NASAA Series 63 — All Questions

An individual is hired by a start-up corporation to sell the corporation's own common stock to retail investors in State A, and she is paid a commission on each sale. Under the Uniform Securities Act, this individual is:

• a.An agent who must register in State A✓
• b.An investment adviser representative, because she recommends the company's stock to retail investors
• c.A broker-dealer, because she effects securities transactions for compensation
• d.Excluded from the definition of agent because she represents an issuer rather than a broker-dealer

An agent is an individual who represents a broker-dealer or an issuer in effecting or attempting to effect sales, so representing an issuer does not by itself create an exclusion. The narrow issuer-representative exclusions cover certain exempt securities, exempt transactions, and sales to the issuer's own employees with no commission, none of which fits commissioned retail sales of common stock. She is not an investment adviser representative, because she is paid to sell stock rather than to advise, and she is not a broker-dealer, because a natural person representing an issuer is an agent.Uniform Securities Act

Which of the following would NOT meet the Uniform Securities Act's definition of a 'person'?

• a.A city that issues revenue bonds
• b.A limited partnership formed to invest in real estate
• c.An unincorporated investment club
• d.An individual who died last month✓

'Person' is defined broadly to include individuals, corporations, partnerships, associations, joint-stock companies, trusts, unincorporated organizations, and governments or political subdivisions. The classic exclusions are a deceased individual, a minor, and an individual who has been judged mentally incompetent. Partnerships, municipalities, and unincorporated associations all fall squarely inside the definition.Uniform Securities Act

Which of the following is NOT a security under the Uniform Securities Act?

• a.A limited partnership interest in a real estate venture sold to passive outside investors who depend on the sponsor's efforts
• b.A certificate of interest or participation in an oil and gas drilling program marketed to the investing public
• c.A variable annuity contract
• d.A fixed annuity contract whose payout is guaranteed by the insurance company✓

The Act's definition of security excludes an insurance or annuity contract under which an insurer promises to pay a fixed sum of money, so a fixed annuity is not a security. A variable annuity passes investment risk to the contract holder and is a security. A certificate of interest or participation in an oil or gas title or lease is named in the definition, and a limited partnership interest sold to passive investors who rely on a sponsor's efforts is an investment contract, so both are securities.Uniform Securities Act

A broker-dealer registered in State X has no office in State Y. Its only State Y business consists of trades executed for three banks, a registered investment company, and another broker-dealer. Must the firm register in State Y?

• a.No, because broker-dealers register only with the SEC and never with a state
• b.No, because a firm with no place of business in the state whose only clients there are institutions is excluded from the definition of broker-dealer in that state✓
• c.Yes, unless it has fewer than five total clients in State Y
• d.Yes, because any securities business conducted with State Y residents requires registration

The institutional exception removes a firm from the broker-dealer definition in a state where it has no place of business and deals only with other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, and large employee benefit plans. The exception depends on the character of the clients, not a headcount, so the five-client answer is wrong. Broker-dealers doing business in a state generally do register at the state level, so the third choice misstates the law.Uniform Securities Act

An agent registered only in State A telephones a long-standing client who is spending the winter in State B. The agent recommends a bond purchase and the client agrees. Which statement is correct?

• a.The agent must register in State B before the call because the offer was received there, provided the firm files the required consent to service of process and the Administrator does not enter an order to the contrary
• b.The agent may complete the trade only if the client signs a waiver of State B law
• c.No registration in State B is required, because the client remains a resident of State A and is only temporarily present in State B✓
• d.The agent must wait until the client returns to State A before accepting the order

The so-called snowbird exception excludes from the broker-dealer and agent definitions a firm or individual with no place of business in the state whose only contacts there are existing customers who are not residents of that state. Residency, not physical location on the day of the call, drives the analysis. No client waiver can manufacture an exemption, and nothing in the act requires the agent to postpone the order.Uniform Securities Act

An investment adviser has its only office in State M. Over the past twelve months it has advised five individual clients who reside in State N, where it has no place of business. Regarding State N registration, the adviser:

• a.Must register, because the de minimis exemption applies only when all of the clients live in the adviser's home state
• b.Qualifies for the de minimis exemption because it has no place of business in the state and has had five or fewer non-institutional clients there in the preceding twelve months✓
• c.Qualifies only if all five clients are institutional investors, because individuals never count toward the exemption
• d.Must register, because the exemption covers fewer than five clients and five reaches the limit

The de minimis exemption applies to an adviser with no place of business in the state that has had no more than five clients other than institutions in that state during the preceding twelve months, so five individual clients qualify and the clients' residence in another state is exactly the situation it covers. The exemption is not limited to institutional clients, which is a separate prong, and the limit is five or fewer, not fewer than five. Client asset size is irrelevant to the count. Had the adviser maintained an office in State N, registration would be required no matter how few clients it had.Uniform Securities Act

Which statement about the consent to service of process is correct?

• a.It authorizes the Administrator to settle civil claims against the registrant
• b.It is required only of applicants whose principal office is outside the state
• c.It must be refiled with each annual renewal of the registration
• d.It is filed with the initial application and remains in effect permanently, appointing the Administrator to receive legal papers on the registrant's behalf✓

The consent to service of process is filed once with the original application and stays in force indefinitely; it names the Administrator as the registrant's attorney to receive service of process in actions arising under the act. It is required of all applicants, in-state and out-of-state alike, and of issuers registering securities. It is a procedural document and gives the Administrator no authority to settle claims.Uniform Securities Act

An agent resigns from Broker-Dealer One and joins Broker-Dealer Two the following week. Under the Uniform Securities Act, notice of the change must be given to the Administrator by:

• a.Broker-Dealer One only, because the termination of the old association is the only event that changes the registration
• b.The agent, Broker-Dealer One, and Broker-Dealer Two✓
• c.Broker-Dealer Two only, because the agent's registration follows the new employer
• d.The agent and Broker-Dealer Two only, because the former firm no longer has any connection to the agent

When an agent begins or terminates a connection with a broker-dealer or issuer, the Act places the notification duty on the agent as well as the broker-dealer or issuer, which in a move between firms means the agent, the firm being left and the firm being joined. The registration is not effective for any period in which the agent is not associated with a registered broker-dealer, so both ends of the transition are documented. Notice by only one of the parties, or by the agent and only the new firm, leaves out someone the statute makes responsible.Uniform Securities Act

Which individual at a state-registered investment advisory firm would be considered an investment adviser representative?

• a.A compliance assistant who files the firm's Form ADV updates and tracks its continuing-education deadlines
• b.A human-resources manager who supervises the firm's administrative staff and handles benefits
• c.A portfolio manager who selects securities for client accounts and supervises two junior analysts✓
• d.A receptionist who schedules client meetings

An investment adviser representative is a person associated with a registered adviser who makes recommendations or renders advice, manages accounts, determines what advice to give, solicits or sells advisory services, or supervises employees who do any of those. The portfolio manager both manages accounts and supervises advisory staff, so registration is required. The compliance assistant, the human-resources manager supervising only administrative staff, and the receptionist do none of those things.Uniform Securities Act

Absent a denial order or pending proceeding, an application for registration as a broker-dealer, agent, investment adviser, or investment adviser representative becomes effective:

• a.At the close of business on the tenth day after filing, assuming the applicant has satisfied the net worth, surety bonding, and qualification-examination conditions the Administrator may impose
• b.Immediately upon filing with the Administrator, a conclusion the NASAA model rules are commonly understood to support for a person already registered and in good standing elsewhere
• c.When the applicant passes the required qualification examination, on the view that the relevant exemption stays available to the party unless and until the Administrator revokes it by a formal order
• d.At noon on the thirtieth day after a complete application is filed✓

The act provides that a registration application becomes effective at noon of the thirtieth day after filing if no stop order is in effect and no proceeding is pending. The Administrator may by rule or order specify an earlier effective date. Passing an examination is a qualification the Administrator may impose, but it does not by itself trigger effectiveness.Uniform Securities Act

A state-registered investment adviser maintains custody of client funds and securities. Regarding financial requirements, the Administrator may:

• a.Require a minimum net worth and a surety bond, though an adviser that meets the state's net worth standard may be excused from posting the bond✓
• b.Require a surety bond but never a minimum net worth
• c.Require the adviser to insure client accounts against market losses
• d.Require nothing, because financial requirements are set exclusively by federal law, provided the customer is furnished the required written confirmation and the details are recorded on the books the firm must maintain

The act authorizes the Administrator to establish minimum net capital or net worth standards for broker-dealers and advisers and to require surety bonds, particularly where the firm has custody or discretionary authority. States commonly allow an adviser that satisfies the net worth requirement to deposit cash or securities in lieu of the bond or to be excused from it. No state may require a firm to guarantee client accounts against market loss.Uniform Securities Act

A registered broker-dealer files an application to withdraw its registration in a state. Which statement is correct?

• a.The Administrator loses all authority over the firm the moment the application is filed
• b.The withdrawal becomes effective thirty days after filing unless a proceeding is pending, and the Administrator retains jurisdiction for one year to institute a revocation or suspension proceeding✓
• c.The withdrawal never becomes effective if a customer complaint is on file
• d.The withdrawal is effective immediately upon filing

Withdrawal becomes effective thirty days after filing, or earlier if the Administrator so determines, provided no revocation or denial proceeding is pending. The Administrator keeps jurisdiction for one year after the withdrawal takes effect and may still enter a revocation or suspension order. A pending complaint alone does not permanently block a withdrawal.Uniform Securities Act

Unless renewed, the registration of a broker-dealer, agent, investment adviser, or investment adviser representative expires:

• a.Every two years on June 30
• b.On December 31 of each year✓
• c.Only when the registrant ceases doing business in the state
• d.On the anniversary of the original effective date

State registrations run on a calendar-year cycle and expire on December 31 unless renewed by filing the required renewal and paying the annual fee. There is no rolling anniversary date and no two-year cycle under the act. A registrant who stops doing business must affirmatively withdraw rather than simply let the file lapse.Uniform Securities Act

An individual represents a corporate issuer in selling only United States Treasury notes and general obligation bonds of the state to the public. Under the Uniform Securities Act, this individual:

• a.Is excluded from the definition of agent because he represents an issuer in transactions in specified exempt securities✓
• b.Must register as an agent only if he receives commissions, provided the firm files the required consent to service of process and the Administrator does not enter an order to the contrary
• c.Must register as a broker-dealer instead of an agent
• d.Must register as an agent because he sells to the public, since the Administrator generally treats this as a routine matter resolved through the state's ordinary coordination procedures

The act excludes from the agent definition an individual who represents an issuer in effecting transactions in certain exempt securities such as federal and municipal government obligations and qualifying commercial paper. Because the exclusion applies, no agent registration is required whether or not commissions are paid. A natural person representing an issuer is never a broker-dealer under the act.Uniform Securities Act

A certified public accountant prepares tax returns for a client. During the engagement she explains that municipal bond interest would reduce the client's tax bill and suggests he discuss municipal bonds with a broker. She charges only her standard tax preparation fee. Under the Uniform Securities Act, the accountant is:

• a.An investment adviser representative of her accounting firm
• b.A broker-dealer because she referred the client to a securities firm
• c.An investment adviser who must register in the state
• d.Excluded from the definition of investment adviser because the advice was solely incidental to her accounting practice and she received no special compensation✓

The act excludes lawyers, accountants, teachers, and engineers whose investment advice is solely incidental to their profession and who receive no special compensation for it. Both prongs are met here: the comment arose out of tax work and no separate advisory fee was charged. Had she billed a distinct fee for securities advice, the exclusion would be lost.Uniform Securities Act

Which of the following is specifically excluded from the definition of broker-dealer under the Uniform Securities Act?

• a.A partnership organized to trade securities for the accounts of its many outside investors
• b.A bank, savings institution, or trust company✓
• c.A firm with no place of business in the state that solicits retail investors there by telephone
• d.A firm that maintains a branch office in the state and trades for retail customers

The broker-dealer definition expressly excludes agents, issuers, and banks, savings institutions, and trust companies. A firm with a place of business in the state must register regardless of client type, and a firm cold-calling retail residents from out of state is doing business in that state. The trading partnership effects transactions for the accounts of others and would need to register.Uniform Securities Act

An investment adviser with $400 million in assets under management is registered with the SEC and has offices in three states. With respect to those states, the adviser:

• a.Cannot be required to register with the states, but may be required to file a notice, pay fees, and file a consent to service of process✓
• b.Must register in the state of its principal office and notice file in the others
• c.Must also register in each state where it has an office
• d.Has no obligation of any kind to the state Administrators

An adviser required to register with the SEC is a federal covered adviser, and federal law preempts state registration requirements for such firms. States retain the right to require notice filings, collect fees, and demand a consent to service of process, and they keep full antifraud authority. State registration itself may not be imposed on a federal covered adviser, even in the state of its principal office.Uniform Securities Act

An individual who advises clients on behalf of a federal covered investment adviser works out of the firm's branch office in State P. This individual:

• a.Is exempt from state registration because the firm is federally covered, so its representatives need no state registration of their own
• b.Must register with the SEC as an investment adviser representative rather than with State P
• c.Need not register anywhere as long as he has five or fewer clients in State P
• d.Must register as an investment adviser representative in State P because he has a place of business there✓

Although the firm is federally covered and cannot be required to register with a state, the Act requires an investment adviser representative of a federal covered adviser who has a place of business in the state to be registered there. A representative working from an in-state branch office must therefore register in State P. The SEC does not register individual representatives, and the five-client de minimis exemption is available only to a person with no place of business in the state.Uniform Securities Act

A broker-dealer registered in State A opens a branch office in State B. Its only State B customers will be three large insurance companies. Regarding State B registration, the firm:

• a.Must register only after it accepts its first retail account in State B, because only retail business triggers registration
• b.May rely on its State A registration, because the states recognize one another's broker-dealer registrations by reciprocity
• c.Is excluded because its only clients there are institutions, even though it keeps a branch office in the state
• d.Must register in State B because it maintains a place of business in the state✓

The exclusion for dealing only with institutions is available only to a person with no place of business in the state. Once the firm opens a branch office in State B it must register there, however sophisticated its customers are, and it does not have to wait for a retail account. The Act has no general reciprocity provision that lets one state's registration substitute for another's.Uniform Securities Act

An agent working from an office in State A mails a prospectus and a solicitation letter to a prospect who reads it at her home in State B. Under the Uniform Securities Act, the offer is considered made:

• a.In neither state, because the Act reaches only completed sales and no sale occurred
• b.Only in State A, where the letter originated, because the agent is registered there
• c.In both State A and State B, giving each Administrator jurisdiction✓
• d.Only in State B, where the letter was received, because the prospect lives there

An offer is made in a state when it originates from that state or is directed to that state and received there, so a letter mailed from State A and read in State B is made in both and each Administrator has jurisdiction. Failure to complete a sale is irrelevant because the Act reaches offers as well as sales. The agent's registration in one state does not remove the receiving state's authority.Uniform Securities Act

A securities offering is advertised in a television broadcast that originates outside State C but is viewed by residents of State C. Under the Uniform Securities Act, the offer is:

• a.Deemed made in State C because residents of the state saw it
• b.Not deemed made in State C, because the broadcast originated outside the state✓
• c.Deemed made in State C once a State C resident telephones the issuer to respond to the broadcast
• d.Deemed made in every state where the signal is received, since the broadcast was directed to all viewers

An offer is not made in a state when a radio or television program originating outside that state is received there. The point of origination controls, not where the signal lands. A resident's response would be a separate transaction subject to the usual rules, but it does not turn the out-of-state broadcast into an offer made in State C, and the directed-to-the-state rule for letters and calls does not apply to broadcasts.Uniform Securities Act

An employee of a manufacturing corporation is asked to distribute and explain the company's new stock purchase plan to fellow employees. She receives no commission or other remuneration for these sales. Under the Uniform Securities Act, she is:

• a.A broker-dealer with respect to the plan, because she effects securities transactions for the account of her coworkers
• b.An agent who must register, because the stock purchase plan is a security and she is explaining it to other residents of the state
• c.Not an agent, because she represents the issuer in transactions with the issuer's employees and receives no commission✓
• d.An investment adviser representative, because she explains the plan's investment features to fellow employees

The Act excludes from the definition of agent an individual who represents an issuer in effecting transactions with the issuer's existing employees, partners or directors when no commission or other remuneration is paid for soliciting them. The absence of transaction-based pay is essential; paying her a commission would destroy the exclusion. The plan being a security is not enough to make her an agent, she does not trade for others as a firm, and explaining the plan is not advice for compensation.Uniform Securities Act

A broker-dealer's state registration is suspended for sixty days. During the suspension, the registrations of the agents employed by that firm:

• a.Are also not in effect, because an agent's registration is effective only while the agent is associated with a registered broker-dealer or issuer✓
• b.Transfer automatically to any affiliated firm
• c.Remain fully effective because they were registered individually
• d.Are automatically revoked and must be reapplied for

An agent's registration is derivative: it is effective only while the agent is associated with a registered broker-dealer or issuer, so suspending the firm suspends the agents' ability to act. The registrations are not revoked outright, so a brand-new application is not automatically required. Registrations do not migrate to affiliates by operation of law.Uniform Securities Act

A registered broker-dealer reorganizes and a successor firm takes over the business in the middle of the registration year. Under the Uniform Securities Act, the successor firm:

• a.May simply continue to operate under the predecessor's registration indefinitely
• b.May file an application that becomes effective on the date the predecessor's registration terminates and is effective for the unexpired portion of the year without an additional filing fee✓
• c.Must file a completely new application and wait thirty days before doing business
• d.Must cease all business until the next annual renewal cycle

The act permits a successor to file an application that takes effect when the predecessor's registration terminates and runs for the unexpired portion of the year, with no filing fee charged for that partial period. The successor cannot simply operate on the predecessor's registration, but neither must it endure a full waiting period or suspend operations.Uniform Securities Act

A Canadian broker-dealer with no U.S. office wants to continue servicing the self-directed retirement accounts of Canadian clients who are temporarily living in a U.S. state. Under the NASAA model rule for Canadian firms, the broker-dealer:

• a.Is completely exempt from all state requirements
• b.Must obtain full broker-dealer registration in the state
• c.May not deal with those clients at all while they are in the United States
• d.May obtain a limited registration by filing an application, evidence of home-jurisdiction registration and good standing, and a consent to service of process✓

The NASAA model rule creates a limited registration path for Canadian broker-dealers and their agents servicing Canadian clients temporarily present in the United States, primarily for self-directed tax-advantaged retirement accounts. The firm files an application, proof that it is registered and in good standing in its home jurisdiction, and a consent to service of process. It is neither barred from the business nor forced into full domestic registration, and it is not free of all state obligations.NASAA Model Rule

Which of the following would be considered a 'sale' under the Uniform Securities Act?

• a.A pledge of securities as loan collateral that is never foreclosed
• b.A gift of assessable stock✓
• c.A stock dividend for which shareholders give up nothing of value
• d.A bona fide gift of fully paid, nonassessable stock to a family member

The act treats a gift of assessable stock as a sale because the recipient takes on a potential future obligation, which functions as consideration. A bona fide gift of nonassessable stock involves no value given and is not a sale, and a stock dividend for which nothing is surrendered is likewise excluded. A pledge creates a security interest rather than a transfer of ownership for value.Uniform Securities Act

An individual employed by a registered broker-dealer answers the main telephone line, routes calls to registered personnel, and files paperwork. He never discusses securities or accepts orders. This individual:

• a.Must register as an agent because he is employed by a broker-dealer and routes customer calls to its sales staff
• b.Must register as an agent because he speaks with customers whenever he answers the firm's main telephone line
• c.Must register as an agent only if he is also a partner, officer, or director of the firm that employs him
• d.Need not register, because his functions are clerical and he does not effect or attempt to effect securities transactions✓

Registration as an agent turns on whether the individual represents a broker-dealer in effecting or attempting to effect purchases or sales of securities, not on mere employment or on speaking with customers. Purely clerical staff fall outside the definition. A partner, officer or director of a broker-dealer is an agent only if he otherwise comes within the definition, so holding such a title is neither necessary nor sufficient. If he began taking orders or making recommendations, registration would immediately be required.Uniform Securities Act

An investment adviser opens a small office in State Q and, during its first year, takes on only two clients who reside in State Q. Regarding State Q registration, the adviser:

• a.Must register, because the de minimis exemption is unavailable to an adviser that has a place of business in the state✓
• b.Need not register, because an adviser with no more than five clients in a twelve-month period is exempt even if it keeps an office in the state
• c.Must register only if it takes custody of client funds or securities, since custody is what triggers the state registration requirement
• d.Need not register with the state, because an adviser with fewer than fifteen clients is exempt under the Investment Advisers Act

The small-adviser exclusion applies only to an adviser with no place of business in the state; the limit of five non-institutional clients in twelve months is an additional condition, not a substitute for the first. Once an office exists in the state, registration is required even with two clients, so the five-client count does not rescue an adviser that keeps an office there. The federal fifteen-client exemption for small advisers was repealed in 2010 and never governed state registration, and state registration turns on a place of business and the clients served, not on custody of client assets.Uniform Securities Act

For purposes of the institutional exception from the broker-dealer definition, which of the following clients would NOT preserve the exception?

• a.A life insurance company investing its general account
• b.An individual investor with a $4 million portfolio✓
• c.A commercial bank buying for its own account
• d.A registered investment company holding municipal bonds

The institutional exception lists other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, and large employee benefit plans. A wealthy individual is still a retail customer and does not appear on that list, no matter how large the account. Doing business with even one such person in a state where the firm has no place of business defeats the exception.Uniform Securities Act

An agent is registered only in State A. Her broker-dealer is registered in both State A and State B. She begins cold-calling residents of State B from her desk in State A. Which statement is correct?

• a.She needs no registration in State B, because the calls are placed from her desk in State A and she never physically enters State B
• b.She may solicit up to five State B residents before registering
• c.She needs no registration in State B, because her employer is registered there and the firm's registration extends to the agents who solicit for it
• d.She must register as an agent in State B, because her offers are directed into and received in that state✓

Agent registration is individual and state-specific; the firm's registration does not cover its agents. An offer directed into and received in a state is made in that state, so physical presence is irrelevant. The five-client counts belong to the investment adviser provisions and create no free-solicitation allowance for agents.Uniform Securities Act

Which statement about issuers under the Uniform Securities Act is correct?

• a.An issuer is any individual who represents another person in effecting purchases or sales of securities, and must register as an agent before selling
• b.Only corporations can be issuers
• c.An issuer that sells its own securities directly to investors is a broker-dealer and must register as one, unless the securities are exempt securities
• d.An issuer is any person who issues or proposes to issue a security, and an issuer selling only its own securities is not a broker-dealer✓

The definition covers any person who issues or proposes to issue a security, which includes governments, partnerships, and trusts as well as corporations. Because a broker-dealer effects transactions for the accounts of others, an entity selling only its own securities falls outside that definition and does not need broker-dealer registration for those sales. Describing an issuer as someone who represents others in effecting sales confuses it with the definition of an agent: individuals who sell for an issuer may be its agents, but the issuer itself is not one.Uniform Securities Act

An agent's employing broker-dealer voluntarily withdraws its state registration. Absent any other affiliation, the agent's registration in that state:

• a.Continues until the next December 31 renewal date
• b.Is not in effect, because an agent may not act while unassociated with a registered broker-dealer or issuer✓
• c.Automatically transfers to any other registered broker-dealer that hires the agent, without a new filing or fee, because agent registration is portable
• d.Is unaffected, because an agent registers in his or her own right and the firm's withdrawal ends only the firm's own registration

The act states that an agent's registration is not effective during any period when the agent is not associated with a registered broker-dealer or issuer. Withdrawal by the firm therefore parks the agent's registration until a new affiliation is filed. Agent registration names a specific employer, so it neither runs to a calendar renewal date regardless of employment nor moves automatically to a new firm; a new filing is required. The agent's registration is tied to the firm rather than independent of it.Uniform Securities Act

A registered broker-dealer discovers that information in its original state application has become materially inaccurate. The firm should:

• a.Correct the information only if a customer or the Administrator asks about it
• b.Promptly file an amendment with the Administrator correcting the information✓
• c.Withdraw its registration and file a new application
• d.Wait and correct the information at the next annual renewal

Registrants must keep their filings current and promptly amend any information that becomes inaccurate or incomplete in a material respect. Waiting for renewal or for someone to ask leaves a false filing on record, which is itself a ground for discipline. Withdrawing and refiling is a drastic step the act does not require for a simple amendment.Uniform Securities Act

An investment advisory firm has its only office in State D, where it is registered. It also serves three individual clients in State E and four individual clients in State F, with no office in either. Which statement is correct?

• a.It need not register in any state, because no single state has more than five of its individual clients
• b.It must register in all three states, because the de minimis exemption looks at total clients rather than clients in each state
• c.It must register in State E and State F, where its clients live, but not in State D, because the state of the main office is exempt
• d.It must remain registered in State D and may rely on the de minimis exemption in States E and F✓

Registration is required in the state where the adviser maintains a place of business, so State D registration is mandatory. In States E and F the firm has no place of business and has had five or fewer non-institutional clients in the preceding twelve months, satisfying the de minimis exemption. The counts are measured state by state, so adding the clients together does not trigger registration anywhere, and no count excuses registration where an office exists. A home-state office is exactly where registration is required, never exempt.Uniform Securities Act

An unregistered individual introduces investors to a small private company and receives a percentage of every dollar the investors put in. The most likely conclusion under the Uniform Securities Act is that she:

• a.Is acting as an unregistered agent, because transaction-based compensation for effecting securities sales points squarely to agent status✓
• b.Is a broker-dealer because she was paid a percentage
• c.Is an investment adviser rather than an agent
• d.Is exempt because she never handled customer funds

Receiving compensation tied to the size or completion of securities transactions is the strongest indicator that a person is effecting or attempting to effect sales and is therefore acting as an agent. Never touching customer money creates no exemption. She is not an adviser because she is paid for sales rather than for advice, and a natural person representing an issuer is treated as an agent rather than a broker-dealer.Uniform Securities Act

Under the Uniform Securities Act, a person is an investment adviser only if all three parts of a defining test are met. Those three elements are:

• a.Advice, custody, and discretion
• b.Advice about securities, custody of client assets, and a written advisory contract signed by each client
• c.Giving advice about securities, doing so as a business, and receiving compensation for it✓
• d.Advice about securities, discretionary authority over client accounts, and a registration as a federal covered adviser

The definition turns on three elements: a person who gives advice about securities, does so as a business, and receives compensation for it. All three must be present. Custody, discretion, a written contract, registration status, examinations and bonding are not the definitional elements.Uniform Securities Act (1956, as amended) 401(f)

A broker-dealer that gives investment advice will generally avoid the definition of investment adviser only if the advice is:

• a.Solely incidental to its brokerage business and the firm receives no special compensation for the advice✓
• b.Given only to institutional clients, because the definition reaches only advisers who serve individual retail investors
• c.Delivered in writing together with a disclosure statement saying the firm is not acting as an investment adviser to the client
• d.Limited to exempt securities

The broker-dealer exclusion from the investment adviser definition requires both that the advice be solely incidental to the conduct of brokerage and that the firm receive no special compensation for that advice. Charging a separate advisory fee is special compensation and destroys the exclusion. Client type, security type, a written disclaimer and Administrator approval are not the test.Uniform Securities Act (1956, as amended) 401(f)(4)

A broker-dealer begins charging some customers a separate, stand-alone fee specifically for financial-planning advice. With respect to those services, the firm:

• a.Remains excluded from the definition of investment adviser
• b.Is exempt because it is already a registered broker-dealer
• c.Loses the broker-dealer exclusion and must consider investment adviser registration, because it now receives special compensation for advice✓
• d.Need only notify its customers of the new fee

Receiving special compensation, a separate fee, for advice removes the broker-dealer exclusion, so the firm must analyze investment adviser registration for that activity. Being a registered broker-dealer does not exempt a firm from the advisory framework once it charges specifically for advice, and mere customer notice does not resolve the registration question.Uniform Securities Act

The publisher of a general-circulation financial newspaper that offers regular market commentary and non-personalized stock suggestions is:

• a.An investment adviser that must register, because regular market commentary combined with specific stock suggestions is advice given for compensation
• b.Excluded from the definition of investment adviser, because bona fide publications of general and regular circulation are excepted✓
• c.An investment adviser representative who must register, because the individual writers who prepare the stock suggestions are the ones giving the advice
• d.A broker-dealer that must register, because publishing recommendations to the general public is a form of dealing in securities for others

A bona fide newspaper, news magazine, or business or financial publication of general and regular circulation is excluded from the investment adviser definition so long as its content is not advice based on the specific investment situation of each client. The publisher is therefore not an adviser, its writers are not adviser representatives, and publishing commentary is not effecting transactions, so it is not a broker-dealer. The exclusion can be lost if the publication begins giving individualized, tailored advice.Uniform Securities Act (1956, as amended) 401(f)(5)

An investment adviser managing $60 million in client assets, and not otherwise required to register with the SEC, is generally:

• a.A federal covered adviser barred from state registration, because the Act channels every adviser that manages more than fifty million dollars into exclusive federal oversight under NSMIA
• b.Exempt from all registration
• c.A state-registered adviser, because advisers below the $100 million threshold generally register with the states✓
• d.Required to register with both the SEC and every state in which it operates, a dual-filing obligation the statute imposes on mid-sized advisers until their assets fall back below the reporting threshold

Advisers below the $100 million assets-under-management threshold, in the mid-sized band above $25 million, generally register at the state level rather than with the SEC; federal (covered) registration is generally required at $100 million and above, with a buffer for crossing the line. Such an adviser is neither exempt nor routinely dual-registered.Investment Advisers Act / NSMIA

An individual's only function for a state-registered adviser is to solicit prospective clients to sign advisory agreements, for which he is paid. He is:

• a.An investment adviser representative who must register, because soliciting advisory clients is a covered function✓
• b.Exempt from registration, because he renders no investment advice and neither manages client accounts nor supervises other employees
• c.A broker-dealer agent
• d.Exempt, because the registration of the adviser he works for already covers every individual employed by that firm

The investment adviser representative definition includes persons associated with a registered adviser who solicit, offer or negotiate for the sale of, or sell, advisory services, not only those who give advice. Solicitation is not clerical, so it triggers registration even though the individual renders no securities advice himself, and the firm's registration does not cover its individual representatives. He does not sell securities, so he is not a broker-dealer agent.Uniform Securities Act (1956, as amended) 401(g)(4)

An individual wishes to act as an agent for two unaffiliated broker-dealers at the same time. Under the Uniform Securities Act, this is:

• a.Automatically prohibited in every state
• b.Permitted without anyone else's knowledge
• c.Generally allowed only if the individual is registered as an agent of each firm and both firms consent, subject to state variation✓
• d.Permitted only for agents serving institutional clients, provided the customer is furnished the required written confirmation and the details are recorded on the books the firm must maintain

An agent must be separately registered for each employing broker-dealer, so acting for two firms requires a registration with each and generally each firm's consent; several states restrict or discourage dual registration with unaffiliated firms, so the answer carries a state-by-state caveat. It is neither automatically barred nor something done secretly, and it is not limited to institutional agents.Uniform Securities Act

With respect to examinations, the Uniform Securities Act provides that the Administrator:

• a.May never require an examination as a condition of registration, because qualification is judged only from the applicant's record
• b.May require an examination only of investment advisers
• c.Must require every applicant, whatever the registration category, to pass the same national examination administered by FINRA
• d.May by rule require applicants to pass a written or oral examination as a condition of registration✓

The Administrator may by rule provide for an examination, written or oral or both, to be taken by any class of or all applicants, and may by rule or order waive it where it is not necessary for the protection of clients. The authority is discretionary, is not limited to advisers, and does not mandate a single uniform national test for every category.Uniform Securities Act (1956, as amended) 204(b)(6)

The Administrator may require a state-registered broker-dealer or investment adviser that has custody of, or discretion over, client assets to:

• a.Guarantee clients against investment loss on the securities held in custody, up to a limit the Administrator sets by rule
• b.Do nothing beyond filing the initial application, because custody and discretion are regulated only by the federal agencies
• c.Maintain a minimum net capital or net worth and post a surety bond, within limits tied to federal standards✓
• d.Insure client accounts through a private carrier for the full value of the assets held, as the condition for keeping its registration

The Administrator may set minimum net capital or net worth requirements and require surety bonds, particularly where a firm has custody or discretionary authority, though the state may not exceed the limits set by the federal net-capital and bonding provisions, and a deposit may be accepted in place of a bond. No firm may be required to guarantee accounts against market loss, to privately insure them, or to stop at the initial application.Uniform Securities Act (1956, as amended) 202(e)-(f)

Regarding the books and records of registered broker-dealers, the Administrator may:

• a.Prohibit any recordkeeping at all
• b.Require records but never set a retention period
• c.Impose requirements that exceed the federal standards for firms also registered with the SEC
• d.Require registrants to make and preserve specified records for prescribed periods, not exceeding the federal requirements for firms also registered with the SEC✓

The Administrator prescribes recordkeeping and retention requirements, but for firms also registered with the SEC, state requirements may not exceed the corresponding federal ones, a coordination Congress imposed through NSMIA. Records are mandatory and time-limited, so prohibiting records or refusing to set a retention period misstates the law.Uniform Securities Act

A broker-dealer organized as a partnership has one of its several partners withdraw from the firm. Under the Uniform Securities Act, the firm's registration:

• a.Remains effective, but the firm must promptly notify the Administrator of the change in membership✓
• b.Automatically terminates and must be refiled from scratch, because a partnership is a new legal entity whenever any partner leaves
• c.Is unaffected and requires no notice, because the registration belongs to the firm's name rather than to its individual partners
• d.Is suspended until the Administrator approves the new partnership roster, and the firm may not transact business in the meantime

A change in the partners of a partnership registrant does not automatically void the firm's registration, but the firm must promptly file a correcting amendment reporting the material change in its membership. It neither terminates automatically nor requires no notice, it is not suspended pending approval of a roster, and some states treat a change in membership as creating a new partnership under local law, so state variation exists.Uniform Securities Act (1956, as amended) 203(d)

A state-registered investment adviser must keep its Form ADV current by:

• a.Refiling a brand-new Form ADV every year within 30 days of its registration anniversary date
• b.Filing a quarterly amendment, whether or not any information has changed, within 30 days of each quarter end
• c.Filing an annual updating amendment within 90 days of its fiscal year end and promptly amending any materially inaccurate information✓
• d.Filing an annual updating amendment within 120 days of its fiscal year end and delaying any interim changes until that annual filing is due

An adviser keeps Form ADV current through an annual updating amendment filed within 90 days of its fiscal year end and through prompt amendments whenever required information becomes inaccurate or, for some items, materially inaccurate (Rule 204-1 is the SEC rule, and state-registered advisers follow the same Form ADV amendment instructions). An adviser does not refile a brand-new form each year or amend quarterly regardless of changes, the annual deadline is 90 days rather than 120, and interim changes cannot wait for the next annual filing.Advisers Act Rule 204-1 (17 CFR 275.204-1); Form ADV General Instructions

A retired engineer gives securities advice to friends a few times a year and never charges for it. Under the Uniform Securities Act, he is:

• a.An investment adviser who must register
• b.Not an investment adviser, because he is neither in the business of advising nor compensated for it✓
• c.An investment adviser representative
• d.A broker-dealer

He fails two prongs of the three-part test: occasional advice to friends is not being in the business of advising, and he receives no compensation. Either failure alone keeps him outside the investment adviser definition, so registration is not required.Uniform Securities Act

An individual will both sell securities for a broker-dealer and provide advisory services for the firm's affiliated state-registered investment adviser. This individual must:

• a.Register only once, in whichever capacity occupies more of his time
• b.Register only as an agent, because that is the higher standard
• c.Register separately as an agent of the broker-dealer and as an investment adviser representative of the adviser✓
• d.Not register at all, because the two firms are affiliated

Agent and investment adviser representative are distinct registration categories tied to distinct functions and distinct firms; performing both roles requires registration in each capacity. Affiliation between the broker-dealer and the adviser does not merge the two registrations, and neither one is a mere subset of the other.Uniform Securities Act

Which of the following is most likely a 'security' under the Uniform Securities Act?

• a.A commodity futures contract on wheat bought through a futures commission merchant by a speculator seeking a price gain
• b.A rare-coin collection sold outright to a collector who takes possession and makes his own decisions about holding or selling
• c.A fixed annuity issued by a licensed insurer that promises a set sum of money for life, under a contract sold to retirees
• d.An investment contract in a whiskey-warehouse-receipt program marketed to passive outside investors✓

An investment contract, meaning an investment of money in a common enterprise with profits expected from the efforts of others, is a security, and warehouse-receipt programs sold to passive investors have been treated as such. Insurance annuity contracts that promise a fixed sum are expressly excluded from the definition, commodity futures are not listed securities under the Act, and a collectible bought outright by someone who controls it is not an investment contract.Uniform Securities Act (1956, as amended) 401(m)