Finals
which of the following are included in the computation of stockholders equity
-Treasury stock -Retained Earnings -Additional Paid in capital Common stockholders' equity consists of: Common at par + Capital in Excess of Par + Retained Earnings, reduced by any buy backs of that company's stock for its Treasury. Cash is not part of the computation.
An investment adviser is NOT required to keep a record of each person to whom a communication is sent if the communication is sent to more than how many persons? A. 2 B. 5 C. 8 D. 10
10 persons or more The Investment Advisers Act of 1940 requires that a record be kept of each client to whom a communication is sent. This is only required for communications sent to up to 10 clients. For communications sent to more than 10 persons, the adviser is not required to keep a record of the names and addresses of the persons to whom it was sent.
An adviser that takes custody must file a copy of its surprise audit results with the State Administrator within: A. 60 days of year-end B. 60 days of completion of the examination C. 120 days of year-end D. 120 days of completion of the examination
120 days of completion of the examination
Under the Investment Advisers Act of 1940, an SEC registration application as an investment adviser must be granted; or a proceeding must be initiated denying registration, within how many days
45 days IA apps filed with the SEC must be granted; or a proceeding started to deny registration within 45 days.
A management company's board of directors cannot consist of more than what percentage of affiliated persons?
60%
13G report, anyone who accumulates 5% or more that would like to remain passive
A 13G filing with the SEV by anyone who accumulates 5% or more of a company's stock that would like to remain passive
Solicitors brochure
A separate document from the advisers brochure. The brochure details the nature of the relationship between the solicitor and adviser. It must disclose that the solicitor will be compensated for referring the client.
Which action can ONLY be taken in a court of law? A. Enjoining a person from engaging in the securities business B. Issuing a cease and desist order to a person in the securities business C. Subpoenaing witnesses in other States D. Subpoenaing witnesses within that State
A) enjoining a person from engaging in the securities business. An admin can issue a cease and desist order, subpoena a witness but cannot enjoin a person from engaging in securities.
"investment counsel" can be used as long as the
As long as the principal business of the advisory firm is rendering investment advice.
Under the provisions of the IA act of 1940, if an adviser takes custody of a clients funds, statements must be sent how frequently?
At least quarterly
Under the Uniform Securities Act, which individual is defined as an "agent"? A. A principal of a broker-dealer B. A secretary who takes customer orders
B. A secretary who takes customer orders An agent is defined as an individual who represents an issuer or broker dealer in effecting securities transactions. The definition excludes principles.
The tax rate on the last dollar of income earned is called the? A. effective tax rate B. marginal tax rate C. statutory tax rate D. average tax rate
B. Marginal tax rate. The marginal tax rate is defined as the rate imposed on the last dollar of income earned. The higher one's income, the higher the marginal rate.
Royalties received from an oil and gas program are: A. partnership income B. passive income C. earned income D. portfolio income
B. passive income Income
BD terminates rep, who must notify the admin?
BD & Rep
Safe Harbor 401k plan
Benefit is that it avoids the annual testing like a normal 401kk plan because it get a minimum level of mandatory employer contributions. -Employer must match first 4 percent of comp for participating employees or 3 percent of eligible employees whether they participate or not.
If a customer exercises the right of rescission allowed under the Uniform Securities Act, the offer must be accepted within: A. 10 days of written notice from the seller B. 15 days of written notice from the seller C. 20 days of written notice from the seller D. 30 days of written notice from the seller
Buyers of the issue have 30 days to accept the offer.
The arithmetic Mean of portfolio return is a measure of? A. absolute return B. variability of return C. central tendency D. statistical dispersal
C. Central Tendency The mean is basically the average and when you compute the average its usually the number that falls in the middle of a set of numbers. The Arithmetic mean falls towards the center therefore this is a measure of central tendency.
Cash payments made to investors from which of the following investments are subject to the lower 15% maximum tax rate? I Common stocks II Preferred stocks III Convertible bonds IV Non-convertible bonds
Common stocks and Preferred stocks Interest payments received from bond payments do not qualify for the lower tax rate.
An investment policy would not include A. recommended allocations among differing asset classes B. expected returns of the recommended strategy and the expected range of these returns C. strategies used for selecting specific stocks in the equity portion of the portfolio D. disclosure of the fees that the adviser will earn for implementing the recommended strategy
D. Disclose fees that adviser will earn This statement details how the funds will be invested. The Fee disclosures will be disclosed separately
A money manager that employee momentum investing makes investment decisions based on?
Earnings trends of the economy
IA terminates rep, who must notify the admin?
IA only had to notify
Which statement is TRUE regarding the public availability of issuer filings made with the SEC?
Issuer filings with the SEC are made available to the public immediately upon receipt Issuer filings (10K, 10Q, 8K reports) filed with the SEC are made public immediately. The SEC has a website from which these can be accessed; and has a reading room in Washington, D.C. where these reports are made available to the public when the filing is received from the issuer.
Which of the following risks is the primary concern when investing in a municipal bond?
Legislative risk
Hedge funds are set up as
Limited partnerships
NASSA record keeping for investment advisers, any advertisement, circular or other communication
Must be retained if it is circulated to 2 or more persons and can contain recommnedations of a specific security and if it does not state a reason it must include a memo stating the reason for the recommendation.
Federal covered adviser terminates rep, who must notify the admin?
Only the rep has to notify the admin
The Hurdle Rate is the same thing as?
Required Rate of return When making an investment decision, the "hurdle rate" is the minimum rate for that investment to "clear the hurdle" - meaning that it is a "go." It is the same thing as the required rate of return - the return required by an investor in order to commit funds to that investment.
Dollar cost averaging
Requires an investor to make periodic payments of a fixed dollar amount. If the stock price is fluctuating the average price per share will be lower. Dollar cost averaging does not work if prices remain steady.
Mutual funds must send their financial statements to shareholders how often?
Semi Annually Mutual funds must send their financial statements to shareholders semi-annually (twice a year).
IA-1092
Specific three prong test that names advisers. Specifically includes advisers to entertainers and athletes.
Tactical vs Strategical asset allocation
Strategical is the setting of overall while tactical would be selling or buying individual securities in the account.
Surety bonds can be used as payout to legal claims
Surety bonds must be posted as cash, securities or an indemnity policy issued by insurance companies
An adviser that takes custody must file a copy of its surprise audit results with the state admin within? A. 60 days of year-end B. 60 days of completion of the examination C. 120 days of year-end D. 120 days of completion of the examination
The adviser must file a copy of the results within 120 days of completion of the exam.
When a residence is sold what is the amount of exempt tax?
The first 250k for an individual is exempt. for married filers the first 500k is exempt
The statute of limitations for criminal violations of the Uniform Securities Act is:
The statute of limitations for criminal violations of the USA act is 5 years.
Firm commitment (principal)
The underwriter is obligated to buy the issue & takes full financial responsibility.
Testamentary trust
These trust are created upon death and are called will trust because that assets that go into the trust are stated in persons will.
Registration by Qualification
This is the most difficult method of registration and can be used for any security. Requires the most detailed disclosures.
Ending value minus beginning value, plus or minus cash flow, divided by beginning value is?
Total return
Earned income examples:
Wages, salaries, tips, bonus's, royalties from books, self employment.
Cost basis commission
When calculating cost basis- The commission paid is added to the total amount spend on the purchase.
Schedule C vs E
a Schedule C (Profit or Loss from a Business) form is attached to that individual's tax return. Schedule E is used to report passive income and loss from real estate and partnership investments.
Universal life insurance poilicy, the owner can change the scheduled premiums.
after the cash value increases the owner can skip a premium payment.
A customer, age 60, has a fixed annuity contract with a value of $16,000. The cost basis in the contract is $10,000. If the customer withdraws $5,000 and the IRS taxes distributions on a LIFO basis, the tax consequence of a withdrawal will be:
all $5,000 will be taxable since IRS would be using the LIFO method. Annuity contract contributions are not tax deductible, so the 10k was already taxed. In addition, since this individual is over age 59½, there is no penalty tax on the distribution.
Sales literature
sales literature is defined as a communication to 25 or more people. A group email would be considered sales literature
A best efforts underwriting (agent)
using its best efforts to sell the issue to the public, taking no liability.
Qualified custodian
-FDIC insured deposit taking institutions -registered broker dealers holding customer assets -Registered futures commissions merchants holding customer assets -Foreign financial institutions holding financial assets for customers.
What requirements must be met for a wife to be able to collect SS benefits based on Ex husbands earnings
-Must be at least 62 years old -Must be single (not married) -Marriage must of lasted 10 years Typically ss will give her 50%
Aggregate contributions into 529 plans are: I subject to dollar limits at the Federal level II subject to dollar limits at the State level III not subject to dollar limits at the Federal level IV not subject to dollar limits at the State level
-Subject to dollar limits at the state level -Not subject to dollar limits at the federal level
Where no fraud is present, an action to recover monies arising from a violation of the Uniform Securities Act must commence within:
2 years following discovery Civil suits to recover monies must be brought to the attention within 2 years but no longer than 3 years.
NASAA record keeping rule for investment advisers states that they have to retain records for how long after the adviser ceases business operations?
3 years. NASAA's recordkeeping rule for investment advisers requires that "partnership articles and any amendments, articles of incorporation, charters, minute books and stock certificate books of any investment adviser be preserved for at least 3 years after termination of the enterprise."
What is the 75/5/10 mutual fund rule
75% of assets must be invested in securities 5% no more that five can be invested in a single issuer 10% no holding can represent more than 10% of the voting power.
Under the Investment Advisers Act of 1940, if a registered investment adviser, for the first time, decides to require prepayment of $1,200 or more of advisory fees, 6 months or more in advance of rendering services, the adviser must: A. file an audited balance sheet promptly with the Securities and Exchange Commission B. file a new brochure with the Securities and Exchange Commission promptly
A. File an auidted balance sheet promptly the SEC
Under the Uniform Securities Act, the threshold where a State-registered adviser is considered to have taken custody of client funds if it charges prepaid advisory fees, is: A. $500, 6 months or more in advance of rendering services B. $1,200, 6 months or more in advance of rendering services
A. Under state law, the threshold is $500, 6 months or more in advance of rendering service.
Mutual fund distributions that are automatically reinvested are: A. taxable based on the date of the distribution B. taxable when the shares are redeemed C. taxable upon reaching age 59 1/2 D. not taxable
A. taxable based on the date of the distribution
Which of the following are included in the Form ADV filed to register as an investment adviser with the SEC? I Compensation to be received II Conflict of interest disclosure III Whether the adviser has discretion IV The firm's business history
All of the above. Including the firms business history
When a gift is made, the recipient assumes the cost basis of the donor. Thus, the cost basis to the daughter is $3,000. Since the ring was sold for $7,500, there is a $4,500 long term capital gain.
Also note in contrast that if an item is inherited (as opposed to being received as a gift), the cost basis to the recipient is the market value at date of death.
Correspondence
An item of individual nature to a customer and includes a written communication, an email, or instant message. **note** a group email does not count as a correspondence.
13D report, anyone who accumulates 5% or greater of a publicly traded company.
Anyone who accumulates a 5% or greater holding in a publicly traded company must file a Form 13d within 10 business days. The filing is made with the SEC, the exchange where the company trades and the Board of Directors of the company.
An investment adviser that is registered with the SEC under the investment advisers act of 1940 moves to a new location. An amendment to form adv must be filed A. promptly B. within 1 day C. within 30 days D. within 90 days
Promptly A new address under the IA act of 1940, the IA must amend the adv promptly Compared to the state, NASAA requires it to be updated within 30 days
Which of the following investments trades in the market independent of NAV A. Mutual fund B. Closed-end fund C. Variable annuity D. Hedge fund
B. Closed end fund
All of the following must be recorded on an order ticket EXCEPT? A. Customer name or account number B. Customer address C. Execution price and order size D. Identity of agent accepting the order
B. Customer address There is no requirement for a customer address or SSN.
Investment advisory contracts must include a: A. power of attorney B. no assignment clause C. consent to service of process D. duplicate copy for the client
B. No assignment clause Investment advisory contracts must include a "no assignment clause" - that is, the contract cannot be assigned to another investment adviser unless the customer consents in writing.
Investment advisory contracts must include a: A. power of attorney B. no assignment clause C. consent to service of process D. duplicate copy for the client
B. No assignment clause that is, the contract cannot be assigned to another IA unless the customer consents in writing.
Under FINRA rules, a customer must sign and return the margin agreement: A. promptly after the initial transaction in the account B. prior to settlement of the first trade in the account
B. Prior to settlement of the first trade.
Investment companies are obligated to send their financial statement to holders A. annually B. semi-annually C. quarterly D. monthly
B. Semi Annually
couple owns a home together and they file for bankruptcy. If there is an excess of funds from the sale of the home, where does the extra money go? A. To the secured creditors B. To the additional creditors C. To the couple D. To the lender Record your answer Review this concept Print this question
B. To the additional creditors
Under the Securities Exchange Act of 1934, all of the following must register with the Securities and Exchange Commission EXCEPT: A. Broker-Dealers B. National Securities Exchanges C. Investment Advisers D. Securities Information Processors
C. investment Advisers Do not have to register under the SEC act of 1934, they register under the IA act of 1940.
What formula finds the "expected return"
CAPM (capital asset pricing model) attempts to find the expected return of a investment by breaking the return down into two components. Risk free rate of return & risk premium.
under the investment advisers act, which statement is true regarding an investment adviser who wishes to show past performance? C. The adviser can show past performance as long as the adviser is not deliberately selective; and the adviser mentions the market conditions during the time period shown D. The investment adviser is prohibiting from showing past performance.
C. An Investment adviser can show past performance, as long as it discloses market conditions, & a disclaimer that past performance does not predict future results. **note** testimonials under the IA act are prohibited.
An investment adviser is permitted to identify the names of clients in communications to potential new clients. A. if the clients are compensated by the investment adviser B. if the clients are public figures C. if the clients have consented D. under no circumstance
C. If the clients have consented The use of customer names by an investment adviser to promote the sale of the firm's advisory services is prohibited, unless the customer consents to such disclosure. The only disclosure of customer information that may be made without customer consent is required disclosures to governmental bodies such as the IRS.
A broker-dealer MUST maintain physical possession of which of the following? A. Convertible bonds issued by corporations B. General obligation bonds issued by municipalities C. Mortgage backed bonds from which CMO derivatives are created D. Mortgage bonds issued by utilities backed by a lien on assets
C. Mortgage backed bonds from which CMO derivatives are created
A 62-year old client makes her first withdrawal from a non-tax qualified annuity. This will result in: A. capital gains taxed at capital gains rates B. ordinary income taxed at ordinary income tax rates that is subject to a penalty C. ordinary income taxed at ordinary income tax rates that is not subject to a penalty D. capital gains taxed at ordinary income tax rates
C. Ordinary income taxed at ordinary income tax rates that is not subject to a penalty
Which investment offers the greatest protection against purchasing power risk A. Long term U.S. government bonds B. Long term zero-coupon bonds C. Real estate investments D. Investment grade preferred stock
C. Real estate investments Long term bonds and preferred stock are lousy investments in times of inflation. These securities give a fixed income stream that will be worth less and less each year. When there is inflation, real assets tend to inflate as well. Hence real estate is a good investment.
Which security would suffer the largest price loss due to a rise in interest rates? A. Commercial Paper B. T-Bill C. Zero-Coupon Bond D. Treasury Bond
C. Zero Coupon bonds The bonds that fall fastest in price are those w low coupon rates and long maturities
Capital gains tax
Capital gains held over 1 year is taxed at the maximum of 15 percent. This increases to 20% for individuals earning over $400K
All of the following are included in the 10K report filed by corporate issuers with the SEC EXCEPT: A. income statement B. balance sheet C. retained earnings statement D. net capital computation
D. Net capital computation Is not included in the 10k report. The 10k and 10q include; income statement balance sheet statement of changes to retained earnings statement of sources of cash
The Department of Treasury requires notification for which of the following instances? A. A deposit of $5,000 cash B. A withdrawal of $5,000 cash C. The deposit of $20,000 worth of bonds in fully registered form D. The withdrawal of $11,000 cash
D. The withdrawal of 11K cash. the department of treasury requires that any deposit or withdrawal must be reported to FinCen.
III FIFO accounting must be used to establish the cost basis of the shares sold, if no other tax election is available Or IV LIFO accounting must be used to establish the cost basis of the shares sold, if no other tax election is available
FIFO is sued to establish the cost basis, unless the client choses the higher cost shears to reduce capital gain.
Which of the following guarantees do insurance companies typically give with BOTH fixed and variable annuities? I Mortality guarantee II Expense guarantee III Investment return guarantee IV Benefit amount guarantee
I & II only
Which of the following are included in the taxable income of a corporation? I Dividends received from foreign investments II Gain on the sale of a capital asset III Proceeds received from an initial public offering IV Refunds of tax overpayments
I,II Dividends received from any investments (domestic or foreign), and gains on any asset held for investment are taxable. Please note, however, that part of dividends received by corporate investors are subject to an exclusion from tax. The proceeds received by a corporation from issuing debt or stock are not taxable (Are you taxed on the amount borrowed if you take out a loan to buy a car or house? NO.) Refunds of tax overpayments are not taxable, since they are not income.
To be registered with the SEC as an investment adviser, which of the following are required? I Filing of Form ADV Part 1 II Filing of Form ADV Part 2 III Filing of a consent to service of process IV Filing of registration information for each representative
I,II The SEC only registers firms as advisers, not representatives so that makes Q IV incorrect. Filing consent to service is only filed for state registration, not SEC.
Under the Uniform Securities Act, an investment adviser may be formed as which of the following? I Corporation II Partnership III Association IV Broker-dealer
I,II,III An investment adviser cannot be formed as a broker dealer nor can a broker dealer be formed as an investment adviser. These are two separate legal entities and are regulated separately.
Investment advisers may be compensated on with which of the following? I Wrap fees charged to customers for all services rendered by the adviser II Soft dollars paid by an executing broker to the adviser in return for trades sent to the broker by the adviser III Bid-Ask spreads earned when position trades are executed IV Commissions paid to an affiliated broker-dealer on trades recommended by the adviser
I,II,IV Bid-ask spreads earned by securities dealers that buy securities into their own inventory and sell securities out of their own inventory. "position trades" Investment advisers are prohibited from earning these fees.
Delivery of the brochure under the "Brochure Rule" is NOT required for: I impersonal advisory services requiring payment of less than $500 annually II prepaid advisory fees requiring payment in advance of $1,000 or more III advisory contracts with investment companies IV advisory contracts with pension plans
I,III Delivery of the brochure is not required for -Impersonal advisory services requiring payment of less than 500 annually -Advisory contracts with investment companies
Which statements are true regarding rules and orders that are entered by the administrator? I Rules are general in applicability II Rules are specific in applicability III Orders are general in applicability IV Orders are specific in applicability
I,IV Rules apply to everyone, while orders apply to specific people.
In order for an investment adviser to charge a performance fee under the IA act of 1940, the customer must have I at least $1,000,000 of assets to invest II a net worth of at least $1,000,000 III at least $2,000,000 of assets to invest IV a net worth of at least $2,000,000
I,IV The client must have at least 1,000,000 to invest or a net worth of 2,000,000.
When a broker dealer has a branch location, a customer that wishes to effect securities transactions must be told:
In writing and verbally- That securities products are not FDIC insured & may lose value. NASAA requires that the member makes reasonable efforts to obtain a signature of acknowledgment
Total return formula
Income + capital gain/cost of security
Inherited securities assume a new cost basis - the market value at date of death. So the XYZ stock has a cost basis of $44. The stock is sold at $48 and all gain and loss on inherited securities, when sold, is long term. So the XYZ stock is sold for a $4 per share long term capital gain.
Inherited securities assume a new cost basis - the market value at date of death. So the XYZ stock has a cost basis of $44. The stock is sold at $48 and all gain and loss on inherited securities, when sold, is long term. So the XYZ stock is sold for a $4 per share long term capital gain.
The major risks of investing in a Real Estate Limited Partnership (RELP) are: I Interest rate risk II Liquidity risk III Regulatory risk IV Reinvestment risk
Liquidity & regulatory risk Limited partnerships are illiquid - they do not trade and a limited partner can only sell his or her unit with general partner approval. So liquidity risk is a major issue. Because these are tax shelters that use provisions of the tax code to reduce tax liability, 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. Interest rate risk is not so much of an issue; and there are no dividends or interest payments received that must be reinvested, so there is no reinvestment risk. However, business risk is another big issue here - because the business venture may fail.
The length of time that the current fund manager has been the portfolio manager of a fund is called:
Manager Tenure
Equity investments fall out of favor with investors due to a period of steep economic decline and stock prices fall broadly. This is an example of what risk?
Market RISK
For a sale of securities to be exempt under reg D under the securities act of 1933, there must be a limit on?
Number of non-accredited investors to whom the security is offered. Reg D gives a "private placement" exemption for securities that are sold to no more than 35 non- accredited investors.
Regulation SP (Statement of Privacy)
Requires that non public customer info cannot be divulged to third parties unless the customer approves. This privacy rule applies to info obtained about a customer obtained from I Obtained from non-public sources II Obtained directly from the customer III Obtained through examination of the customer IV Obtained through observation of the customer
The defining characteristics of global investing is
Spreading of portfolio investments in a weighted manner in both domestic and foreign securities
If an investment adviser is a partnership, the death or withdrawal of a minority of the partners does not constitute as an assignment.
The assignment of an investment advisory contract is not permitted unless the client consents. After all the customer hired a specific firm as the adviser.
The Primary reason for making an investment in a tax sheltered investment is:
The economic viability of the project. Any tax benefits comes second.
If a person disagrees with a final order of the Administrator, which statement is TRUE? A. The person may petition the court within 30 days of the order B. The person may petition the court within 60 days of the order C. The person may petition the court within 90 days of the order D. No petitioning is allowed as the Administrator's ruling is final
The person may petition the court within 60 days of the order
The department of treasury requires notification for which of the following instances? A. A deposit of $5,000 cash B. A withdrawal of $5,000 cash C. The deposit of $20,000 worth of bonds in fully registered form D. The withdrawal of $11,000 cash
The withdrawal of $11,000 cash Any deposit of $10,000 dollars or more must be reported to FinCen
When a firms net capital has fallen below the minimum requirement set by the state. The adviser must notify the administrator and send the financial statement next day.
Transmit notice must happen next business day and the financial statement must follow the business day after.
Under NASAA rules, a customer must sign and return the margin agreement: A. promptly after the initial transaction in the account B. prior to settlement of the first trade in the account
Under NASAA, the margin agreement must be signed promptly after the initial transaction.
Standard Deviation measures A. variability of investment returns B. growth of investment returns C. duration of investment returns D. level of investment returns
Variability of investment returns
Under partnership democracy provisions, the partnership agreement must give detailed disclosure of all of the following EXCEPT:
the procedures for allowing limited partners to assign specific properties Limited partners cannot assign properties or perform management functions. Performing these actions would cause that person to be viewed as a general partner - who takes on unlimited liability. Partnership agreements will include provisions on allocating profits; compensation to the general partner; and claim to assets upon dissolution.
IRS rules require that annuity distributions be taxed on a LIFO (Last In First Out) basis
with the build-up portion being the "Last In;" therefore these are the first dollars to be distributed.
Prospectus delivery is only required with new issues being sold in the primary market. A security in the secondary market is reporting to the SEC and information is public.
.Thus, an investment decision can be made from this information and there is no longer a prospectus delivery requirement.
If a person disagrees with the final order from the administrator, a person can make an appeal within how much time of the order?
60 days He or she must petition the court within 60 days.
A CFP can avoid takin which licenses?
65 or 66, note this does not apply to an individual taking a 63 exam
When comparing an ETN to a structured product, which statement is TRUE? A. ETNs can be traded at any time while structured products cannot B. ETNs offer current income while structured products do not C. ETN income is taxable at higher rates than income
A. ETN's can be traded at anytime while structured products cannot An ETN is a type of structured product that trades on the exchange. Its return is tied to a bench mark index. A structured product is non negotiable and if redeemed early can impose a fee.
When an agent changes employment from one broker-dealer to another, the agent's registration must be transferred: A. immediately B. within 10 days C. within 30 days D. at renewal time
A. Immediately
An investment adviser to a hedge fund with $250 million of AUM has invested 100% of fund assets in gold, anticipating a steep stock market decline and flight to safety by investors. The investment adviser: A. must register with the SEC B. must register with the CFTC C. must register with both the CFTC and the SEC
A. Must register with the SEC A private fund adviser with at least $150 million of assets under management (AUM) must register with the SEC, and therefore will not register with any State.
All of the following are acceptable investments in an Individual Retirement Account EXCEPT: A. Variable annuities B. U.S. Minted Gold Coins C. Real Estate D. Mortgages
A. Variable annuities The purchase of a tax-exempt or tax-deferred security such as a variable annuity is absolutely inappropriate. Because of their tax benefit, these investments offer a lower return than taxable investments. Because the IRA account itself is a "tax-deferred" envelope, the appropriate investments are those that give the highest return (for the level of risk assumed), which will build value tax-deferred.
Which statement is TRUE regarding advisory fees under NASAA rules?
Advisory fees must be competitive with those charged by other advisers and cannot be unreasonable.
Revocable trust
Allows grantor to change terms of the trust. Because the Grantor has control over the assets in the trust these are considered to be the part of the grantors estate upon death. To avoid this one would open an irrevocable trust which would remove the assets from the grantors estate.
A customer requests his agent to perform a securities trade privately, without it being recorded on the books and records of the broker-dealer. Which statement is TRUE? A. This is an exempt transaction and the customer's request can be honored B. This is a prohibited practice because all transactions effected by agents must be recorded on the books and records of the broker-dealer
B This is a prohibited practice because all transactions effected by agents must be recorded on the books and records of the broker-dealer Private securities transactions are prohibited. All transactions effected by representatives must be recorded on the books and records of the employing broker-dealer and must be supervised by that broker-dealer.
If a representative is terminated by an investment adviser: A. notice must be given to the Administrator by the representative only B. notice must be given to the Administrator by the investment adviser only C. notice must be given to the Administrator by both the investment adviser and the representative
B. Notice must be given by the investment adviser only. If a rep is terminated by an investment adviser, the adviser must notify the administrator promptly. Notice this is differed than a broker dealer where both the agent and broker dealer must notify the administrator. Also this is different with a federal covered adviser where only the rep must notify the state administrator.
Non-profit organizations are permitted to establish tax deferred retirement plans for their employees called a A. 401(k) plan B. Tax sheltered annuity C. Profit Sharing Plan D. Defined Benefit Plan
B. Tax sheltered annuity 403(b) retirement plans are for employees of non-profit institutions such as hospitals and universities. Contributions are excluded from taxable income, and must be used to purchase "tax sheltered" annuities or mutual funds.
Under the Uniform Securities Act, in a civil suit brought by a purchaser against a seller that is alleged to have violated the Uniform Securities Act, the burden of proof rests with the: A. Defendant B. Plaintiff C. State securities administrator D. Judge presiding over the state court hearing the case
B. The plaintiff The burden of proof in any lawsuit is placed on the plaintiff. The buyer of securities would be the plaintiff
Under the Uniform Securities Act, investment advisory contracts: A. can be oral B. must be in writing C. must include a clause that customer statements will be sent periodically D. must give a complete description of the investment adviser's prior performance
B. must be in writing The Uniform Securities Act requires that investment advisory contracts be in writing. There is no requirement that customer statements be sent periodically unless the adviser takes custody of customer funds or securities (in which case, statements must be sent quarterly).
Arbitrage (legal trading practice)
Buying a security on one exchange and simultaneously selling it on another exchange for profit is a common trading technique known as "arbitrage" and is perfectly legal.
Upon filing a withdrawal of registration with the State, the Administrator can commence a revocation or suspension proceeding for up to: A. 30 days from the effective date of the withdrawal B. 60 days from the effective date of the withdrawal C. 1 year from the effective date of the withdrawal D. 2 years from the effective date of the withdrawal
C. 1 year from the effective date of withdrawal Thus, if one withdraws from registration, and 6 months later, there is a complaint filed by a customer with the Administrator against that person; the Administrator can still investigate, and can issue a suspension, revocation; or a cease and desist order.
Which statement is TRUE regarding the appointment of SEC commissioners? A. Each commissioner holds the office for a term of 3 years B. Political party affiliation is irrelevant to the choice of commissioners C. Commissioners are not permitted to engage in any other business or employment
C. Commissioners are not permitted to engage in any other business or employment. The SEC has 5 commissioners appointed by the President of the United States, with the advice and consent of the Senate. Each commissioner is appointed for a term of 5 years.
All of the following statements concerning a variable life insurance policy are correct EXCEPT: A. premium payments are level and fixed for the insured's lifetime B. the cash value increases based on equity investments C. the death benefit is fixed and guaranteed for the insured's entire life D. policy loans will reduce the amount paid at death
C. The death benefit is fixed and guaranteed for the insured entire life For variable life, the premiums are invested into the separate account which could in turn cause the funds to vary. The amount of
The "Present Value" of a fixed income security is based on the: C. discounting of all expected future payments to be made by the issuer of the security D. current price of the security in the market
C. discounting of all expected future payments to be made by the issuer of the security The present value of a fixed income security takes all of the future payments to be made by that security and discounts them at the current market rate of interest (compounded yearly) to arrive at the security's "present value." This is the actual market price of the security at that moment.
Under the "Brochure Rule," existing customers of an investment adviser MUST: C. receive a "Brochure" at least annually only if there are material changes D. receive a "Brochure" at least annually whether or not there are material changes
C. receive a "Brochure" at least annually only if there are material changes New customers of the investment adviser must receive the "Brochure" at or prior to entering into an advisory contract. Existing customers must be sent an updated "Brochure" at least annually if there are material changes. As an alternative, the customer can be sent the "Summary of Material Changes" section of the current brochure along with the offer of the revised Brochure.
What formula finds the Expected return of an investment?
CAPM (Capital Asset Pricing Model)
What risk should an investor be concerned with when investing in an ETN that would not be associated with an ETF
Credit Risk An ETN is a structured product offered by banks that gives a return tied to a benchmark index. The note is debt of the bank so it is backed by the faith and credit of the issuing bank.
Which transaction is included in the definition of an "offer to sell"? A. A successful attempt to dispose of a security for value B. A gift of a non-assessable security C. A security given to a person as a "gift" with the sale of another security D. An unexecuted contract to sell a security (an open order)
D. An unexecuted contract to sell a security (an open order) The definition of an offer to sell is an attempt or offer to dispose of a security, or an interest in a security, for value. Choice D is an offer to sell (the unexecuted contract to sell).
Which of the following is NOT found in the IPS? A. Investment objectives B. Investment time horizon C. Asset allocation percentages D. Portfolio holding list
D. Portfolio holding list The "IPS" is the Investment Policy Statement that an Investment adviser prepares for a new client. The purpose of the IPS is to lay out for the customer the investment objectives, risk tolerance, investment time horizon and policies that apply to the customer's investment portfolio
Under NASAA rules, a customer MUST sign and return the margin agreement: A. prior to placing the first trade in the account B. prior to confirmation of the first trade in the account C. prior to settlement of the first trade in the account D. promptly after the initial transaction in the account
D. promptly after the initial transaction in the account The Margin agreement must be signed and returned promptly after the initial transaction in the account.
All of the following are defined as "affiliated persons" under the Investment Company Act of 1940 EXCEPT: A. an officer of the management company B. an employee of the management company C. a 5% holder of the management company's shares D. the independent auditor of the management company
D. the independent auditor of the management company An affiliated person of an investment company is an officer, employee or 5% shareholder of the investment company. Other persons, such as accountants and lawyers for the fund, who are compensated by that fund, are termed "interested" persons.
Range
Difference between the lowest and highest number in the set.
A value investor seeks stocks that have high:
Dividends A value stock gives investors "value" for their money. They are stable companies that are consistently profitable, pay solid dividends, but are currently out-of-favor with investors (as evidenced by the low Price/Earnings ratio). The view is that they will come back into favor as investors realize that the company is undervalued and will appreciate in price more rapidly than the overall market.
If an investment adviser believes that inflation rates will be rising over the next couple years- what is the best and worst thing to rebalance his portfoio with?
During times of inflation, interest rates rise and bond prices fall. Also, stock prices fall. Bad- During times of inflation any security that gives fixed return such as annuities and CD's are bad because the payout is fixed over time and prices are rising. Good- Tangible assets such as real estate and collectibles are best bet because they tend to keep pace with inflation.
Final 2
Final 2
DRIP Dividend reinvestment plan
Give investors the ability to reinvest dividends into shares of the company.
Advisers brochure ADV Part 2a (the brochure)
Gives descriptive info about the advisory firm
ADV part 2b (brochure supplement)
Gives the educational and work history of the key personanel who make investment decisions or manager accounts.
The Administrator CANNOT deny an exemption from registration for a U.S. Government bond The Administrator is permitted to modify the Uniform Securities Act 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.
Which statements are TRUE about the alternative minimum tax computation? I The alternative minimum tax computation is required for all taxpayers II The alternative minimum tax computation is required only for investors in limited partnerships III If the alternative minimum tax amount is greater than the regular income tax amount, the larger amount must be paid IV If the alternative minimum tax amount is greater than the regular income tax amount, the smaller amount must be paid
I) the AMT is required for all taxpayers III) IF the AMT tax amount is greater than regular income tax, the larger amount must paid.
Which statements are TRUE regarding variable annuities during the annuity phase? I The annuity unit value fluctuates II The annuity unit value remains the same III The annuity check received may be for a different amount at each payment IV The annuity check received will be for the same amount at each payment
I, III The annuity value fluctuates and the checks are different each time.
A broadly diversified portfolio: I is subject to market risk II is not subject to market risk III can have its systematic risk reduced by the purchase of index puts IV cannot have its systematic risk reduced because it is fully diversified
I,III Index options can be used to hedge a portfolio.
Which of the following are covered under the Securities Exchange Act of 1934? I Registration of broker-dealers II Registration of investment advisers III Registration of insiders IV Registration of securities information processors
I,III,IV The registration of investment advisers comes under the Investment Adviser act of 1940. The securities act of 1934 requires registration of exchanges, Member firms, sales persons, transfer agents. The securities act of 1933 covers new issues.
Arrange the following in order of the market capitalization (from smallest to largest) of companies included in the index: I Standard and Poor's 500 Index II Standard and Poor's Mid Cap 400 Index III Russell 2000 Index
III, II, I The Russell 2000 is an index of small capitalization issues; the Standard and Poor's Mid Cap index consists of "middle" sized companies; while the Standard and Poor's 500 index consists of large capitalization issues.
13D
If a person obtains 5 percent or greater an intends on exercising control of a corporation they must file a 13D
13G
If a person obtains 5 percent or greater holding and intends to be a passive investor they must file a 13g report within 45 business days
Dollar weighted average is the same as: A. Annualized Rate of Return B. Internal Rate of Return
Internal Rate of Return
If the US dollar goes up in value, what type of investment would be most affected?
International Stocks If the us dollar appreciates, exchange rate risk could come into play.
Customer has the right to rescind a contract for 30 days
Investment advisory contracts must be in writing under the Investment Advisers Act of 1940. Such contracts cannot be changed without the customer approving. The customer must receive a "Brochure" (Form ADV Part 2A) and a "Brochure Supplement" (Form ADV Part 2B) at, or prior to, entering into the advisory agreement.
Growth companies have high price earnings ratio.
Investors pay higher prices for growth companies due to the expected growth.
Dividend tax rate
Long term capital gains are taxed at a max rate of 15%. This increases to 20% for individuals earning over 400k per year.
The tax rate on the last dollar of income earned is called the ?
Marginal Tax rate The higher ones income, the higher the higher the marginal rate.
Sector Rotation
Market timing. Stategy that rotates investments based on the economic cycle.
Mature companies tend to have low price earnings ratio
Mature companies have low prices earning ratio.
Registration by filing
Method used by seasoned companies with already substantial trading activity.
Mutual funds must send their financial statements to shareholders: A. once a year B. two times per year C. three times per year D. four times per year
Mutual funds must send their financial statements to shareholders semi-annually (twice a year).
Which securities can be purchased on margin?
NYSE, AMEX (NYSE-MKT) and NASDAQ listed issues are marginable. The purchase of listed options cannot be done on margin - full payment is required because these have a maximum life of 9 months. Purchases of OTCBB and Pink Sheet issues are not marginable because they are thinly traded issues.
Are options prohibited in a Wrap account ?
No, advisers are allowed to trade options in a wrap account. Wrap accounts are a type of customer account, where all services performed by the broker are "wrapped" into a single account; and a single annual fee based as a percentage of assets under management is charged. There is no commission charge for each transaction performed in such an account nor are charges imposed for safekeeping of securities
NASAA has the power to set record retention rules for a Federal Covered Adviser that cover which of the following records? I Communications to 2 or more persons II E-mails to clients III Trial balances IV General ledger
None of the above NASAA does not set rules for federal covered advisers - only the Investment Advisers Act of 1940 applies! NASAA rules for IAs only apply to State-registered advisers (those advisers with less than $100 million of assets under management).
Irrevocable trust
Once established cannot be changed or terminated. Because the grantor does not have control, the assets are removed from the grantors estate. This can be utilized to avoid estate tax upon death.
Cash Dividend payments are taxable as of which date?
Payable date
Investment advisers act of 1940 EXEMPTS from registration; A. persons who give advice solely to insurance companies B. persons who give advice solely to investment companies C. persons who give advice solely to depository institutions D. All of the above
Persons who give advise solely to insurance companies. The idea is that insurance companies are big enough to handle themselves. Note, compared to the uniform securities act (state) extends this to investment companies and banks.
The marginal tax rate is the rate applied to: A. the first dollar of income earned B. the last dollar of income earned C. all income earned as an average D. all income earned at the marginal rate
The last dollar earned.
Premiums deposited to a variable annuity contract are invested: -In the separate account -invested in Equity's
The premiums paid for either variable life policies or variable annuity contracts are invested in a legally separate entity called a "separate account." The performance of the securities held in the separate account will determine the amount of insurance benefit or annuity payment - so they will vary. The underlying securities are often shares of a designated mutual fund invested in equities.
The uniform securities act defines the following as investment advisers but EXEMPTS them from registering in that state.
These are advisers with no place of business in that state who only deal with institutional investors such as: -Other investment advisers -Broker Dealers -Banks, trust, savings and loans companies -Insurance companies -Investment companies -employee benefit plans of at least one million dollars. -Governmental agencies
Under the investment advisers act of 1940, the solicitors brochure must be separate from the investment advisers brochure
They cannot be combined. The Solicitors brochure must disclose the specific dollar fee that the solicitor will earn for referring the customer.
Registration by coordination
This is one of three methods of registering securities within a state and SEC, this method is used for new companies. This is the second most vigorous method of registration used by any new company compared to registration by filing which is only used for seasoned companies.
Non-Systematic risk
This is the risk that can be diversified away. Contrast to Systematic risk (market risk) cannot be diversified away.
Insurance companies "general account"
This is used for fixed annuity's and traditional insurance policy's. The general account invest in more conservative investments.
An investor in a limited partnership that generates passive losses can offset these against? I Passive income generated from other limited partnership investments II Income generated from direct investments in real estate
Under the Tax Code, passive losses can only be offset against passive income. They cannot be offset against portfolio income (interest, dividends, capital gains) or earned income. Passive income and loss is defined as that derived from real estate investments and limited partnership interests.
Which investment adviser MUST register with the SEC? An investment adviser with assets of: A. $1,000,000 B. $100,000,000 C. $110,000,000
investment advisers are only required to register with the SEC if their assets under management are $100,000,000 or more - however, the SEC has issued an interpretation that advisers that have between $100-$110 million of assets under management have the option of registering with the SEC. Once the adviser hits $110 million or more of assets under management, has no choice and must register with the SEC.
Which of the following is an acceptable hedge clause found in an investment advisory contract?
"The Adviser shall not be responsible for losses caused by conditions or events beyond its control such as war, strikes, natural disasters, communications disruptions, etc."
Social security & alimony are transfer payments
"transfer payments" that are taxed at the same rate as earned income, but they are not defined as such.
What is considered "giving advice about securities"
-Advisers on selecting an adviser -Prepares a list of securities to invest in without picking a specific stock to invest in. -Prepares an asset allocation plan *Note* Someone that charts the price movement of stocks is not considered an investment adviser
The uniform securities act EXCLUDES the following from the definition of an investment adviser. Thus these persons cannot be required to register in that state;
-Employees of investment advisers -Banks, savings, loans, and trusts -Professionals- Lawyers, teachers, accountants, engineers -Broker Dealers -Publishers or employees of bonafide newspapers -Federal covered advisers or any person that advises solely on US gov securities
SEC registration methods
-Registration by filing (least rigorous, only seasoned companies. -Registration by coordination (More rigorous used for new companies) -Registration by qualification (Most difficult registration used by brand new company's)
