Chapter 4 Answers and Explanations

1. C – Agents receive compensation for effecting transactions. To receive compensation for helping to effect transactions, individuals must be registered as agents unless they qualify for one of the exceptions listed in the Uniform Securities Act. Agents can give investment advice as long as it is incidental to helping someone buy or sell a security. Investment adviser representatives (IARs) cannot operate separately from the investment advisory firms they work for. Lastly, agents are required to meet post-registration requirements or conditions set by each state in which they are registered.

2. D – Is an institutional investor buying and selling from their own account. Any investors, when buying or selling for their own accounts, do not need to register as agents since they are not working on behalf of a broker-dealer or issuer. Individuals selling exempt and non-exempt securities on behalf of a broker-dealer must register as agents regardless of how they are paid. Individuals selling non-exempt securities on behalf of an issuer must typically register as well. If the individual would have been selling certain exempt securities on behalf on an issuer, they would have been exempt from registration. Even if an individual working for a broker-dealer takes securities orders from customers without providing any advice, he or she is still required to register as an agent.

3. A – I and II. While agents are required to pass any required exams and a background check, they are not required to meet net capital requirements like a broker-dealer or investment advisory firm. Agents need to work for either a broker-dealer or an issuer