Series 65 Knopman Marks Practice Questions

Adviser who does not have custody of a customer's funds or securities but has discretionary power is required to have a minimum net worth of?

$10,000

What is the maximum annual contribution to a Coverdell Education Savings Account?

$2,000

What is the maximum contribution that a covered employee can donate to a campaign in a state where they can vote? One they cannot vote?

1. $350 2. $150

What are the five waivers from the Series 65 exam?

1. CFP®—CERTIFIED FINANCIAL PLANNER™ (granted by the CFP Board of Standards); 2. CIC—Chartered Investment Counselor (granted by the Investment Adviser Association); 3. ChFC®—Chartered Financial Consultant® (granted by the American College of Financial Services); 4. PFS—Personal Financial Specialist (granted by the American Institute of Certified Public Accountants); and 5. CFA®—Chartered Financial Analyst® (granted by the Chartered Financial Analyst Institute).

Can investment advisors lend money to an IAR registered with the firm? A bank that is a client of the firm?

1. Can lend to the IAR since affiliated with the same firm 2. Can't lend to the bank, can only borrow from them

What three characteristics are required for ERISA Section 404(c) to relieve employers of fiduciary responsibility?

1. Employees must enjoy the benefits and risks of their decisions (individual accounts) 2. Employees have the right to exercise independent control over the account 3. Employees have a sufficiently broad range of choices to make the right of control meaningful

What four powers does the Administrator have if they believe a violation of the USA has occurred or is about to occur?

1. Issue a cease and desist order 2. Seek injunction against the alleged violation 3. Seek to have a receiver appointed over the violator's assets 4. Seek to have the violator make restitutions to investors

What are the three exceptions from the term "person"?

1. Minors 2. Deceased persons 3. Those declared mentally incompetent

When a bond is trading at a premium, what are the four types of returns and how do they relate to one another?

1. Nominal Yield (highest) 2. Current Yield 3. Yield-to-Maturity 4. Yield-to-Call

What are three major difference between C- Corps and S-Corps?

1. Number of allowable shareholders (S corp is 100 max) 2. Tax treatment of corporation's earnings (S corp is a pass-through) 3. Residency requirements of shareholders (no nonresident aliens)

Section 529 Plans

1. State provided 2. Can be funded by after tax dollars 3. Can pay prepaid tuition 4. All earnings exempt from federal taxes 5. If withdrawn for unqualified withdrawal, 10% penalty

When a bond is trading at a discount, what are the four types of returns and how do they relate to one another?

1. Yield to Call (Highest) 2. Yield to Maturity 3. Current Yield 4. Nominal Yield

In a registration statement what's the breakeven ownership point which the owner's name and address must be shared

10% or greater (as well as all officers and directors, including their holdings and salaries)

Any material changes to IAs require notification to all clients within how many days?

120

How long does an investor have to meet a breakpoint? What happens if they don't?

13 months, shares liquidated if not

How long after filing the max and min offering price, underwriting discounts, and commissions filed with the SEC must a security being registered through coordination be registered with the Administrator?

2 days

How long must documents from IAs be kept after dissolution?

3 years after dissolution

How long must an advertisement be kept on record?

3 years from original use

What is the 5-5-3 sequence?

5 year statute of limitations, $5,000 max fine, 3 year imprisonment

Current market interest rates are 6%. A bond with an 8% coupon would be most likely to have a net present value of zero when the bond's internal rate of return is

6%. The internal rate of return of a bond is the interest rate that makes the NPV of the investment equal to zero. When a bond is selling at its present value, the NPV is zero. A bond's present value should be equal to a market price giving a yield to maturity equal to the current market interest rates. Therefore, when current market interest rates are 6%, a bond with an 8% coupon should be selling at a price producing a YTM, or IRR of approximately 6%.

When are RMDs required?

70.5 years old - next April 1st or December 31st after 70.5 birthday

Under the Securities Act of 1933, commercial paper is exempt from the prospectus delivery requirements or registration, unless its maturity is more than how many months?

9 months

How long does a fed-covered IA have to file Form ADV amendments?

90 days

Who may have to post bonding requirements?

A broker-dealer, investment adviser, or agent who has discretion over or, in the case of broker-dealers and advisers, custody of funds or securities may be required to post a bond.

Investment advisor

A person, corporation, partnership, or sole proprietorship who, in the regular course of business, advises others as to the advisability of selling securities for compensation

What is a prospectus?

A prospectus is a communication made in writing or by radio or TV that offers a security for sale

Wrap Fee

A type of bundled fee and are specific to investment product. Can be all-inclusive, asset based fees and may include a combo of investment management fees, trading expenses, custody fees and/or administrative fees. Wrap Fee Portfolios are also referred to as "Separately managed account" (SMA)

What is Form ADV-E?

ADV-E (Examination) is completed by an IA with custody and submitted by an independent accountant that does an annual surprise examination. Must be submitted within 120 days of the exam

Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration? I. Foreign investment advisers with fewer than 15 clients per year who do not hold themselves out as investment advisers to the public and have less than $25 million in AUM in the United States II. Investment advisers who conduct all of their business in 1 state and who do not provide advice on securities listed on an exchange and have no private funds as clients III. Investment advisers whose only clients are banks

Advisers whose clients are limited to insurance companies are exempt from registration Foreign advisers who limit themselves to fewer than 15 clients a year (none of whom can be investment companies), do not advertise or hold themselves out to be investment advisers and have less than $25 million in AUM in the United States are also exempt Advisers whose clients are all residents of the state in which the adviser maintains its principal office who renders no advice on any exchange-listed security and does not give advice to any private funds are also exempt

What is affinity fraud?

Affinity fraud targets members of identifiable groups, such as the elderly, or religious or ethnic communities.

The Uniform Securities Act empowers the Administrator to begin proceedings to revoke the registration of an investment adviser when certain violations are suspected. Which of the following are considered serious enough to warrant a revocation? A) Being charged with commission of a securities-related misdemeanor B) Failure to obtain approval to maintain custody of client funds or securities C) Being charged with commission of a felony involving a nonfinancial matter D) Failure to supervise the activities of investment adviser representatives

Among the many violations justifying a revocation is failure to supervise. Maintaining custody of customer funds or securities requires notification to the Administrator, not approval. It is only a conviction, not being charged of a crime, which would be cause for revocation.

Agency Cross Transaction

An adviser acts as agent for both parties in a trade. Investment advisers can recommend these transactions to both the buyer and the seller if both clients give written consent.

What is inertial inflation?

An economic condition where the rate of price increases reaches a stable equilibrium and stays there until a shock to the system occurs, at which time, the rate of inflation changes

When must an IAs clients be delivered a brochure?

Annually within 120 days of the end of the adviser's fiscal year

What does Form U4 exclude?

Applicant's educational background and degrees earned

What can be rolled into an IRA?

Assets from any qualified corporate plan or from another IRA may be rolled over into an IRA

What are blue sky laws?

Blue-Sky laws are state securities laws. These laws apply to the registration of sales personnel (registered representatives), the registration (new issues) and sale of nonexempt securities. REITs are considered nonexempt securities, regulated by state law.

Who is responsible for administering the policies and procedures designed to prevent violation of the federal securities laws and review those policies and procedures annually for their adequacy and the effectiveness of their implementation?

Chief Compliance Officer (CCO)

Churning

Churning is conducting excessive transactions in a customer's account for the purpose of generating commissions and is prohibited.

When a third party puts up a post on a BD's Facebook page that the firm was involved in, what is this known as? What about implicitly or explicitly endorses?

Entanglement if involved and adoption if endorses

Penalties for violations of the Uniform Securities Act include

Fines of up to $5,000 and/or imprisonment for up to 3 years (no indictment can be returned later than 5 years after the alleged violation)

How can an IAR compensation someone for referrals?

Flat fees or referrals back

What filing is required for investment advisors maintaining custody?

Form ADV-E

What is affinity fraud?

Fraud where a fraudster pretends to be part of a group and spreads word about the scheme

Under the Uniform Securities Act, an offer to sell would NOT include stock acquired through a merger the issuance of warrants or convertible securities the issuance of stock rights to existing shareholders

I only- An offer to sell is any activity in an effort to dispose of a security for value. The issuance of warrants or convertible securities to anyone or stock rights to existing shareholders is considered an offer to sell the underlying security because, unlike stock dividends, mergers, and bona fide loans, they involve the payment of money to acquire the stock, thereby making them an offer to sell.

The Administrator may I. Deny a registration if the registrant does not have sufficient experience to function as an agent II. Limit a registrant's functions to that of a broker-dealer if, in the initial application for registration as an investment adviser, the registrant is not qualified to act as an adviser III. Take into consideration that the registrant will work under the supervision of a registered investment adviser or broker-dealer in approving a registration IV. Deny a registration, if it is prudent in view of a change in the state's political composition

II and III

A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients. If the IA is found to have been in violation of the Uniform Securities Act, this may result in I. a $10,000 fine per violation II. a receiver being appointed over the adviser's assets III. a prison term of 5 years per violation IV. the requirement that the investment adviser make restitution to the victims

II and IV

When must IA partnerships notify clients?

In the event of addition or removal of any of the Partners

What is a bonus feature on an index annuity?

Initial payment increased by X%

What are inverse ETFs?

Inverse, or short, ETFs move in the opposite direction of the index being tracked. To achieve their goals, various types of derivatives are used. This type of ETF is used only for short-term investments, rarely as long as a single month. These are registered investment companies, not private.

If a BD's registration is revoked, what happens to the agent's registration?

It is canceled

How do you hedge a short position?

Long (purchase) a call option (right to purchase)

How do you hedge a long position?

Long (purchase) a put option (right to sell)

What constitutes a free offer?

Must be free of financial cost and any other burdens / commitments

Are investors of a BD not involved in day-to-day activities required to register as agents?

No

Is a municipal bond sold in the same state a federal covered security?

No

Is acting as a trustee for a client's trust an unethical practice?

No

Do certificates of interest or participation in oil, gas, and mining titles have an issuer?

No, although they are securities

Can the Administrator issue injunctions?

No, only courts

Is an agent required to submit oral compliants to their supervisor?

No, only written

Does lack of experience disqualify an agent from registering?

No, the registrant must be qualified on the basis of training, experience, or knowledge, but the Administrator may not disqualify a person on lack of experience alone.

Is a person providing investment advice for the US government considered an IA?

No- excluded

How do TIPS adjust for inflation?

On a semiannual basis, the principal value of a TIPS is increased by that year's inflation rate. A TIPS bond adjusts principal every 6 months based on the inflation rate. With an annual inflation rate of 6%, each 6 months the principal will increase by 3% compounded.

What is included in the gross estate?

Only assets owned by the person passing

When can an adviser disclose information about clients without their permission?

Only if required by court order or the IRS

unqualified opinion

Opinion issued by a certified public accountant that means the company's financial statements are, in all material respects, in compliance with GAAP; the auditor has no reservations. Contrast with qualified opinion.

How often does an IA with custody of a client's securities give clients itemized statements?

Quarterly

What is the purpose of the Securities and Exchange Act of 1940?

Regulates persons involved in the secondary market (33 was for new issues)

What is the formula for expected return?

Rf + beta * (RMP - Rf) 5% risk free + 1.5*(10% - 5%)

What is a stock breakout?

Shares are trading outside of their established range- if the client believes a positive breakout is possible, the right approach is to buy above the range

What is the difference between static and interactive social media content?

Static content can only be changed by the originator

What is the difference between a stop order and a cease and desist order?

Stop order is when an Administrator calls for the halt of sales of a security, while Cease and Desist is a directive to stop any particular other action

What does the Investment Company Act of 1940 do?

The Investment Company Act of 1940 requires all investment companies to register with the SEC as such and be regulated under the act.

If an investment adviser's sales literature describes an investment system, what must be included?

The difficulties and limitations of using the system

Required Minimum Distribution (RMD)

The required minimum amount that must be taken from a retirement plan to avoid IRS penalties. Usually must occur by April 1st of the year following the individuals 70 1/2 birthday.

What counts as qualified expenses under Section 529 Plans?

Tuition and fees as well as on campus room and board

What is an offer under the USA?

Under the USA, the term "offer" includes an attempt to dispose of securities for value, or a solicitation of an offer to buy a security. Gifts, whether legal or not, are not considered an offer except when dealing with gifts of assessable stock.

What is entanglement?

When a firm has involved itself in the preparation of advertising content

What is an assignment of an IAs contracts?

Whenever majority interest in an advisor changes hands, including pledging a client's contract

What types of customer complaints must be escalated?

Written (to supervisor)

Can the Administrator bar someone from employment with any registrant?

Yes

Is the sale of securities from an issuer to a BD exempt?

Yes

Can an IAR receive referrals and pay for them?

Yes, but only if a formal written agreement is in effect and the IAR notifies the client

Can an IAR make trades in their own account after recommending the same trade to clients with no disclosure?

Yes, disclosure is only required if the trade is designed to profit off of the market impact of recommendations or are inconsistent with their advice. If consistent and no market manipulation, this is allowed

Can the Administrator deny or revoke a security's exemption without a hearing?

Yes, if the hearing is given after a revocation

Current Yield

a bond's annual coupon divided by its price

Sharpe Ratio

a fund's excess return (fund's return exceeding the risk-free rate) divided by the total risk (standard deviation).

support level

a price level below which it is supposedly unlikely for a stock or stock index to fall

Qualified Opinion

a report issued when the auditor believes that the overall financial statements are fairly stated but that either the scope of the audit was limited or the financial data indicated a failure to follow GAAP

Adverse Opinion

a report issued when the auditor believes the financial statements are so materially misstated or misleading as a whole that they do not present fairly the entity's financial position or the results of its operations and cash flows in conformity with GAAP

Disclaimer of Opinion

a report issued when the auditor is not able to become satisfied that the overall financial statements are fairly presented or the auditor is not independent

Municipal bonds are often called tax-exempts. This refers to the exemption of their income from?

federal income taxes (though may also be exempt from state)

According to the Uniform Securities Act, a state-registered investment adviser may have custody of a customer's funds and securities if...

it has received the permission of the Administrator

What is the maximum number of public customers a private placement can be offered to in 30 days to be exempt?

maximum of 10

If an IA organized as a partnership has 5 partners and 1 retires plus 3 new are hired, what must the IA do?

notify clients but not assign client contracts because only a minority (3/7) are new

Registration statements for securities under the Uniform Securities Act are effective for

one year from the effective date

If an agent receives insider information, who must he / she inform?

supervisor (not SEC)

Nominal Yield

the interest rate, also known as the "coupon rate" which is named on the bond certificate

yield to maturity

the rate of return a bondholder will receive if the bond is held to maturity

Yield to Call

the total return that the bond offers if purchased at the current price and held until the bond is called