NASAA Series 65 — All Questions

An adviser relies on section 203(m) and has $90 million in private fund assets. It now accepts a separately managed account for a wealthy individual who does not invest in any of its funds. What is the effect?

• a.It keeps the exemption for 90 days after its next annual updating amendment and must register only if the account is still open at the end of that period
• b.It keeps the exemption, because the account is a small part of its business and its private fund assets stay well under the $150 million limit
• c.It keeps the exemption for as long as the individual client meets the accredited investor definition
• d.It loses the section 203(m) exemption the moment it accepts the account, and the 90-day window does not apply to a non-fund client✓

The private fund adviser exemption is available only to an adviser whose clients are all private funds. Form ADV Instruction 15 gives a 90-day period to apply for registration when private fund assets reach $150 million, but it states that accepting a client that is not a private fund ends the exemption immediately. Account size and the client's accredited status are irrelevant, and the asset total being under $150 million does not help because the problem is the type of client.Investment Advisers Act of 1940 section 203(m); Form ADV General Instruction 15

An exempt reporting adviser relying on section 203(m) reports $162 million in private fund assets on its annual updating amendment. Which course is open to it?

• a.Stop advising its funds on the date of the filing and resume only after the SEC declares its registration effective
• b.Register with its home state instead, because private fund advisers above $150 million fall under state authority
• c.Apply for SEC registration within 90 days after filing the amendment, submitting its final exempt reporting adviser report in the same filing, and keep advising its funds meanwhile✓
• d.Continue as an exempt reporting adviser until it takes its first non-fund client, since $150 million is only a reporting trigger

Once private fund assets reach $150 million the section 203(m) exemption is no longer available, so the adviser must register with the SEC. Instruction 15 allows up to 90 days after the annual updating amendment to apply, provided the adviser has met its reporting duties, and it may continue its private fund business during that time. The final exempt reporting adviser report and the registration application go in together. The $150 million line is a limit on the exemption, not a mere reporting trigger, and an adviser of this size is not a state-level adviser.Investment Advisers Act of 1940 section 203(m); Form ADV General Instruction 15

A family office advises members of one family and entities the family wholly owns. It agrees to manage the portfolio of an unrelated longtime friend of the family, who is not a key employee and did not become a client through an involuntary transfer. What follows?

• a.The exclusion continues, because a family office may advise non-family clients whose combined assets are no more than 5% of the total assets it advises
• b.The exclusion continues for one year while the family office decides whether to register as an adviser or to return the friend's account
• c.It no longer meets the family office exclusion, because it has a client that is not a family client, and it may have to register as an investment adviser✓
• d.The exclusion continues, provided the family office charges the friend no fee separate from the family's own arrangements with it and keeps the account small

To fall outside the definition of investment adviser a family office must have no clients other than family clients, be wholly owned and exclusively controlled by family members and entities, and not hold itself out as an adviser. A friend is not a family client. The 5% provision is a grandfathering rule for arrangements that existed before January 1, 2010 and involves an adviser serving the family office, not an allowance for outside clients. The one-year period applies only to someone who becomes a client through death or another involuntary transfer, and the fee arrangement does not change who is a family client.Investment Advisers Act of 1940 section 202(a)(11)(G); Rule 202(a)(11)(G)-1

In 2027 a state-registered adviser files its annual updating amendment on March 10. It reports assets under management of $110 million or more, and it relies on no section 203(l) or 203(m) exemption. By what date must it apply for SEC registration?

• a.June 8, which is 90 days after it files the amendment✓
• b.March 31, because the 90 days run from its December 31 fiscal year-end
• c.September 6, because the period is 180 days after the amendment is filed
• d.April 9, because the period is 30 days after the amendment is filed

An adviser that is state-registered and reports in its annual updating amendment that it meets an SEC registration requirement must apply to the SEC within 90 days after filing that amendment. March 10 plus 90 days is June 8. The 90 days do not run from the fiscal year-end, which is the clock for the annual amendment itself. Thirty days is not the period, and the 180-day period applies to withdrawal of an SEC registration, not to switching to it.Investment Advisers Act of 1940 section 203A; Rule 203A-1(b)

An SEC-registered adviser has a December 31, 2026 fiscal year-end. Its annual updating amendment reports that it no longer qualifies for SEC registration, and it relies on no exemption. By what date must it file Form ADV-W to withdraw from SEC registration?

• a.April 30, 2027, which is 120 days after its fiscal year-end
• b.June 29, 2027, which is 180 days after its fiscal year-end✓
• c.March 31, 2027, which is the 90-day deadline for the annual updating amendment
• d.December 31, 2027, which is one year after its fiscal year-end

When an SEC-registered adviser reports that it is no longer eligible, Rule 203A-1(b) requires it to file Form ADV-W within 180 days of its fiscal year-end. From December 31, 2026 that is June 29, 2027. Ninety days is the deadline for filing the annual amendment itself. The 120-day period is the special rule for a new adviser that expected to become eligible soon after registering, and nothing in the rule allows a full year.Investment Advisers Act Rule 203A-1(b)

A multi-state adviser with $60 million under management registered with the SEC under the 15-state rule. On its annual updating amendment it reports that it would now be required to register in only 12 states, and it has no other basis for SEC registration. What must it do?

• a.File Form ADV-W within 180 days after its fiscal year-end to withdraw from SEC registration✓
• b.Stay SEC-registered, because the 15-state test is applied only when the application is first submitted
• c.File Form ADV-W within 90 days, the period allowed for the annual updating amendment
• d.File Form ADV-W within 120 days after the amendment, as a newly registered adviser would

An adviser that relies on the multi-state provision undertakes on Schedule D to withdraw if an annual updating amendment shows it would be required to register in fewer than 15 states and it is otherwise barred from SEC registration. It does so by filing Form ADV-W within 180 days of its fiscal year-end. The test is not a one-time check at application, and the 90- and 120-day periods belong to other rules.Investment Advisers Act of 1940 Rule 203A-2(d)

A newly formed adviser, registered nowhere, registered with the SEC because it reasonably expected to become eligible within 120 days, and it said so on Schedule D. On the 120th day after its registration became effective it is still not eligible. What must it do?

• a.File Form ADV-W within 120 days after its SEC registration became effective✓
• b.Do nothing, because SEC registration converts to state registration automatically on the 120th day
• c.Wait for its first annual updating amendment and then file Form ADV-W within 180 days of its fiscal year-end
• d.Remain SEC-registered until its registration renewal date, then apply to the states

The new-adviser provision in Rule 203A-2(c) lets an adviser register with the SEC on a reasonable expectation of eligibility within 120 days. The price is an undertaking to withdraw if it is still ineligible on the 120th day, by filing Form ADV-W within those 120 days, notwithstanding the ordinary 180-day rule. Nothing converts the registration automatically, and waiting for the annual amendment or the next renewal is not permitted.Investment Advisers Act of 1940 Rule 203A-2(c)

An SEC-registered adviser with a December 31 fiscal year made the last entry on a client's order memorandum on June 10, 2024. Through what date must it keep that record?

• a.December 31, 2029✓
• b.December 31, 2031, seven years from the end of that fiscal year
• c.December 31, 2026, three years from the end of that fiscal year
• d.June 10, 2029, five years from the date of the last entry

Rule 204-2 requires books and records to be kept for five years from the end of the fiscal year in which the last entry was made, the first two years in an appropriate office of the adviser. The fiscal year of the last entry ends December 31, 2024, so the record runs to December 31, 2029. Counting from the entry date shortens the period, and three and seven years are not the rule's periods.Investment Advisers Act of 1940 Rule 204-2(e)

An SEC-registered adviser is closing and will stop advising clients. What must it do about its required books and records?

• a.Deliver them to the SEC, which then holds them for the remainder of the retention period on behalf of the former adviser's clients and staff
• b.Keep them at the old principal office and notify the state securities administrator instead, because the SEC does not need to be told
• c.Arrange for their preservation for the rest of the required period and tell the SEC in writing the exact address where they will be kept✓
• d.Destroy them once each client has received a copy of its own records, because the retention duty ends when the advisory business itself comes to an end

Rule 204-2(f) says that before ceasing business an adviser must arrange for and take responsibility for preserving the required records for the remainder of the retention period, and must notify the SEC in writing of the exact address where they will be kept. The duty does not end when the firm does, the SEC does not take custody of the records, and notice to a state is not a substitute.Investment Advisers Act of 1940 Rule 204-2(f)

An SEC-registered adviser organized as a partnership dissolves on March 1, 2027. Its partnership articles and minute books are required records. What is the minimum time it must preserve them?

• a.Until at least March 1, 2030, which is three years after the enterprise terminated✓
• b.Until March 1, 2032, which is five years after the enterprise terminated
• c.Until March 1, 2028, which is one year after the enterprise terminated
• d.Until December 31, 2032, which is five years after the end of the fiscal year of dissolution

Rule 204-2(e)(2) treats partnership articles, charters and minute books differently from ordinary records. They are kept in the principal office until at least three years after the enterprise terminates, so a March 1, 2027 dissolution gives March 1, 2030. The five-year fiscal-year formula belongs to most other records, and one year is not a period in the rule.Investment Advisers Act of 1940 Rule 204-2(e)(2)

Between annual updating amendments, which change at a registered adviser requires a prompt other-than-annual amendment to Form ADV Part 1A?

• a.An increase in its number of clients from 120 to 190
• b.Moving its principal office and place of business to another city✓
• c.Growth of 40% in its regulatory assets under management since the last annual amendment
• d.An increase in the number of its employees who perform investment advisory functions

Form ADV Instruction 4 requires a prompt amendment between annual filings when Item 1 information, which covers the adviser's identity and offices, becomes inaccurate in any way. Assets under management, the number of clients and the number of employees are reported in Item 5, which does not have to be updated in an other-than-annual amendment and is refreshed at the annual updating amendment.Investment Advisers Act of 1940 Form ADV General Instruction 4

Under the NASAA model rule, an investment adviser representative needs 6 credits of Regulatory and Ethics content and 6 credits of Products and Practice content in a reporting period. She completes 4 and 10. What is the result?

• a.She is short on Regulatory and Ethics, the surplus cannot make up the shortfall, and her registration renews as CE inactive unless she completes the missing credits✓
• b.She has met the requirement, because her 14 total credits exceed the 12 required
• c.Her registration is terminated at once on December 31, and she must reapply and retake the examination
• d.She may apply 2 of her surplus Products and Practice credits to the shortfall, so her registration stays active

The model rule sets a separate requirement for each content category, so credits in one category do not satisfy the other, and excess credits cannot be carried forward. A representative who falls short renews as CE inactive at the close of the calendar year until the credits are completed and reported. Only a second consecutive year of inactivity makes her ineligible for registration or renewal, and the rule does not call for an exam retake.NASAA Model Rule on Investment Adviser Representative Continuing Education

At a small advisory firm whose primary business is giving investment advice, the managing partner handles only office administration and never sees client portfolios. How does the Rule 204A-1 code of ethics treat her?

• a.As presumed to be an access person, because all directors, officers and partners of a firm whose primary business is advice are presumed to be access persons✓
• b.As an access person only after the chief compliance officer designates her in writing
• c.As not an access person, because she has no access to nonpublic information about client trades or holdings
• d.As an access person only if she owns securities the firm recommends to clients

Rule 204A-1 defines access persons by function but adds a presumption: where giving advice is the adviser's primary business, every director, officer and partner is presumed to be an access person. That covers the managing partner whatever her day-to-day duties. Her personal holdings and any designation by the compliance officer do not decide the matter, and lack of portfolio access is not the test.Investment Advisers Act of 1940 Rule 204A-1

An advisory firm adopts written compliance policies and names an outside compliance consulting company as its chief compliance officer. Which statement about Rule 206(4)-7 is correct?

• a.A chief compliance officer is required, but the annual review of the policies may be skipped when an outside consultant is retained
• b.Any outside firm may serve as chief compliance officer, provided it reviews the policies each year
• c.The rule requires a chief compliance officer only for advisers with more than $100 million in assets
• d.The chief compliance officer must be an individual who is a supervised person of the adviser, so naming an outside company in that role does not satisfy the rule✓

Rule 206(4)-7 requires a registered adviser to adopt written policies and procedures, review their adequacy and effectiveness at least annually, and designate an individual who is a supervised person to administer them. A consulting company may assist but cannot be the designated officer. The requirement applies to every registered adviser regardless of size, and retaining a consultant does not remove the annual review.Investment Advisers Act of 1940 Rule 206(4)-7

Under the Uniform Securities Act (1956), an employee of a registered investment adviser has repeatedly misled clients about fees. The adviser had no review procedures and ignored two client complaints. On what ground, and with what additional finding, may the Administrator act against the adviser's registration?

• a.Dishonest practices, which the adviser commits automatically whenever any of its employees does
• b.Willful violation of the Act by the adviser itself, with no public interest finding needed
• c.Failure reasonably to supervise its employees, provided the Administrator finds that the order is in the public interest✓
• d.Only the employee's registration may be affected, because an adviser is liable solely for statements that it made itself and not for its staff

Section 204(a)(2)(J) lists failure reasonably to supervise employees, in the case of an adviser, as a ground for denying, suspending or revoking registration, and every ground requires a finding that the order is in the public interest. The adviser's own conduct need not be a willful violation, and an employee's dishonest practice is not attributed to the firm automatically; the firm's liability here rests on the supervision failure.Uniform Securities Act (1956) section 204(a)(2)(J)

A supervised person at an SEC-registered adviser has 30 clients, 20 of them natural persons who are not qualified clients. For those 20 he does nothing but send a general market newsletter that does not purport to meet any individual's needs. Is he an investment adviser representative under Rule 203A-3?

• a.Yes, because he has more than five natural-person clients who are not qualified clients and they make up more than 10% of his clients
• b.No, because a supervised person who provides only impersonal investment advice is not an investment adviser representative✓
• c.Yes, because any supervised person who delivers written investment material to the clients of the firm is an investment adviser representative
• d.No, but only if the newsletter is given to the clients free of charge

Rule 203A-3 first applies the numerical test of more than five natural-person clients who are not qualified clients and more than 10% of the person's clients, and then excludes anyone who does not regularly solicit or meet clients or who provides only impersonal advice. Impersonal advice is advice by written material or oral statements that do not purport to meet the needs of specific individuals or accounts, so the newsletter writer is excluded even though the numbers would otherwise be met. Whether the newsletter is free is irrelevant.Investment Advisers Act of 1940 Rule 203A-3(a)

A supervised person of an SEC-registered adviser serves 20 clients. Four are natural persons who are not qualified clients and the other 16 are institutions. He meets and advises each client personally. Is he an investment adviser representative?

• a.No, because the test counts only those clients who are natural persons with advisory contracts that last for more than one year
• b.No, because he does not have more than five clients who are non-qualified natural persons, even though they are 20% of his clients✓
• c.Yes, because he meets clients personally and gives each of them personalized advice, so each one counts toward the limit on his work
• d.Yes, because the natural persons who are not qualified clients are more than 10% of his clients, which is the number that the test measures

A person is an investment adviser representative under Rule 203A-3 only if both prongs are met: more than five clients who are natural persons other than qualified clients, and more than 10% of his clients being such persons. Four clients fails the first prong, so the 20% share does not matter. Meeting clients and giving personal advice matters only to the exclusions, and the rule has no contract-length condition.Investment Advisers Act of 1940 Rule 203A-3(a)

Under the Uniform Securities Act (2002), an adviser with no place of business in the state advised four state residents in the preceding twelve months and is exempt under section 403(b). One of its employees deals with those four clients in the state. Must the employee register as an investment adviser representative there?

• a.No, but only if the adviser first files a notice and pays a fee to the Administrator
• b.Yes, because anyone who deals with a state resident for an adviser must be registered once the first resident client is signed up
• c.No, because an individual who represents an adviser exempt under section 403(b) is exempt from representative registration✓
• d.Yes, because an adviser's exemption never extends to the individuals who work for it

Section 404(b)(1) exempts from representative registration an individual who represents an adviser that is exempt under section 403(b), and an adviser with no place of business in the state and no more than five resident clients in twelve months is exempt under section 403(b)(2). The exemption of the adviser therefore carries down to its representative. No notice filing or fee is a condition of that exemption.Uniform Securities Act (2002) sections 403(b) and 404(b)(1)

Under the Uniform Securities Act (2002), an investment adviser representative changes firms. Her new employer files the transfer application on March 3, within 30 days of her termination, and her record shows a new disciplinary disclosure within the past 12 months. The Administrator takes no action. What is her registration status?

• a.It is immediately effective on March 3, because the filing was made within 30 days of termination, whatever her record shows
• b.It is temporarily effective from March 3 and becomes automatically effective on April 3, the 31st day after the filing✓
• c.It becomes effective only on April 17, at noon on the 45th day after the application is filed
• d.It stays ineffective until the Administrator issues an affirmative order granting the transfer

For a transfer filed within 30 days of termination, section 408(b) makes registration immediately effective when the record has no new disciplinary disclosure in the previous 12 months, and only temporarily effective when it does. Under section 408(c) the Administrator may withdraw a temporary registration within 30 days of filing; if it does not, registration becomes automatically effective on the 31st day, which here is April 3. The 45-day rule is for ordinary applications, and no affirmative order is needed.Uniform Securities Act (2002) section 408(b) and (c)

Under the Uniform Securities Act (2002), a registered adviser employs an individual to advise clients in the state. A self-regulatory organization had barred that individual from association with broker-dealers, and the adviser neither knew it nor could have found out through reasonable care. Does the adviser violate the employment-limit provision?

• a.No, because the provision is violated only when the adviser knew, or with reasonable care could have known, of the bar✓
• b.Yes, because the provision imposes strict liability for employing any barred person, whatever the adviser knew or could have found out
• c.No, because a bar imposed by a self-regulatory organization does not restrict employment by an adviser, only a bar by the SEC does
• d.No, because the bar was imposed outside this state and therefore has no effect here

Section 403(c) makes it unlawful for an adviser to employ or associate with an individual whose registration is suspended or revoked, or who is barred by an order under the Act, the SEC or a self-regulatory organization. Liability is not strict: the adviser escapes if it did not know and in the exercise of reasonable care could not have known of the bar. A self-regulatory organization bar is expressly covered, and where it was imposed does not matter.Uniform Securities Act (2002) section 403(c)

A person is both a FINRA-registered representative and an investment adviser representative. She completes her FINRA continuing education for the year and takes no other courses. Under the NASAA model rule, what has she satisfied?

• a.Only the Regulatory and Ethics requirement, so she must still complete 6 credits of Products and Practice
• b.Nothing, because the model rule accepts no continuing education offered through FINRA
• c.The entire investment adviser representative requirement, because FINRA continuing education covers both content categories
• d.Only the Products and Practice requirement, so she must still complete the Regulatory and Ethics credits✓

The model rule deems a dual registrant who satisfies FINRA continuing education to have met the Products and Practice component only. The Regulatory and Ethics credits, including at least three hours of ethics content, must still be completed. FINRA credit is accepted, but not for the whole requirement; a credential from a qualifying credentialing organization is what can satisfy both parts.NASAA Model Rule on Investment Adviser Representative Continuing Education

Under the NASAA model rule, an applicant passed the SIE three years ago and the Series 66 and Series 7 one year ago. She holds no designation and was never registered as an investment adviser representative. Does she meet the examination requirement?

• a.No, because the Series 66 and Series 7 must both have been passed within one year of the date of the application, not two years
• b.No, because the SIE must also have been passed within the same two years before the application as the other two examinations were
• c.No, because an applicant with no designation and no earlier registration can qualify only by passing the Series 65 itself, with no credit for the others
• d.Yes, because the SIE is valid for four years and the Series 66 and Series 7 are valid for two years from the date of application✓

The model rule offers two routes: the Series 65 within two years of the application, or the Series 66 and Series 7 within two years together with the SIE within four years. Her SIE is three years old and her other two exams are one year old, so she qualifies without the Series 65. The SIE has its own four-year window, and the combination route does not require a designation or a one-year limit.NASAA Model Rule on Investment Adviser Representative Examination Requirements

Under the NASAA model rule, which applicant for investment adviser representative registration qualifies for a waiver of the examination requirement?

• a.A person who currently holds the Certified Investment Management Analyst designation in good standing✓
• b.A holder of a master's degree in business administration with a concentration in finance from an accredited university
• c.A licensed certified public accountant with an active license in good standing and no other designation
• d.A securities representative with fifteen years of industry experience, a clean record and a current Series 7 license

The model rule waives the examination for applicants who are current and in good standing in the CFP, ChFC, CFA, PFS or CIMA designations. The PFS is a designation for CPAs, but a CPA license alone is not on the list. Years of experience, the Series 7 and academic degrees do not earn a waiver.NASAA Model Rule on Investment Adviser Representative Examination Requirements

A FINRA member firm terminates a registered representative on Tuesday, October 13, 2026. By what date must it file Form U5 and give the individual a copy?

• a.December 12, 2026, which is 60 days after the date of termination
• b.November 27, 2026, which is 45 days after the date of termination
• c.November 12, 2026, which is 30 days after the termination✓
• d.October 23, 2026, which is 10 days after the date of termination

FINRA By-Laws Article V, Section 3 requires a member to file Form U5 no later than 30 days after the termination of a person's association and to give the person a copy. October 13 plus 30 days is November 12. Ten days is the period for a statutory disqualification amendment to Form U4, and neither 45 nor 60 days is a FINRA period for this notice.FINRA By-Laws, Article V, Section 3

A FINRA member firm filed a Form U5 for a terminated representative in the summer. On Monday, October 5, 2026 it learns of a customer complaint, made during his employment, that must be reported. By what date must it amend the Form U5?

• a.November 4, 2026, which is 30 days after it learns the facts✓
• b.November 19, 2026, which is 45 days after it learns the facts
• c.October 15, 2026, which is 10 days after it learns the facts
• d.October 6, 2026, because the amendment must be filed the next business day

A member must amend a Form U5 no later than 30 days after learning of the facts or circumstances that require the amendment. October 5 plus 30 days is November 4. The 10-day period belongs to a Form U4 statutory disqualification amendment, and no next-day or 45-day rule applies.FINRA By-Laws, Article V, Section 3

A registered representative is convicted of a felony, which makes him statutorily disqualified. Under the FINRA By-Laws, by when must his Form U4 be amended to report this?

• a.Within 60 days after the conviction becomes final on appeal
• b.At his next annual registration renewal, because convictions are reported on a yearly cycle
• c.No later than 10 days after the disqualification occurs, rather than the usual 30 days✓
• d.Within 30 days after the firm learns the facts, as for any other Form U4 amendment

Form U4 amendments are normally due within 30 days after the firm learns the facts, but Article V, Section 2(c) shortens the time for an amendment reporting a statutory disqualification to no later than 10 days after the disqualification occurs. Waiting for renewal or for the end of an appeal is not permitted.FINRA By-Laws, Article V, Section 2(c)

Under the Uniform Securities Act (2002), an investment adviser representative leaves her employer, and the employer fails to file a notice of termination. Who may file it?

• a.Nobody, until the 30-day period for a transfer application has ended and a new employer has been named
• b.The representative herself, once she learns that the employer has not filed✓
• c.Only her new employer, and only after it has hired her and filed its own application for registration
• d.Only the Administrator, because a termination can be recorded only by an order of the Administrator

Section 408(a) requires the employer to promptly file a notice of termination, and it provides that if the registrant learns the employer has not filed, the registrant may file it. Her registration is effective only while she is employed by or associated with an adviser, so the record needs correcting. The Administrator may cancel registrations in some cases, but the filing right does not depend on that, and the transfer period and the new employer play no part.Uniform Securities Act (2002) section 408(a)

Under the Uniform Securities Act (2002), an individual registered as an agent of a broker-dealer wants to act as an investment adviser representative of an affiliated adviser. What is required?

• a.Registration in both capacities, with the individual satisfying the requirements for each✓
• b.Agent registration alone, because it covers advisory activity for an affiliate of the broker-dealer
• c.Investment adviser representative registration alone, because it replaces the agent registration
• d.Nothing further, because one person may not hold both capacities at the same time

The 2002 Act's commentary to section 406 recognizes that one person may be both an agent and an investment adviser representative, provided the person satisfies the requirements for each registration. Neither registration substitutes for the other, and affiliation between the firms does not change that.Uniform Securities Act (2002) section 406

An investment adviser representative was unregistered during the 2024 and 2025 reporting periods. On re-applying she takes and passes the Series 65 as part of her application. What must she do about continuing education for the unregistered periods?

• a.Complete half of the credits for each missed period, since she was out of the business for those years
• b.Complete the credits for the missed periods only if she was unregistered for at least three full years
• c.Complete the full credits for both missed periods, in addition to taking and passing the examination again
• d.Nothing for those periods, because passing the examination on re-application removes the requirement✓

The model rule requires continuing education for every reporting period between becoming unregistered and being registered again, unless the person takes and passes the examination or receives an examination waiver in connection with the new application. She retook and passed the examination, so the unregistered periods are not charged against her. The rule has no pro-rating and no three-year threshold.NASAA Model Rule on Investment Adviser Representative Continuing Education

A broker-dealer based in another state has no place of business in this state. Its only business here is with a state-chartered bank, an insurance company and two other registered broker-dealers. Under the Uniform Securities Act (1956), must it register in this state?

• a.Yes, because any firm that effects transactions in this state must register, whoever its customers are
• b.No, but only if it first files a notice and pays a fee to this state's Administrator
• c.Yes, because the exclusion is available only to firms that are registered with FINRA
• d.No, because a firm with no place of business here that deals only with issuers, other broker-dealers and financial institutions is outside the definition of broker-dealer✓

Section 401(c) excludes from the definition of broker-dealer a person who has no place of business in the state and who effects transactions in the state exclusively with issuers, other broker-dealers and financial or institutional buyers. Because such a firm is not a broker-dealer for purposes of the Act, no registration or notice filing is required. The identity of the customers is what matters.Uniform Securities Act (1956) section 401(c)

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

• a.A trust company✓
• b.A firm that underwrites new issues of corporate securities and sells them to the public
• c.A sole proprietor who executes securities orders for customers for a commission
• d.A firm that buys and sells securities for its own account as part of a regular business

Section 401(c) defines a broker-dealer as a person engaged in the business of effecting transactions in securities for the account of others or for its own account, and it excludes an agent, an issuer, and a bank, savings institution or trust company. The sole proprietor is a broker, the proprietary trading firm is a dealer, and the underwriting firm is in the business of selling securities, so all three are broker-dealers.Uniform Securities Act (1956) section 401(c)

A broker-dealer organized as a corporation is registered in the state under the Uniform Securities Act (1956). Its president, who is also a director, personally sells securities to customers in the state. Must the president register separately as an agent?

• a.Yes, because every individual who sells securities to the public must hold a personal agent registration
• b.No, because registration of the broker-dealer automatically constitutes registration of an agent who is a partner, officer or director✓
• c.No, because the president is an issuer's representative and the issuer exclusion applies
• d.Yes, because a director who sells securities is exempt from separate registration only if he also holds a controlling interest in the firm

The last sentence of section 202(a) provides that registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer or director, or a person with a similar status or functions. The president is therefore covered by the firm's registration. Other individuals who sell must register, ownership level plays no part, and the president represents the broker-dealer, not an issuer.Uniform Securities Act (1956) section 202(a)

Which statement about surety bonds under the original Uniform Securities Act (1956) is correct?

• a.Bonds may be required only of agents, and never of broker-dealers or of investment advisers, since those firms hold their own capital
• b.Every registered broker-dealer must post a bond of at least $25,000 as a condition of registration, whatever its net capital may be
• c.The Administrator may require bonds of up to $10,000 from registrants by rule, but none from a registrant whose net capital exceeds $25,000✓
• d.The Administrator may require a bond of any amount from any registrant, whatever the registrant's net capital may be at the time

Section 202(e) authorizes the Administrator to require registered broker-dealers, agents and investment advisers to post surety bonds in amounts up to $10,000 and to accept cash or securities in place of a bond. No bond may be required of a registrant whose net capital exceeds $25,000. The $25,000 figure is the net capital cutoff, not the size of a bond, and the authority covers all three kinds of registrant.Uniform Securities Act (1956) section 202(e)

A corporate officer sells the issuer's non-exempt shares to the company's current employees. She receives no commission or other remuneration for doing so. Is she an agent under the Uniform Securities Act (1956)?

• a.Yes, because the exclusion for employee sales applies only to exempt securities
• b.Yes, because any officer who sells non-exempt securities is an agent
• c.No, but only if the shares are listed on a national securities exchange
• d.No, because an individual who represents an issuer in transactions with its existing employees is excluded when no commission is paid✓

Section 401(b) excludes from the definition of agent an individual who represents an issuer in effecting transactions with existing employees, partners or directors of the issuer, as long as no commission or other remuneration is paid for soliciting anyone in the state. The exclusion does not depend on the securities being exempt or listed.Uniform Securities Act (1956) section 401(b)

A registered agent leaves broker-dealer X to join broker-dealer Y, and both firms are registered in the state. Under the Uniform Securities Act (1956), who must notify the Administrator?

• a.The agent, the former employer and the new employer must each promptly notify the Administrator✓
• b.Only the agent, who must notify the Administrator within 30 days of changing firms, and no one else
• c.Only the new employer, because it is the party that files the new application on the agent's behalf
• d.Nobody, because the registration follows the agent from one firm to the next when both firms are registered in the state

Section 201(b) provides that an agent's registration is not effective while the agent is not associated with a particular registered broker-dealer or issuer, and it requires the agent, the old employer and the new employer to promptly notify the Administrator of a change. Registration does not follow the individual automatically, and notice is not limited to one party or fixed at 30 days.Uniform Securities Act (1956) section 201(b)

A director of a corporation is paid a 3% commission to sell the corporation's non-exempt securities to investors in the state, and the sales do not fall under any transactional exemption. Is he an agent under the Uniform Securities Act (1956)?

• a.Yes, but only if he sells to more than ten persons in a twelve-month period, which is the threshold that makes a seller an agent
• b.No, because an agent is an individual who represents a broker-dealer, and he represents only an issuer, not a broker-dealer firm
• c.No, because directors and officers of a corporation are never agents when they sell their own company's securities to investors
• d.Yes, because an individual who represents an issuer in effecting such sales is an agent, and being a director gives no exclusion✓

An agent is an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Section 401(b) excludes issuer representatives only in sales of certain listed exempt securities, in transactions exempt under section 402(b), and in commission-free sales to existing employees, partners or directors, and it says that a director, officer or partner is an agent only if he otherwise comes within the definition. He does, because he sells non-exempt securities for a commission. The ten-person count belongs to a transactional exemption, not to the definition.Uniform Securities Act (1956) section 401(b)

An agent left broker-dealer A on April 1 and was hired by broker-dealer B on May 15. Under the Uniform Securities Act (1956), was her agent registration effective during the weeks in between?

• a.Yes, so long as she remains registered as an agent in another state
• b.Yes, for 30 days after termination, a grace period the Act provides
• c.Yes, because the registration belongs to the agent and stays effective until its annual expiration
• d.No, because agent registration is not effective while the individual is not associated with a particular registered broker-dealer or issuer✓

Under section 201(b), an agent's registration is not effective during any period when the agent is not associated with a particular broker-dealer or issuer registered under the Act. The registration is tied to the employment, not personal to the individual. The Act gives no grace period, and registration elsewhere does not keep the state registration alive.Uniform Securities Act (1956) section 201(b)

A developer sells a ten-acre orchard parcel to a buyer who personally tends and harvests it and has no further obligation to or reliance on the seller. Is the sale of an investment contract?

• a.Yes, because every sale of land with growing crops on it is a sale of a security under the Act, whoever tends the land
• b.No, because real estate can never be a security under the Act, however the sale is structured or promoted to buyers
• c.No, because the buyer's profit depends on his own work and not on the efforts of the seller or a third party✓
• d.Yes, because buying from a developer creates a common enterprise between the buyer and the developer who sold the land

An investment contract, under the test in SEC v. Howey, is an investment of money in a common enterprise with profits expected from the efforts of the promoter or a third party. A buyer who works the land himself looks to his own efforts, so the sale is only a land sale. Real estate can be a security when it is packaged with management by others, and a purchase from a developer does not by itself make a common enterprise.Uniform Securities Act (1956) section 401(l); SEC v. W. J. Howey Co.

A promoter sells vineyard rows to out-of-state investors. The contracts oblige the promoter to plant, harvest and market the grapes and to pay each investor a share of the proceeds. The investors do no work. How is the arrangement treated?

• a.As a commodity sale that is not a security because the return comes from grapes rather than a company's profits
• b.As an investment contract, and therefore a security✓
• c.As a sale of real property that is outside the Act because investors take title to the rows
• d.As a security only if the investors pay with a promissory note

The investors put in money, share in a common enterprise run by the promoter, and expect profit entirely from the promoter's efforts, which is the Howey description of an investment contract. Title to the rows and the agricultural nature of the product do not take the arrangement outside the definition, and the form of payment is irrelevant.Uniform Securities Act (1956) section 401(l); SEC v. W. J. Howey Co.

A promoter sells investors the right to receive a share of payments out of the production from an oil and gas lease. Is the interest a security under the Uniform Securities Act (1956)?

• a.No, because the investors hold no title to the lease itself, and the definition requires an ownership interest in the lease
• b.Yes, because the definition names interests in payments out of production under an oil, gas or mining title or lease✓
• c.No, because mineral interests are real property, and sales of real property are outside the Act altogether, in every case
• d.Yes, but only if the promoter also agrees to manage the wells, because a security needs the efforts of someone else

Section 401(l) lists a certificate of interest or participation in an oil, gas or mining title or lease, or in payments out of production under such a lease, and the commentary explains that the wording was added so that oil payments are securities whether or not they are interests in a title or lease. Management of the wells would matter only for an investment contract analysis, which is unnecessary here. Lack of title and the real-property character of minerals do not take the interest outside the definition.Uniform Securities Act (1956) section 401(l)

In SEC v. Howey, the promoter sold citrus grove acreage under a land sale contract and a separate service contract. How did the Supreme Court treat that labeling?

• a.It held that placing the service arrangement in a separate contract put it outside the securities laws
• b.It held that a security must be evidenced by a stock or bond certificate
• c.It accepted the land sale label, because title passed to buyers by deed
• d.It disregarded the form and looked to economic reality, and found an investment contract✓

The Court stated that form was disregarded for substance and that emphasis was placed on economic reality. Buyers who contributed money and relied on the promoter's cultivation and marketing of the groves held an investment contract, even though the paperwork presented a land sale plus an optional service agreement. A certificate is not required for something to be a security.Uniform Securities Act (1956) section 401(l); SEC v. W. J. Howey Co.

A corporation issues warrants that give holders the right to subscribe to its common stock at a fixed price. Under the Uniform Securities Act (1956) definition, how is a warrant treated?

• a.As not a security until it is exercised and shares are actually issued, because only the underlying stock is a security under the Act
• b.As a security only if it trades on a national securities exchange
• c.As not a security if it expires within one year of issuance
• d.As a security, because the definition covers any warrant or right to subscribe to or purchase one of the listed securities✓

The closing language of the section 401(l) definition reaches any certificate of interest in, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the securities it lists, and stock is one of them. A warrant is a security from issuance, without regard to its term or where it trades.Uniform Securities Act (1956) section 401(l)

A company has operated continuously for eight years and has had no default on any fixed-maturity or fixed-dividend security in the current and three preceding fiscal years. Its outstanding common stock is valued at $30 million at a market price chosen within 30 days before filing, but $40 million at the maximum offering price. What average net earnings over the past three fiscal years does it need to register by notification?

• a.At least $1.5 million, which is 5% of the lower $30 million market value of the stock
• b.At least $1.2 million, which is 3% of the higher $40 million value of the stock
• c.At least $2.0 million, which is 5% of the higher $40 million value✓
• d.At least $4.0 million, which is 10% of the higher $40 million value of the stock

Section 302(a)(1) requires average net earnings over the past three fiscal years equal to at least 5% of the outstanding securities without a fixed maturity or dividend, measured at the maximum offering price or the market price, whichever is higher. The higher figure here is $40 million, so the requirement is $2.0 million. Using the lower market value understates the test, and 10% and 3% are not the statutory percentage.Uniform Securities Act (1956) section 302(a)(1)

An issuer files a registration by notification on a Thursday, and no stop order or proceeding is pending. When does the registration become effective?

• a.At 3:00 p.m. Eastern time on the following Tuesday, the third full business day after the filing date
• b.At 3:00 p.m. Eastern time on the following Monday, the second full business day after the filing✓
• c.At noon on the 30th day after the filing, the same rule that applies to broker-dealer registration
• d.At 3:00 p.m. Eastern time on Friday, the next business day after the filing, if no stop order is pending

Under section 302(c), a registration by notification becomes effective at 3:00 p.m. Eastern time on the second full business day after the filing, or after the last amendment, unless a stop order or a proceeding under section 306 is pending. For a Thursday filing the first full business day is Friday and the second is Monday. The noon-on-the-30th-day rule is the one for broker-dealer and adviser registration.Uniform Securities Act (1956) section 302(c)

A registrant files its state registration by coordination on day 1. The SEC declares the federal registration for the same offering effective on day 6, and no stop order is in effect. Is the state registration effective at that moment?

• a.No, because the Administrator must first issue an affirmative order granting the registration
• b.Yes, because state registration by coordination is effective whenever the federal registration becomes effective
• c.No, because the state statement must have been on file at least 10 days, so effectiveness comes only when that and the other conditions are met✓
• d.Yes, because the state statement needs to be on file only five full business days

Registration by coordination becomes effective automatically when the federal registration does only if no stop order is in effect, the state statement has been on file at least 10 days, and the price information has been on file at least two full business days. If the federal registration becomes effective first, the state registration takes effect as soon as those conditions are satisfied. No affirmative order is needed once they are.Uniform Securities Act (1956) section 303

A corporation formed 18 months ago has no earnings record. It plans an offering of its shares only in this state and has not filed with the SEC. Which method can it use to register the offering in the state?

• a.Notification, because a new issuer's earnings test is applied to its projected earnings
• b.Coordination, because that method is open to any issuer regardless of federal filings
• c.Qualification, because notification requires five years of operation and coordination requires a federal registration statement✓
• d.None, because intrastate offerings by new issuers are exempt from registration

Qualification is the method available for any security not eligible for the other two. Notification is limited to issuers with at least five years of continuous operation and the required earnings record, and coordination to offerings with a federal registration statement on file. There is no exemption merely because an offering is intrastate or the issuer is new, and earnings are not projected.Uniform Securities Act (1956) sections 302 and 304

A manufacturer issues a note on March 1 to finance current inventory purchases, and the note matures on December 15 of the same year. Is it exempt as commercial paper under the Uniform Securities Act (1956)?

• a.No, because the commercial paper exemption covers only notes issued to banks
• b.Yes, because notes maturing within one year of issuance qualify
• c.Yes, because it arises from a current transaction
• d.No, because it matures more than nine months after its issuance✓

Section 402(a)(10) exempts commercial paper arising from a current transaction and maturing not more than nine months after issuance, exclusive of days of grace. March 1 to December 15 is about nine and a half months, so the note is outside the exemption despite the current-transaction purpose. One year is not the limit, and the exemption is not confined to bank purchasers.Uniform Securities Act (1956) section 402(a)(10)

A company creates an employees' stock purchase plan that involves investment contracts. To use the exemption in section 402(a)(11), what must it do?

• a.Notify the Administrator in writing 30 days before the plan begins✓
• b.Register the plan by coordination before any employee enrolls
• c.Obtain the Administrator's written approval before the plan begins
• d.File a notice with the Administrator within 30 days after the plan begins

The employee benefit plan exemption applies to investment contracts issued in connection with an employees' stock purchase, savings, pension, profit-sharing or similar plan if the Administrator is notified in writing thirty days before the inception of the plan. It is a notice requirement made in advance, not a registration, a later filing or an approval.Uniform Securities Act (1956) section 402(a)(11)

A church-affiliated charitable organization sells notes to its members to finance a community center. How are the notes treated under the Uniform Securities Act (1956)?

• a.They are exempt from registration and from the antifraud provisions, because charitable issuers are outside the Act
• b.They are exempt securities under section 402(a)(9), although the antifraud provisions still apply and the Administrator may deny the exemption for them by order✓
• c.They must be registered by qualification, because the exemption covers only stock issued by nonprofit organizations
• d.They are exempt only if they mature within nine months of issuance

Section 402(a)(9) exempts securities issued by an organization operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic or reformatory purposes. The exemption applies to debt as well as stock, carries no nine-month limit, and does not lift the antifraud provisions. Under section 402(c) the Administrator may deny or revoke the exemption for a specific security after notice and hearing, or summarily pending a hearing.Uniform Securities Act (1956) sections 402(a)(9) and 402(c)

A bond issued by a foreign government with which the United States maintains diplomatic relations is offered in the state. When is it an exempt security under the Uniform Securities Act (1956)?

• a.Only when the issuing country is a member of a recognized international economic organization
• b.Never, because the exemption covers only U.S. government and Canadian securities
• c.When the security is recognized as a valid obligation by its issuer, insurer or guarantor✓
• d.Only when it is listed on the New York Stock Exchange

Section 402(a)(2) exempts securities issued, insured or guaranteed by Canada or its provinces and by any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer, insurer or guarantor. Exchange listing, membership in international bodies and a limit to Canada are not conditions.Uniform Securities Act (1956) section 402(a)(2)