Series 66
In the Howey decision, the U.S. Supreme Court held that a security must represent:
(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.
Bond sell at a premium
(above par).
REIT
1. It can qualify for special tax treatment under Subchapter M of the Internal Revenue Code if it distributes at least 90% of its taxable income. 2.It may loan money for commercial construction projects. 3. It generates income by the spread between rental income, the combined mortgage interest, and operating expenses of the property.
Requirments to Maintain Custody under USA
1. Net worth of 35,000 or surety bond 2. the Administrator must be notified in writing if an adviser has custody 3.When the Administrator has not prohibited custodial arrangements.
If the firm were to dissolve, partnership agreements must be kept for under the Investment Avisers Acto of 1940, how long should partnership agreement be kept for
3 years
Under the Uniform Securities Act, an agent's request for withdrawal of registration takes effect:
30 days after receipt of an application to withdraw or within such a shorter period of time as the Administrator may determine.
Which of the following phrases best describes a prudent investor?
A trustee who invests with reasonable care, skill, and caution.
Government National Mortgage Association (GNMA) pass-through securities
A) GNMAs are considered to be the safest of the agency issues. B) investors receive a monthly check representing both interest and a return of principal. C) investors own an undivided interest in a pool of mortgages. D) the minimum initial investment is $25,000.
If general interest rates increase, the interest income of a bond unit investment trust will probably:
A) remain the same.
Sheriffs or Marshalls
Among the list of exempt transactions are sales made by a sheriff or marshal.
When does a customer have to receive the OCC Options Disclosure Document?
At or prior to the time the account is approved for options trading
What type of market is the Stock Exchange
Auction
Which of the following securities is NOT exempt from the Securities Act of 1933? A) Municipal issues. B) Real estate investment trusts. C) U.S. government agency issues. D) U.S. government issues.
B) Real estate investment trusts.
For a given amount of principal, which annuity option would produce the largest monthly income stream? A) Life with term certain. B) Straight life. C) Joint and 50% survivor. D) Joint and 100% survivor.
B) Straight life.
Analyzing financial leverage
Best ratio is debt to equity
Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states?
Coordination. Since offering is made in more than one state, SEC registration is required. Coordination is concurrent with SEC and state for public offerings
Notice Filing
Federal covered securities register via notice filing (1) Method by which a registered investment company and certain other federal covered securities file records with state securities Administrators. (2) SEC-registered advisers (federal covered) may have to provide state securities authorities (the Administrator) with copies of documents that are filed with the SEC and pay a filing fee.
Which of the following would be a nonissuer transaction? 1. XYZ Corporation sells 100,000 shares of previously issued common stock out of its treasury. 2. GEMCO Mutual Fund sells 100,000 shares of XYZ Corporation common stock out of its portfolio. 3. Curt sells 1,000 shares of Giggle common stock to Chuck in an isolated transaction. 4. Dave reinvests his dividend into additional shares of GEMCO Mutual Fund.
GEMCO Mutual Fund sells 100,000 shares of XYZ Corporation common stock out of its portfolio. Curt sells 1,000 shares of Giggle common stock to Chuck in an isolated transaction.
Holding Period Return
Holding period return (HPR) is the total of the income cash flows and capital growth earned by an investment during the period for which it is held. It does not take into account the time value of money
Brochure Delivery
If the "brochure" is not delivered at least 48 hours before, (not after), the signing of the agreement, the client has a 5-day penalty-free withdrawal right. Annually, the Part 2 (brochure), or a summary of material changes, must be delivered within 120 days of the end of the adviser's fiscal year, (unless there have been no material changes).
Are Commodities and futures contracts securities?
NO
Which of the following are characteristics of commercial paper?
Negotiated maturities and yields. Not registered with the SEC.
Stock prices in the over-the-counter market are determined by:
Negotiation
Which of the following methods of calculating investment returns are discounted cash flow (DCF) techniques?
Net present value (NPV). Internal rate of return (IRR).
Which of the following methods of calculating investment returns are discounted cash flow (DCF) techniques?
Net present value (NPV). Internal rate of return (IRR).
risks inherent in an unlisted REIT
One of the major risks inherent in an unlisted REIT is lack of liquidity. As a result, there is a greater stringency when it comes to suitability, and this leads to stronger oversight by the regulators.
Which of the following individuals may not open a joint account?
Parent and a minor. Minor is specifically excluded from the definition of a person
Which of the following constitutes either an offer or a sale?
Thomas is offered warrants by his registered agent as the best way to take a position in the XYZ Corporation.
UPIA
Uniform Prudent Investor Act
Consent of the client before completion of a trade made between the firm and a client must be made when
an investment adviser will be acting in the capacity of a principal. In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity on the trade confirmation, but not consent, is needed.
Flow-through is one of the features of
direct participation plans
A registration statement
include the expected use of the proceeds of the offering as well as short biographies of the members of the board of directors (and key officers as well).
A guaranteed security
is one where the interest and principal (in the case of a bond) are guaranteed by a third party. If a guaranteed stock, it is the dividends that are the subject of the third-party guarantee.
Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who
is registered under section 203 of the Investment Advisers Act of 1940
Under the Securities Act of 1933, the Securities and Exchange Commission has the authority to:
issue stop orders and review standard registration forms.
With regard to a state-registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that
it is filed through the IARD system
Among the benefits of purchasing derivatives would be:
leverage. unlimited potential gain.protection against loss.
Under the Investment Advisers Act of 1940, an IA that uses a Website would be required to:
maintain a copy of the screens used on their site in the firm's advertising file. place copies of new screens into the firm's advertising file each time a change was
What type of market is the OTC
negotiated
It would be CORRECT to state that variable annuities
offer a way to accumulate funds on a tax-deferred basis
It would not be considered a prohibited or unethical business practice for an investment adviser to
pay a nominal fixed fee to certain professionals as a form of thanking them for client referrals. That is, it is not based on the size of the account.
According to the Uniform Securities Act, the Administrator has the power to require persons wishing to register as an agent to:
post a surety bond, pay filing fees, and pass an exam.
In a nonissuer transaction,
proceeds of the sale go to someone other than the issuer.
An investor who is long XYZ stock would consider going long an XYZ call to:
protect against an increase in the market price of XYZ stock.
According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts,
the schedule should be made available on the broker-dealer's public website without requiring any login or password
As part of your annual review for clients, you perform a net worth computation. You have computed a specific client's net worth at $500,000. This client calls you and asks what his net worth will be after withdrawing $4,000 from his savings account to pay off credit cards, taking another $5,500 to deposit to his IRA and buying a $25,000 home theater system using store credit. You would respond that the client's net worth is now:
$500,000.00
Which of the following persons are excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act?
1. A broker-dealer with no office in the state that effects trades exclusively with other broker-dealers in the state. 2. A trust company with an office in the state that deals with the general public. 3. A broker-dealer with no office in the state that effects securities trades exclusively with trust companies or other broker-dealers.
Buy and hold strategy
1. Equities would grow relative to fixed income. Over the long run, using the buy and hold strategy with equity securities has outperformed the rate of return on fixed income investments. 2. Lower taxes and transactional costs 3. Easy to manage
Is a gift of non-assesable stock a sale?
A gift of non-assessable stock is not a sale, it is a gift.
S Corp
A legal entity that offers limited liability with single taxation. there is a limit placed on the number of shareholders in an S corp. At the time of this printing, that maximum is 100, none of whom may be a non-resident alien that S corporation earnings (and losses) flow through to the shareholders
What is not a security
A non-security is a type of investment that is not institutionalized for broad market trading access through a trading exchange. These assets are not freely marketable or transferable as a security.
A structured product
A synthetic investment instrument that has been created to meet a specific need that cannot be met by a standardized financial instrument Structured products are created as a tool to meet the issuer's debt financing needs when they will result in a lower cost than a standardized financial instrument available in the market place.
A broker-dealer is registered in States A and B. An agent of theirs is registered in State A, and one of the agent's clients moves from State A to State C. If the agent wishes to continue to do business with this client, who must be registered
Agent, in state C
Which of the following activities of an investment advisory firm would NOT require notification to and consent of the clients of the advisory firm? A) An investment adviser wishing to merge with a larger national advisory firm. B) The retirement of a sole proprietor investment adviser who wishes to sell the practice to another investment adviser. C) A minority partner resigning from the firm to start his own advisory firm. D) The chief operating officer of an investment advisory firm wishing to pledge her majority interest in the firm to a local bank for a loan to purchase an office building that will be leased to the advisory firm.
C) A minority partner resigning from the firm to start his own advisory firm. Any change in the controlling interest in an advisory firm, including pledging the controlling interest, is treated as an assignment of the contract and requires notification to and consent of the clients of the investment adviser. The change in a minority interest is not considered to be an assignment so only notification, but not consent, is required.
All of the following statements regarding corporate insiders are true EXCEPT: A) only public information can be used to make transactions. B) short selling is prohibited. C) purchases may not be made through the exercise of options. D) reports of changes in holdings must be filed with the SEC.
C) purchases may not be made through the exercise of options ...insiders CAN purchase stock through the exercise of options
Credit risk would be a concern to investors in
Credit risk is found in debt instruments.
1. Real estate investment trust certificates. 2. Preorganization subscription agreements. 3. Shares of treasury stock. 4. Voting-trust certificates issued by a corporation undergoing a reorganization.
Defined as Securities under USA
In general, a broker-dealer will disclose any changes to its fee schedule
Disclose fee changes at least 30 days in advance and there is no requirement whatsoever to notify the Administrator.
f you were to take the growth approach, you would be most interested in:
Earnings Momentum Growth managers place their emphasis on earnings growth. Positive momentum means the growth is occurring at an increasing rate.
Under the Uniform Securities Act, which of the following statements are TRUE about the authority of an Administrator?
In issuing a cease and desist order, the Administrator may provide prior notice and hearing or may issue the order without prior notice or hearing (summarily). There is no time period associated with the order. A cease and desist order may be issued after a hearing.
An investment supervisory service
Individualized service delivered to a specific client on a continual basis. An investment adviser provides continuous advice based on the client's individual needs.
Under the Investment Company Act of 1940, which of the following statements is (are) TRUE about an investment company that wishes to contract with an outside investment adviser to manage its portfolio?
Investment companies may employ outside advisers if a written contract is executed. The initial contract must be approved by a majority vote of the outstanding shares and the "non-interested" members of the board of directors. It is renewed annually by either a majority vote of the outstanding shares or the board of directors as well as a majority of the directors who are considered to be non-interested parties.
Regarding performance based fees charged by covered investment advisors,must it be disclosed that performance-based fees may motivate the investment adviser to assume greater investment risk than would apply with other compensation methods?
NO. The SEC assumes that any investor meeting the qualifications is aware of the greater risk entailed, so no disclosure is necessary.
. Tenants-in-common
Provides that the deceased tenant's share passes to the estate and the remaining tenant is a co-tenant with the estate
Which of the following are characteristics of a REIT?
REITs are traded on exchanges and OTC and are professionally managed. 2. Both REITs and limited partnerships provide pass-through of gains to investors, but REITs do not provide pass-through of losses. 3. assume that all REITs are publicly traded either on the stock exchanges or OTC.
Taxes and C Corporations
Regular, or C corporations, pay taxes on their earnings
Agent's registration being placed into suspense
Revocation of the registration of that agent's broker-dealer will result in cancellation of that agent's effective registration and place the agents license in suspense
Which act requires publicly traded corporations to issue annual reports?
Securities Exchange Act of 1934
Dees the SEC approve securities?
The SEC does not approve securities; it only clears them for distribution to the public.
Annual Updating Amendment
The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end.
When must the annual updating amendment to Form ADV be filed?
The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end.
Withdrawals effective date of registration under the Uniform Securities Act
The effective date of a withdrawal of registration is 30 days after filing
leveraged exchange-traded fund (ETF)
The leveraged ETF may be purchased on margin. Securities within the leveraged fund portfolio may be purchased on margin.
C Corporation
The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders Unlimited number of shareholders C Corps have no residency restrictions corporation earnings are only received by shareholders when dividends are paid
A mother makes a gift of appreciated securities to her 10-year-old son. The son's cost basis in the stock is the:
The original Cost to the mother. Market value at date of gift is used to determine if gift taxes are applicable.
Violations of the Uniform Securities Act carry a criminal penalty of imprisonment for up to how many years?
Three years.
Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is?
a nonexempt transaction
Statutory Disqualifications Under the Securities Exchange Act of 1934
administrative sanctions, findings of criminal wrongdoing, court injunctions, etc., are cause for statutory disqualification
An Administrator may summarily suspend a registration pending final determination of proceedings under the USA. However, the Administrator may NOT enter an order without:
appropriate prior notice to the registrant. an opportunity for a hearing. findings of fact and conclusions of law.
In general, a broker-dealer will disclose any changes to its fee schedule
by notifying clients of the change in advance
Offering securities as a bonus with purchase, is that considered an offering for a sale?
ccording to the Uniform Securities Act, offering securities as a bonus on the purchase of another thing for value, such as a car, constitutes an offer of securities.
Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include
constant dollar plan and constant ratio plan
Sole proprietorships and S Corporations
have their income and losses pass through to the owners. Therefore, an account opened in the name of the business will create tax consequences for the owners.
Under the Uniform Securities Act, the Administrator has the power to deny, suspend, or revoke the registration of an issue if it is in the public interest and:
he Administrator of another state has revoked the issue's registration. an officer of the registrant has been convicted of a securities related crime.
comprehensive financial plan
involves securities, therefore those recommending it must be registered
The Investment Adviser Registration Depository (IARD)
is an electronic filing system that facilitates investment adviser registration, regulatory review, and the public disclosure information of investment adviser firms. The IARD is used for filing Form ADV Parts 1 and 2.
Net Worth
means an excess of assets over liabilities. a sofa in the reception area would be an asset. But net worth does not include as assets: goodwill, franchise rights, patents, copyrights, marketing rights, all other assets of intangible nature; home, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual; advances or loans to stockholders and officers in the case of a corporation; and advances or loans to partners in the case of a partnership. So, what's the deal with the sofa? Since the choice specifically says that it is in the reception area, we must assume that it is not a "home" furnishing, rather one in the office and those are not excluded assets.
Under federal law, the statute of limitations for civil liability is:
one year after discovery or three years after the action, whichever is sooner.
Joint tenants with right of survivorship (JTWROS)
provides that the entire account passes to the other tenant upon the death of one of the tenants.
Affiliated Persons
1. investment company directors, officers, 2. most employees, o 3. owners of 5% or more of the voting stock and/or any persons controlling or controlled by such persons.
Which of the following statements regarding broker-dealer registration under the Uniform Securities Act are TRUE?
1.The Administrator may request that the broker-dealer furnish a statement of assets and liabilities. 2. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments.
When does a customer have to receive the OCC Options Disclosure Document?
Before accepting the customer's first order to trade options covered by the ODD. There are 2 alternatives for meeting the delivery requirement. It may be done before or at the time the broker-dealer approves that customer's options account or accepts the customer's first order to trade the listed options covered by the ODD.
Compound Interest
Compound interest is interest earned on interest that has been added to the original principal Future value is the future amount to which a sum of money today will increase on the basis of a defined interest rate and period. Future value of an ordinary annuity is the future amount to which a series of deposits of equal size will increase.
Which of the following assets will have the greatest effect on minimizing financial assistance when an individual is applying to college and using the FAFSA application? A) A Coverdell ESA B) A Roth IRA C) A prepaid tuition plan D) An UTMA account
UTMA ACCOUNT is the answer Although the exact percentages will likely not be tested, 20% of the money in an UTMA (or UGMA) account is counted, while only 5.64% of a Section 529 plan (either option) is counted.
Examples of Exempt Securities
including securities issued by a bank, or anything that functions like a bank (e.g., a savings and loan or credit union). Securities issued by a governmental unit are always exempt. Securities listed on the American Stock Exchange are part of a group known as federal covered securities that also includes those listed on the New York Stock Exchange and Nasdaq Stock Market issues. If the common stock is listed, then any security of that issuer that is equal or senior in claim to the common is also considered exempt.
exchange-traded funds and closed-end investment companies
Both exchange-traded funds and closed-end investment companies are traded on exchanges; 2. investors pay a commission when purchasing and liquidating shares Only closed-end investment companies have a limited number of shares 3. Closed-end funds may trade at significant premiums or discounts from their NAV, while ETFs rarely stray far from NAV.
Under the Securities Exchange Act of 1934, which of the following is TRUE regarding the jurisdiction of the SEC over a person who violates the rules of the Municipal Securities Rulemaking Board?
administer oaths subpoena witnesses Take evidence The SEC has the authority to investigate such violations unless the person is a financial institution.
Exemption to brochure Delivery
those purchasing impersonal advice for less than $500 per year are exempted. There is also an exemption for delivery to investment company clients
