Chapter Quizzes

What is the first step in the registration process with the State Administrator? A Filing of a registration statement B Filing of a subscription form C Filing of a subscription statement D Filing of a preliminary prospectus

A The first step in the registration process with the State Administrator is the filing of a registration statement.

An agent can prospect potential purchasers of a new issue during the cooling-off period if they: A Use an effective prospectus B Merely gather indications of interest C Are an exempt agent D Are paid a salary and not a commission

B An agent can prospect potential purchasers by obtaining indications of interest during the cooling-off period for a new issue.

How long is the consent to service of process in effect for? A As long as the person is registered B 2 years C Forever D 1 year, subject to renewal

A The consent to service of process appoints the administrator to be the attorney for the securities professional. It allows the administrator to receive (be served) and process or take action against the person giving the consent, just as if the papers had been served directly on that person. The consent is irrevocable and does not need to be renewed. It remains effective as long as the person is registered.

Which of the following best defines a qualified purchaser? A A natural person with investments worth at least 5 million dollars or an institution with investments of at least 25 million dollars B A natural person worth less than 5 million dollars or an institution with investments of less than 25 million dollars C A natural person with investments worth less than 5 million dollars or an institution with investments of at least 25 million dollars D A natural person worth at least 5 million dollars or an institution with investments of no more than 25 million dollars

A A qualified purchaser is a natural person (and their spouse) or a family-owned company with investments worth at least 5 million dollars, a trust fund backed by qualified purchasers with investments worth at least 5 million dollars, or an institution with investments of at least 25 million dollars.

How often may the Administrator inspect the books and records of broker-dealers within their jurisdiction? A Whenever it is deemed in the best interest of the public B Up to a maximum of 6 times per year in the absence of any consumer-initiated or regulator-initiated complaint or arbitration proceeding C Semiannually and additionally in the case of any consumer-initiated complaint or arbitration proceeding D Quarterly and additionally in the case of any consumer-initiated complaint or arbitration proceeding

A Although many Administrators may only inspect a firm's books and records annually during an audit, the Administrator has the right to inspect books and records at any time, as long as it is in the public interest.

Which of the following are true characteristics of accounts where there is an agreement for a client and agent to share in profits? I Depositing client funds into an agent's personal checking account is prohibited II Only under this circumstance is it permissible for the client and agent funds to be commingled III All sharing must be in direct proportion to the contributions made by each party A I and II B I, II, and III C II and III D I and III

A An RR (agent) and a customer can share in profits and losses in the same account. Under the USA, the sharing arrangement does not need to be in proportion to the contributions placed into the account by each owner. Even though under normal circumstances an agent cannot commingle a customer's money with the firm's money, OR the customer's securities with the firm's securities, through 'sharing in profits and losses', the customer and the agent can share the same account. Remember the agent can never deposit customer money into their personal account.

An agent who believes they have inside information may not reveal that information to anyone, except: A Their supervisor B The State Securities Administrator C The Commissioner of Inside Information Detection D FINRA

A An agent who believes they have inside information may not reveal that information to anyone except their supervisor or another principal of the broker-dealer.

Under the Uniform Securities Act, which of the following actions is permissible for investment advisers? A Take and hold client funds or securities if the adviser notifies the State Administrator B Assign a client's contract without the consent of the client C Lend money to a retail customer D Purchase new computers with soft dollars

A An investment adviser may only hold client funds or securities if the firm notifies the State Administrator and the State Administrator has not prohibited this action. It is unethical to lend money to customers. An adviser must get the customer's written consent before assigning the customer's contract, and an adviser cannot purchase new computers with soft dollars. Soft dollar expenditures must have a direct benefit to the client.

According to the USA, a small investment adviser, whose place of business is not within the state, does not have to be registered in the state if which of the following are true? I The adviser's only clients within the state are banks II The adviser does business with the upper 5% of the corporations located in the state III The adviser only handles small pension funds in the state IV The adviser has fewer than 15 private clients in the state A I only B I or IV C I, II, III, or IV D II or III

A An investment adviser need not be registered in a state if the adviser's place of business is not within that state and its only clients in that state are institutional investors, such as banks. Corporations (II) are not institutional investors, and only pension funds with at least $1,000,000 in assets are institutional investors. The limitation on clients is 5, not 15.

According to the Uniform Securities Act, there are record retention requirements for investment advisers. Generally, how long must records be kept in the principal office of the IA? A 2 years B 1 year C 5 years D 3 years

A An investment adviser's records must be retained for at least 5 years. Generally, for the first 2 years, the records must be kept in the principal office of the IA.

If the Administrator does not expressly prohibit custody of a client's assets, an investment adviser must: A Notify the Administrator whenever such custody is obtained B Notify the Administrator of the adviser's desire for such custody C Hold a percentage of the client's assets in escrow until approved by the Administrator D Notify the broker-dealer of such custody

A Custody is allowed if not specifically prohibited by the Administrator. If allowed, the IA must notify the Administrator when the firm begins taking custody. There is no escrow requirement.

A customer of an investment adviser representative (IAR) is considering a variable annuity. They want to fund it with a single payment but not draw on the investment for several years. The customer notes that there is a possibility they may need to liquidate sooner, but that it is a remote one. The IAR makes no effort to disclose high early withdraw penalties associated with VAs because the client used words like "possibility" and "remote" regarding any early withdraws. Which of the following best describes what has occurred? A Nondisclosure of the high early withdrawal penalties is a fraudulent act because the penalties are considered a material fact associated with the investment B Nondisclosure of the high early withdrawal penalties is an unethical act only because the penalties would not be considered a material fact associated with the investment C Nondisclosure of the high early withdrawal penalties is an unethical act only because of how the client characterized the possibility of liquidating the investment early D Nondisclosure of the high early withdrawal penalties is neither an unethical nor fraudulent act because of how the client characterized the possibility of liquidating the investment early

A Early withdrawal penalties associated with VAs are material facts that should be disclosed regardless of any conversation having to do with liquidating early. Therefore, nondisclosure of these penalties or fees is fraudulent under the North American Securities Administrators Association (NASAA).

A registered investment adviser takes custody of client funds and securities. What are the consequences of this? A This practice is in compliance with the Uniform Securities Act, but the investment adviser must file an audited balance sheet with the Administrator B This practice is in compliance with the Uniform Securities Act, and there are no consequences or additional actions that need to be taken C This practice is prohibited if the investment adviser is also a broker-dealer D This practice is considered fraudulent, and the State Administrator will freeze the assets of the investment adviser

A Every registered investment adviser who takes custody of client funds or securities, or requires payment of advisory fees 6 months or more in advance and in excess of $500 per client, must file an audited balance sheet with the Administrator. The adviser must also promptly notify the Administrator that it has taken custody of customer funds. An adviser that takes custody of client funds may also be a broker-dealer. This practice is not considered fraudulent.

Regarding state registration for a broker-dealer, which of the following is correct? A A BD with no place of business in a state only effecting transactions for existing retail customers who are temporarily vacationing in that state is not required to register in that state B A BD with no place of business in a state, effecting transactions for existing retail customers temporarily vacationing there, and soliciting new customers in that state, is not required to register in the state C A BD with only 1 branch office in a state with existing retail customers who are temporarily vacationing in that state and soliciting new customers in that state, is not required to register in the state D A BD with only 1 branch office in a state only effecting transactions for existing retail customers who are temporarily vacationing in that state is not required to register in that state

A If a BD has a place of business in a state it must be registered in that state. To solicit new customers in that state, registration is also required. However, with no place of business in a state, the BD can do transactions for existing customers who are vacationing or temporarily visiting the state without registering there.

PQR Advisers' main office is in State A. It has $15 million of assets under management and has 15 clients in State A. According to the Uniform Securities Act, which of the following is true? A PQR Advisers must register as an IA in State A B PQR Advisers is excluded from registration in State A C PQR Advisers must register with the SEC D PQR Advisers is exempt from registration in State A

A Investment advisers with less than $100 million of assets under management must register with the states. For advisers with between $100 million and $110 million assets under management, the adviser can choose whether to register with the states or the federal government (SEC). Advisers with more than $110 million of assets under management must register with the SEC as "federal covered advisers." In this question, PQR Advisers has only $15 million under management and, therefore, would register with State A.

A broker-dealer purchased a block of bonds for its own account 6 months ago. Due to falling interest rates, the value of the bonds has increased dramatically. The broker-dealer decides to sell the bonds to existing clients at prevailing market prices without disclosing the price they originally paid. This practice is: A Ethical, because market conditions were favorable for this practice B Unethical, because the broker-dealer made a large profit C Fraudulent, and the broker-dealer may face criminal prosecution D Fraudulent, and the broker-dealer may face civil prosecution

A Regardless of whether the broker-dealer made a profit, if market conditions were favorable this is an ethical business practice. As long as the BD disclosed that they were acting as a principal and sold the bonds at a price reasonably related to the current market, they are not required to disclose the price they paid for the bonds 6 months ago.

The Administrator has decided to suspend the effectiveness of an issuer's registration statement. The registrant has been notified and has been granted a hearing on this matter. The hearing must be scheduled within: A 15 days B 45 days C 7 days D 30 days

A The Administrator may summarily (without advance notice) postpone or suspend the effectiveness of a registration statement, but then they must allow an opportunity for a hearing. The Administrator would immediately notify the applicant, the issuer, and any other person on whose behalf the offering is being made of the postponement or suspension. If one of those notified requests a hearing (in writing), it must be scheduled within 15 days. If the Administrator eventually makes the order permanent, the interested parties must be given the reasons for the order in writing.

Which of the following would be exempt from registering in a state as an investment adviser? A An IA located in NY who has given investment advice to 4 large retail clients in NJ within the past year B An accountant who give investment tax advice incidental to the handling of client's tax filings C An agent of a broker-dealer who gives advice incidental to the retail brokerage accounts they handle D An IA that is a federal covered investment adviser

A The IA is exempt from registration in NJ. Remember the de minimis exemption applies to those IAs who give investment advice to 5 or fewer clients in a state within a 12-month period. They are considered to be IAs but are exempt from registration due to the special circumstance. Each of the remaining answer choices are examples of exclusions; those excluded from the definition of IA and therefore not required to register in a state.

The Administrator may do which one of the following? A Investigate, issue subpoenas, call hearings B Issue an injunction C Impose a jail sentence D Issue a temporary or permanent restraining order

A The USA empowers State Administrators to conduct public or private investigations, subpoena individuals, issue cease and desist orders, and hold hearings. Only courts have sentencing authority and issue restraining orders or injunctions.

An accountant is referring a client to an investment adviser for compensation. What form(s) must be signed by the client? A An acknowledgement that the client has received both the adviser's brochure (ADV Part 2) and the separate solicitor's disclosure B ADV Part 2 (brochure) C Both ADV Parts 1 and 2 D A solicitor's disclosure

A The accountant is a solicitor. A solicitor is a person who, directly or indirectly, solicits clients for or refers clients to an investment adviser. While a solicitor is often a person associated with an IA (such as an employee), they can also be someone who is not affiliated with the adviser except for the fact that they solicit business for the firm. Prior to or at the time of entering into any advisory contract with the client, the solicitor must obtain from the client a signed and dated acknowledgement that the client has received both the adviser's brochure and the separate solicitor's disclosure.

Under the Uniform Securities Act, which of the following would not qualify for an exemption from registration as a broker-dealer? I An agent with a place of business in the state who conducts business only with institutional investors in the state II A person, not an agent, with no office in the state, whose business in the state is limited to conducting underwritings for corporations with a place of business in the state III A person, not an agent, with no place of business in the state, whose business in the state is limited to 3 high-net-worth retail investors who are residents of the state IV A person, not an agent, with an office in the state and who does business only with foreign institutional investors A I, II, III, and IV B II and III C III and IV D I and II

A The only broker-dealer exemption deals with Canadian broker-dealers doing business with existing customers who are temporarily in the United States. There are several broker-dealer exclusions including agents, depository institutions, issuers, the institutional exclusion and the retail exclusion. The institutional exclusion is for a BD that has no place of business in the state and only effects transactions with institutional investors. The retail, or snowbird, exclusion is for a BD that has no place of business in the state and only effects transactions with existing customers who are temporarily in the other state. Remember that BDs must register in any state they maintain an office, and/or a retail client resides in the state.

When an issuer has promised the security's repayment of principal and interest, a security is said to be: A Guaranteed B Preferred C Risk free D Backed by the broker-dealer's promise

A Under the USA, the term guaranteed means 'guaranteed as to payment of principal, interest, or dividends.' The guarantee can also be from someone other than the issuer, like the U.S. government, an insurance company, or a parent corporation for a subsidiary.

Which two of the following individuals would be considered an agent under the Uniform Securities Act? I An insurance salesperson who sells viatical contracts II An insurance salesperson who sells traditional products only III An attorney who represents an issuer in an underwriting negotiation with an investment banker IV A brokerage firm sales assistant who accepts unsolicited orders A I and IV B I and II C I and III D III and IV

A Viaticals are considered securities by NASAA, so anyone selling them is considered an agent. Any employee of a brokerage firm who may effect transactions with a retail customer is considered an agent, regardless of title. Employees or representatives of issuers who only deal with investment bankers are not considered agents.

A broker-dealer buying and selling securities for the benefit of the firm's customers is said to be operating in a(n): A Agency capacity B Principal capacity C Proprietary capacity D Issuer capacity

A When a firm effects transactions for the accounts of others, acting as a middleman in the transaction, that is acting in an agency capacity as a broker. Brokers charge a commission.

Which of the following best describes painting the tape? A Manipulative trading involving a series of purchases, or a series of sales, rather than paired buys and sells B The use of material, nonpublic information when engaging in a securities transaction C 2 or more parties are involved in a pattern of buying and selling a security merely to give the appearance of active trading D The distribution of false reports or transactions

A When manipulative trading involves a series of purchases, or a series of sales, rather than paired buys and sells, the activity is known as painting the tape. This is fraudulent since the intent is to give the false appearance of a trend in a stock's price and lure other investors into the same trading activity. When 2 or more parties are involved in a pattern of buying and selling a security merely to give the appearance of active trading, this is known as engaging in matched sales.

If a customer calls in an order for an unregistered security, the agent should do which of the following? A Not fill the order B Fill the order and get the customer to acknowledge in writing that the order was unsolicited C Fill the order D Get the security registered

B An agent should always fill a customer's order. In this case, the trade ticket should be marked 'unsolicited.' All trades must be approved by a principal.

Which of the following has the authority to issue temporary or permanent injunctions? A Secretary of State B A court of law C Administrator D Attorney General

B An injunction is a court order to stop a specific practice.

A security where the holder may have to pay something of value later in order to maintain ownership, would be the definition of: A Cumulative preferred stock B Assessable security C Futures contract D Convertible debenture

B

An investment adviser must send a statement of account status to a client at least: A Semiannually B Quarterly C Monthly D Annually

B

Individuals who commit willful violations of the USA and are convicted, are subject to: A A fine not to exceed $2,500 B Up to 3 years of prison and a fine not to exceed $5,000 C Up to 5 years of prison and a fine not to exceed $10,000 D Up to 5 years of prison and a fine not to exceed $3,000

B

Which of the following is not excluded from the definition of a broker-dealer? A A firm with no place of business in the state that effects securities transactions with institutional clients B A Canadian broker-dealer with no office in the state that effects transactions with their existing clients C A firm with no place of business in the state that effects securities transactions with their existing clients who are temporarily residing in the state D A trust company

B A broker-dealer is a person engaged in the business of buying and selling securities for investors or for its own account. There are several exclusions from the definition and 1 exemption. The exclusions include agents, depository institutions, issuers, the institutional exclusion, and the retail exclusion. For the institutional and retail exclusions there are 2 conditions that must be met. The first condition is no place of business in the state. The second condition is based on who the customers are: the customer must be either an institution or only in the state temporarily. Broker-dealers only have 1 exemption, the Canadian exemption. The Canadian firm must be registered as a broker-dealer in Canada and cannot have a place of business in the state. Canadian broker-dealers and their agents may not solicit new clients in a state under this exemption, they are only permitted to work with their existing clients. If the Canadian firm has a location in the state, or if they are soliciting new clients, the registration process must be followed.

Which of the following compensation methods is permissible for an investment adviser? A The adviser may share only interest earned and dividends paid, but not capital gains in the customer's portfolio B The adviser may earn a specific percentage of total assets under management in the customer's portfolio C The adviser receives a specified percentage of capital gain appreciation as long as the customer agrees to it D The adviser may share a percentage of the net asset appreciation in the customer's portfolio

B A contract that specifies that the investment adviser's compensation will be based on the total assets under management is not prohibited. Sharing in a customer's account is prohibited. This includes capital appreciation as well as interest and dividends earned.

The owner of several barrels of whiskey has placed them in a warehouse and pays the warehouse a storage fee. The warehouse has issued a certificate evidencing ownership of the barrels. The owner now wishes to sell their interest in the barrels to an investor and will exchange the certificates for cash. The investor may present the certificates at the warehouse at a later date to gain possession of the whiskey barrels. This transaction represents the sale of: A A commodities option that is subject to regulation by the Chicago Board Options Exchange B A security and is subject to regulation by the State Administrator C Alcohol and is subject to regulation by the Bureau of Alcohol, Tobacco, and Firearms D A commodities futures contract that is subject to regulation by the Commodity Futures Trading Commission

B A security is an investment of money with the reasonable expectation of profit due to the activity of a third party. Warehouse receipts evidence ownership of merchandise stored and are managed by a third party. Therefore, they are defined as securities under the Uniform Securities Act. A commodity future is a contract to deliver a commodity at a future date at a specified price and is regulated by the CFTC. Warehouse receipts are not commodity options, which are call and put options on commodity futures contracts.

Which of the following is correct regarding penalties? A The administrator may appoint a receiver B An offer of rescission may not prevent criminal investigations C Administrator may imprison D Administrator may issue an injunction

B Acceptance of a rescission offer avoids a civil suit for damages, but it does not necessarily prevent criminal proceedings or administrative action. An administrator does not have the authority to impose prison sentences. Injunctions are required to be delivered through a court action. A court must appoint a receiver, not the administrator.

Under the USA, if a commission is paid by a private placement issuer to an agent of the broker-dealer for a sale to a non-institutional buyer, then this transaction would not qualify as a(n): A Isolated issuer transaction B Exempt transaction C Non-exempt transaction D Security transaction

B According to the USA, private placement transactions are exempt transactions when, among other requirements, no commission or other remuneration is paid for soliciting non-institutional purchasers. If a private placement issuer pays a commission to an agent of the broker-dealer, the transaction would not qualify as an exempt transaction.

Which of the following would not give the Administrator cause to deny, suspend, or revoke a security registration? A If the offering is fraudulent or inequitable B If any officer associated with the registration is free of any criminal activities in the securities business C If the security is subject to a federal or state court injunction or an Administrator in another state has issued a stop order D If the Act has been willfully violated by any issuer, officer, director, control person, or underwriter

B An officer being free of any criminal activity would not give cause to deny, suspend, or revoke security registration.

Which of the following is included in the definition of investment adviser? A An accountant who suggests their tax client generate more tax-free income B A broker-dealer who charges an additional fee to review and advise a client on their portfolio C An agent who explains to their client why a growth fund is more suitable than an income fund D A business professor who lectures on how trade deficits may influence interest rates

B Any persons, including broker-dealers and financial planners, who provide investment advice to others and charge a separate fee for the advice are investment advisers. On the other hand, the definition of investment adviser does not include givers of advice where the advice is incidental to their profession and who charge no separate fees for the advice. A broker-dealer agent recommending an exchange between funds would not be considered an IA, since there is no additional compensation received for providing the advice only.

A registered broker-dealer is also considering registering as an investment adviser. Prior to its registration as an IA, which of the following would be acceptable forms of compensation? I Payment of commissions to the firm by an issuer II Payment of commissions to the firm by a customer III Payment of a wrap fee to the firm by an institutional customer IV Payment of investment advisory fees to the firm by a retail customer A I, II, and III B I and II C I, II, III, and IV D II

B Broker-dealers may collect commissions from issuers on primary market transactions and from customers on secondary market trades. A broker-dealer may not collect advisory or wrap account fees unless it is also registered as an investment adviser.

According to the Uniform Securities Act, what is the statute of limitations for civil cases related to a violation of the Act? A The statute of limitations is 5 years from the date of the offense B The statute of limitations is 3 years from date of sale or rendering of advice, or 2 years after discovery, whichever comes first C There is no statute of limitations for civil liability D The statute of limitations is the later of 3 years from discovery or 2 years from date of sale or rendering of advice

B Civil proceedings may not be brought under the Uniform Securities Act more than 3 years after the sale of the security or the giving of the advice, or 2 years after the discovery of the violation, whichever comes first.

Two investors would like to initiate a civil action against A & R Investments for fraudulently selling limited partnership interests in a New York City-based pigeon breeding farm. Under the Uniform Securities Act, how long do the aggrieved investors have to initiate action? A 1 year from discovery of the infraction B 3 years after the sale or 2 years from discovery, whichever comes first C 5 years from the date of the offense D 2 years after the sale or 3 years from discovery, whichever comes first

B Civil suits must be filed within 3 years of the date of sale or giving of the advice, or 2 years from the date of discovery, whichever comes first. In the case of fraud, the Administrator has 5 years from the date of the offense to initiate a criminal action.

When registration is not required with the state, a security is considered to be: A A non-exempt security B An exempt security C An issuer transaction D A blue-sky security

B Exempt securities do not need to be registered with the state and include securities issued by the U.S. government, government agencies, municipalities, non-profit entities, or banks.

Which of the following does not align with the standards of prudent investing as outlined in the Uniform Prudent Investors Act (UPIA)? A Fiduciaries are expected to diversify client investments to reduce investment risks B Trustees must select conservative, low risk investments such as those considered investment grade C Fiduciaries can delegate investment functions to others, as long as safeguards are put into place D A portfolio should be measured by its total return and not that of a single security or investment

B Fiduciaries are not limited to, nor mandated to select low risk or conservative investments under the UPIA. Instead, the UPIA states that high standards of prudence must be applied to any investment, and in the case of trustees, investment decisions should be based upon the needs of the beneficiaries to the trust. All the remaining selections are true regarding their alignment with the UPIA.

In a case where a broker-dealer learns that one of its agents has sold unregistered, non-exempt securities through a non-exempt transaction, the broker-dealer may send the purchaser a letter of: A Restitution B Rescission C Cancellation D Annulment

B If a broker-dealer learns that one of its agents has engaged in an unlawful transaction, the firm will likely send the affected buyer a letter offering to repurchase the securities at the buyer's original purchase price, plus interest, minus any income (such as dividends or interest) that the customer received while holding the securities. This letter is known as a letter of rescission.

If an investment adviser loses its registration, what will happen to the registrations of its investment adviser representatives? A The IARs lose their registration permanently B The IARs registrations are inactive until they are employed with another IA firm C There is no impact upon the IARs's registration D The IARs must re-register and take the examination again

B If an investment adviser loses its registration, the registration for each of the IARs for that firm becomes inactive until the IAR begins working for another investment adviser in the state.

If a violation is suspected, initiating an investigation outside the Administrator's state is: A A violation of the Uniform Securities Act B Within the Administrator's authority C Outside of the Administrator's authority D Permitted only following a hearing

B If the Administrator discovers or suspects a violation of the Uniform Securities Act, the USA gives the State Securities Administrator broad powers to initiate or conduct investigations in or out of the Administrator's state.

A transaction that benefits the issuer is also known as: A A secondary market transaction B A primary market transaction C A blue-sky security D A benefits transaction

B In an issuer or primary market transaction, the proceeds of the sale, or benefits of the transaction go to the issuer of the security.

ABC Financial Planning, Inc. is in the process of revising its fee structure. Which of the following methods of compensation would be considered acceptable? I Flat fee II Hourly rate III Percentage of assets under management IV Percentage of profits earned in the account A I, II, III, and IV B I, II, and III C III and IV D I and II

B Investment advisers typically charge a percentage fee based on the value of assets under management. In other cases, the fee is flat or based on an hourly rate. Generally, IAs are prohibited from charging a fee based solely on account appreciation or capital gains generated within the portfolio.

An issuer would be included in the definition of broker-dealer in all the following circumstances, except: A If it is buying and selling securities other than its own B If it is effecting transactions for its own issue of securities C If it is effecting securities transactions for the account of others D When it is operating as a broker-dealer

B Issuers are excluded from the definition of broker-dealer to the extent that they are dealing with their own issue of securities. However, when issuers effect transactions with securities other than their own, for the account of others or their own account, they are included in the definition of broker-dealer.

Regarding a qualified purchaser which of the following statements is incorrect? A No individual natural person with under 5 million in investments can be considered a qualified purchaser B A married couple cannot be considered a qualified purchaser unless each individual has investments of at least 5 million dollars C An individual natural person with investments totaling 8 million dollars can be considered a qualified purchaser D A trust fund backed by natural persons with investments totaling 2 million cannot be considered a qualified purchaser

B Like an individual, a natural person and their spouse collectively can be considered a qualified purchaser if their investments total at least 5 million dollars. The same is true for trust funds (at least 5 million in investments).

ABC common stock trades on the NYSE and is considered a federal covered security. Which of the following securities issued by ABC are also federal covered according to NSMIA? I ABC convertible preferred stock II ABC subordinate debenture III ABC mortgage bond IV ABC preferred stock

B NSMIA (the National Securities Markets Improvement Act) eliminates the dual regulation of securities. The Act states that federal covered securities have a "federally imposed exemption from state registration" and do not have to register with the states. Securities listed on the NYSE, NYSE American, and Nasdaq are considered federal covered. In addition, similar securities as the listed securities (such as warrants) and securities senior to the listed securities are also considered federal covered. Senior securities include any type of preferred stock and any bond issued by the same corporation as the listed securities. Therefore, all the choices are considered federal covered securities.

Who may file a civil suit against a violator of the Act? I A purchaser of a security II A seller of a security III A person who received investment advice for a fee IV A person who received investment advice at no cost A I, II, III, and IV B I and III C I, II, and III D III and IV

B Only the purchaser of a security or receiver of advice for a fee, and not the seller, may file a civil suit.

When must an investment adviser renew their state registration? A Every 2 years B December 31st, then annually thereafter C After 12 months, then annually thereafter D December 31st of the year following its initial registration's effective date

B Registrations and notice filings expire annually on December 31, unless renewed. An application for renewal requires an annual filing fee.

Which of the following is not considered an exempt security? A A security issued by a foreign government B Offerings of securities that are not federal covered securities C Securities issued by a federal savings and loan D Treasury bills

B Securities of foreign governments with which the United States maintains diplomatic relations; U.S. government securities, like Treasury bills; and securities issued by banking institutions organized in the U.S., are listed by the USA as exempt securities.

While talking to an acquaintance who is a securities attorney, you discover that they are helping to blue sky a new issue. This means they: A Must be registered in the state as an agent B Need not be registered in the state C Must be registered in the state as an IA D Need not be registered with the state if they are federally covered

B State securities laws are known as blue-sky laws. In addition to registering with the SEC, issuers must be sure that their new offerings are either registered in every state in which they will be sold (called blue skying the offering) or exempt from registration in those states. An attorney assisting in this process need not register as an IA, IAR, BD, or agent.

Which of the following are criteria under which a person would be considered to be in the business of providing investment advice according to SEC Release IA-1092? I They hold themselves out as being in the business of providing investment advice II They receive separate or identifiable compensation for investment advice III They provide investment advice on a regular basis A I only B I, II, and III C II and III D I and III

B The Uniform Securities Act and the Investment Advisers Act of 1940 define an investment adviser as any person who provides advice about securities, as a business, for compensation. SEC IA-1092 clarifies the 'ABC Test' definition of an investment adviser and specifies criteria to identify when each of the 'three prongs' of the definition is met. Any person who holds themselves out to the public as being an investment adviser, provides advice on a regular basis, and receives identifiable compensation for their advice is in the business of being an investment adviser.

For registration by coordination to become effective, all the following conditions must be met, except: A The Administrator or SEC must not have issued a stop order B 1 copy of the latest prospectus must be filed with the Administrator C The registration statement must have been on file with the Administrator for a specified number of days D Certain other specified documentation has been on file with the Administrator

B The other three conditions listed must be met. The registration statement must have been on file, usually for 10 days. Certain other documentation must have been on file, usually for 2 days. Registration by coordination requires filing 3 copies of the latest prospectus filed with the SEC.

Two siblings are currently registered agents for the same broker-dealer. One specializes in bonds, and the other works predominantly as an equity salesperson. Both siblings have been actively prospecting for the business of a prominent orthopedic surgeon in the area. Finally, the sibling that specializes in bonds convinces the surgeon to open a brokerage account and also decides to give 40% of the commissions that will be earned to the other sibling. According to the Uniform Securities Act and NASAA policies, which of the following statements is true? A This practice would be acceptable, but only if the commission split is done on an equal basis B This practice is acceptable as proposed C Splitting commissions is a prohibited practice, so only one of the siblings may be the agent of record D This practice would be acceptable, but only if the commission split is done along product lines, with bond commissions being paid to one sibling and equity commissions being paid to the other

B The splitting of commission is an acceptable practice for two agents employed by the same firm or affiliate firms. It is up to the agents and their firm to determine the equitable sharing arrangement. An agent may not split a commission with a non-registered person even if they are employed by the same firm.

A financial professional who is in the principal business of rendering investment advice for a fee, by offering investment supervisory services, has recently joined an investment advisory firm. Under the Investment Advisers Act of 1940, this financial professional is considered to be, and may use as a professional title, which of the following? A Registered representative B Investment counsel C Investment adviser representative D Registered investment adviser

B The term "investment counsel" may only be used if 2 criteria or standards are met. An adviser must be in the principal business of acting as an investment adviser and a substantial amount of business must come from providing investment supervisory services. Note that meeting these conditions does not allow an individual or a firm to use the designations RR, RIA or IAR unless they are properly registered as such.

The term offer or offer to sell includes which of the following? A Gift of nonassessable stock B A security given with the purchase of a vacation timeshare C When, as a result of a court-approved reorganization, a security is issued in exchange for outstanding securities. D When some of a corporation's issued securities are exchanged for securities of a merged corporation

B The term offer or offer to sell includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value. Any security given with or as a bonus to the purchase of any security (or anything else) is considered to constitute part of the purchase and has been offered and sold for value. A stock transfer as a result or mergers or reorganization is not a sale, or offer, or offer to sell. Neither is a gift of non-assessable stock.

An investment adviser representative, scheduled to do an online seminar with some of their existing clients has another IAR from the firm assist them in promoting the new investment by giving a testimonial as to how well the investment has worked out for their clients. They have no written agreement with the other IAR but is grateful they are able and willing to step in and assist by giving the testimonial. Under the USA rules for advertising and specifically testimonials, which of the following is true? A This would be permitted only because the seminar is to be presented to existing clients and not prospective ones B This would be permitted because no written agreement is required for those giving testimonials if the promoter is affiliated with the firm C This would be a violation because a testimonial can never be given by a biased individual such as someone affiliated with the firm D This would be a violation because a written agreement is always required between the firm and any promoter giving a testimonial on behalf of the firm

B There is no violation here. No agreement between the firm and any individual giving a testimonial on behalf of the firm is required when that individual is also affiliated with the firm. Note that there is no industry requirement that such a seminar be presented to existing clients only.

An individual works for the Haggard County School Board. Part of their job is soliciting sales of HCSB bonds to mutual funds and hedge funds. According to the USA, the individual is: A An agent B Not an agent C A broker-dealer D An issuer

B This individual represents the issuer of a security in attempting to effect securities transactions. Since the securities being sold are exempt securities (bonds issued by a school board would be considered municipal securities), the individual is not considered to be an agent under the USA.

An irrevocable trust account is set up at a full-service broker-dealer. When determining suitability for customer transactions, the agent should be most concerned with which item? I Trust document II Trustee's attorney III Beneficiary IV Trustee A I only B I and III C III and IV D I and II

B Trust accounts are established by the delivery of a signed trust agreement to the agent along with the normal new account documentation. The key item for the agent is to recognize that recommendations made for such an account must be suitable for the trust beneficiary, not the trustee or the trustee's attorney. It is also critical that the agent closely adheres to the guidelines established in the trust document.

Under the Uniform Securities Act, the Investment Advisers Act of 1940, and NASAA Statements of Policy and Model Rules, soft dollar compensation may be used to pay for all the following, except: A Market research that adds to the adviser's knowledge of specific client investments B Office space rental C Special portfolio software requests by the clients involved D Research reports relevant to the client portfolios

B Under soft dollar regulations, investment advisers may not use their clients' commissions to purchase services that solely benefit the adviser, such as the rental of office space or vacation trips. Genuine research reports, portfolio analytics, and market research are all acceptable uses of soft dollars providing they relate to the clients involved.

Over the last year a firm aggressively promoted the sale of limited partnership interests in a fish breeding farm located in State A to its customers. While reviewing the files on the transactions, the firm's general counsel, notices that eight sales have been made in states where the securities were not registered. The general counsel recommends that the firm send letters of rescission to these customers to avoid future litigation. How long do the affected customers have to accept this firm's offer? A 3 months from receipt of the letter or 25 days from the discovery of the infraction, whichever is later B 30 days from receipt of the letter C 10 days from receipt of the letter D 72 hours from receipt of the letter

B When a firm realizes that it has made an unlawful sale, it may offer the customer a letter of rescission. This letter effectively voids the transaction and makes the customer whole. The customer has a maximum of 30 days to respond to the offer. A client failing to act within this time period will not be able to take action in court. Please note that a firm may not offer a letter of rescission to escape punishment once the Administrator initiates action for a prohibited sale or a civil suit has been initiated.

Which one of the following is not considered a security under the USA? A A mutual fund B A new issue of a corporate bond C A new condominium to be used as a residence D A real estate investment trust

C A condominium home used as a personal residence is not considered a security by the Uniform Securities Act (USA).

Under the Uniform Securities Act, a broker-dealer need not register with a state if: I They have a place of business in the state, but deal only with institutional investors II They have no place of business in the state III They do not effect securities transactions with noninstitutional customers who reside in the state A I and II B I and III C II and III D I, II, and III

C A person who has no place of business in a state and who does not effect or attempt to effect securities transactions with noninstitutional customers residing in the state is not considered a broker-dealer in that state according to the Uniform Securities Act. Once a broker-dealer has an office in a state and/or a retail customer who resides in that state the firm must be registered in that state as a broker-dealer.

Insufficiently describing risks and other material facts regarding an investment is considered: A Unethical B Discretion C An omission D Churning

C Deliberately withholding or omitting a material fact from a client is considered a fraudulent act.

XYZ is a firm that has been registered with the SEC for 5 years. XYZ intends to offer securities in the state using registration by filing/notification. When does the registration become effective? A The 2nd full business day after filing B The 30th day after filing C After a specified number of days D When the Administrator says so

C Registration by filing becomes effective after a specified number of days (usually 5) unless the registrant hears otherwise from the Administrator.

An investment advisory firm is the adviser to a pooled investment vehicle that is excluded from the definition of an investment company under the Investment Company Act of 1940. This adviser currently manages $135 million in clients' money. Which of the following is true of this firm? A The firm is defined as a federal covered adviser, as it has more than $110 million in assets under management and is required to register with the SEC using Form ADV B The private fund may not be offered to more than 10 retail investors who are residents of a particular state or it will forfeit its exemption from state registration C As an adviser to a private fund with less than $150 million under assets, the firm is not required to register with the SEC D Because a private fund may only accept investments from institutional investors, the firm is considered to be an investment adviser in any state where it has clients but is exempt from registration

C A pooled investment that is not an investment company is often referred to as a private fund, or a hedge fund. The adviser to a private fund with less than $150 million in assets under management is exempt from registration with the SEC; private fund advisers with more than $150 million under management will register with the SEC using Form PF. Advisers to individuals that have more than $110 million under management will register with the SEC. Private placements, not private funds, offered to more than 10 retail investors in a 12-month period will lose their exemption from registration.

A customer has set up an irrevocable living trust and has named two beneficiaries. The first named beneficiary is to receive the income generated from the trust, and the second beneficiary will receive the balance of the trust upon the first beneficiary's death. Which of the following would be true regarding the trustee's fiduciary responsibility? I When making investment decisions, the trustee should rely on any provisions or statements of intent included in the trust document II When making investment decisions, the trustee should make sure that the interests of all beneficiaries are considered equally III In the absence of or statements of intent in the trust document, the trustee should give priority to the needs or wishes of the majority beneficiary, or income beneficiary, first IV In the absence of statements of intent in the trust document, the trustee should consider the interests of all beneficiaries when making investment decisions A II B IV C I and IV D I and III

C A trustee in a trust account is always expected to act as a fiduciary and in accordance with the terms set out in the documents that created the trust. In many cases, the grantor of a trust will include a statement of intent in the trust document to specify how the needs of multiple beneficiaries should be balanced. In the absence of such instructions, the trustee should exercise their own best judgment, but should consider the interests of all beneficiaries in their decisions.

According to the Uniform Securities Act, which of the following individuals meets the definition of an agent in the state in which the transaction took place? A An individual registered in State B who executes a transaction for a client on vacation in State W for 10 days B An individual who is registered in State D and executes a transaction for a client who moved to State X 5 days ago C An individual who is registered in State A and executes a transaction for a client who has relocated to State X 3 months ago D An individual that is registered in State C and executes a transaction for a client who has moved to State Y 40 days ago, and that individual had filed an application to register themself

C Agents are typically individuals who work for a broker-dealer in a sales capacity. If an agent has an existing customer who is temporarily in another state, the agent can continue to service that customer, even if not registered as an agent in that state. Additionally, if an agent has a customer who moves to another state, the individual is not an agent in that state and may engage in securities activity with that client for a period of 60 days or less. This exception applies to existing clients only. The conditions for this exception include: the agent must be eligible to register in the state in which the existing customer is temporarily located, the agent must be registered with FINRA and at least 1 state, and the BD of the agent must be registered in that same state. if an existing customer is temporarily in that state.

Which of the following entities would be considered an agent under the Uniform Securities Act? A The City of Anytown in State B B G & L Investments, LLC C An RR with N & L Investments D The U.S. Treasury

C Agents are typically salespersons employed by broker-dealers. The U.S. Treasury and the City of Anytown are issuers. G & L is a broker-dealer.

Which of the following are true characteristics of accounts where there is an agreement for a client and agent to share in profits? I Depositing client funds into an agent's personal checking account is prohibited II Only under this circumstance is it permissible for the client and agent funds to be commingled III All sharing must be in direct proportion to the contributions made by each party A I, II, and III B II and III C I and II D I and III

C An RR (agent) and a customer can share in profits and losses in the same account. Under the USA, the sharing arrangement does not need to be in proportion to the contributions placed into the account by each owner. Even though under normal circumstances an agent cannot commingle a customer's money with the firm's money, OR the customer's securities with the firm's securities, through 'sharing in profits and losses', the customer and the agent can share the same account. Remember the agent can never deposit customer money into their personal account.

An agent and their sibling wish to open a joint cash account. Under what circumstances is this permissible? A The client must give written permission, and they can share profits in any way they agree to in writing B The client and the employing broker-dealer must give written permission, and the siblings must share profits equally C The agent's sibling and the employing broker-dealer must give written permission D The employing broker-dealer must give written permission, and the siblings must share profits equal to their contribution

C An agent may share in the profits or losses in a client's account if there is prior written approval by the client and the agent's employing broker-dealer. Profits and losses do not have to be shared in proportion, or equally, according to state law.

All the following are correct concerning where an agent must be registered, except: A In the state where securities are offered or solicited by the agent B In the state where securities are sold by the agent C In any state in which the prospect owns real estate D In a state where the agent maintains an office

C An agent must be registered in the agent's state of residence, the state where the securities are offered, solicited, or advertised by the agent, the state where the securities are sold by the agent, and where the customer resides.

Which of the following would be prohibited regarding borrowing and lending practices under the NASAA? A A broker-dealer agrees to lend cash to an established client based on the terms of a signed agreement B An agent, handling the account of a bank for their employing BD applies to the bank for a mortgage that the agent discloses is for the purpose of buying a vacation home with rental potential C An agent agrees to lend money for the purchase of securities to one of their best clients with the understanding that it will be paid back promptly with no interest or any other considerations advantageous to the agent D An agent, handling the account of a bank for their employing BD applies to the bank for a personal loan that the agent discloses is expressly for the purpose of buying securities the BD favors

C Don't be misled by the complicated scenarios. It is a prohibited practice to borrow money from a client. However, it is permitted when the client is in the business of lending. Therefore, if the client is a bank (banks are presumed to be in the business of lending) there is no prohibition on borrowing from them. Broker-dealers are allowed to lend cash or securities to customers based on a signed margin agreement.

Pursuant to the Uniform Securities Act, under which of the following circumstances would the investment advisory firm need the prior approval of a client? I The firm is a partnership and there is a change in minority interest in the firm II The firm is a corporation and one of the minority shareholders sells their stock to another individual who previously owned no stock in the firm III The firm assigns the contract to another advisory firm, started by a former employee of the firm IV The adviser recommends both sides of an agency cross transaction A I, II, and III B II and III C III only D III and IV

C I would require notification but no prior approval. II would require no notification or prior approval. IV is a prohibited practice and is not allowed. III would require prior approval.

Under the theories of adoption and entanglement, all the following are true, except: A Firms could be held liable for misstatements of information on a third-party site B Firms that endorse or approve third-party sites are considered to have adopted the content of the sites C All third-party sites must be adopted by the firm that is embedding the links D Firms not involved in adoption or entanglement of embedded third-party sites must prominently display a disclaimer

C If firms are involved with adoption of the third-party site or entanglement of the information provided by the third-party, they can be held liable for any information provided by the third-party through that link. When firms are not entangled or have not adopted the site information, they must prominently display a disclaimer to that fact. Endorsing or approving of the third-party concept is the definition of adoption and would subject the firm to those rules. It is in no way mandatory that firms adopt or entangle themselves with the information provided by third-parties through embedded links.

Under the Risk Disclosure Guidelines in the NASAA Statements of Policy, all of the following risk factor disclosure guidelines should be applied in a prospectus, except: A A detailed list of material risk factors should immediately follow the cover of the prospectus B Risks associated with the offering should be prioritized in order, with the most significant risks listed first C Risk factor captions should be in bold-face type in a font at least 2 points larger than the surrounding text D Risk factor captions should be set off through use of italics, bold-face type, or other means

C In order to make certain that investors are provided with material information regarding an offering, a risk disclosure should be included in the prospectus for all new issues. According to the Risk Disclosure Guidelines in the NASAA Statements of Policy, the following risk factor disclosure guidelines should be applied: *The prospectus should provide a detailed list of material risk factors associated with the offering. *This list should immediately follow the cover of the prospectus. Risks associated with the offering should be prioritized in order, with the most significant risks listed first. *Risk factor captions should stand out. Italicized, bolded, or underlined typefaces help the reader to quickly comprehend the nature of each particular risk. There is no requirement on the font size.

In the event of a merger, sale, or acquisition, which of the following is not true concerning the registration of a broker-dealer or investment adviser? A Registration is not transferable B New registration is submitted by the successor firm C Registration remains effective until it expires D Current registrations are withdrawn

C In the event of a merger, sale, or acquisition, a broker-dealer or investment adviser registration is not transferable, it is withdrawn, and a new application is submitted by the successor firm.

An agent with XYZ financial received a call from the EVP of ABC Corporation. The EVP claims that the company's numbers are inflated and that the agent should get any clients out of ABC stock. What action may the agent take without violating the Uniform Securities Act? I Liquidate their personal holdings in ABC II Liquidate all shares of ABC held in discretionary accounts III Suggest to clients to "lighten up" on their positions by selling 1/2 of their ABC holdings IV Accept unsolicited sell orders for ABC A II, III, and IV B III C IV D I and IV

C Inside information may not be used by an agent as a basis to recommend a securities transaction. Unsolicited trades may be processed.

Q Strategies is an IA registered in State V. PQ has been acquiring shares of FG Pharmaceuticals for its own investment account. Under what circumstances must PQ notify customers of its investments in FG? I In principal transactions II If PQ is recommending the purchase of FG to customers III If PQ is encouraging customers to sell their stock in FG IV If PQ is trading on nonpublic information A I, II and, III B II and III C I and III D I, II, III, and IV

C Investment advisers are not generally required to inform customers of their own investments, unless the adviser is engaging in a principal transaction with the customer or the adviser's own investments are contrary to the advice given to clients, such as buying a stock while encouraging a customer to sell the same stock.

An investment adviser has committed an act characterized as a misrepresentation that will now unfortunately subject them to civil proceedings. By definition under the Uniform Securities Act, it is most likely that this act must have been: A A fraudulent one B A criminal one C An unethical one D An intentional one

C Note that this act has subjected the IA to civil, not criminal proceedings. Those acts or practices characterized as misrepresentations that are unintentional are considered unethical under the USA. Unethical acts or practices could subject the perpetrator to civil proceedings only. If an act or practice is characterized as an intentional misrepresentation, under the USA it would be considered fraudulent and subject to criminal proceedings.

Which of the following is the most complex form of registering a new security? A Registration by filing B Registration by coordination C Registration by qualification D Registration by notification

C Registration by qualification is the most complex procedure for registering a new security. Filing is another term for notification. The easiest method of securities registration at the state level is notification (filing). Registration by notification is often used for non-issuer distributions.

According to the Uniform Securities Act, which of the following is not considered an exempt security? A Securities issued by the Canadian government B Securities issued by a non-profit or religious organization C An unlisted common stock held in a bank's portfolio D Securities guaranteed by a domestic bank

C Securities issued by a non-profit or religious organization, securities guaranteed by a banking institution organized under the laws of the United States, and securities issued by the federal government of Canada, a recognized foreign government, are considered by the USA to be exempt securities.

Which of the following is a lawful representation to a client regarding a registered security? A Registered securities tend to outperform unregistered securities B A registered security has not been reviewed by the Administrator C It is registered with the Administrator D The Administrator releases a security for sale only if the registration statement is accurate

C Telling a customer that a security is registered with the Administrator is appropriate. Registration entails review and release for sale without the Administrator taking a position as to the accuracy or adequacy of the prospectus or registration statement. Comments to the contrary are misleading and constitute fraud.

The Administrator has knowledge that a broker-dealer is in violation of the Uniform Securities Act. The Administrator can take all the following actions, except: A Obtain an injunction B Subpoena witnesses C Seek an indictment for fraud D Issue a cease and desist order

C The Administrator has a number of tools at their disposal to help enforce the Uniform Securities Act. The USA empowers the Administrator to initiate investigations, either inside or outside the state, to determine if any person has violated, or is about to violate, any provisions of the USA. Administrators are also empowered, during investigations or proceedings, to subpoena witnesses and compel their attendance. The Administrator may also issue a cease and desist order against persons engaged in the illegal activities, directing them to stop any further illegal actions, and the Administrator may bring an action in court seeking an injunction to enforce compliance with the Act. The ultimate legal remedies under the USA involve criminal or civil court proceedings. The Administrator cannot seek an indictment because they have no prosecutorial authority.

Which of the following are subject to license revocation, under the USA, by the Administrator? A Issuers B Non-issuers C Investment adviser representatives, advisers, agents, and broker-dealers D Trust companies

C The Administrator has the authority to revoke the registration of, agents, broker-dealers, investment advisers, and investment adviser representatives.

The USA stipulates that a private placement will be for investment purposes only, and will not have more than 10 non-institutional persons, investing over what period of time? A A 3-month period B A 6-month period C A 12-month period D A 9-month period

C The USA stipulates that a private placement will be for investment purposes only and the offering will not be directed to more than 10 non-institutional buyers in any consecutive 12-month period.

Under the USA, an investment adviser may not enter into, extend, or renew an investment advisory contract unless all of the following are present, except: A It is in writing B It discloses the length of the contract C It discloses that the contract can be assigned at anytime D It discloses the formula for fee computation

C The contract must state that the contract cannot be assigned without the client's written consent. The IA must have the investment advisory contract in writing, the contract must disclose the length of the contract, and it must disclose the fees and how they are calculated.

A registered broker-dealer is believed to be engaging in illegal activities. The State Administrator directs the firm to stop any further illegal actions immediately. Which of the following best describes the action taken by the State Administrator? A Injunction B Expulsion C Cease and desist order D Letter of rescission

C The situation described addresses a cease and desist order. The Administrator may issue a cease and desist order against persons engaged in illegal activities, directing them to stop any further illegal actions. A cease and desist order may be issued with or without a prior hearing. An injunction is issued by a court, usually through a request from the Administrator.

On an irregular and infrequent basis, the president of a small corporation, whose shares are publicly traded on the OTC market, exchanges some of their personal shares for rare comic books for their collection. I These sales may be described as isolated nonissuer transactions II These are not sales III These are exempt transactions IV This is permitted only if the shares are registered A I and IV B II, III, and IV C I and III D II

C The transaction described is an isolated nonissuer transaction. Note that isolated does not necessarily mean 'one time'. Isolated traditionally means that the transaction does not occur with regularity. Under the USA, isolated nonissuer transactions are exempt, whether or not the transaction is executed through a broker-dealer.

When firms use the internet to provide investors with general information about their products and services, they must do all of the following, except: A Review all information prior to dissemination B Ensure the information is accurate C Provide investors with a prospectus D Comply with regulations pertaining to communications

C This is considered general dissemination of information and is not considered effecting or attempting to effect securities transactions. No product recommendations or investment advice are supplied. Therefore, there would be no prospectus requirement. The other choices are all necessary when firms disseminate general information through their websites or through social media.

An investment adviser is organized as a corporation under the laws of State A, where its principal office is located. Under the NASAA Recordkeeping Requirements for Investment Advisers Model Rule, the firm is required to preserve all the following records until at least 3 years following the termination of the firm, except the: A Firm's minute books B Firm's articles of incorporation C Partnership articles and any amendments D Stock certificate books

C While NASAA model rules require all four of these records to be kept for the life of the firm plus 3 years, in this case, only the partnership articles are unnecessary. The investment adviser is organized as a corporation, not as a partnership, and so there is no partnership agreement. The articles of incorporation, the stock certificates, and the minutes of the board of directors' meetings must be kept on file at least 3 years past the date the firm has ceased operations.

The duty of a registered person to disclose all material facts is addressed by which of the following? A Fiduciary obligation rule B Uniform Prudent Investors Act C Anti-reciprocal rule D Anti-fraud rule

D .Failure of a registered person to disclose material facts would be considered fraud.

An IA partnership has just hired two new partners. When do the firm's clients need to be notified? A Only clients that are affected directly must be notified B Within 30 days C Notification is not required D Within a reasonable time

D .If an investment adviser is structured as a partnership, its contract must contain a provision stating that it must notify its customers of any change in the membership of the partnership within a reasonable time after the change.

All the following are not considered broker-dealers under the Uniform Securities Act, except: A A dentist trading OTC securities in their IRA B An individual who provides advice about the investment merits of exchange-traded funds in exchange for a monthly fee C A partnership formed for the purpose of oil exploration, which raises capital by selling equity interests in the partnership D A person, not an agent, who acts as a market maker in several Nasdaq securities

D A broker-dealer is any person who is in the business of effecting securities transactions for their own account or for the accounts of others. Of the choices given, one is an investment adviser (providing advice for a fee), one is an investor managing their own retirement account (not in the business of effecting securities trades) and one is an issuer (the oil drilling partnership.) Only the market maker meets the definition of a broker-dealer.

According to the Uniform Securities Act which of the following must be disclosed in writing and contained in the investment advisory contract? I The investment adviser will not share in customer profits II No assignment of the contract may be made by the investment adviser without the consent of the other party to the contract III The investment adviser, if a partnership, must notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change IV The investment adviser shall notify the other party of its current standing as either a federal covered adviser or state-registered adviser A II and IV B I, II, III, and IV C I and III D I, II, and III

D According to the Uniform Securities Act, it is unlawful for an investment adviser to enter into an investment advisory contract unless such contract is in writing and discloses: the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, whether the contract grants discretionary power to the adviser, and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract. If the investment adviser is a partnership, it must also disclose that the investment adviser shall notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change. Disclosure must be made of the fact that the IA shall not share in customer profits.

A broker-dealer located in State M solicits business in State N. A prospect residing in State N accepts an offer and gives the broker-dealer a check drawn on a bank account located in State O. This transaction is governed by which states? A State N only B State M only C States M, N, and O D States M and N

D Administrators in States M and N have jurisdiction since the offer originated in State M and the sale was directed to State N and trade was done in State N. The location of the bank is irrelevant.

Which of the following records are required to be retained by an investment adviser? I Originals of all written correspondence sent to and received from clients II Copies of all newspaper/magazine articles, brochures, advertising, or sales literature III Copies of documents used in determining rate of return and performance of managed accounts IV Specific records for each customer's account showing whether the orders were discretionary, who executed the order, who recommended, and who placed the purchase or sale A II, III, and IV B II and III C I and II D I, II, III, and IV

D All of the items have to be retained by the IA for Administrator inspection.

In a discussion with a client an agent is explaining why a particular investment offers tax advantages to someone with their annual income and net worth. There happens to be pending legislation that would define the tax strategy used by the investment as a loophole in the tax code and thus disallow it, but given its pending status the agent does not mention it as they feel it might just cloud the investor's judgement and is not currently relevant. Not disclosing the pending legislation would be viewed as: A Ethical given the pending status of the legislation B Unethical but not fraudulent C Neither unethical nor fraudulent D Fraudulent

D Any changes, whether finalized or pending, in tax laws or government regulations that could impact an investment are considered material facts. Nondisclosure of a material fact is always fraudulent.

An applicant for registration as an investment adviser representative has received notice of a summary postponement of their registration. The applicant must be granted a hearing, and that hearing must be scheduled: A In writing within 30 days B Verbally within 10 days C Verbally within 15 days D In writing within 15 days

D Any party named in an Administrator's order to deny, suspend, or revoke a registration may request a hearing on the order. The request must be made in writing and the hearing scheduled within 15 days of the request. At a hearing, the Administrator must provide their reasons for the order, including any findings of fact or law used to support the order.

Which of the following brokerage firms transacting business in State A would meet the definition of a broker-dealer contained in the Uniform Securities Act? I A firm with no office in the state that occasionally conducts business with existing customers vacationing in State A II A firm with no office in the state that only conducts business with other brokerage firms in State A III A firm with several offices in the state that conducts business with both retail and institutional customers in State A IV A firm with several offices in the state that only conducts business with institutional customers in State A A I, II, III, and IV B II and IV C I and II D III and IV

D Firms with no office in a state and that only sell to institutions or existing customers passing through the state are not considered to be broker-dealers in that state under the USA. Once a firm maintains an office within a state, it is considered to be a broker-dealer regardless of the type of securities sold or the client base served.

If an application for registration for a security is withdrawn, the Administrator will: A Issue a refund less a $25 administration charge B Issue a full refund of all fees if the request is within 30 days of submission C Credit the fee toward the firm's account D Retain part or all of the registration fee

D If an application is denied or withdrawn, the Administrator will retain part or all of the fee.

The only acceptable party with whom an agent may share securities information that has not been disseminated to the public is: A The agent's client B The agent's attorney C The agent's spouse D The agent's principal

D Information that has not been disseminated to the public may not be discussed between an agent and anyone other than the agent's supervising principal.

Which of the following is not considered a prohibited sales practice pursuant to the Uniform Securities Act? A Soliciting orders for unregistered non-exempt securities B Borrowing securities or cash from a customer C Without authorization, exercising a non-discretionary order in a client's account D Informing a customer of an anticipated new public offering

D Informing a customer of an anticipated new public offering is not a prohibited practice. Soliciting orders for unregistered non-exempt securities, borrowing securities and/or cash from a customer, and exercising a transaction in a non-discretionary account without the customer's permission are considered prohibited activities under the Act.

Which of the following is not considered a prohibited sales practice pursuant to the Uniform Securities Act? A Without authorization, exercising a non-discretionary order in a client's account B Soliciting orders for unregistered non-exempt securities C Borrowing securities or cash from a customer D Informing a customer of an anticipated new public offering

D Informing a customer of an anticipated new public offering is not a prohibited practice. Soliciting orders for unregistered non-exempt securities, borrowing securities and/or cash from a customer, and exercising a transaction in a non-discretionary account without the customer's permission are considered prohibited activities under the Act.

MNO Capital Management, a broker-dealer, has submitted everything that is required for registration. According to the Uniform Securities Act, in the absence of a stop order, when will its registration become effective? A On the 10th day after filing B On the 20th day after filing C On the 15th day after filing D On the 30th day after filing

D Once a broker-dealer applicant has submitted everything required for registration, their registration becomes effective on the 30th day after filing. However, the Administrator has the authority to specify an earlier effective date, or they may defer the effective date until the 30th day after the filing of any amendment.

All the following are considered to be securities under the Uniform Securities Act, except: A REITs B Investment contracts in farmland C Variable universal life policy D Unsolicited orders

D REITs, fractional undivided interest in oil, gas, or other mineral rights, and VULs are included in the USA definition of a security. Both solicited and unsolicited orders are instructions to trade securities.

Pursuant to the Uniform Securities Act, the Administrator may suspend a registration for all the following, except: A The Administrator learns of an outrageous bonus plan for promoters selling the issue B An underwriter on the issue has been suspended from securities industry by a court in another state C The issuer is dumping toxic waste illegally into a river D The Administrator discovers, after the registration has gone into effect, that it was not accompanied by the proper filing fee

D Registration may be denied until the registrant pays the proper filing fee, but it would not be suspended later if the Administrator found out the payment was inadequate. All other reasons could be valid for suspending registration.

The Administrator may amend or rescind the rules at any time in order to carry out the provisions of which of the following? A Investment Advisers Act of 1940 B National Securities Market Improvement Act C Uniform Practice Code D The Uniform Securities Act

D The Administrator may amend or repeal any rule or order involving registration, reports, and other practices as necessary to carry out the provisions of their state's securities laws and rules under the Uniform Securities Act.

The Administrator may not deny registration to a person solely on the basis of which of the following? A Failing to pass the qualifying exam B Failure to pay the filing fee C A felony committed 6 years previously D Lack of experience

D The Administrator may not deny registration solely on the basis of lack of experience. Failure to pass the exam or pay the filing fee, or any felony committed within the last 10 years are grounds for denial.

Under the Uniform Securities Act, which of the following may an Administrator require of registered broker-dealers? I Recordkeeping requirements in excess of SEC requirements II Submitting to state examination of records III Filing of amendments to documents that were previously filed with the Administrator IV Filing of sales and advertising literature on any security subject to anti-fraud provisions A III and IV B I, II, III, and IV C I and II D II and III

D The Administrator may not require filing of sales and advertising literature on exempt transactions and exempt securities, though these securities are still subject to anti-fraud provisions. The Administrator may also not require recordkeeping in excess of that required at the federal level.

Which of the following is considered a sale? A YAZ Corporation paid shareholders a 5% stock dividend B $100,000 of stock pledged as collateral for a bank loan C ZYB Corporation is in bankruptcy and offers its bondholders an exchange of the bonds for ZYB common stock in a judicially approved reorganization D CAR Company gives 5 shares of its common stock with each new car purchased

D The terms sale or sell are defined as every contract of sale, contract to sell, or disposition of a security, or interest in a security, for value. Any security given with or as a bonus to the purchase of any security (or anything else) is considered to constitute part of the purchase and has been offered and sold for value. Specifically excluded from the definitions are a bona fide pledge or loan, a stock dividend or stock split, exchanges of securities in connection with mergers, reclassifications or consolidations, and exchanges in connection with judicially approved reorganizations.

An agent with Q Securities, has been discussing the purchase of some corporate bonds with a prospect for several weeks. On Monday, the agent calls this prospect from their State A office and reaches them on the road in State B. The agent suggests that the prospect purchase $100,000 face amount of CDE Industries 9.75% 10-year BBB paper. The prospect tells the agent that they would like to discuss the purchase with their spouse prior to committing to the purchase. On Friday, the prospect calls the agent from their home in State C and places the order. Which state administrator(s) has/have jurisdiction over the transaction? A State C B State A C States B and C D States A, B, and C

D When a sale results from an offer, the Administrator has authority over any sale that originated in their state, was directed into their state or was accepted in their state. Therefore, the administrators of all 3 states have potential jurisdiction over this transaction.

Under current securities regulations, which of the following best characterizes the fiduciary capacity of an investment adviser who has discretionary control over a client's assets? A The investment adviser must employ a strategy to grow the assets for the client at a rate no less than the anticipated rate of inflation B The investment adviser must limit investment choices for the client to those rated investment-grade level or higher C The investment adviser must select investments that will provide reasonable income for the client without incurring undue risk D The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing the client's account

D When an investment adviser has discretionary authority over customer accounts, securities regulations require that the adviser consider the character of the account and client and only make decisions based on what a prudent investor would do. The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing client accounts.