NASAA Series 66 — All Questions

Under the Uniform Securities Act, what is the correct order of registration for a security using the coordination method?

• a.The state Administrator is required to personally conduct a full merit review and certify in writing that the offering price is fair and equitable before any coordinated sale may proceed
• b.The security is registered solely at the state level under a self-contained state filing, and no registration statement is ever filed with the SEC under the Securities Act of 1933
• c.Registration becomes effective the very instant the application is delivered to the Administrator's office, with no coordination whatsoever with the federal registration statement's effective date
• 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 used when a security is registered federally under the Securities Act of 1933 at the same time as the state filing. State effectiveness is timed to coincide with SEC effectiveness. The Administrator never passes on the merits of an offering.Uniform Securities Act

An agent registered in State A takes an unsolicited order from a client who is vacationing in State B, where the agent is not registered. Which statement is most accurate?

• a.The agent must obtain full registration in State B before accepting the unsolicited order
• b.The transaction may be permissible under a limited exemption for existing clients temporarily present in another state✓
• c.The client must open a new brokerage account domiciled in State B before the order is lawful
• d.The transaction is always prohibited because the agent holds no registration in State B, regardless of where the client ordinarily resides

An agent typically must be registered where the client is located, but limited exemptions exist for transactions with existing clients who are only temporarily present in another state. The order being unsolicited and the client's transient presence are relevant factors. This narrow relief prevents technical violations during travel.Uniform Securities Act

Which of the following is considered an exempt SECURITY under the Uniform Securities Act?

• a.A general obligation bond issued by a municipality✓
• b.A sale to an insurance company
• c.A private placement sold to 40 non-institutional buyers
• d.An unsolicited transaction by an existing customer

A municipal general obligation bond is an exempt security because of the nature of the issuer. The other choices describe exempt TRANSACTIONS, which relate to how or to whom a security is sold rather than the security itself. Distinguishing exempt securities from exempt transactions is a core Series 66 concept.Uniform Securities Act

An investment adviser representative learns material nonpublic information about a public company from a client who is a corporate insider. The IAR then buys the stock for personal gain. This conduct is best described as:

• a.A prohibited practice constituting insider trading✓
• b.An exempt transaction because it was unsolicited
• c.A permitted use of client-provided research
• d.Acceptable if the IAR discloses it in the next ADV update

Trading on material nonpublic information is prohibited regardless of how the information was obtained. No disclosure or exemption cures the violation. The IAR breached both securities law and fiduciary duty by placing personal interest ahead of the duty to the market and clients.Uniform Securities Act

Under the Uniform Securities Act, which person would MOST likely need to register as an agent?

• a.An administrative assistant who schedules client meetings and maintains the office calendar
• b.A back-office clerk who only processes and files completed trade confirmations and account statements
• c.An individual employed by a broker-dealer to solicit securities transactions from the public for compensation✓
• d.An officer of the issuer who sells the issuer's exempt securities to the public but receives no commission for those sales

An agent is an individual who represents a broker-dealer or issuer in effecting securities transactions. The person soliciting transactions from the public for a broker-dealer meets the definition. Clerical and ministerial employees who do not solicit or effect trades are generally excluded.Uniform Securities Act

Which of the following professionals would most likely qualify for the exclusion from the definition of investment adviser because advice is incidental to their practice and no special compensation is received?

• a.An individual who manages discretionary accounts for a wrap fee
• b.An accountant who occasionally comments on the tax effect of an investment while preparing a return✓
• c.A person whose sole business is publishing a paid stock-picking newsletter with specific client advice
• d.A financial planner who charges a fee for creating investment plans

The Investment Advisers Act excludes certain professionals — lawyers, accountants, engineers, and teachers — when advice is incidental to their profession and no special compensation is received. An accountant commenting on tax effects during return preparation fits this LATE exclusion. Charging separately for investment advice defeats the exclusion.Investment Advisers Act of 1940

A federal covered investment adviser with clients in five states is generally subject to registration and oversight primarily by:

• a.The SEC alone, with no state role of any kind
• b.The SEC, though states retain antifraud authority✓
• c.Every state in which the adviser has an advisory client, on a full-registration basis
• d.Only the state of the adviser's principal office, to the exclusion of the SEC

A federal covered adviser registers with the SEC rather than with each state. States keep their antifraud authority and may still require notice filings and fees. The SEC does not act alone with no state role, and the adviser does not register in every state where it has a client or only in its home state.Investment Advisers Act of 1940 Sec. 203A; Uniform Securities Act (1956) Sec. 201(f)

An agent tells a customer, 'This stock is guaranteed to go up because the state Administrator approved the registration.' This statement is:

• a.A prohibited misrepresentation of the effect of registration✓
• b.Permissible if made only to accredited investors
• c.Accurate, because registration signifies the Administrator approved the security's merits
• d.A lawful description of registration by qualification

Registration with the Administrator never means the state approved the merits or guaranteed the security. Implying that registration ensures profit is a material misrepresentation and a prohibited practice. Agents must not misstate the effect of registration.Uniform Securities Act

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

• a.An isolated non-issuer transaction not effected through a broker-dealer✓
• 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

An isolated non-issuer transaction is a classic exempt transaction because it is a one-off sale not part of a regular business. Exempt transactions depend on the manner of sale rather than the security's identity. Public retail offerings and general solicitations do not qualify.Uniform Securities Act

The state Administrator may deny, suspend, or revoke the registration of an agent if the agent:

• a.Has a securities misdemeanor conviction from fifteen years ago
• b.Has been convicted of any felony within the past ten years✓
• c.Is the subject of a customer complaint that has not been proven or adjudicated
• d.Has been convicted of a misdemeanor traffic offense that has nothing to do with securities

Under Section 204(a)(2)(C) of the 1956 Act, the Administrator may deny, suspend, or revoke a registration, in the public interest, if the registrant has been convicted within the past ten years of any felony or of any misdemeanor involving a security or any aspect of the securities business. A conviction outside that ten-year window, an unproven customer complaint, and an unrelated minor offense are not grounds on their own.Uniform Securities Act (1956) Sec. 204(a)(2)(C)

Under NASAA model rules on custody, an investment adviser that has custody of client funds or securities generally must:

• a.Avoid any surprise examination by an independent accountant
• b.Maintain the assets with a qualified custodian and arrange for account statements to be sent to clients✓
• c.Commingle client cash with the adviser's operating funds in a single account for efficiency
• d.Hold all client securities certificates in the adviser's personal safe deposit box rather than with a third-party institution

NASAA custody rules require use of a qualified custodian and delivery of account statements to clients, often supplemented by a surprise examination. Commingling client and firm assets is prohibited. These safeguards protect clients against misappropriation.NASAA Model Rule

A broker-dealer with no place of business in a state deals exclusively with which type of client and may qualify for an exemption from registration in that state?

• a.Retail clients referred through local newspaper and radio advertising
• b.Retail walk-in customers
• c.Institutional clients such as other broker-dealers and banks✓
• d.First-time individual investors who have never held a brokerage account

A broker-dealer with no place of business in the state may be exempt from registration if it deals only with institutional clients, other broker-dealers, or issuers. Dealing with retail customers in the state generally triggers registration. The exemption is designed for limited, professional-to-professional activity.Uniform Securities Act

Under the Investment Advisers Act, an adviser's brochure (Form ADV Part 2) must be delivered to a client:

• a.Within 30 days after the client signs the advisory agreement, and only once
• b.At or before entering into the advisory agreement, with annual updates offered✓
• c.When the client first pays an advisory fee, even if that is after signing
• d.Annually within 90 days of the adviser's fiscal year end, but not at the outset

Rule 204-3(b) requires the adviser to deliver its Part 2 brochure before or at the time it enters into the advisory contract. Each year, within 120 days after its fiscal year end, it must deliver either an updated brochure or a summary of material changes with an offer of the full brochure. Delivering after signing, waiting for the first fee, or delivering only annually all fail the timing requirement at the start of the relationship.Investment Advisers Act Rule 204-3(b), 17 CFR 275.204-3

An investment adviser wants to enter a contract that assigns the advisory agreement to another firm following a merger. Under the Uniform Securities Act, assignment of an advisory contract generally requires:

• a.Prior approval of the Administrator
• b.Notice to the client
• c.Consent of the client✓
• d.Approval from the SEC

An advisory contract must state that it may not be assigned by the adviser without the consent of the other party, so a transfer to a merged firm needs the client's consent. The Administrator does not approve assignments, and notifying the client or the SEC is not enough. Because a change in control of the adviser can itself be an assignment, the consent point matters in a merger.NASAA Model Rule 102(a)(4)-1(p)

Which of the following best describes a fiduciary obligation that an investment adviser owes but a broker-dealer historically did not owe under a pure suitability standard?

• a.A fiduciary duty that is owed exclusively to large institutional clients and never extends to any individual retail advisory customer
• b.A duty to affirmatively guarantee a minimum level of investment performance and to reimburse the client for any market losses
• c.A duty limited to ensuring that a single transaction is not unsuitable at the precise point of sale, with no continuing obligation
• 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 with continuing duties of loyalty and care, including full disclosure of material conflicts and placing the client's interest first. A historical suitability standard focused on whether a specific recommendation was suitable at the moment of sale. No adviser can guarantee performance.Uniform Securities Act

An agent 'churns' a client's account. This unethical practice is best defined as:

• a.Diversifying a client's holdings across multiple asset classes
• b.Excessive trading designed to generate commissions rather than to benefit the client✓
• c.Rebalancing a client's portfolio once per year to restore the agreed-upon asset allocation
• d.Recommending long-term buy-and-hold securities that generate little commission for the agent

Churning is excessive trading in a customer's account driven by the agent's desire for commissions rather than the client's interests. It is a prohibited practice regardless of whether individual trades are suitable. Frequency and cost relative to the client's objectives are key indicators.Uniform Securities Act

Under the Uniform Securities Act, the term 'security' would NOT typically include:

• a.A fixed-payment whole life insurance policy✓
• b.A share of common stock
• c.A note, bond, or debenture issued by a corporation
• d.An investment contract under the Howey test involving the efforts of others

A fixed, guaranteed whole life insurance policy and fixed annuities are generally excluded from the definition of a security. Investment contracts, notes, bonds, and stock are securities. Variable products, by contrast, are securities because of investment risk borne by the holder.Uniform Securities Act

An agent shares in the profits and losses of a customer's account. Under NASAA standards, this is permitted only if:

• a.The agent shares proportionally in the account's gains and losses without obtaining any written approval from the firm or the customer
• b.The customer merely gives a verbal agreement at the point of sale, with no written authorization from the employing broker-dealer
• c.The customer and the broker-dealer give written consent and sharing is proportional to the agent's own contribution✓
• d.The account happens to earn a net profit for the particular calendar quarter in which the sharing arrangement is in effect

Sharing in a customer account is prohibited unless the agent obtains written authorization from both the customer and the broker-dealer, and shares only in proportion to the agent's financial contribution. Verbal agreement alone is insufficient. This rule limits conflicts of interest.Uniform Securities Act

A client sends an unsolicited written complaint to an agent alleging unauthorized trading. The agent should:

• a.Reply to the client in writing and close the matter without telling anyone at the firm, since no violation has been proven
• b.Ask the client to withdraw the complaint in exchange for a commission rebate, then record the matter as resolved
• c.Investigate and decide the allegation personally, and tell a supervisor only if it proves true
• d.Promptly forward the complaint to a designated supervisor or compliance for handling and recordkeeping✓

A written customer complaint must be promptly forwarded to the firm's designated supervisor or compliance function for review and recordkeeping. An agent may not ignore it, destroy it, or decide on his own whether it deserves attention. Offering a rebate to make a client drop a complaint is an unethical practice, and settling or screening complaints personally keeps the firm from supervising the problem.Uniform Securities Act

Under the Investment Advisers Act, a performance-based fee that charges a share of capital gains is generally permitted only when the client is:

• a.A client who is an accredited investor under Regulation D, whatever the client's net worth or assets under management
• b.Any retail client who signs a written waiver acknowledging the performance fee
• c.A qualified client meeting minimum net worth or assets-under-management thresholds✓
• d.A client who has held an account with the adviser for at least three years

Section 205(a)(1) of the Advisers Act bars performance-based compensation unless an exception applies, and Rule 205-3 allows it for a qualified client, who meets assets-under-management or net worth thresholds that the SEC adjusts periodically. Accredited-investor status is a different test, a signed waiver does not make a retail client qualified, and a long relationship with the adviser is not part of the definition.Investment Advisers Act of 1940 Sec. 205(a)(1); Rule 205-3(d)(1)

The Administrator may issue a cease and desist order:

• a.Only after the respondent has been criminally convicted of a securities felony
• b.Only after obtaining the written consent of the SEC
• c.With or without a prior hearing to prevent a violation of the Act✓
• d.Only against federal covered investment advisers, never against a state-registered broker-dealer

The Administrator has authority to issue cease and desist orders, and may do so with or without a prior hearing when necessary to prevent an ongoing or imminent violation. This is a preventive administrative power. It does not require a criminal conviction first.Uniform Securities Act

An IAR recommends a securities transaction that will generate a large commission for the IAR's affiliated broker-dealer. To act ethically, the IAR must at minimum:

• a.Disclose the conflict of interest so the client can make an informed decision✓
• b.Obtain the Administrator's approval of the recommendation before the trade is executed
• c.Disclose the conflict only if the client asks how the affiliate is paid
• d.Route the order to an unaffiliated broker-dealer, since using an affiliate is prohibited

The NASAA unethical-practices rule makes it a violation to fail to disclose in writing, before advice is given, any material conflict of interest, including compensation in addition to the advisory fee. Disclosure up front, not at the client's request, is the minimum. No regulator pre-approves a recommendation, and using an affiliated broker-dealer is allowed when the conflict is disclosed and the advice is in the client's interest.NASAA Model Rule 102(a)(4)-1(k)

Which of the following is generally an exempt security under the Uniform Securities Act?

• a.A security issued by a bank organized under U.S. law✓
• b.A newly issued penny stock offered to retail clients by cold calling
• c.A limited partnership interest sold to the general public
• d.A promissory note issued by a start-up

Securities issued by banks are exempt securities under the Act because of the regulated nature of the issuer. Public limited partnership interests, speculative promissory notes, and penny stocks are not automatically exempt. The exemption rests on issuer characteristics.Uniform Securities Act

An agent guarantees a customer against loss on a stock recommendation to close the sale. This practice is:

• a.Prohibited because agents may not guarantee customers against loss✓
• b.Permitted if the compliance department approves the guarantee in advance
• c.Permitted if the guarantee is put in writing and signed
• d.Permitted whenever the customer is an accredited investor

Guaranteeing a customer against loss misrepresents the risk inherent in investing and is a dishonest or unethical practice, so an agent may not do it. Putting the promise in writing, getting compliance to approve it, or limiting it to accredited investors does not make it permissible, because the prohibition does not depend on the form of the promise or the sophistication of the customer.Uniform Securities Act

Under the Uniform Securities Act, the statute of limitations for a purchaser to bring a civil suit for a violation is generally:

• a.A short window of only thirty calendar days measured from the date the security was originally sold to the buyer
• b.A flat ten years measured from the date of sale, running regardless of when the buyer discovered the violation
• c.The earlier of two years after discovery or three years after the sale (subject to state variation)✓
• d.Unlimited in duration, so that a purchaser may bring a civil action at any time no matter how long ago the sale occurred

Civil liability suits are generally subject to a statute of limitations tied to discovery of the violation and the date of sale, commonly framed as two years after discovery or three years after the transaction, subject to state adoption. This limits stale claims. Exact periods can vary by state enactment.Uniform Securities Act

A remedy available to a defrauded purchaser under the civil liability provisions of the Act typically allows recovery of:

• a.Triple the original purchase price, awarded as a matter of right
• b.Punitive damages in all cases, imposed to punish and deter future violations of the securities laws
• c.Only the future lost profits the purchaser would have earned had the security performed as represented
• d.The consideration paid plus interest, costs, and attorney fees, less any income received✓

The civil liability provision generally allows a purchaser to recover the amount paid plus interest at a specified rate, court costs, and reasonable attorney fees, reduced by any income already received. Automatic treble or punitive damages are not the standard remedy. The measure is designed to make the buyer whole.Uniform Securities Act

An investment adviser exercises discretion in a client account. Under the Uniform Securities Act, this generally requires:

• a.A written guarantee of a minimum rate of return
• b.Nothing beyond an informal verbal understanding with the client
• c.Prior written discretionary authority from the client✓
• d.Prior written approval of the state Administrator before each discretionary trade

Exercising discretion in a client's account requires written discretionary authorization from the client. For investment advisers, oral discretion may be permitted for a limited initial period regarding price and time only, but full discretion needs written authority. This protects clients from unauthorized transactions.Uniform Securities Act

NASAA's model rule on unethical business practices of investment advisers would consider which of the following a violation?

• a.Borrowing money from a client who is not a lending institution or affiliate✓
• b.Disclosing all advisory fees and charges in the written advisory contract before it is signed
• c.Delivering the disclosure brochure before entering the advisory contract
• d.Rebalancing a portfolio in accordance with the client's stated investment policy

Borrowing money or securities from a client is an unethical practice unless the client is in the business of lending, such as a bank, or is an affiliate. It creates a serious conflict of interest. Proper fee disclosure and policy-based rebalancing are appropriate conduct.NASAA Model Rule

Which threshold generally determines whether a mid-sized adviser registers with the SEC rather than the states?

• a.The number of clients the adviser serves, with 15 clients as the dividing line between SEC and state registration
• b.Assets under management crossing a regulatory threshold, with $100 million as a key dividing line under federal rules✓
• c.The adviser's annual revenue from advisory fees, with $1 million of revenue as the dividing line between the two regulators
• d.Assets under management crossing $25 million, which obliges every adviser above that figure to register with the SEC

Federal versus state registration turns on assets under management. A mid-sized adviser may register with the SEC once it has $100 million, must do so at $110 million, and need not withdraw until assets fall below $90 million. Below the threshold an adviser is generally state-registered. The number of clients, annual revenue, and a $25 million figure do not decide which regulator an adviser answers to, because $25 million only separates smaller advisers from mid-sized ones.Investment Advisers Act of 1940 Sec. 203A; Rule 203A-1(a)

An agent effects a transaction that is not recorded on the books of the employing broker-dealer, without the firm's knowledge or authorization. This is best described as:

• a.A permitted outside business activity
• b.Selling away, a prohibited practice✓
• c.Front-running, a prohibited practice
• d.Churning, a prohibited practice

The NASAA rule on dishonest or unethical practices of broker-dealers and agents lists effecting securities transactions not recorded on the regular books or records of the broker-dealer the agent represents, unless the firm authorized them in writing beforehand. That conduct is commonly called selling away. Front-running is trading ahead of a customer order and churning is excessive trading, so neither describes an unrecorded transaction. An outside business activity needs the firm's knowledge and approval, which is missing here.NASAA Model Rule, Dishonest or Unethical Business Practices of Broker-Dealers and Agents, Sec. 2.b

The definition of 'sale' or 'offer to sell' under the Uniform Securities Act generally includes:

• a.A bona fide gift of nonassessable stock
• b.A bona fide pledge of securities as loan collateral
• c.A gift of assessable stock✓
• d.A stock dividend where no consideration is given

The Act treats a gift of assessable stock as a sale because the recipient may owe future assessments, constituting value. Bona fide gifts of nonassessable stock, stock dividends, and collateral pledges are generally not sales. These definitional nuances affect when the Act applies.Uniform Securities Act

An Administrator's authority to conduct investigations and subpoena witnesses generally extends to conduct that:

• a.Involves only securities that are registered with that state, not securities exempt from registration
• b.Occurs wholly within the state, since an interstate offer is beyond its reach
• c.Involves only persons registered with the Administrator, not unregistered sellers or promoters
• d.Originates in, is directed to, or is accepted within the state, even across state lines✓

The Administrator's reach extends to an offer or sale that originates in the state, is directed into the state, or is accepted in the state, including activity that crosses state lines. The investigative and subpoena power follows that same jurisdictional reach. It is not limited to registered securities or registered persons, and it does not stop at the border for an interstate offer that touches the state.Uniform Securities Act

A broker-dealer wishes to withdraw its registration. Under the Uniform Securities Act, withdrawal generally becomes effective:

• a.Only after a mandatory five-year waiting period from the date the withdrawal was filed
• b.Only upon prior approval of the SEC in addition to the state
• c.30 days after filing, unless the Administrator institutes a proceeding✓
• d.Immediately upon filing of the withdrawal request, with no waiting period at all

A withdrawal of registration typically becomes effective 30 days after filing, provided no revocation or other proceeding is pending or instituted. The Administrator retains authority to act on violations for a period after withdrawal. This orderly process protects investors during transitions.Uniform Securities Act

An adviser engages in an agency cross transaction, arranging a trade between two of its advisory clients. To do this properly, the adviser generally must:

• a.Obtain client consent, disclose its role and any compensation, and not recommend the transaction to both sides✓
• b.Obtain consent from the selling client only, since the buying client bears no conflict of interest in the trade
• c.Obtain fresh consent from each client before every cross, since advance consent is never valid
• d.Disclose its role after each trade only in the annual report, with no consent from either client

Rule 206(3)-2 lets an adviser that is also acting as broker for both sides of a cross trade proceed only if each client has given written consent after written disclosure, the adviser sends a written confirmation disclosing its role and compensation, and it sends an annual summary of the crosses. The rule does not cover a trade the adviser recommended to both buyer and seller. Consent may be given in advance, and every participating client must give it.Investment Advisers Act Rule 206(3)-2, 17 CFR 275.206(3)-2

Under the Uniform Securities Act, the least intrusive method of state registration for a well-established issuer with a strong track record filing a federal statement is:

• a.Registration purely at the state level with no federal statement
• b.Registration by qualification
• c.A door-to-door offering to individual retail investors
• d.Notice filing for a federal covered security✓

Federal covered securities, such as those listed on major exchanges or certain investment company shares, are subject only to state notice filings and fees rather than full state registration. Qualification is the most burdensome method used when no federal registration exists. Notice filing is the least intrusive for covered securities.Uniform Securities Act

An agent recommends a security to a client without any reasonable basis to believe it is suitable, simply to meet a sales quota. This conduct:

• a.Acceptable, because meeting internal sales quotas is a legitimate business objective
• b.Permitted whenever the security is exempt from registration
• c.Exempt from suitability whenever the client is a high-net-worth individual
• d.Violates the agent's obligation to have a reasonable basis for recommendations✓

Recommending securities without a reasonable basis for suitability is a prohibited practice, regardless of sales quotas or the client's wealth. Agents must consider the client's financial situation, objectives, and needs. Quotas never justify unsuitable recommendations.Uniform Securities Act

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

• 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
• d.A firm soliciting retail securities orders in the state

The definition of broker-dealer excludes agents, issuers, and banks, savings institutions, and trust companies. These persons are regulated under other provisions or excluded by policy. Firms soliciting or making markets for state residents generally are broker-dealers requiring registration.Uniform Securities Act

Under NASAA model recordkeeping rules, a state-registered investment adviser must generally preserve required books and records for a minimum of:

• a.Five years, with the first two years kept in the adviser's principal office✓
• b.One year from the end of the fiscal year in which the record was created
• c.Two years, with records kept in any location the adviser chooses
• d.Six months from creation, after which the adviser may destroy the records

NASAA Model Rule 203(a)-2(e)(1) requires most required books and records to be preserved in an easily accessible place for at least five years from the end of the fiscal year of the last entry, the first two years in the adviser's principal office. One year, two years, or six months fall short of the five-year minimum, and a free choice of location ignores the principal-office requirement.NASAA Model Rule 203(a)-2(e)(1)

An agent commits fraud in connection with the sale of a security that is itself exempt from registration. Under the Uniform Securities Act, the antifraud provisions:

• a.Apply only if the agent was paid a commission on the sale
• b.Do not apply, because exempt securities are excluded from every provision of the Act, including antifraud
• c.Still apply, because antifraud provisions apply to exempt and non-exempt securities alike✓
• d.Apply only to federal covered securities, since the state leaves exempt securities to their issuer's regulator

The antifraud provisions apply to any offer, sale, or purchase of any security, so an exemption from registration does not excuse fraud. An exempt security is excused from registration, not from the prohibition on misleading statements. Whether the agent earned a commission and whether the security is federal covered or state exempt do not change that. This is a frequently tested distinction.Uniform Securities Act

An IAR wishes to advertise using a client testimonial. Historically under NASAA and adviser rules, the treatment of testimonials has been:

• a.Always permitted with no conditions, so long as the client made the statement
• b.Restricted or requiring specific conditions and disclosures to avoid being misleading✓
• c.Required in every advertisement an IAR disseminates to the public
• d.Prohibited only for broker-dealers and their agents, while advisers may use them without limits

Adviser advertising involving testimonials has historically been restricted and, where permitted under updated marketing rules, requires clear disclosures to prevent misleading impressions. Unconditioned use risks being deceptive. Advisers must ensure advertising is not false or misleading in any respect.Uniform Securities Act

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 this individual is:

• a.Required to register as a broker-dealer since the person is effecting transactions for compensation
• b.Automatically deemed an investment adviser representative subject to the fiduciary standard of care
• c.Required to register as an agent because any person selling securities must register with the state
• d.Excluded from the definition of 'agent' and therefore not required to register in that capacity✓

USA §401(b) excludes from the 'agent' definition an individual who represents an issuer in effecting transactions in certain exempt securities or in exempt transactions. Because the sales fall within an exempt transaction, the person is not an agent and need not register. This issuer-exclusion is a frequent Series 66 trap.

A broker-dealer has no place of business in a state and effects transactions in that state exclusively with existing customers who are not residents but are only temporarily present there. Under the Uniform Securities Act the broker-dealer:

• a.Is generally excluded from the state's broker-dealer definition and need not register there✓
• b.Must obtain the written approval of the state Administrator for 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

USA §401(c) excludes from a state's broker-dealer definition a firm with no place of business in the state that deals only with existing customers who are not residents and are merely temporarily present. This 'snowbird' relief prevents technical violations when clients travel. It parallels the limited agent relief in §201.

An investment adviser with no place of business in a state gives advice during any 12-month period to fewer than six clients who are residents of that state. Under the Uniform Securities Act this adviser most likely:

• a.Qualifies for the de minimis exemption from state investment-adviser registration in that state✓
• b.Must register in the state because the exemption requires fewer than three clients there
• c.Must register in the state because giving advice to any resident triggers mandatory registration
• d.Is exempt only if every one of its clients in the state is an institutional client such as a bank

Under the Uniform Securities Act an adviser with no place of business in the state is outside the investment-adviser definition there if, in any 12 consecutive months, it has not advised more than five clients in the state (apart from institutional clients). Fewer than six clients fits within that limit, so no state registration is required. The limit is five, not three, so a handful of clients does not trigger registration. Advising a resident does not by itself require registration, because the client count and the place of business decide it. The institutional-client route is a separate alternative in the exclusion, not a condition of the five-client limit.Uniform Securities Act (1956) Section 401(f)(6); (2002) Section 403(b)(2)

Under the Uniform Securities Act, which person is EXCLUDED from the definition of 'investment adviser'?

• a.A pension consultant who, for a separate fee, advises corporate retirement plans on the selection and ongoing monitoring of the investment managers who run the plan's assets
• b.A broker-dealer whose performance of advisory services is solely incidental to its brokerage business and who receives no special compensation for the advice✓
• c.A financial planner who prepares comprehensive written financial plans and charges a distinct, separately stated fee attributable to the securities-advice portion of that engagement
• d.A person who, for compensation, publishes and distributes reports containing specific investment advice that is tailored to the individual circumstances of each paying subscriber

The Act excludes a broker-dealer whose advice is solely incidental to its brokerage business and who receives no special compensation for it. A pension consultant who is paid to advise plan fiduciaries on investments or on selecting managers, a planner who charges a distinct fee for the securities-advice part of a plan, and a person who sells reports tailored to each paying subscriber are all advising others for compensation as a business, which Release IA-1092 treats as investment advice. The publisher exclusion covers only bona fide publications of general, regular circulation, so advice tailored to each subscriber does not qualify.Uniform Securities Act (1956) Section 401(f)(3); SEC Release IA-1092 (1987)

An accountant, lawyer, engineer, or teacher may be excluded from the 'investment adviser' definition. This exclusion is available only when the advice is:

• a.Billed as a separate flat-fee retainer
• b.Provided only to institutional clients such as banks and insurance companies
• c.Limited strictly to municipal and other securities that are exempt under the Act
• d.Solely incidental to the practice of the profession✓

The exclusion for lawyers, accountants, engineers and teachers applies only when the investment advice is solely incidental to the practice of the profession. A professional who bills a separate retainer for investment counsel is in the advisory business and loses the exclusion. Limiting advice to institutional clients or to exempt securities is not the test, because those are separate provisions: a different exclusion covers advisers with no place of business in the state, and advice on exempt securities is addressed elsewhere in the definition.Uniform Securities Act (1956) Section 401(f)(2); Investment Advisers Act of 1940 Section 202(a)(11)(B)

Under Release IA-1092, a person is generally deemed an investment adviser when a three-part test is met. Those three elements are that the person:

• a.Manages more than one hundred million dollars, has custody of client assets, and exercises full discretion over the client accounts
• b.Holds a professional securities license, maintains a fixed place of business, and files Form ADV with the appropriate regulator
• c.Has passed a qualifying examination, carries a securities surety bond, and delivers a written disclosure brochure to every client
• d.Provides advice about securities, does so as a regular part of a business, and receives compensation for it✓

SEC Release IA-1092 (1987) sets the three-prong test: (1) the person gives advice about securities, (2) as part of a business, and (3) for compensation. Meeting all three makes the person an investment adviser regardless of title, licensing, or AUM.

A person's advice covers only U.S. government securities and gives no advice about any other security. Under the Investment Advisers Act of 1940, this person is:

• a.Required to register with the SEC as a federal covered adviser because the Act reaches advice on every type of security
• b.Required to register only with the state where its principal office is located, because the Act has no role for such an adviser
• c.Excluded only if it first files a written exemption notice with the SEC and pays the applicable filing fee on that notice
• d.Excluded from the federal definition of investment adviser because the advice concerns only U.S. government securities✓

The Advisers Act definition of investment adviser excludes any person whose advice, analyses or reports relate to no securities other than direct obligations of the United States or obligations guaranteed as to principal or interest by the United States. The exclusion applies automatically, so no SEC registration, state-only registration or exemption filing is needed. Advice on any other kind of security, including municipal bonds or corporate bonds, would bring the person back within the definition.Investment Advisers Act of 1940 Section 202(a)(11)(E)

The publisher of a bona fide newspaper, magazine, or financial publication of general and regular circulation is excluded from the investment-adviser definition. This publisher's exclusion is LOST if the publication:

• a.Renders advice based on specific situations of individual clients rather than general commentary of regular circulation✓
• b.Is distributed nationally to a very large number of paid subscribers spread across many different states and territories
• c.Occasionally quotes current market prices and reports on general economic and business conditions of broad public interest
• d.Contains paid advertising sold to brokerage firms and mutual-fund sponsors positioned alongside its regular articles

Section 202(a)(11)(D) of the Investment Advisers Act excludes the publisher of a bona fide newspaper, news magazine or business or financial publication of general and regular circulation, and Lowe v. SEC (1985) read that exclusion to cover impersonal commentary. The exclusion is lost when the publication gives advice tailored to the specific situations of individual clients. A large national circulation, routine reporting of prices and economic news, and paid advertising are all normal for a bona fide publication.Investment Advisers Act of 1940 Sec. 202(a)(11)(D)

Under the Uniform Securities Act, when a broker-dealer registers in a state, its agents:

• a.Are automatically registered along with the firm itself and therefore need file nothing whatsoever of their own with the state
• b.Are permitted to solicit only institutional clients until each of them separately passes an additional qualification examination
• c.May transact securities business the very moment the firm itself becomes effective in the state, with each agent's own individual registration filings due to be submitted at some later date
• 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✓

USA §201 requires each agent to register separately, and an agent's registration is effective only while the agent is associated with a registered broker-dealer or issuer. When the association ends, the agent's registration is no longer effective. The firm's registration does not carry the agents automatically.

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

• a.Only after the Administrator affirmatively signs and personally mails to the applicant a certificate approving the applicant's character and financial responsibility
• b.Immediately upon the applicant's electronic submission of the required forms and fees, without any waiting period at all
• c.On the first business day of the calendar quarter that follows the quarter in which the application was originally filed
• 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✓

USA §202 provides that a registration becomes effective at noon on the 30th day after a complete application is filed, unless a denial order or proceeding is pending, and the Administrator may set an earlier effective date. Registration is not instantaneous and does not require an affirmative merit approval.