Multi Choice QB2
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.
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.
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 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.
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.
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 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.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.