Chapter 1 Qs + As
A broker-dealer with an office in this state would be defined as an investment adviser if it charges: 1. commissions for selling securities 2. commissions for selling securities while offering investment advice incidental to the sale of the securities 3. a fee for selling investment research and additional fees in the form of commissions for the sale of securities 4. fees for investment research sold exclusively to institutions located in this state
3 &4. A broker-dealer would be considered an investment adviser if it has a place of business in this state and 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 meets the definition of 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 is not an investment adviser because it is not compensated for the research.
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)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. C)a place of business in the state and only advises employee benefit plans with more than $1 million. D)a place of business in the state and advises fewer than 5 banks
A. 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.
Under current regulations, registration with the SEC is optional for all of the following investment advisers EXCEPT: A)Midwestern Asset Managers, LLC, with $53 million in AUM, required to register in 17 states B)CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board C)Grand Visions Advisers, a sole proprietorship with $104 million in AUM D)Employee Benefit Specialists, Inc., a pension consultant with $225 million in AUM
B. 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: 1. pension consultants once their AUM reach $200 million; 2. small and mid-size advisers who would be required to register in 15 or more states; and 3. those advisers with at least $100 million in AUM, but not $110 million in AUM. Any of these choosing to register with the SEC are federal covered advisers and do not register with any state, although a notice filing may be required.
Under the Uniform Securities Act, if no denial or proceedings are pending, when does an investment adviser registration become effective? A)60 days after application or an amendment is filed B)When the Administrator so orders, but not to exceed 90 days C)When the Administrator so orders, but not to exceed 30 days D)No sooner than 15 days
C. Registrations become effective at noon on the 30th calendar day after the date of filing if there are no denial orders or pending proceedings.
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 not required to register as an investment adviser because his securities advice is purely incidental to his overall planning activities. B)Harrison is not required to register as an investment adviser because he holds a recognized financial planning credential. C)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. D)Harrison is required to register as an investment adviser because he holds a recognized financial planning credential.
C. 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.
Under the Uniform Securities Act, if not denied, an application for registration as investment adviser will generally become effective how soon after filing? A)10 days B)Immediately C)30 days D)15 days
C. If not denied and no disciplinary proceedings are instituted, an application for registration becomes effective at noon on the 30th day after being filed.
An investment adviser is registered in States A and B with its principal office in State B. The Administrator of State A can request to see: A)sales records relating to clients who are residents of State B B)proof that the IA meets State A's financial and recordkeeping requirements C)advertisements run in State A D)internal communications regarding the company's participation in a local charitable even
C. The Administrator of State A can request that advertisements placed in his state be filed because that is business relating to his state. As long as the IA meets the "home" state's financial and recordkeeping requirements, that is good everywhere.
An investment adviser has its home office in Wisconsin. Its only business is with trust companies, large employee benefit plans, and insurance companies. It has no place of business in Colorado but provides 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)as long as the IA does not have an office in Colorado, there are no conditions that would mandate registration there. B)the Administrator is correct and the firm must register. C)this firm would be exempt from registration with the Colorado Administrator because it is doing business in more than one state. D)the firm does not have to register because it has no place of business in the state and its only clients are registered financial institutions
D. 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, it would have to register.
Registration as an investment adviser is required for any firm in the business of giving advice on the purchase of: A)rare convertible automobiles B)convertible bonds C)gold coins D)apartments undergoing a conversion to condominiums
Only those individuals in the business of giving advice on securities are required to register as investment advisers; only the convertible bonds are securities.
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)a list of discretionary accounts B)bank records C)a record by security showing each client's interest and location thereof D)emails
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.
