FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 171:

  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. No. As long as her application has been submitted and is pending acceptance, Julia has not violated any provisions of the Uniform Securities Act.

  B. No. The provisions of the Uniform Securities Act relate to securities, not people.

  C. 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.

  D. No. Julia has merely put her business cards in waiting rooms. She has not opened her business to clients yet.

  Correct Answer: C

  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.

• Question 172:

  Under the Uniform Securities Act (USA), the term "investment adviser" does not apply to

  I. an investment advisory firm owned and operated by a sole proprietor.

  II. a bank or savings institution.

  III. an investment adviser representative.

  IV.

  a broker-dealer or its agents if the advice is incidental to the business although there is a nominal charge for any specific investment advice given.

  A.

  I, II, III, or IV.

  B.

  I, II, and III only.

  C.

  II and III only.

  D.

  II, III and IV only.

  Correct Answer: C

  The term "investment adviser" does not apply to Selections II or III. The term "investment adviser" does not apply to a bank or savings institution or to an investment adviser representative. Those persons are specifically excluded from the definition provided by the USA. Any investment advisory firm, regardless of whether it is owned and operated by a sole proprietor, is considered to be an investment adviser. A broker-dealer that charges for its investment advice, even if it claims that the advice is incidental to its business, would be considered an investment adviser due to the special remuneration the firm receives for its advisory services.

• Question 173:

  Once you have passed the Series 63 examination, which entity must then approve your application to sell securities?

  A. FINRA

  B. NASAA

  C. SEC

  D. the state administrator

  Correct Answer: D

  Once you have passed the Series 63 exam, it is the state administrator who can approve or deny your registration. NASAA developed the Uniform Securities Agent State Law Examination and FINRA administers it. The SEC is not a party to the state registration process.

• Question 174:

  Moe is a registered investment adviser doing business under the name of MoeMoney Investment Advisers, LLC. Larry, Curly, and Mary all hold positions with the firm. Larry is on the board of directors; Mary is a sales representative for the firm; and Curly is an administrative assistant, who performs clerical duties.

  Given that Moe is already a registered investment adviser, which of the other three are automatically registered as investment adviser representatives?

  A. Larry only

  B. Larry and Mary only

  C. Larry, Mary and Curly

  D. Mary and Curly only

  Correct Answer: A

  As a director of the firm, Larry would automatically be registered as an investment adviser representative of MoeMoney Investment Advisers. Although directors and officers of the firm are automatically registered as investment adviser representatives, Mary, as a salesrepresentative, would have to apply for her own registration. Curly does not need to be registered since he performs only clerical duties.

• Question 175:

  The settlement date refers to

  A. the date the order to purchase or sell the security is sent to the market.

  B. the date the buyer must pay for the securities purchased.

  C. the date the order to purchase or sell a security is actually executed. This may differ from the date that the order is sent to the market in the cases of limit or stop orders.

  D. the latest date on which broker-dealers can file their quarterly financial statements with the Administrator of the state.

  Correct Answer: B

  The settlement date is the date that the buyer must pay for the securities purchased. For stocks and bonds other than U.S. Treasury securities, this date is the third business day after the trade. For U.S. Treasuries and options that sell on exchanges, the settlement date is the next business day.

• Question 176:

  Mr. and Mrs. Cleaver are nearing retirement and have made an appointment with Mr. Eddie, an investment adviser representative who works for Haskell Investment Advisers, to get advice on how they can better structure their investments to meet their retirement goals. Their son, Theodore, who has recently graduated college and has a great job as a software writer for a video game company, accompanies them. Mr. Eddie explains that the main goal of any plan is diversification and recommends that Mr. and Mrs. Cleaver spread their investment monies equally among six load mutual funds that Mr. Eddie can sell them. He suggests that Theodore follow suit and invest any monies he has equally among the same ten funds.

  Has Mr. Eddie done anything wrong?

  A. Yes. Mr. Eddie has advised his clients to invest in load funds when no load funds are clearly better investments.

  B. No. Diversification should, in fact, be the goal, and he has advised a well-diversified plan for his clients.

  C. Yes. Clients who are ready to retire have different investment needs than a client who is just entering the work force. The recommendation that both Theodore and his parents have the same asset allocation is clearly unsuitable.

  D. Yes. Mr. Eddie is guilty of misappropriation, a prohibited practice.

  Correct Answer: C

  Yes. In recommending that Mr. and Mrs. Cleaver and their son allocate their assets in identical fashions, Mr. Eddie has made an unsuitable recommendation since investors with different investment time horizons have different investment needs. Making unsuitable recommendations is a prohibited practice, and Mr. Eddie could have his license suspended or revoked.

• Question 177:

  Which of the following would fall under the definition of "agent," as defined by the Uniform Securities Act (USA)?

  A. Joe works as an administrative assistant for broker-dealer GetErDone, doing data entry, filing client forms that contain confidential information, and directing calls to registered representatives of the firm.

  B. Freedom broker-dealers executes the purchase and sale of securities for its customers.

  C. TrustUs Bank has a subsidiary operation that sells mutual funds to the public.

  D. None of the above would fall under the definition of "agent," as defined by the Uniform Securities Act (USA.)

  Correct Answer: D

  None of the selections describe an "agent," as defined by the Uniform Securities Act (USA.) Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as agents. Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.

• Question 178:

  Mr. Bigwig, CEO of HiGrowth Corporation, meets with the president of BigFee Investment Bankers and arranges for BigFee to underwrite an Initial Public Offering (IPO) for the firm. When the IPO comes to market, GetErDone Broker-Dealers

  is part of the selling group, which handles the sale of the stock to the public.

  In this scenario, which party is acting as a dealer?

  A. HiGrowth Corporation

  B. Mr. Bigwig

  C. BigFee Investment Bankers

  D. GetErDone Broker-Dealers

  Correct Answer: C

  BigFee Investment Bankers is acting as a dealer. In underwriting the securities, the firm is purchasing them from HiGrowth and selling the securities to the public. If the securities don't sell for the amount that BigFee thinks they can, BigFee takes the loss as owner of the securities.

• Question 179:

  A bond issue has recently been registered with the state Administrator.

  Which of the following statements are true?

  A. 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.

  B. The bond may now be offered for sale in the state.

  C. 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.

  D. Both A and B are true statements.

  Correct Answer: B

  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.

• Question 180:

  A variable annuity is:

  A. not a security and, therefore, does not have to be registered with the state.

  B. not a security, but is still required to be registered with the state before it can be offered for sale.

  C. a security and, therefore, has to be registered with the state before it can be offered for sale.

  D. a security, but is exempt from state registration.

  Correct Answer: D

  A variable annuity is defined as a security, but is exempt from state registration in the opinion of the North American Securities Administrators Association (NASAA.) The Supreme Court of the U.S. passed a ruling that deemed a variable annuity to be a security. The National Securities Market Improvement Act of 1996 (NSMIA) established variable annuities to be federal covered securities, however, since they are, for all intents and purposes, mutual funds. Federal covered securities are exempt from state registration.