63 Flashcards
1
Q
Official or agency administering the securities laws of a state
A
ADMINISTRATOR
2
Q
Any Materials designed for use by newspapers, magazine, radio… or any other public medium to Solicit business
A
Advertisement
3
Q
An individual who represents a broker/dealer or and issuer when selling or trying to sell securities to the investing public
A
Agent
4
Q
Is a Salaried individual considered an Agent if he represents issuers in the sale of any securities that are exempt from state registration under the uniform securities act
A
No
5
Q
Any Employee, Manager, Director, Officer or partner of a member broker/dealer or another entity (issuer, bank, ect…) or any person controlling, controlled by or in common control with that member is considered an associated person of that member
A
Associated Person
6
Q
State Regulations governing the securities industry
A
Blue-Sky Laws
7
Q
any person engaged in the business of effecting transactions in security for the account of other or for his own account
A
Broker/Dealer
8
Q
What are not classified as broker/dealer
A
Agents, Issuers, Banks, Saving institutions, Persons who have no place of business in the state & only does business with existing customers who is temporarily in this state
9
Q
creates jurisdiction for the state over any agent, broker/dealer or advisor registered in that state
A
Consent to Service of Process
10
Q
An investment adviser that is regulated by the Securities Exchange Commission (SEC) under the Investment Advisers Act of 1940 rather than the State
A
Federal Covered Advisors
11
Q
Federal Covered security
A
Securities exempt from State Regulations - The include new securities issued by companies who securities already trade on the NASDAQ National market system. And new securities issued by investment companies (mutual Funds)
12
Q
Deliberate Concealment, Misrepresentation or omission of material information or the truth to deceive or manipulate another party for unlawful or unfair gain
A
Fraud
13
Q
Securities that have a guarantee, usually from a source other that the issuer as to the payment of principle, interest or dividend
A
Guaranteed Security
14
Q
Material and non-public information obtained or sued by a person for the purpose of trading securities
A
Inside Information
15
Q
Any person that has non-public information (material information) about a corporation. Including directors, officers and stockholders who own 10% or more of any class of equity security of a corporation
A
Insider
16
Q
an organization that trades large volumes of securities such as a mutual fund
A
Institutional Investor
17
Q
Any person who for compensation (a flat fee or a % of Assets Managed) offer investment advice either directly or through publications or writings as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who for compensation and as part of a regular business, issue or promulgates analyses or reports concerning securities.
A
Investment Adviser
18
Q
Is a bank, or trust company an investment advisor
A
NO
19
Q
are professionals such as lawyers, accountants, teachers and engineers who perform investment services solely incidentally to the practice of their profession investment adviser?
A
NO
20
Q
Is a person who sells market letter subscriptions directly to individuals a Investment advisor
A
Yes
21
Q
IS a publisher of a financial publications of general regular and paid circulation considered an investment advisor
A
no
22
Q
Any partner, officer, director or any other individual employed by or associated with an investment advisor who: Gives investment advice or makes recommendation, manages client accounts or portfolios, Determines which investment recommendations or advice should be given, offers investment advisory services or supervises employees involved in any of theses activities
A
Investment Adviser Representative
23
Q
Is an Investment Adviser Representative and Investment Adviser
A
NO
24
Q
any person who issues or proposes to issue any security
A
Issuer
25
An issuers transaction is also called___________
Primary Transaction
26
Federal Law designed to restructure the division of responsibilities between federal regulators and state securities administrators, especially in the areas of mutual fun regulations and the registration of investment advisors
National Securities Markets Improvements Act (NSMIA)
27
NSMIA
National Securities Markets Improvements Act
28
Liquid Capital (cash and assets readily convertible into cash) Maintained by broker/dealer as required by law for customer protection
Net Capital
29
A person other than the issuer of a security
Non-Issuer
30
a transaction in which the proceeds of the sale go to the selling stockholder
non-issuer transaction
31
most non issuer transactions are also called____________
secondary market transactions
32
And offer includes?
every solicitation to sell a security for value and every offer to buy a security for value
33
a sale is
the act of conveying ownership of a security for money or other value.
34
under the Uniformed Securities Act a "Person" is?
Individual, Corporation, partnership, estate, association, fund, joint stock company, unincorporated organization, trust in which the interest of beneficiaries are evidenced by security, and government or a political subdivision of a government
35
Legal document that must be given to every investor who purchases registered securities in a primary offering as required by the securities act of 1933
Prospectus
36
details of a company and particular offering , summary of registration statement filed with the SEC
Prospectus
37
All associated persons engaged in the investment banking and securities business
Registered Representative
38
Who is a Registered Representative
Securities sales person, Individual who supervise, solicit or conducts business in securities, and individuals who train people to supervise solicit or conduct business in securities
39
Securities Act of 1933
Federal Legislation requiring the full and fair disclosure of all material information about the issuance of new securities
40
Securities and Exchange Commission (SEC)
commission created by congress to protect investors , and enforce federal security laws
41
A Security
and instrument that can be traded for value
42
When is an investment considered a security
when a person invests his money in a common enterprise with the expectation of profit from the managerial efforts of a third party
43
Are insurance policies and fixed annuities considered to be securities?
NO
44
a Broker always acts as___________
an agent for the accounts of a customer
45
a Dealer always acts_____________
For his own account, buying and selling securities for his own inventory
46
A Broker/Dealer must register with?
SEC, NASD and state securities division
47
Offer To Sell
an attempt to solicit a purchase or sale in a security
48
What is not included in an offer to sell?
Bona fide pledges or loans, stock dividends, stockholder approved mergers, acts incident to approved corporate reorganizations
49
Must an agent register in every state they sell in?
Yes
50
Agent
Individual who represents a broker/dealer or issuer in effecting to purchases or sales of securities
51
how can an agent register in another state
filing an application, paying a registration fee and providing a consent to service process form. No separate exam is needed however the broker dealer the agent represents must be registered in the state for the agent to register
52
National Securities Markets improvement act of 1966 (NSMIA)
Eliminates duplicate registration requirements for investment advisors. And Advisor is either regulated by the state he conducts business or SEC not both
53
Who must Register with the SEC?
advisers managing $30 million or more I assets and those managing investment companies (mutual funds)
54
Net Capital Requirements
administrator may require a minimum amount of net capital for broker/dealer and investment advisory firms especially when the firm has custody of client funds or securities
55
Effective date of registration
unless denied by the administration registration becomes effective in 30days after the registration application has been filed or sooner at the administrations discretion. Every broker/dealer, investment advisor and agent registration expires Dec 31st unless renewed
56
Broker/dealer must keep there records for ? years
3
57
Investment advisors must keep there records for ? years
5
58
who must register as a Agent of Issuer
president of corporation or member of board sell stock of that corporation to the public and earn a commission for doing so
59
if a unregistered agent of a broker/dealer sells a security who has violated the law?
BOTH
60
6 exceptions to the definition of "security "are
Non Variable insurance policies, Life insurance endowment contracts, Fixed Annuities, Retirement plans, Checking/savings/passbook accounts, & Futures contracts (commodities)
61
Registration period
a securities registration is effective for one year from the effective date unless the underwriters are still attempting to distribute unsold shares in which case the effectiveness of the registration will be extended until the shares are sold
62
When can the administration issue a stop order?
It is in the public interest to do so, the registration statement is misleading or incomplete, any officer of the issuer has been convicted of a securities crime, the security is subject to court injunction, the offering is fraudulent, there are excessive or unreasonable offering expenses or promoters fees
63
are exempt securities exempt from the antifraud provisions of the uniform securities act?
NO
64
U.S. Government Securities
All securities issued or guaranteed by the US govt. Including Series EE and series HH savings bonds
65
Municipal Securities
Securities issued or guaranteed by any state or political subdivision of any state or any agency of a state or a subdivision also are exempt
66
Exempt Securities (10)
US Gov Securities, Municipal Securities, Any Recognized Foreign Government, Financial Institutions, Insurance Companies, Public Utilities and Common Carriers, Religious and Charitable Organizations, Commercial Paper, Employee pensions and profit-sharing, Federally Covered Securities
67
Recognized Foreign Government Securities
All securities issued by a recognized Foreign government are exempt. However Securities issued by foreign corporations are non-exempt
68
Financial institution Securities
all securities issued by and representing an interest in or a debt of any national bank or federal savings and loan association including CD's are exempt. Securities issued by bank holding companies are not exempt
69
Insurance company Securities
any security that represent an interest in or debt of or is guaranteed by an insurance company is exempt. However Variable annuities, investment contacts and similar securities with payment depended on the performance of a separate account invested in securities are non-exempt
70
Public Utilities and Common Carriers Securities
any security issued or guaranteed by a railroad, trucking company, or another common carrier, public utility or a hold company that is subject to the jurisdiction of the Interstate Commerce Commission (ICC) or the Public Utility holding Company Act of 1935 is exempt
71
Commercial Paper Securities
Promissory notes issued by large corporations with maturity of less than nine months and under $50,000 and are rated In the three highest rating categories by a nationally recognized rating service (Moody'....) are exempt
72
Employee pensions and profit-sharing
Investment contracts issued in connection with employee profit-sharing, savings, or similar benefit plans are exempt if the state administrator is notified in writing at least 30 days before the commencement of such plan
73
What Transactions are exempt from Registration and advertising filing requirements of the Uniform Securities Act?
Isolated Non-issuer Transaction, Non-issuer Transactions in Outstanding Securities, Unsolicited Orders, Issuer Transactions, Transactions by certain Persons, Transactions with Financial Institutions, Private placement, Pre-Organization Certificates, Transactions with Existing security holders
74
Exempt Transaction
The Method by which the security is sold is exempt
75
Exempt Security
Securities that are exempt from both the registration requirements and advertising filing requirements of the Uniform Securities Act
76
Isolated Non-issuer Transaction
any transaction that does not directly or indirectly benefit and issuer. Initial (primary) offerings are considered issuer transactions. Transactions in the secondary market are considered non-issuer transactions
77
Non-issuer Transactions in Outstanding Securities
securities that are already traded in the secondary market they are exempt provided it has been outstanding in the hands of the public for at least 90 days
78
Unsolicited Orders
Unsolicited non-issuer transactions affected through broker/dealer are exempt . A Registered Representative's client may purchase any securities he chooses in the secondary market
79
Issuer Transactions
Transactions between issuers and underwriters are exempt
80
Fiduciary
person who is responsible for something held in trust for another person
81
Private placement
a sale of non-exempt securities that is not made to the general public
82
The Uniform Securities Act stipulates the following requirements private placement
1, The number of people receiving the offer must be restricted to no more than 10 in a 12month period 2) all sales must be made to buyers who are purchasing for the purpose of investments 3) No Commissions or fees may be paid directly or indirectly
83
a Pre-Organization Certificate is exempt when the following conditions are met...
1) No commission or other remunerations is provided for soliciting prospective subscribers 2) The number of subscribers does not exceed 10 3) No Payment is made by any subscriber
84
Registration by Coordination
The type of state securities that become effective when the security is cleared by the SEC
85
What Is a transaction called when there is no benefit to the issuer
Non-issuer transaction
86
What is the official designation of the person or agency that enforces the Uniform Securities Act in each State
Administrator
87
What does "guaranteed" mean when the word is used to describe security
The Security has a backer that guarantees the payment of principal and interest
88
What is the difference between an offer and a sale
an offer is the attempt to sell, a sake is a binding contract to transfer a security for value
89
What is the smallest order that can be placed for an institutional account?
There is no limit on institutional order sizes
90
under the national de minimis investment advisers are exempt from state registration if they solicit how many clients within the year
less than 6
91
The National Securities Markets Improvement Act of 1996 affects federal and state laws in what ways?
Federal Law will preempt State Law
92
What type of Security registration allows the administrator to require any information he decides is necessary
Qualification
93
Which type of state security registration is used when a security is being registered simultaneously with the SEC under he securities act of 1933
Coordination
94
What ould exonerate a seller from civil suit resulting form an illegal sale made in a state
Seller offers to buy back the security sold
95
How long are Registration Statements effective
one year from the effective dae
96
a Customer is upset with her agent for not servicing her accoutns properly and sends him a complaint letter about his actions what should the agent do?
Bring the customer complaint to his employer immediately -
97
Name an example of market manipulation
creating the illusion of active trading
98
A customer living in one state revieves a phone call from an agent in another state. A transaction between the two occures in yet another state. Under whose jurisdiction does the transaction fall?
Administrators of all three states involved
99
If an agent is conviced of a securites related misdemeanor or declared insolvent what happens?
Agenst license could be revoked
100
Under the Uniform Securities Act who may providedi investment advise incidental to their normal business without requiring registration as an investment advisor
Teachers, Lawyers, Engineers
101
According the the Uniform Securities Act the sale of a security to an insurance company is?
an Exempt transaction
102
Under NSMIA issuer are required to Pay?
State Filing Fees
103
What Information may be contained itneh advertising prospectus fo a management investment company?
Performance Figures
104
According to the Unifom Securites Act when an Agent Leaves one Broker Dealer to join another broker dealer when must the agent's license be changed over
Immediately
105
Under the National Securites Markets Improvement Act the Uniform Securties ACt if an investment adviser has custory of customer funds and securities how often must the adviser send the customer a statement of account activity
Quarterly
106
Microscam wants to sell stock to the public. Six of Microscams full time employees sell the stock for Microscam under the Uniform Securities Act these people would be considered?
Agents of the issuer
107
According to the Uniform Securities Act if the registration of an agent is revoked by the administrator, the administrator can deny future registration of that agents as a(n)
Broker dealre or agent
108
Under the Uniform Securities Act, the basic definition of a security is:
A. any investment made for profit with at least 10 participants
B. an investment that is transferable to another person without restriction
C. an undivided interest in a business enterprise with other parties
D. an investment in a common enterprise for profit with management by a third party
The best answer is D. The basic definition of a security is: an investment in a common enterprise for profit, with management provided by a third party.
109
```
Which of the following are defined as securities under the Uniform Securities Act?
I Warehouse receipt
II Collateralized Mortgage Obligation
III Fixed Annuity Contract
IV Pre-organization certificate
```
A. II only
B. III and IV
C. I, II, and IV
D. I, II, III, IV
The best answer is C. Fixed annuity contracts are excluded from the definition of a security, since the insurance company bears the investment risk. Please note, in contrast, that variable annuities issued by insurance companies, are defined as securities. Pre-organization certificates (such as limited partnership subscription agreements); warehouse receipts; and collateralized mortgage obligations all fall under the definition of a security.
110
All of the following are defined as securities under the Uniform Securities Act EXCEPT:
A. Stock options
B. Commodity options
C. Stocks
D. Commodities
The best answer is D. Stocks, stock options, and commodity options contracts are all defined as securities. Please note that physical commodities (e.g. gold, wheat, etc.), and futures contracts that trade on these commodities in such markets as the Chicago Board of Trade, are not considered to be securities
111
```
Which of the following are NOT defined as securities under the Uniform Securities Act?
I Individual Retirement Accounts
II Keogh Plans
III Commercial Paper
IV Real Estate Condominium Investments
```
The best answer is A. Individual Retirement Accounts and Keogh Plans are specifically excluded from the definition of a security. Real Estate Condominium investments can be considered to be a security when the condominium is managed by a third party for profit. Commercial Paper is also defined as a security. However if it has a maturity of nine months or less, is issued in amounts of $50,000 or more, and is rated in one of the top 3 ratings categories, it is exempt from registration.
112
All of the following are defined as securities under the Uniform Securities Act EXCEPT:
A. Preorganization certificate
B. Warehouse receipt
C. Collateralized Mortgage Obligation
D. Fixed Annuity Contract
The best answer is D. Fixed annuity contracts are excluded from the definition of a security, since the insurance company bears the investment risk. Please note, in contrast, that variable annuities issued by insurance companies, are defined as securities. Pre-organization certificates (such as limited partnership subscription agreements); warehouse receipts; and collateralized mortgage obligations all fall under the definition of a security.
113
Which of the following are defined as federal covered securities? I Common stock of ABC Corp. - which is listed on the NYSE
II Preferred stock of ABC Corp. - whose common stock is listed on the NYSE
III Bonds of ABC Corp. - whose common stock is listed on the NYSE
A. I only
B. I and II
C. II and III
D. I, II, III
The best answer is D. Federal covered securities include NYSE listed, AMEX listed and NASDAQ listed securities of an issuer; and any senior securities (preferred stock and bonds) of that issuer
114
All of the following are exempt securities under the Uniform Securities Act EXCEPT:
A. Treasury bonds
B. Municipal bonds
C. U.S. Government agency bonds
D. Surety bonds
The best answer is D. U.S. Government bonds, U.S. Government agency bonds, and municipal bonds are exempt securities. Surety bonds are not securities. The Administrator can require, as a condition of registration for broker-dealers and investment advisers, that they post a surety bond with the State. Usually set at $10,000, this surety bond amount is held by the State, and would be forfeited to the State if the registrant violates any provisions of the Uniform Securities Act.
115
The gift of an assessable security is defined under the Uniform Securities Act as a(n):
A. exempt transaction
B. sale of a security
C. unsolicited transaction
D. issuer transaction
The best answer is B. The gift of an assessable security is not a gift - the issuer has the right to assess the holder for more monies, if they are needed to run the business. This gift relieves the giver of a liability to pay; which is the same thing as the recipient of the "gift" - the buyer - actually paying for the security. Thus, a buyer paying for a security; or relieving the seller of a liability; is a "sale" of that security.
116
The term "sale" includes each: I Contract of sale
II Disposition of an interest for value
III Gift of assessable securities
A. I only
B. II only
C. III only
D. I, II, III
The best answer is D. The term "sale" includes every contract of sale; disposition of an interest for value: and gifts of assessable securities since the recipient of the gift is responsible for any future assessments.
117
An "offer" or "offer to sell" would include which of the following? I A sale of a security
II An offer of a security
III An offer of an interest in a security
IV The solicitation of an offer to buy a security
A. I only
B. II and III
C. II, III, IV
D. I, II, III, IV
The best answer is C. An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value.
118
All of the following are considered to be an "offer to sell" a security EXCEPT:
A. the gift of an assessable security
B. a security given as consideration for the purchase of another security
C. the offer of rights to purchase an underlying security
D. the giving of a stock dividend to holders of that security
D. Before an "offer to sell" a security is made in a state, the issue must either be registered in that state, or must be sold under an available exemption. A stock dividend given by an issuer is excluded from the definition of an "offer to sell" a security, since the holder really is receiving "nothing" - after the dividend is received, he or she holds more shares, with each one being worth proportionately less.
Included in the definition of an "offer to sell" is:
The gift of an assessable security (which obligates the recipient to make future payments)
A security that is "given" in consideration for the purchase of another security, since by tying the "gift" to the purchase of the other security, that person is really buying both, and both must be registered in that State
A rights or warrants offering on an underlying security, since the rights give the holder the right to buy the underlying stock from the issuer at a pre-determined price.
119
Under the Uniform Securities Act, an "offer" or "offer to sell" include all of the following EXCEPT:
A. an offer of a security
B. a sale of a security
C. the solicitation of an offer to buy a security
D. an offer of an interest in a security
B. An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value.
120
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An agent tells a customer: "Since I am not registered in your State, I cannot contact you and ask you to buy a security. However, you can call me and ask me to sell it to you, since then I am not soliciting you". Under the Uniform Securities Act: I The agent is soliciting an offer to sell from the customer
II The agent is soliciting an offer to buy from the customer
III The agent's actions are permitted
IV The agent's actions are prohibited
A. I and III
B. I and IV
C. II and III
D. II and IV
```
D. This one is interesting. If an agent is not registered in a given State, then that agent cannot solicit orders to buy or sell securities in that State. However, the agent can accept unsolicited transactions from customers, since these are exempt. In this case, the agent is telling the customer "I cannot call you and ask you to buy the stock" (probably because the agent is not registered in the customer's State), "but if you call me and ask me to sell it to you, then I can" (because then the transaction would be "unsolicited"). The agent has attempted to induce an offer to buy (purchase) from the customer (since the agent would be selling, the customer is buying). This would be unethical and is prohibited if the agent were not registered in the customer's State.
121
An agent tells a customer "I cannot sell you that stock, but if you want to buy it, let me know and I can sell it to you". The agent has attempted to induce a(n):
A. offer to purchase from the customer
B. offer to sell from the customer
C. sale from the customer
D. purchase from the customer
A. This one is interesting. If an agent is not registered in a given State, then that agent cannot solicit orders to buy or sell securities in that State. However, the agent can accept unsolicited transactions from customers, since these are exempt. In this case, the agent is telling the customer "I cannot sell you the stock" (probably because the agent is not registered in the customer's State), "but if you call me and offer to buy the security, then I can sell it to you" (because then the transaction would be "unsolicited"). The agent has attempted to induce an offer to buy (purchase) from the customer. This would be unethical if the agent were not registered in the customer's State.
122
An agent asks a customer to make an offer to sell a security to that agent's broker-dealer for value. Under the Uniform Securities Act, the agent has:
A. offered to buy the security
B. offered to sell the security
C. contracted to buy the security
D. contracted to sell the security
A. An "offer to purchase" is defined as every attempt to buy a security, or solicitation of an offer to sell a security, for value.
123
All of the following are defined as either a "sale" or an "offer to sell" common stock of an issuer EXCEPT:
A. any offer to sell the common stock for value
B. any solicitation of an offer to buy the common stock for value
C. the gift of the common stock to an employee of the issuer
D. the sale of a bond with detachable warrants to buy the common stock of that issuer
C. The definition of a "sale" is every contract of sale, contract to sell, or disposition of a security, or interest in a security, for value. The definition of an "offer to sell" is every attempt or offer to dispose of, or solicitation of an offer to buy a security. Thus, choices A and B fit the definition. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security (choice D correct). The gift of a security is NOT considered to be a sale, unless the security is assessable. Common stock is non-assessable, so this is simply a gift, not a sale.
124
Under the Uniform Securities Act, which of the following are defined as either a "sale" or an "offer to sell" common stock of an issuer? I Any offer to sell the common stock for value
II Any solicitation of an offer to buy the common stock for value
III The sale of a bond with detachable warrants to buy the common stock of that issuer
IV The gift of the common stock to an employee of the issuer
A. I only
B. II and III only
C. I, II, III
D. I, II, III, IV
C. The definition of a "sale" is every contract of sale, contract to sell, or disposition of, a security, or interest in a security, for value. The definition of an "offer to sell" is every attempt or offer to dispose of, or solicitation of an offer to buy a security. Thus, choices I and II fit the definition. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security (making choice III correct). The gift of a security is NOT considered to be a sale, unless the security is assessable, Common stock is non-assessable, so this is simply a gift, not a sale.
125
Under the Uniform Securities Act, an offer or sale does NOT exist if the securities are: I being pledged as collateral for a loan
II non-assessable and are given as a gift
III exchanged for another type of security under a judicially approved reorganization
A. I only
B. I and II
C. II and III
D. I, II, III
D. A sale is defined as a contract to dispose of a security for value. The pledge of securities is not a "sale"; the gift of non-assessable securities is not a "sale"; and an exchange of one security for another under a judicially approved corporate reorganization is not considered a "sale".
126
The basic definition of an "Administrator" is:
A. a person who manages the assets of individuals for a profit
B. a person designated to enforce the provisions of the Uniform Securities Act
C. a person that provides investment advice for a fee
D. a person designated to make investments for profit for a third party
B. The basic definition of an administrator is the person designated by the state to enforce the provisions of the Uniform Securities Act. The Administrator is typically the state securities commission or commissioner, or the secretary of state
127
Under Uniform State law, the definition of a "guaranteed" security is one that is guaranteed by someone other than the issuer against loss of:
A. principal
B. dividends
C. interest
D. all of the above
D. A guaranteed security is one that is guaranteed by a person other than the issuer as to payment of principal, dividends and interest.
128
Under the Uniform Securities Act, the term “guarantee” can be made by a third party other than the issuer to all of the following EXCEPT:
A. principal
B. dividends
C. interest
D. capital appreciation
D. The term “guarantee” is defined as a guarantee as to payment of dividends, interest or principal made by someone other than the issuer. The definition does not apply to a guarantee of capital appreciation (which cannot be guaranteed, since the security may, or may not, appreciate).
129
Which of the following are defined as a "State" under the Uniform Securities Act? I Hawaii
II Puerto Rico
III Virgin Islands
IV Key West
A. I only
B. II and III
C. I, II, III
D. I, II, III, IV
C. "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. Key West is part of the State of Florida; it is not a territory or possession.
130
All of the following are defined as a "State" under the Uniform Securities Act EXCEPT:
A. California
B. British Columbia
C. District of Columbia
D. Puerto Rico
B. "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. British Columbia is part of Canada; not part of the United States
131
Under the Uniform Securities Act, which of the following are allowed forms of investment adviser compensation? I Charging a flat fee only if the portfolio increases in value
II Charging an hourly rate which includes the time it takes to get to the client's office and back
III Charging a fee based upon a fixed percentage of assets under management
IV Charging a flat fee per year regardless of the portfolio size
A. I only
B. III only
C. II and IV
D. II, III, IV
D. Fees based upon a percentage of assets under management and flat fees (including hourly and annual fees) are permitted as long as the details are fully disclosed to customers. Performance fees are prohibited.
132
An investment adviser would be permitted to charge a 2% fee to clients based on all of the following EXCEPT:
A. Average assets under management over the calendar year
B. Increase in assets under management over the calendar year
C. Highest value of assets over the calendar year
D. Assets under management at the end of the year
B. Investment advisers cannot be compensated based on gain or loss in an account under Uniform State Law. Compensation based on an increase in assets under management would be considered to be based on “gain” and would be prohibited. Taking a percentage of assets under management is the norm for investment advisers. It makes no difference if the basis for the calculation is average net assets over the year; end-of-year net assets; or highest value of net assets over the year.
133
A customer opens an advisory account by depositing $2,000,000. Under Uniform State Law, which of the following fee arrangements is permitted?
A. Annual account fee
B. Performance fee
C. Hourly fee
D. All of the above
D. Because the Investment Advisers Act of 1940 permits the charging of performance fees to qualified customers (those with either $750,000 invested or a net worth of $1,500,000), NASAA cannot prohibit the charging of a performance fee for this customer who is investing $2,000,000. (Remember that Federal law supersedes State law; in the absence of a Federal law, then only that State law applies.) An annual account fee, or an hourly fee arrangement, would always be acceptable.
134
An investment adviser may be compensated with which of the following? I wrap fees
II soft dollars
III 12-b-1 fees
IV commissions
A. I and II
B. III and IV
C. I, II, III
D. I, II, III, IV
D. Investment advisers can collect wrap fees, “soft dollar” compensation, 12-b-1 fees and commissions. If these are being paid by another firm in return for directed business, this must be disclosed to the customer.
135
An investment adviser may NOT be compensated with which of the following?
A. wrap fees
B. soft dollars
C. bid-ask spreads
D. commissions
C. Investment advisers can collect wrap fees, “soft dollar” compensation and commissions. If these are being paid by another firm in return for directed business, this must be disclosed to the customer. Bid-ask spreads are earned by securities dealers that buy securities into their inventory and sell securities out of their inventory. Broker-dealers earn these; investment advisers do not.
136
A Registered Investment Adviser who is also a registered representative manages a client's account, charging the client both commissions on trades and an advisory fee. Which statement is true?
A. This is not unethical as long as disclosure is made to the client
B. This is unethical because a client cannot be charged both commissions and advisory fees at the same time
C. This is not unethical because a client can be charged both commissions and advisory fees at the same time
D. This is not unethical as long as the total charges are fair and reasonable
A. An investment adviser that charges advisory fees to a client for recommending securities; and then charges commissions to that client on trades performed; would be engaging in an unethical practice if the adviser did NOT disclose the 2 sources of revenue. As long as disclosure is given to the customer (and the charges are fair), this is OK. The overriding theme here is that all charges to customers must be disclosed.
137
Under Uniform State Law, advisory contracts:
A. can be executed orally
B. can be executed electronically
C. can be executed in writing
D. any of the above
C. Under Uniform State Law, investment advisory contracts must be in writing - that is, there must be a signature of each of the parties to the contract on paper. It is the signature that makes the contract legally binding.
138
Investment advisers are prohibited from doing all of the following EXCEPT:
A. Assigning a customer's contract without permission
B. Charging a retainer fee
C. Charging commissions on trades effected for the client
D. Changing partnership management without notifying clients
B. Investment advisers cannot assign (transfer) an advisory contract without the customer's permission. Charging commissions on trades effected for the client is prohibited since the adviser is compensated based on a percentage of assets under management. However, if the adviser has a separate broker-dealer, the broker-dealer entity can handle the trades and earn the commissions. Investment advisers are obligated to notify clients if the management of the investment adviser changes (when the investment adviser is structured as a partnership). There is no prohibition on an investment adviser charging a retainer fee.
139
Which of the following events would result in an advisory contract being considered to have been transferred?
A. An investment adviser formed as a partnership with 10 partners, admits 2 new partners
B. An investment adviser formed as a partnership with 2 partners, admits 10 new partners
C. An investment adviser formed as corporation with 10 shareholders, admits 2 new shareholders
D. An investment adviser formed as a corporation with 2 shareholders, admits 10 new shareholders
B. If an investment adviser is a partnership, and there is a change in the majority of the partners, this is legally considered to be an "involuntary assignment" of the advisory contract to a new partnership; and therefore, customer approval of the assignment is required. Note that this legal interpretation does not apply to investment advisers formed as corporations; it only applies to partnerships.
140
An investment adviser is "bought out" by another advisory firm. Which statement is true?
A. The sale must be approved by the State Administrator prior to the accounts being moved to the acquiring firm
B. Each customer of the "bought out" investment adviser must give prior approval for his or her account to be moved to the acquiring firm
C. A majority of the customers of the "bought out" investment adviser must give prior approval for all of the accounts to be moved to the acquiring firm
D. There is no requirement for approval from either the State Administrator or the customers
B. The sale of the advisory firm is a transfer of each customer's account to another adviser. This is an assignment of the account that requires prior customer approval on each transferred account
141
Upon the annual renewal of an advisory contract, which statement is true under NASAA rules?
A. The customer must be offered a copy of the Form ADV Part I
B. The customer must be offered a copy of the Form ADV Part II
C. The customer must be offered a copy of Form ADV Part III
D. The customer must be offered a copy of the adviser's disclosure statement
D. NASAA rules require that each advisory client and prospective advisory client be furnished with a written disclosure statement, which may be a copy of the Form ADV Part II. This must be provided to the client upon entering into a new contract and must also be delivered annually without charge (or offered in writing to be delivered upon written request of the advisory client). Also note that State registered advisers would only be able to offer the disclosure statement, since they don't file a Form ADV with the SEC
142
Which of the following is prohibited in an advisory contract under NASAA rules?
A. Custody Provision
B. Liquidated Damages Provision
C. Non-Assignment Provision
D. Discretionary Authority Provision
B. A “liquidated damages provision” in an advisory contract would state that if the customer suffers a loss, the adviser is responsible. This is no different than a prohibited guarantee against loss and thus is not permitted. Advisory contracts can permit the adviser to take custody (unless that State prohibits this); must have a non-assignment provision, which means that the contract cannot be assigned to another investment adviser without customer consent; and can give the adviser discretion over the customer’s account.
143
Under Uniform State Law, investment advisory contracts: I must be in writing
II cannot allow for payment to the adviser based upon capital gains in the account
III cannot allow for prepaid advisory fees
IV cannot be assigned to another investment adviser without customer approval
A. I and II only
B. III and IV only
C. I, II and IV
D. I, II, III, IV
C. Under the Uniform Securities Act, advisory contracts must be in writing; and must base the advisory fee as a fixed dollar amount or as a percentage of assets under management. Compensation based upon gains in the account is not allowed. Prepaid advisory fees are allowed (it is common to have up to 1/2 year's fee paid in advance). Finally, the contract must provide that if the account is assigned to another adviser, the customer must give prior approval for the transfer.
144
Under the Uniform Securities Act, an investment adviser is prohibited from taking custody of a client's funds if: I The Administrator prohibits this by rule
II The firm fails to notify the Administrator that it has custody or may take custody
III The firm is registered as a broker-dealer as well as an investment adviser
A. I only
B. I and II
C. II and III
D. I, II, III
B. The fact that a broker-dealer can also be registered as an investment adviser has no bearing on whether an investment adviser can take custody of a customer's securities. An investment adviser can take custody of a customer's securities, if the firm notifies the Administrator that it has custody or may take custody. However, if the Administrator prohibits taking custody, then obviously the firm cannot do so.
145
Under the requirements of the Uniform Securities Act, if an adviser takes custody of a customer’s funds or securities, the customer must be: I informed in writing of the safekeeping location at the time that custody is taken
II given a written receipt for the funds or securities at the time that possession is taken
III provided with monthly account statements
IV provided with quarterly account statements
A. I and III
B. I and IV
C. II and III
D. II and IV
B. The custody rule requires that prompt notice be given to clients in writing of the qualified custodian’s name, address and the manner in which the funds or securities are maintained. There is no requirement to give the customer a written receipt for funds or securities taken into possession (though this is not a bad idea). Account statements are required to be sent quarterly, not monthly.
146
Under NASAA, investment advisers must update their ADV filing made with the State: I yearly, by February 1st following year end
II yearly by March 31st following year end
III within 30 days of any material change
IV within 90 days of any material change
A. I and III
B. I and IV
C. II and III
D. II and IV
C. Under NASAA rules, investment advisers must update their Form ADV (State registration form) annually, within 90 days of year end, to reflect current and accurate information and must offer the updated Form ADV to its clients. In addition, if there is any material change in the ADV information that occurs during the year, the filing must be amended within 30 days.
147
Under NASAA rules, the Form ADV filed with the State must be: I updated quarterly
II updated annually
III made available to customers
IV made available to other investment advisers
A. I and III
B. I and IV
C. II and III
D. II and IV
C. Under NASAA rules, investment advisers must update their Form ADV annually to reflect current and accurate information and must offer the updated Form ADV to its clients.
148
Under NASAA rules, investment advisers must annually:
A. update the Form ADV disclosure document and make it available to customers
B. compute the total fees charged to each customer and disclose them in writing
C. send customers account statements, if the adviser takes custody, or intends to take custody, of client assets
D. update customer account profiles and suitability information and change investment allocations accordingly
A. Under NASAA rules, investment advisers must update their Form ADV annually to reflect current and accurate information and must offer the updated Form ADV to its clients. Account statements must be sent quarterly if the adviser takes custody. Annual updating of suitability information makes sense, but is not a rule.
149
Which of the following are unlawful activities for an investment adviser? I To enter into an advisory contract that does not detail compensation arrangements
II To enter into an advisory contract that provides for compensation based solely on capital appreciation
III To fail to notify the Administrator that the adviser has custody of the client's funds
A. I only
B. I and II
C. II and III
D. I, II, III
D. Under the Uniform Securities Act, investment advisers must enter into a written contract with clients that spells out compensation arrangements. Compensation cannot be based solely on capital gains achieved - it is typically based on an annual percentage of all assets under management. The Act requires the investment adviser to notify the Administrator if he has custody of customer funds or if he can have custody of customer funds.
150
All of the following are unethical practices on the part of an investment adviser EXCEPT:
A. Assigning an investment contract without obtaining client consent
B. Acting as the executing broker in a transaction recommended to a customer without making disclosure of such
C. Altering an estate tax plan prepared by a customer’s attorney to better fit the customer’s investment situation
D. Appointing the adviser as trustee for a customer’s trust account at the direction of the customer
D. Choices A and B are clearly prohibited under the Uniform Securities Act - investment advisers cannot assign advisory contracts without customer consent; and investment advisers cannot have broker-dealer affiliates execute recommended transactions for a commission unless the customer is made aware of the arrangement. Choice C is also unethical - the adviser cannot alter an estate tax plan - only the customer can do so, using an attorney to insure that the plan is valid. Choice D is not unethical - if the customer wishes to appoint the adviser as trustee over a trust account, so be it. The adviser has a fiduciary responsibility to the customer, as does a trustee - so this is not improper.
151
Which type of transaction is not covered under the anti-fraud provisions of the Uniform Securities Act?
a. A completed sale of a security
b. A contract agreeing to a sale
c. A direct offer to sell a security at a stated price
d. A solicitation of an offer to sell
1. D: A solicitation of an offer to sell. The anti-fraud provisions of the Uniform Securities Act (USA) apply to all offers and sales of securities. An offer is an attempt to make a security available to another party and includes completed sales, sales contracts and direct offers where one person is willing to sell (or otherwise dispose of) a security at a given price. The USA provisions also apply to indirect offers (the solicitation of an offer to buy), where the offer is made by a person who is not the owner of the particular security for sale. The USA defines the terms "sale" and "offer" broadly, helping to protect potential investors against the possibility that a transaction would be structured in such a way that might fall outside of a narrower definition of a sale, an offer or a purchase in order to not be subject to anti-fraud provisions.
152
Which information is included in a prospectus, but not in a preliminary prospectus?
a. The offering price of the security and the name of the underwriter
b. The offering price of the security and the date the security is available
c. The name of the underwriter and the date the security is available
d. The date the security is available and a statement that the securities have been reviewed by the state Administrator
2. B: The offering price of the security and the date the security is available. The preliminary prospectus contains the same information as the prospectus except for the offering price and the date the security is available. It's referred to as a "red herring" because it contains a notification in the document, in red, that the document is not an attempt to sell the security. During the period following registration of the security with the Securities and Exchange Commission but before the security is initially sold, broker-dealers may send the preliminary prospectus to prospective investors who have indicated an interest in possibly buying the security. A preliminary prospectus provides potential investors with the information necessary to analyze the potential investment in advance of the offering.
153
According to the Uniform Securities Act, what constitutes a fraudulent business practice?
a. A person intentionally acting in an unethical manner
b. A person intentionally acting in a deceptive or misleading manner
c. Investment advice that leads to a loss in a client's account
d. Investment performance being inconsistent with the expectations provided by the investment advisor
B: A person intentionally acting in a deceptive or misleading manner. The Uniform Securities Act (USA) prohibits fraudulent business practices.
154
What occurs when parties engage in matching purchases?
a. A significant increase in outstanding shares
b. An artificial increase in the market value of a security
c. Small shareholders realize capital losses
d. The parties pay a lower commission
B: An artificial increase in the market value of a security. Matching purchases, a form of market manipulation, is prohibited by the Uniform Securities Act. Parties engaging in matching purchases are attempting to artificially increase the market value of a security by agreeing to repeatedly buy and sell the same security to increase its trading activity. This artificially high amount of activity has been known to entice investors to purchase shares and artificially increase the market value of the security. Once the market value of the security has increased, the parties engaging in the matching purchases then sell their shares at the artificially high price.
155
Under what circumstances may a registered agent represent multiple registered broker-dealers?
a. With written permission from the broker-dealers
b. When the broker-dealers are affiliated with each other
c. With written permission from the SEC
d. With written permission from FINRA
B: When the broker-dealers are affiliated with each other. A registered agent may represent multiple registered broker-dealers or issuers if all of those broker-dealers or issuers are affiliated with each other. To be considered an affiliate, each of the broker-dealers or issuers must have a common Controller. If the broker-dealers or issuers are not affiliated in this manner, an agent may still be permitted to represent them if the state Administrator gives authorization for the agent to operate under multiple licenses. Otherwise, an agent may only represent a single broker-dealer or issuer.
156
Which of the following is NOT considered to be a ‘federal covered’ security:
A. Shares of an open-end mutual fund
B. Shares of a corporation whose stock trades on the NYSE
C. Shares of a corporation whose stock trades on NASDAQ
D. Bonds of a corporation whose stock trades on the AMEX
C The term ‘federal covered’ means that the securities are subject to federal regulation, rather than state. Nationally traded securities, such as those listed on the NYSE and other SEC registered exchanges and those securities equal or senior to them, are considered to be federal covered, as are investment company securities. However, NASDAQ traded securities are not federal covered UNLESS they trade in the NASDAQ National Market System (NMS).
157
Under the Uniform Securities Act, all of the following would meet the definition of an ‘agent’ EXCEPT:
A. An individual who represents an issuer in the sale of non-exempt securities
B. An individual who represents a broker/dealer in the sale of exempt securities
C. An individual who represents a broker/dealer in exempt transactions
D. A sales assistant handling the sale of futures contracts or commodities
D Under the USA, individuals who represent a broker/dealer must register as agents when selling either exempt or non-exempt securities, even if the transaction is exempt (such as a private placement). However, registration as an agent is not required when representing the issuer of exempt securities or those sold in an exempt transaction. Since futures contracts and/or commodities are not securities, registration is not necessary
158
Under the Uniform Securities Act, which of the following is NOT an issuer:
A. A company whose shares trade on the NYSE
B. A new company that is offering their shares to the public
C. A municipal government entity whose bonds trade in the OTC market
D. A broker/dealer trading securities as an agent for their customers
D Under the USA, an issuer is any person who issues or proposes to issue any security. However, a broker/dealer is defined as any person who is engaged in the business of effecting securities transactions for the accounts of others (a ‘broker’) or for their own account (a ‘dealer’).
159
Who has to notify the Administrator when an Investment Advisor Representative terminates employment with their Investment Advisory Firm:
A. Either the Investment Advisory Firm or the Investment Advisor Representative
B. The Investment Advisory Firm
C. The Investment Advisor
D. Both the Investment Advisory Firm and the Investment Advisor Representative
A If an Investment Advisor Representative terminates employment with an Investment Advisor (IA) it depends upon how the IA Firm is registered. If the firm is a state registered advisor, then only the IA firm has to notify the Administrator. However, if the IA is a federal registered firm, then it is the IAR who must notify the Administrator
160
Broker/dealers must keep all of the following records EXCEPT:
A. Blotters and other records of original entry
B. Ledgers indicating cash and securities received
C. Customer order tickets
D. A list of all customers who were sent promotional materials
D Broker/dealers must make and keep such accounts, correspondence, memoranda, papers, books, and other records as the state Administrator requires. Such records must be current, complete and accurate, and are required to be kept for 3 years. However, the Administrator cannot impose recordkeeping requirements that are in excess of those prescribed by the SEC.
161
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Under the USA, which of the following is NOT true about agents:
A. They may represent an issuer
B. They may represent a broker/dealer
C. They may register as corporations
D. They must register as individuals
```
C Although agents may represent either issuers or broker/dealers in the sale of securities, they must register individually rather than as corporations. Only an individual, or a natural person, can be an agent. A corporation, such as a broker/dealer, is not a natural person. Remember, the word ‘person’ is broadly defined under the USA to include both natural persons (individuals) and other legal entities (such as corporations, partnerships, associations, trusts, estates and governments or political subdivisions of governments
162
Under the USA, all of the following are considered to be exempt securities EXCEPT:
A. Revenue bonds issued by a Canadian province
B. NASDAQ listed securities
C. Investment contracts
D. Stock issued by a U.S. bank
B Investment contracts issued in connection with employee’s stock purchase, savings, pension or profit-sharing plans are considered to be exempt securities, as are securities issued by U.S. banks and foreign governments (and their political subdivisions) with which the U.S. has diplomatic relations . However, NASDAQ listed securities are non-exempt unless they trade on the NASDAQ National Market System (NMS).
163
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Under the USA, which of the following is NOT considered to be a security:
A. Variable annuity
B. Fixed annuity
C. Corporate debt
D. Corporate equity
```
B Insurance products with fixed, guaranteed rates of return, such as traditional whole life and fixed annuities, are not considered to be securities. However, variable life insurance and variable annuities are considered to be securities since their cash value is invested in a ‘separate’ account, which is very similar to a mutual fund.
164
Under the USA, which of the following would NOT be excluded from the definition of an Investment Advisor:
A. Investment Advisor Representatives (IAR)
B. Federal covered Investment Advisors
C. Lawyers, accountants, teachers and engineers who investment advisory services are solely incidental to their professional practices
D. Broker/dealers who receive separate compensation for offering advice
D Don’t confuse an IA firm with an IAR, who works for the firm. They are two separate categories of registration. Lawyers, accountants, teachers and engineers are excluded from the definition as long as their advisory services are solely incidental to their professional practices. However, broker/dealer firms who charge a separate fee for their advisory advice must register as IA firms. Federal covered advisors must register with the SEC, not the state.
165
Under the USA, all of the following are true about the Administrator’s authority to require an Investment Advisory firm to satisfy net capital requirements by posting a surety bond EXCEPT:
A. An IA with discretionary authority over customer accounts must post a surety bond of at least $10,000
B. An IA with custody of client funds must post a surety bond of at least $35,000
C. An IA who has both discretion and custody must post a bond of at least $50,000
D. In lieu of bond, the Administrator may accept cash or marketable securities
C Surety bonds are a type of casualty insurance, often required by government agencies as a condition to licensing or registration. If an IA firm has discretionary authority over customer accounts or custody of customer securities or monies, the Administrator may require the firm to post a bond, or an equivalent amount of cash or marketable securities in order to protect customers against losses due to check forgery, lost securities or fraudulent trading
166
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Under the USA, all of the following may provide investment advice incidental to their normal business without registering as an investment advisor EXCEPT:
A. Lawyer
B. Analyst
C. Teacher
D. Engineer
```
B The USA does not exempt an analyst from registration as an investment advisor. However, lawyers, accountants, teachers and engineers are exempt from registration as advisors as long as their advice is incidental to their profession
167
```
Under the USA, the term ‘person’ would include which of the following:
A. A child under age 18
B. Someone who is legally incompetent
C. An estate
D. A deceased individual
```
C Under the USA, the term ‘person’ is broadly defined to include those who are subject to the provisions of the act, including individuals, corporations, trusts, associations, estates, joint-stock companies, governments and political subdivisions of governments.
168
```
Under the USA, all of the following are considered to be securities EXCEPT:
A. Investment contracts
B. Grain futures contracts
C. Voting Trust Certificates
D. Limited partnership units
```
B Although commodity futures contracts are not considered to be securities, options on commodity futures contracts are. So are Voting Trust Certificates, which are transferable certificates of beneficial interest in a voting trust, a limited-life trust set up to center control of a corporation in the hands of a few individuals, called voting trustees.
169
Under the USA, the sale of which of the following may be made under a ‘transactional’ exemption:
A. Municipal bonds
B. U.S. Government securities
C. Stock sold privately
D. Securities issued by a Canadian province
C Municipal bonds, U.S. Governments securities and securities issued by recognized foreign governments are all considered to be exempt securities under the USA. However, a private placement is an exempt ‘transaction’. It is not the security that is exempt, it is the way it is being sold.
170
Under the USA, all of the following are exempt securities EXCEPT:
A. Municipal general obligation bond issued by Orange County, CA
B. Municipal revenue bond issued by the city of Calgary, Alberta, Canada
C. All securities issued by authorized insurance companies
D. Securities issued by common carriers and public utilities
C Under the USA, stocks and bonds issued by insurance companies are considered to be exempt securities. However, variable life insurance policies and variable annuities issued by insurance companies are non-exempt, meaning that they must be registered. Further, remember that fixed insurance policies and fixed annuities are not securities
171
Under the USA, which of the following is NOT an exempt transaction:
A. Transactions with existing security holders without commission
B. Transactions by executors, administrators or trustees in bankruptcy
C. Institutional investor transactions
D. Investment contracts issued by employee benefit plans
D Securities issued in connection with employee benefit plans, such as employee stock purchase plans, saving plans, pension plans or profit sharing plans are considered to be exempt securities under the USA, not exempt transactions.
172
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Under the USA, which of the following CANNOT file a registration statement for a security with the state:
A. The administrator
B. The underwriting broker/dealer
C. The issuer
D. The selling stockholders
```
A Under the USA, registration statements may be filed by the issuer, the underwriting broker/dealer, or by selling stockholders who own restricted stock that they obtained in a private placement. Restricted stock may not be resold unless it is either registered or sold under another exemption.
173
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Under the USA, which of the following could be required to register as an investment advisor:
A. Lawyer
B. Bank
C. Trust company
D. Insurance company
```
D Under the USA, insurance companies are not specifically excluded from the definition of an investment advisor
174
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Under the USA, which of the following is an exempt security:
A. Stock of a European corporation
B. Small cap NASDAQ listed security
C. Shares of an open-end mutual fund
D. Variable life insurance policy
```
C Shares of an open-end mutual fund are considered to be ‘federal’ covered securities. They must be registered with the SEC, but are exempt from state registration.
175
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A person selling securities on behalf of a broker/dealer must register as an agent of the:
A. Issuer
B. Broker/dealer
C. Issuer and broker/dealer
D. Issuer or broker/dealer
```
B If you represent a broker/dealer in the sale of securities, whether the security is exempt or non-exempt, you must register as an agent of that broker/dealer.
176
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An individual who represents an investment advisor by making recommendations, managing accounts, soliciting advisory services and/or supervising others engaged in these activities is defined as an:
A. Investment Advisor Representative
B. Agent
C. Broker/dealer
D. Solicitor
```
A This is the definition of an IAR. Think of an Investment Advisor as an IA firm, which is usually a corporation. An IAR is an individual who works for the IA. The relationship is similar to that of an agent who represents a broker/dealer firm, except that the IAR is selling investment advice, not securities.
177
Which of the following orders for a customer requires an agent to have advance written discretionary authority:
A. Buying 1,000 shares of any suitable stock
B. Buying Microsoft stock in any suitable amount
C. Buying 1,000 shares of Microsoft stock at the best time or price
D. Both A & B above
D Advance written discretionary authority (limited power of attorney) is required for both the amount and type of stock to be purchased. It is not required for timing or price, meaning that an agent can use his best judgment in those areas
178
Under the USA, which of the following is considered to be an ‘offer’ or ‘offer to sell’:
A. Stock dividends paid in lieu of cash dividends
B. Pledge of stock as collateral for a loan
C. Sale of a warrant or right
D. Exchange of stock incident to a judicially approved reorganization
C The USA defines the terms ‘offer’ or ‘offer to sell’ to include every attempt or offer to dispose of, or solicitation of an offer to buy a security for value. Since a warrant or right includes the right to purchase or subscribe to another security, an offer of the other security is considered to be included in the warrant or right.
179
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Under the USA, which of the following must notify the Administrator when an agent changes firms:
A. The agent
B. The agent’s old firm
C. The agent’s new firm
D. All of the above
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D When an agent changes firms, the agent, his old firm and his new firm must all notify the state Administrator. Technically, registration cannot be transferred to the new firm. The agent must terminate and re-register, which requires a U-5 form to terminate and a new U-4 form to re-register, along with new fingerprints. No exam is required
180
All of the following are true when a client signs a compliance waiver stating that he knows that an agent is selling him a non-exempt security without registration EXCEPT:
A. Compliance waivers are void
B. Compliance waivers are also known as ‘hedge’ clauses
C. The agent may be found guilty of selling unregistered non-exempt securities
D. The agent cannot be found to be in violation since the client agreed to the trade
D Hedge clause or compliance waivers are void, meaning that they will not protect an agent who is in violation of the USA. It is unlawful to sell unregistered non-exempt securities even if the client agrees to the trade.
181
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Mr. Smith has pressured his client into making frequent trades in order to generate more commissions. What is the name of this prohibited practice?
A-Skimmng.
B-Finagling.
C-Churning.
D-Commingling.
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C-Churning.
182
Which of the following is NOT a security?
A-Investment Contract.
B-Fixed Annuity.
C-Bond.
D-Treasury Stock.
B-Fixed Annuity.
The definition of a security is determined by the Uniform Securties Act. Fixed Annuities are considered to be insurance products, not securities.
183
Which of the following are true statements regarding registration for persons in the securities industry? I. Registrations expire on December 31st each year, unless they are renewed. II. Registration fees are never pro-rated. III. There is no fee for renewing your license unless the license has been expired for over 21 days. IV. Licenses expire on the anniversary date of the initial registration.
A-I, II
B-II, IV
C-I
D-IV
A-I, II
All registrations expire on December 31st and initial registration fees are never pro-rated. All that is necessary for renewal is to pay the required fee.
184
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When a principal or agent leaves a firm, which form is the broker-dealer required to file with FINRA?
A-U3
B-UF
C-U5
D-U6
```
C-U5
| Agents are registered with Form U4 and are terminated with Form U5.
185
A security offering has been registered and the underwriter has entered the cooling off period. Which of the following is permitted during this cooling off period?
A-A tombstone advertisement.
B-Advertising of the security in trade publications.
C-Sales of the security to accredited investors.
D-None of these are permitted
A-A tombstone advertisement
No sales or advertising are allowed during the cooling off period. A tombstone advertisement is permitted because it is simply a statement of basic facts about the offer.
186
THe Uniform Securities Act gives the Administrator authority to take which of the following actions? I. Issue Rules. II. Issue judicial injunctions. III. Issue subpoenas for documents. IV. Administer oaths.
A-I, III
B-II, IV
C-I, III, IV
D-I, II, III, IV
C-I, III, IV
Only a court can issue a judicial injunction. However, the Administrator can petition the court for an injunction.
187
An Investment Advisor may NOT run advertising that:
A-Provides client testimonials.
B-Lists all stock picks made in the last 2 years.
C-Shows investment returns over a 12-month period.
D-States that past performance does not guarantee future results.
B-Lists all stock picks made in the last 2 years.
Client testimonials are never permitted in ads. Stock picks can be listed, as long as all picks are shown over the same time period. Investment returns must be over a period of at least one year.
188
Who of the following would be considered to be a "person" under the Uniform Securities Act?
A-A 3-year old.
B-An 18-year old college student.
C-Someone deceased for less than 1 month.
D-Someone mentally incompetent
B-An 18-year old college student.
"Persons" do not include anyone under age 18, anyone who is deceased, or anyone who is mentally incompetent.
189
Selling Away is a prohibited practice that consists of:
A-Recommending securities which are not suitable for the client.
B-Making unauthorized transactions in a client's account.
C-Selling securities which are not approved for sale by the firm.
D-Accepting orders from an unauthorized third party.
C-Selling securities which are not approved for sale by the firm.
Brokers may only sell securities that are on their firm’s approved product list. This list specifies the types of securities and investments that the brokerage has decided to offer, and that have gone through the firm's due diligence process.
190
Which of the following is considered a "person" under the Uniform Securities Act?
A. Abraham Lincoln
B. Nike Corporation
C. My 14 year old nephew
D. A 20 year old man who has been declared mentally incompetent in a court of law
B
Nike Corporation is the only "person" here because a legal person is an entity that can engage in legal activities such as signing contracts or opening accounts. "Legal Persons" are not dead, minors, or people who have been declared mentally incompetent.
191
When a broker-dealer withdraws its registration, what happens to the registrations of agents employed by the broker-dealer?
A. the agents' registrations remain active as long as they register with another broker-dealer within 30 days
B. the agents' registrations are null and void and they must repeat all necessary licensing examinations
C. the agents' registrations remain active
D. the agents' registrations are lost until they register with another broker-dealer
A
The withdrawal itself does not become effective for 30 days. That gives an agent 30 days to find another broker-dealer to move his/her registration.
192
How quickly must agents as well as broker-dealers or issuers notify the Administrator when agents begin or terminate employment?
A. within 14 business days
B. within 5 business days
C. within 10 business days
D. promptly
D
According to the USA, notification must be accomplished "promptly" when an agent begins or terminates employment with a broker-dealer or issuer. There is no set number of days for such notification.
193
Which of the following is a "security?"
A. gold
B. real estate
C. fixed annuity
D. closed-end investment company shares
D
A closed-end investment company is an ownership of interest that is defined as a security under the USA. Real estate and gold are not defined and fixed annuities are specifically defined to NOT be securities.
194
Which of the following are prohibited in advertisements offered by investment advisers?
A. testimonials
B. listing the performance of past stock picks
C. All of the choices are prohibited
D. offering free services with the intention of delivering those services
A
You cannot use testimonials. You can list the performance of past stock picks as long as you list all of them over the same amount of time which has to be at least a year. You must also state that past performance does not reflect future performance, and have a comparison to the market in general. You also need to state whether the performance includes management fees.
195
Making excessive transactions in order to earn more commissions, while ignoring the best interests of clients is called:
A. Churning
B. None of the answers listed
C. Commingling
D. Selling away
A
If an agent is pressuring a person to make more transactions than are suitable in order to make more commissions, the agent is said to be churning. Selling away is when a representative engages in private securities transactions without the knowledge or consent of his employer. Commingling is when a brokerage firm combines its securities with customer's securities (e.g., to present collateral for a bank loan). Churning, selling away, and commingling are all prohibited practices.
196
Registration for both agents and investment adviser representatives expires:
A. every time they change firms
B. every 5 years
C. upon termination only
D. annually on December 31st
D. annually on December 31st
197
A broker-dealer specializing in Canadian government bonds wishes to advertise a new issue to prospective investors. The Administrator will most likely:
A. request approval of the advertisement from the Canadian government
B. do nothing
C. refuse the advertisement
D. require filing of the advertisement
B
Securities of foreign governments are exempt under the Uniform Securities Act. As such, the Administrator has no authority over their advertisement.
198
Disclosing to a prospective investor that a security is registered and approved by the SEC is:
A. permissible for federal covered securities only
B. permissible for government securities only
C. prohibited
D. proper disclosure
C
Regulators, including the SEC, do not pass on the merit of securities. They simply regulate them. Anytime you see "approved by" or "certified by" a regulatory body, the answer will be any form of "wrong."
199
Projecting the future investment performance of a security based upon past investment performance of that security is:
A. permitted only when supplied by the issuer
B. permitted only with the use of 90-day moving averages
C. permitted when at least 10 years of historical performance is used to make the projection
D. strictly prohibited
D
Projecting future performance is not permitted. Historical performance may be shown to investors as long as proper disclosure is provided indicating that historical performance DOES NOT predict future results.
200
All of the following are exempt securities under the Uniform Securities Act EXCEPT:
A) securities issued by a bank holding company.
B) securities issued by a federal savings and loan association.
C) securities issued by the Canadian government.
D) securities issued by a Canadian province
A) securities issued by a bank holding company.
201
Under the Uniform Securities Act, a sale includes all of the following EXCEPT a:
A) disposition of a security for value.
B) contract to sell.
C) contract of sale.
D) pledge of securities for the purpose of obtaining a margin loan.
D) pledge of securities for the purpose of obtaining a margin loan.
202
Under the USA, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in:
A) giving a seminar on the benefits of whole life insurance versus term insurance.
B) accepting unsolicited orders.
C) prospecting for new clients by mail.
D) prospecting for new clients in person.
A (A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Insurance, unless variable, is not a security.)
203
A new agent is having a hard time making sales. In order to be more productive, he offers to share in any losses with clients. And, on the other hand, he will share in their profits as well. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents, this is:
A) prohibited unless the client gives written authorization and approval is granted by the broker/dealer.
B) permitted if the client has given verbal authorization to the agent.
C) prohibited as investment adviser representatives are not allowed to share in client accounts.
D) permitted if the broker/dealer authorizes this activity
A) prohibited unless the client gives written authorization and approval is granted by the broker/dealer.
204
In which of the following situations did an agent commit fraud?
A) An agent sold an excellent growth company to a client by omitting immaterial information, so as not to distract the client from purchasing a suitable security.
B) On review of his files, an agent discovered he had sold a nonexempt, unregistered security.
C) An agent knowingly sold a nonexempt, nonregistered security to a client who could well afford the risk involved.
D) A client claims an agent sold him unsuitable securities.
C) An agent knowingly sold a nonexempt, nonregistered security to a client who could well afford the risk involved.
205
Which of the following securities must be registered by qualification under the Uniform Securities Act?
I. ABC, Inc., formed 2 years ago, previously made an offering of its stock in several states. An agent feels that ABC is suitable for several clients and wishes to offer it to them out of the broker/dealer's inventory, even though ABC's stock has never been registered in this state.
II. XYZ, Inc., plans to make an offering of its stock in only one state and so will not file a federal registration statement.
III. AAA, Inc., is 1 year old and an initial offering of its stock will be offered in several states at once.
II. XYZ, Inc., plans to make an offering of its stock in only one state and so will not file a federal registration statement.
206
Under the Uniform Securities Act, which of the following statements are TRUE about the authority of an Administrator?
I. A cease and desist order may be issued prior to a hearing.
II. A cease and desist order may be issued after a hearing.
III. A cease and desist order is valid for a maximum of 30 days
I &II
207
Which of the following practices violate(s) NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents?
I. Recommending the purchase of a security solely on the basis of the issuer's properly published press release regarding a likely increase in earnings per a new product branding strategy.
II. Placing customer's fully paid securities into an account with the broker/dealer's own securities.
III. Effecting a transaction with no change in beneficial ownership.
IV. Conducting securities transactions in a private capacity with clients, in properly registered securities, not reflected on the books of the broker/dealer and without the knowledge and supervision of the employing broker/dealer
ALL
208
Under the Uniform Securities Act, an investment advisory contract must contain (in writing) all of the following provisions EXCEPT:
A) the adviser, if a partnership, must notify the client of any change in the partnership's membership.
B) on the departure or death of a majority shareholder of an investment advisory corporation, the advisory agreement must be renewed to prevent an unlawful assignment of the account.
C) no assignment of the investment advisory contract may be made without the client's consent.
D) the investment adviser's compensation shall not be based on capital gains in client accounts
B (a caorporation does not have to inform clients of changes in shareholders. a partnership informs clients of a change in majority partners)
209
Under the National Securities Markets Improvement Act of 1996, certain securities are designated as federal covered. This means that the Administrator may require all of the following of a federal covered security EXCEPT:
I. paying a filing fee.
II. providing a consent to service of process.
III. submitting copies of any information filed with the SEC.
IV. using a state sanctioned legend on the offering documents
IV
210
Registration by coordination automatically becomes effective with federal registration if all the following conditions are satisfied EXCEPT:
A) no stop order is in effect.
B) a consent to service of process is filed no later than 5 days after the effective date.
C) maximum and minimum proposed offering prices and maximum underwriting discounts and commissions have been on file for 2 full business days.
D) the registration has been on file with the Administrator for at least 10 days, or some other period designated by the Administrator
B) a consent to service of process is filed no later than 5 days after the effective date.
211
Under the Uniform Securities Act, which of the following activities is an example of churning?
A) A client engaging in day trading.
B) Bond swap.
C) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter.
D) Frequent purchases one day and sales of the same stock the next day to make changes in a client's portfolio in order to align with a customer's investment objectives.
C) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter.
212
To protect the public, the Administrator may:
I. deny the registration of an agent with insufficient net capital.
II. require an applicant for registration as both a broker/dealer and an investment adviser to limit activities to those of a broker/dealer due to lack of qualifications to render investment advice.
III. require an applicant for registration to submit to an oral examination
II, III
213
The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket?
A) customer name, execution price, time of order entry, and time of execution or cancellation.
B) customer name, customer address, execution price, time of execution or cancellation.
C) account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order.
D) account number, customer address, time of order entry, and terms and conditions of the order.
C) account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order.
214
Under the USA, all of the following issues would be exempt from registration EXCEPT:
A) bonds issued by the city of New Orleans.
B) stock issued by savings and loan association authorized to do business in this state.
C) an investment contract issued in connection with an employee stock purchase plan.
D) stock issued by an insurance company not offering policies in this state
D (Note that the insurance company is not authorized to do business in the state.)
215
A state Administrator may require an applicant for registration to do which of the following?
I. Furnish information about any SEC adjudications within the past 10 years.
II. Pay a registration fee.
III. Pass a qualification examination.
IV. Place an advertisement in one or more newspapers circulated in the state
All
216
Which of the following is not an exempt transaction?
A) A transaction executed by a trustee appointed by a bankruptcy court.
B) A nonissuer unsolicited transaction.
C) A 90-day U.S. Treasury bill.
D) A sale of stock to a bank
C) A 90-day U.S. Treasury bill.
217
Which of the following are prohibited practices?
I. An investment advisory firm organized as a partnership failed to inform its clients of the departure of a partner with a very small interest in the partnership.
II. An investment advisory firm charges an annual fee equal to 2% of the first $250,000 in assets under management; 1% of the next $500,000; and .5% for everything in excess of $750,000.
III. Without client consent, the majority stockholder of a registered investment adviser pledges his stock as collateral for a loan taken out by the firm to expand its services.
IV. Engaging in agency cross transactions
I, III
218
A pension fund manager who manages a $35 million dollar account must register with which of the following?
A) The state.
B) SEC.
C) Either the state or the SEC.
D) Both the state and the SEC
A (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.)
219
Which of the following regarding the registration of investment advisers and their representatives is TRUE?
A) ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm six months ago. ABC must notify the Administrator of this association promptly.
B) An investment adviser representative, terminated his employment with ABC Advisers and, six months later, was employed as an advisory representative by KLM, a federal covered adviser. Each firm is required to notify the Administrator of each event.
C) XYZ Advisers, Inc., is a federal covered investment advisory firm registered with the SEC; therefore, its representatives need not be registered with the Administrator.
D) ABC Advisers, Inc., is an investment advisory firm registered with the Administrator; therefore, its representatives need not be registered with the Administrator
A) ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm six months ago. ABC must notify the Administrator of this association promptly.
220
Adell, a retiring social worker, has some money to invest. An agent suggests she look into investing in a private placement security that is raising money to build apartment buildings in Puerto Rico. According to the Uniform Securities Act:
I. building projects are not appropriate for retirees who typically need immediate income.
II. private placements are not usually appropriate for retiring individuals because they are not liquid.
III. no rule has been violated because the customer has only been offered the product.
IV. if the customer lives in Puerto Rico, the proposed investment may be suitable because there may be a ready market
I & II
221
Under the Uniform Securities Act, which of the following is TRUE regarding the registration of securities?
A) The Administrator may require that a prospectus be delivered to every purchaser of a registered security no sooner than the time at which the security is delivered.
B) State registration by coordination is only available if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering.
C) Registration by coordination becomes effective on a date ordered by the Administrator.
D) The effectiveness of a registration statement assures the completeness of the information contained in the statement
B) State registration by coordination is only available if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering.
222
The Administrator of a state securities department conducted a hearing regarding misconduct by an investment adviser registered at the state level. The Administrator required the adviser, as well as several clients who had lodged complaints against the adviser, to take a sworn oath that their testimony was true. Does the Administrator have the power to require sworn oaths?
A) No, the Administrator was merely attempting to emphasize the seriousness of the hearing, but he holds no such power.
B) Yes, the Administrator has the power to require witness oaths because an Administrative hearing is functionally a legal proceeding.
C) Yes, because the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction.
D) Yes, the Administrator may require witness oaths because the Administrator is appointed as a judge.
C) Yes, because the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction.
223
While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are TRUE?
I. In conducting an investigation, an Administrator can compel the testimony of witnesses.
II. Investigations of serious violations must be open to the public.
III. An Administrator in Illinois may only enforce subpoenas from South Carolina if the alleged violation would be a violation of the Illinois statutes.
IV. An Administrator may deny the registration of a securities professional who has been convicted of any felony within the past 10 years, but must provide a hearing within 15 days if requested in writing
I, III
224
All of the following must register as an agent when representing a broker/dealer EXCEPT:
A) An individual selling shares of a credit union chartered in this state.
B) An employee who accepts solicited orders.
C) An individual who represents an underwriter only in transactions between an issuer and the underwriter.
D) A partner in a broker/dealer who has no securities sales functions
A) An individual selling shares of a credit union chartered in this state.
225
Which of the following are exempt securities under the Uniform Securities Act?
I. Common stock, not listed on any regulated exchange, purchased by an open-end investment company.
II. Preferred stock issued by an insurance company authorized to do business in this state.
III. Municipal bonds issued by Toronto, ON.
IV. Private placements
II, III
226
Under the USA, a sales agent's registration may be suspended by the Administrator for all of the following reasons EXCEPT:
A) the agent is convicted of willful violations of the USA.
B) the agent is enjoined by a court of law from engaging in the securities business.
C) the agent is accused of violations of the antifraud provisions of the USA.
D) it has been discovered that the agent is not properly supervised
C) the agent is accused of violations of the antifraud provisions of the USA
227
A transactional exemption would be offered when a sale is made:
I. by a federal marshal.
II. by a broker/dealer.
III. to a lawyer as an incidental part of his legal practice.
IV. to a federally chartered credit union
I, IV
228
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the Release, which of the following would be included in the definition?
I. Commercial banks offering comprehensive financial planning for their high-net-worth clients.
II. Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment grade bonds or large-cap stocks as market conditions dictate.
III. Persons who receive a nominal fee for assisting employee benefit plan administrators select investment managers for the plan's assets.
IV. Lawyers who prepare trust agreements for clients with large securities holding with a goal of minimizing estate taxes
II & III
229
An applicant for registration as an investment adviser discloses on Form ADV that it plans to use palm readers to help determine which investments are most suitable for their clients. Under the Uniform Securities Act, the Administrator:
A) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit.
B) may deny applications only on the basis of the limitations of the law.
C) is empowered to deny this application.
D) will probably turn to the SEC for guidance
B) may deny applications only on the basis of the limitations of the law.
230
An applicant for registration as an investment adviser discloses on Form ADV that it plans to use palm readers to help determine which investments are most suitable for their clients. Under the Uniform Securities Act, the Administrator:
A) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit.
B) may deny applications only on the basis of the limitations of the law.
C) is empowered to deny this application.
D) will probably turn to the SEC for guidance
B) may deny applications only on the basis of the limitations of the law.
231
All of the following information would be found on a trade ticket EXCEPT:
A) the price of the security at the time of the order.
B) the customer account number.
C) the time of order entry.
D) was the order solicited or unsolicited
A (The price at the time of the order is of no significance. The execution price, of course, is.)
232
If information on file with the Administrator changes, a broker/dealer must give notification:
A) promptly.
B) within 30 calendar days.
C) within 10 business days.
D) within 20 calendar days
A) promptly.
233
An agent is currently registered with a broker/dealer and would like to register with another one. Under the Uniform Securities Act,
A) the agent would have to sell different types of securities for each broker/dealer.
B) registration would be required with each broker/dealer.
C) one can never be registered with more than one broker/dealer at the same time.
D) permission would have to be granted by FINRA
B) registration would be required with each broker/dealer.
234
A fraudulent transaction was initiated by an agent in Indiana by contacting a client residing in Iowa. After evaluating the offer, the client agreed to purchase the recommended security while vacationing in Florida. Which Administrator(s) has (have) jurisdiction?
I. The Indiana Administrator.
II. The Iowa Administrator.
III. The Florida Administrator
ALL
235
Under the Uniform Securities Act, which of the following are required for an agent to lawfully share in the profits of a customer's account?
I. The customer's written approval.
II. The broker/dealer's written approval.
III. The agent may share only in proportion to his or her own financial contribution to the account
I & II
236
Investment advisers, as fiduciaries, have ethical obligations to act in their client's best interests and in an ethical manner. Engaging in which of the following practices would be unethical, although not fraudulent, for an investment adviser?
I. Lending money to a client with full and fair disclosure.
II. Recommending securities transactions based on research supplied to him by a third party without disclosing this fact to his clients.
III. Supplying to his clients research reports prepared by a third-party firm without disclosing the source of the reports.
IV. Charging significantly higher fees for the identical services offered by other advisers
I & III & IV
237
Under the Uniform Securities Act, an investment adviser who has custody of client securities or funds must do which of the following?
I. Notify the Administrator in writing.
II. Have client funds and securities examined at least once a year by an independent public accountant on a surprise basis.
III. If not held by a qualified custodian, deposit client funds into one or more bank accounts, not commingled with adviser funds, and notify the clients in writing of where and in what manner the funds are held.
IV. Send clients semiannual, itemized statements detailing the funds and securities in the adviser's custody at the end of the period and all transactions during the period
I, II, III (statements must be quarterly at minimum)
238
Which of the following statements are TRUE?
I. When an investment adviser representative begins or terminates employment with an adviser registered under the USA, only the investment adviser must notify the Administrator.
II. When an investment adviser representative begins or terminates employment with a federal covered adviser, only the investment adviser representative must notify the Administrator.
III. When an agent of a broker/dealer leaves the firm, only the broker/dealer must notify the Administrator.
IV. When an investment adviser representative or a registered agent of a broker/dealer terminates employment, notice must be given to the Securities and Exchange Commission
I, II (Only the employer must notify the administrator in an IA situation. Both a BD and agent must inform)
239
The Uniform Securities Act provides an exemption from registration for certain securities and for certain transactions. However, the Administrator is not empowered to deny an exemption from state registration to:
I. U.S. government securities.
II. private placement transactions.
III. a transaction with an insurance company.
IV. municipal bonds issued by another state
I, IV
240
What does the term "guaranteed" mean when used to describe a security?
A) The broker/dealer will buy the security back at the same price or higher.
B) The security has been cleared and is backed by the SEC.
C) The security has a third party other than the issuer that guarantees the payment of principal and interest or dividends.
D) The security is an annuity product that guarantees a retirement income
C) The security has a third party other than the issuer that guarantees the payment of principal and interest or dividends.
241
An agent submits a list of recommendations to a customer that includes 5 different securities. The customer chooses to buy a round lot of 1 of the 5 securities recommended (a stock in which the agent's broker/dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act?
A) Yes, it is allowable, but proper disclosure is required.
B) Yes, markup schedules are dependent upon the type of security, broker/dealer risk, services that the broker/dealer provides, and effort in acquiring the security.
C) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup.
D) No, the markup schedule is set and cannot be changed for an individual trade
C) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup.
242
Under the Uniform Securities Act, which of the following is NOT an exempt transaction?
A) The sale of a non-Nasdaq over the counter stock to a closed-end investment company.
B) A sale of securities by the executor of an estate.
C) A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid.
D) The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered broker/dealer
D) The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered broker/dealer
243
An Administrator has jurisdiction over an offer to sell securities if it is made in a newspaper published out of state:
A) with at least two-thirds of its circulation in the state.
B) under no circumstances.
C) with at least one-third of its circulation in the state.
D) with at least one-half of its circulation in the state
B) under no circumstances.
244
Which of the following are not specifically excluded from the definition of an investment adviser under the Uniform Securities Act?
I. An investment adviser representative of an advisory firm who makes securities recommendations on a regular basis for compensation.
II. A temporary employee hired to assist in administrative responsibilities of an advisory firm.
III. Any person who is a federal covered investment adviser.
IV. A person who, on a regular basis for compensation, offers specific investment advice to clients as to the value of securities
IV
245
Under NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers, requirements of advisory contracts include which of the following?
I. They must be renewed on an annual basis.
II. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated.
III. They must prohibit assignment of the contract without the client's consent
II, III
246
Which of the following are NOT agents as defined in the USA?
I. A broker/dealer acting on behalf of a properly registered issuer.
II. An individual representing the U.S. government in the sale of its securities.
III. An individual who, acting on behalf of a broker/dealer, sells exempt securities or engages in an exempt transaction.
IV. An individual who represents an issuer selling a nonexempt security in a nonexempt transaction
I & II
