Testing Time Flashcards
2. Buy 200 shares of XYZ at 35. Sell 2 XYZ June 40 calls for 2. Sell 2 XYZ June 30 puts for 1.50. What is the maximum loss?
a) $6,700
b) $7,000
c) $12,300
d) $13,000
C
The position should be treated as a covered call, long the stock, short the call, and a short put X 200. Long the stock at 35 = -35. Duty to buy on short put = -30 Market = -65. Premium received = +3 1/2 Breakeven is -61.50 X 200 = $12,300 loss
8. FINRA requires which of the following persons to sign the new account form?
a) Registered Representative
b) Account Owner
c) Approving Principal
d) All of the above
C
FINRA requires the principal who approves the account to sign the new account form. The account owner’s signature is not required by FINRA but is required by most broker/dealers.
9. Concerning minimum net worth requirements, which of the following is true? I. They are generally required when a broker/dealer may have custody of client assets or discretion over their accounts. II. A deposit of cash or securities may be accepted in lieu of the net capital requirement. III. Net capital requirements are normally higher for investment advisers who have custody of client assets.
a) I and II
b) I and III
c) II and III
d) I, II and III
B
An appropriate deposit of cash or securities may be accepted in lieu of a surety bond but does not satisfy the net worth requirement.
10. ERISA qualified pension plan fund managers’ fiduciary responsibilities regarding plan investments are determined by
a) SEC.
b) “Prudent Man” rules in the state where the fund operates.
c) The Investment Company Act of 1940.
d) FINRA.
B
When investing pension fund money, pension fund managers must follow the Prudent Man rules in the state where they operate.
22. All of the following employees of a broker/dealer are considered an agent under the Uniform Securities Act (USA) with the EXCEPTION of a person who
a) Transacts business only in exempt securities.
b) Transacts business only in nonexempt securities.
c) Gives securities quotations over the phone.
d) Performs the function of accepting customer orders.
C
An agent is a person that effects a securities transaction. Giving a quotation does not effect a transaction and is exempt from the definition under the Act.
24. A mutual fund portfolio returned 3.5%, it has a beta of 1.5, and its benchmark index returned 3%. The alpha of the portfolio is
a) (-1.5).
b) (-1).
c) 1.5.
d) 2.
B
To calculate alpha multiply, the return of the benchmark index by the beta. The difference between the product and the portfolio return is the alpha: 0.03 x 1.5 = 4.5%, 3.5% - 4.5% = -1.
30. A convertible preferred is convertible at $20 per share. The stock is currently selling on the market at $120. Which of the following are correct statements is correct?
a) It makes sense to convert at $22.
b) The common stock must be selling at $24 to be at parity with the preferred stock.
c) The common stock must be selling at $20 to be at parity with the bond.
d) The preferred stock’s conversion ratio is 1:6.
B
The conversion ratio is the par value of the preferred stock divided by the conversion price, or in this case, 1:5. It identifies the number of common shares received upon conversion. The parity price of the common stock is determined by dividing the conversion ratio into the market value of the preferred stock, or 120/5 = $24. It only makes sense to convert at a price above the parity price.
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ #33. Mortgage-backed issues are considered to be safe instruments. Which statement is INCORRECT concerning these securities?
a) Interest received is subject to federal, state and local taxation.
b) GNMA (Ginnie Mae) is a government-owned corporation.
c) GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) will all hold FHA and VA loans in their portfolios.
d) GNMA, FNMA, and FHLMC are all fully backed by the federal government.
D
Only GNMA is fully backed by the full faith and credit of the U.S government guaranteed agency. FNMA and FHLMC are government-sponsored enterprises that may borrow from the Treasury.
34. An investment adviser wants to name a successor firm to fill an unexpired portion of a yearly registration. The application is submitted, and the registration is granted. Shortly thereafter, the administrator learns that the successor firm was not in existence at the time of application. Which of the following will most likely happen?
a) Charges will be filed against the successor firm.
b) The registration of both the investment adviser and the successor firm will be revoked.
c) The successor adviser will need to file a new independent registration.
d) Nothing. This is legal.
D
If a broker/dealer or investment adviser wants to name a successor firm to fill an unexpired portion of a yearly registration, a new application is required, but no additional fees are due. It is not required that the successor firm be in existence at the time of the application.
39. An investor bought 100 shares of XYZ stock at $55 in January of 20XX. Today, with the stock trading at $75, the investor donated it to a charitable institution. What are the tax consequences of this gift?
a) A $5,500 deduction is allowed.
b) A $7,500 deduction is allowed.
c) The investor must pay a gift tax.
d) No deduction is allowed.
B
The value of a charitable gift that is deductible by the donor is the appreciated value of the securities.
40. Richmond Rails is currently trading at 65.50-65.62. Richmond Rails is probably
a) An exchange-traded security.
b) A load mutual fund.
c) A regional OTC security.
d) A limited partnership.
A
Securities with a narrow spread (in this case $0.12) are usually widely traded, most likely on an exchange or on NASDAQ. A thinly traded security, such as a small OTC security, typically has a wide spread between the bid and offer. Limited partnerships are illiquid, are sold through a subscription agreement, and do not have a market quote expressed as a bid/ask. Mutual funds are purchased directly from the fund at the POP and are redeemed by the fund at the NAV.
43. Which of the following are considered market manipulation? I. Matched orders; II. Wash trades; III. Stopping stock; IV. Wash sales
a) II and III
b) III and IV
c) I, II, III and IV
d) I and II
D
Matched orders and wash trades are market manipulation. Wash sales are trades in which tax losses are disallowed by the IRS. Stopping stock is when a DMM (specialist) guarantees the execution price for a customer order.
44. Randy bought 500 shares of ABC stock @ 34. He wrote 5 ABC Aug 35 straddles @ $6.15. At August expiration, ABC closes at 37.50 and Randy is exercised on his short calls. What is his profit or loss?
a) $3,575 profit
b) $3,075 loss
c) $1,250 loss
d) $500 profit
A
Randy’s profit is $3,575. At expiration, he was assigned and had to sell his long stock @ 35 for a one point profit plus the premium received for the short straddle. $1 + $6.15 = $7.15 X 100 = $715 X 5 (straddles & stock) = $3,575.
45. An Administrator can deny registration to a person who
a) Has a conviction for a securities violation from foreign country within last 5 years
b) Been convicted of misdemeanor shoplifting within the last 3 years in the Administrator’s state.
c) Has filed for bankruptcy within the last 5 years.
d) Lacks investment experience
A
An administrator can deny registration to a person convicted of a misdemeanor involving securities or has been convicted of any felony within the past 10 years.
47. A registered investment adviser paid a large sum of money to settle a lawsuit. As a result, the firm’s net worth fell to $22,000. The adviser has discretion over customer accounts; however, the client’s funds are held at a large custodian bank. Under these circumstances, what is the adviser required to do?
a) Do nothing
b) File a report with the state administrator by the end of the next business day
c) File a report with the state administrator on the day that the net worth falls below $35,000
d) Notify all of the clients that the adviser’s net worth has fallen below $35,000
A
Because the adviser does not have custody of the client’s assets, the minimum capital requirement is $10,000, and the adviser is not required to do anything.
48. Ms. Curtis is a teacher in School District #12. The value of her TSA (Tax Sheltered Annuity) is $75,000. The district has contributed $35,000 and Ms. Curtis has contributed $20,000. What is Ms. Curtis’ cost basis?
a) $35,000
b) $20,000
c) $0
d) $75,000
C
Ms. Curtis’ contributions were made pre-tax, as were the employer contributions. Therefore, her cost basis is zero and all withdrawals will be taxed as income.
53. Which of the following is correct with regard to the withdrawal of funds from a tax-qualified retirement plan?
a) Funds may be withdrawn at retirement tax free.
b) All early withdrawals are subject to a penalty.
c) Contributions can be deducted from that year’s taxable income.
d) The employee will be taxed at the ordinary income rate on his cost basis.
C
Cost basis has already been taxed and will not be taxed again upon withdrawal. Premature withdrawals are taxed and penalized unless withdrawn for a qualified exemption. A traditional IRA is a top choice for immediate tax savings because contributions can be deducted from that year’s taxable income.
56. Assuming a face value of $1,000, a 10% bond quoted at 820 has a current yield of
a) 8.6%.
b) 10%.
c) 12.2%.
d) 14.5%.
C
The nominal yield is 10%; the face value of the bond is $1,000. The annual interest is $100 (10% of $1,000). Therefore, the current yield is $100 / $820 = 12.2%.
58. A school teacher is retiring after 20 years of service. During the past 10 years, she invested $10,000 in a 403(b) through a payroll deduction offered by the school. Her account is now worth $16,000. What is her cost basis?
a) $0
b) $6,000
c) $10,000
d) $16,000
A
The teacher has contributed to a qualified retirement plan; therefore, all the money she has invested is pre-tax. She has not paid taxes on any of the money yet, so her cost basis is $0, and she will be required to pay ordinary income taxes on the entire amount she withdraws.
61. A customer shorts one ABC Jan 65 call for a premium of 4 and holds one ABC 70 call for a premium of 1. What is the customer’s maximum potential loss?
a) $0
b) $200
c) $300
d) Unlimited
B
On this credit spread, if the option is exercised, the customer will lose $200. This is equal to the difference in the strike prices minus the net premiums. BUY 70 call for 1 minus SELL 65 call for 4 = 5 market minus 3 premium = 2 OR Premium = +4 minus 1 = +3 Market = +65 minus 70 = -5 = -2 loss
62. A customer has the objective of maximizing current income. Under which conditions would you recommend that the customer sell long-term debt positions and buy short-term obligations?
a) The yield curve is inverted.
b) The yield curve is bell-shaped.
c) The yield curve is positive.
d) The yield curve is normal.
A
An inverted yield curve means that short-term rates are high and long-term rates are lower. So to maximize current income, the investor will buy short-term debt and sell long-term bonds.
69. Sell short 100 shares of XYZ at 46 in a margin account. Buy an XYZ July 45 call for 4. XYZ is at 50 when the call is exercised. What is your gain or loss?
a) $300 loss
b) $500 loss
c) $400 gain
d) $500 gain
A
Paid premium of $400, then paid $4,500 when call exercised, $4,900 total paid. Received $4,600 when sold stock. So $4,600 received minus $4,900 paid = $300 loss
73. An IA purchases stock for its own account from one of its institutional clients. This transaction is called a/an
a) Principal transaction.
b) Agency cross trade.
c) Institutional cross trade.
d) ECN trade.
A
In a principal transaction an IA buys a security from a client or sells a security from its own inventory to a client (whether an institution or a retail client). Principal transactions require written disclosure to the client and consent before the transaction is completed.
74. An inexperienced conservative investor is selecting his first equity fund. He wants to limit his risk while acquiring equity exposure. Which fund is most suitable for this investor?
a) Value fund
b) Balanced fund
c) Allocation fund
d) Growth fund
A
Value investing is a conservative long-term strategy of investing in undervalued equities. Growth investing is an aggressive strategy of choosing young, unproven companies. Asset allocation funds and balanced funds hold bonds along with stocks, and the investor has not expressed interest in bonds.
77. With regard to mutual funds, switching occurs when
a) The registered representative recommends moving assets from one fund family to another to generate commissions.
b) An investor frequently moves assets from one fund to another within a family of funds.
c) The rep recommends moving assets in or out of money market accounts based on market conditions.
d) The fund’s adviser “churns” the fund portfolio without discretionary authority.
A
Moving of fund assets between families of funds generates additional sales commissions that represent a cost to the customer. Such a recommendation is rarely appropriate and to do so for the purpose of generating commissions is a violation known as “switching.”
78. Which of the following is not a priority for a fiduciary managing an account in compliance with the Prudent Man Rule?
a) Income
b) Speculation
c) Permanence
d) Safety
B
The rule states that fiduciaries should manage accounts “not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”
79. Which of the following is defined as a security?
a) Voting trust certificate
b) Insurance policy
c) Commodities futures contract
d) Fixed annuity
A
A voting trust certificate is a form of ownership in common stock and thus is defined as a security under the Act.
90. Which of the following is NOT true concerning bid and ask quotes?
a) The ask, or “offer,” is the larger number and may be referred to as the “POP” when discussing mutual fund shares.
b) The difference between the bid and the ask is the “spread” and represents the market maker’s mark-up or gross profit.
c) When buying or selling for the accounts of others, a broker/dealer is remunerated by a commission.
d) The bid is the smaller number and is defined as the lowest price a seller is willing to accept for the security at a particular time.
D
Although the bid is the lower of the two numbers, it is defined as the highest price that a buyer of a security is willing to pay at a given time.
91. Stanley passes away, leaving most assets to his wife except for his IRA and his Roth IRA, which he leaves to his daughter. Which of the following is true?
a) All assets are taxed before they are distributed to Stanley’s wife and daughter.
b) Stanley’s daughter will pay taxes on the IRA but not the Roth IRA.
c) Stanley’s IRA and Roth IRA will be subject to taxation before his daughter receives them.
d) Stanley’s wife and daughter will each pay taxes on the assets that she receives.
C
All assets not passed on to a spouse are subject to estate taxes. This includes IRAs, annuities, Roth IRAs, and municipal bonds.
94. Which is true of restricted stock? I. The purchase must be paid for in entirety. II. It must be held for 2 years before resale. III. A broker/dealer can act as an agent. IV. Shares are registered with the SEC.
a) I and II
b) I and III
c) II and III
d) II and IV
B
If a selling company is subject to the SEC reporting requirements, the securities must be held at least 6 months. Otherwise, they must be held at least 1 year. The holding period begins when the securities are bought and fully paid for. A broker/dealer can act as an agent, but restricted stock is not registered with SEC.
95. Which of the following would be considered a broker/dealer in the state of Maine?
a) An issuer whose corporate headquarters is located in Maine
b) A brokerage firm located in New Hampshire doing business in Maine with residents of Maine
c) An agent working at a discount brokerage firm located in Maine
d) A brokerage firm with no office in Maine, selling municipal bonds to a bank located in Maine
B
A broker/dealer must register under the Uniform Securities Act (USA) in any state in which it transacts business unless an exemption is available.
97. A specialist on the NYSE I. Is charged with maintaining a fair and orderly auction market in a security. II. Deals in only one specific security. III. Is an employee of the NYSE. IV. Is employed by a member firm of the NYSE.
a) I and IV
b) II and III
c) II and IV
d) I and II
A
A specialist is an employee of a member firm. There is only one specialist designated for a given stock, but a dealer may be a specialist for several stocks.
98. A prospectus can no longer be used if financial information is older than
a) 90 days.
b) 12 months.
c) 13 months.
d) 16 months.
D
A prospectus must contain current information about the investment company and therefore a prospectus that includes financial information more than 16 months old can no longer be sent out to prospective customers.
99. Duration is best described as
a) A bond’s beta coefficient.
b) Being shorter than maturity on a zero coupon bond.
c) Being synonymous with maturity.
d) The measure of a bond’s expected volatility in a changing interest rate environment.
D
A zero coupon bond’s duration equals its maturity. It identifies the period of time during which an investor can expect return of principal, based on changing interest rates.
103. Which of the following are required to open a margin account? I. Customer loan agreement; II. Margin risk disclosure; III. Margin account agreement; IV. Margin interest disclosure
a) I and III
b) I and IV
c) II and III
d) II and IV
A
The margin account agreement or hypothecation agreement must be completed prior to the first margin trade. The customer loan consent, including risk and interest charge disclosures, is completed upon opening the account.
104. One of your customers enters a limit order good for one month. Your firm has entered the order as a GTC order. The responsibility for canceling the order, if not executed by the end of that month, is that of the
a) Customer.
b) Specialist.
c) Firm’s commission broker.
d) Firm.
D
When a member firm accepts an order of this type, it accepts ultimate responsibility for follow-through. The firm’s commission broker is commonly known as the “floor broker” and is on the floor of the exchange. The specialist has no responsibility in this case because the specialist doesn’t know that the order was only good until the end of the month.
105. Where must an agent be registered?
a) In the same states that his broker/dealer is registered
b) In the state where his business is located
c) In each state in which he effects securities transactions
d) In the state in which the majority of his business is transacted
C
Agents are required to be registered in each state in which they effect securities transactions.
110. Capital market theory I. Is based on the premise that capital markets are essential to economic growth. II. Blends the Keynesian and supply side economic theories. III. Adds validation to the analysis and selection of securities in a managed investment strategy. IV. Seeks to provide optimum returns as a given risk level.
a) I and III
b) I and IV
c) II and III
d) II and IV
A
Capital market theory sets the stage for investment management and adds validation to the analysis and selection of securities in a managed investment strategy. It is based on the premise that capital markets are essential to economic growth.
111. Which of the following is measured by the yield-to-maturity?
a) The return on a bond up to the call date
b) The return of an investment in relation to the degree of risk
c) The total return of a bond from the time of purchase until maturity
d) The return on a bond based on its current market value
C
The yield-to-maturity measures the total return of a bond from the time of purchase until maturity. The return of an investment in relation to the degree of risk taken is called the risk-adjusted return. The current yield measures the interest rate that a security with a fixed income is generating to the holder based on its current market value. The yield-to-call measures the return on a bond similar to the yield-to-maturity, except that the ending period is not the maturity date but the call date.
112. According to the Uniform Securities Act, investment adviser advertising must
a) Not violate the Investment Advisers Act of 1940.
b) Be submitted to FINRA within 10 days of first use.
c) Adhere to the advertising provisions of the USA.
d) Be pre-approved by the SEC.
A
Under the USA, investment adviser advertising that violates the Investments Adviser Act of 1940 is illegal.
113. ACE Financial is a registered investment adviser that accepts prepayment fees in excess of $500. ACE’s chief compliance officer notices on Tuesday that the firm’s capital has fallen below the minimum requirement. What steps must the officer take? I. Cease doing business until he can bring the net capital back to the required level; II. Inform the administrator of the deficiency by the end of business on Wednesday; III. File a report with the administrator by the end of business on Thursday; IV. Report the deficiency to FINRA by the end of business on Tuesday
a) II only
b) I, II, III and IV
c) I and IV
d) II and III
D
If the adviser’s net worth falls below the minimum requirement and it has taken prepayment fees, the adviser would be required to inform the state administrator by the end of the next business day, which would be Wednesday in this situation. Additionally, the adviser must file a report with the state securities administrator by the following business day, in this case Thursday.
114. What is the penalty for excess contributions to an IRA?
a) 4%
b) 6%
c) 10%
d) 15%
B
An individual can contribute 100% of earned income up to a specified amount (currently $6,000). The excess contribution penalty for traditional IRAs is 6%.
117. An employee quits her job where she has a balance of $10,000 in her employer-provided qualified plan. If she decides to move the balance to a traditional IRA through a direct transfer, how much will be transferred from one plan administrator to another, and what is the tax consequence?
a) $8,000, no tax consequence
b) $8,000, tax on growth only
c) $10,000, tax on growth only
d) $10,000, no tax consequence
D
During an IRA custodian-to-custodian transfer, the full amount gets reinvested from one plan to the other, and there is no tax consequence.
120. If the Federal Reserve Board through the FOMC (Federal Open Market Committee) lowers the discount rate, which of the following will decline? I. T-Bill discount rate; II. Federal Funds rate; III. Prime rate; IV. Lending levels at banks
a) I and II
b) I and IV
c) II and III
d) II and IV
A
The T-Bill and the Fed Funds rates will decline. The prime rate may not, and lending levels increase when rates are lower.
123. The following are prohibited practices under the Uniform Securities Act (USA) EXCEPT
a) Soliciting excessive trading to increase commissions.
b) Failing to disclose all known facts in a transaction.
c) Effecting private securities transactions for customers.
d) Commingling customer funds with agent funds.
B
Failing to disclose all known facts is not a violation; the violation occurs from withholding material facts. Churning, commingling funds with customers’ funds, and effecting private security transactions are all prohibited under the Act.
124. An investor wants a fund that will reflect the performance of a broad sample of larger American companies. The investor is also concerned about fund expenses, so he would most likely select
a) A growth and income fund.
b) An S&P 500 Index fund.
c) A blue chip stock fund.
d) An income fund.
B
The best answer is the index fund. Its performance will mirror the S&P 500 Index, which is an index of large domestic corporations. Index funds have low expense ratios because they are passively managed. The other three funds are actively managed, which results in a higher expense ratio.
125. Which of the following is not a characteristic of Brady Bonds?
a) Pay semiannual interest
b) Collateralized by U.S. Treasury zero coupon bonds
c) Issued in U.S. dollars
d) Issued by debt-troubled developing nations
A
Brady Bonds are OIDs.
126. Which of the following best describes total return?
a) The cumulative total return from the beginning to the end of a stated period
b) Cumulative total return net of taxes from beginning to end of the period
c) Holding period return expressed as an annual figure
d) Annual dividend and net market value change over the year
A
Total return does not consider taxes, and it considers the entire holding period.
128. Conventional and Roth IRAs are different in which of the following ways?
a) Catch-up provisions
b) Income eligibility limits
c) Minimum withdrawal age
d) Annual contribution limits
B
Only the Roth has income eligibility limits. Anyone with earned income may contribute to a conventional IRA. However, the contribution may not be deductible, based on participation in an employer-sponsored retirement plan and the individual’s income level.
129. An investment adviser sells a security from inventory to a customer. Which of the following statements is true?
a) The adviser may not charge a markdown on the customer’s subsequent sale of the security.
b) The adviser may not charge a markup on such trades without prior written customer consent.
c) Principal trades between investment advisers and their customers are not permitted.
d) Such trades are not permitted without prior written customer consent.
D
An investment adviser may not execute trades from inventory (principal trades) with a customer unless it has prior written consent from that customer.
1. Retirement account rollovers must be completed within
a) 20 days.
b) 30 days.
c) 60 days.
d) 90 days.
C
Rollovers are subject to 20% withholding and must be completed within 60 days, or they are classified as permanent withdrawals, and income taxes apply. Only one rollover per year is permitted. There is no annual limit on custodian-to-custodian transfers.
3. Which of the following needs voter approval?
a) GO
b) Sewer revenue bond
c) Special assessment bond
d) IDB
A
Only GO bonds (general obligations) require voter referendums.
4. ERISA qualified pension plan fund managers’ fiduciary responsibilities regarding plan investments are determined by
a) “Prudent Man” rules in the state where the fund operates.
b) The Investment Company Act of 1940.
c) FINRA.
d) SEC.
A
When investing pension fund money, pension fund managers must follow the Prudent Man rules in the state where they operate.
5. Any adviser that wants to exercise discretionary authority over a client’s account must do which of the following? I. Have written authorization from the client. II. Have approval to exercise such control by the administrator. III. File a Form ADV with the Securities Administrator. IV. Post a bond in the amount of the client’s account value.
a) I and II
b) I and III
c) II and III
d) II and IV
B
Any investment adviser that wishes to exercise discretionary authority over a client’s account must have authorization from the owner of that account, approval for such authority from the broker/dealer (not the administrator), and file a Form ADV for the account with the Securities Administrator.
6. All of the following must be included within a prospectus EXCEPT
a) Per share income and capital changes.
b) Sales loads and fees.
c) The individual securities that make up the portfolio.
d) An expense table.
C
A prospectus must contain, among other requirements, the sales charges and fees, an expense table, and the per share income and capital changes. The fund’s portfolio holdings are not found in a prospectus.
7. Sunny Sails is currently trading at 12.50-14.25. Sunny Sails is probably
a) An exchange-traded security.
b) A load mutual fund.
c) A regional OTC security.
d) A limited partnership.
C
A thinly traded security, such as a small OTC security, typically has a wide spread between the bid and offer. Securities with a narrow spread are usually widely traded, most likely on an exchange or on NASDAQ. Limited partnerships are illiquid, are sold through a subscription agreement, and do not have a market quote expressed as a bid/ask. Mutual funds are purchased directly from the fund at the POP and are redeemed by the fund at the NAV.
8. In order for a retirement plan to be qualified, what type of qualifications must be met?
a) Industry
b) Federal
c) State
d) Health
B
In order for a retirement plan to be qualified, certain federal requirements must be met.
9. What is the penalty for excess contributions to an IRA?
a) 4%
b) 6%
c) 10%
d) 15%
B
An individual can contribute 100% of earned income up to a specified amount (currently $6,000). The excess contribution penalty for traditional IRAs is 6%.
11. Randy is a broker who enjoys doing investment research much more than prospecting for sales. His friend Andy is just the opposite as he loves talking to new people and hates numbers. They have agreed that Randy will do all the research work if Andy will send sales Randy’s way when possible. Which of the following is true regarding this relationship?
a) Such a relationship must be tied to a written contract between the broker/dealer and the advisory firm involved and must be binding for all transactions.
b) This form of alliance is considered a unilateral agreement since the broker must rely on the adviser’s goodwill to secure any future compensation.
c) This is considered a soft dollar alliance and must be monitored periodically to avoid the potential for conflicts of interest.
d) Randy must file a Form AD-1 with his broker/dealer listing Andy as his advisory partner for the “mated” transactions.
C
Since this is a soft dollar alliance, the risk of a conflict of interest is inherent regardless of the parties involved and must be monitored for such.
12. An agent living in Iowa solicits a customer living in Minnesota about a security. The customer finally decides to purchase the security while on vacation in Florida. Which Administrator(s) has(have) authority over the transaction?
a) Iowa, Minnesota and Florida
b) Minnesota only
c) Minnesota and Florida only
d) Iowa and Florida only
A
The scope of authority is very broad for administrative jurisdiction. All three state Administrators have jurisdiction because some form of the transaction happened within their boundaries.
