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Series 66 > 66-6 > Flashcards

66-6 Flashcards

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Series 66 flashcards
1
Q

What is not pertinent when opening an account, a client’s educational or financial background?

A

educational

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2
Q

May a wife enter trades in a husband’s account?

A

Yes, with written third-party authorization.

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3
Q

Describe a wrap account.

A

An account that charges the client a single fee that covers transactions and management

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4
Q

How do nonmanaged, fee-based accounts differ from wrap accounts?

A

A fee is charged to cover transaction costs (often a percentage of assets), but no management is performed.

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5
Q

Churning is described as _____________________ designed to _____________________.

A

excessive trading to generate commissions

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6
Q

What is the annual fee levied against a fund’s assets to pay expenses of commissions, advertising, and sales literature?

A

12b-1 Fee

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7
Q

True or False: If churning in a client’s account generates large profits, it is not considered a violation.

A

False

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8
Q

An IA that is also a BD may execute agency cross trades, earning commission on both sides, if one side is ____________.

A

unsolicited

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9
Q

If a client gives little information when opening an account, what securities may an agent recommend to the client?

A

Only securities that are suitable based on the information the client did provide

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10
Q

Define churning.

A

excessive trading to generate commissions and other fees

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11
Q

May an adviser borrow money from a client?

A

Yes, if the client is in the business of lending money, or if the client is an affiliate of the adviser, or is a BD.

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12
Q

May an adviser or BD lend money to a client?

A

Yes, if the adviser or BD is in the business of lending money.

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13
Q

What is soft-dollar compensation?

A

Non cash compensation paid by a BD to an IA for directing securities transactions.

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14
Q

What forms of soft-dollar compensation are acceptable?

A

Research reports, seminars, software used to provide analysis ; must benefit the client

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15
Q

What forms of soft-dollar compensation are NOT acceptable?

A

Rent, travel expense reimbursement, hardware, furniture, entertainment, meals

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16
Q

True or False: IAs have a fiduciary responsibility to clients and must obtain best execution on directed transactions.

A

True

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17
Q

True or False: Under the Uniform Prudent Investor Act (UPIA), an IA’s main objective should be risk avoidance.

A

False. The UPIA indicates that advisers are responsible for managing risk, not avoiding risk.

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18
Q

True or False: Under the UPIA, an adviser should never recommend speculative investments to conservative investors.

A

False. The management of risk is what is important. Investments such as options or commodities may reduce overall risk.

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19
Q

In what type of account would you most likely expect reverse churning?

A

wrap

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20
Q

IAs have greater responsibility to their clients than BDs. This is referred to as the IA’s ___________ responsibility.

A

fiduciary

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21
Q

The program where a single fee is charged in lieu of commissions and advisory fees is generally called a ______ program.

A

wrap

22
Q

True or False: A mutual fund asset allocation program requires a special wrap program disclosure document.

A

False. These programs charge a percentage of assets to manage a portfolio of no-load mutual funds

23
Q

True or False: The wrap fee brochure must disclose that it may cost less to purchase the IA’s services separately.

A

True

24
Q

Identify the acronym: UPIA

A

Uniform Prudent Investor Act

25
Q

Describe a soft-dollar arrangement between an IA and a BD.

A

An IA directs client transactions to a specific BD in return for research and brokerage services.

26
Q

To be allowed, a soft-dollar arrangement must benefit ____________.

A

the client

27
Q

Identify some permissible uses of soft-dollar arrangements.

A

Soft dollars are permitted for obtaining research reports, software, and fees for attending conferences/seminars.

28
Q

What are some of the examples of items that cannot be covered by a soft-dollar arrangement?

A

Advertising, travel expense reimbursement, meals and entertainment, and computers

29
Q

True or False: An agent must always have reasonable grounds for recommending a particular security.

A

True

30
Q

An agent of a BD lends $5,000 to his brother, is this acceptable?

A

yes, lending to immediate family is permissible

31
Q

True or False: If a conflict of interest exists, an IA must always terminate a relationship with a client.

A

False. An IA must always disclose a conflict, but they don’t necessarily need to end the relationship.

32
Q

Define an agency cross transaction.

A

A trade executed by a financial firm that is acting as a broker for both the buyer and seller.

33
Q

Define fiduciary.

A

Someone who acts on behalf of another, which gives rise to a relationship of trust and confidence.

34
Q

List some examples of fiduciaries.

A

IARs, executors of an estate, custodians in a UTMA/UGMA account, trustees, and pension plan administrators

35
Q

What duties does an IAR have according to the “know your customer” rules?

A

Make a reasonable inquiry into a customer’s background and provide suitable advice based on known information.

36
Q

May an IAR recommend that a client meet/speak with another financial professional?

A

Yes. If an IAR lacks expertise in a certain area (e.g., insurance), it’s acceptable to recommend outside assistance.

37
Q

If a BD is promoting wrap accounts, does it need to register as an IA?

A

yes

38
Q

Will a client always pay lower fees in a wrap account?

A

no. Depending on how much the client trades, it’s possible he will pay more than if the fees were paid separately.

39
Q

Does an IA need written consent before executing each agency cross trade with an advisory client?

A

No, the client must provide written consent initially, but not for every trade.

40
Q

May an IAR solicit both sides of an agency cross transaction?

A

no, one side must be unsolicited

41
Q

May investment adviser advertising refer to testimonials?

A

no

42
Q

True or False: An agent of a broker-dealer may loan money to his son-in-law.

A

True. In-laws are considered immediate family members, so the loan would be acceptable.

43
Q

Define wrap account.

A

A managed account that charges clients an annual fee to cover trading, research, and advisory services

44
Q

True or False: A fiduciary’s duty includes ensuring that all investment advice is impartial and disinterested.

A

True

45
Q

True or False: An adviser is required to deliver only ADV Part 2 when entering into a wrap fee program with a client.

A

False. For wrap accounts, the SEC requires IAs to provide clients with a special disclosure (ADV Part 2A-Appendix 1).

46
Q

Retail communication generally requires _______________________.

A

principal preapproval

47
Q

What document is required for an IA to be authorized to pay his client’s bills?

A

a full power of attorney

48
Q

In what type of arrangement may an IA acquire research reports without paying for them directly?

A

a soft-dollar arrangement

49
Q

Does a solicitor for an IA provide securities recommendations?

A

No. Solicitors only solicit new clients; they do not recommend or approve transactions.

50
Q

When and by whom is Form ADV-E filed?

A

Filed within 120 days from completion of an audit of the IA’s books; filed by the auditor conducting the audit

51
Q

Is office furniture (e.g., a desk chair) included in an IA’s net worth?

A

yes, provided it is fully owned by the IA

Series 66 (12 decks)

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