Knopman Exam
The POP is the NAV / (1 - sales charge)
k, Remember that the sales charge cannot be multiplied by the NAV ($30 x 1.05), this will produce the wrong price. Finally, orders for mutual fuds can be placed and accepted at any time, but they will not be executed until the next NAV calculation.
According to the Uniform Securities Act, there are three entities that are not considered a person: a minor (defined as an individual under 18 years old), a deceased individual, or an individual declared legally incompetent. One application of this concept is that those three entities would require a fiduciary to open an account with a broker-dealer
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Agents are required to post a bond if they maintain discretionary accounts. Agents are not subject to net worth or minimum net capital requirements. Investment Advisers are subject to net worth requirements while B/Ds are subject to net capital requirements. The Administrator cannot require firms to post a bond exceeding that required by the SEC
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Which of the following persons, natural or corporate, fall under the definition of a broker/dealer under the Uniform Securities Act?
A broker-dealer is a person that buys and sells securities for its own account and for the accounts of others. Agents, issuers, and commercial banks (which include credit unions, savings and loans, and thrifts), are specifically excluded from the definition of a broker-dealer
Which TWO of the following are NOT included in the adjusted gross income (AGI) of a customer?
A client's federal adjusted gross income (AGI) consists of her taxable income. Examples of taxable income include a client's salary, tips, bonuses, and dividends. However, municipal bond interest and alimony payments received are tax-free (not a part of a person's AGI)
What's a swap?
A contract between two parties to exchange a sequence of cash flows, one of which has a fluctuating value for a predetermined period, A swap is a form of derivative whereby two parties agree to exchange two different cash flows. One of the cash flows is fixed and the other will vary based on interest rates, foreign currency prices, or even other securities (e.g., stocks or bonds). Similar to forward contracts, swaps are typically traded over-the-counter (not on an exchange).
Alpha is the difference between the portfolio's actual return (which is given) and expected return. The expected return can be determined by using the Capital Asset Pricing Model (CAPM). Since this question doesn't provide a risk-free rate, the calculation of expected return is simply beta multiplied by the market return (Expected Return = Beta x Market Return). The first step is to find the return on the market. Since the portfolio has an alpha of 0%, the actual rate of return on the portfolio is equal to the expected rate of return (i.e., 0% Alpha = Actual Return of 12% - Expected Return). If a portfolio has a beta of 1.0, its expected return will be the same as the market return (i.e., Expected Return of 12% = Beta of 1.0 x Market Return). In summary, if alpha is 0% and beta is 1.0, the portfolio's actual rate of return is the same as the market return, which is 12%. Using the market return of 12%, the expected return can be determined if the beta changes to 0.9. The expected return is 10.8% (Beta of 0.9 x Market Return of 12%. Therefore, the alpha can then be calculated by taking the actual return on the portfolio minus the expected return (actual return of 10.6% - expected return of 10.8% = -0.2% alpha).
A portfolio has an alpha of 0%, a beta of 1.0, and an actual return of 12%. What would the alpha of the portfolio be if the beta was 0.9 and the actual return was 10.6%? -0.20%
According to the Uniform Securities Act, which of the following investment adviser representatives (IARs) is considered to have custody of customer funds?
An IAR who has been hired by a customer to act as the trustee for the customer's account, Trustees are responsible for the care, custody, and control of the assets of another person. An IAR who acts as a trustee has check-writing privileges in his customer's account and is considered to have custody of the customer's assets. If an IAR receives a customer check that's made payable to a third party, he avoids any custody issues by returning it to the customer within three business days. Simply having discretionary authority to make investment decisions (i.e., having limited discretion) does not meet the threshold for custody
Agents of a broker-dealer are always required to register. If an agent represents an issuer in selling its securities, it can avoid registration if it sells exempt securities, or securities in exempt transactions. Agents of issuers can also avoid registration by selling securities to employees
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A limited partnership sells an asset for a capital gain in the current year; however, the gain is distributed to the partners in the following year. What is the tax consequence of the gain?
As a capital gain in the year it is realized by the partnership, The key to this question is to recognize that there is only one answer that recognizes the result as a capital gain. Any capital gains that are realized by the partnership are taxed to the partners in the year in which the gain is incurred, not when the distribution is made to the partners. When a partnership generates income, a tax liability is created for the partners in the year in which it is generated. All sources of partnership income are reported to the partners on Schedule K-1. Capital gains can be classified as either short-term or long-term.
Which of the following terms is NOT specifically defined under the Uniform Securities Act?
Broker-dealer representative, An agent is defined as a person who is employed by a broker-dealer or issuer to sell securities. There is no mention of the term broker-dealer representative. An investment adviser representative is a person employed by an investment adviser who provides investment advice
Which of the following statements is NOT TRUE concerning the registration requirements of securities professionals?
Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register, There is no exemption from registration for broker-dealers that have no place of business in a state and who limit their agent's activities to selling exempt securities. It is the securities that are exempt, not the agents selling those securities. Investment advisers that have no place of business in a state may still do business in that state without registering provided they limit their advice to institutional clients or no more than five non-institutional clients in that state. There is no de minimis exemption for broker-dealers that have no place of business in a state and a limited number of non-institutional clients.
Intrastate offerings are effective for 1 year from the effective date (note that registration of personnel expires annually on December 31st). Throughout the offering process, the issuer may update the amount of securities being sold while maintaining the same fees and offering price
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All of the following are found on a customer's confirmation statement for a bond
Customer confirmation statements for bonds must include the investor's purchase price, the date of the transaction, whether the bond is callable, and the investor's yield-to-maturity. Please note that the bond's yield-to-maturity at the time it was originally issued is irrelevant and is not required to be included on the confirmation statement
Investment advisers are required to disclose their capacity in executing transactions to a client before entering the order. This is different than the requirement for broker-dealers, who disclose their capacity on the confirmation upon trade execution
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All of the following are characteristics of forward contracts, EXCEPT:
Delivery and settlement of the contracts occurs immediately
An investment company has entered into a contract with an investment adviser. The investment adviser seeks to have an exculpatory provision included in the contract. According to the Investment Advisers Act of 1940, which of the following statements is TRUE?
Exculpatory provisions are prohibited in any contract, An exculpatory provision is prohibited in any contract entered into by an investment adviser and its clients. This is true even if the client is an investment company. An exculpatory provision protects officers and directors from liability from acts of willful misfeasance, bad faith, gross negligence, or reckless disregard of their duties. Any contract that includes such a provision would be void
A customer's investment policy statement may contain which of the following?
Expectations related to the markets Analysis of risks and rewards Asset allocation models
According to the Uniform Securities Act, if an investment adviser is registered in, and has an office in, a particular state, it must:
File any required financial statements with the Administrator Maintain books and records as required by the Administrator File an updated Form ADV with the Administrator for any material changes to its business, Investment advisers initially register with the Administrator by filing Form ADV. If the adviser experiences any material changes to its business, an updated Form ADV must be filed. The Administrator also requires advisers to file financial statements and to maintain certain books and records. While the Administrator may subpoena books and records at any time, it does not inspect advisers on a specific schedule.
An equity-indexed annuity is a type of:
Fixed annuity that offers the potential for greater returns, An equity-indexed annuity is a type of fixed (non-variable) annuity; therefore, SEC registration is not required for these contracts. The owner receives a guaranteed minimum rate of return, but has significant upside potential since the annuity's return is tied to a benchmark index (e.g., the S&P 500 Index. If the index underperforms, the investor will simply receive the minimum rate. On the other hand, if the index performs well, the investor will receive the indexed return based on contractual provisions
Investment advisers may charge a flat rate, an hourly rate, or a rate based on the total assets of an account, without restriction.
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Structured notes are customized products that allow investors to achieve a specific investment objective. Many structured notes offer principal protection, which promise the return of the principal plus a return based on an underlying asset or index
In exchange for limiting the downside risk and offering principal protection, many notes also cap or limit the potential return at maturity. The structured note product typically does not hold the actual underlying assets that will determine the note's return, instead derivatives are used to produce the capital to payout the investors. In addition, these instruments have significant liquidity risk (there is often a penalty or surrender fee to exit prior to maturity) and credit risk (if the issued broker-dealer fails the investor because an unsecured creditor of the firm).
Under section 404(C) of ERISA a trustee of a corporate retirement plan can limit and reduce potential liability by providing plan participants the means and opportunity to self-direct their retirement assets. The three main criteria that must be met are:
Investment selection: the trustee must provide at least three investment choices at different risk/return levels (e.g. a conservative, moderate, and aggressive option) Investment control: the plan must permit participants to exercise independent control of their investments (i.e. make trades as the participant sees fit) Communications: plan documentation and investment information must be available. Plan participants must have real-time access to account information (online or telephone). Should the plan meet these requires the trustee will not be held liable for investment losses in any plan participant's account.
Which of the following is the BEST feature of a variable annuity?
It provides investors with an opportunity to invest in equities and defer the taxes until annuitization or liquidation, The primary reason that investors purchase variable annuities is the ability to buy into a portfolio of securities and to defer the payment of taxes on any appreciation. Investors are taxed only when the annuity is surrendered, liquidated, or annuitized. Variable annuities do not provide tax-free income or guaranteed performance. Although investors may purchase a variable annuity in a qualified account, they will not receive additional tax benefits. Since an annuity is an insurance product, it may provide a death benefit and a life payout option.
Jill has created a revocable trust to provide for the support of her adult child. The trust has generated $20,000 in income during the year and is invested in a wide variety of stocks and bonds. Which of the following statements concerning this trust is NOT TRUE?
Jill reduces her potential estate tax liability by the amount of the gains in the trust. A revocable trust must be established as a living trust since the donor retains control over the assets. This type of trust does not reduce the donor's potential estate tax liability. With an irrevocable trust, the donor loses control of the assets, but the assets will not be included as part of the donor's estate. This is the trade-off between the two types—retain control and potentially pay more taxes (revocable trust) or lose control and potentially pay less in taxes (irrevocable trust)
All of the following are characteristics of futures contracts, EXCEPT:
Most of the contract's terms are set by the buyer and the seller, The buyer of a futures contract cannot be forced to take delivery, A futures contract is an agreement to buy or sell a specific amount of a commodity or financial instrument. Most of the contract's terms, such as the size of the contract, the point of delivery, the delivery month, and the grade of the underlying security or commodity are set by the exchange on which it trades. Although futures contracts may be offset, they differ from options because the buyer of futures contract may be forced to take delivery.
Sharpshooter Investments (a broker-dealer) has submitted its registration paperwork to the state Administrator. According to the Uniform Securities Act, its registration will become effective at:
Noon on the 30th day after filing, Assuming a broker-dealer applicant has submitted all required documentation, its registration becomes effective at noon on the 30th day after filing with the state. The Administrator does have the power to grant an earlier effective date, and may defer the effective date until the 30th day after the filing of any amendment to the initial application
Securities that are registered through qualification may only be sold:
Once the registration is declared effective by the Administrator
The disadvantages of limited partnerships include:
Potential assessments, An investor in a limited partnership may receive an assessment (i.e., a demand that he contribute additional capital to the partnership). Many partnerships invest in assets, such as real estate, that may actually be a hedge against inflation, which addresses inflation risk. One of the advantages of limited partnerships compared to C Corporations is that they are not subject to double taxation, which eliminates that choice. For tax purposes, limited partnerships are pass-through entities. This means that all income, losses, and gains are passed through to the partners, who must declare the income on their own tax returns. When investing in LPs, limited liability is considered an advantage, not a disadvantage
If TopJob Advisers has limited discretionary authority over client funds, it is required to:
Prepare a balance sheet and file it with the Administrator, If a registered investment adviser has discretionary authority over client funds or securities, it is required to file a balance sheet; however, the balance sheet is not required to be audited. An audited balance sheet is required to be created and filed if an adviser has custody or full discretion
Bob Bender is an investment adviser representative for Bender Investments, a firm founded by his great grandfather several decades ago. Over the years, he has held several positions with the firm. In which of the following job capacities would Bob NOT have been required to register as an IAR?
Preparing tax documentation for some of Bender's customers, Investment adviser representatives (IARs) are defined as employees of investment advisers (IAs) who negotiate the sales of advisory services, manage client portfolios, make recommendations regarding securities, or manage other employees involved in any of these functions. Bob would have been exempt from registration in his tax preparation role, since this would have been considered a clerical function.
The plan documents of a qualified retirement plan require that the investment manager purchase securities issued by the plan's sponsor. These are securities that a prudent investor clearly would not purchase. What is the only course of action that the investment adviser may take in order to avoid violating the fiduciary responsibility provisions of ERISA?
Refuse to purchase the securities, ERISA states that a fiduciary must follow the terms of the plan documents unless these documents are inconsistent with ERISA. In this case, purchasing these securities would violate the prudent expert standard of ERISA. Thus, the plan documents are in conflict with ERISA and the investment adviser should not follow them. An adviser that did purchase the securities could be held liable for violating a fiduciary duty.
If a portfolio manager is focused on keeping a client's assigned asset allocation properly balanced over the long term, she is using a:
Strategic asset allocation strategy, Strategic asset allocation attempts to maintain the assigned allocation over a long period and is more passive in nature than a tactical asset allocation strategy. Portfolio rebalancing does not describe a strategy; instead, it is the adjustment of a portfolio in preparation for an investment strategy. Laddering is considered diversifying a bond portfolio by staggering the maturity dates of the bonds in an attempt to manage interest-rate risk
Which of the following statements is TRUE concerning a federal covered security?
The Uniform Securities Act sets limits on the powers of the Administrator concerning federal covered securities. The Administrator may require: the payment of a filing fee, the filing of a consent to service of process, the filing of certain documentation previously filed with the SEC. The Administrator may bring enforcement action if fraud or deceit is used in the sale of a security. The Administrator may not subject the issuer to a state review. This occurs when a state has the authority to allow or disallow a security to be offered in a state and is sometimes referred to as a merit review.
An agent of a broker-dealer publishes a Web page that discusses the benefits of dollar cost averaging and why investors should invest with long-term goals in mind. If a customer in a state where the agent is not registered explores the Web site, which TWO of the following legends must be on the Web site in order to take advantage of the safe harbor rule and not register in the state?
The agent will only conduct business in the state if registered or exempted. Follow-ups will only be handled by agents who are registered or exempt. According to NASAA's interpretive order concerning broker-dealers, investment advisers, broker-dealer agents, and investment adviser representatives for general dissemination of information on products and services, when advertising on the Internet, an agent must include a legend that clearly states that (1) the BD agent or IA rep in question may only transact business in this state if first registered, excluded, or exempted from state registration requirements, and (2) follow-ups, or individualized responses to persons in this state by a BD agent or IA rep that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with state registration requirements, or an applicable exemption or exclusion. The SEC is not the only entity that regulates Internet advertising and there is no requirement to disclose rule numbers
A corporate client calculates the present value of a potential investment as $950 using the corporation's discount rate. The investment is currently offered at a price of $900. Should the client invest?
The client should make the investment because the net present value (NPV) of the instrument is positive 50. NPV is the difference between the present value of an investment (discounted using the client's internal discount rate) and the current cost of the investment in the market. NPV = present value - cost. Here, the present value is $950 and the cost is only $900, so the investment offers a positive NPV of $50. Discounted cash flow (DCF) is a valuation technique that would help the client determine the present value of the future cash flows (here the $950)
All of the following are characteristics of forward contracts, EXCEPT:
The contracts cannot be offset, The amount and type of the delivered commodity are negotiable, The contracts are negotiated off of an exchange, A forward contract is an agreement to buy and sell commodities at a future time and place. Forwards are over-the-counter contracts that will be negotiated off of a futures exchange. All aspects of the contract are negotiated between the buyer and seller, including the price, type of commodity, and amount, as well as the time and place of delivery.
As it relates to viatical investments, which of the following is NOT required to register under the USA?
The insured, Viatical investments are considered securities and must be registered in the states in which they are sold. Also, the broker-dealers and agents who sell them must be registered in these states.
Under the Uniform Securities Act, which of the following persons is required to register as an investment adviser?
The publisher of a financial periodical that responds to each subscriber with personalized investment advice, Federal covered advisers and trust companies are not subject to registration under the Uniform Securities Act. Lawyers, accountants, teachers, engineers, and publishers are also exempt provided their securities advice is incidental and not timed and tailored to a specific client. Of the choices given, the publisher is providing tailored investment advice and is therefore subject to registration.
Under the Uniform Securities Act, the sale of limited partnership interests to a bank is exempt from:
The registration requirements The filing requirement for advertisements, Any sale of securities to an institution (e.g., a bank) is considered an exempt transaction under the USA. This exempts the securities from registration and any related advertising from being filed with the Administrator. However, no person, security, or transaction is exempt from the antifraud provisions of the Uniform Securities Act.
In order to determine the suitability of a potential investor for a limited partnership, which of the following forms would the client complete?
The subscription agreement, Many states require potential partners to complete a subscription agreement, in order to determine their suitability as it relates to income, net worth, investment experience, and an understanding of investment risk. A certificate of limited partnership is filed by the general partner when setting up the partnership. The partnership agreement discloses the rights and duties of the partners. A private placement memorandum is given to investors in a private placement, in lieu of a prospectus.
A client with a net worth of $2,500,000 has $300,000 in funds managed by an investment adviser. The investment adviser normally charges 1% of the assets under management but will waive the fee if the performance of a client's account does not attain a certain level of capital appreciation. According to the Investment Advisers Act, which of the following statements is TRUE?
This provision is allowed if the client signs the contract, This case is an example of a contingent fee, which generally includes any arrangement in which the adviser's fee depends on attaining a specific level of capital gains or appreciation (or avoiding capital losses or depreciation). The SEC considers contingent fees a type of performance fee, which are generally prohibited in advisory contracts. Exceptions include contracts for clients who have at least $1,000,000 under management with the adviser, or clients who have a net worth in excess of $2,000,000. Since the client has a net worth of $2,500,000, she would qualify for this exception
To value a company's stock price when it pays a growing dividend, the dividend growth model is most appropriate. It is more important to know when to deploy this formula as opposed to the formula itself. The dividend discount model is most appropriate shares that are paying a stable (nongrowing) dividend. All things being equal, the dividend growth model will produce a higher valuation than the dividend discount model. Both of these valuations are fundamental in nature.
Two technical analyses are the advance/decline line and moving averages. The advance/decline line indicates overall market movements by plotting the number of stocks that have gained value versus lost value on a daily basis. A moving average plots the average price of a stock over a historical period, e.g. the average price of a stock during the past 50, 100, or 200 days.
The request will continue to be processed since a cause of action survives the death of the person making the claim
Under the provisions of the Uniform Securities Act, every cause of action survives the death of any person who might have been a plaintiff or defendant.
Viatical investments or life settlements
Viatical investments or life settlements describe the sale of a life insurance policy (or the sale of the right to receive a death benefit) to a party other than the issuing insurance company (selling the policy back to the life insurance company is called surrendering the policy). In doing so the insured can access the value of the death benefit while still alive. For example, the owner of a million-dollar policy may sell the right to that one-million-dollar death benefit for $600,000 today. NASAA considers all viatical investments to be securities that require proper registration. Because there is no or a very limited secondary market for these instruments it can be difficult to determine their fair value. Best practices suggest advisers obtain multiple quotes when assisting clients who buy or sell viaticals.
In preparing a comprehensive financial plan for a client, an adviser needs all of the following to produce a personal balance sheet and net worth statement except
When creating a personal balance sheet or determining net worth all assets and liabilities must be accounted for. This includes assets that are securities (whether in retirement accounts or not) as well as those that are not (precious metals, real estate, automobiles, jewelry). Net worth is then calculated by subtracting the sum of all liabilities (loans, mortgages, etc.) from the sum all the assets. Annual income is not a part of a balance sheet. The cash that a client accumulates from unspent income could be carried on the balance sheet as cash, but the actual income figure would not
A client wishes to evaluate a mutual fund's returns over the past five years. Reviewing the prospectus, she finds the returns were 2%, 5%, 9%, 1%, and 12%. Which of the following would be the most meaningful calculation for her to perform?
When evaluating investment returns the geometric mean is a more meaningful calculation than the arithmetic mean or average. For exam purposes, it is more important to know which calculation to perform than how to actually perform it. Notably, the arithmetic mean will always be higher than the geometric mean unless all the numbers in the set are the same
According to the Uniform Securities Act, which of the following choices would meet the definition of a broker-dealer in State A?
Woodwyle Incorporated, a broker-dealer located in State B that conducts transactions for a customer who has moved to State A. An agent not registered in the state has 60 days to obtain registration in the state, provided the broker-dealer is registered in the state, the agent is registered in at least one state, and is not disqualified from registration in the state.
Registration by coordination is available to any issuer that is also registering securities with the SEC under the Securities Act of 1933. Securities being issued by a company listed on the New York Stock Exchange or Nasdaq Market or authorized for listing on either of the markets are federal covered securities and are therefore exempt from registration. Securities being offered and sold only to the residents of one state will register by qualification
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Registration as an investment adviser representative is always
at the state level
A simple trust requires all net income be distributed annually, whereas a complex trust permits the retention of net investment income year over year. With respect to the distribution of trust principal, the trustee of a simple trust is not authorized to distribute trust principal, whereas the trustee of a complex trust is authorized, but not required, to do so. The answer choice that indicates the trustee of a complex trust "must" distribute trust principal it is false, as this is permissible, but not required.
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A sole proprietor is the simplest business structure but offers no limitation to the owner's personal liability. All the business's income is reported on Schedule C of the owner's personal tax return (Form 1040), operating as a pass-through and avoiding any corporate income tax
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the powers of the Administrator do include denying, suspending, barring, or revoking a person's registration.
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Registration of all personnel at the state level (including broker-dealers, agents, investment advisers, and investment adviser representatives) expires annually on December 31st, unless renewed. Note that registration of securities is current for 1 year following registration
expires on Dec 31st regardless
Certificate of limited partnership
filed by a general partner when setting up the partnership
A Roth IRA accepts post-tax contributions which do not reduce current taxable income. Put differently, Roth contributions are not tax deductible. Once the money is invested into the Roth the earnings and growth are taxdeferred, and provided that the account received its first contribution more than five years ago, and the owner is older than 59.5, all distributions (both contributions and earnings and growth) are entirely tax-free
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A brokerage firm will adhere to the instructions as provided specifically to the firm in a transfer on death (TOD) plan. This remains the case even if the plan conflicts with the client's wishes in other estate documentation such as a will. Here, the firm would transfer the assets to the daughter as per the TOD and would not transfer the assets to the son. Because the account carries the TOD it avoids probate and no court ruling is required prior to the firm making a distribution.
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A futures contract is an exchanged-traded obligation for a specific commodity. The parties to the contract must perform at expiration (unlike an option contract which allows the buyer to decide whether to exercise or not). Futures are not securities and do not fall under SEC jurisdiction.
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An agent is prohibited from making a loan to a client unless the client is a financial institution in the business of lending money (e.g. a bank). If a customer instructs an agent to purchase a particular security, the agent must execute the transaction regardless of their opinion of the investment (with the only exception being if the transaction would be illegal). An agent can purchase IPO shares on behalf of a client and can register in any state he/she wants, even if no clients reside in the particular state.
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An agent's registration is only active while the individual is affiliated with a broker-dealer. If the broker-dealer's registration is revoked, the agent's registration is frozen until the agent becomes associated with another broker-dealer with an active registration.
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An agent's registration is only in effect while he is employed by a broker-dealer that has an effective registration in the state. When the Administrator of State B revoked the broker-dealer's registration, the agent's registration was effectively revoked as well. Since the broker-dealer is no longer registered in the state, its agents are prohibited from engaging in business with residents of the state.
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Another potential return one could calculate here is the after-tax rate of return which is the portfolio's return of 10% less the 22% taxes owed = 10% × (1 - 22%) = 7.8%
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Any materially inaccurate information in the brochure must be corrected by filing an updating amendment promptly by substituting pages in ADV Part 2 or affixing a sticker. Part 2 is filed by a state-registered adviser with the Administrator. For a federal covered adviser, Part 2 is not filed with the SEC, but retained on file
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Asset allocation funds hold diversified portfolios of stocks, bonds, and money-market instruments. The fund manager from time to time shifts the percentage of the portfolio invested in each of these categories as market conditions warrant, often according to computer models.
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Based on the client's future obligations and lack of discretionary income, term life offers the least expensive policy for the period she needs it for. A whole life policy charges higher premiums. A whole life policy with a term rider would be even more expensive, and the same is true of universal life.
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Broker-dealers are required to register in the state if they have an office in the state or if they have a single resident client in the state, without exception. Note that Investment Advisers can avoid registration in a state if they do not have an office in the state and have fewer than 6 retail clients in a given year
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By definition, a sales representative of a broker-dealer is an agent. This is true regardless of whether the securities being sold are covered under a federal exemption. Also, a sales assistant is considered an agent if she is authorized to accept client orders. Choices (III) and (IV) describe activities involving the broker-dealer (firm) and not an agent (individual).
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Class B shares are not the most cost-efficient way to own a mutual fund. While the deferred sales charge may decline after several years of ownership (even all the way to zero), class B shares carry much higher annual 12b-1 fees. Accordingly, long-term investors are generally better off purchasing Class A shares, despite a higher up-front charge, because the annual 12b-1 fees will be lower, and it is Class A shares that offer breakpoints, letters of intent, and rights of accumulation that can lower the sales charge.
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Duplicate statements may not be sent unless you obtain written consent from each client
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Exempt securities include securities issued by a non-profit corporation, securities issued by a pension fund, and securities issued by a foreign government with whom the United States maintains diplomatic relations. Securities issued and sold only in a single state are non-exempt at the state leve
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Exempt securities must establish their exemption at the time the securities are issued. An exempt transaction is done on a transaction-by-transaction basis
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For an Administrator to deny or revoke a registration it must have 2 reasons to do so, with one of the reasons being that it is in the public's best interests. Reasons include insolvency (meaning the firm cannot meet its financial obligations), conviction of a securities or money related crime within the last 10 years, or if another state prohibits the firm from participating in the securities industry. There is no specific rule that authorizes the Administrator to deny or revoke a registration if it does not employ any agents
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For variable life insurance policies, all premiums are deposited in a separate account, rather than the insurance company's general account. Variable life insurance policies are considered securities and investment risk is assumed by the policyholders.
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However, when doing a top-down analysis, the first step is to identify economic trends, then identify specific sectors or industries that may benefit from that trend. Lastly, identify specific companies within a sector that may be affected by a specific economic trend.
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Hypothecation is the process by which customers pledge their securities as collateral for a loan. Hypothecation can only be done with the customer's consent. Broker-dealers and agents are always required to have written authority to exercise discretion. IA and IARs have 10 business days upon account opening to exercise discretionary power obtained verbally from the customer. After 10 business days a IA or IAR must obtain written discretionary authority from the customer. Firms must always charge reasonable fees and expenses. Retaining an insufficient number of clerical personnel is not a violation according to NASAA policy
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If a broker-dealer or agent has a single resident client in a given state both entities must be registered in the state. Both the broker-dealer and the agent would be permitted to continue to work with the client for 60 days from the change of residence while they apply for registration in the new state.
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Individuals can own and contribute to both corporate retirement plans and individual retirement plans (traditional or Roth) in the same year. Corporate retirement plans generally have much larger annual contribution limits (e.g. in 2020 corporate retirement plans allow employee contributions of $19,500 of the total $57,000; whereas IRAs permit $6,000). It is across multiple IRAs (e.g. a traditional IRA and a Roth) that investors can allocate contributions as they see fit up to the annual limit.
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Since the investment adviser's only client is an investment company (a mutual fund), it is considered a federal covered adviser. A federal covered adviser is not required to register at the state level and is not subject to state requirements (e.g., maintaining a minimum net worth requirement). Additionally, the Investment Advisers Act of 1940 (which is the appropriate regulation for federal covered advisers) does not impose minimum net worth requirements.
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Since the separate account of a variable annuity will offer numerous investment objectives, the client could move her investment to another offering within the separate account without incurring surrender charges
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Tactical asset allocation describes investment advice and portfolio allocation based on current market conditions and an adviser's specific view of which investments will perform best. Here, the advice is based on the specific views of the assembled advisory team
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The "Blue Sky" laws are state securities laws which provide for the registration of broker-dealers, agents, investment advisers, and investment adviser representatives. These laws also provide for the registration of securities that are to be issued in a state
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The Administrator must be informed promptly of any material change in the registration of either the firm or an individual employed by the firm.
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The Uniform Securities Act grants the Administrator certain powers relating to the ability to examine the operations of a broker/dealer registered in the state. To be in conformance with the act, the Administrator must provide the broker/dealer with how much advance notice?
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The equity-indexed annuity does not offer tax deductible contributions as a 403(b) or 401(k) contribution migh
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The investor may contribute up to $75,000 at one time to his daughter's 529 plan without incurring federal gift taxes. The IRS allows donors to aggregate five years' worth of gifts under the annual gift exclusion ($15,000) into one lump-sum contribution (5 x $15,000). Some states do allow donors to deduct a portion of contributions made to 529 plans from their state income taxes, but only if the donor contributes to a plan that's sponsored by his home state.
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The next NAV calculation is used to price mutual fund shares, not exchange-traded securities. The midpoint quote is there simply to distract you.
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The price-to-earnings (PE) ratio measures the amount that investors will pay for $1.00 in earnings from a company. The PE ratio is an easy way to measure how over or undervalued a stock is relative to its EPS. A company with a low PE ratio is a bargain, since the share price (i.e., the "P") is lower and earnings (i.e., the "E") are higher. On the other hand, a company with a high PE is overvalued, since the stock price is higher and earnings are lower
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Under the USA, investment advisers that require the prepayment of fees of more than $500, six months or more in advance, are required to include a balance sheet when they file Form ADV Part 2 (choice [a]). In choice (b), the investment adviser has custody, which also requires the inclusion of a balance sheet when it files Form ADV Part 2. In choice (d), the investment adviser has authority to execute transactions in an account that belongs to a client; therefore, the adviser has discretion over the account and is required to provide a balance sheet when it files Form ADV Part 2.
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Unlike futures contracts, forwards are not standardized agreements and they are not exchange-traded. Since forwards are not exchange-traded, the exchange does not guarantee against counter-party failure. Forward contracts are not readily transferable. In other words, to assign the contract to a third party, both the buyer and seller would need to agree on the assignment.
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Valuating a potential investment by determining its internal rate of return (IRR) allows a client to account for the time value of money. Because the cash flows are uneven it is important to select a valuation technique that will give more weight to earlier cash flows and more heavily discount distant cash flows.
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Variable annuities have additional expenses that are not found in a mutual fund and as a result are more expensive. These fees known as mortality and expense fees, (a risk charge) pay for insurance guarantees that are automatically included in the annuity. Once a contract has been annuitized you generally may not change the payout option. Investors may invest in various asset classes within a variable annuity. The earnings from the various asset classes grow tax-deferred, and are taxable upon withdrawal.
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When an asset is sold for a price significantly less than its fair market value the IRS requires that the estate include the asset at its fair market value for purposes of estate valuation and taxation
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When credit spreads (also called yield spreads) narrow between corporate bonds and treasury bonds it is positive signal for the economy. It indicates that investors are willing to lend money to corporate borrowers at an interest rate that is more similar to the risk-free rate available to the federal government. If credit spreads are widening it is a negative sign for the economy as the market is indicating a preference for less risky (or riskfree) assets and expressing less trust and confidence in corporate entities.
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When discount bonds are called they produce a higher yield than if they are not, as the owner earns the difference between the price paid (less than par) and par value more quickly. By accelerating this gain over a shorter number of years, and being able to redeploy the capital at the higher interest rates (it is given that interest rates are rising), the fund will see higher returns than if the bonds were not called
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When implementing a dollar cost averaging strategy, the same dollar amount is contributed over a fixed period. In this example, the client implemented the strategy by investing $500 per month. Regardless of whether the price rises or falls, the client will continue to contribute the same dollar amount
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While debt issued by a foreign government that maintains diplomatic relations with the United States is exempt from registration, securities issued by foreign corporations are not. If an issuer is exempt from registration, its securities are also exempt from registration. Any securities that are traded on the New York Stock Exchange or Nasdaq Market are federal covered securities and are therefore exempt from registration
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AGI of a customer
only their taxable income
ROI=
total gian/total cost
