Series 66 -Laws, regs, and guidelines
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: A)company. B)Administrator. C)lawyers. D)court.
Answer: A In any case where there is a question as to the legality of a specific exemption, the burden of proof is always on the party requesting the exemption.
Securities issued by which of the following would be exempt from the registration requirements of the Uniform Securities Act? I. Nonprofit organization. II. Exchange-listed security. III. Savings and loan association. IV. Federal credit union. A)I, II, III and IV. B)I and II. C)I and IV. D)III and IV.
Answer: A All of the issuers listed are exempt from the registration provisions of the Uniform Securities Act.
A securities transaction where there is no benefit to the issuer is called a(n): A)nonissuer transaction. B)nonprofit transaction. C)issuer transaction. D)primary transaction.
Answer: A n a nonissuer transaction, the proceeds do not benefit or go to the issuer directly. In a primary transaction, the proceeds of an underwriting go to the issuing corporation directly.
An interest in which of the following is a security under the Uniform Securities Act? Merchandising marketing scheme. Multilevel distributorship arrangement. Oil and gas drilling program. Cattle feeding program. A)I, II, III and IV. B)II and III. C)III only. D)I only.
Answer: A The USA considers interests in merchandising marketing schemes, multilevel distributorship arrangements, oil and gas drilling programs, and farm animals, whether it is a feeding or a breeding program, to be investment contracts and, therefore, securities. The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are.
Under state law, the registration of an agent of a broker-dealer is in effect until A)December 31 unless renewed B)the last day of his employer's fiscal year C)the anniversary of initial registration D)withdrawn by the agent or revoked by the Administrator
Answer: A Under state law, registrations for broker-dealers, agents, investment advisers, and investment adviser representatives expire on December 31 of each year unless renewed.
Which of the following statements are TRUE? An agent must register in the state in which he advertises and solicits a security. To make sales, an agent need not register in a state in which the broker-dealer is already registered. Under no circumstances may an agent register with two unrelated broker-dealers. A secretary for a broker-dealer who, as a courtesy, takes orders for the broker-dealer's clients must be registered. A)I and IV. B)I and II. C)II and III. D)III and IV.
Answer: A An agent must be registered in the state in which a security is advertised and solicited. A secretary who takes orders for the broker-dealer's clients must be registered. If the state Administrator specifically grants an exception, an agent may be registered with two unrelated broker-dealers. The fact that a broker-dealer is registered in a state does not qualify the agent for sales unless he is also properly licensed in that state.
Which of the following is required to register as an investment adviser with the state securities Administrator? A)An investment advisory firm that opens an office in the state with less than $100 million in assets under management. B)A person with no office in the state whose only advisory clients are investment companies and banks in the state. C)The author of a book on money and banking that was sold to residents of the state in which it is published. D)A newly formed investment advisory firm with $145 million in assets under management.
Answer: A An investment adviser must register in a state if it manages less than $100 million in assets. Publishers of general circulation books are exempt from state registration, as are advisers with no offices in the state whose only customers are institutions, such as banks and investment companies, in the state. Investment advisers with $110 million or more in assets under management must register with the SEC, not the state Administrator.
Which of the following statements regarding unsolicited orders is TRUE? A)A client may purchase, at his own initiative, securities trading in the secondary market through an agent who otherwise is prohibited from soliciting the order. B)Unsolicited orders are nonexempt transactions under the USA. C)The state Administrator may not require the client to sign an acknowledgment that the order was unsolicited. D)The state Administrator may not prohibit the solicitation of specific securities in the state.
Answer: A If a client requests the purchase of a security that an agent is prohibited from soliciting, the agent can accept the order and mark the order unsolicited. This is the most common of the exempt transactions.
Under the Uniform Securities Act, investment advisers are exempt from registration in a state where they have no office if they direct business communications with no more than five clients within: A)12 months. B)6 months. C)2 years. D)30 days.
Answer: A If investment advisers have no office in a state, they are not defined as investment advisers and are exempt from registration if either of the following conditions applies: their only clients within the state are other investment advisers or broker-dealers, financial institutions (banks, savings and loans, trusts), institutional investors (certain pension funds, insurance companies, investment companies), or government agencies or other political entities; and they have no more than five clients within the state in a 12-month period (de minimis exemption).
An agent is registered in Montana and North Dakota. While working in his North Dakota office, he places a call to the cell phone of one of his clients who happens to be on vacation in Wyoming. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Idaho. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, jurisdiction resides with the Administrator of: North Dakota. Idaho. Wyoming. Illinois. A)I, II and III. B)II and III. C)I and IV. D)I, II, III and IV.
Answer: A The Administrator has jurisdiction from the state in which the offer was made, (ND), received, (WY), and accepted, (ID). Mailing of the certificate is of no consequence.
Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from: registering securities. I. establishing capital and custody requirements that II. exceed those provided for in the Securities Exchange Act of 1934. III. establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law. IV.registering investment advisers. A)II and III. B)I and III. C)III and IV. D)I and IV.
Answer: A 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.
A consent to service of process must be filed for registration of: investment adviser representatives. broker-dealers. investment advisers. agents. A)I, II, III and IV. B)I and II. C)II and III. D)II and IV.
Answer: A The consent to service of process is required for all initial registrations with the Administrator. It appoints the state Administrator as attorney for the registrant so that legal papers may be properly served. On the exam, the consent to service of process is considered to be a permanent document not subject to annual renewal.
Under the Uniform Securities Act, most books and records of investment advisers must be maintained for A)3 years, the first 2 readily accessible B)1 year C)2 years D)5 years, the first 2 readily accessible
Answer: A With few exceptions, the accounting records, correspondence, and advertising of investment advisers must be kept for a minimum of five years after the end of the year in which they were created, the first two years in a readily accessible place (on premises).
Which of the following statements regarding the use of a hedge clause by an investment adviser is CORRECT? A)The adviser's brochure always must contain at least one hedge clause. B)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator. C)A properly worded hedge clause may be used to minimize the investment adviser's fiduciary responsibility. D)A hedge clause that limits liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished would generally be acceptable to the Administrator.
Answer: B The regulators have not objected to clauses that limit 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, communications disruptions, and so forth. Such provisions are acceptable because they do not attempt to limit or misstate the adviser's fiduciary obligations to its clients. Limiting liability to acts done in bad faith might cause the unsophisticated client to fail to understand that he still has a right to take action, even when the acts are committed in good faith. Fiduciary responsibility cannot be limited by hedge clauses.
Which of the following is required for a preorganization subscription to be an exempt transaction? A)There may be no more than 15 subscribers. B)No commission has been paid. C)Prior notification of intent to incorporate must be given to the Administrator. D)Full payment has been made.
Answer: B A preorganizational subscription is an exempt transaction if there are no more than ten subscribers and no commissions are paid, either directly or indirectly. The subscribers make no payments until they purchase the underlying security.
While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are TRUE? In conducting an investigation, an Administrator can compel the testimony of witnesses. Investigations of serious violations must be open to the public. An Administrator in Illinois may only enforce subpoenas from South Carolina if the violation originally occurred in Illinois. An Administrator may deny the registration of a securities professional who has been convicted of any felony within the past 10 years, but must provide a hearing within 15 days if requested in writing. A)II and III. B)I and IV. C)III and IV. D)I and III.
Answer: B An Administrator can compel the testimony of witnesses when conducting an investigation. Investigation of serious violations need not be held in public. An Administrator in Illinois may enforce subpoenas from South Carolina whether the violation occurred in Illinois or not. Conviction for any felony within the past 10 years is one of a number of reasons that the Administrator may have for denying a license. However, on notice of the denial, a written request may be made for a hearing and that request must be honored within 15 days.
The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers generally prohibits an IA from disclosing any confidential account information without specific consent of the client. However, disclosure would be permitted to: A)the client's accountant who is representing him before the IRS. B)the client's spouse when this is a joint account. C)the client's attorney representing him in a lawsuit. D)the client's friends on his Facebook account.
Answer: B In the case of a joint account, all owners are entitled to any information relating to the account. The trick here is that the IRS can compel disclosure in a tax case, but the client's CPA can't.
An investment adviser with $100 million or more in assets under management may register with: A)FINRA. B)the SEC. C)NASAA. D)the NYSE.
Answer: B Investment advisers who manage at least $100 million but less than $110 million may register with either the SEC or the state Administrator, not FINRA. Advisers with $110 million or more of assets under management must register with the SEC. Advisers with less than $100 million of assets under management may not register with the SEC and must register at the state level. Once registered with the SEC, the adviser may maintain that registration as long as AUM do not drop below $90 million. While the North American Securities Administrators Association (NASAA) is an important entity, it has no registration powers.
In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under the Investment Advisers Act of 1940 this activity requires written A)disclosure to the client B)disclosure to the client and consent prior to completion of the transaction C)consent of and the disclosure to the client prior to execution of the transaction. D)consent of the client Explanation
Answer: B Unlike broker-dealers, investment advisers must obtain the consent of and make written disclosure to the client of the intent to act as agent or principal in any transaction with that advisory client. SEC Release IA- 1732 requires that this be accomplished before the completion of the transaction, where completion is defined as settlement date.
All of the following are nonissuer transactions EXCEPT A) Joe Smith sold 100 shares of Apple Computer to his neighbor, Kevin Jones, in a private transaction B) Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds C) Monster Insurance Company sold 10,000 shares of IBM to KLM Investment Bankers, Inc., through INSTINET D) broker-dealer A sold 5,000 shares of Dell Computer from inventory to broker-dealer B
Answer: B When an issuer sells its own securities, it is an issuer transaction. When someone other than the issuer sells securities, it is a nonissuer transaction.
Which of the following may be required by the Administrator to post surety bonds? An agent who has discretion over client funds and securities. A broker-dealer who has custody of, or discretion over, client funds and securities. An investment adviser who has custody of, or discretion over, client funds and securities. A)I and III. B)I, II and III. C)I only. D)III only.
Answer: B A broker-dealer, investment adviser, or agent who has discretion over or, in the case of broker-dealers and advisers, custody of funds or securities may be required to post a bond.
If a customer with $10,000 to invest will not provide the agent with information on her financial circumstances or investment objectives, the agent may recommend: A)a variable annuity issued by an insurance company with the highest rating possible. B)nothing; there is not enough information to make a recommendation. C)a large-cap mutual fund. D)a money market fund investing solely in U.S. government securities.
Answer: B Agents are required to consider the investor's financial profile and investment objectives before recommending a suitable transaction. The investor has not provided sufficient information for the agent to determine suitability.
Which of the following securities are exempt from the registration and disclosure provisions of the Securities Act of 1933? Any interest in a railroad equipment trust certificate. Municipal bonds. U.S. government securities. Commercial paper maturing in 270 days or less. A)I and III. B)I, II, III and IV. C)II and III. D)I and II.
Answer: B All the securities listed are exempt from the registration and disclosure provisions of the Securities Act of 1933.
Which of the following would be considered a prohibited practice if performed by an investment adviser representative without appropriate disclosure? A)Limiting recommendations to investment strategies that take advantage of advances in medical technology. B)Acting as an agent of the brokerage firm that executes the trades he recommends and receiving commissions on them as a result. C)Offering his client tickets to a game of a professional football team in which his son is the star quarterback and a principal stockholder. D)Inheriting 200 shares of a New York Stock Exchange-listed company he recommends.
Answer: B An investment adviser representative must disclose to the client the capacity in which he is acting so the client can make an informed decision as to the objectivity of the advice and whether to sustain the relationship. The fact that an IAR inherited a small amount of stock in a publicly traded company does not, of itself, present a conflict of interest that must be disclosed. Focusing his recommendations in a specific area is not a problem when properly disclosed. No conflict of interest exists unless the IAR recommended companies in which it he also has a significant beneficial ownership.
An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC: A)no later than 30 days after the first sale. B)no later than 15 days after the first sale. C)no less than 20 days prior to the first expected dateof sale. D)no later than the time of the first sale.
Answer: B 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.
In reviewing prospectuses and registration statements, the SEC: A)guarantees the adequacy of the disclosures made in a prospectus. B)does not approve or disapprove of the issue. C)certifies the accuracy of the disclosures made in a prospectus. D)passes on the merits of a particular security covered by a registration statement.
Answer: B The SEC requires full disclosure regarding a new issue so that investors can make informed decisions on the security. The SEC does not, however, guarantee the accuracy or adequacy of the information, nor does it approve or disapprove of the issue.
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. A)II and IV. B)I and IV. C)II and III. D)I and III.
Answer: B The Securities Exchange Act of 1934 defines an insider as an officer, director, or stockholder owning more than 10% of a company's outstanding voting equity. The definition also includes anyone else who has or could have access to insider information, such as immediate family members. Merely being someone's neighbor does not automatically classify someone as an insider. Any professional who takes part in preparing the registration statement is automatically considered to have insider information.
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: A)all states having enacted the USA. B)Wisconsin and Illinois. C)Wisconsin only. D)Wisconsin, Illinois, and Florida.
Answer: B 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.
Which of the following statements regarding SEC Commissioners are CORRECT? The maximum number that may serve at any one time is five Political affiliation plays a role in limiting who may be appointed They are appointed by the POTUS with the advice and consent of the SCOTUS Upon confirmation, other than holdings in U.S. government securities, all securities positions must be liquidated. A)I and III. B)I and II. C)II and IV. D)I, II, III and IV.
Answer: B he SEC consists of a maximum of 5 Commissioners serving staggered five year terms. At no point may there be more than 3 of the 5 from the same political party. They are appointed by the President of the United States (POTUS) with the advice and consent of the Senate, not the Supreme Court (SCOTUS) and, other than U.S. government securities, all positions must be placed into a blind trust.
Unless qualifying for an exemption, which of the following advisory fee structures is NOT allowed under the USA? A)Fees based on an hourly rate. B)Fees based on a percentage of the aggregate value of funds under management. C)Fees based on a percentage of the change in value of funds from quarter to quarter. D)Fees based on a fixed dollar schedule tied to the value of funds under management.
Answer: C Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. The other choices are acceptable fee structures.
Which of the following statements is NOT true? I) A broker-dealer must be a firm or corporation (legal person) as opposed to a natural person (human being). II)An investment adviser must be a firm or a corporation as opposed to a natural person. III)An investment adviser representative (IAR) cannot, under any circumstances, be employed by a registered broker-dealer. A)I and II. B)I and III. C)I, II and III. D)II and III.
Answer: C A broker-dealer or investment adviser can be either a natural person (i.e., organized as a sole proprietorship) or a legal person (i.e., a corporation or partnership). There is no prohibition against an investment adviser representative also being licensed as an agent with a broker-dealer.
Which of the following would probably be an acceptable hedge clause under SEC interpretations? A)"It is understood that we will expend our best efforts in the supervision of the portfolio, but we assume no responsibility for action taken or omitted in good faith if negligence, willful or reckless misconduct, or violation of applicable law is not involved.". B)A hedge clause that seeks to limit liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished. C)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. D)"Kapco Advisers shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care.".
Answer: C A clause containing provisions that are beyond the IA's control is acceptable since they do not attempt to limit or misstate the adviser's fiduciary obligations to its clients.
Under the USA, the Administrator may take all of the following actions EXCEPT: A)file a criminal complaint against an investment adviser. B)file a civil complaint against an agent. C)issue an arrest warrant for an investment adviser representative. D)issue a cease and desist order against a broker-dealer.
Answer: C An arrest warrant can only be issued by a court of law. Filing both civil and criminal complaints as well as issuing cease and desist orders are all within an Administrator's power.
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 A)III and IV. B)I and II. C)II and III. D)I and IV.
Answer: C 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.
Under the Uniform Securities Act, the Administrator may designate another officer to: A)issue a cease and desist order. B)set recordkeeping requirements. C)serve subpoenas. D)grant registration exemptions.
Answer: C An official designated by the Administrator may serve subpoenas since that is basically an administrative function: however, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders. The recordkeeping requirements are set by law and cannot be altered by the Administrator.
Over which of the following would the investment adviser representative have discretionary authority? A)An order that specifies the size of the trade and name of the security, but leaves the choice of price and time up to the investment adviser representative. B)An account in which a trustee has power of attorney over another individual's account. C)An account in which the investment adviser representative chooses portfolio securities on behalf of the client. D)An account in which a customer has power of attorney over another individual's account.
Answer: C An order is discretionary when it is placed for a customer's account by the member firm or its representative, without the customer's express authorization. Also, for the order to be considered discretionary, the firm must choose at least one of the following: size of the trade, whether to buy or sell, or the security. Choosing time and price is not considered to be an exercise of discretion.
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. A)I and III. B)II and IV. C)I and IV. D)II and III.
Answer: C Discretionary accounts must be reviewed frequently by the designated supervisory person, and an investment adviser representative may decide both the time and price at which to execute a trade without discretionary authority. Only if he is to decide action (whether to buy or sell), asset (what to buy or sell), or amount (how much to buy or sell) is discretionary authority required.
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. A)II and III. B)I and II. C)I and III. D)I, II and III.
Answer: C 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.
Which of the following would be prohibited practices under state securities law? Soliciting orders for exempt securities. Making recommendations on the basis of nonpublished analysts' reports. Failing to inform a client of unusually high commissions because the client does not complain. Failing to obtain prior written authority for orders from a third party. A)I and II. B)I and III. C)III and IV. D)I, II and III.
Answer: C Failing to inform a client of unusually high commissions and not obtaining prior written approval for orders from a third party are prohibited practices. Soliciting orders for a security that is exempt from registration is a normal business practice. An agent may use the nonpublished reports of his firm's securities analysts as a basis for recommendations providing the nonpublished reports do not contain inside information.
An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit the sale of its securities in a specific state? A)Coordination. B)Qualification. C)Notice filing. D)Registration.
Answer: C Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.
An agent's license could be revoked if he were: I. accused of murder in the first degree. II. convicted of a securities-related misdemeanor. III. declared insolvent. IV.convicted of a nonsecurities-related felony. A)I, II, III and IV B)III and IV C)II, III and IV D)II and III
Answer: C Once registered, an agent's license can be revoked if the agent is convicted of a securities-related misdemeanor or any felony. Insolvency is a cause for revocation of the registration of any securities professional. However, merely being accused of a crime, no matter how serious it is, does not lead to action until there is a conviction.
A state-registered investment adviser must keep business records available for examination by the Administrator: A)indefinitely. B)for a term specified by the Administrator. C)for five years. D)for three years.
Answer: C Records must be preserved for five years. However, the Administrator may prescribe a different period for certain types of records. For example, when an IA's business closes down, partnership agreements or articles of incorporation must be kept for three years after the business has ended.
Under the Uniform Securities Act, the Administrator has the power to: I. administer oaths. II. indict offenders. III. subpoena witnesses. IV. take evidence. A)I, II, III and IV. B)I and III. C)I, III and IV. D)II, III and IV.
Answer: C The Administrator has the power to administer oaths, subpoena witnesses and take evidence. The Administrator also has the power to compel testimony and require the production of books and records. However, while the Administrator is authorized to refer violations for possible criminal prosecution, the actual powers of criminal prosecution belong to others. For example, indicting offenders is the function of a grand jury.
Under the Securities Act of 1933, a registration statement of an issuer must contain all of the following information EXCEPT: A)the business of the issuer. B)the current balance sheet and profit/loss statements. C)the names of all the owners of the company's stock. D)the identity of the officers and directors and the extent of their holdings in the issuer.
Answer: C 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.
All of the following statements are true regarding investment advisory contracts under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers EXCEPT: A)the contract must describe the discretionary powers the client is granting to the adviser. B)the contract must describe the services the adviser will provide to the client. C)the contract must be written in 10-point type or larger. D)the contract may be for an initial period of more than 1 year.
Answer: C There is no specific requirement in NASAA's Model Rule concerning type size. Contracts must describe the adviser's services, discretionary powers, and initial term period, which may be for any period of time.
If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE? The solicitor must be a registered investment adviser representative with the state. The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940. There must be a separate written agreement between the solicitor and the registered investment adviser. The agreement between the solicitor and the registered investment adviser is contained as part of the investment adviser's brochure. A)II and IV. B)I and IV. C)II and III. D)I and III.
Answer: C Under federal regulations, if an investment adviser intends to pay a third party (non-employee) solicitor to solicit clients for investment advisory services, the adviser must be properly registered, there must be a written agreement between the adviser and the solicitor, and there can be no outstanding or pending orders or disciplinary actions against the solicitor involving finance or dishonesty. The solicitor does not have to be registered as a registered investment adviser representative because he is not representing the registered investment adviser in the giving of investment advice, in the management of accounts, or in the supervision of anyone else working for the registered investment adviser in these areas. The solicitor is being paid a fee for the solicitation of business for the registered investment adviser with a requirement of full disclosure to the client of the relationship with the adviser.
When an agent transfers employment from a broker-dealer registered with the SEC to a broker-dealer registered solely in this state: A)only the agent and the state-registered broker-dealer must notify the Administrator. B)only the agent must notify the Administrator promptly. C)the agent, the former broker-dealer, and the current broker-dealer must all notify the Administrator. D)only the agent and the SEC-registered broker-dealer must notify the Administrator promptly.
Answer: C When an agent transfers employment from any broker-dealer to any other broker-dealer, both the agent and the broker-dealers must notify the state securities Administrator.
Under the Securities Exchange Act of 1934, which of the following is a securities information processor? A)FINRA B)TEFRA C)"The Wall Street Journal" D)The OTC Markets Group Inc, (formerly known as the Pink Sheets)
Answer: D Persons in the business of providing information on securities transactions or quotes of securities prices on a continuing basis through a computer network, wire service (ticker tape), or other publications, such as The OTC Markets Group Inc (Pink Sheets) are considered securities information processors. Excluded are newspapers, magazines, or other publications of a general and regular circulation, SROs, banks, broker-dealers, or others who provide such information as part of their normal activities.
A customer of an investment adviser inadvertently mails some stock certificates to the IA. The IA does not maintain custody of customer assets. If the certificates were received on a Monday, NASAA rules would requires that the certificates must be: A)forwarded to the broker-dealer promptly. B)returned no later than Tuesday. C)returned no later than Thursday. D)returned the same day.
Answer: C NASAA's custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within 3 business days. When it comes to checks, it depends on how the check is drawn. If made out to the investment adviser, it must be returned; if made out to a third party (usually the executing broker-dealer), it must be forwarded to that third party. In either case, the time limit is 3 business days (might be shown as 72 hours on the exam).
Advisers that manage $110 million or more in customer assets are required to do which of the following? Register with the Securities Exchange Commission. File notice with FINRA. Post a bond in an amount specified by the appropriate regulatory body. File notice with the state in which their principal office is located if notice filing is required by the Administrator. A)I and III. B)II and III. C)II and IV. D)I and IV.
Answer: D Advisers that manage $110 million or more in customer assets are federal covered advisers and are required to register with the SEC under the Investment Advisers Act of 1940. In addition, they are normally required to file notice in each state where they conduct business. There are no bonding requirements for federal covered advisers.
All of the following are exempt from state registration under the Uniform Securities Act EXCEPT: A)securities issued by a nonprofit organization. B)bonds issued by a bank that is a member of the Federal Reserve System. C)debt securities issued by or guaranteed by an insurance company licensed to do business in this state. D)variable annuities or other variable insurance products offered by an insurance company.
Answer: D A variable annuity (or other variable insurance product) offered by an insurance company is a nonexempt security under the Uniform Securities Act. Securities issued by or guaranteed by an insurance company are covered by extensive state insurance regulations and are exempt from state securities registration. Securities issued by banks are exempt because banks are covered by extensive state and federal banking regulations.
The Uniform Securities Act requires that an administrative order appeal must be requested within how many days after the order has been entered? A)45 days. B)30 days. C)15 days. D)60 days.
Answer: D Any person who receives an order from the Administrator can petition the court to change or set aside the order, but an appeal must be filed within 60 days after the order was entered.
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. A)I, II, III and IV. B)II only. C)I, II and III. D)I and III.
Answer: D 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.
A sale of a security has been made by an agent not registered in the state. The agent is brought to court by the Administrator. The court has the power to require the agent to: A)go to prison for a period not to exceed three years. B)requalify by taking the agent's licensing exam again. C)terminate his current registration. D)make the client whole.
Answer: D The Administrator may bring a case to court where the agent is found civilly liable. In that case, restitution may be ordered by the court. The Administrator does not have to go to court to require the agent to retake a qualification exam. Civil cases like this would not result in a prison sentence.
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. A)I, II and IV. B)II and III. C)I only. D)I, III and IV.
Answer: D 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.
Active Technicians (AT) is a state-registered investment adviser. In their brochure supplement, they would include information relating to each of the following individuals EXCEPT A)those exercising discretion over assets of clients in this state, even if no direct contact is involved B)those providing investment advice and having direct contact with retail clients in the state C)those providing investment advice and having direct contact with institutional clients in the state D)members of AT's board of directors who are active in the firm's business
Answer: D Unless the individual has direct contact with clients (retail or institutional) or exercises discretion, a copy of the Part 2B brochure supplement for each individual is not required. This would include officers and members of the board of directors. Of course, if any of these individuals had direct client contact or exercised discretion, a supplement for them would need to be prepared.
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. A)I and II. B)I, II and III. C)I and III. D)II and III.
Answer: D An investment adviser provides advice related to securities for compensation. The advice may be given orally or in writing.
Question #38 of 40 Question ID: 634804 An agent and a broker-dealer maintain wrap fee accounts for several of their customers. Which of the following registrations is required? A)The agent must be registered as an investment adviser. B)Only the registered principal would need to be registered in the state(s) in which they do business. C)Neither the broker-dealer nor the agent is required to have any license other than their regular securities license. D)The firm must register as an investment adviser.
Answer: D Once a broker-dealer handles wrap fee accounts, it loses the exclusion from the definition of investment adviser. Therefore, the firm must be registered with either the state or the SEC. Any agents handling these accounts would be registered as investment adviser representatives.
Social networking sites typically contain both static and interactive content. The difference between these two is that static content
Static is defined as something that doesn't change, so those communications will only change when the person who posted it removes it or makes a change. Interactive is live and constantly changing. Under FINRA rules, static must have approval prior to use, while interactive does not.
The Uniform Securities Act contains a number of security exemptions. The Act empowers the Administrator to revoke the exemption for which of the following?
Under the USA, the Administrator can revoke any transaction exemption, except those involving federal covered securities. When it comes to revoking a security's exemption, the only two where the Administrator has to power to do so are those issued by non-profit organizations and in connection with an employee benefit plan.