Quick Review : Ch. 3

Under the terms of the Uniform Securities Act, which of the following is an investment adviser for purposes of state regulatory jurisdiction? A) An investment subsidiary of a bank holding company located in the state that manages $70 million in assets B) A federal covered adviser with clients in the state C) A commercial bank with a place of business in the state that advises clients on investment matters D) An accountant located in the state who offers general securities advice as an incidental part of his business

A) An investment subsidiary of a bank holding company located in the state that manages $70 million in assets Explanation: A bank holding company's investment subsidiary that manages less than $100 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 IA in practice (that is, it performs the functions of an investment 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 IA.

____ , _____ , a_______ __________ __________ , and _______ are all specifically excluded from the definition of investment adviser.

Banks, IARs, federal covered advisers, and lawyers

All of the following statements regarding the registration of an investment adviser in a state are true except A) the adviser's registration expires on December 31 each year. B) if the investment adviser is not an individual, any officer or partner active in the advisory business as an IAR is automatically registered as an investment adviser representative. C) the initial application must include a properly completed application form including a consent to service of process, an application for each investment adviser representative who will provide services on behalf of the investment adviser, and the appropriate fees. D) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process.

D) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process. Explanation: The consent to service is a permanent document that remains on file with the Administrator; it need not be resubmitted for yearly renewal. The initial application for registration must include a consent to service of process along with a completed application and the appropriate fees. If the investment adviser is not an individual, all officers or partners of the business entity that play an active role in the giving or supervision of giving advice (IARs) are automatically registered as IARs.

Under the Uniform Securities Act, which of the following is excluded from the definition of investment adviser? I. A bank II. An investment adviser representative III. A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain IV. An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940

I, II, III, and IV Explanation: Banks, IARs, federal covered advisers, and lawyers are all specifically excluded from the definition of investment adviser. Any investment adviser under contract to manage a regulated investment company must register with the SEC and is, therefore, a federal covered adviser (regardless of where they have an office). Remember that the law makes a distinction between investment advisers and their representatives and that certain professions are excluded from the definition if the investment advice provided is solely incidental to the practice of that profession. Making suggestions as to how to invest proceeds from a legal settlement would certainly appear to be incidental to the practice of law. Banks are given a blanket exclusion.

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

II and IV Explanation: 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 IAR. A trust company is not an investment adviser under the USA. An IA with no office in the state, that does business exclusively with other IAs located in that state, is also excluded as an IA under the USA.

On April 15, ABC Securities, Inc., made application for registration as a broker-dealer with State X. Absent a denial or stop order, registration will become effective

May 15 Explanation: If no denials or stop orders are in effect and no proceedings are pending to do so, registration automatically takes effect at noon on the 30th day after the application was filed.

As used in the regulations, the term impersonal investment advice means 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

In response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include

financial planners and pension consultants Explanation: 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.

An investment adviser hires two individuals to solicit new customers for the firm's wealth management service. Under the Uniform Securities Act,

registration as investment adviser representatives is required

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 State O with no offices in any other state, the authority of the office of the Administrator would include

requiring IARs to pass a qualification exam

Under all of the following circumstances, the Uniform Securities Act requires investment advisers with no place of business in the state to register except

when an adviser only provides advice to registered investment companies Explanation: 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 are not what determine 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.