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NEW QUESTION # 103
Elizabeth is the owner of Lizbeth Investment Advisers, a small, state-registered investment advisory firm.
She has decided that her firm needs a niche and has learned that a consulting group is coming to the area
and offering a 3-day seminar on asset allocation for senior citizens offered by Advantage for Retirement
Persons (ARP). The seminar will cost $1,000 per individual, but after attending the seminar, each
attendee will receive a certificate verifying their involvement in the program. Elizabeth decides this is the
niche she has been looking for and signs up herself and her three investment adviser representatives for
the program. After attending the seminar and receiving their certificates, Elizabeth and her team can
- A. indicate that they are certified by the ARP program since money was paid for their attendance.
- B. do none of the above.
- C. represent themselves as certified senior citizen investment advisers.
- D. have the words "Senior-Citizen Investment Specialists" printed on their business cards.
Answer: B
Explanation:
After attending the ARP seminars on asset allocation for senior citizens, Elizabeth and her
team cannot represent themselves as certified senior citizen investment advisers, print "Senior-Citizen
Investment Specialists" on their business cards, or indicate that they are certified by the ARP program.
Under the NASAA model rules, their attendance does not entitle them to say they are in any way
especially certified to serve senior citizens. The attendance certification they received does not have any
competency requirements attached.
NEW QUESTION # 104
Your next-door neighbor's brother works for a large pharmaceutical company and confided in her that one
of the company's chemists has just discovered a compound that will cure baldness and that the firm plans
to make the discovery public later in the week. Your next-door neighbor passes this information on to you
over a cup of coffee the next morning. You immediately call your broker and place an order to buy shares
of the company's stock. Has any illegal insider trading taken place?
- A. Yes. You are guilty of illegal insider trading because you traded on information that had not yet been
made publicly available. - B. Yes. You, your neighbor, and her brother are all guilty of illegal insider trading.
- C. Yes. The agent who executes your purchase order has engaged in illegal insider trading.
- D. No. You are in no way related to your next-door neighbor's brother, and she could have been lying.
Answer: A
Explanation:
Yes. You are guilty of illegal insider trading because you traded on information that was not
yet public. Your neighbor and her brother did not execute any trades based on the information, so they're
innocent, as is the agent who executed your purchase order, who had no way of knowing that you had
insider knowledge when you placed the order.
NEW QUESTION # 105
Which of the following entities would be required to register with the state as a broker-dealer under the
guidelines of the Uniform Securities Act (USA)?
- A. None of the above entities would be required to register with the state as a broker-dealer under the
guidelines of the Uniform Securities Act. - B. an agent who executes the purchase and sale of stocks and bonds for his clients
- C. an underwriter with no offices in the state that is helping a firm that is incorporated within the state with
the sale of its new bond issue to insurance companies - D. a credit union that operates within the state and provides loans to its members
Answer: A
Explanation:
Under the guidelines of the USA, none of the entities described in Selections A, B, or C
would be required to register with the state as a broker-dealer since the term, as defined by the USA,
does not include agents, savings institutions, or entities with no offices in the state who deal exclusively
with issuers and/or other broker-dealers, financial institutions, insurance companies, pension funds, or
insurance companies. Selections B and C refer to a financial institution and an agent, respectively. In the
scenario described in Selection A, the underwriter has no offices in the state and is dealing exclusively
with the issuer of the bonds and insurance companies.
NEW QUESTION # 106
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 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
- B. the total number of agency cross transactions completed for the client during the period
- C. the number of any complaints that each of its investment adviser representatives has received during the period
- D. both A and B
Answer: D
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 # 107
Which of the following orders can an Administrator issue without providing prior notice?
- A. cease and desist
- B. license denial
- C. license revocation
- D. license suspension
Answer: A
Explanation:
The Administrator can issue an order to cease and desist without providing the party
concerned with prior notice. In the cases involving the denial, suspension, or revocation of a license, the
Administrator will provide prior notice, along with the opportunity for a hearing, and a written statement of
the facts and the legal consequences involved.
NEW QUESTION # 108
Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect & Company, a broker-dealer that is registered in Connecticut and has subsidiary operations in Massachusetts, New Jersey, and New York. Trevor has moved to Massachusetts and is now associated with one of Connect's subsidiaries, a broker-dealer registered in the state. Trevor has applied to the Administrator of Massachusetts for registration as an agent.
Can Trevor execute purchases and sales for clients while his registration is still pending?
- A. It depends. Trevor can execute some purchases and sales, but only for clients that he already had who may have recently relocated to Massachusetts and only for sixty days while his registration is pending.
- B. Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration is pending.
- C. No. Until he is informed by the Administrator of Massachusetts that his application has been accepted, Trevor may not affect any securities transactions in Massachusetts.
- D. Yes. Because Trevor is a registered agent in another state and is affiliated with a broker-dealer that is registered in the state of Massachusetts, he is not restricted from executing trades.
Answer: A
Explanation:
Explanation
It depends. Because he is a registered agent in another state and the broker-dealer he is now affiliated with is registered in the state of Massachusetts, Trevor can execute purchases and sales, but only for existing clients while his registration with the Massachusetts Administrator is still pending and only for sixty days. This assumes, of course, Trevor has no violations that would restrict him from registering in Massachusetts.
NEW QUESTION # 109
Which of the following would not be found in a tombstone advertisement?
- A. the interest rate and time to maturity of a bond issue
- B. the names of the underwriters
- C. the price at which the security will be offered
- D. the name of the issuer
Answer: C
Explanation:
The price at which the security will be offered will not be found in a tombstone advertisement.
A tombstone advertisement is not an offer to sell the security and, in any case, it is unlikely that the final
offer price will have even been decided on at this point.
NEW QUESTION # 110
You are an investment adviser representative. Your client, Mr. I. M. Pulse, calls you with what he thinks is exciting news. He just passed a restaurant and saw Microsoft's Bill Gates having lunch with a local entrepreneur who owns a small firm in the computer software industry that trades on the OTC pink sheets. He is sure that this means Microsoft is negotiating a purchase of the smaller company and instructs you to take the cash balance in his account and buy shares of the local company. You should
- A. tell Mr. I.M. Pulse that this would be an illegal insider trade and that you are unable to fulfill his request.
- B. call your supervisor and alert him immediately of Mr. Pulse's attempt to have you place an illegal order on his behalf in case Mr. Pulse decides to place the order elsewhere.
- C. do both A and B.
- D. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.
Answer: D
Explanation:
Explanation
If Mr. Pulse wants you to place an order to buy a firm that he thinks will become a target of Microsoft based on seeing Bill Gates and the owner of the firm dining together, you should, as his adviser, inform him that he may be jumping the gun and drawing a false conclusion, but you should place the order if he continues to insist. It is a legitimate order, and you are obligated to follow his instructions. It does not constitute illegal insider trading because Mr. Pulse has no way of knowing what the two men were talking about. They may just be old high school buddies catching up on the news.
NEW QUESTION # 111
When a client has purchased securities on margin, the broker-dealer
- A. may use any securities that the client purchased on margin as collateral for a loan from a bank upon
receiving a written agreement signed by the client. - B. must keep the securities that the client paid cash for separate from the securities that the client
purchased on margin. - C. Both B and C are correct statements.
- D. may require that the client leave all his securities, even those not purchased on margin, in street name.
Answer: C
Explanation:
A broker-dealer is required to keep any securities a client paid cash for separate from the
securities that the client purchased on margin, and upon receiving a written agreement signed by the
client-a hypothecation agreement-may use those securities that were purchased on margin as collateral
for a loan from a bank. The broker-dealer may not require that a client leave securities purchased through
cash transactions in street name.
NEW QUESTION # 112
Cassie Clueless has recommended that a client purchase shares of a mutual fund prior to its ex-dividend date, so that the client will receive the dividends when they are distributed.
In which of the following situations might this recommendation be justifiable and not in violation of NASAA rules?
I. The investor has refused to provide Cassie any information regarding his investment goals.
II. The investor is a young professional with an investment goal of long-term capital appreciation.
III. The investor is a retiree in a low tax bracket and needs current income to augment her social security check.
- A. I and II only
- B. I only
- C. III only
- D. It is always in violation of NASAA rules to recommend that a client purchase shares of a mutual fund prior to its ex-dividend date.
Answer: C
Explanation:
Explanation
If Cassie makes her recommendation based on the scenario described in Selection III, she is not violating any NASAA rules. It is advantageous for an investor who is a retiree in a low tax bracket and needs current income to augment her social security check to buy shares of a mutual fund before its ex-dividend date in order to receive the dividend income. The NASAA rule states only that an agent cannot indicate that the purchase of shares of a mutual fund prior to the ex-dividend date would be advantageous to the client "unless there are specific, clearly described tax or other advantages to the customer." It would be unethical for Cassie to recommend this strategy to an investor whose investment goals were unknown to her, as in Selection I, or to an investor who is looking for long-term capital appreciation and has no need for the dividend income--which will be taxable--as in Selection II.
NEW QUESTION # 113
Rich Quick is a broker-dealer licensed in the state of Massachusetts and has offices only within the state. Two of Rich Quick's clients regularly vacation in Florida during the winter months, and Rich Quick executes trades for them when they call him from out-of-state.
Based on these facts,
I. Rich Quick needs to register as a broker-dealer in the state of Florida as well.
II. Rich Quick needs to register only as an agent in the state of Florida.
III. Rich Quick needs to establish an office in the state of Florida in order to transact business.
IV. Rich Quick need not register in Florida.
- A. Only Statement I is true.
- B. Statements I and III are true.
- C. Only Statement IV is true.
- D. Statements II and III are true.
Answer: C
Explanation:
Explanation
Based on the facts provided, Rich Quick need not register in Florida since he has no offices in the state of Florida, and he is conducting business for existing clients who are merely vacationing in Florida and are not residents of the state.
NEW QUESTION # 114
A hypothecation agreement refers to
- A. a document signed by a client indicating that he or she understands that some of the charts and
examples presented in a broker-dealer's advertising literature are based on hypothetical trades. - B. an agreement that a client must sign prior to executing any short sales with the broker-dealer.
- C. an agreement signed by a client who is executing a margin transaction that allows the broker to hold
the margined securities in street name as collateral for the loan. - D. an agreement wherein a client gives his broker-dealer discretion to purchase securities that the
broker-dealer deems appropriate in whatever quantity the broker-dealer feels appropriate and at a time
and price the broker-dealer believes is a good deal.
Answer: C
Explanation:
A hypothecation agreement refers to an agreement signed by a client who is executing a
margin transaction that allows the broker to hold the margined securities in street name as collateral for
the loan.
NEW QUESTION # 115
A broker-dealer cannot legally be
- A. A broker-dealer can be any of the above.
- B. a partnership.
- C. a sole-proprietorship.
- D. an individual.
Answer: A
Explanation:
Explanation
A broker-dealer can be a partnership, an individual, or a sole-proprietorship under the guidelines of the Uniform Security Act.
NEW QUESTION # 116
You are a registered agent with a broker-dealer. One of your clients visits you and wants you to sell some of the U.S. government bonds she owns and purchase shares of a specific aggressive growth mutual fund for her with the proceeds. Your client is a mentally-competent, 84-year-old woman but, based on your other knowledge of her situation, you believe it to be an unwise move. You should
- A. nod politely, but not execute the transactions since they are not in her best interest.
- B. turn the matter over to your supervisor.
- C. call the mutual fund and tell them that they must convince this client that an investment in their fund is not in her best interest, under penalty of law.
- D. advise her that you don't believe this is in her best interest, but execute the required transactions if she insists.
Answer: D
Explanation:
Explanation
If, as a registered agent with a broker-dealer, you receive an order from a client that you don't believe is in her best interests, you should tell her that, but you must still execute the transactions if she insists. You may not legally ignore her instructions, nor should you bother either the mutual fund or your supervisor with this, given the facts as provided; you should deal with it yourself.
NEW QUESTION # 117
Broker-Dealer Wheeler has no offices in the state. Wheeler does, however, sell corporate bonds from his portfolio to banks and insurance companies located in the state that purchase the bonds for their investment portfolios. He executes about twelve of these transactions a year. Wheeler profits from the price appreciation of the bonds during the time he held them, but receives no other form of compensation. Based on these facts,
- A. Wheeler need not register in the state, and the securities are also exempt from registration.
- B. Wheeler must register as a broker-dealer in the state, but the securities do not need to be registered.
- C. Wheeler must register as a broker-dealer in the state, and the securities must also be registered before they can be sold to in-state investors.
- D. Wheeler need not register in the state, but the securities must be registered before they can be sold to in-state investors.
Answer: A
Explanation:
Explanation
Since Wheeler has no offices in the state and is selling bonds from his portfolio to institutional investors, Wheeler need not register in the state, and the securities are exempt from registration. Broker-dealers with no physical location in a state that are doing business with other broker-dealers or with institutional investors such as banks and insurance companies that do have offices in that state are exempted from registering in the state.
Securities sales to institutional investors are exempt transactions, and securities sold in exempt transactions are themselves exempt from state registration requirements.
NEW QUESTION # 118
In its capacity as a full service broker, A-2-Z Associates is also in the investment advisory industry, charging its clients for investment advice for additional remuneration. One of the firm's clients has been advised to buy some U.S. government treasury inflation-protected securities (TIPS.) A-2-Z is a dealer in these securities in the secondary market.
Which of the following statements is true?
- A. A-2-Z can sell the client TIPS indirectly by getting a 3rd party-another broker-dealer-to effect the sale.
- B. A-2-Z can sell the client TIPS from its own portfolio as long as it tells the client that it is taking on the part of the seller in the transaction.
- C. A-2-Z can only sell the client TIPS if it informs the client it is acting as the seller in this transaction and receives the client's written consent before the transaction is settled.
- D. Under no circumstances may A-2-Z sell the client TIPS that A-2-Z holds in its own portfolio. This would be a conflict of interest.
Answer: C
Explanation:
Explanation
A-2-Z can only sell a client TIPS from its own portfolio if it informs the client that it is acting as the seller in this transaction and receives the client's written consent before the settlement date of the transaction.
NEW QUESTION # 119
As an agent, which of the following statements about the Securities Investor Protection Corporation (SIPC) can you legitimately make to your client?
- A. "The SIPC is a government agency created by an Act of Congress to combat fraud."
- B. "The SIPC is a government agency that was created by an Act of Congress to protect investors against losses in the stock and bond market."
- C. "The SIPC was established to restore funds to investors when the brokerage firm they have been using is bankrupt or in financial distress."
- D. The SIPC is the FDIC of the stock and bond markets."
Answer: C
Explanation:
Explanation
The statement that you can legitimately make about the SIPC to your client is that it was established to restore funds to investors when the brokerage firm they have been using is bankrupt or in financial distress. The SIPC does not insure investors against losses in the stock and bond markets like the FDIC does bank deposits, and it does not combat fraud.
NEW QUESTION # 120
Which of the following is not a method that can be used to register securities with the state?
- A. registration by qualification
- B. registration by coordination
- C. registration by notification
- D. registration by exception
Answer: D
Explanation:
Registration by exception is not a method that is used to register securities with the state.
Registration by notification is a method available for those securities that meet a certain set of criteria and
requires the least amount of paperwork. Registration by coordination is the method used for most
securities. Registration by qualification is the most burdensome method, requiring a voluminous amount
of paperwork.
NEW QUESTION # 121
Needy Investment Advisers, LLC needs a loan. One of its wealthier clients has offered to lend the firm the money at the prime rate of interest. A promissory note is drawn up stipulating the terms of the loan. Based on these facts,
- A. Needy is in violation of securities laws by acting as an issuer of securities.
- B. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
- C. Needy is not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.
- D. Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client and submitted to the administrator.
Answer: A
Explanation:
Explanation
In accepting a loan from a wealthy client, Needy is in violation of securities laws by acting as an issuer of securities. Under NASAA Model Rules, investment advisers may not borrow money from clients unless the client is in the business of lending money, as would be the case if the client were a financial institution. It doesn't matter if the client is in agreement with the loan; waiver of compliance agreements is prohibited by both the NASAA Model Rules and the Investment Advisers Act of 1940. Nor does it matter that the loan was unsolicited and formalized with a promissory note.
NEW QUESTION # 122
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. 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.
- D. 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.
Answer: C
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 # 123
Which of the following would be an unsuitable recommendation for your 68-year-old client?
- A. a Treasury Inflation Protected Security (TIPS)
- B. an S&P 500 Index mutual fund
- C. a deferred annuity
- D. a high quality corporate bond fund
Answer: C
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 # 124
Mr. Teche is an agent with broker-dealer CanDo, and his only compensation is the commissions he earns on trades he executes. He has applied for and been granted an adjunct teaching position with a local university that will allow him to earn money while he is establishing himself.
Which of the following statements are true?
- A. CanDo can deny Mr. Teche permission to accept the adjunct teaching position.
- B. Mr. Teche is, in essence, an independent contractor with broker-dealer CanDo and can engage in any other business activity at will.
- C. Both A and B are true.
- D. As an agent with broker-dealer CanDo, Mr. Teche must notify CanDo in writing of this position prior to accepting it.
Answer: C
Explanation:
Explanation
Both statements A and B are true. As an agent for broker-dealer CanDo, Mr. Teche is required to inform CanDo in writing before accepting any outside position that will provide him with additional compensation, and CanDo has the right to deny Mr. Teche the permission to accept this position.
NEW QUESTION # 125
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