Series 63
Which TWO of the following factors should be considered by an investment adviser when making recommendations to a client?
-A client's attitude and values about investing -The client's investment experience Investment advisers should consider all relevant information about a customer when making specific investment recommendations. The educational background of a client and her professional experience (work history) are not as important as understanding her investing experience, attitudes, and values (for example, risk tolerance and social standards, such as a client who would not invest in tobacco stocks).
A married couple in their early forties with no children has decided it is time to start thinking about retirement. Which of the following portfolio allocations would you recommend for them?
25% fixed-income and 75% equity securities This couple is in their early forties. Presumably, they have about 20 years before retirement. Their primary investment objective should be growth. Equity securities meet this need as they have shown more potential for growth than fixed-income securities. Therefore, a greater percentage of the assets should be invested in equities. Concentrating a portfolio in foreign securities is not a good idea. Diversification is also important. If the portfolio of investments is too heavily weighted in equities, as in choice (a), the client takes unnecessary risk. The best choice would be to diversify the client's portfolio and allocate their investments in equities and fixed-income investments, which is the case in choice (b)
Which of the following persons would NOT be considered an investment adviser representative under the Uniform Securities Act?
A person who assists clients and enters orders for securities transactions
According to the Uniform Securities Act, who would be considered a broker-dealer in State B?
A sole proprietor located in State A who has several clients in State B A sole proprietor can be a broker-dealer. If a sole proprietor located in State A chooses to effect transactions for clients in State B, he must register in State B as a broker-dealer.
IA Incorporated is an investment adviser. BD Securities is a brokerage firm with offices down the hall. IA Incorporated and BD Securities have an agreement under which IA directs brokerage transactions to BD and receives a 15% rebate on the commissions that BD charges. This arrangement is:
Acceptable, provided IA discloses the arrangement to its clients in writing The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that an investment adviser must disclose all conflicts of interests in writing to clients. These conflicts include the scenario described in this question where the investment adviser (or any of its employees) is receiving compensation (a rebate) for the execution of client transactions.
A mutual fund may be described as a no-load fund only if the fund has no: 1. 12b-1 fees in excess of .25% of the fund's average annual net assets 2. 12b-1 fees in excess of .50% of the fund's assets under management 3. Front-end loads 4. Back-end loads I, III, and IV only
According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices in Connection with Investment Company Shares, a no-load fund may not have any sales charges (loads). It is also prohibited from charging 12b-1 fees that are greater than twenty-five basis points (.25%) of the fund's average annual net assets. (75651)
Under the Uniform Securities Act, a state Administrator may NOT deny, suspend, or revoke any registration, or bar or censure a person if the applicant was:
Convicted of a misdemeanor eight years ago An Administrator may deny, suspend, revoke, bar, or censure a person for a securities misdemeanor within the last 10 years, not just any misdemeanor. All of the other reasons given are valid.
A bank president is selling his bank's debentures to banking clients. In this capacity, he is considered to be:
Excluded from the definition of an agent Those persons representing the issuer, who are involved in the direct marketing of certain exempt securities, are excluded from the definition of a securities agent. This includes persons representing the issuers of bank securities, commercial paper, municipal bonds, securities of other governmental bodies, and employee benefit plans In this scenario, since the bank president is selling his own bank's securities, these securities are exempt. This is why he is not an agent of the issuer.
Under the Uniform Securities Act, the amount of the bond that a broker-dealer is required to post is:
Determined by the Administrator The Administrator determines the amount of the bond that a broker-dealer must post. The Administrator is allowed to waive the bond requirement if the broker-dealer has a minimum amount of net capital. There is no requirement to deposit an amount equal to the bond requirement with a custodian, nor is the bond based on disciplinary actions. An SRO—for example, FINRA—does not determine the amount of a bond.
A person working for a broker-dealer gives information relating to prices and sales of securities but receives no direct compensation related to these activities. This individual:
Does not need to be licensed An individual employed by a broker-dealer who gives information relating to prices and sales of securities, but who does not receive transaction-related compensation, does not need to be licensed as an agent.
Under the National Securities Markets Improvement Act (NSMIA) investment advisers are required to register at the state level or the federal level, unless exempt. Which TWO of the following statements are TRUE regarding investment advisers with $95 million of assets under management?
Exempt from Federal Registration NSMIA, the National Securities Markets Improvement Act, was created to eliminate some of the dual requirements of federal and state securities law. Investment advisers with less than $100 million of assets under management (AUM) are generally exempt from federal or SEC registration and are required to register at the state level. If the state in which the adviser conducts business does not provide for the registration of investment advisers, they must register with the SEC. Investment advisers with AUM of $100 million up to $110 million may register with the SEC. If the adviser's AUM exceed $110 million, it must register with the SEC. An investment adviser registered with the SEC is referred to as a federal covered adviser.
Which of the following actions by an agent of a broker-dealer is considered an unethical business practice?
Selling shares in a friend s business outside the agent s normal course of employment It is considered an unethical business practice for an agent of a broker-dealer to effect transactions in securities and not record them on the books of the broker-dealer. While choice (d) doesn't clearly state that the agent is failing to notify the broker-dealer, it can be inferred from the phrase "outside the agent's normal course of employment." The other choices represent honest and ethical activities that agents of a broker-dealer should take regarding transactions by their clients.
XYZ Inc. is an investment adviser. One of its institutional clients would like to sell 1,000 shares of ABC stock. XYZ believes that this would be a suitable investment for another institutional client. XYZ proposes to arrange a trade between the two clients and would charge each customer a small fee for its services. This would allow each client to receive a better price than either could obtain in the open market. Which of the following statements is TRUE in this situation?
This is permitted if XYZ discloses to each client that it is acting as a broker for both parties in the trade and receives each client's written consent An investment adviser that wishes to act as a broker for both a client and another person when effecting a securities transaction for a client must (1) disclose the capacity in which it is acting prior to the completion of the transaction and (2) obtain the client's written consent. Since both parties to the trade are clients, the disclosure and consent requirements apply to both.
A client requests that her agent display a quote in a thinly traded security. The client is the majority shareholder in this security and the broker-dealer honors the request and displays the quote. Which of the following statements is TRUE?
This would be permissible if the broker-dealer believed the quote was bona fide A broker-dealer is permitted to publish quotes (bid and ask prices) on behalf of its clients or for its own account. The broker-dealer must believe the quotes are bona fide and not intended to manipulate the market price of a security. If the quotes are not bona fide and the broker-dealer publishes them, it would have committed an unethical business practice.
