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Series 65 > Chapter 8 - Part 1 > Flashcards

Chapter 8 - Part 1 Flashcards

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Series 65 flashcards
1
Q

The uniform prudent investors act of 1994 (UPIA) does what?

A

Sets the basic standards by which all investment professionals acting in fiduciary capacity must abide

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2
Q

what is churning?

A

Is the practice of making transactions that are excessive in size or frequency with the intention to generate higher commissions for the adviser

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3
Q

what is Reverse churning?

A

It is the practice of placing inactive accounts or accounts that do NOT trade frequently into fee-based programs that charge an annual fee based in the assets in the account

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4
Q

what is capping?

A

An act designed to keep a stock price from rising or to keep the price down

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5
Q

what is Pegging?

A

An act designed to keep a stock price up or to keep the price from falling

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6
Q

what is Front running?

A

The entering of an order for the account of an agent or firm prior to the entering of a large customer’s order

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7
Q

what is Trading ahead?

A

The entering of an order for a security based in the prior knowledge of a soon-to-be-released research report

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8
Q

what is Painting the tape/matched purchases/matches sales?

A

An act by two or more parties designed to create false activity in the security without any beneficial change in ownership
The increased activity is used to attract new buyers

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9
Q

what is Unauthorized trading?

A

Is one that is made for the benefit of a customer’s accountant a time when the customer has no knowledge of the trade and tech advisor does NOT have discretionary power over the account

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10
Q

what is the definition of Fraudulent acts?

A

Fraud is defined as any act that is employed to obtain an unfair advantage over another party

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11
Q

can a rep omit material facts and guarantees?

A

A rep may NOT omit any material fact either good or bad when recommending a security

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12
Q

can you Short term trade in mutual funds?

A

no

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13
Q

which mutual fund may be more suitable for an investor with a shorter holding period?

A

front-end load aka A shares

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14
Q

what is Reg BI?

A

Was adopted by the SEC in June of 2019 as an amendment to the Securities Exchange Act of 1934
All broker dealers, investment advisors, and agents are subject to standards of conduct that require the firm and its agents to act in the best interest of retail customers

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15
Q

what is the June 2020 (part of Reg BI) change?

A

All broker dealers and investment advisers will be required to provide retail clients with a client relationship summary (CRS)
Required to post the CRS on their publicly available website
CRS may be provided in hardcopy or electronically

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16
Q

If the CRS is provided in hardcopy…

A

The CRS may not be more than two pages long and the CRS must be the first page among any documents sent in the same package

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17
Q

the CRS Must be written in …

A

plain english using everyday terms

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18
Q

the CRS Should be written using what kind of voice?

A

“active voice” with a strong, direct, and clear meaning

Should be written as if speaking to the retail investor directly

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19
Q

if Electronic CRSs are used what can be in them?

A

should use graphs and charts, specifically dual column charts to compare services
May use videos and popups and must provide access to any referenced information via hyperlink or other means
May be delivered via email provided that the email contains a direct link to the CRS

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20
Q

Broker dealers are required to provide the CRS to customers when?

A

before or upon the earlier of recommending the type of account to establish or an investment strategy or upon opening an account or placing an order

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21
Q

Investment advisers must provide the CRS to clients when?

A

prior to or at the time the contract is entered into even if the contract is oral

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22
Q

The CRS is aka…

A

“ADV part 3”

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23
Q

For entities registered as both a broker dealer and as an investment adviser the CRS must be delivered when?

A

upon the earliest requirement for either registration

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24
Q

Any changes required to be made to the CRS must be completed within how many days? and sent to customers within how many days?

A

Must be completed within 30 days and an updated CRS clearly reflecting the changes must be sent to existing customers within 60 days

25
Q

Are the changes to the CRS required to be filed with the SEC?

A

yes

26
Q

Broker dealers will file through the what?

A

Central Registration Depository (CRD)

27
Q

investment advisors will file through the what?

A

Investment Adviser Registration Database (IARD)

28
Q

The relationship summary must be provided to the client upon request within how many days?

A

30

29
Q

are Minors are not allowed to own securities ?

A

no

30
Q

what does The uniform Gifts to Minors Act (UGMA) do?

A

Regulates how accounts are operated for the benefit of minors

31
Q

All UGMA accounts must have:

A

One custodian
One minor
UGMA and the state in the account title
Assets registered to the child’s name after he or she reaches the age of majority

32
Q

how many custodians allowed on each UGMA account?

A

Only one custodian and one minor are allowed on each account

Husband and wife may NOT be joint custodians

33
Q

Can The same person serve as custodian for many minors?

A

yes

34
Q

Can the minor have more than one account with more than one custodian?

A

yes

35
Q

does the donor of the security have to be the custodian for the account?

A

no

36
Q

what is the limit on the size of the tax free gift of a UGMA account?

A

$15,000 per year

37
Q

is there a dollar limit as to the size of the gift that may be given in a UGMA account?

A

no

38
Q

The custodian may use the assets in a UGMA account for?

A

the minor’s welfare and educational needs

39
Q

Is the minor is responsible for the taxes on the UGMA account?

A

yes

40
Q

UGMA taxation of any unearned income that exceeds how much? will be taxed how?

A

Any unearned income that exceeds $2,200 per year will be taxed at the parents’ marginal tax rate if the child is younger than 14 years old

41
Q

UGMA gifts that exceed $15,000 per year are taxed how?

A

The tax liability in on the donor of the gift, not the minor

42
Q

Prudent man rule for Third party and fiduciary accounts are what?

A

The individual with this responsibility must act as a prudent person would and may NOT speculate

43
Q

what is the Legal list for Third party and fiduciary accounts?

A

Many states have an approved list of securities that may be purchased by fiduciaries

44
Q

what does Full discretion mean?

A

Meaning the fiduciary may have full power of attorney

Which means they may purchase and sell securities as well as withdraw cash and securities from the account

45
Q

what does Limited discretion mean?

A

It is a limited power of attorney

The fiduciary may only buy and sell securities and may not withdraw assets

46
Q

When opening an account for a guardian the rep must obtain a copy of the court order appointing the guardian within how many days?

A

Court order must be dated within 60 days of opening an account
If its older than 60 days
The rep may NOT open the account until a new court order is obtained

47
Q

C corps are taxed how?

A

at the corporate rate independent for the owners’ tax rates

48
Q

C crop Would be most suited for a business that has what objectives?

A

needed to raise a substantial amount of capital or was projected to be very profitable

49
Q

S corp allows the income to do what?

A

to flow through to the owners and to be taxed as ordinary income

50
Q

how many people can be owners in an S corp?

A

No more than 100

51
Q

what type of corp Must be organized as a domestic corporation?

A

S corp

52
Q

Limited partnership consists of what kind of owners?

A

Consists of at least one general partner and one or more limited partners

53
Q

what is the duty of the general partner in a limited partnership?

A

It is the duty of the general partner to manage the partnership in accordance with the partnership’s objectives

54
Q

what is the duty of the limited partners in a limited partenrship?

A

The limited partners put up the investment capital required but may NOT exercise management or control over the partnership

55
Q

what type of partnership is often used for estate planning?

A

Family limited partnership

56
Q

what is the parents role in a family limited partnership?

A

Parents may place significant assets into a family limited partnership as a way to transfer their ownership
Usually the parents will act as the general partners and will transfer limited partnership interests to their children
As this happens, the parents may become subject to gift taxes
Gift taxes are usually lower than they would have suffered without the partnership

57
Q

The LLC will pass through what?

A

income without being taxed at the LLC level just like a partnership

58
Q

The owners of the LLC are classified how?

A

as members of the LLC not as shareholders and are NOT personally liable for the debts of the LLC

59
Q

which type of entities provide asset protection and avoid double taxation by distributing income and losses to the owners or members?

A

limited partnerships, LLCs, and S corps

Series 65 (7 decks)

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