Series 66 - Investment Advisers and Their Representatives
For state registered advisers, the net worth required of IAs w/ discretionary authority is _____ and that for those taking custody is _____. If the advisor is using a surety bond instead, the requirement in either case is _____.
$10,000; $35,000; $35,000
Under the USA, when an IA accepts prepayments of fees of more than _____ for a contract of 6 months OR more, it is known as a *substantial prepayment*. However, under the Investment Advisers Act of 1940, the amount must exceed _____.
$500; $1,200
What are the six primary exclusions from the definition of an investment adviser under *federal* law?
- Any *bank* is excluded. - Any *lawyer*, *accountant*, *teacher*, or *engineer* whose advice is solely incidental to the practice of his profession is excluded. This exclusion is not available to any of these who have established a separate advisory business or holds himself out as offering investment advice. - Any *broker-dealer* whose performance of such services is solely incidental to the conduct of his business as a broker-dealer and who receives no special compensation is excluded (also applies to RRs of BDs).
Performance fees are allowed for what type of contracts?
- a natural person or company that immediately after entering into the contract has at least $1 million AUM; - a natural person or company that the IA has reason to believe that immediately prior to entering into the contract has a net worth exclusive of the primary residence (assets held jointly w/ a spouse can be used) in excess of $2 million; or - a natural person who is an officer or director of the IA or one of their IARs who has been employed in the industry for at least 12 months
Although the general is that state registered investment advisers having custody must maintain a minimum net worth of $35,000 (or an equivalent surety bond), what are two cases where the requirements are waived?
- advisers having custody solely due to direct fee deduction and who keep the required records and make the required notifications to clients - advisers having custody solely due to advising pooled investment vehicles and who keep the required records and make the required notifications to clients
What are the two exemptions, under both state and federal law, from the brochure delivery rule?
- contracts w/ a registered investment company - advisers entering into a contract providing solely for impersonal advisory services--that is, publishers of market letters (if the annual charge is $500 or greater, delivery must be offered)
The Investment Advisers Act of 1940 exempts what classes of investment advisers from registration requirements?
- intrastate advisers - advisers to insurance companies - private fund advisers
Advisory firms should include the following elements, or address the following issues when crafting their procedures for employees' personal securities trading:
- prior written approval before access persons can place a personal securities transaction - maintenance of lists of issuers of securities that the advisory firm is analyzing or recommending for clients, and prohibit personal trading of such securities - maintenance of restricted lists of issuers about which the advisory firm has inside information, and prohibit trading (personal or for clients) in such securities - reminders that investment opportunities must be offered first to clients before the adviser or its employees may act on them, and procedures to implement this
Investment advisers use Form ADV to:
- register w/ the SEC; - register w/ one or more state securities authorities; or - amend those registrations.
Title IV of the Dodd-Frank Act, known as the Private Fund Investment Advisers Registration Act of 2010, provided for what new exemptions from registration?
- the private fund adviser exemption (<$150 mil AUM) - the foreign private adviser exemption (< $25 mil AUM) - the venture capital fund exemption
Who are federal covered advisers?
- those required to be registered or registered as an investment adviser w/ the SEC because they meet the minimum threshold of AUM (currently $110 million); - those under contract to manage an investment company registered under the Investment Company Act of 1940, regardless of the amount of AUM; or - those not registered w/ the SEC because they are excluded from the definition of an investment adviser by the Investment Advisers Act of 1940
Registrations of federal covered investment advisers (and broker-dealers) will become effective on the _____ after the date of filing.
45th calendar day
An IA registered under state law whose AUM reach $110 million has _____ days to register w/ the SEC. While a federal covered IA whose AUM fall below $90 million no longer qualifies for SEC registration and has _____ days to register w/ the state(s).
90; 180
Access Person
Any of the adviser's supervised persons who (1) has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or (2) is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic. If providing investment advice is the adviser's primary business, all of the firm's directors, officers, and partners are presumed to be access persons.
What are the balance sheet requirements for a state registered adviser?
If substantial prepayment of fees is required or solicited, an adviser maintains custody of client funds, or the custodian is an affiliated broker-dealer, an audited balance sheet must be included with the adviser's ADV Part 2A. Advisers who exercise discretionary authority over client accounts but do not maintain custody must file a balance, but this one does not have to be audited.
What are the balance sheet requirements for a federal covered adviser?
If substantial prepayment of fees is required or solicited, an audited balance sheet must be included with the adviser's ADV Part 2A.
How is the brochure delivery requirement for state registered advisers different than for SEC registered advisers?
State registered advisers are required to deliver the brochure to the client at least 48 hours before entering into an advisory contract or at the time of entering into an advisory contract, if the client has the right to terminate the contract w/o a penalty within 5 BD. (As opposed to "before or at the time an agreement is entered into" for federal covered advisers.)
How are the state exclusions from the definition of investment adviser different from the federal exclusions?
Under the USA, publishers will only be considered investment advisers if their advice is specific to each and every subscriber. There is no stated exclusion under the USA for those giving advice solely on US govt securities, but, they are excluded because they are federal covered advisers. The state law specifically excludes IARs and, of course, federal covered advisers.
An adviser who does not exercise discretion and does not maintain custody, but accepts prepayment of fees of more than $500, six or more months in advance, must maintain what net worth?
a positive net worth at all times
Out-of-state advisers who have no place of business in the state are not defined as investment advisers if they have no more than _____. This is known as the de minimis exemption.
five noninstitutional clients in this state in a 12-month period
_____ is not cause for revocation or cancellation under the Investment Advisers Act of 1940, although it is cause under the Uniform Securities Act.
insolvency
Investment advisers who do not _____ or _____ do not have to notify their clients about any financial situation that might impair their ability to met contractual commitments to clients.
maintain custody; receive substantial prepayments
Withdrawal of the registration by a federal covered adviser will become effective _____ after the withdrawal request.
on the 60th day
Scalping
the practice whereby an investment adviser, before the dissemination of a securities recommendation, trades on the anticipated short-run market activity that may result from the recommendation
