FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 121:

  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. one-fourth of the annual fee required since only one quarter of the year remains.

  B. the full annual fee, and your license will expire on September 30th next year.

  C. the full annual fee, and your license will expire on December 31st next year.

  D. the full annual fee, and your license will expire on December 31st this year.

  Correct Answer: D

  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.

• Question 122:

  Vious and Associates is a small broker-dealer trying to generate more business. To this end, the firm had a professional four-color brochure printed that provides the years of industry experience of its management along with other information. The firm's founder, Ms. D. Vious, is listed as having over 30 years of experience in the industry. Ms. D. Vious has worked for broker-dealers for over 30 years, but for 20 of those 30 years, she was a secretary. Has D. Vious violated any securities laws?

  A. No. Technically, Ms. D. Vious does have over 30 years of experience in the industry, even though it was not in the capacity of an agent or a broker-dealer.

  B. No. Ms. D. Vious' years of experience is not a material fact that would affect an investor's investment decision.

  C. Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm.

  D. No. Advertising brochures are not securities.

  Correct Answer: C

  Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm. This is deceitful and misleading, and persons involved in the securities industry are prohibited from making deceitful and misleading statements.

• Question 123:

  The Administrator of a state can deny an application if

  A. the application is missing information.

  B. the registrant has been enjoined from engaging in activities involving securities in another state.

  C. the Administrator determines the applicant is not financially solvent.

  D. any of the above is true.

  Correct Answer: D

  The Administrator of a state can deny an application if the application is missing information, if the registrant has been enjoined from engaging in activities involving securities in another state, or if the Administrator determines the applicant is not financially solvent.

• Question 124:

  In an arrangement between MoeMoney Investment Advisers and one of the firm's clients, the YourMoney mutual fund, part of MoeMoney's compensation is based how the fund performs compared to the SandP 500 Index. If the return on the

  fund exceeds the return on the index, MoeMoney gets a bonus. The SandP 500 had a return of negative 8% this year, and the fund returned a negative 2%, so MoeMoney invoiced the client for the bonus.

  Has MoeMoney violated any securities laws?

  A. No. The fund beat the return on the SandP 500 Index, so MoeMoney is entitled to the bonus, based on its agreement with YourMoney.

  B. Yes. It is a violation of the Uniform Securities Act for an investment adviser to earn a bonus if a portfolio it manages loses money.

  C. Yes. Under no circumstances can a bonus be part of an investment adviser's compensation package according to the Uniform Securities Act.

  D. Yes. An investment adviser's compensation cannot be based on the capital appreciation of the portfolio.

  Correct Answer: A

  No. MoeMoney has not violated any securities laws. Even though the fund's return was negative, it still beat the return on the SandP 500 Index, and MoeMoney is entitled to the bonus. The Uniform Securities Act does not prohibit compensation agreements like this one as long as the client is a sophisticated investor, such as a mutual fund. This would not be permitted if the client were your average individual investor.

• Question 125:

  Bootstraps, Inc. is a family-owned business that has experienced enormous growth in the last couple of years. The business needs more cash to support this growth and has decided to issue some promissory notes, each with a face value of $5,000, for sale to the general public. The firm plans to hire three individuals to help them sell these notes. These individuals will earn a commission based on the notes they sell.

  Given these facts, which of the following is true?

  A. The notes must be registered with the state, and the three individuals hired to sell the notes must be registered as agents with the state.

  B. The notes must be registered with the state, but the individuals hired to sell them are not required to be registered.

  C. Neither the notes nor the individuals selling the notes need to be registered with the state.

  D. Either the firm must register the notes with the state, or the individuals that are hired to sell the notes must be registered as agents with the state, but not both.

  Correct Answer: A

  If Bootstraps hires three individuals to sell promissory notes to the public, both the notes and the three individuals hired to sell the notes must be registered with the state. The promissory notes are securities and, therefore, are required to be registered with the state before they can be offered for sale. The three individuals are working for the issuer, Bootstraps, to sell its securities to the public. This makes them agents, according to the Uniform Securities Act, and they must be registered as agents with the state.

• Question 126:

  An agent working for a broker-dealer mistakenly sends an investment adviser some bonds that the adviser purchased on behalf of his client instead of directing the bonds to the financial institution that is serving as the qualified custodian of the client's funds.

  If the investment adviser wants to avoid being considered custodian of this client's account, what must the adviser do?

  A. Record what securities were sent, when he received them, and when he forwarded them--which

  B. Record what securities were sent, when he received them, and when he forwarded them--which must be within three business days-to his client.

  C. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to his client.

  D. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to the qualified custodian of the client's funds.

  Correct Answer: C

  In order to avoid being considered custodian of his client's account, the investment adviser needs to record what securities he had been sent, when he received them, and when he returned them-which must be within three business days-to the sender.

• Question 127:

  Barring no irregularities (such as a license revocation by another state last year), after you have filed for registration as an agent, your license will be granted within

  A. 10 business days.

  B. 14 business days.

  C. 30 days.

  D. 45 days.

  Correct Answer: C

  Barring no irregularities, after you have filed for registration as an agent, you should receive your license within 30 days. More specifically, your license will be approved "no later than noon of the 30th day after filing."

• Question 128:

  Which of the following may an investment adviser not use in an attempt to solicit new clients?

  A. testimonials of satisfied clients

  B. a complete list of the stocks they have recommended in the past year, even if a statement is included that states that past performance is no guarantee of future performance

  C. a free initial consultation, with no obligation on the part of the potential client

  D. a free financial planning kit, with no obligation on the part of the potential client

  Correct Answer: A

  Investment advisers may not use testimonials of satisfied clients to solicit new clients. They may provide past stock picks, as long as they provide a complete list, that compilation period for the list is at least a year, and as long as they are careful to note that past performance is no guarantee of future performance. They can also offer freebies, such as a free initial consultation or a free financial planning kit, as long as these are indeed offered "free," with no obligation on the part of the client.

• Question 129:

  Treadwater Bank and Trust is selling a portfolio of municipal bonds it owns to the SafeRisk Insurance Corporation. Under the Uniform Securities Act (USA), in this transaction Treadwater is defined as a

  A. broker-dealer.

  B. agent.

  C. issuer.

  D. none of the above.

  Correct Answer: D

  When Treadwater Bank and Trust sells municipal bonds it owns to SafeRisk, it does not meet the USA definition of a broker-dealer, an agent, or an issuer. As a bank, Treadwater is automatically excluded as a broker-dealer. Nor can Treadwater be defined as an agent since an agent can only be an individual. Treadwater is not the issuer of the securities; the state and local governments that originally issued the securities are.

• Question 130:

  Which of the following actions is the Administrator of a state empowered to take?

  A. gather evidence

  B. require restitution for the victims of a scam

  C. impose civil penalties in cases of fraud

  D. The Administrator of a state has the authority to take all of the above actions.

  Correct Answer: A

  The Administrator of a state can gather evidence, but it cannot impose any civil penalties, including the requirement of restitution to victims. These actions can only be performed by a court of law.