Final Exam 10 Flashcards
When is an IA or IAR permitted to publish a testimonial regarding the adviser?
QID: 1506763Mark For Review
A
Never
B
If the permission of the author of the testimonial is obtained
C
If the testimonial appeared on an independent social media site over which the IA or IAR has no control
D
If the testimonial is from a former client
If the testimonial appeared on an independent social media site over which the IA or IAR has no control
An IA or IAR is permitted to publish testimonials if (1) they are shown as they originally appeared on an independent third party social media site, (2) are unedited, and (3) the IA or IAR has no direct or indirect influence or control over the independent site.
If an investment increases in value, which of the following statements would be TRUE?
QID: 1506840Mark For Review
A
If it was held for less than one year, the annualized rate of return would be greater than the holding period return
B
If it was held for less than one year, the holding period rate of return would be greater than the annualized return
C
Regardless of the actual holding period, the holding period and annualized return are always identical
D
If held for more than one year, the holding period return would be less than the annualized return
If it was held for less than one year, the annualized rate of return would be greater than the holding period return
The holding period rate of return states how much an investor earns over the period an investment is held. The annualized rate of return states how much an investor makes over a one-year period.
An IAR has been sending unencrypted e-mails to clients that contain personal identifying information. If the IA had no process in place to catch the IAR’s e-mail usage, what action will the state Administrator MOST LIKELY take?
QID: 1506842Mark For Review
A
Revoke the registration of the IA for not establishing an appropriate supervisory process.
B
Nothing, since advisers don’t need to encrypt their e-mails with clients.
C
Penalize the IAR for unauthorized use of electronic communications.
D
Penalize the IA for improper implementation of policies and potentially take action against the IAR.
Penalize the IA for improper implementation of policies and potentially take action against the IAR.
Sales of viatical investments can only be made to suitable investors. Which TWO of the following are considered suitable?
An accredited investor under regulation D
Anyone who has been specifically approved by the state Administrator
Anyone who is in the highest marginal tax bracket and is in need of liquidity
Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000
QID: 1506752Mark For Review
A
I and III
B
I and IV
C
II and III
D
II and IV
I and IV
Limited partnerships are offered to the public or are sold through private placement. To avoid registration with the SEC, partnership interests can only be sold to which of the following persons? Any number of accredited investors No more than 35 nonaccredited investors No more than 35 accredited investors Both accredited and nonaccredited investors QID: 1507116Mark For Review A I only B I and II only C I, II, and III only D I, II, and IV only
I, II, and IV only
A mutual fund wants to report to its shareholders the fund's average return over a 10-year period. What's the best way to calculate the fund's annual return? QID: 1506843Mark For Review A Standard deviation B Arithmetic mean C Sharpe Ratio D Geometric mean
Geometric mean
The geometric mean, which is also referred to as the time-weighted return, is the best way to measure the performance of a mutual fund. This method eliminates the distortion from cash inflows and outflows (e.g., investors withdrawing their investments). On the other hand, the arithmetic mean can be misleading for reporting average returns over several continuous years since it’s actually distorted by cash inflows and outflows.
A broker-dealer would be required to register in Pennsylvania if the broker-dealer:
Has an office in Pennsylvania and executes nonissuer transactions of securities listed on a national securities exchange
Has no office in Pennsylvania and executes nonissuer transactions of securities listed on a national securities exchange with clients that are residents of Pennsylvania
Has an office in Pennsylvania and executes transactions of municipal securities with clients that are not residents of Pennsylvania
Has no office in Pennsylvania and executes transactions of municipal securities with clients that are residents of Pennsylvania
QID: 1506759Mark For Review
A
I and II only
B
I and III only
C
III and IV only
D
I, II, III, and IV
I, II, III, and IV
An investment advisory firm is analyzing the market and building a portfolio for a client. The firm starts by identifying companies with strong financial performance and then creates forecasts for the entire sector based on its analysis. This is an example of: QID: 1506779Mark For Review A A top-down approach B A bottom-up approach C A form of technical analysis D A form of top-down analysis for the entire sector
A bottom-up approach
According to the Investment Advisers Act of 1940, when is an investment adviser required to provide an audited balance sheet to its clients?
QID: 1507109Mark For Review
A
When the adviser requires the prepayment of a fee that is greater than $500, six months or more in advance of providing service
B
When the adviser requires the prepayment of a $500 initial advisory fee
C
When the adviser requires the prepayment of a fee that is greater than $1,200, six months or more in advance of providing service
D
When the adviser has limited discretion over the account
When the adviser requires the prepayment of a fee that is greater than $1,200, six months or more in advance of providing service
Since state and federal laws overlap regarding the concept of providing an audited balance sheet, it is important to identify which regulator is asking the question. According to the Investment Advisers Act of 1940 (federal law) an adviser is required to provide clients with an audited balance sheet if it collects prepaid fees of more than $1,200, six months or more in advance of providing advisory services.
However, according to the Uniform Securities Act (state law), an adviser is required to provide clients with an audited balance sheet if 1) the firm collects/solicits prepaid fees of more than $500, six months or more in advance of the service, or 2) the firm maintains custody or discretionary control of clients’ assets.
As it relates to the storing of customer books and records, an adviser is permitted to store records on:
QID: 1507113Mark For Review
A
Microfilm or microfiche only
B
Disks, as long as the information cannot be altered
C
The original format only
D
Disks, as long as they’re password-protected
Disks, as long as the information cannot be altered
Mark is a registered representative and also an investment adviser representative for his firm. One of Mark’s clients requests that he create a comprehensive financial plan for her. To implement the plan, Mark must:
QID: 1506628Mark For Review
A
Abstain from implementing the financial plan since a conflict of interest exists
B
Notify his supervisor before implementing the plan to avoid any conflicts of interest
C
Obtain a signed dual capacity waiver of compliance from his client
D
Inform his client that he will be acting as a registered representative when implementing the plan and will be receiving compensation
Inform his client that he will be acting as a registered representative when implementing the plan and will be receiving compensation
A mutual fund is planning to issue 10 million Class B shares. Five hundred thousand shares will be offered in the state of Rhode Island. Under the Uniform Securities Act, the Administrator of Rhode Island will require the fund to: Register the shares in Rhode Island Include a prospectus with its registration Pay a filing fee Sign a Consent to Service of Process QID: 1506758Mark For Review A I and II only B III and IV only C I, II, and III only D I, II, III, and IV
III and IV only
Mutual funds are federal covered securities and, therefore, a state may not require registration or regulate any offering document. Except for securities that are listed on one of the exchanges (such as the NYSE or Nasdaq), the state may charge a filing fee. The state may also require issuers to submit a filing notice and sign a Consent to Service of Process.
A company's stock experiences wild fluctuations due to unsubstantiated rumors about its products. After further analysis, the company's earnings and sales are better than average. The wild price swings may be described as: QID: 1506753Mark For Review A Interest-rate risk B Market risk C Liquidity risk D Business risk
Business risk
A firefighter is planning to retire before he turns 59 1/2. He's currently contributing the maximum annual amount into an individual retirement account (IRA). If he wants to save even more, which of the following accounts should his agent recommend? QID: 1506766Mark For Review A 401(k) plan B 457 plan C 403(b) plan D SIMPLE IRA
457 plan
Firefighters are typically employed by local governments or their agencies. Government employees may be offered 457 plans to help them save for retirement and is the best option for this investor. In addition, 457 plans do not assess a penalty on withdrawals before the accountholder turns 59 1/2. Conversely, 401(k) plans and SIMPLE IRAs are established by for-profit businesses, not local governments. Also, 403(b) plans can only be established by non-profit organizations and public school districts.
A client creates a limited liability company (LLC). Which TWO of the following statements are TRUE?
Like a corporation, LLCs provide investors with limited liability.
The owners who manage the LLC are personally responsible for all debts that are incurred.
The income earned by the company is taxed like a corporation.
The income flows through to investors and is taxed like a partnership.
QID: 1506864Mark For Review
A
I and II
B
I and III
C
I and IV
D
II and IV
I and IV
A disadvantage of investing in a general partnership versus a limited partnership is:
QID: 1506845Mark For Review
A
Flow-through tax treatment of gains and losses
B
General partners have limited liability
C
Limited partners have unlimited liability
D
General partners have unlimited liability
General partners have unlimited liability
