66 Super Test Incorrect

Which of the following would be considered a nonissuer transaction as defined in the Uniform Securities Act? I. Gates Williams, the largest shareholder in Maxihard Corporation, sells 100,000 shares in a registered secondary transaction. II. Buffy Warren, the largest shareholder in Barkshire Mathaway, purchases an additional 50,000 shares on the NYSE. III. In its capacity as a market maker, XYZ Securities sells 200 shares of Gemco common stock to the corporate treasurer of Gemco, buying for the company's investment account. IV. Gemco, traded on the Nasdaq Stock Market, sells 5,000 shares of its stock to XYZ Securities, a registered market maker in Gemco stock. The stock was donated to Gemco by a former officer of the firm. A) I, II and III. B) II and III. C) I and II. D) III and IV.

A nonissuer transaction is one in which the issuer does not receive the proceeds of the sale. When a stockholder sells his shares, he is the one who receives the money, not the issuer. Purchases are never considered issuer transactions because the money is going out, not coming in. When an issuer sells shares, whether in a primary or secondary transaction (as is the case with the donated shares), if it receives the proceeds, it is an issuer transaction.

Ineligible investments in an IRA would include all of the following EXCEPT A) American Silver Eagles B) Kruggerands C) stamps D) cash value life insurance

A. A limited group of coins, especially the "eagles" minted by the U.S. Treasury Department, are eligible for investment in an IRA. No form of life insurance is, and collectibles, such as stamps, are also ineligible.

Which of the following is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser? A) State licensing fee B) Form U4 C) Renewal notice to the SEC D) Consent to service of process

A. All investment adviser representatives are registered with the states, not the SEC. Renewal requires the payment of the annual renewal registration or licensing fee. The consent to service of process is a permanent document submitted with the initial application for registration.

Which of the following are considered to be exempt issuers under the Uniform Securities Act? I. State of Georgia. II. City of London, Ontario. III. City of London, England. IV. Kapco Income Fund, a hedge fund not registered with the SEC. A) I and II. B)I, II and IV. C) I, II, III and IV. D) I, II and III.

A. Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer. Foreign governments with whom the United States has diplomatic relations, but not their political subdivisions, are considered exempt issuers. SEC-registered investment companies are non-exempt issuers under the USA. That is, the act does not include them in the list of exempt issuers. However, under the NSMIA, they are federal covered securities and, as such, do not register with the states other than filing a notice. All the more so, hedge funds that are NOT registered with the SEC would not be exempt issuers.

An advantage of structuring a business operation as an S corporation rather than a C corporation would be A) avoiding double taxation B) the C corporation is limited to a maximum of 100 shareholders while no such limit exists for the S corporation C) simplicity when raising capital through a public offering D) limited liability

A. Because an S corporation is taxed like a partnership, all earnings (or losses) flow directly through to the shareholders. This avoids the double taxation inherent in receiving a share of the profits (through dividends) from a C corporation. It is the S corporation that is limited to 100 shareholders. That is why it is not suitable for raising capital through a public offering. The shareholders of both S and C corporations enjoy the benefit of limited liability.

Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days? A) 270 days. B) 365 days. C) 90 days. D) 30 days.

A. Corporate debt securities (such as commercial paper) with maturities of 270 days or less are exempt from registration; longer maturities would subject them to the act's registration and disclosure requirements.

Under the civil liabilities section of the Uniform Securities Act, how long does a client have to sue an investment adviser after the advice is given? A) 3 years. B) 5 years. C) 1 year. D) 6 months.

A. Do not confuse the statute of limitations for criminal prosecution and punishment with the statute of limitations for civil liability. The civil liability statute of limitations is three years from the event or two years from discovery, whichever occurs first. The statute of limitations for criminal prosecution or punishment is five years.

A client with a sizeable estate would probably find it most efficient to pay estate taxes with A) proceeds from a life insurance policy B) cash C) proceeds from the liquidation of a diversified portfolio D) proceeds from the liquidation of a tax-deferred retirement plan

A. In general, people with estates where there is a potentially large estate tax liability, find that the most efficient way to pay those taxes is through a life insurance policy.

Which of the following is responsible for administration of the Bank Secrecy Act? A) The Financial Crimes Enforcement Network. B) Security Services. C) Department of Health and Human Service. D) Securities and Exchange Commission.

A. Or FinCEN as it is more commonly printed.

Present value is a computation frequently used to determine the amount of deposit needed now to meet a future need, such as a college education. If an investor uses an expected return of 8%, but the actual return over the period is 6%, A) the present value was insufficient to meet the objective B) the accumulated value will meet the objectives C) the yield to maturity will be lower than anticipated D) the future value will not be able to be computed

A. Present value is the amount deposited to meet a future goal based on an expected rate of return. If the return is lower than expected, the amount deposited will not grow to the required amount (a bad thing).

All of the following are exempt from the registration requirements of the USA EXCEPT A) stock issued by a Canadian company that provides actuarial services to insurance companies B) a Canadian Government bond C) a closed-end investment company registered under the Investment Company Act of 1940, but not traded on a recognized stock exchange D) a registered open-end investment company whose portfolio consists exclusively of Georgia municipal bonds

A. Securities issued by Canadian governmental entities, such as the federal government or the provincial governments and their municipalities, are exempt from registration under the USA in the same fashion as US government and municipal securities. However, Canadian corporate issuers do not enjoy an exemption unless qualifying under special conditions, such as being listed on the NYSE or Nasdaq and, therefore, are a federal covered security. Investment companies registered under the Investment Company Act of 1940, regardless of where they trade, are exempt from registration because they are federal covered securities.

Strategic Capital Asset Managers (SCAM) is an investment adviser that is registered in 5 states. In lieu of preparing a fancy brochure, SCAM is permitted to provide its clients with a copy of its A) Form ADV Part 2A and Part 2B B) Form ADV Part 2, Appendix 1 C) Annual renewal form provided to the SEC D) Form ADV Part 1 and Part 1B

A. The Form ADV Part 2 (both parts) is acceptable for use as the firm's brochure. Part 1 is for registration purposes, and Part 1B is only used by state-registered advisers (as this firm is). Part 2, Appendix 1 is used for investment advisers who offer wrap fee programs. As a state-registered investment adviser, SCAM does not file any forms with the SEC.

The purpose of SEC Release IA-1092 is to: I. unify the requirements of the Uniform Securities Act and the Investment Advisers Act of 1940. II. clarify the Securities Exchange Act of 1934. III. clarify the activities that would subject a person to regulation under the Investment Advisers Act of 1940. A) III only. B) I only. C) II only. D) I and II.

A. The purpose of SEC Release IA-1092 is to clarify the definition of investment adviser in the Investment Advisers Act of 1940 and to clarify the types of activities that are subject to regulation.

With the current rate of the 90-day Treasury bill at 2%, a stock paying dividends at a rate of 4% and having a total return over the measured period of 7% would have a risk premium of A) 5% B) 4% C) 2% D) 9%

A. The risk premium is a premium demanded for internal and external risk factors. It is the amount of total return in excess of the risk-free rate. In this case, the total return is 7% (the dividend return is included in the total) minus the 2% T-bill rate.

Registration as a broker-dealer under the USA would generally require all of the following EXCEPT: A) agreeing to provide the Administrator with quarterly financial statements. B) meeting minimum net capital requirements. C) posting a bond in the amount determined by the Administrator. D) filing the appropriate application accompanied by a consent to service of process.

A. There is no set schedule regarding financial reporting to the Administrator, who reserves the right to inspect a broker-dealer's books at any time. All of the other choices are usually found in the registration requirements of broker-dealers.

What is the smallest order that can be placed for an institutional account? A) There is no limit on institutional order sizes. B) $100,000 or 2,500 shares. C) $100,000 or 5,000 shares. D) $50,000 or 1,000 shares.

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

Mr. and Mrs. Rose, advisory clients of yours, request a meeting with you to discuss the options available if they wish to deposit a lump sum to save for college tuition for their child. All of these would be factors to consider EXCEPT: A) the Rose's salary. B) the expected inflation rate. C) current college costs. D) the age of the child.

A. When making a lump sum investment, salary is not a factor. The funds will have to come out of savings or investments. This is basically a present value computation. In order to project how much will be needed, we need to know what the current tuition is, the rate at which it is expected to inflate, and the number of years we have until the child starts college. That will give us the three components of present value: total amount needed, earnings rate, and length of investment.

NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents prohibits excessive activity in the account of a client for the purpose of generating commissions. This activity, frequently referred to as churning, would likely be excused: A) if the investor is considered an accredited investor under SEC Rule 501. B) under no circumstances. C) when the agent has been granted discretionary authority. D) when the account has outperformed the S&P 500 index.

B. Churning, the practice of excessive activity in a client's account for the purpose of generating commissions, is never an excusable practice.

If a federal covered investment adviser wishes to sell his business to another advisory firm, which of the following statements is TRUE? A) The sale must be approved by the SEC. B) No approvals are required. C)The sale must be approved by the Administrator. D) The sale must be approved by each customer of the selling adviser.

B. An investment adviser does not need the approval of clients to sell the business. However, technically, the sale means that the advisory contracts will be assigned and that cannot be done without client consent. In an event such as this, the clients would be given the choice of having the new firm manage their assets or taking their accounts elsewhere.

An investment adviser representative is required to make disclosure to the client when: I. the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated. II. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale. III. transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client. IV. transactions recommended to the client are inconsistent with those for the IAR's own account. A) I and III. B) II and IV. C) I, II and III. D) II, III and IV.

B. An investment adviser must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the adviser, as well as full disclosure if a recommendation is not consistent with the adviser's own activity in his own account. The adviser can use any source of information to create his own analysis, disclosure of source only being required if the adviser uses the product of a third party as the presentation to the client. It would be unusual that all clients with the same objectives would purchase or have recommended for purchase the same securities.

An IAR is comparing an investment in two securities by computing the net present value of each. The available funds for investment are $20,000, and the present value of choice A is $21,223, while that of choice B is $18,946. Based on this information, it would be correct to state that A) choice B would result in a capital gain B) choice A would be the more attractive choice C) choice A would result in a capital loss D) choice B would result in an increase in present wealth if held to maturity

B. Anytime the present value is higher than the cost of the investment, the NPV is positive and you will have made a profitable investment. Therefore, purchasing choice A would result in an increase to the investor's present wealth because buying something for $20,000 that has a present value of $21,223 gives the investor that added value.

Which of the following debt instruments is unsecured? A) Junior lien mortgage bonds. B) Aaa/AAA rated debentures. C) Collateral trust certificates. D) Equipment trust certificates.

B. Corporate debentures are unsecured bonds backed by the credit of the issuing corporation; they are not secured by underlying collateral. Mortgage bonds are secured with real estate serving as collateral. Collateral trust bonds are secured by securities that a corporation owns in other companies or bonds. Equipment trust certificates are secured by transportation equipment owned by the corporation.

Which of the following best describes a nonissuer transaction? A) One that is generally prohibited under the USA. B) One that occurs between investors in the secondary market. C) One that involves investors in the primary market. D) One that provides capital to a corporation that is offering stocks or bonds to the public.

B. In a nonissuer transaction, none of the proceeds go to the issuer, and the most common nonissuer transaction occurs between investors in the secondary market. An issuer transaction provides capital to issuers.

According to NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, all of the following practices are considered unethical for an agent EXCEPT: A) receiving written discretionary authority from a client within 10 business days of first executing a discretionary trade with oral authority from the client. B) determining the quantity of a specific security to purchase once the client has designated that security and the action to be taken. C) selling 3,000 shares of ABC as directed by a client at a price that the agent determines, without oral or written discretionary authority. D) selling 3,000 shares of ABC at a price the agent determines is the best the client can get, without oral or written discretionary authority.

B. It is not unethical for an agent to choose time and price of a trade as long as the client has determined the asset, the action, and the amount. Discretionary authority must be received by agents in writing prior to any discretionary trading taking place in the account.

If an employer installs a Keogh plan, it must include all full-time employees: A) with at least one year of service. B) age 21, with at least one year of service. C) age 25 or older. D) with at least three years of service, regardless of age.

B. Keogh plans must have eligibility requirements that cover all employees who are full- time, are at least 21 years of age, and have one or more years of service.

If interest rates decline sharply, which of the following bonds is likely to appreciate the most? A) 15-year 8% bond trading on an 8.10 basis B) 15-year zero coupon bond trading on a 7.80 basis C) 15-year 7% bond trading at par D) 15-year 8% bond trading on a 7.90 basis

B. Prices of zero-coupon bonds tend to be more volatile than prices of interest-bearing bonds because of their longer duration.

If a pharmaceutical manufacturer's stock declines because the federal Food and Drug Administration has doubled the period of time required for clinical trials before any new drug may be released for public sale, this is an example of: A) beta risk. B) regulatory risk. C) business risk. D) inflation risk.

B. Regulatory risk represents actions of government regulators that limit activities of businesses or add to their costs. The FDA's refusal to approve a new drug as quickly as it used to presents regulatory risk to the holder of the company's securities.

When it comes to social media, agents need to understand the difference between interactive and static content. Which of the following would be considered static content? A) Comments on a Facebook posting B) A broker-dealer's profile posted on Facebook C) Tweets D) Emails sent to clients

B. Static content is content that remains posted until it is changed by the firm or individual who established the account. Interactive content is generally real-time communications, such as the other three choices shown here.

The Uniform Securities Act provides several alternative methods of registration for securities issues. What is the threshold used to determine if an issue may be registered using coordination? A) The issuer must have a minimum capitalization of $100,000 prior to the public offering. B) A registration statement has been filed under the Securities Act of 1933 in connection with the same offering. C) The issuer has been in business for a period of no less than three years. D) For a period of at least 30 days during the three months preceding the offering of the securities registered, there have been at least four market makers for the class of equity securities registered under Section 12 of the Securities Exchange Act of 1934.

B. The USA specifically states in Section 303 that any security for which a registration statement has been filed under the Securities Act of 1933 in connection with the same offering may be registered by coordination. There are no net worth, operating history, or minimum number of market makers required.

Which of the following correlations would represent 2 assets that tend to move in tandem with one another? A) +0.16. B) +0.81. C) -0.11. D) -0.68.

B. The correlation coefficient ranges from -1.0 to +1.0 and measures the varying relationship of assets (or securities) to one another. A correlation close to +1.0 would indicate that the assets should move in tandem. A correlation close to 0 would indicate that the assets would have little relationship to one another, and a correlation of -1.0 would indicate that the assets should exhibit virtually opposite behavior.

"An investment company with a low expense ratio and a portfolio that doesn't change" would be a description of A) an ETF B) a UIT C) an index fund D) a no-load fund

B. The key to this is that the portfolio does not change. Unit investment trusts (UITs) are characterized by a fixed portfolio; once put together, it remains until maturity of the bonds or liquidation of the equities. Index funds and ETFs do change their portfolios from time to time as the composition of the underlying index changes.

Securities of which of the following issuers are exempt under the USA? I. National banks. II. State banks. III. Bank holding companies. IV. Federal savings and loan associations. A) I only. B) I, II and IV. C) I and II. D) I, II, III and IV.

B. Under the USA, the registration exemption for bank-issued securities is justified by strict financial requirements imposed on banks by banking industry regulators such as the FDIC, the Comptroller of the Currency, and the Federal Reserve. Both federal and state banks and federal savings and loan associations are subject to such regulation. However, bank holding companies (as separate legal or corporate entities) are subject to state registration if not otherwise exempt. Thus, securities issued by bank holding companies are not exempt securities under the act.

Stanford Securities, Inc., is a registered broker-dealer in 22 states. Stanford has just created a wholly owned subsidiary, Stanford Advisers, Inc., and expects to have at least $100 million in assets under management within the next 45 days. Stanford Advisers, Inc.: A) must register in each state in which they maintain an office. B) will not have to register in any state. C) will only have to register in the state in which Stanford Advisers, Inc., maintains their principal office. D) must register in each state in which they intend to offer advisory services.

B. Unlike broker-dealers, where there is no such concept as federal covered, a new investment adviser that reasonably expects to reach the $100 million minimum threshold within 120 days of the initial filing of the Form ADV invariably registers with the SEC as a federal covered investment adviser and, therefore, does not register in any state.

Winning Strategies Advisers (WSA) is registered in Vermont where it has its principal office. They also have branch offices in Florida and Colorado. One of their IARs works out of the Florida office and, in addition to his local clients, has one client who lives in Silverton, CO. This IAR would be required to register in: A) Florida and Vermont B) Florida C) Florida, Colorado and Vermont D) Florida and Colorado

B. We know that WSA is a state covered IA rather than a federal covered one because we are told they are registered in Vermont. As such, they must register in each state in which they have a place of business. In this case, that means all three states. However, the question asks about one of their IARs. An IAR for a state covered IA must register in any state in which he maintains a place of business. Because he works out of the Florida office, that is his place of business so he must register in FL. In any other state, the IAR is eligible for the de minimis exemption so, with only one client in CO, registration is not required.

Recent rule changes to the Investment Advisers Act of 1940 require all of the following EXCEPT: A) appointment of a chief compliance officer (CCO). B) independent review of an advisory firm's compliance procedures. C) annual compliance review. D) written compliance policies and procedures.

B. Although new rules require annual compliance reviews, such reviews may be conducted internally by the firm's appointed chief compliance officer. The new rules require written policies and procedures, an annual compliance review, and the appointment of a chief compliance officer (CCO).

Which of the following would be least likely to meet the cyber security definition of a covered account? A) A customer with an automobile loan at a bank B) A customer with a margin account at a broker-dealer C) An account held by a company listed on the NYSE D) An account with a registered investment company that permits the owner to wire funds to a third party

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

Which of the following qualified retirement plans offer tax advantages to both the employer and the employee? I. Individual retirement arrangements (IRAs) II. 401(k) plans III. Deferred compensation plans IV. Defined benefit plans A) II and III B) I and III C) I and IV D) II and IV

D. In both 401(k) plans and defined benefit plans, tax advantages accrue to both the employer and the employees. Employer contributions are deductible, and earnings growth tax-deferred to the employee. IRAs offer no benefit to the employer (note that the answer choice did not say "SEP IRA"), and deferred compensation plans are nonqualified.

Under the USA, an investment adviser's current clients must be delivered a brochure A) annually​, but only​ if the adviser has neither custody nor discretion B) within 48 hours of renewal C) annually whether or not the adviser has custody or discretion D) quarterly if the adviser has both discretion and custody

C. Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients,(except those who are exempt from the brochure delivery requirements {impersonal advise costing less than $500 per year and investment companies registered under the Investment Company Act of 1940}), within 120 days of the end of the adviser's fiscal year. Custody or discretion is irrelevant to this question. Under the USA, all advisory contracts, both initial and renewal, must be in writing.

In which of the following circumstances is a person most likely to be considered an investment adviser? A) A sports representative or agent who successfully negotiates contracts and endorsements for athletes, then suggests that the athlete place his new found wealth in the trust department of a major commercial bank. B) A financial planner who only gives general investment advice not related to securities and then offers discounts to clients who subscribe to a newsletter he publishes on fly fishing. C) A pension consultant who bills by the hour for the advice he provides on the merits of specific investment managers. D)A teacher who gives better grades to the 10 most successful students who invest an imaginary $100,000 portfolio employing both the investment techniques and specific securities recommendations outlined in the course.

C. A consultant who advises pension funds on the merits of investment managers and their approaches to the market is specifically described as an investment adviser in Release IA-1092. Note that the sports representative in this case does not make specific investment recommendations. The recommendation that a person place funds in a commercial bank does not, of itself, constitute investment advice. The teacher is engaged in an educational exercise in which no compensation is received.

Section 403 of the USA Act states that the Administrator may, by rule or order, require the filing of any sales and advertising literature addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser unless the security or transaction is exempted by Section 402 or is a federal covered security. This would include any: I. circulars. II. form letters. III. investment adviser's website. IV. prospectus. A) I and II. B) III and IV. C) I, II, III and IV. D) I, II and III.

C. All of these are included in the filing requirements, even the prospectus.

The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would NOT be eligible for an exemption in your state? A) Bonds issued by the Province of Alberta. B) Common stock issued by the XYZ Trust Company, organized under the laws of a neighboring state, but not authorized to do business in this state. C) Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state, but not authorized to do business in your state. D) Equipment trust certificates issued by a regulated common carrier.

C. Any issue from a state or Canadian province is always exempt. Equipment trust certificates issued by any regulated common carrier are always exempt. Banks, savings institutions, and trust company securities are also exempt as long as they are organized under the laws of the United States or any state. However, securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state.

The Chief Financial Officer (CFO) of a company approaches an investment adviser representative who happens to be the trustee of the corporation's qualified plan requesting a loan from the plan to help the company meet some short-term obligations. Which of the following would be the appropriate action to be taken by the IAR? A) The IAR is permitted to meet any reasonable request from the CFO of the employing company. B) With sufficient collateral, the loan may be made. C) The IAR is prohibited from making this loan because of his fiduciary responsibility to the plan. D) The IAR is prohibited from making this loan if it is not a part of the asset allocation model used in the plan's investment policy statement.

C. As the plan fiduciary, the IAR is prohibited from taking any action that is against the rules. Companies can not use their qualified plan assets to finance their business operations.

An investment adviser is analyzing 4 bonds of similar quality for a client. Bond A has a coupon of 6%, matures in 12 years, and is currently priced at 50. Bond B has a coupon of 8%, matures in 9 years, and is currently priced at 50. Bond C has a coupon of 4%, matures in 18 years, and is priced at 45. Bond D has a coupon of 12%, matures in 6 years, and is priced at 50. Based on NPV, which of these bonds represents the better value? A) Bond A B) Bond D C) Bond C D) Bond B

C. Because you don't have the proper calculator to do a real PV calculation, NASAA expects you to use the rule of 72. Remember, under that rule, dividing 72 by the interest rate tells you the number of years it will take for a deposit to double. Or, if you divide 72 by the number of years, it will tell you the interest rate required for a present deposit to double. Finally, a positive NPV is when you can buy the bond for less than its present value. So, let's look at all 4 choices. Bond A, at 6%, takes 12 years to double. That's exactly the time to maturity, so the PV of this bond should be approximately $500 (a quote of 50). The same is true of bonds B and D—their PV should be approximately $500 (72 ÷ 8% = 9 years; 72 ÷ 12% = 6). Because their price is the same as the PV, the NPV is zero. However, with bond C, 72 divided by 4% equals 18 years, so this bond also has a PV of approximately $500 (50), but it can be purchased for less than that: 45 ($450). Therefore, with an NPV of $50, bond C is the best value.

Under the Uniform Securities Act, all of the following conditions must exist in order for a private placement to be considered an exempt transaction EXCEPT: A) the offer must be directed to no more than 10 individuals during any 12-month period. B) commissions may not be paid to sales agents of the broker-dealer offering the securities to noninstitutional clients. C) noninstitutional clients must not make payment for their purchases. D) broker-dealers and their agents must reasonably believe that noninstitutional clients are buying the securities for investment purposes and not for resale.

C. For a private placement to remain an exempt transaction under the Uniform Securities Act, the offer may be directed to no more than 10 individuals during any 12-month period. Additionally, no commissions may be paid to agents of the offering broker on sales to noninstitutional buyers, and there must be reasonable belief that the purpose in buying the securities by noninsitutional clients is for investment rather than resale purposes. However, just as with any other securities purchase, payment must be made in accordance with industry standards.

ABC Corporation, a newly formed company, has filed a registration statement with the SEC under the Securities Act of 1933. If they wish to use coordination to register in this state, which of the following statements is true? A) If registered by coordination, the state registration may become effective before the federal registration. B) The federal registration makes state registration unnecessary. C) A statement of the maximum and minimum proposed offering prices and maximum underwriting discounts and commissions must be on file with the Administrator for two full business days prior to the date the federal registration statement becomes effective. D) If registered in state X by coordination, the state registration will become effective 30 days after the federal registration becomes effective.

C. One of the requirements of coordination is that a statement of the maximum and minimum expected offering prices and maximum underwriting compensation must be on file with the Administrator for at least two full business days prior to the effective date.

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients: A) immediately. B) within 48 hours. C) when informed by the investment adviser that the representative's registration is effective. D) when informed by the Administrator that the representative's registration is effective.

C. Passing the exams does not automatically give one an effective investment adviser representative's license. Notice is received by the investment adviser from the appropriate state and/or federal authorities and then, in accordance with that firm's procedures, advisory activity may start. The Administrator does not have direct contact with the individual.`

The written disclosure document (brochure), that a state covered investment adviser is required to deliver to prospects and clients, must contain all of the following information EXCEPT: A) balance sheet if the firm maintains custody of client funds and/or securities. B) methods of analysis, sources of information, and investment strategies. C) location of the records required to be retained under the Uniform Securities Act. D) method of compensation.

C. The location of the records that must be retained need not be disclosed in the brochure because that is an issue for the regulators, not the clients. The purpose of the brochure is to provide existing clients and prospective clients with information about the adviser's business, including methods of compensation and analytical strategies employed. When a state covered investment adviser maintains custody of client funds, securities, or both, a balance sheet must be included in the brochure.

In an effort to find a suitable security for a client's portfolio, an investment adviser representative reviews the performance of a particular common stock over the past 7 years. The annual returns over that period have been 6%, 22%, 16%, -8%, 11%, 12%, and -3%. It would be correct for the IAR to report to the client that the range of returns has been A) 11% B) 8% C) 30% D) 14%

C. The range is the difference between the highest and lowest returns. In this case, the highest return is +22% and the lowest is -8%. That is a difference of 30. The mean (or average) is 8% and the median is 11%.

A client has a TIPS with a coupon rate of 3.5%. The inflation rate has been 4% for the last year. What is the inflation-adjusted return? A) 4.00% B) 7.50% C) 3.50% D) -0.50%

C. Treasury Inflation Protected Securities (TIPS) adjust the principal value each 6 months to account for the inflation rate. Therefore, the real rate of return will always be the coupon.

Rule 203(a)-2 of the Uniform Securities Act deals with recordkeeping requirements of investment advisers. Under that rule, every investment adviser registered or required to be registered under the act must make and keep true, accurate, and current all of the following books, ledgers, and records EXCEPT: A) written procedures to supervise the activities of employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws and regulations. B) a copy in writing of each agreement entered into by the investment adviser with any client and all other written agreements otherwise relating to the investment adviser's business as an investment adviser. C) a file containing a copy of each communication by electronic media that the investment adviser circulates or distributes, directly or indirectly, to an existing client. D) a copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser.

C. Under the USA, an investment adviser is required to keep a file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including by electronic media, that the investment adviser circulates or distributes, directly or indirectly, to 2 or more persons (other than persons connected with the investment adviser), so individual emails do not have to be kept in a file.

When describing exempt transactions under the USA, which of the following are fiduciaries? I. Executor of an estate II. Administrator in intestacy III. Custodian for a minor in an UTMA account IV. An agent with authority over time and price execution A) I and III B) II and IV C) III and IV D) I and II

D. Both executors and administrators are fiduciaries. An agent is a fiduciary if the agent has discretionary authority over the assets in the account, but time and price authority is not considered discretion. A sale made by the custodian for a minor in an UGMA or UTMA account does not qualify as an exemption transaction under the USA, even though, as a matter of law, the custodian is functioning in a fiduciary capacity.

Exempt transactions, as defined in the Uniform Securities Act, would include all of the following EXCEPT A) isolated nonissuer transactions B) liquidation of securities held in an estate by the executor C) pre-organization certificates being sold to 8 retail investors D) an agent selling U.S. Treasury bonds to an individual client

D. Even though Treasury bonds are an exempt security, a solicited sale to an individual is NOT an exempt transaction.

Chuck is a registered investment adviser and a highly respected investment analyst. He has prepared a research report that is highly bullish on Monolith Industries, Inc., common stock. The report has not been released because it is still under review by the compliance department of Chuck's firm. Chuck has been asked to participate in a radio interview show in which he will be asked questions about this stock. Which of the following statements best describes how Chuck may communicate about this stock to others? A) Chuck may recommend this security to existing clients but not to prospective clients. B) Chuck may recommend this security following disclosure of any position he or his firm holds in Monolith Industries, Inc. C) Chuck may recommend this security without restriction. D) Chuck may not discuss this security because his report has not yet become available for public distribution.

D. Because the information in Chuck's research report will not be available for public distribution until after approval by the compliance department, he may not discuss the security to clients or prospects until the report is cleared.

A farmer who produces soybeans believes that this year's crop will be the biggest ever. The farmer would most likely hedge this risk by A) going short soybean futures B) going long soybean futures C) going long soybean forwards D) going short soybean forwards

D. A big crop means more supply and lower prices when the crop is harvested. Hedging involves taking an opposite position (benefitting if prices fall). If the farmer is correct, selling short at today's price will enable delivery in the future at that higher price. Because this is a producer who will have product to deliver, forwards are likely to be more appropriate than futures.

Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they conduct business? I. A certified financial planner who prepares financial plans and whose only compensation is commissions. II. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients. III. A broker-dealer with extensive business in the state. IV. A mutual fund company with offices and clients in the state. A)III and IV. B) I, II, III and IV. C) I only. D) I and II.

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

Which ratio would be looked at to determine the liquidity of a corporation? A) Dividend payout. B) Debt/equity. C) Price/earnings. D) Current.

D. A company's current ratio is their current assets divided by their current liabilities. If their current ratio is strong, they have a highly liquid position.

A person who is vested with legal rights and powers to be exercised for the benefit of another is known as A) a broker B) a dealer C) a sponsor D) a fiduciary

D. A fiduciary places the interest of the beneficial owner first, and is morally and legally responsible for acting in that capacity.

A thirty-five year-old client purchases a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is: A) 8.5% per premium payment. B) 8.5% of total premiums over the life of the plan. C) 9% per premium payment. D) 9%.

D. A variable life insurance plan may charge a maximum sales charge of 9% over a period not to exceed 20 years.

Which of the following is NOT included in Form ADV Part 2A? A) Types of investments made by the adviser B) Investment policy of the adviser C) A description of how the adviser is compensated D) States in which the investment adviser is registered or intends to register

D. ADV Part 2A is the brochure that investment advisers must deliver to clients; it describes the investment adviser's fees, investment policies, and types of investments made. The states in which the adviser is registered or intends to be registered in are not contained in ADV Part 2A. If the IA is registering with the SEC, on Part 1A, they list only the largest five offices (in terms of numbers of employees). If state-registered, they list each state they will be registering in or are already registered in.

Which of these features are common to both variable annuities and scheduled premium variable life insurance? I. Income earned in the separate account is tax deferred. II. Separate account performance below the AIR causes a reduction in cash value. III. Fixed contributions are required. IV. Contract owners have voting rights. A) I and II. B) III and IV. C) II and III. D) I and IV.

D. All variable products offer tax deferral of earnings in the separate account. Unit holders of a variable annuity vote on the basis of the number of units they own; holders of variable life insurance receive one vote for each $100 of cash value. With variable life insurance, AIR applies only to the death benefit, not to cash value.

Which of the following is a characteristic of the passive investment style? A) High portfolio turnover. B) Income rather than growth objective. C)Tactical management. D) Rebalancing.

D. Because the passive (strategic) style of investing does not involve frequent trading (as does the tactical or active style), periodically the portfolio will be rebalanced to insure that the asset mix is at the desired level. This style may be used for either income or growth objectives.

An agent of a broker-dealer has a client who lost her job but will be starting a new job in three weeks. The client is in need of $900 for the three week gap. Under what circumstances may the agent arrange a loan for the client? A) If the loan is repaid within 30 days B) If the client is agent's niece C) If the loan is less than $1,000 D) If the client has $5,000 in her brokerage account

D. Loans may be made to clients if the person making the loan is in the lending business. Broker-dealers are permitted to lend money against securities held in client's portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.

A customer of an investment adviser inadvertently mails some stock certificates to the IA. The IA does not maintain custody of customer assets. If the certificates were received on a Monday, NASAA rules would requires that the certificates must be: A) forwarded to the broker-dealer promptly. B) returned no later than Tuesday. C) returned the same day. D) returned no later than Thursday.

D. NASAA's custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within 3 business days. When it comes to checks, it depends on how the check is drawn. If made out to the investment adviser, it must be returned; if made out to a third party (usually the executing broker-dealer), it must be forwarded to that third party. In either case, the time limit is 3 business days (might be shown as 72 hours on the exam).

An agent and a broker-dealer maintain wrap fee accounts for several of their customers. Which of the following registrations is required? A) Only the registered principal would need to be registered in the state(s) in which they do business. B) Neither the broker-dealer nor the agent is required to have any license other than their regular securities license. C) The agent must be registered as an investment adviser. D) The firm must register as an investment adviser.

D. Once a broker-dealer handles wrap fee accounts, it loses the exclusion from the definition of investment adviser. Therefore, the firm must be registered with either the state or the SEC. Any agents handling these accounts would be registered as investment adviser representatives.

Surrender charges may cause a reduction to all of the following EXCEPT A) the liquidation value of a variable annuity B) the redemption value of Class B mutual fund shares C) the cash value of a variable life insurance policy D) the death benefit of a variable life insurance policy

D. Surrender charges never apply in the case of a death benefit. There may be a surrender charge in the case of early surrender of a variable annuity, taking out the cash value of a variable life policy, or redemption of Class B (back-end load) mutual fund shares.

Having received an offer of a large hiring bonus, an agent of XYZ Securities, a broker-dealer registered in the state, wishes to terminate her registration and register with ABC Investments, Inc., a different broker-dealer in her state. Under the requirements of the Uniform Securities Act, which of the following statements regarding notification to the Administrator is NOT true? A) The agent can rely on her new employer to notify the Administrator. B) The agent can rely on her former employer to notify the Administrator. C) The agent's application for registration with her new employer must be accompanied by the appropriate fee. D) Only the agent needs to notify the Administrator.

D. Termination of an agent's registration with the state requires both the agent and the employing broker-dealer to notify the Administrator. When going to a new firm, the new employer must give notice as well. An agent can rely on the firms to give notification because failure to do so is a prohibited practice on their part and can lead to disciplinary action. Unlike a successor firm, any time an agent changes broker-dealers, a new licensing fee is due.

Under the Uniform Securities Act, an Administrator has which of the following powers? I. The power to seek court orders for the payment of restitution against any violators of the act. II. The power to issue a cease and desist order with or without prior hearings. III. The power to impose fines for violations of the act up to $5,000. A) I, II and III. B) II only. C) I only. D) I and II.

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

A client has a $250,000 portfolio accumulated by aggressively trading speculative stocks. The client grants discretionary authority to a registered investment adviser and directs the adviser to continue the speculative strategy. If after 1 year the account value has declined by ½ and the client complains to the adviser about the performance, the investment adviser should: A) refund the management fee to partially offset the loss. B) register the complaint with the SEC. C) refund the entire loss. D) do nothing since the adviser acted in accordance with the customer's directions.

D. The investment adviser acted in accordance with the customer's directions and therefore, should do nothing. If, however, the complaint was in writing, it must be noted and placed into the complaint file with a description of the action taken and final disposition.

The definition of "offer" (offer to sell) includes which of the following? I. An attempt to dispose of a security for value. II. A solicitation of an offer to buy an interest in a security for value. III. The actual sale of a security for value. IV. An offer to dispose of a security for value. A) I, II, III and IV. B) I and IV. C) I only. D) I, II and IV.

D. The term" offer" (or offer to sell) is any activity in an effort to dispose of a security for value, such as the offer to sell or the solicitation of an offer to buy a security. The term" sale" or "sell" includes every contract of sale, contract to sell, or any disposition of a security for value.

Under Section 28(e) of the Securities Exchange Act of 1934, which of the following is allowable soft-dollar compensation from a broker-dealer to an investment adviser under the safe harbor provisions? A) Cell phones to rapidly communicate with clients. B) Office rental payments. C) Vacations. D) Custodial services provided by the broker-dealer.

D. The use of a client's commission dollars to purchase a broker-dealer's custodial services is an allowable soft-dollar compensation. It is an investment benefit that accrues directly to the client and not to the adviser. Office rental payments, cell phones, and vacations are not allowable because their benefits do not accrue directly to the client. Other examples of permitted soft-dollar items are research and analytical software because they benefit the client whose commission dollars are, in effect, paying for them.

A federal covered investment adviser feels that some recent industry regulations will limit his ability to provide the returns to clients that both he and they desire. He communicates this to his clients and urges those who are willing, to sign an agreement waiving their rights to take any legal action in the event of loss due to his refusal to follow those rules. This means: A) clients would not be able to sue because they have executed a document waiving their rights. B) a suit would be possible, but only if agreed to by the IA. C) that as long as this is part of the agreement with the IA, no legal action can be taken. D) clients would still be permitted to sue because there is no way that legal rights can be waived.

D. There is no way, NEVER, NEVER, that a waiver of legal rights is ever enforceable.

An IAR with a state-registered adviser would like to employ the services of an individual as a solicitor to help bring in more business. The solicitor will be compensated by receiving a percentage on all assets placed under management. In order to do this, all of the following must be complied with EXCEPT: A) disclosure of the arrangement must be made to the client. B) the terms of the compensation must be spelled out. C) the solicitor must be registered as an IAR in order to receive compensation based upon advice. D) the client must sign the contract at the same time as he receives the IA brochure and the solicitor disclosure document.

D. These brochures must be delivered at the time of the sales presentation. As a practical matter, the signing of the contract won't take place until the prospective client decides to engage the services of the IA.

Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must A) send a copy of its brochure within 7 days of receiving a request from a client B) send a copy of its brochure to all clients within 90 days of the end of its fiscal year C) send a copy of its brochure to all clients within 60 days of the end of its fiscal year D) send a copy of its brochure to all clients within 120 days of the end of its fiscal year

D. Whether a state or federal covered investment advisers, a copy of the IA's brochure, assuming there have been material changes, must be sent to all clients no later than 120 days after the close of the IA's fiscal year.

A client owns an investment grade bond with a coupon of 7%. If similarly rated bonds are being issued today with coupons of 5%, and the market is efficient, it would be expected that the client's bond A) will be selling at a discount from par B) has a negative net present value C) has a positive net present value D)has a zero net present value

D. With a discount rate of 5% (the discount rate in a present value computation is the current market interest rate), a debt instrument with a 7% coupon rate will be selling at a premium (interest rates down, prices up). If the market is efficiently pricing that bond, its market price should be equal to its present value, resulting in an NPV of zero.