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NEW QUESTION # 123
Which of the following compensation arrangements between an investment adviser and an individual
client with a net worth of $600,000 would be disallowed?
- A. The investment adviser will receive 0.1% of the total value of the client's assets under management as
of the end of each month. - B. All of the above are legitimate compensation arrangements between and investment adviser and an
individual client with a net worth of $600,000. - C. The client agrees to pay the investment adviser an hourly fee of $60.00.
- D. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each
quarter.
Answer: D
Explanation:
A compensation arrangement between an investment adviser and an individual client with a
net worth of $600,000 that stipulates the adviser will receive 0.1% of the gross capital gains earned on the
portfolio would be disallowed. An investment adviser of an individual client cannot be compensated with a
share of the capital gains earned on the portfolio unless that client has a net worth of at least $1.5 million
or has at least $750,000 invested through that investment adviser.
NEW QUESTION # 124
Which of the following laws deals with identity theft protection?
- A. Regulation S-P
- B. the USA Patriot Act
- C. the Bank Secrecy Act (BSA)
- D. ERISA
Answer: A
Explanation:
Explanation
Regulation S-P was enacted by the SEC to deal with identity theft. The law requires financial institutions to provide their clients with a statement of its privacy policies and practices and prohibits the disclosure of nonpublic personal information about even a prospective client to a nonaffiliated third party unless certain conditions are met, including giving the client or prospective client the right to opt out of the disclosure.
NEW QUESTION # 125
Jack is employed by NewCorp, which is engaging in an initial public offering (IPO). Jack will need to
register as a sales representative if he:
- A. Jack will need to register as a sales representative if he performs any one of the above activities.
- B. participates in the selling of the new stock to individual investors.
- C. engages in transactions with the underwriters of the IPO for the purpose of taking the firm public.
- D. represents NewCorp in any transactions with financial institutions.
Answer: B
Explanation:
Jack will need to register as a sales representative if he participates in the sale of new stock
to individual investors. Those who deal directly with the public need to register as sales representatives
under the Uniform Securities Act. If Jack limits his involvement to transactions with the underwriters or
financial institutions, he need not register.
NEW QUESTION # 126
Which of the following statements regarding an investment adviser representative who has an office in the state is true?
- A. 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.
- B. 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.
- 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 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.
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 # 127
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 in violation of NASAA rules regarding investment company shares.
- B. 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.
- C. will not be in violation of any NASAA rules as long as he has his client sign a "letter of intent."
- D. 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.
Answer: A
Explanation:
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 # 128
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. II, III, and IV only
- C. I and III only
- D. I, II, III, and IV
Answer: D
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 # 129
Which of the following constitutes a non-punitive order?
- A. summary license suspension
- B. All of the above are punitive orders.
- C. registration denial
- D. registration cancellation
Answer: D
Explanation:
Explanation
Registration cancellation is a non-punitive order. The Administrator issues a cancellation order if a registered person dies, becomes mentally incompetent, is no longer in business, or is unable to be located.
NEW QUESTION # 130
Which of the following would be considered an "issuer" transaction?
- A. Jacob calls his broker and places an order to purchase 100 shares of Hasbro, Inc. on the open market.
- 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. Maria purchases 500 shares of Dodge and Cox's International Fund, a mutual fund investing in foreign
securities.
Answer: D
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 # 131
In which of the following scenarios will the investment adviser be subject to criminal fraud charges?
- A. all of the above. It is considered criminal fraud for an investment adviser to make any
recommendations on a security in which it has or plans to have a position. - B. An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the
stock as a "buy," disclosing the fact that it owns the stock - C. An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the
stock as a "buy" without disclosing the fact that it owns the stock. - D. An adviser sells its shares of TweedleDee Corporation after issuing a report recommending the stock
as a "buy."
Answer: D
Explanation:
An adviser that sells its shares of TweedleDee Corporation after issuing a report
recommending the stock as a "buy" is subject to criminal fraud charges for willfully deceiving its clients.
The adviser who recommends the stock as a buy without disclosing the fact that it owns the stock is
engaging in a prohibited activity for non-disclosure, but would be unlikely to face criminal fraud charges.
NEW QUESTION # 132
In which of the following cases is an investment adviser allowed to be compensated with a share of the capital gains of the client's portfolio?
I. The client is a mutual fund.
II. The client is a credit union.
III. The client is a private client whose minimum net worth is $1 million or more.
IV. The client is a private client who has at least $750,000 invested through the investment adviser.
- A. I and II only
- B. I, II, and III only
- C. I, II, and IV only
- D. none of the above. An investment adviser is never allowed to share in the capital gains earned on
Answer: C
Explanation:
Explanation
Selections I, II, and IV are correct. An investment adviser is permitted to be compensated with a share of the capital gains of the client's portfolio if the client is a mutual fund, a credit union, or a private client with at least $750,000 invested through the investment adviser. More generally, the adviser can charge a fee based on the capital appreciation of the portfolio if the client is an institutional investor, a private client with a net worth of at least $1.5 million, or a private client with at least $750,000 invested with the investment adviser.
NEW QUESTION # 133
An investment adviser representative with Capital Investment Advisors, Inc. advised his client to invest
$ 5,000 in bonds of a firm that the adviser claimed was an investment "almost as risk-free as investing in
U.S. government bonds; maybe even more so, given the magnitude of the government deficit these
days." The client paid a total of $200 for this advice. The bonds paid interest at the rate of 6%, with
semiannual payments, and the client received $300 in interest payments before the firm went belly-up at
the end of a year, and its bonds were deemed worthless. The client has filed suit, and its attorneys' fees
and court costs are expected to be $1,000. When the investment is a bond, the state has recently been
assessing an interest rate equal to the interest rate paid by the security as an equitable interest payment
guideline in civil penalties. The maximum the client can expect in civil penalties is
- A. $5,200.
- B. $5,900.
- C. $6,200.
- D. $6,000.
Answer: C
Explanation:
The maximum amount the client can expect in civil penalties in this case is $6,200. In civil
court, the client is awarded the cost of the investment plus any attorneys' fees and court costs, plus any
interest that the state deems appropriate, less any income earned on the investment. In this instance, the
only income is the interest that the client earned, which is identical to the interest that the Administrator
mandates the investment adviser pay, so that is a wash. The investment advisory fee is included as part
of the investor's cost, so the client can sue for the recovery of his original investment of $5,000 plus the
$ 200 he paid for the investment advice plus the court costs and attorneys' fees of $1,000, or $6,200 total.
NEW QUESTION # 134
Constance is an investment adviser representative. She told one of her clients that he should put at least
1 5% of his investment monies in a U.S. government bond mutual fund.
She explained that she believed that he required this percentage to meet his liquidity needs, and U.S.
government bond funds are risk-free. A few months later, the client needed to sell some of his fund shares
in order to pay some medical bills and was surprised to discover that he lost money on the sale because
the net asset value of the fund had dropped. Was Constance guilty of any securities violations?
- A. Yes. Constance is guilty of fraud. She misled the client into thinking he couldn't lose any money if he
invested the money in a U.S. government bond mutual fund. - B. No. U.S. government bonds are often referred to as risk-free investments, so Constance made no
misstatement of fact in telling her client this. - C. It depends. If Constance realized that the client could lose money in a U.S. government bond fund,
then she is guilty of fraud, but if she did not herself realize that, then she is merely misinformed. - D. Yes. Constance should never recommend that a client invest such a high percentage of his investment
monies in a U.S. government bond mutual fund.
Answer: A
Explanation:
Yes. Constance is guilty of fraud. She misled her client into thinking he couldn't lose money if
he invested the money in a U.S. government bond fund. Although U.S. government bonds are referred to
as risk-free, this just means they are considered free from default risk. The value of the bonds-and,
therefore, the U.S. government bond funds-will change with changes in interest rates. As an investment
adviser representative, Constance should know this. Regardless of whether or not she does, she is guilty
of fraud simply by providing the misleading information. If she knew it and deliberately misled the client,
she is guilty of criminal fraud.
NEW QUESTION # 135
Don is a state-registered agent with GetErDone Broker-Dealers. He has three other friends who are licensed agents-Huey, Dewey, and Louie. Huey is also an agent with GetErDone Broker-Dealers. Dewey is an agent with a different firm in the same city, CanDo Broker-Dealers. Louie works for a Broker-Dealer with an office just across the state line.
Don can enter a commission-splitting agreement with
- A. either Huey or Dewey or both
- B. Huey only
- C. Either Huey, Dewey, or Louie or any combination of the three
- D. Dewey only
Answer: B
Explanation:
Explanation
Don can enter a commission-splitting agreement with Huey only since he is the only one who is also working for GetErDone Broker-Dealers. It is considered unethical to split "commissions, profits or other compensation.
. .with any person not also registered as an agent for the same broker-dealer," under NASAA Model Rules.
NEW QUESTION # 136
A broker-dealer cannot legally be
- A. an individual.
- B. A broker-dealer can be any of the above.
- C. a sole-proprietorship.
- D. a partnership.
Answer: B
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 # 137
Bootstraps, Inc. is a family-owned business that has experienced enormous growth in the last couple of years.
The business needs more cash to support this growth and has decided to issue some promissory notes, each with a face value of $5,000, for sale to the general public. The firm plans to hire three individuals to help them sell these notes. These individuals will earn a commission based on the notes they sell.
Given these facts, which of the following is true?
- A. The notes must be registered with the state, and the three individuals hired to sell the notes must be registered as agents with the state.
- B. The notes must be registered with the state, but the individuals hired to sell them are not required to be registered.
- C. Either the firm must register the notes with the state, or the individuals that are hired to sell the notes must be registered as agents with the state, but not both.
- D. Neither the notes nor the individuals selling the notes need to be registered with the state.
Answer: A
Explanation:
Explanation
If Bootstraps hires three individuals to sell promissory notes to the public, both the notes and the three individuals hired to sell the notes must be registered with the state. The promissory notes are securities and, therefore, are required to be registered with the state before they can be offered for sale. The three individuals are working for the issuer, Bootstraps, to sell its securities to the public. This makes them agents, according to the Uniform Securities Act, and they must be registered as agents with the state.
NEW QUESTION # 138
Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals. Yesterday
afternoon, issues that had been brewing between her and another employee of the firm came to a head,
and Maddie impulsively quit her job. At this point,
- A. Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration
application. - B. Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration
application. - C. Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed
there. - D. Maddie will have to file a new application for registration with the Administrator upon finding
employment with another broker-dealer since she is no longer considered to be a registered agent by the
state.
Answer: D
Explanation:
When Maddie quit her job, her status as a state-registered securities agent was
automatically terminated, and she will need to file a new application for registration with the Administrator
upon obtaining a position with another broker-dealer. If she does so within thirty days, her registration will
become effective as soon as she has filed her application and paid her application fee. While she is
required to notify the Administrator that she has terminated her employment with QuikDeals, there is no
requirement that she contact any of her clients at QuikDeals.
NEW QUESTION # 139
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 # 140
In which of the following instances is it permissible for an investment adviser to borrow money from a client?
- A. The investment adviser may borrow money from a client if the client is a close friend of the majority owner of the investment advisory firm.
- B. It is never permissible for an investment adviser to borrow money from a client.
- C. The investment adviser may borrow money in either of the scenarios described in B or C.
- D. The investment adviser may borrow money from a client if the client is a bank.
Answer: D
Explanation:
Explanation
It is only permissible for an investment adviser to borrow money from a client if that client is in the business of loaning money, as would be the case if the client is a bank, but not if the client is merely a close friend of the majority owner of the investment advisory firm.
NEW QUESTION # 141
Once a person has filed an application with the Administrator, and in doing so has truthfully disclosed every material fact, how long does the Administrator have after the effective date of the registration to commence a proceeding to deny, suspend, or revoke that person's license based on those facts?
- A. 30 days.
- B. 90 days.
- C. one year.
- D. 60 days.
Answer: B
Explanation:
Explanation
If a person has appropriately and truthfully disclosed every material fact on its application for registration, the Administrator has 90 days after the registration becomes effective to commence a proceeding to deny, suspend, or revoke the license. If the Administrator has known about the fact for longer than this, he may not begin a proceeding against that person according to the Uniform Securities Act.
NEW QUESTION # 142
Shady Corporation's executives are concerned over the firm's steadily declining stock price and decide to
do something about it. They each decide to make significantly large purchases of their firm's stock in
order to stabilize and hopefully even to drive up its price, reasoning that they can sell the stock for the
higher price down the road and profit from the transaction. You are a broker-dealer for the firm's
executives. Are Shady's executives planning to do anything illegal?
- A. Yes. To purchase shares of their own company is considered to be illegal insider trading.
- B. No. It's a win-win. They are using their own money to buy stock of their firm, and this can help drive the
stock price up and put profits in their pockets. - C. No. As long as they follow the rules and report their purchases to the SEC, it is not illegal for them to
purchase shares of their firm's stock. - D. Yes. Although it is not illegal for them to purchase shares of their firm's stock, they cannot do so in
order to try to manipulate the price of the stock.
Answer: D
Explanation:
Yes. Although it is not illegal for Shady's executives to purchase shares of their firm's stock,
in this case they are planning to do something illegal in deciding to make significantly large purchases of
their firm's stock in order to manipulate the price. This is an example of price pegging.
NEW QUESTION # 143
MoeMoney Investment Advisers, LLC is registered in the state of Texas, and its three offices are all located in the greater Dallas-Fort Worth area. Five of its clients-all individuals-have relocated to Colorado and all have indicated a desire to retain the services of MoeMoney. In order for this to be possible,
- A. MoeMoney will need to apply for and be granted registration as an investment adviser in the state of Colorado.
- B. MoeMoney will need to apply for and be granted registration as an investment adviser representative in the state of Colorado.
- C. each client will have to write a letter to the Administrator of the state of Colorado on MoeMoney's behalf.
- D. Neither MoeMoney nor its clients need do anything.
Answer: D
Explanation:
Explanation
In order for MoeMoney to continue servicing its five individual clients who have relocated to Colorado, neither MoeMoney nor its clients need to do anything. The National Securities Markets Improvement Act of
1996 (NSMIA) established a "deminimis" exemption for investment advisers if they have no office in a state and do business with "no more than five non-institutional clients" during a one-year time frame.
NEW QUESTION # 144
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