Series 66 Questions to Review
The criminal penalty for violations of the Uniform Securities Act is
$5000 fine, 3 years imprisonment, or both
A federal covered investment adviser is one who
-has $110 M or more in assets under management -manages an investment company registered under the Investment Company Act of 1940
A foreign private adviser is defined in the Dodd Frank Act as any investment adviser that
-has no place of business in the US -has, in total, fewer than 15 clients and investors in the US in private funds advised by the adviser -has aggregate AUM attributable to clients in the US and investors in the US in private funds advised by the adviser of less than $25M
Under IA-1092, an investment adviser
-makes advice his REGULAR activity and -is compensated DIRECTLY or INDIRECTLY for advice
If having discretion over $100M or more in 13(f) securities, who would be exempt form filing a Form 13F?
A natural person who exercises investment discretion over her own account
the required disclosure for wrap fee programs must contain at least the information in
Appendix 1 of Form ADV, Part 2A--it is important to remember that wrap fee clients receive the Appendix 1, not the Form ADV Part 2A that non-wrap advisory clients are given.
NOT included in the fee disclosure documents are
Commissions Markups and markdowns Advisory fees
Typically, the amount of the contingent deferred sales charge
DECREASES the longer the investor owns the shares
Rpresenting issuers in exempt transactions
EXCLUDES the person from the definition of agent
John owns a nonqualified, tax deferred annuity. When he retires, what will be the tax consequences of his annuity payments?
His annuity payments are partly taxable and partly tax-free return of capital
the sale price of a life settlement is always
MORE than the CASH VALUE and LESS than the FACE VALUE
Mark is a client of Gibraltar Investment Advisers. Gibraltar sells its investment advisory business to Alpha advisers. What best describes Mark's relationship to Alpha?
Mark may become a client of Alpha if he chooses to do so
Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the US government is
NOT required to be a registered investment adviser in the state--the USA excludes futures contracts from the definition of security. A person whose securities advice is limited to those issued or guaranteed by the US government is included in the definition of a federal covered adviser. Federal covered advisers are included in the list of persons who are not deemed to be investment advisers under the USA
Brochure
Part 2A of the ADV
Form PF must be filed by
SEC registered advisers with at least $150 M in private fund assets under management--Form PF is the form used by those private fund managers who are registered with the SEC and whose private fund AUM reaches or exceeds the $150 M threshold.
A man divorces his spouse after 10 years of marriage and remarries. If he is the sole provider, what part of the worker's Social Security benefits is the new spouse entitled to?
She is entitled to the SAME Social Security benefits as the ex-spouse--that means it is possible for 2 people to receive full benefits at the same time
Fees that are excessive compared to fees charged by other advisers for comparable services are
UNETHICAL--the Administrator may survey the market to establish fees charged against services provided in determining whether an adviser's fees are excessive. Fees that are determined to be excessive are unethical, even if the client agrees to them in the contract
What type of bond is MOST likely to exhibit the greatest volatility due to interest rate changes? A bond with
a LOW COUPON and a LONG MATURITY
When a brokerage firm sells stock from its own inventory, it is acting in the capacity of
a PRINCIPAL, and charges a MARKUP
a short stock position is hedged with
a long call
A long stock position is hedged with
a long put
The type of trust created by a will that becomes operative at death is
a testamentary trust--as in "last will and testament"
Life insurance is generally purchased to replace the lost income of the insured. A client wishing to purchase a policy with a level death benefit and level premium for as long as the premiums are paid would choose
a whole life policy--whole life insurance is permanent insurance with a level premium and a level death benefit. The renewable term policy may have a level death benefit, but every 5 years, the premium will increase.
Mean, median, and mode are all measures of
central tendency
Total return
combines income and gains
When the price reaches the support price,
demand surges and price and volume begin to increase again
A federal covered investment adviser has decided that it is necessary to increase its fee schedule and charge commissions on securities trades. However, they are going to leave the fee structure in place for existing customers
disclosed promptly only to those customers who will be affected by the change through an amended brochure--because this will only affect new clients, the brochure (or Part 2A of the ADV) must be amended to reflect this new method of operation and made available promptly to these clients and the SEC; it CANNOT be part of the end of the year amendments. The state has no cause to receive a copy of a federal adviser's brochure
Universal life has
flexible premiums and, depending on the option chosen, the death benefit can increase
An investor buys a 5% AA-rated corporate bond at par. After 1 year, if his total return on the position is 4%, the most likely explanation for this is
interest rates have increased causing the bond price to decrease. Because the bond is purchased at par, selling the bond at a loss is the only way the investor's total return could be less than the coupon rate
A popular vehicle for saving for retirement is the variable annuity. An agent explaining the benefits of this product would probably be in VIOLATION of NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker Dealers and Agents by CLAIMING THAT VARIABLE ANNUITIES OFFER
lower overall expenses than a mutual fund with similar investment objectives--in general, variable annuity expenses are HIGHER than those of a mutual fund with similar objectives. That doesn't mean that the fund is good and the VA is bad, it is that there are guarantees and other features offered by the VA that a fund does not have and they have to be paid for
Currently, registration with the SEC is mandatory for any investment adviser
managing a registered investment company (open or closed end)
Under the USA, all advisory contracts
must be IN WRITING and contain descriptions of how fees are determined. Contracts are valid upon signing, need NOT list all states in which an adviser is registered, and CANNOT be assigned without the client's approval. However, if the brochure is not delivered at least 48 hours before the signing of the contract, the client has the right to withdraw without penalty for 5 business days. Administrator approval is not required
The NASAA Model Rule dealing with brochures states that investment advisers do NOT have to deliver a summary of material changes or a brochure to clients IF
no material changes have taken place since the last summary and brocure delivery. If a brochure or summary of material changes is required, the delivery date is 120 days after the end of the adviser's fiscal year.
A federal covered IA files a petition for bankruptcy. The firm must
notify the SEC immediately
A beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed
only against earnings since the contributions are made with AFTER TAX DOLLARS
During the analysis of XYZ stock, a technical analyst concludes that XYZ's support level has been broken. Being a technician, the MOST appropriate decision should be to
rate the stock as a SELL--if the support level is BROKEN, this provides a sell signal. Once the stock has lost its support, expectations are that it will continue to fall.
PPR is an investment adviser registered in several states. PPR is affiliated with PRI, a broker dealer registered with the SEC and the same states as PPR. Through that affiliation, clients of PPR can enter into a wrap program with an annual fee bt 1% and 1.75%, depending on he account's assets. When opening a new wrap account, PPR must provide the client with a written disclosure statement containing at least the information
required by Appendix 1 of Form ADV, Part 2A-- Appendix
A life settlement involves
selling an existing life insurance policy for an amount in excess of the cash value, but less than the death benefit
A feature common to all passive real estate investing is
someone other than the investor is doing the management
Total return does NOT
take inflation into account--the inflation-adjusted return does
A terminally ill client wishing to access a portion of the cash value in his whole life insurance policy while still providing a death benefit for his beneficiaries could do so by
taking out a policy loan
The USA excludes certain financial instruments from the term "security" such as
term and whole insurance policies, commodity futures contracts, and collectibles
An investment adviser registered in State A decides it wishes to maintain custody of customer assets. As long as the securities laws of State A do not prohibit custody, the investment adviser would have to promptly notify
the Administrator on Form ADV that it is going to maintain custody
In a life settlement, the seller receives more than the premiums paid into the policy but less than
the face amount--the sale price of a life settlement is always more than the cash value and less than the face value
Annuities are issued by life insurance companies, BUT
they are NOT life insurance policies
Those individuals who represent broker dealers registered in the state must register as agents in that state if
they wish to sell securities to that state's residence. It makes NO DIFFERENCE what kind of security it is or to whom the security is being sold.
Commissions on securities transactions may only be split
with registered agents of the SAME or AFFILIATED broker dealers
An Administrator may summarily suspend a registration pending final determination of proceedings under the USA. However, the Administrator may NOT enter a final order without
-appropriate prior notice to the registrant -an opportunity for a hearing -findings of fact and conclusions of law A registrant is not required to provide written acknowledgement before an order is issued
Agents A and B work for the same firm and wish to share commissions. Agent A is licensed in states X, Y, and Z. Agent B is licensed in states X, Y, and C. What is TRUE in regard to their sharing commissions?
ONLY the commissions from states X and Y could be shared--in order to share commissions, agents must be registered as an agent for the same broker dealer or for an affiliated broker dealer. Additionally, in order to receive a commission, an agent must be registered in the state where the transaction is made
A person providing which of the following services to an ERISA plan would be performing in a fiduciary capacity? -Determining the age at which benefits are to be provided -Amending the plan -Changing the level of employer contributions -Selecting and monitoring third-party service providers
Selecting and monitoring third party service providers--ERISA provides that a person is a fiduciary with respect to an employee benefit plan to the extent that such a person does any of the following: exercises any discretionary authority over the management of a plan or disposition of plan assets; renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of such plan; or has such discretionary authority or responsibility in the administration of such plan including appointing other plan fiduciaries or selecting and monitoring third party service providers
Under the Investment Company Act of 1940, what is TRUE about the relationship between an investment company and an outside adviser?
The contract may NOT be unilaterally assigned to another adviser. All contracts between an investment company and an outside adviser must be in writing and must contain certain provisions; these include that the contract may not be unilaterally assigned to another adviser.
Under the provisions of the USA, which of the following transactions may be made legally with unregistered, nonexempt securities? -a public offering -a private placement -a rights offering -a sale in a discretionary account
a private placement--private placement transactions may legally include the sale of unregistered, nonexempt securities bc they are defined as exempt transactions under the USA. A transaction qualifies as private placement when the offer is directed to 10 or fewer noninstitutional persons during a 12 month period and no commission is paid to noninstitutional buyers
There is no health questionnaire when purchasing
an annuity--even though a variable annuity may have a death benefit provision, it is NOT considered a life insurance policy.
Under the Investment Company Act of 1940, affiliated persons are
any investment company directors, officers, employees, or owners of 5% or more of the voting shares of stock, and/or any persons controlling or controlled by such persons
Persons who represent nonexempt issuers of new securities
are AGENTS under the USA UNLESS it is stated that the transaction is exempt.
Under the Investment Advisers Act of 1940, performance fees are allowed ONLY FOR
clients with a minimum of $1M invested or a minimum net worth in excess of $2.1M
Must distinguish between fiduciary functions and settlor functions. The most common settlor functions are
design decisions involving: establishment of the plan, defining who are the covered employees and benefits to be provided, and amending or terminating the plan
Limiting advice on federal covered securities listed on the NYSE
does NOT make one a federal covered adviser. Determining if one is a federal covered investment adviser is NOT based on affiliations. It is generally a function of AUM or managing an investment company
A payroll deduction plan is a retirement plan not subject to
eligibility, vesting, or funding standards as required by ERISA plans. It is a NONQUALIFIED retirement plan
Excluded from the definition of an associated person
employees with no investment advisory functions, such as clerks and administrative personnel
You have a 70 year old client with a $500,000 whole life insurance policy purchased 25 years ago. The policy currently has a cash value of approximately $150,000. With all of the children on their own and successful, the client no longer feels to need for the insurance, and asks you if there is any option that might result in netting more than surrendering the policy for its cash value. You might recommend
engaging in a life settlement--a life settlement, involving selling an existing life insurance policy for an amount in excess of the cash value, but less than the death benefit.
Technical analysts attempt to
identify trends so they can predict market changes. They do this by reviewing PAST performance as depicted in charts and graphs.
NOT CONSIDERED A PRECIOUS METAL
lead
It is only when a broker-dealer exercises discretion over customer accounts or maintains custody of customer funds and securities that
the Administrator has the authority to require a surety bond
When acting in the capacity of agent (facilitating between a buyer and a seller),
the broker dealer receives a COMMISSION
A support level is the price range at which a technical analyst would expect
the demand for a stock to increase substantially--the lower limit to these fluctuations is called a SUPPORT LEVEL, the price range where a stock appears cheap and attracts buyers
the main benefit that variable life insurance has over whole life insurance is
the potential for a higher cash value and death benefit
Overbought generally regers to
the resistance level--interest in buying the stock has begun to dry up and the price of the stock plateaus
All states require correcting amendments
to be filed
The Administrator may require what from a federal covered adviser
-copy of the IA's form ADV -a filing fee
Under the Uniform Securities Act, if no denial or proceedings are pending, when does an investment adviser registration become effective?
When the Administrator so orders, but NOT TO EXCEED 30 DAYS
The fee charged by some mutual companies if shares are redeemed within a specified time after being purchased is known as
a contingent deferred sales charge--some mutual funds impose contingent deferred sales charges on investors who redeem their shares within a specified period after purchasing them. These fees are designed to encourage investors to leave their money in the fund for longer periods
An investment adviser sends a notice offering a research report she has recently prepared to a group of 25 new members of the Local Lions Club. Under the NASAA Model Rule on recordkeeping for investment advisers, the firm must keep a copy of the notice filing along with
a memorandum describing the list and its source--if an investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall NOT be required to keep a record of the names and addresses to whom it was sent, except if the notice, circular, or advertisement is distributed to persons named on any list, then the investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and its source
Some states require that BDs applying for registration publish
an announcement in one or more newspapers published in the state. These are found in the legal notices section of the paper
Knowing the average maturities would be most important when doing a cash flow analysis on
mortgage backed securities--mortgage backed pass through securities pass through interest and principal payments to their investors. The rate at which the cash flows are generated depends, among other things, on the rate at which the mortgages mature
A benefit of active investment in real estate that is NOT available to purchasers of REITs is
the Section 1031 exchange privilege--Under Internal Revenue Code Section 1031, no gain or loss is recognized on the exchange of real estate held for investment if such property is exchanged solely for real estate of like-kind which is to be held for investment. This does NOT apply to REITs where an exchange is considered a realized gain or loss for tax purposes. Section 1035 is similar in concept, but deals with insurance products, usually annuities.
Suzie has a very successful interior design shop she has run as a sole proprietorship. She has just celebrated her 60th birthday and has been giving thought to an eventual sale of the business. She wants your opinion on whether she should incorporate or change to a partnership. You might respond that
the corporate form of business structure would be the easiest for ULTIMATE TRANSFER OF OWNERSHIP--because Suzie would probably own 100% of the stock, all she would have to do is sell that stock to a new purchaser and the corporation could just continue as before
All of the following are advantages of a 401k plan EXCEPT: -tax deferral on the plan earnings is advantageous to employees -employees and the business may reduce current taxes -the employer may make unlimited contributions, which generate unlimited tax deductions for the business -the owner of the business may participate in the plan
the employer may make unlimited contributions, which generate unlimited tax deductions for the business--contributions are deductible by the employer but are NOT unlimited bc contributions to a 401k are subject to a number of limits
Your client with $100,000 to invest is looking for maximum current income. Which of the following would offer the highest current return? -$200,000 of utility common stock paying a current dividend of 3.5% -$100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity -$100,000 of zero coupon bonds with a yield to maturity of 6% -$100,000 of AA-rated corporate bonds trading at par with a 6% coupon rate
$100,000 market value of corporate bonds selling at a premium and yielding 6%--a bond sells at a premium over par because the coupon rate on that bond is higher than the current market interest rate. Therefore, with a higher coupon rate, the current income on the same amount of principal invested will always be higher for a bond selling at a premium Maximizing current income excludes zero coupon bonds bc there is no current income.
Your client purchased an index annuity from you last year with an investment of $100,000. The particular index tied to this product had an annual return of -4%. If the participation rate is 90% with a cap of 5% and no annual minimum guarantee, the value of the account would be
$100,000--An annuity does not participate in losses of the index, only gain. With no gain and no guaranteed annual minimum, the account value remains at $100,000
What are advantages of irrevocable insurance trusts?
-Provide estate liquidity -Insurance proceeds are removed from the estate of the insured for tax purposes As with all life insurance, the proceeds are available almost immediately upon death providing estate liquidity. When done properly, the proceeds of the policy are NOT included in the deceased's estate, thereby saving estate taxes. The trust is irrevocable--no changes can be made, and this is one of the few disadvantages
Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include
-constant dollar plan -constant ratio plan In both a constant dollar plan and a constant ratio plan, the goal is to maintain a balance between equity and debt securities in the portfolio. This is done by selling equities as their price rises and buying equities when prices fall to get back to the constant dollar or ratio
A successful dollar cost averaging strategy requires
-volatile market conditions -a fixed dollar amount invested monthly This strategy is most effective when prices in the market are VOLATILE
GEMCO Securities, a registered broker-dealer, has a policy of hiring unpaid interns from top business schools. GEMCO is currently the lead underwriter on a new issue and has assigned three of its interns to specific tasks. One is doing entering the data as indications of interest are received, the second is calling clients to offer to deliver their prospectus via email instead of mail, and the third is calling clients to describe the new issue and accept indications of interest. Which of the interns would need to register as agents?
ONLY the THIRD INTERN would have to register--when an individual representing a broker dealer contacts clients to obtain indications of interest for a new securities offering, that person is performing a function requiring registration as an agent
When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office,
ONLY the investment adviser representative must notify the Administrator promptly. If you are working for a registered investmeent adviser within a specific state, that state securities Administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the state securities Administrator of your employment. A federal regsitered investment adviser is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered investment adviser, it becomes your duty to notify the state securities Administrator that you are working there, as well as when you terminate.
Ian is a technical analyst who believes the market, as represented by the S&P 500 index, is overbought. Over the next several months, there is a 12% correction. Which of the following strategies would have been successful for Ian? -Sell futures contracts on the S&P 500 Index -Buy futures contracts on the S&P 500 Index -Buy call options on the S&P 500 Index -Sell Put options on the S&P 500 Index
Sell futures contracts on the S&P 500 Index--Ian was obviously bearish on the market. When something is overbought, it means it is overvalued due to excessive buying at unreasonably high prices. In this case, it is likely the market is primed for a correction (a reversal). Selling a futures contract is taking a short position. Just as with selling stock short, an investor profits when the price of the underlying asset declines
An agent may determine which securities to purchase or sell for a client when
WRITTEN discretion has been received by the broker-dealer before executing the first discretionary transaction--no broker dealer or any of its employees shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining WRITTEN authorization from the customer It is an INVESTMENT ADVISER who may act with oral consent for a period of 10 days form the initial discretionary trade
Maria, age 49, was discussing with some coworkers the recent family vacation she took. She commented that she was able to afford it by taking a penalty-free withdrawal from her retirement plan. Based on that statement, Maria must be covered under
a 457 plan--the 457 plan is a NONQUALIFIED but tax advantaged retirement plan. It is unique in that it is the only retirement plan permitting withdrawals, for any reason, before reaching age 59 1/2 WITHOUT PENALTY
Generally, a support level will develop after
a stock has experienced a steady decline from a higher price level. Technicians believe that at some price during the decline, those investors who have been waiting for a reversal to get into the stock will buy now.
An investment adviser need not inform clients of departures of employees, senior or otherwise, from firms that
are INCORPORATED
Investment advisers who manage less than $100M of investment assets
are PROHIBITED from registering with the SEC and are required to register with a state Administrator unless exempt under the laws of that state
Unless qualifying for an exemption, employees of investment advisers must register
as an IAR in any state in which they HAVE A PLACE OF BUSINESS
The breaking of a resistance level
as the price of the asset gathers momentum to the upside,
When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that
by surrendering the policy, its cash value may be obtained--surrender of the policy requires the insurance company pay out its cash value. The death benefit is calculated annually with the cash value being figured monthly. Scheduled premium means fixed premium. It is the cash value and the death benefit that will be affected by the performance of the separate account
One of your new clients has only been working for 3 years but is already interested in retirement planning. In order to be fully eligible for Social Security, the client must
have a minimum of 40 covered quarters of employment--current social security requirements are a minimum of 40 covered quarters of employment (10 years). A covered quarter is a calendar quarter during which the worker earned a minimum amount.
Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions
in variable annuities is ALLOWABLE ONLY IF the agents involved are both licensed to sell life insurance and maintain their securities licenses at the same or affiliated broker dealers
What is an example of positive margin?
the rate of return on the investment exceeds the interest cost on the borrowed money--positive margin means that you were successful in your use of leverage afforded by using margin (borrowed money). That means the investor's total return exceeds the cost of the borrowed money
The expected return on an equity investment is
the risk free rate of return added to the equity risk premium
According to the NASAA investor advisory regarding fees charged by the broker dealer firms for services and maintenance of investment accounts,
the schedule should be made available on the broker dealer's public WEBSITE without requiring any login or password--paper copies should always be available and cyber security is not a threat bc there is no confidential information included
An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose
the scheduled premium policy bc the contract is issued with a minimum guaranteed face amount--a scheduled premium variable life contract is issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract
