Book4 Business practice section

A customer has an individual account. Upon written request, the customer's account statements and confirmations may be sent to the: A. Agent B. Broker-dealer C. State Administrator D. None of the above

d

"Painting the tape" is the: A. illegal practice of effecting wash trades in thinly traded issues in a common trading pool B. illegal practice of matching buyers and sellers who want immediate trade executions C. legal practice of effecting both long sales and short sales subject to the "uptick" rule D. legal practice of taking both a stock and option position on the same "side of the market"

a

A Registered Investment Adviser (RIA) is formed as a partnership. The RIA intends to charge an incentive fee that is based on investment performance. Under NASAA rules, the RIA: A. must be able to show that the fee is fair and reasonable to the State Administrator B. is not permitted to have an incentive fee under any circumstances C. can charge an incentive fee as long as it is included in the partnership agreement D. must offer the customer a fee refund if the performance does not meet the benchmark

a

A broker-dealer holds a sales contest that will award a $3,000 trip to Europe to the registered representative in the firm that sells the highest dollar value of mutual funds during the month of September. Which statement is TRUE? A. The holding of a mutual fund sales contest is permitted under NASAA rules B. The holding of a mutual fund sales contest is only permitted if the customer is offered a sales charge reduction C. The holding of a mutual fund sales contest is prohibited because it violates the Anti-Reciprocal rule D. The holding of a mutual fund sales contest is prohibited unless the winner receives a prize that has educational value about securities

a

A broker-dealer is a syndicate member in a best efforts underwriting of ABC Common stock. The issue is oversubscribed. The broker-dealer may allocate sales of the issue to: I employees of the issuer II employees of the broker-dealer III officers of the issuer IV officers of the broker-dealer A. I and III B. I and IV C. II and III D. II and IV

a

A client of an investment adviser brings his father to a consultation with his investment adviser representative to discuss investment alternatives for the father. The meeting is concluded. Two weeks later, the parent telephones the investment adviser representative, inquiring about the tax status of the client. The investment adviser representative should: A. refuse to disclose any information about the client B. disclose the requested information but communicate the father's request and the response given in a written communication to the client C. disclose the requested information but communicate the father's request and the response given to the investment adviser D. disclose the information

a

A client of an investment adviser representative has enjoyed excellent returns on his portfolio over the past 5 years. The client needs $25,000 of cash, but does not want to sell securities from his portfolio since it is performing so well. He asks the investment adviser representative for a loan, which the investment adviser representative gives. The investment adviser representative is guilty of a: A. fiduciary violation B. churning violation C. selling away violation D. failure to supervise violation

a

A customer has a free credit balance at a broker-dealer. The customer makes a verbal request over the phone that the broker-dealer pay the amount of the balance immediately, in check form. Which statement is TRUE? A. The request should be honored as given B. The broker-dealer cannot honor the request unless it is in writing C. The broker-dealer cannot honor the request unless the customer makes it in person D. The request cannot be honored since free credit balances are not payable to the customer

a

A customer that typically buys NYSE-listed stocks places an order to buy a very thinly traded stock that is quoted only in the Pink Sheets. Because of the extra work involved in handling this transaction, the firm imposes an extra $150 charge in addition to the regular commission. Which statement is TRUE? A. The extra charge must be disclosed to the customer at the time that the order is placed B. The extra charge must be disclosed to the customer no later than on the confirmation of the transaction C. The extra charge must be disclosed to the customer no later than on the next account statement D. There is no requirement to disclose the extra charge

a

A plan trustee is considering making an investment in XYZ stock for a trust that has multiple beneficiaries. Under the provisions of the Uniform Prudent Investor Act, this investment decision must give consideration to the role that this investment plays: A. to the overall portfolio strategy B. to the investment strategy desired by each beneficiary C. on its own merits, regardless of its impact on the overall portfolio D. in meeting the financial needs of the trustee

a

A registered representative wishes to work in his family's bar and grill at nights and on weekends to earn extra money. This work does not conflict with his normal work hours at his member firm. Which statement is TRUE? A. In order to take the outside job, the representative must give written notice to his employer B. No written notice to the employer is required because the representative will be working in a family business C. No written notice to the employer is required because the representative will not be working at the bar and grill during regular business hours D. In order to take the outside job, the representative must give written notice to the State Administrator

a

A registered representative with a broker-dealer sets up a financial planning practice at home to create financial plans for a fee for individuals who are not customers at the broker-dealer. Which statement is TRUE? A. The registered representative has become a "statutory" investment adviser and must register with the State as such B. The registered representative has violated the Investment Advisers Act of 1940, since registered representatives cannot give separate investment advice C. The registered representative must give prior notice to his customers at the broker-dealer of his outside investment advisory practice D. The registered representative may do so without restriction

a

A research report on an issuer CANNOT be published by the underwriter of that issuer's securities for the time period encompassing: I 10 days following the effective date for an initial public offering II 20 days following the effective date for an initial public offering III 3 days following the effective date for a secondary offering IV 5 days following the effective date for a secondary offering A. I and III B. I and IV C. II and III D. II and IV

a

A retired customer, who has an investment objective of high current income and safety of principal, directs an agent to buy 500 shares of an unlisted speculative stock. The agent should: A. inform the customer that the trade is unsuitable and execute the transaction as directed if the customer insists B. refuse the transaction C. refer the customer to the State Administrator D. refer the customer to the Securities and Exchange Commission

a

A written customer complaint is received by mail that the firm resolves to the customer's satisfaction. Which statement is TRUE regarding keeping this record? A. A copy of the original complaint along with its resolution must be retained in the file of the agent by the broker-dealer B. A copy of the original complaint along with its resolution must be retained at the firm's supervisory office C. A copy of the original complaint along with its resolution must be retained by the State Administrator D. There is no requirement to retain a copy of the complaint because it was resolved to the customer's satisfaction

a

All of the following actions would be permitted under the Uniform Securities Act EXCEPT: A. engaging in wash trades for a customer B. engaging in tax swaps for a customer C. omitting facts when making a recommendation to a customer D. recommending unregistered exempt securities to a customer

a

All of the following are defined as investment advisers who have been compensated under SEC Release IA-1092 EXCEPT a(n): A. estate planner receives a fee for setting up an investment trust for a client B. financial planner who receives a fee for providing a master financial plan without rendering specific investment advice C. insurance agent who receives a commission for selling life insurance that was part of an overall financial plan for which there was no charge to the client D. investment newsletter that charges a subscription fee for reports issued on specific securities

a

To get a customer to open an account, an agent tells a client that he will personally visit the client each month to explain that month's investment results. The agent fails to tell the customer that he expects to be transferred to another state in 3 months. Which statement is TRUE? A. This is a prohibited business practice B. This statement is allowed if the agent will arrange for another individual to take over the account when he is transferred C. This statement is acceptable D. This statement must be given to the customer in writing to be acceptable

a

Under IA-1092, to be considered to be "in the business," the rendering of investment advice must be: A. a regular activity of the adviser B. the principal activity of the adviser C. the sole activity of the adviser D. a non-recurring activity of the adviser

a

All of the following are requirements for an internet communication (a website) posted by a broker-dealer, agent, investment adviser or investment adviser representative EXCEPT the communication must A. attempt to effect securities transactions or the rendering of personalized investment advice for compensation in the State B. include a firewall or other implemented procedure to ensure that prior to any subsequent communication with prospective clients in the State, that the broker-dealer, agent, investment adviser, or investment adviser representative are registered in the State, or are exempt or excluded from registration C. include a legend that states that: "The broker-dealer, agent, investment adviser or investment adviser representative may only transact business in the State if registered in the State or if exempted or excluded from registration" D. include a legend that states that: "Follow ups or individualized responses to persons in the State by the broker-dealer agent or investment adviser representative that involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with State registration requirements or an applicable exemption or exclusion."

a

An Investment Adviser Representative (IAR) has been employed by a Registered Investment Adviser (RIA) for the past 12 years and has accumulated $18,000,000 of customer assets under management in accounts for 47 different customers. The IAR has experienced a personal economic decline and has been trading these customer accounts with ever-increasing frequency to generate the commissions necessary to meet his personal debt obligations. Which statements are TRUE? I The IAR has regulatory liability II The IAR has no regulatory liability III The RIA has regulatory liability IV The RIA has no regulatory liability A. I and III B. I and IV C. II and III D. II and IV

a

An agent is prohibited from doing all of the following EXCEPT: A. performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged B. soliciting orders for non-exempt unregistered securities C. effecting transactions in a State where he is not registered, but the broker-dealer is registered D. effecting transactions in a State where the broker-dealer is not registered, but he is registered

a

An agent of a broker-dealer is told by a wealthy, well-connected client that "I just talked to the president of ABCD Corp. (an NYSE listed company) and was told that this quarter's results are going to be lousy." Which statement is TRUE? A. The agent can discuss this phone conversation with his branch manager B. The agent can discuss the phone conversation with his spouse C. The agent can discuss the phone conversation with anyone who is registered as an agent in that State D. The agent cannot discuss this phone conversation with anyone

a

An investment adviser directs its trades to a broker-dealer paying non-discounted rates. In return, the broker-dealer provides the adviser with proprietary investment analysis software that it has developed. This is: I a soft dollar arrangement II a quid pro quo arrangement III permitted under the Uniform Securities Act IV prohibited under the Uniform Securities Act A. I and III B. I and IV C. II and III D. II and IV

a

An investment adviser has determined that ABCD stock would be an appropriate investment for his client, but only if the price falls from the current level of $50 per share to $35 per share. What MUST the adviser do prior to placing an order to buy ABCD stock for the client's account? A. Obtain verbal authority for that specific transaction B. Obtain verbal authority to exercise discretion over the account C. Obtain verbal authority to exercise discretion only over price and time of execution in the account D. Secure an appointment as trustee over the account to formalize the fiduciary relationship

a

An investment adviser has developed 11 different investment strategies that use a combination of fundamental and technical factors to make investment decisions among both equity and fixed income investments. Based on the customer account profile, the adviser then uses one of 7 different algorithms that allocates the client's funds using these 11 investment strategies. The adviser has implemented a fee structure that charges a 1.10% annual management fee on assets invested, plus the adviser charges a fee of .50% of assets annually for use of the algorithms. The adviser provides each client with a flyer covering the adviser's 11 different investment strategies with disclosure of the 1.10% annual management fee. Under the NASAA Rule on Unethical Business Practices of Investment Advisers, this is: A. a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services B. a violation of the prohibition on charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser C. not a violation of the prohibition on charging unreasonable advisory fees, because the management fee was disclosed to the client D. not a violation of the NASAA Rule on Unethical Business Practices of Investment Advisers because the advisory fees are based on assets under management

a

An investment adviser may receive a percentage of gains and losses in a client's account: A. under no circumstances B. only if specifically agreed in writing by both the customer and adviser C. only if a written agreement is approved in advance by the Administrator D. without restriction

a

An investment advisory firm does its own research, using a group of dedicated employees and has a separate staff of investment adviser representatives (IARs) who solicit new accounts. In an effort to maintain confidentiality between the research staff and sales staff, the investment adviser MUST: A. establish a Chinese Wall between the research personnel and the sales personnel B. register both the research personnel and the sales personnel in each State where the IA's services are offered C. cross-train the research personnel and the sales personnel in each other's functions so that in the event of a confidentiality breach, one can take over the functions of the other D. establish two separate IA firms registered with the State with one only having research personnel and the other only having sales personnel

a

Delivery of a prospectus is required if a: I new issue of corporate bonds is being offered to the public II trade in a corporate bond takes place in the secondary market III new issue of government bonds is being offered to the public IV trade of a government bond takes place in the secondary market A. I only B. I and II C. I and III D. I, II, III, IV

a

Under the NASAA Statement of Policy on unethical practices, written discretionary authority need not be obtained by an investment adviser if the customer: (know the difference between bd,ia) A. gives verbal discretionary authority and a written power of attorney from the customer is obtained within 10 days B. selects the security to be traded and the price of execution C. is an insurance company D. effects 5 or fewer trades within a 12 month period

a

Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following information EXCEPT: A. name of market where trade was executed B. person who placed the order C. name of account for which order was entered D. person connected with the Investment Adviser who recommended the transaction to the client

a

Under the Uniform Securities Act, if an agent hears material inside information, the agent: I should not transmit the information to others II should not trade based upon the information III must wait 1 year before trading that security IV must notify the Federal Bureau of Investigation within 1 business day A. I and II B. III and IV C. I, II, III D. I, II, III, IV

a

Which of the following individuals is "in the business" of rendering investment advice under the Investment Advisers Act of 1940? A. A financial planner who advertises as charging no fee for the financial plan and who only takes commissions on recommended trades B. An individual who only advises friends without receiving any compensation C. A registered representative who receives no separate compensation for investment advice D. A professor who teaches a class on investments

a

Which of the following statements is TRUE regarding the compensation of an unlicensed solicitor for referring a customer to an investment adviser? A. A referral fee cannot be paid to an unlicensed solicitor B. A referral fee may be paid to an unlicensed solicitor only if there is a prior written agreement detailing work to be performed and compensation to be paid C. A fixed fee may be paid to an unlicensed solicitor only if the investment adviser is a "federal covered adviser" D. The referral fee can be paid as long as the amount is fair and reasonable

a

Which order is NOT required to be retained as a record by a broker-dealer? A. Subscription order pursuant to a rights offering B. Market-not held order C. Unexecuted order that is subsequently canceled D. Market order that is immediately filled

a

Which statements are TRUE regarding joint accounts? I An order to buy or sell may be accepted from any single account owner II An order to buy or sell can only be accepted from all account owners jointly III An order to draw a check on the account can be made by any single account owner IV An order to draw a check from the account must be made by all of the account owners jointly A. I and III B. I and IV C. II and III D. II and IV

a

All of the following are prohibited manipulative practices under the Uniform Securities Act EXCEPT: A. buying a security on one exchange and simultaneously selling it on another exchange to create the appearance of trading activity B. buying a security on one exchange and simultaneously selling it on another exchange for profit C. executing a trade for a customer at a price that is unrelated to the current market D. executing a trade for a customer without the customer's knowledge

b

All of the following events would result in an advisory contract being considered to have been transferred EXCEPT: A. a majority partner in the advisory firm dies B. a minority partner in an advisory firm sells his interest to another individual C. a controlling block of stock in the investment adviser is sold to another individual D. the contract is pledged as collateral for a loan

b

All of the following information must be recorded on an order ticket EXCEPT: A. Customer name or account number B. Customer address C. Execution price and order size D. Identity of agent accepting the order

b

An agent is contacted by a new client that is moving his account from another broker-dealer because he suffered a large loss. The new customer is 80 years old, has $25,000 of annual income and has $117,000 of equity in his home. The customer's investment portfolio consists of $25,000 in a speculative stock mutual fund. This holding was originally worth $140,000. The BEST recommendation to the customer is to: A. continue to hold the speculative stock fund since it should recover its lost value over time B. sell that fund and buy another fund in the same family of funds C. buy another mutual fund in a different family with better performance D. buy a variable annuity to protect the customer from future losses

b

A Registered Investment Adviser has discretionary control over 50 accounts that range in value from $200,000 to $1,500,000. She receives a free due diligence trip from a real estate limited partnership sponsor to inspect a property in Florida. She is enthusiastic about the investment potential and purchases a $50,000 real estate limited partnership unit in the property for each of her accounts. The RIA disclosed the fact that she received the free trip to each of her customers before making the purchases. Which statement is TRUE? A. This is unethical because taking the free due diligence trip and then buying the partnership units for her clients is a conflict of interest B. This is unethical because the adviser did not determine the suitability of the investment for each account C. This is unethical because the adviser violated her fiduciary responsibility to her clients D. This is an ethical business practice

b

A Registered Investment Adviser is also a registered representative that manages a client's account. The customer is paying a fixed annual advisory fee and is paying a commission for each execution of a recommended trade, both of which have been disclosed to the customer. Which statements are TRUE? I The account may be charged both the advisory fee and a commission on each trade II The account may not be charged an advisory fee and a commission on each trade III This is an unethical practice IV This is not an unethical practice A. I and III B. I and IV C. II and III D. II and IV

b

A block trade is a trade of at least: A. 1,000 shares B. 10,000 shares C. 100,000 shares D. 1,000,000 shares

b

A broker-dealer is offering an IPO to the public that is "hot." The broker-dealer withholds 15% of the shares to set aside for its future use. This action is: A. permitted because broker-dealers have discretion over IPO allocations B. prohibited because the broker-dealer is "free riding and withholding" C. permitted because the broker-dealer takes financial liability when performing an underwriting D. prohibited because the broker-dealer is not allowed to own stock in companies that go public

b

A long-standing customer of a broker-dealer suffered a stroke and is in a coma. Who can place orders in the client's account? A. The son of the incapacitated individual, who recorded a video document 15 years ago giving instructions to allow his son to trade the account B. The ex-wife of the incapacitated individual, who was named in a durable power of attorney signed 15 years ago by the client C. The current wife of the incapacitated individual who was named in a durable power of attorney that that client forgot to sign D. A letter written and signed by the client's spouse, naming the individual who has a durable power of attorney over the account

b

A market maker in ABCD stock is currently quoting the stock in the OTCBB at:$42.00 Bid (500 shares); $43.00 Ask (1,000 shares) If the market maker receives a customer order to sell 800 shares of ABCD at $42.50, the market maker: A. must update its quote to: $42.50 Bid (800 shares); $43.00 Ask (1,000 shares) B. must update its quote to: $42.00 Bid (500 shares); $42.50 Ask (800 shares) C. must send the order to a stock exchange floor for execution D. is not required to take any action

b

A married man opens an individual account at a brokerage firm. The customer places his first trade. The confirmation is received by the customer's wife, who calls the broker and informs him that her husband doesn't have the money to pay for the transaction by settlement date and that the stock should be sold immediately. The agent should: A. liquidate the account immediately B. attempt to contact the customer but otherwise do nothing C. accept the order from the wife D. refer the customer account to the firm's collection department

b

A trade is NOT considered to be discretionary if the representative selects: A. Size and price B. Price and time C. Security and size D. Price and security

b

An agent is selling a new issue of a non-exempt security to a customer. In order to make it easier for the customer to understand the risks of the investment, the agent highlights the "Important Risk Factors" section of the prospectus before giving it to the customer. Which statement is TRUE about this action? A. This action is appropriate because it is in the best interests of the customer B. This action is a violation of the Uniform Securities Act C. This action is only permitted if the changes to the prospectus are approved by the SEC D. This action is only permitted if the prospectus is filed with the Administrator

b

An agent of a broker-dealer "A" has been terminated and is associating with broker-dealer "B." The terminated agent agrees to turn over his clients to another agent at broker-dealer "A" in return for half of the commissions generated by those clients over the following year. This arrangement is: A. permitted because it was negotiated while both agents were working at broker-dealer "A" B. prohibited because during the life of the agreement, the agents will be working at different broker-dealers C. permitted as long as both agents were registered in the same State at the time that the agreement was negotiated D. prohibited because the transfer of a customer account at a broker-dealer from one agent to another requires the written consent of the customer

b

An investment adviser enters into an arrangement with a broker-dealer where the adviser, in return for directing trades to that broker-dealer, will receive payments for order flow. The payment, of one cent for each trade, is conditioned upon the adviser directing a minimum number of trades each month. Which statement is TRUE about this arrangement? A. This is a prohibited practice and violates that adviser's fiduciary responsibility to its clients B. This action on the part of the adviser is permitted only if it is disclosed in the Form ADV Part 2A ("Brochure") given to clients C. This action on the part of the adviser is permitted because it reduces the adviser's operating costs D. This action on the part of the adviser is permitted because it is based on a minimum number of trades occurring each month

b

An investment adviser has a new customer. The investment adviser puts 15% of the customer's funds into a Small Cap mutual fund. The customer objects and says that he wants nothing invested in that fund. What should the investment adviser do? A. Retain the 15% allocation in the Small Cap fund B. Remove the Small Cap fund allocation and attempt to educate the client on the benefits of diversification C. Tell the client that he should trust the adviser's decision since he is an experienced investment professional D. Close the account because the customer is not suitable for investments in stocks

b

An investment adviser is ready to open an account for a new customer. In the advisory contract, the adviser has included a clause that the customer has 48 hours to rescind the contract. The adviser gives the customer the brochure, takes payment from the customer, but forgets to have the customer sign the contract. Which statement is TRUE? A. Even though the customer did not sign the contract, he or she still has 48 hours to rescind the contract B. Even though the customer did not sign the contract, he or she has 5 business days to rescind the contract C. The contract is null and void D. The contract is binding and the customer cannot rescind the contract

b

An investment adviser places large block trades for securities positions that are being purchased for its customers' accounts in order to lower its commission costs. The trades are often executed piecemeal, at different prices. The adviser, after being confirmed that the entire block has been filled, allocates the shares to its accounts. As a favor to its most valuable employees, the adviser allocates the shares purchased at the lowest prices to its employees' accounts; and then allocates the remaining shares to its customer accounts pro-rata. The adviser has disclosed its allocation method only to its employees. Which statement is TRUE? A. The investment adviser has breached its fiduciary duty to its customers because the block order must be executed at one price, not in pieces at differing prices B. The investment adviser has breached its fiduciary duty because it has not disclosed its method of allocating shares to its customers C. The investment adviser has not breached its fiduciary duty because it has disclosed its method of allocating shares to its employees D. The investment adviser has not breached its fiduciary duty to customers because it has obtained trade executions for customers at lower commission costs

b

For an adviser to charge a performance fee, the Investment Advisers Act of 1940 requires which minimum financial standards from customers? I A customer that deposits $1,000,000 or more with the adviser II A customer that deposits $2,100,000 or more with the adviser III A customer with a $1,000,000 or higher net worth IV A customer with a $2,100,000 or higher net worth A. I and III B. I and IV C. II and III D. II and IV

b

Investment advisers are prohibited from doing all of the following EXCEPT: A. assigning a customer's contract without permission B. charging a retainer fee C. charging commissions on trades effected for the client D. changing partnership management without notifying clients

b

Investment advisory contracts must include a: A. power of attorney B. no assignment clause C. consent to service of process D. duplicate copy for the client

b

Joe Jones, the proprietor of Joe Jones Financial Planning Inc., which is registered as an investment adviser in New York State, has decided that he can expand his business by setting up an Internet website. He includes a questionnaire that solicits individuals to transmit information about their investment objective, financial situation, financial needs, risk tolerance level and investment time horizon, which he will use to create a financial model and plan for a fee. Which statement is TRUE? A. Joe Jones Financial Planning Inc. must register with the SEC as an investment adviser, but is not required to register as an investment adviser in each State where customers complete the questionnaire B. Joe Jones Financial Planning Inc. is not required to register with the SEC as an investment adviser, but the firm is required to register as an investment adviser in each State where customers complete the questionnaire C. Joe Jones Financial Planning Inc. is required to register with the SEC as an investment adviser, and the firm is required to register as an investment adviser in each State where customers complete the questionnaire D. Joe Jones Financial Planning Inc.'s current New York State registration is the only requirement

b

Michael Michaelson has an MBA in finance and has taught classes at a local college for the past 15 years. He has decided to use his knowledge and acumen in the private sector and registers in the State as an investment adviser. His business will be creating financial plans and implementing them for clients. Michael requests a waiver from the State Administrator from having to pass the Series 65/66 exam based on his educational and teaching background and receives it. He registers as an IA in the State. He wishes to publish an advertisement for his new business. Michael can state which of the following in the advertisement? A. "Because of my extensive finance background, I have been approved by the State to sell financial plans without having to take the examination required of other advisers" B. "My fee schedule, which is non-negotiable, is comparable to that charged by other advisers that do not have my extensive finance background" C. "As a registered investment adviser in the State, I have been certified to create financial plans" D. "I have 15 years of experience as an investment adviser in the State"

b

Obtaining the 4 critical pieces of information from a customer at account opening is part of the company's policies and procedures covering: A. Privacy of Customer Information B. Anti-Money Laundering C. Cybersecurity D. Business Continuity

b

The CEO of a publicly traded company is a large client of an investment adviser representative. The CEO, who is a member of the prestigious River Rocks Country Club, tells the IAR that he will refer other club members to the IAR if the IAR will give the referred clients a discount, and will give the CEO the same discounted rate. Which statement is TRUE about this situation? A. The IAR is prohibited from giving a group of individuals a discount that is not being offered to all of the IAR's clients B. The IAR can offer the discount as long as the fact that non-club members pay a higher fee is disclosed in the Form ADV Part 2A C. The IAR can offer the discount as long as charges to all of the IAR's customers are fair and reasonable D. The IAR is prohibited from offering the CEO the discount since he or she is an existing client, but can offer the discounted rate to any new clients that belong to the country club

b

Under NASAA rules, a complaint is defined as one received: I in a written letter II by e-mail III verbally over the telephone A. I only B. I and II only C. II and III only D. I, II, III

b

Under NASAA rules, within 120 days of year end, the customer of an investment adviser must receive: A. the investment adviser's audited financial statements B. Form ADV Part 2A if there are material changes C. Form ADV Part 1 D. a written prospectus supplement

b

Under Uniform State Law, advisory contracts: A. must be oral B. must be in writing C. may be either oral or in writing D. may be oral if documented in writing within 10 days of entering into the oral contract

b

What is the best way to ensure that customer account information held at a broker-dealer is not stolen due to cyber theft? A. Require that the customer send a text message to the firm from a registered device before allowing access B. Maintain customer information in a secure website in encrypted form C. Purchase an adequate level of insurance to cover the full range of cyber risks D. Retain third party vendor to evaluate the firm's cyber risks

b

Which of the following information MUST be included on a customer confirmation? I Whether the transaction was solicited or unsolicited II The exchange where the transaction was effected III The customer name and account number IV The price of execution A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

b

Which of the following is (are) violations of the Uniform Securities Act that can result in civil liability? I An investment adviser recommends the purchase of a non-exempt security that was unregistered, even though an exemption is not available II An investment adviser recommends the purchase of an exempt security that was unregistered to a customer III An investment adviser recommends a non-exempt security that is unregistered to a customer after being informed by his manager that the security was registered A. I only B. I and III C. II and III D. I, II, III

b

Which of the following is defined as an investment adviser under the Investment Advisers Act of 1940? (give advice) A. Dealers in U.S. minted gold coins B. Pension consultants C. Broker-dealers in securities D. Managed commodity fund advisers

b

Which of the following is prohibited in an advisory contract under NASAA rules? A. Custody Provision B. Liquidated Damages Provision C. Non-Assignment Provision D. Discretionary Authority Provision

b

Which of the following is the LAST step in opening a new account for a customer? A. Completing the new account form B. Executing the first transaction C. The manager signing new account form D. Completing the order ticket for first order

b

Which statements are TRUE about the use of testimonials in advertising? I Testimonials are permitted in broker-dealer advertising II Testimonials are prohibited in broker-dealer advertising III Testimonials are permitted in investment adviser advertising IV Testimonials are prohibited in investment adviser advertising A. I and III B. I and IV C. II and III D. II and IV

b

Which statements are TRUE regarding joint accounts? I An order may be accepted from any single account owner II An order can only be accepted from all account owners jointly III A check from the account can be drawn to the name of any single account owner IV A check from the account can be drawn only to the name of all of the account owners A. I and III B. I and IV C. II and III D. II and IV

b

Sending out a blanket e-mail that makes recommendations of securities to a list of web addresses by a broker-dealer or agent is: A. permitted only if the securities have been registered in each State B. permitted only if the broker-dealer and agent are registered in each State C. permitted only if the list contains existing customers that have accounts at securities firms D. a prohibited and unethical practice

d

Which of the following are "critical" pieces of information that MUST be collected from a customer to open a new account? I Name/address II Date of Birth III Telephone Number IV Social Security Number A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

c

The Prudent Investor rule prohibits investments in: I Futures II Options III Speculative Stocks A. I only B. I and II C. II and III D. None of the above

d

A Registered Investment Adviser charges a fee to customers based on a percentage of assets under management. The adviser invests customer funds solely in mutual funds that have a sales charge. Which statement is TRUE? A. The only disclosure that the adviser must make to the customer is the asset management fee B. The only disclosure that the adviser must make to the customer is the sales charge C. The adviser must disclose to the customer both the management fee and sales charge to the customer D. The adviser is not required to disclose to the customer neither the management fee nor the sales charge

c

A clearing broker-dealer that makes markets in most NASDAQ securities has decided that holding its trading securities inventory together with its customer's securities positions would result in a substantial cost savings to the firm. As a result, the firm would be able to reduce the amount that it charges its customers for safekeeping of securities. Which statement is TRUE about this action, if taken? A. This action is permitted if the firm can demonstrate that overall costs to customers would be lowered B. This action is called rehypothecation and is prohibited C. This action is called commingling and is prohibited D. This action is permitted without restriction

c

A customer has placed an indication of interest to buy a non-exempt new issue security that is currently in the "quiet period." The customer has been delivered a preliminary prospectus. Once registration is effective, to be confirmed as purchasing the issue, the customer: A. must receive a copy of the final price amendment B. must receive a copy of the registration statement C. must receive a copy of the final prospectus D. is not required to receive any further disclosure documentation

c

A customer has previously signed a durable power of attorney giving his spouse power of attorney over his individual brokerage account. Which statements are TRUE? I The power of attorney continues upon the customer's death II The power of attorney ceases upon the customer's death III The power of attorney continues upon the customer's incapacitation IV The power of attorney ceases upon the customer's incapacitation A. I and III B. I and IV C. II and III D. II and IV

c

A customer holds 52% of ABCD Corp. common stock, a thinly traded stock listed in the OTCBB. The customer wishes to sell 1% of her holding and requests that the broker display her offering quote. Which statement is TRUE? A. The quote cannot be shown since only dealer offerings are listed in the OTCBB B. The dealer cannot enter the quote unless the State Administrator approves C. The dealer can enter the quote only if it is bona-fide D. The dealer can enter the quote without restriction

c

A customer submits a written complaint to your broker-dealer. Later, he changes his mind and asks that the complaint be returned. You should: A. do nothing unless the customer makes a written request B. return the original written complaint to the client C. return a copy of the complaint to the client and retain the original complaint in the firm's files D. return the original complaint to the client and retain a copy of the complaint in the firm's files

c

A customer wishes to make an investment in growth mutual funds for an Individual Retirement Account. All of the following statements by an agent are prohibited EXCEPT: A. "The fund has averaged a 20% annual growth rate in the past and is guaranteed to produce the same growth rate in the future" B. "Last year, the fund paid out dividends of $1.00 per share and capital gains of $.50 per share, for a total income yield of $1.50" C. "The fund yielded 20% last year and is expected to yield the same this year, though the actual yield may be more or less" D. "The fund is registered with the SEC, which has approved of the fund's shares"

c

A married customer who has an individual account dies. The broker who handles the account learns that one of the major holdings in the account is likely to miss its earnings projections and is thus likely to fall sharply in value. The broker should: A. sell the stock immediately B. contact the customer's spouse immediately and get permission to sell the stock C. wait for the appointment of an executor over the account before taking any action D. get approval from the branch manager and then sell the stock

c

A mutual fund is offered with no up-front sales charge and no contingent deferred sales charge. It charges 50 basis points of 12b-1 fees annually. The fund publishes an advertisement stating that: "This is a no-load fund." Which statement is TRUE? A. The statement is true as presented B. This statement is misleading because no-load mutual funds cannot charge 12b-1 fees C. This statement is misleading because a no-load fund cannot charge more than 25 basis points of 12b-1 fees D. This statement is misleading because mutual funds are not permitted to advertise themselves as no-load funds

c

Which of the following are violations of the Uniform Securities Act? I Recommending the purchase of a security from a listing provided by a broker-dealer's research department II Recommending the purchase of a security based on material inside information III Recommending the purchase of a security based on overheard rumors IV Recommending the purchase of a security without fully describing the material facts about the transaction A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

c

A new customer wants to open a discretionary account by initially depositing $20,000 in cash. He signs the authorization form and indicates to an agent that his investment objective is long-term growth. He wishes that the agent immediately invest his money to take advantage of market timing. Which statement is TRUE? A. As long as the customer is an American Citizen born in the United States and this is verified, the agent may invest the money in a manner consistent with the customer's objective B. Once the new account form is approved by the State Administrator, the agent can start investing as long as the investment is consistent with the customer's objective C. The agent should contact her branch manager as cash deposits or withdrawals exceeding $10,000 must be reported to the Department of Treasury D. The agent should contact her State Administrator as amounts exceeding $10,000 must be reported to the Secretary of the State

c

A portfolio manager at an investment advisory firm buys 100,000 shares of ABCD stock in a private placement for his personal account. One year later, the company goes public and the portfolio manager purchases 2,000,000 shares of the IPO for the adviser's customers. This action is a violation known as: A. free riding and withholding B. insider trading C. an undisclosed conflict of interest D. churning the accounts of customers

c

A registered investment adviser that has been growing rapidly would like to borrow funds for the expansion of its corporate offices and to add staff. The adviser would be permitted to borrow from a(n): A. client who has the financial capability of making the loan, as long as the loan is documented in writing and the existence of the loan is disclosed in writing to the adviser's other clients B. a client that meets the definition of an accredited investor under Regulation D C. financial institution that is in the business of making this type of loan D. bank that is also a client of the registered investment adviser

c

A representative is making a presentation to a married couple, ages 77 and 81, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy an equity indexed annuity (EIA). Which statements made by the representative would be misleading and fraudulent? I "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" II "I do not earn any commissions when I sell you an EIA" III "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" IV "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company" A. I and III B. I and II C. I, II, III D. I, II, III, IV

c

A wealthy investor has $400,000 of funds to invest, but will need the money in one year to pay for a house that is currently under construction. Which investment is suitable? A. 30-year U.S. Government bonds B. 20-year AAA rated corporate bonds C. 1-year Treasury securities D. Blue chip stocks

c

All of the following are tests that are considered to determine if one is defined as an "investment adviser" that must register with the SEC EXCEPT whether that person: A. gives advice about securities B. is compensated for giving advice about securities C. has previously been registered with the SEC D. is "in the business" of giving investment advice

c

An Investment Adviser Representative enters into a contract with a new client for advisory services and provides the client with a glossy copy of Form ADV Part 2 (the "Brochure") and the Brochure Supplement. When he gets back to the office, he realizes that he forgot to have the client sign that the Brochure was received. The IAR: A. is not required to do anything because the customer received the Brochure and Brochure Supplement B . must have the customer sign within 48 hours that the Brochure was received C. must have the customer sign the contract and give the customer 5 business days to terminate the contract without penalty D. must rescind the contract immediately

c

An Investment Adviser Representative wishes to set up a blog on the Internet to provide information to interested persons about current Federal and State regulatory events related to investment advisers. Which statement is TRUE about this? A. This action is prohibited under NASAA rules B. This action is permitted because the blog covers regulatory issues and is not promotional C. This action is permitted only if the Investment Adviser Representative obtains permission of the Investment Adviser firm D. This action is permitted only if the Investment Adviser Representative is affiliated with a Federal Covered Adviser

c

An Investment Adviser is screening companies for their investment potential and finds what he believes to be an undiscovered growth stock. The adviser puts in an order to buy 10,000 shares, which is executed in 2-5,000 share purchases at different prices. What is the most appropriate way for the adviser to distribute these shares to his client's accounts? A. The clients that pay the highest advisory fees should get the better-priced shares B. The clients that have the largest accounts should get the better-priced shares C. The shares should be distributed pro-rata across all client accounts D. The shares should be distributed on a random basis across all client accounts

c

An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Representative (IAR) to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be: A. the identification of the business model of the Investment Adviser including size of the firm, types of services provided, and the number of locations B. making provision for the Investment Adviser Representative to notify the clients of the Investment Adviser in the event of business interruption caused by the owner's death or unexpected permanent incapacitation C. making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable D. providing for an appropriate emergency contact person when the investment adviser representative is away on vacation

c

An agent has an individual account for a husband. The husband calls the agent and states that he wishes to open an account in his wife's name and buy 500 shares of PDQ stock. Which statement is TRUE? A. The agent can open the account B. The agent can open the account only if the husband gives authorization C. The agent can open the account only if the wife gives written authorization D. The account cannot be opened unless the wife orally approves

c

Which of the following information MUST be recorded on an unexecuted order ticket where the trade has been canceled? I Time of execution II Time of receipt III Time of cancellation IV Solicited or unsolicited A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

c

An agent of a broker-dealer maintains accounts for immediate family members, including an account for his brother-in-law. The agent is having a bad year, and his brother-in-law offers to lend him $20,000 until things get "better." Which statement is TRUE regarding this offer? A. As long as the loan amount is documented in writing and has a fixed repayment date and fixed interest rate, this is permitted B. As long as the terms of the loan are the same as would be offered in an arm's length transaction by an unaffiliated third party lender, this is permitted C. This offer cannot be accepted because borrowing money from a customer is an unethical business practice D. This offer cannot be accepted because borrowing money from family members that are customers is only permitted from direct family members - not from "in-laws"

c

An agent of a broker-dealer may: I charge a fee for investment advice in addition to any commission charged if a recommendation performs well II not charge a fee for investment advice in addition to any commission charged if a recommendation performs well III charge for clerical services where the charge is not based on performance IV not charge for clerical services A. I and III B. I and IV C. II and III D. II and IV

c

An agent of a broker-dealer wishes to create a website to solicit securities business from customers. Based on each customer's responses to questions asked, appropriate investment recommendations will be made. Which statements are TRUE? I The broker-dealer must review and approve the content of the website II The Administrator must review and approve the content of the website III The broker-dealer must be registered in each State where a customer responds to the website IV The agent must be registered in each State where a customer responds to the website A. I and II B. III and IV C. I, III, IV D. I, II, III, IV

c

An elderly client is visiting an Investment Adviser Representative (IAR) in the IA's office. He tells the IAR that he is going to have major surgery and is concerned about the safety of his stock certificates that he keeps at home in a small fireproof box. The Investment Adviser Representative wishes to help the client out. Which of the following should the IAR NOT do? A. Drive the client to his house to retrieve the stock certificates and then take him to the bank used by the Investment Adviser where the client rents a safe deposit box in the client's name and deposits the securities B. Ask the client for the name of his attorney and then call him to ask for his opinion of what should be done in this situation C. Drive the client to his house to retrieve the stock certificates and then take him to the Investment Adviser's bank and place the certificates in the Investment Adviser's safety deposit box, making sure to write down all of the certificate numbers and other pertinent information D. Drive the client to his house to retrieve the stock certificates and then take him to his bank where the client rents an existing safe deposit box and deposit the securities

c

An investment adviser is considered to be "in the business" of rendering investment advice under SEC Release IA-1092 if: A. advice is rendered on non-exempt securities B. giving advice on securities is one of the businesses of the firm C. the firm advertises its services D. the firm prepares economic reports or analyses

c

An investment adviser is opening that day's mail and receives a check from a customer for $5,000; however there is no payment due from the customer. The customer mailed the check in error. The same day, the investment adviser mails the check back to the customer. Under NASAA rules, the investment adviser:(have 3 business days) I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received A. I and III B. I and IV C. II and III D. II and IV

c

An investment adviser representative prepares financial plans for clients and has been asked by many of them for tax advice. The representative has an undergraduate degree in business and took 1 course in tax law while in school. The investment adviser representative: A. can give tax advice to her clients but cannot accept separate payment for doing so B. can give tax advice to her clients because completing the college tax course makes her qualified to do so C. should refer her clients to a qualified tax preparer D. should refer her clients to the AICPA

c

An investment adviser representative receives a written complaint from a client about the handling of the client's account. Under the NASAA Statement of Policy on unethical practices, which statement is TRUE? A. A copy of the complaint must be filed promptly with the Administrator B. A copy of the complaint must be filed promptly with the SEC C. The complaint must be forwarded to a manager for resolution D. All of the above

c

An investment adviser that claims that it is a "fee only" adviser could NOT be compensated based on: (unbiased) A. a percentage of assets under management B. a flat annual or hourly fee for all work performed C. 12b-1 fees paid by mutual funds D. a performance based fee for wealthy investors

c

An investment adviser's research department is going to issue a report, changing its recommendation from "Buy" to "Hold" on XYZZ stock. The analyst that prepared the report wants to sell his XYZZ holding that he has in his personal account. Which statement is TRUE? A. The analyst can sell the stock immediately prior to the release of the research report without any further action needed B. The analyst can sell the stock immediately prior to the release of the research report if the investment adviser approves in writing C. The analyst is prohibited from selling the stock until the report is released D. The analyst can tell his associates to sell the stock prior to the release of the report

c

If an investment adviser wishes to recommend the purchase of a security to a customer where the adviser personally owns that security, the adviser: A. must dispose of the personal position prior to recommending that security to the customer B. must offer to sell that position personally to the customer C. must disclose this fact to the customer D. is prohibited from making the recommendation

c

In March, an investment adviser wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1st. In order to do this: I the investment adviser must amend the Form ADV filed with the State immediately II the investment adviser must amend the Form ADV filed with the State within 30 days III the adviser's customers must approve of the change by July 1st IV the adviser's customers are not required to approve the change A. I and III B. I and IV C. II and III D. II and IV

c

In which situation is the investment adviser NOT exceeding the authority granted by the customer over the account, assuming that the adviser does not have discretionary authority? A. Upon seeing that the price of a security that the adviser has purchased in 25 client accounts has started to drop precipitously, the adviser liquidates the position so that there is no loss to his clients B. A customer has asked the adviser for a good recommendation and the adviser tells the customer that he will do some research and get back to him. When the adviser calls back the customer with the recommendation, the customer's wife answers the phone and says it is OK to buy that stock, so the adviser follows the wife's instructions C. The adviser has received a note from the customer saying that he will be out of town for 1 week, and that he should take instructions during that time from the customer's attorney. The customer's attorney calls and says that he wants a position sold out of the account and the adviser follows the attorney's instructions D. The manager of a mutual fund in which the adviser has placed all of his clients, is convicted of insider trading and is replaced by a new manager that the adviser does not like. The adviser sells the mutual fund holding and places his clients in another fund that has a similar investment objective

c

Jack Jones has been an IAR with a registered investment adviser for 10 years. He is leaving to start his own advisory business as a sole proprietor. He has hired an advertising firm to create a radio spot for his new firm. The account manager recommends that they use one of his largest clients - the managing partner of a prominent law firm in town - to give a testimonial about Jack. The lawyer agrees and records the following: "I have been a client of Jack Jones for the past 10 years. My investments with Jack have reliably produced superior returns and he has always acted ethically and with integrity." The use of this testimonial in a radio advertisement is: A. permitted since it is being made by a person that is unaffiliated with Jack Jones B. permitted because it is true and not misleading C. prohibited under the provisions of the Investment Advisers Act of 1940 D. prohibited because the lawyer cannot express an opinion on the performance of an investment adviser

c

NASAA Model Rule 502 (c) applies to: A. State registered advisers only to the extent that the conduct is fraudulent or deceptive B. Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive C. State registered advisers and Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive D. Federal covered advisers and State registered advisers only to the extent that the conduct is fraudulent or deceptive

c

The fiduciary engaged in the administration of a trust finds that, under the directions of the trust document, there is a conflict of interest relating to a proposed investment. Under the provisions of the Prudent Investor Act, the fiduciary: A. should do nothing and permit the investment to be made B. is permitted to allow the investment as long as it is made in accordance with the Prudent Investor rule C. should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment D. should not permit the investment, otherwise the fiduciary is subject to liability for breach of fiduciary responsibility

c

Under NASAA rules, advertisement by investment advisers :I can contain testimonials II cannot contain testimonials III can show the performance of previous recommendations IV cannot show the performance of previous recommendations A. I and III B. I and IV C. II and III D. II and IV

c

Under NASAA rules, it is prohibited for an agent to: A. place an order in a customer account after receiving verbal authorization from the customer B. place an order in a customer account from that customer's attorney after receiving a written authorization from the customer C. make a recommendation to a customer without first inquiring about the customer's investment objectives and needs D. accept an unsolicited trade from a customer without first inquiring about the customer's investment objectives and needs

c

Under the NASAA Statement of Policy on unethical practices, third party research reports may: A. not be given to customers B. only be used internally by the investment adviser C. be given to customers if the adviser discloses that the report was not prepared by the advisory firm D. only be given to institutional customers

c

Under the Uniform Securities Act, for an agent to share in the gain and loss of a customer account, which statements are TRUE? I The Administrator must approve the arrangement II The broker-dealer must approve the arrangement III Any sharing percentage must be proportionate to capital contributed IV Any sharing percentage must be based upon a "fairness and reasonableness" test A. I and III B. I and IV C. II and III D. II and IV

c

Under the Uniform Securities Act, which of the following actions by an agent is (are) prohibited during a sales presentation? I Predicting specific future investment results II Omitting non-essential information III Omitting facts that can influence the investment decision A. I only B. II and III only C. I and III only D. I, II, III

c

What constitutes "taking custody" under the NASAA rule for investment advisers? A. An employee of an advisory firm who is given discretionary authority to trade the account by a client B. A client who signs a power of attorney, giving the adviser the right to trade on the client's behalf C. An employee of an advisory firm acting as a trustee for a firm D. An introducing broker-dealer receiving checks made out to the carrying broker-dealer that are to be deposited at a broker-dealer

c

Which State-registered adviser is considered to have taken custody of client funds? A. An adviser that accepts $300 of advisory fees as a prepayment covering the upcoming 5 months B. An adviser that accepts $400 of advisory fees as a prepayment covering the upcoming 4 months C. An adviser that accepts $500 of advisory fees as a prepayment covering the upcoming 6 months D. All of the above

c

Which of the following actions on the part of an agent is unethical in a margin account that does not have a written trading authorization from the customer? The customer directing that the agent: A. buy 1,000 shares of ABCD sometime during that day and the agent executing the trade at the market close that day B. sell short 500 shares of DEF whenever he thinks the time is right and the agent executing the trade at 2:00 PM ET that day C. buy 1,000 shares of a high dividend paying stock as soon as possible and the agent executing the purchase of 1,000 shares of PDQQ 10 minutes later D. sell his entire holding of DEFF stock at whatever the agent thinks is the best price that day and the agent immediately places a market order to sell that is executed 1 minute later

c

Which of the following must be included in an investment advisory contract under NASAA rules? I The fact that prepaid fees will not be returned if the contract is terminated early II The fact that assignment of the contract is only permitted with customer consent III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing fixed income securities may be higher than for managing equity securities A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV

c

Which of the following securities, if purchased by an investment adviser for its own account but not for its client accounts at the same time, is a "red flag" indicator of a potential conflict of interest violation? A. The IA buys index funds for its own account B. The IA buys Treasury Bonds for its own account C. The IA buys an Initial Public Offering for its own account D. The IA buys a money market fund for its own account

c

Which of the following statements is TRUE regarding an investment adviser taking physical custody of a customer's monies or securities? A. An investment adviser is prohibited, by rule, from taking physical custody of a customer's monies or securities B. An investment adviser is permitted to take physical custody of a customer's monies or securities if the adviser notifies the customer that he will take custody C. An investment adviser is permitted to take physical custody of a customer's monies or securities if the Administrator does not prohibit this by rule; and if the adviser notifies the Administrator that he will take custody D. An investment adviser is permitted to take physical custody of a customer's monies or securities if the adviser notifies FINRA that he will take custody

c

Which statement is TRUE? A. The Administrator can require the filing of Internet Communications in electronic form only B. The Administrator can require the filing of Internet Communications in printed form only C. The Administrator can require the filing of Internet Communications in either electronic or printed form D. The Administrator does not have the power to require the filing of Internet Communications

c

Which statement may be made by an agent about a new securities issue that is being registered by qualification? A. "Because this is the most difficult registration process, you are guaranteed that the issue is safe" B. "The Administrator has approved of the offering once registration is effective" C. "The security is being registered in the State" D. "The issue is selling out fast to knowledgeable investors"

c

Which statement(s) is (are) TRUE? I An agent may guarantee a customer account against loss II A broker-dealer may guarantee a customer account against loss III A customer may guarantee another customer account against loss IV An investment adviser may guarantee a customer account against loss A. I and II only B. III and IV only C. III only D. I, II, III, IV

c

n investment adviser representative has discretion over a customer account. Which of the following MUST be guaranteed to the customer? A. Best return B. Preservation of principal C. Custom tailored allocation D. Current income

c

A customer wishes to open a margin account at a broker-dealer. The customer provides all of the necessary information to open the account, but refuses to sign the margin agreement when the agent gives it to the customer. Which statement is the correct course of action to be taken? A. The firm should approve the opening of the account since the customer provided all of the necessary information B. The agent should have the customer sign a waiver, obviating the need for the customer to sign a margin agreement C. The agent should sign the customer's name to the margin agreement, since all of the necessary information has been provided by the customer D. The account cannot be opened because the customer did not sign the margin agreement

d

A firm's market making desk, aware that the firm is about to publish a bullish research report on ABCD stock, purposefully increases its long position in order to satisfy anticipated retail demand. This action is: A. permitted without restriction B. permitted as long as the research report is released within 48 hours of the first trade made to increase the firm's position C. permitted as long as the market listing the stock is notified, in writing, of the impending research report D. prohibited

d

A registered agent effects a trade for a customer "privately" in a transaction that is not recorded on the books of the agent's broker-dealer. Which statement is TRUE? A. This transaction is allowed as long as the agent told the customer that the trade was being done privately B. This transaction is allowed if no commission was taken on the trade C. This transaction is allowed without restriction D. This transaction is a prohibited business practice

d

A registered agent is permitted to share commissions on securities transactions with all of the following EXCEPT: A. the manager of the branch office to which the agent is assigned B. a registered trading assistant who takes orders for the agent C. another registered agent working at the same firm that renders services to the agent's clients D. a personal friend of an existing client that refers new customers to the registered agent

d

A retired 81 year old customer has $36,000 of annual income from a pension and social security. She has no investments other than a fully-paid home worth $120,000. She has just inherited $75,000 that she would like to invest for supplemental monthly income with minimum default risk. The BEST recommendation is for the customer to purchase: A. AAA rated municipal bonds B. a variable annuity C. whole life insurance D. U.S. government bonds

d

All of the following State-registered advisers must file an annual audited financial statement with the Administrator within 120 days of completion of a surprise audit EXCEPT an adviser that: A. accepts $500 or more of prepaid advisory fees, 6 months or more in advance of rendering services B. uses a qualified custodian to hold customer assets C. maintains custody of customer assets D. exercises discretion in customer accounts under a limited power of attorney

d

All of the following are relevant considerations when determining if a customer account has been churned EXCEPT: A. excessive size of transactions in the account B. transactions that are inconsistent with the customer's objective C. excessive frequency of transactions in the account D. transactions that are within the financial resources of the client

d

An IAR has a customer with $1 million under management. The customer is experiencing a cash flow shortfall but does not want to liquidate part of the portfolio because it is performing so well. The client calls the IAR and asks for a short-term loan of $25,000. What should the IAR do? A. The IAR should lend the customer the money because the client has sufficient assets under management to ensure that the loan will be repaid B. The IAR should arrange for the customer to rehypothecate a sufficient amount of securities to a bank to secure the loan C. The IAR should co-sign a loan with the client at a bank D. The IAR should refuse the client's request

d

An adviser is permitted to exercise discretion over a customer account when such trades: A. are not too frequent in the account B. are not too large relative to the amount of capital in the account C. are effected only after new funding is placed in the account D. occur under a written power of attorney

d

An agent of a broker-dealer has hired a sales assistant who is not registered. The sales assistant will answer the telephone, handle customer queries, and perform other clerical duties. All of the following arrangements for compensating the unregistered sales assistant are permitted EXCEPT: A. Hourly wage B. Performance bonus C. Annual salary D. Production bonus

d

An agent of a broker-dealer is opening a new client account. The agent has completed the new account application and the suitability determination. The customer has an investment objective of safety of principal and income. The agent makes an initial recommendation of a conservative blue chip stock with a track record of paying a consistent cash dividend. The customer accepts the recommendation. When must the commission charged on the transaction be disclosed to the customer? A. At the time that the order is placed B. At the time when the order is filled C. At the time when the account is opening D. On the confirmation of the transaction

d

An agent of a broker-dealer recommends a specific stock to a customer and says that the stock will most likely increase in value within the next couple of months. The customer invests in the stock and its market price increases substantially. Which statement is TRUE? A. The agent may accept a bonus based on a percentage of the increase in market value with the specific authorization of the customer B. The agent may accept a bonus based on a percentage of the increase in market value with the specific authorization of the agent's broker-dealer C. Both the customer and the broker-dealer must approve of any increased commission given the agent based on a percentage of the increase in market value D. The only acceptable commission is that which was originally received

d

An agent omits to state material facts which are needed by an investor to make an informed decision. Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, this action is fraudulent if the statements refer to: I U.S. Government bonds II Municipal bonds III Corporate bonds IV Corporate stock A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

d

An agent that is employed by Merrill Lynch believes that the stock of the parent company (Bank of America), which has been trading at new lows on the NYSE, is ready for a rebound. She wants to recommend it to her customers. Which statement is TRUE about doing so? A. This is an unethical business practice and is prohibited B. This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation C. This is permitted only if existence of the relationship is disclosed in writing on the confirmation D. Both Choices B and C above

d

An agent who works for a broker-dealer has a customer who works near-by who frequently comes into the office to get advice in person and place trades. One day, when returning from lunch, she finds a written note from the client stating that he had stopped by to talk and that he would come by later. The note also said that he was very unhappy with the performance of the agent's latest recommendations. Each of these recommendations was made by the agent from the firm's "Recommended List." Which statement is TRUE about this? A. Because the customer is returning later that day to talk, the agent need not take any action until after the face-to-face meeting with the customer B. Because the recommendations were from the firm's "Recommended List," the agent need not take any further action C. Because the note does not meet the definition of a complaint, the agent need not take any further action D. The agent must forward the note to a supervisor for resolution

d

An established customer of yours has a joint account with his wife. While on the phone with you, he discusses a specific NASDAQ stock and wants to buy shares of that stock when it declines to $50 a share or lower. The customer leaves for a 3-week vacation traveling to a third world country where he cannot be contacted. During this time, the stock declines to the level at which the customer wanted to buy the shares. What is an appropriate action to take? A. Buy the stock in the customer's account since he wanted to buy the shares at that price B. Buy the stock in the customer's account as long as the branch manager or compliance officer approves of the transaction C. Buy the stock in your own account and when the customer returns, transfer the shares to his account with his approval D. Attempt to contact the customer's wife, and if this is possible, obtain authorization from her to buy the shares

d

An individual that has not yet passed the appropriate State licensing examination for agent registration in a State would be permitted to: A. accept an unsolicited order from a customer B. make a recommendation to a customer C. make a cold call to a potential client D. report a completed trade to a customer

d

An insurance agent also prepares financial plans for customers for a fee as a sideline. The agent is registered as an investment adviser representative in the State. Which statement is TRUE? A. The insurance agent may say that he is registered with the SEC B. The insurance agent may say that he or she is an investment counsel C. The insurance agent may say that his qualifications as a planner have been certified by the State D. The insurance agent may say that he is registered in the State

d

An investment adviser may be compensated with which of the following? I Wrap fees charged to customers for all services rendered by the adviser II Soft dollars paid by an executing broker to the adviser in return for trades sent to the broker by the adviser III 12b-1 fees paid by a mutual fund to the adviser based on annual net assets IV Commissions paid to an affiliated broker-dealer on trades recommended by the adviser A. I and II B. III and IV C. I, II, III D. I, II, III, IV

d

An investment adviser representative wants to share in the gain and loss of a customer account. Under NASAA rules, this is: A. permitted if the IAR opens a joint account with the customer; contributes capital; and shares in proportion to the capital contributed B. permitted if the Administrator is notified that the Investment Adviser is taking custody C. permitted only if the Investment Adviser does not charge an advisory fee D. prohibited

d

If a broker-dealer is registered with the SEC, and its representatives are registered with the SEC; and if the broker-dealer does not charge separately for advice; then which statement is TRUE? A. Both the individual and the broker-dealer must register with the SEC as an investment adviser representative (IAR) and an investment adviser (IA), respectively B. The individual must register with the SEC as an IAR; the broker-dealer is not required to register with the SEC as an IA C. The individual need not register with the SEC as an IAR; the broker-dealer is required to register with the SEC as an IA D. Neither the individual nor the broker-dealer need register with the SEC as an IAR and an IA, respectively

d

If a customer of a broker-dealer fails to pay for a securities purchase by the 4th business day from trade date, the customer's account must be: A. restricted for 30 days B. frozen for 30 days C. restricted for 90 days D. frozen for 90 days

d

In connection with the sale of an issue to a customer, the agent of a broker-dealer must disclose any material public facts about the issuer if: I by not disclosing the information, the presentation to the customer would be misleading in any material respect II the customer is not an employee or officer of the issuer and therefore is not in a position to have knowledge of these material public facts III the information was disclosed to the agent by the broker-dealer, regardless of the broker-dealer's policies and procedures covering disclosure of information to customers A. I only B. I and II C. II and III D. I, II, III

d

In order for an investment adviser to be compensated with a performance fee, which of the following must be disclosed in writing? I The periods that will be used to measure performance and their significance in the computation of the fee II That the fee arrangement is based on both unrealized appreciation and realized capital gains III The nature and significance of any index used as a comparative measure IV The reason why the adviser believes the use of any comparative index is appropriate. A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

d

Investment advisers may be compensated based on: A. a percentage of capital gains in the account B. the dividends paid in the account C. the appreciation of the securities in the underlying portfolio D. a percentage of the value of all assets under management

d

Regulation SP applies to customer information that is: I Obtained from non-public sources II Obtained directly from the customer III Obtained through examination of the customer IV Obtained through observation of the customer A. I only B. II only C. II, III, IV D. I, II, III, IV

d

Under IA-1092, all of the following persons are considered to "give advice about investing in securities" EXCEPT one who, for compensation: A. prepares financial plans for customers that include investments in stocks, bonds, insurance and real estate B. issues research reports solely relating to mutual fund investments C. advises customers on their selection of an investment adviser D. advises customers on their selection of a broker-dealer

d

Under IA-1092, an investment adviser is defined as a person who: I makes advice about securities his principal activityII makes advice about securities his regular activityIII is compensated directly for services renderedIV is compensated directly or indirectly for services rendered A. I and III B. I and IV C. II and III D. II and IV

d

Under NASAA rules, a customer MUST sign and return the margin agreement: A. prior to placing the first trade in the account B. prior to confirmation of the first trade in the account C. prior to settlement of the first trade in the account D. promptly after the initial transaction in the account

d

Under NASAA rules, which of following are unethical practices when recommending a mutual fund to a customer? I Recommending a letter of intent if the customer does not have the immediate funds to reach a breakpoint II Not disclosing to a customer the sales charge discount if a purchase is made at the breakpoint level III Not disclosing to a customer that dividends can be automatically reinvested without any sales charge imposed IV Recommending the purchase of shares which results in the customer simultaneously holding shares in different investment company portfolios with similar investment objectives A. I and III B. I and IV C. II and III D. II and IV

d

Under the Investment Advisers Act of 1940, to determine if a person is "in the business" of giving investment advice, which of the following statements are TRUE? I The individual regularly gives advice on securities II The advice is rendered about securities III The individual receives compensation for giving advice on securities A. I only B. I and III only C. II and III only D. I, II, III

d

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, all of the following are prohibited business practices EXCEPT: A. being deliberately selective in the information told to a customer B. giving inaccurate statements about an issuer's projected earnings C. telling a customer that a company is about to be listed on the New York Stock Exchange without knowing the truth of the statement D. telling a customer that a listed security being recommended is registered with the Securities and Exchange Commission

d

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following practices is (are) prohibited? A. Guaranteeing a customer against loss for non-exempt securities B. Guaranteeing a customer against loss for exempt securities C. Borrowing money from a customer D. All of the above

d

Under the NASAA Statement of Policy on unethical practices, the release of customer information to which of the following would be "unethical"? A. Securities and Exchange Commission B. Internal Revenue Service C. Self-Regulatory Organizations D. Registered broker-dealers

d

Under the Prudent Investor Act, a trustee's investment and management decisions should be evaluated: I based on each individual transaction II based on the context of the portfolio as a whole III as part of the investment strategy of each single trust beneficiary IV as part of the overall investment strategy for all beneficiaries of the trust A. I and III B. I and IV C. II and III D. II and IV

d

Which State-registered investment advisers MUST report that they take custody on Form ADV? I An adviser that is affiliated with a parent bank or trust company II An adviser that directly deducts management fees each quarter from client accounts III An adviser that has discretionary authority over client accounts under a limited power of attorney IV An adviser that acts as a trustee for a client where the grantor of the trust is the client A. I and III B. I and IV C. II and III D. II and IV

d

Which of the following are investment adviser conflicts of interest that MUST be disclosed to a client? I The adviser is a general partner in a limited partnership investment that he is recommending to his customers II The adviser is compensated by the broker-dealer to whom he directs the customers' portfolio trades III The adviser owns a stock that he is recommending to customers in his personal account IV The adviser will only take customers that have been referred to it by broker-dealers to whom he pays a referral fee A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

d

Which of the following are required to have anti-money laundering programs? I Broker-dealers II Federal covered advisers III State-registered advisers A. I only B. I and II only C. II and III only D. I, II, III

d

Which of the following is (are) prohibited in a margin account? I A customer buying a security without the intention to pay on settlement II A customer selling a security without the intention to deliver on settlement III A customer selling short a security that cannot be borrowed and delivered on settlement A. I only B. I and II C. II and III D. I, II, III

d

Which of the following is NOT a qualified custodian under NASAA rules? A. FDIC Insured Bank B. Registered Broker-Dealer C. Foreign Financial Institution D. National Securities Clearing Corporation

d

Which order for a customer's account can be accepted by an agent of a broker-dealer? A. The order is placed by the customer's attorney, who assures the agent that the customer has given him trading authority B. The order is placed by the customer's accountant, who recommended the security to the customer C. The order is placed by the customer's attorney in an account where the customer is deceased, and the attorney provides a written power of attorney signed by the deceased customer D. The order is placed by the customer's attorney in an account where the customer is deceased, and the attorney provides a written copy of the will appointing the attorney as executor over the estate

d

Which statement CAN be made to a customer under the provisions of the Uniform Securities Act? A. "If you purchase 20 year 6% Treasury Bonds at par, you are guaranteed to earn a 6% yield on the investment" B. "You should buy ABCD common stock now at $20 per share because it will go up to $35 per share once it publishes its next quarterly earnings report" C. "This REIT pays a 4% dividend. Buying it now means that you will receive the next scheduled dividend payment that will be made in 1 week" D. "Your investment portfolio needs to be rebalanced - you have appreciated stocks that should be sold, with the proceeds invested in long term corporate bonds"

d