Very Brief Summary of the Uniform Securities Act

well uh welcome once again to uh my studio here in fabulous las vegas i&#39;ve been wanting to do something uh for 63s 65s and 66s uh you know uh they&#39;ve been shortchanged a little bit in terms of the youtube uh lectures and some other things and um i wanted to kind of resolve that so i thought i&#39;d do something that i could try and make target rich but not take too long for example with a 63 65 66 class this would be a whole day obviously this lecture isn&#39;t going to be one day i&#39;ve got 32 slides i would use this as a confirmation of the test issues so i tried to load this uh 32 slides with as much target rich testable content as possible please note i&#39;m not calling it a lecture uh on the uniform securities act i&#39;m not even calling it a summary on the uniform securities act i&#39;m not even calling it a brief summary of the uniform securities act i&#39;m calling it a very brief summary so um we&#39;ll see i&#39;m thinking this will come in at maybe an hour so that&#39;s my my intent we&#39;ll see how we go as we move through the deck um i recently read tom ricketts he&#39;s the founder of td ameritrade and his uh memoir is called the harder the work harder i work the luckier i get and he was talking there he had a vignette i feel like writing him a letter and asking for the date that when he started td ameritrade he actually had to fly and travel to each state to take their version of a test on the uniform securities act template thank goodness the north american securities administrator association has agreed that now they will recognize a test a common test that they all agree on and this template for their particular state even though their particular state laws uh may be different so uh i don&#39;t know how long ago that was i know you know td ameritrade got started in the 70s so it wasn&#39;t quite clear i&#39;m not sure when when that error ended but thank goodness it did right otherwise you have to fly around uh surprisingly enough don&#39;t forget that it&#39;s the north american securities administrator association the administrator is the most important party on this exam by the way you know i joke the sec is god and state administrators think they are so there&#39;s you know 50 demigods running around and so i&#39;m coming to you from nevada as a retail investor keyword retail investor in nevada not only does the sec look after me but my state administrator does as well but i would remind you that canada and mexico are also uh parts of the north america right all right so this is the normal structure that we have in terms of uh broker dealers so let me just uh get this going here you know usually we set up a holding company to uh do that holding companies company that owns other companies and so the holding company would own a broker dealer so for example this is uh robin hood markets that is the holding company and then robert and markets has a broker dealer and now what we&#39;re going to be talking about is that broker dealer need to register with the state now in a robin hood&#39;s case their broker dealer is transacting business with retail customers in all 50 states so you know they&#39;re going to have to register in all 50 states and the associated persons or the associated persons are going to have sixes or sevens you know finra is the one who does that and that makes you an associated person or an agent of the broker dealer you know very much a common kind of a setup uh you know over here you know robin hood markets doesn&#39;t have a registered investment advisory firm it doesn&#39;t have a bank it doesn&#39;t have a lot of other things so pretty simple structure right now but it may be too simple for the type of business they&#39;re conducting but oh well now remember the state says we want you to take a exam you know i was asking guy what&#39;s next after six or seven he said nothing he said his state didn&#39;t require a 63 and i said well that&#39;s kind of odd most states would require you to uh take a test on this template on the uniform securities act and so you know if you have a six or uh 63 or 763 you are an agent of a broker dealer you are an agent of a broker dealer now here&#39;s uh my firm mine was gga ggi bay holdings that was my holding company and then this was my broker dealer gamma broker dealer and in my broker dealer i had an office in california and i had an office in virginia i only do institutional business so i&#39;m only going to have to register the broker dealer in virginia and in california by the way there&#39;s no such thing as a broker dealer that isn&#39;t registered uh with finra and the sec that&#39;s just a non-existent kind of a thing now the other thing we&#39;re going to be talking about uh here for example is fisher holdings again a holding company and fisher holdings doesn&#39;t have a broker dealer what official holdings has is a registered investment advisory and does fisher holdings need to be registered with the state or the feds we&#39;ll find out they manage over 150 billion dollars and so they own this thing that has to be registered with the feds and then the people who work at fisher holdings are going to have a 65 only because they&#39;re not an agent of a broker dealer so if all you have is a 65 then you&#39;re an agent of either a state registered investment advisory firm or a federally invested uh registered investment advisory firm now a lot of you who are taking this test a lot of you are taking this test work in a scenario that looks like this so here&#39;s uh here is a ggi bay holdings oh i&#39;ll use a schwab here is a schwab holdings and schwab holdings has a broker dealer schwab holding has an investment advisory firm you know schwab holdings actually owns a bank you know they own a lot of things but you know we don&#39;t really care about the bank what we care about is this and this right so now the holding company has a broker dealer and it has an investment advisory firm and again these associates are going to be representing both of those now for example here is ggi bay holdings that was my holding company and here&#39;s gamma global investments the broker dealer and here is gamma global investment advisory now to represent both of those right you&#39;re going to have to have a 663 65 or 760 365 or 766. now a lot of you are taking this exam whether it&#39;s a 6566 you know if you&#39;re just taking the 65 only then as we said you&#39;re going to be just representing the investment advisory but a lot of you are taking this exam because you&#39;re going to represent both and you want to wrap your products and services into a fee that&#39;s called a wrap account where we&#39;re going to say listen we can wrap our products and services into a fee you know for many many years for many many years the traditional business model was this one let me go back this was the traditional business model that most of us used for many many years in the securities industry now here&#39;s a the broker dealer and here i have a series seven and i would say you know the relationship you have with me is free you know you don&#39;t pay for the relationship but as part of that relationship sometimes i&#39;m going to recommend that you transact business and when you transact business with my broker dealer my broker dealer is going to make a commission or a markup or markdown and that&#39;s how this relationship works you know and you say well dan i don&#39;t like that relationship i go what do you like with that relationship you say well dean i&#39;m afraid you might not tell me to do nothing because there&#39;s no commission i said well i hope i could meet that you know ethical standard no but by the way if i don&#39;t have i don&#39;t have a you know investment advisory firm who knows i&#39;m never gonna get to teach you know some of my favorite companies but no schwab when i&#39;m doing a seven sometimes on campus about half the class after their 7 is going to just take a 63. and that means 763 they&#39;re just representing schwab&#39;s broker dealer the other half of the class is going to take 766. that means not only they representing schwab&#39;s broker dealer they&#39;re also going to be representing schwab&#39;s registered investment advisory firm that&#39;s the you know model that a lot of people that is the model that a lot of people are going to be using right so i can say well listen did i tell you that uh we also have an affiliated investment advisory firm and if you&#39;d like if you&#39;d like we can wrap the products and services of the broker dealer into a fee and here&#39;s a brochure that tells you you know what&#39;s included and what&#39;s excluded you know we&#39;re going to charge fees because that&#39;s what goes over here right fees then again we said that&#39;s what you got to have here so that&#39;s what triggers a lot of people to be taking their this exam okay well again as i mentioned i want to try and get as much uh you know pack as much test content as i can and you know what you&#39;re doing is you&#39;re taking a legal test and and legal tests means you know there&#39;s a lot of legal terms you know i think i take it to 65 he&#39;s an attorney i see he said well listen if you&#39;re an attorney you don&#39;t get this legal regulatory framework uh the big words right you know that&#39;s going to be really challenging but anyways we have what are called unnatural persons an unnatural person isn&#39;t a living breathing human being this drives my progressive friends kind of nuts for example sac capital was a registered investment advisory firm an unnatural person and it pled to a felony for violation of the insider trading act of 88. now we clear that you can&#39;t throw an unnatural person in jail you know the series 65 the person running that place a guy named stevie cohen as he sec capital he took a two-year failure to supervise and he made it very clear to the government that the investment advisory firm would be more than happy to plead to a felony and pay billions of dollars in fine but he personally would never do that are we clear why he would never do that because he&#39;s a natural person and a natural person can be you know put in jail or hung from a tree right so make sure you understand the distinction person means legally somebody can be held accountable for and in the category of persons there are two there are unnatural persons and there are natural persons so what kind of person are you you are a natural person these are people who cannot be held legally accountable by law so this is part of the uniform securities act it is very testable to know what uh is not a person but i would just tell you that even outside of your exam these are not persons meaning legally a minor cannot be held accountable legally a deceased person cannot be held accountable i can&#39;t tell you how many people die at such a convenient moment in terms of their legal problems you know kenneth lay died the night before he&#39;s going to be indicted you know he had a guy who had uh he was at enron we had a guy uh aubry mcclendon at chesapeake who you know we had a car accident we&#39;re not sure if you know he did it himself or what happened but all his problems go bye-bye so once you&#39;re dead you know what they&#39;re going to do to you right so i think i know that you stayed accountable but you can&#39;t be held accountable as a deceased person individuals declared mentally incompetent again you know hinckley took a shot at president reagan at the time to impress jody foster he pled that he was legally incompetent and psychiatrist agreed and that means he can&#39;t be held legally accountable so these are all people you watch those mob movies right when the mobsters start saying oh i&#39;m i&#39;m getting old i&#39;m infirmed i you know gotta get a psychiatrist to declare me mentally incompetent again then you can&#39;t be held accountable all right so who needs to register with the state uh this is i you know i try to put this in different color try and be target rich here for you and once you&#39;re reading a question on your exam and you get off in the office and stay you do not need to read any further if there&#39;s an office in the state the broker dealer needs to be registered regardless of the type of business they&#39;re doing so you know gamma global investments was my finra sec registered broker dealer the only clients the broker dealer has is institutional customers that&#39;s it doesn&#39;t matter i have an office in california i have an office in virginia both those offices need to be registered with the state now remember my broker dealer gamma global investments is a person meaning it can be held legal accountable it&#39;s an unnatural person so once you&#39;re doing a question on your exam it says office and state you don&#39;t need to read any further now no office in the state but dealing with the general public well there&#39;s my friends at robinhood right they don&#39;t have an office in all 50 states i i know they&#39;ve opened an office in texas i think they&#39;ve opened an office yeah because they gotta have some real people at some point to answer phone calls do something so you know they&#39;re beefing up their their broker dealer to handle the you know the level of business they have but long story short again once uh robin hood has a location in texas or location in arizona they need to register the broker dealer now i told you they&#39;re already registered in all 50 states because they&#39;re actually doing business with the public so even though robin hood doesn&#39;t have an office in uh let&#39;s say georgia they have people that are you know buying and selling securities off the robin hood platform in atlanta in georgia and so if you&#39;re dealing with the general public you have to register that broker dealer in that state uh you know try to mix up with the colors i told you the goal here is to try and get you as many points and as few as slides as possible so there&#39;s dean&#39;s firm my firm gamma global investments you know the state administrator of new york and texas i do a lot of business did a lot of business in new york and texas and they say dean how come gama global investments your broker dealer is not registered in the state of new york and the state of texas the state administrator says the same thing we see you&#39;re here in our state you&#39;re soliciting business so what&#39;s up i say well i only deal with institutional investors i&#39;m not calling on any citizens any retail investors of the state of new york or the state of texas and so no the broker dealer gamma global is not registered in your state so i didn&#39;t register the state if i had no office you know the test assumes that institutional investors are capable of protecting their own ass sets their own interests so it&#39;s all about protecting joe six-pack retail investors i have no office in the state and i&#39;m having uh doing this with my customers so my customer says hey dean i&#39;m gonna be in a snowbirding out in you know arizona during the winter i&#39;m gonna be there uh you know two three weeks and uh you know why don&#39;t you come down and see me talk about my portfolio let me know any uh current deals you have so arizona says dean uh how come gamma global isn&#39;t registered in arizona i said i don&#39;t have an office in arizona and i&#39;m not doing business with any of your residents now if my customer decides that he&#39;s going to actually relocate there well then i&#39;m going to have to register the broker dealer uh it doesn&#39;t include so on the test be careful you don&#39;t get confused about who&#39;s who and the the player you know i think the uniform securities act once you figure out what you&#39;re being asked is uh pretty uh straightforward but i&#39;d be the first to admit to figure out uh get past all the legalese can be a challenge because the grammar is atrocious you know so don&#39;t you get past that now we don&#39;t give scores anymore but when we gave scores people who barely passed their six or seven typically would really ace the uniform securities act i can&#39;t prove it and people who struggle or ace their seven would really struggle i can&#39;t prove prove it but i anecdotally think what happens is people who barely pass their six or seven don&#39;t know enough to overthink it and so they go down there and say i probably shouldn&#39;t lie cheat or steal now i would warn you one of the ways i was able to cut down this thing from what would be a day-long discussion on the regulatory framework in a 63-65-66 class was to get rid of about half of it which has to do with disclosures and unethical business behavior you know i&#39;ll leave that to you i put a couple high-risk ones in here but you know i want you to be clear this this lecture is not a substitute it&#39;s a confirmation if you will a supplemental confirmation of testable issues so anyway so broker dealer does not include so here&#39;s people who may you maybe get confused about right you are not a broker dealer with your six or seven or your 63 or 66 depending on what you know you got you&#39;re an agent of the broker deal that&#39;s not a broker dealer the issuer isn&#39;t a broker dealer a banker trust company kind of looks like a broker dealer because a trust company of a bank is buying and selling securities for third parties but it&#39;s doing so as a fiduciary and it&#39;s not receiving any commissions for doing so so that one&#39;s kind of tricky you know trust department can sound like a broker dealer because it&#39;s affecting transactions you know for third parties that&#39;s kind of a definition of a broker dealer except it&#39;s not receiving compensation for doing so right broker dealers when we do transactions are being compensated state registration for the broker dealer so the process of registering the broker dealer so i have an office in virginia so i&#39;m going to have to register the broker dealer in virginia so how do i do it i have a form bd i uh pay a filing fee very testable the consent to service this is required for everybody so you know if you&#39;re trying to serve papers on my broker dealer and you can&#39;t find me or the broker dealer no worries with every registration of a broker-dealer an investment advisory firm an agent of a broker-dealer an associated person of a broker dealer an investment advisor representative must have a consent to service meaning the state administrator can accept legal documents on your behalf that&#39;s very testable you know they&#39;ll say a which of the following allows the state administrator to receive legal documents on the behalf of a dealer so or an 8 associated person you would say contents of service so as long as you&#39;re in the business that&#39;s going to be a part of your filing the registration becomes effective 30 days after the application if not sooner but you know the registration expires december 31st uh the administrator may set a minimum net capital standards for broker dealer now the trick here is they can&#39;t require a net capital standard that word net apple standard that&#39;s higher than my finra sec standard you know the net capital standards of a broker dealer are way way way higher than the net capital standards for an investment advisory firm it makes sense because you know we as broker dealers actually have physical possession of monies and securities right so it makes sense that that standard&#39;s higher and what we&#39;re saying here is the administrator can set a minimum but it can&#39;t be higher than what my federal requirement is they can require a fidelity bond if you have custody or discretion state registration so a lot of states will say that if the broker dealer is registered so are the office or directors because that form bd has so much information there that they may accept that in lieu of a u4 so state registration of the broker dealer the officers and directors of the broker dealer are automatically registered as agents so what we&#39;re saying here if you know bank of america makes a filing and brian monahan is part of that i doubt he&#39;s involved day to day in the broker dealer but you know that would be sufficient uh g is a test question you know there&#39;s a merger acquisition of sale the bd successor firm will file an application so you know there&#39;s been a merger of td ameritrade in schwab right so they&#39;re merging it&#39;s actually more of an acquisition by schwab of td ameritrade but the point is there&#39;s no new fee required for that merger of those two broker dealers usa requires broker dealers to keep records uh uniform securities act by the way one thing that might take care of the grammar is every time you hear somebody just spell out so every time i hear usam say uniform securities uh act which is the template that you get tests on you know every state is a little different for example new york has what&#39;s called the martin act the administrator may examine at any time i told you the administrator is the most important participant in this cast of characters that&#39;s the you know typically an attorney and typically who has a eye on higher office it&#39;s not an investment professional typically the administrator is typically an attorney you know in california where i hail from it&#39;s called the department of corporations and kamala harris was the former head of the department of corporations so administrator examining these records any time they may require you to file sales literature and advertising prior to first use uh the vast majority brokerage firm records are three years and then readily accessible means 24 hours you know state administrators love this uh you know i&#39;m coming to you about 12 30 so state administrator says uh i&#39;ll be here at 12 30 tomorrow and i expect you to have that available to me you know i&#39;ll be back same time tomorrow basically is what that means you can have a micro fish you can have any way you want just as long as you can produce it within 24 hours federally covered investment advisors federally covered investment advisors can hire broker dealers as third-party solicitors you know gamma global investments my broker dealer the vast majority of my business my last nine ten years in the securities industry was my broker dealer acting as a third-party solicitor for federally covered investment advisors like carlisle for example now if you are a not a federally covered investment advisor then you can&#39;t hire a broker dealer as a third party solicitor you know a lot of times i&#39;ll have people in class taking their 65 who&#39;ve been hired to solicit on behalf of a state covered investment advisor to get them past the 110 million they need to be federally covered so they can hire a broker dealer to do this for you now what i&#39;m a third party a solicitor on behalf as an investment advisor so let&#39;s get a text box here i have to have a separate brochure from that of the investment advisor so now in my example i say here&#39;s a brochure that tells you about gamma global investments the broker dealer who is a third-party solicitor for carlisle here is form adv part two which tells you about carlisle so there&#39;s gonna be a brochure for the broker-dealer and a brochure for the investment advisor i need you to sign that to make sure that you know i&#39;ve explained this to you so you know that i&#39;m not you know affiliated i don&#39;t work for carla you know saying that you understand this relationship as a potential person who&#39;s going to you know give some money to carlisle you know because carlisle the investment advisory firm is going to call and say hey did dean make sure i explain this relationship to you correctly now you say dean what&#39;s the broker dealer receiving as a third-party solicitor for the investment advisory firm i say well you know you&#39;re paying carlyle two percent of the assets under management and twenty percent of the profits they make you and what uh carlisle does is pay my broker dealers a third-party solicitor that two percent it doesn&#39;t cost you any more to go through gamma global the broker dealer is a third-party solicitor to go ahead and go through do it that way than it does to go directly to carlyle it&#39;ll be no difference in the in the pay by the way it might be and if that&#39;s the case that would have to be disclosed so again we have to disclose if there is a higher cost of using the third party solicitor yes i have to tell you basically how i&#39;m being compensated right how&#39;s the broker doing compensate now kind of a trick question you know the broker dealer let&#39;s just go back to that broker dealer box uh that we had just to see how long it takes to get back there there&#39;s our broker dealer box we had and this is the one time where you know again there&#39;s that there&#39;s that and there&#39;s this this broker dealer that&#39;s a third party solicitor does not need to be registered in this investment advisory firm to be raising money finding clients for the investment advisory firm and the person who has the seven or the six uh 63 doesn&#39;t have to take a 65 or 66 to do so now i could be a fundraiser as a broker dealer third party solicitor and my registered reps do not have to take a 65 or 66 they can do that to fill that function with a 763 and so let&#39;s get back to our third party solicitor there we are and let&#39;s put that in our text box and so the broker dealer and its associated persons uh associated persons need not uh maybe i should clean that bd doesn&#39;t man let&#39;s clean that up bd does not need to register as an investment advisory firm to do this i&#39;ll put ira you should come for that language that riaa means registered investment advisor right because you&#39;re either registered the investment this is the firm by the way it&#39;s either federal or state here we must be talking about a federal because i told you this doesn&#39;t work if you&#39;re not a federally covered advisor you can&#39;t hire a broker dealer as a solicitor and then the and then i said the associated person the brokered eater do not need to be registered with 65 registered to take let&#39;s put take or just take 65 or 66. and typo in there but i&#39;ll leave it up to you fix it and then we talk wrong slide here by the way sorry about that let me put that in the spot it goes there we go sorry about that so there&#39;s where all that information goes yeah i was teaching a 65 class in uh salt lake city in the middle of winter and boy these guys are life insurance professionals you could just tell their their professionals they got a studio where they you know do estate planning infomercials and radio shows and you know anyways it was really cold and i couldn&#39;t find a cup of coffee i said where do you get a cup of coffee here in the morning and they go well the only one talking about the bad cats i go what are the bad cats he said dean the bad cats are caffeine alcohol and tobacco i said well man that&#39;s a deal breaker for me because i start every morning a little caffeine i like to end every not every day but some days with a little alcohol beverage and maybe a stogy every now and again but anyways i say hey what&#39;s up with this uh you guys taking a 65. and i said well dina we uh had a guy who was a investment advisory firm registered investment advisor uh federally covered and he was in la jolla that&#39;s where he&#39;s at and he saw us doing our thing on television and he said that he bets that we run into a lot of people doing estate planning who may need uh beer would be good prospects for his registered investment advisory firm and uh why don&#39;t they refer him to refer those people to him and we said well how do we get paid he said well to get paid you&#39;re going to have to take and pass an exam a series 65. now a lot of investment advisory firms use broker dealers for custody as i mentioned fisher investments has 150 billion dollars of assets under management i think about 50 60 billion of that is at schwa that&#39;s around town i mean so they&#39;re not monogamous but you know they use schwab and this guy uses td ameritrade the guy in la jolla the registered investment advisory firm and so he called td ameritrade and said listen i&#39;d like to use some of my soft dollars are we clear that td ameritrade loves this guy because he&#39;s running the trades and using td ameritrade for not only execution but also custody and so this is a very profitable relationship for td ameritrade or any broker dealer for that matter and so what i&#39;d like you to do tdm your trade is pay dean to go out to do a seminar perfectly acceptable seminar registration fees and i&#39;d like you to pay him to go to salt lake city and uh you know do a three-day 65 for these guys three four days what whatever so that&#39;s why gears truly is there but the point is that&#39;s perfectly acceptable now are we clear that we would rather be we would rather be in lawyer but td ameritrade test question can&#39;t pay for travel that&#39;s very testable so the soft dollars are monies that broker dealers use to help investment advisory firms help their customer now i&#39;m not going to go into the things they can pay for because the test issue is what they can&#39;t pay for right are we clear that they we all would rather the td ameritrade and they certainly have the resources to do so would fly dean de la hoya fly these guys from salt lake de la hoya put us up in a nice place get us a nice uh you know room to do our four day class in that would be fantastic uh no can do no can do they can&#39;t pay for furniture and they can&#39;t pay for rent so make sure you know what a broker dealer can pay for using soft dollar soft dollars means you know the the the investment advisory firm there in la jolla is not directly compensating me right the person who&#39;s paying me is td ameritrade the broker dealer using soft dollars meaning the money is coming from the broker dealer for the benefit of the investment advisory firm so seminar registration fees that&#39;s what this is that&#39;s perfectly acceptable what&#39;s not acceptable is the test question let&#39;s clear up a sign a person is always an individual who works for a broker dealer so state agents registration of the agents right agents of the broker dealer those are always natural persons the agent must be registered in the state where the agent resides where the securities are offered where the securities are sold the agent can&#39;t represent multiple broker dealers unless bds are affiliated so you know for example schwab used to have another broker dealer called options express and those are what the word for uh affiliate is under common control let&#39;s just put that there so you know so you can you know you pick up the phone and say hey thanks for calling option express dean tenney and then you uh call the schwab line hey thanks for calling schwab dean tinney you say wow what&#39;s that what&#39;s going on with that you know i don&#39;t know at what point uh td ameritrade and schwab are going to be under common control i think they&#39;re still running independently but as i told you at some point they&#39;re going to be under common control so that means those broker dealers are affiliated those broker dealers are affiliated so that&#39;s okay so you know this state administrator pumps up your crd your crd number where your registrations reside and says dean how how are you doing is doing this how are you representing multiple broker dealers i saw their affiliate you can only split commissions with the associated or same bd or affiliated bd and then i put in some high risk uh no nos for agents or broker dealers no selling away you know selling away is when an associated person gets a client involved in a transaction not sponsored by the employing broker dealer you&#39;ll see an associated person of a broker dealer gets an investor involved in an investment not sponsored by that uh broker dealer what&#39;s that called it&#39;s a prohibited practice and you have to come up with selling away that&#39;s a strike three offense meaning we don&#39;t usually give you your first two strikes you know merrill lynch is a good firm they just have a lot of brokers and so you know you&#39;ve got 12 000 brokers running around to be expected maybe not all of them are great but anyways this mayoral broker decided to build a health club he made himself the general partner he made his mayoral clients limited partners that means they provided the money he provided the experience at the end the health club went under and they&#39;ve had the experience and the broker has the money i&#39;m joking but now they&#39;re going to come winding merrill lynch saying we thought this was a maryland sponsored investment now what the rep was supposed to do is make written notice to merrill lynch they once get people involved in this you know transaction not likely they would have said yes but if they did merrill would have sent a letter to every one of these people saying this is not a maryland sponsored investment if it blows up don&#39;t come wanting to us you know what you know that better as or you will i guess you guys are matriculating you&#39;re not yet there but when you matriculate what this is going to amount to when you start work at the firm is you&#39;re going to have this approved product list if it&#39;s not an improved product list you&#39;re not allowed to sell it another major one selling dividends you know i say hey are you familiar with dividend capture programs you know if you buy the stock today man you get the dividend but if you wait till tomorrow no dividend for you you say dean uh isn&#39;t it going to go down by the amount of the dividend isn&#39;t that just creating an unnecessary tax situation could i talk to your supervisor i said you&#39;re no fun right that&#39;s an artifice an artificial sense of urgency that doesn&#39;t exist right because you&#39;d be better served to buy you know after the x and not create the unnecessary tax situation that&#39;s a classic that too is a violation of the uniform securities act you know i&#39;ll use uh franklin i ended up as an institutional broker but i started out as a retail broker so i don&#39;t know if this is still true but you know we&#39;ll soon assume it is i did a lot of business in the a shares of franklin templeton and so in the 8 years i used to sell a lot of their tax refunds and in those days if you invested a hundred thousand dollars or more you would pay a three percent load you know but if you invested under a hundred thousand dollars you paid a four percent load and so you say dean how much should i invest and i said you want to invest 99 999 you say why i said because my broker will make it for my broker dealer will make a four thousand dollar commission instead of a three thousand dollar commission now be careful read carefully a break point is a good thing it&#39;s a quantity discount that&#39;s a good thing it&#39;s a bad thing break point sale is a bad thing that&#39;s when you avoid the break point to maximize the commission and then churning our trades are excessive in size and frequency we don&#39;t actually have a definition of that we just know it when we see it so those are some classic prohibited things you&#39;re not supposed to do person who&#39;s not an agent so this means you don&#39;t have to register in the state now be careful here right because you&#39;re registered in some state because you know you have an office but so you a person don&#39;t need to be registered as an agent with a state administrator kind of a trick by the way you can&#39;t be uh registered with this date if your broker dealer is not so be careful about that kind of a trick right there&#39;s no such thing as you being an independent person in some state if the broker dealer isn&#39;t there so again transact business with existing customers aren&#39;t residents it&#39;s less than 30 days it&#39;s the same as the bd right the same rule for you as an agent of the broker dealer six or seven as the broker dealer two this one&#39;s kind of interesting you know i&#39;m not so sure i could tell you common mistakes but a reg d private placement is one of the few transactions test question that doesn&#39;t need to be registered under 33 and it doesn&#39;t need to be registered under the uniform securities act one of the few so reg d is again an exempt transaction for both what we&#39;re discussing right now the uniform securities act as well as 33. as i told you i did a lot of business in this space and gamma global investments was hired by the winery to go out and raise money for the winery you know the partners the general partners have hired gama global to go find partners you know this is a hall wines of napa the general partners are craig and catherine hall gamma global investments as a broker dealer now one of my go-to moves one of my go-to moves was to invite you to the winery for a due diligence tour and tasting so i can meet you up there i take you around the winery and i try and get you to sign up right make an asset allocation to uh hall now ed curry is the senior vice president of hospitality at hall lines of napa and if you show up there on your own he will do the exact same thing dean just did he&#39;s going to take you around the winery and instead of asking you to join the wine club you know if he thinks you&#39;re you know up for it he might do a presentation about the private placement give you a private placement and they ask you to invest in the winery please note he&#39;s representing the issuer he&#39;s not representing he&#39;s not working for a broker dealer he&#39;s a senior vice president of hospitality he doesn&#39;t get paid to get people involved in the winery he&#39;s getting you know he gets good i don&#39;t know what he makes but you know it&#39;s not like he gets paid on the fundraising he&#39;s actually really a senior vice president of hospitality and so he wouldn&#39;t need and hall is needed to uh get registered under any circumstance here right so individual ed curry in my example senior vice president hospitality represents all wines of napa the issuer in this private placement now listen as you can tell i&#39;m very fond of ed because one time he said dean this guy showed up the winery i&#39;m not sure you send him or not but we put it under you at gama global like oh thank you very much oh well so the couple takeaways from that just test-wise i want to make sure you get your test content here right a couple takeaways reg d test question is an exempt transaction under 33 it&#39;s an exempt transaction of the uniform securities act that&#39;s very testable this item i just brought up about in what circumstance can an individual or natural person not have to get registered in an agent of a broker dealer it&#39;s if they represent the issuer in an exempt transaction you should definitely know what an accredited investor is from your previous exam and this one i guess i mean that 200 grand or 300 grand or the million you know you should know that okay so how do you how do you become an agent of a broker dealer 63 60 now listen we think of ourselves as investment professionals but the state administrator thinks that&#39;s the sales people i don&#39;t think that&#39;s derogatory by the way as a salesperson we leave people the decisions are good for them hopefully right we&#39;re going to file an application we&#39;re going to pay the filing fees consent to service again very testable registration is 30 days that&#39;s a common thread that runs through the uniform securities act in your exam you know sooner if they say so but you know 30 if they don&#39;t say so all this is december 31st 31st another common theme that runs through the uniform securities act and the withdrawal becomes effective days after the administrator receives that notice so let&#39;s talk now about how do we register an investment advisory firm on the uniform securities act now this is very intestinal i&#39;m sure in all your materials you&#39;ve seen this abc do i give investment advice let&#39;s just get a text box here does the firm give investment advice that&#39;s the a do we tell people do we tell people that we&#39;re in the business of giving investment advice that&#39;s what we do for a living is we give investment advice and we want compensation as people will receive compensation because that&#39;s what you&#39;re doing then you need to be you know properly registered as an investment advisory firm now again vk you&#39;re very careful on your exam don&#39;t confuse you don&#39;t confuse you here just let&#39;s just make sure we got this down here the abc test so there&#39;s the a there&#39;s the b there&#39;s the c right you are not an investment advisory firm you are taking a 65 or 66 and you are a natural person you know uh we don&#39;t want you uh making campaign contributions to elected officials you know pers manages about 400 billion dollars and city pension plans are you know very important investment advisory clients and so one thing you as a natural person are not supposed to do is make a campaign contribution for more than 350. now to make that 350 campaign contribution you have to be able to vote for that elected official if you can&#39;t vote for that elected official you can&#39;t give them 350 bucks and then for others you can&#39;t vote for it&#39;s 150. now be careful i added this to debt because i can&#39;t tell you how many people get confused about the broker-dealer side of this this isn&#39;t about a broker dealer there&#39;s about an investment advisory representative on the broker dealer side you might recall from your previous exams your sie you know your seven whatever that it&#39;s 250 and that&#39;s the broker dealer side we&#39;re not talking about a broker dealer here we&#39;re talking about an investment advisory firm now what do you do with your 65 or 66 you give advice you give advice now one of the test issues that comes up as an investment advisory representative is what&#39;s called a customer cross now listen i you know shy away a little bit uh from recommending all of the lectures on the youtube channel for 65 because i&#39;d be the first to admit that it might be a little overkill you know but i have a great lecture on secondary markets that it won&#39;t kill you to sit through the hour plus of secondary markets and how that works and you know i&#39;m just not sure how much the payoff is performance opportunity-wise what i mean by that is same with options like i haven&#39;t labeled the option lectures as being 65 appropriate even though i do for sie and seven that&#39;s ie23 option questions 65 6523 option questions and i&#39;m not sure how you want to power up on that that content it&#39;s there for you if you&#39;re not sure you know leave me a comment either here you know in the comment box on the channel or wherever you&#39;re watching this and i&#39;ll i&#39;ll be more than happy to you know explain what i mean by that but i do have you go the playlist you will see on the playlist various series with various recommended lectures so anyways let&#39;s get back to the test issue here so i&#39;ll play investment advisor rep you play client i say hey listen uh i&#39;m calling you to check in with you we&#39;ve been building that position in let&#39;s just call this for lack of imagination xyz and so i&#39;m going to continue to be building the position today so i just want to check in so you&#39;ll know that you&#39;re going to be receiving confirmations i continue to build this position you say mandeen it&#39;s been pretty good to us i go yeah we&#39;ve got a good role here you know we started accumulating this in your portfolio at 8 9 10 and we still think it&#39;s a good buy and so you know we&#39;re going to buy it so i&#39;ll be calling con contacting your broker dealer remember i have third party party authorization and you&#39;ll be seeing these confirmations you say well dean actually um i&#39;m glad you called because i want to sell i want to sell a thousand shares and i said well whoa whoa whoa you know my current recommendation is a buy he said well yeah i understand that but i want to sell first test issue i have to follow my customers instructions i have to follow my customer instructions i said well listen if you sell a thousand shares right now it looks like on the bid you&#39;re gonna receive 15 grand i don&#39;t know if you recall but when you opened your account with me i told you that as much as possible we try to avoid transaction costs with a broker dealer and so you know i take your thousand shares of the broker dealer the market maker you&#39;re gonna get 15 000. so what i&#39;d like to do is a customer cross a customer cross because you know after i hang out with you i&#39;m going to be making the same call to my other client you know my next client and my call here is chris and i&#39;m going to call chris and so let me see if i can get chris uh to buy it so i call chris i say hey chris dean here uh you know we&#39;ve been building this position in xyz and uh as you know we have a buy i have kind of a unique opportunity for us unfortunate but i have a customer who needs to sell and so what i&#39;d like to do is i&#39;d like to do as we mentioned to you across we try as much as we can to save transaction costs by avoiding broker dealers by internalizing orders if we can and it looks like you&#39;d pay 16 but i&#39;m gonna cross it at 15.50 in other words you&#39;re going to chris pay 1550 50 cents less than you otherwise would pay if i took it to the market maker the broker dealer and my customer the guy i just got off the phone with he will receive 15.50 instead of 15. you both benefit the only loser in this transaction is the broker dealer now what are the test questions first test question is i can&#39;t trade against my recommendation and please note and that hypothetical i just brought up i did not trade against my recommendation my recommendation was a buy and second thing is i have to tell you i have to have your permission to do this so in the original documentation when you open the account and now it has to be disclosed that we do customer crosses agency cross that&#39;s called an agency cross where i&#39;m acting as an agent to my seller and an agent to my buyer that needs to be disclosed because you&#39;re you know you have opposite kind of you know interest there but disclose the cross and it has to be no approved by the the customer you know we usually tell you that in your documentation we&#39;re going to do it and then i&#39;ll tell you again here and i want to get written acknowledgement from you that i&#39;ve explained this to you okay so that&#39;s called a customer cross or sometimes referred to as an agency cross uh we manage accounts we solicit and sell investment advisory services so again key point the third part the investment advisory firm if it&#39;s not federally covered can&#39;t hire broker dealers as third-party solicitors so those who are soliciting on behalf of the investment advisory firm are going to have to take and pass a 65 standalone or 766. the 66 is only for sevens right so you can&#39;t take a 66 unless you have a seven so if you have a 763 it&#39;s going to be a 65 that you&#39;ll add to that or 663.65 or the case may be and i just brought up this whole idea of an agency cross so we have what&#39;s called the national securities market improvement act and you know the state administrators really didn&#39;t like it they didn&#39;t like it because it took a lot of power away from the states and it says that if you&#39;re managing 110 million or more you are going to be a federally covered investment advisor and then it&#39;s testable know that if you are a federally covered investment advisor you can&#39;t fall below 90. that is very much a test question let me get my highlighter out here you know if you get go back past that you&#39;re going to get kicked back to the states so you know i don&#39;t have that happen uh under 100 million you register with the state de minimis be careful about these d minimums a maximum of five persons a 12 month period so again the state says why didn&#39;t you register in my state and i said i didn&#39;t register in your state administrator because i don&#39;t have a place of business in your state and i have a maximum of five right so that means you know five or more i&#39;m going to have to register now be careful i&#39;m not so sure i&#39;d tell you common mistakes but make sure you understand there is no d minimus for broker dealers right if a broker dealer has one retail customer in that state that broker dealer needs to register in that state so you know as we say always on these exams r t f q that stands for read the full question broker dealers there is no d minimus for a broker dealer investment advisory firm you know you&#39;re not an investment advisory firm you&#39;re an investment advisor so you know be careful you know when you want to read these questions for context to be honest what i would want you to do is personalize the discussion you know what i mean by personalizing the discussion is every time they say investment advisor rep i go oh that&#39;s me now that&#39;s assumes you&#39;re taking 65 66 or if you&#39;re taking 63 oh agent of brokerage that&#39;s me right firm put your firm in here i would imagine most of you have a firm that has a holding company that has both the broker dealer i&#39;m imagining that the vast majority of you taking this exam are taking it because you&#39;re going to be representing both a broker dealer you&#39;ve taken your 6 63 now you&#39;re taking a 65 where you&#39;re taking your seven 63 now you&#39;re taking a 65. i feel sorry for those folks i totally schwab people who are taking 763 to read you know to you know represent the broker dealer they at some point will take a 65 because at some point they&#39;ll be able to represent both but you know a lot of us are taking 766 right so that&#39;s you and that this is you know you aren&#39;t the firmest the point so drain the swamp i when they say firm i say oh you know gamma global you know um the key word here on these is incidental so i&#39;m an attorney i&#39;m a personal engineer attorney i just won you 300 million dollars so you know 300 million 150 for me and 150 for you that&#39;s what i get for winning your lawsuit you say dean what should i do i said you should now call my insurance agent and buy a fixed annuity you know or call my insurance agent is licensed with a six and buy a mutual fund now please note as a lawyer i just gave you investment advice but it was incidental that&#39;s the key word right people think lawyers know things as long as that information that advice is incidental i don&#39;t need to register i can&#39;t tell you how many attorneys i have in 65 classes because at some point the the investment advice they&#39;re giving is no longer incidental and they want to be able to charge for it at that point this exemption goes poof you know as your accountant they say i&#39;m going to reflect that your funding in ira you need to fund an ira i&#39;m reflecting that on your tax return you know you so you need to put cash on i right you didn&#39;t buy a mutual fund key point is your accountant i just gave you investment advice but it&#39;s incidental you know by the way be careful it&#39;s a brave new world we live in so we&#39;re assuming on your exam that the accountant isn&#39;t associated with a broker dealer here right as a teacher you know i consider myself to be a teacher and you know clarice is a good friend of mine and clarice has worked very very hard to accumulate four thousand dollars and as a teacher she thinks i might know something what she should do i said karis do you have the time temperament and expertise to be managing money and she said no i said well you ought to hire a professional money manager she says i can hire a professional money manager with as little as four thousand dollars i said clarisse there are men and women who sold their soul to manage that four thousand dollars from you what you need to do is buy a mutual fund key point dean just told her gave her investment advice the investment advice but she buy a mutual fund she asked me because i&#39;m a teacher and it&#39;s incidental i&#39;m no longer an associate person brokered or i&#39;m not being paid or compensated for that engineer you know bechtel builds refineries airports it&#39;s a major major engineering construction firm and they might have an idea about how you can finance it i say hey listen you know what we need to do is get my buddy a goldman sachs who&#39;s an infrastructure banker involved to help us maybe sell some bonds to pay for this thing or you can help us on the financing i just gave you investment advisor let&#39;s call goldman sachs again it&#39;s incidental to be an engineering engineering firm now over the years bethel has required so much expertise they said they set up a society called bechtel capital management and what they say now is don&#39;t call goldman you can just use us even if you don&#39;t hire us as an engineering firm to build it you can hire us to help you finance at that point it&#39;s no longer incidental and they need to get registered so i can&#39;t tell you how many of these folks i get in class 65 66 because they lose that exception there and once it&#39;s not incidental they got to get registered now remember broker dealers give investment advice but we don&#39;t charge for it the traditional business model is you know the advice you know sometimes is to transact and then my broker dealer either makes a commission a markup or a markdown general circulation of publishers wall street journal usa today investors business daily you know they do have an investment advice column but you don&#39;t buy the paper the wall street journal to get rich right it&#39;s a general circulation newspaper now be careful on this one again a general circulation that&#39;s the key word general circulation now on the other hand i set up a newsletter called deantenny&#39;s prudent speculator and i charge you 995 a year to tell you what uh micro cap stocks to buy and sell that is no longer a general circulation newspaper and now dean has to be licensed as an investment advisory firm to publish that newsletter so you file your application form adv for the firm they pay the filing fees again a common thread a common thread the administrator may require surety bond an audited balance sheet audited balance sheet they may require a minimum of capital the two that are common that you they like in this testables is 10 or 30. now another reason to use a broker dealer so i&#39;m setting up an investment advisory firm the state administrator says dean we would like a balance sheet of the investment advisory firm that shows that you have ten thousand dollars a net worth let&#39;s call it gamma global investment advisors so i&#39;m setting up a investment advisory firm i already have a broker dealer called gonna global investments now i&#39;m setting up gamma global investment advisors now my broker dealer is is not a general securities broker dealer it&#39;s a brokerage that does you know private equity and that kind of thing so i&#39;m going to use schwab to have custody provide custody and execution so what i used to say to my investment advisory clients is i can&#39;t steal what i don&#39;t touch i don&#39;t have your money it&#39;s at schwab now that&#39;s kind of nice because you&#39;re getting quarterly statements when i which i&#39;m supposed to do it&#39;s just easier anyways that&#39;s 10 grand that&#39;s 10 grand because i don&#39;t have custody so maybe i should redo that slide no custody 10 grand custody 30 grand so i have a bank account that i have control of where i put your monies in securities that&#39;s considered custody that&#39;s going to be 35 grand now listen carefully i say to you i have discretionary authority not only to buy and sell securities but i also have discretionary authority to deduct my investment advisory fee gamma global investment advisors has the ability to call schwab and deduct from your account are one percent of assets under management charged quarterly now if that&#39;s the only thing i have authority to do is deduct my investment advisory fee that&#39;s still 10 grand now if i have the authority to call schwab and tell them to you know cut checks and send it here or send it there then that is considered custody and it&#39;s 35 grand so you know be careful if you know it&#39;s just my fee deduction that i&#39;m taking out of your brokerage account then that&#39;s not considered custody again this december 31st runs through the entire thing there&#39;s not many that do so anything that runs through the entire process you make sure you get a handle on it record retention is a little different here so it&#39;s five years two years already accessible remember the broker-dealer site it was three years same thing administrator may examine records any time canadian broker dealers are part of north america right and there&#39;s a lot of canadians that hang out in the us and they don&#39;t have to register with this data they have no office in the state and they&#39;re doing business with canadians i don&#39;t think this come up on your exam but they have what&#39;s called an rssp that&#39;s the canadian version of you know an ira and it&#39;s a big deal in canada and a lot of those you know people are calling down to the canadian customers about managing their you know retire i think it&#39;s retired savings plan i forget what the other s has been you know well all right registration of security so you know i don&#39;t know where i&#39;m at in terms of what my goal was here 32 slides but hopefully you&#39;re finding some confirmation of some test issues uh i would not feel comfortable telling you you watched hang out with dean here and this is sufficient but it gives you a nice overview i hope helps you confirm some test issues and if there&#39;s other test issues or the way i cut it down by is not covering kind of covering unethical business practices and not covering disclosures not covering federal rules 33 i&#39;m not covering the investment advisor act in 1940 so you know if you have any questions on those feel free to to ask so how do we register security and maybe it doesn&#39;t need to be registered maybe it does maybe it doesn&#39;t so just by way of review first part of this lecture was about does the broker dealer have to register with the state it may or may not have to register with the state how do agents register of a broker dealer six six sevens register the state take a 63 or 66 whatever the case may be does the investment advisory firm register with either now there&#39;s none on the brokerage side it&#39;s not either it&#39;s it&#39;s the sec finra and perhaps a state or two it&#39;s at least one state because you gotta have a home office and then federal covered advisors register with the feds and stay with the state and we talked about that so now how do we register securities now again i didn&#39;t put all the things in our securities because the test emphasis is what&#39;s not a security because if i can convince you that somebody is a security that isn&#39;t the potential for fraud is large so the definition of security let&#39;s get a text box here you know everybody has a little bit different definition of this thing but you know what i like to use is as a definition of security is a piece of paper that can be traded to a third party at a profit or loss you know stocks bonds you know that kind of stuff as i mentioned that&#39;s not so much as important as knowing what is not a security on the you know from securities act i mean remember i didn&#39;t say it&#39;s not a security i said it&#39;s not a security under the uniform securities act what i&#39;m saying there is that the state administrator doesn&#39;t really care about it if it&#39;s not a security and then the second one i made is if i can convince you of security when it&#39;s not the potential for fraud is large now command&#39;s futures are indeed securities but not for purposes of the uniform securities act it&#39;s they have a different regulatory framework the commodity futures trading commission precious metals are certainly not pieces of paper that can be traded through parties confirmations boy wouldn&#39;t that be great if i could i shouldn&#39;t say great great if i was a crook i guess let me rephrase that if i could convince you that my confirmation that shows that i bought a thousand shares of tesla was actually is a receipt that you could if you had call the broker dealer and tell them to transfer and ship boy and that fraud fraud potential is large now on this test very important on this test non-securities products means insurance so anytime on your exam you hear the word non-security product it means insurance and remember insurance isn&#39;t a security in fact very test we&#39;re not supposed to sell insurance as a security and insurance remember has a different regulatory framework it has a department of insurance in the state there&#39;s an insurance commissioner you know that&#39;s different than the state administrator who does securities you know sometimes it&#39;s the same person but you know i&#39;m not retirement plans boy if i can convince you to ask my retirement plan is the security go list i can&#39;t to wait around time 59 and a half why don&#39;t i just sign this over to here to you look at this retirement plan it&#39;s beautiful you can call schwab and tell them you&#39;re the new owner and you can transact business with them and so you know i say listen i&#39;ll take a discount because you know i can&#39;t make the hold so you can see there&#39;s 500 000 in there so give me 300. and then you call schwab and say give them the account number and you fail the identification procedures they go well listen that doesn&#39;t show you as a registered owner of the account you say oh no it&#39;s steen it&#39;s dean and he sold it to me and i said oh you&#39;ve been had uh bradford exchange collectibles my aunt thinks her retirement plan is the diversified portfolio of elvis plates in fact even though they send her a two-page disclosure saying this is not a security it&#39;s not an investment but if you can convince somebody collectible is an investment the potential for fraud is large currency is in the security now one of the reasons state administrators have taken exception to cryptocurrencies because people are selling them as investments they say okay well damn it if you&#39;re going to sell them as investments then you need to register as a broker dealer you could register the security but if it&#39;s just a plain old security like the iraqi dinars for example major fraud i said listen these iraqi dinars there&#39;s going to be a peg at some point dollar to for a dollar one us dollar for one iraqi dinar but i can&#39;t wait around anymore and so i&#39;ll tell you what you can cast me out of 50 cents you know the dinars are worth you know five cents a piece again the whole point here is the potential for fraud if i can convince you it&#39;s security when it&#39;s not is large let&#39;s clean up our slide you know the state administrator isn&#39;t concerned with secondary transactions the state administrator is much much more concerned with primary transactions so you know if i&#39;m at the country club and you know we&#39;re you know just finished playing golf and you&#39;re a private citizen i&#39;m a private citizen and i&#39;ve been chatting up uh you know being a partner in this restaurant and you want to buy it that&#39;s not a problem state administrator doesn&#39;t care about that you know an offer to sell again what we&#39;re talking about here is is their jurisdiction is this security need to be registered or does this transaction need to be registered that&#39;s kind of where we&#39;re at in uh where we&#39;re at right now in this lecture and so no i mean what i mean by no when i&#39;m putting this in parentheses is that it&#39;s not something the state administrator is concerned with on the uniform securities act the state administrator is not concerned about an offer or an offer to sell uh if it&#39;s coming from a television radio broadcast from out of state you know i&#39;m here in nevada and on strange nights radio signals can drift they&#39;re not concerned with fiduciary transactions you know one of the big takeaways is you&#39;re taking a legal test and fiduciaries are officers of the court as an officer of the court you don&#39;t need to be running worried about running afoul of the uniform securities act so if i&#39;ve been appointed by the court as a trustee in a bankruptcy you know toys r us for example or sears or kmart or whatever i don&#39;t have to be worried when liquidating the estate chapter 7 is complete liquidation chapter 11 is reorganization anyways long story short i&#39;m going to come into possession of securities i don&#39;t need to worry about liquidating them an executor or executrist of the estate again is a legal uh um authority right because you&#39;re an executor or execute terrorists you know this family is third generation he&#39;s now uh grandma&#39;s died he&#39;s now what a mess the estate is and he&#39;s gotta you know take care of liquidating things and you know his name is john john doesn&#39;t have to worry about running afoul of the uniform securities act as an executor of the estate you know if i&#39;m a sheriff an asset forfeiture i come across your stock portfolio and i want to liquidate it i don&#39;t have to worry because all of these people that we&#39;ve discussed are officers of the court and i&#39;m not so sure i should tell you a common mistake a custodial custodian and not my account as an officer of the court so these fiduciary transaction means fiduciary means you&#39;re acting for the benefit of a third party in bankruptcy the estate of the the corpus the state of the toys r us there&#39;s an executor the estate of a natural person or the sheriff be very testable i told you but ahri mclendon died he was chesapeake only a minority interest in the oklahoma city thunder and if he had pledged it as collateral for a long you know if i&#39;m a lender and you pledge securities to me as collateral for loan when i liquidate take action against those assets i don&#39;t have to worry about running afoul of the uniform securities act now remember the fancy word let&#39;s go ahead and put that in there do you remember the fancy word for pledging securities as collateral for alone hypothecation yeah when i if i go into pawn shop and say when i hypothecate my rolex that means i want to pledge it as collateral so any kind of security that&#39;s pledged as collateral i don&#39;t need to worry as your lender running a foul of this thing be careful of this next one be careful of this next one again very testable you know i just thought bill maher was complaining about his investment in the new york mets the new york&#39;s mets was a partnership and he became a limited partner and he said they were he was very glad when they sold the new york mets to stevie cohen uh you know stevie cohen by the way is a federally covered investment advisor he&#39;s gotta have fun but anyways he said they kept getting capital calls they kept calling them saying hey we need more money now some investments your your you know investment is accessible you know for example uh in the time warner center there&#39;s a very fancy restaurant called per se per se has an ownership group thomas keller is the guy who&#39;s running the restaurant he&#39;s a famous celebrity chef he has a place in napa called french laundry where he is the owner and he&#39;s much more concerned about profit or loss at the french laundry than he is in the time warner center because in the time warner center if they&#39;re short on the bills he&#39;s just going to call the partners and say sorry guys you got to kick in another 30 40 50 grand this month now most of the ownership group are you know billionaires that live in the time warner building anyways you know uh you you&#39;re my friend you&#39;re a fellow billionaire i&#39;m a billionaire and you know i&#39;ve been chatting up how i can get into per se without any kind of a reservation because i&#39;m one of the you know owner owner part of the ownership group and you get tired of me chatting this up and chatting this up and unbeknownst to you i&#39;ve been getting all kinds of capital called calls i&#39;m getting worried about and so i give it to you and you say what do i owe you for it i said well you know what&#39;s what you know you don&#39;t need to pay me for it now unbeknownst to you i really didn&#39;t give you a gift as much as i&#39;ve actually shed myself of a liability and so there the state administrator says if it&#39;s a gift of accessible stock where there are mandatory capital calls that is a transaction subject to the uniform securities act now i know a lot of your test providers and whether kaplan or past perfect or stc or fx tell you that there&#39;s no such thing as investments that have mandatory capital calls i would beg to differ and i would just tell you that i&#39;m taking the test you need this language gift of accessible stock is subject to the jurisdiction of the uniform securities act and the state administrators authority gifted not accessible stock no the state administrator doesn&#39;t care about that if it&#39;s stock traditional stock investments do not have mandatory capital calls you know we have to ask you politely would you please you know give us some more money and you can say yes or you can say no exempt means the security does not be registered because the issuer&#39;s exempt the transaction&#39;s exempt or the securities exempt right so exempt issuer is very very testable so the us government doesn&#39;t need to worry about running a file of the uniform securities act municipalities don&#39;t need to worry about running afoul of the uniform securities act this template right so state administrator sec says dean did you sell a brand new security to the public and you didn&#39;t uh register the security i said i did it was a treasury bond neanderthaner don&#39;t suggest you say that it was a clark county geo bond mean earning or near time to slow down for purposes of this exam and the uniform securities act canada is no different than the us what i mean by that is on your exam british columbia which is a province in canada there are 12 provinces again british columbia is no different than the state of nevada when it comes to the uniformed securities act they&#39;re an exempt issuer and vancouver a city in british columbia is no different than las vegas is in nevada under the uniform securities act so this is only true of canada so the sovereign the canadian national debt doesn&#39;t need to be issued are registered with the state administrator and the provincial debt including the cities don&#39;t need to be registered with that only true of canada next one we have diplomatic relationships with mexico the republic of mexico i can&#39;t wait till the pandemic&#39;s over because i spent a lot of time in ensenada and i haven&#39;t been there in over a year now so i&#39;ve got my circuit ready man soon as i get my second shot and things are safe off to san francisco i go where i spent most of my career and then from there i&#39;m going to go down to san diego and spend a couple days there and then off to mexico anyways the republic of mexico issued a 100-year non-callable bond called the grand centenario paid three and a half percent in euros and if i want to get people involved in that i don&#39;t have to worry about that security being registered because we have diplomatic relationships with mexico uh please note unlike canada baja california a province in mexico is not an exempt issuer no an ensenada a city in baja mexico is not exempt either so that&#39;s unique right we said that a province in canada british columbia is an exempt issue or a province anywhere else mexico no and that would include the cities now one other trick here we&#39;re not talking about canadian companies not corporations in canada you know like uh molson is a beer company no tim hortons is a donut company no we&#39;re talking about the canadian government and then remember that foreign national government was with diplomatic relationships now it&#39;s not the public utilities and banks and common contract carriers get a free pass it&#39;s that they have a different regulatory authority right public utilities answer typically to the public utilities commission when selling securities and if a bank wants to go public like one of my favorite banks is beale bank bo bank is 100 percent owned by andy beal and if bill andy bill want to take bill bank public he wouldn&#39;t be answering to the state administrator or the sec he&#39;d be answering the federal reserve board if it&#39;s a federal charter for his bank if he wants to go public or the banking commissioner of his state not the state administrator transportation companies common contract carriers again used to answer to what&#39;s called the interstate commerce commission so if you&#39;re a transportation company i told you this thing comes from the 50s so you know what can i tell you on the test southwest airlines is a common contract carrier right and again it&#39;s not that they get a free pass is that they have a different regulator scary but true as the iman at the mosque or bishop at the temple or rabbi at the synagogue a pastor at the church i can say ladies and gentlemen what are you getting on your investments that is ridiculously low how about we do the lord&#39;s work and we get a higher return today i&#39;m offering you church to benchers they pay 300 bips 300 basis points 3 percent over the junk bond index wow scary but true that is an exempt uh i&#39;m an exempt issuer as a religious or charitable organization now kind of trick when they arrested this tele evangelist for making a fraudulent distribution of securities the public he said i&#39;m an exempt issuer listen no one and nothing very testable nothing is exempt from the anti-fraud provisions of the uniform securities act so kind of a trick right just because you&#39;re an exempt issuer doesn&#39;t mean you can defraud people so you know i can&#39;t say oh aren&#39;t i clever i used a treasury bond or a muni bond to rip somebody off or you know grand centenario republic of mexico bond no no one and nothing is exempt from anti-fraud provisions now we&#39;re talking about if you have to register the security so if you don&#39;t meet one of those things are we going to register security and if so how do we do so now if it&#39;s a federally covered security most state administrators say good enough for the feds good enough for the sec good enough for us and so i don&#39;t need about registering a new york stock exchange security or a nasdaq security those are federally covered very tesla that&#39;s why i put a different color for you you know where we&#39;re heading is through qualification and coordination and here i don&#39;t have to do that mutual funds is the obvious one that&#39;s the one that shows them up more often than not on your exam and then remember i told you these reg d private placements are exempt at both levels both levels so those are called federally covered securities i definitely know that on your exam and that we don&#39;t have to coordinate them we don&#39;t have to qualify them that&#39;s how we&#39;re going to register assuming we&#39;ve got to register the security we&#39;re either going to do so through coordination or qualification exempt means the security does not need to be registered because the issuer is exempt the transaction is exempt or the securities exempt now commercial paper and bankers acceptances are sold to money market fund managers who are capable of protecting their own ass sets their own interests those are not sold to retail customers and so those are exempt as well bankers acceptances as you may recall from a previous exam are used to facilitate foreign trade exempt transactions unsolicited we never have to worry about unsolicited transactions because that&#39;s on the customer right unsolicited means it&#39;s the customer&#39;s idea now be careful here be careful a private placement under the uniform securities act is different than a private placement under 33. so if i&#39;m going to avail myself of a private placement and sell unregistered securities on the uniform securities act i can use a private placement and it&#39;s limited to test question 10 offers now be careful here not 10 offers accepted 10 offers so if i offer this to you and you say no i go damn you you just used up one of my 10. so offers accepted are called transactions but you know it&#39;s not 10 offers except it&#39;s 10 offers pre-organization certificates you know investor number three in google was their college professor and there is no such thing as google inc and larry and sergey need some capital get servers and do some things and so the college professor pay attention says listen i&#39;m good for five hundred thousand dollars but even if i wrote you a check right now which i&#39;m capable of doing five hundred thousand payable to google inc there is no such thing as google inc so what you need to do larry and sergey is uh go down and see my attorney he&#39;s i&#39;ve already told him you&#39;re on your way don&#39;t worry about the 500 grand it is not a problem uh yes before you leave i&#39;d like to memorialize i would like to have physical evidence that we&#39;re setting up this thing called google link pre-organization certificate and i want you to own that and say i&#39;m subscriber number one now good news you&#39;re not going to have any problems under the uniform security act larry sergey because when you get out of the law office the attorney comes in and he says hey listen i just got off the phone with your professor let&#39;s get this thing rolling we need to get a corporate charter we have to do some stuff and larry and sergey said we don&#39;t have any money because you don&#39;t need any money call me subscriber number two i&#39;m gonna walk down the hall and by the time i get to the end of the hall i&#39;m gonna have you know four or five subscribers now please note here again it&#39;s at 10 subscribers and there&#39;s been no paid in capital yet are we clear there&#39;s no whether nobody has actually written a check that has gone into this entity and so again that would be okay enter the uniform securities app now assuming it&#39;s not okay you know these are the three ways that we can register security we said you can do a file or notice filing that would be for federally covered securities and i told you that&#39;s most often would be mutual funds on your exam we couldn&#39;t coordinate you know one of my uh favorite privately held companies is fidelity you know fidelity has a remember this common call they have a brokerage operation called national financial but you know 60 of fidelity is owned by its employees and 40 is owned by the johnson family and so fidelity went public i wish we&#39;d make a registration statement you know saying we&#39;re going to sell brand new securities to the public or here in nevada in and out burgers based in california but they&#39;ve become creeping across the country they&#39;re privately owned and so we would coordinate at the same point we make our s-1 registration with the feds we coordinate with any state administrator that we plan on selling those securities in their state you know one of my favorite transactions in my career that i was involved in was called del taco restaurant properties and we used a 147 safe harbor under 33 to sell those securities so the sec says dean are you selling brand new securities to the public i say we are selling brand new securities the public how come dean you didn&#39;t register those securities with us at the sec i say i availed myself of a safe harbor called rule 147. we did an interesting offering of the security i only sold del taco restaurant properties in california and i only sold it to california residents now be careful on this one this one&#39;s tricky just because i&#39;m exempt with the feds does not mean i&#39;m exempt with the state so i&#39;m going to have to call the stay and say what do i need to do to qualify del taco restaurant properties to sell to residents of california and whatever they tell me i got to do i say i i i so any security that&#39;s not exempt and can&#39;t be registered by coordination or notice filing would be registered through qualification and i told you the big one here is the rule 147 be careful on your exam make sure you understand that but that&#39;s remember greg d is exempt in both 33 in the union securities act but not this one this one still has to be registered with the state administrator yeah i would use your state you know i&#39;m using california because that&#39;s where i hail from originally so i&#39;m not ready to rock and roll and start selling del taco until i get this thing effective right that&#39;s like you know what i&#39;m going to start doing is running up and down the state of california and del taco&#39;s and doing seminars and trying to sign people up that&#39;s what i&#39;m going to do but i can&#39;t start getting going here and tell the state administrator says okay the effect of your registration for del taco restaurant properties is effective from the time they tell me my registration is effective i now have a year right to go around trying to raise this money for the taco and the del taco restaurant properties were not testable we&#39;re raising eight to 12 million dollars buying all cash real estate and building del tacos that&#39;s kind of what we&#39;re doing so i got a year now to kind of you know go raise this money registration can be amended so i call and i say hey listen um i want to raise i was told i was going to raise 8 to 12 but things are going great and i want to raise 15. he says do you change the terms i said yeah it&#39;s going so well i&#39;m going to raise my commission no no no very testable i&#39;m not allowed to change the terms so that&#39;s very much a test question to make sure you can you understand you can&#39;t change those terms the registration can be made by the issuer del taco the broker dealer gamma global or a third party maybe somebody who&#39;s selling their their block of stock uh penalties for the uniformed securities act five thousand dollars and or prison state prison for three years right of rescission is very testable right a recision you know i told you robin hood is registered in all 50 states but when the e-trade first got going it fell through the cracks and e-trade wasn&#39;t registered in the state of ohio and the state of ohio said what do you got against the buckeye state why did you register your broker dealer in every state but ohio and you had retail customers were trading online in the state of ohio would you like us to prosecute you for fraud in the uniform securities act or would you like to offer them the right of rescission what are most of us going to say we&#39;d like to offer the right rescission you know this guy had bought an ipo should have been coordinated it was not it went public at 20 went to two and he called the state administrator and said i think this is a possible blue sky violation he said man that&#39;s pretty big by phraseology right blue sky means the state laws and that&#39;s why there&#39;s always a sign when you leave state a you&#39;re hearing state b right culture shock when i&#39;m in nevada and i saw a guy with a firearm and i said well thank you for your service and he said well i&#39;m not what do you mean thank you for your surprise well your police officer goes no he says i&#39;m not a police officer and nevada it&#39;s open carry i go it&#39;s not loaded this he goes yeah it&#39;s loaded so whether it&#39;s liquor laws or gun laws or securities laws it&#39;s important you know when you&#39;re leaving state a and entering state b anyways in this case uh what had happened was the guy who was supposed to coordinate with the state administrative fell through the cracks he had three copies of the prospectus he was going to file now we do this electronically but in those days it wasn&#39;t electronic and he had a possible blue sky violation he put on a posty sticky pad and he went to lunch and then the brokers were looking for copies of the prospectus and they came and grabbed it off his desk and sent it out so he came back from lunch and said i guess i blue skyed it and uh he had not so the test question is no this right of rescission so here&#39;s what i say to you i say hey listen we blew it now we are offering you the right precision you have 30 days to decide whether you want your principal and interest or whether you want to keep the investment and we know what the client&#39;s going to say he&#39;s going to say hey dean i think i&#39;ll you know if the investment&#39;s worth more than no harm no fallow keep it otherwise he&#39;s going to say i&#39;ll use exercise might write a precision here investment advisory client fees and losses or recommendations i it&#39;ll be interesting johnny depp is suing his investment advisory firm and you know i don&#39;t know except what i read but i think that they&#39;ve got a pretty good case it looks like they said well listen it&#39;s isolated we manage money for a lot of people and they&#39;re not upset with us we didn&#39;t tell johnny depp to buy a french village you know he did that on his own that was an unsolicited transaction but assume johnny wins what will he get back he&#39;ll get back the fees he paid the investment advisory firm the losses on the recommendations they made to him and the legal fees well again i cut this down i don&#39;t know what i&#39;m going to come in here at this lecture but i just want to let you know that this is a brief very brief summary of the uniform securities act i hope you found it helpful uh if you have any other questions let me know let me tell you what what my game plan is here for u66 there is some content quantitative analysis that was not on your series seven i find most 66 don&#39;t you know fail because of the the quantitative stuff it&#39;s you know twosies three seas it&#39;s not material but i plan on adding another lecture for content not found on the 7 that is indeed found on the 66 as a companion lecture to this and then this will also be for 63s and 65s now 65s i&#39;ve been giving you some content along the way there are some lectures for you and for you the next lecture for you 65s is going to be economics i&#39;m going to have an economics lecture that uh you know five or six questions on 65 about economics 66 we assume you already had your seven and that&#39;s good for you so that&#39;s kind of where we stand i want to make sure again to stress to you that i just hope you had some confirmation of some of these issues you found a couple test points that confirm what you were probably getting are there study materials this is not a standalone lecture make sure you reach out if you have additional questions about it and i&#39;ll continue to beef up what is available to you as a supplement in these lectures but if you have any kind of question say 18 i&#39;m not quite sure what i&#39;m really don&#39;t want you to do is watch this lecture and think you you can watch this and you can go past your 63 65 66 no i think you&#39;re going to get a a point and say wow okay i remember dean talking about that you know i i&#39;m hoping when you get to your exam you go oh man here&#39;s something i know hopefully you&#39;re not you know 20 30 questions deep before that happens so again uh like uh share subscribe comment and reach out if you need some help because by the way i&#39;ll post this to the subreddit series seven and the other reason that i wanted to have this available is because we do make it in that community we try to make it clear that we&#39;re not just there for series sevens we&#39;re there for sies who are then going to top off with a six or seven i guess gotta do a mutual fund lecture at some point as well and then go top off again with that 63 65 66 so that community is for everybody and i felt like we weren&#39;t showing enough love uh content for that community okay well um you know where to find me if you need me and i&#39;ll see you in the next lecture uh whenever that happens to be that would be appropriate for 63 65&#39;s and 66. [Music] you

well uh welcome once again to uh my studio here in fabulous las vegas i&amp;#39;ve been wanting to do something uh for 63s 65s and 66s uh you know uh they&amp;#39;ve been shortchanged a little bit in terms of the youtube uh lectures and some other things and um i wanted to kind of resolve that so i thought i&amp;#39;d do something that i could try and make target rich but not take too long for example with a 63 65 66 class this would be a whole day obviously this lecture isn&amp;#39;t going to be one day i&amp;#39;ve got 32 slides i would use this as a confirmation of the test issues so i tried to load this uh 32 slides with as much target rich testable content as possible please note i&amp;#39;m not calling it a lecture uh on the uniform securities act i&amp;#39;m not even calling it a summary on the uniform securities act i&amp;#39;m not even calling it a brief summary of the uniform securities act i&amp;#39;m calling it a very brief summary so um we&amp;#39;ll see i&amp;#39;m thinking this will come in at maybe an hour so that&amp;#39;s my my intent we&amp;#39;ll see how we go as we move through the deck um i recently read tom ricketts he&amp;#39;s the founder of td ameritrade and his uh memoir is called the harder the work harder i work the luckier i get and he was talking there he had a vignette i feel like writing him a letter and asking for the date that when he started td ameritrade he actually had to fly and travel to each state to take their version of a test on the uniform securities act template thank goodness the north american securities administrator association has agreed that now they will recognize a test a common test that they all agree on and this template for their particular state even though their particular state laws uh may be different so uh i don&amp;#39;t know how long ago that was i know you know td ameritrade got started in the 70s so it wasn&amp;#39;t quite clear i&amp;#39;m not sure when when that error ended but thank goodness it did right otherwise you have to fly around uh surprisingly enough don&amp;#39;t forget that it&amp;#39;s the north american securities administrator association the administrator is the most important party on this exam by the way you know i joke the sec is god and state administrators think they are so there&amp;#39;s you know 50 demigods running around and so i&amp;#39;m coming to you from nevada as a retail investor keyword retail investor in nevada not only does the sec look after me but my state administrator does as well but i would remind you that canada and mexico are also uh parts of the north america right all right so this is the normal structure that we have in terms of uh broker dealers so let me just uh get this going here you know usually we set up a holding company to uh do that holding companies company that owns other companies and so the holding company would own a broker dealer so for example this is uh robin hood markets that is the holding company and then robert and markets has a broker dealer and now what we&amp;#39;re going to be talking about is that broker dealer need to register with the state now in a robin hood&amp;#39;s case their broker dealer is transacting business with retail customers in all 50 states so you know they&amp;#39;re going to have to register in all 50 states and the associated persons or the associated persons are going to have sixes or sevens you know finra is the one who does that and that makes you an associated person or an agent of the broker dealer you know very much a common kind of a setup uh you know over here you know robin hood markets doesn&amp;#39;t have a registered investment advisory firm it doesn&amp;#39;t have a bank it doesn&amp;#39;t have a lot of other things so pretty simple structure right now but it may be too simple for the type of business they&amp;#39;re conducting but oh well now remember the state says we want you to take a exam you know i was asking guy what&amp;#39;s next after six or seven he said nothing he said his state didn&amp;#39;t require a 63 and i said well that&amp;#39;s kind of odd most states would require you to uh take a test on this template on the uniform securities act and so you know if you have a six or uh 63 or 763 you are an agent of a broker dealer you are an agent of a broker dealer now here&amp;#39;s uh my firm mine was gga ggi bay holdings that was my holding company and then this was my broker dealer gamma broker dealer and in my broker dealer i had an office in california and i had an office in virginia i only do institutional business so i&amp;#39;m only going to have to register the broker dealer in virginia and in california by the way there&amp;#39;s no such thing as a broker dealer that isn&amp;#39;t registered uh with finra and the sec that&amp;#39;s just a non-existent kind of a thing now the other thing we&amp;#39;re going to be talking about uh here for example is fisher holdings again a holding company and fisher holdings doesn&amp;#39;t have a broker dealer what official holdings has is a registered investment advisory and does fisher holdings need to be registered with the state or the feds we&amp;#39;ll find out they manage over 150 billion dollars and so they own this thing that has to be registered with the feds and then the people who work at fisher holdings are going to have a 65 only because they&amp;#39;re not an agent of a broker dealer so if all you have is a 65 then you&amp;#39;re an agent of either a state registered investment advisory firm or a federally invested uh registered investment advisory firm now a lot of you who are taking this test a lot of you are taking this test work in a scenario that looks like this so here&amp;#39;s uh here is a ggi bay holdings oh i&amp;#39;ll use a schwab here is a schwab holdings and schwab holdings has a broker dealer schwab holding has an investment advisory firm you know schwab holdings actually owns a bank you know they own a lot of things but you know we don&amp;#39;t really care about the bank what we care about is this and this right so now the holding company has a broker dealer and it has an investment advisory firm and again these associates are going to be representing both of those now for example here is ggi bay holdings that was my holding company and here&amp;#39;s gamma global investments the broker dealer and here is gamma global investment advisory now to represent both of those right you&amp;#39;re going to have to have a 663 65 or 760 365 or 766. now a lot of you are taking this exam whether it&amp;#39;s a 6566 you know if you&amp;#39;re just taking the 65 only then as we said you&amp;#39;re going to be just representing the investment advisory but a lot of you are taking this exam because you&amp;#39;re going to represent both and you want to wrap your products and services into a fee that&amp;#39;s called a wrap account where we&amp;#39;re going to say listen we can wrap our products and services into a fee you know for many many years for many many years the traditional business model was this one let me go back this was the traditional business model that most of us used for many many years in the securities industry now here&amp;#39;s a the broker dealer and here i have a series seven and i would say you know the relationship you have with me is free you know you don&amp;#39;t pay for the relationship but as part of that relationship sometimes i&amp;#39;m going to recommend that you transact business and when you transact business with my broker dealer my broker dealer is going to make a commission or a markup or markdown and that&amp;#39;s how this relationship works you know and you say well dan i don&amp;#39;t like that relationship i go what do you like with that relationship you say well dean i&amp;#39;m afraid you might not tell me to do nothing because there&amp;#39;s no commission i said well i hope i could meet that you know ethical standard no but by the way if i don&amp;#39;t have i don&amp;#39;t have a you know investment advisory firm who knows i&amp;#39;m never gonna get to teach you know some of my favorite companies but no schwab when i&amp;#39;m doing a seven sometimes on campus about half the class after their 7 is going to just take a 63. and that means 763 they&amp;#39;re just representing schwab&amp;#39;s broker dealer the other half of the class is going to take 766. that means not only they representing schwab&amp;#39;s broker dealer they&amp;#39;re also going to be representing schwab&amp;#39;s registered investment advisory firm that&amp;#39;s the you know model that a lot of people that is the model that a lot of people are going to be using right so i can say well listen did i tell you that uh we also have an affiliated investment advisory firm and if you&amp;#39;d like if you&amp;#39;d like we can wrap the products and services of the broker dealer into a fee and here&amp;#39;s a brochure that tells you you know what&amp;#39;s included and what&amp;#39;s excluded you know we&amp;#39;re going to charge fees because that&amp;#39;s what goes over here right fees then again we said that&amp;#39;s what you got to have here so that&amp;#39;s what triggers a lot of people to be taking their this exam okay well again as i mentioned i want to try and get as much uh you know pack as much test content as i can and you know what you&amp;#39;re doing is you&amp;#39;re taking a legal test and and legal tests means you know there&amp;#39;s a lot of legal terms you know i think i take it to 65 he&amp;#39;s an attorney i see he said well listen if you&amp;#39;re an attorney you don&amp;#39;t get this legal regulatory framework uh the big words right you know that&amp;#39;s going to be really challenging but anyways we have what are called unnatural persons an unnatural person isn&amp;#39;t a living breathing human being this drives my progressive friends kind of nuts for example sac capital was a registered investment advisory firm an unnatural person and it pled to a felony for violation of the insider trading act of 88. now we clear that you can&amp;#39;t throw an unnatural person in jail you know the series 65 the person running that place a guy named stevie cohen as he sec capital he took a two-year failure to supervise and he made it very clear to the government that the investment advisory firm would be more than happy to plead to a felony and pay billions of dollars in fine but he personally would never do that are we clear why he would never do that because he&amp;#39;s a natural person and a natural person can be you know put in jail or hung from a tree right so make sure you understand the distinction person means legally somebody can be held accountable for and in the category of persons there are two there are unnatural persons and there are natural persons so what kind of person are you you are a natural person these are people who cannot be held legally accountable by law so this is part of the uniform securities act it is very testable to know what uh is not a person but i would just tell you that even outside of your exam these are not persons meaning legally a minor cannot be held accountable legally a deceased person cannot be held accountable i can&amp;#39;t tell you how many people die at such a convenient moment in terms of their legal problems you know kenneth lay died the night before he&amp;#39;s going to be indicted you know he had a guy who had uh he was at enron we had a guy uh aubry mcclendon at chesapeake who you know we had a car accident we&amp;#39;re not sure if you know he did it himself or what happened but all his problems go bye-bye so once you&amp;#39;re dead you know what they&amp;#39;re going to do to you right so i think i know that you stayed accountable but you can&amp;#39;t be held accountable as a deceased person individuals declared mentally incompetent again you know hinckley took a shot at president reagan at the time to impress jody foster he pled that he was legally incompetent and psychiatrist agreed and that means he can&amp;#39;t be held legally accountable so these are all people you watch those mob movies right when the mobsters start saying oh i&amp;#39;m i&amp;#39;m getting old i&amp;#39;m infirmed i you know gotta get a psychiatrist to declare me mentally incompetent again then you can&amp;#39;t be held accountable all right so who needs to register with the state uh this is i you know i try to put this in different color try and be target rich here for you and once you&amp;#39;re reading a question on your exam and you get off in the office and stay you do not need to read any further if there&amp;#39;s an office in the state the broker dealer needs to be registered regardless of the type of business they&amp;#39;re doing so you know gamma global investments was my finra sec registered broker dealer the only clients the broker dealer has is institutional customers that&amp;#39;s it doesn&amp;#39;t matter i have an office in california i have an office in virginia both those offices need to be registered with the state now remember my broker dealer gamma global investments is a person meaning it can be held legal accountable it&amp;#39;s an unnatural person so once you&amp;#39;re doing a question on your exam it says office and state you don&amp;#39;t need to read any further now no office in the state but dealing with the general public well there&amp;#39;s my friends at robinhood right they don&amp;#39;t have an office in all 50 states i i know they&amp;#39;ve opened an office in texas i think they&amp;#39;ve opened an office yeah because they gotta have some real people at some point to answer phone calls do something so you know they&amp;#39;re beefing up their their broker dealer to handle the you know the level of business they have but long story short again once uh robin hood has a location in texas or location in arizona they need to register the broker dealer now i told you they&amp;#39;re already registered in all 50 states because they&amp;#39;re actually doing business with the public so even though robin hood doesn&amp;#39;t have an office in uh let&amp;#39;s say georgia they have people that are you know buying and selling securities off the robin hood platform in atlanta in georgia and so if you&amp;#39;re dealing with the general public you have to register that broker dealer in that state uh you know try to mix up with the colors i told you the goal here is to try and get you as many points and as few as slides as possible so there&amp;#39;s dean&amp;#39;s firm my firm gamma global investments you know the state administrator of new york and texas i do a lot of business did a lot of business in new york and texas and they say dean how come gama global investments your broker dealer is not registered in the state of new york and the state of texas the state administrator says the same thing we see you&amp;#39;re here in our state you&amp;#39;re soliciting business so what&amp;#39;s up i say well i only deal with institutional investors i&amp;#39;m not calling on any citizens any retail investors of the state of new york or the state of texas and so no the broker dealer gamma global is not registered in your state so i didn&amp;#39;t register the state if i had no office you know the test assumes that institutional investors are capable of protecting their own ass sets their own interests so it&amp;#39;s all about protecting joe six-pack retail investors i have no office in the state and i&amp;#39;m having uh doing this with my customers so my customer says hey dean i&amp;#39;m gonna be in a snowbirding out in you know arizona during the winter i&amp;#39;m gonna be there uh you know two three weeks and uh you know why don&amp;#39;t you come down and see me talk about my portfolio let me know any uh current deals you have so arizona says dean uh how come gamma global isn&amp;#39;t registered in arizona i said i don&amp;#39;t have an office in arizona and i&amp;#39;m not doing business with any of your residents now if my customer decides that he&amp;#39;s going to actually relocate there well then i&amp;#39;m going to have to register the broker dealer uh it doesn&amp;#39;t include so on the test be careful you don&amp;#39;t get confused about who&amp;#39;s who and the the player you know i think the uniform securities act once you figure out what you&amp;#39;re being asked is uh pretty uh straightforward but i&amp;#39;d be the first to admit to figure out uh get past all the legalese can be a challenge because the grammar is atrocious you know so don&amp;#39;t you get past that now we don&amp;#39;t give scores anymore but when we gave scores people who barely passed their six or seven typically would really ace the uniform securities act i can&amp;#39;t prove it and people who struggle or ace their seven would really struggle i can&amp;#39;t prove prove it but i anecdotally think what happens is people who barely pass their six or seven don&amp;#39;t know enough to overthink it and so they go down there and say i probably shouldn&amp;#39;t lie cheat or steal now i would warn you one of the ways i was able to cut down this thing from what would be a day-long discussion on the regulatory framework in a 63-65-66 class was to get rid of about half of it which has to do with disclosures and unethical business behavior you know i&amp;#39;ll leave that to you i put a couple high-risk ones in here but you know i want you to be clear this this lecture is not a substitute it&amp;#39;s a confirmation if you will a supplemental confirmation of testable issues so anyway so broker dealer does not include so here&amp;#39;s people who may you maybe get confused about right you are not a broker dealer with your six or seven or your 63 or 66 depending on what you know you got you&amp;#39;re an agent of the broker deal that&amp;#39;s not a broker dealer the issuer isn&amp;#39;t a broker dealer a banker trust company kind of looks like a broker dealer because a trust company of a bank is buying and selling securities for third parties but it&amp;#39;s doing so as a fiduciary and it&amp;#39;s not receiving any commissions for doing so so that one&amp;#39;s kind of tricky you know trust department can sound like a broker dealer because it&amp;#39;s affecting transactions you know for third parties that&amp;#39;s kind of a definition of a broker dealer except it&amp;#39;s not receiving compensation for doing so right broker dealers when we do transactions are being compensated state registration for the broker dealer so the process of registering the broker dealer so i have an office in virginia so i&amp;#39;m going to have to register the broker dealer in virginia so how do i do it i have a form bd i uh pay a filing fee very testable the consent to service this is required for everybody so you know if you&amp;#39;re trying to serve papers on my broker dealer and you can&amp;#39;t find me or the broker dealer no worries with every registration of a broker-dealer an investment advisory firm an agent of a broker-dealer an associated person of a broker dealer an investment advisor representative must have a consent to service meaning the state administrator can accept legal documents on your behalf that&amp;#39;s very testable you know they&amp;#39;ll say a which of the following allows the state administrator to receive legal documents on the behalf of a dealer so or an 8 associated person you would say contents of service so as long as you&amp;#39;re in the business that&amp;#39;s going to be a part of your filing the registration becomes effective 30 days after the application if not sooner but you know the registration expires december 31st uh the administrator may set a minimum net capital standards for broker dealer now the trick here is they can&amp;#39;t require a net capital standard that word net apple standard that&amp;#39;s higher than my finra sec standard you know the net capital standards of a broker dealer are way way way higher than the net capital standards for an investment advisory firm it makes sense because you know we as broker dealers actually have physical possession of monies and securities right so it makes sense that that standard&amp;#39;s higher and what we&amp;#39;re saying here is the administrator can set a minimum but it can&amp;#39;t be higher than what my federal requirement is they can require a fidelity bond if you have custody or discretion state registration so a lot of states will say that if the broker dealer is registered so are the office or directors because that form bd has so much information there that they may accept that in lieu of a u4 so state registration of the broker dealer the officers and directors of the broker dealer are automatically registered as agents so what we&amp;#39;re saying here if you know bank of america makes a filing and brian monahan is part of that i doubt he&amp;#39;s involved day to day in the broker dealer but you know that would be sufficient uh g is a test question you know there&amp;#39;s a merger acquisition of sale the bd successor firm will file an application so you know there&amp;#39;s been a merger of td ameritrade in schwab right so they&amp;#39;re merging it&amp;#39;s actually more of an acquisition by schwab of td ameritrade but the point is there&amp;#39;s no new fee required for that merger of those two broker dealers usa requires broker dealers to keep records uh uniform securities act by the way one thing that might take care of the grammar is every time you hear somebody just spell out so every time i hear usam say uniform securities uh act which is the template that you get tests on you know every state is a little different for example new york has what&amp;#39;s called the martin act the administrator may examine at any time i told you the administrator is the most important participant in this cast of characters that&amp;#39;s the you know typically an attorney and typically who has a eye on higher office it&amp;#39;s not an investment professional typically the administrator is typically an attorney you know in california where i hail from it&amp;#39;s called the department of corporations and kamala harris was the former head of the department of corporations so administrator examining these records any time they may require you to file sales literature and advertising prior to first use uh the vast majority brokerage firm records are three years and then readily accessible means 24 hours you know state administrators love this uh you know i&amp;#39;m coming to you about 12 30 so state administrator says uh i&amp;#39;ll be here at 12 30 tomorrow and i expect you to have that available to me you know i&amp;#39;ll be back same time tomorrow basically is what that means you can have a micro fish you can have any way you want just as long as you can produce it within 24 hours federally covered investment advisors federally covered investment advisors can hire broker dealers as third-party solicitors you know gamma global investments my broker dealer the vast majority of my business my last nine ten years in the securities industry was my broker dealer acting as a third-party solicitor for federally covered investment advisors like carlisle for example now if you are a not a federally covered investment advisor then you can&amp;#39;t hire a broker dealer as a third party solicitor you know a lot of times i&amp;#39;ll have people in class taking their 65 who&amp;#39;ve been hired to solicit on behalf of a state covered investment advisor to get them past the 110 million they need to be federally covered so they can hire a broker dealer to do this for you now what i&amp;#39;m a third party a solicitor on behalf as an investment advisor so let&amp;#39;s get a text box here i have to have a separate brochure from that of the investment advisor so now in my example i say here&amp;#39;s a brochure that tells you about gamma global investments the broker dealer who is a third-party solicitor for carlisle here is form adv part two which tells you about carlisle so there&amp;#39;s gonna be a brochure for the broker-dealer and a brochure for the investment advisor i need you to sign that to make sure that you know i&amp;#39;ve explained this to you so you know that i&amp;#39;m not you know affiliated i don&amp;#39;t work for carla you know saying that you understand this relationship as a potential person who&amp;#39;s going to you know give some money to carlisle you know because carlisle the investment advisory firm is going to call and say hey did dean make sure i explain this relationship to you correctly now you say dean what&amp;#39;s the broker dealer receiving as a third-party solicitor for the investment advisory firm i say well you know you&amp;#39;re paying carlyle two percent of the assets under management and twenty percent of the profits they make you and what uh carlisle does is pay my broker dealers a third-party solicitor that two percent it doesn&amp;#39;t cost you any more to go through gamma global the broker dealer is a third-party solicitor to go ahead and go through do it that way than it does to go directly to carlyle it&amp;#39;ll be no difference in the in the pay by the way it might be and if that&amp;#39;s the case that would have to be disclosed so again we have to disclose if there is a higher cost of using the third party solicitor yes i have to tell you basically how i&amp;#39;m being compensated right how&amp;#39;s the broker doing compensate now kind of a trick question you know the broker dealer let&amp;#39;s just go back to that broker dealer box uh that we had just to see how long it takes to get back there there&amp;#39;s our broker dealer box we had and this is the one time where you know again there&amp;#39;s that there&amp;#39;s that and there&amp;#39;s this this broker dealer that&amp;#39;s a third party solicitor does not need to be registered in this investment advisory firm to be raising money finding clients for the investment advisory firm and the person who has the seven or the six uh 63 doesn&amp;#39;t have to take a 65 or 66 to do so now i could be a fundraiser as a broker dealer third party solicitor and my registered reps do not have to take a 65 or 66 they can do that to fill that function with a 763 and so let&amp;#39;s get back to our third party solicitor there we are and let&amp;#39;s put that in our text box and so the broker dealer and its associated persons uh associated persons need not uh maybe i should clean that bd doesn&amp;#39;t man let&amp;#39;s clean that up bd does not need to register as an investment advisory firm to do this i&amp;#39;ll put ira you should come for that language that riaa means registered investment advisor right because you&amp;#39;re either registered the investment this is the firm by the way it&amp;#39;s either federal or state here we must be talking about a federal because i told you this doesn&amp;#39;t work if you&amp;#39;re not a federally covered advisor you can&amp;#39;t hire a broker dealer as a solicitor and then the and then i said the associated person the brokered eater do not need to be registered with 65 registered to take let&amp;#39;s put take or just take 65 or 66. and typo in there but i&amp;#39;ll leave it up to you fix it and then we talk wrong slide here by the way sorry about that let me put that in the spot it goes there we go sorry about that so there&amp;#39;s where all that information goes yeah i was teaching a 65 class in uh salt lake city in the middle of winter and boy these guys are life insurance professionals you could just tell their their professionals they got a studio where they you know do estate planning infomercials and radio shows and you know anyways it was really cold and i couldn&amp;#39;t find a cup of coffee i said where do you get a cup of coffee here in the morning and they go well the only one talking about the bad cats i go what are the bad cats he said dean the bad cats are caffeine alcohol and tobacco i said well man that&amp;#39;s a deal breaker for me because i start every morning a little caffeine i like to end every not every day but some days with a little alcohol beverage and maybe a stogy every now and again but anyways i say hey what&amp;#39;s up with this uh you guys taking a 65. and i said well dina we uh had a guy who was a investment advisory firm registered investment advisor uh federally covered and he was in la jolla that&amp;#39;s where he&amp;#39;s at and he saw us doing our thing on television and he said that he bets that we run into a lot of people doing estate planning who may need uh beer would be good prospects for his registered investment advisory firm and uh why don&amp;#39;t they refer him to refer those people to him and we said well how do we get paid he said well to get paid you&amp;#39;re going to have to take and pass an exam a series 65. now a lot of investment advisory firms use broker dealers for custody as i mentioned fisher investments has 150 billion dollars of assets under management i think about 50 60 billion of that is at schwa that&amp;#39;s around town i mean so they&amp;#39;re not monogamous but you know they use schwab and this guy uses td ameritrade the guy in la jolla the registered investment advisory firm and so he called td ameritrade and said listen i&amp;#39;d like to use some of my soft dollars are we clear that td ameritrade loves this guy because he&amp;#39;s running the trades and using td ameritrade for not only execution but also custody and so this is a very profitable relationship for td ameritrade or any broker dealer for that matter and so what i&amp;#39;d like you to do tdm your trade is pay dean to go out to do a seminar perfectly acceptable seminar registration fees and i&amp;#39;d like you to pay him to go to salt lake city and uh you know do a three-day 65 for these guys three four days what whatever so that&amp;#39;s why gears truly is there but the point is that&amp;#39;s perfectly acceptable now are we clear that we would rather be we would rather be in lawyer but td ameritrade test question can&amp;#39;t pay for travel that&amp;#39;s very testable so the soft dollars are monies that broker dealers use to help investment advisory firms help their customer now i&amp;#39;m not going to go into the things they can pay for because the test issue is what they can&amp;#39;t pay for right are we clear that they we all would rather the td ameritrade and they certainly have the resources to do so would fly dean de la hoya fly these guys from salt lake de la hoya put us up in a nice place get us a nice uh you know room to do our four day class in that would be fantastic uh no can do no can do they can&amp;#39;t pay for furniture and they can&amp;#39;t pay for rent so make sure you know what a broker dealer can pay for using soft dollar soft dollars means you know the the the investment advisory firm there in la jolla is not directly compensating me right the person who&amp;#39;s paying me is td ameritrade the broker dealer using soft dollars meaning the money is coming from the broker dealer for the benefit of the investment advisory firm so seminar registration fees that&amp;#39;s what this is that&amp;#39;s perfectly acceptable what&amp;#39;s not acceptable is the test question let&amp;#39;s clear up a sign a person is always an individual who works for a broker dealer so state agents registration of the agents right agents of the broker dealer those are always natural persons the agent must be registered in the state where the agent resides where the securities are offered where the securities are sold the agent can&amp;#39;t represent multiple broker dealers unless bds are affiliated so you know for example schwab used to have another broker dealer called options express and those are what the word for uh affiliate is under common control let&amp;#39;s just put that there so you know so you can you know you pick up the phone and say hey thanks for calling option express dean tenney and then you uh call the schwab line hey thanks for calling schwab dean tinney you say wow what&amp;#39;s that what&amp;#39;s going on with that you know i don&amp;#39;t know at what point uh td ameritrade and schwab are going to be under common control i think they&amp;#39;re still running independently but as i told you at some point they&amp;#39;re going to be under common control so that means those broker dealers are affiliated those broker dealers are affiliated so that&amp;#39;s okay so you know this state administrator pumps up your crd your crd number where your registrations reside and says dean how how are you doing is doing this how are you representing multiple broker dealers i saw their affiliate you can only split commissions with the associated or same bd or affiliated bd and then i put in some high risk uh no nos for agents or broker dealers no selling away you know selling away is when an associated person gets a client involved in a transaction not sponsored by the employing broker dealer you&amp;#39;ll see an associated person of a broker dealer gets an investor involved in an investment not sponsored by that uh broker dealer what&amp;#39;s that called it&amp;#39;s a prohibited practice and you have to come up with selling away that&amp;#39;s a strike three offense meaning we don&amp;#39;t usually give you your first two strikes you know merrill lynch is a good firm they just have a lot of brokers and so you know you&amp;#39;ve got 12 000 brokers running around to be expected maybe not all of them are great but anyways this mayoral broker decided to build a health club he made himself the general partner he made his mayoral clients limited partners that means they provided the money he provided the experience at the end the health club went under and they&amp;#39;ve had the experience and the broker has the money i&amp;#39;m joking but now they&amp;#39;re going to come winding merrill lynch saying we thought this was a maryland sponsored investment now what the rep was supposed to do is make written notice to merrill lynch they once get people involved in this you know transaction not likely they would have said yes but if they did merrill would have sent a letter to every one of these people saying this is not a maryland sponsored investment if it blows up don&amp;#39;t come wanting to us you know what you know that better as or you will i guess you guys are matriculating you&amp;#39;re not yet there but when you matriculate what this is going to amount to when you start work at the firm is you&amp;#39;re going to have this approved product list if it&amp;#39;s not an improved product list you&amp;#39;re not allowed to sell it another major one selling dividends you know i say hey are you familiar with dividend capture programs you know if you buy the stock today man you get the dividend but if you wait till tomorrow no dividend for you you say dean uh isn&amp;#39;t it going to go down by the amount of the dividend isn&amp;#39;t that just creating an unnecessary tax situation could i talk to your supervisor i said you&amp;#39;re no fun right that&amp;#39;s an artifice an artificial sense of urgency that doesn&amp;#39;t exist right because you&amp;#39;d be better served to buy you know after the x and not create the unnecessary tax situation that&amp;#39;s a classic that too is a violation of the uniform securities act you know i&amp;#39;ll use uh franklin i ended up as an institutional broker but i started out as a retail broker so i don&amp;#39;t know if this is still true but you know we&amp;#39;ll soon assume it is i did a lot of business in the a shares of franklin templeton and so in the 8 years i used to sell a lot of their tax refunds and in those days if you invested a hundred thousand dollars or more you would pay a three percent load you know but if you invested under a hundred thousand dollars you paid a four percent load and so you say dean how much should i invest and i said you want to invest 99 999 you say why i said because my broker will make it for my broker dealer will make a four thousand dollar commission instead of a three thousand dollar commission now be careful read carefully a break point is a good thing it&amp;#39;s a quantity discount that&amp;#39;s a good thing it&amp;#39;s a bad thing break point sale is a bad thing that&amp;#39;s when you avoid the break point to maximize the commission and then churning our trades are excessive in size and frequency we don&amp;#39;t actually have a definition of that we just know it when we see it so those are some classic prohibited things you&amp;#39;re not supposed to do person who&amp;#39;s not an agent so this means you don&amp;#39;t have to register in the state now be careful here right because you&amp;#39;re registered in some state because you know you have an office but so you a person don&amp;#39;t need to be registered as an agent with a state administrator kind of a trick by the way you can&amp;#39;t be uh registered with this date if your broker dealer is not so be careful about that kind of a trick right there&amp;#39;s no such thing as you being an independent person in some state if the broker dealer isn&amp;#39;t there so again transact business with existing customers aren&amp;#39;t residents it&amp;#39;s less than 30 days it&amp;#39;s the same as the bd right the same rule for you as an agent of the broker dealer six or seven as the broker dealer two this one&amp;#39;s kind of interesting you know i&amp;#39;m not so sure i could tell you common mistakes but a reg d private placement is one of the few transactions test question that doesn&amp;#39;t need to be registered under 33 and it doesn&amp;#39;t need to be registered under the uniform securities act one of the few so reg d is again an exempt transaction for both what we&amp;#39;re discussing right now the uniform securities act as well as 33. as i told you i did a lot of business in this space and gamma global investments was hired by the winery to go out and raise money for the winery you know the partners the general partners have hired gama global to go find partners you know this is a hall wines of napa the general partners are craig and catherine hall gamma global investments as a broker dealer now one of my go-to moves one of my go-to moves was to invite you to the winery for a due diligence tour and tasting so i can meet you up there i take you around the winery and i try and get you to sign up right make an asset allocation to uh hall now ed curry is the senior vice president of hospitality at hall lines of napa and if you show up there on your own he will do the exact same thing dean just did he&amp;#39;s going to take you around the winery and instead of asking you to join the wine club you know if he thinks you&amp;#39;re you know up for it he might do a presentation about the private placement give you a private placement and they ask you to invest in the winery please note he&amp;#39;s representing the issuer he&amp;#39;s not representing he&amp;#39;s not working for a broker dealer he&amp;#39;s a senior vice president of hospitality he doesn&amp;#39;t get paid to get people involved in the winery he&amp;#39;s getting you know he gets good i don&amp;#39;t know what he makes but you know it&amp;#39;s not like he gets paid on the fundraising he&amp;#39;s actually really a senior vice president of hospitality and so he wouldn&amp;#39;t need and hall is needed to uh get registered under any circumstance here right so individual ed curry in my example senior vice president hospitality represents all wines of napa the issuer in this private placement now listen as you can tell i&amp;#39;m very fond of ed because one time he said dean this guy showed up the winery i&amp;#39;m not sure you send him or not but we put it under you at gama global like oh thank you very much oh well so the couple takeaways from that just test-wise i want to make sure you get your test content here right a couple takeaways reg d test question is an exempt transaction under 33 it&amp;#39;s an exempt transaction of the uniform securities act that&amp;#39;s very testable this item i just brought up about in what circumstance can an individual or natural person not have to get registered in an agent of a broker dealer it&amp;#39;s if they represent the issuer in an exempt transaction you should definitely know what an accredited investor is from your previous exam and this one i guess i mean that 200 grand or 300 grand or the million you know you should know that okay so how do you how do you become an agent of a broker dealer 63 60 now listen we think of ourselves as investment professionals but the state administrator thinks that&amp;#39;s the sales people i don&amp;#39;t think that&amp;#39;s derogatory by the way as a salesperson we leave people the decisions are good for them hopefully right we&amp;#39;re going to file an application we&amp;#39;re going to pay the filing fees consent to service again very testable registration is 30 days that&amp;#39;s a common thread that runs through the uniform securities act in your exam you know sooner if they say so but you know 30 if they don&amp;#39;t say so all this is december 31st 31st another common theme that runs through the uniform securities act and the withdrawal becomes effective days after the administrator receives that notice so let&amp;#39;s talk now about how do we register an investment advisory firm on the uniform securities act now this is very intestinal i&amp;#39;m sure in all your materials you&amp;#39;ve seen this abc do i give investment advice let&amp;#39;s just get a text box here does the firm give investment advice that&amp;#39;s the a do we tell people do we tell people that we&amp;#39;re in the business of giving investment advice that&amp;#39;s what we do for a living is we give investment advice and we want compensation as people will receive compensation because that&amp;#39;s what you&amp;#39;re doing then you need to be you know properly registered as an investment advisory firm now again vk you&amp;#39;re very careful on your exam don&amp;#39;t confuse you don&amp;#39;t confuse you here just let&amp;#39;s just make sure we got this down here the abc test so there&amp;#39;s the a there&amp;#39;s the b there&amp;#39;s the c right you are not an investment advisory firm you are taking a 65 or 66 and you are a natural person you know uh we don&amp;#39;t want you uh making campaign contributions to elected officials you know pers manages about 400 billion dollars and city pension plans are you know very important investment advisory clients and so one thing you as a natural person are not supposed to do is make a campaign contribution for more than 350. now to make that 350 campaign contribution you have to be able to vote for that elected official if you can&amp;#39;t vote for that elected official you can&amp;#39;t give them 350 bucks and then for others you can&amp;#39;t vote for it&amp;#39;s 150. now be careful i added this to debt because i can&amp;#39;t tell you how many people get confused about the broker-dealer side of this this isn&amp;#39;t about a broker dealer there&amp;#39;s about an investment advisory representative on the broker dealer side you might recall from your previous exams your sie you know your seven whatever that it&amp;#39;s 250 and that&amp;#39;s the broker dealer side we&amp;#39;re not talking about a broker dealer here we&amp;#39;re talking about an investment advisory firm now what do you do with your 65 or 66 you give advice you give advice now one of the test issues that comes up as an investment advisory representative is what&amp;#39;s called a customer cross now listen i you know shy away a little bit uh from recommending all of the lectures on the youtube channel for 65 because i&amp;#39;d be the first to admit that it might be a little overkill you know but i have a great lecture on secondary markets that it won&amp;#39;t kill you to sit through the hour plus of secondary markets and how that works and you know i&amp;#39;m just not sure how much the payoff is performance opportunity-wise what i mean by that is same with options like i haven&amp;#39;t labeled the option lectures as being 65 appropriate even though i do for sie and seven that&amp;#39;s ie23 option questions 65 6523 option questions and i&amp;#39;m not sure how you want to power up on that that content it&amp;#39;s there for you if you&amp;#39;re not sure you know leave me a comment either here you know in the comment box on the channel or wherever you&amp;#39;re watching this and i&amp;#39;ll i&amp;#39;ll be more than happy to you know explain what i mean by that but i do have you go the playlist you will see on the playlist various series with various recommended lectures so anyways let&amp;#39;s get back to the test issue here so i&amp;#39;ll play investment advisor rep you play client i say hey listen uh i&amp;#39;m calling you to check in with you we&amp;#39;ve been building that position in let&amp;#39;s just call this for lack of imagination xyz and so i&amp;#39;m going to continue to be building the position today so i just want to check in so you&amp;#39;ll know that you&amp;#39;re going to be receiving confirmations i continue to build this position you say mandeen it&amp;#39;s been pretty good to us i go yeah we&amp;#39;ve got a good role here you know we started accumulating this in your portfolio at 8 9 10 and we still think it&amp;#39;s a good buy and so you know we&amp;#39;re going to buy it so i&amp;#39;ll be calling con contacting your broker dealer remember i have third party party authorization and you&amp;#39;ll be seeing these confirmations you say well dean actually um i&amp;#39;m glad you called because i want to sell i want to sell a thousand shares and i said well whoa whoa whoa you know my current recommendation is a buy he said well yeah i understand that but i want to sell first test issue i have to follow my customers instructions i have to follow my customer instructions i said well listen if you sell a thousand shares right now it looks like on the bid you&amp;#39;re gonna receive 15 grand i don&amp;#39;t know if you recall but when you opened your account with me i told you that as much as possible we try to avoid transaction costs with a broker dealer and so you know i take your thousand shares of the broker dealer the market maker you&amp;#39;re gonna get 15 000. so what i&amp;#39;d like to do is a customer cross a customer cross because you know after i hang out with you i&amp;#39;m going to be making the same call to my other client you know my next client and my call here is chris and i&amp;#39;m going to call chris and so let me see if i can get chris uh to buy it so i call chris i say hey chris dean here uh you know we&amp;#39;ve been building this position in xyz and uh as you know we have a buy i have kind of a unique opportunity for us unfortunate but i have a customer who needs to sell and so what i&amp;#39;d like to do is i&amp;#39;d like to do as we mentioned to you across we try as much as we can to save transaction costs by avoiding broker dealers by internalizing orders if we can and it looks like you&amp;#39;d pay 16 but i&amp;#39;m gonna cross it at 15.50 in other words you&amp;#39;re going to chris pay 1550 50 cents less than you otherwise would pay if i took it to the market maker the broker dealer and my customer the guy i just got off the phone with he will receive 15.50 instead of 15. you both benefit the only loser in this transaction is the broker dealer now what are the test questions first test question is i can&amp;#39;t trade against my recommendation and please note and that hypothetical i just brought up i did not trade against my recommendation my recommendation was a buy and second thing is i have to tell you i have to have your permission to do this so in the original documentation when you open the account and now it has to be disclosed that we do customer crosses agency cross that&amp;#39;s called an agency cross where i&amp;#39;m acting as an agent to my seller and an agent to my buyer that needs to be disclosed because you&amp;#39;re you know you have opposite kind of you know interest there but disclose the cross and it has to be no approved by the the customer you know we usually tell you that in your documentation we&amp;#39;re going to do it and then i&amp;#39;ll tell you again here and i want to get written acknowledgement from you that i&amp;#39;ve explained this to you okay so that&amp;#39;s called a customer cross or sometimes referred to as an agency cross uh we manage accounts we solicit and sell investment advisory services so again key point the third part the investment advisory firm if it&amp;#39;s not federally covered can&amp;#39;t hire broker dealers as third-party solicitors so those who are soliciting on behalf of the investment advisory firm are going to have to take and pass a 65 standalone or 766. the 66 is only for sevens right so you can&amp;#39;t take a 66 unless you have a seven so if you have a 763 it&amp;#39;s going to be a 65 that you&amp;#39;ll add to that or 663.65 or the case may be and i just brought up this whole idea of an agency cross so we have what&amp;#39;s called the national securities market improvement act and you know the state administrators really didn&amp;#39;t like it they didn&amp;#39;t like it because it took a lot of power away from the states and it says that if you&amp;#39;re managing 110 million or more you are going to be a federally covered investment advisor and then it&amp;#39;s testable know that if you are a federally covered investment advisor you can&amp;#39;t fall below 90. that is very much a test question let me get my highlighter out here you know if you get go back past that you&amp;#39;re going to get kicked back to the states so you know i don&amp;#39;t have that happen uh under 100 million you register with the state de minimis be careful about these d minimums a maximum of five persons a 12 month period so again the state says why didn&amp;#39;t you register in my state and i said i didn&amp;#39;t register in your state administrator because i don&amp;#39;t have a place of business in your state and i have a maximum of five right so that means you know five or more i&amp;#39;m going to have to register now be careful i&amp;#39;m not so sure i&amp;#39;d tell you common mistakes but make sure you understand there is no d minimus for broker dealers right if a broker dealer has one retail customer in that state that broker dealer needs to register in that state so you know as we say always on these exams r t f q that stands for read the full question broker dealers there is no d minimus for a broker dealer investment advisory firm you know you&amp;#39;re not an investment advisory firm you&amp;#39;re an investment advisor so you know be careful you know when you want to read these questions for context to be honest what i would want you to do is personalize the discussion you know what i mean by personalizing the discussion is every time they say investment advisor rep i go oh that&amp;#39;s me now that&amp;#39;s assumes you&amp;#39;re taking 65 66 or if you&amp;#39;re taking 63 oh agent of brokerage that&amp;#39;s me right firm put your firm in here i would imagine most of you have a firm that has a holding company that has both the broker dealer i&amp;#39;m imagining that the vast majority of you taking this exam are taking it because you&amp;#39;re going to be representing both a broker dealer you&amp;#39;ve taken your 6 63 now you&amp;#39;re taking a 65 where you&amp;#39;re taking your seven 63 now you&amp;#39;re taking a 65. i feel sorry for those folks i totally schwab people who are taking 763 to read you know to you know represent the broker dealer they at some point will take a 65 because at some point they&amp;#39;ll be able to represent both but you know a lot of us are taking 766 right so that&amp;#39;s you and that this is you know you aren&amp;#39;t the firmest the point so drain the swamp i when they say firm i say oh you know gamma global you know um the key word here on these is incidental so i&amp;#39;m an attorney i&amp;#39;m a personal engineer attorney i just won you 300 million dollars so you know 300 million 150 for me and 150 for you that&amp;#39;s what i get for winning your lawsuit you say dean what should i do i said you should now call my insurance agent and buy a fixed annuity you know or call my insurance agent is licensed with a six and buy a mutual fund now please note as a lawyer i just gave you investment advice but it was incidental that&amp;#39;s the key word right people think lawyers know things as long as that information that advice is incidental i don&amp;#39;t need to register i can&amp;#39;t tell you how many attorneys i have in 65 classes because at some point the the investment advice they&amp;#39;re giving is no longer incidental and they want to be able to charge for it at that point this exemption goes poof you know as your accountant they say i&amp;#39;m going to reflect that your funding in ira you need to fund an ira i&amp;#39;m reflecting that on your tax return you know you so you need to put cash on i right you didn&amp;#39;t buy a mutual fund key point is your accountant i just gave you investment advice but it&amp;#39;s incidental you know by the way be careful it&amp;#39;s a brave new world we live in so we&amp;#39;re assuming on your exam that the accountant isn&amp;#39;t associated with a broker dealer here right as a teacher you know i consider myself to be a teacher and you know clarice is a good friend of mine and clarice has worked very very hard to accumulate four thousand dollars and as a teacher she thinks i might know something what she should do i said karis do you have the time temperament and expertise to be managing money and she said no i said well you ought to hire a professional money manager she says i can hire a professional money manager with as little as four thousand dollars i said clarisse there are men and women who sold their soul to manage that four thousand dollars from you what you need to do is buy a mutual fund key point dean just told her gave her investment advice the investment advice but she buy a mutual fund she asked me because i&amp;#39;m a teacher and it&amp;#39;s incidental i&amp;#39;m no longer an associate person brokered or i&amp;#39;m not being paid or compensated for that engineer you know bechtel builds refineries airports it&amp;#39;s a major major engineering construction firm and they might have an idea about how you can finance it i say hey listen you know what we need to do is get my buddy a goldman sachs who&amp;#39;s an infrastructure banker involved to help us maybe sell some bonds to pay for this thing or you can help us on the financing i just gave you investment advisor let&amp;#39;s call goldman sachs again it&amp;#39;s incidental to be an engineering engineering firm now over the years bethel has required so much expertise they said they set up a society called bechtel capital management and what they say now is don&amp;#39;t call goldman you can just use us even if you don&amp;#39;t hire us as an engineering firm to build it you can hire us to help you finance at that point it&amp;#39;s no longer incidental and they need to get registered so i can&amp;#39;t tell you how many of these folks i get in class 65 66 because they lose that exception there and once it&amp;#39;s not incidental they got to get registered now remember broker dealers give investment advice but we don&amp;#39;t charge for it the traditional business model is you know the advice you know sometimes is to transact and then my broker dealer either makes a commission a markup or a markdown general circulation of publishers wall street journal usa today investors business daily you know they do have an investment advice column but you don&amp;#39;t buy the paper the wall street journal to get rich right it&amp;#39;s a general circulation newspaper now be careful on this one again a general circulation that&amp;#39;s the key word general circulation now on the other hand i set up a newsletter called deantenny&amp;#39;s prudent speculator and i charge you 995 a year to tell you what uh micro cap stocks to buy and sell that is no longer a general circulation newspaper and now dean has to be licensed as an investment advisory firm to publish that newsletter so you file your application form adv for the firm they pay the filing fees again a common thread a common thread the administrator may require surety bond an audited balance sheet audited balance sheet they may require a minimum of capital the two that are common that you they like in this testables is 10 or 30. now another reason to use a broker dealer so i&amp;#39;m setting up an investment advisory firm the state administrator says dean we would like a balance sheet of the investment advisory firm that shows that you have ten thousand dollars a net worth let&amp;#39;s call it gamma global investment advisors so i&amp;#39;m setting up a investment advisory firm i already have a broker dealer called gonna global investments now i&amp;#39;m setting up gamma global investment advisors now my broker dealer is is not a general securities broker dealer it&amp;#39;s a brokerage that does you know private equity and that kind of thing so i&amp;#39;m going to use schwab to have custody provide custody and execution so what i used to say to my investment advisory clients is i can&amp;#39;t steal what i don&amp;#39;t touch i don&amp;#39;t have your money it&amp;#39;s at schwab now that&amp;#39;s kind of nice because you&amp;#39;re getting quarterly statements when i which i&amp;#39;m supposed to do it&amp;#39;s just easier anyways that&amp;#39;s 10 grand that&amp;#39;s 10 grand because i don&amp;#39;t have custody so maybe i should redo that slide no custody 10 grand custody 30 grand so i have a bank account that i have control of where i put your monies in securities that&amp;#39;s considered custody that&amp;#39;s going to be 35 grand now listen carefully i say to you i have discretionary authority not only to buy and sell securities but i also have discretionary authority to deduct my investment advisory fee gamma global investment advisors has the ability to call schwab and deduct from your account are one percent of assets under management charged quarterly now if that&amp;#39;s the only thing i have authority to do is deduct my investment advisory fee that&amp;#39;s still 10 grand now if i have the authority to call schwab and tell them to you know cut checks and send it here or send it there then that is considered custody and it&amp;#39;s 35 grand so you know be careful if you know it&amp;#39;s just my fee deduction that i&amp;#39;m taking out of your brokerage account then that&amp;#39;s not considered custody again this december 31st runs through the entire thing there&amp;#39;s not many that do so anything that runs through the entire process you make sure you get a handle on it record retention is a little different here so it&amp;#39;s five years two years already accessible remember the broker-dealer site it was three years same thing administrator may examine records any time canadian broker dealers are part of north america right and there&amp;#39;s a lot of canadians that hang out in the us and they don&amp;#39;t have to register with this data they have no office in the state and they&amp;#39;re doing business with canadians i don&amp;#39;t think this come up on your exam but they have what&amp;#39;s called an rssp that&amp;#39;s the canadian version of you know an ira and it&amp;#39;s a big deal in canada and a lot of those you know people are calling down to the canadian customers about managing their you know retire i think it&amp;#39;s retired savings plan i forget what the other s has been you know well all right registration of security so you know i don&amp;#39;t know where i&amp;#39;m at in terms of what my goal was here 32 slides but hopefully you&amp;#39;re finding some confirmation of some test issues uh i would not feel comfortable telling you you watched hang out with dean here and this is sufficient but it gives you a nice overview i hope helps you confirm some test issues and if there&amp;#39;s other test issues or the way i cut it down by is not covering kind of covering unethical business practices and not covering disclosures not covering federal rules 33 i&amp;#39;m not covering the investment advisor act in 1940 so you know if you have any questions on those feel free to to ask so how do we register security and maybe it doesn&amp;#39;t need to be registered maybe it does maybe it doesn&amp;#39;t so just by way of review first part of this lecture was about does the broker dealer have to register with the state it may or may not have to register with the state how do agents register of a broker dealer six six sevens register the state take a 63 or 66 whatever the case may be does the investment advisory firm register with either now there&amp;#39;s none on the brokerage side it&amp;#39;s not either it&amp;#39;s it&amp;#39;s the sec finra and perhaps a state or two it&amp;#39;s at least one state because you gotta have a home office and then federal covered advisors register with the feds and stay with the state and we talked about that so now how do we register securities now again i didn&amp;#39;t put all the things in our securities because the test emphasis is what&amp;#39;s not a security because if i can convince you that somebody is a security that isn&amp;#39;t the potential for fraud is large so the definition of security let&amp;#39;s get a text box here you know everybody has a little bit different definition of this thing but you know what i like to use is as a definition of security is a piece of paper that can be traded to a third party at a profit or loss you know stocks bonds you know that kind of stuff as i mentioned that&amp;#39;s not so much as important as knowing what is not a security on the you know from securities act i mean remember i didn&amp;#39;t say it&amp;#39;s not a security i said it&amp;#39;s not a security under the uniform securities act what i&amp;#39;m saying there is that the state administrator doesn&amp;#39;t really care about it if it&amp;#39;s not a security and then the second one i made is if i can convince you of security when it&amp;#39;s not the potential for fraud is large now command&amp;#39;s futures are indeed securities but not for purposes of the uniform securities act it&amp;#39;s they have a different regulatory framework the commodity futures trading commission precious metals are certainly not pieces of paper that can be traded through parties confirmations boy wouldn&amp;#39;t that be great if i could i shouldn&amp;#39;t say great great if i was a crook i guess let me rephrase that if i could convince you that my confirmation that shows that i bought a thousand shares of tesla was actually is a receipt that you could if you had call the broker dealer and tell them to transfer and ship boy and that fraud fraud potential is large now on this test very important on this test non-securities products means insurance so anytime on your exam you hear the word non-security product it means insurance and remember insurance isn&amp;#39;t a security in fact very test we&amp;#39;re not supposed to sell insurance as a security and insurance remember has a different regulatory framework it has a department of insurance in the state there&amp;#39;s an insurance commissioner you know that&amp;#39;s different than the state administrator who does securities you know sometimes it&amp;#39;s the same person but you know i&amp;#39;m not retirement plans boy if i can convince you to ask my retirement plan is the security go list i can&amp;#39;t to wait around time 59 and a half why don&amp;#39;t i just sign this over to here to you look at this retirement plan it&amp;#39;s beautiful you can call schwab and tell them you&amp;#39;re the new owner and you can transact business with them and so you know i say listen i&amp;#39;ll take a discount because you know i can&amp;#39;t make the hold so you can see there&amp;#39;s 500 000 in there so give me 300. and then you call schwab and say give them the account number and you fail the identification procedures they go well listen that doesn&amp;#39;t show you as a registered owner of the account you say oh no it&amp;#39;s steen it&amp;#39;s dean and he sold it to me and i said oh you&amp;#39;ve been had uh bradford exchange collectibles my aunt thinks her retirement plan is the diversified portfolio of elvis plates in fact even though they send her a two-page disclosure saying this is not a security it&amp;#39;s not an investment but if you can convince somebody collectible is an investment the potential for fraud is large currency is in the security now one of the reasons state administrators have taken exception to cryptocurrencies because people are selling them as investments they say okay well damn it if you&amp;#39;re going to sell them as investments then you need to register as a broker dealer you could register the security but if it&amp;#39;s just a plain old security like the iraqi dinars for example major fraud i said listen these iraqi dinars there&amp;#39;s going to be a peg at some point dollar to for a dollar one us dollar for one iraqi dinar but i can&amp;#39;t wait around anymore and so i&amp;#39;ll tell you what you can cast me out of 50 cents you know the dinars are worth you know five cents a piece again the whole point here is the potential for fraud if i can convince you it&amp;#39;s security when it&amp;#39;s not is large let&amp;#39;s clean up our slide you know the state administrator isn&amp;#39;t concerned with secondary transactions the state administrator is much much more concerned with primary transactions so you know if i&amp;#39;m at the country club and you know we&amp;#39;re you know just finished playing golf and you&amp;#39;re a private citizen i&amp;#39;m a private citizen and i&amp;#39;ve been chatting up uh you know being a partner in this restaurant and you want to buy it that&amp;#39;s not a problem state administrator doesn&amp;#39;t care about that you know an offer to sell again what we&amp;#39;re talking about here is is their jurisdiction is this security need to be registered or does this transaction need to be registered that&amp;#39;s kind of where we&amp;#39;re at in uh where we&amp;#39;re at right now in this lecture and so no i mean what i mean by no when i&amp;#39;m putting this in parentheses is that it&amp;#39;s not something the state administrator is concerned with on the uniform securities act the state administrator is not concerned about an offer or an offer to sell uh if it&amp;#39;s coming from a television radio broadcast from out of state you know i&amp;#39;m here in nevada and on strange nights radio signals can drift they&amp;#39;re not concerned with fiduciary transactions you know one of the big takeaways is you&amp;#39;re taking a legal test and fiduciaries are officers of the court as an officer of the court you don&amp;#39;t need to be running worried about running afoul of the uniform securities act so if i&amp;#39;ve been appointed by the court as a trustee in a bankruptcy you know toys r us for example or sears or kmart or whatever i don&amp;#39;t have to be worried when liquidating the estate chapter 7 is complete liquidation chapter 11 is reorganization anyways long story short i&amp;#39;m going to come into possession of securities i don&amp;#39;t need to worry about liquidating them an executor or executrist of the estate again is a legal uh um authority right because you&amp;#39;re an executor or execute terrorists you know this family is third generation he&amp;#39;s now uh grandma&amp;#39;s died he&amp;#39;s now what a mess the estate is and he&amp;#39;s gotta you know take care of liquidating things and you know his name is john john doesn&amp;#39;t have to worry about running afoul of the uniform securities act as an executor of the estate you know if i&amp;#39;m a sheriff an asset forfeiture i come across your stock portfolio and i want to liquidate it i don&amp;#39;t have to worry because all of these people that we&amp;#39;ve discussed are officers of the court and i&amp;#39;m not so sure i should tell you a common mistake a custodial custodian and not my account as an officer of the court so these fiduciary transaction means fiduciary means you&amp;#39;re acting for the benefit of a third party in bankruptcy the estate of the the corpus the state of the toys r us there&amp;#39;s an executor the estate of a natural person or the sheriff be very testable i told you but ahri mclendon died he was chesapeake only a minority interest in the oklahoma city thunder and if he had pledged it as collateral for a long you know if i&amp;#39;m a lender and you pledge securities to me as collateral for loan when i liquidate take action against those assets i don&amp;#39;t have to worry about running afoul of the uniform securities act now remember the fancy word let&amp;#39;s go ahead and put that in there do you remember the fancy word for pledging securities as collateral for alone hypothecation yeah when i if i go into pawn shop and say when i hypothecate my rolex that means i want to pledge it as collateral so any kind of security that&amp;#39;s pledged as collateral i don&amp;#39;t need to worry as your lender running a foul of this thing be careful of this next one be careful of this next one again very testable you know i just thought bill maher was complaining about his investment in the new york mets the new york&amp;#39;s mets was a partnership and he became a limited partner and he said they were he was very glad when they sold the new york mets to stevie cohen uh you know stevie cohen by the way is a federally covered investment advisor he&amp;#39;s gotta have fun but anyways he said they kept getting capital calls they kept calling them saying hey we need more money now some investments your your you know investment is accessible you know for example uh in the time warner center there&amp;#39;s a very fancy restaurant called per se per se has an ownership group thomas keller is the guy who&amp;#39;s running the restaurant he&amp;#39;s a famous celebrity chef he has a place in napa called french laundry where he is the owner and he&amp;#39;s much more concerned about profit or loss at the french laundry than he is in the time warner center because in the time warner center if they&amp;#39;re short on the bills he&amp;#39;s just going to call the partners and say sorry guys you got to kick in another 30 40 50 grand this month now most of the ownership group are you know billionaires that live in the time warner building anyways you know uh you you&amp;#39;re my friend you&amp;#39;re a fellow billionaire i&amp;#39;m a billionaire and you know i&amp;#39;ve been chatting up how i can get into per se without any kind of a reservation because i&amp;#39;m one of the you know owner owner part of the ownership group and you get tired of me chatting this up and chatting this up and unbeknownst to you i&amp;#39;ve been getting all kinds of capital called calls i&amp;#39;m getting worried about and so i give it to you and you say what do i owe you for it i said well you know what&amp;#39;s what you know you don&amp;#39;t need to pay me for it now unbeknownst to you i really didn&amp;#39;t give you a gift as much as i&amp;#39;ve actually shed myself of a liability and so there the state administrator says if it&amp;#39;s a gift of accessible stock where there are mandatory capital calls that is a transaction subject to the uniform securities act now i know a lot of your test providers and whether kaplan or past perfect or stc or fx tell you that there&amp;#39;s no such thing as investments that have mandatory capital calls i would beg to differ and i would just tell you that i&amp;#39;m taking the test you need this language gift of accessible stock is subject to the jurisdiction of the uniform securities act and the state administrators authority gifted not accessible stock no the state administrator doesn&amp;#39;t care about that if it&amp;#39;s stock traditional stock investments do not have mandatory capital calls you know we have to ask you politely would you please you know give us some more money and you can say yes or you can say no exempt means the security does not be registered because the issuer&amp;#39;s exempt the transaction&amp;#39;s exempt or the securities exempt right so exempt issuer is very very testable so the us government doesn&amp;#39;t need to worry about running a file of the uniform securities act municipalities don&amp;#39;t need to worry about running afoul of the uniform securities act this template right so state administrator sec says dean did you sell a brand new security to the public and you didn&amp;#39;t uh register the security i said i did it was a treasury bond neanderthaner don&amp;#39;t suggest you say that it was a clark county geo bond mean earning or near time to slow down for purposes of this exam and the uniform securities act canada is no different than the us what i mean by that is on your exam british columbia which is a province in canada there are 12 provinces again british columbia is no different than the state of nevada when it comes to the uniformed securities act they&amp;#39;re an exempt issuer and vancouver a city in british columbia is no different than las vegas is in nevada under the uniform securities act so this is only true of canada so the sovereign the canadian national debt doesn&amp;#39;t need to be issued are registered with the state administrator and the provincial debt including the cities don&amp;#39;t need to be registered with that only true of canada next one we have diplomatic relationships with mexico the republic of mexico i can&amp;#39;t wait till the pandemic&amp;#39;s over because i spent a lot of time in ensenada and i haven&amp;#39;t been there in over a year now so i&amp;#39;ve got my circuit ready man soon as i get my second shot and things are safe off to san francisco i go where i spent most of my career and then from there i&amp;#39;m going to go down to san diego and spend a couple days there and then off to mexico anyways the republic of mexico issued a 100-year non-callable bond called the grand centenario paid three and a half percent in euros and if i want to get people involved in that i don&amp;#39;t have to worry about that security being registered because we have diplomatic relationships with mexico uh please note unlike canada baja california a province in mexico is not an exempt issuer no an ensenada a city in baja mexico is not exempt either so that&amp;#39;s unique right we said that a province in canada british columbia is an exempt issue or a province anywhere else mexico no and that would include the cities now one other trick here we&amp;#39;re not talking about canadian companies not corporations in canada you know like uh molson is a beer company no tim hortons is a donut company no we&amp;#39;re talking about the canadian government and then remember that foreign national government was with diplomatic relationships now it&amp;#39;s not the public utilities and banks and common contract carriers get a free pass it&amp;#39;s that they have a different regulatory authority right public utilities answer typically to the public utilities commission when selling securities and if a bank wants to go public like one of my favorite banks is beale bank bo bank is 100 percent owned by andy beal and if bill andy bill want to take bill bank public he wouldn&amp;#39;t be answering to the state administrator or the sec he&amp;#39;d be answering the federal reserve board if it&amp;#39;s a federal charter for his bank if he wants to go public or the banking commissioner of his state not the state administrator transportation companies common contract carriers again used to answer to what&amp;#39;s called the interstate commerce commission so if you&amp;#39;re a transportation company i told you this thing comes from the 50s so you know what can i tell you on the test southwest airlines is a common contract carrier right and again it&amp;#39;s not that they get a free pass is that they have a different regulator scary but true as the iman at the mosque or bishop at the temple or rabbi at the synagogue a pastor at the church i can say ladies and gentlemen what are you getting on your investments that is ridiculously low how about we do the lord&amp;#39;s work and we get a higher return today i&amp;#39;m offering you church to benchers they pay 300 bips 300 basis points 3 percent over the junk bond index wow scary but true that is an exempt uh i&amp;#39;m an exempt issuer as a religious or charitable organization now kind of trick when they arrested this tele evangelist for making a fraudulent distribution of securities the public he said i&amp;#39;m an exempt issuer listen no one and nothing very testable nothing is exempt from the anti-fraud provisions of the uniform securities act so kind of a trick right just because you&amp;#39;re an exempt issuer doesn&amp;#39;t mean you can defraud people so you know i can&amp;#39;t say oh aren&amp;#39;t i clever i used a treasury bond or a muni bond to rip somebody off or you know grand centenario republic of mexico bond no no one and nothing is exempt from anti-fraud provisions now we&amp;#39;re talking about if you have to register the security so if you don&amp;#39;t meet one of those things are we going to register security and if so how do we do so now if it&amp;#39;s a federally covered security most state administrators say good enough for the feds good enough for the sec good enough for us and so i don&amp;#39;t need about registering a new york stock exchange security or a nasdaq security those are federally covered very tesla that&amp;#39;s why i put a different color for you you know where we&amp;#39;re heading is through qualification and coordination and here i don&amp;#39;t have to do that mutual funds is the obvious one that&amp;#39;s the one that shows them up more often than not on your exam and then remember i told you these reg d private placements are exempt at both levels both levels so those are called federally covered securities i definitely know that on your exam and that we don&amp;#39;t have to coordinate them we don&amp;#39;t have to qualify them that&amp;#39;s how we&amp;#39;re going to register assuming we&amp;#39;ve got to register the security we&amp;#39;re either going to do so through coordination or qualification exempt means the security does not need to be registered because the issuer is exempt the transaction is exempt or the securities exempt now commercial paper and bankers acceptances are sold to money market fund managers who are capable of protecting their own ass sets their own interests those are not sold to retail customers and so those are exempt as well bankers acceptances as you may recall from a previous exam are used to facilitate foreign trade exempt transactions unsolicited we never have to worry about unsolicited transactions because that&amp;#39;s on the customer right unsolicited means it&amp;#39;s the customer&amp;#39;s idea now be careful here be careful a private placement under the uniform securities act is different than a private placement under 33. so if i&amp;#39;m going to avail myself of a private placement and sell unregistered securities on the uniform securities act i can use a private placement and it&amp;#39;s limited to test question 10 offers now be careful here not 10 offers accepted 10 offers so if i offer this to you and you say no i go damn you you just used up one of my 10. so offers accepted are called transactions but you know it&amp;#39;s not 10 offers except it&amp;#39;s 10 offers pre-organization certificates you know investor number three in google was their college professor and there is no such thing as google inc and larry and sergey need some capital get servers and do some things and so the college professor pay attention says listen i&amp;#39;m good for five hundred thousand dollars but even if i wrote you a check right now which i&amp;#39;m capable of doing five hundred thousand payable to google inc there is no such thing as google inc so what you need to do larry and sergey is uh go down and see my attorney he&amp;#39;s i&amp;#39;ve already told him you&amp;#39;re on your way don&amp;#39;t worry about the 500 grand it is not a problem uh yes before you leave i&amp;#39;d like to memorialize i would like to have physical evidence that we&amp;#39;re setting up this thing called google link pre-organization certificate and i want you to own that and say i&amp;#39;m subscriber number one now good news you&amp;#39;re not going to have any problems under the uniform security act larry sergey because when you get out of the law office the attorney comes in and he says hey listen i just got off the phone with your professor let&amp;#39;s get this thing rolling we need to get a corporate charter we have to do some stuff and larry and sergey said we don&amp;#39;t have any money because you don&amp;#39;t need any money call me subscriber number two i&amp;#39;m gonna walk down the hall and by the time i get to the end of the hall i&amp;#39;m gonna have you know four or five subscribers now please note here again it&amp;#39;s at 10 subscribers and there&amp;#39;s been no paid in capital yet are we clear there&amp;#39;s no whether nobody has actually written a check that has gone into this entity and so again that would be okay enter the uniform securities app now assuming it&amp;#39;s not okay you know these are the three ways that we can register security we said you can do a file or notice filing that would be for federally covered securities and i told you that&amp;#39;s most often would be mutual funds on your exam we couldn&amp;#39;t coordinate you know one of my uh favorite privately held companies is fidelity you know fidelity has a remember this common call they have a brokerage operation called national financial but you know 60 of fidelity is owned by its employees and 40 is owned by the johnson family and so fidelity went public i wish we&amp;#39;d make a registration statement you know saying we&amp;#39;re going to sell brand new securities to the public or here in nevada in and out burgers based in california but they&amp;#39;ve become creeping across the country they&amp;#39;re privately owned and so we would coordinate at the same point we make our s-1 registration with the feds we coordinate with any state administrator that we plan on selling those securities in their state you know one of my favorite transactions in my career that i was involved in was called del taco restaurant properties and we used a 147 safe harbor under 33 to sell those securities so the sec says dean are you selling brand new securities to the public i say we are selling brand new securities the public how come dean you didn&amp;#39;t register those securities with us at the sec i say i availed myself of a safe harbor called rule 147. we did an interesting offering of the security i only sold del taco restaurant properties in california and i only sold it to california residents now be careful on this one this one&amp;#39;s tricky just because i&amp;#39;m exempt with the feds does not mean i&amp;#39;m exempt with the state so i&amp;#39;m going to have to call the stay and say what do i need to do to qualify del taco restaurant properties to sell to residents of california and whatever they tell me i got to do i say i i i so any security that&amp;#39;s not exempt and can&amp;#39;t be registered by coordination or notice filing would be registered through qualification and i told you the big one here is the rule 147 be careful on your exam make sure you understand that but that&amp;#39;s remember greg d is exempt in both 33 in the union securities act but not this one this one still has to be registered with the state administrator yeah i would use your state you know i&amp;#39;m using california because that&amp;#39;s where i hail from originally so i&amp;#39;m not ready to rock and roll and start selling del taco until i get this thing effective right that&amp;#39;s like you know what i&amp;#39;m going to start doing is running up and down the state of california and del taco&amp;#39;s and doing seminars and trying to sign people up that&amp;#39;s what i&amp;#39;m going to do but i can&amp;#39;t start getting going here and tell the state administrator says okay the effect of your registration for del taco restaurant properties is effective from the time they tell me my registration is effective i now have a year right to go around trying to raise this money for the taco and the del taco restaurant properties were not testable we&amp;#39;re raising eight to 12 million dollars buying all cash real estate and building del tacos that&amp;#39;s kind of what we&amp;#39;re doing so i got a year now to kind of you know go raise this money registration can be amended so i call and i say hey listen um i want to raise i was told i was going to raise 8 to 12 but things are going great and i want to raise 15. he says do you change the terms i said yeah it&amp;#39;s going so well i&amp;#39;m going to raise my commission no no no very testable i&amp;#39;m not allowed to change the terms so that&amp;#39;s very much a test question to make sure you can you understand you can&amp;#39;t change those terms the registration can be made by the issuer del taco the broker dealer gamma global or a third party maybe somebody who&amp;#39;s selling their their block of stock uh penalties for the uniformed securities act five thousand dollars and or prison state prison for three years right of rescission is very testable right a recision you know i told you robin hood is registered in all 50 states but when the e-trade first got going it fell through the cracks and e-trade wasn&amp;#39;t registered in the state of ohio and the state of ohio said what do you got against the buckeye state why did you register your broker dealer in every state but ohio and you had retail customers were trading online in the state of ohio would you like us to prosecute you for fraud in the uniform securities act or would you like to offer them the right of rescission what are most of us going to say we&amp;#39;d like to offer the right rescission you know this guy had bought an ipo should have been coordinated it was not it went public at 20 went to two and he called the state administrator and said i think this is a possible blue sky violation he said man that&amp;#39;s pretty big by phraseology right blue sky means the state laws and that&amp;#39;s why there&amp;#39;s always a sign when you leave state a you&amp;#39;re hearing state b right culture shock when i&amp;#39;m in nevada and i saw a guy with a firearm and i said well thank you for your service and he said well i&amp;#39;m not what do you mean thank you for your surprise well your police officer goes no he says i&amp;#39;m not a police officer and nevada it&amp;#39;s open carry i go it&amp;#39;s not loaded this he goes yeah it&amp;#39;s loaded so whether it&amp;#39;s liquor laws or gun laws or securities laws it&amp;#39;s important you know when you&amp;#39;re leaving state a and entering state b anyways in this case uh what had happened was the guy who was supposed to coordinate with the state administrative fell through the cracks he had three copies of the prospectus he was going to file now we do this electronically but in those days it wasn&amp;#39;t electronic and he had a possible blue sky violation he put on a posty sticky pad and he went to lunch and then the brokers were looking for copies of the prospectus and they came and grabbed it off his desk and sent it out so he came back from lunch and said i guess i blue skyed it and uh he had not so the test question is no this right of rescission so here&amp;#39;s what i say to you i say hey listen we blew it now we are offering you the right precision you have 30 days to decide whether you want your principal and interest or whether you want to keep the investment and we know what the client&amp;#39;s going to say he&amp;#39;s going to say hey dean i think i&amp;#39;ll you know if the investment&amp;#39;s worth more than no harm no fallow keep it otherwise he&amp;#39;s going to say i&amp;#39;ll use exercise might write a precision here investment advisory client fees and losses or recommendations i it&amp;#39;ll be interesting johnny depp is suing his investment advisory firm and you know i don&amp;#39;t know except what i read but i think that they&amp;#39;ve got a pretty good case it looks like they said well listen it&amp;#39;s isolated we manage money for a lot of people and they&amp;#39;re not upset with us we didn&amp;#39;t tell johnny depp to buy a french village you know he did that on his own that was an unsolicited transaction but assume johnny wins what will he get back he&amp;#39;ll get back the fees he paid the investment advisory firm the losses on the recommendations they made to him and the legal fees well again i cut this down i don&amp;#39;t know what i&amp;#39;m going to come in here at this lecture but i just want to let you know that this is a brief very brief summary of the uniform securities act i hope you found it helpful uh if you have any other questions let me know let me tell you what what my game plan is here for u66 there is some content quantitative analysis that was not on your series seven i find most 66 don&amp;#39;t you know fail because of the the quantitative stuff it&amp;#39;s you know twosies three seas it&amp;#39;s not material but i plan on adding another lecture for content not found on the 7 that is indeed found on the 66 as a companion lecture to this and then this will also be for 63s and 65s now 65s i&amp;#39;ve been giving you some content along the way there are some lectures for you and for you the next lecture for you 65s is going to be economics i&amp;#39;m going to have an economics lecture that uh you know five or six questions on 65 about economics 66 we assume you already had your seven and that&amp;#39;s good for you so that&amp;#39;s kind of where we stand i want to make sure again to stress to you that i just hope you had some confirmation of some of these issues you found a couple test points that confirm what you were probably getting are there study materials this is not a standalone lecture make sure you reach out if you have additional questions about it and i&amp;#39;ll continue to beef up what is available to you as a supplement in these lectures but if you have any kind of question say 18 i&amp;#39;m not quite sure what i&amp;#39;m really don&amp;#39;t want you to do is watch this lecture and think you you can watch this and you can go past your 63 65 66 no i think you&amp;#39;re going to get a a point and say wow okay i remember dean talking about that you know i i&amp;#39;m hoping when you get to your exam you go oh man here&amp;#39;s something i know hopefully you&amp;#39;re not you know 20 30 questions deep before that happens so again uh like uh share subscribe comment and reach out if you need some help because by the way i&amp;#39;ll post this to the subreddit series seven and the other reason that i wanted to have this available is because we do make it in that community we try to make it clear that we&amp;#39;re not just there for series sevens we&amp;#39;re there for sies who are then going to top off with a six or seven i guess gotta do a mutual fund lecture at some point as well and then go top off again with that 63 65 66 so that community is for everybody and i felt like we weren&amp;#39;t showing enough love uh content for that community okay well um you know where to find me if you need me and i&amp;#39;ll see you in the next lecture uh whenever that happens to be that would be appropriate for 63 65&amp;#39;s and 66. [Music] you

Transcript for:Very Brief Summary of the Uniform Securities Act

Transcript for:
Very Brief Summary of the Uniform Securities Act