Missed Questions
If the current risk-free rate is 5%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of 1.5?
12.5%
If the current risk-free rate is 5%, and the expected return on the market is 10%, what return can be expected from a security that has a beta of 1.5?
12.5% The formula for this is: risk-free rate plus the (difference between the market return and the RF) times the beta. In this question, those numbers are: 5% + [(10% - 5%) × 1.5] = 5% + (5% x 1.5) = 5% + 7.5% = 12.5%.
Under the Uniform Securities Act, which of the following qualifies as an investment adviser representative?
A solicitor for an investment advisory firm who is paid a fee for his services
A client is risk averse and is planning on retiring in 16 years. The client is rolling over $100,000 from his 401(k) plan, all of which is currently invested in his former employer's stock. As the client's investment adviser, which of the following would you recommend? A) Keeping the money in the employer's stock B) Laddering U.S. Treasury bills C) Highly rated preferred stocks paying liberal dividends D) AAA-rated zero-coupon bonds maturing in 16 years
AAA-rated zero-coupon bonds maturing in 16 years Because the assets are in a rollover IRA, the "phantom" tax on zero-coupon bonds is not an issue here. Being risk averse, the safety of AAA bonds with the guaranteed return of increased principal in 16 years makes this the most appropriate investment.
Tim, Jim, and Kim are equal partners in TJK Investment Advisers, a general partnership. Tim decides to sever his relationship with the other partners and work for a different firm. When, if at all, must the clients of TJK be notified of Tim's departure?
An investment adviser firm organized as a general partnership must notify its clients of the departure of a general partner within a reasonable time.
Which of the following statements is an accurate description of dollar cost averaging?
An investor invests a set amount of money each interval to buy more shares when the prices are low and fewer shares when prices are high.
An individual has just received a bonus of $12,473 and wishes to generate some income without risking loss of capital. Assuming the client is in a low tax bracket, which of the following would be the most suitable choice?
Bank-insured CDs The only choice here with no risk to capital is the bank-insured CD
Which economic concept attempts to explain why investors behave irrationally?
Behavioral finance
An investor has unexpectedly received $30,000 from an old debt he had written off. This money will come in handy for a business venture planned for 3 years from now. Meanwhile, he would like to generate some income on the money with as little risk and expense as possible. Which of the following recommendations is likely to be the most suitable for this customer?
Class C shares of the ABC Investment-Grade Bond Fund
A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust do you advise she use?
Complex trust Only a complex trust allows the two features that she requires. Simple trusts may not make charitable contributions, and they provide no discretion on income distribution.
One of your clients, a couple in their early 30s, asks you to recommend a plan to save for their newborn child's education. They are only able to contribute $1,800 per year. Which of the following would most likely be the best fit for their situation?
Coverdell ESA The key to this choice is the contribution level. The Coverdell ESA has a maximum annual limit of $2,000 and offers tax-free growth. Why not the Section 529 plan? Invariably, that will be the correct choice when the question involves higher contribution amounts or tax benefits on a state level. When the couple can only contribute $1,800 per year, it seems logical to assume that they are in a low tax bracket where those benefits would be of minimal value. UTMA offers less flexibility and the annuity would not be suitable for anyone wishing to use the funds prior to age 59½.
Under Section 28(e) of the Securities Exchange Act of 1934, which of the following is allowable soft-dollar compensation from a broker-dealer to an investment adviser under the safe harbor provisions?
Custodial services provided by the broker-dealer
Which of the following is a method for determining the internal rate of return to an investor based on cash flow in and out of the portfolio?
Dollar-weighted return
Which of the following statements regarding the Investment Adviser Act of 1940 and the adviser's brochure are CORRECT?
Each client must receive the brochure no later than the entering into the advisory contract
Under which of the following circumstances would it most likely be presumed that an adviser holds custody of client property?
Harold, a client, makes a check intended for his investment account payable to Gibraltar Advisers, which is dually registered as investment adviser and broker-dealer. Harold's fee is automatically withdrawn from his account on a semiannual basis. When fees are automatically withdrawn from the client's account, custody of client funds can be presumed.
A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver -a copy of the IA's brochure -a copy of the solicitor's brochure -a copy of the solicitor's script -a copy of the IA's Form ADV Part 1
I and II
Which of the following statements regarding Coverdell Education Savings Accounts are TRUE? -After-tax contributions of up to an indexed maximum per student per year are allowed. -Contributions may not be made for students past their 18th birthday. -If the account value is not used for educational purposes, it can be rolled over into a traditional IRA. -Distributions are always taxable.
I and II Coverdell Education Savings Accounts allow after-tax contributions of up to $2,000 per student, per year, for children until their 18th birthday. If the accumulated value in the account is not used by age 30, the funds must be distributed and subject to income tax and a 10% penalty, or rolled over into a different Coverdell ESA for another family member.
Which of the following transactions are exempt from registration under the Uniform Securities Act? -A trustee of a corporation in bankruptcy liquidates securities to satisfy debt holders. -An offer of a securities investment is directed to 10 individuals in the state during a 12month consecutive period. -A sale of securities by the trustee of the Lorgan Family Children's Trust. -Agents for an entrepreneur offer pre-organization certificates to fewer than 10 investors in the state for a modest commission.
I and II Transactions by fiduciaries, such as a trustee in a bankruptcy reorganization, are exempt from registration. But only a trustee in bankruptcy is afforded this exemption, not for a family trust. An offer of a securities investment to 10 or fewer individuals (called a private placement) is also exempt from registration. Offers of pre-organization certificates are not exempt when compensation is paid.
Sam wants to start his own registered investment adviser firm, independent of the brokerage firm where he is registered as an agent. He plans to provide financial planning services, which will include investment advice as an integral part of his business. Sam must -file with either the state securities Administrator or with the Securities Exchange Commission as a registered investment adviser by filing the appropriate Form ADV -file Form ADV with his current brokerage firm -notify his current brokerage firm and receive permission to operate independently from the firm as a registered investment adviser -do nothing and begin performing investment advisory services without regard to his current brokerage firm
I and III
Which of the following statements are TRUE about both an individual Roth IRA and a Roth 401(k) plan? -Contributions are made with after-tax dollars. -One must have AGI below a certain level in order to maintain either Roth. -If all the conditions are met, withdrawals are tax free. -There are no RMDs at age 70½.
I and III In any Roth plan, contributions are made with after-tax dollars, and assuming all conditions are met, withdrawals are tax-free. However, unlike the individual Roth IRA, there are no earnings restrictions on participants in a Roth 401(k) plan and RMDs must begin at age 70 ½.
Credible Investment Specialists (CIS) is a state-registered investment adviser with its only offices in State A. In which state(s) would registration be required? -State A where the only clients are large pension plans -State B where the only clients are banks -State C where the only clients are insurance companies -State D where there are 6 or fewer retail clients over any 12 month period
I and IV Once the adviser has more than 5 retail clients in a state over a 12-month period, the de minimis exemption is lost and registration is required.
Mary Baker is an investment adviser registered with the SEC. Eight years ago, she was the subject of an SEC investigation involving improper actions between her customers and herself which resulted in a $5,000 fine. Under the Investment Advisers Act of 1940, Mary's obligation to her clients is to disclose to prospective clients in her Form ADV Part 2 that she was the subject of a proceeding and the proceeding's outcome make disclosures in her Form ADV Part 2 regarding the case only if the prospect becomes a client make disclosures in her Form ADV Part 2 only if the event was resolved her favor, or was reversed, suspended, or vacated
I only If an investment adviser has been the subject of a material criminal, civil, or regulatory action within the past 10 years, that fact must be disclosed to all clients and prospective clients in the Form ADV Part 2A. The only time disclosure of an investigation need not be made is when the event was resolved in her favor, or was reversed, suspended, or vacated. In other words, no guilty verdict, no fine.
The term "investment adviser representative" includes which of the following? -A receptionist for an adviser -An employee who solicits new business for an adviser -A supervisor who oversees employees who manage client portfolios for an adviser -An investment advisory firm registered in the state of Texas
II and III An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives.
Under the Uniform Securities Act, which of the following is an investment adviser?
Jill is an attorney specializing in estate planning who, as a side job, structures portfolios for the beneficiaries of her deceased clients at a reduced fee.
A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?
Options
Which of the following individuals may NOT open a joint account?
Parent and a minor
Which of the following investments could be found in an UTMA but not an UGMA?
Real estate The Uniform Transfer to Minors Act (UTMA) allows virtually any kind of asset, including real estate, to be transferred to a minor. UGMA accounts, on the other hand, are limited to gifts of cash, securities (such as stocks, bonds, or mutual funds), and insurance policies.
Under UTMA, which of the following are allowable distributions for the benefit of the minor? A) Clothing expense for a child who has gone through a growth spurt B) The cost to attend a summer camp C) A percentage of food expense D) A percentage of housing expenses, such as the utilities for his bedroom
The cost to attend a summer camp You cannot use UTMA (or UGMA) money for the basics: food, clothing, and shelter; those are the responsibility of the parent. An optional expense, such as summer camp, vacation, and sports league registration, would be permitted.
Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, what factor is NOT considered in determining whether excessive trading has occurred?
The length of time the account has been opened
Under industry regulations, when may an agent be given discretionary power to buy or sell securities for a client?
When authority is given by a written document Discretionary authority must be in written form. The only exception is when the discretion relates to time or price because, under the law, that is not considered to be discretion.
On last year's annual updating amendment filed with the SEC, Alpha Investment Advisers indicated that it had more than $140 million in assets under management. Due to a reduction in the size of the firm, this year's annual updating amendment shows that assets under management have fallen to the $75 million level and are expected to remain there. Which of the following actions are required for Alpha?
Withdraw from SEC registration within 180 days of the adviser's fiscal year-end
An investment adviser sends a notice offering a research report she has recently prepared to a group of 25 new members of the local Lions Club. Under the NASAA Model Rule on recordkeeping for investment advisers, the firm must keep a copy of the notice along with
a memorandum describing the list and its source If an investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except if the notice, circular, or advertisement is distributed to persons named on any list, then the investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and its source.
When a brokerage firm sells stock from its own inventory, it is acting in the capacity of
a principal, and charges a markup
As a general matter, the regulators do not treat posts by customers or other third parties as the firm's communication with the public. Under certain circumstances, however, third-party posts may become attributable to the firm. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content. Where the firm endorses or approves of the material, but has no part in its creation, it is known as
adoption
A type of fraud using social media where the fraudsters pretend to be member of a group, sometimes using respected leaders of the group to spread the word about the scheme is known as
affinity fraud
A nonqualified, single premium variable annuity differs from a Keogh plan in that A) it is open to self-employed persons B) both are subject to early withdrawal penalties C) earnings are tax deferred D) all payouts are fully taxable in a Keogh plan
all payouts are fully taxable in a Keogh plan Earnings on investments made in both a Keogh plan and nonqualified annuity grow on a tax-deferred basis; they are not taxed until withdrawn.
All of the following are exempt transactions under the USA EXCEPT
an agent soliciting a customer to buy a new issue of corporate bonds
Tamika is an investment adviser representative with Financial Engineers, LLC, a covered investment adviser. The firm uses an investment policy statement to help design financial plans for their clients. One of Tamika's current clients plans to purchase a new boat 7 months from now. When using the IPS, this would be considered
an investment constraint Investment constraints are obstacles or restrictions that must be met in order to meet objectives. In this case, we are dealing with a liquidity constraint—in 7 months, cash will be necessary to make the purchase.
Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment companies registered under the Investment Company Act of 1940 are required to register
as securities at the federal level only
In an effort to benefit from the economies of scale, Liquid Assets Management, Inc. (LAMI) and Strategic Assets Management Company (SAMCO), both registered with the Administrator as investment advisers, have merged into a new firm with the name of Strategic and Liquid Assets Management Company (SLAMCO). This would
be considered an assignment of the advisory contracts and would require consent of the clients.
Leslie is an IAR with Financial Visions (FV), a federal covered investment adviser. Leslie operates Innovative Financial Solutions (IFS), a separate financial planning company with its own office in State W. Should Leslie be found guilty of fraudulent business activities, FV would
be subject to possible disciplinary action brought by the State W Administrator if it could be shown that FV failed to supervise Leslie's activities
Two sisters might wish to open an account as tenants in common (TIC) rather than JTWROS in order to
ensure that their respective shares go to their heirs instead of the surviving sister.
A grantor retained annuity trust is a planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize
estate taxes A GRAT is an estate planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize gift and/or estate taxes. Because incidents of ownership remain with the grantor, all income is taxed to the grantor.
A registrant's registration may be canceled by the Administrator
if the Administrator is unable to locate the registrant
An agent is assisting a prospective client in opening an account. The individual refuses to provide his net worth and annual income. The agent should
in the absence of company policy to the contrary, open the account but limit transactions to unsolicited orders
Insurance agents frequently use a capital needs analysis to help determine the correct amount of life insurance needed by their clients. That analysis would look at all of these EXCEPT
market volatility nothing can project market volatility with any degree of accuracy.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser's fee
may be considered unreasonable if it is not competitive with fees charged by other advisers for essentially the same services
Who is not considered a person under USA?
minors, those who are deceased, and those declared mentally incompetent
You have a 62-year-old client who opened a Roth IRA with your firm one year ago. The account was funded with a $6,500 deposit and the account's value is now $7,500. The client has another Roth, opened eight years ago at another firm. The client would like to withdraw $7,000 from this account rather than the one at the other firm. The tax consequences of this withdrawal would be
no tax
Under the Investment Advisers Act of 1940, cash payment to a broker-dealer from an investment adviser in return for client referrals is
permitted if the investment adviser makes certain disclosures to the clients and meets other requirements
An employer whose 401(k) plan complies with ERISA Section 404 is placing investment risk with the
plan participant In a 401(k) plan, a plan sponsor can shift investment risk to the employee by complying with ERISA Section 404(c) rules. In this case, the employee is making the investment decisions rather than the investment managers employed by the plan.
An investor who is long XYZ stock would consider going long an XYZ call to
protect against an increase in the market price of XYZ stock
The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers generally prohibits an IA from disclosing any confidential account information without specific consent of the client. However, disclosure would be permitted to
the client's spouse when this is a joint account
All of the following would be reasons for an employer to choose a nonqualified plan over a qualified plan except A) the nonqualified plan is not subject to ERISA reporting and disclosure requirements. B) the nonqualified plan provides an immediate income tax deduction for the employer. C) the nonqualified plan provides greater flexibility. D) the nonqualified plan can discriminate in favor of highly-compensated employees.
the nonqualified plan provides an immediate income tax deduction for the employer Nonqualified plans do not provide a tax deduction to the employer until the employee receives the economic benefit as income at some point in the future
A taxpayer's marginal tax rate is
the rate of taxation on any additional taxable income received
Under the Uniform Securities Act, a nonexempt transaction may take place in the state only if
the security is registered, exempt, or federal covered
An agent opening a wrap account for a wealthy client may tell the customer that
wrap fees may result in higher costs than separate charges for advice, management, and transactions When prospecting for new wrap accounts, agents are required to disclose to customers that wrap fees may result in higher costs than separate charges for advice, management, and transactions if the client is not able to use all of the services included. For those clients that are able to make use of all of the services provided, the costs will generally be lower than the cost of buying them piecemeal. Future performance of managed accounts may not be stated or implied.
According to the Investment Advisers Act of 1940, the SEC must either grant investment adviser registration or begin proceedings to determine whether registration should be denied within how many days of filing?
45
When it comes to social media, agents need to understand the difference between interactive and static content. Which of the following would be considered static content?
A broker-dealer's profile posted on Facebook Static content is content that remains posted until it is changed by the firm or an individual who established the account. Interactive content is generally real-time communications, such as the other three choices shown here.
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate? A) A sole proprietorship B) An S form of corporation C) A limited liability company (LLC) D) A general partnership
A limited liability company (LLC) While the regular or C corporate form is also preferable, the S form of corporation is limited to a maximum of 100 potential shareholders, none of whom may be a nonresident alien.
Jane and Malka are discussing the possible form of efficient markets. Jane states that, "A weak form price-efficient market is one in which security prices fully reflect past share price and trading volume data." Malka retorts that she is not sure of Jane's thoughts and says, "If markets are weak form efficient, we cannot consistently outperform the market based on technical analysis."
Both Jane and Malka are correct. A weak form price-efficient market is one in which security prices fully reflect past share price and trading volume data. Therefore, successive future share prices should move independently of this past data in a random fashion, thereby nullifying any perceived informational advantage from adopting technical analysis to analyze trends.
All of the following are eligible to open an IRA EXCEPT A) a corporate officer not covered by his company's pension plan B) a self-employed person covered by a Keogh plan C) a divorced individual whose sole source of income is $10,000 per month in child support D) a corporate officer covered by his company's pension plan
C) a divorced individual whose sole source of income is $10,000 per month in child support Anyone with earned income may open an IRA. However, child support is not considered earned income.
Which of the following statements regarding a state-registered investment adviser with custody of customer assets is TRUE?
Every three months, the adviser must send an itemized account statement to each customer whose assets are held in custody. Customer assets held in custody by an investment adviser must be segregated, and the adviser must send a statement every 3 months. The Administrator does not approve custodial accounts. If there is no rule prohibiting custody, the Administrator must be notified that the adviser has custody. Advisers with custody of customer assets have a higher net worth requirement than advisers with discretionary authority, not the other way around. Commingling (mixing together) of client and firm assets is never permitted.
A federal covered investment adviser has which of the following obligations regarding the state in which it maintains its principal place of business? -It must notify the Administrator of its SEC registration. -It must pay state-required filing fees. -Its adviser representatives are exempt from state-required exams. -It must maintain net worth equal to the higher of federal requirements or those of the state.
I and II
Under the Uniform Securities Act, in which of the following circumstances may the Administrator take action against an advisory firm? -Nine years ago, the Administrator of another state found that the ----president of the firm violated the securities laws of that other state. -The firm has liabilities that exceed its assets. -A minority shareholder with no management role in an investment adviser organized as a corporation cannot meet his financial obligations as they come due.
I and II
Which of the following are governed by the prudent investor rule? -Trustee -Executor -Custodian -Agent who has been granted discretionary authority
I, II, III, and IV
Limited liability is a characteristic of being an owner of -a general partnership -an interest in a limited partnership -shares of an S corporation -a sole proprietorship
II and III
Which of the following statements regarding brokerage and advisory activities under the USA are TRUE? -It is not unlawful for an investment adviser or broker-dealer to employ any device, scheme, or artifice to defraud in the sales of securities to institutional investors because the USA is designed to protect individual investors. -Under the USA, it is unlawful for an investment adviser to deceive a person when not providing advice to that person. -Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. -It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities.
III and IV
One of your prospective clients is considered a key employee at his place of business. This individual has a net worth of almost $6 million, currently earns in excess of $500,000 per year, and is married with 2 teenage children. He currently has a little over $1 million in his 401(k), more than half of which is invested in his employer's common stock. The company is the beneficiary of a $1.5 million key person life insurance policy on his life. Given these facts, what is your greatest concern as his adviser?
Inadequate life insurance coverage
Which of the following statements concerning market efficiency is not correct?
Investors who accept the efficient market hypothesis (EMH) usually adopt an active investment strategy.
When filing the consent to service of process, which of the following is TRUE?
It is supplied with the initial registration and remains on file permanently
Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements?
Payroll deduction plan A payroll deduction plan is a retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans. A payroll deduction plan is a nonqualified retirement plan. Profit-sharing, pension, and Keogh plans must have established standards.
Under federal law, which act regulates the activities of broker-dealers and associated persons?
Securities Exchange Act of 1934
Beverly has two stocks with a correlation coefficient of zero. Which of the following is correct? A) These stocks are well diversified because they will move in unison. B) These stocks are well diversified because as one stock appreciates in value, the other decreases in value. C) These stocks will move independently of each other. D) These stocks are not well diversified because they move in unison.
These stocks will move independently of each other. A correlation coefficient of zero means that the two stocks will move independently.
Obtaining all of the following complies with the regulations regarding customer identification programs (CIPs) EXCEPT
a PO Box, instead of a physical address, if it is the primary mailing address A PO Box is never acceptable without a physical address.
Sharon Smith is an investment adviser representative with Highwater Advisers, a federal covered investment adviser with its principal office in State X. Sharon provides advisory services to a bank located in State X, a state in which she has no place of business. Under current regulations,
because Sharon has no place of business in State X, she does not have to register as an IAR in State X.
A well-diversified investor following a rebalancing portfolio strategy in a rising market will most likely
sell part of the stock in the portfolio
Olga holds XYZ stock. The stock recently increased in value by 50%. She would like to preserve as much of this gain as possible and retain the potential for additional price increases. Which strategy best meets Olga's goal?
Buy a put option Buying a put option would allow Olga to hold the stock for additional gain but reserve the right to sell at or near the current value if the stock price plummets. Shorting the stock would lock in Olga's gain but not allow her to take advantage of additional price increases; additional price increases would be offset by the cost of replacing the shorted stock. Writing a call option would provide some offset to a drop in price but would not allow for potential gain in value. Buying a call option would not provide any downside protection.
Which of the following statements regarding the SEC's power to revoke the registration of an investment adviser is TRUE?
Failure to adequately supervise a person associated with the adviser could be cause for the SEC to revoke the firm's registration. Failure to supervise, if proven, is one of the most common causes for disciplinary action against a broker-dealer or investment adviser. Insolvency is not a cause for revocation under the Investment Advisers Act of 1940, but it is for a state-registered investment adviser (it's tough to keep these straight; please see Appendix A). A late ADV annual updating amendment might be cause for some action but almost certainly not a revocation; it is not that serious an offense. The balance sheet would only have to be part of the disclosure statement (brochure) given to those from whom substantial prepayment of fees is received.
Which of the following are prohibited practices? -An investment adviser transferred a client's account to a brokerage house because the account went below the firm's minimum size and then informed the client. -An investment adviser organized as a partnership did not inform its clients of the departure of a partner who had only a very small interest in the firm. -An investment adviser subsidiary of a publicly traded bank holding company failed to inform its clients of the departure of the firm's chairman and major stockholder. -An investment adviser firm organized as a general partnership sends prompt notification to all clients after the addition of a new partner.
I and II Transfer or assignment of an advisory account without prior client consent is always prohibited. An investment adviser need not inform clients of departures of employees, senior or otherwise, from investment advisory firms that are incorporated. Clients must, however, be informed of the departure or addition of any partner if the firm is organized as a partnership. The legal requirement for this notification is "within a reasonable period of time," but there is nothing prohibited about doing it promptly.
A federal covered investment adviser registered with the SEC that has offices in 5 states must do which of the following? -Pay state filing fees if required by the Administrator -Notify the Administrator within 1 business day if net worth falls below the required minimum -Notice file in any of those states where required by the Administrator -Become licensed as a broker-dealer
I and III Although exempt from state registration, federal registered investment advisers must notice file and pay state filing fees (if required by the Administrator) to practice within a given state. Federal covered advisers do not come under the financial or recordkeeping requirements of the state, only the SEC.
Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include -a charge when a client requests that a stock certificate be issued in his name -a commission charge when a client buys a security on a listed exchange -the interest charged by the firm on money owed by customers in their margin accounts -fees for providing advisory services to high net worth individuals
I and III There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: -commissions; -markups and markdowns; and -advisory fees for those firms that are also registered as investment advisers.
One of your clients has recently turned 70½ and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from 2 previous employers. When computing the RMDs, -the RMD from each IRA is computed and may be made from one or both of them -the RMD from each IRA is computed and must be paid from that IRA -both 401(k)s are combined to compute the required distribution, which may be made from one or both of them -the RMD from each 401(k) is computed and must be paid from that 401(k)
I and IV
An investment adviser is required to disclose to a client the amount of compensation received from which of the following third parties? -Compensation on the client's transactions executed through a broker-dealer -Compensation received from an issuer of a security recommended to the client -Compensation received from any nonsecurities products recommended to the client
I, II, and III
An investment adviser must disclose which of the following legal or disciplinary actions to clients and prospective clients if they occurred within the last 10 years? -Conviction of a misdemeanor involving an investment-related business -SEC or other federal regulatory agency proceedings in which the person was found in violation of an investment-related statute -A proceeding before FINRA in which the adviser was barred or suspended from membership -Conviction of a misdemeanor in a civil action regarding payment of motor vehicle violations
I, II, and III
Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? -An adviser that requires prepayment of $1,000 in fees, 9 months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. -An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. -An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients.
II and III
Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? -The letter can cover a period totaling 16 months. -The letter may be backdated 90 days. -Some shares purchased are held in escrow until the letter is completed. -During the period covered by the letter, the customer may not redeem his shares.
II and III
As defined in the Uniform Securities Act, an investment adviser is all of the following EXCEPT -a broker-dealer who charges for investment advice -a publisher of a financial newspaper -a person who sells security analysis -a CPA who, as an incidental part of his practice, suggests certain tax-sheltered investments to his affluent clients
II and IV
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to -lend money to an investment adviser representative registered with the firm -lend money to a bank that is a client of the advisory firm -earn a fee that is based on a sliding scale depending on the amount of assets under management -borrow money from a mortgage broker who is an advisory client of the firm
II and IV Investment advisers may lend money only to persons affiliated with the firm (as the IAR is) or if the adviser is in the money-lending business. We borrow money from banks because they are in the business of lending money, but we don't lend money to the money lenders. An IA may only borrow from lending entities, and a mortgage broker does not lend money; the broker arranges the loan but does not act as a principal. Most investment advisers base their fee on a sliding scale. That is, the more money under management, the lower the percentage charged.
Which of the following statements regarding a qualified profit-sharing plan is TRUE? A) Contributions are required annually. B) It must be established under a trust agreement. C) It can permit regular direct cash payouts to participants before retirement. D) It must define a specific contribution amount.
It must be established under a trust agreement.
A client of Wall Street Wealth Management (WSWM), a federal covered investment adviser, calls the IAR handling the account and gives instructions to use some of the surplus cash in the account to purchase 500 shares of RMBM, a small-cap stock traded on the Nasdaq Stock Market. Prior to submitting the order, the IAR checks with a supervisor and learns that WSWM has 1,000 shares of RMBM in its proprietary account and is looking to halve the position. If, instead of forwarding the order to the broker-dealer who normally handles trade executions for this client, WSWM filled the order out of its own account,
It would be permissible as long as consent was obtained and written disclosure of the firm's capacity was disclosed prior to the completion of the transaction
Form PF must be filed by
SEC-registered advisers with at least $150 million in private fund assets under management Form PF is the form used by those private fund managers who are registered with the SEC and whose private fund AUM reaches or exceeds the $150 million threshold. Exempt reporting advisers are, as the term implies, exempt from reporting. State-registered advisers don't report on the form because, among other things, if they reached the $150 million mark, they'd have to register with the SEC.
John Law is the owner of Mississippi Advisory Services (MAS), an independent financial planning organization. Law is registered as an investment adviser representative of SSC Securities and Investments, registered as a broker-dealer, and an investment adviser with the SEC. Supervision over Law's advisory activities is the responsibility of
SSC's CCO It is common for independent financial planners to establish their own business entity and "hang" their registration as an IAR with another firm (as is the case in this question). The rules emphasize that these independent contractors are under the supervision of the carrying firm's CCO in the same way that inhouse IARs are.
Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act,
Sharon must be registered in State X in order to accept the order Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state that is the domicile of a client placing an order. One does not have to be registered as an agent in every state the BD is, only in those where she expects clients to reside.
Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT
members of AT's board of directors who are active in the firm's business Unless the individual has direct contact with clients (retail or institutional) or exercises discretion, a copy of the Part 2B brochure supplement for each individual is not required. This would include officers and members of the board of directors. Of course, if any of these individuals had direct client contact or exercised discretion, a supplement for them would need to be prepared.
Jack, a registered investment adviser, will take the Certified Financial Planner examination when it is offered in 2 months. He is currently enrolled in an educational program to prepare for the exam. He has just run out of business cards. Because he is confident that he will pass the exam through diligent study, Jack begins to use new business cards with the letters CFP® following his name. This would be
prohibited as an exaggerated claim
A registered investment adviser, in his financial planning practice, recommends and sells proprietary products offered through a broker-dealer affiliated with his investment advisory firm. All of the following statements are true EXCEPT
the adviser must receive a signed statement from the customer that authorizes this practice before collecting any payment Disclosures are required, but written consent is not. If the client does not agree with these arrangements, he can take his business elsewhere. There are cases, such as agency cross transactions, where prior written consent of the client is needed.
An investment adviser should develop an investment policy based on the needs and objectives of the client. When the client is a business entity structured as a general partnership, the investment policy would have to consider
the objectives of all the partners on a collective basis Because all income and gains pass through to the partners, and because there is unlimited personal liability for all general partners, we must examine the objectives of each of them to determine proper suitability.
One of the assumptions underlying the capital asset pricing model is that
there are no transaction costs or taxes. The CAPM assumes frictionless markets, i.e., no taxes or transaction costs. Among the other assumptions of the CAPM are that all investors have the same time horizon and that all investments are infinitely divisible into fractional shares. The CAPM assumes that there is no inflation.
Under the Investment Advisers Act of 1940, a cash referral fee may be paid by an IA
when a written agreement providing certain disclosures has been entered into between the IA and the third party Please note that the question refers to the Investment Advises Act of 1940; this answer would not be appropriate under the Uniform Securities Act. A cash referral fee may be paid under the terms of a written agreement spelling out the terms and conditions of the arrangement and making the required disclosures.
