Unit 1

Question 1

When an application for registration as an agent is filed, the Administrator has the right to inquire about any of the following EXCEPT

Answer 1

a drug-related misdemeanor conviction that occurred 8 years ago

An agent’s application for registration must disclose if the applicant has ever been charged or convicted of any felony or securities-related misdemeanor conviction. Non-securities- related misdemeanors are not reported. If there was ever any adjudication by the SEC or an SRO, it would have to be disclosed, as well.

Question 2

According to the Uniform Securities Act, a person representing an issuer in the sale of which of the following securities would have to be registered as an agent?

Answer 2

Securities issued by a federal credit union

An individual is exempt from registering as an agent only when representing the issuer in one of the limited group of five exempt securities, or in any exempt transaction. Oddly enough, a federal credit union is not on that list.

Question 3

To transact business in a state as an investment adviser representative, a person must

Answer 3

be registered as a representative of an investment adviser and have passed the appropriate NASAA exam for IARs

To transact business in a state as an investment adviser representative, a person must be registered as a representative of an investment adviser and have passed either the NASAA Series 65 or Series 66 exam. One is not considered a registered investment adviser representative as a result of passing the Series 6 or 7 registered representative exam, or by virtue of employment with a bank.

Question 4

Under the Uniform Securities Act, when an agent changes broker-dealers, who must notify the Administrator?
I. The agent
II. The former employer broker-dealer
III. The new broker-dealer

Answer 4

I, II, and III

When an agent’s employment with a broker-dealer begins or ends, the agent and both broker-dealers must notify the Administrator.

Question 5

Which of the following transactions would constitute a violation of the Uniform Securities Act?
I. An individual representing the issuer of a non-exempt security in an exempt transaction without registration as an agent
II. While acting on behalf of an issuer, an individual, who is not registered as an agent, sells shares of an unregistered nonexempt security to fewer than 15 noninstitutional clients
III. The sale of a Canadian government bond to the resident of a state in which the agent is not registered
IV. Representing an issuer of municipal bonds without being registered as an agent in the issuer’s state

Answer 5

II and III

Representing an issuer of certain exempt securities (the municipal bond) or of a non-exempt security that is sold in an exempt transaction, (choice I) does not require registration. If the sale is of an unregistered nonexempt security, the only way the individual could sell on behalf of the issuer without being an agent is if it was in an exempt transaction, one of which is the limited offering exemption (private placement). That applies when there is a maximum of 10 offers to retail clients within a 12 month period and choice II uses the term, sells. Without knowing the number of offers, we cannot determine if the individual’s actions qualify as an exempt transaction. In the case of doubt, assume they don’t. Even though the Canadian bond is an exempt security, any agent must be registered in the state(s) in which the security is sold – the exemption applies to the security, not the agent.

Question 6

Under the Uniform Securities Act, if the Administrator does not deny an application for registration as a broker-dealer and no disciplinary proceeding is underway in regard to it, how many days after filing the application does registration generally become effective?

Answer 6

30 days

Registration of securities professionals becomes effective at 12:00 noon of the 30th day after the application is filed, unless the Administrator begins a proceeding or issues a stop order before that time. Remember also that the Administrator may specify an earlier date, or if an application must be amended, the Administrator may extend the date to 30 days after the amendment was filed.

Question 7

Under the USA, which of the following is considered a broker-dealer in a state?

Answer 7

XYZ broker-dealer with an office in the state whose only clients are insurance companies

Anytime the question tells you that there is a place of business in the state, regardless of who its clients are, the firm is considered a broker-dealer in that state and is required to register as such.

Question 8

Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser?

Answer 8

ABC Money Managers, a partnership with $385 million under management

It makes no difference what the structure of the adviser is. As long as the assets under management are $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered regardless of size. The Hedge Fund is an unregistered fund so the rule does not apply to it. Under the Dodd-Frank Act, the pension consultant must have $200 million under management to be eligible to be federal covered.

Question 9

If a state-registered investment adviser moves to another location, the Administrator must be notified

Answer 9

promptly

An address change must be communicated promptly to the Administrator.

Question 10

When filing the consent to service of process, which of the following is TRUE?

Answer 10

It is supplied with the initial registration and remains on file permanently.

The consent to service of process is supplied with the initial registration and remains on file permanently.

Question 11

Under the Uniform Securities Act, which of the following are TRUE regarding the registration of a successor firm?
I. The successor firm need not be in existence when the application for registration is filed.
II. A filing fee is required with the application.
III. The successor firm’s registration will be effective for the unexpired portion of the year.

Answer 11

I and III

Application may be made to register a successor firm whether or not the firm is then in existence. The filing fee is waived. The successor firm’s registration will be effective for the unexpired portion of the year.

Question 12

Which of the following persons are NOT excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act?

Answer 12

A broker-dealer with no office in the state that has no more than 5 retail clients resident in the state within a 12 month period

Even without a place of business in a state, once a broker-dealer has even a single retail client residing in that state, registration is required. Unlike investment advisers, there is no de minimis exemption for broker-dealers. As long as a broker-dealer does not have an office in the state, it is possible to qualify for exclusion from the definition. The primary requirement for the exclusion is that the broker-dealer confines trading to financial institutions, issuers of the security being traded, or other broker-dealers. Trust companies are excluded from the definition of broker-dealer; the place of business is irrelevant.

Question 13

Each of the following requirements is common to the registration of agents, investment adviser representatives, state-registered investment advisers, and broker-dealers under the Uniform Securities Act EXCEPT

Answer 13

the registration for all is two years in length

Registrations of persons renew annually each December 31st.

Question 14

Under the Uniform Securities Act, Laura Smith must register as an investment adviser representative unless she

Answer 14

sells registered securities solely on a commission basis for a registered broker-dealer

Laura Smith, as an employee of AAA Investment Advisers, Inc., must register in the state as an investment adviser representative. As the sole owner of a financial planning practice and an investment advisory proprietorship, Laura must register as an investment adviser representative. Please note that registration of the investment adviser entity automatically registers officers, partners, and so forth, who are already functioning as IARs. When Laura functions as an agent for a broker-dealer, she must register as an agent, not an investment adviser representative.

Question 15

A broker-dealer is registered in all 50 states. Which of the following statements is correct regarding the firm’s obligations regarding maintaining of books and records?

Answer 15

The broker-dealer need only satisfy the requirements of the SEC.

Under the NSMIA, Administrators are prohibited from setting financial requirements in excess of those required by the SEC. In virtually every question like this, the SEC “rules”.

Question 16

Under the Uniform Securities Act, there are certain cases when a person in the business of effecting securities transactions for itself or its clients is not considered to be a broker-dealer in the state. In order for this exception to exist, all of the following conditions must be present EXCEPT
I. the person must not deal with any employee benefit plans with assets of not less than $1 million
II. the person must limit its business activities to other broker-dealers and financial institutions
III. the person must not have a place of business in the state
IV. all employees must be licensed as agents with the Administrator in at least one state

Answer 16

I and IV

It is critical to catch the EXCEPT in this question. We are looking for statements that are not true. If the employee benefit plans they deal with have assets of less than $1 million, the exception does not apply. And, there is nothing in the USA that requires a broker-dealer to register every employee, only those that are involved somehow in the sale of securities.

Question 17

In which of the following cases would the Uniform Securities Act require registration of an investment adviser who had no place of business in the state?

Answer 17

He had more than five non-institutional clients who were residents of the state.

An investment adviser with no place of business in the state dealing exclusively with institutional clients is not considered an IA for registration purposes. If the IA has retail (non-institutional) clients, there is a de minimis limit of no more than 5 in any 12 month period. Because websites are global, registration is only required if there is a place of business in the state or you go over the de minimis limits.

Question 18

A pension fund manager who manages a $35 million dollar account must register with which of the following?

Answer 18

The state

Under the Dodd-Frank Act, pension fund managers who manage $200 million or more are eligible to register with the SEC, so in this case, they would register with the state.

Question 19

Under the Uniform Securities Act, which of the following are excluded from the definition of investment adviser, provided the advice is incidental to their profession?
I. Banks
II. Lawyers
III. Broker-dealers
IV. Teachers

Answer 19

II and IV

The key to this question is that it deals with professionals qualifying for an exclusion. Lawyers, accountants, teachers, and engineers (L.A.T.E.) are excluded from the definition when the advice provided is incidental to the practice of their profession. Financial institutions, such as banks, savings and loans, and trust companies, are excluded without any requirement that advice be rendered on an incidental basis. Broker-dealers are not included in the list of professionals qualifying for this exclusion; however, if they do not receive special compensation when advising their clients, they too are excluded.

Question 20

The Uniform Securities Act defines an investment adviser and specifies the conditions under which registration with the state is required. There are, however, cases where an exemption from registration is offered. For example, it is NOT necessary for an investment adviser to register when it

Answer 20

has no place of business in the state and advises only savings and loan associations

An investment adviser who has no place of business in the state and deals only with savings and loan associations is not required to register with the state securities Administrator. An investment adviser with a place of business in the state must register with the Administrator whether clients are exclusively broker-dealers or federal covered advisers and regardless of the number of clients.

Question 21

An individual who has passed the Uniform State Law examination and filed an application with a state may

Answer 21

not perform any duties that require registration until notified that registration as an agent is effective

An initial registration is not effective until noon of the 30th day after application unless accelerated by the Administrator. In any event, registration is not effective until the BD has been notified by the Administrator. No prospecting, solicitation, accepting of securities orders, or opening of accounts may take place until that time.

Question 22

Which of the following statements are TRUE?
I. An agent must register in the state in which he advertises and solicits a security.
II. To make sales, an agent need not register in a state in which the broker-dealer is already registered.
III. Under no circumstances may an agent register with two unrelated broker-dealers.
IV. A secretary for a broker-dealer who, as a courtesy, takes orders for the broker-dealer’s clients must be registered.

Answer 22

I and IV

An agent must be registered in the state in which a security is advertised and solicited. A secretary who takes orders for the broker-dealer’s clients must be registered. If the state Administrator specifically grants an exception, an agent may be registered with two unrelated broker-dealers. The fact that a broker-dealer is registered in a state does not qualify agents for sales activities unless they are also properly licensed in that state.

Question 23

Which of the following statements are TRUE?
I. An agent may never be simultaneously employed by multiple broker-dealers.
II. An agent must submit separate registrations for each broker-dealer with which he is registered.
III. Certain states prohibit agents from dual or multiple registration.
IV. An agent who sells securities in several states must be registered with different broker-dealers in each state.

Answer 23

II and III

An agent must submit separate registrations for each broker-dealer with which he is registered, and an agent may be prevented from multiple registration in those states that prohibit dual or multiple registrations.

Question 24

Under the Uniform Securities Act, a broker-dealer is defined as any person who

Answer 24

is in the business of effecting securities transactions for its own account or for the accounts of others

A broker-dealer is any person (remember how broad that definition is) engaged in the business of effecting securities transactions for the accounts of others (broker) or for its own account (dealer).

Question 25

An agent registered in one state may solicit business in another state provided

Answer 25

both the agent and the broker-dealer are properly registered in the other state

An agent holding registration in one state may solicit and/or transact business in another state only if registered in that state and the employing broker-dealer is also registered in that state, unless an exemption is available.

Question 26

The registration of a broker-dealer in this state would automatically register as an agent

Answer 26

an agent who sits on the board of directors of the broker-dealer

Section 202 (a) of the Uniform Securities Act states, “Registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.”. The correct choice states that this director is an agent so the this individual qualifies for the automatic registration.

Question 27

State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act?

Answer 27

Investment adviser representatives

The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.

Question 28

Out-of-state investment advisers with no office in this state are not required to be registered if only giving advice

Answer 28

to insurance companies

It is not the securities they advise on but who the clients are that count. Out-of-state investment advisers with no office in this state must be registered under the Uniform Securities Act unless their only clients are insurance companies, registered investment companies, banks or other institutional investors, broker-dealers, and other investment advisers.

Question 29

Under the Uniform Securities Act, registrations of securities professionals expire

Answer 29

every December 31, unless renewed

Note that the question asks for the expiration date under the Uniform Securities Act, which is December 31. Do not be confused by actual practice, which may vary in some states.

Question 30

Under the Uniform Securities Act, which of the following is excluded from the definition of investment adviser?
I. A bank
II. An investment adviser representative
III. A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain
IV. An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940

Answer 30

I, II, III, and IV

Banks, IARs, federal covered advisers, and lawyers are all specifically excluded from the definition of investment adviser. Any investment adviser under contract to manage a regulated investment company must register with the SEC and is, therefore, a federal covered adviser (regardless of where they have an office). Remember that the law makes a distinction between investment advisers and their representatives and that certain professions are excluded from the definition if the investment advice provided is solely incidental to the practice of that profession. Making suggestions as to how to invest proceeds from a legal settlement would certainly appear to be incidental to the practice of law. Banks are given a blanket exclusion.

Question 31

Under the Uniform Securities Act, which of the following are NOT excluded from the definition of broker-dealer?

Answer 31

Persons who effect securities transactions as part of a regular business solely for their own accounts

Although broker-dealers generally act on behalf of others as well as themselves, there are cases where firms strictly trade for their own positions, such as over-the-counter market makers.

Question 32

Under the USA, a person representing the issuer is not considered an agent in any of the following transactions EXCEPT

Answer 32

when the transactions are exempt

Persons who represent nonexempt issuers of new securities, whether issues are confined to their state of registration or not, are agents under the USA. An individual who represents an issuer in either the sale of certain exempt securities, such as short-term paper, or in an exempt transaction, is excluded from the definition of agent.

Question 33

Which of the following statements relating to the registration requirements of broker-dealers is TRUE?

Answer 33

A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial.

A registration is effective at noon, 30 days after the application has been filed if there is no denial or stop order in process. Registrations of securities professionals expire on December 31, unless renewed. If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.

Question 34

Traditionally, banks have been excluded from the definition of a broker-dealer. However, under recent federal legislation, a bank is included in the definition if it

Answer 34

bought and sold securities on behalf of customers in a wholly owned brokerage subsidiary

Under financial modernization legislation (known as the Gramm-Leach-Bliley Act), banks can have wholly owned brokerage subsidiaries. In such cases, the bank would be a broker-dealer subject to registration. The bank is not a broker-dealer if it refers securities to unrelated third-party brokerage houses or limits its securities-related activities to trust and custodial activities.

Question 35

Under the Uniform Securities Act, an agent’s license is effective for

Answer 35

the time remaining until December 31 of that year at which time it must be renewed

Registrations expire annually on December 31 unless renewed. The initial license will, obviously, be for less than one year.

Question 36

Which of the following are NOT included in the definition of an agent in the Uniform Securities Act?
I. A licensed broker-dealer
II. An officer of an issuer who only represents the issuer in selling shares to a broker-dealer underwriting the company’s securities
III. An officer who represents an issuer of non-exempt securities in the sale of those securities to the public without receiving any compensation
IV. An employee of a broker-dealer whose only transactions are with institutional clients

Answer 36

I and II

An agent is an individual—other than a broker-dealer—who represents a broker-dealer or issuer in securities transactions. An officer—or any other employee—of a company who represents her company in transactions with an underwriter is not included in the term “agent” because the transaction is exempt. In the case of those individuals, officer or not, who represent a non-exempt issuer, registration as an agent is always required unless the transaction is exempt. Compensation is only a factor when selling the issuer’s securities to employees. An employee of a broker-dealer who engages in securities transactions with any clients, institutional or not, is an agent under the act.

Question 37

Investment advisers who have less than $100 million in assets under management register at which of the following levels?
I. State
II. Federal

Answer 37

I only

Investment advisers with less than $100 million in assets under management register with state securities Administrators. Investment advisers with $110 million under management must register with the SEC. An adviser with at least $100 but less than $110 million under management has the choice of registering with the SEC or the state Administrator; an investment adviser must register with either the SEC or the state Administrator.

Question 38

If an individual acting on behalf of an issuer engages in the sale of securities issued by a savings institution organized and supervised under the laws of any state, which of the following statements is TRUE?

Answer 38

The individual is not required to be registered.

An individual representing (employed by) an issuer is exempt from registration as an agent when selling certain exempt securities (see your LEM for the 5 categories that qualify) or non-exempt securities in an exempt transaction.

Question 39

Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they maintain a place of business?
I. A certified financial planner who prepares financial plans and whose only compensation is commissions
II. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients
III. A broker-dealer with extensive business in the state
IV. A mutual fund company with offices and clients in the state

Answer 39

I and II

A certified financial planner who prepares financial plans for commissions must register in the state as an investment adviser representative because the commissions represent compensation for advice. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act.

Question 40

Joan, who has a PhD in economics, has been employed as an agent by Gibraltar Securities for the past 15 years. Missing academic life, she resigns from the broker-dealer and accepts a position as an economics professor at a state university. Which, if any party, is required to notify the state securities Administrator of this change?

Answer 40

Both Joan and the firm

Both the agent and the broker-dealer are required to notify the Administrator promptly.