AD Banker Comprehensive Questions- Series 63 Flashcards

Question 1

Q

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

Answer

A

A
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.

Question 2

Q

If a broker-dealer loses its registration, what will happen with the agent’s registration with that firm?

A
The agent’s registration is terminated and they must repeat the licensing examination

B
The agent’s registration remains active as long as they register with another broker-dealer within 30 days

C
The agent’s registration remains active

D
The agent’s registration is terminated and their license is inactive until they register with another broker-dealer

Answer

A

D
The agent’s registration is terminated and their license is inactive until they register with another broker-dealer

If a broker-dealer loses its registration, the registration for the firm’s agents are terminated. The agent’s license will be inactive until the agent becomes associated with another broker-dealer.

Question 3

Q

SEC Release IA-1092 specifically mentions all the following as entities who may be required to register as investment advisers, except:

A
Estate planning attorneys

B
Financial planners

C
Pension consultants

D
Sports and entertainment agents

Answer

A

A
Estate planning attorneys

SEC Release IA-1092 was intended to clarify the definition of an investment adviser and its application to categories of persons whose possible inclusion was not anticipated when the Investment Advisers Act of 1940 was passed. IA-1092 specifically references financial planners, pension consultants, and sports and entertainment representatives as being considered investment advisers if their business involves advising on securities.

Question 4

Q

All the following are correct concerning where an agent must be registered, except:

A
In any state in which the prospect owns real estate

B
In the state where securities are offered or solicited by the agent

C
In the state where securities are sold by the agent

D
In a state where the agent maintains an office

Answer

A

A
In any state in which the prospect owns real estate

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.

Question 5

Q

An investment adviser representative (IAR) who is associated with a federal covered IA, has their registration in the state of Idaho terminated. Regarding the IAR’s registration termination:

A
Both the IA and IAR are responsible for notifying the Idaho State Administrator

B
It is the IA who is responsible for notifying the Idaho State Administrator

C
No notification to a state administrator is required if the IA is federal covered

D
It is the IAR who is responsible for notifying the Idaho State Administrator

Answer

A

D
It is the IAR who is responsible for notifying the Idaho State Administrator

If employed by a federal covered investment adviser, the IAR must notify the Administrator when a registration is being terminated.

Question 6

Q

HT Advisers, a single-office investment advisory firm based in State A, is looking to transact business in State B. Under the Uniform Securities Act, in which of the following cases would HT Advisers not be required to register as an adviser in State B?

I The firm only transacts business with State B broker-dealers and has no office in the state

II The firm only transacts business with small employee benefit plans located in the state, with assets under $1,000,000

III The firm transacts business with 10 or fewer noninstitutional customers in a 12-month period in State B

IV The firm only transacts business in State B with federal covered advisers

A
I, II, and IV

B
I, III, and IV

C
I and IV

D
I and II

Answer

A

C
I and IV

A firm with no office in a state that deals only with institutional clients or with 5 or fewer retail customers would be exempt from registration. The institutional clients include employee benefit plans with assets of at least $1 million. Therefore, the firm in answer choice II does not get the institutional exemption and would be required to register with the state.

Question 7

Q

According to the Uniform Securities Act, which of the following is true regarding the Administrator?

A
The Administrator does not review advertising and sales literature unless specifically directed by the SEC

B
The Administrator is always appointed by the Governor

C
The Administrator must be elected by majority vote

D
The Administrator may review advertisements for non-exempt securities

Answer

A

D
The Administrator may review advertisements for non-exempt securities

The Administrator does not write the securities law but, rather, enforces the laws that are created by the legislature. The Administrator has the power to review advertising and sales literature for non-exempt securities and may examine records both in and out of their home state.

Question 8

Q

Which of the following would not be an agent under the Uniform Securities Act?

A
An individual that works for JKR Brokerage that deals exclusively with large corporate clients

B
An individual that works for CSH Brokerage that accepts unsolicited orders and is paid a salary

C
An individual that works for BST Advisory Services creating financial plans for compensation

D
The head of human resources of XYZ Corporation who enrolls employees in the corporate retirement and stock option plans and receives compensation for each enrollment

Answer

A

C
An individual that works for BST Advisory Services creating financial plans for compensation

Under the USA, any individual who represents a broker-dealer or an issuer when buying or selling securities is referred to as an agent. An agent’s compensation may be based on salary or commission. An individual employed by an investment adviser is an investment adviser representative, not an agent. The head of human resources is an individual who represents an issuer and would be excluded from the definition of agent if they received no compensation specific to those transactions. In this question the individual is compensated and is an agent that must be registered. An individual that represents a broker-dealer must be registered unless an exemption applies, for example if the agent works for an exempt Canadian BD.

Question 9

Q

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
At noon on the 30th day after the application was filed

C
5 business days following the submission by the applicant

D
Midnight on the 30th day after the application was filed if the Administrator does not deny it

Answer

A

B
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.

Question 10

Q

Which of the following is an example of an issuer transaction?

A
Exempt transaction

B
OTC trading

C
Initial public offering

D
Private placement

Answer

A

C
Initial public offering

In an issuer or primary market transaction, the proceeds of the sale or benefits of the transaction go to the issuer of the security. New issues of securities, as well as transactions between an issuer and underwriter, are examples of issuer or primary market transactions.

Question 11

Q

A retail customer of a broker-dealer who temporarily moved to Florida for the winter months has decided to relocate there permanently and notifies their registered representative at the broker-dealer. Regarding the continuance of doing business with the customer, which of the following is true?

A
If not already registered in Florida, the BD will be exempt from registration if they only want to continue doing business with the existing customer

B
If not already registered in Florida, to continue doing business with the customer, the BD will now be defined as a BD in the state of Florida and need to register there

C
If not already registered in Florida, to continue doing business with the customer, the BD will only be required to open an office in Florida, which will exempt it from registration there

D
If not already registered in Florida, the BD will not be a BD in the state of Florida and will be excluded from registering there

Answer

A

B
If not already registered in Florida, to continue doing business with the customer, the BD will now be defined as a BD in the state of Florida and need to register there

Given the retail customer’s new residency in the state of Florida, to continue to do business with the customer the BD will be considered a BD in that state and be required to register there.

Question 12

Q

Of the following, who must pass a license qualification exam?

A
A broker-dealer agent and an investment adviser representative

B
An officer of an insurance company

C
A broker-dealer and investment adviser

D
A registered mortgage broker

Answer

A

A
A broker-dealer agent and an investment adviser representative

Broker-dealer agents and investment adviser representatives must pass a qualifying exam. Broker-dealers and investment advisers are the firms that employ agents and investment adviser representatives, respectively.

Question 13

Q

When transactions or the securities involved are exempt from state registration requirements, the agent representing a broker-dealer in such transactions:

A
Is also exempt from registration

B
Is dually registered

C
Must be registered

D
Is exempt only if their broker-dealer is not exempt

Answer

A

C
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.

Question 14

Q

Advertisements, circulars, fliers, and prospectuses may be subject to filing requirements with the:

A
Consumer protection division of the Office of the State Attorney General

B
Governor’s office

C
Better Business Bureau

D
Administrator

Answer

A

D
Administrator

The Administrator may require that all advertising, marketing, and sales materials that are provided to clients be filed with the Administrator. Exempt securities, exempt transactions, and federal covered securities are not subject to the advertising filing requirements of the USA.

Question 15

Q

Which of the following persons are considered agents as defined in the Uniform Securities Act?

A
Individuals representing issuers in exempt transactions

B
Individuals representing issuers of certain exempt securities

C
Individuals representing issuers in transactions with employees, and no commission is received

D
Individuals representing issuers in securities transactions

Answer

A

D
Individuals representing issuers in securities transactions

Individuals representing broker-dealers and issuers in securities transactions are defined as agents under the Uniform Securities Act. There are some exclusions. They are: (1) individuals representing issuers of certain exempt securities, (2) individuals representing issuers in exempt transactions, and (3) individuals representing issuers in transactions with employees (where no commissions are involved).

Question 16

Q

An adviser is ready to register in a state. They will not accept custody of, or have discretionary authority over, customer funds. According to the Uniform Securities Act and NASAA policies and rules, which of the following is not required as part of the adviser’s application?

A
A consent to service of process

B
The qualifications and business history of the applicant

C
An audited balance sheet

D
A description of the firm’s proposed business plan

Answer

A

C
An audited balance sheet

Just like every other category of registrant, investment advisers must file an application with the Administrator. The information that must be included is similar to that required for a broker-dealer: *The applicant’s name and place of organization *The applicant’s proposed method of doing business *The applicant’s financial condition and history *The qualifications and business history of any partner, officer, director, or other person performing a similar function *Any injunction or administrative order involving the securities business *Any misdemeanor conviction involving the securities business, or any felony conviction *A consent to service of process IAs who have custody of customer funds or who require prepayment of fees greater than $500 more than 6 months in advance must submit an audited balance sheet. IAs who have discretionary authority over customer funds, but who do not have custody or require prepayment of fees, must submit an unaudited balance sheet.

Question 17

Q

According to the USA, all the following investment advisory firms must register as investment advisers in the state if they are not federal covered, except:

A
Firm C, which is located out of state and advises only 14 non-institutional clients in the state

B
Firm D, which is located out of state but advises several major insurance companies and pension funds in the state

C
Firm A, which is located in the state but only advises 1 large pension fund there

D
Firm B, which is located in the state but only advises 5 clients there

Answer

A

B
Firm D, which is located out of state but advises several major insurance companies and pension funds in the state

All investment advisers with places of business in the state must register there. If the investment adviser has no office in the state and only deals with institutional investors in the state, they are exempt from registration. For the de minimis exemption, the firm must not have an office in the state and cannot have more than 5 clients in a 12-month period.

Question 18

Q

Which of the following broker-dealers must be registered in Texas?

A
A BD with a home office in Idaho, no offices in Texas, and wanting to do business only with institutional investors in Texas

B
A BD with a home office in Idaho, no offices in Texas, and wanting to do business only with other BDs in Texas

C
A BD with a home office in Idaho, no offices in Texas, and wanting to do business only with the issuers of securities involved in a transaction of their own securities who are located in Texas

D
A BD, with a home office in Idaho, wanting to have branch offices in Texas to do business with other BDs in Texas

Answer

A

D
A BD, with a home office in Idaho, wanting to have branch offices in Texas to do business with other BDs in Texas

If the BD wants to have branch offices in Texas, they would need to be registered there. Having no offices in Texas and doing business only with other BDs, institutions, or issuers of securities involved in a transaction of their own securities there would allow for the BD to be excluded from registering there. Remember, BDs must register in any state they maintain an office,and/or a retail client resides in the state.

Question 19

Q

Acting as an adviser to a private fund with assets of $75 million requires registration for the adviser:

A
In the state where they are located and in any state they solicit or conduct advisory business

B
In the state where the adviser is located only

C
In any state the adviser solicits or conducts advisory business only

D
At the federal level with the Securities Exchange Commission only

Answer

A

A
In the state where they are located and in any state they solicit or conduct advisory business

Advisers to private funds with less than $150 million in assets under management are required to register in the state where they are physically located and in any state where they solicit or conduct advisory business. These state-registered PFAs are known as “exempt reporting advisers”.

Question 20

Q

The definition of an investment adviser includes which of the following?

A
Publisher of financial advice with specific recommendations for each client

B
Publisher of bona-fide newspapers of general and paid circulation

C
Publisher of bona-fide financial magazines

D
Business and financial publication with specific stock forecasts

Answer

A

A
Publisher of financial advice with specific recommendations for each client

Publishers of financial advice are considered investment advisers if the advice is applied to specific client investment situations. The term investment adviser does not include publishers or columnists of any generally circulated magazine, newspaper, or other business or financial publication that does not give advice on the basis of the specific investment situation of each client.

Question 21

Q

Which of the following is defined as an investment adviser?

A
An individual that manages and solicits the sale of investment advisory services

B
A firm that makes a market in VCX common stock

C
An individual that works for DCC Brokerage effecting securities transactions for retail investors

D
A firm that provides others with securities-related reports and analysis

Answer

A

D
A firm that provides others with securities-related reports and analysis

An investment adviser is a person (firm) that engages in the business of advising others, either directly or indirectly, through analysis, publications, or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, and charges a separate fee for such services. An individual that effects securities transactions for a broker-dealer is defined as an agent. A firm that is a market maker is acting in a dealer or principal capacity. An individual that makes any recommendations or gives investment advice regarding securities, manages client accounts or portfolios, determines the nature of recommendations or advice given, solicits, offers, or negotiates for the sale of or sells investment advisory services is defined as an investment adviser representative.

Question 22

Q

Which of the following is exempt from the broker-dealer registration requirements in State A, but is still a broker-dealer?

A
DEF Investments, a broker-dealer that has offices in State B, transacting business with other broker-dealers in State A

B
ABC Brokerage, with no office in the state, which processed a trade for a customer temporarily in State A, without having an office in State A

C
LMNOP, Inc., a firm that provides investment advice to retail customers in State A

D
XYZ Brokerage, a Canadian BD with no office in the state that conducts transactions with their existing customer that is temporarily in State A

Answer

A

D
XYZ Brokerage, a Canadian BD with no office in the state that conducts transactions with their existing customer that is temporarily in State A

XYZ Brokerage is a broker-dealer, they are conducting securities transactions with a client. XYZ is exempt from registration in State A if they are registered as a BD in Canada. XYZ cannot solicit new clients in the state under this exemption.. ABC Brokerage is excluded from the definition of broker-dealer in State A, since the firm is dealing with an existing customer who is in State A temporarily and they have no office in the state. DEF Investments is solely doing business with broker-dealers in State A, and has no office in the state, so the firm is excluded from the definition of a broker-dealer in State A. LMNOP, Inc. is not a broker-dealer in State A, since they only provide advice on securities. LMNOP is considered an investment adviser. It is important to remember the difference between an exclusion and an exemption. An exclusion means that the person does not meet the definition so is therefore excluded from the group in question. An exemption means that they are part of the group but for some reason they have been released from the obligations for the group in questio

Question 23

Q

Agents’ and investment adviser representatives’ registrations expire:

A
Annually, on the registration’s anniversary date

B
Biannually

C
Annually, on December 31st

D
License is in force until terminated

Answer

A

C
Annually, on December 31st

The registrations of persons, broker-dealers, agents, investment advisers, and investment adviser representatives, expire annually on December 31 unless they are renewed by paying the appropriate fee to the Administrator.

Question 24

Q

The USA is preempted by the rules of the:

A
Commissioners

B
Regulatory oversight committee

C
SEC

D
Department of Enforcement

Answer

A

C
SEC

Under NSMIA, when conflict exists between federal and state regulation, federal regulation will always supersede. The SEC has preemptive authority over rules of the Uniform Securities Act and state securities administrators.

Question 25

Q

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
Annual renewal of the agent’s license with the Administrator

D
Successful passage of an annual ethics exam

Answer

A

C
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.

Question 26

Q

A FINRA member broker-dealer offers, as a courtesy to its clients, personally tailored investment advice. For this service, the firm does not charge a fee but believes that it adds value to the firm in terms of retaining key customers, as well as justifying higher commissions on transactions than competing firms. According to the Uniform Securities Act, which of the following statements are true regarding this firm?

A
The firm is an investment adviser because they are charging higher commissions for providing these services and must register with any state where they offer these services

B
The firm is acting as both a broker-dealer and investment adviser, which is strictly prohibited

C
The firm is prohibited from offering tailored investment advice without first updating their registration status with the state

D
The firm is not an investment adviser

Answer

A

D
The firm is not an investment adviser

To be considered an investment adviser under the USA or the Investment Advisers Act of 1940, a firm must be in the business of offering advice for compensation. This firm is not charging a fee for providing investment advice and is only earning transaction-based compensation. For this reason, the firm is a broker-dealer, not an IA.

Question 27

Q

How often may the Administrator inspect the books and records of broker-dealers within their jurisdiction?

A
Whenever it is deemed in the best interest of the public

B
Quarterly and additionally in the case of any consumer-initiated complaint or arbitration proceeding

C
Up to a maximum of 6 times per year in the absence of any consumer-initiated or regulator-initiated complaint or arbitration proceeding

D
Semiannually and additionally in the case of any consumer-initiated complaint or arbitration proceeding

Answer

A

A
Whenever it is deemed in the best interest of the public

Although many Administrators may only inspect a firm’s books and records annually during an audit, the Administrator has the right to inspect books and records at any time, as long as it is in the public interest.

Question 28

Q

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
III and IV

B
I and II

C
I and III

D
I and IV

Answer

A

D
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.

Question 29

Q

All the following are correct concerning where an agent must be registered, except:

A
In the state where securities are sold by the agent

B
In any state in which the prospect owns real estate

C
In the state where securities are offered or solicited by the agent

D
In a state where the agent maintains an office

Answer

A

B
In any state in which the prospect owns real estate

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.

Question 30

Q

With respect to the registration requirements, the Administrator may impose all the following additional requirements on investment advisers, except:

A
A minimum net worth of $10,000 for those advisers that have discretionary authority over client funds or securities but do not have custody of the funds or securities

B
A minimum net worth of $35,000 if the adviser has custody over client funds and securities

C
Advisers that accept prepayment of more than $500 per client, 6 or more months in advance, must maintain a positive net worth at all times

D
Maintenance of $35,000 of net capital

Answer

A

D
Maintenance of $35,000 of net capital

The Administrator may impose certain financial requirements on investment advisers, such as a minimum net worth of $35,000 if the adviser has custody over client funds and securities or a minimum net worth of $10,000 if the adviser does not have custody of funds and securities but does have investment discretion. In addition, the Administrator may require investment advisers to maintain a positive net worth if they accept prepayments of $500 or more 6 months in advance. Administrators do not impose such requirements on sales agents. Broker-dealers, not investment advisers, may be required to meet net capital requirements.

Question 31

Q

An agent of a broker-dealer in the state of Oregon terminates employment with the BD. In this scenario:

A
The agent must notify the Oregon State Administrator promptly

B
The BD must notify the Oregon State Administrator no later than the end of the current calendar month

C
Both parties, the agent and BD, must notify the Oregon State Administrator promptly

D
The BD must notify the Oregon State Administrator promptly

Answer

A

C
Both parties, the agent and BD, must notify the Oregon State Administrator promptly

When an agent of a broker-dealer terminates employment, both parties must notify the State Administrator promptly. If employed as an agent of a broker-dealer, then subsequently hired by another broker-dealer, the agent, former broker-dealer, and new broker-dealer must all notify the Administrator of this activity.

Question 32

Q

Regarding broker-dealer exclusions and exemptions from state registration, each of the following is correct, except:

A
Banks are excluded from registering at the state level

B
Agents are excluded from registering at the state level

C
Broker-dealers are excluded from registering at the state level

D
Issuers transacting in their own securities are excluded from registering at the state level

Answer

A

C
Broker-dealers are excluded from registering at the state level
A broker-dealer must always be registered in the state where they transact securities business, unless exempt from registration. Agents don’t register as broker-dealers, an agent is an individual who represents or acts on behalf of someone else. A broker-dealer can be exempt from state registration when special circumstances exist (Canadian BD exemption), but they are not excluded from state registration. Remember, if an entity is excluded, it means they do not meet the definition of a broker-dealer. Examples of entities where exclusions would apply are agents, banks, savings and trust institutions, and issuers who are dealing only with their own (issuing) securities. A BD that has no place of business in the state and only effects transactions with other BDs, institutional investors, or the issuer of the security involved in the transaction is excluded and does not need to register in that specific state as a BD. The final BD exclusion is for a firm that has no place of business in a state and only effects securities transactions with existing customers who are temporarily in the other state and NOT residents of the state is not considered a broker-dealer.

Question 33

Q

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
By December 31st of the current year

B
No later than December 31st of the year immediately following the year after the initial registration

C
Only if the Administrator requires re-registration as a sanction for violation of the USA

D
Within one year of the effective date

Answer

A

A
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.

Question 34

Q

A firm with no office in the state of Maine deals only with a single investment company in that state executing their transactions. The firm:

A
Meets the definition of a broker-dealer and must be registered in the state of Maine

B
Does not meet the definition of a broker-dealer and need not be registered in the state of Maine

C
Meets the definition of a broker-dealer but need not be registered in the state of Maine

D
Does not meet the definition of a broker-dealer but still must be registered in the state of Maine

Answer

A

B
Does not meet the definition of a broker-dealer and need not be registered in the state of Maine

Because of the institutional exclusion, this firm does not meet the definition of a broker-dealer and, therefore, would not need to register in the state of Maine.

Question 35

Q

The USA is preempted by the rules of the:

A
Department of Enforcement

B
SEC

C
Regulatory oversight committee

D
Commissioners

Answer

A

B
SEC

Under NSMIA, when conflict exists between federal and state regulation, federal regulation will always supersede. The SEC has preemptive authority over rules of the Uniform Securities Act and state securities administrators.

Question 36

Q

The State Administrator may revoke an agent’s registration for all the following reasons, except:

A
The agent has acted dishonestly

B
The agent has violated the Uniform Securities Act

C
The agent’s application is misleading

D
The agent committed a felony 20 years ago

Answer

A

D
The agent committed a felony 20 years agoAlthough a person has to disclose all felony and/or securities-related misdemeanor convictions regardless of timeframe, the State Administrator may only revoke an agent’s registration if that agent committed a felony or securities-related misdemeanor within the last 10 years.

Question 37

Q

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
I, II, and III

B
III and IV

C
I, II, III, and IV

D
II and III

Answer

A

A
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.

Question 38

Q

An adviser to a private fund with assets under management of $300 million must:

A
Register with the SEC and would be considered a federal covered adviser who still must register with the state

B
Register with the SEC and would be considered a federal covered adviser exempt from state registration

C
File an application to conduct advisory business with the fund but need not register at either the federal or state level

D
Register with the state but be considered a federal covered adviser exempt from registration with the SEC

Answer

A

B
Register with the SEC and would be considered a federal covered adviser exempt from state registration

An adviser to a private fund with $150 million or more of assets under management must register at the federal level with the SEC and are exempt from state registration. Even though federal covered advisers are exempt from state registration, they must still file a notice (notice filing) and pay the annual state notice filing fees.

Question 39

Q

According to the USA, a small investment adviser whose place of business is not within the state does not have to be registered in the state if which of the following are true?

I The adviser’s only clients within the state are banks

II The adviser does business with the upper 5% of the corporations located in the state

III The adviser only handles small pension funds in the state

IV The adviser has fewer than 15 private clients in the state

A
II or III

B
I or IV

C
I, II, III, or IV

D
I only

Answer

A

D
I only

An investment adviser does not need to be registered in a state if the adviser’s place of business is not within that state and its only clients in that state are institutional investors, such as banks. Corporations (II) are not institutional investors, and only pension funds with at least $1,000,000 in assets are institutional investors. The limitation on clients is 5, not 15.

Question 40

Q

All the following firms must be registered in the state as broker-dealers, except:

A
Internet Bank, which is located in the state and uses an institutional investing system to effect securities transactions for their trust customers

B
Brokerage firm C, which is located and registered in another state but deals with an existing customer and active investor who has moved to the state

C
Brokerage firm B, which is located in another state but regularly solicits new issues to retail customers in State A

D
Brokerage firm A, which is located in the state but only does business with institutions in the state

Answer

A

A
Internet Bank, which is located in the state and uses an institutional investing system to effect securities transactions for their trust customers

Internet Bank is an exclusion because it is a bank. Brokerage firm A must be registered in the state because it is located there, brokerage firm B must be registered in the state because it directs offers into the state to noninstitutional customers, and brokerage firm C must be registered in the state because the customer is a resident in the state.

Question 41

Q

Which of the following statements regarding a broker-dealer with a home office in Arizona, wanting to do business in California is correct?

A
The broker-dealer must register in California even though it has no place of business there if it wants to conduct business with retail investors who reside there

B
The broker-dealer must register in California even though it has no place of business there if it wants to do business with institutional investors who are located there

C
The broker-dealer need not register in California if it has no place of business there and wants to do business with individual retail investors who reside there

D
The broker-dealer must register in California even though it has no place of business there if it wants to do business with other broker-dealers who are located there

Answer

A

A
The broker-dealer must register in California even though it has no place of business there if it wants to conduct business with retail investors who reside there

A broker-dealer that has no place of business in the state and only effects transactions with other broker-dealers, institutional investors, or the issuer of the security involved in the transaction does not need to register in that specific state as a broker-dealer. However, whenever doing business with individual retail investors who reside in a state, regardless of whether an office is maintained there or not, the BD must be registered in that state.

Question 42

Q

Which of the following would be required to register as an investment adviser in State X?

A
A firm with $66.7 million in assets under management, an office in the state, and that deals only with 3 institutional customers

B
A firm with $24.4 million in assets under management, no office in the state, and that deals only with institutions

C
A firm with $121 million in assets under management, an office in the state, and that deals only with large pension plans

D
A firm, with no office in the state, that conducts business with 5 or fewer non-institutional customers

Answer

A

A
A firm with $66.7 million in assets under management, an office in the state, and that deals only with 3 institutional customers

Firms with no offices in the state that deal with institutions only or conduct business with 5 or fewer non-institutional customers within a 12-month period are not required to register as investment advisers in that state. The firm with $121 million in assets is not required to register in the state since this firm would be considered a federal covered adviser.

Question 43

Q

A FINRA member broker-dealer offers, as a courtesy to its clients, personally tailored investment advice. For this service, the firm does not charge a fee but believes that it adds value to the firm in terms of retaining key customers, as well as justifying higher commissions on transactions than competing firms. According to the Uniform Securities Act, which of the following statements are true regarding this firm?

A
The firm is acting as both a broker-dealer and investment adviser, which is strictly prohibited

B
The firm is an investment adviser because they are charging higher commissions for providing these services and must register with any state where they offer these services

C
The firm is not an investment adviser

D
The firm is prohibited from offering tailored investment advice without first updating their registration status with the state

Answer

A

C
The firm is not an investment adviser

To be considered an investment adviser under the USA or the Investment Advisers Act of 1940, a firm must be in the business of offering advice for compensation. This firm is not charging a fee for providing investment advice and is only earning transaction-based compensation. For this reason, the firm is a broker-dealer, not an IA.

Question 44

Q

Which of the following would be defined as a broker-dealer in State X but would be exempt from registration?

A
BCD Brokerage, a broker-dealer located in State X, transacts business with retail customers in State X

B
ABC Brokerage, a broker-dealer located in State W, transacts business with retail customers residing in State X

C
Interstate Brokerage, which has an office in State X and processes transactions for other broker-dealers in State X

D
LMN Brokerage, a broker-dealer located in Toronto, Ontario, Canada who is transacting business with an existing client of LMN, who is in State X temporarily

Answer

A

D
LMN Brokerage, a broker-dealer located in Toronto, Ontario, Canada who is transacting business with an existing client of LMN, who is in State X temporarily

There is only 1 exemption for broker-dealers, certain Canadian broker-dealers. The Canadian firm must be registered as a broker-dealer in Canada and cannot have a place of business in the state. Canadian broker-dealers and their agents may not solicit new clients in a state under this exemption; they are only permitted to work with their existing clients that are in the state temporarily. If the Canadian firm has a location in the state, or if they are soliciting new clients, the registration process must be followed. The easiest way to remember the registration requirements for broker-dealers is that broker-dealers MUST register in any state they maintain an office and/or a retail client resides in the state.

Question 45

Q

Which of the following is not an agent according to the Uniform Securities Act?

A
A person who solicits for a commercial paper issuer that has the highest ranking of a national rating organization

B
A salaried partner of the broker-dealer who sells securities but receives no commission

C
A person who solicits commercial paper for a broker-dealer

D
A sales representative who has tried to sell a security but has made no sales

Answer

A

A
A person who solicits for a commercial paper issuer that has the highest ranking of a national rating organization

A person representing (employed by) issuers of specified exempt securities, like commercial paper, is excluded from the definition of an agent. An individual representing a broker-dealer, even if only in exempt securities, is an agent. A sales representative of a broker-dealer or issuer who sells, or offers to sell, securities is an agent. Partners, employees, officers, or directors of broker-dealers involved in selling securities to clients are agents, whether or not they are commissioned or salaried.

Question 46

Q

Which of the following is the correct definition of a non-exempt security?

A
A security that is not subject to Uniform Securities Act registration requirements

B
A security that must be registered, under the Uniform Securities Act, with the state comptroller

C
A security that must be registered with the SEC, but not with the state

D
A security that must be registered, under the Uniform Securities Act, with the State Administrator

Answer

A

D
A security that must be registered, under the Uniform Securities Act, with the State Administrator

According to the Uniform Securities Act, the correct definition of a non-exempt security is a security that must be registered with the State Administrator.

Question 47

Q

A transaction effected by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator is considered to be in a:

A
Fiduciary capacity

B
Proxy capacity

C
Third-party capacity

D
Agent capacity

Answer

A

A
Fiduciary capacity

A transaction effected by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator is considered to be in a fiduciary capacity and is identified by the USA as an exempt transaction.

Question 48

Q

All the following transactions are exempt from state registration, except:

A
Offerings made to no more than 35 accredited investors

B
A transaction between two underwriters

C
Isolated non-issuer transactions

D
Fiduciary transactions

Answer

A

A
Offerings made to no more than 35 accredited investors

Under the USA, a private placement may be offered to no more than 10 noninstitutional buyers within 12 months. The seller must believe that the purchasers are buying for investment only, there can be no solicitation or advertising used, and there must be no commissions paid, directly or indirectly. Note that a private placement under Regulation D (federal) limits the number of investors to 99, with a maximum of 35 investors being non-accredited or all investors being qualified purchasers.

Question 49

Q

A bona fide pledge is not a sale as long as it is not intended to circumvent the provisions of the:

A
Securities Exchange Act of 1934

B
Uniform Securities Act

C
Securities Act of 1933

D
Investment Company Act of 1940

Answer

A

B
Uniform Securities Act

Any transaction executed by a bona fide pledge, without any purpose of evading or circumventing the Uniform Securities Act, is an exempt transaction.

Question 50

Q

All the following are securities, except:

A
Stock warrants

B
ADRs

C
Whiskey warehouse receipts

D
Fixed annuities

Answer

A

D
Fixed annuities

Traditional nonvariable insurance policies and fixed annuities are not securities. Variable annuities and variable insurance policies are securities. Whiskey warehouse receipts are securities.

Question 51

Q

According to the USA, the following are all exempt transactions, with the exception of:

A
Federal covered securities

B
Sales to an investment company

C
Transactions by a guardian

D
Unsolicited transactions

Answer

A

A
Federal covered securities

Exempt transactions include institutional investor transactions (such as sales to an investment company, unsolicited sales transactions, and fiduciary transactions, such as those of a guardian). Securities sold in exempt transactions are not subject to USA registration requirements. Federal covered securities are exempt securities, not an exempt transaction. A security is exempt based on what type of entity it represents, while a transaction is exempt based on how the transaction is processed.

Question 52

Q

A distiller places barrels of whiskey into a storage facility where it will age for a number of years before being sold. To finance the cost of storage, the distiller sells legal title to the barrels to an investor. The investor may choose to take physical possession of the barrels, continue to allow the storage facility to hold them, or resell the title to another investor. The evidence of this legal title is called a(n):

A
Whiskey warehouse receipt

B
Commodity future contract

C
Distillery direct participation program

D
American depository receipt

Answer

A

A
Whiskey warehouse receipt

Distillers allow whiskey to age in barrels and place the barrels into a warehouse. The warehouse then issues a receipt to the distiller, indicating that the distiller is the beneficial owner of the whiskey and may claim possession at a later date. Instead of waiting, the distiller may choose to sell the receipt to someone else, who hopes to profit from the increasing value of the whiskey as it matures. The value of the receipt will fluctuate, and there is no guaranteed future payment. Therefore, the whiskey warehouse receipt is a security. It is not a commodity futures contract, as that is a legal agreement to buy or sell raw material at an agreed upon price at a future date.

Question 53

Q

According to the Uniform Securities Act, which of the following must be true for an exemption to exist for an isolated non-issuer transaction?

I It must be indirectly for the benefit of an issuer

II It must be only 1 transaction

III It must be effected through a broker-dealer

IV It must be for the benefit of an entity other than the issuer

A
I and II

B
I, III, and IV

C
II, III, and IV

D
IV

Answer

A

D
IV

A non-issuer transaction, by definition, does not benefit the issuer. The trade may be transacted directly by 2 individuals or with the assistance of an intermediary, such as a broker-dealer. When you hear the term non-issuer transaction, think of secondary market transactions. For such a trade to be considered isolated, it cannot be identified with any pattern (e.g., 1 trade of its type every 14 months). However, it does not need to be only 1 trade.

Question 54

Q

Which of the following is defined as a security?

A
Closed-end investment company shares

B
Fixed annuity

C
Ownership interests in a credit union

D
Precious metals

Answer

A

A
Closed-end investment company shares

The USA definition applies to closed-end fund shares, but not to real estate, like a condominium, used as a personal residence, commodities (such as precious metals), nonvariable insurance contracts, and ownership interests in credit unions. Closed-end funds are federal covered securities and are exempt from registration under the USA but are still defined as securities.

Question 55

Q

Under the USA, which of the following does not meet the definition of a security?

A
A commodities futures contract

B
A merchandise marketing scheme

C
An interest in a racehorse

D
A multi-level distributorship arrangement

Answer

A

Good Job!

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.

Question 56

Q

Which of the following provisions are true of both registration by coordination and registration by qualification?

A
The effective date is the date that the federal registration becomes effective

B
The Administrator will require the filing of offering documents for its review

C
Both are used in interstate filings

D
The registration documents are filed only with the Administrator

Answer

A

B
The Administrator will require the filing of offering documents for its review

For registration by both coordination and qualification, the Administrator will require filing offering documents. In registration by coordination, registration documents are filed with the SEC and the state, and the state registration automatically becomes effective when the federal registration becomes effective. Registration by qualification can be used by any issuer registering with the state. However, it is most commonly used for intrastate filings.

Question 57

Q

According to the Uniform Securities Act, which of the following is not an exempt security?

A
Securities guaranteed by a domestic bank

B
Securities issued by the Canadian government

C
An unlisted common stock held in a bank’s portfolio

D
Securities issued by a nonprofit or religious organization

Answer

A

C
An unlisted common stock held in a bank’s portfolio

Securities issued by a nonprofit or religious organization, securities guaranteed by a banking institution organized under the laws of the United States, and securities issued by the federal government of Canada, a recognized foreign government, are considered by the USA to be exempt securities.

Question 58

Q

Which of the following are securities according to the USA?

I Commercial paper

II American depositary receipts

III Deutsche mark futures

IV Defined benefit plan

A
I and IV

B
I and II

C
II only

D
II, III, and IV

Answer

A

B
I and II

Although exempt from registration, commercial paper is still considered a security. American depositary receipts (ADRs) are also considered securities. While options are securities, futures are not. Retirement plans are not securities.

Question 59

Q

Which of the following would not be a necessary disclosure with a registration by qualification?

A
Accountant and legal counsel’s opinion

B
Any litigation, existing or threatened

C
Statement of the issuer’s competitiveness

D
Capitalization and long-term debt of the issuer

Answer

A

C
Statement of the issuer’s competitiveness

A statement of the issuer’s competitiveness is not required.

Question 60

Q

According to the Uniform Securities Act, which of the following is not true regarding the Administrator’s powers related to an issuer attempting to register securities with the state?

A
The Administrator can deny registration because they found that excessive underwriting compensation will be paid

B
If the Administrator finds there is a problem with a registration statement, they have the power to issue a stop order

C
The Administrator needs only 1 reason to deny a registration

D
A typo in a registration statement is not grounds for denial

Answer

A

C
The Administrator needs only 1 reason to deny a registration

The Administrator might deny a security’s registration if they find there is a problem with the issuer or its filing. This denial is sometimes referred to as a stop order. Even if registration is granted, the Administrator could later suspend or revoke the registration if a problem is subsequently discovered. When giving an order to deny, suspend, or revoke registration, the Administrator must give at least 2 reasons, 1 of which must be that the order is in the public interest. In addition, the Administrator must have at least one other reason for the order. Among other things, these grounds may include 1) the filing contains a statement that is false or misleading, 2) unreasonable amounts of underwriting compensation are being paid, and 3) the issuer has failed to pay the proper filing fee.

Question 61

Q

Which of the following would be considered securities?

I Coin collections

II Variable annuities

III Precious metals

IV Retirement plans

A
I and II

B
II, III, and IV

C
II only

D
I, II, III, and IV

Answer

A

C
II only

Within insurance products, variable insurance and variable annuity products are considered securities. Fixed insurance company products are NOT securities. Precious metals, currencies, collectibles, and retirement plans are not defined as securities.

Question 62

Q

Under the USA, which of the following is not an exempt security?

A
Securities sold in private placements

B
Securities listed on the Toronto Stock Exchange

C
U.S. and foreign government securities

D
Promissory notes in denominations of at least $50,000

Answer

A

A
Securities sold in private placements

The USA lists a number of securities that are exempt from registration and advertising filing requirements of the Act. Therefore, under the USA, exempt securities are exempt from state registration. Included in the exempt securities are federal covered securities, financial institution securities, government and municipal securities, public utility issues, securities listed on exchanges, nonprofit institution securities, and commercial paper. Securities sold in private placements are an exempt transaction. A security is exempt based on what type of entity it represents, while a transaction is exempt based on how the transaction is processed.

Question 63

Q

According to the Uniform Securities Act, which of the following is not an exempt security?

A
Securities issued by a nonprofit or religious organization

B
Securities issued by the Canadian government

C
An unlisted common stock held in a bank’s portfolio

D
Securities guaranteed by a domestic bank

Answer

A

C
An unlisted common stock held in a bank’s portfolio

Securities issued by a nonprofit or religious organization, securities guaranteed by a banking institution organized under the laws of the United States, and securities issued by the federal government of Canada, a recognized foreign government, are considered by the USA to be exempt securities.

Question 64

Q

Under the USA, which of the following does not meet the definition of a security?

A
A commodities futures contract

B
A multi-level distributorship arrangement

C
An interest in a racehorse

D
A merchandise marketing scheme

Answer

A

A
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.

Answer 65

A

C
A brochure on Treasury bonds

The Administrator may require the filing of sales literature (including form letters) and advertising for non-exempt securities. Advertising and sales literature for exempt securities are not subject to the filing requirements. Individual correspondence is not subject to filing with the Administrator, but form letters, as a type of sales literature, are.

Answer 66

A

D
Sold unregistered, non-exempt securities in an exempt transaction

Agents cannot solicit sales of unregistered, non-exempt securities, but they may sell them in exempt transactions. An exempt transaction, which gives the agent the ability to sell an unregistered, non-exempt security, occurs when a client submits an unsolicited order for the security or if the agent is selling the security to an institutional investor.

Answer 67

A

D
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.

Answer 68

A

D
I, II, and IIIV

An Administrator may not deny, suspend, or revoke a security’s registration without at least 2 reasons, one of which must be that the denial, suspension, or revocation is in the public interest. The Administrator may not enter a stop order against an effective registration statement on the basis of a fact that was known when the statement became effective unless action is taken within 30 days of the effective date.

Answer 69

A

A
I, II, and III

According to the Uniform Securities Act, it is unlawful for any person to offer or sell any security unless, 1) it is registered under the USA, 2) the security or transaction is exempt under the USA, or 3) it is a federal covered security. Note that unless a security falls within one of these groups, an agent may not sell it in the state.

Answer 70

A

A
Can be used for any exempt security

Registration by 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). A registration statement filed under this method becomes effective on a date that the Administrator indicates. An exempt security is not required to register in the state.

Answer 71

A

A
IV

A non-issuer transaction, by definition, does not benefit the issuer. The trade may be transacted directly by 2 individuals or with the assistance of an intermediary, such as a broker-dealer. When you hear the term non-issuer transaction, think of secondary market transactions. For such a trade to be considered isolated, it cannot be identified with any pattern (e.g., 1 trade of its type every 14 months). However, it does not need to be only 1 trade.

Answer 72

A

C
Frequently used when only registering in one state

A registration by coordination is frequently used to register a security in several states. With this method, the issuer is completing their SEC registration at the same time as their state registration. Both usually become effective at the same time provided the state registration statement has been on file with the Administrator for at least 10 days.

Answer 73

A

D
Postpone or suspend the effective date of registration

When an Administrator issues a stop order, the Administrator may postpone or suspend the effective date of a registration until all questions relevant to the stop order are disclosed.

Answer 74

A

B
Failure to pay the fee will not delay the offering

Failure to pay the filing fee will result in the offering being denied until the fee is paid. Once the fee has been paid, the State Administrator can no longer deny registration

Answer 75

A

C
An unsecured $75,000 large corporation promissory note with a top rating that matures in 120 days

A promissory note with a top rating of at least $50,000 maturing within 9 months is an exempt security under the USA. Securities issues by the Canadian government and its subdivisions are exempt but not common stock of a Canadian corporation. Securities issued by insurance companies are exempt but not holdings in an insurance company portfolio. Unlisted stock is not exempt.

Answer 76

A

C
A risk-based approach considering many factors rather than simply a rule-based approach

While regulators have implemented rules financial institutions must follow regarding cybersecurity and protecting personal data, the landscape is too diverse, and the nature of cyberattacks too evolving to rely on rules only for enforcement. Therefore, a risk-based approach has been implemented in addition to the rules that apply, so that many factors can be assessed to determine if an institution is in compliance.

Answer 77

A

II and IV

Sharing inside information with anyone other than a manager or compliance officer is typically a violation of both the USA and federal securities laws. Municipal bonds are not a suitable investment for a low-income customer. Municipal bonds traditionally pay lower interest rates than taxable bonds. In most cases they are only suitable if the customer is in a high enough tax bracket that the tax savings makes up for the lower interest. Low income customers are better off buying taxable bonds, because their net yield (taxable yield minus taxes) will be higher than the tax-free yield on the municipal bonds.

Answer 78

A

B
Payment of wrap fee to the firm by an institutional customer

Broker-dealers may collect commissions, or underwriting fees (this includes sales charges) from issuers and customers. A broker-dealer may not collect advisory or wrap account fees unless it is also registered as an investment adviser.
II and IV

Answer 79

A

C
The statement is misleading. The agent cannot state that the transactions are “without commission” without explaining markups and markdowns

The agent’s statement is misleading. When a firm acts on a principal basis by taking securities into inventory or selling securities from inventory, a markup or markdown is charged. In plain terms, this means that the firm will pay a customer a little below the market price on the liquidation and charge them a little above the market price on the purchase. There is no such thing as Form CWF-1A.

Answer 80

A

D
“I have passed the Series 6 and 63 examinations and am, therefore, certified to act as your financial adviser”

Be very careful when using words like “approved”, “guaranteed” and “certified”. Successful completion of the Series 6 and 63 does not equate to a “certification”. Compare the requirements to become a Certified Public Accountant or Certified Financial Planner, for example, to the requirements for becoming a registered representative. Most “certifications” require (and imply) a level of knowledge greater than that required to pass entry-level securities licensing exams. Regulators are likely to view a person who has not attained such a designation to be acting in a misleading manner if they refer to themselves as “certified”.te to a “certification”. Compare the requirements to become a Certified Public Accountant or Certified Financial Planner, for example, to the requirements for becoming a registered representative. Most “certifications” require (and imply) a level of knowledge greater than that required to pass entry-level securities licensing exams. Regulators are likely to view a person who has not attained such a designation to be acting in a misleading manner if they refer to themselves as “certified”.

Answer 81

A

C
Prohibited and known as matched orders or wash trades

Matched sales, wash trades, and painting the tape are terms used to describe the creation of artificial trading volume in a stock. All these activities are prohibited under the USA and NASAA policies. Insider trading involves trading based on material, nonpublic information regarding the issuer of a security, which was not the case here.

Answer 82

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 83

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 84

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 85

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 86

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 87

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 88

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 89

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 90

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 91

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 92

A

A
Risk factor captions should be in bold-face type in a font at least 2 points larger than the surrounding text

In order to make certain that investors are provided with material information regarding an offering, a risk disclosure should be included in the prospectus for all new issues. According to the Risk Disclosure Guidelines in the NASAA Statements of Policy, the following risk factor disclosure guidelines should be applied: *The prospectus should provide a detailed list of material risk factors associated with the offering. *This list should immediately follow the cover of the prospectus. Risks associated with the offering should be prioritized in order, with the most significant risks listed first. *Risk factor captions should stand out. Italicized, bolded, or underlined typefaces help the reader to quickly comprehend the nature of each particular risk. There is no requirement on the font size.

Answer 93

A

A
Conflict of interest

No matter how suitable the stock is for the customers, this particular security is one where the broker-dealer has a control relationship. This is a potential conflict of interest, and the RR must disclose the control relationship to the clients before buying the stock for them, even in a discretionary account. In addition, if the initial disclosure is done orally, there must be a follow-up disclosure in writing before the completion of the trade.

Answer 94

A

C
Investor’s risk tolerance level

The investor’s risk tolerance level is not considered PII (personally identifiable information). PII includes the investor’s name, SSN, driver’s license number, physical address, and passport number.

Answer 95

A

D
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.

Answer 96

A

A
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

Answer 97

A

A
The firm is deemed to be entangled with the third party if it was involved in the preparation of any of the content within the link

When firms embed third-party links within their own websites, they are deemed to be “entangled” with the third party if they were involved in the preparation of any of the link’s content. Adoption is deemed to have occurred if the firm endorses or approves the links content. Neither entanglement or adoption are prohibited, but when a firm is not entangled with, nor has adopted the content of a third party, it must provide a disclaimer in a prominent manner stating that the third-party website does not reflect the views of the firm and has not been reviewed for completeness or accuracy.

Answer 98

A

B
“I just got a hot tip from my spouse who just happens to be the secretary to the president of NYC Inc. You should invest now!”

Receiving a ‘hot tip’ from a relative who works inside a company and then acting upon that tip, or advising others to act upon that tip, is unlawful and a violation of the USA. An agent is not allowed to act on inside information.

Answer 99

A

A
Investment counsel

The term “investment counsel” may only be used if 2 criteria or standards are met. An adviser must be in the principal business of acting as an investment adviser and a substantial amount of business must come from providing investment supervisory services. Note that meeting these conditions does not allow an individual or a firm to use the designations RR, RIA or IAR unless they are properly registered as such.

Answer 100

A

C
Selling dividends, an unethical practice that could subject the RR to civil penalties

What is shown here is an unethical practice known as selling dividends. This is encouraging investors to purchase securities just prior to the payment of a dividend, implying that the investor will receive an immediate return on capital. When in reality the security’s price will be adjusted downward by the amount of the dividend paid, making the return net even. Additionally, the dividend received is considered taxable income.

Answer 101

A

C
6 months

The statute of limitations related to civil proceedings is as follows: 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 client would have 6 months left because they discovered the violation 2 and a half years after the occurrence.

Answer 102

A

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.

Answer 103

A

A
30 days

The buyer of a security in an unlawful transaction may not sue the seller if the buyer receives a written offer, while they still own the security, to refund what they paid for the security, plus interest, less any income received from the security, and they fail to accept the offer within 30 days. This is known as a letter of rescission. If the buyer receives a letter of rescission, is not satisfied with the offer, and they no longer own the security, they may not sue unless they reject the offer in writing within 30 days of receipt.

Answer 104

A

C
A court of law

An injunction is a court order to stop a specific practice.

Answer 105

A

D
Within 3 years from the sale of the security or 2 years of the discovery of the violation, whichever occurs first

The statute of limitations for violations of the civil provisions of the USA is 3 years from the sale of the security or 2 years of the discovery of the violation, whichever occurs first. Civil provisions allow for recovery of lost funds. Fraud is deliberate deception, and agents incur criminal penalties upon conviction. The statute of limitations for criminal actions is 5 years.

Answer 106

A

D
A newspaper advertisement that originated from outside of the state, or originated from within the state but with more than 2/3 of its circulation out of state

The Administrator’s jurisdiction applies to offers to buy or sell a security or the acceptance of the offer, if the offer originated in, was directed to, or was accepted in the Administrator’s state. Offers may be made verbally or in writing. Jurisdiction does not extend to television, radio, newspaper, or magazines that originate from outside the state. Further, it does not cover newspapers or magazines published inside the state, but that have more than 2/3 of their circulation outside the state within the past year.

Answer 107

A

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.

Answer 108

A

B
Either a fine or imprisonment, but not both

A person found guilty of willful violations of the USA will be subject to a fine up to $5,000, imprisonment for up to 3 years, or both. The statute of limitations for criminal actions is 5 years from the date of the offense.

Answer 109

A

A
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.

Answer 110

A

A
The advertisement is an offer in the state where the newspaper is published if at least 1/3 of the newspaper’s circulation is within the state

An offer to sell or buy is not made in a state, and is not subject to the Administrator’s jurisdiction, if the offer is made in any bona fide newspaper or other publication of general, regular, and paid registration not published in the state. If the offer is in a publication distributed in the state where published and more than 2/3 of its circulation is outside of the state during the past 12 months, it is not an offer in the state where published and is not subject to the Administrator’s jurisdiction. Once the publisher has more than 1/3 of the circulation in the state where it is published, the offer is considered an offer in that state and it needs to be registered with the State Administrator.

Answer 111

A

D
Company A issues a stock dividend to current shareholders

There are several exclusions from the definition of an offer or sale including: *Bona fide pledge or loan *Stock dividends or stock split *Exchanges of securities in connection with mergers, reclassifications, or consolidations *Exchanges of securities in connection with judicially approved reorganizations A car dealer giving shares of GM stock with every car purchased is a sale because the shares are part of the purchase. The investor giving their nephew 100 shares of assessable stock is a sale. The investor is relieved of a liability, while the nephew has taken on that liability and may be forced to pay the issuer in the future.

Answer 112

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.

Answer 113

A

C
With or without a prior hearing

The State Administrator can issue a cease and desist order, with or without a prior hearing, against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity

Answer 114

A

A
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.

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AD Banker Comprehensive Questions- Series 63 Flashcards

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