Unit 6 Quizzes

If John Good, a properly registered investment adviser, opens his own office and hires several representatives to work for him, his business card may NOT read

Good Performance Advisers, Inc.

Which types of accounts are billed a single fee that includes a group of services, such as execution of transactions and advice?

Wrap fee accounts

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

be in writing

In reviewing prospectuses and registration statements, the SEC

does not approve or disapprove of the issue

An investment adviser plans to sell securities out of its own investment account to an advisory client. In order to do so, which of the following is required? i A reduction in the fee equivalent to the profit made on the trade ii Consent of the client before completion of the trade iii Written disclosure of the adviser's capacity before completion of the trade iv Notification to the Administrator of the adviser's plan to act as a principal

ii and iii

Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT

members of AT's board of directors who are active in the firm's business

If an agent has secured a signed statement from a customer that waives the customer's right to sue for a transaction in violation of the USA, the agreement is

null and void

When a security is registered with the Administrator, it means that

the security may be legally sold in the state

A securities salesperson may indicate to a prospective customer that the SEC has approved a securities issue

under no circumstances

Which of the following situations violates the contractual requirements for investment advisory partnerships under the Uniform Securities Act?

A partner with a 5% interest in an advisory firm leaves the firm and the remaining partners do not inform their clients because the departing partner held a minority interest in the firm.

If AAA Investment Advisers has entered into a written discretionary advisory contract with a client, all of the following information must be stated in the contract EXCEPT

AAA Investment Advisers shall be compensated on the basis of a share in the capital gains exclusive of capital losses

Beth Jamison is an agent and an IAR for Consolidated Wealth Planning, a FINRA member broker-dealer and SEC-registered investment adviser. An advisory client purchases 300 shares of RMBN and the sale is made from Consolidated's inventory. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers,

Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation

A broker-dealer informs a client that it does not intend to abide by all the provisions of the Uniform Securities Act. It has the client sign a waiver that specifically prohibits the client from entering a suit against the firm. The client's signature is properly witnessed and notarized.

Clients cannot waive their legal rights.

What does the term "guaranteed" mean when used to describe a security?

The security has a third party other than the issuer that guarantees the payment of principal and interest or dividends.

All of the following activities and communications would fall outside the definition of a recommendation from a broker-dealer except

a broker-dealer sends an email to its more conservative clients stating this would be an excellent time to invest in public utility stocks, and includes a list of those paying the highest dividends

When a broker-dealer publishes a list of recommendations that includes securities in which the firm has a financial interest, it is known as

a potential conflict of interest

When an agent recommends a proprietary mutual fund to a client, it is considered

a potential conflict of interest

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

a prohibited guarantee against loss

An investment adviser representative for ABC Money Managers, a wholly owned IA subsidiary of ABC Securities, Inc., sold 1,000 shares of registered securities traded on the NYSE to one of her advisory clients. ABC Securities charged commissions for both the buyer and the seller of these securities. This is known as

an agency cross transaction

One of the concerns about social media is the opportunity for affinity fraud. This occurs when

fraudulent offers are aimed at groups of people who share a similar interest

Creative Wealth Management (CWM), an investment adviser registered in five states, has a preferred brokerage arrangement with Bullish Bobbie Brown Securities (BBBS), a FINRA member broker-dealer. If one of CWM's clients chooses to use a broker-dealer other than BBBS, CWM must disclose that i in a client-directed brokerage account, the client may pay higher brokerage commissions because the IA may not be able to aggregate orders to reduce transaction costs ii the advisory contract is in danger of not being renewed if the client insists on using anyone other than BBBS for trade execution iii the client may receive less favorable prices because the IA has arranged a preferred commission rate with a preferred broker-dealer iv using BBBS assures the client of receiving research ahead of those clients who trade elsewhere

i and iii

Which of the following activities would violate the Uniform Securities Act? i An investment advisory partnership admits a renowned securities analyst to the partnership without informing its clients of this highly desirable addition. ii An investment adviser incorporated in California fails to inform its clients of the departure of the chief financial officer, who did not have an equity position in the firm. iii An investment advisory firm incorporated in Illinois charges clients a share of the capital gains on the basis of a guaranteed performance level above a designated benchmark. iv An investment advisory firm assigns those accounts that fall to a low level to other firms willing to accept them with the consent of the account holder.

i and iii

It would not be considered an unethical business practice under NASAA's policies for an investment adviser to charge fees i as well as commissions ii based on an hourly rate iii based on a percentage of the change in value of funds from quarter to quarter iv based on a percentage of the aggregate value of funds under management

i, ii, and iv

Under the Uniform Securities Act, an investment adviser who has custody of or discretionary authority over client assets or who charges fees of more than $500 six or more months in advance is required to disclose which of the following to its clients? i The financial condition of the adviser that could impair its ability to meet contractual commitments to clients ii A legal or disciplinary event that would be material to evaluating the adviser's integrity or ability to meet its contractual commitments to clients iii That the adviser was convicted of or pleaded no contest to a felony within the past 10 years or is currently subject to a criminal proceeding involving a felony iv That the adviser was found to have violated SRO rules, which resulted in suspension, expulsion, or a fine of more than $2,500

i, ii, iii, and iv

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser representative would be acting improperly if she i allowed a client to sign an advisory contract after disclosing a potential conflict of interest to that client ii agreed to personally make up the difference if a client's account lost money iii failed to inquire into a client's investment objectives, financial situation, and needs

ii and iii

Which of the following statements concerning conflicts of interest under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers are TRUE? i Where a conflict of interest exists, an adviser must decline taking on the client. ii A conflict of interest is defined as anything that may impair the impartiality of the advice being rendered. iii An investment adviser who receives a fee for investment advice, and whose investment adviser representatives are paid commissions from broker-dealers, presents a conflict of interest that must be disclosed.

ii and iii

You receive a note from your firm congratulating you on passing the exam and indicating that it has received notice from the Administrator that your registration as an agent is effective. At this point, you could NOT

indicate to prospects that you are approved by the state

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser's fee

may be considered unreasonable if it is not in line with fees charged by other advisers for similar services

An agent opening a wrap account for a wealthy client may tell the customer that

wrap fees may result in higher costs than separate charges for advice, management, and transactions