FINRA Series 54 - Pauline - Quiz 8.new
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Question 1 of 10
1. Question
What shall be seen in the documentation of the municipal advisory relationship under the MSRB Rule G-42?
I. The scope of the municipal advisory activities to be performed and any limitations on the scope of the engagement.
II. The form and basis of direct or indirect compensation for the municipal advisory activities to be performed.
III. The payments received by the municipal advisory from the third party in enlisting the recommendation of its services.
IV. The date of the last material change to the legal or disciplinary event disclosures.Correct
In the documentation of the municipal advisory relationship, the form and basis of direct or indirect compensation for the municipal advisory activities to be performed shall be seen. The date of the last material change to legal or disciplinary disclosures and the scope of municipal advisory activities to be performed shall also be indicated in the documentation. This documentation serves as evidence of its municipal advisory relationships prior to, upon, or promptly after the establishment of the relationship.
Incorrect
In the documentation of the municipal advisory relationship, the form and basis of direct or indirect compensation for the municipal advisory activities to be performed shall be seen. The date of the last material change to legal or disciplinary disclosures and the scope of municipal advisory activities to be performed shall also be indicated in the documentation. This documentation serves as evidence of its municipal advisory relationships prior to, upon, or promptly after the establishment of the relationship.
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Question 2 of 10
2. Question
Which of the following must be informed to the client regarding the recommendations and review of the recommendation of other parties under the MSRB Rule G-42?
I. The evaluation of municipal advisor of the material risks, potential benefits, structure, and other characteristics of municipal securities transaction.
II. The basis upon which the municipal advisor reasonably believes that the recommended security transaction is either suitable or not suitable.
III. Whether the municipal advisor performed investigation regarding other reasonably feasible alternatives to the recommended security.
IV. The time and date of delivering invoice fees that are materially inaccurate from the actual services performed.Correct
The municipal advisor must inform the client of the following: (1) the municipal advisor’s evaluation of the material risks, potential benefits, structure, and other characteristics of the recommended municipal securities transaction or municipal financial product, (2) the municipal advisor’s basis in believing that a recommended security is suitable or not, and (3) whether the municipal advisor performed investigation regarding other reasonably feasible alternatives to the security that is being recommended. This is under the MSRB Rule G-42(d), the Recommendations and Review of Recommendations of Other Parties.
Incorrect
The municipal advisor must inform the client of the following: (1) the municipal advisor’s evaluation of the material risks, potential benefits, structure, and other characteristics of the recommended municipal securities transaction or municipal financial product, (2) the municipal advisor’s basis in believing that a recommended security is suitable or not, and (3) whether the municipal advisor performed investigation regarding other reasonably feasible alternatives to the security that is being recommended. This is under the MSRB Rule G-42(d), the Recommendations and Review of Recommendations of Other Parties.
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Question 3 of 10
3. Question
Which of the following are the specified prohibitions applicable for the municipal advisors?
I. They are prohibited to receive compensation that is excessive in relation to the municipal advisory the actual performance of the activity.
II. They are prohibited to deliver invoices for expenses that are inaccurate for the actual performance of activities.
III. They are prohibited to make representation of information that is materially false or misleading.
IV. They are prohibited from engaging with municipal entity clients in a principal transaction that is differently related to the municipal financial product.Correct
Under the specified prohibitions of the MSRB Rule G-42, a municipal advisor is prohibited from the following: (1) receiving compensation that is excessive in relation to the municipal advisory activities that were performed actually, (2) delivering invoices for expenses or fees that is inaccurate materially in the reflection of activities performed actually, and (3) making representation or the submission of information that is materially false or misleading. They are also prohibited to participate in any fee-splitting arrangement with underwriters.
Incorrect
Under the specified prohibitions of the MSRB Rule G-42, a municipal advisor is prohibited from the following: (1) receiving compensation that is excessive in relation to the municipal advisory activities that were performed actually, (2) delivering invoices for expenses or fees that is inaccurate materially in the reflection of activities performed actually, and (3) making representation or the submission of information that is materially false or misleading. They are also prohibited to participate in any fee-splitting arrangement with underwriters.
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Question 4 of 10
4. Question
Which of the following payments are not a prohibition for municipal advisors under MSRB Rule G-42?
I. Compensation that is excessive in relation to the municipal advisory activities.
II. Payments to an affiliate of the municipal advisor for direct or indirect communication with a municipal entity where its purpose is to obtain or retain an engagement.
III. Reasonable fees paid to another municipal advisor registered with the Commission.
IV. Payments that are permissible “normal business dealings” as described by MSRB.Correct
Under the specified prohibition, making payments for the purpose of obtaining or retaining an engagement to perform municipal advisory activities is a prohibited activity for the municipal advisors. This excludes the following: (1) payments to an affiliate of the municipal advisor for direct or indirect communication with a municipal entity where its purpose is obtaining or retaining engagements, (2) reasonable fees paid to another municipal advisor, and (3) payments that are permissible “normal business dealings.” Excessive compensation is prohibited to be received by a municipal advisor.
Incorrect
Under the specified prohibition, making payments for the purpose of obtaining or retaining an engagement to perform municipal advisory activities is a prohibited activity for the municipal advisors. This excludes the following: (1) payments to an affiliate of the municipal advisor for direct or indirect communication with a municipal entity where its purpose is obtaining or retaining engagements, (2) reasonable fees paid to another municipal advisor, and (3) payments that are permissible “normal business dealings.” Excessive compensation is prohibited to be received by a municipal advisor.
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Question 5 of 10
5. Question
Which of the following shall a municipal advisor obtain a reasonable basis for?
I. Any representations made in a certificate showing it will be reasonably foreseeably relied upon by the client
II. Any advice provided to or on behalf of a client
III. Any information regarding the withdrawal of a client from a municipal advisory relationship
IV. Any information provided to the client or other parties involved in the municipal securities transaction regarding official statement’s preparationCorrect
A municipal advisor must have a reasonable basis for the following: (1) advice provided to or on behalf of a client, (2) representations made in a certificate that it signs that it will reasonably be foreseeable relied upon by the client, and (3) information provided to the client or other parties involved in the municipal securities transaction in relation to the official statement’s preparation. Any other party’s representation is also included as long as it involves municipal securities transaction or municipal financial product.
Incorrect
A municipal advisor must have a reasonable basis for the following: (1) advice provided to or on behalf of a client, (2) representations made in a certificate that it signs that it will reasonably be foreseeable relied upon by the client, and (3) information provided to the client or other parties involved in the municipal securities transaction in relation to the official statement’s preparation. Any other party’s representation is also included as long as it involves municipal securities transaction or municipal financial product.
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Question 6 of 10
6. Question
What is the duty of a municipal advisor in performing their municipal advisory activities for municipal entity clients that deal with honesty and with utmost good faith?
Correct
The duty of loyalty is the duty for municipal advisors that deals with honesty and with utmost good faith with the municipal entity clients. On the other hand, the duty of care deals with possessing the degree of knowledge and expertise needed to provide the municipal entity or obligated person client with informed advice. The duty of loyalty deals with acting in the client’s best interests without regard to other interests or financial interests of the municipal advisor.
Incorrect
The duty of loyalty is the duty for municipal advisors that deals with honesty and with utmost good faith with the municipal entity clients. On the other hand, the duty of care deals with possessing the degree of knowledge and expertise needed to provide the municipal entity or obligated person client with informed advice. The duty of loyalty deals with acting in the client’s best interests without regard to other interests or financial interests of the municipal advisor.
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Question 7 of 10
7. Question
When would the municipal advisor not be required on that basis to disengage from the municipal advisory relationship?
Correct
If a municipal entity elects a course of action that is independent of advice provided by the municipal advisor, the municipal advisor is not required on that basis to disengage from the municipal advisory relationship. This statement is under the MSRB Rule G-42 which discusses the Action Independent of or Contrary to Advice, under the Supplementary Material of this rule.
Incorrect
If a municipal entity elects a course of action that is independent of advice provided by the municipal advisor, the municipal advisor is not required on that basis to disengage from the municipal advisory relationship. This statement is under the MSRB Rule G-42 which discusses the Action Independent of or Contrary to Advice, under the Supplementary Material of this rule.
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Question 8 of 10
8. Question
Which of the following statements would result in negating the effectiveness of the limitations on the scope of engagement?
Correct
Once the municipal advisory has decided to engage in a course of conduct that is “inconsistent” with any such agreed-upon limitations, it would possibly result in negating the effectiveness of such limitations. Under the limitations on the scope of the engagement, a municipal advisor may limit the scope of the municipal advisory activities to be performed if it is requested or expressly consented to by the municipal entity.
Incorrect
Once the municipal advisory has decided to engage in a course of conduct that is “inconsistent” with any such agreed-upon limitations, it would possibly result in negating the effectiveness of such limitations. Under the limitations on the scope of the engagement, a municipal advisor may limit the scope of the municipal advisory activities to be performed if it is requested or expressly consented to by the municipal entity.
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Question 9 of 10
9. Question
Which of the following is within the definition of the principal transaction for the purposes of the MSRB Rule G-42?
Correct
A principal transaction, for the purpose of the MSRB Rule G-42, is selling to or purchasing from the municipal entity client of financial products, such as the security or entrance into any derivative and guaranteed investment contract provided that it acts as principal for one’s own account. This also means a transaction where municipal advisors act as a principal or underwriter rather than as an agent for the customer.
Incorrect
A principal transaction, for the purpose of the MSRB Rule G-42, is selling to or purchasing from the municipal entity client of financial products, such as the security or entrance into any derivative and guaranteed investment contract provided that it acts as principal for one’s own account. This also means a transaction where municipal advisors act as a principal or underwriter rather than as an agent for the customer.
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Question 10 of 10
10. Question
Which of the following must be the characteristic of disclosures of conflicts of interest by a municipal advisor to its municipal entity client?
Correct
The disclosure of conflicts of interest must be sufficiently detailed to inform the client of the nature, implications, and potential consequences of each conflict. The conflicts of interest happen between the municipal advisor to its municipal entity or obligated person client. The disclosures shall indicate how the municipal advisor addresses, manages and mitigates these conflicts.
Incorrect
The disclosure of conflicts of interest must be sufficiently detailed to inform the client of the nature, implications, and potential consequences of each conflict. The conflicts of interest happen between the municipal advisor to its municipal entity or obligated person client. The disclosures shall indicate how the municipal advisor addresses, manages and mitigates these conflicts.