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NEW QUESTION # 98
According to the NASAA Model Rules, which of the following institutions would not be considered a qualified custodian?
- A. a foreign financial institution
- B. a bank that is insured by a private, state-sponsored insurance company
- C. a broker-dealer that is registered with the state
- D. a savings institution that is insured by the FDIC
Answer: B
Explanation:
Explanation
According to the NASAA Model Rules, a bank that is insured by a private, state-licensed insurance company would not be considered a qualified custodian. Registered broker-dealers, foreign financial institutions, and banks and savings institutions that are insured by the FDIC are on the list of qualified custodians.
NEW QUESTION # 99
The Administrator may require a firm to supply it with any prospectus, pamphlet, advertisement, or other sales literature intended for prospective investors unless the security
I. will be sold only through an investment advisory firm.
II. is a federal covered security.
III. is issued by a state credit union.
- A. I, II and III
- B. II only
- C. I only
- D. II and III only
Answer: D
Explanation:
Explanation
Only Selections II and III are correct. The Administrator may require a firm to supply it with any prospectus, pamphlet, advertisement, or other sales literature intended for prospective investors unless the security is a federal covered security or is issued by a state credit union, both of which are on a longer list of exempted securities. It doesn't matter whether or not the securities will be sold to clients of an investment advisory firm.
NEW QUESTION # 100
The 1988 Insider and Securities Enforcement Act indicates that a person convicted of insider trading can be subject to which of the following penalties?
- A. up to 3 years in prison, a $5,000 fine, or both
- B. up to 7 years in prison and a fine equal to 200% of the amount of profits gained or losses avoided
- C. up to 5 years in prison and a fine of $1,500,000 or both
- D. up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or
Answer: D
Explanation:
Explanation
The 1988 Insider Trading and Securities Enforcement Act increased the penalties for a person convicted of insider trading to up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or losses avoided.
NEW QUESTION # 101
BigCash Broker-Dealers is registered in the state and is in the process of purchasing a smaller
broker-dealer, Target Investments, as a subsidiary. Target Investments is also registered in the state.
After completing the purchase, what actions must BigCash take regarding registration of its new
subsidiary?
- A. BigCash need do nothing since Target Investments was already duly registered with the state as a
broker-dealer. - B. BigCash must file a new application with the state to register its new subsidiary, but will be able to
utilize the remainder of any annual filing fees that Target Investments had paid for the year. - C. BigCash must file a new application with the state to register its new subsidiary and must also pay the
annual filing fees required by the Administrator. - D. BigCash will need to pay the annual filing fees required by the Administrator, but will not need to file a
new registration application.
Answer: B
Explanation:
After completing the purchase, BigCash will have to file a new registration application for its
new subsidiary, but BigCash can utilize the remainder of any annual filing fees that Target Investments
had paid for the year. Although registration applications are never transferable, annual filing fees are.
NEW QUESTION # 102
D. Vious and Associates is a small broker-dealer trying to generate more business. To this end, the firm
had a professional four-color brochure printed that provides the years of industry experience of its
management along with other information. The firm's founder, Ms. D. Vious, is listed as having over 30
years of experience in the industry. Ms. D. Vious has worked for broker-dealers for over 30 years, but for
2 0 of those 30 years, she was a secretary. Has D. Vious violated any securities laws?
- A. Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to
convince investors to do business with the firm. - B. No. Technically, Ms. D. Vious does have over 30 years of experience in the industry, even though it
was not in the capacity of an agent or a broker-dealer. - C. No. Ms. D. Vious' years of experience is not a material fact that would affect an investor's investment
decision. - D. No. Advertising brochures are not securities.
Answer: A
Explanation:
Yes. The broker-dealer is making a misleading statement in an advertising brochure in order
to convince investors to do business with the firm. This is deceitful and misleading, and persons involved
in the securities industry are prohibited from making deceitful and misleading statements.
NEW QUESTION # 103
Assuming there is not a stop order or a proceeding pending, under the registration by coordination
process a security's registration with the state becomes effective:
- A. only when it is approved by the state Administrator, regardless of whether it has been approved by the
SEC. - B. only when it is approved by the state Administrator, who will review the registration documentation
upon notification that SEC approval has been granted. - C. immediately after approval by the SEC as long as the registration statement has been on file for at least
2 0 days or the Uniform Securities Act has provided an exemption to this waiting period. - D. immediately subsequent to approval by the SEC, regardless of how long the registration statement has
been on file.
Answer: C
Explanation:
Under the registration by coordination process, the security's registration with the state
becomes effective immediately after approval by the SEC as long as the registration has been on file for
at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period. This
assumes, of course, that there is not a stop order or a proceeding pending.
NEW QUESTION # 104
Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients' assets. Foo Lish, LLC must now
I. file a new U-5 form with the Administrator.
II. meet higher net capital requirements than before.
III. file an updated Form ADV with the Administrator.
IV. pay a CPA to do an annual unannounced audit of the firm.
- A. II, III, and IV only
- B. II and III only
- C. I and II only
- D. I, II, III, and IV
Answer: A
Explanation:
Explanation
Selections II, III, and IV are correct. When Foo Lish begins serving as a custodian of its clients' assets, it must file an updated Form ADV with the Administrator, meet higher net capital requirements than before, and pay a CPA to do an annual unannounced audit of the firm. The U-5 form is filed when a representative leaves the firm.
NEW QUESTION # 105
AllTime Investment Advisers advertises that its phones are manned 24/7, so that a client "doesn't have to lie awake all night worrying about a financial problem." In fact, AllTime does have a answering service that answers calls in the evenings and on the weekends when its offices are closed. The service informs the caller of the firm's business hours, which will be the earliest opportunity the caller will have to talk to an investment adviser representative.
Is this a violation of any securities laws?
- A. It depends. If, before a client signs a contract with the firm, it is made clear that investment adviser representatives are not, in fact, available to him 24/7, then AllTime is in the clear.
- B. No. It's not a violation of any securities laws, but the firm probably won't retain many clients this way.
- C. No. The firm's phones are manned 24/7, so it hasn't lied.
- D. Yes. The Uniform Securities Act prohibits investment advisers from making deceptive statements in the solicitation of clients as well as in advising clients.
Answer: D
Explanation:
Explanation
Yes. The Uniform Securities Act prohibits investment advisers from making deceptive statements in the solicitation of its clients, so when AllTime suggests in its advertisements that a client will be able to talk to someone who can relieve his worries, AllTime has violated the law and is guilty of fraud.
NEW QUESTION # 106
Which of the following laws deals with identity theft protection?
- A. Regulation S-P
- B. ERISA
- C. the Bank Secrecy Act (BSA)
- D. the USA Patriot Act
Answer: A
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 # 107
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, Dewey, or Louie or any combination of the three
- B. Huey only
- C. either Huey or Dewey or both
- 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 # 108
Which of the following does not need to be included in an investment advisory contract?
- A. the total amount of money that the investment adviser currently has under management
- B. the term of the contract
- C. the advisory fees and the formula used to compute them
- D. a statement that the contract cannot be assigned to another party without the client's consent
Answer: A
Explanation:
Explanation
The amount of money that the investment adviser currently has under management need not be included in an investment advisory contract. The contract does have to include the term of the contract, the advisory fees and the formula used to compute them, and a statement that the contract cannot be assigned to another party without the client's consent, along with other information.
NEW QUESTION # 109
Ari Gaunt is a registered agent employed by Small &Associates Broker-Dealers. He has been notified of a hearing regarding the revocation of his license for making unauthorized trades on some of his clients' accounts.
Which of the following statements is necessarily true?
- A. If Ari is found guilty and has his license revoked, Small & Associates will have its license revoked as well and must reapply for reinstatement by filling out an application and paying the requisite filing fees.
- B. If Ari is found guilty and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days.
- C. The Administrator of the state can assess Ari with both civil and criminal penalties.
- D. If Ari is found guilty and has his license revoked, Small & Associates will be subject to a fine.
Answer: B
Explanation:
Explanation
If Ari is found guilty of making unauthorized trades on his clients' accounts and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days. Small & Associates license is not in danger as long as the firm has been providing competent supervision of Ari and its other agents. It will not be required to pay a fine based on Ari's fraudulent activities. Ari may end up with civil and criminal penalties, but the Administrator cannot assess them. Only a court of law can do that.
NEW QUESTION # 110
An investment adviser suggests that his client, Arnold, a 74-year old gentleman, should consider a reallocation of the assets in his portfolio. The adviser tells Arnold that he has far too much invested in bonds, which don't earn as much as stocks. He advises Arnold to take 80% of the money he has in bonds and invest it in an aggressive growth mutual fund that has provided an average annual return of 40% over the past three years.
Arnold is impressed and follows this advice. Shortly thereafter, there is a steep drop in the market in general, and the net asset value of the aggressive growth mutual fund falls 85%.
Does Arnold have any remedies available to him?
- A. No. The investment adviser had no way of knowing that the market was going to fall when he provided the advice, so the adviser did not fail in his fiduciary responsibility to Arnold.
- B. No. Arnold had the choice and got greedy. As the old saying goes, "Bulls get rich, and bears get rich, but pigs get led to slaughter."
- C. Yes. Arnold can sue for the amount of his losses, plus interest, as well as an amount assessed by the court for "pain and suffering."
- D. Yes. Arnold can sue for the amount of his losses, plus interest, court costs, and attorneys' fees.
Answer: D
Explanation:
Explanation
If Arnold loses his money because he took the advice of his investment adviser and reallocated a large percentage of his money from bonds to an aggressive growth mutual fund, he can sue the investment adviser in civil court for the amount of his losses, plus interest, court costs, and attorneys' fees. The courts do not award damages for "pain and suffering" in these cases. The investment adviser failed in his fiduciary responsibility to Arnold in recommending that a 74-year old man reallocate a large percentage of his money from the relative safety of bonds to the much riskier investment of an aggressive growth mutual fund.
NEW QUESTION # 111
Barring no irregularities (such as a license revocation by another state last year), after you have filed for registration as an agent, your license will be granted within
- A. 14 business days.
- B. 45 days.
- C. 10 business days.
- D. 30 days.
Answer: D
Explanation:
Explanation
Barring no irregularities, after you have filed for registration as an agent, you should receive your license within 30 days. More specifically, your license will be approved "no later than noon of the 30th day after filing."
NEW QUESTION # 112
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 II and III are true.
- C. Only Statement IV is true.
- D. Statements I and III are true.
Answer: C
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 # 113
Alter Advisers & Associates is a small investment adviser partnership registered only in a single state. One of the partners has died, and the surviving spouse has sold that partnership interest to the surviving partners.
Which of the following statements are true?
I. Alter Advisers must inform the state Administrator of this event.
II. Alter Advisers must inform the SEC of this event.
III. Alter Advisers must notify the firm's clients of this event.
- A. I only
- B. I, II, and III
- C. I and III only
- D. I and II only
Answer: C
Explanation:
Explanation
Only Selections I and III are correct. If one of the partners dies, Alter Advisers must inform both the state Administrator and the firm's clients of this event. This represents a change in the partnership. The SEC need not be notified since Alter Advisers is not registered with the SEC.
NEW QUESTION # 114
Which of the following does not describe a prohibited activity by investment advisers and their representatives, according to NASAA Model Rules?
- A. 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.
- 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. 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.
Answer: D
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 # 115
An agent cannot tell a client that a mutual fund is "no load" if the fund has
I. a front-end load
II. a contingent deferred sales load
III. 12b-1 fees
- A. I or III only
- B. I only
- C. I or II only
- D. I, II or III
Answer: C
Explanation:
If a fund has either Selection I or Selection II, an agent cannot tell a client it is "no load." If the
fund has either a front-end load, a contingent deferred sales load, or both, the client must be told that the
fund has a load. If the 12b-1 fees on a fund are 0.25% or less of the annual average net assets, it is not
considered to be a load fund.
NEW QUESTION # 116
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