Pre-test 1

According to the Investment Advisers Act of 1940, when must an access person submit a transaction report? a. No later than 10 days after the end of the calendar quarter in which the transaction was effected b. Promptly c. No later than 30 days after the end of each calendar quarter d. Within 90 days of the end of the adviser's fiscal year

C. No later than 30 days after the end of each calendar quarter. The Investment Advisers Act of 1940 requires an access person of an adviser to report his personal securities transactions by no later than 30 days after the end of each calendar quarter. On the other hand, the Uniform Securities Act requires an adviser to maintain a record of all personal securities transactions by no later than 10 days after the end of the calendar quarter.

Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: a. One year b. Three years c. Five years d. There is no time limit for criminal violations

C. five years

All of the following statements regarding the Capital Asset Pricing Model (CAPM) are TRUE, EXCEPT it: a. Predicts future values for the stock b. Was developed to explain the behavior of security prices c. Provides a mechanism to assess risk and return d. Is based on the efficient market theory and assumes all investors act rationally

a. Predicts future values for the stock

Sid is an investment adviser. A number of his clients are willing to accept a relatively high level of risk to achieve potentially high returns. At various times in his career, Sid has attempted to anticipate market events to generate higher returns for his clients. He has found that over time, the results were disappointing. Sid is now a firm believer in indexing. Sid's view of a portfolio's performance over an extended time horizon is an example of: a. The Random Market Theory b. Modern Portfolio Theory c. The Dow Theory d. The Efficient Market Hypothesis

The Efficient Market Hypothesis states that financial markets are efficient and that the prices of securities reflect all known information; therefore, prices adjust instantly to reflect new information. It would, therefore, be unlikely to consistently outperform the market over an extended period.

Value investors would be interested in companies that have: a. Low price earnings ratios b. High price earnings ratios c. High price to book value d. Low dividend yields

a. Low price earnings ratios Value investing is a method of identifying securities that are undervalued based on company fundamentals. Value stocks tend to have low stock prices in relationship to their earnings, a higher dividend yield than their industry peers, and, typically, trade at a price closer to or at a discount to the book value than their competitors. Value investors believe that the most undervalued companies should rebound and outperform the market. This, of course, assumes that the company is financially sound.

An agent of a broker-dealer publishes a Web page that discusses the benefits of dollar cost averaging and why investors should invest with long-term goals in mind. If a customer in a state where the agent is not registered reads the Web site, which of the following legends must be on the Web site in order to take advantage of the safe harbor rule and not register in the state? I. The agent will only conduct business in the state if registered or exempted. II. Follow-ups will be handled only by agents who are registered or exempt. III. Internet advertising is exempt from state regulation and subject to SEC review. IV. The rule number of the safe harbor being used is disclosed. a. I and II only b. I, II, and IV only c. III only d. IV only

a, I and II only According to NASAA's interpretive order concerning broker-dealers, investment advisers, broker-dealer agents, and investment adviser representatives, for the general dissemination of information on products and services, when advertising on the Internet an agent must include a legend in which it is clearly stated that (1) A broker-dealer agent or investment adviser representative in question may transact business in the state only if first registered, excluded, or exempted from state registration requirements. (2) Follow-up, or individualized responses to persons in this state by a broker-dealer agent or investment adviser representative that involve either the 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. The SEC is not the only entity that regulates Internet advertising, and there is no requirement to disclose rule numbers.

For a person to be eligible for an HSA, all of the following requirements must be met, EXCEPT: a.The person must be covered under a qualified health plan that is offered by her employer b.The person must be covered under a high deductible health plan (HDHP) c.The person may not be enrolled in Medicare d.The person may not be claimed as a dependent on another person's tax return

a, the person must be covered under a qualified health plan that is offered by her employer. To be eligible for an HSA, a person cannot be covered under a medical plan that is provided by her employer, unless the coverage is limited to accidents, disability, dental care, vision care, or long-term care.

An investment adviser representative is supervising a large, diverse portfolio for an elderly client. Although the account is nondiscretionary, the client almost always accepts the recommendations of the IAR. The portfolio contains a significant position in bonds that are denominated in foreign currency, and the IAR has become concerned that the increased volatility in the currency market could damage the value of the client's investments. The IAR is thinking about recommending the use of foreign currency futures to hedge the foreign currency risk of the portfolio. Considering prudent investor standards, which of the following statements is TRUE? a. Since there are no categorical prohibitions on types of investments under prudent investor standards, the use of futures could be appropriate for a portfolio under certain conditions b. Under prudent investor standards, futures may be used in a portfolio only if the account is held outside the United States c. Since futures are very volatile, they should never be recommended or used by a fiduciary subject to prudent investor standards d. Since futures are not securities, they may not be recommended by an investment adviser representative subject to prudent investor standards

a. The standard of prudence under the Uniform Prudent Investor Act is applied to the client's total portfolio, rather than on an investment-by-investment basis. Since there are no categorical restrictions on types of investments under the Act, anything might be appropriate as part of a portfolio designed to achieve specific aims. In this case, the use of futures to hedge currency risk could be appropriate as part of an overall strategy for this elderly investor.

A client is interested in trading actively, purchasing on margin, and having broad exposure to the U.S. equity market. Which of the following investments is the LEAST suitable? a.An S&P 500 Index mutual fund b.An S&P 500 Index ETF c.A DJIA Index ETF d.A closed-end fund

a. An S&P 500 Index mutual fund Open-end investment company (mutual fund) shares are not appropriate for short-term trading, do not trade on an exchange, and cannot be purchased on margin. On the other hand, most ETFs and closed-end fund shares trade on an exchange and allow the use of margin and short selling.

Buy and hold and systematic rebalancing are examples of passive approaches to asset allocation, and based on the theory known as: a. Efficient Market Hypothesis b. Sector Rotation c. CAPM d. Modern Portfolio Theory

a. Efficient Market Hypothesis Efficient Market Hypothesis (Theory) states that financial markets are efficient and that the prices of securities reflect all known information; therefore, it is impossible to outperform or time the market. Sector rotation is the moving of investments from one industry sector into another in anticipation of a change in the economy. CAPM, Capital Asset Pricing Model, describes the relationship between risk and expected return. Modern Portfolio Theory focuses on diversifying across various asset classes to enhance returns without significantly increasing risk.

Which TWO of the following are considered exempt reporting advisers (ERAs)? I. Venture capital advisers II. Private fund advisers with assets under management of less than $150 million III. Family office advisers IV. Private fund advisers with assets under management exceeding $150 million a.I and II b.I and III c.II and III d.III and IV

a. I and II Venture capital advisers and private fund advisers with assets under management of less than $150 million are exempt from registration as an adviser with the SEC and/or state Administrator; however, they must still pay fees and report public information via the IARD/FINRA system.

You have been approached by Steven to provide investment advice. Steven was recently named as executor of his uncle's estate and wants your assistance managing the investment portfolio pending disposition. Which of the following statements is TRUE? a.You may accept the assignment b.The Uniform Securities Act prohibits executors from paying outside advisers c.Your appointment requires approval of the judge overseeing the estate d.Your appointment requires approval of the beneficiaries

a. You may accept the assignment The executor is free to obtain any necessary outside advice in the exercise of his fiduciary duty. Permission of the court or heirs is not required. Regarding your advice, remember that the estate will be short-lived and, therefore, your focus should be mainly on safeguarding the assets for the benefit of the heirs. Long-term investments or speculative investments would generally not be suitable.

According to the Uniform Securities Act, the Administrator may require federal covered advisers to: a. Register in every state in which they have a branch office b. Give notice or notice file in any state where they transact business with six or more individual retail clients c. Register with the Administrator in any state where they transact business with six or more individual retail clients d. Do nothing because the Administrator has no jurisdiction

b. The Administrator may require federal covered investment advisers to notice file if they transact business with more than five noninstitutional clients over a 12-month period. Notice filing is not a form of registration. Instead, it is the process of a federal covered adviser sharing information with the Administrator that it has filed with the SEC.

According to NASAA's Statement of Policy on Unethical Business Practices, all of the following information must be disclosed in an investment advisory contract, EXCEPT: a. Whether the contract grants the adviser discretionary authority over the client's account b. Whether the contract may be assigned to another registered investment adviser without the client's consent c. The amount of prepaid fees that will be returned if the contract is terminated d. The method(s) by which the adviser's fees will be calculated

b. NASAA's Statement of Policy on Unethical Business Practices provides that the entering into, or renewal of, an investment advisory contract would need to include disclosure of: • All fees and services provided • The term of the contract • A formula for computing the advisory fee • The amount of prepaid fees to be returned in the event of an early termination of the contract • The fact that no assignment of the contract will be made without the consent of the client • Whether the contract grants discretionary power to the adviser • The fee for managing equity securities may be higher than for fixed-income securities Choice (b) is not true since the contract may not be assigned without the consent of the client.

A client who purchased a security from a broker-dealer has filed a lawsuit arguing that he is entitled to damages after discovering a material error on the firm's part. Which of the following is a reasonable defense to the suit? a.There is no defense due to the fact that an error was discovered b.As the seller, the broker-dealer may attempt to prove that the firm did not know about the error and that reasonable care was taken to discover any errors c.The buyer must prove that the broker-dealer knew about the error and willfully exploited the error to make a sale d.As the seller, the broker-dealer may attempt to prove that the buyer knew of the error and, just to file a lawsuit, bought the security anyway

b. As the seller, if the broker-dealer took reasonable care in checking the facts and made an unintentional, material error, it could make a reasonable defense against the lawsuit. The buyer is not required to prove what the broker-dealer knew. Instead, the buyer is only required to prove that the broker-dealer should have known about the error and that it was negligent.

If a portfolio manager is rebalancing a client's assets on a quarterly basis, this would be considered: a. Too aggressive b. A strategic asset allocation strategy c. A tactical asset allocation strategy d. Churning

b. A strategic asset allocation strategy A strategic asset allocation strategy may include the periodic rebalancing of the portfolio on a monthly, quarterly or annual basis in order to keep the original asset allocation intact. A tactical asset allocation strategy is more dynamic and attempts to exploit inefficiencies in the markets by rebalancing the portfolio frequently in response to changes in economic and market conditions.

Registration by coordination would most likely be used to register what type of offering? a.A new issue of mutual fund shares b.An initial public offering c.A new issue of shares listed on Nasdaq d.An intrastate offering

b. An initial public offering Under normal circumstances, the method of registration most often used by the new issuers of securities is registration by coordination. Mutual funds are federal covered securities. All listed securities, such as Nasdaq securities, are also federal covered and, therefore, exempt from registration with the states. Intrastate offerings are commonly registered by qualification.

Your client, Robert Bonderman, would like to invest in a fixed-income security for his portfolio. He needs to balance risk and return. Which of the following investments will provide Robert with the highest overall return, while avoiding speculative-grade investments? a.AAA-rated corporate bond, present value = $1,245, market price = $1,314 b.BBB collateral trust certificate, present value = $1,261, market price = $1,158 c.Baa debenture, present value = $1,108, market price = $1,230 d.BB mortgage bond, present value = $1,345, market price = $1,101

b. BBB collateral trust certificate, present value + $1261, market price + $1158 In order to answer this question you must compare each bond's current market value to its present value. The present value of each bond has been calculated by discounting the cash flows from each coupon payment and determining the present value of the principal repayment, using the investor's desired rate of return. When comparing the present value of a bond to its current market value, an investor can determine if the bond is fairly valued, undervalued, or overvalued. The bonds in choices (a) and (c) have a current market value greater than the present value. Since the bonds are trading at a premium to their present value, the investor would receive a lower return than desired. The bonds in choices (b) and (d) have a current market value less than their present value. These bonds are trading at a discount to their current market value and therefore would result in a return higher than what the investor desired. Since the investor also wants to avoid speculative-grade investments, (BB and below) choice (d) would be eliminated.

Which of the following is/are regulated under the Investment Company Act of 1940? I. Investment companies investing money into other investment companies II. The firm that serves as a mutual fund's custodian and holds its assets III. The minimum rate of return required to remain registered as a fund IV. The performance of the investment company a. I only b. I and II only c. I, II, and III only d. All of the above

b. I and II only The Investment Company Act of 1940 regulates investment companies and their investment adviser, custodian bank, and distributor. The Investment Company Act of 1940 does not regulate performance nor does it require minimum rates of return in order to maintain registration.

In which TWO of the following ways do exchange-traded funds (ETFs) differ from mutual funds? I. ETF share prices may change throughout the trading day II. ETF share prices are determined at the close of the market each day III. ETF shares may be sold short IV. When ETF shares are purchased, buyers pay a sales charge a.I and II b.I and III c.II and III d.II and IV

b. I and III ETFs differ from mutual funds in the following ways: the shares trade on an exchange, the share prices change throughout the day based on supply and demand, and the shares may be sold short and purchased on margin. Also, rather than paying a sales charge, an investor will pay a commission on her ETF trades.

Under the Uniform Securities Act, an Administrator who requires the posting of a surety bond MAY: I. Accept cash II. Accept securities III. Use discretion as to whether the type of securities and the amount of the deposit are appropriate IV. Disallow the deposit of cash or securities instead of a bond a. I only b. I, II, and III only c. I, II, and IV only d. I, II, III, and IV

b. I, II and III only

Kyle and Christina have been friends since high school. Christina is an agent of a broker-dealer, while Kyle is a wealthy musician. Together they open a joint brokerage account. They each deposit $30,000 and agree to split any profits equally. What are the regulations for this arrangement? a. It is acceptable as long as Kyle agrees to it in writing and releases Christina from all liability b. It is acceptable if Kyle, Christina, and Christina's broker-dealer agree to it in writing c. It is acceptable if Kyle and Christina's broker-dealer agree to it in writing; however, since Christina is an agent, she does not need to agree in writing d. This arrangement is never acceptable

b. It is acceptable if Kyle, Christina, and Christina's broker-dealer agree to it in writing In order to share in a customer's account, an agent must obtain permission from her employer and the customer. Since the agent will be investing, she is also considered a customer and will also be required to give permission. Additionally, profits and losses must be shared proportionately, based on the amounts both parties contribute to the account.

If an agent unknowingly misrepresents the risk associated with a security, which of the following statements is correct according to the Uniform Securities Act? a. This is considered an act of fraud. b. Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action. c. Unknowingly making misrepresentations will result in the denial, suspension, or revocation of the agent's registration. d. Unknowingly making misrepresentations will result in the denial, suspension, or revocation of the registration of the security.

b. since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action.

Which of the following statements is TRUE regarding the state securities Administrator? a. The Administrator may issue an injunction against a registered agent of a broker-dealer b. The Administrator may issue a cease-and-desist order to an agent of a broker-dealer without a hearing c. For due cause, the Administrator, may enjoin, or legally block, an agent's ability to conduct business in a particular state d. The Administrator may arrest any registered employee of a broker-dealer

b. the Administrator may issue a cease-and-desist order to an agent of a broker-dealer without a hearing. Under the Uniform Securities Act, the state Administrator does not have the authority to issue an injunction or an enjoining order, nor may the Administrator arrest anyone or send him to jail. These orders must come strictly from a judge or court of law. The Administrator may, however, issue a cease-and-desist order to an entity under its jurisdiction.

An investment adviser must record the personal securities transactions that are effected by its officers, directors, partners, and employees by no later than: a. The day of the trade b. Monthly c. 10 days after the end of the calendar quarter d. Within 90 days of the adviser's fiscal year

c. 10 days after the end of the calendar quarter.

A client purchases an equity-indexed annuity contract that guarantees a 4% return or 80% of the performance of the S&P 500, whichever is greater. The index declines over the course of the next year. What return will your client receive? a.2% b.3% c.4% d.80% of the value of the decline in the S&P 500

c. 4% An equity-indexed annuity guarantees the contract owner a minimum interest rate or the performance of a stock index such as the S&P 500 Index. If the return on this index is less than the guaranteed rate, the owner receives the guaranteed rate. If the index return is greater than the guarantee, the owner receives the greater return.

Diminutive Advisers is a small, single-office investment advisory firm with $4 million in assets under management. The firm is located in Texas. According to the Uniform Securities Act, which of the following persons associated with the firm would NOT fall under the definition of an investment adviser representative? a. Sally Fin, a school teacher employed full-time by the San Antonio school district, who also does some part-time investment counseling and to whom Diminutive pays a nominal commission on assets directed its way b. Ben Braynee, the firm's supervisory analyst, who does not have client contact c. An in-house accountant who tabulates investment results for client accounts d. All of the above, since none of the aforementioned individuals has full-time sales responsibility

c. An in-house accountant who tabulates investment results for client accounts IA representatives are persons who are associated with an IA and make recommendations, manage accounts, solicit, or negotiate the sale of IA services, or supervise any persons who engage in these activities. Strictly clerical persons, such as the accountant, are not considered IA representatives. There is no requirement for a person to be an employee or to be solely dedicated to sales to meet the definition of IA representative.

An agent is bullish on XYZ stock and intends to recommend the stock to three of her clients. Before the recommendations are made, the agent buys a large block of XYZ stock for her own account. Then, once the clients' orders are completed, the RR sells her shares for a large profit. The agent s action is referred to as: a. Pegging b. Making unsuitable recommendations c. Front-running d. A wash sale

c. Front-running

A client contacts a firm and indicates his desire to buy a call option on a stock that he already owns. Why would the investor buy a call option on the stock? a. He wants to hedge his position b. He wants to generate income and increase his rate of return c. He wants the ability to buy more shares at a guaranteed price in case the stock goes up d. He wants to reduce his losses

c. He wants the ability to buy more shares at a guaranteed price in case the stock goes up.

Nelson is an advisory client of XPert Capital Management, a registered investment adviser. Nelson is the sole trustee of an irrevocable trust for which his son, Tad, is the beneficiary. The trust was created and funded by Bertha, Tad's well-to-do aunt, and Nelson's sister. Nelson has hired XPert Capital to manage the trust's investment portfolio. Which of the following choices would be considered fiduciaries in this situation? I. Nelson II. XPert Capital III. Bertha a. I only b. II only c. I and II only d. I, II, and III

c. I and II only

XYZ broker-dealer is located in State A, where it maintains its corporate headquarters. Under the Uniform Securities Act, XYZ would meet the definition of a broker-dealer in State B if it: I. Has an office in State B and only sells securities to an investment companies located in State B II. Has an office is State B and conducts business only with other broker-dealers that do not have an office in State B III. Has no office in State B and only sells securities to high net worth clients that are residents of State B IV. Has no office in State B and only conducts business with other broker-dealers that have an office in State B a. I and II only b. II only c. I, II, and III only d. II, III, and IV only

c. I, II and III only

Under ERISA, the Investment Policy Statement of a qualified plan: I. Defines the roles of the parties involved in the management of the plan II. Identifies specific asset classes to be offered in the plan III. Lists the criteria for the selection and performance requirements for each investment option IV. Requires the fiduciary of the plan to be registered as an IA with the state Administrator a.I only b.I and II only c.I, II, and III only d.I, II, III, and IV

c. I, II and III only The Investment Policy Statement of a qualified plan does not address the registration requirements or status of the fiduciary. However, under the Uniform Securities Act, an IA has fiduciary responsibility and is exempt from state registration if the plan's assets are at least $1 million and the IA has no place of business in the state

According to the Investment Advisers Act of 1940, when must an access person submit a transaction report? a.No later than 10 days after the end of the calendar quarter in which the transaction was effected b.Promptly c.No later than 30 days after the end of each calendar quarter d.Within 90 days of the end of the adviser's fiscal year

c. No later than 30 days after the end of each calendar quarter The Investment Advisers Act of 1940 requires an access person of an adviser to report his personal securities transactions by no later than 30 days after the end of each calendar quarter. On the other hand, the Uniform Securities Act requires an adviser to maintain a record of all personal securities transactions by no later than 10 days after the end of the calendar quarter.

The disadvantages of hedge funds for investors include all of the following choices, EXCEPT: a. Lack of liquidity b. Lack of transparency c. Sophisticated investment strategies d. Complicated tax structures

c. Sophisticated investment strategies

The following persons would be allowed to trade the account of an incapacitated individual, EXCEPT: a. A joint tenant b. A court-appointed conservator c. A relative named in a living will d. The holder of a durable power of attorney

c. a relative named in a living will A living will is related to medical decisions that may need to be made in the event of an individual's incapacity. All the other choices would allow the individual to trade in the account of an incapacitated person, providing proper documentation is provided. A durable power of attorney gives someone the authority to make financial and healthcare decisions on another's behalf should that person become incapacitated.

If a client executes a secondary market trade through a broker-dealer, what information must be disclosed to the client? a.The brochure or Form ADV Part 2 b.A prospectus c.Any unusually excessive fees d.The reason that the trade was suitable

c. any unusually excessive fees.

Ed and Stephan want to start a Web site design business. They are trying to decide what the best way is to organize the business. They want to protect their personal assets from any debts that the business incurs, but they also want to avoid being double-taxed on their profits. Based on these objectives, the BEST organizational structure for them to adopt would be a: a. Limited partnership b. General partnership c. C Corporation d. Limited liability company

d Limited liability company The two main advantages of a limited liability company are that the owners cannot be held personally liable for the company's debts, and the IRS treats limited liability companies the same way as partnerships for tax purposes. Ed and Stephan can limit their liability but they can also avoid paying both corporate and personal income taxes on their profits, as they would otherwise need to do if they formed a C Corporation. A general partnership would not protect them from liability since all general partners are responsible for the partnership's debts. A limited partnership must have both a general partner and a limited partner, so only the limited partner would be protected from liability.

Under the Uniform Securities Act, which of the following transactions is NOT exempt from state registration? a. The sale of securities by a sheriff b. An isolated, non-issuer transaction c. A transaction executed on a national securities exchange d. A Rule 147 offering

d. A Rule 147 offering The Rule 147 (intrastate) exemption is a federal or SEC exemption and does not apply to the Uniform Securities Act. For that reason, an issuer conducting an offering of securities in one state is required to register the offering in that state. On the other hand, a transaction by a fiduciary, such as an executor, sheriff, marshal, guardian, trustee in bankruptcy, is exempt from state registration. Additionally, isolated, non-issuer transactions and transactions executed on the New York Stock Exchange, Nasdaq, or any other recognized national or regional exchanges are exempt from state registration.

Which of the following statements about barbell strategies is NOT TRUE? a. The strategy consists of purchasing bonds with both short and long maturities, but no intermediate-term securities are included b. The short-term bonds will provide for quick cash to purchase new bonds upon maturity c. A barbell strategy is used to take advantage of potential interest-rate changes d. Gains from the short-term maturities will offset losses in the long-term maturities

d. Gains from the short-term maturities will offset losses in the long-term maturities. A barbell strategy consists of buying short-term and long-term bonds, but not intermediate-term bonds. The purchase of long-term bonds allows an investor to capture higher long-term interest rates. The short-term bond provides the opportunity to invest elsewhere if the bond market takes a downturn. There is no guarantee that any money made on the short end of the strategy will offset losses that could occur on the long end of the barbell.\

When selecting a value stock, an agent would look for which of the following characteristics? I. High earnings per share II. Low price/earnings ratio III. Low price to book value IV. High dividend yield a.I and II only b.I and III only c.I, II, and III only d.I, II, III, and IV

d. I, II, III, and IV A value stock is one that tends to trade at a lower price relative to its fundamentals (i.e., dividend yield, earnings per share, sales, price/earnings ratio, market price to book value) and is, therefore, considered undervalued by a value investor. These companies tend to have the following characteristics: high dividend yield, low price-to-book ratio, and/or low price-to-earnings ratio. (75910)

Pick TWO statements that are TRUE regarding time-weighted and dollar-weighted rates of return. I. Time-weighted returns allow investors to measure how much money they have earned on their investments. II. Dollar-weighted returns allow investors to compare the performance of two investment advisers. III. Time-weighted returns allow investors to compare the performance of two investment advisers. IV. Dollar-weighted returns allow investors to measure how much money they have earned on their investments. a. I and II b. II and IV c. II and III d. III and IV

d. III and IV Dollar-weighted returns measure the performance of an investor's actual investment over a defined period. Time-weighted returns assume that a fixed-dollar amount was invested and then measure how that amount would have performed over a defined period. Time-weighted averages are often used to compare the performance of mutual fund managers

A broker-dealer is required to have in place a business continuity plan that addresses all the following issues, EXCEPT: I. How the firm will communicate with regulators II. Mission-critical systems III. That the firm may not deviate from the plan IV. That the plan must be reviewed by the firm annually a.I only b.II and III only c.III and IV only d.III only

d. III only - that the firm may not deviate from the plan.

If an agent participates in a joint account with a client, the agent may: a.Withdraw sale proceeds b.Follow the client's instructions only c.Share disproportionately in any gains or losses d.Initiate transactions in the account

d. Initiate transactions in the account If an agent has a joint account with a client, she may share in the gains and losses proportionately, and initiate transactions. However, any distribution will be made payable to all parties in a joint account unless the joint owners consent.

A hedge fund investment would be least suitable for a client who is seeking: a. Professional management of their funds b. Exposure to a wide range of securities and strategies c. Tax advantages d. Liquidity

d. Liquidity Hedge funds typically invest in a variety of securities, using a number of strategies, as deemed appropriate by the investment manager. When a hedge fund is set up as a limited partnership, investors receive the flow-through of passive gains and losses. Most funds will allow investors only to withdraw their funds after a certain period, or only during certain periods--thus, the lack of liquidity

Which of the following is not a sector rotation strategy? a. Investing in different industries that perform better based on the economic business cycle b. Investing in different countries' economies based on their ability to over-perform c. Rotating assets between cyclical and counter-cyclical industries d. Rotating between long-term and short-term bonds

d. Rotating between long-term and short-term bonds. Sector rotation refers to a strategy that attempts to time the movement of assets into different market sectors based upon the superior performance in those segments. For example, an investor who anticipates that one emerging economy will outperform another, or one industry group that is correlated with the market (cyclical) will outperform the market as the economy recovers. Rotating between long-term and short-term bonds will help an investor reduce the volatility of the portfolio but is not a sector rotation strategy.

The securities holdings report that an access person of an adviser is required to file with her firm's chief compliance officer does NOT include: a. The type of securities held in her personal account b. The date that the person submits the report c. The name of the broker-dealer that maintains the person's account d. The prices paid to acquire the securities

d. The prices paid to acquire the securities.

The investment policy statement of a qualified retirement plan states that no more than 50% of the plan's assets may be invested in stocks. The investment manager places 65% of the plan's assets in stocks in order to take advantage of a bull market and increase the value of the plan's assets. Has the investment manager violated the fiduciary responsibility provisions of ERISA? a. No, since an investment policy statement is a guideline b. No, since the investment manager took advantage of changing market conditions, which benefited the plan's overall return c. Yes, the investment manager's decision did not follow the prudent expert rule d. Yes, since the investment manager did not follow the stipulations of the investment policy statement

d. Yes, since the investment manager did not follow the stipulations of the investment policy statement

Which of the following statements is TRUE regarding a 403(b) plan? a. Distributions from the plan will be taxed as long-term capital gains b. All distributions in excess of contributions will be taxable at ordinary income tax rates c. Only earnings will be taxed at ordinary income tax rates d. Distributions from the plan will be subject to taxation at ordinary income tax rates because of the zero cost basis

d. distributions from the plan will be subject to taxation at ordinary income tax rates because of the zero cost basis. Contributions to a 403(b) plan are made on a pretax basis, resulting in a zero cost basis. Therefore, all distributions are taxed as ordinary income.

Under the Uniform Securities Act, all of the following meet the definition of an agent, EXCEPT an individual who: a. Works for a broker-dealer and sells exchange-listed securities b. Effects transactions in registered securities with the public c. Represents a broker-dealer in effecting securities transactions, but does not earn commissions d. Represents an issuer in effecting exempt transactions

d. represents an issuer in effecting exempt transactions. Without exception, an individual who represents a broker-dealer in effecting securities transactions is considered an agent. Also, if an individual represents an issuer and receives compensation for selling securities that have been subject to registration, she is an agent. However, in choice (d), since the individual is representing an issuer in an exempt transaction, she is not considered an agent. Remember, if an individual represents a broker-dealer in effecting securities transactions, she must always register as an agent, even if she is involved in executing exempt transactions. To determine if an individual qualifies for an exception as an agent, determine who the individual represents -- a broker-dealer or issuer. Exceptions are available for individuals who represent an issuer, but not if representing a broker-dealer.

A firm that is expecting to take its shares public has recently hired a new employee to assist in selling shares to investors. According to the Uniform Securities Act, which of the following statements is TRUE? a. The employee does not have to be registered since the shares are being registered b. The employee is automatically considered to be registered since he was hired before the firm registered c. If the issuer is going to sell stock, it must first register as a broker-dealer d. The employee would be required to register in any state in which he solicits investors

d. the employee would be required to register in any state in which he solicits investors. In this question, the employee is considered an agent of the issuer. Since the stock is going to be sold publicly, the shares are required to be registered along with the employees of the issuer selling them. There are situations in which employees may be exempt from registration (e.g., engaged in exempt transactions) however, registration is generally required if shares are being sold to the public.

The Administrator may require an investment adviser to file which of the following documents along with its initial ADV application? a. A list of all customer securities and the location where they are held b. A list of all of its recommendations for the past five years c. A list of all customers and their addresses d. The firm's current financial condition

d. the firm's current financial condition

Under the Securities Exchange Act, a customer confirmation is NOT required to disclose: a.The amount of commission to be received by the broker-dealer for executing an agency transaction b.The settlement date of the trade c.The capacity in which the broker-dealer is acting d.The time of the trade execution

d. the time of the trade execution The Securities Exchange Act requires broker-dealers to make specific disclosures on customer confirmations. Some of the required information includes the capacity in which the broker-dealer is acting (i.e., agency or principal), the amount of commission received by the broker-dealer for executing an agency trade, and the settlement date of the trade. The time of the trade execution is not required to be disclosed on a customer confirmation; however, it may be provided if the customer makes a specific request.