Unit 6: Communication with Clients and Prospects

Highlighting or making any other marks

A prohibited practice that draws attention to key points on a prospectus

the agent is describing a guaranteed security

An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act,

- the client receives full written disclosure as to the capacity in which the advisor proposes to act - client consent is obtained

An investment advisor can engage in occasional principal and agency transactions as long as:

Leroy has acted unethically, misleading Antonia by implying that increased dividend distributions from Kansas Plains Gas and Electric Company are a sure thing.

Antonia, a customer of Leroy (an agent of Gibraltar Securities), is considering the purchase of 2,000 shares of Kansas Plains Gas and Electric Company common stock. Antonia has stock in 10 other utilities companies in her portfolio, and this stock trades on the Chicago Stock Exchange (CHX). Leroy tells Antonia that the company has been increasing its dividend for the past 19 years and will surely continue to do so. Which of the following statements best reflects this situation?

No

Are waivers permitted on the test at all?

each year at the time of filing the annual updating amendment and promptly, whenever any information in the brochure becomes materially inaccurate

How often must the brochure be updated?

enter into a new contract for advisory services

If a BD forms a subsidiary to start an investment adviser, existing clients of the BD wishing to become clients of the IA must

null and void

If a client agrees to waive their rights to sue, the agreement is

a BD, but not an associated person of the firm

If justified, who may correct a bona fide error?

not recommend the transaction to both parties of the trade as long as both clients provide prior written consent

In an agency cross transaction, the adviser may

to select "No" for the "I want to be endorsed" feature under the "Skills and Expertise" section on their LinkedIn profile

LinkedIn is a popular social media tool for business people. The nature of the information posted poses risks for investment advisers because of the prohibition against testimonials. A step that advisers should consider taking to minimize the risk of an improper endorsement appearing on their page is

disclose the potential conflict of interest

Manhattan Brokerage Associates (MBA) specializes in bringing midwestern companies public. Shortly after underwriting the IPO of a farm equipment manufacturer, MBA publishes a research report that is highly favorable regarding that company's growth potential. Doing so would require MBA to

$500, 6 or more months in advance.

NASAA defines a substantial prepayment of fees to be more than

Clients that "buy and hold"

Name a type of client that would not be suitable for a wrap fee account

Agency cross transaction

The adviser acts as an agent for both its advisory client and the party on the other side of the trade

must be in writing

The agreement between an investment adviser and client is the advisory contract. To be in compliance with the law, contracts under the USA differ from those under the Investment Advisers Act of 1940 in that they

- the name of the solicitor, - the name of the IA, and - the nature of the relationship between the solicitor and the IA.

The disclosure document must include:

Advisory clients must receive the adviser's brochure at least 48 hours before entering into an advisory contract.

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 of the following is NOT included in those requirements?

I and III

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include: I. a charge when a client requests that a stock certificate be issued in his name II. a commission charge when a client buys a security on a listed exchange III. the interest charged by the firm on money owed by customers in their margin accounts IV: fees for providing advisory services to high-net-worth individuals

shares held in the account of an advisory client are purchased by the investment adviser

Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser would have to disclose that the firm was acting in a principal capacity when

state on its stationery that it is registered with the SEC

Under the Investment Advisers Act of 1940, an investment adviser that becomes registered may

- must be detailed in the advisory contract - in excess of $500 for 6 months or more of service require the adviser's balance sheet to be included in the brochure

Under the Uniform Securities Act, prepaid advisory fees

commissions, markups and markdowns, and advisory fees

What are not included in the fee disclosure documents?

- Contracts with an investment company registered under the Investment Company Act of 1940 are exempted because those contracts are covered by that act. - Advisers entering into a contract providing solely for impersonal advisory services - that is, publishers of market letter - are exempt from the initial requirements unless the annual charge for this service is $500 or greater.

What are the two exemptions under both state and federal law from the delivery requirements of the rule?

Proceed with the account, but make a supervisory person aware of this.

What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure?

- Part 2A: Firm Brochure - Part 2A Appendix 1: Wrap Fee Program Brochure - Part 2B: Brochure Supplement

What parts does Form ADV Part 2 consist of?

It contains a statement that the program will generally cost the client less than purchasing these services separately.

Which of the following statements is NOT true concerning the wrap fee programs brochure under the Uniform Securities Act?

I, II, and III

Which of the following would be deemed to be an assignment of an investment adviser's contracts? I. All of the stock in NLT Advisers, a corporation, is acquired by MMS Advisers, Inc. II. The Lucky Seven Partnership is an investment adviser with 7 partners. Four of the partners make a fortune and decide to retire. They are replaced by new partners. III. Albert is an investment adviser. His clients' accounts are automatically debited monthly for his fee. Because of this steady cash flow, his banker readily accepts a pledge of these accounts as collateral for a loan.

Broker-dealers, but NOT IAs.

Who can use testimonials?

Wrap fee program

program under which a client is charged a specified fee, or fees, not based directly on transactions in a client's account, for investment advisory services