Final #2 Flashcards
What type of investment companies can adopt a 12b-1 plan?
Mutual funds
Only mutual funds (open-end management companies) have sales loads and 12b-1 distribution fees.
Variable annuity contracts are regulated by the SEC as a(n) ______ product in addition to being regulated by the State as a(n) _______ product
SEC as a securities product and the state as an insurance product
What does alpha measure?
Alpha measures a stock’s price volatility relative to stock specific (non-market) factors
What does beta measure?
Beta measures a stock’s price volatility relative to the market as a whole
If a plan manager violates the rules set forth in the IPS (Investment Policy Statement) does he breach his fiduciary obligation?
Yes - the rules set forth in the IPS MUST be followed, they are not just a guideline
What are the rules regarding the agent of a BD participating in an internet chat room?
BD agents and IA agents are not prohibited from participating in Internet Chat rooms as long as they limit their communications to “general” statements about investing
If a corporation buys the stock of another company as an investment, _____ % of the dividends received are excluded from tax, meaning that ____ % of the dividends received are taxable.
70%, 30%
Note: If the corporate investor owns 20% or more of the stock of the other company, this exclusion increases to 80%
A change in business form for an investment adviser would require an amendment of the Form ADV filed with the SEC in what time frame?
Promptly! (SEC)
A change in business form for an investment adviser would require an amendment of the Form ADV filed with the NASAA in what time frame?
30 days (NASAA)
What are the highest and lowest for quality investment grade ratings for bonds by S and P?
AAA is the highest grade while BBB is the lowest
ERISA requirements regarding the investments that are suitable for a retirement account stress:
Safety of principal
What 3 things are allowed to happen AFTER a registrations statement is filed?
I. Solicitations of indications of interest
II. Sending a preliminary prospectus
III. Publishing a tombstone announcement
How do the payments for variable annuities during the annuity phase, and what are the payments based on?
Periodic payments of varying dollar amounts are made (depending on the investments that are in the variable annuity) but payments are BASED ON a FIXED number of units
To find the future value of an investment, the annual investment returns must be:
Compounded
Future value is found by taking the current investment amount and compounding it
Who must file annual and semi-annual reports with the SEC under the Act of 1934?
Corporations and investment companies
Municipalities, Gov’t, and Gov’t Agencies are exempt from this
Between what departments must Chinese walls be built?
Investment banking and:
- Trading
- Sales
- Research
Trading and:
- Sales
- Research
When can the term “investment counsel” be used?
As long as the principal business of the advisory firm is the rendering of investment advice
A portfolio with a beta of +1 has what type of risk?
Systematic risk (aka market risk)
What is the primary concern when investing in a municipal bond?
Legislative risk - the risk that it may be later taxable based on law changes
When can an agent represent that a mutual fund is “no load”?
When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%
What are the registration requirements for paid solicitors by an investment adviser?
There is no requirement for the solicitor to register with the SEC; only the investment adviser is registered with the SEC
However, in most States, the solicitor must be registered either as an adviser or as an adviser representative
A buy and hold is the most appropriate strategy when investing in:
Mutual funds
If a corporation issues new stock at a price above par value, the excess above par is termed:
Surplus capital
A married couple with 2 young children, has their assets in a revocable trust. If one spouse dies, how will the assets be handled?
A revocable or “inter vivos” trust is one created during the grantor’s lifetime and that the grantor can change, while he or she is still alive. Property transferred into the trust avoids probate upon death of the grantor - and the property will be managed and distributed according to the terms of the trust
What is the primary goal of a Passive Portfolio Management Strategy?
Managing a portfolio to MEET the performance of a benchmark portfolio
Actively managed portfolios strive to exceed the benchmark portfolio’s performance
An agent who has passed his or her 63/66 examination, but whose registration is not yet effective in the State, may sell what?
Fixed annuity securities
Since fixed annuities are NOT securities, the agent could sell these - if he or she had a State insurance license
A limited partnership is formed as a legal entity by
Filing a certificate of limited partnership in the State
True or False: Each individual’s ownership interest in a Tenants in Common account is freely transferable to another person
TRUE
What dividends are “qualified” (they get preferential 15% tax treatment)?
Qualified:
- Div’s paid by U.S. Corp’s (usually)
- Foreign div’s if:
A.) The corporation is incorporated in a country that has a comprehensive tax treaty with the United States;
B.) The corporation is incorporated in a U.S. possession
C.) The corporation has its shares listed on an established trading market in the United States
What is the Not, Not, May rule?
When a customer wishes to buy securities at a bank location, the sales rep must comply with the “Not-Not-May” Rule both verbally and in writing (brochure)
This consists of:
- Securities are NOT FDIC insured
- Securities are NOT bank deposits
- Securities are subject to investment risk and MAY lose value
What information is included in a (standardized) commodities futures contract?
I. Acceptable grades of the commodity
II. Quantity of the commodity
III. Delivery location of the commodity
Note that price is never standardized - this is set by he market
Per the NASAA, Canadian BDs can contact EXISTING customers who are temporarily residing in the United States without having to register in a State, as long as the client is in the U.S. for less than________ and intends to return to Canada.
6 months (half a year)
Note that the Canadian BD cannot contact prospective clients in the U.S - only existing clients can be contacted
What is a commonly tested item that is “not considered as giving investment advice”?
A person who charts the price movements of stocks and distributes them to subscribers
A person who prepares a list of securities that may be purchased without making specific recommendations is considered to be:
An investment adviser
A customer has $10,000 in passive losses from a limited partnership investment. If the customer has $10,000 of passive income for that tax year, the customer may deduct:
$10,000
What is the rule regarding the retention of Internet advertising by broker-dealers?
All web pages that have ever been created and displayed must be archived
A CPA who acts as a solicitor for an investment adviser, referring clients to that adviser for a fee must be registered with:
The State
Buying a future is a _________ sentiment to the market, while selling a future is a _________ sentiment
Buying a future = bullish
Selling a future = bearish
What ratio would be used to evaluate a company’s ability to pay off its short term debt?
Current Ratio
Upon filing a withdrawal of registration with the State, the Administrator can commence a revocation or suspension proceeding for up to:
1 year from the effective date of the withdrawal
What type of option position is used to hedge a long stock position?
Long put
What is a “bottom up” approach to selecting securities?
This method looks for specific companies that are likely to have exceptional performance, regardless of overall economic conditions
What is a “top down” approach to selecting securities?
This method looks at the overall economy to identify sectors that appear to have the best growth potential; once identified, specific investments are made
What does “term management tenure” describe?
The length of time that the individual has been managing that mutual fund
