Regulation of Investment Advisers, Broker-Dealers, Agents, and Investment Adviser Representatives — Series 63 practice questions

A federal covered investment adviser is generally one that meets which of the following core criteria?

1. Manages at least $100 million in assets or advises registered investment company (fund) clients
2. Has fewer than five clients and no assets under active management at any point during the year
3. Manages between $5 million and $25 million in client asset holdings without any RIC clients at all
4. Is exempt from any registration at either the state or federal level under any circumstances arising

Answer: A — Manages at least $100 million in assets or advises registered investment company (fund) clients

A) Correct — federal covered IAs generally have $100M+ AUM or advise registered investment companies. B) That's below the threshold. C) That's below the threshold. D) Federal covered IAs must register with the SEC.

A firm imposing heightened supervision on an agent with a history of customer complaints would MOST likely:

1. Prohibit the agent from any further customer contact permanently
2. Adopt a documented plan for closer, more frequent review of the agent's activity
3. Transfer all supervisory responsibility to the state Administrator
4. Reduce the frequency of account reviews to limit administrative burden

Answer: B — Adopt a documented plan for closer, more frequent review of the agent's activity

B) Correct — heightened supervision means more frequent, documented review. A) Permanent contact prohibition isn't the standard approach. C) Supervisory responsibility stays with the firm, not the Administrator. D) Heightened supervision increases, not reduces, review frequency.

An IA with no place of business in State Q has advised 6 non-institutional retail clients located in State Q over the past 12 months. Under the USA de minimis standard, this IA:

1. is exempt because it has no office in State Q regardless of client count
2. must register in State Q because it exceeds the 5-client de minimis threshold
3. is exempt because all 6 clients are natural persons rather than entities
4. must register only if any of the 6 clients has over $1 million in assets

Answer: B — must register in State Q because it exceeds the 5-client de minimis threshold

B) Correct — exceeding 5 non-institutional clients in 12 months defeats the de minimis exemption even without a place of business. A) Lack of an office is only one prong; client count still matters. C) Being natural persons doesn't exempt them from the count. D) Asset size isn't the de minimis test.

Ultimate responsibility for supervising a registered agent's day-to-day conduct rests with:

1. The state Administrator's enforcement division exclusively
2. The employing BD, through its designated supervisory structure
3. The agent alone, since agents are independent contractors by definition
4. FINRA exclusively, with no state-level supervisory role

Answer: B — The employing BD, through its designated supervisory structure

B) Correct — the employing firm bears supervisory responsibility through its designated supervisors. A) The Administrator enforces the law but doesn't supervise day-to-day conduct. C) Independent-contractor status doesn't eliminate firm supervisory duty. D) States retain supervisory-failure enforcement authority too.

A 'consent to service of process' filed by a securities registrant with the Administrator serves which purpose?

1. Allows the Administrator to accept legal process on the registrant's behalf in state matters
2. Serves as a state tax registration form required for the withholding on employee compensation
3. Serves as a full substitute for the registrant's affirmative state securities registration filing
4. Serves no substantive legal purpose beyond a symbolic filing formality with no legal effect

Answer: A — Allows the Administrator to accept legal process on the registrant's behalf in state matters

A) Correct — a filed consent lets the Administrator receive service on behalf of a non-resident registrant. B) It's not a tax form. C) It supplements, not substitutes for, registration. D) It has real legal force.

Which arrangement most clearly triggers an IA's duty to deliver Form ADV Part 2A (the brochure) to a client?

1. An impersonal general market commentary emailed free to a broad public subscriber distribution list
2. Pure commission-based stock execution offered by a broker-dealer without any advisory component added
3. Banking and trust services offered by a federally chartered national commercial bank to its customers
4. Fee-for-advice investment supervisory services provided to an individual retail client for compensation

Answer: D — Fee-for-advice investment supervisory services provided to an individual retail client for compensation

A) Impersonal free commentary isn't an advisory contract. D) Correct — fee-for-advice to a retail client triggers brochure delivery. C) Banks are excluded from the IA definition. B) Pure execution is not advisory.

An IAR's registration in a state generally becomes effective at which point under the Uniform Securities Act default rule?

1. At the moment of complete application filing with the state Administrator's office in each case at all
2. Automatically six months after any complete application is filed with the state without any objection
3. At noon on the thirtieth day after the complete application is filed with the state's Administrator office
4. Only after the applicant passes an additional state-specific practical examination beyond Series 63/65/66

Answer: C — At noon on the thirtieth day after the complete application is filed with the state's Administrator office

A) Not immediately upon filing. B) There is no 6-month rule. C) Correct — the default rule is effectiveness at noon on the 30th day. D) States generally accept Series 63/65/66 without additional exams.

An individual employed by a federal covered IA services advisory clients only from her State A office. She must:

1. Not register anywhere at the state level because the employing IA firm has federal covered status
2. Register only with the SEC at the federal level because federal coverage of the firm extends to her
3. Register as an IAR in State A because she maintains a physical place of business in the state's territory
4. Not register at all because IARs are always exempt from all state law rules under federal preemption

Answer: C — Register as an IAR in State A because she maintains a physical place of business in the state's territory

A) Firm-level federal coverage doesn't extend to IARs' state registration. C) Correct — an IAR with a place of business in a state must register in that state. B) IARs generally don't register with the SEC. D) IARs aren't exempt.

An 'agent' under the USA must generally register in each state where the agent does what?

1. Merely receives a paycheck from a firm headquartered in that state or elsewhere too
2. Transacts business with retail non-institutional customers residing in the state area
3. Vacations occasionally or maintains a personal secondary residence for family purposes
4. Has any past family or professional connection to any resident of that state's territory

Answer: B — Transacts business with retail non-institutional customers residing in the state area

A) Paycheck source alone is not the test. B) Correct — soliciting or transacting with non-institutional customers in the state triggers registration. C) Personal presence unrelated to business is not the test. D) Past connections are not the test.

The Series 63 examination is developed and administered by which combination of entities?

1. Developed by NASAA and administered by FINRA under a longstanding coordination framework
2. Developed and administered by the U.S. Internal Revenue Service directly at the federal level
3. Developed and administered by the individual state insurance commissioners on a regional basis
4. Developed and administered by the Federal Reserve Board of Governors and Federal Reserve staff

Answer: A — Developed by NASAA and administered by FINRA under a longstanding coordination framework

A) Correct — NASAA develops the content and FINRA administers the exam. B) The IRS is not involved. C) Insurance commissioners are not involved. D) The Federal Reserve is not involved.

What must a BD confirm before permitting a newly hired agent to transact business?

That the agent's Form U4 has been filed, disclosures are accurate and complete, any required exams are passed, and the agent is not subject to a statutory disqualification that would bar registration.

What is an Investment Adviser under the USA?

Any person who, for compensation, engages in the business of advising others about securities or issues reports/analyses concerning securities.

Can an agent split commissions with someone not registered?

No — sharing commissions with unregistered persons is prohibited. Commissions may only be shared with other registered persons of the same firm or affiliated firms.

What is a Form U4?

Uniform Application for Securities Industry Registration. Filed by an agent or IAR through the firm; collects personal info, employment history, and disciplinary disclosures.