Series 63 Practice Questions
Prepare for Series 63 with more than an answer.
- Exam fee
- $147 USD
- Level
- Entry-Level
- Valid for
- Lifetime (but states may require continuing education)
Domains covered on the exam 8
- Regulation of Broker-Dealers12%
- Regulation of Agents of Broker-Dealers13%
- Ethical Practices and Obligations25%
- Communication with Customers and Prospects20%
- Regulations of Securities and Issuers9%
- Regulations of Investment Advisers5%
- Regulations of Investment Adviser Representatives5%
- Remedies and Administrative Provisions11%
- 1
An investment adviser may act as a custodian for a client’s securities if
I. the Administrator of the state doesn’t have a rule prohibiting custodial arrangements.
II. he informs the state Administrator in writing that he will be acting as a custodian for the client.
III. he arranges to pay an independent certified public accountant to perform an unannounced audit of his books each year so that the accountant can report his findings to the state Administrator.Show answer details
Correct answer: A
Explanation:
Selections I, II, and III are true statements. In order for an investment adviser to act as a custodian for a client’s securities, he must first make certain that the Administrator of the state in which he’s registered does not prohibit it. Then he must inform the Administrator in writing that he will be acting as a custodian for the client, and he has to pay for an independent CPA to audit his books once a year to make certain that everything is copasetic, upon which the CPA reports his findings to the state Administrator. There are also other requirements that must be met. - 2
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?
Show answer details
Correct answer: A
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. - 3
According to the NASAA Model Rules, which of the following institutions would not be considered a qualified custodian?
Show answer details
Correct answer: B
Explanation:
According to the NASAA Model Rules, a bank that is insured by a private, state-licensed insurance company would not be considered a qualified custodian. Registered broker-dealers, foreign financial institutions, and banks and savings institutions that are insured by the FDIC are on the list of qualified custodians. - 4
Stu Pede is an agent with broker-dealer Cavalier. A customer calls with a request to establish a classic IRA and asks for Stu’s advice regarding where the money in the IRA should be invested. Stu suggests a municipal bond fund, explaining to his client that the interest income earned on it will be tax-free at the federal level, and some of it may even be tax-free at the state and local levels.
Has Stu engaged in any prohibited practices?
Show answer details
Correct answer: C
Explanation:
Yes. When Stu recommends an investment in municipal bonds for a classic IRA account, he has made an unsuitable recommendation, which is a prohibited practice, and he can have his license revoked or suspended. Municipal bonds are not suitable investments for a classic IRA because municipal bonds pay interest that is at least free from federal taxation, so they offer a lower yield than fully taxable bonds of similar risk. The money in a classic IRA grows tax-free anyway, so the client is getting a lower yield with no benefit. - 5
An unregistered assistant at a broker-dealer is asked to help a busy agent. The agent has provided the assistant with a script. Which of the following actions can the assistant legally perform?
flowchart TD A[Client Calls] --> B{Is Client Asking for Quote?}; B -->|Yes| C[Assistant Provides Publicly Available Quote]; B -->|No| D{Is Client Placing an Order?}; D -->|Yes| E[Transfer to Registered Agent]; D -->|No| F{Is it a Service Inquiry?}; F --> |Yes| G[Assistant Handles Admin Task]; F --> |No| E; C --> H([End Call]); G --> H; E --> I[Agent Takes Order] --> H;Show answer details
Correct answer: C
Unregistered individuals are strictly limited to clerical and administrative duties. They cannot solicit business, make recommendations, accept orders, or qualify prospects. Providing a current, publicly available price quote is considered a clerical function and does not require registration. Any activity that involves judgment, solicitation, or transaction execution must be handled by a registered agent.
- 6
Which of the following entities is subject to be accused of churning?
I. investment advisers
II. investment adviser representative
III. broker-dealer
IV. agentShow answer details
Correct answer: A
Explanation:
Selections I, II, III, and IV-investment advisers, their representatives, and broker-dealers and their agents-are subject to accusations of churning. Any activity on the part of any of these parties that suggests that they are engaged in encouraging excessive trading on the accounts of their clients makes them subject to allegations of churning their customers’ accounts. - 7
The Administrator may not introduce a stop order to deny, revoke, or suspend the effective registration of a security based on facts that were disclosed during the registration process unless he does so within
Show answer details
Correct answer: A
Explanation:
The Administrator may not introduce a stop order against the registration of a security based on facts that were disclosed during the registration process unless he does so within 30 days. - 8
Joe Treader is the owner of a small, state-registered investment advisory firm that is on the verge of becoming insolvent. One of his clients who has become like a mother to him is aware of his financial difficulties and has offered to sell off some of the assets that he manages for her and loan him the money to get him through this period of economic uncertainty until he is able to get on his feet again.
Can Joe take her up on her offer?
Show answer details
Correct answer: C
Explanation:
No, Joe cannot take his client’s offer of a loan because it could lead to a conflict of interest--if not today, perhaps in the future-and as a fiduciary Joe will be expected to put this client’s welfare ahead of his own. If it takes him a lot longer than expected to get on his feet again, he may be tempted to act in his own best interest. - 9
Which of the following orders can an Administrator issue without providing prior notice?
Show answer details
Correct answer: C
Explanation:
The Administrator can issue an order to cease and desist without providing the party concerned with prior notice. In the cases involving the denial, suspension, or revocation of a license, the Administrator will provide prior notice, along with the opportunity for a hearing, and a written statement of the facts and the legal consequences involved. - 10
Don is a state-registered agent with GetErDone Broker-Dealers. He has three other friends who are licensed agents-Huey, Dewey, and Louie. Huey is also an agent with GetErDone Broker-Dealers.
Dewey is an agent with a different firm in the same city, CanDo Broker-Dealers. Louie works for a Broker-Dealer with an office just across the state line.Don can enter a commission-splitting agreement with
Show answer details
Correct answer: A
Explanation:
Don can enter a commission-splitting agreement with Huey only since he is the only one who is also working for GetErDone Broker-Dealers. It is considered unethical to split “commissions, profits or other compensation. . .with any person not also registered as an agent for the same broker-dealer,” under NASAA Model Rules.
