NASAA Series 66 — All Questions

A client asks an agent a question the agent cannot answer accurately. Under NASAA principles, the agent should:

• a.Answer from memory using what a colleague mentioned in passing, without verifying it, so the client gets a prompt reply
• b.Guess based on general market experience so as not to appear uninformed, since clients expect an agent to know the answer to any question about a product the agent sells
• c.Decline to answer beyond the agent's knowledge and obtain accurate information or escalate, rather than make an unsupported or misleading statement✓
• d.Give a confident-sounding answer on the spot to preserve the client's trust, and correct it later only if the client asks again

An agent must not make statements that cannot be supported, because an inaccurate or unsupported answer can be a misrepresentation or an omission of a material fact. The proper course is to say what is not known, then obtain accurate information or escalate to a supervisor or compliance. Repeating an unverified remark, guessing from experience, and sounding confident and fixing it only if asked again all risk giving the client a false impression.

An adviser wishes to use social media testimonials from happy clients in its advertising. Under the current SEC marketing rule this is:

• a.Permitted subject to conditions — disclosure of client status and any compensation, adviser oversight and adoption/entanglement responsibility, and a written agreement for compensated promoters✓
• b.Outside the marketing rule entirely, because posts on social-media platforms are third-party content that the rule never reaches
• c.Flatly and absolutely prohibited under all circumstances, exactly as testimonials once were before the rule changed
• d.Permitted only where the testimonials are completely unpaid and were posted spontaneously by total strangers

The amended marketing rule, Rule 206(4)-1, permits testimonials and endorsements, including on social media, if the adviser makes the required disclosures about client status and compensation, oversees the content, and has a written agreement with any compensated promoter; de minimis compensation of $1,000 or less in 12 months is excepted from some of those conditions. Content an adviser chooses to use in its advertising is covered by the rule, so it is not outside it. The former ban on testimonials no longer applies, and the rule does not limit endorsements to unpaid posts by strangers.17 CFR 275.206(4)-1(b)

An agent's broker-dealer is not registered in a state, but the agent solicits several retail residents there. Under the Uniform Securities Act, the agent's solicitation is:

• a.Lawful if the agent is registered in the state, because the agent's own registration is enough even when the employing firm is not registered there
• b.Lawful if the agent is registered with FINRA, since FINRA registration substitutes for state registration of the agent
• c.Permitted, because only the broker-dealer firm, and not the individual agent, must register in the state
• d.Unlawful — both the broker-dealer and the agent generally must be registered in the state to solicit its retail residents (absent an exemption)✓

Under Section 201 of the Uniform Securities Act, it is unlawful to transact business in the state as a broker-dealer or agent unless registered, and it is unlawful for a broker-dealer to employ an agent who is not registered. So both the firm and the agent generally must be registered there, absent an exemption. The agent's own registration cannot stand in for the firm's, FINRA registration does not replace state registration, and the individual agent has its own registration duty.Uniform Securities Act (1956) §201(a)-(b)

An investment adviser representative leaves a state-registered adviser. Under NASAA rules, the obligation to notify the Administrator of the IAR's termination falls on:

• a.The state securities Administrator itself, which is expected to track all such IAR terminations automatically without any filing from the firm or the representative
• b.Only the departing investment adviser representative, acting entirely on their own initiative
• c.The investment adviser (the employing firm), which must notify the Administrator when an IAR's employment ends✓
• d.No one at all, because an IAR's state registration simply lapses silently upon termination

Under USA §201 and NASAA rules, for state-registered advisers the FIRM (the investment adviser) is responsible for notifying the Administrator when an IAR begins or ends employment. This differs from the broker-dealer/agent context, where the agent and both firms notify. Registrations do not simply lapse without notice.

A broker-dealer wants to combine (net) a customer's purchase and sale in the same security to reduce the customer's commissions on a legitimate transaction. Compared with 'painting the tape,' this legitimate netting is:

• a.Identical in every meaningful respect to unlawful market manipulation such as painting the tape, and therefore flatly prohibited by the antifraud provisions of the Act
• b.Prohibited in all cases unless the state Administrator affirmatively approves the netting in advance
• c.Permissible when it reflects genuine transactions executed for a bona fide purpose, unlike manipulative matched orders designed to create false activity✓
• d.Allowed only for large institutional customers and never for ordinary retail customers of the firm

Genuine transactions executed for a bona fide economic purpose are lawful, even when they net a customer's activity. What the antifraud provisions (USA §101) prohibit is SHAM activity — matched or wash trades designed to create a false appearance of trading. Intent and economic reality distinguish the two.

An adviser discovers it made a trading error that harmed a client account. Consistent with fiduciary duty, the adviser should:

• a.Correct the error and absorb the loss, but disclose it to the client only if the client asks, since an error that has been corrected causes no continuing harm to the account
• b.Promptly correct the error and make the client whole, and disclose the error consistent with the duty of loyalty and care, rather than shifting the loss to the client✓
• c.Wait to see whether the market recovers, and correct the error only if the loss has not disappeared by the next quarterly statement
• d.Charge the full cost of correcting the error back to the client as an ordinary account expense item

An adviser's fiduciary duties of loyalty and care require it to correct a trading error promptly, to bear the resulting loss itself so the client is made whole, and to disclose the error. Correcting the error but staying silent unless asked fails the duty to disclose. Waiting for the market to recover leaves the client exposed to the loss and lets the adviser gamble with the client's account. Passing the correction cost to the client moves the loss to the party who did not cause it.

An agent recommends a security that is suitable for the client but fails to disclose a substantial, known risk specific to that issuer. The failure to disclose the material issuer-specific risk is:

• a.Permissible, provided the specific issuer risk is described somewhere within the many pages of the security's official statutory prospectus, whether or not the client ever reads it
• b.A material omission — suitability does not excuse omitting a material fact needed to keep statements from being misleading✓
• c.Fully excused, because the recommendation itself was determined to be suitable for the client overall
• d.Acceptable, because issuer-specific risk is assumed and understood by all investors as a matter of course

Even a suitable recommendation must be accompanied by disclosure of material facts; omitting a known, material issuer-specific risk violates the antifraud provisions (USA §101). Suitability and full disclosure are separate obligations — satisfying one does not excuse breaching the other.

An IAR tells a prospective client that the IAR 'personally guarantees' the advisory firm's recommendations will beat the market every year. This representation is:

• a.Valid, because the IAR's documented record of beating the market over many prior years supports the claim and makes it a fair statement of expectation
• b.Acceptable puffery, since regulators do not scrutinize general statements of confidence about performance that no reasonable client takes literally
• c.Permitted if the prospective client is an accredited investor who acknowledges the claim in writing
• d.A prohibited guarantee and misrepresentation — no adviser or IAR may guarantee performance or that recommendations will outperform✓

NASAA Model Rule 102(a)(4)-1(l) makes it an unethical practice to guarantee a client that a specific result will be achieved. Personally guaranteeing that recommendations will beat the market every year is such a guarantee and a material misrepresentation. A strong past record does not make a promise about the future true. A specific, personal guarantee is not puffery. Accredited-investor status and a written acknowledgment do not make a performance guarantee permissible.NASAA Model Rule 102(a)(4)-1(l)

Under the Uniform Securities Act, when an adviser deducts fees, exercises discretion, or otherwise touches client assets, the single most important protection for the client's assets against misappropriation is:

• a.Using a qualified custodian and delivering independent account statements to the client, so client assets are segregated and independently verifiable✓
• b.Requiring the client to sign a detailed written waiver that expressly gives up the standard qualified-custodian and independent-statement protections in exchange for lower fees
• c.Allowing the adviser to hold the client's assets in the adviser's own personal account for efficiency
• d.Relying solely and exclusively on the disclosures the adviser makes within its Form ADV filing

The custody framework (IAA Rule 206(4)-2 and NASAA custody rules) protects clients by requiring a qualified custodian and independent account statements, so client assets are segregated from the adviser and independently verifiable. Disclosure alone or client waivers do not substitute for these structural safeguards.

An adviser fails to update its Form ADV after a material change (for example, a new disciplinary event or a change in fee structure). Under the Investment Advisers Act, the adviser has:

• a.Complete discretion to decide entirely for itself whether any particular material change is even worth reporting to regulators, and may defer the amendment until it becomes convenient to file
• b.Violated its updating obligations — Form ADV must be amended promptly for material changes and updated at least annually, and clients must receive updated brochure information✓
• c.A duty to update the Form ADV only if and when a specific client actually requests the current information
• d.No obligation to update the Form ADV at all until the next scheduled five-year renewal cycle arrives

Under IAA Rule 204-1 and the brochure rule, an adviser must amend Form ADV promptly for material changes (such as disciplinary events or fee changes) and at least annually, and must deliver updated brochure information/material-change summaries to clients. Failing to update material information also implicates the antifraud provisions.

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)

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)

Under the Uniform Securities Act, a person who acts in good-faith conformity with an Administrator's rule or order that is later amended or rescinded:

• a.Is not liable under the Act for that act, even though the rule or order was later amended or rescinded✓
• b.Remains liable if the rule or order is rescinded, because liability turns on the rule in force when suit is filed
• c.Is protected only if the Administrator first approved that specific act in a written opinion letter
• d.Is protected only until the rule or order is amended, after which the act is treated as unlawful from the start

The Act provides that no provision imposing liability applies to an act done or omitted in good-faith conformity with a rule, form or order of the Administrator, even if the rule, form or order is later amended or rescinded. Liability therefore does not turn on the rule in force at the time of suit. The protection does not depend on a written opinion for the specific act, and it does not end retroactively when the rule is amended.Uniform Securities Act (1956) Section 412(e)

Under the 1956 Uniform Securities Act, a party aggrieved by a final order of the Administrator generally may:

• a.Petition the appropriate court, but only within 30 days after entry
• b.Obtain judicial review by filing a petition in the appropriate court within 60 days of the order✓
• c.Petition within 60 days, which automatically stays the order while the court decides
• d.Appeal to the SEC within 30 days, because state orders against registrants are reviewed at the federal level

A person aggrieved by a final order of the Administrator may petition the appropriate court for review within 60 days after the order is entered. The period is 60 days, not 30. Filing does not automatically stay the order, because a stay is available only if the court orders one. Review is in state court, not before the SEC.Uniform Securities Act (1956) Section 411(a)-(b)

Under the Uniform Securities Act, when the Administrator issues a summary order suspending a registration before any hearing is held, the Administrator must:

• a.Obtain a court injunction first, because only a court may suspend a registration without holding a prior hearing
• b.Allow 30 days to pass before the suspension takes effect, so the registrant can file a written response
• c.Hold a full hearing before the order is issued, because a suspension without a prior hearing violates the registrant's due process rights
• d.Promptly notify the registrant of the order and its reasons, and schedule a hearing within 15 days of a request for one✓

A summary order operates immediately, pending the final determination of the proceeding. The Administrator must promptly notify the affected person that the order was entered and why, and must schedule a hearing within 15 days after receiving a request for one (2002 Act s.412(f); 1956 Act s.204(c)). A court injunction is a separate remedy, not a prerequisite; what summary process dispenses with is a hearing before the order, not the hearing itself; and the order does not wait 30 days to take effect.Uniform Securities Act (2002) s.412(f); (1956) s.204(c)

The antifraud provisions of the 1956 Uniform Securities Act (Section 101 for sales and Section 102 for advisory activity) apply to:

• a.Only registered broker-dealers and agents effecting sales in the state, and never issuers or unregistered persons selling securities
• b.Only securities that are actually required to be registered by qualification or coordination in the particular state
• c.Only retail transactions with natural persons, since sales to institutional buyers fall outside the antifraud provisions
• d.Any offer, sale, or advice concerning a security, including transactions and securities that are otherwise exempt from registration✓

The antifraud provisions apply to any person in connection with the offer, sale or purchase of any security, and to anyone paid to advise others about securities. The comment to the sales provision states that there are no exemptions from it, so exempt securities and exempt transactions are covered. The provisions are not limited to registered agents and broker-dealers, to securities that must be registered, or to retail buyers.Uniform Securities Act (1956) Sections 101, 102

A person acting as an investment adviser makes a materially false statement to a client to induce advisory business. Under the 1956 Uniform Securities Act this conduct is addressed by:

• a.Section 101, which prohibits fraud and misleading statements in the offer, sale, or purchase of a security
• b.Section 201, which requires broker-dealers, agents, and investment advisers to register before doing business
• c.Section 102, prohibiting fraud and deceit in connection with rendering investment advice✓
• d.Section 402, which lists the exempt securities and the exempt transactions recognized under the Act

Section 102 of the 1956 Act (Advisory Activities) makes it unlawful for a person who is paid for advising others about securities to employ a device, scheme, or artifice to defraud them or to engage in any act that operates as a fraud on them; the 2002 Act's counterpart is s.502. Section 101 is the general antifraud provision for the offer, sale, or purchase of securities, s.201 is the registration requirement, and s.402 lists exemptions, so none of those addresses a false statement made to win advisory business.Uniform Securities Act (1956) s.102(a)

Under Advisers Act section 203(m) and SEC Rule 203(m)-1, which adviser is generally EXEMPT from SEC registration under the 'private fund adviser' exemption?

• a.An adviser solely to private funds whose private-fund assets total $150 million or more
• b.An adviser solely to private funds with less than $150 million in private-fund assets under management in the United States✓
• c.An adviser to one private fund and to several retail separately managed accounts, with under $150 million in total assets
• d.An adviser solely to private funds with $400 million of private-fund assets, because every investor in each fund is accredited

Rule 203(m)-1 exempts a U.S. adviser from SEC registration only if it acts solely as an adviser to qualifying private funds and manages private-fund assets of less than $150 million. At $150 million or more the exemption is lost, an adviser that also manages retail separate accounts does not act solely for private funds, and having only accredited investors does not substitute for the asset limit.Advisers Act s.203(m); 17 CFR 275.203(m)-1(a)

Under the NASAA brochure rule for state-registered advisers (Model Rule USA 2002 411(g)), the Form ADV Part 2A brochure must be delivered to a prospective client:

• a.Before or at the time of entering into the advisory contract, with no minimum lead time and no cancellation right required for the client
• b.At least 48 hours before entering into the advisory contract, OR at the time of entering the contract if the client is given a right to rescind within five business days without penalty✓
• c.Within 120 days after the end of the adviser's fiscal year, accompanied by a summary of the material changes made to it during the year
• d.At least 72 hours before entering into the advisory contract, with no alternative timing available even where the client can terminate without penalty

The NASAA model brochure rule requires initial delivery at least 48 hours before the advisory contract is signed, or at signing if the client may terminate without penalty within five business days. The SEC's own rule for federally registered advisers is different: it requires delivery before or at the time of entering into the contract, with no 48-hour option, so that is not the state rule. The 120-day delivery is the annual update, which comes after the relationship begins. A flat 72-hour wait with no cancellation alternative is not in the model rule.NASAA Model Rule USA 2002 411(g)(b)(1)

Under Section 205 of the Investment Advisers Act of 1940, the advisory contract of an SEC-registered adviser may NOT:

• a.Allow the adviser to assign the contract to another adviser without the client's consent
• b.Provide for an asset-based fee, such as a stated percentage of the assets under management each year✓
• c.Let the client terminate on written notice, with a prorated refund of any advisory fee paid in advance
• d.Charge a flat fixed fee for a written financial plan that does not depend on how the client's account performs

Section 205(a)(2) requires every advisory contract of an SEC-registered adviser to provide that it cannot be assigned without the client's consent, so a contract that lets the adviser assign it freely is barred. A partnership adviser must also promise to tell clients of a change in its membership within a reasonable time. Asset-based fees, termination rights with a prorated refund, and flat planning fees are all permitted; what Section 205(a)(1) restricts is the performance-based fee.Investment Advisers Act of 1940 §205(a)(2)-(3)

Under the Investment Advisers Act, an adviser that pays a third party a cash fee to refer advisory clients (a promoter under the SEC marketing rule) generally must:

• a.Comply with the marketing/solicitation rule, including a written agreement and clear disclosure to the client of the solicitor's compensation and any conflict✓
• b.Disclose the arrangement to the SEC in an annual Form ADV amendment only, because telling the referred client is no longer required once the marketing rule replaced the old solicitation rule
• c.Follow the former cash-solicitation rule, Rule 206(4)-3, which still governs every paid referral and requires the client to receive a separate solicitor's disclosure document
• d.Pay referral fees only to a registered broker-dealer or investment adviser, because paying any unregistered person for client referrals is prohibited outright under the rule

The marketing rule, Rule 206(4)-1, treats a paid referral as a compensated endorsement. The adviser must make clear disclosures to the prospective client at the time of the endorsement, including that the promoter is paid and any conflicts, and must have a written agreement with the promoter (de minimis compensation of $1,000 or less in 12 months is excepted). Telling only the SEC on Form ADV is not enough. The old cash-solicitation Rule 206(4)-3 was rescinded when the marketing rule was adopted. Promoters need not be registered, but the adviser must check that they are not subject to disqualifying events.17 CFR 275.206(4)-1(b)