1. Which of the following factors should be considered when deciding between the appropriateness of a fee-based or commission-based account for an investor?
A. Risk tolerance
B. Liquid net worth
C. The investor's income needs
D. The investor's fee structure preferences Correct
Explanation
The key factor in choosing between fee-based (assets under management) and commission-based accounts is the investor’s preference for how they want to pay for services. Risk tolerance and income needs affect product selection, not the compensation model. Liquid net worth may influence account minimums but is not the primary deciding factor. The investor’s fee structure preference directly determines which model is appropriate.
2. A chemist at a government agency posts nonpublic information about a new drug on a restricted social networking site that is viewed by a small number of his networked contacts. One of those contacts is a trader who purchases stock in the drug company and profits substantially when the drug is approved. No one else acted on the information in any way. Which of the following persons are in violation of insider trading rules?
A. The trader only
B. The chemist only
C. The chemist and the trader only Correct
D. The chemist and everyone receiving the information
Explanation
Both the chemist (tipper) and the trader (tippee) are liable. The chemist breached a duty by disclosing material nonpublic information. The trader knew or should have known it was nonpublic and traded on it for personal benefit (classical insider trading for the chemist, tipper-tippee liability for the trader). Mere recipients who did not trade are not liable.
3. A broker-dealer recently hired a registered representative (RR) who is new to the industry. The RR was asked to set up her profile on the firm’s social media site. Which of the following statements in the RR’s profile violates FINRA’s communications rule?
A. “I offer a personalized, hands-on approach to help you plan for your financial future.â€
B. “I will work with you in person, by phone or by video conferencing, whatever works best for you.â€
C. “My industry experience and knowledge will give you assurance that your financial goals will be met.†Correct
D. “My primary focus is to build rapport and trust with my customers to better serve their investment needs.â€
Explanation
FINRA prohibits communications that contain promises or guarantees of specific results or that assure success (e.g., 'your financial goals will be met'). This is a prohibited exaggerated or promissory statement. The other choices are acceptable as general business descriptions.
4. Which of the following statements is true regarding an individual who has passed the Securities Industry Essentials (SIE) Exam?
A. She is permitted to solicit securities business.
B. She is permitted to file her Form U4 directly with FINRA.
C. She has fulfilled her registration requirement with FINRA.
D. She must pass an additional qualification exam prior to engaging in securities business. Correct
Explanation
Passing the SIE alone does not qualify anyone to conduct securities business. A person must also pass a representative-level qualification exam (Series 6, 7, etc.) and be associated with/sponsored by a FINRA member firm to become registered.
5. A preferred stock that could pay a greater dividend in one year than the stated dividend is called:
A. callable.
B. cumulative.
C. convertible.
D. guaranteed.
E. participating. Correct
Explanation
Participating preferred stock allows holders to receive the stated dividend plus an additional dividend if the company achieves certain earnings levels or if common stockholders receive extra dividends. Callable, cumulative, convertible, and guaranteed do not provide for extra dividends.