Financial Service Regulations

Question 1

When must you present the brochure?

Answer 1

48 hours before an investment advisory contract is signed OR at the time of signing

Question 2

If you put CFP or CFA on form ADV what else do you have to put?

Answer 2

The minimum qualifications required to obtain those

Question 3

Does compensation go on ADV?

Answer 3

Yes - any compensation that may be earned from providing products and services

Question 4

Where would other business activities that involve substantial pay be disclosed?

Answer 4

Form ADV

Question 5

Would expenses be listed on form ADV?

Answer 5

Yes any expenses the client may incur - 12b 1 fees, sales loads

Question 6

Public Censure

Answer 6

punishable written reproach of the respondent’s behavior published in press release or other form of publicity selected by the DEC

Question 7

Private Censure

Answer 7

unpublished written reproach issued to a censured respondent
-would happen before public censure

Question 8

Non Administrative Order

Answer 8

DEC may order remedial education or work

Question 9

Interim Suspension

Answer 9

temporary sanction does NOT preclude the CFP board from imposing final sanction

Question 10

Does an interim suspension preclude CFP from imposing final sanction?

Answer 10

No

Question 11

If you have a series 6 and obtain life and annuity licenses, can you sell variables?

Answer 11

Yes

Question 12

Are Blue Sky Laws federal or state?

Answer 12

State

Question 13

What can you sell with series 6?

Answer 13

Mutual Funds, Variable Annuities, Variable LI, UIT, Muni Fund Securities like 529 and LGIP

Question 14

Can you sell stocks with series 6?

Answer 14

No - cant sell stocks bonds or etfs

Question 15

What license do you need to sell securities at the state level

Answer 15

Series 7 and 63

Question 16

What does Series 63 test cover

Answer 16

principals of state securities regulation

Question 17

Can a CFP or CFP substitute for series 65?

Answer 17

Yes most states will allow this

Question 18

Who regulates form ADV?

Answer 18

The SEC

Question 19

If you forget to provide form ADV who would you be in trouble with?

Answer 19

The SEC

Question 20

Who are exempted under the definition of investment advisor?

Answer 20

-Accountants or lawyers whose investment advice is “solely incidental” to the practice of their profession.
-Publishers of financial publications that have regular and general circulation
-Banks that are not investment companies

-Persons whose advice relates only to securities issued or guaranteed by the U.S. government

Question 21

The Investment Advisers Act of 1940

Answer 21

requires that PERSONS or FIRMS advising others about securities investment must REGISTER WITH SEC. (who else had to register in the 40s)
MALPRACTICE

Question 22

The Securities Investor Protection Act of 1970

Answer 22

is designed to protect individual investors from losses as a result of BROKERAGE FAILURES (what happened in 1970?)

Question 23

The Securities Act of 1933

Answer 23

provides for protection from misrepresentation, deceit, and other FRAUD in the SALE OF NEW SECURITIES

Question 24

3 Prong Test

Answer 24

-PROVIDES GENERAL OR SPECIFIC ADVICE 🗣️
-IN THE BUSINESS OF OFFERING INVESTMENT ADVICE 👨‍💼
-RECEIVES COMPENSATION 💰

Question 25

Investment Advisor Act of 1940 states you need a license from what organization?

Answer 25

FINRA

Question 26

Purpose of Investment Advisor Act of 1940

Answer 26

protect the public from MALPRACTICE by paid Advisors

Question 27

RIAS with less than $110 million AUM register with who

Answer 27

Their state

Question 28

RIAS with over 110 mil in AUM register with who

Answer 28

SEC

Question 29

Are you required to disclose compensation as specific dollar amounts or percentages?

Answer 29

No - unless the client requests it

Question 30

When a CFP® professional files a single bankruptcy and denies that it demonstrates an inability to manage responsibly their financial affairs what happens

Answer 30

the factual basis for the denial is submitted to CFP Board and the Complaint for Single Bankruptcy will proceed to a HEARING

Question 31

If you're an RR but you're also registered as at an Insurance firm what type of compensation would you likely receive?

Answer 31

Not fee only - you're more than likely making commission at the insurance firm

Question 32

Could you potentially purchase a home from a client?

Answer 32

Yes but there is a material conflict of interest that may impair the CFP® professional’s ability to offer objective advice, and the CFP® professional must DISCLOSE and manage this conflict of interest

Question 33

Brokerage Firms

Answer 33

firms that charge a fee or commission for executing buy and sell orders submitted by another firm or individual

Question 34

Transfer agent

Answer 34

person or company who maintains the records of registered securities

Question 35

Clearing agencies

Answer 35

facilitate the validation, delivery and settlement of securities transactions

Question 36

Who does the Investment Advisor Act of 1940 regulate?

Answer 36

Investment Advisors

Question 37

Investment Advisor act of 1940 defines securities as

Answer 37

stocks, bonds, mutual funds, certificates of deposit, limited partnership ownership interests, variable LI, variable annuity

Question 38

Who oversees FINRA?

Answer 38

the SEC

Question 39

Who do you become licensed with to sell securities?

Answer 39

FINRA

Question 40

What does FINRA do

Answer 40

PROTECTS INVESTORS and market integrity, and ADMINISTERS EXAMS and LICENSES for those who sell securities

Question 41

RIAs under act of 1940 are held to what standard vs. those who are just registered to sell securities with FINRA

Answer 41

RIAs are held to a FIDUCIARY standard while if you're just registered to sell securities with FINRA you're just held to a SUITABILITY standard

Question 42

RIAs are held to what standard of conduct?

Answer 42

Fiduciary

Question 43

If you're not registered as an RIA but you sell securities what standard applies?

Answer 43

Suitability

Question 44

What is another name for ADV part 2B

Answer 44

the brochure

Question 45

How often must you file ADV part 1?

Answer 45

every year

Question 46

What is in ADV Part 1?

Answer 46

General business information

Question 47

What is included in ADV part 2B?

Answer 47

background information, educational history, business experience, professional designations

Question 48

Fees are located in what part of ADV?

Answer 48

2A

Question 49

Who investigates RIA violations

Answer 49

The SEC

Question 50

SEC Criminal penalty limits

Answer 50

criminal penalty or imprisonment up to 5 years

Question 51

Who can the SEC penalize?

Answer 51

An individual or entity

Question 52

Is the penalty always the exact amount of gain that resulted?

Answer 52

No it can be a set amount or the gain that resulted from the violation

Question 53

What act is an offering of securities registered under?

Answer 53

The Securities act of 1933 which makes sense because that act is about fraudulent new issues

Question 54

A new issue is registered under the securities act of 1933 and what else?

Answer 54

State securities laws

Question 55

RIAs must comply with the rules of what act?

Answer 55

Investment Advisor Act of 1940

Question 56

Violations are categorized in what type of system?

Answer 56

3 tiered system - if it cant be classified under the 3 tiers the SEC can impose criminal penalty and up to 5 years in jail

Question 57

What securities issues are exempted?

Answer 57

-its listed on NYSE, American or Midwest stock exchange - its issued by a BANK or SAVINGS institution -think EXempeted EXchange

Question 58

Covered securities subject to regulation by whom

Answer 58

only Federal

Question 59

Securities NOT “covered” regulated by whom

Answer 59

federal and state regulation including registration and review

Question 60

Blue Sky Laws

Answer 60

state laws that protect against fraudulent sales practices

Question 61

41 states require registration how

Answer 61

state level registration and a broker dealer, registered rep, and security must be registered in the state they want to sell

Question 62

Registered rep passes what exam

Answer 62

series 63 and be registered in that state

Question 63

Revoking the license of a broker dealer or salesperson would fall under what (state specific)

Answer 63

Blue Sky Laws

Question 64

Other names for Securities act of 1933

Answer 64

Truth in securities law the paper act

Question 65

Objectives of securities act of 1933

Answer 65

-Investors receive INFO about securities being offered for sale -prohibits deceit, misrepresentations or other fraud

Question 66

What is the goal of registering securities

Answer 66

disclosure of important financial information

Question 67

What act defines a security?

Answer 67

Act of 1933

Question 68

What act determines when and how a security can be sold to public?

Answer 68

Act of 1933

Question 69

What securities dont need to be registered?

Answer 69

-private offerings to limited # of persons or institutions -offerings of limited size -intrastate offerings -muni state and federal securities

Question 70

Do munis need to be registered?

Answer 70

No

Question 71

Securities act of 1934 created what

Answer 71

SEC

Question 72

SEC registers, regulated and oversees 4 things:

Answer 72

Brokerage firms, transfer agents, clearing agencies, SROs

Question 73

Non FINRA SROs

Answer 73

NYSE, American Stock exchange, NASDAQ

Question 74

Sarbannes Oxley expanded SEC regulation to what

Answer 74

auditors and lawyers

Question 75

Broker

Answer 75

any person engaged in the biz of effecting transactions in securities for others

Question 76

How do you determine if someone is a broker?

Answer 76

look at the activities the person or business performs

Question 77

Dealer

Answer 77

person engaged in biz of buying and selling securities for THEIR OWN ACCOUNT, through a broker or otherwise -dealer deals from their own stash

Question 78

Trader buys and sells securities for whom

Answer 78

themselves

Question 79

A broker is a what and a dealer is a what

Answer 79

broker is an agent dealer is a principal

Question 80

What would happen first, public or private censure?

Answer 80

Private

Question 81

Order of discipline

Answer 81

1. Order continuing education 2. Private Censure 3. Public Censure 4. Suspension for a period of time 5. Permanently revoke CFP

Question 82

What 2 ways can you satisfy the brochure rule?

Answer 82

Provide ADV part 2 or Provide an actual brochure with that information

Question 83

The 3 prong test to define an advisor is part of what act?

Answer 83

Investment Advisor Act of 1940

Question 84

How many days for reporting to client bankruptcy or public discipline?

Answer 84

90 days