Unit 1 | Series 63
Accredited Investor
*Refers to a person who is NOT counted when computing the number of investors purchasing a private placement.* Because it is a *Federal term*, it is NOT in the USA and is used to confuse people.
Exempt Securities include securities issued by..
- United States, any state, any political subdivision of a state. -Foreign Government -Bank -Savings institution - Trust Company -Commercial Paper rated in top three categories by major ratings agencies with denominations ≥ $50,000 & maturities ≤ 9 months
Qualified Purchaser
- a person not less than $5 million in investments - a company with not less than $5 million in investments owned by close family members - a trust, not formed for the investment, with not less than $5 million in investments - an investment manager with not less than $25 million under management - a company with not less than $25 million of investments
De Minimis exemption does not apply to:
-Broker Dealer's -Agents
Federally registered Investment Advisor is exempt from notice filing when...
-Has no place of business in the state -Client's in the state are solely institutional
Retail Client
-Need far more protection than institutional ones -Individuals who meet the standard of accredited investor are still retail, rather than institutional clients
Investment Advisor need not register in state if..
-No place of business -Advises < 5 individuals -Advises Banks, Trusts, Savings Institutions -Those whose advice is incidental to their practice (L.A.T.E) -Broker-Dealer receives no wrap-fee for advice
Under the USA, the term guaranteed refers to...
-Principle -Dividends -Interest
Advisors AUM exceeds $110M, how long before they must register with SEC?
90 Days
Broker-Dealer (BD)
A *person* or *firm* in the business of buying and selling securities. Broker = Behalf of others Dealer = Behalf of themselves
Define Financial Advisor
A Financial Advisor is technically an *Investment Advisor Representative.* They manage accounts/portfolios of clients whose assets are under management by an Investment Advisor (firm). The investment Advisor then works with Broker-Dealers to effect securities transactions.
Self-Regulatory Organization (SRO)
A body that represents a profession (e.g., lawyers, notaries, other independent legal professionals or accountants), and which is made up of member professionals, has a role in regulating the persons who are qualified to enter and practice in the profession, and also performs supervisory or monitoring functions. E.g., FINRA
Holding Company
A company whose primary business is holding a controlling share of stock in other companies. It is that element of control that differentiates holding companies from investment companies E.g., A Bank Holding
Wrap Fee
A comprehensive charge levied by an investment manager or investment adviser to a client for providing a bundle of services.
Wrap Fee Program
A program under which any client is charged a specified fee or fees, not based directly on transactions in the client's account.
Security
A tradable financial asset E.g., stocks, bonds, debentures, mutual funds, variable annuities
State securities Administrators may NOT impose which of the following? A)Minimum net worth levels on registered investment adviser representatives B) Surety bond, minimum net capital levels, or both on broker-dealers with custody of client funds and securities C) Minimum net capital requirements on broker-dealers D) Bonding requirements for registered agents
A) Individuals registered as investment adviser representatives (or agents) never have to meet net worth or net capital standards. Broker-dealers and investment advisers have to meet net capital or net worth requirements. Broker-dealers with custody can, at the discretion of the Administrator, post a surety bond in lieu of minimum net capital requirements.
Summary Order (Acting Summarily)
Acting without prior notice
December 31st
Agent & Broker Dealer Renewal Date
Form U4
Agent Registration Form
A federally covered Investment Advisor is asked by the Administrator to submit only documents filed with SEC...
All that must be sent is Part 1A from the Form ADV.
National Securities Markets Improvement Act of 1996
Amended Section 18 of the Securities Act to pre-empt state "blue sky" registration and review of specified securities and offerings. The preempted securities are called "covered securities." The NSMIA also amended Section 15 of the Exchange Act to pre-empt the state's authority over capital, custody, margin, financial responsibility, making and keeping records, bonding or financial or operational reporting requirements for brokers and dealers.
When do state registrations expire?
Annually on *December 31*
Form ADV Part 1A
Asks questions about investment adviser (location of principal office, books n records, form of business organization, method of business, maintaining custody of customer assets, details relating to control persons, disciplinary history, etc.) Schedule A - information about direct owners and executives Schedule B - information about indirect owners Disclosure Reporting Pages (DRPs) - schedules that ask for details about disciplinary events involving adviser
Application for registration as a securities professional becomes effective when?
At noon the 30th day after filing
Issuer
Any person who is issuing or proposes to issue any security.
Agent Exemptions from State Registration
Applies more frequently to individuals representing issuers, rather than Broker-dealers
Investment Advisors
Are compensated for *giving advice*
Form ADV Part 1B
Asks additional questions required by state securities authorities. INVESTORS REGISTERING WITH SEC DO NOT HAVE TO COMPLETE PART 1B
Institution
Banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than one million dollars ($1,000,000), and governmental agencies or instrumentalities.
Agent Termination
Both Agent and Broker Dealer must notify the administrator
Form B4
Broker Dealer Registration form
Four classes of securities professionals
Broker-Dealers, Agents, Investment Advisors, and Investment Advisor Representatives
Under the USA, there is not considered to be an Issuer with respect to...
Certificates of interest or participation in oil, gas, or mining titles or leases, or in payments out of production under such titles or leases.
Bank Holding
Controls one or more banks and may also have subsidiaries registered as broker-dealers and investment advisers.
Uniform Securities Act (USA)
Drafted by (NCCUSL); provides a *legal framework* for the state registration of securities.
Canadian limited registration renewal application
Due Dec. 1st each year
Broker-Dealers (BD)
Earn commission or markup by *affecting the transactions in securities*
Investment Advisor (IA)
Engages in business of advising others for compensation and/or promulgates analyses of reports.
Value of primary residence (net equity)
Fair Market Value - Debt (liens)
National Securities Markets Improvements Act (NSMIA)
Federal legislation passed in *1996*; designed to integrate securities markets and *eliminate conflicting state and federal legislation.*
Solicitor
Individual who, for compensation, acts on behalf of an investment adviser in referring potential clients. Solicitors must be registered as investment adviser representatives.
Agent post registration requirements
NO RECORD KEEPING REQUIREMENTS -Broker dealer generally takes care of renewal and fee
Provisions provided under NSMIA 1996
National Securities Markets Improvement Act of 1996 - Investment advisors register with State or SEC; never both -States cannot require registration of securities, transactions, or investment advisors covered by FEDERAL LEGISLATION
National Conference of Commissioners on Uniform State Laws (NCCUSL)
National organization of lawyers who drafted the *Uniform Securities Act (USA)*
When is a publisher excluded from registering as an investment advisor?
If the publication is made available to the general public on a *regular basis,* and the content is not specific to any client.
Investment Advisor Representative (IRA)
Individual *representing an Investment Advisor* whose duties are related to the giving of or soliciting for advisory services.
Agent
Individual who represents Broker-Dealer or issues in effecting or attempting to effect the purchase / sale of securities.
$200M AUM
Is when a pension fund manager register with the SEC
Person is NOT an *Issuer* when...
Issuing certificates of interest or participation in Oil, Gas, Mining titles and/or leases.
L.A.T.E.
Lawers, Accountants, Teachers, Engineers -Often exempt from registering as Investment Advisor because advice is incidental to their practice. If compensation is received for investment advice occuring incidentally or non-incidentally, registration is required.
Advisor has AUM ≥ $110M
Must register with SEC
Broker-Dealer registered in more than 1 state
Must register with the SEC in addition to their registration with the state.
Administrator
Office/agency responsible for administering the securities laws.
What is a 3(c)(7) Private Fund?
Owned exclusively by persons who are qualified purchasers and does not offer public securities. -Exempt from registering with the State
National Securities Markets Improvement Act of 1996 (NSMIA)
Preempts states' blue-sky laws, eliminating the dual system of state and federal registration of certain securities and investment advisers.
Advisor managing ≥ $100M and ≤ $110M
SEC registration is optional
Registrant
Securities issuers who are in the process of registering or who have registered with the Administrator.
Nonissuer
Securities transactions made for the benefit of someone other than the issuer. E.g., everyday trading on the stock markets.
Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act...
Sharon must be registered in State X in order to accept the order
Blue Sky Laws
State securities laws
-*Short term highly rated commercial paper* -*Municipal bond* -*U.S. bank issue* -*Investment contract* issued in connection with an employee's stock purchase, savings, pension, profit-sharing, or similar benefit plan
The Individual representing these would *NOT* have to register as an agent
How can one easily determine if a person is an Investment Advisor
The Three Prong Test -Provides Investment Advice -Is in the business of providing advice / analysis -Receives indirect or direct compensation
Administrator Jurisdiction
The registration of securities professionals and securities; power to deny, suspend, or revoke registrations; may act summarily.
Form ADV
Used by investment advisors to register
Pension Fund Manager who manages $35M must register...
With the State
A state-registered broker-dealer must keep business records available for examination by the Administrator
for 3 years
What happens when Advisor's AUM descends beyond $90M AUM
has 180 days to register with State
Form ADV Part 2A
known as the *investment adviser's brochure* and tends to focus on customer related information.
De Minimis Exemption
offered to an *investment adviser* whom: - Has *no place of business in the state* - And limits business to *five or fewer retail clients* who are legal residents in the state during the preceding 12 months