Series 66 Exam
Duration is?
Measure of a bonds volatility (how much it will change) when interest rates change
Standard deviation?
Measurement that indicates how much an investment's returns have fluctuated, compared to its average return, over a given period of time
When would Investment Advisors have to register with the North American Securities Administrators Association (NASAA)?
NEVER, IA's never have to register with the NASAA
When do covered advisers have to register with the state?
NEVER, they are exempt from registration, they have to pay the filing fee if they wish to do business there
Do money market mutual funds have sales charges?
NOO "MONEY MARKET" mutual funds do not have sales charges and redemption fees
Does an Investment Advisory Contract disclose security industry violations by an Investment Adviser?
NOOO, the contract itself does not have to disclose the security industry violations bc it is Disclosed in the FORM ADV (Reg. form for IA's)
What would be included in the NW (net worth = how much assets - liabilities are) for STATE requirements?
NOT intangible assets like copyrights, patents and NOT home furniture. But tangible assets in your office would be calculated in (sofa in receptionist office)
A consent to service of process allows the Administrator to
provides the Administrator with power of attorney to accept legal papers on behalf of registrants 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
The price-to-earnings ratio shows?
how much investors value the stock as a function of earnings to the company's market price
KAPCO Securities is a broker-dealer registered with the SEC doing business throughout the Midwest. KAPCO must meet the net capital requirements of
the SEC, even if one or more of the states in which they are registered has a higher net capital standard
An individual is currently registered as an agent with a broker-dealer. If the agent would like to offer wrap fee programs through the firm, what would have to happen?
- The Broker Dealer would now have to be registered as an investment adviser.. bc they are charging a customer a fee for advising their AUM - The agent would now be a Investment adviser Representative
In order to meet the definition of an IARep, one must meet any one of the 5 criteria?
1. Makes any recommendations or gives advice on securities 2. Person who decides what recommendations or advice should be given 3. Manages accounts/ portfolios 4. Selling advisory services 5. Supervise any employees who do any of the above
3 Criteria that must be met for the Publication to be excluded from the definition of the Investment Advisers Act of 1940?
1. Must offer impersonal advice 2. Must be "bona fide" (good faith) not promotional 3. General and regular circulation not market timing
What is a federal covered advisor? Give example
1. Those IA's required to be registered w/ the SEC/Fed bc of over 110 million in AUM EX: Manager of an investment company where the company is registered under the IA Act of 1940
Define IAR (Investment Adviser Representative)
-Partner, officer, director or any other individual employed by or associated with the IA firm -Must be a natural person (includes supervisory people like CEO) -They (IARs) only register w/ the State
Which of the following has the greatest liquidity risk? A) Rental apartment building B) Municipal bond unit investment trust (UIT) C) Long-term bond mutual fund D) Real estate investment trust (REIT)
A. Rental apt. building bc a Mutual Fund is still liquid even if its a long term bond (redeemable security)
What information can an Administrator require from a federal covered adviser? (3 parts)
1. A filing fee 2. A copy of the IA firms Form ADV 3. The Administrator may require an announcement of the application for registration
Under the Investment Advisers Act of 1940, who would be considered exempt from registration?
1. Advisers performing Intrastate = only clients who live in same state as principal office and adviser does NOT give advice on securities listed on a national exchange 2. Advisers whose clients are only insurance companies 3. Advisers whose clients are only venture capital funds
Potential investment company clients should be advised to investigate a fund by looking at which of the following?
1. Investment policy 2. Track record 3. Portfolio 4. Sales load should all be researched when assessing a fund
Assume that a corporation issues a 5% Aaa/AAA-rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are TRUE? 1. The current yield on the debenture will be higher than 5%. 2. The current yield on the debenture will be lower than 5%. 3. The dollar price per bond will be higher than par. 4. The dollar price per bond will be lower than par.
1. and 4. 1. Since the 5% debenture is now at a discount, the current yield of the debenture will actually be higher than the 5% (because discount, your return is actually a little more than the 5% if held to maturity) 4. Interest rates went UP to 5.5% so the price (dollars) of the bond would go DOWN
Can REITS take equity, debt positions, or both?
ALL: Equity Trusts: operating real estate (shopping centers, office buildings) Mortgage Trusts: Invests in existing mortgages Combination REIT "Hybrid": Invests in both
Asset-based sales charges will generally be lowest when holding
ASSET_BASED Sales Charges are LOWEST with class A shares
Open-end funds (mutual funds) price is determined how?
Adding the SALES CHARGE to the NAV NAV: $12.00, Ask Price: $12.50 NAV of $11.50 and an ask price of $10.98 = Closed end fund
An adviser who does not exercise discretion and does not maintain custody, but accepts prepayment of fees of more than $500, six or more months in advance, must maintain what net worth?
A positive NW at all times
A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably A) take a long position in orange juice futures B) take a long position in corn forwards C) take a short position in corn futures D) take a long position in corn futures Explanation
A weak corn crop means a shortage in the supply. That will lead to an increase in prices. When one is speculating that prices will go up, the best position is a long one. Speculator: more like to choose FUTURES because they are not usually exercised = "speculation" and they have no interest in actually taking physical possession of the commodity. ** If the person in the question had been a user of corn (a cereal maker, for example), then the forward contract would have been a better choice.
Under the Uniform Securities Act, which of the following would be considered an agent? A) An individual limiting his sales activity to selling federal covered securities while representing a broker-dealer B) A broker-dealer who buys and sells registered securities with the general public C) An individual who represents an issuer in an exempt transaction D) An individual who represents an issuer of a security issued by a Canadian province
A) An individual limiting his sales activity to selling federal covered securities while representing a broker-dealer... BC any individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities
Net asset value per share for a mutual fund can be expected to decrease if A) the fund has made dividend distributions to shareholders B) the issuers of securities in the portfolio have made dividend distributions C) the securities in the portfolio have appreciated in value D) the fund has experienced net redemptions of shares
A. If the fund distributes dividends to shareholders, the assets will decrease (giving out money to people DECREASES firms Assets) and price per share will fall accordingly (Assets-Liabilities) / # shares ** If issuers have made distributions to the portfolio, (Adding more money into fund) the Assets will INCREASE and the NAV will also increase
Dividend payments are not a part of the computation for which of the following risk measurement tools? A) Correlation coefficient B) Dividend growth model C) Net present value D) Dividend discount model
A. Correlation coefficient measures the degree to which 2 sec r portfolios move together with each other
The financial ratio that shows the relationship between the price of a company's stock and the company's net worth (stockholders' equity) is A) the price-to-book-value ratio B) the price-sales ratio C) the price-earnings (P/E) ratio D) the dividend discount ratio
A. Price-to-book-value ration shows the relationship between a company's stock price and the company's book value - calculated by dividing the price per share by the stockholders' equity per share $15 per share / stockholders' equity per share
Under current federal tax law, which of the following would have an effect on the amount of taxes your client would pay? 1. Age 2. Citizenship 3. Marital status as of the last day of the year 4. Residency
All Each of these can affect your tax rate. Taxpayers age 65 and older get an extra exemption, so that lowers their tax. If you are not a U.S. citizen, and are considered a nonresident alien, you are taxed somewhat differently than others. Only married persons can file a joint return, which usually, but not always, results in lower taxes. Residency determines if you will also have to pay a state income tax and receive deductions for that (or a state sales tax) on your federal income tax. U21LO1
If you are registered as an agent for a broker-dealer in State Y and you conduct business as an agent of theirs in State Z, a state in which you are not registered as their agent, you A. expose yourself and your employer to disciplinary action by State Z B. expose yourself to a possible fine C. may obligate your broker-dealer to offer your client the right to rescind the sale D. may have your registration in State Y revoked
All the above
Which of the following persons is required to register with the SEC as a federal covered adviser?
An adviser that gives advice to registered investment companies only registered under the IA Act of 1940
Who qualifies for breakpoints?
Any Person Not an Investment Club or Clients to an Investment Adviser
An agent discovers that he has sold a customer an unregistered, nonexempt security that she thought was exempt. The broker-dealer offers to buy it back on behalf of the agent. Under the Uniform Securities Act, A) this cannot be done under any circumstances B) a customer rejecting the offer within 30 days forfeits the right to sue C) this is legal and is called rescission D) the offer also cannot include interest
As long as she THOUGHT it was exempt then there was NO intention to sell an unregistered nonexempt security. This means that recession can be offered (Giving client money back or offering to buy back the shares) Rescission is the return of the customer's money, plus interest, less any income received from the investment. The customer has 30 days to accept or reject the offer
If the Smiths want to open a joint account at AAA Securities Corporation and have their securities transferred to their 3 daughters upon the death of the last surviving account holder, their agent should recommend that the Smiths open A) a joint tenancy account with right of survivorship B) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form C) a tenants in common account D) individual accounts in the name of each daughter
B.
Rank the following securities from the same issuer from most suitable to least suitable for a client whose primary objective is income. 1. Cumulative preferred stock 2. Convertible preferred stock 3. Common stock 4. Warrant A) I, III, II, IV B) I, II, III, IV C) III, I, IV, II D) II, III, IV, I
B. - Preferred stock has better dividends than common - Cumulative is better than convertible then common then warrant
Which of the following are considered unsystematic risks? 1. Business 2. Liquidity 3. Market 4. Purchasing power A) II and IV B) I and II C) III and IV D) I and III
B. 1 and 2
In an effort to benefit from the economies of scale, Liquid Assets Management, Inc. (LAMI) and Strategic Assets Management Company (SAMCO), both registered with the Administrator as investment advisers, have merged into a new firm with the name of Strategic and Liquid Assets Management Company (SLAMCO). This would A) require notification to the clients within a reasonable period of time. B) be considered an assignment of the advisory contracts and would require consent of the clients. C) be an unethical business practice. D) require the filing of a new Form ADV along with the proper registration fee.
B. A merger of a company would be considered an assignment of the advisory contract ad would require consent of clients
Which of the following statements would NOT be allowable under the rules regarding an investment adviser's contract? A) I charge a flat fee of $1,500 per year. B) If you make money, I make money because my compensation is based on how well your account performs. C) My hourly charge is $300. D) I charge 1% per year on the value of your assets, plus any commissions I earn on sales done through me.
B. Performance based fees are never allowed unless there is an exception - Customer is a Qualified client w/ NW over $2.1 Million or AUM of at least $1 Million (EITHER ONE)
To a technical analyst, the resistance level signifies the price at which a stock's supply would be expected to A) remain constant. B) increase substantially. C) cause the stock price to "break out". D) decrease substantially.
B. increase substantially BECAUSE it says SUPPLY when it reaches Resistance buyers will sell so there will be MORE SUPPLY of stock
For larger accounts, a broker-dealer is least likely to waive its normal fee for A) safekeeping of funds or securities in the account B) transferring the account to another broker-dealer C) the annual account maintenance charge D) wiring funds to the client's bank
B. transferring the account to another BD is something that wouldn't be waived if there was a larger client
Among the ways in which futures differ from options is that?
BOTH PARTIES are Obligated to perform BUYER And SELLER Obligated to PERFORM
The Administrator, with proper notice, may examine the financial records of which of the following persons registered in his state?
Broker Dealers and Investment Advisers (not the Agents or IAReps)
Persons with no place of business in the state are exempt from State Registration (USA) as an IA if?
Broker Dealers, Other Investment Advisors, Institutional investors (banks, savings companies, Gov. agencies, etc.), clients in state temporarily, "De Minimis Exemption" = 5 or less clients in the state in the past 12 months), any other exemptions ruled by Administrator
Disadvantages of investing in ETFs include?
Commissions on both buying and liquidating shares
An investor purchases 100 shares of RIF common stock. In the year following the purchase, the RIF shares appreciated by 12% and paid a 2% dividend. If inflation, as measured by the CPI, was at a 4% rate, the investor's total return on the RIF shares is closest to A) 8% B) 10% C) 14% D) 2%
C. 14% Asking for total return NOT the inflation-adjusted return which would be 10%
For which of the following is there no active secondary market? A) ETFs B) Options C) Forward contracts D) Futures contracts
C. Forward Contracts There is NO Standardization in Forward Contracts It's between ONE buyer and ONE seller
As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that anytime within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be A) an offer that could only be made to accredited investors B) a violation of the antifraud provisions of the Uniform Securities Act C) a prohibited guarantee against loss D) a right of rescission
C. Not a violation of the Anti-fraud provisions but would be a prohibited guarantee against a loss, and there are no guarantees of profits or losses
When a bond's NPV is zero, it is usually an indication that A) the bond is mispriced. B) the bond is highly rated. C) the market is highly efficient. D) the bond is a zero-coupon bond.
C. The market is highly efficient When The NPV is 0 this means that the bonds Present Value (what its actually worth right now) is equal or no different than the current market price of the bond
The common stock of companies within which industry sector would be most adversely affected by an increase in the general level of interest rates? A) The clothing industry B) The electronics industry C) The utilities industry D) The food industry
C. Utilities because most if a utilities company is funded with debt and If interest rates go up, their new debt will be at higher interest rates, causing lower earnings available for common stocks.
There are waivers from the Series 65 exam requirement for certain professional designations. Who qualifies for the waiver? This who are?
CFPs, CFA (chartered financial analyst), CIC (chartered investment counselor), ChFc (chartered financial consultant) PFS (personal financial specialist)
Under the Uniform Securities Act, the Administrator can require which of the following from broker-dealers and investment advisers?
Filing of sales literature Maintaining of records Filing of financial statements: think Net Worth Filing of amendments to registrations
Federal covered securities, as defined under the Uniform Securities Act, A) would not include securities senior to a common stock listed on the NYSE B) include shares of an investment company registered with the SEC under the Investment Company Act of 1940 C) must be registered in the state before they can be offered within the state D) must be registered with the SEC before they can be offered in the state
Federal Covered Securities: Are exempt from registration with the USA B. include shares of an investment company registered with the SEC under the Investment Company Act of 1940
An investment adviser must disclose which of the following legal or disciplinary actions to clients and prospective clients if they occurred within the last 10 years? 1. Conviction of a misdemeanor involving an investment-related business 2. SEC or other federal regulatory agency proceedings in which the person was found in violation of an investment-related statute 3. A proceeding before FINRA in which the adviser was barred or suspended from membership 4. Conviction of a misdemeanor in a civil action regarding payment of motor vehicle violations A) I and II B) I, II, and IV C) II and III D) I, II, and III
D.
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) have the customer supply letter of credit from a bank B) register as an investment adviser 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
Which of the following forms of soft-dollar compensation paid by a broker-dealer to an investment adviser is NOT allowable under the safe harbor provisions of Section 28(e)? A) Registration fees to attend an investment seminar B) Financial planning software C) Research reports D) Reimbursement for travel expenses to attend an investment seminar
D. Payment for seminars, research, and financial planning software are permissible under the safe harbor provisions of Section 28(e).
An agent can sell an unregistered security to one of the firm's retail customers under each of the following circumstances except? A) if the security being purchased is a warrant to purchase stock that is NYSE listed B) if the transaction is initiated at the request of the customer C) if the security being purchased is an exempt security D) if the agent is not registered in the client's state
D. if the agent is not registered in the client's state As long as the agent is properly licensed, if the security being purchased is exempt or it is being purchased in an exempt transaction (such as an unsolicited trade), registration of the security is not required Federal covered securities, such as those listed on the NYSE, are also exempt from registration. That exemption carries over to warrants and rights issued by that company.
If a pension consulting firm who has one office in DC and only one advisory client (a U.S. government employees pension fund with $4 billion n assets), what do they have to do for registration?
DO NOT think giving advice to just Government securities so they would be exempt from Fed and would have to Reg. w/ the state They only have one client that happens to be an employee of a gov. pension fund.. this doesn't mean that ALL of their clients are being advised on GOV securities Under the provisions of the Dodd-Frank Act of 2010, once a pension consultant's AUM reaches $200 million, it has the choice of State or SEC registration.
A support level is the price range at which a technical analyst would expect
Demand for the stock would increase substantially (cheap stock everyone wants it) NOT the supply would decrease substantially
With respect to taxation, an investment adviser representative should NOT
Draft tax and estate documents (illegal) Can only be drafted by an attorney
Who is excluded from the definition of an IAR (Investment Adviser Representative)?
Employees of the IA (firm) who 1. Person who does not solicit/meet/communicate/ w/ clients on a reg basis 2. Person providing impersonal advice only (written or oral statements not trying to give someone specific advice) 3. Person w/ only administrative/ clerical duties 4. Or Person w/ only administrative/ clerical duties takes part in activities that are incidental to the IA firms services (Ex: Mailing out a report to a client when told by the IAR)
Excluded vs exemption?
Excluded from the definition, which means they are not subject to the state or not subject to the federal law EITHER ONE COUNTS AS NOT HAVING TO REGISTER Exemption from registration even though that person is still recognized as a IA, for example a federal covered adviser is exempt from registering w/ the state bc its one or the other
Venture capital funds?
Exempt from registration no matter how much AUM IA has but private funds is 150 million or less to be exempt from registration
The sole proprietor of an insurance business that exclusively provides advice on fixed-income annuity contracts must register with?
Fixed income security = Not a security so Does Not Have To Register With Either. Regulations under USA or IA Act of 1940 only apply to SECURITIES
Mountain High Securities is a broker-dealer registered in Wyoming and Colorado with its principal office located in Colorado. With reference to the Uniform Securities Act, what record-keeping requirements must be followed?
For BDs registered in more than one state (who are not SEC-registered), meeting the record-keeping requirements of their "home" state, is sufficient anywhere they are registered This is because (under USA: state law) the Administrator of the state where the BD has place of business has jurisdiction
Nonsecurities derivatives include futures and forwards. Among the differences between futures and forwards is that futures contracts A) are preferred to forwards by producers. B) are not regulated by the CFTC while forwards are. C) are rarely exercised while forwards generally are. D) are nonstandardized while forwards are.
Futures = Standardized (exchange regulated: quantity, quality, time, price, place) - rarely exercised, forwards are normally Forwards = NONstandardized
Person looking to start a company wants favorable tax treatment of income and losses, is willing to share control of the company and wants to limit the number of investors? What should she choose?
General Partnership - Flow thru of income and losses to each General Partner - Everyone will have control management decisions, etc - She can let as many GP's in or limit as many GP's as she wants to
George owns XYZ stock. Based on recent analyst projections and George's own research, he believes XYZ's price will remain flat over the next few months. Accordingly, which strategy would George most likely employ? A) Sell a call option B) Sell a put option C) Buy a call option D) Buy a warrant
George owns the stock (Long Stock), and no movement in price means he would most likely SHORT a Call to generate income (get premiums) This is writing the covered call bc he's already long the stock He would NOT write a put because it would not be a good hedge if the stock went down (remember he already has the stock and would want it to go up, writing the put you would also want the stock to go up: doesn't make sense)
If you are an IAR (investment adviser representative), when would you have to register with the state, no questions asked?
Have to register with every state that you have a place of business in
Which of the following corporate actions would have an effect on the company's working capital? A) Calling in a portion of a 20-year bond at par B) Declaring a 15% stock dividend C) Borrowing money from the bank on a 90-date note D) Paying a utility bill
Having an effect on CA or CL is different from the JUST AFFECTING CA or CL - Having an effect would mean that CA or CL would change and the other wouldn't **When a bond (long-term liability) is called in, current assets are reduced, but there is no offsetting reduction to current liabilities. This causes working capital to decrease Taking out a short-term loan increases the current liabilities, but the borrowed money is a current asset of an equal amount. Paying a utility bill reduces current assets with an equal reduction to current liabilities. Declaration of a stock dividend has no effect on current assets or liabilities because the payment will be of additional shares, not cash.
Items that would disqualify a BD registration?
Having been convicted in the past 10 years of a felony or a securities or financially related crime BD being currently under suspension Revocation, or injunction by any court
Credible Investment Specialists (CIS) is a state-registered investment adviser with its only offices in State A. In which state(s) would registration be required?
He would always have to register in a state where he has a place of business, NO MATTER WHAT THE CLIENT IS ex: (institutional investor, bank, etc.)
A farmer entered into a forward contract to sell his produce at $2.25 per bushel. At the expiration date of the contract, the price was $2.00 per bushel. The farmer would receive A) $2.00 B) $2.125 per contract C) a price negotiated between the buyer and the seller D) $2.25
If the farmer enters into a forward contract to sell his produce ("HE IS IN THE CONTRACT": HE SOLD THE PRODUCE") He would receive $2.25. If he sells it at $2.25 vs what it was when it expired the he would have made a good deal
How can an investor ensure that he'll be able to pick up the stock at today's price 6 months from now and not miss out on that market appreciation? A) Buy an XYZ March 50 put option B) Sell an XYZ March 50 put option C) Buy an XYZ March 50 call option D) Buy XYZ stock rights
He would have to have a right in the 1st place so : "BUY" or be LONG And he would want to have to the right to buy it at todays price and be able to sell it later (6 months) when the stock appreciates at a higher price and make a profit So he would BUY a March 50 CALL Buying a put would mean that he has the right to sell it at $50 6 months form now which he would NOT want he wants the right to buy NOW and sell it HIGH in 6 months
Investment Adviser contracts must be in writing for the INITIAL AND RENEWAL for what laws/acts?
IA contracts required to be in writing for INITIAL and RENEWAL - Under USA - NOT under IA Act of 1940 - Under Investment COMPANY Act of 1940
What affect did the NSMIA (National Securities Market Improvement Act) have on States?
IA's reg. w/ one or the other and if reg. w/ the SEC, the States are not allowed to have requirements that go against what Federal Law states. This regards capital/custody requirements and record keeping requirements If fed covered advisor then would be exempt from registering with states just pay filing fee
Which of the following must register as a broker-dealer under the USA?
If Broker Dealer has a place of business in the state, it MUST register with the State (USA) no matter what clients they serve (other BDs, institutional investors, etc.)
An investor purchased stock for $50 per share at the beginning of the year. In December, the investor liquidated his stock for $55 per share, while also receiving dividends of $2 per share during the year. Assuming an inflation rate of 3%, what is the investor's real rate of return? A) 4% B) 10% C) 11% D) 14%
If it asks for real rate of return and it has inflation in it you should NOT be using the RFR formula thats for REQUIRED RATE OF RETURN. So it has inflation so we want to calculate the return then subtract the % of inflation. Total % Return = Total return / Original Investment Total % Return = Income (dividends or interest) +- Gains or Losses (from the sale) / Original Investment THEN SUBTRACT INFLATION = $2.00 + $5.00 /$50 = 14% 14% - 3% (inflation) = 11%
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, there are instances where the act grants an exemption if the client is? Exemptions for IA's making a brochures?
If the IA offers impersonal advice and charges less than $500 to the client for it If the client is and Investment company
An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told what?
If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately.
A farmer who produces soybeans believes that this year's crop will be the biggest ever. The farmer would most likely hedge this risk by A) going long soybean forwards B) going long soybean futures C) going short soybean forwards D) going short soybean futures
If you are a producer of the product (you now the product) and you think its gong to go up, what would you do to hedge? Write the covered call if you're already long the position (own the product). Since you own the produce you can deliver it so soybean Forwards would make sense. A big crop means more supply and lower prices when the crop is harvested. Hedging involves taking an opposite position (benefiting if prices fall). If the farmer is correct, selling short at today's price will enable delivery in the future at that higher price. Because this is a producer who will have product to deliver, forwards are likely to be more appropriate than futures
What is the IRR?
Internal Rate of Return is the discount rate (YTM for a bond) that makes the future value of an investment equal to its Present Value TAKES INTO CONSIDERATION THE TIME VALUE OF MONEY Must hav a maturity date so an investor would NOT use the IRR to determine the return for a common stock investment
Who is required to file (NOT Register) with a state Administrator? (representatives)
Investment Adviser Representative (IAR) of a federal covered adviser who has a place of business in the state... would have to pay the filing fee and file w/ State IF this has said REGISTER w/ a State Administrator then... even if the IAR did or didn't have a place of business in the state, the REPRESENTATIVE specifically would not have to register bc only the IA (Fed Covered advisor) actually REGISTERS
Can Investment Advisers lend money to clients?
Investment Advisers' (IA's) could lend $ to clients only: if the actual IA itself is a financial institution in the business of loaning funds OR the client is an affiliate of the IA **The IA can never borrow $ from a client** - Unless the IA's client is in the money-lending business
What is not considered a issuer transaction? What is?
Issuer transaction is where the ISSUER receives the money from SELLING the securities Someone PURCHASING stock CANNOT be an ISSUER and receive any proceeds
What does it mean when there is a stock with a correlation of +.95?
It means that its almost a perfect positive correlation (1.0) with the other stocks in the portfolio and perform very similarly - Also means that it would have little effect if added to a portfolio
What is positive margin?
Its when your return on the marginal securities is more than the interest that you paid on the borrowed money
Hedge Funds are Issued by WHO? A) investment companies B) limited partnerships C) portfolio advisers D) Administrators
Limited PARTNERSHIPS with the (IA) manager of the hedge fund having an investment in the fund
"An investment company with a low expense ratio and a portfolio that doesn't change," is a description of A) a no-load fund B) an index fund C) a UIT D) an ETF
Low expense = ETF OR UIT One that has a portfolio that DOESN'T CHANGE = UIT
An individual investor specifies to her investment adviser representative that her portfolio must produce a minimum amount of cash each year. This would be considered A) a unique circumstance. B) a tax constraint. C) a liquidity constraint. D) a legal and regulatory constraint.
Need certain amount of CASH Would Be LIQuidity bc cash is liquid
Under the NASAA Model Custody Rule, does an IA need permission to take or have custody of any securities or funds of any client?
No they don't need PERMISSION but they do need to NOTIFY the Administrator and make sure that custody is not prohibited by that states rules
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following is (are) required to register as investment adviser in a particular state?
Only investment advisers w/ less than 100 million in assets are required to register with the state Administrators
Under the Uniform Securities Act (USA), any out of state advisers who want to register with the Administrator of another state (not where their principal office is) must follow requirements set by who?
Out of state advisers who want to register with another states Administrator must follow the rules/requirements of the Administrator of the advisers home state NOT the Administrator of the State they are wishing to register
This is the performance of your portfolio over the previous 4 years: Year 1 - 10% Year 2 - 45% Year 3 + 20% Year 4 + 35% In order for the portfolio to be equal to the starting investment, the return in Year 5 must be nearest to A) 20%. B) 25%. C) 33%. D) 0%.
Pick a number to start w/ USE 1000. Suppose the initial value of your portfolio is $1,000. In Year 1, you lose 10%. Your portfolio is now worth $1,000 x (1 - 0.1) = $1,000 x 0.9 = $900. In Year 2, you lose 45%. Your portfolio is now worth $900 x (1 - 0.45) = $900 x 0.55 = $495. In Year 3, you gain 20%. Your portfolio is now worth $495 x (1 + 0.2) = $495 x 1.2 = $594. In Year 4, you gain 35%. Your portfolio is now worth $594 x (1 + 0.35) = $594 x 1.35 = $801.9. You would like to know by how much your portfolio needs to appreciate in Year 5 to be worth its original value of $1,000. Some might find it easier to look at the shortfall ($1,000 - $801.90) = $198.10. Divide that by the current value and you have 198.10 ÷ 801.90 = 24.7%. Some might just look at the number and recognize that you are about $200 short on a value of $800 and that is 25%.
Under the Investment Advisers Act of 1940, what are the record keeping requirements?
Records kept on file for 5 years, (2 yrs. in principals office- easily accessible) and 3yrs for articles of incorporation/partnership, organizational docs
The residual right of common stockholders refers to their right to A) vote in elections for the board of directors and in other important business decisions, such as changes to the charter B) claim company assets in bankruptcy after wages, taxes, creditors, and preferred shareholders have been paid C) examine the corporation's annual reports and other reports, and take legal action if irregularities are found D) receive all announced dividends in accordance with the number of shares held
Residual right deals with the event of bankruptcy (means they have the right to cali assets in the event of bankruptcy)
Section 28(e) of the Securities and Exchange Act of 1934? (Allowable soft dollar payments?)
Section 28(e) of the Securities Exchange Act of 1934 provides a safe harbor for: 1. research reports 2. Software 3. Services that benefit clients 4. Seminar registration fees Research and brokerage services that may be received by an IA for directing brokerage transactions (directing their (the IA's) clients to use specific BD's)
Under federal law, which act regulates the activities of broker-dealers and associated persons?
The Securities Exchange Act of 1934 regulates (BD and Agents bc they deal w/ the secondary market)
What stockholder's names would be on a registration statement?
Those who are control people owning 10% or more of the company's voting stock. Least like to be civilly liable for false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements as opposed to underwriter of the security, any and every person who has signed the registration statement, every expert who is named in the registration statement
Anyone who represents an issuer in effecting transactions between the underwriter and the issuer: A) must be registered as an administrator. B) must be registered as an agent. C) is excluded from the definition of agent under the Uniform Securities Act. D) must be registered as an investment adviser
When an individual represents an issuer (not a broker-dealer), the Uniform Securities Act provides several exclusions from the definition of an agent. One of those is representing the issuer in an exempt transaction. The transaction between an issuer and the underwriter is one that is considered exempt
When registering a security under the Uniform Securities Act, the registrant does NOT need to indicate?
The effective date It will be 12:00 on the 30th day after filing form ADV
Which of the following would be used to provide end-of-life instructions once a person becomes incapacitated? A) An incapacitated will B) A living trust C) A living will D) A durable power of attorney
The purpose of a living will is to give clear instructions regarding end-of-life decisions, such as organ donation or when to "pull the plug." A living trust deals with how assets are distributed
Equipment trust certificates issued by railroads would be exempt form registration if?
They are not exempt all the time ONLY when they are regulated in the first place by the state or federal government railroads whose rates are not subject to regulation by a state or federal agency would NOT qualify for an exemption under state
One of the exemptions from registration under state and federal law applies to investment advisers to private funds. One characteristic of all private funds is that?
They are not registered as Investment Companies themselves
What happens when an investment advisory employee "steps over the line"?
They would have to register as an IARep
What are the three exemptions from registering as an Investment Adviser Representative (IAR)?
Two exemptions for being a representative of a State- registered adviser 1. De Minimis Exemption: If rep doesn't have a place of business in the state and has 5 or less clients in the past 12 months - do not have to register w/ that state 2. Snowbird Exemption: clients who are living in a specific state temporarily, then the rep does not have to register w/ that state One exemption for being a representative of a Federal- registered adviser 1. Reps only have to register w/ the states where they have a place of business meaning they (office where they go regularly to meet w/ clients or any other location where they give advice/meet w/ clients)
he Uniform Securities Act permits amendments to a registration statement after its effective date so as to change which of the following? A) The public offering price B) Changes may not be made by amendment; filing of a new registration statement is required. C) The underwriter's discounts and commissions D) The number of shares to be offered
USA allows to amend registration as to the # of shares to be offered or sold
An investment adviser representative may share in the profits and losses of a customer's account...
Under NOOOO Circumstances NEVER
A financial ratio used by some analysts to help determine if a company's stock is over or undervalued is A) the quick asset ratio B) the price-to-book-value ratio C) the dividend payout ratio D) the current ratio
Undervalued or overvalued uses the price- to - book- value ratio - it compares the company's market price with its book value per share
When does a BD if ever have to register as an Investment Advisor?
Usually exempt from having to register but would have to if it charges a fee for advice/management
When you hear, "Manipulating the market or market manipulation" you think?
WASH TRADES Selling then rebuying the same security (could be simultaneous) for the purpose of making it seem like theres is a lot of trading going on which will help increase the price
Great Research & Analysis Brokers (GRAB) is an SEC registered broker-dealer with its principal office in State X. One of GRAB's clients vacations for 3 months during the winter in State Y. Under the registration requirements of the Uniform Securities Act, A) the presence of a single client in State Y requires GRAB to register in that state B) GRAB is only permitted to accept unsolicited orders from the client in order to be exempt C) GRAB is not defined as a broker-dealer in State Y due to the de minimis exemption D) GRAB is not defined as a broker-dealer in State Y if it does not have a place of business in the state
WHILE the presence of a single client in another state would require the BD to be registered in that state, IN THE QUESTION it says "the client vacations in state y for 3 months" (SNOWBIRD) so he would be exempt from registration SOOO... D) GRAB would not be defined as a broker-dealer in State Y if it does not have a place of business in the state UNDER USA (state law) Any time a broker dealer doesn't have a place of business in a state, they don't need to register there (any state a BD has a place of business, they would have to register)
An investor purchased a Mosaks, Inc. put option with a strike price of $105. If Mosaks' stock price is $115 at expiration, the value of the put option is
WORTHLESS so 0. It went up and you wanted it to go down
Whippet Bus Lines, Inc., serving most of the country, has just been informed by the Surface Transportation Board of the United States that all of its buses must be retrofitted with expensive safety equipment. The effect of this will be a significant drop in Whippet's net income. If one was an investor in Whippet Bus Lines, Inc., this would be an example of A) business risk B) regulatory risk C) market risk D) country risk
When being informed by a regulatory agency (STB) of changes that would affect a companies cost, income, etc. this is an example of REGULATORY RISK
When may an adviser borrow money from a client?
When the client is either a Broker Dealer, Bank/Other institution who is in the business of lending money or an affiliated person of the adviser (ex: directors, officers)
When does an IA file the consent to service of process form?
With the initial registration and remains on file permanently
Under the Investment Advisers Act of 1940, which of the following would NOT meet the criteria of persons associated with an investment adviser?
Would NOT: An individual whose only function is posting trades to client accounts Would: Person whose only connection to the firm is a member of the BOD, individuals responsible for bringing new clients to an advisory firm, A manager in an investment advisory firm who supervises 5 investment adviser representatives
Can an IA (investment Adviser) pay someone a cash referral fee for getting them a client?
Yes, but ONLY under the IA Act of 1940 NOT the USA (if the IA is federally registered) - It's allowed under the IA Act of 1940 ONLY if a written agreement providing certain disclosures has been entered into between the IA and the 3rd party
Can a person act as both an IA and an IAR?
Yes, this is the case w/ a Sole Proprietorship but a person who acts solely as an IARep cannot be a Investment Adviser (firm) so they are excluded from the definition
REITS are required to distribute ?
at least 90 % of the taxable income that they make
One of your clients invested $10,000 into a mutual fund. The client elected to reinvest all dividends. As a consequence of this, A) the dividends will be taxed as capital gains once the shares are liquidated B) the investor's basis is increased by the amount of the reinvested dividends C) the reinvestments will purchase shares at a discount from the NAV D) taxes are deferred until those shares are redeemed
b. reinvestments are taxed then and there so when shares are liquidated at end of the year, you already paid the taxes
If a client wishes the assets in her account to pass directly to specific beneficiaries after her death, her account should be titled A) JTWROS B) TOD C) testamentary account D) TIC
b. Would have to name under TIC, TOD automatically passes directly
The Wrights live in Texas, where Maria Wright has had an extremely successful cattle business for a number of years. As a very generous person, how much money can Maria give to her spouse, a Canadian citizen, in 2019 without incurring gift tax consequences? A) $100,000 B) Unlimited C) A limited amount because her spouse is not a U.S. citizen D) $15,000
c. That person is a noncitizen and non-citizens and non-citizens have a certain amount before incurring a gift tax
What would not be deemed to be custody under the Uniform Securities Act?
checks made out to 3rd parties are forwarded within 3 business days BUT checks made out to the IA and Deposited within 3 days would be considered custody
Investment Advisors Act of 1940 requires every firm to have a (CCO) Chief Compliance Officer. They are responsible for making sure WHO complies with the firms Code of Ethics ?
employees of the firm (reg. or not), any non-employee reg. w/ the firm
Under the Securities Act of 1933, a registration statement for a security generally becomes effective how many days after it is filed? A) 10 B) 31 C) 20 D) 30
ew Issues registration statement becomes effective 20 days after it is filed unless SEC orders a Delay
Under the USA, an individual is an agent when effecting transactions with an issuer's existing employees if
sales-related compensation is paid
Chinese Wall or Information Barrier?
term used when discussing the prevention of material, non-public info from leaking from one department of the company to another department
Factors supporting a firms fundamental analysis?
the company's competitive position the company's business model P/E Ratios of stock in the DOW the company's management team's quality and experience NOT the company's stock price trend
NET REDEMPTIONS means
when a mutual fund is redeemed more shares being redeemed than shares being sold so when the dollar amount of the shares being redeemed exceeds the dollar amount of the shares being purchased, there would be NET REDEMPTIONS
