Coffee
Under the NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, investment advisers who have discretionary powers but NOT custody of customer funds are usually required to have a net worth in the amount of
A) $35,000.00
B) $10,000.00
C) $5,000.00
D) $50,000.00
B) $10,000.00
The NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an adviser who does not have custody of customer funds or securities but has discretionary power over customer accounts to have a minimum net worth of $10,000.
States may require a surety bond as a prerequisite to registration under the Uniform Securities Act for each of the following EXCEPT a(n):
A) issuer.
B) state-registered investment adviser.
C) agent.
D) broker-dealer.
A) issuer.
The common requirements are to pay filing fees, post a surety bond, and consent to service of process for all three of these designations. For broker-dealers and state-registered investment advisers, an additional net capital or net worth requirement has to be met.
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, when a dealer makes an offer to sell:
A) he must be prepared to sell at that price.
B) he must have acquired that stock at a price below the quote.
C) he must be prepared to buy at that price.
D) he must have acquired that stock at a price above the quote.
A) When a dealer makes a quote, it must be honored. If accepted, the dealer must sell at the quoted offering price or buy at the quoted bid price.
Which of the following are exempt from state registration?
A) I and II
B) III and IV
C) II and III
D) I and IV
C) II and III
Isolated nonissuer transactions and transactions by an administrator are included in the list of exempt transactions. The private placement exemption is limited to a maximum of 10 offers to retail clients. If this were to institutions, (where there is no numerical limitation), commissions would be paid and immediate resale is permitted. If the common stock is federal covered (listed on the NYSE) and, therefore exempt from registration, then a senior security, such as the bond, would also be covered. But, it doesn't work in reverse.
Currency transaction reports must be filed for cash transactions that exceed:
A) $10,000
B) $50,000.
C) $100,000.
D) $25,000.
A) $10,000
The Bank Secrecy Act requires every financial institution to electronically file with the Department of the Treasury a Currency Transaction Report (CTR) on FinCEN Form 112 for each cash transaction that exceeds $10,000. This report would include cash transactions used to pay off loans, electronic transfer of funds, and purchases of certificates of deposit, stocks, bonds, mutual funds, or other investments with cash.
To enforce the Securities Act of 1933, the SEC may:
A)
II and III.
B)
I, II and III.
C)
I and III.
D)
I and II.
B) I, II, and III
A difference between the Uniform Securities Act and the Securities Act of 1933 is who enforces them. The Uniform Securities Act is enforced by the state Administrators, while the federal acts are enforced by the SEC. In complying with its enforcement responsibilities, the SEC may make, amend, and rescind rules, issue cease and desist orders, administer oaths, conduct investigations, take evidence, and subpoena witnesses, books, and records. The SEC may also seek temporary or permanent injunction from the courts, file civil suits, and refer evidence to the attorney general for criminal prosecution.
In response to high stock market volatility, if an investment adviser has all clients immediately sell their equity holdings and reallocate the proceeds to Treasury bills, under the Uniform Securities Act, this is:
A) ethical because the adviser is responsive to current market conditions.
B) ethical because the adviser is recommending a lower-risk investment.
C) unethical because the adviser may receive commissions when his customers sell their stock.
D) unethical because Treasury bills may not be appropriate for all the adviser's clients.
D) unethical because Treasury bills may not be appropriate for all the adviser's clients.
It is unlikely that Treasury bills, however conservative, are suitable for all clients. An adviser must always keep in mind each client's personal investment needs, risk tolerance, and investment objectives when trading the clients' securities. Blanket recommendations are not ethical.
NASAA's Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents prohibits excessive activity in the account of a client for the purpose of generating commissions. This activity, frequently referred to as churning, would likely be excused:
A) if the investor is considered an accredited investor under SEC Rule 501.
B) when the agent has been granted discretionary authority.
C) when the account has outperformed the S&P 500 index.
D) under no circumstances.
D) under no circumstances.
Churning, the practice of excessive activity in a client's account for the purpose of generating commissions, is never an excusable practice.
Securities of which of the following issuers are exempt under the USA?
A) I, II, III and IV.
B) I and II.
C) I only.
D) I, II and IV.
B) I, II and IV
Under the USA, the registration exemption for bank-issued securities is justified by strict financial requirements imposed on banks by banking industry regulators such as the FDIC, the Comptroller of the Currency, and the Federal Reserve. Both federal and state banks and federal savings and loan associations are subject to such regulation. However, bank holding companies (as separate legal or corporate entities) are subject to state registration if not otherwise exempt. Thus, securities issued by bank holding companies are not exempt securities under the act.
Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include:
A) I and II.
B) I and III.
C) I, II and III.
D) II and III.
A) I and II
Investment companies must file audited reports with the SEC annually and send at least semiannual reports to shareholders. They are not required to notify shareholders of changes in the portfolio as they occur.
Under the Uniform Securities Act, if not denied, an application for registration as investment adviser will generally become effective how soon after filing?
A) 10 days.
B) Immediately.
C) 30 days.
D) 15 days.
C) 30 days.
If not denied and no disciplinary proceedings are instituted, an application for registration becomes effective at noon on the 30th day after being filed.
It is NOT necessary for an investment adviser to register when it:
A) is headquartered in a state where it conducts most of its business with broker-dealers only.
B) has a place of business in the state but deals exclusively with federal covered advisers.
C) has no place of business in the state and deals with savings and loan associations only.
D)has a place of business in the state but has conducted business with three individual investors during the preceding 12 consecutive months.
C) An adviser who has no place of business in the state and deals only with savings and loan associations is not required to register with the state securities Administrator. An adviser with a place of business in the state must register with the Administrator whether clients are exclusively broker-dealers or federal covered advisers and regardless of the number of clients.
A supervisor's review of a client's account indicates daily trading with rapid portfolio turnover. Under NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, this would NOT be considered excessive trading activity (churning) if:
A) the client's investment objective is quick return, the client has the financial resources necessary for such activity, and the agent uses a sophisticated technical program designed to cut losses and take profits quickly.
B) each security purchased is suitable for the client.
C) the client has approved each trade.
D) the client's account shows a profit.
A)
The Statement of Policy determines whether the trading is excessive by evaluating the client's investment objectives, financial resources, and the character of the client's account. While such trading activity is not suitable for everyone, there are some clients for whom such activity would be suitable. Having client approval for each trade does not necessarily eliminate the requirement to only make suitable recommendations, nor does it excuse excessive trading. A security may be a suitable purchase for a client, but not be suitable for rapid trading. To be sure, there is a greater likelihood of a churning case when the client has lost money, but there have been many cases where even when a profit has been made, churning has been the verdict.
Under the registration provisions of the Uniform Securities Act, it is unlawful for an agent in the state to sell XYZ securities unless:
A) XYZ is a nonregistered, nonexempt security.
B) XYZ is a federal covered security.
C) the agent is a nonregistered, nonexempt person.
D) both the agent and XYZ are nonexempt and nonregistered.
B) XYZ is a federal covered security.
If XYZ is a federal covered security it is not required to register with the state. Nonexempt securities and nonexempt persons must be registered to be sold (securities) or to do business (persons).
When must the Annual Update Amendment to Form ADV be filed?
A) Only when an action is pending against the adviser.
B) Within 90 days of the adviser's fiscal year-end.
C) Within 120 days of the calendar year-end.
D) Within 90 days of the calendar year-end.
B) Within 90 days of the adviser's fiscal year-end.
The Annual Update to Form ADV must be filed by a registered investment adviser no later than 90 days following the adviser's fiscal year-end (which may happen to be a calendar year).
Under the USA, an individual would not be considered an agent while representing the issuer in any of the following transactions EXCEPT:
A) nonexempt, initial public offerings.
B) promissory notes, such as commercial paper, with a maturity of nine months or less.
C) issuers in exempt transactions.
D) investment contracts issued in connection with an employee's stock purchases, savings, pension, profit-sharing, or similar employee benefit plan.
A) nonexempt, initial public offerings.
Persons who represent nonexempt issuers of new securities, are agents under the USA unless it is stated that the transaction is exempt. Representing issuers in exempt transactions excludes the person from the definition of agent.
Under the Investment Advisers Act of 1940, an investment adviser that operates in only one state has no private funds as clients, and restricts advice only to securities not listed on a national stock exchange:
A) is exempt from registration with the SEC under the act.
B) must register under the act.
C) is exempt from both state and federal registration.
D) must file as an associate under the act.
A) is exempt from registration with the SEC under the act
While not excluded from the definition of investment adviser, some advisers are exempt from the requirement to register with the SEC. These include investment advisers whose clients are all residents of the state in which the adviser maintains its principal office and that confine their advice to securities not listed with a national exchange or that enjoy unlisted trading privileges on a national exchange; investment advisers whose clients are limited to insurance companies; and as long as none of their clients are private funds.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements regarding investment advisory fees is (are) TRUE?
A) I, II and III.
B) I and II.
C) II and III.
D) IV only
D) Advisory fees may be considered unreasonable if they are not comparable to fees charged by other advisers for the same advisory services. NASAA's Model Rule states it is unethical to charge excessive fees, even if the client has agreed to the fees or is sophisticated. However, advisory fees need bear no relationship to the amount of time the adviser spends on the client's account.
Under the Securities Act of 1933, which of the following are exempt securities?
A) I, II, III and IV.
B) I, II, and III.
C) I and III.
D) II and IV.
A) I, II, III and IV.
Most of the securities exempt from registration and prospectus delivery requirements in the Securities Act of 1933 are also exempt under the Uniform Securities Act. Securities exempt under the Securities Act of 1933 include government issues, commercial paper, securities issued or guaranteed by financial institutions, regulated common carrier issues, and nonprofit charitable or religious institutions, There are three securities that are exempt under the Uniform Securities Act and not exempt under the Securities Act of 1933. Stocks and bonds issued by insurance companies, securities issued by foreign governments, and securities listed on certain exchanges are not exempt under the Securities Act of 1933.
Which of the following is (are) unethical business practices if conducted by a broker-dealer?
A) I and II.
B) I only.
C) II, III and IV.
D) III and IV.
C) I, II, and IV.
A broker-dealer may act as agent for both buyer and seller in a transaction. All the other activities represent market manipulation and are therefore unethical practices.
As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state’s legal rate. This would be
A) a prohibited guarantee against loss
B) a right of rescission
C) an offer that could only be made to accredited investors
D) a violation of the antifraud provisions of the Uniform Securities Act
A) a prohibited guarantee against loss
Offering to buy back a stock at its original cost, even without paying interest, it a prohibited guarantee against loss. Rescission is only when there was something improper about the sale. Technically, this offer is not a case of fraud and, in any event, we must always select the answer that best addresses the question—in this case, a guaranteed price.
Under the Uniform Securities Act, which of the following are prohibited actions of an investment adviser?
A) I and III
B) I and IV
C) II and IV
D) III and IV
C) II and IV
The USA prohibits an investment adviser from acting as principal or agent in a transaction with an advisory client without approval prior to completion (settlement) of the trade. Assignment of a majority interest in the company's stock is considered to be the same as assignment of client contracts; an action that may not be done without client acceptance. There is nothing wrong with agency cross transactions as long as disclosure is made and the trade is recommended to only one of the parties by the adviser. Performance fees may be charged, regardless of the client's age, to anyone with a net worth of at least $2.1 million or with at least $1 million under management with the firm.
An agent of a broker-dealer works from an office in her home. She uses her personal laptop computer to store detailed personal and trade information on her clients. Because she does not use Wi-Fi at home and locks the computer up when the day’s work is done, she does not have any cybersecurity policies or procedures in place to protect the client data. Unfortunately, there is a cyberattack on her computer and all client data is compromised. Under NASAA’s Model Rules, she
A) acted unethically because she did not have any written policies and procedures to protect client data
B) did the best that she could under the circumstances
C) is criminally liable and could be fined and even sentenced to a prison term
D) acted unethically because she did not have any cybersecurity policies or procedures in place
D) acted unethically because she did not have any cybersecurity policies or procedures in place
Although 2 of these choices appear alike, the key difference is the use of the term cybersecurity.
The Investment Advisers Act of 1940 contains the basic definition of persons who are required to register with the SEC as investment advisers. Which of the following persons would be included in the listing of those who must register?
A) I and II.
B) III only.
C) I, II and IV.
D) III and IV.
D) III and IV
It is not necessary to recommend specific stocks, bonds, or other investment products by name to be included in the definition of investment adviser. Although a person receiving a fee to suggest gold coins to clients would not be an IA, in this case the financial planner is giving securities advice (liquidate the bonds) to invest in a nonsecurities asset.
Which of the following meet(s) the compensation test for defining investment advisers under SEC Release 1A-1092?
A) An insurance agent sells a life insurance policy and receives a commission on that policy. During the sale of the insurance policy, the agent provides some securities investment advice
B) A real estate agent advertises that she will give free advice regarding investing the proceeds from the sale of any home she lists
C) Subscription payments received by a publisher of a newsletter providing impersonal securities-related advice
D) Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do
C) Subscription payments received by a publisher of a newsletter providing impersonal securities-related advice.
Compensation may take the form of, but is not limited to, fees, payments for subscriptions, salaries, or commissions. Compensation does not have to be direct. The commission on the insurance policy is considered indirect compensation covering the investment advice given by the insurance agent. The same logic holds for the real estate agent—she doesn’t give advice unless you list your home with her. Nothing in the neighbor's advice involves compensation.