Exam One Flashcards
Under the provisions of the uniform securities act, the administrator has the power to:
A. Fine a broker dealer, investment advisor, or agent for rule violations
B. Revoke the registration of a broker-dealer, investment advisor, or agent
C. Issue an injunction against a broker-dealer, investment advisor, or agent.
D. Conduct a judicial review of actions taken against a broker-dealer, investment advisor, or agent
The correct answer is B
The administrator has the power to suspend or revoke a registration, and can issue a cease and desist order.
The imposition of fines, issuance of injunctions, and conducting a judicial review must all be performed by a court of law in the state.
The Board of Directors of a company will set which of the following? A. Declaration date B. Record date C. Ex date D. Payable date
A B and D are correct
The Board of Directors will set the declaration date, the day the dividend was declared, record date, the date on which customers names must be on the record book to receive the dividend, and the payable date, the day on which the checks are mailed. The X date is set by the exchange on which the stocks trade
A registered investment advisor is formed as a partnership. The RIA intends to charge an incentive fee it is based on investment performance. Under NASAA rules the registered investment advisor:
A. Must be able to show that the fee is fair and reasonable to the state administrator
B. Is not permitted to have an incentive fee under any circumstances
C. Can charge an incentive fee as long as it is included in the partnership agreement
D. Must offer the customer a fee refund if the performance does not meet the benchmark
A
This question is misleading because you probably know that investment advisors cannot charge performance or incentive fees. However they can do so if the customer is wealthy, defined as a customer with either $1 million of assets or $2 million of net worth.
An individual client purchased his residence five years ago for $200,000. For three of the last five years the client rented out the property for income, and lived in the house of two of those years. The client sells their house for $500,000 how much of this gain is taxable? A. Zero dollars B. $50,000 C. $250,000 D. $300,000
The best answer is B
The tax code permits the first $250,000 of capital gain from the sale of a personal residence to be excluded from tax for an individual, $500,000 for a married couple, to qualify the residents cannot have been rented out for more than three of the preceding five years, so it must be lived in for personal use by the owner for two of the past five years. This property was sold for a $300,000 gain, of which $250,000 is excluded from tax and $50,000 is taxable
All of the following are considered to be “giving advice about securities “under SEC release IA – 1090 to except a person who:
A. Issues reports about securities to customers
B. Developed an overall financial plan for customers
C. Advises customers on the selection of an investment advisor
D. Advises customers in the selection of a broker-dealer
D
A person who advises customers on the selection of a broker-dealer to effect the recommended trades is not an investment advisor. However, a person who recommends other investment advisors to customers can be considered by the SEC to be an investment advisor that must register. As can a person who issues reports about securities.
All of the following are specifically excluded from the definition of an investment advisor under the investment advisor act of 1940 except: A. Lawyers B. Accountants C. Financial planners D. Engineers
The correct answer is C
Dream the annuity. Of a fixed annuity, the insurance company assumes all of the following risks except: A. Purchasing power risk B. Mortality risk C. Expense risk D. Investment risk
A
In a fixed annuity insurance company assumes mortality risk expense risk and investment risk
Mortality risk is the risk that the purchaser live longer than the insurance company expects any insurance company is obligated to pay for as long as that person lives
Expense risk is the risk that the insurance companies expenses increase faster than expected the insurance company caps the expenses that I can charge against the annuity
Investment risk is the risk that the insurance companies return on his investment does not keep up with its payment obligations to the fixed annuity holder
With a fixed annuity the purchaser assumes purchasing power risk or the risk of inflation if there is inflation the monthly annuity payment does not increase so the annuitants purchasing power declines overtime
The investment advisor that has a $35,000 net worth requirement finds that it’s net worth is. 33,500. The advisor:
A. Must notify the state administrator by the close of business on the next business day and file a report of the advisers financial condition the next day.
B. Must deposit $1500 in a Surty bond with the state administrator by the close of business the next business day
C. Must cease business operations until the deficiency is cured
D. Is not required to do anything since the deficit is less than 10% of the net worth requirement
A
If an investment visors net worth or net capital falls below the minimum level set by the state, notice must be given to the administrator by the close of business the next day of such net worth deficiency. After transmitting such notice, investment advisor must file, by close of business on the next business day a report of its financial condition.
And income fund would likely invest in which of the following securities A. Common stock B. Preferred stock C. Debentures D. Income bonds
B and C
Income funds invest primarily in bonds and preferred stocks for a high-level of current income
A money market fund the charges .10% of annual management fees and .20% of annual 12 B-1 fees:
A. Cannot be called no load because the total fees exceed .25%
B. Cannot be called no load because such funds cannot charge 12 B-1 fees
C. Can be called no load
D. Can be called low load
C
Hey mutual fund, money market funds are mutual funds, cannot be called a no load fund if it charges 12 B-1 fees of more than .25% annually. 12 B-1 fees are charges against net asset value that pay for the cost of soliciting new investment to the fund
Treasury bills:
A. Are issued in minimum $100 denominations
B. Are issued in minimum $10,000 denominations
C. Mature at par
D. Mature at par plus accrued interest
A and C are correct
Treasury bills are original issue discount obligations that mature at par and minimum denominations of $100 each
Which of the following statements concerning open and investment companies are true?
A. They may issue new shares continuously
B. They must redeem outstanding shares based on net asset value
C. Share prices are determined by the forces of supply and demand
D. They are permitted to borrow up to 80% of the value of net equity to achieve their investment objectives.
A and B
Open end investment companies continuously issue shares as customers make purchases and redeem outstanding shares as customers make redemption request.
Under the investment company act of 1940 investment advisors contract must be renewed by a majority vote of the funds
A. Board of Directors
B. Outstanding shares
C. Board of Directors or the outstanding shares
Unaffiliated directors
C
The investment advisor contract, under the investment company act of 1940, must be renewed annually by either a majority vote of the management company’s Board of Directors or a majority vote of outstanding shares
Regulation T allows a customer to pay for a securities purchase with all of the following except A. 100% cash deposit B. 50% cash and 50% credit C. 100% fully paid security deposit D. Installment payments of 25% each
D.
Which statement is not true about enforcement of the investment advisors act of 1940?
A. The SEC has the power to collect evidence, subpoena witnesses and to take oats of affirmations
B. The SEC can use you orders denying or revoking registration of an investment advisor.
C. Orders of the S EC may be appealed by filing a motion to the US Court of Appeals
D. The state court in which the defendant is located has primary jurisdiction in both criminal and civil suits brought under the act
D
Regarding the powers of the SEC, it can collect evidence, take oats and subpoena witnesses. It can issue orders denying or evoking federal registration, but not state registration, but once the SEC boots and advisor out, the state piles on and boots that guy out of state registration as well. And SEC order can be appealed to the US circuit Court of Appeals. Since the SEC is a federal agency any criminal prosecution comes under the Securities Exchange Act of 1934 and will be pursued in federal court not in state court
