Series 66 Combined Exam NASAA
"Broker-dealer" does not include
(1) an agent, (2) an issuer, (3) a bank, savings institution, or trust company.
In the Howey decision, the U.S. Supreme Court held that an investment contract is a security if it represents
(1) an investment of money (2) in a common enterprise (3) where there is an expectation of a profit (4) through the efforts of a third party and not the investor.
The definition of investment adviser includes any person who
(1) for compensation, engages in the business of advising others as to the value of securities or the advisability of buying, selling, or investing in securities or (2) as a part of a regular business, publishes securities analyses or securities reports for individual investors on a paid-subscription basis.
The current minimum maintenance levels set by the SROs is ______ equity in a long margin account and ____ equity in a short margin account.
25%; 30%
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
Any final order of the Administrator may be appealed within
60 days of the order
Advisers that manage $110 million or more in customer assets are required to
Advisers that manage $110 million or more in customer assets are federal covered advisers and are required to register with the SEC under the Investment Advisers Act of 1940. In addition, they are normally required to file notice in each state where they conduct business. There are no bonding requirements for federal covered advisers.`
Who are exempt from registering as an IA under the Administrator?
Advisers who only service insurance companies or venture capital funds are exempt, as are advisers performing intrastate who do not give advice to private funds or on listed securities.
supervised persons
All individuals working for an investment adviser who provide investment advice or management
a market order
An order to sell securities where immediate execution is more important than price is called
Under the Investment Advisers Act of 1940, what is the maximum fine that may be imposed for violating the act?
Any person who violates the act or SEC rules is subject to a fine of up to $10,000 and/or a prison term of up to five years. `
When referring to compensation for an investment adviser, what would this entail?
Compensation may take the form of, but is not limited to, fees, payments for subscriptions, salaries, or commissions. Compensation does not have to be direct. An example of that holds for the real estate agent—she doesn't give advice unless you list your home with her.
Regardless of when initial registration occurs, the renewal date for all professionals is
December 31st
Not Securities under USA
Excluded from the definition of securities are insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of a trade, futures contracts, real estate held as a personal residence, currencies, precious metals, and collectibles.
Under the Investment Advisers Act of 1940, for how many years must an investment adviser maintain the records required by regulation?
Five years - The records must be kept in the principal office of the firm for the first two years and are subject to SEC examination at any time.
What form is filed to register as an investment adviser with the State?
Form ADV Part 1A, Part 1B, Part 2A and 2B.
What form is filed to register as an investment adviser with the SEC?
Form ADV Part 1A. Part 2A and 2B forms are not filed with the SEC but are maintained in the principal office of the adviser
What form is only filed by state-registered investment advisers.
Form ADV Part 1B
What is the part of Form ADV that is the brochure?
Form ADV Part 2A is the brochure
What is the part of Form ADV that is the supplemental brochure?
Form ADV Part 2B
Coverdell ESA
Formerly known as the Education IRA offers tax-deferred growth tax-free withdrawal of funds Subject to certain earnings limits, after-tax contributions up to a certain amount per year may be made for a beneficiary up until the beneficiary's 18th birthday. .
Under what condition may an agent sell an unregistered nonexempt security?
If the order was unsolicited
original minimum face value
In a variable life policy the face value will fluctuate with the separate account's performance, but it will never decrease below the _____ ______ ____ ____
Under the Investment Advisers Act of 1940, an adviser's registration usually becomes effective how many days after it is filed?
In the absence of any denial order or pending proceedings, registrations of federal covered investment advisers (and broker-dealers) will become effective on the 45th calendar day after the date of filing (the date received in the SEC's office). The SEC may specify an earlier date.
A person who conducts business exclusively with banks and savings institutions is or is not an investment adviser under the USA if he has a place of business in the state?
Is
Is it state or federal law that exempts investment advisers from registration if their only clients are insurance companies?
It is the federal law - the Investment Advisers Act of 1940
Is the sale of U.S. government securities to a retail client's IRA by a registered government securities dealer an exempt transaction under the Uniform Securities Act?
No - in the sale of U.S. government securities to a retail client, the security is exempt, but the transaction is not. Had the sale been to an institutional client, it would have been exempt.
The statute of limitations for criminal offenses under the USA is
Remember the sequence 5-5-3: 5-year statute of limitations, $5,000 maximum fine, and imprisonment for up to 3 years.
House maintenance
Set by the individual broker-dealer firm. As a cushion, and to reduce the possible sellout caused by failure to meet a maintenance call, most firms set a minimum equity level above the SRO minimum.
For a federal covered IA, when must they file their amended ADV?
The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year-end.
a 401(k) and a 403(b)
The contribution limit has to be aggregated when participating in both Contributions to a 457 plan do not have to be aggregated with other retirement plans. That is, if eligible, one could contribute the maximum to a 401(k), a 403(b), or an IRA (traditional or Roth) and could also contribute the maximum to a 457 plan.
Under the Uniform Securities Act, a registration statement of an issuer must contain all of the following information...
The identity and stock holdings of the officers, directors, and holders of more than 10% of the company's voting stock, as well as the principal business of the issuer and current financial information, must be disclosed.
T/F: Federal covered IAs do not have to file advertising with the states.
True
True or False: Banks, savings institutions, and trust company securities are also exempt under the USA, as long as they are organized under the laws of the United States or any state.
True
Are insurance company securities, if the company is authorized to do business in this state, exempt from registration under the Uniform Securities Act?
Yes
How does the Securities Act of 1933 define a prospectus?
a communication made in writing or by radio or TV that offers a security for sale.
Although certain common stocks, known as federal covered securities, are exempt from state registration, the Administrator has the power to request from the issuer
a copy of the issuer's articles of incorporation, a consent to service of process., copies of the registration statement filed with the SEC.
An investment adviser who is registered under Section 203 of the Investment Advisers Act of 1940 would be defined as
a federal covered adviser
A specialist
a member of the NYSE who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks
Time-weighted return
a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio
A 457 plan
a nonqualified but tax-advantaged retirement plan. The plan is unique in that it is the only retirement plan permitting withdrawals, for any reason, before reaching age 59½ without penalty. All other retirement plans have exceptions to the 10% penalty tax, but only this plan allows the withdrawals for any reason. Even though there is no early distribution tax, Maria will still owe ordinary income tax on the amount withdrawn; the plan benefit is only that there is no additional 10% tax.
Payroll deduction plan
a type of retirement plan not legally required to establish vesting, funding, and eligibility requirements
If an employer installs a Keogh plan, it must include all full-time employees
age 21, with at least 1 year of service.
457 Plan
allows participants to withdraw funds at any time, not just after age 59½, without incurring the 10% tax penalty. Income taxes would, of course, be due, but no penalty.
The death benefit is computed
annually
Under the USA, the Administrator can revoke
any transaction exemption, except those involving federal covered securities.
When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted
as a contra party to the trade
If you want to sell, the dealer will pay you his ____ price.
bid
Unit values are computed
daily
If a gift tax is due, it is paid by the ____ and based on the gift's value _____
donor; on the date it is given.
Records required to be kept by all state-registered investment advisers include
emails, bank records, a list of discretionary accounts.
Under the NSMIA, any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a
federal covered adviser - regardless of the amount of money under management
All investment advisers registered under the Investment Advisers Act of 1940 are
federal covered advisers
A security record is only required for those advisers who
have custody of client assets
An Administrator does not have jurisdiction over an offer to sell that is made where?
if the offer is made in a TV or radio broadcast originating outside the state, or in a newspaper published outside the state. Furthermore, if a newspaper is published inside a state but more than 2/3 of its circulation is outside the state, the Administrator does not have jurisdiction.
A grantor retained annuity trust (GRAT)
is an estate planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize gift and/or estate taxes.
What is included in Form ADV Part 2A
it describes the investment adviser's fees, investment policies, and types of investments made.
Policy cash values are computed
monthly
NASAA defines a substantial prepayment of fees to be
more than $500 six or more months in advance
Form PF must be filed by
private fund managers who are registered with the SEC and whose private fund AUM reaches or exceeds the $150 million threshold
Under IA-1092, the rendering of advice does not have to be a person's principal activity. Rather, it must be a _____ activity, and compensation may be received ____________________.
regular; directly or indirectly.
The acronym SPAC stands for
special purpose acquisition company. A SPAC is a shell company that is formed to raise capital through an IPO for the purpose of acquiring a private company or business to be identified after the IPO.
Only ________ investment advisory firms are required to notify the appropriate state Administrator when employment is terminated or begun.
state-registered
An investment adviser representative of a federal covered investment adviser registers with
the Administrator.
In order for an investment adviser to enter into an advisory contract with an investment company
the adviser must be SEC registered (federal covered).
Under SEC Release IA-1092, a financial planner would not be considered an investment adviser when
the extent of her planning is limited to wills, estates, and trust creation.
If an investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except if
the notice, circular, or advertisement is distributed to persons named on any list—then the investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and its source.
What kind of entities would qualify for exemption from registration for municipal bonds?
those issued by any governmental unit from the state level on down. This includes political subdivisions and local entities such as school, park, and road districts.
Federal covered securities include
those on exchanges registered with the SEC, such as the NYSE, the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]), and the Nasdaq Stock Market, as well as investment companies registered under the Investment Company Act of 1940.
Regressive tax
those where the rate remains the same, regardless of the cost of the item subject to the tax.
The statute of limitations for civil cases under the Uniform Securities Act is
two years after discovery or three years after the event, whichever is sooner.
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.
Under the Uniform Securities Act, the definition of offer or sale excludes
1) A reclassification of the issuer's securities 2) A bona fide pledge or loan 3) An act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares 4) A stock dividend of stock other than the issuer's for which nothing of value was given
tax preference items
1) Deductions taken for accelerated (but not straight-line) depreciation 2) Excess intangible drilling costs 3) Capital gains on incentive stock options 4) Otherwise tax-exempt interest from specified private activity bonds
Preorganization Certificate is an exempt transaction under the USA if,
1) No commission (No money changes hands in the case of a preorganization certificate or subscription. It is simply a commitment to invest when the corporation's charter has been granted) 2) No greater than 10 subscribers/offerees 3) No payment is made to the subscriber (kind of #1)
Exempt Transactions from State Law (USA)
1) Private Placements - no more than 10 retail offers in 12 months 2) Unsolicited Transactions 3) Preorganization subscriptions with no more than 10 subscribers 4) Fiduciary Transactions - custodians, trustors, etc. 5) Transactions with institutions 6) Exercise of conversion privileges or warrants 7) w/ Broker-Dealers 8) Liquidation of securities pledged as collateral 9) With $1 Million or larger Employee Benefit Plans 10) Isolated, nonissuer transactions
A fiduciary account may only trade options if
1) The trust agreement states the trustee has the power to trade options 2) The trust's investment objectives are determined to be compatible with options trading
Exempt Securities from State Registration (USA)
1) U.S + Canadian Government Securities, 2) Foreign Government Securities 3) Depository Institutions (banks, trusts, savings institutions) 4) Insurance Company Securities 5) Public Utility & Common Carrier Securities (railroads) 6) Securities Issues by non-profit organizations 7) Securities of employee benefit plans 8) money market instruments (maturities of 270 days or less, and commercial paper of $50k and top 3 ratings)
Under current regulations, registration with the SEC is optional for
1) pension consultants once their AUM reach $200 million; 2) small and mid-size advisers who would be required to register in 15 or more states; and 3) those advisers with at least $100 million in AUM, but not $110 million in AUM.
If an adviser reports on its annual updating amendment that it has less than $90 million under management and it is not otherwise eligible to register with the SEC, it must withdraw from SEC registration within ____ days of the adviser's fiscal year end by filing Form _______
180; Form ADV-W
Exempt security under USA? Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state but not authorized to do business in your state
No - for securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state.
What is the procedure by which federal covered securities, registered under the Investment Company Act of 1940, file their offerings with state securities Administrators?
Notice filing. Notice filing primarily applies to securities issued by investment companies, such as mutual funds, registered under the Investment Company Act of 1940. Offerings of securities that are not federal covered securities must be registered with the states by either coordination or qualification, unless exempt.
When comparing the limited offering exemption under federal law with that of the exemption in the Uniform Securities Act, what is the main difference?
The Uniform Securities Act's exemption for such transactions is narrower than the comparable federal exemption because offers are limited to a smaller number of nonqualified offerees. Under both laws, there are numerical limits placed on the number of investors who are not qualified. Under federal law, that would generally be a maximum of 35 nonaccredited persons. Under the Uniform Securities Act, that number would generally be an offer to no more than 10 noninstitutional persons in a particular state during any 12-month period. Please note the difference in terminology. Under federal law, those who are qualified (don't count toward the numerical limit) are referred to as accredited investors, while under state law, those who are qualified are called institutional investors. Under the USA, commissions are limited to sales made to institutional, not retail, clients. Under Regulation D, there is a requirement that noninstitutional investors sign an investment letter stating that the purchase was made for investment purposes only and not made with the intention of immediate resale. Under state law, all that is required is a reasonable belief that the purchase is being made for investment only. In both cases, purchases may be made by institutional and retail investors (and those retail investors do not have to be accredited).
Under the Uniform Securities Act, who is responsible for notifying the Administrator when an agent changes his place of employment from one broker-dealer to another?
The agent, the former employer, and the new employer
death benefit
The face value in an insurance policy is the
current market value of the long positions, plus the credit balance in the short account, minus the current market value of the short positions, minus the debit balance in the long account
The formula for computing the combined equity in a mixed margin account is
How is a foreign private adviser defined in the Dodd-Frank Act?
There are four requirements to be considered a foreign private adviser. 1) no place of business in the United States 2) in total, fewer than 15 clients and investors in the United States in private funds advised by the adviser 3) that has aggregate AUM attributable to clients in the United States and investors in the United States in private funds advised by the adviser of less than $25 million 4) Any investment adviser that does not hold itself out to the public in the United States as an investment adviser or acts as an investment adviser to an investment company registered under the Investment Company Act of 1940
T/F: when employed by a covered adviser, the only time that state registration is required is when the individual functioning as an IAR has a place of business in the state.
True
Exempt Securities from SEC Registration
US Government & Agencies, Municipalities, Charities & Religious Institutions, Banks & common carriers (railroads), Certain money market instruments with maturities less than 270 days (promissory notes or commercial papers)
When a security registers by using coordination, under normal circumstances, the effective date is determined by
Under normal circumstances, once the SEC has declared the registration effective, it is also effective in those states where the registration was coordinated.
a Promissory Note
Under the Uniform Securities Act, the definition of security includes a wide range of items. One of these is a two-party agreement representing a promise to repay a specific sum on a specified date that, if it meets certain requirements, is exempt from registration. This agreement is commonly called
An issuer properly files Form D in accordance with Rule 503 of Regulation D of the Securities Act of 1933. As such, the securities that are the subject of any transaction are
are private placements and, under the NSMIA, are considered federal covered securities.
When selling a security to a public customer, the broker-dealer adds his markup to the____ _____
ask price (offer price)
A person who renders investment advice solely with respect to securities issued by the U.S. government
is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements.
S corporations
must not have more than 100 stockholders, and each stockholder must be a citizen or resident of the United States. The corporation can only have 1 class of stock, and no more than 25% of the corporation's income can come from passive activities.
In what cases is the exemption from registration with the SEC not based on the value of assets under management?
only in the case of the adviser to venture capital funds where there is no dollar limitation on AUM. Private fund advisers with AUM of $150 million or more must register, and "small" investment advisers—those with less than $25 million in AUM—are generally prohibited from SEC registration. If the investment adviser's only clients are insurance companies, the adviser is exempt from SEC registration even if the firm has billions in AUM, but that exemption does not apply when the only clients are banks.
a 403(b) plan
perfect for public school teachers/admin looking to maximize their retirement savings would likely invest in this option as
Under the Uniform Securities Act, an investment adviser is exempt from registration if the person has no place of business in a state and does not direct communication
to no more than five noninstitutional clients in a 12-consecutive-month period and the adviser does not have a place of business in the state, an exemption from registration is provided.
