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Finra Series-63 Exam - Topic 5 Question 24 Discussion

MoeMoney Investment Advisers uses the services of two broker-dealers exclusively when it executes trades for its clients' accounts. The larger of the two broker-dealers provides MoeMoney with research from its analyst department in return for the business and also serves as the custodian for some of MoeMoney's clients' accounts. The smaller of the two broker-dealers picks up the utility bill for MoeMoney. MoeMoney is careful to disclose this form of ''soft dollar'' compensation to its clients.Is it in violation of any securities laws?
C) Yes. Although investment advisers are permitted to receive some forms of soft dollar compensation from broker-dealers with which it has a relationship, such as research or custodial services, other forms of soft dollar compensation, including the payment of overhead expenses,are prohibited.
A) Yes. Investment advisers are prohibited from receiving any soft dollar compensation whatsoever.
B) No. Investment advisers are entitled to receive soft dollar compensation from broker-dealers with which it has a relationship as long as they disclose this to their clients.
D) Yes. Investment advisers are required to use more than two broker-dealers when executing trades on its clients' accounts.

Finra Series-63 Exam - Topic 5 Question 24 Discussion

Actual exam question for Finra's Series-63 exam
Question #: 24
Topic #: 5
[All Series-63 Questions]

MoeMoney Investment Advisers uses the services of two broker-dealers exclusively when it executes trades for its clients' accounts. The larger of the two broker-dealers provides MoeMoney with research from its analyst department in return for the business and also serves as the custodian for some of MoeMoney's clients' accounts. The smaller of the two broker-dealers picks up the utility bill for MoeMoney. MoeMoney is careful to disclose this form of ''soft dollar'' compensation to its clients.

Is it in violation of any securities laws?

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Suggested Answer: C

Yes. MoeMoney is in violation of securities laws in accepting payment of its utility bills for directing business to the smaller broker-dealer because this form of soft dollar compensation is prohibited. Some forms of soft dollar compensation are permitted, such as the research and custodial services MoeMoney receives from the larger broker-dealer, but the payment of any office overhead expense is not. Allowed soft dollar compensation is deemed to benefit both the investment adviser and its clients; soft dollars that seem to benefit only the adviser are not allowed.


by Lavonne at May 28, 2026, 03:38 AM

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Deja
5 hours ago
I recall that there are limits on how many broker-dealers you can use, but I don’t think it’s a strict rule about only using two. So, I doubt option D is right.
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Novella
5 days ago
I practiced a question similar to this, and I think the key is whether the compensation is disclosed. I’m thinking B could be correct, but I’m a bit hesitant.
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Reuben
11 days ago
I’m not entirely sure, but I feel like there are specific rules about what types of soft dollar compensation are allowed. Maybe option C is the right answer?
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Ruthann
16 days ago
I remember discussing soft dollar arrangements in class, and I think they can be acceptable if disclosed properly. So, I’m leaning towards option B.
upvoted 0 times
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