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Series 66 Exam Prep Questions And 100% Correct Answers
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Series 66 Exam Prep Questions And 100%Correct Answers
LO 14.c: exceptions to prohibition of performance-based compensation (3)
1. Client has at least $1.1M under management of the adviser
2. Adviser has reason to believe that prior to contract, client has a joint net worth with
spouse of greater than $2.2M excluding primary residence
3. Client is officer/director of the investment adviser or is an IAR who has been in the
industry for at least 12 months
LO 14.i prohibited transactions/practices for BDs and Agents
1. Unreasonable/unjustifiable delay of delivery of securities or money/credit
2. Unsuitable recommendations (including making recommendations to client who will
not discuss financial information/objectives)
3. Free lunch seminars (for both sponsoring firm and deliverer of the seminar)
4. Churning (excessive trading in an account that generates commissions)
5. Unfair pricing (not related to market price)
6. Withholding shares of a public offering (must allocate to clients)
7. Failure to respond to formal written requests/complaints or failure to furnish
information to which a client is entitled
8. Failure to report trade or other operational error to supervisory person
9. Front running of block transactions
10. Spreading rumors/using rumors as basis for recommendations
,11. Backdating records for tax or other purposes
12. Lending/borrowing securities or money from clients except for margin accounts
13. Breakpoint sales not recommending increasing transaction size to breakpoint where
cost decline when transaction is already close
Prohibited for agents only:
1. Creating/maintaining accounts containing fictitious information "beefing up" clients
net worth to enable margin/options trading, lying about investment experience of client
2. Sharing in profits or losses of customer accounts without written authorization of
client and broker-dealer
3. Splitting commissions with anyone who is not also a registered agent of the same
broker-dealer
4. Selling away (trades that are not booked on record, "off the books" transactions)
Opening or maintaining a broker-dealer account with another BD without written
consent of the agent's own BD
LO 14.e: Form ADV-E
IAs that have custody of client funds or securities are required to have an annual
surprise examination conducted by an independent public accountant; Form ADV-E is
cover page of the certificate of accounting of securities and funds for which IA has
custody
LO 14.e: Requirements for Custody of funds and securities
Administrator cannot have a rule prohibiting custody AND:
1. Funds are maintained with a qualified custodian and in a separate account for each
client
2. Client must be provided a written notice upon the opening of a custodial account
, identifying the name and address of the custodian and the manner in which the funds
are maintained
3. Account statements must be delivered to client at least quarterly by either the
custodian or by the adviser
4. Adviser must provide notice to the Administrator on Form ADV
5. Net capital of >$35,000 must be maintained
LO 14.e and 14.f: Discretion vs. Custody
Custody: refers to the physical holding/possession of customer funds and securities
certificates
Discretion: defined as the power to decide on the "three A's":
1. Which securities to buy (Asset)
2. How many shares/units (Amount)
3. To buy or sell (Activity)
**For discretionary accounts, Advisers must deliver quarterly statements
LO 14.c: Disclosures required about IA compensation (4)
Required disclosures for IA compensation
1. Formula/manner in which compensation will be calculated
2. Refund/deferral of pre paid fees
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