FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 151:

  Nancy's Aunt Ethel died, making Nancy executrix of her estate. In going through Aunt Ethel's belongings, Nancy discovered some stock certificates that she learned had been issued by a small New Jersey firm that was still in business. The problem lay in the fact that Nancy's Aunt Ethel had moved from New Jersey to Florida years ago, and the stock is registered only in the state of New Jersey. Nancy herself is a resident of Massachusetts.

  What does Nancy have to do in order to sell this stock?

  A. Nancy can sell the stock without a problem as executrix of her aunt's estate.

  B. Nancy will need to contact a securities law firm in Florida to help her register the stock in the state of Florida.

  C. Nancy will need to contact a broker-dealer licensed in the state of New Jersey to help her with the sale of this stock.

  D. Nancy will have to establish a mailing address in New Jersey before she can legally sell this stock.

  Correct Answer: A

  Nancy can sell the stock without a problem as executrix of her aunt's estate. This is considered to be a fiduciary transaction and, as such, it is an exempt transaction.

• Question 152:

  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.

  Correct Answer: D

  Based on the facts provided, Rich Quick need not register in Florida since he has no offices in the state of Florida, and he is conducting business for existing clients who are merely vacationing in Florida and are not residents of the state.

• Question 153:

  Under NASAA Model Rules, it is permissible for the registered representative of a broker- dealer to split his or her commission with

  I. a client.

  II. the broker-dealer with which the registered representative is affiliated.

  III. another registered representative working for the same broker-dealer.

  IV.

  the administrative assistant who directs calls to the registered representative and provides other services for the agent.

  A.

  I, II, III, and IV

  B.

  I, II, and III only

  C.

  II, III, and IV only

  D.

  II and III only

  Correct Answer: D

  Only Selections II and III are correct. Under NASAA Model Rules, a registered representative of a broker-dealer is entitled to split his or her commission only with his or her broker-dealer or with another registered representative of that broker-dealer. He is not permitted to share commissions with a client or with anyone who works for the broker- dealer, but is not a registered agent.

• Question 154:

  Your client calls you with a market order to purchase 500 shares of the stock of Oracle and asks when payment will be due. If today is Wednesday, September 15th, you inform the client that payment is due on

  A. Monday, September 20th.

  B. Thursday, September 16th.

  C. Friday, September 17th.

  D. Saturday, September 18th.

  Correct Answer: A

  If your client places an order to purchase 500 shares of Oracle on the open market on Wednesday, September 15th, payment will be due on Monday, September 20th. The settlement date for stock transactions is T + 3, which means the third business day after the trade. Saturday is not a business day.

• Question 155:

  An investment adviser suggests that his client, Arnold, a 74-year old gentleman, should consider a reallocation of the assets in his portfolio. The adviser tells Arnold that he has far too much invested in bonds, which don't earn as much as stocks. He advises Arnold to take 80% of the money he has in bonds and invest it in an aggressive growth mutual fund that has provided an average annual return of 40% over the past three years. Arnold is impressed and follows this advice. Shortly thereafter, there is a steep drop in the market in general, and the net asset value of the aggressive growth mutual fund falls 85%.

  Does Arnold have any remedies available to him?

  A. No. Arnold had the choice and got greedy. As the old saying goes, "Bulls get rich, and bears get rich, but pigs get led to slaughter."

  B. Yes. Arnold can sue for the amount of his losses, plus interest, as well as an amount assessed by the court for "pain and suffering."

  C. No. The investment adviser had no way of knowing that the market was going to fall when he provided the advice, so the adviser did not fail in his fiduciary responsibility to Arnold.

  D. Yes. Arnold can sue for the amount of his losses, plus interest, court costs, and attorneys' fees.

  Correct Answer: D

  If Arnold loses his money because he took the advice of his investment adviser and reallocated a large percentage of his money from bonds to an aggressive growth mutual fund, he can sue the investment adviser in civil court for the amount of his losses, plus interest, court costs, and attorneys' fees. The courts do not award damages for "pain and suffering" in these cases. The investment adviser failed in his fiduciary responsibility to Arnold in recommending that a 74-year old man reallocate a large percentage of his money from the relative safety of bonds to the much riskier investment of an aggressive growth mutual fund.

• Question 156:

  Finn Nance has recently passed his CFP exam and is now a certified financial planner. He has new business cards printed that have the words "Certified Financial Planner" printed under his picture. In doing so,

  A. Finn has not violated any laws or engaged in any prohibited practices.

  B. Finn has violated a securities law. The Uniform Securities Act prohibits anyone from using the word "certified" on any advertisement for services.

  C. Finn has possibly violated a state securities regulation. The Administrator in many states prohibits the use of the word "certified" on any advertisement for services.

  D. Finn is not in violation of any laws as long as he has notified the state Administrator of his new designation and his new logo.

  Correct Answer: A

  Finn has not violated any laws or engaged in any prohibited practices in using the words "Certified Financial Planner" on his business cards. Had he indicated he had been certified or approved by the state, he would have been in violation, but he is allowed to indicate a certification with a professional organization in any advertising literature.

• Question 157:

  After passing the necessary exams, you must submit which of the following to the state Administrator when applying for registration as an agent?

  A. U-4

  B. Form ADV

  C. a recent photograph of yourself

  D. proof that you meet the state's minimum net capital requirement

  Correct Answer: A

  When applying for registration as an agent, you will need to submit a U-4. No photograph is necessary. Form ADV is used to register as an investment adviser, and only broker-dealers and investment advisers must meet the state's minimum net capital requirement.

• Question 158:

  Which of the following is not in itself a reason for the Administrator to deny, suspend, or revoke the license of a person?

  A. The applicant has never before worked in the securities industry although he has received the requisite training.

  B. Some of the information supplied on the registration application was found to be false.

  C. The person has been convicted of check kiting within the past ten years.

  D. The person is a broker-dealer whose agents have repeatedly been accused of churning and burning, according to written client complaints.

  Correct Answer: A

  An Administrator may not deny, suspend, or revoke the license of a person simply because the applicant has never before worked in the securities industry if that person has received the training necessary. The Uniform Securities Act specifically states that the order cannot be entered ". . .solely on the basis of lack of experience if the applicant or registrant is qualified by training, knowledge, or both."

• Question 159:

  Which of the following would a firm not be expected to provide to the Administrator when registering an issue of securities with the state?

  A. all sales and advertising materials that will be used in conjunction with the offering.

  B. the agreement between the issuing firm and the underwriters.

  C. the agreement among the underwriters themselves.

  D. The firm will be expected to provide all of the above to the Administrator when registering an issue of securities with the state.

  Correct Answer: D

  The firm will be expected to provide all of the above-sales and advertising materials to be used in the offering, the agreement between the issuing firm and its underwriters, and the agreement among the underwriters themselves.

• Question 160:

  Noah Aull is an investment adviser representative with Canto Investment Advisers. A client has called and told Noah that he heard about a firm that had recently completed an IPO at a party he had attended that weekend and instructed Noah to purchase shares of the company, which was now trading on the OTC Bulletin Board. Noah did some research and felt the company was far too risky an investment for this client, so he did not execute the trade. This turned out to be fortunate for his client since the firm became insolvent within six months of its IPO.

  Has Noah done anything wrong?

  A. Yes. Noah is guilty of misappropriation and could have his license revoked.

  B. No. Noah did what he is hired to do-manage his clients' accounts to the best of his ability.

  C. Yes. Noah is guilty of not following a client's instructions and could have his license revoked.

  D. Yes. Noah is guilty of making an unauthorized transaction and could have his license revoked.

  Correct Answer: C

  Yes. Noah is guilty of not following a client's instructions and could have his license revoked. A refusal to act on a client's legitimate order is a prohibited practice, even if the client would have lost money after-the-fact.