Series 63
An Administrator may require persons applying for registration as agents to do which of the following? I Pay a fee II Pass an exam III Post a surety bond
All
Which of the following are potential grounds for denying an agent's application for registration? I Filing an incomplete application II Failing to comply with any provision of the Uniform Securities Act III Being convicted, within the last 6 years, of any misdemeanor involving any aspect of the securities business IV Being convicted, within the last 10 years of a felony not involving any aspect of the securities business
All Answers are correct There are a number of grounds on which the Administrator could deny an application for registration as an agent. This may include: filing an incomplete application or one that contains false or misleading statement, willfully violating or failing to comply with any provision of the USA or being convicted, within the last 10 years, of any misdemeanor involving any aspect of the securities business, or any felony.
Which of the following broker-dealer practices is prohibited by the Uniform Securities Act? I - A broker-dealer unreasonably delays paying a customer's free credit balance upon request II - A broker-dealer does not segregate customer securities from those owned by the firm III - An RR guarantees a customer a profit IV - An RR guarantees a customer against a loss
1,2,3 & 4
A federal covered adviser could enter into an advisory contract which allowed for performance-based compensation with a customer who met which of the following financial criteria? A - Net worth of $2.1 million B - Net worth of $5 million C - Net worth of $750,000 D - Net worth of $1 million
A 2.1 million
The ABC Group specializes in forming groups of investors to finance the acquisition of rights to mineral deposits and other natural resources with high, albeit speculative, development potential. They package these interests and the investors receive evidence of their interest, in certificate form. ABC has an arrangement with a broker-dealer to market unsold interests through private placements. Which of the following would be true? I The certificates of interest are securities II The certificates of interest are not securities III ABC Group is an issuer IV The broker-dealer is an issuer
1 The interests described would be considered securities under the Howey test: investors put money into a common enterprise with an expectation of profits from the efforts of third parties (whoever is actually developing the natural resources). In one of the odd quirks of the Uniform Securities Act, however, interests in oil, gas or mining titles have no issuer, therefore only Choice I is correct.
An adviser does limited advisory business in State A. It has no place of business in the state and is not currently registered in State A. According to the Uniform Securities Act, which of the following are conditions that would lead to this adviser needing to register in State A? I It provides advice to retail customers only II It provides advice to institutional customers only III It has 10 clients in State A, of which 6 are institutions IV It has 10 clients in State A, of which 6 are retail investors
1 & 4
Which of the following are issuer transactions? I Initial public offerings II Private placements III Preemptive rights offerings IV Exchange transactions
1 - 2 - 3 Since initial public offerings, private placements, and pre-emptive rights offerings benefit the issuer of the securities, each is considered an issuer transaction. Exchange trading occurs in the secondary market.
In order to qualify under the world-class foreign issuer exemption, a security must meet which of the following criteria? I The issuer is not organized under U.S. or any state law II It is a non-preferred equity security or a non-convertible debt security III The issuer has been in business for the past 10 years IV The issuer has at least $1 billion or more of market value of non-preferred equity shares owned by nonaffiliates
1 - 2 - 4 World class foreign issuers are companies which meet the following criteria: *The issuer is not organized under U.S. or any state law. *The issuer has been in business for the past 5 years, not 10 years as stated in Choice III. *The issuer has at least $1 billion or more of market value of equity shares (not including preferred stock) owned by nonaffiliates, with overall value of equity shares of at least $3 billion. *The issuer's equity securities are listed for trading on a foreign securities exchange. Equity shares (not including preferred stock) and non-convertible debt securities (rated in the top four credit ratings) issued by world class foreign issuers are exempt from state securities registration and advertising/sales literature filing requirements.
A small, one-office investment advisory firm with $5 million in assets under management, is located in State A. Which of the following persons associated with this firm would NOT fall under the definition of an IA representative according to the Uniform Securities Act? A The founder's son who tabulates investment results for client accounts B A freelance salesperson to whom the firm pays a .25% commission on any assets directed to the firm C A person who supervises the firm's IARs but does not deal with customers D Any of the firm's employees would not be considered IA reps due to the "de minimus" amount of assets the firm manages (less than $10 million), which qualifies it for the intrastate exemption
A
An agent was the top producer this past year, only selling fixed annuities. She regularly provided investment advice regarding the guaranteed nature of her product and only got paid when customers purchased the product. What type of license is required of this agent? A Insurance license B Securities license C An investment adviser registration D Insurance and securities license
A
Concerning suitability, an investment adviser must do all of the following except: A Recommend an investment that the adviser is certain will benefit the customer even when it is riskier than the client can tolerate B Ask questions about their personal and family situations C Consider the client's immediate cash needs D Include investments that don't exceed the client"s financial capabilities
A
In general a non-issuer transaction of common stock sold by a broker-dealer is considered what type of transaction? A Non-exempt B Treasury stock C Exempt D IPO
A
An investor of an advisory firm holds a large position of a thinly traded stock. This investor informs the adviser that they would like to sell 100,000 shares of this stock. The advisory firm contacts one of their institutional clients and recommends the purchase of these shares of stock. The institutional client agrees and the transaction is completed with the institutional client purchasing the 100,000 shares. All of the following are true except: A No commission may be charged to to the selling investor for this transaction B This is an agency cross transaction C This represents a conflict of interest and must be disclosed to both parties prior to execution D This transaction is permitted only with the written consent of both customers
A A transaction where an investment adviser acts as an agent for both the buyer and the seller of the securities is known as an agency cross transaction. Since these transactions represent a potential conflict of interest, investment advisers must follow strict rules when executing them: * The IA must make written disclosure to the client that, with respect to agency cross transactions, the investment adviser may act as broker-dealer for both counterparties and have conflicting loyalties. * Both sides of the transaction must give written consent for agency cross transactions. *The IA must send written confirmations to both sides at or prior to completion of the transaction. The confirmation must disclose the source(s) and amount(s) of any remuneration the adviser has received or expects to receive as a result of the transaction. *The IA must send a summary at least annually showing the total number of agency cross transactions executed in the customer's account, and the total commissions or other remuneration received. *The IA may not recommend an agency cross transaction to both counter-parties. As long as all disclosure requirements are met, the adviser may charge fair and reasonable commissions.
An IAR has a client with a non-discretionary account. This client has placed an order to invest $50,000 in a "blue chip drug stock" whenever the IAR thinks there is an opportunity. According to NASAA Model Rule on Unethical Business Practices Of Investment Advisers, Investment Adviser Representatives, And Federal Covered Advisers, which of the following is true? A The IAR must obtain written discretionary authority within 10 business days of the transaction B This order cannot be accepted in a non-discretionary account C The IAR must obtain written discretionary authority within 10 calendar days of the transaction D The IAR can execute this order without additional documentation
A An investment adviser may exercise discretion in a client account prior to obtaining written discretionary authority for up to 10 business days, if authorized verbally by the client.
Under the USA, all of the following are considered exempt transactions except: A Private placement resulting from offers to 35 or fewer non-institutional investors during any 12-month period where commissions are paid B Offers or sales to banks C Offers or sales to a mutual fund D A transaction between an issuer and underwriter
A U.S. Banks are exempt issuers and any securities issued by banks are exempt securities. It follows that the issuance of bank securities is an exempt transaction. A mutual fund is an institutional investor and its transactions are exempt from state registration. Issuer to underwriter transactions are exempt transactions. Private placements are exempt transactions in a specific state only if offers are made to 10 or fewer non-institutional investors during any 12-month period where no commissions are earned.
All of the following are considered exempt transactions according to the USA, except: A An offer of an unregistered, non-exempt security by an agent of a broker-dealer B A sale of a mortgage bond C A transaction between an issuer and an underwriter D A private placement offer to 9 retail customers in a 10 month period where the agent received no compensation
A "An offer of an unregistered, non-exempt security by an agent of a broker-dealer is not an exempt transaction nor is it permitted under the Act. The only time it is acceptable to trade an unregistered, non-exempt security is if the trade was directed by the customer on an unsolicited basis (with proper documentation to support it). Exempt transactions include: * Private placements offered to 10 or fewer retail customers within 12 months and no commission paid * Any bond backed by real estate (mortgage bond) * Transactions between an issuer and an underwriter * Unsolicited, non-issuer transactions through a broker-dealer Since the offer for the unregistered, non-exempt security was solicited by the agent, it is NOT exempt."
Which of the following would be recognized as the de minimus exemption under the USA? A An advisory firm that works with 4 retail customers in State A without having an office in the state B ABC Inc. who advises several institutional customers located in State A without having an office in the state C A broker-dealer that regularly does business with several institutional customers in State A and has no office in the state D A firm that processes transactions with several existing retail customers who are in State A on vacation
A An advisory firm that works with 4 retail customers in State A without having an office in the state The de minimus exemption is only for investment advisers with no office in the state, conducting business with 5 or fewer retail customers in a state over the last 12 months. A broker-dealer who solely processes transactions for existing customers who are temporarily in another state is not considered a broker-dealer in the other state and the firm need not register there. Broker-dealers who process transactions for institutional clients in another state are not broker-dealers in the state, however it is considered the institutional exclusion and not an exemption.
According to the Uniform Securities Act, when must the consent to service of process be filed with the State Administrator? A With the application and renewal B With the application C Once the registration is effective D Every 2 years
B
Under the Uniform Securities Act, the term "publicly distributed written materials" are materials that are paid for by the recipients and sent to at least: A 10 persons B 35 persons C 500 persons D 1 person
B
Under which of the following circumstances may an agent share in the profits or losses in a client account? A Presence of prior written approval by the client and profit and losses are shared in proportion to the amount each person has invested in the account B Presence of prior written approval by the client and employing broker-dealer C Under no circumstances is sharing of profits/losses allowed D Presence of prior written approval by the supervisor of the agent
B No agent shall share in the profits or losses in a client's account unless there is prior written approval by the client and the agent's employing broker-dealer. Under the USA an agent and customer do not have to share in proportion profits and losses in the account.
During an internal audit, ABC Securities determines that there have been material changes in their business which have rendered some of the information on their registration statement inaccurate. When must ABC notify the Administrator? A Within 24 hours of discovery B Promptly C When they renew their registration D Within 15 business days of discovery
B - Promptly Any material changes that would make the information on a BD's registration statement inaccurate or incomplete must be communicated promptly to the Administrator. This rule would also apply for agents, IAs and IARs.
JKL Brokerage Services is engaged in the business of effecting transactions in securities for the accounts of others. JKL has a place of business in State A, but not in State B. In State A, its clients include thousands of retail and institutional investors. In State B, its clients include only broker-dealers and institutional investors. In which of the following state(s) is JKL Brokerage Services required to register as a broker-dealer? A State B only B State A only C Neither State A nor State B D Both State A and State B
B - State Only The Uniform Securities Act (USA) defines a broker-dealer as a person engaged in the business of effecting transactions in securities for the accounts of others or for its own account. Therefore, JKL Brokerage Services meets the definition of a broker-dealer according to the USA unless a specific exemption from the definition applies. The implication of meeting the definition of a broker-dealer in a particular state is that the firm generally must register as a broker-dealer. There are a number of persons that are specifically excluded from the definition of a broker-dealer under the USA. The following are NOT broker-dealers, even when they buy and sell securities as a business: a bank, savings institution or trust company; an issuer; an agent; a person that has no place of business in the state and deals only with broker-dealers, and institutional investors. This last exclusion allows out-of-state BDs to do business in a state without registration if they deal only with institutions. For example, JKL must register in State A, since they have a place of business there, but not in State B. As long as JKL deals only with broker-dealers and institutions, it is not considered a broker-dealer in State B, assuming it has no place of business in State B.
In addition to one of the specified causes for revocation, denial, or suspension of a registration, what also must be present for the administrator to take this action? A The administrator needs no additional cause B The administrator deems that it is in the public's best interest C The administrator deems that the interest of the public has been impaired D The administrator deems that the public is interested
B The administrator deems that it is in the public's best interest The public's best interest plus one or more of the specified causes must be present to cause denial, suspension, or revocation of a registration.
A broker-dealer's registration has just become effective on December 26, 2016. Unless renewed, when does its registration expire? A Its registration expires on December 31, 2017 B Its registration is permanent C Its registration expires on December 31, 2016 D Its registration expires on December 26, 2017
C
According to the Uniform Securities Act, which of the following is true regarding the Administrator? A The Administrator is always appointed by the Governor B The Administrator must be elected by majority vote C The Administrator may review advertisements for non-exempt securities D The Administrator does not review advertising and sales literature unless specifically directed by the SEC
C
An investment adviser who has custody of customer funds must have: A A $35,000 minimum worth and file unaudited balance sheets B A $100,000 minimum net worth and file unaudited balance sheets C A $35,000 minimum net worth and file audited balance sheets D This is not permitted under any circumstances
C
The Administrator may deny an applicant's registration if the person has been convicted of a securities-related misdemeanor or any felony during what time period? A During the last 5 years B During the last 15 years C During the last 10 years D During the last 20 years
C
Under which of the following cases is the broker-dealer exempt from disclosing its interest in a transaction to the client and receiving the clients advance consent? A The broker-dealer recommends that a client sell a certain stock, the client places a sell order, and the broker-dealer fills the order by acting as a principal in the trade B The broker-dealer recommends a stock to a client, the client places a buy order, and the broker-dealer fills the order by acting as a principal in the trade C The client places an unsolicited buy order, which the broker-dealer fills by acting as a principal in the trade D The broker-dealer recommends a stock to a client, the client places a buy order, and the broker-dealer fills the order by acting as a broker on the other side of the transaction
C
When each agent, broker-dealer, investment adviser or investment adviser representative is initially registered, which one of the following is also filed? A A net-worth statement B Proof of a $10,000 bond C A Consent to Service of Process D A credit report
C
An agent with FG Securities is aggressively promoting the purchase of PQR Industries, Inc. common stock. After much debate, a customer decides to purchase 1,000 shares at $36.00 per share on Monday. Unfortunately the stock plunges to $13.12 per share the next day. On Wednesday the client calls the agent looking for a quote on the stock and the agent simply states "the stock is up 32 cents today". Evaluate the agent's statement. A - This is not a violation unless the client specifically mentions that they are considering liquidating the stock. If that were the case, the agent must provide the client with the stock's current bid and ask B - Under USA, Sally is under no obligation to provide current quotes until the trade settles C - The agent has made a factually accurate statement, but has omitted the fact that the stock is down significantly from the purchase price by not stating the security's current market value. This is fraudulent as the agent is willfully deceiving the client D - The agent has made a factually accurate statement, but has acted unethically by failing to disclose all information
C -The agent has given their client a misleading quote by providing the stock's price change for the day as opposed to the current bid and ask. -Agents may not provide fictitious or misleading quotes to customers in an attempt to conceal the true value of a customer's holdings. -Since the agent has willfully deceived their client and withheld material information, they may be charged with a fraudulent practice.
Under the Uniform Securities Act, a person is NOT an agent if they: A Represents a broker-dealer or issuer in sales of exempt securities B Represents an issuer in sales of nonexempt securities C Represents an issuer in sales of certain exempt securities D Represents a broker-dealer in sales of exempt securities
C An individual representing the issuer of certain exempt securities is excluded from the definition of an agent but, not all exempt securities.
If a registered investment adviser representative dies, the Administrator would do which of the following? A Withdraw the registration after an application is filed B Revoke the registration C Cancel the registration D Automatically withdraw the registration
C The registration would be canceled in this case. The registration is revoked when the person has given cause for disciplinary action. Withdrawal is accomplished upon petition by the registrant.
According to the USA, an administrator may deny or suspend an agent's registration if it is discovered that he/she has been convicted of a felony within the past: A 3 years B 7 years C 10 years D 5 years
C - 10 Years
What is the minimum assets under management a firm providing investment advice for compensation needs in order to become a federal covered investment adviser? A $10 million B $50 million C $100 million D $110 million
C - 100 Million The minimum assets under management an investment adviser needs to become a federally covered investment adviser is $100 million. This should not be confused with $110 million under management which would require an adviser to register with the SEC (federal covered adviser).
The definition of an investment adviser does not include which of the following? A Broker-dealers that charge additional compensation for giving investment advice to retail consumers B Publishers of market newsletters with investment advice for specific client situations C Attorney, accountant, and trust company D Fee-based financial planners who provide investment advisory services through the internet
C - Attorney, Accountant, Trust Company Attorneys, accountants, teachers, and engineers whose advice is incidental to their profession are not considered investment advisers. Neither are banks, savings institutions, or trust companies. However, those who receive separate compensation for their investment advice, whether delivered electronically, or at a seminar, or through a newsletter's advice for specific client situations, are considered investment advisers, and must register as such.
Which of the following broker-dealers with no office in this state must register in this state? A A broker-dealer whose existing customers regularly vacation for periods exceeding 30 days in this state B A broker-dealer who deals exclusively with other broker-dealer firms in this state C A broker-dealer with no customers in this state who solicits retail customers in this state D A broker-dealer who deals with more than three issuers per year in this state
C A broker-dealer with no customers in this state who solicits retail customers in this state If a broker-dealer solicits business in the state with retail customers, it must register in the state. There is no time limit on the length of a vacationing (temporary) customer's stay in the state. There is no limit on the number of issuers with which a broker-dealer may deal in the state.
An agent residing in State J would like to do business in neighboring State K. What must occur for this to be permitted? A Only the broker-dealer must be registered in State K B Only the agent must be registered in State K C Both the agent and broker-dealer must be registered in State K D Neither the agent nor broker-dealer must be registered in State K
C Both the agent and broker-dealer must be registered in State K An agent and a broker-dealer must always be registered in a state where they transact securities business, unless exempted from registration.
Which of the following would be exempt from the sales literature and advertising filing requirements found within the Uniform Securities Act and NASAA Statements of Policy and Model Rules? A An ad for whiskey warehouse receipts B A form letter used to prospect for new investors in IPOs C A brochure on corporate bonds D A brochure on Treasury bonds
D The Administrator may require the filing of sales literature (including form letters) and advertising for non-exempt securities. Advertising and sales literature for exempt securities are not subject to the filing requirements. Individual correspondence is not subject to filing with the Administrator, but form letters, as a type of sales literature, are. Relevant Content:
JKL Brokerage Services is engaged in the business of effecting transactions in securities for the accounts of others. JKL has a place of business in State A, but not in State B. In State A, its clients include thousands of retail and institutional investors. In State B, its clients include only broker-dealers and institutional investors. In which of the following state(s) is JKL Brokerage Services required to register as a broker-dealer? A State A only B State B only C Neither State A nor State B D Both State A and State B
D Both State A and State B
One who effects securities transactions for their own account or for the accounts of clients, is considered to be: A An issuer B Applicant must request a hearing in writing and a hearing must be scheduled within 30 days of receipt of the request C An investment adviser D A broker-dealer
D - Broker/Dealer
Which of the following is an example of an issuer transaction? A Investor to investor transaction B Exempt transaction C Secondary market transaction D Initial public offering
D - IPO In an issuer or primary market transaction, the proceeds of the sale, or benefits of the transaction, go to the issuer of the security. New issues of securities, as well as transactions between an issuer and underwriter, are examples of issuer or primary market transactions.
An agent does NOT include a person who: A Is a broker-dealer's managing partner who helps wealthy clients trade securities B Is an agent's sales assistant, authorized to take customer sales orders C Is a sales representative soliciting a sale of corporate stock with a prospect D Only advises others on their investment portfolio for compensation
D - Only Advises others on their investment portfolio for compensation An individual who advises others on their investment portfolio for compensation is defined as an investment adviser representative. Investment advisers and investment adviser representatives advise others on their investment portfolio for compensation. Agents of broker-dealers are often called registered representatives or sales representatives. Partners of broker-dealers who are involved in buying and selling securities for clients are agents. A sales assistant who accepts phone orders must be registered as an agent.
Which two of the following timelines are correct regarding delivery of the IA brochure (ADV Part 2) to a prospective client? I 48 hours prior to entering into an investment advisory contract II Promptly after entering into an investment advisory contract III At the time of entering into the contract if the client is given five business days to cancel without penalty IV At the time of entering into the contract if the client is given three business days to cancel without penalty
I & 3 The IA must deliver the brochure to each advisory client either A) not less than 48 hours prior to entering into any investment advisory contract with a client, or B) at the time of entering into an advisory contract, if the client has a right to terminate without penalty within five business days after entering into the contract.
An agent sells an IPO to his friend's account, which he later takes out of the account for his own benefit. This practice is: I Parking II Interpositioning III Unethical, but not fraudulent IV Fraudulent
I & 4
Which of the following are prohibited sales practices under the Uniform Securities Act? (2ea) I - Recommending the purchase of a mutual fund based on an upcoming dividend II - Explaining to a customer that you are a financial expert as demonstrated by passing a rigorous qualifications exam III - Explaining to a customer that the interest and principal payments on a U.S. T-bill are guaranteed by the government IV - Charging a customer a $25 commission on the purchase of $100 of stock
I & II
An investment adviser will be publishing an advertisement which will reference past recommendations. According to the NASAA Statement of Policy, which of the following must be communicated? I - A list of all recommendations made within the last year II - A statement communicating the State Administrator's approval of the advertisement III - A legend communicating that the reader should not assume that recommendations made in the future will equal the performance of the securities listed IV - A testimonial concerning Pike Investment Advisory and their services
I & III
An investment adviser has recently hired a new employee. Which of the following activities would result in the employee being considered an IAR? I Soliciting new clients II Entering trades into an online order system III Conducting qualitative research to determine the firm's investment recommendations IV Supervising the IA's IT staff A I and IV B I and III C II and III D II and IV
I & III An "investment adviser representative" is any partner, officer, director, employee, or associate of an investment adviser that is registered, or required to be registered, under the USA; or who has a place of business in the state and is employed by or associated with a federal covered adviser. An IAR is anyone who: * Makes recommendations or otherwise renders advice regarding securities * Manages accounts or portfolios of clients * Determines which recommendations or advice regarding securities should be given * Solicits, offers or negotiates for the sale of, or sells, investment advisory services * Supervises employees who do engage in any of these activities
According to NASAA's Model Rule on Minimum Financial Requirements for Investment Advisers, which of the following are true? I - Investment advisers with custody of customer assets must maintain a net worth of not less than $35,000 II - Investment advisers with discretionary authority over customer assets must maintain a net worth of not less than $35,000 III - Investment advisers with custody of customer assets must maintain a net worth of not less than $100,000 IV - Investment advisers with discretionary authority over customer assets must maintain a net worth of not less than $10,000
I & IV Investment advisers who have discretionary authority over customer funds but who do not have custody of said funds must maintain a net worth of at least $10,000. If an IA takes custody of customer assets, the required net worth jumps to $35,000.
Which of the following are potential grounds for denying an agent's application for registration? I Filing an incomplete application II Failing to comply with any provision of the Uniform Securities Act III Being convicted, within the last 6 years, of any misdemeanor involving any aspect of the securities business IV Being convicted, within the last 10 years of a felony not involving any aspect of the securities business
I, II, III and IV
An IAR recommended that a client place a small portion of assets into a newly issued unit investment trust. The IAR has a relationship with this UIT sponsor and often participates in selling them in the new issue market. Under SEC Release IA-1092, which of the following would be true regarding this IAR's duty to disclose? (2ea) I The IAR must disclose all of their personal securities positions II The IAR is under no obligation to disclose all of their personal securities positions III The IAR must disclose any compensation that they receive from the UIT sponsor IV The IAR does not need to disclose, unless requested in writing, the compensation received from the UIT sponsor
II & III
If an agent identifies several investments, with essentially the same risks as a particular investment for his client, he/she has: A Misled the customer B Been unethical C Attempted to coerce the client D Not violated the USA
Not Violated the USA The representative did not violate the USA because he identified the risks. Risks associated with an investment are considered material facts. Omission of material facts in the sales process is a prohibited practice and a violation of the USA.
Advertisements, circulars, fliers, and prospectus may be subject to filing requirements with the: A Better Business Bureau B Consumer protection division of the Office of the State Attorney General C Administrator D Governor's office
c