Series 63 FINAL

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An investment adviser headquartered in State A with $150 million of assets under management recommends the purchase of a NASDAQ-listed issue to her customers. Which statements are TRUE? I The adviser is a federal covered adviser and is not required to be registered in the State A II The adviser is not a federal covered adviser and must be registered in State A III The security being recommended is an exempt security and is not required to be registered in State A IV The security being recommended is a non-exempt security and must be registered in State A A. I and III B. I and IV C. II and III D. II and IV

A. Federal covered advisers cannot be required to register in the State (however, the State can require a "notice" filing and payment of a filing fee); they must register with the SEC. Advisers to investment companies and advisers with $100 million or more of assets under management are federal covered. This adviser has $150 million of assets under management, so it is federal covered. Federal covered securities are major exchange listed companies, including NASDAQ listed issues, and investment company securities that are registered federally with the SEC. These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings.

n Investment Adviser discovers that its computer system has been breached and personal client information has been stolen. Under Uniform State Law, the IA will be subject to: A. Administrative action B. Criminal prosecution C. Civil liability D. Mandatory arbitration

A. NASAA requires that Investment Advisers put in cybersecurity protection. If client data is stolen, the State Administrator can penalize the IA by issuing an order revoking or suspending the IA's registration (and hence, ability to do business) in that State. In addition, the customer could sue the IA for negligence under common law - but this is very hard to prove. Note, however, a plaintiff would not be able to use the Uniform Securities Act as the basis for the suit. Both civil liability and criminal liability under the USA is based on a securities transaction that occurred. Cybersecurity does not come under USA.

Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following information EXCEPT: A. time of execution of the order B. person who placed the order C. name of account for which order was entered D. name of broker-dealer to which the order was sent

A. Order ticket information required for investment advisers is different than that required for broker-dealers. The IA writes an order and sends it to a broker-dealer or bank for execution. The IA must keep a record of the order as it was sent; the IA does not keep the record of the actual execution of the order - this is the responsibility of the executing broker-dealer. The record must contain the terms and conditions of the order; name of the person at the IA who recommended the transaction; name of the person who placed the order; date of order entry; name of account for which order was entered; name of broker-dealer or bank to which the order was sent for execution; and whether the order was discretionary.

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 B. I and IV C. II and III D. II and IV

A. When a broker-dealer does a new issue offering, it must make a "bona-fide" sale to the investing public and cannot retain part of the issue for itself or for its employees. If this were permitted, the broker-dealer would have the incentive to "underprice" the issue and then buy it for itself; intending to turn around and resell it for a profit. This would be in addition to any underwriting fees earned by the broker-dealer. Thus, broker-dealers in the underwriting group, their officers and their employees cannot buy the issue. There is nothing stopping the employees and officers of the issuer from buying the issue (they are likely to be large purchasers!).

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

A. 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

A private placement under the Uniform Securities Act is defined as an offer to: A. 10 persons or less in 12 months B. 35 persons or less in 12 months C. 10 persons or less in 18 months D. 35 persons or less in 18 months

A. A private placement is defined under the Uniform Securities Act as an offer to no more than 10 persons in a year. Private placements are exempt transactions as long as the general public is not solicited and no commissions are paid. Also note that this is a very different from the Federal private placement rule. Remember not to confuse this State private placement exemption with the Federal law "Regulation D" private placement exemption that allows a sale to a maximum of 35 "non-accredited investors" and to an unlimited number of "accredited" (wealthy or institutional) investors. There is no similar wording in State law.)

Under the Uniform Securities Act, the registration of an agent may be denied, suspended or revoked if the: I application contains false statements; or omits required information II applicant has been arrested for a securities related matter III applicant has been charged by the Securities and Exchange Commission with a securities felony A. I only B. II and III only C. I and III only D. I, II, III

A. An agent's registration application will be denied if it is incomplete or if it contains false statements. An agent's registration will be denied if the agent was convicted of a misdemeanor involving securities or monies; or any felony; within the past 10 years. The application will not be denied if the agent has been arrested on a securities matter (he could be innocent!); nor will it be denied if the applicant is charged by the SEC with a securities felony (again, he could be innocent). The key word here is conviction - for registration to be denied, one must be "convicted" of the offense, not just "accused" of the offense.

A broker-dealer located in State A makes an offer of securities to a customer whose principal residence is in State B. The customer has temporarily moved to State C and has asked the post office in State B to forward the mail to the customer's address in State C. Which State Administrator(s) has (have) jurisdiction over the offer? I State A II State B III State C A. I only B. I and II only C. I and III only D. II and III only

A. Because the broker-dealer is located in State A, that State Administrator has jurisdiction. Normally, if an offer is received in a State (B in this case), then State B's Administrator would have jurisdiction. But the offer was never received in State B because it was forwarded by the post office on to State C. Thus, an offer was never made in State B and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in State C, that it would have jurisdiction, but this is not the case either. In this situation, the Uniform Securities Act makes an exception. The issue here is that the broker-dealer had no idea that the mail was forwarded to State C and should not be subject to the law of State C on this offer. The intent is to make sure that an innocent broker-dealer is not "entrapped" by a State and made subject to that State's law when an offer of securities is forwarded into that State by a third party without the broker-dealer's knowledge.

An agent receives physical certificates from a customer that the customer wishes to deposit to his brokerage account. Which statement is TRUE? A. The agent must forward the certificates to the broker-dealer immediately B. The agent must enter the certificates into street name and destroy the old certificates immediately C. The agent can accept the securities for safekeeping for no longer than 3 months D. Under no circumstances can a broker-dealer take physical custody of securities unless approval of the Administrator is obtained

A. Broker-dealers take custody of clients funds and securities as part of the business and must maintain minimum net capital in order to do so. (In contrast, investment advisers do not "routinely" take custody and must notify the Administrator if they intend to do so and must follow NASAA's custody rules for IAs.) If an agent receives securities from a client to be placed in custody of the broker-dealer, the certificates must be forwarded to the broker-dealer immediately.

Under the Uniform Securities Act, the omission of material facts when offering or selling a security can result in: I Civil liability II Criminal liability III Criminal penalties A. I only B. II only C. II and III only D. I, II, III

A. This is a subtle question. The omission of material facts when offering or selling a security results in Civil Liability under the Act. The willful omission of material facts can result in Criminal Liability and Criminal Penalties.

Which of the following persons with no place of business in a State, is EXCLUDED from the definition of an "Investment Adviser"? A. A bank that receives special compensation for rendering advice about securities B. A person who gives advice for a fee about investment grade corporate bonds C. A person who gives advice for a fee about municipal securities D. A person who gives advice about securities for a fee solely to lawyers and accountants

A. Excluded from the definition of an investment adviser are: Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers Thus, the bank (Choice A) is excluded from the definition of an investment adviser. A person who gives advice about corporate or municipal securities is not on this list; and therefore is not excluded. While a lawyer or an accountant who gives incidental advice about securities is excluded from the definition of an investment adviser; a person who gives advice about securities to lawyers or accountants is defined as an investment adviser. Do not confuse this exclusion with those persons who are defined as investment advisers; but whose type of work exempts them from registration. For example, an adviser with no place of business in the State, who only gives advice to "professional investors," is exempt from registering in the State. There is no State exemption available to advisers who only give advice on certain exempt securities such as municipals. (Please note, however, that a person who gives advice solely about U.S. Government securities is defined as a Federal covered adviser, and would be excluded from registration in the State.)

Upon entry of a "stop order" denying a security's exemption, the Administrator must notify those affected by the order that: I the order has been entered and the reasons therefor II within 15 days of written request, the matter will be set down for a hearing III sale of the issue may continue until any charges are proven IV the Administrator has filed criminal charges that must be answered in a court of law A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

A. If an Administrator enters a "stop" order, halting the sale of an issue that has an exemption, the Administrator must give those affected by the order an opportunity for a hearing. As long as the stop order is in effect, the issue cannot be offered or sold in the State. Issuance of a stop order does not mean that the Administrator has filed criminal charges (or civil charges for that matter). These are a separate potential course of action that the Administrator can take.

Which of the following are prohibited practices under NASAA guidelines? I An investment adviser lending money to a customer II An investment adviser lending money to a customer that is a relative III An investment adviser lending money to a customer through a bank affiliate IV A broker-dealer lending money to a customer where securities are collateral under Regulation T A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

A. Loans to a customer by an investment adviser or broker-dealer is a prohibited practice, unless the provisions of Regulation T are met. Since nothing is said about Regulation T, it must be assumed that Choice I is prohibited. In addition, NASAA takes the stance that lending to customers that are relatives is also prohibited. Loans made by an affiliate that is a bank are OK, since the affiliate must comply with the banking laws. Similarly, lending a customer money where securities are collateral in compliance with Regulation T is fine as well.

A customer opens an account at a brokerage firm to purchase securities in an offering. The customer must receive the disclosure document/prospectus: A. no later than the confirmation of the sale B. no later than the settlement of the transaction C. within 7 days of the transaction D. within 90 days of the transaction

A. NASAA states that "failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus," is an unethical practice.

Registration of a security in a State means that the: A. issue may lawfully be offered in that State B. information in the registration statement is complete, accurate and true C. State Administrator has passed on the merits of the issue D. the terms of the securities are valid and binding on the issuer

A. Registration of a security in a State means that the security can lawfully be offered in that State. The Administrator never approves of an issue, so Choice C is incorrect. The contract included in the security makes it legally binding - registration with the State does not - so Choice D is incorrect. While the information in a registration statement must be complete, accurate, and true, the State does not warrant this by granting a registration. Omissions or misstatements in a registration statement can occur and are the problem of the issuer; not the Administrator.

An investment adviser has been formed and the firm and its representatives file their first registration with the State on April 30th. On May 1st of the following year, the firm files renewal registrations for itself and its representatives. Which statement is TRUE under the Uniform Securities Act? A. Both the investment adviser's registration and the investment adviser representatives' registrations are out of compliance B. Both the investment adviser's registration and the investment adviser representatives' registrations are in of compliance C. The investment adviser's registration is in compliance but the investment adviser representatives' registrations are out of compliance D. The investment adviser's registration is out of compliance but the investment adviser representatives' registrations are in compliance

A. Registration of broker-dealers, investment advisers, and their agents expires on December 31st of each year. This way, the States know that they will be getting those annual registration renewal checks at year end, year after year after year!! If the renewal check is not received by December 31st, registration lapses.

An agent of a broker-dealer puts up a website that promotes the benefits of dollar cost averaging, including the caveat that it is suitable for investors only if they can maintain their periodic payments regardless of economic conditions and that it requires a long-term investment time horizon. If the website is viewed by an individual in another State where both the broker-dealer and agent are not registered, which of the following disclosures are required on the site in order not to be in violation of the Uniform Securities Act in that State? I "The broker-dealer or agent may only transact business in the State if registered in the State or if exempted or excluded from registration" II "Follow ups or individualized responses to persons in the State that involve either effecting or attempting to effect transactions in securities will not be made absent compliance with State registration requirements or an applicable exemption or exclusion" III "The services being offered do not represent an offer to sell securities or a solicitation of an offer to buy the securities in the State unless the subject securities are registered or are subject to an applicable exclusion" IV "The Securities and Exchange Commission has not approved, nor has it disapproved of offering made in this advertisement" A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

A. Since the internet can be viewed from anywhere, Uniform State Law gives a safe harbor to having to register in a State if the following legend appears on the site: "The broker-dealer agent or investment adviser representative may only transact business in the State if registered in the State or if exempted or excluded from registration;" and "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." So, basically, the disclaimer required is that anyone who views the site cannot be solicited by persons associated with the site unless those persons are registered in that State (or are excluded or exempt from registration). There is no requirement to give a disclaimer regarding whether securities being offered are registered or exempt in the State; and the SEC has nothing to do with State law, so Choice IV does not apply (it does apply to prospectus disclosure on new issues of non-exempt securities registered under the 1933 Act, however).

Upon filing a withdrawal of registration with the State, the Administrator can commence a revocation or suspension proceeding for up to: A. 1 year from the effective date of the withdrawal B. 2 years from the effective date of the withdrawal C. 3 years from the effective date of the withdrawal D. 10 years from the effective date of the withdrawal

A. The Administrator retains jurisdiction over anyone who withdraws from registration in the State for 1 year following the effective date of the withdrawal. Thus, if one withdraws from registration, and 6 months later, there is a complaint filed by a customer with the Administrator against that person; the Administrator can still investigate, and can issue a suspension, revocation; or a cease and desist order.

In order to register as a broker-dealer in the State, the Administrator can require filing of a: A. Form BD B. Form U-4 C. Form U-5 D. Form U-10

A. The Form BD is the broker-dealer application that is used for both Federal and State registration. A U-4 is the Federal Securities Industry Application for individuals - this information becomes part of the registrant's CRD file. A U-5 is the termination form that removes an individual's registration from the CRD file. A Form U-10 can be used to apply to take exams that are not subject to FINRA rules.

A Registered Investment Adviser (RIA) is formed as a partnership. The RIA intends to charge an incentive fee that is based on investment performance. Under NASAA rules, the RIA: A. must be able to show that the fee is fair and reasonable to the State Administrator B. is not permitted to have an incentive fee under any circumstances C. can charge an incentive fee as long as it is included in the partnership agreement D. must offer the customer a fee refund if the performance does not meet the benchmark

A. This question is misleading because you probably know that investment advisers cannot charge performance or incentive fees. However they CAN do so if the customer is wealthy (defined as a customer with either $1,000,000 of assets or $2,100,000 net worth). Thus Choice B is wrong. Choice C is wrong because the fee arrangement must be disclosed in the advisory contract with the client; not in the partnership agreement. Choice D is wrong because there is no requirement that an incentive fee be refundable. Thus, we are left with Choice A as the best one offered (and it ain't great!). All fees must be fair and reasonable; charging unreasonable fees is an unethical practice. Finally, though not addressed in the question, NASAA requires that advisers that charge incentive fees provide a whole bunch of disclosures. The adviser must disclose in writing: that the fee arrangement may create an incentive for the adviser to make investments that are riskier; that the investment adviser will get compensation based on both unrealized appreciation and capital gains; the basis for valuing any illiquid investments used in computing unrealized appreciation; the periods that will be used to measure performance and their significance to the computation of the fee; and the nature of an index used as a comparison of investment performance, the significance of the index and the reasons why the adviser believes the index is appropriate.

If a broker-dealer receives an unsolicited customer order to buy a security for a customer, this is a(n): A. exempt transaction B. non-exempt transaction C. exempt security D. non-exempt security

A. Unsolicited customer orders are defined as an "exempt transaction" under the Uniform Securities Act, whether the securities involved are exempt or non-exempt. In such transactions, the first contact must be made by the customer; not by the agent or broker-dealer.

Under NASAA recordkeeping rules, advisers must retain records for no less than: A. 3 years, with the first 2 years kept in the principal office of the adviser B. 5 years, with the first 2 years kept in the principal office of the adviser C. 7 years, with the first 3 years kept in the principal office of the adviser D. 10 years, with the first 5 years kept in the principal office of the adviser

B. Advisers must retain records for 5 years under NASAA rules (note that this differs from SEC rules for broker-dealer records, most of which must be retained for 3 years). The first 2 years' worth of records must be kept at the adviser's principal office, where it is available for inspection.

Which statements are TRUE about sharing commissions? I An agent is permitted to share commissions with an agent at another broker-dealer that is under common control of the agent's broker-dealer II An agent is not permitted to share commissions with an agent at another broker-dealer that is under common control of the agent's broker-dealer III An agent is permitted to share commissions with an investment adviser representative at another investment adviser that is under common control of the agent's broker-dealer IV An agent is not permitted to share commissions with an investment adviser representative at another investment adviser that is under common control of the agent's broker-dealer A. I and III B. I and IV C. II and III D. II and IV

B. Agents of broker-dealers may only share commissions with other registered agents who work at the same broker-dealer or who work at a broker-dealer that is owned or controlled by the same parent entity. An agent cannot share commissions with unregistered agents or with registered agents of other independently-owned broker-dealers. Regarding sharing of commissions with investment adviser representatives, because an IAR is a fiduciary, the IAR cannot earn commissions or share in commissions. Now, just to make things really confusing, an individual can wear 2 hats at the same time. An individual can work for both broker-dealer, acting as an agent earning commissions; and can also work for an investment adviser as an IAR, earning fees. And both the broker-dealer and investment adviser can be owned by the same parent entity or company. However, there is no "cross-over" between the two in how fees are charged.

An Investment Adviser Representative has started a blog on the Internet to promote her services to interested parties. The blog discloses that the IAR is associated by DEF Advisers, an RIA registered in the State where the IAR is also registered and conducts business. Which statement is TRUE about this? A. This action is prohibited under NASAA rules because blogs can only be sponsored by RIAs, not IARs B. This action is prohibited because the RIA must approve the content of the blog and authorize its distribution C. This action is prohibited because FINRA has jurisdiction over Internet communications and FINRA approval is required D. This action is permitted because both the RIA and IAR are State-registered

B. If an agent of a broker-dealer or an investment adviser representative wishes to publish any content on the Internet, either as a website or on a blog, the Agent or IAR: must disclose his or her affiliation with the Broker-Dealer or Investment Advisory firm; the Broker-Dealer or Investment Adviser (the firm) must approve the content of the Internet Communication; the Broker-Dealer or Investment Adviser (the firm) must authorize the distribution of the Internet Communication; and the Agent or IAR must act within the scope of authority granted by the Broker-Dealer or Investment Adviser (the firm)

Under the provisions of the Uniform Securities Act, which statements are TRUE? I An investment adviser with a place of business in the State, need not register in that State if it is only dealing with insurance companies II A broker-dealer with no place of business in the State, need not register in that State if it is only dealing with insurance companies III If a broker-dealer is registered with the Financial Industry Regulatory Authority, then it is also registered in that State IV If a broker-dealer has its registration revoked, then the registration of its agents will also be revoked A. I and III B. II and IV C. I, II, IV D. I, II, III, IV

B. If an investment adviser has no place of business in a State, and only deals with "professional investors" in that State, then it would be exempt from registration in that State. However, in Choice I, the adviser has a place of business in the State, and hence, must register. Once the adviser has an office in the State, it makes no difference who the adviser deals with - the adviser must register. Broker-dealer registration requirements are similar to the rules outlined above. If a broker-dealer has no place of business in a State, and transacts only with other broker-dealers and institutional investors, it is exempt (making choice II correct). Once a broker-dealer has an office in the State, it must register - it makes no difference who the firm's customers are. If a broker-dealer is registered with FINRA, this does not mean that the firm is registered in the State. FINRA member firms are required to register under Federal Law (Securities Exchange Act of 1934). Federal registration requirements have no bearing on State registration requirements for broker-dealers (though this is not the case with federal covered advisers!). Thus Choice III is incorrect. Finally, Choice IV is true. If a broker-dealer has its registration revoked, then its agents' registrations are also revoked (since an agent can only register through a registered broker-dealer). Note, conversely, that if an agent's registration is revoked, this has no bearing on the status of the broker-dealer's registration.

NASAA Model Rule 502 (c) applies to: I State registered advisers in its entirety II State Covered advisers only to the extent that the conduct is fraudulent or deceptive III Federal Covered advisers in its entirety IV Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive A. I and III B. I and IV C. II and III D. II and IV

B. 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).

Under the Uniform Securities Act, which of the following individuals must file a registration application as an agent of a broker-dealer? I A person who only accepts orders from customers II A person who only trades securities for the firm's trading account III A person who is a silent partner in the broker-dealer IV A person who is a partner, officer, or director of a broker-dealer A. I only B. I and II only C. III and IV only D. I, II, III, IV

B. The Act defines an agent as any individual who represents an issuer or broker-dealer in effecting securities transactions. Under this definition, any person who accepts customer orders or who trades must register as an agent. Silent partners of broker-dealers do not register as agents because they have no business role in the firm other than contributing funds. They do not effect securities trades. An individual who is a partner, officer, or director of a broker-dealer also does not have to file a registration application to be registered as an agent. This individual is already registered as a principal of the firm through the broker-dealer registration - all officers are named in the broker-dealer registration application and become registered at that time, contingent on passing the appropriate State licensing exam (e.g., the #63, #65 or #66).

An investment adviser agrees to direct its portfolio trades to a specific broker-dealer at full commission rates in return for the broker-dealer providing the adviser with a leased new car paid by the broker-dealer. This is: I a soft dollar arrangement II a quid pro quo arrangement III permitted under the Uniform Securities Act IV prohibited under the Uniform Securities Act A. I and III B. I and IV C. II and III D. II and IV

B. The SEC and State Administrators permit so called "soft dollar" arrangements. An adviser may direct its portfolio trades to a brokerage firm that charges a higher commission (as opposed to the lowest-cost broker) in return for the adviser getting something of value from the broker-dealer, such as research reports, asset allocation software, stock screening software, etc. The "idea" is that the value of the broker-dealer "give-back" is much higher than the "extra commission" amount paid to the broker-dealer by the adviser and will enhance the adviser's investment returns, which will benefit the adviser's clients. The problem here is that the "give back" does not benefit the adviser's clients - rather, it benefits the adviser personally at the expense of his or her clients (since the lease is really being paid by the higher commission charges that are being imposed on all of the adviser's trades for his or her clients).

A Registered Investment Adviser is the beneficiary in the liquidation of a partnership investment that it made years ago and in settlement, receives the assets of an existing broker-dealer. As a result of this, the directors of the RIA: A. are required to register in the State as directors of the broker-dealer B. are not required to register in the State as directors of the broker-dealer, nor take qualification exams, as long as they are not involved in overseeing the sales or operations of the broker-dealer C. must register in the State as directors of the broker-dealer but are not required to take qualification exams D. are not required to register in the State as directors of the broker-dealer

B. The question is, typically, not very clear on what is going on here. What is happening is the RIA now owns a broker-dealer. We don't know if the broker-dealer is operating with its own officers; or whether it is just a dormant "shell." If it has its own officers, they would already have been registered with both FINRA and the State. If not, then the RIA that now owns the broker-dealer would have to appoint officers and register them in the State. It is not true that the directors of the RIA would be required to be registered in the State. Only those RIA directors that were appointed directors of the broker-dealer would be required to register (of course, this is not a choice!). Of the choices offered, Choice B is the best one. Only those directors of the RIA that are involved in overseeing the sales or operations of the broker-dealer must be registered in the State and must take the proper licensing exams.

A broker-dealer is a syndicate member in a negotiated underwriting of revenue bonds issued by the City of Jacksonville, Florida Industrial Development Authority. If the issue is oversubscribed, under NASAA rules, it would be unethical for the bonds to be sold to: A. residents of Florida B. employees of the broker-dealer that are Florida residents C. institutional investors in Florida D. investors that are non-residents of Florida

B. When a broker-dealer does a new issue offering, it must make a "bona-fide" sale to the investing public and cannot retain part of the issue for itself or for its employees. If this were permitted, the broker-dealer would have the incentive to "underprice" the issue and then buy it for itself; intending to turn around and resell it for a profit. This would be in addition to any underwriting fees earned by the broker-dealer. The issue can be sold to both Florida and non-Florida residents, as long as it is suitable. While it is typically the case that only State-residents will get the highest tax benefit if they buy an issue of that State, it is not always true. There are situations where out-of-state residents can benefit by buying bonds (for example, by buying taxable bonds of a State, and these are taxable bonds).

An existing customer of an agent who is registered in State Z contacts the agent to inquire about selling 1,000 shares of ABCC Corp. - a thinly traded stock that is sometimes quoted in the Pink Sheets. The agent attempts to locate a buyer for the shares for the customer, but cannot find one. One week later, a new customer contacts the agent, asking him to buy 1,000 shares of ABCC Corp. The agent contacts the existing client to see if he is interested in selling these shares. This action is: A. a violation of the Uniform Securities Act B. considered to be an offer to buy made by the agent C. a conflict of interest that must be disclosed to the existing customer D. defined as a contract to sell the shares

B. An "offer to purchase" is defined as every attempt to buy a security, or solicitation of an offer to sell a security, for value. The agent has contacted the existing client, to see if he is interested in selling the 1,000 shares that this new customer wishes to buy. Thus, the agent is making an offer to buy the securities from the existing customer.

An issuer has filed a registration statement in the State proposing to offer 500,000 shares in a combined primary and secondary distribution, consisting of 300,000 newly issued shares and another 200,000 shares being offered by the officers of the firm. Under Uniform State Law, the 200,000 shares being sold by selling shareholders are a(n): A. issuer distribution B. non-issuer distribution C. commingling of securities D. exempt transaction

B. An issuer transaction is one where the proceeds of the offering go to the issuer - the primary distribution of 300,000 shares meets this definition. A "non-issuer" transaction is one where the proceeds of the offering go to someone other than the issuer. The secondary offering of 200,000 shares where the proceeds are going to selling shareholders (officers of the company) meets this definition.

Which statement is TRUE about the participation of an agent of a broker-dealer in an Internet Chat room about investing? A. The agent is prohibited from participating in the Chat room B. The agent can only make general statements about investing in the Chat room C. The agent can make recommendations of registered securities in the Chat room D. The agent can make recommendations of both registered and unregistered securities in the Chat room

B. BD agents and IA agents are not prohibited from participating in Internet Chat rooms as long as they limit their communications to "general" statements about investing. They are prohibited, however, from making recommendations of securities in Chat rooms and from soliciting business from other participants in the Chat room.

In order for an investment adviser to be compensated with a performance fee, all of the following must be disclosed in writing EXCEPT: A. the periods that will be used to measure performance and their significance in the computation of the fee B. the fee arrangement is based solely on realized capital gains C. the nature and significance of any index used as a comparative measure D. the reason why the adviser believes that any comparative index used is appropriate

B. Before entering into an advisory contract that charges a performance fee, the adviser must disclose in writing: that the fee arrangement may create an incentive for the adviser to make investments that are riskier; that the investment adviser will get compensation based on both unrealized appreciation and realized capital gains; the basis for valuing any illiquid investments used in computing unrealized appreciation; the periods that will be used to measure performance and their significance to the computation of the fee; and the nature of any index used as a comparison of investment performance, the significance of the index, and the reason why the adviser believes the index is appropriate.

An investment adviser registered in State Y effects all of its portfolio transactions through a broker-dealer registered with the SEC and State Y. Regarding required filings from the broker-dealer in State Y, the Administrator of State Y: A. can only require the same filings as it requires from the investment adviser that does its portfolio trades through that broker-dealer B. can only require the filing of the broker-dealer's reports that are filed with the SEC C. can require the filing of any records demanded by the Administrator of State Y D. cannot require the filing of any records because of the federal supremacy of the broker-dealer filings that are required with the SEC

B. Broker-dealers are registered federally with the SEC under the Securities Exchange Act of 1934 and, additionally, must register in each State where they have a physical presence or where they solicit securities business. As part of the National Securities Markets Improvements Act of 1996, it was made clear that because broker-dealers are regulated at the federal level, the States cannot require anything that is already required federally. Broker-dealer recordkeeping and reporting rules are set under Section 17 of the Securities Exchange Act of 1934 - so these rules prevail. All that the State can do is ask for a copy of any record or report that the broker-dealer keeps in accordance with the 1934 Act.

Civil suits alleging violation of the Uniform Securities Act must be brought: I within 2 years of discovery II within 3 years of discovery III no later than 2 years after the violation occurred IV no later than 3 years after the violation occurred A. I and III B. I and IV C. II and III D. II and IV

B. Civil suits alleging violations of the Act must be brought within 2 years of discovery of the alleged violation, but no later than 3 years after the actual violation occurred

Which of the following is NOT defined as a security under the Uniform Securities Act? A. Bank note B. Endowment policy C. Variable annuity D. Warrant

B. Endowment policies are not securities. Bank notes (as opposed to a bank deposit), variable annuities and warrants are all defined as securities. Excluded from the definition of a security are: Insurance products term life policies whole life policies endowment policies fixed annuities (however variable annuities are a security) Commodities or Futures contracts (however, commodity options are a security) Retirement plans Individual retirement accounts Keogh plans 401 K plans Mortgages (however, mortgage bonds and mortgage backed pass-through certificates are a security)

Which of the following violate the provisions of the Uniform Securities Act? I Failing to charge a markup to a customer in a principal transaction II Failing to charge a commission to a customer in an agency transaction III Improperly using inside information IV Failing to state every fact to a customer A. I and II B. III only C. I, II, III D. I, II, III, IV

B. Failing to state "every" fact to a customer is not a violation; failing to state "material" facts is a violation of the Act. Failing to charge commissions or markups is not a violation - if you wish, you can earn nothing for handling customer transactions! Of course, using inside information is also a violation.

FINRA suspends an associated person for a rule violation. Which statement is TRUE? A. The individual will only be suspended in the State where the agent is physically located B. The individual will be suspended in each State in which he or she is registered under the Uniform Securities Act C. The individual will only be suspended in a given State if the Administrator of that State takes action D. The individual will only be suspended in the State if the violation of FINRA rules is also a violation of the Uniform Securities Act

B. If FINRA suspends or expels an individual, CRD notifies each State in which the person is registered and those States suspend or expel that person as well.

Under the Uniform Securities Act, the threshold where a State-registered adviser is considered to have taken custody of client funds if it charges prepaid advisory fees, is: A. $200, 6 months or more in advance of rendering services B. $500, 6 months or more in advance of rendering services C. $1,000, 6 months or more in advance of rendering services D. $1,200, 6 months or more in advance of rendering services

B. If a State-registered investment adviser accepts $500 of prepaid advisory fees (or more), 6 months or more in advance of rendering services, then the adviser is considered to have taken custody of client funds under NASAA's interpretation. (Also note, in contrast, that the Investment Advisers Act of 1940 sets this limit at $1,200 for Federal Covered Advisers, but this is not the rule for State-registered advisers).

Which of the following would constitute an "involuntary assignment" of an investment advisory contract under the Uniform Securities Act? I An investment adviser formed as a corporation sells all of its stock to an acquiring broker-dealer II An investment adviser formed as a partnership has a partner with a 25% interest resign III An investment adviser formed as a partnership has 1 partner leave and take the contract to a new advisory firm A. I only B. I and III C. II and III D. I, II, III

B. If an investment advisory contract is assigned to someone else, the customer must sign a new contract with whoever takes control of that contract. If an investment adviser formed as a corporation sells all of its stock to an acquiring broker-dealer, then all of the investment adviser's contracts have legally been assumed by that broker-dealer. This is the same as an assignment. If a minority partner leaves an adviser formed as a partnership, this is not considered to be an assignment (note that if this was a majority partner leaving, then technically this would be an assignment). If a partner at an advisory firm leaves and takes the contract with him or her to a new firm, again this is an assignment of the contract to the new firm.

Which statements are TRUE about the retention of customer account records for broker-dealers under Uniform State Law? I Customer trade confirmations must be retained for 3 years II Customer trade confirmations must be retained for 6 years III Customer account statements must be retained for 3 years IV Customer account statements must be retained for 6 years A. I and III B. I and IV C. II and III D. II and IV

B. In the absence of a specific rule by the Administrator, Uniform State Law requires that records be kept in accordance with the requirements of the Securities Exchange Act of 1934. Under the '34 Act, customer confirmations must be retained for 3 years; but customer account records (statements of account) must be retained for 6 years.

Investment advisory contracts must include a: A. power of attorney B. no assignment clause C. consent to service of process D. duplicate copy for the client

B. Investment advisory contracts must include a "no assignment clause" - that is, the contract cannot be assigned to another investment adviser unless the customer consents in writing.

he person named as the executor over an estate would be found in the: A. affidavit of domicile B. letters testamentary C. proof of domicile D. certificate of incumbency

B. Letters testamentary is the legal term for the will (as in "last will and testament"). The name of the executor chosen by the person who is now deceased would be found in the will.

Under the provisions of the Uniform Securities Act, required records for broker-dealers must be kept in accordance with the provisions of the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Investment Advisers Act of 1940 D. Uniform Securities Act as adopted in that State

B. Part of NSMIA is that federal law has supremacy over state law when it comes to recordkeeping rules, capital requirements and custody rules. Since the SEC sets broker-dealer recordkeeping rules under the Securities Exchange Act of 1934, the State can only have a rule requiring that records be kept in conformity with the Act of 1934's requirements.

The portfolio construction most suitable for a pension fund seeking current income and safety of principal is: A. Treasury bonds, General Obligation bonds and covered call writing B. Treasury bonds, Corporate bonds and covered call writing C. Corporate bonds, Time deposits and naked call writing D. Treasury STRIPs, Corporate bonds and naked call writing

B. Selling naked calls is risky; selling covered calls is a conservative income strategy with limited loss. Therefore, the best choice must either be A or B. General obligation bonds are tax-free Municipal bonds that yield less than taxable investments, such as Treasury bonds or Corporate bonds. Since the pension plan is tax-deferred, investing in these lower yielding investments is inappropriate; they are only appropriate for customers that are currently in high tax brackets. Therefore, the best choice is B - a portfolio of Treasury bonds, Corporate bonds and covered call writing.

Under the provisions of the Prudent Investor Act, all of the following statements are true regarding the management of trust accounts with multiple beneficiaries EXCEPT the fiduciary: A. must manage the trust impartially, taking into account the differing needs of the trust beneficiaries B. is judged based on the performance of each individual investment chosen in the account C. should seek to maximize portfolio performance and can assume extra risk consistent with the beneficiaries' investment objectives and needs D. is permitted to delegate investment decisions to qualified agents without needing consent of the beneficiaries

B. The "Prudent Investor Act" gives fiduciaries much broader latitude in terms of their ability to allocate trust assets to various investment classes, as compared to the obsolete "prudent man rule" that simply required that investments be of low risk. The concept is that modern portfolio theory can be used to diversify assets and to achieve a greater return that justifies any extra "risk" assumed by the strategy - as long as the strategy is consistent with the investment objectives and needs of the beneficiaries. The fiduciary is judged by overall portfolio performance - not by the performance of each single investment. Since a higher level of expertise may be needed to manage trust assets in this manner, the Act allows the fiduciary to contract with an outside investment adviser to provide asset management. In any trust with multiple beneficiaries, the fiduciary must act impartially and must consider the needs of each beneficiary.

Under the provisions of the Prudent Investor Act, all of the following statements are true regarding the management of trust accounts with multiple beneficiaries EXCEPT the fiduciary: A. must manage the trust impartially, taking into account the differing needs of the trust beneficiaries B. must manage the trust to meet the needs of older beneficiaries before considering the needs of the younger beneficiaries C. should seek to maximize portfolio performance and can assume extra risk consistent with the beneficiaries' investment objectives and needs D. is permitted to delegate investment decisions to qualified agents without needing consent of the beneficiaries

Regarding Internet Communications, the State Administrator: A. can require filing of the content of the current web page only B. can require filing of all content that has ever appeared on the website C. can require filing of the content that has appeared during the current calendar year only D. cannot require the filing of web pages

B. The Administrator is concerned that advertising can be misleading, which is why it can be required to be filed. Because content of a website can be readily changed, each update of the site must be archived and made available to the Administrator on request.

An Investment Adviser falls below the minimum net capital required by the State on Monday. The IA must file a report with the Administrator no later than: A. Tuesday of that week B. Wednesday of that week C. Thursday of that week D. 10 business days after the event

B. The NASAA model rule for investment adviser financial requirements (Rule 202(d)-1) states that "every adviser required to be registered in the State shall, by the close of business the next business day, notify the Administrator if such investment adviser's net worth is less than the minimum required." After transmitting such notice, each investment adviser shall file, by the close of business on the next business day, a report with the Administrator of its financial condition, including a: trial balance of all ledger accounts; statement of all client funds which are not segregated; compilation of the aggregate amount of client ledger debit balances; and statement as to the number of customer accounts. Since this IA's net capital fell below the minimum on Monday, notice to the Administrator must be given on Tuesday and the report filed on Wednesday. question # 1-3-8-6 Registration & Licensing: Standards: Broker-Dealers and Investment Advisers: Net Capital / Net Worth - Falling Below Minimum Copyright 1989-2019 Pass Perfect, LLC All Rights Reserved

Under the Uniform Securities Act, investment advisory contracts: A. can be oral B. must be in writing C. must include a clause that customer statements will be sent periodically D. must give a complete description of the investment adviser's prior performance

B. The Uniform Securities Act requires that investment advisory contracts be in writing. There is no requirement that customer statements be sent periodically unless the adviser takes custody of customer funds or securities (in which case, statements must be sent quarterly). There is no requirement to give a complete description of the adviser's prior performance in such contracts - this has no bearing on the contractual agreement.

An investment adviser located in State A only deals with very large hedge fund investors that are located in State B. The adviser is not required to be registered with the SEC because it currently has $20,000,000 of assets under management. Which statement is TRUE regarding State registration requirements? A. The adviser must register in State B where its customers are located, but it is exempt from registration in State A B. The adviser must register in State A where it has its office, but it is exempt from registration in State B C. The adviser must register in both State A and State B D. The adviser is not required to register in any State because it is exempt

B. The basic rule on State registration is that if you have an office in that State, then you must register in that State. If you have no office in a State, but you solicit customers in that State, then you must register in that State as well. However, if you have no office in a State and you only deal with institutional investors in that State (e.g., hedge funds), then registration is not required.

Which of the following would be defined as either an "offer to sell" or a "sale" of a security? I The gift of an assessable security II The gift of a non-assessable security III The giving of a security as a bonus in consideration for the purchase of securities IV The pledge of securities, creating a security interest as collateral for a loan A. I and II only B. I and III only C. II and IV only D. I, III, and IV

B. The gift of an assessable security or the giving of a security as a "bonus" in consideration for buying another security are both defined as "offers to sell" under the Act. The gift of a non-assessable security is simply a gift - it is not an offer to sell. The pledge of securities for a loan is also not defined as an offer to sell.

A customer that buys a non-exempt new issue must be delivered a prospectus at, or prior to, the time of: A. being solicited to purchase the new issue B. entering into the contract to purchase the new issue C. completion of the purchase of the new issue D. settlement of the purchase of the new issue

B. The rule for prospectuses is that they must be delivered at, or prior to, confirmation of sale. The generation of the confirm is the time that the customer is legally entering into the "contract" to buy the security, so this is the best answer. Settlement is the date (typically 3 business days after the confirm is generated) when the customer actually makes the payment for the purchase. This is when the transaction is legally "complete."

The agent of a broker-dealer registered in State A, sells unregistered non-exempt securities to customers in State A. These customers lose a substantial sum of money on the investment. Which statement is TRUE? A. The Administrator of State A can arrest the agent within the boundaries of State A for violating the provisions of the Uniform Securities Act B. The purchasers of the issuer can initiate a civil lawsuit in a court of law in State A to recover their losses C. The Administrator can initiate a criminal lawsuit in a court of law in State A to recover investor losses D. No violation of the Uniform Securities Act has occurred as long as no sales of this security occurred outside of the boundaries of State A

B. There is no mention of the agent "knowingly" selling unregistered non-exempt securities to customers in the State, so this is a case where there is no criminal liability - only civil liability applies. The seller is liable to any purchaser of the security - and the purchasers can sue to recover their losses. The Administrator does not have the power to arrest people for violating the Act. However, a court of law can issue an arrest warrant.

An Investment Adviser Representative engages in a policy of placing block trades for securities that he wishes to purchase, which are allocated to both the adviser's proprietary account and the adviser's customers' accounts. Which statement is TRUE? A. This is an unethical business practice under NASAA rules because advisers are not permitted to trade for their own proprietary accounts B. This is permitted if it leads to lower commission costs and higher potential rates of return C. This is an unethical business practice because the adviser is breaching his fiduciary duty to the customer D. This is permitted if the Administrator does not have a rule prohibiting the adviser from engaging in block trading

B. There is no prohibition on an adviser placing block trades for securities in order to lower execution costs. There is also no prohibition with allocating shares purchased between the adviser's proprietary account and customer accounts, as long as the allocation method is fair and reasonable, does not favor the adviser over the customers, and the allocation method is disclosed to the customers. This question only addresses the "lower" cost portion of the rule.

Under the Uniform Securities Act, which statements are TRUE regarding investment advisers that take custody of customer funds? I The administrator must give written approval before an adviser can take custody of customer funds II The administrator can require a higher surety bond for advisers that take custody of customer funds III Statements of account must be sent to customers whose assets are held in custody at least quarterly A. I and II only B. II and III only C. I and III only D. I, II, III

B. There is no requirement for an investment adviser to get prior approval from the Administrator to take custody of customer funds. The Administrator may, by rule, prohibit advisers from taking custody; and can require a higher surety bond for advisers that do take custody ($35,000 instead of $10,000). If an adviser takes custody of customer funds or securities; account statements must be sent to the customer by the adviser at least quarterly. If there is no rule prohibiting taking custody of client funds, then the adviser may do so as long as it notifies the Administrator that it may take; or has taken; custody. If the adviser takes custody of client funds and securities, it must segregate the client funds from investment adviser monies;

An elderly client of a Registered Investment Adviser has gifted securities to his adult son at the end of each year, in an amount equal to the annual gift tax exclusion. The client has a stroke that has affected his ability to communicate and the RIA is approached by the adult son about continuing the annual giving of the gift. The RIA should: A. go ahead and continue giving the annual gift because this is in accordance with the prior practice in the account B. ask the son if he has a durable power of attorney granted by the father and obtain this prior to giving the annual gift C. follow the instructions in the client's will D. visit with the client and ask him whether he should give the gift, directing the client to squeeze his hand if the answer is "Yes"

B. This client is incapacitated. If the client gave his son a durable power of attorney prior to the stroke, then the son is authorized to act on the father's behalf. (Remember that a durable power of attorney continues on the giver's mental incapacitation; while a non-durable power of attorney ceases upon the giver's mental incapacitation.) Otherwise, the RIA can do nothing. Choice C is wrong because the client is not dead! Choice D is simply amusing.

A broker-dealer that is not registered in a State sells non-exempt securities in non-exempt transactions to customers located in that State. That State's Administrator will: A. require that the securities be registered in the State and that the broker-dealer register in that State B. require the broker-dealer to make an offer of rescission to each purchaser in that State C. require that a notice filing be made in the State along with the payment of a filing fee D. institute an action in a court of law alleging criminal activities on the part of the broker-dealer

B. To sell non-exempt securities in a given State, the broker-dealer, its agent, and the security, must all have been registered in that State (unless an exemption was available). The action normally taken by the Administrator is to require the broker-dealer to make an offer of rescission - that is, make the firm refund the money + interest + attorney's costs. Since this sale already happened, the Administrator will not retroactively require the firm to register in that State; but the Administrator will require registration for any future transactions that occur in the State. (Note that we are assuming that the illegal action taken by the broker-dealer was not intentional in this case - if it was intentional then the Administrator might institute a proceeding in a court of law alleging criminal intent).

An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the offering size. In order to do this, which statement is FALSE? A. A registration amendment must be filed with the State, if it is within 6 months of the date of sale B. The offering price can be increased C. An additional filing fee must be paid D. A late registration fee must be paid

B. Under USA, a registration statement for a securities offering may be amended after its effective date to increase the amount of securities to be sold (this would be done if there was greater demand than expected). The offering price and underwriter's compensation cannot be changed. To do this, it must be within 6 months of the original sale date (the effective date) and both a filing fee for the additional securities being offered and a late registration fee must be paid to the State. (Of course, you might wonder why this bit of trivia must be known for the exam, but it must!) The amendment becomes effective when the Administrator so orders.

Under NASAA recordkeeping rules for investment advisers, any advertisement, circular or other communication: I must be retained if it is circulated to 2 or more persons II must be retained if it is circulated to 5 or more persons III cannot recommend the purchase or sale of a specific security IV can recommend the purchase or sale of a specific security and if it does not state the reasons for the recommendation, a memo must be retained indicating the reasons for the recommendation A. I and III B. I and IV C. II and III D. II and IV

B. Under the NASAA model rule, advertisements, circulars, bulletins or other communications circulated by the adviser to 2 or more persons must be retained for 5 years. Such communications can recommend the purchase or sale of a specific security and if the communication does not state the reasons for the recommendation, a memo must be retained indicating the reasons for the recommendation

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

B. 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. Order tickets must be time stamped with time of order receipt; time of order execution; and time of order cancellation, if canceled. In addition, the order ticket must have the customer name and/or account number, the size of the trade; the security to be traded; the price; and the time length of the order. The order ticket must include whether the trade was solicited or unsolicited (regulators are much more interested in solicited orders when looking for suitability violations).

The State Administrator receives a complaint about a Federal Covered adviser which has made a notice filing in the State, alleging that the adviser stole from him. Which statement is TRUE about this? A. The Administrator cannot take action because the adviser is Federal Covered B. The Administrator can investigate the complaint C. The Administrator must refer the complaint to the SEC and tell the client that it is doing so D. The Administrator can rescind the registration of the adviser

B. While NSMIA (National Securities Markets Improvements Act of 1996) partitioned responsibility for investment adviser supervision between the Federal government (Federal Covered Advisers) and the States (State-registered advisers), it retained State jurisdiction to investigate and enforce any violation of State law with respect to fraud or deceit, covering all advisers, whether State-registered or Federal Covered.

A money market fund that charges .10% of annual management fees and .20% of annual 12b-1 fees: A. cannot be called "no-load" because the total of these fees exceeds .25% B. cannot be called "no-load" because such funds cannot charge 12b-1 fees C. can be called "no load" D. can be called "low load"

C. A mutual fund (money market funds are mutual funds) cannot be called a "no-load" fund if it charges 12b-1 fees of more than .25% (25 basis points) annually. 12b-1 fees are charges against net asset value that pay for the cost of soliciting new investment to the fund, and they can be used to compensate salespersons that sell the fund's shares. All mutual funds charge management fees. These have nothing to do with sales loads.

An Investment Adviser Representative is employed by ECCO Advisers, a Federal Covered adviser. ECCO Advisers has its only office in State Y, and has made a notice filing the State Y's Administrator. The IAR gives seminars to potential clients in State Z, which is only 5 miles from the ECCO's offices in State Y. The IAR is: A. required to be registered in State Y only B. required to be registered in State Z only C. required to be registered in both State Y and State Z D. not required to be registered in either State Y or State Z

C. Even though a Federal Covered adviser is not required to register in a State, its IARs can be required to register (because there is no Federal registration of IARs - only of IAs). Because the IAR is physically located in State Y, he or she must be registered in State Y. Because the IAR is soliciting clients in State Z, he or she must be registered in State Z. (The IAR would be exempt from registration in State Z only if he or she had no office there and solicited institutional clients only; or deals with no more than 5 retail clients in a year.) Furthermore, though the question does not address this, the IA with which the IAR is associated would be required to complete a notice filing in State Z.

Which of the following securities are exempt under Uniform State Law? I Bank stock II Bank holding company stock III NYSE listed stocks IV NASDAQ listed stocks A. I and II only B. III and IV only C. I, III, and IV D. I, II, III, IV

C. Exempt securities under State law include bank stocks but not bank holding companies, which are publicly traded and must be registered. For example, stock in a small local bank is an exempt security, since the bank is highly regulated under State banking laws. Stock in a bank holding company, such as Citibank, is non-exempt unless it qualifies under another exemption provision (and, in this case, Citibank stock falls under the "blue chip" exemption, since Citibank is NYSE listed). Exchange listed stocks and NASDAQ listed stocks are exempt securities under the "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.

An institutional buyer is defined under the Uniform Securities Act as: A. an institution with at least $100 million of assets available for investment B. an accredited investor as defined under Rule 506 of Regulation D of the Securities Act of 1933 C. any person defined by the Administrator by rule or order D. any institution that is regulated by the Federal Reserve, SEC, or State Insurance or Banking Commissioners

C. The Uniform Securities Act exempts from registration in a State, any broker-dealer or investment adviser that does not have an office in the State and that only deals with "institutional buyers." These institutional buyers include banks, savings and loans, trust companies, insurance companies, investment companies, pension and profit sharing plans, other financial institutions, and anyone so defined by the State Administrator by rule or order. The Uniform Securities Act does not set minimum capital standards to be defined as an institutional buyer.

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? A. Mary is not required to register as an agent in each State because she was registered when the Form BD was filed B. Mary is not required to register as an agent in each State because the broker-dealer is federal covered C. Mary must register as an agent in each of the 50 States D. Mary is not required to register as an agent because she is only supervising sales and not actually selling securities herself

C. This question gets at a "fine" point in the law. The partners that are named in a registration application in each State become automatically registered as agents (once they pass the appropriate exam, e.g., 63/65/66) - but these are only partners that have sales or trading responsibilities. While Mary is included in the registration application, because she does not deal with the investing public, she would have had her automatic registration "turned off" and was not required to take the 63/65/66 exam. (It would be nice if the question mentioned this, but it doesn't and this is typical of exam-type questions.) If she takes a sales supervision job, then she becomes an agent and now must be registered in each State and must pass the appropriate exam! So this is really a question about who must take the 63/65/66 exams! Also note that there is no such thing as a federal covered broker-dealer; there are only federal covered advisers and federal covered securities.

Which of the following securities issues MUST be registered in a State? I Common shares of a public utility II Subordinated debentures of a bank holding company listed in the Pink Sheets III Common shares of an industrial company listed in the OTCBB IV Investment company securities A. I and II only B. III and IV only C. II and III only D. I, II, III, IV

C. Under Uniform State Law, securities issued by public utilities regulated under the Public Utility Holding Act of 1935 are exempt securities. While bank, and savings and loan issues, are exempt, securities issued by bank holding companies are not. So if a bank offers its own common stock, it must be registered in the state unless the security is "federal covered" - meaning that it is listed on a major exchange (NYSE, AMEX (NYSE American) or NASDAQ). The Pink OTC Market has no listing standards and is not an exchange. Common shares of industrial companies are non-exempt unless they are listed on a major stock exchange (blue chip exemption). The OTCBB (Over-The-Counter-Bulletin-Board) has no listing standards and is not an exchange. Investment company securities are federal covered securities, and cannot be required to be registered in the State - only registration with the SEC is required.

What is a "seasoned security"? A. One that is not traded on an exchange, but whose value can be readily determined B. One that is suitable for investors that have extensive trading experience C. One that has substantial trading activity across a wide diversity of shareholders and publicly available marketplace information D. One that has completed the required cooling off period immediately preceding its Initial Public Offering and is now trading over-the-counter.

C. A "seasoned security" is one that has "seasoned" in the marketplace. Basically, it is a security that has completed its IPO and is now exchange listed, with extensive trading activity and marketplace information. Such "seasoned issuers" can use the simplest method of registering securities in the state - Registration by Filing.

A customer of a broker-dealer is extremely satisfied with her investment returns. She calls her agent, who made the recommendations that did so well, and tells him: "Just to say thank you, next year, you get to keep 10% of any investment gains in my account." Which statement is TRUE? A. This is only permitted if a written contract is signed by the customer and the agent B. This is only permitted if the agent is also registered as an investment adviser representative in the State C. This is not permitted because the agent is sharing in a customer account D. This is not permitted because the agent earns commissions on the recommended trades

C. Agents are prohibited from sharing in the gains and losses of a customer's account unless there is a written agreement between the customer and the agent which has been approved by the broker-dealer; and the agreement specifies that sharing in gain and loss is proportionate to the capital contribution of each participant in the account. In this situation, none of these conditions are met, so sharing is prohibited.

Which of the following is an unethical business practice? A. Publication of a tombstone announcement by a broker-dealer in the local newspaper on the effective date of a registered new issue offering managed by that broker-dealer B. Publication of a research report by a broker-dealer that shows the performance of prior recommendations made by that broker-dealer during the prior 12 months C. Publication of a report by an agent detailing the performance of transactions recommended by that agent over the prior 12 months D. Publication of a report by a broker-dealer written by an agent detailing the performance of transactions recommended by that agent over the prior 12 months

C. An agent cannot publish and distribute reports detailing the performance of recommended transactions. Broker-dealers, on the other hand, may do so, but the State Administrator can require the filing of these reports.

Under the Uniform Securities Act, an investment adviser is permitted to take physical custody of a customer's monies or securities: A. under no circumstances B. only if the Administrator does not prohibit this by rule and the adviser has notified the customer that he has, or will take, custody C. only if the Administrator does not prohibit this by rule and the adviser notifies the Administrator that he has, or will take, custody D. if the Adviser is properly registered with the State Administrator

C. An investment adviser is permitted to take physical custody of a customer's monies or securities only if the Administrator does not prohibit this by rule; and if the adviser notifies the Administrator that he has, or will take, custody. In addition, the customer must be sent a quarterly statement of account by the adviser.

Under the Uniform Securities Act, an offering of a limited partnership made to a bank trust department is: I a transaction that is exempt from registration II exempt from the advertising filing rules III exempt from the anti-fraud rules A. I only B. II only C. I and II D. I, II, III

C. An offering of a limited partnership interest to a bank trust department is an exempt transaction. If the security or transaction is exempt, the State Administrator cannot require filing of advertising related to that offer or sale. However, all transactions are subject to the anti-fraud rules.

An IAR associated with a State-registered adviser receives correspondence from his uncle about the uncle's securities account that the IAR handles. Under the Uniform Securities Act, this letter is considered: A. the private property of the IAR and can be disposed of as the IAR sees fit B. the private property of the IAR but must be kept on file for 2 years C. a record of the investment adviser, subject to examination by the Administrator D. a record of the investment adviser, but is not subject to examination by the Administrator

C. Any written documents about customer accounts are a record that can be examined by the Administrator. They must be kept on file for the time period specified under Federal securities law for a Federal-covered adviser; or such period as set by the Administrator for a State-registered adviser.

Under the Uniform Securities Act, an application to register securities may be filed by the: I Broker-Dealer II Agent III Issuer IV Person on whose behalf the offering is to be made A. III only B. I and IV only C. I, III, and IV D. I, II, III, IV

C. Applications to register a security in a State cannot be filed by agents. They may only be filed by the issuer; or a broker-dealer acting for an issuer; or the person on whose behalf the offering is being made (for example, an officer of a company effecting a secondary distribution of a large block of shares that he or she holds can file a registration application). Applications to register securities with the State cannot be filed by agents, nor can they be filed by Investment Advisers.

The Administrator: A. is empowered to issue stop orders retroactively and can vacate them retroactively B. is empowered to issue stop orders retroactively and cannot vacate them retroactively C. cannot issue stop orders retroactively but can vacate them retroactively D. cannot issue stop orders retroactively and cannot vacate them retroactively

C. As a general rule, the Administrator cannot issue an order stopping the sale of a security, or denying or revoking a registration, retroactively. However, if the Administrator were to issue a stop order because of something trivial, like not paying the required fee, then once the fee is paid, the stop order would be vacated, and this is done retroactively to the date of the original stop order.

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 A. I and II only B. III only C. II and III only D. I, II, III, IV

C. As long as the agent is registered in the State, he or she can offer the stock issue to new or existing clients in that State, making Choice I permitted, and Choice II prohibited. Choice III is prohibited because the customer cannot be "sold" the new issue security unless the customer receives the prospectus at, or prior to sale. Delivering the prospectus after the sale is made is not allowed. In Choice IV, since the agent is registered in the State, there is no reason why a prospectus cannot be given to a customer that expresses interest in buying the issue.

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

C. 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.

An investment adviser representative has joined the local golf club, where there are many wealthy club members. At the club, the IAR has met many individuals who are interested in having her investment advisory firm manage their money. As an inducement only available to club members, the IAR offers to reduce the annual management fee to .25% of annual average net assets from the usual fee of .35%, conditioned upon a minimum of $500,000 being invested by that club member. Which statement is TRUE about this offer? A. This is a prohibited discriminatory fee arrangement under both NASAA and SEC rules B. This is a permitted fee arrangement because it is conditioned upon a minimum investment of $500,000 C. This is a permitted fee arrangement as long as the existence of the negotiated discount is disclosed in the Form ADV Part 2A D. This is a permitted fee arrangement only if the State Administrator approves of the arrangement prior to the acceptance of the offer by any club member

C. Discounted investment adviser fee arrangements are permitted only if they are disclosed in the Form ADV Part 2A (the IA brochure). The Form ADV is filed electronically with either the SEC (Federal Covered Advisers) or the State using IARD - Investment Adviser Registration Depository within 90 days of year-end. It must be given to advisory clients when an account is opened and an updated Form ADV Part 2A or a Summary of Material Changes to the form must be delivered to customers annually thereafter.

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

C. 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.

An individual who previously worked as an agent at a broker-dealer leaves the employ of that firm and wishes to start his own broker-dealer as a sole proprietorship. In order to register in the State, the Administrator will require the filing of a(n): A. income statement B. federal tax return C. statement of financial condition D. W-2

C. Each applicant for initial registration as either an investment adviser or broker-dealer must file an original statement of financial condition (a balance sheet) with the Administrator, along with an oath or affirmation made by the applicant that the financial statement is true and current.

Under the provisions of the Uniform Securities Act, a federal covered security: I is an investment company security of a company registered with the Securities and Exchange Commission under the Securities Act of 1933 II must be registered in the State before it can be offered in the State III must be registered with the SEC before it can be offered in the State A. II only B. I and II only C. I and III only D. I, II, III

C. Federal covered securities are major exchange listed companies and investment company securities that are registered federally with the SEC. These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings.

Which of the following, if it contains an offer of securities, is considered to be an offer made within a State, subject to jurisdiction of that State's Administrator? A. Television broadcast from another State received in that State B. Radio broadcast from another State received in that State C. Newspaper published in the State and read in that State D. Newspaper published out of that State, read in that State

C. For a television or radio broadcast to come under the jurisdiction of the State Administrator, it must originate in that State. For a newspaper offering to come under the jurisdiction of the State Administrator, it must be published in the State, and have at least 1/3 of its circulation in that State. Choices A and B are clearly incorrect. Choice C is the best choice since this newspaper is published in the State and read in the State. Choice D must be incorrect because that newspaper is published outside of the State.

An investment adviser is opening that day's mail and receives a check from a customer for $5,000; however there is no payment due from the customer. The customer mailed the check in error. The same day, the investment adviser mails the check back to the customer. Under NASAA rules, the investment adviser: I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received A. I and III B. I and IV C. II and III D. II and IV

C. If a client inadvertently gives securities or funds to an investment adviser, as long as they are returned within 3 business days, then the adviser has NOT taken custody. This is the situation in this question. If the adviser inadvertently receives a check made out to a third party, as long as the adviser mails the check to the third party within 3 business days, then the adviser has NOT taken custody. Regardless, the adviser must keep a record of the receipt of the check.

Which of the following is NOT a federal covered security? A. An offering made over-the-counter of $250,000,000 of 10% convertible debentures of ACME Corporation, a company whose common stock is listed on the American Stock Exchange (NYSE American) B. A private placement of $250,000,000 of debt backed by automobile finance company receivables sold to investment managers that are qualified purchasers C. An offering of $250,000,000 of General Obligation bonds by the City of New Orleans to the residents of Louisiana D. An offering of $250,000,000 of common shares of a mutual fund that will be offered to the general public

C. If a security is defined as "exempt" under the Uniform Securities Act, then it is not required to be registered in each State where offered. If a security is a "federal covered security," then it cannot be required to be registered in each State where offered (though the State can require a notice filing and payment of a filing fee). Municipal bonds (Choice C) are an exempt security. The other 3 choices are federal covered securities. A federal covered security is defined as one that is: NYSE, AMEX (now renamed NYSE American) or NASDAQ listed or is a senior security of such an issuer; issued by a registered investment company; sold only to qualified investors - that is, investment managers with at least $25,000,000 under management - essentially these are federal covered advisers; or sold in exempt transactions specified under the Securities Act of 1933 such as Regulation D private placements. Note that for all 4 choices, there would be no registration required in the State. The question is looking for the distinction between an exempt security and one that is a "federal covered security."

Which of the following statements are TRUE about an offer of rescission? I The offer can only be made prior to the institution of a lawsuit alleging a securities violation II An offer must be made to buy back the security at the original purchase price III The customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security IV The customer must sign a waiver of non-compliance to accept the offer A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

C. If an offer of rescission is made on the inadvertent sale of a non-exempt security that should have been registered under the Act, the offer can only be made prior to the institution of a lawsuit alleging a securities violation. An offer must be made to buy back the security at the original purchase price, plus the customer must be paid interest at the legal rate in the State (6%), less any dividend or interest income received from that security. There is no requirement for the customer to sign a waiver of non-compliance to accept the offer. Any offer of rescission must be accepted within 30 days of the offer.

After being solicited by an agent of ABC Brokerage, a customer bought 1,000 shares of XYZZ stock (an OTCBB issue) at $15 per share. The stock rapidly declined to $8 per share, and the customer sold the shares. Six months later, the customer received a written offer of rescission from the broker-dealer, stating that the stock had not been registered in the State where the customer lives. Which statement is TRUE about the customer accepting the offer? A. The buyer cannot accept the offer of rescission because he no longer owns the stock B. The offer must be accepted verbally within 30 days of receipt C. The offer must be accepted in writing within 30 days of receipt D. The offer cannot be accepted unless the Administrator holds a hearing within 15 days of receipt

C. If an offer of rescission is made to the buyer, then the seller must either accept in writing in 30 days or the offer is void. The seller is offering to refund any loss to the buyer and would only do this if the offer of the securities to the buyer violated State law. Note that the buyer of the securities is not required to still own the securities to accept the offer. Remember that the buyer experienced a loss, and the buyer can sue the seller if the securities were not legally offered in the State. If the buyer accepts the rescission offer, then the buyer will give up the right to sue the seller.

A trainee that has not yet been registered as an agent of a broker-dealer would: A. be permitted to accept unsolicited orders from customers B. be permitted to make "cold calls" to prospective customers C. be permitted to report completed trades to customers D. not be permitted to have any contact with either existing or prospective customers

C. Individuals that are not registered as agents in the State cannot recommend securities to customers, nor can they accept customer orders - either solicited or unsolicited. They may perform clerical functions, such as reporting completed transactions to customers.

An Investment Adviser can give advice on: I NYSE listed securities II Options III Commodity futures IV Variable annuities A. I only B. II and III only C. I, II and IV D. I, II, III, IV

C. Investment Advisers and IARs give advice about securities, not commodities or futures contracts. Choice I, II and IV are all securities. Commodities futures are not securities.

A company that has never previously issued securities registered with the Securities and Exchange Commission, can register in a State by: I Filing II Coordination III Qualification A. I only B. II only C. II and III D. I, II, III

C. Registration by Filing is only available to "seasoned" companies that have previously registered securities with the SEC. If a company has never issued securities before, this method cannot be used. Registration by Coordination coordinates State registration with a current Federal registration. This method is available to a company that has never registered securities in the State, as long as a current SEC filing is being made. Registration by Qualification is a detailed filing in that State for any issuer and is also available for first time registrants.

Registration of securities in a State by Filing becomes effective: A. when the filing with the State is completed B. 2 business days after the filing with the State is completed C. 5 business days after the filing with the State is completed D. when the Federal registration becomes effective

C. Registration of securities in a State by filing becomes effective on the 5th business day after filing (unless the Administrator allows a shorter period).

The Administrator can take which of the following actions? I Coordinate inspections with those conducted by the Securities and Exchange Commission II Inspect a broker-dealer located in another State that does business in the Administrator's State III Require a witness to testify in a hearing, even though the testimony may tend to incriminate that witness IV Suspend the constitutional privilege against self-incrimination available to an individual A. I and III B. II and IV C. I, II, III D. I, II, III, IV

C. The Administrator may coordinate inspections with those conducted by the Securities and Exchange Commission; may inspect a broker-dealer located in another State that does business in the Administrator's State; and may require a witness to testify in a hearing, even though the testimony may tend to incriminate that witness. However, the Administrator cannot suspend the constitutional privilege against self-incrimination available to an individual, since this Federal law (5th Amendment to the Constitution) supersedes any State law.

A new customer wants to open a discretionary account by initially depositing $20,000 in cash. He signs the authorization form and indicates to an agent that his investment objective is long-term growth. He wishes that the agent immediately invest his money to take advantage of market timing. Which statement is TRUE? A. As long as the customer is an American Citizen born in the United States and this is verified, the agent may invest the money in a manner consistent with the customer's objective B. Once the new account form is approved by the State Administrator, the agent can start investing as long as the investment is consistent with the customer's objective C. The agent should contact her branch manager as cash deposits or withdrawals exceeding $10,000 must be reported to the Department of Treasury D. The agent should contact her State Administrator as amounts exceeding $10,000 must be reported to the Secretary of the State

C. The Department of Treasury requires that any deposits of cash made by a customer; or withdrawals of cash made by a customer; in the amount of more than $10,000, must be reported to FinCEN (Financial Crimes Enforcement Network).

Which person is EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act? A. A person with no place of business in the State who solely effects exempt transactions for customers that reside in the State B. A person with no place of business in the State who solely effects transactions in federal covered securities in the State C. A person with no place of business in the State that effects underwriting transactions with other broker-dealers in the State D. A person with no place of business in the State who only effects securities transactions with accredited investors in the State

C. The Uniform Securities Act excludes from the definition of a broker-dealer, any person who has no place of business in the State and who transacts business exclusively with: issuers of securities involved in the transaction; or other broker-dealers; or banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans. Basically, this provision states that an "out-of-state" broker-dealer that is not dealing with the public, will not have to register in the State. Choices A and B are broker-dealers that are dealing in either exempt transactions or federal covered securities. These are not excluded from the definition, since they can be dealing with the general public. Choice D is a broker-dealer that is only dealing with accredited investors (an individual with either $200,000 annual income or $1,000,000 net worth under Federal law). These persons are also considered to be the "public" - since these dollar limits are not that high. The broker-dealer with no place of business in the State that only deals with other broker-dealers in the State clearly meets the exclusion.

Which of the following is the MOST appropriate investment for an estate account? A. Investment grade long term bonds B. Long Treasury Bonds C. Treasury Bills D. Insured Municipal Bonds

C. The objective of an estate account is to preserve principal and to effect a timely distribution of estate assets. The best investment of the choices offered is Treasury Bills - they are liquid and have little market risk. Long term bonds (the 3 other choices), even if they are liquid and safe, are subject to substantial market risk.

An agent of a broker-dealer may: I charge a fee for investment advice in addition to any commission charged if a recommendation performs well II not charge a fee for investment advice in addition to any commission charged if a recommendation performs well III charge for clerical services where the charge is not based on performance IV not charge for clerical services A. I and III B. I and IV C. II and III D. II and IV

C. The only fee that can be accepted for executing a transaction is the original commission charged. A broker-dealer cannot charge separately for investment advice; any charge for investment advice is included in the broker's commission charge. Charges for clerical services are permitted as long as the charges are fair and reasonable and do not discriminate among customers.

A client that is 80 years old comes into the agent's office and tells the agent that he must undergo a gall bladder operation. The client is worried about the amount of time that will be spent in the hospital to recover, and at his advanced age, is also worried about the chances of complications and possible death. The client has physical stock certificates in his home safe and asks the agent for assistance. The agent should: A. Drive the 80 year old customer to his house, pick up the securities, bring them back to the investment adviser's office and place them in the investment adviser's desk drawer for safekeeping B. Go to the customer's home and retrieve the securities and put them into a lock box at a local bank under the client's name C. Drive the 80 year old customer to his house, have the client retrieve the securities and put them into a lock box at a local bank under the client's name D. Refer the customer to the local police for assistance

C. The physical certificates cannot be taken by the representative, since then the firm would be deemed to be taking custody of the securities and would have to comply with all of the custody rules (safekeeping by a qualified independent custodian; quarterly account statements must be sent to customers; independent annual audit of the custodian, etc.). It would be acceptable for the representative to drive the customer to his home; have the customer retrieve the securities; and then drive the customer to a bank where the customer places them in a safe deposit box. In this scenario, the adviser is never taking custody. Choice D is also OK, but Choice C is the better answer.

Under the Uniform Securities Act, an unregistered agent would be permitted to sell: I ownership interests in real estate limited partnerships II fractional ownership interests in a mining company III certificates of deposit issued by a federally chartered bank IV shares of a federally chartered credit union A. I and II only B. III and IV only C. III only D. I, II, III, IV

C. The question does not say whether this is an unregistered agent of a broker-dealer or of an issuer, but we presume that since this is a broker-dealer agent's exam, that this is where the question is directed. To sell a "security," the agent must be registered in the State. It makes no difference if the security is exempt or non-exempt. Choices I and II are non-exempt securities, while Choice IV is an exempt security. Even though shares of a federally chartered credit union are exempt from State registration, the agent selling them must still be registered. Choice III is NOT a security - it is a bank product. There is no licensing requirement to offer bank certificates of deposit, since their purchasers are protected by the banking laws.

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 convict

C. 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.

An Investment Adviser Representative manages the accounts of high net worth individuals, with account sizes ranging from $500,000 to $10,000,000, on a discretionary basis. The representative has been contacted by a limited partnership promoter that is offering real estate partnerships that require a minimum $50,000 investment. The promoter offers the representative an all expenses paid trip for 2 to Las Vegas, where the partnership sponsor will be holding a seminar that covers all of the details of the investment. The representative wishes to perform due diligence on the offering and believes that taking the trip is important. The representative contacts each of his best clients and discloses the fact that he is taking the trip paid by the sponsor and buys a partnership unit for each of them. Which statement is TRUE? A. The representative's actions and disclosures to his customers appear to be appropriate B. The representative has failed to give full disclosure of the conflict of interest to his customers C. The representative has not adequately determined the suitability of the investment for each of his customers D. The representative has accepted a bribe from the partnership sponsor and is subject to criminal penalties

C. The representative disclosed the fact that he was taking this all expenses paid "fact finding" trip to his customers, so this is not an issue. However, he bought a partnership unit for each of his best clients. It appears that the units were purchased without first determining the suitability of the investment for each of those clients - a major rule violation.

Which of the following persons would be defined as "sales representatives"? I A clerical employee of a broker-dealer who does not effect securities trades and does not receive commissions II A clerical employee of a broker-dealer who effects securities trades and receives commissions III A partner of a broker-dealer who does not effect securities trades and who receives commissions IV A partner of a broker-dealer who effects securities trades and who does not receive commissions A. I and II only B. III and IV only C. II and IV only D. II and III only

C. To be defined as an "agent" under the Uniform Securities Act, an individual must take, or solicit, orders from the public. Individuals who do not solicit the public or who solely perform clerical or managerial duties, do not fall under the definition. It makes no difference how that person is compensated, when determining if they fall under the definition of an "agent."

When making a sales presentation to a new client, an IAR makes a sale of advisory services to the customer, having the customer sign a sales contract. The IAR gives the customer a glossy brochure, but does not have the customer sign it. The brochure states that the client has 2 business days to back out of the contract. Under NASAA rules, why is this considered to be unethical? A. Because the customer did not sign the brochure B. Because the customer should have been given the brochure 48 hours prior to having the customer sign the sales contract C. Because the customer must be given 5 business days to back out of the contract D. Because the customer has a 30 day right of rescission under the Uniform Securities Act

C. Under NASAA rules, when advisory services are sold to a new client, the client must be delivered Form ADV Parts 2A and 2B - the "Brochure" and "Brochure Supplement." The rule states that the customer must get these either 48 hours prior to entering into the advisory contract; or alternatively, the customer can sign the contract and be given the Brochure and Supplement, but then has 5 business days to terminate without penalty.

A broker-dealer has a marketing agreement with a local bank and has located offices in each of the bank's branches. If a bank customer makes an inquiry about mutual funds offered by the broker-dealer in the branch, all of the following are true EXCEPT: A. oral disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal B. written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal C. the customer's signature must be obtained on a document acknowledging receipt of the appropriate risk disclosures D. reasonable efforts must be made to obtain the customer's signature on a document acknowledging receipt of the appropriate risk disclosures

C. When a broker-dealer has a branch location in a bank office, any customers who wish to effect securities transactions must be told orally and in writing that securities products are not FDIC insured; are not deposits; and are subject to risk of loss of principal. In addition, at the time that an account is opened for a customer in such a location, NASAA requires that the member make reasonable efforts to get the customer's written acknowledgment of receipt of these disclosures.

Under NASAA rules, which of following are unethical practices when recommending a mutual fund to a customer? I Recommending a letter of intent if the customer does not have the immediate funds to reach a breakpoint II Not disclosing to a customer the sales charge discount if a purchase is made at the breakpoint level III Not disclosing to a customer that dividends can be automatically reinvested without any sales charge imposed IV Recommending the purchase of shares which results in the customer simultaneously holding shares in different investment company portfolios with similar investment objectives A. I and III B. I and IV C. II and III D. II and IV

D. If a customer is getting "close" to the purchase amount needed to qualify for a breakpoint (a reduced sales charge), it is unethical under NASAA rules not to make the customer aware of the relevant sales charge discount on the purchase of shares in dollar amounts at or above the breakpoint. Thus, the agent must tell the customer the amount of any additional investment needed to qualify for the next breakpoint. Furthermore, the customer must be made aware of any letter of intent (LOI) feature that can be used to reduce the sales charge (the LOI gives the customer 13 months to complete the breakpoint). A way that an agent could maximize his or her compensation would be to recommend that the customer buy mutual fund shares with similar objectives in different fund families, so that the customer does not reach a breakpoint (Choice IV). This is an unethical practice. There is no requirement to make the customer aware of automatic dividend reinvestment when recommending mutual funds.

An issuer that wishes to sell a new issue offering across the United States has decided to register an issue by coordination under the provisions of the Uniform Securities Act. Once registration is effective, this means that the issue will be registered: A. with the SEC only B. with NASAA only C. in any of the 50 States where registration documents were filed D. with both the SEC and in any of the 50 States where registration documents were filed

D. Registration by coordination is the easiest method of registering securities in a State. The issuer uses the Federal SEC filing as the documentation to register the issue in each State where it will be sold. When registration is effective with the SEC, it is also effective in each State (as long as the proper fees have been paid to the State). Note that federal covered securities are not subject to State registration requirements. These are basically exchange-listed and investment company issues. The State can require notification and payment of a fee for these. This leaves registration by coordination to be used for SEC-registered issues that are too small for exchange listing - basically OTCBB and Pink Sheet issues.

An investment adviser can borrow money from which of the following customers? A. Unaffiliated investment adviser B. Investment company C. Accredited investor D. Broker-dealer

D. An investment adviser can only borrow money from a customer that is an affiliate; or a customer that is a financial institution that is in the business of making loans such as a bank or broker-dealer. Thus, an investment adviser could not borrow from a customer that is another unaffiliated investment adviser; could not borrow from a customer that is an investment company; and cannot borrow from a wealthy customer that is an accredited investor. However, the adviser would be permitted to borrow from a customer that is a broker-dealer. In this case, it makes no difference if the broker-dealer is affiliated or unaffiliated.

Which of the following securities qualify for a Blue Chip exemption under the Uniform Securities Act? I Common stock listed on the American Stock Exchange (NYSE American) II Common stock listed on the NASDAQ III Limited partnership offering where the general partner is a company listed on the American Stock Exchange (NYSE American) IV Unlisted mortgage bonds of a company whose common stock is listed on the American Stock Exchange (NYSE American) A. I only B. I and II only C. III and IV only D. I, II, and IV

D. The "Blue Chip Exemption," exempts from State registration, issues listed on recognized stock exchanges, such as the New York Stock Exchange, American Stock Exchange (now renamed the NYSE American), or NASDAQ Stock Market, etc., as well as any senior securities of those issuers (bonds and preferred stock) and any warrants and rights of those issuers. Also note that under the National Securities Markets Improvement Act of 1996, these are now defined as federal covered securities, which are only registered with the SEC; the States cannot require registration for these issues. However, a limited partnership security where an exchange listed company acts as general partner is technically a different issuer (it is an issue of the partnership; not of the corporate general partner that is listed on the exchange). As such, it is non-exempt.

Under NASAA rules, all of the following records must be retained for at least 5 years by a Registered Investment Adviser EXCEPT: A. Cash receipts and disbursements B. Order tickets C. Written communications D. Articles of incorporation

D. The basic rule for investment adviser records is that they must be retained for 5 years under the Uniform Securities Act. However, certain "permanent" records must be kept for the life of the firm - these include the partnership agreement if the RIA is a partnership; articles of incorporation if the RIA is a corporation; and any minutes to partnership or Board of Directors meetings. These must be kept for the life of the firm, plus an additional 3 years after the firm ceases operations.

Under the Uniform Securities Act, for an account to be considered by the Administrator to be "institutional," it must: A. purchase only the securities of the United States Government or its agencies and political subdivisions B. have assets of at least $5,000,000 C. meet the definition of an "accredited investor" D. be designated as such by rule or order of the Administrator

D. Under Uniform State Law, many transactions are exempt from the requirements of the Act. Generally, exempt transactions are those that do not involve the public. One of the exempt transactions is a trade with Financial or Institutional investors. Each State Administrator decides the specific "institutions" that will fall under this exemption. Institutional investors do not have to have minimum assets of $5,000,000 (though this is easy to confuse with the exemption from registration granted to investment advisers that render advice to pension plans with assets of at least $1,000,000). Institutions do not have to only invest in U.S. Government obligations (though this is easy to confuse with the exemption from registration given to investment advisers that only give advice on exempt securities). Finally an "accredited investor" is a concept of the Federal private placement exemption (Regulation D) of the Securities Act of 1933. It has no applicability to State law.

As a condition of registration, the Uniform Securities Act requires that broker-dealer records be kept on file for: A. 6 months B. 1 year C. 2 years D. for the time period prescribed by Federal law

D. Under the Uniform Securities Act, records maintained by broker-dealers and investment advisers that are subject to federal registration must be maintained for the time period prescribed under federal law. For those advisers who are not federal covered, the records must be maintained for a period of time specified by order of the Administrator. Also note that the Administrator can lengthen or shorten the record retention requirement. Under Federal law, the retention period for specific records is: Customer Correspondence: 3 Years Customer Confirmations: 3 Years Customer Account Statements: 6 Years

Which of the following persons is required to register as an investment adviser under the Uniform Securities Act? A. An attorney who writes a legal opinion included in the registration statement filed with the State for a new non-exempt securities offering B. A broker-dealer who gives investment advice in the regular course of business executing transactions for customers C. An agent of a broker-dealer who gives investment advice as part of his or her regular duties and who charges a fee for such advice D. A broker-dealer that charges an annual flat fee to customers for both investment advice and portfolio trade executions

D. An attorney that renders a legal opinion is not giving advice about investing in securities - the opinion covers the validity and legality of the securities offering. A broker-dealer is not considered to be an investment adviser unless it charges separately for advice. If the broker-dealer's compensation comes solely from commissions, then the broker-dealer does not fall under the investment adviser definition. On the other hand, if a broker-dealer offers an account that charges a flat fee or a fee as a percentage of assets - this is a "wrap" account that is an advisory product and registration at the State level as an adviser is required (thus, Choice D would have to register in the State as an investment adviser). Regarding Choice C, be careful! Choice C defines an "investment adviser representative" that would have to register at the State level - it does not define an "investment adviser."

An agent of a broker-dealer has hired a sales assistant who is not registered. The sales assistant will answer the telephone, handle customer queries, and perform other clerical duties. All of the following arrangements for compensating the unregistered sales assistant are permitted EXCEPT: A. Hourly wage B. Performance bonus C. Annual salary D. Production bonus

D. An unregistered person cannot be compensated with commissions or pay based on production. An unregistered sales assistant, therefore, is not permitted to share commissions, or share in any business increase, with the registered representative for whom he or she works. Notice that a "performance bonus" is different than a production bonus. A performance bonus on paid for simply doing a good job whereas a production bonus is based on the level of commissions and other fees that are earned.

Which of the following would be defined as an investment adviser under the Uniform Securities Act? A. U.S. Trust Corp. B. Washington Savings and Loan Corp. C. AIM Investment Advisers, a firm with $400,000,000,000 of assets under management D. Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors

D. Any deposit-taking institution is excluded from the definition of an investment adviser under the Uniform Securities Act (USA), making Choice A and Choice B incorrect. Federal covered advisers are also excluded from the definition of an investment adviser under USA. Since any adviser with $100,000,000 of assets or more under management is a Federal covered adviser, Choice C is incorrect as well. There is no exclusion from the definition of an investment adviser for advisers that only deal with accredited (wealthy) investors. Note, however, that there is an exemption available for investment advisers that have no business location in the State and that only deal with other advisers or with institutions. This exemption is not available to advisers that deal with wealthy individuals, however.

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

D. 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 is NOT defined as correspondence? A. Written letter to a client B. E-mail C. Instant message D. Group e-mail

D. Correspondence is an item of an individual nature to a customer and includes a written communication, an e-mail or an instant message. A group e-mail would fall under the definition of "sales literature." Sales literature is defined as a communication to 25 or more existing or prospective customers.

An investment adviser that typically places about 900 trades per month for its clients receives a notice from its executing broker that the cost per trade will drop to a flat $8.00 from the current $12.00 if 1,000 trades per month are placed. The investment adviser wishes to take advantage of the discount. To do this, the investment adviser should effect the extra 100 trades per month: A. across its customer accounts in proportion to the size of each account B. divided equally across all customer accounts C. across its customer accounts in proportion to trading activity in each account D. in the adviser's proprietary accounts

D. Excessive trading in customer accounts is "churning" and is prohibited. If the adviser wishes to effect an extra 100 trades per month to get the trading discount, it should do those trades in the firm's proprietary trading account. The only reason to increase trading activity in the customer accounts is if there will be a benefit to the customer in doing so. Just because the adviser will receive a lower commission cost per trade if it trades more does not mean that the adviser will pass along the discount to the customer!

Which of the following is NOT defined as a Federal Covered security and must be registered in the State under the Uniform Securities Act? A. Federally unregistered common shares of ADAP Corp. offered to 11 accredited investors under Regulation D B. Federally registered preferred shares of ADAP Corp. that are trading on the American Stock Exchange (NYSE American) C. Common shares of ADAP Fund, a mutual fund registered under the Investment Company Act of 1940 D. Working interests in an oil income direct participation program offered to potential 14 partners in that State

D. Federal covered securities can not be required to be registered in each State. The list of "federal covered securities" includes exchange listed and NASDAQ listed issues; investment company issues; issues sold only to qualified (wealthy) investors; and issues sold in transactions exempted under the Securities Act of 1933 such as Regulation D private placements. Thus, Choices A, B, and C are all federal covered securities. Working interests being sold in an oil and gas program are not a federal covered security; nor are they defined as an exempt security under the Uniform Securities Act and must be registered in the State to be sold (or offered in an exempt transaction permitted under USA).

Filing of advertising with the Administrator is NOT required for: I U.S. Government securities II Municipal securities III Investment company securities IV NYSE-listed securities A. IV only B. I and II only C. III and IV only D. I, II, III, IV

D. Filing of advertising with the State cannot be required for exempt securities; exempt transactions; or for federal covered securities. U.S. Governments and municipals are exempt securities. NYSE listed, NASDAQ listed and investment company securities are federal covered securities.

If a person disagrees with a final order of the Administrator, he or she must petition the appropriate court within how many days? A. 1 day B. 30 days C. 45 days D. 60 days

D. If a person disagrees with a final order of the Administrator, he or she must petition the appropriate court within 60 days of the order.

If an individual's registration has been revoked by the Administrator within the past 10 years due to a felony conviction resulting from a securities law violation, this individual is prohibited from being registered as a(n): I Agent for another broker-dealer II Principal of another broker-dealer III Representative for an investment adviser IV Principal of an investment adviser A. I only B. I and III only C. II and IV only D. I, II, III, IV

D. If a person's registration has been revoked, that person is prohibited from associating with another broker-dealer or investment adviser in any capacity for at least 10 years following the revocation.

For initial registration as an agent in a State, which can be required? I Consent to Service of Process II Filing Fee III Registration Application IV Fingerprints A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

D. In an initial registration with the State, a consent to service of process must be filed, in addition to the registration application (which can include fingerprints) and any filing fees designated by the Administrator.

All of the following non-exempt securities offerings by an issuer in a State are offered in exempt transactions EXCEPT: A. the sale of an issuer's securities to underwriters that have no place of business in the State B. an offer of securities made to 8 institutional investors within the preceding 12 months where commissions will be paid C. an offer of pre-organization certificates made to 8 non-institutional investors where no commissions will be paid D. the sale of an initial public offering where a registration statement has been filed with the SEC within the preceding 10 business days

D. Included in the extensive list of exempt transactions (thus the securities involved do not have to be registered in the State) under the Uniform Securities Act are: transactions between issuers and underwriters (since the public is not involved); private placements that are limited to no more than 10 investors during any 12 month period as long as no commissions are paid and the purchasers are buying for investment; however commissions may be paid for soliciting institutional investors; offers of pre-organization certificates to no more than 10 subscribers during any 12 month period as long as no commissions are paid (this exemption says nothing about paying commissions to institutional investors, which is permitted in private placements). The sale of an initial public offering where a registration statement will be filed with the SEC is not an exempt transaction. Registration would be required in the State, unless the security involved is exempt; or the security is a federal covered security. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.

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? A. The IAR should lend the customer the money because the client has sufficient assets under management to ensure that the loan will be repaid B. The IAR should arrange for the customer to rehypothecate a sufficient amount of securities to a bank to secure the loan C. The IAR should co-sign a loan with the client at a bank D. The IAR should refuse the client's request

D. Investment adviser representatives cannot lend money to customers - no exceptions! Note that if the employing advisory firm is a unit of a bank or brokerage firm, there is nothing stopping the bank or brokerage firm from lending money to the customer, as long as the terms and conditions of the loan are no different than that offered to anyone else.

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: A. deal solely with insurance companies B. deal solely with investment companies C. deal solely with broker-dealers D. have more than 5 clients in the state in the preceding 12 months

D. Investment advisers that are exempt from registration include advisers with no place of business in the State who deal solely with other advisers, broker-dealers, insurance companies, investment companies, financial and institutional investors, and government agencies. Also, advisers with no place of business in the State that have NO more than 5 clients in the State in the preceding 12 months are exempt. If an adviser with no place of business in the State has MORE than 5 clients in the State, then it must register.

Which records MUST be retained in a state-registered investment adviser's principal office? I Financial reports II Customer securities positions III Investment adviser's bank statements IV Records of customer purchases and sales orders A. I and III B. I and IV C. II and III D. II and IV

D. NASAA rules require that State-registered advisers keep, in their principal office, records of: customer purchases and sales; and customer securities positions (account statements). The rule requires that the records be kept for 5 years, with the prior 2 years immediately accessible. (Also note that the SEC rule for these records, which applies to broker-dealers and Federal covered advisers, is that these records be kept for 6 years. This rule would not apply to State-registered advisers.) NASAA has an extensive list of other records that advisers must keep, but does not specify the location where they should be kept or the time period they should be kept - so this is left to each State Administrator.

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Agents of broker-dealers are subject to post-registration requirements II Agents of broker-dealers are not subject to post-registration requirements III Agents of investment advisers are subject to post-registration requirements IV Agents of investment advisers are not subject to post-registration requirements A. I and III B. I and IV C. II and III D. II and IV

D. Post-registration requirements cover such things as maintaining books and records; making required filings with the Administrator; giving reports to customers; and filing advertising and sales literature with the State. These are requirements for both broker-dealers and investment advisers. This portion of the Uniform Securities Act does not apply to their agents, however.

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

D. 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.

Under the Uniform Securities Act, which of the following are EXCLUDED from the definition of an investment adviser? I Teacher II Engineer III Lawyer IV Accountant A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

D. Specifically excluded from the definition of an investment adviser under the Uniform Securities Act are lawyers, accountants, teachers, and engineers who give advice about securities that is incidental to their professional practice.

Suits alleging criminal violations of the Uniform Securities Act must be brought within how many years of the occurrence of the alleged violation? A. 1 year B. 2 years C. 3 years D. 5 years

D. Suits alleging criminal violations of the Uniform Securities Act must be brought within 5 years of the occurrence of the alleged violation. Any civil suits must be brought no later than 3 years after the contract of sale was executed. Such suits cannot be brought later than 2 years after the discovery of the facts constituting the violation.

The vice president of a publicly traded company casually tells a close friend over dinner that the company's results are looking very weak this quarter. The friend offers some comforting words to the vice president and does not tell anyone else about the news. Which statement is TRUE? A. The vice president has violated the insider trading laws B. The friend has violated the insider trading laws C. Both the vice president and the friend have violated the insider trading laws D. Neither the vice president nor the friend have violated the insider trading laws

D. The "tipper-tippee" doctrine applies only to cases where the tipper "intentionally" gives the information to the "tippee," who then trades on it. In this case, the "tippee" never traded, so there is no violation. Receipt of inside information is not a crime; trading on it is the crime. Note that if an individual receives inside information and then tells it to others who trade on it, the "tipper-tippee" doctrine is invoked where both are liable.

Under the Prudent Investor Act, a trustee's investment and management decisions should be evaluated: I based on each individual transaction II based on the context of the portfolio as a whole III as part of the investment strategy of each single trust beneficiary IV as part of the overall investment strategy for all beneficiaries of the trust A. I and III B. I and IV C. II and III D. II and IV

D. The Prudent Investor Act states that a fiduciary does not have to be "prudent" on each separate transaction - rather, the Act requires that the overall portfolio return is the proper assessment measure. If there are multiple beneficiaries whose assets are being managed in one account, the rule is not applied to each beneficiary, but overall to all of the beneficiaries in the trust.

Which statements are TRUE regarding civil liability and civil penalties for unknowing violations of the Uniform Securities Act? I The Act provides for civil liabilities II The Act provides for civil penalties III The Civil court system can impose civil liabilities IV The Civil court system can impose civil damages A. I only B. I and II only C. III and IV only D. I and IV only

D. The Uniform Securities Act only provides for civil liability for unknowing violations of the Act. The seller is liable, under the Act, to buy back the security at the original price, plus pay 6% interest and any attorney's fees. The Act does not provide for civil penalties (such as fines or punitive damages). Please be aware, however, that an action may be taken by an aggrieved person in civil court, and that the court may impose civil damages, if it sees fit.

All of the following are defined as "persons" under the Uniform Securities Act EXCEPT: A. individuals B. joint stock companies C. unincorporated organizations D. trusts where the interests of the beneficiaries are not evidenced by a security

D. The definition of a "person" under the Act includes individuals; joint stock companies; unincorporated organizations; and trusts where the interests of the beneficiaries are evidenced by a security. It is important to know who are defined as "persons," since these entities may then be further defined as "agents" (which can only be individuals), "broker-dealers" (which can be incorporated or unincorporated businesses); or "issuers" (which can be incorporated or unincorporated businesses, joint ventures, municipalities etc.

An investment adviser has placed a block trade for 100,000 shares of ABCD stock. The trade is filled in 2 separate lots of 50,000 shares each, with one lot filled at $50.01 per share and the other lot filled at $50.03 per share. How should the investment adviser allocate the shares among clients that participated in the trade? A. The investment adviser's smaller accounts should be allocated the ABCD stock purchased at $50.03 per share and the larger accounts should be allocated the ABCD stock purchased at $50.01 per share B. The investment adviser's larger accounts should be allocated the ABCD stock purchased at $50.03 per share and the smaller accounts should be allocated the ABCD stock purchased at $50.01 per share C. The investment adviser should allocate the shares among clients participating in the trade using a random, non-preferential method, at either the $50.01 or $50.03 per share price D. The investment adviser should allocate the shares at an average price of $50.02 per share and distribute them equally among clients participating in the trade on a pro rata basis

D. 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.

An agent of a broker-dealer is opening a new client account. The agent has completed the new account application and the suitability determination. The customer has an investment objective of safety of principal and income. The agent makes an initial recommendation of a conservative blue chip stock with a track record of paying a consistent cash dividend. The customer accepts the recommendation. When must the commission charged on the transaction be disclosed to the customer? A. At the time that the order is placed B. At the time when the order is filled C. At the time when the account is opening D. On the confirmation of the transaction

D. There is no requirement to disclose the commission charged to customers at the time of the trade or at the time of account opening. The only requirement is that the commission be disclosed on the trade confirmation. Also remember that any commission charged must be "fair and reasonable."

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

D. 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.)

All of the following statements are true regarding the private placement exemption under Uniform State Law EXCEPT: A. offers can be made to no more than 10 persons in a 12 month period to qualify for the exemption B. all purchases must be made for long term investment C. no commissions may be paid to anyone other than for transactions with financial and institutional investors D. all payments made by subscribers must be deposited to an escrow account until the offering is completed

D. To qualify for a private placement exemption within a State, offers can be made to no more than 10 persons in a 12 month period. All purchases must be made for long term investment; and no commissions may be paid to anyone other than for transactions with financial and institutional investors. It is not true that all payments made by subscribers must be deposited to an escrow account until the offering is completed. The issuer or broker-dealer handling the offer is allowed to accept monies from buyers of the issue; and may deposit the monies to their own accounts.

Under NASAA rules, the Form ADV filed with the State must be updated: A. quarterly within 30 days of quarter end B. quarterly within 90 days of quarter end C. annually within 30 days of fiscal year end D. annually within 90 days of fiscal year end

D. Under NASAA rules, investment advisers must update their Form ADV (State registration form) annually within 90 days of fiscal year end, to reflect current and accurate information, and must send the updated Form ADV to its clients within 120 days of year end if there is a material change. The Form ADV is stored in the IARD (Investment Adviser Registration Depository) system. It is used to register both State registered advisers and Federal covered advisers, and to send notice filings to States by Federal covered advisers.

An agent of a broker-dealer recommends a specific stock to a customer and says that the stock will most likely increase substantially in value within the next couple of months. The customer invests in the stock and its market price plummets. The customer is upset about the decline in value and wants all of his original commission refunded. Which statement is TRUE? A. The agent is allowed to refund all of the commission originally received from the transaction with the specific authorization of the agent's broker-dealer B. The agent is only allowed to refund a portion of the commission originally received from the transaction with the specific authorization of the agent's broker-dealer C. The agent is allowed to discount the commission based on a formula set forth by the State Administrator D. The agent cannot refund the commission

D. When an agent recommends the purchase of a stock, he or she is only allowed to accept the normal commission for the transaction. The agent cannot rebate any commission if the stock decreases in value; nor can the agent accept any larger commission based on an increase in value of the recommended stock. The only time that a refund would be made is if there was an error made by the agent or the firm, which is not the case here. The recommendation was made in good faith by the representative.

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