[Jan 09, 2025] Free FINRA Series63 Exam Questions and Answer
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NEW QUESTION # 142
An agent working for a broker-dealer mistakenly sends an investment adviser some bonds that the adviser purchased on behalf of his client instead of directing the bonds to the financial institution that is serving as the qualified custodian of the client's funds.
If the investment adviser wants to avoid being considered custodian of this client's account, what must the adviser do?
- A. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to his client.
- B. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to the qualified custodian of the client's funds.
- C. Record what securities were sent, when he received them, and when he forwarded them--which
- D. Record what securities were sent, when he received them, and when he forwarded them--which must be within three business days-to his client.
Answer: A
Explanation:
Explanation
In order to avoid being considered custodian of his client's account, the investment adviser needs to record what securities he had been sent, when he received them, and when he returned them-which must be within three business days-to the sender.
NEW QUESTION # 143
Goldie Locks is an agent with Bear Broker-Dealers. One of her clients is a single woman, Annie Spinster, who is retired and needs income from her investment portfolio to meet her current needs for liquidity. In addition to investing in mutual funds, Annie likes the thrill of investing in single stocks and asks Goldie for recommendations. Goldie recommends Annie invest some of her money in Alcon (ACL), a medical instrument and supplies company selling on the NYSE, based on the fact that it has a high dividend yield and is paying a dividend of $2.21 a share, which is guaranteed to continue or even increase, Goldie assures Annie.
Has Goldie violated any laws or engaged in any prohibited practices?
- A. Yes. As the agent of a broker-dealer, Goldie is not permitted to make recommendations for specific investments. Only investment adviser representatives and investment advisers can do that.
- B. Yes. At the very least, Goldie has committed fraud since she cannot guarantee that a firm's dividend will continue or increase.
- C. Both A and B are true.
- D. No. Goldie merely responded to a recommendation request from a client, and the recommendation is suitable since the client has a need for current income and the recommended stock pays a high dividend.
Answer: B
Explanation:
Explanation
In recommending that Annie buy stock in Alcon because its stock is guaranteed to pay a dividend of $2.21 a share or higher, Goldie has committed fraud. The company itself could not even make such a guarantee legitimately. Goldie may also be guilty of an unsuitable recommendation since factors other than dividend yield-such as the risk of the investment--should have been considered. That being said, Goldie is permitted to make recommendations for specific investments as an agent of a broker-dealer, as long as she doesn't receive special compensation for it.
NEW QUESTION # 144
Desi Genuos is an agent with Broker-Dealer CanDo. A client has asked Desi to recommend a mutual fund
that does not have a sales charge. Desi recommends a fund that has no front-
end load although it does have a deferred sales load if the investor redeems his shares within the first
three years of ownership, but the client has informed Desi that he is looking at this as a long-term
investment. Based on these facts, Desi
- A. will not be in violation of any NASAA rules as long as he has his client sign a "letter of intent."
- B. is not in violation of any rules since the fund has no front-end load and the deferred sales load will not
apply to this client, given his indication that this is meant to be a long-term investment. - C. is not in violation of any rules because he is an agent of a broker-dealer and is not affiliated with the
fund he has recommended in any manner. - D. is in violation of NASAA rules regarding investment company shares.
Answer: D
Explanation:
If Desi recommends a mutual fund that has a deferred sales load to a client who requests a
mutual fund with no sales charge, he is in violation of NASAA rules regarding investment company shares.
The NASAA rules specify that it is prohibited for an agent to state or imply that the investment has no
sales charge if there is a deferred sales load involved. It doesn't matter if, in fact, the deferred load may
never have to be paid by the client. A letter of intent involves a statement of intent by the investor to invest
an amount that will meet a breakpoint that will entitle him to a lower load charge. This is not pertinent to
this specific question.
NEW QUESTION # 145
Which of the following securities would not necessarily be exempt from state registration?
- A. a bond issued by another state's employees' credit union
- B. a stock listed as a NASDAQ National Market Issue.
- C. a stock listed on the Tokyo Stock Exchange
- D. a bond guaranteed by the Canadian government
Answer: C
Explanation:
Stocks listed on the Tokyo Stock Exchange would not necessarily be exempt from state
registration. Stocks that are registered with the SEC, such as NASDAQ National Market Issue stocks,
securities issued or guaranteed by the Canadian government, and securities issued or guaranteed by
banks or credit unions are all exempt.
NEW QUESTION # 146
Which of the following entities must sign a "consent to service of process," thereby allowing the Administrator to receive legal documents that are meant to be served to the entity in place of that entity?
I. agents
II. investment advisers
III. investment adviser representatives
IV. broker-dealers
- A. I, II, III, and IV
- B. II and III only
- C. II and IV only
- D. I and IV only
Answer: A
Explanation:
Explanation
Agents, investment advisers, investment adviser representatives, and broker-dealers must all sign a consent to service of process, allowing the Administrator to receive legal documents in their stead. The consent to service of process must accompany the application for registration with the state or the documentation provided with a notice filing when permitted.
NEW QUESTION # 147
You are an investment adviser representative. Your client, Mr. I. M. Pulse, calls you with what he thinks is
exciting news. He just passed a restaurant and saw Microsoft's Bill Gates having lunch with a local
entrepreneur who owns a small firm in the computer software industry that trades on the OTC pink sheets.
He is sure that this means Microsoft is negotiating a purchase of the smaller company and instructs you to
take the cash balance in his account and buy shares of the local company. You should
- A. do both A and B.
- B. advise Mr. Pulse that he may be jumping the gun, but place the order if he insists.
- C. call your supervisor and alert him immediately of Mr. Pulse's attempt to have you place an illegal order
on his behalf in case Mr. Pulse decides to place the order elsewhere. - D. tell Mr. I.M. Pulse that this would be an illegal insider trade and that you are unable to fulfill his request.
Answer: B
Explanation:
If Mr. Pulse wants you to place an order to buy a firm that he thinks will become a target of
Microsoft based on seeing Bill Gates and the owner of the firm dining together, you should, as his adviser,
inform him that he may be jumping the gun and drawing a false conclusion, but you should place the order
if he continues to insist. It is a legitimate order, and you are obligated to follow his instructions. It does not
constitute illegal insider trading because Mr. Pulse has no way of knowing what the two men were talking
about. They may just be old high school buddies catching up on the news.
NEW QUESTION # 148
Blue Sky Laws are designed to:
- A. protect investors from fraud in their securities market transactions.
- B. enhance the tourism industry within a state.
- C. favor investment in companies that engage in environmentally friendly practices.
- D. protect agents, broker-dealers, and investment advisers and their representatives from spurious
allegations of fraudulent activity.
Answer: A
Explanation:
The main purpose of Blue Sky Laws is to protect individual investors from fraud in their
securities market transactions. Requiring the registration of new security issues and the registration of
those persons who advise individual investors as well as those involved in the purchase and sale of
securities to the public are just some of the regulations designed to do this. There are no provisions
designed to protect agents, broker-dealers, or investment advisers and their representatives in any
regard.
NEW QUESTION # 149
Cassie Clueless has recommended that a client purchase shares of a mutual fund prior to its ex-dividend date, so that the client will receive the dividends when they are distributed.
In which of the following situations might this recommendation be justifiable and not in violation of NASAA rules?
I. The investor has refused to provide Cassie any information regarding his investment goals.
II. The investor is a young professional with an investment goal of long-term capital appreciation.
III. The investor is a retiree in a low tax bracket and needs current income to augment her social security check.
- A. I and II only
- B. I only
- C. It is always in violation of NASAA rules to recommend that a client purchase shares of a mutual fund prior to its ex-dividend date.
- D. III only
Answer: D
Explanation:
Explanation
If Cassie makes her recommendation based on the scenario described in Selection III, she is not violating any NASAA rules. It is advantageous for an investor who is a retiree in a low tax bracket and needs current income to augment her social security check to buy shares of a mutual fund before its ex-dividend date in order to receive the dividend income. The NASAA rule states only that an agent cannot indicate that the purchase of shares of a mutual fund prior to the ex-dividend date would be advantageous to the client "unless there are specific, clearly described tax or other advantages to the customer." It would be unethical for Cassie to recommend this strategy to an investor whose investment goals were unknown to her, as in Selection I, or to an investor who is looking for long-term capital appreciation and has no need for the dividend income--which will be taxable--as in Selection II.
NEW QUESTION # 150
The trade confirmation must be received by the customer no later than
- A. the settlement date.
- B. five business days after the settlement date.
- C. the day after the trade takes place.
- D. one week after the settlement date.
Answer: A
Explanation:
Trade confirmations must be received by the customer no later than the settlement date.
NEW QUESTION # 151
In accordance with the Telephone Consumer Protection Act of 1991 (TCPA), if a prospective client
requests to be put on your firm's Do-Not-Call (DNC) list, the client must be kept on that list for
- A. 5 years.
- B. 10 years.
- C. 2 years.
- D. 1 year.
Answer: B
Explanation:
If a prospective client requests being put on your firm's DNC list, you must keep that name
on your list for 10 years, according to the TCPA.
NEW QUESTION # 152
Which of the following persons is required to maintain its records in accordance with state dictates and
meet the minimum net capital requirement imposed by the state?
I. federal covered adviser
II. state-registered investment adviser
III. investment adviser representative
- A. II and III only
- B. I, II, and III
- C. II only
- D. I and II only
Answer: C
Explanation:
Only the investment adviser that is required to register with the state must maintain its
records in accordance with state dictates and meet the minimum net capital requirement imposed by the
state. A federal covered adviser is registered with the SEC and need only execute a notice filing with the
state. Its record-keeping rules and net capital requirement are dictated by the SEC. An investment adviser
representative must register with the state, but there are no record-keeping or minimum net capital
requirement dictates for representatives.
NEW QUESTION # 153
In order to maintain its registration with a state, a broker-dealer may be required to:
I. take a written or oral exam.
II. pay an annual filing fee.
III. maintain a minimum net capital.
IV. file all advertising material with the Administrator.
- A. I, II, III, and IV
- B. II and III only
- C. I and II only
- D. II, III, and IV only
Answer: A
Explanation:
Explanation
In order to maintain its registration with a state, a broker-dealer may be required to take a written or oral exam, pay an annual filing fee, maintain a minimum net capital, and file all advertising material with the state's Administrator. The Administrator of each state has the authority to determine the specific requirements for the state. All of the selections are within the realm of the Administrator's jurisdiction.
NEW QUESTION # 154
Under NASAA Model Rules, it is permissible for the registered representative of a broker-dealer to split his or her commission with
I. a client.
II. the broker-dealer with which the registered representative is affiliated.
III. another registered representative working for the same broker-dealer.
IV. the administrative assistant who directs calls to the registered representative and provides other services for the agent.
- A. I, II, III, and IV
- B. I, II, and III only
- C. II and III only
- D. II, III, and IV only
Answer: C
Explanation:
Explanation
Only Selections II and III are correct. Under NASAA Model Rules, a registered representative of a broker-dealer is entitled to split his or her commission only with his or her broker-dealer or with another registered representative of that broker-dealer. He is not permitted to share commissions with a client or with anyone who works for the broker-dealer, but is not a registered agent.
NEW QUESTION # 155
If an issuer registers securities with the state, how long can the documentation supplied in the registration statement for those securities be incorporated by reference only into a registration statement for future securities the issuer wants to offer for sale?
- A. seven years
- B. two years
- C. one year
- D. five years
Answer: D
Explanation:
Explanation
Once an issuer has registered securities with the state, the documentation supplied in that registration statement can be incorporated into the registration statement for future securities the issuer wants to offer for sale by reference only for a period of five years.
NEW QUESTION # 156
For how long after the effective date is a security's registration valid?
- A. one year
- B. two years
- C. three months
- D. six months
Answer: A
Explanation:
Explanation
A security's registration is valid for one year after the effective date, which is the date the Administrator approves the registration. If the entire issue has not been sold in this time frame, the offering may be renewed.
NEW QUESTION # 157
A tombstone advertisement is
- A. an offer to sell a new security that is being issued by an Arizona firm.
- B. an offer to sell a new security.
- C. the announcement of a new security that may become available for purchase.
- D. the only type of advertisement that an investment advisory firm is allowed to use.
Answer: C
Explanation:
A tombstone advertisement is an announcement of a new security that may become
available for purchase. It is the only type of advertisement that is allowed during the "cooling off period"
once a firm has filed a registration statement for a new security. It is not an offer to sell the security, an act
that is strictly prohibited during this period.
NEW QUESTION # 158
Mr. and Mrs. Cleaver are nearing retirement and have made an appointment with Mr. Eddie, an
investment adviser representative who works for Haskell Investment Advisers, to get advice on how they
can better structure their investments to meet their retirement goals. Their son, Theodore, who has
recently graduated college and has a great job as a software writer for a video game company,
accompanies them. Mr. Eddie explains that the main goal of any plan is diversification and recommends
that Mr. and Mrs. Cleaver spread their investment monies equally among six load mutual funds that Mr.
Eddie can sell them. He suggests that Theodore follow suit and invest any monies he has equally among
the same ten funds. Has Mr. Eddie done anything wrong?
- A. Yes. Mr. Eddie has advised his clients to invest in load funds when no load funds are clearly better
investments. - B. No. Diversification should, in fact, be the goal, and he has advised a well-diversified plan for his clients.
- C. Yes. Mr. Eddie is guilty of misappropriation, a prohibited practice.
- D. Yes. Clients who are ready to retire have different investment needs than a client who is just entering
the work force. The recommendation that both Theodore and his parents have the same asset allocation
is clearly unsuitable.
Answer: D
Explanation:
Yes. In recommending that Mr. and Mrs. Cleaver and their son allocate their assets in
identical fashions, Mr. Eddie has made an unsuitable recommendation since investors with different
investment time horizons have different investment needs. Making unsuitable recommendations is a
prohibited practice, and Mr. Eddie could have his license suspended or revoked.
NEW QUESTION # 159
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