Free Series 66
Practice Exam - Quiz - 1
Test Your Knowledge

Trading ahead occurs when a broker-dealer prioritizes its own trading over a client's order by executing a trade on the same side of the market at a price that would satisfy the client’s order. This violates the broker-dealer’s obligation to act in the client’s best interest. The other scenarios do not represent trading ahead as described.

The SEC and state Administrators do not endorse, approve, or guarantee the safety of securities. Their role is to ensure the registration process discloses sufficient information for investors to make informed decisions. Any suggestion that a security is "approved" by a regulator is misleading and violates securities laws.

Soft-dollar arrangements can be used to acquire items that provide research or analysis directly related to the investment decision-making process, such as portfolio analysis software. They may not be used for general expenses like travel general circulation publications or overhead costs.

An Investment Adviser is defined as someone who provides advice about securities, does so as a regular part of their business, and receives compensation for these services. Lawyers, accountants, engineers, and teachers are excluded from the definition if their securities advice is incidental to their professional services and not separately compensated. Publishers are exempt if their advice is impersonal and provided regularly to the public. Banks are excluded from the definition under the Uniform Securities Act.

The de minimis exemption applies to both investment advisers (IAs) and investment adviser representatives (IARs). It allows them to avoid state registration if they have no place of business in the state and do not solicit more than five non-institutional clients in a 12-month period.

Investment advisers may rely on oral discretion to buy or sell securities on behalf of a client for up to 10 business days. After this period, the adviser must obtain written authorization to continue operating in a discretionary capacity. This provision applies only to investment advisers, not broker-dealers or agents.

Form ADV-E must be filed with the SEC by an independent public accountant no later than 120 days following the completion of an audit of an investment adviser’s books. This requirement applies when the adviser has custody of client funds and securities.

Anyone representing a broker-dealer in effecting securities transactions, including soliciting municipal bond transactions, is required to register as an agent. Clerical tasks that do not involve solicitation or securities transactions do not require registration.

The Consent to Service of Process is a one-time filing included in the initial registration package. It irrevocably appoints the Administrator to accept legal documents on behalf of the registrant, providing convenience for customers who wish to file complaints. It is not required to be refiled at the time of registration renewal.

A fixed annuity is not considered a security because it does not involve an expectation of profits solely from the efforts of others. Instead, it is a contract between an individual and an insurance company to provide guaranteed payments, making it exempt from securities regulations. All other choices meet the definition of a security under the Howey Test.