FINRA-SERIES-63 Online Practice Questions and Answers

Constance is an investment adviser representative. She told one of her clients that he should put at least 15% of his investment monies in a U.S. government bond mutual fund.

She explained that she believed that he required this percentage to meet his liquidity needs, and U.S. government bond funds are risk-free. A few months later, the client needed to sell some of his fund shares in order to pay some medical

bills and was surprised to discover that he lost money on the sale because the net asset value of the fund had dropped.

Was Constance guilty of any securities violations?

A. Yes. Constance is guilty of fraud. She misled the client into thinking he couldn't lose any money if he invested the money in a U.S. government bond mutual fund.

B. Yes. Constance should never recommend that a client invest such a high percentage of his investment monies in a U.S. government bond mutual fund.

C. No. U.S. government bonds are often referred to as risk-free investments, so Constance made no misstatement of fact in telling her client this.

D. It depends. If Constance realized that the client could lose money in a U.S. government bond fund, then she is guilty of fraud, but if she did not herself realize that, then she is merely misinformed.

Which of the following describes an investment adviser that is not required to register with the state Administrator?

A. MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.

B. Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state.

C. CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management.

D. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.

A limited power-of-attorney gives the designated person the right to

I. order the sale of an asset owned by the account holder and have a check written to the account holder for the amount of the proceeds.

II. obtain account statements, including tax statements, on behalf of the account holder.

III.

order the purchase of an asset for the account holder's account.

A.

I, II, and III

B.

I and II only

C.

II and III only

D.

I and III only

Which of the following is not a prohibited practice for a broker-dealer?

A. waiting 36 hours before mailing a check after receiving a request for a cash withdrawal from a client if the client has that much cash available in his account

B. requiring that a client who is engaged in margin transactions leave the securities with the broker-dealer in "street name"

C. recommending a security to a new client without first ascertaining that client's level of risk tolerance

D. executing a trade for an account holder based on instructions from the account holder's spouse

Rich Quick is a broker-dealer licensed in the state of Massachusetts and has offices only within the state. Two of Rich Quick's clients regularly vacation in Florida during the winter months, and Rich Quick executes trades for them when they call him from out-of-state.

Based on these facts,

I. Rich Quick needs to register as a broker-dealer in the state of Florida as well.

II. Rich Quick needs to register only as an agent in the state of Florida.

III. Rich Quick needs to establish an office in the state of Florida in order to transact business.

IV.

Rich Quick need not register in Florida.

A.

Statements I and III are true.

B.

Statements II and III are true.

C.

Only Statement I is true.

D.

Only Statement IV is true.

Sam Shyster had his day in court-and lost. His license to do business as an investment adviser in the state has been revoked. What legitimate options does Sam have available to him now?

A. Sam can move to another state and apply for registration as an investment adviser there.

B. Sam has 45 days in which to file an appeal with the attorney general.

C. Sam can register with the SEC as an investment adviser, which will exempt him from state registration requirements.

D. Sam has 60 days to file an appeal of the decision in a court of law.

A variable annuity is:

A. not a security and, therefore, does not have to be registered with the state.

B. not a security, but is still required to be registered with the state before it can be offered for sale.

C. a security and, therefore, has to be registered with the state before it can be offered for sale.

D. a security, but is exempt from state registration.

Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect and Company, a broker-dealer that is registered in Connecticut and has subsidiary operations in Massachusetts, New Jersey, and New York. Trevor has moved to Massachusetts and is now associated with one of Connect's subsidiaries, a broker-dealer registered in the state. Trevor has applied to the Administrator of Massachusetts for registration as an agent.

Can Trevor execute purchases and sales for clients while his registration is still pending?

A. No. Until he is informed by the Administrator of Massachusetts that his application has been accepted, Trevor may not affect any securities transactions in Massachusetts.

B. Yes. Because Trevor is a registered agent in another state and is affiliated with a broker- dealer that is registered in the state of Massachusetts, he is not restricted from executing trades.

C. Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration is pending.

D. It depends. Trevor can execute some purchases and sales, but only for clients that he already had who may have recently relocated to Massachusetts and only for sixty days while his registration is pending.

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.

A.

I, II, III, and IV

B.

II, III, and IV only

C.

II and III only

D.

I and II only

"Federal covered securities" were defined and exempted from state registration requirements by the:

A. National Securities Markets Improvement Act of 1996 (NSMIA.)

B. Gramm-Leach-Bliley Act of 1999 (GLBA.)

C. Uniform Securities Act (USA.)

D. National Conference of Commissioners on Uniform State Laws (NCCUSL.)