S63

Under the Uniform Securities Act, all of the following could be cause for disciplinary review action by the state securities Administrator except A) the ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors. B) Joe files an application for registration as an investment adviser and omits the fact that he was convicted of fraud 12 years ago. C) Ed is suspended from conducting business in the securities industry for a period of 6 months by FINRA. D) Tom, a registered investment adviser, fails to disclose that he recently filed for bankruptcy protection.

A Investment advisers may employ investment adviser representatives as independent contractors. This is very common for independent financial planners. Even though the Administrator's power to deny a registration is limited to convictions within the past 10 years, being charged with or being convicted of any felony or a securities-related misdemeanor requires disclosure. Similarly, failing to disclose a bankruptcy filing is cause for disciplinary action on the part of the Administrator. Administrators are sensitive to actions by other industry regulators, so a suspension by FINRA (may say NASD on your exam) could also lead to taking action. LO 5.b

A notice filing would be most appropriate for which of the following new issues? A) Open-end investment company shares B) Federal credit union shares C) Railroad equipment trust certificate D) Intrastate offering

A Investment companies registered under the Investment Company Act of 1940 are exempt from registration with the states under the NSMIA. However, most states require notice filing and the payment of fees. Federal credit union shares and railroad equipment trust certificates are exempt securities, and intrastate issues would have to register using qualification. LO 4.e

The president of a manufacturing company sells shares of the company's common stock to the public and receives a commission substantially lower than others selling that stock. Under the Uniform Securities Act, the president is acting A) as an agent of the issuer. B) in a capacity that excludes her from the definition of an agent. C) as an agent of a broker-dealer. D) as a broker-dealer.

A LO 2.f

A broker-dealer registered in State X has several clients in State Y. If the firm does not have a place of business in State Y, registration in State Y would be required if one of those clients is A) an investment adviser registered in State Y. B) a broker-dealer registered in State Y. C) a bank authorized to do business in State Y. D) a registered investment company.

A The Uniform Securities Act provides that a broker-dealer with no place of business in a state is not defined as a BD in that state if its customers are exclusively institutional investors or other BDs. Banks and registered investment companies are in the list of institutional investors. When there is a client who is an investment adviser, the exclusion is lost. LO 2.b

What is an agnostic compensation grid?

An agnostic compensation grid is sometimes referred to as a neutral grid. That is, regardless of the product being sold, the compensation level is the same. It is one way to reduce the potential for conflicts of interest arising from offering agents the incentive of different compensation for different products LO 7.e

In some instances, rather than using an investment banker to distribute its securities to the public, an issuer will hire a sales force or use its own employees to make the sales. The individuals involved in the selling in this state would not be defined as agents under the Uniform Securities Act if selling on behalf of which of the following issuers? A) A building and loan association organized under the laws of any state and authorized to do business in this state B) A federal savings and loan association C) A credit union organized and supervised under the laws of this state D) A savings institution organized and supervised under the laws of any state

D Although each of the answer choices meets the USA's definition of exempt security, the savings institution is the only issuer where the act grants an exemption from the definition of agent to those individuals selling on its behalf. (Please note that a savings institution is not the same as a savings and loan or building and loan association) LO 2.f

State securities Administrators may require all of the following except A) minimum net capital requirements on broker-dealers. B) bonding requirements for registered agents who exercise discretion in customer accounts. C) minimum net worth levels on investment advisers with custody of client funds and securities. D) minimum recordkeeping retention periods by registered investment adviser representatives.

D Individuals registered as investment adviser representatives (or agents) never have to meet recordkeeping standards. Broker-dealers and investment advisers have to meet net capital or net worth requirements. LO 3.f

If an investment adviser places an advertisement in a newspaper offering a free brochure to those who call, under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, what may the adviser require from callers as a condition of receiving the brochure? A) A financial profile B) The names of three friends who might be interested C) A purchase D) Nothing, because no obligation may be placed on the callers

D It is unethical to offer free services unless the offer is free of any obligation, monetary or otherwise. LO 6.f

Under the Uniform Securities Act, requirements for registration may include which of the following? I An announcement of the application for registration in one or more newspapers in the state II Minimum capital requirements for broker-dealers who do not have custody of client securities or funds III A surety bond for agents who have custody of client securities or funds

I and II A published announcement may be required by the Administrator. The Administrator may also establish minimum capital requirements for broker-dealers, whether or not they maintain custody. However, the Administrator may require a bond only of persons who have custody or discretion. Agents may never have custody; only BDs and investment advisers are permitted to do so. LO 2.g

The Uniform Securities Act defined many terms. Among them is the term sale. Which of the following would be included in the definition of sale? I An offer of common stock in a new issue properly registered or exempt from registration in the state II A gift of assessable stock III An investor exercising preemptive rights previously received directly from the issuer IV An investor electing to forgo a cash dividend and receive the equivalent in stock instead

II and III A gift of assessable stock is always considered a sale. Although the receipt of preemptive rights is not a sale, the exercise of them is. An offer does not become a sale until the exchange of consideration. Choosing to take a stock dividend rather than a cash dividend is not a sale. LO 5.a

The Administrator may I deny a registration if the registrant does not have sufficient experience to function as an agent. II limit a registrant's functions to that of a broker-dealer if, in the initial application for registration as an investment adviser, the registrant is not qualified to act as an investment adviser. III take into consideration that the registrant will work under the supervision of a registered investment adviser or broker-dealer in approving a registration. IV deny a registration if it is prudent in view of a change in the state's political composition.

II and III The Administrator may deny, suspend, or revoke a registration for many reasons, but they must be in the interest of the public. The Administrator may determine that an applicant, in its initial application for registration for an investment adviser (IA), is not qualified to act as an adviser and thus limit the registration to that of a broker-dealer (BD). The Administrator can also take into consideration whether the registrant will work under the supervision of a registered IA or BD when approving an application. Lack of experience by itself is an insufficient reason for denial. LO 5.b

When a broker-dealer engages in a customer transaction from its own account, which of the following statements are true? I Partners of the broker-dealer are trading in their personal accounts. II The broker-dealer is trading from its inventory with customers. III The broker-dealer must disclose its capacity as a principal in the transaction. IV The broker-dealer must disclose its capacity as an agent in the transaction.

II and III The Uniform Securities Act defines a broker-dealer (BD) as a legal person (entity) engaging in the business of effecting securities transactions for the accounts of others or for its own account. In this context, trading for its own account means that the BD is trading from its inventory with customers. The BD has an ethical responsibility to disclose its capacity as a principal in the transaction. When trading for its own account, a BD is functioning as a principal or dealer. When trading for the accounts of others with no participation as a direct party to the trade, a BD functions in an agency capacity. LO 7.b

Buying a security on behalf of a customer and then reselling it before the customer has paid for it is prohibited or not?

It is not a prohibited practice to sell a security before the customer has paid for it (day trading) LO 7.b

MaryJo Barkley is the CEO of MJB Securities. MJB is distributing an offering of ABC common stock to investors. Barkley has been telling potential investors that the registration of the stock indicates approval by the state. Under the Uniform Securities Act, she is committing misrepresentation of __?

Registration Stating that a securities offering has been approved by a regulatory body is misrepresentation of the registration of the security LO 6.c

Under the Uniform Securities Act, the Administrator may designate another official in the department to __?

Serve subpoenas An official designated by the Administrator may serve subpoenas because that is basically an administrative function. However, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders LO 5.b

High level rules around splitting commissions between agents

Splitting commissions with agents of the same BD or different BDs under common control is also permitted. However, two registered agents representing nonaffiliated BDs may never share commissions LO 7.b

What is an offer/offer to sell

The USA defines this as every attempt or offer to dispose of, solicit an offer to buy, a security or interest in security for value LO 5.a

The NASAA Model Brochure Rule for investment advisers states that delivery of the brochure and related brochure supplements need not be made to __?

The brochure rule creates exemptions from the delivery requirement in two cases. The first is when the service rendered meets the definition of impersonal advisory services and the annual fee is less than $500. The other is when the advisory contract is with a registered investment company such as a mutual fund. LO 6.b

What are the requirements for disclosing that an agent is sharing commissions?

There are no requirements for you to tell a client that you are splitting commissions with another agent in the office. LO 7.a

According to the Uniform Securities Act, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent?

Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent. It is unlawful for a person to transact business on behalf of a broker-dealer unless that person is registered as an agent in the state. Only individuals selling on behalf of the issuer may qualify to be exempt from registration as an agent. LO 2.f

Principal vs agent capacity

When acting in a principal capacity, the BD is the contra party to the trade (they are on the other side of the trade with a client filling the order from its own inventory - Charge a mark-up or mark-down ***NEED MORE

Federal covered securities, as defined under the Uniform Securities Act, A) include shares of an investment company registered with the SEC under the Investment Company Act of 1940. B) are bound by federal anti-fraud statutes rather than those promulgated by the states. C) must be registered with the SEC before they can be offered in the state. D) must be registered in the state before they can be offered within the state.

A Shares of investment companies registered with the SEC under the Investment Company Act of 1940 are specifically included in the definition of federal covered security. Although these investment company securities are exempt from state registration, the state may still require a notice filing, including a consent to service of process and payment of fees. While many federal covered securities are registered with the SEC, the term also includes those exempt from registration, such as government and municipal bonds, as well as securities that are the subject of a private placement under Regulation D. Although exempt from registration, federal covered securities are not exempt from state antifraud statutes. LO 4.e

A broker-dealer will be underwriting an IPO. From all appearances, it seems that this will be a hot issue. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) shares must be allocated to clients based on their indications of willingness to purchase the shares B) employees of the broker-dealer must be given the first choice of purchasing shares. C) because the issue is hot, shares must be held by the broker-dealer for a minimum six-month cooling-off period. D) shares must be withheld by the broker-dealer for favored clients as a form of reward.

A The basic requirement has always been to make a fair allotment to clients and not to withhold shares for the broker-dealer or special clients. LO 7.b

NASAA has created a Model Rule dealing with the creation of and delivery requirements for an investment adviser brochure. Which of the following statements correctly identify the delivery requirements? A) The brochure must be delivered to prospective and new advisory clients no later than entering into the advisory contract. B) Annual delivery of the brochure to existing clients must be made within 90 days of the end of the adviser's fiscal year. C) The brochure must be delivered to prospective and new advisory clients no later than 48 hours after entering into the advisory contract. D) The brochure must be delivered to prospective and new advisory clients at least 48 hours prior to entering into the advisory contract.

A The initial delivery requirement is no later than the date of entry into the advisory contract. The 48-hour rule deals with an advance delivery to avoid having to honor a five-day penalty-free withdrawal. The annual delivery date is within 120 days of the end of the adviser's year. The 90-day requirement is for the annual updating amendment to the Administrator. LO 6.b

The Uniform Securities Act specifically exempts certain issues from the registration and advertising filing requirements of the act. Which of the following securities does not carry that exemption? A) Bank holding company stock B) Six-month commercial paper with a top rating that is sold in minimum denominations of $100,000 C) A debt issue of the District of Columbia D) Canadian government bond

A The securities of banks, trust companies, and savings institutions are exempt; the securities of bank holding companies are not. Commercial paper with a maturity of 270 days or less that is in the top three grades and has a minimum denomination of $50,000 is also included in the list of exempt securities. State and local issues are exempt and D.C. is considered a state under the USA. LO 4.e

With regard to an investment adviser's brochure, disclosure must be made to all current clients and to prospective clients regarding material disciplinary action. Which of the following would not have to be disclosed? A) A court of competent jurisdiction levied a civil fine of $100,000 against the firm resulting from a lawsuit filed by a newsletter publisher claiming the adviser used the publisher's intellectual property without permission B) Self-regulatory organization proceedings in which the adviser or management person caused the business to lose its registration; the firm or individual was barred, suspended, or expelled; or a fine in excess of $2,500 or a limitation was placed on the adviser or management person's activities C) Court proceedings, such as a permanent or temporary injunction, against the firm or management person pertaining to an investment-related activity or any felony D) State or regulatory proceedings in which the adviser or a management person was found to have violated rules or statutes that led to the denial, suspension, or revocation of the firm's or the individual management person's registration

A Unless the civil case was in relation to an investment activity, disclosure is not required. Plagiarism is not investment-related and there is nothing in the Uniform Securities Act or NASAA's Model Rules where the topic is discussed. LO 6.b

What is a covered account?

A covered account is a) an account that a financial institution offers or maintain (primarily for person, family, or household purposes) that involves or is designed to permit payment or transactions (NOT a business account) AND b) any other account that the financial institution offers or maintains for which there is a reasonable foreseeable risk to customers or to the safety and soundness of the financial institution from identity theft LO 8.b

Magnum Manufacturing Company (MMC) wishes to raise capital through a public offering of its common stock. When filing the required paperwork with the Administrator, MMC is legally referred to as ___?

A registrant When an issuer files the registration papers with the Administrator, the USA refers to that person as the registrant. Any person wishing to register in any capacity, whether a broker-dealer, investment adviser, agent, or investment adviser representative, is legally referred to as the registrant. LO 1.a

As defined in the Uniform Securities Act, every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value is ___?

A sale This is the definition of a sale. The offer precedes the sale; it is the attempt to make the sale. Once the deal is made, it is a sale. Isn't it also a transaction? Yes, it is, but on the exam, when you are faced with two possible answers that could be right, only one of them is a more complete response. In this case, a transaction could be a buy or a sell, so answering that a sale took place is more accurate. LO 1.a

According to the Uniform Securities Act, which of the following statements is true? A) An investment adviser with only a small branch office in the state, who conducts business exclusively with insurance companies located in the state, need not register in the state. B) An investment adviser with no place of business in the state, who conducts business exclusively with insurance companies located in the state, need not register in the state. C) If an agent is hired away from his broker-dealer by another broker-dealer, only the new broker-dealer must notify the Administrator. D) Only the employing adviser, not the investment adviser representative, must register in the state.

B An adviser with no place of business in the state who conducts business with insurance companies is exempt from registration in the state. The other answer choices are all false. If an agent is hired away from a broker-dealer by another BD, both BDs and the agent must inform the Administrator. The size of the branch office is irrelevant; simply having a place of business in a state requires registration, regardless of the clientele. LO 3.b

Which of the following is a prohibited practice under state securities law? A) Soliciting orders from retail customers for exempt securities B) Failing to obtain prior written authority for orders from a third party C) Making recommendations on the basis of in-house analysts' reports D) Failure to include the broker-dealer's commission schedule on the fee disclosure document

B Orders from a third party (someone other than the client) can only be accepted when the broker-dealer has received a written trading authorization form from the client. Soliciting orders for a security that is exempt from registration is a normal business practice. An agent may use the in-house reports of his firm's securities analysts as a basis for recommendations, provided the reports do not contain inside information. The NASAA fee schedule template specifically excludes commissions, markups and markdowns, and advisory fees. LO 7.b

An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state A) up to two years after the broker-dealer voluntarily withdrew its registration. B) upon discovery that the broker-dealer's registration had been suspended in another state. C) upon discovery that an agent of the broker-dealer was convicted of a felony violation involving securities fraud. D) based upon facts known to the Administrator at the time of the broker-dealer's initial registration.

B Suspension (or revocation) of a broker-dealer's (BD's) registration in another state is adequate cause for this state's Administrator to initiate the process to suspend the BD's registration in his state. A felony committed by an agent of the BD is not usually cause for the Administrator to initiate a proceeding against the BD. It is only when the question states that the individual is an officer, director, or partner of the firm or that the agent's actions are due to failure to supervise that action against the firm will generally commence. LO 5.b

A broker-dealer registered in State A has several clients in State Z. If the firm does not have a place of business in State Z, the firm would avoid the need to register in State Z if its only clients in the state are A) other broker-dealers, as long as they have assets of at least $1 million. B) employee benefit plans with assets of at least $1 million. C) individuals with assets of at least $1 million. D) IRAs with assets of at least $1 million.

B The Uniform Securities Act provides that a broker-dealer with no place of business in a state is not defined as a broker-dealer in that state if its customers are exclusively institutional investors or other BDs. Included in the definition of institutional investor is employee benefit plans with assets of no less than $1 million. LO 2.b

Under the Uniform Securities Act, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in A) prospecting for new clients by mail. B) prospecting for new clients in person. C) giving a seminar on the benefits of whole life insurance versus term insurance. D) accepting unsolicited orders.

C A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Insurance, unless variable, is not a security. LO 2.g

Rapacious Investment Partners (RIP) is a broker-dealer registered in States X and Y. Wishing to expand into State Z, RIP acquires Peng Asset Traders (PAT), a broker-dealer registered in State Z. The acquisition is finalized on July 1, 2020. As the successor firm to PAT, RIP A) will not have to file a consent to service of process because that is part of PAT's original filing. B) will not have to file a Form BD with State Z because it is already on record in States X and Y. C) will not have to pay a license fee until the renewal date. D) will have to pay a license fee along with its application.

C A successor firm, a broker-dealer (or investment adviser) that takes over an existing firm, does not have to pay a licensing fee (in our question, PAT has already paid State Z for the year) until the December 31 renewal date. Succeeding to the existing firm requires that the new firm file a Form BD as an initial registrant. That would also mean a consent to service of process for State Z for RIP because PAT no longer exists. LO 2.c

Under the provisions of the Uniform Securities Act, all of the following transactions are exempt except A) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10. B) transactions by executors. C) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made by the investors. D) liquidation of a security pledged as collateral for a loan.

C A transaction pursuant to an offer by an issuer to 10 persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All of the other transactions are exempt. LO 4.f

Under the Uniform Securities Act, all of the following are required to be registered as investment adviser representatives except A) an employee who solicits new customers for CB&G Advisers, Inc. B) an individual who furnishes investment advice to clients of CB&G Advisers, Inc. C) CB&G Advisers, Inc. D) a vice president of CB&G Advisers, Inc., who serves on the firm's advisory committee.

C An individual or a firm may be registered as an IA, but only an individual can be an IAR. LO 3.e

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 a U.S. Treasury bond maturing in more than 10 years B) Sale of the bonds of AGI insurance company organized under the laws of the state C) Sale of an IPO limited to residents of the state D) Sale of preferred stock of a long-established company registered with the SEC whose common shares trade on the New York Stock Exchange

C The state securities Administrator may require the filing of advertising and sales literature of an IPO limited to residents of the state. The other choices are securities of issuers of exempt securities or, in the case of the NYSE-listed issuer, federal covered securities. The Administrator may not require issuers of exempt and federal covered securities to file advertising and sales literature. LO 4.e

The Uniform Securities Act excludes from the definition of agent individuals who represent certain issuers in the sale of their securities. An individual representing which of the following issuers does not qualify for that exclusion? A) A Canadian province B) A savings institution organized and supervised under the laws of any state C) A bank organized under the laws of the United States D) A federally chartered credit union

D All of these securities are included in the Uniform Securities Act's listing of exempt securities. However, the exclusion granted to individuals representing issuers of exempt securities does not apply to every exempt security. One of the categories missing from the list of those eligible is credit unions, whether they be under federal or state regulation LO 2.f

All of the following statements regarding the disclosure investment adviser brochure rule of the Uniform Securities Act are true except A) the brochure rule permits advisers to deliver the disclosure brochure when the client enters the contract, provided the client is allowed to cancel the contract without penalty within five business days. B) the disclosure brochure must be delivered no later than 48 hours before entering into an advisory contract for there to be no requirement to offer a five-day refund right. C) the disclosure brochure must contain essentially the same information as is contained in Form ADV Part 2A and, if applicable, Part 2B. D) the disclosure brochure must be signed by an officer or partner of the firm.

D An officer or partner of the firm need not sign the disclosure brochure. The investment adviser's disclosure brochure must contain the relevant information from Form ADV Part 2A and, for those where it applies, Part 2B. The rule does permit advisers to deliver the brochure when the client enters the contract, provided the client is allowed to cancel the contract without penalty within five business days; otherwise, the brochure must be delivered no later than 48 hours before entering into an advisory contract. LO 6.b

An individual functioning as an investment adviser representative for a federal covered adviser with no place of business in this state would be required to register in this state if A) he has a time-share in the state. B) he deals only with investment companies located in the state. C) the investment adviser has a small office in the state. D) he conducts frequent public seminars in the state.

D One of the provisions dealing with federal covered investment advisers is that states have no registration jurisdiction over their investment adviser representatives unless the IAR has a place of business in the state. It makes no difference what kind of clients the IAR serves. Under the Uniform Securities Act, conducting seminars open to the public in a state is considered to be having a place of business in the state. A time-share or vacation home has nothing to do with the IAR's advisory service. The fact that the employer, the IA, has an office in the state, is of no relevance to the IAR. LO 3.e

A client of an investment adviser representative of a federal covered investment adviser wishes to place a favorable comment on the investment adviser's website. This action A) would need to be reviewed by the SEC. B) should be happily accepted by the investment adviser. C) might be considered entanglement. D) would be considered a testimonial and require that disclosure be made of any compensation received by the client.

D Testimonials for investment advisers and their representatives posted by clients are a permitted practice as long as proper disclosures are made. One of the most important of those is if the person supplying the testimonial was compensated. The SEC does not review investment adviser advertising. Entanglement is when the IA posts to its website or social media content prepared in conjunction with a third party. Although the IA is happy to see favorable comments posted on its website, care should be taken to ensure that all of the required disclosures are made. LO 6.f

If two agents of a broker-dealer agree to work together in a partnership to solicit business and they agree to split commissions, this practice is A) in violation of the Uniform Securities Act's prohibition against sharing in the profits of an account. B) permitted only if their supervisor audits the partnership's financial performance. C) not permitted under the terms of the Uniform Securities Act. D) permitted.

D There is nothing in the USA that prohibits agents registered with the same broker-dealer (BD) from forming a partnership to conduct business or solicit clients. Under the USA, a supervisor of the firm need not audit the financial performance of such an arrangement. It is considered an unethical business practice for agents who are not licensed with the same or affiliated BDs to share commissions. LO 7.b

A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately A) notify the Administrator. B) suspend the agent involved until the complaint is resolved. C) notify NASAA. D) reply to the client in writing.

D When a broker-dealer (BD) receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received. This is an internal matter and the BD has no reason to notify the Administrator. There is no reason to immediately suspend an agent over a complaint—at least not until wrongdoing has been proven. LO 7.b

Which of the following is a prohibited business practice? I Executing a trade for a client on the orders of a client's attorney without a written third-party trading authority II Executing a purchase order at market when the price of the security was falling III Accepting a loan of money from a customer who is an immediate family member and is the chief loan officer at a bank

I and II An agent can always execute an unsolicited market order but may never accept third-party orders without written authority or borrow money or securities from a customer, regardless of the family relationship. Loans from clients who are lending institutions are permitted, but not from the individuals who work for them. LO 7.b

If you are registered as an agent for a broker-dealer in State Y and you conduct business as an agent of theirs in State Z, a state in which you are not registered as their agent, you I expose yourself and your employer to disciplinary action by State Z. II expose yourself to a possible fine. III may obligate your broker-dealer to offer your client the right to rescind the sale. IV may have your registration in State Y revoked.

I, II, III, and IV Agents must be registered in each state where selling or offering to sell securities unless an exemption is available. Failure to do so exposes the agent and the broker-dealer (BD) to fines and possible disciplinary action. In addition, the individual could have his registration revoked where he is registered, and the BD could be required to offer customers the right to rescind any securities transactions. LO 5.d

Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if a function of the position involves I offering advice concerning securities. II managing client accounts or portfolios. III determining securities recommendations for representatives to disseminate. IV supervising personnel engaged in advisory activities while not personally dealing with the public.

I, II, III, and IV The Uniform Securities Act defines persons associated with an investment adviser who offer advice concerning securities as investment adviser representatives. This includes any partner, officer, or director. Also includes: - Making any recommendations or otherwise rendering advice regarding securities - Managing accounts or portfolios of clients - Determining which recommendation or advice should be given - Soliciting, offering, or negotiating for the sale of advisory securities - Supervising employees who perform any of the above LO3.d

Under the Uniform Securities Act, which of the following are prohibited practices? I Failing to disclose that one is acting as a principal for one's own account in a securities transaction for which one has received a fee for investment advice II Selling unregistered nonexempt securities that are not federal covered securities in transactions that are not exempt III Engaging in a practice not expressly forbidden by the act but defined as unethical by the Administrator in a rule

I, II, and III An investment adviser must disclose the fact that it will act as a broker or dealer in a transaction if a fee is charged for the advice. An unregistered security that is not a federal covered security may not be sold unless it or the transaction is exempt. The act gives the Administrator the power to define certain practices as unethical and prohibits those practices with the same force as the ones spelled out in the act. LO 7.d

Which of the following statements regarding the brochure delivery requirements of the NASAA Model Rule for investment advisers are true? I The brochure must be updated each time Part 1A of Form ADV is updated. II The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500. III A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year.

II and III only Because the information in the brochure is derived from Part 2A of the Form ADV, changes to Part 1A will not necessarily apply to items that are important to the client. The NASAA Model Rule requires that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. If there are no material changes, a brochure does not have to be sent. The brochure delivery requirements do not apply to customers that are investment companies or clients of impersonal services (those that do not purport to meet the investment objectives or needs of specific clients), as long as the cost of the service is less than $500 per year. LO 6.b

Which of the following would be required to register as an agent under the Uniform Securities Act? I An officer of a broker-dealer who does not deal with customers or supervision of sales II A director of a broker-dealer who is not involved in day-to-day operations III A trader who is authorized to handle customer orders IV An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades

III and IV An agent is an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Prequalifying clients requires registration. Officers and directors are not agents if they are not involved in the transactions of securities with the public. Under the USA, even though the term principal may be used to refer to a supervisory person, there is no separate registration category for these people. They are licensed as agents, just like you. LO 2.e

Under the Uniform Securities Act, the registration requirements for agents would never include __?

Minimum capital Minimum capital may be required of broker-dealers and investment advisers but not agents. LO 2.g

Defalcator Dependable Brokers (DDB) has changed its business structure from a general partnership to a corporation. Notification of this change must happen to whom & when?

Must be submitted to the Administrator promptly If any material information in the documents relating to the application for registration becomes inaccurate or incomplete, the registrant must promptly file a corrected copy (amend their application) with the Administrator. Because the type of business structure—partnership, corporation, LLC, or sole proprietorship—is disclosed on Form BD, a change requires a prompt update. The USA never defines prompt and the exam never specifies a time—just answer promptly to a question like this. LO 2.c

Is it prohibited to accept a customer's order to purchase an unregistered, nonexempt security?

No Even though the security is nonexempt and is unregistered, this is an unsolicited order, and that makes it an exempt transaction. LO 7.b

What types of things are not securities under the USA?

Nonvariable life insurance contracts, IRAs, collectibles, and mortgages are not among those instruments listed as securities under the act. LO 4.a

Each of the following statements is true except A) the Uniform Securities Act is a template rather than the actual law of any state or territory of the United States. B) the state securities Administrator takes responsibility for the enforcement and administration of a state's securities law. C) the National Securities Markets Improvement Act of 1996 (NSMIA) requires states and the federal government to have identical registration requirements. D) NASAA is responsible for the content of the Series 63 exam.

The NSMIA's purpose is to eliminate dual registration, not to require identical laws. The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws LO1.a

What is the definition of a sale?

The USA defines this as every contract of sale, contract to sell, and disposition of a security or interest in a security for value. This means any transfer of a security in which money or some other valuable consideration is involved is covered by this definition. LO 5.a

When is a surety bond needed for a BD?

The first thing to remember is that no state can require bonding or financial requirements in excess of those of the SEC. A state with a higher bonding requirement can apply that only to broker-dealers who are not SEC registered. The second point is that any SEC-registered BD whose net capital exceeds the SEC's requirement has no obligation to post a surety bond. LO 2.c

What is needed for an agent to share in an account with a customer?

To share in a customer's account, written authorization of both the client and the broker-dealer need to be obtained LO 7.b

An agent has more than 200 customers, and after extensive research on initial public offerings issued by solar energy companies, she recommends that each customer purchase shares in Solargreen, Inc. If the agent discussed the risk of buying Solargreen stock with each customer, the agent has acted __?

Unethically because the recommendation does not consider the financial objectives of each customer LO 7.b

When may an individual sell securities as a registered agent for more than one broker-dealer?

When the broker-dealers are under common control The Uniform Securities Act provides for multiple registrations when the broker-dealers are under common control or otherwise affiliated. The Administrator has the authority to make an exception and allow dual registration even when there is no relationship between the firms. LO 2.g

When is an order considered discretionary?

An order is discretionary only if an agent selects the size of the trade, the security, or whether to buy or sell. Selecting only price and/or time does not constitute discretion LO 8.a

Disclosure to customers of a control relationship between a broker-dealer and the issuer of the security recommended is required in what types of transaction?

Any transaction The nature of any control relationship or conflict of interest must be disclosed to customers, regardless of the capacity in which the firm acted or the type of transaction made. LO 6.a

Under the Uniform Securities Act, a state-registered investment adviser's records may be examined by the Administrator or his designee __?

At any time during regular business hours - All records must be available for examination by the Administrator at any time during regular business hours, within or outside the state LO 2.c

Under industry rules, customers who wish to trade options must receive a copy of the options disclosure document (ODD) ___?

At of before account approval All prospective options customers must receive a copy of the ODD at or before the time the account is approved to trade options. It is the options account agreement that must be signed and returned to the broker-dealer within 15 days of account approval. LO 6.e

If a state-registered investment adviser moves to another location, the Administrator must be notified A) promptly. B) within 30 days. C) within 7 days. D) within 15 days.

A An address change (also change of name, change in principal business location, change in contact person, etc.) must be communicated promptly to the Administrator. LO 3.c

Under the Uniform Securities Act, which of the following is a security? A) A Canadian bank bond B) A rare coin C) A Roth IRA D) Valuable jewelry from an estate sale

A Any bond is a security. Collectibles, precious metals, currency, and retirement plans are not considered securities. LO 4.a

Under the Uniform Securities Act, all of the following are specifically excluded from the definition of a broker-dealer except A) investment advisers. B) agents. C) issuers. D) banks.

A Banks, issuers, agents, and certain out-of-state broker-dealers are excluded from the definition of broker-dealer. However, investment advisers frequently also carry registration as a BD. LO 2.b

When is a broker-dealer withdrawal (Form BD-W) effective, and how long does an admin have jurisdiction once the withdrawal is effective?

30 days after receipt of application 1 year LO 2.c

Which of the following would be least likely to meet the cyber security definition of a covered account? A) A business account held by a company listed on the NYSE B) An account with a registered investment company that permits the owner to wire funds to a third party C) A customer with a margin account at a broker-dealer D) A customer with an automobile loan at a bank

A In general, business accounts are not included in the term covered account. There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. That is unlikely to be the case with a listed company. LO 8.b

A broker-dealer with an office in this state must register as an investment adviser if it charges __?

A broker-dealer must register as an investment adviser if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm must register as an IA. (If a BD charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the BD need not register as an IA because it is not compensated for the research.)

A securities transaction where there is no benefit to the issuer is called __?

A non-issuer transaction In a nonissuer transaction, the proceeds do not benefit or go to the issuer directly. In a primary transaction, the proceeds of an underwriting go to the issuing corporation directly. LO 4.b

In the Howey decision, the U.S. Supreme Court held that a security must represent __?

An investment of money in a common enterprise with the expectation of profit from the managerial efforts of others. LO 4.a

When do admin have jurisdiction?

A) the state from which an offer to sell securities originated. B) the state in which an offer to sell securities was accepted. C) the state into which an offer to sell securities was directed. Note: The state of which payment is made is not relevant LO 5.a

What is affinity fraud?

Affinity fraud targets members of identifiable groups, such as the elderly, or religious or ethnic communities. LO 6.f

What is an agency cross transaction?

An agency cross transaction occurs when an investment adviser acts as both adviser and broker-dealer and requires prior written approval from the client and special reporting requirements. The adviser cannot recommend the transaction to both parties, only one side or the other. LO 7.d

Under the Uniform Securities Act, an agent registered in one state may transact business in another state in which he is not registered with in what 2 circumstances?

An agent may conduct business in a state in which he is not registered if 1) an existing client is visiting in that state or 2) if the client moved to that state within the past 30 days. LO 2.f

Under the Uniform Securities Act, an investment adviser is exempt from registration if it has no place of business in a state and its only clients are any of the following except A) other investment advisers. B) accredited investors. C) broker-dealers. D) investment companies.

B Included in the definition of accredited investor are individuals with net worth in excess of $1 million, excluding the value of the principal residence. However, that does not make them an institutional investor. Provided its clients are institutional investors and the adviser has no place of business in a state, it is not required to register as an investment adviser in that state. LO 3.b

Which of the following is not required to be disclosed in an investment advisory contract under the Uniform Securities Act? A) The amount or manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination B) The adviser's past performance over a period of no less than the previous 12 months C) The termination date of the contract D) If applicable, a statement that the investment adviser will be exercising discretion in the account

B The Uniform Securities Act does not require an investment advisory contract to disclose the IA's past performance. LO 6.e

The term agent as defined in the Uniform Securities Act, would not include which of the following individuals? A) One who represents a registered broker-dealer selling unregistered exempt securities B) One who represents an issuer in effecting exempt transactions C) One who represents a registered broker-dealer selling securities listed on the NYSE to individual clients D) One who represents an issuer of any exempt security

B anyone selling securities, exempt or not, while representing a registered BD must be licensed as an agent of that BD. The only case in which an individual selling securities as a representative of an issuer is always excluded from the definition of agent is when the transactions are exempt LO 2.f

What are the rules against highlighting a prospectus?

Both state and federal laws prohibit any marking up of a prospectus, even if the purpose is a noble one. LO 6.f

A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer A) is a member of the New York Stock Exchange. B) is licensed/registered in its state of residence. C) does no business in that state other than with institutional clients. D) is a member of FINRA.

C A broker-dealer must be registered in every state it sells or offers to sell securities, unless an exemption is available. If a BD has no office in a particular state and no business is done in that state other than with institutional clients, registration there is not required LO2.b

A broker-dealer limits its business to effecting transactions in securities that are exempt from registration with the state. The individuals representing that broker-dealer A) are not required to register as agents. B) must obtain a limited agent registration. C) must register as agents. D) may choose to register as agents.

C A security's exemption from registration with the state has no bearing on the individual's requirement to register as an agent. It is unlikely you will ever see a question on the exam where an individual representing a broker-dealer in a securities transaction is not deemed to be an agent. LO 2.e

Included in the Uniform Securities Act's definition of exempt transaction would be any transaction by any of the following except A) one by a trustee in bankruptcy. B) one by a marshal. C) one by a trustee of an irrevocable trust. D) one by a guardian.

C Although the term trustee is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy. LO 4.f

USATrade Securities, a FINRA member broker-dealer, is registered in 10 Midwestern states. Regarding financial requirements, USATrade must meet those of A) the state in which the principal office of the member is located. B) FINRA. C) the SEC. D) the state with the most stringent financial requirements.

C In all cases, a broker-dealer member of FINRA is also registered with the SEC. As such, when it comes to financial requirements, bonding, recordkeeping, and so forth, the SEC's requirements always trump those of the states. LO 2.c

A person makes a sale that is in violation of the antifraud provisions of the Uniform Securities Act. Which of the following is not a true statement? A) If the sale is made by an agent registered in another state but not in this state, the antifraud provisions still apply. B) The antifraud provisions apply to exempt transactions. C) If the sale is made by someone not in the securities business, the antifraud provisions do not apply. D) The antifraud provisions apply to both exempt and nonexempt securities.

C The USA states that it is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly, to engage in any act, practice, or course of business that operates or would operate as fraud or deceit upon any person. This means that even those who are not in the securities business can be charged with fraud if the activity involves a security. However, if a security is not involved (real estate, fixed annuity, commodity, etc.), then the USA's antifraud provisions do not apply. It isn't the person; it is the product that we're looking at. LO 7.a

There are three items that are not part of the broker-dealer (BD) fee disclosure document. Those are

Commissions Markups/downs Advisory fees (for those BDs that are also IAs)

An applicant for registration as an investment adviser discloses on its application to the Administrator that it plans to use palm readers to help determine which investments are most suitable for their clients. Under the Uniform Securities Act, the Administrator A) will probably turn to the SEC for guidance. B) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit. C) is empowered to deny this application for just cause. D) may only justify denial for reasons listed in the Uniform Securities Act.

D A denial of registration must be based on the concept of law. There are stated reasons for denial, such as felony convictions, outstanding injunctions, and insolvency. Where in the USA does it say an adviser can't use palm readers, a Ouija board, or a Magic 8 Ball? Although disclosure of methods of analysis is required, the Administrator is not empowered to pass judgment on the merits of those methods. The USA does state that the Administrator is empowered to "condition a particular applicant's registration as a broker-dealer upon his not transacting business as an investment adviser if the Administrator finds that he is not qualified as an investment adviser." But nowhere in this question does it indicate that the applicant is, or is applying for, registration as a broker-dealer. LO 5.b

As defined in Section 402 of the Uniform Securities Act, which of the following is not an exempt transaction? A) A nonissuer unsolicited transaction B) A transaction executed by a trustee appointed by a bankruptcy court C) A sale of stock to a bank D) A 91-day U.S. Treasury bill

D The Treasury bill is an exempt security, not an exempt transaction. In order to have an exempt transaction, there must be an action. Unsolicited transactions and sales of securities to financial institutions (e.g., bank or savings and loan) are exempt transactions. Transactions executed by a fiduciary, such as by a trustee in the course of a bankruptcy proceeding, are also exempt transactions under the Uniform Securities Act. LO 4.f

An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is __?

Unethical An investment adviser cannot lend money to a customer unless the loan is made through a regulated lender such as an affiliated broker-dealer or an affiliated bank. LO 7.c

When the compensation arrangements or incentives for the broker-dealer or its agents could affect whether employees recommend or offer a particular security or transaction to a client, it is required that the firm __?

Disclose the potential conflict of interest Certain products carry higher compensation rewards to the broker-dealer than do others of a similar nature. This presents a potential conflict of interest, should the firm recommend these over others. There is nothing illegal about doing so, as long as disclosure of the conflict is made to the client. LO 6.a

The form ADV must be updated each year by ___?

Filing an annual updating amendment within 90 days of the end of the advisor's fiscal year - This annual updating amendment is used to update the responses to all items in the ADV - Of critical importance is the verification of AUM to determine if the advisor should be SEC or state registered LO 3.c

Which of the following are not agents as defined in the Uniform Securities Act? I A broker-dealer acting on behalf of a properly registered issuer II An individual representing the U.S. government in the sale of its securities III An individual who, acting on behalf of a broker-dealer, sells any exempt security or engages in an exempt transaction IV An individual who represents an issuer selling a nonexempt security in a nonexempt transaction

I and II A broker-dealer by definition is not an agent. An individual who, while acting on behalf of the issuer, sells certain exempt securities, such as those issued by the U.S. government, is not an agent. The exclusion from the definition of an agent only applies to those individuals who are selling on behalf of the issuer (never a BD) and only when the transaction is exempt or the issuer is one of a specified list of issuers of exempt securities LO 2.f

An agent has been recommending that customers buy common stock in XYZ Company. If on a visit to XYZ he overhears unreleased news that XYZ has just lost its biggest account, the agent should I discuss the situation with his supervisory principal. II continue to recommend the security to customers and prospects. III stop recommending the security to customers and prospects. IV sell the stock short in his brother's account.

I and III Whenever an agent has concerns about matters involving the broker-dealer's customers, such concerns should be shared with the agent's supervising principal. It is appropriate that the agent stop recommending XYZ stock to customers and prospects. LO 7.a

Persons not included in the Uniform Securities Act's definition of broker-dealer are I agents. II banks. III issuers. IV trust companies.

I, II, III, IV Agents represent broker-dealers; they are not BDs. Banks, savings institutions, and trust companies are specifically excluded from the definition. Issuers of securities, such as governments and corporations, are not defined as BDs. Please note that a bank subsidiary engaged in BD functions will generally be defined as a BD and need to register as such. LO 2.b

On the Series 63 exam, the term solicitor is used to describe persons who refer business to __?

IAs Solicitors are persons who refer business to investment advisers. There is no comparable term for those referring business to broker-dealers and their agents. LO 1.a

What is needed for an agent to open a joint account with a customer?

In order for an agent to open a joint account with a client, written consent of both the client and the employing broker-dealer (BD) is required. LO 7.b

Is an incomplete application to become an BD, agent, IA or IAR cause for denial of registration alone?

Yes

What is the smallest order that can be placed for an institutional account?

There is no limit on institutional order sizes LO 4.f

The Administrator of a state securities department conducted a hearing regarding misconduct by an investment adviser registered at the state level. The Administrator required the adviser, as well as several clients who had lodged complaints against the adviser, to take a sworn oath that their testimony was true. Does the Administrator have the power to require sworn oaths?

Yes, the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction. LO 5.b

A broker-dealer with no place of business in a state is not deemed to be a BD in that state if its only customers are __?

institutions like banks, insurance companies, investment companies, employee benefit plans with assets of at least $1 million, or other BDs LO 2.b