Final 2 Missed Questions
An agent's license remains in effect: A. for 30 days B. for 2 years unless terminated earlier C. until canceled by the agent or revoked by the administrator D. for a period of time that may vary from State to State
D Agent, broker-dealer, investment adviser, and investment adviser representative registrations are good for time periods that vary from State to State, though most States have a 1 year renewal period. Registrations expire on December 31st of each year, unless the Administrator designates another date.
Under NASAA rules for STATE-registered advisers, transactions must be recorded in customer account records no later than: I 5 business days II 10 business days III following the end of the month in which the transaction was effected IV following the end of the quarter in which the transaction was effected A. I and III B. I and IV C. II and III D. II and IV
D NASAA rules for State-registered advisers require that customer account records be posted no later than 10 business days following the end of each calendar quarter.
Which of the following securities can be registered by qualification in a State? A. Limited Partnership B. Fractional Interest in an Oil and Gas Program C. Certificate of Deposit for a security D. All of the above
D Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities.
Which State-registered investment advisers MUST report that they take custody on Form ADV? I An adviser that is affiliated with a parent bank or trust company II An adviser that directly deducts management fees each quarter from client accounts III An adviser that has discretionary authority over client accounts under a limited power of attorney IV An adviser that acts as a trustee for a client where the grantor of the trust is the client A. I and III B. I and IV C. II and III D. II and IV
D Taking custody means that the adviser is holding customer funds or securities or has the ability to access customer funds or securities. If an adviser is permitted to directly deduct fees from client accounts, it meets this definition. Securities must either be held in customer name, or held in adviser name, with the adviser being the trustee for the customer. Thus, if the adviser is appointed as trustee over the customer's account, custody has been taken.
An agent that is employed by Merrill Lynch believes that the stock of the parent company (Bank of America), which has been trading at new lows on the NYSE, is ready for a rebound. She wants to recommend it to her customers. Which statement is TRUE about doing so? A. This is an unethical business practice and is prohibited B. This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation C. This is permitted only if existence of the relationship is disclosed in writing on the confirmation D. Both Choices B and C above
D This is a conflict of interest that must be disclosed to clients when making a recommendation. The existence of the relationship must be disclosed verbally when making the recommendation; and also must be disclosed in writing prior to completion of the transaction (this is done by disclosing it in writing on the trade confirmation).
An investment adviser would be allowed to lend money to a customer in which of the following situations? A. The customer informs the adviser that he has been fired from his job and needs the funds on an emergency basis to meet his monthly living expenses until he finds a new job B. The customer is an old college buddy of the adviser and is going through a nasty divorce and he needs the funds to pay for court- ordered child support C. The customer has received a margin call in his brokerage account maintained at an unaffiliated broker-dealer and does not wish to sell those securities since they are likely to appreciate in the near future D. The customer is a partner in the advisory firm who needs a cash distribution from the firm to meet required minimum tax payments due
D Under NASAA rules, the prohibition on borrowing money from customers or lending money to customers is completely straightforward. If a customer is in "financial hardship" or the customer is an "old friend" or the customer "needs money," these are not reasons that allow the rule to be ignored. However, a partner of an advisory firm could borrow money from the firm - this is done all the time. Firms lend money routinely to their officers and partners (and often to their employees too). An officer or partner is not a "customer" for purposes of this rule. These are owners of the advisory firm, not customers.
Intentional or willful violations of the Uniform Securities Act that are considered to be a felony subject that person to: A. civil liability only B. civil liability and civil penalties C. criminal liability only D. criminal liability and criminal penalties
D Willful violations of the Uniform Securities Act can be a felony and can result in Criminal Liability and Criminal Penalties.
Which statements regarding registration of a security in a State are FALSE? I Registration is effective for a time period of 1 year II Once registration is declared effective in a State, it is effective in any other State in which a registration statement is filed III A registration statement can be filed in a State by a person other than an issuer IV To maintain registration in a State quarterly and annual financial statements must be filed with the Administrator A. I and III B. I and IV C. II and III D. II and IV
D Registration statements filed in a State are good for 1 year, so Choice I is true. Once registration is declared effective in one State, it is not automatically effective in any other State in which a registration statement is filed. Each State acts independently, making Choice II false. A registration statement can be filed by an underwriter or attorney acting for an issuer; or it can be filed by anyone who has securities that need to be State registered in order for them to be sold; making Choice III true. There is no State filing of an issuer's quarterly and annual financial statements - these are required to be filed by SEC-registered issuers under the Act of 1934 and are public documents, so Choice IV is false.
All of the following are defined as securities under the Uniform Securities Act EXCEPT: A. Stock options B. Commodity options C. Stocks D. Commodities
D Stocks, stock options, and commodity options contracts are all defined as securities. Please note that physical commodities (e.g., gold, wheat, etc.), and futures contracts that trade on these commodities in such markets as the Chicago Board of Trade, are not considered to be securities.
Which action on the part of an agent would NOT be a violation of the Uniform Securities Act? A. The agent backdates a bond trade confirmation at the request of the purchaser to reduce the amount of accrued interest paid in the transaction B. The agent sells a non-exempt IPO to a customer without delivering a prospectus, at, or prior to, confirmation of sale of the issue C. The agent pays an investment adviser 10% of each commission generated by customers referred to the broker by the investment adviser without having disclosed this arrangement in writing D. The agent tells a customer that if options positions are properly used to hedge a stock position, then a loss cannot be suffered on the stock position during the option's life
D Telling a customer that options positions can hedge a stock position against loss is a true statement and is not a prohibited guarantee against loss. The difference is that the customer pays for the option that is protecting the stock position, and this is perfectly acceptable.
A Registered Investment Adviser is also a registered representative that manages a client's account. The customer is paying a fixed annual advisory fee and is paying a commission for each execution of a recommended trade, both of which have been disclosed to the customer. Which statements are TRUE? I The account may be charged an advisory fee II The account may not be charged an advisory fee III The account may be charged a commission on each trade execution IV The account may not be charged a commission on each trade execution A. I and III B. I and IV C. II and III D. II and IV
A An investment adviser can charge advisory fees to a client for recommending securities; and then can charge commissions to that client on trades performed, as long as both of these fees are disclosed to the customer.
An investment adviser headquartered in State A wishes to solicit both individual and institutional customers in State B. Which statements are TRUE? I If the investment adviser has an office in State B, it must register in State B II If the investment adviser has an office in State B, it need not register in State B III If the investment adviser has no office in State B, it must register in State B IV If the investment adviser has no office in State B, it need not register in State B A. I and III B. II and IV C. I and IV D. II and III
A If an investment adviser has an office in a State, it must be registered in that State. If an investment adviser has no office in a State, but solicits customers in that State, it must register in that State as well, unless an exemption is available.
An investment adviser that has no office in State B would be required to be registered in State B if a representative associated with that firm sells advisory services in State B to: A. 6 relatives B. an investment advisory firm and 2 individuals C. an investment advisory firm and 6 private individuals, of which 3 are officers of an investment advisory firm D. 6 investment advisory firms
A Offering services to 5 individuals or less allows the adviser with no office in that State to claim the "de minimis" exemption in the State. There is no exemption for offering advisory services to relatives.
The Administrator is empowered to summarily suspend a registration by: A. order B. court order C. injunction D. adjournment
A The Administrator is empowered to summarily suspend a registration by order (no court order is required).
Which of the following are defined as an "agent" under the Uniform Securities Act? An individual who represents: I ACME Broker-Dealer effecting trades in preferred stocks II the City of New York selling the City's general obligation bonds to New York residents III ACCO Broker-Dealer effecting trades in private placements exempted under Regulation D IV the Federal Reserve effecting trades of U.S. Government securities in its open market operations A. I and III B. II and IV C. I, II, III D. I, II, III, IV
A Under the Uniform Securities Act, an agent is an individual who represents a broker-dealer in effecting securities trades with the public (I and III). It makes no difference if the security is exempt or not.
Which of the following statements are TRUE about an offer of rescission? I The offer can only be made prior to the institution of a lawsuit alleging a securities violation II The offer can only be made after the institution of a lawsuit alleging a securities violation III An offer must be made to buy back the security at the original purchase price and the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security IV An offer must be made to buy back the security at the current market price and the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security A. I and III B. I and IV C. II and III D. II and IV
A If an offer of rescission is made on the inadvertent sale of a non-exempt security that should have been registered under the Act, the offer can only be made prior to the institution of a lawsuit alleging a securities violation. An offer must be made to buy back the security at the original purchase price, plus the customer must be paid interest at the legal rate in the State (6%), less any dividend or interest income received from that security. Any offer of rescission must be accepted within 30 days of the offer.
A BD application is received by the State Administrator for a new broker-dealer subsidiary of a Swiss securities firm. The application includes the disclosure that the parent firm was suspended from membership on the Deutsche Bourse 6 years ago because of unauthorized trading by its Hong Kong branch. The State Administrator A. cannot deny registration based on the suspension that was imposed by a foreign regulator B. can deny registration based on the suspension by the foreign regulator C. must grant registration because the U.S. subsidiary is a legally separate entity from the parent company that is based in Switzerland D. can deny registration only if the actions of the parent company were a criminal offense
A It also includes a provision regarding violations of the law of a foreign jurisdiction. In this case, it sets a 5 year statute of limitations. (Why? - Who knows!) In this case, the suspension by the foreign regulator happened 6 years ago, so the State Administrator cannot deny registration based on the action taken by the foreign regulator.
The Administrator is NOT permitted to: A. appoint a receiver in bankruptcy to distribute the assets of a failed registered broker-dealer B. bar any registrant from employment with a registered broker-dealer C. restrict or limit a registrant as to any function or activity of the business for which registration is required in the State D. summarily postpone or suspend registration pending a final determination of any proceeding or hearing
A Only a bankruptcy court can appoint a trustee to take control of the assets of a failed business - not the State Administrator.
Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following information EXCEPT: A. time of execution of the order B. person who placed the order C. name of account for which order was entered D. name of broker-dealer to which the order was sent
A Order ticket information required for investment advisers is different than that required for broker-dealers. The IA writes an order and sends it to a broker-dealer or bank for execution. The IA must keep a record of the order as it was sent; the IA does not keep the record of the actual execution of the order - this is the responsibility of the executing broker-dealer.
Under the Uniform Securities Act, a structured security issued by an investment bank is a(n): A. exempt security B. non-exempt security C. federal covered security D. investment company security
B A "structured security" is a structured product. These are a bond-like investment, typically created by investment banks, that give an investment return tied to the performance of an equity index, subject to a cap and a floor on the return. However, they are not backed by physical equity securities - they are simply backed by the promise to pay of the issuing bank. Thus, if the investment bank fails (think Lehman Brothers) - so do the structured products issued by that bank. Thus, their main risk is credit risk. They are non-exempt securities under both federal and state law.
A market maker in ABCD stock is currently quoting the stock in the OTCBB at: $42.00 Bid (500 shares); $43.00 Ask (1,000 shares) If the market maker receives a customer order to sell 800 shares of ABCD at $42.50, the market maker: A. must update its quote to: $42.50 Bid (800 shares); $43.00 Ask (1,000 shares) B. must update its quote to: $42.00 Bid (500 shares); $42.50 Ask (800 shares) C. must send the order to a stock exchange floor for execution D. is not required to take any action
B Customer limit orders that are better priced than the current quote must be displayed in the marketplace. This dealer is currently offering the stock at $43.00 - this is the price at which he is willing to sell up to 1,000 shares. Since this customer is willing to accept less to sell - $42.50 for up to 800 shares, the customer's offer must be displayed in the market.
An agent of a broker-dealer: A. is prohibited from taking a second job B. can only take a second job if he or she gives written notice to the State Administrator C. can only take a second job if he or she gives written notice to the employer D. is permitted to take a second job as long as it is not with another registered broker-dealer
B In order to take outside employment, agents are required by FINRA and the State to give written notice to their firm, and they must follow any instructions of the firm.
A broker-dealer is a syndicate member in a best efforts underwriting of ABC Common stock. The issue is oversubscribed. The broker-dealer may allocate sales of the issue to all of the following EXCEPT: A. employees of the issuer B. employees of the broker-dealer C. employees of suppliers of the issuer D. persons who have no affiliation with the broker-dealer or issuer
B When a broker-dealer does a new issue offering, it must make a "bona-fide" sale to the investing public and cannot retain part of the issue for itself or for its employees. If this were permitted, the broker-dealer would have the incentive to "underprice" the issue and then buy it for itself; intending to turn around and resell it for a profit. This would be in addition to any underwriting fees earned by the broker-dealer. Thus, broker-dealers in the underwriting group, their officers and their employees cannot buy the issue.
Under NASAA rules, all of the following records must be retained by Investment Advisers EXCEPT a: A. copy of each advisory agreement entered into with a client B. record of each transaction effected with a client C. copy of each client tax return used to verify customer income D. record of each written communication received and sent by the investment adviser relating to any recommendation or advice
C
Each sole proprietor that applies for initial registration in a State as either a broker-dealer or investment adviser must file: A. an annual personal income statement B. copies of federal tax returns for the prior 3 years C. a statement of financial condition D. proof of the sole proprietor's identity
C A sole proprietorship is an unincorporated business that consists of 1 person. Sole proprietors can register in a State as a broker-dealer or as an investment adviser. Each applicant for initial registration that is a sole proprietor must file an original statement of financial condition (a balance sheet) with the Administrator, along with an oath or affirmation made by the sole proprietor that the financial statement is true and current.
An investment adviser has a fee structure that states: Assets Under Management Annual Fee 0-$1,000,000 2.00 % >$1,000,000-$5,000,0001 1.50 % >$5,000,000-$10,000,000 1.00 % >$10,000,000 Negotiable With Client Which statement is TRUE about such an arrangement? A. This is prohibited under NASAA rules because it favors customers with more assets under management B. This is prohibited because advisers cannot have negotiable fees C. This is permitted as long as the negotiated fee is less than 1% D. This is permitted without restriction
C An adviser cannot charge "unreasonable" fees. A fee structure that reduces the fee percentage for more assets under management is permitted and is reasonable.
An agent is permitted to use the term "approved" when discussing his or her registration with a customer: A. upon passing the Series 63 examination B. upon being assigned a registration number by CRD C. if the agent solely states that such approval relates only to the agent meeting the Administrator's qualification requirements D. if the agent provides the customer with a written statement that he or she has been approved by the Administrator
C As a general rule, an agent cannot state that he or she is approved by the Administrator; he or she is simply registered in the State (registration is handled through CRD - the Central Registration Depository). However, it can be stated that the agent has passed the required qualification examination (the Series 63), since this is a true statement. (Please note that the wording in this question is not that precise; but all of the other choices are absolutely wrong).
All of the following are EXCLUDED from the definition of an investment adviser under the Uniform Securities Act EXCEPT a(n): A. federal covered adviser B. broker-dealer C. adviser with no place of business in the State whose only clients are broker-dealers D. investment adviser representative
C Excluded from the definition of an investment adviser are investment adviser representatives; depository institutions; broker-dealers; professionals who only give incidental advice; publishers of general circulation periodicals that do not give investment advice about specific client situations; and federal covered advisers. In contrast, an adviser with no place of business in the State whose only clients are broker-dealers is included in the definition of an investment adviser, but is exempt from registration in the State.
An Investment Adviser Representative writes a blog published on the Internet about how to achieve the best returns for clients, while minimizing risk. Which statement is TRUE about this? A. This can only be done if the Investment Advisory firm that employs the IAR approves of the content B. This can only be done if the Investment Advisory firm that employs the IAR authorizes the distribution of the communication C. This can only be done if the Investment Advisory firm that employs the IAR both approves the content and authorizes the distribution of the communication D. This action is prohibited
C If an agent of a broker-dealer or an investment adviser representative wishes to publish any content on the Internet, either as a website or on a blog, the Agent or IAR: Must disclose his or her affiliation with the Broker-Dealer or Investment Advisory firm; The Broker-Dealer or Investment Adviser (the firm) must approve the content of the Internet Communication; The Broker-Dealer or Investment Adviser (the firm) must authorize the distribution of the Internet Communication; and the Agent or IAR must act within the scope of authority granted by the Broker-Dealer or Investment Adviser (the firm).
A Certified Public Accountant offers clients financial planning services, for which a separate fee is charged. Which statement is TRUE? A. The accountant is not required to register as an investment adviser in the State because he has an independently conferred professional accreditation B. The accountant is not required to register as an investment adviser because he is already registered with the State as a CPA C. The accountant must register in the State as an Investment Adviser D. The accountant must register in the State as an Investment Adviser Representative
C If this accountant did not separately charge for financial planning, then he (or she) would not be defined as an investment adviser. Because a separate fee is being charged, the CPA is defined as an Investment Adviser who must register in the State.
Which statements are TRUE about the applicability of NASAA recordkeeping rules to investment advisers? I NASAA recordkeeping rules apply to Federal Covered advisers II NASAA recordkeeping rules do not apply to Federal Covered advisers III NASAA recordkeeping rules apply to State-registered advisers IV NASAA recordkeeping rules do not apply to State-registered advisers A. I and III B. I and IV C. II and III D. II and IV
C NASAA does not set rules for federal covered advisers - only the Investment Advisers Act of 1940 applies! Federal covered advisers are those with $100 million or more of assets under management and advisers to investment companies. NASAA rules for IAs only apply to State-registered advisers (those advisers with less than $100 million of assets under management).
For the offering of a pre-organization certificate to be exempt under the Uniform Securities Act, which statements are TRUE? I Commissions or other compensation may be received in connection with the offering II Advertisements are permitted III The offering cannot be made to more than 10 investors A. I only B. II only C. II and III D. I, II, III
C Offers of pre-organization certificates are exempt under the Uniform Securities Act if no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons; and no payment is made by any subscriber. (This generally parallels the private placement exemption under State law, except that advertising is allowed for pre-organization certificates - but not for private placements.)
In which of the following situations has there been NO violation of NASAA rules? A. An agent omits mentioning a material fact necessary to make a presentation about a security not misleading, but the customer decides not to buy the security B. An agent misstates a material fact to a customer when recommending a security, and the customer buys that security and enjoys a profit C. An agent makes a recommendation to a customer, disclosing all relevant information about the issue known to that agent and the customer buys that security and suffers a loss D. Any of the above
C Omissions or misstatements of material fact necessary to make a sales presentation about a security are not misleading, they are fraudulent. It makes no difference if the customer decides to buy that security or not, based on that presentation. If all known relevant information is presented and the customer lost money, well, it's a shame that the customer lost money, but that does not make the offer fraudulent. Customers who buy securities are expected to understand that they might have losses instead of having the much more desired gains.
Under the Uniform Securities Act, all of the following are defined as "persons" EXCEPT: A. General partner in a limited partnership B. Public utility selling to public investors C. Administrator of the State D. Municipality selling industrial development bonds
C The State Administrator is not defined as a "person"; rather, he or she is defined as the "administrator" - that is, the State securities commission, commissioner, or secretary empowered to carry out the Act's provisions.
A mutual fund sponsor is holding an educational seminar at the convention center at a resort hotel near Disney World. The seminar will focus on the features of different bond funds offered by the fund sponsor. Which statement is TRUE about an investment adviser representative (IAR) attending the seminar? A. The IAR cannot attend the seminar because it is a breach of the IAR's fiduciary responsibility B. The IAR can attend the seminar, but cannot have any of the travel and accommodation expenses paid by the mutual fund sponsor C. The IAR can attend the seminar with travel and accommodation expenses paid by the mutual fund sponsor, as long as the conflict of interest has been disclosed to clients D. The IAR can attend the seminar with travel and accommodation expenses paid by the mutual fund sponsor without restriction, since the meeting is educational and not promotional
C The rules here are that the meeting must be educational, not promotional; the fund cannot pay for the travel expenses of spouses; and the conflict of interest must be disclosed to clients.
An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Representative (IAR) to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be: A. the identification of the business model of the Investment Adviser including size of the firm, types of services provided, and the number of locations B. making provision for the Investment Adviser Representative to notify the clients of the Investment Adviser in the event of business interruption caused by the owner's death or unexpected permanent incapacitation C. making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable D. providing for an appropriate emergency contact person when the investment adviser representative is away on vacation
C When an Investment Advisor is formed as a sole proprietorship, the client's legal relationship is with the sole proprietor. With the death or permanent disability of the sole proprietor, the sole proprietorship is terminated as a legal entity, as would any advisory contracts. The IA must have a succession plan that immediately addresses this issue if the sole proprietor becomes unavailable. Otherwise, the clients would have no one to manage their funds held at the defunct IA because the existing investment advisory contracts are now void.
A firm holds a joint cash account for a husband and wife. The wife calls the investment adviser representative and says "Sell 500 shares of ABC out of the account immediately and send a check for the proceeds made out to my name." The representative should inform the wife that: A. her instructions will be followed exactly B. the transaction requires approval of the husband since it is a joint account C. the trade can be performed but the check must be made out to both names on the account D. a written power of attorney must be on file to perform the trade
C Any party in a joint account can enter orders. However, any checks drawn on the account must be made out to all names on the account.
The provisions of the Uniform Securities Act apply to solicitation of the public to buy or sell securities or advisory services that are made: A. by mail or telephone in that State and received in that State B. by mail or telephone outside that State and received in that State C. by mail or telephone either inside or outside that State and received in that State D. by mail or telephone either inside or outside that State and are received either inside or outside that State
C Each State Administrator only has jurisdiction over solicitations or transactions involving securities or advisory services that are received in that Administrator's State. It makes no difference where the solicitation came from - it might have come from within that State or from outside that State.
Investment adviser solicitors: I must be registered with the SEC as investment advisers II are not required to be registered with the SEC as investment advisers III are required to be registered in the State as either an investment adviser or an adviser representative IV are not required to be registered in the State as either an investment adviser or an adviser representative A. I and III B. I and IV C. II and III D. II and IV
C Investment adviser solicitors are not registered with the SEC - the SEC only requires registration of Federal Covered advisers. However, these solicitors are contacting potential customers in a given State. The State requires that the solicitor be registered to do so. The solicitor can either register as an investment adviser or can affiliate with an advisory firm and register through that firm as an investment adviser representative.
An agent of a broker-dealer may: I charge a fee for investment advice in addition to any commission charged if a recommendation performs well II not charge a fee for investment advice in addition to any commission charged if a recommendation performs well III charge for clerical services where the charge is not based on performance IV not charge for clerical services A. I and III B. I and IV C. II and III D. II and IV
C The only fee that can be accepted for executing a transaction is the original commission charged. A broker-dealer cannot charge separately for investment advice; any charge for investment advice is included in the broker's commission charge. Charges for clerical services are permitted as long as the charges are fair and reasonable and do not discriminate among customers.
The Prudent Investor Act requires that fiduciaries manage the assets of their beneficiaries based upon: A. legal list requirements B. efficient market theory C. modern portfolio theory D. value investing theory
C Thus, instead of just investing in securities that have minimal risk, the fiduciary can apply risk-return analysis to choose the "best" investments for the level of risk assumed. Investment performance is not measured on each individual investment, but rather by looking at the overall portfolio return.
