Series 66 Ch 6 Quiz

Based on the Investment Company Act of 1940, which of the following statements are true about the compensation received by an investment adviser from an investment company? The compensation arrangement must be in writing and cannot continue for more than two years without pre-approval. The compensation paid to the Investment Adviser is deducted from the net assets of the fund. The compensation arrangement must be approved by shareholders. The adviser has a fiduciary duty with respect to the compensation.

- The compensation arrangement must be in writing and cannot continue for more than two years without pre-approval. - The compensation arrangement must be approved by shareholders. The adviser has a fiduciary duty with respect to the compensation.

A Registered Investment Adviser pays a flat fee to a Certified Public Accountant for client referrals. The RIA charges his clients a fee based on a percentage of assets under management. Which statements are true regarding required disclosures to customers?

- Disclosure of the fees paid by the adviser to the CPA is required - Disclosure of the management fees to be paid by the customer is required

A client holds an account at an investment advisory firm. The firm maintains custody of the client's account. The client receives statements from the firm on a quarterly basis related to their account. The statements contain the cash balances and the securities that are held in the account. What is TRUE of this scenario?

- If the client has regularly performed transactions in this account over the past three months, the investment advisory firm has met its obligations in terms of sending client statements. - Regardless of custody in the account, the investment advisory firm is required to send statements on a quarterly basis when there has been no activity in the account.

Under the Investment Advisers Act of 1940, which of the following statements are true pertaining to Investment Advisers who have taken custody of the funds of clients? The adviser's clients must receive notification of the manner in which their funds are being kept as well as the place in which their funds are being kept. The adviser must have received approval of registration and currently be registered as a broker-dealer. The funds of the clients must be deposited and spread among one or more separate accounts which only contain client funds.

- The adviser's clients must receive notification of the manner in which their funds are being kept as well as the place in which their funds are being kept. - The funds of the clients must be deposited and spread among one or more separate accounts which only contain client funds.

Commercial paper is an exempt security under the Securities Act of 1933 if its maturity does not exceed:

270 days

Under the Securities Act of 1933, members of an underwriting group must receive payment in full on sales of a new issue within

35 days

According to SEC requirements, how long after the end of a fiscal year in which the last entry was made must registered investment advisers preserve their books and records?

5 years

what even would NOT result in an advisory contract being considered to have been transferred?

A minority partner in an advisory firm sells his interest to another individual

Under the Investment Company Act of 1940, the offering price of a mutual fund share is determined by:

Adding any sales charge to the NAV

What is included as duties of an IA as a fiduciary?

An IA must render impartial and disinterested advice to all clients

Under the Securities Act of 1933, this is NOT considered to be underwriting activities of a BD

An agent of a broker-dealer contacts customers and informs them about the announcement that a publically traded company has just been awarded a large contract and recommends that his clients buy the stock which is traded on the NYSE Underwriters deal with NEW securities

A Federal Covered Adviser, without satisfying an exemptive order or rule would not be allowed to receive which of the following types of compensation?

An arrangement where an adviser charges fees on an annual basis that are based on increases in the value of the client's holdings.

An investment advisory firm increases its fee from $3000 to $3500 and starts to require payment 6 months in advance. According to the Investment Advisers Act of 1940, what must the firm file with the SEC and furnish to new clients as a result of this new arrangement?

An audited balance sheet of its most recent fiscal year

According to the Investment Advisers Act of 1940, which of the following must register as an investment adviser? An investment adviser whose only clients are insurance companies An investment adviser whose only clients are accredited investors An investment adviser whose only clients are banks, savings and loans and trust companies

An investment adviser whose only clients are insurance companies An investment adviser whose only clients are accredited investors

What includes all broker-dealer partners, officers, directors, branch managers, control persons, and employees other than those serving solely in a clerical or ministerial capacity?

Associated Persons

All of the following may be eligible for an exclusion from the definition of investment adviser under the Investment Advisers Act of 1940:

BDs Banks Engineers

According to the Securities Exchange Act of 1934, the term "exchange" means any organization association or group of persons providing a market place or facilities for which of the following purposes?

Bringing together purchasers and seller

Under the Investment Advisers Act of 1940, when an Investment Adviser charges Qualified Clients a performance-based fee, which of the following provisions must be followed?

Defined Periods used to measure performance for compensation Formulas for increases and decreased in fees Disclosure that performance based fees may induce the IA to make higher risk transactions Advisory fees and expenses will be deducted from performance

Under the Investment Advisers Act of 1940 an investment adviser would be required to register if they answer "yes" to which of the following?

Does the person give advice about securities Is this person in the business of giving advice about securities Is this person compensated for giving advice about securities

Under the NASAA Model Rules on Unethical Business Practices of Investment Advisers fees charged by Investment Advisers must be reasonable in relation to fees charged by other advisers for similar services. Investment Adviser A has been charging a fee of 20% of asset value under management since he has been providing performance well above other advisers. Other Advisers have been charging 1% of assets under management. Investment Adviser A's charges are

Excessive since it is unreasonable in relation to fees charged by other advisers.

Under definitions in the Investment Advisers Act of 1940, which of the following describes a disclaimer that, when included in a client contract, attempts to relieve the adviser of liability regarding errors, omissions, and oversights?

Hedge Clause

According to SEC Release IA-1092, what information must IAs disclose to clients?

IAs must disclose that they take positions consistent with those recommended to clients IAs must disclose that they take positions inconsistent with those recommended to clients IAs must disclose any potential conflicts of interest

The investment banking department of a large Wall Street brokerage firm has knowledge of and is going to participate in a large initial public offering. The information that the department has is not publically available. The investment banking department CAN share this information with

Legal department

Generally, the Investment Company Act of 1940 requires that:

Not more than 60% of board of directors be interested persons

Nick is a Federal Covered Investment Adviser and has decided to expand his business by bringing in new clients. Since he will have to hire more assistants and move to a larger office to attain his goal, he has decided that he will charge new clients a higher advisory fee and also require prepayment of fees. According to the Investment Advisers Act of 1940, Nick would NOT have to

Notify and obtain consensus approval from Nick's current clients before taking on new clients.

What are NOT considered securities under the 1933 Act

Precious metals such as silver

Which of the following acts deals mostly with the people involved in securities transactions?

Securities Exchange Act of 1934

Which of the following regulations would regulate Broker-Dealers, the OTC Market, Transfer Agents, and stock Exchanges?

Securities Exchange Act of 1934

Under SEC Rules, a person is defined as an "investment adviser" who is in the business of giving advice about which of the following? Stocks Corporate Bonds Commodities Real Estate

Stocks Corporate bonds

According to the Investment Advisers Act of 1940, an adviser that has custody of client funds does NOT

The adviser must make an effort to assure that the funds earn a rate of interest which is consistent with accounts of that amount and type.

A registered Investment Adviser learns from an inside source that a company that she has invested in will show negative earnings for its latest quarter when positive earnings had been expected. This information has not yet been made public. The adviser immediately sells her stock in the company and advises her client about the situation. The client immediately sells the stock. Who has violated the SEC of 1934?

The advisor and the client

According to the Securities Act of 1933, in addition to the names and addresses of the issuer's directors, a registration statement must include the names and addresses of:

The issuer's Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. The underwriters of the issue. Anyone who owns more than 10% of any class of the issuer's stock.

A federally covered investment adviser (IA) instructs its investment adviser representatives (IARs) to add the initials "RIA" (registered investment adviser) after their names on their business cards.

This is prohibited by the SEC because the use of "RIA" implies that the IAR is competent

According to SEC Release IA-1092, a person is deemed "in the business" of rendering investment advice if that person:

[A]Advertises that he/she provides investment advice. [B]Is compensated for giving advice about securities. [C]Regularly gives advice about securities.

To enter into an investment advisory contract with a client permitting performance based fees, the IA must disclose:

[A]the period of time that will be used to measure investment performance [B]the nature of the benchmark index that will be used for comparison. C]that a performance based fee may create an incentive for the IA to take greater risks

According to the Investment Company Act of 1940, the definition of "investment company" could include which of the following? [A]broker-dealers who have investment discretion over more than 100 accounts. [B]A company whose business is to invest and reinvest in securities. [C]Pooled investments in precious metals. [D]Insurance company general accounts funding fixed insurance and annuity contracts.

[B]A company whose business is to invest and reinvest in securities.

Private Placements under the Uniform State Securities Act: [A]Are not governed but are covered under the 1933 Act.[B]Have an exemption that is narrower in scope than the Federal exemption. [C]State that if you qualify under the 1933 Act, the transaction is automatically qualified in every state. [D]Are not governed but are covered by the Securities and Exchange Act of 1934.

[B]Have an exemption that is narrower in scope than the Federal exemption.

The Securities Exchange Act of 1934 regulates which of the following: [A]initial public offerings [B]the secondary market [C]private offerings D]transactions between investment advisers and their clients

[B]the secondary market

Under the Securities Act of 1933 Exempt Securities are securities that do not have to be registered with the SEC before they can be sold to public and include all of the following EXCEPT? [A]U.S. Government Securities [B]Securities issued by State Banks and Savings and Loans C]Regulation A Offering [D]Common stock of an Investment Company

[D]Common stock of an Investment Company

Who must register as an investment adviser under the Investment Advisers Act of 1940, assuming that they all give investment advice only incidental to the practice of their profession and are not directly compensated for such advice?

a financial planning firm which advertises as an investment advisory firm which does no-fee financial planning

According to the Investment Company Act of 1940, which two of the following are prohibited unless the investment company files an application for an exemption with the SEC? a change in the investment policy of a diversified open-end fund a merger between two registered investment companies a purchase by the investment company of property from the fund's investment adviser a loan from the fund to its principal underwriter

a merger between two registered investment companies a purchase by the investment company of property from the fund's investment adviser

The Securities Act of 1933 specifically lists which of the following as persons who may be sued for making untrue statements in and/or omitting material and information from a registration statement: accountant's preparation or certifying any report or validation in connection with the registration directors and/or partners of the issuer existing stockholders of the issuer uninvolved in filing the registration statement

accountant's preparation or certifying any report or validation in connection with the registration directors and/or partners of the issuer

Market maker is NOT another term for

an underwriter

The term "transfer agent" does not apply to

clearing agency performing functions solely with respect to options contracts.

According to the Investment Advisers Act of 1940, investment advisers must: have at least $25,000 in capital. comply with certain rules to safeguard clients' assets if they have custody of clients' funds or securities. disclose their business background and experience to clients.

comply with certain rules to safeguard clients' assets if they have custody of clients' funds or securities. disclose their business background and experience to clients.

The Investment Advisers Act of 1940 prohibits any investment advisory contract which: contains exculpatory clauses fails to provide that the contract will not be assigned without client consent requires pre-payment of advisory fees for more than nine months in advance is not in writing

contains exculpatory clauses fails to provide that the contract will not be assigned without client consent

When a performance based fee is charged to a client, what must be disclosed in writing?

fees the adviser may charge may vary depending upon the investment return produced

A newly formed, unregistered investment adviser (IA) wants to register with the SEC. It is true to say that the IA

may not register with the SEC until it has at least $100 million under management. Under $100 million must register with state

"Securities information processor" does NOT include

newspaper that publishes information on securities transactions or quotations.

To enter into an investment advisory contract with a client permitting performance based fees, the IA does NOT have to disclose:

that the IA may not be compensated for both realized capital gains and unrealized capital appreciation in the same portfolio

Under the Investment Advisers Act of 1940, who would not be defined to be "a person associated with" an investment advisory firm?

the head word processor for the firm

The Securities Act of 1933:

was passed primarily to provide a full and fair disclosure regarding securities sold to the public in interstate commerce and through the mail.

A current and updated amendment to an Investment Adviser's registration must be electronically filed with the SEC according to the Investment Advisers Act of 1940 how often?

within 90 days from the close of the Investment Adviser's fiscal year