Mixed Deck — All Series 65 – Uniform Investment Adviser Law Exam Topics Flashcards
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Under the Uniform Securities Act, who is defined as an 'investment adviser representative' (IAR)?
Answer: A person who is supervised by an investment adviser and makes investment recommendations or manages client accounts
An IAR is an individual associated with a registered investment adviser who provides investment advice, manages client portfolios, or solicits advisory clients.
What is the formula for calculating a company's price-to-earnings (P/E) ratio?
Answer: Market price per share divided by earnings per share
The P/E ratio is calculated by dividing the market price per share by the earnings per share, reflecting how much investors pay per dollar of earnings.
What is the 'business continuity plan' requirement for investment advisers?
Answer: A written plan describing how the adviser will continue operations during and after a significant business disruption
Regulators require investment advisers to maintain written business continuity plans that address how the firm will operate in the event of significant disruptions such as natural disasters or system failures.
Which retirement plan is available to state and local government employees and allows deferrals without the 10% early withdrawal penalty upon separation from service at any age?
Answer: 457(b) governmental plan
A 457(b) governmental plan has no early withdrawal penalty upon separation from service, making it uniquely flexible for government employees.
When a participant rolls over funds from a 401(k) plan to a Traditional IRA, what is the tax treatment if done as a direct rollover?
Answer: The rollover is tax-free and penalty-free with no withholding
A direct rollover (trustee-to-trustee transfer) is not a taxable event, avoids mandatory 20% withholding, and incurs no early withdrawal penalty.
What is the primary purpose of a hedge fund?
Answer: To use diverse and often complex strategies to generate absolute returns regardless of market conditions
Hedge funds use a wide range of strategies including leverage, short selling, and derivatives to seek absolute returns that are not necessarily correlated with market performance.
What is the primary benefit of a 529 college savings plan?
Answer: Earnings grow tax-deferred and qualified withdrawals for education are federal tax-free
529 plans offer tax-deferred growth and tax-free withdrawals when funds are used for qualified higher education expenses.
What is the difference between a growth stock and a value stock?
Answer: Growth stocks are expected to grow faster than the market; value stocks trade below their perceived intrinsic value
Growth stocks are shares in companies expected to grow earnings faster than the market average, while value stocks trade at prices considered below their fundamental worth.
What is the main risk associated with a callable bond from an investor's perspective?
Answer: The issuer may call the bond when interest rates fall, forcing reinvestment at lower rates
Callable bonds expose investors to reinvestment risk because issuers typically call bonds when rates fall, forcing investors to reinvest proceeds at lower prevailing rates.
What distinguishes an exchange-traded fund (ETF) from a traditional mutual fund?
Answer: ETFs trade on exchanges throughout the day like stocks; mutual funds price only at end of day
ETFs trade continuously on stock exchanges during market hours, while mutual fund shares are priced and transacted only at the end-of-day net asset value.
What distinguishes a SIMPLE IRA from a SEP-IRA?
Answer: SIMPLE IRAs allow employee salary deferrals; SEP-IRAs are funded only by employers
SIMPLE IRAs allow employees to make salary deferral contributions, while SEP-IRAs are funded exclusively by employer contributions.
Which of the following is a characteristic of a tax-deferred retirement account?
Answer: Contributions reduce current taxable income and withdrawals are taxed as ordinary income
In tax-deferred accounts like traditional IRAs and 401(k)s, contributions may reduce current taxable income, and withdrawals in retirement are taxed as ordinary income.
Which portfolio management approach is described as 'top-down' investing?
Answer: Beginning with macroeconomic analysis to identify favorable sectors, then selecting individual securities within those sectors
Top-down investing begins with broad macroeconomic and market analysis to identify attractive sectors or regions, then narrows down to individual security selection within those areas.
What does a yield curve inversion typically signal?
Answer: A potential recession
An inverted yield curve, where short-term rates exceed long-term rates, has historically been a reliable predictor of recession.
What is systematic risk?
Answer: Market-wide risk that cannot be eliminated through diversification
Systematic risk (also called market risk) affects the entire market or broad economy and cannot be reduced by diversifying within that market.
What is the difference between a balance sheet and an income statement?
Answer: A balance sheet shows assets, liabilities, and equity at a point in time; an income statement shows revenues and expenses over a period
A balance sheet is a snapshot of a company's financial position at a specific date, while an income statement reports financial performance over a period of time.
What is the investment pyramid (or risk pyramid) used to illustrate?
Answer: A hierarchy of investments from most stable and liquid at the base to most speculative at the top
The investment pyramid shows that the foundation of a portfolio should consist of safe, liquid assets, with increasingly speculative investments occupying a smaller portion toward the apex.
What is a real estate investment trust (REIT)?
Answer: A company that owns income-producing real estate and passes at least 90% of taxable income to shareholders
REITs must distribute at least 90% of their taxable income to shareholders as dividends, providing investors with real estate exposure and regular income.
Which of the following is an example of fiscal policy?
Answer: Congress passing a tax cut
Fiscal policy involves government spending and taxation decisions made by Congress and the executive branch, such as enacting tax cuts.
What authority does a state securities administrator have under the Uniform Securities Act?
Answer: The authority to register securities, advisers, and broker-dealers, investigate violations, issue cease-and-desist orders, and seek civil and criminal penalties
State administrators have broad authority including registration oversight, investigation of fraud and violations, administrative penalties, and referral of cases for civil or criminal action.