Series 63 Business Practices Questions

Which of the following are NOT defined as securities under the Uniform Securities Act? I Individual Retirement Accounts II Keogh Plans III Commercial Paper IV Real Estate Condominium Investments A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

A. I and II (Individual Retirement Accounts and Keogh Plans are specifically excluded from the definition of a security. Real Estate Condominium investments can be considered to be a security when the condominium is managed by a third party for profit. Commercial Paper is also defined as a security. However if it has a maturity of nine months or less, is issued in amounts of $50,000 or more, and is rated in one of the top 3 ratings categories, it is exempt from registration.)

Under the Uniform Securities Act, which of the following securities is (are) considered to have an issuer? I Collateral trust certificate II Equipment trust certificates III Fractional interests in oil and gas programs IV Certificates of interest in a gravel mining program A. I and II only B. III only C. III and IV only D. I, II, III, IV

A. I and II only

Which of the following are defined as an "agent" under the Uniform Securities Act? An individual who represents: I ACME Broker-Dealer effecting trades in preferred stocks II the City of New York selling the City's general obligation bonds to New York residents III ACCO Broker-Dealer effecting trades in private placements exempted under Regulation D IV the Federal Reserve effecting trades of U.S. Government securities in its open market operations A. I and III B. II and IV C. I, II, III D. I, II, III, IV

A. I and III

Changes to the terms of advisory contracts must be: I filed with the Administrator on Form ADV within 30 days II filed at year end with the Administrator III approved by the customer IV approved by the Administrator A. I and III B. I and IV C. II and III D. II and IV

A. I and III ( Any changes to an advisory contract are a material change that must be filed with the State Administrator within 30 days. In addition, since this is a contract between the customer and the investment adviser, both parties must agree to any changes.)

An adviser opens a new account for a client. The client gives the adviser $20,000 in cash to open the account. The adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days A. I and III B. I and IV C. II and III D. II and IV

A. I and III (Any deposits or withdrawals made in "cash" (not checks) that amount to over $10,000 over a 2-week window must be reported to FinCEN (Financial Crimes Enforcement Network - part of the Department of Treasury) within 15 days. This report is required even if there is no suspicion of illegal activity. Note that if there was suspicion of illegal activity, an SAR ("Suspicious Activities Report") would have to be filed as well. The customer cannot be told that the report is being filed.)

Which information is required to be on an order ticket prior to entry of the order? I Customer name or account number II Customer address III Customer social security number IV Registered representative name or number A. I and IV B. II and III C. I, II, III D. I, II, III, IV

A. I and IV (Prior to entry of an order, the information required to be noted on the order ticket includes the customer name or account number; registered representative name or number; buy or sell; number of shares or bonds to be traded; description of the security to be traded and execution price. The time that the order was entered must be stamped on the order ticket (this can also be done electronically). There is no requirement for a customer address or customer social security number on an order ticket.)

Which of the following is (are) non-issuer transactions? I Purchase of a NASDAQ listed security II Purchase of a mutual fund share III Purchase of a limited partnership interest from the sponsor IV Purchase of an initial public offering from an underwriter A. I only B. I and II C. III and IV D. I, II, III, IV

A. I only

A broker-dealer located in State A makes an offer of securities to a customer whose principal residence is in State B. The customer has temporarily moved to State C and has asked the post office in State B to forward the mail to the customer's address in State C. Which State Administrator(s) has (have) jurisdiction over the offer? I State A II State B III State C A. I only B. I and II only C. I and III only D. II and III only

A. I only (Because the broker-dealer is located in State A, that State Administrator has jurisdiction. Normally, if an offer is received in a State (B in this case), then State B's Administrator would have jurisdiction. But the offer was never received in State B because it was forwarded by the post office on to State C. Thus, an offer was never made in State B and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in State C, that it would have jurisdiction, but this is not the case either. In this situation, the Uniform Securities Act makes an exception. The issue here is that the broker-dealer had no idea that the mail was forwarded to State C and should not be subject to the law of State C on this offer. The intent is to make sure that an innocent broker-dealer is not "entrapped" by a State and made subject to that State's law when an offer of securities is forwarded into that State by a third party without the broker-dealer's knowledge.)

When can an Investment Adviser borrow from a client? A. If the client is a broker-dealer B. If the client is an accredited investor C. If the client is the sister-in-law of the President of the Investment Advisory firm D. Under no circumstances

A. If the client is a broker-dealer (NASAA does not allow IAs to borrow from their clients, unless the client is a broker-dealer (which would be in the business of giving margin loans), a bank that is in the business of loaning funds, or an affiliate of the investment adviser. This rule contrasts starkly with the FINRA rule for borrowing by broker-dealers. Broker-dealers, under the FINRA rule, cannot borrow from clients unless the client is an immediate family member; a "significant other" like a live-in boyfriend or girlfriend; a bank; or a business associate.)

The manager of a broker-dealer is discussing investment strategies with her in-house research assistant. The conversation leads to a discussion about a client for whom the broker-dealer is negotiating to underwrite a common stock offering. The research analyst tells the manager that she is preparing a report indicating that the company is having sales difficulties and is going to downgrade the stock from "Accumulate" to "Hold." What should the research analyst do? A. Wait until the status of the underwriting contract is resolved before taking any further action B. Issue the report as scheduled after changing the recommendation back to "Accumulate" C. Issue the report immediately D. Sell short the stock and then issue the report

A. Wait until the status of the underwriting contract is resolved before taking any further action

An Investment Adviser Representative (IAR) is permitted to borrow money from: A. a close relative B. a customer, as long as the loan is disclosed to the investment adviser C. a customer that is defined as an accredited investor D. no one

A. a close relative (IARs cannot borrow money personally from customers - no ifs, ands or buts. However, there is nothing stopping an IAR from borrowing money from a relative that is not a customer (e.g., the IAR gets a loan from his or her parents). Also note that the FINRA (Federal) rule for broker-dealer agents is a bit different here than the NASAA rule for IARs. An agent (registered representative) cannot borrow from a customer unless the customer is an immediate family member.)

Registration by Qualification can be stopped by the Administrator if it is in the public interest and the: A. applicant cannot show that the registration is not incomplete in any material respect B. applicant can show that the registration is incomplete in any material respect C. Administrator cannot show that the registration is not incomplete in any material respect D. Administrator can show that the registration is incomplete in any material respect

A. applicant cannot show that the registration is not incomplete in any material respect (In a Registration by Qualification or Filing, there is no concurrent SEC registration. The security is only being registered in the State. In such a case, the Administrator can issue a stop order "if it is in the public interest" and the applicant cannot prove that the offering would not be illegal in the State (the burden of proof is on the applicant). On the other hand, Registration by Coordination in a State permits the applicant to coordinate an SEC registration with the registration requirement in each State. Essentially, the State accepts the SEC registration statement as the State filing document. Registration becomes effective in the State when the SEC registration is effective. In such a registration, the State Administrator can only issue a stop order if "it is in the public interest" and the Administrator can prove that the offering would be illegal in the State, is not complete, or required filing fees have not been paid (thus, the burden of proof is on the Administrator).)

All of the following are requirements for an internet communication (a website) posted by a broker-dealer, agent, investment adviser or investment adviser representative EXCEPT the communication must A. attempt to effect securities transactions or the rendering of personalized investment advice for compensation in the State B. include a firewall or other implemented procedure to ensure that prior to any subsequent communication with prospective clients in the State, that the broker-dealer, agent, investment adviser, or investment adviser representative are registered in the State, or are exempt or excluded from registration C. include a legend that states that: "The broker-dealer, agent, investment adviser or investment adviser representative may only transact business in the State if registered in the State or if exempted or excluded from registration" D. include a legend that states that: "Follow ups or individualized responses to persons in the State by the broker-dealer agent or investment adviser representative that involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with State registration requirements or an applicable exemption or exclusion."

A. attempt to effect securities transactions or the rendering of personalized investment advice for compensation in the State

A BD application is received by the State Administrator for a new broker-dealer subsidiary of a Swiss securities firm. The application includes the disclosure that the parent firm was suspended from membership on the Deutsche Bourse 6 years ago because of unauthorized trading by its Hong Kong branch. The State Administrator A. cannot deny registration based on the suspension that was imposed by a foreign regulator B. can deny registration based on the suspension by the foreign regulator C. must grant registration because the U.S. subsidiary is a legally separate entity from the parent company that is based in Switzerland D. can deny registration only if the actions of the parent company were a criminal offense

A. cannot deny registration based on the suspension that was imposed by a foreign regulator (The Uniform Securities Act sets a 10 year statute of limitations for securities related violations as a cause for denial of registration. This is based on violations of U.S. law. It also includes a provision regarding violations of the law of a foreign jurisdiction. In this case, it sets a 5 year statute of limitations. (Why? - Who knows!) In this case, the suspension by the foreign regulator happened 6 years ago, so the State Administrator cannot deny registration based on the action taken by the foreign regulator. The wording includes willfully violating the law of a foreign jurisdiction governing any aspect of the securities or banking business within the past 5 years; or being the subject of an action by a foreign regulator in the past 5 years denying, revoking or suspending the right to engage in the securities business as a broker-dealer, investment adviser or agent.)

Broker-dealers may charge: A. commissions on recommended transactions B. advisory fees on recommended transactions C. both commissions and advisory fees on recommended transactions D. commissions, advisory fees and performance fees on recommended transactions

A. commissions on recommended transactions

The president of a bank wishes to sell the subordinated debentures of that bank to individual investors. Under the provisions of the Uniform Securities Act, the president: A. is excluded from the definition of an agent B. must register as an agent of the issuer to do so C. must register as a broker-dealer to do so D. may sell the issue, but cannot receive a commission on the sale unless he or she becomes registered

A. is excluded from the definition of an agent (The Uniform Securities Act defines as an agent. Any individual who represents either a broker-dealer or issuer on effecting securities transaction. The Act excludes certain individuals who represent issuers from the definition of an "agent." These individuals are not required to register in the State. The exclusions for individuals representing issuers from being defined as an agent are: individuals who represent issuers in trades of specified exempt securities; individuals who represent issuers in exempt transactions; and individuals who represent issuers selling securities to the issuer's employees where no commissions are paid. The president of the bank comes under the first exclusion. The specified exempt securities are U.S. governments, agencies, municipals, Canadian government issues, bank issues, money market instruments, and money market instruments with no more than 9 months to maturity that are investment grade. Thus, this bank president is selling a specified exempt security because this is a bank issue and is excluded from being defined as an agent of the bank-issuer.)

If the composition of the ownership of a State registered investment adviser changes, the registrant: A. must file a correcting amendment with the Administrator promptly B. must update its books and records to reflect the ownership change C. must file a new registration application with the Administrator promptly D. is not required to take any action, unless requested by the Administrator

A. must file a correcting amendment with the Administrator promptly (Prompt notice to the Administrator is required if there is a change of ownership of a broker-dealer or adviser. There is no requirement for a completely new registration application. An amendment to the existing registration will do the trick!)

An agent of a broker-dealer with discretionary authority has a customer that currently is invested in ABC Speculative Fund. The agent enters an order to sell the ABC Speculative Fund holding and, using the proceeds, enters another order for the client to buy XYZ Speculative Fund. The agent: A. must show that there is a marked difference between the two funds and that the trade was justified B. must show that the commissions earned on the transactions were not a factor in the investment decision C. has committed an unethical practice because the account is being churned D. will be ordered by the Administrator to reverse the trades and refund commissions earned to the client

A. must show that there is a marked difference between the two funds and that the trade was justified

Registration of a broker-dealer in a State automatically registers any person that is a: A. partner of the broker-dealer B. sales employee of the broker-dealer C. solicitor of the broker-dealer D. clerical employee of the broker-dealer

A. partner of the broker-dealer

An investment adviser may receive a percentage of gains and losses in a client's account: A. under no circumstances B. only if specifically agreed in writing by both the customer and adviser C. only if a written agreement is approved in advance by the Administrator D. without restriction

A. under no circumstances (Sharing in the gains or losses in a customer's account is prohibited. However, if there is a prior written agreement approved by the broker-dealer, and the agent agrees to share based on the proportion of capital contributed to the account by the agent, then sharing is permitted.)

All of the following information must be included on a customer confirmation EXCEPT: A. whether the transaction was solicited or unsolicited B. whether a payment for order flow was made C. the customer name and account number D. the price of execution

A. whether the transaction was solicited or unsolicited (Whether a trade is solicited or not is required on an order ticket, but not on a trade confirmation. The amount of commission charged and if a payment was made for order flow must be disclosed. Finally, the customer name, account number, size of the trade, and price of execution must all be on the confirmation.)

All of the following persons are excluded from the definition of a broker-dealer or are exempt from registration as a broker-dealer under the Uniform Securities Act, EXCEPT a firm: A. with an office in the State that effects trades exclusively with other broker-dealers B. with no office in the State that effects trades exclusively with trust companies and other financial institutions C. with no office in a State with a broker-dealer "de minimis" exemption that has a few clients in the State in the preceding 12 months D. with an office in that State that is a trust company that deals with the public

A. with an office in the State that effects trades exclusively with other broker-dealers (A firm is not defined as a broker-dealer if it has no place of business in the State and transacts solely with issuers, other broker-dealers, and financial institutions. However, if a firm that effects securities trades has an office in a State, it is defined as a broker-dealer and must register in the State. Thus, the broker-dealer in Choice A must register and the broker-dealer in Choice B is not required to register. The "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State. In Choice C, the State has a broker-dealer "de minimis" exemption and would not be required to register. Banks, S&L's, and trust companies are also excluded from the definition of a broker-dealer, so no registration as a broker-dealer is required in Choice D.)

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Broker-dealers are subject to post-registration requirements II Broker-dealers are not subject to post-registration requirements III Agents of broker-dealers are subject to post-registration requirements IV Agents of broker-dealers are not subject to post-registration requirements A. I and III B. I and IV C. II and III D. II and IV

B. I and IV (Post-registration requirements cover such things as maintaining books and records; making required filings with the Administrator; giving reports to customers; and filing advertising and sales literature with the State. These are requirements for both broker-dealers and investment advisers. This portion of the Uniform Securities Act does not apply to their agents, however.)

Which information is NOT required to be recorded on executed order tickets? A. Time of order receipt B. Price of security at time of order receipt C. Time of order execution D. Price at which the order was executed

B. Price of security at time of order receipt

An individual works as both a registered agent for a broker-dealer and a representative of an investment adviser, both of which are owned by the same parent company. The individual's sister has started up a successful e-tailing company that she wishes to expand. She asks her brother to sell private placement units of her company to his customers in return for a 20% commission that she will pay. Which statement is TRUE? A. This action is prohibited because the commission amount to be paid is excessive B. The action cannot be taken unless the brother obtains written permission of the broker-dealer C. The partnership units cannot be sold to the agent's customers unless they are registered in the State D. The partnership units cannot be sold to the agent's customers unless separate records are kept covering these transactions

B. The action cannot be taken unless the brother obtains written permission of the broker-dealer (All securities transactions effected by agents of broker-dealers must be known to the firm and supervised by that firm. If the agent sells the private placement units to his customers, he has committed a violation known as "selling away" from his firm. He has sold his customers securities in transactions that the firm does not know about; yet the customers will think that they bought the securities from the broker-dealer (rather, they are buying the securities from the agent's sister!). The only way for an agent to "sell away" from the firm is to get the firm's permission in writing to sell the private placement units. Also note that Choice A has some merit, since a 20% commission seems high, but Choice B is the better answer.)

To register a successor firm with the State Administrator for the unexpired portion of the current license year, which statement is NOT true? A. The predecessor firm must have ceased business operations and can only conduct winding down transactions B. The successor firm must continue business operations through the end of that license year C. The successor firm must file a Form BD or ADV amendment with the Administrator D. The filing becomes effective on the date designated by the licensee

B. The successor firm must continue business operations through the end of that license year (Uniform State law does not require the filing of a new registration application for a successor firm. The successor firm files a registration amendment with the State, that takes its registration through the end of that year, without having to pay a new filing fee. The effective date of the successor firm's registration is the date indicated on the amendment. The "old" firm must have ceased business operations for the "new" firm to be registered in the State. Whether or not the successor firm continues in operation through the rest of that year is irrelevant.)

An agent of a broker-dealer is approached by the manager of a local bank, who tells that agent the following: "If you have any customers who want an extremely safe investment, you can sell them CDs issued by our bank and we will pay you a $50 referral fee for each completed sale." Which statement is TRUE about the agent engaging in this activity? A. This is permitted because the CD is an exempt security B. This is an unethical activity known as selling away unless the agent obtains written permission of his or her firm to sell the bank's CDs C. This is an illegal activity because agents are prohibited by law from selling away from their employing broker-dealer D. This is permitted because the agent is only receiving nominal compensation for each CD sold

B. This is an unethical activity known as selling away unless the agent obtains written permission of his or her firm to sell the bank's CDs

Under the NASAA Statement of Policy, an agent of a broker-dealer that has discretionary authority would NOT be subject to the prohibition on excessive trading of a customer account as long as the: A. customer consents in writing to each recommended transaction B. account is a non-managed fee based account C. account has consistently increased in value D. broker-dealer discounts the commissions charged to customers that are active traders

B. account is a non-managed fee based account (The risk in a discretionary account is that the broker will overtrade ("churn") the account just to earn extra commissions. If the account is a "fee only" account, then there is no incentive for the broker to churn. An annual flat fee that pays for all trades is such an account. Churning is a violation if trades are effected that are excessive in frequency or size based on the customer's investment objective, financial situation and financial needs. It makes no difference if the customer consents to each trade (he may be unsophisticated and not realize what he is doing); nor if the account is profitable; nor if the commissions are discounted.)

All of the following are prohibited manipulative practices under the Uniform Securities Act EXCEPT: A. buying a security on one exchange and simultaneously selling it on another exchange to create the appearance of trading activity B. buying a security on one exchange and simultaneously selling it on another exchange for profit C. executing a trade for a customer at a price that is unrelated to the current market D. executing a trade for a customer without the customer's knowledge

B. buying a security on one exchange and simultaneously selling it on another exchange for profit (Buying a security on one exchange and simultaneously selling it on another exchange for profit is a common trading technique known as "arbitrage" and is perfectly legal. Buying a security on one exchange and simultaneously selling it on another exchange to create the appearance of trading activity is a manipulative and prohibited practice known as "wash trading." Both executing a trade for a customer at a price that is unrelated to the current market and executing a trade for a customer without the customer's knowledge (unless discretionary power is granted by the customer) are prohibited practices.)

A customer may be charged a higher than normal commission in a transaction that is difficult for the broker to execute: A. under no circumstances B. if the additional charge is disclosed to the customer prior to the placement of the order C. if the additional charge is disclosed to the customer no later than on the trade confirmation D. at the discretion of the broker-dealer

B. if the additional charge is disclosed to the customer prior to the placement of the order (Unusual charges or fees involved with a transaction must be disclosed to the customer at the time that the order is placed. Disclosure cannot be made "after the fact" - which would be the case if the fee were disclosed on the trade confirmation or on the next account statement.)

An investment adviser would be permitted to charge a 2% fee to clients based on all of the following EXCEPT: A. average assets under management over the calendar year B. increase in assets under management over the calendar year C. highest value of assets over the calendar year D. assets under management at the end of the year

B. increase in assets under management over the calendar year

The person named as the executor over an estate would be found in the: A. affidavit of domicile B. letters testamentary C. proof of domicile D. certificate of incumbency

B. letters testamentary

The amount of commission charged to a customer to effect a securities transaction must be disclosed: A. prior to executing the transaction B. on the trade confirmation C. on the account statement D. on the Form 1099

B. on the trade confirmation (There is no requirement to disclose the amount of commission charged on a trade prior to executing the trade for the customer. The amount of commission must be disclosed on the trade confirmation and it must be "fair and reasonable." The only requirement for disclosure of commission costs is that if a transaction will result in unusually high commission costs, this must be disclosed to the customer prior to executing that trade. There is no disclosure of commissions on account statements; nor is there disclosure of commissions on Form 1099s (reports of dividends and interest paid to the security holder for tax reporting).)

Under NASAA rules, if a customer wishes to trade a margin account prior to returning the signed margin agreement, such an action is: A. prohibited B. permitted only if the customer returns the signed margin agreement promptly C. permitted only if the customer returns the signed margin agreement within 1 day of the first transaction in the account D. permitted only if the customer returns the signed margin agreement within 3 days of the first transaction in the account

B. permitted only if the customer returns the signed margin agreement promptly

A new customer is opening an account with a broker-dealer. The customer tells the agent to "decide which investments are best." Prior to opening the account, the agent MUST: A. receive good funds for the amount of securities to be purchased B. receive a written power of attorney from the customer C. disclose the types of investments planned for the account D. be registered as an investment adviser with the State Administrator

B. receive a written power of attorney from the customer (If an agent chooses more than price and time of execution for a customer, the trade is considered to be "discretionary." Prior to opening a discretionary account, a written power of attorney must be obtained from the customer.)

A broker-dealer that is not registered in a State sells non-exempt securities in non-exempt transactions to customers located in that State. That State's Administrator will: A. require that the securities be registered in the State and that the broker-dealer register in that State B. require the broker-dealer to make an offer of rescission to each purchaser in that State C. require that a notice filing be made in the State along with the payment of a filing fee D. institute an action in a court of law alleging criminal activities on the part of the broker-dealer

B. require the broker-dealer to make an offer of rescission to each purchaser in that State

A customer wishes to make an investment in growth mutual funds for an Individual Retirement Account. All of the following statements by an agent are prohibited EXCEPT: A. "The fund has averaged a 20% annual growth rate in the past and is guaranteed to produce the same growth rate in the future" B. "Last year, the fund paid out dividends of $1.00 per share and capital gains of $.50 per share, for a total income yield of $1.50" C. "The fund yielded 20% last year and is expected to yield the same this year, though the actual yield may be more or less" D. "The fund is registered with the SEC, which has approved of the fund's shares"

C. "The fund yielded 20% last year and is expected to yield the same this year, though the actual yield may be more or less" (An agent cannot guarantee a return to a customer (Choice A), nor can an agent state that income from a fund consists of both dividends and capital gains (the income portion consists solely of dividends), nor can the agent state that the SEC approves of the fund. It is perfectly acceptable to state the historical yield for the fund, and then to state that similar results are expected in the future, although the actual result may be more or less.)

Which of the following is NOT a federal covered security? A. An offering made over-the-counter of $250,000,000 of 10% convertible debentures of ACME Corporation, a company whose common stock is listed on the American Stock Exchange (NYSE American) B. A private placement of $250,000,000 of debt backed by automobile finance company receivables sold to investment managers that are qualified purchasers C. An offering of $250,000,000 of General Obligation bonds by the City of New Orleans to the residents of Louisiana D. An offering of $250,000,000 of common shares of a mutual fund that will be offered to the general public

C. An offering of $250,000,000 of General (Obligation bonds by the City of New Orleans to the residents of Louisiana If a security is defined as "exempt" under the Uniform Securities Act, then it is not required to be registered in each State where offered. If a security is a "federal covered security," then it cannot be required to be registered in each State where offered (though the State can require a notice filing and payment of a filing fee). Municipal bonds (Choice C) are an exempt security. The other 3 choices are federal covered securities. A federal covered security is defined as one that is: NYSE, AMEX (now renamed NYSE American) or NASDAQ listed or is a senior security of such an issuer; issued by a registered investment company; sold only to qualified investors - that is, investment managers with at least $25,000,000 under management - essentially these are federal covered advisers; or sold in exempt transactions specified under the Securities Act of 1933 such as Regulation D private placements. Note that for all 4 choices, there would be no registration required in the State. The question is looking for the distinction between an exempt security and one that is a "federal covered security.)

Under the Uniform Securities Act, registration of a security in a State means that: I disclosure documents have been filed with the Administrator II the Administrator has reviewed the content and accuracy of the filing III the Administrator has approved of the securities being offered A. I only B. II and III C. I and II D. I, II, III

C. I and II

Under the NASAA Statement of Policy on unethical practices, which of the following investment advisers would be able to loan monies where securities are collateral for the loan? I An investment adviser that has a registered broker-dealer that lends money to a customer through the broker-dealer affiliate II An investment adviser that is a subsidiary of a parent bank that lends money to a customer through the bank affiliate III An investment adviser that is a partnership lends money to a customer under the provisions of Regulation T of the Federal Reserve Board IV An investment adviser that is a corporation lends money to its officers A. I and II only B. III and IV only C. I, II and IV D. I, II, III, IV

C. I, II and IV

A Chinese Wall must be maintained by a broker-dealer between investment banking and which of the following departments? I Research II Trading III Retail Sales IV Mergers and Acquisitions A. I and II B. III and IV C. I, II, III D. I, II, III, IV

C. I, II, III

Filing of advertising with the Administrator is NOT required for: I U.S. Government securities II Municipal securities III Investment company securities IV Options Clearing Corporation securities A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

C. I, II, III

The Administrator may issue a stop order for a securities issue "in registration" for which of the following reasons? I The spread taken by the underwriters is excessive II The sale of the securities tends to work a fraud on investors III The issuer's business is illegal in that State IV The issuer's business is unproven in that State A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

C. I, II, III

Under the Uniform Securities Act, an Investment Adviser MUST inform a client about: I Change of address II Addition of new partners to the advisory partnership III Change of phone number IV Addition of client accounts from another advisory firm that was "bought out" A. I and III B. II and IV C. I, II, III D. I, II, III, IV

C. I, II, III

Which of the following statements are TRUE about an offer of rescission? I The offer can only be made prior to the institution of a lawsuit alleging a securities violation II An offer must be made to buy back the security at the original purchase price III The customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security IV The customer must sign a waiver of non-compliance to accept the offer A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

C. I, II, III

Which of the following orders MUST be retained as a record by broker-dealers? I Executed orders II Unexecuted orders III Canceled orders IV Subscription orders A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV

C. I, II, III only

Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider which of the following when investing and managing trust assets? I General economic conditions II Possible effects of inflation or deflation III Trading patterns of plan beneficiaries IV Investment tax consequences A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV

C. I, II, IV

Under the NASAA Statement of Policy, which of the following are unethical practices of investment advisers? I Telling a customer to buy or sell a security based upon a rumor heard about that security II Failing to disclose sources of compensation received from anyone other than that customer relating to rendering advisory services to that customer III Exercising discretion for a short time period upon oral instruction of a customer IV Charging a customer an advisory fee that is extremely high relative to fees charged by other advisers for similar services A. IV only B. I and III C. I, II, IV D. I, II, III, IV

C. I, II, IV (The NASAA Statement of Policy permits oral discretion to be exercised by an investment adviser for up to 10 business days; as long as a written power of attorney is obtained from the customer within 10 days of exercising such oral discretion. (Please note that if the investment adviser is also a registered broker-dealer, the rules of FINRA would not permit this - FINRA requires written power of attorney from the customer prior to exercising discretion in the customer's account). Charging a customer an advisory fee that is excessively high relative to the fees charged by other advisers for similar services; failing to disclose sources of compensation received by the adviser in connection with rendering advisory services to that client (such as taking commissions on recommended trades); and inducing a customer to trade a security based upon a rumor; are all unethical and prohibited practices.)

Which of the following come under the jurisdiction of the State Administrator? I A mailing of sales literature to a customer in that State II A mailing of sales literature to a customer in a neighboring State III A television broadcast from within that State, received in that State IV A television broadcast from a neighboring State, received in that State A. I and II only B. III and IV only C. I, II, and III D. I, II, III, IV

C. I, II, and III (If an offer of securities is directed into a State, it comes under the jurisdiction of that State Administrator. Thus, Choices I and II clearly fall under the Administrator's jurisdiction. Regarding television broadcasts, the interpretation is that if the broadcast originates in the State; and is received in the State; then it falls under the jurisdiction of State Administrator in the receiving State. If the broadcast originates in another State; and is received in the State; then it does not fall under the jurisdiction of the State Administrator in the receiving State. Simplified, this means that only the Administrator in the State from which the broadcast originated has jurisdiction. Thus, Choice III is correct; and Choice IV is incorrect.)

Which of the following are EXCLUDED from registration in a State? I Investment adviser with $150,000,000 of assets under management II Investment adviser with $50,000,000 of assets under management III Investment adviser to an investment company with $150,000,000 of assets IV Investment adviser to an investment company with $50,000,000 of assets A. I and IV only B. II and III only C. I, III, IV D. I, II, III, IV

C. I, III, IV (Advisers that manage $100,000,000 or more of assets; or that render advice to investment companies; or that are not regulated at the State level; must register with the SEC only. The smaller advisers are only required to be registered at the State level. Thus, the adviser with $150,000,000 of assets under management need only register with the SEC; and is exempt from registration in the State (Choice I). The adviser to an investment company (Choices III and IV) need only register with the SEC regardless of the level of assets under management and is exempt from registration in the State. In contrast, the adviser with $50,000,000 of assets under management need only register with the State.)

An agent of a broker-dealer wishes to create a website to solicit securities business from customers. Based on each customer's responses to questions asked, appropriate investment recommendations will be made. Which statements are TRUE? I The broker-dealer must review and approve the content of the website II The Administrator must review and approve the content of the website III The broker-dealer must be registered in each State where a customer responds to the website IV The agent must be registered in each State where a customer responds to the website A. I and II B. III and IV C. I, III, IV D. I, II, III, IV

C. I, III, IV (If individualized offers are being made to customers via the Internet (as is the case here), then both the broker-dealer and the agent must be registered in each State where the offer is made. In addition, the broker-dealer is always responsible for the actions of its agents - so it must review and approve the content of all communications to the public made by agents. While the Administrator can require the filing of Internet websites, the Administrator does not review and approve their content.)

The Uniform Securities Act subjects agents and broker-dealers who violate the Act's provisions to which of the following? I Civil Liability II Civil Penalties III Criminal Liability IV Criminal Penalties A. I and II only B. III and IV only C. I, III, and IV D. I, II, III, IV

C. I, III, and IV (The Uniform Securities Act provides for civil liability for unintentional violations of the Act (refund of customer's money plus 6% interest and attorney's fees). For intentional (and serious) violations, the Act provides for criminal liability (jail!) and criminal penalties ($5,000 fine per offense). The Act does not provide for civil penalties (that is, civil fines). These could only be imposed if an action were taken in civil court and the judge imposed punitive damages.)

Which statements are TRUE regarding investment advisory contracts under the Uniform Securities Act? I Assignment of the contract is not permitted unless the customer consents II If the investment adviser is a partnership, the death or withdrawal of a majority of the partners constitutes an assignment III If the investment adviser is a partnership, the death or withdrawal of a minority of the partners constitutes an assignment IV If the investment adviser is a partnership, the customer must be notified of any change in the membership of the partnership within a reasonable time A. I only B. II and IV only C. I, II, and IV D. I, II, III, IV

C. I,II and IV

Which of the following securities issues MUST be registered in a State? I Common shares of a public utility II Subordinated debentures of a bank holding company listed in the Pink Sheets III Common shares of an industrial company listed in the OTCBB IV Investment company securities A. I and II only B. III and IV only C. II and III only D. I, II, III, IV

C. II and III only (Under Uniform State Law, securities issued by public utilities regulated under the Public Utility Holding Act of 1935 are exempt securities. While bank, and savings and loan issues, are exempt, securities issued by bank holding companies are not. So if a bank offers its own common stock, it must be registered in the state unless the security is "federal covered" - meaning that it is listed on a major exchange (NYSE, AMEX (NYSE American) or NASDAQ). The Pink OTC Market has no listing standards and is not an exchange. Common shares of industrial companies are non-exempt unless they are listed on a major stock exchange (blue chip exemption). The OTCBB (Over-The-Counter-Bulletin-Board) has no listing standards and is not an exchange. Investment company securities are federal covered securities, and cannot be required to be registered in the State - only registration with the SEC is required.)

The term "broker-dealer" EXCLUDES which of the following? I A person in the business of trading securities for his own account II A person in the business of trading securities for the account of others III Financial Institutions IV Issuers of securities A. I only B. I and II C. III and IV D. I, II, III, IV

C. III and IV (The term "broker-dealer" is defined as a person who: Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading") Persons NOT considered to be "broker-dealers" include: Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities))

Which of the following is an unethical business practice? A. Publication of a tombstone announcement by a broker-dealer in the local newspaper on the effective date of a registered new issue offering managed by that broker-dealer B. Publication of a research report by a broker-dealer that shows the performance of prior recommendations made by that broker-dealer during the prior 12 months C. Publication of a report by an agent detailing the performance of transactions recommended by that agent over the prior 12 months D. Publication of a report by a broker-dealer written by an agent detailing the performance of transactions recommended by that agent over the prior 12 months

C. Publication of a report by an agent detailing the performance of transactions recommended by that agent over the prior 12 months

All of the following are federal covered securities EXCEPT: A. NYSE listed issues B. NASDAQ listed issues C. SEC registered issues D. Registered investment company issues

C. SEC registered issues

A new customer wants to open a discretionary account by initially depositing $20,000 in cash. He signs the authorization form and indicates to an agent that his investment objective is long-term growth. He wishes that the agent immediately invest his money to take advantage of market timing. Which statement is TRUE? A. As long as the customer is an American Citizen born in the United States and this is verified, the agent may invest the money in a manner consistent with the customer's objective B. Once the new account form is approved by the State Administrator, the agent can start investing as long as the investment is consistent with the customer's objective C. The agent should contact her branch manager as cash deposits or withdrawals exceeding $10,000 must be reported to the Department of Treasury D. The agent should contact her State Administrator as amounts exceeding $10,000 must be reported to the Secretary of the State

C. The agent should contact her branch manager as cash deposits or withdrawals exceeding $10,000 must be reported to the Department of Treasury

A customer holds 52% of ABCD Corp. common stock, a thinly traded stock listed in the OTCBB. The customer wishes to sell 1% of her holding and requests that the broker display her offering quote. Which statement is TRUE? A. The quote cannot be shown since only dealer offerings are listed in the OTCBB B. The dealer cannot enter the quote unless the State Administrator approves C. The dealer can enter the quote only if it is bona-fide D. The dealer can enter the quote without restriction

C. The dealer can enter the quote only if it is bona-fide (Quotes shown in any public market can reflect either a dealer or customer position. As long as this customer is making a bona-fide offering of the shares, the quote can be displayed.)

A clearing broker-dealer that makes markets in most NASDAQ securities has decided that holding its trading securities inventory together with its customer's securities positions would result in a substantial cost savings to the firm. As a result, the firm would be able to reduce the amount that it charges its customers for safekeeping of securities. Which statement is TRUE about this action, if taken? A. This action is permitted if the firm can demonstrate that overall costs to customers would be lowered B. This action is called rehypothecation and is prohibited C. This action is called commingling and is prohibited D. This action is permitted without restriction

C. This action is called commingling and is prohibited (An unethical business practice is the commingling of customer securities with the proprietary positions held by the member firm. Customer securities positions must always be kept physically separate from the firm's proprietary positions. Note, however, that the broker-dealer is permitted to commingle one customer's margin securities with those of other customers; and these securities can be rehypothecated (pledged) to a bank to get a margin loan for those customers.)

An Investment Adviser Representative writes a blog published on the Internet about how to achieve the best returns for clients, while minimizing risk. Which statement is TRUE about this? A. This can only be done if the Investment Advisory firm that employs the IAR approves of the content B. This can only be done if the Investment Advisory firm that employs the IAR authorizes the distribution of the communication C. This can only be done if the Investment Advisory firm that employs the IAR both approves the content and authorizes the distribution of the communication D. This action is prohibited

C. This can only be done if the Investment Advisory firm that employs the IAR both approves the content and authorizes the distribution of the communication

Which of the following is the MOST appropriate investment for an estate account? A. Investment grade long term bonds B. Long Treasury Bonds C. Treasury Bills D. Insured Municipal Bonds

C. Treasury Bills (The objective of an estate account is to preserve principal and to effect a timely distribution of estate assets. The best investment of the choices offered is Treasury Bills - they are liquid and have little market risk. Long term bonds (the 3 other choices), even if they are liquid and safe, are subject to substantial market risk.)

Which of the following actions on the part of an agent is unethical in a margin account that does not have a written trading authorization from the customer? The customer directing that the agent: A. buy 1,000 shares of ABCD sometime during that day and the agent executing the trade at the market close that day B. sell short 500 shares of DEF whenever he thinks the time is right and the agent executing the trade at 2:00 PM ET that day C. buy 1,000 shares of a high dividend paying stock as soon as possible and the agent executing the purchase of 1,000 shares of PDQQ 10 minutes later D. sell his entire holding of DEFF stock at whatever the agent thinks is the best price that day and the agent immediately places a market order to sell that is executed 1 minute later

C. buy 1,000 shares of a high dividend paying stock as soon as possible and the agent executing the purchase of 1,000 shares of PDQQ 10 minutes later (A broker is always permitted to choose price or time of execution without needing a written authorization from the customer. However, to choose either the security or the size of the trade, a written authorization is needed.)

A client of a RIA dies. His attorney calls the RIA and instructs him to sell 500 shares of ABC at the market and deposit the proceeds to the client's checking account. The RIA should: A. accept the trade verbally and follow the attorney's instructions B. get a copy of a power of attorney that authorizes the attorney to act on behalf of the client C. get a copy of the client's will to see what is allowed and what is not allowed D. require the attorney to send the instructions in writing either by e-mail or fax

C. get a copy of the client's will to see what is allowed and what is not allowed (An attorney for a client does not have trading authorization over that client's account, unless the client gave the attorney trading authorization in a written power of attorney. Regardless, any power of attorney dies with the client and is void. The assets in the deceased client's account must be transferred to an account for the estate before anything can be done in the account - so get a copy of the will and see if the attorney is appointed the executor over the estate. As executor, the attorney would then be permitted to effect transactions in the account.)

An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Representative (IAR) to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be: A. the identification of the business model of the Investment Adviser including size of the firm, types of services provided, and the number of locations B. making provision for the Investment Adviser Representative to notify the clients of the Investment Adviser in the event of business interruption caused by the owner's death or unexpected permanent incapacitation C. making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable D. providing for an appropriate emergency contact person when the investment adviser representative is away on vacation

C. making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable (When an Investment Advisor is formed as a sole proprietorship, the client's legal relationship is with the sole proprietor. With the death or permanent disability of the sole proprietor, the sole proprietorship is terminated as a legal entity, as would any advisory contracts. The IA must have a succession plan that immediately addresses this issue if the sole proprietor becomes unavailable. Otherwise, the clients would have no one to manage their funds held at the defunct IA because the existing investment advisory contracts are now void.)

An employee of a company is being paid to assist in the sale of stock options to the company's employees and will receive a bonus based on sales results. This company employee: A. must register in the State as an Investment Adviser B. must register in the State as an Investment Adviser Representative C. must register as an Agent in the State D. is not required to register in the State

C. must register as an Agent in the State (An employee of an issuer who is compensated for selling that company's securities to its employees is defined as an "agent" under the Uniform Securities Act and must register in the State. Note that if the employee were not receiving pay based on sales results, then he or she would not be defined as an "agent" and would not be required to register in the State. Finally, this individual is not an Investment Adviser Representative, because he or she is not permitted to receive sales-based compensation.)

A limited partnership unit was initially sold to an investor for $25,000. The unit is illiquid and there is no current market for the security. As part of the partnership agreement, the general partner has the right to assess the limited partners if the partnership suffers a cash shortfall. The investor wishes to give the partnership unit to a close friend as a birthday present. This action is: A. prohibited under the Uniform Securities Act B. permitted and will allow the investor to take a $25,000 charitable deduction C. permitted and is considered to be an offer of a security D. an unethical practice

C. permitted and is considered to be an offer of a security

An IAR discusses a trading strategy with one of her clients, who tells the IAR to sell her ABC stock position whenever you see an opportunity. After this conversation, the client leaves the IAR's office for a vacation. Two days later, the IAR sees that ABC stock has risen in price and believes that this is an opportune time to sell the position. The IAR should: A. not place the order and try and contact the client B. place the trade and notify the client in writing within 2 business days C. place the trade and get written discretionary authority from the customer within 10 business days D. get approval from his or her direct manager before placing the trade

C. place the trade and get written discretionary authority from the customer within 10 business days (Unlike the rule for broker-dealers written by FINRA, where a written power of attorney is required prior to exercising discretion, the NASAA rule for investment advisers is that verbal discretion can be exercised, as long as the written power of attorney is obtained from the customer within 10 business days.)

The term "Investment Adviser" includes: A. lawyers who give advice about investments as part of an estate tax plan B. depository institutions that recommend bank products as investments C. publishers of reports on securities tailored to client situations D. broker-dealers who make recommendations to clients and charge commissions on the resulting trades

C. publishers of reports on securities tailored to client situations

An adviser that takes custody must file a copy of its surprise audit results with the State Administrator within: A. 60 days of year-end B. 60 days of completion of the examination C. 120 days of year-end D. 120 days of completion of the examination

D. 120 days of completion of the examination

In order for a money market fund to be called "no load" it cannot charge any of the following EXCEPT: A. front-end load B. contingent deferred sales charge C. back-end load D. 12b-1 fees

D. 12b-1 fees (A fund cannot be called "no load" if it charges any type of sales charge, whether it be a front-end load, back-end load, or a contingent deferred sales charge. A mutual fund (money market funds are mutual funds) can advertise itself as a "no-load" fund if it charges 12b-1 fees of no more than .25% (25 basis points) annually. 12b-1 fees are charges against net asset value that pay for the cost of soliciting new investment to the fund, and they can be used to compensate salespersons that sell the fund's shares.)

Under the Uniform Securities Act, which of the following persons with no place of business in a State is EXCLUDED from the definition of an "Investment Adviser"? A. A person who gives advice for a fee about public utility mortgage bond issues B. A person who gives advice for a fee about municipal securities C. An insurance company that renders advice about securities for a fee to its clients D. A trust that receives special compensation for rendering advice about securities

D. A trust that receives special compensation for rendering advice about securities (Excluded from the definition of an investment adviser are: Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers Thus, the trust company (Choice D) is excluded from the definition of an investment adviser. Note that none of the other choices fits the definition of a Federal covered adviser, and that insurance companies that give advice (Choice C) are not afforded an exclusion.)

If a registered investment adviser takes custody of client funds or securities and deposits them with a qualified custodian, which statement is NOT true? A. The customer must be notified promptly in writing of the qualified custodian's name, address and the manner in which the securities are held B. The customer must be sent, at least quarterly, an account statement identifying all positions held and all transactions in the account during that period C. All client funds and securities positions must be verified at least annually by a certified public accountant on a surprise basis D. A written discretionary authority must be obtained from each client for whom funds are being held in custody

D. A written discretionary authority must be obtained from each client for whom funds are being held in custody If an investment adviser wishes to take custody of client funds or securities: (It must notify the Administrator in writing on Form ADV that it has, or may have, custody; Custody must be kept by a qualified custodian in a separate account under each client name; or in accounts that only contain client funds and securities, held in investment adviser name as trustee for the clients; Prompt notice must be given to the clients in writing of the qualified custodian's name, address, and the manner in which the funds or securities are maintained; Account statements must be sent at least quarterly to clients; The IA must be audited annually on a surprise basis to verify customer funds and securities positions. Exercising discretion in an advisory account is a totally different idea. The adviser needs the written consent of the client to exercise discretion, but that adviser who has discretion may, or may not, take custody.)

A customer opens an advisory account by depositing $3,000,000. Under Uniform State Law, which of the following fee arrangements is permitted? A. Annual account fee B. Performance fee C. Hourly fee D. All of the above

D. All of the above (Because the Investment Advisers Act of 1940 permits the charging of performance fees to qualified customers (those with either $1,000,000 invested or a net worth of $2,100,000), NASAA cannot prohibit the charging of a performance fee for this customer who is investing $3,000,000. (Remember that Federal law supersedes State law; in the absence of a Federal law, then only that State law applies.) An annual account fee, or an hourly fee arrangement, would always be acceptable.)

Which of the following information would NOT be found in a registration statement for a security that is going to be registered by qualification in a State? A. Current equity and debt capital of the issuer B. Description of issuer's business, product lines and competitive environment C. Use of proceeds of the offering D. Analysis of company profitability as compared to industry norms

D. Analysis of company profitability as compared to industry norms (Consider this to be a learning question: Any registration statement for a securities offering includes: Current balance sheet and income statement; Business description; Use of proceeds of offering; Offering Terms; Legal Opinion; Accountant's Opinion. There is no analysis of company profitability in the registration statement as compared to other companies in the industry.)

Which of the following is (are) prohibited in a margin account? I A customer buying a security without the intention to pay on settlement II A customer selling a security without the intention to deliver on settlement III A customer selling short a security that cannot be borrowed and delivered on settlement A. I only B. I and II C. II and III D. I, II, III

D. I, II, III

Under the Uniform Securities Act, an offer or sale does NOT exist if the securities are: I being pledged as collateral for a loan II non-assessable and are given as a gift III exchanged for another type of security under a judicially approved reorganization A. I only B. I and II C. II and III D. I, II, III

D. I, II, III (A sale is defined as a contract to dispose of a security for value. The pledge of securities is not a "sale;" the gift of non-assessable securities is not a "sale;" and an exchange of one security for another under a judicially approved corporate reorganization is not considered a "sale.")

If an adviser is suspicious about a customer's account activity and believes that there may be illegal activity, then the adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Agents of broker-dealers are subject to post-registration requirements II Agents of broker-dealers are not subject to post-registration requirements III Agents of investment advisers are subject to post-registration requirements IV Agents of investment advisers are not subject to post-registration requirements A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the number of shares being issued. In order to do this: I a new registration statement must be filed with the State, if it is within 6 months of the date of sale II an amendment must be filed, as long as it is within 6 months of the date of sale III an additional filing fee must be paid, but no late registration fee is required IV both an additional filing fee and a late registration fee must be paid A. I and III B. I and IV C. II and III D. II and IV

D. II and IV (Under USA, a registration statement for a securities offering may be amended after its effective date to increase the amount of securities to be sold (this would be done if there was greater demand than expected). The offering price and underwriter's compensation cannot be changed. To do this, it must be within 6 months of the original sale date (the effective date) and both a filing fee for the additional securities being offered and a late registration fee must be paid to the State. (Of course, you might wonder why this bit of trivia must be known for the exam, but it must!) The amendment becomes effective when the Administrator so orders.)

If an adviser is suspicious about a customer's account activity and believes that there may be illegal activity, then the adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days A. I and III B. I and IV C. II and III D. II and IV

D. II and IV (If an adviser is suspicious about a customer opening an account, then a "Suspicious Activities Report" must be filed with FinCEN (Financial Crimes Enforcement Network - part of the Department of Treasury) within 30 days. The customer cannot be told that the report is being filed.)

Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than: I 5 business days II 10 business days III following the end of the month in which the transaction was effected IV following the end of the quarter in which the transaction was effected A. I and III B. I and IV C. II and III D. II and IV

D. II and IV (NASAA rules for State-registered advisers require that customer account records be posted no later than 10 business days following the end of each calendar quarter. Again, note that this is very different than the requirement of Federal securities law that applies to broker-dealers and Federal covered advisers.)

Under the Prudent Investor Act, a trustee's investment and management decisions should be evaluated: I based on each individual transaction II based on the context of the portfolio as a whole III as part of the investment strategy of each single trust beneficiary IV as part of the overall investment strategy for all beneficiaries of the trust A. I and III B. I and IV C. II and III D. II and IV

D. II and IV (The Prudent Investor Act states that a fiduciary does not have to be "prudent" on each separate transaction - rather, the Act requires that the overall portfolio return is the proper assessment measure. If there are multiple beneficiaries whose assets are being managed in one account, the rule is not applied to each beneficiary, but overall to all of the beneficiaries in the trust.)

Which of the following is NOT EXCLUDED from the definition of an "investment adviser"? A. Broker-dealer B. Trust company C. Savings and loan D. Investment company

D. Investment company (Excluded from the definition of an investment adviser are: investment adviser representatives, broker-dealers, depository institutions (banks, trusts, savings and loans), professionals (lawyers, accountants, teachers, engineers) and newsletters that do not render advice based upon a specific client situation. Insurance companies and investment companies are not excluded from the definition (though they may be exempt from registration under certain circumstances).)

An order ticket for the purchase of stock does NOT contain: A. Quantity B. Time that the order is placed C. Fill price D. Market price at the time that the order is placed

D. Market price at the time that the order is placed

An investment adviser has researched a privately held company and is extremely bullish on the company's prospects. She makes a personal investment of $100,000, for which the investment adviser received privately placed common stock with a Rule 144 restriction legend. One year later, the company goes public and the investment adviser, still being very bullish on the company, recommends the purchase of the IPO shares to her clients. Which statement is TRUE about this situation? A. The investment adviser has not violated any rules because she is making a recommendation that is consistent with her bullish opinion of the company B. The investment adviser has violated with FINRA IPO rule on free riding and withholding C. The investment adviser has violated the insider trading prohibition under the Securities Exchange Act of 1934 D. The investment adviser has created a conflict of interest that must be disclosed to clients who receive the recommendation

D. The investment adviser has created a conflict of interest that must be disclosed to clients who receive the recommendation

A husband and wife have a joint account at DEF Securities. The husband informs the representative in a private conversation that he intends to divorce his wife soon. Which action can the representative take? A. The representative can send a letter to the wife informing her of her husband's intentions B. The representative can call the wife and offer to open a separate account for her C. The representative can immediately divide the joint account into 2 separate accounts D. The representative can offer to maintain the husband's account and recommend another broker-dealer to the wife if she requests

D. The representative can offer to maintain the husband's account and recommend another broker-dealer to the wife if she requests (Since this was a private conversation, the representative cannot take any action based on this information. In Choices A, B, and C, the representative is doing something based on the information. In Choice D, the representative is offering to do something - but has not done anything yet.)

As the first purchase in a new cash account, a customer buys a stock that has been trading in the secondary market in your State for 5 years in a solicited transaction. When must the prospectus be delivered to the customer? A. Upon learning about the security from the agent B. On the date of confirmation of the purchase C. On the date payment is made for the purchase D. There is no requirement to deliver a prospectus

D. There is no requirement to deliver a prospectus (Prospectus delivery is only required for new issues being sold in the primary market. Once a company is trading in the secondary market, it is reporting its results to the SEC and this information is publicly available. Thus, an investment decision can be made from this information and there is no longer a prospectus delivery requirement.)

In order for a promissory note to be an exempt security under the Uniform Securities Act: A. it must mature within 9 months B. it must be issued in minimum denominations of $50,000 C. it must be rated in one of the 3 highest categories by Moody's D. all of the above

D. all of the above

Under NASAA rules, the Form ADV filed with the State must be updated: A. quarterly within 30 days of quarter end B. quarterly within 90 days of quarter end C. annually within 30 days of fiscal year end D. annually within 90 days of fiscal year end

D. annually within 90 days of fiscal year end

All of the following statements are true about Registration by Filing EXCEPT: A. the issuer must have minimum earnings levels for 2 of the past 3 years B. copies of any offering materials must be included in the registration filing C. the issuer must not have defaulted on any interest payments within the past year D. registration becomes effective 10 business days after the filing is complete

D. registration becomes effective 10 business days after the filing is complete (Registration by Filing becomes effective 5 business days after the filing is complete. To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.)

All of the following information must be recorded on an order ticket EXCEPT: A. time of order receipt B. customer account name/number C. name of person entering the order D. time and date of execution

D. time and date of execution

If an agent withdraws from employment from a broker-dealer, the withdrawal takes effect: A. promptly B. within 5 days C. within 10 days D. within 30 days

D. within 30 days

Which of the following is NOT defined as a "broker-dealer" under the Uniform Securities Act? A. An agent of a broker-dealer who effects securities transactions B. A person who effects securities transactions for its own account C. A person who effects securities transactions for the account(s) of others D. An agent of a broker-dealer who effects securities transactions that are not recorded on the books of the broker-dealer

A. An agent of a broker-dealer who effects securities transactions

An investment adviser that claims that it is a "fee only" adviser could be compensated based on: I a percentage of assets under management II a flat annual or hourly fee for all work performed III 12b-1 fees paid by mutual funds IV commissions paid by broker-dealers A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

A. I and II

A customer buys 1,000 shares of XYZZ stock in a margin account and pays the required 50% margin on settlement date. The customer requests that the broker-dealer transfer the securities into the customer's name and ship them to his home address. Which statement is TRUE? A. This request cannot be honored because the securities must be paid for, in full, to process a transfer and ship request B. This request cannot be honored because all customer securities must be held in a depository C. This request cannot be honored unless the customer makes it in writing D. This request should be honored as given

A. This request cannot be honored because the securities must be paid for, in full, to process a transfer and ship request (Securities held in margin accounts cannot be transferred and shipped - they are kept in "street" name as collateral for the customer margin loan. The customer must pay off the loan on the securities in order for the brokerage firm to transfer them into his or her name and ship them. There is no requirement for such a request to be made in writing.)

Under the Uniform Securities Act, "consent to service of process" means that the: A. Administrator is empowered to fine or penalize an agent or broker-dealer B. Administrator is authorized to receive suits on behalf of an agent or broker-dealer C. registrant is under the jurisdiction of the Administrator for up to 1 year after withdrawal from registration D. registrant cannot be compelled to give testimony in an investigation

B. Administrator is authorized to receive suits on behalf of an agent or broker-dealer

Collecting and verifying information provided by a customer at account opening is part of the company's policies and procedures covering: A. Privacy of Customer Information B. Anti-Money Laundering C. Cybersecurity D. Business Continuity

B. Anti-Money Laundering

To use Registration by Coordination, an issuer must file a registration statement with: I the Securities and Exchange Commission II the Administrator of that State III FINRA A. I only B. I and II C. II and III D. I, II, III

B. I and II

Under NASAA recordkeeping rules for investment advisers, any advertisement, circular or other communication: I must be retained if it is circulated to 2 or more persons II must be retained if it is circulated to 5 or more persons III cannot recommend the purchase or sale of a specific security IV can recommend the purchase or sale of a specific security and if it does not state the reasons for the recommendation, a memo must be retained indicating the reasons for the recommendation A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

Which records MUST be retained in a state-registered investment adviser's principal office? I Customer securities positions II Correspondence with customers III Investment adviser's bank statements IV Records of customer purchase and sales orders A. I and III B. I and IV C. II and III D. II and IV

B. I and IV