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Series 63 > Ethical and Prohibited Practices > Flashcards

Ethical and Prohibited Practices Flashcards

(73 cards)

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1
Q

Fidcuiary Standard

A

Have to do whats best for client even if it hurts you

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2
Q

B/D allow Arbitration
IA don’t

A

B/D allows Arbitration
IA doesn’t allow Arbitration

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3
Q

Fee Disclosure

A

As an IA, you must disclose all of the fees you charge
- Performance based fee
- IA cannot get performance based fees of capital gains unless qualified client
As an IA, you must disclose if you get any compensations

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4
Q

qualified Client

A

2.2m net wroth
1.1 aum with you

fulcrum fee, based on relative index, correlted to portfolio, if you beat index by x, you can charge more by x

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5
Q

Can Agents Profit Share?

A

Agents can share in profits and losses of account only if its a joint account between the rep & client, and they give permission

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6
Q

Can an advisor pay cash referral fees?

A

Yes, as long as:
- The person they’re paying is registered
- They can’t be statutory disqualified
- Written agreement

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7
Q

“Soft Dollar”

A

Loophole for broker dealer to get paid for their services:
- B/D can pay for:
- Ticket to seminar
- Research
- Software
“Safe harbor”

After pay for ticket, you now charge a higher per trade in commission

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8
Q

What you cannot pay for

A

Cannot pay for rent, salary, travel, etc.

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9
Q

False/Misleading Statements

A

You cannot make false/misleading statements
Can’t make recommendations that thy’ve approved you or endorsed you at all

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10
Q

Promise of Services

A

Can’t promise to do services that you won’t be able to do

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11
Q

Free service

A

Can’t promise free services

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12
Q

Can’t projector predict

A

“We think its going to be up”

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13
Q

False Listings

A

Can’t say somethings going to be listed and it isn’t

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14
Q

Commissions & Fees

A

Fairly tell them what the commissions and fees are

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15
Q

Lying

A

Cannot Lie
Still have to tell the truth about what has happened in account

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16
Q

Inflated Language

A

Can’t use inflated language:
“Guaranteed”
“Only”
“Never”
“Will”
Definitive Statements

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17
Q

Regulator Approval

A

Cannot say that something’s been approved by a regulator

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18
Q

Inaccurate Quotes

A

You can’t give inaccurate quotes
“I saw it an hour ago”

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19
Q

False Information

A

Youcan’t give false information

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20
Q

Rumors

A

You can’t spread rumors to get people to buy

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21
Q

Selling A Dividend

A

You can’t sell a dividend
- You can’t get people to buy stock before the ex date to get the dividend. Taxes paid on the dividend

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22
Q

Omitting Material Facts

A

You cannot omit material facts
You can leave out immaterial facts, but you cannot omit material facts

Material Facts - Things neessary in making an investment decision

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23
Q

Insider Informatino

A

You cannot use insider information
The Tipper and Tippee both get in trouble

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24
Q

Unsuitable Recommendations

A

In excessive size of what the client can handle

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25
Omitting Details of Risk
You cannot omit details of risk
26
Churning
You cannot churn Churning - Excessive Trading Churning doe snot look at gain or loss
27
Conmingling
You cannot put client and firms securities together
28
Converting client cash and securities
Cannot use clients cash/securities for your own use
29
Borrowing/Lending
Agents nor IARs can borrow or lend from customers Can borrow from lending institutions or affiliates of the firm
30
Reg T
Broker Dealers can use margin to lend to customers under certain rules
31
Guarantees
You cannot guarantee a profit, rte of return, dividends. Only guarantee can come from the issuer
32
Written Complaint
If you receive a written client complaint you must NOTIFY YOUR SUPERVISOR and they have to handle it
33
Market Manipulation
Moving the stock for your own good
34
Front Running
Jumping in front of your customer when you're in possession of an order or the information
35
Shadowing
Executing an order right after a client did
36
Selling Ahead
Selling - Front Running
37
Painting the Tape
1-2-3 people buying the securities to make it look like there's more volume
38
Trading Ahead
Front running, buying.selling ahead of a customers order
39
Selling Away
Private Securities Transactions - Trades done off the books and records of the B/D (firm) with permission from the B/D Selling Away - Doing it without permission
40
Ignoring Clients Instructions
You cannot reject a clients instructions You must execute a clients order - You can try to convince them for/against
41
Soliciting Unregistered, Non-Exempt Securities
You cannot solicit unregistered, non-exempt securities
42
If you want to sell a security within the state, 1 of 3 things needs to happen
1. Exempt Transaction 2. Exempt Security 3. Registered
43
Prospectus owed Security
If someone buys a security where they're owed a prspectus, you must deliver final prospectus
44
When are you entitled to a prospectus?
Bought within first 90 days of effective day, for an OTC IPO First 40 days for OTC dditional offering First 25 days of stock exchange IPO By competion of trade = Settlement, confirmations due
45
Bona Fide Effort to Sell all Shares
If you're an underwriter as part of an IPO you cannot withhold shares You have to make a Bona Fide effort to sell all shares
46
Delayed Payment
You cannot delay payment of cash/securities If customer wants it you have to send it immediately
47
Unfair Prices
You cannot execute orders at unfair prices. Has to be within its normal range
48
Disclosure of Control Relationship
On the council of town in a bond purchase, needs to be disclosed I work for Merrill Lynch and I tell you to buy B of A stock. Must be disclosed
49
Discretion
Rep can do trades on your behalf without telling you ahead of time. No permission needed. Can choose more than TIME or PRICE
50
Discretion (Limited vs Full)
Limited - Trades only Full - Touch the money, pay bills
51
IA or IAR Discretion
You can get verbal or oral discretion for up to 10 days, then you need in writing or else the discretion ends ANYTHING more than price and time than you need discretion
52
B/D Discretion
You must have the discretion in writing ahead of time to complete trade
53
Client's password and username
Can't use the clients password and username, you must use your own
54
Prudent Investor Rule
UPIA - Uniform Prudent Investor Act They have to do what's reasonable. Managing the risk/return
55
Diversification
Balance risk/reward, diversify
56
Delegation
A trustee can delegate investment decisions to someone who's bebtter at it
57
Client Confidential Information (unless)
You must keep client info confidential at all times unless: - IRS, Administrator, SEC, FINRA, Subpoena demands information
58
Past Recommendations
You cannot give out less than a year of the past recommendations & you must show all recommendations Also, must show what market did at the time.
59
Third Party Research
If I give you someone else's research, I have to tell you its thiers, not mine But if I USE research to make a recommendation, I don't have to tell you at all
60
Donations
I can donate $350 per election If I can vote for them $150 per election if I cannot vote for them Can't do business there for 2 years if violated
61
Record Keeping (IAs vs BDs)
IAs have to keep records for 5 years BDs have to keep record sfor 3 years BOTH have to keep for first 2 years readily available Articles of Inc, Board Minutes - Lifetime + 3 years`
62
Principle Trade
Completing a trade from your own inventory, sale or purchase Advisor has to disclose a principle tradeA
63
Agency Cross
IAR - Charges a commission on both sides for fulfilling an order from opposite Both receive a written dislosure Can only solicit to one party, not both
64
Cross Transactions
Every year IA send a full list of cross transactions
65
Access Person
Someone who has access for clients information. Submit personal securities holdings report & quarterly transaction report.
66
Cyber Ready
written procedures & training programs to safegaurd client information if they'd like to have cyberinsurance have you ever had a loss? plan to stop it if it happens (2FA, encryption, etc)
67
Social Media
If its interactive then it can be approved after the fact If its static (post cant be changed) - it has to be pre-approved
68
Endorsements
If someone likes/reposts, that can be considered an endorsement.
69
Adoption
IF YOU like/retweet something that someone else posted, it had to meet the communication/social media guidelines at your bank/firm
70
Entanglement
When you've helped write/create the post
71
Unethical vs Fraudulent
Unethical - civil, sue, revoked but no jail (unintentional, unknowing) Fraudulent - intentional, willful, that is criminal & you CAN go to jail
72
Punishment: Criminal Act under the USA
Administrator can't come after you for criminal they have to forward to courts & cops to do it
73
3/5/10 Rule (Criminal Only)
Under USA Act 3 Years in jail or $5,000 fine OR 5 years in jail or $10,000 fine

Series 63 (6 decks)

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