Question 1

Switch Advisory is a small investment adviser partnership registered in a single state. A larger investment adviser firm, Bait Investment Adviser, is registered in the same state as well as two other states. Bait has offered to buy out three of Switch's partners who want to retire. This will give Bait a 60% ownership in Switch Advisory. Which of the following statements are true?
I. Switch Advisory must obtain the approval of its clients before the partners can sell their interests to Bait.
II. Switch Advisory must notify the state Administrator of this event.
III. Switch Advisory must notify their clients of this event, but does not need the clients' approval.
IV. Switch Advisory must notify the SEC of this event.

Accepted Answer

A) I only 
B) I and II only 
C) II, III, and IV only 
D) I, II, and IV only

Question 2

Cassie Clueless has recommended that a client purchase shares of a mutual fund prior to its ex-dividend date, so that the client will receive the dividends when they are distributed. In which of the following situations might this recommendation be justifiable and not in violation of NASAA rules?
I. The investor has refused to provide Cassie any information regarding his investment goals.
II. The investor is a young professional with an investment goal of long-term capital appreciation.
III. The investor is a retiree in a low tax bracket and needs current income to augment her social security check.

Accepted Answer

A) I only 
B) I and II only 
C) III only 
D) It is always in violation of NASAA rules to recommend that a client purchase shares of a mutual fund prior to its ex-dividend date.

Question 3

Elizabeth is the owner of Lizbeth Investment Advisers, a small, state-registered investment advisory firm. She has decided that her firm needs a niche and has learned that a consulting group is coming to the area and offering a 3-day seminar on asset allocation for senior citizens offered by Advantage for Retirement Persons (ARP). The seminar will cost $1,000 per individual, but after attending the seminar, each attendee will receive a certificate verifying their involvement in the program. Elizabeth decides this is the niche she has been looking for and signs up herself and her three investment adviser representatives for the program. After attending the seminar and receiving their certificates, Elizabeth and her team can

Accepted Answer

A) represent themselves as certified senior citizen investment advisers. 
B) have the words "Senior-Citizen Investment Specialists" printed on their business cards. 
C) indicate that they are certified by the ARP program since money was paid for their attendance. 
D) do none of the above.

Question 4

While on vacation in Colorado, Massachusetts resident Ms. Jetset meets Mr. Snow, a registered representative with a Colorado broker-dealer, on a ski lift and accepts a dinner engagement with him later that evening, during which he obtains her cell phone number. A week later, while she is lounging around in her Florida beach condo, he calls and interests her in a local software company that is selling its preferred stock to investors and encourages her to buy it. Ms. Jetset tells Mr. Snow she'll think about it and calls him after she returns to her home in Massachusetts to tell him to buy the stock for her and sends him a check via express mail. Later, Ms. Jetset learns that the preferred stock certificate that she received is-and always was-a worthless piece of paper, and that, in fact, no such company ever existed. Which state Administrator has jurisdiction in this instance?
I. the Administrator of the state of Colorado
II. the Administrator of the state of Florida
III. the Administrator of the state of Massachusetts

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III

Question 5

Which of the following entities is subject to be accused of churning?
I. investment advisers
II. investment adviser representatives
III. broker-dealers
IV. agents

Accepted Answer

A) II and IV only 
B) I and III only 
C) II, III, and IV only 
D) I, II, III, and IV

Question 6

A broker-dealer of commodity futures contracts has been profiting by trading for its own account either before or after executing a client's trade on the same commodity, depending on which will be most advantageous. Under the Uniform Securities Act, the broker-dealer is guilty of

Accepted Answer

A) fraud. 
B) churning. 
C) unauthorized transactions. 
D) nothing. The Uniform Securities Act (US
A)  deals only with securities, and a commodity futures contract is not a security.

Question 7

Noah Scruples, an agent with CanDo Broker-Dealers, just got a copy of the most recent report on a certain stock. The report was generated by CanDo's analyst department and is hot off the presses. It has not yet even been put on the firm's website for the firm's clients.
The analyst department has just changed its recommendation on the stock from "Hold" to "Strong Buy" based on new information that it has obtained on the company. Can Noah
Rush to his office to buy shares of the stock before the analysts release their reports to CanDo's clients?

Accepted Answer

A) Yes. The firm's analysts used publicly available information to assess the stock and make its recommendation, so Noah can buy the stock now on his own account. 
B) No. It is unethical for him to trade based on this information before the firm's clients have received the information. 
C) No. This is a prohibited activity referred to as "painting the tape." 
D) Both B and C are true statements.

Question 8

Bigwig, CEO of HiGrowth Corporation, meets with the president of BigFee Investment Bankers and arranges for BigFee to underwrite an Initial Public Offering (IPO) for the firm. When the IPO comes to market, GetErDone Broker-Dealers is part of the selling group, which handles the sale of the stock to the public. In this scenario, which party is acting as a dealer?

Accepted Answer

A) HiGrowth Corporation 
B) Mr. Bigwig 
C) BigFee Investment Bankers 
D) GetErDone Broker-Dealers

Question 9

The Administrator of a state can deny an application if

Accepted Answer

A) the application is missing information. 
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) any of the above is true.

Question 10

Under the NASAA Model Rules, which of the following must an investment adviser provide its clients with at least once a year?

Accepted Answer

A) the total number of agency cross transactions completed for the client during the period 
B) the total amount of commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period 
C) the number of any complaints that each of its investment adviser representatives has received during the period 
D) both A and B

Question 11

Harry Lange manages the investment portfolio for the Fidelity Magellan Mutual Fund. Mr. Lange is a(n)

Accepted Answer

A) broker-dealer. 
B) agent. 
C) investment adviser. 
D) investment company.

Question 12

Cal Turner calls his client and recommends that the client sell his shares in the Alpha High Quality Bond Fund and use the proceeds to buy shares in the Omega High Quality Bond Fund. Cal has done nothing unethical if his recommendation is based on the fact that

Accepted Answer

A) the Alpha Fund has a back-end load. 
B) the Omega Fund has a front-end load. 
C) the Alpha Fund has been performing poorly relative to other funds in the same category. 
D) It would always be unethical for Cal to recommend that a client sell shares in one fund in order to buy shares of another fund that has the same investment objective.

Question 13

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 20 of those 30 years, she was a secretary. Has D. Vious violated any securities laws?

Accepted Answer

A) 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. 
B) No. Ms. D. Vious' years of experience is not a material fact that would affect an investor's investment decision. 
C) Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm. 
D) No. Advertising brochures are not securities.

Question 14

The maximum monetary civil liability that a person who has violated a securities law can be expected to pay is

Accepted Answer

A) the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees + any state-determined "pain and suffering" award. 
B) the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees + any state-determined "pain and suffering" award - any income the victim has received on the investment. 
C) the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees - any income the victim has received on the investment. 
D) the original investment + a state-deemed appropriate interest rate + court costs and reasonable attorneys' fees + any income the victim has received on the investment.

Question 15

Connie Fused sent her investment adviser a check, payable to a mutual fund that he had recommended to her. What must the adviser do in order to avoid being considered the custodian of this account and, thereby, subject to some strict requirements, including a higher minimum net capital?

Accepted Answer

A) He needs to forward the check to the mutual fund within 3 days. 
B) He needs to forward the check to the mutual fund within 24 hours. 
C) He needs to get a written statement from Ms. Fused, addressed to the state Administrator,indicating it was her mistake. 
D) He needs both to forward the check within 24 hours and to obtain a written statement from Ms. Fused.

Question 16

Big Bo is an investment adviser representative who has a lot of the members of a well-
Known professional football team as clients. In advertising his services, Big Bo can

Accepted Answer

A) list the names of the players he's advising as long as he lists the names of all his other clients, too. 
B) list the names of the players he's advising as long as he doesn't provide any other specifics, such as the amount each one has invested with him. 
C) list the names of the players he's advising as long as he has their written permission to do so. 
D) use testimonials from any of the players who willingly provide them without compensation.

Question 17

Carrie is a registered agent employed by CanDo Broker-Dealers. Her uncle is a minister who regularly refers his parishioners to Carrie, in return for which Carrie has agreed to donate a quarter of her commissions from these transactions to the parish. Is Carrie doing anything illegal?

Accepted Answer

A) No. Carrie is just donating some of her commissions back to the church, and transactions with 
B) Yes. Carrie is splitting her commissions with an entity that is not affiliated with her broker-dealer 
C) It depends. As long as the church parishioners are aware of the arrangement between Carrie and 
D) It depends. If the church itself is a client of CanDo's, then it is considered to be affiliated with

Question 18

Which of the following describes an investment adviser that is not required to register with the state Administrator?

Accepted Answer

A) MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals. 
B) Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state. 
C) CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management. 
D) Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.

Question 19

Today's edition of the Wall Street Journal carried a front page story regarding a federal lawsuit that has been filed against a software manufacturer for monopolistic practices. The CFO of the company called his broker today and sold some of the shares he owns in the company. Which of the following statements are true?
I. The CFO is guilty of illegal insider trading.
II. If the agent who effected the transaction for the CFO knew he was CFO of the software company, the agent is guilty of illegal insider trading.
III. The broker-dealer for whom the agent works may have its license suspended or revoked if its agent has knowingly executed this illegal insider trade for not having supervised the agent properly.

Accepted Answer

A) I only 
B) I and II only 
C) I, II, and III 
D) None of the statements is true.

Question 20

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

Accepted Answer

A) I, II, III, and IV 
B) I, II, and III 
C) I, III, and IV 
D) I, II, and IV

Exam 4: Uniform Securities Act USA and State Registration Requirements

Which of the following entities is subject to be accused of churning? I. investment advisers II. investment adviser representatives III. broker-dealers IV. agents