Series 65: Unit 14 Exam

An investment adviser representative (IAR) of a federal covered investment adviser that provides advisory services to State A would not trigger the pay-to-play prohibition against the firm receiving compensation from that state for advice as long as the IAR contributed no more than A. $250 per election cycle for a candidate that IAR was ineligible to vote for. B. $350 per election cycle for a candidate that IAR was ineligible to vote for. C. $350 per election cycle for a candidate that IAR was eligible to vote for. D. $500 per election cycle for a candidate that IAR was eligible to vote for.

$350 per election cycle for a candidate that IAR was eligible to vote for

The term that best describes a person entrusted with the duty of acting for the benefit of another party is A. a principal. B. a trustor. C. an investment adviser. D. a fiduciary.

A fiduciary

An investment adviser may borrow from all of the following clients except A. a savings and loan association that has offered to finance new computers for the adviser's office. B. a mortgage broker who helped the adviser negotiate mortgage terms for its office building. C. a commercial bank in conjunction with a mortgage on the office building from which the adviser operates. D. a broker-dealer in conjunction with a margin account.

A mortgage broker who helped the adviser negotiate terms for its office building

An investment adviser's contract with clients would be permitted to include a hedge clause limiting the firm's liability for inability to service the account in the case of A. a tornado that destroys the firm's principal office. B. several key employees calling in sick. C. the firm's largest client canceling the advisory contract and withdrawing all funds. D. the local NFL team playing at home on Monday Night Football.

A tornado that destroys the firm's principal office

Which of the following phrases best describes a prudent investor? A. An investment adviser representative (IAR) handling a discretionary account B. The custodian for a minor under the Uniform Transfers to Minors Act C. A trustee who invests with reasonable care, skill, and caution D. A person in a fiduciary capacity who invests in a prudent manner

A trustee who invests w/ reasonable care, skill, and caution

ABC Advisers, Inc., a federal covered investment adviser, is a wholly owned subsidiary of ABC Corporation, a holding company that also owns ABC Securities, a full-service broker-dealer that is a member of the New York Stock Exchange and FINRA. One of the clients of ABC Advisers calls his investment adviser representative (IAR) to explain that he has just received a margin call in his ABC Securities account. Under these circumstances, it would not be prohibited for the IAR to use securities owned in the advisory account to obtain a loan for this client A. because ABC Advisers, Inc., is in the money-lending business. B. if the client agreed to repay the loan within 30 days. C. when the client has furnished ABC Advisers, Inc., with a proper discretionary trading authorization. D. because the two firms are affiliated.

B/c the 2 firms are affiliated

You are an investment adviser representative. One of your clients is a C-level officer with a publicly traded corporation. When needing to relieve yourself, you are shown to the executive washroom. While cleaning up, you notice a report stamped "Confidential," and a quick peek reveals that it is highly favorable to the company. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, you A. can accept unsolicited orders from clients and buy for your personal account only. B. cannot buy any of the stock for personal or client accounts. C. should tell your client what you saw and ask permission to act on this information. D. must contact the administrator immediately.

Cannot buy any of the stock for personal or client accounts

Which of the following actions are prohibited under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A. Claiming that advisory fees are negotiable but maintaining a fixed fee schedule B. Depositing securities in lieu of a required surety bond C. Determining the price and time of execution of customer orders without written discretionary authority D. Notifying the administrator that the adviser intends to maintain custody of customer securities

Claiming that advisory fees are negotiable but maintaining a fixed fee schedule

If the administrator were examining the actions of a particular agent to determine whether the agent engaged in churning a client's account, the focus would be placed on the A. client's objectives, the client's financial resources, and the character of the account. B. number of complaints received relating to that agent. C. length of time the account had been opened. D. amount of profits generated in the client's account.

Client's objectives, the client's financial resources, and the character of the account

Under rules of the SEC, any institutional investment manager who exercises investment discretion over an equity portfolio with a market value of $100 million or more in certain securities on the last trading day in any of the preceding 12 months must file A. Form 13F. B. Form 13D. C. Form 112. D. Form ADV-E.

Form 13F

Which of the following statements regarding the filing requirements for institutional investment managers with investment discretion over portfolios with an aggregate value of $100 million or more of 13(f) securities are true? 1. Form 13D must be filed. 2. Form 13F must be filed. 3. Filing must occur within 10 days of the end of the month. 4. Filing must occur within 45 days of the end of the quarter.

Form 13F must be filed and filing must occur within 45 days of the end of the quarter

Broker-dealers and their agents can have their licenses suspended or revoked for engaging in business practices in violation of NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents. Which of the following activities would NASAA consider an unethical or prohibited practice? 1. Hypothecating a customer's securities in a margin account without written consent from the customer 2. Executing a margin transaction in new customer accounts before receiving written margin agreements from the customers 3. Charging unreasonable fees for custody and securities transfer services

Hypothecating a customer's securities in a margin account w/o written consent from the customer and charging unreasonable fees for custody and securities transfer services

An agent's client calls on Monday to discuss the current market situation. They discuss how 100 shares of KAPCO common stock would be an appropriate addition to the client's portfolio. On Thursday, the client calls and tells the agent to place an order for the KAPCO stock at whatever price the agent feels is best. The agent waits until Friday, purchasing the stock at a price $2 per share below Thursday's low. In this case, the agent acted A. properly because the agent saved the client money. B. properly because the agent used discretion as to price and time. C. improperly; the order cannot be placed without prior written authorization allowing discretion. D. improperly; the order should have been placed on Thursday.

Improperly; the order should've been placed on Thursday

An agent made written disclosure to his employing broker-dealer that he intends to execute a series of private securities transactions with clients who do not have accounts with his broker-dealer. The agent did not acquire express written permission from the broker-dealer and did not receive compensation for executing the transactions. However, the agent did receive written acknowledgment of receipt of the agent's notice. In this case, the agent A. is guilty of selling away. B. performed a matched trade as permitted under the rules. C. is required to register as a broker-dealer. D. engaged in an agency cross transaction.

Is guilty of selling away

One of the major differences between identity theft and physical theft is that in the case of identity theft, A. the victim can usually correct the problem much more quickly than with physical theft. B. it might not be discovered for some time. C. unless hospitalization is required, law enforcement is generally unconcerned about identity theft. D. the cost of the damages is generally much less.

It might not be discovered for some time

The Uniform Securities Act prohibits broker-dealers from engaging in activity that has the effect of manipulating stock market prices. These would include A. higher than reasonable commissions or markups. B. selling unregistered, nonexempt securities. C. matched orders. D. churning.

Matched orders

Which of the following actions is a form of market manipulation? A. Matched orders B. Arbitrage C. Wash sales D. Front running

Matched orders

Dither, Wigman, and Jones, LLC, is an investment adviser with $2 billion in accounts under management. In appreciation for the large volume of brokerage transactions directed their way, Alexander Wimpton and Sons, a member of the NYSE, offers to send Mr. Dither on an all-expenses-paid trip to Zurich to attend a seminar covering the latest developments in global investing. Under Section 28(e) of the Securities Exchange Act of 1934, A. Mr. Dither could attend because attendance at a business-related seminar such as this falls under the safe harbor provisions of Section 28(e). B. Mr. Dither could not attend because the safe harbor under Section 28(e) applies only to domestic events. C. Mr. Dither could attend but only if he paid the direct costs of the seminar and let Alexander Wimpton and Sons take care of the transportation costs. D. Mr. Dither could attend but only if he paid all of the expenses except for those direct costs of the seminar.

Mr. Dither could attend but only if he paid all of the expenses except for those direct costs of the seminar

A client with a net worth of $5 million is compensating an investment adviser with a performance-based fee. According to the Investment Advisers Act of 1940, this arrangement A. must be based on a period of no less than six months. B. must be based on the S&P 500 Index performance. C. must be based on capital gains minus capital losses, including both realized and unrealized gains and losses. D. is not permitted because the client has not met the minimum invested assets requirement.

Must be based on capital gains minus capital losses, including both realized and unrealized gains and losses

A succession plan under a business continuity plan would likely be most important for an investment adviser A. that is a subsidiary of a multinational corporation. B. with locations in several states. C. that is registered in only one state. D. organized as a sole proprietorship.

Organized as a sole proprietorship

NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents states that it is unethical for an agent registered with a broker-dealer to do which of the following? 1. Personally lend money to the broker-dealer firm with which the agent is registered 2. Personally lend money to a bank that is a client of the broker-dealer firm with which the agent is registered 3. Split commissions with an agent registered with a broker-dealer that is under common control 4. Borrow money from a mortgage broker who is a client of the agent

Personally lend money to a bank that is a client of the broker-dealer firm w/ which the agent is registered and borrow money from a mortgage broker who is a client of the agent

An agent registered with a broker-dealer personally owns 100 shares of ABCD common stock, thinly traded over the counter. This agent is in the process of writing an order ticket to liquidate his position in ABCD when he receives a telephone call from a customer wishing to sell 200 shares of ABCD currently held in her account. The appropriate action for this agent is to A. enter an order for 300 shares and then allocate ⅔ of the proceeds to the client and ⅓ to his account. B. place the sell order for the customer first and then place his order. C. complete the sell order for his stock because he was in the process of doing so before the customer's call. D. discuss the suitability of the client owning such a large position in a thinly traded stock.

Place the sell order for his customer first and then place his order

In the securities industry, exact terminology is important. One should always assume that performance-based compensation for investment advisers is prohibited. However, as with most rules, there is an exception. The term used to describe those investors where the adviser is permitted to earn compensation based on performance is A. qualified purchaser. B. qualified client. C. high-net-worth investor. D. accredited investor.

Qualified client

An investment adviser is not deemed to be maintaining custody of customer assets when A. automatically withdrawing quarterly advisory fees. B. keeping stock certificates representing shares owned by customers. C. receiving a check made out to the adviser to cover quarterly advisory fees. D. maintaining a list of client user names and passwords.

Receiving a check made out to the adviser to cover quarterly advisory fees

An agent is prohibited from sharing commissions with certain employees of a broker-dealer. Which of the following would most likely be ineligible to share commissions with a properly licensed agent? 1. Receptionist 2. Unregistered administrative assistant 3. Branch manager 4. Sales manager

Receptionist and unregistered administrative assistant

One of your very best clients introduces you to his son and then, one week later, is injured in an accident and is totally paralyzed and unable to speak. The son calls you and enters an order for his father's account that is entirely consistent with your client's trading habits. As an agent, you would A. act in accordance with the client's last will and testament. B. visit your client in the hospital and ask him to squeeze your hand if he wishes to go ahead with the trade. C. refuse the trade without a signed power of attorney. D. follow the son's instructions.

Refuse the trade w/o signed power of attorney

Under the safe harbor provisions of the Securities Exchange Act of 1934 Section 28(e), advisers may engage in soft dollar arrangements to receive which of the following? 1. Research from a third party 2. Season tickets to the opera 3. Financial planning software 4. Computer equipment

Research from a third party and financial planning soft ware

An investment adviser representative (IAR) concludes a successful meeting with a client by receiving oral authority to begin exercising discretion in the client's account. The IAR leaves the appropriate paperwork with the client and urges him to return it in the postage-paid envelope as soon as possible. After returning to the office, the IAR enters the first discretionary order for this account, a purchase of $10,000 of CANCO common stock. Six days later, CANCO reports that it is going to miss its earnings estimates and the stock begins to fall. The IAR realizes that the best thing to do for the client is take the loss and get out before it gets worse, but the client has not yet returned the signed paperwork. In this case, A. the investment adviser firm should apply to the administrator for an extension of time. B. the IAR may exercise his discretion as authorized and sell the CANCO. C. the IAR must wait for the signed paperwork to be received. D. the IAR has acted improperly from the outset by making the purchase prior to receiving the signed paperwork.

The IAR may exercise his discretion as authorized and sell the CANCO

The duties and responsibilities of a fiduciary are spelled out in A. the Investment Advisers Act of 1940. B. the Uniform Prudent Investor Act of 1994. C. the Summary Plan Description of the U.S. Department of Labor. D. the Uniform Gift to Minors Act.

The Uniform Prudent Investor Act of 1994

When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is A. the ability of the customer to make a one-time wire transfer to a foreign bank account owned by a family member. B. the ability of the customer to move funds out of the account on multiple occasions. C. if the customer owns the underlying security on which the call option is sold. D. that the account is in the name of an institutional customer.

The ability of the customer to move funds out of the account on multiple occasions

The procedures to be followed by an investment adviser whose power was lost due to an earthquake would be found in A. the firm's succession plan. B. the advice given by the local FEMA (Federal Emergency Management Agency) representative. C. the firm's emergency-planning manual. D. the firm's business continuity plan.

The firm's business continuity plan

An investment adviser (IA) is approached by an investment company that has 25 investors. The company would like to employ the IA to manage its account. The IA is willing to do so but proposes a compensation agreement that provides for a 20% share of the profits if performance exceeds a certain benchmark. In order for this to be acceptable, A. the individual in charge of the investment company must be a qualified clients. B. a majority of the shareholders in the investment company must be qualified clients. C. the investment company must have a net worth in excess of $2.2 million or at least $1.1 million in assets under management (AUM) with the IA. D. all the shareholders in the investment company must be qualified clients.

The investment company must have a net worth in excess of $2.2 million or at least $1.1 million in AUM w/ the IA

Following the advice of its portfolio managers, the Rising Tide hedge fund executes most of its securities transactions through Momentum Securities, a registered full-service broker-dealer. In order to compensate for the commissions charged, Momentum Securities allows employees of Rising Tide to use its furniture and facility at a discounted rate. Under the soft dollar provisions of Section 28(e), A. this would not fall under the safe harbor provisions unless the employees were those who directed the transactions to Momentum Securities. B. this would fall under the safe harbor. C. this would not fall under the safe harbor. D. as long as the discounted rate reflected the volume of business done by Rising Tide, this would be permitted.

This would not fall under the safe harbor

A fiduciary, acting in accordance with the UPIA, would choose investments on the basis of all of the following except A. other resources of the beneficiaries. B. general economic conditions. C. needs for liquidity, regularity of income, and preservation or appreciation of capital. D. transaction costs.

Transaction costs