Series 65 Unit one Continued

Under both federal and state law, an exemption from registration is granted to municipal bonds. Qualifying for that exemption would be all of the following EXCEPT A) bonds issued by a state B) bonds issued by a city C) bonds issued by a school district D) bonds issued by the U.S. Treasury

D (Municipal bonds are those issued by any governmental unit from the state level on down. This would include political subdivisions and local entities such as school, park, and road districts. Treasury bonds are government, not municipal, bonds.)

Under the USA, what are the maximum penalties for a securities-related felony? A) $3,000 and 5 years imprisonment B) $3,000 and 3 years imprisonment C) $5,000 and 5 years imprisonment D) $5,000 and 3 years imprisonment

D (Under the USA, the maximum penalty is $5,000 and/or 3 years' imprisonment for a securities-related felony.)

An applicant for registration as an investment adviser discloses on Form ADV that it plans to use palm readers to help determine investments most suitable for their clients. Under the Uniform Securities Act, the Administrator A) is empowered to deny this application B) may deny applications only on the basis of the limitations of the law C) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit D) will probably turn to the SEC for guidance

B (A denial of registration must be based on the concept of law. There are stated reasons, such as felony convictions, outstanding injunctions, and insolvency. Although it is required to disclose methods of analysis used, the Administrator is not empowered to pass judgment on them.)

Which of the following is(are) considered an associated person(s) of a broker-dealer under the Securities Exchange Act of 1934? I. Any employee of a broker-dealer, except for clerical or ministerial employees II. Any officer, partner, or manager associated with the broker-dealer III. Any employee, other than a clerical or ministerial employee, who is supervised by, supervises, or is under common supervision of the broker-dealer A) I and III B) I, II, and III C) I and II D) II and III

B (An associated person is any officer or person in a control position to the broker-dealer or any employee of the broker-dealer, except for clerical or ministerial employees.)

According to the Investment Advisers Act of 1940, which of the following is always a natural person? A) The city of Chicago B) An investment adviser representative C) A broker-dealer D) An investment adviser

B (Natural persons are human beings. An adviser representative must be an individual. Although there are broker-dealers and investment advisers organized as a sole proprietorship, almost all are structured under some type of business form. A city is never an individual.)

If a federal covered adviser's fiscal year ends on October 31, 2017, it must file its annual updating amendment to its Form ADV no later than A) December 31, 2017 B) March 30, 2018 C) February 28, 2018 D) January 29, 2018

D (The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal-year end.)

Fusion Financial is a broker-dealer registered in States A, B and C, with its home office in State B. A complaint is filed against the firm by a client who resides in State A. Under the powers granted under the Uniform Securities Act, the Administrator of State B could do all of the following EXCEPT A) gather evidence from State A B) gather evidence from State B C) subpoena witnesses from State C D) issue an injunction against Fusion Financial

D ​​(An Administrator has the power to gather evidence both within and outside of the home state, as well as subpoena evidence and witnesses in any state.​ Only the courts can issue an injunction.​)

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm's website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight, this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would A) not be permitted to contact your clients until it was ascertained that the report was publicly available on the firm's website B) be permitted to contact your clients with this recommendation no sooner than tomorrow C) be required to send your clients to the firm's website before making comments regarding this security D) be permitted to contact your clients with this recommendation right now

A (A firm's internal research may be considered inside information. Clients may be contacted as soon as the public has access to the report. A posting on the firm's web site is an acceptable method of public access.)

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed? Transaction-based compensation, such as commissions on recommended securities 12b-1 trails on no-load mutual funds in the client's portfolio Expenses reimbursed by third-party sources Compensation-sharing arrangements between the investment adviser and its representatives A) I ,II, and III B) I and III C) III and IV D) I, II, III, and IV

A (All forms of compensation, whether direct or indirect, must be disclosed. However, the method by which an adviser pays its representatives is an internal matter and not for public disclosure.)

An agent would be engaged in a prohibited practice if he I. split commissions with other agents of his broker-dealer II. sold a nonexempt, unregistered security to a CPA who specialized in auditing financial institutions III. shared both the gains and losses in a client's account with written approval of both the client and the employing broker-dealer IV. aggressively traded a discretionary account on a daily basis with long-term growth as an objective A) II and IV B) I and IV C) I and II D) I, II, III, and IV

A (An agent cannot lawfully sell an unregistered, nonexempt security unless in an exempt transaction. The sale to the CPA is not an exempt transaction, as would be the sale to a financial institution. Day trading in an account with long-term growth as an objective would constitute unsuitable activity and, therefore, is prohibited under USA. Sharing commissions is only permitted with agents of the same or affiliated broker-dealers. Remember that investment adviser representatives may never share in the gains and losses in a customer's account in the same fashion that agents can.)

A Canadian broker-dealer is registered in Province Q. The firm has clients who vacation in several New England states and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act, A) this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing B) this is permissible only if the broker-dealer is registered with the SEC C) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the United States D) this would only be permitted if the trades were executed through an affiliated domestic broker-dealer who is licensed in those states

A (Canadian broker-dealers and their agents must be registered in any state in which they wish to do business with exisiting clients who are temporarily in the state. The Uniform Securities Act provides for a form of limited registration for Canadian broker-dealers wishing to do business with their clients who are vacationing or otherwise traveling through the United States. In order to qualify for the limited registration, the BD must be properly licensed in its home province and their only dealing in the states is with an existing client.)

Under current regulations, registration with the SEC is optional for all of the following investment advisers EXCEPT A) CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board B) Midwestern Asset Managers, LLC, with $53 million in AUM, required to register in 17 states C) Grand Visions Advisers, a sole proprietorship with $104 million in AUM D) Employee Benefit Specialists, Inc., a pension consultant with $225 million in AUM

A (Currently, registration with the SEC is mandatory (not optional) for any investment adviser managing a registered investment company (open or closed-end). It is optional for: 1. pension consultants once their AUM reach $200 million; 2.small and mid-size advisers who would be required to register in 15 or more states; and 3. those advisers with at least $100 million in AUM, but not $110 million in AUM. Any of these choosing to register with the SEC are federal covered advisers and do not register with any state, although a notice filing may be required.)

Defalcator Investment Planning (DIP) has $175 million in AUM and has offices in States A, K, and R. DIP would be required to provide a balance sheet as part of its brochure if it charged fees of A) $1,500 for the next year's advisory service. B) $1,500 for the next 3 months of advisory service. C) $600 for the next 6 months of advisory service. D) $1,200 for the next 6 months of advisory service.

A (Federal covered investment advisers, who charge substantial prepayment of advisory fees, must include a balance sheet with their brochure. The definition of a substantial prepayment is: more than $1,200, 6 or more months in advance. The correct choice is the only one meeting both requirements. Remember, it isn't $1,200 or more, it is more than $1,200 and it must be for at least 6 months of service to count. Please notice that with $175 million in AUM, DIP must be SEC registered; the location of its offices is irrelevant to the question.)

According to the Uniform Securities Act, which of the following would be considered exempt transactions? I. The sale of a unlisted corporate bond by an executor of an estate II. The gift of 100 shares of a NYSE-listed stock from a father to his minor child III. Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made IV. An unsolicited order from an individual client to purchase a nonexempt, unregistered security A) I and IV B) II and III C) III and IV D) I and II

A (Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place.)

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include I. a charge when a client requests that a stock certificate be issued in his name II. a commission charge when a client buys a security on a listed exchange III. the interest charged by the firm on money owed by customers in their margin accounts IV. fees for providing advisory services to high-net-worth individuals A) I and III B) III and IV C) II and III D) I and IV

A (If we know what charges are not included in the fee disclosure, it is easy to recognize those that are. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: 1. commissions; 2. markups and markdowns; and 3. advisory fees for those firms that are also registered as investment advisers.)

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. Because of this, when performing an examination of the IA, the Administrator not only will look for disclosure-related items in the disclosure document but may also check the adviser's I. advertising II. contracts III. seminar materials IV. websites A) I, II, III, and IV B) I and II C) III and IV D) I, III, and IV

A (Improper disclosures in any form of communication with the client is a prohibited business practice.)

Plenitude Premier Solutions (PPS) is registered in State C. If PPS wished to maintain custody of client funds or securities, A) prompt notice would have to be given to the State C Administrator on Form ADV. B) permission would have to be obtained from the State C Administrator . C) notice is given to the State C Administrator as part of the annual updating amendment. D) prompt notice would have to be given to the State C Administrator in a private letter.

A (It is unlawful for an investment adviser, registered or required to be registered in a state, to have custody of client funds or securities unless the investment adviser notifies the Administrator promptly in writing on Form ADV that the investment adviser has or may have custody.)

Which of the following is a fraudulent or prohibited activity for an agent under the Uniform Securities Act? A) Implying that registration of a security means approval of the security B) Stating that zero-coupon bonds pay no current interest C) Selling common stock to a customer with income objectives D) Using the dividends paid in the last 12 months to determine the current yield of a common stock

A (Registration of a security with the SEC or the state implies neither approval nor disapproval. To state otherwise is fraudulent. Dividends paid in the last 12 months determine the current yield of a common stock. Selling common stock to a customer with income objectives is not a fraudulent activity if suitable to the client's objectives. Zero-coupon bonds pay no current interest and to state so is not a fraudulent activity.)

An IAR handling the portfolio of a senior citizen with diminished mental capacity is deemed to be acting as a fiduciary and, therefore, bound by the provisions of the Uniform Prudent Investor Act. Compliance with the act would require the IAR to do all of the following EXCEPT A) make sure that the investment allocation is done prior to the renewal date of the contract B) seek to meet the client's objectives with minimum risk C) use skill and caution in making investment recommendations D) carefully consider the risks of all investments

A (The UPIA requires that fiduciaries act with skill and caution in an effort to meet their clients' objectives. In so doing, they should attempt to maximize returns while minimizing risks. What does making the allocation prior to contract renewal have to do with properly serving your client?)

Sharon Smith is an investment adviser representative with Highwater Advisers, a federal covered investment adviser with its principal office in State X. Sharon provides advisory services to a bank located in State X, a state in which she has no place of business. Under current regulations, A) because Sharon has no place of business in State X, she does not have to register as an IAR in State X. B) because Sharon's client is a bank, she does not have to register as an IAR in State X. C) because Sharon has a client in State X, registration as an IAR would be required in State X. D) because Highwater's principal office is in State X, Sharon would be required to register as an IAR in State X.

A (The key is that Sharon is an IAR for a covered IA. When that is the case, the IAR is only required to register in states where she (the IAR) maintains a place of business. Sharon does not have a place of business in State X so no registration is required there. The fact that the client is a bank is of no relevance nor is the location of her employer's principal office.)

Four years after discovering a noncriminal violation of the USA in the sale of a security, a client can A) do nothing because the statute of limitations is limited to 3 years after commission of the violation or 2 years from date of discovery of the violation, whichever comes first B) demand that the trade be rescinded with compensation for damages less income earned. C) accept more favorable access to IPOs to the extent of the damages incurred D) agree to a partial settlement and waive any further rights under the USA

A (The statute of limitations for noncriminal violations of the USA is 3 years after commission of the violation or 2 years from date of discovery, whichever comes first. In this instance, the client can do nothing.)

SYZ Corporation is having a rights offering that will enable existing shareholders to acquire 1 share of SYZ common stock for each 10 shares they currently own. Under the Uniform Securities Act, this would be considered I. an offer of SYZ rights II. a sale of SYZ rights III. an offer of SYZ common stock IV. a sale of SYZ common stock A) I and III B) II and IV C) II and III D) I and IV

A (This is obviously an "offer" of the rights (that's what the question says). In addition, the USA states that any offer of a right or warrant that gives the holder the ability to subscribe to another security is also an offer of that security.)

Which of the following would be considered an unethical business practice? A) Agents correcting execution orders in their customer's accounts B) Broker-dealers charging larger than ordinary commissions on certain transactions C) Broker-dealers sending retail clients an email 30 days in advance of a change to fees D) Agents exercising discretion in discretionary accounts

A (When a good-faith error is made, only the firm can make the correction; the regulators are concerned that giving that power to an agent could lead to covering up unethical activity. When the security involved in the trade is thinly traded (inactive), it is customary to charge a higher commission to cover the added expense. Broker-dealers are required to deliver a copy of their fee schedule no later than account opening. When changes are made, notice must be given at least 30 days in advance and may be done electronically (by email or posting on the firm's website).)

Which of the following constitutes a sale of stock? I. Solicitation of a tender offer by a corporation II. Gift of assessable stock III. Purchase of shares through the exercise of a warrant IV. Exchange of shares in a corporate reorganization, such as a merger A) I and II B) II and III C) I, II, and IV D) III and IV

B (A gift of assessable stock constitutes a sale under the USA because the corporation that issues assessable stock can bill shareholders for cash representing the par value shortfall at a future date. Upon the exercise of a warrant, the holder of the warrant purchases stock and the issuing corporation sells the stock. Under the Uniform Securities Act, the solicitation of tender offers by corporations and exchange of shares in corporate reorganizations are not sales.)

Which of the following statements are TRUE of a discretionary account at a broker-dealer's? I. The opening must be approved by a supervisory person of the firm. II. It must be reviewed frequently. III. A discretionary order may be placed once the customer has placed a IV. power of attorney in the mail. It must be approved by the SEC. A) III and IV B) I and II C) II and IV D) I and III

B (A new discretionary account must first be approved by the appropriate supervisory person, orders must be approved on the day of the trade, and the account must be reviewed frequently for suitable activity. The written authorization must be in hand before any discretion may be exercised.)

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

B (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 an investment adviser prepares a BCP, it should be based on I. the size of the firm the firm's annual net income the number of locations of the firm the types of services provided A) I, II, III, and IV B) I, III, and IV C) III and IV D) I and III

B (The amount of an investment adviser's net income is not relevant to a BCP)

Under the Uniform Securities Act, which of the following persons is responsible for proving that a securities issue is exempt from registration? A) State Administrator B) Issuer C) No need to prove eligibility for an exemption D) Underwriter

B (The burden of proof for claiming eligibility for an exemption falls to the person claiming the exemption. In the event the registration statement was filed by someone other than the issuer, such as selling stockholders or a broker-dealer, that person must prove the claim.)

Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? I. An adviser that requires prepayment of $1,000 in fees, 9 months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. II. An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. III. An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients. A) I and II B) I and III C) II and III D) I, II, and III

C (An adviser's financial impairment must be disclosed to clients if the adviser has discretion or has custody or requires prepayment of more than $1,200 in fees, 6 or more months in advance. Legal or disciplinary action taken against an adviser by a court or a regulatory authority within the past 10 years must be disclosed to clients in any case. Note also that by requiring prepayment of over $1,200 in fees, 6 or more months in advance, an adviser is required to include an audited balance sheet with Part 2 of Form ADV, which must be filed with the SEC and made part of the adviser's disclosure brochure.)

Under the NASAA Model Custody Rule, an investment adviser would be considered to have custody of client assets if that adviser inadvertently receives I. a check from a client for a purchase that is made payable to the investment adviser and does not return the check within 24 hours II. a check from a client for a purchase that is made payable to a third party and does not forward the check within 3 business days III. stock certificates from a client and does not forward them within 3 business days IV. stock certificates from a client and does not return them within 3 business days A) I, II and IV B) II and III C) II and IV D) I and IV

C (Checks made payable to a third party must be forwarded to that party within 3 business days of receipt or the IA will be considered to be maintaining custody. In the case of certificates or checks made out to the IA for a securities purchase, return must be made within 3 business days of receipt in order to avoid custody issues; they are never forwarded.)

A client of an investment adviser needs a bridge loan and approaches the IA to see if the firm is interested. Because the IA is not in the business of lending money, a special agreement is drawn up specifying the terms of the loan. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers A) the loan would not be permitted under any circumstances B) the loan could be made if the client was an institutional investor C) the loan could only be made after the advisory contract was terminated D) the loan could be made if the IA was affiliated with a bank

C (First of all, a "bridge" loan has nothing to do with a bridge. The client is not trying to cross over anything. The term is used to refer to a short-term loan to provide funds until permanent financing may be arranged. Now that we've got that out of the way, we can answer the question. Loans may never be made to clients unless the firm is in the business of lending money. Because this IA states that it is not their business model, the only way this loan could be made is if there was no adviser/client relationship.)

It is not uncommon for many federal covered advisers to be affiliated with a broker-dealer. Take the case where an IAR with a federal covered adviser is also an agent with a broker-dealer. When dealing with advisory clients, all of the following are true EXCEPT A) the IAR must disclose that the advisory services he offers are separate from the broker-dealer B) the IAR must disclose that trades will be executed through his broker-dealer unless the client elects otherwise C) the IAR must disclose that he is liable for any losses suffered in the account due to poor portfolio performance D) the IAR must disclose that he may earn commissions in addition to the fees charged for advice

C (Full disclosure of all possible conflicts of interest must always be made. However, registered persons can never assume liability for losses due to poor portfolio performance.)

Under the Uniform Securities Act, which of the following statements are TRUE? I. It is unlawful for anyone to conduct business as a broker-dealer in a state unless also registered as an agent. II. A registration statement may be filed by an issuer itself, a broker-dealer, or any other person on whose behalf the offering is to be made. III. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act. IV. Registrations are automatically renewed one year after approval, provided no violations occurred during the year. A) I and IV B) II and IV C) II and III D) I and III

C (It is unlawful for anyone to conduct business as a broker-dealer in a state unless properly registered as such; an agent is not a broker-dealer. A registration statement can be filed by an issuer itself or any other person on whose behalf the offering is to be made, or by a broker-dealer. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act. Registrations expire on December 31 unless renewed, regardless of violations.)

Which of the following is responsible for administration of the Bank Secrecy Act? A) Securities and Exchange Commission B) Security Services C) The Financial Crimes Enforcement Network D) Department of Health and Human Services

C (Or FinCEN as it is more commonly printed.)

As defined in the Uniform Securities Act, an issuer is any person who issues, or proposes to issue, a security for sale to the public. Based on that definition, which of the following is not an issuer? A) The AAA Manufacturing Company, which proposes to offer shares to the public but has not completed the offering B) The U.S. government announcing an offering of 20 year Treasury bonds C) A partner in the AAA Oil and Gas Partnership selling his interest in the investment D) The City of Chicago, which is involved in a distribution of tax-exempt highway improvement bonds

C (The Uniform Securities Act defines an issuer as any person who issues, or proposes to issue, a security. The resale of a partnership interest by an investor is a nonissuer sale because the investor is not the issuer. Examples of issuers are a municipality such as the city of Chicago, which issues tax-exempt highway improvement bonds; the AAA Manufacturing Company, which proposes to offer shares to the public even though it has not completed the offering; and the United States government, when it offers Treasury bonds.)

The definition of "offer" (offer to sell) includes which of the following? I. An attempt to dispose of a security for value II. A solicitation of an offer to buy an interest in a security for value III. The actual sale of a security for value IV. An offer to dispose of a security for value A) I, II, III, and IV B) I and IV C) I, II, and IV D) I only

C (The term "offer" (or offer to sell) is any activity in an effort to dispose of a security for value, such as the offer to sell or the solicitation of an offer to buy a security. The term "sale" or "sell" includes every contract of sale, contract to sell, or any disposition of a security for value.)

The Uniform Securities Act provides for both civil and criminal prosecution. In which of these cases might an agent face civil liability? A sale was made of an unregistered nonexempt security. During a sales presentation, the agent misstated a material fact that resulted in the prospect deciding to make the purchase. The agent was included in the judgment along with the broker-dealer for a civil infraction. A) I and II B) I and III C) I, II, and III D) II and III

C (These are all cases for civil, not criminal liability. Unless it can be proven that the agent acted willfully and with knowledge, it is hard to have a criminal case.)

Which of the following transactions are exempt? I. XYZ Corp., a local manufacturing firm, sells its common stock to several local individual accredited investors on an infrequent or isolated basis. II. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's 5-year fixed-income securities, rated AAA by Standard & Poor's, on a regular basis to selected members of his large retail client base. III. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's securities to a high-net worth client on an unsolicited basis. IV. Alexander Wimpton had his sizable portfolio of stocks and bonds sold by the administrator of his estate upon his death. A) II and III B) I and IV C) III and IV D) I and II

C (Unsolicited secondary market transactions and those made by an estate's executor are exempt transactions; the net worth of the client is immaterial. While the AAA bonds may be an exempt security, soliciting regular transactions (unless with institutional buyers) is not an exempt transaction. XYZ Corp., a local manufacturing firm, is an issuer of the common stock. Had it been a nonissuer transaction on an isolated basis, the transaction would have been exempt and the accredited investor status of the clients is meaningless here.)

Witherspoon, Eustis, and Brahmin (WEB), an investment banking firm and SEC-registered investment adviser, is the principal underwriter for MTEX's upcoming stock issue. Lynn Black is an analyst and IAR with WEB, and she learned from an employee in MTEX's programming department that a serious problem was recently discovered in the software program of its major new product line. In fact, the problem is so bad that many customers have canceled their orders with MTEX. Black checked the stock's prospectus and found no mention of this development. The red herring prospectus has already been distributed. According to WEB's required code of ethics, Black's best course of action is to A) report her discovery to the Administrator of the state where MTEX's principal office is located. B) notify potential investors of the omission on a fair and equitable basis. C) inform her immediate supervisor at WEB of her discovery. D) keep quiet because this is material nonpublic inside information.

C (Whether the adviser's code of ethics or rules of FINRA and NASAA, whether acting as an investment adviser or broker-dealer, the answer to a question like this is always to notify your immediate supervisor. From there, it will probably be taken to the chief compliance officer (CCO). Depending on the nature of the problem and the firm's policies, it might be necessary for this to be escalated to the proper regulatory authorities, but we can't tell that from the information given. You can never go wrong with going to your supervisor.)

Under the Uniform Securities Act, requirements for registration as an investment adviser in a state include which of the following? I. The Administrator may require an announcement of the application for registration in one or more newspapers in the state. II. Minimum financial requirements for federal covered advisers with a place of business in the state who have custody of customer funds and/or securities, or have discretionary authority over customer accounts. III. For those needing a surety bond, it must provide that any customer who can prove a violation is entitled to collect against the bond. A) I, II, and III B) II and III C) I and II D) I and III

D (A published announcement may be required by the Administrator. The Administrator may not impose any financial requirements upon federal covered advisers (other than to pay a fee when notice filing). The USA has specific wording requiring that customers who can prove they were the subject of a violation by the IA are entitled to collect against the bond.)

As a general matter, the regulators do not treat posts by customers or other third parties as the firm's communication with the public. Under certain circumstances, however, third-party posts may become attributable to the firm. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content. Where the firm has involved itself in the preparation of the content, it is known as A) adoption. B) fraud. C) preparation. D) entanglement.

D (Entanglement is the term used to describe material posted to a securities professional's social media site by a third party where the securities professional has taken part in the preparation of the material. This differs from adoption where the firm has endorsed or approved of the post, but played no part in its preparation.)

An agent has a client who is relatively new to investing in securities, having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended, and its market price has recently fallen by over 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upwards with the market. This action is A) fraudulent unless the agent receives permission from a designated supervisor B) fraudulent because the agent has a fiduciary responsibility to the client to manage the account in her best interests C) permitted because the client is not selling anytime soon and why cause her to be upset D) fraudulent because it is equivalent to giving fictitious quotations

D (Fictitious quotations, not giving accurate prices, is a fraudulent practice, even when done to make the client feel better.)

Which of the following investment advisers would be permitted to use the term "investment counsel"? A) A professional providing a market timing service with an annual subscription fee of $995, with this service attempting to maximize profits by suggesting entry and exit points for over 100 listed stocks B) An investment adviser who has been admitted to the bar in the state in which the firm's principal office is located C) A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice D) A firm whose exclusive business is placing clients' assets into model portfolios

D (In order for the term "investment counsel" to be used, two criteria must be met. First, the principal business of the adviser must be the rendering of investment advice. Second, the nature of the advice must meet the definition of investment supervisory service. That means giving continuous investment advice to clients based on their individual needs. That is frequently accomplished by selecting model portfolios most appropriate to the client's needs. The financial planner clearly is not principally in the business of offering investment advice because he describes his service as offering a wide range of services, of which advice is only a part. The exam frequently uses that wording to indicate that advice is not the principal activity. While the publisher's principal business activity may be offering advice, nothing about the description indicates that individual client accounts are being monitored.)

If John Good, a properly registered investment adviser, opens his own office and hires several representatives to work for him, his business card may NOT read A) John Good Investment Advisers, Inc. B) Good's Investment Advisers, Inc. C) Good and Associates Investment Advisers, Inc. D) Good Performance Advisers, Inc.

D (John Good, a registered investment adviser, cannot put on his business card "Good Performance Advisers." In this instance, the word Good can be interpreted as an adjective modifying the word performance, as opposed to John's given name, Good. An adviser cannot present himself to the public in terms that can be misleading or interpreted as exaggerating performance. The other three choices are appropriate because they do not use the term Good as an adjective touting the results of the adviser, but as the name of the adviser.)

An Administrator has specific authority under the USA to I. suspend the registration of a security if the suspension is in the public interest and the offering has excessive underwriting fees II. issue emergency injunctions to prevent a violation of the act III. enforce subpoenas in the state at request of an Administrator of another state for alleged violations that occurred in another state IV. require that the proceeds from an offering be held in escrow until the issuer receives a certain percentage of the sale of the securities offered A) I only B) II and III C) I, II, and IV D) I, III, and IV

D (The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive fees or commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.)

An investment advisory firm advertises a stock-picking system that helps investors choose the timing and selection of securities for purchase. Under the Investment Advisers Act of 1940, which of the following must be disclosed in the advertisement? I. The number of years the system has been used successfully II. The difficulty of using the system III. The limitations of the system A) I and II B) I only C) I and III D) II and III

D (The act prohibits reference to any formula, charting, or graphing device without disclosing the difficulties or limitations in their use. The number of years used is not required.)

For purposes of safeguarding customer information, which of the following would be considered a covered account? A) An account in the name of the State of X employee pension fund B) A margin account in the name of the Interglobal Hedge Fund C) An account in the name of the Wells Morgan Bank D) A margin account in the name of Mary Beth Simmons

D (The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.)

Which of the following practices is prohibited under the Uniform Securities Act? A) Altering the customer's order at the request of a customer, which subsequently results in a substantial loss B) Participating in active trading of a security in which an unusually high trading volume has occurred C) Offering services that an agent cannot realistically perform because of his broker-dealer's limitations D) Failing to inform the firm's principal of frequent verbal customer complaints

c (An agent may not offer services that he cannot perform. An agent may participate actively in trading a security in which an unusually high trading volume has occurred, provided the trading is not designed to create a false appearance of high volume. An agent is only required to report written complaints to his employing principal, although it would be wise to report repeated oral complaints if they are serious.)