When a broker/dealer accepts an order for a trade from a customer, the order ticket must contain which of the following items?
I.The customer's account number
II.The time that the order was entered or cancelled
III.The terms and conditions of the handling
EXPLANATION = SEC Regulations on recordkeeping requirements state that a broker/dealer must maintain order tickets for 3 years and the order tickets must include:
The customer's account number
The time at which the order was entered or cancelled
The terms
When an investor or an investment advisor is doing a "capital needs analysis" they are determining which of the following?
[A] analysis of when the investor will have the funds to purchase additional life insurance in the future
[B] analysis to determine
EXPLANATION = Capital Needs Analysis is used to determine if the investor has enough life insurance to cover all of their financial goals should the investor pass away unexpectedly.
In which of the following scenarios would the individual giving advice have to register as an investment adviser for purposes of the Investment Advisers Act of 1940?
[A] A college professor instructs students on various types of securities in the course o
EXPLANATION = All of the situations are excluded under the Act and/or are considered "incidental" to another profession except for the agent who gives advice for a fee. The professor and attorney are excluded under the "LATE" professions, and the newspape
A current and updated amendment to an Investment Advisor's registration must be electronically filed with the SEC according to the Investment Advisers Act of 1940 how often?
[A] within 90 days from the close of the Investment Adviser's fiscal year
[B] wit
EXPLANATION = Under the Investment Advisers Act of 1940 investment advisers are required to send an electronic filing of an annual updated registration amendment within 90 days after the close of its fiscal year.
Certain requirements apply to the retention of email communications under the 1933 Act. Which statement is true with regard to such e-mail communication regulations?
[A] All e-mails, business related or not must be maintained as correspondence
[B] Busines
EXPLANATION = Email communications related to the IA's business are required to be retained as correspondence by the IA.
The definition of an issuer found in the Uniform Securities Act includes all of the following EXCEPT:
[A] A business entity that is involved in the sale of oil and natural gas certificates of interest.
[B] A county that sells bonds to finance a new fairgr
EXPLANATION = In the Uniform Securities Act, any entity that is involved in the sale of certificates of interest or participation in oil, gas, or mining titles or leases is excluded from the definition of issuer for purposes of the Act.
Which of the following would conflict with an IA's advertisement targeting the general public and stating that it is a "fee only" IA?
[A] A fee that is solely based on performance
[B] Hourly fees for financial planning
[C] An initial evaluation fee by the
EXPLANATION = As a general rule, performance-based fees (i.e., fees based on a share of capital appreciation) are not permitted, unless the client satisfies specific requirements (client must be a "qualified client"). An advertisement that targets the gen
The burden of proving an exemption or exception to a definition under the Uniform Securities Act is placed on:
[A] The person claiming the exemption or exception
[B] The state securities Administrator
[C] The Securities Exchange Commission
[D] The Attorne
EXPLANATION = In any proceeding under the Uniform Securities Act, the burden of proving an exemption or an exception from a definition is placed on the person claiming it.
When is it acceptable under NASAA rules for an IAR to exercise discretionary authority over the account of an investor?
[A] Only when the IAR gives written notification to the investor with the confirmation of the trade.
[B] If the IAR receives authority
EXPLANATION = The NASAA Model Rules permit the use of discretionary authority with verbal authorization, which must be followed by written authorization within 10 days of the verbal authorization.
All of the following would be considered to be a plan fiduciary under ERISA except:
[A] the custodian in charge of plan assets
[B] the tax preparer for the plan
[C] the individual selecting the plan's IA
[D] the plan's IA
EXPLANATION = A fiduciary is anyone who holds or controls the assets of a plan or who influences how the assets are managed or invested.
Which of the following types of life insurance offers no cash value?
[A] Term life insurance
[B] Whole life insurance
[C] Universal life insurance
[D] Variable life insurance
EXPLANATION = Term life insurance does not offer any type of cash value. Term life insurance offers a death benefit only.
You work for the only branch of Johnny's Broker-Dealer which is located in State X. Several of your agents have accounts in nearby State Y. Johnny's Broker-Dealer would only have to license its agents in State Y if clients in State Y were
[A] other broker
EXPLANATION = Other broker-dealers, registered investment advisers, and financial institutions such as banks do not warrant the need for licensing in the outside state, in this case State Y. Regardless of who employs them, individuals not falling into any
The brother-in-law of an agent of a broker-dealer has asked the agent if he will be willing to offer his clients shares of a private placement in a brand new company the brother-in-law is starting. The agent would earn substantial commissions from the sal
EXPLANATION = An agent shall not effect transactions not recorded on the regular books of the broker-dealer unless the transactions are authorized in writing by the broker-dealer prior to the execution of the transactions.
A stop limit order to buy may result in a trade when the market price reaches the
[A] limit price.
[B] limit price then reaches the stop price.
[C] stop price then reaches the limit price or better.
[D] stop price
EXPLANATION = When the market price reaches the stop price, the order is activated. When a stop limit order to buy is in place, the limit order is activated once the market price reaches the stop price. Once the stop is triggered, the order may result in
Which of the following investment advisers may, by law, transact business in a state according to the Uniform Securities Act?
0.A registered adviser
0.An investment adviser, who is not registered in a State or with the SEC, whose advice relates solely to
EXPLANATION = Under the Uniform Securities Act, an investment advisor must register when giving advice on any security, exempt or not. In the Investment Advisors Act of 1940, an exemption exists for federal covered advisors who give advice on government s
When working with a new client to provide advice on planning for her financial future, you have the client create a list of financial goals. While creating this list, you should advise the client to:
[A] choose a specific investment to achieve that goal
[
EXPLANATION = Of the choices offered the BEST choice would be to determine the beginning and end target date of each goal. She cannot really do any of the others without some time frames built into her plan.
Which of the following would be considered a "federal covered advisor" for purposes of the Uniform Securities Act?
[A] A person who limits advice rendered to federal-covered securities.
[B] An investment advisory firm that has clients in five states.
[C]
EXPLANATION = Registration with the SEC under the Investment Advisors Act of 1940 would make an investment advisory firm a "federal covered advisor" for purposes of the Uniform Securities Act. Each of the other answers could be an investment advisory firm
Which of the following investments is considered a derivative?
0.Equity Options
0.Real Estate Investment Trusts
0.Commodity Futures
0.Mutual Funds
[A] I and III
[B] I and IV
[C] II and III
[D] II and IV
EXPLANATION = Futures contracts and option contracts are both considered derivative securities. They can be used to arbitrage but are not "only used" in arbitrage situations. Options are used for swaps and futures contracts would not be involved. An equit
An investment adviser representative (IAR) is engaged in options trading. The IAR decides that a fair charge for his services would be 7% per month of the assets under management. In order to do so, the IAR will disclose all fees and charges in both the a
EXPLANATION = Even when disclosure has taken place, IARs can act inappropriately or in violation of the Investment Advisers Act of 1940. The fees charged for this IAR's services are excessive and beyond what is acceptable by the Act of 1940. Taking a real
What constitutes an "offer" by Uniform Securities Act standards?
[A] An individual who lives in New Jersey subscribes to a paper that is published in New Jersey which has over 80% of its subscribers in New York. The paper contains a solicitation.
[B] An i
EXPLANATION = A buy or sell offer has been made in a state when the offer originates in that state and is made to an individual in that state. In each of the other scenarios, the solicitation is either originating in another state, or is intended for an a
Amendments to Form ADV Part II must be provided to clients by advisers when? The Form must
[A] be provided to clients when the adviser receives the client's funds.
[B] be provided to clients annually.
[C] be provided to the clients one full day (24 hours)
EXPLANATION = Part II of Form ADV must be sent to or offered to existing clients on an annual basis.
The term agent, according to the Uniform Securities Act, would include all of the following people EXCEPT
[A] one who effects transactions of registered securities with clients who are members of the public.
[B] one who works for a broker-dealer involved
EXPLANATION = A person representing an issuer in effecting transactions that are exempt or exempt transactions, is not considered an "agent." All of the other people listed would be considered agents because they either work for a broker-dealer effecting
A client asks an IAR to draft an irrevocable living trust and move $3M in assets into the trust for management by the IAR. The IAR should
[A] do as the client requested
[B] do as the client requested, but refer the management of the trust assets to anothe
EXPLANATION = Lawyers draft trusts. It's unethical and illegal for IARs to draft trusts.
All of the following are financial ratios used to determine a company's liquidity EXCEPT the
[A] current ratio.
[B] quick ratio.
[C] acid test ratio.
[D] debt to equi
All of the following statements about the "efficient market" theory are TRUE EXCEPT:
[A] Prices reflect the combined knowledge and expectations of all investors.
[B] It is impossible to "beat the market."
[C] It is impossible to find undervalued or overva
EXPLANATION = The "efficient market" theory is also known as the "random walk" theory and believes that throwing darts will produce as good results as using a professional investment adviser.
According to the Investment Adviser's Act of 1940, the "Brochure Rule" states:
[A] that it is required that Part I of Form ADV must be given to all clients and potential clients of a registered IA
[B] that it is required that a registered IA provide writt
EXPLANATION = Part II of Form ADV may be provided to satisfy the "brochure rule" requirement.
Which of the following securities is not considered a "covered" security for purposes of the 1933 Act, but is considered an exempt security?
[A] An exchange-traded futures contract which clears through an appropriately-registered clearing agency.
[B] A co
EXPLANATION = Under the Securities Act of 1933, a municipal security that is exempt from registration is not a covered security with respect to the offer or sale of such a security in the State in which the issuer of the security is located. A municipal b
In order to comply with NASAA Statements of Policy, when must the prospectus of a mutual fund be delivered to a client?
[A] Such a prospectus must be delivered on or prior to the due date of the confirmation of the transaction in the mutual fund.
[B] Such
EXPLANATION = NASAA Statements of Policy state that the prospectus of a mutual fund must be delivered to the client no later than the due date of confirmation of the transaction.
Renewal registration fees are NOT required of which of the following registered applicants?
[A] A broker-dealer who is filing for a successor
[B] Investment adviser representatives (IARs)
[C] Agents of a broker-dealer
[D] Federal-covered advisers
EXPLANATION = A broker/dealer filing for a successor would apply the unused portion of the existing registration to the new (successor) firm.
A registered representative who engages in private securities transaction is required to do all of the following except:
[A] give written notice of the BD employing the RR
[B] receive approval from the BD employing the RR
[C] record the transactions on th
EXPLANATION = The issuer does not need notification of such transactions.
Which of the following statements is true with regard to the registration of investment advisers (IAs) and investment adviser representatives (IARs) under the Uniform Securities Act?
[A] IARs are not required to be registered in a state as long as the IA
EXPLANATION = It is unlawful for any investment adviser required to be registered to employ an investment adviser representative unless the investment adviser representative is also registered.
Which of the following types of life insurance offers an adjustable death benefit and flexible premium payments?
[A] Term life insurance
[B] Whole life insurance
[C] Universal life insurance
[D] Variable life insurance
EXPLANATION = Universal life insurance offers and adjustable death benefit and flexible premium payments
Of the following three choices, which are exempt according to the USA?
0.Transactions taking place between issuers and underwriters
0.Any solitary non-issuer transaction
0.After receiving an unsolicited order, a registered broker/dealer takes care of a no
EXPLANATION = Non-Issuer transactions (normal secondary market trades), unsolicited transactions, and underwriter transactions are all exempt.
Of the following securities, which is always exempt from registration under the USA?
[A] A Canadian drilling company's common stock
[B] The preferred stock of the parent company of an insurance company
[C] The equipment trust certificates of a government-
EXPLANATION = Although securities issued by U.S. insurers are exempt from registration, securities issued by their holding companies are not exempt. The equipment trust certificates of government-regulated railroad companies are exempt.
Which of the following should NOT be a major consideration by an investment advisor giving advice in accordance with the regulations of the Prudent Investor Act?
[A] The advisor should consider how inflation might affect investments held in the customer's
EXPLANATION = Of the items listed, the amount of time until the contract between the advisor and client expires should NOT be a major consideration. Advice should be relative to the investment objectives of the client and should take into consideration in
If an investment adviser representative (IAR) is also a licensed insurance agent and recommends that a client sells his/her mutual fund shares to buy life insurance, all of the following disclosures should be made EXCEPT:
[A] That the sale of mutual funds
EXPLANATION = Remember that when an IAR sells both securities and non-securities related products, they continue to be regulated by the IA rules even when selling the non-securities products therefore the best answer is "D" since that advice would be conn
When evaluating long-term investments by using Net Present Value, the NPV would consider all of the following except?
[A] inflow of money
[B] today's market price
[C] outflows of money
[D] expected returns
EXPLANATION = NPV uses future cash inflows and outflows, a discount rate, and time period but does not consider today's market value. NPV is used to determine if projects will be profitable over a specified period of time.
An investment advisor is assisting a client in preparing a personal income statement. Which of these items would the adviser need to complete the income statement?
0.Dividends received from common stock holdings
0.Real property
0.Automotive expenses
0.Per
EXPLANATION = An income statement would include moneys coming in and expenses paid out by the individual or entity. Dividends would be included in this, but assets (such as real property) and liabilities would not be included on an Income Statement.
Which of the following statements is true with regards to the power of an Administrator to take action when there are violations of the Uniform Securities Act?
[A] Officers may be appointed by the Administrator to conduct investigations
[B] The Administra
EXPLANATION = The Administrator has the power to appoint or designate officers to conduct investigations within or outside of the state.
An investment advisory firm's offices are located in State X. The IA exclusively services financial institutions such as insurance companies. This IA firm must
[A] be fully registered with the SEC under the Investment Advisors Act of 1940 and coordinate r
EXPLANATION = With the information provided, the investment advisory firm must register with the state where it has it's principal place of business, State X, and does not need to register at the federal level with the SEC.
An Investment advisor recommends that a client's portfolio include 12% of small cap securities. The customer strongly rejects the recommendation. The IA's most appropriate response would be to
[A] ask the client to have faith in their judgment
[B] explain
EXPLANATION = In any situation, the wishes of the customer must be recognized. In this case, avoiding small cap stocks would not put the portfolio in any jeopardy, and thus the rejection of the customer to the small cap exposure must be noted and followed
All of the following choices adhere to the NASAA Model Rule on Unethical Business Practices of Investment Advisers and Federal Covered Advisers EXCEPT when an investment adviser:
[A] decides to borrow funds with a promissory note in writing from a client,
EXPLANATION = It is unacceptable for advisers to borrow money from individual clients.
An IA, who is compensated for their services, must register under the USA if advice rendered relates to which securities listed below?
0.Treasury Bonds issued by the United States of America
0.Bonds issued by a local school district
0.Corporate bonds wher
EXPLANATION = Under the Uniform Securities Act, there are no exemptions from registration related to giving advice on specific securities. Because of this, all IAs must be registered when giving advice on any of the securities listed. In the Investment Ad