TestGeek Review
Which of the following IRS forms are required for estates and trusts?
1041
How many different investment choices are required per ERISA guidelines?
3
Civil Penalties (Statute of Limitation)
3 years from occurrence or 2 years from discovery
An IA is a trustee of a trust with two or more beneficiaries. According to the Prudent Investor Rule, which of the following is true? A. the Trustee should take into consideration the beneficiaries and act impartially. B. the Trustee should NOT take into consideration the beneficiaries and act according to his investment philosophy. C. the Trustee should pro rata the assets and manages each according to the beneficiaries needs D. The trustee should take into consideration the person with the lowest risk tolerance and manage accordingly
A The trustee must act prudently and follow the stated objective in the trust agreement
403(b) plan
A tax-deferred retirement plan for teachers, hospital workers, ministers, and some other public employees
A diverse portfolio would hold tangible assets to address which risk? A. Inflation B. Market C. Risk adjusted return D. Liquidity
A. A tangible asset such as gold is often used as a hedge against inflation
Which of the following retirement plans would have the least tax consequence? A. a non-qualified annuity B. IRA C. 401(k) D. 403(b)
A. A non-qualified annuity The non-qualified annuity typically would have a higher cost basis and thus lower taxable amount.
Because of liquidity issues involving portfolio holdings, most "country" funds are: A. Closed-end B. Open-end C. UITs D. Holding companies
A. Closed end funds increase the liquidity of purchasing international investments
Which of the following are characteristics of exchange-traded funds(ETFs)? I They are redeemable securities. II They are priced by supply and demand. III They are designed to track an index. IV They try to diversify within a particular industry. A. II and III. B. II and IV. C. I and IV. D. I and III.
A. II and III ETFs are traded on an exchange and therefore cannot be told back to the investment company and track a specific index
Which of the following would be considered in the fundamental analysis of a security? I support and resistance levels. II trading volumes. III Liquidity ratios. IV Historical earnings trends. A. III and IV. B. I and IV. C. II and III. D. I and II.
A. III and IV Fundamental --> financials
An IAR is assuring clients of steady returns on an investment. Under the NASAA Model Rule on Unethical Business Practices of IAs, IARs, and Federal Covered Advisers, this activity is: A. Prohibited because the IAR is guaranteeing a profit B. Prohibited because the customer may still experience loss C. Acceptable if the security being recommended is an investment grade bond D. Acceptable if the client has been made aware of the risks.
A. Prohibited because the IAR is guaranteeing a profit Assuring a steady rate of return is considered to be guaranteeing performance, a practice prohibited under NASAA Model Rule on Unethical Business Practices. Even in the case of an investment grade bond, returns may never be "assured"
Which of the following best depict/show time weighted return? A. The volatility of security holdings B. Uneven cash flows C. Dividends and interest only D. Return over time
A. Time-weighted return measures a portfolio manager's return excluding investors inflow and outflow of cash
An IA is registered in 10 states. Regarding financial requirements, the IA must meet those of: A. The state in which their principal office is located B. The state with the most stringent financial requirements C. The SEC D. Each state in which they have a place of business
A. Unlike B/Ds, IAs register with either the SEC or the states, NEVER both. This must be a state covered adviser, not under the jurisdiction of the SEC. Under the USA, when it comes to financial requirements, bonding, recordkeeping, etc., as long as the adviser meets the requirements of the state in which their principal office is located, the other states have no further claim.
A Savings 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: A. would have to be employed by the Savings and Loan B. would have to be employed by a broker/dealer registered in the other state C. would have to be employed by a broker/dealer registered in this state D. could not sell without being an agent
A. Would have to be employed by the Savings and Loan 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. Therefore, an individual who is employed by the issuer of exempt securities to sell those securities is excluded from the definition of "agent."
Inflation-Adjusted Return
Actual return - rate of inflation
Which of the following is included in Adjusted Gross Income? A. Alimony B. Municipal Bond Interest C. Child Support D. 401k contributions
Alimony is reportable income Child support is not
A retiree is turning 70 in November 2011. When would they be required to take a minimum distribution?
April 1, 2013 You must take distribution no later than April 1 the year after you turn 70 1/2.
One respect in which an LLC differs from an S corporation is that: A. an LLC can be formed with as little as a single investor B. there is no statutory limit on the number of investors in an LLC C. there is more favorable tax treatment afforded to members of an LLC D. not only income, but losses, if generated, pass through to investors in an LLC
B. An S-Corp is limited to 100 investors
A fiduciary of an ERISA plan is preparing an IPS. Included would probably be: I. Specific security selection II. Methods of performance measurement III. Determination for meeting future cash flow needs IV. The summary plan document A. I, II, and III B. II and III C. II and IV D. III and IV
B. II and III IPS will include methods of performance measurement (are we meeting objectives) and a way to determine how future cash flow needs will be met (based on expected number of retirees)
An investor would like the dollar amounts in various asset classes to remain constant in order to remain fully diversified. The investor would then be most interested in: A. Dollar Cost Averaging B. Rebalancing C. Reinvestment D. Dividend Reinvestment
B. Rebalancing requires constant allocation in different asset classes
Sharon is an agent for a B/D registered in all 50 states. She receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the USA: A. Because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X B. Sharon must be registered in State X in order to accept the order C. Because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X D. Because the B/D is registered in all 50 states, Sharon must also be registered in all of them
B. Sharon must be registered in State X to accept the order Regardless of whether a security is exempt or the transaction is exempt, one must be licensed in any state in which the client is placing an order - unless the agent is representing a broker/dealer who is exempt from registering in that state. One does not have to be registered as an agent in every state the B/D is, only where she expects clients to reside. No de minimis for BD only for IA and IAR (De MInImIs)
An agent of a BD sells unregistered common stock to an Insurance Company that has no office in the state. According the the USA, this would be: A. Prohibited because the security is unregistered B. Allowed because it is considered an exempt transaction C. Allowed because it is an exempt security D. Prohibited because the Insurance Company has no office in the state
B. The sales of unregistered securities to a financial institution is an exempt transaction. Whether the institution has an office in the state is inconsequential.
Market Maker
B/D in the OTC market A dealer who stands ready to buy or sell a specific security or securities at all times
Mary and Joe, age 55, are retired and have a small inheritance that pays their living expenses, however they do not have enough for retirement. Which of the following should an agent recommend?
Bonds and equity In their mid 50s, the time horizon is typically greater than 20 years and therefore a balance of equities and bonds would be most appropriate.
An investor is long 100sh of XYZ. She fears a near-term correction but overall she remains bullish. Which will allow her to profit from this situation? a. Buy a call b. Buy a put c. Sell a call d. Sell a put
Buy = Long Sell = Short Call Bull Bear (RTB) (OTS) Put Bear Bull (RTS) (OTB) c. sell a call
An agent, sharing commissions with another agent, may do so only if: I disclose the arrangement and receive consent from his clients II both agents are registered in the same states III both agents are registered through the same or affiliated B/D IV disclose the arrangement and receive consent from the SEC A.I and III B. I and IV C. II and III D. II and IV
C. There are no disclosure agreements for agents sharing commissions. As long as they are registered in the same states and are with the same or affiliated B/D, there are no further requirements.
Three years ago, a customer bought 200 shares of ABC for $50.50 per share. Upon her death, she left the shares to her husband when ABC was trading at $68.25. If her husband sells the shares for $69.25. what is his cost basis for tax purposes?
C. 68.25 Upon inheriting stock, there is a step-up in cost basis to the market value at date of death.
Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is: A. An exempt transaction B. An exempt security C. A non-exempt transaction D. A violation of the trustee's fiduciary responsibility
C. A non-exempt transaction Among the list of exempt transactions are those made by fiduciaries, including trustees in bankruptcy, but not other trustees. This is a non-exempt transaction.
Both an IA and IAR register in August. They do not renew their registration until March 30th. Which of the following is true? A. The IA's registration did not lapse but the IAR's did on Dec 31st. B. The IAR's registration did not lapse but the IA's did on Dec 31st. C. Both registrations expired Dec 31st. D. Neither registration expired.
C. Both registrations expired on 12/31 All registrations expire each December 31st
With regard to margin accounts, which of the following are accurate statements? I. Initial margin is the amount required under Regulation T when a security is purchased on margin II. Maintenance margin is the amount required under SRO rules when the equity in a margin account falls below a pre-determined level. III. A mixed margin account is one in which there are both long and short positions IV. Margin accounts use leverage A. I and IV B. I, II and III C. I, II, III and IV D. II and III
C. I, II, III, IV The minimum deposit is determined by the FRB's Regulation T. The minimum maintenance is determined by FINRA.
Which of the following events is of the greatest importance to a technical analyst? A. The company announced the resignation of its chief financial officer. B. The issuer's current book value increased. C. The stock's price recently penetrated its resistance level. D. Standard & Poor's raised the credit rating of the issuer
C. Technical investing is more interested in price and time of an investment based on stock chart features such as resistance and support.
An agent of a B/D whose home office is in state A, has a client in state B who has their mail forwarded to state C for the winter. Which of the following is true? A. Agent must be registered in state A only B. Agent must be registered in State B only C. Agent must be registered in State A and B only D. Agent must be registered in State A. State B and State C
C. The agent must be registered in states A and B. An agent must be registered in the state they have an office in and any state in which clients are residents.
Which of the following Investment Company share classes contain Contingent Deferred Sales Charges? A. Class A B. Class B. C. Class C D. Class D
Class B shares are back end funds in which the sales charge is charged if you sell and declines over time Class A - front end load
One of your clients dies. Who can you take instruction from? A. Spouse B. CPA C. Person with durable power of attorney D. Administrator of intestacy
D. A client who has died intestate (without a will) is appointed an administrator by the state.
Included in the USA's definition of exempt transaction would be any transaction by any type of the following EXCEPT one by: A. A sheriff B. A guardian C. A trustee in bankruptcy D. A trustee of an irrevocable trust
D. A trustee of an irrevocable trust Trustees limited in bankruptcy
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? A. Prepare a new set of recommendations that will hopefully be received more favorably by the client. B. Go ahead with the recommendation anyway because the client's lack of understanding should not stand in the way of potentially superior results. C. Suggest that if the client will not follow the IAR's recommendations, it would be best to find another firm to deal with. D. 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
D. 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
Which of the following payout options from a nonqualified annuity would assure the annuitant the largest monthly payment? A. Unit refund B. Straight life with period certain C. Joint with last survivor D. Straight life
D. Straight life has the least amount of riders and therefore the largest monthly payout
The offering of a Unit Investment Trust would be regulated under which of the following: A. Trust Indenture Act of 1939 B. Gramm-Leach-Bliley Act of 1986 C. Securities Exchange Act of 1934 D. Securities Act of 1933
D. UITs, like mutual funds, issue new shares to the public (that's why prospectuses are required). All new offerings are covered under the Securities Act of 1933
Exempt Transaction
Exempt transaction is a type of securities transaction where a business does not need to file registrations with any regulatory bodies, provided the number of securities involved is relatively minor compared to the scope of the issuer's operations and that no new securities are being issued. Exempt securities are the instruments used that the government backs, which have tax-exempt status.
According to the Uniform Securities Act, which of the following is considered a sale? I Giving a security as a bonus II Making a bona fide loan of stock III Entering into a contract to sell a security
I & III. Loaning or pledging to loan securities is not considered an offer or sale of securities
Books and Record Timelines IA and BD
IA: 5 yr books, 2 yr records BD: 3 yr books, 2 yr records
Which investment is most tax efficient?
Index Fund Index funds are passively managed. Therefore, there is very little trading within the portfolio and therefore very little taxable gains.
What type of order is filled immediately at the current market price?
Market order
If an IA is registered in 5 states and has its principal office in State B and three other states, the IA must:
Meet capital requirements of state B An IA must meet the financial requirements of its home state only.
According to the Uniform Security Act, which of the following is NOT considered a person?
Minors, deceased, and legally claimed incompetents are not considered legal entities
A 68 year old woman is seeking preservation of capital with a secondary objective of income. Which of the following would be the most appropriate?
Money market funds are generally safe and would also provide her with more income than a savings account.
Social Media and Cybersecurity
NASAA/FINRA has very few guidelines concerning the use of social media and electronic security of customer information. It is important to know that B/D's and IA must have internal policies in place to guide agents and reps and to safeguard account information through proper data storage and file back-up.
Right of Rescission
The right, provided by the Truth in Lending Act, that gives borrowers up to three business days to cancel a loan or other credit transaction for which their home is pledged as security 30 days All money + interest + court costs - dividends/interest
An agent recommends a tax-free, fixed income security to a customer based on their tax rate. The customer believes another taxable investment would give them a better return. The agent could compute the equivalent taxable yield by A. Dividing the tax-free yield by the compliment of the investors tax bracket B. Dividing the taxable yield by the compliment of the investors tax bracket C. Multiplying the tax-free yield by the compliment of the investors tax bracket D. Multiplying the taxable yield by the compliment of the investors tax bracket
To find the equivalent taxable yield, you must divide tax-free yield by the compliment of the investor's tax bracket.
What life insurance policy has a fixed premium schedule, a guaranteed death benefit, and a guaranteed cash value?
Whole Life Insurance
401(k) plan
a tax-deferred investment and savings plan that acts as a personal pension fund for employees
Which may be used to acquire a security at a specific price or better?
buy stop limit and buy limit To acquire a stock, you must buy. Limit orders allow you to buy at a specific price.
With life insurance, a "Capital Needs Analysis" may be helpful for all of the following except: a. planning for an income stream b. capital for tax purchases c. future life insurance needs d. completion of investment objective
c. future life insurance needs Capital needs analysis is used to determine the use and amount of insurance needed to meet future needs. You don't purchase insurance to buy insurance in the future.
