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Series 63 flashcards
1
Q

Identify the acronym: IA

A

Investment Adviser

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2
Q

Identify the acronym: IAR

A

Investment Adviser Representative

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3
Q

Identify the acronym: NSMIA

A

National Securities Markets Improvement Act

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4
Q

dentify the acronym: NASAA

A

North American Securities Administrators Association

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5
Q

What is the ABC Test for investment advisers?

A

The test that defines an IA as a firm that provides Advice as part of a Business for Compensation

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6
Q

Identify the acronym: IARD

A

Investment Adviser Registration Depository

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7
Q

Identify the acronym: RIA

A

Registered Investment Adviser

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8
Q

Who enforces the Uniform Securities Act?

A

The Administrator

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9
Q

Name some of the federal covered securities.

A

Listed on an exchange, issued by an investment company, sold as a private placement (Reg. D), and municipal bonds

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10
Q

What’s notice filing?

A

The process in which information that is filed with the SEC is also filed or shared with the Administrator.

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11
Q

True or False: The states may make rules that are more restrictive than SEC (federal) rules.

A

False. NSMIA prohibits states from making requirements that are more restrictive than existing federal requirements.

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12
Q

True or False: The Administrator may bring a case in a civil court.

A

True. Both the Administrator and a private citizen may bring a case in civil court.

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13
Q

What is the general definition of an issuer?

A

Any person who issues or proposes to issue a security, such as government entities and corporations.

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14
Q

True or False: The USA requires all employees of a BD to register.

A

False. Only those representing a BD in effecting transactions (as an agent) must register.

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15
Q

An _______of an ________ is an individual who represents an issuer in effecting transactions with the general public.

A

agent of an issuer

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16
Q

What’s an issuer transaction?

A

A transaction in which the issuer receives the proceeds.

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17
Q

Define jurisdiction.

A

The power to interpret and apply the law or the territorial range of authority or control.

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18
Q

An _______ is any attempt or solicitation to dispose of a security for value.

A

offer (offer to sell)

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19
Q

Define assessable stock.

A

Stock in which the issuer is allowed to demand additional funds from existing stockholders.

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20
Q

Can a BD punish one of its agents for responding to a subpoena?

A

No. This is a prohibited action.

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21
Q

True or False: An individual may be denied registration due to lack of experience.

A

False. However, a lack of training, knowledge, and experience may be grounds for denial.

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22
Q

A BD in New York gets an order from a client who is on vacation in Florida. Does the firm need to register in Florida?

A

No. Registration is not required since the client is an existing client who is temporarily in Florida.

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23
Q

True or False: BDs must file advertising and sales literature with the Administrator.

A

True

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24
Q

Is an individual who represents an issuer in the sale of stock to the public considered an agent?

A

Yes. An individual representing an issuer of securities being offered publicly must register as an agent.

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25
Q

What form do IAs file to register?

A

Form ADV

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26
Q

Define the term custody.

A

The legal responsibility for, or control over, someone’s assets

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27
Q

What are some reasons for the Administrator denying a securities’ registration statement?

A

Filing false registration documents, issuer’s business is illegal, spread is unfair, or failing to pay the filing fee.

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28
Q

True or False: A transaction by an executor is exempt.

A

True. Any transaction by an executor, administrator, trustee in bankruptcy, or conservator is considered exempt.

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29
Q

Who must prove that an exemption exists?

A

The party claiming the exemption

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30
Q

May the Administrator revoke the registration of a federally covered adviser?

A

No. However, she may require the IA to notice file.

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31
Q

Is the publisher of a newspaper required to register as an investment adviser?

A

No. Publishers are excluded if the newspaper has general circulation and any advice is impersonal and untailored.

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32
Q

For how long must an IA maintain records?

A

5 years

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33
Q

An investment adviser with more than $___________ under management must register with the SEC.

A

$100 million

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34
Q

Is registration with the SEC required of an adviser that manages $97 million of assets?

A

No. If the IA manages under $100 million of assets, it must register with a state Administrator.

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35
Q

True or False: Principals must approve discretionary orders prior to entry.

A

False. The orders must be approved promptly afterward.

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36
Q

May a wife enter trades in a husband’s account?

A

Yes, with written third-party authorization.

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37
Q

What triggers a BD’s filing of a Suspicious Activity Report (SAR)?

A

Any suspicious transactions of $5,000 or more

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38
Q

Trading on material, non-public information is considered __________________.

A

insider trading

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39
Q

Define painting the tape.

A

Traders effecting transactions back and forth to create a misleading appearance of activity

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40
Q

A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?

A

Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.

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41
Q

Does the payment date requirement of Regulation T apply to cash or margin accounts?

A

Payment is required within 5 business days for both (100% in a cash account, 50% in a margin account).

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42
Q

True or False: Fraud may sometimes be unintentional.

A

False

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43
Q

For an agent to exercise discretion over a client’s account, the client must have signed a ________________________.

A

power of attorney.

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44
Q

True or False: If churning in a client’s account generates large profits, it is not considered a violation.

A

False

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45
Q

BD securities and client securities must be segregated; in other words, they may not be ______________.

A

commingled

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46
Q

John and Sam are continually trading QRS stock between their accounts to cause the price to rise. Is this permitted?

A

No, this prohibited practice is referred to as “painting the tape.”

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47
Q

Sam buys stock on one exchange and shorts it on another at a slightly higher price. Is this permitted?

A

Yes. Sam is engaging in arbitrage.

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48
Q

True or False: Soliciting orders for unregistered, non-exempt securities is prohibited.

A

True

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49
Q

Accepting orders for unregistered, non-exempt securities is allowed if clients attest that the trade was _____________.

A

Accepting orders for unregistered, non-exempt securities is allowed if clients attest that the trade was unsolicited.

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50
Q

True or False: According to the USA, investment advisers may generally charge performance-based fees.

A

False. Unless the Administrator deems the client qualified, performance-based fees are prohibited.

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51
Q

True or False: An IA that has full discretion over a client’s account at a separate BD is considered to have custody.

A

True

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52
Q

An IAR may exercise discretion over a client’s account based on oral authorization from the client for up to _____ days.

A

10

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53
Q

May a cash account be opened without the customer’s signature?

A

Yes

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54
Q

May a margin account be opened without the customer’s signature?

A

No

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55
Q

May an agent execute securities trades for compensation and not record the trades on the BD’s books and records?

A

No. This is referred to as “selling away.”

56
Q

Before an IA may assign a client’s contract to another advisory firm, it must obtain _________________________.

A

the client’s consent.

57
Q

An IA that is also a BD may execute agency cross trades, earning commission on both sides, if one side is ____________.

A

unsolicited.

58
Q

__________________ is the prohibited act of a BD trading for its own account ahead of a customer’s block order.

A

Front-running

59
Q

True or False: It is an unethical practice for a BD to delay the delivery of securities purchased by a customer.

A

True

60
Q

When must BDs provide payment of customer free credit balances resulting from completed transactions?

A

Upon customer request

61
Q

List some important considerations when determining the suitability of recommendations made to customers.

A

Investment objectives, financial situation, risk tolerance, tax status

62
Q

Joe places an order to sell 10,000 shares of ABC whenever it’s best. Is written discretionary authority required?

A

No. Since discretion is limited to time and/or price, written authority is not required.

63
Q

What 3 details must be provided by a client so a BD may accept a discretionary order without written authorization?

A

Action (buy/sell), asset, and amount. Time and/or price may remain the BD’s discretion without written authorization.

64
Q

True or False: The initial transaction in a margin account requires a written margin agreement promptly after the trade.

A

True

65
Q

True or False: Charging an unreasonably high commission is acceptable provided disclosure is made to client.

A

False

66
Q

Transactions should be executed at a price that is reasonably related to the _________________ price.

A

current market

67
Q

May clients of BDs be charged reasonable fees for services performed?

A

Yes, for services such as collection of monies, exchange/transfer, appraisals, safekeeping, or custody

68
Q

What is required of a BD controlled by/affiliated with an issuer of a security being sold to/purchased by a customer?

A

Both oral and written disclosure of the relationship

69
Q

With whom may an agent split commissions?

A

Another agent registered with the same BD, or another BD under common control

70
Q

If a client gives little information when opening an account, what securities may an agent recommend to the client?

A

Only securities that are suitable based on the information the client did provide

71
Q

A firm promises a refund to all clients who invest in an IPO if shares fail to rise 20%. Is this permitted?

A

No. This is unethical since it is considered a guarantee against loss.

72
Q

An IA directs transactions to a BD who rebates 15% of the commissions to the IA for the business. Is this acceptable?

A

Yes, provided the IA provides written disclosure (often in Form ADV) to clients.

73
Q

Does a registered principal approve all orders prior to execution?

A

No. However, the principal is required to review all activity promptly (not in advance).

74
Q

What information is included on an order ticket?

A

Client’s name and account number, price and time of execution, time order is received, entered, and executed

75
Q

May an agent use a new issue prospectus to create a marketing piece and only include positive details about the issue?

A

No. Material provided to clients must include all facts about the issue, not just the positive ones.

76
Q

When selling mutual funds, an agent must adequately disclose the _____________.

A

sales charge.

77
Q

True or False: Promoting the purchase of certain fund shares due to an impending dividend payment is acceptable.

A

False. Selling dividends is prohibited. Since the dividend is imbedded in the share price, there is no monetary benefit.

78
Q

Is it acceptable to recommend that a client sell a mutual fund in order to buy another fund with the same objective?

A

No. This is a prohibited practice and would be considered an unsuitable recommendation.

79
Q

True or False: If a customer receives a prospectus during a solicitation, an agent has provided full and fair disclosure.

A

False. The agent may still have omitted material facts.

80
Q

True or False: Forward-looking statements regarding mutual fund performance may be used when soliciting clients.

A

False. Past performance is not indicative of future results.

81
Q

An agent makes this statement to a client: “Go with us; we’re approved by the Administrator and SEC.” Is it acceptable?

A

No. Neither the SEC nor the Administrator provide approval for securities or securities professionals.

82
Q

According to the USA, all investment advisory contracts must be in __________ form.

A

written

83
Q

Firms must keep client information confidential unless disclosure is authorized by the _______ or a ___________________.

A

client or a regulatory authority.

84
Q

If an adviser has check-writing privileges in a client’s account, does this constitute custody?

A

Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.

85
Q

If an IA maintains custody of a client’s funds or securities, how often must account statements be provided to clients?

A

Statements must be sent quarterly.

86
Q

If an IA maintains custody of client funds, are unannounced audits required?

A

Yes. IAs must arrange for unannounced audits on an annual basis.

87
Q

An IA inadvertently receives client funds/securities and doesn’t return them within 3 business days. Is this custody?

A

Yes

88
Q

True or False: An IA maintaining custody of client assets need not notify the Administrator.

A

False. The Administrator must be notified in writing using Form ADV.

89
Q

When an IA has custody, with whom are the assets held?

A

Assets are held by a qualified custodian. Clients must be notified of custodian’s name, address, and manner of holding.

90
Q

Define “assignment” as it relates to IA contracts.

A

The transfer of ownership of a client’s account from one advisory firm to another. Client consent is required.

91
Q

What may an investment adviser do with full discretion, but not with limited discretion?

A

Withdraw money from the account

92
Q

May an adviser borrow money from a client?

A

Yes, if the client is in the business of lending money, or if the client is an affiliate of the adviser, or is a BD.

93
Q

May an adviser or BD lend money to a client?

A

Yes, if the adviser or BD is in the business of lending money.

94
Q

What is required of an IA that uses third-party research?

A

The IA must disclose the source of the research to its client.

95
Q

Is an adviser required to disclose the source of raw data used to determine the recommendations to its customers?

A

No. Disclosure is not required if the IA’s recommendations are based on its own independent conclusions.

96
Q

May an adviser release account information to the spouse of a client?

A

No, not without the client’s written authorization.

97
Q

Are advisory fees fixed and are they subject to administrative review?

A

Fees are not fixed, but must be in line with other advisers. Fees are subject to administrative review.

98
Q

Under the USA, all IA contracts must be __________ and must disclose __________ provided and related ______.

A

in writing, Services, Fees

99
Q

What is required of an IA if the firm goes through a majority change in ownership?

A

The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.

100
Q

What is required of an IA if there has been a minority change in firm ownership?

A

Provide written notification to clients

101
Q

An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?

A

No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment.

102
Q

How are advisory fees most commonly charged?

A

As a percentage of assets under management over a specific period of time

103
Q

What is needed for a BD to exercise discretion over a client’s account?

A

BDs need prior written authorization.

104
Q

The solicitation of buyers for unregistered, non-exempt securities is _____________.

A

prohibited.

105
Q

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

A

Fraud

106
Q

May an agent share in the profits of a client’s account?

A

Yes, in a joint account with proportionate sharing. Permission is required from both the client and the firm.

107
Q

If an agent has been given time and price discretion on a client order, is written power of attorney required?

A

No. Provided the client determines the action (buy/sell), amount, and asset, power of attorney is not required.

108
Q

In general, does the USA allow an adviser to charge performance-based fees?

A

No. However, such fee arrangements may be permitted by rule or order of the Administrator.

109
Q

If an adviser exercises full discretionary control over a client’s account, does this constitute custody?

A

Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.

110
Q

When does a durable power of attorney become automatically cancelled?

A

Upon the death of the grantor of the POA

111
Q

When does a standard power of attorney become automatically cancelled?

A

Upon either the death of the grantor or declaration of incompetence of the grantor

112
Q

An IA has custody if it inadvertently receives client securities and hasn’t returned them within ____ business days.

A

3

113
Q

What is soft-dollar compensation?

A

Non cash compensation paid by a BD to an IA for directing securities transactions.

114
Q

What forms of soft-dollar compensation are NOT acceptable?

A

Rent, travel expense reimbursement, hardware, furniture, entertainment, meals

115
Q

True or False: Under the Uniform Prudent Investor Act (UPIA), an IA’s main objective should be risk avoidance.

A

False. The UPIA indicates that advisers are responsible for managing risk, not avoiding risk.

116
Q

True or False: Under the UPIA, an adviser should never recommend speculative investments to conservative investors.

A

False. The management of risk is what is important. Investments such as options or commodities may reduce overall risk.

117
Q

What step must an IA complete when faced with a conflict of interest?

A

The conflict must be disclosed to the client. If disclosure is insufficient, the IA must abstain from the action.

118
Q

Identify the acronym: POA

A

Power of Attorney

119
Q

Describe a soft-dollar arrangement between an IA and a BD.

A

An IA directs client transactions to a specific BD in return for research and brokerage services.

120
Q

To be allowed, a soft-dollar arrangement must benefit ____________.

A

the client.

121
Q

Identify some permissible uses of soft-dollar arrangements.

A

Soft dollars are permitted for obtaining research reports, software, and fees for attending conferences/seminars.

122
Q

What are some of the examples of items that cannot be covered by a soft-dollar arrangement?

A

Advertising, travel expense reimbursement, meals and entertainment, and computers

123
Q

True or False: All illegal activities are intentional.

A

False. Some accidental or unintentional actions are considered unethical and, therefore, illegal.

124
Q

You advise a client to buy stock of a company that just fired its CEO. Is disclosure to the client required?

A

Yes, since this is a material fact, it must be disclosed before the customer buys the stock.

125
Q

True or False: An agent must always have reasonable grounds for recommending a particular security.

A

True

126
Q

An agent of a BD lends $5,000 to his brother, is this acceptable?

A

Yes, lending to immediate family members is permissible.

127
Q

Define conversion.

A

The prohibited act of an agent using client funds for personal use.

128
Q

True or False: If an agent disagrees with a customer’s order, he may disregard the order.

A

False. Agents and IARs must follow all customer requests, even those with which they disagree.

129
Q

True or False: If a conflict of interest exists, an IA must always terminate a relationship with a client.

A

alse. An IA must always disclose a conflict, but they don’t necessarily need to end the relationship.

130
Q

True or False: The Administrator may issue an injunction.

A

False. Only a court may issue an injunction, however, the Administrator may issue a cease and desist order.

131
Q

What’s a no load fund?

A

A mutual fund with no front-end sales charge, no deferred sales charge, and no 12b-1 fee exceeding .25% per year.

132
Q

May an IA use testimonials in its promotional material?

A

No

133
Q

Define testimonial.

A

An advertisement in which an individual recommends the IA’s services based on personal experiences with the firm.

134
Q

An newly hired investment adviser representative wants to put the initials “IAR” on her business card. Is this allowed?

A

No. However, she may spell out “Investment Adviser Representative.”

135
Q

May an agent and a client share in an account?

A

Yes, with firm & customer’s approval provided the sharing in gains & losses is proportionate to each party’s investment.

136
Q

To whom are written or electronically-sent grievances (complaints) forwarded?

A

An immediate supervisor

137
Q

good

A

jobba the hut

Series 63 (4 decks)

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