Bryan and Jamie Sponzo are a young couple in their mid 20s. They seek direction on building their portfolio from John Stanford, a trusted family friend and financial advisor. They do not plan to have children and see themselves working until age 60. Their primary goals are to save a significant down payment for their first home by age 30 and to build a comfortable retirement. Both are aware that their time horizon will allow for the portfolio to invest in higher risk securities in order to realize potentially higher gains. John recommends they put 100% of their money into an IPO for a company that has a miracle drug in the pipeline. He knows he''ll make a large commission on the deal but, more importantly, he feels that investment in the drug company will produce very high yields for the couple. Is this considered a suitable investment?
Answer(s): D
Even though Bryan and Jamie have more than 30 years to retirement, it is not wise to allocate all of the couple's assets to one investment vehicle. Even a promising miracle drug can get tangled up in nasty side affects or regulatory issues that could put it out of business. Instead of being swayed by his high commission payout, John should recommend a portfolio of investments that provide balance in terms of time horizon, financial objectives and risk. Because the couple is young and very risk tolerant, John could put a higher percentage of their portfolio into high yielding securities. However, because one of their goals is to purchase a house soon, John should be focusing a portion of the portfolio on preservation of capital via deposits to a CD or money market cash account
Seymour Ronnaberg offers his investment advisor representative 10% of any profits the advisor can generate for the account. The advisor accepts the deal, with hesitation. Is this an ethical form of compensation?
Answer(s): B
An investment advisory contract may not contain a deal that offers a fee based on the sharing of account gains or appreciation. However, it is legal for the representative to accept a fee based on the total value of the account averaged over a specified period of time, i.e., 3% of the total account value over a year's time. The total value may, in fact, include capital gains, but would not be based solely on account appreciation
Michael Feinberg sends a memo to his star investment advisor, Lee Friendly. In the memo Michael includes charts and graphs that illustrate the success of one of the company''s proprietary mutual funds. Does this constitute advertising?
Consider the intended target audience when deciding if a communication constitutes advertising. Under the Investment Advisor's Act of 1940, a memo, brochure, email, etc. is considered advertising if it is intended to reach more than one person. Michael's email to Lee is an informative communication intended for one person and, therefore, is not considered advertising
Davis Jones, an agent registered in San Francisco, has just moved to his employer''s Spokane, Washington office. The employer, Regis Brokers, Inc, is registered in Spokane. Davis is waiting for his registration to become valid in Spokane and, meanwhile, has clients from San Francisco ready to work with him. Mrs Finley, his Mom''''s best friend from San Francisco, is moving to Spokane this week and needs to transact the sale of securities immediately. What are the conditions under which Davis can do business with Mrs Finley?
Answer(s): C
The Uniform Securities Act allows that if an agent's registration is pending within a state, that agent may engage in securities transactions for up to 60 days for an existing client who has moved to the state. The agent must not be ineligible for registration, his employer must be registered in the state, Davis must be registered with the NASD and he must also be registered in at least one other state for this consideration to be valid. It makes no difference whether the securities are exempt; Davis is still required to register in any state within which he conducts business
Under the Investment Advisor''s Act of 1940, which of the following is TRUE regarding custody of client funds?
The Investment Advisor's Act of 1940 requires that an investment advisor with custody of client funds deposit the funds in a separate bank account that contains only client funds. Furthermore, those funds must be recorded with the advisor acting as agent or trustee
Post your Comments and Discuss FINRA SERIES 66 exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the SERIES 66 content, but please register or login to continue.