FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 161:

  Under which of the following scenarios can a client legitimately sue a purported professional in the securities industry and expect an award for damages?

  I. The securities were sold by an agent whose registration was not yet effective with the state, but who had already applied for registration.

  II. The security was a variable annuity, and the sales representative neglected to reveal the details of the surrender clause to the client.

  III.

  The security was the stock of a company, the stock had recently been registered with the state for sale, had been granted registration, and the selling agent had told his client that the security had been state-approved for sale.

  A.

  I only

  B.

  II and III only

  C.

  I and III only

  D.

  I, II, and III

  Correct Answer: D

  All of the selections are scenarios describing instances in which a client can legitimately sue a purported professional in the securities industry and expect an award for damages. A client can legitimately sue a purported professional in the securities industry and expect an award for damages if the agent is not yet effectively registered to effect securities transactions in the state; if the professional has neglected-intentionally or otherwise-to inform the investor of all the relevant information involving the security, such as any surrender clause involved; or if the agent has indicated that a state-registered security has in any way been approved by the state.

• Question 162:

  George Geek is a computer programmer who tired of working for others and started his own company. He convinced forty investors that he could design software that would rival Microsoft, and sold them each a 10% partnership interest in his firm for $25,000. He designed and printed up the partnership certificates himself. George told the investors that he had a product that was on the verge of being marketable and that when it did-within the next two months-revenues would pour into the company, and he would begin paying dividends. He told them they could expect a 20% return on their money this year, with even higher returns in the years to come. As it turned out, George wasn't quite the programmer he thought he was, and he wasn't able to get all the bugs out of the program to make it marketable within the promised two months.

  Within a year, George had tired of the project and was too busy picking up chicks in his new Corvette when he wasn't on the island of St. Bart overseeing the construction of his new beach mansion-and picking up chicks. His activities, of course, were financed by the extremely generous "salary" he paid himself from the investors' monies.

  Under the Uniform Securities Act, do the investors have any civil claims against George?

  A. Yes. They can sue George for the return of their original investment, plus interest. George would also have to pay their court costs and attorneys' fees and any amounts assessed by the court for "pain and suffering" on the parts of the clients.

  B. No. It wasn't George's fault that he was unable to do what he promised. Even if it wasn't for.

  C. Yes. They can sue George for the return of their original investment, plus interest. George would.

  D. No. The Uniform Securities Act only involves securities laws and partnership interests are not.

  Correct Answer: C

  Yes. The investors have a civil claim against George under the Uniform Securities Act and can sue for the return of their original investment, plus interest, reasonable attorneys' fees, and court costs. There is no provision for pain and suffering. Partnership interests fall under the definition of securities, so the Uniform Securities Act does apply, and George sold the interests illegally. As securities, they were required to be registered with the state before they could be sold.

• Question 163:

  Fly-By-Night Investment Advisers has closed its doors.

  Which of the following statements is true?

  A. Fly-By-Night is required to shred all documentation of client transactions and communications.

  B. Fly-By-Night must send all records of client transactions and communications to the state Administrator for safekeeping.

  C. Fly-By-Night must preserve and maintain all records, including client transactions and communications, advertising materials, and financial statements of the now-defunct business for five years.

  D. Fly-By-Night must send each of its former clients its records of all that client's transactions and communications with the firm over the past five years.

  Correct Answer: C

  Even after Fly-By-Night has closed its doors, it is required to preserve and maintain all records, including client transactions and communications, advertising materials, and the financial statements of the business for five years, under the guidelines of the Uniform Securities Act.

• Question 164:

  Mina is a new agent with SecureMoney Broker-Dealers and is struggling to make ends meet. She gets a job as a receptionist at a fitness club on the weekends to generate more income.

  Which of the following is true?

  A. Mina should have notified SecureMoney in writing before signing on to work at the fitness club.

  B. Because the job as a receptionist at a fitness club has nothing to do with the world of finance, Mina has done nothing inappropriate.

  C. Mina simply needs to tell her immediate supervisor at SecureMoney about her new job.

  D. Mina needs to send notice to the state Administrator informing him of her extracurricular activity.

  Correct Answer: A

  Mina should have notified SecureMoney in writing before taking on the job at the fitness club. Regardless of whether the job has anything to do with finance, an agent must notify her broker-dealer in writing prior to engaging in any extracurricular activity for which she gets paid. She is not required to send any notice to the Administrator, however.

• Question 165:

  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.

  Correct Answer: D

  Sam has the legitimate option of filing an appeal of the decision in a court of law within 60 days. He will not be able to register as an investment adviser with the SEC or with another state. His application will be denied when it is discovered that Sam has had his license revoked by one state.

• Question 166:

  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 client agrees to pay the investment adviser an hourly fee of $60.00.

  B. 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.

  C. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.

  D. All of the above are legitimate compensation arrangements between and investment adviser and an individual client with a net worth of $600,000.

  Correct Answer: C

  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.

• Question 167:

  What criminal penalties are specified for "willful violations" of the Uniform Securities Act?

  A. license suspension.

  B. up to 3 years in prison or a $5,000 fine, or both.

  C. up to 5 years in prison or a $10,000 fine, or both.

  Correct Answer: C

  The criminal penalties specified by the Uniform Securities Act for "willful violations" of the act are up to 3 years in prison or a $5,000 fine, or both, for each violation.

• Question 168:

  You are a newly licensed agent and are making cold calls to generate business. According to the Telephone Consumer Protection Act of 1991 (TCPA), you may only place your calls between the hours of

  A. 8 a.m. and 9 p.m., based on your time zone.

  B. 8 a.m. and 9 p.m., based on your prospective customer's time zone.

  C. 8 a.m. and 7 p.m., based on your prospective customer's time zone.

  D. 8 a.m. and 7 p.m., based on the Pacific Time Zone.

  Correct Answer: B

  The TCPA mandates that you place your calls only between the hours of 8 a.m. and 9 p.m., based on your prospective customer's time zone. This is a rule that applies to all telemarketers.

• Question 169:

  To continue operating as an agent, broker-dealer, investment adviser, or investment adviser representative next year, you must pay the filing fee to renew your license with the state Administrator by

  A. January 15th of the new year.

  B. January 30th of the new year.

  C. December 31st of this year.

  D. the anniversary date of the original issue date on your license.

  Correct Answer: C

  To continue operating as an agent, broker-dealer, investment adviser, or investment adviser representative next year, you must pay your filing fee to renew your license by December 31st of this year. Otherwise, your license will expire. There is no grace period.

• Question 170:

  In which of the following scenarios is an investment adviser representative required to disclose the fact that someone other than the representative performed the research on which his advice to the client is based?

  I. The investment adviser representative recommends the same asset allocation for his client that a buddy of his did after his buddy had done some research for a client with similar characteristics.

  II. The investment adviser representative provides a recommendation for his client based on research provided by a broker-dealer that provides the investment adviser with its analysts' recommendations in return for trades that the investment adviser executes using the services of the broker-dealer, as well as a couple of other research sources he finds on the internet.

  III.

  The investment adviser representative submitted his client's information to a data base that provided a recommendation for the asset allocation of the client's investment monies that the adviser deemed was sound and, therefore, recommended it to his client.

  A.

  I only

  B.

  II only

  C.

  III only

  D.

  I and III only

  Correct Answer: D

  An investment adviser representative is required to disclose the fact that someone else performed the research on which advice to the client is based in scenarios described in I and III only. If the representative provides a recommendation to the client based solely on the recommendations provided by others to whom he provided the data, he must disclose this. However, if the adviser representative has based his recommendations on his own assessment of analysts' reports and recommendations, as is suggested in Selection II, then there is no disclosure requirement.