Series 63 Mock Exam Missed Questions
While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are NOT true? A) Investigations of serious violations must be open to the public. B) An Administrator may, by order, deny the registration of a securities professional who has been convicted of any felony within the past 10 years. C) In conducting an investigation, an Administrator can compel the testimony of witnesses. D) An Administrator in State A may only enforce subpoenas from State B if the alleged violation would be a violation of the State A's statutes.
A) Investigations of serious violations must be open to the public. An investigation of serious violations need not be held in public.
State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) Investment adviser representatives B) Broker-dealers receiving special compensation C) A wholly owned subsidiary of a commercial bank that is in the business of offering investment advice D) Economists whose advice is strictly incidental to their professional activity
A) Investment adviser representatives
Which of the following is NOT required to be disclosed in an investment advisory contract under the Uniform Securities Act? A) The adviser's past performance over a period of no less than the previous 12 months B) If applicable, a statement that the investment adviser will be exercising discretion in the account. C) The amount or manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination D) The termination date of the contract
A) The adviser's past performance over a period of no less than the previous 12 months The Uniform Securities Act does not require an investment advisory contract to disclose the IA's past performance.
If an individual acting on behalf of an issuer engages in the sale of securities issued by a savings institution organized and supervised under the laws of any state, which of the following statements is TRUE? A) The individual is not required to be registered. B) The individual can only participate in this transaction with permission from the Administrator. C) The individual is acting as a broker-dealer and must be registered as a broker-dealer. D) The individual is engaging in a prohibited transaction.
A) The individual is not required to be registered. An individual representing (employed by) an issuer is exempt from registration as an agent when selling certain exempt securities (see your LEM for the 5 categories that qualify) or non-exempt securities in an exempt transaction.
It would likely be considered a conflict of interest when an agent A) recommends a stock to many of his clients immediately after purchasing some of those shares himself B) does not recommend securities that he believes present environmental hazards C) buys a security for his own account shortly after many of his clients have acted on his buy recommendation for that stock D) only recommends securities in the industry in which he was formerly employed and in which he has had specialized education and training
A) recommends a stock to many of his clients immediately after purchasing some of those shares himself An agent purchasing a stock and then recommending it to clients, has a conflict of interest. Strong buying of that stock should cause the price to go up so, to avoid conflicts, the agent should purchase after the clients do.
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall obtain client consent before completion of the transaction B) shall disclose the agency capacity before the transaction C) may not charge a commission on the transaction D) shall notify the Administrator of its capacity in the proposed transaction
A) shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: - The client receives full written disclosure as to the capacity in which the adviser proposes to act - Consent of the client Both of these are required before the completion of the transaction.
Which of the following must register as an agent? A) An employee of the Fed whose job is selling Treasury bonds to the public B) An individual representing a broker-dealer who sells commercial paper C) An individual who is paid a commission to sell FDIC insured certificates of deposit for ABC National Bank D) An individual who sells commercial paper for ABC National Bank
B) An individual representing a broker-dealer who sells commercial paper
Under the Uniform Securities Act, which of the following are NOT excluded from the definition of broker-dealer? A) Issuers of securities B) Persons who effect securities transactions as part of a regular business solely for their own accounts C) Agents D) Banks
B) Persons who effect securities transactions as part of a regular business solely for their own accounts Broker-Dealers do not include -Issuers, -Agents, -Banks or trust companies -Person with no place of business in the state who effects transactions in state exclusively with or through banks, savings companies, insurance companies, investment companies, employee benefit plans, pension or profit sharing trusts with at least $1 million, other broker dealers and existing customers whose residence is not in the state.
Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change? A) The hypothecation agreement B) The credit agreement C) The loan consent agreement D) The interest computation agreement
B) The credit agreement It is the credit agreement that discloses the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change.
Under the Uniform Securities Act, a person whose business model is selling reports on a subscription basis concerning specific securities to investors based on their individual objectives will be defined as A) an agent B) an investment adviser C) a broker-dealer D) a publisher
B) an investment adviser The definition of investment adviser includes any person who for compensation engages in the business of advising others as to the value of securities or the advisability of buying, selling, or investing in securities or who, as a part of a regular business, publishes securities analyses or securities reports for individual investors on a paid subscription basis.
The Administrator may, by rule or by order, prescribe the filing of financial reports by which of the following persons registered in his state? 1. Agents 2. Broker-dealers 3. Investment Advisers A) I and II B) I, II and III C) II and III D) I and III
C) II and III Only broker-dealers and investment advisers are required to file financial reports. Unlike a broker-dealer or investment adviser, agents (or IARs) have no financial reporting requirements. It is the business entity, not the employees, whose financial records are of interest to the regulators.
An agent submits a list of recommendations to a customer that includes 5 different securities. The customer chooses to buy a round lot of 1 of the 5 securities recommended (a stock in which the agent's broker-dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act? A) No, the markup schedule is set and cannot be changed for an individual trade. B) Yes, it is allowable, but proper disclosure is required. C) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. D) Yes, markup schedules are dependent upon the type of security, broker-dealer risk, services that the broker-dealer provides, and effort in acquiring the security.
C) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. Higher than average markups or commissions are not prohibited if they are justifiable and disclosed. However, in this case, there would appear to be no justification because the customer bought a round lot, the normal trading unit of stock. The firm is a market maker, so the security is being sold from their inventory and the stock is on the company's recommended list.
In which of the following situations is an agent committing a prohibited practice? A) Allowing the customer to place an order to sell 100 shares of ABC in the client's discretionary account B) Buying a security on behalf of a customer and then reselling it before the customer has paid for it C) Purchasing a security in a discretionary account while awaiting written receipt of trading authority D) Buying a security on one exchange and simultaneously selling it on another to take advantage of a price disparity
C) Purchasing a security in a discretionary account while awaiting written receipt of trading authority Written receipt of trading authority is required before conducting any trade on a discretionary basis. Oral authorization is not sufficient; it must be in writing. It is not a prohibited practice to sell a security before the customer has paid for it (day trading).
Which of the following would be included in the Uniform Securities Act's definition of a "sale"? A) Conveying, for value, precious metals to a jewelry distributor B) Donation of interests in rights, warrants, or options on a nonexempt security C) Transfers, for value, of unit trusts to a nontaxable organization D) Sale of a large fixed annuity contract to a taxable institution
C) Transfers, for value, of unit trusts to a nontaxable organization For a security to be sold, it must be exchanged for value. Fixed annuities and precious metals are not securities, so no security sale took place. Donating a security does not qualify as a sale.
A broker-dealer with no place of business in the state would not be required to register with the Administrator unless one of its clients was A) a unit investment trust registered under the Investment Company Act of 1940 B) a savings institution C) an employee benefit plan with assets of less than $1 million D) another broker-dealer
C) an employee benefit plan with assets of less than $1 million
Consent of the client before completion of a trade made between the firm and a client must be made when A) a broker-dealer will be acting in the capacity of an agent B) a broker-dealer will be acting in the capacity of a principal C) an investment adviser will be acting in the capacity of a principal D) a broker-dealer will be acting as a contra-party to the trade
C) an investment adviser will be acting in the capacity of a principal In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity, (acting as a broker [agency] or dealer [principal]) on the trade confirmation, but not consent, is needed.
Which of the following is an investment adviser? A) A bank that purchases securities on behalf of its custodial accounts B) A lawyer with sophisticated investment experience who gratuitously offers his clients advice on the value of securities C) A columnist for a major news magazine who writes on the business and economic functions of banking institutions D) A retired mechanical engineer who offers investment advice in his areas of expertise to a small number of clients for a fee
D) A retired mechanical engineer who offers investment advice in his areas of expertise to a small number of clients for a fee Even though an engineer is part of the acronym LATE, a retired or active mechanical engineer who offers investment advice to clients for a fee falls within the definition of investment adviser under the Uniform Securities Act. The LATE exclusion only applies to incidental advice given in the practice of a profession.
An investment adviser with no place of business in the state has 10 clients in the state. For which one of the clients would registration be required? A) An investment adviser B) A governmental agency C) An insurance company D) An individual with net worth in excess of $1 million
D) An individual with net worth in excess of $1 million
A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened? A) Margin B) Retirement C) Discretionary D) Options
D) Options One question asked on a new options account form that is not required on a normal brokerage account opening is investment experience and knowledge (e.g., number of years, size, frequency, and type of transactions) for options, stocks and bonds, commodities, and other financial instruments.
An individual with a place of business in State A manages client assets on behalf of a covered investment adviser. This individual wishes to expand his client base by working one day per week out of the firm's office in State B. Which of the following actions must the person take to practice within that particular state? A) Become licensed as a broker-dealer B) Pass an oral or written examination C) Comply with the notice filing requirements of the state D) Pay state registration fees if required by the Administrator
D) Pay state registration fees if required by the Administrator It is the investment adviser who may be required to notice file with the Administrator.
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A) charges for late payments B) account inactivity fee C) issuance of a stock certificate D) advisory fees
D) advisory fees There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are -commissions; -markups and markdowns; and -advisory fees for those firms that are also registered as investment advisers.
An individual functioning as an investment adviser representative for a federal covered adviser, with no place of business in this state, would be required to register in this state if A) he only dealt with investment companies located in the state B) he had a time-share in the state C) the investment adviser had a small office in the state D) he conducts frequent public seminars in the state
D) he conducts frequent public seminars in the state Under the Uniform Securities Act, conducting seminars open to the public in a state is considered to be having a place of business in the state.
An individual employed by a federal covered adviser would be required to become registered as an IAR in the state if A) the only function performed by the individual is preparing the layout of a research report prepared by the firm B) the only clients receiving the individual's advice are banks located in states where the individual does not maintain a place of business C) the only clients receiving the individual's advice are insurance companies located in states where the individual does not maintain a place of business D) the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office
D) the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office Individuals performing the duties of an IAR for a federal covered investment adviser are only required to register in states in which they maintain a place of business. Although pension plans (as long as the total assets of the plan are at least $1 million) are considered institutional investors for exemption purposes, that exemption only applies when the individual has no place of business in the state.
An individual employed by a federal covered adviser would be required to become registered as an IAR in the state if A) the only clients receiving the individual's advice are insurance companies located in states where the individual does not maintain a place of business B) the only function performed by the individual is preparing the layout of a research report prepared by the firm C) the only clients receiving the individual's advice are banks located in states where the individual does not maintain a place of business D) the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office
D) the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office Individuals performing the duties of an IAR for a federal covered investment adviser are only required to register in states in which they maintain a place of business. Although pension plans (as long as the total assets of the plan are at least $1 million) are considered institutional investors for exemption purposes, that exemption only applies when the individual has no place of business in the state.
