Multi choice QB 1
In developing written policies and procedures, which TWO factors must an investment adviser consider? (Choose two.) A. - Complexity and types of clients. B. - Compensation and benefit arrangements for mid-level staff. C. - Knowledge and competency of senior management. D. - Actual and potential conflicts of interest.
A. - Complexity and types of clients. D. - Actual and potential conflicts of interest.
Which THREE activities should TYPICALLY require a review and possible changes to a firm's written policies and procedures according to the SEC? (Choose three.) A. - Compliance issues within the firm. B. - Changes in a firm's business activities. C. - Replacing a retiring portfolio manager. D. - Rulemaking and regulatory changes.
A. - Compliance issues within the firm. B. - Changes in a firm's business activities. D. - Rulemaking and regulatory changes.
Which TWO examples fall within the definition of an "advertisement"? (Choose two.) A. - Any published graph, chart, or formula used in making a determination to buy or sell a security. B. - A notice, circular, letter or other written communication addressed to more than one person. C. - Communications tailored to meet the individual needs or circumstances of a person. D. - Oral communications between the adviser and a client or prospective client.
A. - Any published graph, chart, or formula used in making a determination to buy or sell a security. B. - A notice, circular, letter or other written communication addressed to more than one person.
Which TWO factors are considered mandatory provisions to be included in advisory contracts, if an adviser, as a matter of best practice, chooses to enter into written advisory contracts with its clients? (Choose two.) A. - "No Assignment" clause without client consent. B. - Inclusion of a hedge clause. C. - Disclosure of changes in the general partners of the partnership. D. - Earned, unpaid fees are not due upon termination of contract.
A. - "No Assignment" clause without client consent. C. - Disclosure of changes in the general partners of the partnership.
Which THREE of the following advisers are exempt from SEC registration? (Choose three.) A. - A UK-based adviser whose only client is a private fund with 12 U.S. investors B. - A US-based adviser whose only client is a private fund with $100 million Regulatory Assets Under Management (RAUM) C. - An adviser whose only clients are venture capital funds D. - An adviser whose only clients are business development companies
A. - A UK-based adviser whose only client is a private fund with 12 U.S. investors B. - A US-based adviser whose only client is a private fund with $100 million Regulatory Assets Under Management (RAUM) C. - An adviser whose only clients are venture capital funds
Which TWO are EXCLUDED or EXEMPTED from the definition of "investment adviser" under the Investment Advisers Act of 1940? (Choose two.) A. - A publisher of a bona fide newsletter. B. - An adviser providing advice solely to insurance companies. C. - An adviser to a registered investment company. D. - A pension consultant for $65 million of ERISA plan assets.
A. - A publisher of a bona fide newsletter. B. - An adviser providing advice solely to insurance companies.
An investment adviser's code of ethics requires a complete report of each firm's access person's securities holdings, at the time the person becomes an access person and at least how frequently thereafter? A. - Annually B. - Quarterly C. - Monthly D. - Any time the access person acquires additional holdings
A. - Annually
Doug is a trader for an investment advisory firm. Doug shares a residence with his wife, son, daughter and retired mother. Doug and his wife do not have any investment accounts. Which TWO family members will have to give Doug quarterly transaction reports to submit? (Choose two.) A. - Doug's mother because she holds only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper in her brokerage account. B. - Doug's wife because she manages a municipal bond portfolio for a state pension plan. C. - Doug's son who has an employee-directed 401(k) plan whose investment options include only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper. D. - Doug's daughter because her only investments are in her employer's stock which is received through an Employee Stock Ownership Plan.
A. - Doug's mother because she holds only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper in her brokerage account. C. - Doug's son who has an employee-directed 401(k) plan whose investment options include only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper.
All financial institutions including investment advisers must fulfill which THREE requirements regarding compliance with OFAC? (Choose three.) A. - File by September 30th of each year a comprehensive report on all blocked property held as of June 30 of the current year. B. - Immediately cease communications with any person who appears on the SDN list. C. - Notify OFAC within 10 days of any blocked or rejected transactions. D. - Freeze or reject all funds and transactions of persons on the SDN
A. - File by September 30th of each year a comprehensive report on all blocked property held as of June 30 of the current year. C. - Notify OFAC within 10 days of any blocked or rejected transactions. D. - Freeze or reject all funds and transactions of persons on the SDN
An investment adviser manages performance-based and asset-based fee accounts. Trade allocation of IPO shares could result in which TWO potential conflicts of interest? (Choose two.) A. - Higher fees B. - Scalping C. - Frontrunning D. - Preferential treatment of certain clients
A. - Higher fees D. - Preferential treatment of certain clients
Which THREE types of clients can be charged performance-based fees under the Investment Advisers Act of 1940? (Choose three.) A. - Mutual funds having more than $1 million in managed assets. B. - Hedge funds established under Investment Company Act Section 3(c)(7) (exemption for private funds). C. - Natural persons having $500,000 under management with the adviser. D. - Clients with at least $1,000,000 under management with the adviser or a minimum net worth of $2 million.
A. - Mutual funds having more than $1 million in managed assets. B. - Hedge funds established under Investment Company Act Section 3(c)(7) (exemption for private funds). D. - Clients with at least $1,000,000 under management with the adviser or a minimum net worth of $2 million.
What are advisers required to report to the Financial Crimes Enforcement Division (FinCEN)? A. - One cash transaction OR two or more related cash transactions totaling more than $10,000. B. - Frequent transactions that are not consistent with client's objectives or net worth.C. - A potential client's refusal to provide personally identifying information. D. - Each instance in which clients request a copy of their anti-money laundering file.
A. - One cash transaction OR two or more related cash transactions totaling more than $10,000.
Which TWO types of supervised persons are also considered access persons? (Choose two.) A. - Passive directors and officers of the RIA. B. - Persons serving as directors of an affiliate of the adviser. C. - Third-party service provider who provides exception reporting to the RIA. D. - Back office personnel who input client new account information into the firm's client management programs and enter trades, but do not talk to clients.
A. - Passive directors and officers of the RIA. D. - Back office personnel who input client new account information into the firm's client management programs and enter trades, but do not talk to clients.
Investment Advisory Firm A refers a client to Investment Advisory Firm B for a fee. Which TWO documents would Firm A be required to provide to the client? (Choose two.) A. - The solicitor's disclosure document. B. - A copy of Adviser B's compliance policies and procedures. C. - A written copy of Adviser B's code of ethics. D. - The Adviser B's Form ADV Part 2.
A. - The solicitor's disclosure document. D. - The Adviser B's Form ADV Part 2.
Under the Compliance Program Rule, an adviser must create which THREE of the following records? (Choose three.) A. - Workpapers of annual review B. - Written report of annual review C. - Amendments to written policies and procedures D. - Written policies and procedures
A. - Workpapers of annual review C. - Amendments to written policies and procedures D. - Written policies and procedures
Adviser is owned by Local Bank. All of Adviser's clients use Local Bank to custody the assets in their advisory accounts. Pete is Chief Operating Officer (COO) of both Adviser and Local Bank. Which statement is TRUE? Adviser is: A. - required to get a surprise annual audit and Local Bank is required to provide an internal control report. B.- not required to get a surprise annual audit but Local Bank is required to provide an internal control report. C.- required to get a surprise annual audit but Local Bank is not required to provide an internal control report. D - not required to get a surprise annual audit but Local Bank is required to get a surprise annual audit.
A. - required to get a surprise annual audit and Local Bank is required to provide an internal control report.
Adviser is actively looking for state and local government clients. According to the SEC Pay-to-Play Rule, which THREE would be considered a covered associate and therefore be subject to the Pay-to-Play prohibition(s)? (Choose three.) A. - The spouse of the CEO of Adviser. B. - Individuals who solicit government clients for Adviser. C. - The marketing manager for Adviser. D. - A political action committee that is controlled by the CEO of Adviser.
B. - Individuals who solicit government clients for Adviser. C. - The marketing manager for Adviser. D. - A political action committee that is controlled by the CEO of Adviser.
When using an outside solicitor to obtain clients, the investment adviser is required to obtain which document PRIOR to executing an advisory contract? A. - A statement from the client supplying the name and address of the previous investment adviser. B. - A signed and dated client acknowledgment of receipt of required disclosures. C. - A written description of the client's investment objectives. D. - A copy of the client's last custodial statement listing all marketable securities.
B. - A signed and dated client acknowledgment of receipt of required disclosures.
Which TWO statements accurately describe an adviser's obligations regarding trade errors? (Choose two.) A - Adviser must notify client promptly when error occurs. B. - Adviser must make the client whole. C. - Adviser may not use soft dollars to correct error. D. - Adviser has 30 days to correct the error.
B. - Adviser must make the client whole. C. - Adviser may not use soft dollars to correct error.
How can an investment adviser address material conflicts of interest as they relate to proxy voting? A. - Appoint an investment analyst to vote proxies on behalf of clients. B. - Delegate responsibility for voting proxies to a proxy voting service. C. - Delegate responsibility for voting proxies to an adviser who has a business relationship with a board member of a company. D. - Instruct portfolio manager to vote proxies in accordance with management direction.
B. - Delegate responsibility for voting proxies to a proxy voting service.
If an investment adviser has proxy voting authority, which record is NOT required to be maintained? A. - Records of written requests for proxy voting information. If an investment adviser has proxy voting authority, which record is NOT required to be maintained? A. - Records of written requests for proxy voting information. B. - Evidence of annual offer of proxy policies and procedures. C. - Proxy statements received for client securities. D. - Records of votes cast on behalf of clients.
B. - Evidence of annual offer of proxy policies and procedures.
According to the SEC Books and Records Rule, which length of time must advisers who use performance data in their advertisements maintain the advertisements and all data supporting the performance figures? A. - Five years after the end of the calendar year in which the advertisement/performance was last disseminated. B. - Five years after the end of the fiscal year in which the advertisement/performance was last disseminated. C. - Ten years after the end of the fiscal year in which the advertisement/performance was last disseminated. D. - Ten years after the end of the calendar year in which the advertisement/performance was last disseminated.
B. - Five years after the end of the fiscal year in which the advertisement/performance was last disseminated.
Which THREE reasons make it important for an investment adviser to maintain updated client suitability information? (Choose three.) A. - It prevents litigation resulting from aggressive investment techniques. B. - It facilitates the investment adviser in meeting its regulatory obligations. C. - It assists the investment adviser in meeting its fiduciary obligations. D. - It aids the investment adviser in detecting and preventing money laundering activities.
B. - It facilitates the investment adviser in meeting its regulatory obligations. C. - It assists the investment adviser in meeting its fiduciary obligations. D. - It aids the investment adviser in detecting and preventing money laundering activities.
Under the SEC Investment Adviser Codes of Ethics Rule, all are reportable securities EXCEPT: A. - Foreign issuers B. - Money market funds C. - Exchange listed securities D. - Proprietary mutual funds
B. - Money market funds
An investment adviser claims in its disclosure brochure that: "The information in this brochure has been approved by the SEC." Which provision under the Investment Advisers Act of 1940 is violated by this claim? A. - Fiduciary duty B. - The Anti-fraud Rule C. - The Codes of Ethics Rule D. - The Brochure Rule
B. - The Anti-fraud Rule
A Chief Compliance Officer (CCO) who has supervisory responsibility has adopted procedures "reasonably designed" to prevent and detect violations of the securities laws. A system is in place for applying those procedures and the CCO has reasonably discharged those supervisory responsibilities in accordance with the procedures. The CCO was not aware that a supervised person was not complying with the procedures. If the SEC were to conduct an investigation, what would be the MOST likely outcome? A. - The CCO shall be suspended from future activity in a supervisory capacity. B. - The CCO shall not be deemed to have failed to reasonably supervise. C. - The CCO shall be deemed to have failed to adequately assess the risk exposure for the firm. D. - The CCO will be deemed to have failed reasonably to supervise.
B. - The CCO shall not be deemed to have failed to reasonably supervise.
The annual review requirement under the Investment Company Act Compliance Programs Rule requires which TWO actions? (Choose two.) A. - A fund board must conduct the annual review. B. - The Chief Compliance Officer must submit a report documenting the review to the fund board. C. - The Chief Compliance Officer must submit a report documenting the review to the service providers. D. - A fund must review its service providers' policies and procedures annually.
B. - The Chief Compliance Officer must submit a report documenting the review to the fund board. D. - A fund must review its service providers' policies and procedures annually.
An SEC-registered adviser must provide a Form ADV Part 2A Firm Brochure to which TWO clients? (Choose two.) A. - A subscriber to the SEC-registered adviser's monthly financial planning newsletter. B. - The general partner of a hedge fund to which the SEC-registered adviser provides portfolio management services. C. - A 401K plan to which the SEC-registered adviser provides pension consulting services. D. - A mutual fund registered under the Investment Company Act of 1940 to which the SEC-registered adviser provides sub-advisory services.
B. - The general partner of a hedge fund to which the SEC-registered adviser provides portfolio management services. C. - A 401K plan to which the SEC-registered adviser provides pension consulting services.
What is the PRIMARY reason the SEC requires investment advisers to file an annual updating amendment to Form ADV Part 1A? A. - To pay renewal fees for the adviser and the investment adviser representatives. B. - To reaffirm eligibility for the investment adviser to remain registered with the SEC. C. - To monitor the increase and/or decrease in the number of clients being advised. D. - To report any material changes in the investment adviser that occurred during the year.
B. - To reaffirm eligibility for the investment adviser to remain registered with the SEC.
Sam Jones is the Chief Investment Officer and Chief Executive Officer of Smith Family Advisers, LLC. Smith Family Advisers, LLC currently manages $250 million in securities. All of the clients of Smith Family Advisers, LLC are members of the Smith family, and prior to last year, the firm was entirely owned by members of the Smith family. Last year, in recognition of Sam's long service and sound advice, the managing members of Smith Family Advisers, LLC gave Sam a 5% interest in Smith Family Advisers, LLC. Is Smith Family Advisers, LLC required to register with the SEC? A. - No, because Sam owns less than 25% of Smith Family Advisers. B. - Yes, because Sam is not a member of the Smith family. C. - Yes, because Sam is listed as a "Control Person" on Schedule A. D. - No, because family offices are not required to register.
B. - Yes, because Sam is not a member of the Smith family.
Adviser manages small-cap, large cap and fi portfolios. In a quarterly newsletter to be sent to all clients, Adviser lists the 10 best performing securities in each portfolio. What must Adviser do in order to distribute the newsletter? A - Disclose the criteria used to select the 10 best securities. B - Disclose that Adviser does not imply that it is currently recommending these securities. C - Offer or include a list of all transactions in these portfolios for the past year. D - No additional disclosure is needed since a newsletter is not an advertisement.
C - Offer or include a list of all transactions in these portfolios for the past year.
When trading for a client's account, Investment Adviser accidentally instructed the broker to buy 1000 shares of Y at $1.00 per share when Adviser actually wanted to buy 1000 shares of X at $1.00 per share. Adviser realizes its mistake the next day, when Y is trading for $0.95 per share and X is trading for $1.05 per share. Adviser must sell Y and buy for the client: A. - $950 worth of X B. - $1,000 worth of X C. - $1,050 worth of X D. - $1,100 worth of X
C. - $1,050 worth of X
Under which TWO circumstances is an investment adviser required to register with the SEC? (Choose two.) A. - Acting as an adviser solely to church pension plans. B. - Acting as a pension consultant to $40 million in client assets. C. - Acting as adviser to a registered investment company. D. - Providing investment advice exclusively through an interactive website.
C. - Acting as adviser to a registered investment company. D. - Providing investment advice exclusively through an interactive website.
Adviser is registered with the SEC, has its principal place of business in a state that registers investment adviser representatives, and employs three portfolio managers: Tom, Larry and Bill. All of Adviser's clients reside in that state. Tom manages corporate accounts exclusively. Larry manages 50 corporate accounts and also manages the personal portfolios of the presidents of 30 of the corporations whose corporate accounts he manages. Larry imposes a minimum account size of $1 million for these personal portfolios. Bill specializes in providing management services to individuals with a net worth of $1 million or less. He manages 100 portfolios with a median value of $250,000. The state may require investment adviser representative registration of: A. - Larry and Bill B. - No one C. - Bill only D. - Tom, Larry and Bill
C. - Bill only
Which are TWO accepted components of best execution? (Choose two.) A. - Referral arrangements with broker-dealers. B. - Gifts sent to advisers by broker-dealers. C. - Commission rates. D. - Financial stability of the broker-dealer.
C. - Commission rates. D. - Financial stability of the broker-dealer.
An adviser manages portfolios that include both unaffiliated mutual funds and equities. The adviser creates a composite, which includes mutual fund performance that the adviser knows was calculated on a gross-of-fee basis. What must the adviser do? A. - Ensure compliance with Investment Company Act of 1940 requirements. B. - Disclose that the mutual fund performance was not calculated by the adviser. C. - Ensure compliance with Investment Advisers Act of 1940 requirements. D. - Submit the advertisement to The Financial Industry Regulatory Authority (FINRA) for review.
C. - Ensure compliance with Investment Advisers Act of 1940 requirements.
An investment adviser has uncovered a trade error resulting from a block trade. Which activity is considered a breach of fiduciary duty? A. - The adviser reimburses each client for accrued interest resulting from the error. B. - The adviser utilizes an agency cross-transaction to remedy the error. C. - The adviser uses soft dollars to correct the error. D. - The adviser only notifies fee-paying clients of the error.
C. - The adviser uses soft dollars to correct the error.
Which situation is considered eligible "research" under the SEC's guidance on soft dollars? A. - Maintenance on computer terminals used for research. B. - A subscription to a well known business newspaper. C. - Dinners with securities analysts. D. - Proprietary reports from brokers on client-held securities.
D. - Proprietary reports from brokers on client-held securities.
In Form ADV Part 1, who is NOT considered a "high net worth individual"? A. - An individual with $1 million assets under management. B. - A qualified purchaser. C. - A couple with a net worth of $2 million, excluding their home. D. - An individual with a net worth of $1 million.
D. - An individual with a net worth of $1 million.
Which action would result in an investment adviser having custody under the Investment Advisers Act of 1940? A. - Returning inadvertently received stock certificates within three business days. B. - Billing for management fees by sending an invoice directly to a client. C. - Accepting a check made payable to a third party. D. - Having sole check writing authority over a client's non-managed account.
D. - Having sole check writing authority over a client's non-managed account.
Adviser is answering a Request for Proposal from a prospective institutional client. The Request for Proposal asks Adviser to provide performance data for one account of a comparable size as the prospective institutional client and in the same style being considered by the prospective institutional client. Adviser replies by providing an appropriate client's most recent performance report. The client's report shows performance gross of fees and contains none of the disclosures required by the Clover Capital series of no-action letters. Has Adviser violated the advertising rules of the Advisers Act? A. - Yes, because responses to Requests for Proposals are advertisements. B. - Yes, because Clover Capital disclosures must always accompany all performance data. C. - No, because responses to Requests for Proposals are never advertisements. D. - No, because the reply in this instance was not an advertisement.
D. - No, because the reply in this instance was not an advertisement.
According to the SEC Investment Adviser Codes of Ethics Rule, all are requirements for access persons EXCEPT to: A. - Obtain the investment adviser's approval before investing in certain types of securities. B. - Periodically report their securities holdings to the Chief Compliance Officer or other designated person. C. - Report personal securities transactions on a quarterly basis. D. - Obtain the investment adviser's approval prior to accepting any gifts.
D. - Obtain the investment adviser's approval prior to accepting any gifts.
What is NOT required of a fund under the Investment Company Act Compliance Programs Rule (Rule 38a-1)? A. - The designation of the Chief Compliance Officer must be approved by the board of directors. B. - The policies and procedures must provide for oversight of the fund's service providers. C. - The policies and procedures must be approved by the board of directors. D. - The annual review of the policies and procedures must be approved by the board of directors.
D. - The annual review of the policies and procedures must be approved by the board of directors.
Under the Investment Company Act Rule 17j-1 regarding personal investment activities of investment company personnel, which statement is TRUE regarding the code of ethics of an adviser to a mutual fund? A. - The adviser's code must be summarized in the mutual fund's Statement of Additional Information. B. - The adviser's code must be distributed to shareholders of the mutual fund. C. - The mutual fund's Chief Compliance Officer is responsible for enforcing the adviser's code as it relates to the fund. D. - The fund's board of directors must approve the adviser's code.
D. - The fund's board of directors must approve the adviser's code.
Great Big Holding Company is the sole owner of two large financial services firms: Great Big Adviser (an SEC-registered adviser) and Great Big Broker. Great Big Adviser is the sole owner of Little Insurance and Great Big Broker is the sole owner of Little Tax Prep. • Frank is the President of Little Insurance and Vice President of Great Big Holding Company. • Tim is the President of Great Big Broker and President of Little Tax Prep. • Jeff is President of Great Big Adviser and a registered representative of Great Big Broker. • Greg is the President of Little Tax Prep and an investment adviser representative of Great Big Adviser. According to the Glossary in the Form ADV instructions, Frank, Tim, Jeff, and Greg are all "related persons" of Great Big Adviser. Which person is NOT an "advisory affiliate" of Great Big Adviser? A. - Frank B. - Jeff C - Greg D. - Tim
D. - Tim
Which disclosure is NOT required by the Clover Capital SEC no-action letter? A. - Whether results reflect reinvestment of earnings and dividends. B. - Material economic conditions during the period advertised. C. - Material conditions used to obtain the results portrayed. D. - Total assets in the model advertised.
D. - Total assets in the model advertised.
An investment adviser's status as a "fiduciary" is derived from: A. - SEC enforcement actions. B. - industry best practice. C. - the SEC examination program. D. - U.S. Supreme Court case law.
D. - U.S. Supreme Court case law.
Traders 1, 2, 3, and 4 use Broker A for 5-15% of their trades, while Trader 5 uses Broker A for 60% of his trades. An investigation by Compliance discovers that Broker A has regularly paid for repairs and maintenance on Trader 5's sports car. However, it appears that Trader 5's use of Broker A is consistent with obtaining best execution. The firm's Brochure does not contain any disclosure concerning the receipt of gifts. If Adviser's code of ethics does not have a prohibition on accepting gifts from brokers, has Trader 5 violated any of Adviser's duties to its clients? A. - No, because Trader 5 obtained best execution. B. - No, because the Advisers Act does not prohibit the receipt of expensive gifts from brokers. C. - Yes, because all Advisers must have a gift policy. D. - Yes, because the receipt of expensive gifts should be disclosed to clients.
D. - Yes, because the receipt of expensive gifts should be disclosed to clients.
Adviser markets performance data for 1990 to present. In 2005 Adviser decides to stop marketing performance of 1990 to 1995. Adviser's record destruction policy should provide that records supporting 1993 performance: A. - must be maintained for five years after the firm goes out of business. B. - may be destroyed in 2006 for those accounts whose performance was not advertised. C. - may be destroyed in 2006 for all accounts. D. - may be destroyed in 2011 for all accounts.
D. - may be destroyed in 2011 for all accounts.
Amendments to Regulation S-P regarding privacy require any adviser that maintains or otherwise possesses consumer report information for a business purpose to: A. - maintain records of the disposal process for the consumer report information. B. - maintain the consumer report information for a period of five years. C. - cease and desist from possessing consumer report information in the future. D. - properly dispose of the information while protecting it against unauthorized access.
D. - properly dispose of the information while protecting it against unauthorized access.