Series 63

To raise new capital for the company, a company director decides to sell unissued shares directly to employees of the company. The director earns a commission for selling these shares. This director is defined as a(n): A agent B broker-dealer C issuer D non-issuer

The best answer is A. Because the company is issuing these shares and the proceeds are going to the issuer, this is an issuer transaction. Because an agent is defined as an individual who effects securities transactions for either a broker-dealer or an issuer, the directors are considered to be agents of the issuer and must be registered.

Which of the following securities is EXEMPT under the Uniform Securities Act? A OTC issues B AMEX (NYSE American) issues C limited partnership issues D mortgage bond issues

The best answer is B. Exchange listed and NASDAQ listed issues are exempt securities under the Uniform Securities Act under the "blue chip" exemption (note that they are not exempt from Federal registration under the Securities Act of 1933, however). Only NASDAQ issues are exempt - other "OTC" issues such as stocks listed in the "Pink Sheets" are non-exempt. Limited partnerships are non-exempt; and mortgage bonds (a type of corporate bond) are non-exempt as well.

Under the provisions of the Uniform Securities Act, the determinant of whether an investment adviser can take custody of client funds is whether the RIA: is named as the trustee of a client trust account has taken out a surety bond has a signed power of attorney has at least $25 million of assets

The best answer is B. Under State law, if an investment adviser will not take custody of a client's funds, there is no surety bond requirement. However, if the adviser will take custody, it must have a minimum net worth or minimum surety bond coverage of $35,000.

The registration of a broker-dealer may be revoked for which of the following reasons? I The firm does not maintain required recordsII The firm does not file financial reports with the AdministratorIII The firm does not file advertising with the AdministratorIV The firm does not file customer complaints with the Administrator A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. A broker-dealer's registration may be revoked if the firm fails to maintain required records, fails to file financial reports with the Administrator or fails to file advertising with the Administrator, if required to do so. There is no requirement under the Uniform Securities Act for customer complaints to be filed with the Administrator.

The Administrator: A is empowered to issue stop orders retroactively and can vacate them retroactively B is empowered to issue stop orders retroactively and cannot vacate them retroactively C cannot issue stop orders retroactively but can vacate them retroactively D cannot issue stop orders retroactively and cannot vacate them retroactively

The best answer is C. As a general rule, the Administrator cannot issue an order stopping the sale of a security, or denying or revoking a registration, retroactively. However, if the Administrator were to issue a stop order because of something trivial, like not paying the required fee, then once the fee is paid, the stop order wo

Regarding the use of material facts when effecting customer transactions, all of the following statements are true EXCEPT: A omission of material facts is fraudulent B if all known facts cannot be presented, the agent must decide which facts are "material" and must be presented C material facts must only be disclosed if they would have a negative impact on the security's value D material facts must be disclosed when making either an offer to buy or sell

The best answer is C. Omitting material facts when effecting customer trades is fraudulent; agents must present all "material" facts about a transaction to customers; it makes no difference whether material facts might have either a negative or positive impact - they must be disclosed; and material facts must be disclosed when making an offer to buy or sell securities.

Which of the following is a non-exempt security under Uniform State Law? A NASDAQ listed issues B Church bonds C Equipment Trust Certificates D Corporate bonds offered to fewer than 5 investors

The best answer is D. Under Uniform State Law, exchange and NASDAQ listed issues are exempt securities in that State; as are not-for-profit issues and equipment trust certificates (which are issued by common carriers subject to I.C.C. regulation). Corporate bonds of issuers that are exchange listed are exempt securities as well - but there is no mention of this in Choice D. Corporate bonds offered to 5 or fewer investors would qualify as an exempt transaction; not as an exempt security.

All of the following persons are excluded from the definition of a broker-dealer or are exempt from registration as a broker-dealer under the Uniform Securities Act, EXCEPT a firm: A with an office in the State that effects trades exclusively with other broker-dealers B with no office in the State that effects trades exclusively with trust companies and other financial institutions C with no office in a State with a broker-dealer "de minimis" exemption that has a few clients in the State in the preceding 12 months D with an office in that State that is a trust company that deals with the public

The best answer is A. A firm is not defined as a broker-dealer if it has no place of business in the State and transacts solely with issuers, other broker-dealers, and financial institutions. However, if a firm that effects securities trades has an office in a State, it is defined as a broker-dealer and must register in the State. Thus, the broker-dealer in Choice A must register and the broker-dealer in Choice B is not required to register. The "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State. In Choice C, the State has a broker-dealer "de minimis" exemption and would not be required to register. Banks, S&L's, and trust companies are also excluded from the definition of a broker-dealer, so no registration as a broker-dealer is required in Choice D.

All of the following are EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act EXCEPT a firm with no place of business in the State that: A has a few clients in the State with a de minimis exemption B deals exclusively with issuers of securities C deals exclusively with other broker-dealers D deals exclusively with insurance companies

The best answer is A. Excluded from the definition of a broker-dealer under Uniform State Law are persons with no place of business in the State that effect transactions exclusively with issuers; other broker-dealers; depository institutions; insurance companies; investment companies; and pension trusts. These persons are not dealing with the general public. Note that if the broker-dealer has an office in the State and deals with any of these persons - it would be required to register in that State. Now for the picky part! The "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State. Thus. Choice A qualifies for the exemption and does not have to register because it is exempt from registration (as opposed to being excluded from the definition and therefore not being required to register). Thus, Choice A is defined as a broker-dealer, but it is one that is exempt from registration in that State. Yes, this must be known for the exam.

On January 2nd, an issuer files a registration statement with the State Administrator for a new issue of common stock. 14 months later, the offering has not been completed and the issuer wishes to continue selling the securities until all of the common shares have been placed with the public. Which statement is TRUE? A The issuer can continue to sell the shares because the registration expires only when the sale is complete B The issuer cannot continue the sale of the issue because each securities registration automatically expires after 180 days C The issuer cannot continue the sale of the issue because each securities registration automatically expires after 12 months D The issuer can continue to sell the shares because each securities registration never expires

The best answer is A. The basic rule for registration statements filed with the Administrator for securities offerings is that they are good for 12 months. However, if the offering takes longer than 12 months, the registration is still good until the sale is complete. The exact wording of the Uniform Securities Act is: "Every registration statement is effective for one year from its effective date, or any longer period during which the security is being offered or distributed in a non-exempted transaction by or for the account of the issuer or other person on whose behalf the offering is being made or by any underwriter or broker-dealer who is still offering part of an unsold allotment or subscription taken by him as a participant in the distribution, except during the time a stop order is in effect."

A company offers a salary reduction defined contribution plan to its employees that adheres to ERISA Rule 404(c). It is administered by the firm's Human Resources (HR) department. The individual in HR who oversees enrollment of employees in the plan receives a bonus for any employees that purchase the company's stock in the plan. This employee is: defined as an agent who must register in the State defined as an issuer who must register in the State not defined as an agent and is not required to register in the State not defined as an issuer and is not required to register in the State

The best answer is A. An agent represents either a broker-dealer or an issuer in effecting securities transactions. The key here is that this individual gets a bonus when employees buy that company's shares in the 401(k) plan. If he or she was not compensated with the bonus, then this individual is excluded from the definition of an agent. Since the bonus is being paid, this does not apply and the individual must register as an agent in the State. (ERISA Rule 404(c) is actually irrelevant to this question. It gives employers who offer self-directed 401(k) plans that give employees investment options, that when combined, tend to provide diversification and reduce risk, relief from potential liability for bad-performing investments.)

A broker-dealer that is registered in New York and that is not registered in any other State may effect transactions in securities in the other States: I with any existing customer that is a New York resident II with any new customer that is a New York resident III while the customer is temporarily on vacation in the other State IV if the customer has relocated to the other State A I and III B I and IV C II and III D II and IV

The best answer is A. An exemption from registration is given to broker-dealers that have a place of business in a State (thus they must be registered in that State) that are dealing with pre-existing customers who are temporarily visiting other States. This addresses the fact that people travel widely throughout the United States and if that citizen who is on vacation in another State effects a securities transaction with his or her existing broker-dealer, then the State where the customer is vacationing will not require the broker-dealer and its agents to register. Note that the exemption does not apply to new customers; only to pre-existing customers.

An agent receives physical certificates from a customer that the customer wishes to deposit to his brokerage account. Which statement is TRUE? A The agent must forward the certificates to the broker-dealer immediately B The agent must enter the certificates into street name and destroy the old certificates immediately C The agent can accept the securities for safekeeping for no longer than 3 months D Under no circumstances can a broker-dealer take physical custody of securities unless approval of the Administrator is obtained

The best answer is A. Broker-dealers take custody of clients funds and securities as part of the business and must maintain minimum net capital in order to do so. (In contrast, investment advisers do not "routinely" take custody and must notify the Administrator if they intend to do so and must follow NASAA's custody rules for IAs.) If an agent receives securities from a client to be placed in custody of the broker-dealer, the certificates must be forwarded to the broker-dealer immediately.

A Chinese Wall must be maintained by a broker-dealer between all of the following EXCEPT: A Sales and Back Office Operations B Research and Trading C Investment Banking and Research D Investment Banking and Sales

The best answer is A. Chinese Walls to stop information flow must be maintained between: Investment Banking and each of the following: Trading, Sales and Research Trading and each of the following: Research and Sales The intent of the information barriers around investment banking is to stop the flow of information on upcoming underwritings, mergers or takeover deals being done by the underwriting department to others that might trade on the information for a profit before the public knows about the upcoming deal. Regarding the Chinese Wall required between investment banking and research, the intent is to make sure that research is truly independent and not influenced by the investment bankers at that firm that might demand a "favorable" research report on an issuer so that they can curry favor with that issuer to get future underwriting business. The M & A department and the underwriting department are usually one and the same at investment banking firms. There are no barriers required between these two groups. The intent of the information barrier between research and trading is to stop a trading desk from getting advance knowledge of a research report that the firm will issue and trading on that information before it is publicly released. The intent of the information barrier between trading and retail sales is that if retail brokers know in advance of a broker-dealer's trading strategy, they could use the information to front-run those trades.

Which of the following statements are TRUE about an offer of rescission? I The offer can only be made prior to the institution of a lawsuit alleging a securities violation II The offer can only be made after the institution of a lawsuit alleging a securities violation III An offer must be made to buy back the security at the original purchase price and the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security IV An offer must be made to buy back the security at the current market price and the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security A I and III B I and IV C II and III D II and IV

The best answer is A. If an offer of rescission is made on the inadvertent sale of a non-exempt security that should have been registered under the Act, the offer can only be made prior to the institution of a lawsuit alleging a securities violation. An offer must be made to buy back the security at the original purchase price, plus the customer must be paid interest at the legal rate in the State (6%), less any dividend or interest income received from that security. Any offer of rescission must be accepted within 30 days of the offer.

If an offerer offers to buy back a securities issue that was inadvertently sold in the State, buyers of the issue have how many days to accept the offer? A 30 B 60 C 90 D 120

The best answer is A. If an offerer offers in writing to buy back a securities issue that was inadvertently sold in the State at original cost plus interest paid at the legal rate in the State (6%), plus any attorney's or court costs (net of any dividends or interest received by the holder), buyers of the issue have 30 days to accept the offer. Otherwise, the offer is null and void, and the offerer is relieved of any further obligation to buy back the issue. Thus, buyers must exercise their right of rescission within 30 days' written notice by the offerer.

In relation to NASAA's Statement on Records Retention for Registered Investment Advisers, an RIA: must retain both personal and business e-mails must retain business e-mails for 3 years, but personal e-mails may be discarded must retain outgoing e-mails, both business and personal, for a period of 6 years does not have to retain any e-mails as they are not considered to be correspondence under NASAA rules

The best answer is A. NASAA has a recordkeeping rule for investment advisers that are State-registered; in contrast, the recordkeeping rules for broker-dealers are set under the Securities Exchange Act of 1934. NASAA requires retention of both personal and business e-mails. It does this because agents often send e-mails to clients, or receive e-mails from clients, while at home (note that Federal law for broker-dealer records is the same on this point.) NASAA requires that all such records be retained for 5 years, not 6 years, making Choice C incorrect. (Also note that on this point, federal law for broker-dealers differs, only requiring that e-mails be retained for 3 years.)

An investment adviser charges a fee equal to the greater of 1% of assets annually or $1,000. When examining the investment adviser, the Administrator would review this policy in relation to: accounts with balances under $20,000 accounts with balances over $20,000,000 accounts that give the adviser discretion new accounts as compared to existing accounts

The best answer is A. NASAA rules prohibit investment advisers from charging "unreasonable fees," without actually stating what those are. A 1% fee is pretty reasonable - there are advisers that charge 2% or even 3% annual fees. The flat $1,000 fee also seems pretty reasonable, however a $1,000 annual fee charged on an account with $20,000 of assets amounts to a 5% annual fee - which is high. The question ignores the fact that most advisers with such a fee structure will not accept an account unless it has a minimum asset size - typically $50,000 or so of assets.

Upon filing a withdrawal of registration with the State, the Administrator can commence a revocation or suspension proceeding for up to: A 1 year from the effective date of the withdrawal B 2 years from the effective date of the withdrawal C 3 years from the effective date of the withdrawal D 10 years from the effective date of the withdrawal

The best answer is A. The Administrator retains jurisdiction over anyone who withdraws from registration in the State for 1 year following the effective date of the 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.

Who is responsible for filing a U-5 Form with IARD when an investment adviser representative is terminated and associates with another advisory firm? The investment adviser that is the former employer is responsible The investment adviser that is the new employer is responsible The Investment adviser representative is responsible No one is responsible for notifying IARD when the investment adviser representative is terminated

The best answer is A. The U-5 is a securities industry termination form that is filed by the former employer, terminating that individual's registration. If that individual associates with another advisory firm, the new employer reactivates that person's registration by filing a U-4 with IARD. The employee does not notify in this case because he or she does not have direct access to the CRD or IARD database. The Form U-5 is filed by the former employer on the terminated employee's behalf.

A plan trustee is considering making an investment in XYZ stock for a trust that has multiple beneficiaries. Under the provisions of the Uniform Prudent Investor Act, this investment decision must give consideration to the role that this investment plays: to the overall portfolio strategy to the investment strategy desired by each beneficiary on its own merits, regardless of its impact on the overall portfolio in meeting the financial needs of the trustee

The best answer is A. The Uniform Prudent investor Act says that the fiduciary or trustee must manage plan assets by applying the principles of risk-return analysis and portfolio diversification. Thus, each investment decision must take into account its effect on the overall portfolio return and risk level (this makes Choice A correct and Choice C incorrect). The trustee must manage the trust assets to meet the needs of all of the beneficiaries - not the needs of the trustee (thus Choice D is incorrect). Each beneficiary can certainly voice an opinion as to how well the trustee is managing the portfolio, but the trustee does not set investment strategy based on the desires of the beneficiary (thus Choice B is incorrect). Rather, the overall strategy is set by the grantor (settlor) of the trust

An investment adviser has developed 11 different investment strategies that use a combination of fundamental and technical factors to make investment decisions among both equity and fixed income investments. Based on the customer account profile, the adviser then uses one of 7 different algorithms that allocates the client's funds using these 11 investment strategies. The adviser has implemented a fee structure that charges a 1.10% annual management fee on assets invested, plus the adviser charges a fee of .50% of assets annually for use of the algorithms. The adviser provides each client with a flyer covering the adviser's 11 different investment strategies with disclosure of the 1.10% annual management fee. Under the NASAA Rule on Unethical Business Practices of Investment Advisers, this is: a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services a violation of the prohibition on charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser not a violation of the prohibition on charging unreasonable advisory fees, because the management fee was disclosed to the client not a violation of the NASAA Rule on Unethical Business Practices of Investment Advisers because the advisory fees are based on assets under management

The best answer is A. The adviser is really charging 2 layers of management fees for providing a single service of managing the customer's investment portfolio. This is unethical. Note that if the adviser is truly providing 2 separate services (e.g. receiving the management fee and also receiving brokerage commissions on trade executions), there can be 2 separate charges, as long as this is disclosed in writing to the client.

An agent of a broker-dealer has been spending his spare time, at night and on weekends, on the Internet. The agent has been trading a thinly traded stock listed in the Pink Sheets, and has accounted for more than 50% of the trading volume in the stock. The agent has also been sending out e-mails to potential investors, recommending the stock. The agent has not informed his broker-dealer of these activities, since they only occur when the broker-dealer is closed. Which statement is TRUE regarding the applicability of the Uniform Securities Act to these activities? A The agent is defined as a statutory broker-dealer and must register in the State B Activities effected through the Internet are exempt from the provisions of the Uniform Securities Act C A violation of the Uniform Securities Act will occur only if there is a customer complaint lodged against the agent with the Administrator D The State Administrator can issue a stop order against the agent's broker-dealer for these actions

The best answer is A. The agent is operating outside the scope of his authority as the employee of the broker-dealer and the broker-dealer is not aware of his activities. The agent should have notified his broker-dealer of these "work" activities and followed any instructions of the broker-dealer (which would not have permitted this). Because the agent is trading such a large volume of the stock, he or she would be considered to be a "statutory broker-dealer" under Uniform State Law and must register as such. Remember, a broker-dealer is a person that is in the business of trading securities for others or for its own account (this individual is trading for his own account as a business). Furthermore, an unregistered broker-dealer cannot solicit orders in the State - which this individual is doing by sending out e-mails recommending the stock. The State Administrator can issue a stop order against the individual in this case, but would not issue a stop order against the broker-dealer (since the broker-dealer is not the one trading these securities) - making Choice D incorrect.

An investment adviser with its principal office in the State of Kentucky has 3 branch offices in Ohio and 4 branch offices in Tennessee. The State of Kentucky has a minimum net worth requirement for Investment Advisers of $30,000. The net worth requirement for the State of Ohio is $40,000 and the net worth requirement for the State of Tennessee is $35,000. Under the Uniform Securities Act, the minimum net worth that must be maintained by the Investment Adviser is: $30,000 $35,000 $40,000 $0, since this is a Federal Covered Adviser

The best answer is A. The minimum Net Worth requirement is only required in the State where the adviser has its principal place of business. If the adviser has "out of state" branches, there is no additional Net Worth requirement based on those locations. Only the net worth requirement of the adviser's State where it has its principal office applies. The information in the question does not tell us if this is a Federal Covered Adviser, so this choice is basically a "throw away."

An agent recommends that a customer purchase an unregistered non-exempt security. This is a violation of which section of the Uniform Securities Act? Part I - Fraudulent and Other Prohibited Practices Part II - Registration and Notice Filing Procedures For Broker-Dealers, Agents, Investment Advisers and Investment Adviser Representatives Part III - Registration and Notice Filing Procedures Of Securities Part IV - General Provisions

The best answer is A. The recommendation of an unregistered non-exempt security is a prohibited practice. For example, common stock of an issuer (a non-exempt security) cannot be recommended to a client unless it is either registered in the State; or if it is unregistered but qualifies for an exemption. Part I of the Act contains the Act's anti-fraud provisions and prohibited practices in general terms. Part II covers all the registration rules for B/Ds, their agents, IAs and IARs. Part III contains the rules for securities registration in a State. Part IV contains the Act's definitions, including the defined exempt securities and exempt transactions. It also details the Administrator's powers, civil liability and criminal liability provisions.

A hedge fund offers to provide a minimum level of trades to a broker-dealer in return for receiving below-market office space from the broker-dealer. Which statement is TRUE? This is an unethical practice unless it is disclosed on the Form ADV filing with the Administrator This is an illegal usage of soft dollar compensation This is a legal usage of soft dollar compensation This is an unethical practice unless the broker-dealer is also licensed as a real estate agency in the State

The best answer is A. This question is based on reality. In New York City and other "high rent" locations, broker-dealers offer so-called "hedge fund hotels," where they offer hedge fund advisers nice office space that they own (on places like Park Avenue) at subsidized rents if the hedge fund agrees to direct its portfolio trades to that broker-dealer. The SEC requires that investment advisers that accept soft dollars disclose this on Form ADV and the disclosure must be specific. Because most hedge fund advisers are set up as partnerships, hedge funds are not subject to the mutual fund soft dollar rule which requires that the soft dollar benefit accrue to the shareholders. All of the "partners" in a hedge fund may get a benefit from the reduced expenses that the hedge fund will enjoy from the subsidized rent. However, the SEC (and also NASAA, because each State uses the same ADV Form) requires that the hedge fund disclose the practice of accepting soft dollars as a line item in the Form ADV and that it disclose that, in return for getting the rent subsidy, it may be paying a higher commission rate to that executing broker-dealer.

When a security is being registered in a State by coordination alongside a federal registration for that security being performed under the Securities Act of 1933, what information must be filed in the State? A consent to service of process, copies of the prospectus, and a copy of the articles of incorporation and bylaws A disclosure document that details the names and background of the company's directors covering the past 5 years, along with their salaries A copy of the prospectus in final form A notice filing

The best answer is A. Under Registration by Coordination, the issuer can coordinate State registration with an SEC registration being performed under the Securities Act of 1933. Essentially, the filing of the SEC information with the State will satisfy the State registration requirement. To Register by Coordination, the issuer must file, in addition to the consent to service of process, the following with the State: 3 copies of the proposed Prospectus filed with the SEC under the Securities Act of 1933; A copy of the issuer's Articles of Incorporation and By-Laws; A copy of any Agreement Among Underwriters; A copy of any Indenture governing the issuance of the security; and A specimen of the security to be issued. If no stop order is in effect, when the Federal registration becomes effective, the State registration becomes effective. Any purchaser of the security in that State must get a prospectus copy, at or prior to confirmation of sale. Note that a "notice filing" could only be used in the State if the security being registered with the SEC were "federal covered" - meaning it is exchange or NASDAQ listed. If the security was not "federal covered," for example, a smaller company that will be listed in the Pink Sheets, then State registration is still required.

An agent is selling a new issue of a non-exempt security to a customer. In order to make it easier for the customer to understand the risks of the investment, the agent highlights the "Important Risk Factors" section of the prospectus before giving it to the customer. Which statement is TRUE about this action? A This action is appropriate because it is in the best interests of the customer B This action is a violation of the Uniform Securities Act C This action is only permitted if the changes to the prospectus are approved by the SEC D This action is only permitted if the prospectus is filed with the Administrator

The best answer is B. A prospectus cannot be altered or highlighted. It is a legally prepared document that cannot be changed before it is delivered to the purchaser of a new issue security. Note that the SEC does not approve new issue offerings, nor does it approve the documents filed in connection with the sale of those offerings, making Choice C incorrect.

Under the provisions of the Uniform Securities Act, to register as an investment adviser representative, which of the following are NOT required? I Posting of a surety bond II Filing of a consent to service of process III Passing of a qualification examination IV Posting of minimum net capital A I and III B I and IV C II and III D II and IV

The best answer is B. Investment adviser representatives are not required to post minimum net capital to be registered; only the investment adviser (the firm) is required to do so. Only investment advisers may be required to post a surety bond - this is not a requirement for investment adviser representatives (note that it is a requirement for agents of broker-dealers, however). Investment advisers and IARs must file a consent to service of process on the initial registration (this appoints the Administrator as the person authorized to receive lawsuits filed against the advisory firm or its registered employees). Finally, IARs must pass a qualification exam.

An investment adviser representative of a Federal Covered adviser with an office in the state only has insurance companies as clients. Where must the investment adviser representative register? A SEC B State C Both the SEC and the State D Neither the SEC nor the State

The best answer is B. Since the adviser is federal covered, that firm is only required to register with the SEC. It must give a notice filing to any State where it has a physical presence or where it offers advisory services. As far as the investment adviser representative is concerned, there is no registration of IARs with the SEC. They are only registered in the State where they are physically located and in each State where they solicit advisory business. For the IAR to be able to register in the State, the IA must have completed a notice filing in the State. The fact that the IAR only has insurance company clients is irrelevant in this case because the IAR is physically located in an office in the State and therefore the IAR must register in the State.

An investment adviser representative of a Federal Covered adviser with no office in the state only has non-institutional clients. Where must the investment adviser representative register? Incorrect answer A. You did not choose this answer. A SEC Correct answer B. You did not choose this answer. B State Incorrect answer C. You chose this answer. C Both the SEC and the State Incorrect answer D. You did not choose this answer. D Neither the SEC nor the State

The best answer is B. Since the adviser is federal covered, that firm is only required to register with the SEC. It must give a notice filing to any State where it has a physical presence or where it offers advisory services. As far as the investment adviser representative is concerned, there is no registration of IARs with the SEC. They are only registered in the State where they are physically located and in each State where they solicit advisory business. For the IAR to be able to register in the State, the IA must have completed a notice filing in the State. The fact that the IAR only has non-institutional clients means that the IAR is dealing with the general public and this is kind of individual that the State wants registered!

Limited partnership shares are sold to a bank. Under the provisions of the Uniform Securities Act of 1956, as amended, this transaction is subject to:I Advertising filing requirements with the AdministratorII Anti-fraud provisions as promulgated in the ActIII Payment of filing fees with the State I and III only II only II and III only I, II, III

The best answer is B. The sale of securities to a financial institution is an "exempt transaction" under the Uniform Securities Act - because the general public is not involved. As an exempt transaction, the securities involved are not required to be registered in the State (however the person selling them must still be registered in the State). Both exempt securities and exempt transactions are specifically excluded from the Act's advertising filing requirements. Finally, filing fees are only required for securities registrations in the State (primary market); not for secondary market transactions that occur in the State.

A non-registered agent of a broker-dealer can sell: warrants certificates of deposit real estate partnership units fixed annuities

The best answer is B. A non-registered agent of a broker-dealer cannot sell securities, making both Choices A and C wrong. So we are down to whether a non-registered agent of a broker-dealer can sell a certificate of deposit or a fixed annuity. A certificate of deposit is a bank product, and because it has all of the protections of a bank product, there is no State registration required to sell it. Regarding a fixed annuity, this is an insurance product, so there is no registration required as an agent of a broker-dealer to sell it; however, a State insurance license is required. Since you only get to pick one, Choice B is better.

Which statements are TRUE about an investment adviser with an office in State A? I If the investment adviser's only clients are investment companies, the investment adviser must register with the SEC II If the investment adviser's only clients are investment companies, the investment adviser must register in the State III If the investment adviser's only clients are insurance companies, the investment adviser must register with the SEC IV If the investment adviser's only clients are insurance companies, the investment adviser must register in the State I and III I and IV II and III II and IV

The best answer is B. Advisers to investment companies are "federal covered" - they must register with the SEC and cannot be required to register in the State (but the State can require a notice filing). The main intent of the Investment Advisers Act of 1940 was to register advisers to investment companies and limit their compensation. Thus, they fall under federal regulation and cannot be regulated by the States. Advisers to insurance companies are not "federal covered" advisers - the Investment Advisers Act of 1940 was not worried about insurance companies being overcharged for investment advice, since they are normally "frugal" and are unlikely to overpay. So, advisers to insurance companies are only required to register at the State level.

An agent receives material inside information about a publicly held company. All of the following actions by the agent are violations of the Uniform Securities Act EXCEPT: A soliciting orders from customers based on this information B discussing the information with the principal of the broker-dealer C effecting trades in discretionary customer accounts based on this information D effecting trades for the agent's personal account based on this information

The best answer is B. Agents are prohibited from effecting transactions based on material inside information, either for their own account or for customer accounts. Thus, Choices A, C, and D are incorrect. If an agent receives material inside information, he should report it to his manager or principal, who then would report it to the exchange where that security trades.

An agent and his customer wish to open a joint account by contributing $10,000 each. All of the following statements are true EXCEPT the: A account must be approved by the broker-dealer in writing prior to any trading B agent and his customer can agree to share profits in the account as they see fit C agent and his customer must share profit and loss on a 50/50 basis D agreement between the agent and his customer must be documented in writing

The best answer is B. Agents are prohibited from sharing in a customer's account unless there is a written agreement between the customer and the agent which is approved by the broker-dealer; and sharing is proportional to the capital contributed. In this case, each person contributed half the funds, so sharing must be 50/50.

An IAR associated with a Federal Covered Adviser is terminated. The IAR goes to the State Administrator with a complaint, alleging that the Federal Covered Adviser did not pay him all of the money he was due when he was terminated. Which statement is TRUE regarding the Administrator's right to investigate the Federal Covered Adviser about this allegation? Because the adviser is federal covered, the Administrator does not have the right to investigate this complaint The Administrator has the right to investigate the complaint, even though the adviser is not registered in the State The Administrator may issue an injunction against the federal covered adviser, but cannot investigate the adviser Because the adviser is federal covered, the Administrator can only refer the complaint to FINRA

The best answer is B. Any federal covered adviser that does business in a State must make a "notice filing" in the State; and the firm's investment adviser representatives must still be registered in the State (since there is no federal registration of investment adviser representatives). The Administrator, upon the receipt of a complaint, has the right to inspect any adviser doing business in the State - it makes no difference if the adviser is State-registered or federal-covered.

Which of the following must be registered as agents of a broker-dealer in the State?I DirectorII Sales employeeIII Clerical employee I only I and II only II and III only I, II, III

The best answer is B. Any officer of a broker-dealer (a director is an officer) is automatically registered in the State when the B/D registration becomes effective (these individuals are listed on the form). Any sales employee must be registered. Clerical employees with no sales function are not registered in the State as agents (also note that a Broker/Dealer can withdraw the "automatic registration as an agent" of an Officer or Director if that individual is not involved in sales or marketing, and thus can avoid paying the annual state registration fee for that individual.)

On December 10th, 2014, a mother gives a gift to her daughter of 1,000 shares of ABC stock. The stock was purchased 16 months earlier at a cost basis per share of $51 per share. The market value at the date of the gift was $64 per share. On January 18th, 2015, the mother dies and bequeaths 1,000 shares of XYZ to the daughter. The market value of XYZ at the date of death is $44 per share and the shares were purchased 2 months earlier by the mother at $40 per share. On February 1st, 2015, the daughter sells the ABC stock at $75 per share and sells the XYZ stock at $48 per share. The tax consequence to the daughter upon selling ABC and XYZ is: no capital gain or loss $24 per share long term capital gain on ABC; $4 per share long term capital gain on XYZ $11 per share long term capital gain on ABC; $8 per share short term capital gain on XYZ $24 per share short term capital gain on ABC; $8 per share short term capital gain on XYZ

The best answer is B. Appreciated gifted securities assume the donor's holding period and the donor's cost basis. The ABC securities were donated after being held long-term and the cost basis of the shares was $51. The shares were sold at $75, for a $24 per share long term capital gain on ABC stock. 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.

An investment adviser registered in State Y effects all of its portfolio transactions through a broker-dealer registered with the SEC and State Y. Regarding required filings from the broker-dealer in State Y, the Administrator of State Y: can only require the same filings as it requires from the investment adviser that does its portfolio trades through that broker-dealer can only require the filing of the broker-dealer's reports that are filed with the SEC can require the filing of any records demanded by the Administrator of State Y cannot require the filing of any records because of the federal supremacy of the broker-dealer filings that are required with the SEC

The best answer is B. Broker-dealers are registered federally with the SEC under the Securities Exchange Act of 1934 and, additionally, must register in each State where they have a physical presence or where they solicit securities business. As part of the National Securities Markets Improvements Act of 1996, it was made clear that because broker-dealers are regulated at the federal level, the States cannot require anything that is already required federally. Broker-dealer recordkeeping and reporting rules are set under Section 17 of the Securities Exchange Act of 1934 - so these rules prevail. All that the State can do is ask for a copy of any record or report that the broker-dealer keeps in accordance with the 1934 Act.

What represents business risk? The risk that a company presents fraudulent financial statements The risk of buying a single stock The risk of investing in an enterprise that does not have a government backing The risk is making an investment commitment when prices are peaking

The best answer is B. Business risk is simply making an investment in a business that runs into problems, such as falling sales, bad management, bad market environment, bad product line, that cause business results to deteriorate. On this one, we are down to a 50/50 choice - either Choice A or Choice B . Since business risk really does not take "fraud" into account. Choice B is the best answer. As more stocks are added to a portfolio, diversification reduces business risk. A single stock portfolio will have a high level of business risk.

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following are prohibited business practices? I Exercising discretion in a customer account after obtaining written customer authorization II Taking a portion of the gains in an account funded solely by a customer with written permission of the customer III Executing an order to buy an exempt unregistered security IV Soliciting orders for unregistered non-exempt securities A I and II B II and IV C III and IV D I, II, III, IV

The best answer is B. Discretion can be exercised in a customer account after a written power of attorney is obtained from the customer. Sharing in the gains of a customer account is prohibited unless there is a written agreement between the agent and the customer approved by the broker-dealer and the agent only shares based on the proportion of capital that he contributes to the account. Executing an order to buy an exempt unregistered security is allowed. For example, U.S. Government bonds are exempt unregistered securities. Soliciting orders for unregistered non-exempt securities is prohibited. For instance, common stock is a non-exempt security. If the security is not registered, orders cannot be solicited.

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, all of the following are prohibited practices EXCEPT: A failing to state important facts about a security to a customer B splitting commissions with another agent registered through the same broker-dealer C exercising discretion in a customer account without first obtaining a written power of attorney D quoting a price to a customer without first determining the market for that security

The best answer is B. It is permitted to split commissions with another agent registered through the same broker-dealer; this is a normal business practice. Please note, however, that commissions cannot be split between two agents registered at 2 different broker-dealers (unless the broker-dealers are under common control). Failing to state important facts about a security to a customer; exercising discretion in a customer account without first obtaining a written power of attorney; and quoting a price to a customer without first determining the market for that security; are all prohibited practices.

Robert is an agent registered in the State of New York, with most of his clients living in the Buffalo area. He has a client who has inherited stock of a Canadian bank listed on the Toronto Stock Exchange and the client wishes to sell these securities to his relatives in Toronto. Which statement is TRUE about this transaction under the provisions of the Uniform Securities Act? There is no requirement for the securities involved to be registered in the State because they are being sold to a relative There is no requirement for the securities involved to be registered in the State because the transaction is exempt There is no requirement for the securities involved to be registered in the State because the securities are exempt The securities must be registered in the State

The best answer is B. Non-issuer transactions in securities that are U.S. exchange listed or NASDAQ listed are exempt from State registration requirements (because the IPO of that security was either registered in the State already or a notice filing was made in the State). Secondary market trades of securities listed on the Toronto Stock Exchange are given a similar exemption. Also note that a Canadian bank issue is not exempt - only U.S. bank securities are exempt - making Choice C incorrect. (What is odd about this question is that the securities are moving from Canada to New York to Canada again, so because they originated in Canada, we are presuming that they are properly registered there! Of course, that is also not our problem here in the U.S.!)

An investment adviser representative of a Federal Covered adviser only has insurance companies as clients. Where must the adviser representative register? SEC State Both the SEC and the State Neither the SEC nor the State

The best answer is B. Since the adviser is federal covered, that firm is only required to register with the SEC. It must give a notice filing to any State where it has a physical presence or where it offers advisory services. As far as the investment adviser representative is concerned, there is no registration of IARs with the SEC. They are only registered in the State where they are physically located and in each State where they solicit advisory business. For the IAR to be able to register in the State, the IA must have completed a notice filing in the State.The fact that the IAR only has insurance company clients is irrelevant. The exemption from State registration is only available to investment advisers that have no office in the State and that only have institutional clients. It is not available to the agents of investment advisers (IARs).

A registered investment adviser lives in State X. The adviser does business with 1 client in State A and 1 client in State B. The adviser gives seminars about investing to groups of potential customers in State C. The adviser is required to register in: A State X only B States X and C only C States X, A, and C D States, X, A, B, and C

The best answer is B. Under Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: originates in the Administrator's State; is directed into the Administrator's State; or is accepted in the Administrator's State. Basically, the "idea" behind State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction.This adviser is physically located in State X, so the adviser must register in State X. Because the adviser has no location in States A and B, and only has 1 client in each of these States, the adviser qualifies for a "de minimis" exemption and does not have to register in those States. The adviser is giving investment seminars to "groups" of potential customers in State C. This activity requires the adviser to be registered in State C.

Administrators can require minimum Net Capital and Net Worth for: A Agents B Broker-Dealers C Investment Adviser Representatives D Issuers

The best answer is B. Under the Act, minimum Net Capital and Net Worth requirements can be set by the Administrator to register broker-dealers and investment advisers. There is no such requirement for agents or investment adviser representatives. Issuers do not register under the Act; only the non-exempt securities that they issue must be registered. Registration of non-exempt securities is covered in the following section.

Which individual is defined as an agent under the Uniform Securities Act? An individual representing a broker-dealer who takes phone messages from clients that wish to purchase or sell listed stocks An individual representing a broker-dealer who takes unsolicited orders for partnership units An individual representing an investment adviser who provides advice to clients about investing in securities An individual who works for an issuer selling that issuer's stock to the issuer's employee

The best answer is B. We can quickly eliminate Choices C and D. Choice C defines an Investment Adviser Representative (IAR), while Choice D is an individual that is excluded from the definition of an agent because he or she is representing the issuer, selling that issuer's securities to the issuer's employees (e.g., stock option plan securities). Note that this exclusion requires that the employee not receive commissions, which the question does not address. So we are down to either Choice A or Choice B. The Act defines an "agent" as an individual who represents a broker-dealer or issuer in effecting, or attempting to effect, purchases or sales of securities. In Choice A, the individual takes "messages," while in Choice B, the individual takes "orders." Taking an "order" clearly is "effecting a securities transaction." Taking a "message" is vague - if the individual taking the message just took a name and phone number to be returned, then he or she is not an agent. If the individual taking the message actually wrote down the details of the order, then he or she is an "agent." The question does not give detail on this - so, given the choice of "order" or "message" - we go with order! Note that it makes no difference if an order is solicited or unsolicited - the individual taking the order must be registered.

An officer of an issuer is engaged in the sale of that issuer's securities to the public. The issuer's securities are federal covered. The officer is: A excluded from the definition of an agent because the securities involved are federal covered B not defined as an agent because officers of issuers are excluded C defined as an agent who must register in the State D defined as an issuer and is not required to register in the State

The best answer is C. Individuals representing issuers in the sale of certain "specified" securities are excluded from the definition of an agent. These include individuals who represent issuers selling: Treasury, Agency and Municipal securities; Bank issues; Money market instruments; Contracts issued in connection with pension plans; To employees of that issuer if no compensation is paid; and To qualified (wealthy) purchasers. In these transactions, either the security being sold is extremely safe (such as governments, agencies or municipals); or the sale is not being made to the general public. Note that there is no exclusion for the sale of federal covered securities by an individual. An individual who sells either federal or non-federal covered securities for an issuer is defined as an agent who must register in the State. This makes sense because the State wants to "capture" and register as many agents as it can! (Remember, it gets an annual fee for each registered agent.)

The sale of securities to an insurance company is exempt under the Act under the: A blue chip exemption B exempt security C sophisticated investor exemption D non-issuer exemption

The best answer is C. The sale of securities to financial institutions is an "exempt transaction" under the Act, since the general public is not involved, and these investors are considered to be "sophisticated" - meaning they can "watch out" for themselves. Also remember that an "exempt transaction" means that the security involved is not required to be registered in the State. It does NOT exempt the broker-dealer and agent involved from having to register in the State. The broker-dealer and agent must be registered in the State unless they can get an exclusion or exemption. In this case, as long as the broker-dealer and agent have no place of business in the State, they would be excluded from registration as long as they are dealing only with institutional clients.

What constitutes "taking custody" under NASAA rules for investment advisers? An employee of an advisory firm who is given discretionary authority by a client A client who signs a power of attorney, giving the adviser the right to trade on the client's behalf An employee of an advisory firm acting as a trustee for a firm An introducing broker-dealer receiving checks made out to the carrying broker-dealer that are to be deposited at a broker-dealer

The best answer is C. Advisers may either take custody of client funds; or they may not take custody of client funds. As a general rule, advisers that take custody must post a higher net worth, must send out quarterly account statements, must keep customer funds or securities at a qualified custodian, and must be audited annually. Generally, acting as a trustee means that the trustee is managing assets for a beneficiary, and in doing so, has taken "custody." Note that broker-dealers are not subject to this rule - it is only for investment advisers. There are other SEC rules covering custody of client assets for broker-dealers. Finally, having power of attorney or discretionary authority over an account does not mean that an adviser is taking custody.

An investment adviser has determined that it can register as a federal covered adviser. This means that the adviser: I solicits clients on behalf of other investment advisersII currently operates in at least 15 StatesIII has at least $25,000,000 of assets under managementIV provides financial planning to customers for compensation as a regular business A I and III B I and IV C II and III D II and IV

The best answer is C. Advisers with $100,000,000 or more of assets under management must register with the SEC as "Federal Covered Advisers" and cannot be required to be registered in each State (though each State can require a notice filing). The SEC then issued some interpretations regarding this requirement. These are: Advisers that have between $100,000,000 and $110,000,000 of assets under management have the choice of registering either at the State or Federal level. Thus, SEC registration as an adviser is truly only required once an adviser has $110,000,000 or more of assets under management. The SEC then issued interpretations regarding so-called "mid-size" advisers, which are advisers with at least $25,000,000 under management. These are: Mid-size advisers that are not required to be registered in a State where they have their principal office must register with the SEC (there are a handful of States that do not require investment advisers to register and this forces them to register with the SEC and be regulated by someone!); Mid-size advisers that do business in 15 or more States can choose to register with the SEC rather than having to register with, and be regulated by, 15 or more States.

In order to make an offer of a non-exempt security, an agent of a broker-dealer: must be registered in the State in which he or she resides and the broker-dealer is located must be registered in the State where he or she is offering the security must be registered in the State in which he or she resides and the broker-dealer is located and must be registered in the State where he or she is offering the security need not be registered

The best answer is C. Agents of broker-dealers must register in the State where they are physically located; and also must register in each State in which they make offers of securities.

An agent of a broker-dealer is soliciting potential clients to buy a new issue of corporate common stock. Which of the following is the agent PROHIBITED from doing? I Using the mails or other means of interstate commerce to offer the security to a potential client who resides in a State where the agent is registered II Offering the security to a potential client in another State where the agent is not registered III Selling the security to an existing client in a State where the agent is registered and then mailing the prospectus to that client IV Delivering a prospectus to an existing client who resides in a State where the agent is registered after the client expresses interest in buying the issue I and II only III only II and III only I, II, III, IV

The best answer is C. As long as the agent is registered in the State, he or she can offer the stock issue to new or existing clients in that State, making Choice I permitted, and Choice II prohibited. Choice III is prohibited because the customer cannot be "sold" the new issue security unless the customer receives the prospectus at, or prior to sale. Delivering the prospectus after the sale is made is not allowed. In Choice IV, since the agent is registered in the State, there is no reason why a prospectus cannot be given to a customer that expresses interest in buying the issue.

Which of the following would be defined as a broker-dealer in State A? A The municipal bond department of a bank located in State A B A person who gives advice about investing in securities in State A C A broker-dealer located in State B who has an existing active customer who moves to State A D An agent of a broker-dealer who effects trades in securities in State A

The best answer is C. Banks are excluded from the definition of a broker-dealer, making Choice A incorrect. Choice B defines an investment adviser; not a broker-dealer. Choice D defines an agent of a broker-dealer; not the broker-dealer itself. Choice C gets at an interesting point. Because the customer has moved and is now located in another State (State A), and the customer is "active" -meaning the customer is trading securities, then the firm must be registered as a broker-dealer in State A (and the agent servicing the customer account must be registered in State A as well).

A broker-dealer and agent located and registered in State A have a client that resides in State A. State B is just across the river from State A, and the agent and customer meet at a restaurant in State B to discuss the customer's portfolio. The agent frequently recommends this restaurant to his clients because it has excellent food and reasonably priced drinks. Neither the broker-dealer nor the agent are registered in State B. At the meeting, the agent recommends that the customer buy XYZ stock. The client is not interested in the recommendation, but he has heard about DEF stock from a wealthy friend and tells his agent to buy 1,000 shares of DEF. The agent telephones the order to his assistant in the office in State A. The order is immediately executed and confirmed verbally over the telephone by the assistant to the agent, who informs the client while at the table in the restaurant in State B that the trade is done. The client writes a check to the agent, thanks him, and leaves. Which statement is TRUE? Only the Administrator of State A has jurisdiction over this transaction Only the Administrator of State B has jurisdiction over this transaction The Administrators of both State A and State B have jurisdiction over this transaction Neither Administrator has jurisdiction over this transaction because the trade was unsolicited

The best answer is C. Because the broker-dealer and agent are physically located and registered in State A, the Administrator of State A has jurisdiction. Regarding State B, because the transaction between the agent and the customer was completed there, State B also has jurisdiction. You could attempt to argue that the "vacationing customer" exemption should apply or that the de minimis exemption should apply. However, the issue here is that State B is "just across the river" from State A and the agent "frequently recommends" meeting clients there. So the agent is routinely in State B in this restaurant doing securities transactions, so this is deemed to be a "place of business" in State B. Thus, the broker-dealer and agent must be registered in State B as well. (As with so many test questions, this is a bit subjective and the answer hinges on the regularity of the agent's presence in State B.)

Under NASAA's rules on Unethical Business Practices for Registered Investment Advisers and Investment Adviser Representatives, which of the following client information is permitted to be disclosed to a third party without first obtaining client consent? I Account information directed to be disclosed by the client's CPA in a written letter signed by the CPAII Aggregated and averaged account information that the adviser wants to use in an advertisementIII Account information directed to be disclosed by the investment adviser by the State AdministratorIV Account information directed to be disclosed by the investment adviser by the client's spouse

The best answer is C. Customer privacy rules only cover information that can be linked to a specific client. Aggregated or averaged information is not private and can be disclosed at anytime, to anyone. Otherwise, customer account information can only be disclosed if the customer permits (not if the customer's spouse says so!); or if the request is made by a regulator (such as the State Administrator) or a court of law.

An investment adviser representative has joined the local golf club, where there are many wealthy club members. At the club, the IAR has met many individuals who are interested in having her investment advisory firm manage their money. As an inducement only available to club members, the IAR offers to reduce the annual management fee to .25% of annual average net assets from the usual fee of .35%, conditioned upon a minimum of $500,000 being invested by that club member. Which statement is TRUE about this offer? This is a prohibited discriminatory fee arrangement under both NASAA and SEC rules This is a permitted fee arrangement because it is conditioned upon a minimum investment of $500,000 This is a permitted fee arrangement as long as the existence of the negotiated discount is disclosed in the Form ADV Part 2 This is a permitted fee arrangement only if the State Administrator approves of the arrangement prior to the acceptance of the offer by any club member

The best answer is C. Discounted investment adviser fee arrangements are permitted only if they are disclosed in the Form ADV Part 2 (the IA brochure). The Form ADV is filed with the State yearly within 90 days of year-end. It must be given to advisory clients when an account is opened and an updated Form ADV Part 2 must be given or made available to existing customers annually thereafter.

All of the following are EXCLUDED from the definition of an investment adviser under the Uniform Securities Act EXCEPT a(n): A federal covered adviser B broker-dealer C adviser with no place of business in the State whose only clients are broker-dealers D investment adviser representative

The best answer is C. Excluded from the definition of an investment adviser are investment adviser representatives; depository institutions; broker-dealers; professionals who only give incidental advice; publishers of general circulation periodicals that do not give investment advice about specific client situations; and federal covered advisers. In contrast, an adviser with no place of business in the State whose only clients are broker-dealers is included in the definition of an investment adviser, but is exempt from registration in the State. This is an extremely picky question!

Which adviser is considered to have taken custody of client funds? An adviser that accepts $200 of advisory fees as a prepayment covering the upcoming 5 months An adviser that accepts $300 of advisory fees as a prepayment covering the upcoming 4 months An adviser that accepts $700 of advisory fees as a prepayment covering the upcoming 6 months

The best answer is C. If an investment adviser accepts $500 of prepaid advisory fees (or more) within the upcoming 6 months (or less), then the adviser is considered to have taken custody of client funds under NASAA's interpretation. The only choice that meets these limits is Choice C. Notice that the actual limits set in the rule are not included as a choice!

A Certified Public Accountant offers clients financial planning services, for which a separate fee is charged. Which statement is TRUE? The accountant is not required to register as an investment adviser in the State because he has an independently conferred professional accreditation The accountant is not required to register as an investment adviser because he is already registered with the State as a CPA The accountant must register in the State as an Investment Adviser The accountant must register in the State as an Investment Adviser Representative

The best answer is C. If this accountant did not separately charge for financial planning, then he (or she) would not be defined as an investment adviser. Because a separate fee is being charged, the CPA is defined as an Investment Adviser who must register in the State. If the CPA has any employees that sell financial plans, they would have to register as Investment Adviser Representatives (IARs).

It is an unethical business practice for an investment adviser to borrow money from a: A bank that is the adviser's client B broker-dealer that is the adviser's client C pension fund that is the adviser's client D any of the above

The best answer is C. Investment advisers and their agents are prohibited from borrowing money from customers - unless the customer is in the business of lending money (which is the case with banks and broker-dealers).

An investment adviser representative has discretion over a customer account. Which of the following must be guaranteed to the customer? Best return Preservation of principal Custom tailored allocation Current income

The best answer is C. Investment advisers cannot guarantee an investment return. Since investment return has 2 components - income and capital gains neither of these can be guaranteed. While an investment objective may be preservation of capital, again this cannot be guaranteed. An investment adviser has a fiduciary standard to make investments that are in the best interests of the client. Thus, custom tailoring asset allocation to a client's objectives, needs, and risk tolerance, is "guaranteed" by the fiduciary requirement.

An investment adviser charges a 1% annual management fee to all clients. The adviser also says that if he does not produce a 20% annual return on the client's investment, he will refund the management fee. This action is: permitted because it has been offered to all clients permitted because the clients are not being charged an incentive fee prohibited because the adviser cannot make fee charges contingent on performance prohibited because the adviser cannot share in portfolio gains and losses

The best answer is C. Investment advisers cannot make their fees contingent upon earning a minimum investment return. They can only charge a fee based on a flat annual dollar amount or a percentage of annual net assets. Advisers cannot be compensated based on gains (Choice D), unless the clients are all wealthy (at least $1 million invested or $2 million net worth).

An investment advisory contract can include a provision that allows: A the RIA to assign the contract to another RIA without notification to the client B payment of part of the appreciation of the account under management to the adviser as a fee C payment of the adviser's management fees on a quarterly basis by direct deduction from the client's account D the RIA to take custody of client funds without making disclosures to any other party

The best answer is C. It is actually the norm for advisers to take payment of their advisory fees by direct deduction from the client's account - so Choice C is permitted. Note that if the adviser does this, it is considered to be taking custody because the adviser has access to client funds. Advisers cannot assign contracts without giving written notice to the client; they cannot be compensated based on asset appreciation (unless the client is very wealthy); and if an adviser wishes to take custody, it must give notice to the Administrator and it must notify each client of the qualified custodian's name, address, and the manner in which the funds or securities are maintained.

Under the NASAA Model Rule covering Investment Adviser records, the adviser's articles of incorporation must be retained for: A 3 years B 5 years C for the life of the firm plus an additional 3 years D for the life of the firm plus an additional 5 years

The best answer is C. 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."

Which of the following statements are TRUE about Registration by Filing? I The issuer must have minimum earnings levels for the 2 of the past 3 years II Copies of any offering materials must be included in the registration filing III The issuer must not have defaulted on any interest payments within the past year IV Registration becomes effective 10 business days after the filing is complete A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. Registration by Filing becomes effective 5 business days after the filing is complete (not 10). To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.

Under NASAA rules, advertisements by investment advisers: I can contain testimonials II cannot contain testimonials III can unconditionally make an offer of free services IV cannot unconditionally make an offer of free services A I and III B I and IV C II and III D II and IV

The best answer is C. The NASAA rule on IA advertising parallels the SEC rule included under the Investment Advisers Act of 1940. The NASAA rules states that any advertisement from an investment adviser: cannot contain a testimonial (broker-dealer advertising may, however); cannot state that any report or research will be provided for free unless this is offered without condition; cannot contain false, untrue or misleading statements; can include a list of recommendations made with their performance as long as all recommendations over that period (a minimum of 1 year) are included, along with the market price at the time of the recommendation and the current price of the security. This list cannot be deliberately selective. There is no restriction on the offer of free services, as long as they are truly "free" and not conditioned on making a purchase or trade.

Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider all of the following when investing and managing trust assets EXCEPT: General economic conditions Possible effect of inflation Trading patterns of plan beneficiaries Investment tax consequences

The best answer is C. The Prudent Investor Act states that the trustee should consider the following when making investment decisions relevant to the trust or its beneficiaries: General economic conditions; Possible effects of inflation or deflation; Expected tax consequences of investment decisions or strategies; The role that each investment plays within the overall trust portfolio; The expected total return; Other resources of the beneficiaries; Needs for liquidity, regularity of income, and preservation or appreciation of capital; and An asset's special value to one or more of the beneficiaries. The trading patterns of the plan beneficiaries have no bearing on this.

Which of the following is NOT considered to be an "issuer transaction" under the Uniform Securities Act? A Google Incorporated, selling its common shares in an initial public offering to investors via Dutch auction and then listing its shares on NASDAQ B MM Mars Corporation, a privately held company that is proposing to go public by offering 20% of its common stock in an initial public offering and then listing its shares on the NYSE C RJR Corporation, a publicly held company listed on the NYSE that is proposing to go "private" in a leveraged buyout transaction D AJAX Company, a publicly held company listed on the AMEX (NYSE American), making a secondary offering of common shares that will be listed on the AMEX (NYSE American)

The best answer is C. The Uniform Securities Act defines an "issuer" as any person that issues, or proposes to issue, a security. Choices A, B and D meet this definition. Notice that in issuer transactions, the issuer is receiving the proceeds from selling securities. Choice C is a non-issuer transaction. When a publicly held company goes "private," the existing shareholders are bought-out. In such a transaction, the proceeds go to the shareholders - not the issuer - hence this is a "non-issuer" transaction.

Which person is EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act? A A person with no place of business in the State who solely effects exempt transactions for customers that reside in the State B A person with no place of business in the State who solely effects transactions in federal covered securities in the State C A person with no place of business in the State that effects underwriting transactions with other broker-dealers in the State D A person with no place of business in the State who only effects securities transactions with accredited investors in the State

The best answer is C. The Uniform Securities Act excludes from the definition of a broker-dealer, any person who has no place of business in the State and who transacts business exclusively with: issuers of securities involved in the transaction; or other broker-dealers; or banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans. Basically, this provision states that an "out-of-state" broker-dealer that is not dealing with the public, will not have to register in the State. Choices A and B are broker-dealers that are dealing in either exempt transactions or federal covered securities. These are not excluded from the definition, since they can be dealing with the general public. Choice D is a broker-dealer that is only dealing with accredited investors (an individual with either $200,000 annual income or $1,000,000 net worth under Federal law). These persons are also considered to be the "public" - since these dollar limits are not that high. The broker-dealer with no place of business in the State that only deals with other broker-dealers in the State clearly meets the exclusion.

An investment adviser representative has been given the financial assets of a large estate to manage. What should be the IAR's IMMEDIATE concern? The monetary needs of the beneficiaries of the estate The investment objectives outlined in the will or trust document Any upcoming liquidity needs to pay obligations as they are due Compliance with the Prudent Investor Act when making investment decisions

The best answer is C. The immediate concern of a large estate is any potential estate tax liability. The tax payment is due 9 months from date of death, so this is the immediate concern of the IAR. The other choices are all considerations as well, just not the immediate one.

Arrange the following in proper sequence when opening a new account for a customer: I Completing the new account form II Executing the first transaction III The manager signing the new account form IV Completing the order ticket for first order A I, II, III, IV B IV, I, II, III C I, IV, III, II D I, IV, II, III

The best answer is C. The procedure to open a new account is to complete the new account form, qualifying the customer and then completing the first order ticket. The manager receives both of these and must approve the opening of the account prior to the first trade. It is prohibited for the agent to execute the trade before the manager approves the account's opening.

Under the Uniform Securities Act, an unregistered agent would be permitted to sell:I ownership interests in real estate limited partnershipsII fractional ownership interests in a mining companyIII certificates of deposit issued by a federally chartered bankIV shares of a federally chartered credit union I and II only III and IV only III only I, II, III, IV

The best answer is C. The question does not say whether this is an unregistered agent of a broker-dealer or of an issuer, but we presume that since this is a broker-dealer agent's exam, that this is where the question is directed. To sell a "security," the agent must be registered in the State. It makes no difference if the security is exempt or non-exempt. Choices I and II are non-exempt securities, while Choice IV is an exempt security. Even though shares of a federally chartered credit union are exempt from State registration, the agent selling them must still be registered. Choice III is NOT a security - it is a bank product. There is no licensing requirement to offer bank certificates of deposit, since their purchasers are protected by the banking laws.

An Investment Adviser Representative manages the accounts of high net worth individuals, with account sizes ranging from $500,000 to $10,000,000, on a discretionary basis. The representative has been contacted by a limited partnership promoter that is offering real estate partnerships that require a minimum $50,000 investment. The promoter offers the representative an all expenses paid trip for 2 to Las Vegas, where the partnership sponsor will be holding a seminar that covers all of the details of the investment. The representative wishes to perform due diligence on the offering and believes that taking the trip is important. The representative contacts each of his best clients and discloses the fact that he is taking the trip paid by the sponsor and buys a partnership unit for each of them. Which statement is TRUE? A The representative's actions and disclosures to his customers appear to be appropriate B The representative has failed to give full disclosure of the conflict of interest to his customers C The representative has not adequately determined the suitability of the investment for each of his customers D The representative has accepted a bribe from the partnership sponsor and is subject to criminal penalties

The best answer is C. The representative disclosed the fact that he was taking this all expenses paid "fact finding" trip to his customers, so this is not an issue. However, he bought a partnership unit for each of his best clients. It appears that the units were purchased without first determining the suitability of the investment for each of those clients - a major rule violation.

Which of the following statements are TRUE regarding registration requirements under the Uniform Securities Act? I Minimum net capital can be required for broker-dealersII Minimum net capital can be required for agentsIII Surety bond coverage can be required for broker-dealersIV Surety bond coverage can be required for agents A I and III only B II and IV only C I, III, IV D I, II, III, IV

The best answer is C. There is no minimum net capital requirement for agents associated with investment advisers and broker-dealers. This is a requirement only for the broker-dealer firm or the investment adviser firm. Broker-dealers and investment advisers can be required to maintain a minimum net capital requirement; post a surety bond; and the officers of these firms can be required to pass an examination to register in that State. Only agents of broker-dealers can be required to post a surety bond; this is not a requirement for investment adviser representatives. Both agents of broker-dealers and investment adviser representatives can be required to pass an examination.

Who must register in a State as an investment adviser? A A person selling a subscription to a service that gives timing of buy and sell orders for specific investment company securities that are exchange traded B An investment adviser representative who has been registered with an investment adviser for more than 5 years C An on-line broker-dealer who offers a "no maximum number of trades" program for a 90-day period for a set dollar amount D A bank that is offering "Raise-Your-Rate" Certificates of Deposit for a set promotional period

The best answer is C. This question gets at an interesting lawsuit filed against brokerage firms by investment advisers when these brokerage firms started offering non-managed fee based accounts. For an annual flat fee, the brokerage firm client could trade an unlimited amount. The investment advisers argued that a "flat fee" product is an advisory product that requires investment adviser registration - and they won. Thus, any flat fee product offered by a broker-dealer is considered to be an advisory product and requires that the firm and each agent register as an IA and IAR respectively in order to sell these. Choice A is incorrect because general market newsletters are not investment advisers - they only become IAs if they tailor advice to a specific client situation. Choice B makes no sense; and Choice D is incorrect because banks are excluded from the definition of an investment adviser.

Who must register in a State as an investment adviser? A person selling a subscription to a service that gives timing of buy and sell orders for specific investment company securities that are exchange traded An investment adviser representative who has been registered with an investment adviser for more than 5 years An on-line broker-dealer who offers a "no maximum number of trades" program for a 90-day period for a set dollar amount A bank that is offering "Raise-Your-Rate" Certificates of Deposit for a set promotional period

The best answer is C. This question gets at an interesting lawsuit filed against brokerage firms by investment advisers when these brokerage firms started offering non-managed fee based accounts. For an annual flat fee, the brokerage firm client could trade an unlimited amount. The investment advisers argued that a "flat fee" product is an advisory product that requires investment adviser registration - and they won. Thus, any flat fee product offered by a broker-dealer is considered to be an advisory product and requires that the firm and each agent register as an IA and IAR respectively in order to sell these. Choice A is incorrect because general market newsletters are not investment advisers - they only become IAs if they tailor advice to a specific client situation. Choice B makes no sense; and Choice D is incorrect because banks are excluded from the definition of an investment adviser.

An investment adviser representative gives a new client who has agreed to buy advisory services the "brochure," but did not obtain the client's signature attesting to this fact at that time. In the brochure is a paragraph stating that the client has the "2 day right of rescission." Which statement is TRUE about this under NASAA rules? The IA and IAR have failed to comply with NASAA rules because the customer signature must be obtained at, or prior to, entering into an oral or written advisory contract The IA and IAR have complied with NASAA rules because the client has been given the "2 day right of rescission" The IA and IAR have failed to comply with NASAA rules because the customer must be given 5 business days after signing the contract to rescind without penalty The IA and IAR have complied with NASAA rules because the customer was provided with the brochure, at or prior to, entering into the advisory contract

The best answer is C. Under NASAA Rules, the Form ADV Part 2A("Brochure") and Part 2B ("Brochure Supplement") must be delivered to customers: no less than 48 hours prior to entering into either an oral or written advisory contract with a customer (a "2 day free look") - meaning the customer gets the Brochure and Supplement 48 hours prior to signing the contract; or alternativelythe customer can sign the contract and be given the Brochure and Supplement, and then has 5 business days to terminate without penalty. In this case, because the customer did not receive the brochure 48 hours to signing the advisory contract, the customer must be given 5 business days to rescind. (Note: This is the NASAA rule - the SEC rule under the Investment Advisers Act of 1940 is NOT the same - it simply requires delivery of the Brochure and Supplement, at or prior to, entering into any advisory contract.)

An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Representative (IAR) to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be: A the identification of the business model of the Investment Adviser including size of the firm, types of services provided, and the number of locations B making provision for the Investment Adviser Representative to notify the clients of the Investment Adviser in the event of business interruption caused by the owner's death or unexpected permanent incapacitation C making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable D providing for an appropriate emergency contact person when the investment adviser representative is away on vacation

The best answer is C. When an Investment Advisor is formed as a sole proprietorship, the client's legal relationship is with the sole proprietor. With the death or permanent disability of the sole proprietor, the sole proprietorship is terminated as a legal entity, as would any advisory contracts. The IA must have a succession plan that immediately addresses this issue if the sole proprietor becomes unavailable. Otherwise, the clients would have no one to manage their funds held at the defunct IA because the existing investment advisory contracts are now void.

All of the following transactions are exempt under the provisions of the Uniform Securities Act EXCEPT: A isolated non-issuer transactions B transactions effected between an issuer and an underwriter C unsolicited non-issuer transactions effected by a broker-dealer D transactions effected between broker-dealers and the public

The best answer is D. Under the Uniform Securities Act, exempt transactions include isolated non-issuer transactions (that is, an isolated trade in the secondary market, typically defined in each State as 1 or 2 trades a year); unsolicited transactions; and transactions between an underwriter and an issuer (since the public is not involved). Once the public is involved, there is no longer an exemption - thus a broker-dealer effecting a trade with the public is not an exempt transaction. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.

Which of the following are investment adviser conflicts of interest that MUST be disclosed to a client? I The adviser is a general partner in a limited partnership investment that he is recommending to his customers II The adviser is compensated by the broker-dealer to whom he directs the customers' portfolio trades III The adviser owns a stock that he is recommending to customers in his personal account IV The adviser will only take customers that have been referred to it by broker-dealers to whom he pays a referral fee A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is D. When it comes to conflicts of interest, disclosure is the key. All of the choices listed are investment adviser conflicts. The adviser being the general partner in a limited partnership that he is recommending to his customers is a conflict. Is the adviser recommending it because it is the best investment for the customer or because the investment adviser will get management fees for being the general partner? The adviser directing its customers' portfolio trades to a broker who will pay a fee to the adviser for those trades is another conflict. Is the adviser sending the trades to that broker because he gets the best trade executions or is he sending the trades to that broker for the referral fee? If an adviser owns a stock personally that he is recommending to a customer, is he doing this in order to drive up the price of the stock to have a gain on his personal portfolio or is he doing it because it is the best recommendation for the customer? Finally, an adviser that only takes customers that have been referred to it by a broker to whom he pays a referral fee is another conflict. Was the customer referred by the broker because it was best for the customer or did the broker do it just to get the adviser's referral fee?

An investment adviser has been experiencing a business decline due to a weak local economy and a weak investment outlook. To rebuild her business base, the investment adviser puts an advertisement in the local newspaper that says: "Because times are tough for all of us, we are offering, for a limited time only, a free investment consultation and free year-end tax preparation to anyone who signs a 1-year advisory contract for an introductory rate of only $25 per month." This is permitted: under no circumstances as long as the duration of the limited time offer is included in the advertisement as long as the adviser accepts all potential clients that respond to the offer made in the advertisement only if the word "free" is removed twice from the advertisement

The best answer is D. "Free" offers of services cannot be conditioned on buying something. They must be truly "free." So either the adviser must remove the words "free" from the offer of a consultation and "free" from the offer of year-end tax preparation, since they are conditioned on buying a $25 a month contract; or the adviser must get rid of the condition that a contract be purchased for $25 a month for these "free" services.

Which of the following persons is required to register as an investment adviser under the Uniform Securities Act? A An attorney who writes a legal opinion included in the registration statement filed with the State for a new non-exempt securities offering B A broker-dealer who gives investment advice in the regular course of business executing transactions for customers C An agent of a broker-dealer who gives investment advice as part of his or her regular duties and who charges a fee for such advice D A broker-dealer that charges an annual flat fee to customers for both investment advice and portfolio trade executions

The best answer is D. An attorney that renders a legal opinion is not giving advice about investing in securities - the opinion covers the validity and legality of the securities offering. A broker-dealer is not considered to be an investment adviser unless it charges separately for advice. If the broker-dealer's compensation comes solely from commissions, then the broker-dealer does not fall under the investment adviser definition. On the other hand, if a broker-dealer offers an account that charges a flat fee or a fee as a percentage of assets - this is a "wrap" account that is an advisory product and registration at the State level as an adviser is required (thus, Choice D would have to register in the State as an investment adviser). Regarding Choice C, be careful! Choice C defines an "investment adviser representative" that would have to register at the State level - it does not define an "investment adviser."

Under the Uniform Securities Act, which of the following persons with no place of business in a State is EXCLUDED from the definition of an "Investment Adviser"? A A person who gives advice for a fee about public utility mortgage bond issues B A person who gives advice for a fee about municipal securities C An insurance company that renders advice about securities for a fee to its clients D A trust that receives special compensation for rendering advice about securities

The best answer is D. Excluded from the definition of an investment adviser are: Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers Thus, the trust company (Choice D) is excluded from the definition of an investment adviser. Note that none of the other choices fits the definition of a Federal covered adviser, and that insurance companies that give advice (Choice C) are not afforded an exclusion.

If a registration is found to be incomplete, which of the following statements are TRUE? I The issuer must send the Administrator a complete new filing II The issuer must send the Administrator an amendment to the original filing III A new consent to service of process is required IV A new consent to service of process is not required A I and III B I and IV C II and III D II and IV

The best answer is D. If a registration statement is found to be incomplete, there is no requirement for a complete new filing. The additional information is provided by filing an amendment with the Administrator. A consent to service of process is required for the initial application of a broker-dealer, agent, investment adviser, and investment adviser representatives, and is also required for securities registration. This form appoints the State Administrator to be the "attorney" for the registrant. If a person is sued, the State Administrator would receive the summons and then notify the person being sued.

If an investment adviser buys out another investment advisory firm, which statement is TRUE about filing fees paid to the State? Incorrect answer A. You did not choose this answer. A Two additional separate filing fees must be paid for each of the advisory firms Incorrect answer B. You did not choose this answer. B A new filing fee covering the entire year must be paid for the combined advisory firm Incorrect answer C. You chose this answer. C An additional pro-rata filing fee covering the balance of the year for the combined advisory firm must be paid Correct answer D. You did not choose this answer. D No additional filing fee is required

The best answer is D. If an investment adviser "buys out" another advisory firm, then the firm that is "bought out" ceases to exist; and the accounts of the firm that is "bought out" become part of the existing acquiring advisory firm. No additional filing fee must be paid by the acquiring advisory firm, since a new firm is not being created. As an additional note, if a new "successor" firm were created from the merger of 2 firms, the State Administrator will allow the successor firm to complete the predecessor firm's filing year, so no additional fee would be required either.

Which statements are TRUE about surety bond coverage required for a registration application under the Uniform Securities Act? I In lieu of posting a surety bond, the Administrator must accept a deposit of cash in the appropriate amountII In lieu of posting a surety bond, the Administrator must accept a deposit of securities in the appropriate amountIII The Administrator is permitted to waive the surety bond requirement for registrants whose net capital or net worth exceeds a stated dollar amountIV If there is a surety bond requirement, the Administrator is not permitted to accept cash or securities as a substitute A I only B I and II only C III and IV only D I, II, III

The best answer is D. It is true that, in lieu of posting a surety bond, the Administrator must accept a deposit of cash in the appropriate amount, or a deposit of securities in the appropriate amount. The Administrator is permitted to waive the surety bond requirement for registrants whose net capital or net worth exceeds a stated dollar amount. It is untrue that if there is a surety bond requirement, the Administrator is not permitted to accept cash or securities as a substitute.

Under NASAA rules, Investment Advisers must retain copies of all advertising for: 3 years in an easily accessible place with the first year's records kept in the principal office of the adviser 3 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser 5 years in an easily accessible place with the first year's records kept in the principal office of the adviser 5 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser

The best answer is D. NASAA requires all IA records (with the exception of permanent records covered following) to be retained for 5 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser.However, certain "permanent" records must be kept for the life of the firm - these include the partnership agreement if the RIA is a partnership; articles of incorporation if the RIA is a corporation; and any minutes to partnership or Board of Directors meetings. These must be retained at the principal office of the adviser and be preserved for at least 3 years after termination of the enterprise.

A Registered Investment Adviser that trades securities on the behalf of customers is required to keep a record of the transaction that includes all of the following information EXCEPT the name of the: Investment Adviser Representative (IAR) who placed the order broker-dealer to which the order was sent for execution person at the Investment Adviser who recommended the transaction agent at the broker-dealer who executed the transaction

The best answer is D. NASAA states that Investment Adviser order tickets must contain:Name of the person at the IA who recommended the transaction;Name of the person who placed the order;Date of order entry;Name of account for which order was entered;Name of broker-dealer or bank to which the order was sent for execution;Whether the order was discretionary.

A registered representative recommends a stock that is not registered in the State that should have been registered in the State. The representative has told his clients that it is a good investment that should be profitable in the near term. The representative: has not willfully violated the Uniform Securities Act but the action is still fraudulent and subjects the registered representative to criminal prosecution is subject to imprisonment and a fine has willfully violated the Uniform Securities Act and is guilty of a fraudulent act has not committed a felony or a fraudulent act because he did not know the security should have been registered

The best answer is D. Nowhere in the question does it state that the representative "knew" that the security should have been registered in the State. It appears that the recommendation of an unregistered non-exempt security to the clients in the State was unintentional, so the agent is only subject to civil liability. This means that the customer can get his or her money back with interest.

Which of the following securities can be registered by qualification in a State? Limited Partnership Fractional Interest in an Oil and Gas Program Certificate of Deposit for a security All of the above

The best answer is D. Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

Which of the following is NOT required to be included in the State registration application of a broker-dealer or investment adviser? Consent to service of process Business history of applicant Fingerprints of the officers Books and records of the broker-dealer used by the applicant

The best answer is D. State registration applications for a broker-dealer or investment adviser must include:The applicant's form and place of organization;The applicant's proposed method of business;The qualifications and business history of the applicant and each of its officers or partners;Any injunction, administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business; and any conviction of a felony;The applicant's financial condition and history; andAny information to be furnished to a client (the "brochure") if the applicant is an investment adviser.Also note that the initial application must be accompanied by a consent to service of process, which appoints the Administrator as attorney for the applicant. Any lawsuits filed in court against a broker-dealer or investment adviser will result in a subpoena sent to the Administrator; who will then forward it to the registrant (broker-dealer or investment adviser) that is being sued. As part of the registration application, fingerprints are required by most states (Choice C). However, there is no requirement for filing of the books and records of the broker-dealer as part of the application, make Choice D the best one offered. (Note, however, that the Administrator has the power to inspect books and records of a BD or IA at will.)

An investment adviser representative works for a federal covered adviser. The IA is SEC registered and has filed notice in State A where it has an office. The IAR is registered in State A. The IAR has engaged in a pattern of trading in client accounts without having authorization to do so. Which statement is TRUE about the State Administrator's ability to take disciplinary action? The State Administrator cannot take disciplinary action against the investment adviser because it is federal covered, nor can it take disciplinary action against the investment adviser representative of the federal covered adviser The State Administrator cannot take disciplinary action against the investment adviser because it is federal covered, but the Administrator can take disciplinary action against the investment adviser representative The State Administrator can take disciplinary action against the federal covered investment adviser, but the Administrator cannot take disciplinary action against the investment adviser representative The State Administrator can take disciplinary action against the federal covered investment adviser, and it can take disciplinary action against the investment adviser representative of the federal covered adviser

The best answer is D. The NASAA Model Rule on Unethical Practices of IAs and IARs, makes it clear that each State Administrator has jurisdiction over investment advisers and their representatives, and also retains jurisdiction over federal covered advisers to the extent that the conduct is fraudulent or deceptive. Unauthorized trading in a customer account is fraudulent, so not only is the IAR subject to disciplinary action by the State Administrator, the federal covered advisory firm is subject to disciplinary action by the State Administrator as well. Also, though not covered in the question, the SEC can take action against the federal covered adviser for the violation.

Under the provisions of the Uniform Securities Act, NAFTA and GATS, the State Administrator has the power to designate all of the following non-issuer transactions as "exempt" EXCEPT: A trades effected on the Toronto Stock Exchange B trades effected on the American Stock Exchange C trades effected on the Mexico Stock Exchange D trades effected on the London Stock Exchange

The best answer is D. The Uniform Securities Act exempts secondary market trades of securities that occur on registered stock exchanges from State securities registration requirements (however, remember that the IPO of these issues was either registered in the State or a notice filing was made). Under the provisions of NAFTA (North American Free Trade Agreement between the U.S., Canada and Mexico) and GATS (General Agreement on Trade in Services), the Administrator is empowered to exempt trades that occur on stock exchanges in these other 2 countries. Currently, only trades on the Toronto Stock Exchange are exempted. The Administrator has no power to exempt trades that take place on the London stock exchange.

Under the Uniform Securities Act, the basic definition of a security is: A any investment made for profit with at least 10 participants B an investment that is transferable to another person without restriction C an undivided interest in a business enterprise with other parties D an investment in a common enterprise for profit with management by a third party

The best answer is D. The basic definition of a security is: an investment in a common enterprise for profit, with management provided by a third party.

An agent is conducting securities activities on the premises of a bank. Which statement is TRUE? This is an unethical practice This is permitted if the agent discloses orally to the customer that the products offered are not bank products; are not FDIC insured; and may lose value This is permitted if the agent discloses in writing to the customer that the products offered are not bank products; are not FDIC insured; and may lose value This is permitted if the agent discloses both orally and in writing to the customer that the products offered are not bank products; are not FDIC insured; and may lose value

The best answer is D. This is the "NOT-NOT-MAY" Rule. When a broker-dealer offers securities in a bank setting, it must be disclosed both verbally and in writing that securities are NOT bank products; that securities are NOT FDIC insured: and that they MAY lose value. In addition, the agent must attempt to get the customer to sign a statement that he or she understands this.

To qualify for the private placement exemption, all of the following are required EXCEPT: A any purchases must be made with investment intent B no more than 10 persons can purchase the issue during a 12 month period C no commissions can be paid for soliciting individuals to purchase the issue D all purchasers must reside in one state

The best answer is D. To qualify for a private placement exemption, no more than 10 persons can purchase the issue within a 12 month period under the Act. All purchases must be made with investment intent; and no commissions can be paid to anyone except for solicitations of financial and institutional investors. There is no requirement that all of the purchasers reside in one state - the limitation is 10 purchasers of the issue per year. The purchasers can reside anywhere within the United States.

Which of the following securities is NOT exempt from the registration requirements of the Uniform Securities Act? A U.S. Government Bonds B Debentures of a New York Stock Exchange listed company C Stock issued by a charitable corporation D Limited PartnershipInterests

The best answer is D. Under the Uniform Securities Act, U.S. Government bonds; securities issued by Exchange listed companies ("blue-chips"); and securities issued by charitable organizations are exempt. Limited partnership interests are defined as a security under the Act and are non-exempt.