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Question 1 of 10
1. Question
Which of the following statements is true regarding Investment Advisers Act of 1940?
Correct
Investment Advisers Act of 1940
The Investment Advisers Act of 1940 establishes the provisions governing investment advisers. This legislation dictates which investment advisers must register with the Securities and Exchange Commission (SEC). Investment advisers that are required to register with the SEC are considered federal covered advisers. Investment advisers that are not required to register with the SEC may be required to register with a state Administrator (or state Administrators) unless the investment adviser is exempt from state registration as well. An investment advisory firm may be a federally covered investment adviser (registered with the SEC), and yet, the firm’s investment adviser representatives may still need to be registered with the state Administrator. The fact that an investment adviser is federally regulated does not mean that its representatives are federally regulated as well.Incorrect
Investment Advisers Act of 1940
The Investment Advisers Act of 1940 establishes the provisions governing investment advisers. This legislation dictates which investment advisers must register with the Securities and Exchange Commission (SEC). Investment advisers that are required to register with the SEC are considered federal covered advisers. Investment advisers that are not required to register with the SEC may be required to register with a state Administrator (or state Administrators) unless the investment adviser is exempt from state registration as well. An investment advisory firm may be a federally covered investment adviser (registered with the SEC), and yet, the firm’s investment adviser representatives may still need to be registered with the state Administrator. The fact that an investment adviser is federally regulated does not mean that its representatives are federally regulated as well. -
Question 2 of 10
2. Question
Which of the following statements is true regarding Securities Investor Protection Corporation vs. FDIC?
Correct
Securities Investor Protection Corporation vs. FDIC
The FDIC provides guarantees to persons who place deposits in covered banks. The FDIC provides insurance against loss up to a fixed amount. The Securities Investor Protection Corporation (SIPC) provides no insurance against loss. Securities investments, by their very nature, pose a risk of loss that an investor must consider prior to making any investment. The SIPC does not restore funds that investors lose through poor investments, even if the investor is the victim of fraud. The SIPC only insures investors against the loss due to theft or default for securities and cash that have been entrusted with a broker-dealer. If an investor has purchased five hundred shares of a stock, the SIPC ensures that the investor is compensated if the broker-dealer steals those shares or cannot provide them to the investor due to bankruptcy; however, the investor is not protected if the shares lose value.Incorrect
Securities Investor Protection Corporation vs. FDIC
The FDIC provides guarantees to persons who place deposits in covered banks. The FDIC provides insurance against loss up to a fixed amount. The Securities Investor Protection Corporation (SIPC) provides no insurance against loss. Securities investments, by their very nature, pose a risk of loss that an investor must consider prior to making any investment. The SIPC does not restore funds that investors lose through poor investments, even if the investor is the victim of fraud. The SIPC only insures investors against the loss due to theft or default for securities and cash that have been entrusted with a broker-dealer. If an investor has purchased five hundred shares of a stock, the SIPC ensures that the investor is compensated if the broker-dealer steals those shares or cannot provide them to the investor due to bankruptcy; however, the investor is not protected if the shares lose value. -
Question 3 of 10
3. Question
Which of the following statements is true regarding Bank Secrecy Act?
Correct
Bank Secrecy Act
The Bank Secrecy Act (BSA) is also known as the Currency and Foreign Transactions Reporting Act. The BSA is federal legislation that targets broker-dealers and financial dealers that may be aiding clients attempting to launder money, evade taxes, or engage in other criminal behavior. The BSA instituted record-keeping requirements for certain cash purchases. In addition, the BSA requires broker-dealers and financial institutions to report any suspicious activities that indicate a potential attempt to launder money, evade taxes, or engage in other illegal activities. The BSA also instituted an obligation for financial institutions and broker-dealers to report any aggregate daily cash transaction in excess of ten thousand dollars. The goal of the BSA is to detect current violations and to prevent future illegal activity. The USA Patriot Act established additional requirements designed to prevent the laundering of money by terrorist groups.Incorrect
Bank Secrecy Act
The Bank Secrecy Act (BSA) is also known as the Currency and Foreign Transactions Reporting Act. The BSA is federal legislation that targets broker-dealers and financial dealers that may be aiding clients attempting to launder money, evade taxes, or engage in other criminal behavior. The BSA instituted record-keeping requirements for certain cash purchases. In addition, the BSA requires broker-dealers and financial institutions to report any suspicious activities that indicate a potential attempt to launder money, evade taxes, or engage in other illegal activities. The BSA also instituted an obligation for financial institutions and broker-dealers to report any aggregate daily cash transaction in excess of ten thousand dollars. The goal of the BSA is to detect current violations and to prevent future illegal activity. The USA Patriot Act established additional requirements designed to prevent the laundering of money by terrorist groups. -
Question 4 of 10
4. Question
Which of the following statements is not included in indications of possible money laundering activity?
Correct
Indications of possible money laundering activity
Securities dealers are obligated to report activity that could be tied to money laundering. The industry has identified four red flags that point to suspicious activity that should be reported:
• If the broker-dealer knows that money involved in the transaction is the result of criminal activity or that the transaction is intended to disguise illegal activity, the transaction must be reported.
• If the broker-dealer would be required to engage in criminal activity in order to complete a requested transaction, it must be reported.
• If the broker-dealer is aware that the purpose of the transaction is to circumvent the provisions of the Bank Secrecy Act, the transaction must be reported.
• The last red flag requires the broker-dealer to consider the purpose that will be served by the transaction. If the broker-dealer cannot identify a legitimate purpose for a particular transaction based on available facts, the transaction should be reported as suspicious.Incorrect
Indications of possible money laundering activity
Securities dealers are obligated to report activity that could be tied to money laundering. The industry has identified four red flags that point to suspicious activity that should be reported:
• If the broker-dealer knows that money involved in the transaction is the result of criminal activity or that the transaction is intended to disguise illegal activity, the transaction must be reported.
• If the broker-dealer would be required to engage in criminal activity in order to complete a requested transaction, it must be reported.
• If the broker-dealer is aware that the purpose of the transaction is to circumvent the provisions of the Bank Secrecy Act, the transaction must be reported.
• The last red flag requires the broker-dealer to consider the purpose that will be served by the transaction. If the broker-dealer cannot identify a legitimate purpose for a particular transaction based on available facts, the transaction should be reported as suspicious. -
Question 5 of 10
5. Question
Which of the following statements is false regarding Employee Retirement Income Security Act?
Correct
Employee Retirement Income Security Act
The Employee Retirement Income Security Act (ERISA) was originally adopted in 1974. The Employee Retirement Income Security Act is federal legislation that regulates the management and operation of benefit plans and private pension plans. The provisions of ERISA require those managing private pensions and benefit plans to provide proper disclosure of information to the participants in the plan and their beneficiaries. ERISA also established standards outlining specific responsibilities for those managing such plans. Failure to comply with the provisions of the Employee Retirement Income Security Act may result in court actions, financial remedies, and/or ordered sanctions. The provisions of ERISA do not apply to government benefit plans or public pension plans.Incorrect
Employee Retirement Income Security Act
The Employee Retirement Income Security Act (ERISA) was originally adopted in 1974. The Employee Retirement Income Security Act is federal legislation that regulates the management and operation of benefit plans and private pension plans. The provisions of ERISA require those managing private pensions and benefit plans to provide proper disclosure of information to the participants in the plan and their beneficiaries. ERISA also established standards outlining specific responsibilities for those managing such plans. Failure to comply with the provisions of the Employee Retirement Income Security Act may result in court actions, financial remedies, and/or ordered sanctions. The provisions of ERISA do not apply to government benefit plans or public pension plans. -
Question 6 of 10
6. Question
Which of the following statements is true regarding natural person and legal person?
Correct
Natural person and legal person
The term natural person refers to an individual human being. This term is used to refer to an individual that a layperson would call a person in normal conversation (as opposed to legal language). The term legal person refers to an entity that can enter into a contract and have accounts (investments, savings, etc.). Examples of a legal person include a living human being of legal age, a corporation, a partnership, or an estate. When the term person is used in connection with the Uniform Securities Act, the term should be interpreted as a legal person. The term person should not be interpreted to mean natural person unless the term natural person is specifically used.Incorrect
Natural person and legal person
The term natural person refers to an individual human being. This term is used to refer to an individual that a layperson would call a person in normal conversation (as opposed to legal language). The term legal person refers to an entity that can enter into a contract and have accounts (investments, savings, etc.). Examples of a legal person include a living human being of legal age, a corporation, a partnership, or an estate. When the term person is used in connection with the Uniform Securities Act, the term should be interpreted as a legal person. The term person should not be interpreted to mean natural person unless the term natural person is specifically used. -
Question 7 of 10
7. Question
Which of the following statements is true regarding persons required to be registered?
Correct
Persons required to be registered
The Uniform Securities Act requires that any person that wishes acts as a broker-dealer, agent, investment adviser, or investment adviser representative must first be registered with the Administrator. It should be noted that the term person in this context means legal person. Broker-dealers and investment advisers may be individuals or companies. Agents and investment adviser representatives are always individuals. Any person acting in any of these four capacities must have first applied for, obtained, and maintained registration. The Uniform Securities Act regulates persons acting in any of these four capacities, and the state Administrator oversees their activities. The registration requirement helps to ensure that only qualified persons are able to act in these capacities.Incorrect
Persons required to be registered
The Uniform Securities Act requires that any person that wishes acts as a broker-dealer, agent, investment adviser, or investment adviser representative must first be registered with the Administrator. It should be noted that the term person in this context means legal person. Broker-dealers and investment advisers may be individuals or companies. Agents and investment adviser representatives are always individuals. Any person acting in any of these four capacities must have first applied for, obtained, and maintained registration. The Uniform Securities Act regulates persons acting in any of these four capacities, and the state Administrator oversees their activities. The registration requirement helps to ensure that only qualified persons are able to act in these capacities. -
Question 8 of 10
8. Question
Which of the following statements is true regarding fraud regulations?
Correct
Fraud regulations
The Uniform Securities Act contains fraud regulations that are not limited to registered parties, but that instead apply to any person. A person in this context is a legal person, meaning the term includes both individuals and legal entities such as corporations, estates, or partnerships. Under these regulations, it is unlawful to engage in any activity designed to directly or indirectly defraud another party in connection with the offer, purchase, or sale of a security. For example, it would be fraudulent for a firm to imply that its investors typically realized a higher return on their investment than was in fact true. Statements are fraudulent if they contain false information on material facts or if they omit material facts that cause the statement to be misleading. Fraud occurs when a party attempts to mislead using any means.Incorrect
Fraud regulations
The Uniform Securities Act contains fraud regulations that are not limited to registered parties, but that instead apply to any person. A person in this context is a legal person, meaning the term includes both individuals and legal entities such as corporations, estates, or partnerships. Under these regulations, it is unlawful to engage in any activity designed to directly or indirectly defraud another party in connection with the offer, purchase, or sale of a security. For example, it would be fraudulent for a firm to imply that its investors typically realized a higher return on their investment than was in fact true. Statements are fraudulent if they contain false information on material facts or if they omit material facts that cause the statement to be misleading. Fraud occurs when a party attempts to mislead using any means. -
Question 9 of 10
9. Question
Which of the following statements is false regarding investment adviser per layperson’s definition?
Correct
Investment adviser per layperson’s definition
An investment adviser is an individual or a company that receives compensation to provide advice to others concerning the investment, purchase, or sale of securities. The advice may be provided directly or indirectly. An example of advice provided directly to a client would be a personal consultation conducted in person or over the phone for a fee. Advice contained in monthly reports that analyzed securities and offered investment advice for a subscription fee would be considered indirect advice. Investment advisers may receive flat fees or fees based on a percentage of managed assets. All persons that are considered investment advisers are regulated and must be registered with the Administrator. The Administrator is responsible for ensuring that investment advisers are qualified to offer the services that they provide.Incorrect
Investment adviser per layperson’s definition
An investment adviser is an individual or a company that receives compensation to provide advice to others concerning the investment, purchase, or sale of securities. The advice may be provided directly or indirectly. An example of advice provided directly to a client would be a personal consultation conducted in person or over the phone for a fee. Advice contained in monthly reports that analyzed securities and offered investment advice for a subscription fee would be considered indirect advice. Investment advisers may receive flat fees or fees based on a percentage of managed assets. All persons that are considered investment advisers are regulated and must be registered with the Administrator. The Administrator is responsible for ensuring that investment advisers are qualified to offer the services that they provide. -
Question 10 of 10
10. Question
Which of the following statements is true regarding agent and investment adviser representative?
Correct
Agent and investment adviser representative
An agent is an individual who is not a broker-dealer, but who acts as a representative of a broker-dealer to handle security purchases and/or security sales. An agent can also be a representative for an issuer of a security who handles the purchase or sale of that issuer’s securities. An investment adviser representative is an individual who is not an investment adviser, but who acts as a representative of an investment adviser. Investment adviser representatives include individuals who provide advice regarding securities, handle client accounts and/or portfolios, and/or receive compensation for seeking or obtaining clients for an investment adviser. Investment advisers also include individuals who supervise employees that perform the activities discussed above. Clerical personnel in an investment adviser firm are not considered investment adviser representatives. Agents are sometimes called registered representatives or sales representatives.Incorrect
Agent and investment adviser representative
An agent is an individual who is not a broker-dealer, but who acts as a representative of a broker-dealer to handle security purchases and/or security sales. An agent can also be a representative for an issuer of a security who handles the purchase or sale of that issuer’s securities. An investment adviser representative is an individual who is not an investment adviser, but who acts as a representative of an investment adviser. Investment adviser representatives include individuals who provide advice regarding securities, handle client accounts and/or portfolios, and/or receive compensation for seeking or obtaining clients for an investment adviser. Investment advisers also include individuals who supervise employees that perform the activities discussed above. Clerical personnel in an investment adviser firm are not considered investment adviser representatives. Agents are sometimes called registered representatives or sales representatives.