Series 63 (December 2018)

A representative is making a presentation to a married couple, ages 75 and 77, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy an equity indexed annuity (EIA). Which statement made by the representative would NOT be misleading and fraudulent? A. "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" B. "EIAs can be redeemed at any time without penalty if you have an emergency cash need" C. "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" D. "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company"

"EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company" Equity indexed annuities (EIAs) are an insurance product that falls somewhere between a fixed annuity and a variable annuity. They give a return linked to a well-known index, such as the Standard and Poor's 500 Index, but the return is typically capped to a maximum interest rate per year. Thus, if the cap is 10% and the S&P 500 Index grows by 15%, the customer only gets a 10% return for that year. Thus, Choice A is a misleading statement. If the contract is redeemed early, there are steep surrender charges, making Choice B misleading. There is no deduction for contributions to the contract (these are non-qualified plans) making Choice C a misleading statement. Choice D is true - the contracts have a minimum guaranteed rate of return (like around 3%) that is guaranteed by the insurance company. Of course, if the insurance company fails (which rarely happens, but it has happened), then the guarantee is worthless.

Michael Michaelson has an MBA in finance and has taught classes at a local college for the past 15 years. He has decided to use his knowledge and acumen in the private sector and registers in the State as an investment adviser. His business will be creating financial plans and implementing them for clients. Michael requests a waiver from the State Administrator from having to pass the Series 65/66 exam based on his educational and teaching background and receives it. He registers as an IA in the State. He wishes to publish an advertisement for his new business. Michael can state which of the following in the advertisement? A. "Because of my extensive finance background, I have been approved by the State to sell financial plans without having to take the examination required of other advisers" B. "My fee schedule, which is non-negotiable, is comparable to that charged by other advisers that do not have my extensive finance background" C. "As a registered investment adviser in the State, I have been certified to create financial plans" D. "I have 15 years of experience as an investment adviser in the State"

"My fee schedule, which is non-negotiable, is comparable to that charged by other advisers that do not have my extensive finance background" In Choice A, Mike cannot say that he was "approved" by the Administrator, nor can he say he was "certified" (Choice C) by the Administrator. Choice B is a reasonable and true statement. Choice D is misleading because Mike has 15 years' experience as a teacher of finance; not as an investment adviser.

Criminal violations of the Uniform Securities Act are punishable by: I $5,000 fine II $10,000 fine III 3 years in jail IV 5 years in jail A. I and III B. I and IV C. II and III D. II and IV

$5,000 fine 3 years in jail Under the Uniform Securities Act, criminal violations are punishable by a $5,000 fine per offense and up to 3 years in prison. In contrast, criminal violations of Federal law are punishable by a $10,000 fine per offense and up to 5 years in prison

An investment adviser that has no office in State B would be required to be registered in State B if a representative associated with that firm sells advisory services in State B to: A. 6 relatives B. an investment advisory firm and 2 individuals C. an investment advisory firm and 6 private individuals, of which 3 are officers of an investment advisory firm D. 6 investment advisory firms

6 relatives An adviser that only sells its services to other investment advisers (who the law considers to be "professionals" and not in need of protection) is not required to be registered in a State, as long as the adviser is not physically located in that State. Officers of advisory firms to whom another adviser offers its services fall under the same "professional" exemption. Offering services to 5 individuals or less allows the adviser with no office in that State to claim the "de minimis" exemption in the State. There is no exemption for offering advisory services to relatives.

Which of the following would NOT be considered an agent under the Uniform Securities Act? A) An individual working for a broker-dealer who sells commercial paper to wealthy individuals B) A broker-dealer who transacts business with the general public C) A natural person who sells variable life insurance policies as an employee of a life insurance company authorized to do business in this state D) An individual who sells foreign securities required to be registered with the state

A broker-dealer who transacts business with the general public The definition of an agent specifically excludes broker-dealers. Agents are individuals who sell securities on behalf of broker-dealers or issuers. The fact that commercial paper is exempt and that the sales are to wealthy individuals is not important. Variable life insurance is considered both an insurance and securities product, requiring licensing as an insurance agent and a securities agent. Anyone working for a broker-dealer selling securities is acting in the capacity of an agent.

Which of the following orders would be performed in a discretionary account? A. A customer places an order to buy 100 shares of IBM at the best price available B. A customer places an order to sell 100 shares of KO at the market C. A customer places an order to buy 100 shares of any computer stock priced at under $40 D. A customer places an order to sell 100 shares of GE when it gets to a certain level or lower

A customer places an order to buy 100 shares of any computer stock priced at under $40 If an agent chooses more than price and time of execution for a customer, the trade is considered to be "discretionary." If the agent chooses any more than price or time - that is, the size of the trade or the security to be traded - a power of attorney is required.

Which of the following statements relating to the registration requirements of investment advisers is TRUE? A) A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial. B) A registration is automatically effective at noon, 30 days after the application has been filed. C) Registrations of securities professionals expire 1 year after their effective date, unless renewed. D) If an amendment to the registration is subsequently filed, the registration becomes effective 15 days after the amendment is filed.

A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial. A registration is effective at noon, 30 days after the application has been filed if there is no denial or stop order in process. Registrations of securities professionals expire on December 31, unless renewed. If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.

Which of the following individuals would NOT be defined as an investment adviser representative? A. An independent contractor hired by the advisory firm that is not an employee of the adviser who is being paid to solicit clients for the adviser B. A partner in the advisory firm that has no role in the management of customer accounts, but who heads up research at the firm and regularly meets with sales employees to discuss the firm's latest recommendations that could be made to clients C. A compliance officer of the investment adviser who is responsible for supervising the legal aspects of the sales activities of the firm's representatives D. A supervising financial officer of the investment adviser that is responsible for supervising the preparation of the firm's financial statements and the firm's customer account statements

A supervising financial officer of the investment adviser that is responsible for supervising the preparation of the firm's financial statements and the firm's customer account statements Under the Uniform Securities Act, an investment adviser representative is any partner, officer, director or other individual employed by an investment adviser who: Makes recommendations or renders advice regarding securities; Manages accounts or portfolios of clients; Determines which recommendations or advice regarding securities should be given; Solicits, offers, or negotiates for the sale of investment advisory services; or Supervises employees who perform any of the functions listed above. Note that it makes no difference if the individual employed is an "employee" or an "independent contractor." Clearly, both Choices A and B fit the definition. Choice D clearly does not meet the definition - the financial officer does not perform any of the functions listed - and is the correct answer. Choice C is "iffy" but since the compliance officer is supervising the legal aspects of sales activities, we will include him or her in the definition of investment adviser representative (though a good argument can be made that this person is not included). However, Choice D is clearly the best of the choices offered.

Which of the following is (are) prohibited in a margin account? A. A customer buying a security without the intention to pay on settlement B. A customer selling a security without the intention to deliver on settlement C. A customer selling short a security that cannot be borrowed and delivered on settlement D. All of the above

A. A customer buying a security without the intention to pay on settlement B. A customer selling a security without the intention to deliver on settlement C. A customer selling short a security that cannot be borrowed and delivered on settlement In any account, whether it be a cash or margin account, a customer cannot buy a security without intending to pay on settlement, and cannot sell a security without intending to deliver on settlement. Short sales can only be effected in a margin account. Selling short a security means that the security to be sold is borrowed from another customer of the broker-dealer. A short sale is not permitted unless it is first determined that the security to be sold can be borrowed and delivered by settlement.

Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser? A) Retire in Luxury Pension Plan Consultants advising several corporate retirement plans with combined total assets of $145 million B) DEF Fund managers, a corporation managing an unregistered hedge fund with $10 million in assets C) GHI Consultants, a sole proprietorship, managing $89 million belonging to high net worth individuals D) ABC Money Managers, a partnership with $385 million under management

ABC Money Managers, a partnership with $385 million under management It makes no difference what the structure of the adviser is. As long as the assets under management are $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered regardless of size. The Hedge Fund is an unregistered fund so the rule does not apply to it. Under the Dodd-Frank Act, the pension consultant must have $200 million under management to be eligible to be federal covered.

If an investment adviser is an individual, which of the following items would be included in the computation of adviser's net capital? A. Goodwill B. Automobile C. Accounts receivable D. Copyright

Accounts receivable Net capital is really the adviser's "liquid net worth." It is liquid assets minus all liabilities. For an adviser that is an individual, excluded from assets that count in net capital are any non-liquid assets, including deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, home, home furnishings, automobiles and any other personal items that cannot be readily converted to cash. Basically, this means that the only assets that count in the computation for an individual adviser are cash, accounts receivable and marketable securities positions. Note, however, that if the adviser is a partnership or corporation, the computation is permitted to include automobiles and furnishings used in the adviser's business. Why State law permits this is anyone's guess, but this point should be known for the exam!

Which action by a fiduciary is a probable violation of the "Prudent Man" rule? A. Writing call options against stocks that represent 60% of a portfolio's assets B. Allocating 10% of a portfolio's assets to foreign securities investments C. Allocating 60% of a portfolio's assets to Initial Public Offerings D. Allocating 10% of a portfolio's assets to each of 10 differing asset classes

Allocating 60% of a portfolio's assets to Initial Public Offerings The "Prudent Man Rule" requires that investments be selected and managed by exercising reasonable care, skill and caution - that is, they should be managed as a "Prudent Man" would. Writing call options against stock owned is a safe, conservative, income strategy. Allocating 10% of a portfolio to foreign stocks does not appear to be overly aggressive. Allocating 60% of a portfolio to IPOs (which have proven to be quite risky) is extremely aggressive and is not prudent. Allocating a portfolio equally among 10 different asset classes broadly diversifies the portfolio and is prudent as well.

Which of the following is NOT defined as a "broker-dealer" under the Uniform Securities Act? A. An agent of a broker-dealer who effects securities transactions B. A person who effects securities transactions for its own account C. A person who effects securities transactions for the account(s) of others D. An agent of a broker-dealer who effects securities transactions that are not recorded on the books of the broker-dealer

An agent of a broker-dealer who effects securities transactions. Under the Uniform Securities Act, an "agent" of a broker-dealer is an individual associated with a broker-dealer, who represents the broker-dealer in effecting securities transactions. An agent is not a broker-dealer. A "broker-dealer" is defined as a person that engages in the business of effecting securities transactions for the account of others; or a person that engages in the trading of securities for its own account. If an agent of a broker-dealer engages in so-called "private securities transactions," a prohibited practice has occurred. All securities transactions effected by agents must be known to the broker-dealer; must be recorded on the books of the broker-dealer; and must be supervised by the broker-dealer. If the agent performs a "private securities transaction" that is not known to the broker-dealer, then that agent has, himself, become a broker-dealer under this definition (a so-called "statutory" broker-dealer). As such, he or she would have to register in the State as a broker-dealer before effecting such a transaction.

Which statement is FALSE regarding registration and licensing requirement for broker-dealers and investment advisers in a State? A. A broker-dealer with no place of business in a State that solely offers securities to non-institutional customers must register B. A broker-dealer with no place of business in a State that solely offers municipal securities must register C. An investment adviser with no place of business in a State that only deals with institutional customers must register D. An investment adviser with no place of business in a State that offers its services to a limited number of non-institutional customers is exempt from registering in the state

An investment adviser with no place of business in a State that only deals with institutional customers must register Choice A is true - a broker-dealer with no place of business in a State that deals with non-institutional clients in the State (this means the general public) must be registered in the State. Choice B is true - a broker-dealer with no place of business in a State that solely offers exempt securities must also register, as must its agents. "Exempt" only means that the securities being offered are exempt from State registration - the broker-dealers and agents that sell exempt securities must still be registered in the State. Choice C is false - an investment adviser with no place of business in a State that only deals with institutional clients is EXEMPT from registration. If the adviser with no office in the State offers its services to the general public in the State, then it must register. Choice D is true - an adviser with no place of business in a State that offers its services to no more than 5 prospective customers in the State within a 12 month period is exempt from registering (the de minimis exemption).

Which of the following information would NOT be found in a registration statement for a security that is going to be registered by qualification in a State? A. Current equity and debt capital of the issuer B. Description of issuer's business, product lines and competitive environment C. Use of proceeds of the offering D. Analysis of company profitability as compared to industry norms

Analysis of company profitability as compared to industry norms Consider this to be a learning question: Any registration statement for a securities offering includes: Current balance sheet and income statement; Business description; Use of proceeds of offering; Offering Terms; Legal Opinion; Accountant's Opinion. There is no analysis of company profitability in the registration statement as compared to other companies in the industry.

Under the Uniform Securities Act, which transaction is allowed for exempt unregistered securities? A. Primary offerings B. Secondary offerings C. Both primary and secondary offerings D. Neither primary nor secondary offerings

Both primary and secondary offerings In a nutshell, since it is an EXEMPT unregistered security, both primary and secondary offerings are allowed without filing a registration statement in the state. If the security were non-exempt, then to offer that security in the state, registration would be required.

All of the following are defined as a "State" under the Uniform Securities Act EXCEPT: A. California B. British Columbia C. District of Columbia D. Puerto Rico

British Columbia "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. British Columbia is part of Canada; not part of the United States.

All of the following securities are exempt from registration under the Uniform Securities Act EXCEPT: A. Railroad common stock B. Municipal bonds C. Canadian common stocks D. Foreign government bonds

Canadian common stocks Foreign government securities (that means debt, since governments don't issue stock) are exempt. Foreign stocks, however, are non-exempt, and must be registered with the State. Railroad common stock is exempt, since common carriers regulated by the Interstate Commerce Commission (ICC) are exempt; so are municipal bonds and foreign government bonds.

If a new securities issue is being registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the easiest method of State registration is Registration by: A. Coordination B. Qualification C. Filing D. Certification

Coordination Under Registration by Coordination, the filing information given to the Securities and Exchange Commission for Federal registration is filed with the State. When the Federal registration becomes effective, the State registration is effective. Note that registration by filing (or notification) cannot be used for new issues. It is only available for issuers that have already registered securities in the State.

Which of the following securities can be registered by qualification in a State? A. Direct Participation Program B. Fractional Interest in an Oil and Gas Program C. Voting Trust Certificates D. All of the above

Direct Participation Program Fractional Interest in an Oil and Gas Program Voting Trust Certificates Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

An investment adviser is ready to open an account for a new customer. In the advisory contract, the adviser has included a clause that the customer has 48 hours to rescind the contract. The adviser gives the customer the brochure, takes payment from the customer, but forgets to have the customer sign the contract. Which statement is TRUE under NASAA rules? A. Even though the customer did not sign the contract, he or she still has 48 hours to rescind the contract B. Even though the customer did not sign the contract, he or she has 5 business days to rescind the contract C. The contract is null and void D. The contract is binding and the customer cannot rescind the contract

Even though the customer did not sign the contract, he or she has 5 business days to rescind the contract Under NASAA rules, the brochure is required to be delivered to clients no less than 48 hours prior to entering into a written or verbal contract to provide advisory services. As an alternative to the "2 day free look," the customer can be given the brochure at the time of contract signing, as long as the contract provides for a 5 business day period following signing where the customer can terminate without penalty. In this case, the customer was not given the brochure 48 hours prior to entering into the contract. By signing and giving the adviser a check, the customer has "entered into a contract" to buy the advisory services. So this customer has 5 business days under NASAA rules to rescind the contract.

Which investment advisory fee arrangement would MOST likely be viewed as unreasonable for a client with a small amount of assets under management? A. Hourly rate B. Flat fee assessed for the year C. Assessment based on value of the account at the beginning of the month D. Assessment based on value of the account at the end of the month

Flat fee assessed for the year A flat fee arrangement is permitted, but this question is "digging deeper" and is actually looking at the way advisory fees are charged in the real world. Annual flat fees are typically paid by clients with very large accounts, because advisers will change their fee arrangement for very large customers from a percentage of assets under management to a flat fee. For example, a customer with $10,000,000 to invest, if charged a typical 1% annual management fee, would pay $100,000. This is a very large dollar amount, so the adviser might have a fee schedule of 1% of assets under management for amounts invested up to $2,500,000 and then the schedule shifts to an annual flat fee of $25,000 for amounts invested over $2,500,000. If the adviser were to charge the same $25,000 flat fee for all accounts rather than a percentage of assets under management for accounts under $2,500,000, then, for example, a small account of $100,000, would have a ridiculously large fee. Hourly fees take into account complexity of management - smaller accounts are simpler and get billed fewer hours, while larger accounts are more complex and get billed more hours - this is a reasonable arrangement. Finally, an assessment based on value is reasonable - smaller accounts get a smaller assessment, while larger accounts get a larger assessment.

Under NASAA rules, within 120 days of year end, the customer of an investment adviser must receive: A. the investment adviser's audited financial statements B. Form ADV Part 2A if there are material changes C. Form ADV Part 1 D. a written prospectus supplement

Form ADV Part 2A if there are material changes NASAA rules require that within 120 days of fiscal year end, the adviser must send each customer a revised Brochure (Form ADV Part 2A) and Brochure Supplement (Form ADV Part 2B) if there are material changes. Instead of sending the entire Brochure, the adviser can simply send the "Summary of Material Changes" section to the Brochure, along with an offer of the revised Brochure. Also note that this annual procedure is not required if there are no material changes to the Brochure.

Harrison is a Certified Financial Planner (CFP) with an office in the state and a telephone directory listing under the category "Financial Planners." Harrison has, for fees, written more than 100 comprehensive financial plans for various individual clients. However, only 20% of the plans' content entails advice regarding securities and investments. Which of the following statements best describes Harrison's status as an investment adviser under the USA? A) Harrison is not required to register as an investment adviser because he holds a recognized financial planning credential. B) Harrison is required to register as an investment adviser because he holds a recognized financial planning credential. C) Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner. D) Harrison is not required to register as an investment adviser because his securities advice is purely incidental to his overall planning activities.

Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner. Under the Uniform Securities Act, an investment adviser is a person, corporation, partnership, or sole proprietorship who, in the regular course of business, advises others as to the advisability of selling securities. Harrison holds himself out as a financial planner and normally includes a section on investments in his plans. Furthermore, Harrison is compensated for his services-yet another standard of the definition, investment adviser. Under the USA, certain recognized professional designations are exempt from having to qualify by passing the licensing exam but not from registration.

A representative is making a presentation to a married couple, ages 77 and 81, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy an equity indexed annuity (EIA). Which statements made by the representative would be misleading and fraudulent? I "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" II "I do not earn any commissions when I sell you an EIA" III "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" IV "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company" A. I and III B. I and II C. I, II, III D. I, II, III, IV

I "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" II "I do not earn any commissions when I sell you an EIA" III "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" Equity indexed annuities (EIAs) are an insurance product that falls somewhere between a fixed annuity and a variable annuity. They give a return linked to a well-known index, such as the Standard and Poor's 500 Index, but the return is typically capped to a maximum interest rate per year. Thus, if the cap is 10% and the S&P 500 Index grows by 15%, the customer only gets a 10% return for that year. Thus, Choice I is a misleading statement. Technically the salesperson does not earn a commission, but he or she does earn a very steep sales charge, so Choice II is misleading. There is no deduction for contributions to the contract (these are non-qualified plans) making Choice III a misleading statement. Choice IV is true - the contracts have a minimum guaranteed rate of return (like around 4%) that is guaranteed by the insurance company. Of course, if the insurance company fails (which rarely happens, but it has happened), then the guarantee is worthless.

Which of the following MUST notify the Administrator if an agent of a broker-dealer is terminated? I Agent II Ex-employer III FINRA IV SEC

I Agent II Ex-employer Under the Uniform Securities Act, when an agent associates with a broker-dealer; or terminates those activities that make him or her an agent; both the agent and the broker-dealer must notify the State Administrator promptly.

Which of the following notifies the Administrator if an agent changes employment from one broker-dealer to another broker-dealer? I Agent II Former Employer III New Employer IV FINRA

I Agent II Former Employer III New Employer Under the Uniform Securities Act, when an agent associates with a broker-dealer; or terminates those activities that make him an agent; both the agent and the broker-dealer must notify the State Administrator promptly. FINRA has nothing to do with State registration requirements; it is only concerned with Federal registration requirements under the Securities Exchange Act of 1934.

Under the NASAA Statement of Policy on unethical practices, which of the following investment advisers would be able to loan monies where securities are collateral for the loan? I An investment adviser that has a registered broker-dealer that lends money to a customer through the broker-dealer affiliate II An investment adviser that is a subsidiary of a parent bank that lends money to a customer through the bank affiliate III An investment adviser that is a partnership lends money to a customer under the provisions of Regulation T of the Federal Reserve Board IV An investment adviser that is a corporation lends money to its officers A. I and II only B. III and IV only C. I, II and IV D. I, II, III, IV

I An investment adviser that has a registered broker-dealer that lends money to a customer through the broker-dealer affiliate II An investment adviser that is a subsidiary of a parent bank that lends money to a customer through the bank affiliate IV An investment adviser that is a corporation lends money to its officers An investment adviser is not permitted to lend money to a customer, unless the investment adviser does so through an affiliated "regulated lender." An affiliated broker-dealer is regulated under Regulation T and can lend money to a customer; as can an affiliated bank. An adviser can lend monies to its officers or employees because they are not customers.

Which of the following are exempt securities under the Uniform Securities Act? I Bank issues II Corporate stocks III Investment grade commercial paper maturing within 9 months IV U.S. Government bonds A. IV only B. I and IV C. II and III D. I, III, IV

I Bank issues III Investment grade commercial paper maturing within 9 months IV U.S. Government bonds Corporate stocks are not exempt under the Uniform Securities Act and thus must be registered in the State. U.S. Government bonds; bank issues; and commercial paper maturing within 9 months rated in one of the 3 highest categories; are exempt securities.

Which of the following are NOT considered to be "churning"? I Exchanging income fund shares for growth fund shares for a customer who has a capital gains investment objective II Day trading by an agent with discretionary authority in a customer margin account where the customer has a speculative investment objective III Recommending trades in a customer account with the objective of producing commissions for the agent IV Swapping a municipal bond for another municipal bond to obtain a capital loss deduction A. I and II only B. III and IV only C. I, II, and IV D. I, II, III, IV

I Exchanging income fund shares for growth fund shares for a customer who has a capital gains investment objective II Day trading by an agent with discretionary authority in a customer margin account where the customer has a speculative investment objective IV Swapping a municipal bond for another municipal bond to obtain a capital loss deduction Churning is the excessive trading of a customer's account with the intention of generating commissions for the agent. Exchanging mutual fund shares for a customer (Choice I) is not churning. Day trading in a discretionary account for a customer who wishes to speculate would be churning only if the trading was considered to be excessive - so Choice II is not churning. Performing a municipal bond tax swap for a customer (Choice IV) is not churning either.

If a representative that transacts business in a State terminates employment with an investment adviser, notice must be given to the Administrator by the: I Investment Adviser II Officer or Director of the Investment Adviser III Investment Adviser Representative

I Investment Adviser If a representative of an investment adviser terminates employment, the adviser must notify the Administrator promptly. Notice that this is different than the requirement for a broker-dealer, where both the terminated agent and the broker-dealer must notify the Administrator. Also note that this is different than the requirement for a federal covered adviser, where only the investment adviser representative must notify the State Administrator.

State "blue sky" laws provide for: I Registration of broker-dealers II Registration of agents III Registration of investment advisers IV Registration of issuers

I Registration of broker-dealers II Registration of agents III Registration of investment advisers State blue sky laws provide for registration of broker-dealers and agents; registration of investment advisers and investment adviser representatives; and registration of securities issues. Note that the issuer itself is not registered in the state under the Uniform Securities Act - only the securities that it issues are registered.

Federal securities laws supersede the provisions of the Uniform Securities Act in which of the following? I Registration requirements applicable to securities offerings II Registration requirements applicable to investment advisers III Broker-dealer capital, custody, financial responsibility and recordkeeping requirements IV Investigation and bringing enforcement action against broker-dealers for unlawful conduct

I Registration requirements applicable to securities offerings II Registration requirements applicable to investment advisers III Broker-dealer capital, custody, financial responsibility and recordkeeping requirements The National Securities Markets Improvement Act of 1996 (NSMIA) was passed to reduce the overlap of Federal and State securities regulation. As a general rule, States have jurisdiction over securities transactions that occur within the State; while Federal legislation applies to "interstate" transactions. In addition, Federal securities law supersedes State securities law - since under the Constitution's "Supremacy Clause," if any State law impedes Federal legislation, the Federal law prevails. NSMIA formalized this structure by defining: Federal Covered Securities - securities registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). Essentially, these are exchange and NASDAQ listed issues. Federal Covered Advisers - investment advisers that are registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). These are investment advisers to investment companies and advisers with $100,000,000 or more of assets under management. Activities That State Law Cannot Preempt - broker-dealer net capital requirements, custody rules, margin rules, financial responsibility rules and recordkeeping rules (all set by the SEC or FRB) cannot be preempted by State rules. However, States are specifically permitted to retain the right to require notice filings; require registration of broker-dealers and their agents; require the registration of advisers with less than $100,000,000 of assets under management; require the registration of all investment adviser representatives (whether the investment adviser is "federally covered" or not); and the State is empowered to "investigate and bring enforcement actions with respect to fraud or deceit; or any unlawful conduct by a broker or dealer or investment adviser; in connection with securities or securities transactions."

A Chinese Wall must be maintained by a broker-dealer between investment banking and which of the following departments? I Research II Trading III Retail Sales IV Mergers and Acquisitions A. I and II B. III and IV C. I, II, III D. I, II, III, IV

I Research II Trading III Retail Sales Chinese Walls to stop information flow must be maintained between: Investment Banking and Trading; Investment Banking and Research; and Investment Banking and Sales (Retail and Institutional). The intent is to stop the flow of information on upcoming underwritings, mergers or takeover deals being done by the underwriting department to others that might trade on the information for a profit before the public knows about the upcoming deal. Regarding the Chinese Wall required between investment banking and research, the intent is to make sure that research is truly independent and not influenced by the investment bankers at that firm that might demand a "favorable" research report on an issuer so that they can curry favor with that issuer to get future underwriting business. The M & A (Mergers and Acquisitions) department and the underwriting department are usually one and the same at investment banking firms. There are no barriers required between these two groups.

Which of the following securities is/are EXEMPT under the Uniform Securities Act? I Savings and loan association stock II Municipal industrial revenue bonds III Bonds issued by a company listed on the Midwest (Chicago) Stock Exchange A. I and II B. I and III C. II only D. I, II, III

I Savings and loan association stock II Municipal industrial revenue bonds III Bonds issued by a company listed on the Midwest (Chicago) Stock Exchange Exempt securities under the Act include securities issued by Savings and Loans; municipal bonds, including industrial revenue bonds; and the securities of companies listed on stock exchanges (a "blue chip" exemption). Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State.

To use Registration by Coordination, an issuer must file a registration statement with the: I Securities and Exchange Commission II Administrator of another State III Administrator of that State A. I only B. I and III C. II and III D. I, II, III

I Securities and Exchange Commission III Administrator of that State Registration by Coordination of a securities issue in a State allows the Federal registration document required under the Securities Act of 1933 (the Prospectus filed with the Securities and Exchange Commission) to be the basis for registering the issue in that State. There is no provision in Uniform State Law that allows a registration statement filed in one State to be the basis for filing a registration in another State.

Which of the following are investment adviser conflicts of interest that MUST be disclosed to a client? I The adviser is a general partner in a limited partnership investment that he is recommending to his customers II The adviser is compensated by the broker-dealer to whom he directs the customers' portfolio trades III The adviser owns a stock that he is recommending to customers in his personal account IV The adviser will only take customers that have been referred to it by broker-dealers to whom he pays a referral fee A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

I The adviser is a general partner in a limited partnership investment that he is recommending to his customers II The adviser is compensated by the broker-dealer to whom he directs the customers' portfolio trades III The adviser owns a stock that he is recommending to customers in his personal account IV The adviser will only take customers that have been referred to it by broker-dealers to whom he pays a referral fee When it comes to conflicts of interest, disclosure is the key. All of the choices listed are investment adviser conflicts. The adviser being the general partner in a limited partnership that he is recommending to his customers is a conflict. Is the adviser recommending it because it is the best investment for the customer or because the investment adviser will get management fees for being the general partner? The adviser directing its customers' portfolio trades to a broker who will pay a fee to the adviser for those trades is another conflict. Is the adviser sending the trades to that broker because he gets the best trade executions or is he sending the trades to that broker for the referral fee? If an adviser owns a stock personally that he is recommending to a customer, is he doing this in order to drive up the price of the stock to have a gain on his personal portfolio or is he doing it because it is the best recommendation for the customer? Finally, an adviser that only takes customers that have been referred to it by a broker to whom he pays a referral fee is another conflict. Was the customer referred by the broker because it was best for the customer or did the broker do it just to get the adviser's referral fee?

Which of the following must be included in an investment advisory contract under NASAA rules? I The fact that prepaid fees will not be returned if the contract is terminated early II The fact that assignment of the contract is only permitted with customer consent III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing fixed income securities may be higher than for managing equity securities A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV

I The fact that prepaid fees will not be returned if the contract is terminated early II The fact that assignment of the contract is only permitted with customer consent III Whether the contract grants discretionary authority to the adviser Consider this to be a learning question. The advisory contract, under NASAA rules, must include: Description of services provided; Term of contract; Formula for computing fees; Amount of prepaid fees to be returned if contract is terminated early; Assignment of the contract is not permitted unless the customer approves; Whether the contract grants discretionary authority to the adviser; and Disclosure that the fee for managing equity securities may be higher than the fee for managing debt securities (NOT the other way around!).

Which of the following must be included in an investment advisory contract under NASAA rules? I The formula for computing the advisory fee II The amount of prepaid fees to be returned if the contract is terminated early III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing equity securities may be higher than for managing fixed income securities A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV

I The formula for computing the advisory fee II The amount of prepaid fees to be returned if the contract is terminated early III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing equity securities may be higher than for managing fixed income securities Consider this to be a learning question. The advisory contract, under NASAA rules, must include: Description of services provided; Term of contract; Formula for computing fees; Amount of prepaid fees to be returned if contract is terminated early; Assignment of the contract is not permitted unless the customer approves; Whether the contract grants discretionary authority to the adviser; and Disclosure that the fee for managing equity securities may be higher than the fee for managing debt securities.

Which of the following are defined as securities under the Uniform Securities Act? I Warehouse receipt II Collateralized Mortgage Obligation III Fixed Annuity Contract IV Pre-organization certificate A. II only B. III and IV C. I, II, and IV D. I, II, III, IV

I Warehouse receipt II Collateralized Mortgage Obligation IV Pre-organization certificate Fixed annuity contracts are excluded from the definition of a security, since the insurance company bears the investment risk. Please note, in contrast, that variable annuities issued by insurance companies, are defined as securities. Pre-organization certificates (such as limited partnership subscription agreements); warehouse receipts; and collateralized mortgage obligations all fall under the definition of a security.

Under NASAA rules, an: I agent is permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed II agent is not permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed III investment adviser representative is permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed IV investment adviser representative is not permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed A. I and III B. I and IV C. II and III D. II and IV

I agent is permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed IV investment adviser representative is not permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed Investment advisers and their representatives are held to a fiduciary standard. If they are making investments personally, they are already investing alongside their clients. Because of this, IAs and IARs cannot share in the gain or loss of a customer account. If they are making personal investments, they must be the same as those made for clients, and all will experience the same gain or loss anyway! Note that this completely differs than the rule for broker-dealers and their agents, who are not held to a fiduciary standard.

Under the Uniform Securities Act, registration as an investment adviser is required for a(n): I broker-dealer who renders advice on securities for a fee II broker-dealer who makes recommendations of securities to customers III investment newsletter of a general circulation IV financial planner who creates an investment plan for a fee

I broker-dealer who renders advice on securities for a fee IV financial planner who creates an investment plan for a fee An "investment adviser" is defined as a person who gives advice about securities for compensation. If a broker-dealer receives no special compensation for making a recommendation (in other words, any charge for the recommendation is included in the broker's commission), then the broker-dealer is excluded from the definition of an "investment adviser." However, if the broker-dealer were to charge a separate fee for giving investment advice, then the firm is defined as an "investment adviser" and must register. Investment newsletters that do not render advice based upon the specific investment situation of a client are also excluded from the definition of an "investment adviser." Financial planners who give investment advice for a fee clearly fall under the definition.

A security cannot be offered in a state unless it: I has been registered in the state II is a federal covered security, in which case no registration is required III is an exempt security, in which case no registration is required IV is offered in an exempt transaction, in which case no registration is required A. I only B. I and II only C. III and IV only D. I, II, III, IV

I has been registered in the state II is a federal covered security, in which case no registration is required III is an exempt security, in which case no registration is required IV is offered in an exempt transaction, in which case no registration is required To offer a security in a State, if it is non-exempt, it must either be registered or must be offered in an exempt transaction. If the security is exempt, or if it is a federal covered security, there is no requirement for registration and it can be freely offered. Please note that the broker-dealer and agent offering the securities must still be registered unless these persons are excluded from the definitions of "agent" and "broker-dealer."

Annual audited reports are required to be sent by investment advisers to their clients if the adviser: I holds customer funds II has discretionary control under a full power of attorney over customer accounts III has solicited the customer for advisory business IV has a conflict of interest that has been disclosed to the customer A. I and II B. III and IV C. I, II, III D. I, II, III, IV

I holds customer funds II has discretionary control under a full power of attorney over customer accounts If an investment adviser takes custody of customer funds or securities, it must be audited annually and provide a copy of the audit opinion to its customers. The definition of "custody" also includes "any arrangement, including a general power of attorney under which the adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian." Under this definition, an adviser that has discretion under a full power of attorney (which allows withdrawal of funds) would come under the custody rule requirements. Customers who are solicited for advisory business must be provided with a copy of the "brochure" (Form ADV Part 2A), not an audited financial statement of the adviser. All material adviser conflicts of interest must also be disclosed in Form ADV Part 2A.

The Administrator, in regards to the registration of securities, may: I impound the proceeds from the sale of the securities until the issuer receives a specified dollar amount II require the filing of original copies of confirmed subscription agreements III require the delivery of a prospectus A. I only B. I and II only C. II and III only D. I, II, III

I impound the proceeds from the sale of the securities until the issuer receives a specified dollar amount II require the filing of original copies of confirmed subscription agreements III require the delivery of a prospectus Regarding registration of securities in a State, the Administrator is empowered to impound the proceeds of the sale of the securities until a specified dollar amount is sold (this is typical for so-called "all or none" underwritings, where, if the entire issue is not sold, the deal is canceled). The Administrator can require the filing of original copies of confirmed subscription agreements (these are completed by customers who wish to "subscribe" to the new offering of securities); and can require that a disclosure document (prospectus) be provided to customers.

A person who renders advice on variable annuities for a fee; and who then sells the annuities, charging a commission, MUST: I register as an investment adviser in that State II register as a broker-dealer in that State III register as an agent in that State A. I only B. I and II C. I and III D. None of the above

I register as an investment adviser in that State II register as a broker-dealer in that State A variable annuity is defined as a non-exempt security under the Uniform Securities Act. If advice is rendered for a fee about variable annuities, then registration as an investment adviser would be required. If a variable annuity is sold for a commission, then the firm must register as a broker-dealer as well.

The State Administrator, under the Uniform Securities Act, is empowered to: I require examinations for officers of investment advisers and for investment adviser representatives II set different passing grades for examinations administered to officers of investment advisers and investment adviser representatives III waive an examination requirement under specified circumstances IV give either oral examinations or written examinations

I require examinations for officers of investment advisers and for investment adviser representatives II set different passing grades for examinations administered to officers of investment advisers and investment adviser representatives III waive an examination requirement under specified circumstances IV give either oral examinations or written examinations The State Administrator can require examinations for officers of investment advisers; and for investment adviser representatives. The Administrator can require a higher passing grade for the officers (some States do this!). The Administrator is empowered to waive an examination requirement (though this rarely happens). Finally, examinations can either be oral or written. (Oral examinations have been administered to people with vision problems.)

Under the Uniform Securities Act, if an offer of not-for-profit "church" bonds is to be made in a State: I the Administrator can require that a Notice Filing be made in the State II the Administrator can require that the issue be Registered by Coordination in the State III the Administrator can require the filing of any promotional materials used in connection with the offer and sale of the issue IV the Administrator can disallow the exemption without providing any reason for such a denial A. I and III B. I and IV C. II and III D. II and IV

I the Administrator can require that a Notice Filing be made in the State III the Administrator can require the filing of any promotional materials used in connection with the offer and sale of the issue Bonds issued by not for profit organizations are an exempt security under Uniform State Law. For example, so-called "church" bonds, used to pay for the construction of new churches or church additions, are an exempt security. Please note, however, that there have been many frauds associated with these offerings, where "good people of faith" have been fleeced. Because of this, the Uniform Securities Act provides that, in order to offer a note, bond or debt of a religious, benevolent, fraternal or social organization, the Administrator: can require the issuer to file a Notice specifying the material terms of the offer in the State and file copies of proposed advertising and sales literature used in connection with the offering can provide that the exemption becomes effective only if the Administrator does not disallow it within a stated time period (typically 10 business days) can disallow the exemption, providing the grounds for denial or suspension can require the issuer to register in the State (used if the Administrator believes that the bond issue is really a "commercial offering" and not a true "charitable" offering) Note that because not for profit issues are exempt securities under Federal law, there would be no Federal registration filing that could be "coordinated" with a State registration.

A broker-dealer that has a place of business in State A would be required to register in State A if it: I sold securities to customers in State A II made an offer to sell securities to customers in State A III effects securities transactions solely with institutional investors in State A IV effects securities transactions solely with issuers in State A

I, II, III, IV This one comes down to 1 simple fact. Because the broker-dealer has a place of business in State A, it must register in State A. End of story.

Which of the following are required for an initial application for registration as an investment adviser? I. A consent to service of process II. A fee III. Disclosure as to whether the applicant will have discretionary powers over client funds and/or securities IV. Disclosure as to whether the applicant will have custody of client funds or securities A) I and II B) II only C) I, II and IV D) I, II, III and IV

I. A consent to service of process II. A fee III. Disclosure as to whether the applicant will have discretionary powers over client funds and/or securities IV. Disclosure as to whether the applicant will have custody of client funds or securities An initial application must contain a consent to service of process, a fee, and must disclose whether the applicant will have discretionary powers over, or custody of, client funds and/or securities.

An agent engages in a practice prohibited under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by I. borrowing money from his father who is a client and making full disclosure to the employing broker-dealer II. sharing in profits and losses with clients and making full disclosure of this arrangement to the employing broker-dealer III. not disclosing risks of a transaction to an unsophisticated client who would not understand the explanation IV. not recording small transactions on the books of the employing broker-dealer A) I and II B) III and IV C) I only D) I, II, III and IV

I. borrowing money from his father who is a client and making full disclosure to the employing broker-dealer II. sharing in profits and losses with clients and making full disclosure of this arrangement to the employing broker-dealer III. not disclosing risks of a transaction to an unsophisticated client who would not understand the explanation IV. not recording small transactions on the books of the employing broker-dealer All of the choices are prohibited business practices. Borrowing money from a client is a prohibited practice unless the client is in the business of lending money, whether disclosure is made to the employer or not. Sharing in profits and losses with clients is only allowed with consent of the client and the employing BD. If the client would not understand the risks, then, in all probability, the recommendation is unsuitable. All transactions must be recorded on the books of the employer, regardless of size.

An agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be I. unsuitable and unethical II. a securities felony III. grounds, in extreme cases, for suspension or revocation of the agent's license IV. outside regulatory jurisdiction A) I and III B) I only C) II and III D) IV only

I. unsuitable and unethical III. grounds, in extreme cases, for suspension or revocation of the agent's license Municipal bonds provide a fixed income, but they are generally suitable only for high tax-bracket individuals. In this case, such a recommendation is probably unethical and could result in suspension or revocation of the registered agent's license.

Which statement is TRUE regarding the use of social media by an Investment Adviser Representative (IAR) who wishes to advertise his or her services? A. IARs are prohibited from placing advertisements in social media B. IARs can place advertisements in social media, as long as they disclose their affiliation with an Investment Adviser and their credentials C. IARs can only place advertisements that consist of unpaid testimonials from satisfied clients D. IARs can only place advertisements that consist of paid testimonials from satisfied clients

IARs can place advertisements in social media, as long as they disclose their affiliation with an Investment Adviser and their credentials Under both NASAA rules and the Investment Advisers Act of 1940, IAs and IARs are prohibited from using testimonials in advertising - it makes no difference if the testimonial is paid or unpaid. (Note, in contrast, the broker-dealers can use testimonials in their advertising under FINRA rules.) IARs can use social media to advertise, as long as the affiliation of the IA with the IAR is disclosed in the advertisement, along with the IAR's credentials (such as using the term "Registered" Investment Adviser Representative). All such advertisement must be retained as a record for 5 years under SEC and NASAA rules.

The Administrator can, by order, deny an exemption from registration, to which of the following? I General Obligation bonds of another State that are being offered only in that State II An executor selling stock held by an estate III Corporate bonds being sold to a bank trust department A. I only B. II only C. II and III D. I, II, III

II An executor selling stock held by an estate III Corporate bonds being sold to a bank trust department The Administrator cannot deny the registration in a State of an exempt security, such as a U.S. Government bond or a municipal bond. Note that the Uniform Securities Act requires the persons selling these securities in the State to be registered. On the other hand, the Administrator can modify the definition of an exempt transaction; or can deny an exempt transaction. For example, an "isolated non-issuer transaction" is exempt under State law, but each Administrator actually defines what this is (for example, maybe it is only 1 permitted transaction in a year; or maybe it is fewer than 5 permitted transactions in a year - the Administrator sets the requirements for the exemption).

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following is (are) prohibited activities? I Opening discretionary accounts for customers II Borrowing money or securities from a customer III Misrepresenting the status of the customer's account to the customer A. I only B. III only C. II and III only D. I, II, III

II Borrowing money or securities from a customer III Misrepresenting the status of the customer's account to the customer There is no prohibition on opening discretionary accounts for customers. However, unsuitable trades; trades of excessive frequency; and trades of excessive size are prohibited in discretionary accounts. Borrowing money or securities from a customer and misrepresenting the status of a customer's account are both prohibited practices.

Under the Uniform Securities Act, which of the following are allowed forms of investment adviser compensation? I Charging a flat fee only if the portfolio increases in value II Charging an hourly rate which includes the time it takes to get to the client's office and back III Charging a fee based upon a fixed percentage of assets under management IV Charging a flat fee per year regardless of the portfolio size A. I only B. III only C. II and IV D. II, III, IV

II Charging an hourly rate which includes the time it takes to get to the client's office and back III Charging a fee based upon a fixed percentage of assets under management IV Charging a flat fee per year regardless of the portfolio size Fees based upon a percentage of assets under management and flat fees (including hourly and annual fees) are permitted as long as the details are fully disclosed to customers. Performance fees are prohibited.

An agent tells a customer: "Since I am not registered in your State, I cannot contact you and ask you to buy a security. However, you can call me and ask me to sell it to you, since then I am not soliciting you." Under the Uniform Securities Act: I The agent is soliciting an offer to sell from the customer II The agent is soliciting an offer to buy from the customer III The agent's actions are permitted IV The agent's actions are prohibited A. I and III B. I and IV C. II and III D. II and IV

II The agent is soliciting an offer to buy from the customer IV The agent's actions are prohibited This one is interesting. If an agent is not registered in a given State, then that agent cannot solicit orders to buy or sell securities in that State. The agent appears to believe that if the transaction is unsolicited, then it is OK to take an order from that customer. However, this exemption only applies to the registration of securities and not to the registration of agents. The agent has attempted to induce an offer to buy (purchase) from the customer. This would be unethical if the agent were not registered in the customer's State.

If a registration is found to be incomplete, which of the following statements are TRUE? I The issuer must send the Administrator a complete new filing II The issuer must send the Administrator an amendment to the original filing III A new consent to service of process is required IV A new consent to service of process is not required A. I and III B. I and IV C. II and III D. II and IV

II The issuer must send the Administrator an amendment to the original filing IV A new consent to service of process is not required The best answer is D. If a registration statement is found to be incomplete, there is no requirement for a complete new filing. The additional information is provided by filing an amendment with the Administrator. A consent to service of process is required for the initial application of a broker-dealer, agent, investment adviser, and investment adviser representatives, and is also required for securities registration. This form appoints the State Administrator to be the "attorney" for the registrant. If a person is sued, the State Administrator would receive the summons and then notify the person being sued.

Question 58 - #15569 Which of the following activities are prohibited practices under the Uniform Securities Act? I. Selling an unregistered non-exempt security to a financial institution II. Offering shares of an unregistered, nonexempt security to individual customers III. Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered A) II and III B) II only C) I, II and III D) I only

II. Offering shares of an unregistered, nonexempt security to individual customers III. Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered Unless qualifying for an exemption, broker-dealers and agents must be registered in each state where offers or sales occur. Also, every security must be registered unless it is an exempt security or sold in an exempt transaction. Although the Canadian government bond is an exempt security, the agent must be properly licensed in each state in which an offer to sell is being made. The sale to the financial institution is an exempt transaction so registration of the security is not required. However, the agent would have to be registered, unless otherwise exempted.

Which of the following information MUST be included on a customer confirmation? I Whether the transaction was solicited or unsolicited II The exchange where the transaction was effected III The customer name and account number IV The price of execution A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

III The customer name and account number IV The price of execution Whether a trade is solicited or not is required on an order ticket, but not on a trade confirmation. The exchange where the trade was effected used to be required on the confirmation, but this is no longer the case because all markets are linked and trades must be done at the best price in a given market or routed to the better-priced market for execution. The customer name, account number, size of the trade, price of execution, and any commission charged must all be on the confirmation.

The State Administrator is empowered to require the filing of advertising and sales literature relating to offers of which of the following? I U.S. Government securities II Municipal securities III Agency securities IV Equity securities

IV Equity securities The Administrator can require filing of advertising and sales literature unless the security involved is exempt; or the security is offered in an exempt transaction; or the security involved is a federal covered security. An equity security, such as common stock or preferred stock in a corporation, is non-exempt. U.S. Governments municipals and agencies are exempt securities, so the Administrator cannot require the filing of advertising related to these issues.

When can an Investment Adviser borrow from a client? A. If the client is a broker-dealer B. If the client is an accredited investor C. If the client is the sister-in-law of the President of the Investment Advisory firm D. Under no circumstances

If the client is a broker-dealer NASAA does not allow IAs to borrow from their clients, unless the client is a broker-dealer (which would be in the business of giving margin loans), a bank that is in the business of loaning funds, or an affiliate of the investment adviser. This rule contrasts starkly with the FINRA rule for borrowing by broker-dealers. Broker-dealers, under the FINRA rule, cannot borrow from clients unless the client is an immediate family member; a "significant other" like a live-in boyfriend or girlfriend; a bank; or a business associate.

Which statements are TRUE about the "burden of proof" needed to vacate a stop order entered by the Administrator in a securities registration? I If the issue is being registered by coordination, the burden of proof is on the Administrator to show that registration should not be allowed to proceed II If the issue is being registered by coordination, the burden of proof is on the applicant to show that registration should be allowed to proceed III If the issue is being registered by qualification, the burden of proof is on the Administrator to show that registration should not be allowed to proceed IV If the issue is being registered by qualification, the burden of proof is on the applicant to show that registration should be allowed to proceed A. I and III B. I and IV C. II and III D. II and IV

If the issue is being registered by coordination, the burden of proof is on the Administrator to show that registration should not be allowed to proceed If the issue is being registered by qualification, the burden of proof is on the applicant to show that registration should be allowed to proceed Registration by Coordination in a State permits the applicant to coordinate an SEC registration with the registration requirement in each State. Essentially, the State accepts the SEC registration statement as the State filing document. Registration becomes effective in the State when the SEC registration is effective. In such a registration, the State Administrator can only issue a stop order if "it is in the public interest" and the Administrator can prove that the offering would be illegal in the State, is not complete, or required filing fees have not been paid (thus, the burden of proof is on the Administrator). On the other hand, in a Registration by Qualification or Filing, there is no concurrent SEC registration. The security is only being registered in the State. In such a case, the Administrator can issue a stop order "if it is in the public interest" and the applicant cannot prove that the offering would not be illegal in the State (the burden of proof is on the applicant).

A broker-dealer has a place of business in State A does business exclusively in State A and is registered in the State. The broker-dealer has no office in State B and is contacted by a client in State B who wants to sell some securities that he inherited. State B has a de minimis rule for broker-dealers. The client is not interested in opening an account and only wants the broker-dealer to do this transaction and remit the proceeds to the customer. Which statements are TRUE? I In order to effect this transaction, the broker-dealer must be registered in State B II In order to effect this transaction, the broker-dealer is not required to be registered in State B III In order to effect this transaction, the securities involved must be registered in State B IV In order to effect this transaction, the securities involved are not required be registered in State B A. I and III B. I and IV C. II and III D. II and IV

In order to effect this transaction, the broker-dealer is not required to be registered in State B In order to effect this transaction, the securities involved are not required be registered in State B If a broker-dealer with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt, and the security is not required to be registered in that State. This is an "isolated non-issuer transaction." Note that the broker-dealer still must be registered in the State unless the broker-dealer has no office in the State and the broker-dealer qualifies for a "de minimis" exemption in the State. This State has a "de minimis" rule, which for those States that have adopted it, typically limits the broker-dealer to no more than 3 clients in the State in 1 year. Because this broker-dealer has no office in the State and it is only doing 1 trade for the customer, with no future planned business, the broker-dealer will be exempt.

Under the Uniform Securities Act, an investment adviser with no place of business in a State only does 1 trade in a non-exempt security in the State within a 12 month period. Which statements are TRUE? I The security must be registered in the State II No registration of the security is required because the transaction is exempt III The investment adviser must be registered in the State IV The investment adviser is not required to register in the State because it qualifies for a "de minimis" exemption A. I and III B. I and IV C. II and III D. II and IV

No registration of the security is required because the transaction is exempt The investment adviser is not required to register in the State because it qualifies for a "de minimis" exemption If an investment adviser with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt under the "isolated non-issuer transaction" exemption. This means that the security involved is not required to be registered in the State. Furthermore, because the investment adviser has no office in the State and is only doing 1 transaction in the State in a year, it qualifies for a "de minimis" exemption from State registration (available to investment advisers with 5 or fewer clients in a State in a 12 month period in most States)

Under NASAA rules, which of the following records must be retained for 5 years by a Federal Covered Adviser? A. Communications to 2 or more persons B. Order memoranda C. Canceled checks D. None of the above

None of the above NASAA does not set rules for federal covered advisers - only the Investment Advisers Act of 1940 applies! NASAA rules for IAs only apply to State-registered advisers (those advisers with less than $100 million of assets under management).

An investment adviser representative quits her employment with a State-registered adviser so that she can attend graduate school. After completing her MBA, she intends to re-associate with the same advisory firm in a management capacity. Which statement is TRUE about notifying the State Administrator of the IAR's termination? A. No notice to the Administrator is required because the IAR will re-associate with the same investment advisory firm after completing graduate school B. Only the IAR is required to notify the Administrator of the termination C. Only the Investment Adviser is required to notify the Administrator D. Only the Investment Adviser is required to notify the Administrator, but if the IAR learns that the adviser has not given notice, the representative must do so

Only the Investment Adviser is required to notify the Administrator, but if the IAR learns that the adviser has not given notice, the representative must do so If a representative of an investment adviser terminates employment, the adviser must notify the Administrator promptly. If the representative learns that the adviser has not given notice, then the representative must do so promptly. Also note that this is different than the requirement for a federal covered adviser, where only the investment adviser representative must notify the State Administrator.

Which of the following statements is NOT true of investment advisers under the Uniform Securities Act? A) Only written advice concerning investments is covered by the act. B) Investment advice includes advice regarding the value of securities as well as recommendations to buy or sell. C) Compensation is a key factor in determining whether a person is required to register as investment adviser. D) Investment advisory contracts must be in writing.

Only written advice concerning investments is covered by the act. Investment advice may be written or oral, and both are covered under the Uniform Securities Act. However, investment advisory contracts must be written. Investment advice includes advice as to the value of securities as well as recommendations to buy or sell. Compensation is a key factor in determining whether a person is required to register as investment adviser.

Which of the following is a method of compensation available to investment advisers under contract to registered investment companies that is not normally available to those who advise individual investors? A) Hourly rate B) Percentage of assets under management C) Performance fees D) Commissions

Performance fees Advisers under contract to registered investment companies may be compensated on a performance-fee basis. This form of compensation is only permissible when managing the accounts of certain qualified individual investors.

Registration by Coordination would most likely be used for: a(n) A. issue that is being registered in another State B. issue that is being registered with the SEC C. secondary offering from an established company D. primary offering from a new company

issue that is being registered with the SEC Registration by Coordination would be used by an issuer that is registering securities with the Securities and Exchange Commission. The State accepts the SEC registration documents as the state registration and "coordinates" the state registration with the SEC registration

Which statements are TRUE? I Referral fees can be paid by an investment adviser to an unlicensed individual II Referral fees cannot be paid by an investment adviser to an unlicensed individual III Commissions can be shared by an agent of a broker-dealer with an unlicensed individual IV Commissions cannot be shared by an agent of a broker-dealer with an unlicensed individual A. I and III B. I and IV C. II and III D. II and IV

Referral fees cannot be paid by an investment adviser to an unlicensed individual Commissions cannot be shared by an agent of a broker-dealer with an unlicensed individual Investment advisers do not earn commissions, and the prohibition on sharing commissions with unlicensed persons is not applicable. Investment advisers are permitted to pay referral fees to individuals who solicit business for the adviser, however the State defines the solicitor as an investment adviser representative that must be registered (licensed) with the State. So a referral fee can only be paid to a licensed solicitor; not to an unlicensed solicitor.

NASAA Model Rule 502 (c) applies to: A. State registered advisers only to the extent that the conduct is fraudulent or deceptive B. Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive C. State registered advisers and Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive D. Federal covered advisors and State registered advisers only to the extent that the conduct is fraudulent or deceptive

State registered advisers and Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive NASAA Rule 502 (c) sets the rules for investment advisory contracts. As a NASAA rule, it only covers State-registered advisers. Federal covered advisers are subject the rules of the Investment Advisers Act of 1940, however the rule says that it applies to Federal covered advisers to the extent that the alleged conduct is fraudulent or deceptive. The rule requires that advisory contracts provide in writing: The services to be provided, the term of the contract, the fee formula, the amount of prepaid fee to be returned for early termination and any grant of discretionary power; That no direct or indirect assignment or transfer of the contract is permitted without consent of the client; That the investment adviser shall not be compensated based on capital gains (unless the client is wealthy, with either $1MM of assets under management or $2.1MM of net worth - this is set under the Investment Advisers Act of 1940); and That if the investment adviser is a partnership, the adviser will notify the client within a reasonable time of any change in the membership of the partnership. The rule also prohibits any provision that waives compliance with the rule or with the Investment Advisers Act of 1940; and prohibits an advisory contract that is contrary to Section 205 of the Investment Advisers Act of 1940 (Section 205 prohibits compensation based on gain or loss).

What item could a State Administrator require a broker-dealer operating as a sole proprietor to file with the State that would not be required to be filed with the SEC? A. Balance Sheet B. Surety Bond C. Statement of Net Capital D. Form BD

Surety Bond Unlike Investment Advisers, who register either with the SEC or the State, Broker-Dealers are required to register with BOTH the SEC and in each State in which they have an office or solicit or conduct securities business. The form that is filed to register with the SEC is the Form BD (Broker-Dealer). The same form is filed in each State, along with the payment of a registration fee. The BD's balance sheet and computed Net Capital (liquid net worth) are filed with both the SEC and the State. The item that only the State can require (not the SEC) is the posting of a surety bond. A surety bond posted in the State is a dollar amount ($10,000 is the recommended amount stated in the Uniform Securities Act, but each State sets its own requirement) that the State can seize if it finds that the BD has violated State law.

Which statement is TRUE regarding the State Administrator's authority to establish net capital standards for broker-dealers? A. The Administrator can only establish Net Capital standards that are the same as those set by the SEC B. The Administrator cannot establish Net Capital standards for broker-dealers C. The Administrator has the power to set Net Capital standards if it is in the public interest D. The Administrator can neither establish nor enforce Net Capital requirements for broker-dealers

The Administrator can only establish Net Capital standards that are the same as those set by the SEC NSMIA made clear that Federal law has supremacy over State law regarding net capital rules, custody rules, margin rules, financial responsibility rules and recordkeeping rules. Since the SEC sets net capital requirement for broker-dealers, the State Administrator cannot set a minimum net capital amount that is higher than the SEC requirement.

An investment adviser representative gives a new client who has agreed to buy advisory services the "brochure," but did not obtain the client's signature attesting to this fact at that time. In the brochure is a paragraph stating that the client has the "2 day right of rescission." Which statement is TRUE about this under NASAA rules? A. The IA and IAR have failed to comply with NASAA rules because the customer signature must be obtained at, or prior to, entering into an oral or written advisory contract B. The IA and IAR have complied with NASAA rules because the client has been given the "2 day right of rescission" C. The IA and IAR have failed to comply with NASAA rules because the customer must be given 5 business days after signing the contract to rescind without penalty D. The IA and IAR have complied with NASAA rules because the customer was provided with the brochure, at or prior to, entering into the advisory contract

The IA and IAR have failed to comply with NASAA rules because the customer must be given 5 business days after signing the contract to rescind without penalty Under NASAA Rules, the Form ADV Part 2A ("Brochure") and Part 2B ("Brochure Supplement") must be delivered to customers: no less than 48 hours prior to entering into either an oral or written advisory contract with a customer (a "2 day free look") - meaning the customer gets the Brochure and Supplement 48 hours prior to signing the contract; or alternatively the customer can sign the contract and be given the Brochure and Supplement, and then has 5 business days to terminate without penalty. In this case, because the customer did not receive the brochure 48 hours to signing the advisory contract, the customer must be given 5 business days to rescind. (Note: This is the NASAA rule - the SEC rule under the Investment Advisers Act of 1940 is NOT the same - it simply requires delivery of the Brochure and Supplement, at or prior to, entering into any advisory contract.)

An Investment Adviser uses a third-party money manager to manage the accounts of his more sophisticated clients. These customers are older and are conservative in their objective, seeking current income and moderate growth. The third-party money manager has not achieved acceptable investment returns this year and changes its investment strategy the following year to aggressively trade speculative stocks, in an effort to improve performance. During the first quarter, using the new strategy, the customers' portfolios drop 15% in value and many of them write complaint letters to the Adviser. Which statement is TRUE? A. The Investment Adviser has failed to monitor the actions of the third party money manager and is liable for not determining the suitability of recommendations to customers B. The Investment Adviser is not responsible for the actions of the third party money manager and the customer complaint letters should be forwarded to that firm for response and resolution C. The Investment Adviser is liable to its customers for the 15% drop in the value of their accounts because it chose the money manager that was responsible for the loss D. The Investment Adviser has no liability for the 15% drop in value of the customers' accounts because the adviser cannot guarantee that profits will be achieved or that losses will be avoided

The Investment Adviser has failed to monitor the actions of the third party money manager and is liable for not determining the suitability of recommendations to customers There is no prohibition on the use of a "third party money manager" by an investment adviser, as long as this has been disclosed to the customer and approved by the customer, as evidenced by the customer signing the advisory contract that includes the disclosure. However, the investment adviser has breached his fiduciary duty to his customers when he was unaware that the third party manager had changed its strategy from conservative investing to "aggressively trading speculative stocks" - and the adviser's customer base is older and conservative! He has failed to monitor the actions of the third party money manager, and because of this, his customers were placed in unsuitable investments. He has civil liability under the Uniform Securities Act because of these failures.

An investment adviser, age 33 and married, needs cash for the down payment to buy her first house. She asks her father if he can "help out" with the down payment. Her father is one of her advisory clients. Which statement is TRUE about this situation? A. The investment adviser can accept the money from her father if he gives it as a gift B. The investment adviser can accept the money from her father if he gives it as a loan C. The investment adviser cannot accept the money from the father, whether given as a loan or a gift D. The investment adviser can only accept the money from her father if there is a written agreement that details the terms and conditions

The investment adviser can accept the money from her father if he gives it as a gift Investment advisers cannot lend money to customers or borrow money from customers. The only exception is if the customer is a bank, broker-dealer, or affiliated company of the adviser. Note that an investment adviser can accept a gift!

An investment adviser representative manages a large portfolio for a wealthy customer, age 65. The portfolio contains a large holding of British securities and the adviser is worried that the British Pound may appreciate against the U.S. dollar. Which statement is TRUE regarding the use of currency futures to hedge against this risk? A. The Prudent Man Rule prohibits the use of futures contracts as investments B. Because futures contracts are inherently risky, their use would be in contravention of the Prudent Man Rule C. The Prudent Man Rule only applies to securities and not to futures, so the adviser cannot use them D. The Prudent Man Rule does not specify the types of investments that can be used, so futures could be suitable as a hedging instrument

The Prudent Man Rule does not specify the types of investments that can be used, so futures could be suitable as a hedging instrument The Prudent Man Rule does not detail the types of investments to be made, nor does it specify that only securities are permitted investments. When investing under the rule, investments must be managed in the way that a prudent investor would. The use of futures as a hedge against loss of value due to currency fluctuations seems like a prudent strategy here.

An agent of a broker-dealer is told by a wealthy, well-connected client that "I just talked to the president of ABCD Corp. (an NYSE listed company) and was told that this quarter's results are going to be lousy." Which statement is TRUE? A. The agent can discuss this phone conversation with his branch manager B. The agent can discuss the phone conversation with his spouse C. The agent can discuss the phone conversation with anyone who is registered as an agent in that State D. The agent cannot discuss this phone conversation with anyone

The agent can discuss this phone conversation with his branch manager The agent has just received "inside information." The problem is that if the agent tells others about the information, and those people trade on it, then not only are those who traded deemed to be "insiders," but the agent can be deemed to be an insider as well (under the "tipper-tippee" doctrine, that holds the tipper that gave the information that resulted in the trade as liable). While Choice D is a plausible answer, Choice A is better. The agent should discuss the conversation with his or her branch manager - since the regulators have rules requiring inside information to be reported to the exchange where that security trades. The branch manager would discuss the situation with the firm's compliance department; which in turn would notify the regulator.

An agent of a broker-dealer is registered in a State and also is registered as an Investment Adviser operating as a sole proprietorship in the same State. The agent leaves the broker-dealer. Which statement is TRUE? A. The agent must associate with another broker-dealer within 30 days B. The agent leaving the broker-dealer will cause the State to withdraw the individual's license to be an agent of a broker-dealer but has no effect on the individual's license as an investment adviser C. The agent leaving the broker-dealer will have no effect on that individual's registration with either the broker-dealer or as an investment adviser D. The agent leaving the broker-dealer will cause the State to withdraw both the individual's license to be an agent of a broker-dealer and the individual's license as an investment adviser

The agent leaving the broker-dealer will cause the State to withdraw the individual's license to be an agent of a broker-dealer but has no effect on the individual's license as an investment adviser Investment adviser registration in a State is separate and apart from broker-dealer registration. If an agent of a broker-dealer leaves the employ of the firm, the agent's registration will be withdrawn within 30 days of notice by the State Administrator. However, this has no effect on that individual's registration as an investment adviser in the State.

Who is responsible for filing a U-5 Form with IARD when an investment adviser representative is terminated and associates with another advisory firm? A. The investment adviser that is the former employer is responsible B. The investment adviser that is the new employer is responsible C. The Investment adviser representative is responsible D. No one is responsible for notifying IARD when the investment adviser representative is terminated

The investment adviser that is the former employer is responsible The U-5 is a securities industry termination form that is filed by the former employer, terminating that individual's registration. If that individual associates with another advisory firm, the new employer reactivates that person's registration by filing a U-4 with IARD. The employee does not notify in this case because he or she does not have direct access to the CRD or IARD database. The Form U-5 is filed by the former employer on the terminated employee's behalf.

A customer has a free credit balance at a broker-dealer. The customer makes a verbal request over the phone that the broker-dealer pay the amount of the balance immediately, in check form. Which statement is TRUE? A. The request should be honored as given B. The broker-dealer cannot honor the request unless it is in writing C. The broker-dealer cannot honor the request unless the customer makes it in person D. The request cannot be honored since free credit balances are not payable to the customer

The request should be honored as given A free credit balance is an uninvested cash balance. The customer can request that the firm pay this amount at any time - there is no need for a written request. The firm must make the payment promptly to the customer, if a request is made.

An Investment Adviser is screening companies for their investment potential and finds what he believes to be an undiscovered growth stock. The adviser puts in an order to buy 10,000 shares, which is executed in 2-5,000 share purchases at different prices. What is the most appropriate way for the adviser to distribute these shares to his client's accounts? A. The clients that pay the highest advisory fees should get the better-priced shares B. The clients that have the largest accounts should get the better-priced shares C. The shares should be distributed pro-rata across all client accounts D. The shares should be distributed on a random basis across all client accounts

The shares should be distributed pro-rata across all client accounts The typical procedure for handling trades executed in a single block is to allocate the securities equally among clients at a uniform price on a pro rata basis. This is the typical disclosure made to clients. Depending on market conditions, the adviser may not be able to purchase the security for all clients at the same price. Instead, it may have to purchase the security over several days at different prices. In such a case, each client should receive a pro rata allocation at the weighted average price.

To register a successor firm with the State Administrator for the unexpired portion of the current license year, which statement is NOT true? A. The predecessor firm must have ceased business operations and can only conduct winding down transactions B. The successor firm must continue business operations through the end of that license year C. The successor firm must file a Form BD or ADV amendment with the Administrator D. The filing becomes effective on the date designated by the licensee

The successor firm must continue business operations through the end of that license year Uniform State law does not require the filing of a new registration application for a successor firm. The successor firm files a registration amendment with the State, that takes its registration through the end of that year, without having to pay a new filing fee. The effective date of the successor firm's registration is the date indicated on the amendment. The "old" firm must have ceased business operations for the "new" firm to be registered in the State. Whether or not the successor firm continues in operation through the rest of that year is irrelevant.

ADAP Advisers is offered a large block of ACME stock (a NYSE-listed issue) by an institutional investor at a 20% discount to the current market price, if ADAP Advisers is willing to buy the block that day. Which statement is TRUE if ADAP purchases the block for its own account rather than for its customers? A. This action is prohibited without exception, since ADAP Advisers is benefiting at the expense of its customers B. This action is permitted if ADAP Advisers rebates any profit that it earns to its customers when it sells the block C. This action is permitted if the purchased stock is not a suitable investment for ADAP's customers D. This action is permitted if the block is purchased in the Third Market during the hours that the NYSE is closed

This action is permitted if the purchased stock is not a suitable investment for ADAP's customers Investment advisers have a fiduciary responsibility to their customers and must always put their customers' interests first. Since this block of stock is being offered to the adviser at a substantial discount, the adviser must buy the stock for its customers - but only if the stock is a suitable investment for these customers. On the other hand, if the stock is not a suitable investment for ADAP's customers, then ADAP is free to buy the block of stock for its own account. (Note that Choice A is incorrect because this is the exception to the general rule.)

Under the Uniform Securities Act, which of the following securities is non-exempt? A. Equipment trust certificates issued by a railroad subject to ICC regulation B. Common stock issued by savings and loans C. Warrants issued by industrial corporations D. Unlisted debentures of a company whose common stock is listed on the American Stock Exchange (NYSE American)

Warrants issued by industrial corporations Warrants issued by industrial corporations are non-exempt. Under State law, senior securities (bonds and preferred stock) and "equal" securities (warrants or rights) of companies already listed on a recognized stock exchange are exempt. This is termed a blue chip exemption. Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State. Securities of issuers subject to ICC regulation (common carriers) are exempt. Issues of banks and savings and loans are exempt (these are regulated by the State banking laws).

Under Uniform State Law, all of the following statements about an Administrative order denying or revoking registration of securities are true EXCEPT: A. the burden of proof of showing that a security is exempt is on the person claiming the exemption if the issue is registered by qualification B. an order revoking registration usually cannot be made retroactive by the Administrator C. a summary order issued by the Administrator is final and cannot be appealed D. a person cannot be found in violation of a summary order if he did not know, and in the exercise of reasonable care, could not have known, about the order

a summary order issued by the Administrator is final and cannot be appealed An order issued by the Administrator revoking a securities registration, can be appealed to that State's court. These orders cannot be made retroactive (with one minor technical exception involving registration by coordination). If the person who is the subject of the order never receives the order from the Administrator, then that person cannot be found in violation of the order. So if the order is mailed by the Administrator by certified mail, and the post office loses it and it is never delivered, then that person cannot be found in violation. Finally, to get the order reversed, the burden of proof is on the person claiming the exemption, not on the Administrator. (A minor note: If the Administrator wishes to deny or revoke an exemption from State registration to an issue registered by coordination, then the burden of proof shifts to the Administrator - supremacy of Federal law again, since the State accepts the SEC registration as the State filing document.)

Under the provisions of the USA, all of the following transactions are exempt EXCEPT A) 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 B) liquidation of a security pledged as collateral for a loan C) transactions by executors D) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10

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 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.

An investment adviser has developed 11 different investment strategies that use a combination of fundamental and technical factors to make investment decisions among both equity and fixed income investments. Based on the customer account profile, the adviser then uses one of 7 different algorithms that allocates the client's funds using these 11 investment strategies. The adviser has implemented a fee structure that charges a 1.10% annual management fee on assets invested, plus the adviser charges a fee of .50% of assets annually for use of the algorithms. The adviser provides each client with a flyer covering the adviser's 11 different investment strategies with disclosure of the 1.10% annual management fee. Under the NASAA Rule on Unethical Business Practices of Investment Advisers, this is: A. a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services B. a violation of the prohibition on charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser C. not a violation of the prohibition on charging unreasonable advisory fees, because the management fee was disclosed to the client D. not a violation of the NASAA Rule on Unethical Business Practices of Investment Advisers because the advisory fees are based on assets under management

a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services The adviser is really charging 2 layers of management fees for providing a single service of managing the customer's investment portfolio. This is unethical. Note that if the adviser is truly providing 2 separate services (e.g., receiving the management fee and also receiving brokerage commissions on trade executions), there can be 2 separate charges, as long as this is disclosed in writing to the client.

To exercise discretion in a customer account, the agent must first obtain: A. a verbal power of attorney from the customer B. a written power of attorney from the customer C. either a verbal or written power of attorney from the customer D. permission of the employing broker-dealer

a written power of attorney from the customer If an agent chooses more than price and time of execution for a customer, the trade is considered to be "discretionary." Prior to opening a discretionary account, a written power of attorney must be obtained from the customer.

All of the following are EXCLUDED from the definition of an investment adviser under the Uniform Securities Act EXCEPT a(n): A. federal covered adviser B. broker-dealer C. adviser with no place of business in the State whose only clients are broker-dealers D. investment adviser representative

adviser with no place of business in the State whose only clients are broker-dealers Excluded from the definition of an investment adviser are investment adviser representatives; depository institutions; broker-dealers; professionals who only give incidental advice; publishers of general circulation periodicals that do not give investment advice about specific client situations; and federal covered advisers. In contrast, an adviser with no place of business in the State whose only clients are broker-dealers is included in the definition of an investment adviser, but is exempt from registration in the State. This is an extremely picky question!

Limited partnership shares are sold to a bank. Under the provisions of the Uniform Securities Act of 1956, as amended, this transaction is subject to: I advertising filing requirements with the Administrator II anti-fraud provisions as promulgated in the Act III payment of filing fees with the State A. I and III only B. II only C. II and III only D. I, II, III

anti-fraud provisions as promulgated in the Act The sale of securities to a financial institution is an "exempt transaction" under the Uniform Securities Act - because the general public is not involved. As an exempt transaction, the securities involved are not required to be registered in the State (however the person selling them must still be registered in the State). Both exempt securities and exempt transactions are specifically excluded from the Act's advertising filing requirements. Finally, filing fees are only required for securities registrations in the State (primary market); not for secondary market transactions that occur in the State.

All of the following are unethical practices on the part of an investment adviser EXCEPT: A. assigning an investment contract without obtaining client consent B. acting as the executing broker in a transaction recommended to a customer without making disclosure of such C. altering an estate tax plan prepared by a customer's attorney to better fit the customer's investment situation D. appointing the adviser as trustee for a customer's trust account at the direction of the customer

appointing the adviser as trustee for a customer's trust account at the direction of the customer Choices A and B are clearly prohibited under the Uniform Securities Act - investment advisers cannot assign advisory contracts without customer consent; and investment advisers cannot have broker-dealer affiliates execute recommended transactions for a commission unless the customer is made aware of the arrangement. Choice C is also unethical - the adviser cannot alter an estate tax plan - only the customer can do so, using an attorney to ensure that the plan is valid. Choice D is not unethical - if the customer wishes to appoint the adviser as trustee over a trust account, so be it. The adviser has a fiduciary responsibility to the customer, as does a trustee - so this is not improper.

A non-registered agent of a broker-dealer can sell: A. warrants B. certificates of deposit C. real estate partnership units D. fixed annuities

certificates of deposit A non-registered agent of a broker-dealer cannot sell securities, making both Choices A and C wrong. So we are down to whether a non-registered agent of a broker-dealer can sell a certificate of deposit or a fixed annuity. A certificate of deposit is a bank product, and because it has all of the protections of a bank product, there is no State registration required to sell it. Regarding a fixed annuity, this is an insurance product, so there is no registration required as an agent of a broker-dealer to sell it; however, a State insurance license is required. Since you only get to pick one, Choice B is better and unfortunately, this is very close to an exam-type question!

A stock in a customer account has been dropping rapidly in value. The investment adviser has attempted to contact the customer to advise her to sell the security, but the adviser is unable to reach that customer. The investment adviser is prohibited from placing the sell order unless the: A. adviser contacts the customer's spouse and gets permission to sell the stock B. adviser believes that selling the stock is in the customer's best interests C. customer approves the executed sell order 24 hours later D. customer had placed an existing sell order 1 year ago

customer had placed an existing sell order 1 year ago There is no mention of the customer having given the adviser discretion to trade the account, so Choices B and C are incorrect. There is no mention of the customer giving the spouse a trading authorization over the account, so Choice A is incorrect. However, if the customer had previously placed a sell order (this would be a stop loss order) in the account, then the sell order would be filled once the stock falls to the stop price. Note that this would be a "GTC" - "Good-Til-Canceled" order. The order sits waiting to be executed. Note that the length of time is open-ended and that the order might have been placed 1 month ago, 6 months ago, 1 year ago, etc.

All of the following are synonymous EXCEPT: A. salesman - agent B. broker - agent C. dealer - agent D. salesman - broker

dealer - agent A dealer is a principal in a transaction. An agent is always a middleman, or broker, in a transaction. Agent, salesman, and broker can all be synonymous terms.

The National Securities Markets Improvement Act of 1996 (NSMIA) A) created a national market system B) created the concept of fraud, as used in the Uniform Securities Act C) defined the term "federal covered adviser" D) overcame the restrictions of selling securities in interstate commerce

defined the term "federal covered adviser" The NSMIA defined the term "federal covered adviser" (sometimes just shown as covered adviser on the exam), referring to advisers who must register with the SEC or who are excluded from the definition of investment adviser under the Investment Advisers Act of 1940. Fraud is a legal concept which is prohibited by the Uniform Securities Act. Selling securities in interstate commerce is not fraudulent provided the antifraud provisions securities laws are observed. The roots of a national market system began with the Securities Amendments Act of 1975.

A federal covered registered investment adviser completes a notice filing with the State on October 1st. This will: A. expire on October 1st of the following year B. not expire because it is not a registration filing C. expire on December 31st of the current year D. expire on January 1st of the following year

expire on December 31st of the current year. All registration and notice filings made in a State, whether by a broker-dealer, agent, investment adviser or investment adviser representative, expire on December 31st unless renewed (which requires the payment of an annual renewal fee, which is what the States are really looking for!).

If the issuer of a federal covered security has filed notice in a State for an initial public offering, then: A. no filing notice is required for any subsequent secondary offerings of that issuer in that State B. filing notice is required for each subsequent secondary offering of that issuer in that State C. registration of each subsequent offering of that issuer is required in that State D. registration of each subsequent offering of that issuer is required only by rule or order of the Administrator

filing notice is required for each subsequent secondary offering of that issuer in that State Notice filings in the State for federal covered securities are required for both initial offerings in the State and each secondary offering in the State (and a filing fee must be paid to the State with each "notice"!).

A Registered Investment Adviser and a Broker-Dealer are owned by the same parent company. The RIA has received information from the BD's research department that it is about to change its rating of DEF Corporation from Neutral to Negative. The RIA sells its holding of DEF Corporation and then has its IARs call its list of clients to advise them that they may want to consider selling the security. The RIA has engaged in: A. selling away B. backing away C. front running D. shadowing

front running Because the RIA sold its position first, and then called its clients telling them to sell, the RIA has "front run" its clients. The RIA was probably able to sell its own holding at a higher price than the price at which the clients will be able to sell later. This is a prohibited unethical practice. Also note that this is also "trading ahead of research" but this is not given as a choice.

If a customer of a broker-dealer fails to pay for a securities purchase by the 4th business day from trade date, the customer's account must be: A. restricted B. frozen C. liquidated D. terminated

frozen The Federal Reserve sets the rules for payment of customer securities purchases in both cash and margin accounts. Payment is required "promptly," but no later than the 4th business day past trade date. If payment is not received, the unpaid position must be sold and the account must be frozen for 90 days. Many firms call this "putting a CUF" on the account - with CUF standing for Cash Up Front. A customer can make purchases in a frozen account, but must deposit the cash amount in advance. If the customer behaves for 90 days, the freeze comes off the account, and the customer is again expected to pay for purchases "promptly," but no later than 4 business days from trade date.

"Painting the tape" is the: A. illegal practice of effecting wash trades in thinly traded issues in a common trading pool B. illegal practice of matching buyers and sellers who want immediate trade executions C. legal practice of effecting both long sales and short sales subject to the "uptick" rule D. legal practice of taking both a stock and option position on the same "side of the market"

illegal practice of effecting wash trades in thinly traded issues in a common trading pool . In the "old" days, stock trade reporting was done mechanically through the "ticker tape." The "ticker" was a machine similar to a telegraph that received reported trades and printed them on a paper tape. A manipulative practice was "painting the tape" - that is, effecting a series of buy and sell trades in a stock at successively higher prices, but where there is no change of ownership (so-called "wash" trades) just to show trading activity coming across the tape. This was done by a group of individuals who owned the stock and who would trade with each other at successively higher prices, to create the appearance of activity and upward price movement in the stock. The individuals in the trading pool would rebate the gain or loss among themselves during the time period that they were doing the wash trades. The increased trading activity would attract other traders to buy the stock (since they would think that "something was going on with the stock"), and the price would rise - at which point, the manipulators would unload their stock position.

An investment adviser would be permitted to charge a 2% fee to clients based on all of the following EXCEPT: A. average assets under management over the calendar year B. increase in assets under management over the calendar year C. highest value of assets over the calendar year D. assets under management at the end of the year

increase in assets under management over the calendar year Investment advisers cannot be compensated based on gain or loss in an account under Uniform State Law. Compensation based on an increase in assets under management would be considered to be based on "gain" and would be prohibited. Taking a percentage of assets under management is the norm for investment advisers. It makes no difference if the basis for the calculation is average net assets over the year; end-of-year net assets; or highest value of net assets over the year.

All of the following are exempt transactions under the USA EXCEPT A) a rescission offer, sale, or purchase B) a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator C) a securities transaction by an executor D) initial sale of shares to in-state residents of a local manufacturing company

initial sale of shares to in-state residents of a local manufacturing company An initial sale of shares to in-state residents is an intrastate initial public offering and must be registered with the state securities Administrator. A securities transaction by an executor, a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator, or a rescission offer, sale, and purchase are exempt transactions.

If a representative that transacts business in a State terminates employment with a federal covered adviser, notice must be given to the Administrator by the: I: federal covered adviser II: officer or director of the federal covered adviser III: investment adviser representative

investment adviser representative If a representative of a federal covered adviser that transacts business in a State terminates employment, it is the responsibility of the representative to notify the State promptly. Remember that in this case, the advisory firm is not registered with the State; only the representative is registered with the State. Thus, it cannot be the responsibility of the advisory firm to notify the State since it is not registered there. Only the registered representative must notify the State since only the representative is registered in the State.

Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that is based on the: A. investment adviser's business model including the size of the firm, types of services provided, and number of business locations B. itemized list provided by NASAA in the Model Rule C. requirements of the PATRIOT (Providing Appropriate Tools to Restrict, Interdict and Obstruct Terrorism) Act D. demographics of the Investment Adviser Representatives employed by the Investment Adviser

investment adviser's business model including the size of the firm, types of services NASAA has a Model Rule covering "Business Continuity and Succession Planning for Investment Advisers" (Broker-Dealers are already covered under a similar FINRA rule). It states that every investment adviser must establish, implement and maintain a Business Continuity Plan based on the facts and circumstances of the RIA's business model including the size of the firm, types of services provided, and number of locations of the investment adviser. The plan must provide, at a minimum, for: The protection, backup, and recovery of books and records; Alternate means of communicating with customers, key personnel, employees, vendors, service providers and regulators, including providing notice to these persons of significant business interruption, cessation of business activities or death or unavailability of key personnel; Office relocation in the event of temporary or permanent loss of a principal place of business; Assignment of duties to qualified persons in the event of death or unavailability of key personnel; and Minimizing service disruptions and client harm that could result from a significant business disruption. Notice that the NASAA list is only a recommended minimum - it is up to the RIA to decide how much more extensive the list of covered items should be.

The amount of commission charged to a customer to effect a securities transaction: I is not required to be disclosed prior to executing the transaction II must be disclosed prior to executing the transaction III is not required to be disclosed on the trade confirmation IV must be disclosed on the trade confirmation A. I and III B. I and IV C. II and III D. II and IV

is not required to be disclosed prior to executing the transaction must be disclosed on the trade confirmation There is no requirement to disclose the amount of commission charged on a trade prior to executing the trade for the customer. The amount of commission must be disclosed on the trade confirmation and it must be "fair and reasonable." The only requirement for disclosure of commission costs is that if a transaction will result in unusually high commission costs, this must be disclosed to the customer prior to executing that trade.

Under the Uniform Securities Act, an investment adviser with $5,000,000 of assets under management that is registered in the State is required to: A. keep the records specified by the Administrator B. file advertising with the Administrator relating to exempt securities C. register with the SEC D. recommend registered securities only

keep the records specified by the Administrator The State Administrator can, as a condition of maintaining registration, require that specified records be kept. The Administrator can require the filing of advertising, but cannot do so if the security or transaction is exempt; or if the securities involved is a Federal covered security. Under the National Securities Markets Improvement Act of 1996, only advisers with $100,000,000 or more of assets under management must register with the SEC. Advisers with less than $100,000,000 under management register in the State only. Investment advisers can recommend registered securities; and can recommend unregistered securities as long as that security is exempt; or the transaction is exempt.

All of the following information is required for an investment adviser representative to register in a State EXCEPT: A. work history B. residential history C. legal actions taken against the employee D. misdemeanor convictions involving securities occurring within the past 10 years

legal actions taken against the employee The registration application for an agent includes the agent's work history (past 10 years) and residence history (last 5 years). A listing of any convictions during the past 10 years for securities or money related misdemeanors, or any felony, is also required, since these will cause the State to deny registration. Legal actions taken against the employee are not part of the registration application - only convictions within the past 10 years are included.

Under Uniform State Law, advisory contracts: A. must be oral B. must be in writing C. may be either oral or in writing D. may be oral if documented in writing within 10 days of entering into the oral contract

must be in writing Under Uniform State Law, investment advisory contracts must be in writing.

In order to make an offer of a non-exempt security, an agent of a broker-dealer: A. must be registered in the State in which he or she resides and the broker-dealer is located B. must be registered in the State where he or she is offering the security C. must be registered in the State in which he or she resides and the broker-dealer is located and must be registered in the State where he or she is offering the security D. need not be registered

must be registered in the State in which he or she resides and the broker-dealer is located and must be registered in the State where he or she is offering the security. Agents of broker-dealers must register in the State where they are physically located; and also must register in each State in which they make offers of securities. Also note that the fact that the security involved is non-exempt (such as common stock) has no bearing. To offer any security in a State, whether exempt or non-exempt, the agent must be registered in the State.

A customer has placed an indication of interest to buy a non-exempt new issue security that is currently in the "quiet period." The customer has been delivered a preliminary prospectus. Once registration is effective, to be confirmed as purchasing the issue, the customer: A. must receive a copy of the final price amendment B. must receive a copy of the registration statement C. must receive a copy of the final prospectus D. is not required to receive any further disclosure documentation

must receive a copy of the final prospectus During the "quiet period" when a new issue is in registration, the security cannot be sold or promoted. The customer can receive a copy of the preliminary prospectus, called the "red herring" since it has a disclaimer, in red, that the document is not promoting a sale of the issue. The red herring usually does not have the offering price, since this is determined just prior to the effective date of registration. Once registration is effective, and the issue has been priced, final prospectuses with the offering price are prepared. Any purchaser must be delivered the final prospectus, at, or prior to, confirmation of sale.

All of the following are true statements about managed wrap accounts EXCEPT: A. a single annual fee is charged for account maintenance B. no separate commission charges are imposed for each transaction performed in the account C. no separate charges are imposed for safekeeping of securities in the account D. no options transactions are permitted in such account types

no options transactions are permitted in such account types Wrap accounts are a type of customer account, where all services performed by the broker are "wrapped" into a single account; and a single annual fee based as a percentage of assets under management is charged. There is no commission charge for each transaction performed in such an account nor are charges imposed for safekeeping of securities. All services are covered in the single "wrap" fee. There is no prohibition on performing options transactions in such accounts.

Under the Uniform Securities Act, a structured security issued by an investment bank is a(n): A. exempt security B. non-exempt security C. federal covered security D. investment company security

non-exempt security A "structured security" is a structured product. These are a bond-like investment, typically created by investment banks, that give an investment return tied to the performance of an equity index, subject to a cap and a floor on the return. However, they are not backed by physical equity securities - they are simply backed by the promise to pay of the issuing bank. Thus, if the investment bank fails (think Lehman Brothers) - so do the structured products issued by that bank. Thus, their main risk is credit risk. They are non-exempt securities under both federal and state law.

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) not an unethical sales practice B) only problematic if investors lose money in the investment C) only problematic if Bryan sells his shares after informing the other investors D) an illegitimate sales tactic

not an unethical sales practice 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.

A new client wishes to open an account with an agent of a broker-dealer, but refuses to divulge any information regarding investment objectives, income, net worth or other investment holdings. Under the provisions of the Uniform Securities Act, the agent should: A. refuse to open the account B. only recommend securities on the Legal List C. only accept unsolicited orders from the customer D. make recommendations to the customer that are in compliance with the Prudent Man Rule

only accept unsolicited orders from the customer An account can be opened for a customer that does not wish to give suitability information, but only unsolicited trades can be accepted from that customer. No recommendations can be made to the customer, because the agent has no basis for making a recommendation.

An agent is prohibited from doing all of the following EXCEPT: A. performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged B. soliciting orders for non-exempt unregistered securities C. effecting transactions in a State where he is not registered, but the broker-dealer is registered D. effecting transactions in a State where the broker-dealer is not registered, but he is registered

performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged An agent can perform advisory services for clients as long as they are incidental to his work and no compensation is taken for the advisory work. Agents cannot solicit orders for unregistered non-exempt securities (but they can solicit orders for unregistered exempt securities such as U.S. Governments or Municipals). Agents cannot effect trades in a State where they are not registered; or where their broker-dealer is not registered.

Under NASAA rules, if a customer wishes to trade a margin account prior to returning the signed margin agreement, such an action is: A. prohibited B. permitted only if the customer returns the signed margin agreement promptly C. permitted only if the customer returns the signed margin agreement within 1 day of the first transaction in the account D. permitted only if the customer returns the signed margin agreement within 3 days of the first transaction in the account

permitted only if the customer returns the signed margin agreement promptly NASAA wording states that the signed margin agreement must be obtained promptly after the first transaction in account. In contrast, FINRA requires that the margin agreement be signed and returned prior to settlement of the first transaction in the account. Since this is a NASAA question, the answer is their rule!

Registration by Qualification would most likely be used for a(n): A. issue that is being registered in another State B. issue that is being registered with the SEC C. secondary offering from an established company D. primary offering from a new company

primary offering from a new company Registration by Qualification would be used by a first time issuer in a state that has never previously registered securities with the state. Since the state knows nothing about the registrant, the registrant must "qualify" in the state. Registration by coordination allows the coordination of an SEC registration with the state registration (Choice B). Registration by filing would be used by an issuer that has already registered issues in that state - since the state "knows" the issuer, it can simply register a subsequent securities offering in that state by "filing" (Choice C).

A new agent is having a hard time making sales. In order to be more productive, he offers to share in any losses with clients. And, on the other hand, he will share in their profits as well. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this is A) permitted if the client has given verbal authorization to the agent B) permitted if the broker-dealer authorizes this activity C) prohibited as investment adviser representatives are not allowed to share in client accounts D) prohibited unless the client gives written authorization and approval is granted by the broker-dealer

prohibited unless the client gives written authorization and approval is granted by the broker-dealer Explanation: There are two requirements that must be met in order for an agent to share in the profits and losses in a client's account. The client must give written permission and the sharing must be approved by the employing broker-dealer. Unless both of these are present, the practice is prohibited. Yes, IARs cannot share, but the question specifically refers to an agent.

The Administrator alleges that an agent of an out-of-state broker-dealer solicited the sale of an unregistered security within that State. The broker-dealer must: A. provide evidence that the security was exempt from registration B. prove that the transaction was unsolicited C. terminate the agent D. all of the above

provide evidence that the security was exempt from registration The Administrator is alleging that the broker-dealer solicited the sale of an unregistered security in that State. To solicit a transaction in the State, unless an exemption is available, the broker-dealer, agent, and security, must be registered in that State.

A Registered Investment Adviser enters into an agreement with a Certified Public Accountant, where the CPA will refer clients that need the services of an investment adviser. For each client referral, the CPA will be paid a fee. The CPA is: A. required to register in the State as an agent B. required to register in the State as an investment adviser representative C. not required to register in the State because he already has an independently conferred professional designation D. not required to register in the State because he is regulated by the AICPA

required to register in the State as an investment adviser representative Any person retained by an investment adviser to "find" new clients, if he or she is paid for doing so, is defined as an IAR who must be registered in the State. Choice C gets at the exemption provided under the Investment Advisers Act of 1940, where professionals such as lawyers or CPAs that do not separately charge for advice are excluded from the definition of an adviser. However, this does not apply here because the CPA is getting separate compensation for each referral made to the investment adviser.

All of the following may be required of broker-dealers by the postregistration provisions of the act EXCEPT A) The Administrator may require them to file financial reports B) The Administrator may require the maintaining of correspondence for a specified period of time C) The Administrator may require the filing of any form letters sent to prospective investors D) requiring a broker-dealer to maintain records for a period longer than specified in the Securities Exchange Act of 1934

requiring a broker-dealer to maintain records for a period longer than specified in the Securities Exchange Act of 1934 One of the specific provisions of the National Securities Markets Improvement Act of 1996 was that no state had the authority to impose financial or recordkeeping requirements on a broker-dealer that were in excess of those stated in the federal Securities Exchange Act of 1934.

It would be a prohibited business practice for an agent to A) make the determination as to how much to pay for a specific security for a client's account after having received oral authorization to make the trade B) make the determination as to which security to purchase for a client's account after having received written discretionary authorization C) share profits and losses in a customer's account without the consent of both the client and the employing broker-dealer D) forward written customer complaints to his supervisor

share profits and losses in a customer's account without the consent of both the client and the employing broker-dealer Agents are the only securities professionals who are permitted to share in the profits and losses in a customer account. In order to do so, approval must be granted by the employing broker-dealer and the sharing must be authorized by the client. Remember, an agent determining time or price is not using discretion.

The sale of securities to an insurance company is exempt under the Act under the: A. blue chip exemption B. exempt security C. sophisticated investor exemption D. non-issuer exemption

sophisticated investor exemption The sale of securities to financial institutions is an "exempt transaction" under the Act, since the general public is not involved, and these investors are considered to be "sophisticated" - meaning they can "watch out" for themselves. Also remember that an "exempt transaction" means that the security involved is not required to be registered in the State. It does NOT exempt the broker-dealer and agent involved from having to register in the State. The broker-dealer and agent must be registered in the State unless they can get an exclusion or exemption. In this case, as long as the broker-dealer and agent have no place of business in the State, they would be excluded from registration as long as they are dealing only with institutional clients.

All of the following are exempt securities under the Uniform Securities Act EXCEPT: A. stock issued by a railroad subject to Interstate Commerce Commission regulation B. bonds issued by a Federal Credit Union C. bonds issued by the Canadian Government D. stock issued by a corporation in an amount not exceeding $1,000,000

stock issued by a corporation in an amount not exceeding $1,000,000 The Uniform Securities Act includes, as exempt securities, issues of companies subject to regulation by the Interstate Commerce Commission; issues of banks and other depository institutions; and foreign government obligations. Corporate issues are non-exempt (except for commercial paper and "blue chip" issues) and must be registered in that State.

A Registered Investment Adviser (RIA) tells his customers that they can analyze his performance by reviewing charts that he has presented. The RIA must: A. tell the customers that charts can be difficult to interpret and there may be hazards in viewing only charts B. explain that performance charts cannot be used to compare the past performance of one adviser against the performance of other advisers C. explain that current fund performance is predicted by prior years' performance charts D. tell the customers that the use of performance charts to assess prior results is approved by the SEC because the Investment Advisers Act of 1940 dictates the content of these charts

tell the customers that charts can be difficult to interpret and there may be hazards in viewing only charts Using performance charts alone is not the best way to analyze an adviser's performance. In their financial statements, advisers also disclose their investment methods, investment objectives, expenses, etc. and these should be considered as well. If an adviser tells a customer to just look at his or her charts to analyze performance, the adviser should also disclose that charts alone do not give the "full" picture, and that making decisions solely on this basis is not really in the customer's best interest.

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, all of the following are prohibited business practices EXCEPT: A. being deliberately selective in the information told to a customer B. giving inaccurate statements about an issuer's projected earnings C. telling a customer that a company is about to be listed on the New York Stock Exchange without knowing the truth of the statement D. telling a customer that a listed security being recommended is registered with the Securities and Exchange Commission

telling a customer that a listed security being recommended is registered with the Securities and Exchange Commission Choices A, B, and C are all violations of the Act - being deliberately selective in the information told to a customer; giving inaccurate statements about an issuer's projected earnings; or telling a customer that an exchange listing is expected without knowing the truth of the statement. Choice D is allowed since the statement is truthful - all listed companies are registered with the Securities and Exchange Commission.

In order to function as a broker-dealer on the premises of a financial institution A) any networking arrangements between the bank and the broker-dealer must be clearly disclosed B) all agents must be employees of the bank C) the bank must own the broker-dealer D) the broker-dealer must clearly distinguish between the operations of the broker-dealer and the retail banking operation

the broker-dealer must clearly distinguish between the operations of the broker-dealer and the retail banking operation o broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer, wherever practical, conducts its services in a physical location distinct from the area in which the financial institution's retail deposits are taken. In those situations where there is insufficient space to allow separate areas, the broker-dealer has a heightened responsibility to distinguish its services from those of the financial institution. In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit-taking activities. The broker-dealer's name shall be clearly displayed in the area in which the broker-dealer conducts its services. Networking arrangements do not have to be disclosed.

Question 29 - #16382 A contract between an investment adviser and a customer may be assigned to another investment adviser provided A) the broker-dealer handling the account's transaction is notified in writing B) the client consents to the assignment C) the assignment is done 1 year after the initial contract D) the investment adviser is organized as a corporation

the client consents to the assignment In addition to prohibiting assignment of an advisory contract to another adviser without the customer's consent, the contract must contain provisions for notification of a change in partners if the adviser is organized as a partnership.

Under the Uniform Securities Act, all of the following are requirements for advisory contracts EXCEPT: A. the investment adviser cannot assign the contract to another adviser without the written consent of the customer B. the investment adviser must notify the customer of any changes in the composition of the partnership, if the adviser is so structured C. the investment adviser must notify the customer of its current standing as either a federal covered adviser or state registered adviser D. the investment adviser cannot be compensated based on the performance of the securities held in the managed portfolio

the investment adviser must notify the customer of its current standing as either a federal covered adviser or state registered adviser Investment advisory contracts, under State law, cannot base the fee on the performance in the account (unless the customer is wealthy). The fee can either be based on a percentage of assets under management; or can be a flat fee arrangement. Advisory contracts cannot be assigned to another adviser without prior customer consent. If an adviser is a partnership, any customer must be notified of changes in the composition of the partnership within a reasonable time after the change. There is no requirement for an adviser to disclose whether it is a federal covered or state registered adviser.

All of the following information must be recorded on an order ticket EXCEPT: A. time of order receipt B. customer account name/number C. name of person entering the order D. time and date of execution

time and date of execution Time and date of execution is only recorded on an order ticket if it is executed - which may never happen! The name of the customer and account number must be recorded as well as an identifier of the person who prepared the order ticket. The order ticket must be stamped with time of order receipt; time of order execution (if it is executed) and time of order cancellation (if it is canceled.)

An agent recommends that a customer should "Send $10,000 of cash to the agent, which he will personally keep in a safe place to pay for any purchase orders placed by the customer." This recommendation is: A. prudent and appropriate for the customer B. unethical and prohibited C. allowed only if the Administrator is given notice that the agent may take custody of client funds D. allowed only if the Administrator is given a quarterly report by the agent of funds and securities held for customers

unethical and prohibited Agents and broker-dealers are prohibited from commingling customer funds and securities with their own funds and securities. The agent cannot take customer cash or securities into his possession - this is a violation. He can have the customer send cash directly to the broker-dealer for credit to the customer's account, however.

A customer buys 200 shares of a common stock at $30 per share. On a day when the stock's price is down $5, the customer calls her agent and inquires as to its current price, and the agent tells her the price is around where she bought it. In the next few weeks, the stock's price turns around and the customer liquidates the shares at $35 per share realizing a $5 per share profit excluding commission. In the above situation, the agent has acted A) lawfully, because the interim price fluctuation did not impact the customer's results B) unlawfully, because the customer could easily discern that the price quoted by the agent did not match readily available quotes in the financial media C) lawfully, because he prevented the customer from losing a profit opportunity D) unlawfully, because accurate quotes must be provided to the customer at all times

unlawfully, because accurate quotes must be provided to the customer at all times The agent must provide customers with accurate market quotes at all times.

Under the Uniform Securities Act, an agent that sells securities to a customer in a transaction that is not recorded on the books and records of his or her broker-dealer: A. can only do so if the securities involved, or the transactions, are exempt B. can only do so if the transactions are unsolicited C. will cause the agent's registration to be revoked D. will cause the agent to become a statutory broker-dealer

will cause the agent to become a statutory broker-dealer Agents are prohibited from effecting securities transactions for customers unless the trades are known to the broker-dealer; are supervised by the broker-dealer; and are recorded on the books and records of the broker-dealer. This agent is "selling away" from his firm and is executing trades for customers that are not being recorded by the broker-dealer. He or she becomes a "statutory broker-dealer" under the Uniform Securities Act and is required to register in the State as such.