Question 1

Which of the following funds can an agent indicate is "no load?"

Accepted Answer

A) a fund with no front-end or back-end load that has 12b-1 fees equal to 0.30% of the average net assets of the fund. 
B) a fund with no front-end load that has 12b-1 fees equal to 0.10% of the average net assets of the fund and a rear-end load that varies depending on how long the investor has held the shares. 
C) a fund with no front-end or back-end load that has 12b-1 fees equal to 0.25% of the average net assets of the fund. 
D) Both A and C can be advertised as "no load" funds.

Question 2

Which of the following scenarios describes activities that are disallowed under the NASAA Model Rules?
I. Broker-dealer Anon observes that a client placed a stop loss order to sell her 1,500 shares of Amazon.com stock for $131 when the stock was selling for $134. Anon sold the stock for $133 when it started to fall during the day and credited the client's account with $131 per share when stock dropped further to $129 a share.
II. Penny is an agent with Broker-dealer Anon. She recently recommended that a client buy a stock that Penny thought would do well. As it turned out, Penny was wrong, and she offers to refund the commission that the client paid her.
III. Broker-dealer Anon is part of the selling group of a hot new IPO. As such, the firm purchases 50% of the shares for its own portfolio and sells the remainder to the public.

Accepted Answer

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

Question 3

In which of the following instances is it permissible for an investment adviser to borrow money from a client?

Accepted Answer

A) It is never permissible for an investment adviser to borrow money from a client. 
B) The investment adviser may borrow money from a client if the client is a bank. 
C) The investment adviser may borrow money from a client if the client is a close friend of the majority owner of the investment advisory firm. 
D) The investment adviser may borrow money in either of the scenarios described in B or C.

Question 4

If an issuer registers securities with the state, how long can the documentation supplied in the registration statement for those securities be incorporated by reference only into a registration statement for future securities the issuer wants to offer for sale?

Accepted Answer

A) one year 
B) two years 
C) five years 
D) seven years

Question 5

Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals. Yesterday afternoon, issues that had been brewing between her and another employee of the firm came to a head, and Maddie impulsively quit her job. At this point,

Accepted Answer

A) Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application. 
B) Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application. 
C) Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state. 
D) Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed there.

Question 6

Moe is a registered investment adviser doing business under the name of MoeMoney Investment Advisers, LLC. Larry, Curly, and Mary all hold positions with the firm. Larry is on the board of directors; Mary is a sales representative for the firm; and Curly is an administrative assistant, who performs clerical duties. Given that Moe is already a registered investment adviser, which of the other three are automatically registered as investment adviser representatives?

Accepted Answer

A) Larry only 
B) Larry and Mary only 
C) Larry, Mary and Curly 
D) Mary and Curly only

Question 7

Finn Nance has recently passed his CFP exam and is now a certified financial planner. He has new business cards printed that have the words "Certified Financial Planner" printed under his picture. In doing so,

Accepted Answer

A) Finn has not violated any laws or engaged in any prohibited practices. 
B) Finn has violated a securities law. The Uniform Securities Act prohibits anyone from using the word "certified" on any advertisement for services. 
C) Finn has possibly violated a state securities regulation. The Administrator in many states prohibits the use of the word "certified" on any advertisement for services. 
D) Finn is not in violation of any laws as long as he has notified the state Administrator of his new designation and his new logo.

Question 8

Which of the following does not need to be included in an investment advisory contract?

Accepted Answer

A) the term of the contract 
B) the total amount of money that the investment adviser currently has under management 
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

Question 9

Constance is an investment adviser representative. She told one of her clients that he should put at least 15% of his investment monies in a U.S. government bond mutual fund.
She explained that she believed that he required this percentage to meet his liquidity needs, and U.S. government bond funds are risk-free. A few months later, the client needed to sell some of his fund shares in order to pay some medical bills and was surprised to discover that he lost money on the sale because the net asset value of the fund had dropped. Was Constance guilty of any securities violations?

Accepted Answer

A) Yes. Constance is guilty of fraud. She misled the client into thinking he couldn't lose any money if he invested the money in a U.S. government bond mutual fund. 
B) Yes. Constance should never recommend that a client invest such a high percentage of his investment monies in a U.S. government bond mutual fund. 
C) No. U.S. government bonds are often referred to as risk-free investments, so Constance made no misstatement of fact in telling her client this. 
D) It depends. If Constance realized that the client could lose money in a U.S. government bond fund, then she is guilty of fraud, but if she did not herself realize that, then she is merely misinformed.

Question 10

Mina is a new agent with SecureMoney Broker-Dealers and is struggling to make ends meet. She gets a job as a receptionist at a fitness club on the weekends to generate more income. Which of the following is true?

Accepted Answer

A) Mina should have notified SecureMoney in writing before signing on to work at the fitness club. 
B) Because the job as a receptionist at a fitness club has nothing to do with the world of finance, Mina has done nothing inappropriate. 
C) Mina simply needs to tell her immediate supervisor at SecureMoney about her new job. 
D) Mina needs to send notice to the state Administrator informing him of her extracurricular activity.

Question 11

Blue Sky Laws are designed to:

Accepted Answer

A) protect investors from fraud in their securities market transactions. 
B) protect agents, broker-dealers, and investment advisers and their representatives from spurious allegations of fraudulent activity. 
C) enhance the tourism industry within a state. 
D) favor investment in companies that engage in environmentally friendly practices.

Question 12

In which of the following cases is an investment adviser allowed to be compensated with a share of the capital gains of the client's portfolio?
I. The client is a mutual fund.
II. The client is a credit union.
III. The client is a private client whose minimum net worth is $1 million or more.
IV. The client is a private client who has at least $750,000 invested through the investment adviser.

Accepted Answer

A) I and II only 
B) I, II, and III only 
C) I, II, and IV only 
D) none of the above. An investment adviser is never allowed to share in the capital gains earned on

Question 13

Skip is a registered agent with state. He recently quit his job with Venus Broker-Dealers to become affiliated with Mars Broker-Dealers. Which of the three entities must report this change to the state Administrator?

Accepted Answer

A) Skip only 
B) Skip and either Mars or Venus, but not both 
C) Both Skip and Venus 
D) Skip, Mars, and Venus

Question 14

Your next-door neighbor's brother works for a large pharmaceutical company and confided in her that one of the company's chemists has just discovered a compound that will cure baldness and that the firm plans to make the discovery public later in the week. Your next-door neighbor passes this information on to you over a cup of coffee the next morning. You immediately call your broker and place an order to buy shares of the company's stock. Has any illegal insider trading taken place?

Accepted Answer

A) Yes. The agent who executes your purchase order has engaged in illegal insider trading. 
B) No. You are in no way related to your next-door neighbor's brother, and she could have been lying. 
C) Yes. You, your neighbor, and her brother are all guilty of illegal insider trading. 
D) Yes. You are guilty of illegal insider trading because you traded on information that had not yet been made publicly available.

Question 15

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.

Accepted Answer

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

Question 16

Which of the following may be given to prospective investors during the "cooling off period?"

Accepted Answer

A) a tombstone advertisement 
B) a final prospectus 
C) a copy of the registration statement 
D) all of the above

Question 17

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.

Accepted Answer

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

Question 18

Painting the tape refers to

Accepted Answer

A) the practice of buying large amounts of a security to drive its price up artificially. 
B) the illegal activity of a group of investors who buy and sell a security among themselves to create an artificially high volume of trading in hopes of luring investors to buy the security. 
C) the prohibited practice of excessively trading on a client's account that is used by some broker-dealers and/or their agents to generate more commissions for themselves. 
D) the unethical practice of investment advisers who issue "buy" recommendations for stocks that they own themselves without disclosing the fact.

Question 19

Jeremy Sly considered himself somewhat of an inventor. The only problem was that his day job interfered with his opportunity to exercise his creativity. He came up with a plan to get outside investors to support his inventive activities. To this end, he produced and distributed a brochure advertising partnership interests with a guaranteed return on investment of at least 15% after the first 12 months, based on what he had allegedly generated from his other (non-existent) inventions. Given these facts, is Jeremy guilty of any security violations under the Uniform Securities Act (USA)?

Accepted Answer

A) No. The facts don't indicate whether any partnership interests were actually sold, and there can be no violation unless there is a sale. 
B) No. An interest in a partnership is not considered a security. 
C) No. It is not against the law to believe in oneself and promote one's ideas. 
D) Yes. Even an "offer" to sell securities must not contain any untruths.

Question 20

Which of the following persons would not be required to register with the state as an agent under the guidelines of the Uniform Securities Act (USA)?

Accepted Answer

A) Keith is a salaried employee of Middlesex County in Massachusetts who sells revenue bonds issued by the county to the public. 
B) John is employed by TrustUs Corporation to sell shares of the firm's stock to the firm's employees and receives a commission on the shares he sells. 
C) Stefan is a sales representative for SecureMoney Broker-Dealers and sells only mutual fund shares. 
D) Preetham is part-owner of SecureMoney Broker-Dealers and executes the purchase and sale of securities for the firm's customers.

Exam 4: Uniform Securities Act USA and State Registration Requirements