S63 - Second Set

In which of the following situations is an agent committing a prohibited practice? A) Allowing the customer to place an order to sell 100 shares of ABC in the client's discretionary account B) Purchasing a security in a discretionary account while awaiting written receipt of trading authority C) Buying a security on one exchange and simultaneously selling it on another to take advantage of a price disparity D) Buying a security on behalf of a customer and then reselling it before the customer has paid for it

B Explanation Written receipt of trading authority is required before conducting any trade on a discretionary basis. Oral authorization is not sufficient; it must be in writing. It is not a prohibited practice to sell a security before the customer has paid for it (day trading), and arbitrage (buying securities on one exchange and selling them on another to take advantage of temporary price differences) is also an acceptable practice. Although the agent may have trading authority in a discretionary account, nothing prohibits the client from making his own trades. Reference: 5.2.5 in the License Exam Manual

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under current regulations, this activity requires written A) disclosure to the client and consent prior to completion of the transaction B) disclosure to the client C) consent of the client D) consent of and the disclosure to the client before the execution of the transaction

A Explanation Unlike broker-dealers, investment advisers must obtain the consent of and make written disclosure to the client of the intent to act as agent or principal in any transaction with that advisory client. SEC Release IA- 1732 requires that this be accomplished before the completion of the transaction, where completion is defined as settlement date. Reference: 4.1.1.1 in the License Exam Manual

Which of the following statements is TRUE? A) An Administrator may not vacate an order without a hearing. B) An Administrator can summarily suspend a pending registration. C) An Administrator may issue a stop order without prior notice and opportunity for a hearing. D) An Administrator may cancel a registration for the same reasons he revoked or suspended a registration.

B Explanation An Administrator can, on a summary basis, suspend a pending registration but may not issue a stop order without a prior notice and an opportunity for a hearing. Cancellation is different from revocation and is not a result of disciplinary action; it occurs when a registrant no longer exists, ceases to do business, is declared mentally incompetent, or cannot be located. The Administrator may vacate or modify a stop order if he finds that the conditions which prompted its entry have changed. Reference: 3.2 in the License Exam Manual

An agent is very satisfied with the work being done by his unregistered sales assistant and would like to compensate her with 5% of his commissions. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would be A) acceptable if the agreement was in writing and approved by the employing broker-dealer B) an unacceptable practice because only registered agents may receive sales related compensation C) unacceptable, unless split was based upon the amount of time each person spent with the clients D) acceptable, but only if disclosed to all of the agent's clients

B Explanation Nothing fancy here—you can't get paid for securities sales unless you are licensed. Isn't that why you are taking this exam? Reference: 1.3.1 in the License Exam Manual

Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? An office from which the representative regularly provides advisory services to clients A location published in a professional directory, indicated on business cards, or telephone book listing that identifies it as a place where the representative will be available to meet or communicate with clients A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business at that site A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business A) I and II B) I, II, and III C) I, II, III, and IV D) I only

B Explanation The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, or any other location held out to the public as a location where the representative will do any of these activities. The frequency of use is not a factor. Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. A hotel room is not included when it is not advertised and only used with existing clients, presumably when the adviser is traveling through their state. Reference: 1.5.3.1 in the License Exam Manual

Examples of identity theft would include taking over an individual's credit card account applying for new credit cards in the compromised individual's name lending money in the name of the compromised individual purchasing lottery tickets in the name of another individual A) III and IV B) I and II C) II and III D) I and IV

B Explanation When an individual's identity is stolen, it is common to find that the thief takes over the current credit card accounts and also applies for new ones. Identity thieves borrow money in the name of the compromised individual, they don't lend it and, although buying a lottery ticket in the name of someone else could help evade taxation on a big prize, the publicity attached to the winning ticket would certainly not be something the thief would relish. Reference: 5.8.1 in the License Exam Manual

Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they maintain a place of business? A certified financial planner who prepares financial plans and whose only compensation is commissions An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients A broker-dealer with extensive business in the state A mutual fund company with offices and clients in the state A) III and IV B) I, II, III, and IV C) I and II D) I only

C Explanation A certified financial planner who prepares financial plans for commissions must register in the state as an investment adviser representative because the commissions represent compensation for advice. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act. Reference: 1.6.1 in the License Exam Manual

Under NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents, which of the following activities (if performed by an agent) are considered fraudulent, dishonest, or unethical? Executing a transaction in a margin account without securing an executed written margin agreement from the customer, promptly after the initial transaction in the account Executing a transaction either with or for a customer at a price not reasonably related to the current market price Guaranteeing a customer against loss on securities purchased Personally providing safekeeping and custodial services for clients' cash and securities A) I, II, and III B) I and IV C) I, II, III, and IV D) II and IV

C Explanation An agent may not take personal possession of clients' cash and securities. The broker-dealer, however, can provide safekeeping and custodial services. Agents must execute trades at prices related to current market prices and may not guarantee the performance of a security. An agent may execute a trade in a margin account providing the agent receives a written margin agreement promptly after the initial trade. Reference: 5.2.14 in the License Exam Manual

Which of the following conditions would most likely meet compliance standards of state regulators? A) Requiring only those in a supervisory role need to recognize the difference between business and non-business communications. B) Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules. C) At a minimum, a firm that permits use of social media sites, holding biennial training as part of its continuing education obligations. D) Training both supervisory personnel and agents on the difference between interactive and static content

D Explanation Before allowing associated persons to use social media for business purposes, a firm's policies and procedures must provide for personnel training and education relating to the parameters of permitted use. Both supervisory personnel and agents need to understand the difference between interactive and static content, between business and non-business communications. A firm should consider requiring training in the use of social media before permitting use. At a minimum, a firm that permits use of social media sites must hold annual training as part of its continuing education obligations. Reference: 4.5.3.1 in the License Exam Manual

A registered investment adviser advertises that it is offering a free 6-month subscription to their advisory newsletter. Which of the following qualifiers is acceptable under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A) Your free subscription will start upon receipt of your completed financial profile. B) Your free subscription will start once we have received your name and mailing or email address. C) Your free subscription will start after your 3rd trade with our affiliated broker-dealer. D) Your free subscription will start once you have furnished us with the names and addresses of three of your friends.

B Explanation A free offer must not only be free of financial cost, it must be free of any other burden or commitment. Reference: 4.5.2.2 in the License Exam Manual

All of the following must register as an agent when representing a broker-dealer EXCEPT A) An individual selling shares of a trust company chartered in this state B) A partner in a broker-dealer who has no securities sales functions C) An employee who accepts solicited orders D) An individual who represents an underwriter only in transactions between an issuer and the underwriter

B Explanation A partner, (or any employee), of a broker-dealer with no securities sales functions (and that includes supervising sales), need not register as an agent. An employee of a BD who accepts solicited (or unsolicited) orders must register as an agent. An individual who represents an underwriter (one of the roles of a BD) in transactions between an issuer and the underwriter is an agent for the broker-dealer (it is the individual representing the issuer who is NOT). Trust companies are exempt securities and their employees selling shares are not defined as agents, BUT this individual is working for the broker-dealer selling the shares and, as such, must register as an agent. Reference: 1.3.3 in the License Exam Manual

Securities regulators have taken a strong position on the need for registered broker-dealers to disclose the fees they charge. Among the most common ways for making this disclosure are presenting a chart with all of the fees preparing a list of all of the fees displaying the fees in tabular form A) I, II, and III B) II and III C) I and II D) I and III

A Explanation Whether using a table, a chart, or a list, broker-dealers must make sure that it is easy for customers to determine what the fees and charges are and how they are computed. Reference: 4.1.3 in the License Exam Manual

Under the Uniform Securities Act, which of the following statements regarding the consent to service of process are TRUE? A consent to service of process makes legal process served on the Administrator as legally binding as process served on the registrant personally. Only out-of-state applicants need to file a consent to service of process. Investment advisers and investment adviser representatives must file a consent to service of process to become registered. A) I and III B) II and III C) I, II and III D) I and II

A Explanation A consent to service of process grants legal authority for the Administrator to receive legal notices on behalf of the registrant. All applicants for registration must file a consent to service of process regardless of whether they are in-state or out-of-state advisers. Reference: 1.2.2.3 in the License Exam Manual

A consent to service of process allows the Administrator to A) exercise the power of attorney on behalf of the registrant B) ensure that the legal appeal process is expedited as a result of the Administrator's access to information C) verify the accuracy and completeness of registration without obtaining the registrant's prior approval D) terminate a registrant's application

A Explanation The consent to service of process provides the Administrator with power of attorney for registrants. This power of attorney does not grant the Administrator the authority to terminate the registration at will nor does it empower the Administrator to verify information or expedite the registration process. Reference: 1.2.2.2 in the License Exam Manual

Under which of the following circumstances will a private placement fail to qualify for exemption from registration under the USA? A) A modest commission is paid to the agents who sell the offering to noninstitutional clients. B) A bank holding company purchases the offering for trading purposes rather than investment purposes. C) The seller reasonably believes that individual purchasers are buying for investment purposes rather than immediate resale. D) The offer is directed to only 5 individuals during any 12-month period.

A Explanation A private placement will lose its exemption if those who sell the offering are paid commissions on sales to noninstitutional clients. For a private placement to be exempt, the offer cannot be directed to more than 10 persons during a 12-month period. In the case of noninstitutional buyers, the seller must reasonably believe (nice to have it in writing, but not required), they are purchasing the offering for investment purposes only. Institutional purchasers do not have to purchase the offering for investment purposes. Reference: 2.3.2 in the License Exam Manual

Under the Uniform Securities Act, an individual representing an issuer in the sale of its securities to the general public is defined as an agent if the issuer is A) an insurance company authorized to do business in the state B) a foreign government with which the United States currently maintains diplomatic relations C) any political subdivision of any Canadian province D) a trust company organized and supervised under the laws of any state

A Explanation Agents represent broker-dealers or issuers. However, an individual representing an issuer in the sale of certain exempt securities or in an exempt transaction is not an agent. Even when authorized to do business in the state, an insurance company is not one of the exempt issuers qualifying for the exemption from agent's registration for those who selling the company's securities while representing the company. Banks and trust companies, yes, but not insurance companies. Please see the list in your LEM. Reference: 1.3.2.1 in the License Exam Manual

Which of the following are defined as securities under the Uniform Securities Act? Real estate investment trust certificates Preorganization subscription agreements Shares of treasury stock Voting-trust certificates issued by a corporation undergoing a reorganization A) I, II, III, and IV B) I and IV C) I, II, and III D) I only

A Explanation All of the choices listed are defined as securities under state law. We believe the best thing for you to do is remember those few things that are not securities. Reference: 2.1.1 in the License Exam Manual

Which of the following securities are exempt from the registration requirements of the Uniform Securities Act? An investment contract issued in connection with an employee pension plan Securities issued by St. Paul's Catholic Church in Tempe, Arizona Securities issued by a public utility Securities issued by the Canadian government A) I, II, III, and IV B) II and IV C) I and III D) II and III

A Explanation All of the securities listed are exempt from registration under the USA. Reference: 2.3.1 in the License Exam Manual

Included in the USA's definition of exempt transaction would be a transaction by any of the following EXCEPT one by a A) trustee of an irrevocable trust B) guardian C) marshal D) trustee in bankruptcy

A Explanation Although the term "trustee" is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy. Reference: 2.3.2 in the License Exam Manual

Under the USA, a private placement is considered an exempt transaction when directed to no more than 10 noninstitutional persons to no more than 15 noninstitutional persons in 9 consecutive months in 12 consecutive months A) I and IV B) II and IV C) II and III D) I and III

A Explanation An exempt transaction is considered a private placement directed to no more than 10 noninstitutional persons in a 12-consecutive-month period. Furthermore, purchasers must agree that they are purchasing for investment purposes only, not for immediate resale. No such holding restrictions apply to institutional buyers of a private placement. Reference: 2.3.2 in the License Exam Manual

An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is A) unethical B) acceptable, provided the loan is made under the provisions of Regulation T of the Federal Reserve C) acceptable, provided the securities are used as collateral for the loan and the loan conforms to the provisions of Regulation T D) acceptable, provided the securities are used as collateral for the loan

A Explanation An investment adviser cannot lend money to a customer unless the loan is made through a regulated lender such as an affiliated broker-dealer or an affiliated bank. Reference: 5.3.7 in the License Exam Manual

Which of the following are not specifically excluded from the definition of an investment adviser under the Uniform Securities Act? An investment adviser representative of an advisory firm who makes securities recommendations on a regular basis for compensation A temporary employee hired to assist in administrative responsibilities of an advisory firm Any person who is a federal covered investment adviser A person who, on a regular basis for compensation, offers specific investment advice to clients as to the value of securities A) IV only B) II and IV C) II and III D) I and IV

A Explanation Clerical and ministerial personnel, full-time or temporary, are not included in the definition of either investment adviser representatives (supervised persons) or investment advisers. Other persons associated with an investment adviser, including officers of the firm, are generally considered to be investment adviser representatives. An investment adviser representative is not an investment adviser in the same manner that an agent is not a broker-dealer. A federal covered adviser is not, for definitional purposes, considered an adviser under the USA to avoid duplicate regulation by both the state and the federal government. Reference: 1.5.2 in the License Exam Manual

A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to A) immediately reply to the client in writing B) immediately notify NASAA C) immediately notify the Administrator D) immediately suspend the agent involved until the complaint is resolved

A Explanation When a broker-dealer receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received. This is an internal matter and the BD has no reason to notify the Administrator. There is no reason to immediately suspend an agent over a complaint—at least not until wrongdoing has been proven. Reference: 5.2.19 in the License Exam Manual

An agent submits a list of recommendations to a customer that includes 5 different securities. The customer chooses to buy a round lot of 1 of the 5 securities recommended (a stock in which the agent's broker-dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act? A) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. B) No, the markup schedule is set and cannot be changed for an individual trade. C) Yes, markup schedules are dependent upon the type of security, broker-dealer risk, services that the broker-dealer provides, and effort in acquiring the security. D) Yes, it is allowable, but proper disclosure is required.

A Explanation Higher than average markups or commissions are not prohibited if they are justifiable and disclosed. However, in this case, there would appear to be no justification because the customer bought a round lot, the normal trading unit of stock. The firm is a market maker, so the security is being sold from their inventory and the stock is on the company's recommended list. Reference: 5.2.9 in the License Exam Manual

The Uniform Securities Act provides for civil penalties in the event of improper activities of agents. Under the act, the maximum that a purchaser would be entitled to claim would be the original consideration paid for the security interest at the state's legal rate attorney's fees court costs A) I, II, III, and IV B) I, III, and IV C) III and IV D) I and II

A Explanation In the event of a civil judgment, the purchaser is able to claim for a return of the original investment plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the agent is liable for court costs and attorney's fees. Reference: 3.3.1.2 in the License Exam Manual

According to the Uniform Securities Act, each of the following is a security EXCEPT a(n) A) contract in soybean futures B) US Treasury bill C) interest in a condominium project with a rental pool D) limited partnership in an oil and gas exploration program

A Explanation Interests in a condominium complex that has a rental pool feature, U.S. Treasury bills, and limited partnership interests in oil and gas exploration programs are securities under the USA. The USA excludes certain financial instruments from the term "security" such as term and whole insurance policies, commodity futures contracts, and collectibles. Reference: 2.1.1.1 in the License Exam Manual

Certain securities transactions are considered exempt from the registration and advertising filing requirements of the Uniform Securities Act. Included in that group would be all of the following EXCEPT A) sale of a security limited in its offering to no more than 10 retail investors in any calendar year B) a purchase of stock by an underwriter from the issuer in a firm commitment underwriting C) a sale of stock to a pension trust with assets of $3 million D) an offer of preorganization certificates made to 25 persons with 8 of them subscribing, but making no payment

A Explanation Private placements are exempt under the USA if they are offered to no more than 10 retail investors in any consecutive 12-month period, not calendar year. Transactions involving issuers and underwriters are also exempt. The sale of preorganization certificates is exempt if there is no commission for solicitation or payment by subscribers and no more than 10 subscribers; there is no limit to the number of offers ​that may be made. Institutional investors (and pension plans with at least $1 million in assets meet that definition) are not included in the numerical limitations. Reference: 2.3.2 in the License Exam Manual

Which of the following is considered a sale of securities under the Uniform Securities Act? Redemption of mutual funds shares worth $10,000 Dividends of common stock for which no consideration was given for the dividends With the approval of the board of directors, an exchange of common stock for the stock in another company under a merger Disposition of stock for which cash consideration is received A) I and IV B) II and III C) II and IV D) I, II, and III

A Explanation Redemption of mutual fund shares is always treated as a sale by the redeeming shareholder. The exchange of securities in a merger is not considered a sale under the act. Any disposition (liquidation) of securities that involves cash consideration, or in which the shareholder has a choice of cash or securities, is a sale. Reference: 3.1.1.1 in the License Exam Manual

Registration by qualification is effective A) when determined by the Administrator B) no earlier than 10 days after the filing date C) 20 days after the filing date D) when the federal registration becomes effective

A Explanation Registration by qualification is effective when determined by the Administrator. Qualification is the only form of registration where the timing of the effective date is determined by the Administrator. Reference: 2.2.2.3.1 in the License Exam Manual

An agent wishes to share commissions with an administrative assistant who provides many useful services. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) this is permitted if the assistant is properly licensed B) this is permitted if there is a written agreement between the agent and the administrative assistant that has been signed by the broker-dealer C) administrative personnel may never receive sales related compensation D) this is permitted only if the administrative assistant is employed by the same or affiliated broker-dealer

A Explanation Sharing (splitting) of commissions is permitted when the parties are both properly registered and are employed by the same or affiliated broker-dealers. Reference: 5.2.26.4 in the License Exam Manual

Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) Margin account agreements must be received before the first margin trade in the account. B) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. C) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. D) The options account agreement must be received within 15 days after the customer's account has been approved.

A Explanation The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt. Reference: 4.4.2.3 in the License Exam Manual

Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions A) on variable annuity sales is allowable only if the agents involved are both licensed in life insurance and maintain their securities licenses at the same or affiliated broker-dealers B) is an unethical trade practice C) is permissible at all times D) would be allowable if both parties were registered as agents for the same or affiliated broker-dealers

A Explanation You must be licensed in both insurance and securities to sell variable annuities or to split commissions. Commissions on securities transactions may only be split with registered agents of the same or affiliated broker-dealers. Reference: 5.2.26.4 in the License Exam Manual

An investment adviser representative may perform which of the following functions? solicit for advisory business manage advisory accounts earn commissions on sales of recommended securities supervise those who render advice A) II and IV B) I, II, and IV C) I, II, III, and IV D) II and III

B Explanation An IAR may not earn commissions on the sale of securities unless also registered as an agent. All of the other activities listed are permitted. Remember, unlike FINRA, there is no principal category of registration. In other words, there is no such thing as an investment adviser principal. Reference: 1.6 in the License Exam Manual

Which of the following statements regarding an agent's registration is CORRECT? A) If the broker-dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker-dealer. B) Revocation of the registration of that agent's broker-dealer will result in cancellation of that agent's effective registration. C) Registration of a broker-dealer in a specific state automatically registers all of the firm's agents in that state as well. D) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the Administrator and the agent will be required to register with an active broker-dealer within 30 days.

B Explanation An agent of a broker-dealer is active only when that broker-dealer's registration is in force. Agents must register in each state in which they wish to do business; there is no automatic registration other than for certain officers, directors and partners when the firm first registers in a state. Reference: 1.3.3 in the License Exam Manual

Disclosure to the client of a potential conflict of interest is required when an investment adviser representative, in preparing a recommendation, uses research provided by the broker-dealer with whom the IAR is affiliated an investment adviser representative intends to sell the client the insurance policy he recommended for his financial plan and receive a commission for doing so transactions recommended to the client are not the same as those for other clients with similar objectives recommending a new issue where the major stockholder is the investment adviser's brother A) I and III B) II and IV C) I, II, III, and IV D) I, II, and III

B Explanation An investment adviser representative must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the IAR, as well as full disclosure if a recommendation of security where a family member is involved. The IAR can use any source of information to create his own analysis, and disclosure of that source is required only if the IAR uses the product of a third party as the presentation to the client. Even though 2 clients may have similar objectives, there are many factors that would dictate different investment styles, such as age, risk tolerance, and current financial situation. Reference: 5.3.4 in the License Exam Manual

A sales agent who is only registered in Nebraska works for a broker-dealer that is registered in all 50 states. A customer who is a resident of North Dakota calls the representative in Nebraska and offers to purchase securities. Under the Uniform Securities Act, the agent should A) accept the order because it is unsolicited B) reject the order because she is not registered in North Dakota C) accept the order because she received it in Nebraska D) accept the order because her broker-dealer is registered in all 50 states

B Explanation Both the broker-dealer and the agent must be registered in each state where they plan to do business. Although the broker-dealer is properly registered, in order for the agent to accept the order, she must be registered in North Dakota. Even though the order is unsolicited, making this an exempt transaction, agents must still be licensed in the state where the client is a resident. Reference: 1.2.2.3 in the License Exam Manual

Under the Uniform Securities Act, a registration statement for a securities issue may be filed by any of the following EXCEPT A) the issuer B) the Administrator of the state in which the issue is to be sold C) any person for whose benefit the issue will be sold D) a broker-dealer

B Explanation Come on - did you really think that the Administrator would file a registration statement with himself? Another exception in a question like this would be "an agent". Reference: 2.4.1 in the License Exam Manual

Which of the following actions would be considered a violation of the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A) An agent recommends a security based on his investigation of a client's financial objectives B) The agent places an order to buy stock without requesting any suitability information, and the agent marks the ticket "unsolicited order" C) On receiving a signed trading authorization from a customer, the agent effects a discretionary transaction in accordance with the client's investment objectives D) After the client places an order, the agent discusses and reviews the suitability of the transaction with the client before entering the trade

B Explanation Failure to obtain suitability information is a violation of the USA, and falsely marking a trade unsolicited is a violation of the antifraud NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents. Reference: 5.2.3 in the License Exam Manual

According to the Uniform Securities Act, which of the following would be considered exempt transactions? The sale of a unlisted corporate bond by an executor of an estate The gift of 100 shares of a NYSE-listed stock from a father to his minor child Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made An unsolicited order from an individual client to purchase a nonexempt, unregistered security A) I and II B) I and IV C) III and IV D) II and III

B Explanation Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place. Reference: 2.3.2 in the License Exam Manual

Under the Uniform Securities Act, an offer and sale does NOT exist if it is the result of a class vote by stockholders regarding a merger or consolidation a bona fide pledge or loan an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares a gift of nonassessable securities A) I, II, and III B) I, II, III, and IV C) I and II D) II and IV

B Explanation The Uniform Securities Act specifically excludes all four choices from the definition of an offer and a sale. Reference: 3.1.1 in the License Exam Manual

Which of the following is defined as fraud under the Uniform Securities Act? A) An agent unknowingly sells an unregistered nonexempt security in which the client loses a large portion of his net worth. B) An agent engages in transactions that his state legislature has declared fraudulent but no judicial body or case law has found such transaction to be fraudulent. C) An agent unknowingly offers for sale a security that enhances the wealth of his clients in a transaction prohibited by the state Administrator. D) An agent sold securities that were discovered to be fraudulent 4 years after the sale.

B Explanation Fraud is a result of a deliberate action, not unknowingly. Fraud under the USA is not limited to judicial or case-law definitions of deceit but is subject to definition by legislation. The act itself contains the statement "fraud is not limited to common law deceit." Reference: 5.1.1 in the License Exam Manual

In their advertising campaigns, investment advisers are prohibited from doing all of the following EXCEPT A) guaranteeing future performance B) offering free services C) exaggerating the capabilities of the firm and its personnel D) using testimonials

B Explanation It is not unethical to advertise free services as a benefit of using a firm, but failing to supply services offered as free is unethical. Using testimonials, guaranteeing future performance, and exaggerating the capabilities of the firm and its personnel are unethical. Reference: 4.5.2.2 in the License Exam Manual

Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change? A) The loan consent agreement B) The credit agreement C) The hypothecation agreement D) The interest computation agreement

B Explanation It is the credit agreement that discloses the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change. Reference: 4.4.2.1 in the License Exam Manual

Differences between static and interactive content on social media include Only static content can be reused by others Only static content needs pre-approval Only static content can be changed by the person who originated it Only interactive content can be commented on by others A) II and III B) II and IV C) I and III D) I and IV

B Explanation Static content requires pre-approval. Interactive content can be reused by others and can be commented on by others. Both static and interactive content can be changed by its originator, but static can only be changed by its originator and interactive by the originator or others. Reference: 4.5.3.1 in the License Exam Manual

An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state A) upon discovery that an agent of the broker-dealer is convicted of a felony violation involving securities fraud B) upon discovery that the broker-dealer's license had been suspended in another state C) based upon facts known to the Administrator at the time of the broker-dealer's initial registration D) up to 2 years after the broker-dealer voluntarily withdraws its registration

B Explanation Suspension (or revocation) of a broker-dealer's registration in another state is adequate cause for this state's Administrator to initiate the process to suspend the broker-dealer's registration in his state. A felony committed by an agent of the broker-dealer is not usually cause for the Administrator to initiate a proceeding against the broker-dealer. It is only when the question states that the individual is an officer, director, or partner of the firm, or the agent's actions are due to failure to supervise, that action against the firm will generally commence. The Administrator maintains jurisdiction over a license that has been withdrawn for a period of 1 year after the effective date of the withdrawal (it is FINRA who maintains jurisdiction for 2 years). It is only the discovery of new facts unknown to the Administrator at the time of initial registration that can lead to a proceeding. Reference: 3.2.4.1 in the License Exam Manual

It would be considered fraud for an agent to intentionally tell a client that a bond is yielding 10% when the actual yield is 1% tell a client that a subordinated debenture is a prior lien mortgage bond tell a client that you are so sure the client will not lose money that you have placed funds in escrow equal to the amount of the purchase to cover any possible loss share commissions with another agent in your office without disclosing this fact to the client A) II and III B) I, II, and III C) I, II, III, and IV D) I and IV

B Explanation Telling a lie (a misstatement of fact) such as overstating the yield of a bond or claiming that an unsecured debt obligation is really secured, is fraudulent behavior. Telling a client that you will guarantee against loss is considered both a fraudulent and unethical practice. There are no requirements for you to tell a client who you are splitting commissions with. Reference: 5.1.1.1 in the License Exam Manual

A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients. If the IA is found to have been in violation of the Uniform Securities Act, this may result in a $10,000 fine per violation a receiver being appointed over the adviser's assets a prison term of 5 years per violation the requirement that the investment adviser make restitution to the victims A) III and IV B) II and IV C) I and II D) I and III

B Explanation The Administrator may appoint a receiver over the investment adviser's assets and require the IA to make restitution to the victim. The maximum fine for a violation of the USA is $5,000 and the maximum prison term is 3 years. Reference: 3.2.3 in the License Exam Manual

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that A) the CIP requires a residence address for individuals while the regulatory bodies will accept a PO Box B) the CIP requires date of birth while the regulators only require proof of legal age C) the CIP requires a statement of the customer's goals while the regulators only require current financial information D) the CIP only applies to individuals while the rules of the regulators apply to retail and institutional accounts

B Explanation The CIP requires the actual date of birth, not just proof of legal age. The CIP has no interest in the goals of the investor, just the identity. In both cases, a PO Box may only be used after supplying a physical residence address and both the CIP and the rules of the regulators apply to retail and institutional accounts. Reference: 4.4.1 in the License Exam Manual

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? They must be renewed on an annual basis. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. They must prohibit the use of discretion without the client's authorization. A) I and III B) II and III C) I and II D) I, II, and III

B Explanation There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. Advisory contracts must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated and must prohibit discretion without the client's consent. Reference: 4.4.1.1 in the License Exam Manual

A broker-dealer holds customer securities for safekeeping. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, the broker-dealer A) would be in violation unless a properly executed margin agreement was in effect B) must segregate them C) must pay interest to the clients D) may lend them to make delivery on short sales

B Explanation When maintaining custody of customer securities, broker-dealers must keep them segregated from the firm's holdings and may not make use of them. There is an exception if these are securities pledged as collateral in a margin account, but, unless the question specified that (and it probably won't on your exam), assume these are fully paid for. Reference: 5.2.7 in the License Exam Manual

Obtaining all of the following complies with the regulations regarding customer identification programs (CIPs) EXCEPT A) the customer's name B) a Taxpayer Identification Number (TIN) C) the individual's date of birth D) a PO Box, instead of a physical address, if it is the primary mailing address

D Explanation A PO Box is never acceptable without a physical address. Reference: 4.4.1 in the License Exam Manual

The state Administrator may, by rule or order, require issuers of federal covered securities to file records with the state that are part of a registration statement filed with the SEC. This procedure is called A) registration by qualification B) registration by requirement C) notice filing D) registration by coordination

C Explanation Federal covered securities do not register with the state Administrator; however, they may be required to file records with the state Administrator that are filed with federal registration. This procedure is called notice filing. Reference: 2.2.2.1 in the License Exam Manual

Which of the following are NOT agents as defined in the USA? A broker-dealer acting on behalf of a properly registered issuer An individual representing the U.S. government in the sale of its securities An individual who, acting on behalf of a broker-dealer, sells exempt securities or engages in an exempt transaction An individual who represents an issuer selling a nonexempt security in a nonexempt transaction A) III and IV B) I and III C) I and II D) II and III

C Explanation 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: 1.3.2 in the License Exam Manual

A broker-dealer with an office in this state must register as an investment adviser if it charges commissions for selling securities commissions for selling securities while offering investment advice incidental to the sale of the securities a fee for selling investment research and additional fees in the form of commissions for the sale of securities fees for investment research sold exclusively to institutions located in this state A) I and II B) I and IV C) III and IV D) II and III

C Explanation A broker-dealer must register as an investment adviser if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm must register as an investment adviser. If a broker-dealer charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the broker-dealer need not register as an investment adviser because it is not compensated for the research. Reference: 1.5.3.1 in the License Exam Manual

When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is A) that the account is in the name of an institutional customer B) if the customer owns the underlying security on which the call option is sold C) the ability of the customer to move funds out of the account on multiple occasions D) the ability of the customer to make a one-time wire to a foreign bank account owned by a family member

C Explanation A covered account is an account, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions. Where the money goes is less of a factor than the frequency of transactions. The only time when a single transaction account might be covered is if there is reason to believe that the identity of the customer is at risk—not likely when wiring to a family member. Institutions are not included in the definition and owning the stock underlying the sale of a call option means the option is covered—totally different from the topic here. Reference: 5.8.1.1 in the License Exam Manual

Under the provisions of the USA, all of the following transactions are exempt EXCEPT A) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10 B) liquidation of a security pledged as collateral for a loan C) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made by the investors D) transactions by executors

C Explanation A transaction pursuant to an offer by an issuer to 10 persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All of the other transactions are exempt. Reference: 2.3.2 in the License Exam Manual

If you are registered as an agent for a broker-dealer in State Y and you conduct business as an agent of theirs in State Z, a state in which you are not registered as their agent, you expose yourself and your employer to disciplinary action by State Z expose yourself to a possible fine may obligate your broker-dealer to offer your client the right to rescind the sale may have your registration in State Y revoked A) I, II, and III B) II, III, and IV C) I, II, III, and IV D) II and III

C Explanation Agents must be registered in each state where selling or offering to sell securities unless an exemption is available. Failure to do so exposes the agent and the broker-dealer to fines and possible disciplinary action. In addition, the individual could have his registration revoked where he is registered, and the broker-dealer could be required to offer customers the right to rescind any securities transactions. Reference: 3.3.1 in the License Exam Manual

An Administrator may issue a stop order if it is in the public interest and the A) Administrator disapproves of the quality of the products manufactured by the registrant B) registrant is not registered in all states in which the security is proposed to be registered C) registrant is subject to an administrative stop order of a neighboring state D) registrant refuses to pay the Administrator a personal fee in addition to filing fees

C Explanation An Administrator has the authority under the USA to issue a stop order if a registrant is subject to a stop order in another state. The Administrator does not have the authority to approve or disapprove of the quality of products manufactured by a registrant. The Administrator may not use the office for personal gain and therefore may not request personal fees. The Administrator may not deny a registration on the basis of its lack of registration in other states. Reference: 3.2.4.2 in the License Exam Manual

As fiduciaries, investment adviser representatives owe their clients an affirmative duty of utmost good faith and full disclosure of all material facts. This affirmative duty of disclosure is required by the investment adviser representative in all of the following situations EXCEPT A) when the advice being provided is outside the scope of the services provided by the investment adviser and is not under supervision or control of a supervisory person B) when compensation is received from the affiliated broker-dealer for transactions that are executed through the brokerage house C) when donating funds to a nonprofit medical research institute that owns securities the IAR has recommended D) when a family member has a beneficial interest in a private medical equipment firm that the IAR recommends to a client

C Explanation An investment adviser representative need not disclose donations to nonprofit organizations, even those with whom the IAR has a client relationship. In all of the other cases, even when outside of the scope of the investment adviser's business, an IAR must always make full disclosure to clients. Reference: 4.1.2.1 in the License Exam Manual

Which of the following statements is NOT true? A) Federal covered securities include securities listed on national exchanges. B) Transaction exemptions must be established before each transaction. C) Exempt securities must reestablish their exemptions at least annually. D) Federal covered securities include those registered under the Investment Company Act of 1940.

C Explanation Exempt securities need not reestablish their exemptions annually or otherwise. Exempt securities are exempt because their issuers are exempt while the basis for an exemption for a transaction must be established before each transaction. Neither the exempt security nor the transaction exemptions are mutually exclusive and a security or transaction may qualify for two or more of these exemptions. The term "federal covered securities" includes registered investment companies as well as securities listed on national exchanges. Reference: 2.3 in the License Exam Manual

Which of the following transactions are exempt from the registration provisions of the USA? After a presentation is made to 23 potential individual investors, pre-organization certificates are subscribed to by 8 of them Isolated nonissuer transactions Unsolicited nonissuer transactions effected through a broker-dealer Transactions between issuers and underwriters A) II and III B) I and IV C) I, II, III, and IV D) II, III, and IV

C Explanation Isolated nonissuer transactions, unsolicited transactions effected through a broker-dealer, and transactions between issuers and underwriters are all exempt transactions under the provisions of the USA. As long as there are no more than 10 subscribers to pre-organization certificates, the transaction is exempt. Reference: 2.3.2 in the License Exam Manual

Under the Uniform Securities Act, the registration requirements for agents would never include A) a consent to service of process B) surety bonding C) minimum capital D) an examination

C Explanation Minimum capital may be required of broker-dealers and investment advisers but not agents. Reference: 1.3.3 in the License Exam Manual

Under the Uniform Securities Act, which of the following is an agent? A) Mr. Jones, while receiving his normal salary, represents XYZ Corporation in its transactions with underwriters with offices in XYZ's home state. B) Mr. Smith, an employee of the city of Albany, New York, represents the issuer in the issuance and sale of its new general revenue bonds to the public. C) Mr. Blodgett, an employee of XYZ Manufacturing Corporation, receives commissions when he represents XYZ in the issuance of securities exclusively to existing employees, partners, and directors of the corporation. D) Mr. Williams represents AAA National Bank, a member of the Federal Reserve System, in the issuance of AAA preferred stock to residents of his home state.

C Explanation Mr. Blodgett acts in the capacity of an agent when he represents an issuer for compensation in transactions with existing employees, partners, and directors of the corporation. Had Blodgett not received compensation, he would not have been an agent. When Smith represents the city of Albany, he is representing an exempt issuer and, is not defined as an agent. When Jones represents the XYZ Corporation, an issuer, in transactions with underwriters, he is not considered an agent because this is an exempt transaction. When Williams represents the AAA National Bank, a member of the Federal Reserve System and an exempt issuer, he is not defined as an agent. Reference: 1.3.2 in the License Exam Manual

Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences? The private placement exemption places a limit on the number of sales to retail investors while the preorganization certificate places a limit on the number of offers to all investors. Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate. Commissions may be paid on the sale of a private placement to noninstitutional clients, while no remuneration is payable on the sale of a preorganization subscription. A) I and III B) II and IV C) II and III D) I and IV

C Explanation No money changes hands in the sale of a preorganization certificate or subscription, while the seller receives payment in the case of a private placement. The state will consider a private placement an exempt transaction if it is anticipated that individual (noninstitutional) investors are purchasing for investment only, not immediate resale. No holding period restrictions are placed on preorganization certificates. Only in the case of a sale of a private placement to an institutional client is it permissible to pay commissions. Finally, choice I has it backwards. When referring to retail (noninstitutional) investors, there is a limit to the number of offers (10), while in the preorganization certificate, the number of sales (subscribers) is limited to 10 regardless of whether they are retail or institutional. Reference: 2.3.2 in the License Exam Manual

Sarah has not yet passed the Series 63 exam. As Jack's assistant, Sarah has frequent telephone contact with Jack's customers to whom she provides account information and current stock quotes. In this situation Sarah is A) in violation of the Securities Exchange Act of 1934 B) in violation of the Securities Act of 1933 C) not in violation of any applicable statutes D) in violation of the Uniform Securities Act

C Explanation Provided Sarah does not solicit business, offer advice to customers, or accept orders, she has not committed a violation of any act. Reference: 1.3 in the License Exam Manual

The registration of an investment adviser would automatically register investment adviser representatives who are directors officers partners A) I and II B) I and III C) I, II, and III D) II and III

C Explanation Section 202 (a) of the Uniform Securities Act states, "Registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions." Reference: 1.6.1 in the License Exam Manual

Under the Uniform Securities Act, when may an investment adviser legally have custody of money or securities belonging to a client? When the investment adviser is not bonded When the Administrator has not prohibited custodial arrangements When the investment adviser does not have discretionary authority over the account When the investment adviser has notified the Administrator that it has custody A) II and III B) I and III C) II and IV D) I and IV

C Explanation The Administrator may, by rule, prohibit investment advisers from having custody of client funds or securities. If no such prohibition applies, the Administrator must be notified in writing if an investment adviser has custody. In almost all jurisdictions, a bond or sufficient net worth is required to maintain custody. Discretionary authority does not affect an investment adviser's ability to have custody. Reference: 5.4.2 in the License Exam Manual

The NASAA Model Rule on Agency Cross Transactions requires that an investment adviser send a written disclosure document to affected clients that includes such items as the total number of agency cross transactions during the period for the client, as well as the total amount of all commissions or other remuneration the investment adviser has received in connection with agency cross transactions for the client during the period no less frequently than A) quarterly B) semiannually C) annually D) within a reasonable period of time following any transaction made in reliance upon this rule

C Explanation The NASAA Model Rule requires that these disclosures regarding agency cross transactions by an investment adviser must be made no less frequently than annually. Most students choose quarterly and with good reason—you've seen quarterly requirements before. For example, when an investment adviser maintains custody of client assets, reports must be sent no less frequently than quarterly. Broker-dealers must send account statement to clients no less frequently than quarterly. When there is a new issue, the Administrator can request reports on a quarterly basis. But, this is different and the rule says annually. Reference: 5.4.4 in the License Exam Manual

An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several which she feels are equally suitable for the client, but one of the companies is offering a trip for 2 to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent A) should only sell what is suitable for the client based on all available information B) should pack her bags and leave the firm before the compliance department learns of her actions C) should pack her bags for the trip; she earned it D) will probably be disciplined for failure to disclose the potential conflict of interest

C Explanation The annuity recommended by the agent is offering an incentive. The agent is clearly disclosing that fact to the client and, if the client goes ahead and makes the purchase, it is with full knowledge of the potential conflict of interest. The question states that the agent considers this annuity, along with others, to be suitable. Reference: 4.1.2 in the License Exam Manual

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be prohibited for an agent A) indicate to a client that a specific transaction will incur higher than normal commissions B) sell an unregistered nonexempt security to an employee benefit plan with assets in excess of $10 billion C) to borrow money or securities from a client who is a member of his immediate family D) accept an unsolicited order from his client who lives in a neighboring state

C Explanation The only circumstances under which an agent may borrow from a client is if the client is in the lending business, and something to that effect would have to be stated in the choice. This means you can't borrow from clients who are family or friends. Although the unsolicited order from the client who lives in a neighboring state is an exempt transaction, the agent could not accept it if he was not licensed in that neighboring state. How do we know he is? If he was not, then he could not have a client there. Reference: 5.2.25 in the License Exam Manual

The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket? A) Customer name, customer address, execution price, time of execution or cancellation B) Customer name, execution price, time of order entry, and time of execution or cancellation C) Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order D) Account number, customer address, time of order entry, and terms and conditions of the order

C Explanation This is one of those questions where the best way to find the answer is by determining what is NOT correct. Customer name and/or address would never be on an order ticket and that knocks out three of the choices. The account number (not name), the execution price (once the order is completed), the time of entry and execution (or cancellation if it is a day order that is not executed) and the terms and conditions (limit, market, stop, etc.) are all on the order ticket. Reference: 5.1.1.2 in the License Exam Manual

A broker-dealer is registered in all 50 states. Which of the following statements is correct regarding the firm's obligations regarding maintaining of books and records? A) The broker-dealer must satisfy the requirements of the most stringent state. B) The broker-dealer must satisfy the requirements of the state in which the majority of its agents are registered. C) The broker-dealer need only satisfy the requirements of the SEC. D) The broker-dealer must satisfy the requirements of the Administrator for the state in which their principal office is located.

C Explanation Under the NSMIA, Administrators are prohibited from setting financial requirements in excess of those required by the SEC. In virtually every question like this, the SEC "rules". Reference: 1.2.2.4 in the License Exam Manual

In which of the following circumstances has John, employed at AAA Securities Corporation, made an offer as defined in the USA? John calls a long-standing client, Brenda, to indicate that a security on his firm's restricted list is suitable for her portfolio. John indicates that he cannot sell the securities unless Brenda requests them on an unsolicited basis. Brenda considers making the purchase but ultimately declines. John discovers that Brenda has inherited shares in a manufacturing firm trading on the New York Stock Exchange, and suggests that she sell them to him in a private transaction in which no commission would be charged. John owned XYZ securities for several years and decided to transfer them to his college's endowment fund in lieu of giving a cash gift. He then took a tax deduction for the value of the securities transferred. Mr. Baxter, as a reward for the years of John's service as his agent, transferred $5,000 worth of XYZ Corporation securities to John, claiming the transfer as a business expense on his tax form. A) I, II, and III B) I, II, III, and IV C) I and II D) I only

C Explanation Under the USA, the term "offer" includes an attempt to dispose of securities for value, or a solicitation of an offer to buy a security. Gifts, whether legal or not, are not considered an offer. Reference: 3.1.1.1 in the License Exam Manual

An issuer employs its officers and directors to sell newly issued shares of the company to the public. To comply with the USA, the officers and directors would have to be registered as agents of A) the broker-dealer and the issuer B) neither a broker-dealer nor the issuer because the transactions are exempt C) the issuer D) the broker-dealer

C Explanation Unless something in the question indicates that the securities being issued are exempt, employees, including officers and directors, who sell shares of their companies to the public fall under the definition of agent under the USA. Reference: 1.3.2 in the License Exam Manual

The Administrator of State A has just notified Rockland Securities, domiciled in State D, that its application to operate as a broker-dealer in this state is now effective. Which of the following parties would be considered registered in State A? The firm Agents who are officers Agents who are directors Its agents who do business in State A A) III and IV B) I and II C) I, II, and III D) I and III

C Explanation When a business applies for registration as a broker-dealer with a state, its application includes registration information relating to those officers and directors who are already agents in at least one state. As a result, when the broker-dealer's registration becomes effective, those officers and directors are automatically registered as agents in the new state, as well. Individuals employed for the purpose of representing the firm as agents apply for registration on their own separate applications, usually the Form U-4. Reference: 1.3 in the License Exam Manual

A client is unsure of her financial objectives and does not give you any personal financial information. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, you A) put the client into one of your model portfolios B) refuse to accept this person as a client C) may only accept unsolicited orders until suitability has been established D) make recommendations based on your best estimate as to what would be a good fit for the client

C Explanation Without information, how can you possibly make a reasonable recommendation? But, you are permitted to accept orders that are initiated by the client (unsolicited). Reference: 5.2.3 in the License Exam Manual

An individual is an agent for a broker-dealer. He takes and passes the appropriate examinations and forms a sole proprietorship investment adviser. About a year later, he terminates his registration with the broker-dealer. This action would require A) qualifying by re-examination B) affiliating with another broker-dealer within 30 days C) amending the Form ADV D) terminating the IA registration

C Explanation You were probably looking for a choice that said, "both the agent and the broker-dealer would have to notify the Administrator" because that's what the procedure is when an agent terminates employment. But, this question is dealing with the fact that the IA registration remains. On the Form ADV, Part 1A, the IA indicated that he was also an agent for a BD. Since that is no longer the case, the ADV must be promptly amended. Reference: 1.5.4 in the License Exam Manual

Which of the following must register as an agent? A) An individual who sells commercial paper for ABC National Bank B) An employee of the Fed whose job is selling Treasury bonds to the public C) An individual who is paid a commission to sell FDIC insured certificates of deposit for ABC National Bank D) An individual representing a broker-dealer who sells commercial paper

D Explanation An individual who represents a broker-dealer selling commercial paper must register under the USA. Though the securities (commercial paper) are exempt, the representative must be registered as an agent of the broker-dealer. An individual who sells commercial paper for ABC National Bank would not have to register because the bank is excluded from the definition of broker-dealer. An employee of the federal government need not register with the state because he represents an exempt issuer. An individual who is paid a commission to sell certificates of deposit for a commercial bank does not have to register as an agent because he is not selling a security. Reference: 1.3.3 in the License Exam Manual

A client of an investment adviser is thrilled with her portfolio's results and posts a note on her bridge club's cork board suggesting that some of the other members would probably benefit from the adviser's skills. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) cork boards are not considered social media and that is the only place where testimonials are prohibited B) this would not be permissible because it is clearly a testimonial C) if the investment adviser learns of the posting, it is not necessary to ask the client to remove it D) this would be permissible because it was done without the knowledge of the adviser

D Explanation There is a limit as to how far an investment adviser or IAR can go to prevent clients from giving testimonials. After all, as in so many businesses, referrals are a key to growth. As long as this note was posted without any knowledge of the IA (or IAR), there is no problem. However, once the IA (or IAR) finds out about it, a request must be made to remove it. The prohibition on testimonials is not limited to social media. Reference: 4.5.2.2 in the License Exam Manual

When discussing cybersecurity, the term "covered account" refers to A) an options account that is used to write covered calls B) one that meets the requirements of the NSMIA of 1996 C) an account that is protected under SIPC D) a personal or family account for which the firm must provide data protection

D Explanation "Covered accounts" are those opened by individuals or families (not businesses) at financial institutions where there is a reasonably foreseeable risk to customers or to the safety and soundness of the institution from identity theft. Reference: 5.8.1.1 in the License Exam Manual

Under the USA, which of the following are securities? Commodity option contract Treasury stock Keogh plan A) I, II, and III B) I and III C) II and III D) I and II

D Explanation A commodity option contract and treasury stock are securities under the USA. A commodity option contract is a security, while a commodity futures contract is not. A Keogh plan is a vehicle for an investment, but it is not a security in and of itself. Reference: 2.1.1 in the License Exam Manual

Which of the following is (are) primary transactions? John inherited securities of the XYZ Corporation from his father who, as a founder of the company, received the shares directly from the company as a result of stock options. John sold the securities he had inherited from his father to his neighbor Peter at the market price without charging a commission. John's father, a founder of XYZ corporation, purchased shares of XYZ directly from the corporation subsequent to its founding without paying a commission. John purchased shares in XYZ Corporation in a third market transaction. A) I only B) I, II, III, and IV C) I and II D) III only

D Explanation A primary transaction occurs when the issuer of the securities receives the proceeds of the sale. John's father, although a founder of the company, purchased shares directly from the company. This transaction is a primary transaction because the firm received the funds from the sale of the shares. In all the other instances, the firm, the original issuer of the securities, did not receive the proceeds of the transaction. These transactions are called non-issuer transactions. Reference: 2.1.3.1.1 in the License Exam Manual

Under the USA, the Administrator may do all of the following EXCEPT A) issue a cease and desist order without a prior hearing B) issue a stop order to revoke the effectiveness of a registration statement C) revoke a previously allowed exemption D) issue an injunction to force compliance with an Administrator's rule

D Explanation Administrators cannot issue injunctions but they may petition a court to issue an injunction against certain activities. An Administrator may issue a stop order to revoke the effectiveness of a registration, issue a cease and desist order without a prior hearing, and may also revoke a previously allowed exemption. Reference: 3.2.3 in the License Exam Manual

An agent was soliciting sales in XYZ stock 6 months ago when the market value was $16 per share. One of the agent's more aggressive clients did not purchase the stock at the time. The agent has read that there is a class action lawsuit pending against XYZ, and the market value has dropped to $5 per share. If the client were to contact the agent now and ask to purchase XYZ stock, what should he say or do in accordance with the Uniform Securities Act? A) Refuse the order B) Point out that the price has dropped and that the client can purchase almost three times the number of shares than on the original date he was first contacted C) Enter the order D) Point out that the company has the lawsuit pending

D Explanation Agents and broker-dealers must state all material information about a security. Reference: 5.1.1.2 in the License Exam Manual

NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents would likely consider which of the following to be prohibited activities? A client is rather insistent on purchasing a security deemed unsuitable by the agent. In an effort to dissuade the client, the agent furnishes several websites of analysts who have issued negative reports on that security ​​ An agent takes an order from the client's attorney without written trading authorizatio​n ​An agent takes an order from the secretary of a nondiscretionary client who is too busy to give the order h​ersel​f ​An agent encourages a client to acquire a security on the basis of research recently published by the broker-dealer for its institutional clients A) I and III B) I and II C) II, III, and IV D) II and III

D Explanation An agent cannot take trading orders from anyone but the client unless he has written authorization on file. Using publicly available information to encourage a client to change their opinion about an unsuitable investment is acting in the client's best interest and there is nothing wrong with using "house" research reports to develop client recommendations, as long as they are suitable. Reference: 5.2.4 in the License Exam Manual

Which of the following are federal covered securities? A security quoted on the Nasdaq Stock Market Shares of an investment company registered under the Investment Company Act of 1940 A security offered under the exemption provided by Regulation D of the Securities Act of 1933 A security that has a federally imposed exemption from state securities registration A) I and III B) III and IV C) I and II D) I, II, III, and IV

D Explanation Any Nasdaq security, shares of a registered investment company, a security offered under the private placement exempt of Regulation D of the Securities Act of 1933, a security that has a federally imposed exemption from state securities registration, and a security traded on a regulated exchange are all federal covered securities. Reference: 2.2.1.1 in the License Exam Manual

Which of the following is defined as a security under the Uniform Securities Act? A) Fixed, guaranteed payments made for life or for a specified period B) Commodity futures contracts C) A modified endowment policy D) An investment contract

D Explanation As a result of the Howey decision, investment contracts are defined as (and often serve as a synonym for) a security under the Uniform Securities Act. A modified endowment policy is an insurance policy excluded from the definition of a security. Fixed, guaranteed payments made for life or for a specified period are fixed annuity contracts not defined as securities. Commodity futures contracts and the commodities themselves are not securities. Reference: 2.1.1 in the License Exam Manual

Under the Uniform Securities Act, all of the following are specifically excluded from the definition of a broker-dealer EXCEPT A) banks B) agents C) issuers D) investment advisers

D Explanation Banks, issuers, agents, and certain out-of-state broker-dealers are excluded from the definition of broker-dealer. However, investment advisers frequently also carry registration as a broker-dealer. Reference: 1.2.1 in the License Exam Manual

A Canadian broker-dealer with no offices in this state has a Canadian client who is on a temporary work assignment in this state. To accept orders from this client, the broker-dealer must file an application for limited registration with the Administrator in the form required by the jurisdiction in which it has its head office file a consent to service of process provide the Administrator with evidence that it is currently in good standing as a broker-dealer in the jurisdiction from which it is effecting securities transactions be a member of a recognized self-regulatory association or stock exchange in Canada A) I, II, and IV B) II, III, and IV C) I and III D) I, II, III, and IV

D Explanation For a Canadian broker-dealer with no offices in this state to do business with Canadian residents who are temporarily in this state, it must apply for a special limited registration. Filing involves all of the choices listed. In essence, Canadian broker-dealers and agents have a limited form of the snowbird exemption. Reference: 1.4 in the License Exam Manual

John, a newly registered agent with a broker-dealer in Illinois, violated the Uniform Securities Act if he A) deliberately omitted the number of employees at a corporation making its first issue of securities to the public because he did not consider that fact relevant to the investor's decision making process B) told his clients, against his better judgment, that past performance is no guarantee of future performance C) mistakenly told a client that the dividend yield on a common stock selling at $75 per share was 5%, though he accurately indicated that the dividend payment was $.75 per quarter D) knowingly sold revenue bonds as general obligation bonds because he wanted his best client to earn additional interest without taking on significantly higher risk

D Explanation Knowingly selling revenue bonds as general obligation bonds is a misstatement of material fact and therefore fraudulent. An agent, when making a sale to a client, need not include all facts, such as the number of employees. The agent must not deliberately fail to mention the material facts regarding the nature of the investment. For example, it is not fraud to make a mathematical mistake, such as inadvertently misquoting the dividend yield on a common stock as 5% when in fact it is 4%, while accurately indicating that the actual dividend payment is $.75 per quarter. An agent may never state that past performance is expected to be replicated. Reference: 5.1.1 in the License Exam Manual

An agent is currently registered with Broker-dealer X and would like to register with Broker-dealer Z. Under the Uniform Securities Act, A) permission would have to be granted by FINRA B) the agent would have to sell different types of securities for each broker-dealer C) one can never be registered with more than one broker-dealer at the same time D) registration would be required with each broker-dealer

D Explanation Multiple registrations are permitted if the broker-dealers are affiliated by direct or indirect common control, OR, an exception is made by the Administrator. In either case, each registration requires the filing of a separate Form U-4. Reference: 1.3.3.2 in the License Exam Manual

Under the Uniform Securities Act, the definition of an investment adviser does NOT include investment adviser representatives lawyers and accountants whose investment advisory services are solely incidental to their practices broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided federal covered investment advisers A) I, II, and III B) I only C) II and III D) I, II, III, and IV

D Explanation None of the above are included in the term "investment adviser" as used in the Uniform Securities Act. Federal covered advisers are regulated by the Securities Exchange Commission (SEC). The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual registration of investment advisers by federal and state authorities. If federal covered advisers were defined as investment advisers under the USA, then they would be subject to the same state registration procedures as local or state investment advisers. Reference: 1.5.2 in the License Exam Manual

It would not be a prohibited practice under the Uniform Securities Act for an agent to tell a client that A) registration of securities implies tacit approval of the Administrator B) my commissions are structured so I make money only if the client makes money C) the fact that she passed her licensing exams is ample proof of her qualifications D) registered nonexempt securities may properly be sold in the state

D Explanation Nonexempt securities are those that must register. The Administrator never approves of any security, passing a licensing exam does not give one the right to assert one's qualifications, and performance-based compensation is never permitted for agents. Reference: 4.2.2 in the License Exam Manual

An individual functioning as an investment adviser representative for a federal covered adviser, with no place of business in this state, would be required to register in this state if A) he only dealt with investment companies located in the state B) he had a time-share in the state C) the investment adviser had a small office in the state D) he conducts frequent public seminars in the state

D Explanation One of the provisions dealing with federal covered investment advisers is that states have no registration jurisdiction over their investment adviser representatives unless the IAR has a place of business in the state. It makes no difference what kind of clients the IAR serves. Under the Uniform Securities Act, conducting seminars open to the public in a state is considered to be having a place of business in the state. A time-share or vacation home has nothing to do with the IAR's advisory service. The fact that the employer, the investment adviser, has an office in the state, is of no relevance to the IAR. Reference: 1.6.1 in the License Exam Manual

Anyone who violates the antifraud registration requirements of the act is liable for criminal penalties administrative sanctions, even for exempt securities civil liabilities injunctions A) II, III, and IV B) I, III, and IV C) II and IV D) I, II, III, and IV

D Explanation Persons who violate the antifraud provisions of the Uniform Securities Act face injunctions, administrative sanctions, and criminal and civil penalties. Reference: 3.3 in the License Exam Manual

Under the USA, which of the following types of transactions can be entered into legally with unregistered, nonexempt securities? A) Public offering of stock in a new corporation B) Rights offering to existing shareholders with underwriting compensation of $.05 per share to the soliciting broker-dealers C) Solicited transactions with individual clients located within the state D) Private placement offered to more than 50 institutional purchasers in the state

D Explanation Private placements involve the sale of nonexempt securities to investors without the need for registration. There is no numerical limit to the number of offers that may be made to institutional buyers. However, offers to noninstitutional buyers are limited to a maximum of 10 in any 12-month period. Rights offerings are only exempt if there is no compensation, and only unsolicited orders are exempt transactions. Reference: 2.3.2 in the License Exam Manual

Which of these would be the most appropriate action for an agent who hears a sensational rumor about a stock to take? A) Report the rumor to the Administrator on the form specifically designated under the Uniform Securities Act for this purpose B) Pass the rumor along to those clients who are in the best position to benefit from it C) Investigate to determine if there is any basis to the rumor D) Report the rumor to the proper supervisory person

D Explanation Rumors must not be acted on. Any agent hearing a rumor is obligated to report it to the supervisory person named in the firm's compliance manual. Reference: 5.2.21 in the License Exam Manual

All of the following are exempt securities under the Uniform Securities Act EXCEPT A) securities issued by a federal savings and loan association B) securities issued by a Canadian province C) securities issued by the Canadian government D) securities issued by a bank holding company

D Explanation Securities issued by a bank are exempt. However, this answer refers to a bank holding company that is considered to be an ordinary company subject to state registration if not otherwise exempt. Reference: 2.3.1 in the License Exam Manual

Registration statements for securities under the Uniform Securities Act are generally effective for A) a period of time determined by the Administrator for each issue B) 1 year from the previous December 31st C) 1 year from the date of issue D) 1 year from the effective date

D Explanation Securities registration statements are generally effective for 1 year from the effective date. However, if the issuer or underwriter still has unsold shares, the effective date may be extended until those shares are sold. That would be a more complete answer, but you weren't given that choice. Reference: 2.2.2.3.1 in the License Exam Manual

In order for the Administrator to suspend an agent's registration, compliance with the requirements of the Uniform Securities Act would NOT require that A) notification is given to the employing broker-dealer of the final order B) the agent is presented with an opportunity for a hearing C) notice is given of the proposed action and hearing D) the agent receives court-appointed defense counsel if she can't afford her own

D Explanation The Administrator may by order summarily postpone or suspend registration, pending final determination of any proceeding under the USA. The hearing is not in a formal court so there is no court to appoint defense counsel. Upon the entry of the order, the Administrator shall promptly notify the applicant or registrant, as well as the employer or prospective employer, if the applicant or registrant is an agent or investment adviser representative, that it has been entered and of the reasons therefor and that within fifteen days after the receipt of a written request, the matter will be set down for hearing. Since the law states that the employer will be notified once the action commences, it should be obvious that once the suspension order becomes final, the employer will be notified. Reference: 3.2.4.1 in the License Exam Manual

All of the following statements are consistent with the Uniform Securities Act EXCEPT A) a security for which a registration statement is filed under the Securities Act of 1933 may simultaneously register with the state by the procedure known as registration by coordination B) any security may be registered with the state by the procedure known as registration by qualification C) state Administrators may require federal covered investment companies to file documents with the Administrator using a procedure known as notice filing D) state Administrators do not require consent to service of process to be submitted with notice filings for covered securities

D Explanation The Administrator will require the filing of a consent to service of process with any securities registration. Notice filing is the state registration procedure followed by federal covered securities. Any security may be registered by qualification, and coordination is the simultaneous registration with the SEC and the states. Reference: 2.2.2.1 in the License Exam Manual

Under the Uniform Securities Act, the Administrator may require a broker-dealer to post a surety bond of A) $10,000 B) $25,000 C) $50,000 D) An amount not in excess of that set by the SEC

D Explanation The NSMIA states that the Administrator may not require a broker-dealer be bonded in an amount above that set by the SEC. Furthermore, bonds will not be required of broker-dealers that maintain a specified net capital. Reference: 1.2.2 in the License Exam Manual

The term "agent", as defined in the Uniform Securities Act, would not include which of the following individuals? A) One who represents a registered broker-dealer selling securities listed on the NYSE to individual clients B) One who represents a registered broker-dealer selling unregistered exempt securities C) One who represents an issuer of any exempt security D) One who represents an issuer in effecting exempt transactions

D Explanation The USA defines an agent as an individual representing a broker-dealer or an issuer in the sale of securities. This exam will never have a case of an individual selling on behalf of a broker-dealer excluded from that definition. The securities listed on the NYSE are exempt from state registration because, under the NSMIA, they are federal covered securities. But anyone selling securities, exempt or not, while representing a registered broker-dealer must be licensed as an agent of that broker-dealer. The only case in which an individual selling securities as a representative of an issuer is always excluded from the definition of agent is when the transactions are exempt. There are 5 different categories of exempt securities where this exclusion applies as well, but it doesn't apply to all exempt securities. Reference: 1.3.2 in the License Exam Manual

Which of the following securities are exempt from the registration provisions of the USA? Issue of a savings and loan association authorized to do business in this state General obligation municipal bond Bond issued by a company that has common stock listed on the New York Stock Exchange A) II only B) II and III C) I only D) I, II, and III

D Explanation The USA exempts a number of different issues from registration, including securities issued by a bank, or anything that functions like a bank (e.g., a savings and loan or credit union). Securities issued by a governmental unit are always exempt. Securities listed on the New York Stock Exchange are part of a group known as federal covered securities that also includes those listed on the NYSE American LLC (formerly known as the American Stock Exchange) and Nasdaq Stock Market issues. If the common stock is listed, then any security of that issuer that is equal or senior in claim to the common is also considered exempt. Reference: 2.3.1 in the License Exam Manual

If an agent unknowingly sells an unregistered, nonexempt security and discovers the error afterward, what action is most appropriate? A) Have the client offer to sign a waiver accepting the sale as legal. B) Immediately register the security in the state and notify the Administrator. C) Compensate the client for any losses through a waiver of future brokerage or investment advisory fees. D) The agent should notify the appropriate supervisor who then, on behalf of the firm, will offer (in writing) to repurchase the security and pay a reasonable rate of interest minus any income derived from the security.

D Explanation The broker-dealer may offer to rescind the trade by offering (in writing) to repurchase the security and pay a reasonable rate of interest minus any income derived from the security. An agent may not suspend provisions of the USA whether the client agrees or not. Reference: 3.3.1.3 in the License Exam Manual

Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is A) only problematic if investors lose money in the investment B) an illegitimate sales tactic C) only problematic if Bryan sells his shares after informing the other investors D) not an unethical sales practice

D Explanation This practice is ethical providing it is accurate and not employed in a coercive manner. It would be expected that when Bryan decides to sell his position, he would not do so prior to notifying his clients with a position in that stock. Otherwise, this would be an ethical problem. Reference: 5.2.17 in the License Exam Manual

Under the Uniform Securities Act, all of the following statements are TRUE regarding private placements EXCEPT A) the seller reasonably believes that all of the noninstitutional buyers are purchasing for investment purposes only B) they may be offered to an unlimited number of institutional investors C) no commissions or other remuneration is paid for soliciting noninstitutional investors D) they are offered to no more than 10 persons in a state in a 12-month period

D Explanation This question hinges on you remembering the broad definition of the term, person; it is far more than just an individual. Although the limited-offering exemption (private placement) is available when there are offers to no more than 10 noninstitutional (retail) persons in 12 months, there is no limit when it comes to institutions. The offeror must be reasonably assured that retail buyers are purchasing for investment rather than resale within a short period of time. No commissions may be paid, directly or indirectly, for these retail transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than 10 persons. Reference: 2.3.2 in the License Exam Manual

Under the USA, the term "institutional investor" includes a depository institution an insurance company an investment company as defined in the Investment Company Act of 1940 broker-dealer registered under the Securities Exchange Act of 1934 A) I and IV B) III and IV C) II and III D) I, II, III, and IV

D Explanation Under the USA, depository institutions, international banks, insurance companies, investment companies as defined in the Investment Company Act of 1940, and broker-dealers are all included in the definition of" institutional investor". Reference: 2.3.2 in the License Exam Manual

Under the Uniform Securities Act, registration by coordination becomes effective A) immediately B) in 30 days C) when the registration with the SEC becomes effective D) in 10 days

c Explanation The registration by coordination becomes effective at the same time it is released (made effective) by the SEC, provided it was filed with the Administrator, in most states at least 10 days before the SEC effective date. Reference: 2.2.2.2.1 in the License Exam Manual