Series 66-Mastery Exam 1 With Complete
Solutions 100% Correct
Which of the following investment companies can adopt a 12b-1 plan?
A. Mutual fund
B. Closed end fund
C. Unit trust
D. Face amount certificate company - ANSWER The correct answer is A. Only mutual
funds (open-end management companies) have sales loads and 12b-1 distribution fees.
Closed-end fund share trade like any stock - the only cost of investing is the commission
charge for buying or selling shares. Unit trusts and face amount certificate companies
also cannot adopt 12b-1 plans.
Which of the following actions is a prohibited practice under the Uniform Securities Act?
A. Providing oral disclosure of information contained in offering materials to a client
B. Oral delivery of prospectus material information to a client
C. Oral delivery of inside information
D. Oral delivery of a purchasing recommendation to a client for a nonexempt security -
CORRECT The best answer is C. Communication of material "inside information" is
considered an unlawful practice under the Uniform Securities Act, as well as a violation
under the Securities Exchange Act of 1934. Of course it would be acceptable to orally
disclose to a customer, facts contained in sales material, facts contained in
prospectuses, or recommendations of nonexempt securities-presuming that the
security is properly registered in the State.
The following are not allowed to be done by an agent in a sales presentation EXCEPT:
A. projecting certain future investment performance
B. omitting material information
C. omitting facts that may be relevant to a decision to invest
,D. showing past performance of the investment - ANSWER The best answer is D. An
agent can show past performance in a sales presentation, since this has a direct
bearing on the customer's decision to invest. An agent cannot predict specific future
investment results, since he has no basis for knowing what will happen in the future.
Omitting facts that can influence an investment decision essential facts - is prohibited,
since these facts are "material."
Which of the following statements may be made by an agent about a new securities
issue that is being registered by coordination?
A. "Because these securities are being registered with the Securities and Exchange
Commission, you are guaranteed that the issue is safe"
B. "Once registration is effective, this means that both the Administratorand the
Securities and Exchange Commission have approved of the offering"
C. "The issue is selling out fast to institutional investors"
D. "The security is being registered in the State and with the Securities and Exchange
Commission" - ANSWER The best answer is D. Making false or coercive statements is a
violation of the Act. It is true to say that the security is registered with the State and the
Securities and Exchange Commission if the issue is being registered by coordination.
Anything along the lines of "you are guaranteed;" or "the Administrator or SEC
approved;" or "the issue is selling out fast;" statements are all either false or
high-pressure and are forbidden.
An IAR has been employed with an RIA for the past 12 years and has generated
$18,000,000 of customer assets under management in accounts for 47 different
customers. The IAR has experienced a personal economic downturn and has been
trading these customer accounts with ever-increasing frequency to generate the
commissions necessary to meet his personal debt obligations. Which of the following
statements are TRUE?
I The IAR has regulatory liability
II The IAR has no regulatory liability
III The RIA has regulatory liability
IV The RIA has no regulatory liability
A. I and III
B. I and IV
, C. II and III
D. II and IV - ANSWER The best answer is A. This representative is churning his
customer accounts. This is an unethical business practice. Liability extends not only to
the investment adviser representative but also to his employing firm for failure to
supervise this individual.
Which of the following customers may an investment adviser NOT borrow money from?
A. Financial institution
B. Broker-dealer
C. Account with at least $100,000,000 under management
D. Account of an affiliated company that is in the business of making loans - ANSWER
The best answer is C. Investment advisers can borrow from customers that are in the
business of making loans, such as bank or broker-dealer customers. They can borrow
from a parent company or an affiliated company since they are under common
ownership. They cannot borrow from wealthy customers; that is, from accredited
investors; neither can they borrow from customers that have a large dollar value of
assets managed by the adviser.
The policy of securities regulators regarding emails sent or received by agents
maintains that:
A. records must be kept of both personal and business emails
B. only business emails are required to be recorded and retained
C. only personal emails are required to be recorded and retained
D. emails are a privileged communication that are not subject to the record retention
rules - ANSWER The best answer is A. The recordkeeping rules require the retention of
e-mail. Both FINRA and SEC rules require the retention of BOTH business and personal
emails since representatives will often send business related e-mails from home
computers and personal electronic devices.
Investment advisers having $100,000,000 or more of assets under continuous advice
must register with:
A. Federal registration only
B. State registration only
Solutions 100% Correct
Which of the following investment companies can adopt a 12b-1 plan?
A. Mutual fund
B. Closed end fund
C. Unit trust
D. Face amount certificate company - ANSWER The correct answer is A. Only mutual
funds (open-end management companies) have sales loads and 12b-1 distribution fees.
Closed-end fund share trade like any stock - the only cost of investing is the commission
charge for buying or selling shares. Unit trusts and face amount certificate companies
also cannot adopt 12b-1 plans.
Which of the following actions is a prohibited practice under the Uniform Securities Act?
A. Providing oral disclosure of information contained in offering materials to a client
B. Oral delivery of prospectus material information to a client
C. Oral delivery of inside information
D. Oral delivery of a purchasing recommendation to a client for a nonexempt security -
CORRECT The best answer is C. Communication of material "inside information" is
considered an unlawful practice under the Uniform Securities Act, as well as a violation
under the Securities Exchange Act of 1934. Of course it would be acceptable to orally
disclose to a customer, facts contained in sales material, facts contained in
prospectuses, or recommendations of nonexempt securities-presuming that the
security is properly registered in the State.
The following are not allowed to be done by an agent in a sales presentation EXCEPT:
A. projecting certain future investment performance
B. omitting material information
C. omitting facts that may be relevant to a decision to invest
,D. showing past performance of the investment - ANSWER The best answer is D. An
agent can show past performance in a sales presentation, since this has a direct
bearing on the customer's decision to invest. An agent cannot predict specific future
investment results, since he has no basis for knowing what will happen in the future.
Omitting facts that can influence an investment decision essential facts - is prohibited,
since these facts are "material."
Which of the following statements may be made by an agent about a new securities
issue that is being registered by coordination?
A. "Because these securities are being registered with the Securities and Exchange
Commission, you are guaranteed that the issue is safe"
B. "Once registration is effective, this means that both the Administratorand the
Securities and Exchange Commission have approved of the offering"
C. "The issue is selling out fast to institutional investors"
D. "The security is being registered in the State and with the Securities and Exchange
Commission" - ANSWER The best answer is D. Making false or coercive statements is a
violation of the Act. It is true to say that the security is registered with the State and the
Securities and Exchange Commission if the issue is being registered by coordination.
Anything along the lines of "you are guaranteed;" or "the Administrator or SEC
approved;" or "the issue is selling out fast;" statements are all either false or
high-pressure and are forbidden.
An IAR has been employed with an RIA for the past 12 years and has generated
$18,000,000 of customer assets under management in accounts for 47 different
customers. The IAR has experienced a personal economic downturn and has been
trading these customer accounts with ever-increasing frequency to generate the
commissions necessary to meet his personal debt obligations. Which of the following
statements are TRUE?
I The IAR has regulatory liability
II The IAR has no regulatory liability
III The RIA has regulatory liability
IV The RIA has no regulatory liability
A. I and III
B. I and IV
, C. II and III
D. II and IV - ANSWER The best answer is A. This representative is churning his
customer accounts. This is an unethical business practice. Liability extends not only to
the investment adviser representative but also to his employing firm for failure to
supervise this individual.
Which of the following customers may an investment adviser NOT borrow money from?
A. Financial institution
B. Broker-dealer
C. Account with at least $100,000,000 under management
D. Account of an affiliated company that is in the business of making loans - ANSWER
The best answer is C. Investment advisers can borrow from customers that are in the
business of making loans, such as bank or broker-dealer customers. They can borrow
from a parent company or an affiliated company since they are under common
ownership. They cannot borrow from wealthy customers; that is, from accredited
investors; neither can they borrow from customers that have a large dollar value of
assets managed by the adviser.
The policy of securities regulators regarding emails sent or received by agents
maintains that:
A. records must be kept of both personal and business emails
B. only business emails are required to be recorded and retained
C. only personal emails are required to be recorded and retained
D. emails are a privileged communication that are not subject to the record retention
rules - ANSWER The best answer is A. The recordkeeping rules require the retention of
e-mail. Both FINRA and SEC rules require the retention of BOTH business and personal
emails since representatives will often send business related e-mails from home
computers and personal electronic devices.
Investment advisers having $100,000,000 or more of assets under continuous advice
must register with:
A. Federal registration only
B. State registration only
