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NEW QUESTION # 105
S. 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?
- A. 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.
- 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 Uniform Securities Act, S. White will have to meet Virginia's higher requirement.
- D. 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.
Answer: B
Explanation:
Explanation
Since S. White is already registered in the state of Kentucky and meeting the net capital requirement of that state, the Investment Advisers Act of 1940 stipulates that Virginia cannot require a higher minimum net capital. The Act states that if an investment adviser is registered in one state and is meeting its net capital requirement, a second state cannot impose a higher net capital requirement on the investment adviser.
NEW QUESTION # 106
Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect & 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. Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration is pending.
- 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. 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.
- 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.
Answer: D
Explanation:
Explanation
It depends. Because he is a registered agent in another state and the broker-dealer he is now affiliated with is registered in the state of Massachusetts, Trevor can execute purchases and sales, but only for existing clients while his registration with the Massachusetts Administrator is still pending and only for sixty days. This assumes, of course, Trevor has no violations that would restrict him from registering in Massachusetts.
NEW QUESTION # 107
In accordance with the National Securities Markets Improvement Act of 1996, which of the following is a
federal covered adviser and, therefore, exempt from registering with the state Administrator?
I. An adviser who does business in 26 states.
II. An adviser who manages the portfolio of a mutual fund that is registered with the SEC.
III. An adviser with $35 million in assets under management
- A. II and III only
- B. I and III only
- C. All of the selections meet the qualifications of a federal covered adviser.
- D. I and II only
Answer: A
Explanation:
The advisers described in Selections II and III are federal covered advisers and, therefore,
exempt from registering with the state Administrator. An adviser who advises a registered investment
company, as in Selection II, and an adviser with over $30 million in assets under management, as in
Selection III are exempt. In order to be exempt from registration, the adviser in Selection I would have to
be doing business in more than 30 states.
NEW QUESTION # 108
MoeMoney Investment Advisers, LLC is registered in the state of Texas, and its three offices are all
located in the greater Dallas-Fort Worth area. Five of its clients-all individuals-have relocated to Colorado
and all have indicated a desire to retain the services of MoeMoney. In order for this to be possible,
- A. Neither MoeMoney nor its clients need do anything.
- B. MoeMoney will need to apply for and be granted registration as an investment adviser in the state of
Colorado. - C. MoeMoney will need to apply for and be granted registration as an investment adviser representative in
the state of Colorado. - D. each client will have to write a letter to the Administrator of the state of Colorado on MoeMoney's
behalf.
Answer: A
Explanation:
In order for MoeMoney to continue servicing its five individual clients who have relocated to
Colorado, neither MoeMoney nor its clients need to do anything. The National Securities Markets
Improvement Act of 1996 (NSMIA) established a "de minimis" exemption for investment advisers if they
have no office in a state and do business with "no more than five non-institutional clients" during a
one-year time frame.
NEW QUESTION # 109
If an issuer registers securities with the state, how long can the documentation supplied in the registration
statement for those securities be incorporated by reference only into a registration statement for future
securities the issuer wants to offer for sale?
- A. two years
- B. one year
- C. seven years
- D. five years
Answer: D
Explanation:
Once an issuer has registered securities with the state, the documentation supplied in that
registration statement can be incorporated into the registration statement for future securities the issuer
wants to offer for sale by reference only for a period of five years.
NEW QUESTION # 110
Jack and Jill are a newly married couple in their mid-20s. They are determined to retire by the time they
are 50 and have arranged a meeting with a representative of Professional Investment Advisers to
structure a financial plan that will allow them to achieve this goal.
The representative, Mr. Hill, advises them to invest at least 60% of their money in bond funds to minimize
the risk of loss on the way to their goal. Mr. Hill has
- A. made an unsuitable recommendation for these clients and is subject to license suspension or
revocation. - B. committed fraud in indicating that bonds are less risky than stocks.
- C. has committed fraud in promoting their delusion that they can possibly expect to retire by the time they
turn 50, regardless of their investment strategy. - D. advised Jack and Jill well with a conservative allocation of their money to preserve principal.
Answer: A
Explanation:
Mr. Hill has made an unsuitable recommendation in recommending a 60% investment in
bonds to clients in their mid-20s with an investment goal of early retirement, and his license can be
suspended or revoked because of this. Bonds do not generate the returns that stocks do, and Jack and
Jill are unlikely to be able to retire by the time they are 50 with such a high percentage invested in bonds.
Given their investment time horizon, they can invest in growth and aggressive growth stocks, which offer
significantly higher returns and will advance them toward their goal, since they can ride the waves of the
up and down markets. This, of course, assumes that they are risk-tolerant enough to do so. There has
been no fraud since a couple in their mid-20s can retire by the time they turn 50 if they have reasonably
well-paying jobs, are frugal, and invest wisely.
NEW QUESTION # 111
Which of the following persons falls under the definition of "broker-dealer," as defined by the Uniform Securities Act (USA)?
- A. MyTrades is a sole proprietorship owned by Nathan Newmoney, who has established the firm solely to make trades on his own account, thereby avoiding the commissions he would have to pay a middleman.
- B. Michaela is employed by GetErDone broker-dealers and sells both exempt and non-exempt securities to GetErDone's clients.
- C. Juan is employed by TrustUs Corporation to sell shares of the firm's stock to the firm's employees and receives a commission on the shares he sells.
- D. Marge is a loan officer at Treadwater Bank and Trust.
Answer: A
Explanation:
Explanation
MyTrades falls under the definition of "broker-dealer," as defined by the Uniform Securities Act since Nathan Newmoney is engaged in trading on his own account. The USA defines a broker-dealer as any person that conducts securities transactions on its own account or for others. Both Juan and Michaela are "agents" under the USA definition, and agents are specifically excluded from the definition of a broker-dealer. Marge is also excluded from the definition since she is a loan officer at a bank.
NEW QUESTION # 112
Your next-door neighbor's brother works for a large pharmaceutical company and confided in her that one of the company's chemists has just discovered a compound that will cure baldness and that the firm plans to make the discovery public later in the week. Your next-door neighbor passes this information on to you over a cup of coffee the next morning. You immediately call your broker and place an order to buy shares of the company's stock.
Has any illegal insider trading taken place?
- A. Yes. The agent who executes your purchase order has engaged in illegal insider trading.
- B. No. You are in no way related to your next-door neighbor's brother, and she could have been lying.
- C. Yes. You are guilty of illegal insider trading because you traded on information that had not yet been made publicly available.
- D. Yes. You, your neighbor, and her brother are all guilty of illegal insider trading.
Answer: C
Explanation:
Explanation
Yes. You are guilty of illegal insider trading because you traded on information that was not yet public. Your neighbor and her brother did not execute any trades based on the information, so they're innocent, as is the agent who executed your purchase order, who had no way of knowing that you had insider knowledge when you placed the order.
NEW QUESTION # 113
Julia Hasty has recently applied with the Administrator to be a registered investment adviser in the state.
Eager to open her new business, she has business cards printed that indicate that she is a
"state-registered" investment adviser and visits some local businesses, asking them for permission to put
some of her cards in their waiting rooms. Has Julia violated any of the provisions of the Uniform Securities
Act by distributing her business cards?
- A. Yes. Julia is not permitted to advertise as a "state-registered" investment adviser until she receives
notification of the acceptance of her application by the state Administrator. - B. No. The provisions of the Uniform Securities Act relate to securities, not people.
- C. No. As long as her application has been submitted and is pending acceptance, Julia has not violated
any provisions of the Uniform Securities Act. - D. No. Julia has merely put her business cards in waiting rooms. She has not opened her business to
clients yet.
Answer: A
Explanation:
Yes. Julia has violated a provision of the Uniform Securities Act by distributing business
cards that indicate she is a "state-registered" investment adviser because she has not yet received
notification of the acceptance of her application by the state Administrator. The filing of an application for
registration is not the same as registration, and the placement of the cards is, at this early point, false
advertising.
NEW QUESTION # 114
While on vacation in Colorado, Massachusetts resident Ms. Jetset meets Mr. Snow, a registered
representative with a Colorado broker-dealer, on a ski lift and accepts a dinner engagement with him later
that evening, during which he obtains her cell phone number. A week later, while she is lounging around
in her Florida beach condo, he calls and interests her in a local software company that is selling its
preferred stock to investors and encourages her to buy it. Ms. Jetset tells Mr. Snow she'll think about it
and calls him after she returns to her home in Massachusetts to tell him to buy the stock for her and sends
him a check via express mail. Later, Ms. Jetset learns that the preferred stock certificate that she received
is-and always was-a worthless piece of paper, and that, in fact, no such company ever existed. Which
state Administrator has jurisdiction in this instance?
I. the Administrator of the state of Colorado
II. the Administrator of the state of Florida
III. the Administrator of the state of Massachusetts
- A. I, II, and III
- B. I and III only
- C. I and II only
- D. I only
Answer: A
Explanation:
All three state administrators have jurisdiction since Mr. Snow made the offer to sell from
Colorado, to a person who was in Florida at the time, and Ms. Snow accepted the offer and received the
certificate in her home state of Massachusetts. According to NASAA, an Administrator has jurisdiction
over all offers and all acceptances of offers to purchase or sell securities if they "originate from, are
directed to, or are accepted in a state.
NEW QUESTION # 115
Joe Romeo is a broker-dealer registered with the state. He has recently hired Betty Buxom as his administrative assistant. As part of her duties, he has given her the responsibility for effecting the purchases and sales of securities for some of his firm's smaller accounts. Ms. Buxom has never applied for nor been granted registration as a broker-dealer or agent. Based on these facts,
- A. the Administrator may elect to revoke or suspend Joe Romeo's registration, and Joe may also face both civil and criminal penalties.
- B. there is no problem as long as Ms. Buxom registers with the state as an agent within thirty days.
- C. the Administrator is required by the Uniform Securities Act to revoke Joe Romeo's registration and file criminal and civil charges against him.
- D. the Administrator is required to turn the case over to the state's district attorney, who will file criminal charges against both Joe Romeo and Betty Buxom.
Answer: A
Explanation:
Explanation
Since Joe Romeo has allowed Betty Buxom to execute trades, a duty that can legally be performed only by a registered broker-dealer or agent, the Administrator may elect to revoke or suspend Joe Romeo's registration, and Joe may also face civil and criminal penalties. Ms. Buxom needed to be registered as an agent prior to effecting any transactions in the securities markets; there is no grace period. The Administrator is not required to take any action, however.
NEW QUESTION # 116
An agent cannot tell a client that a mutual fund is "no load" if the fund has
I. a front-end load
II. a contingent deferred sales load
III. 12b-1 fees
- A. I, II or III
- B. I or III only
- C. I or II only
- D. I only
Answer: C
Explanation:
Explanation
If a fund has either Selection I or Selection II, an agent cannot tell a client it is "no load." If the fund has either a front-end load, a contingent deferred sales load, or both, the client must be told that the fund has a load. If the 12b-1 fees on a fund are 0.25% or less of the annual average net assets, it is not considered to be a load fund.
NEW QUESTION # 117
Which of the following entities are subject to post-registration provisions?
I. broker-dealers
II. agents
III. investment advisers
IV. investment adviser representatives
- A. II and IV only
- B. All of the entities are subject to post-registration provisions.
- C. I and III only
- D. I and II only
Answer: C
Explanation:
Explanation
Only selections I and III are subject to post-registration provisions. Broker-dealers and investment advisers can be required to file advertising materials and financial reports with the Administrator, as specified by the Administrator. They are also required to keep records to the specifications of the Administrator. These records will include items such as client e-mails, client letters of complaint, and advertising brochures and must be kept for three years.
NEW QUESTION # 118
Which of the following compensation arrangements between an investment adviser and an individual client with a net worth of $600,000 would be disallowed?
- A. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.
- B. The client agrees to pay the investment adviser an hourly fee of $60.00.
- C. The investment adviser will receive 0.1% of the total value of the client's assets under management as of the end of each month.
- D. All of the above are legitimate compensation arrangements between and investment adviser and an individual client with a net worth of $600,000.
Answer: A
Explanation:
Explanation
A compensation arrangement between an investment adviser and an individual client with a net worth of
$600,000 that stipulates the adviser will receive 0.1% of the gross capital gains earned on the portfolio would be disallowed. An investment adviser of an individual client cannot be compensated with a share of the capital gains earned on the portfolio unless that client has a net worth of at least $1.5 million or has at least $750,000 invested through that investment adviser.
NEW QUESTION # 119
Which of the following is an example of commingling?
- A. Sly is an agent with a broker-dealer who recently executed a stock purchase for his client and had the
client make the check for the purchase out to Sly for deposit in Sly's broker-dealer account. - B. All of the above are examples of commingling.
- C. Mr. Hawk encourages his clients to leave their securities in "street name" with the broker-dealer for
which Mr. Hawk works. - D. In order to generate more commissions for herself Ms. Fox makes trades on some of her client's
accounts and has the trade confirmations sent to a P.O box she owns.
Answer: A
Explanation:
When Sly has his client pay for a stock purchase by making the check out to Sly himself, he
has engaged in the prohibited practice of commingling. Ms. Fox is also engaged in a prohibited practice,
but she is engaged in making unauthorized transactions. Mr. Hawk is doing nothing wrong. It is typical for
clients to leave securities on deposit with their broker-dealers in what is called "street name." This makes
it easier for the client to sell the securities later on since he physically will not have to deliver the securities
to the broker, for one thing.
NEW QUESTION # 120
You have passed the necessary exams (congratulations!) and are applying for registration as a securities
agent. It is already the end of September. Therefore, you must pay
- A. the full annual fee, and your license will expire on September 30th next year.
- B. the full annual fee, and your license will expire on December 31st next year.
- C. the full annual fee, and your license will expire on December 31st this year.
- D. one-fourth of the annual fee required since only one quarter of the year remains.
Answer: C
Explanation:
Once you have passed the necessary exams and are applying for registration as an agent,
you must pay the full annual fee and your license will expire on December 31st of the current year, no
matter how late in the year it is.
NEW QUESTION # 121
A bond issue has recently been registered with the state Administrator. Which of the following statements
are true?
- A. The bond may now be offered for sale in the state.
- B. The issuer may now offer this bond for sale, and any other bonds that the issuer may want to offer for
sale in the future will be able be sold after the issuer executes a notice filing. - C. Both A and B are true statements.
- D. An investor can feel secure in buying the bond because it has recently been registered, which means
that the state Administrator finds it to be of sound quality at this point in time.
Answer: A
Explanation:
When a bond issue has been effectively registered with the state Administrator, it can be
offered for sale in the state. The bond's acceptance by the Administrator simply means that the issuer has
supplied enough information in order for an investor to judge the quality of the bond for himself; it in no
way implies that the bond is of sound quality. It could, in fact, be a very risky security and still have met the
registration requirements.
NEW QUESTION # 122
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