Series 66
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: A $30,000 B $35,000 C $40,000 D $0, since this is a Federal Covered Adviser
A $30,000 - 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."
A broker-dealer located in State A makes an offer of securities to a customer whose principal residence is in State B. The customer has temporarily moved to State C and has asked the post office in State B to forward the mail to the customer's address in State C. Which State Administrator(s) has (have) jurisdiction over the offer? A State A only B State A and State B only C State A and State C only D State B and State C only
A State A only - Because the broker-dealer is located in State A, that State Administrator has jurisdiction. Normally, if an offer is received in a State (B in this case), then State B's Administrator would have jurisdiction. But the offer was never received in State B because it was forwarded by the post office on to State C. Thus, an offer was never made in State B and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in State C, that it would have jurisdiction, but this is not the case either. In this situation, the Uniform Securities Act makes an exception. The issue here is that the broker-dealer had no idea that the mail was forwarded to State C and should not be subject to the law of State C on this offer. The intent is to make sure that an innocent broker-dealer is not "entrapped" by a State and made subject to that State's law when an offer of securities is forwarded into that State by a third party without the broker-dealer's knowledge.
Under Uniform State law, civil liability exists in all of the following circumstances EXCEPT when: A customer margin securities are commingled with those of other margin customers B an unregistered agent sells exempt securities to customers in the State C a customer makes a purchase of securities based upon misleading statements made by an agent D an offer of unregistered non-exempt securities is made to a customer and a sale occurs
A customer margin securities are commingled with those of other margin customers - There is no prohibition on commingling one customer's securities with those of other customers - this is just fine. The prohibition is on commingling customer securities with proprietary (firm) positions. Unregistered agents cannot sell any securities (exempt or non-exempt) in a State, so Choice B is a violation. Choice C is clearly a violation - agents cannot make misleading statements to induce a purchase or sale. Offers of unregistered non-exempt securities that result in sales are also violations (for example, an offer of unregistered common stock (a non-exempt security) is not permitted in a State unless the transaction is exempt).
Under the NASAA Statement of Policy on unethical practices, written discretionary authority need not be obtained by an investment adviser if the customer: A gives verbal discretionary authority and a written power of attorney from the customer is obtained within 10 days B selects the security to be traded and the price of execution C is an insurance company D effects 5 or fewer trades within a 12 month period
A gives verbal discretionary authority and a written power of attorney from the customer is obtained within 10 days - The NASAA Statement of Policy on unethical practices states that oral discretionary authority can be accepted by an investment adviser; as long as this is followed up by written discretionary authority from the customer within 10 business days. Choice B is incorrect because verbal discretion can only be taken over price and time of execution; it cannot be taken over the size of a trade or the security to be traded.
Which of the following statements is TRUE regarding an investment adviser who renders advice solely to investment companies? The investment adviser: A must register with the SEC only B must register with the State only C must register with the SEC and State D is exempt from registering as it renders advice to "professional investors"
A must register with the SEC only Advisers that: 1. manage $100,000,000 or more of assets; or 2. render advice to investment companies; are not regulated at the State level and must register with the SEC only. One of main intents of the Investment Advisers Act of 1940 was to register advisers to investment companies and place limits on their compensation.
An adviser that charges a performance fee to clients must disclose that such a fee arrangement: A will give the adviser increased compensation based on realized and unrealized appreciation of the customer's securities B better aligns the customer's interests with those of the investment adviser C is only permitted if the customer signs a liability waiver in the advisory contract D negates the fiduciary duty that the adviser has to the customer
A will give the adviser increased compensation based on realized and unrealized appreciation of the customer's securities - The Investment Advisers Act of 1940 allows performance fees to be charged if a customer is wealthy ($1,000,000 of assets with the firm or a $2,100,000 net worth). However, such performance fees can give the adviser the incentive to take on higher levels of risk in order to increase portfolio return (and hence increase the adviser's compensation). Advisers must disclose all material information regarding their performance fees, including that the fee arrangement may cause the adviser to enter into more speculative investments than would be the case otherwise; and that the adviser will receive increased compensation based on realized and unrealized appreciation of the customer's securities.
To be registered with the SEC as an investment adviser, filing of which of the following is required? A. Form ADV Part 1 only B. Form ADV Part 1 and Part 2 C. Consent to service of process D. Registration information for each representative
A. Form ADV Part 1 only B. Form ADV Part 1 and Part 2 C. Consent to service of process D. Registration information for each representative B. -- To register with the SEC as an investment adviser, Form ADV Part 1 and Part 2 must be filed. A consent to service of process is only filed for State registration, not for SEC registration. The SEC only registers firms as advisers; it does not register the firm's representatives.
Under the Uniform Securities Act, "consent to service of process" means that the: A Administrator is empowered to fine or penalize an agent or broker-dealer B Administrator is authorized to receive suits on behalf of an agent or broker-dealer C registrant is under the jurisdiction of the Administrator for up to 1 year after withdrawal from registration D registrant cannot be compelled to give testimony in an investigation
B Administrator is authorized to receive suits on behalf of an agent or broker-dealer - "consent to service of process" in an initial registration application appoints the State Administrator as attorney for the registrant, authorizing the Administrator to receive any lawsuits on behalf of the registrant. If such occurs, then the Administrator will, in turn, notify the registrant that he or she (or "it" in the case of a corporation or partnership) is being sued.
Under NASAA rules, if a customer wishes to trade a margin account prior to returning the signed margin agreement, such an action is: A prohibited B permitted only if the customer returns the signed margin agreement promptly C permitted only if the customer returns the signed margin agreement within 1 day of the first transaction in the account D permitted only if the customer returns the signed margin agreement within 3 days of the first transaction in the account
B permitted only if the customer returns the signed margin agreement promptly - NASAA wording states that the signed margin agreement must be obtained promptly after the first transaction in account. In contrast, FINRA requires that the margin agreement be signed and returned prior to settlement of the first transaction in the account. Since this is a NASAA question, the answer is their rule!
An investment adviser with no place of business in the State is exempt from registration if it renders advice solely to employee benefit plans with assets of at least: A$100,000 B $500,000 C $1,000,000 D $5,000,000
C $1,000,000 - An investment adviser with no place of business in the State that renders advice solely to employee benefit plans with at least $1,000,000 of assets is exempt from registration under the Act.
Which of the following is the MOST appropriate investment for an estate account? A Investment grade long term bonds B Long Treasury Bonds C Treasury Bills D Insured Municipal Bonds
C Treasury Bills - The objective of an estate account is to preserve principal and to effect a timely distribution of estate assets. The best investment of the choices offered is Treasury Bills - they are liquid and have little market risk. Long term bonds (the 3 other choices), even if they are liquid and safe, are subject to substantial market risk.
An Investment Adviser prepares a 4-color glossy brochure to be given to potential customers instead of the ADV Form Part 2A. The brochure includes all of the information found in the ADV Part 2A, but is much livelier in its presentation. An Investment Adviser Representative uses the brochure to solicit a new client, who signs a contract with the firm that includes a clause giving the customer 2 business days to back out of the contract without incurring any penalty. Which statement is TRUE? A This procedure complies with the requirements of NASAA regarding the use and delivery of investment adviser brochures B This procedure violates NASAA rules because only the Form ADV Part 2 can be delivered to customers C This procedure violates NASAA rules because the customer must be given 5 business days to back out of the contract without penalty D This procedure violates NASAA rules because a written receipt must be obtained from the customer indicating that the brochure was delivered
C This procedure violates NASAA rules because the customer must be given 5 business days to back out of the contract without penalty - NASAA requires that new customers be delivered the investment adviser brochure. It is OK to prepare a customer brochure that includes all of the ADV Part 2 information. The rule on delivery of the brochure is that either: the brochure must be delivered 48 hours prior to entering into either a verbal or written contract with the customer to provide advisory services; or if the brochure is delivered at the time that the contract is signed, the customer has 5 business days to terminate the agreement without penalty. In this case, the customer signs a contract that gives him or her 2 business days to rescind the deal. The rule requires that the customer be given 5 business days to rescind the deal when the customer is receiving the brochure at the time that the contract is signed.
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
C cannot issue stop orders retroactively but can vacate them retroactively - 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 would be vacated, and this is done retroactively to the date of the original stop order
An investment adviser is permitted to use a solicitor to sell that adviser's services to customers: A under no circumstances B only if no fees are paid to the solicitor by the adviser C if there is an agreement in writing between the solicitor and the adviser D if the solicitor has registered as an investment adviser with the SEC or that State
C if there is an agreement in writing between the solicitor and the adviser - If an investment adviser wishes to use a solicitor to sell its advisory services, it may do so as long as the adviser is registered with the SEC (Federal Covered adviser) or that State; there is a written agreement between the solicitor and the investment adviser; the solicitor agrees to provide to customers the investment adviser's "Brochure" in compliance with the "Brochure Rule"; the solicitor agrees to provide its own "Brochure" that describes the nature of the relationship between the solicitor and the adviser, and the fact that the adviser is paying the solicitor; and that this may result in a higher cost to the customer. Finally, the adviser must obtain written acknowledgment from the customer, that both brochures were received.
Which of the following is disclosed in Form ADV Part 1? A Investment policies of the adviser B Type of investments made by the adviser C Investment practices of the adviser D States in which the adviser is registered
D States in which the adviser is registered The ADV Part 1 is the basic registration information filed with the SEC - such as name of firm, address, phone number, officers, shareholders, States where the adviser is registered, etc. The ADV Part 2 is broken down into 2 parts. Part 2A is the "Brochure" that must be delivered to customers. It describes the investment adviser's policies, fees, education, types of investments, types of clients, method of analysis used, conflicts of interest, etc. Part 2B is the "Brochure Supplement" which details the educational and work background of the key personnel who make investment decisions or manage accounts.
If a customer of a broker-dealer fails to pay for a securities purchase by the 4th business day from trade date, the customer's account must be: A restricted for 30 days B frozen for 30 days C restricted for 90 days D frozen for 90 days
D frozen for 90 days - The Federal Reserve sets the rules for payment of customer securities purchases in both cash and margin accounts. Payment is required "promptly," but no later than the 4th business day past trade date. If payment is not received, the unpaid position must be sold and the account must be frozen for 90 days. Many firms call this "putting a CUF" on the account - with CUF standing for Cash Up Front. A customer can make purchases in a frozen account, but must deposit the cash amount in advance. If the customer behaves for 90 days, the freeze comes off the account, and the customer is again expected to pay for purchases "promptly," but no later than 4 business days from trade date.
If an investment adviser wishes to use a paid solicitor, under the Investment Advisers Act of 1940, all of the following statements are true EXCEPT the: A solicitor must provide the customer with a copy of the investment adviser's brochure B solicitor cannot be subject to statutory disqualification under the Securities Acts C solicitor must disclose to the customer any additional costs of providing advisory services, due to the nature of the relationship between the solicitor and the investment adviser D solicitor must register with the SEC as an investment adviser
D solicitor must register with the SEC as an investment adviser
If the Administrator believes that there has been a violation of the Uniform Securities Act, the Administrator is empowered, by order or decree, after providing the opportunity for a hearing, to: I revoke the registration of an investment adviser in that State II bar an investment adviser from operating within that State III require the posting of a larger surety bond in order for the investment adviser to remain in business in that State
I & II - If the Administrator believes that there has been a violation of the Uniform Securities Act, the Administrator may, by order, suspend or revoke the registration of the investment adviser in that State; and can bar the investment adviser from operating in that State. When taking such an action, an opportunity for a hearing must be provided to the investment adviser. The amount of the surety bond coverage required for registration is fixed under State law, though there can be a higher amount required if the adviser takes custody of client funds or securities, or a lower amount if minimum net capital standards are met. This amount is not changed based upon someone violating the Act.
Delivery of the brochure under the "Brochure Rule" is NOT required for: I impersonal advisory services requiring payment of less than $500 annually II prepaid advisory fees requiring payment in advance of $1,000 or more III advisory contracts with investment companies IV advisory contracts with pension plans
I & III Delivery of the "Brochure" to customers is not required for the sale of impersonal advisory services calling for no more than a $500 annual fee; or for the sale of advisory services to investment companies.
An adviser opens a new account for a client. The client gives the adviser $20,000 in cash to open the account. The adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days
I & III - Any deposits or withdrawals made in "cash" (not checks) that amount to over $10,000 over a 2-week window must be reported to FinCEN (Financial Crimes Enforcement Network - part of the Department of Treasury) within 15 days. This report is required even if there is no suspicion of illegal activity. Note that if there was suspicion of illegal activity, an SAR ("Suspicious Activities Report") would have to be filed as well. The customer cannot be told that the report is being filed.
Under the Uniform Securities Act, the definition of "guaranteed" means that the security is guaranteed by another party as to payment of: I dividends II interest III principal
I, II, and III - The term "guaranteed" is defined as guaranteed as to payment of principal, interest, or dividends by a party other than the issuer.
Under the provisions of the Uniform Securities Act, which statements are TRUE? I An investment adviser with a place of business in the State, need not register in that State if it is only dealing with insurance companies II A broker-dealer with no place of business in the State, need not register in that State if it is only dealing with insurance companies III If a broker-dealer is registered with the Financial Industry Regulatory Authority, then it is also registered in that State IV If a broker-dealer has its registration revoked, then the registration of its agents will also be revoked
II & IV