Additional Flashcards
Canadian broker-dealer has many clients who vacation frequently in the United States. In order to continue doing business with these customers while they are in the United States, the broker-dealer must file all the following material with the Administrator, EXCEPT:
A. A Consent to Service of Process
B. A Form BD
C. Proof of membership in an SRO
D. A copy of current registration filed in Canada
A Canadian BD may continue to do business with any clients in the United States with whom it has a bona fide preexisting relationship and who are here temporarily—not permanent residents of the United States. According to USA, the BD must be registered properly in Canada and must file the following documents with the Administrator: a Consent to Service of Process, a copy of the registration document filed with its Canadian regulator at the provincial level, and proof that it is regulated by a self-regulatory entity, such as an exchange.
An investment adviser (IA) is dually registered as a broker-dealer in State A. The IA is also registered in State B, but it’s not registered as a broker-dealer there. If the investment adviser only has advisory clients in State B, is it required to register as a broker-dealer in State B?
No, since the firm does not have any brokerage clients in State B.
According to the Uniform Securities Act, which of the following persons must register with the state Administrator?
A. A person who represents a non-exempt issuer in sales to existing employees, and is not compensated
B. A person who represents a non-exempt issuer in an investment banking transaction with a broker-dealer
C. A person who represents an exempt issuer in sales to the public
D. A person who represents a non-exempt issuer in sales to the public
A: doesn’t have to register because they’re not compensated
B: Doesn’t have to register because it’s an institutional transaction and therefore not considered an agent.
C: Doesn’t have to register since persons who represent exempt issuers are not defined as an agent
D: Required to register
A client of an advisory firm has contacted the Administrator of the state of Kentucky about a possible violation of the Uniform Securities Act by the firm. The advisory firm has its home office in Illinois and is registered in both states. Which of the following actions is the Administrator of Kentucky LEAST likely to take regarding the possible violation?
A. Begin an investigation in Kentucky
B. Take no action
C. Open an investigation in Illinois
D. Contact the Illinois Administrator
B. The Administrator has the authority to begin an investigation if a violation has occurred or is about to occur. The investigation may take place inside or outside of the state as deemed necessary.
According to the Uniform Securities Act, a person is not considered an investment adviser if the advice provided covers only:
A. Exempt securities
B. Viaticals
C. Variable annuities
D. Universal life insurance
D. Universal life insurance is not a security. Someone who provides advice only about insurance would not be viewed as an investment adviser.
True or false: If a registered broker-dealer’s or investment adviser’s ownership structure is changed (from a partnership to a corporation, for example), or is bought or sold by another person, it is permitted to file an application for registration as a successor firm. According to the Act, this can be accomplished whether or not the successor firm was in existence prior to the filing and is effective for the unexpired portion of the year. A filing fee is not required when the application is submitted?
True
An agent recommends that a client purchase a particular security. The agent believes the client has the resources to pay for the transaction. Three days after the trade is executed the client indicates that he cannot meet his financial obligation to the brokerage firm. If the agent lends personal funds to the client:
A. The client forgoes a right to be offered a letter of rescission
B. The client must pay a statutory rate of interest
C. The agent will be committing fraud
D. The agent will be acting in an unethical manner
D, This is unethical behavior, not fraud. An agent should not borrow or lend funds to a client.
An insurance agent works in an office building down the hall from a broker-dealer. They are not affiliated. What compensation may the agent receive from the broker-dealer in exchange for referrals?
A. Commissions
B. 12b-1 fees
C. Discouted commissions
D. Insurance referrals
D. Only individuals who are registered agents may receive monetary compensation from a broker-dealer based on the sale of a security. In this scenario, the insurance agent is not licensed and may not receive compensation in the form of commissions or fees, or soft-dollar compensation (noncash compensation) in the form of discounted commissions. If a broker-dealer wants to refer its clients to an insurance professional, this is permitted. Only licensed insurance professionals may be compensated for the sale of life insurance.
An agent is asked by a client to open an account and buy stock for the client’s spouse. Which of the following statements is TRUE?
A. The agent is at risk if the stock declines.
B. The spouse must sign a trading authorization or else these actions are prohibited.
C. Verbal authorization from the client’s spouse is acceptable
D. This is a normal, acceptable practice.
B. In order to open a third-party account (an account that allows one person to trade on behalf of another person), a trading authorization form must be signed by the owner of the account. The person’s signature gives the third party the right to execute trades. Without written trading authorization, this is a prohibited practice.
True or false: There is no requirement to deliver a final prospectus if the security is exempt?
False
Which of the following choices is considered a fraudulent act?
A. Omitting a fact that is relevant to making an investment decision
B. Misstating a fact about an issuer in a discussion with a client
C. Withholding any fact about an issuer in discussions with clients
D.Neglecting to obtain relevant information about an investor
A. Withholding material facts is considered fraudulent. Withholding any fact about an issuer sounds similar, but is too broad to rise to the level of fraud. Remember, fraud implies intent to deceive. Withholding any fact is not fraud. Here is why. Think of the phone number of an issuer, or other random items that may be interesting. Those are facts. Withholding that information is not fraud, since it may not be relevant to making an informed investment decision. Misstating a fact could be accidental and, therefore, not fraud. Neglecting to obtain relevant information is not fraud. It is a bad business practice. It may be unethical, but it is not defined as fraud.
Under the Uniform Securities Act, which of the following statements BEST describes the term inspectorial powers?
A. The State Administrator’s power to have special investigators review the records of registered investment advisers
B. The State Administrator’s power to subpoena records within and outside the state
C. The State Administrator’s power to delegate responsibility to a self-regulatory organization
D. The State Administrator’s power to apply the stop-order test
B. Inspectorial powers refers to the right of the State Administrator to inspect or review any records, both within and outside the state, in order to carry out the provisions of the Uniform Securities Act.
True or false: Filing fees are usually pro-rated?
False, usually NOT pro-rated
Under the Uniform Securities Act, which of the following transactions is defined as a sale?
A. The payment of a stock dividend paid by an issuer
B. The exercise of a stock option
C. A gift of non-assessable stock
D. The pledge of securities to secure a loan
Exercise of a stock option requires one party to buy and another to sell stock and is defined as a sale under the Uniform Securities Act (USA). The USA also specifically excludes both gifts of non-assessable stock and stock dividends because no money or anything of value (i.e., consideration) has been exchanged for the securities. Pledges of securities are not sales because pledging securities as collateral is not a transfer of ownership at the time of the pledge.
True or false: a supervisor must approve every new account before the first trade in that account is executed?
True
An agent has just received an unsolicited order from a customer. The customer wants to purchase a large amount of a speculative stock. Although the customer has the financial resources to bear the risks of this investment, the agent does not think it fits the client’s investment objectives. The agent may take all of the following actions, EXCEPT:
A. Hold the customer’s order until the agent has the opportunity to confirm the client’s understanding of the security
B. Attempt to convince the customer not to buy the stock by suggesting alternate investment vehicles that match the customer’s suitability profile
C. Attempt to convince the customer to hedge the unsuitable position with appropriate investment strategies
D. Accept the order
It is considered a dishonest and unethical practice for an agent to knowingly fail to follow client instructions. This would include refusing to place an unsolicited trade until the agent can research the security. However, agents may certainly attempt to convince customers to alter those instructions if they feel another course of action is more suitable for that client.
True or false: The Administrator may determine the type of securities acceptable for deposit but may not altogether disallow deposits of securities in lieu of a bond?
True
True or false: Form ADV is used for an IA’s employees, not an IA?
False, Form ADV is used for an IA, not its employees
What types of securities are suitable for capital preservation?
Money-market securities or a money-market fund would be the only appropriate recommendation under these circumstances.
A client may bring civil action if:
I. An agent is not registered
II. An offer is made but no sale occurs
III. Misleading statements are made and the client relies on those statements to make a purchase
IV. Client securities are commingled with other client securities
I and III. Any individual may sue in the civil courts, but civil liability is limited to monetary damages. In choice (II), an offer is made, but no sale occurs, so damages cannot exist. Therefore, a client could not sue in civil court for damages. An Administrator has jurisdiction over the offer, and could still act. Under state securities law, the broker-dealer and the agent must be registered in all the states in which the agent transacts business. If an agent makes misleading statements and a client purchases a security, the client could sue for damages on the grounds that he was misled. Broker-dealers may commingle client securities, but not client and broker-dealer securities.
True or false: Under the NASAA Model Rules for Sales of Securities at Financial Institutions, A BD must notify the bank promptly about an agent’s termination.
True
True or false: Agents of BDs DO NOT need to disclose to their BDs if they do a private transaction?
False, they must receive permission
True or false: Under the USA, third-party solicitors for an investment adviser may be required to register as an IAR?
True
True or false: Only an Administrator within the same state may examine the records of an investment adviser or broker-dealer?
False, an Administrator may inspect the records of a broker-dealer or investment adviser located within or outside the state.