Progress 66 Exam 2B
According to the Investment Advisers Act of 1940, the definition of an investment adviser includes which of the following choices? 1 Pension consultants 2 Broker-dealers 3 Bank holding companies 4 U.S. government securities advisers A I only B I and II only C I, II, and III only D I, II, and IV only
Answer: A
An adviser charges its clients a fee that's based on the dollar value of assets under management. The firm has seen the value of assets under management increase over the last 12 months due to its successful asset allocation model. One of its clients, whose account increased in value during this period, contacts the firm to complain that the fee he is being charged increased and that he never signed a contract which allows for a performance-based fee. Which of the following statements is TRUE? A The adviser's fee percentage that is based on assets under management did not change; therefore, no violation has occurred. B The adviser has committed a violation by charging the client a higher fee. C Although no violation has occurred, the adviser engaged in an unethical business practice. D The client would be permitted to cancel the contract since the adviser did not disclose the correct method it used to calculate its fees.
Answer: A
An attorney wishes to place orders for a client's account with an investment adviser. Under the NASAA Statement of Policy on Unethical Business Practices of Investment Advisers, which of the following statements is NOT TRUE? A The investment adviser should accept the order as is because, as an officer of the court, an attorney by definition has a limited power of attorney for her clients. B The order may be accepted provided written trading authorization was granted from the client to the attorney. C If written trading authorization was not granted, the investment adviser would commit an unethical business practice by accepting the order. D The investment adviser could be liable for civil liabilities if they trade in an account without authorization.
Answer: A
An investment adviser may NOT receive which of the following forms of compensation for directing brokerage commissions? A The travel cost of flying to London to attend an economics conference B The cost of conducting research used in the development of investment models C A fee paid to cover the costs of a seminar on convertible bonds D The cost of computer software used for evaluating a client's portfolio
Answer: A
Under NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers, all of the following activities are considered violations, EXCEPT: A Exercising discretion for 10 business days based on oral instructions B Charging a client an excessively high advisory fee C Following a conservative, risk-free approach in all client accounts D Indicating that the Administrator approves of a firm s activities
Answer: A
Which TWO of the following transactions would NOT be considered an unethical business practice by a broker-dealer? 1 Buying a security on one exchange and selling it on another to take advantage of a price difference 2 Effecting a transaction in a security on behalf of clients for the purpose of acting as an agent for both buyer and seller 3 Effecting a transaction in a security on behalf of clients for the purpose of increasing the trading volume of that security 4 Effecting a transaction in a security with other broker-dealers for the purpose of increasing or decreasing the price A I and II B II and III C I and III D II and IV
Answer: A
A broker-dealer receives an order to purchase a block of securities for an institutional client. The broker-dealer feels as though the order will create an upswing in the stock price and therefore buys call options on the subject security. What is the term for this action? A Churning B Front-running C A wash sale D Selling away
Answer: B
According to the Investment Advisers Act of 1940, which of the following persons does NOT qualify for the professional exclusion from the definition of investment adviser? A A teacher who works for a private school that offers classes on security analysis and portfolio planning B An actuary who constructs bond portfolios for clients designed to provide a certain cash flow at a given level of risk C A chemical engineer who, as a consultant, evaluates the feasibility of commercial development of certain patented chemical processes being investigated by limited partnerships D A tax accountant who provides advice to clients regarding investment strategies that minimize tax liabilities
Answer: B
Selling away is allowed if an agent completes which of the following steps? 1 Provides oral or written notification to her supervisor 2 Provides written notification to her firm 3 Receives her firm's written permission 4 Notifies the state securities Administrator or the SEC A I only B II and III only C I and III only D I, III, and IV only
Answer: B
Which of the following statements is TRUE according to the Business Standard Test referred to in SEC Release 1092? 1 A person is in the business of providing advice if the person holds him- or herself out to be in the business of providing advice. 2 A person is not in the business of providing advice if the advice given occurs rarely or in isolated nonperiodic instances. 3 A person is in the business of providing advice if separate or additional compensation is received for providing investment advice. A I and III only B I, II, and III C I only D I and II only
Answer: B
Which of the following statements would be considered FALSE regarding the registration provisions of the Investment Advisers Act of 1940? A An investment adviser may operate in more than one state. B An investment adviser may be subject to different state-mandated minimum financial requirements if registered with the SEC. C An investment adviser would be subject to minimum federal financial requirements if registered with the SEC. D An investment adviser that is registered in a state where it maintains its principal place of business would be subject to that state's minimum financial and bonding requirements.
Answer: B
ABC Investment Advisers purchases quarterly research reports from XYZ Brokerage and sends the report to clients. Which of the following statements, if printed on the research reports, would violate NASAA guidelines on Unethical Business Practices of Investment Advisers? A This report is provided to you courtesy of ABC Investment Advisers. B ABC Investment Advisers uses this and other information from XYZ Brokerage in determining its investment recommendations. C This research report was created for your benefit by ABC Investment Advisers. D ABC Investment Advisers does not necessarily endorse the recommendations of XYZ Brokerage contained in this report.
Answer: C
An investment advisory firm has three partners and ten associates. While all of the partners have earned a CFP (Certified Financial Planner) designation, the associates are attending CFP classes, but have not yet earned the designation. The advisory firm has published an advertisement that states, All of our partners have completed the CFP certification program. Which of the following statements is TRUE? A This is unethical since investment advisers may not advertise their qualifications. B This is unethical since it implies that all of the firm's employees are CFPs, which is misleading. C This is acceptable since the statement is literally true. D This is acceptable since the content of adviser advertisements is not regulated.
Answer: C
Sam has custodial power over his nephew's account. He is an astute investor who is looking to maximize the child's returns. Sam is considering using a portion of the account assets to invest in an extremely speculative biotech penny stock that trades in the Pink Sheets. Under the UPIA, which of the following statements is TRUE? A This action is prohibited since Pink Sheets penny stocks are never suitable for children. B This action is permissible if Sam obtains the permission of his state's Investment Ethics Committee (IEC). C This action may be permissible depending on the size of the investment. D This action is permissible once Sam has received prior written permission from the child's parents.
Answer: C
Under the Investment Advisers Act of 1940, which of the following situations would NOT be a violation of soft-dollar practices? 1 An investment adviser uses a broker-dealer to execute transactions that provide the adviser with market data services. 2 An investment adviser uses a broker-dealer to execute transactions that provide the adviser with trading software used to route orders to a market center. 3 An investment adviser uses a broker-dealer to execute transactions that provide the adviser with assistance concerning its compliance responsibilities. 4 An investment adviser uses a broker-dealer to execute transactions that provide the adviser with third-party research. A I only B I and II only C I, II, and IV only D I, II, III, and IV
Answer: C
Under the Investment Advisers Act of 1940, which of the following statements is/are TRUE concerning an investment adviser's use of a solicitor? 1 The cash fee paid to a solicitor must be disclosed. 2 A partner, officer, director, or employee cannot perform solicitation activities. 3 The solicitor must provide the client with a separate written disclosure that sets forth the solicitor's relationship with the adviser and any differential in advisory fees charged over the adviser's usual fees. 4 The adviser must receive from the client a signed acknowledgment of receipt of the solicitor's written disclosure brochure. A I only B I and II only C I, III, and IV only D I, II, III, and IV
Answer: C
Which of the following investments by a fiduciary MOST likely violates prudent investor standards? A Spreading assets in a portfolio over 10 uncorrelated asset classes B Investing 5% of a portfolio in foreign government bonds C Placing 100% of a portfolio in an IPO for which great demand is expected D Writing covered calls against 10% of the common stock in a portfolio
Answer: C
According to the Investment Advisers Act of 1940, which of the following individuals would need to register as an investment adviser? A An attorney who determines the fair market value of the assets inside of an estate B An accountant who recommends a tax-advantaged strategy when reviewing a client's tax return C A broker-dealer D An individual who sells a market timing newsletter that advises clients when to buy and sell exchange-traded options
Answer: D
According to the Investment Advisers Act, a financial planner's compensation may consist of which of the following choices? 1 An hourly fee 2 An overall fee for developing a financial plan 3 Commissions on insurance products A I and II only B I and III only C II and III only D I, II, and III
Answer: D
NASAA and the SEC recognize which of the following locations as a state? A Puerto Rico B The U.S. Virgin Islands C Washington, D.C. D All of the above
Answer: D
One of your largest clients has consistently picked profitable stocks for his account. He has just indicated his desire to buy 10,000 shares of a Pink Sheets stock. Considering the client's successful track record, you decide to purchase a significant number of shares ahead of completing your client's buy order. Under which of the following conditions is this action acceptable? A The client has signed the IAR liability waiver. B Written disclosure is made to the client regarding your activities. C The client is given a reduced commission on the transaction in return for his accommodation. D Generally, this action is prohibited.
Answer: D
Under NASAA's Statement of Policy on Unethical Business Practices, an adviser may share confidential client information with all of the following, EXCEPT: A The SEC B The IRS C FINRA D An affiliated broker-dealer
Answer: D
Under the Uniform Securities Act, which of the following practices is NOT prohibited? A Sharing in the profits of a client's account without any contribution to the account B Executing a solicited order for an unregistered, nonexempt security C Excessive trading in a client's account D Sharing of a commission on a trade by two agents of a broker-dealer
Answer: D
Which of the following choices is a custodian's primary goal under the Uniform Prudent Investor Act? A Limiting capital losses B Maximizing return C Preserving purchasing power D Investing with an eye toward the risk/reward profile of the entire account
Answer: D
Which of the following persons would meet the definition of an investment adviser according to SEC Release 1092? A A broker-dealer that provides the public with asset allocation tools B An accountant who holds herself out to the public as a provider of tax planning advisory services C A bank that holds itself out to the public as a provider of trust services D A lawyer who holds himself out to the public as a provider of financial planning advisory services
Answer: D
