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NEW QUESTION # 42
Under the Uniform Securities Act, which of the following does not need to be included when filing to
register a security issue with the state?
- A. a copy of any indenture applying to the security being registered
- B. copies of the underwriter agreements
- C. a copy of the firm's articles of incorporation and bylaws, or the equivalent
- D. All of the above documents must be included when filing to register a security with the state.
Answer: D
Explanation:
The Uniform Securities Act specifies that the initial registration statement should be
accompanied by all of the documents listed in the first three selections-a copy of the firm's articles of
incorporation and bylaws or their equivalent; copies of any underwriter agreements; and a copy of any
indenture that applies to the security being registered. Moreover, these are only some of the documents
that need to be included.
NEW QUESTION # 43
You are an agent with a broker-dealer and have learned of limited partnership interests being sold by a small company that is planning to come out with a product that you think is going to "wow" the market. You would like to get in on the action, but the minimum investment needed is $10,000, and you don't have that kind of dough lying around. You talk to your brother, who is also one of your clients, and get him interested in investing in the firm, too. The two of you decide to pull your money together, each putting in $5,000, and you agree to split any profits or losses.
Is this permitted?
- A. Yes, as long as your brother provides your firm with his written consent.
- B. Yes. This is permitted since the agreement is between you and a family member.
- C. Maybe. But it will require written consent from both your brother and your firm.
Answer: A
Explanation:
Explanation
It may be permissible for you and your brother to open a joint account to invest in this partnership since he is a family member, but it will require the written consent of both your brother and your firm, and your firm is under no obligation to give its consent.
NEW QUESTION # 44
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 one that need not be registered in the state in which it is sold.
- C. An exempt security is any security being sold as a private placement.
- D. An exempt security is any security that is being sold in an isolated non-issuer transaction.
Answer: B
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 # 45
Which of the following would not appear on a trade confirmation?
- A. the client's account number
- B. the commission
- C. the settlement date
- D. All of the above items appear on a trade confirmation.
Answer: D
Explanation:
Explanation
All of the items listed appear on a trade confirmation-the client's account number, the commission, and the settlement date-as well as a lot of additional information.
NEW QUESTION # 46
Switch Advisory is a small investment adviser partnership registered in a single state. A larger investment adviser firm, Bait Investment Adviser, is registered in the same state as well as two other states. Bait has offered to buy out three of Switch's partners who want to retire. This will give Bait a 60% ownership in Switch Advisory.
Which of the following statements are true?
I. Switch Advisory must obtain the approval of its clients before the partners can sell their interests to Bait.
II. Switch Advisory must notify the state Administrator of this event.
III. Switch Advisory must notify their clients of this event, but does not need the clients' approval.
IV. Switch Advisory must notify the SEC of this event.
- A. II, III, and IV only
- B. I, II, and IV only
- C. I only
- D. I and II only
Answer: D
Explanation:
Explanation
Only Selections I and II are true. Switch must obtain the approval of its clients before the partners can sell their interests, and Switch must notify the state Administrator of this event. Whenever a change in partnership will result in new ownership of the business, which is the case when an external entity acquires a 60% interest, an investment adviser must get its clients' approval. As a state-registered investment adviser, switch also needs to notify the state Administrator. The SEC does not require notification since Switch is not a federal covered investment adviser.
NEW QUESTION # 47
While on vacation in Colorado, Massachusetts resident Ms. Jetset meets Mr. Snow, a registered representative with a Colorado broker-dealer, on a ski lift and accepts a dinner engagement with him later that evening, during which he obtains her cell phone number. A week later, while she is lounging around in her Florida beach condo, he calls and interests her in a local software company that is selling its preferred stock to investors and encourages her to buy it. Ms. Jetset tells Mr. Snow she'll think about it and calls him after she returns to her home in Massachusetts to tell him to buy the stock for her and sends him a check via express mail. Later, Ms. Jetset learns that the preferred stock certificate that she received is-and always was-a worthless piece of paper, and that, in fact, no such company ever existed.
Which state Administrator has jurisdiction in this instance?
I. the Administrator of the state of Colorado
II. the Administrator of the state of Florida
III. the Administrator of the state of Massachusetts
- A. I and II only
- B. I only
- C. I, II, and III
- D. I and III only
Answer: C
Explanation:
Explanation
All three state administrators have jurisdiction since Mr. Snow made the offer to sell from Colorado, to a person who was in Florida at the time, and Ms. Snow accepted the offer and received the certificate in her home state of Massachusetts. According to NASAA, an Administrator has jurisdiction over all offers and all acceptances of offers to purchase or sell securities if they "originate from, are directed to, or are accepted in a state.
NEW QUESTION # 48
An investment adviser
I. provides investment advice to clients.
II. sells securities to clients.
III. buys and sells securities in their clients' accounts for the clients.
- A. I and II only.
- B. I, II, and III.
- C. I and III only.
- D. I only.
Answer: C
Explanation:
Explanation
An investment adviser provides investment advice to clients and may also buy and sell securities in their clients' accounts for the clients. He does not, however, sell securities to his clients.
NEW QUESTION # 49
Broker-dealer Nebulous opted to withdraw its registration with the state. Six months later, the
Administrator finds that Nebulous had been engaged in fraudulent securities transactions. Which of the
following statements is true?
- A. The Administrator has five years from the discovery of the misdeed to take disciplinary action, so
Nebulous will have to be on the lookout for a long time to come. - B. The Administrator is unable to take disciplinary action against Nebulous because the self-initiated
withdrawal became effective 30 days after the application was filed. - C. The Administrator is only able to take disciplinary action if the misdeeds are discovered within three
months of the effective date of the withdrawal, so Nebulous slipped by this time. - D. The Administrator can take disciplinary action against Nebulous for up to one year, so Nebulous is in
trouble.
Answer: D
Explanation:
Even though Nebulous withdrew its registration from the state, the Administrator has up to a
year to take disciplinary action against the broker-dealer if he discovers that Nebulous has been engaged
in fraudulent securities transactions after the fact. The Administrator can retroactively begin a revocation
or suspension proceeding. Criminal courts can initiate proceedings anytime within five years of the
alleged misdeeds.
NEW QUESTION # 50
According to the NASAA Model Rules, a broker-dealer is not permitted to allow a customer to engage in
margin transactions unless
- A. the broker-dealer already has a margin agreement signed by the client in hand.
- B. the broker-dealer receives a margin agreement signed by the client promptly after the client's first
margin transaction. - C. the client has been a customer of the firm for at least 6 months.
- D. the client has a net worth of at least $500,000.
Answer: B
Explanation:
A broker-dealer is not permitted to allow a customer to engage in margin transactions unless
the broker-dealer receives a margin agreement signed by the client promptly after the client's first margin
transaction.
NEW QUESTION # 51
Which of the following would be an unsuitable recommendation for your 68-year-old client?
- A. a deferred annuity
- B. a high quality corporate bond fund
- C. an S&P 500 Index mutual fund
- D. a Treasury Inflation Protected Security (TIPS)
Answer: A
Explanation:
Explanation
A deferred annuity would be an unsuitable recommendation for your 68-year-old client. These annuities charge significant penalties for early withdrawals-and "early" can mean before 10 years, or even longer. A
68-year-old client may have the need to withdraw his money early to make medical payments.
NEW QUESTION # 52
Which of the following does not describe a prohibited practice for investment advisers?
I. The adviser sells its non-institutional clients securities that it has issued.
II. The adviser makes a discretionary trade for a client after receiving verbal authorization only and does
not receive written authorization from the client within 10 business days of doing so.
III. The investment adviser requires an advisory fee of $300 to be paid in advance at the beginning of
each quarter.
- A. None of the selections describe prohibited practices.
- B. II and III only
- C. I only
- D. I and III only
Answer: B
Explanation:
Selections II and III do not describe prohibited practices. If an adviser makes a discretionary
trade for a client after having received verbal authorization to do so and does not receive written
authorization from the client within 10 business days of doing so, the adviser is limited to making
recommendations to the client and executing unsolicited trades only, but he has not engaged in a
prohibited practice, and this is the scenario described in Selection II. There is no provision that prohibits
an adviser from requiring an advisory fee to be paid in advance as long as it is reasonable, as described
in Selection III. An adviser is not permitted to sell its non-institutional clients securities it has issued itself
because of the significant conflict of interest involved. The exception is if the client is an institution that is
in the business of lending money, but Selection I specifically indicates "non-institutional clients."
NEW QUESTION # 53
Stu Pede is an agent with broker-dealer Cavalier. A customer calls with a request to establish a classic
IRA and asks for Stu's advice regarding where the money in the IRA should be invested. Stu suggests a
municipal bond fund, explaining to his client that the interest income earned on it will be tax-free at the
federal level, and some of it may even be tax-free at the state and local levels. Has Stu engaged in any
prohibited practices?
- A. No. Although municipal bonds are not suitable investments for a classic IRA, Stu obviously didn't know
this and is merely guilty of stupidity. - B. No. Although Stu has given investment advice, it was solicited by the client, and Stu received no
additional compensation for the advice. - C. Yes. Stu is an agent with a broker-dealer. He is not an investment adviser representative and is not
allowed to make recommendations regarding investments to the firm's clients. - D. Yes. Municipal bonds are not suitable investments for a classic IRA, and Stu can have his license
revoked or suspended.
Answer: D
Explanation:
Yes. When Stu recommends an investment in municipal bonds for a classic IRA account, he
has made an unsuitable recommendation, which is a prohibited practice, and he can have his license
revoked or suspended. Municipal bonds are not suitable investments for a classic IRA because municipal
bonds pay interest that is at least free from federal taxation, so they offer a lower yield than fully taxable
bonds of similar risk. The money in a classic IRA grows tax-free anyway, so the client is getting a lower
yield with no benefit.
NEW QUESTION # 54
Desi Genuos is an agent with Broker-Dealer CanDo. A client has asked Desi to recommend a mutual fund
that does not have a sales charge. Desi recommends a fund that has no front-
end load although it does have a deferred sales load if the investor redeems his shares within the first
three years of ownership, but the client has informed Desi that he is looking at this as a long-term
investment. Based on these facts, Desi
- A. is not in violation of any rules because he is an agent of a broker-dealer and is not affiliated with the
fund he has recommended in any manner. - B. will not be in violation of any NASAA rules as long as he has his client sign a "letter of intent."
- C. is in violation of NASAA rules regarding investment company shares.
- D. is not in violation of any rules since the fund has no front-end load and the deferred sales load will not
apply to this client, given his indication that this is meant to be a long-term investment.
Answer: C
Explanation:
If Desi recommends a mutual fund that has a deferred sales load to a client who requests a
mutual fund with no sales charge, he is in violation of NASAA rules regarding investment company shares.
The NASAA rules specify that it is prohibited for an agent to state or imply that the investment has no
sales charge if there is a deferred sales load involved. It doesn't matter if, in fact, the deferred load may
never have to be paid by the client. A letter of intent involves a statement of intent by the investor to invest
an amount that will meet a breakpoint that will entitle him to a lower load charge. This is not pertinent to
this specific question.
NEW QUESTION # 55
An investment adviser or its representative may
- A. exercise discretionary power in the purchase or sale of securities for a client's account only after
- B. only exercise any discretionary power in the purchase or sale of securities for a client's account after
receiving written authority prior to the execution of the transactions. - C. exercise discretionary power in the purchase or sale of securities for a client's account as long as
- D. exercise discretionary power in the purchase or sale of securities for a client's account as long as it
receives written discretionary authority over the account within 10 business days of the first discretionary
transaction placed, assuming oral authority has already been given.
Answer: D
Explanation:
An investment adviser or its representative may exercise discretionary power in the
purchase or sale of securities for a client's account as long as it receives written discretionary authority
over the account within 10 business days of the first transaction placed, assuming oral authority has
already been given.
NEW QUESTION # 56
n No: 85
Which of the following is not in itself a reason for the Administrator to deny, suspend, or revoke the license of a person?
- A. The person is a broker-dealer whose agents have repeatedly been accused of churning and burning, according to written client complaints.
- B. The applicant has never before worked in the securities industry although he has received the requisite training.
- C. The person has been convicted of check kiting within the past ten years.
- D. Some of the information supplied on the registration application was found to be false.
Answer: B
Explanation:
Explanation
An Administrator may not deny, suspend, or revoke the license of a person simply because the applicant has never before worked in the securities industry if that person has received the training necessary. The Uniform Securities Act specifically states that the order cannot be entered ". . .solely on the basis of lack of experience if the applicant or registrant is qualified by training, knowledge, or both."
NEW QUESTION # 57
Which of the following would not fall under the classification of "institutional investor"?
- A. Neuring Investment Advisers
- B. Chase Bank
- C. Prudential Insurance
- D. Franklin Templeton Mutual Funds
Answer: A
Explanation:
Explanation
Nuering Investment Advisers would not fall under the classification of "institutional investor." Institutional investors are defined as banks, insurance companies, mutual funds, some pension plans, and broker-dealers registered under the Securities Exchange Act of 1934. Investment advisers are not part of this group.
NEW QUESTION # 58
Big Bo is an investment adviser representative who has a lot of the members of a well-known professional football team as clients. In advertising his services, Big Bo can
- A. list the names of the players he's advising as long as he doesn't provide any other specifics, such as the amount each one has invested with him.
- B. list the names of the players he's advising as long as he lists the names of all his other clients, too.
- C. list the names of the players he's advising as long as he has their written permission to do so.
- D. use testimonials from any of the players who willingly provide them without compensation.
Answer: C
Explanation:
Explanation
In advertising his services, Big Bo can list the names of the players he's advising only if he has their written permission to do so. Under both NASAA Model Rules and the Investment Adviser Act of 1940, an investment adviser representative may not use client testimonials in their advertisements, regardless of whether the testimonials are willingly provided and uncompensated.
NEW QUESTION # 59
Which of the following conditions is necessary for an act involving securities fraud to be considered criminal and subject to criminal penalties?
- A. The act extended across state lines.
- B. The perpetrator willfully committed the fraudulent act.
- C. The Administrator decides to send the case to criminal court.
- D. The victim(s) lost a combined total of at least $25,000 because of the act.
Answer: B
Explanation:
Explanation
In order for an act of fraud to be considered criminal, the perpetrator must have willfully committed the fraudulent act. In this case, the Administrator will probably ask the court to impose criminal penalties, but an Administrator can't cause an act of fraud to be criminal by sending it to the criminal court system. If an agent misleads a customer regarding the returns to be expected on an investment but hasn't deliberately done so, it is still fraud, but not criminal fraud, regardless of how much the victims lost.
NEW QUESTION # 60
Which of the following would be considered an "issuer" transaction?
- A. Maria purchases 500 shares of Dodge and Cox's International Fund, a mutual fund investing in foreign securities.
- B. None of the above is an "issuer" transaction.
- C. Kim sells an AT&T bond she holds that still has three years remaining to maturity.
- D. Jacob calls his broker and places an order to purchase 100 shares of Hasbro, Inc. on the open market.
Answer: A
Explanation:
Explanation
When Maria purchases shares of Dodge and Cox's International Fund, it is an "issuer" transaction. Shares of mutual funds are bought and sold through the fund itself, so the money she pays for the shares is received by Dodge and Cox, the issuer of the shares. Jacob's purchase of Hasbro stock and Kim's sale of her AT&T bond are non-issuer transactions. Neither Hasbro nor AT&T receive the proceeds from these transactions. In Jacob's case, another investor receives the cash; and in Kim's cash, she receives the cash.
NEW QUESTION # 61
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