AD Banker- Comp Exam - Series 63 Flashcards
Under the Uniform Securities Act, investment adviser representatives may be denied registration for all the following, except:
A
Failing the qualification exam
B
Failing to pay the registration fee
C
Conviction of a felony 6 years ago
D
Lack of experience
D
Lack of experience
Registration may not be denied solely because of lack of experience, as long as the person has the proper training and/or knowledge.
An investment-planning firm would not be required to register as an investment adviser in State A under any of the following circumstances, except:
A
The firm has an office in State A but advises only institutional investors
B
The firm only advises qualifying private funds
C
The firm has no office in State A and provides investment advice only to institutional investors
D
The firm manages $24 million for an aggressive growth mutual fund
A
The firm has an office in State A but advises only institutional investors
Investment advisers who provide advisory services only to institutional investors and who have no place of business in a state are exempt from registration requirements in that state. If, however, the IA has an office in the state, they must register with the Administrator. Advisers who manage portfolios for registered investment companies (mutual funds) and qualifying private funds (hedge funds) are generally federal covered and excluded from state registration.
The USA stipulates that a private placement will be for investment purposes only, and it will not have more than 10 noninstitutional persons, investing over what period of time?
A
A 6-month period
B
A 12-month period
C
A 9-month period
D
A 3-month period
B
A 12-month period
The USA stipulates that a private placement will be for investment purposes only and the offering will not be directed to more than 10 non-institutional buyers in any consecutive 12-month period.
If an agent identifies several investments, with essentially the same risks as a particular investment for their client, the agent have:
A
Not violated the USA
B
Misled the customer
C
Been unethical
D
Attempted to coerce the client
A
Not violated the USA
The representative did not violate the USA because they identified the risks. Risks associated with an investment are considered material facts. Omission of material facts in the sales process is a prohibited practice and a violation of the USA.
Following the discovery of an unintentional illegal sale of a security, an investor may do all the following, except:
A
Sue for restitution of the purchase price plus interest
B
Initiate a criminal investigation
C
Initiate a civil suit
D
Accept a written offer of rescission
B
Initiate a criminal investigation
Criminal penalties are initiated and imposed by a court, not an investor. In this case the violation was unintentional and does not rise to the level needed to seek a criminal investigation. An investor can seek restitution through a civil suit. A letter of rescission may be offered and accepted prior to the initiation of a civil suit.
An investment adviser representative (IAR) uses the internet to distribute general information about products they have used for clients such as variable annuities, options, and exchange-traded funds. Regarding these internet communications, which of the following is true?
A
These types of communications are considered transacting business in a state and therefore do require review and approval of the firm
B
These types of communications are not considered transacting business in a state but do require review and approval of the firm
C
These types of communications are not considered transacting business in a state and therefore do not require review and approval by the firm
D
These types of communications are considered transacting business in a state but because of the general nature of the communications do not require review and approval of the firm
B
These types of communications are not considered transacting business in a state but do require review and approval of the firm
These types of general communications that speak only to services or products offered and do not involve effecting or attempting to effect securities transactions or rendering personalized advice regarding securities, are not considered “transacting business” in a state. However, the firm is responsible to ensure that the information is accurate and not misleading, and in that light, review of the communications and approval is required.
Which of the following would not be considered an agent under the Uniform Securities Act?
A
An employee of a broker-dealer who executes exempt transactions only
B
An RR who executes trades with institutional investors only
C
A registered principal of a broker-dealer
D
An employee in the HR department of a corporation who administers the company’s retirement plan
D
An employee in the HR department of a corporation who administers the company’s retirement plan
Any brokerage firm employee who effects transactions is considered an agent, regardless of job title and type of security or transaction being offered. An employee of an issuer selling stock to a noninstitutional customer is typically considered an agent. Employees of issuers who manage retirement plans for employees of the issuer are not considered agents unless the individual is compensated for the transaction.
A non-exempt, unregistered security is sold unintentionally by an agent. What corrective action may the agent take?
A
No corrective action is needed since non-exempt securities need not be registered
B
File an appeal with the Administrator for immunity from prosecution
C
Request the investor sign a non-litigation agreement
D
Make an offer of rescission to the client, and reimburse them in full
D
Make an offer of rescission to the client, and reimburse them in full
If an agent discovers a sale was made that violates a provision of the USA, they can offer to buy back the securities through an offer of rescission. The investor receives the full purchase price plus interest and reasonable attorney fees, minus any income received from the investment. Non-exempt, unregistered securities must either be federal covered securities or sold through a private placement.
All the following are true of security registration stop orders, except:
A
A hearing must be scheduled within 15 days of the issuer’s request
B
The Administrator must notify the issuer in writing
C
The Administrator must tell the issuer the reasons for the stop order
D
A hearing requested by the issuer may be made orally or in writing
D
A hearing requested by the issuer may be made orally or in writing
The hearing request must be in writing.
A security where the holder may have to pay something of value later to maintain ownership, is the definition of:
A
Cumulative preferred stock
B
Futures contract
C
Assessable security
D
Convertible security
C
Assessable security
A security where the holder may have to pay something of value later to maintain ownership is the definition of an assessable security.
Under the Investment Advisers Act of 1940, a firm advertising itself as investment counsel must be providing supervisory services which are defined as:
A
Brokerage, execution, and clearing functions on an as needed basis
B
Continuous advice regarding a client’s investments based on the client’s needs
C
Occasional referrals to financial and securities professionals able to provide the client with services needed
D
Continuous advice regarding efficient tax planning based on the client’s income and net worth
B
Continuous advice regarding a client’s investments based on the client’s needs
Supervisory services are services providing continuous advice regarding a client’s investments based on the client’s needs. Under the Investment Advisers Act of 1940 this is one of the conditions to be met in order to use the term investment counsel.
Which of the following meets the definition of a broker-dealer:
I An agent selling securities to retail investors
II An issuer selling its own securities to the public
III A bank or trust company
IV A firm located in the state, who only effects securities transactions with institutional investors
A
IV only
B
III and IV
C
I, II, III, and IV
D
I and III
A
IV only
A broker-dealer is a firm that effects securities transactions for the account of others or for their own account. Broker-dealers must register in any state they maintain an office, and/or a retail client resides in the state. An agent is a natural person (an individual) who represents an issuer or broker-dealer. An issuer is a person who issues or attempts to issue securities. Banks and trust companies are excluded from the definition of broker-dealer.
A firm, registered as a broker-dealer under the Uniform Securities Act, is considering charging customers a fee for managing client accounts on a discretionary basis. Which of the following would be true if the firm does this?
I This is acceptable as long as the fee is reasonable
II The fee may not exceed 100 basis points
III The firm must register as an investment adviser
IV The firm is not permitted to charge both a commission and advisory fee
B
I and III
If this firm decides to charge an account management fee, it must register as an investment adviser. It will no longer be excluded from the definition of an IA, since it will be charging a separate fee for investment advice. However, as long as it registers, such fees are acceptable as long as they are reasonable. There is no prohibition against charging both commissions and fees, as long as both are disclosed.
According to the Uniform Securities Act, when can an Administrator review the records of the brokerage or investment advisory firm?
A
Any time the Administrator feels it is in the public interest
B
Only beginning on the fifth day after issuing an order
C
Only with at least 5 business days’ prior notice to the firm
D
Only in conjunction with an SEC or FINRA review
A
Any time the Administrator feels it is in the public interest
The Administrator may examine the records of the firm without prior notice, any time the Administrator feels it is in the public’s interest to do so. The Administrator may or may not cooperate with other agencies in the review.
According to the USA, which of the following is a security?
A
A call option on a corn future
B
A term life insurance policy
C
A Keogh plan
D
An investor’s residence
Only in conjunction with an SEC or FINRA review
A
A call option on a corn future
Options, whether on stocks, foreign currency, or commodity future contracts are securities. The following are not securities according to the USA: * Nonvariable life insurance policies, endowment policies, and fixed annuities * Commodity futures contracts * Currencies * Collectibles/antiques * Retirement plans, including pension plans, IRAs, and Keogh plans * Real estate for personal residence
The term agent does not include:
A
An individual who sells municipal bonds on behalf of a broker-dealer
B
An individual who is a silent partner of a broker-dealer
C
An individual selling their employer’s stock to existing employees for a commission
D
A salaried sales assistant who takes sales orders
An individual who is a silent partner of a broker-dealer
A partner of a broker-dealer who does not sell or try to sell securities is not an agent and does not need to register as such. An individual who represents a broker-dealer and sells securities (whether exempt or non-exempt) is defined as an agent. An agent is also a natural person representing (employed by) an issuer when selling its securities to existing employees, partners, or directors if compensated by a commission. A sales assistant who accepts orders must be registered as an agent.
When a non-issuer corporation sells non-exempt securities, using its own employees on a commission basis, the company is required to:
A
Is exempt from registration
B
Register as an agent
C
Register as an investment adviser
D
Register as a broker-dealer
D
Register as a broker-dealer
A broker-dealer is a person, a legal entity, effecting transactions in its own account or the account of others. When a corporation that is not an issuer of securities has its own employees sell securities, it is operating as a broker-dealer and must register. Whether the employee is compensated by commission or salary basis is irrelevant.
Which of the following is true regarding a primary market transaction?
A
Primary market transactions occur on an exchange or Nasdaq
B
These are exempt transactions
C
The issuer receives the funds from the transaction
D
It is a non-issuer transaction
C
The issuer receives the funds from the transaction
Primary market transactions are also known as issuer transactions. Issuers are usually corporations, governments, or municipalities. In a primary market transaction, the issuer receives the funds from the transaction. Trading outstanding securities on exchanges and Nasdaq are secondary market transactions.
Form ADV Part 2B contains:
A
Information about an investment adviser representative
B
Information about an investment adviser
C
Information about an agent
D
Information about a broker-dealer
A
Information about an investment adviser representative
Form ADV Part 2A contains information about the investment advisory firm. Form 2B, also known as the brochure supplement, contains information about investment adviser representatives, including the representative’s experience, education, and any disciplinary history.
A Canadian broker-dealer firm with no place of business in the U.S. deals only with its Canadian clients who temporarily vacation in the States. Which of the following would the firm be subject to under the Uniform Securities Act?
I Registration
II Consent to service of process
III Anti-fraud provisions
A
I
B
II and III
C
I, II, and III
D
III
B
II and III
An exemption from registration as a broker-dealer applies to Canadian firms doing business with existing retail customers who are temporarily in the U.S. An exemption from registration also exists for firms who only effect transactions in Canadian self-directed tax advantage retirement accounts for persons residing in a state that are holders or contributors to those accounts. While the Canadian broker-dealer is exempt from the definition of a broker-dealer under the USA, the firm is still subject to the anti-fraud provisions of the act, must still sign a consent to service of process, and must disclose to all U.S. clients that it is not subject to the full regulatory provisions of the USA. This is considered a limited registration.
To be considered by the Securities Exchange Commission as a qualifying private fund, the fund must have assets under management of:
A
$150 million or more
B
Less than $150 million
C
$250 million or more
D
More than $100 million but less than $200 million
A
$150 million or more
Qualifying private funds are those with assets under management of $150 million or more. Advisers to qualifying private funds must register with the SEC, they are federal covered advisers that are exempt from state registration requirements.
S&S Securities Inc. is primarily in the business of effecting securities transactions for their own inventory. Sometimes these transactions are with individual retail investors, and sometimes they are with large institutional investors. The compensation received is always in the form of a markup or markdown on the price of the security. S&S Securities must be registered as:
A
An institutional trader
B
A broker-dealer
C
Both a broker-dealer and an investment adviser
D
An investment adviser
B
A broker-dealer
Remember that the primary distinction of a broker-dealer is that they effect securities transactions for compensation rather than offering advice for a fee. Markups or markdowns are a form of compensation charged when broker-dealers are acting as dealers, buying and selling securities into and out of their own inventory. When the firm is acting as a broker, they charge a commission.
If a violation is suspected, initiating an investigation outside the Administrator’s state is:
A
Outside of the Administrator’s authority
B
Within the Administrator’s authority
C
A violation of the Uniform Securities Act
D
Permitted only following a hearing
B
Within the Administrator’s authority
If the Administrator discovers or suspects a violation of the Uniform Securities Act, the USA gives the State Securities Administrator broad powers to initiate or conduct investigations in or outside of the Administrator’s state.
Under what circumstances may an investment adviser share in the profits of an account subject to an investment advisory contract?
A
If the contract specifies that gains shall be shared equally
B
If the contract specifies that the compensation is based upon the total value of the account averaged and assessed annually
C
If the contract is annually renewable and specifies that all gains are shared 50/50
D
If an adviser shares in the capital appreciation or gains of the client’s account in proportion to each investment
B
If the contract specifies that the compensation is based upon the total value of the account averaged and assessed annually
A contract that specifies that the investment adviser’s compensation be based on the total value of the account averaged over a specified period or as of a definite date is not prohibited.
MAS Specialty Consultants routinely searches out companies open to discussions about either acquiring another company or being acquired by another company. The firm’s business model is such that, for a small fee, they have the opening discussions with the company and then refer the company to another firm. From this point, they accept a referral fee based on the size of the company they’ve had discussions with and have now handed over. After payment of the referral fee, they are not a part of any ensuing discussions nor the acquisition, if it ultimately occurs. MAS Specialty Consultants is:
A
Considered a finder but not a broker-dealer
B
Considered a finder and, therefore, a broker-dealer
C
Not considered a finder or a broker-dealer unless an acquisition ultimately occurs, and then they are considered a broker-dealer
D
Not considered a finder because they are simply charging fees for their services and not compensated based on the purchase or sale of securities
A
Considered a finder but not a broker-dealer
Collecting fees to have discussions and make referrals alone does not put the firm in the position of being defined as a broker-dealer. The compensation would need to be based on the ultimate purchase or sale of a company’s securities. If the M&A professional is being compensated on the closing of the deal, they are defined as broker-dealers.
Under the Uniform Securities Act, all the following are considered manipulative acts, except:
A
Creating misleading appearances in the market
B
Recommending an aggressive investment strategy
C
Phantom quotes
D
Wash trades
B
Recommending an aggressive investment strategy
It is an investment adviser representative or agent’s job to give recommendations to their customers. As long as this is done in an honest, ethical way and it is suitable for the customer, it is not unlawful or manipulative. Wash trades, phantom quotes, and creating misleading appearances in the market are all considered manipulative under the Act.
The client of an agent relocates to the state of Georgia. Neither the agent nor their broker-dealer are registered in Georgia. Obviously, the agent wants to continue doing business with this client so applications to register both the broker-dealer and the agent are filed in Georgia in accordance with the Uniform Securities Act. The proper filing of the applications allows business to continue for a grace period of:
A
30 calendar days
B
60 calendar days
C
15 calendar days
D
10 business days
B
60 calendar days
When properly filed in accordance with the USA (within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later), the application allows business to continue uninterrupted for a grace period of 60 calendar days.
Which of the following is not permitted?
A
Charging wrap fees if registered as an IA only
B
Charging commissions if registered as a BD only
C
Charging wrap fees if registered as a BD only
D
Charging the same customer both commissions and advisory fees if registered as a BD and an IA
C
Charging wrap fees if registered as a BD only
Wrap accounts are considered an investment advisory product, and a person must be registered as an IA to charge wrap fees.
The founder of an advisory firm has decided to retire at the end of the year and would like their son to take their place on the firm’s investment advisory committee. The son’s status will be elevated to partner of the firm. What action must the firm take to initiate this change?
A
The firm must notify each client within 10 business days of the change
B
The firm must obtain each clients’ written consent within 10 business days of the change
C
The firm must notify each client of the change within a reasonable time period
D
The firm must obtain each clients’ written consent prior to the change
C
The firm must notify each client of the change within a reasonable time period
IA firms must notify a customer of any change within the partnership within a reasonable time period. The firm, however, may not assign a customer’s contract without consent. If this is a majority partnership change, it would be stated in the question and would require prior written customer consent as it is considered assignment.
An investment adviser has recently hired a new employee. Which of the following activities would result in the employee being considered an IAR?
I Soliciting new clients
II Entering trades into an online order system
III Conducting qualitative research to determine the firm’s investment recommendations
IV Supervising the IA’s IT staff
A
I, II, and III
B
I and IV
C
I and III
D
II and IV
C
I and III
An investment adviser representative is any partner, officer, director, employee, or associate of an investment adviser that is registered, or required to be registered, under the USA; or one who has a place of business in the state and is employed by or associated with a federal covered adviser. An IAR is anyone who: * Makes recommendations or otherwise renders advice regarding securities * Manages accounts or portfolios of clients * Determines which recommendations or advice regarding securities should be given * Solicits, offers or negotiates for the sale of, or sells, investment advisory services * Supervises employees who engage in any of these activities
Which registration method requires the issuer to only file with the registration statement with the State Administrator?
A
Registration by qualification
B
Registration by notification
C
Registration by coordination
D
Registration by filing
A
Registration by qualification
Qualification must be used for securities that will not register with the SEC but are required to register with the state, or for a security that is registered in only one state (intrastate security).
Under the USA, what is the length of time an investment adviser’s records must remain readily accessible?
A
5 years total, with the first 2 years in the adviser’s principal office
B
3 years readily accessible, with the first 2 years in the adviser’s principal office
C
3 years total, and kept in the adviser’s office for 1 year
D
5 years total, and kept in the adviser’s office for 3 years
A
5 years total, with the first 2 years in the adviser’s principal office
An investment adviser’s records must be kept readily accessible for at least 5 years. The first 2 years they must be kept on file in the investment adviser’s principal office.
Under the USA, an investment adviser with no place of business in this state must register in the state if:
A
The adviser’s only clients are banks
B
The adviser’s only clients are broker-dealers
C
The adviser solicits to more than 5 non-institutional clients in a 12-month period
D
The adviser’s only clients are investment advisers
C
The adviser solicits to more than 5 non-institutional clients in a 12-month period
Investment advisers who are registered in another state but have no place of business in this state, are exempt from registration in this state if securities transactions are limited to 5 or fewer noninstitutional clients in a 12-month period (de minimis exemption). They are also exempt if their only clients in the state are institutional investors or companies, such as other investment advisers, banks, or broker-dealers (institutional exemption). An IA who conducts business with more than 5 retail customers in the state must be registered in the state as an investment adviser.
Securities transactions are within the jurisdiction of which of the following?
I The State Administrator in the broker-dealer’s state
II The Administrator of the state in which the deal was closed
III The Administrator of the state where the client received the information on the transaction
A
I and II
B
I, II, and III
C
I and III
D
II and III
B
I, II, and III
The State Securities Administrator has jurisdiction over both offers and sales within the Administrator’s state. A total of 3 Administrators can have jurisdiction over a sale, including the Administrator in the state where the offer originated, the Administrator in the state where the offer was directed to, and the Administrator in the state where the sale was done. The “deal was closed” is another way to say the transaction occurred in the state.
Which one of the following agent actions is prohibited?
A
Referencing a market letter published by a competitor
B
Referencing material nonpublic information
C
Referencing information contained in the prospectus
D
Referencing a company’s current income statement
B
Referencing material nonpublic information
It is allowable to reference public information. However, an agent cannot reference any material, nonpublic information regarding the issuer
If an investment adviser loses their registration, what will happen to the registrations of its investment adviser representatives?
A
There is no impact upon the IARs’s registration
B
The IARs lose their registration permanently
C
The IARs must re-register and take the examination again
D
The IARs registrations are inactive until they are employed with another IA firm
D
The IARs registrations are inactive until they are employed with another IA firm
If an investment adviser loses its registration, the registration for each of the IARs for that firm becomes inactive until the IAR begins working for another investment adviser in the state.
Under the USA, an investment adviser may not enter into, extend, or renew an investment advisory contract unless all of the following are present, except:
A
It is in writing
B
It discloses the formula for fee computation
C
It discloses that the contract can be assigned at anytime
D
It discloses the length of the contract
C
It discloses that the contract can be assigned at anytime
The contract must state that the contract cannot be assigned without the client’s written consent. The IA must have the investment advisory contract in writing, the contract must disclose the length of the contract, and it must disclose the fees and how they are calculated.
An agent’s client relocates to another state in which neither the agent nor their broker-dealer are registered. In order to qualify for the 60-day grace period to register, as allowed for by the Uniform Securities Act, an application to register must be filed:
A
Within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is sooner
B
Within 30 calendar days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later
C
Within 30 calendar days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is sooner
D
Within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later
D
Within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later
In order to qualify for the 60-day grace period, an application to register in the state in which the client is now a resident must be filed within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later.
Which of the following is an investment adviser?
A
Broker-dealers that supervise agents
B
The publisher of a national financial newspaper with analysis of individual stocks
C
Credit unions that provide debt management advice to specific members
D
A research firm that is in the business of selling security analysis to customers
D
A research firm that is in the business of selling security analysis to customers
Any person, including a research firm, who provides investment advice to others and charges a separate fee for the advice is an investment adviser. Broker-dealers whose investment advice is incidental to its business, savings institutions, and publishers of newspapers in general circulation and without specific client investment advice are not included in the term investment adviser.
Which of the following is excluded from the definition of an agent under the USA?
A
An individual who works for an issuer and sells securities only to institutions
B
An individual who represents a broker-dealer in effecting transactions in municipal securities with retail investors
C
An individual who represents the issuer in sales of the issuer’s securities to their own employees at a deeply discounted commission
D
An individual who represents a Canadian broker-dealer that is exempt from registration in the state
A
An individual who works for an issuer and sells securities only to institutions
An individual who represents an issuer in effecting exempt transactions, such as transactions with institutions, is not considered an agent. An individual who represents an issuer and effects transactions for the issuer’s securities only with employees of the issuer is excluded from the definition of an agent only if they receive no transactional compensation; in the example given here, the individual received a commission, so they are not excluded from the definition of agent. Any individual effecting securities transactions on behalf of a broker-dealer is generally considered an agent. If a Canadian BD meets the requirements for an exemption from registration, then their agents are also exempt (not excluded).
Under the Uniform Securities Act, which of the following investment adviser advertisements are prohibited?
A
Offering free services with the intention of delivering those services
B
Use of charts or formulas that clearly do not forecast results
C
Paid testimonials without a written agreement
D
Disclosing that gains are not guaranteed
C
Paid testimonials without a written agreement
Paid testimonials are allowed in advertising for investment advisers if the proper disclosures are made, they are supervised, and there is a written agreement. This does not mention the de minimis compensation exemption and would therefore, require a written agreement.
Under the Uniform Securities Act, the term ‘guaranteed’ can be used to describe the following:
I Performance
II Principal
III Interest
IV A security where the customer cannot lose their investment
A
II and IV
B
I and III
C
I and IV
D
II and III
D
II and III
Under the USA, the term ‘guaranteed’ means guaranteed as to payment of principal, interest, and/or dividends. Guarantees of certain performance or against losses cannot be made.
XYZ is an issuer that has been registered with the SEC for 5 years. XYZ intends to offer securities in the state using registration by filing/notification. When will the registration become effective?
A
When the fee has been paid and the registration has been on file for 5 days
B
The 30th day after filing
C
The 2nd full business day after filing
D
When the Administrator says so
A
When the fee has been paid and the registration has been on file for 5 days
As long as the filing fee has been paid, the state registration statement has been on file with the Administrator for 5 days, and no stop order is in effect, the registration becomes effective at the same time the federal registration becomes effective.
Which of the following must be filed with the State Administrator when a person registers?
I Application form
II Registration fee
III Consent to service of process
IV Power of attorney
A
II and III
B
III and IV
C
I, II, and III
D
I, II, III, and IV
C
I, II, and III
The application form, the registration fee, and the consent to service of process must all be filed with the State Administrator.
When must an investment adviser renew their state registration?
A
Every 2 years
B
December 31st of the year following its initial registration’s effective date
C
December 31st, then annually thereafter
D
After 12 months, then annually thereafter
C
December 31st, then annually thereafter
Registrations and notice filings expire annually on December 31, unless renewed. An application for renewal requires an annual filing fee.
Regarding the purchase for, or sale of securities from an investment adviser’s account when the other side of the transaction is a client of the IA, which of the following is true?
A
Known as principal transactions, either is allowable when the proper procedures have been followed; advance disclosure and prior written consent
B
Known as principal transactions, both are deemed to be conflicts of interest and prohibited
C
Known as a principal transaction, only a sale to a client from a firm’s inventory is allowed with no disclosure or consent required
D
Known as a principal transaction, only a purchase from a client for a firm’s inventory is allowed with no disclosure or consent required
A
Known as principal transactions, either is allowable when the proper procedures have been followed; advance disclosure and prior written consent
A principal transaction is one where a firm either purchases securities for its own account from a client, or a firm sells securities from its own account to a client. Both are allowable when the proper procedures are followed; advance written disclosure to the client and prior written consent from the client for each transaction.
A trust is established where the grantor can change the trustees whenever they want. Which of the following would best describe the type of trust that was set up?
A
Revocable trust
B
Irrevocable trust
C
Imperishable trust
D
Testamentary trust
A
Revocable trust
A revocable trust allows the grantor to retain control over the assets in the trust and change beneficiaries and trustees. An irrevocable trust is a trust where the terms cannot be changed. If the trust is established upon the grantor’s death, it is called a testamentary trust.
While talking to an acquaintance who is a securities attorney, you discover that they are helping to blue sky a new issue. This means they:
A
Need not be registered in the state
B
Must be registered in the state as an IA
C
Need not be registered with the state if they are federally covered
D
Must be registered in the state as an agent
A
Need not be registered in the state
State securities laws are known as blue-sky laws. In addition to registering with the SEC, issuers must be sure that their new offerings are either registered in every state in which they will be sold (called blue-skying the offering) or exempt from registration in those states. An attorney assisting in this process need not register as an IA, IAR, BD, or agent.
An agent would like to share in the profits and losses of an account of a customer who happens to be a close friend. According to NASAA, which of the following correctly addresses this relationship?
I Strictly prohibited
II Permitted with written authorization of the Administrator
III Permitted with written authorization of the customer
IV Permitted with written authorization of the RR’s (agent’s) broker-dealer
A
III and IV
B
II, III, and IV
C
I only
D
II only
A
III and IV
RRs (agents) may not share directly or indirectly in profits and losses in customer accounts without the written authorization of the customer and the representative’s broker-dealer. Written authorization of the Administrator is NOT a requirement. Under no circumstances may an RR or a broker-dealer share in customer losses as a way to guarantee the client against a loss, nor may clients be guaranteed a profit on any transaction.
Which of the following is not a permissible soft-dollar expenditure?
A
Seminar tuition
B
Investment publication subscription
C
Investment research software
D
Computer
D
Computer
Overhead expenses of the adviser, including office space, computers, furniture, and clerical assistance, are not permitted.
Pursuant to the Uniform Securities Act, under which of the following circumstances would the investment advisory firm need the prior approval of a client?
I The firm is a partnership and there is a change in minority interest in the firm
II The firm is a corporation and one of the minority shareholders sells their stock to another individual who previously owned no stock in the firm
III The firm assigns the contract to another advisory firm, started by a former employee of the firm
IV The adviser recommends both sides of an agency cross transaction
A
II and III
B
III and IV
C
III only
D
I, II, and III
C
III only
I would require notification but no prior approval. II would require no notification or prior approval. IV is a prohibited practice and is not allowed. III would require prior approval.
An investment adviser (IA) managing a client’s assets, after all considerations, feels strongly that the portfolio is best served by using a single stock with a consistent history of paying high dividends. The client’s risk tolerance is noted as low. Using the prudent man rule as a guideline, this strategy would be:
A
Considered prudent and not a factor to be considered because even though the rule applies to fiduciaries, it specifically omits and does not apply to investment advisers
B
Considered imprudent because a single stock portfolio would not align with the expectation that fiduciaries diversify investments
C
Considered imprudent because equities, even though they might pay dividends, would not align with the client’s low risk tolerance
D
Considered prudent given the history of the stocks consistent dividends which would align with the client’s low risk tolerance
B
Considered imprudent because a single stock portfolio would not align with the expectation that fiduciaries diversify investments
The prudent man rule, which does apply to IA’s, is the guideline that fiduciaries must observe in managing client assets. Under the rule, there is the expectation that fiduciaries will diversify investments in order to mitigate risk. Mitigating risk should be done regardless of the client’s risk tolerance. A single security portfolio lacks any diversification and is always considered high risk; imprudent.
Regarding a security, when the term guaranteed is used, it means:
A
Guaranteed to payment of principal, interest, and dividends
B
Backed by SIPC
C
No risk
D
Backed by FDIC
A
Guaranteed to payment of principal, interest, and dividends
Guaranteed means a guarantee as to payment of principal, interest, or dividends.
Under the Uniform Securities Act, which of the following would not be considered fraudulent?
A
Making any untrue statement of fact to a retail investor
B
Failing to disclose the fact that a company whose stock an RR is recommending has just announced they are the target of an SEC investigation as this information has been all over the news in the past few days
C
Charging both commissions and fees without disclosure
D
Charging a 6% commission, but disclosing only 2% on the trade confirmation
A
Making any untrue statement of fact to a retail investor
The Uniform Securities Act states that it is fraudulent to make any omission or misstatement of material facts. Failing to disclose an SEC investigation, whether the fact is widely known or not, is an omission of material fact. Making an untrue statement of fact is only fraudulent if the fact is MATERIAL; misleading a customer about your prowess at golf, for example, is neither material nor fraudulent under the Act.
Whether an issuer has or had any adverse ruling by a state regulatory authority, a court, or the SEC in conjunction with the offering must be included in the:
A
Form U4
B
Registration statement
C
SEC disclaimer
D
Form BD
B
Registration statement
The registration statement must reveal whether the issuer has any adverse ruling by a state regulatory authority, a court, or the SEC in conjunction with the offering. The SEC disclaimer specifies the SEC’s limits of responsibility and is included on every prospectus. Agents register at the federal and state levels using Form U4 and broker-dealers use Form BD.
According to the USA, under which of the following circumstances may an agent share in the profits or losses in a client account?
A
Presence of prior written approval by the supervisor of the agent
B
Under no circumstances is sharing of profits/losses allowed
C
Presence of prior written approval by the client and employing broker-dealer
D
Presence of prior written approval by the client and profit and losses are shared in proportion to the amount each person has invested in the account
C
Presence of prior written approval by the client and employing broker-dealer
No agent shall share in the profits or losses in a client’s account unless there is prior written approval by the client and the agent’s employing broker-dealer. Under the USA, an agent and customer do not have to share in proportion to the profits and losses in the account.
The Uniform Prudent Investor Act (UPIA) is a:
A
Federal law that mandates all states must abide by regarding fiduciaries who manage client assets
B
Federal law that states have adopted as a guideline for fiduciaries who manage client assets
C
Law enacted by each state in accordance with how they have legislated fiduciaries should manage client assets
D
Law enacted by each state in accordance with how they have legislated only trustees, not all fiduciaries, should manage client assets
B
Federal law that states have adopted as a guideline for fiduciaries who manage client assets
The Uniform Prudent Investor Act (UPIA) is a federal act that most states have adopted as the current guideline for fiduciaries that manage client assets. Note that the federal law does not mandate states must abide by it. While it specifically addresses the importance of trustees, fiduciaries would include, but are not limited to, trustees, executors, and investment advisers.
An investment adviser representative (IAR) assures a client that a recommended investment is sound, aligns with the client’s risk tolerance and investment objectives, and if not profitable within 3 months will be redeemed by the firm for the full cost of the transaction minus commissions. This would be:
A
Allowed as it is within the time period (3 months) both FINRA and the USA allow for when guaranteeing against a loss
B
Prohibited only because the redemption by the firm does not include the cost of commissions
C
Allowed because it is the firm, not the IAR, who is guaranteeing against a loss
D
Prohibited as a recognized attempt to guarantee a profit or guarantee against a loss
D
Prohibited as a recognized attempt to guarantee a profit or guarantee against a loss
Under no circumstances may clients be guaranteed a profit on any transaction. Nor may an agent, IAR, or firm share in client losses as a way of guaranteeing the client against a loss.
Under what circumstances may a client and broker-dealer commingle funds?
A
With a written client agreement and a surety bond
B
Under no circumstances
C
Only if the account is insured and the broker-dealer has obtained administrator approval
D
Only if the broker-dealer has discretionary authority
B
Under no circumstances
The broker-dealer may never commingle firm funds or securities with customer funds or securities.
Under current securities regulations, which of the following best characterizes the fiduciary capacity of an investment adviser who has discretionary control over a client’s assets?
A
The investment adviser must limit investment choices for the client to those rated investment-grade level or higher
B
The investment adviser must select investments that will provide reasonable income for the client without incurring undue risk
C
The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing the client’s account
D
The investment adviser must employ a strategy to grow the assets for the client at a rate no less than the anticipated rate of inflation
C
The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing the client’s account
When an investment adviser has discretionary authority over customer accounts, securities regulations require that the adviser consider the character of the account and client and only make decisions based on what a prudent investor would do. The investment adviser must exercise caution, care, and control, as well as skill, strategy, and self-control when managing client accounts.
XYZ Industries has filed a registration statement with State A to offer $6,000,000 of equity securities. According to the Uniform Securities Act, this registration remains in effect:
A
Unless withdrawn by the issuer or revoked by the Administrator
B
For 1 year after the effective date
C
Until the end of the calendar year
D
Until the end of the company’s fiscal year
B
For 1 year after the effective date
According to the Uniform Securities Act, once a registration statement for securities is effective, it remains so for 1 year after the effective date or until the offering is complete. The Administrator may require the issuer to keep the registration statement up-to-date, as well as file reports about the progress of the offering. If there are securities remaining unsold after the 1-year period elapses, the issuer may apply to the Administrator for an extension, which may or may not be granted.
Which of the following would be prohibited regarding borrowing and lending practices under the NASAA?
A
A broker-dealer agrees to lend cash to an established client based on the terms of a signed agreement
B
An agent, handling the account of a bank for their employing BD applies to the bank for a personal loan that the agent discloses is expressly for the purpose of buying securities the BD favors
C
An agent agrees to lend money for the purchase of securities to one of their best clients with the understanding that it will be paid back promptly with no interest or any other considerations advantageous to the agent
D
An agent, handling the account of a bank for their employing BD applies to the bank for a mortgage that the agent discloses is for the purpose of buying a vacation home with rental potential
C
An agent agrees to lend money for the purchase of securities to one of their best clients with the understanding that it will be paid back promptly with no interest or any other considerations advantageous to the agent
Don’t be misled by the complicated scenarios. It is a prohibited practice to borrow money from a client. However, it is permitted when the client is in the business of lending. Therefore, if the client is a bank (banks are presumed to be in the business of lending) there is no prohibition on borrowing from them. Broker-dealers are allowed to lend cash or securities to customers based on a signed margin agreement.
Which of the following communications may be required to be filed with the Administrator in a given state?
I Individual letters
II A general prospecting form letter
III Ads for GNMAs
IV Ads for CMOs
A
II, III, and IV
B
II and III
C
II and IV
D
I and II
C
II and IV
The Administrator may require the filing of any prospectus, advertising, sales literature, circular, pamphlets, or form letters that are addressed to or intended for distribution to prospective investors. Exempt securities (including Treasurys and GNMAs), exempt transactions, and federal covered securities are not subject to the advertising filing requirements of the USA. CMOs are not exempt securities, and individual correspondence does not have to be filed.
Which of the following communications may be required to be filed with the Administrator in a given state?
I Individual letters
II A general prospecting form letter
III Ads for GNMAs
IV Ads for CMOs
A
II, III, and IV
B
II and III
C
II and IV
D
I and II
C
II and IV
The Administrator may require the filing of any prospectus, advertising, sales literature, circular, pamphlets, or form letters that are addressed to or intended for distribution to prospective investors. Exempt securities (including Treasurys and GNMAs), exempt transactions, and federal covered securities are not subject to the advertising filing requirements of the USA. CMOs are not exempt securities, and individual correspondence does not have to be filed.
Which of the following is defined as an agent?
A
An individual representing an issuer of securities in an exempt transaction
B
A sales secretary who solicits and accepts orders from clients
C
An individual representing an issuer of certain exempt securities, like a security issued by the U.S. government
D
A broker-dealer’s managing partner, who does not engage in securities transactions
B
A sales secretary who solicits and accepts orders from clients
A sales secretary whose duties are administrative only is not an agent. A secretary, sales assistant, or other clerical person who is authorized to take sales orders over the phone, or otherwise accept customer orders, is an agent.
Regarding who is considered a broker-dealer, which of the following is correct?
A
A broker-dealer, registered in 1 state, that has branch offices in another state and only effects securities transactions with existing customers who are temporarily in that other state is not considered a broker-dealer in that other state
B
A broker-dealer, registered in 1 state, that has no place of business in another state and only effects securities transactions with existing customers who are temporarily in that other state is not considered a broker-dealer in that other state
C
A broker-dealer, registered in 1 state, that has no place of business in another state and only effects securities transactions with existing customers who have permanently relocated to the other state is not considered a broker-dealer in that other state
D
A broker-dealer, registered in 1 state, that has no place of business in another state and only effects securities transactions with existing customers who are temporarily in the other state is considered a broker-dealer and must be registered in that state
B
A broker-dealer, registered in 1 state, that has no place of business in another state and only effects securities transactions with existing customers who are temporarily in that other state is not considered a broker-dealer in that other state
First, remember that if a BD has any offices in a state or does business with residents of a state, the BD must be registered in that state. However, if they have no offices in a state and are only doing business with existing customers who have temporarily relocated to or are vacationing in that state, the BD is not considered a BD in that state and need not be registered there.
Which of the following is true regarding a primary market transaction?
A
The issuer receives the funds from the transaction
B
Primary market transactions occur on an exchange or Nasdaq
C
These are exempt transactions
D
It is a non-issuer transaction
A
The issuer receives the funds from the transaction
Primary market transactions are also known as issuer transactions. Issuers are usually corporations, governments, or municipalities. In a primary market transaction, the issuer receives the funds from the transaction. Trading outstanding securities on exchanges and Nasdaq are secondary market transactions.
In addition to one of the specified causes for revocation, denial, or suspension of a registration, what also must be present for the Administrator to take this action?
A
The Administrator deems that the interest of the public has been impaired
B
The Administrator deems that the public is interested
C
The Administrator deems that it is in the public’s best interest
D
The Administrator needs no additional cause
C
The Administrator deems that it is in the public’s best interest
The public’s best interest plus one or more of the specified causes must be present to cause denial, suspension, or revocation of a registration.
Pursuant to the USA, which of the following would have to register as an investment adviser?
A
A bank that specializes in trust services
B
A lawyer, hired to advise a client in bankruptcy, who advises the client to liquidate their stock portfolio and put the money in short-term commercial paper
C
A broker-dealer who charges a fee for reviewing a customer’s portfolio and suggesting more suitable investments
D
An individual who lists their pick for the most promising stock investment daily on the internet, accessible for a fee
C
A broker-dealer who charges a fee for reviewing a customer’s portfolio and suggesting more suitable investments
The broker-dealer who charges a fee for reviewing a customer’s portfolio is performing the service for a special fee, and thus, would have to be registered as an investment adviser. A bank that includes investment advice is excluded as a bank. A lawyer, hired to advise a client in bankruptcy, who advises the client to liquidate their stock portfolio, is excluded because the advice is incidental to the lawyer’s business. An individual who lists their pick for the most promising stock is excluded because the advice published does not relate to a specific investment situation for each client.
Upon an agent’s initial registration with a broker-dealer, the agent must file:
A
Form U4
B
Form U5
C
Form ADV
D
Form BD
A
Form U4
Form U4 is the registration application used for individuals registering in a state. Broker-dealers must file Form U5 when an agent is terminated from their firm. Form BD is the registration form for broker-dealers, and Form ADV is the registration form for investment advisers.
The effective date of an agent’s or investment adviser representative’s registration is:
A
At noon on the business day after the day on which the application was received by the Administrator
B
5 business days following the submission by the applicant
C
Midnight on the 30th day after the application was filed if the Administrator does not deny it
D
At noon on the 30th day after the application was filed
D
At noon on the 30th day after the application was filed
Registration becomes effective at noon on the 30th day after the application is filed with the Administrator.
Which of the following persons would be considered an agent under the Uniform Securities Act?
I An insurance salesperson who sells variable annuities
II An insurance salesperson who sells traditional products only
III A CFO who represents an issuer in an underwriting negotiation with an investment banker
IV A brokerage firm sales assistant who accepts unsolicited orders
A
I and II
B
I and IV
C
I and III
D
III and IV
B
I and IV
An insurance salesperson that sells traditional (fixed) insurance products only is not effecting securities transactions and is not an agent. If the individual sells variable insurance products, then the individual would be an agent and would be required to register. Any employee of a brokerage firm who may effect transactions with a retail customer is considered an agent, regardless of title. Employees of issuers who only deal with investment bankers are not considered agents.
Which of the following is not a federal covered adviser according to the USA and Investment Advisers Act of 1940?
A
S Investments, which manages $22 million for the LMN Growth Fund
B
ABC Partners, which manages $350 million of investments for wealthy individuals
C
The adviser for a mutual fund that holds $16 million in assets
D
A bank holding $150 million in noninstitutional client assets
D
A bank holding $150 million in noninstitutional client assets
The federal government and the states have divided the responsibility for regulating investment advisers. In general, an adviser must be registered with either the SEC or with one or more states, but not both. The basis for the federal-state division is usually assets under management (AUM). Advisers with assets of $110 million or more must register with the SEC, while those with assets under $100 million fall under state jurisdiction. Advisers managing between $100 million and $110 million may elect to be regulated by the state(s) in which they conduct business or by the SEC. Advisers to investment companies must always register with the SEC and are, therefore, federal covered. The bank is not a federal covered adviser because banks (as well as trust companies and insurance companies) are excluded from the definition of an investment adviser.
According to the Uniform Securities Act, the Administrator does not have the authority to:
A
Review sales literature for non-exempt securities
B
Write state law
C
Go across state lines to obtain evidence
D
Revoke an agent’s registration
B
Write state law
The Administrator is empowered to investigate and subpoena persons both within their state and across state lines. The State Administrator does not write the securities laws, but rather enforces the laws that are created by the state legislature.
A newly formed investment adviser with $10 million of assets under management would like to begin providing IA services to registered investment companies. What would need to be filed with the State Administrator to do so?
A
The IA must register with the SEC, file notice with the Administrator, and pay a state filing fee
B
Solicitor’s disclosure document
C
Market timing disclosure document
D
Form ADV Part 2 (brochure)
A
The IA must register with the SEC, file notice with the Administrator, and pay a state filing fee
Organizations and firms that pass the ABC test meet the definition of an investment adviser. Here is the test: An investment adviser is someone who A) provides ADVICE about securities, B) as a BUSINESS, C) for COMPENSATION. Once this test is met, investment advisers must determine if they need to register with the SEC or one or more states. This determination is based upon assets under management. Larger investment advisers register with the SEC, while smaller investment advisers register with one or more states. One exception: investment advisers to registered investment companies are required to register with the SEC, regardless of their assets under management. A firm acting as an investment adviser for a registered investment company, regardless of their assets under management, must register with the SEC as a federal covered adviser. Federal covered advisers are exempt from state registration but must still file a notice (notice filing) by providing the Administrator with records they have filed with the SEC and pay the annual state notice filing fees.
Under the Investment Advisers Act of 1940, which of the following parties would not be excluded from the definition of an investment adviser?
A
An accountant who helps customers select which stocks to sell for year-end tax planning purposes
B
ABC Bank, which acts as adviser to the Granite family of funds
C
A lawyer who provides retirement planning advice to small business owners
D
A publisher of the Dow Trends Chart Topper, a monthly market newsletter based on technical analysis
B
ABC Bank, which acts as adviser to the Granite family of funds
The Investment Advisers Act of 1940 specifically excludes a lawyer, accountant, teacher, or engineer whose performance of such services is solely incidental to the practice of their profession. Also excluded are any broker or dealer whose performance of these services is solely incidental to the conduct of its business as a broker-dealer and who receives no special compensation for them. The Act also excludes the publisher of any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation from the definition of IA. Although the Act generally excludes banks and bank holding companies from the definition of IA, this exclusion is lost when the bank/bank holding company acts as an adviser to a registered investment company. Firms that provide advice for registered investment companies must register with the SEC, making the firm a federal covered investment adviser. ABC Bank, therefore, is not excluded.
Which of the following permits the Administrator to be served legal papers on behalf of a registrant?
A
Consent to service of process
B
Form U4
C
Trading authorization
D
Power of attorney
Consent to service of process
A consent to service of process appoints the Administrator as their representative to be served legal papers on behalf of the registrant. The papers can be served to the Administrator if the registrant cannot be located. The Administrator may be served any complaints, petitions, or orders involving any noncriminal proceeding against that person.
Under the Uniform Securities Act, which of the following would not qualify for an exemption from registration as a broker-dealer?
I An agent with a place of business in the state who conducts business only with institutional investors in the state
II A person, not an agent, with no office in the state, whose business in the state is limited to conducting underwritings for corporations with a place of business in the state
III A person, not an agent, with no place of business in the state, whose business in the state is limited to 3 high-net-worth retail investors who are residents of the state
IV A person, not an agent, with an office in the state and who does business only with foreign institutional investors
A
I and II
B
I, II, III, and IV
C
III and IV
D
II and III
B
I, II, III, and IV
The only broker-dealer exemption deals with Canadian broker-dealers doing business with existing customers who are temporarily in the United States. There are several broker-dealer exclusions including agents, depository institutions, issuers, the institutional exclusion, and the retail exclusion. The institutional exclusion is for a BD that has no place of business in the state, who only effects transactions with institutional investors. The retail, or snowbird, exclusion is for a BD that has no place of business in the state and only effects transactions with existing customers who are temporarily in the other state. Remember that BDs must register in any state they maintain an office and/or a retail client resides in the state.
Which of the following statements is correct regarding broker-dealer registration in a state they wish to do business in?
A
A broker-dealer with no branch offices in a state, but who only wants to facilitate a transaction of securities with the issuer of those securities in the state is required to register in that state
B
A broker-dealer with branch offices in a state must be registered in that state
C
A broker-dealer with no branch offices in a state and wanting to deal only with institutional investors in the state is required to register in that state
D
A broker-dealer with up to three branch offices in a state is exempt from registration in that state even though they do business in that state
B
A broker-dealer with branch offices in a state must be registered in that state
Regardless of how many offices a broker-dealer has in a state, as long as there is at least one, the BD must register in that state to do business there. However, if there are no branch offices in the state, the broker-dealer is excluded from registration there if it does business only with other BDs, institutional investors, or the issuer of a security involved in a transaction of those securities.
A person who has no place of business in Wyoming would be required to register as a broker-dealer in Wyoming if the person:
I Accepted compensation for investment advice from noninstitutional investors residing in Wyoming
II Effected securities transactions for institutional investors domiciled in Wyoming
III Effected securities transactions with less than 5 noninstitutional investors domiciled in Wyoming
IV Effected securities transactions with more than 5 noninstitutional investors domiciled in Wyoming
A
III and IV
B
IV
C
I, III, and IV
D
II and III
A
III and IV
Any person who effects securities transactions with noninstitutional (retail) investors who reside in a state must register as a broker-dealer in that state even if the firm has no place of business in the state. Note that while there is a de minimis exemption for investment advisers, there is none for broker-dealers. Remember, a BD must register in a state as soon as the firm has one retail customer who resides in the state, and/or if they have an office in the state
XYZ Investments is not required to register as an investment adviser in a state if:
A
It has no place of business in the state and advises only 10 clients, 4 of whom are institutional investors
B
It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
C
It has a place of business in the state but advises only foreign institutional investors
D
It has a place of business in the state but is affiliated with a broker-dealer
B
It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.
An adviser does limited advisory business in State A. It has no place of business in the state and is not currently registered in State A. According to the Uniform Securities Act, which of the following are conditions that would lead to this adviser needing to register in State A?
I It provides advice to retail customers only
II It provides advice to institutional customers only
III It has 10 clients in State A, of which 6 are institutions
IV It has 10 clients in State A, of which 6 are retail investors
A
II and III
B
I and III
C
I and IV
D
II and IV
Generally, an investment adviser must register in each state in which it does business. However, if the adviser does not have an office in the state and it only deals with institutional customers, or it has 5 or fewer retail clients within a 12-month period, it is exempt from registering in that state. This question asks when this adviser would need to register, and in Choice IV, it has 6 retail investors, which exceeds the threshold for the exemption.
A broker-dealer, who has no office in a state, would not need to register in the state when:
A
Serving existing retail customers who are now residents of the state
B
Trading for retail customer’s accounts in that state
C
Serving existing retail customers who are temporarily in the state
D
Serving only 3 wealthy, noninstitutional customers in that state
C
Serving existing retail customers who are temporarily in the state
A securities firm with no office in a state, dealing solely with existing customers who are not residents of the state where the transaction takes place, is excluded from the definition of a broker-dealer, and the firm does not have to register in that state. This is called the retail customer (snowbird) exclusion. Remember, BDs must register in any state they maintain an office,and/or a retail client resides in the state.
Regarding an investment adviser (IA), which of the following is true?
A
Federal covered advisers are included in the definition of IA under the Uniform Securities Act and must register with the state under Federal regulations
B
Federal covered advisers are included in the definition of IA under the Uniform Securities Act but are exempt from state regulation under Federal regulations
C
Federal covered advisers are excluded from the definition of IA under the Uniform Securities Act but must still register with the state under Federal regulations
D
Federal covered advisers are excluded from the definition of IA under the Uniform Securities Act and are not required to register with the state
D
Federal covered advisers are excluded from the definition of IA under the Uniform Securities Act and are not required to register with the state
Federal covered advisers are excluded from the definition of investment adviser under the Uniform Securities Act.
Which one of the following is a post-registration requirement for broker-dealer agents under the Uniform Securities Act?
A
Continued residence in the state in which the agent is registered
B
Maintaining a sufficient level of business to warrant registration
C
Successful passage of an annual ethics exam
D
Annual renewal of the agent’s license with the Administrator
D
Annual renewal of the agent’s license with the Administrator
Agents must annually renew their licenses with their State Administrator. They need not maintain continued residence in the state in which they originally registered, however they must register in every state in which they conduct business. Registrations and notice filings expire annually on December 31 unless renewed. An application for renewal requires an annual filing fee.
An IAR for a federal covered adviser has offices in State A, where the IAR works. The IAR has several retail clients that reside in State B. Who would the IAR need to register with?
A
State A only
B
Both the SEC and State A
C
State A and State B
D
The SEC
A
State A only
Regardless of whether the IA firm registers with the state or SEC, if they have an office in the state (in this case, State A) the IAR must be registered in the state. IARs working for federal covered advisers only register in the states where the IAR maintains an office. However, if an IAR meets with customers in another state on a regular basis, this could be deemed as having a place of business in the state which would require registration in that state. IARs working for a state-registered investment adviser must register in all states where the IAR maintains an office and/or has retail customers who reside in that state.
Which of the following would prevent an agent from getting registered in a state?
A
A securities related misdemeanor conviction from 11 years ago
B
A speeding ticket issued by State X 3 years ago
C
A bank robbery felony conviction from 20 years ago
D
A class A felony conviction from 7 years ago
D
A class A felony conviction from 7 years ago
When registering with a state, an agent must disclose all convictions for felonies and securities-related misdemeanors. If the conviction for a felony or securities-related misdemeanor was within the 10 years preceding the date of registration, the agent will likely be denied registration in the state.
Which of the following are potential grounds for denying an agent’s application for registration?
I Filing an incomplete application
II Failing to comply with any provision of the Uniform Securities Act
III Being convicted, within the last 6 years, of any misdemeanor involving any aspect of the securities business
IV Being convicted, within the last 10 years, of a felony not involving any aspect of the securities business
A
I, II, and IV
B
II and IV
C
I, III, and IV
D
I, II, III, and IV
D
I, II, III, and IV
There are a number of grounds on which the Administrator could deny an application for registration as an agent. This may include: filing an incomplete application or one that contains false or misleading statements, willfully violating or failing to comply with any provision of the USA, or being convicted, within the last 10 years, of any felony or a misdemeanor involving any aspect of the securities business.
Which of the following are potential grounds for denying an agent’s application for registration?
I Filing an incomplete application
II Failing to comply with any provision of the Uniform Securities Act
III Being convicted, within the last 6 years, of any misdemeanor involving any aspect of the securities business
IV Being convicted, within the last 10 years, of a felony not involving any aspect of the securities business
A
I, II, and IV
B
II and IV
C
I, III, and IV
D
I, II, III, and IV
D
I, II, III, and IV
There are a number of grounds on which the Administrator could deny an application for registration as an agent. This may include: filing an incomplete application or one that contains false or misleading statements, willfully violating or failing to comply with any provision of the USA, or being convicted, within the last 10 years, of any felony or a misdemeanor involving any aspect of the securities business.
An investment adviser has recently hired a new employee. Which of the following activities would result in the employee being considered an IAR?
I Soliciting new clients
II Entering trades into an online order system
III Conducting qualitative research to determine the firm’s investment recommendations
IV Supervising the IA’s IT staff
A
II and IV
B
I and III
C
I and IV
D
I, II, and III
B
I and III
An investment adviser representative is any partner, officer, director, employee, or associate of an investment adviser that is registered, or required to be registered, under the USA; or one who has a place of business in the state and is employed by or associated with a federal covered adviser. An IAR is anyone who: * Makes recommendations or otherwise renders advice regarding securities * Manages accounts or portfolios of clients * Determines which recommendations or advice regarding securities should be given * Solicits, offers or negotiates for the sale of, or sells, investment advisory services * Supervises employees who engage in any of these activities
Which of the following is a broker-dealer agent according to the USA?
A
A partner of a broker-dealer whose responsibilities are limited to supervision of the clerical staff
B
An accountant at a broker-dealer responsible for preparing the firm’s monthly payroll
C
A janitor who occasionally accepts unsolicited orders at a broker-dealer
D
The chief technology officer at a broker-dealer
C
A janitor who occasionally accepts unsolicited orders at a broker-dealer
Be aware of questions that contain “agents in disguise”, such as secretaries or janitors who accept unsolicited trades only. Their job title is irrelevant. If a person employed by a broker-dealer is effecting securities transactions with the public, they are an agent. We have no evidence that any of the individuals in the other choices are “accepting” or “effecting” securities transactions, nor do we have evidence that they are supervising those that accept or execute trades (i.e., the partner of the broker-dealer).
QRS Brokerage, a registered broker-dealer, filed a registration statement with State A, which became effective one week ago. When will QRS be required to renew its registration?
A
Only if the Administrator requires re-registration as a sanction for violation of the USA
B
By December 31st of the current year
C
Within one year of the effective date
D
No later than December 31st of the year immediately following the year after the initial registration
B
By December 31st of the current year
All persons registered with the Administrator must renew their registrations (and pay a new fee) every year by December 31st.
Under the Uniform Securities Act, investment adviser representatives may be denied registration for all the following, except:
A
Failing to pay the registration fee
B
Failing the qualification exam
C
Conviction of a felony 6 years ago
D
Lack of experience
D
Lack of experience
Registration may not be denied solely because of lack of experience, as long as the person has the proper training and/or knowledge.
Under the USA, which of the following are agents?
I An individual who represents a broker-dealer in the sale of exempt securities
II An individual who represents an issuer in the sale of exempt securities
III An individual who represents an issuer in the sale of non-exempt securities in exempt transactions
IV An individual represents an issuer in sales of the issuer’s common stock to employees of the issuer for commissions
A
II and III
B
II and IV
C
I, III, and IV
D
I and IV
D
I and IV
An individual representing an issuer in the sale of common stock to its employees for compensation (commission) must be registered as an issuer agent in that state. If the individual representing the issuer did not receive compensation for the issuer employee transactions, then they would be excluded from registering as an agent. In general, sales people that represent BDs must register as agents. Individuals who directly represent issuers in selling exempt securities or engaging in exempt transactions are excluded from the Uniform Securities Act’s definition of an agent.
Under the USA, which of the following regarding private placements is correct?
A
The transactions take place within a 3-month period
B
If it meets all the private placement prerequisites, it does not need to be registered
C
A commission is paid to the investor
D
The transactions are to 10 or fewer retail investors
B
If it meets all the private placement prerequisites, it does not need to be registered
When a transaction meets all the private placement requirements, the security being placed does not need to be registered with the state, nor does it need to meet USA advertising and sales literature filing requirements. Private placements may include an offer (not transaction) to no more than 10 noninstitutional investors within any 12-month period. No securities are exempt from the USA’s anti-fraud provisions.
Which of the following brokerage firms transacting business in State A meets the definition of a broker-dealer contained in the Uniform Securities Act?
I A firm with no office in the state that occasionally conducts business with existing customers vacationing in State A
II A firm with no office in the state that only conducts business with other brokerage firms in State A
III A firm with several offices in the state that conducts business with both retail and institutional customers in State A
IV A firm with one office in the state that only conducts business with institutional customers in State A
A
III and IV
B
I, II, III, and IV
C
II and IV
D
I and II
A
III and IV
Firms with no office in a state and that only sell to institutions or existing customers passing through the state are not considered to be broker-dealers in that state under the USA. Once a firm maintains an office within a state, it is considered to be a broker-dealer regardless of the type of securities sold or the client base served.
Which of the following are not considered IARs?
I An individual who effects transactions for institutional customers in State A, where the firm does not have an office
II An individual who works for a federal covered adviser and solicits investment advisory services to customers in State B, without having an office in State B
III An individual who works for an adviser located and registered in State C and supervises other investment adviser representatives in State C
IV An individual who works for a federal covered adviser and solicits investment advisory services to customers in State D, where the firm has an office
A
III and IV
B
II and III
C
I and II
D
I and IV
C
I and II
When effecting transactions for customers, an individual is acting as an agent of a broker-dealer, not an IAR. An investment adviser representative (IAR) is any partner, officer, director of, or individual employed by or associated with an investment adviser that is registered or required to be registered under the Uniform Securities Act. IARs of federal covered advisers are required to register in the state where their office or place of business is located. They do not register based on the location of their clients and only register at the state level. There is no federal registration of IARs. These registration requirements pertain to those who perform any of the following duties: *Makes any recommendations or gives investment advice regarding securities *Manages client accounts or portfolios *Determines the nature of recommendation or advice given *Solicits, offers, or negotiates for the sale of or sells investment advisory services *Supervises employees performing any of these functions
Assuming that any investment advice provided to customers is incidental to their professional practice, which of the following would not be excluded from the definition of an investment adviser under the Uniform Securities Act?
A
An attorney
B
An engineer
C
A teacher
D
An economist
D
An economist
The Uniform Securities Act excludes certain professionals from the definition of an investment adviser if advice on securities is solely incidental to the practice of the individual’s profession. This exclusion applies to lawyers, accountants, teachers, and engineers. Economists are not excluded. If an economist provides investment advice on securities they must be registered as an IA.
Under the USA, which of the following does not meet the definition of a security?
A
An interest in a racehorse
B
A merchandise marketing scheme
C
A multi-level distributorship arrangement
D
A commodities futures contract
D
A commodities futures contract
To determine if an instrument meets the definition of a security, it must pass the Howey test. It must be an investment of money, in a common enterprise, with the expectation of profits from the efforts of a third party. The most common securities include stocks, bonds, options, warrants, rights, and investment companies. Some of the odder types you may encounter on your test include interests in farmland, animals, or natural resources, such as oil and gas or gold mines. Futures and commodities are not considered securities under the USA, but options on these instruments (or anything else) are considered to meet the definition.
Which of the following best describes fraudulent market manipulation?
A
The managing underwriter enters a bid to buy back shares of a new offering to prevent the price from falling
B
A trader buys a security in one market and immediately sells it in another market to take advantage of a price disparity
C
An investment adviser uses a proprietary algorithm to identify market anomalies and places block trades based on the results
D
An agent enters multiple buy and sell orders for the same security simultaneously
D
An agent enters multiple buy and sell orders for the same security simultaneously
Buying a security in one market and simultaneously selling it in another to take advantage of price discrepancies between the markets is a legal activity known as arbitrage. The managing underwriter entering bids to buy back shares of a new offering to ‘prop up’ the market price refers to stabilization, which is the only legal form of market manipulation under SEC rules. Many advisers and portfolio managers use sophisticated math and automated computer programs to determine what trades to execute, and this activity is perfectly legal. Entering multiple buy and sell orders for the same security, at the same time, is likely to be viewed as ‘painting the tape.’ This is engaging in transactions whose only purpose is to create the appearance of active trading, while in reality no securities are actually changing hands and there is no real change in ownership. This is considered a fraudulent practice.
A tax attorney, through their work, routinely encounters companies that may be open to discussions about being acquired by other companies. When the attorney can, they refer this business to a colleague working for another law firm who specializes in mergers and acquisitions. The attorney never accepts compensation even if the referral results in an acquisition. They simply view themselves as a finder. Which of the following applies?
A
Accepting no compensation, the attorney cannot be considered a finder but, by virtue of making the referral, is considered to be a broker-dealer
B
The attorney is correct in that they are considered a finder but, by virtue of making the referral, is also considered to be a broker-dealer
C
Accepting no compensation, the attorney cannot be considered a finder and does not meet the definition of a broker-dealer
D
The attorney is correct in that they are considered a finder and, therefore, does not meet the definition of a broker-dealer
D
The attorney is correct in that they are considered a finder and, therefore, does not meet the definition of a broker-dealer
An M&A finder finds companies that may be acquired. By making the referral the attorney is considered to be a finder. However, accepting no compensation based on the purchase or sale of the company’s securities, the attorney is not considered a BD. If the M&A professional is being compensated on the closing of the deal, they are defined as broker-dealers.
An investment adviser is organized as a corporation under the laws of State A, where its principal office is located. Under the NASAA Recordkeeping Requirements for Investment Advisers Model Rule, the firm is required to preserve all the following records until at least 3 years following the termination of the firm, except the:
A
Firm’s articles of incorporation
B
Stock certificate books
C
Firm’s minute books
D
Partnership articles and any amendments
D
Partnership articles and any amendments
While NASAA model rules require all four of these records to be kept for the life of the firm plus 3 years, in this case, only the partnership articles are unnecessary. The investment adviser is organized as a corporation, not as a partnership, and so there is no partnership agreement. The articles of incorporation, the stock certificates, and the minutes of the board of directors’ meetings must be kept on file at least 3 years past the date the firm has ceased operations.
All the following are considered persons under the USA, except:
A
The U.S. government
B
A 15-year-old child prodigy who tries to predict the future in the financial markets
C
An IAR registered in State A who represents ABC Investment Advisers
D
XYZ Corporation, located in State A
B
A 15-year-old child prodigy who tries to predict the future in the financial markets
According to the Act, individuals and entities are considered persons. A minor, someone who is deceased, and someone who has been declared mentally incompetent are excluded from the definition of a person under the USA.
An agent with Q Securities, has been discussing the purchase of some corporate bonds with a prospect for several weeks. On Monday, the agent calls this prospect from their State A office and reaches them on the road in State B. The agent suggests that the prospect purchase $100,000 face amount of CDE Industries 9.75% 10-year BBB paper. The prospect tells the agent that they would like to discuss the purchase with their spouse prior to committing to the purchase. On Friday, the prospect calls the agent from their home in State C and places the order. Which state administrator(s) has/have jurisdiction over the transaction?
A
State C
B
States B and C
C
States A, B, and C
D
State A
C
States A, B, and C
When a sale results from an offer, the Administrator has authority over any sale that originated in their state, was directed into their state, or was accepted in their state. Therefore, the administrators of all 3 states have potential jurisdiction over this transaction.
According to the Uniform Securities Act, what is the statute of limitations for civil cases related to a violation of the Act?
A
The statute of limitations is 3 years from date of sale or rendering of advice or 2 years after discovery, whichever comes first
B
The statute of limitations is the later of 3 years from discovery or 2 years from date of sale or rendering of advice
C
The statute of limitations is 5 years from the date of the offense
D
There is no statute of limitations for civil liability
A
The statute of limitations is 3 years from date of sale or rendering of advice or 2 years after discovery, whichever comes first
Civil proceedings may not be brought under the Uniform Securities Act more than 3 years after the sale of the security or the giving of the advice or 2 years after the discovery of the violation, whichever comes first. The statute of limitations for criminal penalties is 5 years from the date of the offense.
n the event of a merger, sale, or acquisition, which of the following is not true concerning the registration of a broker-dealer or investment adviser?
A
Current registrations are withdrawn
B
New registration is submitted by the successor firm
C
Registration remains effective until it expires
D
Registration is not transferable
C
Registration remains effective until it expires
In the event of a merger, sale, or acquisition, a broker-dealer or investment adviser registration is not transferable, it is withdrawn, and a new application is submitted by the successor firm.
Which of the following is not an investment adviser according to the Uniform Securities Act?
A
A publisher of a market newsletter on investments in oil, gas, and minerals
B
A financial planner who charges for advice related exclusively to securities
C
A publisher of an investment newsletter with advice on each client’s specific investment situation
D
An adviser with an office in the state who transacts securities business with fewer than 6 noninstitutional clients in a 12-consecutive-month period
A
A publisher of a market newsletter on investments in oil, gas, and minerals
The term investment adviser does not include publishers of newsletters that provide generic investment information. Conversely, advisers with an office in the state must register, as would the publisher of an investment newsletter containing advice on each client’s specific investment situation. A financial planner who charges a separate fee for investment advice is considered to be an investment adviser.
Regarding outside business activities of agents, which of the following is a correct statement?
A
Regulations require agents to notify their firms of any outside business activities which firms may allow or disallow as they see fit
B
Regulations prohibit agents from having outside business activities under any circumstance
C
Regulations prohibit agents from having outside business activities only when the activity is securities related
D
Regulations require firms to allow agents to have outside business activities once prior written notification is made
A
Regulations require agents to notify their firms of any outside business activities which firms may allow or disallow as they see fit
In order to prevent misconduct or conflicts of interest that could harm the firm, or their customers, regulations require agents to make prior notification to their firms of any outside business activities. Firms, at their own discretion, can allow or disallow these outside activities.
XYZ Investments is not required to register as an investment adviser in a state if:
A
It has a place of business in the state but is affiliated with a broker-dealer
B
It has no place of business in the state and advises only 10 clients, 4 of whom are institutional investors
C
It has a place of business in the state but advises only foreign institutional investors
D
It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
D
It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.
XYZ Investments is not required to register as an investment adviser in a state if:
A
It has a place of business in the state but is affiliated with a broker-dealer
B
It has no place of business in the state and advises only 10 clients, 4 of whom are institutional investors
C
It has a place of business in the state but advises only foreign institutional investors
D
It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
D
It has no place of business in the state and its only client in the state is an employee pension fund with assets of $15 million
An investment adviser with no place of business in a state and whose only clients in the state are institutional investors is still considered an investment adviser in that state, but they are exempt from registration requirements in the state. Once an investment adviser has more than 5 retail customers residing in a specific state, the investment adviser must be registered in the state. An investment adviser must also register in any state where it maintains an office unless registered with the SEC as a federal covered investment adviser.
Agents are required to provide each customer with a copy of a prospectus no later than:
A
3 days in advance of the initial solicitation
B
The due date of the confirmation of the transaction
C
Prior to or concurrent with any solicitation only
D
3 days after the initial solicitation
B
The due date of the confirmation of the transaction
For all transactions that require delivery of a prospectus, such as purchases of IPOs or mutual funds, agents are required to provide each customer with a copy of the prospectus no later than the due date of the confirmation of the transaction.
The Administrator may cancel the registration of any person for which of the following reasons?
I Violation of federal securities laws
II If they cannot be located
III If they have ceased to exist
IV If they have been enjoined from engaging in the securities industry
A
I, III, and IV
B
I, II, III, and IV
C
I and IV
D
II and III
D
II and III
Note that cancellation of a registration is different from suspension, denial, or revocation of a registration. Where suspension, denial, or revocation are punitive, i.e., the Administrator believes the registrant or applicant has violated one or more laws and regulations, cancellation is administrative. Cancellation should not be seen as evidence or implication of wrongdoing. A registrant’s registration would be cancelled if they ceased to exist or to do business in a state, or if they cannot be located by an Administrator (Choices II and III). Choices I and IV would likely result in a denial, suspension, or revocation
When a registration statement must be filed with the State Administrator, the securities are defined as:
A
Blue-sky securities
B
Non-exempt securities
C
Government securities
D
Private securities
B
Non-exempt securities
Non-exempt securities must be registered with the State Administrator by filing a registration statement.
A client agrees to share in an account, both profits and losses equally with an agent. The agent will put up 45% of the proceeds and the customer will put up 55%. The agreement between them is in writing and the employing firm approves the agreement in writing as well. Under the Uniform Securities Act (USA) this agreement is:
A
Prohibited because even though the firm may have approved it, it is considered a misuse of customer assets and an unethical business practice to share in customer accounts
B
Allowable because both parties, agent and client agree, and the firm has given approval
C
Prohibited because funding was disproportionate, with the agent contributing less than the client
D
Allowable because the agreement specifies profits and losses equally even though funding the account is disproportionate
B
Allowable because both parties, agent and client agree, and the firm has given approval
Agents and IARs may not share directly or indirectly in profits and losses in client accounts without prior written agreement between the client and the agent and approval of the employing firm. Therefore, in the above scenario all conditions to allow the sharing have been met and under the USA it would be allowed. While FINRA guidelines state that any sharing must be proportionate to the contributions made to the account, the USA doesn’t address proportionate sharing, only that the sharing must be approved. Therefore, the conditions have been met under the USA.
A registered representative of LMN Securities opens an account titled “Mr. Customer as custodian for Ms. Minor under the Texas Uniform Transfers to Minors Act”. In the context of this account, and considering the fiduciary duty Mr. Customer owes to Ms. Minor, which of the following investment strategies would be permitted?
A
Purchasing private placement securities
B
Purchasing speculative over-the-counter stocks
C
Writing uncovered call options
D
Purchasing shares of a balanced mutual fund
D
Purchasing shares of a balanced mutual fund
A diversified portfolio of investments to improve the overall return, and diversification characteristics can be accomplished by investing in a balanced fund, which would meet the fiduciary responsibilities of the custodian of the account. The custodian must adhere to prudent investment standards by making investment decisions that are suitable for the child. The Uniform Prudent Investors Act (UPIA) establishes those standards. The custodian can purchase stocks, bonds, mutual funds, UITs, closed-end funds, and can participate in covered call writing.
Which of the following would define a merger and acquisition (M&A) professional as a broker-dealer?
A
Advising a company on acquiring another company without receiving compensation
B
Compensation received based on the purchase or sale of a company’s securities
C
Advising a company on being acquired without receiving compensation
D
Bringing together 2 companies to negotiate a merger that ultimately takes place whether compensation is received or not
B
Compensation received based on the purchase or sale of a company’s securities
Receipt of compensation at the close of either a merger or acquisition based on the purchase or sale of either company’s securities is what defines the M&A professional as a broker-dealer.
Which of the following would be considered an investment adviser under the Uniform Securities Act?
I An agent for opera singers who invests their funds for a fee
II A former life insurance agent who provides fee-based advice on life insurance trusts
III A broker with a broker-dealer, who is compensated via commissions on trade executions
IV A wealthy, retired market sage who provides free investment advice through their non-profit firm
A
I
B
I and II
C
I, II, and III
D
II, III, and IV
A
I
Under the USA, the agent for the opera singer is the only IA on the list. Remember the ABC test. An IA must provide advice about securities, as a business, and receive compensation for these services. The former insurance agent is providing advice but not about securities. The broker is an agent of a broker-dealer and is excluded from the definition. The market sage is not getting paid for their advice.
An individual works for the Haggard County School Board. Part of their job is soliciting sales of HCSB bonds to mutual funds and hedge funds. According to the USA, the individual is:
A
An agent
B
An issuer
C
A broker-dealer
D
Not an agent
D
Not an agent
This individual represents the issuer of a security in attempting to effect securities transactions. Since the securities being sold are exempt securities (bonds issued by a school board would be considered municipal securities), the individual is not an agent under the USA.
The Administrator may amend or rescind the rules at any time in order to carry out the provisions of which of the following?
A
National Securities Market Improvement Act
B
The Uniform Securities Act
C
Investment Advisers Act of 1940
D
Uniform Practice Code
B
The Uniform Securities Act
The Administrator may amend or repeal any rule or order involving registration, reports, and other practices as necessary to carry out the provisions of their state’s securities laws and rules under the Uniform Securities Act.
An accountant is referring a client to an investment adviser for compensation. What form(s) must be signed by the client?
A
An acknowledgement that the client has received both the adviser’s brochure (ADV Part 2) and the separate solicitor’s disclosure
B
ADV Part 2 (brochure)
C
Both ADV Parts 1 and 2
D
A solicitor’s disclosure
A
An acknowledgement that the client has received both the adviser’s brochure (ADV Part 2) and the separate solicitor’s disclosure
The accountant is a solicitor. A solicitor is a person who, directly or indirectly, solicits clients for or refers clients to an investment adviser. While a solicitor is often a person associated with an IA (such as an employee), they can also be someone who is not affiliated with the adviser except for the fact that they solicit business for the firm. Prior to, or at the time of, entering into any advisory contract with the client, the solicitor must obtain from the client a signed and dated acknowledgement that the client has received both the adviser’s brochure and the separate solicitor’s disclosure.
When transactions or the securities involved are exempt from state registration requirements, the agent representing a broker-dealer in such transactions:
A
Must be registered
B
Is exempt only if their broker-dealer is not exempt
C
Is also exempt from registration
D
Is dually registered
A
Must be registered
While certain registration exemptions apply to an agent representing an issuer, an agent representing a broker-dealer must always be registered, whether the security is exempt or non-exempt. When working for a BD, the only time an individual is not required to register is when they are not working in a sales capacity or when they are an agent of an exempt BD.
Who is responsible for determining what information is material and should be given to the client in order to make an informed investment decision?
A
The agent’s supervising principal
B
The agent
C
The Administrator
D
The client
B
The agent
The agent or IAR must determine what information is material and relay that information to the client.
Which of the following is included in the definition of investment adviser?
A
A broker-dealer who charges an additional fee to review and advise a client on their portfolio
B
An agent who explains to their client why a growth fund is more suitable than an income fund
C
An accountant who suggests their tax client generate more tax-free income
D
A business professor who lectures on how trade deficits may influence interest rates
A
A broker-dealer who charges an additional fee to review and advise a client on their portfolio
Any persons, including broker-dealers and financial planners, who provide investment advice to others and charge a separate fee for the advice are investment advisers. On the other hand, the definition of investment adviser does not include givers of advice where the advice is incidental to their profession and who charge no separate fees for the advice. A broker-dealer agent recommending an exchange between funds would not be considered an IA, since there is no additional compensation received for providing the advice.
A broker-dealer who has no office in this state would not need to register in this state if it dealt with which of the following?
A
Banks, savings institutions, and trust or insurance companies
B
Fewer than 10 retail customers
C
Existing customers who now reside in this state
D
Transactions only in exempt securities
A
Banks, savings institutions, and trust or insurance companies
The term broker-dealer includes a legal person (like a securities operation) effecting securities transactions for its own account or the accounts of others. Excluded from this definition is a person with no place of business in this state and who deals with certain well-informed investors, such as banks, savings institutions, and trust or insurance companies. There is no exclusion for broker-dealers with a limited number of retail customers. There is also no exclusion for a broker-dealer trading only in exempt securities.
An agent of a broker-dealer, who has offices in several states, is registered and resides in Hawaii. A long-time client has recently moved to Montana. Which of the following would be necessary for the agent to continue servicing this client’s account?
I The agent must be registered in MT
II The agent must pass the MT state securities registration exam
III The agent’s manager must be registered in MT
IV The BD must be registered in MT
A
I and IV
B
II, III, and IV
C
I, II, III, and IV
D
I and II
A
I and IV
To conduct securities business with a customer in most states, the agent (RR) and BD must be registered in the state. There is not a separate securities registration exam for each state - those states that require an agent to ‘qualify by examination’ have standardized the exams- and there is no requirement for the principal supervising an RR to be registered in each state in which the RR conducts business.
A registered representative has received a harshly worded letter from one of their biggest customers. The client is accusing the agent of pocketing a $210 check that was sent to the firm to buy some additional shares of a special situation fund. The RR is confused by this accusation because firm policy dictates that all mail be opened by the cashiering department and RRs are prohibited from handling customer funds. What would the registered representative’s best course of action be in this situation?
A
Call the client and ask them to confirm that the check has been cashed prior to bringing the matter to the principal’s attention
B
Notify their manager of the letter, and let the principal deal with the problem
C
Have the cashiering department credit the customer’s account until the dispute has been resolved
D
Call FINRA and initiate arbitration proceedings against the customer based on the customer’s libelous statements
B
Notify their manager of the letter, and let the principal deal with the problem
Customer complaints must be handled by a principal. An RR should never attempt to resolve a customer dispute on their own. RRs are required to promptly report all customer complaints to their supervisors.
According to the Uniform Securities Act, an agent cannot be employed by a broker-dealer in a state unless both the agent and broker-dealer:
A
Have addresses for service of process in that state
B
Have places of business in that state
C
Are residents of that state
D
Are registered in that state
D
Are registered in that state
An agent must be registered in the agent’s state of residence, the state where the securities are offered, solicited, or advertised by the agent, the state where the securities are sold by the agent, and where the customer resides.
Which of the following parties determines the effective date for the registration of an agent under the USA?
A
FINRA
B
SEC
C
NASAA
D
The Administrator
D
The Administrator
The State Securities Administrator determines the effective date for all registrations under the USA.
Which of the following persons would be required to register as an agent under the Uniform Securities Act?
I The CFO of a bank holding company, selling their employer’s stock to the general public
II A life insurance salesperson who limits their solicitations to fixed annuities
III A State A-based salesperson who sells debt obligations for the city of Paris, France
IV A secretary at Big W Investments, who only accepts unsolicited orders when their boss is away on business
A
I and III
B
II and IV
C
I, III, and IV
D
I and II
C
I, III, and IV
An employee of a bank selling the bank’s securities to the public would not be considered an agent, but an employee of a bank holding company would. The life insurance salesperson is not selling securities, while the secretary is. With the exception of those issued by Canadian political subdivisions, only securities from a national government are exempt. Paris is a city, not a country, so this salesperson is working for a non-exempt issuer and must register as an agent.
A broker-dealer agent has just opened an account for a new client that they have been working on for a long time. The client tells the agent, “Look, just don’t send me any prospectuses or other extraneous stuff. I get enough junk mail as it is.” Under the Uniform Securities Act, which of the following is true if the agent sells the client a new issue for which a prospectus is available?
A
The agent may honor the client’s request if submitted in writing
B
The agent may not honor the client’s request
C
The agent may honor the client’s request and not mail the prospectus
D
The agent may honor the client’s request if they notify the Administrator in writing and the Administrator does not disapprove the request
B
The agent may not honor the client’s request
The Uniform Securities Act permits the Administrator to require, as a condition of registration of securities in the state, that a prospectus be sent or given to each person to whom an offer is made in accordance with the prospectus delivery requirements of the Securities Act of 1933. This would generally require a prospectus to be given or sent to the customer at or before the completion of the transaction. There is no provision that waives this requirement upon client request.
How many days can an investor take to respond to a letter of rescission?
A
30
B
90
C
60
D
45
A
30
If the buyer receives a letter of rescission, they must accept the offer within 30 days. If the investor does not accept the offer, they have no legal recourse later.
An agent of a broker-dealer routinely uses the internet to distribute general information about services and products offered by their firm within a state where they are exempt from registration. Which of the following regarding these internet distributions is true?
A
The agent’s affiliation with the BD need not be disclosed in the communication nor must a legend regarding registration in the state be shown because the agent is exempt from registration in that state
B
The agent’s affiliation with the BD must be disclosed in the communication but no legend regarding registration in the state is required because the agent is exempt from registration in that state
C
The agent’s affiliation with the BD must be disclosed in the communication and a legend regarding registration in the state must be included showing that the agent is exempt from registration in that state
D
The agent’s affiliation with the BD need not be disclosed in the communication but a legend regarding registration in the state must be included showing that the agent is exempt from registration in that state
C
The agent’s affiliation with the BD must be disclosed in the communication and a legend regarding registration in the state must be included showing that the agent is exempt from registration in that state
For agents using internet communications to distribute information in a state, the following must always appear in the communication; The agent’s affiliation with the BD must be disclosed, and a legend must show that in order to transact business in that state, the agent is either registered or exempt from state registration requirements.
An individual manages a dividend reinvestment program for DEF Technologies and executes purchase orders for company shares to fulfill shareholder requests. Which of the following is accurate?
A
This individual is a broker-dealer agent
B
This individual is an issuer agent
C
This individual is not an agent unless they charge commissions
D
This individual is not an agent
B
This individual is an issuer agent
Some corporations have internal dividend reinvestment programs (DRIPs) that allow shareholders to automatically reinvest their dividends into more shares of the company’s stock, usually with no commission charge and sometimes at a discount from the market price. An individual making the purchases required to administer the plan would be considered an agent of the issuer. This issuer agent may, however, be excluded from registration under the USA.
To omit a material fact when selling securities is:
A
Acceptable with private placements
B
Fraudulent and misleading if deliberate
C
Acceptable with exempt securities
D
Acceptable if it was for the benefit of the client
B
Fraudulent and misleading if deliberate
Deliberately withholding a material fact from a client is considered a fraudulent act.
All the following are sales, except:
A
A contract of sale
B
Disposing of a security for value
C
A contract to sell
D
An attempt to dispose of a security for value
D
An attempt to dispose of a security for value
An attempt to dispose of a security for value is an offer. If the offer is successful, the actual disposition of the security, for value, is a sale.
Which of the following is not a true characteristic of a client’s account that is held in custody by an investment adviser?
A
Quarterly statements revealing the account’s status are required
B
The investment adviser may not commingle client funds with the investment adviser’s funds
C
The customer must be given written notice of the account’s location
D
The customer’s funds may not be commingled with other customers’ funds
D
The customer’s funds may not be commingled with other customers’ funds
If an investment adviser has custody of customer funds and/or securities, these customer assets must be kept in a segregated account. A customer’s funds may be commingled with other customer funds in an omnibus account, but no customer funds may be commingled with investment adviser funds.
