full exam practice questions
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, in which of the following circumstances may an investment adviser representative share in profits and losses in a customer's account? A) Such sharing is never permissible under the Policy B) If the client and the IAR's supervisor give permission and if the sharing is done in proportion to the amounts each part has invested C) If the advisory fee of the investment adviser is reduced by the share of the profits earned D) If the investment adviser representative and the customer have a written contract
A) Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, investment advisers and their representatives are prohibited from sharing in the gains and losses in a customer's account. Conversely, an agent may share with a customer in a joint account with permission of the client and the broker-dealer. Unlike FINRA rules, there is no requirement that the agent have a financial interest in the account.
ABC Securities is a two-office broker-dealer in Idaho that intends to underwrite an initial public offering of 1 million shares of stock for Circular, Inc. If the issue will be offered exclusively to residents of Idaho, registration of this offering A) will most likely occur by notice filing B) will most likely occur by qualification C) will most likely occur by coordination D) is not required because of the de minimis test
An issue done solely within one state (intrastate offering) is registered using qualification. Notice filing is used by certain issues of federal covered securities, primarily investment companies. Coordination is the simultaneous registration on both the federal and state level; neither of those two could possibly apply to the Circular offering.
Under the Uniform Securities Act, an investment adviser is exempt from registration if the person has no place of business in a state and does not direct communication to more than 5 noninstitutional clients to more than 15 noninstitutional clients within 9 consecutive months within 12 consecutive months A) II and III B) I and III C) II and IV D) I and IV
As long as communications are directed to no more than 5 noninstitutional clients in a 12-consecutive-month period and the adviser does not have a place of business in the state, an exemption from registration is provided. This is the de minimis exemption and applies only to investment advisers and investment adviser representatives, not to broker-dealers or agents.
Which of the following would subject an agent to a denial of registration? An arrest for fraudulent behavior in selling securities to an insurance company 2 years ago Conviction of a securities-related misdemeanor eight years ago Losing a civil lawsuit three years ago that related to the agent's actions as a landlord Failure to pay filing fees A) I, II and III B) II and IV C) I and IV D) II, III and IV
B) Conviction, not merely an arrest, for a misdemeanor involving securities within the past ten years, and failure to pay filing fees are grounds for denial. Loss of a civil suit not related to the securities industry is not a cause for denial to an agent or IAR.
It would not be considered an unethical business practice under NASAA's policies for an investment adviser to charge fees as well as commissions based on an hourly rate based on a percentage of the change in value of funds from quarter to quarter based on a percentage of the aggregate value of funds under management A) II and III B) I, II and IV C) III and IV D) I and IV
B) Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. The other choices are acceptable fee structures. An adviser may charge commissions and fees as long as the fact is clearly disclosed.
A client is unsure of her financial objectives and does not give you any personal financial information. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, you A) make recommendations based on your best estimate as to what would be a good fit for the client B) may only accept unsolicited orders until suitability has been established C) refuse to accept this person as a client D) put the client into one of your model portfolios
B) Without information, how can you possibly make a reasonable recommendation? But, you are permitted to accept orders that are initiated by the client (unsolicited).
\A federal covered investment adviser is a person A) registered under the Uniform Securities Act B) exempt from regulation under the Securities Exchange Act of 1934 C) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940 D) registered with North American Securities Administrators Association (NASAA)
C) A federal covered investment adviser refers to a natural person or entity registered under the Investment Advisers Act of 1940 or excluded from the definition under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the NSMIA and the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state registered or federal covered, do not register with NASAA.
A consent to service of process allows the Administrator to A) ensure that the legal appeal process is expedited as a result of the Administrator's access to information B) terminate a registrant's application C) exercise the power of attorney on behalf of the registrant D) verify the accuracy and completeness of registration without obtaining the registrant's prior approval
C) The consent to service of process provides the Administrator with power of attorney for registrants. This power of attorney does not grant the Administrator the authority to terminate the registration at will nor does it empower the Administrator to verify information or expedite the registration process.
Under the Uniform Securities Act, which of the following are TRUE regarding the registration of a successor firm? The successor firm need not be in existence when the application for registration is filed. A filing fee is required with the application. The successor firm's registration will be effective for the unexpired portion of the year. A) I and II B) I, II and III C) II and III D) I and III
D) Application may be made to register a successor firm whether or not the firm is then in existence. The filing fee is waived. The successor firm's registration will be effective for the unexpired portion of the year.
An investment adviser representative may perform which of the following functions? solicit for advisory business manage advisory accounts earn commissions on sales of recommended securities supervise those who render advice A) I, II, III and IV B) II and IV C) II and III D) I, II and IV
D) An IAR may not earn commissions on the sale of securities unless also registered as an agent. All of the other activities listed are permitted. Remember, unlike FINRA, there is no principal category of registration. In other words, there is no such thing as an investment adviser principal.
Under the Uniform Securities Act, which of the following activities is an example of churning? A) Frequent purchases one day and sales of the same stock the next day to make changes in a client's portfolio in order to align with a customer's investment objectives B) A client engaging in day trading C) Bond swap D) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter
D) Churning is defined as excessive activity in a customer's account for the purpose of generating commissions. Because Class A mutual funds carry a front-end load and are considered long-term investment vehicles, frequent trades constitute churning. Frequent purchases one day and sales of the same stock the next day in order to align with a customer's investment objectives is not necessarily churning if it is done for the benefit of the customer. A bond swap is not churning; it is generally done for tax purposes. If the client is initiating the day trades, the agent is not the one doing the trading so no churning is taking place.
Sam Wiggins receives the good news that his registration as an agent for Big Bucks Brokers became effective November 20, 2014. Sam celebrates by inviting a number of prospects to his home for Thanksgiving dinner. Instead of cornbread stuffing, Sam's wife inserts mutual fund prospectuses into the "bird" and there are enough for each of the dinner guests. Sam's registration will come up for renewal on A) when determined by the Administrator B) December 31, 2015 C) 365 days after the effective date D) December 31, 2014
D) Every agent, broker-dealer, investment adviser, and investment adviser representative registration expires each year on the next December 31.
Investment advisers who have discretionary powers but NOT custody of customer funds are usually required to have a net worth in the amount of A) $50,000 B) $5,000 C) $35,000 D) $10,000
D) NASAA rules under the Uniform Securities Act require an adviser who does not have custody of customer funds or securities but has discretionary power over customer accounts to have a minimum net worth of $10,000.
Each of the following is considered an investment adviser representative under the Uniform Securities Act EXCEPT A) an employee who supervises the management of customer accounts B) a vice president of sales of an investment adviser C) an employee hired for the purpose of bringing new clients to the advisory firm D) an employee who performs only clerical tasks
D) The term "investment adviser representative" includes those who give advice, attempt to attract new clients, and supervise those who advise or sell; in this case, everyone except the clerical employee.