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Free FINRA SERIES 63 Exam Questions (page: 6)

Page 6 of 33
PDF with 251 Questions

The 2003 NASAA Model Rule requires that investment advisers that are not federal covered maintain their records for at least

  1. three years.
  2. five years.
  3. seven years.
  4. Investment advisers must maintain their records for as long as they remain registered with the state.

Answer(s): B

Explanation:

Investment advisers are required to maintain their records for at least five years.



Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than:

  1. once a year.
  2. twice a year.
  3. four times a year.
  4. twelve times a year.

Answer(s): C

Explanation:

Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than four times a year. Under the Securities and Exchange Act of 1934, individual states are prohibited from imposing more stringent requirements than those already required by the SEC, and the SEC requires quarterly reporting. Therefore, a state may not require that a broker-dealer or investment adviser file monthly reports with it.



A-2-Z Associates advertises itself as a full service brokerage firm that will buy and sell securities for its clients, as well as provide investment advice to them. Its brochure provides a variety of plans to which a client can subscribe. The basic plan is the cheapest and allows the client a maximum number of trades per month for a specified fee. Another, slightly more expensive, plan provides the client with the same maximum number of trades per month, but the client also receives a personalized quarterly review of his portfolio along with advice for restructuring his portfolio based on such factors as current market conditions and specific industry or company information. The most expensive plan is one in which the client is assigned to an individual portfolio manager, who will take total responsibility for the asset allocation of the client’s portfolio and will provide the client with monthly reports. Based on the services A-2-Z provides, it must register with the state as:

  1. a broker-dealer.
  2. an investment adviser.
  3. both a broker-dealer and an investment adviser.
  4. an investment adviser representative.

Answer(s): C

Explanation:

Based on the services A-2-Z provides, it must register with the state as both a broker-dealer and an investment adviser. It is receiving compensation as a broker-dealer for executing purchases and sales of securities for its clients under its basic plan, but it is receiving additional compensation for acting as an investment adviser under the two higher level plans.



MoeMoney Investment Advisers, LLC is registered in the state of Texas, and its three offices are all located in the greater Dallas-Fort Worth area. Five of its clients-all individuals-have relocated to Colorado and all have indicated a desire to retain the services of MoeMoney. In order for this to be possible,

  1. MoeMoney will need to apply for and be granted registration as an investment adviser in the state of Colorado.
  2. each client will have to write a letter to the Administrator of the state of Colorado on MoeMoney’s behalf.
  3. MoeMoney will need to apply for and be granted registration as an investment adviser representative in the state of Colorado.
  4. Neither MoeMoney nor its clients need do anything.

Answer(s): D

Explanation:

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.



Sam Shade had his agent’s license revoked by the state of Washington for repeatedly making misleading claims about various investment to investors. He had had it with all the rain anyway and decided to move to the sunshine state of Florida. His brother-in-law was a computer whiz who made money on the side (more than his day job provided, in fact) by supplying illegal immigrants with official-looking documentation, including social security numbers. Sam Shade became Ian Creed in a few clicks of the mouse. As Ian Creed, Sam was hired by Sunny Investment Advisers, an investment adviser firm located in the Florida Keys, in a clerical role. As such, Sam/Ian had access to the confidential information of the firm’s clients, which he and his brother-in- law utilized for the purpose of identity theft. Under the Uniform Securities Act guidelines, when Sam and his brother-in-law are caught in their illegal activities,

  1. Sunny Investment Advisers will not be held liable if it can prove that there was no way it could have or should have known of the revocation of Sam Shade’s (aka Ian Creed) license.
  2. Sunny Investment Advisers will be subject to criminal prosecution for employing an individual whose license had been revoked by the Administrator of another state since it obviously did not use due diligence in hiring Ian Creed, aka Sam Shade.
  3. Sunny Investment Advisers will be subject to civil penalties for employing an individual whose license had been revoked by the Administrator of another state.
  4. Sunny Investment Advisers will be subject to both criminal prosecution and civil penalties for employing an individual whose license had been revoked by the Administrator of another state since it obviously did not use due diligence in hiring Ian Creed, aka Sam Shade.

Answer(s): A

Explanation:

When Sam and his brother-in-law are caught, Sunny Investment Advisers will not be held liable if it can prove that there was no way it could have or should have known of Sam Shade/Ian Creed’s license revocation. The drafters of the Uniform Securities Act were cognizant of the fact that employees can be remarkably deceptive when applying for a position, and because of this the Act indicates that the investment adviser must either “have known or should have known” of the Administrator’s adverse decision against the employee in order to itself be deemed liable.



Which of the following statements regarding an investment adviser representative who has an office in the state is true?

  1. If the investment adviser is registered with the SEC, then neither the investment adviser nor any of its affiliated investment adviser representative needs to be registered with the state.
  2. Regardless of whether the investment adviser is registered with the SEC or is registered with the state, all investment adviser representatives of the firm must be registered with the state if they have offices in the state.
  3. If the investment adviser that the investment adviser representative is affiliated with is itself registered with the state, then the investment adviser representative does not need to apply for a separate registration, regardless of whether the investment adviser representative has an office in the state.
  4. If an investment adviser representative is registered with the SEC, he or she need not obtain state registration, regardless of whether the investment adviser representative has an office in the state.

Answer(s): B

Explanation:

Regardless of whether the investment adviser is register with the SEC or is itself registered with the state, all of its investment adviser representatives (IARs) are required to register with the state if they operate a place of business in the state.



A variable annuity is:

  1. not a security and, therefore, does not have to be registered with the state.
  2. not a security, but is still required to be registered with the state before it can be offered for sale.
  3. a security and, therefore, has to be registered with the state before it can be offered for sale.
  4. a security, but is exempt from state registration.

Answer(s): D

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.



Which of the following is not a security, as defined by the Uniform Securities Act?

I) an option contract
II) a futures contract on gold
III) a 401K plan
IV) a variable annuity

  1. None of the selections listed are securities.
  2. Only Selection III is not a security.
  3. Only Selections II and III are not securities.
  4. Selections II, III and IV are not securities.

Answer(s): C

Explanation:

Only Selections II and III are not securities. Neither retirement plans nor commodity futures contracts are deemed to be securities by the Uniform Securities Act. A 401K plan may be invested in securities, but it is not a security itself. A gold futures contract is a contract between two parties for the delivery of the underlying asset, gold. The profits (or losses) are not dependent on the performance of an outside party, which is a critical element, based on a 1946 U.S. Supreme Court decision, which defines a security as “an investment of money. . . with profits to come solely from the efforts of others.”



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