test Qs

if a private fund adviser is exempt from registering with the SEC because it has less than $150 million of AUM must still file

"exempt reporting adviser" no filing of the form PF, but it must still file portions of Form ADV Parts 1 and 2 with the SEC

Coverdell Education Savings Account

$2000 non deductible contribution to be made for the purpose of paying for a child's education distributions are not taxable

Tax Preference Items included in AMT

- accelerated depreciation amounts in excess of straight line - excess percentage depletion deductions - excess intangible drilling cost deductions, and - interest income from non-essential private purpose municipal bonds, such as industrial development bonds

required disclosures to customers (IA any prior disciplinary problems; or financial problems)

- impaired financial condition for advisers that have access to customer monies - conviction within the past 10 years - securities law violations - court orders barring IA from securities business - suspension / expulsion by state administrator or SEC - suspension or expulsion by SRO

if an investment adviser wishes to hire an individual to solicit business for the advisory firm

- the adviser must be registered with either the SEC or the state as appropriate - there must be a written agreement between the adviser and the solicitor *solicitor can be an independent third party that is not a representative of that investment adviser

in a corporate liquidation, the priority of claim to corporate assets is

1. secured creditors 2. unpaid wages, taxes and trade creditors 3. debentures 4. subordinated debentures 5. preferred stockholders 6. common stockholders

SEC normally grants registration within

45 days

SEC may suspend or revoke registration - appeal to federal court within

60 days

annual ADV amendment filed electronically with IARD within

90 days of fiscal year end

Life Annuity with Period Certain

An annuity option where payments are made to the annuitant for his or her entire life; however after the annuity begins, if the person dies before a fixed amount of time has passed (usually, 10 years - so there is a 10 year "period certain"), the annuity will continue to make payments to a designated beneficiary through that fixed period

life annuity

An annuity option where payments are made to the annuitant for his or her entire life; when that person dies, payments stop.

which statements are true about structured products? i. structured products are standardized ii. structured products are not standardized iii. structured products have a fixed maturity date (similar to debt security) iv. structured products do not have a maturity date (similar to an equity security) a. i and iii b. i and iv. c. ii and iii d. ii and iv

C - structured products are not standardized and structured products have a fixed maturity date (similar to a debt security) are securities based on, or derived from, a basket of securities, an index or other securities, commodities or currencies. they usually consist of a 'bond' portion, which pays interest based on the performance of a well known index such as the S&P 500 index. they have a derivative component (an embedded option) that allows the holder to sell the security back to the issuer (at par) at maturity.

under the USA, if an agent withdraws his or her registration, the withdrawal becomes effective: a. immediately b. after 10 days c. after 30 days d. only when the Administrator so allows

C. after 30 days

material change updates FED vs. STATE

FED -> "promptly" State -> "within 30 days"

under the Investment Advisers Act of 1940, which of the following persons managing assets of at least $100,000,000 must be registered with the SEC? i. a person who gives advice solely about listed securities ii. a person who gives advice solely about municipal securities iii. a person who gives advice solely about US Gov securities

I and II excluded from the definition of an IA is any person who renders advice solely about securities guaranteed by the US government

Discretionary Accounts - NASAA for IA vs SEC rules for BD

NASAA Rule for IA - written authority must be obtained from customer no later than 10 business days after being given verbal discretionary authority by that customer (does not apply to BD) SEC Rule for BD - written authority is required PRIOR to accepting any discretionary order

The use registration of coordination, an issuer must file a registration statement with the i. SEC ii. administrator of another state iii. administrator of that state

SEC and administrator of that state a method of registering securities in a state, this is used by a new company that is also registering the securities with the SEC.

Equity Risk Premium

The expected return on equities minus the risk-free rate; the premium that investors demand for investing in equities.

SWAPS

a custom derivative contract where counterparties exchange the benefits (usually cash flows) of 1 side's financial instrument for those of the other side (so they "swap" sides) custom contracts / no trading interest rate swap - most common currency, commodity and credit default saps

which of the following might be used by an analyst to approximate a reasonable price for a common stock? a) dividend discount model b) yield to maturity c) par value d) book value per share

a) dividend discount model simplest model for valuing equity - the value of a stock is the present value of expected dividends on it.

one of the major changes incorporated into the Uniform Prudent Investors Act of 1994 was the ability of a trustee to delegate certain responsibilities to qualified third parties. However, a fiduciary would not be able to delegate a) the amount and timing of distributions b) the ability to decide on the specific securities to be acquired c) the selection of different managers for different asset classes d) which investment style to be used for managing the portfolio

a) the amount and timing of distribution the UPIA allows a fiduciary to delegate the investment decisions to a qualified third party. Determining distribution amounts and timing is not part of portfolio management and can only be done by the fiduciary (trustee)

surrender charges may cause a reduction to all of the following EXCEPT a) the death benefit of a variable life insurance policy b) the cash value of a variable life insurance policy c) the redemption value of class b mutual fund shares d) the liquidation value of a variable annuity

a) the death benefit of a variable life insurance policy there may be a surrender charge in the case of early surrender of a variable annuity, taking out the cash value of a variable life policy, or redemption of Class B (back end load) mutual fund shares

a RIA is formed and registers in the state on Oct 15th. the RIA would be required to re register in the state by a. December 31st of the year of registration b. January 1st of the year following the year of registration c. April 1st of the year following the year of registration d. January 1st of the second year following the year of registration

a. Dec 31st of the year of registration registration of BDs, IA, agents and IARs all expire on Dec 31st of each year. These must be renewed by the Dec 31st date (accompanied by payment of a fee), otherwise they expire.

the primary reason for a customer to make a tax shelter investment is the a. economic viability of the project b. immediate deductions generated by the project c. immediate tax credits generated by the project d. future capital gains generated by the project

a. economic viability of the project

futures contract

an agreement to buy or sell at a specific date in the future at a predetermined price standardized and exchange traded holder must take delivery at settlement unless contract is closed prior large contract sizes / low margins / mark to market / no counterparty risk

Joint and Last Survivor Annuity

an annuity option typically chosen by a husband and wife, where the annuity payment continues through the lives of both spouses

Unit Refund Annuity

an annuity option where, if the annuitant dies before receiving the full investment value of the annuity contract, the remainder is refunded to his or her estate

what constitutes 'taking custody' under the NASAA rule for investment advisers

an employee of an advisory firm acting as a trustee for a firm advisers that take custody must post a higher new worth, must send out quarterly account statements, must keep customer funds or securities at a qualified custodian, and must be audited annually

use of term investment counsel

an investment adviser cannot call itself an "investment counsel" unless the adviser's principal business is rendering investment supervisory services

in order to offer its services in a state an investment adviser must.... a third party solicitor must...

an investment adviser offering its services in a state must either be registered in that state or must be registered with the SEC as a Federal Covered Adviser a 3rd party solicitor for an investment adviser offering that adviser's services in a state must be registerd as either an investment adviser or an adviser representative in that state

Under SEC rules an "access person" must report all personal securities positions

annually within 45 calendar days of the date of the statement used to prepare the report has access to nonpublic info and is in a position to use it for personal profit (which is illegal). access persons must report all personal transactions to the IA in a quarterly report within 30 calendar days of quarter end; and must file an annual report of all securities holdings (positions) within 45 days of the account statement used to prepare the report

registration by qualification can be stopped by the administrator if it is in the public interest and the

applicant cannot show that the registration is not incomplete in any material respect if the issue is being registered by qualification or filing, the burden of proof is on the applicant to show that the order should be vacated

offers of pre-organization certificates

are exempt under USA if no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons and no payment is made by any subscriber

under the USA, which of the following investment advisers with no place of business in the state must register with the state as an investment adviser? 1) an adviser managing more than $110 million in assets b) an adviser rendering advice to no more than 10 individual clients within a 12 month period c) an adviser rendering advice solely to broker dealers d) an adviser rendering advice to employee benefit plans with at least $1 million assets

b) an adviser rendering advice to no more than 10 individual clients within a 12 month period

which ratio would be looked at to determine the liquidity of a corporation? a) dividend payout b) current c) price/earnings d) debt/equity

b) current ratio

when doing cash flow analysis on a mortgage backed pass through security, you would want to know a) the qualify of the mortgages b) the average maturities c) size of the tranche being analyzed d) whether is is a real estate "bubble"

b) the average maturities mortgage backed pass through securities pass through interest and principal payments to their investors. the rate at which the cash flows are generated depends, among other things, on the rate at which the mortgages mature

the statute of limitations on civil suits arising from alleged violations of the USA is a. 1 year of discovery b. 2 years of discovery c. 3 years of discovery d. 5 years of discovery

b. 2 years of discovery civil suits alleging violations of the Act must be brought within 2 years of discovery of the alleged violation, but no later than 3 years after the actual violation occurred

a valuation model used to predict portfolio performance is a. net present value b. expected return c. internal rate of return d. inflation adjusted rate or return

b. expected return expected return assigns a probability percentage to each possible rate of return for that asset class; multiplies the probability by the possible rate of return; and then "sums these up" to get the "expected" rate of return --- predictor of portfolio performance

An issuer has filed a registration statement in the State proposing to offer 500,000 shares in a combined primary and secondary distribution, consisting of 300,000 newly issued shares and another 200,000 shares being offered by the officers of the firm. Under Uniform State Law, the: 200,000 shares being sold by selling shareholders are a(n) a. issuer distribution b. non issuer distribution c. commingling of securities d. exempt transaction

b. non issuer distribution non issuer transaction is one where the proceeds of the offering go to someone other than the issuer issuer transaction is one where the proceeds of the offering go to the issuer

transactions that violate the USA are voidable at the option of the a. issuer b. purchaser c. seller d. administrator

b. purchaser transactions that violate the Act are voidable by the purchaser. The seller is obligated under civil liabilities to pay the investor the original cost of the securities plus 6% interest

under the provisions of the USA, the Administrator, in connection with a securities registration is prohibited from revoking a a. registration prior to providing an opportunity for a hearing b. registration retroactively c. statutory exemption in a specific sale of securities to a bank d. statutory exemption in a specific sale of securities to a broker dealer

b. registration retroactively

what is the real rate of return? a. the rate of return adjusted by the beta coefficient of the security b. the rate of return adjusted by the inflation rate c. the rate of return adjusted by the internal rate of return d. the rate of return adjusted by the compounded dividend rate

b. the rate of return adjusted by the inflation rate nominal rate - inflation rate

one of the likely consequences of a rating downgrade on a bond is a) the current yield will be reduced b) the call feature will be employed c) a reduction in the market price of the bond d) an increase to the coupon by the issuer

c) a reduction in the market price of the bond if the rating agencies downgrade the quality of a bond, potential investors will look to compensate for the increased risk by demanding a greater yield on the issuer's bonds. this will inevitably result in a lower bond price

the 'arithmetic mean' of portfolio returns is a measure of a. absolute return b. variability of return c. central tendency d. statistical dispersal

c. central tendency when looking at the number pattern, the arithmetic mean falls towards the center of different returns

the use of customer names by an IA to promote the sale of the firm's advisory services is a. prohibited in all circumstance b. permitted if the adviser notifies each client of its intentions c. permitted if the adviser notifies each client of its intentions and the clients consent to such disclosure d. permitted if the adviser notifies the state administrator that the client names will be used

c. permitted if the adviser notifies each client of its intentions and the clients consent to such disclosure

the IRR of an investment assumes that

cash flows generated by the investment are reinvested at the internal rate of return IRR is the true yield maturity of an investment. It finds the yield that will discount the investment's cash flows to "0". Inherent in the IRR calculation is that any cash flows generated by the investment are reinvested at this same IRR

forward contracts

custom contracts to take delivery of an asset at a future date (OTC market) non standardized / no mark to market / no margin / counterparty risk

which of the following statements regarding agent registration under the USA are True? i. in the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day. ii. the administrator may initiate a disciplinary action within 2 years of an agent's withdrawal of registration iii. the administrator may request the agent furnish a statement of assets and liabilities iv. 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 a) i and ii b) ii and iii c) iii and iv d) i and iv

d in the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day. 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

one of the situations that investment adviser representatives may encounter is the death of a client. when that happens, orders may be accepted from a) the deceased client's children b) the deceased client's spouse c) an individual with a durable power of attorney d) the trustee in intestacy

d) when the deceased has not written a will, he is considered to have died intestate. the appointment of the person who will administer the estate is based on state law. that person may be called the administrator of the estate or the trustee in intestacy

the administrator cannot deny an exemption from registration for a a. sale of securities to a bank trust department b. isolated non issuer transaction c. private placement d. u.s. government bond

d. U.S. Government Bond the Administrator is permitted to modify the USA in his or her state, and thus can change any "exempt" transaction. However, the Administrator cannot change the exemption from registration given to the securities specified as exempt under the Act, such as U.S government or municipal bonds

In order for a promissory note to be an exempt security under the Uniform Securities Act: a. it must mature within 9 months b. it must be issued in minimum denominations of $50,000 c. it must be rated in one of the 3 highest categories by Moody's d. all of the above

d. all of the above

Discretion authority

discretion authorizes a representative to choose the security, the amount of shares, or whether to buy or sell. time or price alone is not a discretion decision

index options are

european style stock options are american style (exercisable at any time), index options (with only one exception) are only issued in European style (exercisable only at expiration)

arithmetic mean vs. geometric mean return

geometric mean return considers COMPOUNDING (x) while arithmetic mean is the average annual return of an investment over its time horizon (+)

which of the following statements are TRUE regarding trusts? i. trusts are federally taxable entities ii. trusts are federally tax exempt entities iii. trusts eliminate estate taxes iv. trusts do not eliminate estate taxes

i and iv i. trusts are federally taxable entities iv. trusts do not eliminate estate taxes

which actions taken regarding a universal variable life insurance policy could result in tax liability? i. cash surrender ii. partial withdrawal iii. loan of up to 95% iv. payout of death benefit

i+ii+iii proceeds distributed from a variable life insurance policy are taxable income if there is a distribution of benefits above the amt invested (tax basis) in the separate account. This would include a cash surrender (surrender of the entire policy for its current cash value, terminating the policy) or making a partial withdrawal from the policy. the payment of a death benefit from the policy, while not taxable income to the recipient, is included in the taxable estate of the deceased individual. i

if an investment adviser is found to be insolvent, powers of the Administrator include the ability to

i. petition the court to issue a permanent injunction against a person from engaging in the investment advisory business ii. make the showing required to appoint a receiver to protect the assets of customers held in custody of the investment adviser

the difference between a cash forward contract and a commodity futures contract is that the forward contract

is traded over the counter futures contracts are standardized exchange traded contracts to deliver a commodity at a future date forward contract is not standardized.. custom created contract between a buyer and seller for delivery of a specified commodity at a date in the future

the major risks of investing in Real Estate Limited Partnerships (RELP) are i. interest rate risk ii. liquidity risk iii. regulatory risk iv. reinvestment risk

liquidity risk + regulatory risk limited partnerships are illiquid owners of limited partnerships face increased risk of tax audit; and also are subject to regulatory risk, which is the risk of tax law change

an IA makes presentations to existing and prospective clients using a chart that determines when to buy or sell securities. in order to this, the adviser

must prominently disclose the limitations of using the chart and the difficulties regarding its use

structured product

non negotiable if redeemed prior to maturity, imposes an early redemption penalty

who is an Access Person?

officers and directors of the IA all supervised employees that have access to nonpublic info on client transactions (this would mainly be institutional client activity such as MF clients, which could be making large purchases and sales) portfolio managers employed by the IA (who could trade personally to take advantage of upcoming large portfolio trades that they place) and anyone making securities recommendations to clients or who has access to such recommendations that are nonpublic

limited partners

passive investors who cannot make management decisions are illiquid, they do not trade, and a limited partner is only allowed to transfer his or her partnership investment to someone else if the general partner approves like a common shareholder has the right to inspect the partnership's books and records, but cannot "audit" them have the right to receive payouts from the partnership

Under NASAA rules, a customer must sign and return the margin agreement:

promptly after the initial transaction in the account

Private Fund Advisers (3)

qualified purchaser -> individual/trust with $5 million of assets available or an investment manager with at least $25 million $150 million or more must register with SEC <$150 -> register with the state - where it is physically located and in any state where it solicits or conducts advisory business

if the issue is being registered by coordination (burden of proof to void)

since there is a concurrent SEC registration, the burden of proof is on the Administrator to show that the order should not be vacated

a BD is suspended by FINRA for rule violations. The officers of the BD are also the officers of an IA registered with the SEC. Which statement is true? a. FINRA's action has no impact on the IA registration b. FINRA can suspend the IA registration as well c. the SEC can suspend the IA registration based upon FINRA's action d. the SEC can only suspend the IA registration if the FINRA suspension is no longer than 1 year

the SEC can suspend the IA registration based upon FINRA's action

an agent for a broker dealer tells a customer that the price of a stock is higher than it actually is. Based on this information the customer sells the stock....

the agent is subject to civil action taken by the administrator giving fictitious quotes and then trading based on erroneous information is considered a manipulative practice subjecting the agent to civil action

under the uniform securities act, a registration statement for a security must be signed by

the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors

conversion ratio always uses....

the par value ($1,000)

which of the following information must be recorded on an unexecuted order ticket where the trade has been canceled? i. time of execution ii. time of receipt iii. time of cancellation iv. solicited or unsolicited

time of receipt, time of cancellation, solicited or unsolicited since the trade was not executed, there can be no time of execution recorded.

ETN

type of structured product offered by banks that gives a return tied to a benchmark index the note is a debt of the bank, and is backed by the faith and credit of the issuing bank. debt instrument ETNs are listed on an exchange and trade, so they have minimal liquidity risk makes no interest or dividend payment value grows as they are held based on the growth of the benchmark index, with any gain at sale or redemption currently taxed at capital gains rate

UITs

unit investment trusts typically issues redeemable securities (or "units"), like a mutual fund, which means that the UIT will buy back an investor's "units" at the investor's request, at their approximate NAV

an individual who has passed the NASAA examination for registration as an IAR may begin soliciting advisory clients

when informed by the investment adviser that the representative's registration is effective

ADV W (withdrawal)

withdrawal effective in 60 days

annual brochure update if there are any changes

within 120 days of fiscal year end each existing client must be delivered the: current brochure or the "summary of material changes" *annual update is required for the brochure and not brochure supplement