Series 65 unit 7
A federal covered investment adviser would like to charge a client a performance fee based on a selected benchmark. The client has $400,000 invested with the adviser but has a net worth of $2,150,000, of which $350,000 represents an investment account, 50% of which is shared with his cousin. A) Because we can allow none of the jointly held property, this client does not have the necessary net worth to qualify for a performance-based compensation program. B) Because the total of the amount invested with the adviser ($400,000) plus the individual's personal net worth ($1,800,000 without counting the joint property) exceeds $2 million, this client has the necessary net worth to qualify for a performance-based compensation program. C) Because we can allow all of the jointly held property, this client has the necessary net worth to qualify for a performance-based compensation program. D) Because the client's 50% share of the investment account is only $175,000, this client does not qualify for a performance-based compensation program.
A
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) needs for liquidity, regularity of income, and preservation or appreciation of capital C) general economic conditions D) transaction costs
D
An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep? A) Copies of all investment recommendations made by the solicitor B) A statement, signed by the client, that both the IA's and solicitor's brochures were received C) A copy of the written agreement between the IA and the solicitor, signed by the client D) A receipt for any fee charged by the solicitor, signed by the client
b
Plenitude Premier Solutions (PPS) is registered in State C. If PPS wished to maintain custody of client funds or securities, A) prompt notice would have to be given to the State C Administrator on Form ADV. B) permission would have to be obtained from the State C Administrator . C) notice is given to the State C Administrator as part of the annual updating amendment. D) prompt notice would have to be given to the State C Administrator in a private letter.
A
Regarding performance-based fees charged by covered investment advisers, all of the following statements are correct EXCEPT A) it must be disclosed that performance-based fees may motivate the investment adviser to assume greater investment risk than would apply with other compensation methods B) performance-based fees are generally prohibited C) performance-based fees may be charged against the assets of a closed-end investment company listed on the NYSE D) to determine performance, the results of the client's investment portfolio must be compared against an appropriate index or benchmark
A
Under Section 28(e) of the Securities Exchange Act of 1934, which of the following is allowable soft-dollar compensation from a broker-dealer to an investment adviser under the safe harbor provisions? A) Custodial services provided by the broker-dealer B) Vacations C) Office rental payments D) Cell phones to rapidly communicate with clients
A
Which of the following statements regarding brokerage and advisory activities under the USA are TRUE? It is not unlawful for an investment adviser or broker-dealer to employ any device, scheme, or artifice to defraud in the sales of securities to institutional investors because the USA is designed to protect individual investors. Under the USA, it is unlawful for an investment adviser to deceive a person when not providing advice to that person. Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities. A) III and IV B) I and II C) I and III D) II and IV
A
A client of an investment adviser needs a bridge loan and approaches the IA to see if the firm is interested. Because the IA is not in the business of lending money, a special agreement is drawn up specifying the terms of the loan. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers A) the loan would not be permitted under any circumstances B) the loan could only be made after the advisory contract was terminated C) the loan could be made if the IA was affiliated with a bank D) the loan could be made if the client was an institutional investor
B
A customer wishes to open a new account but refuses to provide suitability information. Under NASAA rules, the agent A) must not open the account B) may open the account, but may not make any recommendations C) may open the account, but must limit recommendations to U.S. government securities D) may open the account, but must limit recommendations to investment-grade securities
B
An 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 IAR has acted improperly from the outset by making the purchase prior to receiving the signed paperwork 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 investment adviser firm should apply to the Administrator for an extension of time
B
Fraud would include the willful omission of A) the public offering price in a preliminary prospectus B) any material fact C) any fact D) a material fact, but only one that might be pertinent to making an investment decision
B
In the securities industry, the term "discretionary" refers to an A) order that specifies size, security, or action but leaves the choice of time or price up to the agent B) account in which the agent has the power to decide which securities to buy or sell without customer authorization for those specific trades C) account in which someone has been given custodial power over another individual's account D) account in which a person has power of attorney over an incompetent individual's account
B
Wealth Creation Advisers (WCA) is a federal covered investment adviser specializing in consulting to pension plans. WCA's principal office is located in State L. The governor of State L is running for re-election. If WCA were to make a $350 contribution to the campaign, under the SEC's pay-to-play rule, A) WCA would be prohibited from rendering any advisory services to any agency of State L for 2 years B) WCA would be prohibited from receiving compensation for advisory services rendered to any agency of State L for 2 years C) WCA's contribution is within the de minimis limitation because their principal office is located in State L D) WCA could be subject to disciplinary action
B
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) if the customer owns the underlying security on which the call option is sold B) the ability of the customer to move funds out of the account on multiple occasions C) that the account is in the name of an institutional customer D) the ability of the customer to make a one-time wire to a foreign bank account owned by a family member
B
A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as A) front running B) matched orders C) pegging D) straddling
C
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, but did receive written acknowledgment of receipt of the agent's notice. In this case, the agent A) is required to register as a broker-dealer B) engaged in an agency cross transaction C) is guilty of selling away D) performed a matched trade as permitted under the rules
C
The duties and responsibilities of a fiduciary are spelled out in A) the Summary Plan Document of the DOL B) the Uniform Gift to Minors Act C) the Uniform Prudent Investors Act of 1994 D) the Investment Advisers Act of 1940
C
Which of the following phrases best describes a prudent investor? A) A person in a fiduciary capacity who invests in a prudent manner B) An investment adviser representative (IAR) handling a discretionary account C) A trustee who invests with reasonable care, skill, and caution D) The custodian for a minor under the Uniform Transfers to Minors Act
C Although all of these may have a fiduciary responsibility, the definition, as expressed in the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.
An elderly widower explains to his investment adviser representative that he requires his investments to provide the maximum current income. The IAR should recommend A) a zero-coupon bond B) a widow fund, structured specifically for this type of investor C) a mutual fund that matches the investor's stated objective D) a growth fund
C Recommendations should always be investments that match the investor's stated objective. Growth funds are not designed to meet the requirement of providing maximum current income. Zero-coupon bonds do not pay out any interest until maturity and, therefore, are unsuitable for an investor looking for current income. Although the name of a fund should bear a resemblance to its objective, the investor and the IAR should read the fund's prospectus carefully to ensure that the fund's objective matches the investor's
An investment adviser prepares a slick advertising piece containing the relevant information from the firm's Form ADV - Part 2. One of the firm's IARs secures a contract with a new client and presents the brochure at that time. While explaining the terms of their agreement, the IAR mentions that the client may withdraw within the first 48 hours without any penalty. Upon returning to the office, the IAR realizes that he forgot to have the client sign a receipt for the disclosure document. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) there is a violation because the brochure must be delivered at least 48 hours prior to entering into the contract. B) there is a violation because the IAR failed to obtain the signed receipt. C) the IAR has acted in an unethical manner by giving incorrect information regarding the penalty-free withdrawal privilege D) there is no violation as long as the customer signs a waiver agreeing to these terms.
C The problem here is that the client has 5 days to withdraw, not 48 hours. Under Rule 203(b)-1 of the Uniform Securities Act, an investment adviser, or investment adviser representative must deliver the brochure to an advisory client or prospective advisory client not less than 48 hours prior to entering into any investment advisory contract with such client or prospective client; or at the time of entering into any such contract, if the advisory client has a right to terminate the contract without penalty within 5 business days after entering into the contract. A signed receipt is not necessary and waivers are never allowed.
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers deems all of the following as unethical practices for investment advisers EXCEPT A) recommending a security based on a rumor B) inability or unwillingness to disclose sources of additional fees received from those other than the customer in connection with providing advisory services to that client C) performing the initial trades in a new discretionary account with oral authorization D) charging advisory fees that are significantly higher than those charged by other advisers for similar services in that state
C 10 business days
A succession plan under a Business Continuity Plan would likely be most important for an investment adviser A) that is registered in only 1 state B) that is a subsidiary of a multinational corporation C) with locations in several states D) organized as a sole proprietorship
D
An adviser buys a substantial block of stock for its clients. The order was filled at several prices. Which of the following would dictate how stock is to be allocated among the clients? A) The clients holding the largest accounts would be entitled to the highest-priced executions. B) The clients holding the largest accounts would be entitled to the lowest executions. C) The firm may allocate best executions in any manner it chooses, as long as best executions are not routinely allocated to proprietary (house) accounts. D) The allocation among clients would be made according to a fair method disclosed in the advisory firm's written policies and procedures manual.
D
Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who buys securities with material, privileged, nonpublic information may be subject to a civil penalty of A) $20,000.00 B) the amount paid or saved on the securities trade C) an amount equal to the amount of violation D) up to 3 times the amount of gain or prevention of loss
D
If a new customer will not state investment objectives and will not provide a financial statement, the agent may A) solicit orders for any security without restrictions B) sell only stocks recommended by the broker-dealer C) sell only securities listed on a national exchange D) accept unsolicited orders until the customer's suitability is determined
D The only type of transaction that may be executed for a customer of unknown financial status is one that is customer initiated—an unsolicited trade.
Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan, and after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral, A) both Susan and Mary would have to disclose the cash payment to Amanda B) she would be engaging in an prohibited practice C) only Susan would have to make disclosure to Amanda D) she would have to obtain Mary's permission first
D. didnt have a formal written agreement. its not just a one time thing
An agent tells his customer that a corporation has graduated to the level of quality acceptable for trading on the New York Stock Exchange and, therefore, has less market risk. If he recommends the stock to the customer based on the exchange's listing requirements, the agent has acted A) fraudulently because the NYSE listing requirements are not a matter of public knowledge B) properly, because returns were not guaranteed C) properly, because the New York Stock Exchange requires that the companies it lists are substantially capitalized D) fraudulently, because listing on the New York Stock Exchange does not reduce the client's loss exposure and, therefore, the agent misled his client
d
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) follow the son's instructions C) visit your client in the hospital and ask him to squeeze your hand if he wishes to go ahead with the trade D) refuse the trade without a signed power of attorney
d
