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Series 6 Prep
| Question | Answer |
|---|---|
| The Conduct Rules apply to a transaction: A) in municipal securities. B) in government securities. C) between member firms and members of the public. D) between nonmember firms in nonexempt securities | C. The Conduct Rules apply directly to all transactions between FINRA member firms and members of the public. |
| The principal underwriter of an open-end investment company decides to offer a trip to Majorca to the registered representative of any other member who sells the most shares. This practice is: | Gifts in excess of $100 are prohibited. A trip to Majorca would be well in excess of the $100 limit. |
| The phrase selling dividends refers to: | Selling dividends is an unethical sales practice in which a seller misleads customers into believing they will be receiving the dividend with no effect on the mutual fund's price. |
| If an individual purchases open-end investment company shares without first receiving a prospectus, the registered representative is in violation of the Act of: A) 1934 B) 1940 C) 1933 D) 1970 | C.Under the 1933 Act, a registered representative must sell primary offerings of nonexempt issues by prospectus. |
| Advantages of investing in mutual fund shares | shareholders may switch between funds within the same family with no sales charge. shareholders own an undivided interest in the entire mutual fund portfolio. dividend distributions may be reinvested at the NAV. |
| A member broker/dealer sells shares of an investment company that it knows directs brokerage for its portfolio to them and other broker/dealers based on share sales. For the member this would be | prohibited under all circumstances. Selling shares of the fund when the member is aware that a policy exists to direct brokerage to broker/dealers based on shares sold is prohibited. |
| A registered representative with a FINRA member firm must complete the regulatory elements of CE within how many days of his registration anniversary date? | The regulatory elements must be completed within 120 days of a person's second registration anniversary date and every three years thereafter |
| Regarding communications, filing with FINRA is required for A) retail communication that includes a ranking by an independent entity B) radio interview C) correspondence | A. Any retail communication that includes a ranking, whether independent (post-file) or not (pre-file) must be filed with FINRA. |
| A registered representative at your firm has an opportunity to make some extra money by assisting a CPA in completing tax returns. The work will only take place on weekends and will not interfere with his ability to service his clients He must: | prior written notification to the firm. Outside business activities only require prior written notification to the member firm. There are no limits on compensation, and FINRA is not concerned. |
| The Conduct Rules prohibit which of the following gifts from a mutual fund underwriter to a dealer? A) A pair of tickets to the symphony. B) A cocktail reception C) A cash gift of $200. D) A free seminar | The Conduct Rules prohibit gifts exceeding $100 in value between a mutual fund underwriter and a dealer or person associated with a member. The gift limit does not apply to occasional dinners or occasional tickets to events, seminars, meals, or receptions |
| retired school teacher,65, deposited a total of $10,000 into a nonqualified variable annuity, her account's current value is $16,000. she takes a lump-sum withdrawal of the full amount, how much of this withdrawal is taxed at the ordinary income tax rate? | $6000. Contributions to a nonqualified annuity represent cost-base dollars. When the contributions are paid out, cost base represents a return of capital and is not subject to tax. The growth in an annuity is tax-deferred and is taxable upon receipt. |
| Investment recommendations must be fully explained, with special emphasis placed on | The primary emphasis on any recommendation must always be the potential risks the client could be exposed to. |
| continuing commissions in connection with the sale of investment company securities | Continuing commissions may be paid to a registered representative for work done while registered, if there is a previously executed contract calling for such payment. |
| A customer has a cash account that has securities with a market value of $200,000 and $300,000 in cash. The customer also has a joint account with his wife that has securities with a market value of $300,000 and $200,000 in cash. SIPC Covers | $450,000 for his account and $500,000 for the joint account. There are two separate customers, each entitled to the $500,000 SIPC protection, but since SIPC only covers up to $250,000 in cash. |
| An individual was convicted of embezzlement from a bank several years ago and is, therefore, subject to statutory disqualification. FINRA’s position is? | Under most circumstances, that would prevent a person from becoming employed by a FINRA member for ten years from conviction. Registration is filed on Form U-4. |
| According to the rules that established self-regulatory organizations (SROs), these organizations are regarded as? | Accountable to the SEC for supervising the securities business within their assigned jurisdictions. Membership organizations that report to the SEC. Because all SROs are independent membership corporations, they may not issue capital stock. |
| ______ : deliver an annual notice of its information collecting and sharing policies to customers, allow customers to opt out of sharing of financial information with certain nonaffiliated firms. provide a notice of privacy policies to new customers. | Regulation SP |
| The _______ ________ ________ with the public deal with public appearances, such as a TV program and seminar scripts, as long as the topic is related to the investment business. | rules on communications |
| To prevent manipulative and deceptive practices in the secondary markets, the _______ _______ ______ (the People Act) requires registration of people and exchanges transacting securities business. | Act of 1934 |
| Which of the following entities must review retail communications to be used by a member firm in connection with the offering of investment company shares? A) SEC. B) FINRA. C) FDIC. D) SIPC. | B. All retail communications used in connection with a new offering must be filed for review with FINRA. A principal of the firm must approve its use and is responsible for corrections that FINRA may require. |
| ____________ ___________ is the only form of communication with the public that is not required to include the name of the member firm. | Recruitment advertising |
| A representative with a Series 6 license assisted an investor in the purchase of a closed-end fund IPO. The client is interested purchasing additional shares that are now being sold on an exchange. The registered rep | may not assist in the purchase. Individuals who hold Series 6 licenses are permitted to sell investment company product (unit investment trusts, face-amount certificates, open-end company shares, and primary offerings of closed-end company shares) |
| Any trade made by a registered representative of a FINRA member firm must be reviewed by: A) FINRA. B) the SEC. C) a designated principal. D) the Department of Enforcement. | C. All trades by representatives must be reviewed by a principal. |
| Which of the following is classified as an independently prepared reprint (IPR)? A) billboard B) article on investing produced by the member firm C) market letter D) Wall Street Journal article on investing | D. Wall Street Journal article on investing An IPR consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publisher and was not materially altered by the member. |
| If a registered representative wishes to place an advertisement in a local newspaper offering her services as a mutual fund representative for XYZ Funds, the advertisement must be approved by: | a registered principal All retail communications are subject to approval by a registered principal before use. A branch office manager is not necessarily a principal. |
| When discussing the benefits of a Section 1035 exchange with a client, it would be appropriate to point out that the main benefit is | tax savings Section 1035 of the Internal Revenue code permits the exchange of one annuity for another without incurring any current tax liability. In other words, the earnings continue to be deferred until the money is actually withdrawn. |
| Your customer would like to do a 1035 exchange of his variable annuity for a life insurance policy and wants to be sure there will be no adverse tax consequences. You tell him: | A 1035 exchange allows an annuity to be exchanged for an annuity, life insurance to be exchanged for life insurance, and life insurance to be exchanged for an annuity, but does not allow an annuity to be exchanged for life insurance. |
| Letters sent to more than 25 retail investors within any 30-calendar-day period are considered ________ _______and must be approved by ____ ______ before use. | retail communication, a principal |
| Letters sent to fewer than 26 retail investors within a 30 calendar-day period are considered ________, which does not need prior approval, but it is subject to ________ ________. | correspondence, subsequent review |
| A registered representative may offer to settle at any time during a complaint action. If the offer of settlement is accepted, the representative waives ____ _____ __ ______ . The judgment, however, is included in _____ ______ _______. | all rights of appeal, the representative's file |
| What are the penaltiesfor individuals who are guilty of insider trading | Civil penalties include $1 million dollars or three times the profit made or loss avoided, whichever is greater. Criminal penalties can include a jail sentence of up to 20 years. |
| All orders received by a registered representative must be reviewed by __________. Once executed, an order cannot be canceled. | a principal of that firm |
| A tombstone ad may be published by an issuer of common stock during ___________. A tombstone for an equity issue is not considered advertising by the SEC and is not subject to FINRA filing requirements. | the cooling-off period |
| Under the Securities Investor Protection Act, customer cash and securities at a broker/dealer firm are covered up to: | The Securities Investor Protection Corporation insures each separate customer for up to $500,000 of cash and securities combined. Of the $500,000 total, $250,000 is the maximum amount of cash that is covered. |
| Before becoming registered as a representative of a member firm, an individual may compile a prospect list True or False | True An individual may not solicit any orders before registration. Compiling a prospect list is a passive procedure that is not soliciting. |
| prospectus must precede or accompany any solicitation, including distribution of _____________ | sales literature |
| A customer wishes to open a new account but refuses to provide suitability information. Under FINRA rules, the member | If a customer fails to provide suitability information, the account may be opened but the member may not make any recommendations. |
| The Code of Arbitration Procedure is mandatory for disputes between____________________ and ________________ | members and members, customers requesting arbitration against their registered representatives. |
| You plan to obtain a loan at your local bank for which you will use your 500 shares of ABC stock as collateral. To determine how much collateral value it will assign to the stock, the bank will check the Federal Reserve Board's Regulation: | Regulation U is the regulation governing banks and the amount of money they can lend to customers using securities as collateral |
| Members and associated persons must sumit disputes to arbitration. Customers are subject to arbitration only if they agree to submit to arbitration. Findings under the ______________are considered binding on all parties involved, with no right of appeal. | Code of Arbitration |
| In order to minimize liquidity risk, you recommend which of the following to a 37-year-old prospect? A growth mutual fund A fixed annuity Real estate rental property Listed stock on the NYSE | C. Liquidity risk is the inability to turn an investment into cash quickly at its fair market value without losing significant principal. |
| Under the Insider Trading and Securities Fraud Enforcement Act of 1988, civil penalties can be the greater of $_______ or ___% of the profits made or losses avoided; only criminal penalties can carry a prison term. | 1 million , 300 |
| Written recommendations prepared by a research department for dissemination to the public need prior approval of: | a principal of the firm - This would be classified as a type of retail communication and as such, prior principal approval is required before use. |
| The _________________________is designed to prevent fraud and protect the public from misrepresentation in the sale of new issues of securities. | Securities Act of 1933 |
| IRS Code Section ______ permits exchanges between annuities and annuities and life insurance and annuities. It does not allow exchanges between annuities and life insurance. | 1035 |
| __________ is excessive trading for a particular customer's circumstances or exceeding what would normally be considered suitable. This is equally true for both discretionary and nondiscretionary accounts. | Churning |
| A ____________ is an announcement of a new issue that includes the name of the issuer, the price of the security, and the name of the underwriter from whom it can be purchased. | tombstone |
| Whenever a registered representative leaves a member firm, a __________ form must be submitted to FINRA. | U-5 |
| ________ is the uncertainty that a company’s business will not perform up to expectations. It is a risk unique to that company and can be protected against through portfolio diversification. | Business risk |
| The ________________regulates new issues of corporate securities sold to the public and is designed to prevent fraud in the sale of newly issued securities. | Securities Act of 1933 |
| Trading and the secondary markets are regulated under the ____________________________. | Securities Exchange Act of 1934. |
| “retail communication” means any written (including electronic) communication that is distributed or made available to more than ______ retail investors within any ______ calendar-day period | 25, 30 |
| A fictional name, DBA (doing business as), or AKA (also known as) designation is permitted if the name is filed with _______ and the _______. | FINRA, SEC |
| Credit risk involves: A) fluctuations in overall interest rates. B) danger of not being able to sell the investment at a fair market price. C) possibility of issuer default. D) inflationary risks. | b. Credit risk is the danger of losing all or part of the invested principal as the result of the issuer's failure. |
| An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. | CAPITAL GAIN |
| investment instrument that represents ownership (equity) in a company thru a debt obligation with a company | security |
| represented by a stock, most accessible means of aquiring wealth | equity |
| investment co must abide by the requirements it imposes. | Securities Act of 1933 |
| calsifies investment co. into 3 types: 1. face amt certificate co (FAC) 2. Unit investment trusts (UIT) 3. Mgmt investment co | invest act of 1940 |
| face amount certifiecate co (FACs) | contract btwn investor and issuer where the issuer guarantees pmt of stated face amt sum to investor at some set date in future. they pay a fixed rate of return, do not trade on secondary mkt, redeemed by issuer |
| Universal Investment Trusts (UITs) | investment co organized under a trust indenture. It functions as a holding co for investors. They have no BOD, financial advisors, or actively managed portfolios |
| What is the 75 - 5 - 10 test? | Inv Co Act 1940 says that co that says they are divers. must at least 75% of the funds total assets must be inves in secur by co other than itself or affil no > 5% in invest in 1 issuer, fund may not own > 10% of oustanding voting secur of any 1 issuer. |
| Under the rules on communication with the public, review of what by a principal may take place either before or after distribution? | Correspondence to 25 or fewer retail investors within any 30 calendar-day period |
| The Securities and Exchange Commission regulates all of the following EXCEPT: A) initial public stock offerings. B) the secondary market. C) investment adviser and client relationships. D) intrastate securities offerings. | D) intrastate securities offerings. |
| All of the following would be necessary to have in a customer profile EXCEPT A) net worth B) 401(k) balance C) market value of home D) collegiate athletic scholarship | D) collegiate athletic scholarship |
| A single premium immediate annuity will pay $2,000 a month for life. What is the annuitant's greatest risk? A) Interest rate risk B) Capital risk C) Market risk D) Inflation risk | D. Also known as purchasing power risk, inflation risk is the effect of continually rising prices on investments. |
| All of the following are exempt securities EXCEPT: A) commercial paper. B) bankers' acceptances. C) municipal bond funds. D) T-bills. | While municipal bonds are an exempt security, bond funds are not; they are investment company securities which must be registered with the SEC prior to public sale. |
Created by:
sstilwell
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