general public II An assistant to the president of a broker-dealer who, for administrative purposes, accepts orders on behalf of senior partners III A subsidiary of a major commercial bank registered as a broker-dealer that sells securities to the public IV An issuer of nonexempt securities that are registered in the state and sold to the general public A) II and III B) II and IV C) I and IV D) I and II

D (Under the USA, only an individual can be an agent (a person who sells securities for a broker-dealer). An administrative person, such as the assistant to the president of a broker-dealer, is considered an agent if that individual takes securities orders from the public. Corporate entities, broker-dealers, and issuers are all excluded from the definition of an agent.)

Which of the following transactions would constitute a violation of the Uniform Securities Act? I. An individual representing the issuer of a non-exempt security in an exempt transaction without registration as an agent II. While acting on behalf of an issuer, an individual, who is not registered as an agent, sells shares of an unregistered nonexempt security to fewer than 15 noninstitutional clients III. The sale of a Canadian government bond to the resident of a state in which the agent is not registered IV. Representing an issuer of municipal bonds without being registered as an agent in the issuer's state A) II and IV B) I and III C) I and IV D) II and III

D (Representing an issuer of certain exempt securities (the municipal bond) or of a non-exempt security that is sold in an exempt transaction, (choice I) does not require registration. If the sale is of an unregistered nonexempt security, the only way the individual could sell on behalf of the issuer without being an agent is if it was in an exempt transaction, one of which is the limited offering exemption (private placement). That applies when there is a maximum of 10 offers to retail clients within a 12 month period and choice II uses the term, sells. Without knowing the number of offers, we cannot determine if the individual's actions qualify as an exempt transaction. In the case of doubt, assume they don't. Even though the Canadian bond is an exempt security, any agent must be registered in the state(s) in which the security is sold - the exemption applies to the security, not the agent.)

Foster Advisers, based in New Jersey, manages $135 million in funds for New Jersey-based clients. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following statements best describes the registration requirement for Foster Advisers? A) Foster Advisers is required to register as an adviser with the SEC and has no requirement to notify the Administrator of the New Jersey Department of Securities. B) Foster Advisers is required to register with the Administrator of the New Jersey Department of Securities. C) Foster Advisers is required to register with both the SEC and the Administrator of the New Jersey Department of Securities. D) Foster Advisers is required to register as an adviser with the SEC and notify the Administrator of the New Jersey Department of Securities of its operation.

D (Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, investment advisers with $110 million or more in assets under management must register with the SEC. These advisers are called federal covered advisers. Investment managers who manage less than $100 million must register with the state Administrator. Advisers with at least $100 million but less than $110 million of assets under management have the option to register with either their state Administrator or with the SEC. Once the $110 million level is reached, registration with the SEC is mandatory. With $135 million under management, Foster Advisers must register with the SEC. Foster Advisers is subject to the additional requirement of notifying the administrators of the securities departments of states in which it maintains offices or clients of its operations. At the state level, a notification fee (but not registration) is generally required. One aim of the NSMIA was to eliminate dual registration of investment advisers with the states and the SEC. Investment advisers are not required to register at both state and federal levels.)

In order for the Administrator to suspend an agent's registration, compliance with the requirements of the Uniform Securities Act would NOT require that A) notice is given of the proposed action and hearing B) the agent is presented with an opportunity for a hearing C) notification is given to the employing broker-dealer of the final order D) the agent receives court-appointed defense counsel if she can't afford her own

D (The Administrator may by order summarily postpone or suspend registration, pending final determination of any proceeding under the USA. The hearing is not in a formal court so there is no court to appoint defense counsel. Upon the entry of the order, the Administrator shall promptly notify the applicant or registrant, as well as the employer or prospective employer, if the applicant or registrant is an agent or investment adviser representative, that it has been entered and of the reasons therefor and that within fifteen days after the receipt of a written request, the matter will be set down for hearing. Since the law states that the employer will be notified once the action commences, it should be obvious that once the suspension order becomes final, the employer will be notified.)

Under the Uniform Securities Act, an offer and sale does NOT exist if it is I. the result of a class vote by stockholders regarding a merger or consolidation II. a bona fide pledge or loan III. an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares IV a gift of nonassessable securities A) I, II, and III B) I and II C) II and IV D) I, II, III, and IV

D (The Uniform Securities Act specifically excludes all four choices from the definition of an offer and a sale.)

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? They must be renewed on an annual basis. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. They must prohibit the use of discretion without the client's authorization. A) I and III B) I and II C) I, II, and III D) II and III

D (There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. Advisory contracts must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated and must prohibit discretion without the client's consent.)

Under the Uniform Securities Act, which of the following is TRUE regarding registration of agents? A) An agent's registration remains in effect even during a period when the agent is not employed by a registered broker-dealer. B) Agents are automatically registered when they pass their securities test. C) Registration in the state where an agent has her business office enables the agent to do business in any state where the broker-dealer has an office. D) To register, an agent must submit a completed application for registration, a filing fee, and a signed consent to service of process.

D (To register, an agent must file an application, a consent to service of process, and a filing fee as described in the correct answer. Registration is not effective during any period when the agent is not employed by a registered broker-dealer, and the Administrator must be notified when an agent's employment begins or ends. Agents must be registered in each state in which they do business.)

Which of the following transactions would NOT be exempt under the Uniform Securities Act? A) Securities are sold that were collateral for a defaulted loan B) The executor of an estate sells securities to liquidate the property C) A customer calls his broker-dealer to order a specific security D) A registered dealer sells Canadian government securities to an individual client

D (Unsolicited, nonissuer transactions (customer calls the broker-dealer to order or sell a security) are exempt transactions, as are fiduciary transactions to liquidate estates or receiverships by guardians, executors, administrators, trustees or, conservators. Sales of securities that had been pledged as collateral for a defaulted loan are also exempt transactions. The sale of Canadian government securities by a registered dealer represents a security that is exempt under the Uniform Securities Act, but the transaction itself is not.)