Chapter 7 Practice Question Answers
1. Answer: C. The Securities Exchange Act of 1934 was designed to regulate individuals selling securities on behalf of broker-dealers, the broker-dealers themselves, and the exchanges on which trades take place. Issuers of securities are primarily regulated under the Securities Act of 1933. Investment companies are primarily regulated under the Investment Company Act of 1940. Investment advisers are primarily regulated under the Investment Advisers Act of 1940.
2. Answer: A. Broker-dealers are regulated under the Securities Exchange Act of 1934 and are exempt under the Investment Advisers Act as long as they do not charge a fee for giving investment advice that is incidental to the provision of their commission- or markup-based services. Publishers, lawyers, teachers, and engineers are all exempt if the advice they give is incidental to their primary job description.
3. Answer: A. An investment adviser representative registers as such, not as an investment adviser. Investment advisers with more than $110 million are required to register on the federal level. Because the investment website makes recommendations to individuals based on their personal information, it will need to be registered as an investment adviser. The individual who does not work for a firm but regularly makes investment recommendations for pay would also need to register as an investment adviser.
4. Answer: C. If an adviser’s assets are under $100 million, it is mostly likely required to register on a state level. The de minimis rule allows advisers with no more than five clients in a state to avoid registration as long as they have no office in the state. Similarly, advisers with no office in the state that work only with institutional clients are not required to register in the state.
5. Answer: C. The NASAA has recommended net capital requirements for investment advisers who perform certain functions. The recommended amount for advisers