Free FINRA Series-63 Practice Exam with Questions & Answers | Set: 6

As a representative for a family of load funds who receives greater remuneration for selling those funds, John must provide his clients with a written disclosure of this fact before providing any advice, according to NASAA Model Rules. This constitutes a material conflict of interest that must be disclosed “to clients in writing before any advice is rendered.” John is not obligated to try to sell his clients the funds offered by Load first. His fiduciary responsibility is to his clients, not his employer.

As long as the adviser forwards the check to the mutual fund within 24 hours, he will not be deemed to have taken custody of Ms. Fused funds. This assumes the mutual fund is in no way affiliated with the investment adviser.

It is not prohibited for a broker-dealer to require that a client who is engaging in margin transactions to leave the securities with the broker in “street name.” This is the normal business practice. A margin transaction means that the client is borrowing part of the funds he’s investing, and the securities are serving as collateral for the loan. It is illegal to delay sending a check upon receiving a request for a cash withdrawal, assuming the client has the cash available in his account; to recommend a security to a client without knowing anything about him, including his tolerance for risk; and to execute a trade on instructions from anyone other than the account holder unless that party has at least limited power of attorney.

Registration by qualification, in its simplest form, requires the issuer to supply voluminous amounts of information about both the firm and its directors, officers, and major shareholders. The state Administrator also has the authority to require even more documentation. It is the least favorite method of registration for obvious reasons.

Only Selections I and II are examples of manipulation in the securities market. It is considered to be manipulation if one firm engages another firm to make a series of purchases and sales that will make it appear that there is very active trading in the security; it is also considered manipulation if a broker-dealer encourages its agents to solicit sales of a security in which it has a short position since that broker-dealer is hoping that the sales will drive the price of the security down, thereby making the firm’s position profitable. Although the offer to sell a client bonds at a much higher price than their market price is illegal, it is not an example of price manipulation.

Under the NASAA Model Rules, the statue of limitations for civil liabilities is the earlier of two years after the discovery of facts and three years after the sale. This follows the recommendations provided by the Uniform Securities Act of 1956.

The 1988 Insider Trading and Securities Enforcement Act increased the penalties for a person convicted of insider trading to up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or losses avoided.

Nuering Investment Advisers would not fall under the classification of “institutional investor.” Institutional investors are defined as banks, insurance companies, mutual funds, some pension plans, and broker-dealers registered under the Securities Exchange Act of 1934. Investment advisers are not part of this group.

No, Joe cannot take his client’s offer of a loan because it could lead to a conflict of interest--if not today, perhaps in the future--and as a fiduciary Joe will be expected to put this client’s welfare ahead of his own. If it takes him a lot longer than expected to get on his feet again, he may be tempted to act in his own best interest.

When the net worth of a broker-dealer falls below the minimum net capital requirement specified by the state, the broker-dealer must notify the Administrator of this fact by the close of business on the next business day according to the Uniform Securities Act.