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70 Cards in this Set
- Front
- Back
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An agent registered in a State files an application to engage in the business of selling securities with a foreign jurisdiction. If the foreign securities regulator denies the application, the:
A. Administrator of the State in which he is registered can revoke that individual's registration
B. Administrator of the State in which he is registered cannot revoke that individual's registration
C. individual will be permitted to sell U.S. securities in the foreign jurisdiction, but cannot sell the securities of that country
D. individual will be denied entry to the foreign country |
A. Administrator of the State in which he is registered can revoke that individual's registration.
The uniform securities act permits the administrator to deny registration to an applicant or to revoke the registration of an agent based on actions taken by another securities or banking regulator, including foreign regulators |
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The Administrator may require a new investment adviser who files a registration application in a State to:
I Announce the opening of the advisory firm in the local newspapers
II Pass an oral qualification examination
III File with the Administrator any advertising or communications to be disseminated to the public |
I, II, III
The administrator can require the passing of an exam (written or oral) as a condition of registration; can require the filing of any advertising; and can require that an opening accouncement be published in the local newspapers |
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Which of the following would MOST likely be an investment adviser that is State registered?
A. Certified Financial Planner
B. Adviser with assets under management of $100 million
C. Investment Company
D. Trust Company |
A. CFP
A CFP is the type of smaller investment advisor that is likely to be state registered. Remember that it is only the "big guys" that are federal covered advisors ($100MM and/or advisors to investment companies). Trust companies are excluded from the definition of an investment advisor at both Federal and state level, since they are already regulated as depository institutions under both Federal and State law. |
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Under the NASAA Model Rule covering Investment Adviser records, the adviser's articles of incorporation must be retained for how long after the adviser ceases business operations?
A. 1 year B. 2 years C. 3 years D. 5 years |
C. 3 years
the recordkeeping rule for investment advisors requires that "partnership articles and any amendments, articles of incorporation, charters, minute books and stock certificate books of any investment advisor be preserved for at least 3 years after termination of the enterprise" |
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A bank in a State is making an offering of its own securities, which are exempt, to the public. Which of the following would NOT be required to be registered as an agent in the State?
A. An employee of a broker-dealer who is offering the securities to the public
B. An employee of the bank who is offering the securities to the public
C. An employee of a broker-dealer who is offering the securities only to institutional investors
D. All of the choices above are not required to be registered |
B. an employee of the bank who is offering the securities to the public
An employee of an issuer (as opposed to an employee of a broker-dealer) is exempt from registration if the employee is selling specified exempt securities, which include bank securities. As illustrations for this exclusion, consider the following: * An individual who represents Wells Fargo Bank (the issuer), selling certificates of deposit (an exempt issue) to the public, is not required to be State registered. |
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An adviser with $106,000,000 of assets under management has its main offices in Illinois and branch offices in Wisconsin, Indiana, and Missouri. Which statement is TRUE regarding registration of the adviser?
A. The adviser must register only in Illinois
B. The adviser must register in Illinois, Wisconsin, Indiana, and Missouri
C. The adviser must register with the SEC
D. The adviser must register with the SEC or the States of Illinois, Wisconsin, Indiana, and Missouri |
D. The advisor must register with the SEC or the States of Illinois, Wisconsin, Indiana, and Missouri
Any adviser with $100,000,000 or more of assets under management is a “federal covered adviser” that is only required to register with the SEC. The State cannot require registration of a federal covered adviser; but it can require a “notice” filing in the State along with payment of a fee. However, the SEC has issued an interpretation that advisers with $100-$110 million of assets have the option of registering with the SEC or with the states. Since this adviser falls into the $100-$110 million range, it has the choice of either becoming a Federal Covered Adviser or of registering in each State where it does business. |
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Which of the following statements are TRUE regarding registration requirements under the Uniform Securities Act?
I Minimum net capital can be required for broker-dealers
II Minimum net capital can be required for agents
III Surety bond coverage can be required for broker-dealers
IV Surety bond coverage can be required for agents |
I, III, IV
- Min net capital can be required for BDs - Surety bond coverage can be required for BDs - Surety bond converage can be required for agents
Only agents of broker-dealers can be required to post a surety bond; this is not a requirement for investment adviser representatives. |
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An investment adviser headquartered in State A wishes to solicit institutional customers only in State B. Which statements are TRUE?
I If the investment adviser has an office in State B, it must register in State B
II If the investment adviser has an office in State B, it need not register in State B
III If the investment adviser has no office in State B, it must register in State B
IV If the investment adviser has no office in State B, it need not register in State B |
I & IV
Basically, any adviser or broker dealer that is physically located in a State must register in that State. However, if an investment adviser has NO office in a State, and solicits only institutional customers in that State, then it is exempt from registration in that State, since it has no physical presence and it is dealing solely with sophisticated investors who can "watch out for themselves". |
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An agent's registration becomes effective:
A. immediately when filed in the State B. 10 days after filing in the State C. 30 days after filing in the State D. 90 days after filing in the State |
C. 30 days after filing in the State |
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An investment adviser representative of a Federal Covered adviser with an office in the state only has insurance companies as clients. Where must the investment adviser representative register?
A. SEC B. State C. Both the SEC and the State D. Neither the SEC nor the State |
B. State
Since the firm is federal covered, that firm is only required to register with the State. It must give a notice of filing to any state where it has a physical presence or where it offers advisory services. As far as the investment advisor rep is concerned, there is no registration of IARs with the SEC. They are only registerd in the state where they are physically located and in each state where they solicit advisory business. For the IAR to be able to register in the state, the IA must have completed a notice filing in the state.
the fact that the IAR only has insurance company clients is irrelevant |
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A broker-dealer in State A has a customer that lives in State A, whose account is managed by an agent that is registered in State A The customer moves to State B, a State where the broker-dealer is registered but the agent is not. In order to continue doing business with the customer is State B, the agent:
A. is not required to be registered in State B
B. must register in State B within 10 days
C. must register in State B within 30 days
D. must register in State B within 60 days |
D. must register in State B within 60 days |
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n Investment Adviser and an Investment Adviser Representative file for initial registration in a State on October 31st. When do the registrations lapse, unless they are renewed?
A. The Investment Adviser registration lapses on December 31st of that year and the Investment Adviser Representative's registration lapses on April 30th of the next year
B. The Investment Adviser registration lapses on April 30th of the next year and the Investment Adviser Representative's registration lapses on December 31st of that year
C. The Investment Adviser registration lapses on April 30th of the next year and the Investment Adviser Representative's registration lapses on April 30th of the next year
D. The Investment Adviser registration lapses on December 31st of that year and the Investment Adviser Representative's registration lapses on December 31st of that year |
D. the IA registration lapses on December 31st of that year and the IAR registration lapses on December 31st of that year
All state registrations expire on Dec 31st. It makes no difference when the IA or IAR was first registered in the State |
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If an initial public offering of a security is going to be sold only in one State, the registration procedure to be used is Registration by:
A. Filing
B. Qualification
C. Coordination
D. Administration |
B. Qualification
Coordination is used when an issuer wishes to coordinate a current SEC registration with state
Registration by filing is only available to "seasoned" companies that already have shares outstanding |
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The Administrator:
I is permitted to deny an exemption retroactively
II cannot deny an exemption retroactively
III can vacate a stop order retroactively
IV cannot vacate a stop order retroactively |
II & III
cannot deny an exemption retroactively
can vacate a stop order retroactively |
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An investment adviser has entered into a “soft dollar” agreement with a full service broker-dealer where the broker-dealer will provide the adviser with asset allocation software for free, in return for the adviser directing its order flow to the broker-dealer for trade execution at non-discounted commission rates. A customer of the adviser objects to this and directs the adviser to send his trades to an electronic discount broker. The investment adviser should:
A. send the customer’s trades to the full service broker since the asset allocation software provided by that broker will benefit the customer more than lower commission costs
B. direct the customer’s trades to the electronic broker for execution
C. terminate its advisory contract with the customer
D. inform the customer that he has no right to select the broker that will effect the adviser’s portfolio trades |
B. Direct the customer's trades to the electronic broker for execution
the overriding rule is to follow the instructions of the customer. Failure to follow customer instructions is an unethical practice |
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A Chinese Wall must be maintained by a broker-dealer between all of the following EXCEPT:
A. Sales and Back Office Operations
B. Research and Trading
C. Investment Banking and Research
D. Investment Banking and Sales |
A. Sales and Back office operations
Chinese walls to stop information flow must be maintained between:
- Investment Banking and each of the following: Trading, Sales, and Research
- Trading and each of the following: Research and Sales |
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All of the following are unethical practices of investment advisers under the NASAA Statement of Policy EXCEPT:
A. charging a customer an advisory fee that is extremely high relative to fees charged by other advisers for similar services
B. exercising discretion for a short time period upon oral instruction of a customer
C. failing to disclose sources of compensation received from anyone other than that customer relating to rendering advisory services to that customer
D. telling a customer to buy or sell a security based upon a rumor heard about that security |
B. Exercising discretion for a short period of time upon oral instruction of a customer
NASAA permits oral discretion to be exercised by and investment advisor for up to 10 business days; as long as a written power of attorney is obtained from the customer within 10 business days of exercising such oral discretion |
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An investment adviser is marketing an unproven asset allocation program to customers that has not been validated by real-world testing. The adviser believes that the program works well and tells this to potential buyers, but has no data to support this claim. If the adviser sells this program to customers, then the adviser:
A. must disclose the underlying algorithms used in the computer model to any buyer
B. must determine that the computer model will generate suitable asset allocation recommendations to customers
C. has not committed an unethical practice because the adviser believes in “good faith” that the program works well
D. has committed an unethical business practice |
D. has committed an unethical business practice
The key to this situation is that the asset allocation program is unproven and has not been validated. The sale of such a program is an unethical practice. The advisors claim that the program works well is bogus - there is no supporting data |
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An investment adviser that claims that it is a “fee only” adviser could be compensated based on:
I a percentage of assets under management
II a flat annual or hourly fee for all work performed for wealthy investors
III 12b-1 fees paid by mutual funds
IV a performance based fee for wealthy investors |
I, II, & IV
- % of AUM - a flat annual or hourly fee for all work performed for wealthy investors - a performance based fee for wealthy investors
wealthy investors = 1MM under mgmt OR 2MM net worth |
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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. Charging a retainer fee |
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An investment adviser has determined that ABCD stock would be an appropriate investment for his client, but only if the price falls from the current level of $50 per share to $35 per share. What MUST the adviser do prior to placing an order to buy ABCD stock for the client’s account?
A. Obtain verbal authority for that specific transaction
B. Obtain verbal authority to exercise discretion over the account
C. Obtain verbal authority to exercise discretion only over price and time of execution in the account
D. Secure an appointment as trustee over the account to formalize the fiduciary relationship |
A. Obtain verbal authority for that specific transaction
If an advisor wishes to recommend a transaction to a customer, the customer must agree to do the transaction prior to execution. This is usually done verbally. Written authorization is needed only to take account instructions from someone other than that customer. |
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In order for an agent to share in the gains and losses of a customer's account, all of the following statements are true EXCEPT the:
A. client must approve in writing
B. agent must approve in writing
C. broker-dealer must approve in writing
D. agent cannot invest any of his own funds into the account |
D. Agent cannot invest any of his own funds into the account
agents are prohibited from sharing in the gains and losses of a customers account unless there is a written agreement between the customer and the agent which has been approved by the BD; and the agreement specifies that sharing in a gain and loss is proportionate to the capital contribution of each particiapnt in the account |
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Under NASAA rules, a customer must sign and return the margin agreement:
A. promptly after the initial transaction in the account
B. prior to settlement of the first trade in the account
C. within 1 day of the first transaction in the account
D. within 3 days of the first transaction in the account |
A. promptly after the initial transaction in the account
NASAA wording states that the signed margin aggreement must be obtained promptly after the first transaction in the account. In contrast, FINRA requires that the margin agreement be signed and returned prior to settlement of the first transaction in the account. |
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In order for the State Administrator to enter an order revoking or suspending a registration, which requirement MUST be present?
A. The order must be in the public interest
B. The registration must be misleading
C. A complaint must have been received by the Administrator
D. A willful violation of the Act must have occurred |
A. the order must be in the public interest
If the administrator wishes to enter an order suspending or revoking a registration, this action must be in the public interest and the administrator must believe that a violation of the Act has occurred; or is about to occur |
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Under the Uniform Securities Act, which of the following transactions are voidable by the buyer?
I A customer was unknowingly sold stocks at prices higher than the current market at the time of the trade
II Material facts were unknowingly omitted by the agent who sold the stock to the customer
III A customer was unknowingly sold unsuitable securities |
I, II, & III
Civil liability under the Act allows that certain transaction are "null and void" and the seller must offer to buy back the securities at the original cost plus 6% interest. For civil liabilities to apply, there cannot be a willful intent to defraud the customer. All of these transaction were performed "unknowingly," so they are voidable. |
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An investment adviser has its principal office in State X. It also has offices in States Y and Z. The recordkeeping requirements of State Y are more stringent than those of State X and the recordkeeping rules of State Z are the most stringent of all. The investment adviser is required to maintain its records in accordance with the rules of:
A. State X
B. State Y
C. State Z
D. each State separately under that State's rules |
A. State X
The uniform securities act states that if an advisor complies with the provisions of the act as adopted in the state where the advisor has its principal office, then other states cannot impose more stringent recordkeeping requirements or min net worth requirements on that advisor, EVEN if the advisor has offices in those states. |
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If an investment adviser buys out another investment advisory firm, which statement is TRUE about filing fees paid to the State?
A. Two additional separate filing fees must be paid for each of the advisory firms
B. A new filing fee covering the entire year must be paid for the combined advisory firm
C. An additional pro-rata filing fee covering the balance of the year for the combined advisory firm must be paid
D. No additional filing fee is required |
D. No additional filing fee is required
If an investment advisor buys out another firm, then the firm that is bought out ceases to exist; and the accounts of the firm that is bought out become part of the existing acquiring firm. NO ADDITIONAL filing fee must be paid by the acquiring firm, since a new firm is not being created.
if a new successor firm were created from the merger of 2 firms, the admin will allow the successor firm to complete the predecessor firms filing year, so no additional fee would be required either |
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All of the following statements are true about Federal and State registration of investment advisers EXCEPT:
A. Federal covered advisers are not required to be registered in the State
B. State registered advisers are not required to be registered with the SEC
C. Federal covered advisers are not required to pay filing fees in the State
D. State registered advisers are not required to pay filing fees to the SEC |
C.
Advisors that manage 100MM or more of assets; or that render advice to companies; or that are not regulated at the state level; must register with SEC only.
The smaller advisors are only required to be registered at the state level. (fed covered can be required to pay filing fees with the state, even though they are not registered) |
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A Canadian broker-dealer has some clients who are "snowbirds" who spend their winters in State Z, which is one of the southernmost States. The broker-dealer does not have an office in State Z and it is not registered there. The clients wish to effect securities transactions while they are residing in State Z. Does this broker-dealer have to register in State Z?
A. No - the broker-dealer can effect securities transactions in State Z without registering there as long as the firm has 5 or fewer clients in the State
B. No - the broker-dealer can effect securities transactions in State Z for existing customers who are temporarily residing in the State
C. Yes - because the broker-dealer's customers are physically present in State Z
D. Yes - because the customers are being solicited by the broker-dealer to effect securities transactions while they are in State Z |
C. Yes - because the broker-dealer's customers are physically present in State Z
Canadian broker-dealers with no office in a State are allowed to effect securities business with existing customers who are "vacationing" in a State, without having to be registered in that State. The Uniform Securities Act does not specify the maximum time frame for this, but it is typically 2 weeks or less. Also note that the Canadian broker-dealer cannot be soliciting new customers in that State under this exemption
However, in this case, the Canadian customers are spending the whole winter living in State Z
- this is not a case of the customer temporarily vacationing in State Z. In this case, State Z requires both the Canadian broker-dealer and agent to register in the State. To make this easier, the Uniform Securities Act provides that as long as the Canadian broker-dealer and agent are only contacting exising customers in the State, and as long as they are properly registered in Canada, they can use their Canadian registration documents to register in the State.
(Also note that Choice A could also be correct, but this provision is not consistently applied in all States for broker-dealers (in contrast, it is consistently applied for investment advisers) and the question does not detail how many existing clients the broker-dealer has in State Z.) |
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If a representative that transacts business in a State terminates employment with a federal covered adviser:
A. notice must be given to the Administrator by the representative only
B. notice must be given to the Administrator by the federal covered adviser only
C. notice must be given to the Administrator by both the federal covered adviser and the representative
D. no notice is required to be given to the Administrator |
A. Notice must be given to the Admin by the rep only
If a rep of a fed covered advisor that transacts business in a state terminates employment, it is the responsibility of the rep to notify the state promptly. Advisory firm is NOT registered with state; only rep is. Thus, it cannot be the responsibilty of the advisory firm to notify the state since it is not registered. |
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A father and son are both agents of a broker-dealer, working out of a branch office in State A. The son receives a phone call from an old friend that has recently moved to State B, who wants to open an investment account. The son is not registered in State B, but the father is registered in State B as an agent. The son asks his father if he would be the “broker-of-record” on the account; but all commissions earned on the account would be paid by the father to the son, from the father’s personal checking account. Under Uniform State Law, this arrangement is:
A. permitted because related persons can share in customer accounts
B. permitted because only 1 member of a non-resident family is required to be registered in a State as an agent
C. prohibited unless the son registers as an agent in State B
D. prohibited because agents are prohibited from paying commissions to other agents |
C. prohibited unless the son registers as an agent in state B
In order to recommend securities to a customer or effect trades for a customer, non-resident agents must be registered in each state where they solicit customers. Because this customer resides in State B, the son must register as an agent in State B. The son cannot use the father as the "front man" to be the "broker of record" on the account |
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In order to make an offer of a non-exempt security, an agent of a broker-dealer:
A. must be registered in the State in which he or she resides and the broker-dealer is located
B. must be registered in the State where he or she is offering the security
C. must be registered in the State in which he or she resides and the broker-dealer is located and must be registered in the State where he or she is offering the security
D. need not be registered |
C. must be registered in the state in which her or she resides and the broker-dealer is located AND must be registered in the state where he or she is offering the security
agents must register in the state where they are physically located; and also must register in each state in which they make offers of securities.
ALSO, the fact that the security in non-exempt (ie, common stock) has no bearing. To offer ANY security in a state, whether exempt or not, the agent must be registered in the state |
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An investment adviser that has no office in State B would be required to be registered in State B if a representative associated with that firm sells advisory services in State B to:
A. 6 relatives
B. an investment advisory firm and 2 individuals
C. an investment advisory firm and 6 private individuals, of which 3 are officers of an investment advisory firm
D. 6 investment advisory firms |
A. 6 relatives
An adviser that only sells its services to other investment advisers (who the law considers to be “professionals” and not in need of protection) is not required to be registered in a State, as long as the adviser is not physically located in that State. Officers of advisory firms to whom another adviser offers its services fall under the same “professional” exemption. Offering services to 5 individuals or less allows the adviser with no office in that State to claim the “de minimis” exemption in the State. There is no exemption for offering advisory services to relatives. |
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A broker-dealer headquartered in Florida has a Net Capital requirement of $50,000. The firm has an office in Georgia, where the Net Capital requirement is $25,000 and an office in Tennessee where the Net Capital requirement is $35,000. Under Uniform State Law, the Net Capital requirement for this broker-dealer is:
A. $25,000
B. $35,000
C. $50,000
D. $110,000 |
C. 50k
Net capital is not an additive requirement - it is based on the broker-dealer's principal state where it operates. |
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Filing of advertising with the Administrator is required for which one of the following?
A. U.S. Government securities
B. Municipal securities
C. Investment company securities
D. Options Clearing Corporation securities |
D. Options Clearing Corp
Filing of advertising with the state cannot be required for exempt securities; exempt transactions; or fed covered securities. US gov and muni's are exempt. NYSE listed, NASDAQ listed and investment company securities are fed covered. Options are non-exempt and not fed covered, so the admin can require filing of advertising for these. |
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To use Registration by Coordination, an issuer must file a registration statement with the:
A. Administrator of another State
B. Securities and Exchange Commission
C. Both of the above
D. Neither of the above |
B. SEC
Registration by coordination in a state allows the fed registration document required under securities act of 1933 to be the basis for registering the issue in that state. There is no provision in the uniform state law that allows a registration statement filed in one state to be the basis for filing in another. |
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Under the Uniform Securities Act, registration of a security in a State means that:
I disclosure documents have been filed with the Administrator
II the Administrator has reviewed the content and accuracy of the filing
III the Administrator has approved of the securities being offered |
I & II
Disclosure documents have been filed with the admin
admin has reviewed the content and accuracy of the filing
- DOES NOT mean the admin approves of the issue |
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Which of the following are considered to be an "offer to sell" a security?
I An offer of a security that will be given as consideration for the purchase of another security
II An offer of the gift of an assessable security
III An offer of a stock dividend by an issuer to holders of that security
IV The offer of rights to purchase an underlying security |
I, II, & IV
an offer of a security that will be given as consideration for the purchase of another security
an offer of the gift of an assessable security
the offer of rights to purchase an underlying security |
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Frederick Kruger, an investment adviser representative, has decided to leave his current firm and accept a position with another investment adviser. Freddy makes an agreement with an investment adviser representative at his old firm to handle his accounts after he leaves. The IAR at the old firm will set aside and pay 50% of any fees that he receives to Frederick for the next 3 years. Which statement is TRUE? This arrangement is:
A. acceptable because the commissions are being shared between 2 registered individuals
B. acceptable because an oral contract is binding on both parties under the Uniform Securities Act
C. prohibited because commissions cannot be shared by individuals that are registered at different advisory firms
D. prohibited because sharing in commissions is not allowed under any circumstances |
C. prohibited because commissions cannot be shared by individuals that are registered at different advisory firms
it is an unethical practice to share commissions under NASAA rules, UNLESS they are shared with another registered individual at the same broker-dealer; or a broker-dealer that is under common control |
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An investment adviser may receive a percentage of gains and losses in a client's account:
A. under no circumstances
B. only if specifically agreed in writing by both the customer and adviser
C. only if a written agreement is approved in advance by the Administrator
D. without restriction |
A. under no circumstances |
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A customer submits a written complaint to your broker-dealer. Later, he changes his mind and asks that the complaint be returned. You should:
A. do nothing unless the customer makes a written request
B. return the original written complaint to the client
C. return a copy of the complaint to the client and retain the original complaint in the firm’s files
D. return the original complaint to the client and retain a copy of the complaint in the firm’s files |
C. return a copy of the complaint to the client and retain the original complaint in the firms files |
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Under the Uniform Securities Act, which statements are TRUE regarding investment advisers that take custody of customer funds?
I The administrator must give written approval before an adviser can take custody of customer funds
II The administrator can requires a higher surety bond for advisers that take custody of customer funds
III Statements of account must be sent to customers whose assets are held in custody at least quarterly |
II & III
admin can require a higher surety bond for advisors that take custody of customer funds
statements of account must be sent to customers whose assets are held in custody at least quarterly
There is NO requirement for written approval for an investment advisor to get prior approval from the admin to take custody of the customer funds |
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An IAR has opened an account for a new customer. The customer is "on the road" for 3-4 weeks per month and has given the IAR verbal authorization to trade her account on a discretionary basis. The IAR sends the customer a written power of attorney for signature and return. 1 week after opening the account, the IAR hears of a good investment opportunity and buys 500 shares of the XYZ stock at $50 for the customer's account. 3 weeks later, the stock declines and the IAR sells the stock at $30 per share. The customer never returned the signed power of attorney. Liability for the loss rests with the:
A. customer
B. investment advisory firm
C. investment adviser representative
D. all of the above |
B. investment advisory firm
the NASAA permits oral discretion for up to 10 days; as long as written power of attorney is obtained from the customer within 10 business days of exercising such oral discretion |
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An agent of a broker-dealer personally owns 100,000 shares of DEF stock. He believes that the stock is a good long term investment, but that the price will remain flat for the next 18 months. He recommends the purchase of the stock to one of his best customers, who has an investment objective of capital gains, and when the customer agrees, arranges to have his 100,000 shares sold to that customer. This action is:
A. unethical because the recommendation does not correspond to the customer's investment objective
B. unethical because the agent has a conflict of interest that must be disclosed to the customer at the time the recommendation is made
C. unethical because the agent cannot sell his own personal position to a customer
D. permitted without restriction |
B. unethical because the agent has a conflict of interest that must be disclosed to the customer at the time the recommendation is made
if the stock is such a good investment, why is the agent selling? there is a conflict of interest here that must be disclosed to the customer to whom the purchase of the stock is being recommended |
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All of the following are relevant considerations when determining if a customer account has been churned EXCEPT the:
A. customer’s investment objective
B. length of time that the customer had the account with that broker-dealer
C. character of the customer’s account
D. financial condition of the agent responsible for the account |
B. length of time that the customer had the account with that broker-dealer
Relevant considerations:
- whether the active trading is in line with the customer's investment objective
- the character of the customer's account - that is the types of the investment that have been made in the account and the frequency of trading of each investment type
- the financial condition of the agent (eg, is the agent not making enough money to pay his bills, so he or she has an incentive to churn?) |
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An attorney that has been appointed executor of a deceased customer's estate contacts an investment adviser in a State to invest and manage the estate's financial assets until they are distributed to the heirs. The attorney offers to pay an advisory fee that is based on a percentage of assets under management. Which statement is TRUE regarding this arrangement?
A. The advisory contract must be approved by the probate court judge prior to the adviser taking control of the financial assets
B. The advisory contract must be approved by the heirs prior to the adviser taking control of the financial assets
C. The contract is null and void because executors are not permitted to delegate investment and management functions over estate assets
D. The contract is valid as long as the adviser exercises reasonable care to comply with the terms of the delegation |
D. the contract is valid as long as the advisor exercise reasonable care to comply with the terms of the delegation
can do so as long as the trust or will permits such; and the agents actions are consistent with the purposes and terms of the trust or will |
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A customer asks an agent for the current market value of his stock portfolio. The stock market has been dropping sharply today, and the agent gives the customer the most recent valuation that he has, which is based on yesterday's closing prices. Which statement is TRUE?
A. The agent's action is permitted since he gave the customer the most recent information that he had
B. The agent's action is fraudulent because he misrepresented the status of the account to the customer and gave inaccurate market quotations
C. The agent's action is permitted since price quotes are only estimates
D. The agent's action is fraudulent because he withheld material inside information from the customer |
B. the agent's action is fraudulant because he misrepresented the status of the account to the customer and gave inaccurate market quotations
Giving inaccurate market quotes is a prohibited practice under the Act. In this case, the agent misrepresented the status of the account to the customer by giving yesterday's closing quotes. If the agent did not have immediate access to today's prices, then he should have told the customer that he would get today's quotes and call him back as soon as possible. |
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All of the following information is required on an order ticket EXCEPT:
A. time of order receipt
B. time of order execution
C. whether the trade was solicited or unsolicited
D. whether the order was placed verbally or in writing |
D. whether the order was place verbally or in writing
Time of order receipt is recorded on the order ticket, as is time of order execution. Both of these are required to permit regulators to be able to detect “front running” violations. They are also needed to resolve customer complaints about possible execution errors. The account name and/or number must be on the order ticket. It must be recorded whether the trade was solicited or unsolicited. There is no requirement to record the manner in which the order was received. |
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A customer has an individual account. Upon written request, the customer's account statements and confirmations may be sent to the:
A. Agent
B. Broker-dealer
C. State Administrator
D. None of the above |
D. None of the above
Customer mail must be sent to the customer's home address or to a po box |
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All of the following individuals would be allowed to effect transactions in the account of a customer who is mentally incapacitated EXCEPT a(n):
A. individual named in the customer's living will
B. individual given a durable power of attorney
C. conservator appointed by a court of law
D. joint tenant that owns the account with the customer |
A "living" will appoints an individual to make only "end of life" medical decisions, not financial decisions. A durable power of attorney granted by the customer prior to his or her mental incapacitation appoints an individual to make decisions for the incapacitated customer, so this works. A court appointed conservator over the account is authorized to trade. If the account was held by joint tenants, the other party in the account is still authorized to trade. |
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An agent sells unregistered non-exempt securities to a customer, and has the customer sign a statement that he is aware that the securities are unregistered. The agent receives a commission for the trade. Under the Uniform Securities Act, this transaction is:
A. allowed under the isolated non-issuer transaction exemption
B. allowed under the private placement exemption
C. null and void under the Act, subjecting the agent to civil liabilities
D. allowed since the customer acknowledged the status of the securities in writing |
C. null and void under the act, subjecting the agent to civil liabilities
the sale of unregistered non-exempt securities is a violation of the act which incurs civil liabilities. The transaction is null and void and the seller is obligated to buy back the security at the original cost plus 6% interest. |
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Which action taken by the Administrator is the most severe?
A. Suspension
B. Revocation
C. Cease and Desist
D. Cancellation |
B. Revocation
since it is permanent (prohibited from doing business in the state) |
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Under the Uniform Securities Act, an investment adviser may be formed as any of the following EXCEPT a(n):
A. corporation
B. partnership
C. association
D. broker-dealer |
D. Broker-Dealer
Investment advisors cannot be formed as broker-dealers; nor can broker-dealers be formed as investment advisors. Each is a legally separate entity, and each is regulated separately |
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A Registered Investment Adviser enters into an agreement with a Certified Public Accountant, where the CPA will refer clients that need the services of an investment adviser. For each client referral, the CPA will be paid a fee. The CPA is:
A. required to register in the State as an agent
B. required to register in the State as an investment adviser representative
C. not required to register in the State because he already has an independently conferred professional designation
D. not required to register in the State because he is regulated by the AICPA |
Any person retained by an investment advisor to "find" new clients, if he or she is paid for doing so, is defined as an IAR who MUST be registered in the State. (separate compensation for each referral is key) |
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NASAA has the power to set record retention rules for a Federal Covered Adviser that cover which of the following records?
I Communications to 2 or more persons II E-mails to clients III Trial balances IV General ledger
A. I and II only
B. III and IV only
C. I and IV only
D. None of the above |
D. None of the above
NASAA does not set rules for federal covered advisors (only applies to STATE registered advisors with less than 100MM or less) |
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An investment adviser representative of a Federal Covered adviser with no office in the state only has insurance companies as clients. Where must the adviser representative register?
A. SEC
B. State
C. Both the SEC and the State
D. Neither the SEC nor the State |
D. Neither the SEC nor the State
Since the advisor is federal covered, that firm is only required to register with the SEC. The fact that the IAR has no office in the state and only has insurance company clients implies a state exemption for registration (no office; only institutional clients) |
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A B/D application is received by the State Administrator for a new broker-dealer subsidiary of a Swiss securities firm. The application includes the disclosure that the parent firm was suspended from membership on the Deutsche Bourse 6 years ago because of unauthorized trading by its Hong Kong branch. The State Administrator
A. cannot deny registration based on the suspension that was imposed by a foreign regulator
B. can deny registration based on the suspension by the foreign regulator
C. must grant registration because the U.S. subsidiary is a legally separate entity from the parent company that is based in Switzerland
D. can deny registration only if the actions of the parent company were a criminal offense |
A. CANNOT deny registration based on the suspension that was imposed by foreign regulator
The Uniform Securities Act sets a 10 year statute of limitations for securities related violations as a cause for denial of registration. This is based on violations of U.S. law. It also includes a provision regarding violations of the law of a foreign jurisdiction. In this case, it sets a 5 year statute of limitations.
U.S = 10 year statute of limitation Foreign = 5 year statute of limitation
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Which of the following may be required to be filed with the Administrator?
I Advertising
II Sales Literature
III Circulars
IV Customer Complaints |
I, II, & III
Admin can require filing of the following:
- advertising - sales literature - pamphlets - prospectuses - form letters
NO requirement to file customer complaints with Admin |
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The National Securities Markets Improvement Act requires that broker-dealer net capital standards:
A. cannot be set by the State Administrator
B. can be set by the State Administrator at the same level as that set under the Federal requirement
C. can be set by the State Administrator at any amount that is higher than the Federal requirement
D. can be set by the State Administrator only if it is in the public interest |
B. can be set by the State Admin at the same level that is set under Fed requirement
- Fed law has supremacy over state law; state admin cannot set a min net capital amount that is higher than the SEC requirement |
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Under NASAA rules, Investment Advisers must retain copies of all advertising for:
A. 3 years in an easily accessible place with the first year's records kept in the principal office of the adviser
B. 3 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser
C. 5 years in an easily accessible place with the first year's records kept in the principal office of the adviser
D. 5 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser |
D. 5 years; first 2 years kept in principal office |
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A person with no office in a State would be required to register as an investment adviser in that State if that individual:
A. has been qualified as a Chartered Financial Analyst and sells securities analyses to customers in the State
B. only deals with other investment advisers in that State
C. only deals with existing customers that are briefly vacationing in that State
D. makes solicitations to no more than 5 clients in that State in any 12 month period |
A. has been qualified as a CFA and sells securities analyses to customers in the state
NO office in state/No registration required for: - institutional - bd's - other advisors - deals with clients who are vacationing - solicits 5 or less clients in state |
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An investment adviser registered in the State of California takes custody of client funds. The State has a minimum $35,000 Net Worth requirement. The IA finds that its Net Worth is $34,500. The adviser:
A. is not required to do anything because the Net Worth deficiency is less than $1,000
B. must deposit $1,000 as a Surety Bond with the State Administrator by the close of business the next business day
C. must cease business operations until the deficiency is cured
D. must notify the State Administrator by the close of business on the next business day and file a report of the adviser's financial condition the next day |
D. must notify the admin by close of business day on next business day and file a report of the advisor's financial condition the next day
After transmitting such notice, the investment adviser must file, by the close of business on the next business day, a report of its financial condition, including a:
- trial balance of all ledger accounts - statement of all client funds, securities, or assets which are not segregated - computation of the aggregate amount of client ledger debit balances - statement as to the number of client accounts |
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TechnoCorp is a small cap technology stock that is quoted in the OTCBB. Under the provision of the Uniform Securities Act, the common stock of TechoCorp is a(n):
A. federal covered security that is exempt from State registration
B. exempt security as defined under the Uniform Securities Act
C. non-exempt security that must be registered in the State
D. exempt transaction that does not require registration in the State |
C. non-exempt security that must be registered in the State
Major NON-EXEMPT securities under State law: - those NOT listed on an exchange or NASDAQ - common and preferred stock of companies quoted on OTCBB or Pink sheets - corporate bonds of the OTCBB or Pink Sheet companies |
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An individual that has not yet passed the appropriate State licensing examination for agent registration in a State would be permitted to:
A. answer a phone call from a client
B. make a recommendation to a client
C. make a cold call to a potential client
D. write an order ticket for an unsolicited client order |
A. answer a phone call from a client |
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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. can be executed in writing
there must be a signature of each of the parties (signature makes it binding) |
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Customer privacy rules allow the disclosure of a specific customer’s account information:
A. under no circumstances
B. to any third party that makes the request in writing
C. to a third party as necessary to complete a transaction requested by that customer
D. to any government agency that makes a request for information |
C. to a third party as necessary to complete a transaction requested by that customer
Items that do not fall under policy: - info in order to effect a transaction ordered by customer - maintaining or servicing a customer account - any request for information made by a court of law - any requests made by regulators (SEC FINRA) |
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In March, an investment adviser wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1st. In order to do this:
I the investment adviser must file the change with the Administrator immediately
II the investment adviser must file the change with the Administrator within 30 days
III the adviser's customers must approve of the change by July 1st
IV the adviser's customers are not required to approve the change |
II & III
- must file change with admin within 30 days - customers must approve change by change date |
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In order for an investment adviser to be compensated with a performance fee, all of the following must be disclosed in writing EXCEPT:
A. that the fee arrangement may create an incentive for the adviser to make investments that are riskier
B. that the fee arrangement is based on both unrealized appreciation and realized capital gains
C. the nature and significance of any index used as a comparative measure and the reason why the adviser believes that any comparative index used is appropriate
D. that the fee computation can be based on periods ending no earlier than the last day of each calendar quarter |
D. that the fee computation can be based on periods ending no earlier than the last day of each calendar quarter
BEFORE entering into an advisory contract that charges a performance fee, the advisor must disclose in writing:
- may create incentive for the advisor to make investments that are riskier
- get compensation based on both unrealized appreciation and realized gains
- basis for valuing any illiquid investments used in computing unrealized appreciation
- periods that will be used to measure performance and significance to the computation of the fee
- nature of any index used as a comparison of investment performance, the significance of the index, and the reason why the advisor believes the index is appropriate
- minimum period of 1 year (not charged quarterly) |
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Which of the following orders MUST be retained as a record by broker-dealers?
I Executed orders
II Unexecuted orders
III Canceled orders
IV Subscription orders |
I, II, & III
a subscription order arises from a rights offering. These orders happen directly between issuer and shareholder (no bd record) |
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Under NASAA rules, investment advisers must annually:
A. update the Form ADV disclosure document and send it to existing customers if there is a material change
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. update the form ADV disclosure document and send it to existing customers if there is a material change |
