Weak points

Question 1

Whole life insurance may also be called…

Answer 1

Permanent, ordinary, or straight life insurance

Question 2

A family limited partnership must…

Answer 2

Have a legitimate business purpose (other than avoiding taxes) in order to receive the full potential tax benefits.

Question 3

Barbell Strategy

Answer 3

Consists of buying short-term and long-term bonds, but not intermediate-term bonds. The purchase of long term bonds allows an investor to capture higher long term interest rates. The short term bond provides the opportunity to invest elsewhere if the bond market takes a downturn. There is no guarantee that any money made on the short end of the strategy will offset losses on that could occur on the long end of the barbell.

Question 4

457 Plan

Answer 4

A type of retirement plan used by many public sector workers. These plans grow tax deferred and are generally subject to the same contribution limits as 401k and 403b plans.

Employers may discriminate or exclude certain individuals from the plan.

Question 5

403(b)

Answer 5

Retirement plan used by nonprofit and public school employees

Contributions made to this type of plan are made on a pretax basis, resulting in a zero cost basis. Therefore, all distributions are taxed as ordinary income.

Question 6

Ruel 147

Answer 6

Covers intrastate offerings that are exempt from federal or SEC registration, but may be subject to state qualification.

Question 7

Efficient Market Hypothesis

Answer 7

States that the financial markets are efficient and that the prices of securities reflect all known information; therefore, it is impossible to outperform or time the market. Followers of this believe that buy and hold will serve best over the long run.

Question 8

Fund of hedge funds

Answer 8

Invest in hedge funds and are not typically very liquid. You typically are not able to sell on a daily basis.

Question 9

ADV Part 2

Answer 9

If an advisor changes his fees then they amend this form within 30 days and a copy, or a separate brochure containing the same information, must be given to new clients and offered to her existing clients.

Question 10

Which bonds are most sensitive to interest rates?

Answer 10

Zero coupon bonds.

Question 11

Are endowment policies considered securities?

Answer 11

No

Question 12

Are real estate options considered securities?

Answer 12

No

Question 13

Benchmark Portfolio Management

Answer 13

A manager who constructs a portfolio based on some benchmark. The first securities selected are those in the benchmark and additional securities can be added in an effort to add value.

Question 14

NASAA

Answer 14

Is responsible for updating the Uniform Securities Act as well as maintaining the content of the Series 66 exam.

Question 15

Securities act of 1933

Answer 15

This federal law requires that certain securities be registered with the SEC in order to be offered or sold to the public.

Question 16

Securities Exchange Act of 1934

Answer 16

Think secondary market and registration of finance professionals.

Question 17

Registration by Filing (Notification)

Answer 17

Is used by well established corporations that meet stringent financial requirements.

Not all states allow.

Question 18

Registration by Coordination

Answer 18

May be registered with a state in this way if the security is being registered under the Securities Act of 1933.

A registration statement must be filed with the administrator along with three copies of the latest prospectus that were filed with the SEC.

Question 19

NASAA Model Rule 502(c)

Answer 19

Governs the contents of investment advisory contracts

Question 20

Is it prohibited to project the future earnings of a variable annuity?

Answer 20

Yes

Question 21

A living trust

Answer 21

Also called inter vivos

Is established during the donor’s lifetime.

Question 22

Testamentary Trust

Answer 22

Established through instructions left in the donors will.

Question 23

Internal Rate of Return

Answer 23

Assumes all cash flows are invested at the internal rate of return.

Question 24

Where can an advisor store records?

Answer 24

Microfilm
Microfiche
May also be kept on various electronic storage devices as long as they are tamper-evident.

Must be maintained for 5 years of which the first two must be in an easily accessible place.

Question 25

Money Purchase Plan

Answer 25

Is a defined benefit plan in which the employer must make mandatory contributions. The employer may deduct the contributions for tax purposes.

Question 26

Form 8-k

Answer 26

Must be filed or furnished within four business days after the occurrence of the event for which the filing is made.

Question 27

Can a hedge clause be included in an investment advisory contract?

Answer 27

No

Question 28

Alimony

Answer 28

Deductible for tax purposes by the layer and taxable to the recipient. It is not taxed as earned income, bad is taxed as earned ordinary income.

Question 29

Mutual Funds

Answer 29

Are federally covered securities and a state may not require registration or regulate any offering document.

Question 30

Stop Order

Answer 30

Are entered to limit losses or to protect profits on current positions in an investors account.

Question 31

Settlor Functions

Answer 31

Are decisions normally made by the employer when acting as a plan sponsor or administrator, such as whether to match participant contributions, the type of plan to establish, it’s options, or amending the plan.

Question 32

Time weighted returns

Answer 32

Eliminate biases caused by the inflow or outflow of investor money.

Question 33

If an agent of a broker-dealer leaves the firm to go work for s different broker-dealer what happens to their registration?

Answer 33

It is terminated. The agent’s registration will be reinstated after joining the new firm.

Question 34

Basis

Answer 34

This is the amount of the limited partners liability in a limited partnership. The investor can lose up to this amount but not more.

Question 35

Rule 506 (c) of Regulation D

Answer 35

States that advertising of permitted for private placements, however all investors must be accredited.

Question 36

Onnibus Account

Answer 36

An investment advisor allocates investments from an omnibus account to each of its clients.

Question 37

Form ADV Part 2A - The Brochure Rule

Answer 37

All registered investment advisors are required to provide clients with a disclosure document (brochure) that describes their overall business as well as actual or potential conflicts of interest.

The brochure includes items such as:
the advisors name, address, web site, and the date of the brochure
A statement that registration does not imply a certain level of skill or experience.

Question 38

Form ADV Part 2B - Brochure Supplement

Answer 38

The same clients who receive the firms brochure must also be provided with a brochure supplement. This supplement is similar to a resume.

Question 39

Balance Sheet of Investment Advisors

Answer 39

And audited balance sheet is required if an advisor:

Has custody of client funds or securities
Has full discretionary authority over a clients funds.
Solicits prepayment of advisory fees

Question 40

Form ADV-E

Answer 40

Must be filed when an advisor has custody of client funds and securities.

Must be filed by an independent public accountant following the audit of the advisors books.

Must be submitted to the SEC within 120 days following be completion of the audit.

Question 41

Form ADV-W

Answer 41

Advisors that are filing for a full or partial withdrawal of registration must file this with the appropriate regulator.

Question 42

Certificate of Interest

Answer 42

Is a security regulated by the administrator along with its advertising.