66-Final 3
An investment adviser that is registered with the SEC under the Investment Advisers Act of 1940 moves to a new location. Which statement is TRUE? A. An amendment to Form ADV must be filed promptly with the SECB. An amendment to Form ADV must be filed with the SEC within 90 days C. A Form ADV-W must be filed promptly with the SEC D. No filing with the SEC is required for this change
The best answer is A. A new address for an investment adviser would require a prompt amendment of the Form ADV filed with the SEC (remember, the SEC wants to know who you are, and where you can be found). Note, in contrast, that the NASAA rule for an "other-than-annual" updating amendment is that it be filed in 30 days; as opposed to the SEC rule requiring the amendment to be filed "promptly."
A Registered Investment Adviser who is also a registered representative manages a client's account, charging the client both commissions on trades and an advisory fee. Which statement is TRUE? A. This is not unethical as long as disclosure is made to the client B. This is unethical because a client cannot be charged both commissions and advisory fees at the same time C. This is not unethical because a client can be charged both commissions and advisory fees at the same timeD. This is not unethical as long as the total charges are fair and reasonable
The best answer is A.An investment adviser that charges advisory fees to a client for recommending securities; and then charges commissions to that client on trades performed; would be engaging in an unethical practice if the adviser did NOT disclose the 2 sources of revenue. As long as disclosure is given to the customer (and the charges are fair), this is OK. The overriding theme here is that all charges to customers must be disclosed.
A "non-issuer" corporation directs its employees to solicit orders for non-exempt securities. For this work, the corporation is paying commissions to the employees. Under the Uniform Securities Act, the corporation: A. falls under the definition of a "broker-dealer" which must be registered B. falls under the definition of an "issuer" that must register C. falls under the definition of an "investment adviser" that must register D. is exempt from the definition of a "broker-dealer" and does not have to registered
The best answer is A.If the corporation is a "non-issuer," it is not selling its own securities. It is selling the securities of other companies - which is the definition of a "broker-dealer." Furthermore, since it is paying a commission to its agents, the transactions are not exempt. This firm must be registered as a broker-dealer and its agents are required to be registered as well.
The Administrator alleges that an agent of an out-of-state broker-dealer solicited the sale of an unregistered security within that State. The broker-dealer must: A. provide evidence that the security was exempt from registration B. prove that the transaction was unsolicited C. terminate the agent D. all of the above
The best answer is A.The Administrator is alleging that the broker-dealer solicited the sale of an unregistered security in that State. To solicit a transaction in the State, unless an exemption is available, the broker-dealer, agent, and security, must be registered in that State.
Under SEC rules established by NSMIA, an individual that files a registration application will be denied if the applicant has: A. served 1 year or more in jail B. pleaded "no contest" to criminal charges C. been named in a civil lawsuit within the past yearD. been fined $10,000 or more by a court of law for violations of securities statutes
The best answer is A.The National Securities Markets Improvement Act includes a provision that keeps individuals that have served 1 year or more in jail and that have a criminal record from being registered as advisers with the SEC.
An issuer hires an agent and registers that individual to distribute an offering of its securities. Which statement is TRUE under NASAA rules? A. If the agent solicits transactions in a State where the agent is not registered, the issuer can be held liable B. If the agent finishes distributing this securities offering and there is time left until the agent's registration lapses at year end, he or she can work for another issuer distributing that issuer's securities C. The agent is only permitted to sell the issuer's securities to employees of that issuer D. The agent must also affiliate with a registered broker-dealer in order to distribute the offering of securities
The best answer is A.The definition of an "agent" under State law is an individual who represents a broker-dealer or issuer effecting, or attempting to effect, purchases or sales of securities. Thus, Choice D is incorrect. An example of an agent of an issuer would be a general partner of a limited partnership who hires a "wholesaler" to market partnership units to investors. This individual is an agent of the issuer, marketing securities to the public and the agent must be registered in the State where the agent resides to do so. The agent must also be registered in each State where he or she solicits individuals to buy partnership units. Choice B is false because if this person goes to work for another issuer, that issuer must register this person as an agent of that issuer. Choice C gets at an exclusion from the definition of an "agent" which is given to an employee of an issuer who only sells that issuer's securities to issuer employees without being compensated for those sales. This exclusion from registration is designed for issuer employees who place employee funds in stock purchases of that employer through stock option or retirement plans. It has no bearing on this question. question # 1-1-147-1
Which of the following statements is TRUE regarding an investment adviser that solely follows and recommends NYSE listed securities? A. The adviser is subject to either State or Federal registration depending upon the amount of assets under management B. The adviser is subject to State registration onlyC. The adviser is exempt from State registration D. The adviser is exempt from State and Federal registration regardless of the amount of assets under management
The best answer is A.There is no exemption from registration for an investment adviser that follows only listed securities, at either the State or Federal level. The adviser must be registered in the State if it manages assets of less than $100,000,000; and if the adviser manages assets of $100,000,000 or more, it must register with the SEC.
When an investment adviser representative meets with the spouse who is the beneficiary of an estate of a client who has recently died, what is the first question that the IAR should ask? A. "What are your immediate cash flow needs?" B. "Is the estate taxable and what is the potential tax liability?"C. "Did the deceased have a life insurance policy that was in force?" D. "Have you put your home up for sale to reduce expenses and free up cash?"
The best answer is A.When a spouse dies, the immediate problem faced by a surviving spouse, other than planning for a funeral, is making sure that he or she is able to pay the normal bills that come due. Thus, the first question should be asked is "What are your cash flow needs? The other questions are pertinent as well, but they are longer-term items. If the client had life insurance, then the death claim should be filed with the insurance company to get the death benefits. As far as putting up a house for sale, that is a longer term decision. Also, whether the estate is taxable (not likely because of the large estate tax exclusion) is not an immediate concern, since any death tax is not due until 9 months after death.
If a 13d filing is required, notice must be filed with the Securities and Exchange Commission within: A. 1 business dayB. 10 business days C. 15 business days D. 20 business days
The best answer is B.If a person accumulates a 5% or greater equity holding in a publicly held company, a 13d filing must be made within 10 business days. A copy is sent to the SEC; the exchange where the security trades; and the Board of Directors of the company.
An agent of a broker-dealer is approached by the manager of a local bank, who tells that agent the following: "If you have any customers who want an extremely safe investment, you can sell them CDs issued by our bank and we will pay you a $50 referral fee for each completed sale." Which statement is TRUE about the agent engaging in this activity? A. This is permitted because the CD is an exempt securityB. This is an unethical activity known as selling away unless the agent obtains written permission of his or her firm to sell the bank's CDs C. This is an illegal activity because agents are prohibited by law from selling away from their employing broker-dealer D. This is permitted because the agent is only receiving nominal compensation for each CD sold
The best answer is B.If an agent wishes to sell a security that is not being offered by his or her firm, the agent is "selling away" from the firm. This is prohibited under both FINRA and NASAA rules unless the agent gets written approval of the firm to engage in the transaction. All securities transactions effected by agents must be known to the employing firm and must be supervised by the employing firm. Note that selling away is not illegal - there is no law stating that selling away is prohibited. Rather, it is an unethical practice if an agent "sells away" without the permission of his or her firm.
Which statements are TRUE about an adviser offering discounted rates? I An investment adviser is permitted to offer a discount from standard rates to selected categories of customersII An investment adviser is permitted to offer a discount from standard rates only if all customers are given the discountIII The investment adviser can offer the discount as long as charges to all of the investment adviser's customers are fair and reasonableIV The investment adviser can offer the discount as long as the fact that discounts are offered is disclosed in the Form ADV Part 2A A. I and IIIB. I and IV C. II and III D. II and IV
The best answer is B.Investment advisers do not have to offer the same rates to all their customers - they are permitted to pursue additional business by offering defined groups a discounted rate. However they must offer these discounts to all customers that qualify for the terms of the discount - for example, the discounted fee might apply only to members of a local Rotary Club; or the discount might only apply to customers that invest at least $200,000 with the adviser. The adviser must disclose the existence and terms of the discounts in the Form ADV Part 2A ("the Brochure") that is given to clients.
Under the Investment Advisers Act, of 1940, required information in the registration application for an investment adviser includes: A. employees of the investment adviserB. officers, directors, and non-participating shareholders of the investment adviser C. remuneration of all officers and directors and non-participating shareholders of the investment adviserD. record of any disciplinary actions taken during the past 15 years by regulatory organizations against persons associated with the investment adviser
The best answer is B.Under the Investment Advisers Act of 1940, registration applications name the officers, directors and shareholders of the investment adviser. The names of the investment adviser's employees are not included. The remuneration of the officers and directors is not disclosed. Any disciplinary actions taken against the adviser by a self-regulatory organization must be disclosed in the registration application (there is no time limitation on this).
Under the Uniform Securities Act, the registration of a broker-dealer may be revoked if the firm: A. effects short sales in non-exempt securities B. effects over-the-counter transactions on a principal basisC. does not maintain required records D. does not file customer complaints with the Administrator
The best answer is C.A broker-dealer's registration may be revoked if the firm fails to maintain required records. Broker-dealers are allowed to sell securities short - this is a normal trading practice. Broker-dealers effect over-the-counter transactions on either an agency basis (earning a commission) or a principal basis (earning a mark-up). There is no requirement for a broker-dealer to file customer complaints with the Administrator.
An updating amendment to Form ADV must be filed by an investment adviser with the SEC: I within 45 daysII within 90 daysIII of the firm's fiscal year endIV of the calendar year end A. I and III B. I and IVC. II and IIID. II and IV
The best answer is C.An annual amendment of Form ADV must be filed electronically with the SEC no later than 90 days after the firm's fiscal year end. Note that the updating ADV amendment must be filed with NASAA under the same time frame for State-registered advisers.Do not confuse this with the NASAA requirement that all registrations expire December 31st of each year, unless renewed (and that all important annual renewal fee is paid!).
n March, an investment adviser wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1st. In order to do this: I the investment adviser must amend the Form ADV filed with the State immediatelyII the investment adviser must amend the Form ADV filed with the State within 30 daysIII the adviser's customers must approve of the change by July 1stIV the adviser's customers are not required to approve the change A. I and III B. I and IVC. II and IIID. II and IV
The best answer is C.Any changes to an advisory contract are a material change that must be filed as a Form ADV update with the State within 30 days. In addition, since this is a contract between the customer and the investment adviser, both parties must agree to any changes.
If an investment adviser finds that its Net Capital is below the minimum requirement, it MUST: I give immediate electronic notice to the AdministratorII give notice to the Administrator no later than the next business dayIII file a report of financial condition with the Administrator no later than the day after notice is givenIV file a report of financial condition with the Administrator no later than 10 business days after notice is given A. I and III B. I and IVC. II and III D. II and IV
The best answer is C.If an investment adviser's net worth (or net capital) falls below the minimum level set by the State, notice must be given to the Administrator by the close of business the next day of such net worth deficiency. After transmitting such notice, the investment adviser must file, by the close of business on the next business day, a report of its financial condition, including a:trial balance of all ledger accounts;statement of all client funds, securities, or assets which are not segregated;computation of the aggregate amount of client ledger debit balances; anda statement as to the number of client accounts.
Under the Uniform Securities Act, an investment adviser may be formed as which of the following? I CorporationII PartnershipIII AssociationIV Broker-dealer A. I and II B. III and IVC. I, II, III D. I, II, III, IV
The best answer is C.Investment advisers (and broker-dealers) can be formed as any legal operating entity, such as a corporation, partnership, sole proprietorship, association, etc. Investment advisers cannot be formed as broker-dealers; nor can broker-dealers be formed as investment advisers. Each is a legally separate entity, and each is regulated separately.
An Investment Adviser has obtained written discretion from a client. If the IA wishes to assign the advisory contract to a Sub-Adviser, which statement is TRUE? A. The transfer can be effected without notification to the client because the Investment Advisor has written discretion from the client B. The transfer can be effected without notification to the client as long as there is a written signed contract between the Investment Adviser and the Sub - AdviserC. The transfer can be effected if the client is notified in writing and gives written consent to the transfer D. The transfer is not permitted unless the customer signs a new advisory contract with the Sub-Adviser
The best answer is C.Just because a customer has given an Investment Adviser discretionary authority in writing does not mean that this gives the IA the power to assign the customer's contract. Discretionary authority only gives the IA the power to make investment decisions in the account without needing the customer's advance consent to each transaction. To assign the contract to a different adviser requires that the customer's signature, consenting to the transfer.
A person makes an initial application for State registration on September 30th. Which statement is TRUE regarding the filing fee? A. The fee will be pro-rated and only 3/12ths of the annual fee must be paid B. The fee will be pro-rated and only 9/12ths of the annual fee must be paidC. The annual fee is not pro-rated and the full year filing fee must be paid D. No filing fee is due until the annual December 31st renewal
The best answer is C.Registration applications for broker-dealers, investment advisers, and agents expire on December 31st of each year, unless the Administrator changes that date. If a new application is filed at any point during the year, there is no pro-rating of the annual filing fee amount.
A customer contacts her IAR (Investment Adviser Representative) and tells her to: "Sell my 1,000 share XYZZ stock position if the price falls to $35 per share." After receiving this customer's order, the IAR stumbles across an XYZZ company press release that has not yet been distributed stating that the company has lost an extremely large government contract. The press release occurs 3 days later, at which point the stock's price dives and becomes worthless. The IAR was able to sell the customer's stock at $35 when the price was falling. Which statement is TRUE about this? A. This is an insider trading violation because the trade was based on non-public information B. This is not an insider trading violation because the customer was attempting to avoid a loss and was not trading to make a profitC. This is not an insider trading violation because the customer placed the order before the IAR knew of the non-public information D. This is not an insider trading violation because the IAR did not solicit the customer to place the sell order
The best answer is C.The customer placed the sell order before the negative information was known to the IAR. The IAR had no inside information at that point, and there is no mention of the customer knowing this information prior to placing the order. Thus, there is no insider trading violation. Note that Choice B is incorrect because an insider trading violation can occur if a trade is made based on non-public information either to make a profit or avoid a loss. Choice D is incorrect because it makes no difference if a trade is solicited or unsolicited, when determining if an insider trading violation occurred.
Under the Investment Company Act of 1940, an investment adviser's contract is initially set for: A. 1 year; and is subject to renewal every year thereafter B. 1 year; and is subject to renewal every 2 years thereafterC. 2 years; and is subject to renewal every year thereafter D. 2 years; and is subject to renewal every 2 years thereafter
The best answer is C.The investment adviser's contract is initially set for 2 years and is then renewed annually. The contract renewal is approved either by the Board of Directors of the Fund; or a majority vote of the outstanding shares.
Which of the following MUST notify the Administrator if an agent of a broker-dealer is terminated? I AgentII Ex-employerIII FINRA A. I only B. II onlyC. I and II D. I, II, III
The best answer is C.Under the Uniform Securities Act, when an agent associates with a broker-dealer; or terminates those activities that make him an agent; both the agent and the broker-dealer must notify the State Administrator promptly. Note, in contrast, that if an agent of an investment adviser is terminated, only the adviser is required to notify the Administrator; and if an agent of a federal covered adviser is terminated, only the agent is required to notify the Administrator.
A customer enters a bank branch where he has a savings account and is approached by the branch manager who asks: "Are you interested in earning a higher rate of return than we offer on our savings accounts? Let me introduce you to our securities representative." If the customer opens a securities account, which disclosures are required to be made? I Securities products are not insured by the Federal Deposit Insurance CorporationII Securities products are not deposits or other obligations of financial institutionIII Securities products are subject to investment risks, including possible loss of principalIV Securities products are subject to taxation of income and capital gains A. I and II only B. III and IV onlyC. I, II, IIID. I, II, III, IV
The best answer is C.When a customer enters a bank that has a securities "kiosk," this is called a securities branch in a bank setting. Any salesperson selling the securities in the branch must be properly registered and licensed. Note that this person can be both a bank employee and an employee of a broker-dealer, usually owned by the bank, at the same time. When a customer wishes to buy securities in that location, the sales representative must comply with the "Not-Not-May" Rule. The salesperson must inform the customer verbally and in writing (this is done by giving the customer a written brochure) that: Securities are NOT FDIC insured; Securities are NOT bank deposits; and Securities are subject to investment risk and MAY lose value. In addition, the representative must attempt to get the customer to sign a statement that he or she understands this. There is no requirement to disclose the tax consequences of the investment.
An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Representative (IAR) to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be: A. the identification of the business model of the Investment Adviser including size of the firm, types of services provided, and the number of locations B. making provision for the Investment Adviser Representative to notify the clients of the Investment Adviser in the event of business interruption caused by the owner's death or unexpected permanent incapacitationC. making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable D. providing for an appropriate emergency contact person when the investment adviser representative is away on vacation
The best answer is C.When an Investment Advisor is formed as a sole proprietorship, the client's legal relationship is with the sole proprietor. With the death or permanent disability of the sole proprietor, the sole proprietorship is terminated as a legal entity, as would any advisory contracts. The IA must have a succession plan that immediately addresses this issue if the sole proprietor becomes unavailable. Otherwise, the clients would have no one to manage their funds held at the defunct IA because the existing investment advisory contracts are now void.
When a 3rd party solicitor retained by an Investment Adviser (IA) visits a potential client to make a presentation, what must be given to the customer, and what must be signed by the customer? I The Investment Adviser's Brochure must be delivered to the clientII The Solicitor's Brochure must be delivered to the clientIII The client must sign an acknowledgment that the Investment Adviser's Brochure was receivedIV The client must sign an acknowledgment that the Solicitor's Brochure was received A. I and III only B. II and IV onlyC. I and II onlyD. I, II, III, IV
The best answer is D.A solicitor for an Investment Adviser must give any potential client a copy of the IA Brochure and a copy of the "Solicitor's Brochure" which details the nature of the relationship between the IA and the solicitor and the additional fees that will be paid to the solicitor. The client must sign an acknowledgement of receipt of both the IA Brochure and the Solicitor's Brochure. question # 2-3-58-4Federal Securities Acts: Investment Advisers Act of 1940: Use of a Paid Solicitor: Signed Customer AcknowledgmentCopyright 1989-2019 Pass Perfect, LLC All Rights Reserved
The unified credit applies to: A. income tax onlyB. estate tax only C. gift tax onlyD. both estate and gift tax
The best answer is D.Each donor is given an exclusion from gift and estate taxes. The first $15,000 of gifts given each year are excluded from tax. The first $11,400,000 of an estate is excluded from tax (in 2019). The way that this is handled in the tax code is a lifetime "unified tax credit" is given to each donor for all gifts (above the $15,000 per person annual exclusion amount) and any estate value above $11,400,000 in 2019. When computing gift/estate tax, each gift or bequest uses up the unified credit. Once the unified
Which statement is TRUE about the delivery of a final prospectus to the purchaser of a non-exempt new issue security? A. No final prospectus delivery is required if the investor is a substantial investment adviser B. No final prospectus delivery is required if the customer received the preliminary prospectus and is provided with the final pricing amendmentC. A final prospectus must be delivered, at, or prior to, confirmation of sale, to any person that gave an indication of interestD. A final prospectus must be delivered, at, or prior to, confirmation of sale, to any person who purchases the issue
The best answer is D.In connection with the sale of any non-exempt new issue to a customer, the final prospectus must be delivered to the customer, at, or prior to, confirmation of sale. There are no exceptions!
All of the following statements are true regarding Subchapter S corporations EXCEPT: A. election of Subchapter S status is not permitted if the company has more than 100 shareholders B. all items of corporate income and loss flow through onto the shareholders' tax returns without being taxed at the corporate levelC. the company cannot issue senior securitiesD. the company must be a federally chartered corporation
The best answer is D.Subchapter S corporations are "flow-through" vehicles that permit flow through of gain and loss to the shareholders without taxation at the corporate level. Subchapter S corporations can only issue common stock (no preferred stock or bonds) and cannot have more than 100 shareholders. Any corporation is formed as a legal entity by state charter. There is no "federal" chartering of corporations.
Under the Securities Exchange Act of 1934, national securities exchanges MUST: I register with the SECII have their rules approved by the SECIII enforce their own rules under SEC oversight A. I only B. I and II C. II and IIID. I, II, III
The best answer is D.The Securities Exchange Act of 1934 requires that each national securities exchange register with the SEC. Such exchanges include the NYSE, AMEX (NYSE American), CBOE, PHLX, etc. These exchanges become "self-regulatory organizations" under SEC oversight. They must have their rules approved by the SEC; and they enforce their own rules under SEC oversight.
Under the Uniform Securities Act, which methods of storage are permitted to retain required records? I MicrofilmII MicroficheIII Digital StorageIV Computer Tapes A. I and II B. III and IV C. II, III, IVD. I, II, III, IV
The best answer is D.The Uniform Securities Act states that any records that must be retained must be kept in compliance with SEC rules on recordkeeping. The SEC updated its recordkeeping rules to allow electronic recordkeeping (but paper records, as well as microfilms or microfiches, are still permitted). Electronic storage is permitted on computer disks, computer tapes, or any other digital storage medium.
The Uniform Securities Act covers:I Registration of securities in each StateII Registration of broker-dealers in each StateIII Registration of investment advisers in each StateIV Registration of agents of broker-dealers and investment advisers in each State A. I and II B. III and IVC. II, III, IVD. I, II, III, IV
The best answer is D.The Uniform Securities Act, as adopted in each State, covers the registration of broker-dealers and their agents; investment advisers and their agents; and securities that are sold in the State. question # 1-1-20-3
Under the Uniform Securities Act, which of the following are defined as securities? I Preorganization subscriptionII Certificate of deposit for a securityIII Collateral trust certificateIV Voting trust certificate A. I and II only B. III and IV onlyC. II, III, IVD. I, II, III, IV
The best answer is D.Under the Uniform Securities Act, preorganization subscriptions (such as a subscription agreement to join a limited partnership), certificates of deposit for a security (e.g., an American Depositary Receipt), collateral trust certificates, and voting trust certificates are all defined as securities. These securities are non-exempt. question # 1-2-2-7
