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WorksheetsSeries 66 Questions 1
Total questions: 50
Worksheet time: 25mins
If an investment adviser's only clients are insurance companies, it's:
Considered a federal covered adviser and must register with the SEC
Considered an exempt reporting adviser (ERA)
Required to File Form ADV Part 2A
Exempt from registration with the SEC
The maximum criminal penalty for violating the Investment Advisers Act of 1940 is:
A fine of $10,000 and imprisonment of five years
A fine of $5 million and imprisonment of 20 years
A fine of $5,000 and imprisonment of three years
Three times the amount gained or loss avoided
All of the following are considered forms of compensation for providing investment advice, EXCEPT:
An hourly fee for writing a financial plan
A fee based on the average value of the assets held in an account
Receiving a fee that increases based on performance of a portfolio
Commissions for executing securities transactions
According to the Investment Advisers Act of 1940, which of the following persons would NOT be considered an investment adviser
A firm that prepares research reports regarding current trends in the Treasury bond market
A firm that prepares research reports about trends in the U.S. corporate bond market
A financial planner advising clients of the advantages of purchasing mutual funds as compared to purchasing real estate
A person who prepares a selective list of U.S. government bond funds, but does not recommend specific funds
All of the following advisory clients may pay a performance-based fee, EXCEPT:
A section 3(c)(7) hedge fund
A registered investment company
An accredited investor
Individuals who are not U.S. residents
An investment adviser has created a written contract for new advisory clients. One of the clauses in the contract limits the adviser's liability for potential fraud. The clause also forces the client to use arbitration for the resolution of any future dispute. Which of the following statements is TRUE regarding the adviser's contract?
As long as the client has read and signed the contract, the clause is enforceable.
The Investment Advisers Act of 1940 prohibits written advisory contracts.
Rule 204A-1 requires advisers to have mandatory arbitration clauses, but prohibits advisers from limiting damages in fraud cases.
Both exculpatory and mandatory arbitration clauses are prohibited in advisory contracts.
What federal law removed some of the duplication of regulations that applied to investment advisers and securities?
The Securities Exchange Act of 1934
The Securities Act of 1933
The Uniform Securities Act
The National Securities Markets Improvement Act of 1996 (NSMIA)
An individual who represents a company by selling its stock to residents of a state is defined as a(n):
Agent of an issuer
Investment adviser representative (IAR)
Agent of a broker-dealer
Transactor
A non-exempt security:
Needs to be registered with the state Administrator
Is generally excluded from all securities laws
Is not required to be registered with the state Administrator
Is defined differently by each state Administrator
Which of the following activities is NOT performed by a person who's defined as an investment adviser representative (IAR)?
Supervising other IARs
Providing investment advice regarding securities
Executing securities transactions on behalf the adviser's customers
Soliciting the sale of investment advisory services
What federal law requires broker-dealers to register with the SEC?
The Investment Advisers Act of 1940
The Securities Exchange Act of 1934
The Securities Act of 1933
The Uniform Securities Act
Which of the following products meets the definition of a security under the Uniform Securities Act?
An insurance contract for which an insurance company promises to pay a fixed sum periodically over an individual's life
An individual retirement account (IRA)
A whole life insurance contract which is sold by a broker-dealer that's registered with a state insurance Commissioner
An investment contract that represents an interest in an oil drilling program
In which of the following transactions does a state securities Administrator require the filing of sales literature?
The sales of mutual fund shares by an investment company
The sale of municipal bonds
The sale of stock on the over-the-counter (OTC) market
The sale of securities between and issuer and its underwriter
A state securities Administrator is considering whether to suspend the sale of a federal covered security that's listed on the New York Stock Exchange. The Administrator:
May issue a stop order if the issuer's headquarters is based in the Administrator's state
May not issue a stop order since the security is listed on the New York Stock Exchange
May issue a stop order only if there's a violation of interstate commerce
May not issue a stop order because that rests in a judicial venue
A commission rebate that's paid by a broker-dealer to an investment adviser for directing trades to the broker-dealer is referred to as:
A soft-dollar arrangement
Dark pooling
Exchange refunding
Payment for order flow
The Uniform Prudent Investor Act (UPIA):
Prohibits the use of broker-dealers for execution services
Requires investment advisers to register with either the SEC or state Administrator(s)
Asks advisers to evaluate investment on their own merits alone, rather than how they fit into a client's overall holdings
Permits fiduciaries to delegate investment responsibly to competent third parties
Which of the following statements is TRUE about an investment adviser representative's (IAR's) ability to consult other professionals?
An IAR cannot consult with other professionals under any circumstances.
An IAR may consult with other professionals in order to remove any liability stemming from negligence of the fiduciary obligation.
An IAR must only consult with other professionals that are registered with the SEC.
An IAR may consult with other professionals, but cannot use other professionals to avoid the fiduciary duty to advisory clients.
Which of the following statements about commingling is TRUE?
Broker-dealers must segregate clients' cash with cash belonging to the broker-dealer.
Commingling rules only apply to broker-dealers, but not investment advisers.
Commingling is an ethical business practice which protects client stock positions from theft
A broker-dealer can commingle clients' stock together, but cannot commingle stock owned by the broker-dealer with clients' stock.
What information must be disclosed to a client who executes a trade with a broker-dealer?
The brochure or Form ADV
A prospectus
Any excessive fees
The reason the trade was suitable
An agent of a broker-dealer receives the following directions from a customer: "Buy XYZ stock when the price is right." The following week the customer goes out of town for business and cannot be contacted, but the agent hears pending news that will likely drive XYZ's stock price higher. Which of the following actions should the agent take?
Buy XYZ stock for the customer at the current market price.
Do nothing until the customer can be reached.
Ask for discretionary authority over the account from the compliance department.
Purchase XYZ stock for his own account and later sell it to the customer at the same price if the customer later agrees.
If a broker-dealer has written procedures that allow for the borrowing and lending of money between agents and customers, in which of the following situations is an agent NOT allowed to borrow money from a customer?
If the customer and the agent are both registered with the same firm
If the customer is a member of the agents immediate family
If a loan is based on a written agreement with the customer and the agent repays the loan in full plus interest
If the lending arrangement is based on a business relationship that exists outside of the agent-customer relationship
An agent of a broker-dealer was asked by her brother for help with raising capital for his new business. The agent's brother offers to pay her with 15% of the proceeds. The agent approaches her clients about the investment opportunity and five agree to invest. Without notifying her broker-dealer, the agent completes the paperwork and finalizes the transactions. Which of these unethical principles is the agent violating?
Engaging in the practice of borrowing from or lending money or securities to a customer
Effecting securities transactions that are not recorded on the regular books or records of the broker-dealer that the agent represents
Failing to make a bona fide public offering of securities that are allotted to the broker-dealer
Sharing directly or indirectly in profits or losses in a securities account without the firm’s written authorization and consent
Under Regulation D, which of the following investors is/are considered accredited?
An employee of a mutual fund company
Banks
Any senior officer of a publicly traded company
Individuals who have a net worth of $1 million or more
I and II only
II and IV only
III only
I, III, and IV only
In order to clarify items in the balance sheet or income statement, a corporation may include them as:
An addendum
Footnotes
A supplement
A correcting amendment
An agent receives insider information about a stock. Out of nowhere, a customer calls her and places an order to sell the same stock. The agent must:
Tell the client about the insider information before executing the order
Tell the client that she must refuse the order because of the insider information
Refuse to accept the order without additional explanation
Execute the client order without mentioning the information
Which of the following transactions would NOT be considered exempt under the Securities Act of 1933?
A private placement
An intrastate offering
An unsolicited brokerage transaction
An initial public offering of an investment company's common stock
Under the Securities Act of 1933, which of the following would MOST LIKELY be included in the definition of an underwriter?
An agent
A broker-dealer
An investment adviser representative
An issuer
Which of the following statements is TRUE regarding Rule 147?
Stock that's sold under this rule is subject to federal registration and exempt from Blue-Sky registration.
Stock that's sold under this rule is exempt from both federal and Blue-Sky registration.
Stock that's sold under this rule is subject to Blue-Sky registration and exempt from federal registration.
Stock that's sold under this rule is subject to both federal and Blue-Sky registration.
Any person who violates federal insider trading regulations is potentially subject to all of the following penalties, EXCEPT:
Treble damages
Prison sentence
Criminal fine
FINRA fines
Securities that are issued by an open-end investment company (mutual fund) are registered under the:
Trust Indenture Act of 1939
Securities Exchange Act of 1934
Uniform Securities Act
Investment Company Act of 1940
A bank customer deposits $9,000 in cash into his checking account. On the same day, he deposits $6,000 in cash into his savings account. The bank is required to file:
A Currency Transaction Report (CTR)
A Currency and Monetary Instrument Report (CMIR)
A Suspicious Activity Report (SAR)
Nothing since each deposit was less than $10,000
The maximum civil penalty for insider trading violations is:
$5 million fine and/or 20 years imprisonment
$25 million fine
$10,000 fine and/or five years imprisonment
Treble damages
Which of the following items is NOT required to be included on a transaction confirmation?
A statement of the nature of the transaction
The time of the transaction
The source and amount of other remuneration received by the firm in connection with the transaction
The identity of the other party
The portfolio manager of an open-end investment company has investment discretion for amounts of more than $125 million in equity securities. What form must the manager file with the SEC?
Form 13D
Form 144A
Form 144
Form 13F
All the following descriptions are TRUE of a closed-end management company, EXCEPT:
Shares are purchased at the current offering price
Shares are redeemable
Investors can purchase full and fractional shares
The company may issue only common stock
When making a purchase, a customer will pay a markup or a commission
I and V only
I, III, and V only
II, III, and IV only
II, III, and V only
What's the tax implication of receiving securities as a gift?
The donor will have a capital gain or loss based on the difference between his original cost basis and the fair market value at the time of the gift.
The recipient's cost basis will be based on the donor's original cost.
The recipient's cost basis will either be the donor’s original cost or the fair market value at the time of the gift.
The recipient's cost basis will be based on the fair market value at the time of the gift.
A customer has an existing brokerage account and advisory account at a dually registered firm. If the customer wants to maintain control of the account, but leave the assets to a person who's not in her will, she should designate the account:
Joint Tenants with Right of Survivorship (JTWROS)
Tenancy by the Entirety
Estate Account
Transfer on Death Account
Which of the following is an asset that appears on a corporate balance sheet?
Sofa owned by the company
Reputation of the company
Copyrights that a shareholder acquired for a book he published
Dividends payable
Custodial accounts are classified as fiduciary accounts. Which of the following accounts may be opened as a custodial account?
Cash account
Margin account
JTWROS
TIC
Upon the death of an investor, which of the following assets may be subject to estate tax?
Revocable living trust
Securities brokerage account
Individual retirement account (IRA)
Portfolio of mutual funds
I only
I and III only
II and IV only
I, II, III, and IV
13 of 20Which of the following distribution methods will ensure that each branch of family receives an equal share of an estate?
Per capita
Per stirpes
Inter vivos
Testamentary
All of the following methods of ownership will avoid probate, EXCEPT:
Community Property
Estate
Transfer on Death
Joint Tenants with Right of Survivorship
A group of investors is starting a business to explore and drill for oil. All want to be actively involved in the business, but none wants to be personally liable for the venture's debts. Which of the following business structures would meet their objectives?
A limited partnership
A general partnership
A limited liability company
An S Corporation
I only
I and II only
III and IV only
I, III, and IV only
All of the following statements are TRUE of covered call option writing, EXCEPT:
The writer can increase the overall yield on his portfolio
The premium received guarantees the writer cannot have a loss on the underlying security
It is considered a conservative option strategy
The writer will have a short-term capital gain if the option expires unexercised
Which of the following communications would be exempt from the sales literature and advertising filing requirements of the Uniform Securities Act?
A form letter used to prospect for small business retirement plans
A group e-mail sent to several existing clients explaining the advantages of annuity investing
A brochure on U.S. Treasury securities
An ad espousing the tax advantages of condominium investments
Through which process can an ETF shares be arbitraged to minimize the difference in the ETF's NAV and the market price?
By purchasing and selling shares of the underlying portfolio at the ETF's net asset value
Since ETFs are exchange-traded, the difference between the market price and NAV cannot be arbitraged
By allowing authorized participants to use creation and redemption units of the ETF
By issuing puts on shares of the ETF
Which of the following risks would have the greatest impact on a U.S. Treasury zero-coupon bond with an 18-year maturity?
Reinvestment risk
Market risk
Liquidity risk
Inflationary risk
According to the Uniform Securities Act, investment advisers are required to maintain their books and records for:
Three years with the most recent two years in an appropriate office
Five years with the most recent three years in an appropriate office
Three years with the most recent two years easily accessible
Five years with the most recent two years in an appropriate office
In the past year, a client reported earnings of $3,000 in dividends, $6,000 in long-term capital gains, and salary of $190,000. The client also had a loss of $8,000 from a limited partnership investment. For tax purposes, how is the limited partnership loss treated?
The partnership loss is only deductible against other income, up to $3,000
The partnership loss is only deductible against the $6,000 long-term capital gain
The partnership loss is only deductible against the salary of $190,000
The partnership loss is only deductible against passive income
11 of 96An individual works as a registered representative for Broker-Dealer X and also works as a financial planner under Broker-Dealer X's control. The individual's only source of compensation is commissions for trades that are executed. According to the Investment Advisers Act:
Broker-Dealer X must be registered as an investment adviser
Neither the individual nor Broker-Dealer X are required to register as an investment adviser
The individual is not required to be registered as an investment adviser
The individual must be registered as an investment adviser
