Exam 5&6

Among the characteristics of leveraged exchange-traded funds is that A) leveraged ETFs generally obtain the leverage through bank borrowing B) they can only be sold to accredited investors C) they are generally suitable for investors with a long time horizon D) leveraged ETFs may be purchased on margin

D.

Which of the following statements is TRUE concerning variable life separate account valuation? A) Unit values are computed weekly and cash values are computed monthly. B) Unit values are computed monthly and cash values are computed daily. C) Unit values are computed monthly and cash values are computed weekly. D) Unit values are computed daily and cash values are computed monthly.

D.

Which of these features are common to both variable annuities and scheduled premium variable life insurance? 1. Income earned in the separate account is tax deferred. 2. Separate account performance below the AIR causes a reduction in cash value. 3. Fixed contributions are required. 4. Contract owners have voting rights.

1&4. All variable products offer tax deferral of earnings in the separate account. Unit holders of a variable annuity vote on the basis of the number of units they own; holders of variable life insurance receive 1 vote for each $100 of cash value. With variable life insurance, AIR applies only to the death benefit, not to cash value. U15LO7

The powers of the Administrator include the ability to determine A) surety bond requirements for investment advisers who do not exercise discretion or maintain custody B) minimum net worth requirements for investment advisers C) minimum net worth requirements for agents who exercise discretion D) maximum net capital requirements for broker-dealers

B. The Administrator can determine minimum, not maximum, net capital for broker-dealers (but not in excess of SEC requirements) and, for investment advisers, net worth. If the investment adviser does not exercise discretion (or maintain custody), no surety bond is required. Agents who exercise discretion may need a surety bond, but not a minimum net worth. U1LO5

XYZ Securities, Inc., is a broker-dealer registered in the states of Alabama, Tennessee, Georgia, and Florida. The home office is in Birmingham, with branches in Nashville and Atlanta. One of their clients living in Miami feels that his Nashville-based agent has been churning the account. If a complaint is filed, which Administrator would have jurisdiction? Alabama Florida Georgia Tennessee

Florida and Tennessee. The Administrator in the state of residence of the client would certainly have jurisdiction. It is also likely that the Administrator in the state where the agent is located would also have jurisdiction because all offers were being made from Nashville. The fact that the home office is in Alabama does not enter into the discussion. U5LO1

As a fiduciary, the investment adviser representative owes his clients an affirmative duty of utmost good faith, and full and fair disclosure of all material facts. This affirmative duty of disclosure is required by the IAR in all of the following situations EXCEPT A) his family has a beneficial interest in a private medical equipment firm that he recommends to the client B) he has donated funds to a nonprofit medical research institute that owns securities that the investment adviser representative has recommended C) he receives compensation from his employing broker for transactions that are executed through the brokerage house D) the advice he is providing is outside the scope of his brokerage employment and is not under the control or supervision of his employer

The investment adviser representative need not disclose that he donated funds to a nonprofit research institute. No conflict of interest is present that requires an affirmative duty to disclose. The fact that the institute owns securities consistent with the IAR's recommendations is not relevant to his relationship with his client. The IAR has an affirmative duty to disclose all material facts in all the other choices. U6LO1

Lena died at the age of 50 with $100,000 in her traditional IRA account. In addition to income taxes due on the distribution, her beneficiary, who is 52, will have to pay a premature distribution penalty tax of how much? A) $0 B) $10,000 C) $15,000 D) $6,000

The premature distribution penalty does not apply if the distribution is made after the death of the account owner, regardless of the age of the owner or the beneficiary. U24LO1

Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except A) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. B) changes to the fee schedule must be announced in advance. C) it must be up-to-date. D) changes to the fee schedule may be shown on the firm's website.

There is no requirement that the fee schedule be filed with the Administrator. It must be up-to-date and any changes must be announced in advance (usually a minimum of 30 days). There are a number of ways to disclose the fees, the firm's website is one of them. U6LO1

An investment adviser wishes to engage the services of a third party to solicit new clients for the firm. To be in compliance with the Investment Advisers Act of 1940, 1. the solicitor must be registered as an IAR 2. compensation may not be sales related 3. the solicitor must not be subject to statutory disqualification 4. disclosure of the solicitation arrangement must be made to clients upon request

Third-party solicitors are not required to be registered as IARs and therefore may not receive sales-related compensation. However, they must not be subject to statutory disqualification that would prevent them from becoming registered. Disclosure is necessary, whether or not it is requested. U7LO1