Series 63 Pass

Question ID: 623494 The Uniform Securities Act requires that an administrative order appeal must be requested within how many days after the order has been entered?

60 days Any person who receives an order from the Administrator can petition the court to change or set aside the order, but an appeal must be filed within 60 days after the order was entered.

Which of the following is NOT an issuer under the USA?

A broker-dealer that trades securities as an agent for its clients is not acting in the capacity of an issuer. If the broker-dealer were organized as a corporation and offering its own shares to the public through underwriting, it would then be an issuer. A corporation that proposes to issue securities but has not as yet done so, is for purposes of the act, an issuer. A company offering its shares to the public in an IPO is an issuer. A company whose shares trade on the NYSE is an issuer whose shares are now trading in the secondary market.

Under the Uniform Securities Act, which of the following is an offer or a sale?

A gift of stock given as a bonus with a purchase of a parcel of real estate A gift of securities given as a bonus for any purchase is considered part of the purchase. Stock splits, bona fide gifts, and bona fide pledges or loans made with no purpose of evading the act are not considered sales.

Which of the following is NOT required to register as an agent under the Uniform Securities Act?

A person who represents the issuer selling U.S. government or municipal bonds Individuals excluded from the agent registration requirements are those who represent issuers in selling certain exempt securities, such as U.S. government or municipal bonds. Any individual who receives compensation related to securities sales, including the intern, must register as an agent.

Under the Uniform Securities Act, which of the following is NOT excluded from the definition of broker-dealer?

A person with an office in this state whose securities business is limited to effecting transactions with institutional investors The definition of a broker-dealer is a person in the business of effecting transactions in his account or for the account of others. If the person has an office in this state, regardless of who the clients are, registration with this state is necessary. Under the USA, one is not defined as a broker-dealer if there is no office in the state and transactions are limited in this state to other broker-dealers.

An investment adviser is preparing an advertisement. Which of the following would be acceptable?

Any mention of investment recommendations in any investment adviser's advertisement must always include all recommendations (not just good ones) made over the course of the last 12 months. If the investment adviser uses charts or formulas, any mention of them must always include a statement to the effect that they have limitations and may be difficult to use. No outside endorsements are ever allowable on the exam.

Under the Uniform Securities Act, the term agent would include an individual who

Anyone who sells securities on behalf of a broker-dealer is defined as an agent. Those who sell on behalf of an issuer are excluded from the definition under certain circumstances. If the transaction is exempt or the security is one of a specified group of exempt securities, such as municipal bonds (general obligation or revenue), the individual is not defined as an agent under the Uniform Securities Act.

Which of the following conditions would most likely meet compliance standards of state regulators?

Both supervisory personnel and agents need to understand the difference between interactive and static content Before allowing associated persons to use social media for business purposes, a firm's poli¬cies and procedures must provide for personnel training and education relating to the parame¬ters of permitted use. Both supervisory personnel and agents need to understand the difference between interactive and static content, between business and non-business communications. A firm should consider requiring training in the use of social media before permitting use. At a minimum, a firm that permits use of social media sites must hold annual training as part of its continuing education obligations.

One of the requirements of the Uniform Securities Act is that nonexempt securities must be registered prior to sale in the state unless the sale is made in an exempt transaction. Which of the following would most likely register by qualification?

First mortgage bonds issued by XYZ Computers, a company whose common stock was issued only in this state When a company's stock is issued only in one state, that is known as an intrastate offering. As such, the issue can not register with the SEC, but registers with the state using qualification. Any subsequent capital issue from that company in this state would also use qualification. Bank stock and equipment trust certificates are exempt securities. Rights offered by a company whose stock is listed are considered federal covered securities.

A Canadian broker-dealer with no offices in this state has a Canadian client who is on a temporary work assignment in this state. To accept orders from this client, the broker-dealer must

For a Canadian broker-dealer with no offices in this state to do business with Canadian residents who are temporarily in this state, it must apply for a special limited registration. Filing involves all of the choices listed. In essence, Canadian broker-dealers and agents have a limited form of the snowbird exemption.

Question ID: 623398 Which of the following would be included in the Uniform Securities Act's definition of a "sale"?

For a security to be sold, it must be exchanged for value. Fixed annuities and precious metals are not securities, so no security sale took place. Donating a security does not qualify as a sale.

Question ID: 685013 Under the NSMIA, the term "federal covered adviser" includes a person

I.registered with the SEC under the Investment Advisers Act of 1940 III.excluded from the definition of an investment adviser under the Investment Advisers Act of 1940 The NSMIA defines a "federal covered adviser" as a person who is either required to register with the SEC under the Investment Advisers Act of 1940 or who is specifically excluded from the definition of investment adviser under that act. Registration with the state Administrator is not required of a federal covered adviser

Which of the following are exempt from state registration?

II.An isolated nonissuer transaction III.A transaction by an administrator of an estate Isolated nonissuer transactions and transactions by an Administrator are included in the list of exempt transactions; the others are nonexempt transactions. With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities. There is a limited offering exemption, but it is limited to no more than 10 retail (non-institutional) investors in a 12 month period.

Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator in which of the following ways?

Qualification Securities of a nonexempt corporate issuer that do not have a federal registration must be registered with the Administrator by qualifying with the Administrator. This process is called registration by qualification.

Which states does Administrators have for securities in states that offers are made

The Administrator has jurisdiction from the state in which the offer was made (NY), received (OH), and accepted (IN). Mailing of the certificate is of no consequence.

The National Securities Markets Improvement Act of 1996 (NSMIA)

defined the term "federal covered adviser"

An agent omits facts that a prudent investor requires to make informed decisions. Under the Uniform Securities Act, this action is

fraudulent for both exempt and nonexempt securities An investor relies on material facts to make investment decisions. The omission of a material fact in the sale, purchase, or offer of a security is fraudulent whether the security offered is exempt or nonexempt.

A customer determines that he has been sold unregistered, nonexempt securities in a prohibited transaction. In accordance with the USA, he can exercise the right to sue within

2 years from discovery or 3 years from occurrence, whichever is sooner The civil liabilities provisions of the Uniform Securities Act provide for a statute of limitations equal to the sooner of 2 years from the date of discovery or 3 years from the date of the violation.

DMF broker-dealer is advertising securities through direct mail. Which of the following is considered an offer to sell securities in this state?

A prospective client located in the state receives, at his home address, a direct letter offering securities for sale Anyone who offers to sell or buy a security in the state is subject to the statutes of the state to which the offer is directed, even if the sale is not completed. Offers by mail directed to persons in other states are considered to have been made in the other state, if received where originally addressed. Under the USA, the address that is critical is the one to which the mailing is directed. If it is forwarded to another state, it is not considered an offer in that state.

The state securities Administrator has the authority to

A state securities Administrator may issue a ruling or order to comply with the blue-sky laws of the state and designate the use of certain forms, but does not have authority to amend or alter the Uniform Securities Act itself. All rules and forms of the Administrator must be published. Only the courts can issue injunctions.

Which of the following would be least likely to meet the cyber security definition of a covered account?

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

Accusations and the USA

An accusation is not grounds for suspension, unlike convictions, court injunctions, and lack of supervision.

Each of the following requirements is common to the registration of agents, investment adviser representatives, state-registered investment advisers, and broker-dealers under the Uniform Securities Act EXCEPT

the registration for all is two years in length Registrations of persons renew annually each December 31st.

Under what conditions would a waiver signed by a client protect an agent against civil or criminal liability?

Never Waivers are never, never, going to be exculpatory (relieve you of your liability).

Can the Administrator Require a Minimum financial standards for federal covered securities?

No

Registration Expiration

Every agent, broker-dealer, investment adviser, and investment adviser representative registration expires each year on the next December 31.

.Under the Uniform Securities Act, Administrators of all of the following states have jurisdiction EXCEPT

the state from which payment for the purchase of securities was made, The state from which payment is made is not relevant in determining whether the Administrator of that state has jurisdiction.

Which of the following transactions would be included in the USA's definition of exempt transaction?

I.A banker liquidates stock pledged as collateral for a loan that has gone into default II.An offer to purchase a new stock made to 5 individuals and 15 institutional investors in this state during the past 12 months III.An isolated nonissuer transaction IV.The sale of preorganization certificates to 10 individuals with no commission being paid All of these are included in the USA's definition of an exempt transaction. Sales made by a bona fide pledgee are exempt. Even though the number of offerees in the private placement exceeds 10, that limitation does not apply to institutional investors. A preorganization certificate may be sold to as many as 10 persons, while a private placement may not be offered to more than 10 (not counting institutional investors).

Which of the following situations would require registration as an investment adviser?

I.A broker-dealer provided investment research services to a customer and charged a fee for the service. III.An agent of a broker-dealer prepares a complete financial plan for a customer with a one-time charge of $950. The plan recommends specific securities transactions, which the customer orders. The agent earns commissions on the securities transactions. Under the Uniform Securities Act, broker-dealers and their agents are not defined as investment advisers if their performance is solely incidental to the conduct of a brokerage business, and no special compensation is received for the advisory services. A broker-dealer charging for research advice is charging for advisory services, which would require registration as an investment adviser. A charge for creating a comprehensive financial plan is considered to be a charge for investment advice, even if it is only a one-time expense. It could also be considered that the commissions earned from the recommendations are indirect compensation (which is still looked at as advisory compensation). Recommendations of securities purchases are incidental to conducting a brokerage business and would not require registration as an investment adviser if no fees are charged for the advice. Broker-dealers may charge for clerical services provided to customers, but clerical services are not considered investment advisory services.

Under the Uniform Securities Act, which of the following statements regarding the consent to service of process are TRUE?

I.A consent to service of process makes legal process served on the Administrator as legally binding as process served on the registrant personally. III.Investment advisers and investment adviser representatives must file a consent to service of process to become registered. A consent to service of process grants legal authority for the Administrator to receive legal notices on behalf of the registrant. All applicants for registration must file a consent to service of process regardless of whether they are in-state or out-of-state advisers.

Under the Uniform Securities Act, which of the following are defined as sales?

I.A gift of an assessable stock III.A security given as a bonus for purchasing a bond A sale is a contract or transaction for value. Therefore, when a security is given as a bonus in connection with the sale of another security, it is also considered a sale. Because an assessable stock may require a payment made by the recipient, the gift is considered a sale. The gift of a non-assessable stock is not a sale as it is not a contract for value. An offering of securities is not a transaction or sale of securities until the offer is accepted.

A registered investment adviser has a fiduciary duty to disclose all real and potential conflicts of interests to clients. Which of the following are examples of conflicts that would require disclosure?

I.A registered investment adviser spends about 25% of its time on investment advisory activities and the balance on managing rental real estate projects III.An investment adviser representative, who is also an insurance agent, may decide to recommend a particular insurance product based on an incentive to sell the product IV.An investment adviser representative, who is also an agent with an unaffiliated broker-dealer, directs transactions to that firm There is nothing wrong with an investment adviser devoting time, even a majority of the time, to non-advisory pursuits, as long as it is disclosed. Recommending products based on an incentive is fine as well, as long as disclosure is made. Finally, IARs can be agents of affiliated or non-affiliated broker-dealers, but the existence of that relationship must be disclosed. One would hope that the investment adviser devotes enough time to supervising its IARs, but that is not something that is disclosed to clients.

Which of the following securities are exempt from the registration requirements of the Uniform Securities Act?

I.An investment contract issued in connection with an employee pension plan II.Securities issued by St. Paul's Catholic Church in Tempe, Arizona III.Securities issued by a public utility IV.Securities issued by the Canadian government

Under the Uniform Securities Act, which of the following are exempt from the requirements to file advertising and sales literature with the Administrator?

I.Any unsolicited transaction involving an exempt security II.Any unsolicited transaction involving a nonexempt security III.Any solicited transaction involving an exempt security If a transaction is exempt, it is exempt from the requirement to file advertising and sales literature with the Administrator. All unsolicited transactions fit into the category of exempt transactions. Exempt securities, whether traded in a solicited or unsolicited transaction, are always exempt from the filing requirements.

An Administrator could use which of the following as a reason for issuing an order denying the registration of a security?

I.The issuer's enterprise or method of business includes or would include activities which, although legal in the state of incorporation, are illegal in the Administrator's state. III.The offering would be made with unreasonable amounts of underwriters' and sellers' discounts An Administrator may deny the registration of a security when the activity to be conducted in the state is illegal. The underwriter's compensation may not be unreasonable. There is no requirement that dividends be paid in order to register a security.

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include

I.a charge when a client requests that a stock certificate be issued in his name III.the interest charged by the firm on money owed by customers in their margin accounts If we know what charges are not included in the fee disclosure, it is easy to recognize those that are. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are 1.commissions; 2.markups and markdowns; and 3.advisory fees for those first that are also registered as investment advisers.

Under the Uniform Securities Act, the Administrator has the power to

I.administer oaths III.subpoena witnesses IV.take evidence The Administrator has the power to administer oaths, subpoena witnesses and take evidence. The Administrator also has the power to compel testimony and require the production of books and records. However, while the Administrator is authorized to refer violations for possible criminal prosecution, the actual powers of criminal prosecution belong to others. For example, indicting offenders is the function of a grand jury.

An Administrator may summarily suspend a registration pending final determination of proceedings under the USA. However, the Administrator may NOT enter an order without

I.appropriate prior notice to the registrant II.an opportunity for a hearing III.findings of fact and conclusions of law Prior to the entry of a final order, the Administrator must provide appropriate prior notice to the registrant, provide the opportunity for a hearing, and present findings of fact and conclusions of law. A registrant is not required to provide written acknowledgement before an order is issued.

If a broker-dealer wishes to conduct operations on the premises of a financial institution, it is required to

I.disclose both in writing and orally to customers that the investments being sold are not FDIC insured, may lose value, and are not obligations of the financial institution II.make a reasonable attempt to be in a location physically distinct from that where retail deposits are taken III.attempt to obtain written acknowledgement from customers that they have received and read the disclaimers It is a NASAA model rule that broker-dealers operating on the premises of a financial institution make certain disclosures. Every attempt should be made to locate separately from the banking operation and to obtain something in writing from the clients indicating that they have received the disclosures. It is not necessary that there be any relationship between the BD and the institution other than a business one.

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client

I.if the Administrator has not prohibited this practice II.if the investment adviser has notified the Administrator that it has custody The Administrator may prohibit investment advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing if the investment adviser has custody. However, custody has nothing to do with investment discretion.

Under the Uniform Securities Act, the federal covered security exemption from state registration includes

I.securities issued by investment companies registered under the Investment Company Act of 1940 II.securities traded on the Nasdaq Stock Market III.securities traded on the New York Stock Exchange IV.securities traded on the Chicago Stock Exchange Federal covered securities refer to securities exempt from registration because they are regulated, or covered by federal legislation. The National Securities Markets Improvement Act of 1996 (NSMIA) eliminated dual regulation of securities by both federal and state securities legislation. The term "federal covered security" also refers to any security listed on a national securities exchange, any security equal to or senior in standing to one listed on a national securities exchange, or a right or warrant to purchase a security listed on a national securities exchange.

Under the Uniform Securities Act, any securities registration statement must include

I.the amount of securities to be offered in that state II.a list of the other states in which the security will be registered III.a copy of the prospectus or offering circular

Under the Uniform Securities Act, an offer and sale does NOT exist if it is

I.the result of a class vote by stockholders regarding a merger or consolidation II.a bona fide pledge or loan III.an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares IV.a gift of nonassessable securities The Uniform Securities Act specifically excludes all four choices from the definition of an offer and a sale.

Under the Uniform Securities Act, an investment adviser is exempt from registration if the person has no place of business in a state and does not direct communication

I.to more than 5 noninstitutional clients IV.within 12 consecutive months As long as communications are directed to no more than 5 noninstitutional clients in a 12-consecutive-month period and the adviser does not have a place of business in the state, an exemption from registration is provided. This is the de minimis exemption and applies only to investment advisers and investment adviser representatives, not to broker-dealers or agents.

Under the Uniform Securities Act, which of the following are NOT considered investment advisers or investment adviser representatives in this state?

II.United Trust Company of America IV.An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state

Which of the following investment adviser compensation arrangements is (are) permitted under the Uniform Securities Act?

III.The investment adviser charges a fee of 1% of the average value of the account portfolio during the year. IV.The investment adviser charges a flat fee of $1,000 if the client's portfolio assets are $100,000 or more or $2,000 if the client's assets increase to $200,000 or more. Unless the question states that it relates to the exception for wealthy investors ($1 million under management of the investment adviser or $2.1 million in net worth), always assume that performance-based compensation is not permitted. Flat fees and fees based on total portfolio value are permitted.

Federal covered securities, as defined under the Uniform Securities Act

III.include shares of an investment company registered with the SEC under the Investment Company Act of 1940 While many federal covered securities are registered with the SEC, the term also includes those exempt from registration, such as government and municipal bonds. Although these investment company securities are not required to be separately registered in each state, the state may still require a notice filing, including a consent to service of process and payment of fees, for these offerings.

Which of the following is NOT an exempt transaction as defined in Section 402 of the USA?

Isolated sale of a corporate bond on behalf of the bond's issuer First of all, don't panic when you see a Section number - just answer the question based on the specific topic; in this case, the definition of an exempt transaction. An isolated sale of a corporate bond on behalf of the bond's issuer is not exempt. Under the USA, only isolated nonissuer transactions are exempt. In this question, the transaction is on behalf of the issuer, so this transaction is not exempt. The sale of a corporate bond to an insurance company is the sale of a security to a financial institution; this is an exempt transaction. A sale of common stock by the executor of an estate, or by the county sheriff is considered a fiduciary transaction and is exempt regardless of the client or the type of security.

When filing the consent to service of process, which of the following is TRUE?

It is supplied with the initial registration and remains on file permanently. The consent to service of process is supplied with the initial registration and remains on file permanently.

Which of the following statements regarding Form ADV Part 2 is TRUE?

It must be delivered to clients annually.,

An agent submits a list of recommendations to a customer that includes 5 different securities. The customer chooses to buy a round lot of 1 of the 5 securities recommended (a stock in which the agent's broker-dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act?

No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup Higher than average markups or commissions are not prohibited if they are justifiable and disclosed. However, in this case, there would appear to be no justification because the customer bought a round lot, the normal trading unit of stock. The firm is a market maker, so the security is being sold from their inventory and the stock is on the company's recommended list.

An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sale of its securities in a specific state?

Notice filing Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.

Which of the following statements best describes the effect of the NSMIA on securities regulation?

Preempts state registration of covered securities The National Securities Markets Improvement Act preempts state registration of covered securities. State administrators may not impose registration requirements on securities that are subject to federal regulation.

Which of the following are NOT exempt securities under the Uniform Securities Act?

Preferred stock traded on the "Pink Sheets" Trading on the "Pink Sheets" does not qualify a security for treatment as a federal covered security. We can't assume that the issuer's common stock is federal covered (which would make the preferred exempt from registration) unless it is specifically stated. The other answers are specifically exempted from registration under the Uniform Securities Act: nonprofit religious organizations, securities issued or guaranteed by a regulated common carrier, and commercial paper with a maturity of 9 months or less and in minimum $50,000 denominations as long as it is rated in the top 3 grades.

If an individual acting on behalf of an issuer engages in the sale of securities issued by a savings institution organized and supervised under the laws of any state, which of the following statements is TRUE?

The individual is not required to be registered. An individual representing (employed by) an issuer is exempt from registration as an agent when selling certain exempt securities (see your LEM for the 5 categories that qualify) or non-exempt securities in an exempt transaction.

Nifty Advisers Group made an announcement on its website that the firm was going to create a Facebook account to keep all its clients and prospective clients updated on the market. To get the word out, Nifty sent an email notice to its current clients and asked them to please refrain from airing complaints through that account; any negative comments would be addressed through the normal channels. Also, contained in the email was an announcement that all "likes" would receive a one-time 5% decrease in the client's quarterly fees. For this campaign, which of the following are NOT true?

This would not be considered a testimonial and therefore permitted under the regulations

Nifty Advisers Group made an announcement on its website that the firm was going to create a Facebook account to keep all its clients and prospective clients updated on the market. To get the word out, Nifty sent an email notice to its current clients and asked them to please refrain from airing complaints through that account; any negative comments would be addressed through the normal channels. Also, contained in the email was an announcement that all "likes" would receive a one-time 5% decrease in the client's quarterly fees. For this campaign, which of the following are NOT true?

This would not be considered a testimonial and therefore permitted under the regulations. Please note that this question is looking for the statement that is NOT true - in other words, find the false statement. In March 2014, the SEC, but not NASAA, published an interpretive release dealing with testimoni¬als for investment advisers using social media. Included in that release is the statement that third-party use of the "like" feature on an investment adviser's social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's experience with the adviser

Question ID: 623329 Which of the following transactions is exempt under provisions incorporated into the Uniform Securities Act?

Transactions between the issuer and the underwriter The Uniform Securities Act specifically exempts transactions between an issuer and an underwriter. There is no exemption for investment clubs or transactions that result in a loss. Immediate family members are treated the same as any other retail client.

An investment adviser maintains custody of customer's funds and securities. In order to comply with the Uniform Securities Act, the adviser must, at least quarterly, send written notice to each custodial client stating the

Under both state and federal law, investment advisers maintaining custody of customers' funds and securities must notify their clients no less frequently than quarterly of the location of the assets and their value. If there should be a change to their location, it must be communicated promptly.

Which of the following is NOT a person as defined by the Uniform Securities Act?

Under the Uniform Securities Act, the term "person" has a specific meaning. "Person" refers to an individual, corporation, association, joint-stock company, trust, unincorporated organization, government, or political subdivision of a government. A minor child, is not a person legally capable of entering into contracts. Adults must open custodial accounts on behalf of minor children.

A broker-dealer offering a security for sale must

be prepared to sell the security at the quoted price A dealer must honor his quotes. When the offer is to sell, the dealer must be ready to sell at his quoted price. If the quote was to buy, then the dealer must honor the quote to buy. The broker-dealer's cost is not a relevant factor—all quotes are based on the current market.

All of the following are defined as securities EXCEPT

a commodities futures contract Under the USA, commodities futures contracts are excluded from the definition of a security. Option contracts regardless of the underlying asset, are considered securities.

Under the USA, all of the following are securities EXCEPT a

a trade confirmation for the purchase of 100 shares of a listed common stock A confirmation of a securities trade is not a security; it is merely a document that verifies trade information. Puts, calls, or other options traded on major exchanges that relate to foreign currency are securities under the act. A certificate issued by a bank representing ownership in a foreign security, better known as an American Depositary Receipt (ADR) is a security.

Records that must be kept by a broker-dealer include all of the following EXCEPT

customer tax returns It is not required that any securities professional maintain copies of customer's tax returns.

Under the provisions of the Uniform Securities Act, a securities agent may NOT

accept an unsolicited order for an exempt security from a retail client of the broker-dealer who resides in a state in which the agent is not registered In order to accept an order from a retail client who lives in a state, the agent must be registered in that state. It makes no difference if the transaction (unsolicited order) or security is exempt, registration as an agent in the state is still required. Agents of broker-dealers may be simultaneously registered with real estate agencies, insurance companies, and with two broker-dealers, provided the broker-dealers are under common ownership or control or the arrangement has been authorized by the Administrator.

All of the following activities comply with the requirements for agency cross transactions EXCEPT

after proper written disclosure, an adviser recommends the transaction to both the seller and buyer An adviser cannot recommend a trade to both buyer and seller in an agency cross transaction, a transaction in which the adviser acts on behalf of both buyer and seller. The adviser can act as broker to both parties upon proper written disclosure and consent, provided the adviser did not recommend the transaction to both sides.

In general, a broker-dealer will disclose any changes to its fee schedule

by notifying clients of the change in advance Most broker-dealers disclose fee changes at least 30 days in advance and there is no requirement whatsoever to notify the Administrator.

The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents states than an agent may share in the profits of an account

if the agent has secured written authorization of the employing broker-dealer and the customer Agents must have written authorization from both the client and the employing broker-dealer in order to share in the profits (and losses) in a client account.

Under the Uniform Securities Act, all of the following are specifically excluded from the definition of a broker-dealer EXCEPT

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

The Administrator of a state's securities department strongly believes that the registration statement for a security contains a substantial amount of misleading information and that investing in the security is likely to cause immediate and egregious harm to its investors. Under the following circumstances, the Administrator may

issue a stop order to deny or revoke the registration statement, but must provide the applicant with the opportunity for a hearing The Administrator may deny or revoke the registration statement but must provide the applicant with an opportunity for a hearing. In addition, the Administrator must give appropriate prior notice to the applicant or registrant, the issuer, and the person on whose behalf the securities are to be or have been offered, and present written findings of fact and conclusions of law.

An agent of a broker-dealer registered in Illinois terminates his employment to accept a new position with broker-dealer who is also registered in Illinois. If his previous employer fails to notify the state Administrator of the termination, the agent must

notify the Administrator in Illinois of his termination When an agent begins or terminates a connection with a broker-dealer, the agent as well as the broker-dealer must promptly notify the Administrator. The agent has no responsibility to insure that the previous employer has notified the Administrator.

All of the following actions must be completed by the time customers enter their first option trade EXCEPT:

receipt of a completed options agreement. While other option account requirements must be met no later than the time customers enter their initial options trade, under current rules, the agreement must be signed and returned by the customer within 15 days of account approval.

Under the Uniform Securities Act, before a corporation can issue a security in a state, that security must be

registered in the state or exempt from registration in the state

All of the following statements are consistent with the Uniform Securities Act EXCEPT

state Administrators do not require consent to service of process to be submitted with notice filings for covered securities The Administrator will require the filing of a consent to service of process with any securities registration. Notice filing is the state registration procedure followed by federal covered securities. Any security may be registered by qualification, and coordination is the simultaneous registration with the SEC and the states.

The Administrator could deny or revoke the registration of a broker-dealer if

the CEO has intentionally failed to file advertising material with the Administrator One of the causes for denial or revocation is a willful violation of the USA and failing to file advertising meets that criteria. You must know your calendar—125 months is longer than 10 years ago.

All of the following must be specified in a security's state registration statement EXCEPT

the total amount of the security that will be offered in other states The total amount of the security to be offered in other states need not be specified although identifying those states is required. The amount of the security to be offered in the state of registration is required, as it generally provides the basis on which the registration fee is calculated. A stop order from another state that affects the offering of the security within the state must be included. The registration statement will always describe the intended use of the proceeds.

One of the portions of the USA Patriot Act that affects the opening of an account for a new customer is

the customer identification program The customer identification program (CIP) is mandated by the Patriot Act and requires that broker-dealers (and other financial institutions) obtain certain specified information about new customers. The "know your customer" rule was written many decades before the Patriot Act. The Patriot Act, through the CIP, is concerned with validating identity, not suitability.

In the securities industry, the term contra-party refers to

the person on the other side of the trade Contra-party is defined as the broker-dealer or customer to whom a person has sold securities or from whom a person has purchased securities - they are on the other side of the trade.

A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that

this is the loan consent agreement No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional.

Conceptual Financial Solutions (CFS), a broker-dealer registered in States S, B, F and G, has a television commercial broadcast on a station whose studio is located in State S. An individual client who resides in State B, makes an offer to buy based on that advertisement. The State B Administrator would have jurisdiction

when CFS accepts the buyer's offer, The USA provides that a person in State B who makes an offer to buy as a result of an advertisement he sees in a paper published in State S (or a radio or television program originating in State S) may render the statute applicable in a specific state if the seller (CFS) then accepts the offer "in this state" (that is, State B). For our purposes a radio or television program is considered to originate in the state where the microphone or television camera is (State S) and therefore is typically only under the jurisdiction of that state's Administrator. However, when as a result of the advertisement, a resident of another state makes an offer, if it is accepted, then, because a transaction is considered to have taken place in that other state (State B in our question), the Administrator now has jurisdiction.

If an agent chooses to appeal an Administrator's order, the agent must file for review of the order with the appropriate court

within 60 days of order entry Under the USA, a registered person has up to 60 days to appeal any disciplinary finding by the state Administrator.

What is a Primary Transaction?

A primary transaction occurs when the issuer of the securities receives the proceeds of the sale. John's father, although a founder of the company, purchased shares directly from the company. This transaction is a primary transaction because the firm received the funds from the sale of the shares. In all the other instances, the firm, the original issuer of the securities, did not receive the proceeds of the transaction. These transactions are called non-issuer transactions.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees?

Account closing fees, It is very common for a broker-dealer to charge a fee for processing the closing of an account. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are 1.commissions; 2.markups and markdowns; and 3.advisory fees for those firms that are also registered as investment advisers.

Felonies and Misdemeanor

An agent's application for registration must disclose any felony or securities related misdemeanor conviction within the past 10 years. Non-securities related misdemeanors are not reported. Any adjudication by the SEC or an SRO within the past 10 years would also be reported.

An investor who resides in New York reads a newspaper ad for advisory services in a newspaper published in New Jersey. More than 80% of the newspaper's circulation is in the state of New York. According to the Uniform Securities Act, an offer has been made in

An offer is not made when a newspaper is circulated but not published in the state, or if it is published in the state but has more than two-thirds of its circulation outside of the state.

Steven is registered as an agent with Maple Leaf Securities, a Canadian broker-dealer located in Toronto with no offices in the United States. One of Steven's clients has recently made a permanent move to Florida. Which of the following statements with respect to Steven is CORRECT?

Canadians have their equivalent of our IRA called an RRSP and, as long as the account is opened in Canada with a properly registered agent, that agent may continue to handle transactions in that account for clients who move out of the country.

Securities listed on NYSE

Common stock listed on the New York Stock Exchange is a federal covered security and, under the NSMIA, exempt from state registration requirements. Any security equal or senior to an exempted security is exempt as well. Warrants are equal to the common stock and the preferred stock, and mortgage bonds are senior to the common stock

Under the USA, which of the following fits the definition of a sale?

Contract to dispose of a security, Sales involve any contract or disposition for value; solicitations and attempts to dispose are offers.

Administrator Denying Federal Covered Securities

I.State securities Administrators may deny, by rule or order, an exemption to an exempt transaction under the USA, if the security involved is not covered by federal exemption. IV.State securities Administrators may not deny, by rule or order, an exemption to a federal covered security. State securities Administrators may deny, by rule or order, an exemption to an exempt transaction under the USA unless the security involved is covered by a federal exemption. State securities Administrators may not, however, deny an exemption provided to a federal covered security. Federal covered securities are granted exemption from state registration by federal law, so the state Administrator has no authority to deny the exemption granted by the federal government.

Under the Uniform Securities Act, an offer is made in a state when

I.it originates in that state An offer is made when it originates in a state. An offer is also considered to be made in a state when it is directed by the offerer to that state and is received at the place to which it is directed. However, offers received via a TV or radio broadcast that originated out of state or offers contained in a newspaper published out of state are specifically excluded.

Under the Uniform Securities Act, when may an investment adviser legally have custody of money or securities belonging to a client?

II.When the Administrator has not prohibited custodial arrangements IV.When the investment adviser has notified the Administrator that it has custody The Administrator may, by rule, prohibit investment advisers from having custody of client funds or securities. If no such prohibition applies, the Administrator must be notified in writing if an adviser has custody. In almost all jurisdictions, a bond or sufficient net worth is required to maintain custody. Discretionary authority does not affect an investment adviser's ability to have custody.

An agent can avoid civil liability under the Uniform Securities Act for soliciting and selling unregistered securities

If an offer of rescission is accepted, the client has been made "whole" and has nothing further to claim.

IA Registration

Investment advisers with less than $100 million in assets under management register with state securities Administrators. Investment advisers with $110 million under management must register with the SEC. An adviser with at least $100 but less than $110 million under management has the choice of registering with the SEC or the state Administrator; an investment adviser must register with either the SEC or the state Administrator.

Are Commodities Securities?

No, they are not, but options on commodities or commodities futures are

A notice filing would be most appropriate for which of the following new issues?

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

​An individual with a place of business in State A manages client assets on behalf of a ​covered investment adviser​. ​This individual wishes to expand his client base by working one day per week out of the firm's office in State B. Which of the following actions must the person take to practice within that particular state?

Pay state registration fees if required by the Administrator Individuals with a place of business in a state, managing client assets while employed by federal covered investment advisers, must register as investment adviser representatives in that state (or any others in which they, the IAR, maintain a place of business). Registration will generally involve paying the registration fees. Because this individual is already registered in State A, it is not necessary to pass another exam to become registered in another state.​ It is the investment adviser who ​may be required to notice file with the Administrator.

Administrators and Final Orders

Prior to the entry of a final order, the Administrator must provide appropriate prior notice to the registrant, provide the opportunity for a hearing, and present findings of fact and conclusions of law. A registrant is not required to provide written acknowledgement before an order is issued

Rescission

Provided the agent sold the security with no intent to defraud, rescission may be offered. Rescission is the return of the customer's money, plus interest, less any income received from the investment. The customer has 30 days to accept or reject the offer. After that,​ the "deal is off the table." That is,​​ the client can't have a change of heart and decide to accept the offer nor may the client sue​.

Which of the following types of compensation is an investment adviser prohibited from accepting?

Quarterly fee based on account performance Fixed annual fees, wrap fees, fees based on a percentage of assets under management, and commissions from trades effected for clients are acceptable forms of compensation. Unless the question specifically refers to the conditions under which performance-based compensation is permitted, assume it is not.

Which of the following statements regarding an agent's registration is CORRECT?

Revocation of the registration of that agent's broker-dealer will result in cancellation of that agent's effective registration. An agent of a broker-dealer is active only when that broker-dealer's registration is in force. Agents must register in each state in which they wish to do business; there is no automatic registration other than for certain officers and partners when the firm first registers.

The Administrator and IA punishments

The Administrator may appoint a receiver over the investment adviser's assets and require the IA to make restitution to the victim. The maximum fine for a violation of the USA is $5,000 and the maximum prison term is 3 years.

An Administrator has specific authority under the USA to

The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.

Limits of the Administrator

The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing, as long as notice is given that a hearing will be granted upon written request. The Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator's assets; or refer charges to the state attorney general or district attorney for prosecution. The Administrator does not have the power to invoke criminal penalties (three years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts.

Which of the following is NOT required to be disclosed in an investment advisory contract under the Uniform Securities Act?

The adviser's past performance over a period of no less than the previous 12 months The Uniform Securities Act does not require an investment advisory contract to disclose the IA's past performance.

According to the USA, under which of the following circumstances may an Administrator cancel an agent's registration?

The agent is judged to be mentally incompetent. Registration may be canceled by the Administrator if the registered individual has been judged mentally incompetent. Cancellation is a nonpunitive action of the Administrator. Agents registration is "Revoked" when they do something fraudulent

Under the Uniform Securities Act, which of the following persons is responsible for proving that a securities issue is exempt from registration?

The burden of proof for claiming eligibility for an exemption falls to the person claiming the exemption, most commonly the issuer. In the event the registration statement was filed by someone other than the issuer, such as selling stockholders or a broker-dealer, that person must prove the claim.

Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction?

The offer of the security may not be advertised. There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised

According to the USA, a person must register as a broker-dealer in a state if he had which of the following?

The term "broker-dealer" excludes a person who has no place of business in the state, who effects transactions exclusively through issuers, other broker-dealers or institutions, or who directs an offer in the state to an existing customer. When clients move from one state to another, the broker-dealer may continue to do business with that client without registering in that state for up to 30 days. Once the client has been a new resident for more than 30 days, the broker-dealer (and any agents handling that account) must register in that state or cease doing business with that customer.

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

There is no limit on institutional order sizes There is no upper or lower limit on the size of an order executed in an institutional account, although institutional investors typically trade very large blocks of securities.

A broker-dealer provides HotScores, a portfolio analysis tool which allows clients to indicate their retirement goal. After disclosing age, current financial condition, and risk tolerance, those participating will receive a list of specific securi¬ties the customer could buy or sell to meet the investment goal. Which of the following is TRUE?

This would be regarded as making a recommendation. An example of what the regulators have determined to be a recommendation would be if a broker-dealer provides a portfolio analysis tool that allows a customer to indicate an invest¬ment goal and input personalized information such as age, financial condition, and risk tolerance. The broker-dealer then sends the customer a list of specific securi¬ties the customer could buy or sell to meet the investment goal the customer has indicated.

Withdrawal of Agents registration time limit

Under the USA, withdrawals of registration are generally effective on the 30th day after filing, unless a disciplinary action is instituted. The Administrator may institute a revocation or suspension proceeding within one year after an agent's withdrawal has become effective.

When the Administrator issues a cease and desist order

When you receive a cease and desist order from the Administrator, it means just what it says—you are to cease doing whatever it is that is the subject of the order and desist from doing it in the future. Cease and desist orders may be issued with or without a prior hearing against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity.

A type of fraud using social media where the fraudsters pretend to be member of a group, sometimes using respected leaders of the group to spread the word about the scheme is known as

affinity fraud This is a classic definition of how affinity fraud operates. Although it is frequently aimed at ethnic groups, there is no such term as ethnic fraud.

The agreement that the Administrator can receive subpoenas on behalf of a registered agent, broker-dealer, or investment adviser involved in any securities sale that violates the Uniform Securities Act is the

consent to service of process

When opening an account at a broker-dealer, if the most recent copy of the firm's fee schedule is not available, NASAA recommends that the client

does not place any assets in the account until it is provided It is proper for fees to be disclosed at the time a customer account is opened. If not presented, clients should ask for the fee schedule and make sure it's up to date. If it is not readily available, clients should not place any assets into the account until it is provided. NASAA believes that clients have the right to know the fees in advance.

An applicant for registration as an investment adviser discloses on its application to the Administrator that it plans to use palm readers to help determine which investments are most suitable for their clients. Under the Uniform Securities Act, the Administrator

may deny applications only on the basis of the limitations of the law A denial of registration must be based on the concept of law. There are stated reasons for denial, such as felony convictions, outstanding injunctions, and insolvency. Although disclosure of methods of analysis is required, the Administrator is not empowered to pass judgment on those methods.

An investment adviser need not register in a state if it has

no place of business in the state and only advises thirty-three insurance companies located in the state An investment adviser need not register in a state if it has no place of business in the state and advises such institutional clients as insurance companies or banks. The number of clients is irrelevant as long as they all are of an institutional nature. Without exception, the USA requires an investment adviser to register in a state if it has a place of business in the state. With no place of business in the state, registration would not have been required regardless of the number of banks who were clients. With five or fewer noninstitutional clients, regardless of their net worth, no registration would be necessary under the de minimis provisions of the USA.

Under the Uniform Securities Act, a sale includes all of the following EXCEPT a

pledge of securities for the purpose of obtaining a margin loan Under the Uniform Securities Act, a sale includes every contract of sale, contract to sell, or disposition of a security for value. A pledge of securities is not a sale because the title to the shares is not transferred; it is merely assigned.

An agent is currently registered with Broker-dealer X and would like to register with Broker-dealer Z. Under the Uniform Securities Act,

registration would be required with each broker-dealer Multiple registrations are permitted if the broker-dealers are affiliated by direct or indirect common control, OR, an exception is made by the Administrator. In either case, each registration requires the filing of a separate Form U-4.

An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several which she feels are equally suitable for the client, but one of the companies is offering a trip for 2 to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent

should pack her bags for the trip; she earned it, The annuity recommended by the agent is offering an incentive. The agent is clearly disclosing that fact to the client and, if the client goes ahead and makes the purchase, it is with full knowledge of the potential conflict of interest. The question states that the agent considers this annuity, along with others, to be suitable.

Broker-dealers are prohibited from

soliciting nonexempt transactions in unregistered, nonexempt securities Under the Uniform Securities Act, the solicitation of unregistered nonexempt securities by a broker-dealer prior to registration is prohibited. Broker-dealers may act as principals or agents in corporate underwritings and as market makers in any number of stocks.

The most common way in which to distinguish whether social media content is static or interactive is

the ability for others to change it

In a margin account, broker-dealers lend money to clients to enable them to leverage their investments. The account document that is evidence of the debtor-creditor relationship is

the credit agreement The credit agreement, sometimes simply referred to as the margin agreement, is the written agreement between the client and the broker-dealer evidencing the loan. The loan consent agreement is the optional portion of the account documentation which allows the broker-dealer to lend out the client's margin securities

An investment adviser may not have custody of a customer's funds and securities under the Uniform Securities Act if

there is a rule in the state barring such custody If there is a rule barring custody, under no circumstances may the adviser have custody of customer funds or securities. It is the adviser who must notify the customer that custody is being maintained, not the reverse.

An individual who has applied for registration as an investment adviser representative has just passed the Series 66 exam. This individual may begin soliciting advisory clients

when informed by the investment adviser that the representative's registration is effective

Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they maintain a place of business?

I.A certified financial planner who prepares financial plans and whose only compensation is commissions II.An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients A certified financial planner who prepares financial plans for commissions must register in the state as an investment adviser representative because the commissions represent compensation for advice. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act.

Which of the following statements relating to notice filing are CORRECT?

I.It is available only to federal covered securities. II.A notice filing is effective for 1 year beginning from the later of filing with the Administrator or the effective date determined by the SEC. IV.Failure to pay required fees could lead to the issuance of a stop order. Notice filing is only available to securities that meet the definition of federal covered security. Just as with other registrations under the act, a registration is effective for a 1-year period. In this case, it is the later of the filing with the state or the SEC effective date that sets the clock. The initial filing requires a consent to service of process that may be incorporated by reference into the renewals. Consent to service of process need not be renewed annually because it remains on file. Any time fees are not paid, the Administrator will take action.

Which of the following transactions would constitute a violation of the Uniform Securities Act?

Representing an issuer of certain exempt securities (the municipal bond) or of a non-exempt security that is sold in an exempt transaction, (choice I) does not require registration. If the sale is of an unregistered nonexempt security, the only way the individual could sell on behalf of the issuer without being an agent is if it was in an exempt transaction, one of which is the limited offering exemption (private placement). That applies when there is a maximum of 10 offers to retail clients within a 12 month period and choice II uses the term, sells. Without knowing the number of offers, we cannot determine if the individual's actions qualify as an exempt transaction. In the case of doubt, assume they don't. Even though the Canadian bond is an exempt security, any agent must be registered in the state(s) in which the security is sold - the exemption applies to the security, not the agent.

The federal legislation that requires broker-dealers to verify the identity of any person opening an account is the:

The U.S.A. PATRIOT Act, (the full title is "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism"), requires firms to obtain identifying information on each new customer, verify the identity of each new customer, maintain records relating to identity verification, and to determine if any new customer appears on a list of known or suspected terrorist groups compiled by the Office of Foreign Asset Control (OFAC). This is accomplished through the customer identification program (CIP).

Place of Business IAR

The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, or any other location held out to the public as a location where the representative will do any of these activities. The frequency of use is not a factor. Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. A hotel room is not included when it is not advertised and only used with existing clients, presumably when the adviser is traveling through their state.

The Uniform Securities Act provides

The Uniform Securities Act provides for criminal penalties of up to three years in prison and/or $5,000 in fines. The act describes civil liability, not specific civil penalties. Civil liability includes interest costs, rescission of trade, payment of attorney's fees, and return of principal invested. The act makes no reference to penalties of three times the amount of money invested. The Uniform Securities Act does provide the state Administrator with the power to issue subpoenas.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, the contract between an investment adviser and its clients shall

Under the NASAA Model Rule, all contracts, both initial and renewal, must be in writing. There is no standard renewal term and the fee can vary based on assets under management. There is no way to project performance.

Consent of the client before completion of a trade made between the firm and a client must be made when

an investment adviser will be acting in the capacity of a principal In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity on the trade confirmation, but not consent, is needed.

Under the USA, an investment adviser's current clients must be delivered a brochure

annually whether or not the adviser has custody or discretion Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients,(except those who are exempt from the brochure delivery requirements {impersonal advise costing less than $500 per year and investment companies registered under the Investment Company Act of 1940}), within 120 days of the end of the adviser's fiscal year. Custody or discretion is irrelevant to this question. Under the USA, all advisory contracts, both initial and renewal, must be in writing.

In order for a surety bond to meet the requirements of the Uniform Securities Act, it must provide that

any customer who can prove a violation is entitled to collect against the bond, Under the USA, every bond shall provide for suit thereon by any person who has a cause of action under the provisions of the Act. The Administrator must accept cash or securities in lieu of the surety bond, but cash is not a requirement - the bond will do just fine.

All of the following are exempt securities under the Uniform Securities Act EXCEPT

securities issued by a bank holding company Securities issued by a bank are exempt. However, this answer refers to a bank holding company that is considered to be an ordinary company subject to state registration if not otherwise exempt. Bank "Holding" company is the difference

A client of an investment adviser is thrilled with her portfolio's results and posts a note on her bridge club's cork board suggesting that some of the other members would probably benefit from the adviser's skills. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers,

this would be permissible because it was done without the knowledge of the adviser There is a limit as to how far an investment adviser or IAR can go to prevent clients from giving testimonials. After all, as in so many businesses, referrals are a key to growth. As long as this note was posted without any knowledge of the IA (or IAR), there is no problem. However, once the IA (or IAR) finds out about it, a request must be made to remove it. The prohibition on testimonials is not limited to social media.

As fiduciaries, investment adviser representatives owe their clients an affirmative duty of utmost good faith and full disclosure of all material facts. This affirmative duty of disclosure is required by the investment adviser representative in all of the following situations EXCEPT

when donating funds to a nonprofit medical research institute that owns securities the IAR has recommended, An investment adviser representative need not disclose donations to nonprofit organizations, even those with whom the IAR has a client relationship. In all of the other cases, even when outside of the scope of the investment adviser's business, an IAR must always make full disclosure to clients.

Under the Uniform Securities Act, the Administrator has the power to deny or revoke exemptions for which of the following types of securities?

II.Securities of nonprofit organizations III.Investment contracts issued by employee benefit plans The Administrator may deny or revoke the exemption granted to a nonprofit organization or investment contracts issued by employee benefit plans. Any transaction exemption, except one relating to a federal covered security, may be revoked as well. However, there are certain security exemptions that the USA does not grant the Administrator the power to deny. Included in that list is any security issued or guaranteed by any bank organized under the laws of any state.

A broker-dealer must provide a risk disclosure document to a customer before opening which of the following accounts?

Margin All customers opening margin accounts must receive a risk disclosure document describing the risks associated with trading on margin (e.g., that a customer could lose more than the initial investment, or that the firm could sell out securities in the account to meet a maintenance call without providing prior notice to the customer). This document must also be provided to customers on an annual basis.

Question ID: 691181 A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?

Options, One question asked on a new options account form that is not required on a normal brokerage account opening is investment experience and knowledge (e.g., number of years, size, frequency, and type of transactions) for options, stocks and bonds, commodities, and other financial instruments.

Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change?

The credit agreement It is the credit agreement that discloses the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change.

Under the Uniform Securities Act, a client who purchased securities from a broker-dealer may request the trade be rescinded if the

security was sold in violation of the USA Under the USA, a client who purchased securities from a broker-dealer may request the trade be rescinded if the security was sold in violation of the USA. In such a case, the purchaser is entitled to compensation for the original purchase price, plus interest (less any income received from the security) and reasonable attorney's fees.

For larger accounts, a broker-dealer is least likely to waive its normal fee for

transferring the account to another broker-dealer

Under the Uniform Securities Act, registration by coordination becomes effective

when the registration with the SEC becomes effective. The registration by coordination becomes effective at the same time it is released (made effective) by the SEC, provided it was filed with the Administrator, in most states at least 10 days before the SEC effective date.

Under the Uniform Securities Act, who automatically becomes registered as an agent when a broker-dealer's registration becomes effective?

Certain partners, officers, or directors of the firm The Uniform Securities Act provides that when a broker-dealer (or investment adviser) files their application for initial registration in a state, officers, directors and partners included in that application are automatically registered as agents (or IARs).

Consent to Service Process State Registration

Every legal or natural person seeking registration or making a notice filing must supply a consent to service of process with their registration applications. For example, a federal covered investment company, while covered under federal law, need not register with the state administrator but must submit notice filings materials that include a consent to service of process.

Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category?

I.Any isolated, nonissuer transaction II.Any sale to a financial institution III.Any transaction by the executor of an estate IV.Any transaction between an issuer and underwriters All four options describe exempt transactions. Exempt transactions are not subject to the advertising and sales literature filing requirements of the Administrator.

Differences between static and interactive content on social media include

II.Only static content needs pre-approval, IV.Only interactive content can be commented on by others Static content requires pre-approval. Interactive content can be reused by others and can be commented on by others. Both static and interactive content can be changed by its originator, but static can only be changed by its originator and interactive by the originator or others.

Under the USA, each of the following is specifically excluded from the definition of a broker-dealer EXCEPT an

The USA specifically excludes agent/issuers and banks, international or domestic, from the definition of a broker-dealer. Investment advisers also may have to register as broker-dealers if their method of operation requires it.

Included in the USA's definition of exempt transaction would be a transaction by any of the following EXCEPT one by a

trustee of an irrevocable trust, Although the term "trustee" is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy.

Which of the following securities are exempt from registration at the state level?

I.Bonds issued by the American Red Cross II.United States Treasury bonds III.American Advisers Unit Investment Trust IV.Common Stock in AAA Commercial Bank, member of the FDIC Securities offered by nonprofit organizations, the United States government, or investment companies registered under the Investment Company Act of 1940, as well as securities issued by commercial banks are exempt from registration with the states under the Uniform Securities Act and the NSMIA.

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

The Howey decision defined a security as (1) an investment of money (2) in a common enterprise (3) where there is an expectation of a profit (4) through the efforts of a third party and not the investor.

Which of the following may an agent determine without written discretionary authority?

The time or price at which to enter an order. An agent must have written discretionary authority to determine which security, what action, and how many shares to purchase or sell; time and price decisions alone do not require discretionary authority.

You inform a customer that you are not allowed to solicit an order for a stock but will accept that customer's buy order if placed. This is

an offer to sell, Under the Uniform Securities Act, the term "offer" is the solicitation of an offer. In this example, the agent is soliciting an offer from the customer to buy a security. A solicitation is considered to have occurred even if the customer fails to act on the solicitation.

An Administrator may issue a stop order if it is in the public interest and the

registrant is subject to an administrative stop order of a neighboring state An Administrator has the authority under the USA to issue a stop order if a registrant is subject to a stop order in another state. The Administrator does not have the authority to approve or disapprove of the quality of products manufactured by a registrant. The Administrator may not use the office for personal gain and therefore may not request personal fees. The Administrator may not deny a registration on the basis of its lack of registration in other states.

After receiving the broker-dealer's quarterly list of recommendations, an existing client calls an agent to inquire about a specific stock on the "buy" list. The agent responds that, while there is great potential for growth, the stock is highly volatile and, based upon the client's financial means and objectives, represents too high a risk. However, the client is excited about the stock and asks the agent to sell all of the account's current holdings and purchase as much as possible of the subject security. The agent should

reiterate to the customer why this stock is not a suitable investment Since the stock was brought to the attention of the client by the firm's market letter, this could not be considered an unsolicited order. Therefore, it is incumbent upon the agent to emphasize the unsuitable nature of this security.

A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that

this is the loan consent agreement No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional.

Section 410 of the Uniform Securities Act deals with civil liabilities and rights of recovery for injured parties. Under that section, a person who has been impacted by a sale made in violation of the Act would not be entitled to receive

treble damages, Unlike some federal laws, there is no provision in the USA for the payment of treble (triple) damages for a civil suit. Under the right of rescission, the client is entitled to receive the original sum invested, plus interest (less any income received). If the security has already been sold, the legal term that applies in this case is "liquidated damages".

One way to reduce the potential for conflicts of interest arising from offering agents the incentive of different compensation for different products is to create product agnostic compensation grids. These grids provide for

An agnostic compensation grid is sometimes referred to as a neutral grid. That is, regardless of the product being sold, the compensation level is the same

An agent would be engaging in a fraudulent or prohibited business practice under the Uniform Securities Act if he made recommendations

II.that were based on material nonpublic information IV.of a blanket nature Material nonpublic (inside) information may never be used by any securities professional. Blanket recommendations are those where individual suitability is ignored and all clients receive the same suggestions, whether suitable or not. Recommendations are never approved by the Administrator and material information available to the public is acceptable for use.

Securites Exempt from State Registration

Isolated nonissuer transactions and transactions by an Administrator are included in the list of exempt transactions; the others are nonexempt transactions. With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities. There is a limited offering exemption, but it is limited to no more than 10 retail (non-institutional) investors in a 12 month period.

As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be

a prohibited guarantee against loss, Offering to buy back a stock at its original cost, even without paying interest, it a prohibited guarantee against loss. Rescission is only when there was something improper about the sale. Technically, this offer is not a case of fraud and, in any event, we must always select the answer that best addresses the question - in this case, a guaranteed price.