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Question 1 of 10
1. Question
Which of the following statements is false uniform Securities Act?
Correct
Uniform Securities Act
The Uniform Securities Act is a legislative attempt to bring uniformity to state securities laws that are widely varied, also known as blue-sky laws. The Uniform Securities Act, or USA, outlines civil and criminal liabilities for abuse of the uniform laws. Each state’s securities laws are overseen by an administrator. The administrator, or the office of the administrator, has jurisdiction of all activities that occur in the state concerning the securities industry. The blue-sky laws not only bring uniformity to multiple states’ laws but also provides for consumer investor protection. Many terms that are often unclear to unsophisticated investors are defined under the Uniform Securities Act, helping those investors make more-informed decisions.Incorrect
Uniform Securities Act
The Uniform Securities Act is a legislative attempt to bring uniformity to state securities laws that are widely varied, also known as blue-sky laws. The Uniform Securities Act, or USA, outlines civil and criminal liabilities for abuse of the uniform laws. Each state’s securities laws are overseen by an administrator. The administrator, or the office of the administrator, has jurisdiction of all activities that occur in the state concerning the securities industry. The blue-sky laws not only bring uniformity to multiple states’ laws but also provides for consumer investor protection. Many terms that are often unclear to unsophisticated investors are defined under the Uniform Securities Act, helping those investors make more-informed decisions. -
Question 2 of 10
2. Question
Which of the following statements is true brokers and dealers?
Correct
Brokers and dealers
A broker is a person or institution which acts as a middleman between the buyer of a security and the seller of a security. The broker makes his profit by charging a sales charge, or commission, for arranging the transaction. Brokers do not own any products for which they arrange transactions, but simply facilitate the transferral of ownership from a seller to a buyer. A dealer is a person or institution which sells its own inventory to buyers (like a used-car dealer). A dealer charges a markdown when he purchases inventory, lowering the price he pays for the inventory; and he charges a markup when he sells it, increasing the price the customer pays for it. Furthermore, dealers sometimes intend for the inventory to appreciate in value while they hold it.Incorrect
Brokers and dealers
A broker is a person or institution which acts as a middleman between the buyer of a security and the seller of a security. The broker makes his profit by charging a sales charge, or commission, for arranging the transaction. Brokers do not own any products for which they arrange transactions, but simply facilitate the transferral of ownership from a seller to a buyer. A dealer is a person or institution which sells its own inventory to buyers (like a used-car dealer). A dealer charges a markdown when he purchases inventory, lowering the price he pays for the inventory; and he charges a markup when he sells it, increasing the price the customer pays for it. Furthermore, dealers sometimes intend for the inventory to appreciate in value while they hold it. -
Question 3 of 10
3. Question
Which of the following statements is true securities and issuers?
Correct
Securities and issuers
The technical definition of the term security as defined in the Uniform Securities Act (USA) has an important distinction. The reason for this is that the regulations outlined in the USA only apply to securities as defined in the USA. The definition of security as outlined by the USA is an investment of capital assets in a common enterprise with the anticipation of growing returns resulting mostly from the energies of a person separate from the investor. An issuer, as defined under the USA, is a person who issues or proposes the issue of a given security. Issuers are generally governments or companies. The forms of government issuing securities range from the federal to the municipal level.Incorrect
Securities and issuers
The technical definition of the term security as defined in the Uniform Securities Act (USA) has an important distinction. The reason for this is that the regulations outlined in the USA only apply to securities as defined in the USA. The definition of security as outlined by the USA is an investment of capital assets in a common enterprise with the anticipation of growing returns resulting mostly from the energies of a person separate from the investor. An issuer, as defined under the USA, is a person who issues or proposes the issue of a given security. Issuers are generally governments or companies. The forms of government issuing securities range from the federal to the municipal level. -
Question 4 of 10
4. Question
Which of the following statements is false regarding unlawful representation of a security regarding registration?
Correct
Unlawful representation of a security regarding registration
The registration of a security with government agencies does not imply its approval of the issue and does not imply any type of guarantee of performance. The registration of a security with the correct agency means only that the registration process was completed. To imply or to allow a client to think that government registration somehow implies a Securities Exchange Commission (SEC) stamp of approval and recommendation is unethical and illegal. The advisor should be certain that the client understand that registration of securities means only that securities are registered. As such, the advisor should not use language such as SEC approved and good offering. If the advisor wishes to inform the client that the issue has been registered with the proper agencies, proper handling would be to tell the client that the security has been registered with the SECIncorrect
Unlawful representation of a security regarding registration
The registration of a security with government agencies does not imply its approval of the issue and does not imply any type of guarantee of performance. The registration of a security with the correct agency means only that the registration process was completed. To imply or to allow a client to think that government registration somehow implies a Securities Exchange Commission (SEC) stamp of approval and recommendation is unethical and illegal. The advisor should be certain that the client understand that registration of securities means only that securities are registered. As such, the advisor should not use language such as SEC approved and good offering. If the advisor wishes to inform the client that the issue has been registered with the proper agencies, proper handling would be to tell the client that the security has been registered with the SEC -
Question 5 of 10
5. Question
Which of the following statements is true performance guarantees?
Correct
Performance guarantees
A performance guarantee is a guarantee against loss issued by an advisor or some other broker. Performance guarantees may be verbal and explicit in nature or subtle and implicit to avoid legal situations. While an outright verbal or written guarantee of performance may be the easiest to identify, there are many types of performance guarantees. One way of guaranteeing against loss is for an advisor to share in the losses of a client’s account in a
greater proportion than that advisor has assets in the account. Advisors or brokers may also present large gifts to the client to compensate for losses incurred. Both of the preceding are performance guarantees that are illegal and unethical. Guarantees of performance are unethical because they are not a reflection of reality and mislead the client. Performance guarantees in all forms are illegal and unethical except in the case of insurance contracts such as variable life annuities and universal life insurance.Incorrect
Performance guarantees
A performance guarantee is a guarantee against loss issued by an advisor or some other broker. Performance guarantees may be verbal and explicit in nature or subtle and implicit to avoid legal situations. While an outright verbal or written guarantee of performance may be the easiest to identify, there are many types of performance guarantees. One way of guaranteeing against loss is for an advisor to share in the losses of a client’s account in a
greater proportion than that advisor has assets in the account. Advisors or brokers may also present large gifts to the client to compensate for losses incurred. Both of the preceding are performance guarantees that are illegal and unethical. Guarantees of performance are unethical because they are not a reflection of reality and mislead the client. Performance guarantees in all forms are illegal and unethical except in the case of insurance contracts such as variable life annuities and universal life insurance. -
Question 6 of 10
6. Question
Which of the following statements is true client contracts?
Correct
Client contracts
The business relationship between the client and advisor is outlined in the contract between the client and advisor. The Uniform Securities Act (USA) requires that all investment advisory contracts be in writing, while federal regulations only stipulate that the contract be oral. Another difference between the USA and federal regulations is the fair assessment of fees. The USA dictates that fees must be competitive, while federal regulations only require that they be reasonable for services offered. To maintain an ethical and transparent contract, the contract should outline the services offered, terms of the contract, the advisory fees charged, the amount of any prepaid fees to be refunded at contract termination, if there is discretionary authority given to the advisor, the fact that the contract may not be assigned without client authorization, and if the advisor is structured as a partnership, that the advisor notify the client if a change is made in minority interest.Incorrect
Client contracts
The business relationship between the client and advisor is outlined in the contract between the client and advisor. The Uniform Securities Act (USA) requires that all investment advisory contracts be in writing, while federal regulations only stipulate that the contract be oral. Another difference between the USA and federal regulations is the fair assessment of fees. The USA dictates that fees must be competitive, while federal regulations only require that they be reasonable for services offered. To maintain an ethical and transparent contract, the contract should outline the services offered, terms of the contract, the advisory fees charged, the amount of any prepaid fees to be refunded at contract termination, if there is discretionary authority given to the advisor, the fact that the contract may not be assigned without client authorization, and if the advisor is structured as a partnership, that the advisor notify the client if a change is made in minority interest. -
Question 7 of 10
7. Question
Which of the following statements is true charging of commissions to clients’ accounts?
Correct
Charging of commissions to clients’ accounts
Charging commissions to a client’s account is an acceptable practice if the amount of commission is disclosed to the investor before the commission is charged. Commissions are not typically applied to transactions originating from an account that is covered by an advisory contract. Commissions charged should be fair and not take advantage of a lack of knowledge on the client’s part. The advisor should also understand the intricacies of collecting commissions from both parties in an agency-cross transaction. When the advisor acts in the role of a broker in an agency-cross transaction, he or she will collect commissions from both parties in the transaction. To maintain ethical practices, the advisor should clearly disclose to both parties that he or she will be receiving commissions from both parties.Incorrect
Charging of commissions to clients’ accounts
Charging commissions to a client’s account is an acceptable practice if the amount of commission is disclosed to the investor before the commission is charged. Commissions are not typically applied to transactions originating from an account that is covered by an advisory contract. Commissions charged should be fair and not take advantage of a lack of knowledge on the client’s part. The advisor should also understand the intricacies of collecting commissions from both parties in an agency-cross transaction. When the advisor acts in the role of a broker in an agency-cross transaction, he or she will collect commissions from both parties in the transaction. To maintain ethical practices, the advisor should clearly disclose to both parties that he or she will be receiving commissions from both parties. -
Question 8 of 10
8. Question
Which of the following statements is false Prudent investor standards?
Correct
Prudent investor standards
Prudent investor standards require that an advisor in a fiduciary role behave as if the assets over which that advisor has responsibility were his or her own assets. These prudent standards insist that all aspects of the client’s needs should be considered and that the investments not be excessively volatile and prone to unreasonable amounts of risk. Prudent investing standards do not always result in high performance or even reach the goal of the
investor, however. Prudent investing applies to the means by which the investment decision is reached. It is always possible to follow prudent investing standards, while it may not always be possible that those prudent decisions end up with desirable results.Incorrect
Prudent investor standards
Prudent investor standards require that an advisor in a fiduciary role behave as if the assets over which that advisor has responsibility were his or her own assets. These prudent standards insist that all aspects of the client’s needs should be considered and that the investments not be excessively volatile and prone to unreasonable amounts of risk. Prudent investing standards do not always result in high performance or even reach the goal of the
investor, however. Prudent investing applies to the means by which the investment decision is reached. It is always possible to follow prudent investing standards, while it may not always be possible that those prudent decisions end up with desirable results. -
Question 9 of 10
9. Question
Which of the following statements is true providing loans to or accepting loans from clients?
Correct
Providing loans to or accepting loans from clients
Loaning money to a client is not an acceptable or ethical practice unless the investment advisor is in the business of loaning money or the client to whom the money is being loaned is a business affiliate of the advisor. Loaning funds to clients creates a conflict of interest due to the fact that the client is now also a debtor to the advisor. Such relationships can affect the decisions advisors make regarding the client’s funds. Conversely, advisors should not accept loans from clients unless the client is a financial institution practicing the business of making loans. Advisors have access to large of amounts of personal information about the client. When advisors use this information to their advantage by soliciting loans, they have perpetrated a breach of confidentiality with the client that could create a conflict of interest.Incorrect
Providing loans to or accepting loans from clients
Loaning money to a client is not an acceptable or ethical practice unless the investment advisor is in the business of loaning money or the client to whom the money is being loaned is a business affiliate of the advisor. Loaning funds to clients creates a conflict of interest due to the fact that the client is now also a debtor to the advisor. Such relationships can affect the decisions advisors make regarding the client’s funds. Conversely, advisors should not accept loans from clients unless the client is a financial institution practicing the business of making loans. Advisors have access to large of amounts of personal information about the client. When advisors use this information to their advantage by soliciting loans, they have perpetrated a breach of confidentiality with the client that could create a conflict of interest. -
Question 10 of 10
10. Question
Which of the following statements is true sharing in profits and losses in a client’s account?
Correct
Sharing in profits and losses in a client’s account
Advisors may share in the profits and losses in a client’s account so long as those profits and losses are proportional to the advisors’ share of the investment made. Ethical issues are implied when an advisor accepts a larger portion of the loss than his or her share based on the amount of investment the advisor made. The advisor may accept a larger portion of the loss to entice the client to use his or her services. This practice is effectively guaranteeing against a loss, which is both illegal and unethical. The ethical issues that arise from an advisor accepting more than his or her contributed allocation of profits from a shared account are based upon charging and accepting unreasonable compensation.Incorrect
Sharing in profits and losses in a client’s account
Advisors may share in the profits and losses in a client’s account so long as those profits and losses are proportional to the advisors’ share of the investment made. Ethical issues are implied when an advisor accepts a larger portion of the loss than his or her share based on the amount of investment the advisor made. The advisor may accept a larger portion of the loss to entice the client to use his or her services. This practice is effectively guaranteeing against a loss, which is both illegal and unethical. The ethical issues that arise from an advisor accepting more than his or her contributed allocation of profits from a shared account are based upon charging and accepting unreasonable compensation.