Series 66 Individual Ch Missed

Which of the following advisory fees is prohibited?

Charging the client a flat fee regardless of how much management has been provided Advisory fees must be appropriate for the service being provided. Charging a flat fee, regardless of how much management has been provided, is prohibited. Investment advisers are allowed to charge flat fees for creating financial plans, as well as hourly fees or fees that are based on assets under management, provided they're not excessive for the service being provided. Charging a 1% fee based on assets under management is roughly the industry average and acceptable. (17202)

What's an advantage of a non-qualified retirement plan over a qualified retirement plan?

It can be discriminatory. Contributions made to non-qualified retirement plans are not tax-deductible (i.e., they're funded after-tax). Although some non-qualified retirement plans allow contributions to grow on a tax-deferred basis (e.g., 457 plans), this is not always the case. However, non-qualified plans are not required to be offered to all employees (i.e., they may be discriminatory), which is the main advantage for an employer. (17386)

If TopJob Advisers has limited discretionary authority over client funds, it is required to:

Prepare a balance sheet and file it with the Administrator If a registered investment adviser has discretionary authority over client funds or securities, it is required to file a balance sheet; however, the balance sheet is not required to be audited. An audited balance sheet is required to be created and filed if an adviser has custody or full discretion. (89054)

Under the Uniform Securities Act, all of the following persons are considered investment adviser representatives, EXCEPT:

An employee of an advisory firm who provides administrative services that relates to portfolio selection The Uniform Securities Act defines an investment adviser representative (IAR) as an employee, partner, officer, or director of the adviser, who performs research, makes recommendations, manages portfolios, or solicits advisory services. However, employees who perform administrative, clerical, and/or ministerial functions are excluded from the definition of an IAR.

Based on the past performance of XYZ stock, an investment adviser has determined that there is a 25% chance that in a bull market, XYZ stock will return 20%. In a flat market (50% probability), the return should be 5%. The likelihood of a bear market is 25%, and expected returns would be a loss of 10%. What is the expected return for XYZ stock?

5%

A company issued $50 million of common stock in a private placement under Regulation D. In order to sell the stock initially in any state, the Administrator requires the filing of:

A Notice Filing Since stock that's issued under Regulation D is federal covered, the shares do not need to be registered at the state level. However, state Administrators can require the issuer to complete a Notice Filing. Form 10-K is a financial report that corporations file with the SEC. Form ADV-NR is filed by investment advisers that have principal officers who are not residents of the United States. (32407)

Which of the following is TRUE of a Qualified Domestic Relations Order (QDRO)?

A QDRO is a court order that provides an alternative payee the right to receive all or a portion of the benefits that are payable to a participant under a qualified retirement plan A QDRO is a court order that is entered as a part of a property division in a divorce or legal separation that splits a qualified retirement plan or pension plan by recognizing joint marital ownership in the plan. The court may award all or a portion of the plan participant's benefit to an alternative payee, such as a spouse, child, or other dependent of the plan participant.

Which of the following choices is not considered a security?

A Treasury bond futures contract Under the Uniform Securitiess Act, futures contracts are not securities. However, options on commodity futures contracts are considered securities. Variable products (annuities and life insurance policies) and ADRs are also defined as securities. (63010)

An advantage of a Coverdell Education Savings Account versus a 529 plan is:

A custodian has greater control over the investments With a Coverdell Education Savings Account, the custodian has greater control of the selection of investments (i.e., individual stocks, bonds, or mutual funds). There is a maximum contribution of $2,000 per year in a Coverdell. In a 529 plan, an investment is made in the state plan without the benefactor's input. Depending on the state, a 529 plan may allow a substantially larger contribution (exceeding $200,000 in some states). Both plans offer tax-free growth if the funds are used for qualified educational expenses. Funds in a Coverdell Education Savings Account (ESA) must be used within 30 days of reaching the age of 30. There is no specific age requirement for funds to be withdrawn from a 529 plan. (62766)

Which of the following would most likely be registered with the state Administrator?

A distribution of an interest in a mining or real estate venture Interests in mining or real estate ventures are examples of partnership offerings. General and limited partnerships are often registered with the Administrator in the state in which they are offered. Municipal bonds are not subject to registration requirements since they are categorized as exempt securities under the Uniform Securities Act. Also, mutual fund shares and securities listed on the NYSE are federal covered securities, since these issues are only required to be registered with the SEC. (67527)

Which of the following is not a security as defined by the USA?

A futures contract in precious metals Futures and commodity contracts are not securities. However, the Uniform Securities Act includes some seemingly odd instruments as securities, such as interests in mining or drilling titles and preorganization certificates. (75900)

Which of the following transactions meets the definition of an exempt transaction under the Uniform Securities Act?

A nonissuer transaction of a security filed under the Investment Company Act Any nonissuer transaction of a security registered under the Securities Exchange Act, Investment Company Act, or an isolated nonissuer transaction would be considered exempt transactions. Any offer, but not sale, of a security filed with both the Administrator and SEC would be considered an exempt transaction. (62443)

According to the Uniform Securities Act, all the following transactions would be considered exempt, EXCEPT:

A nonissuer transaction of a security that is regularly quoted on the OTC Bulletin Board A nonissuer transaction of a security that is regularly quoted on the OTC Bulletin Board would not qualify as an exempt transaction. The OTCBB does not have specific listing criteria, whereas national exchanges such as the NYSE and Nasdaq have minimum standards to which issuers must adhere. All the other choices are specifically defined under the USA as exempt transactions. (62698)

Which of the following is NOT defined as an IAR?

A person that manages portfolios and assets for its clients A person who manages portfolios could be an individual or a business. However, if the person is a business (firm), it's considered an investment adviser, not an investment adviser representative (IAR). All of the other choices are individuals and are considered IARs.

Under the Uniform Securities Act, all of the following individuals meet the definition of an agent, EXCEPT:

A person who advises clients about securities for compensation An agent is an individual who represents a broker-dealer or an issuer in effecting securities transactions. It is important to note that the type or amount of compensation received is not a factor in determining whether a person is an agent. A person who advises clients about securities for compensation is not an agent; instead, she is likely an investment adviser representative. (32459)

Under the USA, which of the following choices is considered an offer of securities?

An investor purchased bonds and received a warrant as a bonus According to the Uniform Securities Act, any security that an investor receives as a bonus for purchasing another security is considered an offer of that security. The USA specifically states that receiving shares due to a stock dividend or other corporate action (e.g., stock split) is never considered an offer or offer to sell that security. A tender offer is an offer to buy a security from existing shareholders. (89130)

According to the USA, which of the following securities are exempt from registration?

Bonds issued by a government-regulated common carrier Exempt securities include those that are issued by a U.S. federal, state, or local government, a railroad, a common carrier, a public utility, or a holding company that is subject to specified regulations. Debt securities issued by insurance companies are exempt but not the stock of their subsidiaries. However, variable annuities issued by insurance companies are subject to registration. (89453)

Zack is employed at Indiana Trust Company, a federally chartered bank. The CFO of the company asks Zack to help sell the bank's securities to some potential institutional clients as well as some select few retail investors who do not have accounts with the bank. Under the USA, Zack:

Does not meet the definition of an agent under any circumstances Zack is not considered an agent under any circumstances since he is representing an issuer and is selling securities that are exempt from registration (bank-issued securities). Regardless of whether the securities are being sold to institutional and/or retail investors, Zack does not meet the definition of agent. (89101)

Jerry is a successful divorce attorney in your community. Based on a favor you did for him involving one of his cases, he offers to send brokerage business to your firm but asks that you provide him with duplicate confirmations and statements on all clients he refers. What is the best practice in this situation?

Duplicate statements may not be sent unless you obtain written consent from each client As a general rule, an adviser may share account information only with the customer's written consent. Advisers may, however, be required to provide information if legally bound to do so, e.g., as a result of a court order or an official request by a governmental authority such as the IRS. The Reg. SP Avoidance Waiver is a fictitious document. (79487)

Which of the following transactions would NOT be considered an unethical business practice by a broker-dealer?

Effecting a transaction in a security on behalf of clients for the purpose of acting as an agent for both buyer and seller It is considered an unethical business practice for a broker-dealer to effect transactions in a security for manipulative or deceptive purposes. A broker-dealer may effect an agency transaction with two clients whereby the firm represents both the buyer and the seller. (32428)

A technology company's stock is listed on an exchange and is also traded over-the-counter by a small number of market makers. The stock is considered by the Administrator to be a:

Federal covered security and not subject to registration with the Administrator Securities that are listed on the NYSE, Nasdaq, or other national exchanges are considered federal covered securities and exempt from registration with the Administrator. This federal covered status applies regardless of where other trades may take place. Although notice filing does apply to certain federal covered securities, it does not apply to listed securities. Investment company securities and securities that are issued under Regulation D Rule 506 are considered federal covered securities (exempt from state registration), but subject to notice filing. (89021)

In order to clarify items in the balance sheet or income statement, a corporation may include them as:

Footnotes Footnotes on a financial statement are used to provide additional information or to clarify information, i.e., methods of depreciation used, inventory valuation methods, reserves for future events, etc. (62801)

Under SEC Release IA-1092, which TWO of the following statements are TRUE? -An individual who provides tailored advice about securities but does not execute transactions is an investment adviser. -An individual who writes an investment column for the Floor Street Journal is an investment adviser. -An individual who provides advice about which fund manager a client should choose is an investment adviser. -An individual who provides advice about which fund manager a client should choose is an investment adviser only if he is compensated by the manager he is recommending.

I and III According to SEC Release IA-1092, an individual that provides advice about a client's specific situation is still considered an investment adviser even if that individual does not implement the advice. Individuals selecting a particular investment manager would also be considered to be providing advice and fall under the definition of an investment adviser. (62571)

Which of the following elements are required for an investment contract to be considered a security? An investment of money An expectation of profits A common enterprise Efforts made by a third party

I, II, III, and IV

Which of the following factors would be important when determining a person's tax status? -The person's age -The person's place or state of residence -The person's tax status at the end of the prior year -The person's country of citizenship

I, II, III, and IV All of the items listed may have an effect on a person's tax status. For example, a person's age may affect her property taxes since many states offer homestead exemptions, while a person's country or state of residency may affect the rate at which her income is taxed. (67648)

Under the Uniform Securities Act, which of the following statements are NOT TRUE concerning an Administrator taking disciplinary action against a person? -There must be written findings of fact and conclusions of law. -The Administrator may take action against a person with or without the opportunity for a hearing. -The Administrator does not need to provide the person with prior written notice. -The Administrator's order may be appealed if the person files a petition in court within 90 days.

II, III, and IV only The Administrator must provide a person with prior written notice, an opportunity for a hearing, and written findings of fact and conclusions of law when taking disciplinary action against a person. The Administrator's order may be appealed if the person files a petition in state court within 60 days. (62491)

All of the following statements are TRUE of the death benefit of a variable life insurance policy, EXCEPT:

It may be reduced to zero by poor performance of the separate account Although the death benefit of a variable life policy may increase or decrease due to the performance of the separate account, it will not decrease below a minimum guaranteed amount (the face value of the policy). (62951)

Under the Uniform Securities Act, an institutional investor:

May be designated as such by rule or order of the Administrator The best answer to this question is that, by rule or order, the Administrator has the power to designate a person as an institutional investor. A client with net worth of more than $2.1 million or a client with a minimum of $1 million under management with an investment adviser is defined as a qualified client, not necessarily an institutional investor. Both financial institutions and trusts may be considered institutional investors, but there is a financial requirement that must be met. (32498)

Which of the following securities or transactions are subject to the registration provisions of the Uniform Securities Act (USA)?

Public offerings of securities Public sales (offerings) are typically subject to registration requirements. Private placements, unsolicited non-issuer transactions, and transactions with financial institutions are exempt from the registration provisions of the Uniform Securities Act. However, no transaction is ever exempt from the antifraud provisions of the Act. (32389)

An initial public offering (IPO) is being sold in one state only and is not being submitted for registration with the SEC under the Securities Act of 1933. According to the provisions of the Uniform Securities Act, what method of registration would be used for this offering?

Qualification The notification and coordination methods of state registration may only be used when the issuer also files a federal registration statement under the Securities Act of 1933. The qualification method of registration may be used in any state for any issuer that is not seeking federal registration. (67700)

If an agent unknowingly misrepresents the risk associated with a security, which of the following statements is correct according to the Uniform Securities Act?

Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action. In this question, since the agent did not willfully intend to mislead an investor, unknowingly making misrepresentations regarding a security is not considered fraudulent. For this reason, the agent is not subject to disciplinary action by the Administrator. However, if the misrepresentations were intentional, the Administrator may deny, suspend, or revoke the agent's registration. If action is ever taken against an agent, it will not have an effect on the registration of the security. (89013)

The Uniform Securities Act prohibits:

Soliciting orders for unregistered, non-exempt securities Soliciting orders for unregistered, non-exempt securities is prohibited by the Uniform Securities Act. The Act permits broker-dealers to maintain discretionary accounts for customers, to charge fees for services performed in customer accounts, and to accept unsolicited orders. (32398)

An insurance company is considering raising capital by issuing bonds. Under the Securities Act of 1933, the bonds are considered:

Subject to registration with the SEC Under the Securities Act of 1933, securities that are issued by insurance companies are subject to both the SEC's registration requirements and its prospectus delivery requirements. However, the bonds are exempt from registration with the state Administrator. Keep in mind, no securities are exempt from the antifraud provisions of the Securities Act of 1933. (17358)

Under the Investment Advisers Act of 1940, if an individual wants to create her own investment advisory firm, with which authority would she need to file the application?

The Securities and Exchange Commission (SEC) An investment adviser registering under the Investment Advisers Act of 1940 would register with the SEC. In this question, if the advisory firm is required to register in a state, it would do so with an Administrator under the provisions of the Uniform Securities Act. (89655)

An agent receives a letter from an irate client. The letter is the fifth in the last six months and the language is abusive. The agent decides against a reply and discards the letter. According to the Uniform Securities Act, which of the following statements is TRUE?

The agent must forward all written complaints to an immediate supervisor When an agent receives a complaint in writing, it must be forwarded to her immediate supervisor. The complaint must be kept on file along with any action taken to remedy the complaint. The fact that the complaint was the fifth in the last six months and the language was abusive has no bearing on how the agent should have handled the complaint. By discarding the letter, the agent acted in a prohibited and improper manner. (62329)

According to federal law, which of the following would best describe what happens when a security is federal covered?

The issuer must register the security with the SEC only Federal covered securities are registered with, and regulated by, the SEC. A state Administrator does not have authority over any offering documents related to federal covered securities. Remember, federal covered securities are subject to business risk and are not automatically considered safe or investment-grade. (67558)

Last year, your firm recommended an IPO to a customer. He was given a red herring at the time of the recommendation and gave you an indication of interest for an $8,000 investment. When the issue became effective, you completed the sale, but his final prospectus was lost in the mail. Over the past year, the stock has steadily declined in value. Two weeks ago, the customer called you and said he wants his money back because you sold him a new issue without benefit of a prospectus. His request is currently under review by your legal department. In the newspaper this morning, you see the customer's obituary. How will this matter be disposed of?

The request will continue to be processed since a cause of action survives the death of the person making the claim

According to the Uniform Securities Act, which of the following statements best describes what it means for a security to be registered?

The security may be legally offered or sold in the state The Administrator does not rule on the accuracy or adequacy of any filing, nor does the government offer decisions on the investment merit or financial condition of an issuer. Essentially, when regulators grant a registration, it allows for the lawful offering and sale of securities within their jurisdiction. (67646)

Which of the following choices would NOT meet the definition of an exempt transaction?

Transactions between an issuer and retail investors Any transactions by trustees involved in a bankruptcy--sheriffs, marshals, guardians, and other fiduciaries are considered exempt transactions. Unsolicited nonissuer transactions whether with retail or institutional investors and transactions executed by a bona fide pledgee are also considered exempt transactions. However, transactions between issuers and retail investors are not exempt from registration. A transaction between an issuer and underwriter would be an exempt transaction. (62396)

Which of the following advisers are exempt from registration under the Investment Advisers Act of 1940?

U.S. government securities advisers The IA Act of 1940 provides an exemption for advisers that limit their advice to U.S. government securities. Note, there is no de minimis exemption for domestic advisers. However, there is a de minimis exemption for foreign advisers that have fewer than 15 clients and (1) have no place of business in the state, and (2) have less the $25 million in aggregate assets under management that are attributable to U.S. investors.

According to the Uniform Securities Act, sales literature is required to be filed with the Administrator if it relates to:

Variable annuities Sales literature that relates to exempt securities, exempt transactions, and federal covered securities (e.g., an exchange-listed security) is NOT subject to the filing requirements of the USA. In this question, only the sales literature that relates to variable annuities (considered a security under the USA) is subject to filing requirements under the Act. Since fixed annuities are not securities, they are not covered under the USA. (32502)