Series 66: Mock Exam 1
In addition to the normal required filings, an IA who maintains custody of client funds and/or
securities will be required to complete
A) Form ADV Appendix 1
B) Form ADV-W
C) Form ADV Part 1
D) Form ADV-E - ANS-D) Form ADV-E
Form ADV-E (E for Examination) is completed by every IA who maintains custody of client
assets. Then, the form is used by the independent accountant who performs the surprise annual
examination of the adviser's records. The accountant is the one who submits the ADV-E to the
SEC (or the state, if appropriate)
A working group convened by NASAA has developed a model fee disclosure schedule to help
investors better understand the costs involved in doing business with their BD. The template
has BDs disclose all of the following fees EXCEPT:
A) the cost of overnight delivery services
B) markups and markdowns on trades done as a principal
C) safekeeping of customer funds and securities
D) interest on debit balances in margin accounts - ANS-B) markups and markdowns on trades
done as principal
There are 3 primary expenses involved with brokerage accounts that are not included in the fee
disclosure template. Those are:
1. commissions
2. markups and markdowns
3. advisory fees for those firms that are also registered as investment advisers
Under which of the following circumstances can an agent conduct customer transactions without
the activity being recorded on the books and records of his BD employer?
A) the securities are exempt under the USA
B) the agent will receive no compensation
C) the customer is a member of the agent's immediate family
D) the transactions are authorized in writing by the BD before execution of the transaction -
ANS-D) the transactions are authorized in writing by the BD before execution of the transaction
,Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of BDs
and Agents, it would be considered contrary to the standards imposed for an agent to effect
securities transactions not recorded on the regular books or records of the BD that the agent
represents, unless the transactions are authorized in writing by the BD before execution of the
transaction.
Which of the following compensation arrangements is typically NOT allowed under the
Investment Advisers Act of 1940?
A) an adviser varies fees according to the time spent managing the account
B) an adviser waives a client's fee if the client experiences a loss for the year
C) an adviser charges clients a percentage of AUM
D) an adviser charges all clients a set fee, regardless of how long if takes to generate a
recommendation or a recommendation's results - ANS-B) an adviser waives a client's fee if the
client experiences a loss for the year
A fee in which payment is contingent on investment results is prohibited unless the client meets
certain financial standards; advisers are permitted to charge by the hour.
Which of the following statements are TRUE regarding the registration of IAs?
I. If they are required to be registered with the state, they must also be registered with the SEC
II. If they are registered with the SEC, state registration is not required
III. Whether a person is registered with the state or the SEC depends on the type and scope of
the person's advisory business - ANS-II and III
Registration with the state only or with the SEC only depends on the type and scope of the
person's advisory business
Which of the following statements best represents a bond's present value?
A) present value is the sum of all the discounted future payments
B) present value represents the IRR of the bond
C) present value is the sum of all the discounted future interest payments
D) present value is the discounted future repayment of principal - ANS-A) present value is the
sum of all the discounted future payments
The correct answer is the standard textbook statement. There are two future cash flows from a
bond. First is the periodic interest payments and second is the repayment of principal at
maturity. The PV of the bond is the sum of the discounted value of both.
A BD having no place of business in a state is not required to be registered in that state if the
BD
,A) does no business in that state other than with institutional clients
B) is licensed/registered in its state of residence
C) is a member of the NYSE
D) is a member of FINRA - ANS-A) does no business in that state other than with institutional
clients
A BD must be registered in every state where it sells or offers to sell securities, unless an
exemption is available. If a BD has no office in a particular state and no business is done in that
state other than with institutional clients, registration there is not required.
Which of the following does not benefit both the employee and the employer?
A) SERP
B) Traditional IRA
C) SEP-IRA
D) Defined benefit plan - ANS-B) Traditional IRA
There is no employee/employer relationship in a traditional (or Roth) IRA. A SEP-IRA is different
in that the employer makes the contribution, gets the tax deduction, and the employee's account
is enriched by that contribution. The same is true for the defined benefit plan and the SERP. A
supplemental executive retirement plan is a nonqualified plan designed to provide additional
retirement benefits limited to a select group of management or highly-compensated employees.
Active Technicians is a state-registered IA. In its brochure supplement, it would include
information relating to each of the following individuals EXCEPT:
A) members of AT's BOD who are active in the firm's business
B) those providing investment advice and having direct contact with institutional clients in the
state
C) those providing investment advice and having direct contact with retail clients in the state
D) those exercising discretion over assets of clients in this state, even if no direct contact is
involved - ANS-A) members of AT's BOD who are active in the firm's business
Unless the individual has direct contact with clients (retail or institutional) or exercises discretion,
a copy of the Part 2B brochure supplement for each individual is not required. This would
include officers and member of the BOD. Of course, if any of these individuals had direct client
contact or exercised discretion, a supplement for them would need to be prepared.
The real interest rate of a fixed income investment is
A) interest earned after taxes
B) the interest earned after inflation
C) the coupon interest payment
, D) interest earned adjusted for the investment's premium or discount price - ANS-B) the interest
earned after inflation
The real interest rate is the interest received minus the inflation rate (U23LO2)
Which of the following would not constitute a conflict of interest between the plan and a
fiduciary?
A) A fiduciary offers reduced commissions to the plan for transactions that are executed through
his employing financial institution
B) A fiduciary sells a real estate investment to the plan at the current market rate
C) The fiduciary receives fees for acting as a trustee to the plan
D) A fiduciary participates in a transaction on the plan's behalf that involves a party with
interests adverse to those of the plan in order to ensure favorable terms for the plan - ANS-C)
The fiduciary receives fees for acting as a trustee to the plan
A fiduciary can receive compensation from the sponsor of the plan for acting as a trustee, if fees
are reasonable and consistent with duties performed. A fiduciary may not sell a real estate
investment to the plan at the going market rate. Such self-dealing presents a conflict of interest
regardless of the terms of the transaction. A fiduciary may not participate in a transaction on the
plan's behalf that involves a party with interests adverse to those of the plan in order to ensure
favorable terms for the plan. The situation is self-dealing and presents a conflict of interest
prohibited under ERISA. Offers of reduced commissions to the plan for transactions that are
executed through his employing financial institution are prohibited and a conflict of interest.
Which of the following would best describe working capital?
A) The amount of money available to the corporation that is currently being held in cash or cash
equivalents
B) The value per share available to shareholders in the event of bankruptcy
C) The corporation's net worth
D) The amount of money a corporation has available to work with if it liquidates its current
assets and pays off all of its current liabilities - ANS-D) The amount of money a corporation has
available to work with if it liquidates its current assets and pays off all of its current liabilities
Under the USA, all of the following are excluded from the definition of an IA EXCEPT:
A) banks
B) an individual providing advice on municipal bonds
C) a federal covered adviser
D) BDs and their agents - ANS-B) an individual providing advice on municipal bonds
Providing advice on municipal bonds (even though they are exempt securities) does not entitle
one to an IA exclusion (U1LO3)
In addition to the normal required filings, an IA who maintains custody of client funds and/or
securities will be required to complete
A) Form ADV Appendix 1
B) Form ADV-W
C) Form ADV Part 1
D) Form ADV-E - ANS-D) Form ADV-E
Form ADV-E (E for Examination) is completed by every IA who maintains custody of client
assets. Then, the form is used by the independent accountant who performs the surprise annual
examination of the adviser's records. The accountant is the one who submits the ADV-E to the
SEC (or the state, if appropriate)
A working group convened by NASAA has developed a model fee disclosure schedule to help
investors better understand the costs involved in doing business with their BD. The template
has BDs disclose all of the following fees EXCEPT:
A) the cost of overnight delivery services
B) markups and markdowns on trades done as a principal
C) safekeeping of customer funds and securities
D) interest on debit balances in margin accounts - ANS-B) markups and markdowns on trades
done as principal
There are 3 primary expenses involved with brokerage accounts that are not included in the fee
disclosure template. Those are:
1. commissions
2. markups and markdowns
3. advisory fees for those firms that are also registered as investment advisers
Under which of the following circumstances can an agent conduct customer transactions without
the activity being recorded on the books and records of his BD employer?
A) the securities are exempt under the USA
B) the agent will receive no compensation
C) the customer is a member of the agent's immediate family
D) the transactions are authorized in writing by the BD before execution of the transaction -
ANS-D) the transactions are authorized in writing by the BD before execution of the transaction
,Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of BDs
and Agents, it would be considered contrary to the standards imposed for an agent to effect
securities transactions not recorded on the regular books or records of the BD that the agent
represents, unless the transactions are authorized in writing by the BD before execution of the
transaction.
Which of the following compensation arrangements is typically NOT allowed under the
Investment Advisers Act of 1940?
A) an adviser varies fees according to the time spent managing the account
B) an adviser waives a client's fee if the client experiences a loss for the year
C) an adviser charges clients a percentage of AUM
D) an adviser charges all clients a set fee, regardless of how long if takes to generate a
recommendation or a recommendation's results - ANS-B) an adviser waives a client's fee if the
client experiences a loss for the year
A fee in which payment is contingent on investment results is prohibited unless the client meets
certain financial standards; advisers are permitted to charge by the hour.
Which of the following statements are TRUE regarding the registration of IAs?
I. If they are required to be registered with the state, they must also be registered with the SEC
II. If they are registered with the SEC, state registration is not required
III. Whether a person is registered with the state or the SEC depends on the type and scope of
the person's advisory business - ANS-II and III
Registration with the state only or with the SEC only depends on the type and scope of the
person's advisory business
Which of the following statements best represents a bond's present value?
A) present value is the sum of all the discounted future payments
B) present value represents the IRR of the bond
C) present value is the sum of all the discounted future interest payments
D) present value is the discounted future repayment of principal - ANS-A) present value is the
sum of all the discounted future payments
The correct answer is the standard textbook statement. There are two future cash flows from a
bond. First is the periodic interest payments and second is the repayment of principal at
maturity. The PV of the bond is the sum of the discounted value of both.
A BD having no place of business in a state is not required to be registered in that state if the
BD
,A) does no business in that state other than with institutional clients
B) is licensed/registered in its state of residence
C) is a member of the NYSE
D) is a member of FINRA - ANS-A) does no business in that state other than with institutional
clients
A BD must be registered in every state where it sells or offers to sell securities, unless an
exemption is available. If a BD has no office in a particular state and no business is done in that
state other than with institutional clients, registration there is not required.
Which of the following does not benefit both the employee and the employer?
A) SERP
B) Traditional IRA
C) SEP-IRA
D) Defined benefit plan - ANS-B) Traditional IRA
There is no employee/employer relationship in a traditional (or Roth) IRA. A SEP-IRA is different
in that the employer makes the contribution, gets the tax deduction, and the employee's account
is enriched by that contribution. The same is true for the defined benefit plan and the SERP. A
supplemental executive retirement plan is a nonqualified plan designed to provide additional
retirement benefits limited to a select group of management or highly-compensated employees.
Active Technicians is a state-registered IA. In its brochure supplement, it would include
information relating to each of the following individuals EXCEPT:
A) members of AT's BOD who are active in the firm's business
B) those providing investment advice and having direct contact with institutional clients in the
state
C) those providing investment advice and having direct contact with retail clients in the state
D) those exercising discretion over assets of clients in this state, even if no direct contact is
involved - ANS-A) members of AT's BOD who are active in the firm's business
Unless the individual has direct contact with clients (retail or institutional) or exercises discretion,
a copy of the Part 2B brochure supplement for each individual is not required. This would
include officers and member of the BOD. Of course, if any of these individuals had direct client
contact or exercised discretion, a supplement for them would need to be prepared.
The real interest rate of a fixed income investment is
A) interest earned after taxes
B) the interest earned after inflation
C) the coupon interest payment
, D) interest earned adjusted for the investment's premium or discount price - ANS-B) the interest
earned after inflation
The real interest rate is the interest received minus the inflation rate (U23LO2)
Which of the following would not constitute a conflict of interest between the plan and a
fiduciary?
A) A fiduciary offers reduced commissions to the plan for transactions that are executed through
his employing financial institution
B) A fiduciary sells a real estate investment to the plan at the current market rate
C) The fiduciary receives fees for acting as a trustee to the plan
D) A fiduciary participates in a transaction on the plan's behalf that involves a party with
interests adverse to those of the plan in order to ensure favorable terms for the plan - ANS-C)
The fiduciary receives fees for acting as a trustee to the plan
A fiduciary can receive compensation from the sponsor of the plan for acting as a trustee, if fees
are reasonable and consistent with duties performed. A fiduciary may not sell a real estate
investment to the plan at the going market rate. Such self-dealing presents a conflict of interest
regardless of the terms of the transaction. A fiduciary may not participate in a transaction on the
plan's behalf that involves a party with interests adverse to those of the plan in order to ensure
favorable terms for the plan. The situation is self-dealing and presents a conflict of interest
prohibited under ERISA. Offers of reduced commissions to the plan for transactions that are
executed through his employing financial institution are prohibited and a conflict of interest.
Which of the following would best describe working capital?
A) The amount of money available to the corporation that is currently being held in cash or cash
equivalents
B) The value per share available to shareholders in the event of bankruptcy
C) The corporation's net worth
D) The amount of money a corporation has available to work with if it liquidates its current
assets and pays off all of its current liabilities - ANS-D) The amount of money a corporation has
available to work with if it liquidates its current assets and pays off all of its current liabilities
Under the USA, all of the following are excluded from the definition of an IA EXCEPT:
A) banks
B) an individual providing advice on municipal bonds
C) a federal covered adviser
D) BDs and their agents - ANS-B) an individual providing advice on municipal bonds
Providing advice on municipal bonds (even though they are exempt securities) does not entitle
one to an IA exclusion (U1LO3)
