Series 66 1-30-18
Calls vs puts
1. If you have a Call contract, we "CALL UP", which means we ADD the premium to the strike price 2. If you have a Put contract, we "PUT DOWN", which means we SUBTRACT the premium from the strike price. In this question, we had a Put option contract. Therefore, we take the strike of 45 minus the premium of 5 to get the breakeven of 40.
Which of the following are benefits of a Health Savings Account (HSA)? Tax-free withdrawals are permitted for any medically-related expense. Earnings within the account are tax-deferred. Contributions to the HSA are tax-deductible up to limitations. HSAs can be established as investment accounts.
2,3,4 Tax-free withdrawals are permitted in HSAs for "Qualified Medical Expenses", so it would be incorrect to say that tax-free withdrawals are permitted for "any" medically-related expense, because that could include elective plastic surgeries, etc. All of the other answers are true of HSAs.
VA
A Variable Annuity is an investment that is made up of a portfolio of mutual funds or other professionally managed securities held in a special, tax-deferred account called a separate account.
Block Trade
A block trade is a trade of 10,000 or more shares of common stock or securities with a market value of $200,000, whichever is greater.
Capital Needs
A capital needs analysis focuses on client needs and the needs of the client's beneficiaries upon the client's death, most often for insurance coverage purposes. Anticipated inflation, anticipated life expectancy, anticipated earnings from employment, and anticipated earnings from investments would all be considerations. As well, the needs of beneficiaries, such as a remaining spouse with a mortgage and higher education for children would be considerations.
Cash Referral to solicitor
A solicitor is a person: 1. Who attempts to sell advisory services or 2. Refers clients to an IA for a fee. To pay the solicitor, there must be a written agreement between the IA and the solicitor. (Also, the IA must be registered with the SEC and the solicitor must have a clean record.)
revoke an advisor's registration, censure the adviser, or place limits on the adviser's business activities
According to the Investment Advisors Act of 1940, the SEC may suspend or revoke an advisor's registration, censure the advisor, or place limits on the advisor's business activities for leaving out material information, becoming the subject of a state court injunction, or failing to properly supervise activities that lead to violations of securities rules.
Willful violations of the Investment Advisors Act of 1940 are punishable by:
According to the Investment Advisors Act of 1940, willful violations of the act can be punished by a fine of up to $10,000 and imprisonment for up to 5 years or both. The Act does not address the barring of an investment advisor.
Mutual funds
According to the Investment Company Act of 1940, investment companies are required to file annual reports with the SEC and semi-annual reports with all shareholders, they are prohibited from owning more than 3% of another investment company, and compensation to be paid must be in writing. However, an affiliated person is not prohibited from investing in the fund's shares.
Anti-fraud
According to the Uniform Securities Act, anti-fraud provisions apply to all the listed choices. Nothing is exempt from anti-fraud provisions.
Of the following types of accounts, all of these accounts would normally avoid probate EXCEPT? [A] Joint Tenants with Rights of Survivorship [B] Joint Tenants In Common [C] Tenants by Entirety [D] Community Property with rights of survivorship
All choices except Tenants in Common would normally avoid probate issues because the assets would go to a surviving person but with Tenants in Common the assets of the deceased person will go to that persons estate and therefore would be included in the deceased persons probate.
Cash referrals
An Investment Advisor may pay a cash fee to a person soliciting advisory clients only if the advisor is registered with the SEC and the solicitor is not subject to SEC suspensions or limitations.
Performance gains compensation
As a general rule, an IA may not be compensated on the basis of capital gains ("performance" fees). Two exceptions to this rule are: 1) Clients with more than $1,000,000 (previously $750,000) in assets under management 2) Clients with a minimum net worth of $2 million (previously 1.5 million
CMO Interest (Formerly CDO's)
CMO interest payments are subject to BOTH Federal and State income tax.
Under the provisions of the Uniform Securities Act, which of the following securities would have to be registered by qualification? XYZ Company has been in business one year. An initial offering of its stock will be offered in several states at once. The WLC Company, formed two years ago, has previously made an offering of its stock in several other states and now wishes to make a new offering of stock in a state. RED Inc., plans to make an offering of its stock in only one state and so it will not file a federal registration statement.
Choice I would require registration by coordination since it will be offered in several states. Choice II would only require registration by qualification since the new offering will only be sold in one state. Choice III would only require registration by qualification since it will only offer stock in one state and is not filing with the SEC.
Under the Securities Act of 1933 Exempt Securities are securities that do not have to be registered with the SEC before they can be sold to public and include which of the following? Municipal General Obligation and Revenue Bonds U. S. Government Securities Securities issued by State Banks and Savings and Loans Fractional interests in oil, gas and other mineral rights
Choices I, II, & III represent securities which are "exempt" from SEC registration requirements. Choice IV, fractional interests in oil, gas and other mineral rights would be required to be registered with the SEC.
According to the Investment Advisors Act of 1940, registration as an investment advisor is required for a person whose advice relates to which of the following securities? bonds issued by a local bank bonds issued by a corporation listed on NYSE U.S. Treasury bonds only revenue bonds issued by a state
Choices I, II, and IV represent securities which would require registration as an Investment Advisor. Registration as an investment advisor would not be required for persons who offer only U.S. Government (Treasury) securities.
Under the Investment Advisors Act of 1940 which of the following persons would NOT have been considered to have received compensation for the giving of advice? An annual management fee based on assets under management A commission charge for the execution of securities transactions A fee charged to a family for the establishment of family trust funds An hourly rate charged to client while meeting with the client and providing the client with investment advice
Choices II & III would not be considered forms by which compensation could be paid for providing investment advice. Charging a commission for securities transactions executed would be acting as an Agent. Charging a fee for establishment of trust funds for a family has nothing directly to do with giving advice about investing in securities and would not be considered compensation as an IA.
An investment adviser representative (IAR) is engaged in options trading. The IAR decides that a fair charge for his services would be 7% per month of the assets under management. In order to do so, the IAR will disclose all fees and charges in both the advisory contract, signed by clients, and Form ADV. The IAR thinks that by the dual disclosure, he is acting appropriately. Is the IAR acting appropriately?
Even when disclosure has taken place, IARs cannot act inappropriately or in violation of the Investment Advisers Act of 1940. The fees charged for this IAR's services are excessive and beyond what is acceptable by the Act of 1940. Taking a real-world approach to this question, start with a $10,000 portfolio. After 6 months of managing the account, without gain or loss on securities, the advisory fees will have added up to over $3,500, which is over 35% for six months of asset management.
IA of a mutual fund's contract
If a registered investment company (in this case a fund) has a Board of Directors, the Board of Directors of the fund and a majority of the outstanding shareholders must vote to approve the renewal of the Investment Advisors contract.
IAR State registration
If an IAR has no office but has more than 5 clients in a State, the IAR must register in that State. Institutional investors and officers of the IA are not counted when determining the number of clients the IAR has in a State.
Registration Changes
If the information contained in an agent's registration application has material changes or should become inaccurate, an amendment must be filed promptly.
Easiest Companies to form
In choosing the top two from the list, the sole proprietorship and general partnerships are the easiest to form and fastest to form. Limited partnerships, LLCs, and both forms of corporation take longer to start and are more complex.
Exchange markets are characterized by all of the following EXCEPT: [A] Prices are determined by negotiation. [B] Prices are determined by auction. [C] Market makers are called specialists. [D] The securities traded are called listed securities.
In exchange markets, prices are reached by public auction. In the over the counter market, prices are determined by private negotiation.
Investment Counsel
In order to use the term "Investment Counsel", an advisor must meet certain criteria including the fact that being an Investment Advisor is that person's "principal business."
Under the Investment Advisor Act of 1940, the registered investment advisor is required to:
Investment advisers must provide clients with written disclosure statements (Brochure Rule).
LLC's
Limited partnerships provide limited liability to limited partners while passing through profits and losses to investors. Sole proprietorships and general partnerships do not provide liability protection and C-Corporations do not pass through profits and losses to shareholders.
Under the Securities Act of 1933, members of an underwriting group must receive payment in full on sales of a new issue within
Members of the underwriting group must receive payment in full within 35 days of the purchase of a new issue.
Non-exempt issuers are required to file registration statements with which of the following entities under the 1933 Act?
Non-exempt issuers would be just normal issuers. Issuers that do not qualify for any exemptions would have to register at the Federal Level with the SEC according to the Securities Act of 1933.
Interest earned on a VA
Of the choices offered the best answer is "C". The earning in a fixed or variable annuity are tax deferred. There will be no current tax liability unless the client withdraws the earnings from the annuity.
All of the following are characteristics of Variable Life insurance EXCEPT: [A] Policyholders bear the investment risk. [B] They are considered to be securities. [C] Both the death benefit and the cash values are variable. [D] Premiums are deposited in the General Account of the life insurance company.
Premiums are deposited in the Separate Account of the life insurance company.
Premiums paid by the policyholder will be deposited in the insurer's General Account for all of the following policies, except: [A] Variable life [B] Term life [C] Whole life [D] Universal life
Premiums paid for variable life policies will be deposited into the Separate Account for the customer. The premiums paid for the other policies will be deposited in the insurer's General Account.
Under the Securities Exchange Act of 1934, reports filed by issuers with the SEC must be made available to the public:
Reports required by the SEC are made public immediately. One of the main purposes of the SEC is to attempt to see that full and fair disclosure is made to the public.
A federal covered advisor is properly registered under the Investment Advisors Act of 1940. The SEC is performing an investigation of the advisor for possible rule violations. Which of the following can the SEC require of the advisory firm while the firm is under investigation?
The SEC requires investment advisory firms to maintain certain financial statements and records. These financial statements and records must be available for inspection by the SEC upon demand. This is an example of a time when the SEC could and likely would inspect such documentation. During the process of an investigation, the SEC would not require any of the other items listed.
Securities act of 1934
The Securities Exchange Act of 1934 provides for the registration of Stock Exchanges and regulates all persons and organizations which have anything to do with the exchanging of securities. The Securities Act of 1933 regulates the Primary Market.
Securities exchange act of 1934 - 5% ownership
The Securities Exchange Act of 1934 states that any person who becomes the owner of 5% or more of a security registered on a National Securities Exchange must file a report with the SEC within 10 days.
Revoking Registration
The Uniform Securities Act states that a registrant's registration can be revoked by the Administrator if the registrant has had a revocation or suspension of registration by any securities regulator or securities regulator of a foreign jurisdiction in the past 5 years. (Even Insurance commissioners and Canadian)
surety bond that may be required of a registrant under the USA
The amount of the bond is within the discretion of the State Administrator. The USA does not specify a minimum amount on a bond.
Which of the following is a benefit of a limited liability company (LLC)? Appropriate valuation discounts are permitted, such as marketability discounts and minority discounts.
The only "benefit" of an LLC would be the valuation discounts such as marketability discounts and minority discounts. These discounts are provided for minority members of the LLC due to their lack of influence on company direction, and for some/all members of the LLC due to the lack of marketability or liquidity of the memberships/interests. This can be a benefit for tax purposes. LLCs have limited existence and interests are not freely transferrable or very liquid. The net income of the company being subject to self-employment tax is not beneficial, because members are responsible for their proportionate share of the payment of Medicare and Social Security taxes on the net income of the LLC.
Time Horizon of a retirement portfolio
The time horizon of a retirement portfolio is the life expectancy of the person in question. In other words, the retirement portfolio should sustain the individual who is retiring until they pass away. It is not a designated number and it is also not related to the amount of years worked.
An investment adviser intends to charge 5% per month based on assets managed. The IA will disclose the fees in both form ADV and in the advisory contract. Are the advisor's actions appropriate?
This fee, although disclosed, would be deemed to be excessive and therefore a violation.
When an individual invests heavily in Treasury Securities, which of the following can the investor expect in terms of BENEFITS? The Treasury Securities will pay interest that is taxable at the federal level. The Treasury Securities will have a high degree of safety. The Treasury Securities will have a relatively low yield, providing only modest amounts of income. The Treasury Securities will have a high degree of liquidity and be easily sold if necessary.
Though all statements are true of Treasury Securities, the question was asking about the BENEFITS. In this case, the high degree of safety and liquidity are definite benefits of Treasury Securities. The taxation at the federal level along with the lower yield would not be benefits.
IA Definition
Under the SEC Release IA-1092 the definition of an Investment Advisor is defined by answering yes to these three questions: 1. Does this person give advice about securities? 2. Is this person "in the business" of giving advice about securities? 3. Is this person compensated for giving advice about securities? -Not if this person has been previously registered with the SEC.
Losses on Taxes
When evaluating Jeannie's tax situation you would first offset her short-term gains against her short-term losses ($7,000 losses less $3,000 gains = net loss $4,000). Then you would take the remaining loss of $4,000 and net that against the long-term gain ($10,000 gain less $4,000 loss = $6,000 Net Capital Gain). The Net Long-term Capital Gain of $6,000 would be reported to the IRS on Jeannie's tax return.
Under the Uniform Securities Act, if an investment advisor representative wishes to offer advisory services to clients of a large broker/dealer in a neighboring State: Both the investment advisor and the investment advisor representative must be registered in the neighboring State.
Whenever an Investment Advisor gives advice to clients of a large broker/dealer in another state, both the Investment Advisor and the Investment Advisory Firm must be registered in the state. Since services will be offered to a "large" broker/dealer we must make the assumption that they will exceed the 5 client exemption.
Securities Act of 1933
Whenever you think of the Securities Act of 1933, you should think of new issues (primary market) and full and fair disclosure.
