Chapter 9 Practice Questions

1. 1. Which of the following would constitute custody over client assets?
2. A. A professional who can initiate trades in a client’s account at the client’s broker-dealer of choice.
3. B. A professional who accepts a check from a client, made payable to a mutual fund company, to be submitted with his or her application to open an account with that mutual fund.
4. C. A professional who accepts prepayment of a client’s advisory fees.
5. D. A professional who stores a client’s stock and bond certificates in his or her firm’s safe.
6. 2. All of the following are true of discretionary authority for an investment adviser except:
7. A. It shifts responsibility for determining suitability off of the professional and on to a client
8. B. A written discretionary agreement must be on file with the professional’s firm within 10 days of the first trade
9. C. Discretionary authority can initially be granted verbally, until paperwork can be properly signed
10. D. Discretionary authority can be revoked at any time by a client
11. 3. When an investment adviser or broker-dealer has custody over a client’s assets, those assets must be:
12. A. Segregated
13. B. Commingled
14. C. Invested promptly
15. D. Audited quarterly
16. 4. Which of the following would represent an unethical action on the part of a professional?
17. I. Depositing client funds to their personal bank account
18. II. Withdrawing a client’s advisory fee from the client’s account
19. III. Using client funds to pay for a business luncheon with that client
20. IV. Pooling all his or her clients’ cash balances and paying his or her firm’s legitimate operating expenses out of those balances
21. A. I only
22. B. I, II and III
23. C. I, III, and IV
24. D. I, II, III, and IV
25. 5. When a client gives an agent of a broker-dealer permission to buy 100 shares of XYZ Corporation, but leaves th