Unit 6 missed questions
Beth Jamison is an agent and an IAR for Consolidated Wealth Planning, a FINRA member broker-dealer and SEC-registered investment adviser. An advisory client purchases 300 shares of RMBN and the sale is made from Consolidated's inventory. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, A) Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation B) Beth must obtain consent of any advisory client whenever a sale is made as principal C) selling out of inventory to advisory clients would be considered an unethical business practice D) the amount of commission charged for this transaction must be clearly disclosed
A) Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation When acting in the capacity of IA (or IAR), that is, when making recommendations or advising a client to purchase (or sell) a security, any transaction in which the firm is a principal requires disclosure in writing to and consent from the client prior to the completion of the trade. However, if merely accepting a client order (no advice rendered), consent is not required.
Which of the following conditions would most likely meet compliance standards of state regulators? A) Both supervisory personnel and agents need to understand the difference between interactive and static content. B) Only those in a supervisory role need to recognize the difference between business and nonbusiness communications. C) Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules. D) At a minimum, a firm that permits use of social media sites must hold biannual training as part of its continuing education obligations.
A) Both supervisory personnel and agents need to understand the difference between interactive and static content. Before allowing associated persons to use social media for business purposes, a firm's policies and procedures must provide for personnel training and education relating to the parameters of permitted use. Both supervisory personnel and agents need to understand the difference between interactive and static content, between business and nonbusiness communications.
Which of the following is a fraudulent or prohibited activity for an agent under the Uniform Securities Act? A) Implying that registration of a security means approval of the security B) Selling common stock to a customer with income objectives C) Stating that zero-coupon bonds pay no current interest D) Using the dividends paid in the last 12 months to determine the current yield of a common stock
A) Implying that registration of a security means approval of the security Registration of a security with the SEC or the state implies neither approval nor disapproval. To state otherwise is fraudulent.
For larger accounts, a broker-dealer is least likely to waive its normal fee for A) transferring the account to another broker-dealer B) wiring funds to the client's bank C) the annual account maintenance charge D) safekeeping of funds or securities in the account
A) transferring the account to another broker-dealer Although there is no official standard, larger accounts tend to have many of the smaller fees waived. However, if the client is moving the account to another firm, it is likely that the transfer fee will be charged.
Consent of the client before completion of a trade made between the firm and a client must be made when A) an investment adviser will be acting in the capacity of a principal B) a broker-dealer will be acting in the capacity of a principal C) a broker-dealer will be acting in the capacity of an agent D) a broker-dealer will be acting as a contra party to the trade
A) 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.
You receive a note from your firm congratulating you on passing the exam and indicating that it has received notice from the Administrator that your registration as an agent is effective. At this point, you could NOT A) indicate to prospects that you are approved by the state B) begin to prospect for new clients in the state C) state that you have passed the required licensing exams D) begin to accept orders from clients resident in the state
A) indicate to prospects that you are approved by the state Becoming a registered securities agent with the state does not infer or imply any sort of approval of you or your credentials. Once the firm has told you that you have an effective registration, you can commence doing those things that are permitted to licensed agents.
An investment adviser registered with the state is organized as a partnership. The IA may A) not change its ownership structure without formally notifying its clients B) change its ownership structure without formally notifying its clients C) not change its ownership structure under any circumstances D) assign their contracts without client notification
A) not change its ownership structure without formally notifying its clients An investment adviser that is organized as a partnership, as opposed to a corporation, must notify its clients of changes in its ownership structure. An investment adviser organized as a corporation need not notify its clients of an organizational change. Investment advisers, whether partnerships or corporations, may not assign their advisory contracts to other advisers without the express written consent of the client.
Under the rules of the Investment Advisers Act of 1940, which of the following need NOT be included in an investment advisory contract? A) Amount of prepaid fees to be returned to a client if the contract is terminated B) The past performance record of the investment adviser C) A description of the services to be provided D) The advisory fee
B) The past performance record of the investment adviser
In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under the Investment Advisers Act of 1940, this activity requires written A) consent of the client B) disclosure to the client and consent prior to completion of the transaction C) disclosure to the client D) consent of and the disclosure to the client prior to execution of the transaction
B) disclosure to the client and consent prior to completion of the transaction SEC Release IA- 1732 requires that this be accomplished before the completion of the transaction, where completion is defined as settlement date.
With regard to a state-registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that A) it must be delivered not later than 48 hours after entering into an advisory agreement with a new client B) it is filed through the IARD system C) it must be delivered to all new clients D) if requested by a client, it must be sent within 5 days of the request
B) it is filed through the IARD system 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).
A broker-dealer publishes a list of securities it approves for inclusion in IRAs. This means A) the broker-dealer has consulted with the regulatory bodies and has received approval from them to recommend these securities for IRAs B) the broker-dealer has evaluated these securities and believes they would be suitable for inclusion for retirement planning C) an agent for the broker-dealer can place these in clients' IRAs knowing that the suitability requirements have been met D) the broker-dealer has committed an unethical business practice because use of the word approved is prohibited
B) the broker-dealer has evaluated these securities and believes they would be suitable for inclusion for retirement planning Approved is an odd word in this industry. It can never be used with reference to any regulator commenting on the status of a security or an individual. However, a broker-dealer creating an approved list of securities is not unethical or prohibited as long as it is clear that it is the BD and not any regulator granting the approval.
Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client I. if the Administrator has not prohibited this practice II. if the investment adviser has notified the Administrator that it has custody III. only as long as the adviser does not also have discretionary authority over the account A) I only B) I and II C) I and III D) II and III
D) II and III The Administrator may prohibit advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing that the adviser has custody. There is no relationship between having discretion and having custody. An investment adviser can have either, both, or none.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following must be included in an investment advisory contract? I. The formula used to determine the investment adviser's compensation II. A statement of the discretionary authority, if any, given to the investment adviser III. A statement that the investment adviser may assign the contract without the consent of the client A) I and III B) II and III C) I, II, and III D) I and II
D) I and II Advisory contracts must contain the services to be provided; the term of the contract; the amount of the advisory fee or the formula used to compute it; the amount of fee to be refunded if the advisory fee is prepaid; whether the adviser has discretionary authority and to what extent; and a provision explaining that the consent of the client is required to assign the contract.
Which of the following statements may be made by an agent of a broker-dealer? I. I am a registered agent for the XYZ broker-dealer. II. I am a registered agent for the XYZ broker-dealer, meaning my qualifications have been approved by the appropriate regulatory agencies. III. This security I am recommending to you is registered on both the state and federal level. IV. This security I am recommending to you is registered on both the state and federal level, meaning that both the SEC and the appropriate states have given their approval of this issue. A) II and III B) II and IV C) I and IV D) I and III
D) I and III Securities professionals are not permitted to misrepresent their qualifications by stating or insinuating that their registration implies any kind of approval of their qualifications by any regulatory body. The same holds true when it comes to the registration status of any security.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must contain I. the formula used to compute an advisory fee II. provisions on discretionary power III. a clause stating that the client's consent is needed to assign the contract A) II only B) I only C) I and II D) I, II, and III
D) I, II, and III
Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? I. An adviser that requires prepayment of $1,000 in fees, 9 months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. II. An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. III. An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients. A) I and III B) I, II, and III C) I and II D) II and III
D) II and III An adviser's financial impairment must be disclosed to clients if the adviser has discretion or has custody or requires prepayment of more than $1,200 in fees, 6 or more months in advance.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? I. They must be renewed on an annual basis. II. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. III. They must prohibit assignment of the contract without the client's consent. A) I and III B) I and II C) I, II and III D) II and III
D) II and III There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon.
Damon Raymond is an agent with ABC Investment Planning, a registered broker-dealer and investment adviser. Under what circumstances would Damon not have to obtain client consent when ABC Investment Planning is acting in a principal capacity? A) Never B) When the client has given ABC blanket permission to engage in this type of transaction C) Only if the client terminates the advisory relationship D) When the trade that is made is unrelated to the advisory relationship
D) When the trade that is made is unrelated to the advisory relationship Under normal circumstances, when acting in an advisory capacity, client consent must be obtained no later than completion of the trade. However, in a case like this where the transaction is strictly based on the broker-dealer relationship rather than on the advisory one, no consent is necessary.
The Uniform Securities Act requires client consent for assignment of the investment advisory contract. It would be considered that contracts were assigned in all of the following situations EXCEPT A) the sole stockholder of the investment advisory firm pledges all of the stock in the firm as collateral for a bank loan B) the sole proprietor of an investment advisory firm sells the firm to another adviser C) 2 investment advisory firms intend to merge, causing a change in the majority interest of the partners D) the death of a partner holding a minority interest with the remaining partners acquiring that share equally
D) the death of a partner holding a minority interest with the remaining partners acquiring that share equally Written consent for assignment is required of clients whenever there is a change in a majority interest in an investment management partnership. The death of a partner with a minority interest does not require consent because it is not considered an assignment. All that is necessary is notification of the change in the partnership within a reasonable period.
The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if I. results do not reflect the deduction of fees II. actual market conditions during the referenced period are not disclosed III. the advertisement did not reflect performance for a minimum period of 3 years IV. the advertisement did not disclose that it applied to only a specific group of clients
I, II, and IV All investment adviser advertising must reflect fees, state actual market conditions during the referenced period, and disclose the specific group of clients to which it applies. However, advertising that reflects past performance must show a minimum period of 1 year, not 3 years.
A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver a copy of the IA's brochure a copy of the solicitor's brochure a copy of the solicitor's script a copy of the IA's Form ADV Part 1
a copy of the IA's brochure a copy of the solicitor's brochure The solicitor's script must be approved by the IA, and only the SEC receives a copy of the Form ADV Part 1.
