CH 7 SERIES 66
An investment adviser may borrow from all of the following clients EXCEPT A) a mortgage broker who helped the adviser negotiate mortgage terms for its office building B) a savings and loan association that has offered to finance new computers for the adviser's office C) a broker-dealer in conjunction with a margin account D) a commercial bank in conjunction with a mortgage on the office building from which the advisory operate
A
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers deems all of the following as unethical practices for investment advisers EXCEPT A) performing the initial trades in a new discretionary account with oral authorization B) charging advisory fees that are significantly higher than those charged by other advisers for similar services in that state C) inability or unwillingness to disclose sources of additional fees received from those other than the customer in connection with providing advisory services to that client D) recommending a security based on a rumor
A
One of the major differences between identity theft and physical theft is that in the case of identity theft, A) it might not be discovered for some time B) unless hospitalization is required, law enforcement is generally unconcerned about identity theft C) the victim can usually correct the problem much more quickly than with physical theft D) the cost of the damages is generally much less
A
The duties and responsibilities of a fiduciary are spelled out in A) the Uniform Prudent Investors Act of 1994 B) the Investment Advisers Act of 1940 C) the Summary Plan Document of the DOL D) the Uniform Gift to Minors Act
A
When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is A) the ability of the customer to move funds out of the account on multiple occasions B) if the customer owns the underlying security on which the call option is sold C) the ability of the customer to make a one-time wire to a foreign bank account owned by a family member D) that the account is in the name of an institutional customer
A
Which of the following phrases best describes a prudent investor? A) A trustee who invests with reasonable care, skill, and caution B) A person in a fiduciary capacity who invests in a prudent manner C) An investment adviser representative (IAR) handling a discretionary account D) The custodian for a minor under the Uniform Transfers to Minors Act
A
Unless an exemption applies, under the Investment Advisers Act of 1940, an investment adviser is required to A) furnish an audited balance sheet each year to customers for whom the advisor maintains custody B) provide each advisory client with a brochure or a summary of material changes within 120 days of the end of its fiscal year C) maintain a bond for an amount based on the assets under management D) furnish a statement of the total dollar amounts of securities bought and sold each year to customers
B
A fiduciary, acting in accordance with the UPIA, would choose investments on the basis of all of the following EXCEPT A) needs for liquidity, regularity of income, and preservation or appreciation of capital B) transaction costs C) other resources of the beneficiaries D) general economic conditions
B
ABC Advisers, Inc., a federal covered investment adviser is a wholly owned subsidiary of ABC Corporation, a holding company that also owns ABC Securities, a full-service broker-dealer that is a member of the New York Stock Exchange and FINRA. One of the clients of ABC Advisers calls his IAR to explain that he has just received a margin call in his ABC Securities account. Under these circumstances, it would NOT be prohibited for the IAR to use securities owned in the advisory account to obtain a loan for this client A) when the client has furnished ABC Advisers, Inc., with a proper discretionary trading authorization B) because the 2 firms are affiliated C) if the client agreed to repay the loan within 30 days D) because ABC Advisers, Inc. is in the money lending business
B
Following the advice of its portfolio managers, the Rising Tide hedge fund executes most of its securities transactions through Momentum Securities, a registered full-service broker-dealer. In order to compensate for the commissions charged, Momentum Securities allows employees of Rising Tide to use its furniture and facility at a discounted rate. Under the soft-dollar provisions of Section 28(e), A) this would fall under the safe harbor B) this would not fall under the safe harbor C) as long as the discounted rate reflected the volume of business done by Rising Tide, this would be permitted D) this would not fall under the safe harbor provisions unless the employees were those who directed the transactions to Momentum Securities
B
You are an IAR. One of your clients is a C level officer with a publicly traded corporation. When needing to relieve yourself, you are shown to the executive washroom. While cleaning up, you notice a report, stamped "Confidential" and a quick peek reveals that it is highly favorable to the company. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, you A) contact the Administrator immediately B) cannot buy any of the stock for personal or client accounts C) can accept unsolicited orders from clients and buy for your personal account only D) should tell your client what you saw and ask permission to act on this information
B
An IAR concludes a successful meeting with a client by receiving oral authority to begin exercising discretion in the client's account. The IAR leaves the appropriate paperwork with the client and urges him to return it in the postage paid envelope as soon as possible. After returning to the office, the IAR enters the first discretionary order for this account, a purchase of $10,000 of CANCO common stock. Six days later, CANCO reports that it is going to miss its earnings estimates and the stock begins to fall. The IAR realizes that the best thing to do for the client is take the loss and get out before it gets worse, but the client has not yet returned the signed paperwork. In this case, A) the IAR has acted improperly from the outset by making the purchase prior to receiving the signed paperwork B) the IAR must wait for the signed paperwork to be received C) the IAR may exercise his discretion as authorized and sell the CANCO D) the investment adviser firm should apply to the Administrator for an extension of time
C
An agent made written disclosure to his employing broker-dealer that he intends to execute a series of private securities transactions with clients who do not have accounts with his broker-dealer. The agent did not acquire express written permission from the broker-dealer and did not receive compensation for executing the transactions, but did receive written acknowledgment of receipt of the agent's notice. In this case, the agent A) performed a matched trade as permitted under the rules B) engaged in an agency cross transaction C) is guilty of selling away D) is required to register as a broker-dealer
C
An investment adviser prepares a slick advertising piece containing the relevant information from the firm's Form ADV - Part 2. One of the firm's IARs secures a contract with a new client and presents the brochure at that time. While explaining the terms of their agreement, the IAR mentions that the client may withdraw within the first 48 hours without any penalty. Upon returning to the office, the IAR realizes that he forgot to have the client sign a receipt for the disclosure document. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) there is no violation as long as the customer signs a waiver agreeing to these terms. B) there is a violation because the IAR failed to obtain the signed receipt. C) the IAR has acted in an unethical manner by giving incorrect information regarding the penalty-free withdrawal privilege D) there is a violation because the brochure must be delivered at least 48 hours prior to entering into the contract.
C
Ditherton, Wiggleman, and Jones, LLC, is an investment adviser with $2 billion in AUM. In appreciation for the large volume of brokerage transactions directed their way, Alexander Wimpton and Sons, Members of the NYSE, offer to send Mr. Ditherton on an all expense trip to Zurich to attend a seminar covering the latest developments in global investing. Under Section 28(e) of the Securities Exchange Act of 1934, A) Mr. Ditherton could attend, but only if he paid the direct costs of the seminar and let Wimpton and Sons take care of the transportation costs B) Mr. Ditherton could not attend because the safe harbor under Section 28(e) only applies to domestic events C) Mr. Ditherton could attend, but only if he paid all of the expenses except for those direct costs of the seminar D) Mr. Ditherton could attend because attendance at a business-related seminar such as this falls under the safe harbor provisions of Section 28(e)
C
One of your very best clients introduces you to his son and then, one week later, is injured in an accident and is totally paralyzed and unable to speak. The son calls you and enters an order for his father's account that is entirely consistent with your client's trading habits. As an agent, you would A) act in accordance with the client's last will and testament B) follow the son's instructions C) refuse the trade without a signed power of attorney D) visit your client in the hospital and ask him to squeeze your hand if he wishes to go ahead with the trade
C
The prohibited practice of an investment adviser placing the same security in the accounts of all of the firm's clients is known as A) discretionary misrepresentation B) matched orders C) blanket recommendations D) churning
C
All of the following statements concerning an agency cross transaction for an advisory client are true EXCEPT A) an advisory client must provide prior written consent for the adviser to be able to engage in agency cross transactions B) an investment adviser must make prior written disclosure to the advisory client that it will act as broker-dealer for, have a potential conflict of interest with, and may collect commissions from both parties C) it is a transaction in which a person acts as an investment adviser in relation to a transaction in which the adviser or related person acts as a broker-dealer for both the advisory client and another person on the other side of the transaction D) an investment adviser may recommend the transaction to both parties to the transaction
D
An agent's client calls on Monday to discuss the current market situation. They discuss how 100 shares of KAPCO common stock would be an appropriate addition to the client's portfolio. On Thursday, the client calls and tells the agent to place an order for the KAPCO stock at whatever price the agent feels is best. The agent waits until Friday, purchasing the stock at a price $2 per share below Thursday's low. In this case the agent acted A) improperly; the order cannot be placed without prior written authorization allowing discretion B) properly because the agent used discretion as to price and time C) properly because the agent saved the client money D) improperly; the order should have been placed on Thursday
D
An investment adviser representative of a federal covered investment adviser that provides advisory services to State A would not trigger the "pay-to-play" prohibition against the firm receiving compensation from that state for advice as long as the IAR contributed no more than A) $350 per election cycle for a candidate that IAR was ineligible to vote for B) $500 per election cycle for a candidate that IAR was eligible to vote for C) $250 per election cycle for a candidate that IAR was ineligible to vote for D) $350 per election cycle for a candidate that IAR was eligible to vote for
D
As long as properly disclosed, a broker-dealer would be permitted to charge a fee for all of these EXCEPT A) issuing a stock certificate B) annual maintenance fees C) wiring funds to the client's bank D) solicitation of proxies
D
Under the USA, all of the following statements are true regarding investment advisory contracts EXCEPT A) they can only allow fees to be performance related under certain limited circumstances B) they cannot be assigned without customer approval C) they must be in writing D) they cannot allow for prepaid advisory fees
D
