Term
|
Definition
|
|
Term
| True or false - companies that issue gas and mining securities are considered issuers. |
|
Definition
| Certificates of interest in oil gas and mining are securities, but the corporations that issue them are not considered issuers. So the answer is false. |
|
|
Term
| What investment products are excluded from the definition of securities? |
|
Definition
| Fixed life; endowment policies; fixed annuities; collectibles; commodity futures; real estate; precious metals. Firms or persons don't have to register if they are giving advice about products that are NOT securities. |
|
|
Term
| According to USA, which of the following are specificually excluded from the definition of a Broker-Dealer? IA and IARs; Lawyers; Issuers; Accountants; or all of them? |
|
Definition
| Answer is Issuers. Issuers are the only ones specifically excluded. |
|
|
Term
| It is unlawful to transact business in a state for an IA or IAR unless…. |
|
Definition
| If it has no place of business in state and all clients are intitutional; or, IA or IAR does not direct any business communications in a state (including advertising) to no more than five retail clients. If you get to six retail clients -- you will have to register. Remember institutional investors and officers of the investment advisor are not included in the count when determining if the IA has six or more clients. (unless you are a federally covered - then just notice) |
|
|
Term
| How many clients will a BD have to have before a BD or agent of a BD has to register? |
|
Definition
| Unlike IARs, BDs must register if they have even just one client in a state. There is no threshold. If you have a single client in a state as a BD you have to register. |
|
|
Term
| What is automatic registration of certain personnel? |
|
Definition
| Auto registrations ocuur for partners, officers, directors of similar functions - but they may still have to qualify and take tests because firm statements already contain qualification and business histories of these executives. |
|
|
Term
| Whan a BD or IA firm first files how long is it active? |
|
Definition
| For the remainder of the year until Dec. 31 then renewed annually. |
|
|
Term
| Agents of BDs must renew their registrations when? |
|
Definition
| By Dec. 31 of each year. Broker-Dealers must renew annually |
|
|
Term
| Changes of material fact (i.e, company address, ownership, registrations, etc.) are reported to whom? |
|
Definition
|
|
Term
| Registration does not mean approval or qualification. |
|
Definition
|
|
Term
| Can a Canadian BD transact business for a client who is visiting the US? |
|
Definition
| May engage in a transaction as long as the client relationship was established prior to being in the USA. |
|
|
Term
| Can a Canadian BD transact business for a client who has relocated to the US? |
|
Definition
| Transactions are limited to those in a self-directed retirement plan in Canada. |
|
|
Term
| Explain limited registration of Canadian BDs and Agents. |
|
Definition
| File application with Canadian authority; file of a consent to service of process. Registration in good standing; must be members of an SRO or exchange in Canada. Renewal apps must be filed annually by Dec. 1. |
|
|
Term
| How long must surety bonds be kept in force? |
|
Definition
| While in business and three years therafter. |
|
|
Term
| Explain BD surety bond and other related requirements when they have discretion or custody over client accounts. |
|
Definition
| BDs may have to have: minimum capital requirements subject to limis of 1934 ACT; may have to have a surety bond as requested by state administrator; may be subject to examination fo books; however, NO state can set rules in excess of SEC requirements per the 1934 ACT. They have to mirror the act. |
|
|
Term
| Explain AGENT surety bond and other related requirements when they have discretion or custody over client accounts. |
|
Definition
| Agents with discretionary authority may be required to surety bonding; qualification exams; and agents are NOT subject to minimum capital requirements. |
|
|
Term
| Explain rules that IAs with discretion or custody have. |
|
Definition
| Minimum capital requirements; surety bonds; examination of books. |
|
|
Term
| True or False? Federal covered advisors are not subject to the requirements of the Investment Advisers Act of 1940. |
|
Definition
| False. Federal covered advisors are subject to the requirements of the Investment Advisers Act of 1940. |
|
|
Term
| What are bonding requirements for IARs? |
|
Definition
| Left to state administrator discretion, including the amount. Administrator may prohibit custody of funds. IARs have no minimum capital requirements. |
|
|
Term
| Do minimum captial requirements apply to both individual and firm? |
|
Definition
| Minimum capital requirements apply to firms not individuals. |
|
|
Term
| When an agent terminates, who is responsible for notification? |
|
Definition
| When an agent begins or terminates employment. Both the agent and BD are responsible for notification. |
|
|
Term
| When an IAR terminates, who is reponsible? |
|
Definition
| When an IAR begins or terminates: If state IA, the IA is responsible; if a federal registered IA, then the IAR is responsible. |
|
|
Term
| What form is completed when an Agent or IAR is terminated? |
|
Definition
| Termination of agents and IARs is reporte on form U-5. |
|
|
Term
| When a Broker Dealer or Investment Advisory Firm initially files, how long is it active? |
|
Definition
| Active for the remainder of the year until Dec. 31st, then renewed annually (not necessarly by Dec. 31). AGENTS must renew by Dec. 31 each year. |
|
|
Term
| When do you report changes of material fact and to whom? |
|
Definition
| Promptly to the administrator. |
|
|
Term
| When is it ok for a Canadian BD or Agent to sell a security to a client in the US |
|
Definition
| Either vacationing or only have a self-directed tax advantaged plan in canada. |
|
|
Term
| What are "limited registration" requirements for canadian BD and Agents? |
|
Definition
| 1. application with appropriate Canadian authority; 2. filing of a consent to service of process; 3. registration in good standing; 4. must be a member of a SRO or Canadian stock exchange. Renewal applications must be filed annually by December 1 (note NOT 31st). |
|
|
Term
|
Definition
| measure of the sensitivity of a bond's market price to changes in interest rates. 5% in price movement for every 1% movement in interest rate = duration fo 5. |
|
|
Term
| What is duration of zero coupon bond? Whas is convexity? |
|
Definition
| A duration equal to its maturity. Coupon bonds have a lower duration because coupon bonds pay semi-annual interest whereas zero coupons don't. Large yield changes greater than 1% are measured by convexity. |
|
|
Term
| After tax yield equation, |
|
Definition
| Annual interest x (100% - investor's tax rate) AIx100%-ITR NOTE - do a few of these for exercise |
|
|
Term
| Assessing the safety of a bond. |
|
Definition
| Cash Flows, Revenue to Assets, Leverage, but NEVER profitiability ratios. |
|
|
Term
|
Definition
| The expected yield the investor is expected to receive on the first or next call date. Affected by call premiums, time to call and price paid. |
|
|
Term
| A call premium will cause what? |
|
Definition
| Will cause the yeild to call on the bonds trading at a discount or par value to be higher than the yield to maturity. |
|
|
Term
|
Definition
| Used when interest rates are low - foreign company issues bonds in US dollar. |
|
|
Term
|
Definition
| Latin American issued bonds backed by US Treasury Zero Coupon bonds. Fixed or Variable maturing in 10 to 30 years. |
|
|
Term
|
Definition
| PVC … Par Value/Conversion Price = Shares |
|
|
Term
| Explain Credit Spread with bonds. |
|
Definition
| The difference between two bonds of similar maturity - generally corporate and treasury. %Yield of one bond MINUS %Yield of another bond x 100 = spread (4.60% = 2.54% = 2.06% x 100 = 206 basis points - the spread. Remember - bonds are quoted in basis points. Higher spreads are riskier. If a credit spreads widens, it becomes risker. |
|
|
Term
| Is short selling allowed in a cash account? |
|
Definition
| No, only in a margin account. |
|
|
Term
|
Definition
| Brokers are agents who bring together buyers and sellers and charge a commission for both - they bring the buyer and seller together and both customers are charged a commission. Agent-Broker-Commission. |
|
|
Term
|
Definition
| Dealers act as principals and do "principal" transactions. They buy or sell from their own inventory. They charge markups and downs. It is NEVER legal to charge commissions and be a dealer an charge markups. It's one or the other. |
|
|
Term
|
Definition
| A blotter is like a daily log of activities. A temporary record until transferred to permanent record books. Shows purchase and sales, cash activity, securitieis received and delivered. |
|
|
Term
|
Definition
| The DMM is required to maintain a fair and orderly market in the securities assigned to him. Securities that trade on an exchange are considered "listed securities" Exchange has "auction market" style. |
|
|
Term
| Who trades OTC - what are they called and explain which markets are negotiated and which markets are listed? |
|
Definition
| OTC is unlisted. Trades take place off the floor of an organized exchange. Unlisted securities are traded by market makers who trade from their own inventory. Think about a pharmacist selling you from his counter. Market makers maintain a firm Bid Ask price. OTC is considered a "negotiated" market. |
|
|
Term
|
Definition
| HFTs - high frequency trading systms are mostly for short-term trades. Some are hybrid - act as both proprietary traders and market makers. Delta-neutral ends the day flat, nont delta-neutral means net long or net short positions held. |
|
|
Term
|
Definition
| Program trading is based on computer signals - electronic trades of a basekt of stocks for index arbitrage, portfolio restructure, etc. Must involve at least 15 different stocks with a value of $1M |
|
|
Term
|
Definition
| Dark pools are e platforms run by large investment banks for institutional investors. Anonymous. Lots of liquidity for block trades. |
|
|
Term
|
Definition
| 10,000 or more shares of common stock or securities with a value of $200,000, whichever is greater. There are more dark pools than public exchanges. Execute at midpoint of bid and ask price. Allow trading of large blocks without moving the price of the stock being traded. |
|
|
Term
|
Definition
| Arbs make trading markets more efficient. Takes advantage of price disparities that are momentary. |
|
|
Term
|
Definition
| Market risk is systematic risk - the market system. Can't reduce by diversification. Other includes interest rate risk. |
|
|
Term
| What types of bonds are most sensitive to interest rate fluctuations? |
|
Definition
| Zero coupon bonds are the most sensitive to interest rate fluctuations. |
|
|
Term
| List the Order of asset distribution |
|
Definition
| Order sequence: 1. Taxes; 2. Secured debt; 3. Unsecured debt like debentures, general creditors, accounts payable (not backed by hard assets). 4. Preferred; 5. Common stockholders. Common stock is riskiest asset class |
|
|
Term
| What is Opportunity Cost? |
|
Definition
| The next best choice is made. Should have chosen the first one. |
|
|
Term
| Investment policy statement per ERISA says |
|
Definition
| Goals and objectives; purpose; guidelines; risk and liquidty requirements; asset class allocation expectations; time horizon. NOT: specific criteria for selecting specific investments; NOT IA fees - those are in ADV; NOT plan summary doc. |
|
|
Term
| Investment Policy Statement Risk Tests |
|
Definition
| Tests involve amount of risk involved in investing; and if the plan allows it, index options etc. can be done. |
|
|
Term
|
Definition
| Sale or leasing between pension plan and party; furnishing of goods and party; acquisition of any employer security or real property unless erisa allows; use of plan assets for disqualified persons - parents, family, etc. |
|
|
Term
|
Definition
| If employee had self-direct account - not liable for bad decisions. The three plans must have different risk levels; must have disclosures and education; the basics. They may make changes no less than quarterly. |
|
|
Term
|
Definition
| Can't offer just the company's own securities |
|
|
Term
| Qualified Plans - Defined Benefit |
|
Definition
| Defined Benefit Plans - benefits are computed using predetermined formula. Calculated on age, years of service, and compensation. High salaried employees near retirment benefit most. Taxable as ordinary income. |
|
|
Term
| Qualified Plans - Defined Contribution |
|
Definition
| Both can make contributions and employers can match; retirement benefit cannot be calculated in advance. Based on performance. i.e. - 401(k). |
|
|
Term
| New IRA participation rules |
|
Definition
| Part time employees: 500 hours per year or three consecutive years. Or complete a one year of service with 100 hours; |
|
|
Term
|
Definition
| Public educational systems; certain 501c3s; certain employers of ministers; designed for nonprofit orgs, churches, hospitals, etc. and schools. 403b plans cannot invest in limited partnerships. |
|
|
Term
|
Definition
| For state or local gov. or Max is 19k with 6k catch up in 2019; 19,500 with catch uf of 6,500 in 2020. |
|
|
Term
|
Definition
| Only select group of management or highly compensated employees. (hospitals, unions, nongov - non public) |
|
|
Term
|
Definition
| employer only fixed contribution made annually, but employee does not have fixed percentage. Limited to 56k 57 for 2020 The difference, however, is that profit sharing plans provide employers with the flexibility to adjust yearly contributions based on the profitability of the business, while money purchase pension plans require employers to make annual contributions of a fixed percentage – regardless of whether the business makes a . |
|
|
Term
| What is max contribution to coverdell |
|
Definition
| 2000 per year period. Contributions end age 18 unless special needs. If don't distribute before age 30 10% penalty. Not tax deductible, but withdrawals are but must be used for education only or penalty is 10%. |
|
|
Term
| What are coverdell limits to cont |
|
Definition
| Qualified higher and secondary. If agi is over 95 to 110k single; 190 and 220k married. Can be transferred to a sibling. |
|
|
Term
|
Definition
| If owned by student, BAD. If owned by parent, good. Qualified distributions are not counted as income and don't hurt financial aid. |
|
|
Term
|
Definition
| Pre-paid tuition. Prepaid tuition is a hedge and can be used for all education levels. Prepaid plans DO NOT HAVE INVESTMENT RISK. |
|
|
Term
|
Definition
| Owner assumes risk. Stocks and bonds. Earnings accumulate tax free. Potential for higher returns than prepaid plans but have risk. Secure Act of 2019 now allws withdrawals up to 10k to payoff student loans. |
|
|
Term
|
Definition
| Municipal securities exempt from registration. |
|
|
Term
|
Definition
| 75k one year kick start; or 15k -study your note on this. |
|
|
Term
|
Definition
| Only the account owner can withdraw. Not beneficiary. |
|
|
Term
|
Definition
| receipt of scholarship will not hurt |
|
|
Term
|
Definition
| 529 is considered asset of the parent for financial aid qualification purposes. Assets in child name assessed at rate of 20% for expected family contribution as opposed to parent assssment bracket of 5.64% --- meaning this is a good idea for financial aid planning. |
|
|
Term
| Corporate tax return deadline |
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
| Bond interest pretax deduction? |
|
Definition
| Bond interest is always a pre-tax expense on an income statement |
|
|
Term
|
Definition
| Always an "after tax" deduction because they are a "want to" |
|
|
Term
| Can you trade options in a cash account? |
|
Definition
| No, only in a margin account. |
|
|
Term
|
Definition
| NEOs - net earnsings/oustanding shares |
|
|
Term
| Employee stock option trivia |
|
Definition
| usually option policies and transactions are in the footnotes of annual report |
|
|
Term
|
Definition
| Earnings before interest and taxation - profit after expenses but prior to payment of interest and taxes. Remember - interest on debt is subtracted because interest is a pre-tax deduction |
|
|
Term
| Total Income AKA Earings Before Income |
|
Definition
| Same as EBIT but interest payments subtracted and then taxes subtracted and it becomes net income (EAT) Earnings After Taxes before dividends. |
|
|
Term
|
Definition
| Net earnings - after taxes less div paid on preferred stock- once you subtract common dividends from net earnings you get retained earnings. |
|
|
Term
|
Definition
| overall profibility after all divs and expense paid. |
|
|
Term
| Conservative Capital Structure |
|
Definition
| Large% common outstanding; Small% bonds outstanding |
|
|
Term
| Speculatitive Capital Structure |
|
Definition
| Large% Bonds, small common outstanding |
|
|
Term
| Extraordinary expenses show up on |
|
Definition
|
|
Term
|
Definition
| using ratio analysis to analyze a company. EPS |
|
|
Term
| How do you calculate earnings per share? |
|
Definition
| Net Earnings/common shares outstanding = EPS. Trick. Use your fishing net and divide it by the fish you have to catch because they are still outstanding |
|
|
Term
|
Definition
| Current Assets / Current Liabilities - should always be 2:1. It only describes liquidity. Trick: Cackle like a witch except CA/CL. |
|
|
Term
|
Definition
| Total Debt / Net Worth (or shareholder equity it's the same thing). A measurey of financial leverage |
|
|
Term
|
Definition
| Operating Profit / Gross Sales |
|
|
Term
|
Definition
| Shareholders Equity + Bonds outstanding equals total capital |
|
|
Term
|
Definition
| Net Income (net profit after taxes) / total tangable Assets |
|
|
Term
|
Definition
| Total Liabilities + Net worth (or shareholders equity) |
|
|
Term
|
Definition
| Current Assets Less Inventory / current liabilities. Standard minimum is 1:1. The most stringent measure of corporate liquidity. |
|
|
Term
| PE Ratio (sometimes called "multiple" |
|
Definition
| MEPS! Market price / EPS. It's what the market views about a company's earnings potential. You want it in the teens 13:1 or 20:1. If too high - sooner or later something will happen- company may not be worth it. |
|
|
Term
|
Definition
| Caluclated recent earnings 12 month |
|
|
Term
|
Definition
| Caluclated using projected 12 months |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Used by money mangers to see if stock overvalued. Market Price/Book Value per share. |
|
|
Term
|
Definition
| Total Stockholders Equtiy -preferred stock/common shares outstanding. High PB Value could be a growth stock. A low PB could indicatean undervalued stock. |
|
|
Term
|
Definition
| Net income + depreciation and amoritization (does not consider long term costs. Cash Flow from operations give investors an idea of cash flow over a specified period of time. |
|
|
Term
|
Definition
| unscheduled events that need to be reported. Must be filed within 4 days. |
|
|
Term
|
Definition
| Stock picking and timing the market |
|
|
Term
| Tactical Asset Allocation |
|
Definition
| Market timing market timeing. Short term asset mix focus. It is a form of market timing!!!! And is a form of active. |
|
|
Term
|
Definition
| Focus on growth stocks with higher p/e earnings - generally 35 or higher. Focused on earnings and momentum. |
|
|
Term
|
Definition
| Low PE and low Price to book with no debt. Overall yield, book value, etc. |
|
|
Term
|
Definition
| Portfolio is set and rebalanced at pre-determined intervals. This is what we do. Rebalancing brings it back to life. |
|
|
Term
| Strategic Asset Allocation |
|
Definition
| Assets are kept at an assigned balance. Stick to percentages to get the highest return versus risk. It is a form of Passive Asset Allocation. |
|
|
Term
| Barbell investment strategy is what? |
|
Definition
| Higher risk end hold long term bond, lower end carries short term bonds. Looks like a barbell. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| When there is a deviation between an index fund's performance and its benchmark. |
|
|
Term
|
Definition
| Market Price x number of shares outstanding. |
|
|
Term
|
Definition
| Simplist form of portfolio management. No rebalancing so no transactions costs. |
|
|
Term
|
Definition
| Do the opposite of what most investors are doing |
|
|
Term
|
Definition
| Creates a frequency distribution table based on a wide range of potential outcomes. |
|
|
Term
|
Definition
| Buying securities in increments |
|
|
Term
|
Definition
| a negative when a manager drifts from what they historically have done. |
|
|
Term
|
Definition
| lessens unsystematic risks (those associated with one company or industry). The broader the investment classes the better |
|
|
Term
|
Definition
| Company-specific including earnings momentum |
|
|
Term
|
Definition
| Market patterns and trends. Point & Figure charting, moving averages, advances and declines, odd lott sales of less than 100, P/E changes of DJIA |
|
|
Term
|
Definition
| Data tha can be accurattly measured - no subjective data - profits, margins, assets, specific company data |
|
|
Term
|
Definition
| Company by company analysis |
|
|
Term
|
Definition
| Starts with global outlook downward |
|
|
Term
|
Definition
| Tendency for inflation to remain constant unless there is a demand or supply shock. |
|
|
Term
|
Definition
| Small cap segment of Russell 3000 |
|
|
Term
|
Definition
| Large cap segment of 3000 |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Has narrow or small spreads between bid and ask. |
|
|
Term
|
Definition
| Can only be calculated for postive numbers |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
| The number that most frequently occurs. There can be more than one mode. |
|
|
Term
|
Definition
| Difference between highest and lowest numbers |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Form CRS for BDs, Form ADV-3 for IAs. Description of services, fees and costs, history and link to SEC education website. Deliver to new and existing customers. Before or at the time. If any material becomes inaccurate - 30 days to amend - then existing customers within 90 days. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Only with qualified clients and may induce higher risk investing. |
|
|
Term
| NASAA Part 2A requirements initial delivery |
|
Definition
|
|
Term
| NASAA Part 2A requirements supplemental |
|
Definition
| within 120 days of fy if any changes. If client pays less than 500 fees or only receives impersonal advice. Don't have to give to investment companies or Bus dev. Companies. |
|
|
Term
| IAs requiring prepayment of more than 1,200 in fees per client 6 months or more in advance must |
|
Definition
| Provide an audited balance sheet for the most recent fiscal year. Threshold for states or NASAA it's $500 |
|
|
Term
|
Definition
| lend money to developers and pass interest onto sahreholders. |
|
|
Term
|
Definition
|
|
Term
|
Definition
It can accumulate cash value for the policyholder, but beneficiaries only receive the death benefit. It is permanent life insurance that can accumulate cash value tax deferred because you can pay extra premiums which will then get invested. The older you get, the higher your premium will be. You can draw from the savings to pay premium. Facts:
+Access cash value without hurting death benefit, but will be taxed
+Borrow against cash value without tax implications, but interest is calculated
+Flexible premiums, but higher as you age so risk.
+Look at how much you contribute on an annual basis and make sure you are not overpaying - if your premiums are over you death benefit value you might be overpaying
Universal Life—a type of permanent life insurance with a cash value component that earns interest, universal life features flexible premiums. Unlike term and whole life, the premiums can be adjusted over time and can be designed with a level death benefit or an increasing death benefit. |
|
|
Term
| What is a period certain annuity? |
|
Definition
| Offer payments over a certain period and are then done -- no more payments, even if annuitant still alive. If die, beneficiary continues to get payments until the payment period ends. Usuallay a bridge for wealthy people. Tax deferred. Highly complex products. |
|
|
Term
|
Definition
| Lasts a certain number of years and most affordable. If you die after term - no benefit unless you buy convertible or special product |
|
|
Term
|
Definition
Stays in force as long as you pay premiums. Accumulates cash value that you can borrow from or use - similar to universal except premiums are NOT flexible.
+Guaranteed death benefit
+Level premiums
+Fixed premiums forever |
|
|
Term
|
Definition
Cash value policy that give you market gains tax free with downturn protection but capped upside. Uses an index to earn interest. As it moves up, so does the return. Gains are TAX Free. Death Benefit TAX free. Caps on return rates and lots of fees. Risker than Fixed Universal which has guaranteed but safter than Variable UL. Need SIGNIFIGANT up front investment. Risks:
+If established during downturn, high premium payments may not meet cash value and it could lapse
+Caps on returns
+Variable premiums and returns and not guaranteed. |
|
|
Term
|
Definition
Cons:
+Costs - higher investment fees
+More risk |
|
|
Term
| Sales loads are limited to what percent? |
|
Definition
|
|
Term
| Are redemption fees a form of back end sales loads? |
|
Definition
| No, not considered part of a sales load. |
|
|
Term
| What is a viatical policy? |
|
Definition
| The investor, who purchased the policy, not the policyholder, will now pay the premiums going forward. The investor is now the policy owner and the beneficiary of the policy. The insured remains unchanged. |
|
|
Term
| What is an agent under USA? |
|
Definition
| Represents either a broker dealer OR an issuer. They will trick you on this. You effect the purchase or sale of securities. |
|
|
Term
| What is a registered rep? |
|
Definition
| are agents of their brokerage firms and includes those classified as independent contractrors of BDs and individuals who represent issuers wo are selling limited partnerships. If you sell an interest in a limited partnership, you have to register as an AGENT- another trick question. |
|
|
Term
| If you receive commissions does that make you an agent? |
|
Definition
| you effect purchases and sales. Receipt of commissions is not required. Effecting sales are (but of course you would charge commissions) |
|
|
Term
| What are issuer exlclusions in the definition of agent? YOU MUST KNOW THIS LIST. |
|
Definition
If you work for an issuer and effect these transactions, you do not need to register as an agent. Issuer Exclusions include:
-us gov; munis; canadian gov. securities; banks; promisory notes; investment contracts HOWEVER DO NOT INCLUDE INSURANCE COS AND FED SAV AND LOANS. You would have to register as an agent if you were going to sell securities issued by an insurance company or federal savings and loan. Don't get confused with "exempt security" list where Insur Cos and Federal Sav and Loans are exempt but are not on this list which applies only to issuer exclusions. |
|
|
Term
| What are Agent issuer exempt transactions? |
|
Definition
| Isolated non-issuer transactions (i.e. I bought or sold QQQ); transactions in certain covered securities sold in a private placement or to a qualified investor; transactions with investing employees or partners or directors of the issuer (no commission paid) |
|
|
Term
| List broker dealer exclusions for having to register as an agent? |
|
Definition
| Temporarily servicing client in another state; if partner, officer or director of BD - would only be considered an agent if they effect transactions. |
|
|
Term
| How to determining churning |
|
Definition
|
|
Term
|
Definition
| Total Value of annual purchases /account average monthly balance. Not a universal ratio - based on individual situation. |
|
|
Term
|
Definition
| Total annual costs / account average balance. No set percentage, but if it rises above 20% could be deemed excessive. |
|
|
Term
|
Definition
| Buying securities over and over without beneficial interest |
|
|
Term
| You can never guarantee against losses |
|
Definition
|
|
Term
| Investment advisors are fiduciaries. When do they need discret. Auth? |
|
Definition
| For IA and IAR, ten days after receiving oral discretionary authority. **different for BDs - they need it before. |
|
|
Term
| When does time and price discretion expire? |
|
Definition
| on that day. Time and price is the only exception. |
|
|
Term
| When can you borrow money from a client? |
|
Definition
| Even if a relative, must meet three rules: client is a B-D, affiliate of the IA, or financial instution engaged in lending. In FINRA, some relatives can borrow - this is a trick question, in this test, the answer is no and it has to be those three. |
|
|
Term
| What is an affiliate of an IA? |
|
Definition
| A person who directly controls or is controlled by an IA. |
|
|
Term
| What is an unreasonable advisory fee? |
|
Definition
| 2% assets under management and/or 20% of performance-based fees. |
|
|
Term
| Explain how discretion is different for IAs versus BDs. |
|
Definition
| Within 10 business days after first transaction, must have in writing. For BDs and agents, you need discretion first. |
|
|
Term
| What is the exception to the discretion rule for IAs? |
|
Definition
| Time and price only does not require authorization. |
|
|
Term
| What do you need to close open orders after a client has died? |
|
Definition
| In order to cancel open orders, you need physical proof like a death certificate. Just hearing it over the phone is not enough to cancel an open order. i.e., husband calls in |
|
|
Term
| When is it ok to loan money to a client? |
|
Definition
| You can't loan money to a client even if a relative, unless the IA is a financial institution in the business of loaning funds or the client is an affiliate of the IA. |
|
|
Term
| What is an affiliate of an IA? |
|
Definition
| An affiliate is a person who directly or indirectly controls or is controlled by an Investment Advisor. |
|
|
Term
| How long is time and price exception good for? |
|
Definition
|
|
Term
| What do you have to do when you disclose a third party research report? |
|
Definition
| Disclose that someone else created it. |
|
|
Term
| What is the threshold for unreasaonable fees? |
|
Definition
| Anything over 2% of assets and 20% of performance based fees. |
|
|
Term
| What must IAs disclose in writing BEFORE advice is rendered regarding material conflicts of interest? |
|
Definition
1. Charging fee when commission also being charged.
2. If IAR or IA is holding a recommended security.
3. Charging performance-based fees causing advisor to trade more
4. Must disclose all forms of compensation when related to a trade or recommendation - including vacations, bonuses, and 12B-1 fees if they get kicked back to IA or IAR.
5. If IA or IAR owns real estate that a REIT we are recommending is buying or selling.
6. Soft dollar arrangements that include software services like reports, applications and real-time quotes (but NOT payment of the salary of an analyst because that is hard dollars) |
|
|
Term
| If the IA is going to take custody of a client's funds, what must the IA do? |
|
Definition
| Notify the administrator and determine that the admin has not prohibited this ractice. |
|
|
Term
| What must the IA disclose when entering into or extending a contract? |
|
Definition
| STAARi nights: Services; Term; Advisory Fees; Assignment; Return fee for non performance; If discretion given. |
|
|
Term
|
Definition
| Placing an order ahead of others when a large buy order is ocurring. |
|
|
Term
| When a memo to buy or sell is written, what must be included: |
|
Definition
| Name of BD executing order; Person who recommended trade; Person placing order. |
|
|
Term
|
Definition
| Placing an order prior to the release of insider information. |
|
|
Term
| If an IA has offices in multiple states, how does it satisfy the minimum net worth requirement? |
|
Definition
| It must abide by rules in the principal place of business - this will satsify other states. |
|
|
Term
| If IA net worth falls below minimum requirement, when does it notify administrator? |
|
Definition
| a. promptly; b. within 10 days; c. 5 days; d. next day. |
|
|
Term
| When an IA has custody because it advises pooled investment vehicles, what records must be kept? |
|
Definition
| Audited financial statements; Who audited; and copy of audit agreement. |
|
|
Term
| An IA must preferve all books and records how many years? |
|
Definition
| a. three years; b. ten years from end of fiscal year; c. five years from end of fiscal year; d. 4 years. (first 2 years have to be kept at the office) |
|
|
Term
| How long should partnership agreements and articles of incorporation be kept after closure? |
|
Definition
|
|
Term
| What form does IA use to notify Administrator that it has custody of funds? |
|
Definition
|
|
Term
| Account statements must be sent to clients at least… |
|
Definition
| a. Monthly; b. Quarterly; c. Anually |
|
|
Term
| How often must a CPA verify client funds and in what manner? |
|
Definition
| a. Once per year, unannounced; b. Once per year, scheduled; c. every two years, unannounced; d. every two years, scheduled. |
|
|
Term
| How is discretionary authority different for a BD versus an IA? |
|
Definition
| BDs must get prior written discretionary authority unless just time and price; IAs can get verbal then in 10 days get it in writing. |
|
|
Term
| When must you get a margin agreement in place? |
|
Definition
| promptly after first transaction. |
|
|
Term
| What does segregation of funds mean? |
|
Definition
| Must segregate securities and cash separate from those of the firm. |
|
|
Term
| What must you have in place before pledging securities of a customer for lending purposes? |
|
Definition
| Shall not hypothicate (pledging customer securities for a loan in the customer's margin account) without written consent. |
|
|
Term
| When a customer delivers securities to a BD, what must the customer receive? |
|
Definition
| A written receipt immediately. |
|
|
Term
| When must you furnish a prospectus for a new issue? |
|
Definition
| No later than transaction confirmation due date. |
|
|
Term
| Does the prospectus rule apply to both secondary trades and mutual fund share trades? |
|
Definition
| No, just mutual funds (open ended funds). |
|
|
Term
| Manipulative and deceptive practices include: |
|
Definition
1. effecting a transaction with no beneficial ownership change.
2. Creating a falxe appearance of active trading unless an order is a bona fide agency cross (where same BD represents buyer and seller in same transaction) |
|
|
Term
|
Definition
| Buying and selling to create appearance of active trading. It's also called a matched order. |
|
|
Term
| Omitting material information is… |
|
Definition
|
|
Term
| If a BD is making a public offering is it ok to hold some securities back? |
|
Definition
| Must make a bona fide (good faith) effort to sell all the securities. You cannot hold any back and sell at a higher price later. This would be failing to make a bona fide full offer. |
|
|
Term
| If a customer complains in writing what versus oral? |
|
Definition
| A response has to be given to a written complaint. |
|
|
Term
| If BD services are provided at a financial institution that takes retail client deposits, what must occur? |
|
Definition
| Must be separate physical location from where deposits are taken; must be goverened by written agreements that include compensation arrangements; on account opening make clear not FDIC insured and risk exists including loss of principal. |
|
|
Term
| What is the primary difference between NASAA rules for Broker Dealers versus those for IAs? |
|
Definition
| IAs have fiduciary responsibility; Brokers and agents have suitability responsibility. |
|
|
Term
| What must confirmations and statements say if a bank is offering BD services? |
|
Definition
| Must clealy indicate on account statements that BD services provided by BD. |
|
|
Term
|
Definition
| If you are an agent, you can sell an offering outside the BD platform unless the BD approves. |
|
|
Term
| If you want to share in profits or losses with a client, what has to happen, and how is it different from FINRA rules? |
|
Definition
| Both the BD and the client must approve in writing. FINRA requires that profit sharing be in proportion - but that is not required by NASAA. |
|
|
Term
| Can agents split commissions with other agents? |
|
Definition
| Yes, if employed by the same BD. |
|
|
Term
| When does dicretionary authority not need to be in writing prior to action? |
|
Definition
| Time and price only does not require written authorization. |
|
|
Term
| How is comingle rule different for Agents? |
|
Definition
| For Agents, no comingling with agent assets. For BD, no comingle with BD assets. |
|
|
Term
| If client needs funds for a specific time, like three years to pay a debt, what should they invest in? |
|
Definition
|
|
Term
| What does IPPDRR stand for? |
|
Definition
| Identify; protect; detect; respond; recover |
|
|
Term
| How often must an IA deliver a privacy policy to a customer? |
|
Definition
| Upon engagement, then annually. |
|
|
Term
| Regarding solicitation of sales… |
|
Definition
| You must disclose breakpoints, LOIs, sales charges, loads, etc. |
|
|
Term
| If you compare a product to a CD, what must you make sure? |
|
Definition
| Full disclosure - not FDIC insured, not guaranteed, etc. There risks that need to be disclosed. |
|
|
Term
| In connection with soliciting investment company shares, what must you disclose if you discuss current yield or income? |
|
Definition
| Stating or implying current yield or income without disclosing the fund's most recent average annual return, calculated using the SECs calculation for one, five and 10 year periods and fullyl explaining the difference between current yield and total return. |
|
|
Term
| YTM and Basis are the same thing? |
|
Definition
| Yes, same and interchangable. |
|
|
Term
| The market price of the investment must be part of calculation. |
|
Definition
|
|
Term
| What to NPV values of zero, above zero, or below zero mean? |
|
Definition
| If the NPV is positive, project will be profitable. |
|
|
Term
| What are three characteristics of IRR? |
|
Definition
| The higher the IRR, the better; it considers cashflows always; always assume re-investment |
|
|
Term
| Holding Period Rate of Return |
|
Definition
| Profit or Loss / Investment or Cost |
|
|
Term
| Can you transfer real estate to an UGMA? |
|
Definition
| No. limited to securities, insurance and bank deposits; however, you could with an UTMA. |
|
|
Term
| What is the termination age for an UTMA? |
|
Definition
| states sometimes set higher like age 25. |
|
|
Term
| What is termination for an UGMA? |
|
Definition
|
|
Term
|
Definition
Deductible contribution limits of $3,700 for individuals and $7,400 for families plus an additional $1,000 catch-up contribution for persons 55 and older.
b. Tax-deferred earnings
c. Within limits, money can be used at any time for qualified medical expenses and is tax free when used for such purposes. |
|
|
Term
| If you are in the 37% tax bracket, what is your long term cap gain rate |
|
Definition
| Income of 539k single, couple 647,850 filing jointly, = 20% (not 15%) |
|
|
Term
|
Definition
| Real returns refer to total returns (income and realized capital gains) adjusted for inflation. So, if an investment had total returns of 12% and the inflation rate during that time was 3%, the real return would be 9%. |
|
|
Term
|
Definition
| Investors making contributions to 529 Plans generally use the annual gift tax exclusion of $16,000 or can aggregate the gift tax exclusion to contribute $80,000 ($16,000 x 5) in one year to kick start the program. If the aggregate gift tax is used, no further gift tax gifts are allowed for 5 years. Married couples may contribute up to $160,000 for each beneficiary as long as no further gifts are made to that beneficiary for the next 5 years. |
|
|
Term
| What is an investment advisor? |
|
Definition
| I give you advice directly or through writing relating to selling or buying securitites, including those who "promulgate" reports and I am getting compensated for it. Remember ABC - Advice - Business (it's the core of your business)) - C - receive compensation. |
|
|
Term
| What is excluded from definition of an Investment Advisory firm? |
|
Definition
| IARs; Banks Banks Banks Banks; Savings; Trust Companies; Investment Companies even if they charge an advisory fee for their services. |
|
|
Term
| These professions are generally excluded.Hint: LATE. |
|
Definition
| Lawyers, Accountants, Teachers, Engineers. |
|
|
Term
| When would BDs and Agents be excluded? |
|
Definition
| If they are only getting commissions and getting no extra compensation. |
|
|
Term
| When are publishers excluded? |
|
Definition
| If advice is general about securities and it does not respond to specific questions from readers. |
|
|
Term
| Are federal covered advisors excluded? |
|
Definition
|
|
Term
| Are employee benefit plans excluded? |
|
Definition
|
|
Term
| If an IA acts as a broker dealer and an investment advisor, what must it do? |
|
Definition
| Disclose to client that it is acting in both capacities. |
|
|
Term
| What are characteristics of an IAR? |
|
Definition
| Provides advice; solicits business. Casey. Especially since he supervises us. |
|
|
Term
| What does IAR NOT include? |
|
Definition
| Provide advice on fixed securities or fixed life - these are not considered securities. |
|
|
Term
| When does a federal-covered advisor have to file notice with a state? |
|
Definition
| If a federal covered advisor has 6 or more clients in a state they would file a notice filing. |
|
|
Term
| Who is excluded from federal covered advisor registration requirement? |
|
Definition
| Bank and bank holding companies; LATE; Ias who give advice in US Gov Securities only; publishers of general advice |
|
|
Term
| What are Federal Covered Advisor AUM guidelines. |
|
Definition
| $100M may; $110M must; fall below $90M must withdraw. |
|
|
Term
| What are institutional investors? |
|
Definition
| Banks; insurance companies; employee benefit plans; anyone the administrator defines as such. |
|
|
Term
| What are some securities as listed by USA? |
|
Definition
| Subscription rights; futures contracts; stocks; bonds; collateral trust certs; certificates of deposit; investment contracts; pre org certs; options; variable life annuities. Voting trust certs. REITS. Certificates of interest in oil and gas. |
|
|
Term
| What are the four elements of an investment contract? |
|
Definition
| 1) Investment of mone; 2) in common enterprise; 3) with expectation of profits; and, 4) management by a third party. |
|
|
Term
|
Definition
| Fixed life; commodities; endowment policies; collectables; metals; real estate. Trick: oil and gas futures no (but if oil and gas certificate, it would be). |
|
|
Term
| Would you have to register as an agent if you are selling fixed annuities? |
|
Definition
|
|
Term
| What are some Federal covered securities? |
|
Definition
1. Listed or Authorized to be listed on a national exchange;
2. Pooled investment fund shares (mutual funds);
3. Securities sold to Qualified Purchasers;
4. Government securities
4. Muni bonds if offered outside the state of issue (interstate);
5. Securities unregistered/Private Placements like Reg D. |
|
|
Term
| What are excluded federal securities? |
|
Definition
1. Issued by non-profit orgs;
2. Muni bonds offered only intrastate;
3. Intrastate offerings
4. Security issued with a guarantee from another entity of principal, interest OR dividends -- OR dividends - beware of them throwing in AND instead of OR.
***But these securities may still require you to register in the state. |
|
|
Term
| If you are selling only muni bonds do you have to register? |
|
Definition
| If you give any advice, any advice whatsoever, about something that is a SECURITY, you have to be registered as an IA or IAR. Even if the security is on the exemption list - if it is a security, you have to regsiter. |
|
|
Term
| Offer to Buy/Sell - do you have to register? |
|
Definition
1. It originates in the state;
2. It is directed to that state;
3. it is accepted in that state.
All three of these equal an offer. |
|
|
Term
| If a radio signal is directed to state A, but the signal is heard in state B, is the offer also considered to be an offer in state B? |
|
Definition
| No, not an offer; however, could be considered a solicitation. |
|
|
Term
| What if a newspaper is published in State A and sold in State B, would offers be triggered in State B? |
|
Definition
| Not an offer: if the newspaper is not published in the state but is sold in that state, it is not considered an offer. It would have to be published in the state. |
|
|
Term
| What if published in a state but more than 2/3 circulation is outside. |
|
Definition
| Not an offer: if over 2/3 of the circulation is outside the state, no, not an offer. Remember this over 2/3 rule as a trick. |
|
|
Term
| What is the definition of sale or sell? |
|
Definition
| Any contract of sale or contrace to sell for value (as opposed to a bona fide gift) |
|
|
Term
| What is a key to remember what a purported gift is v. assessable stock? |
|
Definition
| If there are strings attached to the receiver - it's assessable. Purported means it appears to be a gift but isn't. |
|
|
Term
| What does guarantee mean according USA. |
|
Definition
| Principal interest OR dividends. The key is OR dividends. The question that says AND dividends is WRONG. (guarantee is usually issued by someone other than the company). |
|
|
Term
| What does solicitation mean? |
|
Definition
| Any oral, written or other communication used to offer or sell investment company shares EXCLUDING any proxy statement, shareholder reports, or other disculosures under 1933. These are not considered to be solicitations. These are tricks. |
|
|
Term
|
Definition
| Any state, terroritory of the USA including PR and DC. |
|
|
Term
| Who has minium capital requirements when registering when you have custody and discretion and who does not? |
|
Definition
|
|
Term
| What does the USA say about IARs regarding bonding requirements? |
|
Definition
| USA is silent - left to state administrator |
|
|
Term
|
Definition
| Remember, agents and IARs are not subject to custody req. |
|
|
Term
| T/F - Administrator must administer written exams. |
|
Definition
| Can be oral or written. Does not have to be written. |
|
|
Term
| Who has to report if you are terminated. |
|
Definition
| Both BD and you the agent. |
|
|
Term
| When an IAR terminates who reports and when. |
|
Definition
| Promptly and depends on type of firm. If state, IA must notifiy; if federal covered, the IAR is responsible. |
|
|
Term
| What form do you report terminations? |
|
Definition
|
|
Term
| It is unlawful to sell a security unless: |
|
Definition
| 1. Security is registered; 2. exempt; or, federally covered. Does NOT require coordination with FINRA, MSRB, or NASAA. |
|
|
Term
| Satisfying State Registration through Notice Filing. |
|
Definition
| 1. Filing or notice filing: in biz 36 months; must have 500 or more persons holding security; net worth of $4M or net worth of $2M and net pre-tax income for 2 of three previous fiscal years. |
|
|
Term
| Satisfying State Registration through notice if federally covered. |
|
Definition
| Administrator may require signed consent to service of process; fees; federal docs prio to initial filing; value report; fees. Example: Mutual funds or Reg A+ |
|
|
Term
| Satisfying State Registration through coordination. |
|
Definition
| If registration statement filed and pending with SEC. Duplicate copies of registration are filed with states. |
|
|
Term
| Whend does a coorinated registration become effective? |
|
Definition
| When the federal becomes effective. |
|
|
Term
| Satisfying State Registration through qualification. |
|
Definition
| Used for new issues that will be state only and not federal. Must file registration and may be required to create prospectus. Becomes effective when administrator approved. |
|
|
Term
| What can you amend in a registration? |
|
Definition
| You can only change the amount of securities being sold - but not price or compensation price. |
|
|
Term
| Final prospectus mus be received by purchaser when? |
|
Definition
| At time of purchase but no later. |
|
|
Term
| What kind of securities does a buyer of securities in a private placement receive? |
|
Definition
| Those would be unregistered securities. |
|
|
Term
| Can an agent lawfully offer to sell securities that are pending in an underwriting. |
|
Definition
| No. Only if effective. Not if pending. |
|
|
Term
| Explain basic exemption limitations and what they are exempt from. |
|
Definition
| Exempt securities and transactions are only exempt from registration requirements and filing of advertising and sales literature, NOT anti-fraud provisions. |
|
|
Term
| True or false: a fixed annuity is not subject of anti-fraud provisions. |
|
Definition
| Believe it or not true because it's not a security. |
|
|
Term
| You must know this list of exempt securities under USA. What are they? |
|
Definition
| US Government securities and agency issues; municipal securities; general or revenue bonds; securities guaranteed by Canadian government (but not Canadian companies including insurance companies); securities issued by US Banks/Trust; federal savings and loan; credit unions; insurance companies; stock exchange listed in United States; promissory notes; non-profit issues; public utility companies; common carrier - like railroad; investment contracts; |
|
|
Term
| What type of banking companies are not exampt according to USA? |
|
Definition
|
|
Term
| What are senior securities and can they be considered exempt? |
|
Definition
| Yes - secured bonds, whether convertible or not; unsecured bonds; debentures; preferred stock. This is because the companies that are issuing them are already listed on exchange or NASDAQ. Issuers may be required to do a notice filing. |
|
|
Term
| What is a promissory note and are they exempt from registration. |
|
Definition
| Yes they are exempt. Commercial paper or bills if over $50k - they are an obligation to pay cash within 9 months and must be rated top three by a nationally recognized organization. Any bank can issue, and any corporation can issue, not just a federal bank. |
|
|
Term
| Do corporate bonds have to register? |
|
Definition
| Corporate bonds would be required to register if the corporation is not qualified for an exemption. |
|
|
Term
| When is registration required for interest in limited partnerships/intrastate offerings? |
|
Definition
| If there are more than 10 investors. |
|
|
Term
| What are some exampt transactions? |
|
Definition
1. Isolated non-issuer transactions (any secondary market trade)
2.
3. |
|
|
Term
| Non-issuer transactions by a registered agent at registered broker-dealer may be exempt if the issuer of the security being traded is engaged in business and IS NOT: |
|
Definition
1. Not blank check, blind pool or shell company
2. in the organizational state
3. in bankruptcy or receivorship
4. The security is senior in rank to the common stock of issuer and has been oustanding for three years without default. |
|
|
Term
| What are some exempt transactions? |
|
Definition
1. Non-issuer transactions that are unsolicited;
2. Fiduciary transactions
3. Bonda fide pledges
4. Transactions with financial institutions - likeBD purchasing stock for its own account
5. Private placements sold to not more than 10 persons other than institutional investors during a 12 month period.
6. mortgage bond transactions organized as a unit
7. Pre-organization subscription transactions used by fledgling companies intending to incorporate in order to acquire more capital.
8. Rights and warrants if no commission is paid |
|
|
Term
| Pre-organization subscription transactions must have what characteristics in order to be qualified as exempt? |
|
Definition
1. no commissions
2. 10 or less subscribers
Payments made after security is registered
3. advertising is ok |
|
|
Term
| If a transaction or security is not exempt, where does it have to register? |
|
Definition
|
|
Term
| What exemptions may an administrator revoke or deny by order: |
|
Definition
| 1. exempt transactions; 2. exchange listed securities; 3. non-profit org issues; 4. employee benefit plans issued by investment contracts. |
|
|
