Examen de práctica Series 66

A company has current assets of 900,000 dollars, of which 300,000 dollars is inventory, and current liabilities of 400,000 dollars. Its current ratio is _____ and its quick ratio is _____.

Opciones para el hueco 1: 1.50, 2.25, 3.00, 0.44

Opciones para el hueco 2: 1.50, 2.25, 0.75, 3.00

Respuesta: 2.25, 1.50

The current ratio is current assets divided by current liabilities: 900,000 / 400,000 = 2.25. The quick ratio takes inventory out first, because inventory can be slow to turn into cash: (900,000 - 300,000) / 400,000 = 1.50. The 3.00 option adds the inventory to current assets instead of taking it out, and 0.44 turns the current ratio upside down. A quick ratio above 1 means the company can cover its short-term bills without selling inventory.

• A. It is a fund that holds the index stocks, so the investor owns the underlying shares
• B. It is an unsecured debt obligation of the issuer, so the investor also carries the issuer's credit risk
• C. It is backed by deposit insurance, so the investor cannot lose principal
• D. It pays a fixed coupon and returns the note's face value at maturity whatever the index does

Respuesta: B. It is an unsecured debt obligation of the issuer, so the investor also carries the issuer's credit risk

An ETN is a debt instrument. The issuer, usually a bank, promises a return tied to an index minus fees, but it holds no basket of securities for the investor. That is the difference from an ETF, which owns the underlying assets. If the issuer's credit deteriorates or it fails, the note can lose value or be worth nothing even when the index is up. There is no deposit insurance on it, and any coupon is not the fixed, guaranteed kind a plain bond pays.

• A. Once the stock trades at or below 54, the order becomes a market order, so the sale can happen below 54
• B. The order guarantees that the stock will be sold at exactly 54
• C. The order becomes active when the stock rises to 54
• D. The order becomes a limit order at 54 as soon as it is triggered

Respuesta: A. Once the stock trades at or below 54, the order becomes a market order, so the sale can happen below 54

A sell stop sits below the current price and is triggered when the stock trades at or below the stop price. Then it turns into a market order, which fills at the next available price. In a fast drop that can be under 54, so a stop controls when you sell and not at what price. A sell stop limit order is the version that turns into a limit order, and it can end up not filling at all. A buy stop is the one that waits for the price to rise.

• A. The client's monthly take-home salary
• B. The client's yearly spending on vacations
• C. The 210,000 dollars the client still owes on a mortgage
• D. The monthly premium on the client's car insurance

Respuesta: C. The 210,000 dollars the client still owes on a mortgage

A balance sheet is a snapshot at one date: what the client owns (assets), what the client owes (liabilities), and the difference, which is net worth. The mortgage balance is a liability. A cash-flow statement tracks money moving in and out over a period, so salary, vacation spending and insurance premiums go there. An adviser needs both, because the balance sheet shows what the client has to work with and the cash flow shows how much can be saved or spent without strain.

• A. He can take the assets back at any time because he paid for them
• B. The assets belong to the custodian until the child reaches 18 in every state
• C. The assets stay in his estate until he dies, then pass to the child
• D. The gift is irrevocable and the assets belong to the minor, with the custodian managing them until the age set by state law

Respuesta: D. The gift is irrevocable and the assets belong to the minor, with the custodian managing them until the age set by state law

A UGMA or UTMA account is a completed, irrevocable gift to a minor. The minor owns the assets, the custodian manages them for the minor's benefit, and the donor cannot take them back. Control passes to the child at the age of majority or the age of termination, and the state sets that age, so it is not 18 everywhere. Because the child is the owner, the account can also affect financial aid and the child's tax picture.

Marca todas las que correspondan.

• A. A life insurance policy with a named beneficiary
• B. A traditional IRA with a named beneficiary
• C. Stock in a brokerage account held in the owner's name alone, with no transfer-on-death registration
• D. A brokerage account registered with a transfer-on-death beneficiary
• E. A checking account in the owner's name alone with no payable-on-death designation

Respuesta: A. A life insurance policy with a named beneficiary, B. A traditional IRA with a named beneficiary, D. A brokerage account registered with a transfer-on-death beneficiary

Assets with a named beneficiary or a TOD or POD registration pass directly to that person when the owner dies, and the will does not control them. That is why the beneficiary form on file matters more than a will written years earlier. Assets in the owner's sole name with no such designation, such as the plain brokerage and checking accounts here, usually go through probate and pass under the will, or under state law if there is no will. A common review step for an adviser is to compare the beneficiary forms with what the client wants today.

• A. Strategic asset allocation
• B. Dollar-cost averaging
• C. Tactical asset allocation
• D. Passive indexing

Respuesta: C. Tactical asset allocation

Strategic asset allocation sets long-term target weights from the client's goals and risk profile and sticks to them, rebalancing back to target. Tactical asset allocation makes short-term deviations from those weights to take advantage of a market view, with a plan to return. Dollar-cost averaging is investing a fixed amount at regular intervals, and passive indexing means tracking a benchmark without market calls. Tactical moves are a form of active management and can cost more in fees and taxes.

• A. It is permitted for any client who signs a waiver of the performance-fee prohibition
• B. It is generally permitted only for a qualified client, meaning one who meets the net worth or assets-under-management tests in the SEC rule
• C. It is permitted for any client over a stated age
• D. It is permitted for any client as long as the fee is disclosed in the adviser's brochure

Respuesta: B. It is generally permitted only for a qualified client, meaning one who meets the net worth or assets-under-management tests in the SEC rule

A performance-based fee, such as a percentage of capital gains or appreciation, is generally prohibited. The main exception is a qualified client, which the SEC rule defines through net worth and assets under management, and the dollar tests are adjusted over time, so look up the current numbers. A client cannot waive the protection, and disclosure alone does not make the fee legal. A flat fee or a percentage of the assets managed is not a performance fee, because it does not depend on gains. Check your state's version of the rule too.

Marca todas las que correspondan.

• A. A financial planner who charges a flat fee for a written plan that recommends specific securities
• B. The publisher of a bona fide financial newspaper of general and regular circulation
• C. A firm that sells subscriptions to a monthly report with buy and sell calls on individual stocks, as part of its regular business
• D. A broker-dealer agent whose investment advice is solely incidental to brokerage and who gets no special compensation for it
• E. A neighbor who occasionally shares stock ideas over dinner and charges nothing

Respuesta: A. A financial planner who charges a flat fee for a written plan that recommends specific securities, C. A firm that sells subscriptions to a monthly report with buy and sell calls on individual stocks, as part of its regular business

The definition has three pieces: advising others about securities, doing it for compensation, and doing it as part of a regular business. The planner and the paid research firm meet all three, and issuing analyses or reports on securities for pay counts. The publisher of a general circulation publication is excluded, and so is a broker-dealer or its agent whose advice is solely incidental and carries no special compensation. The neighbor gets no compensation and has no business, so no. Federal law and your state's version list further exclusions and exemptions, so check them too.

• A. State A can require her to register because she has retail clients there
• B. State A can require her to register only if she visits the clients in person
• C. State A can require her to pass its own exam before she may keep those clients
• D. State A cannot require her to register as a representative, but it keeps its antifraud authority over her

Respuesta: D. State A cannot require her to register as a representative, but it keeps its antifraud authority over her

Federal law lets a state require registration of a representative of a federal covered adviser only where that person has a place of business in the state, and only if the person meets the federal definition of an investment adviser representative. With no office in State A, State A cannot make her register, however many clients she has there. State B, where she works, is the state that can. No state loses its power to investigate and act against fraud. Representatives of state-registered advisers and the rules for the firm itself follow different tests.

• A. The Form U4 should be updated promptly to disclose it, and hiding it can lead to discipline of its own
• B. Nothing is required unless the Administrator asks about it
• C. It is disclosed on the next annual renewal and not before
• D. It is disclosed only if a court later enters a final judgment against the representative

Respuesta: A. The Form U4 should be updated promptly to disclose it, and hiding it can lead to discipline of its own

Registration is not a one-time event. The representative and the firm must keep the registration record current, and a reportable event such as a qualifying customer complaint has to be added to the Form U4 promptly, not saved for renewal. Waiting for a judgment is wrong because many reportable events are allegations, settlements or pending actions. Failing to disclose is itself a violation, and regulators treat it as seriously as the conduct behind it. The reporting thresholds and deadlines are in the form instructions and state rules, so look up the current ones.

Marca todas las que correspondan.

• A. Showing only the three best-performing client accounts and leaving out the rest, as if they were typical
• B. Using an advisory contract clause that has the client waive rights under the securities laws
• C. Telling prospects that being registered with the state means the Administrator has endorsed the adviser's skill
• D. Giving a prospect a brochure that lists the adviser's fees
• E. Telling a prospect that past performance does not guarantee future results

Respuesta: A. Showing only the three best-performing client accounts and leaving out the rest, as if they were typical, B. Using an advisory contract clause that has the client waive rights under the securities laws, C. Telling prospects that being registered with the state means the Administrator has endorsed the adviser's skill

Cherry-picked performance is misleading, because it leaves out facts needed to read it fairly. A clause that has the client give up rights under the securities laws is void and a prohibited practice, since a client cannot waive those protections. Registration only means the filing is on record and fees were paid. It is never an endorsement, and saying otherwise is an unlawful representation. A fee brochure and a past-performance caution are required or helpful disclosure, not violations.

• A. Send the wire at once, because the client's instructions control in every case
• B. Raise it with a supervisor or compliance right away and, where the firm's policy and state law allow, contact the trusted contact person the client named and consider a temporary hold
• C. Call the client's neighbors and relatives to warn them, whether or not the client agreed to that
• D. Say nothing and wait, so the client is not offended

Respuesta: B. Raise it with a supervisor or compliance right away and, where the firm's policy and state law allow, contact the trusted contact person the client named and consider a temporary hold

Sudden confusion plus an unusual transfer to a stranger is a classic red flag for financial exploitation. The representative should escalate to a supervisor or compliance and use the tools the firm has: asking the client for, or reaching, a trusted contact person named in advance, and where state law and firm policy allow, delaying the disbursement while it is looked into. Many states have adopted NASAA's model act on this, and details differ by state. Sending the wire ignores the red flags, and sharing the account with relatives or neighbors who were not named breaks client confidentiality.

Under an adviser's code of ethics, an access person gives an initial holdings report when joining and then reports personal securities transactions _____.

Opciones para el hueco 1: monthly, quarterly, semiannually, only when asked

Respuesta: quarterly

Federal rules built around the code of ethics have access persons, people with access to client trades or recommendations, file an initial holdings report when they join, an annual holdings report, and a transaction report every quarter. The firm reviews those reports to spot front running and other conflicts between personal trading and client trading. NASAA lists initial holdings and quarterly reports on the Series 66 outline for this reason. Reports made only on request would give the firm no way to find a problem in time.

A representative who sells a client a private deal without the employing firm's knowledge or approval is engaged in _____, and a representative who trades a client's account far more than its goals justify, to earn commissions, is engaged in _____.

Opciones para el hueco 1: selling away, front running, parking, matched orders

Opciones para el hueco 2: scalping, churning, marking the close, layering

Respuesta: selling away, churning

Selling away means selling a security outside the firm's knowledge and supervision, which exposes the client to a product nobody has reviewed and the firm to liability for what it never approved. Churning, or excessive trading, means the volume of trading is driven by the representative's pay and not by the client's objectives. Front running is trading ahead of a client order, parking is hiding ownership of a position, and marking the close and layering are forms of market manipulation. Both selling away and excessive trading appear on the Series 66 outline as unethical practices.