Series 63, Chapter 4 - Quiz Questions
|Which of the following activities are Lawful and Unlawful?|
1. An agent guarantees a client that funds invested in mutual funds made up of government securities cannot lose principal.
2. A nondiscretionary customer places a buy order for 1,000 shares of any hot internet company. Later, the agent enters an order for 1,000 shares of Global Internet Services.
3. An agent receives a call from the spouse of a travelling client, at the client's request. The agent refuses the wife's request to sell certain securities b/c the wife does not have trading authorization.
4. A client writes a letter of complaint to his agent. The agent apologizes via phone and disposes of the letter because the matter has been resolved.
5. A registered agent borrows $10K from a credit union that is one of her best customers.
| 1. Unlawful|
|6. An agent is convinced that a stock will rise significantly over the next 3 months. She offers to buy the stock back from customers at 10% higher than its current price at any time during the next 3 months.|
7. An agent receives an order for the purchase of an obscure foreign security, and informs the client that the commissions and charges will be much higher than those of domestic securities.
8. An agent at a small BD with no securities analysts assures clients that she can analyze any publicly traded security in any industry better than any analyst and will do so for each trade.
9. An agent recommends that her client buy 1,000 shares of stock in an unregistered, non-exempt security.
| 6. Unlawful|
|An advisory services does not maintain custody of customer funds, requires no substantial prepayment of fees, and does not have investment discretion over client accounts. Which of the following would have to be promptly disclosed to clients?|
I. The SEC bars the EVP from association with any firm in the investment business.
II. The firm is fined $3,500 from the NYSE
III. A civil suit is filed against the firm by a client alleging unsuitable recommendations.
|I, II (4-139)|
|An investment advisory contract need not include:|
A. the fees and their method of computation
B. a statement prohibiting assignment of client accounts without client consent
C. the states in which the adviser is licensed to conduct business
D. notification requirement upon change in membership of an investment partnership
|T/F: An Administrator may not prevent custody of securities or funds as long as the adviser notifies before taking custody.||FALSE. (4-143)|
|T/F: An adviser may not sell securities to its customers from its own proprietary account.||FALSE. (4-143)|
|T/F: Under USA antifraud provisions, an investment adviser is bound by the restrictions that apply to sales prectices when engaged in sales activities.||TRUE (4-143)|
| WHich of the following would NOT be included in the safe harbor provisions of Section 28(e)?|
A. Proprietary research
B. Third-party research
D. Seminar registration fees
| When an investment adviser with discretion over a client account directs trade executions to a specific BD and uses the commission dollars to acquire analytical software, this is known as:|
A. hard-dollar compensation
B. indirect compensation
C. investment discretion
D. soft-dollar compensation
| WHich of the following is an example of a BD engaging in market manipulation?|
III. Wash Sale
IV. Matched purchases
|III, IV (4-154)|
|A customer calls to check on account value at 9AM. Her agent calls back at 2. During that time, the account value dropped from $11,150 to $10,000. What shoudl the agent say?|
A. "When you called, your account had a value of $10,000.
B. "Your account value cannot be determined until the market closes."
C. "Your account is valued at $10,000 at this time."
D. "Your account was down to $9,700 earlier today but is now up to $10,000."
|All of the folloing are prohibited EXCEPT:|
I. borrowing money or securities from the acount of a former banker with express written permission.
II. failing to identify a customer's financial objectives.
III. selling unregistered, non-exempt securities to a closed-end investment company.
IV. supplying funds to a client's account only when or if it declines below a preagreed-upon level.
| A customer is upset with her agent and sends him a complaint letter. The agent should|
A. call the customer, apologize, and attempt to correct the problem.
B. tell the customer he is willing to make recission.
C. do nothing
D. bring the complaint to his employer immediately
|The Administrator may suspend or revoke a registration if an agent|
I. borrows money from his wealthy clients' accounts
II. solicits retail orders for nonexempt unregistered securities
III. buys and sells securities in accounts to generate a high level of commission.
IV. alters market quotations to induce a client to invest in an attractive growth stock.
|An investment adviser may legally have custody of client money if|
I. the adviser is not bonded
II. the Administrator has not prohibited custodial arrangements
III. the adviser does not also have discretionary authority over the account
IV. the adviser has notified the Administrator that he has custody.
|II, IV (4-154)|
| Which of the following is an example of market manipulation?|
A. Creating the illusion of active trading
B. Ommitting material facts in a presentation
C. Guaranteeing performance of a security.
D. Transacting in excess of a customer's financial capability.
|An advertisement by a BD would be exempt from meeting certain disclusure requirements of the 1998 NASAA Model Rule if|
A. it was distributed to a limited demographic group
B. the BD and bank were not affiliated
C. it were a radio ad of 30 secs or less that was not made misleading by the ommission of disclosures
D. the ad was only related to NYSE stocks.
|Which of the following is prohibited?|
A. Participating in active trading of a security in which an unusually high trading volume has occured.
B. Offering services that an agent cannot realistically perform because of BD limitations.
C. Altering a customer order at the request of a customer, resulting in a substantial loss.
D. Failing to inform a firm principal of frequent oral customer complaints.
|An agent uses a rumor to convince a client to purchase a security. The agent may:|
A. recommend the security if it is an appropriate investment.
B. recommend the investment if the rumor is based on material inside information
C. recommend the security if the source of the rumor is reliable
D. not recommend the security.
|If an agent thought a tech stock was undervalued and actively solicited 75% of his customers to buy the stock, the agent|
I. did not violate the USA if all material facts were disclosed
II. committed an unethical sales practice because the firm has not recommended this stock.
III. committed an unethical business practice
IV. did not commit a violation if all clients were accurately informed of the price of the stock.
|III (4-155) C|
|Which of the following transactions is prohibited?|
I. Borrowing money from a high net worth customer
II. Selling speculative issues to a retired couple of modest means on a fixed income.
III. Failing to follow a customer's orders so as to prevent investment in a security not adequately covered by well-known analysts
IV. Backdating confirmations for the benefit of the client's tax reporting.
|It is legal for an agent to tell a client that|
A. a registered security may lawfully be sold in that state
B. an exempt security is not required to be registered b/c it is generally regarded as being safe than a nonexempt security.
C. the agent's qualifications have been found satisfactory by the Administrator.
D. a registered security has been approved for sale in the state by the Administrator.
| An agent omits facts that a prudent investor requires to make informed decisions. This action is|
A. Fraudulent for nonexempt securities only
B. Fraudulent for exempt securities only
C. Fraudulent for both exempt and nonexempts securities
D. not fraudulent if the ommission was not willful.
|Which of the following is NOT a prohibited practice?|
A. An agent places an order to purchase a stock ahead of a large institutional order he has just received.
B. An agent received an unsolicited order from a client 10 seconds after submitting his own order. It turns out the agent acquired the shares for less than the client and did not make up the difference.
C. A principal of a BD allows a rumor to spread that a company is going to acquire another. After a few days, the BD sells the acquirer short for its own account.
D. An agent sells a customer's stock at the bid price and makes up the difference with a personal check.
|Which of the following are prohibited?|
I. Recommending tax shelters to low-income retirees
II. Stating that a state Administrator has approved an offering on the basis of the quality on information found in the prospectus
III. Soliciting non-institutional orders for unregistered, non-exempt securities
IV. Employing any device to defraud.
| An IA may have custody of a customer's funds and securities if|
A. it has received the permission of the Administrator
B. It has received permission from the SEC
C. It does not share in the capital gains of the account.
D. The Administrator has been informed of the custody.
|Which of the following is prohibited?|
A. An agent enters into an agreement to share in the profits/losses of a customer account without the written consent of his BD
B. The agent and his spouse jointly own their own personal trading account at the firm.
C. The agent, with his firm's and the client's written permission, participates in the profits and losses of the customer's account.
D. An agent refuses a client's request to share in the performance of the client's account.
|A BD and IA are under common control . An agent of the BD and IAR have a client with $250K under an asset management program. The client suggests the purchase of 500 shares of a particular stock in which the BD is a market maker. Thus, the sale will be made as a principal, a fact disclosed on the trade confirmation. The registered person has acted. . . |
A. lawfully in that the disclosure of capacity was made on the confirmation.
B. lawfully in that the disclosure of capacity is not necessary when executing trades in managed accounts.
C. unlawfully in that any stock in which the BD is a market maker is probably not suitable for a managed money client.
D. unlawfully in that the IA is required to make written disclosure BEFORE completion of the trade and receive client consent if the firm or an affiliate will be acting in a principal capacity.
|Which of the following is prohibited?|
I. An IA firm organized as a partnership failed to inform clients of a minority partner.
II. AN IA firm charges an annual fee of 2% of the first $250K AUM, 1% of the next $500K, and 0.5% thereafter.
III. The majority stockholder of an IA pledges his stock as collateral for a loan taken out by the firm without obtaining client consent for assignment of contracts.
IV. An adviser engages in agency cross transacations.
|I, III (4-157)|
|A BD has 5 partners. A minor partner fails to make sure that the firm maintained minimal capital requirements. Which of the following is true?|
I. only the offending parnter will have his license suspended.
II. The Administrator may revoke the entire firm's right to sell securities.
III. A revocation of the firm registration would cause each of its agents registrations to be terminated.
IV. The firm could be fined up to $5,000 but incur no suspension.
|II, III (4-157)|
|When may the intentional omission of a fact in a securities transaction be considered fraud?|
A. If a reasonable person would attach decision-making importance to the ommitted information.
B. Only if the information was known beyond all doubt to be factual.
C. Only in the case of a new issue of securities.
D. Any time the information is known by fewer than 25 persons.
|All of the following are prohibited EXCEPT|
A. Making recommendations on the basis of material, non-public information.
B. Making recommendations on the basis of material information after is has been publicly released.
C. making recommendations without having reasonable grounds for believing they are suitable.
D. stating that the recommendations have been approved by the Administrator.
|All of the following are prohibited EXCEPT|
A. failing to indicate that securities prices are subject to market fluctuation
B. ignoring an order to buy a stock immediately at the market price because the price is falling and the customer will likely get a better price by waiting.
C. telling a customer that commission, taxes, and other costs will be higher than normal even when you do not know exactly how high they will be.
D. wash sales and matched orders to create the appreance of market activity.
|Which of the following IA firm activities would not require client consent?|
A. Retirement of a sole proprietorship IA who sells the practice to another IA.
B. COO wishing to pledge her majority interest in the firm to a local bank for a loan to purchase an office building that will be leased to the firm.
C. A minority partner resigning from the firm to start his own advisory firm.
D. An IA wishing to merge with a larger, national advisory firm.
|C (would require notification, but not consent) (4-158)|
|Which of the following contracts would be lawful?|
I. An IA contract for a mutual fund w/ a 1% of NAV fee to the investment adviser.
II. An IA contract granting the adviser 5% of any increae in the client's capital assets.
III. An IA contract specifying a 2% fee for the first 10,000 of profit and 1% of all profit over and above that.
IV. An IA contract providing that the adviser receive 0.5% of the monthly value of the funds in the account.
|I, IV (4-158)|
|WHich of the following is a fraudulent practice for an agent or BD?|
I. Giving inside info to privileged clients without a fee.
II. Informing other issuers about inside info with the intent of collectively taking advantage of it.
III. Having relatives in another state invest heavily in the security for which the agent has inside info.
IV. Investing large sums of the firm's money in the issue in question with the written consent of all partners.
|A wealthy client complains about low CD rates, and an agent offers to borrow up to $100,000 from him at prime +1 and will deposit securities as collateral. Under the USA:|
A. it is prohibited to boorrow money from a client unless the client is in the money lending business.
B. it is always prohibited to pay a client more than a bank CD rate.
C. it could be permitted if the proper disclosures were made.
D. approval of the appropriate supervisor of the agent's form woudl be required.
|A client has a cash account at his BD. He wishes to open a margin account as well. What action must be taken?|
A. Verbal instructions to open the acount are sufficient because the customer relationship already exists.
B. The customer must make the request in writing, either by mail or fax.
C. The firm must obtain a properly executed written margin agreement promptly after the initial transaction in the account.
D. The customer must physically present himself at the agent's office and sign the appropriate papers.
|A BD wants to promote and reward teamwork, so the firm plans to pay out a small percentage of year end profits to the clerical staff as a bonus. Is this permitted?|
A. yes, if the bonuses are equally divided.
B. yes, if all agents agree to it.
C. yes, if the clerical staff are all registered agents.
D. yes, as long as the compensation is not sales related.