Free FINRA-SERIES-6 Exam Dumps Preview

Explanation: The statement that could get you in trouble is, "Investing through an investment company will result in a lower tax bill than had you invested in individual stocks and bonds." Improved tax planning is not a benefit of investing through an investment company since the fund's manager cannot make investment decisions based on the tax status of each of the fund's shareholders. An investor who actively manages his own portfolio is better able to lower his tax bill.

Explanation: When a client purchases a variable contract, he should be informed that his money will be invested at the next price that is computed after the contract application is accepted by the insurance company. It is the responsibility of the member firm to transmit both the contract application and the payment to the insurance company promptly. Variable life insurance policies do not have guaranteed cash values. The cash value fluctuates with the performance of the underlying portfolio in which the insurance company invests the money.

Explanation: All of the choices are costs associated with an investment in a variable annuity contract. Nor is this an exhaustive list of the costs.

Explanation: Exco Resources' new bond issue is a primary market transaction. The primary market refers to the market for new issues. The other three scenarios describe transactions in securities that are already being traded and are secondary market transactions.

Explanation: Only Selections II and III are true. Because MAIN is a non-diversified investment company, it may invest more than 5% of its investment monies in a single issuer. This results in less risk diversification, so its net asset value is likely to fluctuate more than that of a diversified investment company. In addition, this means its returns are more likely to be affected by any single, specific economic occurrence or regulatory change.

Explanation: All of the entities can be sued for misleading statements found in HiGrow's financial statements. The Securities Act of 1933 holds any individual who participates in bringing the new issue to the public civilly liable for misrepresentations found in the prospectus.

Explanation: Since Mr. and Mrs. Raggedy's stated goals are to save for their future children's college education and to save for retirement, one of primary investment objectives is capital appreciation. That is, they will want to invest their monies in assets that will grow at a sufficient rate for them to be able to meet these targets. They have enough income to meet their current needs, so Choices A and C are not primary objectives, and although we'd all like to preserve capital, we need to take some risk in order to get the returns we require.

Explanation: An individual who works as an agent for a broker and occasionally gives investment advice to clients who request it, but receives no additional compensation for doing so would not fall under the definition of "investment adviser," under federal guidelines. In 1987, Release IA -1092 expanded the definition to include individuals providing investment advice to entertainers or athletes, among others. The compensation need not be monetary. Box seats at athletic events would be considered compensation for advisory services.

Explanation: All four selections describe differences between a Roth IRA and a traditional IRA. Only those below a stipulated income level may contribute to a Roth IRA, which is not the case with a traditional IRA although with the traditional IRA, the contributions will not be tax deductible if the contributor's income is above a certain level. Contributions made to a Roth IRA are never tax deductible and may be withdrawn without penalty at any time. Even non-tax-deductible contributions made to a traditional IRA may not be withdrawn early without penalty. There is a minimum distribution requirement associated with a traditional IRA when the contributor turns 70 ½, but there is no such requirement associated with a Roth IRA.

Explanation: The portfolio described in Selection III would be the best choice for Liz. She has little need for liquidity, so the allocation to a money market fund is only 10%. Another 40% of the allocation is in investment-grade municipal bonds and blue-chip stocks, with only 25% allocated to the riskier asset classes of foreign stocks and small caps. This meets her stated willingness to take on only a moderate level of risk. The large percentage that is allocated to municipal bonds is intended to provide her with federal tax-free interest income since she is in such a high marginal tax bracket -income that she can use for traveling and for those unexpected and periodic expenses, perhaps. The 45% allocation to growth stocks and small caps will also serve as a tax shield since these categories of stocks pay little, if any, dividends that would be taxed. Liz will only have to pay tax on capital gains when she chooses to sell these assets. The portfolio described in Selection I has far too much invested in a lower-yielding money market fund for someone who doesn't need much liquidity. Portfolio II has 60% invested in high risk securities-junk bonds, small caps, and foreign stocks-with a full 50% invested in junk bonds and foreign stocks. This would be an inappropriate allocation for an investor who is willing to accept only a moderate level of risk.

Explanation: A unit investment trust is always passively managed. Some mutual funds, such as index funds, may also be passively managed, but not all mutual funds are passively managed.

Explanation: If the Federal Reserve buys Treasury bills on the open market, the money supply is increased, which causes interest rates to fall, and a decrease in interest rates results in an increase in stock and bond prices, all else equal.

Explanation: The public offering price is set at the latest possible minute. The underwriters want to have the most current information available when setting the price, especially since they will experience the loss if the securities fail to sell for at least that price.

Explanation: Tex must pay taxes on that portion of the long-term capital gain income that Invest4U distributes to him. Invest4U is required to distribute at least 98% of its capital gain income to its shareholders.

Explanation: Since Marge is only 57, she can begin her withdrawals without penalty under IRS rule 72(t) as long as she does so following the specific guidelines for a period of 5 years, but the withdrawals will be subject to taxation. Once she starts the program outlined in rule 72(t), she must remain on it for at least five years or until she turns 59 ½, whichever comes last. This means that although she's already 57 and will be turning 59 ½ in 2 ½ years, she will have to continue to follow the guidelines for a full five years, or until she turns 62, in this case.

Explanation: The main difference between a SEP-IRA and a SIMPLE IRA is that only employers can contribute to a SEP-IRA whereas both employees and employers can contribute to a SIMPLE IRA. In fact, employers are required to contribute to a SIMPLE IRA on the employee's behalf, even if the employee chooses to make no contributions. The contributions to both plans are tax deductible and both plans have higher contribution limits than those allowed by the traditional IRA and Roth IRA plans.

Explanation: Yes. Mr. Schaker has violated securities laws in recommending a fund that he doesn't even seem to have researched very well to his existing clients, some of whom may not be suitable candidates for a global fund, which invests in foreign as well as domestic securities. Although FINRA's rules do indicate that it is not trying to stymie legitimate sales efforts, Mr. Schaker's actions do not fall within this category. There is no research that indicates new funds tend to offer abnormally high funds for the first 12 months of their existence, and if Mr. Schaker would have implied that, he could be up on criminal fraud charges. There is no law, however, that prohibits a registered representative from recommending a load fund to a client, as long as there is a legitimate reason for doing so.

Explanation: Private placements are exempt from the registration requirements of the Securities Act of 1933 under the rules contained in Regulation D. Regulation D dictates the qualifications that must be met for the security to be exempted, such as the maximum number of unaccredited investors and the investors to whom the security may be sold. Regulation A dictates the rules to qualify an issue for a small issue exemption. The Securities Exchange Act of 1934 deals with the secondary market, not the new issue market.

Explanation: The false statement regarding both a UGMA and a UTMA is that the assets must be re- registered in the minor child's name when the child turns 18. The rule differs between the two types of accounts. The UGMA requires that the assets must be re-registered when the child reaches the "age of majority," as defined by the state, and the definition differs among states. Under the UTMA, the transfer of the account can be delayed until the minor child has reached the age of 25.

Explanation: A warrant differs from a standard call option in that when a warrant is exercised, the firm whose stock is being purchased will have an increase in cash; this is not the case when a standard call
option is exercised. Both the warrant and the call option give the holder the right to purchase shares of a firm's stock, but the writer (seller) of a warrant is the firm itself whereas the writer of a standard call option is simply another investor. Upon exercising a warrant, the investor buys the stock from the firm itself, which increases the firm's cash account. When a call option is exercised, another investor's cash account is increased. For the same reason, when a call option is exercised, nothing happens to the outstanding shares of the firm; but when a warrant is exercised, the firm's outstanding shares will increase.

Explanation: All of the choices listed-and more-are traded in the over-the-counter market: stock options, government bonds, corporate bonds, and corporate stocks. Additionally, securities such as warrants, rights, forward contracts, and foreign currencies also trade in the over-the-counter market.

Explanation: When a broker-dealer hires a new agent, it must submit a U-4 form that includes information about the agent's name, address, and employment history. The form must also include information on any felony charges or securities-related misdemeanors, but it does not include anything about the agent's education or marital status. The U-5 form, which is filed when an agent is terminated, would include this additional information.

Explanation: Mr. Nomad's friend can engage in the activities described in Selections I and II only. A limited power of attorney gives Mr. Nomad's friend the authority to buy and sell securities on Mr. Nomad's behalf, but not to make any cash withdrawals. He would need a full power of attorney to be able to do so.

Explanation: The Securities Act of 1933 established the requirement that new securities be registered. The focus of the Securities Act of 1933 was on the primary market. This act also requires that a prospectus be supplied to all prospective investors. The Securities Exchange Act of 1934 established the SEC as the regulatory agency of the secondary market, and the Investment Advisers Act of 1940 established the registration requirement for investment advisers.

Explanation: Only Selections I and IV are correct. A new issue of common stock will be sold in the primary market. It is also a capital market security since it has no maturity, and capital market securities are securities with greater than one year to maturity.

Explanation: 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 either $1 million or up to 3 times the amount of profits gained or losses avoided, whichever is greater.

Explanation: Giant may only name the new fund the Asian Fund if the fund has a policy to invest at least 80% of its assets in investments that are economically tied to Asian countries and the fund's prospectus provides the specific criteria that will be used by the fund to select its investments.

Explanation: Mr. Grumpy, Mr. Doc, Mr. Sneezy, Mr. Happy, and Mr. Sleepy must register as investment adviser representatives under the Investment Advisers Act of 1940. Only Mr. Bashful need not register since he performs only clerical duties. Any employee who makes investment recommendations and/or manages client portfolios and any employee who solicits or offers investment advisory services must register. Anyone who is a supervisor to those performing these duties must also register.

Explanation: The true statement regarding FINRA registration requirements for the individuals is that Mr.
Donald must register as a principal; Dewey must be registered as a limited securities representative; and Louie must be registered as a general securities representative. Daisy and Huey need not be registered.
Mr. Donald is actively involved in the management of Just Ducky and, as such, he must register as a principal. Dewey handles mutual fund sales and, at a minimum, must be licensed as a limited representative. Louie, who executes stock, bond, and option transactions, must be licensed as a general securities representative. Huey is exempt from registration requirements since he trades in municipal securities only. Daisy is exempt since she handles only the ministerial duties of the firm.

Explanation: Only Selections II and IV are necessarily true. The number of authorized shares must always be greater than or equal to the number of shares that the firm offers to the public, which are the issued shares. The number of issued shares will be equal to the number of shares outstanding as long as the firm doesn't buy back any of its outstanding shares. Otherwise, the number of issued shares will exceed the number of shares outstanding since issued shares = shares outstanding + treasury shares. The issued shares would only be equal to the treasury shares if the firm repurchased all its shares outstanding.

Explanation: Yes. Sarah is required to explain the concepts of breakpoints and letters of intent to her client and her failure to do so is a violation of FINRA's rules of conduct. A registered representative selling mutual fund shares is required to explain the salient facts contained in a fund's prospectus to a client before selling him the fund shares. Sarah's failure to do so is deemed "inconsistent with just and equitable principles of trade."

Explanation: Under the Investment Company Act of 1940, an investment company must include a statement of its investment policy in its prospectus. It must provide prospective investors with a current prospectus, not its registration statement, when offering shares for sale. It must maintain a minimum net worth of only $100,000, and its board of directors can consist of up to 60% of interested persons.

Explanation: The compensation records that FINRA member firms are required to maintain must include the names of the persons that have provided the compensation (the offerors), the names of the associated persons receiving the compensation, the amount of cash received, and the nature and value (if know) of
any non-cash compensation received.

Explanation: Given her age, her stated need to buy a new car within the next few months, and the fact that she is experiencing a monthly cash shortfall, Yvette has a need for liquidity, which the money market fund

will provide. She will need the cash to buy a car, and she needs to have cash readily available to pay for some unexpected expenses as well since her income stream is fixed and isn't currently covering her needs. A life insurance policy is definitely not an appropriate choice since it doesn't appear that there is anyone dependent on Yvette for his well-being. An aggressive growth stock fund would be too risky, given her age and background, and based on the facts, her marginal tax rate should be extremely low, which does not make the municipal bond fund a good choice since she would be earning a lower return with little or no benefit.

Explanation: Mr. Investor does not have the right to vote on the purchase of a major piece of property that Everyman is considering or any decision involving business operations. He does have the right to receive dividends, if dividends are declared, based on his proportionate ownership of the firm. He also has the right to vote on the members of the firm's board of directors and to vote on any proposed changes to the corporate by laws.

Explanation: The true statement is that Ken never has to repay the loan, but if he chooses not to do so, his wife, Barbie, won't get as much when he dies. He can borrow up to at least 75% of the cash value, but there is interest charged on the loan. (In essence, he's paying interest to himself, though.)

Explanation: A company that sells its securities only to accredited investors is exempt from registering as an investment company under the Investment Company Act of 1940. All the other choices describe investment companies that are required to file a registration statement with the SEC.

Explanation: Among other things, the trade confirmation that Anna receives must stipulate the items described in Selections I and III only. The trade confirmation that Anna receives from GetErDone must stipulate the time and date of the transaction, the number of shares sold, and the price at which they were sold. The exchange or ECN on which the transaction was executed is not provided on the confirmation statement. Whether GetErDone acted as a principal or a broker in the transaction does need to be stipulated, but in this instance GetErDone acted as a broker, not a principal. GetErDone did not itself buy the shares from Anna.

Explanation: Since Mr. Beard wants an automatic withdrawal plan such that the money will last through his circumnavigation, with nothing remaining at the end, he should elect to use the fixed -time plan. Under this plan, the fund determines how much it will redeem each period over the five years such that the account is depleted at the end of that time period. There is no way of knowing exactly how long Mr. Beard's money
will last under the other three types of plans; it could be greater than or less than 5 years--or exactly 5 years for that matter.

Explanation: A tombstone advertisement may not contain the price of the offering under SEC rules. The final price would not have been set at this point anyway.

Explanation: The new account form that Ms. Newbie's client will receive must contain the signatures of both Ms. Newbie and her branch manager/supervisor. The signature of the client is not a requirement.

Explanation: The false statement regarding variable life insurance policies is that the surrender value of a variable life insurance policy will always be less than its cash value. The surrender value of a variable life insurance policy is its cash value.

Explanation: Since Hasbro was selling for $44 on the day Uncle Oscar died, this is your cost basis. The cost basis of an inherited investment is the market value of the investment on the date that the person died.

Explanation: The Howey Decision defined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others. General partnerships do not fall under the definition of investment contracts since the general partners are actively involved in the business operations. Although both fixed annuities and bank CDs are excluded from the definition of a security, this was not part of the Howey Decision.

Explanation: The statement that payments to beneficiaries upon the death of the policyholder are taxed as ordinary income is false. When a policyholder dies, the death benefit received by the beneficiaries is tax-free. The death benefit will, however, be included in calculating any estate taxes that might be due. All the other choices are true statements. Unlike the tax treatment of variable annuities, the IRS uses first -in, first out (FIFO) accounting when determining whether the withdrawals have come from earnings or premium
payments; therefore, when a policyholder withdraws some of the policy's cash value, it is assumed to be a withdrawal of premiums first, and that amount of the withdrawal is tax-free.

Explanation: The false statement is that an investor who makes a withdrawal prior to having reached the age of 62 ½ will be subject to a 10% penalty. As long as the investor has reached the age of 59 ½, no

penalty will be assessed.

Explanation: A passive asset allocation strategy that involves establishing specific target percentages for the various asset classes and rebalancing only as necessary to maintain those percentages as long as the investor's investment objectives remain unchanged is called strategic asset allocation. Tactical asset allocation is an active strategy that involves trying to time the market to some extent. Dynamic asset allocation is also an active strategy in which the portfolio mix is adjusted as markets rise and fall, such that the weighting is heaviest in those asset classes that can be expected to perform well under the current economy. Interactive asset allocation is a fictitious strategy.

Explanation: If your client bought a variable annuity contract with a 7-year surrender period four years ago, you can tell him that even though there will be no tax consequences associated with the exchange, he'll have to pay the 5% deferred sales charge if he executes the exchange, and he'll be looking at a new, longer, surrender period-one of the less desirable features associated with bonus annuities.

Explanation: Only Selections I and IV are true statements. If Eddie and Edith open a JTWROS account with you, you can accept a buy or sell order from either one of them, and any correspondence concerning the account can be sent to either one of them. However, a check must be made out to both of them, in the same manner that the account is titled. A JTWROS account is a "joint tenants with rights of survivorship" account, which means that if either Eddie or Edith die, the account assets pass directly to the other one and do not go into the deceased's estate.