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Definitions Flashcards

1
Q

Define a sole proprietorship

A

A business that is owned by one person who is responsible for all management decisions and entitled to all profits

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2
Q

What is a letter of rescission?

A

An offer to buy back a security from a client when that security was sold in violation of the USA

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3
Q

Define sector rotation

A

A strategy that anticipates the next turn in the business cycle and shifts assets into the sectors that will benefit

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4
Q

Is a private placement considered an exempt transaction or an exempt security under the USA?

A

Exempt transaction

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5
Q

What is the tax rate called that applies to the last dollar amount a person earns?

A

Marginal tax rate

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6
Q

List some of the exclusions from the definition of a BD

A

Agent, issuer, bank, or a BD with no office in the state that only deals with institutions or its existing clients

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7
Q

_____________ is the prohibited practice of a BD trading for its own account ahead of a customer’s block order

A

Front-running

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8
Q

__________ is a manipulative activity that is designed to keep the price of a stock from falling (and is prohibited

A

Pegging

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9
Q

Define expected return

A

The possible return of an asset multiplied by the likelihood of occurrence

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10
Q

Who manages accounts, solicits services, or makes recommendations on behalf of a registered investment adviser?

A

IARs

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11
Q

Is a certified public accountant who provides tax advice considered an IA under the USA?

A

No, CPAs are excluded from the IA definition

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12
Q

In state law, individuals who represent BDs in effecting securities transactions are referred to as ______

A

agents

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13
Q

________ is the willful or intentional act of deceiving another person for gain or profit

A

Fraud

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14
Q

Is an adviser to a mutual fund considered an IA under the USA?

A

No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level

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15
Q

True or False: In state law, individuals representing issuers in effecting securities trades are ALWAYS deemed agents

A

False. Individuals are not deemed agents if representing issuers of exempt securities or effecting exempt transactions

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16
Q

Define impersonal advisory services

A

Services costing less than $500 per year that are not tailored to meet the investment objectives of a specific client

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17
Q

Define leveraged investing

A

Using borrowed funds to buy securities (e.g., margin trading) that may lead to greater returns and losses

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18
Q

Describe variable life insurance

A

A life policy where the death benefit varies depending upon the performance of the investment options

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19
Q

Define front running

A

A firm/individual executing trades for its own account with knowledge of an impending large block customer order

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20
Q

True or False: A publisher of a financial magazine is considered an IA under the USA

A

False. Publishers of newspapers/magazines are excluded from the IA definition

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21
Q

Describe whole life insurance

A

A life insurance policy that has a fixed death benefit, fixed premium payments, and builds cash value over time

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22
Q

Is an attorney who exclusively provides estate planning services considered an IA under the USA?

A

No. Provided the attorney’s advice is incidental to his profession, he is excluded from the IA definition

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23
Q

Define an investment contract (according to the Howey Test)

A

An investment of money, in a common enterprise, with expectation of a profit due to efforts of third-party management

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24
Q

Define assessable stock

A

Stock that allows the issuing entity to demand additional funds from existing stockholders

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25
Describe universal life insurance
A permanent life insurance policy designed so the policy owner may adjust the death benefit and premium payments
26
What is the three-pronged test for determining whether a firm meets the IA definition?
A-B-C. A = advice/analyses B = business C = compensation
27
Define solicitor
Any person who, directly or indirectly, solicits any client for, or refers any client to, an IA
28
Is a firm considered a BD if it has no office in a state and only deals with institutional clients in the state?
No. The firm is excluded from the BD definition
29
What is selling away?
An agent executing securities transactions for compensation and not recording the trades on the BD's books and records
30
Define insured
The person whose life is covered by an insurance contract
31
A ____________ is an annuity that never stops paying money
perpetuity
32
Define omitting prospectus
A written communication for mutual fund shares that contains limited information (less than a regular prospectus)
33
Describe term life insurance
A life insurance policy that pays a death benefit to a beneficiary if the insured dies within the term specified
34
Define investment supervisory services
The giving of continuous advice as to the investment of funds on the basis of the individual needs of each client
35
Define fiduciary
A person who acts on behalf of another, which gives rise to a relationship of trust and confidence
36
Due to SEC Release 1092, what other candidates are included in the expanded IA definition?
Sports and entertainment reps, pension consultants and financial planners
37
An individual who represents an issuer in selling registered, non-exempt securities for compensation is an ________
Agent
38
Define currency risk
The risk that foreign investments will be worth less in the future due to changes in exchange rates
39
Under the IA Act of 1940, are banks and bank holding companies excluded from the IA definition?
Yes
40
Define futures contract
An agreement to buy or sell a specific amount of a commodity on a stipulated date in the future
41
Define an agency cross transaction
A trade executed by a financial firm that is acting as a broker for both the buyer and seller
42
True or False: The USA defines a bank providing investment recommendations to its clients as an IA
False. Banks are excluded from the IA definition
43
The ________ tax rate is the rate that is used to tax the last dollar amount that a person earns.
marginal tax rate
44
What is adjusted gross income (AGI)?
An individual's taxable income (e.g., wages, commissions, tips, dividends, and interest)
45
Define selling away
The execution of transactions by an associated person outside his employment with a member firm
46
Define the local exemption from SEC registration for an IA
The IA's clients reside in the state in which its office is located and its advice is not related to exchange-listed securities
47
A _______ is any agreement or contract to dispose of a security for value
A sale is any agreement or contract to dispose of a security for value
48
List the four categories of professionals who are excluded from the IA definition
Lawyers, accountants, teachers, and engineers (remember L, A, T, E)
49
Define testimonial
An advertisement in which an individual recommends the IA’s services based on personal experiences with the firm
50
Is an exculpatory provision in an advisory contract permitted?
No. An exculpatory provision would serve to absolve an adviser from blame or liability and is prohibited
51
A __________ is a stream of cash flows that continues forever
perpetuity
52
If an IA meets the IA definition in a state, when is it exempt from registration under the USA?
If it has no office in the state and it has institutional clients only OR five or fewer retail clients in the last 12 months
53
True or False: A BD making recommendations about investing in various securities is an IA under the USA
False. Since the BD is not charging a fee for the advice, it is excluded from the IA definition
54
Define painting the tape
Traders effecting transactions back and forth to create a misleading appearance of activity
55
Is a bank whose trust department occasionally executes securities transactions considered a BD?
No. Banks are excluded from the BD definition
56
Define churning
Excessive trading in a customer's account for the primary purpose of generating commissions and other fees
57
Define the prohibited practice of shadowing
After executing a large block order, but before the trade is reported, a BD trades for its own account
58
__________ is a manipulative activity that is designed to keep the price of a stock from rising (and is prohibited)
Capping
59
Define holding period return
The total return received from holding an asset or portfolio of assets
60
Under the USA, are banks and bank holding companies excluded from the IA definition?
No. Banks, savings institutions and trust companies are excluded, but bank holding companies are not
61
Define vesting
The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits
62
Identify who IS NOT considered a person under the USA
Minors, incompetents, securities, and the deceased are NOT considered persons
63
Define capital structure
A company’s issuance of debt and equity securities (both common and preferred stocks) to finance operations
64
Is a corporation considered a BD if it raises capital by selling new shares of its stock to the public?
No. The corporation is an issuer and issuers are excluded from the BD definition
65
According to the USA, who is included under the term "person?
Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships
66
If a firm meets the BD definition in the state, are there any exemptions from registration under the USA?
No. Firms that meet the BD definition are required to register in the state
67
As it applies to a BD or IA, what does the term "exclusion" mean in the USA?
Exclusion signifies that a person does not meet the definition of a BD or IA in the state
68
Identify the acronym: AGI
Adjusted gross income
69
Define the term custody
The legal responsibility for, or control over, another person’s assets
70
True or False: Bank holding companies are excluded from the IA definition under the USA
False
71
Define commingling
The prohibited act of mixing client funds with those of the BD
72
Under the USA, is a bank holding company that occasionally executes securities trades excluded from the BD definition?
No. Under the USA, bank holding companies are not excluded from the BD definition
73
Define duration
The measure, expressed in years, of a bond's price sensitivity to interest rate changes
74
Define assignment
The transfer of an advisory contract by the adviser or any change in the overall management of the advisory firm
75
True or False: Bank holding companies are not considered IAs under the USA
False. They are excluded from the definition under the IA Act of 1940, not under the USA
76
An ________ is any attempt or solicitation to acquire or dispose of a security for value
offer

S66 deck (10 decks)

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