Agent

An agent guarantees to cover any margin calls the client faces. This is:

1. A.Standard for margin accountsMargin accounts do generate maintenance calls, which makes this sound routine. The call is the customer's own obligation to the firm, so an agent who promises to meet it from personal funds is guaranteeing the client against loss.
2. B.A helpful courtesyThis recasts a shift of financial risk as a favor. Once the agent absorbs the calls, the client stops bearing the leverage risk they signed up for and the agent takes on a personal stake in how the positions perform.
3. C.ProhibitedCorrect - no guaranteeing against loss.
4. D.Allowed with disclosureDisclosure resolves conflicts that are permissible once the client knows about them. It cannot license conduct that is barred outright, so telling the client about the guarantee is not the problem; extending it is.

Why: Guaranteeing to cover losses/margin calls is prohibited (guaranteeing against loss).

An agent reviews four holdings a new client already owns. Under the Uniform Securities Act, which one is NOT a security?

1. A.Common stock of a privately held corporationThis is a security. Stock is a security whether or not the issuer is publicly traded.
2. B.A fixed annuity contract issued by an insurance companyCorrect - this is NOT a security. The insurer guarantees the return and bears the investment risk, making it an insurance product regulated by the state insurance department.
3. C.A variable annuity contract funded through a separate accountThis is a security. The contract owner bears the investment risk of the separate account's performance.
4. D.A certificate of interest in an oil and gas drilling programThis is a security. Fractional interests in oil, gas, or mining titles are expressly named in the definition.

Why: A fixed annuity is not a security. The insurance company guarantees a stated rate of return and bears the investment risk itself, so the purchaser is buying an insurance product rather than taking on investment risk. Fixed annuities are regulated by state insurance departments. By contrast, variable annuities are securities, because the contract owner bears the investment risk of a separate account. Stock and certificates of interest in an oil and gas program are both squarely within the definition. The clue is the word fixed. Review the topic on the definition of a security.

An agent recommends a security based on an unverified rumor with no reasonable basis. This is:

1. A.Aggressive researchResearch means gathering information and testing it. Nothing was gathered or tested here, only repeated, so calling it aggressive describes an effort that was never made.
2. B.ProhibitedCorrect - no reasonable basis.
3. C.Required disclosureNo obligation requires an agent to relay rumors. The reasonable-basis duty governs what must support a recommendation before it is made; it is not a mandate to pass unverified talk along to clients.
4. D.Allowed if it works outThis grades the conduct by its result. Reasonable basis is measured at the moment the recommendation is made, so a rumor that happens to prove out does not supply the diligence that was absent when the agent spoke.

Why: Recommendations require a reasonable basis; acting on baseless rumor is prohibited.

When an agent's employment is terminated, notice to the Administrator must be given by:

1. A.Only the customerThe customer holds no registration and files nothing with the state, and is often the last to learn of a departure. The notice duty falls on the parties whose registrations the termination actually changes.
2. B.The agent and the broker-dealerCorrect - both parties notify.
3. C.The SEC onlyThis routes a state filing to the federal regulator. Agent registration is administered by the state, so the notice belongs with the Administrator of the state where the agent is registered.
4. D.No oneThis treats the departure as a private employment matter. An agent's registration is tied to the employing broker-dealer, so without notice the state's records would keep showing the agent active at a firm they no longer work for.

Why: Both the agent and the broker-dealer must notify the Administrator of a termination.