Series 63 Missed questions
Under the Uniform Securities Act, an agent is a(n) A) broker-dealer who sells registered securities to the general public B) individual who represents an issuer in a transaction exempt from the act C) individual representing a broker-dealer who sells federal covered securities D) individual who represents an issuer in an exempt transaction
C. An individual employed by a broker-dealer who sells securities to the public is an agent under the Uniform Securities Act. The USA defines an agent as "any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities." The Uniform Securities Act excludes from the definition of an agent, those individuals who represent an issuer in exempt transactions, the sale of certain exempt securities, and transactions with issuers' employees when no commission is paid. There is virtually no case in which a salesperson representing a broker-dealer is not an agent.
If a broker-dealer purchases 100,000 shares of common stock from an individual investor, this is a A) nonissuer transaction B) local transaction C) private placement D) prohibited transaction
A. In a nonissuer transaction, the proceeds of the trade do not benefit or go to the issuer.
Which of the following would be included in the Uniform Securities Act's definition of a "sale"? A) Conveying, for value, precious metals to a jewelry distributor B) Sale of a large fixed annuity contract to a taxable institution C) Transfers, for value, of unit trusts to a nontaxable organization D) Donation of interests in rights, warrants, or options on a nonexempt security
C. For a security to be sold, it must be exchanged for value. Fixed annuities and precious metals are not securities, so no security sale took place. Donating a security does not qualify as a sale.
Under the provisions of the Uniform Securities Act, a securities agent may NOT A) be registered with two broker-dealers under common control B) be registered with a licensed real estate broker as well as with a licensed securities broker-dealer C) accept an unsolicited order for an exempt security from a retail client of the broker-dealer who resides in a state in which the agent is not registered D) be licensed by both an independent insurance company and a securities broker-dealer
C. In order to accept an order from a retail client who lives in a state, the agent must be registered in that state. It makes no difference if the transaction (unsolicited order) or security is exempt, registration as an agent in the state is still required. Agents of broker-dealers may be simultaneously registered with real estate agencies, insurance companies, and with two broker-dealers, provided the broker-dealers are under common ownership or control or the arrangement has been authorized by the Administrator.
An Administrator has jurisdiction over an offer to sell securities if it is made in a newspaper published out of state A) with at least two-thirds of its circulation in the state B) with at least one-third of its circulation in the state C) with at least one-half of its circulation in the state D) under no circumstances
D. A state Administrator never has jurisdiction over a securities offering made in a bona fide newspaper published out of state. However, the Administrator has jurisdiction if the paper is published in his state except where two-thirds or more of the paper's circulation is out of that state
Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from A) registering securities B) establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of 1934 C) establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law D) registering investment advisers
B and C
Under the Uniform Securities Act, broker-dealers may NOT be required by the Administrator to A) file various financial reports B) post a surety bond if they do not have investment discretion over client accounts or do not maintain custody of customer funds and/or securities C) promptly file a correcting amendment to any document on file with the Administrator which becomes inaccurate or incomplete in any material respect D) publish an announcement of the application for registration in a newspaper
B. The question asks for something that cannot be required by the Administrator. The other choices are requirements you should memorize. The Administrator can require a bond only if registrants have custody or discretion.
All of the following must register as an agent when representing a broker-dealer EXCEPT A) An individual selling shares of a trust company chartered in this state B) An employee who accepts solicited orders C) An individual who represents an underwriter only in transactions between an issuer and the underwriter D) A partner in a broker-dealer who has no securities sales functions
D. A partner, (or any employee), of a broker-dealer with no securities sales functions (and that includes supervising sales), need not register as an agent. An employee of a BD who accepts solicited (or unsolicited) orders must register as an agent. An individual who represents an underwriter (one of the roles of a BD) in transactions between an issuer and the underwriter is an agent for the broker-dealer (it is the individual representing the issuer who is NOT). Trust companies are exempt securities and their employees selling shares are not defined as agents, BUT this individual is working for the broker-dealer selling the shares and, as such, must register as an agent.
Investment advisers who manage investment portfolios that total less than $100 million must register with A) the SEC only B) both a state and the SEC C) neither the SEC nor a state D) a state only
D. Investment advisers who manage less than $100 million of investment assets are generally prohibited from registering with the SEC and are required to register with a state Administrator unless exempt under the laws of that state.
An investor who trades securities for her own account is a(n) A) broker-dealer and must register with the state B) agent for a broker-dealer and must register in her state of residence C) broker-dealer who does not need to be registered at the state level D) public customer who does not need to register public customer who does not need to register
D. Investors who trade solely for their own accounts are public customers who do not need to register. Please note that the USA's definition of broker-dealer requires that the person be engaged in the business of effecting transactions in securities for the account of others or for his own account.
Under the USA, which of the following are securities? I.Commodity option contract II.Treasury stock III.Keogh plan
I and II A commodity option contract and treasury stock are securities under the USA. A commodity option contract is a security, while a commodity futures contract is not. A Keogh plan is a vehicle for an investment, but it is not a security in and of itself.
Under the USA, the definition of person includes which of the following? I.An unincorporated investment club II.An individual who buys and sells securities only for his own account III.Associations and partnerships whether or not they issue certificates IV.The U.S. government
I, II, III, IV An unincorporated investment club, an individual who buys and sells securities for his own account, associations, and partnerships (whether or not they issue certificates), and the U.S. government are specifically listed as persons in the act. On the exam, minor children, deceased individuals, and mentally incompetent individuals are the only choices that are not persons under the act.
Under the Uniform Securities Act, which of the following is NOT an exempt transaction? A)The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered broker-dealer B)The sale of a non-Nasdaq over the counter stock to a closed-end investment company C)A sale of securities by the executor of an estate D)A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid
A. In the case of a U.S. government security, the security is exempt, but the transaction is not. The USA does not care about the wealth of the individual; unless specifying the order was unsolicited, or the individual was acting in the capacity of an executor (or similar circumstance), sales to individuals are never exempt transactions. All of the other choices are exempt transactions since they are either to an institutional investor, existing owners for no consideration, or by a fiduciary.
A Canadian broker-dealer with no offices in this state has a Canadian client who is on a temporary work assignment in this state. To accept orders from this client, the broker-dealer must I.file an application for limited registration with the Administrator in the form required by the jurisdiction in which it has its head office II.file a consent to service of process III.provide the Administrator with evidence that it is currently in good standing as a broker-dealer in the jurisdiction from which it is effecting securities transactions IV.be a member of a recognized self-regulatory association or stock exchange in Canada
ALL. For a Canadian broker-dealer with no offices in this state to do business with Canadian residents who are temporarily in this state, it must apply for a special limited registration. Filing involves all of the choices listed. In essence, Canadian broker-dealers and agents have a limited form of the snowbird exemption.
Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) The options account agreement must be received within 15 days after the customer's account has been approved. B) Margin account agreements must be received before the first margin trade in the account. C) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. D) Written discretionary account authorization must be received by a broker-dealer before exercising discretion.
B. The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt.`
The issuance of a stop order by a state securities Administrator requires A) an issuance of criminal charges B) the subject of the stop order be given an opportunity for a hearing C) the subject to stop the activity without the opportunity for hearing D) an issuance of an injunction by a court with jurisdiction over such issues
B. The subject of a stop order must be given the opportunity for hearing. As long as the stop order is in effect, the security subject to the order may not be sold to the public or the proscribed activity may not continue. Stop orders do not require an injunction by a court and the Administrator does not have authority to issue criminal charges.
An issuer employs its officers and directors to sell newly issued shares of the company to the public. To comply with the USA, the officers and directors would have to be registered as agents of A) neither a broker-dealer nor the issuer because the transactions are exempt B) the issuer C) the broker-dealer and the issuer D) the broker-dealer
B. Unless something in the question indicates that the securities being issued are exempt, employees, including officers and directors, who sell shares of their companies to the public fall under the definition of agent under the USA.
Under the USA, an investment adviser's current clients must be delivered a brochure A) quarterly if the adviser has both discretion and custody B) annually whether or not the adviser has custody or discretion C) within 48 hours of renewal D) annually, but only if the adviser has neither custody nor discretion
B. Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients,(except those who are exempt from the brochure delivery requirements {impersonal advise costing less than $500 per year and investment companies registered under the Investment Company Act of 1940}), within 120 days of the end of the adviser's fiscal year. Custody or discretion is irrelevant to this question. Under the USA, all advisory contracts, both initial and renewal, must be in writing.
Which of the following would be required to register as an agent under the Uniform Securities Act? I. An officer of a broker-dealer who does not deal with customers or supervision of sales II. A director of a broker-dealer who is not involved in day-to-day operations III. A trader who is authorized to handle customer orders IV. An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades
C. An agent is an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Pre-qualifying clients requires registration. Officers and directors are not agents if they are not involved in the transactions of securities with the public. Under the USA, even though the term "principal" may be used to refer to a supervisory person, there is no separate registration category for these people. They are licensed as agents, just like you.
According to North American Securities Administrators Association's (NASAA) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is NOT unethical? A) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares. B) Within the first ten days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client. C) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority. D) An agent sold shares at a price less than authorized by a client.
C. An agent of a broker-dealer may exercise discretion in deciding the time or the price at which a sale takes place during the trading day without express written discretionary authority. Such action is not unethical because time and price are not considered true discretion. An agent may not exercise discretion over the number of shares to be sold without prior written discretionary authority. Oral discretion is only permitted for investment advisers and their representatives, (never broker-dealers or agents), during the first 10 business days after the initial discretionary transaction in the account.
Under the Uniform Securities Act, an agent is a(n) A) broker-dealer who sells registered securities to the general public B) individual who represents an issuer in an exempt transaction C) individual representing a broker-dealer who sells federal covered securities D) individual who represents an issuer in a transaction exempt from the act
C. An individual employed by a broker-dealer who sells securities to the public is an agent under the Uniform Securities Act. The USA defines an agent as "any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities." The Uniform Securities Act excludes from the definition of an agent, those individuals who represent an issuer in exempt transactions, the sale of certain exempt securities, and transactions with issuers' employees when no commission is paid. There is virtually no case in which a salesperson representing a broker-dealer is not an agent.
According to the Uniform Securities Act (USA), which of the following would be the most appropriate action by a broker-dealer following the discovery of an inadvertent sale of an unregistered, nonexempt security? A) Offering to pay interest as set by the Administrator from the date the security was purchased under the terms of a rescission agreement B) Asking the customer to sign a customer agreement that releases the agent from responsibility because the customer is pleased with the security's performance C) Offering to buy back the security from the customer under a rescission agreement authorized by the Uniform Securities Act D) Registering the stock by whichever method is appropriate
C. The right of rescission is the right of the buyer to recover the purchase price and interest, less income received on the security, resulting from an illegal sale of securities. When offered by the broker-dealer, no court costs or attorney fees are involved.The agent may not ask the customer to sign a customer agreement that releases the agent. Registration by notice filing (or any other method) is not part of the rescission process. A security cannot be registered retroactively.
A customer determines that he has been sold unregistered, nonexempt securities in a prohibited transaction. In accordance with the USA, he can exercise the right to sue within A) 1 year from discovery or 2 years from occurrence, whichever is later B) 2 years from discovery or 3 years from occurrence, whichever is later C) 1 year from discovery or 2 years from occurrence, whichever is sooner D) 2 years from discovery or 3 years from occurrence, whichever is sooner
D. The civil liabilities provisions of the Uniform Securities Act provide for a statute of limitations equal to the sooner of 2 years from the date of discovery or 3 years from the date of the violation.
A publicly traded corporation offers its employees an opportunity to purchase shares of the company's common stock directly from the issuer. A specific employee of the company is designated to process any orders for that stock. Under the USA, the employee A) may receive commissions without registration B) must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales C) must register as an agent of the issuer D) need not register as an agent of the issuer under any circumstances
B. Under the USA, an individual is an agent when effecting transactions with an issuer's existing employees if commissions or other remuneration related to the sale are paid. Therefore, there are cases where the employee would have to register as an agent. When the individual is paid a straight salary for this work, no registration is required.
Margin is borrowing money from a broker-dealer to buy a stock using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock? A) The loan consent agreement B) The securities pledge agreement C) The credit agreement D) The hypothecation agreement
D. The hypothecation agreement gives permission to the broker-dealer to pledge a customer's margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker-dealer on the basis of the loan value of these securities.
An investment advisory firm provides each of their clients with a written contract detailing, among other things, the services to be provided, the fees to be charged and the procedure for handling early terminations. In addition, the contract provides that the clients waive their right to sue in the event that the IA violates any provision of the USA. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) waivers of this type are never permitted B) the contract is misleading and could lead to action by the Administrator C) the contract is only enforceable if signed by the client D) the firm has met the requirements of providing a written contract
A. There is no way, NEVER, NEVER, that a waiver of legal rights is ever enforceable
Which of the following activities by a registered agent of a broker-dealer would constitute a prohibited practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A) Personally raising capital, without written authorization from the broker-dealer, for a new high-tech venture being run by the agent's former college roommate B)Informing a customer of a negative research report recently published on a stock that represents the client's largest holding C)Failing to disclose a nonmaterial fact D)Refusing to lend money to clients Refusing to lend money to clients
A. By attempting to effect securities sales by circumventing his broker-dealer, the agent has committed the prohibited practice of a private securities transaction, referred to as selling away. Failure to disclose a material fact would be prohibited, but nonmaterial facts do not carry that burden. One would expect an agent to keep the client informed regarding news about securities held in the account, and agents would be expected to refuse to make loans to customers because that is a prohibited practice.
An agent is registered in Illinois and Ohio. One of her substantial clients has just moved from Ohio to Arizona, and the agent would like to continue to do business with her. Under the Uniform Securities Act, which of the following statements is TRUE? I. The agent's broker-dealer must already be registered in Arizona or complete the Arizona registration process within a time period specified by the act. II. The agent must complete the Arizona registration process within a time period specified by the act. III. The agent must ask the Ohio Administrator to request reciprocal registration from the Arizona Administrator. IV. The agent must suggest that the client maintain a mailing address, such as a post office box, in Ohio.
I and II. The USA permits broker-dealers and their agents to continue to do business with existing customers who change their state of residence, as long as registration in the new state takes place within a reasonable period of time. This time period varies from state to state but is generally 30 days. Since an agent's registration is not valid without a broker-dealer, the agent and the agent's broker-dealer must be registered in Arizona for the relationship with this customer to continue. There is no such thing as reciprocal registration.
Under current law, who of the following would be required to register as an investment adviser in a state? I.A person who effects transactions exclusively with issuers of securities in that state while maintaining no office therein II.A person who has directed advice relating to securities to 6 individuals in that state within the past 12 months, even though he has no place of business within the state III.A person with an office in the state who manages less than $25 million in assets IV.A person who deals exclusively with broker-dealers in that state, but maintains no place of business within the boundaries of the state
II and III. Investment advisers (or IARs) having no place of business in a state are generally limited to contracting with fewer than 6 retail (individual) residents of that state within any 12 month period (de minimis exemption) before being required to register. Investment advisers with a place of business in the state who manage less than $100 million must register. Once they reach $100 million of assets under management, they have the choice of state or SEC registration. Once $110 million is reached, the only choice is registration with the SEC.
When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is A)the ability of the customer to move funds out of the account on multiple occasions B)if the customer owns the underlying security on which the call option is sold C)the ability of the customer to make a one-time wire to a foreign bank account owned by a family member D)that the account is in the name of an institutional customer
A. A covered account is an account, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions. Where the money goes is less of a factor than the frequency of transactions. The only time when a single transaction account might be covered is if there is reason to believe that the identity of the customer is at risk—not likely when wiring to a family member. Institutions are not included in the definition and owning the stock underlying the sale of a call option means the option is covered—totally different from the topic here.
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be prohibited for an agent A)accept an unsolicited order from his client who lives in a neighboring state B)to borrow money or securities from a client who is a member of his immediate family C)indicate to a client that a specific transaction will incur higher than normal commissions D)sell an unregistered nonexempt security to an employee benefit plan with assets in excess of $10 billion
B. The only circumstances under which an agent may borrow from a client is if the client is in the lending business, and something to that effect would have to be stated in the choice. This means you can't borrow from clients who are family or friends. Although the unsolicited order from the client who lives in a neighboring state is an exempt transaction, the agent could not accept it if he was not licensed in that neighboring state. How do we know he is? If he was not, then he could not have a client there.
One of the risks of investing on margin is that a severe decline in the market price of one of the securities in the account can trigger a call for additional funds. If this happens and the investor does not supply the money when demanded, the broker-dealer can A) liquidate only the security that has caused the decline B) make a short-term loan to the client to prevent the liquidation of securities in the account C) liquidate its choice of securities in the account to bring the account back to the needed level D) grant the client an extension of time to procure the needed funds
C. Leverage works two ways. It is great when the stock's price is rising, but can be painful when going the other way. When it drops below a certain point, the firm will need more money. In the risk disclosure document, it is made clear that the client is not entitled to choose which securities can be sold if a call for additional funds is not met.
Nifty Advisers Group made an announcement on its website that the firm was going to create a Facebook account to keep all its clients and prospective clients updated on the market. To get the word out, Nifty sent an email notice to its current clients and asked them to please refrain from airing complaints through that account; any negative comments would be addressed through the normal channels. Also, contained in the email was an announcement that all "likes" would receive a one-time 5% decrease in the client's quarterly fees. For this campaign, which of the following are NOT true? A) Third-party use of the "like" feature on an investment adviser's social media site could be deemed a testimonial. B) Currently there has been no comment from NASAA concerning the use of "likes". C) Even though the rules do not prohibit testimonials for broker-dealers, they are strictly forbidden for use by investment advisers. D) This would not be considered a testimonial and therefore permitted under the regulations.
D. Please note that this question is looking for the statement that is NOT true - in other words, find the false statement. In March 2014, the SEC, but not NASAA, published an interpretive release dealing with testimonials for investment advisers using social media. Included in that release is the statement that third-party use of the "like" feature on an investment adviser's social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's experience with the adviser.
The term "agent", as defined in the Uniform Securities Act, would not include which of the following individuals? A) One who represents a registered broker-dealer selling unregistered exempt securities B) One who represents a registered broker-dealer selling securities listed on the NYSE to individual clients C) One who represents an issuer of any exempt security D) One who represents an issuer in effecting exempt transactions
D. The USA defines an agent as an individual representing a broker-dealer or an issuer in the sale of securities. This exam will never have a case of an individual selling on behalf of a broker-dealer excluded from that definition. The securities listed on the NYSE are exempt from state registration because, under the NSMIA, they are federal covered securities. But anyone selling securities, exempt or not, while representing a registered broker-dealer must be licensed as an agent of that broker-dealer. The only case in which an individual selling securities as a representative of an issuer is always excluded from the definition of agent is when the transactions are exempt. There are 5 different categories of exempt securities where this exclusion applies as well, but it doesn't apply to all exempt securities.
If AAA Investment Advisers has entered into a written advisory contract with a client that contains a discretionary power, all of the following information must be stated in the contract EXCEPT A)The amount of the fee AAA Investment Advisers charges annually on the value of assets under management B)AAA Investment Advisers has discretionary authority to make investment decisions on behalf of the client C)consent of the client is required for AAA Investment Advisers to assign the contract to another manager or adviser D)AAA Investment Advisers shall be the only party eligible to make investment decisions in the account
D. The discretionary power authorizes the investment adviser to make the investment decisions without prior approval of the client. However, nothing in that power prohibits the client from personally making the decision to buy or sell any assets in the account.
Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) The options account agreement must be received within 15 days after the customer's account has been approved. B) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. C) Margin account agreements must be received before the first margin trade in the account. D) Written discretionary account authorization must be received by a broker-dealer before exercising discretion.
C. The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt.
Under the USA, a person representing the issuer is not considered an agent in any of the following transactions EXCEPT A) investment contracts issued in connection with an employee's stock purchases, savings, pension, profit-sharing, or similar employee benefit plan B) when the transactions are exempt C) promissory notes, drafts, or bankers' acceptances with a maturity of nine months or less D) nonexempt, initial public offerings confined to a single state of registration
D. Persons who represent nonexempt issuers of new securities, whether issues are confined to their state of registration or not, are agents under the USA. An individual who represents an issuer in either the sale of certain exempt securities, such as short-term paper, or in an exempt transaction, is excluded from the definition of agent.
Which of the following are required to register with a state Administrator? A) A person that only provides impersonal investment advice through newspaper columns, magazine articles, or a financial publication of general and regular circulation B) An employee of a federal covered investment adviser who has no natural person clients and is limited to performing administrative functions C) An investment adviser who has no place of business in the state and has fewer than 6 advisory clients in the state D) Investment adviser representatives of federal covered advisers who have a place of business in the state and limit their clientele to employee benefit plans with a minimum of $10 million in assets
D. The investment adviser representatives of a federal covered adviser are required to register in each state in which they have a place of business, even if the only clients are institutions. The act provides a de minimis standard exemption from state registration for advisers who have no place of business in a state and have fewer than 6 retail clients resident in that state. Under state law, the publication of investment advice that does not provide advice based on the specific investment situation of each client excludes the publisher from the definition of an investment adviser. A person employed and supervised by an investment adviser who is not an investment adviser representative with natural person clients and whose work is confined to clerical or administrative functions is not required to register with state Administrators.
An investment adviser with no place of business in the state is exempt from registration with the state when making recommendations to all of the following EXCEPT A) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state B) St. Amelia's college endowment Fund C) Amalgamated Bank D) AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities
A. An investment adviser with no place of business in the state is not exempt from registration with the state when making recommendations to individual accredited investors who are residents of that state, even when the securities being recommended are exempt from registration. The Uniform Securities Act exempts investment advisers with no place of business in the state who deal with certain institutional customers such as banks, insurance companies, investment management companies, and employee benefit plans with assets of $1 million or more. College endowments and other nonprofit organizations also carry exempt status, but not wealthy individuals. An adviser advising an issuer on the quality of potential underwriters does not fall within the definition of investment adviser under the Uniform Securities Act and is therefore exempt from registration.
James Jones, quarterback for a National Football League franchise team, deliberately misstated material information in the private sale of securities he owned. Jones claims he is not subject to the antifraud provisions of the Uniform Securities Act because he is not a registered agent and, secondly, the securities involved are exempt from registration requirements of the act. Which of the following statements is TRUE? A) The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security. B) The antifraud provisions of the USA do not apply to Jones because he is not suitably trained nor does he have a securities license. C) As a professional athlete, Jones is not in the securities business and is therefore not subject to the antifraud provisions of the act. D) Jones's failure to accurately state material facts does not constitute fraud because the securities he sold were exempt from registration.
A. The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security, even in the case of an isolated nonissuer transaction like this. While Jones, as a private individual, is not subject to the registration provisions of the act, he is liable for fraud when selling securities, whether registered or not. The fact that Jones is not trained in the securities business does not exempt him from the prohibition against fraud when engaged in the sale of securities.
Agents must be registered in a state where they do all of the following EXCEPT A) vacation B) solicit the sale of securities by telephone C) offer securities for sale D) accept unsolicited orders for exempt securities
A. Unless specifically engaging in securities activities, there is no reason to expect an individual to register as an agent in a state just because that is their vacation destination. Agents must register in each state where selling or offering securities. That includes soliciting orders by telephone or any other method or even accepting unsolicited orders, whether the security is exempt or nonexempt. Remember, if a transaction or security is exempt, that only applies to the registration requirements of the security, not the agent. The only exception is if there is some kind of exemption available, such as the offer is to an existing client who is a nonresident of the state but is there temporarily.
A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash to purchase securities using marginable securities in the account as collateral. Which of the account documents authorizes the use of those securities as collateral for that loan? A) The secured agreement B) The loan consent agreement C) The credit agreement D) The hypothecation agreement
C. It is the credit agreement, sometimes referred to as the margin agreement, which contains all of the terms of the loan. In addition to explaining how the interest is charged and the right of the firm to liquidate collateral if a call for additional funds is not made, the credit agreement contains the terminology which authorizes the broker-dealer to use the value of the account as collateral for the margin loan made by the BD to the client. The hypothecation agreement permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement.
Under the Uniform Securities Act, Laura Smith must register as an investment adviser representative unless she A) opens a sole proprietorship in Virginia and offers investment advice for a fee on an ongoing basis to residents of Virginia whose combined assets under management total $35 million B)sells her financial planning business in order to become a full-time employee of AAA Investment Advisers, Inc., where she advises clients whose net worth exceeds $5 million C)sells registered securities solely on a commission basis for a registered broker-dealer D)opens a financial planning business in which she is the sole owner and advises individual clients on the advisability of investing in securities
C. Laura Smith, as an employee of AAA Investment Advisers, Inc., must register in the state as an investment adviser representative. As the sole owner of a financial planning practice and an investment advisory proprietorship, Laura must register as an investment adviser representative. Please note that registration of the investment adviser entity automatically registers officers, partners, and so forth, who are already functioning as IARs. When Laura functions as an agent for a broker-dealer, she must register as an agent, not an investment adviser representative
Which of the following situations would require registration as an investment adviser? I.A broker-dealer provides investment research services to a customer and charges a fee for the service II.An agent of a broker-dealer recommends the purchase of ABC securities to a customer, who then purchases 100 shares, and the agent earns a commission III.An agent of a broker-dealer prepares a complete financial plan for a customer with a one-time charge of $950. The plan recommends specific securities transactions, which the customer orders. The agent earns commissions on the securities transactions IV.A broker-dealer charges its customers a fee for collecting dividends and account maintenance, in addition to commission charges for transactions executed
I and III Under the Uniform Securities Act, broker-dealers and their agents are not defined as investment advisers if their performance is solely incidental to the conduct of a brokerage business, and no special compensation is received for the advisory services. A broker-dealer charging for research advice is charging for advisory services, which would require registration as an investment adviser. A charge for creating a comprehensive financial plan is considered to be a charge for investment advice, even if it is only a one-time expense. It could also be considered that the commissions earned from the recommendations are indirect compensation (which is still looked at as advisory compensation). Recommendations of securities purchases are incidental to conducting a brokerage business and would not require registration as an investment adviser if no fees are charged for the advice. Broker-dealers may charge for clerical services provided to customers, but clerical services are not considered investment advisory services.
Under the Uniform Securities Act, persons providing investment advice do not have to register as investment advisers if they have no place of business in the state and they I. limit their clientele to individuals who meet the accredited investor standards II. deal only with institutional investors III. have five or fewer noninstitutional clients in the state during any 12-month period IV.deal only with other registered investment advisers
II, III, IV. If a person offering advice on securities has no place of business in a state and deals only with institutional investors or other investment advisers, registration is not required. Also, if a person has no place of business in a state and has five or fewer noninstitutional clients in the state during any rolling 12-month period, they are not deemed to be investment advisers in that state under the USA. Please note that choice I specifies individuals who are accredited investors. Although institutional accredited investors would qualify the adviser for the exemption, individuals do not.
Which of the following statements is (are) TRUE? I. A person with a place of business in the state who transacts business exclusively for the accounts of banks and savings institutions is not a broker-dealer under the Uniform Securities Act. II. A person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 who offers investment advice to individual investors residing in this state, and has less than $100 million in assets under management, is subject to the jurisdiction of the state Administrator. III. A person required to register as an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular business headquartered in this state, may be subject to notice filing fees required by the state Administrator. IV. Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration.
III and IV. Under the NSMIA, any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a federal covered adviser. Therefore, regardless of the amount of money under management, the state has no jurisdiction. A federal covered adviser may be subject to payment of notice filing fees. Broker-dealers who supply investment advice incidental to their business and receive no special compensation for it are not investment advisers. A person who conducts business exclusively with banks and savings institutions is a broker-dealer under the USA if he has a place of business in the state. Had the person no place of business in the state and conducted business exclusively with banks and savings institutions, he would not be considered a broker-dealer subject to the regulatory control of the state Administrator.
Under the Uniform Securities Act, which of the following is excluded from the definition of investment adviser? A bank An investment adviser representative A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940
All
Which of the following are defined as securities under the Uniform Securities Act? Real estate investment trust certificates Preorganization subscription agreements Shares of treasury stock Voting-trust certificates issued by a corporation undergoing a reorganization
All
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall disclose the agency capacity before the transaction B) shall obtain client consent before completion of the transaction C) may not charge a commission on the transaction D) shall notify the Administrator of its capacity in the proposed transaction
B. In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: •The client receives full written disclosure as to the capacity in which the adviser proposes to act •Consent of the client Both of these are required before the completion of the transaction.
The Administrator may, by rule or by order, prescribe the filing of financial reports by which of the following persons registered in his state? Agents Broker-dealers Investment Advisers
Broker dealers Investment Advisors
Records that must be kept by a broker-dealer include all of the following EXCEPT A) a blotter B) customer ledgers C) customer tax returns D) cash receipts journal
C
The state securities Administrator has the authority to A) issue and enforce an injunction against a registered party B) issue a ruling under its authority with no requirement to publish that ruling C) make, amend, or rescind rules, forms, and orders necessary to administer the USA D)amend or alter the Uniform Securities Act amend or alter the Uniform Securities Act
C. A state securities Administrator may issue a ruling or order to comply with the blue-sky laws of the state and designate the use of certain forms, but does not have authority to amend or alter the Uniform Securities Act itself. All rules and forms of the Administrator must be published. Only the courts can issue injunctions.
Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT A) banks B) a federal covered adviser C) a person in the business of providing advice on municipal bonds for compensation D) broker-dealers and their agents
C. Although municipal bonds are exempt securities, that only refers to their exemption from registration with the state or SEC. Any person who is in the business of giving advice on securities would be defined as an investment adviser and, therefore, would require registration.
Under the Uniform Securities Act, when an agent changes broker-dealers, who must notify the Administrator? I. The agent II. The former employer broker-dealer III. The new broker-dealer
D. When an agent's employment with a broker-dealer begins or ends, the agent and both broker-dealers must notify the Administrator.
Under the Uniform Securities Act, which of the following statements regarding the consent to service of process are TRUE? I. A consent to service of process makes legal process served on the Administrator as legally binding as process served on the registrant personally. II. Only out-of-state applicants need to file a consent to service of process. III. Investment advisers and investment adviser representatives must file a consent to service of process to become registered. A) II and III B) I and III C) I, II and III D) I and II
I and III
Under the Uniform Securities Act, if an investment adviser takes custody of client assets, which of the following statements are TRUE? I.Clients must receive monthly statements. II.Clients must receive quarterly statements. III.The adviser must be audited at least annually. IV.The adviser must be audited at least semiannually.
II and III
Under the Uniform Securities Act, persons providing investment advice do not have to register as investment advisers if they have no place of business in the state and they I.limit their clientele to individuals who meet the accredited investor standards II.deal only with institutional investors III.have five or fewer noninstitutional clients in the state during any 12-month period IV.deal only with other registered investment advisers
II, III, IV If a person offering advice on securities has no place of business in a state and deals only with institutional investors or other investment advisers, registration is not required. Also, if a person has no place of business in a state and has five or fewer noninstitutional clients in the state during any rolling 12-month period, they are not deemed to be investment advisers in that state under the USA. Please note that choice I specifies individuals who are accredited investors. Although institutional accredited investors would qualify the adviser for the exemption, individuals do not.
