Series 63

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Impersonal advisory services

- activities of an investment adviser that do not meet the specific needs or objectives of a client, or which do not render an opinion of the investment merits of a particular security

According to the Investment Advisers Act, a notice offering advisory services that appears in a publication, on radio, or on TV is considered an advertisement if offered to more than: A) 10 persons B) 35 persons C) 1 person D) 5 persons

1 person Communications through the public media offering investment advisory services, including analyses or reports, are considered advertising if addressed to more than one person.

what must a canadian broker dealer file with administrator

1) a Consent to Service of Process, 2) a registration document filed with its Canadian regulator, and 3) proof of membership in a self-regulatory organization (e.g., an exchange). -pay a filing fee exempt from net capital requirements

When trading on margin, clients are required to deposit: A) 50% of the market value of the security B) 50% of the amount of money borrowed C) 25% of the market value of the security D) 25% of the amount of money borrowed

A) 50% of the market value of the security Regulation T of the 1934 Act provided the Federal Reserve with the power to establish equity requirements when trading on margin. The current initial requirement when purchasing common stock is 50% of the market value of the security at the time of the transaction

An agent has willfully violated a provision of the Uniform Securities Act. If the agent can prove she had no prior knowledge of the rule violated, which of the following choices is the maximum penalty? A) $5,000 fine B) No maximum penalty C) $5,000 fine and three years in prison D) $10,000 fine and five years in prison

A) $5,000 fine The maximum criminal penalty is a $5,000 fine and three years in prison. Under the Act, there can be no prison sentence imposed if the person can prove she had no prior knowledge of the rule.

An investment adviser representative is reviewing the account of two clients, a husband and wife in their 70s who are retired. Their investment profile indicates that they have an annual income of less than $30,000 per year, which consists of a small pension and Social Security benefits. They have investable assets of $225,000. Which of the following investment allocations should the IAR recommend? A) 25% domestic equities, 5% international equities, 60% domestic fixed-income securities, and 10% cash B) 30% domestic equities, 30% domestic fixed income, 30% international equities and fixed-income securities, and 10% cash C) 10% domestic equities, 40% domestic fixed income, 40% international equities and fixed-income securities, and 10% cash D) 50% domestic equities, 0% fixed-income securities, 0% cash, and 50% international equities

A) 25% domestic equities, 5% international equities, 60% domestic fixed-income securities, and 10% cash Considering the customers' ages and limited incomes, investing a greater portion of their assets in bonds and cash is prudent. The fixed-income securities will provide additional income, while the equities will provide the potential for growth. One rule of thumb used by many professionals is to subtract a client's age from 100 to determine the percentage of assets that should be invested in stocks—the older the client, the less their risk tolerance and the less money that should be invested in equities. Only a small percentage of a client's assets should be allocated in the international marketplace.

An investor has been saving for her two children's college education using mutual funds in a taxable account. Her investment profile indicates that she is in a high tax bracket. The oldest child will be starting college in the fall. The younger one will be beginning college in three years. Which of the following allocations would you recommend for the investor's assets? A) 25% in municipal bond funds, 25% in an S&P 500 Index fund, and 50% in money-market funds B) 30% in an S&P 500 Index fund, 60% in municipal and corporate bond funds, and 10% in a money-market fund C) 50% in stock funds, 50% in bond funds D) 80% in long-term bond funds and 20% in money-market funds

A) 25% in municipal bond funds, 25% in an S&P 500 Index fund, and 50% in money-market funds As a child approaches college age, a suitable investment strategy is to rebalance. Typically, the portfolio should hold fewer growth-oriented securities, such as equities, and should increase income-oriented securities, such as bonds and money-market funds. Once a child begins to attend college, most of the funds should be invested in money-market funds or other types of short-term investments that are liquid with very little risk of declining in value. Municipal bonds are appropriate for this investor since she is in a high tax bracket and the funds are being held in a taxable account.

Under the Uniform Securities Act, a state Administrator may require the application for registration as an investment adviser to include which of the following? A) The financial condition and history of the IA B) The compliance procedures of the IA C) A record of client securities and the location and manner in which they are or will be held D) A list of the past five years of records of both current and formerly employed investment adviser representatives (IARs)

A) The financial condition and history of the IA When filing the initial application for registration, an investment adviser must include its financial condition and history. Once the IA is registered, it must comply with the other requirements listed.

According to the Uniform Securities Act, which of the following persons must register with the state Administrator? A) person who represents a non-exempt issuer in sales to the public B) A person who represents an exempt issuer in sales to the public C) A person who represents a non-exempt issuer in an investment banking transaction with a broker-dealer D) A person who represents a non-exempt issuer in sales to existing employees, and is not compensated

A) person who represents a non-exempt issuer in sales to the public Persons who represent exempt issuers are not defined as an agent so there is no need for registration. Persons who represent non-exempt issuers in sales to the public are defined as agents and must be registered whether or not they receive compensation. Persons who represent non-exempt issuers in sales to existing employees are only defined as agents (and must be registered) if they receive compensation related to the transaction(s). If a person represents a non-exempt issuer involved in an institutional transaction (e.g., investment banking transaction with a broker-dealer), he is not considered an agent and therefore not required to be registered.

An agent includes all of the following individuals, EXCEPT: A) person who represents an issuer in selling securities through exempt transactions B) A person who sells registered securities to the public on behalf of an issuer C) A person representing a broker-dealer effecting transactions for the issuer D) A person who represents a broker-dealer and sells listed securities

A) person who represents an issuer in selling securities through exempt transactions An individual who represents an issuer in selling securities through exempt transactions would not be considered an agent. An individual who sold securities for the issuer to the public through nonexempt transactions would be an agent. Anyone who represents a broker-dealer in a securities transaction is an agent.

A broker-dealer is registering a new issue with the Administrator of State A. What information must be sent to the Administrator? A) The number of shares B) The Articles of Incorporation C) The financials D) The tax identification number filed with the IRS

A, B, C This is an example of the detailed nature of the examination. You are expected to know that the number of shares, the issuer's financial information, and Articles of Incorporation (the charter) generally are all required by the states. A tax identification number is not required by the Administrator.

An agent of a broker-dealer A is located in State A. He would also like to register as an agent for broker-dealer B, an unaffiliated broker-dealer, in both States A and B. Which of the following statements is TRUE? A) This would be considered an unethical business practice B) Dual agency is generally not allowed, but is permitted in certain states C) The agent could register only as a dual agent if the State Securities Administrator granted a waiver D) The agent could register in both states without restriction

B) Dual agency is generally not allowed, but is permitted in certain states Agents are generally prohibited from registering with two different broker-dealers, however, certain states do allow this practice.

Under the Uniform Securities Act, which of the following statements is TRUE regarding the registration of investment advisers (IAs) and investment adviser representatives (IARs)? A) IARs are not required to be registered in a state as long as the IA is registered there. B) IARs are required to be registered in a state even if the IA is registered there. C) IARs that are giving advice about exempt securities don't need to be registered even if the IA is required to be registered. D) IARs are required to register in a state even if the IA is provided an exemption from registration there.

B) IARs are required to be registered in a state even if the IA is registered there. Under the USA, it's unlawful for any registered investment adviser to employ an investment advisor representative unless the IAR is also registered.

Which of the following books and records would be the LEAST important for an auditor to review during an examination of a local or branch office? A) Order tickets and trade blotters B) Prospectuses and subscription agreements C) Personnel records D) Customer suitability information

B) Prospectuses and subscription agreements

According to the Uniform Securities Act, which of the following statements is NOT TRUE concerning private placements? A) The offer may not be made to more than 10 persons in that state during any 12-month period B) The offer may be made to 35 or fewer persons in that state during any 12-month period C) The offer may be made to any number of institutional investors during any 12-month period D) Commissions may not be paid if the buyers are non-institutional customers

B) The offer may be made to 35 or fewer persons in that state during any 12-month period Under the Uniform Securities Act, any transaction that involves no more than 10 persons (there is no limit on institutional investors) during any 12-month period is considered an exempt transaction that's referred to as a private placement. Along with limiting the number of non-institutional investors, a private placement must meet the following conditions: 1) the seller must believe that all of the non-institutional buyers are purchasing for investment purposes only, and 2) no commission or other remuneration can be paid for soliciting non-institutional buyers. Any reference to an offering of securities to 35 or fewer persons is a private placement under Regulation D of the Securities Act of 1933.

A husband and wife are both in the early 40s, have no children, and have decided to start thinking about retirement. Which of the following portfolio allocations should be recommended to the couple? A) 50% fixed-income, 10% equity securities, and 40% in foreign securities B) 100% equity securities C) 25% fixed-income and 75% equity securities D) 80% fixed-income, 10% equities, and 10% money-market securities

C) 25% fixed-income and 75% equity securities Since the husband and wife are both in the early 40s, they likely have approximately 20 years before retirement. Therefore, their primary investment objective should be growth. Equity securities meet this need as they have shown more potential for growth than fixed-income securities. With this in mind, a greater percentage of the assets should be invested in equities. Concentrating a portfolio in foreign securities is not a good idea. Diversification is also important. If the portfolio of investments is too heavily weighted in equities, the client takes unnecessary risk. The best choice is to diversify the client's portfolio and allocate their investments in equities (larger percentage) and fixed-income investments (smaller percentage).

IA Incorporated is an investment adviser. BD Securities is a brokerage firm with offices down the hall. IA Incorporated and BD Securities have an agreement under which IA directs brokerage transactions to BD and receives a 15% rebate on the commissions that BD charges. This arrangement is: A) conflict of interest and an unethical business practice B) Acceptable, provided BD is also registered as an investment adviser C) Acceptable, provided IA discloses the arrangement to its clients in writing D) Acceptable, provided the arrangement is in writing and filed with the Administrator

C) Acceptable, provided IA discloses the arrangement to its clients in writing The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that an investment adviser must disclose all conflicts of interests in writing to clients. These conflicts include the scenario described in this question where the investment adviser (or any of its employees) is receiving compensation (a rebate) for the execution of client transactions.

According to the Uniform Securities Act, which of the following investment advisers would be exempt from registration? A) An adviser with no place of business in the state, with 10 clients, all of whom are accredited investors B) An adviser with no place of business in the state and only six clients who have a net worth of at least $1 million each C) An adviser with no place of business in the state and fewer than six retail clients D) An adviser with an office in the state, with five or fewer retail clients

C) An adviser with no place of business in the state and fewer than six retail clients There is no investment adviser exemption based on net worth in the Uniform Securities Act. (In federal securities law, there is a securities registration exemption for private placements to accredited investors.) If an adviser does not have a place of business in a particular state and limits clientele to institutional investors (or no more than five retail investors), the adviser is exempt from registration.

A newly hired employee is applying for registration as an agent in State X. What information is NOT required to be disclosed by the agent on his application for registration (Form U4)? A) Any alias that the agent uses B) The fact that a real estate partnership controlled by the agent declared bankruptcy five years ago C) The fact that the agent is applying for a mortgage D) A felony charge that the agent received five years ago

C) The fact that the agent is applying for a mortgage An applicant for registration must disclose any alias used, felony charges, personal bankruptcies, or bankruptcies of entities that the agent controlled during the last 10 years. The fact that the agent is applying for a mortgage is not required to be disclosed on Form U4.

According to the Uniform Securities Act, when a broker-dealer distributes bonds with warrants attached as a bonus: A) This constitutes an offer to sell the bonds only B) This constitutes an offer to sell the bonds and the underlying stock C) There is no offer to sell the warrants because they are not technically securities D) This constitutes an offer to sell the bonds and the warrants

constitutes an offer to sell the bonds and the warrants

How long does a broker-dealer need to maintain records of customer suitability information? A) Five years B) Three years C) Six years D) As long as the broker-dealer is in business

six years The broker-dealer must keep records of customer suitability information for at least six years from the time the information was last updated or the account is closed.

Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: AOne year Three years Five years DThere is no time limit for criminal violations

three years

A broker-dealer agent enters an order ticket for a customer. The order ticket must contain all of the following information, EXCEPT the: A) Time of entry B) Price of the security at the time of receipt C) Price of the security at the time of execution D) Agent's identifying information

time of entry An order ticket does not need to include the price of the security at the time the order was received. It does need the price at the time it was executed as well as the time of execution (or cancellation). The ticket should also identify the personnel (if any) responsible for the account and the specific individual who entered the order on the client's behalf.

Which TWO of the following reasons would allow the Administrator to deny an agent's registration? I) The applicant has been convicted of a misdemeanor within the past 10 years II) The applicant neglected to disclose a bankruptcy filing six years prior III) The applicant has a history of losing arbitration cases with public customers in the previous two years IV) The applicant failed to disclose he was formerly employed at another broker-dealer in the last four years

II and IV Failure to disclose bankruptcy filings or employment history of the past 10 years would constitute grounds for the Administrator to deny registration to an agent. These are material facts about an agent. Remember, all material facts must be disclosed under the USA. A misdemeanor conviction is not grounds for denial, provided it is not securities-related. Since this choice does not mention securities-related, you must assume it is not. Arbitration case loses may be cause for concern, but they are not grounds for denial.

According to the Uniform Securities Act, the term sale means:Any attempt to dispose of a securityA solicitation of an offer to buyAny contract to dispose of a security for value A) I only B) II only C) III only D) I, II, and III

III only he term sale means every contract to sell or disposition of a security or interest in a security for value. Included in the above would be a gift of assessable stock or any security given or delivered with, or as a bonus with, any purchase of securities. Attempting to dispose of a security for value or a solicitation to buy or sell a security would be considered an offer, not a sale.

Under the Uniform Securities Act, which of the following constitutes grounds to warrant the issuance of an injunction restraining the sale of securities? I) The failure to make a required report regarding securities II) The making of false, fraudulent, or misleading representations III) The failure to disclose the speculative nature of securities offered

all of the above

Which of the following choices is considered a person under the USA? A customer A broker-dealer An estate An issuer

all of the above Under the USA, a person is defined as a legal entity, which would include individuals (natural persons) and business entities such as corporations, broker-dealers, partnerships, and investment advisers. It also includes trusts and estates.

Monetary disputes between registered persons and their customers are usually settled by: A) Arbitration B) The SEC C) The federal courts D) The state courts

arbitration Monetary disputes between registered persons and their customers are usually settled by arbitration, which is considered more economical than lawsuits pursued through the court system. Almost every brokerage firm includes in their customer agreements a mandatory predispute arbitration provision that forces those investors to submit to arbitration all disputes they may have with the firm or its employees. Many cases are settled and, if not, the only alternative is arbitration.

Prior felony convictions must be disclosed on Form U4 if the conviction occurred: A) Within the last two years B) Within the last five years C) Within the last 10 years D) At any time

at any time This question is an example of a "hair splitter" that sometimes occurs on the real exam. The fine point of the question is whether you must disclose something versus whether or not that situation would affect your employment. Agents are required to disclose all felony charges or convictions on Form U4 regardless of when they occurred. There is no time frame. If an applicant had a felony conviction 20 years ago, it must be disclosed. On the other hand, an agent will be statutorily disqualified if the conviction was within the last 10 years. The agent may be registered if she requests and receives permission at a special hearing. The Administrator may reject the application of anyone convicted of a felony regardless of when it occurred if the Administrator shows it is in the public interest to do so. As a follow-up point, applicants must also disclose all securities-related misdemeanors, charges or convictions, regardless of when they occurred.

According to the Uniform Securities Act, an employee of a broker-dealer who is not registered as an agent may do which of the following? A) Clear transactions B) Accept unsolicited orders on behalf of an agent C) Participate in an exempt transaction with a registered agent D) Participate in the distribution of an exempt security

clear transactions A person need not be registered as an agent to post records (clear transactions) or perform operational tasks.

Which of the following persons is NOT excluded from the definition of a broker-dealer under the Uniform Securities Act? A) A bank B) An agent C) An investment adviser D) An issuer

investment adviser This question is one that tests the letter of the law, a potential event on the real exam. According to the Uniform Securities Act, a bank, an agent, and an issuer are all specifically excluded from the definition of a broker-dealer. An investment adviser has no specific exclusion. However, if it performs the activities that fit the definition of a broker-dealer, it must register as such. For example, if an investment adviser effects agency cross transactions or conducts principal transactions with clients, the adviser is acting a broker-dealer.

Which of the following activities is an exempt transaction according to the Uniform Securities Act? A) An agent sells securities that are listed on the Toronto Stock Exchange B) A broker-dealer solicits interests in a private placement to 35 retail investors within the state during a 12-month period C) An agent sells unregistered, non-exempt securities to a client on a solicited basis D) A sale of securities by a bona fide pledgee, the purpose of which is to circumvent the Act

A) An agent sells securities that are listed on the Toronto Stock Exchange According to the NASAA Model Rule on Secondary Market Trading Exemptions for Qualifying Canadian Securities, selling securities that are listed on the Toronto Stock Exchange is an exempt transaction. To qualify for this exemption, the transaction must be effected through the agent of a broker-dealer, the securities must be listed on the Toronto Stock Exchange (or the TSX Venture Exchange), and the issuer must have been a reporting company in Canada for at least the previous six months. Sales of private placements are not exempt transactions if they are offered to more than 10 retail investors during a 12-month period. Sales of unregistered, non-exempt securities are exempt only if they're executed on an unsolicited basis; however, the answer indicates that the trade was done on a solicited basis. Transactions by a bona fide pledgee are normally exempt, but not if the purpose of the sale is to evade the requirements of the USA.

A broker-dealer's registration may be revoked or suspended if the Administrator determines that this action is in the public interest and the: A) Broker-dealer violated federal commodities laws within the past 10 years B) Broker-dealer's controlling partner has declared personal bankruptcy C) Broker-dealer withdrew its registration in another state D) Broker-dealer has engaged in ethical business practices

A) Broker-dealer violated federal commodities laws within the past 10 years The Administrator may cancel, revoke, or suspend a broker-dealer's registration if the Administrator determines that this action is in the public interest and the firm has violated the provisions of the Commodity Exchange Act. The insolvency (personal bankruptcy) of one of the broker-dealer's partners, officers, directors, or controlling persons may not be used as a basis for revoking or suspending a broker-dealer's registration. Withdrawal from registration as a broker-dealer is a voluntary procedure and does not imply wrongdoing by the registrant.

Which of the following statements is NOT TRUE concerning the registration requirements of securities professionals? A) Broker-dealers with no place of business in a state and a limited number of noninstitutional clients in a state must register B) Broker-dealers that have no place of business in a state and limits their agents to selling exempt securities in a state, are not required to register C) Investment advisers that have no place of business in a state and whose only clients are institutional investors in the state are not required to register D) Investment advisers that have no place of business in a state and a limited number of non-institutional clients are not required to register

A) Broker-dealers with no place of business in a state and a limited number of noninstitutional clients in a state must register There is never an exemption from registration in a state for broker-dealers even if they have no place of business in the state and limit their agents' activities to selling exempt securities in the state. Instead, it's the securities that are exempt, not the agents or the broker-dealer that sells those securities. Even if a broker-dealer has no place of business in a state, it must be registered if it has any noninstitutional clients in the state. On the other hand, an investment adviser is exempt from registration in a state if it has no place of business in the state and only deals with institutional investors in the state. Also, if an investment adviser has no place of business in a state and limits the number of noninstitutional clients in the state (no more than five), it is exempt from registration in the state. Although the answer indicates that the investment advisers have no place of business in a state and a limited number of noninstitutional clients in the state, it doesn't specify the number of noninstitutional clients. In a situation like this, it can be assumed that the answer is referencing the "de minimis" exemption for investment advisers that have no place of business in a state as long as they have no more than five noninstitutional clients who are residents of the state.

An agent holding limited discretionary authority over a customer's account may: A) Buy or sell securities in the account without consulting the customer B) Withdraw money from the account C) Receive a fee for using his discretion in trading the account D) Borrow assets from the customer's account

A) Buy or sell securities in the account without consulting the customer An agent holding limited discretionary authority over a customer's account may buy or sell securities in the account without consulting the customer. Only full discretionary authority allows an agent to withdraw money from a client's account. An agent may not receive a fee for using his discretion in trading a customer's account. Borrowing client assets is never allowed.

Broker-dealer A holds customer registered stock in its vault. It also holds its own inventory of stock in the same vault. To save on space and expense, it does not separate customer stock from the broker-dealer's own stock. This practice is called: A) Commingling and is prohibited B) Commingling and is permitted if the securities are held in different areas C) Discretionary custody and is permitted if the clients approved in writing D) Churning and is prohibited

A) Commingling and is prohibited Customer securities may not be commingled with broker-dealer securities, even if the stock is all held in street name. Churning is excessive trading in a customer's account for the benefit of the broker-dealer, not the customer.

When registering as an agent, which of the following information is NOT required on the U4 Form? A) Consent to Service of Process B) The agent's financial condition C) The state or province of birth D) Any conviction of a misdemeanor involving a security

A) Consent to Service of Process All are required to be disclosed on the U4 Form, except a Consent to Service of Process. While required for registration, it is not a part of the U4 Form.

The Uniform Securities Act requires that an investment adviser deliver a written disclosure document to an advisory client or prospective advisory client. In which TWO of the following situations is the adviser NOT required to send this document to clients? I) The firm advises only investment companies but does not send its brochure to them II) The firm sends a newsletter to subscription clients who pay an annual fee of $120 III) The firm has no office in the state IV) The firm advises only institutional investors A) I and II B) II and III C) I and IV D) II and IV

A) I and II According to the Uniform Securities Act Rule 203, an investment adviser must give a client or prospective client a disclosure document (usually Form ADV Part 2) either 48 hours before or at the time of opening the account. Exceptions to this rule include an adviser whose clients are only investment companies or where the contract is for impersonal services for which the client pays a fee of less than $500. Please note, while an investment company is an institutional investor, not all institutional investors are investment companies. An investment adviser is required to provide the brochure to institutional investors other than investment companies. While there are many exemptions regarding institutional investors, this rule is NOT one of them.

Which following statements about new customer accounts are TRUE? I) A customer may use a P.O. Box as the address of record when opening a new account II) The broker-dealer must obtain the customer's suitability information before the first transaction in the account is executed III) All accounts must be approved by a registered principal IV) The customer's new account information must be kept for at least 6 years A) III and IV B) I and II C) II and III D) I and IV

A) III and IV A customer may not use a P.O. Box to open an account. (The customer may have his mail be sent to a P.O. Box if he wants.) Broker-dealers and their agents must make a reasonable attempt to obtain suitability information about a customer, but they are not required to do so. The regulators recognize that some customers may refuse to provide this information. However, without suitability information, it will be very difficult for the agent to make any recommendations to the customer. A qualified principal of the firm must approve all new accounts, and the customer's new account information must be kept for at least 6 years after it is last updated, or the account is closed.

Which of the following written disclosure statements is prohibited under NASAA's Model Rule on Unethical Business Practices of Investment Advisers? A) If there is a monetary dispute, the client must agree to arbitration to settle the dispute B) The employees of the investment adviser may receive a commission for the sale of its recommended products C) The investment adviser receives a management fee for a mutual fund it recommends D) The investment adviser is an affiliate of a broker-dealer

A) If there is a monetary dispute, the client must agree to arbitration to settle the dispute Unlike a broker-dealer that may have a pre-dispute arbitration agreement, an investment adviser may not compel an investor to settle disputes through arbitration. The client may sue in a court of competent jurisdiction. Any material fact that may be construed as a conflict of interest and can impair the objective investment advice of an investment adviser must be disclosed to a client, in writing, prior to the recommendation of any product or service provided. The affiliation with a broker-dealer, a fee from a mutual fund, or other payments received by the investment adviser may be construed as a conflict of interest and, therefore, must be disclosed.

Bonds may be required of all of the following entities, EXCEPT: A) Investment advisers who do not have discretionary authority or custody of client funds or securities B) Investment advisers who have discretionary authority but do not have custody of client funds or securities C) Broker-dealers who do not have discretionary authority D) Broker-dealers who have discretionary authority

A) Investment advisers who do not have discretionary authority or custody of client funds or securities Investment advisers may need to post a bond if they have discretionary authority over client accounts or have custody of client funds or securities. A bond guarantees that funds are available so that legal fees and fines can be met, if assessed against a broker-dealer or investment adviser. The bond is waived if the investment adviser meets certain minimum financial requirements, determined by the Administrator. Broker-dealers often have custody of client assets (although this is not universal). Broker-dealers who have custody or discretion over client accounts may also be required to post a bond. Generally, most broker-dealers have custody of client funds. Again, the Administrator may waive this bonding requirement if the broker-dealer's net capital exceeds a specified amount, which is determined by the Administrator.

A broker-dealer is registered in both State A (where it has an office) and State B (where it doesn't have an office). If the Administrator of State B determines that the broker-dealer is insolvent, what action can it take? A) It can revoke the registration of the broker-dealer in State B. B) None. It must defer to the Administrator in State A. C) It can request that the broker-dealer post a surety bond. D) It can revoke the broker-dealer's registration in all states, since the Administrator has broad enforcement powers.

A) It can revoke the registration of the broker-dealer in State B. If a broker-dealer is insolvent, a state Administrator can suspend or revoke the broker-dealer's registration. However, State Administrators only have the authority to revoke registrations that they have issued (i.e., only in their state).

A client has a $5,000,000 account with an objective of income only. Under the Uniform Securities Act, an agent who has discretionary authorization for the account could: A) Not buy a speculative stock without the client's approval B) Speculate with 5% of the client's assets C) Speculate with any amount that could be reasonably justified D) Not purchase equities in the account

A) Not buy a speculative stock without the client's approva Regardless of the account size, any amount of speculative investing would be inappropriate in an account with an objective of income only.

An applicant for registration as an investment adviser indicates that the firm will base its investment decisions on psychic readings and other nonfinancial criteria. According to the Uniform Securities Act: A) The Administrator may deny/postpone registration only for those reasons specified in the law B) The Administrator may act in the public interest and deny registration C) The Administrator must review the track record of the applicant to ascertain the feasibility of such criteria for investing D) The Administrator should encourage alternative methods of analysis and grant registration if there is a reasonable basis for this methodology

A) The Administrator may deny/postpone registration only for those reasons specified in the law The state Administrator must cite reasons found in state law to disqualify a person from registration (e.g., a felony conviction, violation of commodities laws, misleading statements, etc.). The Administrator may deny registration if it is in the public interest AND if any provision of the USA has been or will be violated. While basing investment decisions on psychic readings may be a debatable proposition, the law does not say anything about methods of analysis for advisers, except that it is a disclosure item. Looking at it another way, the Administrator does not want to be in the role of determining which methods of analysis are better than others.

A client asks her IAR to develop an updated comprehensive financial plan for her. After creating the plan, the IAR realizes that the client is likely to encounter serious tax consequences over the next several years as a result of changes in the plan. Despite this, the IAR is confident that the financial plan he developed is the best plan for the client. What should the IAR do? A) The IAR should suggest that the client seek the assistance of a tax accountant or refer her to one. B) Despite the fact that the IAR believes the financial plan is the best for the client, he should rework it due to the tax consequences. C) Since the IAR cannot provide the best financial plan that eliminates serious future tax consequences, the IAR should transfer the client's account to another IAR. D) The IAR shouldn't mention the possible future tax consequences and should deliver the updated financial plan to the client.

A) The IAR should suggest that the client seek the assistance of a tax accountant or refer her to one. If the IAR is convinced that the updated financial plan is optimal for the client, he should refer the client to a tax accountant in order to determine whether the tax consequences can be minimized. Part of providing clients with overall service is recommending or bringing in other professionals. Transferring the account is not a viable option since the results will remain the same. If an IAR believes that a plan is the best (optimal) plan for a client, there's no reason to change it. Also, the IAR shouldn't present the plan without mentioning the future tax implications since that goes against the IAR's fiduciary duty.

An investment adviser representative advises a client in a low income tax bracket to purchase municipal securities. Which of the following statements best describes this action? A) The advice by the representative is unethical B) Advice concerning tax-free securities is excluded from the provisions of the Investment Advisers Act of 1940 C) The action constitutes fraud D) The Administrator has no jurisdiction over municipal securities unless the securities are out-of-state bonds

A) The advice by the representative is unethical The action taken by the representative is unethical rather than fraudulent. Municipal securities provide federally exempt interest income. This is advantageous to individuals in higher tax brackets. Recommending the security to an individual in a lower tax bracket is not suitable. There is no indication that an intent to deceive the client was employed, therefore, an assertion of fraud is inappropriate.

A client requests that her agent display a quote in a thinly traded security. The client is the majority shareholder in this security and the broker-dealer honors the request and displays the quote. Which of the following statements is TRUE? A) This would be permissible if the broker-dealer believed the quote was bona fide B) This would be considered an unethical business practice C) A broker-dealer may always enter a quote on behalf of a client D) A broker-dealer is not permitted to enter quotes on behalf of its clients

A) This would be permissible if the broker-dealer believed the quote was bona fide A broker-dealer is permitted to publish quotes (bid and ask prices) on behalf of its clients or for its own account. The broker-dealer must believe the quotes are bona fide and not intended to manipulate the market price of a security. If the quotes are not bona fide and the broker-dealer publishes them, it would have committed an unethical business practice. (75703)

According to the Uniform Securities Act, a person is not considered an investment adviser if the advice provided covers only: A) Universal life insurance B) Variable annuities C) Exempt securities D) Viatical settlements

A) Universal life insurance Universal life insurance is not a security. Someone who provides advice only about insurance would not be viewed as an investment adviser.

Under the Uniform Securities Act, which of the following choices is NOT disclosed in an investment advisory contract? A) ny other states in which the investment adviser is registered B) The manner in which the advisory fee will be computed C) A provision disallowing the investment adviser to assign the contract to another party without client consent D) A provision prohibiting the investment adviser from being compensated based on a share of capital gains

A) any other states in which the investment adviser is registered

A) any other states in which the investment adviser is registered An investment advisory contract must disclose the manner in which the adviser will be compensated. The contract must also include a statement that the adviser may not assign the contract to another party unless the client consents and may not be compensated based on a share of capital gains.

An investment adviser representative has just opened an account for a 40-year-old client who has received an inheritance that the client wants to invest for retirement. The client says that his primary objective is capital appreciation, and that he has an aggressive risk tolerance. The client also states that he wants to keep his investments liquid. Which of the following products should the investment adviser representative recommend? A) diversified stock fund B) A corporate bond fund C) A variable annuity D) A hedge fund

A) diversified stock fund Of the choices given, a diversified stock fund is the most suitable. A client who is 40 and saving for retirement probably has a time horizon of 15 to 25 years. Generally, investors with long-term financial goals should invest a greater portion of their portfolios in stocks. A stock fund will provide more capital appreciation than a corporate bond fund, choice (b), as well as more protection from inflation. As with all mutual funds, a diversified stock fund may be liquidated easily. A variable annuity, choice (c), might be a good choice, if the client did not want to keep his portfolio liquid. Variable annuities often require investors to lock up their money for a number of years or face early withdrawal penalties. In addition, variable annuity holders who are under the age of 59 1/2 may be subject to tax penalties. Most hedge funds, choice (d), also require investors to lock up their money for a specified period. They are usually not liquid investments.

According to the Uniform Securities Act, which of the following persons is considered a broker-dealer in State B? A) sole proprietor located in State A who has several clients in State B B) A corporation that is domiciled in State B, but also issues securities within that state C) A brokerage firm that is registered in State A, but does not have an office in State B and engages in business exclusively with other broker-dealers in State B D) An agent who is employed by a brokerage firm in State A and who cold-calls clients in State B

A) sole proprietor located in State A who has several clients in State B A sole proprietor can be a broker-dealer. If a sole proprietor is located in State A and chooses to effect transactions for clients in State B, he must register in as a broker-dealer in State B. Agents and issuers are specifically excluded from the definition of a broker-dealer. Also, if a firm is registered in a state as a broker-dealer, but has no place of business in another state and only effects securities transactions with institutions in that state are excluded from the broker-dealer definition.

A securities agent and an investment adviser have offices next door to each other. The adviser directs brokerage business to the agent for execution and, in return, the agent rebates the adviser 10% of the commissions generated by these transactions. According to NASAA Model Rules, this practice is: A) Acceptable, provided the agent is also registered as an investment adviser representative B) Acceptable, provided it is disclosed on the adviser's Form ADV C) A violation of the Uniform Securities Act D) Unethical according to NASAA

Acceptable, provided it is disclosed on the adviser's Form ADV According to the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this practice is acceptable provided it is disclosed in writing as a conflict of interest. Disclosing the practice on Form ADV, a copy of which all clients must receive, should be sufficient. This would be an unethical practice if the adviser did not disclose the rebate to its clients. Please note, this is a very narrow definition of rebate. It comes under the concept of a business relationship between the adviser and the broker-dealer. This is not the same situation as where an agent rebates a customer a commission as an incentive to enter into a transaction. That scenario is prohibited.

accredited investor

Accredited investors fall into three categories. -Institutions—banks, brokerage firms, insurance companies, investment companies, certain pension plans, businesses, and nonprofits with at least $5 million in assets, and venture capital firms -Key employees of the issuer—directors, executive officers, and general partners -Wealthy individuals with at least $1 million in assets, excluding the value of their primary residence, or an annual income of $200,000 (or $300,000 together with a spouse). The investor's income must have been this high for at least the past two years and must be expected to continue at this level.

Under the Uniform Securities Act, which of the following statements is NOT TRUE concerning the state registration of an agent? A) An agent may only sell securities that have been properly registered in a state or qualify for an exemption from registration B) An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year C) An agent may only solicit business in a state if both the agent and broker-dealer are registered in that state D) If an agent leaves a broker-dealer to go to another broker-dealer, the agent and both broker-dealers must notify the Administrator of the change

B) An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year The licenses of all agent, broker-dealer, investment adviser, and investment adviser representatives expire on December 31 each year and must be renewed in order to be effective. Renewal is accomplished by the payment of a filing fee.

An agent opens a new account. The client refuses to answer most of the financial and suitability questions in the New Account Document, checking only the boxes that indicate a conservative risk tolerance and an investment objective of capital appreciation. According to NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, the agent may recommend which securities for the account? A) A variable annuity B) A conservative growth fund C) A hedge fund D) None

B) A conservative growth fund In this scenario the agent's job is complicated by the client's refusal to provide all of the requested suitability information. The agent may recommend investments that are suitable based on the information that the client did provide. Thus, a conservative growth fund, choice (b), would be an appropriate recommendation since it seems to meet the client's conservative risk tolerance and investment objective of capital appreciation. A variable annuity, choice (a), might also meet this client's risk tolerance and investment objective, depending on how the subaccounts are invested. However, we do not know if the client will need access to his funds in the next five to seven years. Variable annuities often impose surrender charges during these years that effectively limit investors' liquidity. A hedge fund, choice (c), would be too speculative and would also provide limited liquidity.

Which of the following fee structures is NOT permitted for broker-dealers that offer investment advisory services to retail customers? A) Commissions for each trade and a separate fee for each research report sent to the customer B) A fee based on a percentage of the profits of the account C) An initial set-up fee, a fee based on the assets under management, and commissions for each trade D) Commissions and service charges

B) A fee based on a percentage of the profits of the account Fees based on the percentage of profits in the customer's account are generally not permitted. (67211)

Which of the following individuals would NOT be considered an agent under the Act? A) A person representing a broker-dealer in nonexempt transactions B) A person representing an issuer who does not receive commissions in effecting transactions with the issuer's existing employees C) A person representing an issuer who receives commissions in effecting transactions with the issuer's directors D) A person employed by a broker-dealer as a sales assistant who occasionally accepts client orders

B) A person representing an issuer who does not receive commissions in effecting transactions with the issuer's existing employees A person representing an issuer effecting transactions with an existing employee, partner, officer, or director of an issuer, who does not receive any commissions or other payment directly or indirectly for soliciting the order in that state, will not be considered an agent. An employee of a broker-dealer who performs only clerical functions is not considered an agent. However, if that employee accepts client orders (even unsolicited), then that person is classified as an agent and must register.

Under the Uniform Securities Act, which of the following choices is NOT considered a security? A) A certificate of interest in an oil and gas leasing program B) An equity-indexed annuity C) A multi-level distributorship agreement D) A certificate of interest in a real estate investment trust

B) An equity-indexed annuity Any insurance policy, endowment policy, or annuity contract, under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically, is not considered a security. A variable annuity is a security.

An agent has created a LinkedIn profile for business purposes. The profile states that she is affiliated with Broker-Dealer A and discusses her professional qualifications and experience. Before the profile is made available to the public, it must be: A) Approved by the Chief Compliance Officer of Broker-Dealer A B) Approved by a registered principal of Broker-Dealer A C) Filed with FINRA D) Registered with the Administrator

B) Approved by a registered principal of Broker-Dealer A This type of static content placed on the Internet is considered a retail communication by FINRA. It must be approved by one of the firm's registered principals before it may be used.

Under the Uniform Securities Act, a state Administrator may NOT deny, suspend, or revoke any registration, or bar or censure a person if the applicant was: A) Convicted of a felony within the past 10 years B) Convicted of a misdemeanor eight years ago C) Prohibited by a court from engaging in the securities business D) Subject to a suspension order of a stock exchange

B) Convicted of a misdemeanor eight years ago An Administrator may deny, suspend, revoke, bar, or censure a person for a securities misdemeanor within the last 10 years, not just any misdemeanor. All of the other reasons given are valid.

Z Best, a broker-dealer, has filed an application for registration with the Administrator of New York. Three years ago, the firm was suspended from trading on the London Stock Exchange, due to the activities of a rogue trader. The firm's clients were not affected in any way. Upon receipt of the application, the Administrator may: A) Grant registration since foreign governments have no jurisdiction in the U.S. B) Deny registration, as any action by a foreign securities regulator may result in a denial by the Administrator C) Grant registration, because the evidence would be inadmissible in court D) Deny registration, since any suspension is a securities-related misdemeanor

B) Deny registration, as any action by a foreign securities regulator may result in a denial by the Administrator Under Sec. 204(H.1) of the USA, the Administrator may, by order, deny, suspend, revoke, cancel, or withdraw the registration of any registrant (i.e., broker-dealer, agent, investment adviser, investment adviser representative) that has been the subject of a foreign securities regulator's disciplinary action, within the past five years. The fact that foreign governments have no jurisdiction or that evidence may be inadmissible is irrelevant.

Which of the following transactions would NOT be considered an unethical business practice by a broker-dealer? A) Effecting a transaction in a security that does not involve any beneficial change of ownership B) Effecting a transaction in a security while acting as an agent for both buyer and seller C) Effecting a transaction in a security on behalf of clients for the purpose of increasing the trading volume of that security D) Effecting a transaction in a security with other broker-dealers for the purpose of increasing or decreasing the price

B) Effecting a transaction in a security while acting as an agent for both buyer and seller It is considered an unethical business practice for a broker-dealer to effect transactions in a security for manipulative or deceptive purposes. A broker-dealer may effect an agency transaction with two clients whereby the firm represents both the buyer and the seller.

A broker-dealer must keep all the following records, EXCEPT: A) Original copies of all incoming client correspondence B) Form ADV for any investment adviser for which the broker-dealer provides safekeeping services C) Signed copies of all discretionary account agreements executed by clients D) Copies of all order tickets

B) Form ADV for any investment adviser for which the broker-dealer provides safekeeping services According to the Securities Exchange Act of 1934 (Rules 17a-3 and 17a-4), a broker-dealer must keep all these records except for Form ADV. Investment advisers who have custody of client assets must place these assets with a qualified custodian for safekeeping (such as a broker-dealer) and must notify the regulators that it has custody using Form ADV.

A federal covered adviser must: I) Register with the SECRegister with one or more states II) File Form ADV III) Become a member of NASAA A) I and II only B) I and III only C) I, II, and III only D) I, II, III, and IV

B) I and III only A federal covered adviser is required to register with the SEC (I) by filing Form ADV (III). Broadly speaking, larger advisers with more than $100 million in assets register with the SEC while smaller advisers with less than $100 million register with the states. Firms that advise registered investment companies must also register with the SEC. There is currently no SRO that advisers are required to join. Most broker-dealers must become members of FINRA. NASAA (IV) is an organization for state securities Administrators.

An agent is holding a sales seminar for a new variable annuity. Which of the following statements would violate NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents?Everyone should buy one of these annuities—they are absolutely the best way to save for retirementThe prospectus is available on the insurance company's Web site—let me know if you have questionsYou can get your money out anytime you need itThis is a great opportunity for long term investors A) I only B) I and III only C) II and IV only D) I, II, III, and IV

B) I and III only The blanket statement that "Everyone should buy one of these annuities" would constitute an unsuitable recommendation, choice (I). There are very few securities that are suitable for all investors. Variable annuities tend to have significant surrender charges if investors withdraw their money during the early years of the contract. They are not usually liquid investments, which means choice (III) is a misrepresentation. Variable annuities are generally considered long-term investments, so choice (IV) is not a misrepresentation.

Under the Uniform Securities Act, which of the following is NOT TRUE concerning an Administrator taking disciplinary action against a person? I) There must be written findings of fact and conclusions of law II) The Administrator can take action against a person with or without the opportunity for a hearing III) The Administrator does not need to provide the person with prior written notice IV) The Administrator's order can be appealed if the person files a petition in court within 60 days A) I and IV only B) II and III only C) II, III and IV only D) I, II, III, and IV

B) II and III only The Administrator must provide a person with prior written notice, an opportunity for a hearing, and written findings of fact and conclusions of law when taking disciplinary action against a person. The Administrator's order can be appealed if the person files a petition in state court within 60 days.

nder the Uniform Securities Act, a person's registration may be revoked or denied for which of the following reasons? I) The person was convicted of a non-securities-related misdemeanor three years ago II) The person was convicted of a drug-related felony seven years ago III) There is mounting evidence that the individual is involved in a securities-related fraud IV) The person was convicted of a securities-related misdemeanor six years ago A) I and IV only B) II and IV only C) II and III only D) I, II, and IV only

B) II and IV only Under the Uniform Securities Act, the Administrator may deny, revoke, cancel, or withdraw the registration of any person if he has been convicted within the past 10 years of any felony or any misdemeanor involving a security. The Administrator may not take any action if a person has been accused or indicted, but has not been convicted.

An agent may tell a client that he has been approved by the state Administrator: A) If the agent pays for his own advertising expenses in a statewide publication B) In order to qualify him for registration purposes only C) If the statement is made to a limited number of people D) Once he has passed the written examinations

B) In order to qualify him for registration purposes only Agents may tell clients that they have been approved by the state Administrator in order to qualify them for registration purposes only. They may not imply that their registrations or licenses mean that the Administrator has approved their abilities or activities. These statements regarding an agent being approved would be false and misleading.

Mark W. is an agent of Broker-Dealer X. Unknown to his firm, Mark spends his evenings trading the stock of a small, unlisted company through Internet bulletin boards. He dominates and controls the trading in this stock. Under the Uniform Securities Act, which of the following statements is TRUE of Mark's activities? A) Blue-Sky laws do not apply to activities on the Internet B) Mark W. may have to register as a broker-dealer C) The clients of Mark W. would not be able to use a letter of rescission D) There is no real violation unless a client has lost money and complained

B) Mark W. may have to register as a broker-dealer Mark W. appears to be in the business of effecting transactions in securities for others and for his own account, and may need to register as a broker-dealer in those states in which he is doing business. The fact that he is using the Internet does not provide an exemption.

The sole proprietor of a state-registered investment advisory firm creates a Facebook page and LinkedIn profile in his own name, not that of the firm. All of the following statements regarding these social media sites are TRUE, EXCEPT: A) Both are considered firm advertising B) Neither are considered advertising according to the NASAA Model Rules for Investment Advisers C) Both must accurately represent the sole proprietor's qualifications D) Records of both must be maintained for five years after they are no longer used

B) Neither are considered advertising according to the NASAA Model Rules for Investment Advisers Both the Facebook page and the LinkedIn page would be considered investment advisory firm advertising. All the other statements are true. Remember copies of investment adviser advertising must be kept for five years after they are last used. Broker-dealers must keep advertising for three years after the materials are last used.

Which of the following choices is considered a fraudulent act? A) Withholding any fact about an issuer in discussions with clients B) Omitting a fact that is relevant to making an investment decision C) Misstating a fact about an issuer in a discussion with a client D) Neglecting to obtain relevant information about an investor

B) Omitting a fact that is relevant to making an investment decision This is an example of a question you could encounter where the answers may appear to be almost identical. Withholding material facts is considered fraudulent. Material facts are those that a reasonable person would want to know in order to make an informed investment decision. Withholding any fact about an issuer sounds similar, but is too broad to rise to the level of fraud. Remember, fraud implies intent to deceive. Withholding any fact is not fraud. Here is why. Think of the phone number of an issuer, or other random items that may be interesting. Those are facts. Withholding that information is not fraud, since it may not be relevant to making an informed investment decision. Misstating a fact could be accidental and, therefore, not fraud. Neglecting to obtain relevant information is not fraud. It is a bad business practice. It may be unethical, but it is not defined as fraud.

What information is not included on the registration application for a broker-dealer? A) Whether the broker-dealer is a partnership or corporation B) The types of businesses in which the broker-dealer intends to engage C) The names and addresses of the agents the broker-dealer intends to register D) The broker-dealer's current financial condition

C) The names and addresses of the agents the broker-dealer intends to register The names and addresses of the agents the broker-dealer intends to register are not required. The qualifications and history of any partner, officer, director, or controlling person are required. (75505)

A married couple is only five years away from retirement. They own a home but have not saved anything for their retirement. They consult an agent of a broker-dealer about what they can do to catch up. What should the agent advise them to do? A) Take out a home equity loan and invest the money B) Open IRA accounts and begin making the maximum possible contributions C) Purchase a deferred variable annuity D) Invest the maximum amount possible each year in aggressive growth stocks to catch up

B) Open IRA accounts and begin making the maximum possible contributions Of the choices given, the best option would be for the couple to open IRA accounts and contribute the maximum amount possible for the next five years. Since they are both over 50, they would be able to take advantage of the catch-up provisions that allow older investors to contribute more money to retirement plans. As of 2013, a married couple may contribute an extra $1,000 each to their IRAs every year.

A woman owns a very successful bike shop and plans to conduct a public offering of shares in order to expand her business. She will assist in marketing the shares, but will not receive direct compensation for her efforts. According to the Uniform Securities Act, the owner must: A) Register as a broker-dealer B) Register the securities C) Register as an investment adviser D) Register as a solicitor

B) Register the securities The question states that the owner is conducting a public offering of securities. All securities offerings must be registered unless they qualify for an exemption. There is nothing in the stem to indicate that the offering qualifies for an exemption. The owner does not meet the definition of a broker-dealer and therefore is not required to register as one. She is not "in the business of effecting securities transactions." Instead, she is an issuer— and issuers are specifically excluded from the definition of a broker-dealer. In addition, she is not in the business of providing investment advice or soliciting clients for an investment adviser; therefore, she is not required to register as an investment adviser.

An investment adviser is in charge of managing the assets of a large charitable trust. The income generated by the portfolio is used to support schools for disadvantaged children. Given the nature of the trust and the Uniform Prudent Investor Act (UPIA), which of the following investments should the adviser NOT recommend for the trust's portfolio? A) Dividend-paying stocks B) Tax-exempt municipal securities C) Corporate bonds D) U.S. government bonds

B) Tax-exempt municipal securities One of the main reasons for purchasing municipal securities is that they generate tax-exempt income. The trade-off for investors is that municipal securities usually have lower yields. Charities and nonprofit organizations do not pay income taxes. Their income is already tax-exempt. Therefore, the trust would get lower yields without corresponding tax benefits if it purchased tax-exempt municipal securities.

An agent of a broker-dealer routinely conducts investment seminars in order to attract new clients. Which of the following statements is TRUE? A) All seminars must be recorded for compliance purposes B) The broker-dealer must approve all written materials that are used at the seminar C) A supervisor must be present at every seminar D) The Administrator must approve all sales materials that are distributed to investors at the seminar

B) The broker-dealer must approve all written materials that are used at the seminar A principal must approve all written seminar materials and guest speakers beforehand (including advertising or notices for the seminar itself). If an agent regularly conducts sales seminars, then a supervisor should attend random seminars to fulfill the broker-dealer's obligation to supervise the agent. However, there is no need for a supervisor to attend every seminar.

All of the following items should be included on a customer's order ticket, EXCEPT: A) The terms and conditions of the order B) The identity of the registered principal who preapproved the order C) The identity of the registered representative assigned to the account D) The time the order was entered

B) The identity of the registered principal who preapproved the order An order ticket must include the terms and conditions under which the order is submitted—is it a limit order or a market order? It must also state the identity of the registered representative assigned to the account (if any) and the time the order was entered. An order does not need to be preapproved by a registered principal. A principal must review all orders after they are executed, usually by the end of the day

What information is not included on the registration application for a broker-dealer? A) Whether the broker-dealer is a partnership or corporation B) The names and addresses of the agents the broker-dealer intends to register C) The broker-dealer's current financial condition D) The types of businesses in which the broker-dealer intends to engage

B) The names and addresses of the agents the broker-dealer intends to register The names and addresses of the agents the broker-dealer intends to register are not required. The qualifications and history of any partner, officer, director, or controlling person are required.

An agent inadvertently misrepresents the risks associated with U.S. Treasury bonds. Under the Uniform Securities Act, which of the following consequences may result? A) The activity would constitute fraud B) This is an unethical activity C) There is no violation since the action was inadvertent D) There are no risks associated with U.S. Treasury bonds and, therefore, there is no violation of the U

B) This is an unethical activity Misrepresenting the investment risks of a security could lead to civil liabilities, as clients have the right to sue to recover their losses. U.S. Treasury bills, bonds, and notes are securities and the fact that they are exempt securities is irrelevant if misrepresentations are made. Since the action was inadvertent, it would not constitute fraud. (67227)

A customer's investment objectives are capital preservation and current income. The agent recommends that the client purchase an S&P 500 Index fund. The agent then advises the client to sell shares in the fund every two weeks to generate income. According to NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, the agent's recommendations represent: A) Churning B) Unsuitability C) Unauthorized trading D) Front-running

B) Unsuitability An S&P 500 Index fund is not a suitable investment for someone whose investment objectives are capital preservation and current income. Arguably, the agent has also churned the account, choice (a), by advising the client to sell shares in the fund every two weeks, that should otherwise be a long-term investment. However, choice (b) is the best answer here since the fund was not a suitable recommendation in the first place. Choice (c), unauthorized trading, takes place when an agent places an order from a client without permission. Choice (d), front-running, is an illegal practice where an agent buys or sells a security hoping to benefit from a large order placed by a client. (

Which of the following securities offerings would use registration by coordination? A) An IPO that will be listed on the New York Stock Exchange B) An offering of preferred stock by an issuer whose stock currently trades on the Nasdaq Global Market C) An IPO that will be distributed in 12 states and not listed on any of the national exchanges D) An IPO that will be distributed to the residents of one state only

C) An IPO that will be distributed in 12 states and not listed on any of the national exchanges registration by coordination is typically used by an issuer that is conducting an IPO of securities that will not be listed on an exchange and that needs to register its securities at both the state and federal level (the two registrations are coordinated). Securities that are listed or authorized for listing on a national stock exchange (e.g., the NYSE or Nasdaq) are examples of federal covered securities and are generally exempt from state registration and notice filing. An issuer of securities that are being distributed to residents of one state will typically use registration by qualification.

Which of the following activities does NOT meet the definition of an exempt transaction under the Uniform Securities Act? A) A bankruptcy trustee liquidates a debtor's securities and divides the proceeds among its creditors B) An agent sells a client shares in a Canadian venture capital fund after the client signs a form stating that the transaction was unsolicited C) An agent sells units in a Canadian limited partnership to several of her clients D) An issuer of an IPO distributes shares to the lead underwriter

C) An agent sells units in a Canadian limited partnership to several of her clients To identify the exempt transactions, there are certain key terms or concepts to remember, including unsolicited transactions, transactions by a trustee as a part of bankruptcy proceedings, transactions between an issuer and underwriter, and certain non-issuer (secondary market) transactions. An example of an exempt, non-issuer transaction is the sale of Canadian securities that are (1) issued by an entity that files reports with the Canadian regulators and (2) listed on the Toronto Stock Exchange. There is no indication in the sale of units in a Canadian limited partnership to several clients that an exemption is available

Which of the following statements is TRUE regarding an options account? A) Before entering an options order, the customer must return the options account agreement B) Before entering an options order, the customer must return the signed options account agreement C) Before entering an options order, the broker-dealer must deliver the Options Disclosure Document to the customer D) Before entering an options order, the Registered Options Principal (ROP) must receive the Options Disclosure Document

C) Before entering an options order, the broker-dealer must deliver the Options Disclosure Document to the customer

An agent's customer sends her an order indicating that he wants to purchase 100 shares of BCD stock, which has been listed on a national exchange for the last 10 years. According to NASAA regulations, what's the prospectus delivery requirement for this purchase? A) Once the order is entered, delivery of the prospectus must be made within one business day. B) Prior to confirming the trade, the customer must receive delivery of the prospectus. C) Delivery of the prospectus is not required in this situation since BCD's shares are not a new issue. D) Once payment has been received from the customer, prospectus delivery must be made within five business days.

C) Delivery of the prospectus is not required in this situation since BCD's shares are not a new issue. A prospectus must be delivered by no later than the confirmation of the purchase of a "new" issue. However, since the transaction in this question is a secondary market transaction, there is no prospectus delivery requirement.

Under the Uniform Securities Act, which of the following activities of an investment adviser would constitute impersonal advisory services? A) Telling a client to buy municipal bonds in order to reduce her tax liability B) Providing clients with a recommended list of mutual funds for their retirement accounts C) Giving a client a list of mutual funds with the lowest expense ratios for the past five years D) Telling a client that investment XYZ will meet her investment objectives

C) Giving a client a list of mutual funds with the lowest expense ratios for the past five years Impersonal advisory services are those activities of an investment adviser that do not meet the specific needs or objectives of a client, or that do not render an opinion of the investment merits of a particular security.

Under NASAA's Statement of Policy on Unethical Business Practices, unethical activities of a broker-dealer would include: I) Exercising discretion for a limited period based on oral instructions II) Failing to segregate customers' securities III) Entering into a transaction with or for a customer at a price not reasonably related to the current market IV) Charges fees that are reasonable based on services performed A) I and II only B) I and IV only C) I, II and III only D) I, II, III, and IV

C) I, II and III only NASAA's Statement of Policy on Unethical Business Practices prohibits broker-dealers from using discretionary authority unless the authority is obtained in writing before entering the transaction. Broker-dealers are also required to segregate customers' fully paid securities or securities held in safekeeping. Administrators can research the competitiveness of fees and services provided by the broker-dealer to make a determination whether the fees are reasonable. If the state Administrator feels the fees are unreasonable, based on the services performed, they are within their right to take the appropriate action, even if the client does not object to the size of the fees.

According to the Uniform Securities Act, if an advisory firm concentrates its advice on New York Stock Exchange securities, the firm: A) Can seek an exemption from registration as an adviser B) Will be subject to the rules of the New York Stock Exchange C) Is not engaging in a violative practice D) Can only receive commissions as compensation

C) Is not engaging in a violative practice There is nothing wrong with giving advice that is limited to NYSE issues. Only members of the NYSE are subject to its rules.

A broker-dealer is opening securities accounts for retail customers at a bank branch. According to the NASAA Model Rules for Sales of Securities at Financial Institutions, what must the broker-dealer's agents do as part of the account opening process? A) Verify that the client is a qualified investor B) Provide the client with a written copy of the networking arrangement between the broker-dealer and the bank C) Make a reasonable attempt to obtain a written acknowledgement from the client that he has received the disclosures required under this rule D) Notify the client of the address and telephone number of the state securities Administrator where he can lodge complaints

C) Make a reasonable attempt to obtain a written acknowledgement from the client that he has received the disclosures required under this rule The NASAA Model Rules for Sales of Securities at Financial Institutions state that a broker-dealer must make a reasonable attempt to obtain a written acknowledgement from a customers that he has received the disclosures required under these rules. Under NASAA rules, a client who opens a brokerage account at a bank must be informed both orally and in writing, that securities: -- Are NOT insured by the FDIC (Federal Deposit Insurance Corporation) --Are NOT the same as bank deposits or obligations and are not guaranteed by the bank --Have risks—the investor may lose her principal A networking arrangement means a contractual or other arrangement between a broker-dealer and a financial institution pursuant to which the broker-dealer conducts broker-dealer services on the premises of the financial institution where retail deposits are taken. A copy of this document does not need to be provided to clients. There is no requirement that a client be verified as a qualified investor. There are no qualifications to be an investor. An agent may notify the client of the address and telephone number of the state securities Administrator where the client can lodge complaints, but it is not a requirement.

A customer's sole investment objective is income. The agent, who has discretionary authority over the account, buys large-cap stocks and sells some of the shares every two weeks, which generates income for the client and commissions for the agent. What is the main issue with the agent's actions? A) Abuse of discretion B) Churning C) Making unsuitable recommendations D) Front-running

C) Making unsuitable recommendations This is a difficult question, since at first glance there seems to be more than one correct answer. Choices (a), (b), and (c) all look plausible but you can choose only one answer. The agent has written discretionary authority over the account. This means that he has permission to buy and sell securities on the client's behalf without asking the client to approve these transactions. By purchasing and later selling stocks, the agent has not necessarily abused this authority, choice (a). If he had taken securities or money out of the account, this would be a clear abuse of discretion. Large-cap stocks are not a suitable investment for someone whose only investment objective is income. The agent should have purchased fixed-income securities (bonds) or perhaps preferred stocks for the account. Large-cap stocks would be an appropriate choice for an investor who was seeking capital growth. The agent has clearly violated his suitability obligations, making choice (c) the best answer. Arguably, the agent has also churned the account, choice (b), by selling a portion of these securities every two weeks and generating commissions for himself. However, choice (c) is the best answer since the purchase was unsuitable in the first place. Also, stocks are long-term investments. Buying them and selling some of them every two weeks is not a good strategy for this customer—there are better, more cost-effective ways to produce income for the client.

John is an agent who just opened an account for Mary, a new client. Unfortunately, Mary is very tight-lipped about her finances. She gives John very little information, saying only that she is a conservative investor whose objective is growth. What type of securities may John recommend for her account? A) None whatsoever B) Money-market securities only C) Mutual funds that meet her risk tolerance and investment objectives D) Anything as long as it's not too speculative

C) Mutual funds that meet her risk tolerance and investment objectives In this scenario, John's job is complicated by the fact that the client refuses to give him much information. However, he may recommend securities that are suitable based on the information that the client has provided. For example, he could recommend a conservative, growth-oriented mutual fund. On the other hand, the indication of money-market securities only is not an appropriate recommendation. Money-market securities are usually an acceptable investment when a client provides very little information, but they are not the only option in this circumstance.

Under the Uniform Securities Act, which of the following persons automatically becomes registered as an investment adviser representative when the investment adviser's registration becomes effective? A) Only individuals who have been investment adviser representatives in another state B) All officers, directors, and partners of the investment adviser C) Only those officers, directors, and partners with management responsibilities D) Any person who performs clerical service for the investment adviser

C) Only those officers, directors, and partners with management responsibilities Only officers, directors, and partners who have management responsibilities (i.e., not silent partners) become automatically registered as investment adviser representatives when their employing firm registers in a new state as an investment adviser.

An issuer is planning to sell a federal covered security in State A. The Administrator of State A may ask the issuer to do all of the following, EXCEPT: A) File a Consent to Service of Process B) Provide copies of all documents that are filed with the SEC C) Provide additional information that was not required by the SEC D) Pay a filing fee

C) Provide additional information that was not required by the SEC The National Securities Markets Improvement Act (NSMIA) places limits on states' power to regulate federal covered securities. Generally, states may not require an issuer of a federal covered security to furnish more information than is required by the SEC. However, state Administrators may require certain issuers to Notice File, which includes filing a Consent to Service of Process as well as any documents that have been filed with the SEC. The Administrator may also require the issuers of certain federal covered securities to pay filing fees. Securities that are listed on a national exchange (e.g., the NYSE or Nasdaq) are exempt from Notice Filing. Despite this, states retain the right to investigate all issuers that sell securities within their states and reserve the right to bring enforcement actions against any violators.

A broker-dealer is registered in State X, but not in State Y. The firm does not have an office in State Y, but does have some institutional clients in that state. The agent who handles these accounts has developed several contacts in State Y and wants to begin soliciting retail clients in State Y. The agent consults the Compliance Department. A new employee in that department tells the agent that he may solicit retail clients in State Y since he is exempt from registration in that state. What should the agent do? A) Begin contacting clients in State Y immediately since the agent has the approval of the broker-dealer B) Tell the registration department to begin the application process since the agent and the broker-dealer will need to register in State Y once the agent has five retail clients there C) Refrain from soliciting retail clients in State Y until the agent and the broker-dealer are registered in State Y D) Begin soliciting retail clients in State Y immediately since the agent is exempt from registration in that state as long as he does not maintain an office there

C) Refrain from soliciting retail clients in State Y until the agent and the broker-dealer are registered in State Y Generally, both the broker-dealer and its agent must be registered in a state before they may do business there, which includes soliciting clients. There is an exemption for broker-dealers and their agents who do not have an office in the state and do business only with certain institutional clients, such as other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans. In this question, the agent loses this exemption once he begins to solicit retail clients in State Y. Both the broker-dealer and the agent need to register in State Y before the agent may begin soliciting retail clients in that state

According to the NASAA Model Rules for Sales of Securities at Financial Institutions, a networking arrangement between a financial institution and a broker-dealer must: A) Be renewed every year by December 31 B) Be filed with the state securities Administrator C) Set forth the compensation schedule for both parties D) Specify which functional regulator will be in charge of examining the broker-dealer's operations at the financial institution

C) Set forth the compensation schedule for both parties A networking arrangement is an agreement between a broker-dealer and a bank (or a savings and loan or credit union) under which the broker-dealer does business at a retail banking location. According to the NASAA Model Rules, these agreements must be in writing and must specify how both the bank and the broker-dealer will be compensated. The agreement must also state the duties and responsibilities of both the broker-dealer and the bank, and must provide that the broker's supervisory personnel and state regulators will have access to the bank to examine the records maintained there.

An agent has a client who is in his late 20s. The client's investment profile indicates that his primary objective is capital appreciation and that he has a moderate risk tolerance. The customer also told the agent that he is concerned about inflation and taxes, and wants to keep his portfolio liquid. Which of the following investments should the agent recommend? A)Municipal bonds B) Variable annuities C) Stock index funds D) Corporate bonds

C) Stock index funds To answer the question, pay close attention to the significant facts, 1) the client's objective is capital appreciation, 2) he is willing to accept a moderate degree of risk, 3) he is concerned about inflation and tax reduction, and 4) he wants to keep his portfolio liquid. Of the choices given, stock index funds are the most appropriate. Bond investments are not a good hedge against inflation. On the other hand, the stock index funds will provide better returns and tend to be tax-efficient. (Since their portfolios mirror indexes there is not a lot of turnover to generate capital gains taxes.) Variable annuities could be a good choice if the client wasn't interested in keeping his portfolio liquid. Variable annuities are usually not a good option for investors who want liquidity. They often require investors to lock up their money for a significant number of years or face early withdrawal penalties. Variable annuity holders who are under the age of 59 1/2 may also be subject to tax penalties if they withdraw money.

All of the following books and records must be readily available at a branch office, EXCEPT: A) Customer account agreements B) Order tickets C) The broker-dealer's audited financial statements D) Compensation records for agents

C) The broker-dealer's audited financial statements Broker-dealers must maintain all of these records. However, certain records should be maintained at a branch or local office so that an examiner can easily access them. These records include customer account information, suitability information, customer complaints, order tickets, sales blotters and the personnel and compensation records of the agents assigned to that office. Note that not all of these records need to be physically stored at the branch. The office, however, must have a way of quickly retrieving them and making them available to examiners

Under the Uniform Securities Act, all the following transactions are classified as exempt, EXCEPT: A) Transactions in equity securities between an issuer and an underwriter B) The pledge of securities to collateralize a loan C) The sale of U.S. government securities to a public customer D) Unsolicited transactions in nonexempt securities

C) The sale of U.S. government securities to a public customer The question asks which transaction is nonexempt. Choices (a), (b), and (d) are examples of exempt transactions. However, though the security referenced in choice (c) is exempt, there is no specific exemption for transactions involving a public customer, and therefore choice (c) is considered a nonexempt transaction.

If a bank owns a broker-dealer subsidiary, what would its registration requirements be under the USA? A) Since banks are exempt from state securities registration, the subsidiary would also be exempt B) If the subsidiary is registered with the SEC, it would be exempt from registering with any particular state C) The subsidiary would need to register in any state in which it planned to do business D) The subsidiary would register in all states under the provisions of qualification

C) The subsidiary would need to register in any state in which it planned to do business Commercial banks, thrifts, and savings and loans are specifically exempted from the definition of a broker-dealer. However, a broker-dealer subsidiary of a bank would still be required to be registered as a broker-dealer.

An order ticket does NOT need to include which of the following pieces of information when it is created? A) The account number B) The time of receipt C) The time of execution D) Whether the order was solicited or unsolicited

C) The time of execution An order ticket must include the number of the account for which the order was taken, choice (a). It must also include the time the order was received from the client, choice (b), and whether the order was solicited or unsolicited, choice (d). The ticket does not need to include the time of execution when it is first created. (That information will be added later unless the order is not executed for some reason.)

A couple has a 529 College Savings Plan Account for each of their two children, ages 2 and 16. How should these accounts be invested? A) Both accounts should be invested mainly in money-market and fixed income securities so that the principal is preserved B) The two-year-old's account should be invested primarily in equity securities while the 16-year-old's account should be invested mainly in municipal securities C) The two-year-old's account should be invested primarily in equity securities while the 16-year-old's account should be invested mainly in money-market and fixed-income securities D) Both accounts should be invested primarily in equity securities to provide capital appreciation

C) The two-year-old's account should be invested primarily in equity securities while the 16-year-old's account should be invested mainly in money-market and fixed-income securities As a child approaches college age, the investments in a 529 College Savings Plan should be shifted from growth-focused investments, such as equities, to less volatile, more stable investments, such as fixed-income and market-money securities. Thus, the two-year-old's account should be allocated mainly to equity securities, while the 16-year-old's account should be invested primarily in fixed-income and money-market securities. One of the main reasons for purchasing municipal securities is that they generate tax exempt income. Interest earned from municipal securities is free from federal income taxes, and sometimes from state income taxes as well. Investment gains in 529 Savings Accounts are tax-free as long as the money is withdrawn for college expenses. Thus, municipal securities would usually not be the best choice for an account in which the investor is already receiving significant tax advantages. This is the reason that choice (c) is a better answer than choice (b).

Under the Uniform Securities Act, which of the following persons is a broker-dealer in State B? A) An agent in State A who contacts a client in State B B) A corporation that sells commercial paper every other week in State B C) A broker-dealer that is registered in State A, where its only office is located, and has insurance companies as its only clients in State B D) A broker-dealer that is registered in State A, where its only office is located, and has only three retail clients who are residents of State B

D) A broker-dealer that is registered in State A, where its only office is located, and has only three retail clients who are residents of State B A broker-dealer registered in State A that has any retail clients who are residents of State B is required to be registered in State B. This is unlike investment advisers that are able to have no more than five non-institutional (retail) clients in a state in which they have no place of business. Regarding the other answers, agents and issuers (the corporation selling commercial paper) are not broker-dealers. Also, a broker-dealer that is registered in State A (where it's office is located), but with institutional clients in State B, is excluded from the definition of an investment adviser in State B

Which of the following investment advisory practices are permitted? A) A client's portfolio increases in value from $100,000 to $150,000 over a one-year period and the adviser charges the client a fee of only 1% of the $50,000 increase B) An investment advisory firm is purchased by a large broker-dealer and all client contracts will remain in force as long as the terms of the contracts are not altered C) An investment advisory firm appoints three new senior partners and, for competitive reasons, it does not disclose this to anyone D) A client terminates an advisory relationship with an investment adviser halfway through the contract and the advisory firm refunds 50% of all prepaid fees, as called for in the contract

D) A client terminates an advisory relationship with an investment adviser halfway through the contract and the advisory firm refunds 50% of all prepaid fees, as called for in the contract Investment advisory contracts must provide that: The adviser will not be compensated on the basis of a share of the capital appreciation of the account. The adviser may not assign client contracts without the consent of the client. If the adviser is a partnership, clients will be notified of changes in the partnership within a reasonable period of time.

An investment adviser's compensation could be based on: A) A share of capital gains B) Any agreement that the client and investment adviser mutually sign C) A percentage of capital appreciation of the net assets in the client's account D) A percentage of the value of the fund averaged over a prescribed period

D) A percentage of the value of the fund averaged over a prescribed period An investment adviser's compensation could be based on a percentage of the value of the fund averaged over a prescribed period. An investment adviser may not receive compensation on the basis of sharing in capital gains or a percentage of the appreciation in the account, even if the client signed an agreement to do so.

Which of the following persons is NOT considered an investment adviser representative under the Uniform Securities Act? A) A person who makes recommendations about municipal securities at an investment advisory firm B) A person who solicits advisory services and private offerings for accredited investors C) An accountant who offers a separate service for securities advice based on his clients' tax situation D) A person who assists clients by entering orders for securities transactions

D) A person who assists clients by entering orders for securities transactions A person who assists clients and enters orders for securities transactions is an agent of a broker-dealer, not an investment adviser representative. A person providing advice at an advisory firm is an investment adviser representative, even if that advice is about exempt securities (e.g., municipal securities). A person who solicits advisory services is an investment adviser representative. An accountant who offers a separate service for giving securities advice will most likely need to register as an investment adviser representative. Although the accountant answer doesn't specifically mention compensation, it may be assumed because of the phrase "offers a separate service for securities advice."

Under the Uniform Securities Act, which of the following persons that engages in the business of advising others regarding securities is NOT excluded from the investment adviser definition? A) An investment adviser representative B) A bank, savings institution, or trust company C) A licensed broker-dealer whose advice is incidental to its business D) A person whose advice relates only to exempt securities

D) A person whose advice relates only to exempt securities The Uniform Securities Act does not provide an exclusion for persons whose advice relates only to exempt securities. Instead, the USA provides exclusions from the IA definition to banks, savings institutions, or trust companies (i.e., they are not considered investment advisers and are not required to register as IAs). Broker-dealers that provide advice which is incidental to their normal course of business, and who receive no special compensation for the advice, are exempt from registration as investment advisers. The USA also excludes an investment adviser representative (an individual employee of an IA) from the definition of an investment adviser (the f

A client of an agent has recently sold a home. Before making an investment decision, the client suggests that the agent hold the money in safekeeping. Which of the following is TRUE of this arrangement? A) Before agreeing to accept the client's money, the agent must have written approval from their broker-dealer B) When acting as a custodian for a client's money, the agent must post a bond and notify the Administrator C) In order to act as a custodian for the client's money, the agent must have a power of attorney D) Agents are prohibited from acting as a custodian for money

D) Agents are prohibited from acting as a custodian for money According to the NASAA Model Rule—Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent may not take custody of a customer's money or securities. Only a broker-dealer may act as a custodian for customers' money or securities

All the following activities by an investment adviser representative are considered unethical, EXCEPT: A) Lending money to a client who has sustained an investment loss B) Informing a client that the price of a stock will increase after the release of a positive research report on a company C) Executing trades of frequency and size that exceed a client's risk tolerance, but result in a higher return than the client expected D) Arranging a loan for a client conducted through an affiliated broker-dealer of the investment adviser for the purpose of paying for stock recommended by the investment adviser representative

D) Arranging a loan for a client conducted through an affiliated broker-dealer of the investment adviser for the purpose of paying for stock recommended by the investment adviser representative A broker-dealer is permitted to lend money. The situation described in choice (d), is a margin account. It is prohibited for an investment adviser representative to loan money to a client who sustained investment losses—choice (a). Telling a client that the price of a stock will increase is a promissory statement and is prohibited—choice (b). Trades of excessive size or frequency that disregard a client's objectives or risk tolerance are not permitted regardless of the returns—choice (c).

A "sale" or "offer to sell" under the Uniform Securities Act would NOT include a(n): A) Unsuccessful solicitation to sell a security of assessable value B) Gift of assessable stock C) Warrant attached to the purchase of a bond D) Bona fide pledge or loan

D) Bona fide pledge or loan A bona fide pledge or loan does not involve an offer or sale. A gift of assessable stock is considered to involve an offer and a sale. An unsuccessful solicitation would constitute an offer. Any security given or delivered with a purchase is considered to have been offered and sold for value.

If an investment adviser representative is instructed by an existing customer to limit losses in the customer's account, he should: A) Sell off 50% of the customer's portfolio B) Buy more of the securities that the adviser believes are appropriate for the customer C) Guarantee the customer against loss D) Consider rebalancing the customer's portfolio and using options to limit risk on existing stock positions

D) Consider rebalancing the customer's portfolio and using options to limit risk on existing stock positions Of the choices given, the only one that's appropriate is to consider rebalancing the portfolio and using options to limit risk on existing stock positions. Through rebalancing, the adviser will remove risky or poor-performing assets.

A broker-dealer is located in State X, but several of its clients are located in State Y. The broker-dealer is required to register its agents in State Y if the clients in State Y are: A) Other broker-dealers B) Registered investment advisers C) Financial institutions D) Government employees of State Y

D) Government employees of State Y If all of the broker-dealer's clients in State Y are other broker-dealers, registered investment advisers, and financial institutions (e.g., banks), its agents are not required to be registered in State Y. On the other hand, any person (regardless of who they're employed by) who are not included in the previous list must be represented by agents who are properly registered in the state.

Under the Uniform Securities Act, which of the following would NOT be considered an offer? I) Pledging securities to collateralize a loan II) A tombstone advertisement III) A sale of securities for value A) I and II only B) I and III only C) II and III only D) I, II, and III

D) I, II, and III An offer is defined as an attempt to dispose of securities for consideration or value. Pledging stock is not a permanent disposition of shares. A tombstone does not constitute an offer, which can be made only by a prospectus. A sale is the culmination of the offer and completes the transaction.

Under the Uniform Securities Act, which TWO of the following practices are prohibited? I) Accepting orders from a client's brother with written, third-party authorization II) Recommending securities without regard for the client's financial resources III) Quoting a price that is marked up from the current offering price IV) Crediting a portion of mutual fund's sales load back to a client's account A) I and III B) I and IV C) II and III D) II and IV

D) II and IV Under the Uniform Securities Act, recommending securities without considering a client's resources or rebating commissions (loads) are considered prohibited practices. It is acceptable to take an order from someone with written, third-party authorization. Quoting a price that includes a markup is an acceptable practice. (

Which of the following choices describe accredited investors under SEC Regulation D? A) Individuals with a net worth of $250,000, exclusive of their primary residence B) Individuals with a net worth of $1 million, inclusive of their primary residence C) Individuals with an annual income of at least $100,000 and net worth of at least $150,000 D) Individuals with an annual income of $200,000, regardless of net worth

D) Individuals with an annual income of $200,000, regardless of net worth Accredited investors fall into three categories. Institutions—banks, brokerage firms, insurance companies, investment companies, certain pension plans, businesses, and nonprofits with at least $5 million in assets, and venture capital firms Key employees of the issuer—directors, executive officers, and general partners Wealthy individuals with at least $1 million in assets, excluding the value of their primary residence, or an annual income of $200,000 (or $300,000 together with a spouse). The investor's income must have been this high for at least the past two years and must be expected to continue at this level. Choices (a) and (c) describe the minimum financial standards for investing in viaticals. Choice (b) is not correct since the individual's net worth calculation includes a primary residence (home). The value of someone's house may not be included as an asset in order for someone to qualify as an accredited investor based on her net worth.

Under the Uniform Securities Act, an institutional investor: A) Is any financial institution B) Has more than $2.1 million of net worth C) Has a minimum of $1 million under management with an investment adviser D) Is designated by rule or order of the Administrator

D) Is designated by rule or order of the Administrator The best answer is that the definition of an institutional investor is designated by rule or order of the Administrator. The net worth of more than $2.1 million or minimum of $1 million under management with the adviser is the definition of a qualified client. Although financial institutions are considered institutional investors, the definition is ultimately determined by the Administrator.

An investment adviser is registered in State A and State B. A broker-dealer is registered only in State A. The client of the investment adviser is a resident of State B. The investment adviser asks the broker-dealer to purchase a nonexempt security, which is registered in State B, for the advisory client. The broker-dealer: A) Should refuse the order because the broker-dealer is not registered in the state in which the client resides B) May accept the order as long as this practice does not occur with any regularity C) May accept the order only if the client places the order D) May accept the order if the broker-dealer has no place of business in State B

D) May accept the order if the broker-dealer has no place of business in State B This question is very tricky. Here is the point you need to watch for. The business relationship is between the broker-dealer and the investment adviser, not the advisory client. In other words, the investment adviser is the broker-dealer's customer. The transaction is being requested by the investment adviser, who is considered an institution. As a reminder, the term broker-dealer EXCLUDES any person who (1) has no place of business in the state and (2) transacts business with or through a financial institution or institutional buyer, whether acting for itself or as a trustee.

Zack Woods is employed at Indiana Trust Company, which is a federally chartered bank. His boss, the CFO of the company, asks him to help sell the bank's securities to some potential institutional clients and a few retail investors who do not have accounts with the bank. Under the USA, Zack would: A) Avoid meeting the definition of an agent if he sells the securities only to institutional investors B) Meet the definition of an agent if he sells the securities to any retail investors C) Meet the definition of an agent since he is selling the bank's securities to individuals who do not have an account with the bank D) Not meet the definition of an agent under any circumstances

D) Not meet the definition of an agent under any circumstances Under the Uniform Securities Act, agent means 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. Excluded from the definition is an individual who represents an issuer in effecting transactions in certain exempt securities or who represents an issuer in exempt transactions. Since Zack is representing an issuer and selling a certain type of exempt security (securities issued by a federally chartered bank), he would not meet the definition of agent under any circumstances (whether selling to institutional and/or retail investors).

In reviewing prices for a mutual fund, an investor notices that the fund has three listings, one for Class A shares, another for Class B shares, and a third for Class C shares. The distinctions among the three classes of shares would most likely reflect different: A) Investment objectives B) Minimum purchase requirements C) Distribution arrangements D) Sales charges and 12b-1 fees

D) Sales charges and 12b-1 fees Classes of shares in mutual funds are distinguished by their sales charges. Generally, Class A shares have front-end sales charges and low or no 12b-1 fees. Class B shares have contingent deferred sales charges and higher 12b-1 fees and often convert to Class A shares after a set number of years. Class C shares have a higher 12b-1 fee than Class A shares and they might also have a small front-end load or a small contingent deferred sales charge if the investor sells the shares within 12 to 18 months.

An agent is employed by a broker-dealer that is registered in State A. The agent may NOT take which of the following actions? ASolicit orders for municipal bonds issued by a school district in State A BAccept unsolicited orders for a corporation's common stock that is not registered in State A CSolicit orders for a corporation's bonds that are registered in State A Solicit orders for a corporation's preferred stock that is not registered in State A

D) Solicit orders for a corporation's preferred stock that is not registered in State A Agents may not solicit orders for unregistered, non-exempt securities. This is the situation presented by the agent soliciting orders for preferred stock that is not registered in State A. The agent may solicit the municipal bonds because he is registered in State A. The agent may sell stock that is not registered in State A as long as the transaction is unsolicited.

An agent receives a letter from an irate client. The letter is the fifth in the last six months and the language is abusive. The agent forwards it to his supervisor. The supervisor decides against a reply and discards the letter. In this instance, which of the following statements is TRUE? A) The supervisor is entitled to decide how to handle such situations B) If the supervisor forwards the complaint to the Administrator, this is acceptable C) The Uniform Securities Act requires that all material complaints be forwarded to the Administrator D) The Uniform Securities Act requires that a response be made to all written complaints

D) The Uniform Securities Act requires that a response be made to all written complaints When an agent receives a complaint in writing, it must be forwarded to a designated supervisor. The complaint must be kept on file, along with any action taken to remedy the complaint. The fact that the complaint was the fifth in the last six months and the language abusive has no bearing on how the complaint should be handled. By discarding the letter, the supervisor acted in a prohibited and improper manner.

All of the following persons would be automatically registered as an agent with the Administrator, EXCEPT: A) A member of the board of directors of a broker-dealer B) The CEO of a broker-dealer C) A partner of the broker-dealer D) The director of personnel of a broker-dealer

D) The director of personnel of a broker-dealer According to the Uniform Securities Act, the registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer, or director, or person occupying a similar status or performing similar functions. The director of personnel is not involved in effecting securities transactions.

Under the Uniform Securities Act, which of the following sale would be considered a nonissuer transaction? A) A primary offering sold by a broker-dealer B) The sale of a security executed by an agent of the issuer C) The sale of a new issue in a private placement D) The sale of an outstanding security on the New York Stock Exchange

D) The sale of an outstanding security on the New York Stock Exchange A nonissuer transaction is a purchase or sale of a security whereby the issuer does not benefit, directly or indirectly. A trade between two investors for IBM stock on the New York Stock Exchange (a secondary market trade) would be an example of a nonissuer transaction.

According to the SEC, an investment adviser may publish the comments it receives on a third-party review site on its own Internet site if: A) An adviser may never refer to these types of comments without violating the testimonial rule B) The site is preapproved by a registered principal and the adviser edits the comments it receives C) The site is approved by the SEC's investment advisory committee or the appropriate state authority D) The site is independent of the adviser and the adviser does not cherry-pick the reviews it receives

D) The site is independent of the adviser and the adviser does not cherry-pick the reviews it receives According to SEC guidance, an investment adviser (or an IAR) may publish the comments it receives from an independent social media site on its own Internet site or social media page as long as it has no control over the comments. In other words, the site must be neutral. It must permit both positive and negative comments and the adviser must not be able to tailor or sort them so that the favorable ones are highlighted.

An agent has been given the login and password for a client's account. The client has provided written authorization for the agent to login and place trades in the client's account. This activity is considered: A) Acceptable, provided the broker-dealer's policies allow for it. B) Acceptable, provided the authorization was filed with the Administrator. C) Unacceptable, since it's strictly prohibited under the Uniform Securities Act. D) Unacceptable, since it likely violates the terms of service of the broker-dealer's online account access system.

D) Unacceptable, since it likely violates the terms of service of the broker-dealer's online account access system. Since the agent is logging into the website using the client's credentials, it's impossible to determine which transactions were entered by the agent and which were entered by the customer. Since broker-dealers cannot identify whether trades were fraudulent, they prohibit the sharing of usernames and passwords in their terms of service.

An IAR receives an unsolicited tweet from a satisfied customer that says "My portfolio just hit a new high. Up 200% in less than 2 years. U r the greatest!!!" The IAR retweets this statement to all of her twitter followers. The IAR has: A) Not violated either the testimonial rule or the rules about performance advertising B) Violated the rules about performance advertising C) Violated the testimonial rule D) Violated both the testimonial rule and the rules about performance advertising

D) Violated both the testimonial rule and the rules about performance advertising By retweeting the customer's comment, the IAR has potentially violated both the rule against the use of testimonials in adviser advertising and the rules about performance advertising. Advertisements of past performance must conform to a number of specific rules. By retweeting the customer's statement about his portfolio increasing 200% in less than two years, the IAR has advertised his past performance without following these rules. Note that the regulators have expressed concerns about the use of Twitter for communicating performance information since its short format makes it difficult to include the required disclosures

An apparent violation of the Uniform Securities Act has occurred. Which of the following is NOT included in the list of possible actions that may be taken by the Administrator? A) Without providing prior notice, the Administrator can start a civil suit against the registrant which alleges wrongdoing and forces compliance with existing regulations. B) Without providing prior notice, the Administrator can begin investigating the situation and the registrant. C) Without providing prior notice, the Administrator can force the registrant to halt the activities in violation by issuing a cease and desist order related to the violation. D) Without providing for a hearing, the Administrator can immediately revoke the suspected violator's registration.

D) Without providing for a hearing, the Administrator can immediately revoke the suspected violator's registration. An Administrator is not permitted to revoke a registration without providing appropriate prior notice, the opportunity for a hearing, and written findings, facts, and conclusions related to the alleged violation. The Administrator can initiate an investigation, issue a cease and desist order, or initiate civil proceeds without prior notice. However, firms and individuals who are subject to these actions have an opportunity to appeal.

You are employed by a bank with the title financial adviser. In your capacity at the bank, you are required to hold a general securities registration in order to provide information on securities and to process orders. Your sponsoring broker-dealer is an affiliated firm owned by the bank holding company that also owns the bank you work for. A client comes to the bank seeking advice on certificates of deposit offered by the bank as well as mutual fund investments. Under the Uniform Securities Act, which of the following choices BEST describes what you are allowed to do when giving advice to the client? A) You are not allowed to advise the client since the bank is not an investment adviser B) You may give the client advice only on the mutual funds since certificates of deposit are governed by banking rules and you are registered with a broker-dealer C) You may not give advice on the certificates of deposit since the bank is not a registered investment adviser D) You may give the client advice since the broker-dealer and the bank are excluded from the definition of an investment adviser

D) You may give the client advice since the broker-dealer and the bank are excluded from the definition of an investment adviser Since both the bank and the broker-dealer are excluded from the definition of an investment adviser, you may provide advice on these products without registering as an investment adviser or investment adviser representative. You are acting within the scope of your employment with the broker-dealer. (

The LEAST suitable investment for Mrs. McCarthy, a 70-year-old investor, would be a: A) Treasury note B) Utility stock mutual fund C) Fixed annuity D) Zero-coupon bond

D) Zero-coupon bond An assumption that you must make with this question is that since the client is 70, she is most likely retired and dependent on her portfolio for income. Zero-coupon bonds do not provide current income that the majority of elderly investors are seeking. In addition, zero-coupon bonds traditionally are the most volatile securities in periods of fluctuating interest rates. The combination of the volatility and lack of current income make zero-coupon bonds the most unsuitable vehicle of the choices given.

According to the Uniform Securities Act, when does a broker-dealer's registration expire? AWhen the Administrator declares it to be no longer effective. BWhen the broker-dealer notifies the Administrator that it no longer has an office in the state. One year from the effective date. On December 31.

Dec 31

A Canadian broker-dealer has many clients who vacation frequently in the United States. In order to continue doing business with these customers while they are in the United States, the broker-dealer must file all the following material with the Administrator, EXCEPT: A) A Consent to Service of Process B) A Form B/D C) A copy of current registration filed in Canada D) Proof of membership in a self-regulatory organization

Form B/D A Canadian broker-dealer may continue to do business with any clients in the United States with whom it has a bona fide preexisting relationship and who are here temporarily—not permanent residents of the United States. According to the Uniform Securities Act, the broker-dealer must be registered properly in Canada and must file the following documents with the Administrator: -a Consent to Service of Process, -a copy of the registration document filed with its Canadian regulator at the provincial level -proof that it is regulated by a self-regulatory entity, such as an exchange. The Canadian broker-dealer may act only in a limited capacity in the states. Generally, it must restrict its activities to existing clients temporarily in the state and to certain institutions.

Which TWO of the following actions would fall under the jurisdiction of a state securities Administrator?The purchase of options through the Internet by a state residentThe sale of long-term certificates of deposit by a bankThe delivery of securities to a customer who is a resident of a particular stateThe offer of securities by an out-of-state broker-dealer to a resident of the state A) I and II B) I and IV C) I and III D) III and IV

I and IV State securities Administrators have jurisdiction over securities transactions that are: Originated in their state Directed to and received in their state Accepted in their state Delivery of securities to a particular state does not fall under an Administrator's jurisdiction, nor do general commercial banking transactions.

Under what circumstances may the Administrator of State X issue a cease-and-desist order on behalf of the Administrator of State Y? A) Only when the agent involved is also registered in State X B) Only if the Administrator in State X receives a written request from the Administrator of State Y C) Never D) Anytime the Administrator of State X believes that the agent is about to violate the law in State X

never The USA gives the Administrator the power to issue a cease-and-desist order anytime he believes that anyone has violated the securities laws of his state or believes that someone is about to do so. The Administrator of State X has no jurisdiction in State Y.

Under the National Securities Markets Improvement Act (NSMIA) investment advisers are required to register at the state level or the federal level, unless exempt. Which TWO of the following statements are TRUE regarding investment advisers with $95 million of assets under management? I) They generally must register in any states in which they will conduct business. II) They are exempt from state registration. III) They must register with the SEC if the state in which they conduct business has no requirement for registration of investment advisers. IV) They generally must register with the SEC if their clients are all retail investors.

I and III NSMIA, the National Securities Markets Improvement Act, was created to eliminate some of the dual requirements of federal and state securities law. Investment advisers with less than $100 million of assets under management (AUM) are generally exempt from federal or SEC registration and are required to register at the state level. If the state in which the adviser conducts business does not provide for the registration of investment advisers, they must register with the SEC. Investment advisers with AUM of $100 million up to $110 million may register with the SEC. If the adviser's AUM exceed $110 million, it must register with the SEC. An investment adviser registered with the SEC is referred to as a federal covered adviser.

Which TWO of the following choices describe an unethical business practice? I) An agent tells clients that the broker-dealer will rebate their commissions if an IPO does not increase by 10% during its first month of trading II) An agent tells clients to purchase shares in a company based on the research report the broker-dealer just issued III) An agent who has insider information about a stock executes a client's unsolicited order for that stock IV) An agent highlights the important parts of a prospectus at the client's request

I and IV The agent in choice (I) would be guaranteeing the client against losses, which is an unethical practice according to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents. The agent in choice (IV) should not have highlighted the prospectus even if his only intent was to help the client. An agent should never mark up or alter a prospectus for a client.

Which of the following would be a violation of the Uniform Securities Act? I) Buying and selling the same stock on the same day on different exchanges II) Offering shares of an unregistered nonexempt security to exactly 14 clients III) Offering a Canadian Government bond to a resident of a state in which the agent is not registered

II and III It is a violation of the Act to offer unregistered nonexempt securities to one client, let alone fourteen. Also, the sale of exempt securities in a state does not exempt the agent from being registered in that state.

A broker-dealer may need to file all of the following material with the Administrator, EXCEPT: A) The prospectus for an oil and gas limited partnership B) A form letter distributed to an adviser's current clients explaining the benefits of a variable annuity C) The marketing materials for a new issue of municipal bonds D) The sales literature for an issue that will be sold within the Administrator's state only

The marketing materials for a new issue of municipal bonds Generally, the Administrator may require the filing of "any prospectus, pamphlet, circular, form letter, advertisement or other sales literature or advertising communication" intended for distribution to investors or prospective investors. However, the Administrator may not require that sales materials related to exempt securities, exempt transactions, or federal covered securities be filed. Since municipal securities are exempt securities, their sales materials are not required to be filed with the Administrator.

Mr. Brown is a client who must fulfill a $300,000 obligation in two years. He currently has the $300,000 and would like your advice on how to invest these funds temporarily. Which of the following choices should you advise? A) U.S. government securities B) A Treasury bond fund C) AAA municipal bonds D) High-quality debentures

US govt securities U.S. government securities are the safest investment of the choices provided. Assuming that Mr. Brown buys two-year maturities, Mr. Brown is assured of having his $300,000 to fulfill his obligation. The other choices are incorrect even though they may be high-quality securities. A Treasury bond fund is a mutual fund, and does not have the backing of the full faith and credit of the U.S. government, and will fluctuate in value. There is no guarantee that the price of these securities will be at the same level two years after they have been purchased. If they go down in price, Mr. Brown would not only suffer a loss, he would not be able to fulfill his obligation. The same holds true for the municipal bonds and high-quality debentures, which are usually unsecured corporate bonds.

A broker-dealer is participating in an initial public offering of a security that will be listed on Nasdaq. Which of the following documents is the broker-dealer required to deliver to a client who purchases in the after-market immediately after completion of the offering? A) There is no requirement for additional documentation B) A research report C) A final prospectus D) A list of all of the broker-dealers involved in the offering

a final prospectus A client purchasing securities as part of an offering must receive either a final prospectus or a preliminary prospectus along with an additional document from the broker-dealer executing the transaction. The final prospectus must be provided for a certain period after the completion of the offering. For an IPO, if it is listed on the NYSE or Nasdaq, after-market prospectus delivery is 25 days. If the security will be quoted in the OTCBB or Pink Market, the period is 90 days for an IPO, and 40 days for a subsequent (follow-on) offering.

At retirement, a client wants to invest a rollover from a 401(k) account into an IRA. Which of the following investments is the most suitable recommendation? A) A large-cap stock fund B) A balanced fund C) Treasury bonds D) An annuity

balanced fund A person who has just retired is presumably seeking income. However, it may be advisable to invest at least a portion of her assets in growth-oriented investments since she may be retired for 20 to 30 years. Of the choices given, a balanced fund, which invests in both stocks and bonds, is the best answer. A balanced fund provides the investor with both income and capital appreciation because it invests in both stocks (appreciation) and debt securities (income). On the other hand, a large-cap stock fund will provide capital appreciation, but probably little income and too much risk. Treasury bonds provide safety and income, but little appreciation. An annuity will probably have a surrender period and high expenses. Additionally, since the annuity provides tax-deferred income, buying an annuity in an IRA or other tax-deferred account would be counter-productive.

After buying a large block of stock for herself, an agent is overheard telling another employee that after her purchase she recommended the same stock to a number of her clients who also purchased it. After completing the clients' orders, the agent sold her stock for a large profit. The agent's prohibited action is best described as: A) Cross trading B) Making unsuitable recommendations C) Front-running D) Excessive trading

front running Front-running is the prohibited practice of a broker-dealer or agent buying or selling stock before the public release of proprietary information concerning a large block order. In this question, another form of front-running is exemplified by the agent buying a stock and then recommending that her clients buy the same stock. After the recommendation to her clients, the agent would likely benefit from the potential increase in the stock's price. Even if the client recommendations are suitable, it is unethical for the agent to put herself before her clients. (67710)

An agent who is registered in State A contacts a client in State B. The broker-dealer is registered in State B but not the agent. The agent may: A) Not sell the security B) Sell the security if it is a federal covered security C) Sell the security upon notification to a superior D) Sell the security because this is an exempt transaction

not sell the security In order to sell a security in a state, the broker-dealer and the agent must both be registered in the state. Therefore, the agent may not sell the security

A client buys unregistered securities at the suggestion of an agent. The agent has the client sign a waiver as to the noncompliance of the transaction with law, absolving the agent of any wrongdoing. The waiver the client signed is: A) Acceptable B) Acceptable with the Administrator's approval C) Null and void D) Subject to civil liability and criminal penalty

null and void Clients may not sign waivers absolving agents from wrongdoing. Such statements are sometimes called exculpatory clauses. These waivers would be null and void under the Uniform Securities Act.

Advertising and sales-related materials would need to be filed with the Administrator in which of the following circumstances? A) The materials relate to transactions with institutional investors B) The securities were issued by a common carrier C) The securities are listed on a foreign exchange D) The materials relate to federal covered securities

securities listed on foreign exchange In general, all advertising and sales-related materials created by broker-dealers and investment advisers must be filed with the Administrator. If the security or the transaction is exempt under the Act or is a federal covered security, the materials do not need to be filed with the Administrator. Any transaction with an institutional investor is an exempt transaction. A security issued by a common carrier is an exempt security. As a reminder, a common carrier is an entity that moves people or products between states, and is regulated by the Interstate Commerce Commission, for example, freight companies, railroads, and airlines. According to the NASAA Model Rules, securities listed on the Toronto Exchange, and the TSX Venture Exchange (Canada) are exempt. Securities listed on other foreign exchanges are not exempt automatically.

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