Series 66 Wrong Q&A 2

84 of 110 - Which of the following statements is TRUE regarding SEC Release IA-1092? A. The Release noted that an individual who provides advice about securities in general may meet the definition of investment adviser B. Investment advisers are considered to be rendering advice only in cases where they recommend a specific individual security or mutual fund C. IA-1092 has deemed the Investment Advisers Act of 1940 definitions to be moot, null, and void D. It effectively overrode the definition of adviser found under the now antiquated ABC test

A

A bond pays a 7% coupon. Later, a 9% coupon bond is issued. This bond is issued at: A. A flat price B. A premium to the 7% bond C. A discount to the 7% bond D. Par with the 7% bond

A 9% bond would be more attractive to investors than one that pays 7%. Therefore, the price of the 7% bond would decline. This would result in the 9% bond being issued at a premium to the 7% bond. (62906) B.

Which of the following is a characteristic of a Money Purchase Plan? A. Employer contributions are discretionary B. Employers must make mandatory contributions C .Employees and the employer must make mandatory contributions D. Employees must make mandatory contributions

A Money Purchase Plan is a type of defined contribution plan to which an employer makes mandatory contributions, regardless of the company's profitability. For tax purposes, the employer is able to deduct the contributions. (88881) B.

A 6% coupon bond is selling at a basis of 6.20. If interest rates in the market decline below 6%, the bond's basis will: A. Increase or decrease, depending on its maturity B. Increase C. Decline D. Remain the same

A bond's basis is synonymous with its yield-to-maturity. Interest rates and yield-to-maturity on a bond will move in the same direction. If market interest rates decline, it means that yields (including the yield-to-maturity) will also decline. (89034) C.

A client has a portfolio invested in mutual funds. Since the client does not currently need the income, he has chosen to reinvest all of his dividends and capital gains distributions. Which of the following statements are TRUE? I. Income taxes on these distributions will be deferred until the year in which the investor begins making withdrawals from the funds. II. The distributions must be included in the client's taxable income for that year. III. These distributions will be reinvested in the fund at NAV. IV. The client's portfolio may appreciate faster. A. II and III only B. II, III, and IV only C. I, III, and IV only D. I and III only

A client who reinvests dividends and capital gains distributions from a mutual fund must include them in his taxable income for that year, just as if he had received these payments in cash. Reinvesting dividends and capital gains distributions into a fund does not provide any tax advantages for investors. However, the dividends and capital gains distributions will be reinvested at net asset value (NAV) without sales charges (III) and the portfolio may appreciate faster if these distributions are reinvested (IV). (89447) B.

After analyzing the financial sector, an analyst writes a report indicating that he expects a downturn in that sector. This could BEST be described as: A. Market risk B. Business risk C. Interest-rate risk D. Liquidity risk

A downturn in the prices for an entire sector of the economy is a form of market risk. Business risk is the risk that one company, not an entire sector, will perform poorly. (67725) A.

An advisory client owns a small business and inquires about whether he should set up his business as a partnership or as a C Corporation. Which of the following would be the BEST reason to set the business up as a partnership? A. The owners have limited liability B. Setting up a partnership is easier than establishing a corporation C. There is free and unrestricted transfer of shares D. It is easy to raise capital and attract new investors in a partnership

A partnership is easier to establish and operate than a C Corporation, which requires more reporting and administration. Partnerships generally do not allow for the free transfer of shares and if a partner manages the business, he may be liable for the debts of the partnership. (89688) B.

With a simple trust, the trust: A. Is only allowed to invest in a single asset class B. Allows only for a single beneficiary C. Must distribute its annual investment earnings D. Has a predetermined asset allocation

A simple trust is required to distribute all its income to beneficiaries in the year received. The body (corpus or principal) of the trust may not be distributed by the trustee. The term simple has nothing to do with the number of beneficiaries in the trust or the investment profile of the assets contained therein. (62659) C.

Which of the following statements is NOT TRUE regarding a SEP-IRA? A. Employees are permitted to make contributions to the account. B. Employees are immediately vested for any contributions that are made to the account. C. An employer is not required to make annual contributions. D. An employer makes contributions to an employee's SEP-IRA.

A simplified employee pension plan (SEP-IRA) does not allow employees to make contributions. Instead, SEPs are funded by employer contributions only and these contributions are elective (discretionary). (72038) A.

The Smiths have little investment experience, but are interested in saving for retirement and their children's college education. They consult an investment adviser representative about purchasing mutual funds. The IAR recommends that they purchase variable life insurance instead, even though the Smiths already have large life insurance policies. The IAR discloses that he will earn a higher commission by selling a variable insurance policy instead of mutual funds. Given these circumstances, has the IAR violated his fiduciary responsibilities? A. Yes, a variable life insurance policy is not a suitable recommendation for the Smiths B. No, the IAR fully disclosed his conflict of interest to the Smiths C. No, because variable life insurance has tax-deferred income benefits that mutual funds do not have and the IAR has disclosed that the higher commission applies D. Yes, the IAR has violated his responsibility for best execution

A variable life insurance policy is not a suitable recommendation for the Smiths, given their expressed interest in an investment other than insurance. The primary purpose of life insurance is protection against premature death, not investment. Furthermore, the fact pattern in this question indicates that the Smiths have already satisfied their life insurance needs. There is nothing to indicate that their coverage is inadequate. The IAR's disclosure of the conflict of interest does not make up for the fact that the investment recommendation is not suitable. (62970) A.

Under SEC Release IA-1092, which TWO of the following statements are TRUE? I. An individual who provides tailored advice about securities but does not execute transactions is an investment adviser. II. An individual who writes an investment column for the Floor Street Journal is an investment adviser. III. An individual who provides advice about which fund manager a client should choose is an investment adviser. IV. An individual who provides advice about which fund manager a client should choose is an investment adviser only if he is compensated by the manager he is recommending. A. II and III B. I and III C. II and IV D. I and IV

According to SEC Release IA-1092, an individual that provides advice about a client's specific situation is still considered an investment adviser even if that individual does not implement the advice. Individuals selecting a particular investment manager would also be considered to be providing advice and fall under the definition of an investment adviser. (62571) B.

When a client purchases mutual fund shares from a broker-dealer, she receives a summary prospectus. When will the broker-dealer send the client a statutory (final) prospectus? A. After the purchase has been completed, if requested B. Within seven days of the settlement date C. The day following settlement D. Prior to confirmation of the purchase

According to the Investment Company Act of 1940, a client who purchases mutual fund shares must receive a statutory prospectus after the purchase has been completed. Therefore, if a summary prospectus is delivered first, a client must receive or be given access to the statutory prospectus, if requested. (89097) A.

According to the NASAA Custody Requirements for Investment Advisers Model Rule, an investment adviser that intends to send account statements directly to its clients: A. Is permitted to do so if the IA is audited by an independent CPA B. Will be committing a violation C. Is permitted to do so if the IA provides the statements on a monthly basis D. Is permitted to do so if the IA has been approved by the Administrator

According to the NASAA Custody Requirements for Investment Advisers Model Rule, an investment adviser that intends to send account statements directly to its clients is permitted to do so if the IA is audited by an independent public accountant. Advisory clients must be provided with account statements on a quarterly (not monthly) basis. (89109) A.

Walck Asset Management has $67.5 million in assets under management. Under the Uniform Securities Act (USA), if Walck transacts business with clients in State A, it is: A. Required only to pay an initial filing fee in State A B. Not required to pay any filing fees in State A C. Required to pay filing fees in State A only if it has an office in State A D. Required to pay an initial and renewal filing fee to State A

Advisers with assets of $110 million or more must register with the federal government and are known as federal covered advisers. Advisers with assets of $100 million up to $110 million may register with the federal or state government. Those with fewer assets generally fall under state jurisdiction. Since the Advisory firm has assets under management of less than $100 million, it must register with State A and pay a registration fee and annual renewal fee, as well as in any state in which the firm is required to register. (79481) D.

38 of 110 - Schedule 13D is required to be filed with the SEC by any person, or those acting together, who acquire more than 5% of the voting stock of a public corporation. Which of the following statements is NOT TRUE regarding Schedule 13D? A. It must be filed with the SEC, the issuer, and the appropriate exchange B. A copy must be given to the current shareholders C. It must be filed within 10 days of acquisition of the stock D. It must disclose the purchaser's purpose for acquiring the stock

All of the choices are true except the statement that a copy must be given to the shareholders. (63115) B.

All the following statements apply to a rule of the Administrator, EXCEPT: A. A rule of the Administrator is not part of the Uniform Securities Act, but carries the weight of law B. The Administrator is not required to publish rules C. The Administrator may not, by rule, change state securities laws D. Rules are used to provide interpretations of the law

All rules of the Administrator must be published. The rules of the Administrator are not part of the law, but interpret the state's laws. As such, rules carry the weight of law. (62963) B.

When a trust has multiple beneficiaries, the trustee's fiduciary responsibility is to consider: A. The strategy of the beneficiary who will reach retirement age first B. The investment strategy based on the trustee's risk tolerance C. The overall strategy for managing the trust's portfolio D. Each beneficiaries' individual investment strategies

Although the trustee must manage the trust based on an investment strategy that takes into account the beneficiaries' needs, his decisions should be based on the objectives of the trust. The trustee's responsibility is not to one beneficiary, but rather to all of the beneficiaries. When managing the portfolio of a trust, the trustee's risk tolerance has no relevance. (32508) C.

A client invested $100,000 in an Equity Indexed Annuity. The participation rate is 90% with a cap rate of 15%. In year one, the index increased by 20%. In year two, the index lost 5%. In year three, the index gained 10%. What is the value of the annuity after year three? A. $118,000 B. $115,000 C. $135,700 D. $125,350

An Equity Indexed Annuity is credited with the lesser of the participation rate or the cap rate, based on the performance of an index such as the S&P 500. In year one, the index increased by 20%. 90% of the gain is equal to 18%, but since the annuity can't be credited with more than the cap of 15%, the value of the annuity would be $115,000 (1.15 X $100,000). Many Equity Indexed Annuities have a floor of zero, thus a negative return in the index will not cause the value of the annuity to decline. Therefore, in year two, the value of the annuity would remain the same. In year three, the index increased by 10%. 90% of the gain is 9%, which is less than the cap rate, so the annuity would be credited with 9%, or $125,350 (1.09 X $115,000). D.

When is an IA or IAR permitted to publish a testimonial regarding the adviser? A. If the testimonial is from a former client B. Never C.If the permission of the author of the testimonial is obtained D. If the testimonial appeared on an independent social media site over which the IA or IAR has no control

An IA or IAR is permitted to publish testimonials if (1) they are shown as they originally appeared on an independent third party social media site, (2) are unedited, and (3) the IA or IAR has no direct or indirect influence or control over the independent site. D.

An investment adviser is registered and located State A. One of the IAR's has three non-institutional clients and one institutional client in State B. A different IAR has four non-institutional clients in State B. If the investment adviser does NOT have an office in State B, who must register in that state? A.Neither the IARs nor the investment adviser B. The IARs and the investment adviser C. Only the IARs D. Only the investment adviser

An advisory firm that has more than five non-institutional clients residing in a state is required to register in that state. Since one IAR has three clients and the other has four clients, the investment adviser has seven clients total and must register. However, since neither IAR has more than five non-institutional clients, neither one needs to register in State B. Notice that all persons (the IA and IARs) need to be registered in State A. (32391) D.

Under the Investment Advisers Act, all of the following statements are TRUE concerning agency cross transactions, EXCEPT: A. The adviser may not recommend the transaction to both buyer and seller B. A written confirmation may be sent no later than the completion of the transaction C. The transaction must be conducted on an exchange D. The client must give written consent and such consent can be withdrawn at any time

An agency cross transaction is one in which the adviser acts as broker for both sides of the trade. All of the statements listed are true except the statement which indicates that they must be conducted on an exchange. (32433) C.

An individual represents an issuer in the sale of the issuer's securities to its employees, but does not earn commissions on the transactions. The individual is: A. Considered to be an agent of the issuer B. Considered to be the issuer C. Not considered to be an agent of the issuer D. Considered to be a broker-dealer

An agent is an individual who represents a broker-dealer or an issuer in effecting securities transactions. However, an individual who represents an issuer in a transaction with existing employees and does not receive commissions is NOT considered to be an agent. In this question, the individual does not fall under the definition of either a broker-dealer or an issuer. (32485) C.

When an investment adviser files Form ADV with the SEC, it will include: The past 10 years of business history and current affiliations of control persons An audited balance sheet The scope of authority over client funds The compensation to be received A. I and IV only B. I, II, and IV only C. I, II, III, and IV D. II and III only

An investment adviser must disclose on Form ADV the past 10 years of business history. An audited balance sheet is also required. In addition, the adviser must disclose the scope of authority over client funds: e.g., discretion, custody, substantial prepayment of fees. The manner in which the adviser will be compensated must also be disclosed. (62962) C.

Under the Investment Advisers Act of 1940, if an individual wants to create her own investment advisory firm, with which authority would she need to file the application? A. The Financial Industry Regulatory Authority (FINRA) B. The Administrator C. The Securities and Exchange Commission (SEC) D. The North American Securities Administrators Association (NASAA)

An investment adviser registering under the Investment Advisers Act of 1940 would register with the SEC. In this question, if the advisory firm is required to register in a state, it would do so with an Administrator under the provisions of the Uniform Securities Act. (89655) C.

An investment adviser representative and a client have similar financial resources, investment goals, and risk tolerance. However, although the IAR recommends penny stocks as a small part of her client's portfolio, she would never consider investing in such securities herself. Which of the following statements is TRUE? A. Penny stocks are never suitable investments B. As long as the recommendations to her clients are suitable for them, it does not matter what the IAR chooses to include in her portfolio C. The IAR should tell her client that the recommendation is inconsistent with her own investment policy D. An IAR is not allowed to reveal to a client what is in her personal portfolio

An investment adviser whose personal investing is inconsistent with recommendations made to clients generally has an obligation to disclose this to customers. (62272) C.

One of your clients, John Smith, would like to buy one share of ToyKids Inc. for each of his 12 grandchildren. The average transaction cost on these trades would be 16% based on your firm's minimum commission schedule. What action should you take? A. Do the trades, provided you have already informed the client of the higher-than-normal commissions B. Advise Mr. Smith to do the trades elsewhere, as your compensation would violate the USA 10% threshold C. Advise Mr. Smith to open a wrap account for each child to avoid commissions D. Do the trades

Anytime a client will be subject to higher-than-normal charges, he should be informed of this fact prior to execution. Opening a wrap account for each child is not practical since these accounts typically have minimum asset requirements. (79484) A.

In reference to storing customer books and records, an adviser is permitted to store records on: A. Disks, provided they are password-protected B. Disks, provided the information cannot be altered C. Microfilm or microfiche only D. The original format only

Books and records must be maintained in an easily accessible place for five years. During the first two years, the records must be maintained in an appropriate office of the investment adviser. Records may be preserved on microfilm, microfiche, or any similar device. They may also be kept on various electronic storage media such as CD-ROMs, provided the disks are tamper-evident (write once read many). This means that any attempt to alter the records would become obvious and easily determined upon examination. These files do not need to be password-protected, but the adviser must be able to limit access to the records to authorized personnel and regulators. (62607) B

A broker-dealer advertises on a radio program that is broadcast from a bank. Which of the following would be prohibited by the Administrator? A. Mentioning that the broker-dealer that sponsored this show is affiliated with the bank B. Omitting the name of the broker-dealer in any 30-second ads during the show C. Omitting the name of the bank during any 30-second ads during the show D. Mentioning the advantages of investing in mutual funds without sending a prospectus

Broker-dealers and agents are not allowed to publish a blind ad unless it is a recruiting advertisement for a new hire. The name of the broker-dealer that approved the ad is generally required on all advertisements. Broker-dealers are allowed to mention that they are affiliated with or subsidiaries of banks. They must make the distinction that the products they offer are neither deposits nor are they guaranteed. (89669) B.

According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, when may a broker-dealer exercise discretion in a customer account? A. If the account is new, verbal consent is allowed for the first 10 days provided the customer is in the process of mailing written authority B. Only after the firm has received the customer's written consent C. If the customer is traveling or on vacation and cannot be reached, only when a branch manager provides approval D. When the customer has been with the firm for more than three years

Broker-dealers cannot exercise written discretion without the customer's written consent. Not-held orders are the one exception for broker-dealers. With not-held orders, a brokerage firm may determine the time and price of execution without a client's written authority. Investment advisers (but not broker-dealers) may accept verbal authority from a client, but only for up to 10 days. (67573) B.

Perry is a 27-year-old paralegal who makes $35,000 annually. His law firm has a 401(k) plan and the firm matches employee contributions, but Perry does not participate in it, although he is eligible. He wants to save for retirement and is considering a variable annuity. Perry consults an investment adviser representative. The most appropriate advice that the IAR can give Perry is that he should: Join his employer's 401(k) plan BWait until he is older to save for retirement Buy a variable life insurance policy DInvest as much as he can in a variable annuity every month

By joining the 401(k), Perry can save for retirement on a pretax basis. In addition, his employer matches his contributions, which will help his savings grow faster. Payments to a variable annuity would have to be made on an after-tax basis. Generally, people investing for retirement should exhaust their ability to contribute to vehicles (such as 401(k)s or IRAs) that allow them to save money on a pretax or tax-deductible basis before investing in variable annuities. (62122) A.

Under the provisions of the alternative minimum tax (AMT), all of the following are tax preference items, EXCEPT: A. Any excess intangible drilling cost deducted that is greater than a stated percentage of the investment's income generated by an oil and gas program B. Any depletion allowances over and above the investment's basis C. The greater of the purchase price or the current market price of an incentive stock option D. Any amount of accelerated depreciation expense deducted above the amount calculated by the straight line method

C

Gary and Mary were recently divorced. Mary has been ordered to pay child support to Gary, who has custody of their two children. Which of the following statements is TRUE regarding child support payments? I. Child support is not tax-deductible for the payer. II. Child support is tax-deductible for the payer. III. Child support is taxable for the receiver. IV. Child support is not taxable to the receiver. A. II and III only B. II and IV only C. I and IV only D. I and II only

C. ? look in book

All of the following details regarding a Coverdell Education Savings Account are TRUE, EXCEPT: A. Contributions are limited to $2,000 annually B. Contributions are always tax-deductible C. Taxpayers whose income is above a stated level are not allowed to make contributions D. Withdrawals are generally tax-free if used for educational purposes

Contributions to a Coverdell Education Savings Account (CESA) are limited to $2,000 annually and are never tax-deductible. Additionally, contributions are not allowed if the contributor's income exceeds a certain amount. Withdrawals from the account are tax-free if used for qualified educational expenses. (67689) B.

In a retirement plan, if key employees own more than 60% of the plan's assets, it is considered a: A. Special ERISA plan B. Non-qualified plan C. Top-Heavy plan D. Qualified plan

EXPLANATION: INCORRECT ANSWER CHOSEN A top-heavy plan is one in which key employees own more than 60 percent of the plan's assets. If a plan is determined to be top heavy, there are certain steps that an employer can take to maintain the tax-advantaged status of the plan C.

6 of 110 - Which of the following characteristics may be attributed to a traditional exchange market? Prices are determined by auction. Prices are determined through negotiation. Market makers are called specialists or designated market makers. Securities are referred to as listed. A. I and IV only B. I only C. II, III, and IV only D. I, III, and IV only

Exchange markets, such as the NYSE, are considered auction-style markets. Only securities that are listed are eligible for trading on an exchange. A specialist or designated market maker is the member responsible for providing quotes on the exchange. (67501) D.

The portfolio manager of a growth fund is analyzing potential common stocks. Generally, the manager will give which of the following the MOST consideration? A. A company's short-interest B. A company's low price-to-book value C. A company's year-to-year earnings momentum D. A stock's current dividend yield

For growth investors, a key consideration is a company's earnings momentum (growth). A growth company will typically have a significant year-over-year increase in its earnings. On the other hand, value investors will look for stocks that have a low price-to-book value and high current yield. (89116) C.

Which of the following activities are considered illegal or fraudulent, rather than being simply unethical? An investment adviser representative describes himself to clients as an expert in senior citizen retirement planning and, although no such designation exists, he displays a certificate in his office from a fictitious institution conferring the designation. An agent intentionally solicits sales in securities that are non-exempt and the issuer has not filed a registration statement in the state. An IAR fails to notify his superior of a letter that he received from a client which alleges fraudulent activities on the part of the IAR. An agent of a broker-dealer knowingly provides material, public information to her largest client, with the client ultimately acting on the information. A. I, II, and III only B. II and III only C. I and II only D. I and IV only

Fraud offenses always include some sort of false statement, misrepresentation, or deceitful conduct. Deceit is defined as willful or reckless misrepresentation or concealment of material facts with the intent to mislead. For choice (I), the intentional misrepresentation of a registered person's qualification with the intent to deceive constitutes fraud. For choice (II), an agent soliciting trades in securities that are non-exempt and unregistered is an illegal activity. For choice (III), the failure to notify a superior of a written customer complaint is an unethical business practice, rather than an illegal activity. This is true despite the fact that the allegation in the complaint is of an illegal activity. And lastly, for choice (IV), the action by the agent of the broker-dealer who provided material, public information to a client is not considered to be insider trading since the material information was public. (89095) C.

Which statement is FALSE regarding the use of futures contracts for hedging purposes? A. A short hedge would be used to protect against falling prices B. Hedging is only used by speculators C. A long hedge would be used to protect against rising prices D. Hedging is used by the producers or consumers of the underlying commodity

Hedging strategies are typically used by those who produce or consume a particular commodity. Speculators have no underlying interest in the commodity price and simply take positions for potential profits. While speculators may hedge, this is a much more common practice for the producers and users of the commodity. (67738) B.

According to the Uniform Securities Act, an entity can avoid meeting the definition of a broker-dealer if it: Has no office in the state Only deals with institutional clients Does not hold customer funds or securities A. I and II only B. I only C. II and III only D. II only

If a broker-dealer has no office in a state and effects transactions only with institutional clients, it would be exempt from the definition of a broker-dealer. An institutional broker-dealer cannot qualify for this exemption if it has an office in the state, even if it avoids holding customer funds and securities. (62990) A.

A federal covered investment adviser currently has five clients in State A. The IA would be required to make a notice filing with the Administrator in State A if it now enters into an advisory contract with which of the following? A. mA government-authorized investment authority created to manage state funds B. A bank's trust department using the adviser to manage $250,000 of account assets C. An inter vivos trust account set up for a relative D. A mutual fund with assets of $1 million and 250 clients

If a federal covered investment adviser has more than five individual clients in any one state, notice filing is required by the adviser. Adding the trust would bring the IA to six clients and would trigger the notice filing requirement. Financial institutions, regulated investment companies, and other investment advisers are excluded for the purposes of counting clients. Inter vivos is a legal term referring to a transfer or gift made during a person's lifetime, as opposed to a testamentary transfer (a gift that takes effect on death). (67664) C.

For an investment adviser, which TWO of the following situations are considered conflicts of interest? I. The adviser purchases the same securities for its own account that it currently holds in several client accounts II. The adviser sells securities from its own account to an advisory client III. The adviser is short a stock that it is currently recommending for its clients to purchase IV. The adviser has a position in securities that it is not recommending to its clients A. I and IV B. I and III C. II and III D. II and IV

If an investment adviser enters into a principal transaction (sells securities from its own account to an advisory client), it is considered a conflict of interest since the adviser is on the other side of the transaction. This conflict must be disclosed to the client and the client must consent to the principal transaction prior to each transaction. In addition, when an adviser takes a position that is inconsistent with the recommendations that it makes to its clients, this conflict must be disclosed to its clients. (32509) C.

The potential loss for a limited partner in a real estate limited partnership is limited to: A. Only her initial investment B. Only the amount of money that is borrowed by the partnership C. Her initial investment plus any real estate that is shared by the partners D. Her initial investment plus any unpaid amounts to which she had committed to pay

In a limited partnership, the liability for a limited partner may not exceed her initial investment amount plus any unpaid amounts to which she has agreed to pay. Generally, limited partners are not liable for the debts that are incurred by the partnership. However, when a limited partner cosigns a loan for the partnership and agrees to be responsible for a portion of the loan, the limited partner's liability is increased. D.

Which of the following statements is TRUE regarding tenancy in common? A. This form of ownership is only permitted for equal ownership between two married individuals B. Due to the nature of the agreement, each individual's interest is generally more freely transferable C. If an owner dies, the assets bypass the probate process D. If an owner dies, the assets are directly transferred to the other owner(s)

In an account with a tenancy-in-common arrangement, the assets may or may not be equally divided. When an owner dies, his ownership interest in the account is included in his estate and is subject to probate. The benefit of a tenancy-in-common arrangement is that it makes it easier to transfer assets to other investors when one person dies. There is no requirement that the owners of a tenancy-in-common account be a married couple. (67511) B.

Which of the following must be included in a solicitor disclosure document? The manner in which the solicitor will be paid by the registered investment adviser The amount of the client's fee that is related to soliciting activities The details of the agreement between the solicitor and the registered investment adviser The business history of the solicitor A. I, III, and IV only B. I and III only C. I, II, III, and IV D. I, II, and III only

In the solicitor disclosure document, investment advisers must disclose how they intend to pay the solicitor, how much of the client's fee will be paid to the solicitor, and a description of the relationship between the solicitor and the investment adviser. However, a full history of the solicitor is not required to be disclosed. (67579) D.

9 of 110 - Under the Uniform Securities Act, which of the following BEST describes the term inspectorial power? A. The state Administrator's power to apply the stop-order test B. The state Administrator's power to subpoena records inside and outside of the state C. The state Administrator's power to delegate responsibility to a self-regulatory organization D. The state Administrator's power to have special investigators review the records of registered investment advisers

Inspectorial power refers to a state Administrator's ability to inspect or review any records that are located both inside and outside of the state in order to carry out the provisions of the Uniform Securities Act. (89139) B.

Which of the following would most likely be registered with the state Administrator? A. An NYSE-listed company's common stock B. A municipal revenue bond C. A distribution of an interest in a mining or real estate venture D. A mutual fund

Interests in mining or real estate ventures are examples of partnership offerings. General and limited partnerships are often registered with the Administrator in the state in which they are offered. Municipal bonds are not subject to registration requirements since they are categorized as exempt securities under the Uniform Securities Act. Also, mutual fund shares and securities listed on the NYSE are federal covered securities, since these issues are only required to be registered with the SEC. (67527) C.

An firm has been hired to be the investment adviser of the Western Vistas family of funds. The fund family is the firm's only advisory client and it currently has $18 million under management. Which of the following statements concerning the adviser's registration is TRUE? A. Under the de minimis exemption, it is exempt from registration at both the federal and state levels since it only services one mutual fund complex. B. Since it is a federal covered adviser, it must register with the SEC. C. It must register with both the SEC and each state in which it conducts business until its assets under management exceed $100 million. D. It is required to register only in the states in which the fund family has clients.

Investment advisers are ultimately required to be registered at either the federal level with the SEC or at the state level with the state Administrator; there is no requirement for them to register at both levels. Although there are exceptions, the typical basis for determining whether state or federal registration is required is the amount of assets under management (AUM) for the adviser. However, an important exception applies to firms that serve as advisers to registered investment companies. Regardless of the amount of assets under management for the adviser, any adviser of an investment company is considered a federal covered adviser and is only required to register with the SEC. In this question, the Western Vista family of funds is an investment company. (89104) B.

Which of the following investment advisers would most likely NOT be required to register with the Administrator? A. A firm that provides advice on listed securities B. A firm that provides investment advice to an employer's pension plan C. A firm that provides investment advice to a tollway authority D. A firm that provides advice on fixed annuities

Investment advisers provide securities-related investment advice. A fixed annuity is not considered a security by state Administrators. Since the firm is not considered to be providing securities-related advice, it would be exempt from the definition of an investment adviser. (67536) D

According to the Uniform Securities Act, which of the following investment advisory practices is prohibited? A. A client terminates an advisory relationship with an investment adviser halfway through the contract and the advisory firm refunds 50% of all prepaid fees, as called for in the contract B. An investment advisory firm is purchased by a large broker-dealer and all client contracts are automatically amended to reflect the broker-dealer ownership C. An investment advisory firm appoints three new portfolio managers but does not disclose this to clients of the firm D. A client's portfolio increases in value from $100,000 to $150,000 over a one-year period, so the adviser charges the client a fee based on the total value of the account

Investment advisory contracts must provide that: The adviser will not be compensated on the basis of a share of the capital appreciation of the account. The adviser may not assign client contracts without the consent of the client. If the adviser is a partnership, clients will be notified of changes in the partnership within a reasonable period. It is perfectly acceptable to refund advisory fees if an advisory contract is terminated and to charge a fee based on the total value of the account ($150,000). There is no requirement to notify clients if three new portfolio managers (who are not partners or owners) are hired by the firm. (62576) B.

24 of 110 - Jack is going through a divorce. He has an individual account managed on a discretionary basis by Trust and Worthy Advisers, Inc. The advisory firm receives a subpoena from the attorney for Jack's wife demanding the records for his account. Which of the following statements is TRUE? A. Trust and Worthy should advise the attorney that the release of records is permitted only to authorized governmental authorities, such as the IRS, SEC, or the state Administrator B. Before releasing any information, Trust and Worthy must notify its client C. The advisory firm must provide the records demanded in the subpoena D. In cases of nongovernmental actions, the state Administrator is authorized under the Consent to Service of Process to be served with all legal papers and to order the release of Jack's records

It is considered unethical for an investment adviser to disclose the identity, affairs, or investments of any client unless the client consents, or unless the law requires it. Trust and Worthy would be compelled by law to release the records of its client to the attorney. (62896) C

An investment adviser representative (IAR), who is also a member of a tennis club, offers club members discounted fees if they hire his firm to manage their money. The adviser makes full disclosure of this fact in both the brochure and in its ADV Part 2. Which of the following statements is TRUE? A. This arrangement would be a violation since the fees paid by nonmembers would be excessively higher than the fees paid by members B. This is an ethical practice since the details of the discounts have been properly disclosed in the brochure and ADV Part 2 C. Discounted fee arrangements are allowed, but not in this case since nonclub members are being discriminated against D. Discounted fee arrangements are a violation of the Uniform Securities Act

It is not a violation of the Uniform Securities Act to offer discounted fees to advisory clients provided the nature of the discounts are fully disclosed to both the Administrator and clients. (67611) B.

As the result of a legislative change, municipal bonds have increased in value. Which of the following BEST describes the reason for this occurrence? A. S&P has slightly downgraded the rating of all municipalities B. The number of corporate IPOs has increased C. Income tax rates have increased D. There is a general increase in interest rates

Legislative risk is the risk that changes in legislation will materially impact investment returns. When income tax rates increase, investors are required to pay taxes at a higher rate. If this happens, investors will seek investments that provide tax-free returns (e.g., municipal bonds). Therefore, as the demand for municipal bonds increases, so too will the value of these investments. (88879) C.

A mathematical technique that uses randomly generated scenarios, known as simulations, to determine the probability of possible returns, is known as the: A. Monte Carlo Theory B. Random Walk Theory C. Capital Asset Pricing Model D. Sharpe Ratio

Monte Carlo is a technique which uses randomly generated scenarios, called simulations, to attempt to determine the probability of possible returns. It is one of several computer programs that has been developed recently to give investors different tools to help them manage their portfolios. (62471) A.

According to NASAA's Statement of Policy on Unethical Business Practices, which TWO of the following statements are TRUE concerning information to be included in an investment advisory contract? I. The fee for managing equity securities may not be higher than for fixed-income securities. II. An assignment of the contract can be made only by the investment adviser with the consent of the client. III. There is disclosure explaining that no prepaid fees will be returned if the contract is terminated. IV. There is disclosure as to whether the contract grants discretionary power to the adviser. A. II and IV B. I and III C. II and III D. I and II

NASAA's Statement of Policy on Unethical Business Practices provides that the entering into, or renewal of, an investment advisory contract would need to include disclosure of: All fees and services provided The term of the contract A formula for computing the advisory fee The amount of prepaid fees to be returned in the event of an early termination of the contract The fact that no assignment of the contract will be made without the consent of the client Whether the contract grants discretionary power to the adviser The fee for managing equity securities may be higher than for fixed-income securities A

Which of the following items may not be bought on margin? I. Pink Sheets securities II. Nasdaq securities III. Options IV. Futures V. Open-end investment company shares A. I, III, and V only B. I only C. II, IV, and V only D. I and III only

Nonmarginable securities include those found in the Pink Sheets, on the OTCBB, as well as options, new issues, including IPOs, and mutual fund shares. (63091) A.

The trustee is responsible for reporting all income, gains, and losses of a trust to the IRS on Form: A. 1041 B. 1040EZ C. 1040 D. 1065

On an annual basis, a trustee must report the trust's income, gains, and losses to the IRS on Form 1041. Regarding the other forms, Form 1040 is used for personal tax returns, Form 1065 is an informational return that is filed by partnerships, and Form 1040EZ is used by single person or those who are married, filing jointly with less than $100,000 of taxable income. (89118) A.

An insurance agent works in an office building down the hall from a broker-dealer. They are not affiliated. What compensation may the agent receive from the broker-dealer in exchange for referrals? A. 12b-1 fees B. Commissions C. Discounted commissions D. Insurance referrals

Only individuals who are registered agents may receive monetary compensation from a broker-dealer based on the sale of a security. In this scenario, the insurance agent is not licensed and may not receive compensation in the form of commissions or fees, or soft-dollar compensation (no cash compensation) in the form of discounted commissions. If a broker-dealer wants to refer its clients to an insurance professional, this is permitted. Only licensed insurance professionals may be compensated for the sale of life insurance. (62701) D.

Which of the following choices represent(s) reasons why a limited partnership is the business form often used in direct participation programs? I. Partnerships are not considered a separate entity for tax purposes. II. Partnerships pass through the results of their operations for treatment on the individual's tax return. III. Partners are never liable for tax when they invest through this type of structure. A. I only B. II and III only C. I and II only D. I, II, and III

Partnerships are not considered a separate entity, as are corporations, for tax purposes. Instead, income or loss from the partnership's operations is passed through to the partners for tax treatment. (III) is not a correct statement because taxes need to be paid by the partners if the business reports a profit. (62640) C.

3 of 110 - Who is eligible to enroll in a private 457 plan? A. New York City sanitation workers B. A librarian who works in the Philadelphia Public Library C. All employees of a publicly traded company D. Employees who are members of a union

Private 457 plans are retirement plans for non-governmental employers and there are restrictions regarding participant eligibility. Participants in a private 457 plan may include members of a union, hospital workers, and employees of charitable organizations. (89122) D.

When investing in a 401(k), tax is deferred on which of the following? A. Unemployment for the state B. Unemployment for the IRS C. Income D. Medicare

Qualified accounts, such as 401(k) plans, provide for a deferral of tax on income only. Participants are still required to pay any other applicable taxes in the year their contribution is made. Earnings, such as capital gains, dividends, and interest, will also be deferred until they are withdrawn. (67582) C.

All of the following are considered securities, EXCEPT: A. Real estate investment trusts B. Options on real estate C. Equity options D. Options on futures

Real estate investment trusts (REITs) and options on both equities and futures are considered securities. However, options on real estate are not considered securities. (89119) B.

Nick is a client of Nora, who represents Whiteglove Securities. Nora's recommendations have made Nick a lot of money over the last two years. Nick is so pleased that he decides Nora can keep 5% of any gains in his account from now on, in addition to the commissions that he usually pays. Which of the following statements is TRUE? A. This is acceptable only if Whiteglove is registered as an investment adviser B. This is acceptable as long as Whiteglove and Nick agree in writing C. This is not acceptable as it is considered sharing in the client's profits D. This is not acceptable unless Whiteglove foregoes its usual commission charges

Sharing in the profits and/or losses in a client's account is generally not permitted. There is an exception if the client and the agent have a joint account, the client and the broker-dealer consent to the arrangement in writing, and profits and losses are shared in proportion to the capital that el,ch contributed to the account, if the client is a qualified purchaser or client,non-U.S. residents, registered investment companies, certain employees. C

According to the Investment Advisers Act of 1940, when is an investment adviser required to provide an audited balance sheet to its clients? A. When the adviser requires the prepayment of a $500 initial advisory fee B. When the adviser requires the prepayment of a fee that is greater than $1,200, six months or more in advance of providing service C. When the adviser requires the prepayment of a fee that is greater than $500, six months or more in advance of providing service D. When the adviser has limited discretion over the account

Since state and federal laws overlap regarding the concept of providing an audited balance sheet, it is important to identify which regulator is asking the question. According to the Investment Advisers Act of 1940 (federal law) an adviser is required to provide clients with an audited balance sheet if it collects prepaid fees of more than $1,200, six months or more in advance of providing advisory services. However, according to the Uniform Securities Act (state law), an adviser is required to provide clients with an audited balance sheet if 1) the firm collects/solicits prepaid fees of more than $500, six months or more in advance of the service, or 2) the firm maintains custody or discretionary control of clients' assets. (89126) B.

Advisor has to be covered by who to sell U.S. government securities?

State

What type of order may a customer use to protect profits or limit losses in current positions? A. Limit order B. Market order C. Stop order D. Price/time order

Stop orders are entered to limit losses or to protect profits on current positions in an investor's account. If the market rises, buy stop orders may be used to protect short stock positions. If the market falls, sell stop orders may be used to protect long stock positions. Market and limit orders are typically used to enter the market, rather than to protect a current position. (67740) C.

If an adviser has custody of customer funds and securities, the submission of Form ADV-E must be performed by: A. An independent accountant within 90 days after the completion of an audit B. The adviser within 120 days after the completion of an audit C. An independent accountant within 120 days after the completion of an audit D. The adviser within 90 days after the completion of an audit

Submission of Form ADV-E with the SEC is required if the adviser has custody of client funds and securities. The form must be filed by an independent accountant, not the adviser, within 120 days after the completion of the audit. C

A customer invested $25,000. After 20 years the investment is now valued at $100,000. How many years did it take to double in value? A. 7 B. 10 C. 5 D. 4

The $25,000 investment doubled twice, from $25,000 to $50,000, then to $100,000, over 20 years, or it doubled every 10 years. (62859) B.

33 of 110 - An Administrator has determined that a broker-dealer is selling unregistered securities in the Administrator's state. Which of the following statements is TRUE if the broker-dealer does not comply with the cease-and-desist order issued by the Administrator? A. The Administrator may bring action in a court of competent jurisdiction to request an injunction B. The Administrator will refer this case to the SEC as the governing authority regarding the sale of securities C. The Administrator may bring action in federal court to request an injunction D. Failure to follow an Administrator's order is grounds for the automatic suspension of a broker-dealer's registration

The Administrator may take more severe action if a broker-dealer does not comply with a cease-and-desist order to stop selling unregistered securities in the Administrator's state. This would entail the Administrator going to state court to ask for an injunction. (62942) A.

A federal covered investment adviser has an office in State A. The adviser also has five clients in State B and five clients in State C. A client files a complaint against the adviser, accusing the adviser of unsuitability, excessive trading, and misappropriation of funds. The Administrator(s) of which of the following states have/has the authority to take action against the adviser? A. State A B. States A, B, and C C. States A and B D. All 50 states

The Administrators of States A, B, and C would have the authority to take action against the adviser because no one is exempt from the antifraud provisions of the USA. (62910) B.

If an individual forms a broker-dealer as a sole proprietorship, what information needs to be provided to the Administrator? A. Net income figures B. Annual tax returns C. Financial statements D. Tax returns for the past three years

The USA requires a broker-dealer to file its financial statements with the Administrator annually and, in some cases, quarterly. (62871) C.

Which of the following is FALSE regarding a Health Savings Account (HSA)? A. The distributions that are used for non-qualified medical expenses are subject to a 50% penalty B. The earnings in the account are tax-free C. The contributions are tax-deductible D. The distributions are tax-free if they are used to pay for qualified medical expenses

The distributions that are used for non-qualified medical expenses are subject to a 20% tax, not a 50% penalty. All of the other statements are true. A.

Which of the following is a valuation model used to calculate the anticipated return for a portfolio of securities? A. The internal rate of return B. The real rate of return C. The expected rate of return D. The holding period return

The expected rate of return is used to estimate or anticipate the performance of a portfolio by averaging all of the possible returns and the probability that they will occur. (67568) C.

If required life insurance premiums are not paid on time, a policy will: A. Lapse, but will be automatically reinstated B. Lapse C. Continue to honor any stated death benefit D. Automatically pay out any existing cash value

The failure to pay life insurance premiums will cause the policy to lapse. Some policies allow policyholders to borrow against their cash value to pay premiums. However, the policyholder is not allowed to skip a payment. Since cash value will not automatically be paid out, it is usually forfeited. (67726) B.

Under the Uniform Securities Act, which of the following statements is NOT TRUE concerning the state registration of an agent? A. An agent may only solicit business in a state if both the agent and broker-dealer are registered in that state B. If an agent leaves a broker-dealer to go to another broker-dealer, the agent and both broker-dealers must notify the Administrator of the change C. An agent may only sell securities that have been properly registered in a state or qualify for an exemption from registration D. An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year

The licenses of all agent, broker-dealer, investment adviser, and investment adviser representatives expire on December 31 each year and must be renewed in order to be effective. Renewal is accomplished by the payment of a filing fee. (62046) D.

What information is not included on the application for registration of a broker-dealer? A. The names and addresses of the agents the broker-dealer intends to register B. The broker-dealer's current financial condition C. The types of businesses in which the broker-dealer intends to be engaged D. Whether the broker-dealer is a partnership or corporation

The names and addresses of the agents the broker-dealer intends to register are not required. The qualifications and history of any partner, officer, director, or controlling person are required. (62440) A.

The interest rate that is stated on a bond's certificate is also referred to as the: A. Internal rate of return B. Real rate of return C. Nominal yield D. Current yield

The nominal yield is the stated rate of interest found on the face of a bond, while a bond's internal rate of return is its yield to maturity. A bond's real rate of return is found by subtracting the rate of inflation from the bond's internal rate of return. (67639) C.

In order to form a limited partnership, two or more people must: A. Agree to operate a business together B. Elect to be taxed under Subchapter S C. File a registration statement with the SEC under Regulation A D. File a certificate with the appropriate state or local official

The only way to create a limited partnership is by filing a certificate (or other document) with a state or local agency. A general partnership, in contrast, is created whenever two or more people agree to form a partnership. The agreement does not even need to be in writing. (62461) D.

The prices of which of the following bonds would change the LEAST if interest rates rose? A. Treasury securities B. Short-term municipal notes C. Zero-coupon bonds D. AAA-rated corporate bonds

The prices of short-term bonds tend to decline less when interest rates rise than bonds with longer maturities. Zero-coupon bonds also tend to be particularly vulnerable to increases in interest rates. (62742) B.

The limited registration provision available to Canadian broker-dealers conducting business in a state permits which of the following actions? A. The broker-dealer solicits all residents of a state B. The broker-dealer transacts business with Canadian residents with whom the broker-dealer had an existing relationship C. The broker-dealer transacts business with accredited investors D. The broker-dealer transacts business with existing clients who move to a state

The provisions allowing Canadian broker-dealers to transact business in a state are limited. A broker-dealer may effect transactions with a person from Canada who is temporarily in the state if there was an existing broker-dealer-client relationship before the person entered the United States. (62441) B.

Which of the following statements is TRUE according to ERISA section 404(b)? A. The fiduciary may not maintain the indicia of ownership of assets of the plan outside the jurisdiction of the district courts of the U.S. B. The fiduciary may maintain the indicia of ownership of assets of the plan outside the jurisdiction of the district courts of the U.S. if authorized by the Secretary of the Department of Labor C. Any plan participant may be considered a fiduciary D. The fiduciary may maintain plan assets in any foreign jurisdiction

The rules according to ERISA section 404(b) prohibits fiduciaries from maintaining the indicia or evidence, of ownership of plan assets outside the jurisdiction of U.S. courts, unless allowed by the Secretary of the Department of Labor. (62832) B.

An agent of a broker-dealer is also employed as an investment adviser representative. A client asks the agent for assistance in placing the shares of his start-up company's initial public offering (IPO). Under what conditions may the agent accept the client's offer of commissions for completing the offering? A. Only with the written permission and supervision of the broker-dealer B. Only when the purchases are made by clients of another broker-dealer C. Only if a separate set of books and records is used to track these trades independently from the trades of other clients D. Only if disclosure is made to the clients that this investment will not appear on their statements

This is an allowable action provided written permission is obtained from the supervising broker-dealer and the transactions are recorded on the broker-dealer's books and records. If the agent fails to notify her firm, it is considered selling away, which is an unethical and prohibited business practice. (67713) A.

If an IA has recently changed the number of partners, but not control of the firm, the IA registration must be amended within 30 days. Since there is no change in control or ownership of the firm, a Form ADV-W is not filed. This type of change, however, is known as succession by: A. Amendment B. Application C. Partners D. Majority

This is an example of succession by amendment, as the ADV is simply amended to reflect the new control structure. If the advisory firm were sold, then a change in ownership occurs and the new firm must submit a new application or ADV. Once effective, a Form ADV-W is filed to withdraw the registration of the acquired adviser. (63131) A.

Joey, an IAR, has offered to sell a stock to his client Bruno, who is reluctant to make the purchase because he is concerned the stock may decline. To alleviate his fears, Joey promises to buy back the stock at today's price should it decline during the next six months. Joey has engaged in a prohibited practice known as: A. A round trip trade B. Spinning C. A performance guarantee D. A cross transaction

This practice is known as a performance guarantee, as Joey has guaranteed Bruno he cannot lose anything. This practice is prohibited under the Uniform Securities Act. (62796) C.

A client, age 61, has invested $200,000 in after-tax dollars in a variable annuity. His annuity is currently worth $380,000. The client decides to draw down $50,000 from the contract. How will the distribution be taxed? A. The entire distribution is tax-free since Pete is older than 59 1/2 B. The distribution will be 25% tax-free and 75% taxable at long-term capital gains rates C. The entire distribution will be taxable at ordinary income rates D. The distribution will be 25% tax-free and 75% taxable at Pete's statutory income rate

This question discusses a nonqualified annuity. In a nonqualified annuity, the investment is made with after-tax dollars. When a client makes a single (irregular) withdrawal from a contract, the IRS requires that a last in, first out (LIFO) method be used when calculating tax liability. This means earnings (the last in) come out first. In this case, the $50,000 is taken out of the $180,000 of earnings and would be fully taxable as ordinary income. Annuities never generate long-term capital gains. (62345) C.

In order for an individual to be eligible for a Health Savings Account (HSA) the individual must be: A.. Covered under a qualified retirement plan B. Enrolled in Medicare C. A joint owner with their spouse D. Covered under a high deductible health plan (HDHP)

To be eligible for a Health Savings Account (HSA), a person must be covered under a high deductible health plan (HDHP), not a qualified retirement account. Individuals cannot be enrolled in Medicare or be claimed on another individual's income taxes. Each eligible spouse must open a separate HSA. Joint HSAs are prohibited. Withdrawals from an HSA are tax free provided the funds are used to pay qualified medical expenses. D.

Which of the following terms BEST describes the process for calculating future value? A. Discounting B. Amortizing C. Compounding D. Annualizing

To calculate future value, cash flows are compounded to determine the expected value at a future date. The process of compounding involves periodically reinvesting earnings on the principal. Amortization is an accounting term that's used to describe how a company recognizes certain costs/expenses over multiple years. Annualizing is a situation in which a return for a certain period is projected out over the year. Since interest is not always compounded on an annual basis, compounding is the best answer. (32462) C.

The Department of Labor requires that employer-sponsored plans adhere to the following guidelines, EXCEPT: A. The plan must offer a fixed number of investment options B. Participants must be able to choose from at least three core investment alternatives C. A separate account is maintained for each participant D. Participants have the right to give instructions to the plan fiduciary

Under Section 404(c) of ERISA, an employee sponsored plan has no maximum limitation as to the number of investment options that are available to the participants, but must have a minimum of three. The plan must maintain a separate account for each participant and participants must have the right to forward any requests to the fiduciary of the plan. (32444) A.

Which of the following choices is TRUE regarding performance-based fees under the Investment Advisers Act of 1940? A. An adviser may only charge a performance-based fee to qualified purchasers B. An adviser may only charge a performance-based fee if it is advising a registered investment company C. An adviser may not charge a performance-based fee to clients who are non-U.S. residents D. An adviser may charge a performance-based fee to qualified clients

Under the Investment Advisers Act of 1940, advisers may charge a performance-based fee to "qualified clients." A qualifed client is one with at least $1 million under management with the adviser OR a net worth of more than $2.1 million. Performance-based fees MAY also be charged to non-U.S. residents, registered investment companies, and "qualified purchasers." A qualified purchaser is a person who owns not less than $5 million in investments. (89441) D.

An investment adviser has recently published an advertisement that is directed to accredited investors and states that it is a fee-only adviser. Which of the following fees received by the adviser will cause the advertisement to be misleading? A. An hourly charge which is associated with creating a financial plan B. An annual fee that is based on assets under management C. Any 12b-1 fees on mutual fund share sales D. A flat fee for providing advice regarding the construction of an investment portfolio

Under the Investment Company Act of 1940, 12b-1 fees are asset based charges that are collected by broker-dealers to compensate their registered representatives who are involved in mutual fund shares sales. Collecting 12b-1 fees will cause a conflict with the advertisement since these fees are not assessed for creating a plan or providing advice. All of the other fees are acceptable according to the advertisement. (89092) C.

Acme Insurance Company is considering raising capital by issuing bonds. Under the Securities Act of 1933, the bonds would be considered: A. Exempt from Registration B. Subject to registration with the SEC C. Exempt from prospectus requirements D. Exempt from the antifraud provisions

Under the Securities Act of 1933, securities issued by insurance companies are subject to registration with the SEC and prospectus delivery requirements. They are, however, exempt from registration with the state Administrator. No securities are exempt from the antifraud provisions of the 1933 Act. (62793) B.

All of the following accounts would be considered institutional, EXCEPT: A. An account with a total value in excess of $1 million B. An account for a pension plan C. An investment adviser's omnibus trading account D. An account for a qualified purchaser

Under the USA, there is no minimum size that defines an institutional account. The simple fact that an account value in excess of $1 million does not make it an institutional account. (32418) A.

Registration of a security in a state is not required for ALL of the following reasons, EXCEPT: A. The security is offered in an exempt transaction B. The instrument does not meet the definition of a security C. The security has been registered with the Securities and Exchange Commission under the Securities Act of 1933 D. The security is exempt

Under the Uniform Securities Act, a security is not required to be registered if: The security is exempt; or The security is non-exempt, but is being offered in an exempt transaction; or The security is a federal covered security; or The instrument does not meet the definition of a security Whether a security has been registered with the SEC (under the Securities Act of 1933) has no bearing on the state registration requirement. (88867)

91 of 110 - Under the Uniform Securities Act, which of the following is exempt from the definition of an investment adviser? A. A trust company that provides investment advice to trust clients for a fee B. An insurance company that provides investment advice to clients for a fee C. A firm that solely provides advice on municipal bonds for a fee D. A company that provides investment advice to non-profit organizations and municipalities for a fee

Under the Uniform Securities Act, a trust company is exempt from the definition of an investment adviser. The other persons that are exempt from the definition include: Banks and/or savings institutions Lawyers, accountants, teachers, and engineers (remember L,A,T,E) whose advice is incidental to their profession Broker-dealers whose advisory services are incidental to their business Bona fide publishers Federal covered advisers Any other person that is designated by the Administrator A firm that provides advice about securities (even if they are municipal bonds) for a fee is considered an investment adviser. (32512) A

A new investment advisory firm registers with the Administrator on June 1. Just before its one- year anniversary on June 1 of the following year, the firm renews its registration and the registrations of each of its investment adviser representatives. Which of the following statements is TRUE? A. The firm effectively renewed prior to the deadline, but the representatives did not B .Both the firm's and its IARs' registrations lapsed on December 31 of the prior year C. The representatives are properly registered, but the firm's registration has lapsed D. The firm has complied with the Uniform Securities Act since registrations are valid for one year from the initial registration (June 1)

Under the Uniform Securities Act, all registrations expire on December 31 and then must be renewed. In this situation, both the firm and the investment adviser representatives have allowed their registrations to lapse. (67504) B.

73 of 110 - While a customer who resides in State A is traveling through State B, he is solicited to purchase a security by an agent who is registered in both State A and State B. The customer pays for the security while he is in State B, but then later, the agent sends the confirmation to the customer's home address in State A. Which Administrator(s) has/have jurisdiction over the transaction? A. The Administrator of State B only B. Neither the Administrator of State A or State B if the agent is unregistered C. The Administrators of State A and State B D. The Administrator of State A only

Under the Uniform Securities Act, an Administrator has jurisdiction over any offer to buy or sell that is made and/or accepted in its state. In this question, the customer was solicited while he was in State B (i.e., the offer was made in State B) and the offer was also accepted while the customer was in State B. For those reasons, the Administrator in State B has jurisdiction over the transaction. (89111) A.

Under the Uniform Securities Act, registration by coordination becomes effective: I. If no stop order is in effect II. At the same time that the SEC registration becomes effective provided the registration statement has been filed with the Administrator for at least 10 days III. Provided a prospectus has been filed with the Administrator A. I and III only B. I, II, and III C. II and III only D. I and II only

When a security is in registration with the SEC under the Securities Act of 1933, that registration can be coordinated with the Administrator for state registration. A registration under coordination will automatically become effective at the same time the federal registration becomes effective, provided that no stop order is in effect, the registration statement has been on file with the Administrator for at least 10 days, and a statement of the minimum and maximum proposed offering prices and underwriting discounts has been on file for two business days. A prospectus meeting the requirements of the Securities Act of 1933 must also be filed with the Administrator. (62082) B.

All of the following statements about Benchmark Portfolio Management are TRUE, EXCEPT: A. Portfolio risk and return will be heavily influenced by the benchmark B. The manager determines what securities will and will not be included in the portfolio C. Benchmarks should be reweighted at least quarterly to improve the relative performance of the portfolio D. Certain benchmarks are better suited to specific investment goals than others

When portfolio managers construct a portfolio, they usually start with the securities in the benchmark as a beginning point. Then the decision as to what additional positions to take is made in an effort to add value. The benchmark indicates not only the kinds of securities that should be included in the portfolio, but also the types that should not be. For example, choosing a government bond index as the benchmark makes it clear that the portfolio should not include a large percentage of securities with a high degree of risk. Reweighting a benchmark on a quarterly basis would not have any effect on the actual performance of the portfolio. If it were done to make the portfolio appear to perform better, that would be considered, at best, unethical and, more likely, fraudulent. (62768) C.

Which of the following statements is FALSE? A. For inherited securities, the recipient's cost basis is the market value at the time of death. B. For gifted securities that have appreciated, the recipient's cost basis is the donor's original purchase price. C. When securities are gifted, the donor may claim a deduction that is equal to his original cost basis. D. For gifted securities that have depreciated, the recipient's cost basis is the market value at the time of the gift.

When securities are gifted, the deduction that a donor may claim is equal to the market value of the securities at the time of the gift. The donor will benefit if the stock price has risen, since he will avoid paying capital gains tax. If the shares are gifted to an individual, the recipient's cost basis is the original purchase price or the current market price, whichever is less. On the other hand, if shares are inherited by an individual, the beneficiary's cost basis is the market value of the shares on the date of the decedent's death. (89093) C.

An investment advisory client's holdings consists of: $ 6,000,000 -- Stock/bonds $ 1,000,000 -- Money-market funds $ 3,000,000 -- Real estate, commodities $10,000,000 -- Total assets Would these holdings be considered a securities portfolio? A. Yes, because more than 50% of the assets are securities. B. No, because money-market funds are not securities. C. No, because it also contains non-securities. D. Yes, because it contains securities.

When securities represent a majority of an investor's total assets, the investor is considered to have a securities portfolio. In this question, it is important to recognize that money-market funds are also considered securities. For this client, 70% of her total assets represent securities. When determining the amount of assets under management for an IA, the securities portfolios of its clients are included. The amount of assets under management are disclosed by the IA in Form ADV Part 1. A.

57 of 110 - Which TWO of the following statements are TRUE? A customer will sell at the ask. A customer will sell at the bid. A customer will buy at the bid. A customer will buy at the ask. A. II and III B. II and IV C. I and II D. I and III

When trading securities in the secondary market, investors sell at the bid price and buy at the ask (offering) price. (67489) B.