exam 7 - 90%

a broker dealer registered in state x has several clients in state y. if the firm does not have a place of business in state y, registration in state y would be required if one of those clients is a-an investment adviser registered in state y b-a registered investment company c-a broker dealer registered in state y d-a bank authorized to do business in state y

a-an investment adviser registered in state y the uniform securities act provides that a broker dealer with no place of business in a stat is not defined as a BD in that state if its customers are exclusively institutional investors or other BDs. banks and registered investment companies are in the list of institutional investors. when there is a client who is an investment adviser, the exclusion is lost. LO 2b

Your client gave you discretionary authority to trade her account with a beginning balance of $100,000. Her primary objective is long-term growth with low to moderate risk. Market conditions have been volatile for the past six months. A review of the account at the end of the period shows that, while the Dow Jones Industrial Average dropped by 2.2%, the client's account value is $105,300. During that period, if commissions from trading totaled a bit over $6,000, it is likely that your supervisor will A) discuss the possibility that you may have been churning the account. B) suggest that you contact the client about investing more money with the firm. C) congratulate you on helping your client beat the averages. D) inquire as to why a $100,000 account generated only $6,000 in commissions in a six-month period.

a-discuss the opportunity that you may have been churning the account churning can occur even when an account makes money. if the amount of commissions generated is out of line with the accounts objectives and resources (and 12% annual charges in this case) churning would probably be suspected. LO 7b

which of the following are required to provide a consent to service of process to the administrator in a state in which registration is sought i-an agent employed out of state but who seeks registration in a state in which the business is conducted. ii-a federal covered investment company not required to be registered in a state in which business is conducted but required to supply notice filing materials by the state administrator iii-a broker dealer registered in 25 states that seeks registration in a 26th state iv-an investment adviser with less than 100 million in assets under management who is not covered by federal legislation

all every legal or natural person seeking registration or making a notice filing must supply a consent to service of process with their registration applications. for example, a federal covered investment company, while covered under federal law, need not register with the state administrator but submit notice filing materials include a consent to service of process LO 3f

If convicted of a willful violation of the Uniform Securities Act, an agent is subject to A) disbarment. B) a fine of $5,000, imprisonment for three years, or both. C) imprisonment for five years. D) a fine of $10,000.

b-a fine of 5000, imprisonment for three years, or both under the USA, the maximum criminal penalty is a fine of 5000, three years in jail or both LO 5d

The Uniform Securities Act excludes from the definition of agent individuals who represent certain issuers in the sale of their securities. An individual representing which of the following issuers qualifies for that exclusion? A) The Midwest Farmers Cooperative, a nonprofit membership cooperative issuing securities solely to members of that cooperative B) GEMCO Finance Corporation that issues AAA-rated 30-day commercial paper in $100,000 minimum denominations C) The Eastern Pacific Railroad issuing equipment trust certificates for the purpose of upgrading its fleet of locomotives D) FINCO Finance Corporation that issues AAA-rated 330-day commercial paper in $25,000 minimum denominations

b-gemco finance corporation that issues AAA rated 30 day commercial paper in 100,000 minimum denominations among the cases where an individual representing the issuer of an exempt security is excluded from the definition of an agent is commercial paper in the three highest rating grades (AAA is the highest) with no more than a 270 day maturity and a minimum denomination of 50,000. although railroad equipment trust certificates and membership only sales of securities issued by cooperative and exempt securities, they are not included in the list of those eligible for the agents exclusion. LO 2f

in which of the following cases would the uniform securities act require registration of an investment adviser who had no place of business in the state? a-he had more than five institutional clients domiciled in the state b-he had more than five noninstitutional clients who were residents of the state c-his website was seen by residents of the state d-under no circumstances if there is no place of business in the state

b-he had more than five noninstitutional clients who were residents of the state an investment adviser with no place of business in the state dealing exclusively with institutional clients is not considered an IA for registration purposes. if the IA has retail (noninstitutional) clients there is a de minimis limit of no more than five in any 12 month period. because websites are global, registration is only required if there is a place of business in the state or you go over the de minimis limits. LO 3b

the issuance of a stop order by a state securities administrator requires a-the subject to stop the activity without the opportunity for a hearing b-the subject of the stop order to be given an opportunity for hearing c-an issuance of an injunction by a court with jurisdiction over such issues d-an issuance of criminal charges

b-the subject of the stop order to be given an opportunity for a hearing the subject of the stop order must be given the opportunity for a hearing. as long as the stop order is in effect, the security subject to the order may not be sold to the public or the proscribed activity may not continue. stop orders do not require an injunction by a court. the USA does not grant the administrator the authority to issue criminal charges, that is the role of the court system. LO 5b

which of the following clients of a registered investment adviser is exempt from the requirement to receive annual delivery of the advisers brochure? a-first national bank of bigville, a bank whose deposits are insured by the FDIC b-valued life insurance company, authorized to do business in the state c-KAPCO growth fund, a mutual fund registered with the SEC d-an individual receiving impersonal advisory services billed at a rate of 150 per quarter

c-KAPCO growth fund, a mutual fund registered with the SEC the brochure rule creates exempts from the delivery requirement in two cases. the first is when the service rendered meets the definition of impersonal advisory services and the annual fee is less than 500. in this question the fee is 600 (150 per quarter times four quarters). the other is when the advisory contract is with a registered investment company such as a mutual fund. LO 6b

An investor who resides in New York reads an ad for advisory services in a newspaper published in New Jersey. More than 80% of the newspaper's circulation over the past 12 months has been in the state of New York. According to the Uniform Securities Act, an offer has been made in A) New Jersey. B) New York. C) neither New Jersey nor New York. D) New Jersey and New York.

c-neither new jersey nor new york an offer is not made when a newspaper is circulated but not published in the state or if it is published in the state but has more than two thirds of its circulation outside of the state. lets see how that applies to this question. the paper is being circulated in new york, but it is not published in that state so the new york administrator does not have jurisdiction. the paper is published in new jersey. ordinarily, the administrator of the state where the paper is published would have jurisdiction. however, the uniform securities act says that is the case only when no more than two thirds of its circulation has been out of the state during the previous 12 months. in our question, 80% of the circulation has been outside of new jersey so the new jersey administrator has no jurisdiction. in a strange quirk of the law, no state has jurisdiction over an advertisement for securities placed in this newspaper LO 5a

Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions A) is an unethical trade practice. B) would be allowable if both parties were registered as agents for the same or affiliated broker-dealers. C) on variable annuity sales is allowable only if the agents involved are both licensed in life insurance and maintain their securities licenses at the same or affiliated broker-dealers. D) is permissible at all times.

c-on variable annuity sales is allowable only if the agents involved are both licensed in life insurance and maintain their securities licenses at the same or affiliated broker dealers you must be licensed in both insurance and securities to sell variable annuities or to split commissions. commissions on securities transactions may only be split with registered agents of the same or affiliated broker dealers. LO 7b

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

c-post a surety bond if they do not have investment discretion over client accounts or do not maintain custody of customer funds and/or securities the question asks for something that cannot be required by the administrator. the other choices are requirements that you should memorize. an administrator can require a bond only if registrants have custody or discretion LO 2c

michal is an agent registered with a broker dealer in state W. the responsibility for ensuring that michals activity as an agent is properly supervised is that of a-the chief compliance officer of that broker dealer b-the administrator of state w c-the designated supervisory individual within that broker dealer d-an agent of that broker dealer who was employed by that broker dealer before michal

c-the designated supervisory individual with that broker dealer a broker dealer is responsible for supervising the business activities of its agents. in practice, the BD designates a specific individual with supervisory responsibility for each agent. the number of agents an individual supervisor is responsible for depends on the firms operating procedures. it would be unusual to have the chief compliance officer (CCO) supervising individual agents. just because an agent has been with a BD longer than michal does not create supervisory authority LO 2d

Which of the following statements regarding Form ADV Part 2 is true? A) It must be delivered no later than 48 hours prior to entering into an investment advisory contract. B) It must always accompany the investment adviser's brochure. C) Unless there are no material changes, it must be delivered to clients annually. D) It must be delivered no later than receipt of the client's funds.

c-unless there are no material changes, it must be delivered to clients annually unless there have been no material changes, a copy of the advisers brochure or brochure supplement must be delivered to all current clients within 120 days of the end of the advisers fiscal year. if it is not delivered 48 hours in advance of the initial contract, the client has a five day penalty free termination clause. it does not accompany the brochure, it is the brochure. LO 6b

If an agent recommends the purchase of a technology company with an impressive growth record but fails to inform the client that the company's technology will become obsolete pending the approval of a competitor's patent, the agent has A) committed a prohibited business practice by selling an unsuitable investment. B) not committed a prohibited business practice. C) not violated the Uniform Securities Act because no untrue statements were made. D) failed to disclose material information.

d-failed to disclose material information the agent has violated the uniform securities act by fraudulently omitting material information in the sale of a security LO 7a

Which of the following is least likely to appear on a broker-dealer's application submitted to the Administrator? A) Disclosure of any charge, conviction, or guilty plea to any felony B) The form of business organization C) Proposed method of doing business D) The number of agents employed by the broker-dealer

d-the number of agents employed by the broker dealer even if this is an established broker dealer who is now registering in a new state, the number of agents employed by the firm is not part of the BD LO 2c

the administrator may summarily suspend a registration pending final determination proceedings under the uniform securities act. however, the administrator may NOT enter a final order without i-appropriate prior notice to the registrant ii-an opportunity for a hearing iii-findings of fact and conclusions of law iv-prior written acknowledgement of the registrant

i-appropriate prior notice to the registrant ii-an opportunity for a hearing iii-findings of fact and conclusions of law prior to the entry of a final order, the administrator must provide appropriate notice prior to the registrant, provide the opportunity for a hearing, and present findings of fact and conclusions of law. a registrant is not required to provide written acknowledgement before an order is issued. LO 5b