S66 Focus

Be sure you know how to compute the dividend payout ratio. It is simply.....

"The dividends paid divided by the earnings made". It can be shown as total dividends and total net income, or as dividends per share and earnings per share.

This law repealed the TCJA of 2017 "kiddie tax" rules found at U24LO7 in the LEM. Effective 2020 and beyond, the pre-TCJA rules apply. Those rules are that any unearned income by child under age 19 that exceeds an indexed amount (currently $2,200), is taxed at the parent's marginal rate. If the parent is in the 24% tax bracket, the child's income in excess of $2,200 is taxed at that 24% rate.

..

There might be a question about a 62 year-old taking Social Security early and continuing to work. When a person takes Social Security Retirement Benefits prior to reaching full retirement age (FRA)—as early as age 62—they are subject to an earnings limitation. If the earned income of the person receiving the benefits exceeds this limitation the Social Security Retirement Benefits will be reduced. The earning limit no longer applies once a person reaches FRA. This should not be confused with taxation of Social Security Retirement Benefits. Social Security Retirement Benefits may be taxable at any age if income, both earned and unearned, exceed certain thresholds.

....

State-registered advisers file both Part ___ & Part ___ with the Admin of each state in which they are registered.

1, 2

A securities analyst wishing to determine a company's cash flow would most likely examine the company's 1. balance sheet 2. income statement 3. cash flow statement 4. changes in equity statement

3. cash flow statement * correct option It is not often that the test gives you a gift like this. Yes, cash flow is found on the cash flow statement, more commonly referred to as the Statement of Cash Flows.

Recordkeeping for investment advisers is ____ years from the end of the fiscal year in which the record was made. The exception to that is records of the business enterprise, such as partnership agreements, corporate charters, and minute books. Those are kept for ___ years after the termination of the business.

5, 3

Remember the sequence ___-___-___ for the application of criminal penalties: ___-year statute of limitations, $____ maximum fine, and/or imprisonment of no more than ___ years.

5,5,3 5, $5,000, 3

You might be asked for the average duration of a group of bonds or a bond portfolio. The correct computation is too complicated for the 4 function calculator you are given, but, you'll get the correct answer if you just find the average of the durations given. For example, the average duration of a portfolio whose individual bonds have durations of 3, 5, 7 and 17 years is _____

8 years, (3 + 5 + 7 + 17 = 32 divided by 4 = 8)

An investor purchases a 5% callable convertible subordinated debenture at par. Exactly one year later, the bond is called at 104. The investor's total return is: 4% 5% 7.5% 9%

9% Total return consist of income plus gain. Buying a bond at par and having it called at 104 results in a $40 gain. With a 5% coupon, there will be 2 semiannual interest payments of $25 in a one year holding period. Adding the $40 + $50 = $90 total return on an investment of $1,000 which = 9%

A letter to an individual client discussing her portfolio is not an advertisement. It is _____

A letter to an individual client discussing her portfolio is not an advertisement. It is correspondence.

6.4. It would not be considered an unethical business practice under NASAA's policies for an investment adviser to charge fees I. as well as commissions II. based on an hourly rate III. based on a percentage of the change in value of funds from quarter to quarter IV. based on a percentage of the aggregate value of funds under management A) I, II, and IV B) II and III C) I and IV D) III and IV

A) I, II, and IV Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. The other choices are acceptable fee structures. An adviser may charge commissions and fees as long as the fact is clearly disclosed.

6.4. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? I. They must be renewed on an annual basis. II. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. III. They must prohibit assignment of the contract without the client's consent. A) II and III B) I and III C) I and II D) I, II and III

A) II and III There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. Advisory contracts must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated and must prohibit assignment without the client's consent.

6.1. All of the following must be disclosed by an investment adviser EXCEPT A) an investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations B) a senior officer's suspension from the securities industry C) the president of the investment adviser was found liable in a civil action involving unsuitable advice in a state where the adviser does not have an office D) a senior officer of the firm was convicted of a felony 6 years ago

A) an investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations Legal and disciplinary action successfully brought against an investment adviser must be disclosed to customers, as well as disciplinary actions that resulted in a fine in excess of $2,500. Convictions for a misdemeanor or felony involving securities or money within the past 10 years must also be disclosed.

15. In a scheduled premium variable life insurance policy, the insured is guaranteed A) minimum guarantee death benefit. B) nothing. C) positive return. D) cash value.

A) minimum guarantee death benefit. The only real guarantee in a variable life policy is that the minimum death benefit will be the face amount of a scheduled (fixed) premium policy. Of course, any loans must be taken out first, but they are taken from that guaranteed amount. Cash value and a positive return depends on the performance of the separate account.

6.4. All of the following statements regarding the disclosure investment adviser brochure rule of the Uniform Securities Act are true EXCEPT A) the disclosure brochure must be signed by an officer or partner of the firm B) the brochure rule permits advisers to deliver the disclosure brochure when the client enters the contract providing the client is allowed to cancel the contract without penalty within 5 business days C) the disclosure brochure must be delivered no later than 48 hours before entering into an advisory contract for there to be no requirement to offer a 5-day refund right D) the disclosure brochure must contain essentially the same information as is contained in Form ADV, Part 2A and, if applicable Part 2B.

A) the disclosure brochure must be signed by an officer or partner of the firm An officer or partner of the firm need not sign the disclosure brochure. The investment adviser's disclosure brochure must contain the relevant information from Form ADV Part 2A and, for those where it applies, Part 2B. The rule does permit advisers to deliver the brochure when the client enters the contract, providing the client is allowed to cancel the contract without penalty within 5 business days; otherwise, the brochure must be delivered no later than 48 hours before entering into an advisory contract.

As described previously, there is an exemption from registration for certain private funds and venture capital funds. However, even though exempt from registration, if designated as ERAs, they are required to complete and electronically file reports using the IARD system on certain items set forth in Form _____, which will be made publicly available on the SEC's website.

ADV. See 1.4 Exempt Reporting Advisers (ERA)

What is the highest opinion offered under GAAP? An unqualified opinion A qualified opinion An adverse opinion A disclaimer of opinion

An unqualified opinion An unqualified or "clean" opinion is the best type of report a business can get. The term, qualified, means that the auditor has some reservations about the information contained in the financial statements.

14.4 Regarding open-end investment companies, which of the following sales charges is based on the NAV per share? A) Sales load B) Redemption fee C) Commission D) 12b-1 fee

B) Redemption fee If the fund has a redemption charge (CDSC), it is based on the NAV per share, not the public offering price (POP). That is, if the client liquidated shares when the NAV was $10 per share and the POP was $10.50, the CDSC would be charged based on the $10 rather than the $10.50. Commission is not a term used with mutual funds. The 12b-1 fee is a charge against overall assets of the fund; it is not considered to be a charge related to the buying or selling of fund shares.

If the IAR leaves one IA for another, who must notify the Admin?

Both IAs

6.1. A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A) account inactivity fee B) issuance of a stock certificate C) advisory fees D) charges for late payments

C) advisory fees There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: 1. commissions; 2. markups and markdowns; and 3. advisory fees for those firms that are also registered as investment advisers.

One of the rights of being a stockholder is the ability to vote on important corporate matters, such as the election of members to the board of directors. The date that determines which shareholders are eligible to votes is A) the election date. B) the last day of the company's fiscal year. C) the record date. D) the ex-dividend date.

C) the record date. The record date is a date announced by the company as the official date you must be an owner on the company's records in order to participate in the annual meeting and corporate election. A fact not tested is there is no standard regarding how far in advance of the voting date this should be other than it must be at least the normal settlement period, currently 2 business days.

Best for investors with large investments (to get breakpoints) and longer time frames (spreading the one-time cost over several years)

Class A Shares

Best for investors with smaller investments and long time frames (to get past the contingent loads)

Class B Shares

Best for investors with short time frames (but at least a year), not more than five years.

Class C Shares

14.4 Which of the following mutual fund share classes generally has a 1% CDSC that is eliminated once the shares have been held more than 1 year? A) Class A B) Class B C) Class 1% D) Class C

D) Class C It is the Class C shares that have no front-end load, but they do have a 1% CDSC for a period of 1 year.

6.4. A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver I. a copy of the IA's brochure II. a copy of the solicitor's brochure III. a copy of the solicitor's script IV. a copy of the IA's Form ADV Part 1 A) I, II, and IV B) I and III C) II and IV D) I and II

D) I and II Third-party solicitors must provide a copy of the investment adviser's brochure (Form ADV Part 2A), as well as a copy of the solicitor's brochure. The solicitor's script must be approved by the IA, and only the SEC receives a copy of the Form ADV Part 1.

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

D) Unit values are computed daily and cash values are computed monthly. Unit values are computed each day. Policy cash values are a monthly computation.

6.4. Under the Uniform Securities Act, investment advisory contracts A) must list each state in which the adviser is registered B) cannot be assigned without the Administrator's approval C) are cancelable without penalty for 48 hours after the customer signs D) must contain a description of fees

D) must contain a description of fees Under the USA, all advisory contracts must be in writing and contain descriptions of how fees are determined. Contracts are valid upon signing, need not list all states in which an adviser is registered, and cannot be assigned without the client's approval. However, if the brochure is not delivered at least 48 hours before the signing of the contract, the client has the right to withdraw without penalty for 5 business days. Administrator approval is not required.

Remember that money market funds are not ____ insured like money market deposit accounts at a bank.

FDIC

If the IA is state registered, the ___ must notify the Admin in the event of termination

Firm

If a client wishes to purchase a life insurance policy that doesn't invest in the market, but allows the holder to pay additional premium if desired, the recommendation is _____

If a client wishes to purchase a life insurance policy that doesn't invest in the market, but allows the holder to pay additional premium if desired, the recommendation is Universal Life.

Remember that a corporation's_____ is the same as the Stockholders' Equity or Owners' Equity

Net Worth

One of the differences between a flexible spending account (FSA) and a health savings account (HSA) is that with the HSA, there is no ______.

One of the differences between a flexible spending account (FSA) and a health savings account (HSA) is that with the HSA, there is no "use it or lose it". Any unspent money in the HSA is rolled over and continues to accumulate without tax and is not taxed if used in the future for qualified medical expenses.

If not exempt, SEC-registered investment advisers with at least $150 million in private funds assets under management use Form ___. This form reports, on a non-public basis, information about the private funds that they manage. Additional details (not tested) are required if the adviser is considered a large private fund adviser. The definition of large depends on what type of assets are managed and runs from $1 billion to $2 billion. We do not expect this information to be tested.

PF (Private Fund)

Contains info. needed by regulators: ask about the IA, it's business practices, persons who own & control the firm, persons who provide investment advice. Also contains schedule A which asks about the control persons and contains Disclosure Reporting Pages which details disciplinary events.

Part 1A of ADV

Based on both public information and inside or private information. Technical & fundamental analysis and insider information wont help, the only option to beat the market is by being lucky in your random selection (random walk)

Strong-Form Market Efficiency

Refers to short-term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions and investor sentiment. This is an active approach and typically involves sector rotating to time various sectors. Note: The commission expense will likely be higher than one employing a passive style.

Tactical Asset Allocation

Secure Act, just review

Testable Changes from the SECURE Act 1. Effective 2020, individuals with earned income can make IRA contributions without the former 70 1/2 age restriction. 2. RMDs will begin after attaining age 72 rather than 70 1/2 3. There are two additional exceptions to the early withdrawal 10% penalty. They are: a. Up to $5,000 during the first year after a child is born, or b. Up to $5,000 during the first year after an eligible person is adopted 1. "Eligible adoptee" means anybody under age 18 or who is physically or mentally incapable of self- support regardless of age. 2. If married, each spouse can make the $5,000 penalty-free withdrawal. 4. Inherited retirement accounts for those dying in 2020 or beyond will now, with certain exceptions, require distributions to be completed in a maximum of 10 years after the original owner's death. 5. Rule 529 has added as qualified expenses, amounts paid as principal or interest on any qualified education loan for the beneficiary and any siblings. There is a maximum of $10,000 lifetime per child. 6. ERISA eligibility for 401(k) plans: There is an alternative to the 1,000 hours worked per year. An employee working 500 or more hours per year for three years is now eligible. The purpose of this addition is to make it possible for more part-time employees to qualify for coverage. 7. The "kiddie tax" rules implemented in the TCJA of 2017 have been repealed. Effective for 2020, the tax situation reverts back to the former rule. That rule provides that any unearned income by the child over a base limit (currently $2,200), is taxed at the parent's top rate. Taxpayers can take advantage of this on their 2019

What new benefit did the TCJA of 2017 bring to 529 plans effective 2018?

The answer would be: Use for tuition expenses for K-12 education. One of the choices might be about using the funds for foreign universities, but that's been around for a long time.

a question about the tax rate on qualified dividends. Those dividends are taxed at the ___

capital gains rate (for long-term gains).

An LLC might be referred to as a Limited Liability Membership Company. That makes sense because the owners are called, _____

members.

The interest on corporate bonds is fully taxable at _____ tax rate on both the federal and state levels

ordinary income

In a life settlement, the seller receives more than the premiums paid into the policy but less than the cash value the face amount the accumulated dividends the future premiums payable

the face amount The sale price of a life settlement is always more than the cash value and less than the face value

7.4 Which of the following is an unethical practice for agents of broker-dealers? A) Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization B) Effecting securities transactions not recorded on the books of the employing broker-dealer with the employing broker-dealers' approval in writing C) Failure to make a bona fide public offering of all securities acquired as an underwriter D) Borrowing money from a commercial bank that has investment accounts at the broker-dealer

A) Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization It is an unethical practice for an agent of a broker-dealer to effect securities transactions not recorded on the books of the employing broker-dealer, unless prior written authorization is secured. Broker-dealers, acting in the capacity of underwriters, not their agents, must make a bona fide public offering in underwritings.

If an agent terminates employment with a BD, ___ must notify the Admin promptly.

Agent & BD

If an agent leaves one BD or another, ___ must notify the Admin promptly.

Agent, old BD, & new BD.

Under the Uniform Securities Act, which of the following qualifies as an investment adviser representative? A) An individual who renders fee-based advice on precious metals B) A solicitor for an investment advisory firm who is paid a fee for his services C) An employee, although highly skilled in evaluating securities, solely performs administrative or clerical functions for an investment adviser D) An agent who offers incidental advice on securities as part of his sales commissions

B) A solicitor for an investment advisory firm who is paid a fee for his services If the goal is obtaining clients for the investment adviser, a solicitor is considered an investment adviser representative under the Uniform Securities Act. An employee who performs clerical or administrative functions only is not an investment adviser representative. Precious metals are not securities, and a person advising on them is not considered an IAR. An agent is a representative of a broker-dealer.

7.4. In which of the following situations has the investment adviser NOT violated the antifraud provisions of the Investment Advisers Act of 1940? A) Ray's financial plan uses products available through a number of different broker-dealers. Ray intends to act as an agent of a broker-dealer with whom he is associated in implementing only a portion of the plan. He does not make this intention known. B) Linda tells clients the time is right to convert shares of a money market fund to shares of a growth stock mutual fund in the same mutual fund family. Without telling clients, she makes a similar conversion for her own account. C) George intends to implement a financial plan using only products available through a broker-dealer with whom he is associated but does not make this intention known to the client. D) Jane is affiliated with a broker-dealer but doesn't tell clients that the investment advice she renders is outside the scope of her employment with that broker-dealer.

B) Linda tells clients the time is right to convert shares of a money market fund to shares of a growth stock mutual fund in the same mutual fund family. Without telling clients, she makes a similar conversion for her own account. If advisers intend to implement a plan using only products available from a broker-dealer with which they are affiliated, this fact must be disclosed to clients. If advisers will act as an agent of a broker-dealer with which they are affiliated in implementing any part of a plan, this fact must be disclosed. If the investment advice provided is outside the scope of their employment with the broker-dealer with which they are affiliated, this fact must be disclosed. However, advisers are required to disclose trades made for their own account only if those trades are designed to profit from the market impact of recommendations or are inconsistent with their advice. In this case, the transaction made for the adviser's own account is consistent with her advice.

6.4. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about an investment adviser's fees is (are) TRUE? I. Fees that are excessive compared to fees charged by other advisers for comparable services are unethical. II. The Administrator may investigate excessive fees by a comparison of services offered and fees charged. III. If a client agrees to a certain fee, the adviser may not be held for unethical conduct. A) III only B) II only C) I and II D) I only

C) I and II An adviser is entitled to charge reasonable fees for services provided, but unreasonable fees are unethical. The Administrator may survey the market to establish fees charged against services provided in determining whether an adviser's fees are excessive. Fees that are determined to be excessive are unethical, even if the client agrees to them in the contract.

7.4. Agents A and B work for the same firm and wish to share commissions. Agent A is licensed in states X, Y, and Z. Agent B is licensed in states X, Y, and C. Which of the following statements is TRUE in regard to their sharing commissions? A) All commissions from agents A and B can be shared. B) Commissions cannot be shared. C) Only the commissions from states X and Y could be shared. D) Only the commissions from states Z and C could be shared.

C) Only the commissions from states X and Y could be shared. In order to share commissions, agents must be registered as an agent for the same broker-dealer or for an affiliated broker-dealer. Additionally, in order to receive a commission, an agent must be registered in the state where the transaction is made.

6.1. KAPCO Advisers, a registered investment adviser, recommends the purchase of 100 shares of GEMCO common stock to one of its advisory clients. The client accepts the recommendation and the sale is made from KAPCO's inventory. This transaction A) can only be done through a registered broker-dealer B) may be made without restriction as long as the markup on the GEMCO stock was fair and reasonable C) requires both written disclosure to and the consent of the client prior to the completion of the transaction D) would be considered unethical

C) requires both written disclosure to and the consent of the client prior to the completion of the transaction Industry rules require that investment advisers make disclosure when acting as principals (from inventory) or agents in a transaction with an advisory client. This disclosure must be made in writing—furthermore, client consent to acting in this capacity must be obtained prior to the completion of the transaction.

Which of the following statements regarding the Sharpe ratio is TRUE? A) The Sharpe ratio uses beta in its formula. B) Portfolios with lower Sharpe ratios provided higher excess returns per unit of risk assumed than those with higher Sharpe ratios. C) The Sharpe ratio cannot be used to measure risk-adjusted performance for a single security. D) The Sharpe ratio is often used to measure risk-adjusted return of an entire portfolio.

D) The Sharpe ratio is often used to measure risk-adjusted return of an entire portfolio. The Sharpe ratio is used to measure risk-adjusted performance of either a portfolio or an individual security. The Sharpe ratio uses standard deviation as the denominator in its formula: the higher the Sharpe ratio, the better the portfolio or security has performed on a risk-adjusted basis.

6.4. Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT A) those providing investment advice and having direct contact with institutional clients in the state B) those exercising discretion over assets of clients in this state, even if no direct contact is involved C) those providing investment advice and having direct contact with retail clients in the state D) members of AT's board of directors who are active in the firm's business

D) members of AT's board of directors who are active in the firm's business Unless the individual has direct contact with clients (retail or institutional) or exercises discretion, a copy of the Part 2B brochure supplement for each individual is not required. This would include officers and members of the board of directors. Of course, if any of these individuals had direct client contact or exercised discretion, a supplement for them would need to be prepared.

14.4 A retiree contacts an agent to discuss investing his retirement savings of approximately $2.1 million; his investment objective is long-term growth. The representative and customer discuss the advantages and disadvantages of diversifying among 5 different mutual funds within 2 fund families, as opposed to purchasing just 1 fund. Consequently, the agent made the following purchase recommendations: XYZ Emerging Growth Class B $495,000 XYZ Research Class B $310,000 XYZ Investors Growth Stock Class B $495,000 ABC Capital Enterprise Class B $495,000 ABC Capital Opportunity Class B $310,000 Total $2,105,000. These recommendations are: A) suitable because the customer fully understands all of the ramifications and is satisfied B) unsuitable because the investments are not equal in amount C) suitable because they achieve the diversification the customer seeks D) unsuitable because Class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent

D) unsuitable because Class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent Class A shares, in most mutual funds, provide breakpoint sales charge discounts so there is no sales charge when purchasing $1 million worth of shares (or less in some cases). Class A shares also have lower operating expenses than Class B shares. This retired investor would be subject to back-end loads with Class B shares if the funds were needed unexpectedly within a few years.

If the IA is covered, the ____ must notify the Admin in the event of termination.

IAR

Inverse ETFs use _____ and other derivatives to achieve their goal.

Inverse ETFs use options and other derivatives to achieve their goal.

Exempt Reporting Advisers (ERAs) file an abbreviated Form ADV Part 1 (they don't answer all of the questions), but do not have to prepare a Form ADV _____

Part 2

Contains info dealing with those individuals in the firm who manage accounts: Requires advisors to create brochure supplements containing info. about certain supervised persons. Required for all IA registered with or applying for reg. with the SEC or the states.

Part 2B of ADV

Section _____ tax-free exchange of real estate

Section 1031 tax-free exchange of real estate (U17LO5 in the LEM)

Refers to the proportion of various types of investments composing a long-term investment portfolio. This style takes a passive approach and seeks to mirror indexes.

Strategic Asset Allocation

The grantor of a trust can be: ___,____,_____

The grantor of a trust can be: The grantor, the trustee, and the beneficiary.

You have two bonds with the same maturity date. One has a 3% coupon, the other a 6% coupon. When interest rates change (up or down), which bond has the greater price movement?

The one with the longest duration and that would be the 3%.

Based on past security market information, technical analysis wont work, but fundamental analysis & insider information can give one an edge to beat the market

Weak-Form Market Efficiency

A derivative representing an exchange of cash flows.

What is a swap?

When the market price of a stock is fluctuating because there is a concern that the company may not be able to meets its regular dividend payment, it is form of ________ risk

When the market price of a stock is fluctuating because there is a concern that the company may not be able to meets its regular dividend payment, it is form of financial risk. The more common financial risk is when a company is unable to pay off its debt.

even if you have "no money in the bank", you are still defined as an _____ investor

accredited

Remember that _______ is excessive activity in a client's account and is an unethical business practice.

churning

The statute of limitations for criminal offenses under the USA is ___ years from the date of the offense.

five

The "safe harbor" provisions of Section 404(c) of ERISA would not include_____ bonds

high-yield (junk)

Registration of a security with the state makes it _____

legal for sale.

You might be asked about real estate in an IRA. Please check out the LEM at Unit 24 LO1 in the section on Characteristics of IRAs.

....

One of the advantages of using them is the lack of transparency. That is, purchase and sale information on securities traded that way is not publicly available. For certain institutional clients, especially hedge funds, this secrecy is valuable.

Dark Pools

If a couple is retiring in 5 years, that is not their ________. They need the money to last through life expectancy.

If a couple is retiring in 5 years, that is not their time horizon. They need the money to last through life expectancy.

Only for state-registered IAs: asks additional questions required by state securities authorities. IA applying for registration or who are registered only with the SEC do not have to complete this part.

Part 1B of ADV

Which two parts are delivered to the client?

Part 2A & Part 2B

Contains info of most use to clients, such as the type of strategies employed by the adviser: requires advisers to create a narrative brochure containing info about the advisory firm that is in plain English. Required for all IA registered with or applying for reg. with the SEC or the states.

Part 2A of ADV

Regarding investment advisers, how many people does an ad have to be sent to before it is necessary to retain a copy?

Regarding investment advisers, how many people does an ad have to be sent to before it is necessary to retain a copy? The answer is 10.

Remember, when it comes to computing capital gains or losses, if the investor is still holding the security, no gain or loss has been _____ for tax purposes.

Remember, when it comes to computing capital gains or losses, if the investor is still holding the security, no gain or loss has been realized for tax purposes.

Based on all public information (including market information); thus, technical & fundamental analysis won't work, but insider information can give one an edge to beat the market

Semi-Strong-Form Market Efficiency

There are two important numbers with REITs. They pay out _____ of their taxable income must be distributed to investors as dividends. At least _____ of the value of a REIT's total assets must consist of real estate assets, cash, cash items and government securities

There are two important numbers with REITs. They pay out 90% of their taxable income must be distributed to investors as dividends. At least 75% of the value of a REIT's total assets must consist of real estate assets, cash, cash items and government securities

We also heard that you might be asked for the difference between a viatical and a life settlement. Although commonly thought of as the same, there is a difference. ____ are used for those with a terminal illness with death expected within 24 months. Age is not a factor, imminent death is. _____ are generally for those age 65 and older who are in relatively good health, but who, for one reason or another, prefer to sell their policy (for something in excess of its cash value).

Viaticals, life settlements

A 457 Plan is_____ (although there are tax benefits). As a ______ plan, it is exempt from ERISA requirements. That means key employees may be covered - the plan can discriminate.

A 457 Plan is non-qualified (although there are tax benefits). As a non-qualified plan, it is exempt from ERISA requirements. That means key employees may be covered - the plan can discriminate.

A bond's rating comes under review. This is essentially the same concept as a review of your personal _____ rating.

A bond's rating comes under review. This is essentially the same concept as a review of your personal credit rating. Sometimes, it is just routine because the rating hasn't been reviewed in some time. More often, certain factors have arisen causing concern as to the ability of the issuer to perform.

A gift of securities does not "step-up" the cost basis. It remains the cost basis of the donor. It is only _______ where the step-up applies.

A gift of securities does not "step-up" the cost basis. It remains the cost basis of the donor. It is only inheritance where the step-up applies.

15. A 75-year-old customer asks if it is possible to sell his $500,000 variable life insurance policy to a party other than the insurance company that issued the policy. If a sale occurs, known as a life settlement, which of the following would be a violation of industry rules? A) Quoting the price using an exclusive buyer that handles all the firm's life settlements B) Requiring the customer to relinquish all ownership rights to the policy C) Not requiring the insured to pass a physical exam before the sale D) Disclosing that the buyer becomes responsible for all premiums while the insured is living

A) Quoting the price using an exclusive buyer that handles all the firm's life settlements Because of the limited secondary market for life settlements, any firm that engages in these transactions should obtain several bids to ensure the customer receives a fair price for her policy.

6.4. The Uniform Securities Act requires client consent for assignment of the investment advisory contract. It would be considered that contracts were assigned in all of the following situations EXCEPT A) the death of a partner holding a minority interest with the remaining partners acquiring that share equally B) 2 investment advisory firms intend to merge, causing a change in the majority interest of the partners C) the sole proprietor of an investment advisory firm sells the firm to another adviser D) the sole stockholder of the investment advisory firm pledges all of the stock in the firm as collateral for a bank loan

A) the death of a partner holding a minority interest with the remaining partners acquiring that share equally Written consent for assignment is required of clients whenever there is a change in a majority interest in an investment management partnership. The death of a partner with a minority interest does not require consent because it is not considered an assignment. All that is necessary is notification of the change in the partnership within a reasonable period. The sole owner of the advisory firm cannot pledge the firm's stock as collateral without client consent. The merger of partnerships involves a change in majority interest, which requires consent.

15. An investor purchases a single premium deferred index annuity with a 6% bonus feature. The premium was $100,000. The annuity has an 80% participation rate with a 10% cap. If the underlying index increased by 15%, the account's value at the end of the year would be closest to A) $118,720. B) $116,600. C) $110,000. D) $116,000.

B) $116,600. The 6% bonus means that the client's initial payment is increased by 6%. That means the account shows a starting balance of $106,000. Although the index increased by 15% and the participation rate of 80% would be a 12% growth rate, the cap of 10% comes into play. That makes the calculation: $106,000 x 110% or $116,600.

6.1. Alexander Wimpton is registered as an agent with WorthMore Securities, a broker-dealer registered with the SEC and 10 states. Wimpton is also an investment adviser representative (IAR) with their wholly owned subsidiary, WorthMore Investments, a federal covered investment adviser. Many of Wimpton's advisory clients also maintain brokerage accounts at WorthMore Securities. If one of those clients were to call Wimpton and enter an order to purchase shares of a stock the broker-dealer is selling out of inventory, A) the commission charged on the trade would have to be fair and reasonable B) consent of the client would not be necessary as long as the only capacity in which Wimpton was acting was that of an agent C) consent of the client would be necessary anytime an advisory client is sold securities out of the broker-dealer's inventory D) the order would have to be refused because of the potential conflict of interest

B) consent of the client would not be necessary as long as the only capacity in which Wimpton was acting was that of an agent Only when acting in an advisory capacity is there a requirement to obtain client consent when selling out of inventory. In this case, unless there was a statement to the effect that the security had been recommended by Wimpton, this is just a brokerage transaction and consent is not necessary (although the principal capacity would have to be stated on the trade confirmation). Because this is a principal transaction, there is no commission, only a markup.

6.1. One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall notify the Administrator of its capacity in the proposed transaction B) may not charge a commission on the transaction C) shall obtain client consent before completion of the transaction D) shall disclose the agency capacity before the transaction

C) shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: 1. The client receives full written disclosure as to the capacity in which the adviser proposes to act 2. Consent of the client Both of these are required before the completion of the transaction.

15. A 64-year-old woman wishes to withdraw funds from her nonqualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be A) subject to the required minimum distribution rules B) taxed as capital gain C) taxed as ordinary income D) subject to a 10% penalty unless annuitized

C) taxed as ordinary income

Under the civil provisions, the statute of limitations runs for ___ years from the discovery of the offense or to ___ years after the act occurred, whichever occurs first.

Under the civil provisions, the statute of limitations runs for 2 years from the discovery of the offense or to 3 years after the act occurred, whichever occurs first.

When an investment adviser acts as a principal or agent in a transaction with an advisory client, _____ must be given and ______

When an investment adviser acts as a principal or agent in a transaction with an advisory client, written disclosure must be given and consent obtained.

When an investor can exercise an option before or at expiration date, it is ____ style

When an investor can exercise an option before or at expiration date, it is American style

When comparing non-traded REITs to listed REITs, the primary difference is ______

When comparing non-traded REITs to listed REITs, the primary difference is liquidity (common sense, but the other choices can be tempting).

Which is the employer-sponsored retirement plan that allows withdrawals before reaching age 59 1/2 without the 10% penalty?

Which is the employer-sponsored retirement plan that allows withdrawals before reaching age 59 1/2 without the 10% penalty? IRC 457(b) Plans

You are following a company whose trailing P/E ratio used to be 10 to 1. It is now 20 to one. If the earnings have not changed, this means:

You are following a company whose trailing P/E ratio used to be 10 to 1. It is now 20 to one. If the earnings have not changed, this means: The price of the stock has doubled.

You might be asked about the best investment for preservation of capital. The answer is _____

You might be asked about the best investment for preservation of capital. Check out the chart at the end of Unit 19 LO6 in the LEM and you'll see the first choice (and correct test answer) is insured bank CDs.

Which one of these represent a certain type of Bond Spread? a. liquidity spread b. credit spread c. fundamental spread d. systematic spread

b. credit spread * correct option