Simulated Exams

When it comes to advertising by investment advisers and their representatives, which of the following would be most likely to be acceptable to the Administrator?

A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child.

Which of the following persons are NOT excluded from the definition of, or exempt from registration as, a broker-dealer under the USA?

A broker-dealer with no office in the state that has no more than 5 retail clients resident in the state within a 12 month period (No de minimis exemption for broker-dealers.)

If Somerville Discount Securities has its principal office in New Jersey and recently registered a branch office in Minnesota, which of the following statements is TRUE?

Each agent must be registered in the appropriate state before soliciting or taking orders.

Unless qualifying for an exemption, which of the following advisory fee structures is NOT allowed under the USA?

Fees based on a percentage of the change in value of funds from quarter to quarter (unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited.)

Which of the following are NOT included in the definition of an agent in the USA? I. A licensed broker-dealer II. An officer of an issuer who only represents the issuer in selling shares to a broker-dealer underwriting the company's securities III. An officer who represents an issuer of non-exempt securities in the sale of those securities to the public without receiving any compensation IV. An employee of a broker-dealer whose only transactions are with institutional clients

I and II (An officer - or any other employee - of a company who represents her company in transactions with an underwriter is not included in the term "agent" because the transaction is exempt. In the case of those individuals, officer or not, who represent a nonexempt issuer, registration as an agent is always required unless the transaction is exempt. Compensation is only a factor when selling the issuers securities to employees.)

Under the USA, requirements for registration may include which of the following? I. An announcement of the application for registration in one or more newspapers in the state II. Minimum capital requirements for broker-dealers who do not have custody of client securities or funds III. A surety bond for agents who have custody of client securities or funds

I and II (The Administrator may require a bond only of persons who have custody or discretion; Agents may never have custody, only broker-dealers and investment advisers are permitted to do so.)

Under the USA, the term agent would include an individual who I. sells exempt securities on behalf of a broker-dealer in an exempt transaction II. sells nonexempt securities on behalf of a broker-dealer in an exempt transaction III. sells securities on behalf of an issuer in an exempt transaction IV. sells revenue bonds as a representative of the city water authority

I and II (those who sell on behalf of an issuer are excluded from the definition under certain circumstances. if the transaction is exempt or the securities is one of a specified group of exempt securities, such as municipal bonds (general obligation or revenue), the individual is not defined as an agent under the USA.)

All of the following are investment adviser representatives EXCEPT I. a receptionist/switchboard operator employed by ABD Advisers, Inc. II. an account representative employed by ABD Advisers, Inc. III. a vice president of ABD Advisers, Inc., who serves on the firm's advisory committee IV. ABD Advisers, Inc. V. an employee who solicits new customers for ABD Advisers, Inc.

I and IV

A state Administrator may require an applicant for registration to do which of the following? I. Furnish information about any SEC adjudications in the past II. Pay a registration fee III. Pass a qualification exam IV. Place an advertisement in one or more newspapers circulated in the state.

I, II, III, and IV

The term "sale" includes which of the following? I. A contract of sale II. A contract to sell III. The disposition for value of an interest in a security IV. A warrant (for common stock of the issuer) given with the purchase of a bond

I, II, III, and IV

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 I. expose yourself and your employer to disciplinary action by State Z II. expose yourself to a possible fine III. may obligate your broker-dealer to offer your client the right to rescind the sale IV. may have your registration in State Y revoked

I, II, III, and IV (agents must be registered in each state the selling or offering to sell securities unless an exemption is available. Failure to do so exposes the agent and the broker-dealer to fines and possible disciplinary action. In addition, the individual could have his registration revoked where he is registered, and the broker-dealer could be required to offer customers the right to rescind any securities transactions.)

An investment adviser representative may perform which of the following functions? I. solicit for advisory business II. manage advisory accounts III. earn commissions on sales of recommended securities IV. supervise those who render advice

I, II, and IV (an IAR may not earn commission on the sale of securities unless also registered as an agent.)

Under the USA, which of the following are NOT considered investment advisers or investment adviser representatives in this state? I. An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. II. United Trust Company of America III. An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management IV. An investment adviser with no office in the state that does business with other investment advisers located in the state

II and IV

Which of the following statements is (are) TRUE? I. A person with a place of business in the state who transacts business exclusively for the accounts of banks and savings institutions is not a broker-dealer under the USA. II. A person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 who offers investment advice to individual investors residing in this state, and has less than $100 million in aum, is subject to the jurisdiction of the state Administrator. III. A person required to register as an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular business headquartered in this state, may be subject to notice filing fees required by the state Administrator. IV. Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration.

III and IV (any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a federal covered adviser. therefore, regardless of the amount of money under management, the state has no jurisdiction.)

Nobody Walks Motor Company, a licensed automobile dealer, is running a promotion offering anyone who purchases a car over the weekend to receive $1,000 corporate bond at no additional cost. Under the USA, in order to make this offer

Nobody Walks Motor Company must be registered as a broker-dealer in the state

A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?

Options

Under the USA, which of the following is considered a broker-dealer in a state?

XYZ broker-dealer with an office in the state whose only clients are insurance companies

When discussing cybersecurity, the term "covered adviser" refers to

a personal or family account for which the firm must provide data protection

An agent is making a presentation of a mutual fund to a client. In order that the client better understand the risks and expenses involved, the agent takes a yellow highlighter and uses it to mark the most important information in the prospectus. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practice of Broker-Dealers and Agents, this is

a prohibited practice because no markings may ever be made on a prospectus

A state securities Administrator does NOT require the filing of

advertising and sales literature relating to the sale of exempt securities (a state securities Administrator may require the filing of advertising and sales literature relating to the sale of nonexempt securities, financial reports from broker-dealers and investment advisers, and pamphlets and marketing letters used by broker-dealers in an attempt to increase their business.)

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

advisory fees (3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers)

Consent of the client before completion of a trade made between the firm and a client must be made when

an investment adviser will be acting in the capacity of principal (in those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the clients before commotion of the transaction is required. In the case of broker-dealers, disclosure of capacity, (acting as a broker (agency) or dealer (principal)) on the trade confirmation, but not consent, is needed.)

You inform a customer that you are not allowed to solicit an order for a stock but will accept that customer's buy order if placed. This is

an offer to sell (the term "offer" is the solicitation of an offer. the agent is soliciting an offer from the customer to buy a security)

Under the USA, an investment adviser's current clients must be delivered a brochure

annually whether or not the adviser has custody or discretion

All of the following are unethical business practices for an investment adviser representative EXCEPT

borrowing money or securities from a client who is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds.

Traditionally, banks have been excluded from the definition of a broker-dealer. However, under recent federal legislation, a bank is included in the definition if it

bought and sold securities on behalf of customers in a wholly owned brokerage subsidiary

When an agent is discussing possible discounts related to the purchase of mutual fund shares, she would be referring to

breakpoints (One of the requirements under the Policy is to inform clients of reduced sales charges available when reaching a breakpoint.)

If an incorporated entity sells nonexempt securities to public customers, receives a commission on the sale of the securities, and pays commissions to the employees who sell them, according to the USA, the corporation is a

broker-dealer that must be registered

According to the USA, market manipulation includes all of the following EXCEPT

buying on one exchange and selling on another (Buying on one exchange and selling on another is called arbitrage.)

The USA is designed to protect the general public and not restrict investment activities of institution or professional investors. A transaction between a broker-dealer and any of the following would be considered exempt from the registration and advertising filing requirements of the USA EXCEPT

chief executive officers of companies listed on the NYSE

An individual functioning as an investment adviser representative for a federal covered adviser, with no place of business in this state, would be required to register in this state if

he conducts frequents public seminars in the state

In conducting investigations, the Administrator may NOT

make investigations outside the state to determine whether violations of the USA have occurred in that other state. (he is not authorized to conduct investigations in other states to determine whether a violation of the USA has occurred in those states.)

Your client maintains a small cash account at the firm. One typical broker-dealer fee that would not be charged to this client is

margin interest on the debit balance (in a cash account, you can't have margin activity, so there can't be a margin interest charge.)

First Securities Advisers, Inc., a subsidiary of First Securities Broker-Dealers, Inc., requires customers to have a minimum of $250,000 under management and charges them 1% in advisory fees based on the amount of assets in their account. Clients also pay commissions for securities transactions in their accounts at First Securities Broker-Dealers, Inc. First Securities Advisers, Inc., has

not violated the prohibition against performance fees (has no violated the prohibition against charging performance fees because it did not base its fees on a share of capital gains or losses in their clients' account. First Securities charged on the basis of assets under management.)

It would not be a prohibited practice under the USA for an agent to tell a client that

registered nonexempt securities may properly be sold in the state

In order for a security to lawfully be sold or offered under the USA, it must meet at least one of the following requirements EXCEPT that it is

registered with the SEC

If it is in the public interest, under the USA, an agent's registration may be suspended by the Administrator for all of the following reasons EXCEPT

the agent is accused of violations of the anti-fraud provisions of the USA (an accusation is not grounds for suspension, unlike convictions, court injunctions, and lack of supervision.)

An issuer employs its officers and directors to sell newly issued shares of the company to the public. To comply with the USA, the officers and directors would have to be registered as agents of

the issuer (unless something in the question indicates that the securities being issuer are exempt, employees, including officers and directors, who sell shares of their companies to the public fall under the definition of agent under the USA.)

An investment adviser may not have custody of a customer's funds and securities under the USA if

there is a rule in the state barring such custody

An agent has a good customer with a margin account who informs the agent that he is taking a business trip for a month and to handle the account. While the customer is gone, if the stock market goes down and the customer receives a margin call for $1,200, the agent shoul

try to make contact with the customer and, failing that, inform his principal and do nothing until instructed

An individual who has applied for registration as an agent of a broker-dealer has just passed the Series 63 exam. This individual may begin soliciting brokerage clients

when informed by the broker-dealer that the agent's registration is effective.

If an agent chooses to appeal and Administrator's order, the agent must file for review of the order with the appropriate court

within 60 days of order entry