Series 66 11.29.2016 Incorrect Questions

The statute of limitations for criminal offenses under the USA is: A) three years. B) ten years. C) five years. D) two years.

5 years Remember the sequence 5-5-3: 5-year statute of limitations, $5,000 maximum fine, and imprisonment for up to three years.

Your customer, age 29, is seeking a long-term growth investment, is concerned about the loss of purchasing power as a result of inflation, and often complains about high commissions that reduce his investment returns. When he was in college, he took a few economics courses and firmly believes that securities analysts cannot consistently outperform the overall market. Which of the following mutual funds is the most suitable for the customer? A) ATF Biotechnology Fund. B) ARG Stock Index Fund. C) ZB Asset Allocation Fund. D) NC Growth & Income Fund.

ARG Stock Index Fund The customer requires a mutual fund that offers potential for long-term capital growth. Because the client believes that money managers cannot outperform the market, an index fund, which simply mimics the market, is the appropriate investment. The client's complaint about high commission charges is a further argument for index funds, which have low expense ratios.

Which of the following regarding a Roth IRA are TRUE? I.The contributions are nondeductible. II.One may not contribute to a Roth IRA if concurrently contributing to a traditional IRA. III.The contributions are deductible. IV.Withdrawals after age 59½ may be tax free.

I and IV In a Roth IRA, contributions are not deductible from current income. Withdrawals after age 59½ are tax free, provided the account has been open for at least five years. One may maintain both a Roth and a traditional IRA concurrently. However, the maximum total contribution between both plans is $5,500 (or $6,500 for those age 50 or older).

The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, the maximum that a purchaser would be entitled to claim would be: I.the original consideration paid for the security or the current market value, whichever is greater. II.interest at the state's legal rate. III.attorney's fees. IV.court costs.

II, III and IV In the event of a civil judgment, the purchaser is able to claim for a return of the original investment, not current market, plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the broker-dealer or agent is liable for courts costs and attorney's fees.

An investor has a portfolio diversified among many different asset classes. If there was an immediate need for cash, which of the following would probably be the most liquid? A) QRS Money Market Mutual Fund. B) CDL Common Stock Mutual Fund. C) Cash value from a universal life insurance policy. D) XYZ International Stock Mutual Fund.

QRS Money Market Mutual Fund. Money market funds generally come with a check-writing privilege offering investors the opportunity to convert the asset to cash at once. Although all mutual funds are readily redeemable, under the Investment Company Act of 1940, the fund has seven days to redeem. One must request the cash value from the insurance company.

Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the US government is: A) not required to be a registered investment adviser in the state. B) required to be a registered agent in the state. C) required to be a registered investment adviser in the state. D) required to be a registered investment adviser representative in the state.

not required to be a registered investment adviser in the state. This question is referring to a federal covered adviser. The futures contracts are not securities, but, of course, the U.S. government securities are. However, the Investment Advisers Act of 1940 specifically excludes from the definition of" investment adviser" a person whose securities advice is confined to securities issued or guaranteed by the Treasury. The fact that this person is excluded under the Investment Advisers Act of 1940 makes that person federal covered under the NSMIA and not subject to state regulation as an investment adviser.

Although all new accounts must be approved by a designated supervisory before any trading activity may take place, there is one type of account that must be approved by a specially qualified supervisor. That would be A) a margin account B) a discretionary account C) an options account D) an IRA

options account Because trading options (puts and calls) generally involves a higher degree of risk than stocks, bonds, or mutual funds, a designated supervisory person with knowledge about options must approve the account opening.

The most common way in which to distinguish whether social media content is static or interactive is A) the ability for others to link to it B) the ability for others to comment on it C) the ability for others to change it D) the ability for others to like it

the ability for others to change it Static content can only be changed by the originator (or someone under that person's control).

Registration by qualification is effective: A) when the federal registration becomes effective. B) 20 days after the filing date. C) when determined by the Administrator. D) no earlier than ten days after the filing date.

when determined by the Administrator. Registration by qualification is effective when determined by the Administrator. Qualification is the only form of registration where the timing of the effective date is determined by the Administrator.

If the return on Treasury bills is 3% and the equity risk premium is 4%, the expected equity returns should be: A) 4%. B) 12%. C) 1% D) 7%

7% The expected return on an equity investment is the risk-free (for example, T-bill) rate of return added to the equity risk premium (3% + 4% = 7%).

Which of the following is defined as a security under the Uniform Securities Act? A) Fixed, guaranteed payments made for life or for a specified period. B) A guaranteed, lump-sum payment to a beneficiary. C) An investment contract. D) Commodity futures contracts.

An investment contract As a result of the Howey decision, investment contracts are defined as (and often serve as a synonym for) a security under the Uniform Securities Act. A guaranteed, lump-sum payment to a beneficiary is an endowment policy excluded from the definition of a security. Fixed, guaranteed payments made for life or for a specified period are fixed annuity contracts not defined as securities. Commodity futures contracts and the commodities themselves are not securities.

An investment adviser who has custody of customer funds and securities discovers that her net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must: I.notify the Administrator by close of business after the day of discovery. II.file a report of its financial condition no later than close of business the day after notification. III.include in the report of financial condition a statement as to the number of client accounts. IV.cease doing business. A) I, II and III. B) I only. C) I, II, III and IV. D) I and IV.

I, II, III As a condition of the right to continue business, the adviser must notify the Administrator by close of business after the day of discovery. No later than close of business the day after notification, the adviser must file a report of its financial condition, which must include statements regarding the number of client accounts.

An investment adviser is required to disclose to a client the amount of compensation received from which of the following third parties? I.Compensation on the client's transactions executed through a broker-dealer. II.Compensation received from an issuer of a security recommended to the client. III.Compensation received from any nonsecurities products recommended to the client.

I, II, III Investment advisers must disclose the amount of compensation received or to be received from any third party in connection with recommendations made to a client. This includes compensation from any broker-dealer, compensation from any issuer, and compensation from any non-securities entities.

Among the differences between C corporations and S corporations is I.the liability assumed by the shareholders II.the number of allowable shareholders III.the tax treatment of the corporation's earnings IV.residency requirements of shareholders

II, III, IV Unlike C corporations, there is a limit placed on the number of shareholders in an S corp. At the time of this printing, that maximum is 100, none of whom may be a non-resident alien (C corps have no residency restrictions). The primary practical difference is the fact that S corporation earnings (and losses) flow through to the shareholders, whereas C corporation earnings are only received by shareholders when dividends are paid.

One method of diversifying an investment portfolio is by spreading it out among different investment classes. Which of the following would be considered an asset class? A) A small-cap index fund based on the Russell 2000 B) Real estate C) Gold jewelry D) Automobiles

Real estate Of the choices, only real estate would be considered an asset class. Gold jewelry is a specific type of the tangible asset class and the index fund is a specific type of the stock (equity) asset class. If the automobiles were collectibles, they would be part of the tangible asset class.

A customer opens a margin account with a broker-dealer and signs a loan consent agreement. The loan consent agreement allows the firm to A) hypothecate securities in the account B) lend the customer money C) commingle the customer's securities with securities owned by the firm D) loan out the customer's margin securities

loan out the customer's margin securities A signed loan consent agreement permits a firm to loan out a customer's margin securities. This is the only part of the margin documentation that is optional.

An investor in the 28% tax bracket has a $5,000 loss after netting all capital gains and losses realized. How much may the investor deduct from income that year? A) $2,500. B) $0. C) $5,000. D) $3,000.

$3,000 The maximum deduction of net capital losses against other income in any one year is $3,000; any remaining loss can be carried forward into the next year.

When it comes to advertising by investment advisers and their representatives, which of the following would be most likely to be acceptable to the Administrator? A) Offering prospective clients a free 3-month trial to the investment adviser's special investment formula that assures success B) A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child. C) A "like" from a client on an investment adviser representative's Facebook page with a comment on the wonderful service the client received D) Showing past performance over the past 12 months of a group of securities selected from all of the adviser's recommendations

A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child Although investment advisers and their representatives are prohibited from using testimonials from clients, it has been determined that a Facebook "like" commenting on something of a non-business related manner, such as the birth of a child, a wedding anniversary, admiring photos posted of a vacation, and so forth, is not considered a testimonial. Commenting on the IAR's service would be a testimonial. When showing past performance, an investment adviser cannot "cherry-pick" the ones it wishes to show—all recommendations of similar types of securities (all common stock, or all bonds) must be shown. No securities professional can ever assure investment success—that would be considered a performance guarantee.

Which of the following statements is TRUE about the compensation of an investment adviser? A) The investment adviser may be compensated on the basis of the total assets of the portfolio over a period of time. B) The investment adviser may be compensated on the basis of a share in the capital appreciation of the funds of the client. C) It is not necessary to disclose compensation received from the sale of non-securities products to advisory clients. D) The investment adviser's compensation is not taxed.

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. All compensation, even when from non-securities products, must be disclosed.

Greater Wealth Managers (GWM) is a federal covered investment adviser that has no place of business in the state of Wisconsin although they serve several institutional clients located in the state. The Wisconsin Administrator: A) is vested with the authority to audit GWM's records, but must give prior notice. B) is vested with the authority to audit GWM's records without prior notice. C) is vested with the authority to request the Administrator of the state where GWM has its principal office to audit GWM's records. D) cannot audit nor request any other Administrator to audit GWM's records.

cannot audit nor request any other Administrator to audit GWM's records The practical effect of the NSMIA was to bifurcate regulation of investment advisers. Those who are federal covered only answer to the SEC, not to any state (other than perhaps the requirement to file notice and pay fees). Therefore, the Administrator has no power to view the books and records of a federal covered adviser.

An agent's former college roommate urges him to invest capital in his privately owned toy company, which has no plans to issue its securities to the general public (it intends to stay private). The agent and his spouse invest in the business but the agent neither recommends investment in the company to any of his customers, nor does he discuss this private investment with his firm. In this situation the agent has acted: A) unlawfully, because the agent did not receive permission from the firm (broker-dealer) prior to entering the transaction. B) unlawfully, because the transaction involved unregistered, nonexempt securities. C) unlawfully, because the issuer had no intention to offer securities to the general public. D) lawfully, because ​agents and their spouses are permitted to invest as desired when there is no conflict of interest.

lawfully, because ​agents and their spouses are permitted to invest as desired when there is no conflict of interest. The agent acted lawfully in all cases because there does not appear to be any conflict of interest.

One common characteristic that face-amount certificate companies, unit investment trusts, and management investment companies that are registered with the SEC under the Investment Company Act of 1940 have is that: A) ownership interests are redeemable upon request. B) there is no active secondary market for their ownership interests. C) state registration is accomplished by notice filing. D) distributions are required to be reinvested at net asset value.

state registration is accomplished by notice filing. These are the three types of investment companies described in the Investment Company Act of 1940. All are federal covered securities, but unlike the others, they are generally required to do a notice filing with the Administrator of each state in which their interests are sold.