series 65 law and regulations

An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep?

A statement, signed by the client, that both the IA's and solicitor's brochures were received. When a third party solicitor engaged by an investment adviser makes contact with a potential client, that client must acknowledge, in writing, the receipt of the brochures of both the adviser and the solicitor. There must be a written agreement between the adviser and the solicitor, but the client has nothing to do with that. Solicitors don't recommend investments.

Which of the following statements regarding unsolicited, nonissuer transactions is TRUE?

An Administrator may require representatives to obtain customer signatures acknowledging that orders were unsolicited. Administrators are authorized by the USA to require agents to obtain written client acknowledgment of unsolicited transactions. An agent may accept unsolicited orders in secondary transactions in either exempt or nonexempt securities. An agent may accept unsolicited orders without prior approval of a principal; approval is necessary after the trade.

Section 402(a) of the Uniform Securities Act contains a lengthy list of securities that are exempt from the registration and advertising filing requirements of the Act. Included in that list would be all of the following EXCEPT:

Bonds issued by the city of Berlin, Germany. Securities exempt from state registration include those issued by a U.S. or Canadian governmental unit, such as municipal bonds, and securities issued by nonprofit and charitable organizations, such as church bonds. However, bonds issued by a non-sovereign foreign government (cities, etc.) are not considered exempt securities unless guaranteed by the sovereign (German, in this case) government. Even before the NSMIA created the exemption for federal covered securities, those listed on the NYSE received what was called the "blue-chip" exemption.

Under the USA, if an agent in New York calls a prospective client in Ohio recommending the purchase of a listed security, the Administrators of which state(s) has (have) jurisdiction?

Both New York and Ohio. Administrators have jurisdiction over offers made in the originating state (New York), the state to which the offer is directed (Ohio), and the state in which the offer is accepted.

Which of the following are required in order to be in compliance with the recordkeeping requirements of the Uniform Securities Act?

Broker-dealers must maintain customer ledgers for three years. Investment advisers must keep partnership records for three years after the partnership is terminated. Recordkeeping requirements for broker-dealers are three years and partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of an investment adviser and of any predecessor, shall be maintained in the principal office of the investment adviser and preserved until at least three years after termination of the enterprise. There are no recordkeeping requirements for agents or IARs.

Which of the following are regulated under the Securities Exchange Act of 1934?

Broker-dealers. Transfer agents. The Securities Exchange Act of 1934 regulates broker-dealers and transfer agents. Investment advisers are regulated under the Investment Advisers Act of 1940 (and, to a certain extent, the Investment Company Act of 1940), whereas pension plans in the private sector are regulated under ERISA.

Discretionary orders

authorizes a representative to choose the security, the amount of share, or whether to buy or sell. Time or price alone is not discretionary decisions. The principal must approve order tickets after the trade not before.

Under what circumstances may an Administrator cancel the registration of an agent?

Cancellation is a form of non-punitive termination. If an agent dies, is declared mentally incompetent, or mail is returned with no forwarding address, registration will be canceled.

Which of the following would NOT constitute custody of a client's account under the Investment Advisers Act of 1940?

Client pre-payment of $1,000 of advisory fees, six months in advance "Custody" means possession (even temporarily) of a client's funds or securities. It includes authority over a client's bank account for any type of disbursement, but does not include the acceptance by the adviser of prepaid advisory fees.

Cease and desist order

the subject of the order must promptly put a halt to the specified activitiy.

As a result of an SEC hearing, an investment adviser's penalty is $5,000 and a 50-day suspension. If the IA wishes to appeal this verdict, a request for review must be filed with the:

U.S. Court of Appeals within 60 days of the order. Under both federal and state laws, appeals must be filed within 60 days of the order. In the case of an SEC hearing, the appeal is filed with the U.S. Court of Appeals for the district in which the original hearing was held.

If an agent is assigned to an account previously handled by an agent who has since left the firm, which of the following actions should the agent take first?

Verify the account information. The agent must verify and update client information before recommending trades. Without knowledge of the client's needs and financial profile, the agent cannot make suitable recommendations.

If an agent provides investment advise outside the scope of employment at the broker dealer, he must

be registered

agency cross transaction

when an advisory firm handles both sides of a transaction for ac lient of an investment adviser representative - a legal practice provided all of the required disclosures are made and permissions obtained.

It would not be considered an unethical and dishonest business practice for an agent registered with a broker-dealer to divide or otherwise split the agent's commissions, profits or other compensation from the purchase or sale of securities

with any person also registered as an agent for the same broker-dealer. with any person also registered as an agent for a broker-dealer under direct or indirect common control. NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents permits commission sharing as long as the agents are properly registered with the same broker-dealer or one under common control. There is no requirement for the arrangement to be in writing and the customer has no say so in this matter.

Broker Dealer or Investment advisor can be

a natural person (ie organized as a sole proprietorship) or a legal person (ie a corporation or partnership)

If the administrator has summarily suspended an investment representatives' registration, the registrant may request a hearing by written request and the hearing will be granted within

15 days

How many days under the USA requires that the administrative order appeal must be requested within how many days after the order has been entered?

60 days

Registration with the state Admistrator are required for Investment advisers who manage

<100 million

Under the Investment Advisers Act of 1940, which of the following statements regarding an adviser's registration is TRUE?

If the adviser ceases to act as an adviser or goes out of business, the SEC will cancel the registration. Under the Investment Advisers Act of 1940, registrations become effective 45 days after filing, unless delayed by the SEC, and remain effective until withdrawn by the adviser or canceled, suspended, or revoked by the SEC. The SEC will cancel a registration if the adviser is no longer in existence or in the business. Although the ADV-W is the form for withdrawal, it becomes effective upon acceptance by the IARD, provided however that the investment adviser's registration continues for a period of 60 days after acceptance solely for the purpose of commencing a proceeding regarding any violation of the Act.

Which of the following entities are considered to be exempt issuers under the Uniform Securities Act?

State of Michigan. City of Calgary, Alberta. Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer. Foreign national governments with which the US has diplomatic relations, but not their political subdivisions, are considered exempt issuers. SEC-registered investment companies are exempt issuers, but, unregistered hedge funds are not, regardless of with whom their advisers are registered.

Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator:

do not apply. An exempt security or transaction is exempt from the registration requirements and the requirements for filing of advertising and sales literature. It is not exempt from the antifraud provisions of the act.

What is the appropriate procedure to follow when an advisory client delivers a stock certificate to the office of a broker-dealer?

Accept the certificate and give the customer a receipt. When a client delivers a stock certificate to the broker-dealer's office, the appropriate procedure is to furnish the customer with a receipt on the spot. Broker-dealers are far more likely to have custody arrangements than are investment advisers.

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who has violated the prohibition against insider trading is liable for a civil penalty of:

3 times the amount of the profit gained or loss avoided on the transaction. The Insider Trading and Securities Fraud Enforcement Act of 1988 provides that the SEC may seek treble (triple) damages through the courts for violations of the insider trading rules. This means that the SEC may seek court action that imposes civil penalties of 3 times the profit gained or 3 times the loss avoided as a result of inside information.

Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser?

A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities. A broker-dealer who receives fees for investment recommendations is an investment adviser because that fee is considered special compensation relating to securities advice. The antiques dealer provides nonsecurities related advice. Publishers may provide generic investment advice without registering as investment advisers. Commercial bankers are excluded from the definition of an investment adviser.

Which of the following statements describes the powers of the Administrator over the issuance of orders?

A final order may be appealed in the appropriate court within 60 days of the order being issued. No final order may be issued without the opportunity for a hearing. Any final order of the Administrator may be appealed within 60 days of the order. The appeal does not act as a stay of the order. Only a court of competent jurisdiction may issue a stay of the order. Because the final order is similar to passing sentence, an opportunity for a hearing must be granted. The Administrator's orders are not related to the state legislature.

Which of the following persons are investment advisers subject to state registration?

A financial planner or other person that provides investment advisory services to others for compensation. A financial planning firm or other person that, as an integral component of other financially related services, provides investment advisory services for compensation is an investment adviser. A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, a federal covered investment adviser, or any other person that the Administrator specifies by rule or order, are excluded from the definition of an investment adviser.

Which of the following transactions would NOT be exempt under the Uniform Securities Act?

A registered dealer sells Canadian government securities to a retail client. Unsolicited, nonissuer transactions (customer calls the broker-dealer to order or sell a security) are exempt transactions, as are fiduciary transactions to liquidate estates or receiverships by guardians, executors, administrators, trustees in bankruptcy or, conservators. Sales of securities that had been pledged as collateral for a defaulted loan are also exempt transactions. The sale of Canadian government securities by a registered dealer represents a security that is exempt under the Uniform Securities Act, but the transaction itself is not.

Under the Uniform Securities Act, which of the following statements relating to the registration requirements of investment advisers is TRUE?

A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial. A registration is effective at noon, 30 days after the application has been filed if there is no denial or stop order in process. Registrations of securities professionals expire on December 31, unless renewed. If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.

Under the Uniform Securities Act, bonds issued by which of the following are nonexempt securities?

ABC, Inc. of Canada, a distributor of beverages in the United States and other countries. Government bonds issued by nations with which the U.S. maintains diplomatic relations, such as Canada, are exempt securities under the USA. In addition, securities issued by Canadian political subdivisions are also exempt from registration. For example, the province of Ontario and the city of Montreal are Canadian political subdivisions and therefore exempt. No exemption from the USA is available for corporate securities issued in countries with which the U.S. has diplomatic relations.

Under the Uniform Securities Act, which of the following are elements in the definition of an investment adviser?

Advice must relate to the value of securities or recommendations to purchase or sell securities. There must be compensation for services rendered. An investment adviser provides advice related to securities for compensation. The advice may be given orally or in writing.

Under the Uniform Securities Act, the Administrator may require a broker-dealer to post a surety bond of:

An amount not in excess of that set by the SEC. Unlike investment advisers where the USA specifies posting a surety bond in the amount of $35,000, the Uniform Securities Act does not specify an amount for broker-dealers. However, the NSMIA states that the Administrator may not require a broker-dealer be bonded in an amount above that set by the SEC. Furthermore, bonds will not be required of broker-dealers that maintain a specified net capital.

Which of the following must register as an agent?

An individual representing a broker-dealer who sells commercial paper. An individual who represents a broker-dealer selling commercial paper must register under the USA. Though the securities (commercial paper) are exempt, the representative must be registered as an agent of the broker-dealer. The only exceptions from the definition of "agent" apply to those who sell on behalf of issuers either of exempt securities or in exempt transactions. The commercial paper and Treasury bonds are exempt securities and the bank CDs here referred to are not of the negotiable, jumbo variety sold in the money market and are not securities so no registration is required.

Violations of the Uniform Securities Act carry a criminal penalty of imprisonment for up to how many years?

Conviction for willful violations of the act or for knowingly filing a fraudulent document under the act carries maximum penalties of 3 years in jail and/or $5,000 in fines.

Violations of the Investment Advisers Act of 1940 are punishable by:

Criminal penalties for violations of the Advisers Act include a $10,000 fine and 5 years in prison. Administrative penalties, such as revocation or suspension of registration, may also be imposed.

Which of the following is (are) unethical business practices if conducted by a broker-dealer?

Conducting transactions that do not result in the transfer of ownership between buyers and sellers. Trading securities between house accounts and customer accounts to create trading volume or the appearance of interest in a security. Engaging in trades between other broker-dealers to increase or decrease the price of securities A broker-dealer may act as agent for both buyer and seller in a transaction. All the other activities represent market manipulation and are therefore unethical practices.

What document must accompany an initial registration application for those individuals required to register as agents under the Uniform Securities Act?

Consent to service of process. The USA requires that a consent to service of process accompany an application for registration. Although the Administrator will generally request information about the applicant's citizenship, it is not necessary to be a US citizen. Proof of age is not a requirement.

All of the following are exempt transactions under the USA EXCEPT:

an agent soliciting a customer to buy a new issue of corporate bonds. Solicited trades are generally not exempt transactions unless with institutional buyers. Sales by a fiduciary (such as an executor of an estate) are exempt from the registration provisions. Sales to financial institutions (such as a bank) are also exempt under the act. Unsolicited trades in securities traded in the secondary markets are exempt from state registration and advertising filing requirements.

Under the Uniform Securities Act, which of the following activities is an example of churning?

Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter. Churning is defined as excessive activity in a customer's account for the purpose of generating commissions. Because Class A mutual funds carry a front-end load and are considered long-term investment vehicles, frequent trades constitute churning. Frequent purchases one day and sales of the same stock the next day in order to align with a customer's investment objectives is not necessarily churning if it is done for the benefit of the customer. A bond swap is not churning; it is generally done for tax purposes. If the client is initiating the day trades, the agent is not the one doing the trading so no churning is taking place.

Which of the following statements regarding the handling of discretionary accounts are TRUE?

Discretionary accounts must be reviewed frequently by the designated supervisory person. An investment adviser representative may decide, without discretionary authority, the time at which to execute a trade. Discretionary accounts must be reviewed frequently by the designated supervisory person, and an investment adviser representative may decide both the time and price at which to execute a trade without discretionary authority. Only if he is to decide action (whether to buy or sell), asset (what to buy or sell), or amount (how much to buy or sell) is discretionary authority required.

If Somerville Discount Securities has its principal office in New Jersey and recently registered a branch office in Minnesota, which of the following statements is TRUE?

Each agent must be registered in the appropriate state before soliciting or taking orders. Agents must be registered in every state in which they do business. An agent is not automatically registered in a state just because his employer is registered in that state.

Which of the following statements referring to renewal of a broker-dealer's registration under the Uniform Securities Act are CORRECT?

Each renewal application must be accompanied by the appropriate fee. Registrations expire December 31 unless renewed or canceled. The consent to service of process is filed with the initial application for registration and becomes a permanent part of the registrant's file. The USA states that all registrations of persons expire on December 31 unless renewed, withdrawn, or canceled.

Which of the following would be prohibited practices under state securities law?

Failing to inform a client of unusually high commissions and not obtaining prior written approval for orders from a third party are prohibited practices. Soliciting orders for a security that is exempt from registration is a normal business practice. An agent may use the nonpublished reports of his firm's securities analysts as a basis for recommendations providing the nonpublished reports do not contain inside information.

Under the Uniform Securities Act, which of the following statements about federal covered securities is NOT true?

Federal covered securities must be registered with the states. Federal covered securities are not required to be registered with the states, but issuers of federal covered securities may be required to pay fees to the states (notice filing). Private placements (Regulation D) and investment companies both describe types of federal covered securities.

Civil liability provisions of the Securities Act of 1933

Under federal law, civil suits must be filed within one year of the date of discovery of the improper action or three years after the sale, whichever comes sooner. Purchasers may not waive their rights under the act for any provision. Although those who signed are liable, there is a list of others who also might be, including members of the board of directors, legal counsel, accountants, etc.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, the contract between an investment adviser and its clients shall include all of the following EXCEPT

a provision to reduce or waive fees in the case of underperformance There is never any case where waivers of this nature would ever be permitted.

Conducting excessive transactions for a single customer is known as:

churning. Churning is the practice of excessive trading in an account, generally for the purpose of generating commission income.

A registrant's registration may be canceled by the Administrator:

if the Administrator is unable to locate the registrant. Cancellation is non-punitive - nothing wrong was done. But, when the Administrator is unable to locate the registrant, or the registrant is declared mentally incompetent or is deceased, registration is canceled.

SEC registration is required

those who manage client assets of at least 110 million or more; Pension consultants who have at least 200 million in assets

NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents prohibits excessive activity in the account of a client for the purpose of generating commissions. This activity, frequently referred to as churning, would likely be excused:

under no circumstances. Churning, the practice of excessive activity in a client's account for the purpose of generating commissions, is never an excusable practice.

Which of the following describe indications of interest secured during the 20-day cooling-off period?

Nonbinding on the customer. Nonbinding on the broker-dealer.

Under the NASAA Model Rule on financial requirements for investment advisers, investment advisers who have custody of customer funds are usually required to have a net worth in the amount of

$35,000 The NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an investment adviser with custody of customer funds or securities to have a minimum net worth in the amount of $35,000. If the adviser does not have custody of customer funds or securities but does have discretionary power over customer accounts, the minimum net worth amount is reduced to $10,000. In the event the adviser wishes to post a bond​ because it doesn't meet the net worth requirement​, ​it must be an amount determined by the Administrator based upon the number of clients and the total assets under management of the investment adviser.

Registration for either state or federal registration

is when there is a corridor between 100 and 110 million in which the adviser has a choice of state or federal registration.

Broker-dealers and investment advisers must keep all of the following records EXCEPT:

records of incoming and outgoing telephone calls. The company is not required to keep a record of telephone calls unless the Administrator specifically rules that it do so; however, memoranda, correspondence (whether electronic or paper), and account books must be kept.

Under the Investment Advisers Act of 1940, if an investment adviser's sales literature describes an investment system, the description must include:

the difficulties and limitations of using the system. 1eferences to charts, tables, formulas, or other devices used to forecast securities prices without setting forth difficulties or limitations in their use is prohibited. It is not necessary to indicate how long the system has been used or its performance history. However, nothing prevents this information from being included. The question asks only what must be included.

Under the Uniform Securities Act, a private placement is considered an exempt transaction if:

the number of noninstitutional offers is limited to a maximum of 10 in any 12-month period. The transaction exemption available to private placements requires that no more than 10 offers be made in any 12-month period to noninstitutional purchasers. Whether individual or institutional, payment is made, but commissions may be paid only on institutional sales.

Total return of a mutual fund is equal to

the return attained by reinvestment of all dividends and capital gains distributions.

A federal covered investment adviser registered with the SEC that has offices in five states must do which of the following?

Pay state filing fees if required by the Administrator. Notice file in any of those states where required by the Administrator. Although exempt from state registration, federal registered investment advisers must notice file and pay state filing fees (if required by the Administrator) to practice within a given state. Federal covered advisers do not come under the financial or recordkeeping requirements of the state, only the SEC.

When a security is being registered under coordination, all of the following are required EXCEPT:

filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC. The statement of the maximum and minimum proposed offering prices and the maximum underwriting compensation must be filed at least two full business days before the effective date, not with the initial filing.

Which of the following statements describes a person who provides investment advice on a regular basis but does not charge fees, yet would be considered an adviser under Release IA-1092?

A financial planner who sold his business and spends his time consulting with pension plans on whether to retain or hire new investment managers based on their performance. He does not charge fees; however, those managers retained as a result of his recommendations routinely provide him with noncash benefits such as vacations, computers, and office space. If an individual is in the business of providing advice and receives any economic benefit, such benefit is considered compensation under Release IA-1092. Since the financial planner is in the business of giving advice to pension plans, actually provides that advice, and is compensated for it, he meets all 3 elements in the definition of an adviser. The noncash benefit, as in this case, need not come directly from the beneficiary of the services to be considered compensation. The college professor, the chief investment officer, and the Secretary of the Treasury do not receive separate compensation, nor are they in the business of providing investment advice.

Penalties for violations of the Uniform Securities Act include:

fines of up to $5,000 and/or imprisonment for up to 3 years. Under the Uniform Securities Act, penalties can include fines for up to $5,000 or imprisonment for up to 3 years, or both. No person, however, may be imprisoned for violation if he proves that he had no knowledge of the rule or order, and no indictment can be returned later than 5 years after the alleged violation. Remember the distinction between criminal penalties and civil liability.

The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket?

Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order. This is one of those questions where the best way to find the answer is by determining what is NOT correct. Customer name and/or address would never be on an order ticket and that knocks out three of the choices. The account number (not name), the execution price (once the order is completed), the time of entry and execution (or cancellation if it is a day order that is not executed) and the terms and conditions (limit, market, stop, etc.) are all on the order ticket.

Under the Uniform Securities Act, unless renewed, the registration of which of the following securities professionals expires on December 31?

Agents Broker-dealers Investment advisers Investment adviser representatives State registration of any securities professional expires on December 31, unless renewed.

Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients?

An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients. An adviser's financial impairment must be disclosed to clients if the adviser has discretion or has custody or requires prepayment of more than $1,200 in fees, six or more months in advance. Legal or disciplinary action taken against an adviser by a court or a regulatory authority within the past ten years must be disclosed to clients in any case. Note also that by requiring prepayment of over $1,200 in fees, six or more months in advance, an adviser is required to include an audited balance sheet with Part 2 of Form ADV, which must be filed with the SEC and made part of the adviser's disclosure brochure.

As defined in​ the Uniform Securities Act, which of the following statements is TRUE regarding an agent?

An agent represents a broker-dealer or an issuer in effecting or attempting to effect purchases or sales of securities. ​The text in Section 401(b) of the Uniform Securities Act reads, "Agent means any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities.​ There are cases where an individual representing an issuer would not be considered an agent, such as if the transaction is exempt, but that doesn't change the definition.

Which of the following is required to register in a state under the Uniform Securities Act?

An investment adviser who has a place of business in the state and whose only clients in the state are insurance companies, investment companies, banks, and broker-dealers. Because the adviser has a place of business within the state and is acting as investment adviser in the state, he must register regardless of the fact that the only clients are financial institutions. Notice the state registration rules are different for broker-dealers and investment advisers. Banks are exempt from registration as broker-dealers or as investment advisers, as are investment advisers with no place of business in the state and fewer than six clients in the state in a 12-month period (de minimis standard).

Under the terms of the Uniform Securities Act, which of the following is an investment adviser for purposes of state regulatory jurisdiction?

An investment subsidiary of a bank holding company located in the state that manages $20 million in assets. A bank holding company's investment subsidiary that manages $20 million in assets is an investment adviser subject to the Uniform Securities Act (USA). Under the language of the USA, a commercial bank is excluded from the definition of investment adviser whereas a bank holding company subsidiary is not. While a federal covered adviser is an investment adviser in practice (that is, it performs the functions of an adviser), it is excluded from the definition of an investment adviser under the USA to avoid duplicate regulation. An accountant located in the state that offers general securities advice as an incidental part of his business is not an investment adviser.

Which of the following securities is most likely to register by qualification in the state of Virginia?

An offering of common stock by a Virginia-based corporation to Virginia residents only. Although any issuer may register its securities at the state level by qualification, this cumbersome means of registration is mainly used in conjunction with intrastate (single state) offerings. If a security is offered by a corporation beyond its own home state, the issuer must register with the SEC at the federal level. Registration by qualification, while permitted, would be an unlikely choice.

When a broker-dealer registers with the state Administrator, which of the following persons are automatically registered as agents of the broker-dealer in the state?

Any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. Registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.

Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category?

Any isolated, nonissuer transaction. Any sale to a financial institution. Any transaction by the executor of an estate. Any transaction between an issuer and underwriters. All four options describe exempt transactions. Exempt transactions are not subject to the advertising and sales literature filing requirements of the Administrator.

One of the most prevalent schemes abusing seniors is one where the individual or couple receives an invitation to attend an educational seminar held at an upscale location. This scheme is commonly referred to as:

free lunch. There is probably no other area of abuse directed at seniors that has received the attention of the "free lunch" seminars.

According to the Uniform Securities Act, all of the following are violations of suitability requirements EXCEPT failing to

know the terms and conditions of the customer's will Failure to identify objectives or to obtain corresponding financial information is considered contrary to the know-your-customer rule. Agents should ask if the customer has a will but failing to do so is not a violation of suitability requirements.

Under the Uniform Securities Act, the Administrator can require which of the following from broker-dealers and investment advisers?

Filing of sales literature. Maintaining of records. Filing of financial statements. Filing of amendments to registrations. The act requires the filing of sales literature and advertising (as well as a prospectus) addressed or intended for clients or prospective clients, unless exempt under the act. In addition, it requires that books and records be kept for a minimum of three years for broker-dealers and five years for investment advisers and provides that an Administrator may require the filing of financial reports regarding the net worth of the firm. The act also requires broker-dealers and investment advisers to update any information filed with the state regarding any material change that takes place. Even federal covered investment advisers may be required to file copies of their SEC registration and amendments with state Administrators, along with filing fees.

According to the Investment Advisers Act of 1940, for how many years must books and records be maintained for an account after the end of the year in which the last transaction occurred?

Five years. Those investment advisers registered with and regulated by the Securities and Exchange Commission (SEC) must adhere to SEC Rule 204-2 regarding the maintenance of records. The rule states the required records must be kept for five full years from the end of the fiscal year during which the last entry was made on the record. The first two years, records must be kept in the principal office of the adviser and the balance of the time, easily accessible. They are subject to SEC examination at any time.

Which of the following would be a nonissuer transaction?

GEMCO Mutual Fund sells 100,000 shares of XYZ Corporation common stock out of its portfolio. Curt sells 1,000 shares of Giggle common stock to Chuck in an isolated transaction. In a nonissuer transaction, the proceeds of the sale go to someone other than the issuer. When a mutual fund liquidates a holding in its portfolio, the fund receives the proceeds, not the issuer. One individual selling his stock to another is the classic example of an isolated nonissuer transaction. A corporation selling stock out of its treasury receives the money from the sale, and dividend reinvestment purchases shares directly from the mutual fund.

If an agent thinks that a technology stock is undervalued and actively solicits all customers, which of the following is TRUE of the agent?

He committed an unethical business practice. Agents must always determine suitability before soliciting purchases or sales. An investment cannot be suitable for all of your clients; therefore, the practice of blanket recommendation is unethical.

Which of the following is NOT classed as a security under the Uniform Securities Act?

Heating oil futures Commodity futures on items such as gold, silver, wheat, heating oil, and pork bellies are not securities. Options on stocks, and stocks and bonds are securities.​

Liquidation Priority

In the case of a corporation's liquidation, the order that is strictly followed for paying off creditors and stockholders: 1 secured claims like Mortgage Bonds, equipment trust certificates, and collateral trust bonds; 2 Unpaid Wages 3 Taxes 4 Unsecured liabilities (debentures) and general creditors 5 Subordinated debt 6 Preferred stockholders 7 Common stockholders

Life insurance companies offer many different products. Which of the following would NOT be considered a security?

Index annuity Modified endowment Any insurance product that includes the word variable is a security. Otherwise, it is not.

Which of the following is specifically excluded from the definition of an investment adviser providing the investment advice is solely incidental to the business in which the person is engaged?

Industrial engineer. Lawyers, accountants, engineers, teachers, and broker-dealers whose advice is incidental to their profession and who do not charge a separate fee for investment-related advice are excluded from the definition under the Investment Advisers Act of 1940.

Under the USA, which of the following are grounds for suspension, denial, or revocation of an issuer's registration statement?

Information in the registration statement is incomplete Unreasonable compensation to the underwriters Failure to pay filing fees The security is subject to an administrative stop order in a federal court. Incomplete information on the registration statement, unreasonable underwriting compensation, failure to pay filing fees, and a security subject to an administrative stop order in federal court are all grounds for suspension, denial, or revocation of an issuer's registration statement.

Which of the following statements about wrap fee arrangements is true?

Information on Appendix 1 of Form ADV Part 2A must also be contained in client disclosure documents. Non-material changes to wrap fee disclosure must be disclosed to the Administrator within 90 days of fiscal year end. Material changes must be filed promptly with the Administrator.

Which of the following is NOT considered to be in the business of investment advising?

Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only The insurance agent who discusses the merits of whole life insurance does not sell investment advice or securities, only insurance policies. The insurance agent does not hold herself out as an adviser nor does she provide advice on securities. If a person advertises as one who provides investment advice or engages in providing investment advice or analyses on a regular basis (even if not the person's principal business activity), the person is considered in the business of giving investment advice. If the person receives any compensation that represents a clearly definable charge, commission, or fee for such advice (whether paid separately or not), she is considered in the business. If the person engages in other financial activities in connection with the advice, it cannot be used to avoid the business standard.

Which of the following powers are under the jurisdiction of the Administrator?

Issuing a cease and desist order to an agent without any prior notice. Whenever it appears to the Administrator that any person has engaged, or is about to engage, in any act or practice constituting a violation of any provision of the USA or any rule or order hereunder, he may in his discretion issue a cease and desist order, with or without a prior hearing against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity. Any person aggrieved by a final order of the Administrator (that means after the hearing has taken place), may obtain a review of the order in the appropriate court by filing a written petition in court, within sixty days, not fifteen, after the entry of the order. Broker-dealers and some IAs have to file annual audited financials with the Administrator, but the audit is conducted by an independent accountant, not the Administrator.

In which of the following circumstances has John, employed at AAA Securities Corporation, made an offer as defined in the USA?

John calls a long-standing client, Brenda, to indicate that a security on his firm's restricted list is suitable for her portfolio. John indicates that he cannot sell the securities unless Brenda requests them on an unsolicited basis. Brenda considers making the purchase but ultimately declines. John discovers that Brenda has inherited shares in a manufacturing firm trading on the New York Stock Exchange, and suggests that she sell them to him in a private transaction in which no commission would be charged. 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.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following is NOT considered when determining excessive trading in a client's account?

Length of association with the agent.

Which of the following securities is (are) exempt from registration under the Uniform Securities Act?

Municipal securities. Government securities. Stock or bonds issued by an insurance company authorized to do business in this state. All government and municipal securities are exempt from registration requirements under the Uniform Securities Act as are insurance company securities if the company is authorized to do business in this state.

Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences?

Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate. No money changes hands in the sale of a preorganization certificate or subscription, while the seller receives payment in the case of a private placement. The state will consider a private placement an exempt transaction if it is anticipated that individual (noninstitutional) investors are purchasing for investment only, not immediate resale. No holding period restrictions are placed on preorganization certificates. Only in the case of a sale of a private placement to an institutional client is it permissible to pay commissions. Finally, choice I has it backwards. When referring to retail (noninstitutional) investors, there is a limit to the number of offers (10), while in the preorganization certificate, the number of sales (subscribers) is limited to 10 regardless of whether they are retail or institutional.

Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following?

Permanent revocation of a registration. Bar from employment with any registrant. Restriction on a registrant's performance of any activity in the advisory or brokerage business. Once the registrant is found guilty at a hearing, the Administrator is authorized to take any or all of the above actions against a person's registration.

Based on the Investment Advisers Act of 1940, which of the following would be excluded from the definition of an investment adviser?

Persons whose advice relates solely to government securities. Lawyers and accountants may not claim the exclusion if they advertise their investment advisory or financial planning services, or if they charge a separate fee for such services. Broker-dealers may not claim the exception if they provide investment advice beyond the scope of the brokerage business or if they charge a separate fee for advice.

The Investment Company Act of 1940 does which of the following?

Prescribes procedures for the establishment of investment companies. The Investment Company Act of 1940 requires all investment companies to register with the SEC as such and be regulated under the act. The companies are still subject to all the other applicable securities acts. However, the Investment Company Act of 1940 provides additional regulation to ensure investors are fully informed and fairly treated by the management of investment companies.

An individual is employed by a federal covered investment adviser for the sole purpose of giving advice related to monitoring investment portfolios, but only to qualified employee benefit plans.

Registration as an IAR is required because the individual is rendering investment advice. Regardless of who the advice is given to, unless there is some kind of exemption involved, individuals working for IAs (state or federal), must register as IARs. It makes no difference if the plan is qualified or not.

Under the Uniform Securities Act, if no denial or proceedings are pending, when does an investment adviser registration become effective?

Registrations become effective at noon on the 30th calendar day after the date of filing if there are no denial orders or pending proceedings.

Which of the following statements regarding an agent's registration is CORRECT?

Revocation of the registration of that agent's broker-dealer will result in that agent's effective registration being put "on hold."

Under the provisions of the Uniform Securities Act, securities exempt from registration requirements include:

Securities exempt from registration requirements include securities issued by the state or U.S. government; securities issued by foreign governments with whom the U.S. maintains diplomatic relations; and any securities issued by savings and loan or building and loan associations, insurance companies, and credit unions authorized to do business in this state.

Under the Uniform Securities Act, which of the following are prohibited actions of an investment adviser?

Selling securities as a principal to an advisory client without receiving consent of the client prior to the completion of the trade. The owner of a majority of the stock of the advisory firm pledges that stock to a bank as collateral for a loan. No notice is sent to clients as this is an operating decision, not one dealing with investment advice. The USA prohibits an investment adviser from acting as principal or agent in a transaction with an advisory client without approval prior to completion (settlement) of the trade. Assignment of a majority interest in the company's stock is considered to be the same as assignment of client contracts; an action that may not be done without client acceptance. There is nothing wrong with agency cross transactions as long as disclosure is made and the trade is recommended to only one of the parties by the adviser. Performance fees may be charged, regardless of the client's age, to anyone with a net worth of at least $2.1 million or with at least $1 million under management with the firm.

An agent is registered in Montana and North Dakota. While working in his North Dakota office, he places a call to the cell phone of one of his clients who happens to be on vacation in Wyoming. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Idaho. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, jurisdiction resides with the Administrator of:

The Administrator has jurisdiction from the state in which the offer was made (ND), received (WY), and accepted (ID). Mailing of the certificate is of no consequence.

An Administrator has specific authority under the USA to:

The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive fees or commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.

Under the Uniform Securities Act, an Administrator has which of the following powers?

The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing, as long as notice is given that a hearing will be granted upon written request. The Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator's assets; or refer charges to the state attorney general or district attorney for prosecution. The Administrator does not have the power to invoke criminal penalties (3 years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts.

Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934?

The SEC has jurisdiction over exchanges and SROs. The SEC has jurisdiction over broker-dealers, investment advisers, and registered representatives that are required to be registered under federal law. The SEC was created by the Securities Exchange Act of 1934 and has the responsibility of administering all federal securities laws. The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.

Under the Securities Exchange Act of 1934, which of the following is TRUE regarding the jurisdiction of the SEC over a person who violates the rules of the Municipal Securities Rulemaking Board?

The SEC has the authority to investigate such violations unless the person is a financial institution. The SEC is charged with administering the federal securities laws, under which the Municipal Securities Rulemaking Board (MSRB) exists. So the SEC has jurisdiction over the MSRB. However, financial institutions come under the jurisdiction of banking regulatory authorities.

Which of the following has the power to close a stock exchange for up to 90 days?

The SEC. The Securities Exchange Act of 1934 granted the SEC the power to close any registered stock exchange for up to 90 days. All that is required is notice to the President of the United States.

Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if that individual does which of the following?

The Uniform Securities Act defines any individuals associated with an investment adviser as investment adviser representatives if they manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities, including any partner, officer, or director who offers advice concerning securities. Persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities are investment adviser representatives.

Under which of the following circumstances may attorneys and accountants claim an exclusion from the definition of investment adviser under the Investment Advisers Act of 1940?

The advice is incidental to the practice of their profession. Under the Investment Advisers Act of 1940, lawyers, accountants, teachers, and engineers (LATE) giving investment advice that is incidental to their professions are not considered investment advisers. If they receive a fee for the advice, hold themselves out to the public as doing so, or offer excessive advice that is no longer incidental to their practice (as 30% of the practice would indicate), they lose this exclusion and must register as investment advisers.

An agent is registered in Illinois and Ohio. One of her substantial clients has just moved from Ohio to Arizona, and the agent would like to continue to do business with her. Under the Uniform Securities Act, which of the following statements is TRUE?

The agent's broker-dealer must already be registered in Arizona or complete the Arizona registration process within a time period specified by the act. The agent must complete the Arizona registration process within a time period specified by the act. The USA permits broker-dealers and their agents to continue to do business with existing customers who change their state of residence, as long as registration in the new state takes place within a reasonable period of time. This time period varies from state to state but is generally 30 days. Since an agent's registration is not valid without a broker-dealer, the agent and the agent's broker-dealer must be registered in Arizona for the relationship with this customer to continue. There is no such thing as reciprocal registration.

An agent sells his client ten U.S. government bonds due to mature in 30 years. According to NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents, which of the following statements may the agent legally make?

The bonds are guaranteed as to principal and interest payments by the U.S. government. Stating that the bonds are guaranteed as to principal and interest payments by the U.S. government is an accurate statement of fact. A client can lose money on government bonds should interest rates rise after he purchases the bonds. The government does not guarantee that the principal and interest will keep up with inflation.

Which of the following statements is TRUE about the compensation of an investment adviser?

The investment adviser may be compensated on the basis of the total assets of the portfolio over a period of time. The Investment Advisers Act of 1940 (as well as the Uniform Securities Act) permits the adviser to be compensated on the basis of the average total value of the client's funds between specified dates. It may not be based on portfolio appreciation or capital gains. The most common way to compensate the adviser is based on a percentage of average assets under management each month. As with any rule, there are exceptions. Because this question does not address the exceptions, it should be answered from the basic premise that performance-based fees are prohibited.

If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE?

The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940. There must be a separate written agreement between the solicitor and the registered investment adviser. Under federal regulations, if an investment adviser intends to pay a third party (non-employee) solicitor to solicit clients for investment advisory services, the adviser must be properly registered, there must be a written agreement between the adviser and the solicitor, and there can be no outstanding or pending orders or disciplinary actions against the solicitor involving finance or dishonesty. The solicitor does not have to be registered as a registered investment adviser representative because he is not representing the registered investment adviser in the giving of investment advice, in the management of accounts, or in the supervision of anyone else working for the registered investment adviser in these areas. The solicitor is being paid a fee for the solicitation of business for the registered investment adviser with a requirement of full disclosure to the client of the relationship with the adviser.

If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is TRUE?

The representative must notify the Administrator. It is the investment adviser representative's responsibility to notify the Administrator. The advisory firm is not registered with the state; only the representative is registered.

According to the Uniform Securities Act, which of the following would be considered exempt transactions?

The sale of a unlisted corporate bond by an executor of an estate. An unsolicited order from an individual client to purchase a nonexempt, unregistered security Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place.

Which of the following would be included in the USA's definition of "exempt transaction" ?

The term "exempt transaction" includes sales by fiduciaries, private placements and isolated nonissuer transactions. Any solicited sale to an individual client, even of a properly registered security, is not an exempt transaction.

A broker-dealer provides HotScores, a portfolio analysis tool that allows clients to indicate their retirement goal. After disclosing age, current financial condition, and risk tolerance, those participating will receive a list of specific securities the customer could buy or sell to meet the investment goal. Which of the following is TRUE?

This would be regarded as making a recommendation An example of what the regulators have determined to be a recommendation would be if a broker-dealer provides a portfolio analysis tool that allows a customer to indicate an investment goal and input personalized information such as age, financial condition, and risk tolerance. The broker-dealer then sends the customer a list of specific securities the customer could buy or sell to meet the investment goal the customer has indicated.

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed?

Transaction-based compensation, such as commissions on recommended securities. 12b-1 trails on no-load mutual funds in the client's portfolio. Expenses reimbursed by 3rd party sources. All forms of compensation, whether direct or indirect, must be disclosed. However, the method by which an adviser pays its representatives is an internal matter, not for public disclosure.

Which of the following is the most appropriate action for an agent to take after receiving a written complaint letter from a client?

Turn the letter over to the agent's supervisor. Any agent or investment adviser representative receiving a written customer complaint is required to turn the complaint over to their supervisor without delay.

Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration?

Usually, anyone who meets the federal definition of investment adviser must be registered with the SEC. Some investment advisers are not excluded from the definition but are exempt from the registration requirements of the SEC. One example is an adviser 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. Advisers whose clients are limited to insurance companies are exempt from registration, as are 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 U.S. There is no exclusion for advisers whose only clients are banks.

Under the Investment Company Act of 1940, which of the following statements regarding the renewal provisions of an investment adviser's contract is true?

When an investment company employs an outside investment advisory firm to manage its portfolio, the act requires a written contract setting forth the adviser's compensation. The contract is for two years initially and must be renewed annually thereafter. The contract must be initially approved by a majority vote of the outstanding shares and the noninterested members of the board of directors and annually renewed by either a majority vote of the board of directors or of the outstanding shares as well as a majority vote of the noninterested members of the board. The contract must be terminable at any time, with a maximum of 60 days notice and with no penalty, upon a majority vote of the board of directors or of the outstanding shares, and it must terminate automatically if assigned.

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

When the client is a broker-dealer. When the client is a bank or financial institution in the business of loaning money. When the client is an affiliate of the investment adviser. It is unethical to borrow money or securities from a client, unless the client is a broker-dealer, a bank or other financial institution in the business of loaning money, or an affiliated person of the adviser. Owing money or securities to a client is not only unethical, it could also influence advice rendered to a client, creating a potential conflict of interest.

Which of the following statements is (are) TRUE concerning wrap fee programs under the Uniform Securities Act?

Wrap fee disclosure documents must be filed with the Administrator. Nonmaterial changes to wrap fee disclosure documents must be filed with the Administrator within 90 days of fiscal year end. Amendments must be filed promptly with the Administrator if the disclosure document becomes inaccurate in any material way. The disclosure document must contain the information required by Appendix 1 of Form ADV Part 2A. Wrap fee disclosure documents must be filed with the Administrator and must contain the information required by Appendix 1 of Form ADV Part 2A. Amendments must be filed promptly with the Administrator if the disclosure document becomes inaccurate in any material way. Nonmaterial changes to wrap fee disclosure documents must be filed with the Administrator within 90 days of fiscal year end.

When describing the differences between an investment adviser and an investment adviser representative, it would be correct to state that the investment adviser may:

maintain custody of client funds and securities whereas an IAR may not. be required to be bonded whereas an IAR may not. be required to maintain a minimum net worth whereas an IAR may not Registered investment advisers, but not their representatives, are permitted to maintain custody of client assets (if not prohibited by the Administrator). There is no minimum net worth standard for IARs as there is for IAs. Both may be granted written discretionary powers, and if so, only the IA may be required to be bonded (adequate net worth will suffice).

A broker-dealer with an office in this state would be defined as an investment adviser if it charges:

a fee for selling investment research and additional fees in the form of commissions for the sale of securities. fees for investment research sold exclusively to institutions located in this state A broker-dealer would be considered an investment adviser if it has a place of business in this state and if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm meets the definition of an investment adviser. If a broker-dealer charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the broker-dealer is not an investment adviser because it is not compensated for the research.

As defined in the Uniform Securities Act, the term person would include:

a limited partnership. a political subdivision. an unincorporated association. the executor of an estate for a deceased individual. All of these would be included in the USA's definition of person. Not included are a minor, a deceased person, or someone judged mentally incompetent.

In accordance with the stated provisions of the Investment Company Act of 1940, renewal of an open-end management investment company's investment adviser's contract must be approved by:

a majority vote of the fund's board of directors or of the outstanding voting shares as well as a majority vote of the noninterested members of the board. When it comes to management investment companies (open-end or closed-end), renewal of the investment adviser's contract is approved annually by the fund's board of directors or a majority vote of the outstanding voting shares. The initial contract must be approved by both the board of directors and a majority vote of the outstanding shares. In both of these cases, initial and renewal, a majority vote of the noninterested (outside) members of the fund's board of directors is also required.

Areas of concern for protecting customer data would include

a vendor misusing, or inadequately protecting, confidential customer information a vendor possibly failing adequately to protect confidential customer information after its relationship with the firm is terminated Although we generally think of security breaches occurring within the confines of the firm itself, many broker-dealers, especially smaller ones, contract with outside vendors for data storage. That can be a weak link. Unsuitable recommendations and improper loans are prohibited practices, but that has nothing to do with securing customer Personally Identifiable Information (PII) or Sensitive Personal Information (SPI).

in the event an agent transfers from one broker-dealer to another broker-dealer

all three must report to the transfer to the administrator (the former employer, the new employer, and the agent)

Under the Securities Exchange Act of 1934, an exchange is:

an organization which provides facilities for bringing together buyers and sellers of securities. Under the Securities Exchange Act of 1934, exchange does not refer to a transaction, but to an organization or facilities for bringing together buyers and sellers of securities. It is important to distinguish this function from other activities carried out by persons in the secondary market, such as transfer agents, securities information processors, or broker-dealers.

Under the Securities Exchange Act of 1934, the term associated person would include each of the following EXCEPT a person who is associated with a broker-dealer

and whose functions are solely ministerial According to the act, the phrases "person associated with a broker or dealer" and "associated person of a broker or dealer" mean any partner, officer, director, or branch manager of such broker or dealer (or any person occupying a similar status or performing similar functions); any person directly or indirectly controlling, controlled by, or under common control with such broker or dealer; or any employee of such broker or dealer. However, a person who is associated with a broker or dealer but whose functions are solely clerical or ministerial shall not be included in the meaning of such term.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must describe all of the following EXCEPT:

any record of securities industry violations by the investment adviser. An investment advisory contract is not required to disclose securities industry violations by the investment adviser. These must be disclosed, however, in Form ADV. The investment advisory contract must include the amount of prepaid fee to be returned if the contract is terminated, the fact that assignment of the contract cannot occur without client consent, and the fact that the agreement does or does not contain discretionary authority.

Wrap fee programs required disclosure statements must contain

at least the information in Appendix 1 Form ADV Part 2A

ABC Advisers, Inc., a federal covered investment adviser, is a wholly owned subsidiary of ABC Corporation, a holding company that also owns ABC Securities, a full-service broker-dealer that is a member of the New York Stock Exchange and FINRA. One of the clients of ABC Advisers calls his IAR to explain that he has just received a margin call in his ABC Securities account. Under these circumstances, it would not be prohibited for the IAR to use securities owned in the advisory account to obtain a loan for this client

because the 2 firms are affiliated In most cases, the only money lenders on the exam will be banks and broker-dealers. If an advisory client receives a margin call from activity in his brokerage account, securities owned in the advisory account may be used by the affiliated broker-dealer to meet the margin deficiency.

An agent must deliver a preliminary prospectus for an IPO within a prescribed period of time to any person who has:

been approached about buying this new issue while the issue is in registration. Anyone who is approached about a new issue prior to the effective date must receive a preliminary prospectus.

All of the following are unethical business practices for an agent of a broker-dealer EXCEPT:

borrowing money or securities from a client who is a broker-dealer, an affiliate of the broker-dealer, or a financial institution engaged in the business of loaning funds. Placing an order to purchase or sell a security for a client's account without authority to do so, and placing an order to purchase or sell a security for the account of a client upon instruction of a third party, without first having obtained a written third-party trading authorization from the client, are both unethical business practices. Borrowing money or securities from a client is unethical unless the client is a broker-dealer, an affiliate of the firm, or a financial institution engaged in the business of loaning funds. Deliberately misinforming a client regarding the agent's age is also an unethical business practice.

A client opens a discretionary account with an IAR over the phone and tells her to buy 3,000 shares of any technology stock that she thinks is suitable. One month later, the stock has dropped and the IAR determines that it is time to cut the losses and get out of the stock. In checking the records, the IAR discovers that the written discretionary authorization form has not yet been received. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, the IAR should:

contact the client and indicate that the firm cannot act with discretion until the authorization form is received. NASAA policy permits oral discretionary powers to IAs and their representatives as long as the written authorization form is received within 10 business days of the first trade made using that discretion. One month is more than 10 business days so nothing can be done without the written authorization. Remember, when the client leaves the specific security to be purchased up to the discretion of the IAR, discretion has been exercised.

Rule 482 of the Securities Act of 1933 permits the use of an omitting prospectus if it does not:

contain an application to purchase shares of the fund. An omitting prospectus is a mutual fund tombstone advertisement. It must include information on obtaining a prospectus and may include the fund's past performance. It will never include an application to purchase shares and may or may not make mention of the fund's expense ratio.

A federally chartered credit union is domiciled in Texas. The credit union is making an offering of securities in Nebraska. To comply with the Uniform Securities Act's exclusion from the definition of agent, any individual offering the security in Nebraska:

could not sell without being an agent. It is unusual to have an answer set up this way, but it does happen sometimes on the exam - "to comply with" and then there is no way to comply. First of all, the USA's exclusions from the definition of agent only apply to individuals working for the issuer, never broker-dealers. Then, the exclusion only applies when selling the following exempt securities in non-exempt transactions: US government and municipal securities; Securities of governments with which the United States has diplomatic relationships; Securities of US commercial banks and savings institutions or trust companies (when not engaged in securities-related broker-dealer activities; Commercial paper rated in the top three categories by the major rating agencies with denominations of $50,000 or more with maturities of nine months or less; and Investment contracts issued in connection with employee's stock purchase, savings, pensions, or profit-sharing plans. Selling other exempt securities, such as those issued by a federal chartered credit union, on behalf of the issuer, requires one to become registered as an agent of the issuer. Don't confuse this with the exemption offered in the case of exempt transactions. In that case, regardless of whether the security is exempt or not, if an individual's only sales activity while representing an issuer is in exempt transactions, then the exclusion from the definition of an agent applies. It is obviously a much broader exemption than when selling exempt securities.

Four years after discovering a noncriminal violation of the USA in the sale of a security, a client can:

do nothing because the statute of limitations is limited to three years after commission of the violation or two years from date of discovery of the violation, whichever comes first. The statute of limitations for noncriminal violations of the USA is three years after commission of the violation or two years from date of discovery, whichever comes first. In this instance, the client can do nothing.

It is a violation of the Uniform Securities Act if an agent:

files a fraudulent application It is a violation of the Uniform Securities Act to file a fraudulent or misleading application for registration as a securities industry professional (agent, broker-dealer, or investment adviser). An agent may always make material representation in the sale of a security; it is a material misrepresentation that is not permitted. An unregistered security may be sold in an exempt transaction and an exempt security does not need registration. One of the few things that does not have to be disclosed to clients is a commission sharing arrangement with another agent in the office.

All of the following must be specified in a security's state registration statement EXCEPT:

the total amount of the security that will be offered in other states.

An adviser has custody of a client's securities or funds if the adviser:

has authority to withdraw funds from a client's account for the benefit of the adviser for the payment of the quarterly advisory fees. Custody is the physical possession of the asset. Discretion is the authority to make decisions independent of the authorization of the account holder on a trade-by-trade basis. Authorization is in a blanket form in the existence of either a limited trading authority or full trading authority. Acceptance of prepayment of adviser's fees or discretionary authority does not constitute custody. The ability to withdraw funds for the purpose of paying quarterly advisory fees from a customer's accounts is deemed to be custody of the funds. A broker-dealer holding a customer's funds and securities would have custody, but the adviser who has trading authority over the account would only have discretion. If the funds and securities of the client are held with the funds and securities of the adviser in a joint account, the adviser would be involved in commingling (or theft), not custody.

In addition to transaction costs (e.g., commissions or markups), most broker-dealers have a schedule of miscellaneous fees. The purpose of these fees is to

help to reimburse the broker-dealer for expenses incurred in performing the transaction or a service for the client Executing a transaction for clients frequently incurs expenses that commissions don't cover, such as clearing fees and execution facility fees. There are services performed for clients, such as postage and handling, for which expenses are incurred. Although charging these fees does have a positive effect on the firm's bottom line, they are designed for reimbursement purposes, not as an additional source of income.

Hal owns a successful plumbing business. If he engages in a substantial amount of short-term trading in stocks for his own benefit, he would be considered a(n):

individual investor. Hal is not in the business of engaging in securities transactions, he is in the plumbing business. Thus, he is an individual investor rather than a dealer. As the question provides no information as to Hal's annual income or net worth, we have no indication that he is an accredited investor. Hal is a plumber rather than a financial institution similar to a bank or an insurance company.

An agent is using social media to try to build her business. If her Facebook page allows for followers to "like" her, that would be considered

interactive content One of the things that differentiate interactive content from static content is the ability for persons other than the originator of the content to have access. Posting a like to a Facebook page is an example of this.

An investment adviser's contract contains the following statement: "While GEMCO Advisers agrees to use its best efforts in the management of the portfolio, GEMCO shall not be responsible for errors in judgment or losses incurred on investments made in good faith, and its liability shall be limited expressly to losses resulting from fraud or malfeasance, or from violation of applicable law." Under the USA, this statement:

is an improper waiver and makes the contract null and void. The regulators tend to be quite strict on the use of hedge clauses waiving certain rights of clients or obligations of IAs. More than likely, the Administrator would view this language as potentially misleading to clients, given the adviser's duties as a fiduciary. Moreover, the adviser's statement that it assumes liability for "violation of applicable law" only compounds the problem since it was unlikely that the client would realize that "applicable law" does, under several circumstances, provide a right of action for even good faith "errors in judgment."

Anyone who represents an issuer in effecting transactions between the underwriter and the issuer:

is excluded from the definition of agent under the Uniform Securities Act. Under the Uniform Securities Act, a person representing an issuer in securities transactions between an underwriter and an issuer is not deemed an agent and is exempt from the agent registration requirements of the act.

Coordination

is the method used to register a security simultaneously under the Securities Act of 1933 and under the USA in a state. If the security's federal registration is pending and the Administrator has recieve all the required material, the two can be declared effective at the same time.

With regard to a state-registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that

it is filed through the IARD system The Investment Adviser Registration Depository (IARD) is an electronic filing system that facilitates investment adviser registration, regulatory review, and the public disclosure information of investment adviser firms. The IARD is used for filing Form ADV Parts 1 and 2. If the "brochure" is not delivered at least 48 hours before, (not after), the signing of the agreement, the client has a 5-day penalty-free withdrawal right. Annually, the Part 2 (brochure), or a summary of material changes, must be delivered within 120 days of the end of the adviser's fiscal year, (unless there have been no material changes). The brochure does not have to be delivered to all clients; those purchasing impersonal advice for less than $500 per year are exempted. There is also an exemption for delivery to investment company clients, but that would not apply here because if the adviser had any of those, it would have to be federal covered rather than state-registered.

Registration statements for securities:

may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed. Registration of securities under the USA may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and initial offering prices have not changed. Securities registration statements remain effective for one year from their effective date, and do not expire on December 31 of each year. Registrations of agents, investment advisers, and broker-dealers expire on December 31 and need to be renewed. Registration statements are effective for one year from their effective dates (or longer if the securities are still under distribution by the underwriters).

All of the following have legal standing as persons under the Uniform Securities Act EXCEPT:

minor children. The definition of a person under the act includes, among others, individuals, joint stock companies, unincorporated organizations, and trusts where the interests of the beneficiaries are evidenced by a security. Minor children are not persons under the act.

While making a sales presentation of a mutual fund, the registered agent states to a customer that reinvesting the dividends will ensure selling shares at a profit. Making such a statement is:

misleading and may result in proceedings against the representative. This statement is misleading at best. It is untrue in most cases and, therefore, in violation of the act.

An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the USA, this individual:

must obtain registration as an investment adviser representative. must be adequately supervised Broker-dealers offering wrap fee programs must also have registration as an investment adviser. Under the USA, those individuals who solicit on behalf of an IA must register as IARs. Of course, the activities of any employee of any type, must always be under proper supervision.

An investment adviser representative who makes extensive use of third-party research to formulate portfolio recommendations to clients:

need not disclose that fact to the clients. It is not necessary to disclose what sources an IAR uses as the basis for recommendations. If the third-party research is distributed to clients, proper attribution is required.

To be exempt under Rule 506(b) of Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of

nonaccredited investors to whom the security is sold Rule 506(b) of Regulation D provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. There is no limit to the number of shares that can be issued nor the number of accredited investors who may purchase the shares. It is Rule 506(c) of Regulation D which permits advertising as long as the issue is sold exclusively to accredited investors.

Under the USA, it is unlawful to sell a:

nonexempt, nonregistered security issued by a foreign corporation from a country with which the US government maintains diplomatic relations. Nonexempt, nonregistered securities cannot be lawfully sold in a state unless in an exempt transaction (and nothing in the question indicates that is the case). The fact that they are issued by a foreign corporation is irrelevant; nonexempt securities must be registered. A federal covered security need not be registered in a state. Securities issued by banks, not bank holding companies, are always exempt securities.

Under the Uniform Securities Act, a person who exclusively provides advice on commodities is:

not a registered investment adviser. A person who only provides advice on commodities is not a registered investment adviser. To be an investment adviser under the Uniform Securities Act, advice must be given on securities. The act specifically excludes commodities from the definition of security.

Broker dealers who offer advise as an incidental part of their commission business are

not required to registere as investment advisers.

A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use:

notice filing. Regardless of where shares of this closed-end investment company trade, like all investment companies registered under the Investment Company Act of 1940, it is a federal covered security. The company is basically exempt from state registration and is only required to follow a procedure known as notice filing.

Under the Uniform Securities Act, an investment adviser would be permitted to maintain custody of customer cash and/or securities if:

notification was given to the Administrator and custody was not prohibited by that state's rules. In order to maintain custody, notification must be given to the Administrator and, obviously, the state must not have a rule forbidding custody. Does the customer have to approve of the custody arrangement? Yes, but that is done AT the time of entering into the contract, not before. What about net worth? Under the USA, in order to maintain custody, an IA must have net worth in the amount of no less than $35,000, or provide a suitable surety bond.

A federal covered IA files a petition for bankruptcy. The firm must:

notify the SEC immediately. As a federal covered investment adviser, the responsible regulatory body is the SEC.

Rule 482 of the Securities Act of 1933 deals with:

omitting prospectuses. Rule 482 describes a form of allowable mutual fund advertising, commonly referred to as an omitting prospectus.

All of the following must be specified in a security's state registration statement EXCEPT:

the total amount of the security that will be offered in other states. The total amount of the security to be offered in other states need not be specified although identifying those states is required. The amount of the security to be offered in the state of registration is required, as it generally provides the basis on which the registration fee is calculated. A stop order from another state that affects the offering of the security within the state must be included. The registration statement will always describe the intended use of the proceeds.

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office:

only the terminating investment adviser must notify the Administrator. If you are working for a registered investment adviser within a specific state, that state securities administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the State Securities Administrator of your employment. A federal registered investment adviser is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered investment adviser, it becomes your duty to notify the State Securities Administrator that you are working there as well as when you terminate.

After diligently studying the Kaplan course, Greg Gossett completed the series of exams for the Certified Financial Planner (CFP®) designation. Now, Greg would like to expand his horizons by becoming a registered investment adviser. In order to do so, Greg would have to do all of the following EXCEPT

pass the Series 65 examination There are several professional qualifications that qualify for a waiver of the examination. CFP® is one of them (the others are listed in the introduction to the License

A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as:

pegging. Pegging involves entering buy orders for the purpose of supporting a stock price (i.e., to keep it from falling). This is a form of market manipulation and is illegal. Front running involves a representative or firm entering orders ahead of client orders. Straddles are an option position that combines a put and a call on the same stock; there is nothing improper with that strategy. Matched orders involves buying and selling a stock from one hand to the other to create the false appearance of trading volume and is another form of market manipulation.

All of the following information is required on the SEC registration Form ADV EXCEPT the:

personal securities holdings of the principals and associated persons of the firm. the registration Form ADV does not require the disclosure of the personal securities holdings of the firm's principals. Form ADV requires the name of the adviser's business and form of business organization. In addition, Form ADV specifically requires information on how the adviser will be compensated.

Under the USA, a guaranteed security is protected by someone other than the issuer against loss of all of these EXCEPT:

principal on equity issues. Guarantees generally apply to income from the security (dividends or interest) and to payment of the principal amount at maturity. Third-party guarantees do not provide against market loss. Please note that capital gains are never included in this type of guarantee.

Under the Investment Advisers Act of 1940, the exclusion for providing investment advice that is solely incidental to the practice of a profession is NOT available to:

real estate agents. In the Investment Advisers Act of 1940 and the subsequent releases explaining the act, there is no specific exemption for real estate agents who give investment advice that is incidental to their practice. Engineers, teachers, accountants, and lawyers are specifically excluded if their advice is incidental to their practice.

According to the Uniform Securities Act, an offer or a sale does not exist if it is a(n):

reclassification of the issuer's securities. bona fide pledge or loan. act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares. stock dividend of stock other than the issuer's for which nothing of value was given. The Uniform Securities Act specifically excludes these four choices from the definition of offer and sale.

A federal covered investment adviser is a person:

registered, or excluded from the definition, under the Investment Advisers Act of 1940. A federal covered investment adviser refers to a natural person or firm registered under the Investment Advisers Act of 1940 or excluded from the definition of investment adviser under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state or federal registered, do not register with NASAA.

An investment adviser hires 2 individuals to solicit new customers for the firm's wealth management service. Under the USA:

registration as investment adviser representatives is required. The definition of investment adviser representative includes individuals who solicit for the firm's advisory business.

USA Act as a result of hearing, the disciplinary actions that may be taken by the Administrator includes

revocation of a persons registration, bar, or restrict activity.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, a securities agent may NOT:

simultaneously represent two different unrelated broker-dealers in the same transaction. A registered agent may not simultaneously represent two different, unrelated broker-dealers in the same transaction. Under current regulations, some states allow agents to have dual registrations with more than one broker-dealer, unless those broker-dealers are under common management. In those cases, the agent may only represent one of the broker-dealers in any single transaction. Agents of broker-dealers may be simultaneously registered with real estate agencies, insurance companies, and with two broker-dealers, provided the broker-dealers are under common ownership or control or the arrangement has been authorized by the Administrator.

Each of the following statements regarding registration of securities by coordination is true EXCEPT:

state registration must be effective prior to federal registration. State registration must be coordinated with federal registration. In most cases, the registration statement must be on file with the Administrator for ten days, but the Administrator has the power to shorten that period. The registration statement becomes effective concurrent with the SEC and must contain or be accompanied by consent to service of process.

Under the Uniform Securities Act, an adviser who has custody of client securities or funds must:

submit to a surprise audit of client accounts by an independent accountant each year. provide an audited balance sheet to the Administrator each year and include a balance sheet with his disclosure statement (brochure) to all prospective clients. An adviser who has custody must submit to an annual surprise audit by an independent accountant and include an audited balance sheet with Part 2A of Form ADV, which must be filed with the Administrator and also forms the basis of the information that must be contained in the disclosure brochure. Other requirements include segregation of client securities, deposit of client funds into separate bank accounts, written notification to clients of the location of their property, and quarterly (not monthly) reports to clients on their accounts.

If an individual accumulates a holding of more than five percent in the voting stock of a publicly traded company, notification must be made to all of the following EXCEPT:

the Administrator of the state in which the customer resides. When an individual accumulates a holding of more than 5% in the voting stock of a publicly traded company, notification must be made on Schedule 13D within 10 business days to the SEC, the exchange where the issue is listed, and the issuer's board of directors. Notification to the state securities Administrator is not required.

Under the Investment Advisers Act of 1940, an adviser is required to be registered with the SEC if:

the adviser's clients are investment companies registered under the Investment Company Act of 1940. Advisers to registered investment companies are required to be SEC-registered. Under the Advisers Act, as modified by the Dodd-Frank Act, advisers are exempt from SEC registration if they manage less than $100 million in assets and have no investment company clients. Persons are excluded from the Advisers Act definition of investment adviser if they are publishers of news or business/financial publications of general and regular circulation or if their advice relates solely to U.S. government securities.

When an agent transfers employment from a broker-dealer registered with the SEC to a broker-dealer registered solely in this state:

the agent, the former broker-dealer, and the current broker-dealer must all notify the Administrator. When an agent transfers employment from any broker-dealer to any other broker-dealer, both the agent and the broker-dealers must notify the state securities Administrator.

An IAR with a state-registered adviser would like to employ the services of an individual as a solicitor to help bring in more business. The solicitor will be compensated by receiving a percentage on all assets placed under management. In order to do this, all of the following must be complied with EXCEPT

the client must sign the contract at the same time as he receives the IA brochure and the solicitor disclosure document In this example, the IA brochure and solicitor brochure are delivered with the sales presentation. The contract is not signed until the client agrees to engage the services of the IA.

The Uniform Securities Act requires client consent for assignment of the investment advisory contract. It would be considered that contracts were assigned in all of the following situations EXCEPT:

the death of a partner holding a minority interest with the remaining partners acquiring that share equally. Written consent for assignment is required of clients whenever there is a change in a majority interest in an investment management partnership. The death of a partner with a minority interest does not require consent because it is not considered to be an assignment. All that is necessary is notification of the change in the partnership within a reasonable period. The sole owner of the advisory firm cannot pledge the firm's stock as collateral without client consent. The merger of partnerships involves a change in majority interest which requires consent.

The Uniform Securities Act provides for civil penalties in the event of illegal activities of agents. Under the act, the maximum that a purchaser would be entitled to claim would be:

the original consideration paid for the security. interest at the state's legal rate. attorney's fees. court costs. In the event of a civil judgment, the purchaser is able to claim for a return of the original investment plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the agent is liable for court costs and attorney's fees.

A person cannot engage in business as an investment adviser in a state unless:

the person is registered as an investment adviser or is otherwise exempt from registration. A person must register as an investment adviser if it wishes to engage in business as an adviser, unless a specific exemption or exclusion applies. If the adviser only manages investment companies, it is federal covered and, therefore, exempt from state registration, but that choice would suggest that that is the only way one could act as an investment adviser. The form of business can be anything from a sole proprietorship to a C corporation.

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:

this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states. The Uniform Securities Act provides for a form of limited registration for Canadian broker-dealers wishing to do business with their clients who are vacationing or otherwise traveling through the United States. In order to qualify for the limited registration, the BD must be properly licensed in its home province and they're only dealing in the states is with an existing client.

Pat Conway, a risk-averse investor, has never invested money outside of bank instruments. Recognizing Pat's conservative nature, his agent recommends Treasury notes, pointing out that federal government-backed securities are riskless securities. In the above situation, the agent has acted:

unlawfully, because the agent failed to disclose that the customer retains interest rate risk. Although Treasury securities (such as T-notes) issued by the federal government do not carry default risk, the customer who buys them retains interest rate risk because the value of the notes will fall if interest rates rise. The agent has acted unlawfully in not disclosing this to the customer.

If a person offers to buy a security after reading a tombstone ad, the offer to buy would be considered:

unsolicited. A client calling to buy based on reading a tombstone ad is considered an unsolicited order because, under the law, the tombstone ad is neither a solicitation to buy nor an offer to sell. If the question had stated that the agent had sent a prospectus out and the client was responding to that, it would have been a solicited order.