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Series63 Real Exam Question Answers Updated [Apr 26, 2024]
NEW QUESTION # 102
Which of the following entities are subject to post-registration provisions?
I. broker-dealers
II. agents
III. investment advisers
IV. investment adviser representatives
- A. II and IV only
- B. All of the entities are subject to post-registration provisions.
- C. I and III only
- D. I and II only
Answer: C
Explanation:
Explanation
Only selections I and III are subject to post-registration provisions. Broker-dealers and investment advisers can be required to file advertising materials and financial reports with the Administrator, as specified by the Administrator. They are also required to keep records to the specifications of the Administrator. These records will include items such as client e-mails, client letters of complaint, and advertising brochures and must be kept for three years.
NEW QUESTION # 103
Which of the following describes an investment adviser that is not required to register with the state
Administrator?
- A. Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy
individuals who are residents of the state. - B. MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.
- C. CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management
services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under
management. - D. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services
to an insurance company located in the state.
Answer: D
Explanation:
Buckeye Investment Advisers is not required to register with the state Administrator since it
has no offices in the state and provides portfolio management services to an institutional investor within
the state. Both MoeMoney and Financial Freedom must register since they advise more than 5 individual
clients. It doesn't matter in that case whether they have offices within the state or not. CanDo is registered
only as a broker-dealer, but it has begun offering investment advice for a fee, so it must also register with
the state as an investment adviser.
NEW QUESTION # 104
Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect
& Company, a broker-dealer that is registered in Connecticut and has subsidiary operations in
Massachusetts, New Jersey, and New York. Trevor has moved to Massachusetts and is now associated
with one of Connect's subsidiaries, a broker-dealer registered in the state. Trevor has applied to the
Administrator of Massachusetts for registration as an agent. Can Trevor execute purchases and sales for
clients while his registration is still pending?
- A. Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration
is pending. - B. No. Until he is informed by the Administrator of Massachusetts that his application has been accepted,
Trevor may not effect any securities transactions in Massachusetts. - C. It depends. Trevor can execute some purchases and sales, but only for clients that he already had who
may have recently relocated to Massachusetts and only for sixty days while his registration is pending. - D. Yes. Because Trevor is a registered agent in another state and is affiliated with a broker-dealer that is
registered in the state of Massachusetts, he is not restricted from executing trades.
Answer: C
Explanation:
It depends. Because he is a registered agent in another state and the broker-dealer he is
now affiliated with is registered in the state of Massachusetts, Trevor can execute purchases and sales,
but only for existing clients while his registration with the Massachusetts Administrator is still pending and
only for sixty days. This assumes, of course, Trevor has no violations that would restrict him from
registering in Massachusetts.
NEW QUESTION # 105
Which of the following is not a prohibited practice for a broker-dealer?
- A. requiring that a client who is engaged in margin transactions leave the securities with the broker-dealer in "street name"
- B. executing a trade for an account holder based on instructions from the account holder's spouse
- C. recommending a security to a new client without first ascertaining that client's level of risk tolerance
- D. waiting 36 hours before mailing a check after receiving a request for a cash withdrawal from a client if the client has that much cash available in his account
Answer: A
Explanation:
Explanation
It is not prohibited for a broker-dealer to require that a client who is engaging in margin transactions to leave the securities with the broker in "street name." This is the normal business practice. A margin transaction means that the client is borrowing part of the funds he's investing, and the securities are serving as collateral for the loan. It is illegal to delay sending a check upon receiving a request for a cash withdrawal, assuming the client has the cash available in his account; to recommend a security to a client without knowing anything about him, including his tolerance for risk; and to execute a trade on instructions from anyone other than the account holder unless that party has at least limited power of attorney.
NEW QUESTION # 106
While on vacation in Colorado, Mr. Moneybags became interested in the stock of a company called
SafeAway, which designs and installs customized high-tech security systems in the multimillion dollar
mansions located in Colorado's pricier ski resort areas, such as Vail and Aspen. Upon returning to his
home in Boston, he calls his broker-dealer with an order to purchase 10,000 shares of the stock, which he
learned trades in the over-the-counter market. Fast Eddie, a registered agent with his broker-dealer,
discovers that SafeAway's stock is registered only in the states of Colorado and Wyoming. Neither Fast
Eddie nor his broker-dealer are registered to do business in either of those states. Under these
circumstances,
- A. Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt
transaction because it is an unsolicited transaction. - B. Fast Eddie cannot effect Mr. Moneybags purchase of SafeAway stock since neither he nor his broker
are registered to do business in Colorado or Wyoming, and SafeAway stock is not registered for sale in
the state of Massachusetts. - C. Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt
transaction because it is a private placement. - D. Fast Eddie should contact a broker-dealer that is registered in either Colorado or Wyoming and
negotiate a finder's fee for referring Mr. Moneybags to them.
Answer: A
Explanation:
Under the circumstances described, Fast Eddie can execute the trade for Mr. Moneybags
even though SafeAway stock is registered for sale only in the states of Colorado and Wyoming since
neither Fast Eddie nor the broker-dealer solicited the transaction, making this an exempt transaction.
However, the Massachusetts Administrator may demand that Fast Eddie and his broker-dealer provide
proof that the trade was indeed unsolicited.
NEW QUESTION # 107
The Administrator may not introduce a stop order to deny, revoke, or suspend the effective registration of a security based on facts that were disclosed during the registration process unless he does so within
- A. 45 days.
- B. 1 year.
- C. 30 days.
- D. 60 days.
Answer: C
Explanation:
Explanation
The Administrator may not introduce a stop order against the registration of a security based on facts that were disclosed during the registration process unless he does so within 30 days.
NEW QUESTION # 108
The state official who has regulatory authority over the securities industry within the state is known as the
- A. secretary of state.
- B. attorney-general.
- C. administrator.
- D. investor-protection officer.
Answer: C
Explanation:
Explanation
The state official who has regulatory authority over the securities industry within the state is the administrator.
NEW QUESTION # 109
Which of the following does not describe a prohibited activity by investment advisers and their representatives, according to NASAA Model Rules?
- A. A 72-year-old retired social worker comes to Simon LaGree for investment advice. She has $50,000 to invest. Simon recommends she invest half of it in an international growth mutual fund and half in a variable annuity.
- B. All of the above describe prohibited practices.
- C. A new client comes to Simon LaGree for investment advice. The client has $25,000 to invest. Simon tells the client that it will cost the client $5,000 to have a customized financial plan developed for him, but after that the client needs to pay only 5% of the total value of the assets under management each quarter.
- D. The agreement that Simon LaGree has his clients sign indicates that LaGree uses SecureMoney Broker-Dealers in executing trades for his clients and that, in return, LaGree receives software from the broker-dealer that allows LaGree to perform some fundamental and technical analysis.
Answer: D
Explanation:
Explanation
It is not prohibited for LaGree to receive the software from SecureMoney in return for executing trades through that broker-dealer since LaGree has disclosed this to his clients. An investment adviser is permitted to receive soft dollars from broker-dealers in return for executing trades through them, as long as the client is informed of the arrangement and the soft dollars will benefit both the client and the adviser, which is the case in this instance since the software gives LaGree the ability to do research in order to better advise his client.
Choice A is clearly prohibited since it constitutes an "unreasonable advisory fee." In Choice B, LaGree is making unsuitable recommendations to his client. A 72-year-old retired social worker is likely to have a greater-than-average need for liquidity to pay for unexpected items, such as medical bills. Variable annuities are designed to be long-term investments, not short-term investments, so they would not meet this need. They typically have high surrender penalties that the client would be subject to if she needed to make withdrawals within, say, the next 10 years. Likewise, international growth funds are not liquid investments. International growth mutual funds are invested in foreign stocks and are riskier than average, and are, thus, not suitable investment vehicles for the typical 72-year-old retired social worker.
NEW QUESTION # 110
While on vacation in Colorado, Massachusetts resident Ms. Jetset meets Mr. Snow, a registered
representative with a Colorado broker-dealer, on a ski lift and accepts a dinner engagement with him later
that evening, during which he obtains her cell phone number. A week later, while she is lounging around
in her Florida beach condo, he calls and interests her in a local software company that is selling its
preferred stock to investors and encourages her to buy it. Ms. Jetset tells Mr. Snow she'll think about it
and calls him after she returns to her home in Massachusetts to tell him to buy the stock for her and sends
him a check via express mail. Later, Ms. Jetset learns that the preferred stock certificate that she received
is-and always was-a worthless piece of paper, and that, in fact, no such company ever existed. Which
state Administrator has jurisdiction in this instance?
I. the Administrator of the state of Colorado
II. the Administrator of the state of Florida
III. the Administrator of the state of Massachusetts
- A. I only
- B. I and III only
- C. I and II only
- D. I, II, and III
Answer: D
Explanation:
All three state administrators have jurisdiction since Mr. Snow made the offer to sell from
Colorado, to a person who was in Florida at the time, and Ms. Snow accepted the offer and received the
certificate in her home state of Massachusetts. According to NASAA, an Administrator has jurisdiction
over all offers and all acceptances of offers to purchase or sell securities if they "originate from, are
directed to, or are accepted in a state.
NEW QUESTION # 111
Once a broker-dealer has applied for and been granted state registration, the registration remains valid
- A. for three years.
- B. for twelve months.
- C. until December 31st.
- D. for five years.
Answer: C
Explanation:
Once a broker-dealer has been granted state registration, that registration is valid until
December 31st of that year. Registration automatically terminates annually on December 31st although
an Administrator may elect to revoke or suspend a broker-dealer's registration at any time if the
Administrator finds just cause.
NEW QUESTION # 112
Alter Advisers & Associates is a small investment adviser partnership registered only in a single state. One of the partners has died, and the surviving spouse has sold that partnership interest to the surviving partners.
Which of the following statements are true?
I. Alter Advisers must inform the state Administrator of this event.
II. Alter Advisers must inform the SEC of this event.
III. Alter Advisers must notify the firm's clients of this event.
- A. I only
- B. I, II, and III
- C. I and III only
- D. I and II only
Answer: C
Explanation:
Explanation
Only Selections I and III are correct. If one of the partners dies, Alter Advisers must inform both the state Administrator and the firm's clients of this event. This represents a change in the partnership. The SEC need not be notified since Alter Advisers is not registered with the SEC.
NEW QUESTION # 113
Switch Advisory is a small investment adviser partnership registered in a single state. A larger investment adviser firm, Bait Investment Adviser, is registered in the same state as well as two other states. Bait has offered to buy out three of Switch's partners who want to retire. This will give Bait a 60% ownership in Switch Advisory.
Which of the following statements are true?
I. Switch Advisory must obtain the approval of its clients before the partners can sell their interests to Bait.
II. Switch Advisory must notify the state Administrator of this event.
III. Switch Advisory must notify their clients of this event, but does not need the clients' approval.
IV. Switch Advisory must notify the SEC of this event.
- A. II, III, and IV only
- B. I only
- C. I and II only
- D. I, II, and IV only
Answer: C
Explanation:
Explanation
Only Selections I and II are true. Switch must obtain the approval of its clients before the partners can sell their interests, and Switch must notify the state Administrator of this event. Whenever a change in partnership will result in new ownership of the business, which is the case when an external entity acquires a 60% interest, an investment adviser must get its clients' approval. As a state-registered investment adviser, switch also needs to notify the state Administrator. The SEC does not require notification since Switch is not a federal covered investment adviser.
NEW QUESTION # 114
Noah Aull is an investment adviser representative with Canto Investment Advisers. A client has called and
told Noah that he heard about a firm that had recently completed an IPO at a party he had attended that
weekend and instructed Noah to purchase shares of the company, which was now trading on the OTC
Bulletin Board. Noah did some research and felt the company was far too risky an investment for this
client, so he did not execute the trade. This turned out to be fortunate for his client since the firm became
insolvent within six months of its IPO. Has Noah done anything wrong?
- A. Yes. Noah is guilty of misappropriation and could have his license revoked.
- B. Yes. Noah is guilty of making an unauthorized transaction and could have his license revoked.
- C. No. Noah did what he is hired to do-manage his clients' accounts to the best of his ability.
- D. Yes. Noah is guilty of not following a client's instructions and could have his license revoked.
Answer: D
Explanation:
Yes. Noah is guilty of not following a client's instructions and could have his license revoked.
A refusal to act on a client's legitimate order is a prohibited practice, even if the client would have lost
money after-the-fact.
NEW QUESTION # 115
Which of the following is not in itself a reason for the Administrator to deny, suspend, or revoke the license
of a person?
- A. The person is a broker-dealer whose agents have repeatedly been accused of churning and burning,
according to written client complaints. - B. Some of the information supplied on the registration application was found to be false.
- C. The person has been convicted of check kiting within the past ten years.
- D. The applicant has never before worked in the securities industry although he has received the requisite
training.
Answer: D
Explanation:
An Administrator may not deny, suspend, or revoke the license of a person simply because
the applicant has never before worked in the securities industry if that person has received the training
necessary. The Uniform Securities Act specifically states that the order cannot be entered ". . .solely on
the basis of lack of experience if the applicant or registrant is qualified by training, knowledge, or both."
NEW QUESTION # 116
Cal Turner calls his client and recommends that the client sell his shares in the Alpha High Quality Bond
Fund and use the proceeds to buy shares in the Omega High Quality Bond Fund. Cal has done nothing
unethical if his recommendation is based on the fact that
- A. the Alpha Fund has a back-end load.
- B. the Alpha Fund has been performing poorly relative to other funds in the same category.
- C. the Omega Fund has a front-end load.
- D. It would always be unethical for Cal to recommend that a client sell shares in one fund in order to buy
shares of another fund that has the same investment objective.
Answer: B
Explanation:
Cal has done nothing unethical if his recommendation that a client sell his shares in the
Alpha Fund and buy shares of the Omega Fund is due to the fact that the Alpha Fund has been
performing poorly relative to other funds in the same category. While past performance is no guarantee of
future performance, a client may not want to hang on to a fund that isn't returning as much as its
competition.
NEW QUESTION # 117
Jeremy Sly considered himself somewhat of an inventor. The only problem was that his day job interfered with his opportunity to exercise his creativity. He came up with a plan to get outside investors to support his inventive activities. To this end, he produced and distributed a brochure advertising partnership interests with a guaranteed return on investment of at least 15% after the first 12 months, based on what he had allegedly generated from his other (non-existent) inventions.
Given these facts, is Jeremy guilty of any security violations under the Uniform Securities Act (USA)?
- A. No. The facts don't indicate whether any partnership interests were actually sold, and there can be no violation unless there is a sale.
- B. No. It is not against the law to believe in oneself and promote one's ideas.
- C. No. An interest in a partnership is not considered a security.
- D. Yes. Even an "offer" to sell securities must not contain any untruths.
Answer: D
Explanation:
Explanation
Yes. Jeremy is guilty of security violations under the Uniform Securities Act when he provides misleading information when offering securities for sale, even if no securities are actually sold. Partnership interests fall under the definition of securities, and Jeremy's claim to have generated a return of at least 15% on other inventions that he never created is an absolute falsehood.
NEW QUESTION # 118
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 the issuer?
- A. GetErDone Broker-Dealers
- B. Mr. Bigwig
- C. BigFee Investment Bankers
- D. HiGrowth Corporation
Answer: D
Explanation:
HiGrowth Corporation is the issuer in this instance. Its stock will be sold, and HiGrowth will
receive the proceeds from the sale-less BigFee's underwriting spread. Mr. Bigwig is merely HiGrowth's
representative in this instance.
NEW QUESTION # 119
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, but is exempt from state registration.
- D. a security and, therefore, has to be registered with the state before it can be offered for sale.
Answer: C
Explanation:
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.
NEW QUESTION # 120
Which of the following would be an unsuitable recommendation for your 68-year-old client?
- A. a Treasury Inflation Protected Security (TIPS)
- B. a deferred annuity
- C. a high quality corporate bond fund
- D. an S&P 500 Index mutual fund
Answer: B
Explanation:
Explanation
A deferred annuity would be an unsuitable recommendation for your 68-year-old client. These annuities charge significant penalties for early withdrawals-and "early" can mean before 10 years, or even longer. A
68-year-old client may have the need to withdraw his money early to make medical payments.
NEW QUESTION # 121
You execute a stock transaction for a client on Thursday, September 23rd. The settlement date on the order ticket will be
- A. Tuesday, September 28th.
- B. Thursday, September 23rd.
- C. Friday, September 24th.
- D. Monday, September 27th.
Answer: A
Explanation:
Explanation
If you execute a stock transaction for a client on Thursday, September 23rd, the settlement date for that trade will be Tuesday, September 28th, which is T + 3, meaning three business days after the trade date.
NEW QUESTION # 122
Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients' assets. Foo Lish, LLC
must now
I. file a new U-5 form with the Administrator.
II. meet higher net capital requirements than before.
III. file an updated Form ADV with the Administrator.
IV. pay a CPA to do an annual unannounced audit of the firm.
- A. II, III, and IV only
- B. I and II only
- C. II and III only
- D. I, II, III, and IV
Answer: A
Explanation:
Selections II, III, and IV are correct. When Foo Lish begins serving as a custodian of its
clients' assets, it must file an updated Form ADV with the Administrator, meet higher net capital
requirements than before, and pay a CPA to do an annual unannounced audit of the firm. The U-5 form is
filed when a representative leaves the firm.
NEW QUESTION # 123
According to the NASAA Model Rules, a broker-dealer is not permitted to allow a customer to engage in margin transactions unless
- A. the broker-dealer receives a margin agreement signed by the client promptly after the client's first margin transaction.
- B. the client has a net worth of at least $500,000.
- C. the broker-dealer already has a margin agreement signed by the client in hand.
- D. the client has been a customer of the firm for at least 6 months.
Answer: A
Explanation:
Explanation
A broker-dealer is not permitted to allow a customer to engage in margin transactions unless the broker-dealer receives a margin agreement signed by the client promptly after the client's first margin transaction.
NEW QUESTION # 124
In its capacity as a full service broker, A-2-Z Associates is also in the investment advisory industry, charging its clients for investment advice for additional remuneration. One of the firm's clients has been advised to buy some U.S. government treasury inflation-protected securities (TIPS.) A-2-Z is a dealer in these securities in the secondary market.
Which of the following statements is true?
- A. Under no circumstances may A-2-Z sell the client TIPS that A-2-Z holds in its own portfolio. This would be a conflict of interest.
- B. A-2-Z can sell the client TIPS indirectly by getting a 3rd party-another broker-dealer-to effect the sale.
- C. A-2-Z can only sell the client TIPS if it informs the client it is acting as the seller in this transaction and receives the client's written consent before the transaction is settled.
- D. A-2-Z can sell the client TIPS from its own portfolio as long as it tells the client that it is taking on the part of the seller in the transaction.
Answer: C
Explanation:
Explanation
A-2-Z can only sell a client TIPS from its own portfolio if it informs the client that it is acting as the seller in this transaction and receives the client's written consent before the settlement date of the transaction.
NEW QUESTION # 125
The current yield on a bond fund refers to
- A. the return that the fund earned based only on the interest income it received
- B. the total return that the fund has earned over the most recent 12 month period.
- C. the percentage increase in the fund's net asset value.
- D. the return that the fund earned because of the capital appreciation of the securities in the fund.
Answer: A
Explanation:
The current yield on a bond fund is the return that the fund earned from interest income only.
The return from interest income plus the return due to the capital appreciation of the securities make up
the total return earned by the fund. The investor's total return is equal to the return on the income received
from the fund plus any change in the net asset value of the fund.
NEW QUESTION # 126
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