James Blasser Flashcards
1st Kaplan Midterm
Seven years ago, Sarah Smith was convicted of possession of a controlled substance in a state where that violation is considered a felony. Sarah has just filed an application for registration as an agent with Kapco Securities, a registered broker/dealer in a state where that violation is only considered to be a misdemeanor. When viewing this agent’s application, the Administrator will:
A)treat the crime as a financial misdemeanor.
B)censure the broker/dealer for even thinking of employing this individual.
C)treat the crime as any felony.
D)treat the crime as a non-financial misdemeanor.
C) treat the crime as any felony.
You have a client who wishes to allocate a portion of his funds to investment real estate in an attempt to generate additional income. That goal could be reached by investing in any of the following EXCEPT
A)raw land
B)REITs
C)rental real estate
D)real estate limited partnerships
A) Raw l2Eand
Which of the following are characteristics of negotiable jumbo CDs?
1) Issued in amounts of $100,000 to $1 million
2) Typically pay interest on a monthly basis
3) Always mature in 1 to 2 years with a prepayment penalty for early withdrawal
4) Trade in the secondary market
1) Issued in amounts of $100,000 to $1 million
The Uniform Securities Act considers which of the following to be investment advisers subject to registration in the state?
1-An adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only.
2-An adviser with a place of business in the state whose total fee income in the state amounts to $150.
3-An adviser with no place of business in a state who only provides advice on fixed annuities.
4-An adviser with a place of business in the state who only provides advice to open-end investment management companies registered under the Investment Company Act of 1940.
1 and 2
A major stockholder of the XYZ Corporation makes frequent purchases and sales of this stock on the open market to give the impression that it is actively traded. This unethical practice is best described as:
A) front running. B) matched orders. C) positioning. D) pegging.
A)
front running.
Matched orders, or painting the tape, occurs when there is no real change in beneficial ownership. Purchases and sales are offset, but the volume of trading creates the illusion of substantial interest in the stock.
Reference: 1.6.6 in the License Exam Manual
One method used by some analysts to estimate the future value of a stock is the dividend growth model. This model would probably be most useful in the case of a: A) AAA corporate bond. B) cumulative preferred stock. C) large-cap stock. D) small-cap stock.
large-cap stock.
The dividend growth model is a method to value the common stock of a company on the basis of assumed constant growth of dividends in the future. Therefore, it can only be applied to a corporation whose dividends might be expected to increase. It is far more likely that a large-cap stock will be paying dividends than a small-cap. Bonds don’t pay any dividends and, in any event, their interest, just like the dividends on preferred stock, is fixed; there is no growth possible.
Reference: 4.1.9 in the License Exam Manual
Under NASAA’s Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, when may an investment adviser release confidential information about a client?
With the client’s consent.
When the law requires such release.
Never.
With the client’s consent.
When the law requires such release.
Under the Uniform Securities Act, the recordkeeping requirements established by the Administrator for out-of-state investment advisers wishing to register in his state are subject to the limitations of
of the requirements set by the administrator in the advisers home state
of the requirements set by the administrator in the advisers home state.
For state-registered investment advisers, requirements set by the Administrator are subject to the limitations of the requirements set by the Administrator of the adviser’s home state. Covered advisers don’t register in any state, only with the SEC (and come under the SEC’s requirements set forth in the Investment Advisers Act of 1940).
From the date of discovery, how many years is the statute of limitations in place for civil offenses covered under the USA? A) 5 years. B) 1 year. C) 10 years. D) 2 years.
2 years
Under the civil provisions, the statute of limitations extends for two years from the discovery of the offense or three years after the act occurred, whichever comes first.
Under the USA, which of the following fits the definition of a sale?
A) Issuing a prospectus. B) Attempt to dispose of a security for value. C) Solicitation of an offer to buy a security for value. D) Contract to dispose of a security.
Contract to dispose of a security.
In reviewing prospectuses and registration statements, the SEC:
A)
guarantees the adequacy of the disclosures made in a prospectus.
B)
passes on the merits of a particular security covered by a registration statement.
C)
certifies the accuracy of the disclosures made in a prospectus.
D)
does not approve or disapprove of the issue.
D) does not approve or disapprove of the issue.
Nobody Walks Motor Company, a licensed automobile dealer, is running a promotion offering anyone who purchases a car over the weekend to receive a $1,000 corporate bond at no additional cost. Under the Uniform Securities Act, in order to make this offer:
A)
there are no specific requirements as the company is a licensed automobile dealer and, because of the free offer, no sale of securities is involved.
B)
it must be made available to anyone who purchases a car during the specified period.
C)
Nobody Walks Motor Company must be registered as a broker-dealer in the state.
D)
Nobody Walks Motor Company may not pay a commission on the sale of a car to any salesperson who is not registered with the Administrator as an agent.
C)
Nobody Walks Motor Company must be registered as a broker-dealer in the state.
A common stockholder’s rights include all of the following EXCEPT:
A)
preemptive rights.
B)
electing the board of directors.
C)
the right to determine the par value of the stock.
D)
the receipt of dividends if declared by the board of directors.
C)
the right to determine the par value of the stock.
Par value is an accounting decision made by the company when the stock is first issued and is not something voted on by shareholders. Common stockholders are the owners of a corporation. This basic form of ownership entitles them to all of the privileges discussed here. It also allows them to transfer their ownership, inspect company records, vote on corporate objectives, and lay claim to any residual assets in the event of a liquidation.
Reference: 4.1.2 in the License Exam Manual
Under Regulation D, accredited investors in a private placement must meet minimum standards that may include which of the following?
Annual income in excess of $200,000 for at least the last 2 years.
Annual income in excess of $100,000 for at least the last 2 years.
Net worth, excluding the primary residence, in excess of $1 million.
Net worth, excluding the primary residence, in excess of $200,000.
A) I and IV. B) I and III. C) II and IV. D) II and III.
B)
I and III.
Annual income in excess of $200,000 for at least the last 2 years.
Net worth, excluding the primary residence, in excess of $1 million.
The requirement for an accredited investor under the private placement exemption is either a net worth, excluding the primary residence, in excess of $1 million, or annual income in excess of $200,000 in the last 2 years and the same or more income expected this year, or $300,000 for joint incomes.
Which one of the following would NOT be considered a fraudulent or prohibited business practice?
A)
Larger than ordinary commissions without prior disclosure to the client.
B)
Attempting to solicit a trade in unregistered exempt securities with an individual client.
C)
Submitting a trade order for a potential client who has promised that the new account would be opened tomorrow.
D)
Omitting a material fact because the agent felt the client would not understand the information involved.
B) Attempting to solicit a trade in unregistered exempt securities with an individual client.
Even though the security is unregistered, because it is exempt, no registration is required. Material information must be disclosed, even if the client doesn’t understand its meaning. No trades can take place until an account is opened, and although there are circumstances that permit larger than ordinary commissions, that fact must be disclosed to the client.
Reference: 2.6 in the License Exam Manual
Under the Investment Advisers Act of 1940, an investment adviser would be prohibited from engaging in which of the following practices, even if disclosed in writing to the customer?
A)
Putting the adviser’s own interests before those of the customer.
B)
Providing advice to the customer and receiving compensation for the resulting sale of products.
C)
Using advice she provides to customers regarding securities transactions as a basis for her own investment account trades.
D)
Employment with a broker-dealer and also serving as an investment adviser.
A)
Putting the adviser’s own interests before those of the customer.
Under the USA, which of the following statements regarding the withdrawal of registration is TRUE?
The withdrawal automatically becomes effective 90 days after filing.
If disciplinary action is initiated within 30 days after filing, the automatic effective date may be delayed.
The Administrator may institute disciplinary proceedings within one year after the effective date of the withdrawal.
A) II and III. B) I and II. C) I and III. D) I, II and III.
C)
I and III
The withdrawal automatically becomes effective 90 days after filing;
The Administrator may institute disciplinary proceedings within one year after the effective date of the withdrawal.
Which of the following investment advisers would be permitted to use the term “investment counsel”?
A)
A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice.
B)
A professional providing a market timing service with an annual subscription fee of $995; this service attempts to maximize profits by suggesting entry and exit points for over 100 listed stocks.
C)
An investment adviser who has been admitted to the bar in the state in which the firm’s principal office is located.
D)
A firm whose exclusive business is placing clients’ assets into model portfolios.
D)
A firm whose exclusive business is placing clients’ assets into model portfolios.
To use the term “investment counsel”, two criteria must be met. First, the principal business of the adviser must be the rendering of investment advice. Second, the nature of the advice must meet the definition of investment supervisory service. That means giving continuous investment advice to clients based on their individual needs. That is frequently accomplished by selecting model portfolios most appropriate to the client’s needs. The financial planner clearly is not principally in the business of offering investment advice because he describes his service as offering a wide range of services, of which advice is only a part. The exam frequently uses that wording to indicate that advice is not the principal activity. While the publisher’s principal business activity may be offering advice, nothing about the description indicates that individual client accounts are being monitored.
When a security is being registered under coordination, all of the following are required EXCEPT:
A)
payment of the appropriate fee.
B)
filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC.
C)
a description of the proposed use of the proceeds of the underwriting.
D)
prompt filing with the Administrator of any amendments filed with the SEC.
B)
filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC.
The statement of the maximum and minimum proposed offering prices and the maximum underwriting compensation must be filed at least two full business days before the effective date, not with the initial filing.
Reference: 2.7.2 in the License Exam Manual
ABC Combination Fund has dual objectives of capital appreciation and current income. Last year, the fund paid quarterly dividends of $.25 per share and capital gains of $.10 per share. The annualized growth rate of the fund was 15%. The current net asset value (NAV) of the fund is $28.50 and the current public offering price (POP) is $30. Advertising and sales literature of the fund may report the fund’s current yield to be:
A) 3.85%. B) 27.20%. C) 83%. D) 3.33%.
D)
3.33%.
The current yield on mutual funds is calculated by dividing the annualized yield ($.25 × 4 = $1) by the POP. In this case, $1 ÷ $30 = .0333 × 100 = 3.33%. In calculating the current yield, the law prohibits the inclusion of capital gains and growth.
Reference: 1.10.14.1 in the License Exam Manual
Under the USA, a state securities Administrator can:
start an investigation against a registrant even if a violation has not yet occurred
A)
I and II.
B)
II and III.
C)
II and IV.
D)
I and III..
start an investigation against a registrant even if a violation has not yet occurred.
subpoena witnesses living in the Administrator’s state only.
subpoena witnesses living outside the state.
begin an investigation only after a violation of the act has occurred.
I and III..
start an investigation against a registrant even if a violation has not yet occurred.
begin an investigation only after a violation of the act has occurred.
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT
A) account inactivity fee B) issuance of a stock certificate C) advisory fees D) charges for late payments
C) Advisory fee
There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:
commissions;
markups and markdowns; and
advisory fees for those firms that are also registered as investment advisers.
If an investor bought stock on one exchange and sold it at a higher price on another exchange, this practice constitutes a(n):
A) offense punishable by three years in the county jail. B) perfectly acceptable market arbitrage. C) violation under both the Uniform Securities Act and federal law. D) violation of the Uniform Securities Act.
B)
perfectly acceptable market arbitrage.
This common practice is perfectly acceptable. Arbitrage is the practice of buying on one exchange and selling on another to take advantage of market disparities.
XYZ Securities is a broker-dealer based in Wisconsin with offices in no other state. In addition to its Wisconsin clients, XYZ has 30 retail customers living in Illinois. During the winter, if 10 existing customers vacation in Florida for up to 7 weeks at a time, XYZ Securities is a broker-dealer in:
A) Wisconsin only. B) all states having enacted the USA. C) Wisconsin, Illinois, and Florida. D) Wisconsin and Illinois.
D) Wisconsin and Illinois.
Under the USA, XYZ Securities is a broker-dealer in Wisconsin because it maintains an office there. XYZ Securities is also a broker-dealer in Illinois because with 30 Illinois retail (non-institutional) customers, registration is required even if there is no physical office in Illinois. Because none of XYZ’s clients has taken up residence in Florida, such clients are transients rather than residents. Thus, XYZ Securities is not a broker-dealer in Florida subject to the state’s registration requirements.
Reference: 2.3.1.1.1 in the License Exam Manual
Sam wants to start his own registered investment adviser firm, independent of the brokerage firm where he is registered as an agent. He plans to provide financial planning services, which will include investment advice as an integral part of his business. Sam must:
file with either the state securities Administrator or with the Securities Exchange Commission as a registered investment adviser by filing the appropriate Form ADV.
file Form ADV with his current brokerage firm.
notify his current brokerage firm and receive permission to operate independently from the firm as a registered investment adviser.
do nothing and begin performing investment advisory services without regard to his current brokerage firm
A) II and IV. B) I and III. C) II and III. D) I and IV.
B) I and III.
Any registered person acting on behalf of a brokerage firm must receive that firm’s permission to act as a registered investment adviser apart from the control of the brokerage firm. A brokerage firm may deny a registered person’s ability to start his own advisory firm if the brokerage firm deems it to be a conflict of interest. An individual or a firm can start a registered investment adviser firm by filing an ADV form with the state or with the SEC. A person working for a registered investment adviser would have to pass either a Series 65 or Series 66 exam to become a registered investment adviser representative. It is important to recognize the difference between the firm (the registered investment adviser) and the person working for the firm in giving investment advice (the registered investment adviser representative).
The Uniform Securities Act invests the Administrator with many powers over the activities of agents and broker-dealers. Which of the following actions does NOT fall within the Administrator’s powers?
A)
Issuing subpoenas to persons residing outside the Administrator’s state.
B)
Conducting investigations of broker-dealers residing outside the Administrator’s state.
C)
Suspending an agent’s registration without an opportunity for a hearing.
D)
Issuing cease and desist orders without a hearing.
C) Suspending an agent’s registration without an opportunity for a hearing.
Under the USA, no suspension or revocation may take place without an opportunity for a hearing.
