Unit 1
Register with State or SEC, never both
$110M or more - SEC only $100M to <110M - SEC or State <100M - State only unless exception -Required to register in 15 or more states -Manage a registered investment company -Expect to reach $100M within 120 days *20M buffer -One registered with SEC, can remain with 90M Pension consultants eligible to register with SEC at $200M
Discretionary Accounts
Brokerage acct that permits the RR to act on the customer's behalf when buying or selling securities without prior consent of the customer Requires prior approval from principal
Effective Date
Day company can start soliciting sales of stock
Regulation D offering
Equity or debt Filed electronically with FINRA
Accredited Investors
Institutional investors Individuals -$1M net worth -$200K Annual income or $300k joint Officers/Directors of the issuer
Who is not a person as defined by the 1940 Act
Minors Deceased individuals Those not mentally competent
Rule 504
Offer and sale up to $5M in a 12 month period -No general solicitation or advertising -Investors receive restricted securities for 1 year unless the issuer registers the resale with the SEC
A pension consultant who advises corporate retirement plans with assets of $135 million must register with which of the following? A) Both the state and the SEC B) SEC C) Either the state or the SEC D) The state
Under the Dodd-Frank Bill, until a pension fund manager has at least $200 million in AUM, registration with the states is required. Once the $200 million level is reached, SEC registration becomes an option. U1LO5
Which of the following persons is required to register with the SEC as a federal covered adviser? A) An adviser that gives advice to registered investment companies only B) An adviser who gives advice only related to U.S. government securities C) A publisher that gives incidental investment advice only D) An adviser that manages assets of $90 million or more
A. Investment advisers that act as advisers to investment companies registered under the Investment Company Act of 1940, regardless of their size, are required to register with the SEC. Don't be tricked by the $90 million. Only those with at least $110 million under management (using AUM as the deciding factor) are required to register with the SEC. Once that level has been reached, the IA may remain SEC registered as long as its AUM does not drop below $90 million. U1LO5
An investment adviser who has custody of customer funds and securities discovers that its net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must do which of the following? I. Notify the Administrator by the close of business on the day after discovery II. File a report of its financial condition with the Administrator no later than the close of business on the day after notification III. Cease doing business A) I and II B) I, II, and III C) I and III D) II and III
A. When an investment adviser fails to meet its minimum financial requirements, it must notify the Administrator by the end of business on the day after discovery and then must file a report of its financial condition by the end of the next business day. Included in the report must be the number of client accounts. U1LO5
Rule 506
Accredited investors - No more than 35 non-accredited investors No advertising Investors must sign waver letter
Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who A) is registered under section 203 of the Investment Advisers Act of 1940 B) Serves as a consultant to pension funds with assets of $500 million C) gives advice on federal covered securities D) does business on an interstate basis
All investment advisers registered under the Investment Advisers Act of 1940 are federal covered advisers. Doing business in more than one state (interstate) does not necessarily mean that the investment adviser is required to register with the SEC. As long as the AUM is under $100 million, the adviser registers with the appropriate states. Pension consultants are eligible to register with the SEC once their AUM reached $200 million, but it is not mandatory. U1LO5
What is a person as defined by the 1940 Act
An entity capable of issuing dealing in, or investing in securities, such as: -Individuals: Natural person -Businesses (Corporations, partnerships, associations) -Governmental units (State counties, school districts, or political subdivisions)
Mammon Money Managers (MMM) has its principal office in State A and is also registered in States B, C, and D. MMM exercises discretion in client accounts. As a result, MMM would have to meet the net worth or bonding requirements of A. the SEC B. State A C. the state with the highest requirement D. each state
Answer: B. A state-registered investment adviser need only meet the financial requirements of the state in which its principal office is located. SEC requirements are meaningless here because this is a state-registered firm.
WhichofthefollowingwouldanAdministratorconsidertobeasubstantial prepayment of fees? A. $500 covering the next six months B. $800 covering the entire contract year C. $800 covering the next calendar quarter D. $5,000 covering the next month
Answer: B. NASAA (state law) defines a substantial prepayment of fees to be more than $500, 6 or more months in advance. While $800 and $5,000 are certainly more than $500, they cover a shorter period than 6 months.
Ifaprospectiveclientwantedtoknowwhattypeofinvestmentstrategies are employed by an investment adviser, that information would be found in the adviser's A. Form ADV Part 1A B. Form ADV Part 1B C. Form ADV Part 2A D. Form ADV Part 2B
Answer: C. The Form ADV Part 2A contains information of most use to clients, such as the type of strategies employed by the adviser. Part 1A contains information needed by the regulators; Part 1B is only for state-registered IAs; Part 2B contains information dealing with those individuals in the firm who manage accounts.
Under the Investment Advisers Act of 1940, all of the following are true regarding adviser record keeping EXCEPT A. The IA must keep records of transactions made for it's own account of investment adviser representatives to lessen the likelihood of scalping B. Computer generated records may be stored in that format C. Client account records must be maintained, including a list of recommendations made D. Records must be maintained for a period fo 2 years from the end of the fiscal year in which the last entry was made
Answer: D. This is the exception because the records must be kept for 5 years. Nothing in the question asked about the 2-year requirement in the office. The 5-year requirement is that records be easily accessible whether in the office or not.
How long must partnership agreements, articles of incorporation, charters, and minute books of the investment adviser and any predecessor be preserved
At least three years after termination of the enterprise
Exclusions from Investment Advisor Definition
Banks, savings institutions, and trust companies -Bank owned subsidiary giving advice is not excluded Professionals providing incidental advice - Lawyers, Accountants, teachers, and engineers (LATE) -Subject to registration if they charge specific fees for investment advice Broker-Dealers if no special compensation -Advice solely incidental to their business - Wrap fee programs will lose this exclusion Publishers (general and regular circulation -"Market event" driven loses exclusion Persons advising solely on gov't securities (IA of 1940) Investment adviser representatives Federal covered investment advisers
Rules for Intrastate advisers being exempt from registration
Clients and offices in single state No advice on listed securities on national exchanges No clients are "private funds" Register with the state
Exempt from state registration as investment advisers
De minimus: No place of business in the state and fewer than six retail (Individual) clients in preceding 12 months No place of business in the state and deals only with institutions, broker-dealers, or other investment advisers Snowbird exemption
The term exempt reporting adviser refers to A) advisers who are registered on the state level, but who file their Form ADVs through the IARD B) broker-dealers who are considered investment advisers solely because they offer wrap fee accounts C) advisers whose only clients are insurance companies D) advisers that rely on either the venture capital fund adviser exemption or the private fund adviser exemption
Exempt reporting advisers (ERAs) are defined as investment advisers, but, because they either are private fund advisers or advise venture capital funds, they are exempt from registration on either the state or federal level. However, even though they are exempt from registration, they must file certain portions of Form ADV—hence the name exempt reporting advisers. U1LO4
Jobs included under "investment advisor" definition of IA 1092
Financial planners Sports and entertainment representatives Pension consultants
Form PF must be filed by A) state-registered private fund managers, regardless of the amount of assets under management B) SEC-registered advisers with at least $150 million in private fund assets under management C) SEC-registered advisers with no more than $150 million in private fund assets under management D) SEC-exempt reporting advisers
Form PF is the form used by those private fund managers who are registered with the SEC and whose private fund AUM reaches or exceeds the $150 million threshold. Exempt reporting advisers are, as the term implies, exempt from reporting. State-registered advisers don't report on the form because, among other things, if they reached the $150 million mark, they'd have to register with the SEC. U1LO4
Rule 506C
General advertising/solicitation is okay -All investors must be accredited -Issuer on obligated to ensure they are -Lettered stock Unregistered securities: Legend restricts transfer for six months
The Administrator may require which of the following from a federal covered adviser? I. copy of the IA's Form ADV II. filing of the IA's advertising in the state III. a listing of the IA's fee schedule IV. a filing fee
I and IV Even though Administrators have limited jurisdiction over federal covered advisers, they can require filing of a copy of the information filed by that IA with the SEC (the Form ADV), as well as a filing fee. U1LO5
Under the Uniform Securities Act, which of the following are NOT considered investment advisers or investment adviser representatives in this state? I. An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. II. United Trust Company of America III. An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management IV. An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state
II and IV An agent for a broker-dealer advising customers for a fixed fee, stated as a percentage of the customer's assets under management, is acting as an investment adviser representative. An individual who sells advisory services for AAA Advisers, Inc., is an investment adviser representative. A trust company is not an investment adviser under the USA. An investment adviser with no office in the state and does business exclusively with other investment advisers located in that state is also excluded as an investment adviser under the USA.
Kapco Advisers registers with the Administrator on April 1. Pete Patel, an IAR with Kapco, registers on the same day. Both of them file renewal papers, accompanied by the appropriate fees, on March 31 of the following year. Which of the following statements are TRUE? I. Kapco's renewal was timely. II. Kapco's renewal was late. III. Patel's renewal was timely. IV. Patel's renewal was late.
II and IV Regardless of when initial registration occurs, the renewal date for all professionals is December 31. U1LO5
Which two of the following are services provided in a wrap fee program?
Investment advisory and brokerage execution (transactions) for a single "wrapped" fee.
Insurance company exemption of registation
Not necessary to register if only clients are insurance companies
Preliminary Prospectus
Often Called a Red Herring Does not include price or effective date Contains disclosures Cannot be used to solicit actual sales
Financial Planner definition under IA-1092
Person who advises clients to select from among a variety of financial products Person who recommends mixture of securities, insurance products and real estate - a comprehensive financial plan Compensated for investment advice
The Dodd-Frank Act of 2010 provided for the following new exemptions from registration under the Advisers Act:
Private funds with less than $150M in AUM in the US Non-U.S. advisers with no place of business in the United States and minimal AUM (less than $25 million) attributable to U.S. clients Venture Capital Funds
Regulation D
Private offering of securities Restricted securities - Can not be freely traded (Safe Harbor)
Effective date of registrations and renewals
SEC: 45 days after filing States: 30 days after filing
The powers of the Administrator include the ability to determine A) maximum net capital requirements for broker-dealers B) minimum net worth requirements for investment advisers C) minimum net worth requirements for agents who exercise discretion D) surety bond requirements for investment advisers who do not exercise discretion or maintain custody
The Administrator can determine minimum, not maximum, net capital for broker-dealers (but not in excess of SEC requirements) and, for investment advisers, net worth. If the investment adviser does not exercise discretion (or maintain custody), no surety bond is required. Agents who exercise discretion may need a surety bond, but not a minimum net worth. U1LO5
Which of the following persons must register as an investment adviser under the Uniform Securities Act? A) An investment adviser representative with no place of business in the state who has dealt with 7 retail clients during the most recent 12 month period B) An investment adviser whose advice is limited to securities issued or guaranteed by the U.S. government and who has 3 places of business in the state C) An accountant who makes no pretense of providing investment advisory services but gives incidental advice to clients as a small part of accounting services provided D) An investment adviser who only serves institutional clients and whose only office is in this state
The Uniform Securities Act requires those defined as investment advisers to register with the state. Accountants are excluded when their advice is incidental to their profession and no additional compensation is charged. Advisers whose only advice is on securities issued or guaranteed by the government are excluded from the definition of investment adviser under the Investment Advisers Act of 1940. This means they are federal covered investment advisers, not required to register with the Administrator even with offices in the state. As long as there is an office in the state, unless the adviser is federal covered (as described in the previous sentence), there is no exemption from registration in that state. The IAR has exceeded the de minimis limits and would have to register in the state, but as an IAR, not as an IA. U1LO3
Secutities Exchange Act of 1934
The people act Registration of broker/dealers, principals, registered reps and exchanges Fingerprint rule (17F-2) Statutory disqualifications Antifraud Provisions
Which of the following would NOT be considered an investment adviser under Release IA-1092? A) The president of an investment club who provides research and advice to the members of his club on a regular basis as an integral part of his duties B) A retired banker who solicits business and advises former clients on a monthly basis as to the specific investment merits of banking securities and receives compensation for his services C) An agent for an athlete who negotiates contracts for a baseball player, as well as advises the client on securities, but does not have discretionary authority over the athlete's securities account D) A pension consultant who advises a defined contribution plan on alternative methods of funding the plan and the relative merits of a selected list of investment managers
The president of the investment club does not meet all 3 of the required elements in the definition of an investment adviser as outlined in Release IA-1092. The investment club president is neither in the business of providing advice nor does he receive compensation for his services. Agents for athletes are considered investment advisers if they include investment recommendations as part of their services, whether or not they have discretion over the funds. U1LO2
States may require investment advisers who are registered with the SEC to do each of the following EXCEPT A) pay state notice filing fees B) maintain net capital requirements C) file any documents with the state that are filed with the SEC D) file a consent to service of process
The state may require federal covered advisers to pay notice filing fees, provide a consent to service of process, and submit copies of documents filed with the SEC, but cannot determine net worth or net capital requirements for federal covered IAs. The Administrator can require minimum net worth for state registered advisers, but under the NSMIA, cannot do so for federal covered ones. U1LO5
Definition of investment adviser under the 1940 Act
Three Prong Test Any person who: -Gives advice on securities -As part of a regular business -For which compensation is received
Form ADV-W
Used to withdraw from IA registration Effective 30th day with states Effective 60th day for SEC
Discretionary Trade
Whenever RR decides any of the following: -Action (buy/sell) -Asset (Stock/bonds) -Amount (# of shares) Time and price are not considered discretionary
To use the term investment counsel, two criteria must be met
the principal business must be giving investment advice and the adviser must provide investment supervisory services.
