IACCP Master QBank

In developing written policies and procedures, which TWO factors must an investment adviser consider? (Choose two.) A. - Complexity and types of clients. B. - Compensation and benefit arrangements for mid-level staff. C. - Knowledge and competency of senior management. D. - Actual and potential conflicts of interest.

A. - Complexity and types of clients. D. - Actual and potential conflicts of interest.

Which THREE activities should TYPICALLY require a review and possible changes to a firm's written policies and procedures according to the SEC? (Choose three.) A. - Compliance issues within the firm. B. - Changes in a firm's business activities. C. - Replacing a retiring portfolio manager. D. - Rulemaking and regulatory changes.

A. - Compliance issues within the firm. B. - Changes in a firm's business activities. D. - Rulemaking and regulatory changes.

In performing due diligence on a potential solicitor, the investment adviser must ensure that the solicitor: A. is not subject to any statutory disqualification. B. is not acting as a solicitor for an unregistered adviser. C. has passed the Series 65 exam. D. is registered in appropriate states.

A. is not subject to any statutory disqualification.

Which TWO examples fall within the definition of an "advertisement"? (Choose two.) A. - Any published graph, chart, or formula used in making a determination to buy or sell a security. B. - A notice, circular, letter or other written communication addressed to more than one person. C. - Communications tailored to meet the individual needs or circumstances of a person. D. - Oral communications between the adviser and a client or prospective client.

A. - Any published graph, chart, or formula used in making a determination to buy or sell a security. B. - A notice, circular, letter or other written communication addressed to more than one person.

Which TWO factors are considered mandatory provisions to be included in advisory contracts, if an adviser, as a matter of best practice, chooses to enter into written advisory contracts with its clients? (Choose two.) A. - "No Assignment" clause without client consent. B. - Inclusion of a hedge clause. C. - Disclosure of changes in the general partners of the partnership. D. - Earned, unpaid fees are not due upon termination of contract.

A. - "No Assignment" clause without client consent. C. - Disclosure of changes in the general partners of the partnership.

Which THREE of the following advisers are exempt from SEC registration? (Choose three.) A. - A UK-based adviser whose only client is a private fund with 12 U.S. investors B. - A US-based adviser whose only client is a private fund with $100 million Regulatory Assets Under Management (RAUM) C. - An adviser whose only clients are venture capital funds D. - An adviser whose only clients are business development companies

A. - A UK-based adviser whose only client is a private fund with 12 U.S. investors B. - A US-based adviser whose only client is a private fund with $100 million Regulatory Assets Under Management (RAUM) C. - An adviser whose only clients are venture capital funds

Which TWO are EXCLUDED or EXEMPTED from the definition of "investment adviser" under the Investment Advisers Act of 1940? (Choose two.) A. - A publisher of a bona fide newsletter. B. - An adviser providing advice solely to insurance companies. C. - An adviser to a registered investment company. D. - A pension consultant for $65 million of ERISA plan assets.

A. - A publisher of a bona fide newsletter. B. - An adviser providing advice solely to insurance companies.

An investment adviser's code of ethics requires a complete report of each firm's access person's securities holdings, at the time the person becomes an access person and at least how frequently thereafter? A. - Annually B. - Quarterly C. - Monthly D. - Any time the access person acquires additional holdings

A. - Annually

Doug is a trader for an investment advisory firm. Doug shares a residence with his wife, son, daughter and retired mother. Doug and his wife do not have any investment accounts. Which TWO family members will have to give Doug quarterly transaction reports to submit? (Choose two.) A. - Doug's mother because she holds only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper in her brokerage account. B. - Doug's wife because she manages a municipal bond portfolio for a state pension plan. C. - Doug's son who has an employee-directed 401(k) plan whose investment options include only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper. D. - Doug's daughter because her only investments are in her employer's stock which is received through an Employee Stock Ownership Plan.

A. - Doug's mother because she holds only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper in her brokerage account. C. - Doug's son who has an employee-directed 401(k) plan whose investment options include only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper.

All financial institutions including investment advisers must fulfill which THREE requirements regarding compliance with OFAC? (Choose three.) A. - File by September 30th of each year a comprehensive report on all blocked property held as of June 30 of the current year. B. - Immediately cease communications with any person who appears on the SDN list. C. - Notify OFAC within 10 days of any blocked or rejected transactions. D. - Freeze or reject all funds and transactions of persons on the SDN

A. - File by September 30th of each year a comprehensive report on all blocked property held as of June 30 of the current year. C. - Notify OFAC within 10 days of any blocked or rejected transactions. D. - Freeze or reject all funds and transactions of persons on the SDN

An investment adviser manages performance-based and asset-based fee accounts. Trade allocation of IPO shares could result in which TWO potential conflicts of interest? (Choose two.) A. - Higher fees B. - Scalping C. - Frontrunning D. - Preferential treatment of certain clients

A. - Higher fees D. - Preferential treatment of certain clients

Which THREE types of clients can be charged performance-based fees under the Investment Advisers Act of 1940? (Choose three.) A. - Mutual funds having more than $1 million in managed assets. B. - Hedge funds established under Investment Company Act Section 3(c)(7) (exemption for private funds). C. - Natural persons having $500,000 under management with the adviser. D. - Clients with at least $1,000,000 under management with the adviser or a minimum net worth of $2 million.

A. - Mutual funds having more than $1 million in managed assets. B. - Hedge funds established under Investment Company Act Section 3(c)(7) (exemption for private funds). D. - Clients with at least $1,000,000 under management with the adviser or a minimum net worth of $2 million.

What are advisers required to report to the Financial Crimes Enforcement Division (FinCEN)? A. - One cash transaction OR two or more related cash transactions totaling more than $10,000. B. - Frequent transactions that are not consistent with client's objectives or net worth.C. - A potential client's refusal to provide personally identifying information. D. - Each instance in which clients request a copy of their anti-money laundering file.

A. - One cash transaction OR two or more related cash transactions totaling more than $10,000.

Which TWO types of supervised persons are also considered access persons? (Choose two.) A. - Passive directors and officers of the RIA. B. - Persons serving as directors of an affiliate of the adviser. C. - Third-party service provider who provides exception reporting to the RIA. D. - Back office personnel who input client new account information into the firm's client management programs and enter trades, but do not talk to clients.

A. - Passive directors and officers of the RIA. D. - Back office personnel who input client new account information into the firm's client management programs and enter trades, but do not talk to clients.

Investment Advisory Firm A refers a client to Investment Advisory Firm B for a fee. Which TWO documents would Firm A be required to provide to the client? (Choose two.) A. - The solicitor's disclosure document. B. - A copy of Adviser B's compliance policies and procedures. C. - A written copy of Adviser B's code of ethics. D. - The Adviser B's Form ADV Part 2.

A. - The solicitor's disclosure document. D. - The Adviser B's Form ADV Part 2.

Under the Compliance Program Rule, an adviser must create which THREE of the following records? (Choose three.) A. - Workpapers of annual review B. - Written report of annual review C. - Amendments to written policies and procedures D. - Written policies and procedures

A. - Workpapers of annual review C. - Amendments to written policies and procedures D. - Written policies and procedures

Adviser is owned by Local Bank. All of Adviser's clients use Local Bank to custody the assets in their advisory accounts. Pete is Chief Operating Officer (COO) of both Adviser and Local Bank. Which statement is TRUE? Adviser is: A. - required to get a surprise annual audit and Local Bank is required to provide an internal control report. B.- not required to get a surprise annual audit but Local Bank is required to provide an internal control report. C.- required to get a surprise annual audit but Local Bank is not required to provide an internal control report. D - not required to get a surprise annual audit but Local Bank is required to get a surprise annual audit.

A. - required to get a surprise annual audit and Local Bank is required to provide an internal control report.

Which situation would trigger a violation of the SEC Pay-to-Play Rule? A. A covered associate makes a $500 campaign contribution to an elected official, who has influence in selecting advisers for a government plan which the individual is also soliciting as an advisory client. B. A covered associate makes a campaign contribution of $50 to the Comptroller for the State of New York. C. An investment advisory firm pays another registered investment adviser to solicit government clients on its behalf. D. An investment adviser directs its counsel to make a campaign contribution of $200 to a government elected official responsible for selecting investment advisers.

A. A covered associate makes a $500 campaign contribution to an elected official, who has influence in selecting advisers for a government plan which the individual is also soliciting as an advisory client.

The Investment Advisers Act of 1940 requires an adviser to maintain proof of the client's receipt of the disclosure brochure for which type of client? A. A prospective client solicited by an outside solicitor. B. An investment company client. C. A client who receives only impersonal advisory services. D. A wrap fee program client.

A. A prospective client solicited by an outside solicitor.

Which THREE are considered an advertisement under the SEC Advertising Rule? (Choose three.) A. A radio segment announcing the new location of adviser firm. B. An adviser's quarterly newsletter distributed to current clients. C. A graph of the client's investment performance included on the client's quarterly performance report. D. A reprint of a Wall Street Journal column with comments from several of the adviser's clients.

A. A radio segment announcing the new location of adviser firm. B. An adviser's quarterly newsletter distributed to current clients. D. A reprint of a Wall Street Journal column with comments from several of the adviser's clients.

Which TWO are considered to be best practices when valuing a client's securities holdings? (Choose two.) A. A summary of valuation procedures in the firm's investment management agreement. B. Frequent reviews of valuation information to promptly identify any "stale" valuations. C. Disclosure in Form ADV Part 2 regarding procedures for correction of mis-priced securities. D. Reliance on one of the firm's Portfolio Managers to determine pricing for illiquid securities.

A. A summary of valuation procedures in the firm's investment management agreement. B. Frequent reviews of valuation information to promptly identify any "stale" valuations.

Which THREE activities are required of advisers under the Investment Advisers Act of 1940 Compliance Programs Rule? (Choose three.) A. Adopt and implement written policies and procedures. B. Designate a Chief Compliance Officer. C. Review the policies and procedures on an annual basis. D. Review past SEC deficiency letters.

A. Adopt and implement written policies and procedures. B. Designate a Chief Compliance Officer. C. Review the policies and procedures on an annual basis.

SEC-registered advisers that have proxy voting authority for clients must do which TWO of the following? (Choose two.) A. Adopt procedures to ensure proxies are voted in the best interest of clients. B. Disclose to clients information about the firm's proxy policies and procedures on Form ADV Part 2. C. Create a proxy voting committee to address conflict situations. D. Provide information to clients on how their proxies were voted.

A. Adopt procedures to ensure proxies are voted in the best interest of clients. D. Provide information to clients on how their proxies were voted.

Which THREE situations require an SEC-registered adviser to disclose in Form ADV Part 2 any financial condition that might impair its ability to meet contractual commitments to clients? (Choose three.) A. Adviser has discretionary authority B. Adviser requires prepayment of more than $1,200 in fees per client, six months or more in advance C. Adviser has custody of client funds or securities D. Adviser has custody of client assets and has received a qualified opinion from its public accountant

A. Adviser has discretionary authority B. Adviser requires prepayment of more than $1,200 in fees per client, six months or more in advance C. Adviser has custody of client funds or securities

What does the SEC Investment Adviser Codes of Ethics Rule require access persons to submit? A. An annual holdings report that must be current within 45 days of submission. B. Quarterly transaction reports within 10 days of quarter end. C. A certification that the employee does not hold any private placements. D. A request for pre-approval of all brokers used.

A. An annual holdings report that must be current within 45 days of submission.

Which situation would trigger a violation of the SEC Pay-to-Play Rule? A. An individual who has become a covered associate within the last three months makes a $1,000 contribution to an elected official, whom the individual is also soliciting as an advisory client. B. An investment adviser makes a contribution of $50.00 to a government elected official responsible for selecting investment advisers. C. An investment adviser directs its counsel to make a contribution of $50.00 to a government elected official responsible for selecting investment advisers. D. An investment advisory firm pays another registered investment adviser to solicit government clients on its behalf.

A. An individual who has become a covered associate within the last three months makes a $1,000 contribution to an elected official, whom the individual is also soliciting as an advisory client.

Which TWO of the following advisory clients are eligible to be charged a performance-based fee? (Choose two.) A. An individual with $1 million under the adviser's management. B. A registered investment company with $500,000 under management. C. An individual with $750,000 under the adviser's management, and a primary residence worth $1.5 million. D. An individual with a net worth of $2 million, excluding the primary residence.

A. An individual with $1 million under the adviser's management. D. An individual with a net worth of $2 million, excluding the primary residence.

Under the Investment Advisers Act of 1940, an investment adviser is restricted from paying referral fees to unaffiliated solicitors UNLESS the adviser complies with which THREE requirements? (Choose three.) A. Any cash fee is paid pursuant to a written agreement. B. The solicitor is not subject to statutory disqualification. C. The solicitor discloses all disciplinary history with respect to activities regulated under the securities laws. D. The client must be provided with a written solicitor's disclosure statement and the adviser's brochure.

A. Any cash fee is paid pursuant to a written agreement. B. The solicitor is not subject to statutory disqualification. D. The client must be provided with a written solicitor's disclosure statement and the adviser's brochure.

Which TWO records must be maintained under the recordkeeping requirements of the Advisers Act Compliance Programs Rule? (Choose two.) A. Any records created that document the investment adviser's annual review. B. Records documenting the Chief Compliance Officer's compensation agreement. C. A copy of the Chief Compliance Officer's credentials. D. A copy of the investment adviser's policies and procedures.

A. Any records created that document the investment adviser's annual review. D. A copy of the investment adviser's policies and procedures.

Which THREE items must be included on an order memorandum as required by the Books and Records Rule under the Investment Advisers Act of 1940? (Choose three.) A. Date the order was entered with the broker. B. Name of the individual entering the order. C. Identification of discretionary/non-discretionary authority. D. Name of the exchange involved.

A. Date the order was entered with the broker. B. Name of the individual entering the order. C. Identification of discretionary/non-discretionary authority.

Some of adviser's clients have directed that certain brokers be used to trade for their accounts. When executing similar transactions for non-directed and directed business, the adviser should: A. Ensure its order of transactions is consistent with its disclosure B. Promise to receive equal execution for non-directed and directed business C. Always execute directed transactions first D. Consider which client's accounts need improved performance

A. ensure its order of transactions is consistent with its disclosure

An SEC-registered adviser compensates an independent accounting firm for client referrals. Which TWO statements are TRUE? (Choose two.) A. Disclosure must reflect the nature of the fee paid to the accounting firm. B. Disclosures relating to the arrangement need only be made if material. C. Potential advisory registration requirements exist for the accounting firm. D. An oral agreement is sufficient between the adviser and the accounting firm.

A. Disclosure must reflect the nature of the fee paid to the accounting firm. C. Potential advisory registration requirements exist for the accounting firm.

Which of the following statements is FALSE? A. In a soft dollar arrangement, an adviser always receives research services produced by a third party whom the broker-dealer pays. B. Soft dollar arrangements that fail to comply with the Section 28(e) safe harbor are not prohibited under the Investment Advisers Act of 1940. C. Riskless principal transactions may be used to generate soft dollar commissions. D. Soft dollars may not be used to correct trade errors in client accounts.

A. In a soft dollar arrangement, an adviser always receives research services produced by a third party whom the broker-dealer pays.

Which TWO does the SEC Codes of Ethics Rule require of a new employee when submitting an Initial Holdings Report? (Choose two.) A. Initial Holdings Report submission within 10 days of becoming an access person. B. The name of each bank or broker custodying the securities. C. Holdings and pricing information no older than 90 days from the date of hire. D. A list of all security holdings whether they are reportable or not for purposes of personal securities transaction reporting.

A. Initial Holdings Report submission within 10 days of becoming an access person. B. The name of each bank or broker custodying the securities.

An adviser's valuation procedures should, practically speaking, be prepared with the LEAST attention to: A. Large cap stocks B. Illiquid investments C. Foreign issues D. Micro cap stocks

A. Large cap stocks

To fall within the Section 28(e) safe harbor of the Securities Exchange Act of 1934, which TWO activities are an investment adviser required to do if it pays higher commissions in order to receive soft dollar products? (Choose two.) A. Make a good faith determination that commissions paid are reasonable for products received. B. Make disclosure in Form ADV Part 2 regarding its soft dollar practices. C. Document mixed use allocations in writing. D. Ensure that research is used to benefit all client accounts.

A. Make a good faith determination that commissions paid are reasonable for products received. B. Make disclosure in Form ADV Part 2 regarding its soft dollar practices.

In the final release adopting the Compliance Programs Rules, the SEC indicated which TWO are required of the individual designated as Chief Compliance Officer (CCO)? (Choose two.) A. Must be competent and knowledgeable regarding the Investment Advisers Act of 1940. B. Must oversee SEC examinations of the adviser. C. Must be empowered to enforce the written policies and procedures. D. Must be conversant with the federal securities laws.

A. Must be competent and knowledgeable regarding the Investment Advisers Act of 1940. C. Must be empowered to enforce the written policies and procedures.

Adviser is being examined by the SEC in September. The SEC Examiner asks Adviser to provide financial records for the year to date. Adviser provides all records for the first two quarters, but informs the examiner that the firm updates its financial records quarterly, and cannot provide trial balances for July and August. Is the Examiner likely to conclude that Adviser's books and records are current? A. No, because the SEC's position is that financial records should be updated promptly. B. Yes, because the Books and Records rule is silent on when records should be updated. C. No, because the SEC's position is that financial records should be updated weekly. D. Yes, because financial records are not mentioned in the books and records rules of the Investment Advisers Act of 1940.

A. No, because the SEC's position is that financial records should be updated promptly.

Under the SEC Investment Adviser Codes of Ethics Rule, access persons must obtain pre-approval for which TWO types of personal securities transactions? (Choose two.) A. Participation in private placements. B. Trades in securities held in clients' accounts. C. Acquisition of securities in IPOs. D. Mutual fund purchases if the adviser acts as adviser for the fund.

A. Participation in private placements. C. Acquisition of securities in IPOs.

Prior to entering an aggregated trade order, an adviser should do which of the following pursuant to the SMC No-Action letter? A. Prepare a written allocation statement. B. Obtain the written consent of each client participating in the aggregated order prior to entering each aggregated order. C. Obtain a blanket consent from each client participating in aggregated orders at the inception of the advisory relationship. D. Ensure that an affiliated broker is not used for execution of the aggregated order.

A. Prepare a written allocation statement.

What are the basic requirements for addressing violations in policies and procedures under the Investment Advisers Act and Investment Company Act Compliance Programs Rules? A. Prevent, detect, correct B. Collect, inspect, affect C. Infer, deter, procure D. Design, align, refine

A. Prevent, detect, correct

Which statement is TRUE about disclosing a firm's disciplinary history in Form ADV Part 1A? A. SEC-registered investment advisers may limit their disclosure of any disciplinary event to 10 years following the date of the event. B. State-registered investment advisers may limit their disclosure of any disciplinary event to 10 years following the date of the event. C. Investment advisers are not required to disclose a prior bankruptcy petition to clients. D. SEC-registered investment advisers are required to report arbitration claims.

A. SEC-registered investment advisers may limit their disclosure of any disciplinary event to 10 years following the date of the event.

Which statement is TRUE with regard to a directed brokerage relationship? A. Specific Form ADV disclosure must be made as a result. B. The investment adviser is relieved of its fiduciary duties. C. Directed transactions must always be executed first. D. Soft dollar credits falling within Exchange Act Section 28(e) are prohibited.

A. Specific Form ADV disclosure must be made as a result.

Which THREE statements are TRUE regarding an SEC-registered investment adviser's annual review of its policies and procedures? (Choose three.) A. The adviser should keep any records documenting the annual review. B. The annual review should assess the effectiveness of the adviser's policies and procedures. C. The annual review should include a determination of the adequacy of the adviser's policies and procedures. D. The annual review must be conducted by the adviser's Chief Compliance Officer.

A. The adviser should keep any records documenting the annual review. B. The annual review should assess the effectiveness of the adviser's policies and procedures. C. The annual review should include a determination of the adequacy of the adviser's policies and procedures.

Which was NOT identified as a requirement for an investment adviser that intends to allocate an investment opportunity to a proprietary account in a block trade with other client accounts? A. The adviser's compliance officer must approve the order in writing. B. The adviser will prepare, prior to entering the order, a written allocation statement. C. Transaction costs for the order will be shared pro-rata based on each client's participation in the transaction. D. The adviser will identify that the block trade is consistent with its duty to achieve best execution.

A. The adviser's compliance officer must approve the order in writing.

Which THREE are required under directed brokerage disclosures in Form ADV Part 2? (Choose three.) A. The adviser's inability to obtain volume discounts. B. Conflicts arising from referral arrangements with the directed broker. C. The commission schedule of the broker. D. The potential disparity in commissions among clients.

A. The adviser's inability to obtain volume discounts. B. Conflicts arising from referral arrangements with the directed broker. D. The potential disparity in commissions among clients.

Which THREE situations would require an investment adviser to disclose to the client that best execution might NOT be achieved? (Choose three.) A. The client has instructed the investment adviser to direct brokerage to a certain broker-dealer. B. The investment adviser pays up for research and other soft dollar benefits. C. The investment adviser requires the client to direct brokerage to a certain broker-dealer. D. The investment adviser manages the client's portfolio on a discretionary basis.

A. The client has instructed the investment adviser to direct brokerage to a certain broker-dealer. B. The investment adviser pays up for research and other soft dollar benefits. C. The investment adviser requires the client to direct brokerage to a certain broker-dealer.

In which THREE circumstances is an adviser deemed to have custody under the SEC Custody Rule? (Choose three.) A. The investment adviser is mistakenly sent a check payable to the client and returns it to the sender within five business days of receipt. B. The investment adviser deducts advisory fees from the client's account with the client's prior written consent. C. The investment adviser takes possession of a check drawn by the client that is payable to a third party. D. The investment adviser acts as one of three or more trustees in regards to an advisory client's account.

A. The investment adviser is mistakenly sent a check payable to the client and returns it to the sender within five business days of receipt. B. The investment adviser deducts advisory fees from the client's account with the client's prior written consent. D. The investment adviser acts as one of three or more trustees in regards to an advisory client's account.

Under the Investment Advisers Act of 1940, no person shall be deemed to have failed to reasonably supervise any person when which THREE are TRUE? (Choose three.) A. The supervisor reasonably believes the procedures are being followed. B. Compliance procedures have been established. C. A system has been established for applying procedures, which would prevent and detect violations, as practicable. D. The Chief Compliance Officer (CCO) reports directly to the firm's Chief Executive Officer (CEO).

A. The supervisor reasonably believes the procedures are being followed. B. Compliance procedures have been established. C. A system has been established for applying procedures, which would prevent and detect violations, as practicable.

On which TWO occasions would directing trades to a specific broker-dealer in return for soft dollar products/research fall within the Securities Exchange Act of 1934 Section 28(e) safe harbor? (Choose two.) A. When the adviser has investment discretion over the accounts that are traded to generate soft dollar credits. B. When soft dollar credits are generated pursuant to commodity trades placed by the adviser. C. When the research is also used to benefit accounts that are not traded to generate soft dollar credits. D. When there is a binding agreement in place between the adviser and the broker-dealer.

A. When the adviser has investment discretion over the accounts that are traded to generate soft dollar credits. C. When the research is also used to benefit accounts that are not traded to generate soft dollar credits.

Investment Adviser's President serves on the board of directors of XYZ, a publicly traded company. Adviser has approved the separate employment, established and tested a Chinese Wall to prevent information flowing between Adviser and XYZ, and has adopted a policy that it will not hold XYZ stock in client portfolios. In drafting its client disclosures, must Adviser disclose the President's relationship with XYZ? A. Yes, by disclosing the conflict and Adviser's procedures. B. Yes, but only in the Adviser's code of ethics. C. No, the conflict has been resolved. D. No, Adviser will not recommend XYZ to clients.

A. Yes, by disclosing the conflict and Adviser's procedures.

As used in the Clover Capital SEC no-action letter, the term "model" portfolio refers to: A. a hypothetical portfolio managed in real time. B. a hypothetical portfolio derived by applying current strategies to past results. C. all client portfolios in the same style that have no material restrictions. D. a single client portfolio that has no restrictions.

A. a hypothetical portfolio managed in real time.

Under the SEC Custody Rule, an adviser is NOT subject to a surprise annual examination by a qualified accounting firm if the: A. adviser directly debits advisory fees from clients' custodial accounts. B. adviser is granted general power of attorney by advisory clients. C. adviser or certain of adviser's employees serve as trustees to advisory clients. D. adviser provides bill-pay services to advisory clients.

A. adviser directly debits advisory fees from clients' custodial accounts.

ABC Advisers has a website, www.ABCAdvisers.com. The website includes the language: "ABC Advisers, a Registered Investment Adviser, provides financial planning and asset management services. The President of ABC Advisers, Fred Johnson, has 25 years of investment management experience. For a free consultation, please call ABC Advisers, RIA, at 800-555-0000." Which is a TRUE statement? ABC Advisers: A. cannot use the initials "RIA." B. cannot advertise via a website. C. must specify if it is SEC- or state-registered. D. cannot offer free services.

A. cannot use the initials "RIA."

In determining materiality for purposes of disclosing disciplinary information in Form ADV Part 2, all of the following are considered EXCEPT the: A. degree of internal control weakness surrounding the event. B. severity of the disciplinary sanctions. C. nature of the infraction that lead to the disciplinary event. D. proximity of the person to the investment function.

A. degree of internal control weakness surrounding the event.

An adviser runs a newspaper advertisement that contains the following statement from a client: "Your financial planning seminar changed my life." This advertisement is: A. prohibited because it contains a testimonial. B. permissible because the client is not named. C. prohibited because it does not disclose the possibility of loss. D. prohibited because the quote does not mention the client's performance.

A. prohibited because it contains a testimonial.

Which event would be deemed an assignment of an investment advisory contract? A. An adviser hires a new CEO to replace its current retiring CEO. B. An adviser is purchased by an unaffiliated adviser. C. Any public offering of an adviser's stock. D. An adviser organized as a corporation changes its structure to a partnership.

B. An adviser is purchased by an unaffiliated adviser

Which of the following should NOT be a factor when evaluating best execution? A. Price B. Transaction costs C. Availability of affiliated brokerage services D. Service and execution capability

C. Availability of affiliated brokerage services

When using an outside solicitor to obtain clients, the investment adviser is required to obtain which document PRIOR to executing an advisory contract? A. - A statement from the client supplying the name and address of the previous investment adviser. B. - A signed and dated client acknowledgment of receipt of required disclosures. C. - A written description of the client's investment objectives. D. - A copy of the client's last custodial statement listing all marketable securities.

B. - A signed and dated client acknowledgment of receipt of required disclosures.

Which TWO statements accurately describe an adviser's obligations regarding trade errors? (Choose two.) A - Adviser must notify client promptly when error occurs. B. - Adviser must make the client whole. C. - Adviser may not use soft dollars to correct error. D. - Adviser has 30 days to correct the error.

B. - Adviser must make the client whole. C. - Adviser may not use soft dollars to correct error.

How can an investment adviser address material conflicts of interest as they relate to proxy voting? A. - Appoint an investment analyst to vote proxies on behalf of clients. B. - Delegate responsibility for voting proxies to a proxy voting service. C. - Delegate responsibility for voting proxies to an adviser who has a business relationship with a board member of a company. D. - Instruct portfolio manager to vote proxies in accordance with management direction.

B. - Delegate responsibility for voting proxies to a proxy voting service.

If an investment adviser has proxy voting authority, which record is NOT required to be maintained? A. - Records of written requests for proxy voting information. If an investment adviser has proxy voting authority, which record is NOT required to be maintained? A. - Records of written requests for proxy voting information. B. - Evidence of annual offer of proxy policies and procedures. C. - Proxy statements received for client securities. D. - Records of votes cast on behalf of clients.

B. - Evidence of annual offer of proxy policies and procedures.

According to the SEC Books and Records Rule, which length of time must advisers who use performance data in their advertisements maintain the advertisements and all data supporting the performance figures? A. - Five years after the end of the calendar year in which the advertisement/performance was last disseminated. B. - Five years after the end of the fiscal year in which the advertisement/performance was last disseminated. C. - Ten years after the end of the fiscal year in which the advertisement/performance was last disseminated. D. - Ten years after the end of the calendar year in which the advertisement/performance was last disseminated.

B. - Five years after the end of the fiscal year in which the advertisement/performance was last disseminated.

Adviser is actively looking for state and local government clients. According to the SEC Pay-to-Play Rule, which THREE would be considered a covered associate and therefore be subject to the Pay-to-Play prohibition(s)? (Choose three.) A. - The spouse of the CEO of Adviser. B. - Individuals who solicit government clients for Adviser. C. - The marketing manager for Adviser. D. - A political action committee that is controlled by the CEO of Adviser.

B. - Individuals who solicit government clients for Adviser. C. - The marketing manager for Adviser. D. - A political action committee that is controlled by the CEO of Adviser.

Which THREE reasons make it important for an investment adviser to maintain updated client suitability information? (Choose three.) A. - It prevents litigation resulting from aggressive investment techniques. B. - It facilitates the investment adviser in meeting its regulatory obligations. C. - It assists the investment adviser in meeting its fiduciary obligations. D. - It aids the investment adviser in detecting and preventing money laundering activities.

B. - It facilitates the investment adviser in meeting its regulatory obligations. C. - It assists the investment adviser in meeting its fiduciary obligations. D. - It aids the investment adviser in detecting and preventing money laundering activities.

Under the SEC Investment Adviser Codes of Ethics Rule, all are reportable securities EXCEPT: A. - Foreign issuers B. - Money market funds C. - Exchange listed securities D. - Proprietary mutual funds

B. - Money market funds

An investment adviser claims in its disclosure brochure that: "The information in this brochure has been approved by the SEC." Which provision under the Investment Advisers Act of 1940 is violated by this claim? A. - Fiduciary duty B. - The Anti-fraud Rule C. - The Codes of Ethics Rule D. - The Brochure Rule

B. - The Anti-fraud Rule

A Chief Compliance Officer (CCO) who has supervisory responsibility has adopted procedures "reasonably designed" to prevent and detect violations of the securities laws. A system is in place for applying those procedures and the CCO has reasonably discharged those supervisory responsibilities in accordance with the procedures. The CCO was not aware that a supervised person was not complying with the procedures. If the SEC were to conduct an investigation, what would be the MOST likely outcome? A. - The CCO shall be suspended from future activity in a supervisory capacity. B. - The CCO shall not be deemed to have failed to reasonably supervise. C. - The CCO shall be deemed to have failed to adequately assess the risk exposure for the firm. D. - The CCO will be deemed to have failed reasonably to supervise.

B. - The CCO shall not be deemed to have failed to reasonably supervise.

The annual review requirement under the Investment Company Act Compliance Programs Rule requires which TWO actions? (Choose two.) A. - A fund board must conduct the annual review. B. - The Chief Compliance Officer must submit a report documenting the review to the fund board. C. - The Chief Compliance Officer must submit a report documenting the review to the service providers. D. - A fund must review its service providers' policies and procedures annually.

B. - The Chief Compliance Officer must submit a report documenting the review to the fund board. D. - A fund must review its service providers' policies and procedures annually.

An SEC-registered adviser must provide a Form ADV Part 2A Firm Brochure to which TWO clients? (Choose two.) A. - A subscriber to the SEC-registered adviser's monthly financial planning newsletter. B. - The general partner of a hedge fund to which the SEC-registered adviser provides portfolio management services. C. - A 401K plan to which the SEC-registered adviser provides pension consulting services. D. - A mutual fund registered under the Investment Company Act of 1940 to which the SEC-registered adviser provides sub-advisory services.

B. - The general partner of a hedge fund to which the SEC-registered adviser provides portfolio management services. C. - A 401K plan to which the SEC-registered adviser provides pension consulting services.

What is the PRIMARY reason the SEC requires investment advisers to file an annual updating amendment to Form ADV Part 1A? A. - To pay renewal fees for the adviser and the investment adviser representatives. B. - To reaffirm eligibility for the investment adviser to remain registered with the SEC. C. - To monitor the increase and/or decrease in the number of clients being advised. D. - To report any material changes in the investment adviser that occurred during the year.

B. - To reaffirm eligibility for the investment adviser to remain registered with the SEC.

Sam Jones is the Chief Investment Officer and Chief Executive Officer of Smith Family Advisers, LLC. Smith Family Advisers, LLC currently manages $250 million in securities. All of the clients of Smith Family Advisers, LLC are members of the Smith family, and prior to last year, the firm was entirely owned by members of the Smith family. Last year, in recognition of Sam's long service and sound advice, the managing members of Smith Family Advisers, LLC gave Sam a 5% interest in Smith Family Advisers, LLC. Is Smith Family Advisers, LLC required to register with the SEC? A. - No, because Sam owns less than 25% of Smith Family Advisers. B. - Yes, because Sam is not a member of the Smith family. C. - Yes, because Sam is listed as a "Control Person" on Schedule A. D. - No, because family offices are not required to register.

B. - Yes, because Sam is not a member of the Smith family.

An SEC-registered investment adviser is NOT required to disclose "material" disciplinary information in its Form ADV Part 1 after: A. 5 years B. 10 years C. 12 years D. 15 years

B. 10 years

An investment adviser stopped advertising its small cap composite performance in 2004. It must maintain all worksheets used to calculate that performance through year end: A. 2006 B. 2009 C. 2014 D. 2015

B. 2009

An investment adviser manages accounts for: Mark Brown; Mark's wife Beth; Beth's IRA; Brown Industries, a firm entirely owned by Mark; the Brown Industries 401(k) plan; and two educational accounts for each of Mark and Beth's minor children.Under the Investment Advisers Act of 1940, how many "clients" does the adviser have? A. 2 B. 3 C. 6 D. 7

B. 3

What BEST describes how a wrap fee program charges fees? A. An investment management fee bundled with custody fees. B. A bundled fee covering advice and execution costs. C. A negotiated fee. D. A brokerage commission based on the number of transactions.

B. A bundled fee covering advice and execution costs.

An investment adviser is required to maintain which THREE records in connection with its code of ethics? (Choose three.) A. An electronic database of access persons' personal trading records. B. A record of violations of the code. C. A list of access persons. D. A copy of each supervised person's acknowledgement of receipt of the code.

B. A record of violations of the code. C. A list of access persons. D. A copy of each supervised person's acknowledgement of receipt of the code.

Which TWO examples constitute the SEC's definition of custody under the Investment Advisers Act of 1940? (Choose two.) A. An investment adviser inadvertently receives client funds and returns them to the sender within 48 hours of receiving them. B. An investment adviser acts as sole trustee of a trust in which the advisory client is beneficiary. C. An investment adviser forwards securities certificates on behalf of its client via overnight delivery. D. An investment adviser receives a check drawn by a client made payable to a third party.

B. An investment adviser acts as sole trustee of a trust in which the advisory client is beneficiary. C. An investment adviser forwards securities certificates on behalf of its client via overnight delivery.

Which TWO are included in the definition of an "advisory affiliate" in Form ADV Part 1A? (Choose two.) A. A broker-dealer with whom advisory personnel are registered as representatives. B. Any person performing similar functions as an adviser's officers, partners, or directors. C. All employees directly or indirectly controlled by an adviser within the most recent two years. D. All persons directly or indirectly controlling or controlled by an adviser.

B. Any person performing similar functions as an adviser's officers, partners, or directors. D. All persons directly or indirectly controlling or controlled by an adviser.

Which is NOT required when an investment adviser wants to engage in a riskless principal transaction with a client using an affiliated broker-dealer? A. Approval from the client prior to settlement of the trade. B. Approval from the client prior to execution of the trade. C. Sufficient disclosure to enable the client to give informed consent. D. Sufficient Form ADV Part 2 disclosure on principal transactions.

B. Approval from the client prior to execution of the trade.

The duty of an investment adviser to seek best execution for client securities transactions is derived from which of the following? A. Investment Advisers Act of 1940 Interpretative Releases B. Common Law Fiduciary Principles C. Securities and Exchange Act of 1934 D. The Investment Company Act of 1940

B. Common Law Fiduciary Principles

Which activity is NOT a retention requirement of the Books and Records Rule under the Investment Advisers Act of 1940? A. All books and records must be maintained and preserved in an easily accessible place for five years from the end of the fiscal year in which the record was created. B. Corporate records must be maintained with the attorney of record. C. All records must be maintained for the first two years in an appropriate office of the adviser. D. Duplicate copies of any electronic records must be maintained.

B. Corporate records must be maintained with the attorney of record.

Dewey Cheatem & Howe Advisers ("DCH") is investment adviser to two hedge funds formed as 3(c)(1) feeder funds. The General Partner of DCH and each of the two funds is XYZ Advisors LP, which owns 100% of DCH and has a 30% ownership interest in each of the two funds. Moreover, an ERISA pension plan has a 5% interest in each of the feeder funds. If DCH wishes to rebalance the allocations of the two funds via an internal cross transaction between the two funds, which of the following is true pursuant to the Gardner Russo No-Action letter? A. DCH has engaged in an agency cross transaction. B. DCH has engaged in a principal transaction. C. DCH has engaged in a prohibited transaction under ERISA. D. DCH has breached its fiduciary duty to the funds.

B. DCH has engaged in a principal transaction.

If an investment adviser becomes ineligible for SEC registration, which document must be filed to terminate its registration? A. Form DRP B. Form ADV-W C. Form ADV Part 2A D. Form U5

B. Form ADV-W

Which TWO qualify as a "security" under the Investment Advisers Act of 1940? (Choose two.) A. Commodity futures B. Limited partnership interests C. Fixed annuities D. Variable annuities

B. Limited partnership interests D. Variable annuities

Which activity is NOT mandated for investment advisers that store required records electronically? A. Providing the SEC with prompt access, retrieval, and reproduction. B. Maintaining copies of all electronically stored records using WORM format. C. Arranging and indexing records to provide easy access and retrieval. D. Developing procedures to preserve and maintain records.

B. Maintaining copies of all electronically stored records using WORM format.

Pursuant to the Securities Exchange Act of 1934, Section 13(f) securities that must be reported on Form 13F generally include each of the following EXCEPT: A. Exchange-traded securities B. Mutual funds C. Exchange-traded funds D. NASDAQ-quoted securities

B. Mutual funds

Investment Adviser's trade allocation procedures allow for an allocation to be changed post-trade if it is in the best interest of its clients. Security X is appropriate for Adviser's Large Cap and All Cap portfolios. Large Cap accounts are greatly outperforming All Cap accounts. Portfolio Manager wants to use post-trade allocation to direct profitable trades to All Cap clients and unprofitable trades to Large Cap clients. Is this practice consistent with Adviser's duty to its clients? A. Yes, because balancing performance among many clients is consistent with Adviser's fiduciary duty. B. No, because Adviser is favoring a particular group of clients. C. Yes, because all clients must be treated fairly. D. No, because allocations may not be made post-trade.

B. No, because Adviser is favoring a particular group of clients.

Investment Adviser manages portfolios of illiquid stocks. Adviser permits its access persons to trade in securities also held in client accounts. Adviser collects records of personal transactions at the end of each calendar quarter. Compliance Officer discovers that Portfolio Manager has historically been purchasing securities for her disclosed accounts that rightfully belonged in client accounts. Portfolio Manager is disciplined and affected clients are made whole. Has Adviser met its duty to supervise? A. No, because pre-clearance of all trades is required by the SEC Codes of Ethics Rule. B. No, because personal trading procedures were inadequate. C. Yes, because the Portfolio Manager was not a principal of the firm. D. Yes, because Adviser met all books and records requirements.

B. No, because personal trading procedures were inadequate.

According to Investment Company Act of 1940 Rule 3a-4 (Status of Investment Advisory Programs), which TWO activities is an adviser required to do? (Choose two.) A. Notify clients monthly of any investment changes to the model portfolio. B. Notify the client in writing at least quarterly to contact the adviser if suitability information has changed. C. Develop an Investment Policy Statement (IPS) for a client within two weeks of initial investment. D. Make a best effort attempt to contact the client to update suitability information at least annually.

B. Notify the client in writing at least quarterly to contact the adviser if suitability information has changed. D. Make a best effort attempt to contact the client to update suitability information at least annually.

The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may occur: A. Only on a rotational basis B. On a pro rata basis but other allocation methods can be used without violating the Advisers Act C. Only on a pro rata basis D. Based on the trader's good faith discretion

B. On a pro rata basis but other allocation methods can be used without violating the Advisers Act

Which THREE persons or firms may be excluded from having to register under the Investment Advisers Act of 1940? (Choose three.) A. Accountants whose advisory services pertain solely to incidental financial planning. B. Persons or firms whose advice and reports are related solely to U.S. government securities. C. Publishers of generally circulated, bona fide newspapers or financial journals. D. Domestic banks and bank holding companies.

B. Persons or firms whose advice and reports are related solely to U.S. government securities. C. Publishers of generally circulated, bona fide newspapers or financial journals. D. Domestic banks and bank holding companies.

Which TWO are potential conflicts of interest that must be fully disclosed to clients? (Choose two.) A. President has an unpaid position as membership chair of local charity. B. President serves on the Board of Directors of a publicly traded company. C. President is married to bond trader at another adviser. D. President follows the same investment advice he gives clients.

B. President serves on the Board of Directors of a publicly traded company. D. President follows the same investment advice he gives clients.

ABSENT an exemption, Regulation S-P PROHIBITS the sharing of nonpublic personal information with any non-affiliated third party unless the firm performs which TWO actions? (Choose two.) A. Documents its privacy notice on its website in a clear and conspicuous manner. B. Provides an opt-out notice for consumers or customers. C. Provides notice of its privacy policy. D. Provides consumers with a privacy compliance checklist.

B. Provides an opt-out notice for consumers or customers. C. Provides notice of its privacy policy

An investment advisory firm is closing its business. What should the firm do with its corporate and organizational documents after termination of the firm entity? A. Retain the documents in an easily accessible place of which the SEC has been notified for five years. B. Retain the documents in an easily accessible place of which the SEC has been notified for three years. C. Dispose of the documents in a prudent manner, ensuring the personal identifying information is destroyed. D. Retain the documents for five years, two of which must be in an easily accessible place.

B. Retain the documents in an easily accessible place of which the SEC has been notified for three years.

XYZ Investment Adviser has been found to have engaged in numerous prohibited activities. Which THREE measures may the SEC impose? (Choose three.) A. Criminal indictment B. Revocation of registration C. Suspension D. Censure

B. Revocation of registration C. Suspension D. Censure

A portfolio manager actively trades securities in her personal account that are also held in client accounts that she manages. The Chief Compliance Officer is aware of this and should track which TWO activities, according to best practices? (Choose two.) A. Failing to provide required disclosure in connection with directed brokerage arrangements. B. Taking investment opportunities from a client for the manager's benefit. C. Effecting agency cross transactions. D. Frontrunning.

B. Taking investment opportunities from a client for the manager's benefit. D. Frontrunning.

Who determines the designation and compensation of an investment company's Chief Compliance Officer (CCO)? A. Senior management of the investment company. B. The investment company's board. C. The investment company's CEO. D. The investment company's CFO.

B. The investment company's board.

Which requirement differentiates the Investment Advisers Act from the Investment Company Act Compliance Program Rules? A. The requisite level of competency of the Chief Compliance Officer. B. The requirement for the Chief Compliance Officer to meet annually in executive session with the Board. C. The design and implementation of written policies and procedures. D. The requirement for an annual review of the compliance program.

B. The requirement for the Chief Compliance Officer to meet annually in executive session with the Board.

A client directs an adviser to execute securities transactions with ABC Broker. What are adviser's obligation(s) in trading for this client? A. To consider ABC Broker when conducting client's transactions B. To execute all of client's transactions with ABC Broker C. To execute some of client's transactions with ABC Broker regardless of best execution D. To execute all of client's transactions with ABC Broker, consistent with the adviser's duty to achieve best execution

B. To execute all of client's transactions with ABC Broker

Which THREE are consistent with Form ADV amendment requirements under the Investment Advisers Act of 1940? (Choose three.) A. Amend Form ADV Part 1 within three months of a change in control or in executive officers. B. Update Form ADV Part 1 annually and file within 90 days of adviser's fiscal year end. C. File amendments to Form ADV Part 1 electronically via the IARD system. D. Upload Form ADV Part 2 amendments to the SEC via the IARD system.

B. Update Form ADV Part 1 annually and file within 90 days of adviser's fiscal year end. C. File amendments to Form ADV Part 1 electronically via the IARD system. D. Upload Form ADV Part 2 amendments to the SEC via the IARD system.

SEC Privacy Rule (Regulation S-P) requires that an adviser: A. maintain safeguarding policies and procedures in conjunction with service providers. B. adopt written policies and procedures to ensure safeguarding of customer records and information. C. ensure that safeguarding of customer records is addressed in the adviser's Code of Ethics. D. adopt electronic surveillance to ensure safeguarding of customer records and information.

B. adopt written policies and procedures to ensure safeguarding of customer records and information.

The Investment Advisers Act of 1940 requires that written investment advisory agreements must address: A. proxy voting. B. assignment of the contract. C. brokerage arrangements. D. fees.

B. assignment of the contract.

What is TRUE with regard to the written policies and procedures under the scope of the Investment Advisers Act of 1940 Compliance Programs Rule? They must: A. be consolidated into a single document. B. be adequately customized, implemented and supervised. C. include a risk identification discussion. D. be distributed to all employees.

B. be adequately customized, implemented and supervised.

How can a Chief Compliance Officer (CCO) minimize the risk of being deemed a supervisor? By ensuring that: A. the CCO oversees every unit or department as its designated supervisor. B. every unit or department has a formally designated supervisor. C. every unit or department head reports directly to the adviser's CEO as well as the CCO. D. every unit or department head reports compliance breaches directly to the adviser's CEO.

B. every unit or department has a formally designated supervisor.

A Chief Compliance Officer (CCO) at an investment company would be required to provide a written report to the: A. designated SEC regional office. B. fund's board of directors. C. fund's audit committee. D. fund's CEO.

B. fund's board of directors.

Adviser's Chief Executive Officer (CEO) receives a letter from a client. The letter accurately notes that Adviser has achieved "40% returns over the past year". The CEO tells a potential client about this letter on a conference call. The CEO's reference to the letter is: A. a prohibited advertisement because it refers to a client's experience. B. not considered an advertisement. C. a prohibited advertisement because it contains a testimonial. D. a prohibited advertisement because it contains performance data without proper disclosures.

B. not considered an advertisement.

Under the safe harbor provided by Section 28(e) of the Securities and Exchange Act of 1934, a "mixed use" product/service, purchased with soft dollars, most likely refers to which of the following: A. A research newsletter used by analysts B. A computer terminal used only to place client trades C. Portfolio management software used to calculate client returns D. A junket to Pebble Beach for golf

C. Portfolio management software used to calculate client returns

Adviser manages small-cap, large cap and fi portfolios. In a quarterly newsletter to be sent to all clients, Adviser lists the 10 best performing securities in each portfolio. What must Adviser do in order to distribute the newsletter? A - Disclose the criteria used to select the 10 best securities. B - Disclose that Adviser does not imply that it is currently recommending these securities. C - Offer or include a list of all transactions in these portfolios for the past year. D - No additional disclosure is needed since a newsletter is not an advertisement.

C - Offer or include a list of all transactions in these portfolios for the past year.

When aggregating proprietary trades with client trades, an investment adviser must: A. Refrain from allocating orders on a basis different from that specified in the allocation statement. B. Obtain the compliance officer's approval within three business days after the day the order was allocated. C. Prepare, before entering into an aggregated order, a written allocation statement. D. Disclose any additional compensation as a result of the aggregation.

C. Prepare, before entering into an aggregated order, a written allocation statement.

Which statement regarding best execution is FALSE? A. If an investment adviser has a potential conflict of interest in its selection of a broker-dealer to execute securities transactions for its clients, it must disclose this conflict of interest. B. If an investment adviser exclusively uses an affiliated broker-dealer to place client trades, best execution might not be achieved. C. Best execution is measured by commission rate only. D. Advisers should establish criteria to measure execution results.

C. Best execution is measured by commission rate only.

When trading for a client's account, Investment Adviser accidentally instructed the broker to buy 1000 shares of Y at $1.00 per share when Adviser actually wanted to buy 1000 shares of X at $1.00 per share. Adviser realizes its mistake the next day, when Y is trading for $0.95 per share and X is trading for $1.05 per share. Adviser must sell Y and buy for the client: A. - $950 worth of X B. - $1,000 worth of X C. - $1,050 worth of X D. - $1,100 worth of X

C. - $1,050 worth of X

Under which TWO circumstances is an investment adviser required to register with the SEC? (Choose two.) A. - Acting as an adviser solely to church pension plans. B. - Acting as a pension consultant to $40 million in client assets. C. - Acting as adviser to a registered investment company. D. - Providing investment advice exclusively through an interactive website.

C. - Acting as adviser to a registered investment company. D. - Providing investment advice exclusively through an interactive website.

Adviser is registered with the SEC, has its principal place of business in a state that registers investment adviser representatives, and employs three portfolio managers: Tom, Larry and Bill. All of Adviser's clients reside in that state. Tom manages corporate accounts exclusively. Larry manages 50 corporate accounts and also manages the personal portfolios of the presidents of 30 of the corporations whose corporate accounts he manages. Larry imposes a minimum account size of $1 million for these personal portfolios. Bill specializes in providing management services to individuals with a net worth of $1 million or less. He manages 100 portfolios with a median value of $250,000. The state may require investment adviser representative registration of: A. - Larry and Bill B. - No one C. - Bill only D. - Tom, Larry and Bill

C. - Bill only

Adviser is registered with the SEC, has its principal place of business in a state that registers investment adviser representatives, and employs three portfolio managers: Tom, Larry and Bill. All of Adviser's clients reside in that state. Tom manages corporate accounts exclusively. Larry manages 50 corporate accounts and also manages the personal portfolios of the presidents of 30 of the corporations whose corporate accounts he manages. Larry imposes a minimum account size of $1 million for these personal portfolios. Bill specializes in providing management services to individuals with a net worth of $1 million or less. He manages 100 portfolios with a median value of $250,000. The state may require investment adviser representative registration of:A. - Larry and BillB. - No oneC. - Bill onlyD. - Tom, Larry and Bill

C. - Bill only

Which are TWO accepted components of best execution? (Choose two.) A. - Referral arrangements with broker-dealers. B. - Gifts sent to advisers by broker-dealers. C. - Commission rates. D. - Financial stability of the broker-dealer.

C. - Commission rates. D. - Financial stability of the broker-dealer.

An adviser manages portfolios that include both unaffiliated mutual funds and equities. The adviser creates a composite, which includes mutual fund performance that the adviser knows was calculated on a gross-of-fee basis. What must the adviser do? A. - Ensure compliance with Investment Company Act of 1940 requirements. B. - Disclose that the mutual fund performance was not calculated by the adviser. C. - Ensure compliance with Investment Advisers Act of 1940 requirements. D. - Submit the advertisement to The Financial Industry Regulatory Authority (FINRA) for review.

C. - Ensure compliance with Investment Advisers Act of 1940 requirements.

An investment adviser has uncovered a trade error resulting from a block trade. Which activity is considered a breach of fiduciary duty? A. - The adviser reimburses each client for accrued interest resulting from the error. B. - The adviser utilizes an agency cross-transaction to remedy the error. C. - The adviser uses soft dollars to correct the error. D. - The adviser only notifies fee-paying clients of the error.

C. - The adviser uses soft dollars to correct the error.

Adviser manages securities and non-securities investments for four very wealthy clients. Each client's portfolio is as follows: Client 1 - $25 million in securities, $5 million in cash, and $20 million in art Client 2 - $25 million in securities, $5 million in cash, and $25 million in art Client 3 - $25 million in securities, $5 million in cash, and $30 million in art Client 4 - $25 million in securities, $5 million in cash, and $35 million in art How many of these clients can be included in the calculation of Adviser's Regulatory Assets Under Management (RAUM)? A. 1 B. 2 C. 3 D. 4

C. 3

Adviser A hires Portfolio Manager, who had previously been employed by Adviser Z, where he had single-handedly managed several small-cap value portfolios. In order to advertise Portfolio Manager's performance at Adviser Z, Adviser A must ensure that: A. Adviser A only includes the performance of those clients who have moved their accounts to Adviser A. B. Adviser Z has published GIPS-compliant presentations of its small cap portfolios during Portfolio Manager's time there. C. Adviser Z agrees to give Adviser A performance records for all of Portfolio Manager's clients. D. Adviser Z stops offering small cap portfolios.

C. Adviser Z agrees to give Adviser A performance records for all of Portfolio Manager's clients.

States have the authority to require which TWO of the following for SEC-registered advisers? (Choose two.) A. Additional books and records requirements. B. Errors and omissions insurance. C. Advisory notice filing. D. Filing of Form ADV amendments.

C. Advisory notice filing. D. Filing of Form ADV amendments.

Adviser has hired a new Chief Compliance Officer (CCO). CCO immediately begins to revise Adviser's compliance program. However, four of his proposals are rejected by Adviser's Board. Which of the four rejected proposals would indicate that a critical element of a strong CCO may be weakened? A. CCO acting as supervisor for resolving trade errors B. CCO having final approval of new solicitors C. CCO reporting directly to the Board like other chief officers D. CCO becoming a non-voting member of Best Execution Committee

C. CCO reporting directly to the Board like other chief officers

Which is a legitimate reason for EXCLUDING a particular account from receiving a pro rata share of a partially executed aggregated order? A. ERISA accounts received their allocations before non-ERISA accounts. B. Clients with the largest volume of assets under management received the allocations first. C. Client's pro rata allocation did not meet the client's minimum trading lot size. D. Client relationships with the greatest longevity split the partial allocation.

C. Client's pro rata allocation did not meet the client's minimum trading lot size.

Investment advisers are NOT required to deliver a disclosure brochure to which TWO categories of clients? (Choose two.) A. Clients for whom the adviser provides only financial planning services. B. High net worth clients. C. Clients for whom the adviser provides only impersonal advisory services for $500 or less per year. D. Investment company clients.

C. Clients for whom the adviser provides only impersonal advisory services for $500 or less per year. D. Investment company clients.

Which of the following statements is FALSE? A. Trade errors must be resolved for the client's benefit. B. Principal transactions require consent prior to settlement. C. Commissions generated from ERISA plan transactions may never be used to generate soft dollars. D. An adviser's fiduciary duty includes allocating investment opportunities fairly and equitably.

C. Commissions generated from ERISA plan transactions may never be used to generate soft dollars.

Agency cross transactions do NOT require: A. Annual disclosure to advisory clients of the number of agency cross transactions B. Annual disclosure of the total remuneration received by the adviser through agency cross transactions C. Consent from at least two advisory clients D. Disclosures that written consent may be revoked at any time

C. Consent from at least two advisory clients

For which responsibility is the Chief Compliance Officer (CCO) ultimately accountable? A. Draft all written policies and procedures. B. Design and run annual compliance meetings. C. Enforce written policies and procedures and code of ethics. D. Independently test all procedures.

C. Enforce written policies and procedures and code of ethics.

Investment Adviser is introduced to Client by Broker. Client instructs Adviser in writing to place 50% trades in Client's account through Broker "subject to best execution". At the end of the year, Adviser discovers 75% of Client's trades were done through block trades at firms other than Broker's and only 25% of the trades have been placed through Broker. Has Adviser violated its fiduciary duty to Client? A. No, if Broker was not providing additional services to Client. B. Yes, if Broker was providing additional services to Client. C. No, if Adviser obtained more favorable price and service. D. Yes, if Adviser never thought that it would meet Client's target.

C. No, if Adviser obtained more favorable price and service.

When engaging in internal cross transactions (or "cross trading"), where an adviser causes the purchase and sale of securities between two or more client accounts and neither the adviser nor any affiliate receives compensation for effecting the transaction, the adviser should do all of the following EXCEPT: A. Make full disclosure in Form ADV Part 2. B. Ensure that best execution is achieved. C. Obtain the prior written consent of all clients involved in the cross trade. D. Confirm that no client is disfavored by the cross trade.

C. Obtain the prior written consent of all clients involved in the cross trade

Investment Adviser has managed Bob's account for many years. Bob notifies Investment Adviser that he has recently married Kate, and now Kate's three minor children are living with them. What is Investment Adviser required to do? A. Send Kate a copy of the current Form ADV Part 2. B. Meet with Kate to discuss her investment strategy. C. Reassess the suitability of Bob's current investment strategy. D. Count Kate and her children as separate clients

C. Reassess the suitability of Bob's current investment strategy.

An all-cap adviser provides prospective clients with a list of all small-cap securities that were owned by clients since the adviser's initial registration in 1995, including each security's performance. Which violation has occurred? A. Advertisement was not submitted to The Financial Industry Regulatory Authority (FINRA). B. Lack of required performance disclosure. C. Referencing past specific recommendations. D. Advertising back-tested performance.

C. Referencing past specific recommendations.

As defined in Form ADV, all positions would be considered an advisory affiliate EXCEPT the investment advisory firm's: A. Head Trader B. Chief Financial Officer C. Systems Administrator D. Investment Adviser Representative

C. Systems Administrator

An investment adviser allocates trades by creating an alphabetical list of all clients who will participate in a given trade. On one trade, the adviser will allocate trades to clients whose names begin with A, followed by those whose names begin with B, followed by those whose names begin with C, etc. until all clients own the security or the security is no longer available. On the next trade, the adviser reverses this process, starting with clients whose names begin with Z, followed by clients whose names begin with Y, etc. A client whose last name begins with M learns of this procedure and complains to the adviser that he is not being treated fairly. Which statement is correct? A. The client is being treated fairly because objective criteria are being applied consistently. B. The client is not being treated fairly because advisers must use a pro-rata allocation method. C. The client is not being treated fairly because he will never be among the first to trade. D. The client is being treated fairly because he will never be among the last to trade.

C. The client is not being treated fairly because he will never be among the first to trade.

Which example is INSUFFICIENT to support a finding of fraud under the Investment Advisers Act of 1940? A. Directing trades to a broker that refunds back a portion of client commissions to the firm. B. Paying an adviser's operating costs with funds received from a broker for client reimbursements. C. Violating a client's sector guidelines due to capital appreciation in that particular sector. D. Allocating trades to benefit those accounts paying the highest fees or the firm's proprietary account.

C. Violating a client's sector guidelines due to capital appreciation in that particular sector.

An adviser signs an agreement with a client on January 1 and delivers the disclosure brochure at that time. On March 1, the adviser hires a new Chief Financial Officer (CFO) with no outside affiliations. On July 1, the adviser amends its fee schedule. On October 1, the adviser updates the amount of client assets it manages by $50 million. Form ADV Part 2 is updated immediately after each event. When should the investment adviser make actual delivery of an amended brochure? A. Within 30 days of the adviser hiring a new CFO. B. Within 60 days of when the adviser amends its fee schedule. C. Within 120 days of the end of the adviser's fiscal year. D. Promptly, after the adviser updates the amount of client assets it manages.

C. Within 120 days of the end of the adviser's fiscal year.

Investment Adviser manages a portfolio for Mr. Jackson, the President of Jackson Industries, a publicly traded company. Mr. Jackson informs Portfolio Manager that the stock price for Jackson Industries will likely decline in value when the quarterly earnings announcement is made. Portfolio Manager shorts Jackson Industries in his personal account and makes a large profit. Adviser did not require pre-clearance of these trades because Adviser does not hold Jackson Industries in client portfolios. Has Adviser failed to meet its duties under the Advisers Act? A. Yes, because Adviser must pre-clear all trades by portfolio managers. B. No, because it was Mr. Jackson who shared nonpublic information. C. Yes, because Adviser reasonably failed to detect insider trading. D. No, because Mr. Jackson suffered no losses.

C. Yes, because Adviser reasonably failed to detect insider trading.

Sam travels weekly from his Alabama office to Georgia to meet with clients at the local restaurant. Under the Investment Advisers Act of 1940, the restaurant would be considered: A. a convenient meeting place for his clients. B. an office of supervisory jurisdiction. C. a place of business. D. a principal place of business.

C. a place of business.

Under the Advertising Rule, which TWO are required when an adviser provides a list of profitable past-specific recommendations? The list must: (Choose two.) A. be posted on the adviser's Web site. B. include all securities recommended for the past six months. C. be include disclosure that future recommendations will not necessarily be profitable. D. include all securities recommended for the past year.

C. be include disclosure that future recommendations will not necessarily be profitable. D. include all securities recommended for the past year.

An adviser recommends unaffiliated money managers to clients. The adviser does not provide day-to-day management of the securities in the portfolios but does have the discretion to hire and fire managers. The adviser's services are BEST characterized on Form ADV Part 1A as: A. continuous and regular, but not supervisory or management services. B. supervisory or management services, but not continuous and regular. C. continuous and regular supervisory or management services. D. neither continuous and regular nor supervisory or management services.

C. continuous and regular supervisory or management services.

Adviser claims GIPS compliance in its performance marketing pieces but fails to include GIPS-required disclosures. However, all disclosures required by Clover Capital and other SEC no-action letters are complete and correct. The SEC will likely consider the claim of GIPS compliance to be: A. mitigated by the Clover Capital disclosures. B. immaterial. C. fraudulent. D. beyond the scope of its jurisdiction.

C. fraudulent.

According to the Investment Advisers Act of 1940, every investment adviser is required to prevent illegal insider trading by establishing, maintaining and enforcing written policies and procedures reasonably designed to: A. prevent the misuse of material client information. B. create Chinese Walls. C. prevent the misuse of material nonpublic information. D. create restricted lists and enforce black-out periods.

C. prevent the misuse of material nonpublic information.

The fiduciary duty imposed on advisers under the Investment Advisers Act of 1940 can BEST be described as: A. providing equal disclosure to all clients. B. imposing an ERISA fiduciary standard. C. putting the client's interests ahead of the adviser's. D. acting in a custodial capacity.

C. putting the client's interests ahead of the adviser's.

Which situation is considered eligible "research" under the SEC's guidance on soft dollars? A. - Maintenance on computer terminals used for research. B. - A subscription to a well known business newspaper. C. - Dinners with securities analysts. D. - Proprietary reports from brokers on client-held securities.

D. - Proprietary reports from brokers on client-held securities.

In Form ADV Part 1, who is NOT considered a "high net worth individual"? A. - An individual with $1 million assets under management. B. - A qualified purchaser. C. - A couple with a net worth of $2 million, excluding their home. D. - An individual with a net worth of $1 million.

D. - An individual with a net worth of $1 million.

Which action would result in an investment adviser having custody under the Investment Advisers Act of 1940? A. - Returning inadvertently received stock certificates within three business days. B. - Billing for management fees by sending an invoice directly to a client. C. - Accepting a check made payable to a third party. D. - Having sole check writing authority over a client's non-managed account.

D. - Having sole check writing authority over a client's non-managed account.

Adviser is answering a Request for Proposal from a prospective institutional client. The Request for Proposal asks Adviser to provide performance data for one account of a comparable size as the prospective institutional client and in the same style being considered by the prospective institutional client. Adviser replies by providing an appropriate client's most recent performance report. The client's report shows performance gross of fees and contains none of the disclosures required by the Clover Capital series of no-action letters. Has Adviser violated the advertising rules of the Advisers Act? A. - Yes, because responses to Requests for Proposals are advertisements. B. - Yes, because Clover Capital disclosures must always accompany all performance data. C. - No, because responses to Requests for Proposals are never advertisements. D. - No, because the reply in this instance was not an advertisement.

D. - No, because the reply in this instance was not an advertisement.

According to the SEC Investment Adviser Codes of Ethics Rule, all are requirements for access persons EXCEPT to: A. - Obtain the investment adviser's approval before investing in certain types of securities. B. - Periodically report their securities holdings to the Chief Compliance Officer or other designated person. C. - Report personal securities transactions on a quarterly basis. D. - Obtain the investment adviser's approval prior to accepting any gifts.

D. - Obtain the investment adviser's approval prior to accepting any gifts.

What is NOT required of a fund under the Investment Company Act Compliance Programs Rule (Rule 38a-1)? A. - The designation of the Chief Compliance Officer must be approved by the board of directors. B. - The policies and procedures must provide for oversight of the fund's service providers. C. - The policies and procedures must be approved by the board of directors. D. - The annual review of the policies and procedures must be approved by the board of directors.

D. - The annual review of the policies and procedures must be approved by the board of directors.

Under the Investment Company Act Rule 17j-1 regarding personal investment activities of investment company personnel, which statement is TRUE regarding the code of ethics of an adviser to a mutual fund? A. - The adviser's code must be summarized in the mutual fund's Statement of Additional Information. B. - The adviser's code must be distributed to shareholders of the mutual fund. C. - The mutual fund's Chief Compliance Officer is responsible for enforcing the adviser's code as it relates to the fund. D. - The fund's board of directors must approve the adviser's code.

D. - The fund's board of directors must approve the adviser's code.

Great Big Holding Company is the sole owner of two large financial services firms: Great Big Adviser (an SEC-registered adviser) and Great Big Broker. Great Big Adviser is the sole owner of Little Insurance and Great Big Broker is the sole owner of Little Tax Prep. • Frank is the President of Little Insurance and Vice President of Great Big Holding Company. • Tim is the President of Great Big Broker and President of Little Tax Prep. • Jeff is President of Great Big Adviser and a registered representative of Great Big Broker. • Greg is the President of Little Tax Prep and an investment adviser representative of Great Big Adviser. According to the Glossary in the Form ADV instructions, Frank, Tim, Jeff, and Greg are all "related persons" of Great Big Adviser. Which person is NOT an "advisory affiliate" of Great Big Adviser? A. - Frank B. - Jeff C - Greg D. - Tim

D. - Tim

Which disclosure is NOT required by the Clover Capital SEC no-action letter? A. - Whether results reflect reinvestment of earnings and dividends. B. - Material economic conditions during the period advertised. C. - Material conditions used to obtain the results portrayed. D. - Total assets in the model advertised.

D. - Total assets in the model advertised.

An investment adviser's status as a "fiduciary" is derived from: A. - SEC enforcement actions. B. - industry best practice. C. - the SEC examination program. D. - U.S. Supreme Court case law.

D. - U.S. Supreme Court case law.

Traders 1, 2, 3, and 4 use Broker A for 5-15% of their trades, while Trader 5 uses Broker A for 60% of his trades. An investigation by Compliance discovers that Broker A has regularly paid for repairs and maintenance on Trader 5's sports car. However, it appears that Trader 5's use of Broker A is consistent with obtaining best execution. The firm's Brochure does not contain any disclosure concerning the receipt of gifts. If Adviser's code of ethics does not have a prohibition on accepting gifts from brokers, has Trader 5 violated any of Adviser's duties to its clients? A. - No, because Trader 5 obtained best execution. B. - No, because the Advisers Act does not prohibit the receipt of expensive gifts from brokers. C. - Yes, because all Advisers must have a gift policy. D. - Yes, because the receipt of expensive gifts should be disclosed to clients.

D. - Yes, because the receipt of expensive gifts should be disclosed to clients.

Adviser markets performance data for 1990 to present. In 2005 Adviser decides to stop marketing performance of 1990 to 1995. Adviser's record destruction policy should provide that records supporting 1993 performance: A. - must be maintained for five years after the firm goes out of business. B. - may be destroyed in 2006 for those accounts whose performance was not advertised. C. - may be destroyed in 2006 for all accounts. D. - may be destroyed in 2011 for all accounts.

D. - may be destroyed in 2011 for all accounts.

Amendments to Regulation S-P regarding privacy require any adviser that maintains or otherwise possesses consumer report information for a business purpose to: A. - maintain records of the disposal process for the consumer report information. B. - maintain the consumer report information for a period of five years. C. - cease and desist from possessing consumer report information in the future. D. - properly dispose of the information while protecting it against unauthorized access.

D. - properly dispose of the information while protecting it against unauthorized access.

You are the Chief Compliance Officer (CCO) of an SEC-registered investment adviser. Your firm permits sharing nonpublic information with third parties as disclosed in your privacy statement. The client has elected to opt out of the disclosure of information to non-affiliated third parties. Which request does the SEC Privacy Rule (Regulation S-P) PREVENT you from honoring? A. A request for the client's address from a firm that is sending out marketing flyers on behalf of the adviser. B. A request for a list of the client's pending transactions from the custodian of the client's account. C. A subpoena for a copy of the client's quarterly statement from an attorney representing the client's ex-spouse. D. A request for the client's address and phone number from the client's college alumni association.

D. A request for the client's address and phone number from the client's college alumni association.

After a trade has been completed, an adviser checking for trade errors should reconcile trade confirmations with which of the following? A. Trade recommendations memorialized in the minutes of a Brokerage Committee meeting. B. A trade order ticket completed after the order was completed. C. A client's investment policy guidelines. D. A trade order ticket completed prior to the execution of the order

D. A trade order ticket completed prior to the execution of the order.

Adviser is listed as the nation's third best mid-cap growth adviser in a national ranking by an independent magazine. The ranking includes the manager's net-of-fee performance numbers. Adviser orders reprints of the article to distribute to prospective clients. What must Adviser do before distributing the reprints? A. Disclose previous rankings in the same survey. B. Offer to provide a fully-disclosed performance presentation upon client request. C. Provide a representative client list. D. Add all required performance advertising disclosures.

D. Add all required performance advertising disclosures.

Each person is defined as an "access person" under the SEC Investment Adviser Codes of Ethics Rule EXCEPT: A. any supervised person who has access to nonpublic information regarding any client's purchase or sale of securities. B. any supervised person who makes securities recommendations to clients. C. officers, directors, and partners of a firm whose primary business is providing investment advice. D. any supervised person who trades in securities for their own account.

D. any supervised person who trades in securities for their own account.

Adviser A and its president, Jones, conduct investment manager searches for institutional clients. Jones often refers his clients to Adviser B. Adviser B has provided financing for business ventures owned by Jones. Adviser B has also steered brokerage business to a brokerage firm owned by Jones' son. Which action should be taken by Adviser B? A. Adviser B may rely on disclosure in Adviser A's Form ADV about these business dealings. B. None since Jones had made his clients aware of Adviser B's business dealings with Jones and his son. C. None since Adviser A's referrals are not influenced by any of these business dealings. D. Adviser B should disclose these business dealings in its Form ADV Part 2 because they are material conflicts of interest.

D. Adviser B should disclose these business dealings in its Form ADV Part 2 because they are material conflicts of interest.

The Investment Advisers Act of 1940 defines the scope of the anti-fraud provisions as extending to: A. SEC-registered advisers and foreign advisers with a place of business in the U.S., whether registered or exempt. B. SEC-registered advisers and foreign advisers doing business in the U.S., whether registered or exempt. C. SEC-registered investment advisers. D. All investment advisers, whether registered or exempt.

D. All investment advisers, whether registered or exempt.

"Bailey disclosure" refers to the concept of advising clients of the effect of directing the adviser to use a particular broker(s). Disclosure about the ramifications of brokerage direction should include: A. Potential conflicts of interest when a directed broker referred the client to the adviser B. Limits on the ability of the adviser to negotiate commissions C. Restrictions on placing directed trades with other client trades D. All of the above

D. All of the above

55. What is NOT true regarding the annual review under the Investment Advisers Act of 1940 Compliance Programs Rule? A. It is used to determine the adequacy of the firm's policies and procedures. B. It is used to determine the effectiveness of the firm's policies and procedures. C. Any document created to evidence the annual review must be retained. D. It must be summarized in a written report.

D. It must be summarized in a written report.

What are advisers required to report to the Financial Crimes Enforcement Division (FinCEN)? A. A potential client's refusal to provide personally identifying information. B. Frequent transactions that are not consistent with client's objectives or net worth. C. Each instance in which clients request a copy of their anti-money laundering file. D. One cash transaction OR two or more related cash transactions totaling more than $10,000.

D. One cash transaction OR two or more related cash transactions totaling more than $10,000.

Which activity is considered a principal transaction? A. A trade that is aggregated for a number of advisory accounts. B. A transaction in which an adviser acts as a broker for both an advisory client and an unaffiliated party. C. A trade executed between two client accounts managed by the adviser. D. Purchase or sale for a client's account from the adviser's own account.

D. Purchase or sale for a client's account from the adviser's own account.

Under the SEC Investment Adviser Codes of Ethics Rule, what is an adviser required to do? A. Impose fines or penalties for violations of the code. B. Require annual recertification from each supervised person that they have re-read the code. C. Implement a training program on the principles and procedures contained in the code. D. Require each supervised person to acknowledge in writing receipt of the code.

D. Require each supervised person to acknowledge in writing receipt of the code.

According to the Form ADV Instructions for Part 1A, which is NOT an example of continuous and regular supervisory or management services of an account? When the investment adviser: A. allocates client assets among other investment advisers and has the discretionary authority to hire and fire those investment advisers. B. has discretionary authority over a client's account and provides ongoing management services with respect to that account. C. has discretionary authority to allocate the client assets among various mutual funds. D. consults with the client regarding investment recommendations and the client executes any resulting purchases and/or sales.

D. consults with the client regarding investment recommendations and the client executes any resulting purchases and/or sales.

A high net worth individual includes an individual with: A. managed assets of at least $500,000 and a net worth of at least $1,000,000. B. a net worth of at least $1,000,000. C. managed assets of at least $500,000. D. managed assets of at least $750,000.

D. managed assets of at least $750,000.

During an examination of XYZ Investment Advisers, the SEC discovers that two of Adviser's portfolio managers have been engaged in frontrunning client accounts. Neither Compliance nor Senior Management had any knowledge of the scheme. If Adviser can show to the SEC's satisfaction that it had developed and enforced procedures reasonably designed to prevent frontrunning, Adviser will be able to claim that, despite the violation, Adviser has met its duty to: A. assist the SEC. B. maintain required books and records. C. eliminate internal control deficiencies. D. supervise.

D. supervise.