Series 63 || A+ Guaranteed.
Although state registration is not required for federal covered advisers, most states do require
them to make a notice filing with the Administrator.
This consists of :
-copies of the registration forms sent to the SEC,
-a consent to service of process form,
-and a filing fee. correct answers NOT classified as broker-dealers:
1. Agents (registered representatives)
2. Issuers
3. Banks, savings institutions, and trust companies
4. Persons who have no place of business in the state and who:
A. Effect securities transactions in the state exclusively through the issuers of the securities,
other brokers, dealers, or financial institutions (banks, savings institutions, trust companies,
insurance companies, and investment companies) or
B. Are properly licensed in their home state and the only business they do in this state is with an
existing customer who is only temporarily in this state
GUARANTEED SECURITY
Securities that have a guarantee, usually from a source other than the issuer, as to the payment of
principal, interest, or dividends correct answers INVESTMENT ADVISER
DOES NOT include:
• Institutions such as banks, savings institutions, and trust companies
• Professionals such as lawyers, accountants, teachers, and engineers whose performance of these
services is solely incidental (no separate fee is charged) to the practice of their profession
• Broker-dealers that offer investment portfolio advice as part of their business of being broker-
dealers and that receive no special compensation for that service
• Publishers of any financial publication of general, regular, and paid circulation; however, a
person who sells market letter subscriptions directly to individuals is considered an investment
adviser under the Uniform Securities Act
• Persons having no place of business within the state and whose activities are limited to other
investment advisers, brokers, dealers, banks, savings institutions, trust companies, insurance
companies, pension or profit trusts, or other financial or institutional buyers, or a very few
solicitations or
-sales to clients other than those mentioned above. Most states limit this activity to no more than
five clients in any 12 consecutive months.
• Investment adviser representatives
NATIONAL SECURITIES MARKETS IMPROVEMENT ACT (NSMIA)
A federal law designed to restructure the division of responsibilities between federal regulators
and state securities administrators especially in the areas of mutual fund regulation and the
registration of investment advisers. Mutual funds are now considered to be 'federal covered
securities' and advisers who manage their portfolios are considered to be 'federal covered
advisers.' correct answers Sales include the following:
• Any security given or delivered with or as a bonus for the purchase of securities or merchandise
is considered to have been offered and sold for value.
,• A gift of assessable stock is considered to involve an offer and a sale.
• Every sale or offer of a warrant or right to purchase or subscribe to another security or a
security
convertible into another security is considered to include an offer of the other security.
STATE SECURITIES REGISTRATION BY COORDINATION
A security is eligible for blue sky registration by coordination in a state if the issuer files for
registration of that security under the Securities Act of 1933 and files duplicates of the
registration documents with the state administrator.
The state registration becomes effective at the same time the federal registration statement
becomes effective. correct answers While investment company securities registered under the
Investment Company Act of 1940 are federal covered securities and are generally exempt from
state registration, the Administrator nearly always requires them to make a notice filing with the
state although issuers of other federal covered securities may or may not be required to do so.
Limited partnership units are considered to be securities. correct answers Fixed annuities and
commodity futures contracts are not securities; therefore, you do not have to register as an agent
to sell them.
• Individual retirement accounts (IRAs) are not considered to be securities.
A broker-dealer is a securities firm. As a broker-dealer, the firm may act in a dual capacity as
both a broker and a dealer but not in the same transaction.
A broker always acts as an agent for the accounts of customers.
A dealer always acts for his or her own account, buying and selling securities for his or her own
inventory (such as in the OTC market).
A market maker is a dealer. A broker-dealer may be an agent but not vice versa.
Broker-dealers must register as such with the SEC and FINRA as well as the state securities
division. correct answers • If an agent represents a broker-dealer, he or she must always register
regardless of what is being sold.
• Agents must register in every state that they sell in; there is no such thing as an exempt agent.
• Broker-dealers must register in every state that they sell in unless exempt.
Under the Uniform Securities Act, an agent does not include any of the following:
1. A person who represents an issuer selling securities in exempt transactions in which no
commissions are paid (such as a private placement of the issuer's own stock)
2. A person who represents an issuer selling exempt securities in which no commissions are paid
(such the placement of municipal bonds on behalf of the issuer)
3. A bank, savings institution, or trust company (such as selling securities on behalf of the bank's
trust department)
4. A clerical or administrative person without authority to solicit or accept orders
5. An officer of a broker-dealer who does not affect or supervise the purchase or sale of
securities(such as a person engaged in management only with no sales responsibilities)
, 6. An officer of the issuer selling the issuer's stock to employees of the issuer as long as no
commissions are paid correct answers An exception to registration under the Act applies if an
existing customer of a non-resident broker-dealer is temporarily in this state, that is, if he or she
is not a resident here. For example, a broker-dealer properly registered in Colorado could
transact business with a customer who is on vacation in California;
however, a broker-dealer based in Canada who does not have an office in this state may not
effect securities transactions with an existing Canadian client who is temporarily in this state
unless such a broker-dealer is registered in this state. correct answers Whenever an investment
adviser representative begins or terminates employment with an investment adviser, either the
investment adviser or the IAR must promptly notify the Administrator.
If the IA is federally registered, then the IAR is responsible for notifying the Administrator.
If the IA is state registered, then the IA is responsible.
Note that this is different for an agent: When an agent begins or terminates employment with a
broker-dealer, both the agent and the broker-dealer must notify the Administrator. correct
answers The National Securities Markets Improvement Act of 1996 (NSMIA) eliminates
duplicate registration requirements for investment advisers. An adviser is either regulated by the
SEC or by the state in which he or she conducts business in but not both. Most advisers continue
to be regulated by the states; however, advisers managing $100 million or more in assets and
those managing investment companies (mutual funds) must register with the SEC instead of the
state under NSMIA. Advisers registered with the SEC are known as 'federal covered advisers.'
FORM ADV
Form ADV is the uniform form used by investment advisers (IAs) to register with either the SEC
or state securities administrators. The form itself consists of two parts:
1. Part 1 requires information about the adviser's business, ownership, clients, employees,
business practices, affiliations, and any disciplinary events of the adviser or its employees.
2. Part 2 is the primary disclosure document that investment advisers provide to their clients.
correct answers Part 1 is organized in a check-the-box, fill-in-the-blank format. The SEC reviews
the information from this part of the form to process registrations and to manage its regulatory
and audit programs. Although designed for regulatory purposes, Part 1 investment adviser filings
are available to the public on the SEC's Investment Adviser Public Disclosure website.
Part 2 requires investment advisers to prepare narrative brochures written in plain English that
contain information such as the types of advisory services offered, the adviser's fee schedule,
disciplinary information, conflicts of interest, and the educational and business background of
management and key advisory personnel of the adviser. correct answers The brochure
supplement must be delivered either before or at the time that the IAR begins to provide
investment advice to a client.
An updated supplement must be delivered to clients when there is a new disclosure of a
disciplinary event or a material change to disciplinary information that has already been
disclosed.
