Series 65

Form ADV is filed with Administrator or with a central registration depository designated by the Administrator. The application must include:

A consent to service of process, appropriate fees, and the brochure or any other information that will be used to solicit clients.

The Employee Retirement Income Security Act of 1974 (ERISA)

A federal law regulating many aspects of private retirement plans. Serves as a basis of rules which protect the beneficiaries and plan participants. It is permitted for a fiducairy to transfer plan income or assets for the benefit of a plan beneficiary or a plan participant which they are entitled according to the provisions within the plan.

Under Regulation D, accredited investors in a private placement must meet minimum standards that may include which of the following?

A net worth, excluding the primary residence, in excess of $1 million, or annual income in excess of $200,000 in the last two years and the same or more income expected this year, or $300,000 for joint incomes.

Section 457 Plans

A nonqualified deferred compensation plan set up under Section 457 of the tax code that may be used by employees of a state, political subdivision of a state, and any agency or instrumentality of a state.

A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2023 without having to pay gift taxes?

A special rule under Section 529 allows the donor to load front-end load contributions and avoid paying gift taxes. Five years' worth may be used under this method (5 x $17,000 = $85,000).

Health Savings Accounts (HSAs)

A tax-exempt trust or custodial account that individuals can set up with a qualified HSA trustee to pay or reimburse certain medical expenses they incur.

403(b) Plan

A tax-sheltered annuity plan (TSA) , is a retirement plan for certain employees of public schools, employees of certain IRS Code Section 501 (c)(3) tax-exempt organizations, and certain ministers.

If any nonmaterial information filed on Form ADV changes

An amendment must be filed within 90 days of the end of the fiscal year.

401(k) Plans

An employee directs an employer to deduct a percentage of the employee's salary that will be a contribution to a retirement account. - The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance - Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan - Payback of the loan will be through payroll deduction - Default on the loan will result in the IRS treating the loan as a distribution

Income Funds

An income fund stresses current income over growth. The fund's objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility company stocks, large-cap stocks, and preferred stocks.

An individual who is 73 on November 15, 2023, has an IRA's first required minimum distribution date of

An individual's first required minimum distribution (RMD) is due by April 1 of the year after turning 73. The second would be due by December 31 of that same year, and then by December 31 of each year thereafter.

In the Howey decision, the U.S. Supreme Court held that in order for an investment contract to be considered a security, it must represent

An investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.

Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from doing which of these?

As a result, states may not impose capital, custody, and recordkeeping requirements that exceed requirements under federal securities law. States can register securities and investment advisers that are not covered by the registration requirements of federal legislation.

A Canadian broker-dealer is registered in Province Q. The firm has clients who vacation in several New England states, and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act,

Canadian broker-dealers and their agents must be registered in any state in which they wish to do business with existing clients who are temporarily in the state.

Brady Bonds

Debt instruments, generally from third world countries, that may have a zero-coupon US Treasury bond as collateral that mature at roughly the same time as the specific Brady bond.

Under state law, registrations for broker-dealers, agents, investment advisters, and investment adviser representatives expire on

December 31 of each year, unless renewed.

Why might a corporation might choose to utilize a deferred compensation plan for retirement plannnig

Deferred compensation plans are structured so that if the employee leaves prior to retirement or is terminated with cause, benefits are forfeited. These plans are discriminatory, there is no current tax saving, and they do not have to comply with ERISA.

When computing the RMDs for different retirement plans:

Each IRA is figured separately and the distribution can be made from one or all of them. For the 401 (k), each account has an RMD that can only be paid from that account.

Mary teaches physics at the local high school and makes about $70,000 per year. She could maximize her annual retirement savings by participating in

Employees of public schools can legally maintain both a 403(b) plan and a 457 plan.

An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA rated corporate bonds scheduled to mature in 20 years. Which of these are among the risks that this investor will be assuming?

Even though these bonds are rated AAA, 20 years is a long time and it is possible that this corporation may not even exist when the maturity date arrives. Adding to the risk is the fact that there are no interest payments in the interim. That is why the most commonly recommended zero-coupon bonds are those issued or guaranteed by the U.S. Treasury. Because zero-coupon bonds have the longest duration for their maturity of any bonds, they have the greatest exposure to interest rate changes. Prepayment risk is only found with mortgage-backed securities, and one of the benefits of zeroes is that there is no reinvestment risk.

One of the most common causes for disciplinary action against a broker-dealer or investment adviser

Failure to adequately supervise a person associated with the adviser could be cause for the SEC to revoke the firm's registration.

Unused funds contributed to a Coverdell ESA

Funds that are not used for qualified education expenses may be withdrawn, but the earnings are subject to income tax plus a 10% tax penalty. To avoid this, the IRS permits the funs to be transferred into another Coverdell ESA for someone related to the first beneficiary, who is under 30 years of age.

Ineligible Investments for an IRA

Gems, intangibles, and works of art. Covered call writing is allowed, but speculative options strategies are not.

The SEC requires Investment advisers registered under the Investment Advisers Act of 1940 to maintain certain books and records for a minimum of

IAs must keep most records for five years from the end of the fiscal year in which the record was created. First two years the records must be kept easily accessible in the principal office of the IA.

Under the federal law, one of the exemptions from registration for insurance companies is:

If the investment adviser's only clients are insurance companies.

A client of yours owns some convertible preferred stock. She notices an article in the business section of her local newspaper that reports the company is going to pay a 20% stock dividend on their common stock. How will this affect her?

If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend.

When making a withdrawal from a qualified pension plan, which of the following can a client do to avoid tax liability?

If withdrawals are made from qualified retirement programs with no extenuating circumstances, the participant can roll over the proceeds into an IRA within 60 days and have no tax liability.

Statue of limitations for civil actions

In the federal regulations, it is the sooner of one year after the discovery or three years after the actions. Under USA, it is the sooner of two years after discovery or three years after the action.

Certificate Deposits (CDs)

Interest-bearing debt instruments issued by banks at their face value.

Which of the following are restrictions on the operations of registered open-end investment companies under the Investment Company Act of 1940?

Investment companies are restricted from owning more than 3% of the voting stock of another registered investment company. The act requires an investment company to have a minimum of $100,000 in initial capital and absolutely no margin purchases may take place for the fund's portfolio.

State registration by coordination

Is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering. The effective date is contingent upon SEC effectiveness. Has the requirement of submitting the maximum and minimum offering prices at least two business days before the effective date.

Allocating securities in multiple discretionary advisory accounts:

It is likely there will be several trades and they won't all be the same price. The only fair method is to take the average price and use that for all clients.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, when is it unethical for an investment adviser to borrow money from a client?

It is unethical to borrow money or securities from a client, unless the client is a broker-deaker, a bank or other financial institution in the business of loaning money, or an affiliated person of the adviser.

For purposes of the maximum allowable annual contributon, an individual would have to aggregate contributions made to

Maintaining a 401 (k) and a 403 (b) is similar to maintaining a Traditional and Roth IRA.

A fiduciary of an ERISA plan is preparing an investment policy statement. Included would probably be

Methods of performance measurement and a way to determine how future cash flow needs will be met.

Investment counsel

Only used by those advisers whose primary function is the rendering of investment advice with individual continuous monitoring of the accounts

Section 13(f) Filings

Requires that any institutional investment manager that excercises investment discretion over an equity portfolio with a market value on the last trading day in any of the preceding 12 months of $100 million or more file this form with the SEC quarterly, within 45 days of the end of each quarter.

ERISA section 404

Section 404(c) relieves a plan fiduciary from liabilities associated with losses stemming from employee investment choices. To qualify for this protection, the plan must provide at least 3 core diversified investment options, participants must have the ability to transfer assets among investment options at least quarterly, and sufficient information must be provided to participants to allow for informed decision making.

An investor interested in investing in sovereign debt would most likely purchase

Sovereign debt refers to bonds and other debt instruments issued by a specific country. The European Central Bank manages the currency of the many countries that have adopted the euro. There is no such thing as the Bank of the United States, and gold sovereigns are coins—they are not used to back debt.

Gaston is a police officer and wishes to contribute to a retirement plan sponsored by the city. Gaston wants the flexibility of being able to have unfettered penalty-free access to his funds before reaching age 59½. This can only be accomplished if Gaston contributes to

The 457 plan is uniqure in that it is the only tax-qualified retirement plan permitting withdrawals, for any reason, before reaching 59 1/2 without penalty.

Does the Administrator have the power to require sworn oaths?

The USA empowers Administrators to administer oaths. Sworn oaths typically occur in conjunction with hearings.

The distributions made by a beneficiary of an IRA account

The account beneficiary is responsible for the taxes due on the funds that are withdrawn. One hundred percent of the distribution is taxable in the tax year the withdrawal is made. Non-spouse beneficiaries must withdraw all of the funds by Dec. 31 of the year ending 10 years after the account owner's death.

An interest in which of the following is a security under the Uniform Securities Act?

The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are. An example of a certificate of deposit for a security is an ADR. Oil and gas drilling programs and cattle feeding programs are types of DPPs. A common example of an evidence of indebtedness is a bond or a debenture.

Form ADV Part 2A

The brochure that investment advisers must deliver to clients; describes the investments adviser's fees, investment policies, and types of investments made.

During the past year, the market price of Kapco common stock has increased from $47 to $50 per share. Over that period, Kapco's earnings per share (EPS) have increased from $2.00 to $2.50 per share, and their dividend payout ratio has decreased from 50% to 40%. Based on this information, the current yield on Kapco common stock is

The current yield on a stock is computed by dividing the annual dividend rate by the current market price. With EPS of $2.50 and a 40% payout ratio, the annual dividend is $1.00. This dollar divided by the current market price of $50.00 results in a current return of 2%.

You have a client who invested in the PQR Growth Fund 10 years ago and now, as retirement age approaches, asks you about using the exchange privilege to move into the PQR Balanced Fund. The client should know that

The exchange privilege allows for an exchange at NAV between funds that are members of the same family. The exchange is considered a taxable event. Because the exchange is made at NAV, the concept of breakpoint is irrelevant.

The only time that there is an earnings limit for tax deductibility is when

The individual (or spouse) is covered under an employer-sponsored retirement plan.

Primary advantage to the employer who offers a nonqualified plan when compared to one that offers a qualified plan

The nonqualified plan is permitted to discriminate in favor of highly compensated employees.

Notice filing

The procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state.

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must

The safe harbor requirements relieve the trustee of a 401(k) plan of liability if the plan participants have the ability to select from at least 3 different investments and are allowed to make selection changes no less frequently than quarterly.

The antifradu provisions of the USA apply to whom?

To any person who acts fraudulently in connection with the offer, sale, or purchase of a security, even in the case of a nonissuer transaction.

The Chinese wall (information barrier)

Used to describe the separation of divisions within the firm, protecting sensitive information from leaking to the wrong people.

Discaliming the IRA

When a beneficiary of an IRA decides not to accept the proceeds.

The contribution limit has to be aggregated when participating in both

a 401 (k) and a 403 (b). Contributions to a 457 plan do not have to be aggregated with other retirement plants.

Investors looking to minimize the effects of taxation on their investments would probably receive the least benefit from

a corporate bond. Investors receive interest income from corporate bonds. That income is fully taxble at ordinary income rates.

Keogh Plans

a qualified retirement plans intended for self-employed individuals and owner-employees of unincorporated business concerns or professional practices. The cost basis is zero because contributions are tax deductible, but distributions are fully taxable upon receipt.

A traditional IRA

allows a maximum tax-deductible annual contribution of the lesser of $6,000 or $12,000 per couple, or 100% of taxable compensation for the taxable year of 2021.

The wash sale rule

disallows claiming a tax loss on the sale of stock if the investor purchases a substantially identical security within 30 days either before or after the date of such sale.

The National Securities Markets Improvement Act of 1996 defined

federal covered adviser, referring to advisers who must register with the SEC or who are excluded from the definition of Investment adviser under the Investment Advisers Act of 1940.

Federal investment adviser applies to a person who

is registered as such under the Investment Adviser Act of 1940.

After-tax return on tax exempt municipal bonds

municipal rate / (1 - tax bracket)

One benefit of 457 plan that is not foun

penalty-free withdrawals at any age for any reason.

An Administrator may summarily deny or revoke a security's exemption

without a hearing if the issuer is given an opportunity for a hearing after the revocation (15 days).

Upon the death of the participant of most qualified retirement plans, the proceeds are distributed

without going through the probate process. This is done without regards to the terms of the will, similar to the beneficiary of a life insurance policy.

All the following are true regarding qualified pension plans

- They must not discriminate - They must have a vesting schedule - They must be in writing - Employer must update the status of all employees at least annually

USA's definition of federal covered advisor

An investment adviser who is registered under Section 203 of the Investment Advisers Act of 1940.

Different types of registration

An issue done solely within one state (intrastate offering) is registered using qualification. Notice filing is used by certain issues of federal covered securities, primarily investment companies. Coordination is the simultaneous registration on both the federal and state levels; neither of those two could possibly apply to the circular offering.

Which of the following is an allowable early withdrawal from a traditional IRA without penalty?

Any individual withdrawing $10,000 from his IRA to purchase his first principal residence would have the penalty waived. The purchase must be a first-time purchase as well as the primary residence.

The test of providing advice or analysis concerning securities is met by which of these?

Any person who gives advice or issues reports or analyses concerning specific securities meets the criterion of providing advice.

GNMA securities

Backed by full faith and credit of U.S. government, are considered the safest of the agency issues. The minimum denomination is $1,000 and payments to investors are made monthly. Each payment consists of interest and principal.

Regulation SP

Deals with privacy of customer information for financial institutions.

What is the only government agency that is a direct obligation of the U.S. government?

Ginnie Mae (GNMA)

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)

Individuals aged 50 and older are allowed to make catch-up contributions to their IRAs above the scheduled maximum annual contribution limit in order to save more for retirement ($1,000).

The yield to call computation

Involves knowing the amount of interest payments to be received, the length of time to the call, the current price, and the call price. YTC is the rate of return the bond provides from the purchase date to the call date and price.

A defined benefit pension plan

One that promises to pay employees a certain specified benefit at retirement.

Registration by qualification

Securties of a nonexempt corportate issuer that do not have a federal registration must be registered with the Administator by qualifying with the Administrator. Registration becomes effective on the date set by the Administrator.

Assessable stock

Stock issued below par, carrying with it the option on the part of the issuer or creditors to assess the owner for the remainder. A gift of assessable stock is considered an offer and a sale under USA.

Under the Uniform Securities Act, the Administrator has the power to deny or revoke exemptions for which of the following types of securities?

The Administrator may deny or revoke the exemption granted to a nonprofit organization or investment contracts issued by employee benefit plans. Any transaction exemption, except one relating to a federal covered security, may be revoked as well. However, there are certain security exemptions that the USA does not grant the Administrator the power to deny. Included in that list is any security issued or guaranteed by any bank organized under the laws of any state.

Total amount that may be invested in a Coverdell Education Savings Account in year 1

The current maximum per child

An individual may take a distribution from any of his IRAs without imposition of a tax penalty as long:

The distribution is used to make a payment fo higher-education costs for a member of his immediate family (holder of IRA, spouse, child, or grandchild).

Holding period restriction specified in SEC Rule 144

The holding period rule applies only to unregistered stock, which may or may not be control stock.

Registration with the SEC is not required for a pension fund manager until

The manager has at least $200 million in AUM.

Under the Uniform Securities Act, which of the following is not a requirement for a preorganization subscription to be an exempt transaction?

The offer of the security may not be advertised. The three requirements: -No payment may be made by any subscriber -There may be no more than 10 subscribers -No commission may be paid to anyone for soliciting potential subscribers.

Why do matched orders result in painting the tape?

The phony trades make the stock appear more frequently on stock tickers.

Under the Uniform Securities Act, registration by coordination becomes effective

The registration by coordination becomes effective at the same time it is released (made effective) by the SEC, provided it was filed with the Administrator, in most states at least 10 days before the SEC effective date.

Splitting commissions is only acceptable when

They are received only by those with the appropriate registrations.

Which of the following investments gives the investor the least exposure to reinvestment risk?

Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon bonds paying no interest. Thus, there is no income to reinvest during the holding period and therefore no reinvestment risk.

Investment counsel can be used by investment advisers that meet these two standards:

the adviser performs investment supervisory services, and the adviser provides advice as the primary business of the firm.

The annual updating amendment to Form ADV must be filed within how many days of the adviser's fiscal year-end

within 90 days

The minimum net worth for an investment adviser exercising discretion

$10,000

The maximum contribution to a Coverdell Education Savings Acccount is

$2,000 annually.

An intrastate offering is exempt from

(Rule 147 exemption) is limited to companies that do business in one state and limit stock or bond sales to that state's residents.

Tax preference items

- Deductions taken for accelerated depreciation - Excess intangible drilling costs - Capital gains on incentive stock options - tax-exempt interest from specified private activity bonds

Yields from Lowest to Highest for Discount Bonds:

-Nominal -CY -YTM -YTC

In order to qualify as a REIT,

-at least 75% of the assets must be invested in real estate-related assets, cash, U.S. government securities. -derive at least 75% of its gross income from real estate related sources, including rents from real property and interest on mortgages financing real property -distribute at least 90% of its taxable income to shareholders annually in the form of dividends.

The employer share of the contributions to a traditional 401 (k) plan may not exceed

25% of total payroll.

The right of rescission under USA allows the customer how many days to respond to a rescission letter from a broker-dealer offering to buy back securities sold illegally?

30 days.

An agent subject to an order must file for a judicial review of the Administrator's final order within how many days?

60 days.