Mastery Exam 1 UPDATED ACTUAL Questions and CORRECT Answers
An investment adviser with its principal oflce in the State
of Kentucky has 3 branch oflces in Ohio and 4 branch
oflces in Tennessee. The State of Kentucky has a mini-
A. The minimum Net Worth requirement is only required
mum net worth requirement for Investment Advisers of
in the State where the adviser has its principal place of
$30,000. The net worth requirement for the State of Ohio
business. If the adviser has "out of state" branches, there
is $40,000 and the net worth requirement for the State of
is no additional Net Worth requirement based on those
Tennessee is $35,000. Under the Uniform Securities Act,
locations. Only the net worth requirement of the adviser's
the minimum net worth that must be maintained by the
State where it has its principal oflce applies. The infor-
Investment Adviser is:
mation in the question does not tell us if this is a Federal
A. $30,000
Covered Adviser, so this choice is basically a "throw away."
B. $35,000
C. $40,000
D. $0, since this is a Federal Covered Adviser
A.
A NASAA interpretation that only applies to Canadian bro-
A Canadian broker-dealer has a client who comes to the ker-dealers says that Canadian BDs can contact existing
United States for 4 months as a contract employee for an customers who are temporarily residing in the United
American company. Which statement is TRUE about the States without having to register in a State, as long as the
Canadian broker-dealer doing securities business with client is in the U.S. for less than ½ year and intends to
the client in the United States? return to Canada.
A. The Canadian broker-dealer can continue to do busi- Since this Canadian client will only be in the U.S for 4
ness with the client in the United States without taking any months, the Canadian BD can continue to do business
further action with the client while he or she is in the U.S. without having
B. The Canadian broker-dealer can rely on the "vacation- to register in the State where the client is working.
ing" client exemption and does not have to register in the Note that the Canadian BD cannot contact prospective
State clients in the U.S - only existing clients can be contacted.
C. The Canadian broker-dealer must register in the State And also note that this rule does NOT apply to a U.S. BD
D. The Canadian broker-dealer need only register in the registered in one State that contacts an existing client who
State if the client is not a dual citizen is temporarily in another State. In this case, if the client
spends more than 30 days in the other State, that BD must
be registered in the other State.
,An individual who represents an issuer selling federally
covered investment company securities:
,B.
If an individual represents an issuer selling a security that
must be SEC-registered and compensation is paid for
this activity, then the individual must register in the State.
Both "nationally traded securities" and investment compa-
ny securities are "federal covered," but because they are
non-exempt and are SEC-registered, this individual must
be registered in the State to sell them. If the individual
were representing the issuer selling exempt securities,
such as Treasuries, Agencies and Municipals, then the
individual is not defined as an agent.
The exclusion from registration given to an individual who
represents an issuer in transactions in specified "covered
securities" only applies to private placements and to sales
to qualified investors (wealthy investors).
A.
Federal covered advisers are not required to register in
the State; they are required to register with the SEC (or
Which of the following is NOT defined as a federal covered are excluded from the Federal definition of an investment
adviser? adviser and are neither required to register with the SEC
A. An adviser to insurance companies registered in the nor the State).
State Federal covered investment advisers are defined under
B. An adviser to investment companies registered with the the Investment Advisers Act of 1940 (federal law). They are
Securities and Exchange Commission advisers managing $100,000,000 or more of assets; and
C. An adviser that manages $100,000,000 or more of advisers to investment companies. It is not a coincidence
D. An adviser that gives advice solely about U.S. Govern- that the Investment Advisers Act of 1940 and the Invest-
ment securities ment Company Act of 1940 were written at the same time.
One of the main intentions of the Investment Advisers Act
of 1940 was to regulate advisers to investment companies
and limit their compensation (for example, advisers to
, investment companies cannot be compensated based on
gain or loss).
C. Foreign government securities (that means debt, since
All of the following securities are exempt from registration
governments don't issue stock) are exempt. Foreign
under the Uniform Securities Act EXCEPT:
stocks, however, are non-exempt, and must be registered
A. Railroad common stock
with the State. Railroad common stock is exempt, since
B. Municipal bonds
common carriers regulated by the Interstate Commerce
C. Canadian common stocks
Commission (ICC) are exempt; so are municipal bonds
D. Foreign government bonds
and foreign government bonds.
An investment adviser has determined that ABCD stock
would be an appropriate investment for his client, but only
if the price falls from the current level of $50 per share to
$35 per share. What MUST the adviser do prior to placing A. If an adviser wishes to recommend a transaction to a
an order to buy ABCD stock for the client's account? customer, the customer must agree to do the transaction
A. Obtain verbal authority for that specific transaction prior to execution (this assumes that the adviser does
B. Obtain verbal authority to exercise discretion over the not have discretion). This is usually done verbally. Written
account authorization is needed only to take account instructions
C. Obtain verbal authority to exercise discretion only over from someone other than that customer.
price and time of execution in the account
D. Secure an appointment as trustee over the account to
formalize the fiduciary relationship
A written customer complaint is received by mail that the A.SEC Rule 17a-3 (which NASAA follows) allows firms to
firm resolves to the customer's satisfaction. Which state- keep complaint records in either of 2 ways:
ment is TRUE regarding keeping this record? The firm may keep a written record of each customer
A. A copy of the original complaint along with its reso- complaint and its resolution, including customer name,
lution must be retained in the file of the agent by the address, account number, date of receipt of complaint,
broker-dealer name of associated person identified in the complaint and
B. A copy of the original complaint along with its resolution disposition of the complaint; or
must be retained at the firm's supervisory oflce Instead of the record, the member may maintain a copy of
C. A copy of the original complaint along with its resolution each original complaint in a separate file of the associated
must be retained by the State Administrator person along with a record of the disposition of the com-
An investment adviser with its principal oflce in the State
of Kentucky has 3 branch oflces in Ohio and 4 branch
oflces in Tennessee. The State of Kentucky has a mini-
A. The minimum Net Worth requirement is only required
mum net worth requirement for Investment Advisers of
in the State where the adviser has its principal place of
$30,000. The net worth requirement for the State of Ohio
business. If the adviser has "out of state" branches, there
is $40,000 and the net worth requirement for the State of
is no additional Net Worth requirement based on those
Tennessee is $35,000. Under the Uniform Securities Act,
locations. Only the net worth requirement of the adviser's
the minimum net worth that must be maintained by the
State where it has its principal oflce applies. The infor-
Investment Adviser is:
mation in the question does not tell us if this is a Federal
A. $30,000
Covered Adviser, so this choice is basically a "throw away."
B. $35,000
C. $40,000
D. $0, since this is a Federal Covered Adviser
A.
A NASAA interpretation that only applies to Canadian bro-
A Canadian broker-dealer has a client who comes to the ker-dealers says that Canadian BDs can contact existing
United States for 4 months as a contract employee for an customers who are temporarily residing in the United
American company. Which statement is TRUE about the States without having to register in a State, as long as the
Canadian broker-dealer doing securities business with client is in the U.S. for less than ½ year and intends to
the client in the United States? return to Canada.
A. The Canadian broker-dealer can continue to do busi- Since this Canadian client will only be in the U.S for 4
ness with the client in the United States without taking any months, the Canadian BD can continue to do business
further action with the client while he or she is in the U.S. without having
B. The Canadian broker-dealer can rely on the "vacation- to register in the State where the client is working.
ing" client exemption and does not have to register in the Note that the Canadian BD cannot contact prospective
State clients in the U.S - only existing clients can be contacted.
C. The Canadian broker-dealer must register in the State And also note that this rule does NOT apply to a U.S. BD
D. The Canadian broker-dealer need only register in the registered in one State that contacts an existing client who
State if the client is not a dual citizen is temporarily in another State. In this case, if the client
spends more than 30 days in the other State, that BD must
be registered in the other State.
,An individual who represents an issuer selling federally
covered investment company securities:
,B.
If an individual represents an issuer selling a security that
must be SEC-registered and compensation is paid for
this activity, then the individual must register in the State.
Both "nationally traded securities" and investment compa-
ny securities are "federal covered," but because they are
non-exempt and are SEC-registered, this individual must
be registered in the State to sell them. If the individual
were representing the issuer selling exempt securities,
such as Treasuries, Agencies and Municipals, then the
individual is not defined as an agent.
The exclusion from registration given to an individual who
represents an issuer in transactions in specified "covered
securities" only applies to private placements and to sales
to qualified investors (wealthy investors).
A.
Federal covered advisers are not required to register in
the State; they are required to register with the SEC (or
Which of the following is NOT defined as a federal covered are excluded from the Federal definition of an investment
adviser? adviser and are neither required to register with the SEC
A. An adviser to insurance companies registered in the nor the State).
State Federal covered investment advisers are defined under
B. An adviser to investment companies registered with the the Investment Advisers Act of 1940 (federal law). They are
Securities and Exchange Commission advisers managing $100,000,000 or more of assets; and
C. An adviser that manages $100,000,000 or more of advisers to investment companies. It is not a coincidence
D. An adviser that gives advice solely about U.S. Govern- that the Investment Advisers Act of 1940 and the Invest-
ment securities ment Company Act of 1940 were written at the same time.
One of the main intentions of the Investment Advisers Act
of 1940 was to regulate advisers to investment companies
and limit their compensation (for example, advisers to
, investment companies cannot be compensated based on
gain or loss).
C. Foreign government securities (that means debt, since
All of the following securities are exempt from registration
governments don't issue stock) are exempt. Foreign
under the Uniform Securities Act EXCEPT:
stocks, however, are non-exempt, and must be registered
A. Railroad common stock
with the State. Railroad common stock is exempt, since
B. Municipal bonds
common carriers regulated by the Interstate Commerce
C. Canadian common stocks
Commission (ICC) are exempt; so are municipal bonds
D. Foreign government bonds
and foreign government bonds.
An investment adviser has determined that ABCD stock
would be an appropriate investment for his client, but only
if the price falls from the current level of $50 per share to
$35 per share. What MUST the adviser do prior to placing A. If an adviser wishes to recommend a transaction to a
an order to buy ABCD stock for the client's account? customer, the customer must agree to do the transaction
A. Obtain verbal authority for that specific transaction prior to execution (this assumes that the adviser does
B. Obtain verbal authority to exercise discretion over the not have discretion). This is usually done verbally. Written
account authorization is needed only to take account instructions
C. Obtain verbal authority to exercise discretion only over from someone other than that customer.
price and time of execution in the account
D. Secure an appointment as trustee over the account to
formalize the fiduciary relationship
A written customer complaint is received by mail that the A.SEC Rule 17a-3 (which NASAA follows) allows firms to
firm resolves to the customer's satisfaction. Which state- keep complaint records in either of 2 ways:
ment is TRUE regarding keeping this record? The firm may keep a written record of each customer
A. A copy of the original complaint along with its reso- complaint and its resolution, including customer name,
lution must be retained in the file of the agent by the address, account number, date of receipt of complaint,
broker-dealer name of associated person identified in the complaint and
B. A copy of the original complaint along with its resolution disposition of the complaint; or
must be retained at the firm's supervisory oflce Instead of the record, the member may maintain a copy of
C. A copy of the original complaint along with its resolution each original complaint in a separate file of the associated
must be retained by the State Administrator person along with a record of the disposition of the com-
