Series 63 exam 3
An investment adviser with its principal office in the State of Kentucky has 3 branch offices in Ohio and 4 branch offices in Tennessee. The State of Kentucky has a minimum net worth requirement for Investment Advisers of $30,000. The net worth requirement for the State of Ohio is $40,000 and the net worth requirement for the State of Tennessee is $35,000. Under the Uniform Securities Act, the minimum net worth that must be maintained by the Investment Adviser is:
A $30,000
If an offerer offers to buy back a securities issue that was inadvertently sold in the State, buyers of the issue have how many days to accept the offer?
A 30
Unless the Administrator allows an earlier date, when an agent withdraws his or her registration, the withdrawal does not become effective for:
A 30 days
Which of the following would MOST likely be an investment adviser that is State registered?
A Certified Financial Planner
A broker-dealer that has a place of business in State B does not have an office in State A. It 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
A I and II only
A broker-dealer is a syndicate member in a best efforts underwriting of ABC Common stock. The issue is oversubscribed. The broker-dealer may allocate sales of the issue to: I employees of the issuer II employees of the broker-dealer III officers of the issuer IV officers of the broker-dealer
A I and III
A written customer complaint is received by mail about an error made by the firm that the firm resolves to the customer's satisfaction. The customer asks the member firm for a copy of the complaint letter along with a written apology letter. The member firm should: I retain the original complaint along with its resolution in the agent's file and send the customer a photocopy of the complaint II retain a photocopy of the original complaint along with its resolution in the agent's file and send the customer the original complaint copy III send the customer a written apology letter and retain a copy in the agent's file IV not send the customer a written apology letter and retain a note to this effect in the agent's account file
A I and III
A registration statement which has been filed for a security: I is effective for 1 year II remains in effect if the issuer cancels the sale of the issue III remains in effect if a "stop" order is issued by the Administrator
A I only
An agent may engage in which of the following? I Soliciting orders for exempt unregistered securities if he is registered in the State II Soliciting orders for non-exempt unregistered securities if he is registered in the State III Effecting transactions in a State where he is not registered, but the broker-dealer is registered IV Effecting transactions in a State where the broker-dealer is not registered, but he is registered
A I only
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
Under the Uniform Securities Act, all of the following are allowed forms of investment adviser compensation, provided it is disclosed to customers, EXCEPT: a flat fee assessed only if the portfolio increases in value an hourly rate which includes the time it takes to get to the client's office and back a varying fee based upon a fixed percentage of assets under management a flat fee per year regardless of the portfolio size
A a flat fee assessed only if the portfolio increases in value
The Administrator examines the books and records of an investment adviser and notices that there appears to be an excessive level of trading in customer accounts. To determine if there is a violation of the Uniform Securities Act, the Administrator would:
A compare the transactions to the customers' stated investment objective(s)
An investment advisory firm does its own research, using a group of dedicated employees and has a separate staff of investment adviser representatives (IARs) who solicit new accounts. In an effort to maintain confidentiality between the research staff and sales staff, the investment adviser MUST:
A establish a Chinese Wall between the research personnel and the sales personnel
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
Registration of a security in a State means that the:
A issue may lawfully be offered in that State
Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT: issuers lawyers accountants teachers
A issuers
All of the following information must be included on a customer confirmation EXCEPT: whether the transaction was solicited or unsolicited whether a payment for order flow was made the customer name and account number the price of execution
A whether the transaction was solicited or unsolicited
All of the following are defined as a "State" under the Uniform Securities Act EXCEPT: California British Columbia District of Columbia Puerto Rico
B British Columbia
After successfully completing the Uniform State Law exam, an agent can solicit: I immediately II after registration has been granted by the Administrator III if the individual is affiliated with a broker-dealer IV if the individual has met minimum experience standards
B II and III
A broker-dealer's agent that is registered in State A, wishes to sell a security in State B. Which of the following may be sold in State B without the agent being registered in State B? I U.S. Government Agency Issues II Commodity Futures III Fixed Annuities IV Limited Partnership interests investing solely in securities of U.S. Government Agencies
B II and III only
Which TWO of the following are tests for whether registration as an investment adviser is required under the Uniform Securities Act? I Whether the investment adviser has an office in that state II Whether the investment adviser is an individual III Whether the investment adviser accepts a fee for rendering advice IV Whether the investment adviser gives advice relating to the advisability of investing in securities
B III and IV
Which of the following can an agent choose in a customer transaction without a written power of attorney? I Security II Size III Price IV Time
B III and IV
Under Uniform State Law, the State Administrator can require an investment adviser to retain certain records and can mandate the form in which these records are to be maintained. Regarding these records, which statement is TRUE?
B The Administrator can require any record to be maintained that it believes is in the public's best interest but it cannot require records to be maintained that contravene Federal rules
An investment adviser has 1 main office and 3 branch offices, all located in different States. Which statement is TRUE about recordkeeping requirement for the adviser under the Uniform Securities Act?
B The adviser must keep its records based on the rules of the State where its main office is located
FINRA suspends an associated person for a rule violation. Which statement is TRUE?
B The individual will be suspended in each State in which he or she is registered under the Uniform Securities Act
A broker-dealer and its agent are registered in State A. The agent tells a customer in State A that he is prohibited from making an offer of a security in that State because the security is not registered in State A and the security is non-exempt. However, he tells the customer that he can accept an offer to buy that security from the client because then the transaction would be exempt. Which statement is TRUE?
B There is a violation of Uniform State Law because the agent has made an offer to sell an unregistered non-exempt security in that State
To protect against identity theft and theft of funds, client instructions received electronically must be:
B authenticated
Records that the Administrator requires that an investment adviser retain can:
B be kept on electronic media as long as the media cannot be altered and a duplicate copy is kept in a separate location
All of the following are unethical practices of investment advisers under the NASAA Statement of Policy EXCEPT: charging a customer an advisory fee that is extremely high relative to fees charged by other advisers for similar services exercising discretion for a short time period upon oral instruction of a customer failing to disclose sources of compensation received from anyone other than that customer relating to rendering advisory services to that customer telling a customer to buy or sell a security based upon a rumor heard about that security
B exercising discretion for a short time period upon oral instruction of a customer
If an investment adviser is "federal covered," this means that the adviser:
B has at least $115,000,000 of assets under management
If an agent of a broker-dealer is also an agent of an affiliated investment adviser, disclosure must be made to any customer:
B if the agent will receive a commission for executing trades for that customer that are directed to it by the affiliated advisory firm
Prior to effecting a transaction for a customer, an agent is obligated to disclose:
B if the commission to be charged will be higher than normal
A person makes an initial application for State registration on March 1st. The registration expires:
B on December 31st of that year
The amount of commission charged to a customer to effect a securities transaction must be disclosed:
B on the trade confirmation
The Administrator can require all of the following regarding federal covered securities offered in a State EXCEPT: notice filing for the issue in the State registration of the issue in the State filing of documents relating to the issue in the State payment of a filing fee in the State
B registration of the issue in the State
Under the provisions of the Uniform Securities Act, the Administrator, in connection with a securities registration, is prohibited from revoking a:
B registration retroactively
An agent is aggrieved by an action of the Administrator summarily suspending that person's registration. The agent can:
B request that the matter be set down for a hearing
An agent that is employed by Merrill Lynch believes that the stock of the parent company (Bank of America), which has been trading at new lows on the NYSE, is ready for a rebound. She wants to recommend it to her customers. Which statement is TRUE about doing so? This is an unethical business practice and is prohibited This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation This is permitted only if existence of the relationship is disclosed in writing on the confirmation Both Choices B and C above
Both Choices B and C above
In most States, persons convicted of fraudulent actions involving an offer of securities may be: I fined $1,000 II fined $5,000 III imprisoned for 3 years IV imprisoned for 5 years
C II and III
An agent of a broker-dealer is soliciting potential clients to buy a new issue of corporate common stock. Which of the following is the agent PROHIBITED from doing? I Using the mails or other means of interstate commerce to offer the security to a potential client who resides in a State where the agent is registered II Offering the security to a potential client in another State where the agent is not registered III Selling the security to an existing client in a State where the agent is registered and then mailing the prospectus to that client IV Delivering a prospectus to an existing client who resides in a State where the agent is registered after the client expresses interest in buying the issue
C II and III only
To be registered as an agent in a State, the Administrator can require which of the following? I Minimum Net Capital II Minimum Surety Bond Coverage III Minimum grade on a qualification examination IV Payment of filing fees
C II, III, IV
A brokerage firm was founded 5 years ago by 3 partners - John, Joe and Mary. John and Joe supervise sales and trading; while Mary is responsible for the firm's back-office operations and financial reporting. The firm has been very successful and operates in all 50 States. John dies suddenly and Mary assumes his responsibilities. Which statement is TRUE?
C Mary must register as an agent in each of the 50 States
An investment adviser representative receives a written complaint from a client about the handling of the client's account. Under the NASAA Statement of Policy on unethical practices, which statement is TRUE?
C The complaint must be forwarded to a manager for resolution
A customer contacts her IAR (Investment Adviser Representative) and tells her to: "Sell my 1,000 share XYZZ stock position if the price falls to $35 per share." After receiving this customer's order, the IAR stumbles across an XYZZ company press release that has not yet been distributed stating that the company has lost an extremely large government contract. The press release occurs 3 days later, at which point the stock's price dives and becomes worthless. The IAR was able to sell the customer's stock at $35 when the price was falling. Which statement is TRUE about this?
C This is not an insider trading violation because the customer placed the order before the IAR knew of the non-public information
Under the Uniform Securities Act, which statement is TRUE regarding the anti-fraud provisions for exempt and non-exempt securities? The anti-fraud provisions apply to:
C both exempt and non-exempt securities
An investment adviser representative (IAR) asks a customer for a loan of $5,000. The customer agrees, and both the customer and the IAR document the loan by signing a written agreement. Under the provisions of the Uniform Securities Act, the IAR:
C has committed an unethical act
The Administrator is permitted to do all of the following during an investigation EXCEPT: subpoena records of a person held in a neighboring State subpoena individuals to testify who reside in a neighboring State issue a restraining order against a person without obtaining a court order issue a cease and desist order against the person that is the subject of the investigation
C issue a restraining order against a person without obtaining a court order
The Administrator defines the "completion" of the registration application process as the receipt of the:
C proper documents and the filing fee
The fiduciary engaged in the administration of a trust finds that, under the directions of the trust document, there is a conflict of interest relating to a proposed investment. Under the provisions of the Prudent Investor Act, the fiduciary:
C should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment
The sale of securities to an insurance company is exempt under the Act under the:
C sophisticated investor exemption
Customer privacy rules allow the disclosure of a specific customer's account information:
C to a third party as necessary to complete a transaction requested by that customer
Which of the following is NOT market manipulation? Fictitious quotes Commingling customer funds Effecting trades at the close of the market to affect the closing price Spreading rumors of a sensational nature
Commingling customer funds
A State Administrator may, by order, cancel the registration or application for registration of a broker-dealer, agent, investment adviser, or investment adviser representative if the: I firm or individual cannot be located after a reasonable search II firm or individual has ceased to do business as a broker-dealer, agent, investment adviser or investment adviser representative III individual is the subject of an adjudication of mental incompetence due to a medical diagnosis
D I, II, III
If an agent wishes to withdraw his registration, which statements are TRUE? I The agent must notify the Administrator II The broker-dealer must notify the Administrator III The withdrawal does not become effective for 30 days IV If there is a customer complaint, the Administrator retains jurisdiction over the agent for a period of 1 year from the withdrawal date
D I, II, III, IV
To maintain registration as a broker-dealer or investment adviser, which of the following may be required to be filed with the Administrator? I Advertising II Sales Literature III Prospectuses IV Form Letters
D I, II, III, IV
Which of the following are requirements for an internet communication (a website) posted by a broker-dealer, agent, investment adviser or investment adviser representative? I The communication must be limited to the dissemination of general information on products or services II The communication must include a firewall or other implemented procedure to ensure that prior to any subsequent communication with prospective clients in the State, that the broker-dealer, agent, investment adviser, or investment adviser representative are registered in the State, or are exempt or excluded from registration III The communication must include a legend that states that: "The broker-dealer, agent, investment adviser or investment adviser representative may only transact business in the State if registered in the State or if exempted or excluded from registration" IV The communication must include a legend that states that: "Follow ups or individualized responses to persons in the State by the broker-dealer agent or investment adviser representative that involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with State registration requirements or an applicable exemption or exclusion."
D I, II, III, IV
A Registered Investment Adviser pays a flat fee to a Certified Public Accountant for client referrals. The RIA charges his clients a fee based on a percentage of assets under management. Which statements are TRUE regarding required disclosures to customers? I No disclosure of fees paid by the adviser to the CPA is required II Disclosure of the fees paid by the adviser to the CPA is required III No disclosure of the management fees to be paid by the customer is required IV Disclosure of the management fees to be paid by the customer is required
D II and IV
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: I restricted II frozen III for 30 days IV for 90 days
D II and IV
Which statements are TRUE regarding the Administrator's right to inspect a broker-dealer's books and records? I Records of the broker-dealer can only be inspected by the Administrator in the State of registration II Records of the broker-dealer can be inspected in any State by the Administrator of the State in which the broker-dealer is registered III Inspections by the Administrator must be scheduled in advance with the broker-dealer IV Inspections by the Administrator can be made without prior notice given to the broker-dealer
D II and IV
An IAR has a customer with $1 million under management. The customer is experiencing a cash flow shortfall but does not want to liquidate part of the portfolio because it is performing so well. The client calls the IAR and asks for a short-term loan of $25,000. What should the IAR do?
D The IAR should refuse the client's request
Under the Uniform Securities Act, all of the following persons with no place of business in the State are EXEMPT from registration as an investment adviser EXCEPT advisers that: deal solely with insurance companies deal solely with investment companies deal solely with broker-dealers have more than 5 clients in the state in the preceding 12 months
D have more than 5 clients in the state in the preceding 12 months
Under the provisions of the Uniform Securities Act, the ability to make a civil claim is lost:
D if three years have elapsed since the security was purchased
An investment adviser registered in the State of California takes custody of client funds. The State has a minimum $35,000 Net Worth requirement. The IA finds that its Net Worth is $34,500. The adviser:
D must notify the State Administrator by the close of business on the next business day and file a report of the adviser's financial condition the next day
Under the Uniform Securities Act, the Administrator does NOT have jurisdiction over offers of advisory services made to:
D non-residents of that State by a non-resident investment adviser
An investment adviser has been experiencing a business decline due to a weak local economy and a weak investment outlook. To rebuild her business base, the investment adviser puts an advertisement in the local newspaper that says: "Because times are tough for all of us, we are offering, for a limited time only, a free investment consultation and free year-end tax preparation to anyone who signs a 1-year advisory contract for an introductory rate of only $25 per month." This is permitted:
D only if the word "free" is removed twice from the advertisement
A broker-dealer registered in States A and B has an agent that is registered in State A. The agent takes an unsolicited order from a customer in State B. The agent will have to register in State B if:
D the customer is an accredited investor
An order ticket for the purchase of stock does NOT contain: Quantity Time that the order is placed Fill price Market price at the time that the order is placed
Market price at the time that the order is placed
Which of the following is NOT EXCLUDED from the definition of an "investment adviser"? Broker-dealer Trust company Savings and loan Investment company
Investment company
A corporation listed on the American Stock Exchange (NYSE American) wishes to distribute a stock dividend to its shareholders. Which statement is TRUE?
The transaction is exempt and the shares do not have to be registered in the State
Investment advisers are prohibited from doing all of the following EXCEPT: assigning a customer's contract without permission charging a retainer fee charging commissions on trades effected for the client changing partnership management without notifying clients
charging a retainer fee
The instrument that permits aggrieved parties to serve legal documents to the Administrator in lieu of serving them directly to the party that is the object of the lawsuit is called a:
consent to service of process
Intentional or willful violations of the Uniform Securities Act that are considered to be a felony subject that person to:
criminal liability and criminal penalties
In order for an investment adviser to be compensated with a performance fee, all of the following must be disclosed in writing EXCEPT: that the fee arrangement may create an incentive for the adviser to make investments that are riskier that the fee arrangement is based on both unrealized appreciation and realized capital gains the nature and significance of any index used as a comparative measure and the reason why the adviser believes that any comparative index used is appropriate that the fee computation can be based on periods ending no earlier than the last day of each calendar quarter
that the fee computation can be based on periods ending no earlier than the last day of each calendar quarter
