PAL School: Series 26
Under the Uniform Securities Act, which of the following is NOT excluded from the definition of broker-dealer? A) A broker-dealer domiciled in another state, having no offices in this state, dealing exclusively with broker-dealers in this state B) A person with an office in this state whose securities business is limited to effecting transactions with institutional investors C) Issuers of securities D) Agents
The correct answer was: A person with an office in this state whose securities business is limited to effecting transactions with institutional investors The definition of a broker-dealer is a person in the business of effecting transactions in his account or for the account of others. If the person has an office in this state, regardless of who the clients are, registration with this state is necessary. Under the USA, one is not defined as a broker-dealer if there is no office in the state and transactions are limited in this state to other broker-dealers
Under the terms of the Uniform Securities Act, which of the following is an investment adviser for purposes of state regulatory jurisdiction? A) A commercial bank with a place of business in the state that advises clients on investment matters B) A federal covered adviser with clients in the state C) An investment subsidiary of a bank holding company located in the state that manages $70 million in assets D) An accountant located in the state who offers general securities advice as an incidental part of his business.
The correct answer was: An investment subsidiary of a bank holding company located in the state that manages $70 million in assets A bank holding company's investment subsidiary that manages less than $100 million in assets is an investment adviser subject to the Uniform Securities Act (USA). Under the language of the USA, a commercial bank is excluded from the definition of investment adviser whereas a bank holding company subsidiary is not. While a federal covered adviser is an investment adviser in practice (that is, it performs the functions of an adviser), it is excluded from the definition of an investment adviser under the USA to avoid duplicate regulation. An accountant located in the state that offers general securities advice as an incidental part of his business is not an investment adviser.
Under the terms of the Uniform Securities Act, which of the following is an investment adviser for purposes of state regulatory jurisdiction? A) A commercial bank with a place of business in the state that advises clients on investment matters B) A federal covered adviser with clients in the state C) An investment subsidiary of a bank holding company located in the state that manages $70 million in assets D) An accountant located in the state who offers general securities advice as an incidental part of his business
The correct answer was: An investment subsidiary of a bank holding company located in the state that manages $70 million in assets A bank holding company's investment subsidiary that manages less than $100 million in assets is an investment adviser subject to the Uniform Securities Act (USA). Under the language of the USA, a commercial bank is excluded from the definition of investment adviser whereas a bank holding company subsidiary is not. While a federal covered adviser is an investment adviser in practice (that is, it performs the functions of an adviser), it is excluded from the definition of an investment adviser under the USA to avoid duplicate regulation. An accountant located in the state that offers general securities advice as an incidental part of his business is not an investment adviser. Reference: 1.3.2 in the License Exam Manual.
Which of the following are NOT agents as defined in the USA? I. A broker-dealer acting on behalf of a properly registered issuer II. An individual representing the U.S. government in the sale of its securities III. An individual who, acting on behalf of a broker-dealer, sells exempt securities or engages in an exempt transaction IV. An individual who represents an issuer selling a nonexempt security in a nonexempt transaction A) II and III B) III and IV C) I and III D) I and II
The correct answer was: I and II A broker-dealer by definition is not an agent. An individual who, while acting on behalf of the issuer, sells certain exempt securities, such as those issued by the U.S. government, is not an agent. The exclusion from the definition of an agent only applies to those individuals who are selling on behalf of the issuer (never a broker-dealer) and only when the transaction is exempt or the issuer is one of a specified list of exempt issuers. Reference: 1.2.2.2.1 in the License Exam Manual
The Uniform Securities Act requires which of the following to be registered as agents of a broker-dealer? I. A major partner in a broker-dealer who actively manages the firm's day-to-day operations II. A partner who has contributed most of the capital of the firm but takes no part in its activities III. A broker-dealer employee whose major function is to take orders from the public on behalf of the firm's partners IV. An employee of a broker-dealer who only trades securities for the broker-dealer's account A) I, III and IV B) II and IV C) I and II D) I, II, III and IV
The correct answer was: I, III and IV Employees who take orders from the public on behalf of the partners of broker-dealers and who trade securities for the accounts of broker-dealers must register as agents. The USA requires any person who represents a broker-dealer in effecting securities transactions to register as an agent of their employing broker-dealer. Reference: 1.2.2.3 in the License Exam Manual.
XYZ Securities is a broker-dealer based in Wisconsin with offices in no other state. In addition to its Wisconsin clients, XYZ has 30 retail customers living in Illinois. During the winter, if 10 existing customers vacation in Florida for up to 7 weeks at a time, XYZ Securities is a broker-dealer in A) Wisconsin, Illinois, and Florida B) Wisconsin and Illinois C) all states having enacted the USA D) Wisconsin only
The correct answer was: Wisconsin and Illinois Under the USA, XYZ Securities is a broker-dealer in Wisconsin because it maintains an office there. XYZ Securities is also a broker-dealer in Illinois because with 30 Illinois retail (non-institutional) customers, registration is required even if there is no physical office in Illinois. Because none of XYZ's clients has taken up residence in Florida, such clients are transients rather than residents. Thus, XYZ Securities is not a broker-dealer in Florida subject to the state's registration requirements.
An employee of a commercial bank selling the bank's bonds to its banking clients is acting in the capacity of a(n) A) broker-dealer B) person excluded from the definition of an agent C) agent of the issuer D) agent of a broker-dealer
The correct answer was: person excluded from the definition of an agent Commercial banks are included in that group of issuers of exempt securities whose individuals representing them in the sale of their securities are excluded from the definition of agent.
An Administrator can deny an investment adviser's registration for all of the following reasons EXCEPT A) filing an incomplete application B) claiming to be qualified as the result of experience as a broker-dealer C) Changing the location of customer assets held in custody and notifying the Administrator with a quarterly amendment to the Form ADV D) planning to exercise discretion over customer accounts while maintaining a net worth of only $10,000
The correct answer was: planning to exercise discretion over customer accounts while maintaining a net worth of only $10,000 The minimum net worth for an IA exercising discretion is $10,000 so this firm cannot be denied because of lack of capital. The Administrator shall consider that an applicant for registration as an investment adviser is not necessarily qualified solely on the basis of experience as a broker-dealer. Changes to location of customer assets held in custody must be reported promptly, not at the end of the quarter.
An agent opening a wrap account for a wealthy client may tell the customer that A) wrap account managers will generally outperform index funds B) wrap fees always result in lower costs than separate charges for advice, management, and transactions C) wrap fees generally result in higher costs than separate charges for advice, management, and transactions D) wrap fees may result in higher costs than separate charges for advice, management, and transactions
The correct answer was: 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.
Which of the following are NOT agents as defined in the USA? I. A broker-dealer acting on behalf of a properly registered issuer II. An individual representing the U.S. government in the sale of its securities III. An individual who, acting on behalf of a broker-dealer, sells exempt securities or engages in an exempt transaction IV. An individual who represents an issuer selling a nonexempt security in a nonexempt transaction A) II and III B) III and IV C) I and III D) I and II
Your answer, II and III, was incorrect. The correct answer was: I and II A broker-dealer by definition is not an agent. An individual who, while acting on behalf of the issuer, sells certain exempt securities, such as those issued by the U.S. government, is not an agent. The exclusion from the definition of an agent only applies to those individuals who are selling on behalf of the issuer (never a broker-dealer) and only when the transaction is exempt or the issuer is one of a specified list of exempt issuers.
