MIDTERM WRONG QUESTIONS
With the growth of electronic communications, NASAA has established a policy dealing with the registration requirements or exemption from such. Broker-dealers using the internet to distribute information on available products and services through certain communications made on the internet directed generally to anyone having access to the internet, and transmitted through postings on bulletin boards, displays on home pages, or similar methods, shall not be deemed to be transacting business in this state for purposes of requiring registration in this state if the following conditions are observed: I-Any communication contains a legend in which it is clearly stated that the broker-dealer may only transact business in this state if first registered, excluded or exempted from state registration requirements. II-Any follow-up, individualized responses to persons in this state by such broker-dealer that involve either the effecting or attempting to effect transactions in securities will not be made absent compliance with state registration requirements or an applicable exemption or exclusion. III-The communication does not involve effecting transactions in securities and is limited to the dissemination of specific information on products and services that are suitable for the investor. IV-The communication contains a mechanism, including and without limitation, technical firewalls or other implemented policies and procedures, designed reasonably to ensure that prior to any subsequent, direct communication with prospective customers or clients in this state, said broker-dealer is first registered in this state or qualifies for an exemption or exclusion from such requirement.
I-Any communication contains a legend in which it is clearly stated that the broker-dealer may only transact business in this state if first registered, excluded or exempted from state registration requirements. II-Any follow-up, individualized responses to persons in this state by such broker-dealer that involve either the effecting or attempting to effect transactions in securities will not be made absent compliance with state registration requirements or an applicable exemption or exclusion. IV-The communication contains a mechanism, including and without limitation, technical firewalls or other implemented policies and procedures, designed reasonably to ensure that prior to any subsequent, direct communication with prospective customers or clients in this state, said broker-dealer is first registered in this state or qualifies for an exemption or exclusion from such requirement. the communication is limited to the dissemination of general information on products and services. once the information is specific to a customer, registration is required. LO 2b
investment advisers must disclose any material disciplinary action to all current and prospective clients. The broadest definition of material would include any actions taken against the firm or management persons by a court or regulatory authority within the past 10 years. Fines levied by any SRO required disclosure if they were in excess of A) $2,500. B) $1,000. C) $10,000. D) $5,000.
a-2500 SRO proceedings in which the adviser or management person received a fine in excess of 1500 meet the definition of material disciplinary action and require disclosure LO 3b
the uniform securities act provides certain exemptions from registration as an agent. one of those would be when the individual represents a-a trust company organized and supervised under the laws of any state b-a federal covered broker dealer with no place of business in the state c-a broker dealer in the sale of shares of a bank organized and supervised under the laws of any state d-an insurance company organized and supervised under the laws of this state
a-a trust company organized and supervised under the laws of any state when an individual represents an issuer, rather than a broker dealer, exempt from registration as an agent applies in two instances. one of those is when the issuer is one of the five specified in the LEM. banks and trust companies are included in the list of the five, but insurance companies are not. the other is when the transaction is exempt. there is no such term as a federal covered BD; federal covered would only apply to an IA or a security. pg 25 LO 2f
Under the SEC Release IA-1092, which of the following would be considered to be in the business of rendering investment advice? A) A financial planner who charges no fee for developing a financial plan but who takes commissions on recommended trades B) An individual who provides investment advice to family members but receives no compensation C) An agent who receives no separate compensation for investment advice but who takes commissions on recommended trades D) An accountant who provides investment advice to clients as an incidental part of the business
a-the financial planner who charges no fee for developing a financial plan but who takes commissions on recommended trades a financial planner who takes commissions from a broker dealer on trades that are recommended as part of the financial plan is considered to be indirectly compensated for giving advice and therefore is in the business of rendering investment advice. agents and broker dealers who do not charge separately for advice are excluded from the definition of investment adviser. lawyers, accountants, teachers, and engineers are not considered to be in the business of rendering investment advice, as long as any advice given is incidental to the practice of the profession LO 3a
Section 401c of the Uniform Securities Act contains the definition of a broker dealer. the section also lists exclusions from the broker dealer definition for a person with no place of business in the state whose only clients in the state are all of the following EXCEPT a-issuers of securities b-existing customers of the person and whose residence is not in this state c-closed end investment companies d-savings institutions
b-issuers of securities because this is a law exam, every word is critical. the exclusion when the firms only clients are issuers is when they are issuers of the securities in the specific transactions, not just an entity that issues stocks and or bonds. without a place of business in the state, dealing exclusively with institutions, such as banks, insurance companies, or investment companies means the BD is excluded from the definition. when the only clients in the state are existing clients of the BD who are not residents of the state, the snowbird rule applies. LO 2b
The common stock of Alternative Energy Resources Organization (AERO), previously trading on the OTC Pink Market has just become listed on the New York Stock Exchange. If AERO wishes to make its securities available for sale in several states where the common stock is not registered, the process used would most likely be A) amplification. B) notice filing. C) qualification. D) coordination.
b-notice filing when a companys stock is listed on an exchange, it becomes a federal covered security. as such, it is exempt from registration in any state. however, in some states, the administrator can require the issuer to notice file. when AERO was on the OTC pink market, registration with the states was done using coordination because the security had to register with both the SEC and the states. for exam purposes, the only time qualification will be used is for an intrastate offering LO 4c
in addition to the annual updating amendment, an investment adviser must amend the form ADV by filing additional amendments promptly if information relating to certain items becomes inaccurate in any way. prompt amendment would NOT be required when there is a change to a-any of the questions regarding disciplinary actions b-the number of shareholders if the firm is organized as a corporation c-the contact person preparing the form d-the firms name
b-the number of shareholders if the firm is organized as a corporation many of the large investment advisory firms are publicly traded corporations. the count of the shareholders changes every day as the stock is traded on the stock exchanges or in the OTC market. even a small privately held corporation does not have to report the number of shareholders LO 3c
as described in section 401c of the uniform securities act, the term broker dealer does NOT exclude a-a person who has no place of business in this state if he effects transactions in this state exclusively with or through the issuers of the securities involved in the transaction b-an issuer c-a person who has a place of business in this state if he effects transactions in this state exclusively with other broker dealers d-a bank, savings institution, or trust company
c-a person who has a place of business in this state if he effects transactions in this state exclusively with other broker dealers the USA specifically excludes agents, issuers, and banking institutions from the definition of a broker dealer. there is also an exclusion when there is no place of business in the state and his clients are limited to other broker dealers and institutions. another one of the items in that exclusion is if the only transactions in the state are with issuers of the securities that are the subject of the transaction. the most common example of that is when the BD is doing an underwriting of the issuers stocks or bonds. on the other hand, when the person has a place of business in the state and is effecting transactions in securities, there are no exclusions or exemptions. LO 2b
Recalcitrant Portfolio Advisers (RPA) is a state-registered investment adviser with $97 million in AUM. Which of these employees of RPA would be required to register as an investment adviser representative? A) Calvin, who is the vice-president in charge of human relations B) Chris, who is the IT specialist that keeps everyone's computers running smoothly C) Cheryl, who has no customer accounts but supervises the activity of three IARs D) Courtney, who distributes the daily recommendations to each IAR in the office
c-cheryl, who has no customer accounts but supervises the activity of three IARs An investment adviser representative must have some role in giving advice or soliciting for clients. The only exception is when an individual, like Cheryl, supervises those who are IARs. Because there is no principal level registration, those who supervise IARs must themselves register as such. Employees whose job function does not relate to the giving of or soliciting for investment advice are not IARs. This is true even in the case of officers. LO 3.d
One way in which registering as an investment adviser on the state level differs from registering with the SEC is that state-registered investment advisers A) file the Form ADV Part 2A while those registering with the SEC do not. B) include an audited balance sheet if the investment adviser requires or solicits substantial prepayment of fees or maintains custody while those registered with the SEC include a balance sheet only when requiring substantial prepayment of fees. C) file the Form ADV Part 1B while those registering with the SEC do not. D) must file an annual updating amendment within 90 days after the end of the adviser's fiscal year while the filing requirement for those registered with the SEC is within 120 days.
c-file form ADV part 1b while those registering with the SEC do not It is only state-registered investment advisers who file the Form ADV Part 1B. Both file the Form ADV Part 2A, and an audited balance sheet is required for any IA who takes substantial prepayments or maintains custody. Do not confuse this requirement with the one regarding including a balance sheet in the brochure delivered to customers. In that situation, only state-registered IAs maintaining custody must deliver the balance sheet. In both cases, the annual updating amendment is due within 90 days after the end of the IA's fiscal year. LO 3.c
title IV of the dodd frank act of 2010, known as the private fund investment advisers registration act of 2010, contains a comprehensive overhaul of the registration process for investment advisers. the bill provided for new exemptions from registration under the investment advisers act of 1940 for all of the following EXCEPT a-advisers solely to private funds with less than 150 million in assets under management in the US, without regard to the number or type of private funds (the private fund adviser exemption) b-advisers solely to venture capital funds (the venture capital fund exemption) c-certain non US advisers with no place of business in the US and minimal assets under management (less than 25 million) attributable to US clients and investors (foreign private adviser exemption) d-advisers solely to unit investment trusts (UITs) registered under the investment company act of 1940 (the UIT adviser exemption)
d-advisers solely to unit investment trusts (UITs) registered under the investment company act of 1940 (the UIT adviser exemption) first, there is nothing private about UITs-they are publicly offered. secondly, one of the specific characteristics of a UIT is that there is no ongoing management of the portfolio. third, UITs were around before 2010. LO 3b
Under the Uniform Securities Act, the term agent does not include an individual who represents an issuer in effecting transactions in certain cases. In which case does receipt of compensation make the individual an agent? A) Effecting unsolicited transactions B) Effecting transactions in a security issued by a bank or trust company C) Effecting transactions in bonds issued by a Canadian provincial government D) Effecting transactions with existing employees, partners, or directors of the issuer
d-effecting transactions with existing employees, partners, or directors of the issuer An individual representing an issuer is not an agent when the issuer is one of the five listed in the LEM. Canadian federal and provincial governments are on that list, as are banks and trust companies. In addition, regardless of the issuer, if the transaction is exempt, as is an unsolicited trade, the individual is not an agent. When the only transactions are with employees purchasing the employer's stock, payment of any form of compensation to the individual makes that person an agent. LO 2.f
Parsimonious Asset Managers (PAM) has its principal office in State A with branches in States B, C, and D. PAM's last annual updating amendment showed assets under management of $125 million. Latrice is registered as an investment adviser representative with PAM and spends all of her time in the State C branch office advising her retail clients. With three customers in State C, 35 customers in State A, and 14 customers in State D, Latrice must register in A) States A, B, and D. B) States A and C. C) States A, C, and D. D) State C.
d-state C PAM is a federal covered investment adviser (125 million in AUM requires that). therefore, as an IAR with a covered IA, the requirement to register is solely with those states in which the IAR has a place of business. in this question Latrice's only place of business in is state C. the de minimis exemption applies to IARs with state registered IAs, not federal covered ones LO 3e