Question 1

Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients’ assets. Foo Lish, LLC must now I. file a new U-5 form with the Administrator. II. meet higher net capital requirements than before. III. file an updated Form ADV with the Administrator. IV. pay a CPA to do an annual unannounced audit of the firm.

Options :

A : I, II, III, and IV

B : II, III, and IV only

C : II and III only

D : I and II only

Answer: B

Question 2

Ken Con is an agent with Blue Sky Broker-Dealers. He gets up early each morning so that he can study any late-breaking news that may affect the markets and figure out ways to incorporate this news into conversations with select clients in order to pressure them to restructure their portfolios by selling holdings they have in one particular industry to invest the money in another particular industry. Ken has been very successful with this strategy and executes more trades for his clients than any other agent with the firm, but is he in danger of losing his license?

Options :

A : Yes. Ken is engaging in churning, a prohibited practice and can have his license revoked or suspended.

B : It depends. If his clients have lost money, Ken may lose his license; but if a review indicates that his clients’ accounts earn profits, then his license is safe.

C : Yes. Ken is guilty of the prohibited practice of “tailgating.”

D : No. Ken is just a successful sales person who is working harder than the other agents in the firm.

Answer: A

Question 3

Which of the following scenarios describes activities that are disallowed under the NASAA Model Rules? I. Broker-dealer Anon observes that a client placed a stop loss order to sell her 1,500 shares of Amazon.com stock for $131 when the stock was selling for $134. Anon sold the stock for $133 when it started to fall during the day and credited the client’s account with $131 per share when stock dropped further to $129 a share. II. Penny is an agent with Broker-dealer Anon. She recently recommended that a client buy a stock that Penny thought would do well. As it turned out, Penny was wrong, and she offers to refund the commission that the client paid her. III. Broker-dealer Anon is part of the selling group of a hot new IPO. As such, the firm purchases 50% of the shares for its own portfolio and sells the remainder to the public.

Options :

A : I only

B : I and II only

C : I and III only

D : I, II, and III

Answer: D

Question 4

Mina is a new agent with SecureMoney Broker-Dealers and is struggling to make ends meet. She gets a job as a receptionist at a fitness club on the weekends to generate more income. Which of the following is true?

Options :

A : Mina should have notified SecureMoney in writing before signing on to work at the fitness club.

B : Because the job as a receptionist at a fitness club has nothing to do with the world of finance, Mina has done nothing inappropriate.

C : Mina simply needs to tell her immediate supervisor at SecureMoney about her new job.

D : Mina needs to send notice to the state Administrator informing him of her extracurricular activity.

Answer: A

Question 5

White and Associates is an investment adviser registered in the state of Kentucky and, as such, is meeting Kentucky’s minimum net capital requirement for investment advisers. The firm recently registered with the state of Virginia and has opened an office there. Virginia has a significantly higher net capital requirement for its investment advisers. Which of the following statements is true?

Options :

A : According to the Uniform Securities Act, S. White will have to meet Virginia’s higher requirement.

B : According to the Investment Advisers Act of 1940, S. White needs only to meet the net capital requirement of Kentucky.

C : According to the Securities Exchange Act of 1934, S. White needs to meet at least the minimum net capital requirement specified by that Act since it is now operating in multiple states.

D : According to the Investment Advisers Act of 1940, S. White will have to maintain a minimum net capital equal to the average of the net capital requirements of the two states.

Answer: B

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