Unit 2

DRP (Disclosure Reporting Pages)

-Applicant discloses past disciplinary events

Exclusions from the Definition of IAR

-Employees of investment advisory firms are excluded from the term IAR, provided their activities are confined to clerical or administrative duties or those activities that are solely incidental to IAR services offered, such as mailing out a research report. -Individual is not an IAR if the person does not on a regular basis, solicit, meet with or otherwise communicate with clients of the IAR or provides only impersonal investment advice.

If there are any material changes, especially of a disciplinary nature, the individual's Form U4 must be updated within how many days?

30 days

If there is a change to any material information in the Form U4 (e.g., change of permanent address) an amendment must be filed within...

30 days

Under the USA, which of the following would be included in the definition of an IAR? A) An employee, highly skilled in evaluating securities, who performs administrative or clerical functions for an investment adviser B) An individual who renders fee-based advice on precious metals C) An agent who offers incidental advice on securities whose sole compensation is from commissions on transactions D) A solicitor for an investment advisory firm who is compensated for the service rendered

D. A solicitor is considered an investment adviser representative under the Uniform Securities Act. An employee who performs only clerical or administrative functions is not an investment adviser representative. Precious metals are not securities and, therefore, a person advising on them is not considered an investment adviser representative. An agent is a representative of a broker-dealer, and as long as the only form of compensation is sales commissions based upon transactions, registration as an investment adviser representative is not required.

Place of business of an IAR means:

-an office at which the investment adviser representative regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients -any other location that is held out to the general public as a location at which the investment adviser representative provides investment advisory services, solicits, meets with, or otherwise communicates with clients.

Can an individual act as both an investment adviser and an investment adviser representative?

Yes, This is typically the case when the business is organized as a sole proprietorship. However, an individual who acts solely as an investment adviser representative is excluded from the definition of investment adviser.

Financial Requirements of IARs

Unlike an investment adviser, there are no financial requirements—no net worth or bonding requirements—to register as an investment adviser representative.

Recordkeeping Requirements of IARs

Unlike an investment adviser, there are no ongoing recordkeeping requirements for IARs. Annual renewal on December 31 requires the payment of fees. If there are any material changes, especially of a disciplinary nature, the individual's Form U4 must be updated within 30 days.

ADV

-Filing includes the names and other pertinent information about all of the partners, officers, or directors who are already acting as IARs -When the firm's registration becomes effective in that new state, those individuals included in the filing are granted automatic registration, they don't have to file form U4

An IAR performs the following

-Makes any recommendations or otherwise renders advice regarding securities -Manages accounts or portfolios of clients -Determines which recommendation or advice regarding securities should be given -Solicits, offers, or negotiates for the sale of or sells investment advisory services -Supervises employees who perform any of the foregoing

James Stillman is an investment adviser representative with Rock, Feller, and Standard (RFS), a covered adviser with its principal office in State O. Stillman works out of an office in State P and has 4 retail clients there. In addition, Stillman has 25 retail clients in State D, 6 retail clients in State M, and 1 retail client in State O. Stillman would be required to register as an investment adviser representative in A) State P. B) States P and O. C) States D and M. D) States P, D, and M.

A. As an IAR for a federal covered investment adviser, Stillman is only required to register in those states in which he (Stillman) has a place of business. Please note that, as long as an IAR with a covered adviser does not maintain a place of business in a state, there is no numerical limit on the number of clients he can have and still be exempt from registering in that state.

An individual with a place of business in State A manages client assets on behalf of a covered investment adviser. This individual wishes to expand his client base by working 1 day per week out of the firm's office in State B. Which of the following actions must this individual take to practice within that particular state? A) Comply with the notice filing requirements of the state B) Register as an investment adviser representative in State B C) Become licensed as a broker-dealer D) Pass an oral or written examination

A. Individuals managing client assets while employed by federal covered investment advisers must register as investment adviser representatives if they maintain a place of business in the state. Working on a regular schedule in the firm's office in State B, even if only once per week, constitutes maintaining a place of business in the state. Because this individual is already registered in State A, it is not necessary to pass another exam to become registered in another state. It is the investment adviser who may be required to notice file with the Administrator

Which of the following is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser? A. State Licensing fee B. Consent to service of process C. Renewal notice to the SEC D. Form U4

A. All investment adviser representatives are registered with the states, not the SEC. Renewal requires the payment of the annual renewal registration or licensing fee. The consent to service of process is a permanent document submitted with the initial application for registration.

When an investment adviser registers in a new state, who of the following is automatically registered as IARS? A. Any employee who is functioning as an IAR in at least one state B. Officers, partners, and directors of the firm who are functioning as IARS C. Clerical employees stuffing their envelopes with research reports D. Any employee who will be soliciting clients for the adviser

B. -the "automatic registration" provision applies to those officers, partners, and directors of the IA who are already IARs in at least one state. -For those of you who have taken a FINRA exam, you know there is a supervisory level of registration—registered principal. No such gradations apply under NASAA rules. So, no matter how high ranking the officer of the investment advisory firm, that individual registers as an IAR. Therefore, anytime you see reference made to your supervisor, remember, that person is an IAR just like you.

Which of the following individuals would be defined as an IAR? A. Melinda, one of the firm's research analysts, who has no contact with public clients B. Johnny, an employee who makes cold calls soliciting for new advisory clients C. Mel, who prepares client account statements D. Jane, who is the firm's VP of HR

B. One of the functions making a supervised person an IAR is soliciting for new business. Research personnel are not considered IARs unless they have client relationships. Mel's job is purely clerical and, even though Jane is a vice president, the HR department is far removed from anything to do with giving investment advice.

An investment adviser representative of a federal covered investment adviser registers with A) the NASAA. B) the Administrator. C) the FINRA. D) the SEC.

B. Registration of IARs is done solely on the state level. IARs register with the Administrator of each state in which they are required to be registered.

Pontourny Advisory and Investment Services (PAIS) is a federal covered investment adviser. Its principal office is in State X. PAIS also maintains branch offices in States Y and Z. Brenda is the manager of the branch office in State Y. Some of the individuals being supervised by Brenda have clients in States X and Y, and others have clients in States Y and Z. Brenda must register as an IAR in A) States X, Y, and Z B) States Y and Z C) State Y D) States X and Y

C. Those who supervise the activities of investment adviser representatives are themselves defined as IARs. An IAR representing a federal covered investment adviser need only register in the state or states in which she (the IAR) has a place of business. There is nothing in this question to suggest that Brenda has a place of business anywhere other than in State Y, where her branch office is located. Remember, when it comes to federal covered advisers, registration of their IARs is dependent on the IAR's place of business, not the location of their clients.

KAPCO Advisers is registered as an IA with the SEC. Their only office is in New Jersey and all IARs are registered there. IAR Claire has 10 clients who reside in Ohio; IAR Sean has 6 clients who live in Kentucky; and IAR Felicia has 3 clients who are Georgia residents. In addition, Felicia conducts a quarterly presentation at the Augusta, Georgia National Golf Club where she discusses current market developments. The seminar is restricted to club members only. Which of the following is CORRECT? A) Sean must register in Kentucky. B) Because all 3 are registered in the state where KAPCO maintains its principal office, no further registrations are necessary for these IARs. C) Felicia must register in Georgia. D) Claire must register in Ohio.

C. 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 they have 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).

Under the USA, which of the following is not required to register as an IAR? A. A director of a state-registered Investment Advisory firm who determines specific recommendations for clients B. An associate in an SEC-registered investment advisory firm who has a place of business in the state and manages the account of only one individual client. C. A Clerk employed by a state-registered IA D. A VP of a state-registered IA firm who supervises employees who solicit clients for the firm

C. Clerical and ministerial (administrative) 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.

The Uniform Securities Act provides for a number of cases where an investment adviser representative is not defined as such in a specific state. One of those cases is when A) the individual represents a federal covered investment adviser and has two retail clients in a state in which she has no place of business. B) the individual is registered in State A as a representative of a state-registered adviser, has no place of business in any other state, and has six or fewer retail clients in State B. C) the individual is registered in State A as a representative of a state-registered adviser, has no place of business in any other state, and has fewer than six retail clients in State B. D) the individual maintains an office in State B, but his only clients in that state are institutions.

C. Those individuals representing a state-registered investment adviser (IA) can take advantage of the de minimis exemption. That is, if the individual has no place of business in a state and conducts business with no more than five retail clients in the state, registration is not required. Be sure you understand that "no more than five," "fewer than six," and "five or fewer" mean the same thing. Six or fewer is too many. The representative of the covered IA would not have to register; but that is not part of the USA, it is part of the federal law. There are never any exceptions for those with a place of business in the state.

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. Under the Uniform Securities Act, this individual is A) not defined as an IAR because the plan is considered an institutional client B) defined as an IAR because the plan is qualified C) not defined as an IAR because the individual works for a federal covered investment adviser D) defined as an IAR because the individual is rendering investment advice

D. Regardless of whom the advice is given to, unless there is some kind of exemption involved, individuals working for IAs (state or federal) must register as IARs in at least one state. It makes no difference if the plan is qualified or not.

1. Which of the following individuals would be required to register with the administrator of a state? A. Walter, who represents a state-registered adviser, has no place of business in the state, and only serves existing clients who vacation in the state. B. May, who represents a covered adviser, has no place of business in the state and has 38 clients who reside in the state. C. Aliza, who represents a state-registered adviser, has no place of business in the state and had fewer than 6 individual clients who were residents of the state during the past 12 months. D. Joe, who represents a covered adviser, has a place of business in the state, and had 4 retail clients who were residents of the state during the past 12 months.

D. Even though he represents a federal covered adviser, once an IAR maintains a place of business in a state, Joe must register in that state regardless of the number of clients. Walter need not register because he qualifies for the snowbird exemption. May qualifies for the exemption as an IAR of a federal covered investment adviser. She is only required to register in those states where she maintains a place of business. Aliza qualifies for the de minimis exemption (fewer than 6 is the same as 5 or fewer).

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) No notice to the Administrator is required. C) The investment adviser must notify the Administrator. D) The representative must notify the Administrator.

D. 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.

Zack is an IAR with UIA, an IA registered in State W. Zack has accepted an employment offer from ERA, an IA also registered in State W. What are the notification requirements to the State W Administrator? A. Zack is the only person who notifies the Administrator B. UIA is the only person who notifies the Administrator C. ERA is the only person who notifies the Administrator D. UIA and ERA notify the Administrator

D. This is bit sneaky. We've just told you to remember the "I" in IAR resembles the number 1 so only one person must notify. We also stated that if the IAR represents a state-registered investment adviser, the IA does the notification. In this specific instance, because two IA firms are involved, each of them must notify the Administrator; UIA that Zack is no longer under their control and ERA that Zack now is. This is just an example of how every rule has an exception.

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

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.

IAR Federal Covered Termination Process

If the investment adviser is a federal covered adviser, the investment adviser representative must notify the Administrator. All notifications must be made promptly.

IAR State Termination Process

If the investment adviser is a state-registered adviser, the firm must notify the Administrator of the IAR termination.

Impersonal Investment Advice

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.

Investment Adviser Representative (IAR)

Means any partner, officer, director (or an individual occupying a similar status or performing similar functions), or other individual employed by or associate with an investment adviser and is registered or required to be registered under the uniform securities act. IARs only register with the states IAR is a natural person not a legal entity

Annual Renewal on 12/31 requires:

Payment of fees

De Minimis Exemption

if an IAR does not maintain a place of business in the state and, during the preceding 12-month period has had no more than five retail clients, registration in the state is not required.

Special Exemption under Section 203A of the 1940 Act

those performing as IARs for federal covered advisers, IAR registration is required only in those states where that individual has a place of business