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NEW QUESTION # 150
Registered agent Ina Scent has had her license suspended by the state Administrator prior to an
administrative hearing on the order. Which of the following statements is true regarding Ina's situation?
- A. Ina can make a written request that a hearing on the issue be scheduled within ten business days of
her request and may continue working with clients while waiting for her day in court. - B. Ina can immediately file an appeal of the suspension in a court of law.
- C. Ina can sue the Administrator because she was not afforded a hearing before the suspension took
place. - D. Ina can make a written request that a hearing on the issue be scheduled within fifteen business days of
her request and may not continue working with clients unless the Administrator vacates the order until
final determination.
Answer: D
Explanation:
When Ina receives notice of her license suspension, she can make a written request that a
hearing on the issue be scheduled within fifteen business days of her request. She cannot continue
working with clients unless the Administrator vacates the order until final determination because her
license is still suspended pending final determination. If, after the hearing, the order still stands, Ina can
file an appeal of the suspension with a court of law if she does so within 60 days.
NEW QUESTION # 151
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. engages in transactions with the underwriters of the IPO for the purpose of taking the firm public.
- C. represents NewCorp in any transactions with financial institutions.
- D. participates in the selling of the new stock to individual investors.
Answer: D
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 # 152
When selling shares of an investment company to a client, an agent must provide the client with
I. the fund's prospectus, which provides information on any loads or other fees as well as historical return information.
II. information about any breakpoints if it is a load fund along with an explanation of a letter of intent III. information regarding the investment adviser used by the fund IV. an explanation of the various loads and fees outlined in the fund's prospectus
- A. I, II, and IV only
- B. I, II, III, and IV
- C. I, II, and III only
- D. I and II only
Answer: A
Explanation:
Explanation
When selling shares of an investment company to a client, the agent must provide the client with the fund's prospectus and provide the client with an explanation of the various loads and fees and any breakpoints that, if reached, will result in a lower load charge for the client, along with information on a letter of intent, which the client can execute. The agent need not provide any information regarding the investment adviser used by the fund although that information is contained in the prospectus as well.
NEW QUESTION # 153
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. 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.
- C. All of the above describe prohibited practices.
- 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 # 154
The Turnover Corporation, a firm with 25,000 employees, has recently hired 50 new employees, many of
whom have been hired to replace middle-level managers who have retired. Turnover has omitted this fact
from its prospectus. Turnover is guilty of
- A. misrepresentation.
- B. misusing insider information.
- C. fraud.
- D. nothing. The hiring of 50 new employees by a firm with 25,000 employees is not a material fact.
Answer: D
Explanation:
Turnover is guilty of nothing when it hires 50 new employees, but doesn't include this
information in its prospectus because this is not a material fact. Most of the employees have been hired to
replace middle-level managers who have retired, and these employees wouldn't be considered significant
enough to affect the price of the stock in any way. If Turnover had hired a new CEO, that would be a
material fact that must be disclosed.
NEW QUESTION # 155
Which of the following constitutes a non-punitive order?
- A. registration cancellation
- B. summary license suspension
- C. All of the above are punitive orders.
- D. registration denial
Answer: A
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 # 156
A tombstone advertisement is
- A. the announcement of a new security that may become available for purchase.
- B. an offer to sell a new security that is being issued by an Arizona firm.
- C. the only type of advertisement that an investment advisory firm is allowed to use.
- D. an offer to sell a new security.
Answer: A
Explanation:
A tombstone advertisement is an announcement of a new security that may become
available for purchase. It is the only type of advertisement that is allowed during the "cooling off period"
once a firm has filed a registration statement for a new security. It is not an offer to sell the security, an act
that is strictly prohibited during this period.
NEW QUESTION # 157
Which of the following documents must a broker-dealer deliver on or prior to the confirmation due date to a client who is purchasing a security?
- A. a margin agreement if the purchase is being made on margin
- B. a hypothecation agreement
- C. a final prospectus
- D. a preliminary prospectus
Answer: C
Explanation:
Explanation
A broker-dealer must deliver a final prospectus to a client who is purchasing a security either on or prior to the confirmation due date. The margin agreement need not be signed until after the initial transaction takes place.
The hypothecation agreement is part of the margin agreement. As an alternative, a preliminary prospectus can be provided, but it must be accompanied by additional information that is contained in the final prospectus, but is missing from the preliminary prospectus. Therefore, Choice C, as written, is not correct.
NEW QUESTION # 158
It has come to the attention of the Administrator of the state that Samuel Shyster provided false
information on his application to become a registered investment adviser with the state. Prior to revoking
Samuel's license, the Administrator will provide Samuel with which of the following?
I. prior notice
II. an opportunity to fill out a new registration statement
III. an opportunity for a hearing
IV. a written statement regarding the facts and the legal consequences
- A. I, II, III, and IV
- B. I, II, and IV
- C. I, II, and III
- D. I, III, and IV
Answer: D
Explanation:
Prior to revoking Samuel's license, the Administrator will provide Samuel with prior notice (I),
an opportunity for a hearing (III), and a written statement regarding the facts and the legal consequences
(IV).
NEW QUESTION # 159
While on vacation in Colorado, Mr. Moneybags became interested in the stock of a company called SafeAway, which designs and installs customized high-tech security systems in the multimillion dollar mansions located in Colorado's pricier ski resort areas, such as Vail and Aspen. Upon returning to his home in Boston, he calls his broker-dealer with an order to purchase 10,000 shares of the stock, which he learned trades in the over-the-counter market. Fast Eddie, a registered agent with his broker-dealer, discovers that SafeAway's stock is registered only in the states of Colorado and Wyoming. Neither Fast Eddie nor his broker-dealer are registered to do business in either of those states. Under these circumstances,
- A. Fast Eddie should contact a broker-dealer that is registered in either Colorado or Wyoming and negotiate a finder's fee for referring Mr. Moneybags to them.
- B. Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is a private placement.
- C. Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is an unsolicited transaction.
- D. Fast Eddie cannot effect Mr. Moneybags purchase of SafeAway stock since neither he nor his broker are registered to do business in Colorado or Wyoming, and SafeAway stock is not registered for sale in the state of Massachusetts.
Answer: C
Explanation:
Explanation
Under the circumstances described, Fast Eddie can execute the trade for Mr. Moneybags even though SafeAway stock is registered for sale only in the states of Colorado and Wyoming since neither Fast Eddie nor the broker-dealer solicited the transaction, making this an exempt transaction. However, the Massachusetts Administrator may demand that Fast Eddie and his broker-dealer provide proof that the trade was indeed unsolicited.
NEW QUESTION # 160
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. Dewey only
- B. either Huey or Dewey or both
- C. Either Huey, Dewey, or Louie or any combination of the three
- D. Huey only
Answer: D
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 # 161
Which of the following laws deals with identity theft protection?
- A. the Bank Secrecy Act (BSA)
- B. ERISA
- C. Regulation S-P
- D. the USA Patriot Act
Answer: C
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 # 162
Under NASAA Model Rules, it is permissible for the registered representative of a broker-dealer to split
his or her commission with
I. a client.
II. the broker-dealer with which the registered representative is affiliated.
III. another registered representative working for the same broker-dealer.
IV. the administrative assistant who directs calls to the registered representative and provides other
services for the agent.
- A. I, II, III, and IV
- B. II, III, and IV only
- C. I, II, and III only
- D. II and III only
Answer: D
Explanation:
Only Selections II and III are correct. Under NASAA Model Rules, a registered
representative of a broker-dealer is entitled to split his or her commission only with his or her
broker-dealer or with another registered representative of that broker-dealer. He is not permitted to share
commissions with a client or with anyone who works for the broker-dealer, but is not a registered agent.
NEW QUESTION # 163
Rich Quick is a broker-dealer registered in the state of Massachusetts. He occasionally trades on
abnormalities he observes in bond yield spreads for his own account, short selling a bond that appears to
be overpriced based on its yield and buying a bond that is identical in almost every respect except for the
price, which is less than that of the other bond. He has been able to earn arbitrage profits 95% of the time
when he does this. Rich Quick
- A. is trading on insider information, which is a violation of securities laws.
- B. is skilled if he is able to earn profits 95% of the time using this strategy.
- C. is in violation of securities laws. Arbitrage is a prohibited activity.
- D. engaged in a fraudulent activity.
Answer: B
Explanation:
If Rich Quick is able to earn profits 95% of the time by trading on abnormalities he observes
in bond yield spreads, he is skilled. There is nothing illegal in what he is doing. Arbitrageurs attempt to
earn profits when they observe what they believe to be mispriced securities, and this is an accepted
activity. Rich is not using insider information; bond yields are publicly available information.
NEW QUESTION # 164
You are an investment adviser to Mr. Crochety, an elderly man who lives solely on his social security income although he managed to accumulate an investment portfolio worth about $100,000 over the years. Mr.
Crochety recently got his hands on a business publication and read about the tax-free interest paid by municipal bonds. He calls you and instructs you to sell his other investments and invest all his money in a municipal bond portfolio, so that "the government doesn't get any more of my hard-earned money." You tell Mr. Crochety that you don't believe this is a wise move because he's in such a low tax bracket that municipal bonds are not a good investment for him, but he is insistent. Based on these facts, you should
- A. require Mr. Crochety to sign an affidavit of liability waiver, indicating that you will not be held responsible for any adverse consequences of this decision.
- B. ignore Mr. Crochety's instruction since it is not in his best interest.
- C. have Mr. Crochety sign a statement of investment policy that indicates that this transaction is being executed on the client's instructions and that you have advised the client against it.
- D. call Mr. Crochety's relatives and suggest they have him examined for mental instability.
Answer: C
Explanation:
Explanation
Given that you have advised Mr. Crochety that this is not a wise move and he still insists on it, you should protect yourself by getting it in writing. In no case, however, can you require a client to sign an affidavit of liability waver, nor can you refuse to follow his adamant instructions.
NEW QUESTION # 165
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. do both A and B.
- B. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.
- C. 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. - D. tell Mr. I.M. Pulse that this would be an illegal insider trade and that you are unable to fulfill his request.
Answer: B
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 # 166
Under the Uniform Securities Act (USA), which of the following statements would be disallowed?
- A. Neither the statements in Selections B or C would be allowed under the guidelines of the Uniform Securities Act.
- B. An insurance company guarantees a fixed payment of $300 a month for life on an annuity it is selling.
- C. The government of the U.S. guarantees a 3% interest rate, to be paid semiannually, on a new 5-year Treasury note.
- D. A sales representative of GetErDone Broker-Dealers guarantees that a client can expect an average annual rate of return of 2% on a mutual fund investment the sales representative is selling, pointing to the fact that the fund has returned an average annual rate of return of 6% over the past ten years.
Answer: D
Explanation:
Explanation
A sales representative (aka an agent) of a broker-dealer may not make any guarantees. Only three entities are allowed to make guarantees under the Act: Parent companies, which may guarantee the securities of one of its subsidiaries, the U.S. government, and insurance companies.
NEW QUESTION # 167
The Administrator of a state can deny an application if
- A. any of the above is true.
- B. the registrant has been enjoined from engaging in activities involving securities in another state.
- C. the Administrator determines the applicant is not financially solvent.
- D. the application is missing information.
Answer: A
Explanation:
Explanation
The Administrator of a state can deny an application if the application is missing information, if the registrant has been enjoined from engaging in activities involving securities in another state, or if the Administrator determines the applicant is not financially solvent.
NEW QUESTION # 168
Which of the following practices would be prohibited in connection with the sale of investment company shares?
I. selling a client shares of a load stock fund when a no load stock fund with the same investment objective exists II. selling the client shares of five S&P 500 Index mutual funds, offered by different fund families III. encouraging a client to swap his money between two funds in the same family without informing him that this creates a taxable event
- A. I and III only
- B. I, II, and III
- C. II and III only
- D. I and II only
Answer: C
Explanation:
Explanation
The scenarios described in Selections II and III only would be prohibited. Five S&P 500 Index mutual funds, even if offered by different fund families, all have the same investment objective-duplicating the returns earned on the S&P 500 Index, and they will be invested in very similar stocks. Therefore, the client is getting little or no more diversification of risk by investing in five funds over investing in just one. The agent is just getting richer from more commissions. Encouraging a client to swap his money between two funds in the same family without informing the client that this creates a taxable event is not providing the client with "full and fair disclosure." It may well be in the client's best interest to make the switch, but he needs to be made aware of the tax consequences. It is not necessarily prohibited to sell a client shares of a load stock fund when a no load stock fund with the same investment objective exists as long as the agent believes that the load stock fund is a better investment for his client.
NEW QUESTION # 169
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