S66 Sunday Night

Under the Investment Advisers Act of 1940, which of the following statements are TRUE?Part 2 of Form ADV may be used to satisfy the brochure requirement.Advisers who have custody of clients' securities or require prepaid fees in excess of $1,200, 6 months or more in advance are required to provide audited balance sheets to their clients.Advisers with $110 million or more in assets under management must be SEC registered and are exempt from state registration.It is misleading and prohibited for an adviser to use RIA or R.I.A. after his name. A) I, III and IV. B) II, III and IV. C) III and IV. D) I, II, III and IV.

A) I, III and IV. For advisers covered under federal law, inclusion of the audited balance sheet is only required when demanding or accepting substantial prepayments, but not for custody. RIA is not a legal designation and may not be used. The same is true for an investment adviser representative using the initials, IAR. If you are a CPA, CFP, CLU, etc. or have an MBA, PhD., you may use them. ADV Part 2 may be used to meet the brochure requirement under the Investment Advisers Act.

Under the Uniform Securities Act, which of the following statements are TRUE regarding private placements?They are offered to no more than 10 persons in a state in a 12-month period.They may be offered to an unlimited number of institutional investors.Institutional buyers need not be purchasing for investment. A) II and III. B) I and III. C) I and II. D) I, II and III.

A) II and III. Private placements are transactions resulting from offers to no more than ten noninstitutional persons in 12 months for investment purposes only. The offeror must be convinced that buyers are purchasing for investment. This means no immediate resale intentions are allowed on the buyer's part. No commissions may be paid, directly or indirectly, for these transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than ten persons. (Remember that the term person is defined very broadly in the act.)

On last year's annual updating amendment filed with the SEC, Alpha Investment Advisers indicated that it had more than $140 million in assets under management. Due to a reduction in the size of the firm, this year's annual updating amendment shows that, assets under management have fallen to the $75 million level and are expected to remain there. Which of the following actions are required for Alpha? A) Withdraw from SEC registration within 180 days of the adviser's fiscal year-end. B) Withdraw from SEC registration immediately. C) Withdraw from SEC registration within 90 days of the adviser's fiscal year-end. D) Do nothing and continue as a federal covered adviser.

A) Withdraw from SEC registration within 180 days of the adviser's fiscal year-end. If an adviser reports on its annual updating amendment that it has less than $90 million under management and it is not otherwise eligible to register with the SEC, it must withdraw from SEC registration within 180 days of the adviser's fiscal year-end by filing Form ADV-W. The adviser could consult the securities departments of states in which it maintains offices or conducts business to determine the appropriate state registration requirements.

Your client is the sole beneficiary of her late father's IRA, which is valued at $500,000. The client indicates that she has no need for the money and would rather it go to her children. To accomplish this, she would have to A) disclaim the IRA B) refuse the IRA C) reject the IRA D) skip the IRA

A) disclaim the IRA When a beneficiary of an IRA decides not to accept the proceeds, the legal term used is disclaiming the IRA.

Under the Uniform Securities Act, all of the following conditions must exist in order for a private placement to be considered an exempt transaction EXCEPT: A) noninstitutional clients must not make payment for their purchases. B) broker-dealers and their agents must reasonably believe that noninstitutional clients are buying the securities for investment purposes and not for resale. C) commissions may not be paid to sales agents of the broker-dealer offering the securities to noninstitutional clients. D) the offer must be directed to no more than 10 individuals during any 12-month period.

A) noninstitutional clients must not make payment for their purchases. For a private placement to remain an exempt transaction under the Uniform Securities Act, the offer may be directed to no more than 10 individuals during any 12-month period. Additionally, no commissions may be paid to agents of the offering broker on sales to noninstitutional buyers, and there must be reasonable belief that the purpose in buying the securities by noninsitutional clients is for investment rather than resale purposes. However, just as with any other securities purchase, payment must be made in accordance with industry standards.

There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be A) substantial capital can be raised with little effort and low cost B) ease of formation C) the 50% dividends received exclusion D) limited liability

B) ease of formation

client interested in fixed income is viewing different bonds with the same rating and a coupon of 5%. Using the discounted cash flow method, which bond should have the highest market value? A) 12 year maturity when the discount rate is 3% B) 6 year maturity when the discount rate is 7% C) 6 year maturity when the discount rate is 3% D) 12 year maturity when the discount rate is 7%

12 year maturity when the discount rate is 3% Remember, the discount rate is just another way of stating the current interest rate in the marketplace. If the discount rate is higher than the coupon rate, the expected market price, (the present value), will be below par. Conversely, if the discount rate is lower than the coupon rate, the present value will be above the par value. As we've learned with duration, when interest rates change, the longer the time to maturity, the greater the effect on the market price of a bond.

Ways in which a Section 529 Plan differs from a Coverdell ESA include: tax-free distributions when the funds are used for qualifying educational expenses . higher contribution limits. no earnings limitations. contributions that may be made by someone other than a parent or legal guardian. A) II and III. B) II and IV. C) I and II. D) I and IV.

A) II and III. Contributions to an ESA are limited to $2,000 per beneficiary per year, while the 529 limit is set by the plan sponsor, sometimes as high as $300,000. Unlike the ESA where there is a ceiling on the earnings for a contributor, there is no limit for someone setting up a 529. Both Section 529 Plans and Coverdell ESAs enjoy tax-free distributions and plans may be established by almost anyone.

Which of the following describe differences between variable and universal variable life insurance? Variable life insurance has a minimum guaranteed death benefit, whereas universal variable life insurance does not. Universal variable life insurance typically provides a higher death benefit than variable life insurance. Variable life insurance provides no inflation protection for the death benefit, whereas universal variable life insurance does. Variable life insurance requires scheduled premium payments, whereas universal variable life insurance permits flexible premium payments.

B) I and IV.

Which of the following statements is (are) TRUE about the investigative power of the Administrator under the Uniform Securities Act? I.The Administrator may conduct public or private investigations to determine if violations are about to occur or have occurred. II. Persons could find themselves subject to contempt of court charges for failing to obey a subpoena issued by an Administrator. III.he Administrator may proceed against an entire firm for the actions of any principal of the firm.

B) I, II and III.

Under the Uniform Securities Act, one method of securities registration is Qualification. When that method is used, which of the following statements is CORRECT?The registration is valid for one year from the effective date.The registration is valid for one year from the effective date unless the underwriter or issuer still has some unsold shares.The registration is valid until the next December 31st.The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed. A) I and III. B) II and IV. C) I and IV. D) II and III.

B) II and IV. Under the USA, when a security is registered, the registration is valid for one year after the effective date. However, the act provides that if the issuer or underwriter still has unsold shares from the offering, the effective date may be extended so this is a more accurate choice. The act also allows the registration statement to be amended to allow for an increase in the number of shares to be offered as long as the public offering price and the underwriter's compensation is not changed.

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) Yes, if the entire clerical staff is registered as agents for the firm. B) Yes, no registration is necessary. C) No, this cannot be done. D) Yes, if all of the agents agree to it.

B) Yes, no registration is necessary. Bonuses based on a broker-dealer's profits may be payable to nonregistered clerical help as long as there is no direct relationship to any specific sales.

Under the Uniform Securities Act, an investment adviser would be exempt from registration in a state in which he has no place of business if he: A) had no more than 15 clients in that state within the past 12 months. B) had no more than five clients in that state within the past 12 months. C) is registered as a broker-dealer. D) had no more than ten clients in that state within the past 12 months.

B) had no more than five clients in that state within the past 12 monthS An adviser who had no more than five clients in a state within the prior 12-month period or deals exclusively with institutions is not required to register in a state in which he has no place of business.

Insurance agents frequently use a capital needs analysis to help determine the correct amount of life insurance needed by their clients. That analysis would look at all of these EXCEPT: A) future earnings. B) market volatility. C) life expectancy. D) the inflation rate.

B) market volatility. Of these choices, the only one that we cannot in anyway predict is market volatility. We can factor in an estimated inflation rate, project future earnings and look at the mortality tables to obtain life expectancy. But, nothing can project market volatility with any degree of accuracy.

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm's Website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would: A) be permitted to contact your clients with this recommendation after the research report has been filed with the SEC. B) not be permitted to contact your clients until it was determined that the report was general public knowledge. C) be permitted to contact your clients with this recommendation right now. D) be required to send your clients to the firm's Website before making any comments regarding this security.

B) not be permitted to contact your clients until it was determined that the report was general public knowledge. Several 2017 SEC decisions have indicated that a firm's internal research may be considered inside information. Research reports are never filed with the SEC.

A client with a sizeable estate would probably find it most efficient to pay estate taxes with A) proceeds from the liquidation of a diversified portfolio B) proceeds from a life insurance policy C) cash D) proceeds from the liquidation of a tax-deferred retirement plan

B) proceeds from a life insurance policy In general, people with estates where there is a potentially large estate tax liability, find that the most efficient way to pay those taxes is through a life insurance policy.

Reinvestment of mutual fund distributions has all of the following benefits EXCEPT: A) reinvestment of dividends at NAV. B) tax deferral until the acquired shares are sold. C) reinvestment of capital gains at NAV. D) compounding of returns.

B) tax deferral until the acquired shares are sold. Taxes on reinvested distributions are due in the year received.

If Gerald turned age 70 on November 15, 2011, when was he required to take his first IRA distribution? A) December 31, 2011. B) April 1, 2012. C) April 1, 2013. D) December 31, 2012.

C) April 1, 2013. Because his birthday is late in the year, Gerald did not attain age 70-½ until May 15, 2012, so his required beginning date was April 1, 2013 (the year following the date Gerald attains age 70-½).

A client wants to purchase commercial paper. The licensed agent may indicate to the client that the security need not be registered if: the minimum denomination is $50,000. the maximum maturity is 270 days. it is rated in 1 of the 3 highest rating categories by a recognized rating agency. it is in book entry form.

C) I, II and III. Commercial paper may qualify as an exempt security if the minimum denomination is $50,000, it has a maturity of not more than 270 days, and it is rated in 1 of the 3 highest rating categories by a nationally recognized rating agency.

Different types of accounts have different times for receipt of customer information. Which of the following correctly state the required time for the specified account? Discretionary account authorization must be received by a broker-dealer before exercising discretion. Margin account agreements must be received promptly after the first trade in the account. Discretionary account authorization must be received by an investment adviser within 10 business days after the initial discretionary trade. The options account agreement must be received within 15 days after the customer's account has been approved.

C) I, II, III, and IV

When communicating with a client, an agent is prohibited from:promising free services that will be provided by a third party.representing, as fact, information that is based on speculative rumor.holding himself out as qualified by FINRA.offering a referral to a qualified tax or legal professional. A) I and III. B) II and IV. C) II and III. D) I and IV.

C) II and III. A bona fide offer of a free service is permissible even if a third party delivers it. An agent may provide referrals to a tax professional without restriction. An agent cannot imply that FINRA has qualified him as an investment professional. Representing rumor as fact is a serious misrepresentation and violation of the USA.

An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following information would NOT be required on the new account form? A) Physical address B) Citizenship C) Marital status D) Name of employer

C) Marital status

An investor is in a low tax bracket and wishes to invest a moderate sum in an investment that will provide some protection from inflation. Which of the following should you recommend? A) Ginnie Mae fund B) Municipal unit investment trust C) Mid-cap common stock mutual fund D) Money market mutual fund

C) Mid-cap common stock mutual fund Mid-cap stocks have historically provided good hedges against inflation making them appropriate for an investor seeking long-term growth and inflation protection. There are several key words here to remember for the exam. Whenever you see "low tax bracket," the answer cannot be a municipal bond. Likewise, whenever you see "inflation protection," the answer will be common stock (unless a TIPs is given as a choice).

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office: A) the investment adviser representative and the federal covered advisers must notify the Administrator promptly. B) only the terminating investment adviser must notify the Administrator. C) only the investment adviser representative must notify the Administrator promptly. D) the investment adviser representative and the employing adviser must notify the Administrator promptly.

C) only the investment adviser representative must notify the Administrator promptly.

A terminally ill client wishing to access a portion of the cash value in his whole life insurance policy while still providing a death benefit for his beneficiaries could do so by A) converting it into a term policy B) surrendering the policy for its cash value C) taking out a policy loan D) selling the policy in a viatical settlement

C) taking out a policy loan One of the benefits of whole life insurance is the ability to borrow against the guaranteed cash value in the policy. At death, the amount of the loan is paid off from the death benefit, but the remainder is then paid to the beneficiaries of the policy. Surrendering the policy cancels the death benefit, and the purchaser of the viatical is now the one who determines the beneficiaries. You can't convert permanent insurance to term (and the exam will not consider the situation of leaving the cash value to purchase extended term insurance, which wouldn't work here anyway).

Your client's child is entering college next year. Which of the following would be the most appropriate recommendation? A) A large-cap growth fund B) A zero-coupon bond maturing in 5 years C) A U.S. Treasury note mutual fund D) A 5-year laddered portfolio of U.S. Treasury notes

D) A 5-year laddered portfolio of U.S. Treasury notes Most would agree that with a regularly scheduled commitment for tuition and other expenses associated with a college education, there is a need for not only income, but also (and perhaps more importantly) assurance that when the bills are due, the principal will not have fluctuated. That would be best accomplished through a laddered portfolio where each year there are T-notes maturing.

In search of higher returns, many investors have turned to structured products. Your clients need to be aware that these are complex instruments and have which of the following characteristics? Credit or default risk because they are unsecured obligations of the issuing institution High price transparency Limited or no liquidity High initial returns that diminish over time

D) I and III As unsecured obligations, their safety is only as good as the financial strength of the issuer and because these tend to be one-of-a-kind products, they do not have liquidity. A particular hazard of investing in these is that there is a low level of pricing transparency; another concern is that the returns are generally not fully realized until the maturity date.

Under the Uniform Securities Act, when must a consent to service of process be filed with the Administrator? A) It need not be filed, unless requested by the Administrator. B) With the original application and renewal. C) When a case is pending. D) With the original application only.

D) With the original application only.

The Uniform Securities Act invests the office of the Administrator with a number of powers. However, the act does not permit the Administrator to: A) revoke the registration exemption granted to a nonprofit issuer. B) subpoena witnesses. C) insist that specific forms be used to register securities. D) issue an injunction.

D) issue an injunction. Injunctions may only be issued by a court of competent jurisdiction.

A publicly traded corporation offers its employees an opportunity to purchase shares of the company's common stock directly from the issuer. A specific employee of the company is designated to process any orders for that stock. Under the USA, the employee: A) need not register as an agent of the issuer under any circumstances. B) may receive commissions without registration. C) must register as an agent of the issuer. D) must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales.

D) must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales. Under the USA, an individual is an agent when effecting transactions with an issuer's existing employees if commissions or other remuneration related to the sale are paid. Therefore, there are cases where the employee would have to register as an agent. When the individual is paid a straight salary for this work, no registration is required.

As enumerated in the USA, exempt securities would include those issued by a sovereign foreign government with which the US maintains diplomatic relations any credit union organized and supervised under the laws of this state a corporation based in Toronto, Ontario whose common stock trades on the Toronto Stock Exchange a promissory note, draft, bill of exchange, or bankers' acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization

I, II and IV Although securities issued by the Canadian government or any political subdivision are exempt, those issued by Canadian corporations would generally only be exempt if trading on U.S. exchanges as federal covered securities.

If a federal covered adviser's fiscal year ends on October 31, 2014, it must file its annual updating amendment to its Form ADV no later than: A) December 31, 2014. B) March 30, 2015. C) January 29, 2015. D) February 28, 2015.

January 29, 2015. The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end.

When an investor notices that a bond's coupon yield is lower than its current yield, that is an indication that the bond:

The coupon yield, or nominal yield, is the rate stated on the face of the bond. It never changes. However, because the current yield is computed by dividing the coupon rate by the current market price, this return will constantly be in flux. Anytime the price of the bond is below par (selling at a discount), its current yield will be higher than the coupon.

Because of failing economic conditions, Kapco Advisers, an adviser with slightly less than $120 million in assets under management, lays off a registered investment adviser representative. In this case, who would notify the state Administrator of the termination?

With over $110 million in assets under management, Kapco is a federal covered adviser. In that case, the IAR is the one who notifies the Administrator of being terminated.