Series 63 – Uniform Securities Agent State Law Exam Communications with Clients and Ethical Practices 2 — Questions and Answers
Question 1: Under the USA, what must an agent do before executing a transaction that was not solicited by the agent?
- Obtain the broker-dealer's approval before execution
- Determine that the transaction is not prohibited and that the client understands the nature of the investment (Correct answer)
- Deliver a prospectus to the client regardless of the security type
- Obtain the Administrator's approval if the security is unregistered
Correct answer: Determine that the transaction is not prohibited and that the client understands the nature of the investment
Even for unsolicited transactions, agents must ensure the transaction is not prohibited and that clients have sufficient information to make informed decisions.
Question 2: What is a 'hold in street name' arrangement in securities accounts?
- An instruction to hold a security without any trading activity
- Securities held by the broker-dealer in the firm's name on behalf of the client, rather than in the client's name (Correct answer)
- A requirement to disclose the client's name to the issuer
- Holding shares in escrow pending settlement
Correct answer: Securities held by the broker-dealer in the firm's name on behalf of the client, rather than in the client's name
Street name accounts hold securities in the broker-dealer's name while the beneficial ownership belongs to the client, facilitating easier transfer and custody.
Question 3: Under the USA, investment advisers are generally required to maintain books and records for a minimum of how many years?
- Two years
- Three years
- Five years (Correct answer)
- Seven years
Correct answer: Five years
Investment advisers are generally required to maintain their books and records for a minimum of five years under state securities regulations.
Question 4: Under the USA, what is the purpose of requiring broker-dealers to send trade confirmations to clients?
- To allow the broker-dealer to bill the client for commissions
- To provide clients with written notice of transaction details including price, quantity, and commission, allowing verification of trades (Correct answer)
- To comply with FINRA's annual audit requirement
- To provide documentation for the broker-dealer's tax purposes
Correct answer: To provide clients with written notice of transaction details including price, quantity, and commission, allowing verification of trades
Trade confirmations give clients written documentation of their transactions, allowing them to verify accuracy and identify unauthorized or erroneous trades.
Question 5: Under the USA, which of the following must be included on a client account application to establish suitability?
- Only the client's social security number and date of birth
- Information about the client's financial situation, investment objectives, and risk tolerance (Correct answer)
- Only employment history and annual income
- A signed waiver of liability for investment losses
Correct answer: Information about the client's financial situation, investment objectives, and risk tolerance
Account applications must gather financial situation, investment objectives, and risk tolerance information to enable suitability determinations for future recommendations.
Question 6: Under the USA, what is the 'cooling-off period' for a newly registered securities offering?
- The period after which a registration cannot be withdrawn
- The period between the filing of the registration statement and its effective date, during which offers but not sales may be made (Correct answer)
- The time investors have to change their minds after purchase
- The period during which the Administrator reviews the registration statement
Correct answer: The period between the filing of the registration statement and its effective date, during which offers but not sales may be made
The cooling-off period is the time between registration filing and effectiveness during which preliminary prospectuses may circulate but actual sales cannot be made.
Series 63 – Uniform Securities Agent State Law Exam Communications with Clients and Ethical Practices 2
Under the USA, what must an agent do before executing a transaction that was not solicited by the agent?