UNIT #2: Regulation of Investment Adviser Representative
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 P, D, and M. B)States P and O. C)State P. D)States D and M.
C) State P. *As an IAR for a federal covered investment adviser, Stillman is only required to register in those states in which he (Stillman) has a place of business. 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.
Regional Financial Services, LLC, is registered as an investment adviser in States A, B, C, and D. They have just filed an application for registration in State E. Registration of this investment adviser in State E automatically confers registration as an IAR in State E on A)an employee who will be soliciting clients for the adviser in State E B)clerical employees handling back-office operations C)officers, partners, and directors of the firm who will be functioning in State E as IARs D)any employee who is functioning as an IAR in State A, B, C, or D
officers, partners, and directors of the firm who will be functioning in State E as IARs *Under the Uniform Securities Act, registration of an investment adviser in a state 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.
Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if that individual does which of the following? 1. Offers advice concerning securities 2. Manages client accounts or portfolios 3. Determines securities recommendations for representatives to disseminate 4. Supervises personnel engaged in the above activities but does not sell these services to the public A)I, II, III, and IV B)I and IV C)I and II D)II and III
A) 1, 2, 3 & 4. *The Uniform Securities Act defines any individuals associated with an investment adviser as investment adviser representatives if they manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities, including any partner, officer, or director who offers advice concerning securities. Persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities are investment adviser representatives.
Which of the following regarding the registration of investment advisers and their representatives is TRUE? A)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. B)ABC Advisers, Inc., is an investment advisory firm registered with the Administrator; therefore, its representatives need not be registered with the Administrator. C)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. D)XYZ Advisers, Inc., is a federal covered investment advisory firm registered with the SEC; therefore, its representatives need not be registered with the Administrator.
A)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. *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.
DEF Investment Advisers, organized as a partnership, is currently registered with State Y. Marjorie is one of the partners and is registered as an IAR. If DEF were to register with State Z, A)Marjorie would automatically be registered as an IAR in State Z. B)Marjorie's registration as an IAR in State Z would become effective after passing the Series 65 or Series 66 exam. C)Marjorie would be required to complete an application for IAR registration with State Z. D)Because DEF is a state-registered investment adviser, Marjorie could only register in State Z if she was a resident of the state.
A)Marjorie would automatically be registered as an IAR in State Z. *When DEF's registration becomes effective in State Z, those individuals included in the filing are granted automatic registration - they don't have to file an individual Form U4. That filing includes the names and other pertinent information about all of the partners, officers, or directors who are already acting as IARs. Please note, it is not any IAR, it is only those listed or, as the rule states, those occupying a similar status, etc., who receive this treatment.
Strategic Capital Asset Managers (SCAM) is an investment adviser registered with the SEC. Registration as an investment adviser representative would be required of an employee who A)provides recommendations on securities to the firm's bank clients B)presents seminars on the benefits of whole life insurance C)cleans the office on weekends D)supervises the activities of clerical staff who file individual clients' transaction reports
A)Provides recommendations on securities to the firm's bank clients . *Any employee of an investment adviser (SEC or state-registered) who makes recommendations of securities, regardless of the client, must register as an IAR. Supervisors only need to register when those they supervise are IARs, and clerical staff members are generally exempt from registration. Someone who presents a seminar on a nonsecurities product is not an IAR (although the individual would probably need an insurance license)
As defined in the Investment Advisers Act of 1940, the term "person associated with an investment adviser" would include all of the following 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 silent partner in an advisory firm organized as a general partnership C)a senior officer of an investment adviser responsible for marketing the adviser's services as opposed to making investment advisory decisions. D)an individual employed by an investment adviser to solicit new advisory clients, compensated at a rate of $500 for each new account.
A)an employee of the firm with a degree in communications whose job is the graphic design of the investment adviser's research publications *The term "person associated with an investment adviser" means 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, except that persons associated with an investment adviser whose functions are clerical or ministerial shall not be included in the meaning of the term. Graphic design would be considered a clerical function.
When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office, A)only the investment adviser representative must notify the Administrator promptly B)the investment adviser representative and the federal covered advisers must notify the Administrator promptly C)only the terminating investment adviser must notify the Administrator D)the investment adviser representative and the employing adviser must notify the Administrator promptly
A)only the investment adviser representative must notify the Administrator promptly *If you are working for a registered investment adviser within a specific state, that state securities Administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the state securities Administrator of your employment. A federal registered investment adviser is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered investment adviser, it becomes your duty to notify the state securities Administrator that you are working there, as well as when you terminate.
Under the Uniform Securities Act, which of the following would be included in the definition of an investment adviser representative? A)An agent who offers incidental advice on securities and whose sole compensation is from commissions on transactions B)An employee whose only role is soliciting new investment advisory clients for the firm C)An individual who renders fee-based advice on precious metals D)An employee, highly skilled in evaluating securities, who performs administrative or clerical functions for an investment adviser
B) An employee whose only role is soliciting new investment advisory clients for the firm. *Soliciting for advisory clients on behalf of an investment adviser is considered 1 of the functions describing an investment adviser representative under the Uniform Securities Act. An employee who performs only clerical or administrative functions is not an investment adviser representative. Precious metals are not securities and, therefore, a person advising on them is not considered an investment adviser representative. An agent is a representative of a broker-dealer, and as long as the only form of compensation is sales commissions based upon transactions, registration as an investment adviser representative is not required.
Each of the following persons would meet the definition of a person associated with an investment adviser EXCEPT A)an employee who solicits potential clients to open advisory accounts B)a registered investment adviser's vice president of sales C)a typist responsible for operating the desktop publishing system that prepares the investment adviser's weekly research bulletins D)a brokerage firm that is considered to be the parent of a registered investment adviser
C)a typist responsible for operating the desktop publishing system that prepares the investment adviser's weekly research bulletins *Individuals in strictly clerical or administrative positions are not considered to be associated persons of an investment adviser.
An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the USA, it is true to state that this individual A)does not need supervision because he is only making cold calls B)is not defined as an investment adviser representative because he is only making cold calls C)would be defined as an investment adviser representative D)would be permitted to use the term investment counsel
C)would be defined as an investment adviser representative *As we know, when a broker-dealer offers wrap fee programs, the exclusion from the definition of investment adviser is lost. Any individual soliciting for that program would be considered an investment adviser representative and would need adequate supervision. Cold calling is about as far as you can get from the role of an investment counsel.
The Uniform Securities Act authorizes the state Administrator to require 1. either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations 2. officers of investment advisers to pass a qualification examination 3. an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state 4. investment adviser representatives to pass a qualification examination A)I only B)I and II C)III and IV D)I, II, III, and IV
D) 1, 2, 3, & 4 *The state Administrator may require qualification examinations for officers of investment advisers, as well as its representatives, and may require them to publish an announcement in one or more newspapers published in the state. The Administrator may also require either an oral or written examination.
Jay Cooke is an investment adviser representative with a state-registered investment adviser. Jay operates out of an office in State Y. He would be required to register in State Z if, during the previous 12 months, he had A)5 or fewer retail clients who were residents of State Z. B)fewer than 6 retail clients who were residents of State Z. C)no more than 5 retail clients who were residents of State Z. D)6 or fewer retail clients who were residents of State Z.
D)6 or fewer retail clients who were residents of State Z. *The de minimis exemption applies when, during the preceding twelve-month period, the IAR has had no more than 5 retail clients. There are 3 ways of stating that: No more than 5 Five or fewer Fewer than 6
An individual with a place of business in State A manages client assets on behalf of a covered investment adviser. This individual wishes to expand his client base by working 1 day per week out of the firm's office in State B. Which of the following actions must this individual take to practice within that particular state? A)Register as an investment adviser representative in State B B)Pass an oral or written examination C)Comply with the notice filing requirements of the state D)Become licensed as a broker-dealer
A) Register as an investment adviser representative in State B *Individuals managing client assets while employed by federal covered investment advisers must register as investment adviser representatives if they maintain a place of business in the state. Working on a regular schedule in the firm's office in State B, even if only once per week, constitutes maintaining a place of business in the state. Because this individual is already registered in State A, it is not necessary to pass another exam to become registered in another state. It is the investment adviser who may be required to notice file with the Administrator.
Which of the following statements are TRUE? A)When an investment adviser representative begins or terminates employment with a state-registered investment adviser, only the investment adviser must notify the Administrator. B)When an investment adviser representative or a registered agent of a broker-dealer terminates employment, notice must be given to the Securities and Exchange Commission. C)When an agent of a broker-dealer leaves the firm, only the broker-dealer must notify the Administrator. D)When an investment adviser representative begins or terminates employment with a federal covered adviser, only the investment adviser must notify the Administrator.
A) When an investment adviser representative begins or terminates employment with a state-registered investment adviser, only the investment adviser must notify the Administrator. *When an investment adviser representative begins or terminates employment with a state registered IA, the employing investment adviser must promptly notify the Administrator. In the case of a federal covered IA, only the IAR gives notice to the Administrator. However, when an agent of a broker-dealer begins or terminates employment, both the agent and the broker-dealer must promptly notify the Administrator. Notice to the SEC is not required.
According to the Uniform Securities Act, which of the following is an investment adviser representative? A clerical employee of the AAA Investment Management Company, an investment advisory firm registered in the state that offers investment portfolio services to the public An employee of AAA Investment Management Company who is properly registered under the USA and supervises analysts who provide research to clients An employee of a federal covered adviser with an office in the state who offers investment advice to the public An agent of a broker-dealer with strong investment opinions who sells securities only on a commission basis A)I and II B)II and III C)III and IV D)I and IV
B) 2 & 3 *An investment adviser representative means any partner, officer, director, or other individual, except clerical or administrative personnel, who is employed by an investment adviser that is registered or required to be registered. Therefore, unregistered personnel are not investment adviser representatives. An employee who supervises analysts who deal with the public must be an investment adviser representative. The employee of the federal covered adviser with an office in the state is also an investment adviser representative. The agent is an agent of a broker-dealer, not an investment adviser representative.
Senior Wealth Advisers (SWA) is registered as an investment adviser in North and South Carolina with offices in Charlotte, North Carolina and Charleston, South Carolina. On occasion, 1 of their investment adviser representatives meets with clients who reside in North Augusta, South Carolina in a hotel room in Augusta, Georgia. The registration requirements of the Uniform Securities Act would A)require that both SWA and the IAR register with the Georgia Administrator B)not require registration of either person with the Georgia Administrator C)require that the IAR register with the Georgia Administrator D)require that SWA register with the Georgia Administrator
B) Not require registration of either person with the Georgia ADMIN *The hotel room located in Georgia is being used only to meet with existing clients, so no registration in Georgia is necessary. If prospects were invited, registration of both persons would be required. What if only 1 or 2 prospects were invited? Wouldn't the de minimis exemption apply? No, because the moment a person who is not an existing client is involved, the hotel room becomes a place of business in the state and that eliminates use of the de minimis rule.
An individual is currently registered as an agent with a broker-dealer. If the agent would like to offer wrap fee programs through the firm, all of the following statements are correct EXCEPT A)the agent would be defined as an investment adviser representative B)the agent would be defined as an investment adviser C)the broker-dealer would have to be registered as an investment adviser D)the agent would now come under a greater fiduciary responsibility
B) The agent would be defined as an investment adviser *Once the broker-dealer decides to offer wrap fee programs, it is no longer excluded from the definition of an investment adviser and would become required to register on either the state or federal level. The agent would now become an IAR of the firm and, as such, would now carry the additional fiduciary responsibility incurred in the advisory business.
Pontourny Advisory and Investment Services (PAIS) is a federal covered investment adviser. Its principal office is in State X. PAIS also maintains branch offices in States Y and Z. Brenda is the manager of the branch office in State Y. Some of the individuals being supervised by Brenda have clients in States X and Y, and others have clients in States Y and Z. Brenda must register as an IAR in A)States X, Y, and Z B)States Y and Z C)State Y D)States X and Y
C) State Y *Those who supervise the activities of investment adviser representatives are themselves defined as IARs. An IAR representing a federal covered investment adviser need only register in the state or states in which she (the IAR) has a place of business. There is nothing in this question to suggest that Brenda has a place of business anywhere other than in State Y, where her branch office is located. Remember, when it comes to federal covered advisers, registration of their IARs is dependent on the IAR's place of business, not the location of their clients.
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)Consent to service of process C)State licensing fee D)Form U4
C) State licensing fee *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.
Because of failing economic conditions, KAPCO Advisers, an adviser with slightly less than $120 million in assets under management, lays off a registered investment adviser representative. In this case, who would notify the state Administrator of the termination? A)The IAR's new employer B)Both KAPCO and the IAR C)The IAR D)KAPCO Advisers
C) The IAR *With more than $110 million in assets under management, KAPCO is a federal covered adviser. In that case, the IAR is the one who notifies the Administrator of being terminated.
Under the Uniform Securities Act, which of the following statements regarding the employment of investment adviser representatives by a state-registered investment adviser is (are) TRUE? 1. The investment adviser must notify the Administrator whenever a representative is terminated. 2. An investment adviser is not required to notify the Administrator when a representative begins employment. 3. The registration of a representative is effective only as long as the individual is employed by a registered investment adviser. A)I, II, and III B)III only C)I and III D)I only
C)1 & 3 *Whenever an individual begins or ends employment with a state-registered investment adviser, the investment adviser must notify the Administrator. A representative's registration is only valid while employed by a registered investment adviser.
Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if that individual does which of the following? 1. Offers advice concerning securities 2. Manages client accounts or portfolios 3. Determines securities recommendations for representatives to disseminate 4. Supervises personnel engaged in the above activities but does not sell these services to the public A)II and III B)I and II C)I and IV D)I, II, III, and IV
D) 1, 2, 3, & 4. *The Uniform Securities Act defines any individuals associated with an investment adviser as investment adviser representatives if they manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities, including any partner, officer, or director who offers advice concerning securities. Persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities are investment adviser representatives.
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 offering advice concerning securities managing client accounts or portfolios determining securities recommendations for representatives to disseminate supervising personnel engaged in advisory activities but not directly dealing with the public A) I and II B) I only C) I, II and III D) I, II, III and IV
D) 1, 2, 3, & 4. *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.
Which of the following persons are required to register in a particular state? An investment adviser who manages client accounts in excess of $100 million in value An investment adviser who manages client accounts and has less than $25 million in total assets under management An adviser to investment companies registered under the Investment Company Act of 1940 An investment adviser representative with a place of business in the state A)III and IV B)I and III C)I and II D)II and IV
D) 2 & 4 *Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, advisers who manage clients with a total of less than $100 million under management are required to register with the state Administrator. Under Dodd-Frank, those who manage client assets of $110 million or more or advise registered investment companies are required to register with the SEC and are exempt from state registration. Those who manage at least $100 million, but not $110 million, have the option of registering with either the state or the SEC. Investment adviser representatives with a place of business in the state register with the state, whether or not their employer is federal covered.
Under the Uniform Securities Act, all of the following are required to be registered as investment adviser representatives EXCEPT A)an employee who solicits new customers for ABD Advisers, Inc. B)a vice president of ABD Advisers, Inc., who serves on the firm's advisory committee C)an individual who furnishes investment advice to clients of ABD Advisers, Inc. D)ABD Advisers, Inc.
D) ABD Advisers *The Uniform Securities Act defines an investment adviser representative as anyone who is a partner, officer, director, or other employee or person associated with an investment adviser other than clerical or ministerial personnel who (1) make recommendations or provide advice regarding securities; (2) manage accounts or portfolios of clients; (3) determine which recommendations or advice should be given; (4) solicits, offers, or negotiates for the sale of, or sells, advisory services; or (5) supervises any such persons. An individual or a firm may be registered as an investment adviser, but only an individual can be an investment adviser representative.
KAPCO Advisers is registered as an IA with the SEC. Their only office is in New Jersey and all IARs are registered there. IAR Claire has 10 clients who reside in Ohio; IAR Sean has 6 clients who live in Kentucky; and IAR Felicia has 3 clients who are Georgia residents. In addition, Felicia conducts a quarterly presentation at the Augusta, Georgia National Golf Club where she discusses current market developments. The seminar is restricted to club members only. Which of the following is CORRECT? A)Claire must register in Ohio. B)Sean must register in Kentucky. C)Because all 3 are registered in the state where KAPCO maintains its principal office, no further registrations are necessary for these IARs. D)Felicia must register in Georgia.
D) Felicia must register in Georgia. *Under Section 203A of the Investment Advisers Act of 1940, any IAR with a federal covered adviser who has no place of business in a state is not required to register in that state even when the number of clients they have in a state exceeds the de minimis level. Holding a public seminar on a quarterly basis in the same location would be considered having a place of business in Georgia (even though attendance is limited to club members only—they are still members of the general public).