IAR Stuff

A pension fund manager who manages a $135 million dollar account must register with which of the following? A)The state. B)Either the state or the SEC. C)Both the state and the SEC. D)SEC.

A)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.

Under the Investment Advisers Act of 1940, an adviser's registration usually becomes effective how many days after it is filed? A)10 days. B)45 days. C)20 days. D)30 days.

B)45 days. In the absence of any denial order or pending proceedings, registrations of federal covered investment advisers (and broker-dealers) will become effective on the 45th calendar day after the date of filing (the date received in the SEC's office). The SEC may specify an earlier date.

Investment adviser representatives act in an unethical manner when they: A)do not recommend securities that they believe present environmental hazards. B)trade their personal accounts based upon the anticipated market movement likely to occur as a result of their recommendations. C)buy and sell the same securities for their personal accounts that they recommend to clients. D)only recommend securities in the industries in which they were formerly employed and in which they have had specialized education and training.

B)trade their personal accounts based upon the anticipated market movement likely to occur as a result of their recommendations. IARs personal transactions cannot be in conflict with the interests of their clients. To avoid acting unethically, an IAR should make personal trades after the recommendations have been made.

To be defined as an investment adviser under the Uniform Securities Act, which of the following must apply? Compensation must be received. Advice is provided regarding securities. Advice may be provided through direct oral communication or in writing. A)I and III. B)I and II. C)I, II and III. D)II and III.

C)I, II and III. The definition of investment adviser contains two key elements. First, the individual provides securities-related advice. Second, the individual receives compensation for that advice. The advice may be provided orally or in writing.

Included in the fiduciary relationship between an investment adviser and client is the responsibility to: A)recommend only nonaffiliated broker-dealers for execution of portfolio transactions. B)provide tax advice as an integral part of the client relationship. C)recommend only nonaffiliated attorneys to clients seeking legal advice. D)disclose the tax consequences of a recommended investment.

Whenever a recommendation is made to an advisory client, it is incumbent on the IA or IAR to make disclosure of the tax effects of that investment to the client. IAs are not to provide tax advice unless specifically qualified to do so and may recommend legal advisers who are or are not affiliated with the firm. There is no reason why an IA cannot recommend an affiliated broker-dealer, as long as disclosure of the relationship is made.

Kapco Advisers, a federal covered investment adviser operating on a calendar year basis, published a list of recommended securities in January 2010. A copy of this must be maintained until at least: A)1/31/2012 B)12/31/2015 C)12/31/2012 D)1/31/2015d

B)12/31/2015 Investment adviser records, including copies of advertisements, must be kept for at least five years from the end of the fiscal year in which the record originated; in this case, five years from the end of 2010.

If a federal covered adviser's fiscal year ends on November 30, 2014, it must file its annual updating amendment to its Form ADV no later than: A)12/31/2014. B)2/28/2015. C)1/29/2015. D)3/30/2015.

B)2/28/2015. The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end.

According to the Investment Advisers Act of 1940, for how many years must books and records be maintained for an account after the end of the year in which the last transaction occurred? A)10 years. B)5 years. C)1 year. D)2 years.

B)5 years. Those investment advisers registered with and regulated by the Securities and Exchange Commission (SEC) must adhere to SEC Rule 204-2 regarding the maintenance of records. The rule states the required records must be kept for five full years from the end of the fiscal year during which the last entry was made on the record. The first two years, records must be kept in the principal office of the adviser and the balance of the time, easily accessible. They are subject to SEC examination at any time.

The USA provides either an exclusion from the definition or an exemption from registration as an investment adviser for certain persons. Which of the following would be required to register? A)A bank trust officer with less than $250 million in assets under management. B)A CFP who provides a full range of financial planning to clients on a fee-only basis. C)An engineer employed by an oil company selling limited partnership interests to public investors who provides estimates of recoverable reserves. D)A teacher who teaches a course in the local high school on consumer economics.

B)A CFP who provides a full range of financial planning to clients on a fee-only basis. Unless excluded or exempted, anyone charging a fee for investment advice must register. Banks and their employees are excluded. Engineers and teachers fall under the late exclusion as long as the advice is incidental to their profession and no special compensation is received.

An investment adviser who has no office in a state is exempt from registration in a state if, during any 12-month period, he has no more than how many clients in the state? A)10 clients. B)20 clients. C)5 clients. D)35 clients.

C)5 clients. There are provisions for exclusions from the definition of investment adviser in the Uniform Securities Act. Out-of-state advisers who have no place of business in the state are not defined as investment advisers if they have no more than five noninstitutional clients in this state in a 12-month period. This is known as the de minimis exemption.

When it comes to advertising by investment advisers and their representatives, which of the following would be most likely to be acceptable to the Administrator? A)A "like" from a client on an investment adviser representative's Facebook page with a comment on the wonderful service the client received B)Showing past performance over the past 12 months of a group of securities selected from all of the adviser's recommendations C)A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child. D)Offering prospective clients a free 3-month trial to the investment adviser's special investment formula that assures success

C)A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child. Although investment advisers and their representatives are prohibited from using testimonials from clients, it has been determined that a Facebook "like" commenting on something of a non-business related manner, such as the birth of a child, a wedding anniversary, admiring photos posted of a vacation, and so forth, is not considered a testimonial. Commenting on the IAR's service would be a testimonial. When showing past performance, an investment adviser cannot "cherry-pick" the ones it wishes to show—all recommendations of similar types of securities (all common stock, or all bonds) must be shown. No securities professional can ever assure investment success—that would be considered a performance guarantee.

If a state-registered investment adviser moves to another location, the Administrator must be notified: A)within 7 days. B)within 15 days. C)promptly. D)within 30 days.

C)promptly. An address change must be communicated promptly to the Administrator.

Which of the following are NOT investment advisers under the Uniform Securities Act? Joe advises customers regarding the value of gold and silver coins. The trust department of ABC Bank provides investment advice to its clients. Tammy writes a newspaper column in which she analyzes and recommends securities. Jack is an investment adviser representative. A)II, III and IV. B)I and IV. C)I and II. D)I, II, III and IV.

D)I, II, III and IV. Joe's advice does not concern securities. Banks are exempt from the definition. Tammy's advice is neither specific nor based on the situation of each client (impersonal advice). An adviser representative is specifically excluded from the definition of an investment adviser.

Under IA-1092, an investment adviser: makes advice his principal activity. makes advice his regular activity. is compensated directly for advice. is compensated directly or indirectly for advice. A)I and IV. B)I and III. C)II and III. D)II and IV.

D)II and IV. Under the SEC's release, the rendering of advice does not have to be a person's principal activity. Rather, it must be a regular activity, and compensation may be received directly or indirectly.

State covered investment advisers who have discretionary powers but NOT custody of customer funds are usually required to have a net worth in the amount of: A)$50,000. B)$35,000. C)$5,000 D)$10,000.

D)$10,000. The NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an adviser who does not have custody of customer funds or securities but has discretionary power over customer accounts to have a minimum net worth of $10,000.

Under the NASAA Model Rule on financial requirements for investment advisers, investment advisers who have custody of customer funds are usually required to have a net worth in the amount of A)$10,000 B)$5,000 C)$50,000 D)$35,000 T

D)$35,000 he NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an investment adviser with custody of customer funds or securities to have a minimum net worth in the amount of $35,000. If the adviser does not have custody of customer funds or securities but does have discretionary power over customer accounts, the minimum net worth amount is reduced to $10,000. ​In the event the adviser wishes to post a bond​ because it doesn't meet the net worth requirement​, ​it must be an amount determined by the Administrator based upon the number of clients and the total assets under management of the investment adviser. Reference: 3.6.5* in the License Exam Manual

Which of the following would NASAA consider to be a substantial prepayment of fees? A)$500 covering the next six months B)$600 covering the next calendar quarter C)$1,000 covering the next month D)$600 covering the entire contract year

D)$600 covering the entire contract year NASAA defines a substantial prepayment of fees to be MORE than $500, six or more months in advance.

An investment adviser can avoid fiduciary responsibility: A)by executing orders in strict compliance with the discretionary agreement. B)if the client waives the adviser's fiduciary responsibility. C)under circumstances authorized by ERISA. D)under no circumstances.

D)under no circumstances. Under no circumstances can an investment adviser avoid fiduciary responsibility.

A state-registered investment adviser with $18 million under management is preparing a new registration application seeking federal registration with SEC. She may do so if she expects the funds under management to grow to $100 million within how many days? A)120. B)90. C)360. D)180.

A)120. An existing investment advisory firm registered on the state level may apply for registration with SEC as a federal covered adviser if the firm expects to be eligible for federal registration within 120 days. In the reverse situation, a firm that drops below the $90 million minimum has 180 days to withdraw from SEC registration and register with the state(s).

Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser? A)A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities. B)Bank that offers investment counseling to its high net worth customers. C)Antiques dealer who receives a fee for advising customers as to the value of antiques and rare coins. D)Publisher that receives a yearly subscription fee for a newsletter that provides nonspecific investment advice.

A)A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities. A broker-dealer who receives fees for investment recommendations is an investment adviser because that fee is considered special compensation relating to securities advice. The antiques dealer provides nonsecurities related advice. Publishers may provide generic investment advice without registering as investment advisers. Commercial bankers are excluded from the definition of an investment adviser.

Which of the following statements regarding the use of a hedge clause by an investment adviser is CORRECT? A)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters, would generally be acceptable to the Administrator. B)A hedge clause that limits liability to acts done in bad faith or pursuant to willful misconduct but that also explicitly provides that rights under state or federal law cannot be relinquished would generally be acceptable to the Administrator. C)A properly worded hedge clause may be used to minimize the investment adviser's fiduciary responsibility. D)The adviser's brochure must always contain at least one hedge clause.

A)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters, would generally be acceptable to the Administrator. The regulators have not objected to clauses that limit the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, communications disruptions, and so forth. Such provisions are acceptable because they do not attempt to limit or misstate the adviser's fiduciary obligations to its clients. Limiting liability to acts done in bad faith might cause the unsophisticated client to fail to understand that he still has a right to take action, even when the acts are committed in good faith. Fiduciary responsibility cannot be limited by hedge clauses.

Under SEC Release IA-1092, which of the following is included in the definition of an investment adviser? A)A lawyer who advertises to the public that he offers comprehensive legal and investment advice to high net worth individuals. B)A professional research analyst who holds himself out to the public as an expert in trading the Euro and other foreign currencies. C)A research service that offers advice on the value of gold. D)A bank that advertises to the public that it offers a complete line of trust services.

A)A lawyer who advertises to the public that he offers comprehensive legal and investment advice to high net worth individuals. A lawyer who advertises to the public that he offers comprehensive legal and investment advice to high net worth individuals falls within the definition of an investment adviser because he offers investment services as an integral part of his practice.

Which of the following persons would NOT be considered an investment adviser under the Investment Advisers Act of 1940? A)A teacher who explains investment programs to retirees on a volunteer basis. B)A representative of a brokerage house who also has a separate financial planning business. C)A person who advertises and is in the business of providing investment services, but does not charge a separate fee. D)A person who provides investment advice to individual retirement plan participants in defined contributions plans, is not compensated by them, but is paid a fee by the corporate sponsor.

A)A teacher who explains investment programs to retirees on a volunteer basis. As a volunteer, the teacher is not in the business of providing investment advice and does not receive compensation for such advice. A person who places himself before the public through advertising as an investment adviser and who provides advice is an adviser. A person in the business of providing investment advice does not have to receive compensation directly from the beneficiary of the service to be considered an adviser.

Under certain conditions, the Uniform Securities Act provides that an Administrator may require a minimum net worth standard be met by an investment adviser. Which of the following would be an allowable asset in the computation of an investment adviser's net worth? A)Accounts receivable. B)Advances or loans to partners in the case of an IA organized as a partnership. C)Accounts payable. D)Copyrights.

A)Accounts receivable. For purposes of the USA, the term "net worth," means an excess of assets over liabilities, as determined by generally accepted accounting principles. Accounts receivable are a current asset, while accounts payable are a current liability. The USA specifically disallows intangibles, such as copyrights and goodwill, and advances or loans to partners (or officers if a corporation) are excluded as well.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, under which of the following circumstances has the investment adviser acted properly? A)An adviser discloses confidential information about an advisory account to the spouse who is a joint owner of the account. B)An adviser promises a client that by following the firm's trademark investment program the returns will exceed those of the previous 12 months or all fees paid will be returned. C)An adviser tells a client that, by keeping his entire portfolio invested in government securities, he will not experience a great deal of appreciation but is guaranteed not to lose money. D)An advisory firm states in the advisory contract that if the investor does not experience a minimum return of 6%, the firm will pay the client out of its own funds to make up any difference.

A)An adviser discloses confidential information about an advisory account to the spouse who is a joint owner of the account. According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it is unethical for an adviser to guarantee performance or rebate fees if performance is below a minimum standard. With respect to government securities, there is no, at least for exam purposes, default risk, but there is interest rate risk; all of the choices are improper. Disclosure of confidential account information may be made under a court or IRS order or when requested by a joint owner of the account.

Under the Investment Advisers Act of 1940, which of the following is excluded from the definition of investment adviser? A)Attorneys for whom providing investment advice is incidental to the practice of their profession. B)Sports or entertainment representatives. C)Pension consultants. D)Publishers of investment newsletters.

A)Attorneys for whom providing investment advice is incidental to the practice of their profession. Attorneys qualify for a professional exclusion if the advice they render is solely incidental to the practice of their profession.

Under current regulations, registration with the SEC is optional for all of the following investment advisers EXCEPT A)CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board B)Grand Visions Advisers, a sole proprietorship with $104 million in AUM C)Midwestern Asset Managers, LLC, with $53 million in AUM, required to register in 17 states D)Employee Benefit Specialists, Inc., a pension consultant with $225 million in AUM

A)CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board Currently, registration with the SEC is mandatory (not optional) for any investment adviser managing a registered investment company (open or closed-end). It is optional for: pension consultants once their AUM reach $200 million; small and mid-size advisers who would be required to register in 15 or more states; and those advisers with at least $100 million in AUM, but not $110 million in AUM

An investment adviser new to the business is engaged by an elderly client who, on the grounds of privacy, refuses to disclose his annual income or net worth. The client merely asks the adviser to establish and manage a $50,000 portfolio. If the client brings a cashier's check for $50,000 to the initial meeting, which choice below reflects the best action on the part of the adviser? A)Decline the client, recognizing that you can not effectively determine suitability in the absence of financial information. B)Accept the client but only allocate his funds to money market type securities. C)Accept the client but acknowledge in writing the client's refusal to provide financial information. D)Decline the client because he is difficult to work with.

A)Decline the client, recognizing that you can not effectively determine suitability in the absence of financial information. An investment adviser cannot perform effectively for a client who refuses to provide information necessary for determining the suitability of investments or a portfolio. Unlike the broker-dealer, who may act merely as order filler, the investment adviser has a fiduciary responsibility is obligated to determine suitability.

Foster Advisers, based in New Jersey, manages $135 million in funds for New Jersey- based clients. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following statements best describes the registration requirement for Foster Advisers? A)Foster Advisers is required to register as an adviser with the SEC and notify the Administrator of the New Jersey Department of Securities of its operation. B)Foster Advisers is required to register with both the SEC and the Administrator of the New Jersey Department of Securities. C)Foster Advisers is required to register as an adviser with the SEC and has no requirement to notify the Administrator of the New Jersey Department of Securities. D)Foster Advisers is required to register with the Administrator of the New Jersey Department of Securities.

A)Foster Advisers is required to register as an adviser with the SEC and notify the Administrator of the New Jersey Department of Securities of its operation. Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, investment advisers with $110 million or more in assets under management more must register with the SEC. These advisers are called federal covered advisers. Investment managers who manage less than $100 million must register with the state Administrator. Advisers with at least $100 million but less than $110 million of assets under management have the option to register with either their state Administrator or with the SEC. Once the $110 million level is reached, registration with the SEC is mandatory. With $135 million under management, Foster Advisers must register with the SEC. Foster Advisers is subject to the additional requirement of notifying the administrators of the securities departments of states in which it maintains offices or clients of its operations. At the state level, a notification fee (but not registration) is generally required. One aim of the NSMIA was to eliminate dual registration of investment advisers with the states and the SEC. Investment advisers are not required to register at both state and federal levels.

Harrison is a Certified Financial Planner® (CFP®) with an office in the state and a telephone directory listing under the category "Financial Planners." Harrison has, for fees, written more than 100 comprehensive financial plans for various individual clients. However, only 20% of the plans' content entails advice regarding securities and investments. Which of the following statements best describes Harrison's status as an investment adviser under the USA? A)Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner. B)Harrison is not required to register as an investment adviser because he holds a recognized financial planning credential. C)Harrison is not required to register as an investment adviser because his securities advice is purely incidental to his overall planning activities. D)Harrison is required to register as an investment adviser because he holds a recognized financial planning credential.

A)Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner. Under the Uniform Securities Act, an investment adviser is a person, corporation, partnership, or sole proprietorship who, in the regular course of business, advises others as to the advisability of selling securities. Harrison holds himself out as a financial planner and normally includes a section on investments in his plans. Furthermore, Harrison is compensated for his services-yet another standard of the definition, investment adviser. Under the USA, certain recognized professional designations are exempt from having to qualify by passing the licensing exam but not from registration.

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed? Transaction-based compensation, such as commissions on recommended securities. 12b-1 trails on no-load mutual funds in the client's portfolio. Expenses reimbursed by 3rd party sources. Compensation-sharing arrangements between the investment adviser and its representatives. A)I ,II and III. B)I and III. C)I, II , III and IV. D)III and IV.

A)I ,II and III. All forms of compensation, whether direct or indirect, must be disclosed. However, the method by which an adviser pays its representatives is an internal matter, not for public disclosure.

Which of the following meet(s) the compensation test for defining investment advisers under SEC Release 1A-1092? Subscription payments received by the publisher of an investment newsletter, available by subscription only, that provides impersonal securities related advice. An insurance agent sells a life insurance policy and receives a commission on that sale. As a result, the agent agrees to provide advice on structuring the insured's investment portfolio at no additional cost. Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do. A)I and II. B)I only. C)II only. D)I, II and III.

A)I and II. Compensation may take the form of, but is not limited to, fees, payments for subscriptions, salaries, or commissions. The regulators know that the insurance agent would not be so quick to give the investment advice were there not a large insurance commission being earned and, therefore, that is considered to be compensation for rendering investment advice. Because the newsletter is not a publication of general interest or with general circulation (you can't pick it up at a newsstand), it does not qualify for the publisher exclusion. Nothing in the neighbor's advice involves compensation.

A federal covered investment adviser registered with the SEC that has offices in five states must do which of the following? Pay state filing fees if required by the Administrator. Notify the Administrator within one business day if net worth falls below the required minimum. Notice file in any of those states where required by the Administrator. Become licensed as a broker-dealer. A)I and III. B)II and IV. C)II and III. D)I and II.

A)I and III. Although exempt from state registration, federal covered investment advisers may be required to do a notice filing and pay fees to the state. Federal covered advisers do not come under the financial or recordkeeping requirements of the state, only the SEC.

Which of the following are prohibited practices? An investment advisory firm organized as a partnership failed to inform its clients of the departure of a partner with a very small interest in the partnership. An investment advisory firm charges an annual fee equal to 2% of the first $250,000 in assets under management; 1% of the next $500,000; and 0.5% for everything in excess of $750,000. Without client consent, the majority stockholder of a registered investment adviser pledges his stock as collateral for a loan taken out by the firm to expand its services. Engaging in agency cross transactions. A)I and III. B)I and II. C)I and IV. D)III and IV.

A)I and III. Any change in the ownership of an investment advisory firm organized as a partnership, no matter how small, requires notification to all clients within a reasonable amount of time. If the firm is structured as a corporation, the pledging of a controlling interest in the company's stock is viewed as an assignment of the contracts. This may not occur without the approval of the clients. Agency cross transactions, where the adviser represents both sides of the trade, are permitted as long as the adviser makes the proper written disclosures and does not make the buy/sell recommendations to both parties.

Under federal securities legislation, an attorney who gives investment advice and does which of the following would be included in the definition of investment adviser? Charges commissions or fees. Advertises legal services in the local paper. Has a telephone directory advertisement under investment services. Advertises estate planning services in the local newspaper. A)I and III. B)II and IV. C)I and IV. D)II and III.

A)I and III. Federal securities legislation has a 3-prong test to determine whether someone is included in the definition of investment adviser. Any individual who gives investment advice, receives compensation for that advice, and holds himself out to the public is an investment adviser.

Which of the following actions, if performed by a registered investment adviser representative, would NOT be considered inappropriate under the Uniform Securities Act? Recommending suitable securities to a client. Lending money to a client who is a regular member of your Sunday group at the country club. Misappropriating client assets to benefit the client's favorite charity. Without having discretionary power, determining when would be the most opportune moment to sell a specific security holding the client has indicated he wishes to liquidate. A)I and IV. B)II and III. C)I and III. D)II and IV.

A)I and IV. Be careful of the negatives. This question is really asking for the permitted actions. We may always recommend positions that we feel are suitable, and discretionary authorization is not required if an IAR is only determining time or price. Even though FINRA rules might permit a loan to a client with whom there is a preexisting personal relationship, no such rule applies under the USA. Misappropriation of customer funds is never permitted, even if for a worthy cause.

Which of the following are most likely to be included in the definition of investment adviser, under the Investment Advisers Act of 1940 and the NSMIA? Broker-dealer offering wrap fee accounts. Publisher of a financial magazine with at most five stock recommendations per issue. Bond counsel. Pension fund consultant suggesting portfolio managers to employee benefit plans with assets in excess of $1 billion. A)I and IV. B)II and III. C)I and III. D)II and IV.

A)I and IV. Publishers, whose advice is nonspecific to the needs of an individual reader and does not involve fees, and bond counsel, who are attorneys who advise issuers on the legality of municipal bond issues, are the least likely to be included in the definition of an investment adviser.

All of the following are investment adviser representatives EXCEPT: a receptionist/switchboard operator employed by ABD Advisers, Inc. an account representative employed by ABD Advisers, Inc. a vice president of ABD Advisers, Inc., who serves on the firm's advisory committee. ABD Advisers, Inc. A)I and IV. B)II and III. C)III and IV. D)II and IV.

A)I and IV. The Uniform Securities Act defines an investment adviser representative as anyone who is a partner, officer, director, or other employee or person associated with an investment adviser (other than clerical or ministerial personnel) who makes recommendations or provides advice regarding securities; manages accounts or portfolios of clients; determines which recommendations or advice should be given; solicits, offers, or negotiates for the sale of advisory services; or supervises any such persons. Remember, an individual or firm may be registered as an investment adviser, but only an individual may be an investment adviser representative.

With regard to the keeping of records, the Uniform Securities Act states that: broker-dealers must keep records for 3 years. broker-dealers must keep records for 5 years. investment advisers must keep records for 3 years. investment advisers must keep records for 5 years. A)I and IV. B)II and III. C)I and III. D)II and IV.

A)I and IV. Under the USA, recordkeeping requirements are slightly different for advisers and broker-dealers in that broker-dealers retain records generally for three years, whereas IAs retain them for five years.

Mary Baker operates an investment advisory company. Eight years ago, she was the subject of an SEC investigation involving improper actions between her customers and herself which resulted in a $5,000 fine. Under the Investment Advisers Act of 1940, Mary's obligation to her clients is to: disclose to prospective clients in her Form ADV Part 2 that she was the subject of a proceeding and the proceeding's outcome. make disclosures in her Form ADV Part 2 regarding the case only if the prospect becomes a client. make disclosures in her Form ADV Part 2 only if the event was resolved her favor, or was reversed, suspended or vacated. A)I only. B)I, II and III. C)I and III. D)II only.

A)I only. If an adviser has been the subject of a material criminal, civil, or regulatory action within the past ten years, that fact must be disclosed to all clients and prospective clients in the Form ADV Part 2A. The only time disclosure of an investigation need not be made is when the event was resolved her favor, or was reversed, suspended or vacated. In other words, no guilty verdict, no fine.

An investment adviser is required to disclose to a client the amount of compensation received from which of the following third parties? Compensation on the client's transactions executed through a broker-dealer. Compensation received from an issuer of a security recommended to the client. Compensation received from any nonsecurities products recommended to the client. A)I, II and III. B)II only. C)I and II. D)I only.

A)I, II and III. Investment advisers must disclose the amount of compensation received or to be received from any third party in connection with recommendations made to a client. This includes compensation from any broker-dealer, compensation from any issuer, and compensation from any nonsecurities entities.

Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? An office from which the representative regularly provides advisory services to clients. A location published in a professional directory, indicated on business cards, or telephone book listing that identifies it as a place where the representative will be available to meet or communicate with clients. A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business at that site. A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business. A)I, II and III. B)I only. C)I and II. D)I, II, III and IV.

A)I, II and III. The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, or any other location held out to the public as a location where the representative will do any of these activities. The frequency of use is not a factor. Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. A hotel room is not included when it is not advertised and only used with existing clients, presumably when the adviser is traveling through their state.

According to SEC interpretations, which of the following activities fall under the fiduciary responsibility of an investment adviser? Exposing all conflicts of interest. Putting the client's interest first. Acting with upmost good faith. Not misleading clients. A)I, II, III and IV. B)I and II. C)II and III. D)I and IV.

A)I, II, III and IV. The fiduciary responsibility of an investment adviser (or IAR) covers all of these actions.

An investment adviser plans to sell securities out of its own investment account to an advisory client. In order to do so, which of the following is required? A reduction in the fee equivalent to the profit made on the trade Consent of the client before completion of the trade Written disclosure of the adviser's capacity before completion of the trade Notification to the Administrator of the adviser's plan to act as a principal A)II and III B)II and IV C)I and IV D)I and III

A)II and III In order to act as a principal (or agent) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client

According to the Uniform Securities Act, which of the following is an investment adviser representative? A clerical employee of the AAA Investment Management Company, an investment advisory firm registered in the state, that offers investment portfolio services to the public. An employee of AAA Investment Management Company who is properly registered under the USA and supervises analysts who provide research to clients. An employee of a federal covered adviser with an office in the state who offers investment advice to the public. An agent of a broker-dealer with strong investment opinions who sells securities only on a commission basis A)II and III. B)I and II. C)I and IV. D)III and IV.

A)II and III. An investment adviser representative means any partner, officer, director, or other individual, except clerical or administrative personnel, who is employed by an investment adviser that is registered or required to be registered. Therefore, unregistered personnel are not investment adviser representatives. An employee who supervises analysts who deal with the public must be an investment adviser representative. The employee of the federal covered adviser with an office in the state is also an investment adviser representative. The agent is an agent of a broker-dealer, not an investment adviser representative.

As defined in SEC Release IA-1092, which of the following is a pension consultant? A)Persons suggesting portfolio managers to administrators of employee benefit plans. B)A person who prepares a plan for a client's future based on analyzing needs, objectives, tax situations, and resources. C)A person who provides securities-related advice for compensation. D)A person who charges a fee for advising retirees on how to maximize their pension payouts.

A)Persons suggesting portfolio managers to administrators of employee benefit plans. Pension consultants provide various forms of investment advice to administrators of employee benefit plans. They might manage the assets or, as in this case, provide suggestions of portfolio managers.

Which of the following are examples of the prohibited business practice known as front running? An investment adviser publishes a strong buy recommendation for XYZ common stock and then purchases a large block for the firm's own account several days later. An investment adviser publishes a strong buy recommendation for ABC common stock several days after purchasing a large block for the firm's own account. An analyst informs an IAR that he is going to discuss the fact that he has changed a recent buy recommendation to a sell when he appears on cable TV later that afternoon. The IAR immediately establishes a large short position in that stock. An IAR purchases 10,000 shares of DEF 6% preferred stock for 4 of her income-oriented clients. It takes several separate trades to fill the entire order, and the prices range from $24.25 to $24.33. The IAR allocates the shares, giving price preference to clients taking the largest positions. A)II and III. B)I and IV. C)II and IV. D)I and III.

A)II and III. Front running is the prohibited practice of placing an order to benefit from news not yet released or orders that will impact the market. An adviser acquiring stock and then publishing a buy recommendation or an IAR benefiting from an analyst's news before public release are examples of this type of wrongdoing. Although allocation based on client positions is a prohibited practice, it is not front running.

Under SEC Release IA-1092, the term investment adviser does NOT include which of the following? A broker-dealer who charges for investment advice. A publisher of a financial newspaper. A person who sells security analysis. A CPA who, as an incidental part of his practice, suggests tax-sheltered investments to wealthier clients. A)II and IV. B)I and III. C)I and IV. D)II and III.

A)II and IV. A publisher of a financial newspaper and a CPA who, as an incidental part of his practice, suggests tax-sheltered investments to high tax bracket clients are not investment advisers.

Under the Uniform Securities Act, which of the following are excluded from the definition of investment adviser, provided the advice is incidental to their profession? Banks. Lawyers. Broker-dealers. Teachers. A)II and IV. B)I and III. C)I and IV. D)II and III.

A)II and IV. The key to this question is that it deals with professionals qualifying for an exclusion. Lawyers, accountants, engineers, and teachers are excluded from the definition when the advice provided is incidental to the practice of their profession. Financial institutions, such as banks, savings and loans, and trust companies, are excluded without any requirement that advice be rendered on an incidental basis. Broker-dealers are not included in the list of professionals qualifying for this exclusion; however, if they do not receive special compensation when advising their clients, they too are excluded.

Which of the following are required to register with a state Administrator? A person that only provides impersonal investment advice through newspaper columns, magazine articles, or a financial publication of general and regular circulation. Investment adviser representatives of federal registered advisers who have natural person clients and have a place of business in the state. An investment adviser who has no place of business in the state and has 5 advisory clients in the state. An employee of a federal registered investment adviser who has no natural person clients and is limited to performing administrative functions. A)II only. B)I, II, III and IV. C)I only. D)II and III.

A)II only. Under state law, the publication of investment advice that does not provide advice based on the specific investment situation of each client excludes the publisher from the definition of an investment adviser. The investment adviser representatives of a federal registered adviser are required to register in each state in which they have a place of business. The act provides a de minimis standard exemption from state registration for advisers who have no place of business in a state and have fewer than six clients resident in that state. A person employed and supervised by an investment adviser who is not an investment adviser representative with natural person clients and whose work is confined to clerical or administrative functions is not required to register with state Administrators.

Which of the following statements is (are) TRUE? A person with a place of business in the state who transacts business exclusively for the accounts of banks and savings institutions is not a broker-dealer under the Uniform Securities Act. A person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 who offers investment advice to individual investors residing in this state, and has less than $25 million in assets under management, is subject to the jurisdiction of the state Administrator. A person included in the definition of an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular basis as a business headquartered in a state, is subject to payment of filing fees required by the state Administrator. Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration. A)III and IV. B)I and II. C)I and IV. D)II and III.

A)III and IV. A person who conducts business exclusively with banks and savings institutions is a broker-dealer under the USA if he has a place of business in the state. Had the person no place of business in the state and conducted business exclusively with banks and savings institutions, he would not be considered a broker-dealer subject to the regulatory control of the state Administrator. Under the NSMIA, any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a federal covered adviser. Therefore, regardless of the amount of money under management, the state has no jurisdiction. A federal covered adviser may be subject to payment of state filing fees. Broker-dealers who supply investment advice incidental to their business and receive no special compensation for it are not investment advisers.

KAPCO Advisers is registered as an IA with the SEC. Their only office is in New Jersey and all IARs are registered there. IAR Jones has ten clients who reside in Ohio; IAR Cohen has six clients who live in Kentucky; and IAR Brown has three clients who are Georgia residents. In addition, Brown conducts a quarterly presentation at the Augusta National Golf Club where he discusses current market developments. The seminar is restricted to Club members only. Which of the following is CORRECT? Jones must register in OH. Cohen must register in KY. Brown must register in GA. Because all three are registered in the state where KAPCO maintains its principal office, no further registrations are necessary for these IARs. A)III only. B)I and III. C)I, II and III. D)IV only.

A)III only. Under Section 203A of the Investment Advisers Act of 1940, any IAR with a federal covered adviser who has no place of business in a state is not required to register in that state, even when the number of clients the adviser has in a state exceeds the de minimis level. Holding a public seminar on a quarterly basis in the same location would be considered having a place of business in Georgia (even though attendance is limited to Club members only - they are still members of the general public).

Which of the following actions by an investment adviser representative would be an unethical practice under the Uniform Securities Act? A)Indicating, in an advisory contract, that, in order to maximize account performance, it will sometimes be necessary to waive compliance with certain provisions of the Uniform Securities Act or of the Investment Advisers Act of 1940. B)Splitting compensation with a sales assistant who is registered as an IAR with the same firm. C)Failing to enter a sell order for a security when its price is falling, when the representative has discretionary authority. D)Recommending securities that result in negative returns in the customer's account.

A)Indicating, in an advisory contract, that, in order to maximize account performance, it will sometimes be necessary to waive compliance with certain provisions of the Uniform Securities Act or of the Investment Advisers Act of 1940. The Model Rule is very clear that waivers of this type are never permitted - you just can't waive compliance with the laws. Investment adviser representatives' securities recommendations that result in losses are not a violation of the Uniform Securities Act. Splitting compensation with a fellow licensed employee is not a violation of the Uniform Securities Act. An adviser representative with discretionary authority is not under an obligation to sell a security simply because it is declining in price.

Long-Term Financial Solutions, Inc. (LTFSI), a federal covered registered investment adviser, files a Form ADV-W indicating the business is closing. It is being acquired by another federal covered adviser, Gold and Sylver Advisers, LLC. Which of the following statements is correct? A)LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least 3 years after the acquisition. B)As the successor firm, Gold and Sylver Advisers must keep copies of the LTFSI corporate charter for at least 3 years after LTFSI's acquisition. C)Gold and Sylver will not have to amend their Form ADV Part 1 until the filing of their annual updating amendment. D)Gold and Sylver must notify all clients of LTFSI that their advisory contracts have been assigned.

A)LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least 3 years after the acquisition. When an investment adviser ceases to exist, either through going out of business or being succeeded by another firm (as is the case here), it is their responsibility to ensure that articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor be preserved until at least 3 years after termination of the enterprise. Although it is true the contracts have been assigned to the successor firm (Gold and Sylver), the consent for that had to be obtained by LTFSI. A change of this nature requires prompt amendment to the Form ADV Part 1.

Under the NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements regarding the use of reports is TRUE? A)One adviser may distribute a report prepared by another adviser if the source of the report is disclosed. B)An adviser must disclose the source of any information used in making a recommendation whenever requested by the client. C)An adviser is prohibited from basing a recommendation wholly on the product of someone else's work. D)An adviser is required to disclose all sources of information used in making a recommendation to a client.

A)One adviser may distribute a report prepared by another adviser if the source of the report is disclosed. An investment adviser is not prohibited from providing clients with recommendations or reports prepared by others (3rd party reports), but the adviser must disclose the true source of the recommendations or reports. However, the disclosure requirement does not apply to the research material, including 3rd party reports, an adviser uses in formulating investment advice.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following is unethical? A)Recommending a certain limited partnership investment to all clients. B)Borrowing funds for personal use from a client that is a bank. C)Omitting nonmaterial facts in a presentation to an advisory client about a recommended investment. D)Exercising discretion with regard to the time or price of an order without written authorization from the client.

A)Recommending a certain limited partnership investment to all clients. Recommending an investment without determining its suitability to each client is considered unethical. When the same investment is recommended to all clients, it is called a blanket recommendation and almost always raises the suitability question. Time and price are not considered to be discretion so no written authority is needed. While borrowing from clients is usually prohibited, that rule is suspended when the lender is a person in the business of lending money such as a bank or a broker-dealer. Omitting nonmaterial facts is permissible when recommending securities to a client; the material facts must be disclosed.

Gibraltar Advisers is a federal covered investment adviser with offices in 13 states. However, Nancy, a Gibraltar employee who solicits accounts for Gibraltar out of an office in one of those states, is required to complete the NASAA examination and register at the state level. Why might this occur? A)The Uniform Securities Act requires investment adviser representatives employed by federal covered advisers, including solicitors, to register at the state level regardless of whether the firm is required to register at the state level, as long as the IAR has a place of business in the state. B)All employees of Gibraltar must register at both the state and federal level. C)The state securities Administrator has stricter standards than federal standards and requires investment associates to register at the state level. D)The state securities Department is required to register all individuals serving professionally in the investment industry.

A)The Uniform Securities Act requires investment adviser representatives employed by federal covered advisers, including solicitors, to register at the state level regardless of whether the firm is required to register at the state level, as long as the IAR has a place of business in the state. Certain individuals employed by investment advisers, including those whose only function is to solicit advisory business, are deemed to be investment adviser representatives. Even though the firm does not have to register in any state, IARs must register in each state in which they have a place of business.

An investment adviser holds a small position in the common stock of ABC Corporation with a current market value of approximately $5,000. ABC Corporation will offer additional stock in a subsequent primary offering and the adviser recommends the stock to several clients. Which of the following reflects the most appropriate behavior on the part of the adviser? A)The adviser may recommend the stock provided that he discloses to clients receiving the recommendation that he holds a small position in the stock. B)The adviser should not recommend a stock in which he holds a position because it is a prohibited conflict of interest. C)It is not necessary for the adviser to disclose that he holds a position in the recommended stock because the adviser's position is obviously too small to influence the price of the stock. D)The adviser may continue to recommend the stock to his clients provided he liquidates any current holdings in the recommended security.

A)The adviser may recommend the stock provided that he discloses to clients receiving the recommendation that he holds a small position in the stock. It is not prohibited for an investment adviser to recommend that clients acquire shares in a corporation in which the adviser holds a position. However, the adviser should disclose to clients receiving the recommendation that he holds the stock in his account.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following regarding an adviser's authority to place orders for a client's account is TRUE? A)The client's oral approval is sufficient for a specific order. B)Clients must give written approval for an order involving a stated amount of a specified security. C)An adviser is not required to obtain authorization to place orders for a client's account unless a conflict of interest is involved. D)An adviser may, without the client's approval, place a sell order for the purpose of avoiding losses but may not place an order to buy securities unless the client has authorized the purchase.

A)The client's oral approval is sufficient for a specific order. For a specific order, oral authority is sufficient. An adviser may not place any order for a client's account without proper authority.

Which of the following statements regarding registration requirements under the USA and the Investment Advisers Act of 1940 is TRUE? A)The recordkeeping requirements of SEC registered investment advisers require maintaining a copy of the IA's code of ethics. B)State registered investment advisers do not need to submit ADVs to the Investment Advisers Registration Depository (IARD) because they register with state securities Administrators, not the SEC. C)SEC registered investment advisers are immune from prosecutorial action by state securities regulations because they are covered by federal securities legislation. D)Under the USA, state securities Administrators may not require SEC registered investment advisers to submit a notice filing because the NSMIA prevents overlapping regulation.

A)The recordkeeping requirements of SEC registered investment advisers require maintaining a copy of the IA's code of ethics. Every investment adviser registered with the SEC must maintain and adhere to a written code of ethics. A copy of this code must be kept. State registered investment advisers register with state securities Administrators through the IARD, an electronic depository used by both state and federal registered advisers. The USA, as amended by the NSMIA, does allow for state securities Administrators to require notice filings of their Forms ADV from federal registered advisers. Although federal registered investment advisers are immune from regulation by the states, they are not immune from prosecution for fraudulent securities sales practices.

Martin holds both the CPA and the CFP designations. Within the previous year, if he has provided portfolio advice to approximately 40 clients, is Martin required to register as an investment adviser? A)Yes, because he provides investment advice on a more than incidental basis. B)Yes, because he could receive commission income from investment clients. C)No, because he falls under the de minimis exemption having relatively few clients. D)No, because he is a CPA.

A)Yes, because he provides investment advice on a more than incidental basis. Although Martin is an accountant, he provides investment advice on a more than incidental basis (typically regarded as more than 10 client contacts per year). The de minimis exemption under the Uniform Securities Act is no more than 5 retail clients, but that only applies when there is no place of business in the state and nothing here indicates that these clients are spread around the country.

An individual employed by or associated with an investment adviser that is registered or required to be registered under the Uniform Securities Act, or who has a place of business in this state and is employed by or associated with a federal covered adviser and whose only role is to solicit, offer, or negotiate for the sale of or sell investment advisory services would be considered A)a solicitor and required to register as an IAR B)an IAR only if soliciting noninstitutional clients C)a solicitor and required to register as an IA D)an administrative employee exempt from registration

A)a solicitor and required to register as an IAR The term "investment adviser representative" is quite broad and includes any partner, officer, director of (or a person occupying a similar status or performing similar functions) or other individual employed by or associated with an investment adviser that is registered or required to be registered under the USA, or who has a place of business in this state and is employed by or associated with a federal covered adviser; and who does any of the following: (1) makes any recommendations or otherwise renders advice regarding securities, (2) manages accounts or portfolios of clients, (3) determines which recommendations or advice regarding securities should be given, (4) solicits, offers, or negotiates for the sale of or sells investment advisory services, or (5) supervises employees who perform any of the foregoing.

Under SEC Release IA-1092, a person is in the business of rendering investment advice if the person: A)advertises his services and conducts business on a regular basis for compensation. B)offers advice on securities to charitable organizations as a free community service. C)accurately advertises that his advice is exclusively devoted to analysis of U.S. government securities. D)offers advice at no charge as a part of a diversified business.

A)advertises his services and conducts business on a regular basis for compensation. Under SEC Release IA-1092, a person is in the business of rendering investment advice if the person advertises his services and conducts business on a regular basis. A person is not in the business of offering investment advice if no specific compensation is received for providing the advice, or if the advice is given to charitable organizations for free. An adviser who solely provides advice on U.S. government securities is excluded from the definition of an investment adviser under the Investment Advisers Act of 1940.

The Uniform Securities Act contains a number of definitions. A person who is in the business of rendering investment advice for compensation is known as: A)an investment adviser. B)a broker-dealer. C)a fiduciary. D)an issuer.

A)an investment adviser. This is the straightforward definition of an IA. Yes, an IA does act in a fiduciary capacity, but are all fiduciaries investment advisers? No.

A client has a $250,000 portfolio accumulated by aggressively trading speculative stocks. The client grants discretionary authority to a registered investment adviser and directs the adviser to continue the speculative strategy. If after 1 year the account value has declined by ½ and the client complains to the adviser about the performance, the investment adviser should: A)do nothing since the adviser acted in accordance with the customer's directions. B)refund the management fee to partially offset the loss. C)register the complaint with the SEC. D)refund the entire loss.

A)do nothing since the adviser acted in accordance with the customer's directions. The investment adviser acted in accordance with the customer's directions and therefore, should do nothing. If, however, the complaint was in writing, it must be noted and placed into the complaint file with a description of the action taken and final disposition.

A state registered investment adviser must keep business records available for examination by the Administrator: A)for five years. B)for three years. C)indefinitely. D)for a term specified by the Administrator.

A)for five years. Records must be preserved for five years. However, the Administrator may prescribe a different period for certain types of records. For example, when an IA's business closes down, partnership agreements or articles of incorporation must be kept for three years after the business has ended.

As a fiduciary, the investment adviser representative owes his clients an affirmative duty of utmost good faith, and full and fair disclosure of all material facts. This affirmative duty of disclosure is required by the IAR in all of the following situations EXCEPT: A)he has donated funds to a nonprofit medical research institute that owns securities that the investment adviser representative has recommended. B)he receives compensation from his employing broker for transactions that are executed through the brokerage house. C)the advice he is providing is outside the scope of his brokerage employment and is not under the control or supervision of his employer. D)his family has a beneficial interest in a private medical equipment firm that he recommends to the client.

A)he has donated funds to a nonprofit medical research institute that owns securities that the investment adviser representative has recommended. The investment adviser representative need not disclose that he donated funds to a nonprofit research institute. No conflict of interest is present that requires an affirmative duty to disclose. The fact that the institute owns securities consistent with the IAR's recommendations is not relevant to his relationship with his client. The IAR has an affirmative duty to disclose all material facts in all the other choices.

An investment adviser's contract contains the following statement: "While GEMCO Advisers agrees to use its best efforts in the management of the portfolio, GEMCO shall not be responsible for errors in judgment or losses incurred on investments made in good faith, and its liability shall be limited expressly to losses resulting from fraud or malfeasance, or from violation of applicable law." Under the USA, this statement: A)is an improper waiver and makes the contract null and void. B)clearly defines the parameters of the adviser's responsibilities. C)complies with the investment adviser's fiduciary liability. D)offers protection to the client by limiting those acts for which the adviser can be sued.

A)is an improper waiver and makes the contract null and void. The regulators tend to be quite strict on the use of hedge clauses waiving certain rights of clients or obligations of IAs. More than likely, the Administrator would view this language as potentially misleading to clients, given the adviser's duties as a fiduciary. Moreover, the adviser's statement that it assumes liability for "violation of applicable law" only compounds the problem since it was unlikely that the client would realize that "applicable law" does, under several circumstances, provide a right of action for even good faith "errors in judgment."

Under the Investment Advisers Act of 1940, an investment adviser that operates in only one state has no private funds as clients, and restricts advice only to securities not listed on a national stock exchange: A)is exempt from registration with the SEC under the act. B)is exempt from both state and federal registration. C)must file as an associate under the act. D)must register under the act.

A)is exempt from registration with the SEC under the act. While not excluded from the definition of investment adviser, some advisers are exempt from the requirement to register with the SEC. These include investment advisers whose clients are all residents of the state in which the adviser maintains its principal office and that confine their advice to securities not listed with a national exchange or that enjoy unlisted trading privileges on a national exchange; investment advisers whose clients are limited to insurance companies; and as long as none of their clients are private funds.

An investment adviser has legal access to a broker-dealer's confidential research document and uses the information to support a recommendation to a client. The investment is successful. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, the adviser: A)need not disclose the source of the information. B)must notify the client that the recommendation was based on the broker-dealer's research document. C)must provide the client with a copy of the research document. D)must share the commission with the broker-dealer that prepared the research document.

A)need not disclose the source of the information. If an adviser provides its clients with reports or recommendations prepared by a third party without disclosure of source, the adviser has acted unethically. There is, however, an exception to this rule which happens to apply here. If the adviser uses third-party reports as a basis for its own recommendation or as a support to its own recommendation to its client, it does not have to disclose this information.

An investment adviser need not register in a state if it has: A)no place of business in the state and only advises 3 insurance companies located in the state. B)a place of business in the state and only advises employee benefit plans with more than $1 million. C)no place of business in the state, does not direct business communications in the state, and advises more than 5 high net worth individuals located in the state. D)a place of business in the state and advises fewer than 5 banks.

A)no place of business in the state and only advises 3 insurance companies located in the state. An investment adviser need not register in a state if it has no place of business in the state and advises such institutional clients as insurance companies or banks. The number of clients is irrelevant as long as they all are of an institutional nature. Without exception, the USA requires an investment adviser to register in a state if it has a place of business in the state. With no place of business in the state, registration would not have been required regardless of the number of banks who were clients. With 5 or fewer noninstitutional clients, regardless of their net worth, no registration would be necessary under the de minimis provisions of the USA.

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office: A)only the investment adviser representative must notify the Administrator promptly. B)only the terminating investment adviser must notify the Administrator. C)the investment adviser representative and the employing adviser must notify the Administrator promptly. D)the investment adviser representative and the federal covered advisers must notify the Administrator promptly.

A)only the investment adviser representative must notify the Administrator promptly. If you are working for a registered investment adviser within a specific state, that state securities administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the State Securities Administrator of your employment. A federal registered investment adviser is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered investment adviser, it becomes your duty to notify the State Securities Administrator that you are working there as well as when you terminate.

A" fiduciary" is a: A)person entrusted with the duty of acting for the benefit of another party. B)broker who solely conducts agency trades. C)principal in a broker-dealer who specializes in proprietary trading. D)person who sells securities to the public on a nondiscretionary basis.

A)person entrusted with the duty of acting for the benefit of another party. A person entrusted with the duty of acting for the benefit of another party is a fiduciary and must follow the standards of fiduciary duty appropriate to the nature of the relationship.

Under the Uniform Securities Act, the term investment adviser does not exclude a: A)person who is paid a fee for advising customers on securities. B)publisher of a magazine. C)person who is paid a commission for selling securities. D)lawyer.

A)person who is paid a fee for advising customers on securities. An investment adviser is any person who is in the business of selling investment advice and is paid a fee for doing so.

The Investment Advisers Act of 1940 addresses all of the following EXCEPT the: A)registration of new issues of securities sold by investment advisers. B)establishment of procedures for registration of investment advisers. C)the establishment of standards of ethical conduct for investment advisers. D)registration of individuals who are in the business of giving investment advice.

A)registration of new issues of securities sold by investment advisers. The Investment Advisers Act of 1940 does not establish registration procedures for the sale or issuance of securities, but it does establish requirements for the registration of persons who are in the business of giving investment advice. The Securities Act of 1933 regulates the issuance of new corporate securities.

All of the following are unethical business practices of investment advisers as determined by NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers EXCEPT A)releasing confidential customer information because of a court subpoena B)exercising discretionary authority in a client's account within 15 business days of the account being opened without written authorization C)inducing trading in a customer's account that is excessive in frequency D)omitting material facts about the nature of the advisory services offered

A)releasing confidential customer information because of a court subpoena The investment adviser is required to release confidential information under a court subpoena, therefore it is not a violation. Omitting material facts about the nature of advisory services offered ​or inducing excessive trading in a customer's account are considered unethical practices under the Model Rule. Finally, exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten (10) business days (not 15) after the date of the first transaction placed pursuant to oral discretionary authority is unethical, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both (the price and time exception).

A registered investment adviser recommends a stock that will be sold to an advisory client in a principal transaction. The broker-dealer that will sell the stock is also registered as an investment adviser and employs the investment adviser as an agent. This transaction: A)requires both written disclosure to and the consent of the client prior to the completion of the transaction. B)requires written disclosure to the client. C)is prohibited. D)requires the consent of the client.

A)requires both written disclosure to and the consent of the client prior to the completion of the transaction. Under normal circumstances, when a broker-dealer acts as a principal in a trade, that fact is noted on the confirmation. However, in this case, because it is an investment adviser who is recommending the transaction, both written disclosure by the adviser and consent by the client are required prior to completion of the transaction even when an adviser sells securities through an affiliated firm in a principal transaction.

An investment adviser with $100 million or more in assets under management may register with: A)the SEC. B)FINRA. C)the NYSE. D)NASAA.

A)the SEC. Investment advisers who manage at least $100 million but less than $110 million may register with either the SEC or the state Administrator, not FINRA. Advisers with $110 million or more of assets under management must register with the SEC. Advisers with less than $100 million of assets under management may not register with the SEC and must register at the state level. Once registered with the SEC, the adviser may maintain that registration as long as AUM do not drop below $90 million. While the North American Securities Administrators Association (NASAA) is an important entity, it has no registration powers.

In 1987, the SEC promulgated release IA-1092. One of the significant effects of the release was to expand the definition of investment adviser to include some financial planners. However, a financial planner would not be considered an investment adviser when: A)the extent of his planning is limited to wills, estates and trust creation. B)he is a licensed insurance agent and credits the commission earned on the sale of insurance policies included in a comprehensive financial plan against the fee charged for the plan. C)he does financial planning as part of offering a wrap fee program as a licensed agent of a broker-dealer. D)there is an upfront fee charged for creating a comprehensive financial plan, even when the plan is not put into place.

A)the extent of his planning is limited to wills, estates and trust creation. Wills, estates and trusts are not securities so any advice given on them does not make one an investment adviser. Look for the term "comprehensive financial plan" because that always includes securities advice and, as long as a fee is charged, even when the advice is not followed, registration as an IA (or perhaps IAR) is required. Wrap fee programs may only be offered by IAs or IARs.

An individual employed by a federal covered adviser would be required to become registered as an IAR in the state if A)the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office B)the only clients receiving the individual's advice are banks located in states where the individual does not maintain a place of business C)the only clients receiving the individual's advice are insurance companies located in states where the individual does not maintain a place of business D)the only function performed by the individual is preparing the layout of a research report prepared by the firm

A)the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office Individuals performing the duties of an IAR for a federal covered investment adviser are only required to register in states in which they maintain a place of business. Although pension plans (as long as the total assets of the plan are at least $1 million) are considered institutional investors for exemption purposes, that exemption only applies when the individual has no place of business in the state.

One of the differences between broker-dealers and investment advisers is the disclosures that must be made when the IA is acting as a principal or agent in a transaction with an advisory client. In the case of a firm registered in both capacities, those disclosures would not be required when: A)there was a transaction with a client of both entities, but the trade was not based upon advisory services rendered. B)approval was granted by a principal of the firm. C)the transaction was in an exempt security. D)cleared with the Administrator.

A)there was a transaction with a client of both entities, but the trade was not based upon advisory services rendered. Under those conditions where a firm is registered as both a BD and an IA, the disclosure requirements incumbent upon IAs do not apply when the transaction is solely related to the firm's capacity as a BD.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may guarantee investment results: A)under no circumstances. B)if the guarantees are reasonable in view of the results other clients have obtained following the adviser's recommendations. C)if the adviser uses a system based on objective evaluation of data, can document consistent gains using the system, and discloses all the limitations and difficulties of using the system to the client. D)as long as the basis for making guarantees is fully and accurately described in the application for registration filed with the Administrator.

A)under no circumstances. Under no circumstances may an adviser guarantee that a client will achieve any investment result-either that a gain will be achieved or that no loss will occur.

A registered broker-dealer is under common control with a registered investment adviser. An individual who is an agent of the broker-dealer and an investment adviser representative of the adviser has a client with $250,000 under an asset management program. This individual calls the client and suggests the purchase of 500 shares of RMBM common stock as an appropriate addition to the portfolio. The broker-dealer is a market maker in RMBM, and the sale will be made as a principal, a fact that is disclosed to the client on the trade confirmation. In this situation, the registered person has acted: A)unlawfully in that investment advisers are required to make written disclosure as well as receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. B)lawfully in that disclosure of capacity is not necessary when executing trades in managed accounts. C)lawfully in that the disclosure of capacity was made on the confirmation. D)unlawfully in that any stock the broker-dealer is a market maker in is probably not suitable for a managed money client.

A)unlawfully in that investment advisers are required to make written disclosure as well as receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. The rules regarding investment advisers and account trading are much stricter than those for broker-dealers because of the fiduciary responsibility of the adviser. Any action that results in a transaction in which the firm or an affiliate acts in either a principal or agent capacity requires the adviser to provide written disclosure of that fact to the client and obtain approval from the client prior to completion of the transaction.

Which of the following parties is most likely to be considered an investment adviser under the Investment Advisers Act of 1940? A)The trust department of Citibank, which handles billions of dollars in trust assets. B)A CPA who manages investment accounts for 50 clients and charges hourly fees for the service. C)Dow Jones, Inc., publisher of "The Wall Street Journal". D)An expert in fixed income securities whose only clients are individuals and whose only recommendations deal with securities issued or guaranteed by the U.S. Treasury.

B)A CPA who manages investment accounts for 50 clients and charges hourly fees for the service. The Investment Advisers Act of 1940 excludes accountants providing investment advice from the definition of investment adviser only when the advice is given on an incidental basis and with no specific compensation. A publisher of periodicals of general circulation, whether or not the publication covers financial matters, is excluded from the definition, as is an adviser whose advice is exclusively limited to U.S. government securities. Banks are also excluded from the definition of investment adviser under the act.

Which of the following would probably be an acceptable hedge clause under SEC interpretations? A)"Kapco Advisers shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care.". B)A clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, or communications disruptions. C)"It is understood that we will expend our best efforts in the supervision of the portfolio, but we assume no responsibility for action taken or omitted in good faith if negligence, willful or reckless misconduct, or violation of applicable law is not involved.". D)A hedge clause that seeks to limit liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished.

B)A clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, or communications disruptions. A clause containing provisions that are beyond the IA's control is acceptable since they do not attempt to limit or misstate the adviser's fiduciary obligations to its clients.

Which of the following is an investment adviser? A)A bank that purchases securities on behalf of its custodial accounts. B)A retired mechanical engineer who offers investment advice in his areas of expertise to a small number of clients for a fee. C)A lawyer with sophisticated investment experience who gratuitously offers his clients advice on the value of securities. D)A columnist for a major news magazine who writes on the business and economic functions of banking institutions.

B)A retired mechanical engineer who offers investment advice in his areas of expertise to a small number of clients for a fee. Even though an engineer is part of the acronym LATE, a retired or active mechanical engineer who offers investment advice to clients for a fee falls within the definition of investment adviser under the Uniform Securities Act. The LATE exclusion only applies to incidental advice given in the practice of a profession.

Which of the following activities is most likely to be considered by the SEC as meeting the business standard element in the definition of an investment adviser? A)Advertising investment services but receiving no separate compensation for the services. B)Advertising investment services to the public and providing them routinely. C)Issuing reports on macroeconomic conditions. D)Giving specific investment advice only on rare and isolated occasions.

B)Advertising investment services to the public and providing them routinely. Routinely providing investment services meets the business standard element, which the SEC described as giving advice such that it constitutes a business activity conducted with some regularity. In addition, offering services through advertising suggests that the adviser is publicly in the business of offering investment advice. Giving advice on the economy (macroeconomic conditions) is not equivalent to giving advice on specific investment recommendations, and therefore is not a covered activity under the Investment Advisers Act of 1940.

Which of the following actions by an investment adviser registered in 3 states is permitted? A)Delivering the brochure within 48 hours after signing of the contract, as long as there is a 5-day, penalty-free withdrawal provision B)Announcing that the first 50 new clients to sign up will receive a 25% discount on their fees for the first year C)Stating in the advisory contract that fees will be reimbursed if account performance is less than agreed upon D)Guaranteeing a rate of return equivalent to a 5-year insured bank CD or they waive their yearly fees

B)Announcing that the first 50 new clients to sign up will receive a 25% discount on their fees for the first year This is not considered discrimination, because the discount applies equally to all (if they are among the first 50). Fee reimbursement or waivers are not permitted. The 5-day withdrawal provision applies to state registered investment advisers when the brochure is not delivered at least 48 hours prior to (not after) the signing of the contract.

Jack, an investment adviser representative of Gibraltar Investment Advisers, brought a large account into the advisory firm. Under which of the following circumstances may the firm compensate Jack on the basis of the firm's earnings on this new account? Jack has passed the Series 7 general securities representative examination. It has been disclosed to the client that Jack is to be compensated in conjunction with bringing the account into the firm. If required by the Administrator, Jack is appropriately registered as an investment adviser representative. Jack is appropriately registered as an investment adviser. A)II and IV. B)II and III. C)I and IV. D)I and III.

B)II and III. Investment adviser representatives may be compensated for introducing accounts to the advisory firm if disclosure of the compensation is made to the client and if the individual is appropriately registered as an IAR in jurisdictions where such registration is required. The firm is the adviser and the individual is the investment adviser representative.

Which of the following statements regarding the educational background of officers of investment advisers who are registered with the SEC is TRUE? A)Higher educational standards apply to advisers who will take custody of customer funds or securities. B)Educational background is disclosed on Form ADV Part 2. C)Minimum educational standards apply to advisers who will exercise discretion. D)Education standards are established by the SEC.

B)Educational background is disclosed on Form ADV Part 2. The SEC does not establish minimum educational standards for investment advisers. It does, however, require disclosure of the educational background on Form ADV of the individuals who are officers or who will be managing customer assets.

Under the Uniform Securities Act, which of the following would NOT be considered a fraudulent or prohibited action by an investment adviser? A)Failing to notify clients of the resignation of a minority partner of the firm within a reasonable period of time. B)Failing to maintain a surety bond when not exercising discretion or not maintaining custody of customer funds and securities. C)Failing to obtain a client's written verification of an advisory contract renewal. D)Implying that federal covered securities are exempt from registration with the state because of added safety provided by SEC scrutiny.

B)Failing to maintain a surety bond when not exercising discretion or not maintaining custody of customer funds and securities. If an adviser does not take custody of customer funds or exercise discretion, the state administrator would not require him to maintain a surety bond. An adviser can never represent that a security registered with SEC or listed on an exchange has been approved by the regulators. The advisory contract must be signed by the client. In the case of an advisory firm organized as a partnership, a change to a minority interest requires notification to all clients within a reasonable period of time.

Under the Investment Advisers Act of 1940, which of the following meets the definition of an investment adviser? A)Ellen gives investment tips to friends who work with her at a department store; her friends often make money when they follow her advice. B)Harry provides a range of financial services for a fee; investment advice is included but is not his primary business. C)Jack is paid to advise clients regarding the purchase of futures contracts. D)Karen calls herself a financial planner; she helps people budget wisely, pay off their debts, establish savings plans, and set financial goals.

B)Harry provides a range of financial services for a fee; investment advice is included but is not his primary business. Neither Karen nor Jack provides investment advice, and futures contracts are not securities. In Ellen's case, there is no compensation for the investment advice. Harry is a person providing investment advice as part of a regular business for compensation, which is the definition of investment adviser. The fact that investment advice is a minor part of that business is irrelevant.

Under the Uniform Securities Act, which of the following statements is TRUE about an investment adviser who does not have an office in a state and solicits no more than 5 clients in that state? A)He is not liable for violations of the antifraud provisions. B)He is not required to register as an investment adviser in that state. C)He is exempt from the advertising requirements in the state. D)He must file a consent to service of process.

B)He is not required to register as an investment adviser in that state. Investment advisers who have no place of business within the state are not defined under the act as investment advisers if they have no more than 5 clients within the state in a 12-month period. This is known as the de minimis exemption.

A federal covered investment adviser has which of the following obligations regarding the state in which it maintains its principal place of business? It must notify the Administrator of its SEC registration. It must pay state-required filing fees. Its adviser representatives are exempt from state-required exams. It must maintain net worth equal to the higher of federal requirements or those of the state. A)II only. B)I and II. C)I only. D)I, II, III and IV.

B)I and II. A federal covered investment adviser is required to notify the Administrator of its federal covered status and pay any state-required fees. The state may require examinations, such as the Series 65 or 66, but not a net worth in excess of that required under federal law.

When must an investment adviser disclose personal securities transactions to a client? If the adviser makes trades in his own account that are inconsistent with advice given to a client. If the adviser makes trades that are designed to take advantage of the impact caused by recommendations to clients. Investment advisers must disclose all personal transactions to clients. A)I only. B)I and II. C)II only. D)III only.

B)I and II. SEC Release 1A-1092 requires certain disclosures under the antifraud provisions of the Investment Advisers Act. They must disclose an affiliation with a securities broker-dealer if the advisory service is independent of the broker-dealer; the adviser only recommends products offered by the broker-dealer; the adviser will be compensated by the broker-dealer for the transaction; or the products recommended by the adviser are available from other broker-dealers. The adviser must also disclose personal securities transactions if they are designed to take advantage of the market impact caused by recommendations to clients or if personal transactions are inconsistent with the advice given to clients. Advisers must disclose the amount of compensation received from transactions through any broker-dealer, from any issuer, and from sales of nonsecurities products. They are not required to disclose all personal transactions.

Under the Investment Advisers Act of 1940, which of the following investment advisers are exempt from federal registration? All of John's clients reside in his home state, and John offers no advice on any exchange-listed securities. He manages $50 million in assets and none of his clients are investment companies. All of Paula's clients are private funds and she has total assets under management of $200 million with less than $25 million of that belonging to foreign investors. Marie Legard maintains her only office in Paris, France, deals with fewer than 15 clients (none of whom is a registered investment company) in private funds advised by Ms. Legard, has AUM in the U.S. of less than $25 million, and does not hold herself out as an investment adviser in the United States. A)I and II. B)I and III. C)I, II and III. D)II and III.

B)I and III. The exemptions from the SEC registration requirement under the Advisers Act include advisers who render no advice on any exchange-listed security and whose clients are all in one state and certain foreign advisers who do not hold themselves out as investment advisers and have fewer than 15 clients per year. In order to qualify for the private fund adviser exemption, total AUM must be less than $150 million.

An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the USA, this individual must obtain registration as an investment adviser representative must obtain registration as an agent of the broker-dealer is not required to obtain any registration because he is only making cold calls must be adequately supervised A)II and III B)I and IV C)I and II D)III and IV

B)I and IV Broker-dealers offering wrap fee programs must also have registration as an investment adviser. Under the USA, those individuals who solicit on behalf of an IA must register as IARs. If there was an indication in the question that the individual would be receiving compensation from the sale or purchase of securities, then registration as an agent would also be required. Of course, the activities of any employee of any type, must always be under proper supervision.

Under the Uniform Securities Act, an investment adviser is exempt from registration if the person has no place of business in a state and does not direct communication: to more than five noninstitutional clients. to more than 15 noninstitutional clients. within nine consecutive months. within 12 consecutive months. A)II and IV. B)I and IV. C)II and III. D)I and III.

B)I and IV. As long as communications are directed to no more than five noninstitutional clients in a 12-consecutive-month period and the adviser does not have a place of business in the state, an exemption from registration is provided.

An investment adviser must meet the net worth requirements of the Administrator. When doing the computation, which of the following assets would be included: a sofa in the reception area. the value of the copyright on an investment manual authored by the investment adviser. the reputation of the investment adviser. patents held by the investment adviser on a stock tracking software program. A)II, III and IV. B)I only. C)IV only. D)I, II and III.

B)I only. For purposes of this Rule, the term "net worth," means an excess of assets over liabilities. But net worth does not include as assets: goodwill, franchise rights, patents, copyrights, marketing rights, all other assets of intangible nature; home, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual; advances or loans to stockholders and officers in the case of a corporation; and advances or loans to partners in the case of a partnership. So, what's the deal with the sofa? Since the choice specifically says that it is in the reception area, we must assume that it is not a "home" furnishing, rather one in the office and those are not excluded assets.

nder NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may loan money to a client if: the investment adviser is a financial institution in the business of loaning money. the investment adviser is also a broker-dealer. the client is an affiliate of the investment adviser. A)I and II. B)I, II and III. C)I and III. D)II and III.

B)I, II and III. Loaning money to a client is unethical conduct, unless the investment adviser is a financial institution in the business of loaning money, or the client is an affiliated person of the adviser. The broker-dealer is included because broker-dealers lend money to clients in the form of margin loans. Therefore, they are considered to be in the business of loaning money. Margin loans are considered an integral component of the broker-dealer's business of effecting securities transactions.

Under the Investment Advisers Act of 1940, the records that must be maintained by an investment adviser may be kept in which of the following forms? Hard copy. Microfilm. Computer disk. A)I and III. B)I, II and III. C)I only. D)I and II.

B)I, II and III. The Investment Advisers Act of 1940 provides for the storage of records in several ways. Records may be kept in hard copy, or the hard copy may be microfilmed or microfiched. Records originated on computer may be stored electronically.

Under the Investment Advisers Act of 1940, for which of the following is an investment adviser required to disclose to clients the amount of compensation he will receive? Commissions on recommended securities transactions Commissions on insurance sales Incentives from the issuer of a recommended security A)I and II B)I, II, and III C)II and III D)I and III

B)I, II, and III Advisers must disclose compensation received on sales of securities and nonsecurities products and also compensation received from the issuer of a recommended security.

Investment advisers, as fiduciaries, have ethical obligations to act in their client's best interests and in an ethical manner. Engaging in which of the following practices would be unethical, although not fraudulent, for an investment adviser? Lending money to a client with full and fair disclosure. Recommending securities transactions based on research supplied to him by a third party without disclosing this fact to his clients. Supplying to his clients research reports prepared by a third-party firm without disclosing the source of the reports. Charging significantly higher fees for the identical services offered by other advisers. A)II only. B)I, III and IV. C)I, II, III and IV. D)I only.

B)I, III and IV. Lending money to a client (even with full and fair disclosure), supplying clients with research reports prepared by a third-party firm without disclosing the source of the report, and charging significantly higher fees for the identical services offered by other advisers are all considered unethical practices. Recommending securities transactions based on third-party research, without disclosing this fact to clients, is not unethical or deceptive.

Which of the following statements regarding the registration of a successor firm under the Uniform Securities Act are TRUE? A filing fee is required with the application. The successor firm's registration will be effective for the unexpired portion of the year. The successor firm need not be in existence when the application for registration is filed. The successor firm must have been in existence for 3 months when the application for registration is filed. A)II and IV B)II and III C)I and II D)I and III

B)II and III A registered broker-dealer or investment adviser may file an application for registration of a successor, whether or not the successor is then in existence, for the unexpired portion of the year. There shall be no filing fee. The state does not need additional filing fees because the registration must be renewed on December 31 (as will all professional registrations), at which time the next year's fees will be due.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser representative would be acting improperly if she allowed a client to sign an advisory contract after disclosing a potential conflict of interest to that client agreed to personally make up the difference if a client's account lost money failed to inquire into a client's investment objectives, financial situation, and needs A)I, II, and III B)II and III C)I and II D)I and III

B)II and III Guarantees against loss and failure to inquire into a client's investment objectives, financial situation, and needs are unethical. Conflicts of interest must be disclosed and, if the client wants to continue, the client may enter into the contract.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it would be unethical for an adviser to: avoid mentioning to clients that she was expelled from college before graduating. tell clients that her system for timing the market is based on technical factors, when in fact she simply uses intuition. tell clients that fees will be reduced by the amount of any commissions earned on product sales, when in fact a reduction will be made only if the client brings it to the adviser's attention. A)I, II and III. B)II and III. C)I and II. D)I and III.

B)II and III. It is unethical for advisers to misrepresent their fees, services, or the qualifications of their employees or of themselves. An adviser would not be misrepresenting her qualifications by not mentioning that she did not graduate from college. It would only be misrepresentation if the adviser said that she had graduated when such was not the case.

In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the Release, which of the following would be included in the definition? Commercial banks offering comprehensive financial planning for their high-net-worth clients. Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment grade bonds or large-cap stocks as market conditions dictate. Persons who receive a nominal fee for assisting employee benefit plan administrators select investment managers for the plan's assets. Lawyers who prepare trust agreements for clients with large securities holding with a goal of minimizing estate taxes. A)I and IV. B)II and III. C)II and IV. D)I and II.

B)II and III. Once the entertainment agent makes investment decisions for a client who is paying fees for overall services rendered, that agent now comes under the IA-1092 definition of investment adviser. Similarly, any person who is compensated for giving investment-related advice to employee benefit plans is considered a pension consultant and is required to register under IA-1092. Banks are never IAs, and the lawyer is merely doing legal and tax work.

Under the Uniform Securities Act, which of the following are NOT considered investment advisers or investment adviser representatives in this state? An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. United Trust Company of America. An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management. An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state. A)I and II. B)II and IV. C)IV only. D)I, II, III and IV.

B)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, that does business exclusively with other investment advisers located in that state, is also excluded as an investment adviser under the USA.

According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are TRUE? It must be filed with the state Administrator. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, six or more months in advance. Certain minimum business and education qualifications must be met before an investment adviser can file. It may be used to satisfy the brochure requirements of the act. A)I, II and III. B)II and IV. C)I and IV. D)I, II and IV.

B)II and IV. An investment adviser required to register with the SEC under the Investment Advisers Act of 1940 must submit its Form ADVs to the SEC. In some cases, the Form ADV will also be filed with the state Administrator, but that is state law, not a federal requirement. A balance sheet must be submitted with Part 2 if the adviser receives "substantial" prepayments of fees. Part 2 may be used as an investment adviser's disclosure brochure to clients.

The Investment Advisers Act of 1940 contains the basic definition of persons who are required to register with the SEC as investment advisers. Which of the following persons would be included in the listing of those who must register? A person who gives advice to investors on collectibles that are most likely to appreciate in value in the next 10 years. A chemical engineer who gave advice on new product ideas that was solely incidental to the practice of the profession and for which no compensation was received. A person, while receiving compensation, described the advantages of certain types of managed investments, such as mutual funds and REITs, but did not recommend a specific investment. A fee-based financial planner who, on the basis of current economic forecasts, had many of his clients liquidate their investment-grade bonds and purchase gold coins with the proceeds. A)III only. B)III and IV. C)I and II. D)I, II and IV.

B)III and IV. It is not necessary to recommend specific stocks, bonds, or other investment products by name to be included in the definition of investment adviser. Although a person receiving a fee to suggest gold coins to clients would not be an IA, in this case the financial planner is giving securities advice (liquidate the bonds) to invest in a nonsecurities asset.

The purpose of SEC Release IA-1092 is to: unify the requirements of the Uniform Securities Act and the Investment Advisers Act of 1940. clarify the Securities Exchange Act of 1934. clarify the activities that would subject a person to regulation under the Investment Advisers Act of 1940. A)I and II. B)III only. C)I only. D)II only.

B)III only. The purpose of SEC Release IA-1092 is to clarify the definition of investment adviser in the Investment Advisers Act of 1940 and to clarify the types of activities that are subject to regulation.

Which of the following is NOT required to be disclosed in a state registered investment adviser's Form ADV Part 2A? A)Method of calculating fees B)Personal financial records for each principal executive officer of the adviser or each person with similar status C)Business affiliations for the past five years for each member of the investment committee or group that determines advice to be given to clients D)Independently audited balance sheet if the firm requires prepayment of more than $500 in fees per client; six or more months in advance

B)Personal financial records for each principal executive officer of the adviser or each person with similar status Form ADV Part 2A contains information regarding business activities and affiliations and an audited balance sheet, and it discloses how fees will be calculated. It does not contain the personal financial information of any partners, directors, or affiliates. If this were a federal covered adviser, the balance sheet is required when the substantial prepayments are more than $1,200.​

Under the Investment Advisers Act of 1940, which of the following statements regarding an adviser's registration is TRUE? A)Registrations expire on December 31 of each year. B)If the adviser ceases to act as an adviser or goes out of business, the SEC will cancel the registration. C)Withdrawal from registration is done on Form ADV-W and takes effect 45 days after filing. D)Registrations become effective in 30 days unless delayed by the SEC.

B)If the adviser ceases to act as an adviser or goes out of business, the SEC will cancel the registration. Under the Investment Advisers Act of 1940, registrations become effective 45 days after filing, unless delayed by the SEC, and remain effective until withdrawn by the adviser or canceled, suspended, or revoked by the SEC. The SEC will cancel a registration if the adviser is no longer in existence or in the business. Although the ADV-W is the form for withdrawal, it becomes effective upon acceptance by the IARD, provided however that the investment adviser's registration continues for a period of 60 days after acceptance solely for the purpose of commencing a proceeding regarding any violation of the Act.

Jefferson, Adams, and Washington (JAW) is a pension consulting firm whose only office is on Constitution Avenue in Washington, D.C. JAW has only one advisory client— a United States Government employees pension fund with assets of $4 billion. What are this firm's registration requirements? A)It can only register with the SEC because the District of Columbia is not a state. B)It may choose to register with either the D.C. Administrator or the SEC. C)It does not have to register because its only client is the United States government. D)It must register with the SEC because the AUM is so high.

B)It may choose to register with either the D.C. Administrator or the SEC. Under the provisions of the Dodd-Frank Act of 2010, once a pension consultant's AUM reaches $200 million, it has the choice of state or SEC registration. Under the USA, the District of Columbia (along with Puerto Rico and any U.S. territory or possession) is included in the definition of state. If an investment adviser only gives advice on securities issued or guaranteed by the U.S. government, it is excluded from the definition of investment adviser and doesn't register anywhere, but that is not the same as having the government as your only client.

According to the Investment Advisers Act of 1940, which of the following statements regarding registration of investment advisers is TRUE? State registration is a requirement for federal registration. An investment adviser must be registered with the SEC to be registered at the state level. A)Both I and II. B)Neither I nor II. C)I only. D)II only.

B)Neither I nor II. A critical point to remember about investment advisers is that, if required to register, they register with either the state or the SEC, never with both. This is unlike broker-dealers who invariably register with both the SEC and the state(s) in which they do business.

Federally-registered investment advisers are obligated to maintain certain books and records as specified by the SEC. Which of the following statements regarding adviser recordkeeping is NOT true? A)Written records may be reduced to microfilm. B)Records must be kept for six years. C)Records are subject to surprise audits by the SEC. D)Records originally created on computer may be stored in electronic media.

B)Records must be kept for six years. Records of an adviser must be maintained for five years. Records are subject to surprise audits by the SEC, written records may be reduced to microfilm, and records originally created on a company's computer may be stored in electronic media.

An agent and a broker-dealer maintain wrap fee accounts for several of their customers. Which of the following registrations is required? A)Only the registered principal would need to be registered in the state(s) in which they do business. B)The firm must register as an investment adviser. C)Neither the broker-dealer nor the agent is required to have any license other than their regular securities license. D)The agent must be registered as an investment adviser.

B)The firm must register as an investment adviser. Once a broker-dealer handles wrap fee accounts, it loses the exclusion from the definition of investment adviser. Therefore, the firm must be registered with either the state or the SEC. Any agents handling these accounts would be registered as investment adviser representatives.

If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is TRUE? A)Both the representative and the investment adviser must notify the Administrator. B)The representative must notify the Administrator. C)The investment adviser must notify the Administrator. D)No notice to the Administrator is required.

B)The representative must notify the Administrator. It is the investment adviser representative's responsibility to notify the Administrator. The advisory firm is not registered with the state; only the representative is registered.

When must the Annual Update Amendment to Form ADV be filed? A)Within 120 days of the calendar year-end. B)Within 90 days of the adviser's fiscal year-end. C)Only when an action is pending against the adviser. D)Within 90 days of the calendar year-end.

B)Within 90 days of the adviser's fiscal year-end. The Annual Update to Form ADV must be filed by a registered investment adviser no later than 90 days following the adviser's fiscal year-end (which may happen to be a calendar year).

Under the Uniform Securities Act, all of the following persons may provide investment advice incidental to their normal business without requiring registration as an investment adviser EXCEPT a(n): A)engineer. B)economist. C)lawyer. D)teacher.

B)economist. The Uniform Securities Act does not grant an economist exemption from registration, but it does offer an exemption to teachers, lawyers, and engineers if the investment advice is incidental to their business; thus the acronym LATE for lawyers, accountants, teachers, and engineers.

A federal covered registered investment adviser who receives compensation for advice and whose business is primarily as an investment adviser may describe its business as investment counsel if: A)it maintains custody of customer funds and/or securities. B)a substantial part of his business is providing investment supervisory services. C)it receives SEC approval to use the definition. D)it maintains its registration by filing an updating amendment to its Form ADV annually.

B)a substantial part of his business is providing investment supervisory services. The Investment Advisers Act of 1940 prohibits the use of the term "investment counsel", unless the principal business of the person is as an investment adviser and a substantial part of the business is providing investment supervisory services (i.e., continuous advice for individual client portfolios).

ABC Advisers changes its name to XYZ Advisers and also changes its location. Under the Investment Advisers Act of 1940, it must: A)amend Form ADV in advance. B)amend Form ADV promptly. C)notify the Administrator. D)notify FINRA within seven days.

B)amend Form ADV promptly. If information on certain parts of Form ADV becomes out of date, a federal covered adviser must file a prompt amendment with the SEC (a state covered adviser would have to do the same with the Administrator under the USA). Information requiring immediate amendment includes name, address, telephone number, organization type changes (corporation, sole proprietorship, and partnership), degree of control over clients' funds, sources of funding, management organization, or any information relating to disclosure to clients. If any other information on the form changes (nonmaterial information), the SEC requires the form to be amended within 90 days of the end of the adviser's fiscal year.

The Investment Advisers Act of 1940 provides for a general exclusion from its definition of investment adviser for all of the following EXCEPT: A)a publisher of a major national newspaper. B)an agent for an athlete who gets paid for providing investment advice to the athlete. C)a lawyer who provides investment advice as an incidental part of his practice. D)a trust company.

B)an agent for an athlete who gets paid for providing investment advice to the athlete. Any person in a business or profession, such as an agent for an athlete, that does not have an exclusion from the definition of an investment adviser under the Investment Advisers Act of 1940 and who meets the three-pronged test described in Release IA-1092 is an investment adviser.

An investment adviser runs an advertisement in the business section of the local newspaper. The advertisement describes the nature of the firm's model portfolio and indicates that it has outperformed the overall market by 800% over the past 10 years, and, therefore, they guarantee that their clients will more than keep pace with inflation. At the bottom of the advertisement, in smaller print, is the following statement: "Results are not guaranteed. Past performance is not indicative of future results. These results are not normal and cannot be expected to be repeated." This is an example of: A)a wrap fee account. B)an improper hedge clause. C)a properly worded disclaimer. D)a violation of an investment adviser's fiduciary responsibility.

B)an improper hedge clause. Hedge clauses may not be used to disclaim statements that are inherently misleading.

Alexander Wimpton is registered as an agent with WorthMore Securities, a broker-dealer registered with the SEC and 10 states. Mr. Wimpton is also an investment adviser representative (IAR) with their wholly owned subsidiary, WorthMore Investments, a federal covered investment adviser. Many of Mr. Wimpton's advisory clients also maintain brokerage accounts at WorthMore Securities. If one of those clients were to call Mr. Wimpton and enter an order to purchase shares of a stock the broker-dealer is selling out of inventory, A)the order would have to be refused because of the potential conflict of interest B)consent of the client would not be necessary as long as the only capacity Mr. Wimpton was acting in was that of an agent C)the commission charged on the trade would have to be fair and reasonable D)consent of the client would be necessary anytime an advisory client is sold securities out of the broker-dealer's inventory

B)consent of the client would not be necessary as long as the only capacity Mr. Wimpton was acting in was that of an agent Only when acting in an advisory capacity is there a requirement to obtain client consent when selling out of inventory. In this case, unless there was a statement to the effect that the security had been recommended by Mr. Wimpton, this is just a brokerage transaction and consent is not necessary (although the principal capacity would have to be stated on the trade confirmation). Because this is a principal transaction, there is no commission, only a markup.

A client opens a discretionary account with an IAR over the phone and tells her to buy 3,000 shares of any technology stock that she thinks is suitable. One month later, the stock has dropped and the IAR determines that it is time to cut the losses and get out of the stock. In checking the records, the IAR discovers that the written discretionary authorization form has not yet been received. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, the IAR should: A)sell the shares immediately because that is in the client's best interest. B)contact the client and indicate that the firm cannot act with discretion until the authorization form is received. C)sell the shares relying on the clients' oral authorization to use discretion. D)attempt to get permission to sell from her supervisor.

B)contact the client and indicate that the firm cannot act with discretion until the authorization form is received. NASAA policy permits oral discretionary powers to IAs and their representatives as long as the written authorization form is received within 10 business days of the first trade made using that discretion. One month is more than 10 business days so nothing can be done without the written authorization. Remember, when the client leaves the specific security to be purchased up to the discretion of the IAR, discretion has been exercised.

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under the Investment Advisers Act of 1940 this activity requires written A)disclosure to the client B)disclosure to the client and consent prior to completion of the transaction C)consent of the client D)consent of and the disclosure to the client prior to execution of the transaction.

B)disclosure to the client and consent prior to completion of the transaction Unlike broker-dealers, investment advisers must obtain the consent of and make written disclosure to the client of the intent to act as agent or principal in any transaction with that advisory client. SEC Release IA- 1732 requires that this be accomplished before the completion of the transaction, where completion is defined as settlement date.

It is NOT necessary for an investment adviser to register when it: A)has a place of business in the state but deals exclusively with federal covered advisers. B)has no place of business in the state and deals with savings and loan associations only. C)is headquartered in a state where it conducts most of its business with broker-dealers only. D)has a place of business in the state but has conducted business with three individual investors during the preceding 12 consecutive months.

B)has no place of business in the state and deals with savings and loan associations only. An adviser who has no place of business in the state and deals only with savings and loan associations is not required to register with the state securities Administrator. An adviser with a place of business in the state must register with the Administrator whether clients are exclusively broker-dealers or federal covered advisers and regardless of the number of clients.

Under the Investment Advisers Act of 1940, a broker-dealer who charges a wrap fee to customers as a standard business practice: A)is not required to register as an investment adviser unless specifically required to do so by the SEC. B)must register as an investment adviser because the wrap fee includes a separate charge for investment advisory services. C)has committed a prohibited practice; broker-dealers are not permitted to charge wrap fees under the Investment Advisers Act of 1940. D)is not subject to registration as an investment adviser.

B)must register as an investment adviser because the wrap fee includes a separate charge for investment advisory services. A wrap fee program is a program under which a client is charged a specified fee or fees for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and execution of client transactions. A broker-dealer who offers a wrap fee program must register as an investment adviser because a wrap fee includes charges for providing investment advice. This is in contrast to the traditional brokerage account where each service is paid for separately. When there is no separate charge for advice, the firm is not considered to be an investment adviser.

An investment adviser representative who makes extensive use of third-party research to formulate portfolio recommendations to clients: A)must disclose that fact to the clients. B)need not disclose that fact to the clients. C)must obtain consent of the clients to use third-party research. D)is in violation of his fiduciary responsibility as IARs may only use research provided by the firm

B)need not disclose that fact to the clients. It is not necessary to disclose what sources an IAR uses as the basis for recommendations. If the third-party research is distributed to clients, proper attribution is required.

Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the US government is: A)required to be a registered agent in the state. B)not required to be a registered investment adviser in the state. C)required to be a registered investment adviser in the state. D)required to be a registered investment adviser representative in the state.

B)not required to be a registered investment adviser in the state. This question is referring to a federal covered adviser. The futures contracts are not securities, but, of course, the U.S. government securities are. However, the Investment Advisers Act of 1940 specifically excludes from the definition of" investment adviser" a person whose securities advice is confined to securities issued or guaranteed by the Treasury. The fact that this person is excluded under the Investment Advisers Act of 1940 makes that person federal covered under the NSMIA and not subject to state regulation as an investment adviser.

A federal covered IA files a petition for bankruptcy. The firm must: A)notify the Administrator immediately. B)notify the SEC immediately. C)do nothing until the court decides the disposition of the firm's assets. D)notify all of its clients immediately

B)notify the SEC immediately. As a federal covered investment adviser, the responsible regulatory body is the SEC.

An investment adviser who is affiliated with a broker-dealer, recommends only products that are provided through that BD. This is: A)prohibited only if the adviser participates in commissions in conjunction with sales of the proprietary products. B)permitted following disclosure of the potential conflict of interest. C)permitted without restriction. D)prohibited and a violation.

B)permitted following disclosure of the potential conflict of interest. It is not prohibited for an investment adviser to limit recommendations to proprietary products available through an affiliated broker-dealer. However, the fact that this is a potential conflict of interest must be disclosed to the client.

KAPCO Advisers, a registered investment adviser, recommends the purchase of 100 shares of GEMCO common stock to one of its advisory clients. The client accepts the recommendation and the sale is made from KAPCO's inventory. This transaction A)can only be done through a registered broker-dealer B)requires both written disclosure to and the consent of the client prior to the completion of the transaction C)may be made without restriction as long as the markup on the GEMCO stock was fair and reasonable D)would be considered unethical

B)requires both written disclosure to and the consent of the client prior to the completion of the transaction Industry rules require that investment advisers made disclosure when acting as principals (from inventory) or agents in a transaction with an advisory client. This disclosure must be made in writing—furthermore, client consent to acting in this capacity must be obtained prior to the completion of the transaction.

MidWest Advisory Services has $175 million in assets under management and has offices in 10 midwestern states. Regarding recordkeeping requirements, MidWest must meet those of A)the state in which its principal office is located B)the SEC C)each state in which it has a place of business D)the state with the most stringent financial requirements

B)the SEC With $175 million in AUM, MidWest is a federal covered adviser. As such, all financial requirements, bonding, recordkeeping, and so forth requirements are those of the SEC, not any of the states.

Kapco Investment Advisers currently has $138 million in assets under management and has offices in Colorado and Utah. Kapco's only clients in Utah are 2 insurance companies domiciled in that state. Kapco has no office in New Mexico but does service the accounts of 3 middle-class individuals. Kapco recently has opened an advisory account for a pension plan for a corporation located in Montana. Under the Uniform Securities Act, Kapco would have to register with: A)the Administrator in the states of Colorado and Utah. B)the SEC. C)the Administrator in each state in which it does business. D)the Administrator in the states of Montana and New Mexico.

B)the SEC. With $138 million in assets under management, Kapco is a federal covered investment adviser and is only required to register with the SEC.

A registered investment adviser, in his financial planning practice, recommends and sells proprietary products offered through a broker-dealer affiliated with his investment advisory firm. All of the following statements are true EXCEPT: A)the adviser must state that the client may be subject to certain limitations because of this arrangement. B)the adviser must receive a signed statement from the customer that authorizes this practice before collecting any payment. C)the adviser may collect fees for investment advice and commissions for executing trades. D)this practice is ethical if full disclosure is made to all clients.

B)the adviser must receive a signed statement from the customer that authorizes this practice before collecting any payment. Disclosures are required, but not written consent. If the client does not agree with these arrangements, he can take his business elsewhere. There are cases, such as agency cross transactions, where prior written consent of the client is needed.

Under the Uniform Securities Act, the recordkeeping requirements established by the Administrator for out-of-state investment advisers wishing to register in his state are subject to the limitations of A)the requirements set by each individual state B)the requirements set by the Administrator of the adviser's home state C)the Investment Advisers Act of 1940 D)the Securities and Exchange Act of 1934

B)the requirements set by the Administrator of the adviser's home state For state-registered investment advisers, requirements set by the Administrator are subject to the limitations of the requirements set by the Administrator of the adviser's home state. Covered advisers don't register in any state, only with the SEC (and come under the SEC's requirements set forth in the Investment Advisers Act of 1940).

In response to high stock market volatility, if an investment adviser has all clients immediately sell their equity holdings and reallocate the proceeds to Treasury bills, under the Uniform Securities Act, this is: A)ethical because the adviser is responsive to current market conditions. B)unethical because Treasury bills may not be appropriate for all the adviser's clients. C)ethical because the adviser is recommending a lower-risk investment. D)unethical because the adviser may receive commissions when his customers sell their stock.

B)unethical because Treasury bills may not be appropriate for all the adviser's clients. It is unlikely that Treasury bills, however conservative, are suitable for all clients. An adviser must always keep in mind each client's personal investment needs, risk tolerance, and investment objectives when trading the clients' securities. Blanket recommendations are not ethical.

Under all of the following circumstances, the USA requires investment advisers with no place of business in the state to register EXCEPT: A)when an adviser has maintained assets of $100 million or more for 7 out of the last 10 years. B)when an adviser only provides advice to registered investment companies. C)when an adviser only provides investment advice to 401(k) plans with assets of $250,000 or more. D)when an adviser with numerous clients in the state has not been subject to disciplinary action within any state within the last 10 years.

B)when an adviser only provides advice to registered investment companies. An adviser that only provides investment advice to investment companies registered under the Investment Company Act of 1940 is federal covered and does not have to register in a state, regardless of whether or not it has a place of business there. An adviser that provides advice only to 401(k) plans or other tax qualified employee benefit plans with $1 million in assets (not $250,000) is not required to register in a state in which it does not have a place of business. The assets of the adviser is not what determines becoming a federal covered adviser; it is assets under management and the determining factor is the AUM now, not the range over the previous 10 years.

Which of the following is most likely to be excluded from the definition of an adviser under the Investment Advisers Act of 1940? A)A teacher who makes reference to specific securities in a course on corporate finance and accepts compensation from those who seek his advice as a result of his course. B)An adviser who recommends government securities but also issues research reports on corporate securities. C)A commercial bank that regularly handles the financial affairs of its customers. D)An accountant who, as part of his practice, offers specific securities advice.

C)A commercial bank that regularly handles the financial affairs of its customers. Commercial banks are regulated by the Comptroller of the Currency, not the SEC, and therefore are excluded from the definition. Once the accountant and teacher accept compensation for advice, they lose their exclusion. If the adviser had limited advice to U.S. government securities, the exclusion would have remained intact.

Which of the following investment advisers would be permitted to use the term "investment counsel"? A)A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice. B)An investment adviser who has been admitted to the bar in the state in which the firm's principal office is located. C)A firm whose exclusive business is placing clients' assets into model portfolios. D)A professional providing a market timing service with an annual subscription fee of $995; this service attempts to maximize profits by suggesting entry and exit points for over 100 listed stocks.

C)A firm whose exclusive business is placing clients' assets into model portfolios. To use the term "investment counsel", two criteria must be met. First, the principal business of the adviser must be the rendering of investment advice. Second, the nature of the advice must meet the definition of investment supervisory service. That means giving continuous investment advice to clients based on their individual needs. That is frequently accomplished by selecting model portfolios most appropriate to the client's needs. The financial planner clearly is not principally in the business of offering investment advice because he describes his service as offering a wide range of services, of which advice is only a part. The exam frequently uses that wording to indicate that advice is not the principal activity. While the publisher's principal business activity may be offering advice, nothing about the description indicates that individual client accounts are being monitored.

Under the Investment Advisers Act of 1940, which of the following is considered an investment adviser? A)A syndicated columnist who gives weekly reports and recommendations on investments. B)The trust officer of a commercial bank who manages investment accounts for clients. C)A lawyer who specializes in consulting on investing in securities. D)A person who publishes a regular newsletter of advice on US Treasury bonds and other US government securities.

C)A lawyer who specializes in consulting on investing in securities. Publishers and writers of general, regular, paid circulation publications (newspapers and magazines) are excluded from the definition of investment adviser. Under the federal law, anyone giving advice dealing only with U.S. government securities is excluded from the definition as are those who work for banks and trust companies. The lawyer is not excluded because the advice provided is not incidental to the profession; it is the lawyer's specialty.

Under both state and federal law, there are a number of exclusions from the definition of investment adviser. Which of the following would not qualify for an exclusion? A)A personal injury attorney who recommends that clients consult with a Certified Financial Planner for advice on how to deal with the large settlements they receive. B)An economist who teaches a course in fundamental analysis at a local community college. C)A publisher of a newsletter that is paid to make reports to be used in the sale of specific securities. D)A CPA who gives high-tax bracket clients a chart showing the tax equivalent yield of municipal bonds.

C)A publisher of a newsletter that is paid to make reports to be used in the sale of specific securities. Although there is an exclusion for publishers, it must be of general and regular circulation and not be the recipient of compensation from the issuers of any securities covered.

Under the Uniform Securities Act, who must register as an investment adviser? A)A financial planner with no place of business in a state and who advises only trust companies. B)An accountant who provides advice solely incidental to the business. C)A registered broker-dealer who receives compensation for providing investment advice. D)A bank that provides investment advice.

C)A registered broker-dealer who receives compensation for providing investment advice. Registered broker-dealers that provide advice only incidentally to their business are exempt from the definition if they do not receive compensation. However, a broker-dealer that receives compensation for investment advice must register. A financial planner with no place of business in a state and who advises only trust companies is exempt from registration. Out-of-state advisers (with no office in the state) are not defined as investment advisers within a state if their only clients within the state are other investment advisers or broker-dealers, financial institutions, or institutional investors. Banks are excluded from the definition of investment adviser, as are accountants who provide advice only incidentally to their business.

Which of the following would have to register as an investment adviser under the Uniform Securities Act? A)An economics professor who occasionally gives a lecture to business groups about the stock market. B)A trust company. C)A retired aeronautical engineer who charges a nominal fee for holding seminars on opportunities in aerospace stocks. D)An accountant who advises clients about investments as an incidental part of services.

C)A retired aeronautical engineer who charges a nominal fee for holding seminars on opportunities in aerospace stocks. Excluded from the definition are banks, publishers of general paid circulation publications (newspapers or magazines), investment adviser representatives, and certain professionals (lawyers, accountants, engineers, teachers) if the advice is incidental to their profession and no additional compensation is charged. In the case of the engineer, the advice is not incidental and is being given for compensation.

Which of the following would constitute fraud or deceit if performed and not disclosed by an investment adviser? A)Inheriting 200 shares of a New York Stock Exchange-listed publishing company he recommends. B)Offering his client tickets to the games of a football team in which his son is the star quarterback and a principal stockholder. C)Acting as an agent of the brokerage firm that executes the trades he recommends and receiving commissions on them as a result. D)Only recommending investment strategies that take advantage of medical technology.

C)Acting as an agent of the brokerage firm that executes the trades he recommends and receiving commissions on them as a result. The adviser must disclose to the client the capacity in which he is acting so the client can make an informed decision as to the objectivity of the advice and whether to sustain the relationship. The fact that an adviser inherited a small amount of stock in a publicly traded company does not, of itself, present a conflict of interest that must be disclosed. If the adviser's personal transactions in publicly traded securities were inconsistent with his recommendations to clients, that fact must be disclosed. No conflict of interest exists unless the adviser recommended companies in which he also has a significant beneficial ownership.

Under the Investment Advisers Act of 1940, which of the following is TRUE about the use of the term "investment counsel" by investment advisers? A)Advisers may use the term only if they are attorneys. B)The use of the term is prohibited under any circumstances. C)Advisers may use the term only if their principal business is acting as an investment adviser and a substantial part of their business consists of providing continuous advice based on a client's individual needs. D)Advisers may use the term without restriction as long as they are registered.

C)Advisers may use the term only if their principal business is acting as an investment adviser and a substantial part of their business consists of providing continuous advice based on a client's individual needs. Advisers may use the term "investment counsel" only if two conditions are met: rendering investment advice must be their principal business, and a substantial part of that business must be providing investment supervisory services-that is, continuous advice based on the individual needs of each client.

Under the Investment Advisers Act of 1940, which of the following are excluded from the definition of an investment adviser? A)Attorneys who advise on securities (only) for a fee. B)Accountants who advise on securities (only) for a fee. C)All banks that are not investment companies. D)Insurance companies.

C)All banks that are not investment companies. The act excludes the following from the definition: banks or bank holding companies that are not classified as investment companies; publishers of bona fide publications of general circulation (newspapers and magazines); persons advising about certain securities (U.S. government or agency issues); broker-dealers not receiving special compensation for giving advice; and persons whose advice is incidental to their profession, such as lawyers, accountants, engineers, and teachers.

Which of the following does not violate the ethical requirements of the Investment Advisers Act of 1940? A)An IA intends to implement a financial plan using only products available through a broker-dealer with whom she is associated, but does not make this intention known to the client. B)An IA's financial plan uses products available through a number of different broker-dealers. In implementing a portion of the plan, the IA intends to act as an agent of a broker-dealer with whom he is associated, but he does not make this intention known to his client. C)An IA tells clients that the time is right to convert shares of a money market fund to shares of a growth stock mutual fund family. Without telling clients, he makes a similar conversion for his own account. D)An IA is affiliated with a broker-dealer but does not tell clients that the investment advice he offers is outside the scope of his employment with that broker-dealer.

C)An IA tells clients that the time is right to convert shares of a money market fund to shares of a growth stock mutual fund family. Without telling clients, he makes a similar conversion for his own account. Making personal investments consistent with recommendations to clients is not a violation of the Investment Advisers Act of 1940. Release of IA- 1092 does not impose an obligation on an investment adviser representative to disclose this fact to clients. The investment adviser representative is obligated to disclose any plans to act as an agent of a broker-dealer with whom the individual is associated. An investment adviser representative must disclose to clients that the investment advice rendered is outside the scope of employment with the broker-dealer if that is the case. Finally, if the investment adviser representative only offers that broker-dealer's products, that fact must be disclosed.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements regarding the distribution of reports prepared by third parties that are not affiliated with the adviser is TRUE? A)An adviser need not disclose the author of any outside third party report unless the client asks. B)An adviser is prohibited from basing recommendations on work that is wholly the product of someone else's efforts. C)An adviser may use a report prepared by someone else if the source of the report is disclosed. D)An adviser is required to disclose any source of information used in making recommendations to clients.

C)An adviser may use a report prepared by someone else if the source of the report is disclosed. An adviser is not prohibited from providing clients with reports prepared by others, but when this is done, the adviser must disclose the true source of the report. However, the disclosure requirement does not apply to the research an adviser uses in rendering investment advice.

Which of the following is required to register in a state under the Uniform Securities Act? A)A broker-dealer who has no place of business in the state and whose only clients in the state are limited to insurance companies, investment companies, banks, and broker-dealers. B)An investment adviser who has no place of business in the state and communicates with only 5 advisory clients in the state for the year. C)An investment adviser who has a place of business in the state and whose only clients in the state are insurance companies, investment companies, banks, and broker-dealers. D)ABC State Bank, which provides investment advice in its branches throughout the state.

C)An investment adviser who has a place of business in the state and whose only clients in the state are insurance companies, investment companies, banks, and broker-dealers. Because the adviser has a place of business within the state and is acting as investment adviser in the state, he must register regardless of the fact that the only clients are financial institutions. Notice the state registration rules are different for broker-dealers and investment advisers. Banks are exempt from registration as broker-dealers or as investment advisers, as are investment advisers with no place of business in the state and fewer than 6 clients in the state in a 12-month period (de minimis standard).

Which of the following is required to register as an investment adviser with the state securities Administrator? A)A newly formed investment advisory firm with $145 million in assets under management. B)The author of a book on money and banking that was sold to residents of the state in which it is published. C)An investment advisory firm that opens an office in the state with less than $100 million in assets under management. D)A person with no office in the state whose only advisory clients are investment companies and banks in the state.

C)An investment advisory firm that opens an office in the state with less than $100 million in assets under management. An investment adviser must register in a state if it manages less than $100 million in assets. Publishers of general circulation books are exempt from state registration, as are advisers with no offices in the state whose only customers are institutions, such as banks and investment companies, in the state. Investment advisers with $110 million or more in assets under management must register with the SEC, not the state Administrator.

Which of the following persons is NOT excluded from the definition of an investment adviser if their advice given is incidental to the individual's profession? A)Lawyer. B)Engineer. C)Economist. D)Teacher.

C)Economist. The exclusion applies to lawyers, accountants, engineers, and teachers, provided there is no separate fee for their investment-related advice. Economists are not specifically named in the exclusion.

Under the Investment Advisers Act of 1940, for how many years must an investment adviser maintain the records required by regulation? A)One year B)Three years C)Five years D)No requirement

C)Five years The Investment Advisers Act requires records to be kept readily accessible for a period of 5 years from the end of the fiscal year in which the record was made. The records must be kept in the principal office of the firm for the first two years and are subject to SEC examination at any time.

Under the Uniform Securities Act, all of the following are investment adviser representatives EXCEPT: a receptionist/switchboard operator employed by ABD Advisers, Inc. an account representative employed by ABD Advisers, Inc. a vice president of ABD Advisers, Inc., who serves on the firm's advisory committee. ABD Advisers, Inc. an employee who solicits new customers for ABD Advisers, Inc. A)II and V. B)II, IV and V. C)I and IV. D)II, III, IV and V.

C)I and IV. The Uniform Securities Act defines an investment adviser representative as anyone who is a partner, officer, director, or other employee or person associated with an investment adviser other than clerical or ministerial personnel who (1) make recommendations or provide advice regarding securities, (2) manage accounts or portfolios of clients, (3) determine which recommendations or advice should be given, (4) solicits, offers, or negotiates for the sale of, or sells, advisory services, or (5) supervises any such persons. An individual or a firm may be registered as an investment adviser, but only an individual can be an investment adviser representative.

Which of the following investment adviser representatives has violated the antifraud provisions of the Investment Advisers Act of 1940? Carol purchases shares of a new issue, hoping to cause the price of the shares to rise by recommending that all her clients purchase the stock also. She doesn't tell clients that she owns the stock. Arthur persuades a client to co-sign for a loan without disclosing that he is facing financial difficulties. Julia recommends that clients purchase mutual fund shares that are available through several broker-dealers besides the one she represents. She discloses her affiliation with the broker-dealer and the amount of compensation she receives on transactions but doesn't tell clients that they can purchase the same mutual fund through other sources. A)I and III. B)II and III. C)I, II and III. D)I and II.

C)I, II and III. Advisers are required to disclose trades made for their own accounts that are designed to profit from the market impact of recommendations. The antifraud provisions prohibit any deceptive act by an adviser in the course of business with a client. Although a violation may not involve a securities transaction, it still represents an abuse of the adviser-client relationship and is therefore covered by the antifraud provisions. Clients must be informed that transactions may be executed through broker-dealers other than the one with whom the adviser is affiliated.

Under SEC Release 1A-1092, which of the following has(have) met the test of providing advice or analysis concerning securities? A stockbroker calls a client and recommends the purchase of a certain stock. A lawyer recommends against purchasing shares of a mutual fund in favor of another investment. A publisher of an investment newsletter provides general information and recommendations concerning securities. A)I only. B)I and II. C)I, II and III. D)I and III.

C)I, II and III. Any person who gives advice (positive or negative, specific or general) or issues reports or analyses concerning securities meets the criterion of providing advice. This does not mean that these examples qualify for the definition of investment adviser. They only qualify for the first criterion. For example, a lawyer may be exempt from the definition if she provides advice incidental to the profession and does not receive compensation, but may still meet the first criterion. Likewise, if the stockbroker's only compensation is commissions from securities transactions, the exclusion is in effect.

An investment adviser who has custody of customer funds and securities discovers that her net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must: notify the Administrator by close of business after the day of discovery. file a report of its financial condition no later than close of business the day after notification. include in the report of financial condition a statement as to the number of client accounts. cease doing business. A)I, II, III and IV. B)I only. C)I, II and III. D)I and IV.

C)I, II and III. As a condition of the right to continue business, the adviser must notify the Administrator by close of business after the day of discovery. No later than close of business the day after notification, the adviser must file a report of its financial condition, which must include statements regarding the number of client accounts.

Under the Investment Advisers Act of 1940, persons who provide a variety of services, including investment advisory services, are considered to have received compensation for their advice when they receive: any economic benefit. a fee paid directly for the investment advice portion of their services. a commission on the sale of real estate when it is part of a total financial plan for a client that includes securities advice. A)I and II. B)II and III. C)I, II and III. D)I and III.

C)I, II and III. Compensation may take the form of, but is not limited to, fees, subscriptions, salaries, or commissions. Any economic benefit, whether paid directly or indirectly for the investment advice, meets the test.

In which of the following third-party transactions would an investment adviser be required to make disclosure to the client of compensation received? An investment adviser recommends an affiliated realtor to a client and receives compensation from the realtor. An investment adviser, who is also an agent for an insurance company, sells policies from the company to his clients. An adviser who is affiliated with a broker-dealer receives commissions on sales recommended to clients through the broker-dealer. A)II only. B)I only. C)I, II and III. D)I and III.

C)I, II and III. Investment advisers must disclose the amount of compensation received, or to be received, from any third party in connection with recommendations made to a client. This would include compensation from any broker-dealer, issuer, and nonsecurities entity (e.g., insurance companies, realtors, coin dealers).

Which of the following activities are prohibited under the Uniform Securities Act? Engaging in a practice not expressly forbidden by the act but defined as unethical by courts, self-regulatory organizations such as FINRA, or both. Deliberately omitting a material fact when soliciting a client. Selling recommended securities to a client from the investment adviser's own account without disclosing this and receiving consent of the client prior to completion of the transaction. A)I and III. B)I and II. C)I, II and III. D)II and III.

C)I, II and III. The USA gives the Administrator, and self-regulatory organizations, the power to define certain practices as unethical with the same force as those spelled out in the act. Omitting a material fact is specifically prohibited under the act. When an investment adviser sells securities from its own account, disclosure must be made and client consent obtained prior to completion of the transaction.

Under the Uniform Securities Act, an investment adviser who has custody of or discretionary authority over client assets or who charges fees of more than $500, six or more months in advance is required to disclose which of the following to its clients? The financial condition of the adviser that could impair its ability to meet contractual commitments to clients. A legal or disciplinary event that would be material to evaluating the adviser's integrity or ability to meet its contractual commitments to clients. That the adviser was convicted of or pleaded no contest to a felony within the past ten years or is currently subject to a criminal proceeding involving a felony. That the adviser was found to have violated SRO rules which resulted in suspension, expulsion, or a fine of more than $2,500. A)III only. B)I only. C)I, II, III and IV. D)I, II and III.

C)I, II, III and IV. An adviser who has control of or discretionary power over client assets or who charges fees of more than $500, six or more months in advance is required to disclose any condition that might affect its ability to carry out contractual obligations to its clients. Any adviser is also required to disclose almost any legal or disciplinary proceeding that would involve its integrity.

Under the Uniform Securities Act, which of the following is (are) excluded from the definition of an investment adviser when providing investment advice solely incidental to the business? Lawyer. Accountant. Engineer. Teacher. A)I, II and IV. B)I and III. C)I, II, III and IV. D)II and IV.

C)I, II, III and IV. Certain professionals are excluded from the definition of an investment adviser if the advice provided is incidental to the practice of their profession and no additional compensation is charged for the advice. Lawyers, accountants, engineers and teachers are excluded. This is best remembered through the acronym LATE. An Administrator has the power to exclude any person from the definition.

A registered investment adviser has a fiduciary duty to disclose all real and potential conflicts of interests to clients. Which of the following are examples of conflicts that would require disclosure? A registered investment adviser spends about 25% of its time on investment advisory activities and the balance on managing rental real estate projects A registered investment adviser spends about 25% of its time supervising the activities of its investment adviser representatives An investment adviser representative, who is also an insurance agent, may decide to recommend a particular insurance product based on an incentive to sell the product An investment adviser representative, who is also an agent with an unaffiliated broker-dealer, directs transactions to that firm A)III and IV B)I and II C)I, III, and IV D)II and IV

C)I, III, and IV There is nothing wrong with an investment adviser devoting time, even a majority of the time, to non-advisory pursuits, as long as it is disclosed. Recommending products based on an incentive is fine as well, as long as disclosure is made. Finally, IARs can be agents of affiliated or non-affiliated broker-dealers, but the existence of that relationship must be disclosed. One would hope that the investment adviser devotes enough time to supervising its IARs, but that is not something that is disclosed to clients.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about material conflicts of interest is (are) TRUE? Any conflicts of interest must be disclosed either orally or in writing before rendering advice. Material conflicts of interest must be disclosed in writing before rendering advice. Material conflicts relating to the adviser, adviser representative, or adviser employees must be disclosed. A)II only. B)I and III. C)II and III. D)I only.

C)II and III. Advisers must disclose any material conflicts of interest in writing before rendering advice. Material conflicts of interest include any compensation to be received regarding recommendations to the client from other sources in addition to the advisory fee charged and affiliations between the adviser and suppliers of related services or other investment products.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, when may an adviser borrow money from a client? When the loan is negotiated at arm's length. When the client is a broker-dealer. When the client is a bank in the business of loaning funds. A)I only. B)I, II and III. C)II and III. D)I and II.

C)II and III. Borrowing money or securities from a client is an unethical business practice, unless the client is a broker-dealer, a bank or other financial institution in the business of loaning funds, or an affiliated person of the adviser.

An investment adviser representative is required to make disclosure to the client when: the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale. transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client. transactions recommended to the client are inconsistent with those for the IAR's own account. A)I and III. B)II, III and IV. C)II and IV. D)I, II and III.

C)II and IV. An investment adviser must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the adviser, as well as full disclosure, if a recommendation is not consistent with the adviser's own activity in his own account. The adviser can use any source of information to create his own analysis, disclosure of source only being required if the adviser uses the product of a third party as the presentation to the client. It would be unusual that all clients with the same objectives would purchase or have recommended for purchase the same securities.

An investment adviser is a member of the board of directors of a privately held corporation that has just gone public. The adviser would like to recommend the stock to several of his advisory clients. Which of the following statements are TRUE? The adviser can do so without restriction. The adviser must disclose the existence of a control relationship. The adviser may base his recommendation on all information at his disposal. The adviser must base his recommendation on publicly available information. A)I and III. B)II and III. C)II and IV. D)I and IV.

C)II and IV. As a director of a public company, the adviser is an insider and must disclose this relationship to any clients that were recommended the stock. Further, as an insider, the adviser must be careful to base his recommendations on publicly available information or there would likely be a violation of the insider trading rules.

A registered broker-dealer offers investment advice as an incidental part of its commission business. One of its agents charges for investment advice as a freelance investment adviser outside the scope of his employment at the firm. Which of the following statements are TRUE? The broker-dealer must register as an investment adviser. The agent must register as an investment adviser. The agent need not register as an investment adviser. The broker-dealer need not register as an investment adviser. A)I and II. B)III and IV. C)II and IV. D)I and III.

C)II and IV. Broker-dealers who offer advice as an incidental part of their commission business are not required to register as investment advisers. However, if an agent provides investment advice outside the scope of employment at the broker-dealer, he must be registered.

Based on the Investment Advisers Act of 1940, which of the following would be excluded from the definition of an investment adviser? A lawyer who advertises financial planning services. Persons whose advice relates solely to government securities. An accountant who receives separate fees for providing investment advice. A)II and III. B)I only. C)II only. D)I and III.

C)II only. Lawyers and accountants may not claim the exclusion if they advertise their investment advisory or financial planning services, or if they charge a separate fee for such services. Broker-dealers may not claim the exception if they provide investment advice beyond the scope of the brokerage business or if they charge a separate fee for advice.

Under the Uniform Securities Act, persons providing investment advice do not have to register as investment advisers if they have no place of business in the state and limit their clientele to individuals who meet the accredited investor standards deal only with institutional investors have five or fewer noninstitutional clients in the state during any 12-month period deal only with other investment advisers A)II only B)I​, II, III and IV C)II, III and IV D)III and IV​ only

C)II, III and IV If a person offering advice on securities has no place of business in a state and deals only with institutional investors or other investment advisers, registration is not required. Also, if a person has no place of business in a state and has five or fewer noninstitutional clients in the state during any rolling 12-month period, they are not deemed to be investment advisers in that state under the USA. ​Please note that choice I specifies individuals who are accredited investors. Although institutional accredited investors would qualify the adviser for the exemption, individuals do not.​

Under the Investment Advisers Act of 1940, who is not excluded from the definition of investment adviser when their investment advice is solely incidental to the individual's profession? A)Teachers B)Engineers C)Insurance agents D)Attorneys

C)Insurance agents The persons excluded from the definition of investment adviser when advice is provided solely incidental to their profession include lawyers (attorneys), accountants, engineers, and teachers. Insurance agents are not included in this group and are not excluded from the definition.

Which of the following is NOT considered to be in the business of investment advising? A)An insurance agent who provides advice regularly, but such advice represents a small portion of her business. B)A financial planner who provides advice on many types of financial instruments, including securities, and receives commissions on the sale of life insurance. C)Insurance agents who discuss the merits of life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only. D)A person who prepares reports about securities in general.

C)Insurance agents who discuss the merits of life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only. If a person advertises as one who provides investment advice or engages in providing investment advice or analyses on a regular basis (even if not the person's principal business activity), the person is considered in the business of giving investment advice. If the person receives any compensation that represents a clearly definable charge, commission, or fee for such advice (whether paid separately or not), she is considered in the business. If the person engages in other financial activities in connection with the advice, it cannot be used to avoid the business standard. The insurance agent who discusses the merits of life insurance does not sell investment advice or securities, only insurance policies. The insurance agent does not hold herself out as an adviser nor does she provide advice on securities.

Under the Uniform Securities Act, which of the following must register with the state securities Administrator? A)Investment advisers to an investment company registered under the Investment Company Act of 1940. B)Investment advisers without an office in the state whose clients are exclusively insurance companies. C)Investment advisers with a place of business in the state and less than $100 million in assets under management. D)Investment advisers who have $100 million or more under management.

C)Investment advisers with a place of business in the state and less than $100 million in assets under management. Under the USA, an investment adviser with a place of business in the state must register with the state securities Administrator, regardless of who the clients are, unless they are federal covered advisers. Advisers without an office in the state, or whose clients are exclusively insurance companies, are not defined as investment advisers in that state under the USA. An adviser who manages an investment company that is registered under the Investment Company Act of 1940 or who has $100 million or more under management, are federal covered investment advisers that do not register with the states.

Peterson Financial Planning is a small personal financial planning partnership in Missouri that has $10 million in assets under management. As a result of the Dodd-Frank Bill, which of the following statements best describes the registration requirement for Peterson Financial Planning? A)Peterson Financial Planning is required to register as an investment adviser with the SEC but has no requirement to register with the Administrator of the Missouri Department of Securities. B)Peterson Financial Planning is required to register as an investment adviser with the SEC and to notify the Administrator of the Missouri Department of Securities of its operation. C)Peterson Financial Planning is required to register as an adviser with the Administrator of the Missouri Department of Securities. D)Peterson is required to register as an adviser with both the SEC and the Administrator of the Missouri Department of Securities.

C)Peterson Financial Planning is required to register as an adviser with the Administrator of the Missouri Department of Securities. With less than $25 million under management, Peterson Financial Planning is considered a "small" investment adviser and must register with the state. Advisers managing at least $25 million but less than $100 million are considered "mid-size" investment advisers and, unless qualifying for an exception, must also register with the state. Investment advisers with at least $100 million in AUM, but not as much as $110 million, may register with the SEC or remain with the state. Once $110 million is reached, SEC registration is mandatory.

Which of the following would NOT be considered an investment adviser under Release IA-1092? A)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. 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)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. D)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.

C)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. The president of the investment club does not meet all three 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.

An investment adviser is a member of a country club and provides substantial fee reductions to those members who become clients. The adviser justifies this because these club members are known for great referrals. The IA charges regular clients a fee that was larger for the same services because they were not members of the country club. Is this permissible? A)It is not permissible because all clients must be charged at the same rate. B)It is not permissible because the firm is charging other clients fees that are excessive in nature compared to the country club members. C)This is permissible as long as proper disclosure is made in the adviser's brochure. D)It is permissible as long as the offer is not published as an inducement to join the country club.

C)This is permissible as long as proper disclosure is made in the adviser's brochure. Item #5 on the Form ADV Part 2A asks about the adviser's fee schedule. The adviser is asked if fees are negotiable. If so, it is necessary to describe the nature of the fee structure and what type of variations there might be. As long as the adviser discloses that there are some affinity groups that will qualify for a lower fee, there should be no problem. This is not considered to be a referral fee.

An investment adviser is preparing to meet with his client to discuss some recent changes in her financial situation and propose some alternatives to best suit her needs. As he readies himself for the meeting, the adviser prepares a recommendation of a growing technology company for his client's portfolio. His recommendation is partially based on some research prepared by ABC Advisers, a firm he used to work for. If the adviser does not reveal the source of the research to the client, which of the following statements is TRUE? A)This is permissible with written disclosure to the client prior to any purchase of securities. B)This is prohibited. C)This is permissible, and no disclosure is required. D)This is permissible if oral disclosure has been made, and the client has been given the opportunity to review the research.

C)This is permissible, and no disclosure is required. No disclosure is required when an investment adviser prepares a recommendation using research that is derived in part from a source other than his firm. No written disclosure to the client prior to any purchase of securities is required. However, if the adviser was preparing the recommendation in the form of a report that was prepared by a third party (not the adviser's own words using the report as reference material), disclosure would be required regarding the source of information.

An investment adviser is servicing a group of physicians and will offer a discounted fee to the doctors in that particular partnership. In what way would this be considered ethical? A)This would be permitted as long as each physician has a unique contract. B)This would be permitted as long as the adviser is not a patient of any of the physicians in that group. C)This would be permitted as long as a disclosure is made in the IA's brochure that fees are negotiable. D)This would be permitted if all of the physicians had a minimum net worth of at least $1.5 million.

C)This would be permitted as long as a disclosure is made in the IA's brochure that fees are negotiable. Item #5 on the Form ADV Part 2A asks about the adviser's fee schedule. The adviser can indicate what types of fees are charged and whether or not they are negotiable. In a manner similar to a mutual fund breakpoint, when a group, not formed for the purpose of investing, contracts with an investment adviser, the adviser may choose to consider it one very large client rather than several smaller ones. This will generally result in a reduction in the percentage charged.

According to SEC Release IA-1092, compensation, as it relates to the definition of investment advisers: A)is not a requirement for someone to be in the business of providing investment advice. B)may only be commissions. C)does not have to be paid directly by the client. D)does not include personal management fees.

C)does not have to be paid directly by the client. Compensation for investment advice may be paid by someone other than the client (e.g., an underwriter) and is defined as any type of economic benefit, direct or indirect.

Under the Uniform Securities Act, an investment adviser is exempt from registration if he has no place of business in a state and his only clients are any of these EXCEPT: A)investment companies. B)broker-dealers. C)individuals with a net worth in excess of $5 million. D)other investment advisers.

C)individuals with a net worth in excess of $5 million. Provided his clients are institutional investors and the adviser has no place of business in a state, he is not required to register as an investment adviser. Other than the de minimis or snowbird exemptions, there are no other cases where an IA serving individuals would not have to register.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following practices is appropriate for an adviser who does not have custody or discretion over clients' assets? A)Vanessa discusses a security with a client who agrees it is a good buy. A short time later, she learns shares are available and purchases them for the client. B)Chris purchases shares of a stock without discussing it with his client. The client had previously agreed to buy another stock, but at the time of purchase it was losing heavily. To spare his client from a loss, Chris purchased the stock. C)Tom manages 35 clients who suffer financial loss while he is trying to contact them for authorization to trade. D)Without authority, Shawna trades a security that is losing heavily for a similar security that she had recently discussed with her client.

C)Tom manages 35 clients who suffer financial loss while he is trying to contact them for authorization to trade. An investment adviser must have a client's authority before placing an order for a purchase or sale. Discretionary authority must be in written form with two exceptions. First, if the client has determined the specific security and the amount to be transacted, leaving discretion as to price and timing only; and second, if the client has agreed to give the adviser written authority over the account within ten business days by way of an advisory contract or discretionary agreement. Neither of these cases applies to Vanessa, Shawna, or Chris, who all traded without proper client authority. Only Tom acted properly.

On last year's annual updating amendment filed with the SEC, Alpha Investment Advisers indicated that it had more than $140 million in assets under management. Due to a reduction in the size of the firm, this year's annual updating amendment shows that, assets under management have fallen to the $75 million level and are expected to remain there. Which of the following actions are required for Alpha? A)Withdraw from SEC registration within 90 days of the adviser's fiscal year-end. B)Do nothing and continue as a federal covered adviser. C)Withdraw from SEC registration within 180 days of the adviser's fiscal year-end. D)Withdraw from SEC registration immediately.

C)Withdraw from SEC registration within 180 days of the adviser's fiscal year-end. If an adviser reports on its annual updating amendment that it has less than $90 million under management and it is not otherwise eligible to register with the SEC, it must withdraw from SEC registration within 180 days of the adviser's fiscal year-end by filing Form ADV-W. The adviser could consult the securities departments of states in which it maintains offices or conducts business to determine the appropriate state registration requirements.

An investment adviser sends a notice offering a research report she has recently prepared to a group of new members of the local Lions Club. Under the NASAA Model Rule on recordkeeping for investment advisers, she must keep a copy of the notice along with A)the date the Administrator approved the research report B)a copy of the full roster of the local chapter C)a memorandum describing the list and its source D)the names of those members to whom the report was sent

C)a memorandum describing the list and its source If an investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons , the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except if the notice, circular, or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and its source.

All of the following statements regarding annual updating amendments to Form ADV are correct EXCEPT: A)unless a hardship exemption is granted, the annual updating amendment must be filed electronically. B)the annual updating amendment is due no later than 90 days following the adviser's fiscal year. C)an adviser reporting that it has less than $90 million in assets under management must withdraw from SEC registration within 90 days after the end of its fiscal year by filing Form ADV-W. D)neither the SEC nor NASAA provides reminders as to when the annual updating amendment is due.

C)an adviser reporting that it has less than $90 million in assets under management must withdraw from SEC registration within 90 days after the end of its fiscal year by filing Form ADV-W. If an SEC registered adviser reports on its annual updating amendment that it no longer has sufficient assets under management to qualify for SEC registration, it must withdraw within 180 days after the end of its fiscal year by filing Form ADV-W. When a state registered adviser reports assets under management of at least $110 million on its annual updating amendment, it must register with the SEC within 90 days after the filing date of that amendment. No regulator provides reminders as to the required annual filing, which must occur no later than 90 days following the adviser's fiscal year. Unless the adviser has qualified for a hardship exemption, the annual update is filed electronically.

An investment adviser renews its registration with the SEC by filing: A)a certificate of good standing along with the renewal fee. B)Forms ADV Part 1 and Part 2. C)an annual updating amendment. D)an annual audited balance sheet.

C)an annual updating amendment. Investment advisers renew their registration with the SEC by filing an annual updating amendment within 90 days (including weekends and holidays) of the end of their fiscal year. An important part of the annual updating amendment is the computation of assets under management (AUM) which confirms the adviser's continued eligibility for SEC registration.

Out-of-state investment advisers with no office in this state are not required to be registered if only advising: A)on growth issues. B)on preferred stock. C)insurance companies. D)on stocks listed on the NYSE.

C)insurance companies. It is not the securities they advise on but their clients that count. Out-of-state investment advisers with no office in this state must be registered under the Uniform Securities Act unless their only clients are insurance companies, registered investment companies, banks or other institutional investors, broker-dealers, and other investment advisers.

Under SEC Release IA-1092, all of the following are defined as having received compensation for giving investment advice EXCEPT: A)a financial planner who receives a fee for providing a master financial plan without providing specific investment advice. B)a person who prepares an investment newsletter charging a subscription fee for reports on specific securities. C)an estate planner who receives a fee for setting up an investment trust for a client. D)an insurance agent who receives a commission for selling life insurance that was part of a comprehensive financial plan for which there was no charge to the client.

C)an estate planner who receives a fee for setting up an investment trust for a client. An estate planner who charges a fee for setting up a trust is not charging for investment advice and, therefore, is not included in the definition. A subscription fee received for investment newsletters is considered compensation for investment advice. The SEC does not view them as general circulation media such as financial magazines which are excluded from the definition. A master financial plan is considered to always contain securities information, even without recommendations of specific securities so the fee is compensation. Regardless of who prepares a comprehensive financial plan, securities advice is always included. Any income received from the sale of non-securities products that are part of that plan is considered to be compensation for investment advice.

Consent of the client before completion of a trade made between the firm and a client must be made when A)a broker-dealer will be acting in the capacity of a principal B)a broker-dealer will be acting in the capacity of an agent C)an investment adviser will be acting in the capacity of a principal D)a broker-dealer will be acting as a contra-party to the trade

C)an investment adviser will be acting in the capacity of a principal In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity on the trade confirmation, but not consent, is needed.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it is considered ethical for an investment adviser to: A)make a short-term loan to a client for the purchase of securities. B)charge an unreasonable fee based on outstanding performance results on past recommendations. C)borrow securities from a client that is an affiliate of the investment adviser. D)accept an order from a client's wife because the client is out of town and has instructed her to contact the adviser; there is no trading authorization on file.

C)borrow securities from a client that is an affiliate of the investment adviser. An investment adviser is only permitted to borrow securities from clients if the client is in the business of lending securities or is an affiliate of the adviser. In all other circumstances, borrowing from and lending to clients is prohibited. An investment adviser may not charge unreasonable fees based on outstanding performance. Also, an investment adviser may not take orders from anyone other than the account owner without express written trading authority from the client.

A federal covered investment adviser feels that some recent industry regulations will limit his ability to provide the returns to clients that both he and they desire. He communicates this to his clients and urges those who are willing, to sign an agreement waiving their rights to take any legal action in the event of loss due to his refusal to follow those rules. This means: A)that as long as this is part of the agreement with the IA, no legal action can be taken. B)a suit would be possible, but only if agreed to by the IA. C)clients would still be permitted to sue because there is no way that legal rights can be waived. D)clients would not be able to sue because they have executed a document waiving their rights.

C)clients would still be permitted to sue because there is no way that legal rights can be waived. There is no way, NEVER, NEVER, that a waiver of legal rights is ever enforceable.

A state registered investment adviser with discretionary authority over client accounts discovered on Monday, that the firm's net worth is below the required amount. He must notify the administrator and then file a report no later than the: A)close of business Monday, close of business Wednesday. B)close of business Tuesday, close of business Friday. C)close of business Tuesday, close of business Wednesday. D)close of business Monday, close of business Friday.

C)close of business Tuesday, close of business Wednesday. Unless otherwise exempted, every investment adviser registered or required to be registered under the Act shall by the close of business on the next business day notify the Administrator if such investment adviser's net worth is less than the minimum required. After transmitting such notice, each investment adviser shall file by the close of business on the next business day a report with the Administrator of its financial condition.

The National Securities Markets Improvement Act of 1996 (NSMIA): A)overcame the restrictions of selling securities in interstate commerce. B)created the concept of fraud, as used in the Uniform Securities Act. C)defined the term" federal covered adviser". D)created a national market system.

C)defined the term" federal covered adviser". The NSMIA defined the term" federal covered adviser", referring to advisers who must register with the SEC or who are excluded from the definition of investment adviser under the Investment Advisers Act of 1940. Fraud is a legal concept which is prohibited by the Uniform Securities Act. Selling securities in interstate commerce is not fraudulent provided the antifraud provisions securities laws are observed. The roots of a national market system began with the Securities Amendments Act of 1975.

A broker-dealer is NOT considered an investment adviser if the: A)firm's investment advice is limited to 10 or fewer people. B)firm is registered under the Investment Advisers Act of 1940. C)investment advisory services are incidental to the broker-dealer's business and no special compensation is received. D)firm has less than 15 advisory accounts totaling less than $1 million.

C)investment advisory services are incidental to the broker-dealer's business and no special compensation is received. Excluded from the definition of investment adviser are financial institutions, publishers, investment adviser representatives, and certain professionals, including broker-dealers, whose advice is incidental to their profession and who are not compensated for it.

Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who A)serves as a consultant to pension funds with assets of $500 million B)gives advice on federal covered securities C)is registered under section 203 of the Investment Advisers Act of 1940 D)does business on an interstate basis

C)is registered under section 203 of the Investment Advisers Act of 1940 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.

A client of Wall Street Wealth Management (WSWM), a federal covered investment adviser, calls the IAR handling the account and gives instructions to use some of the surplus cash in the account to purchase 500 shares of RMBM, a small-cap stock traded on the Nasdaq Stock Market. Prior to submitting the order, the IAR checks with a supervisor and learns that WSWM has 1,000 shares of RMBM in its proprietary account and is looking to halve the position. If, instead of forwarding the order to the broker-dealer who normally handles trade executions for this client, WSWM filled the order out of its own account, A)because it was an unsolicited transaction, the only required disclosure would be the firm's capacity on the trade confirmation B)WSWM would be engaging in a prohibited practice C)it would be permissible as long as consent was obtained and written disclosure of the firm's capacity was disclosed prior to the completion of the transaction D)it would be permissible as long as consent was obtained, and written disclosure of the firm's capacity was disclosed prior to execution

C)it would be permissible as long as consent was obtained and written disclosure of the firm's capacity was disclosed prior to the completion of the transaction In almost every case, an IA acting as a principal (out of inventory) or agent in a trade with an advisory client must obtain client consent and provide written disclosure of the IA's capacity in the trade no later the completion of the trade. If the IA is also a broker-dealer and the transaction with the advisory client was not generated through a recommendation, (generally an unsolicited order), the only disclosure necessary is the firm's capacity on the confirmation. In this question, we can't assume that WSWM is also a broker-dealer.

Registration with the state as an investment adviser would be required for a person with an office in this state who: A)manages the portfolio of the KPF Balanced Fund, a registered open-end investment company with $22 million in net assets. B)only gives advice on securities issued by or guaranteed by the government of the United States. C)manages $13 million in assets for 4 clients. D)serves as a pension consultant to the XYZ employees retirement plan, covering 1,200 employees with total assets of $278 million.

C)manages $13 million in assets for 4 clients. Under the Dodd-Frank Bill, investment advisers with less than $100 million in assets under management must register with the states. If the adviser manages a registered investment company, the adviser must be federal covered. If the person serves as a pension consultant with $200 million or more in AUM, the person has the option of registering with the SEC. A person whose sole advice deals with U.S. government securities is excluded from the federal definition of investment adviser and, therefore, under the NSMIA, is considered a federal covered adviser.

Senior Wealth Advisers (SWA) is registered as an investment adviser in North and South Carolina with offices in Charlotte and Charleston. On occasion, one of their investment adviser representatives meets with clients who reside in North Augusta, South Carolina in a hotel room in Augusta, Georgia. The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers would: A)require that SWA register with the Georgia Administrator. B)require that both SWA and the IAR register with the Georgia Administrator. C)not require registration of either person with the Georgia Administrator. D)require that the IAR register with the Georgia Administrator.

C)not require registration of either person with the Georgia Administrator. The hotel room located in Georgia is being used only to meet with existing clients, so no registration in Georgia is necessary. If prospects were invited, registration of both persons would be required.

Under the Uniform Securities Act, Paul must register as a state registered investment adviser if he: A)becomes a full-time employee of AAA Investment Advisers, Inc., where he will advise clients whose assets under his discretion will exceed $200 million. B)sells registered securities on a commission basis for a registered broker-dealer. C)opens an investment advisory business as a sole proprietor in New Jersey with the intention of advising individual clients on the advisability of investing in securities. Paul will have $90 million in AUM within 120 days of opening. D)opens an investment advisory business as a sole proprietor in New Jersey with the intention of advising individual clients on the advisability of investing in securities. Paul will have $100 million in AUM within 120 days of opening.

C)opens an investment advisory business as a sole proprietor in New Jersey with the intention of advising individual clients on the advisability of investing in securities. Paul will have $90 million in AUM within 120 days of opening. Being in the business of advising individual clients on the advisability of investing in securities requires one to register as an investment adviser, either with the state or the SEC. The key is the assets under management. If a new IA reasonably believes that he will have AUM of at least $100 million within the first 120 days of registering, he is permitted to register with the SEC. Of course, if it reaches $110 million, then SEC registration is required. Reaching $90 million is not enough and, therefore, registration with the state would be the only option here. As a full-time employee of AAA Investment Advisers, Inc., he would have to register as a registered investment adviser representative and will not be a registered investment adviser (the firm). Selling registered securities under the supervision of a broker-dealer would require an agent registration with the state and the SEC.

Under the Investment Advisers Act of 1940, the exclusion for providing investment advice that is solely incidental to the practice of a profession is NOT available to: A)teachers. B)attorneys. C)real estate agents. D)engineers.

C)real estate agents. In the Investment Advisers Act of 1940 and the subsequent releases explaining the act, there is no specific exemption for real estate agents who give investment advice that is incidental to their practice. Engineers, teachers, accountants, and lawyers are specifically excluded if their advice is incidental to their practice.

Some registered investment advisers are federal covered while others register on a state by state basis. In the case of a state registered investment adviser having its only office in Oregon with no offices in any other state, the authority of the Administrator would include: A)requiring each IAR to provide a statement of financial condition. B)requiring the IA to renew its consent to service of process when paying the annual fee. C)requiring IARs to pass a qualification exam. D)the Idaho Administrator requiring registration of IARs who make telephone calls to residents of Idaho.

C)requiring IARs to pass a qualification exam. As you know from being here right now, this test is required by the Administrator. What about the Idaho Administrator? Well, maybe the IARs are making 5 or fewer calls in any 12 month period. Maybe they are calling institutional clients domiciled in Idaho. In any event, if you have to choose between an answer that is 100% right all of the time (qualification exams), and one that is right only some of the time, go for the 100%.

It is not uncommon for many federal covered advisers to be affiliated with a broker-dealer. Take the case where an IAR with a federal covered adviser is also an agent with a broker-dealer. When dealing with advisory clients, all of the following are true EXCEPT: A)the IAR must disclose that he may earn commissions in addition to the fees charged for advice. B)the IAR must disclose that the advisory services he offers are separate from the broker-dealer. C)the IAR must disclose that he is liable for any losses suffered in the account due to poor portfolio performance. D)the IAR must disclose that trades will be executed through his broker-dealer unless the client elects otherwise.

C)the IAR must disclose that he is liable for any losses suffered in the account due to poor portfolio performance. Full disclosure of all possible conflicts of interest must always be made. However, registered persons can never assume liability for losses due to poor portfolio performance.

A federal covered investment adviser files its annual updating amendment with the SEC. The adviser does business in a dozen states. In order to be in compliance with all regulations, the IA must meet the financial requirements of: A)the state with the highest requirement. B)the state with the lowest requirement. C)the SEC. D)the state in which its principal office is located.

C)the SEC. As a federal covered adviser registered with the SEC, no state can enforce financial requirements. That is the only way to answer this correctly because, technically, the SEC has no financial requirements for IAs.

If an investment adviser is registered in another state and has no place of business within an Administrator's state, the adviser is exempt from registration under the Uniform Securities Act if: A)most of the adviser's clients are accredited investors. B)the adviser has no more than 14 customers within the state during the year. C)the adviser has no more than five clients who are residents of the state during the year. D)most of the adviser's customers are municipalities.

C)the adviser has no more than five clients who are residents of the state during the year. If an adviser has no more than 5 clients who are residents of the state during the year, the adviser does not have to register with the state. This is the de minimis exemption; advisers with no place of business in this state must register if they have more than 5 noninstitutional clients in the state.

USAAdvisers is registered in 10 midwestern states. Regarding financial requirements, USAAdvisers must meet those of A)each state in which it has a place of business B)the state with the most stringent financial requirements C)the state in which its principal office is located D)the SEC

C)the state in which its principal office is located Unlike broker-dealers, investment advisers register with either the SEC or the state(s), but never both. Therefore, we know this must be a state-registered adviser not under the jurisdiction of the SEC. Under the Uniform Securities Act, when it comes to financial requirements, bonding, recordkeeping, and so forth, as long as the adviser meets the requirements of the state in which the principal office is located the other states have no further claim.

Included in the Investment Advisers Act of 1940 are a number of different recordkeeping requirements. Wealth Preservation Specialists is a covered adviser that is organized as a partnership. If the firm were to dissolve, partnership agreements must be kept for A)five years after the dissolution B)five years from the date of organization C)three years after the dissolution D)the lifetime of the firm

C)three years after the dissolution ​Both ​​the Investment Company Act of 1940 ​(applicable here because this is a covered adviser) and the NASAA Model Rule on Recordkeeping ​require that investment advisers maintain certain records, such as partnership agreements and corporate articles of incorporation, for a period of no less than three years after dissolution.

Under the Uniform Securities Act, investment advisers are exempt from registration in a state where they have no office if they direct business communications with no more than five clients within: A)2 years. B)30 days. C)6 months. D)12 months.

D)12 months. If investment advisers have no office in a state, they are not defined as investment advisers and are exempt from registration if either of the following conditions applies: their only clients within the state are other investment advisers or broker-dealers, financial institutions (banks, savings and loans, trusts), institutional investors (certain pension funds, insurance companies, investment companies), or government agencies or other political entities; and they have no more than five clients within the state in a 12-month period (de minimis exemption).

Under the Investment Advisers Act of 1940, unless delayed by the SEC, registration of an investment adviser becomes effective how many days after filing? A)90 days. B)30 days. C)60 days. D)45 days.

D)45 days. This is one of the differences between the Uniform Securities Act and the Investment Advisers Act of 1940. Registrations become effective at noon on the 30th day after filing under the Uniform Securities Act. They become effective 45 days after filing, unless delayed by the SEC, under the Investment Advisers Act of 1940.

Under the Uniform Securities Act, most books and records of investment advisers must be maintained for A)2 years B)1 year C)3 years, the first 2 readily accessible D)5 years, the first 2 readily accessible

D)5 years, the first 2 readily accessible With few exceptions, the accounting records, correspondence, and advertising of investment advisers must be kept for a minimum of five years after the end of the year in which they were created, the first two years in a readily accessible place (on premises).

Which of the following individuals employed by an investment adviser would be required to be registered as an IAR? A)The night watchman B)The vice president of human resources C)An intern who receives no compensation whatsoever D)A chief compliance officer (CCO) who has no sales duties

D)A chief compliance officer (CCO) who has no sales duties Any individual performing the functions of an investment adviser representative must be so registered. Among those duties is supervisory responsibility and the CCO has the job of ensuring that the firm and all of its employees follow the rules. Although executive officers are generally automatically registered as IARs, that is only the case when the job function is one involving activities relevant to IARs (and human resources is not one of them).

Under the Investment Advisers Act of 1940, who of the following would be considered to be in the business of rendering investment advice? A)An agent who receives no separate compensation for investment advice but who takes commissions on recommended trades. B)An individual who provides investment advice to family members, but receives no compensation. C)An accountant who provides investment advice to clients as an incidental part of the business. D)A financial planner who charges no fee for developing a financial plan, but takes commissions on recommended trades.

D)A financial planner who charges no fee for developing a financial plan, but takes commissions on recommended trades. A financial planner who takes commissions from a broker-dealer on recommended trades is considered to be compensated for giving advice and is therefore in the business of rendering investment advice. Agents and broker-dealers who do not charge separately for advice are excluded from the definition of investment adviser. Lawyers, accountants, teachers, and engineers are not considered to be in the business of rendering investment advice as long as any advice given is incidental to the practice of the profession.

Under the Uniform Securities Act, which of the following is an investment adviser? A)An investment adviser representative. B)A broker-dealer who receives no compensation for investment recommendations. C)An individual who provides financial advice over the Internet with no recommendations based on specific investment situations of individual clients. D)A firm with no office in the state that provides specific investment advice to 10 noninstitutional clients within the state.

D)A firm with no office in the state that provides specific investment advice to 10 noninstitutional clients within the state. A firm with no office in the state that provides investment advice is not an investment adviser if its clients are investment companies or other institutions, or if business communications or advice are directed to no more than five noninstitutional clients within the state in the past 12 months. A broker-dealer is not required to register as an investment adviser unless it receives special compensation for providing investment advice. Individuals who publish general advice (no specific recommendations to individual clients) in hard copy form, electronic communications, or otherwise are not required to register as investment advisers.

Which of the following statements regarding the use of a hedge clause by an investment adviser is CORRECT? A)A hedge clause that limits liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished would generally be acceptable to the Administrator. B)The adviser's brochure always must contain at least one hedge clause. C)A properly worded hedge clause may be used to minimize the investment adviser's fiduciary responsibility. D)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator.

D)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator. The regulators have not objected to clauses that limit the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, communications disruptions, and so forth. Such provisions are acceptable because they do not attempt to limit or misstate the adviser's fiduciary obligations to its clients. Limiting liability to acts done in bad faith might cause the unsophisticated client to fail to understand that he still has a right to take action, even when the acts are committed in good faith. Fiduciary responsibility cannot be limited by hedge clauses.

Which of the following statements regarding the use of a hedge clause by an investment adviser is CORRECT? A)A properly worded hedge clause may be used to minimize the investment adviser's fiduciary responsibility. B)A hedge clause that limits liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished would generally be acceptable to the Administrator. C)The adviser's brochure always must contain at least one hedge clause. D)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator.

D)A hedge clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator. The regulators have not objected to clauses that limit the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, communications disruptions, and so forth. Such provisions are acceptable because they do not attempt to limit or misstate the adviser's fiduciary obligations to its clients. Limiting liability to acts done in bad faith might cause the unsophisticated client to fail to understand that he still has a right to take action, even when the acts are committed in good faith. Fiduciary responsibility cannot be limited by hedge clauses.

With respect to the confidentiality of client accounts, which of the following statements is TRUE regarding an investment adviser's responsibilities? A)The investment adviser may disclose details of the transactions of clients, provided it is done with professional discretion. B)The investment adviser may disclose the list of clients, provided they have less than $50,000 under management with the adviser. C)The investment adviser may disclose the list of clients and investments, provided it is done in general terms. D)Absent consent of the client, the investment adviser may not disclose any client information unless required by a court or the IRS.

D)Absent consent of the client, the investment adviser may not disclose any client information unless required by a court or the IRS. The adviser may not disclose the identity, business affairs, or investments of a client to any third party, unless the client has consented or the disclosure is required by law.

Which of the following persons does NOT meet the definition of providing investment advice as a business outlined in SEC Release IA-1092? A)A financial planner who provides specific investment advice as part of his fee-based services and also makes specific securities recommendations to his clients in his capacity as an agent for a broker-dealer. B)Accountant who charges clients an additional fee for providing investment advice. C)Attorney who advertises the availability of investment advice. D)A management consultant whose only investment advice is suggesting to a couple of small business clients who had invested their surpluses in speculative securities that they should find something less risky.

D)A management consultant whose only investment advice is suggesting to a couple of small business clients who had invested their surpluses in speculative securities that they should find something less risky. The management consultant's advice to clients is more like personal opinion than investment advice as a business. In the other three choices, investment advice is offered as part of the individual's regular business. Lawyers, accountants, teachers, and engineers (LATE) are not generally considered investment advisers provided the advice is incidental to their regular profession.

In which of the following circumstances is a person most likely to be considered an investment adviser? A)A sports representative or agent who successfully negotiates contracts and endorsements for athletes, then suggests that the athlete place his new found wealth in the trust department of a major commercial bank. B)A financial planner who only gives general investment advice not related to securities and then offers discounts to clients who subscribe to a newsletter he publishes on fly fishing. C)A teacher who gives better grades to the 10 most successful students who invest an imaginary $100,000 portfolio employing both the investment techniques and specific securities recommendations outlined in the course. D)A pension consultant who bills by the hour for the advice he provides on the merits of specific investment managers.

D)A pension consultant who bills by the hour for the advice he provides on the merits of specific investment managers. A consultant who advises pension funds on the merits of investment managers and their approaches to the market is specifically described as an investment adviser in Release IA-1092. Note that the sports representative in this case does not make specific investment recommendations. The recommendation that a person place funds in a commercial bank does not, of itself, constitute investment advice. The teacher is engaged in an educational exercise in which no compensation is received.

Which of the following is a federal covered adviser as defined by the NSMIA? A)A financial representative for a celebrity. B)A financial representative for a professional athlete. C)A pension consultant offering advisory services to employee benefit plans. D)A person who only provides advice on U.S. government agency securities.

D)A person who only provides advice on U.S. government agency securities. The term federal covered adviser includes those explicitly excluded from the definition of investment adviser by federal law. The Investment Advisers Act of 1940 excludes those persons advising exclusively on government or agency securities from the definition of investment adviser.

Which of the following must register as an investment adviser under the Investment Advisers Act of 1940? A)A person who provides advice to insurance companies on their portfolios. B)A person who provides advice to people who are investing in coin collections. C)A person who provides advice to people who are investing in antique furniture. D)A person who provides advice to people who are investing in companies registered under the Investment Company Act of 1940.

D)A person who provides advice to people who are investing in companies registered under the Investment Company Act of 1940. Investment advisers are defined by the Investment Advisers Act of 1940 as any person who, for compensation, engages in the business of advising others concerning the purchase or sale of securities. Investment companies are securities so this person would need to register. Since antiques and collectibles-such as coin collections-are not defined as securities, providing advice in this area does not require registration. A person who provides advice only to insurance companies is exempt from registration.

Under the Uniform Securities Act, which of the following individuals with no place of business in the state must register with the state as an investment adviser? A)An adviser rendering advice solely to broker-dealers. B)An adviser managing more than $110 million in assets. C)An adviser rendering advice to employee benefit plans with at least $1 million in assets. D)An adviser rendering advice to no more than 10 individual clients within a 12-month period.

D)An adviser rendering advice to no more than 10 individual clients within a 12-month period. An adviser with no office in the state would be exempt from registration in the state if the adviser renders advice to no more than 5 noninstitutional clients (not 10) in a 12-month period. If an adviser has no office in the state, and renders advice solely to broker-dealers, insurance companies, banks, investment companies, governmental agencies, or employee benefit plans with assets of $1 million or more, the adviser is exempt from registration with the state. If the adviser manages assets of $110 million or more, the adviser would be required to register with the SEC, not the state.

Under the terms of the Uniform Securities Act, which of the following is an investment adviser for purposes of state regulatory jurisdiction? A)An accountant located in the state who offers general securities advice as an incidental part of his business. B)A commercial bank with a place of business in the state that advises clients on banking matters. C)A federal covered adviser with clients in the state. D)An investment subsidiary of a bank holding company located in the state that manages $20 million in assets.

D)An investment subsidiary of a bank holding company located in the state that manages $20 million in assets. A bank holding company's investment subsidiary that manages $20 million in assets is an investment adviser subject to the Uniform Securities Act (USA). Under the language of the USA, a commercial bank is excluded from the definition of investment adviser whereas a bank holding company subsidiary is not. While a federal covered adviser is an investment adviser in practice (that is, it performs the functions of an adviser), it is excluded from the definition of an investment adviser under the USA to avoid duplicate regulation. An accountant located in the state that offers general securities advice as an incidental part of his business is not an investment adviser.

Beth Jamison is an agent and an IAR for Consolidated Wealth Planning, a FINRA member broker-dealer and SEC registered investment adviser. An advisory client purchases 300 shares of RMBN and the sale is made from Consolidated's inventory. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, A)selling out of inventory to advisory clients would be considered an unethical business practice B)the amount of commission charged for this transaction must be clearly disclosed C)Beth must obtain consent of any advisory client whenever a sale is made as principal D)Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation

D)Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation When acting in the capacity of IA (or IAR), that is, when making recommendations or advising a client to purchase (or sell) a security, any transaction in which the firm is a principal requires disclosure in writing to and consent from the client prior to the completion of the trade. However, if merely accepting a client order (no advice rendered), consent is not required.

Which of the following are prohibited actions under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A)Notifying the Administrator that the adviser intends to maintain custody of customer securities. B)Determining the price and time of execution of customer orders without written discretionary authority. C)Depositing securities or cash with the Administrator in lieu of a required surety bond. D)Claiming that advisory fees are negotiable, but maintaining a fixed fee schedule.

D)Claiming that advisory fees are negotiable, but maintaining a fixed fee schedule. If an adviser states that fees are negotiable but charges his fixed rates, that would be an unfair business practice. Time and price are not considered discretion.

Registering as a federal covered investment adviser generally requires the filing of a number of different forms. Which of the following forms would describe the form of business entity under which the IA is operating? A)Form ADV Schedule E. B)Form ADV Appendix 1. C)Form ADV Part 2A. D)Form ADV Part 1A

D)Form ADV Part 1A The Form ADV Part 1A contains the details of most interest to the authorities with whom the IA is registering, including the type of business formation. The Form ADV Part 2A may be used to satisfy the IA's brochure delivery requirement and, as such, contains most of the consumer-related information.

Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they conduct business? A certified financial planner who prepares financial plans and whose only compensation is commissions. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients. A broker-dealer with extensive business in the state. A mutual fund company with offices and clients in the state. A)I only. B)I, II, III and IV. C)III and IV. D)I and II.

D)I and II. A certified financial planner who prepares financial plans for commissions must register in the state as an investment adviser representative. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act.

Under the definitions used in the Uniform Securities Act, which of the following statements are TRUE? Agents are excluded from the term, broker-dealer. Agents are included in the term, broker-dealer. Investment adviser representatives are excluded from the term, investment adviser. Investment adviser representatives are included in the term, investment adviser. A)II and IV. B)II and III. C)I and IV. D)I and III.

D)I and III. Under the USA, the term broker-dealer specifically excludes an agent. Likewise, the term investment adviser specifically excludes an investment adviser representative.

Kapco Investment Advisers currently has $18 million in assets under management and has offices in Colorado and Utah. Kapco's only clients in Utah are 2 insurance companies domiciled in that state. Kapco has no office in Washington but does service the accounts of 3 middle-class individuals. Kapco has recently opened an advisory account for a pension plan for a corporation located in Montana. Under the Uniform Securities Act, Kapco would have to register with the Administrator in the state of: Colorado. Montana. Utah. Washington. A)I and IV. B)III and IV. C)I and II. D)I and III.

D)I and III. With less than $100 million in assets under management and no investment company clients, Kapco cannot qualify as a federal covered adviser. Therefore, the firm must register in each state in which it maintains an office, regardless of the nature of its clientele in that state. Registration would not be required in Washington because there is no office and Kapco qualifies for the de minimis exemption. Kapco would not be required to register in Montana because there is no office and its only client is an institution.

According to the ethical guidelines set forth in the NASAA Statements of Policy and Model Rules, which of the following statements regarding discretion is CORRECT? An agent of a broker-dealer must have written prior discretionary authorization prior to effecting discretion in a client's account. An agent of a broker-dealer must receive written discretionary authorization within ten business days of the first discretionary transaction in the account. An investment adviser representative must have written prior discretionary authorization prior to effecting discretion in a client's account. An investment adviser representative must receive written discretionary authorization within ten business days of the first discretionary transaction in the account. A)II and III. B)I and III. C)II and IV. D)I and IV.nt

D)I and IV. One respect in which the use of discretionary authority differs between agents and IARs is that agents may never exercise discretion without prior written authority. IARs must receive the written consent no later than ten business days after the first discretionary transaction in the account.

Which of the following factors determine(s) whether a person is considered an investment adviser under the Investment Advisers Act of 1940? The specificity of the advice. The business engaged in. Whether compensation is received. A)I and III. B)I and II. C)II only. D)I, II and III

D)I, II and III Any person who, for compensation, engages in the business of advising others concerning the purchase or sale of securities either directly or through publications is defined by the act as an investment adviser. The factors that make up the definition include whether the person advises others on securities; whether he does it as a regular business or as part of a business; and whether he receives compensation for doing so.

Which of the following would be considered an investment adviser representative under the Uniform Securities Act? A senior supervisor who decides what investment advice should be given. An executive who supervises investment adviser representatives. An employee who solicits clients for the firm. A)I and III. B)I and II. C)II and III. D)I, II and III.

D)I, II and III. An investment adviser representative is any partner, officer, director, associate, or employee who participates in or supervises the advisory functions of the adviser. Thus, anyone who decides what advice should be given, those who supervise investment adviser representatives, and those who seek out business for an advisory firm are considered investment adviser representatives. Third-party solicitors may or may not be considered adviser representatives, but this solicitor is an employee. Remember, an investment adviser can be either an individual or a company. An investment adviser representative must always be an individual.

According to the Investment Advisers Act of 1940, how can records of the investment adviser's business be stored during the first two years? In written form on site. On microfilm on site. On magnetic tape or computer on site. On computer disks at an off-site storage facility that requires 30 days' notice to retrieve. A)II and III. B)I only. C)I, II, III and IV. D)I, II and III.

D)I, II and III. The act requires certain records of business activities to be kept for five years (the first two in a readily accessible place subject to SEC examination at any time). Records originated on paper may be microfilmed or microfiched, and records originated on computer may be stored electronically. The USA has the same rule and, in both cases, the key point is that any storage vehicle used must be able to generate a "hard" copy while the examiner is present. One other requirement applies to computer disks and that is that they can not be re-written.

The USA exempts investment advisers from state registration who: have no place of business in the state and limit clientele to other investment advisers. have no place of business in the state and limit clientele to banks and insurance companies. is an out-of-state investment adviser and directed business communications to fewer than 12 clients in the state in the past 12-month period. have no place of business in the state and limit clientele to broker-dealers. A)I and II only. B)III only. C)I only. D)I, II and IV only.

D)I, II and IV only. An adviser is exempt from state registration if it has no place of business in the state and limits clientele to other investment advisers, banks and insurance companies, or broker-dealers. There is a de minimis exemption, but it is for no more than five (not 12) clients during a 12-month period.

Which of the following statements concerning the books and records of an investment adviser under the Investment Advisers Act of 1940 is (are) TRUE? Books and records must be maintained in the principal office of the adviser for the first two years from the origination date. Books and records must be maintained in an easily accessible place for no less than 5 years from the end of the last fiscal year in which an entry was made. Copies of all investment letters, advertisements, or communications to ten or more persons must be preserved for five years from the end of the fiscal year of the publication date. An adviser who ceases business continues to be responsible for the maintenance and preservation of records for the balance of any required period and must notify the SEC of the address at which the required records will be maintained. A)I only. B)II only. C)I, II and III. D)I, II, III and IV.

D)I, II, III and IV. All books and records required to be maintained-including investment letters, advertisements, or other communications to ten or more persons-must be preserved in a readily accessible place for five years from the end of the fiscal year in which they were created or communicated. For the first two years they must be maintained in the appropriate office of the adviser. The adviser remains responsible for the preservation of the records for the period required after ceasing business, generally three years, and must notify the SEC of their exact location.

An investment adviser would be exempt from registration under the Uniform Securities Act if it had no place of business in this state and its only clients were: banks. insurance companies. registered investment companies. other investment advisers. A)I, II and III. B)I and II. C)III and IV. D)I, II, III and IV.

D)I, II, III and IV. As long as the investment adviser does not maintain a presence in this state and its only clients are broker-dealers, other investment advisers, or institutional clients, it is exempt from registration in this state.

If an investment adviser purchases a research report from the advisory arm of a nonaffiliated broker-dealer, the adviser may distribute this report to clients: A)without restriction. B)under no circumstances. C)provided a fee is paid to the broker-dealer for each copy distributed. D)if the clients are told that the report was prepared by a third party.

D)if the clients are told that the report was prepared by a third party. An adviser may use research prepared by others provided disclosure is made that the report was prepared by a third party, not the adviser. There is an exception for certain statistical information, but not research reports.

Which of the following would meet the definition of investment adviser under the Uniform Securities Act? A broker-dealer charging a separate fee for investment advice. The publisher of a weekly newsmagazine, sold on newsstands, that contains at least 5 stock recommendations per issue. A civil damages attorney who advertises that he is available to assist clients in suggesting appropriate investments for their successful claims. A finance teacher at a local community college who offers weekend seminars on comprehensive financial planning at a very reasonable price. A)I, II and III. B)I, II, III and IV. C)I only. D)I, III and IV.

D)I, III and IV. Publishers of general circulation newspapers and magazines are excluded from the definition of investment adviser. A broker-dealer loses its exclusion the moment it offers advice for a separate charge, as does an attorney who holds himself out as offering investment advice. Normally, a teacher is excluded, but not when charging for advice as would appear to be the case here. On this examination, the term "comprehensive financial planning" always includes securities advice.

Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? An adviser that requires prepayment of $1,000 in fees, nine months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients. A)I, II and III B)I and II C)I and III D)II and III

D)II and III An adviser's financial impairment must be disclosed to clients if the adviser has discretion or has custody or requires prepayment of more than $1,200 in fees, six or more months in advance. Legal or disciplinary action taken against an adviser by a court or a regulatory authority within the past ten years must be disclosed to clients in any case. Note also that by requiring prepayment of over $1,200 in fees, six or more months in advance, an adviser is required to include an audited balance sheet with Part 2 of Form ADV, which must be filed with the SEC and made part of the adviser's disclosure brochure.

An investment adviser representative is required to make disclosure to the client when: the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale. transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client. transactions recommended to the client are inconsistent with those for the IAR's own account. A)II, III and IV. B)I and III. C)I, II and III. D)II and IV.

D)II and IV. An investment adviser must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the adviser, as well as full disclosure if a recommendation is not consistent with the adviser's own activity in his own account. The adviser can use any source of information to create his own analysis, disclosure of source only being required if the adviser uses the product of a third party as the presentation to the client. It would be unusual that all clients with the same objectives would purchase or have recommended for purchase the same securities.

Under the Uniform Securities Act, which of the following are prohibited actions of an investment adviser? Agency cross transactions. Selling securities as a principal to an advisory client without receiving consent of the client prior to the completion of the trade. Charging a performance fee to an elderly client whose net worth is $2.2 million, with only $150,000 of that under the adviser's management. The owner of a majority of the stock of the advisory firm pledges that stock to a bank as collateral for a loan. No notice is sent to clients as this is an operating decision, not one dealing with investment advice. A)I and III. B)I and IV. C)III and IV. D)II and IV.

D)II and IV. The USA prohibits an investment adviser from acting as principal or agent in a transaction with an advisory client without approval prior to completion (settlement) of the trade. Assignment of a majority interest in the company's stock is considered to be the same as assignment of client contracts; an action that may not be done without client acceptance. There is nothing wrong with agency cross transactions as long as disclosure is made and the trade is recommended to only one of the parties by the adviser. Performance fees may be charged, regardless of the client's age, to anyone with a net worth of at least $2 million or with at least $1 million under management with the firm.

Which of the following persons are required to register in a particular state? An investment adviser who manages client accounts in excess of $100 million in value. An investment adviser who manages client accounts and has less than $25 million in total assets under management. An adviser to investment companies registered under the Investment Company Act of 1940. An investment adviser representative. A)III and IV. B)I and III. C)I and II. D)II and IV.

D)II and IV. Under the National Securities Markets Improvement Act (NSMIA), advisers who manage clients with a total of less than $25 million under management are required to register with the state Administrator. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, those who manage client assets of $110 million or more or advise registered investment companies are required to register with the SEC and are exempt from state registration. Those who manage at least $100 million, but not $110 million, have the option of registering with either the state or the SEC. Investment adviser representatives register with the state, whether or not their employer is federal covered.

A broker-dealer with an office in this state must register as an investment adviser if it charges: commissions for selling securities. commissions for selling securities while offering investment advice incidental to the sale of the securities. a fee for selling investment research and additional fees in the form of commissions for the sale of securities. fees for investment research sold exclusively to institutions located in this state. A)I and IV. B)II and III. C)I and II. D)III and IV.

D)III and IV. A broker-dealer must register as an investment adviser if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm must register as an investment adviser. If a broker-dealer charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the broker-dealer need not register as an investment adviser because it is not compensated for the research.

Under which of the following circumstances may attorneys and accountants claim an exclusion from the definition of investment adviser under the Investment Advisers Act of 1940? They charge a separate fee for the provision of investment advice from that received for their professional services. They advertise that they are available to provide investment advice. The advice is incidental to the practice of their profession. The investment advisory activities have grown to represent 30% of their business. A)I and III. B)I, II and IV. C)II only. D)III only.

D)III only. Under the Investment Advisers Act of 1940, lawyers, accountants, teachers, and engineers (LATE) giving investment advice that is incidental to their professions are not considered investment advisers. If they receive a fee for the advice, hold themselves out to the public as doing so, or offer excessive advice that is no longer incidental to their practice (as 30% of the practice would indicate), they lose this exclusion and must register as investment advisers.

Which of the following are not specifically excluded from the definition of an investment adviser under the Uniform Securities Act? An investment adviser representative of an advisory firm who makes securities recommendations on a regular basis for compensation. A temporary employee hired to assist in administrative responsibilities of an advisory firm. Any person who is a federal covered investment adviser. A person who, on a regular basis for compensation, offers specific investment advice to clients as to the value of securities. A)I and IV. B)II and III. C)II and IV. D)IV only.

D)IV only. Clerical and ministerial personnel, full-time or temporary, are not included in the definition of either investment adviser representatives (supervised persons) or investment advisers. Other persons associated with an investment adviser, including officers of the firm, are generally considered to be investment adviser representatives. An investment adviser representative is not an investment adviser in the same manner that an agent is not a broker-dealer. A federal covered adviser is not, for definitional purposes, considered an adviser under the USA to avoid duplicate regulation by both the state and the federal government.

According to the Investment Advisers Act of 1940, which of the following is a always a natural person? A)Broker-dealer. B)Investment adviser. C)City of Chicago. D)Investment adviser representative.

D)Investment adviser representative. Natural persons are human beings. An adviser representative must be an individual. Although there are broker-dealers and investment advisers organized as a sole proprietorship, almost all are structured under some type of business form. A city is never an individual.

Which of the following statements is NOT true of investment advisers under the Uniform Securities Act? A)Investment advisory contracts must be in writing. B)Investment advice includes advice regarding the value of securities as well as recommendations to buy or sell. C)Compensation is a key factor in determining whether a person is required to register as investment adviser. D)Only written advice concerning investments is covered by the act.

D)Only written advice concerning investments is covered by the act. Investment advice may be written or oral, and both are covered under the Uniform Securities Act. However, investment advisory contracts must be written. Investment advice includes advice as to the value of securities as well as recommendations to buy or sell. Compensation is a key factor in determining whether a person is required to register as investment adviser.

It would be permissible for an investment adviser to make which of the following statements? A)Because of the past performance of previous recommendations, this account is guaranteed to perform at least as well as the S&P 500. B)According to past returns, the account is expected to earn at least 15%, with a minimum of 8% guaranteed. C)The account is guaranteed to earn a rate of return equal to a Treasury bill. D)Past appreciation of all accounts over the past three years has exceeded 20%.

D)Past appreciation of all accounts over the past three years has exceeded 20%. Stating past performance that is factual is not a violation of the act. However, this statement would probably also be accompanied by one to the effect that past performance is no assurance of future performance. Any type of guarantee, even related to government securities, is prohibited by the act.

Under the Investment Advisers Act of 1940, an investment adviser would be prohibited from engaging in which of the following practices, even if disclosed in writing to the customer? A)Providing advice to the customer and receiving compensation for the resulting sale of products. B)Using advice she provides to customers regarding securities transactions as a basis for her own investment account trades. C)Employment with a broker-dealer and also serving as an investment adviser. D)Putting the adviser's own interests before those of the customer.

D)Putting the adviser's own interests before those of the customer. An investment adviser may never put his own interests before those of customers. The Investment Advisers Act of 1940 does not prohibit employment with a broker-dealer and serving as an investment adviser. Any conflict of interests must be disclosed to the client. An adviser is not prohibited from investing in the same securities transactions as recommended to clients.

Under the Investment Advisers Act of 1940, which of the following statements regarding the receipt of excessive compensation by an investment adviser is TRUE? A)Compensation of 8.5% is the maximum permitted. B)No amount of compensation is excessive since it is disclosed in the advisory contract. C)Receipt of excessive compensation is only prohibited for mutual funds having a front-end sales charge. D)Receipt of excessive compensation is a breach of the adviser's fiduciary duty to the client.

D)Receipt of excessive compensation is a breach of the adviser's fiduciary duty to the client. Receipt of excessive compensation is considered a breach of the adviser's fiduciary duty. However, this term is not specifically defined in the act.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it is NOT breach of fiduciary duty if investment advisers do not inquire into a client's: A)financial situation. B)investment objectives. C)specific financial needs. D)Social Security or tax ID number.

D)Social Security or tax ID number. Although there are regulations requiring that a securities professional obtain certain client information, such as the Social Security or tax ID number, that has nothing to do with the fiduciary responsibility to always act in the client's best interests. Advisers must make reasonable inquiry into the client's financial situation, investment objectives, and needs before making recommendations. Recommendations must be suitable in light of any other information known to the adviser.

Long Range Planning (LRP) is a covered investment adviser doing business in all 50 states. Fred Fergus is an IAR with LRP and splits his time between an office in State A and State D. Fred has retail clients as follows 16 clients in State A 12 clients in State B 6 clients in State C 4 clients in State D Fred would have to register as an IAR in A)States B and C B)States A and C C)States A, B and C D)States A and D

D)States A and D In the Investment Advisers Act of 1940, it states that "no law of any State requiring the registration, licensing, or qualification as an investment adviser or supervised person of an investment adviser shall apply to any person that is registered under section 203 as an investment adviser, or that is a supervised person of such person, except that a State may license, register, or otherwise qualify any investment adviser representative who has a place of business located within that State." Therefore, when employed by a covered adviser, the only time that state registration is required is when the individual functioning as an IAR has a place of business in the state. Had this been an IAR with a state registered adviser, registration in all of the states would have been required (the de minimis would not cover State D because there is a place of business there).

Which of the following is NOT included in Form ADV Part 2A? A)Types of investments made by the adviser. B)Educational background of the adviser. C)Investment policy of the adviser. D)States in which the investment adviser is registered or intends to register.

D)States in which the investment adviser is registered or intends to register. ADV Part 2A is the brochure that investment advisers must deliver to clients; it describes the investment adviser's fees, educational background, investment policies, and types of investments made. The states in which the adviser is registered or intends to be registered in are not contained in ADV Part 2A. If the IA is registering with the SEC, on Part 1A, they list only the largest five offices (in terms of numbers of employees). If state registered, they list each state they will be registering in or are already registered in.

Because of failing economic conditions, Kapco Advisers, an adviser with slightly less than $120 million in assets under management, lays off a registered investment adviser representative. In this case, who would notify the state Administrator of the termination? A)Kapco Advisers. B)Both Kapco and the IAR. C)The IAR's new employer. D)The IAR.

D)The IAR. With over $110 million in assets under management, Kapco is a federal covered adviser. In that case, the IAR is the one who notifies the Administrator of being terminated.

Which of the following situations would present a conflict of interest that an adviser must disclose to his clients to avoid unlawful and deceitful behavior under the Investment Advisers Act of 1940? A)The adviser has a nonsecurities-related loan from a large commercial bank where one of his clients is a vice president. B)The adviser owns real estate that is unrelated to his investment advisory business, but it requires considerable time and attention. C)A family member of the adviser has been indicted for securities fraud unrelated to the adviser or the clients' securities. D)The adviser receives compensation from the issuer of securities that he recommends to his clients.

D)The adviser receives compensation from the issuer of securities that he recommends to his clients. An adviser has an affirmative duty to provide full and fair disclosure in those transactions where his interests may conflict with the best interests of the client. If an adviser receives payment from an issuer of securities sold to his clients, the adviser's judgment, on the investment merits of the security, could be influenced. The client must be informed of and consent to this arrangement to prevent fraud. Advisers are allowed to have separate businesses that do not, by their nature, present a conflict of interest.

According to the Investment Advisers Act of 1940, under which of the following circumstances is an exculpatory provision acceptable in a contract between an investment adviser and its clients? A)The client is purchasing government securities only. B)The client has received written disclosure of this provision and has signed a written acceptance prior to any transaction. C)The client is a broker-dealer. D)This provision is prohibited under all circumstances.

D)This provision is prohibited under all circumstances. An exculpatory (culpa meaning fault) provision is never acceptable in an investment advisory contract. Its purpose is to exclude officers and directors from liability for disregard of their duties. This might also be phrased as the client waiving his rights, and is also not permitted.

A person is excluded from the definition of an investment adviser under the Investment Advisers Act of 1940 if the investment advice and reports are restricted to: A)bank and insurance company securities. B)foreign securities. C)securities listed on a national stock exchange. D)U.S. government securities.

D)U.S. government securities. Among the exclusions found in the act is one for persons whose advice relates exclusively to securities issued or guaranteed by the U.S. government.

Damon Raymond is an agent with ABC Investment Planning, a registered broker-dealer and investment adviser. Under what circumstances would Damon not have to obtain client consent when ABC Investment Planning is acting in a principal capacity? A)When the client has given ABC blanket permission to engage in this type of transaction B)Never C)Only if the client terminates the advisory relationship D)When the trade that is made is unrelated to the advisory relationship

D)When the trade that is made is unrelated to the advisory relationship Under normal circumstances, when acting in an advisory capacity, client consent must be obtained no later than completion of the trade. However, in a case like this where the transaction is strictly based on the broker-dealer relationship rather than the advisory one, no consent is necessary.

As defined in the Investment Advisers Act of 1940, all of the following would be considered investment advisers EXCEPT A)a tax attorney who manages investment portfolios for 50 clients. B)a portfolio manager who limits advice to municipal securities exclusively. C)a civil engineer making investment decisions for $5 million held in escrow while a bridge for which she is the project manager is being constructed. D)a professional plumber with excellent stock market skills who as a hobby and without pay, manages portfolios for 8 of his neighbors.

D)a professional plumber with excellent stock market skills who as a hobby and without pay, manages portfolios for 8 of his neighbors. The plumber would not be considered an investment adviser because two of the three "prongs" are missing - advice is not being given as part of a regular business and there is no compensation. While an exclusion from the definition applies to advisers limiting advice to U.S. government securities, no such exclusion operates for advisers limiting advice to municipal securities. Similarly, there is an exclusion for attorneys providing investment advice on an incidental basis, but 50 clients is not incidental. Engineers are excluded from the definition provided their advice is incidental to their profession, but making investment decisions on the money in escrow is clearly not incidental.​

The USA places a number of recordkeeping requirements on investment advisers. Records required to be kept by all state-registered investment advisers include all of the following EXCEPT: A)emails. B)bank records. C)a list of discretionary accounts. D)a record by security showing each client's interest and location thereof.

D)a record by security showing each client's interest and location thereof. The key to this question is the requirement for all advisers. A security record is only required for those advisers who have custody of client assets.

Investment advisers who manage investment portfolios that total less than $100 million must register with: A)neither the SEC nor a state. B)the SEC only. C)both a state and the SEC. D)a state only.

D)a state only. Investment advisers who manage less than $100 million of investment assets are prohibited from registering with the SEC and are required to register with a state Administrator unless exempt under the laws of that state. Please do not confuse this with an SEC registered IA whose AUM may drop to as low as $90 million with continued SEC registration allowed. Any question about that rule will state that AUM has "dropped".

An investment adviser representative is prohibited from: A)as part of a comprehensive financial plan, selling a life insurance policy to an advisory client issued by a company he represents, even with disclosure to the client. B)recommending proprietary products only. C)disclosing to clients that he is not buying the security being recommended to them for his personal account. D)charging a fee for investment advice and then earning commissions on recommended trades without disclosing the nature of the dual relationship.

D)charging a fee for investment advice and then earning commissions on recommended trades without disclosing the nature of the dual relationship. When acting as a representative of an investment adviser as well as a broker-dealer, the relationship must be disclosed. IARs are permitted to recommend proprietary products only but must make disclosure of that fact.

Each of the following is considered an investment adviser representative under the Uniform Securities Act EXCEPT: A)an employee hired for the purpose of bringing new clients to the advisory firm. B)a vice president of sales of an investment adviser. C)an employee who supervises the management of customer accounts. D)an employee who performs only clerical tasks.

D)an employee who performs only clerical tasks. The term "investment adviser representative" includes those who give advice, attempt to attract new clients, and supervise those who advise or sell; in this case, everyone except the clerical employee.

An investment adviser runs an advertisement in the business section of the local newspaper. The ad describes the nature of the firm's model portfolio and indicates that it has outperformed the overall market by 800% over the past ten years, and the firm therefore guarantees that clients will more than keep pace with inflation. At the bottom of the ad, in smaller print, is the following statement: "Results are not guaranteed. Past performance is not indicative of future results. These results are not normal and cannot be expected to be repeated." This is an example of: A)a violation of an investment adviser's fiduciary responsibility. B)a properly worded disclaimer. C)a wrap fee account. D)an improper hedge clause.

D)an improper hedge clause. Hedge clauses may not be used to disclaim statements that are inherently misleading.

An investment adviser runs an advertisement in the business section of the local newspaper. The advertisement describes the nature of the firm's model portfolio and indicates that it has outperformed the overall market by 800% over the past ten years, and therefore they guarantee that their clients will more than keep pace with inflation. At the bottom of the advertisement, in smaller print, is the following statement: "Results are not guaranteed. Past performance is not indicative of future results. These results are not normal and cannot be expected to be repeated." This is an example of: A)a wrap fee account. B)a properly worded disclaimer. C)a violation of an investment adviser's fiduciary responsibility. D)an improper hedge clause.

D)an improper hedge clause. Hedge clauses may not be used to disclaim statements that are inherently misleading.

Under the Investment Advisers Act of 1940, a person who falls within the definition of an investment adviser must register with the SEC unless the adviser's only clients. A)do not exceed 25 in number during the preceding 12 months. B)consist of individuals with net worth in excess of $5 million. C)are confined to employees of the federal government. D)are insurance companies.

D)are insurance companies. Among its exemptions, the Investment Advisers Act of 1940 grants an exemption from registration for those investment advisers whose only clients are insurance companies. The de minimis requirement only applies to foreign advisers.

Sally is registered as an agent with ABC Securities Co., a major brokerage house with offices in most states. ABC has recently introduced a fee-based asset management program and has asked Sally to devote one hour per day soliciting her existing clients for this program. Under the USA, Sally would: A)only be permitted to solicit those clients who currently have discretionary accounts with ABC. B)not be required to obtain any additional licensing beyond her agent's registration. C)be required to obtain registration as a registered investment adviser. D)be required to obtain registration as a registered investment adviser representative.

D)be required to obtain registration as a registered investment adviser representative. Once ABC Securities Co. begins offering a fee-based asset management program, it loses its exclusion from the definition of investment adviser. One could assume that a national firm like this would probably become a federal covered adviser. If Sally wants to solicit anyone, existing clients or not, for this type of program, she could not do so until registered as an investment adviser representative.

Your high-net-worth advisory client has a large cash position in his money market account and is considering using the cash to purchase an investment property. You believe that the real estate investment will not provide the same returns that can be realized by investing in bonds so you prepare a proposal that estimates the income stream and potential capital growth of a portfolio of convertible bonds currently in the firm's inventory. The recommendation is quite suitable for the client based on his current objectives. If the transaction is completed and you fail to disclose that the bonds were sold in a proprietary transaction and receive client consent, you would have: A)not breached your fiduciary duty. B)misrepresented a material fact. C)to disclose the amount of commission on the trade confirmation. D)committed a prohibited practice.

D)committed a prohibited practice. Under both federal and state law, it is required to disclose to the client that the bonds will be sold from the firm's inventory, from one of the firm's accounts, often called a proprietary account. However, when selling from inventory, there would never be a commission. The charge, if any, would be a mark-up.

Included in the fiduciary relationship between an investment adviser and client is the responsibility to: A)recommend only nonaffiliated attorneys to clients seeking legal advice. B)provide tax advice as an integral part of the client relationship. C)recommend only nonaffiliated broker-dealers for execution of portfolio transactions. D)disclose the tax consequences of a recommended investment.

D)disclose the tax consequences of a recommended investment. Whenever a recommendation is made to an advisory client, it is incumbent on the IA or IAR to make disclosure of the tax effects of that investment to the client. IA's are not to provide tax advice unless specifically qualified to do so and may recommend legal advisers who are or are not affiliated with the firm. There is no reason why an IA cannot recommend an affiliated broker-dealer, as long as disclosure of the relationship is made.

One of the respects in which the USA treats investment adviser representatives differently than investment advisers is that IARs: A)may be permitted to share in the profits and losses in a client's account whereas IAs never can. B)exercising discretion in client's account may be required to post a surety bond whereas IAs generally do not require bonding. C)are always individuals whereas no individual can register as an IA. D)employed by federal covered advisers must register in each state in which they maintain a place of business whereas the IA registers only with the SEC.

D)employed by federal covered advisers must register in each state in which they maintain a place of business whereas the IA registers only with the SEC. Investment adviser representatives employed by federal covered investment advisers must register as IARs in each state in which they have a place of business. Federal covered advisers register only with the SEC, not with any states. There are a number of individually registered IAs, and neither IAs nor IARs are permitted to share in profits and losses in customer accounts. Only IAs, but not IARs, may be required to post surety bonds if they exercise discretion in client accounts.

Under the Uniform Securities Act, all of the following are exempt from state registration as investment advisers EXCEPT: A)investment adviser representatives. B)investment advisers with no office in the state who only advise employee benefit plans with assets of more than $1 million. C)publishers of financial publications that are not addressed to clients' specific individual investment situations. D)financial planners who provide fee-based investment advisory services to clients.

D)financial planners who provide fee-based investment advisory services to clients. Financial planners who provide fee-based investment advisory services to the public generally must register with their state securities Administrator as long as their total assets under management are less than $100 million. Investment advisers with no office in the state, who only advise employee benefit plans with assets of more than $1 million, need not register with state securities Administrators. Investment adviser representatives do not register as investment advisers but as investment adviser representatives. Financial publishers who do not publish specific investment advice are exempt from state registration.

As used in the regulations, the term impersonal investment advice means A)investment advisory services provided strictly by subscription B)investment advisory services provided by a team of advisers C)investment advisory services provided where the client does not know the identity of the investment adviser representative D)investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts

D)investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts This is the way the term is defined.

In an effort to further protect the interests of clients, the Investment Advisers Act of 1940, as amended, contains recommendations for implementing a Code of Ethics. This code: A)is not required unless the firm has been found to have committed violations of federal securities law. B)is only required by firms performing comprehensive financial planning. C)is not subject to minimum standards set forth by the SEC. D)must reflect the nature and scope of the business done by the firm.

D)must reflect the nature and scope of the business done by the firm. In adopting the code, the SEC did not specify a particular standard that firms would be required to adopt. However the Commission did indicate a minimum standard. The SEC directed each firm to adopt standards that reflect the nature and scope of the business done by that firm and applicable state and federal fiduciary laws. In the words of the Commission, "A good code of ethics should effectively convey to employees the value the advisory firm places on ethical conduct." Codes of ethics are required for all registered investment advisers.

n an effort to further protect the interests of clients, the Investment Advisers Act of 1940, as amended, contains recommendations for implementing a Code of Ethics. This code: A)is not required unless the firm has been found to have committed violations of federal securities law. B)is only required by firms performing comprehensive financial planning. C)is not subject to minimum standards set forth by the SEC. D)must reflect the nature and scope of the business done by the firm.

D)must reflect the nature and scope of the business done by the firm. In adopting the code, the SEC did not specify a particular standard that firms would be required to adopt. However the Commission did indicate a minimum standard. The SEC directed each firm to adopt standards that reflect the nature and scope of the business done by that firm and applicable state and federal fiduciary laws. In the words of the Commission, "A good code of ethics should effectively convey to employees the value the advisory firm places on ethical conduct." Codes of ethics are required for all registered investment advisers.

The sole proprietor of an insurance business that exclusively provides advice on fixed income annuity contracts: A)must register as a broker-dealer with the SEC. B)must register as an investment adviser under the Investment Advisers Act of 1940. C)must register as an investment adviser representative under the USA. D)need not register under any securities laws.

D)need not register under any securities laws. The sole proprietor of an insurance business need not register under the Uniform Securities Act or Investment Advisers Act. He provides advice on fixed income annuities only, which are insurance products, not securities. Regulations under the USA, as well as federal securities laws, only apply to securities.

Your client is an elderly widow whose only income comes from the portfolio you manage for her. She recently called because she is concerned about how estate taxes will affect the inheritance she is planning to leave her 3 grandchildren. You recommend that she contact a tax attorney you've worked with in the past. Because the client does not ask, you do not tell her that you have a referral agreement with the attorney that results in a $200 finder's fee for each client referred to him. Under the USA, this is: A)permissible because the client asked for your recommendation. B)permissible because you are not qualified to give estate planning advice. C)not permissible under any circumstance. D)not permissible because you failed to disclose the referral agreement.

D)not permissible because you failed to disclose the referral agreement. A conflict of interest may exist when referring business to someone outside of the advisory firm. Therefore, when accepting compensation from a third party for referrals or for directing business to them, an investment adviser representative is required to disclose to the client that they are being paid for the referral, and they must also disclose the amount of this compensation. If the representative fails to make this disclosure, he has committed a prohibited practice.

All of the following information is required on the SEC registration Form ADV EXCEPT the: A)name of the adviser's business. B)balance sheet certified by an independent public accountant. C)basis on which the adviser will be compensated. D)personal securities holdings of the principals and associated persons of the firm.

D)personal securities holdings of the principals and associated persons of the firm. The registration Form ADV does not require the disclosure of the personal securities holdings of the firm's principals. Form ADV requires the name of the adviser's business and balance sheet, as well as any additional financial information requested by the SEC. In addition, Form ADV specifically requires information on how the adviser will be compensated.

Your 73-year-old advisory client has informed you that she is about to enter the hospital for an extended stay because of major surgery that will be performed within a week. She has always maintained physical possession of her stock certificates but is concerned about them because of the upcoming medical procedure. If your firm maintains net worth of $25,000, it would be appropriate for you to suggest any of the following EXCEPT: A)taking her to your bank to open her a safe deposit box. B)depositing the certificates with her broker-dealer, where they will be kept in street name. C)consulting the lawyer who drafted her durable power of attorney. D)placing the stock certificate in your safe deposit box for safe keeping with a file on what is hers and what is yours.

D)placing the stock certificate in your safe deposit box for safe keeping with a file on what is hers and what is yours. Accepting the client's certificates involves custody. An investment adviser must have at least $35,000 of net worth in order to do so.

Under the Investment Advisers Act of 1940, the executive office of the investment adviser from which the officers, partners, or managers of the investment adviser direct, control, and coordinate the activities of the investment adviser is properly referred to as the A)office of supervisory jurisdiction (OSJ) B)registered office C)home office D)principal office and place of business

D)principal office and place of business This is the way it is defined in the act. It is generally the home office, but you must chose the answer that best meets the terminology referred to in the question.

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A)shall disclose the agency capacity before the transaction B)may not charge a commission on the transaction C)shall notify the Administrator of its capacity in the proposed transaction D)shall obtain client consent before completion of the transaction

D)shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client Both of these are required before the completion of the transaction.

Under the Investment Advisers Act of 1940, an adviser is required to be registered with the SEC if: A)the adviser's clientele is exclusively federal credit unions and the adviser has less than $100 million in assets under management. B)the adviser's advice relates solely to securities issued or guaranteed by the U.S. government. C)the adviser is the publisher of a news magazine of general and regular circulation. D)the adviser's clients are investment companies registered under the Investment Company Act of 1940.

D)the adviser's clients are investment companies registered under the Investment Company Act of 1940. Advisers to registered investment companies are required to be SEC registered. Under the Advisers Act, as modified by the Dodd-Frank Act, advisers are exempt from SEC registration if they manage less than $100 million in assets and have no investment company clients. Persons are excluded from the Advisers Act definition of investment adviser if they are publishers of news or business/financial publications of general and regular circulation or if their advice relates solely to U.S. government securities.

Under the antifraud provisions of the Investment Advisers Act of 1940, an investment adviser must disclose to clients: A)that any transactions made on the adviser's own account are consistent with the advice given to clients. B)that the adviser has never been subject to disciplinary action or censure by the SEC. C)the number of clients with whom the adviser does business. D)the association between the investment adviser and the broker-dealer with whom the overall investment plan will be implemented.

D)the association between the investment adviser and the broker-dealer with whom the overall investment plan will be implemented. Advisers must disclose to clients any outside interest or potential conflicts of interest involved in their recommendations or transactions for those clients. Failure to disclose additional compensation related to the advisory function would be considered fraudulent. If an advisory firm is also a broker-dealer and will enjoy transaction-related compensation if the advisory client acts on the adviser's recommendation, this must be disclosed in writing and the client must consent in writing. There is no requirement that an adviser disclose to its clients the number of its other clients. The adviser is required to disclose disciplinary actions taken by regulatory authorities, but not the absence of such actions. The adviser is not required to disclose its consistent transactions, but must make disclosure if its transactions are not consistent with the advice given.

An investment adviser representative borrows $10,000 from his mother-in-law, who is also a client. He signs an agreement to pay back the loan in 5 years at below market interest. This arrangement is: A)unacceptable because the interest rate is too low. B)acceptable if any profits and losses in the customer's account are shared in proportion to each party's financial contribution and with the firm's prior permission. C)acceptable because the client is considered an immediate family member. D)unacceptable because it is considered an unethical business practice to borrow from a client not in the lending business.

D)unacceptable because it is considered an unethical business practice to borrow from a client not in the lending business. The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers permits borrowing from clients only when they are in the lending business or are affiliates of the firm.

A primary purpose of filing the annual updating amendment to the Form ADV is to: A)disclose the amount and location of securities or funds of clients that are being held by the adviser or a qualified custodian. B)provide a set of audited financials. C)ensure that full disclosure has been made in the adviser's brochure. D)verify that the investment adviser still qualifies for SEC registration.

D)verify that the investment adviser still qualifies for SEC registration. In order to maintain SEC registration, an investment adviser must maintain assets under management of no less than $90 million. The annual updating amendment is used to disclose this information.

An investment adviser with no place of business in the state is exempt from registration with the state when making recommendations to all of the following EXCEPT: A)AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities. B)Amalgamated Bank. C)St. Amelia's college endowment Fund. D)when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state.

D)when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state. An investment adviser with no place of business in the state is not exempt from registration with the state when making recommendations to individual accredited investors who are residents of that state, even when the securities being recommended are exempt from registration. The Uniform Securities Act exempts investment advisers with no place of business in the state who deal with certain institutional customers such as banks, insurance companies, investment management companies, and employee benefit plans with assets in excess of $1 million. College endowments and other nonprofit organizations also carry exempt status, but not wealthy individuals. An adviser advising an issuer on the quality of potential underwriters does not fall within the definition of investment adviser under the Uniform Securities Act and is therefore exempt from registration.

The term "investment counsel" can be used by investment advisers: A)who are also registered as broker-dealers. B)who are registered with the SEC under the Investment Advisers Act of 1940. C)who are also attorneys. D)with a primary business of rendering investment advice.

D)with a primary business of rendering investment advice. While this choice is only half correct, under the Investment Advisers Act of 1940, the term "investment counsel" may be used by any adviser that meets two standards; the adviser performs investment supervisory services; and the adviser provides advice as the primary business of the firm. No other special qualifications or registrations are needed.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, under which of the following circumstances may an investment adviser disclose a client's account performance? Under no circumstances. If the IRS has issued a summons for the client's records. For a promotional campaign on the firm's track record of successful recommendations. If a divorce court has issued a subpoena for the records and the client has given written permission. A)II and IV. B)II, III and IV. C)IV only. D)I only.

A)II and IV. Investment advisers must keep client records confidential unless the client provides consent or disclosure is required by law.

Under the Uniform Securities Act, which of the following qualifies as an investment adviser representative? A)A solicitor for an investment advisory firm who is paid a fee for his services. B)An individual who renders fee-based advice on precious metals. C)An agent who offers incidental advice on securities as part of his sales commissions. D)An employee, although highly skilled in evaluating securities, solely performs administrative or clerical functions for an investment adviser.

A)A solicitor for an investment advisory firm who is paid a fee for his services. If the goal is obtaining clients for the investment adviser, a solicitor is considered an investment adviser representative under the Uniform Securities Act. An employee who performs clerical or administrative functions only is not an investment adviser representative. Precious metals are not securities, and a person advising on them is not considered an IAR. An agent is a representative of a broker-dealer.

Which of the following firms would be a federal covered adviser? A)ABC Money Managers, a partnership with $112 million under management. B)XYZ Broker-Dealer with custody over $50 million of clients' invested assets. C)GHI Consultants, a sole proprietorship managing $15 million belonging to high net worth individuals. D)DEF Fund Managers, a corporation managing an unregistered hedge fund with $20 million in assets.

A)ABC Money Managers, a partnership with $112 million under management. The structure of the adviser is irrelevant; if assets under management equal $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered regardless of size. The hedge fund is an unregistered fund, so the rule does not apply. A broker-dealer is excluded from the definition of investment adviser if investment advice is incidental to its business. Custody has nothing to do with giving advice.

Which of the following statements best describes an investment supervisory service as described by the Investment Advisers Act of 1940? A)An investment adviser provides continuous advice based on the client's individual needs. B)An investment adviser sends monthly newsletters to 200 clients offering nonspecific advice. C)No actions are taken in client accounts without first being approved by a senior supervisory person. D)An investment advisory firm offers nondiscretionary services on a nonclient specific basis.

A)An investment adviser provides continuous advice based on the client's individual needs. An investment supervisory service is an individualized service delivered to a specific client on a continual basis. General nonspecific advice given across the board is deemed impersonal advisory services. Only when an investment adviser provides investment supervisory service, and the adviser's principal business activity is the giving of advice, may the term "investment counsel" be used.

Winning Strategies Advisers (WSA) is registered in Vermont where it has its principal office. They also have branch offices in Florida and Colorado. One of their IARs works out of the Florida office and, in addition to his local clients, has one client who lives in Silverton, CO. This IAR would be required to register in: A)Florida B)Florida, Colorado and Vermont C)Florida and Vermont D)Florida and Colorado

A)Florida We know that WSA is a state covered IA rather than a federal covered one because we are told they are registered in Vermont. As such, they must register in each state in which they have a place of business. In this case, that means all three states. However, the question asks about one of their IARs. An IAR for a state covered IA must register in any state in which he maintains a place of business. Because he works out of the Florida office, that is his place of business so he must register in FL. In any other state, the IAR is eligible for the de minimis exemption so, with only one client in CO, registration is not required.

Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration? Foreign investment advisers with fewer than 15 clients per year who do not hold themselves out as investment advisers to the public and have less than $25 million in AUM in the United States. Investment advisers who conduct all of their business in 1 state and who do not provide advice on securities listed on an exchange and have no private funds as clients. Investment advisers whose only clients are banks. A)I and II. B)I, II and III. C)II only. D)I only.

A)I and II. Usually, anyone who meets the federal definition of investment adviser must be registered with the SEC. Some investment advisers are not excluded from the definition but are exempt from the registration requirements of the SEC. One example is an adviser whose clients are all residents of the state in which the adviser maintains its principal office who renders no advice on any exchange-listed security and does not give advice to any private funds. Advisers whose clients are limited to insurance companies are exempt from registration, as are foreign advisers who limit themselves to fewer than 15 clients a year (none of whom can be investment companies), do not advertise or hold themselves out to be investment advisers and have less than $25 million in AUM in the U.S. There is no exclusion for advisers whose only clients are banks.

Sam wants to start his own registered investment adviser firm, independent of the brokerage firm where he is registered as an agent. He plans to provide financial planning services, which will include investment advice as an integral part of his business. Sam must: file with either the state securities Administrator or with the Securities Exchange Commission as a registered investment adviser by filing the appropriate Form ADV. file Form ADV with his current brokerage firm. notify his current brokerage firm and receive permission to operate independently from the firm as a registered investment adviser. do nothing and begin performing investment advisory services without regard to his current brokerage firm. A)I and III. B)II and III. C)II and IV. D)I and IV.

A)I and III. Any registered person acting on behalf of a brokerage firm must receive that firm's permission to act as a registered investment adviser apart from the control of the brokerage firm. A brokerage firm may deny a registered person's ability to start his own advisory firm if the brokerage firm deems it to be a conflict of interest. An individual or a firm can start a registered investment adviser firm by filing an ADV form with the state or with the SEC. A person working for a registered investment adviser would have to pass either a Series 65 or Series 66 exam to become a registered investment adviser representative. It is important to recognize the difference between the firm (the registered investment adviser) and the person working for the firm in giving investment advice (the registered investment adviser representative).

Which of the following situations would require registration as an investment adviser? A broker-dealer provided investment research services to a customer and charged a fee for the service. An agent of a broker-dealer recommends the purchase of ABC securities to a customer, who then purchases 100 shares, and the agent earns a commission. An agent of a broker-dealer prepares a complete financial plan for a customer for a nominal charge. The plan recommends specific securities transactions, which the customer orders. The agent earns commissions on the securities transactions. A broker-dealer charges its customers for collecting dividends and maintaining their accounts in addition to commission charges for transactions executed. A)I and III. B)I only. C)I, II, III and IV. D)I, III and IV.

A)I and III. Under the Uniform Securities Act, broker-dealers and their agents are not defined as investment advisers if their performance is solely incidental to the conduct of a brokerage business, and no special compensation is received for the advisory services. A broker-dealer charging for research advice is charging for advisory services, which would require registration as an investment adviser. Preparing a complete financial plan for a customer goes beyond being solely incidental to conducting a brokerage business and would require registration as an investment adviser because a fee was charged, even if only a nominal one. Recommendations of securities purchases are incidental to conducting a brokerage business and would not require registration as an investment adviser if no fees are charged for the advice. Broker-dealers may charge for clerical services provided to customers, but clerical services are not considered investment advisory services.

Advisers that manage $110 million or more in customer assets are required to do which of the following? Register with the Securities Exchange Commission. File notice with FINRA. Post a bond in an amount specified by the appropriate regulatory body. File notice with the state in which their principal office is located if notice filing is required by the Administrator. A)I and IV. B)II and III. C)II and IV. D)I and III.

A)I and IV. Advisers that manage $110 million or more in customer assets are federal covered advisers and are required to register with the SEC under the Investment Advisers Act of 1940. In addition, they are normally required to file notice in each state where they conduct business. There are no bonding requirements for federal covered advisers.

Under SEC Release 1A-1092, which three standards are used to define an investment adviser? Provides advice, reports, or analyses concerning securities. Is in the business of providing securities-related advice or analysis. Receives compensation. Is the principal business activity. A)I, II and III. B)II, III and IV. C)I, III and IV. D)I, II and IV.

A)I, II and III. The release establishes three criteria in defining an investment adviser. First, the person must provide advice, reports, or analyses concerning securities. Second, the person must be in the business of providing securities-related advice or analyses. Third, the person must receive compensation. Investment advising does not have to be the person's principal business. They need only hold themselves out as advisers and provide investment advice on a frequent or regular basis.

Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if that individual does which of the following? Offers advice concerning securities. Manages client accounts or portfolios. Determines securities recommendations for representatives to disseminate. Supervises personnel engaged in the above activities but does not sell these services to the public. A)I, II, III and IV. B)I and II. C)II and III. D)I and IV.

A)I, II, III and IV. The Uniform Securities Act defines any individuals associated with an investment adviser as investment adviser representatives if they manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities, including any partner, officer, or director who offers advice concerning securities. Persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities are investment adviser representatives.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following is (are) required to register as investment adviser in a particular state? An adviser who manages client accounts in excess of $100 million in value. An adviser who manages client accounts with less than $100 million in value. An adviser to investment companies registered under the Investment Company Act of 1940. An adviser who acts as pension consultant to employee benefit plans with assets of $200 million or more. A)II only. B)I, II, III and IV. C)II and IV. D)I only.

A)II only. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, only advisers who manage client assets that total less than $100 million are required to register with the state Administrators. Those who manage client assets of at least $110 million or advise registered investment companies are required to register with the SEC and are exempted from state registration. The pension consultant in this question would not be required to register with the state because those who act as pension consultants and have at least $200 million in assets under management have the option to register with the SEC. There is a corridor between $100 and $110 million in which the adviser also has a choice of state or federal registration.

A state registered investment adviser suddenly incurs a liability that materially affects its net worth​ causing it to drop below the required minimum​. Which of the following statements is TRUE? A)The​ ​investment adviser must notify the Administrator​ by the close of business on the following business day​. B)The investment adviser must notify the Administrator promptly. C)The ​investment adviser is not required to file​ ​an amendment to its registration with the Administrator. D)The ​investment adviser ​must increase its surety bond to make up the deficiency.

A)The​ ​investment adviser must notify the Administrator​ by the close of business on the following business day​. ​Although most notifications involving emergency type situations require prompt notification, when an investment adviser's net worth is below the requirement, the NASAA Model Rule is a bit different. Unless otherwise exempted, as a condition of the right to transact business in the state, every investment adviser registered with the state shall, by the close of business on the next business day, notify the Administrator if such investment adviser's net worth is less than the minimum required. After transmitting such notice, each investment adviser shall file by the close of business on the next business day after that, a report with the Administrator of its financial condition.

Under the Uniform Securities Act, an accountant who charges hourly fees for securities recommendations in the regular course of his accounting practice is: A)included in the definition of an investment adviser because he is compensated for giving investment advice in the regular course of business. B)not included in the definition of an investment adviser because he is an accountant. C)not included in the definition of an investment adviser because he receives an hourly rate instead of a commission. D)included in the definition of an investment adviser because accountants are not among the professionals excluded from the definition.

A)included in the definition of an investment adviser because he is compensated for giving investment advice in the regular course of business. An accountant who gives advice in the course of business and receives compensation, hourly or not, for providing the advice in the regular course of business falls within the definition of an investment adviser under the Uniform Securities Act. To be excluded, the advice must be on an incidental basis.

All of the following are exempt from registration requirements with the SEC under the Investment Advisers Act of 1940 EXCEPT: A)investment advisers with $110 million or more in assets under management. B)an adviser with 50 clients, all within one state, that furnishes no advice on exchange-listed securities. C)investment advisers whose only clients are insurance companies. D)someone who gave investment advice to 11 private funds throughout the Midwest last year and has total assets under management of $120 million.

A)investment advisers with $110 million or more in assets under management. Investment advisers with $110 million or more of assets under management are subject to registration with the SEC under the Investment Advisers Act of 1940 and the NSMIA. Federal exemptions apply to advisers whose clients, none of whom is a private fund, are all in one state, whose principal office is in that state, and whose clients are not furnished advice on exchange-traded securities. Private fund managers are exempt from SEC registration until their AUM in the US reaches $150 million.

An Administrator can deny an investment adviser's registration for all of the following reasons EXCEPT: A)planning to exercise discretion over customer accounts while maintaining a net worth of only $10,000. B)claiming to be qualified as the result of experience as a broker-dealer. C)failure to pass a written exam. D)filing an incomplete application.

A)planning to exercise discretion over customer accounts while maintaining a net worth of only $10,000. The minimum net worth for an IA exercising discretion is $10,000 so this firm cannot be denied because of lack of capital. The Administrator shall consider that an applicant for registration as an investment adviser is not necessarily qualified solely on the basis of experience as a broker-dealer.

ABC Advisers, a federal covered investment adviser, is moving the firm's headquarters to a new office park in the suburbs. ABC is required to file this change with the SEC: A)promptly. B)within 90 days. C)within 60 days. D)within 30 days.

A)promptly. Any material change that affects an investment adviser's ADV must be filed promptly with the SEC (or Administrator if state covered) and a change of address would certainly be material.

An individual is registered as an agent with a broker-dealer offering wrap fee advisory programs. To participate in offering the wrap fee program to clients, the agent must: A)register with the state as an investment adviser representative. B)withdraw his current agent registration. C)register with SEC as an investment adviser representative. D)register with the state as an investment adviser.

A)register with the state as an investment adviser representative. An agent of a broker-dealer must register with the state as an investment adviser representative to offer a wrap fee program to clients.

Under the Uniform Securities Act, Laura Smith must register as an investment adviser representative unless she: A)sells registered securities solely on a commission basis for a registered broker-dealer. B)sells her financial planning business in order to become a full-time employee of AAA Investment Advisers, Inc., where she advises clients whose net worth exceeds $5 million. C)opens a financial planning business in which she is the sole owner and advises individual clients on the advisability of investing in securities. D)opens a sole proprietorship in Virginia and offers investment advice for a fee on an ongoing basis to residents of Virginia whose combined assets under management total $35 million.

A)sells registered securities solely on a commission basis for a registered broker-dealer. Laura Smith, as an employee of AAA Investment Advisers, Inc., must register in the state as an investment adviser representative. As the sole owner of a financial planning practice and an investment advisory proprietorship, Laura must register as an investment adviser representative of her investment advisory firm. Please note that registration of the investment adviser entity automatically registers officers, partners, and so forth, as IARs. When Laura functions as a sales agent for a broker-dealer, she must register as an agent, not an investment adviser representative.

An investment adviser has its home office in Wisconsin. Their only business is with trust companies, large employee benefit plans, and insurance companies. They have no place of business in Colorado, but provide investment advice to two Denver banks, both chartered under Colorado banking laws. There is a new Administrator in Colorado and it is his opinion that this IA should be required to register in his state. A careful reading of Section 201 of the Uniform Securities Act would indicate that: A)the firm does not have to register because they have no place of business in the state and their only clients are registered financial institutions. B)this firm would be exempt from registration with the Colorado Administrator since it is doing business in more than one state. C)as long as the IA does not have an office in Colorado, there are no conditions that would mandate registration there. D)the Administrator is correct, the firm must register.

A)the firm does not have to register because they have no place of business in the state and their only clients are registered financial institutions. Section 201 of the Uniform Securities Act specifies the conditions under which one is an investment adviser in the state. Specifically excluded are those IAs with no place of business in the state who confine their advisory activities in the state to other investment advisers, federal covered advisers, broker-dealers, 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. If, however, in addition to the two banks, the firm did advisory business with more than 5 retail clients who were residents of Colorado, then, even with no place of business in the state, they would have to register.

Stanford Securities, Inc., is a registered broker-dealer in 22 states. Stanford has just created a wholly owned subsidiary, Stanford Advisers, Inc., and expects to have at least $100 million in assets under management within the next 45 days. Stanford Advisers, Inc.: A)will not have to register in any state. B)must register in each state in which they intend to offer advisory services. C)must register in each state in which they maintain an office. D)will only have to register in the state in which Stanford Advisers, Inc., maintains their principal office.

A)will not have to register in any state. Unlike broker-dealers, where there is no such concept as federal covered, a new investment adviser that reasonably expects to reach the $100 million minimum threshold within 120 days of the initial filing of the Form ADV invariably registers with the SEC as a federal covered investment adviser and, therefore, does not register in any state.

Under the Uniform Securities Act, which of the following is NOT an investment adviser representative? A)A director in a state registered investment advisory firm who determines specific recommendations for clients. B)A clerk employed by a state registered investment advisory firm. C)An associate in an SEC-registered investment advisory firm who has a place of business in the state and manages the account of a single client. D)A vice president of a state registered investment advisory firm who supervises employees who solicit clients for the firm.

B)A clerk employed by a state registered investment advisory firm. Clerical and ministerial personnel are specifically excluded from the definition of investment adviser representative. Specifically included in the definition are directors, officers, partners, associates, and employees of state registered advisers who carry out investment advisory or solicitation functions or who supervise those functions. Also included in the definition are persons who perform similar functions for SEC-registered advisers and who have a place of business in the state.

Which of the following investment advisers would be required to register with the state? A)An IA whose annual updating amendment showed a drop in AUM from $141 million to $99 million. B)An IA whose annual updating amendment showed a drop in AUM from $109 million to $87 million. C)an IA who expects to have $132 million in AUM within 120 days. D)an IA who is under contract to manage a registered investment company.

B)An IA whose annual updating amendment showed a drop in AUM from $109 million to $87 million. No IA can remain registered with the SEC with assets under management (AUM) of less than $90 million (except those who manage registered investment companies). It takes $100 million in AUM to be able to initially register with the SEC, thereafter, the IA must maintain at least $90 million to remain SEC registered.

Alvin Hill is an IAR with Kapco Advisers, Inc., a covered investment adviser with offices in New York City, Chicago, and Los Angeles. Alvin is registered in the states of New York, New Jersey, and Connecticut. Alvin has clients who move to San Diego and officially become California residents. Once settled there, they decide to open an advisory account for each of their children. What are Alvin's options? A)Continue to do business as usual with the existing clients but have the children's new accounts serviced by a Kapco IAR registered in California. B)Continue to do business as usual with the existing clients as well as open the children's account because Alvin does not have a place of business in California. C)Obtain a California registration and handle all of the accounts. D)Have a Kapco IAR who is licensed in California take over the existing account and open the new accounts for the children.

B)Continue to do business as usual with the existing clients as well as open the children's account because Alvin does not have a place of business in California. Under Section 203A of the Investment Advisers Act of 1940, an investment adviser representative of a covered investment adviser is required to register only in those states in which that IAR maintains a place of business. Even though the firm has a California office, nothing here indicates that Alvin plans to establish one there. If Alvin had been associated with a state-registered IA, then, once the clients had been residents of California for 30 days, Alvin would have to begin counting them towards the 5 in any 12 months de minimis limit which, once exceeded, would require registration as an IAR in CA.

A federal covered investment adviser terminates its registration. The form to be filed with the SEC is: A)Form U-5. B)Form ADV-W. C)Form ADV-E. D)Form U-4.

B)Form ADV-W. Agents and investment adviser representatives terminate their registrations by filing a Form U-5. It is the investment adviser that files the ADV-W. Withdrawal becomes effective upon acceptance by the IARD, provided however that the investment adviser's registration continues for a period of 60 days after acceptance solely for the purpose of commencing a proceeding regarding any violation of the Act.

According to the Uniform Securities Act, which of the following must be registered as an investment adviser representative? John, who opens an investment advisory firm where he devotes his time exclusively to management responsibilities as the sole proprietor of the firm. Paul, who works for a firm soliciting investment management accounts on behalf of several different investment managers. Margaret, who works as a commission sales agent for a broker-dealer. Mark, an employee of AAA Broker-Dealers, who solicits brokerage clients for commissions on the basis of research conducted by his firm's securities analyst. A)II and III. B)I and II. C)I and IV. D)II and IV.

B)I and II. Paul, who works for a firm soliciting investment management accounts for several investment managers, must register as an investment adviser representative because he is acting in the capacity of a sales agent for investment advisers. John, as the owner, will be automatically registered as an investment adviser representative when his advisory firm registered as an investment adviser. Margaret need not register as an investment adviser representative because she functions as a registered agent for a broker-dealer. If she sold investment advice for the broker-dealer's investment management subsidiary, she then would have to register as an investment adviser representative. An agent of a broker-dealer, earning commissions on security sales, is not an IAR even if his primary selling tool for the brokerage business is the firm's outstanding research department.

Under the Uniform Securities Act, which of the following statements regarding the employment of investment adviser representatives by a state registered investment adviser is (are) TRUE? The investment adviser must notify the Administrator whenever a representative is terminated. An investment adviser is not required to notify the Administrator when a representative begins employment. The registration of a representative is effective only as long as the individual is employed by a registered investment adviser. A)I only. B)I and III. C)I, II and III. D)III only.

B)I and III. Whenever an individual begins or ends employment with a state registered investment adviser, the investment adviser must notify the Administrator. A representative's registration is only valid while employed by a registered investment adviser.

The Administrator may require which of the following from a federal covered adviser? copy of the IA's Form ADV. filing of the IA's advertising in the state. a listing of the IA's fee schedule. a filing fee. A)I and II. B)I and IV. C)II and III. D)I, II, III and IV.

B)I and IV. Even though the Administrator has 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.

In defining an investment adviser under SEC Release 1A-1092, which of the following would meet the business standard? A person who advertises himself as an investment adviser. A person who provides securities-related advice on a frequent or regular basis. A person who receives separate or additional compensation for securities-related advice. A)III only. B)I, II and III. C)I and II. D)II and III.

B)I, II and III. To meet the business standard, persons must meet three criteria. First, they must hold themselves out (advertise) as persons who provide investment advice. Second, they must provide such advice on a frequent or regular basis, but it need not be their principal business activity. Third, they must receive separate or additional compensation for doing so.

Under IA-1092, which of the following may be considered investment advisers? Estate planners. Pension consultants. Advisers to entertainers. Tax consultants. A)I and III. B)II and III. C)I and IV. D)II and IV.

B)II and III. Advisers to entertainers, advisers to athletes, and pension consultants are specifically included as potential investment advisers under IA-1092. However, the release does not mention estate planners or tax consultants.

Which of the following is (are) NOT a prohibited practice? An IAR recommends high-grade, tax-exempt securities to a low-income client with long-term aggressive growth as his primary objective. A certified financial planner indicates to customers that he is certified by the Administrator to conduct quantitative securities analysis. An investment adviser representative identifies his clients to prospects, by name and account balances, giving examples that accurately support his sales and performance claims. After several weeks spent establishing a client's trust, an adviser representative then discloses to the client that he had been convicted of a nonsecurities-related misdemeanor in France. A)I and IV. B)IV only. C)I and II. D)II and III.

B)IV only. An agent or investment adviser representative need not disclose nonsecurities-related misdemeanors. The other activities are all prohibited. Recommending tax-exempt bonds to a low-income client is prohibited because it is most likely unsuitable. A certified financial planner cannot lawfully indicate that he is certified by the Administrator to conduct quantitative analysis. If registered in a state, the planner can only indicate that he is registered in the state. Investment advisers must keep their clients and their transactions confidential unless under a legal order to provide disclosure or prior permission has been obtained from the client.

When, if ever, would a broker-dealer be required to register as an investment adviser? A)Never. B)If it charges distinct fees for investment advice or management. C)Always. D)If it is not registered with the SEC.

B)If it charges distinct fees for investment advice or management. Although broker-dealers are generally exempt from having to register as investment advisers, the exemption is not available if the broker-dealer imposes a separate fee for account management or advice.

State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A)Bank subsidiary offering investment advice. B)Investment adviser representatives. C)Economists whose advice is strictly incidental to their professional activity. D)Broker-dealers receiving special compensation.

B)Investment adviser representatives. The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.

Jim Thompson has recently joined an investment advisory firm as a financial professional in the principal business of rendering investment advice for a fee through offering investment supervisory services. Under the Investment Advisers Act of 1940, Jim is considered which of the following? A)Investment expert. B)Investment counsel. C)RIA. D)Prudent expert.

B)Investment counsel. The term "investment counsel" may only be used if an adviser is in the principal business of acting as an investment adviser and a substantial amount of business comes from providing investment supervisory services. The term "investment expert" is misleading terminology and the designation RIA is not allowed.

An IA who maintains custody of client assets, has its home office in Nebraska and is registered and currently doing business in Illinois, Ohio, and Mississippi. In addition, the IA has 6 insurance company clients in Florida, 12 broker-dealer clients in Georgia, and 7 private clients in Tennessee. These 7 clients are relatives of the president of the IA. What surety bond must be maintained for the IA? A)The highest required surety bond. B)Only the surety bond as required by Administrator of Nebraska. C)None; the IA is exempt from surety bond requirements. D)A surety bond for each of the states the IA is registered in.

B)Only the surety bond as required by Administrator of Nebraska. When an investment adviser maintains custody of client assets, a surety bond is generally required. The Uniform Securities Act states that an investment adviser need only meet the bonding requirements of its home state, even if it does business in states with higher bonding requirements.

An individual is employed by a federal covered investment adviser for the sole purpose of giving advice related to monitoring investment portfolios, but only to qualified employee benefit plans. A)Registration as an IAR is not required because the plan is considered an institutional client. B)Registration as an IAR is required because the individual is rendering investment advice. C)Registration as an IAR is required because the plan is qualified. D)Registration as an IAR is not required because the individual works for a federal covered investment adviser.

B)Registration as an IAR is required because the individual is rendering investment advice. Regardless of who the advice is given to, unless there is some kind of exemption involved, individuals working for IAs (state or federal), must register as IARs. It makes no difference if the plan is qualified or not.

Which of the following statements regarding the antifraud provisions in the Investment Advisers Act of 1940 is NOT true? A)The failure to disclose material facts is considered fraudulent. B)The provisions apply only to registered investment advisers. C)The provisions apply to registered investment advisers dealing with investment companies. D)Any type of deceptive business practice related to rendering securities advice is prohibited.

B)The provisions apply only to registered investment advisers. The antifraud provisions restrict fraudulent activity in the offering of investment advice by any person, not just registered investment advisers.

An investment adviser (IA) has its primary office in State A. They have branches in states B & C, and they advertise in states D,E,F. What net capital requirements must they meet? A)The state where the largest number of their clients reside. B)Where their principal office is located. C)All the states combined. D)Whichever state is the highest.

B)Where their principal office is located. The Administrator of every state, other than State A, follows the rule that every investment adviser that has its principal place of business in a state other than his state need maintain only the minimum capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in that state (State A) and is in compliance with that state's minimum capital requirement.

Rule 203(a)-2 of the Uniform Securities Act deals with recordkeeping requirements of investment advisers. Under that rule, every investment adviser registered or required to be registered under the act must make and keep true, accurate, and current all of the following books, ledgers, and records EXCEPT: A)a copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser. B)a file containing a copy of each communication by electronic media that the investment adviser circulates or distributes, directly or indirectly, to an existing client. C)a copy in writing of each agreement entered into by the investment adviser with any client and all other written agreements otherwise relating to the investment adviser's business as an investment adviser. D)written procedures to supervise the activities of employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws and regulations.

B)a file containing a copy of each communication by electronic media that the investment adviser circulates or distributes, directly or indirectly, to an existing client. Under the USA, an investment adviser is required to keep a file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including by electronic media, that the investment adviser circulates or distributes, directly or indirectly, to 2 or more persons (other than persons connected with the investment adviser), so individual emails do not have to be kept in a file.

Under the Uniform Securities Act, an investment adviser would be exempt from registration in a state in which he has no place of business if he: A)had no more than ten clients in that state within the past 12 months. B)had no more than five clients in that state within the past 12 months. C)had no more than 15 clients in that state within the past 12 months. D)is registered as a broker-dealer.

B)had no more than five clients in that state within the past 12 months. An adviser who had no more than five clients in a state within the prior 12-month period or deals exclusively with institutions is not required to register in a state in which he has no place of business.

Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the U.S. government is: A)required to be a registered investment adviser in the state. B)not required to be a registered investment adviser in the state. C)required to be a registered investment adviser representative in the state. D)required to be a registered agent in the state.

B)not required to be a registered investment adviser in the state. This question is referring to a federal covered adviser. The futures contracts are not securities, but, of course, the U.S. government securities are. However, the Investment Advisers Act of 1940 specifically excludes from the definition of investment adviser a person whose securities advice is confined to securities issued or guaranteed by the Treasury. The fact that this person is excluded under the Investment Advisers Act of 1940 makes that person federal covered and not subject to state regulation as an investment adviser.

A federal covered IA files a petition for bankruptcy. The firm must A)do nothing until the court decides the disposition of the firm's assets B)notify the SEC immediately C)notify all of its clients immediately D)notify the Administrator immediately

B)notify the SEC immediately As a federal covered investment adviser, the responsible regulatory body is the SEC.

Registration as an investment adviser under the provisions of the Uniform Securities Act would be required of a(n): A)accountant who, as an incidental part of his tax practice, recommends that his high tax bracket clients consider the use of municipal bonds in their portfolios. B)professor at a local university who occasionally gives lectures on the weekends to public groups about portfolio analysis for which he charges a reasonable fee. C)officer of a bank handling investments for trust accounts. D)attorney who often recommends that clients seek estate planning services before executing a will.

B)professor at a local university who occasionally gives lectures on the weekends to public groups about portfolio analysis for which he charges a reasonable fee. Anyone who provides specific investment advice for a fee must be registered as an investment adviser. If the advice is incidental to providing another professional service and no specific fee is charged, an individual does not have to register. Banks are excluded from the definition of an investment adviser.

An investment adviser representative is assuring clients of steady returns on an investment. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, this activity is A)prohibited because the customer may still experience loss B)prohibited because the IAR is guaranteeing a profit C)acceptable if the client has been made aware of the risks D)acceptable if the security being recommended is an investment-grade bond

B)prohibited because the IAR is guaranteeing a profit Assuring a steady rate of return is considered to be guaranteeing performance, a practice prohibited under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers. Even in the case of investment-grade bonds, returns can never be "assured".

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may guarantee investment results: A)if the guarantees are reasonable in view of the results other clients have obtained following the adviser's recommendations. B)under no circumstances. C)as long as the basis for making guarantees is fully and accurately described in the application for registration filed with the Administrator. D)if the adviser uses a system based on objective evaluation of data, can document consistent gains using the system, and discloses all the limitations and difficulties of using the system to the client.

B)under no circumstances. Under no circumstances may an adviser guarantee that a client will achieve any investment result, either that a gain will be achieved or that no loss will occur.

Under the Investment Advisers Act of 1940, for how many years must records be kept after the end of the fiscal year in which an entry was made? A)10 years. B)2 years. C)5 years. D)1 year.

C)5 years. Records must be kept for a full 5 years-the first two years in a readily accessible place- and are subject to SEC examination at any time. The 5-year requirement governs records of business activities. Additional rules require the articles of incorporation or partnership documents of the advisory firm and other business organizational documents to be kept for three years after termination of the enterprise.

Which of the following persons are investment advisers subject to state registration? A)Any other person that the Administrator excludes by rule or order. B)A federal covered investment adviser. C)A financial planner or other person that provides investment advisory services to others for compensation. D)A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation.

C)A financial planner or other person that provides investment advisory services to others for compensation. A financial planning firm or other person that, as an integral component of other financially related services, provides investment advisory services for compensation is an investment adviser. A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, a federal covered investment adviser, or any other person that the Administrator specifies by rule or order, are excluded from the definition of an investment adviser.

Which of the following statements describes a person who provides investment advice on a regular basis but does not charge fees, yet would be considered an adviser under Release IA-1092? A)A wealthy college professor who gives free lectures on sound investment practices and makes specific securities recommendations based on a quantitative model he has developed. B)The Secretary of the U.S. Treasury who, as part of his official duties, comments on conditions in the financial markets and their future investment implications. C)A financial planner who sold his business and spends his time consulting with pension plans on whether to retain or hire new investment managers based on their performance. He does not charge fees; however, those managers retained as a result of his recommendations routinely provide him with noncash benefits such as vacations, computers, and office space. D)A retired chief investment officer of a well-known investment management company who, without compensation, writes a column in a general circulation newspaper commenting on the value of investing in equity securities; many readers find his advice useful and become clients of his former investment management company.

C)A financial planner who sold his business and spends his time consulting with pension plans on whether to retain or hire new investment managers based on their performance. He does not charge fees; however, those managers retained as a result of his recommendations routinely provide him with noncash benefits such as vacations, computers, and office space. If an individual is in the business of providing advice and receives any economic benefit, such benefit is considered compensation under Release IA-1092. Since the financial planner is in the business of giving advice to pension plans, actually provides that advice, and is compensated for it, he meets all three elements in the definition of an adviser. The noncash benefit, as in this case, need not come directly from the beneficiary of the services to be considered compensation. The college professor, the chief investment officer, and the Secretary of the Treasury do not receive separate compensation, nor are they in the business of providing investment advice.

Which of the following regarding the registration of investment advisers and their representatives is TRUE? A)ABC Advisers, Inc., is an investment advisory firm registered with the Administrator; therefore, its representatives need not be registered with the Administrator. B)An investment adviser representative, terminated his employment with ABC Advisers and, 6 months later, was employed as an advisory representative by KLM, a federal covered adviser. Each firm is required to notify the Administrator of each event. C)ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly. D)XYZ Advisers, Inc., is a federal covered investment advisory firm registered with the SEC; therefore, its representatives need not be registered with the Administrator.

C)ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly. Only state registered investment advisory firms are required to notify the appropriate state Administrator when employment is terminated or begun. In the case of investment adviser representatives of federal covered advisers, notification is the responsibility of the adviser representative. Investment adviser representatives of both state and federal registered investment advisers must be registered with the appropriate state Administrator(s) unless otherwise exempted. In the case of agents, not only the broker-dealers but also the agents must notify the Administrator.

An investment adviser has recommended funds sponsored by the GEMCO Fund group for many years. One of his clients who has been in several GEMCO Funds for over 10 years sends the IA a referral suggesting that the IA put his friend into the same GEMCO Funds as he owns. Under what circumstances would this be the appropriate action to take? A)The IA discloses that GEMCO Funds provides the firm with soft dollar compensation. B)The referred client says that he wants just what your existing client owns. C)GEMCO Funds are suitable for the referred client. D)GEMCO Funds have had outstanding performance for the past 10 years.

C)GEMCO Funds are suitable for the referred client. When determining what securities to recommend to any client, new or existing, the most important thing is suitability.

Which of the following are required in order to be in compliance with the recordkeeping requirements of the Uniform Securities Act? Broker-dealers must maintain customer ledgers for three years. Investment advisers must keep partnership records for three years after the partnership is terminated. Agents must keep customer records for three years. Investment adviser representatives must maintain records for five years A)II and IV B)I, II, III, and IV C)I and II D)III and IV

C)I and II Recordkeeping requirements for broker-dealers are three years and partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of an investment adviser and of any predecessor, shall be maintained in the principal office of the investment adviser and preserved until at least three years after termination of the enterprise. There are no recordkeeping requirements for agents or IARs.

A federal covered investment adviser is one who: has $110 million or more in securities assets under management. manages an investment company registered under the Investment Company Act of 1940. limits advice to securities listed on the NYSE. is affiliated with a federally chartered bank. A)I and III. B)III and IV. C)I and II. D)II and III.

C)I and II. Federal registration is required of any investment adviser managing at least $110 million in assets. It is optional at $100 million, and anything less requires state registration. The Dodd-Frank Wall Street Reform and Consumer Protection Act provides that any investment adviser under contract to a registered investment company registered under the Investment Company Act of 1940 is required to register with the SEC as a federal covered adviser. Providing advice on federal covered securities listed on the NYSE does not make the adviser a federal covered adviser. Banks and their representatives are always excluded from the definition of an investment adviser, federal covered or not.

Which of the following statements regarding registration of investment advisers is (are) TRUE under the Investment Advisers Act of 1940? If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year. Material information requires a prompt amendment, but nonmaterial changes do not require amendment. A)II only. B)I only. C)I and II. D)III only.

C)I and II. The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) and also requires nonmaterial amendments within 90 days of the end of the adviser's fiscal year.

Under the Investment Advisers Act of 1940, which of the following is (are) excluded from the definition of an investment adviser? The publisher of a financial newsletter on a paid subscription basis, which contains only general securities recommendations. Persons whose investment advice relates solely to issues distributed or guaranteed by the U.S. government. A lawyer who charges a separate fee for investment advice that is provided as a separate part of the business. A)III only. B)I, II and III. C)I and II. D)I only.

C)I and II. Under the Investment Advisers Act of 1940, the following are excluded from the definition of investment adviser: banks or bank holding companies; publishers of bona fide publications of general and regular circulation, such as newspapers and magazines; persons advising about government issues; and persons whose advice is incidental to their profession and for which they receive no separate compensation.

Registration of an investment adviser automatically confers registration on: officers, partners and directors of the firm who are functioning as IARs. any employee who is functioning as an IAR. clerical employees handling back office operations. an employee who will be soliciting clients for the adviser. A)I, II, III and IV. B)I and III. C)I only. D)I, II, and III.

C)I only. Under Section 202(a) of the Uniform Securities Act, registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. This only applies to those individuals who are listed on the firm's Form ADV Part 1, so we're limited to officers, partners, directors or anyone else doing that type of job, regardless of what this IA has chosen to use as the title.

Under the Uniform Securities Act, if sent to two or more persons, a file must be maintained containing a copy of which of the following? Bulletins. Newspaper articles. Notices. Websites. A)I and II. B)II, III and IV. C)I, II, III and IV. D)I and IV.

C)I, II, III and IV. All of these types of communications, unless sent to persons connected with the investment adviser, require maintenance of a file containing a sample copy.

The term "investment adviser representative" includes which of the following? A receptionist for an adviser. An employee who solicits new business for an adviser. A supervisor who oversees employees who manage client portfolios for an adviser. An investment advisory firm registered in the state of Texas. A)I, II, III and IV. B)I and III. C)II and III. D)I, II and IV.

C)II and III. An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser representative would be acting improperly if she: allowed a client to sign an advisory contract after disclosing a potential conflict of interest to that client. agreed to personally make up the difference if a client's account lost money. failed to inquire into a client's investment objectives, financial situation, and needs. A)I, II and III. B)I and II. C)II and III. D)I and III.

C)II and III. Guarantees against loss and failure to inquire into a client's investment objectives, situation, and needs are unethical.Conflicts of interest must be disclosed and, if the client wants to continue, the client may enter into the contract.

Which of the following statements are TRUE? A federal covered adviser sells federal covered securities only. Federal covered advisers are advisers with federally imposed exemptions from state registration as investment advisers. A federal covered security is exempt from registration with the SEC. Federal covered securities include those issued by investment companies registered under the Investment Company Act of 1940. A)I and III. B)I and II. C)II and IV. D)III and IV.

C)II and IV. A federal covered adviser is an adviser with a federally imposed exemption from state registration. Securities issued by investment companies registered under the Investment Company Act of 1940 are included in the definition of a federal covered security.

In response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include: broker-dealers offering wrap fee programs. financial planners. life insurance agents. pension consultants. A)III and IV. B)I and III. C)II and IV. D)I and II.

C)II and IV. SEC Release IA-1092 added financial planners, pension consultants, and sports and entertainment representatives to the list of potential IAs. Unless the life insurance agent is offering investment advice, the agent does not meet the definition of investment adviser. The Release did not address wrap fee programs because the exclusion for broker-dealers is part of the Investment Advisers Act of 1940; once special compensation in the form of wrap fees is received, the exclusion is lost.

Under the Uniform Securities Act, which of the following persons do NOT have to register as an investment adviser? Broker-dealer who gives advice for which he charges a specific fee. Agent of a broker-dealer who gives fee-based investment advice independent of his duties for the broker-dealer. Broker-dealer who gives investment advice that is incidental to the course of its business and for which no special compensation is received. Attorney who writes a legal opinion for a municipal bond indenture. A)I and II. B)II and IV. C)III and IV. D)I and III.

C)III and IV. Broker-dealers or their agents need not register as investment advisers unless they charge a separate fee for providing investment advice. Attorneys are not investment advisers provided their investment advice is incidental to their practice. Giving a legal opinion on a municipal security indenture is not investment advice. Persons who charge a specific fee for advice and hold themselves out to the public as providers of investment advice must register as investment advisers.

Which of the following is specifically excluded from the definition of an investment adviser providing the investment advice is solely incidental to the business in which the person is engaged? A)Movie star's business manager who handles the star's investment portfolio. B)Sports representative who advises on securities for a fee. C)Industrial engineer. D)Pension manager.

C)Industrial engineer. Lawyers, accountants, engineers, teachers, and broker-dealers whose advice is incidental to their profession and who do not charge a separate fee for investment-related advice are excluded from the definition under the Investment Advisers Act of 1940.

If a federal covered adviser's fiscal year ends on October 31, 2014, it must file its annual updating amendment to its Form ADV no later than: A)February 28, 2015. B)December 31, 2014. C)January 29, 2015. D)March 30, 2015.

C)January 29, 2015. The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end.

An investment adviser registered in 3 states allows its IARs to attach research reports, bulletins, and other information to emails sent to customers. File copies would not be required when these bulletins are sent to: A)institutional clients. B)prospective customers. C)persons connected with the investment adviser. D)10 non-institutional clients

C)persons connected with the investment adviser. Every investment adviser registered or required to be registered under the act must make and keep true, accurate, and current a file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including by electronic media, that the investment adviser circulates or distributes, directly or indirectly, to 2 or more persons (other than persons connected with the investment adviser).

After publishing a favorable report on a stock, an analyst was asked to appear on a television program to discuss the reasons for the bullish recommendation. Which of the following best describes how the analyst may communicate about the stock to others? A)The analyst may communicate about the stock and is not required to disclose any positions he or his firm holds in the stock. B)The analyst may not communicate about the stock to prospective clients but may discuss the stock with current clients. C)The analyst may communicate about the stock to clients and prospective clients only if he has disclosed personal or firm holdings of that security. D)The analyst may not communicate about the stock to any other parties.

C)The analyst may communicate about the stock to clients and prospective clients only if he has disclosed personal or firm holdings of that security. Because the report has been published, the analyst's assessment of the stock is already public information. Thus, the analyst may recommend the stock to clients and prospects. However, the analyst must disclose whether he or his firm holds a position in the stock.

A person who is vested with legal rights and powers to be exercised for the benefit of another is known as A)a dealer B)a sponsor C)a fiduciary D)a broker

C)a fiduciary A fiduciary places the interest of the beneficial owner first, and is morally and legally responsible for acting in that capacity.

All of the following would be prohibited practices under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers EXCEPT A)using a testimonial in an advertisement B)charging fees that were higher than customary, but offering a performance guarantee to compensate for the higher fees C)accepting an order from a client's spouse shortly after receiving a written trading authorization D)maintaining custody of customer's funds and securities without notification to the Administrator

C)accepting an order from a client's spouse shortly after receiving a written trading authorization With written trading authorization, orders may be accepted from the designated person.

An investment adviser is eligible to register with the SEC if it A)has rendered advice to more than 15 clients during the most recent 12-month period B)has more than 100 investment adviser representatives C)anticipates acquiring at least $100 million in assets under management within the next 120 days D)is registered in at least 10 different states

C)anticipates acquiring at least $100 million in assets under management within the next 120 days IAs must have at least $100 million in AUM in order to register with the SEC. If it is reasonable to expect reaching that level within the next 120 days, SEC registration is allowable now. One of the exceptions that would permit small and mid-size advisers to register with the SEC is if they would have to register in at least 15 states, not 10.

All of the following are unethical or prohibited practices EXCEPT: A)misrepresenting the status of an advisory client's account. B)an investment adviser maintaining custody of client funds failing to disclose the precarious financial condition that could impair the adviser's ability to perform its services. C)divulging names and financial data on advisory clients in response to a subpoena. D)failing to disclose commissions in addition to advisory fees.

C)divulging names and financial data on advisory clients in response to a subpoena. Investment professionals must divulge confidential client information under subpoena. All the other practices are unethical.

Under the Uniform Securities Act, investment advisers will generally NOT be required by the Administrator to: A)furnish or disseminate any information the Administrator finds is necessary to the public interest or for the protection of investors and advisory clients. B)renew all investment advisory contracts in writing. C)meet minimum net worth requirements or post a surety bond if they do not maintain custody or do not have investment discretion over client accounts. D)promptly file a correcting amendment to any document on file with the Administrator which becomes inaccurate or incomplete in any material respect.

C)meet minimum net worth requirements or post a surety bond if they do not maintain custody or do not have investment discretion over client accounts. The question asks for something that is NOT required by the Administrator. Under most circumstances, minimum net worth or a surety bond is only required of an adviser who either maintains custody of customer funds or securities, or has investment discretion over the account.

Emmet opened an investment advisory service 3 years ago and raised $50 million in capital from family, friends, and contacts and then closed to new investors. If Emmet's stock picks expanded assets under management to $110 million, Emmet: A)is not required to take any action. B)must register for the first time with the state Administrator. C)must register with the SEC. D)must update his registration with the state Administrator.

C)must register with the SEC. When the annual updating amendment filed by a state-registered investment advisory firm indicates that the $110 million threshold has been reached, the firm has 90 days to register with the SEC.

An investment adviser representative who makes extensive use of third party research to formulate portfolio recommendations to clients: A)must disclose that fact to the clients. B)must obtain consent of the clients to use third-party research. C)need not disclose that fact to the clients. D)is in violation of his fiduciary responsibility as IARs may only use research provided by the firm.

C)need not disclose that fact to the clients. It is not necessary to disclose what sources an IAR uses as the basis for recommendations. If the third-party research is distributed to clients, proper attribution is required.

Successful Retirement Strategies, Inc., is registered as an investment adviser in Alabama and has offices in Birmingham, Montgomery, and Tuscaloosa. The firm has no office in Mississippi but does have eight clients who are residents of that state. If two of those clients are banks, two of them are insurance companies, and the others are very wealthy individuals, Successful Retirement Strategies, Inc., would: A)be liable for civil action by the Mississippi Administrator. B)have to register with the SEC as a federal covered adviser. C)not have to register with the Mississippi Administrator. D)have to register with the Mississippi Administrator.

C)not have to register with the Mississippi Administrator. With no office in Mississippi and no more than five noninstitutional clients residing in the state, no registration is required.

A firm is required to be registered with SEC if it manages assets: A)of less than $25 million. B)for more than 15 clients. C)of $110 million or more. D)between $100 and $110 million.

C)of $110 million or more. An investment adviser with at least $110 million in assets under management is a federal covered adviser and must register with SEC. Between $100 million and $110 million, the adviser may register with either the SEC or the state(s).

A federal covered investment adviser is a person: A)exempt from regulation under the Securities Exchange Act of 1934. B)registered under the Uniform Securities Act. C)registered, or excluded from the definition, under the Investment Advisers Act of 1940. D)registered with North American Securities Administrators Association (NASAA).

C)registered, or excluded from the definition, under the Investment Advisers Act of 1940. A federal covered investment adviser refers to a natural person or firm registered under the Investment Advisers Act of 1940 or excluded from the definition of investment adviser under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state or federal registered, do not register with NASAA.

An investment adviser hires two individuals to solicit new customers for the firm's wealth management service. Under the USA: A)each of them would have to register as an investment adviser. B)soliciting is generally prohibited. C)registration as investment adviser representatives is required. D)they may begin soliciting as soon as they have passed their licensing examinations.

C)registration as investment adviser representatives is required. The definition of investment adviser representative includes individuals who solicit for the firm's advisory business.

The purpose of the Investment Advisers Act of 1940 is to provide: A)regulation for investment companies and their operations. B)standards among the various states for the regulation of investment advisers. C)standards at the federal level for the regulation of investment advisers. D)a level playing field between investment advisers and broker-dealers.

C)standards at the federal level for the regulation of investment advisers. The purpose of the Investment Advisers Act of 1940 is to provide federal standards for the regulation of investment advisers. Providing standards among the various states for the regulation of investment advisers is the purpose of the Uniform Securities Act. Providing regulation for investment companies and their operations is the purpose of the Investment Company Act of 1940.

A client of an investment adviser needs a bridge loan and approaches the IA to see if the firm is interested. Because the IA is not in the business of lending money, a special agreement is drawn up specifying the terms of the loan. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers A)the loan could be made if the IA was affiliated with a bank B)the loan could be made if the client was an institutional investor C)the loan could only be made after the advisory contract was terminated D)the loan would not be permitted under any circumstances

C)the loan could only be made after the advisory contract was terminated First of all, a "bridge" loan has nothing to do with a bridge. The client is not trying to cross over anything. The term is used to refer to a short-term loan to provide funds until permanent financing may be arranged. Now that we've got that out of the way, we can answer the question. Loans may never be made to clients unless the firm is in the business of lending money. Since this IA states that it is not their business model, the only way this loan could be made is if there was no adviser/client relationship.

A person cannot engage in business as an investment adviser in a state unless: A)organized as a corporation or partnership. B)the person is registered as a broker-dealer. C)the person's only accounts are investment companies. D)the person is registered as an investment adviser or is otherwise exempt from registration.

D)the person is registered as an investment adviser or is otherwise exempt from registration. A person must register as an investment adviser if it wishes to engage in business as an adviser, unless a specific exemption or exclusion applies. If the adviser only manages investment companies, it is federal covered and, therefore, exempt from state registration, but that choice would suggest that that is the only way one could act as an investment adviser. The form of business can be anything from a sole proprietorship to a C corporation.

Which of the following is specifically excluded from the definition of an investment adviser under the Investment Advisers Act of 1940, when that person's investment advice is solely incidental to the practice of their profession? A)Athlete's financial manager. B)Financial planner. C)Pension consultant. D)Aeronautical engineer.

D)Aeronautical engineer. Lawyers, accountants, engineers, teachers, and broker-dealers who do not charge a separate fee for investment-related advice, when such advice is solely incidental to the practice of their profession, are excluded from the definition.

Judy is in the business of giving general investment advice, suggesting appropriate asset allocation percentages, but not recommending specific securities. George's business model is giving investment advice and recommending specific securities. Assuming that both receive compensation, who must register as an investment adviser under the Uniform Securities Act? A)Neither must register. B)Only Judy. C)Only George. D)Both must register.

D)Both must register. Two of the three critical elements in the definition of investment adviser are whether the person provides advice regarding securities and receives compensation for doing so. (The third element is "being in the business" and the question states that both are). Even without recommending specific securities, the fact that Judy suggests asset allocation percentages constitutes investment advice. Both Judy and George provide advice regarding securities for compensation and must register, unless specific exemptions apply.

Which of the following actions by an investment adviser representative would be an unethical practice under the Uniform Securities Act? A)An IAR with discretionary authority enters a buy order for a security when its price is rising. B)Telling a customer that the investment being recommended will be sold from the inventory of the investment representative's firm. C)Recommending securities that result in major losses in the customer's account. D)Splitting commissions with a customer service representative who is not registered but works for the same firm.

D)Splitting commissions with a customer service representative who is not registered but works for the same firm. Commissions can be received only by those with the appropriate registrations. A nonregistered person cannot participate in transaction-based compensation.

The title of "Investment Counsel" can be used in advertising for investment advisers who provide: A)generic and impersonal investment advice. B)legal and investment advice. C)occasional investment advice while practicing law. D)specific investment advice on a continuous basis.

D)specific investment advice on a continuous basis. Using the title of Investment Counsel is allowed if an adviser gives specific investment advice on a continuous basis. The adviser must dedicate the majority of his time to providing investment advice.

Which of the following would be considered unethical under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A)An investment adviser varies the annual fee based upon each client's assets under management, charging less for those with higher balances and more for those meeting the account minimum. B)An investment adviser representative receives an order to buy XYZ stock from an advisory client and simultaneously recommends that another advisory client sell that stock in an agency cross transaction. C)An investment adviser discloses in its brochure that, from time to time, they may sell securities recommended to clients directly out of the firm's inventory. D)A loan is made to an investment adviser representative by one of her clients who happens to be the chief loan officer where she maintains her principal banking relationship.

D)A loan is made to an investment adviser representative by one of her clients who happens to be the chief loan officer where she maintains her principal banking relationship. It is an unethical and prohibited business practice for investment advisers and their representatives to borrow money from clients who are not in the business of lending money. In this case, the loan officer is the one who is doing the lending, not the bank. IAs are permitted to base their fees upon the amount of assets under management, generally charging a lower percentage to those with higher balances. IAs are permitted to act as principals in recommended trades, but appropriate disclosure must be made. In an agency cross transaction, a recommendation may be made to either, but not both, parties to the trade.

According to the Investment Advisers Act of 1940, which of the following is excluded from the definition of an investment adviser? A)A person paid to give advice on bank stocks. B)A lawyer who charges a separate fee for giving specific investment advice. C)A publisher of a newsletter that makes securities recommendations that are specific to the needs of individual subscribers. D)A person who receives a fee for advising others on Treasury securities.

D)A person who receives a fee for advising others on Treasury securities. The Investment Advisers Act of 1940 excludes from the definition of investment adviser anyone who advises only on U.S. government or agency securities. Normally, attorneys and publishers are excluded from the definition of investment adviser, but there are some exceptions. A lawyer who gives investment advice (if he offers the advice as part of his practice and receives compensation for it), a person who is paid to give advice on bank stocks, and a publisher of a newsletter that gives specific securities recommendations based on the needs of each subscriber, all fall within the definition of investment adviser under the act.

Chuck is a registered investment adviser and a highly respected investment analyst. He has prepared a research report that is highly bullish on Monolith Industries, Inc., common stock. The report has not been released because it is still under review by the compliance department of Chuck's firm. Chuck has been asked to participate in a radio interview show in which he will be asked questions about this stock. Which of the following statements best describes how Chuck may communicate about this stock to others? A)Chuck may recommend this security to existing clients but not to prospective clients. B)Chuck may recommend this security following disclosure of any position he or his firm holds in Monolith Industries, Inc. C)Chuck may recommend this security without restriction. D)Chuck may not discuss this security because his report has not yet become available for public distribution.

D)Chuck may not discuss this security because his report has not yet become available for public distribution. Because the information in Chuck's research report will not be available for public distribution until after approval by the compliance department, he may not discuss the security to clients or prospects until the report is cleared.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, when may an investment adviser borrow money from a client? When the client is a broker-dealer. When the client is a bank or financial institution in the business of loaning money. When the client is an affiliate of the investment adviser. A)II only. B)II and III. C)I and II. D)I, II and III.

D)I, II and III. It is unethical to borrow money or securities from a client, unless the client is a broker-dealer, a bank or other financial institution in the business of loaning money, or an affiliated person of the adviser. Owing money or securities to a client is not only unethical, it could also influence advice rendered to a client, creating a potential conflict of interest.

It is unlawful for an investment adviser: To share in the profits of an account in relation to the amount of time devoted to the account. To unilaterally transfer an account to another firm if the assets fall below a minimum level. To take custody of a client's securities and funds, in the absence of a rule on custody by the state Administrator. To fail to disclose the departure of a general partner of an investment advisory partnership who only had a minority interest in the firm. A)I, II and III. B)I and IV. C)I and II. D)I, II and IV.

D)I, II and IV. An investment adviser cannot share in the profits of an account based on time devoted and may not assign an account without the written permission of the client. An investment adviser organized as a partnership must disclose to clients when any partner, minority interest or not, departs from the firm.

Which of the following is (are) unethical business practices of investment advisers? Charging a client an unreasonable advisory fee. Guaranteeing a client that a specific result will be achieved as a result of advice that will be rendered. Recommending an investment to a client without reasonable grounds to believe the investment is suitable for that client. Continuing to exercise discretionary investment authority under an oral agreement with the client. A)II and III. B)I only. C)I, II and III. D)I, II, III and IV.

D)I, II, III and IV. All of the following are unethical practices for investment advisers: charging a client an unreasonable advisory fee; guaranteeing a client that a specific result will be achieved with advice which will be rendered; recommending to a client an investment without reasonable grounds to believe the recommendation is suitable for the client; and exercising discretionary investment authority under an oral agreement with the client. While it is true that an investment adviser may trade using discretion and with oral approval for up to ten days, that is only a convenience to be used while awaiting delivery of the written authorization.

The Uniform Securities Act provides an exemption from registration as an investment adviser for which of the following persons who have no place of business in the state? Advisers who deal exclusively with broker-dealers. Advisers who deal exclusively with insurance companies. Advisers who deal exclusively with investment companies. Advisers who have no more than 5 clients in that state in a 12-month period. A)I only. B)I, II and III. C)I and III. D)I, II, III and IV.

D)I, II, III and IV. Investment advisers who have no place of business in the state are exempt from registration provided their clients are broker-dealers, other advisers, insurance companies, institutions, or government agencies. Also exempt are those advisers who have 5 or fewer clients in a 12-month period. All of these exemptions are lost when the adviser has a place of business in the state.

Under the Uniform Securities Act, the definition of an investment adviser does NOT include: investment adviser representatives. lawyers and accountants whose investment advisory services are solely incidental to their practices. broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided. federal covered investment advisers. A)II and III. B)I, II and III. C)I only. D)I, II, III and IV.

D)I, II, III and IV. None of the above are included in the term "investment adviser" as used in the Uniform Securities Act. Federal covered advisers are regulated by the Securities Exchange Commission (SEC). The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual registration of investment advisers by federal and state authorities. If federal covered advisers were defined as investment advisers under the USA, then they would be subject to the same state registration procedures as local or state investment advisers.

There are a number of requirements placed upon investment advisers found in both the Uniform Securities Act and NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers. Which two of the following are included in those requirements? When the adviser acts as an agent or a principal for an advisory client, written consent from the client must be received no later than completion of the transaction. Advisory clients must receive the adviser's brochure within 48 hours after entering into a contractual agreement. Investment advisory contracts must be in writing. The adviser may not provide a report or recommendation to any advisory client prepared by someone other than the adviser without making a disclosure of that fact. A)I and II B)II and III C)I and IV D)III and IV

D)III and IV The USA requires all initial and renewal investment advisory contracts to be in writing. If a specific securities report or recommendation has been prepared by someone other than the adviser, disclosure must be made to clients. When an adviser acts as an agent or principal in a trade involving an advisory client, it is only oral consent that must be obtained prior to the completion of the transaction. Brochures must be delivered no later than the time of entering into the contract.

Nifty Advisers Group made an announcement on its website that the firm was going to create a Facebook account to keep all its clients and prospective clients updated on the market. To get the word out, Nifty sent an email notice to its current clients and asked them to please refrain from airing complaints through that account; any negative comments would be addressed through the normal channels. Also, contained in the email was an announcement that all "likes" would receive a one-time 5% decrease in the client's quarterly fees. For this campaign, which of the following are NOT true? A)Even though the rules do not prohibit testimonials for broker-dealers, they are strictly forbidden for use by investment advisers. B)Currently, there has been no comment from NASAA concerning the use of "likes." C)Third-party use of the "like" feature on an investment adviser's social media site could be deemed a testimonial. D)This would not be considered a testimonial and therefore permitted under the regulations.

D)This would not be considered a testimonial and therefore permitted under the regulations. Please note that this question is looking for the statement that is NOT true—in other words, find the false statement. In March 2014, the SEC, but not NASAA, published an interpretive release dealing with testimonials for investment advisers using social media. Included in that release is the statement that third-party use of the "like" feature on an investment adviser's social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's experience with the adviser.

Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as an investment advisers EXCEPT: A)advisers who deal exclusively with savings banks located in the state. B)advisers who deal exclusively with federal covered investment advisers located in the state. C)advisers who deal exclusively with investment companies registered under the Investment Company Act of 1940. D)advisers who have conducted business with no more than 6 individual clients in the state within the last 12 months.

D)advisers who have conducted business with no more than 6 individual clients in the state within the last 12 months. The de minimis rule for a registered investment adviser who has no place of business in the state is fewer than 6 clients. Doing business with six clients within the last 12 months exceeds this de minimis amount and, therefore, the exemption from registration does not exist. All others listed as possible answers are institutional or professional type of investment clients. If a registered investment adviser works only with this type of client, an exemption from registration in that state exists as long as the registered investment adviser has no place of business in that state.

Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT: A)a federal covered adviser. B)banks. C)broker-dealers and their agents. D)an individual providing advice on municipal bonds.

D)an individual providing advice on municipal bonds. Providing advice on municipal bonds (even though they are exempt securities) does not entitle one to an investment adviser exclusion.

The antifraud provisions of the Investment Advisers Act of 1940: A)apply to conduct solely related to the purchase and sale of securities. B)do not apply to activity related to prospective or actual advisory clients. C)prohibit any deceitful practice or course of business with respect to the rendering of securities advice by investment advisers registered in more than one state. D)apply when any investment adviser engages in any act, practice, or course of business which is fraudulent, deceptive, or manipulative.

D)apply when any investment adviser engages in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. The antifraud provisions of the Investment Advisers Act of 1940 apply to all conduct that concerns the integrity of the client relationship from an advisory standpoint. Whether giving investment advice or actually engaging in transactions, the antifraud provisions apply. The Advisers Act differed from the Securities Acts (1933 and 1934) in that the activity did not have to be directly related to actual conduct in the offer or sale of securities, but extended to any deceitful conduct in the rendering of investment advice, the results of which constitute a fraud upon the client. If the investment adviser is registered on the state level, then only the antifraud provisions of the Uniform Securities Act apply.

Registration as an investment adviser is required for any firm in the business of giving advice on the purchase of: A)gold coins. B)rare convertible automobiles. C)apartments undergoing a conversion to condominiums. D)convertible bonds.

D)convertible bonds. Only those individuals in the business of giving advice on securities are required to register as investment advisers; only the convertible bonds are securities.

An investment advisory firm's research department is bullish on a particular stock. Before the firm releases this recommendation to its clients, Al, an investment adviser associate, purchases the stock for his own account. Al would probably be guilty of: A)failure to supervise. B)market timing. C)nothing. D)front running.

D)front running. Placing his proprietary and personal order in front of client orders is front running, which is a violation for an investment adviser. Although Al's firm may be guilty of failure to supervise if front running occurs, Al, as an associate, is not obliged to supervise himself. The firm's compliance officer must supervise Al's personal trading practices.

Under the USA, all of the following are defined as investment adviser representatives EXCEPT the: A)advisory firm's president. B)investment adviser's manager of new accounts. C)advisory firm's director of sales. D)graphic designer in the advisory firm's marketing department.

D)graphic designer in the advisory firm's marketing department. According to the Uniform Securities Act, investment adviser representatives include partners, officers, or directors of advisory firms, and any persons employed by the adviser who make recommendations, give advice, manage accounts, service the sale of advisory services, or supervise employees that perform any of these services. Persons that perform clerical or ministerial duties are not related to these services and not defined as investment adviser representatives.

In which of the following cases would the Uniform Securities Act require registration of an investment adviser who had no place of business in the state? A)he had more than five institutional clients domiciled in the state. B)under no circumstances if there is no place of business in the state. C)his website was seen by residents of the state. D)he had more than five non-institutional clients who were residents of the state.

D)he had more than five non-institutional clients who were residents of the state. The de minimis exemption applies when there is no place of business in the state and the adviser has no more than 5 non-institutional (retail) clients in the state during any 12 month period.