Unit 9
Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser? A) DEF Fund Managers, a corporation managing an unregistered hedge fund with $10 million in assets B) JKL Pension Consultants, a management firm providing services to employee benefit plans, which currently has $179 million under management C) GHI Consultants, a sole proprietorship managing $82 million belonging to high-net-worth individuals D) ABC Money Man
115m falls into SEC registration status.Pension Plan would need 200m to be correct D
Under the Investment Advisers Act of 1940, which of the following would be excluded from the definition of an investment adviser? A) An individual who makes recommendations regarding which types of securities would meet a client's investment objectives but who does not recommend specific securities B) A broker-dealer that manages clients' portfolios for a fee C) The publisher of an investment advisory newsletter who plans issues based on market events D) A bank that charges a fee for providing i
A blanket exclusion from the definition of investment adviser applies to most banks. Broker-dealers are excluded only if the advice is within the scope of their brokerage business and they receive no special compensation, such as an additional fee, for that advice. Publishers must have general, regular circulation to be excluded under the Investment Advisers Act of 1940. Publishing based on market events would not qualify. Advice relating to types of securities is specific enough to qualify as investment advice, even if the mention of particular securities is avoided. D
A consent to service of process required by an Administrator is A) an agreement whereby a registrant will be bound by any legal action or subpoena served on the Administrator as if it had been served on the registrant. B) an agreement to perform all services and duties that the USA requires of those individuals covered by the USA. C) a formal statement declaring that an investment adviser will comply with all advertising requirements of the USA. D) a legal procedure that authorizes the Administr
A consent to service is a formal legal agreement whereby a registrant will be bound by a legal action or subpoena served on the Administrator as if it had been served on the registrant. A consent to service is not an authorization to issue an injunction. A
Based on the Investment Advisers Act of 1940, which of the following would be excluded from the definition of investment adviser? I. A lawyer who advertises financial planning services II. Persons whose advice relates solely to government securities III. An accountant who receives separate fees for providing investment advice A) I and III B) I only C) II only D) II and III
Among the exclusions found in the act is one for persons whose advice relates exclusively to securities issued or guaranteed by the U.S. government. C
The Uniform Securities Act would not provide an exemption from registration as an investment adviser to an investment adviser who A) has no place of business in the state and limits clientele to broker-dealers. B) has no place of business in the state and limits clientele to other investment advisers. C) has no place of business in the state and limits clientele to banks and insurance companies. D) is an out-of-state investment adviser and directed business communications to fewer than 12 client
An adviser is exempt from state registration if it has no place of business in the state and limits clientele to other investment advisers, banks and insurance companies, or broker-dealers. There is a de minimis exemption, but it is for no more than 5 (not 12) clients during a 12-month period. D
Alpha-Beta Advisers (ABA) has its principal office in State X. ABA limits its clientele to insurance companies that are authorized to do business in State X. Which of the following best describes the registration requirements for ABA? A) SEC only B) State X only C) Neither the SEC nor State X D) Both the SEC and State X
Dealing exclusively with insurance companies makes this advisory firm exempt from registering with the SEC. However, unlike those who are excluded from the definition of investment adviser, being exempt does not make ABA a federal covered adviser. Although advisers dealing solely with institutions, such as insurance companies, are not deemed to be investment advisers in the state, that only applies when there is no place of business in the state. Obviously, with its home office in State X, that does not apply to ABA, so it would have to register in that state. B
Which of the following are required to provide a consent to service of process to the Administrator in a state in which registration is sought? I. An agent employed out of state but who seeks registration in a state in which business is conducted II. A federal covered investment company not required to be registered in a state in which business is conducted but required to supply notice filing materials by the state Administrator III. A broker-dealer registered in 14 states that seeks registrati
Every legal or natural person seeking registration or making a notice filing must supply a consent to service of process with their registration applications. For example, a federal covered investment company, while covered under federal law, need not register with the state administrator but must submit notice filings materials that include a consent to service of process. Once a state covered adviser is required to register in 15 or more states registration with the SEC as a federal covered adviser becomes available, but not here at only 12.
An investment adviser is required to disclose any financial condition that is reasonably likely to impair its ability to meet contractual commitments to their clients in any of the following cases EXCEPT when the adviser A) requires substantial prepayment of fees B) charges performance-based fees to qualified clients C)has discretionary authority D)maintains custody
In an effort to protect customers, investment advisers must give prompt notice to their regulator in the event of a financial impairment that could cause the adviser to be unable to meet contractual obligations to clients when the adviser has discretion, maintains custody, or receives substantial prepayments of fees ($500, 6 or months in advance for state; $1,200, 6 or more months in advance for federal).This rule does not apply if the only condition existing is performance-based compensation.
As used in the Uniform Securities Act, which of the following entities would be included in the term "institutional investor"? Individuals who are accredited investors Closed-end investment companies traded on the OTC Link (formerly known as the Pink Sheets) Insurance companies Open-end investment companies A) I and IV B) I, II, III and IV C) II and III D) II, III and IV
Institutional investors include banks, insurance and investment companies, and certain employee benefit plans. Although each of these is included in the term "accredited investor", that term as used in federal law (the term is not found in the USA) also includes certain individuals, and they would never be considered institutional investors under the USA. D) II, III, and IV
Bulaan Advisory Services, Inc. (BAS), an investment adviser registered in five states, was found to have been untruthful in its performance reporting. Once this news was released, most of its clients terminated their advisory contracts. As a result, BAS shuttered its doors on July 18, 2023. Minutes of shareholder meetings must be preserved until at least A) July 18, 2028. B) July 18, 2026. C) December 31, 2028. D) December 31, 2023.
NASAA's Model Rule on recordkeeping by investment advisers requires that partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor shall be maintained in the principal office of the investment adviser and preserved until at least three years after termination of the enterprise. B
Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser except A) a person providing advice on municipal bonds. B) broker-dealers and their agents. C) banks. D) a federal covered adviser.
Providing advice on municipal bonds (even though they are exempt securities) does not entitle a person to an exclusion from the definition of an investment adviser.
Foster Advisers, based in New Jersey, manages $135 million in funds for New Jersey-based clients. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following statements best describes the registration requirement for Foster Advisers? A) Foster Advisers is required to register with the Administrator of the New Jersey Department of Securities. B) Foster Advisers is required to register as an adviser with the SEC and has no requirement to notify the Admini
Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, investment advisers with $110 million or more in assets under management must register with the SEC. These advisers are called federal covered advisers. Investment managers who manage less than $100 million must register with the state Administrator. Advisers with at least $100 million but less than $110 million of assets under management have the option to register with either their state Administrator or with the SEC. Once the $110 million level is reached, registration with the SEC is mandatory. With $135 million under management, Foster Advisers must register with the SEC. Foster Advisers is subject to the additional requirement of notifying the Administrators of the securities departments of states in which it maintains offices or clients of its operations. At the state level, a notification fee (but not registration) is generally required. One aim of the NSMIA was to eliminate dual registration
An investment adviser (IA) is registered in States A and B, with its principal office in State B. The Administrator of State A can request to see A) advertisements run in State A. B) proof that the IA meets State A's financial and recordkeeping requirements. C) internal communications regarding the company's participation in a local charitable event. D) sales records relating to clients who are residents of State B.
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 (which is State B in this question), that is good everywhere.
State laws provide for exclusions from the definition of investment adviser. Which of the following persons are specifically excluded under the Uniform Securities Act? A) Broker-dealers receiving special compensation B) Investment adviser representatives C) Bank subsidiaries offering investment advice D) Economists whose advice is strictly incidental to their professional activity
The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions. B
Under the Investment Advisers Act of 1940, which of the following investment advisers is not exempt from federal registration? A) All of John's clients reside in his home state, and John offers no advice on any exchange-listed securities. He manages $50 million in assets, and none of his clients are private funds. B) ABC Advisers, with offices in four states, deals exclusively with insurance companies. C) All of Paula's clients are private funds, and she has total assets under management of $200
The exemptions from the SEC registration requirement under the Advisers Act include advisers who render no advice on any exchange-listed security and whose clients are all in a single state and certain foreign advisers who do not hold themselves out as investment advisers and have fewer than 15 clients per year. In order to qualify for the private fund adviser exemption, total AUM must be less than $150 million. There is also an exemption for investment advisers, regardless of the number of states where offices are maintained, who limit their clientele to insurance companies. D
States may require investment advisers who are registered with the SEC to do each of the following except A) file any documents with the state that are filed with the SEC. B) maintain net capital requirements. C) file a consent to service of process. D) pay state notice filing fees.
The state may require federal covered advisers to pay notice filing fees, provide a consent to service of process, and submit copies of documents filed with the SEC but cannot determine net worth or net capital requirements for federal covered investment advisers. The administrator can require a minimum net worth for state-registered advisers but, under the NSMIA, cannot do so for federal covered ones. B
Registration with the state as an investment adviser would be required for a person with an office in this state who A) serves as a pension consultant to the XYZ Employees Retirement Plan, covering 1,200 employees with total assets of $278 million. B) manages $13 million in assets for four clients. C) manages the portfolio of the KPF Balanced Fund, a registered open-end investment company with $22 million in net assets. D) gives advice only on securities issued by or guaranteed by the government
Under the NSMIA, as amended by Dodd-Frank, investment advisers with less than $100 million in assets under management must register with the states. If the adviser manages a registered investment company, the adviser must be federal covered. If the person serves as a pension consultant with more than $200 million in assets, the person has the option of registering with the SEC or the states. A person whose sole advice deals with U.S. government securities is excluded from the federal definition of investment adviser and, therefore, under the NSMIA, is considered a federal covered adviser. B
Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration? Foreign investment advisers with fewer than 15 clients per year, who do not hold themselves out as investment advisers to the public and who have less than $25 million in AUM in the United States Investment advisers who conduct all of their business in one state, do not provide advice on securities listed on an exchange, and have no private funds as clients Investment advisers who
Usually, anyone who meets the federal definition of investment adviser must be registered with the SEC. Some investment advisers are not excluded from the definition but are exempt from the registration requirements of the SEC. One example is an adviser whose clients are all residents of the state in which the adviser maintains its principal office who renders no advice on any exchange-listed security and does not give advice to any private funds. Advisers whose clients are limited to insurance companies are exempt from registration, as are foreign advisers who limit themselves to fewer than 15 clients a year (none of whom can be investment companies), do not advertise or hold themselves out to be investment advisers, and have less than $25 million in AUM in the United States. There is no exclusion for advisers whose only clients are banks. A) I and II
Under SEC Release IA-1092, a financial planner would not be considered an investment adviser when A) she is a licensed insurance agent and credits the commission earned on the sale of insurance policies included in a comprehensive financial plan against the fee charged for the plan. B) there is an up-front fee charged for creating a comprehensive financial plan, even when the plan is not put into place C) the extent of her planning is limited to wills, estates, and trust creation. D) she does fi
Wills, estates, and trusts are not securities, so any advice given on them does not make one an investment adviser (IA). Look for the term comprehensive financial plan because that always includes securities advice, and as long as a fee is charged, even when the advice is not followed, registration as an IA (or perhaps IAR) is required. Wrap fee programs may only be offered by IAs or IARs. C
Martin holds both the CPA and the CFP® designations. Within the previous year, if he has provided portfolio advice to approximately 40 clients, is Martin required to register as an investment adviser? A) Yes, because he provides investment advice on a more-than-incidental basis. B) No, because he is a CPA. C) Yes, because he could receive commission income from investment clients. D) No, because he falls under the de minimis exemption having relatively few clients.
Yes, because he provides investment advice on a more than incidental basis.(Although Martin is an accountant, he provides investment advice on a more than incidental basis (typically regarded as more than 10 client contacts per year). Nothing indicates that Martin will be executing commissionable trades; only providing advice.) A
