NASAA Series 65 — All Questions

Which statement may an adviser NOT include in an advertisement that presents performance results?

• a.Net-of-fee returns for one-, five-, and ten-year periods, each shown with equal prominence
• b.A statement that past performance does not guarantee future results
• c.A note that the composite includes only accounts managed under the same strategy
• d.A claim that the SEC has approved or reviewed the calculation or presentation of the performance✓

Rule 206(4)-1(d)(3) bars any statement, express or implied, that the calculation or presentation of performance has been approved or reviewed by the Commission. Risk disclaimers, the required one-, five-, and ten-year periods, and an accurate description of composite construction are all acceptable.17 CFR 275.206(4)-1(d)(3)

An adviser's ad highlights the return on one stock that it picked inside a client portfolio. What must the ad provide or offer to provide?

• a.The performance results of the total portfolio from which the performance was extracted, promptly✓
• b.A hypothetical return the whole portfolio would have earned if every holding had matched the stock
• c.The adviser's complete trade blotter for every account in the strategy over the past ten years
• d.A signed statement from the client confirming that the stock return is accurate

Extracted performance is the results of a subset of investments taken from a portfolio. Under Rule 206(4)-1(d)(5), such an ad is permitted only if it provides, or offers to provide promptly, the performance of the total portfolio. This guards against showing only the winners. The other items are not what the rule asks for.17 CFR 275.206(4)-1(d)(5), (e)(6)

Which action satisfies the Rule 206(4)-7 requirement to review compliance policies and procedures?

• a.Reviewing, once a year, only the adviser's trading results and fee calculations
• b.Reviewing, at least annually, both the adequacy of the policies and the effectiveness of how they are carried out✓
• c.Reviewing, at least every two years, the written policies to confirm they match the current Form ADV and the adviser's disclosure documents
• d.Reviewing the written policies once at adoption and again only after an SEC examination identifies a deficiency in the program

Rule 206(4)-7(b) requires a review no less frequently than annually of the adequacy of the policies and procedures and the effectiveness of their implementation. The adviser must also designate a chief compliance officer who is a supervised person responsible for administering the policies. A review limited to the paper or to trading results misses half the test.17 CFR 275.206(4)-7(b), (c)

An adviser's covered associate gives $300 to a candidate for state office for whom he cannot vote, and the adviser later discovers it. Under the returned-contribution exception, what must the adviser do to avoid the two-year ban?

• a.Discover the contribution within 12 months of its date and have it returned within 30 days after the discovery
• b.Fire the covered associate within 60 days and have the firm reimburse the amount to the candidate
• c.Discover the contribution within four months of its date and have it returned within 60 days after the discovery✓
• d.Report it to the SEC within 10 business days and have the candidate keep the funds in escrow

Rule 206(4)-5(b)(3) excepts a returned contribution if the adviser discovered it within four months of the contribution date, the amount did not exceed $350 (or $150 if the donor could not vote for the candidate), and it was returned within 60 calendar days of discovery. Here $300 is above the $150 de minimis limit for a donor who cannot vote for the official but within the $350 ceiling, so the exception is available if the clocks are met.17 CFR 275.206(4)-5(b)(3)

A registered adviser's privacy practices have not changed since its last notice, and it shares nonpublic personal information with nonaffiliated parties only under the Regulation S-P exceptions for processing transactions, servicing accounts, and legal compliance. What does Regulation S-P require about annual privacy notices?

• a.An annual notice is required only for clients whose accounts exceed the SEC registration threshold, and not for smaller accounts
• b.An annual notice is still required, but it may be delivered electronically without the client's consent or any prior opt-in from the client
• c.No annual notice is required, but an updated notice must be sent every three years to every client
• d.No annual notice is required, because it shares only under the listed exceptions and its disclosed practices are unchanged✓

Regulation S-P section 248.5(e) excuses the annual notice when the firm gives nonpublic personal information to nonaffiliated third parties only under the processing, servicing and other exceptions (sections 248.13, 248.14, 248.15) and has not changed the practices described in its latest notice. If either condition stops being true, the annual notice requirement returns.17 CFR 248.5(e)

Under the incident response rules added to Regulation S-P, when must a covered institution notify an individual whose sensitive customer information was, or was reasonably likely to have been, accessed or used without authorization?

• a.Within 60 days after the institution completes its forensic investigation of the incident and quantifies the losses to its customers
• b.Only after the SEC examination staff confirms in writing that the breach was material
• c.As soon as practicable, and no later than 30 days after becoming aware of the unauthorized access or use✓
• d.Within 72 hours after the institution first becomes aware of the unauthorized access or use of its customer information systems

Section 248.30(a)(4)(iii) requires notice as soon as practicable but not later than 30 days after the institution becomes aware, unless the Attorney General finds a national security or public safety risk. The 72-hour figure is not the customer deadline; it is the outer limit for a service provider to notify the institution. The clock does not wait for an investigation to finish or for the SEC to weigh in.17 CFR 248.30(a)(4)(iii)

Under Regulation S-P's safeguards rule, a covered institution's policies must be designed so that a service provider notifies the institution of a security breach involving its customer information system within what period after the provider becomes aware?

• a.As soon as possible, but no later than 72 hours✓
• b.As soon as possible, but no later than 24 hours
• c.As soon as possible, but no later than 30 calendar days
• d.As soon as possible, but no later than 10 business days

Section 248.30(a)(5) requires the institution's oversight policies to ensure that service providers notify it as soon as possible, and no later than 72 hours after becoming aware of a breach resulting in unauthorized access to a customer information system the provider maintains. The 30-day period is the separate deadline for notifying affected individuals.17 CFR 248.30(a)(5)

An adviser has been registered with the SEC and reports $95 million of assets under management on its annual update. Under Rule 203A-1, what must it do?

• a.Withdraw from the SEC and register with its state once its assets fall below $100 million for two consecutive annual filings
• b.Switch to state registration at once, because it falls in the range between $90 million and $110 million of assets under management
• c.Withdraw from the SEC and register with its state, because it is now under $100 million
• d.Nothing yet; it need not withdraw SEC registration unless its assets under management fall below $90 million✓

Rule 203A-1(a) sets a buffer: an adviser with $100 million to less than $110 million may register with the SEC, and one already registered need not withdraw unless assets drop below $90 million. A $95 million adviser can therefore remain registered with the SEC. Nothing in the rule creates a two-year test.17 CFR 275.203A-1(a)(1)

Which adviser may register with the SEC under the multi-state exemption in Rule 203A-2(d) even though its assets under management are below the usual threshold?

• a.One that has clients in at least 10 states and no clients located in its home state
• b.One that has more than 50 clients located in at least five states
• c.One that would otherwise have to register with the securities authorities of at least 15 states✓
• d.One whose state has not adopted the Uniform Securities Act and so cannot register advisers

Rule 203A-2(d) lets an adviser that is required by the laws of 15 or more states to register as an investment adviser (and would otherwise remain so required in at least 15 states) register with the SEC instead, by electing it on Schedule D of Form ADV. Ten states, a client count, or a state without adviser registration do not meet the test.17 CFR 275.203A-2(d)

A director of a public company adopts a Rule 10b5-1 trading plan on November 2, 2026. The company's Form 10-K for the fiscal year ending December 31 is filed on March 15, 2027. On what date does the cooling-off period end?

• a.December 2, 2026, which is 30 days after adoption
• b.March 2, 2027, because the cooling-off period is capped at 120 days after adoption✓
• c.March 17, 2027, which is two business days after the Form 10-K is filed
• d.January 31, 2027, which is 90 days after adoption

For a director or officer, Rule 10b5-1(c)(1)(ii)(B) sets a cooling-off period equal to the later of 90 days after adoption (January 31, 2027) or two business days after the Form 10-K or 10-Q for the quarter in which the plan was adopted (March 17, 2027), but never more than 120 days after adoption. 120 days after November 2, 2026 is March 2, 2027, so the cap controls. The 30-day period applies only to persons who are neither the issuer nor a director or officer.17 CFR 240.10b5-1(c)(1)(ii)(B)(1)

An employee who is not a director or officer of the issuer, and is not the issuer, adopts a Rule 10b5-1 plan. How long is the cooling-off period before any purchase or sale may occur under the plan?

• a.30 days after the adoption of the plan✓
• b.Two business days after the issuer's next periodic report is filed
• c.No cooling-off period applies, only a good-faith certification
• d.90 days after the adoption of the plan

Rule 10b5-1(c)(1)(ii)(B)(2) requires a person who is not the issuer and not a director or officer to wait 30 days after adoption. The longer, report-linked period (later of 90 days or two business days after results, capped at 120 days) is only for directors and officers, and the cooling-off period is required whatever certification is given.17 CFR 240.10b5-1(c)(1)(ii)(B)(2)

A shareholder who is not the issuer adopted a Rule 10b5-1 plan in March 2026 designed to sell all of a block of shares in a single transaction. She wants to adopt a second single-transaction plan in October 2026. Why might the affirmative defense be unavailable for the second plan?

• a.She adopted another plan within the prior 12 months that was designed to sell all of its securities in a single transaction✓
• b.Any plan adopted within six months of an earlier plan is presumed to be adopted in bad faith
• c.A second plan is not allowed until the first plan has been fully terminated in writing and cancelled by the broker, with notice to the SEC
• d.Single-transaction plans are not eligible for the defense unless the security is registered under the Exchange Act and the seller is an affiliate

Rule 10b5-1(c)(1)(ii)(D) denies the affirmative defense to a person (other than the issuer) who had, within the prior 12-month period, adopted another plan designed to buy or sell all the securities covered in a single transaction. March to October falls within 12 months. The rule has no six-month presumption, and it does not require the earlier plan to be cancelled.17 CFR 240.10b5-1(c)(1)(ii)(D)

Under SEC Rule 35d-1, the "names rule," a fund whose name suggests a focus on a type of investment must adopt which policy?

• a.A policy to invest at least 80 percent of its assets in the investments suggested by its name✓
• b.A policy to invest at least 90 percent of its assets in the investments suggested by its name
• c.A policy to invest at least 65 percent of its assets in the investments suggested by its name
• d.A policy to invest at least 80 percent of its net income in the investments suggested by its name

Rule 35d-1(a)(2) requires a registered fund whose name suggests a particular type of investment, industry, or geographic focus to adopt a policy of investing at least 80 percent of the value of its assets in those investments. Lower and higher percentages are distractors, and the test is measured on assets, not on income.17 CFR 270.35d-1(a)(2)

A fund wants to change the 80 percent investment policy that supports its name, and that policy is not a fundamental policy. What does Rule 35d-1 require?

• a.At least 30 days' prior notice to shareholders, limited to funds with more than $100 million in assets
• b.Approval of the change by a majority of the outstanding voting shares before it takes effect
• c.At least 60 days' prior notice to shareholders of the policy change and any accompanying name change✓
• d.Prompt notice to shareholders within 10 days after the change takes effect

Under Rule 35d-1(a)(2)(ii), the 80 percent policy must be either a fundamental policy or accompanied by a commitment to give shareholders at least 60 days' prior notice of any change in the policy and any related name change. A shareholder vote is the route for changing a fundamental policy, not for this notice route, and after-the-fact notice does not satisfy the rule.17 CFR 270.35d-1(a)(2)(ii)

Under Rule 2a-7, as amended in 2023, a money market fund may not acquire any security other than a daily liquid asset if, immediately afterward, it would have less than what percentage of total assets in daily liquid assets, and what percentage in weekly liquid assets?

• a.10 percent daily and 30 percent weekly
• b.30 percent daily and 25 percent weekly
• c.25 percent daily and 50 percent weekly✓
• d.15 percent daily and 40 percent weekly

Rule 2a-7(d)(1) now requires at least 25 percent of total assets in daily liquid assets and at least 50 percent in weekly liquid assets, with the daily minimum not applying to tax-exempt funds. The 10 percent and 30 percent pair is the tempting wrong answer, since it was the minimum before the 2023 amendments raised it.17 CFR 270.2a-7(d)(1)(ii), (d)(1)(iii)

A single man earned $215,000 in each of the past two years and reasonably expects the same this year. His net worth is $600,000 excluding his home. Under Regulation D, is he an accredited investor?

• a.Yes, because his individual income exceeded $200,000 in each of the two most recent years with the same expected this year✓
• b.Yes, but only for offerings under Rule 506(c) and not for offerings under Rule 506(b), because that is where verification is required
• c.No, because he must also have net worth above $1 million, excluding his primary residence
• d.No, because the income test requires joint income with a spouse above $300,000 in each of the two most recent years and the same expected this year

Rule 501(a)(6) makes a natural person accredited with individual income above $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent above $300,000, with a reasonable expectation of the same level this year. The income and net worth tests are alternatives, and accredited status does not depend on the offering exemption.17 CFR 230.501(a)(6)

An issuer conducts a Rule 506(b) offering with no general solicitation. It has already sold to 30 accredited investors. What is true about non-accredited purchasers?

• a.It may sell to unlimited non-accredited purchasers if each invests at least $50,000
• b.It may not sell to any non-accredited purchaser unless it uses general solicitation under Rule 506(c) instead of Rule 506(b)
• c.It may sell to up to 35 non-accredited purchasers in any 12-month period, with no sophistication requirement for any of them
• d.It may sell to no more than 35 purchasers who are not accredited in any 90-day period, and each must be sophisticated✓

Rule 506(b)(2) permits sales to no more than 35 purchasers in a 90-calendar-day period (accredited investors are not counted), and each non-accredited purchaser, alone or with a purchaser representative, must have the knowledge and experience to evaluate the investment. Rule 506(c) is the general solicitation route and allows accredited investors only.17 CFR 230.506(b)(2)(i)-(ii)

An adviser holds client mutual fund shares and wants to avoid a separate custodian for them. Under the custody rule, what may it do for open-end fund shares?

• a.Rely on the fund's independent public accountant to maintain the shareholder records as custodian
• b.Use the fund's transfer agent in place of a qualified custodian to hold the shares✓
• c.Hold the shares at an unaffiliated investment adviser registered with the SEC that agrees to act as custodian
• d.Hold the shares in the adviser's own name without any custodian, as long as it discloses it on Form ADV

Rule 206(4)-2(b)(1) allows an adviser to use the mutual fund's transfer agent instead of a qualified custodian for shares of an open-end company. Otherwise, client funds and securities over which the adviser has custody must be kept with a qualified custodian: a bank, registered broker-dealer, futures commission merchant (in limited cases), or foreign financial institution.17 CFR 275.206(4)-2(b)(1)

An adviser has custody of client accounts only because its advisory agreements let it withdraw its fee directly from those accounts, which are held at an unrelated qualified custodian. What is the consequence under the custody rule?

• a.It is not required to obtain the independent verification (the surprise examination) for those accounts✓
• b.It is deemed not to have custody and so is exempt from the qualified custodian requirement
• c.It must still undergo a surprise examination by an independent public accountant every year, as every other adviser with custody must
• d.It must hold the accounts through a related person acting as qualified custodian instead of undergoing the surprise examination

Rule 206(4)-2(b)(3) excuses an adviser from the independent verification of client funds and securities if it has custody solely because it can withdraw its advisory fee, and the custodian is not a related person (or the related-person conditions are met). The adviser still has custody for other purposes, such as using a qualified custodian and giving account notices and statements, so it is not exempt altogether.17 CFR 275.206(4)-2(b)(3)

Which of these can serve as a qualified custodian for client assets under the Advisers Act custody rule?

• a.A certified public accounting firm that performs the annual surprise examination
• b.A broker-dealer registered under the Exchange Act that holds the client assets in customer accounts✓
• c.An unaffiliated registered investment adviser that agrees in writing to hold the securities for the client in a segregated account
• d.A state-chartered credit union whose deposits are insured by the NCUA but not by the FDIC or any other federal insurer

Rule 206(4)-2(d)(6) lists a bank or savings association with FDIC-insured deposits, a registered broker-dealer holding assets in customer accounts, a futures commission merchant (for limited assets), and a foreign financial institution that segregates customer assets. A credit union, another adviser, or an accounting firm is not on the list.17 CFR 275.206(4)-2(d)(6)

An independent public accountant completes a surprise examination of an adviser's client assets and finds a material discrepancy. What does the custody rule require the accountant to do?

• a.Notify the SEC within one business day of the finding✓
• b.Include it in the Form ADV-E certificate and make no other notice to the SEC
• c.Notify the SEC within 30 calendar days after the adviser's fiscal year ends
• d.Report the discrepancy to the adviser's clients and wait for the SEC to respond

Under Rule 206(4)-2(a)(4), the written agreement must require the accountant to file Form ADV-E within 120 days of the examination date it chose, and to notify the SEC within one business day of finding any material discrepancy, by fax or email followed by a notice. The immediate notice is separate from the certificate.17 CFR 275.206(4)-2(a)(4)(ii)