FINRA Series 54 - Pauline - Quiz 7.new
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Question 1 of 10
1. Question
Which of the following is established under the MSRB Rule G-42 that applies to the relationship between a municipal advisor and its clients?
I. The fiduciary duty of care and loyalty
II. The incompatibility standard for recommendations
III. Standards for the documentation of the municipal advisory relationship
IV. Consider a variety of factors such as the client’s risk tolerance, financial situation, and experienceCorrect
The MSRB Rule G-42 establishes the following: (1) the fiduciary duty of care and loyalty, (2) the standards for the documentation of the municipal advisory relationship, and (3) considering a variety of factors such as the risk tolerance of the client, their financial situation, and experience. Other things established in the MSRB Rule G-42 are the standard of care owed to “obligated person” clients and a suitability standard for a recommendation.
Incorrect
The MSRB Rule G-42 establishes the following: (1) the fiduciary duty of care and loyalty, (2) the standards for the documentation of the municipal advisory relationship, and (3) considering a variety of factors such as the risk tolerance of the client, their financial situation, and experience. Other things established in the MSRB Rule G-42 are the standard of care owed to “obligated person” clients and a suitability standard for a recommendation.
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Question 2 of 10
2. Question
Under the MSRB Rule G-54, which of the following is correct regarding the disclosure of conflicts of interest?
I. In a disclosure, the actual or potential conflicts must be provided fully and fairly before and after services for a client.
II. Conflicts that arise from financial arrangements or relationships with third parties may affect the advice provided to the client, therefore, disclosure is needed.
III. Information relevant to a client’s assessment of the municipal advisor’s integrity shall be disclosed in writing.
IV. Legal or disciplinary actions against the municipal advisor shall not be disclosed fully and fairly for it is unnecessary information.Correct
Under the disclosure of conflicts of interest, the conflicts arising from financial arrangements or relationships with the third parties that may possibly affect the advice provided to the client shall be disclosed. Any other information relevant to the assessment of the client of the municipal advisor’s integrity shall also be disclosed, such as the legal or disciplinary actions against the municipal advisor. Conflicts of interests may either be potential or actual and it must be disclosed once either before the beginning of the service or after the service rendered.
Incorrect
Under the disclosure of conflicts of interest, the conflicts arising from financial arrangements or relationships with the third parties that may possibly affect the advice provided to the client shall be disclosed. Any other information relevant to the assessment of the client of the municipal advisor’s integrity shall also be disclosed, such as the legal or disciplinary actions against the municipal advisor. Conflicts of interests may either be potential or actual and it must be disclosed once either before the beginning of the service or after the service rendered.
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Question 3 of 10
3. Question
Which of the following are requirements in the MSRB Rule G-42?
I. It requires disclosure of conflicts of interest and legal or disciplinary events.
II. It prohibits the receipt of “excessive” compensation.
III. It prohibits making payments in order to obtain or retain an engagement to perform municipal advisory activities.
IV. It allows entering into certain principal transactions with municipal advisors’ municipal entity clients.Correct
The MSRB Rule G-42 requires the disclosure of conflicts of interest and legal or disciplinary events. This rule also prohibits the following activities: (1) the receipt of excessive compensation, (2) to make payments to obtain or retain an engagement in performing municipal advisory activities, and (4) to enter principal transactions with municipal entity clients of municipal advisors. This rule also prohibits the fee-splitting arrangement with underwriters.
Incorrect
The MSRB Rule G-42 requires the disclosure of conflicts of interest and legal or disciplinary events. This rule also prohibits the following activities: (1) the receipt of excessive compensation, (2) to make payments to obtain or retain an engagement in performing municipal advisory activities, and (4) to enter principal transactions with municipal entity clients of municipal advisors. This rule also prohibits the fee-splitting arrangement with underwriters.
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Question 4 of 10
4. Question
Which of the following statements are correct regarding the documentation of Municipal Advisory Relationships?
I. When beginning a relationship with a client, municipal advisors must put into writing the details of the relationship.
II. It is not necessary to provide the details regarding any means for terminating the relationship.
III. When beginning a relationship with a client, municipal advisors must provide the compensation structure and scope of activities.
IV. Documentation can take the form of a contract, engagement letter, or other disclosureCorrect
According to the MSRB Rule G-42, when beginning a municipal advisory relationship with a client, the following shall be put into writing: the details of the relationship, compensation structure, scope of activities, and the required disclosures and any means for terminating the relationship. THe documentation can take either the form of a contract, engagement letter, or other disclosure. This relationship requires an update to existing agreement and contract terms.
Incorrect
According to the MSRB Rule G-42, when beginning a municipal advisory relationship with a client, the following shall be put into writing: the details of the relationship, compensation structure, scope of activities, and the required disclosures and any means for terminating the relationship. THe documentation can take either the form of a contract, engagement letter, or other disclosure. This relationship requires an update to existing agreement and contract terms.
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Question 5 of 10
5. Question
Under the MSRB Rule G-42, which of the following statements best describes the suitability of recommendations?
I. The client must disclose the basis for reasonably believing that a certain transaction is not suitable for the municipal advisor.
II. It is necessary for the municipal advisor to know their client in considering factors such as the financial situation and experience.
III. The client must inform the municipal advisor about the risks, potential benefits, structure, and other characteristics of their transaction.
IV. Upon the recommendation of a municipal advisor, the representative must use reasonable diligence to determine whether it is suitable for the client.Correct
Under the Suitability of Recommendations provided in the MSRB Rule G-42, it is required for the municipal advisor to know their client and consider the factors such as their financial situation and experience with municipal securities transactions or municipal financial products. On the other hand, the municipal advisor is the one who would inform the client regarding the risks, potential benefits, and structure of the transaction. The representative must use “reasonable diligence” to determine whether the transaction is suitable for the client. It is also the obligation of the municipal advisor to disclose the basis that the transaction is suitable or not for the client.
Incorrect
Under the Suitability of Recommendations provided in the MSRB Rule G-42, it is required for the municipal advisor to know their client and consider the factors such as their financial situation and experience with municipal securities transactions or municipal financial products. On the other hand, the municipal advisor is the one who would inform the client regarding the risks, potential benefits, and structure of the transaction. The representative must use “reasonable diligence” to determine whether the transaction is suitable for the client. It is also the obligation of the municipal advisor to disclose the basis that the transaction is suitable or not for the client.
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Question 6 of 10
6. Question
Which of the following is not under the Supervisory Goals of MSRB Rule G-42?
Correct
Identifying whether a transaction is a for-profit corporation or not-for-profit corporation is not under the Supervisory Goals, but rather it is under the Supervisory Approach. The Supervisory Goals consist of achieving compliance, avoiding time-wasting on compliance if engagement is not a municipal advisory activity, and simplification. To simplify is to apply all best practices to all engagements and lay the groundwork if an engagement is likely to transition.
Incorrect
Identifying whether a transaction is a for-profit corporation or not-for-profit corporation is not under the Supervisory Goals, but rather it is under the Supervisory Approach. The Supervisory Goals consist of achieving compliance, avoiding time-wasting on compliance if engagement is not a municipal advisory activity, and simplification. To simplify is to apply all best practices to all engagements and lay the groundwork if an engagement is likely to transition.
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Question 7 of 10
7. Question
Which of the following is not seen in a scoping summary under the MSRB Rule G-42?
Correct
Under the scoping summary, the type of services is seen. These are the financial advisory services related to the issuance of municipal securities, post-issuance compliance service, and services related to municipal financial products – swap advisory services. This includes two column-checklist where the first column indicates if it is in-scope and the second column indicates the municipal advisory activity. Checklists are not under the scoping summary.
Incorrect
Under the scoping summary, the type of services is seen. These are the financial advisory services related to the issuance of municipal securities, post-issuance compliance service, and services related to municipal financial products – swap advisory services. This includes two column-checklist where the first column indicates if it is in-scope and the second column indicates the municipal advisory activity. Checklists are not under the scoping summary.
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Question 8 of 10
8. Question
Which of the following material transaction documentation is under the Offering Documentation section?
Correct
The official statements, offering memorandum, and preliminary official statements are under the Offering Documentation. The client’s recommendation, client correspondence with municipal advisor advice, and plans of finance are under the MA Advice Documentation. The summaries supporting the selection of underwriters and escrow procurement services are under the Documentation Pertaining to Selection of Financing Team. The financial advisory memo, summary, and closing memorandum are under the Transaction Summary Documentation.
Incorrect
The official statements, offering memorandum, and preliminary official statements are under the Offering Documentation. The client’s recommendation, client correspondence with municipal advisor advice, and plans of finance are under the MA Advice Documentation. The summaries supporting the selection of underwriters and escrow procurement services are under the Documentation Pertaining to Selection of Financing Team. The financial advisory memo, summary, and closing memorandum are under the Transaction Summary Documentation.
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Question 9 of 10
9. Question
Which of the following is included in the Standards of Conduct under the MSRB Rule G-42?
Correct
In the Standards of Conduct under the MSRB Rule G-42, a municipal advisor to an obligated person client shall be subject to a duty of care in the conduct of all municipal advisory activities for that client. This is also applicable to a municipal entity client. Other choices are material conflicts of interest that need to be disclosed under this rule.
Incorrect
In the Standards of Conduct under the MSRB Rule G-42, a municipal advisor to an obligated person client shall be subject to a duty of care in the conduct of all municipal advisory activities for that client. This is also applicable to a municipal entity client. Other choices are material conflicts of interest that need to be disclosed under this rule.
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Question 10 of 10
10. Question
Which of the following is not a material conflict of interest that needs to be fully and fairly disclosed?
Correct
The material conflicts of interest include all of the choices below aside from the withdrawal from the municipal advisory relationship. Other examples for the material conflicts of interest include any payments received by the municipal advisor from a third party to enlist the municipal advisor’s recommendation to the client of its services and any municipal securities or any municipal financial product. Conflicts of interest may also arise from compensation for municipal advisory activities to be performed that is contingent on the size or closing of transactions as to providing advice.
Incorrect
The material conflicts of interest include all of the choices below aside from the withdrawal from the municipal advisory relationship. Other examples for the material conflicts of interest include any payments received by the municipal advisor from a third party to enlist the municipal advisor’s recommendation to the client of its services and any municipal securities or any municipal financial product. Conflicts of interest may also arise from compensation for municipal advisory activities to be performed that is contingent on the size or closing of transactions as to providing advice.