Series 66

Open-end investment company shares. Investment companies registered under the Investment Company Act of 1940 are exempt from registration with the states under the NSMIA. However, most states require notice filing and the payment of fees. Federal credit union shares and railroad equipment trust certificates are exempt securities and intrastate issues would have to register using qualification.

A notice filing would be most appropriate for which of the following new issues?

I and III Normally, a transfer is the best option for an individual leaving a qualified plan because there are no current taxes and no limit on the number of transfers that may be done. A rollover is also an option, but it must be completed within 60 days and is limited to one per 12-month period. Please note—on the exam, when the term "rollover" is used without a descriptive adjective, it is always a traditional IRA. Anytime a Roth IRA is an option, it will say Roth.

A nurse has been participating in her employer's Keogh plan. Upon leaving the clinic, she wishes to know what options she has that will keep the money growing tax-deferred without current tax consequences. You would tell her that she may arrange for a transfer of the Keogh assets into an IRA. she may rollover the assets into an IRA as long as it is completed within 30 days. she may rollover the assets into an IRA as long as it is completed within 60 days. her only option is to withdraw the funds, pay the taxes, and begin a new IRA.

devoting a portion of the portfolio to securities with a negative correlation. Securities with a negative correlation add diversification to a growth portfolio because they move in the opposite direction of the balance of the holdings. Therefore, losses are offset by gains.

A portfolio manager with a growth style would probably diversify by:

insurance companies. It is not the securities they advise on but their clients that count. Out-of-state investment advisers with no office in this state must be registered under the Uniform Securities Act unless their only clients are insurance companies, registered investment companies, banks or other institutional investors, broker-dealers, and other investment advisers.

Out-of-state investment advisers with no office in this state are not required to be registered if only advising:

Watson, a customer of Gibraltar Securities, wishes to place an order to buy 50 shares of a thinly traded stock priced at $8 per share. Because the stock is so thinly traded, Gibraltar Securities feels it needs to charge Watson a commission of $100 to justify the time it must spend locating a seller of the stock. Which of the following statements best describes this action?

Watson, a customer of Gibraltar Securities, wishes to place an order to buy 50 shares of a thinly traded stock priced at $8 per share. Because the stock is so thinly traded, Gibraltar Securities feels it needs to charge Watson a commission of $100 to justify the time it must spend locating a seller of the stock. Which of the following statements best describes this action?

Administrator.

What is the official designation of the person or agency that enforces the USA in each state?

5.26% To determine the total return on this zero-coupon bond, the $50 capital appreciation is divided by the cost of the bond (in this case, $50 divided by $950 equals a total return of 5.26%). Total return of a zero-coupon bond is made up entirely of the difference between the cost of the bond and the sale or maturity price of the bond.

What is the total return on a 1-year, newly issued (365 days to maturity) zero-coupon bond priced at 95?

Eligibility. Pension plans must have a uniform nondiscriminatory eligibility program. All employees must be covered when they become eligible, which means reaching one year of service working full time and age 21.

What term is used to describe which employees will be covered by a pension plan?

He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. Regardless of how much is invested in a Keogh plan, an investor may still invest in an IRA if he has earned income. The maximum contribution to an IRA is 100% of earned income or the maximum allowable limit, whichever is less. In this individual's case, however, the contribution would probably be nondeductible.

A 45-year-old employment counselor has a Keogh plan for himself and three full-time employees who have been working for him for the past four years. If he earns $150,000 this year and contributes the maximum amount allowed to his Keogh plan, how much may he invest in an IRA?

Open an IRA. While employees of nonprofit organizations ordinarily use the 403(b) plan, since that was not a choice given here, the IRA is the only other logical option.

A nurse employed by a local nonprofit hospital would like to begin a plan to save for retirement. Which of the following would be the nurse's best option?

taxed as ordinary income. Yes, I know that only the portion of the withdrawal that exceeds the cost basis is subject to tax, but what else are you going to pick here? Sometimes you have to go with the best choice, even if it isn't the most accurate.

A 64 year-old woman wishes to withdraw funds from her non-qualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be:

internal rate of return.

A bond's yield to maturity reflects its:

sole proprietorship

A form of business structure that exposes all personal assets of the owner to creditors is the

unethical because the investments are not consistent with the investor's objectives.

A millionaire grants discretionary authority to his agent to invest in income securities. The agent invests the customer's money in high growth securities that pay little or no dividends. Under the Uniform Securities Act, this activity is:

original cost of the securities to the mother. When a gift of securities is made while the donor is alive, the original cost of the securities is the cost basis, not the value of the security on the date of the gift. Market value at date of gift is used to determine if gift taxes are applicable.

A mother makes a gift of appreciated securities to her 10-year-old son. The son's cost basis in the stock is the:

the number of shares being liquidated by investors exceeds those being purchased

A mutual fund would have net redemptions when

prior to or concurrent with the sale. There is no prospectus prior to or concurrent with the filing. Since the prospectus is not available until the effective date, one can't be distributed prior to the effective date.

A prospectus for securities registered by qualification must be given to each offeree:

issue an injunction after a hearing. A state securities Administrator may not issue injunctions, which are issued by courts, not administrative agencies. Administrators may issue cease and desist orders to prevent potential violations of the Uniform Securities Act, levy fines as determined by the Uniform Securities Act, issue subpoenas to registrants who are out of state, and issue interpretive opinions.

A state securities Administrator may do all of the following EXCEPT:

120.An existing investment advisory firm registered on the state level may apply for registration with SEC as a federal covered adviser if the firm expects to be eligible for federal registration within 120 days. In the reverse situation, a firm that drops below the $90 million minimum has 180 days to withdraw from SEC registration and register with the state(s).

A state-registered investment adviser with $18 million under management is preparing a new registration application seeking federal registration with SEC. She may do so if she expects the funds under management to grow to $100 million within how many days?

need not disclose that fact to the clients. It is not necessary to disclose what sources an IAR uses as the basis for recommendations. If the third-party research is distributed to clients, proper attribution is required.

An investment adviser representative who makes extensive use of third-party research to formulate portfolio recommendations to clients:

5/15/2014.

ABC Advisers, Inc., has made application for registration as investment adviser with state X on April 15, 2014. Assuming there will be no denial or stop order, the registration will become effective:

3.33%. The current yield on mutual funds is calculated by dividing the annualized yield ($.25 × 4 = $1) by the POP. In this case, $1 ÷ $30 = .0333 × 100 = 3.33%. In calculating the current yield, the law prohibits the inclusion of capital gains and growth.

ABC Combination Fund has dual objectives of capital appreciation and current income. Last year, the fund paid quarterly dividends of $.25 per share and capital gains of $.10 per share. The annualized growth rate of the fund was 15%. The current net asset value (NAV) of the fund is $28.50 and the current public offering price (POP) is $30. Advertising and sales literature of the fund may report the fund's current yield to be:

is in violation of NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents. This parallels FINRA's Rule 5130 that prohibits most securities professionals from obtaining shares of an IPO.

ABC Securities, Inc., is a full service broker-dealer. When underwriting an IPO, ABC holds on to some of its allocation in hopes that the stock will appreciate in secondary market trading. In so doing, ABC:

I, II and III

ABC Widgits, Incorporated is a federal covered security. Under the Uniform Securities Act, a state Administrator may require, by rule or by order, the filing of a copy of ABC's articles of incorporation copy of the registration information filed with the SEC consent to service of process list of ABC's shareholders who are residents of the state

securities issued by a bank holding company.

All of the following are exempt securities under the Uniform Securities Act EXCEPT:

I, III and IV.

Among the benefits of purchasing derivatives would be: leverage. increased income. unlimited potential gain. protection against loss.

flow-through tax treatment. Shareholders of an S corporation have limited liability, are limited to no more than 100 shareholders, and receive flow-through tax treatment.

An S corporation is characterized by:

wrap fees may result in higher costs than separate charges for advice, management, and transactions. When prospecting for new wrap accounts, agents are required to disclose to customers that wrap fees may result in higher costs than separate charges for advice, management, and transactions if the client is not able to use all of the services included. For those clients that are able to make use of all of the services provided, the costs will generally be lower than the cost of buying them piecemeal. Future performance of managed accounts may not be stated or implied.

An agent opening a wrap account for a wealthy client may tell the customer that:

do nothing without instructions from the client herself. The only individual who can place an order in an individual account is the person who owns the account. The agent cannot accept the husband's order without the wife's prior written trading authorization.

An agent opens an account for a new customer and executes trades in the account. Three weeks later the account has a significant profit. The customer's husband calls and directs the agent to liquidate the account because his wife has lost her job. Under the Uniform Securities Act, the agent can:

High grade corporate bond mutual fund.

An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation?

could not have reasonably known about the transaction.

An investment adviser subsidiary of a broker-dealer is the subject of a civil lawsuit alleging a fraudulent sale of securities to a customer. Under the Uniform Securities Act, the brokerage firm may not be held jointly liable for the violation if the firm:

tactical asset allocation.

An investment adviser who switches among investment classes based upon anticipated market changes is using a technique known as:

are not in violation because the order was placed before you learned of the inside information Violations of the insider trading rules can only happen when a person acts on the information. Because the order was placed on the books prior to the agent learning of the inside information, there is no violation. There is no obligation to cancel the order, and contacting the client would be making use of the inside information.

An order is received from one of your clients to purchase 200 shares of GEMCO common stock at 45 GTC. Two days later, while at a luncheon meeting with a different client, you are informed by that individual that the inside scoop is that GEMCO is going to be the subject of an FBI investigation. An hour after you return from lunch, you see an execution report for the 200 shares at 44.90. Under the Insider Trading and Securities Fraud Enforcement Act of 1988, you

I and II When there is money remaining in a Section 529 Plan after a student has completed college, withdrawal of that excess will result in the portion representing earnings being taxed at ordinary income tax rates plus a 10% penalty. Those taxes and penalties can be avoided if the funds are properly used, such as graduate school for the original beneficiary or designating a new beneficiary who is an immediate family member (as defined in the law) and rolling over the funds. There is no such thing as a rollover to a Coverdell ESA and money in a 529 Plan is not part of a qualified plan so rolling over to an IRA is out of the question.

As a client's only child is about to complete her college education, it is obvious that the 529 Plan used to accumulate funds has been overfunded. Which of the following might be suggested to minimize tax consequences? Encourage the daughter to go to graduate school and use the money for qualified expenses there. Rollover the funds to a member of the beneficiary's family Rollover the funds to a Coverdell ESA Rollover the funds to the donor's IRA

acknowledge the fact that the friend is a client. It is normally prohibited to tell others who your advisory clients are without their consent. However, under these circumstances, you would be permitted to affirm that this is your client but say nothing more about the account.

At a charity ball, you are introduced to someone who, upon hearing your name, exclaims that he has heard that you are doing a magnificent job managing his best friend's investment portfolio. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it would NOT be a violation for you to:

every December 31, unless otherwise specified by state law. Under the Uniform Securities Act, registrations must be renewed every December 31. Registrations are not permanent and can be denied, revoked, or canceled according to the terms of the act.

Broker-dealers, investment advisers, and agents must renew their licenses with the state Administrator

$10,000

Currency transaction reports must be filed for cash transactions that exceed:

I, II, and III The nature of any control relationship or conflict of interest must be disclosed to customers, regardless of the capacity in which the firm acted or the type of transaction made.

Disclosure to customers of a broker-dealer's control relationships is required in agency transactions principal transactions exempt transactions

When the trade that is made is unrelated to the advisory relationship Under normal circumstances, when acting in an advisory capacity, client consent must be obtained no later than completion of the trade. However, in a case like this where the transaction is strictly based on the broker-dealer relationship rather than the advisory one, no consent is necessary.

Damon Raymond is an agent with ABC Investment Planning, a registered broker-dealer and investment adviser. Under what circumstances would Damon not have to obtain client consent when ABC Investment Planning is acting in a principal capacity?

a fraudulent business practice because a client must have sufficient information to make a rational decision.

Deliberately failing to disclose sufficient information pertinent and relevant to a client making an informed investment decision is:

II and IV Static content requires pre-approval. Interactive content can be reused by others and can be commented on by others. Both static and interactive content can be changed by its originator, but static can only be changed by its originator and interactive by the originator or others.

Differences between static and interactive content on social media include Only static content can be reused by others Only static content needs pre-approval Only static content can be changed by the person who originated it Only interactive content can be commented on by others

34.10%

During your annual review with a client, you go over all of the year's transactions. The beginning of the year balance in the account was $3,000. The client purchased 100 shares of ABC on February 1st at $30 per share and sold it on June 1st at $33 per share. During that period, ABC paid one quarterly dividend of $.30. The client used the proceeds of the ABC sale to purchase 66 shares of DEF on June 15th at $50 per share and sold it on December 15th at $60 per share. DEF pays quarterly dividends of $.25 on the first of each month on a cycle beginning with February. Based on this information, you would inform the client that the account's total return is:

deferred compensation plan. A deferred compensation plan is considered a nonqualified plan because IRS approval is not required to initiate such a plan for employees.

Each of the following is an example of a qualified retirement plan EXCEPT a:

the registration for all is two years in length.

Each of the following requirements is common to the registration of agents, investment adviser representatives, state registered investment advisers, and broker-dealers under the Uniform Securities Act EXCEPT:

Records must be kept for six years. Records of an adviser must be maintained for five years. Records are subject to surprise audits by the SEC, written records may be reduced to microfilm, and records originally created on a company's computer may be stored in electronic media.

Federally-registered investment advisers are obligated to maintain certain books and records as specified by the SEC. Which of the following statements regarding adviser recordkeeping is NOT true?

II and III.

For which of the following types of business clients does the concept of limited liability apply? General partnership. LLC. S corporation. Sole proprietorship.

two years. Under the civil provisions, the statute of limitations extends for two years from the discovery of the offense or three years after the act occurred, whichever comes first.

From the date of discovery, how many years is the statute of limitations in place for civil offenses covered under the USA?

Only the agent needs to notify the Administrator. Termination of an agent's registration with the state requires both the agent and the employing broker-dealer to notify the Administrator. When going to a new firm, the new employer must give notice as well. An agent can rely on the firms to give notification because failure to do so is a prohibited practice on their part and can lead to disciplinary action. Unlike a successor firm, any time an agent changes broker-dealers, a new licensing fee is due.

Having received an offer of a large hiring bonus, an agent of XYZ Securities, a broker-dealer registered in the state, wishes to terminate her registration and register with ABC Investments, Inc., a different broker-dealer in her state. Under the requirements of the Uniform Securities Act, which of the following statements regarding notification to the Administrator is NOT true?

Promptly. If the information contained in any document filed with the Administrator is or becomes inaccurate or incomplete in any material respect, the registrant must file a correcting amendment promptly.

How quickly must a broker-dealer notify the Administrator if material information relating to that broker-dealer's registration should change?

January 29, 2015. The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end.

If a federal covered adviser's fiscal year ends on October 31, 2014, it must file its annual updating amendment to its Form ADV no later than:

not sell any securities because her license is automatically canceled with that of her broker-dealer. An agent for ABC may not sell any securities because her license is automatically canceled with that of ABC Brokers, Inc. Agents cannot sell securities unless they are associated with a licensed broker-dealer.

If ABC Brokers, Inc., has its license canceled, an agent for ABC may:

April 1, 2013. Because his birthday is late in the year, Gerald did not attain age 70-½ until May 15, 2012, so his required beginning date was April 1, 2013 (the year following the date Gerald attains age 70-½).

If Gerald turned age 70 on November 15, 2011, when was he required to take his first IRA distribution?

engaging in the offering for sale of a security. According to the Uniform Securities Act, offering securities as a bonus on the purchase of another thing for value, such as a car, constitutes an offer of securities. For the purposes of the Uniform Securities Act, the dealers are offering securities and are subject to the provisions of the act. The practice is not fraudulent, but registration as a broker-dealer may be required.

If a car dealer offers $1,000 bonds as a bonus for the purchase of cars, the car dealer is:

will neither make the trade legal nor relieve the agent of liability. If an issue is nonexempt and not registered in this state, no agent is permitted to make a sale. There are never any situations on the exam where a waiver is the correct course of action.

In a discussion with one of his clients, an agent describes a stock offering that occurs in a neighboring state. The client is excited about the company's prospects and tells the agent he would like to buy 500 shares. The agent replies that the security is unregistered and nonexempt, and the only way he would be permitted to sell it is if the client agrees to sign a waiver releasing the agent from responsibility. This signed waiver:

Bondholders.

In the event of a company's insolvency, which of the following has first claim on assets?

A pension consultant who bills by the hour for the advice he provides on the merits of specific investment managers. A consultant who advises pension funds on the merits of investment managers and their approaches to the market is specifically described as an investment adviser in Release IA-1092. Note that the sports representative in this case does not make specific investment recommendations. The recommendation that a person place funds in a commercial bank does not, of itself, constitute investment advice. The teacher is engaged in an educational exercise in which no compensation is received.

In which of the following circumstances is a person most likely to be considered an investment adviser?

market volatility. Of these choices, the only one that we cannot in anyway predict is market volatility. We can factor in an estimated inflation rate, project future earnings and look at the mortality tables to obtain life expectancy. But, nothing can project market volatility with any degree of accuracy.

Insurance agents frequently use a capital needs analysis to help determine the correct amount of life insurance needed by their clients. That analysis would look at all of these EXCEPT:

I, II and IV. An investment adviser cannot share in the profits of an account based on time devoted and may not assign an account without the written permission of the client. An investment adviser organized as a partnership must disclose to clients when any partner, minority interest or not, departs from the firm.

It is unlawful for an investment adviser: To share in the profits of an account in relation to the amount of time devoted to the account. To unilaterally transfer an account to another firm if the assets fall below a minimum level. To take custody of a client's securities and funds, in the absence of a rule on custody by the state Administrator. To fail to disclose the departure of a general partner of an investment advisory partnership who only had a minority interest in the firm.

III only. Under Section 203A of the Investment Advisers Act of 1940, any IAR with a federal covered adviser who has no place of business in a state is not required to register in that state, even when the number of clients the adviser has in a state exceeds the de minimis level. Holding a public seminar on a quarterly basis in the same location would be considered having a place of business in Georgia (even though attendance is limited to Club members only - they are still members of the general public).

KAPCO Advisers is registered as an IA with the SEC. Their only office is in New Jersey and all IARs are registered there. IAR Jones has ten clients who reside in Ohio; IAR Cohen has six clients who live in Kentucky; and IAR Brown has three clients who are Georgia residents. In addition, Brown conducts a quarterly presentation at the Augusta National Golf Club where he discusses current market developments. The seminar is restricted to Club members only. Which of the following is CORRECT? Jones must register in OH. Cohen must register in KY. Brown must register in GA. Because all three are registered in the state where KAPCO maintains its principal office, no further registrations are necessary for these IARs.

advise the customer that the Internet stocks are not suitable in light of that customer's circumstances and execute the order only following written acknowledgement from the customer that the agent did not solicit that trade.

Mildred Peabody, a retired schoolteacher, has heard about enormous profits made recently in Internet stocks. She calls her agent at her broker-dealer and instructs the agent to liquidate her AAA-rated municipal bond position and use the proceeds to buy two Internet stocks that have recently experienced significant price volatility. In this situation, the agent should:

II and III

Mr. and Mrs. Walker are advisory clients of yours. Each of them is employed and covered by a qualified plan. Which of the following statements are CORRECT? Employees covered by a qualified plan are not eligible to open Roth IRAs. Employees covered by a qualified plan are eligible to open Roth IRAs. Distributions from a qualified plan may be rolled over into a Roth IRA. Distributions from a qualified plan may not be rolled over into a Roth IRA.

Trustee and beneficiary.Under trust law, the grantor of a trust, sometimes referred to as the settlor, may also be the beneficiary and the trustee.

One of your clients approaches you about setting up a trust. If your client assumes the role of grantor, what additional roles may be taken?

follow the terms of the trust.

One of your clients has named you as the trustee for a trust he has established. The beneficiary of the trust approaches you with a request for a disbursement that is contrary to the provisions of the trust document. In accordance with the provisions of the Uniform Prudent Investor Act, you should:

REITs. REITs allow for the direct pass-through of income but not losses. The other choices are forms of business which allow for pass-through of income and losses.

Programs allowing for the direct pass-through of losses and income to investors include all of the following EXCEPT:

I only. Under Section 202(a) of the Uniform Securities Act, registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. This only applies to those individuals who are listed on the firm's Form ADV Part 1, so we're limited to officers, partners, directors or anyone else doing that type of job, regardless of what this IA has chosen to use as the title.

Registration of an investment adviser automatically confers registration on: officers, partners and directors of the firm who are functioning as IARs. any employee who is functioning as an IAR. clerical employees handling back office operations. an employee who will be soliciting clients for the adviser.

a file containing a copy of each communication by electronic media that the investment adviser circulates or distributes, directly or indirectly, to an existing client. Under the USA, an investment adviser is required to keep a file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including by electronic media, that the investment adviser circulates or distributes, directly or indirectly, to 2 or more persons (other than persons connected with the investment adviser), so individual emails do not have to be kept in a file.

Rule 203(a)-2 of the Uniform Securities Act deals with recordkeeping requirements of investment advisers. Under that rule, every investment adviser registered or required to be registered under the act must make and keep true, accurate, and current all of the following books, ledgers, and records EXCEPT:

I and IV. Testimonials of any kind are prohibited. Offers of free service must be totally free, not only free of cost but also free of any obligation. Disclosure of the limitations and difficulties of using a formula or charting system makes an advertisement permissible.

Rule 206(4)-1 of the Investment Advisers Act of 1940 regulates advertising by investment advisers. It would be prohibited under that rule for any adviser: to place an advertisement in a newspaper with photos of clients accompanied by statements claiming the adviser helped them meet their financial goals. to advertise past, specific investment recommendations that were or would have been profitable, unless the advertisement fully disclosed all recommendations for at least the past year (including the security recommended, the date, price, and nature of the recommendation—buy, sell, or hold—the price triggering the recommendation, and the most recent price) and included a mandated cautionary legend that past performance is no assurance of future results. to advertise any graph, chart, formula, or other device that consumers can use to determine when to make investment decisions while prominently disclosing the device's limitations and difficulties in its use. to offer a free subscription to the adviser's quarterly market review once the subscriber has completed a detailed financial profile.

contain an application to purchase shares of the fund. An omitting prospectus is a mutual fund tombstone advertisement. It must include information on obtaining a prospectus and may include the fund's past performance. It will never include an application to purchase shares and may or may not make mention of the fund's expense ratio.

Rule 482 of the Securities Act of 1933 permits the use of an omitting prospectus if it does NOT:

I and III.Any registered person acting on behalf of a brokerage firm must receive that firm's permission to act as a registered investment adviser apart from the control of the brokerage firm. A brokerage firm may deny a registered person's ability to start his own advisory firm if the brokerage firm deems it to be a conflict of interest. An individual or a firm can start a registered investment adviser firm by filing an ADV form with the state or with the SEC. A person working for a registered investment adviser would have to pass either a Series 65 or Series 66 exam to become a registered investment adviser representative. It is important to recognize the difference between the firm (the registered investment adviser) and the person working for the firm in giving investment advice (the registered investment adviser representative).

Sam wants to start his own registered investment adviser firm, independent of the brokerage firm where he is registered as an agent. He plans to provide financial planning services, which will include investment advice as an integral part of his business. Sam must:file with either the state securities Administrator or with the Securities Exchange Commission as a registered investment adviser by filing the appropriate Form ADV.file Form ADV with his current brokerage firm.notify his current brokerage firm and receive permission to operate independently from the firm as a registered investment adviser.do nothing and begin performing investment advisory services without regard to his current brokerage firm.

not have to register with the Mississippi Administrator. With no office in Mississippi and no more than five noninstitutional clients residing in the state, no registration is required.

Successful Retirement Strategies, Inc., is registered as an investment adviser in Alabama and has offices in Birmingham, Montgomery, and Tuscaloosa. The firm has no office in Mississippi but does have eight clients who are residents of that state. If two of those clients are banks, two of them are insurance companies, and the others are very wealthy individuals, Successful Retirement Strategies, Inc., would:

the Administrator of the state where SWO maintains its principal office could investigate SWO to determine if their recordkeeping requirements were violated Even though no state can enforce more stringent recordkeeping rules than those of the SEC, a broker-dealer can still be subject to state action if the rules of the state in which the broker-dealer maintains its principal office are broken. It is the usual case that when the SEC suspends or revokes the registration of a BD, the states in which that BD are registered follow suit, but it would be highly unlikely to revoke the registration when the SEC only levied a fine.

Superb Wealth Opportunities (SWO) is a broker-dealer registered with the SEC and 10 states. Recently, the SEC has completed an investigation of SWO's recordkeeping practices and has determined that they are not in accordance with SEC Rule 17a-4. If, as a result of a hearing, SWO is fined,

I and III. The Administrator may issue a cease and desist order without a hearing. Sentencing is only done by a court and suspension is a punitive action that may only take place after a hearing.

The Administrator has authority to: issue a cease and desist order without a hearing. issue a cease and desist order only after a hearing. summarily suspend a currently effective securities registration upon discovering an officer of the issuer has been convicted of a securities-related crime. sentence violators of the USA to three years in prison.

I, II and III. When a business registers as a broker-dealer with the Administrator, the firm's, its officers, and directors are simultaneously registered as agents along with the firm's effective registration as a broker-dealer. Individuals employed for the purpose of representing the firm as agents are considered to be applying for registration after the firm's license is effective.

The Administrator has just notified Rockland Securities that its application to operate as a broker-dealer in this state is now effective. Which of the following parties would be considered registered?

the applicant has no prior experience in the securities industry. The registrant must be qualified on the basis of training, experience, or knowledge, but the Administrator may not disqualify a person on lack of experience alone.

The Administrator may not deny a person's application for registration if:

the Federal Reserve System. The SEC has jurisdiction over the MSRB, FINRA, stock exchanges, and broker-dealers. The Federal Reserve is not under the jurisdiction of the SEC.

The SEC has jurisdiction over all of the following EXCEPT:

keep all customer information for seven years. The USA specifies that most broker-dealer records must be maintained for three years.

The Uniform Securities Act does NOT require registered broker-dealers to:

I, II and IV. The term" offer" (or offer to sell) is any activity in an effort to dispose of a security for value, such as the offer to sell or the solicitation of an offer to buy a security. The term" sale" or "sell" includes every contract of sale, contract to sell, or any disposition of a security for value.

The definition of "offer" (offer to sell) includes which of the following? An attempt to dispose of a security for value. A solicitation of an offer to buy an interest in a security for value. The actual sale of a security for value. An offer to dispose of a security for value.

be permitted to contact your clients with this recommendation right now. A firm's internal research is not considered inside information. Clients may be contacted as soon as the IAR has access to the report. What is prohibited would be for the IAR to purchase this stock personally before release of the report and then contact clients.

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm's Website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would:

be permitted to contact your clients with this recommendation right now. A firm's internal research is not considered inside information. Clients may be contacted as soon as the IAR has access to the report. What is prohibited would be for the IAR to purchase this stock personally, before release of the report, and then contact clients.

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm's website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight, this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would:

I, II, III, and IV As long as the proper protections are taken, any of these are acceptable as a storage medium for customer and firm records.

The industry is concerned about the protection of both firm and customer data. It would be acceptable to store this information on a cloud-based server in paper form on computer disks on microfishe

I, II and III.

The interest on corporate bonds is taxable at: the federal level. the state level. the local level.

$100,000.00 Negotiable CDs are issued in the minimum face amount of $100,000. These are called jumbo CDs and are traded in blocks of $1 million.

The minimum face amount of a negotiable CD is:

A loan is taken equal to 95% of the policy's cash value Funds obtained from a policy loan are not considered taxable income (same as any loan - you owe the money). If the amount received at policy surrender is greater than the cost basis, the excess is taxed as ordinary income. The same is true with the withdrawal. Although the death benefit will always be free of income tax, it could be subject to estate tax.

The separate account subaccounts chosen by the purchaser of a variable life insurance policy have had outstanding performance over the past 15 years. There would generally be no tax implications in which of the following situations?

II and III. An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives.

The term "investment adviser representative" includes which of the following? A receptionist for an adviser. An employee who solicits new business for an adviser. A supervisor who oversees employees who manage client portfolios for an adviser. An investment advisory firm registered in the state of Texas.

internal rate of return.

The time value of money is part of the computation for the:

testamentary trust.

The type of trust created by a will that becomes operative at death is a:

I, II and III.

To enforce the Securities Act of 1933, the SEC may: conduct formal investigations. issue cease and desist orders. refer evidence to the attorney general for possible criminal prosecution.

the amount of commission charged Commissions must always be disclosed. Markup or markdown has to be disclosed under certain, but not all, situations. The trade price, not the current market price, is always disclosed.

Trade confirmations sent by broker-dealers to their customers must always include

The sale of U.S. government securities to a retail client's IRA by a registered government securities dealer. In the sale of U.S. government securities to a retail client, the security is exempt, but the transaction is not. Had the sale been to an institutional client, it would have been exempt. An offer is not a transaction.

Transactions meeting certain conditions are exempt from the Uniform Securities Act's registration and advertising filing requirements. Which of the following transactions does NOT meet those conditions to qualify as an exempt transaction?

II and IV CAPM is built on the theory that investors must receive a return commensurate with the amount of risk taken over a specified period of time.

Two of the major factors involved in the Capital Asset Pricing Model (CAPM) are interest rates risk tax rates time

earnings momentum.

Two of the more popular investment styles are growth and value. If you were to take the growth approach, you would be most interested in:

the state in which its principal office is located Unlike broker-dealers, investment advisers register with either the SEC or the state(s), but never both. Therefore, we know this must be a state-registered adviser not under the jurisdiction of the SEC. Under the Uniform Securities Act, when it comes to financial requirements, bonding, recordkeeping, and so forth, as long as the adviser meets the requirements of the state in which the principal office is located the other states have no further claim.

USAAdvisers is registered in 10 midwestern states. Regarding financial requirements, USAAdvisers must meet those of

picks the specific security that is the subject of a transaction. Discretion is the ability to pick the Asset (the specific security), the Action (buy or sell) or the Amount (the number of shares or bonds). Time and price are not discretionary and nothing can take place until the proper papers have been received and documented.

Under both federal and state law, the concept of a discretionary account is defined. It would be considered discretion when an agent:

Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, sales by fiduciaries, or unsolicited transactions are all exempt.

Under the Uniform Securities Act, which of the following would NOT be considered an exempt transaction?

Life insurance.

Which of the following may NOT be used to fund an individual retirement account (IRA)?

Clerk at a broker-dealer who is authorized to take orders. Anyone who solicits or receives an order while representing a broker-dealer is an agent. Silent partners, administrative personnel, and executives of broker-dealers with no sales responsibilities are not agents under the terms of the USA because they do not solicit or receive orders.

Which of the following persons is defined as an agent by the Uniform Securities Act?

Qualifying distributions are received free of income tax if a holding period and age requirement is met.

Which of the following statements describes an advantage of a Roth IRA over a traditional IRA?

Current.

Which ratio would be looked at to determine the liquidity of a corporation?

it is filed through the IARD system The Investment Adviser Registration Depository (IARD) is an electronic filing system that facilitates investment adviser registration, regulatory review, and the public disclosure information of investment adviser firms. The IARD is used for filing Form ADV Parts 1 and 2. If the "brochure" is not delivered at least 48 hours before, (not after), the signing of the agreement, the client has a 5-day penalty-free withdrawal right. Annually, the Part 2 (brochure), or a summary of material changes, must be delivered within 120 days of the end of the adviser's fiscal year, (unless there have been no material changes). The brochure does not have to be delivered to all clients; those purchasing impersonal advice for less than $500 per year are exempted. There is also an exemption for delivery to investment company clients, but that would not apply here because if the adviser had any of those, it would have to be federal covered rather than state registered.

With regard to a state registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that

Wisconsin and Illinois. Under the USA, XYZ Securities is a broker-dealer in Wisconsin because it maintains an office there. XYZ Securities is also a broker-dealer in Illinois because with 30 Illinois retail (non-institutional) customers, registration is required even if there is no physical office in Illinois. Because none of XYZ's clients has taken up residence in Florida, such clients are transients rather than residents. Thus, XYZ Securities is not a broker-dealer in Florida subject to the state's registration requirements.

XYZ Securities is a broker-dealer based in Wisconsin with offices in no other state. In addition to its Wisconsin clients, XYZ has 30 retail customers living in Illinois. During the winter, if 10 existing customers vacation in Florida for up to 7 weeks at a time, XYZ Securities is a broker-dealer in:

money market mutual fund because of its high degree of liquidity.

Your client asks for a recommendation for her emergency fund. You would most likely suggest a:

business risk.This question refers to a client who is investing in the success of a specific company. The failure of this company does not mean that all securities will be affected; therefore, he is not subjected to market risk. The failure of XYZ would be due to the fundamentals of the company itself and considered business risk.

Your client purchases 100 shares of XYZ Electric Auto Company on the assumption that rising fuel costs will create more interest in this more efficient means of transportation. If he is wrong, the resulting drop in the market price of that stock would be due to:

RMDs may be deferred only from the plan sponsored by the current employer. The rule is that you can only defer RMDs in the plan of the employer where you are currently employed. For example, assume you retire from Company A and get a job with Company B, and both companies have a 401(k) plan. You can only defer RMDs from the Company B plan, because that is your current employer; you will have to take RMDs from the Company A plan. The same would be true if it were two different school systems with 403(b) plans.

Your client's wife retired as a 3rd grade teacher in 2009 where she was covered under the school system's 403(b) plan. If she resumes employment with a corporate employer, and that new employer has a 401(k) plan, is she entitled to defer RMDs from the 403(b) plan past the regular age 70 ½ date?

in variable annuities is allowable only if the agents involved are both licensed to sell life insurance and maintain their securities licenses at the same or affiliated broker-dealers. You must be licensed in both insurance and securities to sell variable annuities or to split commissions. Commissions on securities transactions may only be split with registered agents of the same or affiliated broker-dealers.

Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions:

Investment grade municipal bond.

Which of the following securities is the least suitable recommendation for a qualified money-purchase plan account?

be taxed at ordinary income rates.

A 61-year-old wanting to take a lump-sum distribution from his Keogh will:

the length of time the business relationship has existed.

A customer has filed a complaint with the Administrator that alleges churning in his account. When investigating the case, mitigating factors would include all of the following EXCEPT:

$1,219. In addition to paying interest, a TIPS bond increases its principal value semiannually by the amount of inflation. If the inflation rate is 4% for 5 years, the principal value of the bond increases semiannually by that inflation rate. Allowing for compounding, the best choice would be the $1,219. This is computed by multiplying $1,000 by 102% 10 times.

A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the inflation rate is 4%. What is the principal value of the bond at the end of 5 years?

institutional investor. Banks and insurance companies are regarded as institutional investors regardless of the size of orders they place. (Although in most real world situations, the orders placed by institutional investors are substantial blocks of stocks and/or bonds, they don't have to be.) The term "public investor" implies individuals and households.

A bank purchases 200 shares of a stock. In regard to this purchase, the bank would be considered a(n):

static content In most cases, a broker-dealer's website is static. That is, only the firm can make changes and those changes are infrequent. Certainly a banner ad on the website fits that description. Entanglement and adoption are terms applying to a securities professional making use of third-party information on social media.

A banner on a broker-dealer's website is considered

cash flow from interest payments will increase

A bond investor's portfolio is structured so that a number of the holdings are maturing this year. If interest rates continue to rise and the investor reinvests the proceeds, the effect will be that the investor's

does no business in that state other than with institutional clients. A broker-dealer must be registered in every state it sells or offers to sell securities, unless an exemption is available. If a broker-dealer has no office in a particular state and no business is done in that state other than with institutional clients, registration there is not required.

A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer:

Clients cannot waive their legal rights.

A broker-dealer informs a client that they do not intend to abide by all of the provisions of the Uniform Securities Act. They have the client sign a waiver that specifically prohibits the client from entering a suit against the firm. The client's signature is properly witnessed and notarized.

state employee. Broker-dealers must always register in a state if they do business there with noninstitutional clients, regardless of the nature of the individual's employer.

A broker-dealer is registered in State X. It has no offices in State Y, although it does do business in that state. Under the Uniform Securities Act, registration in State Y is required if the client is a(n):

immediately reply to the client in writing.

A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to:

to protect a profit in a long position. Buy stop orders go into effect when the price of the security reaches or exceeds the specified "stop" price

A buy stop order may be used for all of the following EXCEPT:

its value is based on some underlying asset.

A client calls to say he has just read about a European option and doesn't know what it is. You would explain that it is a derivative because:

Provide a receipt to the client at the time of delivery. When a customer delivers cash or securities, the broker-dealer must provide a receipt at the time of delivery.

A client delivers a stock certificate to the broker-dealer through whom that stock was recently sold. Which of the following would be the most appropriate action for the broker-dealer to take?

3.50% Treasury Inflation Protected Securities (TIPS) adjust the principal value each 6 months to account for the inflation rate. Therefore, the real rate of return will always be the coupon.

A client has a TIPS with a coupon rate of 3.5%. The inflation rate has been 4% for the last year. What is the inflation-adjusted return?

Reduce the death benefit when the client dies Unpaid cash value loans reduce the death benefit.

A client needs funds for an unexpected medical emergency. If the client takes out a loan against the cash value of his life insurance policy and does not pay it back, the insurance company can do which of the following?

beta. Beta, or beta coefficient, is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

A client of an investment adviser has a portfolio that is 90% invested in equities. In an attempt to minimize the client's exposure to systematic risk, an IAR would be most concerned about the portfolio's:

$125,350 In the first year, the index gained 20%. With a 90% participation rate, the investor might have earned 18%, but was limited by the 15% cap. So, after one year the value was $115,000. In the second year, the index lost money. However, with an index annuity there are never any reductions in a down market so the account remained at $115,000. In the third year, the investor received 90% of the 10% growth and that increased the account value to $125,350. This resulted in an overall gain of 25.35%, or an average return of almost 8.5% per year.

A client purchased an index annuity from you three years ago and made an initial deposit of $100,000. The contract calls for a 90% participation rate with a 15% cap. The index had a return of + 20% in the first year, - 5% the second year, and +10% the third year. The investor's current value is approximately

greater than zero. The net present value (NPV) of an investment is the difference between the present value of the investment's cash inflows and the amount of the investment outlay. An investment is acceptable only if the net present value is greater than zero-that is, if the present value of the expected returns is greater than the amount of the investment outlay.

A corporation is considering a substantial capital expenditure for new equipment. Using the net present value (NPV) technique, the corporation will consider this investment to be acceptable if the net present value of the investment is:

The spouse would own all the shares.

A customer and his spouse own shares in the ABC Fund as joint tenants with rights of survivorship. If the customer dies, what happens to the shares in the account?

Administrators of all three states involved. Under the scope of the Uniform Securities Act, if any part of a transaction occurs in a state, the transaction falls under the jurisdiction of the state Administrator. The transaction is under the control of the Administrator of the state in which the customer received the offer, the Administrator of the state from which the agent made the offer, and the Administrator of the state in which the transaction took place.

A customer living in one state receives a phone call from an agent in another state. A transaction between the two occurs in a third state. According to the Uniform Securities Act, under whose jurisdiction does the transaction fall?

21.75%.

A customer purchases stock for $40 per share and holds it for one year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer's tax bracket is 30%, what is the after-tax rate of return?

II only.

A customer with liquid net worth of $25,000 tells an agent that she has $1,000 to invest. Explaining how diversification can reduce risk, the agent recommends that the customer purchase eight different over-the-counter stocks, each trading at approximately $1 per share. With regard to the above situation: the recommendation is suitable for the customer because the agent recommends a diversified stock portfolio. high-risk penny stocks are not suitable recommendations for this low net worth customer. the agent may be exhibiting a pattern of excessive commissions (churning) in his customer's account. once the customer agrees to the agent's recommendation, it is no longer considered an unsolicited transaction.

The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close. The customer must accept the order for 300 shares. The representative cannot guarantee that the order will be filled by the end of day.

A day order is entered to buy 500 LMN at 24.35. By the close, the firm has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome?

Corporation. The corporation (always assume C corp unless it says different on the test) offers limited liability to its shareholders, but there is no flow-through of income or loss. LLCs and limited partnerships offer both and the sole proprietorship has unlimited liability.

A feature of which of the following business entities is limited liability but no flow-through of earnings or losses?

II and III. Because this will only affect new clients, the brochure (or Part 2A of the ADV), must be amended to reflect this new method of operation and made available to these clients and to the SEC at the end of the year. The state has no cause to receive a copy of a federal covered adviser's brochure.

A federal covered investment adviser has decided that it is necessary to increase its fee schedule and charge commissions on securities trades. However, they are going to leave the fee structure in place for existing customers. This information must be: disclosed promptly to all customers by amending the brochure. disclosed promptly only to those customers who will be affected by the change through a new brochure. disclosed in the summary of material changes in the annual updating amendment to the SEC. disclosed promptly to the Administrator of the state where the IA maintains its principal office.

I and III. Although exempt from state registration, federal covered investment advisers may be required to do a notice filing and pay fees to the state. Federal covered advisers do not come under the financial or recordkeeping requirements of the state, only the SEC.

A federal covered investment adviser registered with the SEC that has offices in five states must do which of the following? Pay state filing fees if required by the Administrator. Notify the Administrator within one business day if net worth falls below the required minimum. Notice file in any of those states where required by the Administrator. Become licensed as a broker-dealer.

Because we can allow none of the jointly-held property, this client does not have the necessary net worth to qualify for a performance-based compensation program. Under federal (and state) law, in order to qualify for a performance-based compensation program, the client must have either $1 million in assets managed by the adviser or a net worth of $2.1 million. This requirement is described in Rule 205-3 of the Investment Advisers Act of 1940 and the NASAA Model Rule makes reference to the federal rule. If using joint assets, only those with a spouse are allowed. Please note: This differs from meeting the net worth standard as an accredited investor. Under Rule 501 of Regulation D of the Securities Act of 1933, one can use assets owned jointly with persons other than a spouse to qualify as an accredited investor, but only to the extent of his or her percentage ownership of the account or property.

A federal covered investment adviser would like to charge a client a performance fee based on a selected benchmark. The client has $400,000 invested with the adviser, but has a net worth of $2,150,000, of which $350,000 represents an investment account, 50% of which is shared with his cousin.

a substantial part of his business is providing investment supervisory services. The Investment Advisers Act of 1940 prohibits the use of the term "investment counsel", unless the principal business of the person is as an investment adviser and a substantial part of the business is providing investment supervisory services (i.e., continuous advice for individual client portfolios).

A federal covered registered investment adviser who receives compensation for advice and whose business is primarily as an investment adviser may describe its business as investment counsel if:

unlawfully in that investment advisers are required to make written disclosure as well as receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. The rules regarding investment advisers and account trading are much stricter than those for broker-dealers because of the fiduciary responsibility of the adviser. Any action that results in a transaction in which the firm or an affiliate acts in either a principal or agent capacity requires the adviser to provide written disclosure of that fact to the client and obtain approval from the client prior to completion of the transaction.

A registered broker-dealer is under common control with a registered investment adviser. An individual who is an agent of the broker-dealer and an investment adviser representative of the adviser has a client with $250,000 under an asset management program. This individual calls the client and suggests the purchase of 500 shares of RMBM common stock as an appropriate addition to the portfolio. The broker-dealer is a market maker in RMBM, and the sale will be made as a principal, a fact that is disclosed to the client on the trade confirmation. In this situation, the registered person has acted:

II and IV. Broker-dealers who offer advice as an incidental part of their commission business are not required to register as investment advisers. However, if an agent provides investment advice outside the scope of employment at the broker-dealer, he must be registered.

A registered broker-dealer offers investment advice as an incidental part of its commission business. One of its agents charges for investment advice as a freelance investment adviser outside the scope of his employment at the firm. Which of the following statements are TRUE? The broker-dealer must register as an investment adviser. The agent must register as an investment adviser. The agent need not register as an investment adviser. The broker-dealer need not register as an investment adviser.

requires both written disclosure to and the consent of the client prior to the completion of the transaction. Under normal circumstances, when a broker-dealer acts as a principal in a trade, that fact is noted on the confirmation. However, in this case, because it is an investment adviser who is recommending the transaction, both written disclosure by the adviser and consent by the client are required prior to completion of the transaction even when an adviser sells securities through an affiliated firm in a principal transaction.

A registered investment adviser recommends a stock that will be sold to an advisory client in a principal transaction. The broker-dealer that will sell the stock is also registered as an investment adviser and employs the investment adviser as an agent. This transaction:

II and IV. Just cause for denial, suspension, or revocation of an agent's license includes engaging in dishonest or unethical practices in the securities business and willfully violating the securities laws of a foreign jurisdiction. Failure to include convictions for a securities-related misdemeanor (or any felony) constitutes filing an incomplete or misleading application, and that too would be just cause for taking action. Don't confuse this with the 10-year rule. These convictions must always be disclosed; 10 years is the time period during which it is almost a sure thing that the application will be denied. An Administrator may not deny a registration solely on the basis of lack of experience.

A registration of an agent can be denied or revoked if it is in the public interest and: a registrant fails to include the fact that he had been convicted of a nonsecurities-related misdemeanor within the last 2 years. a registrant has willfully violated the securities laws of a foreign jurisdiction. a registrant is qualified on the basis of knowledge and training but lacks requisite experience. a registrant has engaged in dishonest or unethical practices in the securities business.

the name of the individual who transmitted the order. Transmitting an order is a clerical function and we don't put that on the order ticket. A typical ticket will include: the account for which the trade is being made, the registered individual placing the order for the client, time stamps for entering and execution (or cancellation), execution price, and terms and conditions of the order (market, limit, etc.).

A securities trade is made. Under normal circumstances, all of the following would be noted on the order ticket EXCEPT:

The contribution is fully tax deductible. Traditional IRA contributions are fully deductible no matter how much income is earned if the taxpayer is not covered by any other qualified plan. Anyone under the age of 70½ with earned income can contribute to a traditional IRA.

A self-employed attorney has income of $110,000 per year. If he contributes $4,000 to his traditional IRA and has no other retirement plans, which of the following statements is TRUE?

organized as a sole proprietorship

A succession plan under a Business Continuity Plan would likely be most important for an investment adviser

a structured product

A synthetic investment instrument that has been created to meet a specific need that cannot be met by a standardized financial instrument is known as

support level.

A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's:

a court appointed guardian for a minor. Among the list of exempt transactions are sales made by fiduciaries, such as court appointed guardians. Because there is no legal paperwork required, the custodian for a minor under UTMA (or UGMA), is not considered a fiduciary for purposes of this rule.

A transactional exemption would be offered when a sale is made by:

It is permitted if provided for in the underlying documentation.

A wealthy individual has established a trust and wishes to establish an account that permits the trust to engage in margin transactions. Which of the following statements regarding margin trading in trust accounts is TRUE?

must refer the complaint to the manager, who must retain the document on file for the time period specified under current regulations.

If an agent receives a written customer complaint from his stepmother regarding the handling of her account, under the current regulations, the agent:

any record of securities industry violations by the investment adviser. An investment advisory contract is not required to disclose securities industry violations by the investment adviser. These must be disclosed, however, in Form ADV. The investment advisory contract must include the amount of prepaid fee to be returned if the contract is terminated, the fact that assignment of the contract cannot occur without client consent, and the fact that the agreement does or does not contain discretionary authority.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must describe all of the following EXCEPT:

II and IV. Investment advisers must keep client records confidential unless the client provides consent or disclosure is required by law.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, under which of the following circumstances may an investment adviser disclose a client's account performance? Under no circumstances. If the IRS has issued a summons for the client's records. For a promotional campaign on the firm's track record of successful recommendations. If a divorce court has issued a subpoena for the records and the client has given written permission.

A client asks the agent to buy 1,000 shares of a specific high-quality technology stock this week for her nondiscretionary account. The agent places an order promptly for 1,500 shares because the market has begun to take off. By the end of the day, the stock is 5 points higher than the purchase price. The agent exercised unauthorized discretion by changing the client's order for 1,000 shares without having trading authorization or power of attorney. This is a violation of ethical practice. Regarding the other choices, the client authorized in writing, a third party, the husband, to make decisions in her account and the administrator has been properly authorized, by the court, to manage the assets and make decisions. Finally, the agent acted correctly in refusing the order from someone other than the owner. The daughter had neither been legally authorized by the client to act in the account, nor had a court appointed her as guardian. This is a common problem when an account owner becomes incapacitated.

According to NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, in which of the following situations has an agent acted improperly in placing a client's order?

Investment adviser representative. Natural persons are human beings. An adviser representative must be an individual. Although there are broker-dealers and investment advisers organized as a sole proprietorship, almost all are structured under some type of business form. A city is never an individual.

According to the Investment Advisers Act of 1940, which of the following is a always a natural person?

II and IV. An investment adviser required to register with the SEC under the Investment Advisers Act of 1940 must submit its Form ADVs to the SEC. In some cases, the Form ADV will also be filed with the state Administrator, but that is state law, not a federal requirement. A balance sheet must be submitted with Part 2 if the adviser receives "substantial" prepayments of fees. Part 2 may be used as an investment adviser's disclosure brochure to clients.

According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are TRUE? It must be filed with the state Administrator. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, six or more months in advance. Certain minimum business and education qualifications must be met before an investment adviser can file. It may be used to satisfy the brochure requirements of the act.

Neither I nor II. A critical point to remember about investment advisers is that, if required to register, they register with either the state or the SEC, never with both. This is unlike broker-dealers who invariably register with both the SEC and the state(s) in which they do business.

According to the Investment Advisers Act of 1940, which of the following statements regarding registration of investment advisers is TRUE? State registration is a requirement for federal registration. An investment adviser must be registered with the SEC to be registered at the state level.

Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent.

According to the USA, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent?

I and III. A broker-dealer, an agent, an investment adviser representative, or a state registered investment adviser must file a consent to service of process with the Administrator upon filing a registration application. The consent to service of process gives the Administrator the right to process legal complaints against the applicant. In some states, a federal covered adviser may also be required to furnish a consent to service of process.

According to the Uniform Securities Act, a consent to service of process must accompany which of the following? Agent's registration application. Civil complaint against a broker-dealer. Broker-dealer's initial registration application. A cease and desist order.

II and III. Passing the Series 7 licensing exam qualifies an individual to solicit securities but not to receive asset-based compensation. Once the Series 66 has been passed, the state Administrator must actually issue a registration, and the individual must be associated with an investment adviser before engaging in asset-based compensation in a particular state.

According to the Uniform Securities Act, after an agent passes the Series 66 exam and the Series 7 exam, asset-based compensation is permitted: immediately. after notification of investment adviser representative status by the appropriate supervisory person of the firm. when registration has been granted by the state Administrator. when permission is received from the SEC.

know the terms and conditions of the customer's will

According to the Uniform Securities Act, all of the following are violations of suitability requirements EXCEPT failing to

II and III. An investment adviser representative means any partner, officer, director, or other individual, except clerical or administrative personnel, who is employed by an investment adviser that is registered or required to be registered. Therefore, unregistered personnel are not investment adviser representatives. An employee who supervises analysts who deal with the public must be an investment adviser representative. The employee of the federal covered adviser with an office in the state is also an investment adviser representative. The agent is an agent of a broker-dealer, not an investment adviser representative.

According to the Uniform Securities Act, which of the following is an investment adviser representative? A clerical employee of the AAA Investment Management Company, an investment advisory firm registered in the state, that offers investment portfolio services to the public. An employee of AAA Investment Management Company who is properly registered under the USA and supervises analysts who provide research to clients. An employee of a federal covered adviser with an office in the state who offers investment advice to the public. An agent of a broker-dealer with strong investment opinions who sells securities only on a commission basis

I and II.

Adell, a retiring social worker, has some money to invest. An agent suggests she look into investing in a private placement security that is raising money to build apartment buildings in Puerto Rico. According to the Uniform Securities Act: building projects are not appropriate for retirees who typically need immediate income. private placements are not usually appropriate for retiring individuals because they are not liquid. no rule has been violated because the customer has only been offered the product. if the customer lives in Puerto Rico, the proposed investment may be suitable because there may be a ready market.

Allocate the shares using the average price of all the shares combined.

Al is an investment adviser representative for a federal covered investment adviser. Al has discretionary authority over most of his accounts and determines that shares of the RAN Corporation are a suitable investment for seven of them. He enters a buy order for 1,000 shares of the RAN and receives three trade confirmations, all at slightly different prices. When allocating these shares to his clients, how should Al determine the price per share?.

variable annuities issued by a major insurance company. Fixed annuities are not securities so there is no registration required. Of the other choices listed, only variable annuities are required to be registered.

All of the following are exempt from state registration EXCEPT:

variable annuities or other variable insurance products offered by an insurance company.

All of the following are exempt from state registration under the Uniform Securities Act EXCEPT:

certified financial planner selling NYSE-listed securities to numerous high net worth individual clients. A certified financial planner selling NYSE-listed securities to numerous individual clients, regardless of their net worth, might be engaged in a nonexempt transaction, not an exempt transaction. This would not be true if the financial planner's clients were all financial institutions rather than individuals. Transactions by an administrator and an executor are exempt transactions, as are unsolicited nonissuer transactions. When securities that have been pledged as collateral for a loan, if that loan goes into default, the liquidation of that collateral is an exempt transaction.

All of the following are exempt transactions EXCEPT a(n):

initial sale of shares to in-state residents of a local manufacturing company. An initial sale of shares to in-state residents is an intrastate initial public offering and must be registered with the state securities Administrator. A securities transaction by an executor, a sale of common stock by an administrator of an estate, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator, or a rescission offer, sale, and purchase are exempt transactions.

All of the following are exempt transactions under the USA EXCEPT:

they are secured obligations of the issuing bank. Negotiable CDs are general obligations of the issuing bank; they are not secured by any specific asset.

All of the following are true of negotiable, jumbo certificates of deposit EXCEPT:

the total amount of the security that will be offered in other states. The total amount of the security to be offered in other states need not be specified although identifying those states is required. The amount of the security to be offered in the state of registration is required, as it generally provides the basis on which the registration fee is calculated. A stop order from another state that affects the offering of the security within the state must be included. The registration statement will always describe the intended use of the proceeds.

All of the following must be specified in a security's state registration statement EXCEPT:

state securities Administrators. State securities Administrators are not registered with the SEC, but the SEC requires securities issuers, transfer agents, securities information processors, as well as major stock exchanges, and the Nasdaq Stock Market to be registered.

All of the following must register with the Securities Exchange Commission EXCEPT:

register with the state as an investment adviser representative. An agent of a broker-dealer must register with the state as an investment adviser representative to offer a wrap fee program to clients.

An individual is registered as an agent with a broker-dealer offering wrap fee advisory programs. To participate in offering the wrap fee program to clients, the agent must:

III and IV. Offering rescission and explaining that past performance is not necessarily a predictor of the future are permissible actions under the USA.

All of the following practices are prohibited by the Uniform Securities Act EXCEPT: borrowing money from a customer without the customer's written permission. failing to determine the suitability of an investment for a customer. offering rescission. telling a customer that past history of an investment is not indicative of future results.

debt/equity ratio.

All of the following ratios are measures of the liquidity of a corporation EXCEPT:

they generally have relatively low minimum initial investments. Hedge funds generally require high minimum investments ranging from $250,000 to $1 million. They are organized as either domestic partnerships or offshore investment corporations and employ highly speculative investment strategies to maximize returns. Hedge funds have become very global and typically feature diverse international investments like swaps, currencies, commodities, warrants, and other derivatives.

All of the following statements are features of hedge funds EXCEPT:

an adviser reporting that it has less than $90 million in assets under management must withdraw from SEC registration within 90 days after the end of its fiscal year by filing Form ADV-W. If an SEC registered adviser reports on its annual updating amendment that it no longer has sufficient assets under management to qualify for SEC registration, it must withdraw within 180 days after the end of its fiscal year by filing Form ADV-W. When a state registered adviser reports assets under management of at least $110 million on its annual updating amendment, it must register with the SEC within 90 days after the filing date of that amendment. No regulator provides reminders as to the required annual filing, which must occur no later than 90 days following the adviser's fiscal year. Unless the adviser has qualified for a hardship exemption, the annual update is filed electronically.

All of the following statements regarding annual updating amendments to Form ADV are correct EXCEPT:

the contract's term may not exceed 1 year. The contract must set forth the term of the contract, which need not be for only 1 year. Any renewals or extensions of the contract at the end of the term must be in writing. The contract must describe any refunds upon termination and may not permit assignment without the client's consent.

All of the following statements regarding investment advisory contracts under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers are true EXCEPT:

individuals covered under qualified plans by their employers are not eligible to open a Roth IRA.

All of the following statements regarding the Roth IRA are correct EXCEPT:

company.

Alpha Electronics Company wishes to raise capital by issuing some securities in its home state. They have been advised by their legal counsel that registration with the Administrator is unnecessary because the issue is exempt. Should Alpha be served with an order, the burden of proving its issue is exempt is on the:

an options account Because trading options (puts and calls) generally involves a higher degree of risk than stocks, bonds, or mutual funds, a designated supervisory person with knowledge about options must approve the account opening.

Although all new accounts must be approved by a designated supervisory before any trading activity may take place, there is one type of account that must be approved by a specially qualified supervisor. That would be

the identity of the specific securities to be chosen for the portfolio. Although not required by law, most qualified plans have an IPS. One thing not found in that statement is a listing of specific securities to be selected. The method for determining how they are selected will be there, but not the specific securities.

Although not required by DOL regulations, if a plan administrator prepared a written investment policy statement meeting ERISA requirements, you would expect to find all of the following EXCEPT:

the information in the summary plan document specified by the Department of Labor. Under the rules of the Department of Labor (DOL),one of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered retirement plan, is a summary of the plan, called the summary plan description or SPD. The plan administrator is legally obligated to provide to participants, free of charge, the SPD. The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when and in what form benefits are paid, and how to file a claim for benefits. However, it has nothing to do with the investment policies that will be followed by the plan's advisers.

Although there is no specific rule requiring it, most qualified plans have an investment policy statement. For those plans that do have an IPS, it would include all of the following information EXCEPT:

employees who leave the company prior to retirement would not receive benefits Deferred compensation plans are usually structured so that if the employee leaves prior to retirement or is terminated with cause, benefits are forfeited. These plans are discriminatory and there is no current tax saving, hence the term "deferred". As nonqualified plans, they do not have to comply with ERISA.

Among the reasons why a corporation might choose to utilize a deferred compensation plan for retirement planning would be

I and III An Administrator may deny the registration of a security when the activity to be conducted in the state is illegal. The underwriter's compensation may not be unreasonable. There is no requirement that dividends be paid in order to register a security.

An Administrator could use which of the following as a reason for issuing an order denying the registration of a security? The issuer's enterprise or method of business includes or would include activities which, although legal in the state of incorporation, are illegal in the Administrator's state. The company has not been paying dividends. The offering would be made with unreasonable amounts of underwriters' and sellers' discounts.

I, III and IV. The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.

An Administrator has specific authority under the USA to: suspend the registration of a security if the suspension is in the public interest and the offering has excessive commissions. issue emergency injunctions to prevent a violation of the act. enforce subpoenas in the state at request of an Administrator of another state for alleged violations that occurred in another state. require that the proceeds from an offering be held in escrow until issuer receives a certain percentage of the sale of the securities offered.

I, II and III. Prior to the entry of a final order, the Administrator must provide appropriate prior notice to the registrant, provide the opportunity for a hearing, and present findings of fact and conclusions of law. A registrant is not required to provide written acknowledgement before an order is issued.

An Administrator may summarily suspend a registration pending final determination of proceedings under the USA. However, the Administrator may NOT enter an order without: appropriate prior notice to the registrant. an opportunity for a hearing. findings of fact and conclusions of law. prior written acknowledgment of the registrant.

I and II. An Administrator may take disciplinary action against a broker-dealer or its agents when the Administrator determines that the action is in the public interest and suspects that the action violated a rule, order, or the Uniform Securities Act. An Administrator may act upon suspicion that a violation of a rule, order, or provision of the Uniform Securities Act is about to occur. Administrators cannot issue injunctions; they must seek injunctions from a court of competent jurisdiction. Administrators need not conduct public hearings before issuing a cease and desist order.

An Administrator may take disciplinary action against a broker-dealer or its agents when the Administrator: determines that the action is in the public interest. suspects that the registrant's action violated a rule, order, or the USA. issues an injunction which carries the force of law. provides for a public hearing which must precede issuing a cease and desist order.

Only the surety bond as required by Administrator of Nebraska. When an investment adviser maintains custody of client assets, a surety bond is generally required. The Uniform Securities Act states that an investment adviser need only meet the bonding requirements of its home state, even if it does business in states with higher bonding requirements.

An IA who maintains custody of client assets, has its home office in Nebraska and is registered and currently doing business in Illinois, Ohio, and Mississippi. In addition, the IA has 6 insurance company clients in Florida, 12 broker-dealer clients in Georgia, and 7 private clients in Tennessee. These 7 clients are relatives of the president of the IA. What surety bond must be maintained for the IA?

has authority to withdraw funds from a client's account for the benefit of the adviser for the payment of the quarterly advisory fees. Custody is the physical possession of the asset. Discretion is the authority to make decisions independent of the authorization of the account holder on a trade-by-trade basis. Authorization is in a blanket form in the existence of either a limited trading authority or full trading authority. Acceptance of prepayment of adviser's fees or discretionary authority does not constitute custody. The ability to withdraw funds for the purpose of paying quarterly advisory fees from a customer's accounts is deemed to be custody of the funds. A broker-dealer holding a customer's funds and securities would have custody, but the adviser who has trading authority over the account would only have discretion. If the funds and securities of the client are held with the funds and securities of the adviser in a joint account, the adviser would be involved in commingling (or theft), not custody.

An adviser has custody of a client's securities or funds if the adviser:

refrain from making this statement because it is a misrepresentation.

An agent at a broker-dealer firm is excited about new earnings projections he received from TechEd, which sells at a market value of $10, has paid a $1 dividend this past year, and its earnings projections for the next year amount to an increase of 30%. The agent calls his clients to solicit purchases of TechEd stock and says if they buy now at $10 per share they will realize a profit of 30%. The agent should:

II and IV. Under prevailing securities law, time and/or price does not constitute discretion. Decisions involving the quantity and security require written trading authorization from the client.

An agent for a broker-dealer member of FINRA may exercise his judgment as to which of the following without written authorization from the customer? Quantity. Time. Security. Price.

Form ADV Part 2.

In lieu of a separately prepared brochure, an investment adviser is permitted to deliver potential clients a copy of its:

prohibited as it is equivalent to giving fictitious quotations.

An agent has a client who is relatively new to investing in securities having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended and its market price has recently fallen by over 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upwards with the market. Under the NASAA Statement of Policy of Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this action is:

prohibited as it is equivalent to giving fictitious quotations.

An agent has a client who is relatively new to investing in securities having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended, and its market price has recently fallen by over 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upwards with the market. Under the NASAA Statement of Policy of Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this action is:

try to make contact with the customer and, failing that, inform his principal so that further action may commence If a margin account falls below the minimum maintenance amount required and the customer cannot be reached, the agent should inform his principal, who then determines which and how many securities must be sold to maintain the margin requirement as set by the appropriate regulatory agency. An agent may not contribute to a client's account or arrange a loan on behalf of a client. Without written discretionary authority, an agent may not sell securities in a client's account.

An agent has a good customer with a margin account who informs the agent that he is taking a business trip for a month and to handle the account. While the customer is gone, if the stock market goes down and the customer receives a margin maintenance call for $1,200, the agent should

accept unsolicited orders only Those who tergiversate repeatedly change their attitude or opinions. As a consequence, the client who likes an agent's recommendation one day may quickly change his mind the next. Therefore, the agent could be placed in an untenable position, being unable to satisfy the client. To avoid this possibility, it would be most sensible to leave all the decisions to the client and only accept unsolicited orders.

An agent has a new client who is prone to tergiversation. As such, it would probably make sense to

I and III. Offers directed to persons in other states by mail are considered to have been made in the other states if received where originally addressed. For clients receiving the offer in New York, an offer to sell has been made there because the mail was received where directed. When mail is forwarded to another state, an offer to sell is not considered to have been made in the state to which the mail was forwarded.

An agent in New Hampshire mails an offer to sell securities to clients in New York. Under the Uniform Securities Act, which of the following is (are) TRUE? An offer to sell has been made in New York if a client receives it in New York. An offer to sell has been made in Virginia if a client receives forwarded mail in Virginia. The agent is subject to the statutes of both New Hampshire and New York.

a performance guarantee and is a prohibited action A performance guarantee, such as agreeing to buy a stock back at a profit (or even at cost) is a prohibited action regardless of the financial standing of the client

An agent is so confident that the shares of KAPCO Industries are underpriced that he tells his clients that he will repurchase any shares at their original cost plus 5% if the stock hasn't outperformed the market over the next 6 months. This is considered

conduct business with the client as usual. Even though the college program is referred to as a resident program, that does not mean that the client has changed his state of residence. Although neither the firm nor the agent is registered in Pennsylvania, the agent may continue to conduct business with the client. This is because both the agent and his firm are properly registered in the client's state of permanent residence.

An agent lives in Montana and is registered in Montana and Idaho. His broker-dealer is registered in every state west of the Mississippi River. The agent's client, who lives in Montana, decides to enroll in a 1-year resident MBA program in Philadelphia, Pennsylvania. During the 1-year period, when the client is in Philadelphia, the agent may:

written discretion authority has been received by the broker-dealer before executing the first discretionary transaction No broker-dealer or any of its employees shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer. It is an investment adviser who may act with oral consent for a period of 10 days from the initial discretionary trade.

An agent may determine which securities to purchase or sell for a client when

violates securities industry rules prohibiting unauthorized transactions. In the absence of written discretionary authority, purchasing securities for a customer without specific instructions is a prohibited practice.

An agent meets with a semiretired, 75-year-old customer with $100,000 to invest for income. The agent recommends an XYZ Corporation bond with a AAA rating and discusses the various features and benefits with the client. Interest rates have been declining and are expected to continue downward. While the customer is away, the agent decides it will be in his customer's best interest to lock in the current rates and buys 100 bonds for the client. This action:

I and IV.In the case of an agent who mistakenly sells an unregistered, nonexempt security, the broker-dealer should offer to buy back the security from the customer and pay the customer interest on the amount invested in the security for the period from the original purchase to the resale back to the firm, minus any income or profit realized by the client on the security. This is known as the right of rescission.

An agent mistakenly sold an unregistered, nonexempt security to a customer. Which of the following actions should the broker-dealer take?Offer to buy the security back from the customer.Ask the customer to sign a customer agreement.Register the stock by notification.Offer to pay interest at an annual rate determined by the Administrator, less income paid, from the date the security was purchased.

notify the Administrator in Illinois of his termination. When an agent begins or terminates a connection with a broker-dealer, the agent as well as the broker-dealer must promptly notify the Administrator. The agent has no responsibility to insure that the previous employer has notified the Administrator.

An agent of a broker-dealer registered in Illinois terminates his employment to accept a new position with broker-dealer who is also registered in Illinois. If his previous employer fails to notify the state Administrator of the termination, the agent must:

Notify the principal of the broker-dealer about the information. An agent must notify the principal of the firm with the information and respond to the customer per the firm's instructions.

An agent received negative confidential material information of a nonpublic nature about XYZ, an issuer whose stock trades publicly. A customer calls his agent to inquire about the advisability of purchasing XYZ. What action should the agent take?

both the agent and the firm are properly registered in the other state. An agent holding registration in one state may solicit and/or transact business in another state only if registered in that state and the employing broker-dealer is also registered in that state, unless an exemption is available.

An agent registered in one state may solicit business in another state provided:

unlawfully, because the term "absolute safety" implies that the customer cannot lose money. Implying or stating to customers that they cannot lose money when investing in a marketable security is prohibited. Although Treasury securities carry no default risk, the customer faces potential interest rate risk, particularly in light of the bonds' 15- year maturity.

An agent sells her customer $10,000 of 15-year U.S. Treasury bonds. If the agent tells the customer this is the best investment due to the absolute safety of Treasury securities, the agent has acted:

II and IV.

An agent would be engaged in a prohibited practice if he: shared commissions with other agents of his broker-dealer. sold a nonexempt, unregistered security to a CPA who specialized in auditing financial institutions. shared both the gains and losses in a client's account with written approval of both the client and the employing broker-dealer. aggressively traded a discretionary account on a daily basis with long-term growth as an objective.

advance/decline line. The advance/decline line, which measures the number of stocks that have advanced versus the number of stocks that have declined, is an indicator of the breadth of the market's advance or decline.

An analyst interested in measuring the breadth of market movement as an indicator of future market direction would monitor the:

treat the crime as a nonfinancial misdemeanor.

An applicant for registration as an IAR in this state was convicted four years ago of a nonfinancially related crime in another state. Under that state's laws, the crime was a misdemeanor, but under this state's laws, it is a felony. When viewing this IAR's application, the Administrator will:

may deny applications only on the basis of the limitations of the law. A denial of registration must be based on the concept of law. There are stated reasons, such as felony convictions, outstanding injunctions, and insolvency. Although it is required to disclose methods of analysis used, the Administrator is not empowered to pass judgment on them.

An applicant for registration as an investment adviser discloses on Form ADV that it plans to use palm readers to help determine investments most suitable for its clients. Under the Uniform Securities Act, the Administrator:

ASI's application in State A would proceed as normal The filing of a lawsuit would have no immediate effect on a broker-dealer's application for registration. After all, one is innocent until proven guilty. Even a guilty verdict might not lead to any action, because we don't know whether the lawsuit is connected to the brokerage activities.

An application has been filed with the Administrator of State A for registration as a broker-dealer by Assured Success Investments (ASI), a broker-dealer registered in States B, C, and D. While the application is pending, a lawsuit against ASI is filed in civil court in State B. The effect of this would be

dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks. A specialist is a dealer on the NYSE who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks. A specialist must have sufficient capital to buy and sell from his own account in order to maintain a liquid and orderly market.

An exchange specialist is a(n):

I and IV Under the USA, those individuals who solicit on behalf of an IA must register as IARs. If there was an indication in the question that the individual would be receiving compensation from the sale or purchase of securities, then registration as an agent would also be required

An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the USA, this individual must obtain registration as an investment adviser representative must obtain registration as an agent of the broker-dealer is not required to obtain any registration because he is only making cold calls must be adequately supervised

Registration as an IAR is required because the individual is rendering investment advice. Regardless of who the advice is given to, unless there is some kind of exemption involved, individuals working for IAs (state or federal), must register as IARs. It makes no difference if the plan is qualified or not.

An individual is employed by a federal covered investment adviser for the sole purpose of giving advice related to monitoring investment portfolios, but only to qualified employee benefit plans.

10,000 shares

In order to be considered a block trade, an order for common stock must be for at least

unless the Administrator, by rule or order, authorizes such employment. An individual may only act as an agent for multiple broker-dealers that are affiliated with each other. If the broker-dealers are unrelated, an agent may not work for them unless the state securities Administrator, by rule or order, authorizes such employment.

An individual may NOT act as an agent for more than one broker-dealer:

as an individual TOD account TOD, the term used for transfer on death, will allow this client to fulfill her wishes.

An individual opens an account with your firm. She tells you that upon her death, she wants any assets in the account to be divided equally among her three children. She also wants the ability to change the allocation in the event that conditions change and one of the children is in greater need than the others, but she does not want to incur any significant legal expense. You would suggest that the account be opened

No tax is due. One of the nice things about life insurance proceeds is that even when the death benefit is increased due to separate account performance, it is still free of income tax.

An individual purchased a variable life insurance policy 10 years ago with a guaranteed death benefit of $100,000. The annual premium for this policy was $2,000 per year. The individual dies and, due to outstanding performance of the separate account, leaves a death benefit to the beneficiary of $121,000. What are the income tax consequences to that beneficiary?

when informed by the investment adviser that the representative's registration is effective. Passing the exams does not automatically give one an effective investment adviser representative's license. Notice is received by the investment adviser from the appropriate state and/or federal authorities and then, in accordance with that firm's procedures, advisory activity may start. The Administrator does not have direct contact with the individual.

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients:

prohibited under the act. The Investment Advisers Act of 1940 Act prohibits waiving or refunding a client's advisory fee if the account does not meet expectations.

An investment adviser has a new client with $100,000 under management who was referred to the firm based on its reputation for regularly outperforming the S&P 500. Because of adverse market conditions, current portfolio performance does not meet the expectations of the client, who would like to discontinue the relationship with the firm. In response, the adviser offers to waive his normal fee of 1% of the managed assets. According to the Investment Advisers Act of 1940, this is:

a statement as to the limitations of and difficulties involved in using this system. Anytime an adviser wishes to promote any type of charting or graphing system, disclosure must include the system's limitations and a statement relating to the difficulties in its use.

An investment adviser has devised a charting system and wishes to advertise this fact in order to obtain additional clients. To do so, the USA would require:

the firm does not have to register because they have no place of business in the state and their only clients are registered financial institutions. Section 201 of the Uniform Securities Act specifies the conditions under which one is an investment adviser in the state. Specifically excluded are those IAs with no place of business in the state who confine their advisory activities in the state to other investment advisers, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than one million dollars ($1,000,000), and governmental agencies or instrumentalities. If, however, in addition to the two banks, the firm did advisory business with more than 5 retail clients who were residents of Colorado, then, even with no place of business in the state, they would have to register.

An investment adviser has its home office in Wisconsin. Their only business is with trust companies, large employee benefit plans, and insurance companies. They have no place of business in Colorado, but provide investment advice to two Denver banks, both chartered under Colorado banking laws. There is a new Administrator in Colorado and it is his opinion that this IA should be required to register in his state. A careful reading of Section 201 of the Uniform Securities Act would indicate that:

the money paid for the advice, any losses resulting from the advice plus interest, costs, and attorney's fees, less any revenue gained from the advice. Securities professionals may be sued by their clients under civil law if they lose money and the securities professional has violated the Uniform Securities Act in connection with the loss. In the case of an investment adviser, (or IAR), the client is entitled to recover the consideration (money) paid for such advice and any loss due to such advice, together with interest at the state's legal rate from the date of payment of the consideration plus costs and reasonable attorney's fees, less the amount of any income received from such advice.

An investment adviser is sued by a client. If the client is successful in the civil proceeding, under the Uniform Securities Act, the client may be awarded:

I and IV.

An investment adviser maintains custody of customer's funds and securities. In order to comply with the Uniform Securities Act, the adviser must, at least quarterly, send written notice to each custodial client stating the: location of the assets under custody. changes to the location of the assets under custody. amount of prepaid fee to be refunded upon early termination of the contract. value of the assets under custody.

there is a rule in the state barring such custody. If there is a rule barring custody, under no circumstances may the adviser have custody of customer funds or securities. It is the adviser who must notify the customer that custody is being maintained, not the reverse.

An investment adviser may not have custody of a customer's funds and securities under the Uniform Securities Act if:

Decline the client, recognizing that you can not effectively determine suitability in the absence of financial information. An investment adviser cannot perform effectively for a client who refuses to provide information necessary for determining the suitability of investments or a portfolio. Unlike the broker-dealer, who may act merely as order filler, the investment adviser has a fiduciary responsibility is obligated to determine suitability.

An investment adviser new to the business is engaged by an elderly client who, on the grounds of privacy, refuses to disclose his annual income or net worth. The client merely asks the adviser to establish and manage a $50,000 portfolio. If the client brings a cashier's check for $50,000 to the initial meeting, which choice below reflects the best action on the part of the adviser?

persons connected with the investment adviser. Every investment adviser registered or required to be registered under the act must make and keep true, accurate, and current a file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including by electronic media, that the investment adviser circulates or distributes, directly or indirectly, to 2 or more persons (other than persons connected with the investment adviser).

An investment adviser registered in 3 states allows its IARs to attach research reports, bulletins, and other information to emails sent to customers. File copies would not be required when these bulletins are sent to:

II and IV. An investment adviser must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the adviser, as well as full disclosure if a recommendation is not consistent with the adviser's own activity in his own account. The adviser can use any source of information to create his own analysis, disclosure of source only being required if the adviser uses the product of a third party as the presentation to the client. It would be unusual that all clients with the same objectives would purchase or have recommended for purchase the same securities.

An investment adviser representative is required to make disclosure to the client when: the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale. transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client. transactions recommended to the client are inconsistent with those for the IAR's own account.

Attempt to educate the client as to what this portfolio is trying to accomplish for the client while at the same time recognizing that the final decision is clearly in the hands of the client. Even when the IAR is convinced that the optimal recommendations have been made, the final decision is always that of the client. However, there is nothing in the laws or policies dealing with ethical conduct that prohibit the IAR from attempting to "sell" the client, especially through an educational approach.

An investment adviser representative prepares a detailed portfolio restructuring for a new client. The client is not impressed with the recommendation and, at least to the IAR, it appears that the rejection is more due to a lack of understanding than a valid dislike. What should be the first step taken by the IAR?

need not disclose that fact to the clients. It is not necessary to disclose what sources an IAR uses as the basis for recommendations. If the third-party research is distributed to clients, proper attribution is required.

An investment adviser representative who makes extensive use of third party research to formulate portfolio recommendations to clients:

an improper hedge clause.

An investment adviser runs an advertisement in the business section of the local newspaper. The advertisement describes the nature of the firm's model portfolio and indicates that it has outperformed the overall market by 800% over the past ten years, and therefore they guarantee that their clients will more than keep pace with inflation. At the bottom of the advertisement, in smaller print, is the following statement: "Results are not guaranteed. Past performance is not indicative of future results. These results are not normal and cannot be expected to be repeated." This is an example of:

I, II and III. As a condition of the right to continue business, the adviser must notify the Administrator by close of business after the day of discovery. No later than close of business the day after notification, the adviser must file a report of its financial condition, which must include statements regarding the number of client accounts.

An investment adviser who has custody of customer funds and securities discovers that her net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must: notify the Administrator by close of business after the day of discovery. file a report of its financial condition no later than close of business the day after notification. include in the report of financial condition a statement as to the number of client accounts. cease doing business.

II and III. Third-party solicitors are not required to be registered as IARs and therefore may not receive sales-related compensation. However, they must not be subject to statutory disqualification that would prevent them from becoming registered. Disclosure is necessary whether or not it is requested.

An investment adviser wishes to engage the services of a third party to solicit new clients for the firm. To be in compliance with the Investment Advisers Act of 1940: the solicitor must be registered as an IAR. compensation may not be sales related. the solicitor must not be subject to statutory disqualification. disclosure of the solicitation arrangement must be made to clients upon request.

If an advisory firm is formed as a partnership and there is a change in the majority of partners, this is considered to be an involuntary assignment to the new partnership. In this case, client approval is required.

An investment advisory contract is considered assigned if an adviser formed as a:

14.40%. This investment has quadrupled in 10 years. Using the Rule of 72, we know how to compute the rate of return when an investment doubles. This one has doubled every 5 years. Dividing 72 by 5 years gives us an approximate rate of 14.4%.

An investment of $1,000 made ten years ago is now worth $4,000. Using the Rule of 72, the approximate compounded annual rate of return is:

I, II and III. An investment policy statement prepared for clients delineates the allocation percentages for each asset class and the expected returns from each class, and outlines strategies that may be used for timing the market and choosing specific investments within each class, but fees the adviser may earn are not included in the policy statement; they are disclosed separately.

An investment policy statement would likely include: expected returns of the recommended strategy and the expected range of these returns. recommended allocations among differing asset classes. strategies used for selecting specific stocks in the equity portion of the portfolio. disclosure of the fees that the adviser will earn for implementing the recommended strategy.

domicile of the investor. Domicile, or geographic location of the investor, is not relevant in diversifying a corporate bond portfolio. For example, it is irrelevant if the client is located in Michigan or New Jersey or any other state; that will have no impact upon the risks facing the issue. This could be a factor for municipal bond investors due to the possibility of avoiding state income tax. A corporate bond portfolio can be diversified by issuer, quality (rating), domicile of the issuer and maturity.

An investor diversifying a corporate bond portfolio does NOT consider:

both the buyer and seller are obligated to perform Among the ways in which futures differ from options is that both parties, long and short, are obligated to execute the contract. At expiration date, if not exercised before, the buyer must purchase at the contract price and the seller must deliver at the contract price. In the case of options, the buyer (long position) is the one who chooses to exercise or not, and it is the seller (short position) who becomes obligated to perform.

An investor goes short 5 soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires,

60.06 This is really two orders. The first is to "stop" at 60. That is, once the stock trades at 60 or lower, enter my order. That second order is a sell, but with a limit of 60. So, the first time the stock hits 60 (or less), is the trade at 60. That triggers the sell limit. The next trade is a 59.95. Since the limit order is saying, "Get me 60 or higher, the 59.95 is not an acceptable price." But, the next trade, 60.06 will meet the client's goal of receiving no less than 60.

An investor has her agent enter a sell stop order at 60, limit 60. Following the order entry, trades occur at 62.12, 60, 59.95, 60.06, 61. More than likely, the investor received:

Class C shares of the ABC Investment-Grade Bond Fund The customer wants income with as little risk as possible, so our answer must be one of the choices that offer an investment-grade bond fund. Of those offered, Class C shares would be best because the customer would pay no front-end sales charge and no CDSC after a short time, probably 1 year. He will pay somewhat higher 12b-1 fees than with Class A shares, but this will amount to only a fraction of 1% per year, and only for the 3 years of his investment.

An investor has unexpectedly received $30,000 from an old debt he had written off. This money will come in handy for a business venture planned for 3 years from now. Meanwhile, he would like to generate some income on the money with as little risk and expense as possible. Which of the following recommendations is likely to be the most suitable for this customer?

75% .Total return includes capital appreciation plus income. The capital gain realized was $32 per share. The income was $1.00 per share (four quarterly dividends of $.25) the first year, 5% higher the second year ($1.05) and 5% higher each successive year. The total of the dividends received is $5.53. Adding that to the $32, we compute by dividing $37.53 by $50 resulting in a 75% total return.

An investor purchases 100 shares of Kapco stock at $50 per share. At the time of the purchase, the stock is paying a quarterly dividend of $.25. The dividend increases 5% each year over the next 5 years. The purchaser sells the 100 shares 5 years after purchase for $82 per share. What is the total return for the investor over the 5 years holding period?

II and III.

An investor purchases zero-coupon bonds issued by the U.S. Treasury due to mature in 18 years at $100,000. Which of the following might describe the primary reason for selecting that investment vehicle? The investor is 65 years old and needs the reliability of current income. The investor is 45 years old and has purchased these in an IRA rollover account and wants the assurance of funds for retirement. The investor is 30 years old and has a newborn child and wishes to assure funds for a college education. The investor is 20 years old, has just received an inheritance, and wishes to shelter income for as long as possible.

U.S. treasury bonds. When the economy is headed downward, safety is the imperative and nothing is as safe as US Treasuries. Gold, and most other commodities, are a hedge against inflation, not deflation. In "down" times, real estate, both residential and commercial, usually underperforms.

An investor regularly reads financial blogs on the Internet and they are filled with articles suggesting that the economy is headed for a slump. Some are even saying that there will be price deflation. If these projections are accurate, the best place for the investor to place funds would probably be:

no later than 15 days after the first sale. Issuers wishing to avail themselves of the private placement exemption offered under Regulation D of the Securities Act of 1933 must file a Form D with the SEC no later than 15 days after the first sale.

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC:

he has donated funds to a nonprofit medical research institute that owns securities that the investment adviser representative has recommended. The investment adviser representative need not disclose that he donated funds to a nonprofit research institute. No conflict of interest is present that requires an affirmative duty to disclose. The fact that the institute owns securities consistent with the IAR's recommendations is not relevant to his relationship with his client. The IAR has an affirmative duty to disclose all material facts in all the other choices.

As a fiduciary, the investment adviser representative owes his clients an affirmative duty of utmost good faith, and full and fair disclosure of all material facts. This affirmative duty of disclosure is required by the IAR in all of the following situations EXCEPT:

a prohibited guarantee against loss Offering to buy back a stock at its original cost, even without paying interest, it a prohibited guarantee against loss. Rescission is only when there was something improper about the sale. Technically, this offer is not a case of fraud and, in any event, we must always select the answer that best addresses the question—in this case, a guaranteed price.

As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be

a loan with a stated interest rate payable upon demand A loan is not a sale of a security for value and is explicitly excluded from the definition of "offer" or "offer to sell." Although a stock dividend is normally excluded from the terms "offer" and "sale," when additional payment is required, we now have an offer that must be accepted before there is a sale. An offer of a convertible bond or warrant is an offer of both the bond or warrant and the underlying stock. It is only a sale when the offer is accepted. The USA defines a purported gift of assessable stock as both an offer and a sale.

As defined in the Uniform Securities Act, the term "offer" or "offer to sell" includes all of the following EXCEPT

an investor using a cash dividend to automatically purchase additional shares of the issuer. Sale or sell includes every contract to sell or dispose of a security for value. When the cash from a dividend is used to purchase additional shares, value is being exchanged. This is unlike the pledge of stock, where ownership does not change hands, or the receipt of a stock dividend, where no consideration is exchanged.

As defined in the Uniform Securities Act, the term sale or sell would include:

Annuity providing a fixed monthly payout Variable annuities are securities while fixed annuities are not. Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA.

As defined in the Uniform Securities Act, which of the following is NOT a security?

I, II and IV Although securities issued by the Canadian government or any political subdivision are exempt, those issued by Canadian corporations would generally only be exempt if trading on U.S. exchanges as federal covered securities.

As enumerated in the USA, exempt securities would include those issued by a sovereign foreign government with which the US maintains diplomatic relations any credit union organized and supervised under the laws of this state a corporation based in Toronto, Ontario whose common stock trades on the Toronto Stock Exchange a promissory note, draft, bill of exchange, or bankers' acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization

rise.

As interest rates fall, prices of straight preferred stock will:

investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts

As used in the regulations, the term impersonal investment advice means

send a copy of its brochure to all clients within 120 days of the end of its fiscal year Whether a state or federal covered investment advisers, a copy of the IA's brochure, assuming there have been material changes, must be sent to all clients no later than 120 days after the close of the IA's fiscal year.

Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must

Current assets divided by current liabilities.

Liquidity ratios measure the solvency of a firm or the firm's ability to meet short-term financial obligations. Which of the following is a liquidity ratio?

Chuck may not discuss this security because his report has not yet become available for public distribution. Because the information in Chuck's research report will not be available for public distribution until after approval by the compliance department, he may not discuss the security to clients or prospects until the report is cleared.

Chuck is a registered investment adviser and a highly respected investment analyst. He has prepared a research report that is highly bullish on Monolith Industries, Inc., common stock. The report has not been released because it is still under review by the compliance department of Chuck's firm. Chuck has been asked to participate in a radio interview show in which he will be asked questions about this stock. Which of the following statements best describes how Chuck may communicate about this stock to others?

A broker-dealer may advertise this offering in the state without filing the advertisement with the Administrator Because this is a federal covered security, it is exempt from both the registration and advertising filing requirements of the Uniform Securities Act.

Common stock in The LowCo, Inc., currently trades on the NYSE. In order to raise additional capital for an expansion project, The LowCo, Inc., is planning an additional public offering (APO). Which of the following statements regarding this offering and the Uniform Securities Act is correct?

an investment adviser will be acting in the capacity of a principalIn those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity on the trade confirmation, but not consent, is needed.

Consent of the client before completion of a trade made between the firm and a client must be made when

state registration must be effective prior to federal registration. State registration must be coordinated with federal registration. In most cases, the registration statement must be on file with the Administrator for ten days, but the Administrator has the power to shorten that period. The registration statement becomes effective concurrent with the SEC and must contain or be accompanied by consent to service of process.

Each of the following statements regarding registration of securities by coordination is true EXCEPT:

recommending shares of a pharmaceutical company that manufactures a drug that the agent takes for chronic indigestionThere is no conflict when a stock is recommending a stock where the agent uses a product sold by the company unless we can see some direct or indirect benefit to the agent if the client purchases the stock.

Functioning responsibly as an agent requires disclosure of any potential conflicts of interest that could arise from a securities recommendation. Examples of potential conflicts of interest that must be disclosed to clients would include all of the following EXCEPT

neither a sale, nor an offer. With the typical stock dividend, the stockholder receives additional shares of stock without furnishing money or other valuable consideration in exchange for the stock. A sale must entail exchange of consideration. A stock dividend is not an offer; the stockholder did not choose whether to acquire the additional shares acquired through the stock dividend.

If a client owns 1,000 shares in a growth company and receives a 25% stock dividend, according to the Uniform Securities Act, this would be considered a(n):

25-year municipal bonds.

If a customer is concerned about interest rate risk, which of the following securities is least appropriate?

No approvals are required. An investment adviser does not need the approval of clients to sell the business. However, technically, the sale means that the advisory contracts will be assigned and that cannot be done without client consent. In an event such as this, the clients would be given the choice of having the new firm manage their assets or taking their accounts elsewhere.

If a federal covered investment adviser wishes to sell his business to another advisory firm, which of the following statements is TRUE?

accept unsolicited orders until the customer's suitability is determined.

If a new customer will not state investment objectives and will not provide a financial statement, the agent may:

need not be registered because it is neither an offer to sell nor a sale Shares issued as a result of a stock split need not be registered because the distribution of additional shares through a stock split or stock dividend is not within the definition of an offer to sell or a sale as long as no consideration (payment) is involved.

If a nonexempt company has authorized a stock split that will give each shareholder two shares for every one share owned without charge, this action

Registration by coordination. Registration by coordination is done concurrently with registration at the federal level. Registration by qualification is the method for local companies sold only within the state.

If a nonexempt issuer wants to register simultaneously with the state and the SEC, which method would be used?

II and IV. If a solicitation is made for something other than impersonal advisory services, the solicitor must receive a signed statement from the client verifying receipt of both the adviser's brochure and solicitor's disclosure document at the time of, or before, entering into a contract and ascertain whether the solicitor has complied with the agreement.

If a party is acting as a solicitor for a federal covered investment adviser, which of the following statements are TRUE? If the solicitation is for impersonal services, a solicitor is required to provide a disclosure statement to the client. If the solicitation is for other than impersonal services, then the solicitor must give the client a disclosure document. If the solicitation is for impersonal services, the solicitor must receive a signed statement from the client that the investment adviser's brochure and the disclosure document have been received. If the solicitation is for other than impersonal services, the solicitor must receive a signed statement from the client that the investment adviser's brochure and the disclosure document have been received.

unsolicited. A client calling to buy based on reading a tombstone ad is considered an unsolicited order because, under the law, the tombstone ad is neither a solicitation to buy nor an offer to sell. If the question had stated that the agent had sent a prospectus out and the client was responding to that, it would have been a solicited order.

If a person offers to buy a security after reading a tombstone ad, the offer to buy would be considered:

IV only.

If a widow with no outside source of income and moderate financial resources asked you for investment advice, the most appropriate recommendation(s) would be: new issues of common stocks. growth stocks. speculative issues. income securities.

No, it is preferable to compare the fund against the Morgan Stanley Capital International Europe, Australasia, Far East (EAFE) Index because it covers international securities.

If an agent recommends that a client invest a portion of his portfolio in an international stock fund and is asked whether she should compare the performance of the fund against the S&P 500 Index, how should the agent respond?

The agent should notify the appropriate supervisor who then, on behalf of the firm, will offer (in writing) to repurchase the security and pay a reasonable rate of interest minus any income derived from the security.

If an agent unknowingly sells an unregistered, nonexempt security and discovers the error afterward, what action is most appropriate?

II and IV. For an agent to commit fraud, the agent must knowingly deceive a client. Because the agent unknowingly sold securities that were not properly registered, the agent did not commit a crime and is not subject to criminal sanctions or the 5-year statute of limitations for criminal offenses. The sale of unregistered nonexempt securities is a prohibited business practice subjecting the agent to potential civil and administrative action, even when done unknowingly.

If an agent unknowingly sold securities that were not properly registered in the state, the agent: has committed fraud. is subject to civil action. is subject to criminal sanctions for up to five years from the date of sale. engaged in a prohibited business practice.

High quality dividend paying preferred stocks.

If an elderly widow with no independent income other than Social Security payments wishes to invest the proceeds from her recently deceased husband's life insurance, which of the following would be the most suitable recommendation?

broker-dealer that must be registered. A broker-dealer is an entity in the business of effecting transactions in securities for its own account or for the accounts of others, and pays its sales agents commissions. Under the USA, the broker-dealer must register in the states where business is transacted.

If an incorporated entity sells nonexempt securities to public customers, receives a commission on the sale of the securities, and pays commissions to the employees who sell them, according to the USA, the corporation is a:

The full year's fee must be paid.

If an investment adviser files an initial registration with a state on June 30, which of the following statements regarding the filing fee to be paid is TRUE?

5 years after the alleged violation. Under the criminal provisions of the Uniform Securities Act, no indictment may be returned more than 5 years after the alleged violation.

If an investment adviser representative commits a criminal violation of the Uniform Securities Act, he is subject to legal action for:

The representative must notify the Administrator. It is the investment adviser representative's responsibility to notify the Administrator. The advisory firm is not registered with the state; only the representative is registered.

If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is TRUE?

15 days. When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days.

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within:

No advance notice. No advance notice is necessary for the Administrator to conduct an examination of the books and records of an investment adviser or a broker-dealer. The USA only requires that the examination be held during normal business hours of the registrant.

If the Administrator wishes to conduct an examination of an investment adviser's books and records, how much advance notice must be given?

a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form.

If the Smiths want to open a joint account at AAA Securities Corporation and have their securities transferred to their three daughters upon the death of the last surviving account holder, their agent should recommend that the Smiths open:

16.8%. The formula is the risk-free rate (.04) plus the product of the stock's beta (.8) and the difference between the expected return on the market and the risk-free rate(.20 - .04). In this case, it would be .04 + .8(.16) or .04 + .128 = .168

If the expected return on the market is 20% and the risk-free rate is 4%, a stock with a beta coefficient of 0.8 would have an expected rate of return under CAPM of:

She will pay income taxes on the full amount she withdraws each year.

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?

permitted. There is nothing in the USA that prohibits agents registered with the same broker-dealer from forming a partnership to conduct business or solicit clients. Under the USA, a principal of the firm need not audit the financial performance of such an arrangement. It is considered an unethical business practice for agents who are not licensed with the same or affiliated broker-dealers to share commissions.

If two agents of a broker-dealer agree to work together as a partnership in soliciting business and they agree to split commissions, this practice is:

I, II, III and IV

If you are registered as an agent for a broker-dealer in State Y and you conduct business as an agent of theirs in State Z, a state in which you are not registered as their agent, you: expose yourself and your employer to disciplinary action by State Z expose yourself to a possible fine may obligate your broker-dealer to offer your client the right to rescind the sale may have your registration in State Y revoked

closed-end fund.

If you were describing an investment that trades on an exchange with a price set by supply and demand, rather than its underlying value, it would be a (an):

business risk.

If your client's entire investment portfolio consists of his company's employee stock ownership plan and stock in the company acquired under the executive stock option program, the client's portfolio is most exposed to:

issue a cease and desist order.

If, in the opinion of the Administrator, an agent is about to engage in a prohibited activity, the Administrator may:

II and III. Once the entertainment agent makes investment decisions for a client who is paying fees for overall services rendered, that agent now comes under the IA-1092 definition of investment adviser. Similarly, any person who is compensated for giving investment-related advice to employee benefit plans is considered a pension consultant and is required to register under IA-1092. Banks are never IAs, and the lawyer is merely doing legal and tax work.

In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the Release, which of the following would be included in the definition? Commercial banks offering comprehensive financial planning for their high-net-worth clients. Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment grade bonds or large-cap stocks as market conditions dictate. Persons who receive a nominal fee for assisting employee benefit plan administrators select investment managers for the plan's assets. Lawyers who prepare trust agreements for clients with large securities holding with a goal of minimizing estate taxes.

grantor. The grantor, sometimes referred to as the settlor, is the person who establishes the trust and specifies its terms. The person who administers the trust is the trustee, and the person who receives distributions from the trust is the beneficiary. Interestingly, trust law would permit the grantor to also be the beneficiary and/or the trustee.

In a trust, the person who establishes the trust and decides on its terms is the:

Form ADV-E. the Form ADV-E (E for Examination) is completed by every investment adviser who maintains custody of client assets. Then, the form is used by the independent accountant who performs the surprise annual examination of the adviser's records. The accountant is the one who submits the ADV-E to the SEC (or the state if appropriate).

In addition to the normal required filings, an investment adviser who maintains custody of client funds and or securities will be required to complete:

must reflect the nature and scope of the business done by the firm. In adopting the code, the SEC did not specify a particular standard that firms would be required to adopt. However the Commission did indicate a minimum standard. The SEC directed each firm to adopt standards that reflect the nature and scope of the business done by that firm and applicable state and federal fiduciary laws. In the words of the Commission, "A good code of ethics should effectively convey to employees the value the advisory firm places on ethical conduct." Codes of ethics are required for all registered investment advisers.

In an effort to further protect the interests of clients, the Investment Advisers Act of 1940, as amended, contains recommendations for implementing a Code of Ethics. This code:

may require that the promoter's securities be deposited in escrow and that the proceeds from the sale of the registered security in his state be impounded until the issuer receives a specified amount from the sale of the security in his state. When a promoter of a public offering receives issuer shares for less than the public offering price, the Administrator of a state's securities department may require that the promoter's securities be escrowed until the issuer receives a specified amount from the sale of the security in his state.

In conjunction with the offering of securities, an issuer furnishes a portion of the offering to a promoter for a consideration substantially different from the public offering price. According to the USA, the Administrator:

by notifying clients of the change in advance ost broker-dealers disclose fee changes at least 30 days in advance and there is no requirement whatsoever to notify the Administrator.

In general, a broker-dealer will disclose any changes to its fee schedule

a margin account Of the accounts listed, the only one for which customers must receive a risk disclosure document before trading in the account is the margin account. Using leverage always increases the potential risk.

In general, it could be said that an investor is exposed to the greatest potential risk of loss when maintaining

II and III. All relationships between registered investment advisers and solicitors must be in writing. Any scripts are the responsibility of the adviser, regardless of who prepared them. Those subject to statutory disqualification may not be used as solicitors. Cash referral fees are not restricted to impersonal advisory services.

In order to be in compliance with the rules under the Investment Advisers Act of 1940, which two of the following statements are correct regarding a registered investment adviser's relationship with solicitors? An individual who is subject to statutory disqualification from registration as an investment adviser representative may solicit clients for the adviser as an employee of a third party solicitor. There must be a written agreement between the investment adviser and the solicitor. While the sales script used may be written by the solicitor, its content is the responsibility of the adviser. Cash referral fees to solicitors may only be paid in the case of impersonal advisory services.

a portfolio of at least $100 million of 13(f) securities. An institutional money manager, with at least $100 million in 13(f) securities under discretionary management, is required to file Form 13F.

In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over:

II and IV. SEC Release IA-1092 added financial planners, pension consultants, and sports and entertainment representatives to the list of potential IAs. Unless the life insurance agent is offering investment advice, the agent does not meet the definition of investment adviser. The Release did not address wrap fee programs because the exclusion for broker-dealers is part of the Investment Advisers Act of 1940; once special compensation in the form of wrap fees is received, the exclusion is lost.

In response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include: broker-dealers offering wrap fee programs. financial planners. life insurance agents. pension consultants.

I and III As unsecured obligations, their safety is only as good as the financial strength of the issuer and because these tend to be one-of-a-kind products, they do not have liquidity. A particular hazard of investing in these is that there is a low level of pricing transparency; another concern is that the returns are generally not fully realized until the maturity date.

In search of higher returns, many investors have turned to structured products. Your clients need to be aware that these are complex instruments and have which of the following characteristics? Credit or default risk because they are unsecured obligations of the issuing institution High price transparency Limited or no liquidity High initial returns that diminish over time

Totten trust

In the banking industry, the term POD refers to an account similar to the TOD designation used by broker-dealers. An old, but sometimes still used term to describe this kind of account is

II and III. GIC's and investment grade corporate bonds (A or higher rated bonds) are considered as appropriate investments for a qualified plan. A municipal bond fund will potentially convert tax-free income into ordinary income and using leveraged investments in retirement plans is generally prohibited.

In the construction of a qualified retirement plan portfolio, which of the following investment vehicles would be considered generally inappropriate? a guaranteed investment contract (GIC). a municipal bond fund. a leveraged real estate limited partnership. a corporate bond rated A or higher.

inflation rate is subtracted from the investment return.

In the formula for determining the real rate of return, the:

executing a transaction in a nonexempt security in a discretionary account. Once a discretionary account has been properly documented, the agent handling the account can trade exempt and nonexempt securities. Nothing in this answer choice implies that the nonexempt security is unregistered. All transactions, no matter in exempt or nonexempt securities, must be recorded on the books of the broker-dealer. As a general rule, initial public offerings tend to be on the speculative side, suitable for aggressive, not conservative investors. Therefore, even with the client's authorization, this trading profile would be unsuitable and, as a result, a prohibited activity. Sharing in profits of an account as a reward for exceeding the S&P 500 (or any other benchmark) is prohibited under any circumstance. This is not the same as sharing in the profits of an account with consent of the client and the employing broker-dealer, because this is based on the performance of the agent's recommendations and not on a mutually agreed sharing arrangement.​

It would be considered a prohibited activity for an agent to engage in any of the following activities EXCEPT:

Sell fixed annuities. While registration as an agent is pending, the applicant can take no active role in the sale or offering of securities. However, because fixed annuities are not securities, registration as an agent is not required. Yes, I know that an insurance license would be required, but, apparently, NASAA doesn't care about that.

It would not be a violation of the Uniform Securities Act for an applicant for registration as an agent to do which of the following while the application is pending?

prohibited as an exaggerated claim.

Jack, a registered investment adviser will take the Certified Financial Planner Examination when it is offered in two months. He is currently enrolled in an educational program to prepare for the exam. He has just run out of business cards. Because he is confident that he will pass the exam through diligent study, Jack begins to use new business cards with the letters CFP following his name. This would be:

II and III. Investment adviser representatives may be compensated for introducing accounts to the advisory firm if disclosure of the compensation is made to the client and if the individual is appropriately registered as an IAR in jurisdictions where such registration is required. The firm is the adviser and the individual is the investment adviser representative.

Jack, an investment adviser representative of Gibraltar Investment Advisers, brought a large account into the advisory firm. Under which of the following circumstances may the firm compensate Jack on the basis of the firm's earnings on this new account? Jack has passed the Series 7 general securities representative examination. It has been disclosed to the client that Jack is to be compensated in conjunction with bringing the account into the firm. If required by the Administrator, Jack is appropriately registered as an investment adviser representative. Jack is appropriately registered as an investment adviser.

Jack's application will likely be denied because he violated the Commodity Exchange Act within the 10-year period prior to his application. Jack's application will probably be denied because he was found guilty of violating the Commodity Exchange Act within the 10-year period prior to his application. Registration as an investment adviser will be denied to any party that has been convicted, within the 10-year period prior to application, of a violation of federal securities acts or the Commodity Exchange Act. Such statutory denial will also impact those enjoined under domestic or foreign court orders from engaging in the business of investing, presuming such orders were made in the 10-year period prior to the application date.

Jack, who is proficient in both fundamental and technical analysis, would like to become an investment adviser. Although Jack is fairly new to the securities business, he worked in the commodities business for many years. Five years ago, Jack's Commodity Pool Operator's license was suspended by the Commodity Futures Trading Commission for having willfully violated or willfully failing to comply with any provision of the Commodity Exchange Act. Which of the following best describes how Jack's application to open an investment advisory business will be handled under the Investment Advisers Act of 1940?

III and IV. It is not permissible to use the initials RIA, but one would properly describe the fact that the firm is a registered investment adviser. If one is registered as an agent with a broker-dealer, that fact always must be stated on your business card.

Jake Aaron is registered as an agent with ABC Securities, a broker-dealer registered with the SEC doing business in 34 states. In addition, Mr. Aaron has his own investment advisory business, Jake's Money Advisers, and is registered with the SEC. To comply with all appropriate regulations, which of the following would have to be stated on the business card for Jake's Money Advisers? Jake Aaron, RIA. Jake's Money Advisers, RIA. Jake's Money Advisers, registered investment adviser. Securities offered through ABC Securities.

The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security. The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security, even in the case of an isolated nonissuer transaction like this. While Jones, as a private individual, is not subject to the registration provisions of the act, he is liable for fraud when selling securities, whether registered or not. The fact that Jones is not trained in the securities business does not exempt him from the prohibition against fraud when engaged in the sale of securities.

James Jones, quarterback for a National Football League franchise team, deliberately misstated material information in the private sale of securities he owned. Jones claims he is not subject to the antifraud provisions of the Uniform Securities Act because he is not a registered agent and, secondly, the securities involved are exempt from registration requirements of the act. Which of the following statements is TRUE?

She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. Options, regardless of the underlying asset, are considered securities under the USA. Therefore, Joan engaged in a securities transaction by purchasing call options on the Swiss franc. While there is no prohibition against American investors trading in foreign currency options or futures under the USA, acquiring the currency itself, rather than the option, would not have involved a securities transaction; currency is not a security.

Joan owns and operates a jewelry store, and she has contracted to purchase 5,000 Swiss watches, paying the watch manufacturer in Swiss francs three months from the date of contract. To protect (hedge) her currency risk, she purchases call options on Swiss francs. Which of the following statements best describes her transaction in the Swiss franc calls in light of the USA?

$130,000.

John and Jane have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills totals $8,000, how much are their total liabilities?

I, II and III. Persons convicted of willful violations are subject to the criminal penalties specified in the act (three years and/or $5,000 fine). Thus, the representative is subject to criminal penalties and civil liabilities resulting from clients who sue him for loss of money. The act subjects to civil liabilities any person supervising those who violate the law. However, a supervisor may not be held liable for the actions of those whom he supervises if it can be proved that the supervisor used reasonable care to discover and prevent the violations and has no knowledge of the violations.

John, an investment adviser, employs an investment adviser representative who is found guilty of defrauding many of the firm's clients over a long period of time. Which of the following is (are) TRUE under the Uniform Securities Act? The investment adviser representative is subject to criminal penalties specified in the act and to civil liabilities resulting from clients who sue as a result. John may be subject to civil liabilities resulting from actions taken by the investment adviser representative. John is not subject to civil liabilities as a supervisor if he can prove that he had no knowledge of the actions of the representative and while exercising reasonable care, he could not have had knowledge of the violations.

He is subject to the antifraud provisions of the act. Remember, there are no exemptions from the antifraud provisions of either the Uniform Securities Act or the Investment Advisers Act. Fraud is defined as unlawful practices by any person involved with the purchase or sale of a security, whether registered or exempt from registration. This includes any act to defraud, untrue statements of a material fact, and omissions of a material fact. The act covers any person and there are no exemptions from the fraud provisions.

Jonathon is employed by Frederick's Investment Advisory Service strictly to telemarket for prospective new clients. Which of the following is TRUE under the Investment Advisers Act of 1940?

possibly cause her registration to be denied. Generally, disciplinary action in conjunction with any professional securities or commodities activity resulting in a revocation or bar within the 10-year period preceding application, will cause the application as an investment adviser to be refused under statutory denial. However, the Administrator will review the application and the circumstances surrounding the action.

Linda is applying with State A to become a registered investment adviser. She has never practiced as an investment adviser before, but she was a municipal bond broker for many years. Seventy-five months ago, Linda was barred from municipal bond activities by the MSRB. This would or could:

only if it fits with the objectives of the plan.

Under ERISA, a pension portfolio manager may engage in writing covered options:

$100,000 of Atlanta Airport Revenue bonds due 1/2030 When an individual has tax preference items, AMT becomes an issue. One of the securities that generates preference income is a private activity bond, a revenue bond that is issued to benefit certain facilities such as airports, sports facilities and hospitals. School district bonds are GO bonds and those are not subject to AMT. Income from corporate securities, whether they be debt or equity, is never considered for AMT.

Louise Lawson, one of your high net worth clients, calls you and tells you her friend mentioned something about having to pay a special tax called AMT. When reviewing her extensive portfolio with her, you would explain that the only securities she is holding that could lead to an AMT issue are the

Aa rated corporate debenture. A bond's rating takes into consideration all factors, including collateral and tax base. The higher the rating, the lower the credit risk.

Many fixed income investors are looking to avoid loss of principal. Which of the following would likely have the lowest degree of exposure to credit risk?

I, II, and III Although there can be exceptions, especially when the trust document is poorly written, in most cases, assets in an irrevocable trust, a revocable trust, and a living trust (generally, the terms revocable trust and living trust mean the same thing) avoid probate. A testamentary trust, which goes into effect after death, does not avoid probate.

Many investors use trusts to avoid probate. However, not all trusts are designed to do so. Those that would avoid probate include irrevocable trusts revocable trusts living trusts testamentary trusts

I and III Contributions to a Coverdell ESA are limited to $2,000 per beneficiary per year while those to a Section 529 Plan can be as high as $300,000 in some states. A married couple cannot make a Coverdell contribution if their income exceeds $220,000 while there is no earnings limit to contribute to a 529. The Coverdell ESA has an advantage over the 529 Plan in that the funds may be used for any level of education; it is not limited to post-secondary as is the 529. In neither case is the contribution tax-deductible on the federal level (although the Section 529 plans may have tax advantages in some states).

Many parents prefer to use a Section 529 Plan over a Coverdell ESA to finance their child's education plans because contribution limits are higher funds may be withdrawn tax-free if used for qualified secondary education expenses there are no earnings limits 529 contributions are tax deductible on the federal level

free lunch.

One of the most prevalent schemes abusing seniors is one where the individual or couple receives an invitation to attend an educational seminar held at an upscale location. This scheme is commonly referred to as:

She has violated the act only if she was trying to create market activity for the security to give a misleading appearance. The purchase and sale of the same security on the same day are permissible as long as the investor is not attempting to create the appearance of market activity.There is nothing in the act prohibiting "day-trading"; only trading made for the purpose of manipulating market prices.

Mary bought 1,000 shares in the morning and sold 1,000 shares of the same security in the afternoon. Under the Securities Exchange Act of 1934's rules dealing with the regulation of the use of manipulative and deceptive devices, which of the following statements is TRUE?

register with State A. For an individual to sell securities in a particular state, she must be licensed in that state unless an exemption applies. There is nothing in the USA that requires client consent when the agent of record on the account changes.

Mary, who is licensed as an agent in State A, got a promotion and will turn her clients over to Julie, who is licensed only in State B. Before Julie can take over the accounts, she must:

This would not be considered a testimonial and therefore permitted under the regulations. Please note that this question is looking for the statement that is NOT true—in other words, find the false statement. In March 2014, the SEC, but not NASAA, published an interpretive release dealing with testimonials for investment advisers using social media. Included in that release is the statement that third-party use of the "like" feature on an investment adviser's social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's experience with the adviser.

Nifty Advisers Group made an announcement on its website that the firm was going to create a Facebook account to keep all its clients and prospective clients updated on the market. To get the word out, Nifty sent an email notice to its current clients and asked them to please refrain from airing complaints through that account; any negative comments would be addressed through the normal channels. Also, contained in the email was an announcement that all "likes" would receive a one-time 5% decrease in the client's quarterly fees. For this campaign, which of the following are NOT true?

some form of embedded derivativesIt is commonplace for SSPs to use derivatives, such as options. There is no insurance coverage and, unless listed for trading such as an ETN, low or no liquidity. These are highly complex products and would not be suitable for the average conservative investor.

Nonexchange-traded structured securities products (SSPs) typically have

loss of the designated regulatory contact person All investment advisers must have a designated regulatory contact person. Only sole proprietorships are affected by the death of that sole person. Disability or death of a member of the board of directors will probably have no effect on succession, and only partnerships are concerned with a partner (of any size) leaving.

One business succession issue that applies to virtually all investment advisers is

state registration is accomplished by notice filing. These are the three types of investment companies described in the Investment Company Act of 1940. All are federal covered securities, but unlike the others, they are generally required to do a notice filing with the Administrator of each state in which their interests are sold.

One common characteristic that face-amount certificate companies, unit investment trusts, and management investment companies that are registered with the SEC under the Investment Company Act of 1940 have is that:

when so ordered by the Administrator. Registration by Qualification becomes effective on the date set by the Administrator

One method of securities registration under the Uniform Securities Act is Qualification. The effective date of a security registered using this method is:

the subject of the order must promptly put a halt to the specified activity. A cease and desist order is issued with the intent of putting a halt to a specified activity that, in the eyes of the Administrator, has the potential to damage the investing public. If the offender does not cease the activity, the Administrator may go to court to have an injunction issued. Only final orders may be appealed. In general, a cease and desist order only applies to a specific activity and does not require the subject to cease all functioning.

One of the actions available to the Administrator is the issuance of a cease and desist order. When the Administrator issues a cease and desist order:

fraudulent offers are aimed at groups of people who share a similar interest Affinity fraud targets members of identifiable groups, such as the elderly, or religious or ethnic communities.

One of the concerns about social media is the opportunity for affinity fraud. This occurs when

this prohibited because the offering price does not bear a reasonable relationship to the current market. Yes, it is always possible that in just a couple of days, this company's stock may have increased by 250%, but there is nothing in the question to indicate that. Yes, thinly traded stocks tend to have wider spreads, but not like this.

One of the features of a broker-dealer is that they sometimes maintain an inventory of securities, even when not in the role of market maker. If a broker-dealer has shares of a somewhat speculative, thinly traded stock in their inventory whose last reported trade was several days ago at $4 per share and the firm were to offer their shares at $10 per share, the NASAA Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents might consider:

III and IV. Matched orders occur when one or more broker-dealers engage in buying and selling between themselves for the purpose of creating the misleading appearance of increased activity in a security. A wash trade is an attempt to manipulate a security's price by creating an apparent interest in the security that really does not exist. Arbitrage is the simultaneous buying and selling of the same security in different markets to take advantage of different prices. It is not a form of market manipulation. Churning is a prohibited activity, but has nothing to do with the market, just a client's account.

One of the prohibited practices under the Uniform Securities Act is market manipulation. Which of the following are examples of a broker-dealer engaging in that practice? Arbitrage. Churning. Matched orders. Wash trades.

Diversification. Unlike systematic (market) risk, unsystematic or nonsystematic risk can be reduced through diversification.

One of the risks found in equity investing is known as unsystematic risk. The most common way to reduce this risk is?

I, II and IV. A broker-dealer is defined as a person in the business of effectuating securities transactions for its own account or the account of others. Those employed to open new accounts are defined as agents. Those seeking to raise new capital are issuers, and a person who provides investment advice is an investment adviser.

One of the terms defined in the Uniform Securities Act is "broker-dealer". Which of the following is NOT included in that definition? An individual employed by a corporate entity to open new customer accounts for the purpose of trading securities. A business entity seeking to raise additional capital using the regulated securities markets. A person whose primary function is buying securities for his own account and for the accounts of others. A person whose primary function is providing advice on what assets belong in clients' investment portfolios.

no current tax, but any withdrawals would be taxed as ordinary income. As with any rollover from a qualified plan to an IRA, there is no current tax, but withdrawals are taxed at ordinary income tax rates. This client would have saved had he taken advantage of the NUA (Net Unrealized Appreciation) approach. In that case, taking the company stock and putting it into a taxable account would have resulted in ordinary income tax on the $25,000 cost basis, and long term capital gain rates on the appreciation whenever the stock was sold.

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to rollover the entire account into an IRA, the tax treatment would be:

ordinary income on the $25,000 cost basis, long-term capital gain on the appreciation when sold. Under IRS rules, if part of your retirement plan assets includes company stock, taking that as a distribution (not rolling it over into an IRA) subjects the cost basis to ordinary income tax and any unrealized appreciation is taxed as long-term capital gain when sold.

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to use the net unrealized appreciation (NUA) approach when taking the distribution of the company stock, the tax treatment would be:

II, III and IV. In general, investments in collectibles are not permitted in IRAs. The one major exception is U.S. gold and silver coins minted by the Treasury Department. Although some might object to placing an annuity into a tax deferred plan because it is already tax deferred, there could be a good reason for it's inclusion and, more important for this question, it is permitted.

One of your clients is discussing various options for funding his IRA. Current tax law would permit investing in which of the following vehicles? Collectible stamps issued by the U.S. Postal Service. Gold or silver coins minted by the U.S. Treasury Department . Fixed annuities. REITs.

dates that dividends are paid

One of your clients is interested in investing in a large-cap growth fund and has a list of several that she has been investigating. When helping her compare, each of the following factors would be relevant EXCEPT

II, III and IV.

One of your clients is viewing a stock held in her portfolio and wishes to know how to calculate the holding period return for that security. In order to do that, she must know the: date the stock was purchased and the date it was sold. dividends received during the holding period. purchase price. current market price.

life insurance capital needs analysis. A life insurance capital needs analysis takes into consideration the future needs of the insured and family and then factors in how much needs to be filled in by life insurance.

One problem facing agent and client alike is determining how much life insurance is necessary to meet future needs. One tool that is useful for making that determination is a:

because it is often difficult to liquidate the foreign securities to get their value into the U.S. There are a number of funds that invest exclusively (or predominately) in the shares of companies domiciled (and traded) in a single country. Not all securities markets are as liquid as those in the U.S. and many countries have currency restrictions limiting the amount of money that may be taken out of the country at any one time. Therefore, organizing as a mutual fund is not very practical. With no need to redeem share, closed-end companies are the obvious solution.

One type of specialized fund is referred to as a "country" fund. In most cases, these funds are closed-end investment management companies:

Peterson Financial Planning is required to register as an adviser with the Administrator of the Missouri Department of Securities. With less than $25 million under management, Peterson Financial Planning is considered a "small" investment adviser and must register with the state. Advisers managing at least $25 million but less than $100 million are considered "mid-size" investment advisers and, unless qualifying for an exception, must also register with the state. Investment advisers with at least $100 million in AUM, but not as much as $110 million, may register with the SEC or remain with the state. Once $110 million is reached, SEC registration is mandatory.

Peterson Financial Planning is a small personal financial planning partnership in Missouri that has $10 million in assets under management. As a result of the Dodd-Frank Bill, which of the following statements best describes the registration requirement for Peterson Financial Planning?

its fair market value (FMV) on the date of the deceased's death. Property included in the gross estate is generally valued at its fair market value (FMV) on the date the deceased died. An estate can also elect to value property on the alternate valuation date, which is usually 6 months after the date of death.

Property included in a deceased's gross estate is generally valued for estate tax purposes at:

Asset allocation. A study conducted by Sharpe and Markowitz revealed that 91.5% of the returns achieved by the average investor were based upon the allocation of assets among various investment classifications. Market timing and security selection did account for some of the remaining percentages, but asset allocation proved to be the most important factor.

Recent studies have shown that much of the performance of a portfolio can be attributed to which of the following factors?

any person qualifying as an accredited investor. Although many persons (as that term is broadly defined) who qualify as accredited investors are institutions, individuals do not. Insurance companies, whether or not they are authorized to do business in the state, are institutional investors.

Recognizing a higher level of sophistication, institutional investors are usually the subject of relaxed restrictions under the Uniform Securities Act. All of the following would be considered institutional investors EXCEPT:

Because this is a growth fund, shares will increase in value.

Regarding a growth mutual fund, as an investment adviser representative, which of the following statements may you NOT make to your customer?

convertible bonds. Only those individuals in the business of giving advice on securities are required to register as investment advisers; only the convertible bonds are securities

Registration as an investment adviser is required for any firm in the business of giving advice on the purchase of:

when determined by the Administrator. Registration by qualification is effective when determined by the Administrator. Qualification is the only form of registration where the timing of the effective date is determined by the Administrator.

Registration by qualification is effective:

one year from the effective date.

Registration statements for securities under the Uniform Securities Act are effective for:

I, II, III, and IV

Securities industry rules require that securities professionals disclose all potential conflicts of interest to their clients. Examples of potential conflicts of interest include offering a proprietary product an agent having a financial interest in a recommended security a broker-dealer publishing a favorable research report after underwriting the issuer's stock offering the sponsor of a mutual fund offering a trip to Key West for all agents reaching a minimum sales level of any of the sponsor's funds

Securities of a nonexempt corporate issuer that do not have a federal registration must be registered with the Administrator by qualifying with the Administrator. This process is called registration by qualification.

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?

All of the investors. When a joint account is opened, financial information should be obtained on all of the account owners.

Several investors open an account in joint tenancy. Financial information is required on which of the following investors?

will not have to register in any state. Unlike broker-dealers, where there is no such concept as federal covered, a new investment adviser that reasonably expects to reach the $100 million minimum threshold within 120 days of the initial filing of the Form ADV invariably registers with the SEC as a federal covered investment adviser and, therefore, does not register in any state.

Stanford Securities, Inc., is a registered broker-dealer in 22 states. Stanford has just created a wholly owned subsidiary, Stanford Advisers, Inc., and expects to have at least $100 million in assets under management within the next 45 days. Stanford Advisers, Inc.:

Investment adviser representatives. The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.

State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act?

I only. The Administrator does not have jurisdiction over an offer made in a TV or radio broadcast that originated outside of the state. The same is true for a newspaper published outside the state.

The Administrator in Texas has jurisdiction over an offer made: on a radio program originating in Texas. on a radio program originating in Oklahoma. in a newspaper circulated in Texas but published in Oklahoma.

60. Any final order of an Administrator may be appealed within 60 days from issuance.

The Administrator issues a final order revoking the registration of a broker-dealer. If desired, an appeal for review must be filed within how many days of the order?

I, II, III and IV. A record of any felony conviction or misdemeanors involving securities fraud during the last 10 years is sufficient grounds for the Administrator to deny an application for registration in the securities industry. Insolvency and failure to file a complete application are also grounds for denial.

The Administrator may deny an application for registration as an agent if: the applicant has been convicted of a misdemeanor involving securities fraud within the past 120 months. the applicant is insolvent. the applicant has been convicted of a felony within ten years of the date of application. the applicant has filed an incomplete application.

I and IV. Even though the Administrator has limited jurisdiction over federal covered advisers, they can require filing of a copy of the information filed by that IA with the SEC (the Form ADV) as well as a filing fee.

The Administrator may require which of the following from a federal covered adviser? copy of the IA's Form ADV. filing of the IA's advertising in the state. a listing of the IA's fee schedule. a filing fee.

forbid investment advisers registered in that state from taking custody of client funds. The Administrator has considerable discretion to make rules or issue orders. Specifically, the USA allows the Administrator to prohibit custody by rule. However, the USA does not allow the Administrator to waive provisions of the USA, nor can the Administrator suspend federal law. The NSMIA took away the power of the states to regulate federal covered advisers except in the case of a violation of the antifraud statutes.

The Administrator may, by rule:

deny or revoke the registration statement, but must provide the applicant with the opportunity for a hearing within 15 days of the written request for such hearing. The Administrator may deny or revoke the registration statement but must provide the applicant with an opportunity for a hearing within 15 days of a written request for such hearing.

The Administrator of a state's securities department strongly believes that the registration statement for a security contains a substantial amount of misleading information and that investing in the security is likely to cause immediate and egregious harm to its investors. Under the following circumstances, the Administrator may:

The IAR is prohibited from making this loan because of his fiduciary responsibility to the plan. As the plan fiduciary, the IAR is prohibited from taking any action that is against the rules. Companies can not use their qualified plan assets to finance their business operations.

The Chief Financial Officer (CFO) of a company approaches an investment adviser representative who happens to be the trustee of the corporation's qualified plan requesting a loan from the plan to help the company meet some short-term obligations. Which of the following would be the appropriate action to be taken by the IAR?

could not sell without being an agent Included in the USA's list of exempt securities are those issued by any building and loan or similar association organized under the laws of any state and authorized to do business in this state. However, they are not included in the short list of exempt securities under which individuals selling on behalf of the issuer are excluded from the definition of an agent. Had this been a bank, savings institution, or trust company, then, as long as the individual was an employee of the institution, no registration would be necessary.

The First Fidelity Building and Loan association, organized in State A and authorized to do business in State B, has an offering of common stock being made in State B. In order for an individual selling the offering to be excluded from the definition of agent in State B, the individual

Employee wages earned within the 180 days prior to the bankruptcy filing Under federal bankruptcy law, there are several categories of unsecured claims that have a higher priority than secured ones. Two of the most common are employee wages as long as the wages were earned during the 180 days prior to the bankruptcy filing, and certain taxes. No matter how many adjectives are placed ahead of preferred stock, it always comes after everyone who is owed money.

The MNO Manufacturing Company, headquartered in Springfield, has just filed for bankruptcy. Under federal bankruptcy law, which of the following would have highest priority with the bankruptcy trustee?

I, II and IV. Advertising that reflects past performance must show a minimum period of one year, not three. All investment advisers advertising must reflect deduction of fees, disclose the specific group of clients to which it applies if applicable, and state actual market conditions during the referenced period.

The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if: results do not reflect the deduction of fees. actual market conditions during the referenced period are not disclosed. the advertisement did not reflect performance for a minimum period of three years. the advertisement did not disclose that it applied to only a specific group of clients.

III and IV Securities information processors (SIPs) collect and disseminate trading and pricing information. TV stations, such as CNBC, and newspapers, such as IBD, obtain information from SIPs and then rebroadcast or reprint it.

The Securities Exchange Act of 1934 calls for the registration of many different entities involved in the securities business, such as exchanges and broker-dealers. The Act also requires registration of securities information processors such as CNBC "Investor's Business Daily" ​Securities Industry Automation Corporation (SIAC) ​OPRA

set margin requirements. The Securities Exchange Act of 1934 specifies that the Federal Reserve Board will have control over the issuance of credit when trading securities. The Securities Exchange Act of 1934 gives the SEC the power to make, amend, and rescind rules; issue cease and desist orders; administer oaths; conduct investigations; take evidence; and subpoena witnesses, books, and records. The Commission may seek temporary or permanent restraining orders (injunctions) from the courts, file civil suits, or refer evidence to the attorney general for criminal prosecution.

The Securities Exchange Act of 1934 gives the SEC the power to do all of the following EXCEPT:

minus the risk-free rate for the period divided by the security's standard deviation.The Sharpe ratio is the average annual return of a security less the risk-free rate divided by the security's standard deviation. In other words, the Sharpe ratio is a risk-adjusted return because it measures the amount of return per unit of risk taken; the most common risk-free rate is that paid by 90-day U.S. Treasury bills.

The Sharpe ratio is the average annual return of a security:

post a surety bond if it does not have investment discretion over client accounts or do not maintain custody of customer funds and/or securities.

The Uniform Securities Act authorizes the Administrator to make certain demands of broker-dealers. In general, the Administrator would not require a broker-dealer to

Equipment trust certificate issued by a railroad that is regulated by a state's regulatory body. Several types of securities are specifically exempt under the act, including equipment trust certificates issued by a state-regulated or federally regulated railroad. High-quality (receives a rating in one of the three highest rating categories from a nationally recognized statistical rating organization) commercial paper is exempt if the term is 9 months or less and it is issued in denominations of $50,000 or more.

The Uniform Securities Act considers certain securities to be exempt from the registration requirements of the act. Under the USA, which of the following is an exempt security?

Fixed annuities. Although there are no exemptions from the anti-fraud statutes for securities or investment advice, because fixed annuities are not securities, fraud committed in their sale is exempt from the Uniform Securities Act. However, this sale would be subject to the anti-fraud provisions of the state's Insurance Commissioner.

The Uniform Securities Act contains a number of broad references to activity that might be construed as being in violation of the act's anti-fraud provisions. An individual making a sales presentation for which of the following would be exempt from the anti-fraud provisions of the Uniform Securities Act?

if a person associated with a registered investment adviser has been convicted of any misdemeanor within the last 10 years. In most cases, conviction for a nonsecurities-related misdemeanor is not sufficient cause for revocation. An Administrator may revoke a registration if a person associated with an investment adviser has been convicted of any felony or any securities-related misdemeanor within the last 10 years. Insolvency of a securities professional is cause for termination of the registration.

The Uniform Securities Act grants the Administrator the power to deny or revoke a registration of a securities professional. However, the Administrator generally would not deny or revoke a registration:

issue an injunction when there is evidence of wrongdoing. Only a court of competent jurisdiction may issue injunctions

The Uniform Securities Act invests the office of the Administrator with a number of powers. However, the act does not permit the Administrator to:

I, II and III. In the event of a civil judgment, the purchaser is able to claim for a return of the original investment, not current market, plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the broker-dealer or agent is liable for courts costs and attorney's fees.

The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, the maximum that a purchaser would be entitled to claim would be: attorney's fees. court costs. interest at the state's legal rate. the greater of the original consideration paid for the security or the current market value.

II, III and IV. In the event of a civil judgment, the purchaser is able to claim for a return of the original investment, not current market, plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the broker-dealer or agent is liable for courts costs and attorney's fees.

The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, the maximum that a purchaser would be entitled to claim would be: the original consideration paid for the security or the current market value, whichever is greater. interest at the state's legal rate. attorney's fees. court costs.

Schedule 13D would have to be filed within 10 business days of the transaction. Section 13(d) of the Securities Exchange Act of 1934 requires filing of a Schedule 13D once a person becomes an owner of more than 5% of the outstanding voting shares of a reporting company. Form 144 is only filed when securities are sold.

The XYZ corporation, listed on the NYSE, has 100 million shares of common stock outstanding. Mr. Warren Trump has owned 4 million shares since 1999. If Mr. Trump were to acquire 1.1 million additional shares, which of the following statements is CORRECT?

the percentage of the portfolio invested in various asset classes remains constant.

The purpose of portfolio rebalancing is used to make sure that:

standards at the federal level for the regulation of investment advisers. The purpose of the Investment Advisers Act of 1940 is to provide federal standards for the regulation of investment advisers. Providing standards among the various states for the regulation of investment advisers is the purpose of the Uniform Securities Act. Providing regulation for investment companies and their operations is the purpose of the Investment Company Act of 1940.

The purpose of the Investment Advisers Act of 1940 is to provide:

a traditional IRA. Those who have a traditional IRA must begin distributions by the April 1st of the first year after reaching age 70½. There are never RMDs with annuities or educational savings plans. There are RMDs for qualified corporate plans, however, they do not go into effect until after the employee retires from that employer, even if that is well past age 70½.

The requirement to take a minimum distribution once the age of 70 ½ has been reached is found in:

with a primary business of rendering investment advice. While this choice is only half correct, under the Investment Advisers Act of 1940, the term "investment counsel" may be used by any adviser that meets two standards; the adviser performs investment supervisory services; and the adviser provides advice as the primary business of the firm. No other special qualifications or registrations are needed.

The term "investment counsel" can be used by investment advisers:

sole proprietorship. In the case of a sole proprietorship, the owner reports any income on his personal Form 1040, Schedule C. The other entities do not pay tax themselves - any income flows through to the members (LLC), stockholders (S corp) and partners (ltd. Partnership).

There are provisions in the IRS Code which allow certain forms of business to avoid being subject to income tax on the business level. The list would include all of the following EXCEPT:

90-day Treasury bill.

There are several financial models that refer to the "risk-free" rate of return. Which of the following instruments is used to measure that rate?

the company's financial statements. The value style of portfolio management looks for stocks that are undervalued. For example, the current market price is near or less than book value per share. The only way to find that out is by looking at the company's balance sheet.

There are several popular investment styles and, in many cases, portfolio managers use a blended approach to security selection. If a portfolio manager adhered to a pure value style, he would put most of his focus on:

Set up separate accounts for $5,500 each. A one-worker couple can open a spousal IRA. This type of arrangement allows the contribution of a total of $11,000 to the two accounts and no more than $5,500 in either account. Selecting separate accounts totaling $11,000 could imply that one account could exceed $5,500 while the other would be less. IRAs are always individual accounts. The spousal IRA allows contributions on behalf of a nonworking spouse.

Tim earns $30,000 at his employment and is not offered a pension plan. His wife is not currently employed. What is the best way to set up an IRA to give maximum retirement benefits?

I, II and IV. An adviser may only borrow from a client that is in the business of loaning money, such as a bank or broker-dealer, or a client that is affiliated with the adviser.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may borrow money from which of the following clients? A broker-dealer not affiliated with the adviser. A bank not affiliated with the adviser. A mutual fund not affiliated with the adviser. A corporation affiliated with the adviser.

under no circumstances.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may guarantee investment results:

II and III Guarantees against loss and failure to inquire into a client's investment objectives, financial situation, and needs are unethical. Conflicts of interest must be disclosed and, if the client wants to continue, the client may enter into the contract.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser representative would be acting improperly if she allowed a client to sign an advisory contract after disclosing a potential conflict of interest to that client agreed to personally make up the difference if a client's account lost money failed to inquire into a client's investment objectives, financial situation, and needs

may be considered unreasonable if it is not in line with fees charged by other advisers for similar services.An investment adviser may not charge any client an unreasonable fee. A fee may be considered excessive that is substantially higher than that charged by other advisers for performing similar services. The Administrator may research the fees charged by various investment advisers for the purposes of comparison. Whether clients have agreed to the fee or have done their own price-shopping is irrelevant in determining if a particular adviser's fee is unreasonable. The exam sometimes phrases this as stating that fees must be competitive.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser's fee:

When authority is given by an advisory contract or a separate document. Discretionary authority must be in written form either by advisory contract or a separate document. Investment advisers and their representatives have the ability to exercise discretion with oral authority for a period of 10 business days (not one month) from the initial discretionary trade in the account. The only exception is when the discretion relates to time and/or price because, under the law, that is not considered to be discretion.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, when may an investment adviser be given discretionary power to buy or sell securities for a client?

I and III. An adviser who has custody of client assets must provide for a surprise audit by an independent public accountant annually. An adviser may be required by law to reveal confidential client information without notifying the client. An adviser may not deposit client funds into the adviser's account. At the very least, a separate omnibus account must be maintained for all client funds. An adviser must provide custody clients with quarterly reports as to their assets, not annual reports.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following actions comply with an adviser's obligations to clients if the adviser has custody of client assets? An adviser permits an independent CPA access to all of the IA's financial information and to conduct an annual audit of the client's accounts. An adviser deposits all client funds immediately into the adviser's bank account and maintains a separate record for each client, indicating balances, deposits, withdrawals, and the location of the funds. An adviser gives client files under a court order to police investigators who are secretly investigating the client. The adviser does not inform the client of the act. An adviser sends each client an annual statement that reflects the client securities and funds positions over which the adviser maintains custody.

I and II. Advisory contracts must contain the services to be provided; the term of the contract; the amount of the advisory fee or the formula used to compute it; the amount of fee to be refunded if the advisory fee is prepaid; whether the adviser has discretionary authority and to what extent; and a provision explaining that the consent of the client is required to assign the contract.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following must be included in an investment advisory contract? The formula used to determine the investment adviser's compensation. A statement of the discretionary authority, if any, given to the investment adviser. A statement that the investment adviser may assign the contract without the consent of the client.

I and II. An adviser is entitled to charge reasonable fees for services provided, but unreasonable fees are unethical. The Administrator may survey the market to establish fees charged against services provided in determining whether an adviser's fees are excessive. Fees that are determined to be excessive are unethical, even if the client agrees to them in the contract.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about an investment adviser's fees is (are) TRUE? Fees that are excessive compared to fees charged by other advisers for comparable services are unethical. The Administrator may investigate excessive fees by a comparison of services offered and fees charged. If a client agrees to a certain fee, the adviser may not be held for unethical conduct.

An adviser may use a report prepared by someone else if the source of the report is disclosed. An adviser is not prohibited from providing clients with reports prepared by others, but when this is done, the adviser must disclose the true source of the report. However, the disclosure requirement does not apply to the research an adviser uses in rendering investment advice.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements regarding the distribution of reports prepared by third parties that are not affiliated with the adviser is TRUE?

simultaneously represent two different unrelated broker-dealers in the same transaction. A registered agent may not simultaneously represent two different, unrelated broker-dealers in the same transaction. Under current regulations, only a few states allow agents to have dual registrations with more than one broker-dealer, unless those broker-dealers are under common management. In those cases, the agent may only represent one of the broker-dealers in any single transaction. Agents of broker-dealers may be simultaneously registered with real estate agencies, insurance companies, and with two broker-dealers, provided the broker-dealers are under common ownership or control or the arrangement has been authorized by the Administrator.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, a securities agent may NOT:

I, II and III. The release establishes three criteria in defining an investment adviser. First, the person must provide advice, reports, or analyses concerning securities. Second, the person must be in the business of providing securities-related advice or analyses. Third, the person must receive compensation. Investment advising does not have to be the person's principal business. They need only hold themselves out as advisers and provide investment advice on a frequent or regular basis.

Under SEC Release 1A-1092, which three standards are used to define an investment adviser? Provides advice, reports, or analyses concerning securities. Is in the business of providing securities-related advice or analysis. Receives compensation. Is the principal business activity.

II and IV.

Under SEC Release IA-1092, the term investment adviser does NOT include which of the following? A broker-dealer who charges for investment advice. A publisher of a financial newspaper. A person who sells security analysis. A CPA who, as an incidental part of his practice, suggests tax-sheltered investments to wealthier clients.

Securities Act of 1933. Registration by coordination is a form of state registration which 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.

Under Section 303 of the Uniform Securities Act, in order for an issue to register using coordination, it must simultaneously register under the provisions of the:

issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state. An individual representing an issuer in the sale of that issuer's security is not defined as an agent if the security is issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state; issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency of the foregoing; any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency of the foregoing, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor; a promissory note, draft, bill of exchange or bankers' acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization; or any investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing thirty days before the inception of the plan It is not just any exempt security that qualifies the individual for the exemption - only the five listed above. A confusing point is that the individual is not an agent when the sales are made in any exemption transaction with no exceptions.

Under Section 401 of the Uniform Securities act, the term "agent" does not include an individual who represents an issuer in effecting transactions in a security

one year after discovery or three years after the action, whichever is sooner. In the federal regulations, the statute of limitations for a civil action is the sooner of one year after discovery or three years after the action. Under the USA, it is the sooner of two years after discovery or three years after the action.

Under federal law, the statute of limitations for civil liability is:

up to 3 times the amount of gain or prevention of loss. Trading on inside information is prohibited under the Securities Exchange Act of 1934, and, under the Insider Trading and Securities Fraud Enforcement Act of 1988, the SEC is empowered to seek the greater of $1 million or treble damages through the courts for violations of the inside trading rules. The damages can amount to up to three times the profit gained or three times the loss avoided on the transaction. All persons who controlled the insider are also subject to these damages if improper supervision is proven.

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who buys securities with material, privileged, nonpublic information may be subject to a civil penalty of:

I and IV.

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, which of the following are insiders for purposes of insider trading? Attorney who writes an offering circular for a company. An investor holding 4% of the company's stock. The next-door neighbor of a board member of a company. Brother of a company's president.

The advertisement may not make offers of free service. There is no prohibition against offers of free service, except that such offers must have absolutely no strings attached. Advertisements used by investment advisers may not use testimonials, specific past recommendations (though it may refer to all recommendations within a given period of time, provided a disclaimer is included stating there is no assurance that the same results will be obtained), or any formula, charting, or graphing device without disclosing the difficulties or limitations in their use; make offers of free service unless there is no obligation imposed on those who request it; or make false or misleading statements.

Under the Investment Adviser's Act of 1940, which of the following is NOT true with regard to advertising?

are insurance companies. Among its exemptions, the Investment Advisers Act of 1940 grants an exemption from registration for those investment advisers whose only clients are insurance companies. The de minimis requirement only applies to foreign advisers.

Under the Investment Advisers Act of 1940, a person who falls within the definition of an investment adviser must register with the SEC unless the adviser's only clients.

I and II. A website is considered advertising, and the Investment Advisers Act of 1940 requires that a file copy be maintained of all advertisements that will be seen by 10 or more persons. Whenever the site is changed, it is considered new advertisement copy and must be placed into the firm's advertising file. Advertisements are never filed with the SEC.

Under the Investment Advisers Act of 1940, an IA that uses a Website would be required to: maintain a copy of the screens used on their site in the firm's advertising file. place copies of new screens into the firm's advertising file each time a change was made. file copies of the Web design with the SEC. password protect the site to limit access to existing clients only.

the adviser's clients are investment companies registered under the Investment Company Act of 1940. . Advisers to registered investment companies are required to be SEC registered. Under the Advisers Act, as modified by the Dodd-Frank Act, advisers are exempt from SEC registration if they manage less than $100 million in assets and have no investment company clients. Persons are excluded from the Advisers Act definition of investment adviser if they are publishers of news or business/financial publications of general and regular circulation or if their advice relates solely to U.S. government securities.

Under the Investment Advisers Act of 1940, an adviser is required to be registered with the SEC if:

is exempt from registration with the SEC under the act.

Under the Investment Advisers Act of 1940, an investment adviser that operates in only one state has no private funds as clients, and restricts advice only to securities not listed on a national stock exchange:

I, II, and III Advisers must disclose compensation received on sales of securities and nonsecurities products and also compensation received from the issuer of a recommended security.

Under the Investment Advisers Act of 1940, for which of the following is an investment adviser required to disclose to clients the amount of compensation he will receive? Commissions on recommended securities transactions Commissions on insurance sales Incentives from the issuer of a recommended security

II only. References to charts, tables, formulas, or other devices used to forecast securities prices without setting forth difficulties or limitations in their use is prohibited. It is not necessary to indicate how long the system has been used or its performance history. However, nothing prevents this information from being included. The question asks only what must be included.

Under the Investment Advisers Act of 1940, if an investment adviser's sales literature describes an investment system, the description must include: the length of time the system has been used. the difficulties and limitations of using the system. the performance history of the system.

II and III. Setting bail is the function of a court. The SEC is empowered to take evidence, subpoena witnesses, administer oaths, and require the production of books and records in conducting a formal investigation.

Under the Investment Advisers Act of 1940, the SEC is empowered to: set bail. take evidence. subpoena witnesses.

real estate agents.

Under the Investment Advisers Act of 1940, the exclusion for providing investment advice that is solely incidental to the practice of a profession is NOT available to:

principal office and place of business

Under the Investment Advisers Act of 1940, the executive office of the investment adviser from which the officers, partners, or managers of the investment adviser direct, control, and coordinate the activities of the investment adviser is properly referred to as the

All banks that are not investment companies. The act excludes the following from the definition: banks or bank holding companies that are not classified as investment companies; publishers of bona fide publications of general circulation (newspapers and magazines); persons advising about certain securities (U.S. government or agency issues); broker-dealers not receiving special compensation for giving advice; and persons whose advice is incidental to their profession, such as lawyers, accountants, engineers, and teachers.

Under the Investment Advisers Act of 1940, which of the following are excluded from the definition of an investment adviser?

I and II. Usually, anyone who meets the federal definition of investment adviser must be registered with the SEC. Some investment advisers are not excluded from the definition but are exempt from the registration requirements of the SEC. One example is an adviser whose clients are all residents of the state in which the adviser maintains its principal office who renders no advice on any exchange-listed security and does not give advice to any private funds. Advisers whose clients are limited to insurance companies are exempt from registration, as are foreign advisers who limit themselves to fewer than 15 clients a year (none of whom can be investment companies), do not advertise or hold themselves out to be investment advisers and have less than $25 million in AUM in the U.S. There is no exclusion for advisers whose only clients are banks.

Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration? Foreign investment advisers with fewer than 15 clients per year who do not hold themselves out as investment advisers to the public and have less than $25 million in AUM in the United States. Investment advisers who conduct all of their business in 1 state and who do not provide advice on securities listed on an exchange and have no private funds as clients. Investment advisers whose only clients are banks.

I and II. Under the Investment Advisers Act of 1940, the following are excluded from the definition of investment adviser: banks or bank holding companies; publishers of bona fide publications of general and regular circulation, such as newspapers and magazines; persons advising about government issues; and persons whose advice is incidental to their profession and for which they receive no separate compensation.

Under the Investment Advisers Act of 1940, which of the following is (are) excluded from the definition of an investment adviser? The publisher of a financial newsletter on a paid subscription basis, which contains only general securities recommendations. Persons whose investment advice relates solely to issues distributed or guaranteed by the U.S. government. A lawyer who charges a separate fee for investment advice that is provided as a separate part of the business.

I, II, III and IV.

Under the National Securities Markets Improvement Act of 1996, the federal covered security exemption from state registration includes: securities issued by investment companies registered under the Investment Company Act of 1940. securities traded on the Nasdaq Stock Market. securities traded on the New York Stock Exchange. securities traded on the American Stock Exchange.

The adviser must report the location of funds or securities at 6-month intervals. Advisers who have custody must segregate client securities and funds and keep them in a safe place. Client funds must be deposited in bank accounts containing only the client's funds, and unless using a qualified custodian, the adviser must be named as agent or trustee. The adviser is required to report quarterly with a written, itemized statement indicating the funds and/or securities in the adviser's possession and all transactions in the account. Annually, the adviser must arrange for an independent audit of the client's account and the results must be forwarded to the SEC. Thus, the adviser reports every three months, not every six months.

Under the Investment Advisers Act of 1940, which of the following statements is NOT true regarding custody of a client's funds or securities?

If the adviser ceases to act as an adviser or goes out of business, the SEC will cancel the registration. Under the Investment Advisers Act of 1940, registrations become effective 45 days after filing, unless delayed by the SEC, and remain effective until withdrawn by the adviser or canceled, suspended, or revoked by the SEC. The SEC will cancel a registration if the adviser is no longer in existence or in the business. Although the ADV-W is the form for withdrawal, it becomes effective upon acceptance by the IARD, provided however that the investment adviser's registration continues for a period of 60 days after acceptance solely for the purpose of commencing a proceeding regarding any violation of the Act.

Under the Investment Advisers Act of 1940, which of the following statements regarding an adviser's registration is TRUE?

Receipt of excessive compensation is a breach of the adviser's fiduciary duty to the client.

Under the Investment Advisers Act of 1940, which of the following statements regarding the receipt of excessive compensation by an investment adviser is TRUE?

III and IV. For the fund to impose 12b-1 charges, the distribution plan must be in writing and approved by a majority of the outstanding shares as well as a majority of the board of directors, including a majority of directors classified as outside directors.

Under the Investment Company Act of 1940, SEC Rule 12b-1 allows a fund to charge distribution and sales expenses to net assets as a percentage of the total assets. Normally, the cost of distribution of the shares is paid by the underwriter out of the sales load paid by the individual purchaser. For a fund to impose 12b-1 charges, which of the following conditions apply(ies)? The board of directors has sole approval authority. The majority of the outstanding shares has sole approval authority. Both the board and the majority of outstanding shares must approve it. A distribution plan must be written.

II and IV.

Under the Investment Company Act of 1940, which of the following statements regarding the investment objective of a mutual fund are TRUE? Only the board of directors needs to approve changes in the investment objective. The majority of outstanding shares must vote to approve changes in the investment objective. The SEC must approve all changes in the investment objective. The investment adviser does not set, but tries to meet, the investment objective.

I, II and III. When advisers have custody of clients' securities or funds, they must abide by the following rules: (1) securities must be segregated and identified by clients and kept safe; (2) client funds must be deposited into bank accounts that contain only the client funds, and the adviser must be named trustee; (3) records of all funds, securities, and transactions affecting clients' accounts must be kept; (4) clients must be sent notice of the location of funds and securities and any changes that take place there; (5) clients must receive a quarterly statement showing all funds and securities in the adviser's possession and any transactions that have taken place; (6) the adviser must arrange for a surprise audit by an independent public accountant of all securities and funds in the adviser's custody each year.

Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser who has custody of clients' securities or funds must: keep funds deposited in accounts containing only client funds. be subject to a surprise audit performed at least annually by an independent accountant. send clients' statements at least once every three months showing balances.

I and III. An advisory contract must prohibit assignment without the client's consent and must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated. In addition, it must describe the fee or the formula for computing the fee. Contracts would never contain information regarding the adviser's past performance.

Under the NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, advisory contracts must: prohibit assignment of the contract without the client's consent. contain information on the adviser's performance for at least the most recent 12-month period. describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated.

a prohibition against testimonials from clients.Advertisements may not include testimonials from clients or others, refer selectively to past recommendations, or refer to a chart or device for evaluating securities without explaining its limitations and difficulties. There is no requirement for filing of advertising with the SEC, or anyone else for that matter. Introductory reduced-fee offers, while rare, are not prohibited as long as they are not discriminatory. Past performance may be used in advertising as long as it meets the requirements of the Rule.

Under the NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, investment advisers who advertise must comply with the rules of the Investment Advisers Act of 1940, which include:

II and III. The NSMIA streamlined much of federal and state securities law and specifically prevented dual regulation. As a result, states may not impose capital, custody, and recordkeeping requirements that exceed requirements under federal securities law. States can register securities and investment advisers that are not covered by the registration requirements of federal legislation.

Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from: registering securities. establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of 1934. establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law. registering investment advisers.

5 years, the first 2 readily accessible

Under the Uniform Securities Act, most books and records of investment advisers must be maintained for

the names of all the owners of the company's stock. The names of all of the owners of the company's stock are not required. The identity and stock holdings of the officers, directors, and holders of more than 10% of the company's voting stock, as well as the principal business of the issuer and current financial information, must be disclosed.

Under the Securities Act of 1933, a registration statement of an issuer must contain all of the following information EXCEPT:

I and III. During the cooling-off period, the SEC reviews registration statements and may issue stop orders. The SEC does not approve securities; it only clears them for distribution to the public.

Under the Securities Act of 1933, the Securities and Exchange Commission has the authority to: issue stop orders. approve new issues. review standard registration forms.

I and III. Both the Uniform Securities Act and the Securities Act of 1933 exempt securities issued by banks, trusts, or savings and loans. While the security is exempt under both acts from registration and prospectus delivery requirements, it is never exempt from the antifraud provisions of the acts.

Under the Securities Act of 1933, the sale of stock of a state bank is exempt from which of the following? Prospectus requirements. Antifraud provisions. Registration requirements.

I, III and IV. The principal executives of the company involved with money and a majority of the board of directors are required to sign the registration statement attesting to the facts presented as being true to the best of their knowledge and belief. This includes the chief executive officer, chief financial officer, and a majority of the board, but not the chief operating officer.

Under the Securities Act of 1933, when registering securities with the SEC, who must sign the registration statement? The chief executive officer (CEO). The chief operating officer (COO). A majority of the board. The chief financial officer (CFO).

A telephone call from ​an agent of a broker​-dealer​ to a client advising the purchase of a security Any written communication that offers a security for sale-including a newspaper and media communications, such as radio and television offers-is considered a prospectus. This definition excludes individual offers made orally and discussions between an agent and a customer. A publicity release that describes a security, a newsletter from a brokerage firm announcing the availability of a security, and an advertisement in a newspaper describing the benefits of a certain mutual fund may be considered prospectuses. A telephone call from an agent to a client advising the purchase of a security is not considered a prospectus because it involves an individual telephone solicitation between an agent and a client.

Under the Securities Act of 1933, which of the following does not meet the definition of a prospectus?

The SEC has the authority to investigate such violations unless the person is a financial institution. The SEC is charged with administering the federal securities laws, under which the Municipal Securities Rulemaking Board (MSRB) exists. So the SEC has jurisdiction over the MSRB. However, financial institutions come under the jurisdiction of banking regulatory authorities.

Under the Securities Exchange Act of 1934, which of the following is TRUE regarding the jurisdiction of the SEC over a person who violates the rules of the Municipal Securities Rulemaking Board?

II and III The Securities Exchange Act of 1934 defines government securities as those issued or guaranteed by the U.S. government or one of its agencies. Securities issued or guaranteed by a state, county, city, etc., or any agency of a nonfederal governmental unit are municipal securities.

Under the Securities Exchange Act of 1934, which of the following is a government security? Bonds issued by the state of Indiana Securities which are issued or guaranteed by the Tennessee Valley Authority Treasury bills

aiding the firm's research department. A person who has passed the NASAA exam cannot transact business until the Administrator notifies the employer that the registration is effective.

Under the USA, a person who has passed the appropriate NASAA examination but whose license is pending may participate in:

each year on December 31.

Under the USA, agent registrations expire:

stock issued by an insurance company not offering policies in this state. Had the insurance company been authorized to do business in this state, its securities offering would be exempt.

Under the USA, all of the following issues would be exempt from registration EXCEPT:

60 days.An agent may appeal a final order of the state Administrator but a written petition must be filed with the appropriate court within 60 days of the entry of the Administrator's order.

Under the USA, an agent may file for a review of an Administrator's revocation order within how many days of revocation?

the addition or removal of any of the partners Investment advisers organized as partnerships must include in their advisory contracts a statement that they will notify all clients of a change to the composition of the partnership within a reasonable period of time. All of the other choices mentioned here would require prompt notification, which, although not quantified in the USA, is much sooner than a reasonable period of time.

Under the USA, every investment adviser organized as a partnership, must include in its contracts an agreement to notify clients within a reasonable period of time

nonexempt, nonregistered security issued by a foreign corporation from a country with which the U.S. government maintains diplomatic relations. Nonexempt, nonregistered securities cannot be lawfully sold in a state unless in an exempt transaction (and nothing in the question indicates that is the case). The fact that they are issued by a foreign corporation is irrelevant; nonexempt securities must be registered. A federal covered security need not be registered in a state. Securities issued by banks, not bank holding companies, are always exempt securities.

Under the USA, it is unlawful to sell a:

$5,000 and three years' imprisonment.

Under the USA, what are the maximum penalties for a securities-related felony?

I and III. The gift of assessable stock (a rarity) is considered both an offer and a sale under the USA because the recipient could be assessed in the event of company bankruptcy. The sale of a warrant is legally no different from the sale of the stock.

Under the USA, which of the following are considered a sale or offer to sell? The gift of assessable common stock. The gift of nonassessable stock. The sale of a warrant to purchase stock.

I and IV. U.S. government securities and securities of credit unions are exempt securities. Both unsolicited transactions and those between issuers and underwriters are exempt transactions, not exempt securities.

Under the USA, which of the following are exempt securities? U.S. government securities. Unsolicited transactions. Transactions between issuers and underwriters. Securities of credit unions.

I and II. Transactions that occur between an issuer and underwriter and an unsolicited customer order to buy any security (exempt or nonexempt) are exempt transactions. It is important to remember that a transaction's exempt status generally depends on the trade's participants and/or type of trade, rather than on the security. U.S. Treasury bonds and municipal securities are exempt securities. The manner in which they are sold and to whom determines whether it is an exempt transaction.

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. U.S. Treasury bonds. Municipal securities.

I and II. A commodity option contract and treasury stock are securities under the USA. A commodity option contract is a security, while a commodity futures contract is not. A Keogh plan is a vehicle for an investment, but it is not a security in and of itself.

Under the USA, which of the following are securities? Commodity option contract. Treasury stock. Keogh plan.

A condominium purchased as a primary residence

Under the USA, which of the following is NOT a security?

XYZ Broker-dealer, a firm with an office in the state whose only clients are insurance companies. Regardless of who its clients are, XYZ is considered a broker-dealer because it has an office in the state. Banks and trust companies, as well as agents, are specifically excluded from the definition of broker-dealer.

Under the USA, which of the following is considered a broker-dealer in a state?

individual or entity considered able to enter into an enforceable contract. According to the Uniform Securities Act (USA), a person is a competent adult individual or an entity that is able to enter into an enforceable contract. For example, the American Red Cross is a person (legal entity), although as a charitable organization, it is not subject to federal income tax.

Under the Uniform Securities Act (USA), a person is best defined as a(n):

is in the business of effecting securities transactions for its own account or for the accounts of others. A broker-dealer is any person, partner, officer, director, or securities firm engaged in the business of effecting securities transactions for the accounts of others (broker) or for its own account (dealer).

Under the Uniform Securities Act, a broker-dealer is defined as any person who:

an investment adviser The definition of investment adviser includes any person who for compensation engages in the business of advising others as to the value of securities or the advisability of buying, selling, or investing in securities or who, as a part of a regular business, publishes securities analyses or securities reports for individual investors on a paid subscription basis.

Under the Uniform Securities Act, a person whose business model is selling reports on a subscription basis concerning specific securities to investors based on their individual objectives will be defined as

every December 31, unless renewed.

Under the Uniform Securities Act, agent's registrations expire:

advisers who have conducted business with no more than 6 individual clients in the state within the last 12 months. The de minimis rule for a registered investment adviser who has no place of business in the state is fewer than 6 clients. Doing business with six clients within the last 12 months exceeds this de minimis amount and, therefore, the exemption from registration does not exist. All others listed as possible answers are institutional or professional type of investment clients. If a registered investment adviser works only with this type of client, an exemption from registration in that state exists as long as the registered investment adviser has no place of business in that state.

Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as an investment advisers EXCEPT:

it prevents the broker-dealer from re-registration in the future.

Under the Uniform Securities Act, all of the following statements regarding a broker-dealer withdrawing its registration are true EXCEPT:

I and II. The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing, as long as notice is given that a hearing will be granted upon written request. The Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator's assets; or refer charges to the state attorney general or district attorney for prosecution. The Administrator does not have the power to invoke criminal penalties (three years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts.

Under the Uniform Securities Act, an Administrator has which of the following powers? The power to seek court orders for the payment of restitution against any violators of the act. The power to issue a cease and desist order with or without prior hearings. The power to impose fines for violations of the act up to $5,000.

I and II. An adviser who has custody must submit to an annual surprise audit by an independent accountant and include an audited balance sheet with Part 2 of Form ADV, which must be filed with the Administrator and also forms the basis of the information that must be contained in the disclosure brochure. Other requirements include segregation of client securities, deposit of client funds into separate bank accounts, written notification to clients of the location of their property, and quarterly (not monthly) reports to clients on their accounts.

Under the Uniform Securities Act, an adviser who has custody of client securities or funds must: submit to a surprise audit of client accounts by an independent accountant each year. provide an audited balance sheet to the Administrator each year and include a balance sheet with his disclosure statement (brochure) to all prospective clients. send monthly statements to clients on the status of their accounts.

individuals with a net worth in excess of $5 million. Provided his clients are institutional investors and the adviser has no place of business in a state, he is not required to register as an investment adviser. Other than the de minimis or snowbird exemptions, there are no other cases where an IA serving individuals would not have to register.

Under the Uniform Securities Act, an investment adviser is exempt from registration if he has no place of business in a state and his only clients are any of these EXCEPT:

I, II, III and IV. An adviser who has control of or discretionary power over client assets or who charges fees of more than $500, six or more months in advance is required to disclose any condition that might affect its ability to carry out contractual obligations to its clients. Any adviser is also required to disclose almost any legal or disciplinary proceeding that would involve its integrity.

Under the Uniform Securities Act, an investment adviser who has custody of or discretionary authority over client assets or who charges fees of more than $500, six or more months in advance is required to disclose which of the following to its clients? The financial condition of the adviser that could impair its ability to meet contractual commitments to clients. A legal or disciplinary event that would be material to evaluating the adviser's integrity or ability to meet its contractual commitments to clients. That the adviser was convicted of or pleaded no contest to a felony within the past ten years or is currently subject to a criminal proceeding involving a felony. That the adviser was found to have violated SRO rules which resulted in suspension, expulsion, or a fine of more than $2,500.

had no more than five clients in that state within the past 12 months.

Under the Uniform Securities Act, an investment adviser would be exempt from registration in a state in which he has no place of business if he:

notification was given to the Administrator and custody was not prohibited by that state's rules. In order to maintain custody, notification must be given to the Administrator and, obviously, the state must not have a rule forbidding custody. Does the customer have to approve of the custody arrangement? Yes, but that is done AT the time of entering into the contract, not before. What about net worth? Under the USA, in order to maintain custody, an IA must have net worth of no less than $35,000.

Under the Uniform Securities Act, an investment adviser would be permitted to maintain custody of customer cash and/or securities if:

on the departure or death of a majority shareholder of an investment advisory corporation, the advisory agreement must be renewed to prevent an unlawful assignment of the account. Investment advisers organized as corporations are under no obligation to inform their clients of changes to shareholders. However, if an investment adviser is a partnership, clients must be notified of any change in the membership of the partnership. Keep in mind the distinction between notification and assignment. Investment partnerships must notify clients of any change in the partnership's membership, no matter how insignificant the partner's position in the firm. However, the death of a minority partner does not constitute an assignment (transfer) of the account although the information must be communicated to clients. A change in a majority interest in the partnership would be an assignment of the account that requires client consent.

Under the Uniform Securities Act, an investment advisory contract must contain (in writing) all of the following provisions EXCEPT:

I, II, III and IV. l four options describe exempt transactions. Exempt transactions are not subject to the advertising and sales literature filing requirements of the Administrator.

Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category? Any isolated, nonissuer transaction. Any sale to a financial institution. Any transaction by the executor of an estate. Any transaction between an issuer and underwriters.

5 business days of entry. The brochure is generally given to customers at least 48 hours before they enter into a contract for advisory services. In that case, a client who has paid an up-front fee is not entitled to a refund once the contract commences. If the brochure is not delivered at least 48 hours in advance, the customer must have the right to cancel within 5 business days of the contract date and obtain a return of all up-front fees (other than advisory fees proportionate to the time the money was managed).

Under the Uniform Securities Act, delivery of the investment adviser's brochure may be made less than 48 hours prior to the entering of the advisory contract, provided the customer can cancel without penalty within:

II and III.

Under the Uniform Securities Act, if an investment adviser takes custody of client assets, which of the following statements are TRUE? Clients must receive monthly statements. Clients must receive quarterly statements. The adviser must be audited at least annually. The adviser must be audited at least semiannually.

30 days. If not denied and no disciplinary proceedings are instituted, an application for registration becomes effective at noon on the 30th day after being filed.

Under the Uniform Securities Act, if not denied, an application for registration as investment adviser will generally become effective how soon after filing?

I, II, III and IV. All of these types of communications, unless sent to persons connected with the investment adviser, require maintenance of a file containing a sample copy.

Under the Uniform Securities Act, if sent to two or more persons, a file must be maintained containing a copy of which of the following? Bulletins. Newspaper articles. Notices. Websites.

I, II and III The Administrator may by order summarily postpone or suspend registration pending final determination of any proceeding under the USA. Upon the entry of the order, the Administrator shall promptly notify the applicant or registrant, as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative, that it has been entered and of the reasons therefor and that within fifteen days after the receipt of a written request, the matter will be set down for hearing. Since the law states that the employer will be notified once the action commences, it should be obvious that once the suspension order becomes final, the employer will be notified.

Under the Uniform Securities Act, in order for the Administrator to suspend an agent's registration notice must be given of the proposed action and hearing notification must be given to the employing broker-dealer of the final order the agent must be presented with an opportunity for a hearing no notice or hearing is required to issue a suspension

II, III and IV If a person offering advice on securities has no place of business in a state and deals only with institutional investors or other investment advisers, registration is not required. Also, if a person has no place of business in a state and has five or fewer noninstitutional clients in the state during any rolling 12-month period, they are not deemed to be investment advisers in that state under the USA. ​Please note that choice I specifies individuals who are accredited investors. Although institutional accredited investors would qualify the adviser for the exemption, individuals do not.​

Under the Uniform Securities Act, persons providing investment advice do not have to register as investment advisers if they have no place of business in the state and limit their clientele to individuals who meet the accredited investor standards deal only with institutional investors have five or fewer noninstitutional clients in the state during any 12-month period deal only with other investment advisers

make rules, orders, and forms the Administrator considers necessary to carry out the provisions of the act. The Administrator has power to make, amend, and rescind such rules, forms, and orders it has issued as necessary to carry out the provisions of the act. The state Administrator may not waive provisions of the act.

Under the Uniform Securities Act, the Administrator may:

do not apply. An exempt security or transaction is exempt from the registration requirements and the requirements for filing of advertising and sales literature. It is not exempt from the antifraud provisions of the act.

Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator:

I and IV. If a security or the transaction in which a security is sold is not exempt, the security must be registered with the state. The sale of a security in violation of the act, such as the sale of an unregistered nonexempt security, exposes the broker-dealer and agent to civil liability. If a nonexempt security is sold through an exempt transaction, such as an unsolicited transaction, the security effectively becomes exempt for purposes of registration and, therefore, legal.

Under the Uniform Securities Act, the sale of an unregistered nonexempt security: is permissible if the order was unsolicited. is permissible if the customer agrees not to pursue legal action. is permissible if the security appreciates in value. may subject the agent to civil liability.

person who is paid a fee for advising customers on securities. An investment adviser is any person who is in the business of selling investment advice and is paid a fee for doing so.

Under the Uniform Securities Act, the term investment adviser does not exclude a:

II, III and IV. The term person has an extremely broad definition. It is best to remember the three things that are not persons: minors, individuals who have been judged incompetent, and deceased individuals.

Under the Uniform Securities Act, the term person would include: a minor who has a valid U.S. passport. a political subdivision. an unincorporated association. an inter vivos trust.

Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter.

Under the Uniform Securities Act, which of the following activities is an example of churning?

II and III. An investment adviser provides advice related to securities for compensation. The advice may be given orally or in writing.

Under the Uniform Securities Act, which of the following are elements in the definition of an investment adviser? Advice as to investments must be in writing, not given orally. Advice must relate to the value of securities or recommendations to purchase or sell securities. There must be compensation for services rendered.

The delivery of a prospectus to a prospective purchaser. A prospectus is the document that offers a security for sale. A tombstone advertisement always states that in and of itself, it is not an offer to sell, that such an offer may only be made by prospectus, and where a prospectus may be obtained.

Under the Uniform Securities Act, which of the following constitutes an offer of a security?

100 shares of ABC stock received in exchange for 200 shares of XYZ stock as a result of a corporate merger. In order for a sale to occur, there must be some financial consideration. In the case of the merger, shares are exchanged without any payment of funds. Any bonus offered in connection with a sale of another security is a sale. A gift of assessable stock is always considered a sale; gifts of nonassessable stock are not sales.

Under the Uniform Securities Act, which of the following is NOT an offer or a sale?

An individual who effects securities transactions for commissions.

Under the Uniform Securities Act, which of the following is an agent?

A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities. A broker-dealer who receives fees for investment recommendations is an investment adviser because that fee is considered special compensation relating to securities advice. The antiques dealer provides nonsecurities related advice. Publishers may provide generic investment advice without registering as investment advisers. Commercial bankers are excluded from the definition of an investment adviser.

Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser?

A solicitor for an investment advisory firm who is paid a fee for his services. If the goal is obtaining clients for the investment adviser, a solicitor is considered an investment adviser representative under the Uniform Securities Act. An employee who performs clerical or administrative functions only is not an investment adviser representative. Precious metals are not securities, and a person advising on them is not considered an IAR. An agent is a representative of a broker-dealer.

Under the Uniform Securities Act, which of the following qualifies as an investment adviser representative?

He is not required to register as an investment adviser in that state. Investment advisers who have no place of business within the state are not defined under the act as investment advisers if they have no more than 5 clients within the state in a 12-month period. This is known as the de minimis exemption.

Under the Uniform Securities Act, which of the following statements is TRUE about an investment adviser who does not have an office in a state and solicits no more than 5 clients in that state?

I and III. Whenever an individual begins or ends employment with a state registered investment adviser, the investment adviser must notify the Administrator. A representative's registration is only valid while employed by a registered investment adviser.

Under the Uniform Securities Act, which of the following statements regarding the employment of investment adviser representatives by a state registered investment adviser is (are) TRUE? The investment adviser must notify the Administrator whenever a representative is terminated. An investment adviser is not required to notify the Administrator when a representative begins employment. The registration of a representative is effective only as long as the individual is employed by a registered investment adviser.

A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial. A registration is effective at noon, 30 days after the application has been filed if there is no denial or stop order in process. Registrations of securities professionals expire on December 31, unless renewed. If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.

Under the Uniform Securities Act, which of the following statements relating to the registration requirements of investment advisers is TRUE?

A registered broker-dealer who receives compensation for providing investment advice.

Under the Uniform Securities Act, who must register as an investment adviser?

the association between the investment adviser and the broker-dealer with whom the overall investment plan will be implemented. Advisers must disclose to clients any outside interest or potential conflicts of interest involved in their recommendations or transactions for those clients. Failure to disclose additional compensation related to the advisory function would be considered fraudulent. If an advisory firm is also a broker-dealer and will enjoy transaction-related compensation if the advisory client acts on the adviser's recommendation, this must be disclosed in writing and the client must consent in writing. There is no requirement that an adviser disclose to its clients the number of its other clients. The adviser is required to disclose disciplinary actions taken by regulatory authorities, but not the absence of such actions. The adviser is not required to disclose its consistent transactions, but must make disclosure if its transactions are not consistent with the advice given.

Under the antifraud provisions of the Investment Advisers Act of 1940, an investment adviser must disclose to clients:

a sale exempt from the registration and advertising provisions of the USA. An agent who sells shares of any security to an insurance company is engaged in an exempt transaction that is not bound by the advertising and registration requirements of the USA. Any sale to certain institutional customers, such as banks and insurance companies, is an exempt transaction. Neither exempt securities nor exempt transactions must adhere to the registration and advertising provisions of the USA. This is an exempt transaction due to the nature of the purchaser, not the type of security being sold.

Under the terms of the USA, an agent who sells shares of a Nasdaq Stock Market security to an insurance company has engaged in:

I and II. An Administrator may initiate suspension proceedings against a broker-dealer on discovering that its registration has been suspended in another state and on conviction of a violation of the Securities Exchange Act of 1934. The Administrator may not initiate revocation proceedings against a broker-dealer later than 1 year after the broker-dealer has withdrawn its registration. The Administrator may not suspend or revoke a broker-dealer's registration at a subsequent time on the basis of facts known by the Administrator at the time of the initial application.

Under which of the following circumstances can an Administrator initiate a suspension or revocation proceeding against a broker-dealer registered in the state? On discovery that the broker-dealer's license had been suspended in another state. On the conviction of a violation of the Securities Exchange Act of 1934. 2 years after the withdrawal of registration by the broker-dealer. On the basis of facts known by the Administrator at the time of the broker-dealer's initial registration.

The transactions are authorized in writing by the broker-dealer before execution of the transactions. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered contrary to the standards imposed for an agent to effect securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer before execution of the transaction.

Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer?

I, II, and III The NASAA Model Rule permits performance-based fees if the client has at least $1 million in assets under management or a net worth of $2.1 million provided the compensation is based on gains and losses. Unlike the Investment Advisers Act of 1940, under the NASAA Model Rule, state covered advisers must make additional disclosures, including the incentive to take additional risk.

Under which of the following circumstances does NASAA allow an investment adviser to charge performance-based fees? The client must initially have $1 million under management or a net worth of $2.1 million. Compensation paid in this way must be for gains reduced by losses. Disclosure must be made that the fee arrangement may create an incentive for the investment adviser to make investments that are riskier or more speculative than would be the case in the absence of a performance fee.

If the customer is a bank.

Under which of the following circumstances may an agent borrow money from a customer?

When the distribution is paid in equal annual amounts over the owner's life. A distribution from an IRA taken in equal annual amounts over the owner's life is not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs. The exception for qualified domestic relations orders (QDROs) and for retirement at age 55 apply to employer-sponsored plans but not to IRAs.

Under which of the following circumstances would a premature distribution from a traditional IRA be exempt from the premature distribution penalty?

every December 31.

Unless renewed, registrations of associated persons of a broker-dealer under the Uniform Securities Act expire:

if the broker-dealer's membership in the NASD was revoked because of a violation of NASD rules. This is tricky because the USA only permits an Administrator to take action against a person convicted of a securities violation in another state if that action would be a violation in his state. However, when the license is revoked on a federal basis, whether through the actions of the SEC or a national SRO like NASD (now FINRA but the exam may still use NASD), it would be cause for denial by the Administrator even when the action involved is not a violation in his state. As long as BD meets the SEC's net capital requirements, the state cannot impose a higher one.

Using the powers granted under the Uniform Securities Act, the Administrator would have the right to deny the registration of a broker-dealer:

It depends on the individual's life expectancy. The time horizon for an individual who has just retired is the balance of expected life.

What would be the time horizon for a 65-year-old client who has just retired?

II and III. When trading for its own account, a broker-dealer is functioning as a principal or dealer. When trading for the accounts of others with no participation as a direct party to the trade, a broker-dealer functions in an agency capacity.

When a broker-dealer engages in a customer transaction from its own account, which of the following statements are TRUE? Partners of the broker-dealer are trading in their personal accounts. The broker-dealer is trading from its inventory with customers. The broker-dealer must disclose its capacity as a principal in the transaction. The broker-dealer must disclose its capacity as agent in the transaction.

Registrations of agents of that firm are no longer in effect. An agent's license is only effective as long as that agent is associated with a registered broker-dealer. The agent's registrations are neither held in escrow until a hearing nor does the Administrator choose a broker-dealer to oversee activities of the agents until the broker-dealer's registration is reinstated.

When a broker-dealer's registration under the Uniform Securities Act is revoked, which of the following occur?

the security may be legally sold in the state We can never misrepresent a security's registration. The Administrator, in registering a security, declares that the security is legal for sale in the state. Never use the word approved when referring to registration of a security or a securities professional. Only exempt securities and exempt transactions are exempt from the advertising filing requirements, and federal covered securities don't register with the Administrator; they notice file.

When a security is registered with the Administrator, it means that

SEC. A security is registered by coordination when there is a simultaneous federal and state registration. Under normal circumstances, once the SEC has declared the registration effective, it is also effective in those states where the registration was coordinated.

When a security registers by using coordination, under normal circumstances, the effective date is determined by the:

The purposes, terms, distribution requirements, and other circumstances of the trust.

When a trustee is managing the trust assets, which of the following is the most important consideration?

I and II. An agent subject to a final order of an Administrator has the right to have the order reviewed by an appropriate court in the state. If the court finds that the circumstances warrant such action, additional evidence may be submitted by any party to the case. An agent subject to an order must file for a judicial review of the Administrator's final order within 60 days.

When an Administrator issues a final order, an agent subject to the order may: obtain a review of the order in an appropriate court of law. request that additional evidence be presented to the court. request a hearing 90 days after the final order. not appeal a court's decision.

a potential conflict of interest There is nothing improper about recommending a proprietary mutual fund as long as the potential conflict of interest is disclosed. Investment advisers and their representatives have fiduciary responsibility; such only applies to agents in certain limited circumstances.

When an agent recommends a proprietary mutual fund to a client, it is considered

not engage in advisory activities until the state Administrator issues his license.

When an individual has successfully passed the Series 66 examination, he can:

II and III. A bona fide offer of a free service is permissible even if a third party delivers it. An agent may provide referrals to a tax professional without restriction. An agent cannot imply that FINRA has qualified him as an investment professional. Representing rumor as fact is a serious misrepresentation and violation of the USA.

When communicating with a client, an agent is prohibited from: promising free services that will be provided by a third party. representing, as fact, information that is based on speculative rumor. holding himself out as qualified by FINRA. offering a referral to a qualified tax or legal professional.

II and III. Unlike mutual fund shares, ETF shares can be traded on margin and sold short. They are similar in that they both represent an entire portfolio or basket of securities and both can have portfolios correlated to a specific index.

When comparing exchange-traded funds (ETFs) to mutual funds, some features available in ETFs that are NOT found in the mutual funds would include the ability to: correlate to a specific index. sell short. be bought and sold on margin. represent an entire portfolio, or basket of securities.

the length of time the fund manager has been managing the fund

When comparing mutual funds, one of the factors to consider is

I and IV. Any individual who has attained the age of 50 or older may make catch up contributions to an IRA up to a maximum of $1,000 per year. The Roth IRA is the only self-funded plan that may continue past age 70½. To have tax-free withdrawals, the account must be open for at least 5 years and the recipient must be at least 59 ½. Up to a maximum of $10,000 may be withdrawn without tax or penalty if it is used to buy, build or rebuild a first home.

When discussing the features of a Roth IRA with a 52-year-old client, it would be correct to state that: there is a $1,000 catch-up benefit for contributors who are 50 or older. once the account has been in existence at least 5 years, retirement benefits may be withdrawn free of any income tax. if needed for the first-time purchase of a principal residence, up to $10,000 per year may be withdrawn without tax. if the client has earned income well into his 70s, he may still continue to contribute to the plan.

At or prior to the time the account is approved for options trading Prior to opening an account to trade options, the owner must be told about the risks involved with trading options. By providing the owner with an options disclosure document entitled Understanding the Risks and Uses of Options at or prior to the time of account approval, the broker-dealer satisfies the risk disclosure requirements.

When does a customer have to receive the OCC Options Disclosure Document?

If a reasonable person would base an investment decision on the omitted information. Deliberate omission of a fact constitutes fraud if the omitted information is material in nature (i.e., if a reasonable investor would use the information in making an investment decision). This is true whether the information is made in connection with a primary offering or a secondary market transaction.

When does a deliberate omission of a fact in a securities sale constitute fraud?

alimony. An individual receiving alimony as part of a divorce decree must report that as income for tax purposes. The ex-spouse paying the alimony treats that as a deduction from income. There are two problems here. First, we're not told which side this individual is on - paying or receiving the alimony. Second, if we are doing a profile for a client, the receipt of child support is considered income in terms of figuring any discretionary income, even though it is not taxed. But, NASAA doesn't always think of these things so we have to give them the answer the way they want it.

When looking at an individual's income statement, which of the following would be included:

When there is a third party other than the issuer providing a guarantee for the payment of interest and principal. Under the Uniform Securities Act, the term guaranteed means that the interest and principal (in the case of a debt security) or the dividends (in the case of an equity security) are guaranteed by some other third party. Of course, the guarantee is only as good as the guarantor. Capital appreciation is never guaranteed.

When may an agent use the term guaranteed when describing a specific security issue?

I and II. SEC Release 1A-1092 requires certain disclosures under the antifraud provisions of the Investment Advisers Act. They must disclose an affiliation with a securities broker-dealer if the advisory service is independent of the broker-dealer; the adviser only recommends products offered by the broker-dealer; the adviser will be compensated by the broker-dealer for the transaction; or the products recommended by the adviser are available from other broker-dealers. The adviser must also disclose personal securities transactions if they are designed to take advantage of the market impact caused by recommendations to clients or if personal transactions are inconsistent with the advice given to clients. Advisers must disclose the amount of compensation received from transactions through any broker-dealer, from any issuer, and from sales of nonsecurities products. They are not required to disclose all personal transactions.SEC Release 1A-1092 requires certain disclosures under the antifraud provisions of the Investment Advisers Act. They must disclose an affiliation with a securities broker-dealer if the advisory service is independent of the broker-dealer; the adviser only recommends products offered by the broker-dealer; the adviser will be compensated by the broker-dealer for the transaction; or the products recommended by the adviser are available from other broker-dealers. The adviser must also disclose personal securities transactions if they are designed to take advantage of the market impact caused by recommendations to clients or if personal transactions are inconsistent with the advice given to clients. Advisers must disclose the amount of compensation received from transactions through any broker-dealer, from any issuer, and from sales of nonsecurities products. They are not required to disclose all personal transactions.

When must an investment adviser disclose personal securities transactions to a client? If the adviser makes trades in his own account that are inconsistent with advice given to a client. If the adviser makes trades that are designed to take advantage of the impact caused by recommendations to clients. Investment advisers must disclose all personal transactions to clients.

Hedge.

When reading the prospectus for a fund, you notice that it states that the fund may make portfolio purchases on margin, take short positions, and use arbitrage techniques. This is most likely what type of fund?

Coordination. Since the offering will be made in more than one state, registration with the SEC is required. Coordination is concurrent registration with the SEC and the state for public offerings. Notice filing pertains to certain federal covered securities, primarily by investment companies (mutual funds).

Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states?

I and II Because an exchange-traded fund is purchased and sold on an exchange, the rules generally applying to all exchange products, such as purchasing them on margin, would apply. Leveraged funds can use a number of different securities types including derivative products, and trading techniques such as trading on margin as a means of attaining the leveraged returns they promise.

Which of the following 2 are TRUE of a leveraged exchange-traded fund (ETF)? The leveraged ETF may be purchased on margin. Securities within the leveraged fund portfolio may be purchased on margin. The leveraged ETF may never be purchased on margin. Securities within the leveraged fund portfolio may never be purchased on margin.

Announcing that the first 50 new clients to sign up will receive a 25% discount on their fees for the first year This is not considered discrimination, because the discount applies equally to all (if they are among the first 50). Fee reimbursement or waivers are not permitted. The 5-day withdrawal provision applies to state registered investment advisers when the brochure is not delivered at least 48 hours prior to (not after) the signing of the contract.

Which of the following actions by an investment adviser registered in 3 states is permitted?

I and IV.

Which of the following actions, if performed by a registered investment adviser representative, would NOT be considered inappropriate under the Uniform Securities Act? Recommending suitable securities to a client. Lending money to a client who is a regular member of your Sunday group at the country club. Misappropriating client assets to benefit the client's favorite charity. Without having discretionary power, determining when would be the most opportune moment to sell a specific security holding the client has indicated he wishes to liquidate.

I and III. Splitting commissions with another agent at the same broker-dealer is an allowable activity, as is borrowing money from colleagues and lending institutions. It is a prohibited practice to borrow money from a client not in the lending business or establish a joint account with a client without written permission from the broker-dealer and the client.

Which of the following activities are allowable activities of an agent? Borrowing money from a colleague at the agent's broker-dealer. Borrowing money from a client at the broker-dealer. Splitting commissions with another agent at the broker-dealer. Establishing a joint account with a customer without consent of the broker-dealer.

II and III. It is a violation under the USA to solicit customers for unregistered, nonexempt securities (such securities should be registered) or to sell securities in states other than where the agent of a broker-dealer is registered. This is true even if, as in this choice, the securities are exempt from registration. Payment of commissions is irrelevant; registration is required in any case. Arbitrage, the simultaneous buying and selling of the same security in different markets to take advantage of different prices, is not a violation. An individual who sells certain exempt securities, such as government securities, as a representative of the issuer, does not have to register as an agent.

Which of the following activities are violations of the Uniform Securities Act? Arbitrage. Soliciting investors for unregistered nonexempt securities. Selling bonds of a foreign government to residents of a state other than the one in which the agent of a broker-dealer is registered and being paid a commission. An employee at a Federal Reserve Bank selling T-bonds without being registered as an agent of the issuer and not receiving a commission on those sales.

Personally raising capital, without written authorization from the broker-dealer, for a new high-tech venture being run by the agent's former college roommate.

Which of the following activities by a registered agent of a broker-dealer would constitute a prohibited practice under the Uniform Securities Act?

Securities Exchange Act of 1934. The Securities Exchange Act of 1934 mandates that public issuers file annual and quarterly reports with the SEC.

Which of the following acts requires publicly traded corporations to issue annual reports?

I, II and III. While the Securities Act of 1933 provides exemptions from full registration for certain securities, an exempt security is exempt from the registration and prospectus delivery requirements, but not from the antifraud provisions of the act. This is the same as the Uniform Securities Act in that certain securities may be exempt from full registration and prospectus delivery requirements, but they are not exempt from the antifraud provisions of the act.

Which of the following are NOT exempt from the antifraud provisions of the Securities Act of 1933? U.S. government securities. Investment contracts issued by employee benefit plans. Securities issued by federal banks.

REITs The general consensus is that the major classes, for purposes of an asset allocation program, are equity, debt, cash (or cash equivalents), real estate, and commodities.

Which of the following are asset classes?

I and III. Commercial paper instruments are debt securities; they represent loans to the issuing corporation by the holder. They are commonly issued to raise working capital and, as debt obligation, are senior in preference to preferred stock in claims against an issuer.

Which of the following are characteristics of commercial paper? It represents a loan by the holder to the issuer. It is a certificate of ownership in the corporation. It is commonly issued to raise working capital for a corporation. It is junior in preference to convertible preferred stock.

I, II and III.

Which of the following are characteristics of negotiable certificates of deposit? Minimum face value of $100,000. Maturities rarely extend beyond 360 days. May be sold on the secondary market.

I, II, III and IV. The Securities Act of 1933 requires the registration of all new nonexempt issues of securities sold to the public. In general, exempt issues include municipal securities, U.S. government securities, bank issues, and nonprofit organization securities. The securities in this question are all nonexempt.

Which of the following securities issues must be registered with the SEC under the Securities Act of 1933? Publicly traded DPPs. Variable annuities. Open-end funds. Closed-end funds.

I and II. Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer. Foreign governments with whom the United States has diplomatic relations, but not their political subdivisions, are considered exempt issuers. SEC-registered investment companies are non-exempt issuers under the USA. That is, the act does not include them in the list of exempt issuers. However, under the NSMIA, they are federal covered securities and, as such, do not register with the states other than filing a notice. All the more so, hedge funds that are NOT registered with the SEC would not be exempt issuers.

Which of the following are considered to be exempt issuers under the Uniform Securities Act? State of Georgia. City of London, Ontario. City of London, England. Kapco Income Fund, a hedge fund not registered with the SEC.

I, II, and III. An investment into an individual condominium used as a residence is not a security. However, an interest in the rental income from a group of condos, where the rent is pooled, is a security under the USA. While the sale of the debentures in this case is an exempt transaction, the debentures are securities. Treasury bills, notes, and bonds are securities, although they are exempt from registration under the USA. A Roth IRA is not a security. Securities may be put in an IRA, but the IRA is not a security. The key to questions like this is to remember those things that are not securities.

Which of the following are defined as securities under the Uniform Securities Act? An investment in a managed pool of rental condominiums. Unsecured debentures sold in a private placement only to accredited investors. Bills, notes, and bonds issued by the U.S. Treasury. A Roth IRA.

I, II, III and IV. All the securities listed are exempt from registration under the Uniform Securities Act. Preferred stock issued by corporations whose common stock trades on the NYSE is a federal covered security and is exempt from registration with the states. The same is true for a debenture of a company registered on the NYSE even though the debenture is traded over the counter. The issuers of equipment trust certificates (railroads) are regulated by other agencies, and issuers of bank securities (commercial banks) are regulated by the Federal Reserve and Office of the Comptroller of Currency (OCC); their securities are exempt from registration by the states. The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual regulation of securities.

Which of the following are exempt from registration under the Uniform Securities Act? Preferred stock issued by ZXZ Corporation, whose common stock is traded on the New York Stock Exchange. Common stock issued by a national bank. Equipment trust certificates issued by a railroad company regulated by a state or federal agency. A debenture traded in the over-the-counter market issued by a corporation whose common stock trades on the NYSE.

II and III. Common stock not listed on any regulated exchange and purchased by an open-end investment company is an exempt transaction, but that common stock is not an exempt security. Securities issued by insurance companies, and Canadian municipal securities are exempt from registration under the USA. Any security that represents an interest in, or debt of, or is guaranteed by an insurance company organized under the laws of any state and authorized to business in this state is exempt. Private placements are exempt transactions, not exempt securities.

Which of the following are exempt securities under the Uniform Securities Act? Common stock, not listed on any regulated exchange, purchased by an open-end investment company. Preferred stock issued by an insurance company authorized to do business in this state. Municipal bonds issued by Toronto, ON. Private placements.

I, II, III and IV. ABC Manufacturing Corp. is an issuer raising debt capital whereas Dot.Com, Inc., is an issuer raising equity capital. YYY Corp. is an issuer raising equity capital by selling additional new shares in a public primary offering. XYZ Corp. is an issuer despite its failure to sell any shares. The USA defines an issuer as a person that issues or proposes to issue a security. It is not necessary that an issuer actually issue the shares it proposes to issue.

Which of the following are issuers of securities? ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months. Dot.Com, Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public. XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment. YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering.

I and II. Transfer or assignment of an advisory account without prior client consent is always prohibited. An investment adviser need not inform clients of departures of employees, senior or otherwise, from investment advisory firms that are incorporated. Clients must, however, be informed of the departure or addition of any partner if the firm is organized as a partnership. The legal requirement for this notification is "within a reasonable period of time", but there is nothing prohibited about doing it promptly.

Which of the following are prohibited practices? An investment adviser transferred a client's account to a brokerage house because the account went below the firm's minimum size and then informed the client. An investment adviser organized as a partnership did not inform its clients of the departure of a partner who had only a very small interest in the firm. An investment adviser subsidiary of a publicly traded bank holding company failed to inform its clients of the departure of the firm's chairman and major stockholder. An investment adviser firm organized as a general partnership sends prompt notification to all clients after the addition of a new partner.

I and IV. The Securities Exchange Act of 1934 regulates broker-dealers and transfer agents. Investment advisers are regulated under the Investment Advisers Act of 1940 (and, to a certain extent, the Investment Company Act of 1940), whereas pension plans in the private sector are regulated under ERISA.

Which of the following are regulated under the Securities Exchange Act of 1934? Broker-dealers. Investment advisers. Pension plans. Transfer agents.

Isolated sale of a corporate bond on behalf of the bond's issuer. First of all, don't panic when you see a Section number - just answer the question based on the specific topic; in this case, the definition of an exempt transaction. An isolated sale of a corporate bond on behalf of the bond's issuer is not exempt. Under the USA, only isolated nonissuer transactions are exempt. In this question, the transaction is on behalf of the issuer, so this transaction is not exempt. The sale of a corporate bond to an insurance company is the sale of a security to a financial institution; this is an exempt transaction. A sale of common stock by the executor of an estate, or by the county sheriff is considered a fiduciary transaction and is exempt regardless of the client or the type of security.

Which of the following is NOT an exempt transaction as defined in Section 402 of the USA?

I, II, III and IV. Every legal or natural person seeking registration or making a notice filing must supply a consent to service of process with their registration applications. For example, a federal covered investment company, while covered under federal law, need not register with the state administrator but must submit notice filings materials that include a consent to service of process.

Which of the following are required to provide a consent to service of process to the Administrator in a state in which registration is sought? An agent employed out of state but who seeks registration in a state in which business is conducted. A federal covered investment company not required to be registered in a state in which business is conducted but required to supply notice filing materials by the state Administrator. A broker-dealer registered in 25 states that seeks registration in a 26th state. An investment adviser with less than $25 million of assets under management who is not covered by federal legislation.

II only. Under state law, the publication of investment advice that does not provide advice based on the specific investment situation of each client excludes the publisher from the definition of an investment adviser. The investment adviser representatives of a federal registered adviser are required to register in each state in which they have a place of business. The act provides a de minimis standard exemption from state registration for advisers who have no place of business in a state and have fewer than six clients resident in that state. A person employed and supervised by an investment adviser who is not an investment adviser representative with natural person clients and whose work is confined to clerical or administrative functions is not required to register with state Administrators.

Which of the following are required to register with a state Administrator? A person that only provides impersonal investment advice through newspaper columns, magazine articles, or a financial publication of general and regular circulation. Investment adviser representatives of federal registered advisers who have natural person clients and have a place of business in the state. An investment adviser who has no place of business in the state and has 5 advisory clients in the state. An employee of a federal registered investment adviser who has no natural person clients and is limited to performing administrative functions.

I, II and IV.Securities include stocks, bonds, notes, certificates of interest in any profit-sharing agreement or participation plan (oil, gas, mining, lease, or real estate partnerships), preorganization certificates or subscription agreements, certificates of deposit for a security, evidence of indebtedness, warrants, rights, or options, variable annuities, commodity options, and multi-level distributorships. Excluded from the definition are insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of a trade, futures contracts, real estate held as a personal residence, currencies, precious metals, and collectibles.

Which of the following are securities under the Uniform Securities Act?A variable annuity.A subscription right to purchase common stock.A condominium purchased solely as a place of residence.Certificate of interest or participation in an oil, gas, or mining partnership.

The assets of the issuing company. Debentures are general obligations of the issuing company. They are actually backed by the assets of the company. Prior claims to those specific assets by secured debt issues take precedence over the debentures.

Which of the following best describes that which secures a debenture issued by an industrial corporation?

III and IV For S corporations, the filing date is March 15 (assuming it is a weekday). For partnership returns (including LLCs with more than one member), the due date is also March 15. For C corporations, the due date is the 15th day of the fourth month following the close of the corporation's year; this date is April 15th for a calendar-year filer. One effect of this is that LLCs, partnerships, and S corporations all have the same filing​ deadline.

Which of the following business entities has an income tax filing due date (disregarding possible extensions) of March 15th? Sole proprietorship Single member LLC Multiple member LLC​ electing to be treated as a corporation​ S corporation

I, II, III and IV. Assets from any qualified corporate plan or from another IRA may be rolled over into an IRA.

Which of the following can be rolled over into an IRA? Another IRA. Corporate pension plan. Corporate profit-sharing plan. Keogh plan.

The investment adviser hires another partner for the firm.

Which of the following circumstances would require an investment adviser to notify all clients of the firm?

An adviser waives a client's fee if the client experiences a loss for the year.

Which of the following compensation arrangements is typically NOT allowed under the Investment Advisers Act of 1940?

Thomas is offered warrants by his registered agent as the best way to take a position in the XYZ Corporation. The agent who offered Thomas warrants has made an offer of securities under the USA. Mrs. Smith's pledge of securities to her son does not constitute a sale or offer to sell. Marge's receipt of a stock dividend is not a sale or an offer to sell because she did not get anything of value in return for the shares. A gift of non-assessable stock is not a sale, it is a gift.

Which of the following constitutes either an offer or a sale?

Buy stop.

Which of the following could accelerate a rise in a bull market?

Shares of bank holding companies traded on the New York Stock Exchange. Under the Securities Act of 1933, shares of bank holding companies listed on the NYSE are not exempt securities and they must be registered with the SEC. However, securities of commercial banks are exempt because they are regulated by the Controller of the Currency or some other banking agency. What might be confusing is that these NYSE listed shares are federal covered securities which makes them exempt from registration with the states. Securities issued or guaranteed by the U.S. government are exempt from registration under federal law. All securities issued or guaranteed by a state or political subdivision of a state qualify for a federal exemption. Commercial paper with maturities of 9 months or less where the proceeds are used for working capital purposes rather than the purchase of fixed assets also have federally imposed exemptions.

Which of the following does NOT have a federally imposed exemption from registration with the SEC?

I and III.

Which of the following securities are the most interest-rate sensitive? Utility stocks. Growth stocks. Preferred stocks. Common stocks.

An IA tells clients that the time is right to convert shares of a money market fund to shares of a growth stock mutual fund family. Without telling clients, he makes a similar conversion for his own account. Making personal investments consistent with recommendations to clients is not a violation of the Investment Advisers Act of 1940. Release of IA- 1092 does not impose an obligation on an investment adviser representative to disclose this fact to clients. The investment adviser representative is obligated to disclose any plans to act as an agent of a broker-dealer with whom the individual is associated. An investment adviser representative must disclose to clients that the investment advice rendered is outside the scope of employment with the broker-dealer if that is the case. Finally, if the investment adviser representative only offers that broker-dealer's products, that fact must be disclosed.

Which of the following does not violate the ethical requirements of the Investment Advisers Act of 1940?

I, II, III and IV. Collateral trust certificates, investment contracts, options, and option contracts, regardless of the underlying asset, are identified as securities in the Uniform Securities Act and are subject to its provisions. Currencies are not securities, but options on currencies are.

Which of the following financial instruments are considered securities under the USA? Collateral trust certificates. Investment contracts, including interests in oil and gas drilling partnerships. Options listed on the Chicago Board of Options Exchange. Foreign currency options contracts traded on the Philadelphia Stock Exchange.

Interests in oil and gas limited partnership units in which XYZ is the general partner. XYZ's participation as a general partner of an oil and gas limited partnership does not qualify the issue as exempt from state registration. XYZ's direct debt and preferred stock are exempt under the Uniform Securities Act.

Which of the following financial instruments of XYZ Oil Corporation, whose shares are traded on the New York Stock Exchange, is NOT exempt from registration with the state?

The SEC The Securities Exchange Act of 1934 granted the SEC the power to close any registered stock exchange for up to 90 days. All that is required is notice to the President of the U.S.

Which of the following has the power to close a stock exchange for up to 90 days?

Hannah, who is 55 years old. Catch-up contributions are allowed to participants who are age 50 and over.

Which of the following individuals is clearly eligible to make a catch-up contribution?

35-year-old man who just became eligible for Social Security disability payments.Disability allows an IRA owner to withdraw without penalty before age 59½.

Which of the following individuals will NOT be penalized for an IRA withdrawal?

An IA whose annual updating amendment showed a drop in AUM from $109 million to $87 million. No IA can remain registered with the SEC with assets under management (AUM) of less than $90 million (except those who manage registered investment companies). It takes $100 million in AUM to be able to initially register with the SEC, thereafter, the IA must maintain at least $90 million to remain SEC registered.

Which of the following investment advisers would be required to register with the state?

Newly issued stock in a small, over-the-counter growth corporation. In order to have reinvestment risk, there must be something to reinvest. Newly issued stock in a small, over-the-counter growth company is unlikely to pay dividends that need to be reinvested and, therefore, is not subject to reinvestment risk. Rental real estate partnerships pass rental income along to limited partners (investors) who must reinvest such distributions at current rates. These distributions are subject to reinvestment risk at current interest rates. The monthly distributions from the municipal unit trust must be reinvested at current interest rates which may be lower than the interest rate provided by the trust. The proceeds from the staggered maturities of the certificates of deposit must be reinvested at current rates. If current rates are lower than those of the matured CDs, reinvestment risk lowers the investor's return.

Which of the following investments generally carries the least reinvestment risk?

I, II and III. The Securities Exchange Act of 1934 specifically bars the use of credit to purchase new issues and also prohibits installment payments when making such purchases. The act also prohibits any form of manipulation of securities prices or any practices that would influence the market price of a security. This includes wash trades, which are simultaneous purchases and sales that create the appearance of trading activity, and the use of rumors to induce others to trade.

Which of the following is (are) TRUE regarding the Securities Exchange Act of 1934? The act bars the use of credit to purchase new issues. The act prohibits the simultaneous purchase and sale of a security to create the appearance of trading. The act prohibits the spread of false rumors to induce others to trade.

I, II, III and IV. All of the following are unethical practices for investment advisers: charging a client an unreasonable advisory fee; guaranteeing a client that a specific result will be achieved with advice which will be rendered; recommending to a client an investment without reasonable grounds to believe the recommendation is suitable for the client; and exercising discretionary investment authority under an oral agreement with the client. While it is true that an investment adviser may trade using discretion and with oral approval for up to ten days, that is only a convenience to be used while awaiting delivery of the written authorization.

Which of the following is (are) unethical business practices of investment advisers? Charging a client an unreasonable advisory fee. Guaranteeing a client that a specific result will be achieved as a result of advice that will be rendered. Recommending an investment to a client without reasonable grounds to believe the investment is suitable for that client. Continuing to exercise discretionary investment authority under an oral agreement with the client.

A child prodigy for whom his mother, as custodian, opened an account at a major securities firm. Under the Uniform Securities Act, the term "person" has a specific meaning. "Person" refers to an individual, corporation, association, joint-stock company, trust, unincorporated organization, government, or political subdivision of a government. A minor child, is not a person legally capable of entering into contracts. Adults must open custodial accounts on behalf of minor children.

Which of the following is NOT a person as defined by the Uniform Securities Act?

The Administrator has authority over any transaction made in the state where officiating. A state Administrator has jurisdiction over securities transactions conducted in the officiating state. The Administrator may issue subpoenas or otherwise conduct inspections of records in states other than where officiating if circumstances warrant. Such inspections may be made if the Administrator deems doing so to be in the public's interest. A person's license can only be suspended when it is in the public interest AND a specific provision of the act or rules has been violated. Within limits, delegation of power is authorized.

Which of the following is TRUE regarding a state Administrator's authority?

A failure to adequately disclose material information to a client would violate these provisions. The antifraud provisions prohibit a failure to disclose material information as well as misstatements of fact and deceptive practices. Their application is not limited only to securities transactions, as the antifraud provisions of other federal acts are, but apply to the entire business relationship between adviser and client. An adviser is not exempt from the antifraud provisions even if he is exempt from registration.

Which of the following is TRUE regarding the antifraud provisions of the Investment Advisers Act of 1940?

A person who only provides advice on U.S. government agency securities. The term federal covered adviser includes those explicitly excluded from the definition of investment adviser by federal law. The Investment Advisers Act of 1940 excludes those persons advising exclusively on government or agency securities from the definition of investment adviser.

Which of the following is a federal covered adviser as defined by the NSMIA?

Performance fees. Advisers under contract to registered investment companies may be compensated on a performance-fee basis. This form of compensation is only permissible when managing the accounts of certain qualified individual investors.

Which of the following is a method of compensation available to investment advisers under contract to registered investment companies that is not normally available to those who advise individual investors?

Interest rate risk

Which of the following is a risk common to all fixed income securities?

A retired mechanical engineer who offers investment advice in his areas of expertise to a small number of clients for a fee. Even though an engineer is part of the acronym LATE (lawyers, accounts, teachers, engineers), a retired or active mechanical engineer who offers investment advice to clients for a fee falls within the definition of investment adviser under the Uniform Securities Act. The LATE exclusion only applies to incidental advice given in the practice of a profession.

Which of the following is an investment adviser?

A buy stop.

Which of the following is an order to purchase at higher than the current market?

I and IV. 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 under the act. Any disposition (liquidation) of securities that involves cash consideration, or in which the shareholder has a choice of cash or securities, is a sale.

Which of the following is considered a sale of securities under the Uniform Securities Act? 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 exchange of common stock for the stock in another company under a merger. Disposition of stock for which cash consideration is received.

It guarantees income that will last for the client's lifetime.

Which of the following is considered to be an advantage of annuitization?

Variable annuities The trade-off with lack of guarantees is the potential to keep pace with inflation.

Which of the following is designed primarily as a retirement vehicle to help protect contract owners from a decline in purchasing power?

Forward contracts Forward contracts are non-standardized and, as such, do not trade on any exchange.

Which of the following is not traded on any exchange?

A person who effects transactions for the accounts of others. A person buying and selling securities for customers' accounts is deemed a broker-dealer under the Uniform Securities Act and must be registered as such. Specifically excluded from the definition of a broker-dealer are banks, trust companies, and savings and loan associations.

Which of the following is required to register as a broker-dealer?

Industrial engineer. Lawyers, accountants, engineers, teachers, and broker-dealers whose advice is incidental to their profession and who do not charge a separate fee for investment-related advice are excluded from the definition under the Investment Advisers Act of 1940.

Which of the following is specifically excluded from the definition of an investment adviser providing the investment advice is solely incidental to the business in which the person is engaged?

Turn the letter over to the agent's supervisor. Any agent or investment adviser representative receiving a written customer complaint is required to turn the complaint over to their supervisor without delay.

Which of the following is the most appropriate action for an agent to take after receiving a written complaint letter from a client?

Information obtained while acting in a fiduciary capacity for a corporation that indicates the strong possibility of future mergers. State and federal regulations prohibit actions based on inside information, particularly the use of information obtained while acting in a fiduciary capacity. Recommendations can be based on the best estimate of the agent's firm, provided there is an adequate and factual basis for such recommendation. Recommendations can also be based on major recognized financial publications and by private firms who charge fees for their research.

Which of the following may NOT be used as the basis for a recommendation to customers?

Zero-coupon bond. The only security that does not have reinvestment risk (the risk that periodic interest payments cannot be reinvested at the same yield as the bond providing the interest payments) is a zero-coupon bond such as Treasury STRIPS. With a zero-coupon bond, there are no periodic interest payments to reinvest, so a yield can be locked in. The interest rate that discounts the redemption price (par) to the discounted purchase price is the locked-in yield, which is the same as the internal rate of return, also referred to as the yield to maturity.

Which of the following securities has an easily determinable internal rate of return?

A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states. If a broker-dealer has an office in the state, it must register with the state, regardless of what types of clientele it serves. The term "broker-dealer" excludes anyone without a place of business in the state who effects transactions exclusively with issuers, other broker-dealers, or institutions, or who directs an offer in the state to an existing customer who temporarily resides in the state where the offer is received, regardless of the length of time. As long as the broker-dealer is properly registered in the vacationer's state of permanent residence and does not maintain an office in the state being visited, it is not defined as a broker-dealer.

Which of the following must register as a broker-dealer under the USA?

A person who provides advice to people who are investing in companies registered under the Investment Company Act of 1940. Investment advisers are defined by the Investment Advisers Act of 1940 as any person who, for compensation, engages in the business of advising others concerning the purchase or sale of securities. Investment companies are securities so this person would need to register. Since antiques and collectibles-such as coin collections-are not defined as securities, providing advice in this area does not require registration. A person who provides advice only to insurance companies is exempt from registration.

Which of the following must register as an investment adviser under the Investment Advisers Act of 1940?

A CPA who manages investment accounts for 50 clients and charges hourly fees for the service. The Investment Advisers Act of 1940 excludes accountants providing investment advice from the definition of investment adviser only when the advice is given on an incidental basis and with no specific compensation. A publisher of periodicals of general circulation, whether or not the publication covers financial matters, is excluded from the definition, as is an adviser whose advice is exclusively limited to U.S. government securities. Banks are also excluded from the definition of investment adviser under the act.

Which of the following parties is most likely to be considered an investment adviser under the Investment Advisers Act of 1940?

I, II and IV. As long as a broker-dealer does not have an office in the state, it is possible to qualify for exclusion from the definition. The primary requirement for the exclusion is that the broker-dealer confines trading to financial institutions or other broker-dealers. Unlike with investment advisers, there is no de minimis exemption for broker-dealers. Trust companies are excluded from the definition of broker-dealer.

Which of the following persons are excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act? A broker-dealer with no office in the state that effects trades exclusively with other broker-dealers in the state. A trust company with an office in the state that deals with the general public. A broker-dealer with no office in the state that has no more than five retail clients resident in the state within the past year. A broker-dealer with no office in the state that effects securities trades exclusively with trust companies or other broker-dealers.

II and IV. Under the National Securities Markets Improvement Act (NSMIA), advisers who manage clients with a total of less than $25 million under management are required to register with the state Administrator. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, those who manage client assets of $110 million or more or advise registered investment companies are required to register with the SEC and are exempt from state registration. Those who manage at least $100 million, but not $110 million, have the option of registering with either the state or the SEC. Investment adviser representatives register with the state, whether or not their employer is federal covered.

Which of the following persons are required to register in a particular state? An investment adviser who manages client accounts in excess of $100 million in value. An investment adviser who manages client accounts and has less than $25 million in total assets under management. An adviser to investment companies registered under the Investment Company Act of 1940. An investment adviser representative.

529.

Which of the following plans does NOT allow a catch-up contribution for individuals who are at least 50 years old?

Clearance and settlement services provided by the broker-dealer Section 28(e) of the Securities Exchange Act of 1934 provides a safe harbor for research and brokerage services provided in exchange for directed transactions. Clearance and settlement of trades is a qualifying brokerage service.

Which of the following qualifies under the Section 28(e) safe harbor provisions for soft-dollar compensation?

I and III.

Which of the following regarding corporate debentures are TRUE? They are certificates of indebtedness. They give the bondholder ownership in the corporation. They are unsecured bonds issued to finance capital expenditures or to raise working capital. They are the most senior security a corporation can issue.

I, II, III and IV. Under the Securities Exchange Act of 1934, the SEC is concerned with the regulation of exchanges, registration of broker-dealers, inequitable and unfair trade practices, and regulation of OTC markets.

Which of the following regarding the SEC under the Securities Exchange Act of 1934 are TRUE? It regulates the securities exchanges. It requires the registration of broker-dealers. It prohibits inequitable and unfair trade practices. It regulates over-the-counter markets.

Sale of whole life insurance. The antifraud statutes of the USA apply only to securities. Whole life insurance is not a security. However, the sale would be subject to the anti-fraud provisions of the state insurance code.

Which of the following sales would be exempt from the antifraud provisions of the Uniform Securities Act?

I, II, and III. The USA exempts a number of different issues from registration, including securities issued by a bank, or anything that functions like a bank (e.g., a savings and loan or credit union). Securities issued by a governmental unit are always exempt. Securities listed on the American Stock Exchange are part of a group known as federal covered securities that also includes those listed on the New York Stock Exchange and Nasdaq Stock Market issues. If the common stock is listed, then any security of that issuer that is equal or senior in claim to the common is also considered exempt.

Which of the following securities are exempt from the registration provisions of the USA? Issue of a savings and loan association authorized to do business in this state. General obligation municipal bond. Bond issued by a company that has common stock listed on the American Stock Exchange.

II and III. Diversification is a defensive investment strategy of investing in several different classes of investments. It is designed to lower the unsystematic or business risk in a portfolio. The opposite of diversification, concentration, is an aggressive strategy of concentrating the portfolio in one, or very few, classes of investments.

Which of the following statements about diversification are TRUE? Diversification involves investing a portfolio in one, or very few, classes of investments. Diversification is a way to reduce unsystematic risk in a portfolio. Diversification is a defensive investment strategy.

I, II and III Stop orders become market orders once the security trades at or through a specific price. A sell stop order is typically used to protect a profit or limit a loss on a security the investor has already purchased at a higher price. Therefore, sell stop orders are always entered at a price that is below the current market price. Conversely, a stop order to buy is always placed at a price that is higher than the current price and is used to protect a short sale.

Which of the following statements about stop orders are TRUE? A stop order will become a market order once a security trades at or through a specified price. A sell stop order is always placed at a price that is below the current market price. A stop order to buy is always set at a price that is higher than the current market price.

The uncertainty that the value of an investor's assets will decrease as measured by real dollar purchasing power.

Which of the following statements best defines inflation risk?

I, II and III. The Administrator may conduct public or private investigations in pursuing suspected or actual violations and may do so within or outside the state. Administrators may issue subpoenas in conducting their investigations, and if persons fail to obey them, the Administrator may apply to the courts for a court order. If the persons then fail to obey the court order, they may be subject to contempt of court charges. The Administrator may take such action against an entire firm as a result of the actions of any principal of the firm.

Which of the following statements is (are) TRUE about the investigative power of the Administrator under the Uniform Securities Act? The Administrator may conduct public or private investigations to determine if violations are about to occur or have occurred. Persons could find themselves subject to contempt of court charges for failing to obey a subpoena issued by an Administrator. The Administrator may proceed against an entire firm for the actions of any principal of the firm.

The Administrator may not examine the records of a broker-dealer without seeking a court order from a federal court. The Administrator has inspection power to view all records within or outside the state as is appropriate or necessary in the public interest, without seeking court approval Administrators may require minimum capitalization as a condition of registration. The Uniform Securities Act states that the Administrator may, by rule, provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants. As a practical matter, an oral examination would apply to the business entity (broker-dealer or investment adviser) while written examinations are taken by agents and investment adviser representatives. The Administrator is also given the authority by the act to require the filing of financial reports regarding the net worth of the firm.

Which of the following statements is NOT true regarding the authority of the Administrator under the Uniform Securities Act?

Exempt securities must reestablish their exemptions at least annually. Exempt securities need not reestablish their exemptions annually or otherwise. Exempt securities are exempt because their issuers are exempt while the basis for an exemption for a transaction must be established before each transaction. Neither the exempt security nor the transaction exemptions are mutually exclusive and a security or transaction may qualify for two or more of these exemptions. The term "federal covered securities" includes registered investment companies as well as securities listed on national exchanges.

Which of the following statements is NOT true?

The investment adviser may be compensated on the basis of the total assets of the portfolio over a period of time.

Which of the following statements is TRUE about the compensation of an investment adviser?

If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied. Under federal law, civil suits must be filed within one year of the date of discovery of the improper action or three years after the sale, whichever comes sooner. Purchasers may not waive their rights under the act for any provision. Although those who signed are liable, there is a list of others who also might be, including members of the board of directors, legal counsel, accountants, etc.

Which of the following statements is TRUE regarding the civil liability provisions of the Securities Act of 1933?

An Administrator may, at the request of a registrant, hold hearings in private. An Administrator has the discretion to hold hearings in private. A registrant cannot demand that a hearing be held in private. Hearings are administrative actions, and are therefore not held in courts.

Which of the following statements is TRUE?

Roth IRAs have higher contribution limits than traditional IRAs.

Which of the following statements regarding Roth IRAs is NOT true?

Roth IRAs are not subject to the minimum distribution rules until the death of the owner/participant of the plan. Unlike traditional IRAs, Roth IRAs are not subject to the minimum distribution rules regarding a participant's age (70-½). Rather, distributions need not be made until the death of the owner/participant. For a Roth IRA withdrawal to be entirely tax free, it must be made following a 5-year holding period after the first contribution and after the participant reaches age 59-½.

Which of the following statements regarding Roth IRAs is TRUE?

It must be established under a trust agreement. All qualified retirement plans must be established under a trust agreement. Contributions with this type of plan are not required annually, nor can the plan make direct cash payouts to participants before retirement.

Which of the following statements regarding a qualified profit-sharing plan is TRUE?

IRR is a discount rate at which the net present value (NPV) of an investment is equal to zero.

Which of the following statements regarding internal rate of return (IRR) is TRUE?

federal covered securities that are exempt from registration with the states. Issuers of securities listed on the NYSE are federal covered securities that are exempt from registration, although some states may require a notice filing. Investment companies, however, are federal covered securities that generally submit notice filings to the state in which their securities are sold. Registration by coordination at the state level is available for securities that are sold interstate and registered with the SEC, but that don't meet the NSMIA definition of federal covered security by being listed on SEC-regulated exchanges, such as the NYSE.

Which of the following statements regarding issuers of securities listed on the NYSE is TRUE? Securities of NYSE issuers are

They must be made available to highly compensated employees in amounts greater than that made available to other employees. Loans must be repaid with interest, generally within 5 years. They must be secured and made in accordance with plan provisions. Loans may not be made available to highly compensated employees in amounts greater than that made available to other employees.

Which of the following statements regarding loans from 401(k) plans is NOT correct?

I and II. The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) and also requires nonmaterial amendments within 90 days of the end of the adviser's fiscal year.

Which of the following statements regarding registration of investment advisers is (are) TRUE under the Investment Advisers Act of 1940? If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year. Material information requires a prompt amendment, but nonmaterial changes do not require amendment.

Registration by coordination is effective concurrent with federal registration. Coordination is the method used to register a security simultaneously under the Securities Act of 1933 and under the USA in a state. If the security's federal registration is pending and the Administrator has received all of the required material, the two registrations can be declared effective at the same time.

Which of the following statements regarding state registration of securities is TRUE?

The records may be examined at any time for any reason within or outside the state if it is in the public interest to do so. All required records must be made available for examination by a state Administrator, within or outside the state, as is appropriate or necessary in the public interest.

Which of the following statements regarding the Administrator's authority to examine the books and records of registrants is TRUE?

Each client must receive the brochure no later than the entering into the advisory contract. SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. If there are no material changes, a brochure does not have to be sent. The summary includes an offer to provide a copy of the updated brochure and information on how the client may obtain it. There is no 48-hour rule under federal law as there is for state law and, in any event, that law has a 48-hour in advance requirement. Only when the charge for the impersonal advice is $500 per annum or more is there a requirement to deliver the brochure.

Which of the following statements regarding the Investment Advisers Act of 1940 and the adviser's brochure are CORRECT?

I and IV.

Which of the following statements regarding the handling of discretionary accounts are TRUE? Discretionary accounts must be reviewed frequently by the designated supervisory person. An investment adviser representative may decide, without discretionary authority, the security to buy or sell and the amount to buy or sell. A husband or wife may at any time exercise discretionary authority in the spouse's account without specific written authorization. An investment adviser representative may decide, without discretionary authority, the time at which to execute a trade.

I and III. A primary example of unsystematic (sometimes called nonsystematic) risk is business risk, the risk that an individual investment will perform poorly because of issues related solely to that specific company. Diversification can reduce most unsystematic risks.

Which of the following statements regarding unsystematic risk are TRUE? It is the risk that an individual stock will not perform well. It is the same as market risk. Diversification reduces it. Diversification does not reduce it.

If you make money, I make money because my compensation is based on how well your account performs. Unless an exception is stated in the question, performance-based fees are never permitted. As long as disclosed, fees plus commissions on transactions is an allowable form of compensation.

Which of the following statements would NOT be allowable under the rules regarding an investment adviser's contract?

III and IV. Unsolicited secondary market transactions and those made by an estate's executor are exempt transactions; the net worth of the client is immaterial. While the AAA bonds may be an exempt security, soliciting regular transactions (unless with institutional buyers) is not an exempt transaction. XYZ Corp., a local manufacturing firm, is an issuer of the common stock. Had it been a non-issuer transaction on an isolated basis, the transaction would have been exempt and the accredited investor status of the clients is meaningless here.

Which of the following transactions are exempt? XYZ Corp., a local manufacturing firm, sells its common stock to several local individual accredited investors on an infrequent or isolated basis. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's 5-year fixed income securities, rated AAA by Standard & Poor's, on a regular basis to selected members of his large retail client base. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's securities to a high-net worth client on an unsolicited basis. Alexander Wimpton had his sizable portfolio of stocks and bonds sold by the administrator of his estate upon his death.

I, II, III and IV. All of these are included in the USA's definition of an exempt transaction. Sales made by a bona fide pledgee are exempt. Even though the number of offerees in the private placement exceeds 10, that limitation does not apply to institutional investors. A preorganization certificate may be sold to as many as 10 persons, while a private placement may not be offered to more than 10 (not counting institutional investors).

Which of the following transactions would be included in the USA's definition of exempt transaction? A banker liquidates stock pledged as collateral for a loan that has gone into default. An offer to purchase a new stock made to 5 individuals and 15 institutional investors in this state during the past 12 months. An isolated nonissuer transaction. The sale of preorganization certificates to 10 individuals with no commission being paid.

Owner of a sole proprietorship.

Which of the following types of business owners has unlimited liability for the business's debts?

Interest rate. With 15 years to maturity, even an investment-grade bond is subject to interest rate risk. This is particularly true during the early years because price fluctuations are greater when duration is longer. Inflation risk is not very great over a period of only 1 year, and AA bonds generally possess better-than-average liquidity. For this exam, market risk usually applies to equity securities rather than debt.

Which of the following will be the most likely risk that you will face during the first year after purchasing a corporate AA bond that matures in 15 years?

Including in the contract a clause that if the contract is terminated ahead of the scheduled termination date, there will be no refund of prepaid fees. Investment advisory contracts must outline compensation provisions and indicate the amount to be refunded, if any, if the contract is terminated. Nothing in the USA requires that there be a refund, only that the terms must be disclosed. The Uniform Securities Act also requires investment advisers to notify the Administrator if they have or will have custody of customers' funds. In addition, investment advisers' fees cannot be based on a share of capital appreciation of clients' funds. The USA considers that a pledge of a majority interest in an IA is considered to be an assignment of the IA's contracts and, as long as consent is obtained from the clients, there is nothing prohibited with doing so.

Which of the following would NOT be unlawful for an investment adviser under the Uniform Securities Act?

I and II. Under the USA, only an individual can be an agent (a person who sells securities for a broker-dealer). An administrative person, such as the assistant to the president of a broker-dealer, is considered an agent if that individual takes securities orders from the public. Corporate entities, broker-dealers, and issuers are all excluded from the definition of an agent.

Which of the following would be an agent under the terms of the Uniform Securities Act? A sales representative of a licensed broker-dealer who sells secondary securities to the general public. An assistant to the president of a broker-dealer who, for administrative purposes, accepts orders on behalf of senior partners. A subsidiary of a major commercial bank registered as a broker-dealer that sells securities to the public. An issuer of nonexempt securities that are registered in the state and sold to the general public.

I, II and III. An investment adviser representative is any partner, officer, director, associate, or employee who participates in or supervises the advisory functions of the adviser. Thus, anyone who decides what advice should be given, those who supervise investment adviser representatives, and those who seek out business for an advisory firm are considered investment adviser representatives. Third-party solicitors may or may not be considered adviser representatives, but this solicitor is an employee. Remember, an investment adviser can be either an individual or a company. An investment adviser representative must always be an individual.

Which of the following would be considered an investment adviser representative under the Uniform Securities Act? A senior supervisor who decides what investment advice should be given. An executive who supervises investment adviser representatives. An employee who solicits clients for the firm.

II, III and IV.An IRA contribution can only be made by someone who has earned or otherwise eligible income. Earned income is defined as salary, wages, commissions, and tips. Alimony, (but not child support) is considered eligible income for an IRA. Individuals can contribute to an IRA even if they are covered by a corporate pension plan or Keogh plan. Although a contribution can be made, it may or may not be deductible depending on the individual's income. Dividends and capital gains are not considered earned income.

Which of the following would be permitted to open an IRA?An individual whose sole income consists of dividends and capital gains.A divorced mother whose sole income is alimony and child support.A self-employed attorney who has a Keogh plan.A corporate officer covered by 401(k).

The amount of money a corporation has available to work with if it liquidates its current assets and pays off all of its current liabilities.

Which of the following would best describe working capital?

is registered under section 203 of the Investment Advisers Act of 1940

Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who

A clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, or communications disruptions.

Which of the following would probably be an acceptable hedge clause under SEC interpretations?

I and IV A life settlement is the secondary sale of a life insurance policy. The buyer (the new owner) is responsible for paying the premiums and, upon the death of the insured, will receive the death benefit.

Which of these are TRUE regarding a life settlement contract? Premiums will be paid by the contract owner. Premiums will be paid by the insured. Proceeds will be paid upon the death of the contract owner. Proceeds will be paid upon the death of the insured.

Notice filing. Federal covered securities (those listed on the NYSE, the CHX, and the Nasdaq Stock Market) are exempt from registration under the USA. However, the states are permitted to assess fees and some require filing of certain information. This is notice filing and most commonly occurs with investment companies registered under the Investment Company Act of 1940.

While several methods of registration are described under the Uniform Securities Act, which of the following would be most appropriate for an investment company registered with the SEC under the Investment Company Act of 1940?

I, II and III. The Administrator need not seek an injunction to issue a cease and desist order. The Administrator can seek an injunction from a court. The USA does not require that an Administrator conduct a public or private hearing prior to issuing a cease and desist order. When time does not permit, the Administrator may issue a cease and desist prior to a hearing to prevent a pending violation. The USA does not grant the Administrator the power to issue injunctions to force compliance with the act. The act permits the Administrator to issue cease and desist orders and, if they do not work, to seek an injunction from a court of competent jurisdiction. A cease and desist order is an administrative order whereas an injunction is a judicial order.

With regard to the powers of the Administrator, which of the following statements are NOT correct? The Administrator must seek an injunction to issue a cease and desist order. The USA requires an Administrator conduct a full hearing, public or private, prior to issuing a cease and desist order. The USA grants the Administrator the power to issue injunctions to force compliance with the provisions of the act.

Absent consent of the client, the investment adviser may not disclose any client information unless required by a court or the IRS.

With respect to the confidentiality of client accounts, which of the following statements is TRUE regarding an investment adviser's responsibilities?

must disclose that the solicitor is working on behalf of a registered investment adviser in soliciting accounts in accordance with a written agreement with the investment adviser unless the solicitation is only for impersonal advisory services. A written agreement between the registered investment adviser and the solicitor must contain the name of the solicitor, the name of the investment adviser, the nature of the relationship, and the affiliation between the two parties. A statement that the solicitor is compensated for solicitation services, the terms of the compensation arrangement, and any amount the client will be charged, in addition to the advisory fee used to cover the costs of soliciting his account, must be disclosed to clients.

With respect to third-party solicitors, the Investment Advisers Act of 1940 states that an investment adviser representative:

current assets - current liabilities. Current means cash or assets that would be exchanged for cash in the ordinary course of business in the current year. In the case of liabilities, current means maturing or falling due within the current year. The net of current assets less the current liabilities implies the company has cash availability of the remainder with which to work.

Working capital is:

60% high quality bonds; 30% large cap stocks; 10% cash equivalents Although it is possible to debate this choice (but don't), NASAA would suggest that the bonds and cash offer sufficient capital preservation while this proportion of equities will combat the risk of inflation.

You are doing an investment plan for a new client, age 55, who plans to retire at age 70. The client is somewhat risk averse and wants to preserve capital while at the same time not falling prey to possible inflation. Which of the following portfolios would probably be most suitable?

market risk.

You have been following GEMCO stock for the past couple of months and notice a recent increase in the stock's volatility. In the past month, several negative reports have been published about GEMCO's product line. This has caused a drop in the market price of the stock even though the GEMCO has just reported earnings that exceeded analyst's projections. This is an example of:

an offer to sell. Under the Uniform Securities Act, the term "offer" is the solicitation of an offer. In this example, the agent is soliciting an offer from the customer to buy a security. A solicitation is considered to have occurred even if the customer fails to act on the solicitation.

You inform a customer that you are not allowed to solicit an order for a stock but will accept that customer's buy order if placed. This is:

Without a proper durable power of attorney being produced, you cannot do anything. Unless proper written authorization has been provided, such as with a durable power of attorney, you cannot do anything without the client's consent. If she fails to recover and passes away, then the terms of the will must be followed by the executor.

Your advisory client is an 86-year old woman who is presently in the hospital, unable to communicate due to a severe stroke. For the past 6 years, she has followed the practice of making annual gifts of stock to her children and grandchildren on her birthday. Since her 87th is coming up later this month, her oldest son approaches you and asks you to continue the policy.

Fixed annuity

Your client has $50,000 to invest. His objective is monthly income that he can receive after he retires to supplement his small pension and Social Security benefits. As part of his profile, he stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is based on stock market performance—and he would opt for principal protection instead. Based on the client's profile, which of the following would be the best recommendation?