Series 66
HKBH Creations is a global manufacturing company that has issued common and preferred stock. Among the differences between the two securities is that the preferred stock A) may be convertible. B) is considered an equity security. C) has preference in voting on the payment of the dividends. D) generally pays dividends on a quarterly basis.
A
Which of the following sales would be exempt from the antifraud provisions of the Uniform Securities Act (USA)? A) Sale of whole life insurance B) Sale of a nonexempt security C) Sale of an exempt security in an exempt transaction D) Sale of an exempt security
A antifraud provisions only apply to securities, whole life insurance is not a security
An investment adviser representative recommends that a client purchase $50,000 of U.S. Treasury bonds maturing in 20 years. According to the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements may the representative legally make? A) The full faith and credit backing of the U.S. government means virtually no chance of loss. B) The bonds are guaranteed as to principal and interest payments by the U.S. government. C) The U.S. government guarantees that principal and interest payments will keep pace with inflation. D) There is no way to lose money on the safest security on earth.
B Can't guarantee no loss or keep pace with inflation, but can say US will make principal and interest payments
The term private fund would apply to all of the following except A) a liquidity fund. B) a unit investment trust. C) a hedge fund. D) a venture capital fund.
B UITs register with the SEC before offering to the public so they are never private
A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust do you advise she use? A) Simple trust B) Complex trust C) Charitable lead trust D) Charitable remainder trust
B only a complex trust allows giving to charity and discretion of income simple trust: can't make charitable contribution both charitable trusts: don't give ongoing discretion
Which of the following statements is most accurate when describing equity straddle options? The option buyer is looking for market volatility. The option buyer is looking for market stability. The option seller is looking for market volatility. The option seller is looking for market stability. A) I and III B) I and IV C) II and III D) II and IV
B in a straddle position the buyer wants volatility since they have a call and put on the same stock seller wants stability so one expires and other doesn't profit much
All of the following are characteristics of exchange-traded funds except A) they are priced by supply and demand continuously during the trading day. B) they are typically designed to track an index. C) they are redeemable securities. D) they generally have a lower expense ratio than comparable mutual funds.
C ETFs aren't redeemable securities like mutual funds
Under the brochure rule of the Investment Advisers Act of 1940, each client must be A) delivered a written disclosure statement no later than 48 hours after signing the contract B) offered a written disclosure statement at least 48 hours before signing a contract. C) delivered a written disclosure statement no later than at the time of agreement to contract for the adviser's services. D) offered a written disclosure statement at the time of signing the contract
C no agreement between an investment advisor and a client may commence without delivery of the brochure (written disclosure)
One way in which the method of capitalization of closed-end companies differs from that of open-end companies is that the closed-end company can A) permit reinvestment of dividends. B) continuously offer additional shares. C) issue more than one class of stock. D) be listed on an exchange.
C open-end companies can only issue one class of stock closed can issue preferred
One of the privileges frequently offered to holders of common stock is A) call options. B) put options. C) preemptive rights. D) warrants.
C warrants are attached to another security, not current holder
Which of the following investment companies registered under the Investment Company Act of 1940 can include senior securities in its capital structure? A) Unit investment trusts B) Open-end management investment companies C) Closed-end management investment companies D) Face-amount certificate companies
C only closed-end companies are legally permitted to issue senior securities (pref stock and bonds)
Which of the following is not defined as a security under the Uniform Securities Act? A) Bills, notes, and bonds issued by the U.S. Treasury B) An investment in a managed pool of rental condominiums C) A Roth IRA D) Unsecured debentures sold in a private placement only to accredited investors
C since condo rental investment is pooled, it's a security roth IRA is not a security
You have a client who has shown an interest in investing in precious metals. Which of the following could be an appropriate recommendation? A) Tin B) Diamonds C) Palladium D) Lead
C tin - not precious diamonds - not metal lead - not precious
An investment adviser that has custody of customer funds and securities discovers that its net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must do which of the following? I. Notify the Administrator by the close of business on the day after discovery II. File a report of its financial condition with the Administrator no later than the close of business on the day after notification III. Cease doing business A. I, II, III B. I, III C. I, II D. II, III
C. Administrator must be notified by the end of the business day if a client falls below minimum and a report must be filed of financial condition by the following day. Ceasing business is not required
A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption? A) 5 days B) 10 days C) 3 days D) 7 days
D
One would look at the average maturities when doing a cash flow analysis for A) revenue bonds B) subordinated debentures C) Brady bonds D) mortgage-backed pass-through securities
D pass through interest and principal payments to investors the rate at the cash passes through varies on the rate at which mortgage matures
Vivandiere Fashions, Inc. (VFI) is expanding and wishes to raise additional capital by bringing in additional owners. This would best be accomplished by issuing A. debt securities B. options C. partnership units D. equity securities
D. additional OWNERS therefore equity is best
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) advisory fees. B) account inactivity fees. C) charges for late payments. D) issuance of a stock certificate.
3 primary expenses not included in fee disclosure template: -commissions -markup/markdown -advisory fees
Under the Investment Advisers Act of 1940, which of the following would not meet the criteria of persons associated with an investment adviser? A) An individual whose only function is posting trades to client accounts B) An individual whose only connection to the firm is a position on the board of directors C) A manager in an investment advisory firm who supervises five investment adviser representatives D) The individuals responsible for bringing new clients to an advisory firm
A associated with an IA: members of board, officers, partners managers of advisory firm sales representatives not limited to clerical work
When comparing mutual funds and ETFs, the disadvantages of investing in ETFs include which of the following? A) Commissions both when purchasing and liquidating shares B) An expense ratio that is generally lower C) The ability to avoid tax consequences D) A price not set by supply and demand
A commissions are on both because they are traded like stocks price is determined by supply and demand for ETF ETFs are generally more tax efficient than mutual funds
Options positions can either create rights or obligations. In which option position has the investor created the possible obligation to purchase stock? A) Selling a put B) Purchasing a put C) Selling a call D) Purchasing a call
A purchasing gives you the right selling is the obligation
Your manager is reviewing the activity in your customer accounts to detect trading irregularities. Which of these are among the factors the manager will look for to determine if churning is occurring? I. The financial resources of the account II. The number of winning trades versus losing trades III. The objectives of the account IV. The marital status of the customer A) I and II B) I and III C) II and IV D) II and III
A inspecting for churning focuses mainly on comparing account activity to account's financial resources and objectives # of winning vs losing trades doesn't influence a determination of excessive trading
XYZ Securities, Inc., a FINRA member broker-dealer, is registered in all 50 states. XYZ has its principal office in State C and a branch office in State A. If the State U Administrator wishes to examine certain financial records of XYZ's, the Administrator would be able to do all of the following except A. examine those records located in state U B. do so during normal business hours without prior notice C. ask FINRA to perform examination D. ask State C administrator to perform examination
A no place of business in U, so no records to examine
A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use A) notice filing. B) qualification. C) coordination. D) supplementation.
A since it's federally covered, it is only required to follow a notice filing
Under the Uniform Securities Act, in which of the following circumstances may the Administrator take action against an advisory firm? I. Nine years ago, the Administrator of another state found that the president of the firm violated the securities laws of that other state. II. The firm has liabilities that exceed its assets. III. A minority shareholder with no management role in an investment adviser organized as a corporation cannot meet his financial obligations as they come due. A) I, II, and III B) I and II C) II and III D) I only
B Administrator has 10 years to act on a violation made by a firm's president personal financial situation of a minority shareholder doesn't matter
Several years ago, an investor purchased $100,000 of U.S. Treasury bonds bearing a 2.80% coupon. Because of economic conditions, those bonds are now yielding 3.5% in the secondary markets. Therefore, the investor's semiannual income will A) Increase. B) stay the same. C) decrease. D) be approximately $1,750.
B FIXED income so it doesn't change
Your client turns in a buy limit order for 100 shares of ABC at $58. Following the entry of the order, trades occur at 59, 59, 58.80, 58.20, 58.40, 57.95, 57.85. At what price was this limit order triggered? A) $57.95. B) The order was not triggered. C) $57.85. D) $58.20.
B this is a limit order NOT a stop order so there was no trigger
According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are true? I. It must be filed with the state Administrator. II. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, six or more months in advance. III. Certain minimum business and education qualifications must be met before an investment adviser can file. IV. It may be used to satisfy the brochure requirements of the act. A) I, II, and III B) II and IV C) I, II, and IV D) I and IV
B this is federal requirement so filing with state Administrator not required no minimum qualifications before filing
An investment adviser representative has a client for whom investment-grade bonds are a suitable addition to the portfolio. That being the case, bonds with which of the following Moody's ratings would not be considered? A) Baa B) BB C) Ba D) AAA
C Moody S&P Aaa AAA Aa AA A A Baa BBB Ba BB
ABC Securities is a broker-dealer registered with the SEC and domiciled in State M. ABC Securities is not be defined as a broker-dealer in State N under the Uniform Securities Act if it has no offices in State N and if which of the following are true? I. Its only clients are insurance companies. II. It has contact with fewer than six State N residents in any 12-month period. III. Its only solicitation of State N residents is through radio advertisements originating in State M but received in State N. IV. It occasionally engages in firm commitment underwriting with issuers based in State N. A) III and IV B) I and II C) I and IV D) II and III
C for BDs there is no de minimis exemption. Any amount of out of state clients requires registration. any form of media (radio, television, etc) requires registration for BD
If the Administrator believes that a violation of the act has occurred or is about to occur, the Uniform Securities Act grants the office which of these powers? The power to issue a cease and desist order The power to seek an injunction against the alleged violation The power to seek to have a receiver appointed over the violator's assets The power to seek to have the violator make restitution to investors A) III and IV B) I, II, and III C) I, II, III, and IV D) I and II
C Administrator can do all of these they can seek, not issue, an injunction
The term sweetener would most often apply to A) rights. B) convertibles. C) derivatives. D) warrants.
D attaching a warrant to a bond/pref stock issue sweetens the offering resulting in lower interest rates or dividends
The GHIJ Corporation has a 3% convertible debenture outstanding with a conversion price of $40. The bond's current market price is 126. The most probable reason for this is A) interest rates have risen since the debenture was issued. B) the current market price of the GHIJ common stock is approximately $35 per share. C) GHIJ's earnings have risen since the debenture was issued. D) the current market price of the GHIJ common stock is approximately $50 per share.
D find # of shares by $1,000 / $40 = 25 then price per share is $1,260 / 25 = $50.4 so the current market price should be around $50
Your client purchases 100 shares of XYZ Electric Auto Company on the assumption that rising fuel costs will create more interest in this more efficient means of transportation. If he is wrong, the resulting drop in the market price of that stock would be due to A) market risk B) business risk C) money-rate risk D) purchasing power risk
B the fear is the failure of a specific company, and doesn't mean all securities will fail so it isn't market risk
Which of the following statements is correct regarding an unsolicited trade in an unregistered, nonexempt security? A) The Administrator may, by order, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period. B) It is an exempt transaction only if it is an order to buy; an order to sell an unregistered, nonexempt security is not an exempt transaction. C) The Administrator may, by rule, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period. D) The transaction is exempt if the broker-dealer does not maintain an office in the state from which the order is received.
C this is a rule because it applies to everyone, orders apply to specific BDs
An investor who was sure that a stock's price was going to move substantially but wasn't sure in which direction would be able to benefit by A) writing a straddle on that stock. B) selling the stock short and purchasing a call on the stock. C) purchasing a straddle on that stock. D) purchasing the stock and a put on the stock.
C buying both call and put means investor is expecting volatility
Asset-based sales charges will generally be lowest when holding A) Class B shares. B) Class C shares. C) Class A shares. D) Class R shares.
C class A has front-end but low/no asset-based charge class B and C have higher asset based sales charge
Inverse ETFs are suitable primarily for investors A. who are bullish on the market future B. who wish to leverage their income C. who have a very short time horizon D. who follow a passive investment strategy
C designed for short term due to the bearish nature
There are a number of exclusions from the definition of investment adviser. Which of the following would not qualify for an exclusion under the Uniform Securities Act? A) A financial planner who conducts seminars for the local PTA, where he presents the benefits of term life insurance B) An accountant who conducts seminars on the tax benefits of contributing to IRAs, both traditional and Roth C) A teacher at the local high school who receives nominal compensation for giving investment advice to engineers D) A lawyer who charges an hourly fee for preparing trust documents for individuals referred to her by an investment adviser
C exemption is lost for teacher when they are being compensated for the advice given
Which of the following would be the most important reason for an investor interested in adding foreign stocks to his portfolio to do so by purchasing an international mutual fund? A) The voting rights granted to a mutual fund shareholder are much stronger than those to the holder of an ADR. B) He could select a fund whose portfolio had the proper mix of foreign and domestic stocks to maximize his diversification. C) Purchasing foreign stocks through a mutual fund saves on foreign taxation. D) He would have the benefit of the portfolio managers picking the stocks instead of having to rely on his own efforts.
D 2 primary benefits to purchasing mutual funds: -diversification -professional management
One reason that a private equity fund may operate under the Section 3(c)(7) exemption of the Investment Company Act of 1940 is that A) investors would only need to be accredited rather than qualified. B) the compensation grid to the manager of a 3(c)(7) fund is higher than to a 3(c)(1) fund. C) greater liquidity would be assured. D) it would be able to have more than 100 investors.
D PE funds operate under 2 exemptions from ICA 40 -limited to 100 investors 3(c)(1) but no limit on 3(c)(7) -qualified investors
Seven years ago, Sarah Smith was convicted of possession of a controlled substance in a state where that violation is considered a felony. Sarah has just filed an application for registration as an agent with Kapco Securities, a registered broker-dealer in a state where that violation is only considered a misdemeanor. When viewing this agent's application, the Administrator will A) censure the broker-dealer for even thinking of employing this individual. B) treat the crime as a financial misdemeanor. C) treat the crime as a nonfinancial misdemeanor. D) treat the crime as any felony.
D if the felony was on the application then it will carry over, regardless of state laws. therefore sarah will be subject to disqualification
Hedge funds are issued by A) limited partnerships. B) portfolio advisers. C) investment companies. D) Administrators.
A issued as limited partnerships with investment adviser having an investment in the fund
The Administrator in Texas has jurisdiction over an offer of securities made where? On a radio program originating in Texas On a radio program originating in Oklahoma In a newspaper circulated in Texas but published in Oklahoma A) I only B) III only C) I, II, and III D) I and II
A Administrator doesn't have jurisdiction over offers made in TV or radio broadcast originated outside the state
A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed? A) The original value plus any appreciation is taxed as part of the grantor's estate. B) The original value plus any appreciation passes to the beneficiaries and is taxed as ordinary income. C) No tax is due if the grantor should die during the term of the trust. D) The original value plus any appreciation passes to the beneficiaries but is subject to gift tax.
A assets in GRAT, plus any appreciation are included in the estate
Which of the following are issuers of securities? I. ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months. II. Dot.Com, Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public. III. XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment. IV. YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering. A) I, II, III, and IV B) I only C) I, II, and IV D) III and IV
A despite failing to sell securities, XYZ Corp is still an issuer. all others fit the definition
John and his sister, Alice, open a margin account as JTWROS. John contributes $50,000, and Alice contributes $25,000. They have agreed that Alice will trade the account, and they will share in the profits and losses equally. As their agent, you would gather information regarding suitability for A) both, because information regarding all owners is relevant. B) either, because in a JTWROS account the owners share equally. C) Alice, because she will be trading the account. D) John, because he has made the larger contribution.
A for suitability and making recommendations, all owners of the account should be informed, regardless of investment or level of decision making
A majority vote of the outstanding shares of an open-end investment company is needed in order to approve a change A. from being an open end to a closed-end investment company B. from the old to a new custodian bank C. regarding the selection of specific securities to be added to the fund's portfolio D. in the maximum load charged for Class A shares
A from diversified to non-diversified and changing investment policy (income to growth or from bonds to pref stock) decided by majority vote. otherwise set by directors
Under the SEC's marketing rule for investment advisers, A) testimonials are given by clients while endorsements are given by promoters. B) testimonials are given by promoters while endorsements are given by clients. C) a written agreement must be in effect between the adviser and any promoter when compensation exceeds $100. D) an investment adviser may compensate a bad actor for an endorsement as long as the person's status and compensation are disclosed.
A only existing clients can give a testimonial. Others (generally third parties) are referred to as promoters and give endorsements. Bad actors can never be compensated for an endorsement. Written agreement not required as long as compensation is less than $1,000 over 12 month period
The DERP Corporation has an outstanding convertible bond issue with a conversion price of $125 per share. If the current market price of the bond is 80, the parity price of the stock is A) $125.00 per share. B) $100.00 per share. C) $156.25 per share. D) $64.00 per share.
B current value of bond = 800 can convert to 8 shares: $1,000 / $125 800 / 8 = $100 or if the bond is at 80% par value then stock must be selling at 80% conversion value to be equal: 80% x 125 = 100
Many investors with a long position in common stock employ the technique of writing call options on the underlying stock for the purpose of A) protecting the premium. B) generating income. C) increasing the dividend return. D) participating in the growth of the company.
B generates income from the premium downside protection for the long stock
Securities issued by which of the following are exempt from the registration and disclosure requirements of the Uniform Securities Act (USA)? I. The United States or any territory II. A state or political subdivision of a state III. A common carrier (e.g., a railroad) regulated in respect to its rates and charges by the United States or a state IV. Banks and savings institutions A) II and IV B) I, II, III, and IV C) II and III D) I and II
B all are exempt from state registration under USA
Under the Investment Advisers Act of 1940, which of the following is considered an investment adviser? A) A person who publishes a regular newsletter of advice on U.S. Treasury bonds and other U.S. government securities B) A lawyer who specializes in consulting on investing in securities C) A syndicated columnist who gives weekly reports and recommendations on investments D) The trust officer of a commercial bank who manages investment accounts for clients
B publishers and writers of general/regular newspapers are excluded also excluded if working for a bank or trust company
The Uniform Securities Act requires that investment advisers maintain certain records relating to their business operations. If the firm wishes to upgrade to a modern system, such as disk storage, A) the most modern form currently permitted is microfilm or microfiche. B) it must keep its records in paper form. C) it can do so if the system meets certain requirements, including that the information on the disk cannot be altered. D) it must obtain approval from the Administrator prior to determining its method of record retention.
C approval is not required from Administrator and is allowed as long as it meets requirements
A high-net-worth client expresses an interest in adding a hedge fund to her portfolio and asks for your advice. Among the points you could make is that A) hedge funds offer higher returns with less risk than similar investments. B) she should limit her purchase to a hedge fund that is registered with the SEC. C) she is probably not eligible to purchase a hedge fund. D) adding the hedge fund increases the portfolio's diversification.
D adding asset classes increases diversification client is high net worth, so therefore eligible to purchase hedge fund hedge funds aren't registered with the SEC
Western Securities, Inc., (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered A) fulfillment. B) estrangement. C) entanglement. D) adoption.
D adoption is a firm's endorsement of the content of a third-party site
By investing in a REIT, you are provided all of the following except A) pass-through tax treatment of operating losses. B) pass-through tax treatment of income. C) ownership of real property without management responsibilities. D) diversification of real estate investment capital.
A REITs can't pass losses to investors. not DPPs
An investor is looking at purchasing $10,000 face of bonds. One choice is U.S. Treasury bonds priced at 104.24, and the other choice is AAA-rated corporate bonds priced at 103⅜. How much more will the Treasuries cost? A. 137.50 B. 8.65 C. 13.75 D. 86.50
A Treasury at 104.24 = 1,047.50 (24/32) Corporate at 103 3/8 = 1,033.75 1047.50 - 1033.75 = 13.75 * 10 = 137.5
For a profitable and rapidly growing firm, holders of preference shares are least likely to benefit from the firm's growth if the preference shares are A) cumulative. B) common. C) participating. D) convertible.
A common isn't a type of preferred participating can receive additional dividends convertible has the ability to convert to common shares
Among the special characteristics of a universal life insurance policy is A) the policy may be overfunded B) early termination could lead to surrender charges C) death benefits may increase above the initial face amount D) that policyowners may borrow against the cash value
A only universal life insurance can be overfunded
Investors in exchange-traded funds (ETFs) find they offer several attractive advantages over mutual funds. All of the following would be advantages that ETFs typically have over mutual funds except A. lower trading costs for active traders B. the ability to buy on margin C. intraday pricing for active traders D. greater tax efficiency
A. generally subject to same trading costs and commissions as all other securities. ETFs tend to have fewer taxable consequences, can be purchased on margin, and offer intraday pricing
A firm is registered as an investment adviser under the Investment Advisers Act of 1940. It has decided to raise its annual management fee from $1,500 to $1,800 and require that it be paid one year in advance instead of quarterly. The firm would A) continue doing business as before because the firm was already charging more than $1,200 per year. B) now come under the requirement to include a balance sheet as part of its brochure. C) need SEC permission to make this change. D) be in violation of the law that prohibits prepayments more than six months in advance.
B the firm didn't originally fall under the balance sheet rule since the prepayment was collected quarterly. switching to annually subjects them to balance sheet rule now
The residual right of common stockholders refers to their right to A) examine the corporation's annual reports and other reports, and take legal action if irregularities are found. B) vote in elections for the board of directors and in other important business decisions, such as changes to the charter. C) claim company assets in bankruptcy after wages, taxes, creditors, and preferred shareholders have been paid. D) receive all announced dividends in accordance with the number of shares held.
C residual right refers to claiming assets in event of bankruptcy
Which of the following is least likely to be considered an investment constraint when preparing an investment policy statement? A) Tax concerns B) Legal and regulatory factors C) Liquidity needs D) Risk tolerance
D commonly tested investment constraints: -tax concerns -legal/regulatory factors -liquidity needs -time horizon risk tolerance is used to help determine what investment objective should be used
A customer is selling inherited stock. The decedent originally paid $50 per share and on the date of the decedent's death, the stock was worth $60 per share. On the day the customer sells the stock, the price per share is $62. What is the investor's cost basis in the stock? A) 50 B) 62 C) 55 D) 60
D inherited stock's cost basis is the price is was inherited at
In general, a broker-dealer will disclose its fee schedule A) to its agents, who are then responsible for sharing it with the client. B) when requested by the client. C) within 30 days following any changes in fees or charges. D) at the time of the account opening.
D no specific requirements for disclosing fee schedule, but usually disclosed when account is opened. changes are disclosed before the change is made
When reading a research report about an investment company, you read that, in addition to common stock, the company also has a preferred stock issue outstanding. From this, you could conclude that this is A) a blended investment company. B) a closed-end investment company. C) an open-end investment company. D) a unit investment trust.
B closed-end investment company is the only one that can legally sell preferred stock
Which of the following is not a valuation method for a fixed-income security? A) Conversion parity B) Price-to-earnings ratio C) Dividend discount model D) Discounted cash flow
B P/E ratio only used for common stock
Which of the following statements is true? A) A futures contract does not involve obligations to buy or sell an asset. B) A futures contract has standardized terms. C) Unlike forwards, futures are not traded on an exchange. D) A futures contract always requires delivery of an asset.
B futures are on exchanges so have standardized terms forward contracts are not so don't have standardized terms
The Uniform Securities Act considers which of the following to be investment advisers subject to registration in the state? I. An adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only II. An adviser with a place of business in the state whose total fee income in the state amounts to $150 III. An adviser with no place of business in a state who provides advice on only fixed annuities IV. An adviser with a place of business in the state who provides advice only to open-end investment management companies registered under the Investment Company Act of 1940 A. I only B. I, II, III C. I, II, IV D. I, II
D. I, II any place of business in the state requires state registration. However, if the only clients in the state are federally covered (IV) then state registration is not applicable
Which of the following must register as an agent under the Uniform Securities Act? A) An administrative assistant who provides securities quotes to clients B) A sales assistant who takes orders on behalf of agents in a branch office C) An individual who sells securities of an issuer to the issuer's employees without earning a commission D) A broker-dealer with offices in the state
B functions as an agent and must register under USA BD is excluded from the definition of an agent under USA
Under the Uniform Securities Act, it is unlawful for any investment adviser to take or have custody of any securities or funds of any client unless: i. the investment adviser receives written authorization from the Administrator before accepting custody. ii. the securities of each client are segregated, marked to identify the particular client having the beneficial interest therein, and held in safekeeping in some place reasonably free from risk of destruction or other loss. iii. immediately after accepting custody or possession of funds or securities from any client, the investment adviser notifies the client in writing of the place where and the manner in which the funds and securities will be maintained. iv. at least once every 6 months, the investment adviser sends each client an itemized statement showing the funds and securities in the investment adviser's custody at the end of such period and all debits, credits, and transactions in the client's account during such period. A) I and IV. B) I and II. C) II and III. D) III and IV.
C only necessary to notify Administrator of custody, not receive authorization client statements must be sent out quarterly, not semiannually
A consent to service of process allows the Administrator to A) terminate a registrant's application. B) verify the accuracy and completeness of registration without obtaining the registrant's prior approval. C) ensure that the legal appeal process is expedited as a result of the Administrator's access to information. D) be the registrant's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the registrant or the registrant's successor.
D consent to service = provides the Administrator with POA
Under the NASAA Model Custody Rule, an investment adviser (IA) would be permitted to take or have custody of any securities or funds of any client if A) the IA maintained adequate net worth or a surety bond. B) customer permission was obtained prior to entering into the contract. C) permission was obtained from the Administrator and custody was not prohibited by that state's rules. D) notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state's rules.
D must notify administrator and custody can't be prohibited in the state
Investors looking for current income may find that bonds and preferred stock provide that. One of the differences between these two investments is which of these? A) Bonds are issued with a fixed rate of return while preferred stock carries a variable rate of return. B) Income from preferred stock is generally received quarterly while that from bonds is received semiannually. C) A corporation's prior lien preferred stock has liquidation priority over its subordinated debentures. D) Bonds can be callable while preferred stock can be convertible.
B dividends for equity are always quarterly and bonds are always semiannually (for exam purposes)
NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed? Transaction-based compensation, such as commissions on recommended securities 12b-1 trails on no-load mutual funds in the client's portfolio Expenses reimbursed by third-party sources Compensation-sharing arrangements between the investment adviser and its representatives A) I, II, III, and IV B) III and IV C) I ,II, and III D) I and III
C all forms of compensation must be disclosed but internal payments don't need to be
An exemption from state registration is granted under the specific authority of the Uniform Securities Act to securities issued by which of the following entities? I. State of Georgia II. City of London, Ontario III. City of London, England IV. Kapco Income Fund, an open-end investment company registered with the SEC A) I, II, III, and IV B) I, II, and III C) I, II, and IV D) I and II
D any state, Canadian province, or political subdivision is considered an issuer of exempt securities also applies to countries we have diplomatic relations, but not subdivisions (like London) exemption for open-end for issuing falls under fed not state
When describing exempt transactions under the Uniform Securities Act, which of the following are fiduciaries? Executor of an estate Administrator in intestacy Custodian for a minor in an UTMA account An agent with authority over time and price execution A) III and IV B) I and III C) II and IV D) I and II
D executors and administrators are fiduciaries agent is a fiduciary if having discretionary authority and time and price is not considered discretion sale made by custodian isn't exemption, but custodian is functioning as a fiduciary
Under the Uniform Security Act, all of the following persons with no place of business in the state are exempt from registration as an investment advisers EXCEPT: A) advisers who deal exclusively with investment companies registered under the Investment Company Act of 1940. B) advisers who deal exclusively with savings banks located in the state. C) advisers who deal exclusively with federal covered investment advisers located in the state. D) advisers who have conducted business with no more than 6 individual clients in the state within the last 12 months.
D it stated NO MORE than 6 clients in the state the rule is 5 or fewer so 6 clients would break the exemption
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft dollar compensation? A) Providing access to the broker-dealer's computerized accounting system, allowing the investment adviser to prepare its financial statements B) Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for registered investment advisers C) Rent-free use of unused space in the broker-dealer's office D) Clearance and settlement services provided by the broker-dealer
D soft dollar compensation must benefit the customer and IA for research and brokerage services in exchange for directed transactions
Buying a put option on a security one currently owns allows an investor to A) participate in additional gains if the security continues to increase in price. B) increase his profit if the security declines in price. C) buy more stock if he exercises the put. D) receive the premium for the purchase of the put.
A investor would not exercise the put and continue to make money from the long position
Under the USA, an Administrator may A) revoke the registration of a broker-dealer and thereby place into suspense the registration of all the agents employed at the broker-dealer. B) require broker-dealers to retain books and records for the life of the firm plus two years. C) revoke the registration of an agent and thereby place into suspense the registration of the agent's broker-dealer. D) require that registrants post a surety bond prior to a hearing, to ensure payment of money fines.
A administrator may revoke registration of BD if an administrator revokes agent's registration, it doesn't affect BD's registration (why it's not C)
Which of the following statements regarding investment companies is not true? A) The Investment Company Act of 1940 classifies investment companies into three types: face-amount certificate companies, unit investment trusts, and management investment companies. B) A management investment company can offer investors two ways of participating in the fund under management through the purchase of closed-end shares or, if the investor prefers, open-end redeemable shares. C) When investors redeem their open-end fund shares, they receive the net asset value (NAV) per share next computed after the redemption order was received. D) When an open-end investment company, or mutual fund, registers its offering with the SEC, it does not specify the exact number of shares it intends to issue.
B investor can only invest in closed or open end fund, and they can't choose 1 vs the other
If a customer holds certificates of beneficial interest in a real estate investment trust (REIT), all of the following statements regarding this investment are true except A) the certificates are publicly traded. B) investors may receive dividends periodically. C) the issuer must redeem certificates on shareholder request. D) a mortgage REIT represents pooled capital for real estate financing.
C REITs are publicly traded so they aren't redeemed by issuer
If a new customer opens an account with a broker-dealer and tells the agent to buy investments at his discretion, before engaging in any transactions in the account, the agent must A) register as an investment adviser. B) have the customer supply a letter of credit from a bank. C) designate which investments will be purchased. D) receive a written discretionary power from the customer.
D Because the agent will be acting with discretion, a written power of attorney must be obtained from the customer before transactions can occur. This power is called discretionary power.
According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts, A) as long as the schedule is available in electronic form, it is not necessary to provide a paper version to retail customers. B) fee schedules should only be delivered by hand or postal mail, to reduce cybersecurity threats. C) the schedule should be made available on the broker-dealer's public website and should be password protected. D) the schedule should be made available on the broker-dealer's public website without requiring any login or password.
D regarding BD fees, they should be available to everyone and not need a password. transparency
Centripetal Investment Advisers (CIA) has its principal office in State X and is also registered in States Y and Z. CIA would be considered to be maintaining custody of client assets in all of the following cases except A. checks made to 3rd parties are forwarded within 3 business days B. checks made out to CIA are deposited within 3 business days C. CIA's advisory contract calls for the automatic deduction of advisory fees D. CIA has a power of attorney granting authority to withdraw funds from the custodian
A When a check made payable to a third party is received by the investment adviser, it will not be deemed to be in custody under the Uniform Securities Act if the check is forwarded within three business days. When a check is made payable to the investment adviser, the check must be returned to the sender within three business days or the investment adviser will be considered to be maintaining custody. Authority to withdraw funds or securities from the custodian or automatic deduction for fee payments are forms of custody.
An agent employed at First XYZ Securities produces his own research reports and provides them to a select group of personal clients. The agent has written permission from his employer to engage in this activity, provided the time spent on the project is conducted after working hours. Under the Investment Advisers Act of 1940, if the agent does not charge fees for the research but receives commissions from his employing broker-dealer for trades executed through the firm, A. the agent must register as an investment advisor representative B. neither the agent nor his employing BD need register as an investment advisor C. the BD must register as an investment advisor and the agent as an investment advisor representative D. the agent must register as an investment advisor because the research is being done outside of business hours
B The exclusion from the definition of investment adviser is lost only when an agent (or broker-dealer) receives special compensation for rendering investment advice. In this case, the agent is receiving commissions only when the clients make a trade. If there are no trades, there is no compensation for the advice. It is only when the compensation is not transaction based that it becomes special.
Which of the following statements regarding registration of investment advisers is true under the Investment Advisers Act of 1940? I. If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. II. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year. III. Material information requires a prompt amendment, but nonmaterial changes do not require amendment. A) III only B) I and II C) I only D) II only LO 9.e
B SEC requires prompt amendment of material information changes on Form ADV SEC requires nonmaterial amendments within 90 days of end of advisor fiscal year
Bulaan Advisory Services, Inc. (BAS), an investment adviser registered in five states, was found to have been untruthful in its performance reporting. Once this news was released, most of its clients terminated their advisory contracts. As a result, BAS shuttered its doors on July 18, 2018. Minutes of shareholder meetings must be preserved until at least A) July 18, 2023. B) July 18, 2021. C) December 31, 2023. D) December 31, 2018.
B all material info must be kept for 3 years after closing
NASAA has a Model Rule dealing with investment adviser brochures. If an advisory client wanted information about each individual providing investment advice and having direct contact with clients in the state, that information would be found in A) Form ADV Part 2A. B) Form ADV Part 2B. C) Form ADV Part 1A. D) Form ADV Part 1B.
B brochure supplement parts 1A and 1B used for initially registering part 2A is the brochure itself
One area of paramount importance to state Administrators is seeing that investment advisers make all material disclosures to their advisory clients. An example of a failure to disclose is when the adviser has a financial condition that is reasonably likely to impair the ability of the adviser to meet contractual commitments to those clients. That disclosure would not need to be made in the case where the investment adviser A) accepts prepayment of more than $500 six or more months in advance. B) maintains custody of the account's assets. C) engages in agency cross transactions. D) has discretionary power over the account.
C Numerous disclosures are required when an investment adviser (IA) engages in agency cross transactions, but this is not one of them. The potential impairment must be disclosed if the IA maintains custody, exercises discretion, or accepts a substantial prepayment of fees. For state-registered advisers, that is more than $500 six or more months in advance. For federal covered advisers, the dollar amount is more than $1,200. How do we know this question is about state-registered investment advisers? The question refers to Administrators, not the SEC.
The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, the act grants an exemption if the client is which of the following? I. A broker-dealer II. An insurance company III. An investment company IV. A person receiving impersonal advice for which the annual fee is less than $500 A) I and II B) I, II, III, and IV C) I, II, and III D) III and IV
D if client is investment company or pays less than $500 in annual fees for impersonal advice are the only exceptions to the brochure rule
Which of the following constitutes either an offer or a sale? A) Thomas is offered warrants by his registered agent as the best way to take a position in XYZ Corporation. B) Sierra pledges her portfolio to secure a loan for her son who plans to use the proceeds of the loan to buy a major interest in a publicly traded company. C) Marge, a wealthy client, receives salable stock in lieu of a cash dividend as a result of her large holdings in ABC. D) Peggy receives a gift of nonassessable securities.
A gifting nonassessable stock is not a sale, pledging portfolio is also not an offer or sale, receiving stock dividend is not a sale
Although investing in managed investment companies can provide many benefits, investors should be aware that disadvantages could include all of these except A) limited liquidity. B) poor management performance. C) high expenses. D) unpredictability of tax consequences.
A liquidity is never a problem with either
Fusion Financial is a broker-dealer registered in States A, B, and C, with its home office in State B. A complaint is filed against the firm by a client who resides in State A. Under the powers granted under the Uniform Securities Act, the Administrator of State B could do all of the following except A) issue an injunction against Fusion Financial. B) gather evidence from State B. C) subpoena witnesses from State C. D) gather evidence from State A.
A Administrator has power to gather evidence within and outside home state and issue subpoenas. Only courts can issue an injunction
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 allowable if the securities representative receives at least 60% of the commission and the insurance agent receives no more than 40%. B) in variable annuities is allowable only if the agents involved are both licensed to sell life insurance and maintain their securities licenses at the same or affiliated broker-dealers. C) is an unethical trade practice. D) in variable annuities is allowable only if the agents involved are both licensed to sell life insurance and maintain securities licenses with broker-dealers registered with the Administrator.
B must be licensed in insurance and securities to sell variable annuities or split commissions. can only be split with registered agents of same or affiliate BD
Fairweather Securities Corp. (FSC), a registered broker-dealer, has invited several IARs from Econometric Advisory Services (EAS), a registered invested adviser that directs transactional business to FSC, to a seminar featuring a disquisition on current economic trends being presented by a leading economist. It would be permitted for FSC to cover which of the following expenses? A) None; because EAS directs commission business to FSC, it would be an unethical business practice for FSC to pay any portion of the expenses B) Registration fees for the seminar C) Travel and transportation fees, but not the seminar fee D) Registration fees for the seminar plus travel expenses
B payment for seminar fees is permitted under safe harbor provisions of Securities Exchange Act 1934
All of the following are exempt from state registration except A) common stock in Mutual Savings Bank. B) variable annuities issued by a major insurance company. C) fixed annuities issued by a small insurance company. D) fixed-income securities issued by a bank.
B fixed annuities not securities -> no registration variable annuities required to be registered even if issued by insurance company
Prosperity Financial Investments (PFI) is a registered investment adviser with $85 million in total assets under management. PFI also manages the PFI Growth Fund, a registered open-end investment company with assets of $30 million. If one of PFI's investment adviser representatives (IARs) voluntarily terminates registration, the notification procedure would be which of the following? A) PFI must notify the Administrators of the states in which the individual is registered. B) The IAR must notify the Administrators of the states in which the individual is registered. C) PFI and the IAR must notify the Administrators of the states in which the individual is registered. D) PFI, as a federal covered adviser, must notify the SEC.
B since PFI manages the growth fund, it's federally covered. Therefore, only the IAR has to notify the Administrators. if PFI was state registered, they would send the notification
