Term
| The practice of stealing an individual's personal information for criminal activity is generally referred to as: |
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Definition
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Term
| Examples of identity theft would include: |
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Definition
| taking over an individual's credit card account; applying for new credit cards in the compromised individual's name |
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Term
| One of the major differences between identity theft and physical theft is that in the case of identity theft: |
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Definition
| it might not be discovered for some time |
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Term
| What could be a red flag regarding identity theft? |
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Definition
| receipt of a credit card for which no application was made; receipt of a notice of a change of address on a credit card account that was not made by the account holder |
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Term
| When a brokerage firm sells stock from it's own inventory, it is acting in the capacity of: |
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Definition
| a principal, and charges a markup |
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Term
| When does a customer have to receive the OCC Options Disclosure Document? |
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Definition
| At or prior to the time the account is approved for options trading |
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Term
| Disclosure to customers of a broker-dealer's control relationships is required in: |
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Definition
| agency, principal, and exempt transactions |
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Term
| The customer identification program (CIP) requires that certain information relating to US citizens be obtained, which are: |
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Definition
| client's name, physical address, date of birth, and social security number. |
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Term
| What information must be entered on a new account form? |
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Definition
| Names of all persons who will have access to the account |
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Term
| To comply with the regulations regarding customer identification programs, the minimum identifying information that must be obtained from each customer before opening an account includes: |
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Definition
| name, taxpayer identification number |
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Term
| Which pieces of information must an agent attempt to obtain when opening a new account? |
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Definition
| financial condition, investment objective |
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Term
| What constitutes a discretionary order? |
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Definition
| Authorization to choose the security, the amount of shares, or whether to buy or sell. |
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Term
| What may be determined by an agent without written discretionary authority? |
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Definition
| the time or price at which to enter an order |
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Term
| A person who is vested with legal rights and powers to be exercised for the benefit of another is known as: |
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Definition
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Term
| One thing that is NOT a general principle of the prudent investor standard is: |
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Definition
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Term
| The ABC Growth Fund directs a sizeable portion of it's portfolio executions to your broker-dealer. If the firm has this fund on it's highly recommended list, this would be |
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Definition
| a conflict of interest that would have to be disclosed |
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Term
| Excessive activity in a customer's account primarily for the purpose of generating excess commissions for the agent is referred to as: |
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Definition
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Term
| An agent tells a customer that by investing in US Treasury bonds, he is guaranteed to make money. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents: |
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Definition
| this is unethical because it constitutes a guarantee against market risk. |
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Term
| Your client has given you discretionary authority to trade her account with a beginning balance of $100,000. Her primary objective is long-term growth with low to moderate risk. A review of the account shows that while the Dow Jones Industrial Average has dropped by 2.2%, the client's account value is $105,300. If commissions from trading totaled a bit over $6000, it is likely that your principal will: |
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Definition
| discuss the possibility that you may have been churning the account. |
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Term
| Your manager is reviewing the activity in your customer accounts to detect trading irregularities. Among the factors the manager will look for to determine if churning is occurring are: |
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Definition
| the financial resources of the account; the objectives of the account |
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Term
| The unethical business practice of selling away is defined as: |
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Definition
| When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations. |
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Term
| _______ are required to be maintained by financial institutions such as banks and broker-dealers by the USA PATRIOT Act to prevent the financing of terrorist operations and money laundering. |
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Definition
| customer identification programs (CIPs) |
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Term
All of the following information must be obtained from new individual customers EXCEPT:
-educational background
-physical address
-social security number
-date of birth |
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Definition
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Term
| A customer wishes to open a new account, but refuses to provide suitability information. Under NASAA rules, the agent: |
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Definition
| may open the account, but may not make any recommendations. |
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Term
| According to the USA PATRIOT Act, account identification and verification procedures should be applied to: |
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Definition
| new individual accounts; new business accounts. |
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Term
| The federal legislation that requires broker-dealers to verify the identity of any person opening an account is: |
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Definition
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Term
Obtaining all of the following complies with the regulations regarding customer identification programs (CIPs) except:
-a PO box, instead of a physical address, it is the primary mailing address
-name
-date of birth
-taxpayer identification number |
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Definition
| a PO box, instead of a physical address, if it is the primary mailing address |
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Term
| Which types of accounts are billed a single fee which includes a group of services such as execution of transactions and advice: |
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Definition
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Term
| Which documents must an existing customer sign to establish a discretionary account? |
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Definition
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Term
| Who are governed by the prudent investor rule? |
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Definition
| trustee, executor, custodian, and agent who has been granted discretionary authority. |
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Term
| Which of the following statements are TRUE of a discretionary account at a broker-dealer? |
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Definition
| It must be approved by a designated supervisory individual of the firm; It must be reviewed frequently to minimize the chances that the account has been churned |
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Term
| Written discretionary authorization is not required for an agent to choose: |
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Definition
| time of execution, price of execution |
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Term
| A broker-dealer must provide a risk disclosure document to a customer before opening which accounts? |
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Definition
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Term
| A customer opens a margin account with a broker-dealer and signs a loan consent agreement. The loan consent agreement allows the firm to: |
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Definition
| loan out the customer's margin securities. |
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Term
| The disadvantage of margin accounts is: |
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Definition
| the investor can lose more funds than have been deposited into the account. |
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Term
| What must be completed prior to customers entering their first option trade? |
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Definition
| completion of new account form; approval by a designated options supervisor; delivery of the options disclosure document (ODD) |
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Term
| What action should be taken by an agent when a client decides to open an options account? |
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Definition
| Review with the client the risks involved when trading options before the first options trade |
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Term
| When does a customer have to receive the OCC Options Disclosure Document? |
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Definition
| Before accepting the customer's first order to trade options covered by the ODD |
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Term
| Under industry rules, customers who wish to trade options must receive a copy of the Options Disclosure Document (ODD) when? |
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Definition
| at or before account approval |
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Term
| Examples of unethical business practices include: |
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Definition
| a distribution of any nonfactual data; any material or presentation based on conjecture; unfounded or unrealistic claims in any brochure, flyer, or displayed by words, picture, or graphs; or anything otherwise designed to supplement, detract from, supersede, or defeat the purpose or effect of any prospectus or disclosure. |
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Term
| A broker-dealer sends an email to it's more conservative clients stating this would be an excellent time to invest in public utility stocks, and includes a list of those paying the highest dividends. This is an example of a_____? |
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Definition
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Term
| What condition would meet compliance standards of state regulators? |
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Definition
| Both supervisory personnel and agents need to understand the difference between interactive and static content. |
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Term
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following except:
-commissions on unsolicited trades
-account transfer fees
-charges for wiring funds
-account maintenance fees |
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Definition
| commissions on unsolicited trades |
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Term
| Securities regulators have taken a strong position on the need for registered broker-dealers to disclose the fees they charge. Among the most common ways for making this disclosure are: |
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Definition
| presenting a chart with all of the fees; preparing a list of all of the fees; and displaying the fees in tabular form. |
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Term
| Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include: |
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Definition
| a charge when a client requests that a stock certificate be issued in his name; the interest charged by the firm on money owed by customers in their margin accounts. |
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Term
| KAPCO Advisers, a registered investment adviser, recommends the purchase of 100 shares of GEMCO common stock to one of it's advisory clients. The client accepts the recommendation and the sale is made from KAPCO's inventory. This transaction: |
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Definition
| requires both written disclosure to and the consent of the client prior to the completion of the transaction. |
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Term
| Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser representative would be acting improperly if they: |
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Definition
| agreed to personally make up the difference if a client's account lost money; failed to inquire into a client's investment objectives financial situation and needs. |
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Term
| It would be considered a conflict of interest when an agent: |
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Definition
| recommends a stock to many of his clients immediately after purchasing some of those shares himself. |
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Term
| Functioning responsibility as an agent requires disclosure of any potential conflicts of interest that could arise from a securities recommendation. Examples of potential conflicts of interest that must be disclosed to clients that would NOT include: |
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Definition
| recommending shares of a pharmaceutical company that manufactures a drug that the agent takes for chronic indigestion. |
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Term
| Examples of potential conflicts of interest include: |
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Definition
| offering a proprietary product; an agent having a financial interest in a recommended security; a broker-dealer publishing a favorable research report after underwriting the issuer's stock offering; and the sponsor of a mutual fund offering a trip to Key West for all agents reaching a minimum sales level of any of the sponsor's funds. |
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Term
| If a broker-dealer offers or recommends products for which the firm receives greater fees or compensation than other products, it would be considered: |
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Definition
| a potential conflict of interest. |
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Term
| When the compensation arrangements or incentives for the broker-dealer or it's agents could affect whether employees recommend or offer a particular security or transaction to a client, it is required that the firm: |
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Definition
| disclose the potential conflict of interest. |
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Term
| Areas of concern for protecting customer data would include: |
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Definition
| a vendor misusing, or inadequately protecting confidential customer information; a vendor possibly failing adequately to protect confidential customer information after it's relationship with the firm is terminated. |
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Term
| If a broker-dealer provides investment advice or discretionary portfolio management services to it's clients and the firm also recommends or sells products that it or affiliated companies issue: |
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Definition
| disclosure of the potential conflict of interest must be made. |
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Term
| An example of a prohibited practice under NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents is: |
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Definition
| a broker-dealer failing to disclose that the firm is affiliated with the issuer of a recommended security. |
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Term
| The following statements may be made by an agent of a broker-dealer: |
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Definition
| I am a registered agent for the XYZ broker-dealer; this security I am recommending to you is registered on both the state and federal level. |
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Term
| JJ is an agent with HS co. an SEC registered broker-dealer. JJ's father, Andy, founded a start-up venture several years ago and the company, with Andy as it's CEO, had it's initial public offering 4 months ago. For JJ to recommend shares of this company to clients, he: |
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Definition
| would have to disclose the potential conflict of interest. |
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Term
| When a security is registered with the Administrator, it means that: |
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Definition
| the security may be legally sold in the state. |
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Term
| As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be: |
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Definition
| a prohibited guarantee against loss. |
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Term
| One of your customers sends you an email with an attachment describing a "can't miss" investment opportunity. What red flags should you share with the client? |
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Definition
| The offer shows an anticipated return of 5% per month with little or no risk; payments must be made by Western Union wire to an offshore account. |
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Term
| One of the popular social media sites, the one most though of as a business networking site is: |
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Definition
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Term
| A third-party post has been made on a broker-dealer's Facebook page. If the firm has involved itself in the preparation of the content, this would be known as: |
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Definition
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Term
| NASAA has released a Model Rule dealing with suggested procedures to follow in the event that forces beyond the control of investment adviser cause an interruption to it's ability to conduct business. This is: |
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Definition
| the Business Continuity Plan. |
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Term
| When an investment adviser prepares a BCP, it should be based upon: |
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Definition
| the size of the firm, the number of locations of the firm, and the types of services provided. |
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Term
In general, the BCP of an investment adviser should provide for all of the following EXCEPT:
-office relocation in the event of a loss of a place of business
-protection, backup, and recovery of books and records
-assignment of duties in the event of unavailability of key personnel
-assuring that the securities in client portfolios will not decrease in value |
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Definition
| assuring that the securities in client portfolios will not decrease in value |
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Term
| The most common purpose of a BCP is to have processes and procedures in place to ensure that: |
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Definition
| critical business functions can continue during and after a significant business interruption. |
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Term
| The NASAA Model Rule on Business Continuity and Succession Planning suggests that all BCP's should include: |
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Definition
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Term
| A succession plan under a BCP would likely be most important for an investment adviser that is: |
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Definition
| organized as a sole proprietorship. |
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Term
A BCP should be designed to provide policies to be followed in the event of any of the following EXCEPT:
-a disruption caused by tornado
-embezzlement by the firm's CFO
-a terrorist attack that leads to a lockdown and prevents the office from opening
-an overload at the local public utility that causes lack of power for at least 2 days |
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Definition
| embezzlement by the firm's CFO |
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Term
| One business succession issue that applies to virtually all investment advisers is: |
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Definition
| loss of the designated regulatory contact person. |
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Term
| The federal law dealing with privacy matters for financial institutions is: |
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Definition
| Regulation S-P. It requires that public companies to make full disclosure of material information to all investors at the same time. |
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Term
| Exchange-trade notes (ETNs) are: |
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Definition
| unsecured debt securities issued by financial institutions, such as banks. |
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Term
| If having discretion over $100 million or more in 13(f) securities, who would be exempt from filing a Form 13F? |
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Definition
| a natural person who exercises investment discretion over his/her own account |
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Term
| What is not a characteristic of exchange-traded notes (ETNs)? |
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Definition
| each note is secured by a single specified asset |
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Term
| A debt instrument, which may or may not be exchange traded, and where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index is known as: |
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Definition
| an equity linked note or index linked note (ELN or ILN). |
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Term
| Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products, but only one of them is accurate. Which is it? |
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Definition
| ETNs are issued by financial institutions, therefore, I should be concerned about the creditworthiness of the issuer. |
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Term
For a customer interested in buying an inverse exchange-traded fund (ETF) tracking the performance of the Standard & Poor's 500 Index, which of the following market views would make that purchase more inappropriate?
-neutral
-bearish
-bullish
-both bullish and bearish |
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Definition
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Term
| Inverse exchange-traded funds (ETFs), also known as reverse or short funds, are managed to: |
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Definition
| perform contrary to a benchmark market index such as the S&P 500. |
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Term
| A 3x leveraged inverse exchange-traded fund means: |
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Definition
| the goal of the fund is to have the shares go up by three times the amount that the targeted index falls. |
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Term
All of the statements regarding leveraged funds are true except:
-there are no unusual risks other than those one would incur with any index tracking fund
-some leveraged funds are exchange-traded products
-the funds attempt to return a multiple of the return of a benchmark index they are tracking, perhaps 2 or 3 times
-these funds sometimes use derivatives products to achieve their stated goals |
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Definition
| there are no unusual risks other than those one would incur with any index tracking fund |
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Term
Which of the following 2 are true of a leveraged exchange-traded fund (ETF)?
-the leveraged ETF may be purchased on margin
-the leveraged ETF may never be purchased on margin
-securities within the leveraged fund portfolio may be purchased on margin
-securities within the leveraged fund portfolio may never be purchased on margin |
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Definition
| the leveraged ETF may be purchased on margin; securities within the leveraged fund portfolio may be purchased on margin |
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Term
| Characteristics of a life settlement contract include: |
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Definition
| premiums will be paid by the contract owner; proceeds will be paid upon the death of the insured. |
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Term
| A 75-year old customer asks if it is possible to sell his $500,000 variable life insurance policy to a party other than the insurance company that issued the policy. If a sale occurs, known as a life settlement, what would be considered a violation of industry rules? |
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Definition
| Quoting the price using an exclusive buyer that handles all of the firm's life settlements. |
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Term
| Investors with a short time horizon most likely will invest in which class of mutual fund shares? |
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Definition
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Term
| What are features of Class C mutual fund shares? |
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Definition
| typically charge no front-end load; typically impose lower CDSC's than Class B shares for a shorter period |
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Term
| When comparing mutual funds, one of the factors to consider is: |
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Definition
| the length of time the fund manager has been managing the fund. |
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Term
| One of your clients is interested in investing in a large-cap growth fund and has a list of several that she has been investigating. When helping her compare, what factor would be irrelevant? |
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Definition
| dates that dividends are paid |
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Term
| A synthetic investment instrument that has been created to meet a specific need that cannot be met by a standardized financial instrument is known as: |
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Definition
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Term
| In search of higher returns, many investors have turned to structured products. Clients need to be aware that these are complex instruments which may have: |
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Definition
| credit or default risk because they are unsecured obligations of the issuing institution; and limited or no liquidity |
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Term
| Non exchange-traded structured securities products (SSPs) typically have: |
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Definition
| some form of embedded derivatives. |
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Term
| Social networking sites typically contain both static and interactive content. The difference between these two is that static content: |
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Definition
| remains posted until it is changed by the poster, while interactive content contains real-time communication. |
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Term
| Social media can be static or interactive. Examples of static content typically available through social networking sites exclude: |
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Definition
blogs.
May include profiles, backgrounds, and wall information. |
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