NASAA Series 63 — All Questions

After a representative retires under a compliant 2040(b) contract, some of his former customers add new money to their accounts at the firm. May the firm keep paying him continuing commissions on those accounts?

• a.Yes, because the commissions continue regardless of whether customer funds or securities are added during the period.✓
• b.No, because new deposits would make him a solicitor of new business, which ends the permitted payments.
• c.No, because the rule permits continuing commissions for twelve months and then only on closed accounts.
• d.Yes, but only on the original balances, and the firm must keep whatever commissions the new deposits earn.

Rule 2040(b)(1) lets the member pay continuing commissions derived from accounts held for continuing customers of the retiring representative regardless of whether customer funds or securities are added during the period of retirement. Customers adding money on their own does not turn the retiree into a solicitor, the commissions need not be limited to original balances, and the rule contains no twelve-month limit.FINRA Rule 2040(b)(1)

A retiring representative under a compliant 2040(b) contract dies. The contract names no beneficiary. To whom may the member pay the continuing commissions?

• a.To his former firm's other registered representatives, who take over the accounts after his death.
• b.To his estate, because the rule allows the estate to receive them when no beneficiary is designated.✓
• c.To no one, because the payments end automatically on the representative's death under the rule.
• d.To his surviving spouse, because the rule gives a spouse priority over any estate or other beneficiary.

Rule 2040(b)(2) provides that on the death of the retiring representative, the beneficiary designated in the written contract may be the beneficiary of the member's agreement, or the representative's estate if no beneficiary is designated. The payments do not end at death, they are not redirected to other representatives, and the rule gives no preference to a spouse.FINRA Rule 2040(b)(2)

A representative leaves a member firm and goes to work for another broker-dealer, but he describes himself as retired from the first firm. May the first firm pay him continuing commissions as a retiring representative?

• a.Yes, because the rule requires only that he stop being registered with the member that pays him.
• b.Yes, because leaving the firm is enough, and the new employer is irrelevant to the first firm's payments.
• c.No, because the paying member would have to obtain approval from his new employer before it could pay.
• d.No, because a retiring representative must leave the securities industry, and he has not done so.✓

Rule 2040(b)(2) defines a retiring registered representative as an individual who retires from the member, including as a result of total disability, and leaves the securities industry. Moving to another broker-dealer is not leaving the industry. Mere departure from the paying firm is not retirement, and no approval from a new employer is called for.FINRA Rule 2040(b)(2)

A member firm pays a finder in Brazil for referring customers. All the finder's other conditions are met, but one referred customer is a U.S. citizen living in Brazil. Is the payment for that customer permitted under the foreign finder provision?

• a.No, because customers must be foreign nationals, not U.S. citizens, or foreign entities domiciled abroad.✓
• b.Yes, because a customer who acknowledges the finder's fee in writing is eligible whatever his citizenship.
• c.No, because the finder provision applies only to customers who are foreign entities and not to individuals.
• d.Yes, because the customer lives abroad, and residence outside the United States is the only test.

The foreign finder provision in Rule 2040(c) requires that the customers be foreign nationals (not U.S. citizens) or foreign entities domiciled abroad. A U.S. citizen resident abroad does not qualify, whatever his written acknowledgment. Individuals who are foreign nationals are eligible, so the rule is not limited to entities, and residence alone does not decide it.FINRA Rule 2040(c)(3)

A member pays a nonregistered foreign finder under Rule 2040(c). The firm has the finder's agreement on file and has obtained each customer's written acknowledgment. What else must appear on each transaction's confirmation?

• a.An indication that a referral or finder's fee is being paid pursuant to an agreement.✓
• b.Nothing further, because the customer's written acknowledgment replaces any confirmation disclosure.
• c.The amount of the finder's fee, shown in dollars and as a percentage of the customer's order.
• d.The finder's name and address, together with the finder's registration number in his home country.

Rule 2040(c)(7) requires the confirmation of each transaction to indicate that a referral or finder's fee is being paid pursuant to an agreement. The rule does not require the dollar amount, the finder's identification or a foreign registration number on the confirmation. The written acknowledgment is a separate condition in paragraph (c)(5), so it does not replace the confirmation notation.FINRA Rule 2040(c)(7)

A member wants to pay an unregistered person and is unsure whether the person must register as a broker-dealer. Which source would reasonably support the member's determination?

• a.A statement from the payee's home regulator that the payee is in good standing in that country.
• b.An opinion from the member's chief sales officer, based on past practice with similar payees.
• c.A legal opinion from independent, reputable U.S. licensed counsel knowledgeable in the area.✓
• d.The unregistered person's own written assurance that his activity requires no registration.

Supplementary Material .01 says a member can support its determination by reasonably relying on published SEC releases, no-action letters or interpretations that fit its facts, by seeking a no-action letter from the staff, or by obtaining a legal opinion from independent, reputable U.S. licensed counsel. The payee's own assurance, an internal sales view and a foreign good-standing statement are not among these, and none is independent support on the U.S. registration question.FINRA Rule 2040.01

An individual works from his own office, sells securities from several unrelated issuers for commissions, and answers to no firm's direction or control. Is he an agent?

• a.Yes, because any individual who sells securities for commissions is an agent, whoever supplies the securities.
• b.Yes, because an individual cannot register as a broker-dealer unless he has first registered as an agent.
• c.No, he is himself a broker-dealer, because an agent is an individual who acts under the control of a broker-dealer or issuer.✓
• d.No, because a person with his own office is an issuer's employee and is outside the registration provisions.

The Act defines an agent as an individual other than a broker-dealer who represents a broker-dealer or issuer, and the comment explains that the distinction depends on common-law agency factors, principally whether the individual acts subject to the control of the principal. An individual in the business of effecting transactions for others, answering to no one, is a broker-dealer and must register as one. Being paid commissions does not make someone an agent, and the registration provisions apply to him in any case.Uniform Securities Act §401(b), (c); Official Comment

A retired professional buys and sells securities in his own account several times a month, keeps no inventory for customers, and never trades for anyone else. Must he register as a broker-dealer?

• a.No, because he is an ordinary investor, not a person in the business of effecting securities transactions.✓
• b.Yes, because anyone who trades at least once each month must register as a dealer under the Act.
• c.Yes, because trading for one's own account several times a month amounts to dealing in securities.
• d.No, because the Act covers only persons who effect transactions for the accounts of other people.

The Act's broker-dealer definition covers a person engaged in the business of effecting transactions for others or for his own account, and the comment distinguishes a person in that business from an ordinary investor who buys and sells with some frequency. Frequency alone does not create a dealer. The definition does extend to dealing for one's own account when it is a business, so the last answer is wrong, and the Act sets no monthly trade count.Uniform Securities Act §401(c)

A salesperson of an in-state registered broker-dealer sells only to banks and insurance companies. She says the institutional exemption means that she need not register as an agent. Is she correct?

• a.Yes, because the Act treats an individual who sells only to institutional buyers as a representative of the buyer.
• b.Yes, because the institutional exemption that applies to her firm automatically applies to every person it employs.
• c.No, because she must register unless the securities she sells to the institutions are exempt securities.
• d.No, because the exclusions cover only issuers' representatives, and a broker-dealer's own salesperson is still an agent.✓

The exclusions in Section 401(b) apply to individuals who represent an issuer in particular transactions, and the narrow broker-dealer exclusion is separate. An individual who represents a broker-dealer in effecting sales is an agent whatever the customers, and the broker-dealer's own exemptions do not extend to its in-state salespeople. The nature of the securities is also not the test.Uniform Securities Act §401(b); §201(a)

An unregistered employee of a corporation sells newly issued shares of the corporation to the public for a commission. The shares are not in a category that the Act excludes. Who has violated the Act?

• a.Both, the employee for acting without registration and the issuer for employing an unlicensed agent.✓
• b.Only the issuer, because an employee acting under the issuer's control has no separate liability.
• c.Neither, because an issuer's own employees are excluded from registration when selling its securities.
• d.Only the employee, because the issuer is excluded from the Act's registration provisions.

Section 201(a) makes it unlawful to transact business as an agent unless registered, and Section 201(b) makes it unlawful for a broker-dealer or issuer to employ an agent who is not registered. The sales for commission are outside the exclusion in Section 401(b), so the employee is an agent. Both the individual and the employing issuer violate the Act, and the issuer does not escape through its status as an issuer.Uniform Securities Act §201(a), (b)

An agent applicant left a felony conviction from twelve years ago off his application. The Administrator learns of it after the registration took effect. Which statement is correct?

• a.The Administrator may act only if the applicant had been notified in advance that the omission was material.
• b.The Administrator may act, but only because the conviction is a felony, regardless of its age.
• c.The Administrator may do nothing, because convictions more than ten years old need never be disclosed.
• d.The Administrator may act on the incomplete or misleading application, even though the conviction is too old to be a ground itself.✓

The conviction ground in Section 204(a)(2) reaches back ten years, so a twelve-year-old conviction is not a ground in itself. But the Act separately makes it a ground that an application was incomplete in any material respect or contained a materially false or misleading statement as of its effective date, and omitting a felony may be material. The ten-year limit does not excuse the omission, and advance notice is not a condition.Uniform Securities Act §204(a)(2)(A) and (C) (incomplete application; ten-year conviction look-back)

An agent of a registered broker-dealer is insolvent, because her liabilities exceed her assets. The broker-dealer itself is solvent. May the Administrator act against her registration, and against the firm's registration on this ground?

• a.Against neither, because insolvency is a ground only for denying an applicant, not for acting on a registrant.
• b.Against both, because the firm answers for the financial condition of every agent it employs.
• c.Against the firm only, because a broker-dealer is responsible for its agents under the supervision provision.
• d.Against her registration yes, but not against the firm's, because the firm must itself be found insolvent.✓

Section 204(a)(2)(H) makes insolvency a ground for acting against an applicant or registrant, but the Administrator may not enter an order against a broker-dealer or investment adviser under that clause without a finding of insolvency as to the firm itself. The agent's own insolvency is a ground against her. The firm is not automatically liable for it, and the ground applies to registrants as well as applicants.Uniform Securities Act §204(a)(2)(H)

Four years ago a Canadian provincial securities regulator suspended an agent applicant's right to act as an agent in that province. Does this support action by the Administrator, and why?

• a.No, because only actions of United States regulators and United States courts can be grounds under the Act.
• b.No, because the look-back period for foreign regulatory actions is one year, and it has already passed.
• c.Yes, but only if the suspension was based on a felony conviction in the foreign jurisdiction involved.
• d.Yes, because a foreign regulator's suspension of the right to act as an agent within the past five years is a ground.✓

Section 204(a)(2)(H.1) makes it a ground that within the past five years the person has been the subject of an action of a securities regulator of a foreign jurisdiction denying, revoking or suspending the right to act as a broker-dealer, agent or investment adviser. Four years is within five. Foreign actions are covered, the look-back is not one year, and no underlying conviction is required.Uniform Securities Act §204(a)(2)(H.1)

The Administrator finds that an agent applicant has some history that raises concerns, but concludes that denial is not warranted. Which action does the Act allow, provided that the order is in the public interest?

• a.Barring the agent's employer from hiring anyone else until the applicant's history has been resolved.
• b.Restricting or limiting the registrant as to a function or activity of the business requiring registration.✓
• c.Registering the agent with a probationary period of one year, ending automatically without a hearing.
• d.Granting the registration only if the applicant first posts a surety bond equal to his entire net worth.

Section 204(a) authorizes the Administrator, on a finding that the order is in the public interest and that a ground exists, 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. The Act contains no automatic probation, and bonds are a separate matter under Section 202(f). An order barring the employer from hiring is not among the listed orders, and any order requires notice and an opportunity for hearing.Uniform Securities Act §204(a)

A broker-dealer agent is currently registered with Firm A. She wants to maintain that registration and also register with Firm B, which is not owned or controlled by a common parent. How is this reported on Form U4?

• a.She answers yes in Section 6, which covers firms under common ownership or control with the filing firm.
• b.She answers no, because dual registration with unaffiliated firms must be reported only on Form U5.
• c.She makes no report, because registration with more than one firm is allowed and needs no mention.
• d.She answers yes in Section 3 for a firm not affiliated with the filer, and lists Firm B in Section 12.✓

Section 3 of the Form U4 covers registration with unaffiliated firms, which is dual registration. An applicant who will maintain registration with an unaffiliated broker-dealer answers yes and lists the firm in Section 12. Section 6 is for firms under common ownership or control, a Form U5 reports termination rather than new registration, and some jurisdictions prohibit dual registration with unaffiliated firms altogether.Form U4 (Rev. 05/2009), Section 3

A new hire has never been registered. His first firm files his initial Form U4, and he also hopes to register with an unaffiliated second firm at the same time. How must he answer the Section 3 dual registration questions?

• a.No, because a dual registration may start only after an initial registration has been established.✓
• b.He leaves Section 3 blank, because it is completed only by firms and not by individuals.
• c.Yes, because an initial application must list every firm with which he will be registered at any time.
• d.Yes, because the questions are designed to disclose all firms with which he intends to register.

The instructions to Section 3 say that an individual should answer yes only if currently registered and seeking registration with a firm not affiliated with the current employing firm, and that on an initial application the individual must answer no, because a dual registration may be initiated only after an initial registration has been established. The questions are not a general list of intentions, and they are answered on the form.Form U4 (Rev. 05/2009), Section 3

A representative is registered with a broker-dealer and its separate investment adviser affiliate. The broker-dealer files an amended Form U4. What must the other firm do before the filing is completed?

• a.Complete Section 15F, in which an appropriate signatory of the other firm concurs with the filing.✓
• b.Nothing, because only the filing firm is responsible for a Form U4 amendment for the individual.
• c.Obtain the representative's signature in Section 15D, which is the only acknowledgment the form requires.
• d.File its own separate Form U4 amendment in place of the broker-dealer's filing, so that two forms exist.

Section 15F must be completed to concur with a Form U4 filing made by another firm on behalf of an individual who is also registered with that other firm, and the signatory swears or affirms that the filing has been reviewed. The other firm therefore has a role, and a second separate form is not used. Section 15D is the individual's acknowledgment, which does not substitute for the other firm's concurrence.Form U4 (Rev. 05/2009), Section 15F

An applicant for IAR registration passed the Series 65 eighteen months before filing her application. She holds no professional designation and has never been registered. Does she satisfy the examination requirement?

• a.No, because a Series 65 result counts only if it was earned within twelve months of the application date.
• b.Yes, because she passed the Series 65 within two years of the date of her application.✓
• c.Yes, because a Series 65 result stays valid for an applicant for as long as she holds a clean record.
• d.No, because an applicant who has never been registered must also pass the Series 66 to qualify.

Section 1(a) of the model rule requires an applicant to have passed the Series 65 within two years of the date of application. Eighteen months is within that period. The period is two years rather than twelve months, the Series 66 is an alternative route and not an add-on, and a Series 65 result does not remain valid indefinitely.NASAA Model Rule, Examination Requirements for IARs, §1(a)

A candidate passed the Series 65 thirty months ago and has never been registered as an IAR. He holds no designation. What does the model rule require before he can be registered?

• a.He must pass only the Series 66, which is a supplementary examination for stale Series 65 results.
• b.Nothing more, because a clean disciplinary history extends his Series 65 for up to five years.
• c.Nothing more, because a Series 65 result is valid for as long as he remains under the age of seventy.
• d.He must test again, because the Series 65 was passed over two years before he applied.✓

Section 1 ties the Series 65 to the two years before the application, and none of the exceptions apply: he has no waiver designation, was never registered as an IAR in a state, and did not participate in a program that extends the Series 65. His thirty-month-old result no longer counts. No age rule or disciplinary-history rule extends it, and the Series 66 is a different route that needs the Series 7 and the SIE as well.NASAA Model Rule, Examination Requirements for IARs, §1(a)

An applicant passed the SIE three years ago. Fourteen months ago she passed both the Series 66 and the Series 7. She has no designation and was never registered as an IAR. Does she meet the model rule's examination requirement?

• a.Yes, but only if her sponsoring adviser also certifies her work experience in writing.
• b.No, because the Series 66 route works only for an applicant who has held a Series 7 registration.
• c.Yes, because the Series 66 and Series 7 are within two years and the SIE is within four.✓
• d.No, because the SIE must also have been passed within two years of the application.

Under Section 1(b), the Series 66 and Series 7 must both be passed within two years of the application date, and the SIE within four years. The SIE was passed three years ago, which is inside four. The two-year limit does not apply to the SIE, a prior Series 7 registration is not required, and the model rule asks for no work-experience certification.NASAA Model Rule, Examination Requirements for IARs, §1(b)

A candidate passed the Series 66 nine months ago, holds no designation, and has never taken the Series 7 or the SIE. May he be registered as an IAR on that basis?

• a.No, because the Series 66 can be used only by someone who is already registered as a broker-dealer agent.
• b.Yes, because the Series 66 is a complete examination for IAR registration without anything else.
• c.No, because the Series 66 route also calls for the Series 7 and the SIE, unless he takes the Series 65.✓
• d.Yes, because the Series 7 and the SIE apply only to applicants seeking broker-dealer agent registration.

The Series 66 satisfies the model rule only when combined with the Series 7 within two years and the SIE within four years. Absent both, the candidate would need the Series 65 instead. The Series 66 alone is not enough, the Series 7 and SIE are part of the IAR route rather than only an agent requirement, and prior agent registration is not a condition.NASAA Model Rule, Examination Requirements for IARs, §1(b)

An applicant has not taken any qualifying examination in years, but she holds the CFA charter, which is current and in good standing at the time of her application. How does the model rule treat her?

• a.The requirement is waived, since a current CFA charter is one of the listed designations.✓
• b.The requirement is waived only if she also completes an adviser-sponsored training program.
• c.She must pass the Series 65, because only the CFP designation can replace the examination.
• d.She must pass the Series 66, because the CFA designation waives only the SIE portion.

Section 2 waives the Section 1 requirement for an applicant who holds, current and in good standing at the time of filing, the CFP, ChFC, CFA, PFS or CIMA designation. The CFA is on that list, and the waiver is not limited to the CFP or to part of the examinations. The model rule contains no training-program condition.NASAA Model Rule, Examination Requirements for IARs, §2

An applicant is a licensed CPA with many years of experience, but he does not hold the Personal Financial Specialist credential. He has passed no qualifying examination. Is the examination requirement waived?

• a.Yes, because the CPA license is recognized as the equivalent of the Series 65 examination.
• b.Yes, because accountants are exempt from the examination if they have ten years of experience.
• c.No, because the CPA license is not among the listed designations, and only the PFS credential is.✓
• d.No, because a waiver is available only to applicants who have been employed by a registered adviser.

The list of waiver designations in Section 2 includes the PFS awarded by the AICPA but not the CPA license itself. Experience does not substitute for the designation, and an applicant need not be employed by an adviser to qualify for a waiver. Without a listed designation or another exception, he would have to pass the required examination.NASAA Model Rule, Examination Requirements for IARs, §2

An individual was registered as an IAR in one state until twenty months ago, when she left the industry. She now applies in another state and has taken no examination since. Must she retake the examinations?

• a.Yes, because the exception applies to an applicant who left the industry less than twelve months ago.
• b.No, because any person who has ever passed the Series 65 is exempt from retesting for life.
• c.Yes, because only a registration in the same state as the new application counts toward the exception.
• d.No, because she was registered as an IAR in some state within the two years before the filing.✓

Section 3 relieves an individual who was registered as an IAR in any state within two years of the application date from retaking the Section 1 examinations. Twenty months qualifies, and the prior registration need not have been in the state where she now applies. The period is two years and not twelve months, and a Series 65 pass does not carry a lifetime exemption.NASAA Model Rule, Examination Requirements for IARs, §3

An individual left IAR work three years ago. During that time she took part in FINRA's Maintaining Qualifications Program, so her Series 7 remains valid, but her qualification was the Series 66. Which statement is correct?

• a.The program extends every examination she has passed, including the Series 66, for up to five years.
• b.Participation in the program does not extend the Series 66 for IAR registration, so it must be retaken.✓
• c.She needs no examination, because the program keeps her eligible while she pays continuing education fees.
• d.The program extends the Series 66 but not the Series 7, so she must pass the Series 7 again.

Under Section 4, a person not registered as an IAR for more than two but fewer than five years who participates in the FINRA Maintaining Qualifications Program does not need to retake the FINRA examinations that remain valid under it, but participation does not extend the Series 65 or Series 66. Her Series 7 can stand, and the Series 66 cannot, so the Series 66 is needed again. Payment of continuing education fees alone does not preserve it.NASAA Model Rule, Examination Requirements for IARs, §4

A supervised person of an investment adviser has 60 clients, of whom 8 are natural persons and none is a qualified client. Under the federal definition, is she an investment adviser representative?

• a.No, because eight of sixty clients is under twenty percent, which is the percentage the definition uses.
• b.Yes, because the definition applies to anyone who has even one natural person as a client.
• c.No, because she has fewer than ten natural-person clients, which is the minimum for the definition.
• d.Yes, because she has more than five natural-person clients and they exceed ten percent of her clients.✓

Rule 203A-3(a)(1) has two tests that must both be met: more than five clients who are natural persons (other than qualified clients), and more than ten percent of her clients being such natural persons. She has 8, which is more than 5, and 8 of 60 is 13.3 percent, which is more than 10 percent. Both tests are met. The definition has no ten-client minimum or twenty percent threshold, and a single natural-person client is not enough.17 CFR 275.203A-3(a)(1)

A supervised person has 80 clients, of whom 6 are natural persons and none is a qualified client. Is she an investment adviser representative under the federal definition?

• a.Yes, because six of eighty is 7.5 percent, and any percentage above five percent is enough.
• b.Yes, because six is more than five, and the count test alone decides the definition.
• c.No, because six of eighty clients is 7.5 percent, not more than ten percent.✓
• d.No, because the definition covers only supervised persons with more than twenty clients.

Both parts of Rule 203A-3(a)(1) must be satisfied. She has more than five natural-person clients, but 6 divided by 80 is 7.5 percent, which does not exceed ten percent, so the second test fails and she is not an IAR for state-registration purposes. Meeting the count test alone is not enough, the percentage threshold is ten and not five, and the rule sets no minimum number of total clients.17 CFR 275.203A-3(a)(1)(ii)

A supervised person has 40 clients. Twelve are natural persons, and eight of those twelve are qualified clients. Applying the federal definition, how should she analyze her status?

• a.She is not an IAR, because qualified clients count only toward the percentage test and not the count.
• b.She is an IAR, because the qualified clients are counted and only the other four are excluded.
• c.She is not an IAR, because only four natural persons count, and four is not more than five.✓
• d.She is an IAR, because twelve natural persons is more than five and thirty percent of her clients.

Natural-person clients who are qualified clients are excepted persons and are left out of both tests. That leaves 4 natural-person clients, which is not more than 5, so she is not an IAR for this purpose, even though 4 of 40 would be exactly ten percent. Counting all twelve ignores the exception, and the exception is not applied to only one test.17 CFR 275.203A-3(a)(1), (a)(3)(i)

A supervised person's roster shows 30 clients, 25 of them natural persons who are not qualified clients. He is a back-office analyst who never solicits, meets with or communicates with clients. How is he treated?

• a.He is not an IAR, because the analyst is covered by the exclusion for persons who are not supervised.
• b.He is an IAR, because the contact exception applies only to supervised persons who are officers.
• c.He is an IAR, because the client counts are far above both tests and nothing overrides them.
• d.He is not an IAR, because he does not regularly solicit, meet with or communicate with clients.✓

Rule 203A-3(a)(2)(i) provides that a supervised person is not an IAR if he does not on a regular basis solicit, meet with or otherwise communicate with clients of the adviser, regardless of the client counts that would otherwise apply. The exception is not limited to officers, and the analyst is a supervised person; the exception turns on his client contact.17 CFR 275.203A-3(a)(2)(i)

A supervised person writes a monthly newsletter of general market commentary that does not purport to meet the needs of specific individuals, and she gives advice in no other way. She has 100 clients who are natural persons. Is she an IAR?

• a.Yes, because a newsletter counts as personal advice once it is sent to individuals by name and address.
• b.Yes, because 100 natural-person clients exceed both tests and the type of advice makes no difference.
• c.No, because impersonal advice is excepted only when every one of her clients is a qualified client.
• d.No, because she provides only impersonal investment advice, meaning written material not tailored to individuals.✓

A supervised person who provides only impersonal investment advice is not an IAR under Rule 203A-3(a)(2)(ii), even if the client counts would otherwise be met. Impersonal advice means written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts. Mailing a general newsletter to named recipients does not make it personal, and the exception does not require qualified clients.17 CFR 275.203A-3(a)(2)(ii), (a)(3)(ii)

A supervised person has 40 clients. Eight are natural persons who are not qualified clients, but three of the eight live outside the United States. How many natural-person clients count toward the more-than-five test?

• a.Eight, because residence is irrelevant to the count of natural-person clients.
• b.Eight, because the foreign residents are excluded only from the percentage test.
• c.Three, because only the clients who live abroad are counted under the rule.
• d.Five, so she does not meet the more-than-five test and is not an IAR.✓

Rule 203A-3(a)(4) allows a supervised person to leave out clients who are not residents of the United States. Excluding the three non-residents leaves 5 natural-person clients, which is not more than 5, so the count test fails and she is not an IAR whatever the percentage. The rule excludes non-residents and does not count only them, and it does not limit the exclusion to one test.17 CFR 275.203A-3(a)(4)

An IAR resigns from registered adviser A and spends three weeks working for no adviser before joining registered adviser B. What is the status of her registration in that three-week period?

• a.It stays effective, but only for work she does for the clients she served at adviser A.
• b.It stays effective, because her registration belongs to her and not to any employer.
• c.It is not effective, since she is not employed by a registered adviser during that period.✓
• d.It stays effective, because Section 201 allows a thirty-day gap before registration lapses.

Section 201(d) provides that an IAR's registration is not effective during any period when she is not employed by an adviser registered under the Act. The gap therefore leaves her unregistered for that period, and she should not act as an IAR in it. Registration does not belong to her independent of the employer, the Act contains no thirty-day grace period for this, and former clients do not change the rule.Uniform Securities Act §201(d)

A federal covered adviser employs a representative who has a place of business in State X, and State X requires representatives of such advisers to register. May the adviser let him conduct advisory business from that location without State X registration?

• a.No, because a federal covered adviser must register itself in the state before any representative can register.
• b.Yes, because a federal covered adviser's representatives are all preempted from state registration requirements.
• c.No, unless he is registered or exempt, because Section 201(d)(ii) reaches a representative with a place of business there.✓
• d.Yes, because only an adviser that is registered in the state is bound by the representative provisions.

Section 201(d)(ii) makes it unlawful for a federal covered adviser to employ, supervise or associate with an IAR who has a place of business in the state unless the representative is registered or exempt. The states keep the power to register such a representative when there is a place of business there, so it is not entirely preempted. Federal covered advisers file notices rather than registering, and the representative requirement does not wait for the adviser to register.Uniform Securities Act §201(d)(ii)

An IAR is registered in States A and B. His registration in State A is renewed before December 31, but the filing for State B is not made. What is the effect in State B on January 2?

• a.His State B registration has expired, although his State A registration is unaffected.✓
• b.His State B registration continues until the Administrator sends him a notice of default.
• c.His registrations in both states expire, because the renewal must be filed in every state.
• d.His State B registration continues, because renewal in one state keeps every state alive.

Every registration under Section 201 expires December 31 unless renewed, and it is a separate registration in each state. The State B registration lapsed when it was not renewed, while State A was renewed. A state registration is not kept alive by renewing elsewhere, the failure in B does not end A, and expiry does not wait for a notice from the Administrator.Uniform Securities Act §201(e)

An IAR of a state-registered adviser will operate in States A and B. On the Form U4, how does he request registration as an IAR in those states?

• a.He checks the AG column for each state, because AG stands for any adviser.
• b.He files a separate Form U4 for each state, and each form lists only that state.
• c.He lists the states in Section 12, which is the section used for registration requests.
• d.He checks the RA column for each state in the jurisdiction registrations section.✓

Section 5 of the Form U4 lists jurisdictions with two columns: AG for broker-dealer agent registration and RA for investment adviser representative registration. An IAR checks RA for the states he wants. AG is the agent column, a single form can request more than one jurisdiction, and Section 12 is the employment history section and not where registrations are requested.Form U4 (Rev. 05/2009), Section 5

An individual will sell securities as an agent of a broker-dealer and will also act as an IAR for that firm's registered advisory affiliate, in State A. How should he request both registrations on Form U4?

• a.He leaves Section 5 empty, because the affiliate's filing supplies the registration requests.
• b.He checks AG and RA for State A in Section 5 and lists the advisory affiliate in Section 6.✓
• c.He checks only the RA column, because an agent registration cannot be held together with an IAR registration.
• d.He checks only the AG column, because the IAR role follows automatically from the agent role.

Section 5 lets one filing request AG and RA registration in the same jurisdiction, and Section 6 is where the filer requests registration with an affiliated firm under common ownership or control. An agent registration does not carry over to cover advisory activity, an individual can hold both registrations, and Section 5 is where the registrations are requested, so it cannot be left to the affiliate.Form U4 (Rev. 05/2009), Section 5

A registered broker-dealer agent in State A also manages fee-based client accounts for his firm's registered investment adviser affiliate. He is registered only as an agent. Is that a problem?

• a.No, because an agent registration covers all of the individual's work for firms under common control.
• b.No, because advisory work for an affiliate is exempt when the affiliate is registered.
• c.Yes, because acting as an IAR requires registration as an IAR in addition to his agent registration.✓
• d.Yes, but the problem is the adviser's, as an individual agent is never required to register as an IAR.

Sections 201(a), 201(c) and 201(d) impose separate registration requirements for agents and IARs. Managing accounts is an activity within the IAR definition in Section 401(g), so his agent registration does not cover it. Common control does not merge the registrations, an affiliate's registration does not exempt its representatives, and the individual is also subject to the IAR requirement and not only the firm.Uniform Securities Act §201(a), (c), (d)