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NEW QUESTION # 32
Which of the following does not necessarily have to be included in the contract between an investment
adviser and an individual client, according to the Uniform Securities Act (USA)?
- A. a statement of the investment policy that has been agreed upon between the adviser and the client
- B. the compensation agreement, which cannot be a percentage of the capital gains or capital appreciation
earned on the portfolio for all but the wealthiest of individual clients. - C. a statement stipulating that the contract cannot be assigned to another party without the client's
consent - D. if the investment adviser is a partnership, a statement indicating that the client will be notified if there is
any change in the partners within a reasonable time period
Answer: A
Explanation:
A statement of the investment policy does not have to be included in the contract between an
investment adviser and an individual client. The statement of investment policy is generally developed
after the contract is signed.
NEW QUESTION # 33
Which of the following statements regarding an investment adviser representative who has an office in the state is true?
- A. If the investment adviser is registered with the SEC, then neither the investment adviser nor any of its affiliated investment adviser representative needs to be registered with the state.
- B. If the investment adviser that the investment adviser representative is affiliated with is itself registered with the state, then the investment adviser representative does not need to apply for a separate registration, regardless of whether the investment adviser representative has an office in the state.
- C. If an investment adviser representative is registered with the SEC, he or she need not obtain state registration, regardless of whether the investment adviser representative has an office in the state.
- D. Regardless of whether the investment adviser is registered with the SEC or is registered with the state, all investment adviser representatives of the firm must be registered with the state if they have offices in the state.
Answer: D
Explanation:
Explanation
Regardless of whether the investment adviser is register with the SEC or is itself registered with the state, all of its investment adviser representatives (IARs) are required to register with the state if they operate a place of business in the state.
NEW QUESTION # 34
A bond issue has recently been registered with the state Administrator. Which of the following statements
are true?
- A. The issuer may now offer this bond for sale, and any other bonds that the issuer may want to offer for
sale in the future will be able be sold after the issuer executes a notice filing. - B. Both A and B are true statements.
- C. An investor can feel secure in buying the bond because it has recently been registered, which means
that the state Administrator finds it to be of sound quality at this point in time. - D. The bond may now be offered for sale in the state.
Answer: D
Explanation:
When a bond issue has been effectively registered with the state Administrator, it can be
offered for sale in the state. The bond's acceptance by the Administrator simply means that the issuer has
supplied enough information in order for an investor to judge the quality of the bond for himself; it in no
way implies that the bond is of sound quality. It could, in fact, be a very risky security and still have met the
registration requirements.
NEW QUESTION # 35
A broker-dealer is required to keep his records for how long?
- A. at least three years
- B. at least seven years
- C. at least five years
- D. A broker-dealer is required to keep his records for as long as he is registered in the state.
Answer: A
Explanation:
A broker dealer is required to keep his records at least three years.
NEW QUESTION # 36
Penny Swyne, an agent employed by Bear Broker-Dealers, has received a written complaint via e-mail
from Mr. Wolf regarding her performance as his agent. What are Ms. Swyne's legitimate options?
- A. As illegal as it may sound, since the complaint was via e-mail, Ms. Swyne can hit the delete button and
make it all go away. - B. Ms. Swyne must provide Bear Broker-Dealers with a copy of the complaint.
- C. Ms. Swyne can call Mr. Wolf and offer to meet him for a romantic dinner and try to convince him to
revoke the complaint. - D. Ms. Swyne must forward the complaint to the state Administrator.
Answer: B
Explanation:
Ms. Swyne must provide Bear Broker-Dealers with a copy of the complaint sent by Mr. Wolf.
Bear Broker-Dealers is required to respond to this complaint in writing and keep a record of it. E-mails are
treated the same as snail-mails.
NEW QUESTION # 37
Ari Gaunt is employed by a small state-registered broker-dealer and has recently received notification that
his application to be a registered agent of the state has been accepted. Now that he is licensed to execute
transactions for the firm's clients, Ari has a batch of business cards printed up, with a picture of himself on
the right-hand side of the card. Underneath the picture is the caption, "State-Approved Agent." Will Ari be
violating any securities laws if he distributes these business cards?
- A. Yes. It is a violation of a securities law to suggest that he has been approved by the state
Administrator. - B. Yes. Agents are not permitted to include a picture of themselves on their business cards.
- C. No. His registration with the Administrator of the state has been accepted, so he is entitled to call
himself a "State-Approved Agent." - D. No. However, he may be violating company policy of the broker-dealer he works for by designing his
own cards.
Answer: A
Explanation:
Yes, Ari will be violating a securities law if he distributes the business cards because the
cards suggest he has been approved by the state Administrator. The Uniform Securities Act specifically
states that the effective registration of a person does not mean that the Administrator has "given approval
to" that person. Any statement to this effect is considered an unlawful representation.
NEW QUESTION # 38
In which of the following scenarios is an investment adviser representative required to disclose the fact
that someone other than the representative performed the research on which his advice to the client is
based?
I. The investment adviser representative recommends the same asset allocation for his client that a buddy
of his did after his buddy had done some research for a client with similar characteristics.
II. The investment adviser representative provides a recommendation for his client based on research
provided by a broker-dealer that provides the investment adviser with its analysts' recommendations in
return for trades that the investment adviser executes using the services of the broker-dealer, as well as a
couple of other research sources he finds on the internet.
III. The investment adviser representative submitted his client's information to a data base that provided a
recommendation for the asset allocation of the client's investment monies that the adviser deemed was
sound and, therefore, recommended it to his client.
- A. I only
- B. I and III only
- C. II only
- D. III only
Answer: B
Explanation:
An investment adviser representative is required to disclose the fact that someone else
performed the research on which advice to the client is based in scenarios described in I and III only. If the
representative provides a recommendation to the client based solely on the recommendations provided
by others to whom he provided the data, he must disclose this. However, if the adviser representative has
based his recommendations on his own assessment of analysts' reports and recommendations, as is
suggested in Selection II, then there is no disclosure requirement.
NEW QUESTION # 39
You have recently discovered that a security you purchased has not been registered with the state, nor is it exempt from registration. You can file a civil claim against the seller as long as you do so within
- A. one year from discovery.
- B. two years from discovery or three years from the event, whichever comes first.
- C. three years from discovery or five years from the event, whichever comes first.
- D. five years.
Answer: B
Explanation:
Explanation
If you discover that a security you purchased has not been registered with the state and was sold unlawfully, you can file a civil claim against the seller as long as you do so within two years from discovery or three years from the event, whichever comes first, under the guidelines of the Uniform Securities Act. Therefore, if you know about an unlawful sale for more than two years or if the sale took place more than three years ago, you cannot sue. The statute of limitations has expired.
NEW QUESTION # 40
Which of the following scenarios does not meet the definition of "custody" under NASAA Model Rules?
- A. An investment adviser receives a check from a client that is written to a mutual fund and forwards the check to the mutual fund within three business days of receipt.
- B. An investment adviser has general power of attorney for a client and is authorized to withdraw client funds or securities that are on deposit with a registered broker-dealer upon the investment adviser's request.
- C. An investment adviser keeps a client's securities in its safety deposit box.
- D. An investment adviser is mistakenly sent a client's securities, but returns them to the sender within three business days of receipt.
Answer: D
Explanation:
Explanation
If an investment adviser is mistakenly sent a client's securities, but returns them to the sender within three business days of receipt, he is not deemed to have taken custody of the securities under NASAA Model Rules.
Custody is defined by the NASAA as "holding directly or indirectly, client funds or securities, or having any authority to obtain possession of them." Therefore, an investment adviser who has general power of attorney to withdraw a client's funds or securities from a broker-dealer is acting as a custodian, as is an investment adviser who keeps a client's securities in its safety deposit box. If an investment adviser receives a check from a client that is written to a third party, such as a mutual, that check must be forwarded within 24 hours of receipt, or the investment adviser is deemed to be a custodian.
NEW QUESTION # 41
Jack and Jill are a newly married couple in their mid-20s. They are determined to retire by the time they
are 50 and have arranged a meeting with a representative of Professional Investment Advisers to
structure a financial plan that will allow them to achieve this goal.
The representative, Mr. Hill, advises them to invest at least 60% of their money in bond funds to minimize
the risk of loss on the way to their goal. Mr. Hill has
- A. committed fraud in indicating that bonds are less risky than stocks.
- B. has committed fraud in promoting their delusion that they can possibly expect to retire by the time they
turn 50, regardless of their investment strategy. - C. made an unsuitable recommendation for these clients and is subject to license suspension or
revocation. - D. advised Jack and Jill well with a conservative allocation of their money to preserve principal.
Answer: C
Explanation:
Mr. Hill has made an unsuitable recommendation in recommending a 60% investment in
bonds to clients in their mid-20s with an investment goal of early retirement, and his license can be
suspended or revoked because of this. Bonds do not generate the returns that stocks do, and Jack and
Jill are unlikely to be able to retire by the time they are 50 with such a high percentage invested in bonds.
Given their investment time horizon, they can invest in growth and aggressive growth stocks, which offer
significantly higher returns and will advance them toward their goal, since they can ride the waves of the
up and down markets. This, of course, assumes that they are risk-tolerant enough to do so. There has
been no fraud since a couple in their mid-20s can retire by the time they turn 50 if they have reasonably
well-paying jobs, are frugal, and invest wisely.
NEW QUESTION # 42
Which of the following persons is required to maintain its records in accordance with state dictates and
meet the minimum net capital requirement imposed by the state?
I. federal covered adviser
II. state-registered investment adviser
III. investment adviser representative
- A. I, II, and III
- B. II only
- C. I and II only
- D. II and III only
Answer: B
Explanation:
Only the investment adviser that is required to register with the state must maintain its
records in accordance with state dictates and meet the minimum net capital requirement imposed by the
state. A federal covered adviser is registered with the SEC and need only execute a notice filing with the
state. Its record-keeping rules and net capital requirement are dictated by the SEC. An investment adviser
representative must register with the state, but there are no record-keeping or minimum net capital
requirement dictates for representatives.
NEW QUESTION # 43
Which of the following describes an "exempt security," as defined by the Uniform Securities Act (USA)?
- A. An exempt security is any security that is being sold by an institutional investor, such as a bank, to another institutional investor, such as another bank or an insurance company.
- B. An exempt security is any security being sold as a private placement.
- C. An exempt security is any security that is being sold in an isolated non-issuer transaction.
- D. An exempt security is one that need not be registered in the state in which it is sold.
Answer: D
Explanation:
Explanation
As defined by the Uniform Securities Act, an exempt security is one that need not be registered in the state in which it is sold. Selections A and D describe exempt transactions. Although securities issued by financial institutions, such as banks, are exempt securities, not all securities that a bank purchases and sells qualify as exempt securities. Private placements may also be exempt transactions, but there are other stipulations that must be met.
NEW QUESTION # 44
A broker-dealer is required to keep his records for how long?
- A. at least three years
- B. at least seven years
- C. broker-dealer is required to keep his records for as long as he is registered in the state.
- D. at least five years
Answer: A
Explanation:
Explanation
A broker dealer is required to keep his records at least three years.
NEW QUESTION # 45
Which of the following does not describe a prohibited activity by investment advisers and their representatives, according to NASAA Model Rules?
- A. The agreement that Simon LaGree has his clients sign indicates that LaGree uses SecureMoney Broker-Dealers in executing trades for his clients and that, in return, LaGree receives software from the broker-dealer that allows LaGree to perform some fundamental and technical analysis.
- B. All of the above describe prohibited practices.
- C. A 72-year-old retired social worker comes to Simon LaGree for investment advice. She has $50,000 to invest. Simon recommends she invest half of it in an international growth mutual fund and half in a variable annuity.
- D. A new client comes to Simon LaGree for investment advice. The client has $25,000 to invest. Simon tells the client that it will cost the client $5,000 to have a customized financial plan developed for him, but after that the client needs to pay only 5% of the total value of the assets under management each quarter.
Answer: A
Explanation:
Explanation
It is not prohibited for LaGree to receive the software from SecureMoney in return for executing trades through that broker-dealer since LaGree has disclosed this to his clients. An investment adviser is permitted to receive soft dollars from broker-dealers in return for executing trades through them, as long as the client is informed of the arrangement and the soft dollars will benefit both the client and the adviser, which is the case in this instance since the software gives LaGree the ability to do research in order to better advise his client.
Choice A is clearly prohibited since it constitutes an "unreasonable advisory fee." In Choice B, LaGree is making unsuitable recommendations to his client. A 72-year-old retired social worker is likely to have a greater-than-average need for liquidity to pay for unexpected items, such as medical bills. Variable annuities are designed to be long-term investments, not short-term investments, so they would not meet this need. They typically have high surrender penalties that the client would be subject to if she needed to make withdrawals within, say, the next 10 years. Likewise, international growth funds are not liquid investments. International growth mutual funds are invested in foreign stocks and are riskier than average, and are, thus, not suitable investment vehicles for the typical 72-year-old retired social worker.
NEW QUESTION # 46
The settlement date refers to
- A. the date the order to purchase or sell the security is sent to the market.
- B. the date the buyer must pay for the securities purchased.
- C. the date the order to purchase or sell a security is actually executed. This may differ from the date that the order is sent to the market in the cases of limit or stop orders.
- D. the latest date on which broker-dealers can file their quarterly financial statements with the Administrator of the state.
Answer: B
Explanation:
Explanation
The settlement date is the date that the buyer must pay for the securities purchased. For stocks and bonds other than U.S. Treasury securities, this date is the third business day after the trade. For U.S. Treasuries and options that sell on exchanges, the settlement date is the next business day.
NEW QUESTION # 47
Ms. Naivete gave Mr. Smooth, owner of Smooth Construction, $40,000 in return for a promissory note that
promised to pay interest at the rate of 8% a quarter, with a repayment of principal at the end of two years.
The money would be used by Mr. Smooth to rehab a few beach condo units that had been severely
hurricane-damaged and that Mr. Smooth had been able to purchase for "pennies on the dollar," or so he
said. The first units would be completed within a month, and the rents would be used to make the interest
payments. The investment was almost as risk-free as U.S. government bonds, Mr. Smooth claimed. By
the end of the second year, Ms. Naivete had received a lot of fast talk and only one of the promised
interest payments. Have there been any violation of securities laws in this instance?
- A. Both B and C are true statements.
- B. Yes. Mr. Smooth was required to register the promissory note before he offered it for sale.
- C. Yes. Ms. Naivete has been defrauded by Mr. Smooth.
- D. No. This was simply a loan transacted between two parties.
Answer: A
Explanation:
Yes, there have been violations of securities laws in this instance; the promissory note
required registration, and Ms. Naivete has been defrauded. Promissory notes are considered to be
securities as defined by the Uniform Securities Act and, as such, must be registered with the state before
they can be offered for sale. Furthermore, a promissory note is a promise to repay, and Mr. Smooth has
defaulted on this promise after telling Ms. Naivete that the investment was close to being risk-free. In
essence, he took Ms. Naivete's money under false pretenses when he sold her the note, and that is the
definition of fraud.
NEW QUESTION # 48
You are a newly licensed agent and are making cold calls to generate business. According to the Telephone Consumer Protection Act of 1991 (TCPA), you may only place your calls between the hours of
- A. 8 a.m. and 9 p.m., based on your time zone.
- B. 8 a.m. and 7 p.m., based on the Pacific Time Zone.
- C. 8 a.m. and 9 p.m., based on your prospective customer's time zone.
- D. 8 a.m. and 7 p.m., based on your prospective customer's time zone.
Answer: C
Explanation:
Explanation
The TCPA mandates that you place your calls only between the hours of 8 a.m. and 9 p.m., based on your prospective customer's time zone. This is a rule that applies to all telemarketers.
NEW QUESTION # 49
Treadwater Bank and Trust is selling a portfolio of municipal bonds it owns to the SafeRisk Insurance
Corporation. Under the Uniform Securities Act (USA), in this transaction Treadwater is defined as a
- A. broker-dealer.
- B. none of the above.
- C. agent.
- D. issuer.
Answer: B
Explanation:
When Treadwater Bank and Trust sells municipal bonds it owns to SafeRisk, it does not
meet the USA definition of a broker-dealer, an agent, or an issuer. As a bank, Treadwater is automatically
excluded as a broker-dealer. Nor can Treadwater be defined as an agent since an agent can only be an
individual. Treadwater is not the issuer of the securities; the state and local governments that originally
issued the securities are.
NEW QUESTION # 50
Which of the following entities must sign a "consent to service of process," thereby allowing the Administrator to receive legal documents that are meant to be served to the entity in place of that entity?
I. agents
II. investment advisers
III. investment adviser representatives
IV. broker-dealers
- A. II and IV only
- B. I and IV only
- C. II and III only
- D. I, II, III, and IV
Answer: D
Explanation:
Explanation
Agents, investment advisers, investment adviser representatives, and broker-dealers must all sign a consent to service of process, allowing the Administrator to receive legal documents in their stead. The consent to service of process must accompany the application for registration with the state or the documentation provided with a notice filing when permitted.
NEW QUESTION # 51
Under the NASAA Model Rules, which of the following must an investment adviser provide its clients with at least once a year?
- A. the total number of agency cross transactions completed for the client during the period
- B. both A and B
- C. the number of any complaints that each of its investment adviser representatives has received during the period
- D. the total amount of commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period
Answer: B
Explanation:
Explanation
Under NASAA Model Rules, an investment adviser must provide its clients with the total number of agency cross transactions completed for the client during the period as well as the total amount of any commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period.
NEW QUESTION # 52
Price pegging refers to
- A. the prohibited practice of excessively trading on a client's account that is used by some broker-dealers
and/or their agents to generate more commissions for themselves. - B. the illegal activity of a group of investors who buy and sell a security among themselves to create an
artificially high volume of trading in hopes of luring investors to buy the security. - C. the unethical practice of investment advisers who issue "buy" recommendations for stocks that they
own themselves without disclosing the fact. - D. the practice of buying large amounts of a security to drive its price up artificially.
Answer: D
Explanation:
Price pegging refers to the practice of buying large amounts of a security to drive its price up
artificially. This is a form of illegal price manipulation.
NEW QUESTION # 53
Which of the following is not considered to be a person, as defined by the Uniform Securities Act?
- A. a law firm that is organized as a partnership
- B. a 16-year old cheerleader
- C. a corporation
- D. a school district
Answer: B
Explanation:
Explanation
A minor is not considered to be a person, as defined by the Uniform Securities Act. However, partnerships, corporations, and governmental subdivisions, such as school districts, are included in the definition.
NEW QUESTION # 54
Which of the following entities is subject to be accused of churning?
I. investment advisers
II. investment adviser representatives
III. broker-dealers
IV. agents
- A. II and IV only
- B. I and III only
- C. II, III, and IV only
- D. I, II, III, and IV
Answer: D
Explanation:
Explanation
Selections I, II, III, and IV-investment advisers, their representatives, and broker-dealers and their agents-are subject to accusations of churning. Any activity on the part of any of these parties that suggests that they are engaged in encouraging excessive trading on the accounts of their clients makes them subject to allegations of churning their customers' accounts.
NEW QUESTION # 55
In order to maintain its registration with a state, a broker-dealer may be required to:
I. take a written or oral exam.
II. pay an annual filing fee.
III. maintain a minimum net capital.
IV. file all advertising material with the Administrator.
- A. I and II only
- B. II and III only
- C. II, III, and IV only
- D. I, II, III, and IV
Answer: D
Explanation:
Explanation
In order to maintain its registration with a state, a broker-dealer may be required to take a written or oral exam, pay an annual filing fee, maintain a minimum net capital, and file all advertising material with the state's Administrator. The Administrator of each state has the authority to determine the specific requirements for the state. All of the selections are within the realm of the Administrator's jurisdiction.
NEW QUESTION # 56
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