STC Cards Flashcards
Does SIPC protect separate customers or separate accounts?
Separate customers. A customer with both a cash and margin account with a BD would be covered once.
True or False: Jim’s joint account with his wife is considered a separate customer by SIPC.
True. E.g. Jim’s cash and margin account are combined for coverage, but Jim’s joint account with his spouse is separate.
If a BD goes bankrupt, what happens to securities registered in the customer’s name?
They are returned to the customer without regard to SIPC limitations.
The Securities Act of 1933 regulates _____________.
The Securities Act of 1933 regulates new issues.
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
True or False: The SEC judges an offering’s investment merit and provides approval.
FALSE
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
Though some securities are exempt from registration, nothing is exempt from the anti-fraud provisions of the Act.
What are the justifiable reasons for denying an individual’s registration?
Conviction for any felony or securities-related misdemeanor within the last 10 years
True or False: An American Depositary Receipt (ADR) is a security.
TRUE
Is an option on a commodity futures contract a security?
Yes. The futures contract is not, but the option is a security. Options could be based on an equity, index, or currency.
Would an interest in a real estate condominium development be considered a security?
Yes
True or False: Precious metals are not considered securities.
TRUE
Is a voting trust certificate a security?
Yes
Is a Keogh plan considered a security?
No, but Keogh plan participation is considered a security.
Is an investment interest in livestock considered a security?
Yes
Is a certificate of interest in a mining lease a security?
Yes
Is a fixed annuity a security?
No, but variable contracts (e.g., variable annuities or variable life insurance) are considered securities.
Is an endowment life insurance policy a security?
No
Is a variable life insurance policy a security?
Yes, but a term or universal life insurance policy is not considered a security.
Is a universal life insurance policy considered a security?
No
Is Keogh plan participation considered a security?
Yes, but the Keogh plan itself is not a security.
Is a 401(k) plan considered a security?
No
Is treasury stock considered a security?
Yes. Treasury stock is stock that was issued and subsequently repurchased by the company.
Is a debenture considered a security?
Yes. A debenture is an unsecured corporate bond.
Is a preemptive right considered a security?
Yes
Is a warrant a security?
Yes. Warrants are financial instruments that allow investors to acquire stock at a preset price.
Is a preorganization certificate considered a security?
Yes
Is an IRA account considered a security?
No
Is a futures contract considered a security?
No, but an option on a futures contract is a security.
Is a multi-level distributorship considered a security?
Yes
Is a limited partnership a security?
Yes
Is an interest in oil and gas drilling program considered a security?
Yes
Is a whiskey warehouse receipt considered a security?
Yes
Is a firm that has an office in a state, but only deals with institutional clients in the state, considered a BD?
Yes, because the firm established an office in the state.
Is a bank whose trust department occasionally executes securities transactions considered a BD?
No. Banks are excluded from the BD definition.
If a corporation raises capital by selling new shares of its stock to the public, is it considered a BD?
No. The corporation is an issuer and issuers are excluded from the BD definition.
Is a bank holding company that occasionally executes securities transactions considered a BD?
Yes. Bank holding companies are not excluded from the BD definition.
Is a firm with no office in a state that only deals with institutional clients in the state considered a BD?
No. The firm is excluded from the BD definition.
Is a firm with no office in Ohio that effects trades in Ohio with 6 clients residing in Iowa considered a BD?
No. The firm is excluded from the BD definition in OH (no office in OH and only deals with existing Iowa clients).
Is an individual who represents a BD in the sale of Treasury bonds considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is a sales assistant for a BD who accepts unsolicited orders from clients considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents an issuer in the sale of municipal bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents the issuer of a private placement considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents a BD in the sale of municipal bond considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents the issuer in the sale of Treasury bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents a BD in the sale of a private placement considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents a bank in the sale of the bank’s stock considered an agent?
No, since the individual is representing the issuer in the sale of exempt securities.
Is an individual who represents a BD in the sale of a bank’s stock considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents a BD in the sale of stock to a bank considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents an issuer in the sale of stock to a bank considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents an issuer in the sale of the issuer’s stock to its underwriter considered an agent?
No, since the individual is involved in an exempt transaction.
Is Jim an agent if he works in ABC’s retirement dept. and, once a year, places ABC stock in employees’ accounts?
No, Jim is representing the issuer in an exempt transaction.
Is a certified public accountant who provides tax advice considered an IA under the USA?
No, CPAs are excluded from the IA definition.
True or False: A publisher of a financial magazine is considered an IA under the USA.
False. Publishers of newspapers/magazines are excluded from the IA definition.
Is an organization that provides ratings of securities and is nationally known considered an IA under the USA?
No
Is an attorney who exclusively provides estate planning services considered an IA under the USA?
No. Provided the attorney’s advice is incidental to his profession, he is excluded from the IA definition.
True or False: A BD who promotes wrap accounts to its clients would have to register as an IA under the USA.
True. Since the wrap account involves management, the BD must register as an IA.
True or False: A BD making recommendations about investing in various securities is an IA under the USA.
False. Since the BD is not charging a fee for the advice, it is excluded from the IA definition.
True or False: According to the USA, a BD providing asset allocation plans to its clients for a fee is an IA.
True. Since the BD is receiving specific compensation for its advice, it is considered an IA.
True or False: The USA defines a bank providing investment recommendations to its clients as an IA.
False. Banks are excluded from the IA definition.
True or False: A firm producing investment research for BDs to deliver to clients is considered an IA under the USA.
True. Since advice is being provided, as a business, and compensation is received, the ABC test is met.
True or False: The USA classifies an agent of a BD who also manages wrap accounts as an IA.
No. IAs are firms, not individuals.
Is an adviser to a mutual fund considered an IA under the USA?
No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.
True or False: An adviser to a mutual fund would register in the state where the fund is domiciled.
False. The IA must be registered with the SEC, not a state.
True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.
False. The CEO would be considered an IAR, not an IA.
Is an employee of a securities firm who manages accounts for a fee considered an IAR?
Yes
Is an employee of a BD who solicits new customers for an IA considered an IAR?
Yes. Anyone who solicits investment advisory service is considered an IAR.
True or False: An agent for a BD who solicits client trades would not be considered an IAR under the USA.
True. There is no indication that the agent is managing accounts and charging a fee.
Idividuals employed by an IA who only perform ____________________ duties are excluded from registration under the USA.
Individuals employed by an IA who only perform clerical/ministerial duties are excluded from registration under the USA.
An individual employed by an IA to manage the research dept. would be required to register as an ______ under the USA.
An individual employed by an IA to manage the research dept. would be required to register as an IAR under the USA.
Is an employee of an IA who answers the telephone and does clerical work considered an IAR?
No
True or False: Securities issued by provinces and municipalities of Canada are subject to state registration.
False. Securities issued by Canadian provinces or municipalities are exempt from registration.
Are bonds issued by the City of New York exempt from state registration?
Yes
True or False: Securities issued by the states and municipalities of Mexico are exempt from registration under the USA.
True. An exemption is provided to securities issued by foreign governments with whom the U.S. has diplomatic relations.
Securities issued by any government with whom the U.S. has _____________ relations are exempt from state registration.
Securities issued by any government with whom the U.S. has diplomatic relations are exempt from state registration.
True or False: Securities issued by the U.S. Treasury and U.S. agencies are deemed exempt securities under the USA.
TRUE
________ issued by insurance companies are exempt from state registration.
Bonds issued by insurance companies are exempt from state registration.
List some securities that are considered federal covered and exempt from registration.
Those listed on national exchanges (NYSE, AMEX, NASDAQ) and investment company securities (e.g., mutual fund shares)
True or False: Securities of a Canadian company, but listed on the NYSE, are exempt from state registration.
TRUE
Are bonds issued by a charitable organization subject to state registration?
No. Securities issued by non-profit organizations are exempt from registration.
What criteria must be met for commercial paper to be exempt from registration?
A 270-day maximum life, minimum denomination of $50,000, rated in one of the top-three categories according to an NRSRO
An executor of an estate sells a block of securities that are not registered. Is this a violation?
No. This is an example of an exempt transaction.
Would securities that are traded on the Toronto Stock Exchange be subject to state registration requirements?
No. These secondary market transactions are considered exempt from registration according to the USA.
True or False: Bankers’ Acceptances rated AAA, maturing in 6-months, and issued in $25,000 denominations are exempt
False. Because the BAs were not issued in at least $50,000 denominations, registration is required.
Is a private placement defined as an exempt transaction or as an exempt security under the USA?
Exempt transaction
Under the USA, private placements are exempt if securities are offered to ____ or fewer retail clients over ____ months.
Under the USA, private placements are exempt if securities are offered to 10 or fewer retail clients over 12 months.
What does the USA consider a security issued by an investment company that is registered under the Inv. Co. Act of 1940?
The securities are considered federal covered.
True or False: Agents selling unregistered, non-exempt securities to banks and trust companies are violating the USA.
False. Transactions with banks and trust companies are considered exempt transactions.
If a Nasdaq stock trades in the secondary market, does the USA consider it an exempt security or exempt transaction?
Exempt security
Are securities traded on the OTCBB or the Pink Sheets exempt?
No
True or False: Bonds issued by a railroad are exempt from state registration.
True. Securities issued by a railroad, common carrier, or public utility are exempt at the state level.
Are securities issued by a software company exempt from state registration?
No
True or False: According to the USA, debt issued by a fraternal organization would NOT be considered exempt.
False. Securities issued by non-profit organizations are exempt from state registration.
Non-issuer trading of securities subject to reporting requirements of the Act of 1934 are _________ transactions.
Non-issuer trading of securities subject to reporting requirements of the Act of 1934 are exempt transactions.
True or False: Occasional, secondary market transactions in an OTCBB stock are considered exempt transactions.
False. Only non-recurring secondary market transactions are considered exempt transactions.
Is an isolated, non-recurring, non-issuer transaction in OTCBB or Pink Sheets stock subject to registration?
No. It is considered an exempt transaction.
Is an unsolicited, non-issuer transaction in an OTC stock exempt from state registration?
Yes, because it is unsolicited.
True or False: The sale of securities to a pension plan is considered an exempt transaction under the USA.
TRUE
Registration by Filing (Notification) requires issuers to be in business at least _____ months preceding registration.
Registration by Filing (Notification) requires issuers to be in business at least 36 months preceding registration.
An intra-state offering would use which method of state securities registration?
Qualification
What method of state securities registration requires issuers to wait to hear from the Administrator before selling?
Qualification
To use Filing (Notification) to register stock, the offering price must be at least $______ per share.
To use Filing (Notification) to register stock, the offering price must be at least $5.00 per share.
Registration by Filing (Notification) requires that the underwriting commission be no more than _____%.
Registration by Filing (Notification) requires that the underwriting commission be no more than 10%.
Registration by Coordination has a minimum cooling-off period of _____ days.
Registration by Coordination has a minimum cooling-off period of 10 days.
Which method of state securities registration would likely be used for an IPO being offered in several states?
Coordination
Registration by Coordination requires issuers to meet requirements of the USA as well as what other Act?
The Securities Act of 1933
An electronic system used to register investment advisers is called ___________________________________________.
An electronic system used to register investment advisers is called Investment Adviser Registration Depository (IARD).
True or False: A Consent to Service of Process is an example of an exculpatory clause.
False. Exculpatory clauses are waivers absolving agents from wrongdoing. The waivers are null and void under the USA.
A surety bond may be required if an investment adviser has _____________ or __________ of client assets.
A surety bond may be required if an investment adviser has discretion or custody of client assets.
In place of a surety bond, the Administrator will accept a deposit of _______ or _____________.
In place of a surety bond, the Administrator will accept a deposit of cash or securities.
True or False: A Consent to Service of Process must be filed by BDs, but not their agents.
False. A Consent to Service of Process is required of all registrants.
True or False: A successor advisory firm must pay a new filing fee, but need not file a new application.
False. The successor firm must update its application, but not pay a new filing fee.
The application for registration of an agent or IAR becomes effective in _____ days.
The application for registration of an agent or IAR becomes effective in 30 days.
The application for withdrawal of registration of an agent or IAR becomes effective in _____ days.
The application for withdrawal of registration of an agent or IAR becomes effective in 30 days.
BD records must be kept for at least ____ years.
BD records must be kept for at least 3 years.
IA records must be kept for at least ____ years.
IA records must be kept for at least 5 years.
True or False: A state may require a registration fee from the issuer of a Nasdaq security.
False. Nasdaq securities are federal covered securities.
True or False: A state may require notice filing by an issuer of an NYSE security.
True. Notice filing is the requirement to provide the state with the same information that was filed with the SEC.
True or False: An Administrator may not require a sales report from the issuer of an OTC security.
FALSE
What form is used to notify Administrators that an IA is maintaining custody of client assets?
Form ADV
What document, regularly provided to clients, will IAs use to notify clients of the location of their securities?
The client’s account statement
Investment advisers with custody must have an annual audit done by a(n) ____________________.
Investment advisers with custody must have an annual audit done by a(n) independent CPA.
If a BD’s net capital falls below the required minimum, it must notify the Administrator within ___ business day(s).
If a BD’s net capital falls below the required minimum, it must notify the Administrator within 1 business day.
If an IA has custody or discretion, it must include a _________________ with their Form ADV and brochure.
If an IA has custody or discretion, it must include a balance sheet with their Form ADV and brochure.
True or False: An agent whose client moves to a new state may not contact the client until registered in the new state.
False. The agent may engage in transactions with the client for 60 days if registration is pending in the new state.
May an agent whose client is visiting another state sell securities to the client without being registered in the state?
Yes, provided the client is in the state temporarily.
True or False: Canadian agents are not permitted to effect trades with existing Canadian clients temporarily in the U.S.
False. Provided the relationship with the client existed prior to entering the U.S., trades may be effected.
An IAR has an office in State A and has 4 clients who reside in the state. Is the IAR required to register in State A?
Yes, since the IAR has an office in State A. The client number is not relevant because of the office location.
An IAR of a federal covered adviser has an office in State B with 4 clients who live in State B. Where must he register?
He must register in State B since he has an office in the state. The number of clients is not relevant.
An IAR has no place of business in State A, but has 6 or more individual clients in State A. Where must she register?
She must register in any state where she has 6 or more individual clients (even if she has no office in the state).
An IAR of a federal covered adviser has no office in NY, but has 6 or more clients living in NY. Must he register in NY?
No. IARs of federal covered advisers are only required to register in states in which they have an office.
An IAR of a state-registered IA has no office in NJ, but has 6 or more clients living in NJ. Must she register in NJ?
Yes. IARs of state-regulated IAs register where they have an office and where they have 6 or more individual clients.
An agent whose registration has been revoked must be granted a hearing, if requested, within _____ days of the request.
An agent whose registration has been revoked must be granted a hearing, if requested, within 15 days of the request.
If an agent has withdrawn registration, the Administrator may still take action for ___ year(s) after the withdrawal.
If an agent has withdrawn registration, the Administrator may still take action for 1 year after the withdrawal.
Define an investment contract (according to the Howey Test).
An investment of money, in a common enterprise, with expectation of a profit due to efforts of third-party management.
A prospectus mailed by an agent in one state to a client in another state is considered an offer in which state(s)?
Both states
True or False: A gift of assessable stock is considered both an offer and sale.
TRUE
True or False: A gift of non-assessable stock is considered both an offer and sale.
FALSE
Is the payment of a stock dividend considered an offer or sale?
No
Is the conversion of a bond into stock considered an offer or sale?
No
If shares of stock are freely given with the purchase of a bond, is this considered an offer and sale?
Yes
True or False: An Administrator may issue a cease-and-desist order before a violation has occurred.
TRUE
True or False: An Administrator may issue an injunction.
False. An injunction may only by issued by a court.
Under the Uniform Securities Act, the statute of limitations for fraud is ____ years.
Under the Uniform Securities Act, the statute of limitations for fraud is 5 years.
The statute of limitations for criminal violations of the Uniform Securities Act is ____ years.
The statute of limitations for criminal violations of the Uniform Securities Act is 5 years.
Statue of limitations for USA civil violations is ____ yrs. of occurrence or ____ yrs. of discovery, whichever is first.
Statue of limitations for USA civil violations is 3 yrs. of occurrence or 2 yrs. of discovery, whichever is first.
Maximum criminal penalties under the USA are a $________ fine and/or ____ years in prison.
Maximum criminal penalties under the USA are a $5,000 fine and/or 3 years in prison.
May an Administrator enter other states to investigate potential violations that occurred in his own state?
Yes, the Administrator has broad inspectorial power, which stretches beyond his own state.
True or False: The Uniform Securities Act is exactly the same law in every state.
False. The USA is a model law, not the actual law of any state.
_______________________________________________________ is an organization consisting of state Administrators.
The North American Securities Administrators Association (NASAA) is an organization consisting of state Administrators.
True or False: Securities issued by registered investment companies are considered federal covered securities.
TRUE
True or False: Securities traded on the NYSE may be required to pay a registration fee to a state Administrator.
FALSE
Administrative cease-and-desist orders may be appealed in a state court if application is made within _____ days.
Administrative cease-and-desist orders may be appealed in a state court if application is made within 60 days.
Next week ABC plans to announce its earnings. If ABC’s CEO wants to sell some of her shares now, is the sale restricted?
Yes. Insiders are required to wait until an earnings report is released publicly before selling shares.
After receiving an effective date, what information may an issuer change by amending its registration statement?
The number of shares being offered. A new registration is required to change offering price or underwriter compensation.
The Telephone Consumer Protection Act (TCPA) allows calls from ________ to ________ local time of the called party.
The Telephone Consumer Protection Act (TCPA) allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.
A BD located and licensed in Canada may contact what types of individuals in the U.S.?
Existing clients who are temporarily in the U.S.
Identify 2 significant creations that are credited to the National Securities Markets Improvement Act (NSMIA).
Federal Covered Advisers and Federal Covered Securities
The ________________ is responsible for administering and enforcing the securities laws of a state.
The Administrator is responsible for administering and enforcing the securities laws of a state.
According to the USA, who is included under the term “person?”
Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships
In state law, individuals representing BDs in effecting securities transactions are referred to as ________.
In state law, individuals representing BDs or issuers in effecting securities transactions are referred to as agents.
True or False: In state law, individuals representing issuers in effecting securities trades are ALWAYS deemed agents.
False. Individuals are not deemed agents if representing issuers of exempt securities or effecting exempt transactions.
What restrictions exist in describing a fund as no-load?
It may have no front-end or deferred sales charge, and a 12b-1 fee may not exceed .25%.
List some of the exclusions from the definition of a BD.
Agent, issuer, bank, or a BD with no office in the state that only deals with institutions or its existing clients
What type of advice may lawyers, accountants, teachers and engineers provide and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
List the 4 categories of professionals who are excluded from the IA definition.
Lawyers, accountants, teachers, and engineers (remember L A T E)
An ________ is any attempt or solicitation to acquire or dispose of a security for value.
An offer is any attempt or solicitation to acquire or dispose of a security for value.
A _______ is any agreement or contract to dispose of a security for value.
A sale is any agreement or contract to dispose of a security for value.
Regarding federal covered securities, may an Administrator cancel a registration?
No
Regarding federal covered securities, may an Administrator prohibit the sale of the security in his state?
No
Regarding federal covered securities, may an Administrator require the issuer to complete the notice filing?
Yes. Notice filing is the process by which information filed with the SEC is also filed/shared with the Administrator.
True or False: Registration may be denied due to ANY misdemeanor convictions.
False. Registration may be denied for ANY felony conviction or securities-related misdemeanor conviction.
How may the failure to pay the proper filing fee be corrected?
By paying the appropriate amount
May the Administrator set minimum net capital requirements for BDs?
Yes, but the requirement on BDs may not exceed the federal (SEC) requirement.
Is there a limit to the amount of net capital the Administrator may require of a BD?
Yes. The Administrator may not set a requirement that exceeds the federal (SEC) requirement.
May the Administrator set minimum net worth requirements for IAs?
Yes, but no state may impose a requirement that exceeds the requirement of the IA’s home state.
May federal covered adviser’s books and records be subject to inspection by an Administrator?
Yes
True or False: An administrator may cancel a registration without the opportunity for a hearing.
True. Cancellation may be due to the death of an agent, or a firm no longer being in business.
If a cease-and-desist order is issued against an agent, the agent must file an appeal within _____ days.
If a cease-and-desist order is issued against an agent, the agent must file an appeal within 60 days.
If an appeal has been filed by an agent, does the appeal lift (suspend) the order?
No
True or False: A client who receives a letter of rescission after selling the security may still initiate civil action.
TRUE
If an offer is made using television or radio, where is the offer considered to have been made?
In the state in which the broadcast or telecast originated
If an offer is made using the mail, where is the offer considered to have been made?
In the state from which it originated and the state to which it is directed
True or False: Offers made in a newspaper are deemed to have been made in any state in which the paper is circulated.
False. With newspapers, the offer is only considered to be made in the state in which it is published.
With newspaper offers, no offer is made if more than __________ of the circulation is outside of the publishing state.
With newspaper offers, no offer is made if more than two-thirds of the circulation is outside of the publishing state.
As it applies to persons and securities, what does the term “exemption” mean in the USA?
Exemption signifies that a person or security is not subject to registration under the USA.
As it applies to a BD or IA, what does the term “exclusion” mean in the USA?
Exclusion signifies that a person does not meet the definition of a BD or IA in the state.
A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.
A securities firm that executes trades for its own account or the accounts of others is deemed a broker-dealer (BD).
Who manages accounts, solicits services, or makes recommendations on behalf of a registered investment adviser?
An investment adviser representative (IAR)
What are the 3 components that must be met for a firm to be defined as an IA?
1) Provide advice regarding securities, 2) Do so as a business 3) Receive specific compensation (the ABC test)
A _________ bond is posted to cover the potential costs of legal action taken against certain persons.
A surety bond is posted to cover the potential costs of legal action taken against certain persons.
An individual who represents an issuer in selling registered, non-exempt securities for compensation is an ________.
An individual who represents an issuer in selling registered, non-exempt securities for compensation is an agent.
An ___________________________________ is to an investment adviser what an ________ is to a BD.
An investment adviser representative (IAR) is to an investment adviser what an agent is to a BD.
Identify who IS NOT considered a person under the USA.
Minors, incompetents, securities, and the deceased
True or False: A gift of assessable stock would not be considered a sale.
False. A gift of assessable stock is considered both an offer and a sale and is regulated by the USA.
True or False: The tendering of a convertible bond is considered a sale according to the USA.
FALSE
True or False: Variable annuities are not securities and are, therefore, not subject to registration.
False. Any variable products are considered securities. However, fixed insurance products are not securities.
True or False: IRAs and Keogh plans are considered securities.
False. The participation in these plans (what goes in the plan) is considered a security, but the plan itself is NOT.
True or False: Options on commodities are securities.
True. Options are always considered securities (e.g., options on futures, a currency, an index, or equities).
May an agent continue to do business in a state if his BD has gone out of business?
No. An agent’s registration is only in effect while associated with a BD or issuer.
When an agent ends her association with a BD, who must notify the Administrator?
Both the agent and the BD
True or False: A partner, officer, or director of a BD is always considered an agent of the BD
False. A partner, officer, or director is an agent of the BD if she is involved in the purchase/sale of securities.
If a BD is not registered in a state, may an agent of the BD do business in the state without being registered there?
Yes, if the agent is dealing with an existing client that is temporarily in the state.
If a client moves to a new state, may the agent continue to do business while applying for registration in the state?
Yes, as long as the agent is registered in at least one other state and is not subject to disqualification.
A client of a Canadian BD is visiting the U.S. May the agent do business with her without registering in the state?
Yes. Since she is an existing client of the Canadian BD, business may continue in the state.
May an agent of a BD located in Mexico do business with a client in the U.S. without registering in the state?
No. BDs of Mexico are required to register in the U.S. to effect securities transactions in a state.
When does the de minimis exemption from registration apply for an IA that has no place of business in a state?
When an IA has no more than 5 non-institutional clients in the state in the previous 12 months
Does the de minimis exemption apply to investment adviser representatives?
Yes
Does the de minimis exemption apply to BDs that have no place of business in a state?
No. The de minimis exemption only applies to IAs and IARs.
IAs with no place of business in a state, and whose clients are ____________ are not required to register in that state.
IAs with no place of business in a state, and whose clients are institutions are not required to register in that state.
List some of the different types of institutional clients.
IAs, BDs, investment, insurance, or trust companies, banks, savings and loan associations, and pension plans
What is the purpose of a Consent to Service of Process?
To appoint the Administrator as the applicant’s attorney to receive and process any non-criminal legal complaints
Who must sign a Consent to Service of Process?
Any issuer, BD, IA, IAR, or agent initially registering to engage in business within a state
Must the Consent to Service of Process be renewed each year?
No. It is only required at initial registration.
State registration remains in effect for ___ year(s).
State registration remains in effect for 1 year.
State registration expires annually on ______________.
State registration expires annually on December 31.
When does state registration become effective?
At noon on the 30th day after filing an application, provided there are no proceedings pending
What requirements may states impose on IAs that are registered with the SEC?
- File with the state any documents that were filed with SEC, 2. File Consent to Service of Process, 3. Pay state fees
If a BD is registered with the SEC, is registration required in any state in which it intends to do business?
Yes. There are no exemptions from registration in the state as a BD.
If an IA is registered with the SEC, is registration required in any state in which it intends to do business?
No. The National Securities Markets Improvement Act (NSMIA) exempts federal covered advisers from state registration.
Is being charged with a felony or securities-related misdemeanor grounds for statutory disqualification?
No. Statutory disqualification includes conviction for any felony or securities-related misdemeanor in the past 10 yrs.
When may the Administrator cancel a registrant’s registration?
If the registrant has died, ceased doing business, been declared mentally incompetent or cannot be located
Regardless of assets under management, IAs must register with the SEC if any client is a ______________________________.
Regardless of assets under management, IAs must register with the SEC if any client is a registered investment company.
Under the USA, the de minimis exemption limits an IA to no more than ____ clients within the previous _____ months.
Under the USA, the de minimis exemption limits an IA to no more than 5 clients within the previous 12 months.
True or False: A stock dividend is considered a sale.
FALSE
True or False: The exercise of convertible securities would constitute a sale under the USA.
FALSE
True or False: A warrant attached to the sale of a bond would constitute a sale of the warrant.
TRUE
True or False: Two friends, anticipating a rise in value, purchase property. The property is considered a security.
FALSE
Identify the three forms of state securities registration.
Notification (filing), coordination, qualification
How would a well-established corporation register a subsequent offering to be sold in multiple states?
Notification (filing)
True or False: Paperwork related to coordination is filed with the Administrator at the same time as the SEC filing.
False. Registration will become effective simultaneously with SEC registration, but need not be filed at the same time.
What is the minimum cooling-off period for registration by notification?
5 days
Do the anti-fraud provisions of the USA apply to exempt securities?
Yes. Nothing is exempt from fraud.
True or False: A trade of unregistered, non-exempt securities between two BDs would be a violation of the USA.
False. This is an exempt transaction.
True or False: If a BD registers in a state on March 3, it must pay a registration fee for the full year.
TRUE
The rule governing the disclosure requirement of an IA to its clients is called the __________ Rule.
The rule governing the disclosure requirement of an IA to its clients is called the Brochure Rule.
May the Administrator levy fines on a registrant?
No
May the Administrator initiate criminal or civil liability action against a registrant?
Yes
If a firm meets the BD definition in the state, are there any exemptions from registration under the USA?
No. Firms that meet the BD definition are required to register in the state.
If an IA meets the IA definition in a state, are there any exemptions from registration under the USA?
Yes, no office in the state and a) its clients are institutions or b) 5 or fewer retail clients in the last 12 months
Is there an exemption for agents conducting business in a state? If so, what are the guidelines?
Yes, no place of business in state and a client visits the state or existing client moves to the state (regist. pending)
Is there a registration exemption for IARs doing business in a state if employed by an IA registered in another state?
Yes, if the IAR has no office in the state and has 5 or fewer retail clients in the state in the past 12 months.
When will an offer fall under an Administrator’s jurisdiction?
If the offer originated in, was directed in, or was accepted in the Administrator’s state
If the Administrator believes a person has violated or is about to violate the USA, may a stop order be issued?
Yes
Does the Administrator require proof of wrongdoing to initiate an investigation?
No, but she does need to be able to refer to a rule or order when starting the investigation.
When conducting an investigation of wrongdoing, is the Administrator limited to state boundaries?
No. The Administrator may subpoena books, records, and witnesses from inside and outside the state.
If found civilly liable for violating the USA, what is the penalty?
The original amount paid, plus the legal rate of interest, attorney fees, and court costs, minus any cash received
Under the USA, are banks and bank holding companies excluded from the IA definition?
No. Banks, savings institutions and trust companies are excluded, but bank holding companies are not.
For how long does the registration of a state-registered adviser remain in effect?
Until December 31, unless renewed by the adviser
Who is the official that monitors and administers a state’s securities laws?
The Administrator or Commissioner
The USA refers to an individual who represents a BD in the sale of securities as an ________.
The USA refers to an individual that represents a BD in the sale of securities as an agent.
Identify who is considered a person under the USA.
Business entities, issuers, estates, governments, individuals (e.g., clients, IARs and agents)
Is there a limit to the amount of net worth the Administrator may require of an IA?
Yes. The Administrator may not set a requirement that exceeds the IA’s home state.
Is an IAR who is employed by a federal covered adviser required to register in the state?
Yes. IARs of federal covered advisers must register in any state in which they have a place of business.
What is the 3 pronged test for determining whether a firm meets the IA definition?
A-B-C. A = advice/analyses, B = business, C = compensation
What type of advice may lawyers, accountants, teachers, and engineers provide and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
True or False: A gift of non-assessable stock would constitute a sale.
False. However, the gift of assessable stock IS considered both an offer and a sale.
If registering an IPO, an issuer would most likely use what form of state registration?
Coordination
What form of state registration is not available in all states?
Notification (filing)
True or False: Securities issued by municipalities of Mexico are exempt under the USA.
True. An exemption applies to securities issued by foreign governments with whom the U.S. has diplomatic relations.
True or False: Securities issued by municipalities of Canada are exempt under the USA.
TRUE
Transactions between the issuer and its underwriter are considered ________ transactions.
Transactions between the issuer and its underwriter are considered exempt transactions.
A BD must maintain its books and records for a minimum of ____ years.
A BD must maintain its books and records for a minimum of 3 years.
An IA must maintain its books and records for a minimum of ____ years.
An IA must maintain its books and records for a minimum of 5 years.
If employed by a federal covered IA, is an IAR required to register in all states in which she is conducting business?
No. If the IAR has no place of business in the state, no state registration is required.
If the Administrator believes a person has violated or is about to violate the USA, may an injunction be issued?
No. The Administrator may not issue an injunction. Injunctions may only be issued by a court of competent jurisdiction.
The appeal of an administrative order is made before a court of _________________________.
The appeal of an administrative order is made before a court of competent jurisdiction (state court).
Does the appeal of an administrative order act as a stay of the order?
No. The order remains in effect until the outcome of the hearing.
The maximum criminal penalty for violations of the USA is ____ years in prison and/or up to a $______ fine.
The maximum criminal penalty for violations of the USA is 3 years in prison and/or up to a $5,000 fine.
What is a letter of rescission?
An offer to buy back a security from a client when that security was sold in violation of the USA
A customer must respond to a letter of rescission within _____ days or lose the right to sue.
A customer must respond to a letter of rescission within 30 days or lose the right to sue.
May a state prevent the sale of a federal covered security in its state?
No. Federal covered securities are not regulated by the state.
True or False: An IA with fewer than 15 retail clients in the past 12 months is exempt from registering under the USA.
False. The USA de minimis exemption for advisers is 5 or fewer individual clients.
What type of information will be found in an investment adviser’s ADV Part I?
Firm name, # of employees, nature of business, history of officers/directors, legal/disciplinary action in past 10 years
Any material changes to Form ADV must be filed ___________.
Any material changes to Form ADV must be filed promptly (within 30 days).
What types of changes would be considered material changes that require prompt amendment of an adviser’s ADV?
Significant items, such as a name or location change
When are non-material (routine) changes to Form ADV required to be filed?
Routine items require an amendment within 90 days after the end of the IA’s fiscal year.
When is Form ADV-W filed?
When an adviser withdraws its registration
What is the general definition of an investment adviser?
A firm that provides advice/analyses regarding securities, as part of a business, and for compensation
According to the USA, who is included under the term person?
Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships
With what system do IAs file their registration applications?
The Investment Adviser Registration Depository (IARD)
ADV Part I is a disclosure document for use by the _____ and the ________________.
ADV Part I is a disclosure document for use by the SEC and the Administrator.
What types of changes would be considered significant changes to the adviser’s ADV?
Change in fees, custody, and the name or location of adviser
What is a consent to service of process?
A document appointing the Administrator as attorney for any non-criminal legal complaints issued against a registrant
Identify the acronym: USA
Uniform Securities Act
Identify the acronym: IA
Investment Adviser
Identify the acronym: IAR
Investment Adviser Representative
Identify the acronym: NSMIA
National Securities Markets Improvement Act
Identify the acronym: NASAA
North American Securities Administrators Association
What is the ABC Test for investment advisers?
The test that defines an IA as a firm that provides Advice as part of a Business for Compensation
Identify the acronym: IARD
Investment Adviser Registration Depository
Identify the acronym: RIA
Registered Investment Adviser
Who enforces the Uniform Securities Act?
The Administrator
What’s notice filing?
The process in which information that is filed with the SEC is also filed or shared with the Administrator.
True or False: The states may make rules that are more restrictive than SEC (federal) rules.
False. NSMIA prohibits states from making requirements that are more restrictive than existing federal requirements.
True or False: The Administrator may bring a case in a civil court.
True. Both the Administrator and a private citizen may bring a case in civil court.
What is the general definition of an issuer?
Any person who issues or proposes to issue a security, such as government entities and corporations.
True or False: The USA requires all employees of a BD to register.
False. Only those representing a BD in effecting transactions (as an agent) must register.
An _______of an ________ is an individual who represents an issuer in effecting transactions with the general public.
An agent of an issuer is an individual who represents an issuer in effecting transactions with the general public.
What’s an issuer transaction?
A transaction in which the issuer receives the proceeds.
Define jurisdiction.
The power to interpret and apply the law or the territorial range of authority or control.
An _______ is any attempt or solicitation to dispose of a security for value.
An offer (offer to sell) is any attempt or solicitation to dispose of a security for value.
Define assessable stock.
Stock in which the issuer is allowed to demand additional funds from existing stockholders.
Can a BD punish one of its agents for responding to a subpoena?
No. This is a prohibited action.
True or False: An individual may be denied registration due to lack of experience.
False. However, a lack of training, knowledge, and experience may be grounds for denial.
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?
No. Registration is not required since the client is an existing client who is temporarily in Florida.
True or False: BDs must file advertising and sales literature with the Administrator.
TRUE
What form do IAs file to register?
Form ADV
Define the term custody.
The legal responsibility for, or control over, someone’s assets
What are some reasons for the Administrator denying a securities’ registration statement?
Filing false registration documents, issuer’s business is illegal, spread is unfair, or failing to pay the filing fee.
True or False: A transaction by an executor is exempt.
True. Any transaction by an executor, administrator, trustee in bankruptcy, or conservator is considered exempt.
Who must prove that an exemption exists?
The party claiming the exemption
May the Administrator revoke the registration of a federally covered adviser?
No. However, she may require the IA to notice file.
Is the publisher of a newspaper required to register as an investment adviser?
No. Publishers are excluded if the newspaper has general circulation and any advice is impersonal and untailored.
For how long must an IA maintain records?
5 years
An investment adviser with more than $___________ under management must register with the SEC.
An investment adviser with more than $100 million under management must register with the SEC.
Is registration with the SEC required of an adviser that manages $97 million of assets?
No. If the IA manages under $100 million of assets, it must register with a state Administrator.
List the entities that make up NASAA.
All 50 U.S. states, the U.S. Virgin Islands, Puerto Rico and the District of Coloumbia
True or False: Washington D.C. is a member of NASAA.
TRUE
True or False: The U.S. Virgin Islands are a member of NASAA.
TRUE
True or False: Puerto Rico is a member of NASAA.
TRUE
True or False: Securities listed on the NYSE are exempt from state registration.
TRUE
Under the USA, is a federal covered security trading in the secondary market an exempt security or an exempt transaction?
Exempt security
Under the USA, is stock issued by an electric company an exempt security or an exempt transaction?
Securities issued by public utilities are considered exempt securities.
True or False: Federal covered securities issuers may be required to pay a registration filing fee to an Administrator.
True. Certain types of federal covered securities issuers may be required to pay a filing fee.
NSMIA indicates that securities listed on the NYSE, NASDAQ and Toronto Exchange are _________________ securities.
NSMIA indicates that securities listed on the NYSE, NASDAQ and Toronto Exchange are federal covered securities.
Name some of the federal covered securities.
Securities listed on an exchange, issued by an investment company and those sold as a private placement (Reg. D)
Is an individual who represents an issuer in the sale of registered stock considered an agent?
Yes. An individual who represents an issuer of securities being offered publicly must register as an agent.
Under the USA, when must a balance sheet be provided to a client?
A balance sheet must be provided if the IA collects prepaid fees of $500 or more, 6 months or more in advance.
A balance sheet must be provided if the IA collects prepaid fees of $500 or more, 6 months or more in advance.
True. However, this is provided that it has no place of business in the state.
What is the purpose of Part 1 of Form ADV and when is it filed?
To determine if an IA is eligible for continued SEC registration; it is filed within 90 days of its fiscal year end
If ABC Advisers has $112 million under management, it must register with ________.
If ABC Advisers has $112 million under management, it must register with the SEC.
An IA’s brochure must have the same information that appears in what part of Form ADV?
Part 2 of Form ADV
Does an IA have custody when it is in possession of checks drawn by its client and made payable to third parties?
No. The IA does not have custody if it forwards the check within 24 hours.
True or False: If an IA’s clients are institutions (e.g., banks and BDs), it is exempt from registration under the USA.
True. However, this is provided that it has no place of business in the state.
Is an IA always required to include a balance sheet in Part 2 of its Form ADV?
No. A balance sheet is required only if the IA collects prepaid fees.
What is Part 2 of Form ADV?
The portion of an IA’s application that may be used to satisfy the Brochure Rule (disclosure requirement)
True or False: The manager of an IA’s human resources department is considered an IAR.
False. The manager’s responsibilities do not include providing advice about securities or managing accounts.
True or False: Principals must approve discretionary orders prior to entry.
False. The orders must be approved promptly afterward.
May a wife enter trades in a husband’s account?
Yes, with written third-party authorization.
What triggers a BD’s filing of a Suspicious Activity Report (SAR)?
Any suspicious transactions of $5,000 or more
Trading on material, non-public information is considered __________________.
Trading on material, non-public information is considered insider trading.
Define painting the tape.
Traders effecting transactions back and forth to create a misleading appearance of activity
A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?
Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.
Does the payment date requirement of Regulation T apply to cash or margin accounts?
Payment is required within 5 business days for both (100% in a cash account, 50% in a margin account).
True or False: Fraud may sometimes be unintentional.
FALSE
For an agent to exercise discretion over a client’s account, the client must have signed a ________________________.
For an agent to exercise discretion over a client’s account, the client must have signed a power of attorney.
True or False: If churning in a client’s account generates large profits, it is not considered a violation.
FALSE
BD securities and client securities must be segregated; in other words, they may not be ______________.
BD securities and client securities must be segregated; in other words, they may not be commingled.
John and Sam are continually trading QRS stock between their accounts to cause the price to rise. Is this permitted?
No, this prohibited practice is referred to as “painting the tape.”
Sam buys stock on one exchange and shorts it on another at a slightly higher price. Is this permitted?
Yes. Sam is engaging in arbitrage.
True or False: Soliciting orders for unregistered, non-exempt securities is prohibited.
TRUE
Accepting orders for unregistered, non-exempt securities is allowed if clients attest that the trade was _____________.
Accepting orders for unregistered, non-exempt securities is allowed if clients attest that the trade was unsolicited.
True or False: According to the USA, investment advisers may generally charge performance-based fees.
False. Unless the Administrator deems the client qualified, performance-based fees are prohibited.
True or False: An IA that has full discretion over a client’s account at a separate BD is considered to have custody.
TRUE
An IAR may exercise discretion over a client’s account based on oral authorization from the client for up to _____ days.
An IAR may exercise discretion over a client’s account based on oral authorization from the client for up to 10 days.
May a cash account be opened without the customer’s signature?
Yes
May a margin account be opened without the customer’s signature?
No
May an agent execute securities trades for compensation and not record the trades on the BD’s books and records?
No. This is referred to as “selling away.”
Before an IA may assign a client’s contract to another advisory firm, it must obtain _________________________.
Before an IA may assign a client’s contract to another advisory firm, it must obtain the client’s consent.
An IA that is also a BD may execute agency cross trades, earning commission on both sides, if one side is ____________.
An IA that is also a BD may execute agency cross trades, earning commission on both sides, if one side is unsolicited.
__________________ is the prohibited act of a BD trading for its own account ahead of a customer’s block order.
Front-running is the prohibited act of a BD trading for its own account ahead of a customer’s block order.
True or False: It is an unethical practice for a BD to delay the delivery of securities purchased by a customer.
TRUE
When must BDs provide payment of customer free credit balances resulting from completed transactions?
Upon customer request
List some important considerations when determining the suitability of recommendations made to customers.
Investment objectives, financial situation, risk tolerance, tax status
Joe places an order to sell 10,000 shares of ABC whenever it’s best. Is written discretionary authority required?
No. Since discretion is limited to time and/or price, written authority is not required.
What 3 details must be provided by a client so a BD may accept a discretionary order without written authorization?
Action (buy/sell), asset, and amount. Time and/or price may remain the BD’s discretion without written authorization.
True or False: The initial transaction in a margin account requires a written margin agreement promptly after the trade.
TRUE
True or False: Charging an unreasonably high commission is acceptable provided disclosure is made to client.
FALSE
Transactions should be executed at a price that is reasonably related to the _________________ price.
Transactions should be executed at a price that is reasonably related to the current market price.
May clients of BDs be charged reasonable fees for services performed?
Yes, for services such as collection of monies, exchange/transfer, appraisals, safekeeping, or custody
What is required of a BD controlled by/affiliated with an issuer of a security being sold to/purchased by a customer?
Both oral and written disclosure of the relationship
With whom may an agent split commissions?
Another agent registered with the same BD, or another BD under common control
If a client gives little information when opening an account, what securities may an agent recommend to the client?
Only securities that are suitable based on the information the client did provide
A firm promises a refund to all clients who invest in an IPO if shares fail to rise 20%. Is this permitted?
No. This is unethical since it is considered a guarantee against loss.
An IA directs transactions to a BD who rebates 15% of the commissions to the IA for the business. Is this acceptable?
Yes, provided the IA provides written disclosure (often in Form ADV) to clients.
Does a registered principal approve all orders prior to execution?
No. However, the principal is required to review all activity promptly (not in advance).
What information is included on an order ticket?
Client’s name and account number, price and time of execution, time order is received, entered, and executed
May an agent use a new issue prospectus to create a marketing piece and only include positive details about the issue?
No. Material provided to clients must include all facts about the issue, not just the positive ones.
When selling mutual funds, an agent must adequately disclose the _____________.
When selling mutual funds, an agent must adequately disclose the sales charge.
True or False: Promoting the purchase of certain fund shares due to an impending dividend payment is acceptable.
False. Selling dividends is prohibited. Since the dividend is imbedded in the share price, there is no monetary benefit.
Is it acceptable to recommend that a client sell a mutual fund in order to buy another fund with the same objective?
No. This is a prohibited practice and would be considered an unsuitable recommendation.
True or False: If a customer receives a prospectus during a solicitation, an agent has provided full and fair disclosure.
False. The agent may still have omitted material facts.
True or False: Forward-looking statements regarding mutual fund performance may be used when soliciting clients.
False. Past performance is not indicative of future results.
An agent makes this statement to a client: “Go with us; we’re approved by the Administrator and SEC.” Is it acceptable?
No. Neither the SEC nor the Administrator provide approval for securities or securities professionals.
According to the USA, all investment advisory contracts must be in __________ form.
According to the USA, all investment advisory contracts must be in written form.
Firms must keep client information confidential unless disclosure is authorized by the _______ or a ___________________.
Firms must keep client information confidential unless disclosure is authorized by the client or a regulatory authority.
If an adviser has check-writing privileges in a client’s account, does this constitute custody?
Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.
If an IA maintains custody of a client’s funds or securities, how often must account statements be provided to clients?
Statements must be sent quarterly.
If an IA maintains custody of client funds, are unannounced audits required?
Yes. IAs must arrange for unannounced audits on an annual basis.
An IA inadvertently receives client funds/securities and doesn’t return them within 3 business days. Is this custody?
Yes
True or False: An IA maintaining custody of client assets need not notify the Administrator.
False. The Administrator must be notified in writing using Form ADV.
When an IA has custody, with whom are the assets held?
Assets are held by a qualified custodian. Clients must be notified of custodian’s name, address, and manner of holding.
Define “assignment” as it relates to IA contracts.
The transfer of ownership of a client’s account from one advisory firm to another. Client consent is required.
What may an investment adviser do with full discretion, but not with limited discretion?
Withdraw money from the account
Define churning.
Excessive trading in a customer’s account for the primary purpose of generating commissions and other fees
May an adviser borrow money from a client?
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.
May an adviser or BD lend money to a client?
Yes, if the adviser or BD is in the business of lending money.
What is required of an IA that uses third-party research?
The IA must disclose the source of the research to its client.
Is an adviser required to disclose the source of raw data used to determine the recommendations to its customers?
No. Disclosure is not required if the IA’s recommendations are based on its own independent conclusions.
May an adviser release account information to the spouse of a client?
No, not without the client’s written authorization.
Are advisory fees fixed and are they subject to administrative review?
Fees are not fixed, but must be in line with other advisers. Fees are subject to administrative review.
Under the USA, all IA contracts must be __________ and must disclose __________ provided and related ______.
Under the USA, all IA contracts must be in writing and must disclose services provided and related fees.
What is required of an IA if the firm goes through a majority change in ownership?
The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.
What is required of an IA if there has been a minority change in firm ownership?
Provide written notification to clients
An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?
No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment.
How are advisory fees most commonly charged?
As a percentage of assets under management over a specific period of time
What is needed for a BD to exercise discretion over a client’s account?
BDs need prior written authorization.
The solicitation of buyers for unregistered, non-exempt securities is _____________.
The solicitation of buyers for unregistered, non-exempt securities is prohibited.
________ is the willful or intentional act of deceiving another person for gain or profit.
Fraud is the willful or intentional act of deceiving another person for gain or profit.
What is selling away?
An agent executes securities transactions for compensation and does not record the trades on the BD’s books and records.
Define commingling.
The prohibited act of mixing client funds with those of the BD
May an agent share in the profits of a client’s account?
Yes, in a joint account with proportionate sharing. Permission is required from both the client and the firm.
If an agent has been given time and price discretion on a client order, is written power of attorney required?
No. Provided the client determines the action (buy/sell), amount, and asset, power of attorney is not required.
In general, does the USA allow an adviser to charge performance-based fees?
No. However, such fee arrangements may be permitted by rule or order of the Administrator.
If an adviser exercises full discretionary control over a client’s account, does this constitute custody?
Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.
When does a durable power of attorney become automatically cancelled?
Upon the death of the grantor of the POA
When does a standard power of attorney become automatically cancelled?
Upon either the death of the grantor or declaration of incompetence of the grantor
An IA has custody if it inadvertently receives client securities and hasn’t returned them within ____ business days.
An IA has custody if it inadvertently receives client securities and hasn’t returned them within 3 business days.
What is soft-dollar compensation?
Non cash compensation paid by a BD to an IA for directing securities transactions.
What forms of soft-dollar compensation are NOT acceptable?
Rent, travel expense reimbursement, hardware, furniture, entertainment, meals
True or False: Under the Uniform Prudent Investor Act (UPIA), an IA’s main objective should be risk avoidance.
False. The UPIA indicates that advisers are responsible for managing risk, not avoiding risk.
True or False: Under the UPIA, an adviser should never recommend speculative investments to conservative investors.
False. The management of risk is what is important. Investments such as options or commodities may reduce overall risk.
What step must an IA complete when faced with a conflict of interest?
The conflict must be disclosed to the client. If disclosure is insufficient, the IA must abstain from the action.
Identify the acronym: POA
Power of Attorney
Describe a soft-dollar arrangement between an IA and a BD.
An IA directs client transactions to a specific BD in return for research and brokerage services.
To be allowed, a soft-dollar arrangement must benefit ____________.
To be allowed, a soft-dollar arrangement must benefit the client.
Identify some permissible uses of soft-dollar arrangements.
Soft dollars are permitted for obtaining research reports, software, and fees for attending conferences/seminars.
What are some of the examples of items that cannot be covered by a soft-dollar arrangement?
Advertising, travel expense reimbursement, meals and entertainment, and computers
True or False: All illegal activities are intentional.
False. Some accidental or unintentional actions are considered unethical and, therefore, illegal.
You advise a client to buy stock of a company that just fired its CEO. Is disclosure to the client required?
Yes, since this is a material fact, it must be disclosed before the customer buys the stock.
True or False: An agent must always have reasonable grounds for recommending a particular security.
TRUE
An agent of a BD lends $5,000 to his brother, is this acceptable?
Yes, lending to immediate family members is permissible.
Define conversion.
The prohibited act of an agent using client funds for personal use.
True or False: If an agent disagrees with a customer’s order, he may disregard the order.
False. Agents and IARs must follow all customer requests, even those with which they disagree.
True or False: If a conflict of interest exists, an IA must always terminate a relationship with a client.
False. An IA must always disclose a conflict, but they don’t necessarily need to end the relationship.
True or False: The Administrator may issue an injunction.
False. Only a court may issue an injunction, however, the Administrator may issue a cease and desist order.
What’s a no load fund?
A mutual fund with no front-end sales charge, no deferred sales charge, and no 12b-1 fee exceeding .25% per year.
May an IA use testimonials in its promotional material?
No
Define testimonial.
An advertisement in which an individual recommends the IA’s services based on personal experiences with the firm.
An newly hired investment adviser representative wants to put the initials “IAR” on her business card. Is this allowed?
No. However, she may spell out “Investment Adviser Representative.”
May an agent and a client share in an account?
Yes, with firm & customer’s approval provided the sharing in gains & losses is proportionate to each party’s investment.
Define selling away.
The execution of transactions by an associated person outside his employment with a member firm
True or False: If a BD receives a written complaint from a client, it may be ignored if the complaint seems baseless.
False. Failing to respond to a formal written complaint is prohibited.
To whom are written or electronically-sent grievances (complaints) forwarded?
An immediate supervisor
