Unit 2 Quizzes

Exclusions From the Definition of Investment Adviser Representative

- their activities are confined to clerical or administrative duties or those activities that are solely incidental to the investment advisory services offered, such as mailing out a research report to an advisory client - if the person does not on a regular basis solicit, meet with, or otherwise communicate with clients of the investment adviser or provides only impersonal investment advice. - Jane, who is the firm's VP of HR services(not included)

Exemptions from Registration as an Investment Adviser Representative - Two of those are for those who represent state-registered IAs and the other for those who represent federal covered IAs.

1. de minimis exemption. Just as is the case with investment advisers, 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. (insurance companies do not count toward de minimus count) 2. The previously mentioned snowbird exemption also applies to these IARs. (if the client should change legal residence to that state, the investment adviser has 30 days to register in that state or discontinue doing business with that client (unless qualifying for the de minimis exemption). 3. If the individual represents a covered investment adviser, there is a 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.*** (place where regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients; or held out to public as advisory location)

As written in the Investment Advisers Act of 1940, a "person associated with an investment adviser" is any partner, officer, or director of such investment adviser (or any person performing similar functions), or any person directly or indirectly controlling or controlled by such investment adviser, including any employee of such investment adviser. Persons associated with an investment adviser whose functions are clerical or ministerial are not included in this definition. Based on that definition, all of the following would be associated persons EXCEPT A) an employee of the firm with a degree in communications whose job is the graphic design of the investment adviser's research publications. B) a senior officer of an investment adviser responsible for marketing the adviser's services as opposed to making investment advisory decisions. C) an individual employed by an investment adviser to solicit new advisory clients, compensated at a rate of $500 for each new account. D) a silent partner in an advisory firm organized as a general partnership.

A Graphic design would be considered a clerical function. All of the other choices describe persons who meet the definition.

Under the Uniform Securities Act, which of the following is TRUE regarding registration of investment adviser representatives? A) To register, a representative must submit a completed application for registration, a filing fee, and a signed consent to service of process. B) A representative's registration remains in effect even during a period when the representative is not employed by a registered investment adviser. C) Registration in the state where a representative has his business office enables the representative to do business in any state. D) Representatives are automatically registered when they become employed by a registered investment adviser.

A In general, representatives are not automatically registered when they become employed by an adviser. To register, they must file an application, a consent to service of process, and a filing fee. Registration is not effective during any period when the representative is not employed by a registered adviser, and the Administrator must be notified when a representative's employment begins or ends. *Representatives must be registered in each state in which they do business.* **federal covered investment adviser, is required to register only in those states in which he has a place of business.

An investment adviser hires 2 individuals to solicit new customers for the firm's wealth management service. Under the USA, A) registration as investment adviser representatives is required B) they may begin soliciting as soon as they have passed their licensing examinations C) soliciting is generally prohibited D) each of them would have to register as an investment adviser

A The definition of investment adviser representative includes individuals who solicit for the firm's advisory business.

IAR Renewal

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.

As used in the regulations, the term impersonal investment advice means A) investment advisory services provided where the client does not know the identity of the investment adviser representative B) 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 C) investment advisory services provided by a team of advisers D) investment advisory services provided strictly by subscription

B

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) Renewal notice to the SEC B) State licensing fee C) Form U4 D) Consent to service of process

B 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.

Some registered investment advisers are federal covered, while others register on a state by state basis. In the case of a state-registered investment adviser having its only office in Oregon with no offices in any other state, the authority of the office of the Administrator would include A) requiring the IA to renew its consent to service of process when paying the annual fee B) requiring IARs to pass a qualification exam C) the Idaho Administrator requiring registration of IARs who make telephone calls to residents of Idaho D) requiring each IAR to provide a statement of financial condition

B As you know from being here right now, this test is required by the Administrator. What about the Idaho Administrator? Well, maybe the IARs are making 5 or fewer calls in any 12-month period. Maybe they are calling institutional clients domiciled in Idaho. In any event, if you have to choose between an answer that is 100% right all of the time (qualification exams)

Some registered investment advisers are federal covered, while others register on a state by state basis. In the case of a state-registered investment adviser having its only office in Oregon with no offices in any other state, the authority of the office of the Administrator would include A) requiring the IA to renew its consent to service of process when paying the annual fee B) requiring IARs to pass a qualification exam C) requiring each IAR to provide a statement of financial condition D) the Idaho Administrator requiring registration of IARs who make telephone calls to residents of Idaho

B As you know from being here right now, this test is required by the Administrator. What about the Idaho Administrator? Well, maybe the IARs are making 5 or fewer calls in any 12-month period. Maybe they are calling institutional clients domiciled in Idaho. In any event, if you have to choose between an answer that is 100% right all of the time (qualification exams) and one that is right only some of the time. Go for the 100%.

Under the Investment Advisers Act of 1940, which of the following is excluded from the definition of a person associated with an investment adviser? A) A majority stockholder of an investment advisory firm B) A clerk in an investment advisory firm C) An employee who manages client accounts for an investment advisory firm D) A minority partner of an investment advisory firm

B Employees with no investment advisory functions, such as clerks and administrative personnel, are excluded from the definition of associated person.

Under the Uniform Securities Act, if the Administrator does not deny an application for registration and no disciplinary proceeding is underway in regard to it, how many days after filing the application as an investment adviser representative does registration generally become effective? A) 7 B) 30 C) 10 D) 5

B Registration becomes effective 30 days after the application is filed unless the Administrator begins a proceeding or issues a stop order before that time. The Administrator may specify an earlier date, or if an application must be amended, the Administrator may extend the date to 30 days after the amendment was filed.

Whenaninvestmentadviserregistersinanewstate,whoofthefollowingis 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 the 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.

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, while affiliated with a broker-dealer and an investment adviser, prepares comprehensive financial plans and whose only compensation is commissions generated from the purchase of recommended securities. 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 A) I only B) I, II, III, and IV C) I and II D) III and IV

C A Certified Financial Planner who prepares comprehensive (the exam could say detailed) financial plans and is compensated by the commissions earned when the customer purchases the recommended securities, must register in the state as an investment adviser representative of the advisory firm. This is considered indirect compensation because the regulators take the stance that the CFP would not go through the effort to prepare the plan (which contains securities advice) without receiving the compensation from the trades. Note that the CFP is affiliated with both a BD and an IA. That's how the CFP can earn commissions on the securities sales.. 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.

Under the Uniform Securities Act, which of the following statements regarding the consent to service of process is NOT true? A) A consent to service of process makes legal process served on the Administrator as legally binding as process served on the registrant personally. B) Investment advisers and investment adviser representatives must file a consent to service of process to become registered. C) Only applicants whose principal office is in another state need to file a consent to service of process. D) A consent to service of process does not need to be supplied each time a registrant's registration is renewed.

C All applicants for registration must file a consent to service of process regardless of where their principal office is located. A consent to service of process grants legal authority for the Administrator to receive legal notices on behalf of the registrant and applies to all securities professionals. The document is part of the initial registration and, once filed, does not have to be renewed.

The term "investment adviser representative" includes which of the following? I A receptionist for an adviser II An employee who solicits new business for an adviser III A supervisor who oversees employees who manage client portfolios for an adviser IV An investment advisory firm registered in the state of Texas A) I, II, and IV B) I, II, III, and IV C) II and III D) I and III

C An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives.

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

C 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. If the investment adviser is a state-registered adviser, the firm must notify the Administrator. If the investment adviser is a federal covered adviser, the investment adviser representative must notify the Administrator.

Which of the following regarding the registration of investment advisers and their representatives is TRUE? A) An investment adviser representative, terminated his employment with ABC Advisers and, 6 months later, was employed as an advisory representative by KLM, a federal covered adviser. Each firm is required to notify the Administrator of each event. B) XYZ Advisers, Inc., is a federal covered investment advisory firm registered with the SEC; therefore, its representatives need not be registered with the Administrator. C) ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly. D) ABC Advisers, Inc., is an investment advisory firm registered with the Administrator; therefore, its representatives need not be registered with the Administrator.

C Only state-registered investment advisory firms are required to notify the appropriate state Administrator when employment is terminated or begun. In the case of investment adviser representatives of federal covered advisers, notification is the responsibility of the adviser representative. Investment adviser representatives of both state and federal registered investment advisers must be registered with the appropriate state Administrator(s), unless otherwise exempted. In the case of agents, not only the broker-dealers but also the agents must notify the Administrator.

Under the Uniform Securities Act, if the Administrator does not deny an application for registration and no disciplinary proceeding is underway in regard to it, how many days after filing the application as an investment adviser representative does registration generally become effective? A) 10 B) 5 C) 30 D) 7

C Registration becomes effective 30 days after the application is filed unless the Administrator begins a proceeding or issues a stop order before that time. The Administrator may specify an earlier date, or if an application must be amended, the Administrator may extend the date to 30 days after the amendment was filed.

Registration of an investment adviser automatically confers registration on I officers, partners, and directors of the firm who are functioning as IARs II any employee who is functioning as an IAR III clerical employees handling back-office operations IV an employee who will be soliciting clients for the adviser A) I, II, III, and IV B) I, II, and III C) I only D) I and III

C Under Section 202(a) of the Uniform Securities Act, registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions. This only applies to those individuals who are listed on the firm's Form ADV Part 1, so we're limited to officers, partners, directors, or anyone else doing that type of job, regardless of what this IA has chosen to use as the title.

The term "investment adviser representative" includes which of the following? I A receptionist for an adviser II An employee who solicits new business for an adviser III A supervisor who oversees employees who manage client portfolios for an adviser IV An investment advisory firm registered in the state of Texas A) I, II, and IV B) I and III C) I, II, III, and IV D) II and III

D An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives.

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) States D and M. B) States P and O. C) States P, D, and M. D) State P.

D As an IAR for a federal covered investment adviser, Stillman is required to register only in those states in which he (Stillman) has a place of business. Although Stillman has clients in several states, the question tells us that his place of business is the office in State P. 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 who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients A) when informed by the Administrator that the representative's registration is effective B) within 48 hours C) immediately D) when informed by the investment adviser that the representative's registration is effective

D Passing the exams does not automatically give one an effective investment adviser representative's license. Notice is received by the investment adviser from the appropriate state and/or federal authorities and then, in accordance with that firm's procedures, advisory activity may start. The Administrator does not have direct contact with the individual.

Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if a function of the position involves I offering advice concerning securities II managing client accounts or portfolios III determining securities recommendations for representatives to disseminate IV supervising personnel engaged in advisory activities but not directly dealing with the public A) I, II and III B) I and II C) I only D) I, II, III and IV

D The Uniform Securities Act defines persons associated with an investment adviser, who offers advice concerning securities, as an investment adviser representative. This includes any partner, officer, or director. The definition also includes persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities.

Zack is an IAR with Unicorn Investment Advisers (UIA), an investment adviser registered in State W. Zack has accepted an employment offer from Elite Research Associates, (ERA), an investment adviser 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 the I in IAR as the number 1 to remember that only one person gives notification - If the investment adviser is a state-registered adviser, the firm must notify the Administrator. If the investment adviser is a federal covered adviser, the investment adviser representative must notify the Administrator. 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.

***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*** Joe - 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). **Even if May's employer had a place of business in the state, she would not have to register because she, the IAR, doesn't. Of course, her employer, being federal covered, doesn't register in any states.**

Under the Uniform Securities Act who must register as an investment adviser representative

Representatives ALWAYS register on a state level - 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. Unless excluded/exempt But ALL IAR's must be registered in at least 1 state (using form U4 through FINRAs CRM Central Registration Depository)