Practice Questions
Which of the following persons, natural or corporate, fall under the definition of a broker/dealer under the Uniform Securities Act?
A corporation that sells interests in an oil and gas limited partnership to qualified investors
All of the following are defined as securities except A) a commodity futures contract. B) variable annuities. C) voting trust certificates. D) options on the S&P 500 Index.
A) a commodity futures contract Explanation: Under the USA, commodities futures contracts are excluded from the definition of a security. Options contracts, regardless of the underlying asset, are considered securities.
_______ means any individual other than a broker-dealer who represents a BD or issuer in effecting or attempting to effect purchases or sales of securities
Agent
___, ___, and ____ (which include credit unions, savings and loans, and thrifts), are specifically excluded from the definition of a broker-dealer.
Agents, issuers, and commercial banks
Under the Uniform Securities Act, which of the following fits the definition of a sale? A) Issuing a prospectus B) A contract to dispose of a security for value C) An attempt to dispose of a security for value D) A solicitation of an offer to buy a security for value
B) a contract to dispose of a security for value
________ is defined as excessive activity in a customer's account for the purpose of generating commissions.
Churning
State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) Economist whose advice is strictly incidental to her professional activity B) Broker-dealer receiving special compensation C) A wholly owned subsidiary of a commercial bank that is in the business of offering investment advice D) Investment adviser representative
D) investment adviser representative Explanation: The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.
Promising Future Retirement Success (PFRS) is a state-registered investment adviser whose only activity is sponsoring wrap fee accounts. In line with the NASAA Model Rule on investment adviser brochures, PFRS shall deliver a copy of its
Form ADV Part 2A Appendix 1 wrap fee brochure to or concurrently with the initial entry into an advisory agreement
Federal covered securities I. are exempt from registration under the Uniform Securities Act. II. are nonexempt from registration under the Uniform Securities Act. III. can be required to pay state filing fees. IV. cannot be required to pay state filing fees.
I and III Explanation: Federal covered securities are exempt from registration under the USA. However, issuers of federal covered securities may be required to pay state filing fees in the states where they are sold and are subject to the antifraud provisions of the USA.
Broker-dealers and their agents can have their licenses suspended or revoked for engaging in business practices in violation of NASAA's policy statements on unethical and prohibited practices. Which of the following activities would NASAA consider an unethical or prohibited practice? I. Hypothecating a customer's securities in a margin account without written consent from the customer II. Exercising discretionary power and effecting securities transactions within the first 10 business days of a customer's account with verbal authority from the customer III. Charging unreasonable fees or commissions for brokerage execution services IV. Retaining an insufficient number of clerical personnel to handle current customer transactional activities
I, II, III Explanation: IA and IARs have 10 business days upon account opening to exercise discretionary power obtained verbally from the customer. After 10 business days a IA or IAR must obtain written discretionary authority from the customer.
Persons not included in the Uniform Securities Act's definition of broker-dealer are I. agents. II. banks. III. issuers. IV. trust companies.
I, II, III, and IV Explanation: Agents represent broker-dealers; they are not BDs. Banks, savings institutions, and trust companies are specifically excluded from the definition. Issuers of securities, such as governments and corporations, are not defined as BDs. Please note that a bank subsidiary engaged in BD functions will generally be defined as a BD and need to register as such.
Under the Uniform Securities Act, the term institutional investor includes I. a depository institution. II. an insurance company. III. an investment company as defined in the Investment Company Act of 1940. IV. a broker-dealer registered under the Securities Exchange Act of 1934.
I, II, III, and IV Explanation: Under the USA, depository institutions, international banks, insurance companies, investment companies as defined in the Investment Company Act of 1940, and broker-dealers are all included in the definition of institutional investor.
An investment adviser representative may perform which of the following functions? I. Solicit for advisory business. II. Manage advisory accounts. III. Earn commissions on sales of recommended securities. IV. Supervise those who render advice.
I, II, IV Explanation: An IAR may not earn commissions on the sale of securities unless also registered as an agent.
Under the provisions of the Uniform Securities Act, securities exempt from registration requirements include I. securities issued by the U.S. government. II. securities issued by a building and loan association organized under the laws of any state and authorized to do business in this state. III. bonds issued by an insurance company organized under the laws of any state and authorized to do business in this state.
I, II, and III
Registered agents employed with a broker/dealer registered in California regularly mail sales material to 4 clients in Oregon. The California broker/dealer I. need not register in Oregon until it has 5 or more clients in Oregon II. must register in California III. must register in Oregon IV. must register in all states from which it receives any mail from clients
II and III Explanation: Broker-dealers are required to register in the state if they have an office in the state or if they have a single resident client in the state, without exception. Note that Investment Advisers can avoid registration in a state if they do not have an office in the state and have fewer than 6 retail clients in a given year
Which of the following are exempt from state registration? I. A bond issued by the city of San Jose, Costa Rica II. An isolated nonissuer transaction III. A transaction by an administrator of an estate IV. A transaction with no commissions, directed by the offeror over the period of one year, to no more than 50 retail investors in the state who buy the security for investment purposes only
II and III Explanation: Isolated nonissuer transactions and transactions by an administrator of an estate are included in the list of exempt transactions. With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities. Perhaps you read too quickly and thought it was San Jose, California (which would be exempt). There is a limited-offering exemption, but it is limited to no more than 10 retail (noninstitutional) investors in a 12-month period.
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following are prohibited practices? I. Short sales II. Commingling funds III. Churning
III and III Short selling is a legitimate trading technique. Comingling and churning are prohibited.
Advisers with $110 million or more in assets under management must register with the ____.
SEC
Advisers with less than $100 million in assets under management may NOT register with the ___ and must register at the _____ level.
SEC: state
Investment advisers who manage at least $100 million but less than $110 million may register with either the ___ or _____ _____
SEC; state adminstrator
(T/F) Agents are allowed to share profits in a customer account under certain circumstances with the client's and firm's permission.
T
Under the Uniform Prudent Investor Act (UPIA), there are many legal responsibilities carried out by a trustee on behalf of a trust. Which of the following is NOT a responsibility typically associated with a trustee?
The implementation of an investment program to ensure that all assets within the trust deliver positive returns every year for its beneficiaries.
In general, it could be said that an investor is exposed to the greatest potential risk of loss when maintaining
a margin account Explanation: Of the accounts listed, the only one for which customers must receive a risk disclosure document before trading in the account is the margin account. Using leverage always increases the potential risk.
A customer of a broker-dealer viewing a trade confirmation notices that there was a commission subtracted from the proceeds of the sale of her stock. This tells the customer that the broker-dealer
acted in an agency capacity
Under the Uniform Securities Act, violations of the act may result in all of the following except
an arrest being made by the Administrator Explanation: The Administrator has the power to impose or ask a court to impose any of the items shown but does not have the authority to arrest anyone.
Securities traded on OTC Link (are / are not) designated as federal covered.
are NOT
As an agent of a registered broker-dealer, one of the benefits of selling a security registered with the Administrator is
being able to deliver a prospectus containing the information an investor needs to make the investment decision Explanation: When a security is registered with the Administrator, the customer is supplied with a prospectus containing the material information. It would be like taking this exam open-book, where the answer to almost every question that comes up is right there. The Administrator never approves or disapproves of a registration statement. There are many reasons why a customer might file a civil suit that have nothing to do with the registration of a security. Registration of a security in a state, or lack thereof, has nothing to do with the requirement for an agent to register in that state.
In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under current regulations, this activity requires written
disclosure to the client and consent prior to completion of the transaction Explanation: Unlike broker-dealers, investment advisers must obtain the consent of and make written disclosure to the client of the intent to act as agent or principal in any transaction with that advisory client. SEC Release IA-1732 requires that this be accomplished before the completion of the transaction, where completion is defined as the settlement date. The client consent may be oral or written.
With these types of orders, the client will indicate the name of the security (asset), the number of shares or units, and the specific action (buy or sell). If any of these variables are not indicated by the client, leaving the agent to choose them on the client's behalf, these would be examples of '________ ' orders, and the agent would need a _________ from the client in order to execute these types of orders.
discretionary; POA (power of attorney)
Customers (do / do not) have to complete (sign) the options agreement prior to entering an order. Under current rules, the agreement must be signed and returned by the customer within __days of account approval.
do not; 15
A broker-dealer must provide a risk disclosure document to a customer before opening which of the following accounts?
margin
A new client is opening a retail account with an agent of Broker-dealer Z. The client has many years of investing experience and indicates during the account opening process that he will be placing orders for particular securities on a regular basis, but may on occasion not specifically indicate the price and/or time at which his trades should be executed. When the agent accepts these orders, where the price or time has not been specified, the agent should
mark the order as 'not held' and submit the order for approval in the conventional manner.
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, when a dealer makes an offer to sell, the dealer
must be prepared to sell at that price.
On the Series 63 exam, in most cases, solicitors
must be registered as investment adviser representatives Explanation: Solicitors are persons who refer business to investment advisers. As such, because they are paid by those IAs, in general, they are registered as IARs. Because they refer to IAs, they themselves are not IAs or agents.
If an agent fails to inform a client that a company whose security he is selling is changing the investment managers of its employees' pension plan, under the Uniform Securities Act, this omission constitutes
no violation Explanation: No violation occurred because the Uniform Securities Act requires the disclosure of only material facts. Material facts are those that could influence the price of a security. Changing investment managers on a pension plan would not affect the price of a stock and is not material to the investment decision.
when a client will not specify the price/time of the desired trade, this is an example of a ______
not-held order
Which of the following types of compensation is an investment adviser prohibited from accepting?
quarterly fee based on account performance Explanation: Fixed annual fees, wrap fees, fees based on a percentage of assets under management, and commissions from trades effected for clients are acceptable forms of compensation. Unless the question specifically refers to the conditions under which performance-based compensation is permitted, assume it is not.
A broker-dealer would most likely hire an agent to
sell securities to clients Explanation: They are not there to do marketing or handle recordkeeping. Soliciting for advisory clients would be done by an investment adviser representative, not an agent.
Which of the following are not included in the definition of an agent in the Uniform Securities Act? I. A licensed broker-dealer II. An officer of an issuer who only represents the issuer in selling shares to a broker-dealer underwriting the company's securities III. An officer who represents an issuer of non-exempt securities in the sale of those securities to the public without receiving any compensation IV. An employee of a broker-dealer whose only transactions are with institutional clients
I and II Explanation: An agent is an individual—other than a broker-dealer—who represents a BD or issuer in securities transactions. An officer—or any other employee—of a company who represents her company in transactions with an underwriter is not included in the term agent because the transaction is exempt. In the case of those individuals, officer or not, who represent an issuer of non-exempt securities, registration as an agent is always required unless the transaction is exempt. Compensation is only a factor when selling the issuer's securities to employees. An employee of a BD who engages in securities transactions with any clients, institutional or not, is an agent under the act.
While registration as an agent is pending, the individual would be permitted to I. send out confirmations of order executions to customers. II. accept unsolicited orders only. III. ask registered agents to explain their sales techniques to him. IV. offer exempt securities only.
I and III Explanation: While registration is pending, the only activities that the future agent may engage in are clerical, administrative, or related to training.
An adviser would NOT be in violation of the Uniform Securities Act if he charged I. all accounts over $250,000 a flat fee of $3,000 per year II. all accounts under management a fee based on a percentage of the assets under management III. all accounts a fee based on a percentage of capital gains in excess of the return on the S&P 500 IV. charged performance-based fees consistent with state and federal securities law
I, II and IV
An investment adviser would be exempt from registration under the Uniform Securities Act if it had no place of business in this state and its only clients were I. banks. II. insurance companies. III. registered investment companies. IV. other investment advisers.
I, II, III and IV
If an agent's registration is revoked for a violation of the act, the Administrator may deny a future application submitted by the agent for registration as I. an agent. II. a broker-dealer. III. an investment adviser.
I, II, and III Explanation: Once an agent's registration is revoked, any future applications for registration in the securities industry (as an agent, a broker-dealer, or an investment adviser) may be denied. You may see this expressed as a permanent bar from the industry.
Under the National Securities Markets Improvement Act of 1996 (NSMIA) which of the following statements describe federal covered securities? I. A security registered under the Uniform Securities Act II. A security registered under the Investment Company Act of 1940 III. A security of a company regulated by the U.S. Federal Reserve Board IV. A security issued by the U.S. government
II, III, and IV Explanation: A federal covered security has a federally imposed exemption from state registration, so selecting a choice that includes registering under the USA cannot be correct. The list includes most securities exempt from registration under the federal Securities Act of 1933 (those issued by the U.S. government and state and local governments, as well as bank securities regulated by the Federal Reserve Board). In addition, it includes a number of securities registered with the SEC, primarily those traded on the exchanges and Nasdaq, as well as investment companies registered under the Investment Company Act of 1940.
Which of the following is the best definition of a person who manages accounts or portfolios of clients of an investment adviser?
an investment adviser representative
All of the following actions must be completed prior to customers entering their first option trade:
approval be a designated options supervisor delivery of the options disclosure document (ODD) completion of the new account form
As standard industry practice, investors (are / are not entitled to an extension of time to meet a margin call. Special arrangements must be made with the firm in such circumstances.
are NOT
Broker-dealers registered with the state are required to keep records. The Administrator of the state would expect firms registered in her state to retain all of the following records except
copies of tax returns Explanation: although many broker-dealers ask customers for financial information in order to make suitable recommendations, there is no statutory requirement to obtain and retain copies of their tax returns. From a test-taking skill perspective, even if you are not familiar with some of the terms used in the other choices, you should not let yourself get baffled by them. Customer tax returns belong to the customer, not the firm, so there is no way the USA can ask BDs to keep copies of them.
Broker-dealers, investment advisers, agents, and investment adviser representatives must renew their licenses with the state Administrator
every December 31, unless otherwise specified by state law
One way to make money is to buy low and sell high. If an investment adviser has developed a proprietary charting system that has had a very high degree of success in picking stocks near their market bottoms, any advertisement about the system must
indicate that there are limitations and difficulties to using the system Explanation: anytime you see a question dealing with advertising a charting system (or investment formula, etc.) always look for limitations and difficulties in the answer
The Uniform Securities Act invests the office of the Administrator with a number of powers. However, the act does not permit the Administrator to
issue an injunction when there is evidence of wrongdoing
An agent may borrow securities from a customer
only if a client is in the business of lending securities Explanation: this would include certain broker-dealers and institutions
When material information contained in an agent's Form U4 changes, an amendment must be filed
within 30 days
Which of the following does not meet the definition of agent as written in the Uniform Securities Act? A) A summer intern hired to confirm appointments previously made by a licensed agent B) The CEO of a broker-dealer C) A summer intern hired to determine the suitability needs of those who are scheduled for an appointment with a licensed agent D) An individual hired by a broker-dealer to make securities recommendations to existing customers of the firm
A) A summer intern hired to confirm appointments previously made by a licensed agent Explanation: Confirming already-scheduled appointments is administrative work and excludes a person from the definition of agent. If that same intern starts discussing suitability aspects of the customer, that has crossed the line and makes one an agent requiring registration. Because the USA does not provide for a principal-level registration (FINRA does), any officer involved in the operations of a broker-dealer is an agent.
Unless qualifying for an exemption, which of the following advisory fee structures is not allowed under the Uniform Securities Act?
Fees based on a percentage of the change in value of funds from quarter to quarter Explanation: Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. The other choices are acceptable fee structures.
The Administrator may deny a person's registration as an investment adviser representative if the person meets which of the following criteria? I. Has a recent securities-related criminal record II. Has recently been convicted of a felony not related to the securities industry III. Has lost a civil lawsuit within the last year IV. Was convicted of any misdemeanor within the last year that did not involve securities or money
I and II
Under the Uniform Securities Act, the Administrator has the authority to I. issue stop orders. II. approve new issues. III. review standard registration forms.
I and III Explanation: During the cooling-off period, the Administrator reviews registration statements and may issue stop orders. The Administrator does not approve securities; she only clears them for distribution to the public.
Under the Uniform Securities Act, registration with the state as either an investment adviser or as an investment adviser representative would be required for which of the following? I. An individual employed by a registered investment adviser who is responsible for selling the firm's services to prospects II. A firm registered in Montana with offices in Montana and no other state, which offers investment advice only to a bank in Wyoming to also be registered in Wyoming III. An agent with a broker/dealer who offers wrap fee programs, charging an annual fee with a sliding scale based upon assets under management IV. An individual offering custodial services on behalf of the Trust Company of Duluth
I and III Explanation: Employees of an investment adviser who sell the firm's services meet the definition of an investment adviser representative; therefore, they are required to register. Wrap accounts are treated as an investment advisory service, thus require the firm to register as an investment adviser. The firm's employees that handle wrap accounts are also required to register as investment adviser representatives. An investment adviser that has no office in the state and only works with institutions does not need to register. An individual providing custodial services for an institutional investor is not required to register
The antifraud provisions of the Uniform Securities Act apply to I. registered securities. II. exempt securities. III. federal covered securities. IV. exempt transactions.
I, II, III and IV Explanation: As long as a security is involved, there are no exceptions to the antifraud provisions of the USA.
An interest in which of the following is a security under the Uniform Securities Act? I. Merchandising marketing scheme II. Multilevel distributorship arrangement III. Oil and gas drilling program IV. Cattle feeding program
I, II, III and IV Explanation: The USA considers interests in merchandising marketing schemes, multilevel distributorship arrangements, oil and gas drilling programs, and farm animals (whether it is a feeding or a breeding program) to be investment contracts and, therefore, securities. The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are.
Which of the following are unethical business practices of investment advisers? I. Charging a client an unreasonable advisory fee II. Guaranteeing a client that a specific result will be achieved as a result of advice that will be rendered III. Recommending an investment to a client without reasonable grounds to believe the investment is suitable for that client IV. Continuing to exercise discretionary investment authority under an oral agreement with the client
I, II, III, and IV Explanation: All of the following are unethical practices for investment advisers (IAs): charging a client an unreasonable advisory fee; guaranteeing a client that a specific result will be achieved with advice that will be rendered; recommending to a client an investment without reasonable grounds to believe the recommendation is suitable for the client; and exercising discretionary investment authority under an oral agreement with the client. While it is true that an IA may trade using discretion with oral approval for up to 10 days, that is only a convenience to be used while awaiting delivery of the written authorization.
Which of the following meets the definition of churning? I. Encouraging customers to make frequent changes in their holdings in an effort to maximize commissions II. Excessive activity in a customer's discretionary account III. Transactions that are excessively large considering the customer's financial situation
I, II, and III
Which of the following activities by a registered agent of a broker-dealer would constitute a prohibited practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents?
Personally raising capital, without written authorization from the broker-dealer, for a new high-tech venture being run by the agent's former college roommate Explanation: By attempting to effect securities sales by circumventing his broker-dealer, the agent has committed the prohibited practice of a private securities transaction, referred to as selling away. Failure to disclose a material fact is prohibited, but nonmaterial facts do not carry that burden. One would expect an agent to keep the client informed regarding news about securities held in the account. Agents would be expected to refuse to make loans to customers because that is a prohibited practice.
Broker-dealer X is conducting its securities operations in the branch office of the XYZ Bank & Trust Company, located on Main Street in downtown NYC. The broker-dealer employs 15 individuals at this location, 9 of whom are active sales agents. The primary product lines offered by the firm at this branch location are municipal fund securities and variable annuities. Their general clientele includes neighborhood residents and local business owners. The broker-dealer is creating a new advertising campaign that will run on television and several radio outlets regarding these product lines. Regarding the content of this advertising, the firm
need not include disclosures regarding FDIC or bank guarantees if the running time of the published advertising spots is 25 seconds.
First Securities Advisers, Inc., a subsidiary of First Securities Broker-Dealers, Inc., requires customers to have a minimum of $250,000 under management and charges them 1% in advisory fees based on the amount of assets in their accounts. Clients also pay commissions for securities transactions in their accounts at First Securities Broker-Dealers, Inc. First Securities Advisers, Inc., has
not violated the prohibition against performance fees Explanation: First Securities Advisers, Inc., has not violated the prohibition against charging performance fees because it did not base its fees on a share of capital gains or losses in their clients' accounts. First Securities charged on the basis of assets under management. The 1% in advisory fees charged appears reasonable. The commissions charged by the affiliated broker-dealer have nothing to do with the question. The client would have to pay commissions wherever the transactions were executed.
A client of a broker-dealer is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?
options Explanation: One question asked on a new options account form that is not required on a normal brokerage account opening is about investment experience and knowledge (e.g., number of years, size, frequency, and type of transactions) for options, stocks and bonds, commodities, and other financial instruments. When the client enters a wrap program or advisory account, this depth of detail is generally requested, but it is not part of the new account form.
Securities exempt from registration requirements include ...
securities issued by the state or U.S. government; securities issued by foreign governments with whom the U.S. maintains diplomatic relations; and any securities issued by savings and loan or building and loan associations, insurance companies, and credit unions authorized to do business in this state.
Under the USA, an individual is NOT an agent if he is employed be a broker / dealer and only
serves as a partner, officer, or director of the firm with exclusive responsibility for Information Tech. Explanation: Partners, officers, and directors of a broker-dealer are considered agents if they are involved in the purchase or sale of securities. They are also required to register if they supervise agents. All individuals who are employed by the broker-dealer and are involved in securities transactions are required to register as agents of the broker-dealer.
A broker-dealer will be underwriting an IPO. From all appearances, it seems that this will be a hot issue. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents,
shares must be allocated to clients based on their indications of willingness to purchase the shares
An individual who will be employed at a broker-dealer will be effecting transactions in municipal and federal government- issued securities only. Regarding the registration status of this individual,
she must be registered in those states where her clients are located.
The Uniform Securities Act defines all of the following as securities except
term life insurance
State securities laws generally limit agents to employment with a single broker-dealer unless
the Administrator, by rule or order, authorizes employment with more than one broker-dealer Explanation: The USA generally limits agents to single employment unless the Administrator, by rule or order, authorizes multiple affiliations.
Commingling
the act of combining customer assets with those of an agent
A broker-dealer would likely have to register in a state when
the firm's website provides a list of recommendations based on general criteria such as income or growth Explanation: Understanding that internet websites do not stop at state lines, NASAA has established a Model Rule for determining when registration in a state is required. When that website contains specific recommendations, it is likely that registration will be required. A simple listing of office locations would not. Without knowing the contents of the agent's email, we cannot tell if that would be considered doing securities business in the state. Obviously, if the agent is corresponding with a friend about last night's game scores, that would not trigger the need for registration on the part of either the BD or the agent. One of the exclusions under the USA is having no place of business in the state and limiting the clientele to institutions, such as banks.
An agent can sell an unregistered security to a client if ___________________________________________..
the security is exempt from registration or the security is being sold in an exempt transaction
A trustee has an obligation to ensure ....
they remain impartial to all beneficiaries, they create adequate diversification within the trust, and that they monitor the portfolio to ensure that the interests of the beneficiaries of the trust are always protected.
A client of an investment adviser representative of a federal covered investment adviser wishes to place a favorable comment on the investment adviser's website. This action
would be considered a testimonial and require that disclosure be made of any compensation received by the client Explanation: Testimonials for investment advisers and their representatives posted by clients are a permitted practice as long as proper disclosures are made. One of the most important of those is if the person supplying the testimonial was compensated. The SEC does not review investment adviser advertising. Entanglement is when the IA posts to its website or social media content prepared in conjunction with a third party. Although the IA is happy to see favorable comments posted on its website, care should be taken to ensure that all of the required disclosures are made.
Under the Uniform Securities Act, the Administrator may require the filing of advertising and sales literature in which of the following offerings? A) Sale of a U.S. Treasury bond maturing in more than 10 years B) Sale of an IPO limited to residents of the state C) Sale of the bonds of AGI insurance company organized under the laws of the state D) Sale of preferred stock of a long-established company registered with the SEC whose common shares trade on the New York Stock Exchange
B) Sale of an IPO limited to residents of the state Explanation: The other choices are securities of issuers of exempt securities or, in the case of the NYSE-listed issuer, federal covered securities. The Administrator may not require issuers of exempt and federal covered securities to file advertising and sales literature.
Under the Uniform Securities Act, which of the following types of transactions can be entered into legally with unregistered nonexempt securities? A) Public offering of stock in a new corporation B) Private placement offered to more than 50 institutional purchasers in the state C) Solicited transactions with individual clients located within the state D) Rights offering to existing shareholders with underwriting compensation of $0.05 per share to the soliciting broker-dealers
B) private placement offered to more than 50 institutional purchasers in the state
As defined in the Uniform Securities act, which of the following is not an issuer? A) A company whose shares trade on the New York Stock Exchange B) A corporation that proposes to issue securities but has not done so as of yet C) A broker-dealer trading securities as an agent for the accounts of others D) A new company that offers shares to the public in an IPO
C) a broker-dealer trading securities as an agent for the accounts of others Explanation: A broker-dealer that trades securities as an agent for its clients is not acting in the capacity of an issuer. If the BD were organized as a corporation and offering its own shares to the public through underwriting, it would then be an issuer. A corporation that proposes to issue securities but has not yet done so is, for purposes of the act, an issuer. A company offering its shares to the public in an IPO is an issuer. A company whose shares trade on the NYSE is an issuer whose shares are now trading in the secondary market.
Broker-dealers with no place of business in a state are not required to register in that state if their only clients in that state are A) corporations whose shares are listed on the New York Stock Exchange. B) investment advisers registered in the state. C) life insurance companies. D) agents of broker-dealers registered in the state.
C) life insurance companies Explanation: An exclusion from the definition of broker-dealer (meaning registration as one is not required) is available when there is no place of business in the state and the only clients are other BDs or institutions. Insurance companies are included in that group of institutional investors, but investment advisers are not. Agents are individuals and they do not qualify for this exclusion. The only time that issuers of securities would qualify is when the BD is transacting business with the issuers in securities they've issued (or are in the process of issuing). Simply having a major corporation as a client investing its surplus cash does not meet the exclusion.
Regarding the use of testimonials in advertising, all of the following are true except A) an agent of a broker-dealer may use a testimonial from an existing client with the approval of a designated officer of the firm B) divulging a list of the investment adviser's clients in response to a court order is not considered a testimonial C) a prominent celebrity speaking publicly about his relationship with the investment adviser is considered to be giving a testimonial D) an investment adviser may use a testimonial, but only if it comes from someone who is not an existing client
D) an investment adviser may use a testimonial, but only if it comes from someone who is not an existing client Explanation: Testimonials from exisiting clients are permitted for use by investment advisers. Certain disclosures are needed, such as the fact that the person giving the testimonial is a client and the extent of any compensation paid for the testimonial. Those who are not clients of the advisory firm give endorsements. Agents and broker-dealers are permitted to use testimonials if they meet FINRA standards. One of the most common forms of testimonial is the public comment by a celebrity about an existing relationship with a financial firm, IA, or BD.
Which of the following are not exempt from registration as an investment adviser representative in the state in which they maintain a place of business? I. A certified financial planner who prepares comprehensive financial plans and whose only compensation is commissions II. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients III. A broker-dealer with extensive business in the state IV. A mutual fund company with offices and clients in the state
I and II Explanation: A certified financial planner who prepares comprehensive financial plans for commissions must register in the state as an investment adviser representative because the commissions represent compensation for advice on securities. In the language of the industry, comprehensive financial plans include advice on securities. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an IAR and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act.
Diligent Investment Services (DIS) has been registered in States B and C for about five years. DIS applies for registration as a broker-dealer in State C on October 19, 2020. If the registration is accepted, it would be correct to state that
the first renewal of the firm's registration will take place on December 31, 2020. Explanation: Registrations become effective on the 30th day after an application is filed. That would make the effective date of DIS's registration November 18, 2020. Every initial registration comes up for renewal on the December 31 following the initial effective date. In our question, that would be about six weeks later on December 31, 2020. The fee must be submitted with the application, not within 30 days. If DIS was a successor to an existing firm in State C, then no fee is due, but this is a new registration for DIS and must have the fee enclosed.
