Series 66
If a state-registered investment advisor accepts $_____ of prepaid advisory fees (or more), ____ months or more in advance of rendering services, then the advisor is considered to have taken custody of client funds under NASAA's interpretation
$500, 6 months in advance This limit is $1,200 for Federal Covered Advisors
An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep? - A copy of the written agreement between the IA and the solicitor, signed by the client - A receipt for any fee charged by the solicitor, signed by the client - Copies of all investment recommendations made by the solicitor - A statement, signed by the client, that both the IA's and solicitor's brochures were received
- A statement, signed by the client, that both the IA's and solicitor's brochures were received
Three primary expenses involved with brokerage accounts that are not included in the fee disclosure template
- Commissions - Markups/downs - Advisory fees for those firms that are also registered a investment advisors
Form ADV-E statements
- Completed by an investmetn advisor who maintains custody of customer funds/securities - The form is submitted by the independent public accountant who examines the funds and/or securities in the custody of an investment advisor E = surprise Examination Form must be sumitted within 120 day sof the time chosen by the accountant for the surprise examination
Prior to entry of an order, what is required on an order ticket
- Customer name/account number - RR name or number - Buy/sell - Number of shares/bonds to be traded - Description of the security - Execution price
Qualified custodians under NASAA's custody rule
- FDIC insured deposit taking institutions - Registered futures commission merchants holding customer assets - Foreign financial institutions holding financial assets for customers NSCC is not a retail institution that deals with the public - its customers are broker-dealers. An investment advisor can't open an account with NSCC. An IA can open an account with a broker-dealer that belongs to NSCC
Testimonials in advertisements are allowed:
- Federal covered advisors: if the compensation is disclosed and they are a client - State registered advisors: never (under NASAA rule)
Ways in which offerings under Rule 506(c) of Reg D of the SEcurities Act of 1933 differ from those under Rule 506(b) include each of these except: - All purcahsers of the Rule 506(c) securities must be accredited investors as defined in Rule 501, whereas Rule 506(b) permits a limited number of sophisticated but not accredited investors - The issuer must take reasonable steps to verify that all purcahsers are accredited investors in a 506(c) offerings, while no such obligation falls upon issuers in a 506(b) offering - General solicitation is permitted under Rule 506(c) offerings; no advertising is permitted under Rule 506(b) - Securities issued under Rule 506(c) are federal covered, while those under 506(b) are not
- Securities issued under Rule 506(c) are federal covered, while those under 506(b) are not Under NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either b or c, is considered a fed covered security Rule 506(c) permits advertising but requires that the issuer take reasonable steps to assure all purchasers meet the accredited investor standard. In a rule 506(b) offering, up to 35 non-accredited investors are permitted with no limit placed on the number of accredited investors
Exempt securities under the USA and NOT under the Securities Act of 1933
- Stocks and bonds issued by insurance companies - Securities issued by foreign gov'ts - Securities listed on exchanges These are NOT exempt under the Securities Act of 1933 but ARE exempt under the Uniform Securities Act
Which of the following statements about bid and asked prices are TRUE? - The bid price is the price a dealer is willing to pay to buy a security - The asked price is the price a dealer is willing to accept tot sell a security - The bid price is higher than the asked price
1 and 2
Under the USA, which of the following are securities? - Stock option contract - Treasury stock - Keogh plan
1 and 2 A Keogh plan is a vehicle for an investment, but not a security itself
A federal covered investmnet advisor employs the service of a third-party colicitor. The Investent Advisors Act of 1940 would require the solicitor to deliver - A copy of the IAs brochure - A copy of the solicitor's brochure - A copy of the solicitor's script - A copy of the IAs form ADV part 1
1 and 2 The script must be approved by the IA, and only the SEC receives a copy of the form ADV Part 1
Under the USA ,which of the following are exempt TRANSACTIONS? - A transaction between an issuer and an underwriter - An unsolicited customer order to buy an exempt security - US treasury bonds - Municipal securities
1 and 2 Transactions' exempt status generally depends on the trade's participants and/or type of trade, rather than on the security T bonds and munis are exempt SECURITIES, the manner in which they are sold and to whom determines if it's an exempt transaction
Violations of the Investment Advisors Act of 1940 are punishable by - Fine of up to $10,000 - 20 years in prison - Suspension of registration
1 and 3 5 years, not 20 years in prison
Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include: - A charge when a client requests that a stock certificate be issued in their name - A commission charge when a client buys a security on a listed exchange - The interest charged by the firm on money owed by customers in their margin account - Fees for providing advisory services to high-net worth individuals
1 and 3 There are three primary expenses involved with brokerage accounts that are not included in the fee disclosure template: 1. commissions 2. mark up/downs 3. advisory fees for those firms that are also registered as investment advisors
Which of the following statements are TRUE regarding Section 529 plans? - Funds withdrawn for qualified education expenses are always free of FEDERAL income tax - Funds withdrawn for qualified education expenses are always free of STATE income tax - The max contribution limits are determined on a federal level - The max contribution limits are determined on a state level
1 and 4
The administrator may require which of the following from a federal covered advisor? - Copy of the IAs form ADV - Filing of the IAs advertising in the state - A listing of the IAs fee schedule - A filing fee
1 and 4 Administrators have jurisdiction
Which of the following is considered a sale of securities under the USA? - Redemption of mutual funds shares worth $10,000 - Dividends of common stock for which no consideration was given for the dividends - With the approval of the board of directors, an exchagne of common stock for the stock in another company under a merger - Disposition of stock for which cash consideration is received
1 and 4 Redemption of mutual fund shares is ALWAYS treated as a sale by the redeeming shareholder. The exchange of securities in a merger is NOT considered a sale. Any disposition (liquidation) of securities that involves cash consideration, or in which the shareholder has a choice of cash or securities, is a sale
Registration statements for securities under the USA are effective for - 1 year from the previous December 31st - A period of time determined by the Administrator for each issue - 1 year from the date of issue - 1 year from the effective date
1 year from the effective date UNLIKE agents, investment advisors, and broker dealers, whose registration expires on Dec 31 each year and needs to be renewed
Which of the following is (are) TRUE regarding qualified pension plans? - They must not discriminate - They must have a vesting schedule - They must be in writing - Every month the employer must update the current status of all accounts
1, 2, and 3 Must update status of all employees annually, not monthly
Under NASAA rules, within _____ days of fiscal year end, each customer must be sent ________
120, updated brochure (ADV Part 2A) and brochure supplement (ADV Part 2B) Can also send summary of material changes section along with an offer of the revised brochure Only if material changes
The uniform Prudent investor act identified a number of fundamental changes in the former criteria for prudent investing. Which of the following incorrectly states one of these changes? - Delegation of trust investment and management functions is permitted, subject to safeguards - The standard of prudence is applied to each investment individually - The trade off between risk and return in all investing is the fiduciary's central consideration - Prudent investing requires that fiduciaries diversify their investments
2
Under the Investment Advisers Act of 1940, which of the following statemetns regarding custody of a client's funds are true? - Funds may be deposited in any account as long as the adviser is named as trustee for the client and adequate records are maintained - Clients must be kept informed in writing of the location of their funds and securities of any changes - Clients must receive quarterly statements from the adviser itemizing the funds and securities in custody and all transactions on the account during the period
2 and 3 1 Is wrong. When advisors have custody, they must 1) ensure the safekeeping of client securities through segregation and identification by client; 2) deposit client funds into bank accounts containing only client funds, naming the advisor as trustee; 3)keep adequate records of all funds, securities, and transactions; 4) provide written notification of the location of securities and funds and changes in the same; 5) report quarterly to the client, itemizing the funds or securities in possession and any transactions that have taken place; and 6) arrange for an annual surprise audit by an independent public accountant that reports the results to the SEC
If a customer purchases shares in a muni bond fund, which statemnets are true? - Divs are taxable - Divs are not taxable - Cap gains are taxable - Cap gains are not taxable
2 and 3 Dividends distributed by muni bond funds are federal tax free (and sometimes state) in alignment of tax rules Any cap gains are subject to taxation
A customer determines that he has been sold unregistered, nonexempt securities in a prohibited transaction. In accordance with the USA, he can exercise the right to file a civil suit within - 2 years from discovery or 3 years from occurrence, whichever is sooner - 1 year from discovery or 2 years from occurrence, whichever is sooner - 1 year from discovery or 2 years from occurrence, whichever is later - 2 years from discovery or 3 years from occurrence, whichever is later
2 years from discovery or 3 years from occurrence, whichever is sooner
Under the SEcurities Act of 1933, a registration statemetn for a security generally becomes effective how many days after it is filled? - 20 - 30 - 31 - 10
20 Unless the SECorders a delay Differs from administrator approved timeline
Which of the following statements regarding a red herring is NOT true? - Additional information may be added to a red herring at a later date - A red herring is used to accept indications of interest from investors - An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser - The final offering price does not appear in a red herring
3 An agent may NOT accept funds from potential purchasers of a new issue before the effective date
If XYZ is a registered broker-dealer with its lone office located in State T, under which of the following circumstances must it also register in State L? - XYZ's only dealings in State L are directly with issuers of securities in State L - XYZ engages in extensive transactions with the largest insurance company in State L - XYZ routinely sells nonexempt securities to extremely high net worth residents of state L - XYZ purchases exempt securities from extremely high net-worth residents of state L for resale to residents of State T
3 and 4 Under the USA, broker-dealers must register in any state where they engage in securities transactions with INDIVIDUAL investors. The net worth is irrelevant. BDs with no office in the state who engages in transactions in the state
Under the Investment Advisors Act of 1940, an advisor's registration usually becomes effective how many days after it is filed? - 10 - 45 - 30 - 20
45
Under Investment Advisors Act of 1940, required records must be retained for
5 years Same for NASAA B/D record retention rules are set under the Securities Exchange Act of 1034 and are generally 3 years, with the exception of customer account statements, which must be retained for 6
A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption? - 7 - 3 - 10 - 5
7 Required by the Investment company act of 1940
Equation to determine value of the perpetuity contract
Annual payment/market interest rate
Under the Investment Advisors Act of 1940, which of the following is considered an investment advisor? - The trust officer of a commercial bank who manages investment accounts for clients - A lawyer who specializes in consulting on investing in securities - A syndicated columnist who gives weekly reports and recommendations on investments - A person who publishes a regular newsletter of advice on US Treasury bonds an dother US Gov't securities
A lawyer who specializes in consulting on investing in securities This is NOT INCIDENTAL to their practice, it's their specialty Publishers and writers of general, regular, paid circulation publications are excluded Anyone giving advice dealing only with US gov't securities is excluded from the definition, as well as those who work for banks and trust companies
Which of the following activities of an investment advisory firm would NOT require notification and consent of the clients of the advisory firm? - A minority partner resigning from the firm to start his own advisory firm - An investment adviser wishing to merge with a larger national advisory firm - The COO of an investment advisory firm wishing to pledge her majority interest in the firm to a local bank for a loan to purchase an office building that will be leased to the advisory firm - The retirement of a sole proprietor investment advisor who wishes to sell the practice to another investment advisor
A minority partner resigning to start their own fim Any change in the controlling interest in an advisory firm, including pledging the controlling interest, is treated as an assignment and requires NOTIFICATION AND CONSENT. The change in a minority interest is not considered an assignment, so ONLY NOTIFICATION, but NOT CONSENT is requied
Exempt reporting adviser
A private fund advisor with less than $150 million AUM Compare to private fund advisor (hedge fund) with more than $150 million AUM that must register with SEC with form PF Exempt does not have to register with the SEC, and must only fill out form ADV with the SEC
Issuer transaction
A securities offering where the proceeds from the sale go to the issuer New issue offering that takes place in the primary market
A firm can take indications of interest, and distribute a preliminary prospectus ________ (before/after) the registration statement is filed
AFTER - must wait until registration is filed, and can take these actions during the 20-day cooling off period - but the issue can't be sold until registration is effective
If an investment advisor is an individual, which of the following items would be included in the computation of advisor's net capital? - Goodwill - Automobile - Accounts receivable - Copyright
Accounts receivable The only assets that count in the computation for an individual are cash, AR, and marketable securities positions. HOWEVER, if the advisor is a partnership or corporation, the computation is permitted to include automobiles and furnishings used in the advisor's business
If an employer installs a Keogh plan, it must include all full-time employees - Age 21, with at least 1 year of service - With at least 1 year of service - Age 25 or older - With at least 3 years of service, regardless of age
Age 21, with at least 1 year of service
An application to register securities may be filed under the USA by any of these EXCEPT - Issuer - Person on whose behalf the offering is made - An agent of a broker-dealer - Broker-dealer acting on behalf of an issuer
Agent Not eligible
An individual wishes to form a BD as a sole proprietorship. Which of the following can the state require? - Filing of a Form BD - Consent to service of process - Surety bond - Posting of minimum net capital
All four And a filing fee (for the surety bond)
Which of the following are exempt from the registration requirements of the Uniforms Securities Act? - Securities issues by a nonprofit - Securities guaranteed or issued by a federal savings and loan - T bills - Unit investment trusts registered with the SEC
All four UITs registered with the Investment Company Act are federal covered securities and therefore are exempt
RAM is claiming an exemption from registration with the state because it is an advisor to private funds. One of the requirements to qualify for this exemption is - Private fund assets under management can't exceed $110 million - All investors must be accredited - All investors must be qualified clients - There can be no more than 10 investors during any 12-month period
All investors must be qualified clients On a STATE level, the exemption requires that all investors meet the USA's definiton of qualifeid client. That means the investor must have a net worth of at least $2.1 million or at least $1 millin AUM with the advisor. More stringent than accredited investor, which is a FEDERAL TERM No limit placed on number of investors (don't confuse this with the private placement exemption for registration of the security!) Limit on AUM is $150 million
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must contain - The formula used to compute an advisory fee - Provisions on discretionary power - A clause stating that the client's consent is needed to assign the contract
All three Must disclose: - Services provided; term of contract; amount of advisory fee/formula; amount of fee to be refunded if the advisory fee is prepaid and the contract is terminated; a provision as to discretionary authority; and a provision requiring the consent of the client to assign the contract
Under the USA, which of the following would not be considered an exempt transaction? - An executor liquidates the estate's portfolio - An agent sells US treasury bonds to an individual client - The sale of ABCD common stock, traded on the OTC link, to an insurance company - The sale of an unregistered nonexempt security to an individual client at that client's request
An agent sells US treasury bonds to an individual client Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, or sales by fiduciaries, or unsolicited transactions are all exempt
Definition of a security
An investment in a common enterprise for profit, with management provided by a third party
IAR
An officer or employee of the firm that performs research, makes recommendations, manages portfolios or sells advisory services Employees that perform clerical or ministerial functions are excluded from the definition
USA exclusions of a broker-dealer
Any person who has no place of business in the state and who transacts business exclusively with: - Issuers of securities involved in the transaction - Other broker-dealers - banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans In sum: an "out of state" BD that is not registered with the public will not have to register in the state
To incur the lowest capital gains tax, the customer must sell a position that has
Appreciated the least in % terms
Who is required to notify the administrator when each of the following individuals are terminated/part ways? - Broker dealer representative - IAR - Federal covered adviser
Broker dealer: BOTH the BD and BD rep must notify the administrator (old and new BD) IAR: ONLY the IA must notify the administrator Federal covered adviser: ONLY the IAR Must be notified promptly; same with changing places of employment
Who is required to post a surety bond?
Broker-dealer, agent, and Investment Advisor (NOT IAR)
Which are required for registration as an investment advisor under the Act of 1940?
Payment of a filing fee, and filing forms ADV Parts 1 and 2 Part 2A and 2B can be used as a brochure for potential customers (disclosures)
It would be unlikely for an investor to be required to pay a CDSC when redeeming - Class A shares - Class B shares - Class C shares
Class A shares Class B are known for their back0end load Class C usually only have one for 1 year, but if the investor redeems, there will be a CSC. Class A shares do not carry a back-end load, except under conditions that don't matter for the exam
Included in the footnotes of a company's financial statement
Company's account policies(i.e. when revenue si booked) Give additional supporting detail that adds "color" to the numbers presented in the income statement and balance sheet
A tennis player is interested in setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust to you advise she use? - Charitable lead trust - Complex trust - Charitable remainder trust - Simple trust
Complex trust Simple trusts can't make charitable contributions, and they provide no discretion on income distribution The two types of charitable trusts mentioned provide no ongoing discretion as to when income is distributed or who the beneficiaries are
Burden of proof with registration by coordination and qualification
Coordination: burden of proof is on the Administrator to show that registration should not be allowed to proceed Qualification (and filing): burden of proof is on the applicant to show that registration should be allowed to proceed
No federal registration of the IAR of federal covered advisors - only the IA registers with the SEC However, the rep of the federal covered advisors still must register in the state there they are physically located; and in any state where they solicit business
However, if the IA has no office in the state, and the IAR is not physically located in the state, and its only customers are institutions, then the IAR does not have to register in that state
On retirement, if your customer who is a corporate executive will receive retirement income equaling a percentage of the average of his last 5 years of compensation, this is which type of plan? - TSA - Defined benefit - Defined contribution - Keogh
Defined benefit The retiree receives a specified amount with the SPONSOR bearing investment risk. Keogh plans are not corporate plans. In a defined contribution plan, the employee contributes a defined amount each period, bears the investment risk, and does not receive a defined amount upon retirement. TSAs (tax sheltered annuity plans, common name for 403(b) plan's) are defined contribution plans, not defined benefit plans
Which of the following is NOT a market cap weighted index? - FTSE 100 and FTSE all share - SP 500 - DJI - Morgan Stanley Capital International
DJI IT is price weighted
A federal covered investment advisor operating on a calendar-year basis, published a list of recommended securities in January 2015. A copy of this must be maintained until at least - Dec. 31 2017 - Jan. 31 2020 - Jan. 31 2017 - Dec. 31 2020
Dec. 31 2020 5 years, to the end of the fiscal year 5 years for investment advisor records
Features of deferred comp plans
Discriminatory No current tax saving Nonqualified, so don't have to comply with ERISA No benefits if leave before retirement
SEC only requires the registration of the advisor - not its representatives - at the federal level
Each state can require the registration of any investment adviser representative - whether they are affiliated with a federal covered adviser or a state registered advisor
An investment advisor who renders advice solely to investment companies is:
Exempt from state registration Subject to federal registration
Which of teh following is false? - Transaction exemptions must be established before each transaction - Federal covered securities include those registered under the Investment Company Act of 1940 - Exempt securities must reestablish their exemptions at least annually - Federal covered securities include securities listed on national exchanges
Exempt securities must reestablish their exceptions at least annually This is not required
True or false: "agent" of a broker dealer is a broker dealer
FALSE I am an agent of a broker dealer, I am NOT a broker dealer
True or false: REITS offer flow through of gains and losses
FALSE - only DPPs offer both
Prepayment filing requirements for federal covered advisors and state registered advisors
Federal covered IAs: a prepayment in excess of $1200 and for 6 months or more in advance requries advisors to submit an annual audited balance sheet as part of its ADV Part 2 (and brochure) State-registered IAs: a prepayment of $500 6 months or more in advance requires the filing
Under the following registration methods, when does registration become effective? - Filing - Coordination - Qualification
Filing: 5 business days after the filing Coordination: when the federal registration becomes effective Qualification: On a date set by the Administrator (usually 30 days)
Investment advisors and IARs give advice about ______ and not ______
Give advice about securities, NOT commodities or futures contracts
Trust people terminology
Grantor (settlor) - the person who establishes the trust and specifies its terms - Trustee - person who administres the trust - Beneficiary - person who receives the distributions The grantor can also be the trustee and/or beneficiary
Who does NASAA set rules for?
IAs - only applies to state-registered advisors (those with less than $100,000,000 AUM)
When must an advisor's financial impairment be disclosed to clients?
If the advisor has discretion or has custody or requires prepayment of more than $1,200 in fees, 6 or more months in advance Legal or disciplinary action taken against an advisor by a court or a regulatory authority within the past 10 years must be disclosed in any case
An investor in a limited partnership generating passive losses can offset these against
Income generated by passive gains NOT portfolio or earned income gains
Sales rep (agent)
Individual who must take (solicit) orders from the public No difference how they're compensated when determining if they fall under the definition
The Investment Company Act of 1940 allows a majority vote of outstanding shares of a registered investment company to authorize the fund to do all of the following EXCEPT: - Invest in securities consistent with the fund' objectives - Change from an open end to a closed end investment company - Change the nature of its business and cease to be an investment company - Change the objectives of the fund
Invest in securities consistent with the fund's objectives Shareholder approval is not necessary to do this
USA exclusions for an agent - employees of broker-dealers - employees of the bank - only offers the securities to 5 or fewer investors - only offers the securities in 5 or fewer states
Is the employee of a bank Exempt if employee of an ISSUER (NOT BD)
Fusion Financial is a broker-dealer registered in States A, B, and C, with its home office in state B. A complaint is filed against the firm by a client who resides in State A. Under the powers granted under the Uniform Securities Act, the Administrator of State B could do all of the following except: - Issue an injunction against Fusion Financial - Gather evidence from State B - Subpoena witnesses from State C - Gather evidence from State A
Issue an injunction Administrator can gather evidence both within and outside the home state, as well as subpoena evidence and witnesses in any state. Only the courts can issue an injunction
When filing the consent to service of process, which of the following is TRUE? - It expires simultaneously with the registration on December 31st - t is supplied with the initial registration and remains on file permanently - It must be filed annually on the dates specified by the administrator - It is not required of investment advisor reps, only investment advisors
It is supplied with the initial registration and remains on file permanently
Which of the following is NOT true? - The sale of open-end investment company shares is a continuous public offering and must be accompanied by a prospectus - Open end investment companies must have a minimum of $1 million in assets to have a public offering - Mutual funds may be used as collateral in a margin account if they have been owned for mutual funds - Mutual fund shares may not be purchased on margin because their shares are always public offerings of new shares
Open-end investment companies must have a minimum of $1 million in assets to have a public offering The minimum is $100,000
Mountain High Securities is a broker-dealer registered in Wyoming and Colorado with its principal office located in Colorado. With reference to the Uniform Securities Act, it would be correct to state that: - It is required that any BD meet the recordkeeping req's of each state in which they are registered - MHS must meet the recordkeeping req's of the SEC - The Admin of Colorado would have to approve of the BD's method of recordkeeping - Meeting the recordkeeping req's of Colorado is sufficient even if those of Wyoming are more stringent
MHS must meet the recordkeeping req's of the SEC BDs register with BOTH the SEC and state if it is dealing with multiple states. SEC registered BDs must use SEC registration and can't be more stricter than the SEC
When is registration by qualification used?
Mainly used in conjunction with intrastate offerings. If a security is offered by a corporation beyond its own home state, the issuer must register with the SEC at the federal level. More cumbersome registration
In accordance with the stated provisions of the Investment Company Act of 1940, renewal of an open-end management investment company's investment advisor's contract must be approved by - FINRA - Majority vote of the fund's board of directors or of the outstanding voting shares, as well as by majority vote of the noninterested members of the board - The SEC - The principal underwriter of the fund
Majority vote
Registration statements for securities - Are effective for at least 2 years from their effective dates, or longer, if the securities are still under distribution by the underwriters - Need not be filed with the administrator if the securities are only sold in one state - May be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed - Expire on December 31st of each year and must be renewed if further sales are to be continued
May be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed
Who administers the USA?
NASAA North American Securities Administrators Association - Blue sky laws (NASA is in space, in the sky) Investment advisors Act is administered by the SEC, and FINRA only regulates broker-dealers, no investment advisors
Most appropriate types of investments for an estate account?
Objective of an estate account is to preserve principal and effect a timely distribution of assets (need liquidity) i.e., a Treasury Bill (something short term and liquid)
The withdrawal of a registration as an agent will take effect - On the 30th day after filing of the Form U5 unless the admin determines an earlier date - When authorized by his employing broker-dealer - On the 30th day after filing of the form U5 - Immediately
On the 30th day after filing of the form U5 unless the administrator determines an earlier date
The amount of commission charged to a customer to effect a securities transaction must be disclosed ____
On the trade confirmation OR if unreasonably high, must be disclosed prior to executing that trade
Under the securities act of 1933, the definition of prospectus includes: - An offer of a security made orally - A tombstone advertisement for a security - An offer of a security made in a personal letter
Only 3
When are discounted IAR fee arrangements permitted?
Only if they are disclosed in the Form ADV Part 2A (IA brochure)
Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange - Only with prior notification to the president of the US - For 10 days, in its discretion - Only if it has cause to belive that such suspension is necessary to prevent criminal violations that are about to occur on the exchange - Under no circumstances
Only with prior notification to the president of the US May suspend trading in any nonexempt secuiryt for up to ten days without prior notice
Which of the following statemetns regarding a Unit Investment Trust is NOT true? - It is considered an investment company - Overall responsibility for the fund rests with the board of directors - It charges no management fee - It invests according to stated objectives
Overall responsibility for the fund rests with the board of directors Rather, it has a board of trustees Doesn't charge a management fee becasue it is not a managed portfolio
Under the USA, a guaranteed security is protected by someone other than the issuer against loss of all these EXCEPT: - Dividends on equity securities - Principal on equity securities - Principal repayment at maturity on debt securities - Interest of debt securities
Principal on equity securities Guarantees generally apply to income from the security (div or interest) and to the payment of the principal amount at maturity. Third-party guarantees do not provide against market loss. Please note that cap gains are never included in this type fo guarantee
A client with a sizable estate would probably find it most efficient to pay estate taxes with: - Cash - Proceeds from the liquidation of a tax-deferred retirement plan - Proceeds from the liquidation of a diversified portfolio - Proceeds from a life insurance policy
Proceeds from a life insurance policy In general, people with estates where there is a potentially large estate tax liability find that the most efficient way to pay taxes is through life insurance policy
ABC Advisors, a federal covered investment advisor, is moving the firm's headquarters to a new office park in the suburbs. ABC is required to file this change with the SEC - Within 30 days - Promptly - Within 60 days - Within 90 days
Promptly Any material change that affects an investment advisor's ADV must be filed promptly with the SEC (or Admin if state-registered)
In which of the following does registration of an issue become effective when ordered by the Administrator? - Qualification - Notice filing - Coordination - Integration
Qualification Effective date of registration by qualification is set by the Administrator. The effective date under registration by coordination is set by the SEC, and notice filing is merely the filing of certain docs in order for the registrant to be able to offer securities in that state
Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator in which of the following ways? - Qualification - Notification - Condemnation - Coordination
Qualification Securities of a nonexempt corporate issuer that do not have a FEDERAL registration must be registered with the Administrator by qualifying with the administrator.
Four main alternative assets
Real assets Hedge funds Private equity Structured products
With regard to the state registration requirements of agents of registered broker-dealers, all of the following statements are correct EXCEPT - Registration is required in each state in which the employing broker-dealer has a place of business - Registration is required if they solicit the sale of securities by telephone to fewer than 6 individuals residing in that state - Registration is not required in a state where the agent has no place of business and only deals with existing clients who are vacationing in that state - Registration is required when they limit their activity to the sale of exempt securities
Registration is required in each state in which the employing broker-dealer has a place of business Many broker-dealers are registered in all states; very few agents are. Agents must register in each state where they are selling or offering securities, even if the security OR transaction is exempt. The exemption only applies to the NEED FOR THE SECURITY to be registered, not the agent
Access person reporting guidelines
Report all transactions quarterly within 30 calendar days of quarter end Must file annual report within 45 days of the account statement used to prepare the report
Maximum fine and prison sentence for violation of SEC rules AND USA rules
SEC: $10k and 5 years in prison USA: $5k and 3 years in prison
A nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees is called - A defined benefit plan - A SERP - A payroll deduction plan - A defined contribution plan
SERP (supplemental executive retirement plan) Defined benefit and contribution plans are QUALIFIED A payroll deduction is usually nonqualified, but most often used by lower income employees
SONG is a venture capital fund. As such, all of the following statements are true EXCEPT - SONG is not registered under the Investment Company Act of 1940 - SONG only issues securities which are, except in extraordinary cirumstances, non-redeemable - SONG must have less than $150 million in assets in the fund - SONG's investment advisor is exempt from registration
SONG must have less than $150 million in assets in the fund The funds themselves do not register with the SEC under the investment company act of 1940 and don't register with the states either
If the owner of a $1 million IRA leaves it to his daughter, which of the following best describes the income tax treatment to the daughter? - She will pay income taxes on the full amount she withdraws each year - She iwll pay income taxes on the full $1 million immediately - She will pay no income taxes because the estate taxes have already been paid - She will pay income taxes only on a portion of the withdrawals which exceed $1 million
She will pay income taxes on the full amount she withdraws each year An inherited IRA will be subject to income taxes to the beneficiary at time of withdrawal, on the same terms as if it had been distributed to the original owner
An exemption from registration under the Securities Act of 1933 is available to securities that are: - Sold is more than one state by persons resident in those states - Offered to the public only when the total amount is more than $4 million - Listed on national exchanges - Sold only to persons resident in one state when the issuer is a resident doing business within that state
Sold only to persons resident in one state whne the issuer is a resident doing business within that state Only under NSMIA and the Uniform Exchnage Act do securities listed on a national stock exchange receive a registration exemption
Under the USA, which of the following is TRUE regarding the registration of securities? - Registration by coordination becomes effective on a date ordered by the Administrator - State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering - The administrator may require that a prospectus be delivered to every purchaser of a registered security no sooner than the time at which the security is delivered - The effectiveness of a registration statement assures the accuracy of the info contained in the statement
State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering
403(b) plans are _______ - tax deductible - non-tax deductible
Tax deductible (tax qualified)
Type of trust created by a will that becomes operative at death - Living trust - Q-tip trust - Revocable trust - Testamentary trust
Testamentary trust "Last will and testament"
Under Section 303 of the Uniform Securities Act, in order for an issuer to register using coordination, it must simultaneously register under the provisions of: - The Uniform Securities Act - The Investment Company Act of 1940 - The Securities Exchange Act of 1934 - The Securities Act of 1933
The Securities Act of 1933 Reg. by coordination is a form of state registration that coordinates state registration of a security with simultaneous federal registration of that security. Securities are registered at the federal level under the Securities Act of 1933
An IAR of a federal covered investment advisor registers with - NASAA - FINRA - The SEC - The Administrator
The administrator Registration of IARs is done solely on the state level. IARs register with the Administrator of each state in which they are required to be registered
An agent and a broker dealer maintain wrap fee accounts for several of their customers. Which of the following registrations is required? - The firm must register as an investment advisor - The agent must be registered as an investment advisor - Only the registered principal would need to be registered in the state(s) in which they do business - Neither the broker-dealer nor the agent is required to have any license other than their regular securities license
The firm must register as an investment advisor Once a wrap account is offered, it loses the exclusion from the definition of investment advisor Must register with state or SEC Any agents handling these accounts would be registered as investment advisor reps
An employee covered by a defined benefit pension plan would be least concerned with: - The lump sum available at retirement - The expected amount payable - The investment performance - The age at which benefits can be taken
The investment performance
The investment advisors act of 1940 prohibits the use of the term "investment counsel" unless:
The principal business of the person is as an investment advisor and a substantial part of the business is providing investment supervisory services (i.e. continuous advice for individual client portfolios)
To which of the following situations does the transaction exemption apply? - City of Chigaco bond offering - Canadian government bond offering - The sale of an estate's holding of IBM shares by an executor - Offering an unregistered security to a maximum of 12 individual customers in a 10-month period
The sale of an estate's holding of IBM shares by an executor Transactions by executors and estate administrators are exempt transactions Muni and gov't bonds are exempt SECURITIES, whether or not they are exempt transactions depends on to whom or how they are sold The sale of unregistered stock is only exempt to a max of 10 noninstitutional investors over a 12-month period
You have a client who originally invested $25,000 into the ABC growth fund. Over the past 5 years, there have been no distributions and the value of the shares is now $35,000. If the client should ask about exchanging the entire holding for shares of the ABC income fund, you would explain - That taking advantage of the exchange privilege results in taxes being deferred until the liquidation of the account - There si a long-term capital gain of $10,000 - The new shares will have the same cost basis as the old shares - the new shares would be acquired at the public offering price
There is a long-term cap gain of $10k Even though its one family of funds, it is considered a sale and a purchase so there is a cap gain realized on any difference between the cost basis and the proceeds. They would be exchanged for shares of another at net asset value, and the new shares would have a new cost basis of $35,000
Which accounts avoid probate upon death of an owner? - Totten trust - JTWROS - TOD - TIC
Totten trust, JTWROS, and TOD
Under USA, an investment advisor may share in the profits of a client's account _____
Under no circumstances Advisory fees are based on percentage of AUM True for both IA and IAR (who are NOT held to a fiduciary standard!) BDs cannot share either! NOT true for agents - they can share, and a joint accoutn is not required, nor is the sharing required to be proportionate to the agent's financial contribution An agent MUST have written authorization of the customer and the BD
An individual may NOT act as an agent for more than one broker-deealer - Unless the Administrator, by rule or order, authorizes such employment - Under any circumstances - Unless the broker-dealers are exchange members - Unless the broker-dealers are unrelated
Unless the administrator authorizes May only act as an agent for multiple broker-dealers that are affiliated with each other
Under the uniform securities Act, if no denial or proceedings are pending, when does an investment advisor registration become effective? - No sooner than 15 days - When the Administrator so orders, but not to exceed 30 days - When the Administrator so orders, but not to exceed 90 days
When the administrator so orders, but not to exceed 30 days - Registrations become effective at noon on the 30th calendar day after the date of filings if there are no denial orders or pending proceedings
Assignment of an investment advisor's contracts
Whenever a majority interest in an advisor changes hands. Pledging a client's contact is considered to be an assignment
Ms. Beech, age 52, as the sole survivor of her mother, recently inherited an IRA. After receiving a distribution of the account's assets, she rollwed over 100% of the account value into a new rollover IRA. Asa result, she - Should have left the fudns in her mother's IRA, because seh is not yet 59 1/2 - Will have to declare the entire IRA as ordinary income - Will only be liable for the 10% premature distribution penalty tax - Will be able to avoid taxation on the distribution until she begins to take distributions from the rollover IRA
Will have to declare the entire value as ordinary income Only way to avoid a reportable distribution when other than from a spouse is to do a trustee-to-trustee transfer. Because Ms. Beech received the distribution, the normal rollover rules do not apply. However, she won't have to pay the 10% penalty tax
A top heavy retirement plan is:
permitted under ERISA rules and contributions are not tax deductible "top heavy" means that the plan disproportionately favors upper level employees by giving them excessive retirement benefits that are not available to lower level employees. If a plan is deemed to be top heavy, then the contributions won't be tax deductible, making the plan non-tax qualified
