Series 66 Chapter 6 Exam Questions
An investment adviser decides to increase the management fee stated in its investment advisory contract with clients. The best way for the IA to make this change is to: [A]The IA should simply add extra fees for increases in client portfolios of over 15%. [B]The IA should inform clients of increases in fees and have the clients sign a revised contract for the increase. [C]The IA should simply raise the fees in customer accounts and inform the customers of the increase in fees with their next quarterly report. [D]The IA should simply raise the fees in customer accounts and inform the customers of the increase in fees with the next monthly report that is sent to clients.
B A change in the investment advisory contract management fee requires that clients sign a revised contract showing the increase in fees.
All of the following are not required to register under the Investment Advisers Act of 1940, EXCEPT: [A]An accountant who incidentally provides financial planning services in the course of his work as an accountant [B]An attorney who regularly publishes advertisements stating that he offers investment advisory services and financial planning for a fee [C]A banking institution which, on occasion, provides advisory services to bank customers [D]An agent of a broker-dealer who in the course of providing brokerage services provides some investment adviser services as well
B A lawyer who advertises investment advisory services and charges a separate fee for such services loses his or her exemptions from registration. The other alternatives are statutory exemptions under the 1940 Act since they are solely incidental to another business service and since no separate or additional fee is charged for such services.
According to the Investment Company Act of 1940, all of the following statements are true except [A]The compensation to be paid to a mutual fund's investment adviser must be included in the written advisory contract and approved by a majority of the fund's shareholders. [B]An affiliated person of a mutual fund is prohibited from investing in the fund's shares. [C]A mutual fund must file reports with the SEC at a minimum of annually and send semi-annual reports to all shareholders. [D]Investment companies are prohibited from owning more than 3% of another investment company's shares without getting an exemption from the SEC.
B 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.
Under the Investment Advisers Act of 1940, an investment adviser representative would be considered to have custody of a client's funds in all of the following situations EXCEPT: [A]The client has appointed the IAR to be the trustee of the client's family trust. [B]The client sends a check to the IAR which covers the invoice for a financial planning fee. [C]The IA firm holds each customer's funds and securities and the IAR controls client funds and securities. [D]The IAR is given written authority to write checks from the client's checking account to pay advisory fees while the client is on an extended trip.
B All choices would constitute custody except for the payment of an invoice or payment of advisory fees. Prepayment which takes place over 6 months in advance may constitute custody, but paying a bill would be a normal transaction where the IAR would not have custody of client funds.
Investment Adviser Smith would like to pay Broker A cash for referring clients to Adviser Smith. Which of the following is the best statement about the requirements under the Investment Advisers Act of 1940? [A]Adviser Smith is a fiduciary and as such cannot make cash payments for clients referrals. [B]Adviser Smith can make cash payments if Adviser Smith complies with a number of specific disclosure and other requirements. [C]Whether Adviser Smith can make the payments depends on whether Broker A is affiliated with Adviser Smith. [D]Whether Adviser Smith can make the payments depends upon whether Adviser Smith provides impersonal advisory services to clients.
B An Investment Adviser may pay a cash fee to a person soliciting advisory clients only if the adviser is registered with the SEC and the solicitor is not subject to SEC suspensions or limitations.
According to the Securities Act of 1933, which of the following is a security? I. long an option to buy stock II. an option to buy a parcel of real estate III. an option listed on an exchange to buy Japanese yen [A]I, II [B]I, III [C]II, III [D]I, II, III
B Choices I and III are securities (options on securities are deemed to be securities and are registered under the Securities Act of 1933). An option on real estate is NOT considered to be a security.
The Investment Company Act of 1940 requires registered investment companies to obtain majority shareholder approval to do which of the following? I. Terminate a contract with an adviser II. Use fund assets to pay the cost of distributing fund shares III. Deviate from a fundamental investment policy IV. Enter into a contract with its principal underwriter [A]I, IV [B]II, III [C]III, IV [D]II, III, IV
B Choices II and III require majority shareholder approval. Choice I can be done without shareholder approval if the investment adviser is acting in the best interest of the shareholders. For choice IV, shareholder approval is not required. The rule states that it can be approved by a majority of the non-interested directors of the investment company.
Certain requirements apply to the retention of email communications by Investment Advisers under the Investment Advisers Act of 1940. Which statement is true with regard to such e-mail communication regulations? [A]All emails, business related or not must be maintained as correspondence [B]Business related emails are required to be maintained as correspondence [C]Retention of email communications are kept at the discretion of the investment adviser [D]Emails are not required to be preserved
B Email communications related to the IA's business books and records are required to be retained as correspondence by the IA. (SEC Rule 204-2 of the IA' 1940). Personal emails do not have to be retained.
The Brochure Supplement of Form ADV Part 2B requires an IA to disclose to prospective and existing clients all of the following information about the individuals working for the IA who are involved in the investment management of the clients' funds, except: [A]education over the last 5 years [B]experience over the last 10 years [C]disciplinary actions over the last 10 years [D]additional compensation from other sources related to investment services rendered
B Experience over the last 5 years is required, not 10 years. The other choices are required to be disclosed.
Amendments to Form ADV Part 2 must be provided to clients by advisers when? The Form must [A]be provided to clients when the adviser receives the client's funds. [B]be provided to clients annually. [C]be provided to the clients one full day (24 hours) before the client enters into a contract with the adviser. [D]be provided to the client when the contract is presented and signed and the client has a 5-day grace period during which the client can rescind the contract at any time for any reason.
B Part 2 of Form ADV must be sent to or offered to existing clients on an annual basis. A Summary of Material Changes (i.e. amendments) must be delivered to clients annually either with the current brochure or an offer to provide the current brochure. (Rule 204-3 under IIA)
Under the Securities Exchange Act of 1934, institutional investment managers who have investment discretion over accounts valued at over $100 million must file reports [A]Monthly [B]Quarterly [C]Semi-Annually [D]Annually
B Quarterly reports must be filed by institutional investment managers who exercise investment discretion over more than $100 million worth of securities.
An Investment Adviser (IA) charges a fee for an overall financial plan for a client. Which of the following facts must be disclosed to the client? The fact that the IA I. will receive compensation related to the transactions in equity and debt securities recommended in the financial plan. II. owns shares of an unaffiliated mutual fund which carries some of the same investments that the IA is recommending. III. makes a market in the bonds recommended in the financial plan. IV. produced a research report on a company that is a competitor of one of the recommended equity securities. [A]I only [B]I and III only [C]I, III, and IV only [D]I, II, III, and IV
B The IA firm is required to disclose compensation related to the securities recommended outside of the financial planning fee. The IA is also required to disclose the fact that the IA makes a market in the bonds recommended in the plan. Both of these facts pose a potential conflict of interest. The IA is not required to disclose ownership of shares of a mutual fund under separate control that happens to have some of the same investments that have been recommended, which differs from a scenario where the IA firm directly owns or chooses to sell the same securities that are being recommended. Also, the IA is not required to disclose the production of a research report for a competitor of one of the recommended equity securities.
Which of the following acts deals mostly with the people involved in securities transactions? [A]The Securities Act of 1933 [B]The Securities Exchange Act of 1934 [C]The Investment Advisers Act of 1940 [D]The Investment Company Act of 1940
B The Securities Exchange Act of 1934 deals with the people involved in securities transactions. This act is also referred to as the "People Act" and deals with transactions in securities in the secondary market. The 1934 Act established the Securities Exchange Commission.
Which of the following best defines an investment company according to the Investment Company Act of 1940? An investment company is: [A]a business organized for the mutual support and protection of its shareholder members. [B]an issuer of securities engaged primarily in the business of investing and reinvesting or trading in securities. [C]an organization formed with the primary purpose of underwriting new issues of securities. [D]a financial firm with the primary purpose of matching investors who wish to buy or sell securities in an orderly market.
B The primary business of an investment company is investing and reinvesting in a portfolio of securities.
According to the Securities Exchange Act of 1934, which of the following statements is true? [A]"Market Maker" is another term for underwriter. [B]Clearing agencies that register transfers of ownership solely with respect to options contracts they issue are excluded from the definition of "transfer agent." [C]"Securities information processor" includes any newspaper that publishes information on securities transactions or quotations. [D]An "exchange" is a place where the physical exchange of securities certificates and cash takes place, per the buyer's and seller's agreement reached previously on a trading floor.
B The term "transfer agent" does not apply to a clearing agency performing functions solely with respect to options contracts.
Under the Investment Advisers Act of 1940, registered investment advisers providing personal advisory services to individual clients must do which of the following? [A]Avoid any control or custody of their clients' funds. [B]Disclose their business background and practices to their clients and prospective clients. [C]Only recommend securities that are listed on the NYSE to clients . [D]Maintain a net worth of $100,000 or greater.
B Under the Investment Advisers Act of 1940, Registered Investment Advisers providing advisory services must disclose business background and practices to their clients and prospective clients.
A pension consultant receives compensation for advising an employee pension fund. Under the Investment Advisers Act of 1940, which of the following advice on securities would require the pension consultant to register as an investment adviser (IA)? [A]Investing the assets of the plan in real property [B]The allocation of the assets of the plan between securities and other securities-related investments [C]Hiring a labor law firm to advise the plan [D]Hiring an outside accountancy firm for auditing and consulting services regarding the plan
B Under the Investment Advisers Act of 1940, a person is an "investment adviser" if the person advises about securities for compensation.
According to the Investment Advisers Act of 1940, "person associated with an investment adviser" does not include [A]Outside directors [B]Non-managing partners [C]Clerks [D]Any of the above
C A person associated with an investment adviser would not include receptionist or clerks.
A research analyst has a personal position in ABC stock. The analyst is about to recommend a downgrade in ABC stock from "buy" to "hold." The analyst wants to sell his/her personal position before the announcement of the downgrade. Such a sale would: [A]Be allowed as long as the analyst doesn't make a profit [B]Be allowed as long as the analyst has not publicly announced the downgrade. [C]Not be allowed because the analyst is not allowed to place his or her own interests ahead of those of clients. [D]Not be allowed because the analyst has not received approval for such a trade from his or her portfolio manager
C SEC Release 1A-1092 under the Investment Advisers Act of 1940 requires all investment advisers (including research analysts) to disclose any personal interest the adviser has with regard to recommendations made to clients. As well, analysts are not allowed to trade ahead of upcoming announcements because the information has not yet become public and trading ahead of such announcements would be placing the analyst's interest ahead of client interests.
Which of the following statements are true concerning the enforcement of the Investment Advisers Act of 1940: I. The state court in which the defendant lives or has a primary place of business has primary jurisdiction in both criminal and civil cases brought under the act. II. The SEC has the power to subpoena witnesses and records, collect evidence, and question witnesses under oath in connection with the conduct of its investigation under this act. III. Anyone wishing to appeal an order of the SEC under any act may do so by filing such appeal in the U.S. Court of Appeals. [A]I and II [B]I and III [C]II and III [D]All
C The SEC has equal jurisdiction over advisers and if the SEC issues an order against an adviser, and the adviser wants to appeal, an appeal may be filed with the U.S. Court of Appeals.
Under the Securities and Exchange Act of 1934, which of the following is not a cause for suspension of a broker-dealer's registration? [A]The broker-dealer has been enjoined by a court order from acting as an investment adviser. [B]The broker-dealer has been convicted of misappropriating customer funds. [C]The broker-dealer has been sued by a client. [D]The broker-dealer has violated the Securities Act of 1933.
C The initiation of a lawsuit would NOT be cause for suspension of a broker-dealer's registration. The outcome of a lawsuit could be cause for suspension depending on the violation.
Under the Investment Advisers Act of 1940, which of the following is excluded from the definition of an "investment adviser": [A]all broker-dealers [B]all lawyers [C]all publishers of bona fide financial publications on general and regular distributions [D]all teachers
C Under the Investment Advisers Act of 1940, any publisher of a bona fide newspaper, news magazine, business or financial publication of general or regular circulation is excluded from the definition of an "investment adviser".
An IA, registered under the 1940 Act, must keep which of the following communications sent out to a long list of prospective clients? [A]A Brochure [B]A letter introducing the adviser [C]A list of discounts available [D]All communications must be kept
D A record of all originals of all communications received and copies of all communications sent to the public or clients relating to any investments and recommendations.
All of the following are considered to be "compensation" to an investment adviser who charges "no fee" to customers EXCEPT: [A]commissions paid to the investment adviser on recommended securities transactions. [B]commissions paid to the investment adviser on recommended insurance purchases. [C]payments received from issuers for recommending their securities. [D]profits on securities recommended to customers that were also purchased for the adviser in their own account.
D According to the IAA of 1940 profits on securities recommended to customers that were also purchased for the adviser in their own account would not be considered compensation.
Under the Securities Act of 1933, the definition of a security includes which of the following? I. Common stocks II. Bonds and Debentures III. Fractional interests in oil, gas, and other mineral rights IV. Warrants [A]I & II only [B]II & III only [C]I & IV only [D]I, II, III, IV
D All choices offered are included in the definition of a "security" under the Securities Act of 1933.
A newly formed, unregistered investment adviser (IA) wants to register with the SEC. It is true to say that the IA [A]may register with the SEC without restrictions [B]may not register with the SEC without first registering with the state(s). [C]may not register with the SEC until it has been in business for at least one year. [D]may not register with the SEC until it has at least $100 million under management.
D An IA who manages $100 million or more may register with the SEC. Under $100 million, an IA must register with the state.
Under Federal Securities Regulations, which of the following entities would qualify as an "Exempt Reporting Adviser"? I. An investment adviser that provides advisory services solely to registered investment companies. II. An investment adviser that provides advisory services solely to 1 or more venture capital funds. III. An investment adviser that provides advisory services solely to accredited investors and has less than $100,000,000 in assets under management. IV. An investment adviser that provides advisory services solely to private funds and has less than $150,000,000 in assets under management. [A]I and III only [B]I and IV only [C]II and III only [D]II and IV only
D Certain investment advisers qualify for an exemption from full registration, but must still file paperwork with the SEC. These investment advisers are referred to as exempt reporting advisers. Advisers who provide advice solely to one or more venture capital firms are defined as exempt reporting advisers. As well, advisers who solely provide advice to private funds and have assets under management in the US of less than $150,000,000 are considered exempt reporting advisers. An adviser to a registered investment company would be considered a federal covered adviser. An adviser servicing accredited investors with less than $100,000,000 in assets under management would be considered an investment adviser and would have to register at the State level with the Administrator.
According to the Securities Exchange Act of 1934, the term "exchange" means any organization association or group of persons providing a market place or facilities for which of the following purposes? [A]providing quotes on securities prices to investors [B]exchanging of documents evidencing securities [C]locating offices of broker-dealers [D]bringing together purchasers and sellers
D Exchanges are organized for the specific purpose of bringing together buyers and sellers of listed securities traded on that exchange.
According to SEC rules, access persons of a registered investment adviser firm must report their personal securities holdings at least [A]monthly. [B]quarterly. [C]semi-annually. [D]annually.
D SEC Rule 204A-1 requires access persons to report annually their personal securities holdings.
Which of the following acts deals most closely with the regulation of mutual funds? [A]The Securities Act of 1933 [B]The Securities Exchange Act of 1934 [C]The Investment Advisers Act of 1940 [D]The Investment Company Act of 1940
D The Investment Company Act of 1940 deals mostly with the regulation of mutual funds (a form of investment company).
Pertaining to the Securities Exchange Act of 1934, the SEC may take action against any person who has profited in the trading of a security while in possession of material non-public information and seek to recover from such a person which of the following: [A]a fine not to exceed $10,000 [B]the purchase price of the security [C]punitive damages against the said person [D]three times the profit gained
D The SEC rules state that action may be taken for three times the profit gained or loss voided for the use of non-public information.
Under the Securities Act of 1934, margin requirements are set by [A]The NASD [B]The MSRB [C]The NYSE [D]The Federal Reserve Board
D The amount of credit that can be extended under the Securities Act of 1934 is set by the Board of Governors of the Federal Reserve System
Angela opens a new account with a broker-dealer. Her agent explains that she will be charged an annual wrap fee. Which of the following would best describes this fee? [A]A fee charged per trade up to maximum amount and the fees would be waived for any following trades. [B]A fee which covers all advisory fees and commissions on all trades in her account for the year. [C]A fee included in the net price of each transaction that is executed in the account. [D]A fee that begins at a minimum percentage based on assets in the account and is reduced on a scaling basis depending how many trades are executed in the account.
B A brokerage account that charges an annual fee covering all advisory services and commissions on all trades--regardless how many trades are executed--in the account is known as a wrap fee or wrap account.
According to State and Federal Regulations, an investment adviser who has custody of a client's funds or securities must: [A]send the client an itemized statement of the funds and securities at least once every 3 months. [B]combine the funds of all clients to get the highest rate of return. [C]do a physical audit of the funds and securities at least annually. [D]combine the securities of all clients to get the lowest custodial fees.
A An IA with custody of a client's funds or securities must notify the Administrator of custody; notify the client of where and how funds and securities will be maintained; segregate the securities of all clients; deposit all funds in one or more bank accounts containing only client funds; send an itemized statement to the client at least every 3 months; and have an independent accountant verify custody by actual examination on a surprise basis. These regulations are specified in the NASAA regulations and also in the regulations of the 1940 Act.
The three primary classifications of a investment companies, as defined under the Investment Company Act of 1940, are: [A]Face amount certificate companies, unit investment trusts, and management companies. [B]Open-end funds, closed-end funds, and diversified funds. [C]Bond funds, stock funds, and balanced funds. [D]Diversified funds, non-diversified funds, and unit investment trusts.
A An investment company is a company whose primary business is investing and reinvesting in securities. The three primary classifications of investment companies includes face amount certificate companies, unit investment trusts, and management companies. Open-end, closed-end, and diversified funds are types of management companies. Bond, stock, and balanced funds represent types of portfolios maintained by investment companies.
Which of the following would be required to register as an investment adviser under the Investment Advisers Act of 1940? I. A person that is paid to be a sports representative for an all-pro football star, who makes recommendations regarding investments, negotiates his contracts and manages his financial affairs. II. A person that is a pension consultant, who receives a fee to advise employee benefit plans and other fiduciaries regarding the investments in the plan. III. A person that is an art consultant, who is paid a fee to advise wealthy investors on the purchase or sale of art. [A]I, II [B]I, III [C]II, III [D]I, II, III
A Any person would be deemed an investment adviser and would be required to register if they give advice with regard to securities and/or hold themselves out as offering such services. The art consultant would not be considered an investment adviser because their advice is not related to securities.
The 1933 Act regulates which of the following? I. new issues of securities II. broker-dealers and their associated persons III. transfer agents [A]I only [B]I, III [C]II, III [D]All
A Choice I - new issues would be regulated under the Securities Act of 1933. Choices II and III would be regulated under the Securities Exchange Act of 1934.
A federal covered adviser is properly registered under the Investment Advisers Act of 1940. The firm plans to advertise to the public in a certain state in order to attempt to get more business. Each of the following are requirements for advertisements under the Investment Advisers Act of 1940 EXCEPT: [A]The federal covered adviser is prohibited from using advertising unless it has previously submitted the advertising to the SEC for approval. [B]The federal covered adviser is permitted to use graphs and formulas in their advertising, but must disclose that such graphs and formulas do not, by themselves, determine securities that should be purchased or sold. [C]The federal covered adviser is prohibited from using testimonials of celebrities in their advertising. [D]The federal covered adviser is permitted to offer "free" reports, but only is permitted to do so if the offer is actually free without condition.
A Each of the items listed is true except for the statement regarding submitting advertising to the SEC prior to use. This is a false statement. Federal covered advisers must abide by regulations created which cover advertising, but do not have to submit all advertising to the SEC prior to use.
An imaginary barrier between the investment banking, research and trading departments of a broker-dealer is known as: [A]The Chinese Wall [B]The Quiet Period [C]The Cooling Period [D]The Underwriting Period
A The Chinese Wall is the imaginary information barrier applied to departments of a securities brokerage firm to prevent employees from gaining access to material non-public information.
The Investment Advisers Act of 1940 prohibits any investment advisory contract which: I. contains exculpatory clauses II. fails to provide that the contract will not be assigned without client consent III. requires pre-payment of advisory fees for more than nine months in advance IV. is not in writing [A]I, II[B]I, IV[C]II, III[D]II, III, IV
A The Investment Advisers Act of 1940 does not require written contracts and requiring payment of fees is allowed if certain disclosure requirements are met. Contracts must not contain any exculpatory (conditions which allow rules to be avoided) clauses and any assignment of contracts requires that clients be advised.
Which of the following adhere to the NASAA Brochure Rule regarding the electronic delivery of the investment adviser brochure? I. In the case of an initial delivery to a potential client, the IA obtains verification that a readable copy of the brochure and supplements were received by the client. II. In the case of other than initial deliveries, the IA obtains each client's prior consent to provide the brochure and supplements electronically. III. In the case of an initial delivery to a potential client, the IA obtains a verification that a readable copy of the brochure only was received by the client. IV. In the case of other than initial deliveries, the IA obtains each client's consent to provide the brochure and supplements electronically within 48 hours of the delivery. [A]I and II [B]I and IV [C]II and III [D]III and IV
A The correct choices are: In the case of an initial delivery to a potential client, the IA obtains verification that a readable copy of the brochure and supplements were received by the client and in the case of other than initial deliveries, the IA obtains each client's prior consent to provide the brochure and supplements electronically. The brochure AND supplements must be delivered, and the IA cannot seek consent after it has already sent the documents electronically. The IA cannot seek consent within 48 hours of delivery, it must obtain consent prior to delivering the documents.
A solicitor is paid a cash fee for attempting to sell advisory services for a Federal Covered Investment Adviser. Since the solicitor is not directly affiliated with the IA the solicitor is required to provide a separate written disclosure document that must include which of the following? I. The name of the solicitor and investment adviser II. The name of the broker-dealer where the IA executes its trades III. The compensation arrangements between the solicitor and the IA IV. The complete business background and qualifications of the solicitor [A]I & III [B]I & IV [C]I, II & III [D]I, II, III, IV
A The solicitor's written disclosure must disclose the name of solicitor and adviser, the services that will be provided, and the nature of the relationship between the solicitor and adviser. It also must include the compensation arrangements, including any additional charge that the client may be assessed. The solicitor's written disclosure does not have to include the name of the broker-dealer where the IA will execute trades or the complete business background of the solicitor.Disclosures related to solicitors must include the disclosure of affiliation, disclosure related to compensation, and disclosure related to the amount of compensation/charges. Such disclosures do not need to include business background.
Which of the following answers is information that need not be included on an order ticket from a broker-dealer? [A]The client's state of residence [B]When the order was received and when it was entered [C]Identification of the agent responsible for managing the account [D]The order's conditions and terms
A The state of residence of the client may be important when determining investment objectives and tax consequences, but such information is not relevant to and need not be included on an order ticket.
Under the Investment Advisers Act of 1940, an investment adviser may not pay cash to a solicitor unless: [A]Payment is made pursuant to a written agreement. [B]The solicitor is affiliated with the investment adviser. [C]The solicitor is registered as an agent . [D]The payment does not exceed $100.
A There must be a written agreement between the IA and the solicitor. The solicitor may be affiliated or unaffiliated. There is no dollar limit on the amount that may be paid to a solicitor. Solicitors do not have to be registered as Agents of a Broker-dealer.
Under the Securities Act of 1933, which of the following is considered to be a security which is a direct obligation of the Federal Government? I. treasury bills II. bonds issued by Fannie Mae III. bonds issued by the state of Florida [A]I only [B]I and II [C]II and III [D]I, II and III
A Treasury Bills are securities that are direct obligations of the Federal Government. Fannie Mae Bonds are not direct obligations of the Federal Government but are obligations of the agency that issued them. Bonds issued by the State of Florida would be Municipal Bonds not Government Bonds.
A current and updated amendment to an Investment Adviser's registration must be electronically filed with the SEC according to the Investment Advisers Act of 1940 how often? [A]within 90 days from the close of the Investment Adviser's fiscal year [B]within 30 days from the beginning of the Investment Adviser's fiscal year [C]within 90 days from the close of the Investment Adviser's calendar year [D]within 30 days from the beginning of the Investment Adviser's calendar year
A Under the Investment Advisers Act of 1940 investment advisers are required to send an electronic filing of an annual updated registration amendment within 90 days after the close of its fiscal year.
Which of the following statements about closed-end investment companies is correct? [A]The shares of open-end investment companies are always more liquid than the shares of closed-end investment companies. [B]Closed-end investment company shares trade in the secondary market and the price of shares can be affected by supply and demand, as well as market forces. [C]Open-end investment company shares trade in the same manner as closed-end investment company shares. [D]Ownership interests in variable annuities, limited partnerships, and open-end investment companies are almost identical to ownership interests in closed-end investment companies.
B Closed-end investment companies have a fixed capitalization. They are offered in an initial public offering (IPO), after which the shares trade in the secondary market, either on an exchange (listed), or over-the-counter (OTC). For this reason, the value of shares in the secondary market is not always tied directly to the net asset value of the closed-end investment company assets. Supply and demand, as well as market forces will also affect the value of closed-end fund shares.Closed-end funds often carry more liquidity than open-end funds because they trade in the secondary market. It is inaccurate to state that open-end funds are "always" more liquid. Open-end shares must be redeemed to the investment company, so the shares do not trade in the same manner. Interests in annuities, limited partnerships, and open-end funds are all quite different than ownership interests in closed-end funds. There are similarities, but the products are far from "almost identical".
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? [A]Yes. As long as clients are provided with the disclosure documents and they sign the documents, the IAR has acted appropriately. [B]No. Even with proper disclosure, the IAR is in violation of the Investment Advisers Act of 1940. [C]Yes. Disclosure was complete, so the IAR has acted appropriately. [D]No. Advisory fees cannot be charged monthly. They can only be charged quarterly or semi-annually.
B 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. A general industry standard is 2% of assets under management measured annually and 20% of annual profits when dealing with allowable, performance based fees.
In which of the following scenarios would the individual giving advice have to register as an investment adviser under the Investment Advisers Act of 1940? [A]A college professor discussing with her finance students that historically equities have provided greater returns than other asset classes over the long-run. [B]An agent of a broker-dealer provides financial planning services to clients who are willing to pay for the service. [C]An attorney gives some general financial advice to a client regarding her estate in the course of a regular meeting. [D]A broker-dealer that has advisory services which are incidental to their overall operations and charge no extra compensation for this service.
B The scenarios that do NOT require registration as an adviser under the Investment Advisers Act of 1940 are those considered "incidental" to another profession except for the agent who gives advice for a fee. This would apply to the agent of the broker-dealer providing financial planning advice. The professor and attorney are excluded under the "LATE" professions. Also, the broker-dealer that offers advisory services which are incidental to the overall broker-dealer operations AND does not charge a separate fee for this service is excluded from registering as an adviser.
Under the Investment Advisers Act of 1940, officers, partners, directors, and employees providing advice to clients would be identified as which of the following? [A]Executives [B]Persons associated with an Investment Adviser [C]Persons not deemed to be an Investment Adviser [D]Members
B Under the Investment Advisers Act of 1940, officers, partners, directors, and employees providing advice to clients would be identified as persons associated with an Investment Adviser. Clerical employees would not automatically be considered "associated".
According to the Investment Advisers Act of 1940, which of the following are excluded from the definition of "investment adviser"? I. an insurance company formed under the laws of the state II. a bank which is not an investment company III. a person whose investment advice relates solely to securities issued by the U.S. Government [A]I, II [B]I, III [C]II, III [D]I, II, III
C According to the Investment Advisers Act of 1940, an investment adviser is an individual who receives compensation for investment advice. The exclusions from this definition include any bank or bank holding company and any person whose advice or services is related only to U.S. Government securities. When looking at the exclusions from the definition of an Investment Adviser, according to the Investment Advisers Act of 1940, choices II and III are specifically listed. There is not an exclusion listed for an insurance company formed under the laws of a states.
The client of a Registered Investment Adviser is the chief executive officer of a publicly traded company. The client confides in the adviser, telling him that the company is going to have a "big" announcement about sales and earnings. The RIA immediately buys 1000 shares of the company's stock for his personal account. The RIA's activity is: [A]ethical because the information was given to the RIA by an officer of the company [B]ethical because the information was given to the RIA in confidential manner [C]unethical because the information is not publicly available [D]unethical because the information can only be used to buy that company's stock for the RIA's clients
C Acting on insider information is always a violation of the rules and is never allowed under any circumstances.
All of the following would be considered to be exempt securities under the Securities Act of 1933 except? [A]U. S. Treasury Notes [B]Revenue Municipal Bonds [C]Corporate Common Stock [D]Promissory Notes
C All Government securities are exempt from registration under the 33 Act including Treasury Bills, Notes and Bonds. Municipal Bonds, regardless of whether they are G.O.'s or Revenue bonds are also exempt from registration. Promissory notes are also exempt. Corporate Common stock is required to be registered with the SEC.
All of the following are true with regard to custody of client funds under the Investment Advisers Act of 1940 EXCEPT? [A]The IA must maintain records for each account and the amount of each client's beneficial interest. [B]The IA must notify each client in writing of the location and manner in which funds and securities will be maintained. [C]The IA is required to be registered as an IA and also registered as a Broker-Dealer. [D]Client funds must be deposited in one or more bank accounts which contain only client funds.
C All choices except "C" are true with regard to custody of client funds. "C" is incorrect because an IA is NOT required to also be registered as a broker-dealer, and either types of firm may or may not be deemed to have custody.
Pertaining to the 1934 Act, the SEC can conduct an investigation if it believes a person has violated, is violating, or is about to violate the rules and regulations of which of the following: I. NYSE II. the California State Security Act III. MSRB IV. Pacific Stock Exchange [A]I, II, III [B]I, II, IV [C]I, III, IV [D]II, III, IV
C All choices except II pertain to investigations, which can be conducted by the SEC. In choice II, the California State Security Act would be handled by the State Securities Administration.
Which of the following are contained in the definition of an "investment adviser"? I. Advice as to investments must be in writing, not given orally II. Advice must relate to the value of securities or recommendations to purchase or sell securities. III. There must be compensation for services rendered. [A]I and II [B]I and III [C]II and III [D]I, II, and III
C An Investment Adviser is an individual who receives compensation for advising others about securities or about the advisability of investing in securities. However, nowhere in the definition does it specify that the advice must be in writing.
With regard to the Investment Adviser's Act of 1940, the Securities and Exchange Commission can revoke an investment adviser's registration for all of the following reasons except: [A]failure to reasonably supervise an advisory employee who violates the law [B]insolvency [C]an unintentional late filing of paperwork with a State Administrator [D]willful misstatements in a Securities Exchange Commission filing
C Choices A, B & D represent reasons why the SEC could revoke an investment advisers registration. By itself, Choice C would not be grounds for the SEC to revoke an IA's registration. The late filing would be handled with the State Administrator.
According to the Investment Advisers Act of 1940, registration as an investment adviser is required for a person whose advice relates to which of the following securities? I. bonds issued by a local bank II. bonds issued by a corporation listed on NYSE III. U.S. Treasury bonds only IV. revenue bonds issued by a state [A]I, II, III [B]II, III [C]I, II, IV [D]I, II, III, IV
C Choices I, II, and IV represent securities which would require registration as an Investment Adviser. Registration as an investment adviser would not be required for persons who offer only U.S. Government (Treasury) securities.
Which of the following are characteristics of a closed-end investment company? I. Can be traded on both exchanges and in the over-the-counter (OTC) market II. Issued only as redeemable with no active secondary market III. Transactions always require delivery of a prospectus IV. Pricing is not directly related to NAV and is directly related to supply and demand [A]I and III only [B]II and III only [C]I and IV only [D]III and IV only
C Closed-end investment companies, also known as closed-end funds, can trade on both exchanges and in the over-the-counter (OTC) market. Shares are non-redeemable and have an active secondary market. Primary offerings of closed-end funds require the delivery of a prospectus, but secondary market transactions do NOT require delivery of a prospectus. Pricing is not directly related to net asset value (NAV) per share and is directly related to supply and demand.
The IAR is working independently for a B/D company. The B/D gives the IAR shares of stock for the work that is being done. The IAR also recommends the same stock on their website. What does the IAR need to disclose with regards to the shares of stock? [A]The shares of stock must be disclosed on the IARs website [B]The shares of stock must be disclosed on any website advertisement [C]The shares of stock must be disclosed in the form ADV [D]The shares of stock have do not have to be disclosed.
C Compensation arrangements have to be disclosed on the form ADV. They do not have to be disclosed on-line websites.
Firms that maintain an inventory of OTC securities and stand ready and willing to buy and sell for or from their own accounts on a regular and continuous basis are known as: [A]Exchanges [B]ECN's [C]Market-makers [D]Floor brokers
C Firms that maintain an inventory of OTC securities and stand ready and willing to buy and sell for or from their own accounts on a regular and continuous basis are known as Market-makers.
Under the Investment Company Act of 1940, if a fund has a Board of Directors, an investment adviser's contract must be renewed by a majority vote of the fund's: [A]Board of Directors [B]outstanding shareholders [C]Board of Directors and the outstanding shareholders [D]unaffiliated Directors
C 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 Advisers contract.
According to the Securities Act of 1933, the term "accredited investor" would include all of the following EXCEPT [A]banks [B]investment companies [C]a registered investment adviser. [D]an insurance company.
C Individual accredited investors must have a minimum net worth of $1,000,000 or annual income of $200,000 in the last 2 years and expectation of the same in the current year. You do not become an "accredited investor" just because you pass the investment adviser's exam. Entities such as banks, registered investment companies, and insurance companies are also "accredited investors."
An investment adviser that manages assets in a wrap account must disclose to clients the: [A]assets of the portfolio monthly [B]business form of the advisory firm [C]fees that will be charged for the management of the account [D]daily performance of the securities in the account
C Investment Advisers are required to disclose all fees and disclose the manner in which such fees will be charged to the client.
Joe was an attorney who switched career paths. Now he is an IA. Several of his clients invest primarily in mutual funds and he provides advice to them about which mutual funds would satisfy their investment objectives. He also sometimes provides advice to these clients on related common legal issues. Based on this information would he be considered to be "in the business"? [A]No, since he provides non-financial legal advice, he would be excluded from being considered to be in the business. [B]No, since he does not give advice about specific stocks, he would be excluded from being considered to be in the business. [C]Yes, he would be considered to be in the business since he provides investment advice about which mutual funds to buy as well as occasional legal advice. [D]Unknown since it would depend on a ruling by the State Administrator.
C Providing general recommendations or providing information on rare occasions would not be considered to be in the business but since Joe provides specific advice about which mutual funds to purchase he would be considered to be in the business.
Under the Investment Advisers Act of 1940, if a person gets a cash fee for soliciting advisory business, what requirements must be met? I. Written disclosure must be made to the clients. II. The Solicitor must be affiliated with the company. III. The solicitor must not currently be subject to regulatory suspensions or limitations. IV. The solicitor must be a fully-registered Federal Covered Adviser. [A]I and II only [B]I, II, and III only [C]I and III only [D]I, II, III, and IV
C Solicitors are required to make disclosures to clients and are not permitted to be under any regulatory suspensions or limitations while soliciting advisory business. Under the Investment Advisers Act of 1940, solicitors are not required to be affiliated with the adviser or be fully-registered as an IA. State regulations apply to solicitation, and generally require registration of those soliciting as Investment Adviser Representatives at the State Level under the Uniform Securities Act.
The Investment Advisers Act of 1940 requires solicitors to furnish a separate written disclosure document to clients. Which of the following statements are true regarding disclosure document requirements? I. The document must display the name of the investment adviser for whom the solicitor is soliciting. II. The document must profile the investment adviser's performance history. III. The document must describe the relationship between the IA and the solicitor. IV. The document must include a statement which informs clients of the compensation agreement between the solicitor and IA. [A]II only [B]I and II only [C]I, III, and IV only [D]I, II, III, and IV
C Solicitors must have a separate disclosure that includes the name of the solicitor and services provided, name of the IA for whom the solicitor is working, the nature of the relationship of the IA and solicitor, the compensation arrangement, and the amount, if any, the client will be charged in addition to the advisory fee. The solicitor's disclosure does not have to include the IA's performance history.
According to the Investment Advisers Act of 1940, investment advisers must: I. have at least $25,000 in capital. comply with certain rules to safeguard clients' assets if they II. have custody of clients' funds or securities. III. disclose their business background and experience to clients. [A]III [B]I, II [C]II, III [D]I, II, III
C The IIA of '40 applies to federally covered RIAs, not state covered RIAs. Neither the '40 Act, nor the SEC sets a specific minimum net worth/capital that applies to all federally covered RIAs. A minimum requirement could be different for each RIA. Investment Advisory Firms are required to safeguard client funds and securities and also to disclose their business background and experience.
According to SEC Release IA-1092, what information must IAs disclose to clients? I. IAs must disclose that they take positions consistent with those recommended to clients II. IAs must disclose that they take positions inconsistent with those recommended to clients III. IAs must disclose any potential conflicts of interest IV. IAs must inform clients that by making full disclosure, it absolves them from adhering to certain provisions of the Investment Advisers Act of 1940 [A]I and II only [B]I and III only [C]I, II, and III only [D]I, II, III and IV
C The Investment Advisers Act, including SEC Release IA-1092, specifies that IAs must make full disclosure including potential conflicts of interest as well as how they personally invest, whether it is consistent or inconsistent with the positions that are recommended to clients. SEC Release IA-1092 also states that disclosure does not relieve an Investment Adviser from abiding by all other provisions of the 1940 Act.
The Investment Company Act of 1940 regulates which of the following? I.Investments by one investment company in another II. Who may or may not have custody of investment company assets III. The return to its clients an investment company must achieve in order to remain registered [A]I only [B]I and III only [C]I and II only [D]I, II, and III
C The Investment Company Act of 1940 does regulate restrictions on one investment company into another investment company and does regulate who may or may not have custody of investment company assets. However, the Act does NOT regulate returns to clients. That is determined by the market performance of the securities in the funds portfolio.
All of the following disclosure documents must be filed by an IA with the SEC, except: [A]the initial brochure [B]annual amendments to the brochure [C]the brochure supplement [D]Form ADV
C The brochure supplement does not need to be filed with the SEC. All of the others must be filed electronically with the SEC.
Which of the following most accurately describes the focus of the Investment Advisers Act of 1940's "Brochure Rule"? [A]Coverage of regulations related to advertising that will be seen by the general public and might be considered a brochure for the advisory firm [B]Recordkeeping requirements and jurisdiction of regulators in relation to examinations of such records [C]Delivery of required disclosures and information to existing and prospective clients by federally registered advisory firms [D]Ensuring a clear representation of the Investment Advisers Act of 1940 definition of an "Investment Adviser" in all brochure materials offered to current and prospective clients
C The general requirement of the "Brochure Rule" under the Investment Advisers Act of 1940 reads as follows: "If you are registered under the Act as an investment adviser, you must deliver a brochure and one or more brochure supplements to each client or prospective client that contains all information required by Part 2 of Form ADV." Part 2 of Form ADV contains required disclosures and information that is to be delivered to existing and prospective clients of federally registered advisory firms (aka Federal Covered Advisers).
Under SEC Release IA-1092, which of the following are included in the definition of an "investment adviser"? I. Pension consultants II. Advisers to entertainers III. Advisers to athletes IV. Advisers to issuers [A]I only [B]II and III only [C]I, II, III [D]I, II, III, IV
C Under SEC release IA-1092 all of the following are included in the definition: Financial Planners, Pension Consultants, Advisers to Athletes and\or Entertainers, Advisers to Employee Benefit Plans, and Advisers to Clients regarding the selection or retention of an Investment Manager; NOT Advisers to issuers (underwriters).
Which of the following are true regarding persons who engage in the business of advising clients relating to securities under the Investment Advisers Act of 1940? I. They must be registered as investment advisers unless their advice is general in nature. II. They must be registered as investment advisers unless they are registered as broker-dealers under state securities laws III. They must be registered as investment advisers unless they do not charge commissions or other fees for doing so. IV. They must be registered as investment advisers unless they are accountants or engineers whose performance or advisory service is only incidental to the practice of their profession. [A]II, III [B]I, IV [C]I, III, IV [D]I, II, III, IV
C Under the Investment Advisers Act of 1940, persons must be registered as an investment adviser unless their advice is general in nature and/or they do not charge a commission or other fee for doing so. Please refer to the study material for a list of all the exclusions from the definition of an investment adviser.
A registered representative employed by ACE Investments, a broker-dealer which charges its clients separately for investment advice, offers investment advice to his clients even though it is not part of his job at ACE. According to the Investment Advisers Act of 1940, all of the following statements are true except: [A]The registered representative must register as an investment Adviser Representative even if his only compensation is the commission he receives from the securities transactions he recommends. [B]The registered representative must be registered as an investment Adviser Representative even if his firm is already registered as an Investment Adviser. [C]ACE Investments must be registered as an investment adviser. [D]ACE Investments does not have to register as an investment adviser if only brokerage clients are charged for investment advice.
D According to the Investment Adviser Act of 1940, an investment adviser is an individual who receives compensation for advising others about securities or about the advisability of investing in securities. If a broker-dealer's advisory services are incidental and they receive no compensation, then they could qualify for an exclusion from the definition. However, example "D" receives compensation and would not qualify. ACE Investments must register as an Investment Adviser because it gets compensated for investment advice ( A, B & C). The RR must register as an Investment Adviser Representative of ACE Investments.
Kelly, an IAR at your firm, decides to put on a seminar. She invites 25 prospective guests and has a pretty good turnout where 20 guests can make it and show up. Prior to the start of the seminar, Kelly requires each attendee to fill out an information sheet. During the seminar, a man walks in who is interested but was not invited. Kelly asks him to fill out the information sheet and he refuses. Kelly asks him to leave. Which of the following is correct about this scenario according to the Investment Advisers Act of 1940? [A]Because Kelly insisted on getting this man's information and pressed the issue unnecessarily, she likely lost a prospective customer because of her actions. [B]Because Kelly forced all individuals who attended the meeting to fill out this information sheet, she has violated laws that are put in place to prevent high-pressure sales pitches to clients and prospective clients. [C]Because the attendees signed the information sheet, which authorized her to use the information for business purposes, Kelly can now sell this list to other IARs and other entities seeking prospective investors. [D]Because Kelly required attendees to fill out the information sheet, she has abided by regulations which require her to keep a list of all persons who attend the seminar. Though Kelly may have lost the walk-in as a customer, she would have violated regulations by allowing him to stay and not obtaining his information.
D According to the Investment Advisers Act of 1940, rules on recordkeeping require that IAs who put on sales seminars must keep a list or records of those who participate or attend such seminars. Failure to do so would be a violation of the rules.
When an investment adviser receives compensation in the form of a wrap fee, all of the following statements are correct EXCEPT: [A]The investment adviser must provide a written copy Schedule H of Form ADV to the client. [B]Wrap fees are allowed when the IA provides portfolio management services only. [C]Wrap fees are allowed when the IA provides advice with regard to the selection of other Investment advisers on behalf of the client. [D]Wrap fees always exist when the client is charged commissions per transaction executed.
D All choices except "D" represent circumstances where the client would receive a written disclosure statement based on Form ADV when compensation (wrap fee or management fee) is to be paid. When a client is simply charged commissions per transaction, executed that does not fall under a wrap fee program.
Under the Investment Advisers Act of 1940, when an Investment Adviser charges Qualified Clients a performance-based fee, which of the following provisions must be followed? I. Defined Periods used to measure performance for compensation II. Formulas for increases and decreased in fees III. Disclosure that performance based fees may induce the IA to make higher risk transactions IV. Advisory fees and expenses will be deducted from performance [A]I & III [B]I & IV [C]II, III, & IV [D]I, II, III, IV
D All choices represent provisions and discloses that must be met when an IA will charge a performance-based fee to a Qualified Client.
Under the Securities Act of 1933 Exempt Securities include all of the following EXCEPT [A]U.S. Government Securities. [B]securities issued by State Banks and Savings and Loans. [C]Regulation A+ Offering. [D]common stock of an Investment Company.
D All choices shown except for "D" represent securities that are exempt from registration with the SEC. Stock of a registered investment company would be required to be registered with the SEC. Though a Reg A+ offering is exempt from full registration with the SEC, the company offering securities through a Reg A+ would still have to file paperwork with the SEC.
Which of the following disclosures are required under the anti-fraud provisions of the Investment Advisers Act of 1940? I. that the adviser who created a plan is also acting as agent of the broker-dealer whose services are being used to implement the plan II. that the financial planner uses only the financial products offered by a broker-dealer employer when conducting planning activities III. that the adviser's securities transactions are inconsistent with the advice given to clients IV. that the adviser is receiving compensation from the issuer of a security being recommended [A]I, II [B]II, IV [C]II, III, IV [D]I, II, III, IV
D All four choices represent disclosures which must be made by Investment Advisers according to the anti-fraud provisions of the Investment Advisers Act of 1940.
A Registered Investment Adviser pays a flat fee to a Certified Public Accountant for client referrals. The RIA charges his clients a fee based on a percentage of assets under management. Which statements are true regarding required disclosures to customers? I. No disclosure of fees paid by the adviser to the CPA is required II. Disclosure of the fees paid by the adviser to the CPA is required III. No disclosure of the management fees to be paid by the customer is required IV. Disclosure of the management fees to be paid by the customer is required [A]I and III [B]I and IV [C]II and III [D]II and IV
D If a Registered Investment Adviser pays a flat fee to a CPA for referrals, disclosure of fees paid is required because the CPA would be considered a solicitor. If the RIA charges his clients a fee based on percentage of assets under management, disclosure of the fees to be paid by the customer is required.
An individual has just been hired by a financial services company. She is not yet registered but she is interested in developing a career providing advice to retail investors regarding fixed annuities and insurance products. Would this individual be required to register as an investment adviser? [A]Because she wants to advise on fixed annuities she must register as an investment adviser. [B]This individual must register an investment adviser because she will be advising retail investors. [C]Because she wants to advise on insurance products she must register as an investment adviser. [D]She is not required to register as an investment adviser.
D If an individual limits her advice to fixed annuities, insurance products or any other non-securities products, she is not required to register as an investment adviser. This is true whether the investors are retail clients, institutional clients or both.
Investment advisers may be formed as: I. Partnerships II. Corporations III. Associations [A]I only [B]II only [C]III only [D]I, II, III
D Investment advisers may be formed as Partnerships, Corporations, and Associations. Therefore, the correct answer is "D".
All of the following are defined as "investment adviser" who must register under SEC Release IA-1092 EXCEPT: [A]a person who only advises on asset allocation. [B]a person who only creates overall financial plans but who does not affect recommended transactions. [C]a person who creates overall financial plans and who effects recommended transactions. [D]a person who only gives advice on U.S. Government securities.
D Persons who give advice with regard to Government Securities only do not have to be registered as an Investment Adviser.
Under the Investment Advisers Act of 1940, all of the following statements are true regarding an investment adviser that takes custody of clients funds EXCEPT the investment adviser [A]must send an itemized statement to each customer at least quarterly. [B]must be audited on a surprise basis, at least annually. [C]must segregate each customer's funds. [D]need not comply with the custody rules if the firm is also registered as a broker-dealer.
D Regardless of whether or not an investment advisory firm is also registered as a broker-dealer, they must still comply with all of the disclosure rules when they take custody of clients fund and/or securities.
If an investment adviser representative (IAR) is also a licensed insurance agent and recommends that a client sells his/her mutual fund shares to buy life insurance, all of the following disclosures should be made EXCEPT: [A]That the sale of mutual funds will be a taxable event [B]That the IAR will receive a commission on the insurance sale [C]That the investment advice will not be any less objective [D]That the recommendation to buy life insurance is not connected to the services of the advisory firm
D Remember that when an IAR sells both securities and non-securities related products, they continue to be regulated by the IA rules even when selling the non-securities products therefore the best answer is "D" since that advice would be connected to the advisory services.
Which of the following ARE REQUIRED to be disclosed on applications for agents, according to SEC Rule 17a-3? I. The associated person's name, aliases, address, and social security number II. The associated person's date of birth III. A complete and consecutive statement of the associated person's business connections for the 10 years preceding, regardless of full or part-time employment. IV. The associated person's records related to disciplinary actions and sanctions imposed by securities regulators at the federal or state levels. [A]I and II only [B]II and IV only [C]I, II, and IV only [D]I, II, III, and IV
D SEC Rule 17a-3 requires disclosure of a number of items by associated persons with relation to questionnaires or applications. All of the items included must be disclosed. Certain personal information, such as religious belief and educational background need not be disclosed.
The XYZ company is in the business of investing, reinvesting, and trading of securities. Which of the following is the best description for XYZ? [A]XYZ is a broker-dealer [B]XYZ is a market maker [C]XYZ is an investment adviser [D]XYZ is an investment company
D The Investment Company Act of 1940 defines an investment company as one that is in the business of investing and reinvesting in securities. A broker-dealer effects transactions in securities for others or for itself. A market maker is a broker-dealer who specializes in certain securities, has an inventory of those securities, and provides a continuous market for the purchase or sale of those securities.
The investment banking department of a large Wall Street brokerage firm has knowledge of and is going to participate in a large initial public offering. The information that the department has is not publically available. The investment banking department could NOT share this information internally with any of the following departments EXCEPT: [A]The research department [B]The market making department [C]The trading department [D]The legal department
D The information barrier known as the "Chinese Wall" prohibits sharing of material non-public information with the other operational departments of the brokerage firm. This information could be market moving information. This prohibition is mandated by SEC Rule 10b-5 under the SEA'34.
Under the Investment Advisers Act of 1940 an investment adviser would be required to register if they answer "yes" to which of the following? I. Does the person give advice about securities II. Is this person in the business of giving advice about securities III. Is this person compensated for giving advice about securities [A]I only [B]I & II only [C]II & III only [D]I, II, III
D Under the Advisers Act of 1940, a person would be required to register as an investment adviser if they answered yes to the A, B, C questions. 1. Do they provide Advice about securities 2. Are they "in the Business" of giving advice about securities, and 3. Are they Compensated for giving advice about securities.
When a bond or debt security is traded at a broker-dealer firm, which of the following items must be disclosed to the client on their purchase confirmation? I. The date and time of the transaction II. The identity of the debt security being traded III. The yield to maturity of the bond IV. The actual yield based on the purchase price [A]I & II only [B]II & III only [C]I, II & III only [D]All of the above
D Under the Securities Exchange Act of 1934 when a customer confirmations require the following information to be disclosed to customers at or before completion of a transaction: * Date and time of a transaction * Identity of the Security * Price of the security * Number of shares traded * Principal amount traded if it is a bond or debt security * Whether the broker-dealer acted in the capacity of an agent or principal * Yield to Maturity * Yield at which the trade was effected Note: The bond's rating would not be required on the confirmation
An investment adviser holds more than 5% of an equity security registered under the Securities Exchange Act of 1934. Which is true of the adviser's obligation to report beneficial ownership with the Securities and Exchange Commission? [A]The adviser must file a report only if it acquired the securities for its own account. [B]The adviser must file a report only if it acquired the securities for its clients. [C]The adviser must file a report only if it intends to effect changes in control of the issuer. [D]The adviser must file a report.
D Whenever an investor, be it an individual or an investment adviser, owns 5% or more of the outstanding securities of one company, they must file (Form 13-D) with the SEC.