Which of the following would indicate that the investment adviser has discretionary authority over an account?
B) both choices listed
Robert is a registered representative for Glasglow Capital Partners. Robert recently recommended that one of her clients sell the Argood Agressive Growth Fund in order to purchase a variable annuity. When the client discovered that the sale of the mutual fund resulted in contingent deferred sales charges in the amount of $1,500, she became quite upset and wrote a letter expressing her displeasure. Robert realized his mistake and promptly deposited $1,600 into the client's account in order to rectify the situation. Which of the following best addresses this situation?
A) robert's actions displayed high standards of commercial honor and just and equitable principles of trade
B) Robert violated industry regulations by depositing more money than the client actually lost on the transaction
Robert did not violate regulations, as the amount deposited was only $100 above what the client lost, within the $100 limit on gifts
D) Robert violated industry regulations by making a deposit of money into a client's account and failing to forward a written customer complaint.
D) Robert violated industry regulations by making a deposit of money into a client's account and failing to forward a written customer complaint.
As part of its fiduciary duty to clients, an adviser has an obligation of full and fair disclosure of all material facts to clients. Examples of failures to disclose material information to clients would include:
1. An adviser fails to disclose all fees that a client would pay in connection with the advisory contract
2. An adviser fails to disclose its affiliation with a broker-dealer or tother securities professionals or issuers
3. An adviser with discretionary assets under management fails to disclose that it is in a precarious financial condition that is likely to impair its ability to meet contractual commitments to clients
4. An adviser fails to disclose that fees are negotiable
C) 1,2,3,4
An investment adviser can defraud clients by allocating trades inequitably among client accounts. Which of the following likely represents(s) inappropriate trade allocations by an adviser?
B) all choices listed
Which of the following advertising practices by investment advisers would likely raise regulatory concerns?
C) all choices listed
In relation In relation to the personal trading of investment advisory representatives, which of the following must the advisor keep in its required records for each transaction?
1. a description and amount of the security transaction
2. the date and nature of the transaction
3. the price at which the transaction was effected
4. the name of the broker, dealer, or bank that effected the transaction
D) 1,2,3,4
Advisers are permitted to present performance figures to prospects and clients, subject to adequate disclosure and proper methodology. Which of the following would likely raise regulatory concerns in respect to an investment adviser's performance claims?
1. an adviser does not deduct advisory fees from performance figures without disclosure
2. an adviser does not disclose that the CFA Level 1 or higher has not been attained
3. an adviser publishes returns on a back-tested portfolio without labeling it as such
4. the adviser is not registered with FINRA
B) 1,3
Which of the following statements best addresses the personal trading of investment adviser representatives?
A) advisory firms must maintain adequate records of personal securities transactions of advisory representatives
Krista is an investment adviser organized as a sole proprietor. Krista must compete with several larger advisory firms in her area and knows that most prospects will not consider employing her services unless she has at least $50 million of assets under regular, supervisory management. Krista is currently managing $48 million. Tomorrow she will meet with a large prospect and plans to inform the prospect that she currently manages $50 million of assets. Krista feels that within 120 days her firm will have $50 million of assets provided that the S&P 500 advances within normal parameters and there are no contract cancellations. Which of the following best addresses this situation?
D) this represents an unethical and misleading practice that could subject Krista to disciplinary proceedings
Contracts between an investment adviser and a client are subject to rigorous regulatory oversight. Which of the following represent(s) accurate statement(s) concerning investment advisory contracts?
1. The fact that advisory fees are negotiable must be disclosed upon client request
2. If a client indicates that her risk tolerance is moderate, an adviser with discretion may manage the portfolio as if the risk tolerance were moderate-to-high without disclosure
3. failing to include a statement that the contract is not assignable without consent of both parties is not a violation as long as no assignment of contract, in fact, takes place
4. An adviser's failure to fulfill a contractual obligation may constitute a material misrepresentation in violation of state and federal securities law
D) 4
An adviser who pays cash solicitation fees must disclose its referral arrangements to prospects and clients. The adviser also must maintain certain related records subject to regulatory oversight. To comply with books and records requirements, an investment adviser must maintain copies of which of the following?
A) all choices listed
An investment adviser owes all of the following duties to its clients except
B) a duty to obtain the lowest possible price for all securities transactions
An investor informs her securities salesperson that she would like to invest in U.S. markets, primarily for capital preservation and income. Because her investing experience has thus far been limited to bank CDs, she would like her investments guaranteed by the U>S> Treasury. Her securities representative purchases shares of a mutual fund that holds higher yielding securities, 70% of which are guaranteed by the U.S Treasury, 30% issued in foreign currencies and guaranteed by the national governments of Honduras and Nicaragua. Which of the following best addresses this situation?
B) the purchase of the mutual fund represents both a violation of suitability requirements and an unauthorized transaction
Which of the following represent(s) true statements concerning the registration process for investment advisers?
1. Form ADV is used whether the adviser is registering with the SEC or a particular state
2. An applicant need not disclose the fact that she was fired for cause if the complaint on the part of her clients was never brought to and decided by either a court of law or FINRA
3. If an applicant is registering with the SEC and providing notice filings to various states, the states have no authority to charge fees in addition to the SEC-required fees
4. The registrant must indicate whether it will maintain custody or discretion, and whether it accepts prepayment in excess of $500 six or more months in advance
B) 1,4
An investment advisory partnership located and registered in State A is the subject of an investigation by the State Securities Commissioner, as a result of several complaints from dissatisfied clients. The State Securities Commissioner sends a representative of her office to conduct an unscheduled, onsite inspection of the investment adviser. The inspector informs a principal of the firm that the state would like to review all email correspondence between the firm and three of its clients. The principal of the firm makes a phone call to the firm'slegal counsel, then informs the inspector that the emails are covered by attorney-client privilege and, therefore, are not available for inspection at this time. Which of the following statements best addresses this situation.
A) the state has the authority to inspect the emails, and the investment adviser has violated provisions of the Uniform Securities Act
An investment adviser indicates on its application that its office is located at 110 W. Main Street, Suite 102. Six months later the state securities Administrator sends a representative to conduct an unscheduled inspection of the adviser. Arriving at 110 W. Main Street, Suite 102, the representative of the Administrator finds a hair and nail salon occupying Suite 102. After enjoying a manicurem the representative returns to the office, informing the Administrator that there is no investment advisory business at the address indicated on the application. Turns out, the adviser had simply moved three months earlier from Suite 102 to Suite 850 in the adjacent office building located at 112 W. Main Street. Which of the following best addresses this situation?
B) the adviser may be subject to disciplinary action for failing to inform the Administrator of a change of material information relating to its registration
A broker-dealer was recently suspended by FINRA and fined $80,000 for failure to pay an arbitration award. Therefore, the Administrator of the state where the firm maintains its principal office
C) may institute disciplinary proceedings based on FINRAs actions
On an application for registration an investment adviser indicates that the assets in the adviser's custody equal zero dollars. Te state securities Administrator later discovers that at the time of application, the adviser's assets under custody, in fact, equaled $10,000,000. Which of the following best addresses this situation?
D) the application was clearly misleading and will likely lead to an Administrative proceeding
Heather is a properly licensed agent for Smythe Broker-Dealers. Yesterday, Heather was unable to contact a non-discretionary client who routinely invest in real estate investment trust. Heather has been working with the client in excess of one calendar year and knows the investment preferences of her client well. Since the REIT investment fit perfectly with her client's investment profile, she purchased shares with the client's free credit balance. Unfortunately, when the client discovers the purchase on her next monthly account statement, she is extremely unhappy and instructs Heather to liquidate the securities. Because the investment was, in fact, suitable, Heather declines to execute the sale. Which of the following represent(s) true statements concerning this situation?
1. purchasing the REIT's represents unauthorized trading, but not a violation of securities law
2. because the investment was suitale, Heather may use her discretion to execute or not execute the customer's order to sell the securities
3. as long as a principal approved the order, no violation has occurred
4. Heather executed an unauthorized transaction and also violated provisions of securities law by refusing to execute the sell order
C) 4
Financial impairment of an investment adviser must be disclosed to prospects and clients in which of the following cases?
C) all of the choices listed
Bryan is a research analyst employed by Jones & Jackson Securities, a full service financial services firm. Bryan frequently attends sales presentations to prospects with members of the firm's underwriting department. Routinely, Bryan indicates to underwriting prospects that if the company utilizes the firm's services, he and his fellow analysts will do their best to issue positive recommendations on the company's securities. The head of the underwriting department reviews Bryan's performance annually and sets his compensation based partly on the amount of underwriting annually and sets his compensation based partly on the amount of underwriting business he helps to generate. Which of the following best addresses this situation?
A) research analysts may not engage in any sales activities for the underwriting department, may not promise favorable ratings to prospective clients, and may not have their compensation set by the underwriting department
The securities Administration for the State of Alabama conducts a review of a broker-dealer's stock ratings generated by the research analyst department the past year. The form uses a 4-tiered system of "strong buy," "buy," "hold," and "sell." The Administrator discovers that the percentages for each of the 4 ratings were as follows:
strong buy: 15%
buy: 75%
hold: 8%
sell: 2%
Which of the following statements best addresses this situation?
D) The Administrator may conclude that the ratings are excessively bullish, especially if the firm performs underwriting and market making activities on the companies and stocks in the Buy and Strong Buy categories
A small company doing business in the State of Maryland would like to raise a small amount of capital. They contact a local underwriting firm, who devises a plan to raise capital by selling promissory notes to residents of the state. The underwriting firm sends out a circular to 1,000 investors that announces the investment opportunity as follows:
INVEST IN SHORT-TERM GUARANTEED NOTES YIELDING THE GREATER OF 12.7% OR 5% GREATER THAN PRIME. THE NOTES ARE GUARANTEED BY THE ISSUER.
The issuer does, in fact, have provisions to secure a line of credit from their bank if they require additional funds to cover the guaranteed return. Which of the following best addresses this situation?
C) the announcement will most likely be deemed to be misleading, and the underwriters can be disciplined by the state securities Administrator
An investor receives a brochure for an offering of 8% preferred stock that states that 1,000,000 shares of $100 par value 8% guaranteed preferred stock are being offered by XYZ Corporation through its underwriter, Jackson-Huget. Since the company's cash flow has been strong for over two decades, the issuer and underwriters foresee to be sought as a result of weak financial results. which of the following represent(s) true statements concerning this situation?
1. only the underwriters could be considered to have misled investors, since the XYZ Corporation is neither a registered broker-dealer nor investment adviser
2. since dividends, whether preferred or common, are not, in fact, guaranteed, this brochure is deceptive and/or misleading
3. as long as the XYZ Corporation's free cash flow has proved sufficient to sustain a hypothetical 8% dividend for a period of not less than 5 years, no deception has taken place
B) 2 only
Marty Cohen, dba Big-Hitter Advisory Services, is convinced that the State of Texas is unfairly disciplining him for various practices that are not, in fact, violations of securities regulations. The State of Texas alleges the following:
--Marty distributed advertisements listing the stocks he recommended that showed positive returns in excess of 5%
--The advertisements covered a period of 3 months, with the returns then annualized
--Marty's management fees were not deducted from the performance figures
--Marty allowed certain friends and family to pay reduced or, in some cases, no management fees without disclosing this to his other clients
Which of the following represent(s) a true statement(s) concerning Marty's business practices?
1. the stock recommendations should have covered a period of at least one year
2. the recommendations should have included ALL recommendations
3. the advertisement should have either shown the effects of the deduction of management fees, or made it clear that the computation of said management fees would have reduced the returns presented
4. it is not unethical or misleading to let friends and family pay reduced or no fees without disclosure to other clients
D) 1,2,3 only
Which of the following represents true statements concerning dixclosure to prospect and clients on the part of an investment adviser?
1. disclosure of regulatory action must be made 48 hours before contract signing or at the time of signing if the client has five days to cancel
2. the adviser must disclose regulatory actions taken over the past 10 years upon client request
3. actions taken by the SEC, other state regulators, SROs, or any federal or state court must be disclosed
4. a FINRA fine of $5,000 would be disclosed to prospects/clients
D) 1,3,4
Investment Adviser must deliver disclosure brochures (essentially Form ADV Part II) to which of the following clients?
C) non-institutional clients for whom supervisory services are performed
Under the Uniform Securities Act, which of the following situations require(s) that the investment adviser maintain a specified minimum net capital?
C) all of the choices listed
An investment adviser registered in five states announces its services through a website. The website is, of course, accessible in all 50 states. Therefore:
1. the adviser is in violation of advertising rules for investment advisers
2. as long as the website contains a legend clearly stating that the investment adviser may only transact business in those states where they are registered or not required tho be registered, no violation has occurred
3. as long as the website does not involve the rendering of investment advice for compensation but merely disseminates information about the adviser's services, no violation has occurred
4. since the internet clearly involves interstate commerce, only the SEC has jurisdiction over any internet-based advertisement or advisory activities
2,3,4 only
B) 2,3 only
Slippery Investments was not registered in the state of Georgia as a broker-dealer at the time that one of its sales representatives represented to a Georgia resident that the shares of XYZ preferred stock being offered were guaranteed and appropriate for a retiree looking to preserve income. The shares were never registered, the sales representative was not registered as and agent, nor was the broker-dealer. Although dividends on the preferred stock were to be paid semiannually, after 18 months no dividends have been paid. When the Georgia investor attempted to liquidate his investment, he was told that the stock didn't actually trade in the secondary market, and the broker-dealer was not interested in purchasing it from him at this time. The issuer of the preferred stock has subsequently filed for bankruptcy protection, and it is unclear if the preferred stock has any value at this point. Which of the following represent(s) likely outcomes of this unfortunate situation?
1. the Administrator may order the firm to perform an offer of rescission
2. the sales representative may be subject to an Administrative order
3. the sales representative's actions were deceptive, manipulative, and fraudulent
4. the broker-dealer cannot be subjected to Administrative action since they are not registered in the state of Georgia
D) 1, 2, 3
An agent has been holding investing seminars for senior citizens. As an agent with 10 years experience, she is will qualified to speak on the topics of annuities and wealth preservation and has earned her CFP distinction. The Administrator discovers that the agent has not informed her supervisor of the seminars and that she made several statements at the seminars that were misleading and deceptive. Therefore, which of the following represent(s) true statements of this situation?
1. as an expert, the agent was not obligated to inform her firm of the seminars
2. as a representative of the broker-dealer, the agent was obligated to inform her firm of the seminars and have the compliance department approve all invitations, handouts, computer slide shows, etc.
3. as long as no money was collected and no contracts were signed at the seminars, no fraud could have taken place, as no offers of securities could, therefore, have occurred
4. the agent will likely be the subject of an Administrative proceeding for her conduct
B) 2, 4
Jason is registered as an agent and investment adviser representative for a firm properly registered in the state. Four of his clients have complained to the Administrator that their IRA accounts have been turned over in excess of 8 times during the current year, many of the trades having taken place without their knowledge. Which of the following represent(s) accurate statements about this situation?
1. this is merely the investors' word against Jason's and until the Administrator can prove beyond a reasonable doubt that the clients had no knowledge of the transactions, it must be assumed that Jason acted lawfully
2. as a fiduciary, it is Jason's discretion to trade the accounts as often as he sees fit
3. the trading appears to be excessive
4. the Administrator will likely consider the sworn testimony of four separate investors to be compelling evidence against Jason, and reason to suspend or revoke his licenses
C) 3, 4
Which of the following statements is/are true concerning registration in the investment advisory business?
1. Form ADV is used by the advisory firm
2. Form U-4 is submitted for each representative of the firm
3. Form ADV is used whether registering with the SEC or the states
4. Form U-5 is submitted when a representative of the firm is terminated
D) 1, 2, 3, 4
Allen, a properly registered agent with a broker-dealer properly registered in the state, is a proponent of market timing and frequent trading. It is not uncommon for him to buy and sell the same security several times in a given week, basing his trades on a thorough understanding of technical analysis and market timing. Recently, three of his clients have complained to the state securities Administrator that the commissions charged their account appear excessive, along with the excessive nature of the trading. Many of the trades were executed without their knowledge, and one customer discovered that she was in a margin account, although she claims she was never informed of this. The debit balance of the margin account is $5,000, and she is struggling to pay the interest charges. Which of the following represent(s) accurate statements about this situation?
1. since Allen is a professional trader, the trading cannot be deemed excessive, especially if the clients' accounts show capital appreciation
2. customers frequently claim that commissions are excessive; therefore, their statements to the Administrator will likely carry little weight
3. Allen may be subject to an Administrative order to suspend or revoke his license, after being given the opportunity to request a hearing
C) 3
Which of the following represent(s) a true statement concerning the powers of the Administrator?
C) both A and B
Melissa meets with a 73-year-old widow who collects $20,000 a year from her deceased husband's pension. Melissa recommends that her client purchase a deferred variable annuity. Six months after selling the annuity, Melissa recommends that her client invest the value of her annuity into a safe, income-producing intermediate-term Treasury mutual fund that her firm is rolling out. The clint surrenders the annuity, paying a 7% surrender charge, and transfers the money into the mutual fund that pays income monthly. Which of the following statements best addresses this situation?
A) Melissa made a suitable recommendation when selling the variable annuity
B) Melissa made a suitable recommendation when converting the annuity
C) Because of the surrender charges and the client's life expectancy, the deferred annuity was a suitable recommendation
D) Recommending the deferred annuity and recommending the surrender, in light of the contingent deferred sales charges, are both grounds for potential regulatory action against Melissa
D) Recommending the deferred annuity and recommending the surrender, in light of the contingent deferred sales charges, are both grounds for potential regulatory action against Melissa
Joey Darlington has a client who invested $40,000 with him, an amount representing 80% of her life savings. In an attempt to secure a high yield for his investor Joey invested the proceeds into commercial paper issued by a local manufacturing company. With a maturity in just 6 months, Joey determined that the non-rated commercial paper yielding a promised 11% was the best investment for his client. Unfortunately, the issuer defaulted on the paper, and the client's principal is now tied up in bankruptcy proceedings. Also, the commercial paper was not registered in the state and no offering documents were supplied to the investor. Which of the following represent(s) accurate statements concerning this situation?
1. Joey cannot be faulted for trying to help an investor of modest means earn a yield commensurate with her financial needs
2. The commercial paper was exempt from the state's registration requirement
3. Joey could be subject to an Administrative proceeding for failure to meet suitability requirements and for selling an unregistered, non-exempt security
4. Joey should have provided an offering document to his client no later than the due date for confirmation
B) 3, 4 only
An agent may offer or sell a security in a state if the security is
D) all of the above
All of the following statements concerning securities registrations are true except
C) The Administrator may not deny the registration due to excessive underwriter compensation
Which of the following transactions is/are exempt from the state's filing requirements and anti-fraud rules?
