Addendum: for use with the Series 63 online course and study guide version number 28099en per NASAA exam outline updates effective 6/12/2023.
The following are the new topics on the exam content outline.
Chapter I. Definitions
E. Ethical Practices and Fiduciary Obligations
Potential Fraud Schemes Using Social Media
Although investors often use online chatrooms, social media platforms, and websites for information about investing, there are potential scams that investors and investment advisers should avoid.
"Finfluencers," for example, are social media financial influencers who use their name recognition to persuade individuals to invest in the product they are touting usually without any expertise in the matter. Investors could be swayed by testimonials or celebrity endorsements when making an investment decision. Sometimes these individuals are paid for their promotion without disclosing the compensation.
Fraudsters may impersonate legitimate brokers or investment advisers or other sources of market information on social media. For example, fraudsters may set up an account name, profile, or handle designed to mimic a particular individual or firm. They may go so far as to create a web page that uses the real firm's logo, links to the firm's actual website, or references the name of an actual person who works for the firm. Fraudsters also may direct investors to an imposter website by posting comments in the social media account of brokers, investment advisers, or other sources of market information.
A common red flag investors should look for when presented with an investment opportunity whether through social media, email communications, or on websites is the promise of high returns with no risk.
Chapter III. Trade Practices
Financial Exploitation of Vulnerable Adults
The NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation was adopted in 2016 to cover broker/dealer agents and investment adviser representatives who service customers aged 65 or older or those adults who would be subject to the provisions of a state's adult protective services statute. Some key provisions of the Model Act are:
- Mandatory Reporting — Qualified individuals (agents and IARs) who reasonably believe that financial exploitation may have occurred or is being attempted must promptly notify their state securities regulator.
- Notification — Disclosure to third parties (individuals other that the agent, IAR or the customer) is permitted if they were previously authorized by the customer. Of course, if the agent or IAR suspects that the third party is the one exploiting the customer, then notification may not be made.
- Delayed Disbursements — The act allows broker/dealers and investment advisers with the authority to delay disbursing funds from an eligible adult's account for up to 15 business days if the broker/dealer or investment adviser reasonably believes that a disbursement would result in the financial exploitation of the eligible adult. If the broker/dealer or investment adviser delays a disbursement, it must notify people authorized to transact business on the account (unless these individuals are suspected of the financial exploitation), notify the state securities regulator and the adult protective services agency, and undertake an internal review of the suspected exploitation. Under the Model Act, the securities regulator or adult protective services agency may request an extension of the delay for an additional 10 business days. Extensions beyond that could be ordered by a court.