NASAA Series 66 — All Questions

The federal funds rate is the rate at which:

• a.The Federal Reserve lends to banks at the discount window
• b.Banks lend to their most creditworthy corporate customers
• c.The government issues Treasury bonds
• d.Banks lend reserves to one another overnight✓

The federal funds rate is the interest rate banks charge one another for overnight loans of reserves held at the Fed. It is a key barometer of monetary policy and heavily influenced by open-market operations. It differs from the discount rate (a bank-to-Fed rate) and the prime rate (a bank-to-customer rate).

If the Federal Reserve lowers the reserve requirement, the MOST likely effect is that:

• a.Long-term Treasury bond prices will fall while yields also decline
• b.Banks will have less to lend, slowing economic growth
• c.Banks can lend more, expanding the money supply✓
• d.The federal budget deficit will shrink

Lowering the reserve requirement frees up a larger portion of deposits for lending, expanding banks' lending capacity and the money supply — an easing (expansionary) action. Raising the reserve requirement does the reverse. Reserve requirements are one of the Fed's three main monetary-policy tools.

The Consumer Price Index (CPI) is used primarily to measure:

• a.Wholesale inflation, by tracking prices received by domestic producers
• b.Economic growth, by totaling the value of all final goods produced in a year
• c.Inflation, by tracking the average change in the prices of a basket of consumer goods✓
• d.Consumer confidence, by surveying households about their spending plans

The Consumer Price Index measures inflation by tracking the average change over time in prices paid by consumers for a representative basket of goods and services; it is used to adjust wages, benefits and TIPS principal. Wholesale price tracking is the producer price index, total output is GDP, and household sentiment is a consumer confidence survey.

A fundamental analyst evaluating a stock would focus primarily on:

• a.Investor sentiment surveys and the relative-strength index
• b.Chart patterns, trading volume, and moving averages used to predict price moves
• c.The historical sequence of the stock's daily high, low, and closing prices on a chart
• d.The company's earnings, financial statements, and industry conditions✓

Fundamental analysis evaluates a company's intrinsic value using its earnings, financial statements, management, and industry and economic conditions to judge whether the stock is under- or overvalued. It contrasts with technical analysis, which studies price and volume patterns. Fundamental analysts ask what a company is worth.

A technical analyst primarily relies on:

• a.Estimates of future earnings growth and management quality
• b.Macroeconomic forecasts of gross domestic product, inflation, and interest rates
• c.A detailed review of the issuer's balance sheet, income statement, and cash flows
• d.Historical price and trading-volume patterns to forecast future movements✓

Technical analysis studies historical market data — chiefly price and volume patterns, trends, and chart formations — to forecast future price movements, rather than assessing a company's underlying value. It assumes that price action reflects all information and that trends tend to persist. It contrasts with fundamental analysis.

The fundamental balance-sheet equation states that a company's total assets equal:

• a.Its net income plus the dividends it paid
• b.Its annual revenue minus all expenses for the year
• c.The market value of its outstanding common and preferred shares
• d.Its liabilities plus shareholders' equity✓

The balance-sheet identity is Assets = Liabilities + Shareholders' Equity, meaning everything a company owns is financed either by debt or by owners' equity. Rearranged, equity equals assets minus liabilities. This equation underlies fundamental analysis of a firm's financial position.

A company's working capital is calculated as:

• a.Net income divided by common shares outstanding
• b.Current assets minus current liabilities✓
• c.Sales revenue minus the cost of goods sold
• d.Total assets minus total liabilities

Working capital equals current assets minus current liabilities and measures a firm's short-term liquidity — its ability to cover obligations due within a year. Positive working capital suggests adequate liquidity. It differs from total net worth (assets minus all liabilities) and from earnings measures.

Which of the following is generally classified as a coincident economic indicator?

• a.The average duration of unemployment, which peaks only after a recession has ended
• b.The average weekly hours worked in manufacturing
• c.Nonfarm payroll employment, which moves in step with the overall economy✓
• d.The number of new residential building permits issued each month

Coincident indicators, such as nonfarm payroll employment, industrial production, and personal income, move in step with the overall economy and confirm the current phase of the business cycle. Leading indicators (like building permits) change before the economy, and lagging indicators (like unemployment duration) change after it.

The average duration of unemployment is considered a lagging indicator because it:

• a.Changes months before the economy shifts direction
• b.Has no meaningful relationship to the business cycle
• c.Tends to change after the economy has already turned✓
• d.Moves at exactly the same time as overall economic output

A lagging indicator changes after the overall economy has already shifted direction, confirming a trend rather than predicting it. The average duration of unemployment typically keeps rising for a time even after a recession ends. Lagging indicators help verify that a turn in the cycle has genuinely occurred.

Stagflation describes an economic condition characterized by:

• a.Falling prices across the economy with rising employment
• b.A booming stock market that keeps climbing even as corporate earnings decline sharply
• c.Rapid economic growth with very low unemployment and stable consumer prices
• d.Stagnant growth and high unemployment together with rising inflation✓

Stagflation is the unusual combination of stagnant economic growth, high unemployment, and rising inflation occurring at the same time — as seen in the 1970s. It is difficult for policymakers because tools that fight inflation can worsen unemployment and vice versa. The term blends 'stagnation' and 'inflation.'

The prime rate is BEST described as:

• a.The rate at which banks lend reserves to one another overnight
• b.The rate banks charge their most creditworthy corporate customers✓
• c.The rate the Federal Reserve charges banks at its discount window
• d.The yield paid on newly issued short-term Treasury bills at auction

The prime rate is the interest rate commercial banks charge their most creditworthy (lowest-risk) corporate customers, and it serves as a benchmark for many consumer and business loans. It typically moves with the federal funds rate. It is distinct from the discount rate and the fed funds rate.

A strengthening U.S. dollar relative to foreign currencies generally:

• a.Makes imports cheaper for U.S. buyers but U.S. exports more expensive abroad✓
• b.Makes U.S. exports cheaper for foreign buyers and imports more expensive for U.S. buyers
• c.Raises the dollar value of overseas earnings that U.S. multinationals translate back into dollars
• d.Improves the U.S. trade balance by making domestic goods more attractive to foreign buyers

A stronger dollar buys more foreign currency, so imports get cheaper for U.S. buyers while U.S. goods cost foreign buyers more, which can hurt exporters and widen the trade deficit. Cheaper exports and costlier imports describe a weaker dollar. A stronger dollar also lowers, not raises, the dollar value of translated overseas earnings.

Gross domestic product (GDP) measures the total value of:

• a.The money supply circulating in the nation's financial system
• b.A country's exports minus its imports
• c.All financial assets, including stocks and bonds, owned by households and businesses
• d.All final goods and services produced within a country in a period✓

GDP is the total market value of all final goods and services produced within a country's borders during a specific period, and it is the broadest measure of economic output. Real GDP is adjusted for inflation. Two consecutive quarters of declining real GDP are a common informal marker of recession.

Keynesian economic theory generally holds that:

• a.Government spending can stimulate demand and help pull an economy out of a recession✓
• b.Free markets correct downturns on their own, so government should not intervene in the economy
• c.Cutting taxes and regulation for producers is the most effective way to revive output
• d.Steady growth in the money supply is the main determinant of output and price levels

Keynesian economics stresses aggregate demand and holds that government spending, especially deficit spending in a downturn, can stimulate demand and lift an economy out of recession. Laissez-faire thinking relies on markets to self-correct, supply-side thinking favors cutting taxes and regulation on producers, and monetarism focuses on controlling money-supply growth.

Monetarist economists, such as those following Milton Friedman, emphasize that:

• a.Deficit spending by government is the most reliable way to lift an economy out of recession
• b.Cutting marginal tax rates on producers is the main driver of long-term economic growth
• c.Controlling the growth of the money supply is the key to managing inflation and output✓
• d.Prices and wages adjust so quickly that government intervention is never needed or useful

Monetarists, led by Milton Friedman, argue that the money supply is the main driver of economic activity and inflation, so steady, controlled money-supply growth is the key to stability. Deficit spending as the cure for recession is the Keynesian view, tax-rate cuts on producers are the supply-side view, and fast-adjusting markets with no role for intervention is the classical view.

Under the Uniform Securities Act, which statement correctly describes registration by coordination?

• a.The issuer files only with the state, and the Administrator reviews the fairness of the offering on its merits before any sale may proceed
• b.The state registration is filed after the SEC statement has been effective for ninety days, and it is effective on the thirtieth day after that filing
• c.The state registration becomes effective on the day it is filed, whether or not the federal registration statement has yet become effective
• d.A federal registration statement under the Securities Act of 1933 is filed simultaneously with the state, and state effectiveness is coordinated with the SEC✓

Registration by coordination is available when a security is also registered with the SEC under the Securities Act of 1933. The state filing is made alongside the federal one, and the state registration becomes effective at the moment the federal statement becomes effective, once the state-law conditions are met. A merit review of the offering belongs to registration by qualification, not coordination. State effectiveness does not trail the SEC by months, and it cannot occur before federal effectiveness.Uniform Securities Act (1956) Sec. 303(c)

A broker-dealer registered in State A has no place of business in State B. One of its agents takes an unsolicited order from a long-standing client who lives in State A but is vacationing in State B. Under the Uniform Securities Act (2002), which statement is most accurate?

• a.Both the firm and the agent must obtain full registration in State B before accepting the order
• b.The transaction may be permissible under a limited exemption for existing clients temporarily present in another state✓
• c.The client must first open a new brokerage account domiciled in State B for the order to be lawful
• d.The order is prohibited because the agent holds no registration in State B, whatever the client's home state

The 2002 Act exempts a broker-dealer with no place of business in the state when it deals with a bona fide preexisting customer whose principal residence is elsewhere, provided the firm is registered where the customer lives, and it exempts an agent who represents such a firm. An unsolicited order from a long-standing client who is only travelling therefore need not trigger registration in the visited state. Requiring full registration there, a new account in the visited state, or an absolute prohibition each overstates what the Act demands.Uniform Securities Act (2002) Sec. 401(b)(1)(E); Sec. 402(b)(2)

Which of the following would most likely be excluded from the definition of 'investment adviser' under the Investment Advisers Act of 1940 because the advice is solely incidental to the practice of the person's profession?

• a.A portfolio manager who invests discretionary client accounts for a wrap fee
• b.An accountant who occasionally comments on the tax effect of an investment while preparing a return✓
• c.A newsletter publisher who also sends each subscriber personalized buy and sell recommendations for a fee
• d.A financial planner who charges a separate fee for creating investment plans

Section 202(a)(11)(B) of the Investment Advisers Act excludes a lawyer, accountant, engineer or teacher whose performance of advisory services is solely incidental to the practice of the profession. An accountant who touches on the tax effect of an investment while preparing a return fits. A manager of discretionary wrap accounts and a planner who is paid to produce investment plans give advice as their business. A publisher who tailors recommendations to individual subscribers loses the publisher exclusion.Investment Advisers Act of 1940 Sec. 202(a)(11)(B)

Which of the following is an exempt TRANSACTION under the Uniform Securities Act (1956)?

• a.An isolated non-issuer transaction, whether or not a broker-dealer effects it✓
• b.A general solicitation directed to 100 retail investors in the state
• c.A solicited retail sale of open-end mutual fund shares to an individual customer
• d.A public offering of newly issued common stock distributed through registration by qualification

Section 402(b)(1) of the 1956 Act exempts any isolated non-issuer transaction, whether or not it is effected through a broker-dealer. Exempt transactions depend on how and to whom the sale is made, not on the security itself. A general solicitation of retail investors, a solicited retail sale of fund shares and a public offering that is being registered all fall outside the transaction exemptions.Uniform Securities Act (1956) Sec. 402(b)(1)

Which of the following best describes the fiduciary obligation an investment adviser owes its clients?

• a.A duty to ensure each recommendation is suitable when made, with no continuing duty to monitor and no duty to disclose conflicts
• b.A duty to guarantee the client a minimum investment return and to reimburse losses caused by market declines
• c.A duty owed only to clients who pay asset-based fees, so commission-based and hourly clients fall outside it
• d.An ongoing duty of loyalty and care requiring the adviser to place the client's interest first and disclose all material conflicts✓

An investment adviser is a fiduciary whose duties of loyalty and care continue throughout the relationship, including putting the client's interest first and fully disclosing material conflicts. A pure suitability standard asks only whether a recommendation was suitable at the moment it was made. No adviser guarantees performance, and the fiduciary duty is not limited to clients paying a particular kind of fee. Regulation Best Interest now holds broker-dealers to a best-interest standard on recommendations to retail customers, but it is not the continuing fiduciary duty advisers owe.Investment Advisers Act of 1940 Sec. 206; SEC Release IA-5248 (2019)

Under the Uniform Securities Act of 1956, Section 408, the Administrator may issue a cease and desist order:

• a.Only after a criminal conviction on a securities charge
• b.Only after the Administrator has first obtained a court injunction against the respondent
• c.With or without a prior hearing to prevent a violation of the Act✓
• d.Only against persons who are unregistered, never against a registered broker-dealer or adviser

Section 408(a) of the 1956 Act lets the Administrator, when a person has engaged or is about to engage in a violation, issue a cease and desist order with or without a prior hearing. The Administrator may alternatively seek an injunction in court, but a court order is not a prerequisite. No criminal conviction is needed, and the power reaches registered as well as unregistered persons.Uniform Securities Act (1956) Sec. 408(a)

Under the Uniform Securities Act of 1956 (as amended by NASAA), Section 410, a person who sues for a violation must bring the suit within:

• a.Two years after the contract of sale, with no earlier cutoff based on discovery of the facts
• b.The earlier of two years after discovery or five years after the violation, the 2002 Act's limit
• c.The earlier of two years after discovery of the facts or three years after the contract of sale✓
• d.The later of two years after discovery of the facts or three years after the contract of sale, so that discovery can extend the period

Under Section 410(f) of the 1956 Act as amended by NASAA, a civil suit must be brought within three years after the contract of sale or two years after the facts constituting the violation were discovered, whichever occurs first. The original 1956 text allowed two years after the contract of sale with no discovery rule, and the 2002 Act uses two years after discovery or five years after the violation. Discovery can shorten the period but never extend it, so a later-of test is wrong.Uniform Securities Act (1956, as amended by NASAA) Sec. 410(f)

Under the NASAA model rule on unethical business practices, an investment adviser that exercises discretion in a client account generally must obtain:

• a.Written discretionary authority from the client within thirty days of the first trade
• b.Oral authority from the client, with no written confirmation ever required
• c.Written discretionary authority from the client within ten business days after the first trade✓
• d.Prior written approval of the state Administrator before each discretionary trade

Under the NASAA unethical-practices rule an adviser may not exercise discretion without written discretionary authority from the client, and that writing must be obtained within ten business days after the first transaction placed under oral authority. Discretion limited to the price or time of an order for a definite amount of a named security is the only exception. Thirty days is too long, oral authority alone never suffices, and the Administrator does not approve individual trades.NASAA Model Rule 102(a)(4)-1(b)

Under the Uniform Securities Act, a well-established issuer's common stock is listed on the New York Stock Exchange. Which state filing is the least intrusive for that stock?

• a.Registration by coordination, filed before the SEC statement takes effect
• b.Registration by qualification, filed with the Administrator
• c.Registration by notification, used by seasoned issuers
• d.Notice filing for a federal covered security✓

A stock listed on the New York Stock Exchange is a federal covered security, so the state may require only a notice filing and a fee, not registration. That is less intrusive than any of the registration methods. Coordination, notification, and qualification are all forms of state registration, and qualification is the most burdensome because the Administrator reviews the offering on its merits.Uniform Securities Act

Which of the following persons is EXCLUDED from the definition of 'broker-dealer' under the Uniform Securities Act (1956)?

• a.A firm making a market in over-the-counter stocks for state residents
• b.An agent, issuer, or bank acting within the statutory exclusions✓
• c.A dealer with a branch office in the state that trades for its own account
• d.A firm soliciting orders from retail securities customers in the state

The 1956 Act defines a broker-dealer as a person engaged in the business of effecting securities transactions for others or for its own account, and excludes an agent, an issuer and a bank, savings institution or trust company. A market maker, a dealer with a local branch and a firm soliciting retail orders are all in the business of effecting transactions, so each is a broker-dealer that must register.Uniform Securities Act (1956) Sec. 401(c)

An IAR wishes to advertise using a client testimonial. Under NASAA Model Rule 102(a)(4)-1 as amended on May 4, 2026, the use of testimonials is:

• a.Still prohibited outright, because the model rule continues to treat every testimonial in an adviser's advertisement as an unethical practice
• b.Permitted only if the adviser meets specific conditions, including disclosures about the testimonial and any compensation✓
• c.Permitted once the client consents in writing, since the disclosure rules cover only paid endorsements
• d.Permitted only when no compensation is involved, since the rule then excuses the adviser from every one of its conditions

NASAA's members amended Model Rule 102(a)(4)-1 on May 4, 2026, to align it with the SEC Marketing Rule. A testimonial may now be used if the adviser discloses that it came from a current client, discloses any compensation and material conflicts, has a reasonable basis for believing the rule is met, has a written agreement with any paid speaker, and does not pay an ineligible person. The older model rule prohibited testimonials outright. A client's written consent does not replace the disclosures, and an unpaid testimonial is excused from only some of the conditions, not all of them.NASAA Model Rule 102(a)(4)-1(m) (amended May 4, 2026)

A married couple wants to pass assets to heirs while minimizing estate tax. An appropriate estate-planning tool to discuss is:

• a.An irrevocable trust that removes assets from the taxable estate✓
• b.A revocable living trust that the grantor can amend, because funding it moves the assets outside the taxable estate
• c.A will leaving the assets to the heirs, since property that passes by will is not counted in the gross estate
• d.A transfer-on-death registration on the account, because it passes outside probate and escapes estate tax

Assets placed in a properly structured irrevocable trust are no longer owned or controlled by the grantor, so they generally fall outside the taxable estate while still passing to the heirs the grantor names. A revocable trust leaves the grantor with the power to alter or revoke it, so its assets stay in the gross estate. A will and a transfer-on-death registration decide who receives the assets, but they do not take the assets out of the taxable estate.IRC Sec. 2038 (revocable transfers)

A client feels the pain of a loss far more than the pleasure of an equal gain and sells during every market decline. This behavioral tendency is best described as:

• a.Loss aversion driving poorly timed selling✓
• b.Overconfidence driving excessive and frequent trading
• c.Anchoring on the original purchase price of each holding
• d.Herding into whatever has recently performed best

Loss aversion is the tendency to feel a loss more sharply than an equal gain, which leads investors to sell in panic during declines and lock in losses. Overconfidence leads to too much trading, not to selling in fear. Anchoring ties a judgment to a reference price, and herding follows the crowd into what has recently done well. Naming the bias lets the adviser coach the client and build a plan the client can stick with.

An adviser wants to measure how closely a fund's returns follow its benchmark index. Which pair of measures best captures that?

• a.Sharpe ratio and standard deviation over the same period
• b.Beta and the expense ratio relative to the peer group average
• c.Portfolio turnover and the sales load charged on each purchase
• d.R-squared and tracking error relative to the benchmark✓

R-squared shows how much of a fund's movement is explained by its benchmark, and tracking error measures how far its returns deviate from that benchmark. Together they show how closely the fund follows the index. Sharpe ratio and standard deviation describe risk-adjusted return and volatility, beta measures sensitivity to market moves, and turnover, expense ratio and load describe trading activity and cost.

A client holds stock held for more than one year that has appreciated, and wishes to donate it to charity in a tax-efficient way. Donating the appreciated shares directly, rather than selling first, generally allows the client to:

• a.Avoid capital gains tax on the appreciation and potentially deduct the fair market value✓
• b.Deduct only the original cost basis, however much the shares are worth now
• c.Owe the same capital gains tax as on a sale, because a gift of stock counts as a sale
• d.Deduct the full value with no limit, since charitable gifts are exempt from AGI limits

Giving long-term appreciated shares directly to a qualified charity generally lets the donor avoid capital gains tax on the appreciation and deduct the fair market value, subject to adjusted gross income limits. Selling first would trigger the capital gains tax. The deduction is not limited to cost basis, a charitable gift of stock is not treated as a sale by the donor, and the AGI limits on charitable deductions still apply.IRS Publication 526, Charitable Contributions

An individual represents an issuer and sells that issuer's securities only in transactions that are themselves exempt under the Act, receiving no commission. Under the Uniform Securities Act (1956) this individual is:

• a.Required to register as a broker-dealer, since the individual sells securities for an issuer
• b.Required to register as an investment adviser representative, since the person recommends securities
• c.Required to register as an agent, since only exempt securities, not exempt transactions, are excluded
• d.Excluded from the definition of 'agent' and therefore not required to register in that capacity✓

Under the 1956 Act an agent is an individual who represents a broker-dealer or issuer in effecting securities transactions, but the definition leaves out an individual who represents an issuer in effecting transactions that are themselves exempt. Selling only in exempt transactions, with no commission, takes the person outside the agent definition, so there is no registration duty. The person is not a broker-dealer, who is a firm in the business of effecting transactions, and is not an adviser representative because no advisory business is involved.Uniform Securities Act (1956) Sec. 401(b)

Under the Uniform Securities Act (2002), a broker-dealer registered in its customers' home state has no place of business in another state and effects transactions there only with bona fide existing customers who live elsewhere and are temporarily present. In that other state the broker-dealer:

• a.Is exempt from registering in that state if it is registered where the customers live✓
• b.Must file a notice with the Administrator before each individual transaction it effects
• c.May transact only if it also registers each of its agents individually in that state first
• d.Must register as a broker-dealer before contacting any customer who is physically in the state

Section 401(b)(1)(E) of the 2002 Act exempts a broker-dealer that has no place of business in the state when it deals with a bona fide preexisting customer whose principal residence is elsewhere, provided the firm is registered in the customer's home state. Section 402(b)(2) exempts the agents of such a firm, so they need not register individually. No per-transaction filing or approval is required, and physical presence of a traveling customer does not by itself require registration.Uniform Securities Act (2002) Sec. 401(b)(1)(E); Sec. 402(b)(2)

Under the 1956 Uniform Securities Act, when a broker-dealer registers in a state, its agents who are not partners, officers, or directors:

• a.Are registered automatically with the firm, as its partners, officers and directors are, and file nothing of their own
• b.May solicit only institutional clients until each separately passes an additional qualification examination
• c.May transact business as soon as the firm is effective, with their own filings due within thirty days afterward
• d.Must each separately register, and an agent's registration is generally not effective during any period the agent is not associated with a registered broker-dealer✓

Agents who are not partners, officers or directors must each register in their own right, and an agent's registration is not effective while the agent is not associated with a particular registered broker-dealer or issuer. Automatic registration with the firm applies only to an agent who is a partner, officer or director of the broker-dealer, not to its other agents. The firm's effectiveness does not let an agent act first and file later. Nothing in the Act limits a newly registered agent to institutional clients pending a second examination.Uniform Securities Act (1956) Sections 201(b), 202(a)

Under the Uniform Securities Act of 1956, an application for registration as a broker-dealer, agent, investment adviser, or IAR generally becomes effective:

• a.Only when the Administrator issues a written order granting registration after reviewing the applicant's finances
• b.At noon on the 45th day after a completed application is filed, the period the 2002 Act uses, unless the registration is denied sooner
• c.At noon on the 60th day after the application is filed, the 2002 Act's period for a withdrawal, unless a proceeding is pending
• d.At noon on the 30th day after a complete application is filed, absent a denial or a proceeding, or sooner if the Administrator so orders✓

Under Section 202(a) of the 1956 Act, if no denial order is in effect and no proceeding is pending, registration becomes effective at noon on the thirtieth day after the application is filed, and the Administrator may set an earlier date. The 2002 Act changed the period to the 45th day after a completed application is filed. Registration does not wait for an affirmative approval order, and 60 days is the 2002 Act's withdrawal period, not its registration period.Uniform Securities Act (1956) Sec. 202(a)

Under NASAA Model Rule 202(d)-1, a state-registered investment adviser that has CUSTODY of client funds or securities generally must maintain a minimum net worth of:

• a.Fifty thousand dollars, and must notify the Administrator within thirty days if its net worth falls below that amount
• b.Ten thousand dollars, the figure for an adviser with discretion but no custody, with no notice duty
• c.A positive net worth only, the standard for advisers that accept large prepayments of advisory fees
• d.Thirty-five thousand dollars, and must promptly notify the Administrator if net worth falls below the minimum✓

NASAA Model Rule 202(d)-1(a) requires an adviser with custody of client funds or securities to maintain a net worth of at least $35,000. An adviser that falls below the minimum must notify the Administrator by the close of business on the next business day and file a financial report. Ten thousand dollars is the figure for discretion without custody. A positive net worth is the standard for an adviser that accepts more than $500 per client six or more months in advance. Fifty thousand dollars and a thirty-day notice period appear nowhere in the rule.NASAA Model Rule 202(d)-1(a), (d)

Under NASAA Model Rule 202(d)-1, a state-registered investment adviser that has discretionary authority over client accounts but does NOT have custody generally must maintain a minimum net worth of:

• a.Five thousand dollars, and a bond is required only if the adviser later takes custody of client assets
• b.A positive net worth only, with no dollar minimum unless the adviser holds client assets itself
• c.Thirty-five thousand dollars, the same figure required of an adviser that holds client assets
• d.Ten thousand dollars, and if net worth is deficient the adviser must post a bond and notify the Administrator✓

NASAA Model Rule 202(d)-1(b) requires a net worth of $10,000 for an adviser with discretionary authority but no custody. If net worth is deficient, Rule 202(e)-1 requires a bond equal to the deficiency rounded up to the nearest $5,000, and the adviser must notify the Administrator by the next business day. Thirty-five thousand dollars applies when the adviser has custody. A bare positive net worth is the standard for advisers taking large prepayments, and no $5,000 tier exists.NASAA Model Rule 202(d)-1(b); Rule 202(e)-1(a)(2)

Under Section 15(i) of the Securities Exchange Act of 1934, added by NSMIA, a state Administrator may NOT:

• a.Impose a financial-responsibility requirement higher than, or different from, that imposed on a broker-dealer by the Securities Exchange Act of 1934✓
• b.Bring an antifraud enforcement action against a broker-dealer that has misappropriated customer funds held by the firm
• c.Require a broker-dealer doing business in the state to register there and to pay the state registration fee
• d.Revoke the registration of a broker-dealer whose control person has been convicted of securities fraud

Section 15(i)(1) of the Securities Exchange Act, added by NSMIA, bars a state from establishing capital, custody, margin, financial responsibility, recordkeeping, bonding or financial reporting requirements for broker-dealers that differ from or add to the federal requirements. A state keeps its authority to register broker-dealers and collect fees, to discipline them on grounds such as a fraud conviction, and to bring antifraud actions. Only a state requirement that goes beyond the federal financial-responsibility rules is preempted.Securities Exchange Act of 1934 Sec. 15(i)(1), 15 USC 78o(i)(1)

An investment adviser wants to charge a fee equal to a percentage of the average value of a client's account over a defined period. Under Section 205 of the Investment Advisers Act of 1940 and the parallel state rules, this fee arrangement is:

• a.Permitted only for clients who meet the qualified-client tests, since any fee tied to account value is treated as a performance fee
• b.Prohibited unless it is a flat fee or an hourly fee, because the Act allows no charge that moves with the value of the account
• c.Permitted, because a fee tied to a percentage of assets under management is not a performance-based fee✓
• d.Permitted only if charged on the account's value on the last day of the period rather than on an average over the period

An asset-based fee is not a performance fee. The Advisers Act bars fees based on a share of capital gains or capital appreciation, but it expressly does not treat compensation based on the total value of the account averaged over a definite period, or taken as of definite dates, as a performance fee. The arrangement therefore does not need a qualified client, a flat or hourly structure, or a particular measurement date.Investment Advisers Act of 1940 Section 205(b)(1)

Under the Uniform Securities Act of 1956, when a state-registered investment adviser files to withdraw its registration, the withdrawal generally becomes effective:

• a.Only after every advisory client of the firm has been transferred to another registered investment adviser, which the Administrator must confirm
• b.On the day the filing is received, with no continuing jurisdiction retained afterward
• c.60 days after the filing of the withdrawal, unless a revocation or other proceeding is then pending, as the 2002 Act provides
• d.30 days after the filing of the withdrawal, unless a revocation or other proceeding is then pending✓

Under Section 204(e) of the 1956 Act, a withdrawal of registration becomes effective 30 days after the application is received, or sooner if the Administrator allows, unless a revocation or suspension proceeding is pending or is begun within those 30 days. The Administrator keeps jurisdiction for one year after the withdrawal to begin a revocation or suspension proceeding. The 2002 Act lengthens the period to 60 days. Neither a transfer of clients nor the filing day itself controls when a withdrawal takes effect.Uniform Securities Act (1956) Sec. 204(e)

Under the Uniform Securities Act (1956), after a registrant files to withdraw its registration, the Administrator may still begin a revocation or suspension proceeding for a period of:

• a.Ninety days after the registrant files its withdrawal notice
• b.Six months after the withdrawal is effective
• c.One year after the withdrawal becomes effective✓
• d.Thirty days from receipt of the withdrawal application

Under Section 204(e) of the 1956 Act a withdrawal normally becomes effective thirty days after the application is filed, but the Administrator may still institute a revocation or suspension proceeding within one year after the withdrawal became effective. The thirty-day period governs when the withdrawal takes effect, not how long jurisdiction lasts, and neither ninety days nor six months appears in the section.Uniform Securities Act (1956) Sec. 204(e)

A registered agent leaves broker-dealer X and joins broker-dealer Y. Under the 1956 Uniform Securities Act, notice of the change generally must be given to the Administrator by:

• a.The agent, the old broker-dealer, and the new broker-dealer must each notify the Administrator✓
• b.Only the new broker-dealer, which files on the agent's behalf as soon as it hires the agent
• c.Only the agent and the new broker-dealer, because the old firm's registration ends automatically
• d.Only the agent, who alone is responsible for keeping the registration current

When an agent ends a connection with one broker-dealer and begins one with another, the agent and each firm involved must promptly notify the Administrator: the agent, the firm being left, and the firm being joined. Notice from the new firm alone, or from the agent alone, does not cover the termination at the old firm. The old firm's duty does not disappear because the registration is tied to the employer, and the registration does not simply move with the agent.Uniform Securities Act (1956) Section 201(b)

An investment adviser registered in a state and an agent are both required to keep their registrations current. Under the 2002 Uniform Securities Act, registrations of these persons generally:

• a.Expire one year after the date each registration became effective
• b.Expire on December 31 and must be renewed annually upon payment of the required fee✓
• c.Remain in effect until withdrawn, with only a yearly continuation notice
• d.Expire on December 31 but renew automatically with no filing or fee

Under the 2002 Act a registration is effective until midnight on December 31 of the year for which it was filed, and it may be renewed each year by filing the required records and paying the fee. A one-year-from-effective-date expiry is the 1956 Act's approach, not the 2002 Act's. Registrations do not run until withdrawn, and renewal does not happen automatically without a filing and fee.Uniform Securities Act (2002) Section 406(d)

Under the 2002 Uniform Securities Act, when a broker-dealer that is a sole proprietor dies or is otherwise incapacitated, the firm's registration:

• a.May be continued by a successor for the remainder of the registration period under the Act's succession provisions✓
• b.Is canceled the moment the proprietor dies, and no successor may ever continue the business under that same registration
• c.Passes to the proprietor's estate, which may then run the firm in its own right for a full year after the death without any filing
• d.Moves automatically to the firm's clearing broker-dealer without any filing

The succession provision lets another broker-dealer or adviser succeed to a current registration by filing as a successor for the unexpired portion of the registration, with no filing fee. A registration is therefore not lost automatically when the business changes hands. It does not pass to an estate or a clearing firm without a filing, and it is not barred from continuing under a successor.Uniform Securities Act (2002) Section 407(a)

A registered investment adviser reorganizes and forms a successor entity. Under the Uniform Securities Act (1956), the successor firm's registration:

• a.Requires a new registration fee to be paid in full when the reorganization takes effect
• b.May be applied for by the registered predecessor for the unexpired portion of the year, with no filing fee✓
• c.Is barred, because a registration is personal and cannot pass to a successor entity
• d.Cannot be granted until every existing advisory client has signed a new advisory contract

Section 202(c) of the 1956 Act lets a registered broker-dealer or investment adviser file an application for registration of a successor, whether or not the successor yet exists, for the unexpired portion of the year, and states that there is no filing fee. The Act does not bar succession, does not demand a fresh fee, and does not make the successor's registration wait on new client contracts.Uniform Securities Act (1956) Sec. 202(c)

Under the 1956 Uniform Securities Act, registration of securities by QUALIFICATION differs from registration by coordination and by notification in that qualification:

• a.Is available only for securities also registered under the Securities Act of 1933 for the same offering
• b.Becomes effective automatically when the federal registration statement becomes effective, once on file with the state ten days
• c.Is the most demanding method, available to any issuer, with effectiveness set by the Administrator and the most extensive disclosure filed at the state level✓
• d.Is limited to issuers in continuous operation for at least five years that meet an earnings test, and it requires only a brief statement of the offering to be filed

Qualification is the method open to any security, and it takes effect only when the Administrator so orders, after the fullest disclosure at the state level. Coordination, by contrast, requires a federal registration for the same offering and takes effect automatically when the federal statement does, once the state filing has been on file the required number of days. Notification is the short-form method limited to established issuers that have been in continuous operation five years and meet an earnings test. Qualification has none of those limits.Uniform Securities Act (1956) Sections 302-304

Under the National Securities Markets Improvement Act (NSMIA), shares of an investment company registered under the Investment Company Act of 1940 are 'federal covered securities.' As to state law, these shares:

• a.Must still be registered by coordination with the state before any sale to a resident
• b.Are exempt from state registration, though states may still require a notice filing and retain antifraud authority✓
• c.May be sold in a state only after the issuer obtains an exemption order from the Administrator
• d.Are exempt from state registration and from state antifraud authority and every state filing

Section 18(b)(2) of the Securities Act, added by NSMIA, makes securities issued by a registered investment company federal covered securities, so states may not require their registration or merit review. Section 18(c)(2) preserves a state's power to require notice filings and fees for these securities and to enforce its antifraud law. The securities do not need a state exemption order, they are not limited by the type of buyer, and states keep antifraud power.Securities Act of 1933 Sec. 18(b)(2), 18(c)(2), 15 USC 77r

Which of the following would most likely qualify as an EXEMPT TRANSACTION under the Uniform Securities Act (1956)?

• a.A solicited sale of a non-exempt security made to an individual retail investor at the investor's home
• b.A door-to-door offering of speculative promissory notes made to first-time individual buyers in the state
• c.A transaction with a bank, insurance company, investment company, or other institutional investor✓
• d.A general newspaper advertisement inviting the investing public to buy a new speculative mining stock

Section 402(b)(8) of the 1956 Act exempts any offer or sale to a bank, savings institution, trust company, insurance company, investment company, pension or profit-sharing trust, other financial institution or institutional buyer, or broker-dealer. These buyers are presumed able to protect themselves. A solicited sale to a retail investor, a door-to-door offering and a general newspaper advertisement all reach the public and are not exempt transactions.Uniform Securities Act (1956) Sec. 402(b)(8)

A security issued by a company that files continuous SEC reports and is listed on the New York Stock Exchange is best characterized under NSMIA and the Uniform Securities Act as:

• a.A non-exempt security that must be registered by qualification in each state in which it is sold to residents
• b.A federal covered security, so a state may not require its registration, a notice filing or a fee✓
• c.A federal covered security that a state may still require to be registered by coordination before sale
• d.An exempt security under the state act only if the issuer files a notice and pays a state fee each year

Section 18(b)(1) of the Securities Act makes securities listed on the New York Stock Exchange federal covered securities, and Section 18(c)(2)(D) prevents a state from requiring a notice filing or fee for them. States keep their antifraud authority but cannot require registration, a notice filing or a fee for an exchange-listed security. Registration by qualification or coordination, and a conditional state exemption, all misdescribe the preemption.Securities Act of 1933 Sec. 18(b)(1), 18(c)(2)(D), 15 USC 77r

Under the Uniform Securities Act (1956), the criminal penalties for a willful violation generally include a maximum of:

• a.A fine of up to five thousand dollars, imprisonment of up to three years, or both✓
• b.Imprisonment of up to five years and a fine of up to ten thousand dollars, or both
• c.A fine of up to five thousand dollars only, because the Act provides no imprisonment
• d.Imprisonment of up to two years and a fine of up to two thousand five hundred dollars, or both

Section 409(a) of the 1956 Act provides that a person who willfully violates the Act or a rule or order under it may on conviction be fined up to five thousand dollars, imprisoned up to three years, or both, and that no person may be imprisoned for violating a rule or order if he proves he had no knowledge of it. The Act does provide for imprisonment, and the other figures are not those in the section.Uniform Securities Act (1956) Sec. 409(a)

Under the 1956 Uniform Securities Act's optional criminal statute of limitations, no indictment may be returned more than how long after the alleged violation?

• a.Three years after the alleged violation, matching the maximum prison term
• b.Five years after the alleged violation, regardless of when it was discovered✓
• c.Two years after the sale, the same period as the buyer's civil suit
• d.One year after the Administrator completes the investigation and files its report

The optional criminal limitations sentence in the 1956 Act says no indictment may be returned more than five years after the alleged violation, whether or not it was discovered in the meantime. Three years is the maximum prison term, not the limitations period. Two years is the period for a buyer's civil suit after the contract of sale, which is a separate rule. The period does not start when the Administrator finishes an investigation.Uniform Securities Act (1956) Section 409(a)