SERIES-63 Practice Questions

Both statements A and B are true. As an agent for broker-dealer CanDo, Mr. Teche is required to

inform CanDo in writing before accepting any outside position that will provide him with additional

compensation, and CanDo has the right to deny Mr. Teche the permission to accept this position.

If a person has appropriately and truthfully disclosed every material fact on its application for

registration, the Administrator has 90 days after the registration becomes effective to commence a

proceeding to deny, suspend, or revoke the license. If the Administrator has known about the fact for

longer than this, he may not begin a proceeding against that person according to the Uniform

Securities Act.

Prior to revoking Samuel’s license, the Administrator will provide Samuel with prior notice (I), an

opportunity for a hearing (III), and a written statement regarding the facts and the legal

consequences (IV).

BondsRUs is guilty of overcharging its clients by unreasonable markups. A $9 dealer’s spread on a

risk-free investment such as a Treasury bond is unwarranted, and this practice is prohibited.

Based on the information provided, BondsRUs is not guilty of fraud since it appears that the firm is

revealing the markup in its confirmation statements. The clients just aren’t paying attention.

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.

The scenarios described in Selections II and III only would be prohibited. Five S&P 500 Index mutual

funds, even if offered by different fund families, all have the same investment objective-duplicating

the returns earned on the S&P 500 Index, and they will be invested in very similar stocks. Therefore,

the client is getting little or no more diversification of risk by investing in five funds over investing in

just one. The agent is just getting richer from more commissions. Encouraging a client to swap his

money between two funds in the same family without informing the client that this creates a taxable

event is not providing the client with “full and fair disclosure.” It may well be in the client’s best

interest to make the switch, but he needs to be made aware of the tax consequences. It is not

necessarily prohibited to sell a client shares of a load stock fund when a no load stock fund with the

same investment objective exists as long as the agent believes that the load stock fund is a better

investment for his client.

If a person has had its license revoked by the Administrator of the state and has appealed the

decision to a court of law, that person must notify the Administrator of the state that it has appealed

the decision, but that person is considered to have a revoked license until the courts rule otherwise

and may not continue “business as usual.”

As an employee of Giant Investment Advisers who provides investment advice to clients, Jack Bean is

an investment adviser representative. Giant is the investment adviser. Agents are employed by

broker-dealers.

In order for MoeMoney to continue servicing its five individual clients who have relocated to

Colorado, neither MoeMoney nor its clients need to do anything. The National Securities Markets

Improvement Act of 1996 (NSMIA) established a “deminimis” exemption for investment advisers if

they have no office in a state and do business with “no more than five non-institutional clients”

during a one-year time frame.

When Ina receives notice of her license suspension, she can make a written request that a hearing on

the issue be scheduled within fifteen business days of her request. She cannot continue working with

clients unless the Administrator vacates the order until final determination because her license is still

suspended pending final determination. If, after the hearing, the order still stands, Ina can file an

appeal of the suspension with a court of law if she does so within 60 days.