Question 1

Ari Gaunt is employed by a small state-registered broker-dealer and has recently received notification that his application to be a registered agent of the state has been accepted. Now that he is licensed to execute transactions for the firm's clients, Ari has a batch of business cards printed up, with a picture of himself on the right-hand side of the card. Underneath the picture is the caption, "State-Approved Agent." Will Ari be violating any securities laws if he distributes these business cards?

Accepted Answer

A) No. However, he may be violating company policy of the broker-dealer he works for by designing his own cards. 
B) No. His registration with the Administrator of the state has been accepted, so he is entitled to call himself a "State-Approved Agent." 
C) Yes. Agents are not permitted to include a picture of themselves on their business cards. 
D) Yes. It is a violation of a securities law to suggest that he has been approved by the state Administrator.

Question 2

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

Accepted Answer

A) 10 business days. 
B) 14 business days. 
C) 30 days. 
D) 45 days.

Question 3

Which of the following statements is false?

Accepted Answer

A) A state cannot require a higher minimum net capital for broker-dealers than the amount specified by the Securities Exchange Act of 1934. 
B) A state cannot require a higher minimum net capital for investment advisers than the amount specified by the Investment Advisers Act of 1940. 
C) The minimum net capital requirement for investment advisers that take custody of their clients' assets is higher than the net capital requirement for advisers who do not take custody of the assets. 
D) None of the above statements is false; all are true statements.

Question 4

Goldie Locks is an agent with Bear Broker-Dealers. One of her clients is a single woman, Annie Spinster, who is retired and needs income from her investment portfolio to meet her current needs for liquidity. In addition to investing in mutual funds, Annie likes the thrill of investing in single stocks and asks Goldie for recommendations. Goldie recommends
Annie invest some of her money in Alcon (ACL), a medical instrument and supplies company selling on the NYSE, based on the fact that it has a high dividend yield and is paying a dividend of $2.21 a share, which is guaranteed to continue or even increase, Goldie assures Annie. Has Goldie violated any laws or engaged in any prohibited practices?

Accepted Answer

A) Yes. At the very least, Goldie has committed fraud since she cannot guarantee that a firm's dividend will continue or increase. 
B) Yes. As the agent of a broker-dealer, Goldie is not permitted to make recommendations for specific investments. Only investment adviser representatives and investment advisers can do that. 
C) No. Goldie merely responded to a recommendation request from a client, and the recommendation is suitable since the client has a need for current income and the recommended stock pays a high dividend. 
D) Both A and B are true.

Question 5

To continue operating as an agent, broker-dealer, investment adviser, or investment adviser representative next year, you must pay the filing fee to renew your license with the state Administrator by

Accepted Answer

A) January 15th of the new year. 
B) January 30th of the new year. 
C) December 31st of this year. 
D) the anniversary date of the original issue date on your license.

Question 6

Ding is an administrative assistant to the manager of a mutual fund. Most of her day is spent entering data onto a spreadsheet for her boss and answering phone calls. Some of the calls require her to provide information about the some of the fund's financial aspects, such as its closing net asset value on the previous day. What type of registration does Ms. Ding require in order to perform her duties?

Accepted Answer

A) Ms. Ding needs to apply for registration as an agent since she is providing financial information. 
B) Ms. Ding needs to apply for registration as an investment adviser representative since she is providing information about a specific mutual fund. 
C) Ms. Ding will need to apply for registration as both an agent and an investment adviser representative in this case since she is providing information about a mutual fund. 
D) Ms. Ding does not need to apply for any type of registration. She is merely supplying information and is not engaged in the purchase or sale of the fund shares.

Question 7

Noah Aull is an investment adviser representative with Canto Investment Advisers. A client has called and told Noah that he heard about a firm that had recently completed an IPO at a party he had attended that weekend and instructed Noah to purchase shares of the company, which was now trading on the OTC Bulletin Board. Noah did some research and felt the company was far too risky an investment for this client, so he did not execute the trade. This turned out to be fortunate for his client since the firm became insolvent within six months of its IPO. Has Noah done anything wrong?

Accepted Answer

A) Yes. Noah is guilty of misappropriation and could have his license revoked. 
B) No. Noah did what he is hired to do-manage his clients' accounts to the best of his ability. 
C) Yes. Noah is guilty of not following a client's instructions and could have his license revoked. 
D) Yes. Noah is guilty of making an unauthorized transaction and could have his license revoked.

Question 8

Ken Con is an agent with Blue Sky Broker-Dealers. He gets up early each morning so that he can study any late-breaking news that may affect the markets and figure out ways to incorporate this news into conversations with select clients in order to pressure them to restructure their portfolios by selling holdings they have in one particular industry to invest the money in another particular industry. Ken has been very successful with this strategy and executes more trades for his clients than any other agent with the firm, but is he in danger of losing his license?

Accepted Answer

A) Yes. Ken is engaging in churning, a prohibited practice and can have his license revoked or suspended. 
B) It depends. If his clients have lost money, Ken may lose his license; but if a review indicates that his clients' accounts earn profits, then his license is safe. 
C) Yes. Ken is guilty of the prohibited practice of "tailgating." 
D) No. Ken is just a successful sales person who is working harder than the other agents in the firm.

Question 9

Needy Investment Advisers, LLC needs a loan. One of its wealthier clients has offered to lend the firm the money at the prime rate of interest. A promissory note is drawn up stipulating the terms of the loan. Based on these facts,

Accepted Answer

A) Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client and submitted to the administrator. 
B) Needy is in violation of securities laws by acting as an issuer of securities. 
C) Needy is in violation of securities laws only if the face value of the note is for $50,000 or more. 
D) Needy is not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.

Question 10

Which of the following is not considered to be a security, as defined by the Uniform Securities Act (USA)?

Accepted Answer

A) a debenture 
B) a certificate of deposit (C
D)  
C) a put option 
D) an annuity contract wherein an insurance company promises to pay a fixed sum, either in a lump amount or through periodic payments.

Question 11

Which of the following are accurate statements regarding the minimum financial requirements for investment advisers according to the NASAA Model Rules?
I. Any investment adviser who has discretionary authority over a client's assets, but who does not have actual custody of client funds or securities, is required to maintain a minimum net worth of $10,000 at all times.
II. An investment adviser who requires that a fee of more than $500 from his clients be paid six months or more in advance must maintain a positive net worth at all times.
III. Only an investment adviser who has actual custody of client assets is subject to a minimum net worth requirement, which the NASAA Model Rules specifies is $10,000.

Accepted Answer

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

Question 12

White and Associates is an investment adviser registered in the state of Kentucky and, as such, is meeting Kentucky's minimum net capital requirement for investment advisers. The firm recently registered with the state of Virginia and has opened an office there. Virginia has a significantly higher net capital requirement for its investment advisers. Which of the following statements is true?

Accepted Answer

A) According to the Uniform Securities Act, S. White will have to meet Virginia's higher requirement. 
B) According to the Investment Advisers Act of 1940, S. White needs only to meet the net capital requirement of Kentucky. 
C) According to the Securities Exchange Act of 1934, S. White needs to meet at least the minimum net capital requirement specified by that Act since it is now operating in multiple states. 
D) According to the Investment Advisers Act of 1940, S. White will have to maintain a minimum net capital equal to the average of the net capital requirements of the two states.

Question 13

Muffet is employed by Spyder Broker-Dealers. Her job duties include providing price quotes and executing purchases and sales for the firm's clients. She is paid a salary plus commission. Ms. Muffet is

Accepted Answer

A) a broker-dealer. 
B) an agent. 
C) an investment adviser. 
D) an investment adviser representative.

Question 14

A hypothecation agreement refers to

Accepted Answer

A) an agreement wherein a client gives his broker-dealer discretion to purchase securities that the broker-dealer deems appropriate in whatever quantity the broker-dealer feels appropriate and at a time and price the broker-dealer believes is a good deal. 
B) an agreement that a client must sign prior to executing any short sales with the broker-dealer. 
C) an agreement signed by a client who is executing a margin transaction that allows the broker to hold the margined securities in street name as collateral for the loan. 
D) a document signed by a client indicating that he or she understands that some of the charts and examples presented in a broker-dealer's advertising literature are based on hypothetical trades.

Question 15

A-2-Z Associates is a full service brokerage and is also in the investment advisory industry, charging its clients for investment advice for additional remuneration. Which of the following statements is true?

Accepted Answer

A) A-2-Z can charge an individual client an advisory fee for its advice or a commission when it executes a trade that the client makes based on that advice, but not both. 
B) A-2-Z can charge the client both an advisory fee for its advice and a commission on any trade the client makes based on the advice. This is all laid out in the advertising brochures full service brokerage firms like A-2-Z provide their prospective clients. 
C) A-2-Z can charge the client both an advisory fee for its advice and a commission for the execution of a trade based on that advice, but it must inform the client of its potential conflict of interest in doing so and get the client's written consent. 
D) A-2-Z can charge the client only an advisory fee when it is serving as an investment adviser; no commissions may be collected.

Question 16

Shady Corporation's executives are concerned over the firm's steadily declining stock price and decide to do something about it. They each decide to make significantly large purchases of their firm's stock in order to stabilize and hopefully even to drive up its price, reasoning that they can sell the stock for the higher price down the road and profit from the transaction. You are a broker-dealer for the firm's executives. Are Shady's executives planning to do anything illegal?

Accepted Answer

A) No. It's a win-win. They are using their own money to buy stock of their firm, and this can help drive the stock price up and put profits in their pockets. 
B) Yes. To purchase shares of their own company is considered to be illegal insider trading. 
C) No. As long as they follow the rules and report their purchases to the SEC, it is not illegal for them to purchase shares of their firm's stock. 
D) Yes. Although it is not illegal for them to purchase shares of their firm's stock, they cannot do so in order to try to manipulate the price of the stock.

Question 17

The 1988 Insider and Securities Enforcement Act indicates that a person convicted of insider trading can be subject to which of the following penalties?

Accepted Answer

A) up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or 
B) up to 3 years in prison, a $5,000 fine, or both 
C) up to 5 years in prison and a fine of $1,500,000 or both 
D) up to 7 years in prison and a fine equal to 200% of the amount of profits gained or losses avoided

Question 18

Alice Wonder called her broker on Tuesday, August 10th, with a market order to buy 10 calls on the stock of Abbott Laboratories. Under normal conditions, Alice will have to pay for the calls on

Accepted Answer

A) Wednesday, August 11th. 
B) Tuesday, August 10th. 
C) Friday, August 13th. 
D) Monday, August 16th.

Question 19

When selling shares in a closed-end investment company, an agent must inform the client of any
I. commissions
II. underwriting fees
III. miscellaneous offering expenses

Accepted Answer

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

Question 20

Under the Uniform Securities Act (USA), the term "investment adviser" does not apply to
I. an investment advisory firm owned and operated by a sole proprietor.
II. a bank or savings institution.
III. an investment adviser representative.
IV. a broker-dealer or its agents if the advice is incidental to the business although there is a nominal charge for any specific investment advice given.

Accepted Answer

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

Exam 4: Uniform Securities Act USA and State Registration Requirements

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