Series 66: Uniform Securities Act (Registration / Licensing)

An investment adviser is exempted from registering in a State if the firm has no place of business in the State and has no more than:

5 clients in the State in the preceding 12 month period An investment adviser is exempted from registration in a State if the firm has no place of business in that State; and the adviser has no more than 5 clients in that State (other than financial or institutional investors) within a 12 month period. This is known as the "de minimis" exemption.

An investment adviser that has no office in State A would be required to be registered in State A if a representative associated with that firm sells advisory services in State A to:

6 immediate family members of the representative offering the adviser's services An adviser that only sells its services to other investment advisers or mutual funds (who the law considers to be "professionals" and not in need of protection) is not required to be registered in a State, as long as the adviser is not physically located in that State. Officers of advisory firms and mutual funds to whom another adviser offers its services fall under the same "professional" exemption. Offering services to 5 individuals or less allows the adviser with no office in that State to claim the "de minimis" exemption in the State. There is no exemption for offering advisory services to immediate family members.

An investment adviser that has no office in State B would be required to be registered in State B if a representative associated with that firm sells advisory services in State B to:

6 relatives An adviser that only sells its services to other investment advisers (who the law considers to be "professionals" and not in need of protection) is not required to be registered in a State, as long as the adviser is not physically located in that State. Officers of advisory firms to whom another adviser offers its services fall under the same "professional" exemption. Offering services to 5 individuals or less allows the adviser with no office in that State to claim the "de minimis" exemption in the State. There is no exemption for offering advisory services to relatives.

Which of the following persons with no place of business in a State, is EXCLUDED from the definition of an "Investment Adviser"?

A bank that receives special compensation for rendering advice about securities Excluded from the definition of an investment adviser are: Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers Thus, the bank (Choice A) is excluded from the definition of an investment adviser. A person who gives advice about corporate or municipal securities is not on this list; and therefore is not excluded. While a lawyer or an accountant who gives incidental advice about securities is excluded from the definition of an investment adviser; a person who gives advice about securities to lawyers or accountants is defined as an investment adviser. Do not confuse this exclusion with those persons who are defined as investment advisers; but whose type of work exempts them from registration. For example, an adviser with no place of business in the State, who only gives advice to "professional investors," is exempt from registering in the State. There is no State exemption available to advisers who only give advice on certain exempt securities such as municipals. (Please note, however, that a person who gives advice solely about U.S. Government securities is defined as a Federal covered adviser, and would be excluded from registration in the State.)

Which of the following would be defined as a broker-dealer in State A?

A broker-dealer located in State B who has an existing active customer who moves to State A Banks are excluded from the definition of a broker-dealer, making Choice A incorrect. Choice B defines an investment adviser; not a broker-dealer. Choice D defines an agent of a broker-dealer; not the broker-dealer itself. Choice C gets at an interesting point. Because the customer has moved and is now located in another State (State A), and the customer is "active" -meaning the customer is trading securities, then the firm must be registered as a broker-dealer in State A (and the agent servicing the customer account must be registered in State A as well).

Which of the following persons is required to register as an investment adviser under the Uniform Securities Act?

A broker-dealer that charges an annual flat fee to customers for both investment advice and portfolio trade executions An attorney that renders a legal opinion is not giving advice about investing in securities - the opinion covers the validity and legality of the securities offering. A broker-dealer is not considered to be an investment adviser unless it charges separately for advice. If the broker-dealer's compensation comes solely from commissions, then the broker-dealer does not fall under the investment adviser definition. On the other hand, if a broker-dealer offers an account that charges a flat fee or a fee as a percentage of assets - this is a "wrap" account that is an advisory product and registration at the State level as an adviser is required (thus, Choice D would have to register in the State as an investment adviser). Regarding Choice C, be careful! Choice C defines an "investment adviser representative" that would have to register at the State level - it does not define an "investment adviser."

Which of the following persons is EXCLUDED or EXEMPT from registration as a broker-dealer in a state?

A firm with no place of business in the state that has no clients in the state The Act excludes from the definition of a "broker-dealer" any firm that has no place of business in the State that does not have clients in the State; or that deals solely with issuers, broker-dealers, or financial institutions. Note that if a broker-dealer has an office in a State, then it must register in that State, regardless of who its customers may be. In addition, the "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State, so Choice B does not qualify for the exemption. (In contrast, the investment adviser "de minimis" exemption" is offered by most of the States for out-of-state investment advisers who only have 5 or fewer clients in that State.)

Under the Uniform Securities Act, the term "broker-dealer" includes which of the following?

A person in the business of trading securities for his own account or for the account of other persons The term "broker-dealer" is defined as a person who: Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading") Persons NOT considered to be "broker-dealers" include: Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities)

Which of the following would be required to register as an investment adviser in a State?

A person who has no current advisory customers, but who is seeking clients by newspaper advertising A person who renders advice to insurance companies is giving advice to an institutional investor and is exempt from registration in the State, as long as the adviser does not have an office in the State. In order to be defined as an "investment adviser," that person must be compensated for giving investment advice. Someone who gives investment advice to a charity pro bono ("pro bono" means "for the public good") is not compensated and thus does not fall under the definition. A professional such as an accountant or lawyer who only gives incidental advice about investing in securities without separately charging for the advice is excluded from the definition. A person who is advertising for advisory customers is holding himself out as an investment adviser, and would fall under the definition.

Under the Uniform Securities Act, which of the following is defined as an "investment adviser"?

A person, who for compensation, advises others about buying and selling securities An investment adviser is defined as a person who, for compensation, advises others about buying and selling securities. Excluded from the State definition are: investment adviser representatives; professionals such as lawyers and accountants who give incidental advice without taking a fee; depository institutions such as banks, trusts, and savings and loans (since they are already highly regulated under other laws); and publishers of investment information that is not tailored to specific client situations.

Which of the following individuals would be defined as an "agent" under the Uniform Securities Act?

A sales associate who accepts orders for limited partnership units being offered in a private placement An "agent" is an individual that represents a broker-dealer or issuer effecting securities transactions. The Act exempts from licensing as an "agent," those individuals who do not deal with the public. Thus, individuals representing issuers who deal solely with underwriters or financial institutions are not defined as "agents" who must be registered, so the CFO negotiating the terms of a share offering with an underwriter is not an agent. The employee who represents the issuer selling securities of that issuer to that issuer's employees (as long as no commissions are paid) is not considered to be an agent, since he or she is not selling to the public. This is the case for the employee that processes 401(k) contributions and distributions. Therefore, we are left with Choices A and B as possibly correct - and arguments can be made for either one! Choice A - the secretary who takes "telephone messages to buy and sell securities" for an agent - sure sounds like a sales assistant that must be registered. Choice B - the sales associate that accepts orders for limited partnership units (which are securities) is clearly an agent. So we must go with Choice B. Note that in the actual exam, you will often be presented with 2 choices that are "close" and you must pick the better one!

Under the Uniform Securities Act, which individual is defined as an "agent"?

A secretary who takes customer orders An agent is defined as any individual who represents an issuer or broker-dealer in effecting securities transactions. A sales representative who makes recommendations or who writes customer orders falls under the definition. The definition excludes principals of broker-dealers; clerical employees who do not take customer orders; and silent partners.

ACCO Publishers, which has a website that charges for customized financial plans based on customer input

ACCO Publishers, which has a website that charges for customized financial plans based on customer input Under State law, any deposit-taking institution is excluded from the definition of an investment adviser, removing Choices A and B as possibilities. Choice C is a Federal covered adviser (since it has over $110 million of assets) that must register with the SEC only. It is excluded from the State definition, so the State cannot require this firm to register in the State. Choice D fits the definition, because the adviser gives customized investment advice for a fee - it makes no difference that the advice is not rendered in person.

Which of the following is NOT allowed under the Uniform Securities Act?

An agent registered with a broker-dealer also is licensed as an agent for a mutual fund dealer As a general rule, an agent cannot be registered with two different broker-dealers at the same time under the Uniform Securities Act. (Please note, however, that a few States still permit so called "dual registration" but this is the exception to the general pattern). Since an insurance company or a real estate company is not defined as a broker-dealer, there is no problem with an agent working for either of these firms. A mutual fund dealer is defined as a broker-dealer since the firm effects securities transactions. An agent cannot be registered at the same time with one broker-dealer and another mutual fund dealer. Two "affiliated" broker-dealers at the same location are treated as one broker-dealer, since they are under common control. Thus, an agent could be registered with both affiliated broker-dealers without a problem.

Which of the following individuals is NOT EXCLUDED from the definition of a "sales representative" under the Uniform Securities Act?

An individual who represents an issuer in transactions with investors The Act defines individuals who represent issuers effecting securities transactions with the public as "agents" who must be registered. Thus, Choice D meets this definition. The Act exempts from licensing as an "agent," those individuals representing issuers who do not deal with the public. Thus, individuals representing issuers (not broker-dealers) who deal solely with underwriters or financial institutions are not defined as "agents" who must be registered. Also, if that individual representing an issuer only performs an exempt transaction, such as an occasional trade ("an isolated non-issuer transaction"), he or she is excluded from being licensed as an "agent."

Which of the following would be defined as an "issuer" transaction?

An initial public offering of common stock by a corporation An issuer transaction is one where the proceeds go the issuer. An initial public offering is such an "issuer" transaction. A "non-issuer" transaction is one where the proceeds do not go to the issuer; this is a normal secondary market trade, such as a trade performed on the NYSE floor or in the NASDAQ stock market. The initial placement of limited partnerships is an "issuer" transaction; however, the resale of partnership units takes place in the secondary market and thus is a "non-issuer" transaction.

Which of the following is a federal covered adviser?

An investment adviser with $100,000,000 of international assets A "Federal covered investment adviser" is one that must register with the SEC only; and that is not required to register with the State (though the State can still require a notice filing). These are the larger investment advisers and include any adviser to an investment company; and any adviser with $100,000,000 or more of assets under management. In this question, the best choice offered is the adviser with $100,000,000 of assets under management must register with the SEC. It makes no difference if the assets are international securities - if the adviser is based in the U.S., which we must assume, and meets the minimum asset test, then it must register with the SEC.

Which of the following would MOST likely be an investment adviser that is State registered?

Certified Financial Planner A Certified Financial Planner is the type of "smaller" investment adviser that is likely to be State registered. Remember that it is only the "big guys" that are Federal covered advisers - these are advisers with $100 million or more under management and advisers to investment companies. Trust companies are excluded from the definition of an investment adviser at both the Federal and State level, since they are already regulated as depository institutions under both Federal and State law.

Under the Uniform Securities Act, which of the following could NOT be considered to be a "broker-dealer"?

Credit union The term "broker-dealer" is defined as a person who: Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading") Persons NOT considered to be "broker-dealers" include: Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities). A credit union is a savings institution, so it is excluded from the definition and CANNOT be defined as a broker-dealer. This is the case because banks and savings institutions are already regulated by the State, so this avoids double regulation. On the other hand, an attorney or an investment adviser is not excluded from the definition and would be defined as a broker-dealer if that person were to offer securities in the State for compensation. Finally, a market maker is a dealer in the securities and clearly falls under the definition.

Under the National Securities Markets Improvement Act of 1996, which statement is FALSE?

Federal covered advisers cannot be investigated by the State Administrator structure by defining: Federal Covered Securities - securities registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). Essentially, these are exchange and NASDAQ listed issues. Federal Covered Advisers - investment advisers that are registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). These are investment advisers to investment companies and advisers with $100,000,000 or more of assets under management. Activities That State Law Cannot Preempt - broker-dealer net capital requirements, custody rules, margin rules, financial responsibility rules and recordkeeping rules (all set by the SEC or FRB) cannot be preempted by State rules. However, States are specifically permitted to retain the right to require notice filings; require registration of broker-dealers and their agents; require the registration of advisers with less than $100,000,000 of assets under management; require the registration of all investment adviser representatives (whether the investment adviser is "federally covered" or not); and the State is empowered to "investigate and bring enforcement actions with respect to fraud or deceit; or any unlawful conduct by a broker or dealer or investment adviser; in connection with securities or securities transactions."

All of the following statements are true regarding persons that transact business in a State EXCEPT:

Federal covered advisers must register in the State Federal covered advisers are excluded from the definition of an investment adviser and they are not required to register in the State (though they must file notice in the State if they transact business in the State). However, representatives of federal covered advisers are still required to register in the State if they transact business in the State. Of course, regular investment advisers and their representatives must register in a State if they transact business in a State.

Which of the following would be defined as an investment adviser under the Uniform Securities Act?

Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors Any deposit-taking institution is excluded from the definition of an investment adviser under the Uniform Securities Act (USA), making Choice A and Choice B incorrect. Federal covered advisers are also excluded from the definition of an investment adviser under USA. Since any adviser with $100,000,000 of assets or more under management is a Federal covered adviser, Choice C is incorrect as well. There is no exclusion from the definition of an investment adviser for advisers that only deal with accredited (wealthy) investors. Note, however, that there is an exemption available for investment advisers that have no business location in the State and that only deal with other advisers or with institutions. This exemption is not available to advisers that deal with wealthy individuals, however.

Under the Uniform Securities Act, which persons are EXCLUDED from the definition of an investment adviser? A person who gives advice about: I U.S. Government bonds II Agency bonds III Municipal bonds IV Corporate bonds

I and II only A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State.

Which of the following are registered as agents of a broker-dealer in the State? I Director II Sales employee III Clerical employee

I and II only Any officer of a broker-dealer (a director is an officer) is automatically registered in the State when the BD registration becomes effective (these individuals are listed on the form). Any sales employee must be registered. Clerical employees with no sales function are not registered in the State as agents (also note that a Broker/Dealer can withdraw the "automatic registration as an agent" of an Officer or Director if that individual is not involved in sales or marketing, and thus can avoid paying the annual state registration fee for that individual.)

Which of the following are defined as an "agent" under the Uniform Securities Act? An individual who represents: I ACME Broker-Dealer effecting trades in preferred stocks II the City of New York selling the City's general obligation bonds to New York residents III ACCO Broker-Dealer effecting trades in private placements exempted under Regulation D IV the Federal Reserve effecting trades of U.S. Government securities in its open market operations

I and III Under the Uniform Securities Act, an agent is an individual who represents a broker-dealer in effecting securities trades with the public (I and III). It makes no difference if the security is exempt or not. Individuals who represent issuers (not broker-dealers) in effecting securities trades in specified securities (basically exempt securities) or specified transactions (basically trades with sophisticated investors) are excluded from the "agent" definition. An individual who represents New York City selling its bonds is excluded; as is an individual representing the Federal Reserve trading U.S. Government securities (the Federal Reserve acts as the fiscal agent for the U.S. Government when it issues debt).

An investment adviser headquartered in State A wishes to solicit institutional customers only in State B. Which statements are TRUE? I If the investment adviser has an office in State B, it must register in State B II If the investment adviser has an office in State B, it need not register in State B III If the investment adviser has no office in State B, it must register in State B IV If the investment adviser has no office in State B, it need not register in State B

I and IV If an investment adviser has an office in a State, it must be registered in that State - regardless of whether its customers are institutions or the general public. Basically, any adviser or broker dealer that is physically located in a State must register in that State. However, if an investment adviser has NO office in a State, and solicits only institutional customers in that State, then it is exempt from registration in that State, since it has no physical presence and it is dealing solely with sophisticated investors who can "watch out for themselves."

Which of the following is (are) non-issuer transactions? I Purchase of a NASDAQ listed security II Purchase of a mutual fund share III Purchase of a limited partnership interest from the sponsor IV Purchase of an initial public offering from an underwriter

I only An issuer transaction is one where the issuer is either on the sell-side or the buy-side of the transaction. A trade of a NASDAQ listed security is a regular secondary market transaction - this is a non-issuer transaction - making Choice A the correct answer. The issuance of a mutual fund share, or redemption of a mutual fund share, is an issuer transaction. The issuer is receiving the proceeds from the purchase of the fund shares; and is paying the proceeds from a redemption of the fund shares. The sponsor is the issuer of a limited partnership offering - thus buying a limited partnership interest from the sponsor is an issuer transaction. Finally, the purchase of an initial public offering from an underwriter is also an issuer transaction, since the underwriter forwards the net proceeds of the offering to the issuer.

Which of the following is (are) defined as a "broker-dealer" under the Uniform Securities Act? I A person who effects securities transactions for its own account II A person who effects securities transactions for the account(s) of others III An agent of a broker-dealer who effects securities transactions IV An agent of a broker-dealer who effects securities transactions that are not recorded on the books of the broker-dealer

I, II and IV only Under the Uniform Securities Act, a "broker-dealer" is defined as a person that engages in the business of effecting securities transactions for the account of others; or a person that engages in the trading of securities for its own account. Thus, Choice I and Choice II are correct. An "agent" of a broker-dealer (Choice III), is an individual associated with a broker-dealer, who represents the broker-dealer in effecting securities transactions. An agent is not a broker-dealer, making Choice III wrong. If an agent of a broker-dealer engages in so-called "private securities transactions." a prohibited practice has occurred. All securities transactions effected by agents must be known to the broker-dealer; must be recorded on the books of the broker-dealer; and must be supervised by the broker-dealer. If the agent performs a "private securities transaction" that is not known to the broker-dealer, then that agent has, himself, become a broker-dealer under this definition (a so-called "statutory" broker-dealer). As such, he would have to register in the State as a broker-dealer before effecting such a transaction. Thus, Choice IV is correct.

Investment advisers may be formed as: I Partnerships II Corporations III Associations

I, II, III Legally, an investment adviser is a "person," which is any legal operating entity. Advisers can be formed as corporations, partnerships, associations, etc., since these are all legal "persons" with authority to operate in a State.

An agent may be associated with more than 1 broker-dealer at the same time if: I all broker-dealers with whom the agent is associated are under common control II the State Administrator allows the "dual registration" III the agent files a registration application through each broker-dealer, and discloses any other broker-dealer employers on the application

I, II, III Most States do not allow dual registration - an agent may only be associated with 1 broker-dealer at any time. However, it is permitted, in all instances, for an agent to be registered with a number of broker-dealers that are under "common control." For example, Prudential may have a separate mutual funds broker-dealer and a separate general securities broker-dealer. Agents of Prudential can be associated with both broker-dealers without violating State law. Finally, a few State Administrators permit multiple registrations with different broker-dealers. If this is the case, the agent must disclose all registrations to each of the broker-dealers with whom he or she is associated.

Under the Uniform Securities Act, which of the following persons are EXCLUDED from the definition of a "Broker-Dealer"? I An issuer of securities II An agent of an issuer of securities III An agent of a broker-dealer IV A person who has a place of business in the State that only effects securities transactions with institutions

I, II, III Under the Uniform Securities Act, a "broker-dealer" is defined as a person that engages in the business of effecting securities transactions for the account of others; or a person that engages in the trading of securities for its own account. An issuer is not considered to be a broker-dealer; rather it is an "issuer" and must meet relevant registration requirements for issuers. An agent of an issuer (an employee of that issuer), is also excluded from the definition of a broker-dealer. An agent of a broker-dealer is an employee of that firm that effects securities transactions. Again, this individual is not defined as a broker-dealer. Rather, this person is an agent of the broker-dealer. Finally, a person who has no place of business in that State, and who only deals with institutions, is EXCLUDED from the definition of a broker-dealer. However, this broker-dealer has an office in the State. Because it has a physical location in the State, even though it is dealing solely with professional investors - it still must register in that State! The exclusion is only permitted for broker-dealers with no office in the State that deal solely with professionals.

"Persons," as defined under the Uniform Securities Act, include which of the following? I Joint Ventures II Individuals III Unincorporated businesses IV Municipalities

I, II, III, IV "Persons," as defined under the Uniform Securities Act, include Joint Ventures, Individuals, Unincorporated Businesses, and Municipalities. It is important to know who are defined as "persons," since these entities may then be further defined as "agents" (which can only be individuals), "broker-dealers" (which can be incorporated or unincorporated businesses); or "issuers" (which can be incorporated or unincorporated businesses, joint ventures, municipalities etc.).

Under the provisions of the Uniform Securities Act, a "person" includes: I A parent that is acting as custodian II An adult couple III Municipality IV Corporation

I, II, III, IV A "person," as defined under the Act, can be just about anyone who has legal authority to issue or trade securities. A custodial account opened for a minor is a person (note that a minor acting on his or her own is not a "person" since a minor has no legal authority to trade securities). An adult couple is a "person" (when they open a joint account). A municipality is a person. Finally, a corporation is a person.

Which of the following are EXCLUDED from the definition of an investment adviser under the Uniform Securities Act? I An employee of an investment adviser II A federal covered adviser III A savings and loan institution IV A broker-dealer

I, II, III, IV If a person is excluded from the definition of an investment adviser, then that person will not have to register in the State as such. Excluded from the definition of an investment adviser are: employees of investment advisers (they must register separately as agents of the adviser in the State); depository institutions and broker-dealers (who are regulated at both the State and Federal level under other laws); Federal covered advisers (who are regulated by the SEC; or who are excluded from the federal definition of an investment adviser - so the State can't require their registration as well); professionals who give incidental advice; and publishers of general content investment advice not based upon the specific situation of each client.

Which of the following investment advisers are NOT required to register in a State? I An investment adviser with at least $100,000,000 of assets under management registered with the SEC under the Investment Advisers Act of 1940 II An investment adviser with no place of business in the State who deals solely with financial and institutional investors III An investment adviser with no place of business in the State who deals solely with broker-dealers IV An investment adviser with no place of business in the State who has no more than 5 clients in that State over the last 12 months

I, II, III, IV Investment advisers that are exempt from registration include advisers with no place of business in the State who deal solely with other advisers, broker-dealers, insurance companies, investment companies, financial and institutional investors, and government agencies. Also, advisers with no place of business in the State that have no more than 5 clients in a 12 month period are exempt. Investment advisers with at least $100,000,000 of assets under management must register with the Securities and Exchange Commission but are excluded from state registration (to avoid duplicate regulation). Advisers with less than $100,000,000 under management must register with the State, but are not required to be registered with the SEC. The idea is that the big advisers are regulated by the Feds; while the little advisers are regulated by the local police. Note that, in contrast, broker-dealers that are registered with the self-regulatory organization under the Securities Exchange Act of 1934, such as FINRA, must still register in each State.

Under the Uniform Securities Act, which of the following are EXCLUDED from the definition of an investment adviser? I Teacher II Engineer III Lawyer IV Accountant

I, II, III, IV Specifically excluded from the definition of an investment adviser under the Uniform Securities Act are lawyers, accountants, teachers, and engineers who give advice about securities that is incidental to their professional practice.

State "blue sky" laws provide for registration of: I broker-dealers II agents III investment advisers IV investment adviser representatives

I, II, III, IV State blue sky laws provide for registration of broker-dealers and agents; registration of investment advisers and investment adviser representatives; and registration of securities issues.

Which statements are TRUE about State registration of solicitors for investment advisers? I Officers of investment advisers that solicit advisory business in the State must be registered in the State II Employees of investment advisers that solicit advisory business in the State must be registered in the State III Independent contractors that solicit advisory business in the State must be registered in the State IV Non-affiliated persons that solicit advisory business in the State must be registered in the State

I, II, III, IV The bottom line is that anyone who solicits potential clients for an investment adviser in a State must either be registered as an investment adviser or an investment adviser representative in that State. Remember that there are exemptions and exclusions from registration, but these are not addressed in this question.

Which of the following would be defined as an "agent" under the Uniform Securities Act? I A firm that only sells municipal securities of that State to residents of that State II A salesperson who only sells federal covered securities to residents of that State III A wholly owned subsidiary of a bank that is registered as a broker-dealer in the State IV A sales assistant who takes orders from clients when the agent is unavailable

II and IV To cut through the clutter here, an agent is always an individual, whereas a firm is always a broker-dealer (or an investment adviser). In Choices I and III, the firms are broker-dealers, In Choices II and IV, the individuals are agents who effect securities transactions (it makes no difference if the securities involved are federal covered). Regarding the sales assistant, once he or she takes orders for securities, he or she is an agent.

Which of the following investment advisers are NOT required to register in a State? I An investment adviser with less than $100,000,000 of assets that is not registered with the SEC under the Investment Adviser's Act of 1940 II An investment adviser with no place of business in the State who deals solely with financial and institutional investors III An investment adviser with no place of business in the State who deals solely with broker-dealers IV An investment adviser with no place of business in the State with no more than 5 clients in that State in the past 12 months

II, III and IV only Investment advisers with at least $100,000,000 of assets under management; and investment advisers to investment companies; are not required to register in the State - they are required to register with the SEC only. Advisers with less than $100,000,000 of assets under management are required to register in the State; but are not required to register with the SEC. Investment advisers with no place of business in a State, whose only clients consist of other investment advisers, broker-dealers, or financial or institutional investors, are exempt from licensing. Investment advisers who have no place of business in a State, who have no more than 5 clients in that State in the past 12 months, are also exempt.

Under the Uniform Securities Act, which of the following persons must register as a broker-dealer in a state? I A firm with no place of business in the state that has no clients in the state II A firm with no place of business in the state that has 25 clients in the state over the preceding 12 months III A firm with a place of business in the state that deals exclusively with issuers IV A firm with a place of business in the state that deals exclusively with financial institutions

II, III, IV The Act excludes from the definition of a "broker-dealer" any firm that has no place of business in the State that does not have clients in the State; or that deals solely with issuers, broker-dealers, or financial institutions. Note that if a broker-dealer has an office in a State, then it must register in that State, regardless of who its customers may be. The "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State, so Choice II does not qualify for the exemption and must register. Note that if a firm has an office in a state, then it must register in that state (since the firm is physically in that state). If the firm has an office in the state, it is not exempt from registration if it only deals with "professional" investors - to get the exemption, the firm must not have an office in that state.

Which of the following are EXCLUDED from the definition of a broker-dealer? I Any person who effects securities trades for the account of others II Any person who effects securities trades for his own account III Any person with no place of business in the state who only deals with financial institutions IV Issuers of securities

III and IV Any person who effects securities trades for the account of others or for the firm's account is defined as a broker-dealer. Persons with no place of business in a State who only deal with institutional investors are excluded from the definition - this exclusion is given because these are sophisticated investors who "know what they are doing" - the intent of the law is to protect the general public. Finally, issuers are excluded from the definition of a broker-dealer.

The term "broker-dealer" EXCLUDES which of the following? I A person in the business of trading securities for his own account II A person in the business of trading securities for the account of others III Financial Institutions IV Issuers of securities

III and IV The term "broker-dealer" is defined as a person who: Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading") Persons NOT considered to be "broker-dealers" include: Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities)

Which of the following securities is (are) NOT considered to have an issuer? I Collateral trust certificate II Equipment trust certificates III Fractional interests in oil and gas programs IV Certificates of interest in a gravel mining program

III and IV only For collateral trust certificates, the "issuer" is defined as the person performing the functions of manager or depositor under the Trust agreement. For equipment trust certificates, the issuer is the person to whom the equipment is to be leased. For fractional interests in oil and gas programs, or mining titles or leases, there is not considered to be any "issuer." (Note: States have been concerned for many years about sales of highly risky oil and gas exploration deals to unsophisticated investors. The legal wording of "no issuer" is a "technicality" that makes a person offering oil and gas units to investors register in the State under the toughest method - Registration by Qualification. The easier methods cannot be used.)

When can a solicitor of a Federal Covered Adviser contact potential clients in a State without having to be registered in that State?

If the solicitor is not physically located in the State and the solicitor only contacts institutional clients in that State Solicitors hired by investment advisers are defined as Investment Adviser Representatives (IARs). Remember that there is no Federal registration of the IARs of Federal Covered Advisers - only the IA registers with the SEC. However, the representatives of Federal Covered Advisers still must register in the State where they are physically located; and in any State where they solicit advisory business. However, if the IA has no office in the State, and the IAR is not physically located in the State, and its only customers are institutions (such as mutual funds), then the IARs do not have to register in that State.

An agent for a broker-dealer, both of which are registered in the State of Illinois, receives a telephone call from an existing customer who is on a layover in the airport in Atlanta, Georgia. The customer directs the agent to buy 1,000 shares of ABCD stock at the market. Which statement is TRUE?

In order to accept this order, the agent must be registered in the State of Illinois only Since the agent and broker-dealer are physically located in Illinois, they must be registered in the State of Illinois. This is an existing customer who is calling from an airport in Georgia. There is no requirement for the agent or the broker-dealer to be registered in Georgia to take this order. If the State of Georgia inquired about this transaction, the agent and broker-dealer could claim the exemption available when an existing customer is temporarily located in another State.

Which of the following is NOT EXCLUDED from the definition of an "investment adviser"?

Insurance company Excluded from the definition of an investment adviser are: investment adviser representatives, broker-dealers, depository institutions (banks, trusts, savings and loans), professionals (lawyers, accountants, teachers, engineers) and newsletters that do not render advice based upon a specific client situation. Insurance companies and investment companies are not excluded from the definition (though they may be exempt from registration under certain circumstances).

An investment adviser representative of a Federal Covered adviser with no office in the state only has insurance companies as clients. Where must the adviser representative register?

Neither the SEC nor the State Since the adviser is federal covered, that firm is only required to register with the SEC. It must give a notice filing to any State where it has a physical presence or where it offers advisory services. As far as the investment adviser representative is concerned, there is no registration of IARs with the SEC. They are only registered in the State where they are physically located and in each State where they solicit advisory business. For the IAR to be able to register in the State, the IA must have completed a notice filing in the State. The facts that the IAR has no office in the State and only has insurance company clients are critical in this case because an exemption from State registration is given to investment advisers and their representatives who have no office in the State and whose only clients are institutional investors. Since the IAR has no office in the State and his or her only clients are institutions such as insurance companies, the general public is not being solicited and the IAR is exempt from registration.

An individual giving advice about which of the following products would be defined as an "investment adviser representative" under the Uniform Securities Act?

New York Stock Exchange listed issues To be defined as an investment adviser (or a representative of the adviser), one must give advice about securities. Stocks are securities; fixed annuities, whole life insurance policies and commodities are not securities.

A Canadian broker-dealer has some clients who are "snowbirds" who spend their winters in State Z, which is one of the southernmost States. The broker-dealer does not have an office in State Z and it is not registered there. The clients wish to effect securities transactions while they are residing in State Z. Does this broker-dealer have to register in State Z?

No - the broker-dealer can effect securities transactions in State Z for existing customers who are temporarily residing in the State Canadian broker-dealers with no office in a State are allowed to effect securities business with existing customers who are "vacationing" in a State, without having to be registered in that State. A NASAA interpretation that only applies to Canadian broker-dealers says that Canadian BDs can contact existing customers who are temporarily residing in the United States without having to register in a State, as long as the client is in the U.S. for less than ½ year and intends to return to Canada. Thus, the Canadian BD can contact existing clients who are spending the winter in State Z without having to register in State Z. Note that the Canadian BD cannot contact prospective clients in the U.S - only existing clients can be contacted. And also note that this rule does NOT apply to a U.S. BD registered in one State that contacts an existing client who is temporarily in another State. In this case, if the client spends more than 30 days in the other State, that BD must be registered in the other State. (Also note that Choice A could also be correct, but this provision is not consistently applied in all States for broker-dealers (in contrast, it is consistently applied for investment advisers) and the question does not detail how many existing clients the broker-dealer has in State Z.)

A Broker-Dealer (BD) agent is registered in State A. You are an agent in State B, registered with the same broker-dealer. You happen to be a personal friend of a client of the agent registered in State A. Your friend calls you, saying that he has tried to contact his agent in State A to place an order, but he cannot reach him. He knows that you work for the same BD and asks you to place the order for him. Can you execute the trade for the client?

No, you must reject the trade because you are not registered in State A In order to take the order from the client in State A, the agent must be registered in State A, which is not the case here. Thus, the agent in State B, even though he works at the same Broker-Dealer as the agent in State A, cannot accept the order.

Which of the following is NOT considered to be an "issuer transaction" under the Uniform Securities Act?

RJR Corporation, a publicly held company listed on the NYSE that is proposing to go "private" in a leveraged buyout transaction The Uniform Securities Act defines an "issuer" as any person that issues, or proposes to issue, a security. Choices A, B and D meet this definition. Notice that in issuer transactions, the issuer is receiving the proceeds from selling securities. Choice C is a non-issuer transaction. When a publicly held company goes "private," the existing shareholders are bought-out. In such a transaction, the proceeds go to the shareholders - not the issuer - hence this is a "non-issuer" transaction.

Which term is NOT defined under the Uniform Securities Act?

Registered representative The Uniform Securities Act defines a "broker-dealer," it defines an "agent" of a broker-dealer (which is a registered representative, but this is the federal name, not the State name); it defines an "investment adviser;" and it defines an "investment adviser representative" (the agent of an investment adviser). Note the inconsistency here!

Under the provisions of the Uniform Securities Act, an unregistered agent is permitted to do which of the following in the State?

Report completed trades of securities to customers An agent of a broker-dealer is an individual who solicits or effects trades for customers or the for the firm's own account. Agents must be registered in the State, regardless of whether they are dealing in exempt or non-exempt securities. An individual who performs clerical or ministerial functions, such as reporting completed trades or taking messages (not writing orders) is excluded from the agent definition and no registration is required.

A Registered Investment Adviser is one that is registered with (the):

SEC An investment adviser must either register with the SEC as a Federal Covered Adviser (one with at least $100 million of AUM); or if it has less than $100 million of AUM, it registers with the State. There is no investment adviser registration with FINRA - only broker-dealers register with, and are regulated by FINRA. NASAA (North American Securities Administrators Association) is the regulator torturing you with this test, but it has no registration or enforcement capability.

An investment adviser representative of a Federal Covered adviser with no office in the state only has non-institutional clients. Where must the investment adviser representative register?

State Since the adviser is federal covered, that firm is only required to register with the SEC. It must give a notice filing to any State where it has a physical presence or where it offers advisory services. As far as the investment adviser representative is concerned, there is no registration of IARs with the SEC. They are only registered in the State where they are physically located and in each State where they solicit advisory business. For the IAR to be able to register in the State, the IA must have completed a notice filing in the State. The fact that the IAR only has non-institutional clients means that the IAR is dealing with the general public and this is kind of individual that the State wants registered!

Under the Uniform Securities Act, a person could give advice about all of the following securities without having to register in the State as an investment adviser EXCEPT:

State General Obligation Bonds A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State. Note that if the person gives advice about municipal bonds (Choice D), that person is not excluded and must register.

A Registered Investment Adviser with 25 clients in State A is expanding its operations to States B, C, and D. It currently has 6 clients in State B, but has not opened an office in that State. It currently has 3 clients in State C, where a small office has been opened. It has 5 clients in State D, and is considering opening an office there. In which States is the RIA required to register?

States A, B, and C Because the RIA has offices in States A and C, it must register in those States. The "de minimis" exemption from registration only applies to advisers with no office in the State that have 5 or fewer clients in that State. Since the adviser has 6 clients in State B, it must register in State B. The fact that it has no office there has no bearing on this. On the other hand, the "de minimis" exemption applies to State D, since the adviser has no office there and has the maximum permitted number of clients (5) before registration is required.

Two individuals sponsor golf tournaments to which they invite venture capitalists that seek to be matched with wealthy potential investors. The individuals sponsoring the event intend to collect a finder's fee paid by the venture capitalist if he or she receives funds from an investor that attended the golf tournament. Which statement is TRUE based on these facts?

The 2 individuals are defined as broker-dealers because they will receive compensation if an investor is matched to a venture capitalist A broker-dealer is defined as a person engaged in the business of effecting securities transactions for others or for its own account. When deciding whether a firm is considered to be a "broker-dealer," the regulators look to see if compensation is being paid. If compensation is not being paid, then that firm is not "in the business" of effecting securities transactions. If it is being paid, in any form, then it is "in the business" and is defined as a broker-dealer that must register. These individuals will receive a finder's fee for matching a buyer and seller of securities, so they are being compensated for effecting a securities transaction. They are both "statutory" broker-dealers that must be registered in the State.

An individual who lived in State B is an existing client of Broker-Dealer. She has temporarily relocated to State A. She contacts her agent located in State B to buy securities. Which statement is TRUE?

The Broker-Dealer and the agent must be registered in both States A and B Since the agent is located in State B, the broker-dealer and agent must be registered in State B, regardless of who the clients are. This customer has "temporarily relocated" to State A. This is a longer time frame than a "vacation" - so the vacationing customer exemption does not apply. As a general rule, spending more than 30 days in a location is no longer considered to be a vacation. Thus, both the broker-dealer and the agent must be registered in State A as well, since the customer is residing there.

A Certified Public Accountant offers clients financial planning services, for which a separate fee is charged. Which statement is TRUE?

The accountant must register in the State as an Investment Adviser If this accountant did not separately charge for financial planning, then he (or she) would not be defined as an investment adviser. Because a separate fee is being charged, the CPA is defined as an Investment Adviser who must register in the State. If the CPA has any employees that sell financial plans, they would have to register as Investment Adviser Representatives (IARs).

An investment adviser located in State A only deals with very large hedge fund investors that are located in State B. The adviser is not required to be registered with the SEC because it currently has $20,000,000 of assets under management. Which statement is TRUE regarding State registration requirements?

The adviser must register in State A where it has its office, but it is exempt from registration in State B The basic rule on State registration is that if you have an office in that State, then you must register in that State. If you have no office in a State, but you solicit customers in that State, then you must register in that State as well. However, if you have no office in a State and you only deal with institutional investors in that State (e.g., hedge funds), then registration is not required.

An adviser with $133,000,000 of assets under management has its main offices in Illinois and branch offices in Wisconsin, Indiana, and Missouri. Which statement is TRUE regarding registration of the adviser?

The adviser must register with the SEC Any adviser with $100,000,000 or more of assets under management is a "federal covered adviser" that is only required to register with the SEC. The State cannot require registration of a federal covered adviser; but it can require a "notice" filing in the State along with payment of a fee. Also note that the SEC has issued an interpretation that advisers with $100-$110 million of assets have the option of registering with the SEC. Since this adviser has $133 million of assets under management, it must register with the SEC.

An adviser with $106,000,000 of assets under management has its main offices in Illinois and branch offices in Wisconsin, Indiana, and Missouri. Which statement is TRUE regarding registration of the adviser?

The adviser must register with the SEC or the States of Illinois, Wisconsin, Indiana, and Missouri Any adviser with $100,000,000 or more of assets under management is a "federal covered adviser" that is only required to register with the SEC. The State cannot require registration of a federal covered adviser; but it can require a "notice" filing in the State along with payment of a fee. However, the SEC has issued an interpretation that advisers with $100-$110 million of assets have the option of registering with the SEC or with the states. Since this adviser falls into the $100-$110 million range, it has the choice of either becoming a Federal Covered Adviser or of registering in each State where it does business.

An agent of a broker-dealer is registered in State A. The agent has a customer who lives in State A who will be going to college in State B. The agent is not registered in State B. Which statement is TRUE about the agent doing business with the student while he or she is in State B?

The agent can do business with the student in State B without having to register in State B College students are considered to be residents of the State where their home is; not the State where they are going to college. Furthermore, this is an existing customer of the agent - the agent is not soliciting new business in State B. The agent does not have to register in State B to do business with the student who is at college in State B because this is an existing customer who resides in State A, a State where the agent is registered. Also note that whether a transaction is solicited or not has nothing to do with the State registration requirement. Regarding the "de minimis" exemption, this is a uniform rule that applies only to IA and IAR registration - the Uniform Securities Act does not have this rule for BDs and their agents. (However, note that some States do have their own "de minimis" rules for BDs and agents, but this is a minority of States, so it is not tested on the exam.)

A broker-dealer is physically located and registered in State A. The broker-dealer has an existing client in State A who is a student finishing undergraduate studies. The client has just been accepted to medical school in State B. Which statement is TRUE about the broker-dealer contacting the client while she is in medical school in State B?

The broker-dealer can contact the client while she is in medical school in State B without having to register in State B because students are considered to be residents of the State where they live with their parents; not the State where they go to school Students are considered to be residents of the State where they live with their parents; not the State where they are going to school. Therefore, the broker-dealer is only required to be registered in State A in this example, but not in State B. Note that if the student actually became a resident of State B, such as by renting an apartment in State B, changing the mailing address to that apartment, changing her voter registration to State B and changing her driver's license to one issued in State B, then she becomes a resident of State B. But this is not where the question is going!

An individual represents a broker-dealer in a State selling fee-based brokerage accounts as an independent contractor. This individual is not an employee of the broker-dealer. Which statement is TRUE regarding registration of the independent contractor and the broker-dealer in the State?

The broker-dealer must register in the State and the independent contractor must register in the State as an agent of the broker-dealer Just because an individual is an independent contractor and not an employee does not mean that they are not required to be registered in the State. Any individual who represents a broker-dealer selling securities is an agent who must be registered (unless an exemption is available). Note that many brokerage firms and broker-dealers that have agents that work out of their homes, legally structure these arrangements as "independent contractor" relationships and not as employment relationships. Then the employing firm is not responsible for health and pension benefits that are given to employees. However, these independent contractors are still defined as "agents" that must register in the State. And, of course, the agent's broker-dealer must be registered in the State.

A broker-dealer has a client who is a transient oil rig worker. The client has spent the last year on an oil rig in the Gulf of Mexico off the coast of Louisiana and has just gotten a job for 6 months on an oil rig in North Dakota. After completing the job, the client intends to move back to Louisiana. The broker-dealer is registered in the State of Louisiana but not in the State of North Dakota. Which statement is TRUE about the broker-dealer doing business with the client in the State of North Dakota?

The broker-dealer must register in the State of North Dakota The "vacationing" customer exemption only applies to customers who are temporarily in another State, which, though not defined by State law, is generally viewed as a stay of less than 30 days. A client who is in North Dakota for 6 months is not vacationing. He or she is viewed as a resident of the State and the broker-dealer (and agent) must register in the State to continue doing business with the client.

Under the Uniform Securities Act, if an Investment Adviser limits its clientele to insurance companies, which statement is TRUE?

The investment adviser is exempt from registration in the state of residence of the insurance company as long as it is not physically located in that State Investment advisers with no place of business in a State that limit their clientele to insurance companies and investment companies are exempt from registration because they are dealing with professionals - not the general public. Note that if an adviser is physically located in a State, then it still must register. Investment advisers must register in the state unless an exemption is available.

Which of the following is a "non-issuer" transaction?

The trade of 100 shares of stock on an exchange floor A "non-issuer" transaction is a trade where the proceeds do not go to the issuer. The sale of bonds by a corporation benefits the issuer; the sale of mutual fund shares benefits the issuer (the fund company); and the sale of Treasury Bills by the Government benefits the issuer. A trade in the secondary or trading market results in the proceeds going to the seller - who is not the issuer. This is termed a "non-issuer" transaction.

All of the following are EXCLUDED from the definition of an investment adviser under the Uniform Securities Act EXCEPT a(n):

adviser with no place of business in the State whose only clients are broker-dealers Excluded from the definition of an investment adviser are investment adviser representatives; depository institutions; broker-dealers; professionals who only give incidental advice; publishers of general circulation periodicals that do not give investment advice about specific client situations; and federal covered advisers. In contrast, an adviser with no place of business in the State whose only clients are broker-dealers is included in the definition of an investment adviser, but is exempt from registration in the State. This is an extremely picky question!

If an individual works for either a broker-dealer or an issuer and sells securities of that issuer earning a commission, that individual is defined as a(n):

agent If an individual works for either a broker-dealer or an issuer and sells securities of that issuer and receives a commission, that individual is defined as an agent under the Act. An individual is excluded from the definition of an agent of an issuer only if that person effects transactions with existing employees or officers of the issuer and no commissions are paid; or that individual effects an exempt transaction.

Under the provisions of the Uniform Securities Act, all of the following statements are true EXCEPT a(n):

agent must register in each State in which the employing broker-dealer is registered It is incorrect to say that each agent must register in each State in which the employing broker-dealer is registered. Each agent must register in each State into which the agent will direct offers; or from which the agent will receive offers (unless an exemption is available). Furthermore, the broker-dealer must also be registered in those States. A broker-dealer might be registered in all 50 States, but each agent will probably only be registered in the States in which he or she transacts business. It would be very costly to register each agent in every State, since each State has an annual registration fee (though a few States have bi-annual renewals). The other statements are true. An agent must register in the State in which he or she resides; an agent must register in each State into which that agent directs offers; and each broker-dealer must be registered in each State where its agents direct offers.

An agent of a broker-dealer in State A has filed a registration application with State A that is not yet effective. During this time period, the agent may:

answer questions from customers about information included on customer account statements and confirmations Individuals that are not registered as agents in the State cannot recommend securities to customers, nor can they accept customer orders - either solicited or unsolicited. They cannot be compensated based on sales of securities made to customers because they are not yet licensed to do so. They may perform clerical functions, such as answering customer questions about information on account statements and confirmations.

An institutional buyer is defined under the Uniform Securities Act as:

any person defined by the Administrator by rule or order The Uniform Securities Act exempts from registration in a State, any broker-dealer or investment adviser that does not have an office in the State and that only deals with "institutional buyers." These institutional buyers include banks, savings and loans, trust companies, insurance companies, investment companies, pension and profit sharing plans, other financial institutions, and anyone so defined by the State Administrator by rule or order. The Uniform Securities Act does not set minimum capital standards to be defined as an institutional buyer.

Under the Uniform Securities Act, all of the following are defined as investment adviser representatives EXCEPT a(n):

clerical employee of the advisory firm Employees who perform clerical or ministerial duties are excluded from the definition of an investment adviser. This term includes any employee or officer of the advisory firm that sells advisory services, performs research, makes recommendations or manages portfolios.

A person who renders investment advice relating solely about municipal securities is:

defined as an investment adviser and must register under the Act A person who gives investment advice relating solely to municipal securities is not exempted from registering as an investment adviser under State law. (Please note, however, that a person who gives advice solely about U.S. Government guaranteed securities is excluded from the definition of an investment adviser under the Investment Advisers Act of 1940. This is another type of federal covered adviser, for which there is no state registration.)

All of the following are defined as investment adviser representatives under the Uniform Securities Act EXCEPT a(n):

employee of an advisory firm who performs ministerial functions relating to portfolio selection The Uniform Securities Act defines an investment adviser representative as an officer or employee of the firm that performs research, makes recommendations, manages portfolios or sells advisory services. Employees that perform clerical or ministerial functions are excluded from the definition.

Under the Uniform Securities Act, a person who renders investment advice solely about U.S. Government Agency securities is defined as a(n):

federal covered adviser, and is not required to register under the Act A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State.

An agent who has passed his or her examination, but whose registration is not yet effective in the State, may sell:

fixed annuity investments Passing the Series 63 or 66 does not automatically register an agent in a State. Registration is typically effective 30 days after filing the application, given that the conditions of registration have been met (such as passing the Series 63 or 66 test.) If registration is not yet effective, the agent cannot sell securities. Since fixed annuities are NOT securities, the agent could sell these - if he or she had a State insurance license.

If an investment adviser is "federal covered," this means that the adviser:

has at least $115,000,000 of assets under management A federal covered adviser that must register with the SEC (instead of registering in the State) is either an adviser to investment companies; or an adviser with at least $100,000,000 of assets under management. The SEC issued an interpretation that if an adviser has between $100,000,000 and $110,000,000 of assets, it has the option of registering with the SEC, so the only adviser that must register with the SEC is one that has at least $115,000,000 of assets under management. In addition, the SEC issued an interpretation that advisers that operate in 15 or more States and that have at least $25,000,000 of assets under management, may register with the SEC and thus do not have to register in multiple States.

A firm is retained by a company that wishes to make acquisitions of other companies to act as a finder. The finder can be considered to be a broker-dealer:

if it receives compensation contingent on the closing of a deal "Finders" operate in a grey area, which may, or may not, require registration as a broker-dealer. First of all, if the acquisition transaction only involves the sale of assets, as opposed to the sale of securities, then there is no requirement to be registered as a broker-dealer. Second, if the finder receives a retainer fee or flat compensation, then the finder is not considered to be a broker-dealer. If the finder receives transaction-based compensation, such as compensation contingent of the closing of the deal, the finder can be considered to be a statutory broker-dealer that must register. This question is not clear as to whether the transaction involves the sale of assets or securities, but it always best to go with the choice that is the most restrictive!

States are permitted to require registration of:

investment adviser representatives with a place of business in the state States cannot require registration of investment advisers that manage assets of $100,000,000 or more - these are federal covered advisers that need only register with the SEC under the Investment Advisers Act of 1940. Investment advisers to investment companies are also federal covered advisers that need only register with the SEC. However, States can still require the registration of investment adviser representatives that have a place of business in that State for any investment adviser - whether federal covered or not.

The purpose of the Uniform Securities Act is to protect investors from:

investment fraud The purpose of the Uniform Securities Act is to protect the public from investment fraud. (By the way, moral turpitude is a gross violation of the standards of moral conduct - it has nothing to do with offering securities!)

The president of a bank wishes to sell the subordinated debentures of that bank to individual investors. Under the provisions of the Uniform Securities Act, the president:

is excluded from the definition of an agent The Uniform Securities Act defines as an agent. Any individual who represents either a broker-dealer or issuer on effecting securities transaction. The Act excludes certain individuals who represent issuers from the definition of an "agent." These individuals are not required to register in the State. The exclusions for individuals representing issuers from being defined as an agent are: individuals who represent issuers in trades of specified exempt securities; individuals who represent issuers in exempt transactions; and individuals who represent issuers selling securities to the issuer's employees where no commissions are paid. The president of the bank comes under the first exclusion. The specified exempt securities are U.S. governments, agencies, municipals, Canadian government issues, bank issues, money market instruments, and money market instruments with no more than 9 months to maturity that are investment grade. Thus, this bank president is selling a specified exempt security because this is a bank issue and is excluded from being defined as an agent of the bank-issuer.

State "blue sky" laws provide for registration of all of the following EXCEPT:

issuers State blue sky laws provide for registration of broker-dealers and agents; registration of investment advisers and investment adviser representatives; and registration of securities issues. Note that the issuer itself is not registered in the state under the Uniform Securities Act - only the securities that it issues are registered.

Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT:

issuers The Uniform Securities Act excludes from the definition of an investment adviser: lawyers, accountants, teacher, and engineers who give advice that is solely incidental to their professional practice; and who do not charge separately for giving advice. Issuers are not excluded from the definition.

Under the provisions of the Uniform Securities Act, a "person" includes all of the following EXCEPT a(n):

minor A "person," as defined under the Act, can be just about anyone who has legal authority to issue or trade securities. A minor acting on his or her own is not a "person" since a minor has no legal authority to trade securities. An adult couple is a "person" (when they open a joint account). A municipality is a person. Finally, a corporation is a person.

A broker-dealer uses summer interns who answer the telephone, give stock quotes, and take orders from clients. The summer interns:

must be registered in the State because they are transacting securities business with the public Even summer interns must be registered, if they are taking orders from customers; soliciting customers; or making recommendations to customers. If they only perform clerical duties, then no registration is required.

In order to act as an adviser in a State, federal covered advisers:

must file notice with the State and may be required to file such documents as have been filed with the Securities and Exchange Commission Federal covered advisers are required to register with the SEC under the Investment Advisers Act of 1940. They are not required to register in the State. The Administrator requires federal covered advisers to file notice in the State. To meet this requirement, the filing in the State of the registration document filed with the SEC can be required.

An employee of a company is being paid to assist in the sale of stock options to the company's employees and will receive a bonus based on sales results. This company employee:

must register as an Agent in the State An employee of an issuer who is compensated for selling that company's securities to its employees is defined as an "agent" under the Uniform Securities Act and must register in the State. Note that if the employee were not receiving pay based on sales results, then he or she would not be defined as an "agent" and would not be required to register in the State. Finally, this individual is not an Investment Adviser Representative, because he or she is not permitted to receive sales-based compensation.

A Canadian agent has an existing client who goes on vacation to Seattle, Washington. The agent wishes to contact the customer in Seattle about an investment that he wishes to recommend. The agent:

need not register in the State of Washington because the customer is on vacation The Uniform Securities Act addresses Canadian broker-dealers and investment advisers, since their customers often travel extensively in the United States. As long as a Canadian broker-dealer or investment adviser does not have a place of business in the United States, it is exempt from registration (as are its agents) when effecting trades for pre-existing customers who are temporarily residing in the United States for less than ½ year and who intend to return to Canada. Regarding Choice C, the agent cannot do business in the State of Washington unless he or she is registered there. For example, the agent cannot solicit new clients in the State of Washington and cannot solicit existing clients who spend too much time in the State of Washington (more than ½ year) without being registered in the State of Washington. The exception only applies to Canadian BDs and IAs (and their agents) with no place of business in a State whose existing clients temporarily visit the U.S.

A Canadian Investment Adviser Representative (IAR) has an existing client who goes on vacation to Seattle, Washington. The IAR wishes to contact the customer in Seattle about an investment strategy that he wishes to recommend. The IAR:

need not register in the State of Washington because the customer is on vacation The Uniform Securities Act addresses Canadian broker-dealers and investment advisers, since their customers often travel extensively in the United States. As long as a Canadian broker-dealer or investment adviser does not have a place of business in the United States, it is exempt from registration (as are its agents) when effecting trades for pre-existing customers who are temporarily vacationing in the United States. Regarding Choice C, the IAR cannot do business in the State of Washington unless he or she is registered there. For example, the IAR cannot solicit new clients in the State of Washington and cannot solicit existing clients that spend too much time in the State of Washington (more than 30 days) without being registered in the State of Washington. The exception only applies to Canadian BDs and IAs (and their agents) with no place of business in a State whose existing clients temporarily visit the U.S.

An individual acts as a finder, facilitating mergers and acquisitions of companies that are both publicly and privately held. The individual searches for companies that appear to be compatible and that will either enjoy a revenue enhancement or cost reduction benefit from the transaction. The individual just introduces the parties to the proposed transaction, but has no involvement in the agreements or valuation. Upon the closing of the deal, the individual is paid a percentage of the transaction. Under NASAA rules, this individual

needs to register as a broker-dealer in the State because he or she is receiving transaction based compensation This is a bit vague, but NASAA's (and the SEC's) stance on finders is that if they receive compensation that is "transaction based" - such as in this case because the finder will be paid a fee contingent on the closing of the deal - then the finder is a "statutory broker-dealer" that must be registered. This individual is not an investment adviser, because investment advisers do not earn transaction-based compensation. They earn an advisory fee, that is either a flat fee or a percentage fee - but they cannot earn a fee on each transaction (otherwise they become broker-dealers).

Under Uniform State Law, an agent is permitted to sell securities for more than 1 broker-dealer:

only if the agent is separately registered with each broker-dealer The typical arrangement is that an agent is only registered with one broker-dealer, both at the Federal and State level. However, in rare cases, an agent may be "dual registered." This occurs most often if one broker-dealer sells a very limited product range (say limited partnerships only) and the individual wants to be licensed to sell another type of product (say mutual funds) to his customers. He or she can associate with another broker-dealer that only sells mutual funds. To do so, the dual affiliation is disclosed on both the Federal and State registration applications submitted by each of the broker-dealers to register that agent.

To act as an adviser in a State, federal covered advisers must do all of the following EXCEPT:

register with the State Federal covered advisers are required to register with the SEC under the Investment Advisers Act of 1940. They are not required to register in the State. The Administrator requires federal covered advisers to file notice in the State. To meet this requirement, the filing in the State of the registration document filed with the SEC can be required; as well as the payment of a filing fee.

All of the following are EXCLUDED from the definition of an agent EXCEPT an individual who represents the issuer in the:

sale of federal covered common stock to the public Excluded from the definition of an agent are individuals who represent issuers (not broker-dealers) in: Sales of specified exempt securities such as Treasury, Agency and Municipal debt (but not all exempt securities); Exempt transactions, such as the sale of securities only to institutions or underwriters or private placements as defined under State law; Sales of specified covered securities (basically private placement issues and sales to persons with investment assets of at least $5,000,000 and investment managers handling assets of at least $25,000,000) - however if the individual is selling federally covered "nationally traded" securities or investment company securities, he or she must register as an agent; and Sales of securities to employees of that issuer if no remuneration is paid - (the example here is a corporate employee who places company stock into employee 401(k) accounts). In these transactions, either the security being sold is extremely safe (such as governments, agencies or municipals); or the sale is not being made to the general public. If the individual is representing an issuer selling a security that must be registered, including federal covered "nationally traded" stocks and investment company issues, that person must be registered in the State as an agent.

An agent of a broker-dealer effects a securities trade for a customer privately, where the transaction is neither known to the broker-dealer nor is it recorded on the books of the broker-dealer. This individual is defined as a:

statutory broker-dealer If an agent of a broker-dealer engages in a securities transaction that is not known to the broker-dealer (a so-called "private securities transaction"), a prohibited practice has occurred. All securities transactions effected by agents must be known to the broker-dealer; must be recorded on the books of the broker-dealer; and must be supervised by the broker-dealer. If the agent performs a "private securities transaction" that is not known to the broker-dealer, then that agent has, himself, become a broker-dealer under this definition. As such, he would have to register in the State as a "statutory" broker-dealer before effecting such a transaction.

A broker-dealer is required to register with all of the following EXCEPT:

the FTC Broker-dealers must initially register federally with the SEC. They use Form BD for this, which is a broker-dealer registration form. Then the BD registers with an SRO (self regulatory organization) such as FINRA. Form BD has the broker-dealer "check-off" the SRO(s) to which it is applying for membership. To register in the state, again, the Form BD has the broker-dealer "check-off" the states in which it wants to register. The state uses the SEC approved BD application as the basis for registering the BD in the state - given that the appropriate registration fee is paid (of course!). There is no broker-dealer registration with the FTC - Federal Trade Commission.

A broker-dealer is required to initially register with:

the SEC Broker-dealers must initially register federally with the SEC. They use Form BD for this, which is a broker-dealer registration form. Then the BD registers with an SRO (self regulatory organization) such as FINRA. Form BD has the broker-dealer "check-off" the SRO(s) to which it is applying for membership. To register in the State, again, the Form BD has the broker-dealer "check-off" the States in which it wants to register. The State uses the SEC approved BD application as the basis for registering the BD in the State - given that the appropriate registration fee is paid (of course!).