S63 Practice Questions

Under Rule 147, securities sold within the borders of one state are exempt from a. state registration b. federal registration c. state and federal registration d. none of the above

b. Rule 147, aka Intrastate Offerings, are exempt from federal registration. However, state registration may be required

Under the USA, which of the following issuers are not exempt from registration with the state administrator? a. not for profit corporations b. for profit corporations c. corporations with their stock listed on Nasdaq d. federal savings and loan associations

b. Stock issued by a for-profit corporation is not exempt and is subject to registration

Which of the following statements is true regarding the consent to service of process a. it must be renewed every year b. It is used for receiving and processing noncriminal complaints c. it is for facilitating the prosecution of criminal complaints d. filing this document is optional

b. The consent to service of process appoints the state administrator to serve as the applicant's attorney for the purpose of receiving and processing noncriminal complaints. It is required of all registrants when they file for registration in a state

All of the following are acceptable reasons for disclosing confidential information regarding a client's account except a. the account is discretionary b. the demand is made by the SEC c. the demand is made by an administrator d. the client grants permission

a. the NASAA statement of policy on unethical business practices of investment advisers considers the release of confidential information about advisory clients unethical and unlawful unless the disclosure is authorized by the client or required by law. Discretionary authority permits the adviser to buy and sell securities for the account but it is not an authorization to release confidential information

A brokerage firm executes an existing customer's order by locating a contra-party and charges the client a commission for executing the trade. In what capacity was the firm acting a. broker b. dealer c. facilitator d. auctioneer

a. the firm is acting in the capacity of a broker on the transaction since it was representing its client by locating someone willing to take the other side of the trade. Firms acting as brokers in trades earn a commission. If the firm had traded the security for or from inventory and there was a markup or markdown, it would have been acting in the capacity of a dealer

An officer of GTO company is selling his company's convertible debentures to the public. In this capacity, the officer is a. a broker-dealer b. an agent of the issuer c. an agent of a broker-dealer d. excluded from the definition of an agent

b. Unless the transaction or the security is exempt, a person who represents an issuer in the sale of securities is considered an agent of the issuer. There is no indication in this question that the transaction or the security is exempt

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

a. the only acceptable practice is exercising discretionary control for up to 10 business days based on oral direction from a client. NASAA's statement of policy on unethical business practices of investment advisers prohibits charging unreasonable fees. In determining reasonableness of fees, administrators can research the competitiveness of fees and advisory services provided. Since not all clients have the same objectives, a conservative approach is not appropriate for all clients. Remember that an administrator does not approve of a firm's practices.

An attorney wishes to place orders for a client's account with an investment adviser. Under the NASAA statement 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 offer 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

a. the order may only be accepted if the attorney is granted trading authorization from the client. If not, the investment adviser would commit an unethical business practice by accepting the order, which could result in civil liability

Under the USA, when do the registrations of broker-dealers, agents, and individual investment advisers expire? a. on december 31 each year b. on the fiscal year-end of the broker-dealer, agent, or investment adviser c. on the fiscal year-end of the state government d. only upon request of the registrant

a. under the USA, registrations expire at the end of each calendar year

An agent is licensed in both ohio and michigan. Two of the agent's clients, one in ohio and one in michigan, feel as though they have been treated unfairly and that violations have occurred. Which state administrator would have the authority to investigate the agent? a. the ohio administrator b. the michigan administrator c. the administrators of ohio and michigan d. only the SEC

c. both administrators would have jurisdiction since activity has occurred in each of the states

A firm acting in the capacity of a dealer/market maker will a. add markups or markdowns to all client trades b. add commissions to all client trades c. assist clients by locating the other side of the transaction d. collect a sales charge on all transactions

a. When acting as a dealer/market maker, a broker-dealer does not charge a commission. A dealer/market maker either buys into inventory or sells out of inventory and charges a markup or a markdown. The dealer/market maker will mark up from the offer price (asked) when selling and markdown from the bid when buying

Which of the following statements is/are true of exempt securities under the uniform securities act? I. if state rules regarding an exemption are more restrictive than federal rules, then state rules would govern II. any security exempt under federal regulations is also exempt under the uniform securities act III. an exempt security is one that is not subject to the antifraud provisions of the uniform securities act IV. federal regulations always supersede state rules a. I b. II and IV c. I and III d. I, II and IV

a. When the rules overlap, the most restrictive rule applies. A security can be exempt under federal law but not state law, and vice versa. No security is exempt from the antifraud provisions of the USA

Under the USA, which of the following practices is not prohibited? a. sharing of a commission on a trade by two agents of a broker-dealer b. executing a solicited order for an unregistered, nonexempt security c. sharing in the profits of a client's account without any contribution to the account d. excessive trading in a client's account

a. agents of the same firm are permitted to share commissions on a trade

Which two of the following statements are true regarding a broker-dealer acting as a dealer/market maker? I. the broker-dealer buys for or sells from its own inventory II. the broker-dealer earns commissions for executing transactions III. the broker-dealer is acting as a principal IV. the broker-dealer is acting in an agency capacity a. I and III b. II and IV c. I and II d. I and IV

a. A market maker is a broker-dealer that stands ready to buy or sell a specific stock for its own inventory. The price it is willing to pay for the stock is its bid price, while to ask or offer price represents the price at which it is willing to sell stock (to other dealers). As principals in transactions, market makers do not charge commissions. Commissions are charged when firms act as brokers (agents)

Money managers are prohibited from directing commission dollars to obtain which of the following items from registered broker-dealers? a. office space b. computer software c. in-house research reports d. third-party research reports

a. Advisers may not direct commissions to a registered broker-dealer in order to obtain office space or furniture. These are unacceptable examples of soft-dollar rebates

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

a. An adviser is permitted to use a broker-dealer to execute transactions in exchange for certain services. The term is referred to as soft-dollars and it is defined as a means of paying brokerage firms for their services through trade commissions. The key here is that the services benefit its clients. Some examples of allowable services would include traditional and third-party research reports and other related publications, discussions with research analysts concerning the securities they cover, portfolio analysis software, attendance at a conference or seminar where corporate executives discuss their company's performance, market and economic data services, and certain trading software. The permissible uses of soft-dollars do not include compliance or administrative assistance, advertising and marketing, the adviser's travel expenses, meals or entertainment, overhead and administrative expenses, employee salaries, marketing, professional licensing fees, computer terminals, and the correction of trading errors

Ben is an agent for a broker-dealer. One of Ben's clients is going on a business trip and is interested in adding a pharmaceutical stock to her portfolio, but is unsure of which one of three stocks to choose. The client fears that the most appropriate time to buy might be during her trip. Which of the following orders may Ben accept without written discretionary authority? I. buy 500 shares of SureCure whenever you think the price is right II. buy 500 shares of SureCure whenever you think it is appropriate III. buy 500 shares of whichever pharmaceutical stock seems to be the best value when the market opens on Monday a. I and II b. I, II and III c. III d. none of the above

a. Broker-dealers and their agents are prohibited from exercising discretionary authority in a customer's account without first obtaining written authority from the customer, except when the customer provides verbal discretion to select the price and/or time of the transaction. For the exception to apply, the customer would need to specify all other details of the trade, including whether to buy or sell, the specific security, and the amount. In choices I and II, the agent is free to choose the price or time, so written discretionary authority is not necessary. In choice III, the agent would also need to select the specific security to be purchased, which would require written discretionary authority

Which of the following choices would not be permitted under a soft-dollar arrangement between an investment adviser and a broker-dealer? a. accounting fees b. portfolio analysis software c. discussions with research analysts d. a seminar where corporate executives are in attendance

a. Concerning soft-dollar arrangements, the SEC interprets research and brokerage services to include research as well as anything that helps the investment adviser to effect securities transactions or to perform related functions such as clearance, settlement, and custody. The key is that the service that the adviser receives as part of a soft-dollar arrangement must benefit its clients. Some examples of allowable services include traditional research analysts concerning the securities they cover, portfolio analysis software, attendance at a conference or seminar where corporate executives discuss their company's performance, market and economic data services, and certain trading software. The permissible uses of soft dollars do note include accounting fees, advertising and marketing expenses, the adviser's travel expenses, meals or entertainment, overhead and administrative expenses, employee salaries, marketing, professional licensing fees, computer terminals, and the correction of trading errors.

In which situation would the administrator form state A have jurisdiction over an offer? a. if the offer originated in state A and is being broadcast on a radio or television program in state A b. if the offer originated outside of state A, but is being broadcast on a radio or television program in state A c. if the offer is made in a newspaper that is published in state B, but circulated in state A d. if the offer is made in a newspaper published in state A, but more than two-thirds of the paper's circulation is outside of state A in the past year

a. Generally, an administrator will have jurisdiction over any offer if it originated in that state, was directed in that state, or was accepted in the administrators state. However, if the communication originated outside the state and was in the form of a radio or television broadcast, the administrator would not have jurisdiction. The administrator has jurisdiction if the newspaper is published in that state and more than one-third of the circulation is inside that state

For how long must broker-dealers and investment advisers maintain their books and records according to the USA? a. 3 years for broker-dealers and 5 for investment advisers b. 5 years for broker-dealers and 3 for investment advisers c. 2 years for broker-dealers and 5 for investment advisers d. 2 years for each

a. Investment advisory firms are required to keep books and records for a minimum of 5 years and broker-dealers for 3 years according to the USA

William is an IA rep. His firm has created a brochure that contains the same information as his firm's Form ADV Part 2. William gives this brochure to one of his new clients, who has verbally agreed to the contract. He has not previously provided her with any other documents. Which of the following statements is true regarding William's actions? a. William's firm is in compliance with the Brochure Rule of the investment advisers act b. William's firm has not fully complied with the disclosure requirements of the investment advisers act c. William must send his client a copy of the firm's Form ADV Part 2 within 48 hours of her signing the contract d. if William's client is a registered investment company, he will be required to provide a brochure after the contract is signed

a. The brochure rule permits advisers to give a disclosure brochure to clients at the time they enter into contracts. For federal covered advisers, the brochure must be given to clients even if the advisory contract with the client is oral. IAs or IARs are not required to provide a brochure to registered companies or clients whose contracts are for limited impersonal advisory services for which the client pays less than 500 per year. Under the USA, clients may be given the brochure at the time the contract is signed, as long as they have 5 business days to cancel the contract without penalty. Otherwise, the brochure must be given to a client 48 hours prior to the signing of the contract

When sharing in the profits of a customer's account, whose approval is required? a. the client's b. the SEC's c. the administrator's d. this practice is prohibited and unethical

a. The client and the broker-dealer carrying the account are required to approve any account in which both the agent and the customer share in the profits and losses. The sharing must be proportionate to the capital at risk. Of the choices given, the client's approval is the only correct choice

XYZ broker-dealer is located in state A, where it maintains its corporate headquarters. Under the USA, XYZ would not meet the definition of a broker-dealer in state B if it a. has no office in state B and only sells securities to an investment company located in state B b. has an office in state B and conducts business only with other broker-dealers c. has an office in state B and conducts business with insurance companies d. has no office in state B and conducts business with high net worth clients that are residents of state B

a. Under the USA, the term broker-dealer does not include a person that has no place of business in the state and only transacts business with issuers, other broker-dealers, financial institutions or institutional buyers. If a firm has an office in state B, it would meet the definition of a broker-dealer in state B regardless of the clients it sells securities to or conducts business with. There is no exclusion form the definition of broker-dealer in a state if you sell securities to high net worth individual investors since they are not considered institutional buyers

Which of the following statements would be considered not true 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

b. The investment advisers act of 1940 regulates federal covered advisers. If registered with the SEC, IAS must comply with federal rules regarding financial requirements placed upon them by the state in which it maintains its principal place of business

A married couple would like to invest and begin saving for their 8 year old son's college education. Which of the following options would be the most suitable investment recommendation? a. coverdell ESA b. 529 plan c. diversified stock portfolio d. diversified bond portfolio

b. The most suitable recommendation for a couple saving for a child's college education would be a college savings plan. The best answer would be a 429 plan since investors may save substantially more money each year than with a coverdell ESA

The limited registration provision to Canadian broker-dealers conducting business in a state permits which of the following actions? a. the broker-dealer solicits all residents of a state b. the broker-dealer transacts business with existing clients who are temporarily in a state c. the broker-dealer transacts business with institutional clients of a state d. the broker-dealer opens an office in a state

b. The provisions allowing Canadian broker-dealers to transact business in a state are limited. A broker-dealer may effect transactions with a person from Canada who is temporarily in the state if there was an existing broker0dealer-client relationship before the person entered the United States

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

b. Placing proprietary orders (orders for the account of a broker-dealer) ahead of customer orders is termed front-running, and is prohibited. The institutional buy order has the possibility of moving the price of a security higher. This would allow the broker-dealer to purchase the security or a derivative on that security prior to executing this order and profit when the market reacts to the institutional order

Selling away is allowed if an agent completes which of the following steps? I. provides oral or written notification to her supervisor II. provides written notification to her firm III. receives her firm's written permission IV. notifies the state securities administrator of the SEC a. I b. II and III c. I and III d. I, III and IV

b. A registered representative who wants to sell securities outside of her normal course of employment must first notify her firm in writing about the proposed transactions and must receive her firm's written permission. The notice must describe the proposed private securities transactions in detail. If the firm approves the representative's activities, then it is responsible for supervising the transactions and must record them in its books and records.

All of the following transactions are considered exempt under the uniform securities act except a. a non-issuer transaction effected through a broker-dealer on an unsolicited basis b. any transaction directed to a maximum of 15 retail (non-institutional) investors c. a non-issuer transaction of a security filed under the investment company act of 1940 d. any transaction between an issuer and an underwriter

b. Choice b may appear to be a private placement however, the maximum number of retail investors is 10, not 15. Any non-issuer transaction of a security registered under the investment company act of 1940, or any transaction between an issuer and an underwriter would be considered exempt transactions. Additionally, unsolicited transactions effected through a broker-dealer are exempt

Under the USA, which of the following transactions would be considered a sale? a. the exercise of a call option b. a gift of assessable stock c. a stock dividend d. lending stock to short-sellers

b. Gifts are generally not conisdered sales. However, since assessable stock may require the person who receives the gift to provide additional money or capital, it is considered a sale. Loans and pledges of securities as well as stock dividends do not constitute a sale if nothing of value is given by the shareholder for the dividend

Emma, an agent, has just received a subpeona to testify at an investigative hearing. What penalty would be assessed if Emma failed to honor the subpeona? a. she will lose her registration b. she may be found in contempt of court c. she is guilty of fraud d. she will be barred from the industry for 10 years

b. If a court order to appear and testify at a hearing is ignored, the person may be found in contempt of court

Under the USA, what is the statue of limitations on taking action to recover damages on transactions made in violation of a state registration provision? a. within 2 years of occurrence or discovery, whichever occurs last b. within 3 years of occurrence or 2 years of discovery, whichever comes first c. within 2 years of occurrence d. within 2 years of discovery

b. If an agent unknowingly (without fraud) sells a security in violation of a state registration provision, her customer must take action for recovery within three years of the occurrence of the violation, or within two years of discovery of the violation, whichever comes first

Sharon is responsible for answering phones and filing paperwork for Graceland Securities. Her title is director of human resources. Under the uniform securities act a. Sharon is an agent since all officers of a securities firm are considered agents b. Sharon is not considered an agent since she is not involved in sales or trading c. Sharon is considered an agent, but would not need to pass a qualifying exam d. Sharon is not an agent but could accept unsolicited orders

b. Only personnel engaged in securities transactions are agents. Officers may be considered agents, but it depends on their particular job function

Which of the following practices are violations of the USA? I. executing trades for the firm's account prior to executing client trades II. reporting inside information to an immediate supervisor III. inducing trades for the purpose of increasing commissions a. I and II b. I and III c. II and III d. I, II and III

b. Reporting inside information to an immediate supervisor is not a violation of the USA. Choice I is a front-running violation and choice III is a churning violation

Which of the following statements is true according to the USA? a. the administrator may require minimum financial requirements for advisers only if they have custody of client funds or securities b. the administrator may require a surety bond for advisers who have custody of client funds or securities c. the administrator never requires a surety bond for advisers d. the administrator may not inspect any adviser's records without prior notice written or outside its state

b. the administrator may require minimum financial requirements for advisers, whether or not they have custody of client's funds or securities. Surety bonds are required only of investment advisers who have custody or exercise investment discretion over client accounts. The administrator may inspect any adviser's records without prior notice, both within and outside its state

According to the uniform securities act, when does the registration of a financial professional become effective? a. at noon on the 10th day after filing b. at noon on the 20th day after filing c. at noon on the 30th day after filing d. at midnight on the 30th day after filing

c. Assuming an applicant has submitted all required documentation, its registration becomes effective at noon on the 30th day after filing with the state. The administrator does have the power to grant an earlier effective date, and may defer the effective date until the 30th day after the filing of any amendment to the initial application

Under the USA, which of the following choices would not be considered a person? a. a corporation b. a partnership c. an adult found to be mentally incompetent d. an investment adviser representative

c. The USA has a broad definition of the word person. Natural persons (individuals) and legal persons (partnerships and corporations) are included in this definition. Minor children, incompetent adults and deceased persons are not considered persons under the USA

All of the following statements are not true regarding the uniform securities act except a. it is part of federal law governing state securities requirements b. each state may adopt certain provisions of the act while omitting others c. it is the model law governing state registration requirements d. the SEC determines which portion of the act administrators should enforce

c. The USA is a model law governing state registration statues for securities and financial professionals. The USA gives guidance to individual states when they draft their own securities statues, but the USA itself is not the actual law of any one state

Under the USA, which of the following statements is not true regarding an agent sharing in the profits and losses in the client's account? a. sharing is permissible if the client has approved of it in writing b. sharing is permissible if the broker-dealer employing the agent has approved it c. sharing is permissible if the client and agent have a mutual agreement as to the proportion of profits and losses the agent will share d. the agent may share only in direct proportion to the amount the agent has contributed

c. An agent is permitted to share in the profits and losses of a client's account if the client has approved the arrangement in writing, the broker-dealer employing the agent approved the arrangement in writing, and the gains and losses are shared in direct proportion to the funds contributed

Which of the following choices would not meet the definition of an exempt transaction? a. a transaction by a trustee involved in a bankruptcy b. an unsolicited non-issuer transaction with an institutional investor c. transactions between an issuer and retail investors d. a transaction limited to a maximum of 10 non-institutional investors

c. Any transactions by trustees involved in a bankruptcy- sheriffs, marshals, guardians, and other fiduciaries- are considered exempt transactions. Unsolicited non-issuer transactions, whether with institutional or retail investors, and transactions limited to a maximum of 10 non-institutional investors, are also considered exempt transactions. However, unlike transactions between an issuer and an underwriter, transactions between issuers and retail investors are not exempt from registration

Which of the following choices is a broker-dealer in State B? a. an agent in state A who contracts a client in state B b. a corporation that sells commercial paper every other week in state B c. a broker-dealer registered in state A, where its only office is located, which has three individual clients in state B d. a bank trust department that buys and sells securities for its customers

c. Agents, issuers, and banks are not broker-dealers. Also, a person with no place of business in a state, who deals only with institutional investors, is not a broker-dealer. If a firm deals with individuals, it would be considered a broker-dealer, even if it did not have an office in the state

ABC investment advisers purchases quarterly research reports from XYZ brokerage and sends the reports 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

c. Choice c gives the impression that the third-party research report was actually created by ABC. This would be a misleading statement

A firm has been keeping stock owned by customers and stock owned by the broker-dealer together in a way that does not clearly indicate who owns the shares. What is this prohibited practice called? a. hypthecation b. rescission c. commingling d. conversion

c. Commingling refers to the practice of intermixing securities belonging to customers with securities belonging to the broker-dealers. This is prohibited in an attempt in an attempt to assure that customer securities are not misused

Which of the following could be considered an investment adviser representative under the USA? a. Chelsea Asset Management, a portfolio management firm b. Smart Choice, a discount broker-dealer c. an individual employed by Chelsea Asset Management who solicits clients for the firm d. a clerical employee of Chelsea Asset Management

c. Firms such as Smart Choice or Chelsea Asset Management are classified as either broker-dealers or investment advisers. IA representatives are individual (natural) persons who are associated with an IA and make recommendations, manage accounts, give advice, solicit business or negotiate the sale of AI services. Additionally, anyone who supervises persons engaged in theses activities is also considered an IA representative. Persons whose job functions are considered strictly clerical are not considered IA representatives

According to the USA, which of the following statements is true? a. when an agent's registration is suspended in a state, the broker-dealer would no longer be able to conduct business in that state b. when an investment adviser representative's registration is suspended, the investment adviser's registration is no longer in effect c. when a broker-dealer is suspended, the agent's registration is no longer in effect d. none of the above

c. If an agent's registration is suspended, the broker-dealer's registration remains intact. However, an agent's registration is only effective when the broker-dealer's registration remains in effect. If an investment adviser representative's registration is suspended, the investment adviser's registration is not affected

A corporation is planning an offering of common stock and has filed its registration statement with the SEC. At this time, which of the following actions taken by a registered representative would not be a violation of the securities act of 1933? a. informing clients that they will receive as many shares of the offering as they desire b. accepting money on orders entered for the purchase of shares c. attempting to obtain indications of interest form customers concerning the offering d. all of the above

c. Once a registration statement has been filed, indications of interest may be accepted and only indications of interest would be acceptable at this time, not orders. All of the other actions listed would be in violation of the securities act of 1933 if a registration statement had been filed, but not yet deemed effective by the SEC.

Under NASAA's statement of policy on unethical business practices, which of the following statements is true regarding discretionary authority exercised by an investment adviser? a. discretionary authority must be in writing, since oral discretionary authority is not valid b. oral discretionary authority may be granted only if the contract with the client has been in existence for the last 90 days c. oral discretion may be used for 10 business days after the date of the first discretionary transaction and then written discretion is required d. discretionary authority may be used only if it was granted in writing at the time the contract was entered into

c. Oral discretionary authority may be used for the initial discretionary transaction in a customer's account and for 10 business days thereafter. Written discretion is then required.

All of the following persons are defined in the uniform securities act except a. issuer b. broker-dealer c. registered representative d. investment adviser representative

c. The term registered representative is not defined in the uniform securities act, although it is used in federal law. According to the uniform securities act, an issuer is a person who offers securities, or plans to offer them. A broker-dealer is in the business of buying and/or selling securities either for customers or on its own behalf. An investment adviser representative is an employee of an investment adviser who gives advice to clients, sells these services, or supervises people who do. Remember, the term person in the uniform securities act applies to both entities, such as companies, and individuals

Which of the following statements are true concerning certain federal covered securities? I. the administrator may require the issuer to pay a filing fee II. the administrator may bring enforcement action if fraud is involved III. the administrator may require the issuer to file a consent to service of process IV. the administrator will grant the registration after a final review a. I and II b. I and III c. I, II and III d. I, II, III and IV

c. The uniform securities act sets limits on the powers of the administrator concerning federal covered securities. The administrator may require the filing of a registration fee, the filing of a consent to service of process and the filing of certain documentation with the SEC. The administrator may bring enforcement action if fraud or deceit is used in the sale of a security. The administrator may not subject the issuer to a state review. This occurs when a state has the authority to allow or disallow a security to be offered in a state and is sometimes referred to as a merit review

A broker-dealer registered in Georgia sells a security listed on the Nasdaq. The transaction takes place in the secondary market between two clients who are Georgia residents. According to the USA, which of the following statements is true? a. the administrator in Georgia may not require any filing of information about the broker-dealer or issuer b. the issuer would be required to register the security in Georgia c. the security is not required to be registered in Georgia d. the broker-dealer would be required to register the security in Georgia

c. This is an example of an exempt transaction since it is considered a non-issuer transaction executed by a registered broker-dealer where the security is listed on a national securities exchange

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 sheet penny stocks are never suitable for children b. this action is permissible if sam obtains the permission of his state's investment ethics committee 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

c. Under the UPIA, a custodian's central consideration is to evaluate the risk/reward trade-off of a given investment prior to inclusions in an account. In this way, the UPIA borrows from the modern portfolio theory when assessing the actions of a custodian. Factors such as preserving purchasing power, tax consequences, and liquidity needs are considered, but balancing the risk/reward profile of the account is the custodian's central goal

An agent in Maine calls a prospective client in New Hampshire and recommends the purchase of a security. Under the USA, the offer is made in a. maine only b. new hampshire only c. both maine and new hampshire d. no offer is made unless the client agrees to buy the security

c. Under the USA, an offer is made in a particular state when the offer either originates from that state or is directed by the person making the offer to a state, and is received in that state to which it is directed

According to the USA, which of the following statements is/are true concerning private placements? I. the offer may not be made to more than 10 persons in that state during any 12 month period II. the offer may not be made to more than 35 persons in that state during any 12 month period III. the offer may be made to any number of institutional investors during any 12 month period IV. commissions may not be paid if the buyers are non-institutional customers a. I b. III and IV c. I, III and IV d. II, III and IV

c. Under the USA, any transaction involving no more than 10 persons (there is no limit on institutional accounts) is considered an exempt transaction, known as a private placement, if the following conditions are met - the seller believes that all the non-institutional buyers are purchasing for investment purposes only - no commission or other remuneration is paid for soliciting non-institutional buyers Choice II refers to a condition for private placements under Regulation D of the securities act of 1933, the federal act.

According to the USA, which of the following choices sis not considered a security? a. a certificate of interest in an oil and gas program b. whisky warehouse receipts c. an endowment policy d. a variable life insurance contract

c. Under the USA, endowment polices are not securities

With reference to the uniform securities act, when does an agent's registration become effective? a. December 31 b. 60 days after filing the application c. 30 days after filing the application d. as soon as the agent passes the exam

c. Under the USA, registrations become effective at noon on the 30th day after filing the application.

Under the USA, a state administrator may deny, suspend, or revoke any registration or bar or censure a person in which of the following circumstances? I. the applicant was convicted of a felony within the past 10 years II. the applicant was convicted of a misdemeanor eight years ago III. the applicant was prohibited by a court order from engaging in the securities business IV. the applicant was subject to a suspension order of a stock exchange a. II b. II and III c. I, III and IV d. I, II, III and IV

c. With the exception of the misdemeanor conviction, all of the reasons given are valid for denying, suspending, revoking, barring or censuring a person. Regarding a misdemeanor, it must be a securities-related misdemeanor within the last 10 years

Which of the following securities are not exempt from the antifraud provisions of the USA? I. municipal bonds II. securities issued by a corporation and listed on the Toronto stock exchange III. debt issued by a manufacturing company a. I and II b. I and III c. II and III d. I, II and III

d. Although US government and listed securities are not required to be registered under the USA, they are not exempt from the antifraud provisions of the act. All securities are subject to the antifraud provisions

Securities issued by which two of the following entities are not federal covered? I. the US government II. a NYSE-listed company III. a registered investment company IV. a municipality a. I and II b. II and III c. III and IV d. I and IV

d. Securities issued by the US government and municipalities (the states and local government units) are exempt securities, not federal covered securities. Securities issued by companies listed on one of the national exchanges and securities issued by registered investment companies (mutual funds) are federal covered

A state administrator has suspended a broker-dealer. Which of the following statements concerning the broker-dealer is true? a. the firm is allowed to accept unsolicited orders b. the only activity the firm may not participate in is new issue distributions c. the firm may continue business as usual during the appeal process d. the firm may apply to the state court for a review of the order

d. Although the firm may apply to the state court to review the administrator's order, there is not stay of the order. The firm is still suspended during the appeal process and may not participate in any securities-related activities in that state

Which of the following actions may be taken by the administrator? I. limit or restrict the functions or activities of the registrant II. administer an oath III. cancel registration if the registrant cannot be located after a reasonable search a. I and II b. I and III c. II and III d. I, II and III

d. The administrator is given the authority to take all these actions

Under the USA, which of the following securities is/are exempt? I. bonds issued by a Canadian province II. Illinois general obligation bonds III. an insurance company's common stock IV. securities issued by a not-for-profit educational association a. II b. II and IV c. I, II and IV d. I, II, III and IV

d. All of the items listed are exempt securities according to the USA

If a federal covered adviser changes its fee I. the investment adviser must file an amended ADV part 2 with the state administrator II. the investment adviser must file an amended ADV part 2 with the SEC III. the new fee must be reflected in the brochure IV. all existing clients must be advised a. I, II and III b. I, II and IV c. II, III and IV d. I, II, III and IV

d. All of the statements listed are true concerning the actions of a federal covered adviser is required to take if the fees charged to clients are changed.

Under the Uniform securities act, an employee of a municipal issuer selling securities to the public is considered a. an agent of the issuer and is subject to registration b. an agent of the issuer and is not subject to registration c. an agent of a broker-dealer d. not an agent

d. A person representing a municipal issuer is not considered an agent and would not be subject to registration. If the securities were not exempt, the employee would be subject to registration

According to the NASAA guidelines regarding viatical investments, purchasers of these securities should meet which of the following financial standards? a minimum net worth of 250,000 b. a minimum net worth of 150,000 and an annual income of 100,000 c. the same requirements as accredited investors d. choice a, b or c

d. According to the NASAA guidelines regarding viatical investments, viaticals are suitable for the following individuals and entities - individuals who have a minimum net worth of 250,000 regardless of income - individuals who have a minimum net worth of 150,000 and an annual income of at least 100,000 - any individual or organization meeting the standards for accredited investors under regulation D of the securities act of 1933 The investor's home equity must be excluded from these net worth calculations. Also, no more than 10% of an individual's client portfolio may be invested in viaticals

Erica has just received a subpoena requiring her to testify at a hearing regarding the advisory firm for which she works. Erica's supervisory tells her that if she testifies and tattles on the firm, she may as well look for other employment. What should Erica do? a. request an exemption from the administrator b. seek the counsel of the better business bureau c. ignore the subpeona to keep her job d. comply with the subpeona and testify

d. According to the USA, no person is executed from attending and testifying in response to a subpeona, and no individual can be prosecuted or subjected ot any penalty for testifying

An offer to sell a security was directed by an agent in Nebraska to a client who lives in Kansas, but who is visiting a relative in Oklahoma. The customer accepts the offer and agrees to make payment upon their return to Kansas. Under the uniform securities act, which administrator(s) have jurisdiction over the transaction? a. nebraska only b. kansas and oklahoma c. nebraska and kansas d. nebraska and oklahoma

d. An administrator has jurisdiction over any offer that originates from their state or is directed into and received in the state it was directed into, or was accepted in their state. It does not matter where payment is made. The offer originated in Nebraska, so its administrator has jurisdiction. The offer was directed into kansas but was not received there so its administrator has no jurisdiction. The offer was accepted in oklahoma so its administrator would have jurisdiction over the offer as well

William is an agent with a broker-dealer and is registered presently in three states. One of William's clients informs him that he is moving to a state where neither William nor his firm is registered. Which of the following statements is true regarding William's registration in the new state? a. William would be permitted to transact business in the new state immediately b. William must register in the new state and receive verification form the state administrator that the registration is effective before conducting any new business with the client c. William must file a consent to service of process with the state d. william is not eligible to register in the new state until his broker-dealer is registered in the state

d. An agent may transact business in a state in which he is not currently registered under certain circumstances. The employing broker-dealer must be registered in the state, and the individual must be registered in at least one other state. Since his broker-dealer is not registered, William is not eligible for registration

Betty owns and operates Right Choice Advisers, a small investment advisory firm registered with the states of Oregon, Washington and California. Betty decides to sell 60% of her shares to another investment adviser and retire. This transaction would require the approval of a. the SEC b. FINRA c. the state administrator d. Right Choice's clients

d. An investment adviser may not assign a client's contract to another investment adviser without the client's consent. An assignment includes the acquisition of the majority of the adviser's stock by another entity

Any person who willfully violates SEC rules and regulations is subject to a fine and imprisonment of up to a. 5,000 and 3 years b. 5,000 and 5 years c. 10,000 and 3 years d. 10,000 and 5 years

d. Any person who willfully violates the securities act of 1933 or SEC rules and regulations is subject to a fine of up to 10,000, imprisonment for up to 5 years or both

Which of the following transactions are exempt from the antifraud provisions of the uniform securities act? a. unsolicited transactions involving a private placement b. unsolicited non-issuer transactions c. transactions with financial institutions d. none of the above

d. Certain transactions may be exempt from registration requirements, however, no transaction is ever exempt from the antifraud provisions of the act.

Which of the following situation would not require an adviser to provide customers with an annual audited balance sheet? a. having custody of client assets b. receiving substantial prepayment of advisory fees c. having full discretionary power over the client's account d. none of the above

d. Investment advisers who have custody of client assets or who receive substantial prepayment of advisory fees or who have full discretion over client accounts are required to provide an audited annual balance sheet to their clients

An agent receives an unsolicited order form a customer who wants to purchase a large amount of a speculative stock. Although the client has the financial resources to bear the risks of the investment, the agent does not think the purchase fits the client's investment objectives. Which of the following steps is inappropriate? a. accepting and executing the order b. attempting to convince the customer to not buy the stock c. suggesting a less risky stock for the customer to purchase d. ignoring the customer's order since the agent feels the security is unsuitable

d. It is considered a dishonest and unethical practice for an agent to knowingly fail to follow client instructions. However, agents may certainly attempt to convince customers to alter those instructions if they feel another course of action is more suitable for that client

Members of the North American Securities Administrators Association does not include the administrator from which of the following places? a. Mexico b. Texas and California c. British Columbia and Quebec d. the British virgin islands

d. Members of NASAA include administrators from all 50 US states, the district of Columbia, Puerto rice, the US virgin islands, the Canadian provinces (British Columbia, Quebec) and Mexico. The administrator of the British virgin islands is not a member

Which of the following investments are prohibited under the UPIA? a. speculative option positions b. penny stock investments c. junk bonds d. none of the above

d. No type or class of investment is specifically banned under the uniform prudent investors act. The act looks at the portfolio as a whole and makes an assessment as to the risk/reward trade-off of the investments selected when determining if an asset mix is acceptable for a give account. The standard of prudence is applied to the whole portfolio as opposed to individual investments

Robert works part-time for JJ financial planning, where he develops financial plans for clients. He asks clients a series of questions about their current finances and investment objectives, and uses their answers to create customized financial plans. These plans often include recommendations that they purchase insurance or variable annuities, opening IRAs or other types of retirement accounts. Robert charges a fee for the plans, but he does not earn commissions for selling clients variable annuities and insurance to implement their plans. Is Robert an investment adviser representative? a. no, he is an investment adviser b. no, since he does not provide investment advice on a full-time basis c. no, since he does not receive compensation for implementing his financial planning recommendations d. yes, he is an investment adviser representative

d. Robert is performing these activities as an employee of JJ financial planning. Assuming that his firm is registered as an investment adviser, Robert would be defined as an investment adviser representative, while JJ financial planning would be the investment adviser

What powers does the USA provide the administrator during an investigation of a violation? I. subpeona records located outside the state II. subpeona witnesses located outside the state and compel their testimony III. only subpeona records or witnesses located in the state IV. refer violations to the attorney general to initiate criminal prosecutions a. I and II b. I, II and III c. I and IV d. I, II and IV

d. The administrator, during an investigation, may subpeona records and witnesses, whether located in or out of state. The administrator may initiate criminal action by referring evidence to the proper authorities. An administrator may suspend or revoke a registration, provided reasons are cited for such actions and the opportunity for a hearing provided

HM Advisers is a small investment adviser with 19M under management. The firm is the adviser for a start-up, Micro Cap Mutual Fund. HMA a. is considered an exempt adviser and is not required to register until its assets exceed 10M b. must register with both the SEC and each state in which it does business until its assets under management exceed 130M c. may register as either a state or federal adviser d. must register as a federal adviser

d. The federal government and the states have a division of responsibility when regulating investment advisers. In general, an adviser must be registered with either the SEC or with one or more states. There is no requirement to register at both the federal and state levels. The basis for the federal/state division is usually the amount of assets under management. Advisers with assets of 110M or more must register with the federal government, while those with fewer assets fall under state jurisdiction. An IA may also choose to register with the SEC if it has AUM of 100-110M. One important exception to remember applies to advisers to registered investment companies. These firms must be registered as IAs with the SEC regardless of the amount of assets they have under management.

The owner of a small group of comic book stores is planning a public offering of securities. The owner will be involved in marketing the shares to the public, but will not receive direct compensation from the sales. According to the USA, the owner must register a. as an investment adviser b. as an investment adviser representative c. as a broker-dealer d. the securities

d. The question states that the owner is conducting a public offering of securities. All securities offerings must be registered unless they can qualify for an exemption. There is nothing in the stem to indicate that the offering qualifies for an exemption. The owner is not in the business of providing investment advice for compensation and does not meet to register as an investment adviser or an investment adviser representative. The owner also does not meet the definition of a broker-dealer-- he is not "in the business of effecting securities transactions." The owner is an issuer and issuers are specifically excluded from the definition of a broker-dealer.

Which of the following statements is true regarding surety bonds? a. it is always required of broker-dealers registering under the USA b. it is always required of investment advisers registering under the USA c. it must always be issued by a bonding company d. the administrator may allow a deposit of cash or securities

d. The surety bond is posted by a registrant to cover the cost of possible legal actions arising from violating the USA. Some broker-dealers and investment advisers may be granted a waiver for the surety bond. A deposit of cash or securities may be accepted in lieu of the bond, but the amount and type of securities will be determined by the administrator

Which of the following securities is not non-exempt under the USA? a. stock issued by a Canadian corporation b. Bigbux discount stores stock trading OTC c. M&L computer company stock that does not trade on an exchange or Nasdaq d. the city of Pasadena, California bond, sold by an agent at W&W broker-dealer

d. This question is asking you to identify the type of securities that are exempt from state registration. Securities issued by a US municipality are exempt, as are those issued by the government of Canada, its municipalities or the foreign governments of a country with which the US maintains diplomatic relations. Stock that trades OTC does not qualify for the blue-chip exemption. This exemption applies to securities listed on one of the national exchanges of Nasdaq

Which of the following terms is not pertinent when determining whether a firm meets the investment adviser definition? a. advice b. business c. compensation d. commission

d. To meet the definition of an investment adviser, a firm must be providing advice as a regular part of its business, and receive specific compensation. Commission is a normal charge for a broker in transactions, not for an investment adviser

According the National Securities Markets Improvement Act (NSMIA), state administrators are allowed to set a. net capital requirements for issuers b. net capital requirements for agents of broker-dealers c. minimum financial requirements for investment adviser representatives d. minimum financial requirements not to exceed those set by the SEC

d. Under NSMIA, state securities administrators are not allowed to impose requirements that are more stringent than SEC regulations

Chris is a customer who has very little understanding of financial markets. Chris has custodial power over his children's accounts and is concerned that his lack of investment experience could hurt his children's investment returns. He is considering allowing a third party to assume control of the accounts through a limited power attorney. Under the UPIA, which of the following statements is true? a. this practice is prohibited in all cases b. this practice is prohibited unless the custodian obtains the written consent of each child c. custodians may delegate discretion only to licensed advisers and/or attorneys d. custodians may delegate discretion to any competent person

d. Under the UPIA, a custodian is permitted to delegate investment functions to any competent third party. Minors have no say in this decision. Note, in the past, the UPIA specifically prohibited a custodian from delegating discretion to a third party. This is no longer the case

Which of the following choices would be considered a person under the USA? I. customer II. broker-dealer III. estate IV. issuer a. I and II b. I and III c. I, II and III d. I, II, III and IV

d. Under the USA, a person is defined as a legal entity which would include individuals (natural persons) and business entities such as corporations, broker-dealers, partnerships, and investment advisers.

Under the USA, which of the following persons is considered an investment adviser? a. an engineer b. a lawyer c. an accountant d. none of the above

d. Under the USA, lawyers, accountants, teachers and engineers are specifically excluded form the definition of an investment adviser

Mandy is an employee of the Indiana Toll Authority. Her boss, a high ranking official with the municipality, asks her to help sell the municipality's revenue bonds to some institutional clients as well as a few retail investors. How is the situation viewed by the USA? a. Mandy avoids meeting the definition of an agent if she sells the securities only to institutional investors b. Mandy meets the definition of an agent if she sells the securities to any retail investors c. Mandy meets the definition of an agent since she is selling the municipal securities to individual retail investors d. Many does not meet the definition of an agent under any circumstances

d. Under the Uniform Securities Act, an agent is any individual (other than a broker-dealer) who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Excluded from the definition is an individual who represents an issuer in effecting transactions in certain exempt securities or who represents an issuer in exempt transactions. Since Mandy is representing an issuer and selling a certain type of exempt security, she would not meet the definition of agent under any circumstances, whether selling to institutional and/or retail investors

NASAA and the SEC recognize which of the following locations as a state? a. Puerto Rico b. the US Virgin Islands c. Washington DC d. all of the above

d. all of the municipalities listed above are NASAA members. The SEC and NASSA recognize the authority of each of the locations to regulate securities transactions within its boundaries

Under NASAA's statement of policy on unethical business practices, an adviser may share confident client information with all of the following except a. the SEC b. the IRS c. FINRA d. an affiliated broker-dealer

d. an investment advisory firm must keep all information concerning its clients confidential. It may release the information only if required to do so by law or with the client's approval. The SEC, FINRA and the IRS are regulatory agencies that could obtain the information without the client's approval

Under the USA, which of the following items is a security? a. fixed annuity b. precious metals c. a commodity futures contract d. stock issued by a foreign company, but listed on the NYSE

d. stock of a foreign company which is trading in the US is called an American depository receipt (ADR) and is considered a security

Which of the following choices if a custodian's primary goal under the Uniform Prudent Investor Act? a. limiting capital losses b. maximizing return c. preserving purchasing power d. developing a suitable investment strategy

d. under the uniform prudent investor act, fiduciaries are supposed to invest the portfolio in a way that is suitable given the investment objectives of the account beneficiaries. Choices a, b and c are all worthy investment objectives, but may not be the primary goal for the account