Finra Series-63 Exam Practice Test Instant Access

Question 1

In which of the following scenarios will the investment adviser be subject to criminal fraud charges?

AAn adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a ''buy'' without disclosing the fact that it owns the stock.

BAn adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a ''buy,'' disclosing the fact that it owns the stock

CAn adviser sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a ''buy.''

Dall of the above. It is considered criminal fraud for an investment adviser to make any recommendations on a security in which it has or plans to have a position.

Answer : C

An adviser that sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a ''buy'' is subject to criminal fraud charges for willfully deceiving its clients.

The adviser who recommends the stock as a buy without disclosing the fact that it owns the stock is engaging in a prohibited activity for non-disclosure, but would be unlikely to face criminal fraud charges.

Question 2

The discretionary powers over a clients' accounts differ between broker-dealers and investment advisers in that

AAn investment adviser can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas a broker-dealer must require that written authority for the transaction is in the mail before proceeding with the transaction.

BB. An investment adviser can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas a broker-dealer must require that written authority for the transaction is provided before the transaction even takes place.

CA broker-dealer can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas an investment adviser must require that written authority for the transaction is in the mail before proceeding with the transaction.

DA broker-dealer can execute a discretionary transaction for a client upon receiving only verbal authority initially, followed up by written authority to be received within 10 days of the order, whereas an investment adviser must require that written authority for the transaction is provided before the transaction even takes place.

Answer : B

The discretionary powers of a broker-dealer and an investment banker differ in that an investment adviser is allowed to execute a discretionary transaction for a client upon receiving verbal authority only, as long as it is followed up with a written authorization within 10 days, whereas a broker-dealer is prohibited from executing a discretionary transaction unless it has already received written authority for that transaction.

Question 3

An investment adviser or its representative may

Aonly exercise any discretionary power in the purchase or sale of securities for a client's account after receiving written authority prior to the execution of the transactions.

Bexercise discretionary power in the purchase or sale of securities for a client's account as long as it receives written discretionary authority over the account within 10 business days of the first discretionary transaction placed, assuming oral authority has already been given.

Cexercise discretionary power in the purchase or sale of securities for a client's account as long as.

Dexercise discretionary power in the purchase or sale of securities for a client's account only after.

Answer : B

An investment adviser or its representative may exercise discretionary power in the purchase or sale of securities for a client's account as long as it receives written discretionary authority over the account within 10 business days of the first transaction placed, assuming oral authority has already been given.

Question 4

Gazillions is an investment adviser with offices in the state that is registered with the SEC and has $100 billion dollars under management. A client has filed a complaint asserting that the firm has been involved in fraudulent activities. In this case,

AGazillions only has to answer to the SEC regarding the allegations. Since it is a federal covered investment adviser, it need not respond to any state-issued requests for information.

BGazillions only has to answer to the state in which the complaint was filed.

CGazillions has to answer to both the SEC and the state in which the complaint was filed.

DGazillions is in trouble for not registering with both the state and the SEC given the amount of money it has under management.

Answer : C

If Gazillions is operating as an SEC-registered adviser in a state, it must answer to both the SEC and the state in which the complaint has been filed, even though there is no requirement that it had to register with the state, given that it was a federal covered investment adviser. Allegations of fraud come under the state's authority as well, even if the adviser is a federal covered investment adviser.

Question 5

Under the NASAA Model Rules, the statute of limitations for civil liabilities is

Athe earlier of two years after the discovery of the facts and four years after the violation.

Bthe earlier of three years after the discovery of facts and five years after the violation.

Cthree years after the discovery of the facts and four years after the violation, whichever is greater.

Dthe earlier of two years after the discovery of facts and three years after the sale.

Answer : D

Under the NASAA Model Rules, the statue of limitations for civil liabilities is the earlier of two years after the discovery of facts and three years after the sale. This follows the recommendations provided by the Uniform Securities Act of 1956.

Question 6

An investment adviser representative with Capital Investment Advisors, Inc. advised his client to invest $5,000 in bonds of a firm that the adviser claimed was an investment ''almost as risk-free as investing in U.S. government bonds; maybe even more so, given the magnitude of the government deficit these days.'' The client paid a total of $200 for this advice. The bonds paid interest at the rate of 6%, with semiannual payments, and the client received $300 in interest payments before the firm went belly-up at the end of a year, and its bonds were deemed worthless. The client has filed suit, and its attorneys' fees and court costs are expected to be $1,000. When the investment is a bond, the state has recently been assessing an interest rate equal to the interest rate paid by the security as an equitable interest payment guideline in civil penalties.

The maximum the client can expect in civil penalties is

A$5,900.

B$6,200.

C$5,200.

D$6,000.

Answer : B

The maximum amount the client can expect in civil penalties in this case is $6,200. In civil court, the client is awarded the cost of the investment plus any attorneys' fees and court costs, plus any interest that the state deems appropriate, less any income earned on the investment. In this instance, the only income is the interest that the client earned, which is identical to the interest that the Administrator mandates the investment adviser pay, so that is a wash. The investment advisory fee is included as part of the investor's cost, so the client can sue for the recovery of his original investment of $5,000 plus the $200 he paid for the investment advice plus the court costs and attorneys' fees of $1,000, or $6,200 total.

Question 7

You are a newly licensed agent and are making cold calls to generate business. According to the Telephone Consumer Protection Act of 1991 (TCPA), you may only place your calls between the hours of

A8 a.m. and 9 p.m., based on your time zone.

B8 a.m. and 9 p.m., based on your prospective customer's time zone.

C8 a.m. and 7 p.m., based on your prospective customer's time zone.

D8 a.m. and 7 p.m., based on the Pacific Time Zone.

Answer : B

The TCPA mandates that you place your calls only between the hours of 8 a.m. and 9 p.m., based on your prospective customer's time zone. This is a rule that applies to all telemarketers.

Finra Series-63 Uniform Securities State Law Examination Exam Practice Test