KAPLAN SERRIES 66 QUESTIONS
An investment adviser new to the business is engaged by an elderly client who, on the grounds of privacy, refuses to disclose his annual income or net worth. The client merely asks the adviser to establish and manage a $50,000 portfolio. If the client brings a cashier's check for $50,000 to the initial meeting, which choice reflects the best action on the part of the adviser?
***A) Decline the client, recognizing that you cannot effectively determine suitability in the absence of financial information. B) Decline the client because he is difficult to work with. C) Accept the client but only allocate his funds to money market-type securities. D) Accept the client but acknowledge in writing the client's refusal to provide financial information.
A licensed agent with a registered broker-dealer in a state would be permitted to engage in which of the following transactions in unregistered nonexempt securities?
***A) A private placement B) A solicited transaction in a small Canadian mining company C) The sale of commercial paper with a 12-month maturity D) The sale of a preorganization certificate on which the agent receives no commission on the amount paid by the investor
If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action?
A) 10% penalty plus payment of ordinary income tax on all funds withdrawn ***B) Ordinary income tax on earnings exceeding basis C) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis D) Capital gains tax on earnings exceeding basis
A 35-year-old client purchased a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is
A) 8.5% of total premiums over the life of the plan. ***B) 9% of premium per year, computed over a 20-year period. C) 9% per premium payment. D) 8.5% per premium payment
Which of the following statements is not true?
A) Federal covered securities include those registered under the Investment Company Act of 1940. ***B) Exempt securities must reestablish their exemptions at least annually. C) Federal covered securities include securities listed on national exchanges. D) Transaction exemptions must be established before each transaction.
When completing an individual tax return on Form 1040, one of the most important numbers is the adjusted gross income (AGI). Which of the following would not be included in AGI?
A) Alimony received from pre-2019 divorce decree ***B) Tax-exempt interest received from municipal bonds C) Salary and commissions D) Qualifying dividends on common stock
Under the Uniform Securities Act, which of the following would be least likely to be civilly liable for making false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act?
A) Any and every person who has signed the registration statement B) Every underwriter of the security ****C) Every stockholder named in the registration statement D) Every expert who is named in the registration statement
Kapco Advisers registers with the Administrator on April 1. Pete Patel, an IAR with Kapco, registers on the same day. Both of them file renewal papers, accompanied by the appropriate fees, on March 31 of the following year. Which of the following statements are true? Kapco's renewal was timely. Kapco's renewal was late. Patel's renewal was timely. Patel's renewal was late.
A) I and IV ***B) II and IV C) II and III D) I and III
An issuer is planning to offer securities for sale in State A and several other states. Which of the following statements regarding registration in State A under the Uniform Securities Act is not true?
A) The Administrator may, as a condition of registration by qualification or coordination, rule that the securities can only be sold on a specified form of subscription and that a signed copy must be filed with the Administrator. B) The Administrator may, by order, permit omission of items of information or documents from a registration statement. ***C) The Administrator may not, as a condition of registration by qualification or coordination, require the security to be deposited in escrow and the proceeds to be impounded until the issuer receives a specified amount. D) Every registration must specify the total amount of securities to be offered in State A, the states in which the offering is to be made, and any adverse order or judgment by a regulatory authority.
If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is true?
A) The representative must notify the Administrator. B) Both the representative and the investment adviser must notify the Administrator. C) The investment adviser must notify the Administrator. D) No notice to the Administrator is required.
When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office
A) the investment adviser representative and the employing adviser must notify the Administrator promptly. B) only the terminating investment adviser must notify the Administrator. ***C) only the investment adviser representative must notify the Administrator promptly. D) the investment adviser representative and the federal covered advisers must notify the Administrator promptly.
The National Securities Markets Improvement Act of 1996 (NSMIA), which amended the Uniform Securities Act, preempts state registration of federal covered securities. Under the NSMIA, all of the following are federal covered securities except
***A) municipal securities of an issuer within the state of issuance. B) securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933. C) warrants trading on the OTCQB offered by a company whose common stock trades on the Nasdaq Stock Market. D) securities issued by unit investment trusts registered under the Investment Company Act of 1940.
Which of the following is defined as a security under the Uniform Securities Act?
A) Fixed, guaranteed payments made for life or for a specified period ***B) An investment contract C) Commodity futures contracts D) A guaranteed, lump-sum payment to a beneficiary
John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?
A) His annuity payments are tax free. B) His annuity payments are all taxable as ordinary income. ***C) His annuity payments are partly taxable and partly tax-free return of capital. D) His annuity payments are partly taxable as capital gain and partly taxable as ordinary income.
Which of the following is not a type of life insurance policy?
A) Term to 65 policy B) Universal life policy C) Endowment policy **D) Variable annuity policy
In a scheduled premium variable life insurance policy, all of the following are guaranteed except
A) the right to exchange the policy for a permanent form of insurance, regardless of health, within the first 24 months B) the ability to borrow at least 75% of the cash value after the policy has been in force at least 3 years ***C) a minimum cash value D) a minimum death benefit
Which of the following securities is not exempt from the registration procedures of the Uniform Securities Act?
A) Common stock issued by a public utility company whose rates are subject to state regulation B) Variable annuities issued by an insurance company authorized to do business in this state C) Bonds issued by a church operating as a nonprofit organization under IRS Code Section 501(c)(3) D) General obligation bonds issued by a city located in this state
In terms of being considered compensation for determining the allowable contribution to an IRA, receipt of which of the following would be included?
A) Deferred compensation B) Taxable interest income ***C) Alimony received as part of a divorce decree signed in 2018 D) Child support
Adam Samuels suffered a massive heart attack and died at the age of 62. As part of his estate, there is an IRA with a current value of $170,000. A review of the IRA documents reveals that Eve Samuels, his wife, is the primary beneficiary and their two children have been named as contingent beneficiaries. Eve is 50 years old and does not need the income from the IRA and would like to preserve the IRA for her children to inherit. Which of the following steps would you recommend Eve take?
A) Disclaim the IRA and let it pass to the contingent beneficiaries. B) Cash in the IRA because as a spouse of a deceased, she will avoid the 10% tax penalty. C) Execute a rollover into an inherited IRA. ***D) Execute a rollover into an IRA in her name.
Which of the following statements regarding a traditional IRA for someone filing a 2023 tax return is true?
A) Distributions without penalty may begin after age 59½ and must begin by April 1 of the year preceding the year an individual turns 73. B) Distributions before age 59½ are subject to a 10% penalty in lieu of income taxes. C) With sufficient earned income, a taxpayer who contributes $6,500 to a Roth IRA can also contribute $6,500 to a traditional IRA. ****D) The income and capital gains earned in the account are tax deferred until the funds are withdrawn.
You have a client who is not covered under an employer-sponsored retirement plan and has been contributing the maximum to her traditional IRA. She has just informed you that she won $1 million in the lottery, plans to continue working, and would like to continue to contribute to her IRA. Which of the following statements is correct?
A) Her income for the year exceeds the allowable limit for making a contribution. ***B) She may continue to contribute and her contribution will be tax deductible. C) She may continue to contribute, but only a portion of her contribution will be tax deductible. D) She may continue to contribute, but her contribution will not be tax deductible.
Under the Uniform Securities Act, the Administrator may require the filing of advertising and sales literature in which of the following offerings?
A) Sale of preferred stock of a long-established company registered with the SEC whose common shares trade on the New York Stock Exchange B) Sale of the bonds of AAA insurance company organized under the laws of the state C) Sale of a U.S. Treasury bond maturing in more than 10 years ****D) Sale of an IPO limited to residents of the state
All of the following securities are exempt from registration under the USA except
A) stock issued by an insurance company traded on the Nasdaq Stock Market. B) bonds issued by the City of Winnipeg. ****C) stock of a bank holding company traded on the OTC Link. D) bonds traded on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]).
An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients
A) when informed by the investment adviser that the representative's registration is effective. B) within 48 hours. C) when informed by the Administrator that the representative's registration is effective. D) immediately.
During your annual review with your clients, Matt and Sally Eberhart, they indicate that they think it is time to start putting away some money for college for their 3-year-old son. They ask you to describe the advantage of using an UTMA account over a Coverdell ESA. You would likely point out all of the following as advantages except
A)there is no limit to the amount that can be contributed to an UTMA ***B) contributions to the UTMA are made with after-tax dollars C) there are no earnings limits for making UTMA contributions D) withdrawals for other than qualified education expenses are not subject to any penalties
Under the Uniform Securities Act, commercial paper with a maturity of nine months or less, with a minimum denomination of $50,000, with a rating in the top three grades of a recognized rating agency
***A) need not be registered as a security. B) must be sold on the New York Stock Exchange. C) must be registered as a security. D) can only be issued by underwriters.
A terminally ill client wishing to access a portion of the cash value in his whole life insurance policy while still providing a death benefit for his beneficiaries could do so by
***A) taking out a policy loan B) surrendering the policy for its cash value C) converting it into a term policy D) selling the policy in a viatical settlement
A life insurance policy that allows the policyholder to "overfund" the premium payments is called
A) a decreasing term life insurance policy. B) a scheduled premium variable life insurance policy. ***C) a universal life insurance policy. D) a fixed premium variable life insurance policy.
In general, when describing the characteristics of equity index annuities and variable annuities, each of the following would be a true statement except
A) both are issued by life insurance companies B) only the variable annuity is considered a security ***C) both offer an opportunity for unlimited gain D) only the EIA has a minimum guaranteed return
An investor purchases a single premium deferred index annuity with an initial premium of $200,000. Soon after the purchase, the investor receives a statement from the insurance company showing an initial balance of $210,000. The most likely reason for the $10,000 increase is
A) the insurance company paid a dividend. B) the underlying index has had outstanding performance. ***C) this is a bonus annuity. D) the insurance agent's commission was added to the account.
Which of the following statements relating to the general securities registration provisions of the Uniform Securities Act is most accurate?
***A) The registration is valid for one year from the effective date, unless the underwriter or issuer still has some unsold shares. B) The registration is valid for one year from the effective date. C) The registration is valid until the next December 31. D) The registration statement may be amended to increase the number of shares in the offering, as long as the share price is not raised by more than 10%
A client has been contributing to a periodic payment annuity for 20 years. The M&E charge is 1.25% per year. What happens to that charge when the client annuitizes at attained age 68?
A) It increases because the client's mortality risk is higher at the older age B) It continues C) It continues but at a reduced rate ***D) It ceases
Bob, age 60, has invested $17,000 in his nonqualified variable annuity over the years. The total value has reached $26,000. He wishes to withdraw $15,000 to send his son to college. What is his tax consequence on the withdrawal?
A) The entire amount is nontaxable. B) $6,500 is nontaxable; $8,500 is taxable. C) The entire amount is taxable. ***D) $9,000 is taxable; $6,000 is nontaxable.
An owner of an equity index annuity would be wise to use the high-water crediting method if the underlying index was expected to
A) remain steady. ***B) be volatile. C) decline. D) change its objective.
Among the reasons why deferred variable annuities might not be a suitable investment for seniors are all of the following except
A) surrender charges B) improper subaccount selection ***C) potential inflation protection D) potential capital fluctuation
The policyholder could surrender a whole life insurance policy and choose from all the following except
A) surrendering the policy and taking the cash value. B) using a Section 1035 exchange to purchase an immediate annuity. ***C) transferring the insurance coverage to another person. D) ceasing payment of premiums and using the accumulated cash value to provide an extended term-life policy.
One of your clients wishes to reallocate the assets in his 401(k) plan. Specifically, he plans to assist his parents in the purchase of a retirement home. He claims that it makes sense to have about 10% of his plan assets in real estate.
****A) This is not permitted because a prohibited party will benefit. B) This would only be permitted if the home were for his personal use. C) An asset allocation model would not have 10% in real estate. D) This is prohibited as qualified plans cannot own real estate
An investor purchases a single premium deferred index annuity with a 6% bonus feature. The premium was $100,000. The annuity has an 80% participation rate with a 10% cap. If the underlying index increased by 15%, the account's value at the end of the year would be closest to
***A) $116,600. B) $116,000. C) $110,000. D) $118,720.
An issuer would like to register its new offering in the state. Which of the following is not required in order for the registration to become effective?
***A) A rating in one of the three highest grades by a recognized rating agency B) A consent to service of process C) A statement of the expected use of the proceeds of the offering D) A listing of the amount of securities to be offered in this state
When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?
***A) As ordinary income based on an exclusion ratio B) As ordinary income based on LIFO accounting C) As capital gains based on an exclusion ratio D) As capital gains based on LIFO accounting
Ineligible investments in an IRA would include all of the following except
***A) American Silver Eagle coins. B) cash value life insurance. C) Kruggerands. D) stamps
A registered representative presenting a variable life insurance policy proposal to a prospect must disclose which of the following about the insured's rights of exchange of the VLI policy?
A) Within the first 18 months, the insured may exchange the VLI policy for either a whole life or universal variable policy issued by the same company with no additional evidence of insurability. B) The insured may request that the insurance company exchange the VLI policy for a traditional whole life policy issued by the same company within 2 years. The insurance company retains the right to have medical examinations for underwriting purposes. ***C) Federal law requires the insurance company to allow the insured to exchange the VLI policy for a form of permanent life insurance issued by the same company for 2 years with no additional evidence of insurability. D) The insurance company will allow the insured to exchange the VLI policy for a traditional whole life policy within 45 days from the date of the application or 10 days from policy delivery, whichever is longer.
Bachelier and Louis Associates, BALA, is an investment adviser registered in States W, X, and Y. BALA is completing the Form ADV to register in State Z. Which of these would be automatically registered as an investment adviser representative in State Z simultaneously with BALA's effective registration?
A) Janice, the director of the company's information technology (IT) department B) Thomas, an IAR currently registered in States W, X, and Y ***C) Louise, vice president of the company's sales department D) Wilson, the company's legal counsel
Jessica is an investment adviser representative for an SEC-registered investment adviser. She lives in State X and receives a letter from a former college friend requesting a contribution to the friend's political campaign for governor of State Y. As it happens, Jessica's firm provides advisory services to State Y's employee retirement fund and Jessica actively solicits business from other state agencies. Which of the following actions would be permitted to Jessica under the SEC's pay-to-play rule without causing any concerns to her firm?
***A) Donating a maximum of $150 to the campaign B) Donating a maximum of $250 to the campaign C) Sending a letter to the friend indicating that the rules would not permit her to contribute to the campaign D) Donating a maximum of $350 to the campaign
A customer in his 20s, who is not risk averse, is in the market for life insurance. His main worry is that what looks like a generous death benefit today may not be sufficient for a beneficiary 40 or 50 years from now. An investment adviser representative might consider recommending
***A) scheduled premium variable life insurance. B) whole life insurance with the option of purchasing additional coverage. C) term life insurance. D) an aggressive, long-term strategy of investment in small-cap stocks.
Which of the following is not included in adjusted gross income on an individual's federal income tax return?
***A) Municipal bond interest B) Unemployment compensation C) Dividends paid on preferred stock D) Salary and commissions
