NASAA Series 63 — All Questions

Lena's new firm files her initial Form U4 and relies on her signed attestation that the form is accurate. Does that satisfy the firm's obligations under Rule 3110(e)?

• a.Yes, if the firm has also reviewed the prior employer's Form U5 within the time the rule allows.
• b.No, the firm needs procedures to verify the form within 30 calendar days, including a public-records search.✓
• c.Yes, because the signed attestation of the representative is the verification that the rule is meant to supply.
• d.No, because the firm must instead have FINRA confirm the form's accuracy before the representative can start.

Rule 3110(e) requires written procedures reasonably designed to verify the accuracy and completeness of an initial or transfer Form U4 no later than 30 calendar days after filing, including a search of reasonably available public records by the member or a third-party provider. The applicant's own statement is not verification, FINRA does not confirm the form, and the Form U5 review is a separate duty.FINRA Rule 3110(e)

Where must a member firm keep a copy of its written supervisory procedures, or the relevant portions of them?

• a.At the main office alone, where the chief compliance officer controls a single copy.
• b.In each OSJ and each location where supervisory activities are conducted.✓
• c.At every branch office and at the home of each representative who works remotely.
• d.With the clearing firm, which holds the copy for use during examinations by FINRA.

Rule 3110(b)(7) requires a copy of the written supervisory procedures, or the relevant portions, to be kept in each OSJ and at each location where supervisory activities are conducted for the member. Keeping one copy at headquarters is not enough, the rule does not extend to every representative's home, and the clearing firm's holding a copy does not satisfy it.FINRA Rule 3110(b)(7)

A principal reviews outgoing representative emails by opening each one in the firm's system, which logs that it was opened. The firm keeps nothing else. Is this adequate evidence of the review required by Rule 3110(b)(4)?

• a.No, opening a message is not review, so the record must show the reviewer, the item, the date and any action.✓
• b.Yes, if the principal also signs a quarterly statement confirming that the messages were reviewed.
• c.Yes, because the system's log showing that a principal opened each message is evidence of review.
• d.No, because correspondence review must be done by a person who is not a registered principal.

Rule 3110(b)(4) requires review of correspondence by a registered principal, evidenced in writing. Supplementary Material .07 says the evidence must identify the reviewer, the item reviewed, the date of review and the action taken on significant regulatory issues, and that merely opening a communication is not sufficient review. The reviewer must be a registered principal, so the last claim is wrong.FINRA Rule 3110(b)(4) and Supplementary Material .07

A principal at a member firm asks an unregistered clerk to screen incoming correspondence for customer complaints and forward items to the principal. May the principal delegate this function?

• a.Yes, if the clerk holds a Series 63 license, which qualifies the clerk to screen correspondence for the firm.
• b.Yes, and responsibility for the review passes to the clerk once the principal has handed the task over.
• c.No, review of correspondence must be performed personally by a registered principal, with no part delegated to others.
• d.Yes, certain review functions may go to unregistered staff, but the principal remains responsible for the result.✓

Supplementary Material .08 lets a supervisor or principal delegate certain correspondence and internal communication review functions to persons who need not be registered. The principal stays ultimately responsible and must take reasonable action to confirm that delegated work is done properly. Responsibility does not shift, and a Series 63 license is not a condition.FINRA Rule 3110, Supplementary Material .08

The owner-president of a three-person firm is its top executive and also supervises his own trading because no other person is qualified. What must the firm do to meet Rule 3110?

• a.Hire an outside principal within thirty days and file a notice of the change in supervision with FINRA.
• b.Nothing, because a firm's most senior executive is exempt from the firm's own supervisory system.
• c.Request relief from FINRA, which must grant it before the president may supervise himself.
• d.Document why separate supervision is not possible and how the arrangement otherwise complies.✓

Rule 3110(b)(6)(C) requires procedures that bar supervisors from supervising their own activities. Where the firm's size or the person's position makes that impossible, the firm must document the factors it used and how the arrangement otherwise complies with paragraph (a). Supplementary Material .10 names the firm's senior executive as a typical case. No exemption, deadline or approval is involved.FINRA Rule 3110(b)(6)(C) and Supplementary Material .10

A member firm plans to hold its annual compliance meeting for registered persons as an on-demand webcast. What must the firm ensure at a minimum?

• a.A principal signs an attendance sheet for each session that is held at the firm's main office location.
• b.Each registered person passes a quiz on the content, and the firm files the scores with FINRA each year.
• c.Each registered person attends the whole meeting and can ask questions and get timely answers.✓
• d.Each registered person attends in person at a central or regional location once every three years.

Supplementary Material .04 says a firm need not hold in-person meetings. If it uses another method, such as an on-demand webcast, it must ensure that each registered person attends the entire meeting and can ask questions and get timely answers, with technology to track the time spent. A quiz, a filing with FINRA or a sign-in sheet is not required.FINRA Rule 3110(a)(7); Supplementary Material .04

Rob works alone from his home, his primary residence, and the location otherwise meets the conditions for the residence exclusion. Which fact would make the home a branch office?

• a.He sends all firm email through the member's own electronic system, which supervisors can review.
• b.He meets customers at the home to review their accounts, so the residence exclusion no longer applies.✓
• c.He is assigned to a designated branch, which appears on his business cards and stationery.
• d.He enters every order through the designated branch or a system that is reviewable there.

The residence exclusion in Rule 3110(f)(2)(A)(ii) requires that the location not be held out as an office and that the associated person not meet customers there. Meeting customers at home therefore makes it a branch office. Using the firm's email system, being assigned to a designated branch and entering orders through that branch are all conditions of the exclusion, not reasons to lose it.FINRA Rule 3110(f)(2)(A)(ii)

A representative conducts securities business from a vacation home on 34 business days in a calendar year. On 6 of those days he spent at least four hours at his designated branch during its normal hours. The other conditions for the exclusion are met. Is the vacation home a branch office?

• a.Yes, because he used the location on 34 business days, which is more than the 30-day limit.
• b.Yes, because a location other than a primary residence is a branch if used for any securities business.
• c.No, because the six partial days do not count, leaving 28 business days, which is fewer than 30.✓
• d.No, because a vacation home is excluded from the branch definition at any level of use.

Rule 3110(f)(2)(A)(iii) excludes a non-residence location used for securities business for fewer than 30 business days in a calendar year if the residence conditions are met. Under (f)(2)(C), a business day does not count if the person spent at least four hours at the designated branch during its normal hours. Thirty-four less six is 28, so the exclusion applies.FINRA Rule 3110(f)(2)(A)(iii) and (C)

Hartley & Weiss is a registered broker-dealer with a limited partner who only supplies capital and has no securities training. May the Administrator deny the firm's registration for lack of qualification because of that partner?

• a.No, because the Administrator must find a willful violation before a registration can be denied for any reason.
• b.No, an order for lack of qualification may rest only on the broker-dealer itself, if an individual, or on its agents.✓
• c.Yes, because a partner's lack of qualification is attributed to the firm whenever the public interest is served.
• d.Yes, every partner of a broker-dealer must show the training, experience and knowledge the Administrator requires.

Section 204(b)(1) limits an order under the lack-of-qualification ground to the broker-dealer itself, when it is an individual, or an agent of the broker-dealer. A limited partner who only supplies capital is neither, so his training cannot support an order against the firm, and the comment notes that such persons need not be qualified. Attributing a partner's shortcoming to the firm is not what the section allows. Willfulness is an element of a different ground; lack of qualification requires no willful violation.Uniform Securities Act §204(b)(1)

A state-registered investment adviser employs a bookkeeper who never gives advice or deals with clients and who has no securities training. May the Administrator deny the adviser's registration because of the bookkeeper's lack of qualification?

• a.No, such an order may rest only on the adviser itself, if an individual, or on its adviser representatives.✓
• b.Yes, the adviser is answerable for the qualifications of every employee who handles its client records, funds or fees.
• c.No, because the Administrator may test qualifications for broker-dealers but not for investment advisers or their staff.
• d.Yes, if the Administrator concludes that the bookkeeper's lack of training puts client assets at risk.

Under Section 204(b)(2), an order against an investment adviser for lack of qualification may rest only on the adviser, if an individual, or on another person who represents it in doing the acts that make it an adviser, an investment adviser representative. A bookkeeper who gives no advice is not one, so the ground is unavailable. Responsibility for employees is a supervision question under a different ground, not a qualification one. The Administrator may examine investment adviser applicants, so the last view is also wrong.Uniform Securities Act §204(b)(2)

Priya applied to be an agent of a registered broker-dealer that will supervise her. In judging whether she is qualified, what must the Administrator consider?

• a.Only whether the firm's principal has passed the examination, since the firm answers for her conduct.
• b.That she need not have the same qualifications as the broker-dealer that will supervise her.✓
• c.That the firm's supervision replaces any need for her own training or knowledge of securities.
• d.That she must show the same training and experience as the broker-dealer, since she acts for it.

Section 204(b)(4) directs the Administrator to consider that an agent who will work under the supervision of a registered broker-dealer need not have the same qualifications as the broker-dealer. Requiring identical qualifications ignores that rule. Supervision lowers the bar but does not remove it, so she must still be qualified by training, experience or knowledge. Testing only the principal's examination status is not what the section says, since the agent is the applicant being judged.Uniform Securities Act §204(b)(4)

Under Section 15(b)(4)(E) of the Securities Exchange Act, what protects a supervisor from being deemed to have failed reasonably to supervise a person who commits a violation?

• a.Registration of the supervisor as a principal and an annual attestation of compliance to the SEC.
• b.Proof that the supervisor did not know of the particular violation, even if the firm had no procedures in place.
• c.Procedures and a system for applying them, and reasonable performance of the supervisor's duties under them.✓
• d.A showing that the firm's procedures were filed with the SEC and approved before the violation occurred.

The Section 15(b)(4)(E) safe harbor has two parts: the firm established procedures and a system for applying them that would reasonably be expected to prevent and detect violations, and the supervisor reasonably discharged his duties under them without reasonable cause to believe they were not being followed. Ignorance of a particular violation is not enough without the system. The SEC does not approve procedures in advance, and principal registration and an attestation are not elements of the defense.Securities Exchange Act §15(b)(4)(E)

Dena, a branch supervisor, learns that the firm's review procedures for representatives are routinely being skipped at her office and takes no action. A representative then commits a violation. Does the supervision safe harbor in the Securities Exchange Act protect her?

• a.No, because the safe harbor protects only a chief compliance officer, not a branch supervisor.
• b.Yes, because she took no part in the violation and received no benefit from the representative's conduct.
• c.Yes, because the firm has written procedures and a system for applying them, which is all the safe harbor needs.
• d.No, because she had reasonable cause to believe the procedures and system were not being complied with.✓

The safe harbor requires both procedures with a system for applying them and that the supervisor reasonably discharged her duties under them without reasonable cause to believe they were not being followed. Dena knew they were being skipped, so the second part fails. Having procedures on paper is not enough. Her lack of participation or benefit is irrelevant, because the test is about supervision, and the defense is not limited to a particular title.Securities Exchange Act §15(b)(4)(E)

Kestrel Securities, a broker-dealer applicant, will also advise customers for special compensation, and the Administrator finds it not qualified as an investment adviser. What may the Administrator do?

• a.Require it to register as a federal covered adviser before it may give advice to customers in the state.
• b.Condition the firm's broker-dealer registration on its not transacting business in this state as an investment adviser.✓
• c.Refuse the broker-dealer registration outright, since lacking qualification as an adviser disqualifies the firm.
• d.Treat its broker-dealer experience as enough to qualify it, since dealer experience carries over to advisory work.

Section 204(b)(5) lets the Administrator, on finding that an applicant for broker-dealer registration is not qualified as an investment adviser, condition the registration on the firm not transacting business in the state as an investment adviser. Outright refusal goes beyond that. The same section says an adviser is not necessarily qualified solely by experience as a broker-dealer or agent. Federal covered adviser status depends on assets under management, not on a state's finding.Uniform Securities Act §204(b)(5)

A FINRA member expects a change in ownership of 30% of its equity to close on October 15. By what date, at the latest, must it file its application for approval under Rule 1017?

• a.September 30, which is just 15 days before the change takes effect.
• b.September 15, which is 30 days before the change takes effect.✓
• c.August 16, which is 60 days before the change takes effect.
• d.October 15, because filing may be made as late as the closing day.

Rule 1017(c)(1) requires a member to file an application for approval of a change in ownership or control at least 30 days before the change. Counting back 30 days from October 15 gives September 15. The member may effect the change before FINRA finishes, but FINRA may then impose interim restrictions. Fifteen days or the closing date is too late, and 60 days is longer than the rule requires.FINRA Rule 1017(c)(1)

Roth owns 22% of the equity of a FINRA member and buys another 4% from a retiring partner. Must the member file an application for approval under Rule 1017?

• a.Yes, but only if Roth also intends to change the member's business operations afterward.
• b.No, because Roth's purchase is only 4%, and the rule counts only a transfer of 25% or more.
• c.No, because an application is needed only when control of the board changes hands.
• d.Yes, because Roth would then directly own 26% of the equity, which exceeds the 25% threshold.✓

Rule 1017(a)(4) requires an application for a change in equity ownership or partnership capital that results in one person or entity directly or indirectly owning or controlling 25% or more. Roth would reach 26% (22% plus 4%), so the rule applies even though the purchase itself is small. The test looks at the resulting holding, not the size of the single transfer, and it does not depend on board control or any change in business.FINRA Rule 1017(a)(4)

A member wants one principal to serve as the on-site principal for two of its offices of supervisory jurisdiction (OSJs). What must the firm do?

• a.Obtain FINRA's approval of the arrangement before the principal is assigned to the second OSJ office.
• b.Weigh factors such as capacity, proximity and producing status, and document them in its written procedures.✓
• c.Designate a separate principal at each OSJ, because one principal may be assigned to supervise only one location.
• d.Nothing special, because the on-site principal rule lets one principal cover any number of OSJs.

Supplementary Material .03 to Rule 3110 states a general presumption against assigning one on-site principal to more than one OSJ. If the member decides it is necessary, it must consider factors such as qualifications, capacity and time, whether the principal is a producing representative, proximity, and the nature of each location, and must document those factors in its written supervisory and inspection procedures. FINRA does not pre-approve the arrangement, and the presumption is not an outright ban.FINRA Rule 3110, Supplementary Material .03

Gil, a registered representative, works from a tax-preparation office that the firm does not hold out as a branch. He effected 26 securities transactions from it this calendar year, and no other exclusion applies. Is it a branch office?

• a.No, because the exclusion turns on the location's primary use, not on the number of transactions.
• b.No, because the limit applies to 25 customers rather than 25 transactions, and he served fewer.
• c.Yes, but only if the location is also held out to the public as a place for securities business.
• d.Yes, because 26 transactions is more than the 25 the exclusion allows for a calendar year.✓

Rule 3110(f)(2)(A)(v) excludes from the branch office definition a location used primarily for non-securities activities from which the associated person effects no more than 25 securities transactions in a calendar year, provided retail communications give the supervising location's address and phone number. Gil effected 26, so the location falls outside the exclusion and is a branch. The exclusion has a numeric cap, counts transactions, and its outcome does not depend on being held out as an office.FINRA Rule 3110(f)(2)(A)(v)

The SEC grants registration to a broker-dealer to be formed, on the application of the firm that will be its predecessor. What must happen for the registration to survive past the forty-fifth day after it becomes effective?

• a.The successor must file a new application, which the SEC must grant before the registration lapses.
• b.The successor must join a registered securities association within forty-five days of the effective date.
• c.The predecessor must withdraw its own registration, which transfers the successor's registration.
• d.The successor must adopt the application for registration as its own, under SEC rules, before the forty-fifth day.✓

Under Section 15(b)(2), a registration granted to a broker-dealer to be formed terminates on the forty-fifth day after its effective date unless, before then, the successor adopts the application for registration as its own in accordance with SEC rules. A new application is not the mechanism, and the predecessor's withdrawal does not carry the registration over. Membership in a registered securities association is a separate registration condition and does not extend this registration.Securities Exchange Act §15(b)(2)

The Administrator denies a broker-dealer's application solely because the firm did not pay the proper filing fee. The firm then pays the deficiency. What is the result?

• a.The Administrator must vacate the denial order, because a fee default supports only a denial order.✓
• b.The denial stands for one year, after which the firm may file a new application without a penalty.
• c.The Administrator may instead suspend the registration, since a fee default is a ground for suspension.
• d.The Administrator must revoke any registration already granted, since payment after denial is not timely.

Section 204(a)(2)(K) makes failure to pay the proper filing fee a ground for a denial order only, and requires the Administrator to vacate the order once the deficiency is corrected. There is no waiting year. Suspension and revocation are not available on this ground, and the firm that pays cures the problem rather than forfeiting an existing registration.Uniform Securities Act §204(a)(2)(K)

A registered broker-dealer is solvent, but one of its partners has become insolvent. May the Administrator suspend the firm's registration on the ground of insolvency?

• a.No, an insolvency order against a broker-dealer needs a finding that the broker-dealer itself is insolvent.✓
• b.No, because insolvency is a ground only against an agent and not against a firm that is solvent.
• c.Yes, but only if the partner's liabilities exceed his assets by more than the firm's net capital.
• d.Yes, a partner's insolvency is attributed to the firm and supports an order when the public interest requires.

Section 204(a)(2)(H) allows an order against a broker-dealer for insolvency only on a finding of insolvency as to the broker-dealer itself, and the comment says it may not rest on the insolvency of a partner, officer or director. Attribution from a partner is therefore not allowed, and no net capital comparison applies. Insolvency can be used against a firm when the firm is insolvent, so it is not limited to agents.Uniform Securities Act §204(a)(2)(H)

The Administrator finds grounds and a public interest to act against a broker-dealer but wants to stop one risky line of activity while leaving the rest of the business intact. Which order does Section 204 permit?

• a.Nothing, because the Administrator must either act against the entire registration or take no action at all.
• b.An order restricting or limiting the registrant as to any function or activity of the business requiring registration.✓
• c.Only an order of denial, suspension or revocation, since a lesser sanction needs the firm's written consent.
• d.A cease-and-desist order, which is the only sanction Section 204 provides short of revoking the registration.

Section 204(a) authorizes the Administrator, on the required findings, to deny, suspend or revoke a registration, to bar or censure a registrant, or to restrict or limit a registrant as to any function or activity of the business for which registration is required. The firm's consent is not required, a cease-and-desist order is not the sanction the section names, and the Administrator is not forced into an all-or-nothing choice.Uniform Securities Act §204(a)

Which of the following would give the Administrator a ground to deny a broker-dealer's application under Section 204(a)(2)(F)?

• a.A hearing eight years ago in which another state's administrator found the firm negligently violated the Exchange Act.
• b.A hearing twelve years ago in which a state administrator found the firm willfully violated the Exchange Act.
• c.A hearing eight years ago in which another state's administrator found the firm willfully violated the Exchange Act.✓
• d.An investigation opened eight years ago by another state's administrator that closed without any finding.

Section 204(a)(2)(F) covers an adjudication or determination, after notice and opportunity for hearing and within the past 10 years, by another state's securities or commodities administrator or a court that the person willfully violated the federal securities acts or a state's securities law. Eight years is within the period and a willful finding fits. Twelve years is outside it, negligence is not willfulness, and an investigation without any finding is not an adjudication.Uniform Securities Act §204(a)(2)(F)

A broker-dealer registered in this state keeps its books and records at a home office in another state. Examiners from this state's Administrator want to review them. Under Section 203(e), is the review permitted?

• a.Yes, but only after the Administrator obtains the consent of the securities administrator of the other state.
• b.Yes, the Administrator's representatives may examine the required records within or without this state.✓
• c.No, records kept in another state may be examined only by that state's own securities administrator.
• d.No, the Administrator may reach records located outside the state only through a subpoena under Section 407.

Section 203(e) makes the required records subject to reasonable periodic, special or other examinations by the Administrator's representatives, within or without the state, as deemed necessary in the public interest or for investor protection. This visitorial power is distinct from the investigatory and subpoena power in Section 407, so a subpoena is not a prerequisite, and no other state's consent is needed.Uniform Securities Act §203(e)

An Administrator learns that FINRA completed an examination of a registered broker-dealer last month. What does Section 203(e) say about the Administrator's own examination authority?

• a.The Administrator may cooperate only with the administrators of other states, not with federal or industry bodies.
• b.The Administrator may still examine and may cooperate with the SEC, other states and industry bodies to avoid duplication.✓
• c.The Administrator must treat the FINRA examination as a substitute for any examination of the firm's records.
• d.The Administrator cannot examine the firm until a stated period has passed since the other examination ended.

Section 203(e) gives the Administrator authority to examine required records at any time. To avoid unnecessary duplication, he may, insofar as he deems practicable, cooperate with other states' administrators, the SEC, and registered national securities exchanges and associations. Cooperation is discretionary, not an obligation to defer, it is not limited to other states, and no waiting period suspends his own power.Uniform Securities Act §203(e)

Under Section 204(c), the Administrator summarily suspends an agent's registration pending a proceeding. Besides the agent, whom must the Administrator promptly notify of the order and the reasons for it?

• a.Every customer the agent served in the state during the previous year.
• b.The agent's employer, or the prospective employer if there is one.✓
• c.The administrator of every other state where the agent is registered.
• d.The SEC and the association of which the employing firm is a member.

Section 204(c) requires the Administrator, on entering a summary order, to notify the registrant and, if the registrant is an agent or investment adviser representative, the employer or prospective employer, that the order has been entered, why, and that a hearing will be set within 15 days of a written request. It does not require notice to customers, other states or the SEC.Uniform Securities Act §204(c)

A state requires registered investment advisers to furnish certain information to clients. An adviser delivers the disclosure documents it prepared under the Investment Advisers Act of 1940. May that satisfy the state requirement?

• a.Yes, automatically and in full, because federal disclosure always replaces the state requirement.
• b.No, a state requirement must be met with a separate document prepared for that state.
• c.Yes, but only when the adviser is a federal covered adviser exempt from state registration.
• d.Yes, to the extent the Administrator determines in his discretion, in whole or in part.✓

Section 203(b) lets the Administrator require information to be furnished to clients and prospective clients, and says that to the extent he determines in his discretion, information that complies with the Investment Advisers Act and its rules may be used in whole or partial satisfaction. The credit is therefore discretionary, so it is neither automatic nor barred, and it does not depend on federal covered adviser status, since the section addresses registered advisers.Uniform Securities Act §203(b)

Wells Consulting charges clients one fee for tax, insurance and estate planning, and as an integral part of that service it recommends specific securities. Under the Uniform Securities Act, Wells is:

• a.Not an investment adviser, because its securities advice is only one part of a broader planning service.
• b.An investment adviser only if it bills the clients separately for the securities advice that it gives.
• c.Not an investment adviser unless it also manages client accounts or holds custody of client securities.
• d.An investment adviser, because it gives securities advice for compensation as part of a business.✓

Section 401(f) includes financial planners and others who, as an integral component of other financially related services, provide investment advisory services for compensation as part of a business. Wells fits that language, so bundling the advice into a planning fee does not take it outside the definition. Managing accounts or having custody is not required, and a separate fee for the advice is not required either.Uniform Securities Act §401(f)

Marcus advertises that he will give securities advice for a fee, but he has not yet had a paying client. Is he an investment adviser under the Uniform Securities Act?

• a.Yes, but only if he also executes trades for clients and receives commissions on them.
• b.No, he becomes an investment adviser only once a client has paid him for his advice.
• c.Yes, the definition covers a person who holds himself out as giving advice for compensation.✓
• d.No, because the definition reaches only persons who give their advice through published newsletters.

Section 401(f) covers not only persons who engage in advising for compensation, but also financial planners and other persons who hold themselves out as providing investment advisory services to others for compensation. Marcus's advertising is a holding out, so he is an adviser before his first client pays. Publication is only one way of advising, and executing trades or earning commissions is not part of the test.Uniform Securities Act §401(f)

Professor Vance teaches finance at a college and also sells subscriptions to a monthly list of recommended stocks. Does the exclusion for teachers keep her out of the investment adviser definition?

• a.No, because only a lawyer, accountant or engineer qualifies, and a teacher does not qualify.
• b.Yes, because anyone employed as a teacher is excluded whatever other services she sells to the public.
• c.No, the exclusion covers only advice incidental to teaching, and a paid list of picks is not.✓
• d.Yes, because the exclusion applies whenever the advice is published and is not tailored to one client.

Section 401(f)(3) excludes a lawyer, accountant, engineer or teacher whose performance of advisory services is solely incidental to the practice of his profession. Selling a subscription list of stock picks is a separate paid business, not something incidental to teaching, so she is an adviser. Holding a teaching job alone does not exclude her, publication is not the test, and teachers are named in the exclusion.Uniform Securities Act §401(f)(3)

A registered broker-dealer's agent gives portfolio advice to a customer and charges a separate monthly fee for it, on top of the usual commissions. Does the exclusion for broker-dealers and their agents apply?

• a.Yes, because a fee charged for advice is treated as commission income of the broker-dealer that employs him.
• b.No, the exclusion applies only if the advice is solely incidental to brokerage and no special compensation is received.✓
• c.Yes, because the advice is given to a customer who already holds a brokerage account with that same firm.
• d.Yes, because the firm is registered as a broker-dealer, which is enough to exclude its agents from the definition.

Section 401(f)(4) excludes a broker-dealer or its agent only when the advisory services are solely incidental to the conduct of its business as a broker-dealer and no special compensation is received for them. A separate monthly fee is special compensation, so the exclusion is lost. Registration as a broker-dealer is not enough, the fee is not treated as commission income, and a customer relationship does not matter.Uniform Securities Act §401(f)(4)

Lowell publishes a bona fide financial newsletter and, for an extra fee, reviews individual subscribers' portfolios and tells each what to buy or sell. As to the portfolio reviews, Lowell is:

• a.An investment adviser, because the advice rests on each client's specific situation.✓
• b.Excluded as a publisher, because the reviews are simply an extension of the newsletter he publishes.
• c.Excluded as a publisher, because he is paid by his subscribers rather than through commissions.
• d.An investment adviser only if he also has custody of the securities that the subscribers hold.

Section 401(f)(5) excludes the publisher of a bona fide newsletter or financial publication only if it does not consist of advice based on the specific investment situation of each client. Portfolio reviews are exactly that kind of personalized advice, so the exclusion does not reach them. Being an extension of the newsletter, being paid by subscribers, and lacking custody do not change the result.Uniform Securities Act §401(f)(5)

Which authority may exclude additional persons from the Uniform Securities Act's definition of investment adviser, and on what ground?

• a.The Administrator, but only for persons who have already registered with the SEC as advisers.
• b.The SEC, by order, for any adviser whose clients are all institutions; the state has no such power.
• c.The Administrator, by rule or order, for persons that the definition was not intended to reach.✓
• d.The Administrator, by rule or order, for any person who agrees to file annual reports.

Section 401(f)(7) lets the Administrator, by rule or order, designate other persons not within the intent of the subsection as excluded from the definition. The power belongs to the state Administrator rather than the SEC, it is based on the definition's intent rather than prior federal registration, and a promise of annual reports is not the stated ground.Uniform Securities Act §401(f)(7)

Brightwater Advisory has $105 million of assets under management, is registered with its home state, and fits no exemption from the SEC registration prohibition. May it register with the SEC?

• a.Yes, but only if it advises a registered investment company or will have clients in 15 states.
• b.No, it must stay with its state, because SEC registration is open only at $110 million or above.
• c.No, it must register with the SEC, because assets of at least $100 million require SEC registration.
• d.Yes, it may but need not, because assets from $100 million to under $110 million fall within the buffer.✓

Under Rule 203A-1(a)(1), an adviser with assets under management of at least $100 million but less than $110 million may, but is not required to, register with the SEC. At $105 million Brightwater is inside that range, so the choice is its own. The mandatory line is $110 million, an adviser to a registered investment company is a separate path, and the 15-state rule is another.Advisers Act §203A(a); Rule 203A-1(a)(1)

An SEC-registered adviser reports $95 million of assets under management in its annual updating amendment. It fits no exemption. What must it do?

• a.Withdraw and register with its home state, because the buffer protects only advisers that are growing.
• b.Switch to state registration within 90 days, since its assets are below the $110 million buffer.
• c.Nothing, because it need not withdraw until its assets under management fall below $90 million.✓
• d.Withdraw and register with its home state, because assets below $100 million require state registration.

Rule 203A-1(a)(1) lets an SEC-registered adviser stay registered until its assets under management drop below $90 million. At $95 million the adviser is inside the buffer between $90 million and $110 million, so no withdrawal is required. Falling below $100 million alone does not trigger one, the buffer does not depend on growth, and the 90-day period applies to switching up to the SEC, not leaving it.Rule 203A-1(a)(1)

Calloway Advisors has $60 million of assets under management and is registered in its home state, which examines advisers. If it stayed state-registered it would have to register in 16 states. May it register with the SEC?

• a.Yes, because a mid-sized adviser required to register in 15 or more states may register with the SEC.✓
• b.Yes, but only if it also advises a registered investment company or a business development company.
• c.No, because an adviser with less than $100 million of assets under management cannot register with the SEC.
• d.No, because the 15-state provision is available only to advisers with at least $100 million of assets.

Section 203A(a)(2)(A) bars SEC registration for a mid-sized adviser, with an exception: if by effect of that bar the adviser would be required to register with 15 or more states, it may register with the SEC. Calloway's 16 states meet the test. The $100 million figure is the top of the mid-sized range, not a requirement for the exception, and advising a registered fund is a separate exception.Advisers Act §203A(a)(2)(A)

Hollis Associates advises employee benefit plans on selecting money managers, for plans with aggregate assets of $230 million, but it manages no securities portfolios. Does it qualify for SEC registration?

• a.No, because plan assets count toward the threshold only if the plans are governmental plans.
• b.Yes, as a pension consultant to benefit plans with aggregate assets of at least $200 million.✓
• c.No, because without $100 million of assets under management it must register with its home state.
• d.Yes, but only if the plans' assets total at least $500 million when advice is cumulated.

Rule 203A-2(a) exempts a pension consultant, meaning an adviser to ERISA, governmental or church plans, from the prohibition on SEC registration if the plans for which it gave advice have an aggregate value of at least $200 million. Hollis meets that with $230 million, regardless of its assets under management. The count is not limited to governmental plans, and the threshold is not $500 million.Rule 203A-2(a)

Dunmore, an SEC-registered adviser with a December 31 fiscal year end, reports in its annual updating amendment for the year ended December 31, 2025 that it is no longer eligible for SEC registration. By what date must it file Form ADV-W?

• a.April 30, 2026, which is just 120 days out.
• b.December 31, 2026, which is one year out.
• c.March 31, 2026, which is just 90 days out.
• d.June 29, 2026, which is 180 days out.✓

Rule 203A-1(b)(2) requires an SEC-registered adviser that reports it is not eligible for SEC registration to file Form ADV-W within 180 days of its fiscal year end. Counting 180 days from December 31, 2025 reaches June 29, 2026. Ninety days is the period for annual updating amendments and for a state adviser to apply to the SEC, 120 days is used for brochure delivery and the new-adviser exemption, and a full year is not a period in the rule.Rule 203A-1(b)(2)

Cedar Point Advisors is registered with its state. On March 10, 2026 it files an annual updating amendment to Form ADV reporting that it is eligible for SEC registration and relies on no exemption from registration. By what date must it apply for SEC registration?

• a.April 9, 2026, because the rule allows 30 days to apply.
• b.June 8, 2026, which is 90 days after that filing was made.✓
• c.September 6, 2026, because the full 180 days is allowed.
• d.July 8, 2026, because the rule allows 120 days to apply.

Rule 203A-1(b)(1) requires a state-registered adviser to apply for SEC registration within 90 days of filing an annual updating amendment reporting that it is eligible. March 10 plus 90 days is June 8 (21 days to March 31, 30 in April, 31 in May, 8 in June). The 120-day and 180-day periods belong to other rules, and 30 days is not a period in this rule.Rule 203A-1(b)(1)

An SEC-registered adviser has a June 30 fiscal year end. By what date must it file the annual updating amendment to its Form ADV?

• a.September 28, because the amendment is due within 90 days of fiscal year end.✓
• b.October 28, because the amendment is due within 120 days of the fiscal year end.
• c.July 30, because the amendment is due within 30 days of the fiscal year end.
• d.December 27, because the amendment is due within 180 days of the fiscal year end.

Rule 204-1(a)(1) requires an adviser to amend its Form ADV at least annually, within 90 days of the end of its fiscal year. From June 30, 90 days ends on September 28 (31 days in July, 31 in August, 28 in September). The 120-day period concerns delivery of brochure updates to clients, the 180-day period concerns withdrawing from SEC registration, and 30 days is not a deadline here.Advisers Act Rule 204-1(a)(1)

An SEC-registered adviser has a June 30 fiscal year end, and its brochure has material changes since its last annual updating amendment. By what date must it deliver the annual brochure update to clients?

• a.September 28, which is 90 days after year end.
• b.December 27, i.e. 180 days from then on.
• c.July 30, which is 30 days after year end.
• d.October 28, counting 120 days from June 30.✓

Rule 204-3(b)(2) requires an adviser, annually within 120 days after the end of its fiscal year and without charge, to deliver to each client either a current brochure or a summary of material changes that offers the brochure, if there are material changes since the last annual updating amendment. From June 30 that is October 28. Ninety days is the filing deadline for the amendment, not the delivery deadline.Advisers Act Rule 204-3(b)(2)

An SEC-registered adviser sells subscriptions to a model-portfolio service that gives only impersonal advice, for $420 a year. Must it deliver a Form ADV brochure to a subscriber?

• a.No, but only if the subscriber is a qualified client who has also waived delivery in writing.
• b.Yes, but only annually, within 120 days after the end of the adviser's fiscal year, if there are changes.
• c.Yes, a brochure must be delivered to every client before or at the time of entering the advisory contract.
• d.No, because the client receives only impersonal advice for which the adviser charges less than $500 per year.✓

Rule 204-3(c)(1)(ii) excuses brochure delivery to a client who receives only impersonal investment advice for which the adviser charges less than $500 per year. At $420 the subscriber falls within that exception. The delivery-at-contract requirement is the general rule that this exception overrides, the annual delivery relates to material changes for clients who are owed a brochure, and no written waiver or qualified client status is involved.Advisers Act Rule 204-3(c)(1)(ii)

A state securities administrator receives complaints that an SEC-registered adviser defrauded clients in the state. May the Administrator investigate and bring an enforcement action?

• a.Yes, but only after the SEC has formally referred the matter to the state in writing.
• b.No, because the SEC has exclusive jurisdiction over every adviser that is registered with it.
• c.No, unless the adviser also has a place of business in the state and is licensed by it.
• d.Yes, a state keeps its authority to act against fraud or deceit by the adviser.✓

Section 203A(b)(2) of the Advisers Act preserves the power of a state securities commission to investigate and bring enforcement actions for fraud or deceit against an investment adviser or a person associated with one, even when the adviser is registered with the SEC. The preemption of state registration is not exclusive jurisdiction, and neither an SEC referral nor a local office is a condition.Advisers Act §203A(b)(2)

Oakridge Advisers has no place of business in this state and had three clients residing here during the past twelve months. Does the state's prohibition on fraudulent conduct still apply to Oakridge's dealings with those clients?

• a.Yes, the de minimis provision excepts the state's antifraud provisions, so those still apply.✓
• b.Yes, but only if at least one of the three resident clients is not an institutional investor.
• c.No, because an adviser with fewer than six resident clients is entirely outside the state's adviser law.
• d.No, because only the SEC may enforce antifraud rules against an adviser not registered here.

Section 222(d) of the Advisers Act bars a state from requiring registration or compliance with its adviser law for an adviser that has no place of business in the state and fewer than six resident clients in the preceding 12 months, but it carves out any provision prohibiting fraudulent conduct. Oakridge stays subject to the state's antifraud provisions, so it is not wholly outside the law. The SEC has no exclusive role, and the clients' type does not matter.Advisers Act §222(d)

A state requires investment adviser representatives of SEC-registered advisers to register. For which such representatives may a state do so?

• a.Only representatives who have a place of business located in the state.✓
• b.None, because federal law preempts every state registration of them.
• c.All who have a client residing in the state, wherever the representative works.
• d.Only representatives whose adviser has its principal office in the state.

Section 203A(b)(1)(A) preempts state registration of SEC-registered advisers and their supervised persons, except that a state may license, register or otherwise qualify any investment adviser representative who has a place of business in that state. A client's residence does not create a place of business, the employer's location is not the test, and the preemption has the stated exception.Advisers Act §203A(b)(1)(A)

Mara is a supervised person of an SEC-registered adviser. Of her 90 clients, 7 are natural persons who are not qualified clients, and she meets regularly with all of her clients. Under Rule 203A-3, is she an investment adviser representative?

• a.Yes, because the 10% test counts all natural-person clients, including qualified clients.
• b.No, because a supervised person needs 25 or more natural-person clients to be classified.
• c.No, because 7 of her 90 clients is about 7.8%, which is not more than 10% of her entire client base.✓
• d.Yes, because she has more than five natural-person clients and meets with them regularly.

Rule 203A-3(a)(1) makes a supervised person an investment adviser representative only if more than five of her clients are natural persons other than qualified clients and those natural persons are more than 10% of her clients. Mara passes the first test with 7 but fails the second, since 7 of 90 is about 7.8%. Regular contact is only a condition of exclusion, qualified clients are not counted, and 25 is not a number in the rule.Advisers Act Rule 203A-3(a)(1)

Ryan, a supervised person of an SEC-registered adviser, is assigned 40 non-qualified natural-person clients out of 200, but he does not on a regular basis solicit, meet with or communicate with them. Under Rule 203A-3, is he an investment adviser representative?

• a.No, because only supervised persons with discretionary authority over accounts can be so classified.
• b.Yes, because the exclusion for lack of client contact applies only to supervised persons with no clients.
• c.Yes, because he is assigned more than five natural-person clients, who are more than 10% of the total.
• d.No, because he does not regularly solicit, meet with or communicate with the adviser's clients.✓

Rule 203A-3(a)(1) is met on the numbers, since 40 clients exceed five and 40 of 200 is 20%. But paragraph (a)(2) says that, despite that, a supervised person is not an investment adviser representative if he does not on a regular basis solicit, meet with or otherwise communicate with the adviser's clients. The exclusion does not depend on having no clients, and discretionary authority is not part of the test.Advisers Act Rule 203A-3(a)(2)

A state-registered investment adviser's registration is cancelled. The following week its registered investment adviser representative, Dev, keeps advising the firm's clients. What is the status of Dev's registration?

• a.It remains effective for 30 days, enough time for him to find a new registered employer.
• b.It remains effective, because a representative's registration belongs to him and not to his employer.
• c.It remains effective until December 31, when all registrations expire unless renewed.
• d.It is not effective while he is not employed by an investment adviser registered under the act.✓

Section 201(d) provides that the registration of an investment adviser representative is not effective during any period when he is not employed by an investment adviser registered under the act. With the firm's registration cancelled, Dev has no registered employer, so he cannot act. Expiration on December 31 is a separate rule, the registration is tied to the employer, and the act has no 30-day grace period.Uniform Securities Act §201(d)

At a state-registered adviser, Teo never talks to clients or manages accounts, but he decides which securities recommendations the firm's advisers will give to clients. Is Teo an investment adviser representative?

• a.No, because he is an employee rather than a partner, officer or director of the investment adviser.
• b.Yes, but only if he is paid a commission based on the securities that his clients buy or sell.
• c.No, because he must deal directly with clients or manage their accounts to be a representative.
• d.Yes, because he determines which recommendation or advice regarding securities should be given to clients.✓

Section 401(g) includes among the functions that make an individual associated with a registered adviser a representative determining which recommendation or advice regarding securities should be given. Teo does that, so direct client contact or account management is not required. The definition covers employees as well as partners, officers and directors, and commission pay is not an element.Uniform Securities Act §401(g)

At a state-registered adviser, the chief financial officer handles payroll and tax filings and has no role in advice, accounts or soliciting clients. Is she an investment adviser representative?

• a.Yes, because every officer of a registered investment adviser is an investment adviser representative.
• b.Yes, because she is employed by an adviser that is registered or required to be registered.
• c.No, because the definition includes only individuals who are not officers of the investment adviser.
• d.No, because even an officer is a representative only if she performs one of the listed functions.✓

Section 401(g) covers a partner, officer, director or other employee of a registered adviser who also does something on the list: gives recommendations or advice, manages accounts, determines the advice to be given, solicits or sells advisory services, or supervises people who do those things. The chief financial officer does none of them, so holding an office or working for a registered firm is not enough, and officers are not excluded by the definition.Uniform Securities Act §401(g)