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Question 1 of 10
1. Question
Which of the following is not regulated by The Uniform Securities Act?
I. Certificates of deposit (CDs) insured by the FDIC.
II. Fixed annuity offerings.
III. Various forms of life insurance.
IV. Commodities that trade on a futures market.
Correct
The Uniform Securities Act does not regulate transactions that do not involve securities. Investment options offered by banks, such as certificates of deposit (CDs) insured by the FDIC, are not securities. Insurance companies also offer a number of investment options that are not considered securities, including fixed annuity offerings and various forms of life insurance (including term life insurance, whole life insurance, endowment life insurance and universal life insurance). Commodities such as gold or wheat that trade on a futures market are also excluded from the definition of securities. As such, the business practices associated with the purchase and sale of these types of investments are not governed by the Uniform Securities Act and are not subject to the authority of the state Administrator.
Incorrect
The Uniform Securities Act does not regulate transactions that do not involve securities. Investment options offered by banks, such as certificates of deposit (CDs) insured by the FDIC, are not securities. Insurance companies also offer a number of investment options that are not considered securities, including fixed annuity offerings and various forms of life insurance (including term life insurance, whole life insurance, endowment life insurance and universal life insurance). Commodities such as gold or wheat that trade on a futures market are also excluded from the definition of securities. As such, the business practices associated with the purchase and sale of these types of investments are not governed by the Uniform Securities Act and are not subject to the authority of the state Administrator.
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Question 2 of 10
2. Question
What term refers to an individual with inside knowledge of a publicly traded company capitalizing on the knowledge to make money?
Correct
The term “insider trading” refers to an individual with “inside” knowledge of a publicly traded company capitalizing on the knowledge to make money.
Incorrect
The term “insider trading” refers to an individual with “inside” knowledge of a publicly traded company capitalizing on the knowledge to make money.
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Question 3 of 10
3. Question
What are the features of Soft-dollar compensation arrangements?
I. It refers to the practice of broker-dealers providing services for which they would normally charge for free to advisors in exchange for directing their business to that broker-dealer.
II. These are referred to as directed transactions.
III. They can create a conflict of interest and place the advisor in direct opposition to the Investment Advisers Act of 1940.
IV. It is legal for the advisor to accept soft-dollar compensation, but the fact must be disclosed to the client, the client must consent, and it must be listed on the advisor’s form ADV.
Correct
The term “soft-dollar compensation” refers to the practice of broker-dealers providing services for which they would normally charge (such as research reports) for free to advisors in exchange for directing their business to that broker-dealer. These are referred to as directed transactions. Directed transactions can create a conflict of interest and place the advisor in direct opposition to the Investment Advisers Act of 1940 (the fiduciary responsibility). An example of such a conflict might be where the advisor directs a transaction to a broker-dealer that will not provide either the highest selling price or the lowest buying price for the client. Section 28(e) of the Securities Exchange Act of 1934 set up a “safe harbor” provision that acknowledged the value to the client of the soft-dollar reports provided to the advisors. Under Section 28(e), it is legal for the advisor to accept soft-dollar compensation, but the fact must be disclosed to the client, the client must consent, and it must be listed on the advisor’s form ADV.
Incorrect
The term “soft-dollar compensation” refers to the practice of broker-dealers providing services for which they would normally charge (such as research reports) for free to advisors in exchange for directing their business to that broker-dealer. These are referred to as directed transactions. Directed transactions can create a conflict of interest and place the advisor in direct opposition to the Investment Advisers Act of 1940 (the fiduciary responsibility). An example of such a conflict might be where the advisor directs a transaction to a broker-dealer that will not provide either the highest selling price or the lowest buying price for the client. Section 28(e) of the Securities Exchange Act of 1934 set up a “safe harbor” provision that acknowledged the value to the client of the soft-dollar reports provided to the advisors. Under Section 28(e), it is legal for the advisor to accept soft-dollar compensation, but the fact must be disclosed to the client, the client must consent, and it must be listed on the advisor’s form ADV.
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Question 4 of 10
4. Question
Which is not a feature of Selling away?
Correct
Selling away refers to registered individuals making securities transactions somewhere other than the broker-dealer with which they have agency. It is sometimes referred to as “selling off the books.” In short, securities transactions by agents must be recorded in their broker-dealer’s records. Selling away is generally a prohibited practice, as it may breach their contract with their current broker-dealer and assist with a registered individual’s attempt to transact fraudulently. The term “selling away” covers all securities transactions, and exceptions are not made for private offerings and personal transactions. For registered individuals to execute a legal sold-away transaction, they must obtain express permission in writing from the broker-dealer that they currently represent.
Incorrect
Selling away refers to registered individuals making securities transactions somewhere other than the broker-dealer with which they have agency. It is sometimes referred to as “selling off the books.” In short, securities transactions by agents must be recorded in their broker-dealer’s records. Selling away is generally a prohibited practice, as it may breach their contract with their current broker-dealer and assist with a registered individual’s attempt to transact fraudulently. The term “selling away” covers all securities transactions, and exceptions are not made for private offerings and personal transactions. For registered individuals to execute a legal sold-away transaction, they must obtain express permission in writing from the broker-dealer that they currently represent.
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Question 5 of 10
5. Question
The Investment Advisers Act of 1940 prohibits investment advisers from providing their services to any government client for a period of how many years following any political contribution they have made?
Correct
The Investment Advisers Act of 1940 prohibits investment advisers from providing their services to any government client for a period of two years following any political contribution they have made. And this rule applies not merely to those who make contributions to officials who are elected or to officials who later become elected, but to all officials who may become elected. Furthermore, advisers are forbidden from soliciting contributions for various officials or candidates if he is also pursuing or providing business with the government.
Incorrect
The Investment Advisers Act of 1940 prohibits investment advisers from providing their services to any government client for a period of two years following any political contribution they have made. And this rule applies not merely to those who make contributions to officials who are elected or to officials who later become elected, but to all officials who may become elected. Furthermore, advisers are forbidden from soliciting contributions for various officials or candidates if he is also pursuing or providing business with the government.
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Question 6 of 10
6. Question
What activities can be performed by an investment adviser representative?
I. Make recommendations regarding securities.
II. Manage client funds.
III. Offer investment advisory services.
IV. Supervise employees who do any or all of the above.
Correct
An investment adviser representative is an employee, or representative, of a registered investment adviser. On behalf of the registered investment advisor, they may (or may not) make recommendations regarding securities, manage client funds, offer investment advisory services (e.g., wrap fee accounts), or supervise employees who do any or all of the above.
Incorrect
An investment adviser representative is an employee, or representative, of a registered investment adviser. On behalf of the registered investment advisor, they may (or may not) make recommendations regarding securities, manage client funds, offer investment advisory services (e.g., wrap fee accounts), or supervise employees who do any or all of the above.
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Question 7 of 10
7. Question
Which is not a feature of Isolated Non-Issuer Transactions?
Correct
An isolated non-issuer transaction is a securities transaction that occurs infrequently and is unassisted by investment professionals. The transactions are effected on an investor-to- investor basis, and no broker-dealers or agents are involved. These transactions are only initiated and participated in by individual investors. Since there are no licensed investment professionals involved in the transaction (thus no commissions paid), the originating issuer is not receiving any of the funds exchanged, and the occurrence is so infrequent, the Administrator has no oversight over the process. The definition of “infrequent” varies by state, but as a general rule there must be very few transactions per year. A breakdown of the term is explained by the infrequency (isolated nature) of the transactions, and the fact that the issuer (non-issuer) receives no proceeds.
Incorrect
An isolated non-issuer transaction is a securities transaction that occurs infrequently and is unassisted by investment professionals. The transactions are effected on an investor-to- investor basis, and no broker-dealers or agents are involved. These transactions are only initiated and participated in by individual investors. Since there are no licensed investment professionals involved in the transaction (thus no commissions paid), the originating issuer is not receiving any of the funds exchanged, and the occurrence is so infrequent, the Administrator has no oversight over the process. The definition of “infrequent” varies by state, but as a general rule there must be very few transactions per year. A breakdown of the term is explained by the infrequency (isolated nature) of the transactions, and the fact that the issuer (non-issuer) receives no proceeds.
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Question 8 of 10
8. Question
Which of the following securities are exempt from state registration with the Administrator?
I. Securities issued by banks.
II. Foreign government securities.
III. Securities issued by the United States.
IV. Insurance company securities.
Correct
Due to the inherent nature of some securities offered, these securities are exempt from state registration with the Administrator. These securities include: securities issued by, guaranteed by, or the debt obligation of a financial institution (banks, credit unions, trust companies, etc.); foreign government securities; securities issued by the United States or Canadian federal governments or municipalities; insurance company securities; specific
money market instruments such as banker’s acceptances and commercial paper; securities issued by cooperatives; investment contracts of employee benefit plans; issues of nonprofit organizations; public utility securities (securities issued by public utilities or their holding companies, railroad-issued equipment trust certificates, and other common carrier securities issued by the U.S. or Canadian government); and federal covered securities.Incorrect
Due to the inherent nature of some securities offered, these securities are exempt from state registration with the Administrator. These securities include: securities issued by, guaranteed by, or the debt obligation of a financial institution (banks, credit unions, trust companies, etc.); foreign government securities; securities issued by the United States or Canadian federal governments or municipalities; insurance company securities; specific
money market instruments such as banker’s acceptances and commercial paper; securities issued by cooperatives; investment contracts of employee benefit plans; issues of nonprofit organizations; public utility securities (securities issued by public utilities or their holding companies, railroad-issued equipment trust certificates, and other common carrier securities issued by the U.S. or Canadian government); and federal covered securities. -
Question 9 of 10
9. Question
When can state administrator deny,cancel and revoke registration?
I. If the person has falsified a registration statement.
II. If the person has violated the USA.
III. If the person has felony conviction in the past ten years.
IV. If the person has securities-related misdemeanor conviction in the past ten years.
Correct
The Uniform Securities Act (USA) gives the state securities Administrator the power to revoke, cancel, or deny the registrations of persons who do business in the securities industry (within that state) as well as the state registrations of any securities registered in that state. The power extends to the revocation of registered agents who represent persons transacting securities business. The Administrator may only exercise these powers if the affected person has acted against the public interest and one of the following:
• Has falsified a registration statement
• Has violated the USA
• Has a felony conviction in the past ten years
• Has a securities-related misdemeanor conviction in the past ten yearsIncorrect
The Uniform Securities Act (USA) gives the state securities Administrator the power to revoke, cancel, or deny the registrations of persons who do business in the securities industry (within that state) as well as the state registrations of any securities registered in that state. The power extends to the revocation of registered agents who represent persons transacting securities business. The Administrator may only exercise these powers if the affected person has acted against the public interest and one of the following:
• Has falsified a registration statement
• Has violated the USA
• Has a felony conviction in the past ten years
• Has a securities-related misdemeanor conviction in the past ten years -
Question 10 of 10
10. Question
What criterias must be met by the investor, or qualified client, that is paying the performance-based fee?
I. The person (legal or natural) must have at least $1 million dollars under management.
II. Have a net worth of $2 million dollars.
III. Be a director or officer at the investment advisory firm that charges the fee.
IV. Have been employed in the securities industry for at least one year.
Correct
Typically, under the Uniform Securities Act (USA), advisors may not charge performance- based fees; instead, fees should be based on the principal under management. There are, however, certain exceptions by which the advisor may charge performance-based fees. The investor, or qualified client, that is paying the performance-based fee must meet the following criteria:
• The person (legal or natural) must have at least $1 million dollars under management, or
• Have a net worth of $2 million dollars (joint holdings with spouses may be considered to meet this requirement), or
• Be a director or officer at the investment advisory firm that charges the fee, and have been employed in the securities industry for at least one year.Incorrect
Typically, under the Uniform Securities Act (USA), advisors may not charge performance- based fees; instead, fees should be based on the principal under management. There are, however, certain exceptions by which the advisor may charge performance-based fees. The investor, or qualified client, that is paying the performance-based fee must meet the following criteria:
• The person (legal or natural) must have at least $1 million dollars under management, or
• Have a net worth of $2 million dollars (joint holdings with spouses may be considered to meet this requirement), or
• Be a director or officer at the investment advisory firm that charges the fee, and have been employed in the securities industry for at least one year.