Series 63 Domain 7 (Quiz 1): Communications with Customer and Prospects

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Note: We designed four (4) parts of practice quizzes for each Domain. Each part has 25 questions.

Domain 7 (part 1): Communications with Customer and Prospects. (25 questions)

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Series 63, Communications with Customer and Prospects,Series 63

Keshawn is registered as an agent with Execrable Investment Returns (EIR), a broker-dealer registered with the SEC and the Administrator. Keshawn just opened an account with a new customer, someone who has never invested in securities. In an effort to curb the customer's anxiety over market fluctuations, Keshawn explains a program he worked out with EIR that provides a cash deposit to a customer's account whenever the price of a stock in that account declines by more than 5%. This program is

A) prohibited because agents and their broker-dealers cannot offer a guarantee against loss.

B) permitted, as long as the customer’s account is approved for margin trading.

C) sure to make this customer less anxious.

D) likely to make this customer recommend Keshawn and EIR.

None

Series 63, Communications with Customer and Prospects,Series 63

A state-registered investment adviser offers wrap fee programs to certain clients. Which of the following statements about wrap fee arrangements is not true?

A) Material changes to wrap fee programs must be filed promptly with the Administrator.

B) Nonmaterial changes to wrap fee programs must be disclosed to the Administrator within 90 days of fiscal year-end.

C) Because this investment adviser offers wrap fee programs, it must make certain annual disclosures to the SEC.

D) Information on Appendix 1 of Form ADV Part 2A must also be contained in client disclosure documents.

None

Series 63, Communications with Customer and Prospects,Series 63

Securities regulators have taken a strong position on the need for registered broker-dealers to disclose the fees they charge. Which of the following is not a common way for making this disclosure?

A) Presenting a chart with all of the fees

B) Discussing the fees on a 30-second radio commercial

C) Displaying the fees in tabular form

D) Preparing a list of all of the fees

None

Series 63, Communications with Customer and Prospects,Series 63

Stephanie Whitworth, an agent with a nationally known broker-dealer, has uncovered an unusual investment opportunity that she believes is perfect for one of her clients. When presenting the recommendation to the client, it becomes clear that the client is concerned about the potential of loss. To alleviate that concern, Whitworth tells the client that she agrees to repurchase the security from the client anytime within the next 60 days at the original purchase price. In so doing, Whitworth

A) has acted ethically because she has not guaranteed a profit to the client.

B) has committed the unethical business practice of guaranteeing against loss.

C) has acted ethically because her actions are in the client’s best interest, not her own.

D) has committed the unethical business practice of recommending a wash sale.

None

Series 63, Communications with Customer and Prospects,Series 63

A broker-dealer publishes a list of securities it approves for inclusion in IRAs. This means

A) the broker-dealer has committed an unethical business practice because use of the word approved is prohibited.

B) the broker-dealer has evaluated these securities and believes they would be suitable for inclusion for retirement planning.

C) an agent for the broker-dealer can place these in clients’ IRAs, knowing that the suitability requirements have been met.

D) the broker-dealer has consulted with the regulatory bodies and has received approval from them to recommend these securities for IRAs.

None

Series 63, Communications with Customer and Prospects,Series 63

James Douglas, an agent with Government Securities Specialists (GSS), a broker-dealer registered in this state, sells his client 10 U.S. government bonds due to mature in 30 years. According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following statements may Douglas legally make?

A) “The U.S. government guarantees that principal and interest payments will keep pace with inflation.”

B) “The bonds are guaranteed as to principal and interest payments by the U.S. government.”

C) “There is no way to lose money on the safest security on earth.”

D) “The full faith and credit backing of the U.S. government means virtually no chance of loss.”

None

Series 63, Communications with Customer and Prospects,Series 63

NASAA has created a Model Rule dealing with the creation of and delivery requirements for an investment adviser brochure. Which of the following statements correctly identify those delivery requirements? I. The brochure must be delivered to prospective and new advisory clients at least 48 hours prior to entering into the advisory contract. II. The brochure must be delivered to prospective and new advisory clients no later than entering into the advisory contract. III. Annual delivery of the brochure to existing clients must be made within 90 days of the end of the adviser's fiscal year. IV. Annual delivery of the brochure to existing clients must be made within 120 days of the end of the adviser's fiscal year.

A) I and IV

B) II and IV

C) II and III

D) I and III

None

Series 63, Communications with Customer and Prospects,Series 63

MaryJo Barkley is the CEO of MJB Securities. MJB is distributing an offering of ABC common stock to investors. Barkley has been telling potential investors that the registration of the stock indicates approval by the state. Under the Uniform Securities Act, she is committing misrepresentation of

A) registration.

B) qualification.

C) material information.

D) authorization.

None

Series 63, Communications with Customer and Prospects,Series 63

As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that any time within six months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be

A) a prohibited guarantee against loss.

B) an offer that could only be made to accredited investors.

C) a violation of the antifraud provisions of the Uniform Securities Act.

D) a right of rescission.

None

10.

Series 63, Communications with Customer and Prospects,Series 63

A) The brochure may be delivered to prospective and new advisory clients at the time of entering into any such contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.

B) Annual delivery of the brochure to prospective clients must be made within 120 days of the end of the adviser’s fiscal year.

C) The brochure may be delivered to prospective and new advisory clients no later than 48 hours after entering into the advisory contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.

D) The brochure may be delivered to prospective and new advisory clients at least 48 hours prior to entering into the advisory contract if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.

None

11.

Series 63, Communications with Customer and Prospects,Series 63

A prospective client would like information on the post-secondary schools attended by those employees of an investment adviser who will be making advisory decisions. That information can be found by requesting

A) Form ADV Part 1B.

B) Form ADV Part 1A.

C) Form ADV Part 2B.

D) Form ADV Part 2A.

None

12.

Series 63, Communications with Customer and Prospects,Series 63

An agent is discussing a guaranteed security with a customer. That means

A) there is absolutely no way the customer can lose money.

B) a profit on the security is guaranteed by a third party other than the issuer.

C) the broker-dealer will make up any loss suffered by the client.

D) the security has a guarantee from a third party other than the issuer covering the payment of principal and interest or dividends.

None

13.

Series 63, Communications with Customer and Prospects,Series 63

According to the Uniform Securities Act, the investment adviser brochure must include the business backgrounds of

A) institutional clients.

B) each member of the investment committee or group that determines general investment advice to be given to clients.

C) affiliated broker-dealers.

D) all employees of the adviser.

None

14.

Series 63, Communications with Customer and Prospects,Series 63

A state-registered investment adviser would be permitted to

A) use Part 2 of the Form ADV to satisfy the brochure requirement.

B) make annual delivery of the brochure within 150 days of the end of the fiscal year.

C) deliver the brochure to a new client within 48 hours of entering into the contract.

D) use Part 1 of the Form ADV to satisfy the brochure requirement.

None

15.

Series 63, Communications with Customer and Prospects,Series 63

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may guarantee investment results

A) if he uses a system based on objective evaluation of data, can document consistent gains using the system, and discloses to clients all of the limitations and difficulties of using the system.

B) under no circumstances.

C) provided the basis for making guarantees is fully and accurately described in the application for registration filed with the Administrator.

D) if the guarantees are reasonable based on the results other clients have obtained by following his recommendations.

None

16.

Series 63, Communications with Customer and Prospects,Series 63

Operating as a broker-dealer requires making a number of disclosures for the protection of their customers. One of those required disclosures is not

A) the fees and charge schedule used by the broker-dealer.

B) the annual income of the broker-dealer.

C) the capacity in which the broker-dealer acts in a securities transaction.

D) conflicts of interest faced by the broker-dealer.

None

17.

Series 63, Communications with Customer and Prospects,Series 63

In addition to transaction costs (e.g., commissions or markups), most broker-dealers have a schedule of miscellaneous fees. The purpose of these fees is to

A) help reimburse the broker-dealer for expenses incurred in performing the transaction or a service for the client.

B) build in a hidden markup.

C) keep commissions low while making up the difference with fees.

D) increase the broker-dealer’s net income.

None

18.

Series 63, Communications with Customer and Prospects,Series 63

Under the Uniform Securities Act, which of the following may an agent lawfully tell a customer?

A) “This security is such a safe investment, it doesn’t have to be registered; it’s exempt.”

B) “I am registered with both the SEC and the state, meaning that I have received the approval of all the proper authorities.”

C) “This security is not registered, but it doesn’t have to be. It is an exempt security.”

D) “If this security hasn’t increased in value in six months, I’ll buy it back from you for what you paid for it.”

None

19.

Series 63, Communications with Customer and Prospects,Series 63

When a broker-dealer is acting as a principal in a securities transaction

A) earning a commission.

B) acting in an agency capacity.

C) acting in the capacity of a broker.

D) a contra party to the trade.

None

20.

Series 63, Communications with Customer and Prospects,Series 63

Niesha is registered as an agent with Execrable Investment Returns (EIR), a broker-dealer registered with the SEC and the Administrators of 22 states. Niesha likes the future prospects of Afinet, a company whose common stock trades in the over-the-counter market. She is so positive on the future performance of the stock that she tells her customers, "If Afinet hasn't increased by $5 per share in the next six months, I will make up the difference out of my own pocket." One of Niesha's customers mentions this great opportunity to a person she meets at a local social gathering. This person works for the Administrator of Niesha's state and tells her,

A) “Niesha’s offer violates the provision of the regulations prohibiting performance guarantees.”

B) “Be sure to get Niesha’s offer in writing before you make the investment into Afinet.”

C) “Niesha’s offer sounds like a ‘can’t lose’ proposition for the customer.”

D) “Be sure to get Niesha’s offer in writing from the broker-dealer before you make the investment into Afinet.”

None

21.

Series 63, Communications with Customer and Prospects,Series 63

Which of the following clients of a registered investment adviser is exempt from the requirement to receive annual delivery of the adviser's brochure?

A) KAPCO Growth Fund, a mutual fund registered with the SEC

B) First National Bank of Bigville, a bank whose deposits are insured by the FDIC

C) An individual receiving impersonal advisory services billed at a rate of $150 per quarter

D) Valued Life Insurance Company, authorized to do business in the state

None

22.

Series 63, Communications with Customer and Prospects,Series 63

As an agent of a registered broker-dealer, one of the benefits of selling a security registered with the Administrator is

A) being able to deliver a prospectus containing the information an investor needs to make the investment decision.

B) the protection it gives the agent against a civil suit by a customer.

C) removal of the need for the agent to register in that Administrator’s state.

"D) the confidence it gives the investor that a regulatory body has approved of the sale of the issue.

None

23.

Series 63, Communications with Customer and Prospects,Series 63

Which of the following statements regarding the brochure delivery requirements of the NASAA Model Rule for investment advisers are true? I. The brochure must be updated each time Part 1A of Form ADV is updated. II. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500. III. A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year.

A) I and II

B) II and III

C) I, II, and III

D) I and III

None

24.

Series 63, Communications with Customer and Prospects,Series 63

The NASAA Model Brochure Rule for investment advisers states that delivery of the brochure and related brochure supplements need not be made to I. clients who receive only impersonal advice and who pay less than $500 in fees per year. II. individual clients meeting the definition of accredited investor. III. an investment company registered under the Investment Company Act of 1940. IV. an employee benefit plan with assets in excess of $1 million.

A) I, II, III, and IV

B) I and IV

C) III and IV

D) I and III

None

25.

Series 63, Communications with Customer and Prospects,Series 63

Under the Uniform Securities Act, an agent may tell a customer that the registration of a particular security indicates approval by the Administrator

A) under no circumstances.

B) as long as the security has been registered by qualification.

C) as long as the Administrator has, in fact, approved the security.

D) as long as the issuer is solvent.

None

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