Series 65 Unit 1

Exemption for Foreign Private Advisers

-Has no place of Business in US -Has, in total, fewer than 15 client investors in the United states in private funds -Has aggregate AUM attributable to clients in the United States and investors in the United States in private funds of less than 25 million.

Under the Investment advisor act of 1940, who is exempt form registering?

, 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.

SEC Release IA-1092

-Created to define the activities that would subject a person to the 1940 Investment Advisers Act. -Interprets the definition of investment adviser under the Investment Advisers Act of 1940 to include finanical planners, pension consultants, and others who offer investment advise. Directly affected : Financial Planners - SEC holds that there is no such thing as a comprehensive financial plan that does not involve securities. -Pension Consultants - Consultants who advise employee benefit plans on how to fund their plans with securities are also considered investment Advisers by the SEC. Sports and Entertainment Representatives - Persons who provide financially related services to entertainers and athletes that includes advise related to investing, budgeting, and money management are also investment advisors.

A federal covered investment adviser has which of the following obligations regarding the state in which it maintains its principal place of business? It must notify the Administrator of its SEC registration. It must pay state-required filing fees. Its adviser representatives are exempt from state-required exams. It must maintain net worth equal to the higher of federal requirements or those of the state.

1 &2

3 Things Investment Advisors Do

1) Gives Advice to others on securities 2) Does so as part of a regular business activity 3) receives compensation for preforming this activity

Publishers Exclusion (criteria)

1) Must be of general and impersonal nature 2) Bona fide, or genuine in that it contains disinterested commentary and analysis as opposed to promotional material 3) must be of general and regular circulation, in that it is not timed to specific market activity or events affecting the securities industry.

Investment Counsel (2 criteria need to be met)

1) The IA's principal business must be given investment advice, excluding financial planners and others for whom investment advice is only part of what they do. 2) Provide investment supervisory services. (More about this on next card)

Under the NSMIA, the term "federal covered adviser" includes a person registered with the SEC under the Investment Advisers Act of 1940 registered as an investment adviser in two or more states excluded from the definition of investment adviser under the Investment Advisers Act of 1940 required to register with the state Administrator

1. aND 3. The NSMIA defines "federal covered adviser" as a person who is either required to register with the SEC under the Investment Advisers Act of 1940 or who is specifically excluded from the definition of "investment adviser" under that act. Registration with the state Administrator is not required of a federal covered adviser. If an investment adviser who otherwise would not qualify for SEC registration would be required to register in 15 or more states, the Dodd-Frank Act makes that adviser eligible for federal registration.

Which of the following statements are TRUE? 1.A federal covered adviser sells federal covered securities only. 2.Federal covered advisers are advisers with federally imposed exemptions from state registration as investment advisers. 3.,A federal covered security is exempt from registration with the SEC. 4.Federal covered securities include those issued by investment companies registered under the Investment Company Act of 1940.

2 & 4 are true

Under the Investment Advisers Act of 1940, for how many years must records be kept after the end of the fiscal year in which an entry was made?

5

An investment adviser with no place of business in the state is exempt from registration with the state when making recommendations to all of the following EXCEPT A) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state B) St. Amelia's college endowment fund C) Amalgamated Bank D) AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities

A)

An agent and a broker-dealer maintain wrap fee accounts for several of their customers. Which of the following registrations is required? A) The firm must register as an investment adviser. B) Only the registered principal would need to be registered in the state(s) in which they do business. C) The agent must be registered as an investment adviser. D) Neither the broker-dealer nor the agent is required to have any license other than their regular securities license.

A) The firm must register as an investment advisor

Snowbird Exemption

An exemption to those investment advisers who have no place of business in the state, but are licensed in another state where they have a place of business, and offer advice in the state only with persons in the state who are existing customers and who are not residents of the state but are just there temporarily. -If a 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 minimus exemption)

Person or 3 non-persons

An individual, a corporation, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of government. 3 non-persons - a minor, a deceased individual, and an individual declared mentally incompetent.

Wrap Fee Program

Any advisory program under which a specified fee or fees not based directly upon transactions in a client's account is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions. The exclusion from the definition of investment adviser available under both state and federal law to broker/dealers is not in effect for those offering wrap fee programs.

Investment Advisor

Any person who, for compensation, engages in the business of advising others, either directly or through publications or writings as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities."

A federal covered investment adviser is a person A) exempt from regulation under the Securities Exchange Act of 1934 B) registered, or excluded from the definition, under the Investment Advisers Act of 1940 C) registered under the Uniform Securities Act D) registered with North American Securities Administrators Association (NASAA)

B) A federal covered investment adviser refers to a natural person or firm registered under the Investment Advisers Act of 1940 or excluded from the definition of investment adviser under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state or federal registered, do not register with NASAA.

Which of the following is required to register in a state under the Uniform Securities Act? A) A broker-dealer who has no place of business in the state and whose only clients in the state are limited to insurance companies, banks, and broker-dealers B) An investment adviser who has a place of business in the state and whose only clients in the state are insurance companies, banks, and broker-dealers C) ABC State Bank, which provides investment advice in its branches throughout the state D) An investment adviser who has no place of business in the state and communicates with only 5 advisory clients in the state for the year

B) WTF Because the investment adviser has a place of business within the state and is acting as investment adviser in the state, it must register, regardless of the fact that the only clients are financial institutions. Notice that the state registration rules are different for broker-dealers and investment advisers. Banks are exempt from registration as broker-dealers or as investment advisers, as are investment advisers with no place of business in the state and fewer than 6 clients in the state in a 12-month period (de minimis standard)

Long-Term Financial Solutions, Inc. (LTFSI), a federal covered registered investment adviser, files a Form ADV-W indicating the business is closing. It is being acquired by another federal covered adviser, Gold and Sylver Advisers, LLC. Which of the following statements is correct? A) Gold and Sylver must notify all clients of LTFSI that their advisory contracts have been assigned. B) LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least 3 years after the acquisition. C) Gold and Sylver will not have to amend their Form ADV Part 1 until the filing of their annual updating amendment. D) As the successor firm, Gold and Sylver Advisers must keep copies of the LTFSI corporate charter for at least 3 years after LTFSI's acquisition.

B)LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least 3 years after the acquisition.

Under the Uniform Securities Act, Paul must register as a state-registered investment adviser if he A) opens an investment advisory business as a sole proprietor in New Jersey with the intention of advising individual clients on the advisability of investing in securities. Paul will have $100 million in AUM within 120 days of opening. B) sells registered securities on a commission basis for a registered broker-dealer C) opens an investment advisory business as a sole proprietor in New Jersey with the intention of advising individual clients on the advisability of investing in securities. Paul will have $90 million in AUM within 120 days of opening. D) becomes a full-time employee of AAA Investment Advisers, Inc., where he will advise clients whose assets under his discretion will exceed $200 million

C) Being in the business of advising individual clients on the advisability of investing in securities requires one to register as an investment adviser, either with the state or the SEC. The key is the assets under management. If a new IA reasonably believes that he will have AUM of at least $100 million within the first 120 days of registering, he is permitted to register with the SEC. Of course, if it reaches $110 million, then SEC registration is required. Reaching $90 million is not enough and, therefore, registration with the state would be the only option here. As a full-time employee of AAA Investment Advisers, Inc., he would have to register as a registered investment adviser representative and will not be a registered investment adviser (the firm). Selling registered securities under the supervision of a broker-dealer would require an agent registration with the state and the SEC.

The Investment Advisers Act of 1940 requires every registered investment adviser to have a chief compliance officer (CCO). This individual would be responsible for ensuring compliance with the firm's Code of Ethics by all of these EXCEPT A) clerical and ministerial employees of the firm B) investment adviser representatives employed by the firm C) a nonaffiliated broker-dealer through whom the majority of the firms trades are executed D) investment adviser representatives who are independent contractors

C) The CCO is responsible for compliance with the firm's Code of Ethic by every employee, registered or not, and any nonemployee who is registered with the firm, such as independent contractors. Broker-dealers the investment advisory firm uses for trade execution are beyond the scope of the IA's supervision.

Platinum Investment in Growth Group, Inc. (PIGGI) is registered in and has its principal office in State W. PIGGI has near-term plans to open offices in State A and B. In an effort to test the waters, PIGGI mails several hundred flyers to prospects in those 2 states. Under the Uniform Securities Act, A) as long as PIGGI did not maintain an office in either of these states, the flyers could be mailed B) as a federal covered investment adviser, the flyers would need filing with the SEC C) these flyers could not be mailed until PIGGI was registered in States A and B D) these flyers could be mailed, but no accounts can be opened until PIGGI is registered in States A and B Explanation

C) These flyers could not be mailed intol registered

Non-securities

Commodities, collectibles (stamps), metals, real estate

The agreement that the Administrator can receive subpoenas on behalf of a registered agent, broker-dealer, or investment adviser involved in any securities sale that violates the Uniform Securities Act is

Consent to service of process

Private Fund Adviser Registration Act of 2010

Contains a comprehensive overhaul of the registration process for investment advisers. -An exemption for advisers solely to private funds with less than 150 million in assets under management in the United States, without regard to the number or type of private funds (the private fund adviser exemption) -An exemption for certain non-U.S. advisers with no place of business in the United States and minimal AUM (less than 25 million) attributable to U.S. clients and investors. (the foreign private adviser exemption) -Exemption for advisers solely to venture capital funds (the venture capital fund exemption)

Under the Uniform Securities Act, the recordkeeping requirements established by the Administrator for out-of-state investment advisers wishing to register in his state are subject to the limitations of A) the Investment Advisers Act of 1940 B) the requirements set by each individual state C) the Securities and Exchange Act of 1934 D) the requirements set by the Administrator of the adviser's home state

D)

A firm is registered as an investment adviser under the Investment Advisers Act of 1940. It has decided to raise its annual management fee from $1,500 to $1,800 and require that it be paid 1 year in advance instead of quarterly. The firm would

D) now come under the requirement to include a balance sheet as part of its brochure

Registration with the SEC as an investment adviser would be required for a person who A) acts as the investment adviser to an investment company registered under the Investment Advisers Act of 1940 B) limits the advice offered strictly to securities issued or guaranteed by the U.S. government C) limits the advice offered strictly to securities listed on the New York Stock Exchange (NYSE) D) acts as the investment adviser to an investment company registered under the Investment Company Act of 1940

D) If a person acts under contract to an investment company registered under the Investment Company Act of 1940 (investment companies do not register under the Advisers Act; only advisers do) is required to register with the SEC.

Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser? A) Antiques dealer who receives a fee for advising customers as to the value of antiques and rare coins B) Bank that offers investment counseling to its high-net-worth customers C) Publisher that receives a yearly subscription fee for a newsletter that provides nonspecific investment advice D) A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities

D) Broker dealer who receives a flat fee for analyzing cusomer's investment objectives and recommending a portfolio of securities.

Which of the following is NOT considered to be in the business of investment advising? A) An insurance agent who provides investment advice regularly, but such advice represents a small portion of her business B) A person who prepares reports about securities in general C) A financial planner who provides advice on many types of financial instruments, including securities, and receives commissions on the sale of life insurance D) Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only

D) Insurance agents who discuss the merits of whole life insurance versus non securities financia instruments who receive comissions on sale of life insurance only

Exclusion and Exemption under Investment Adviser Act of 1940 and the Uniform Securities Act.

Exclusions: Under State Law (Uniform Securities Act): -Any bank and banks holding company, savings institution, or trust company. (Not for credit unions, and investment adviser subsidaries of banks or bank holding companies).

Under the Uniform Securities Act, which of the following statements is TRUE about an investment adviser who does not have an office in a state and solicits no more than 5 clients in that state?

He is not required ti register in the state Investment advisers who have no place of business within the state are not defined under the act as investment advisers if they have no more than 5 clients within the state in a 12-month period. This is known as the de minimis exemption.

Sending Notice NASAA Rules

If an investment adviser sends any notice, circular, or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent, except if the notice, circular, or advertisement is distributed to persons named on any list, then the investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and its source.

Retail Client

Interchangeable with non institutional client. Need far more protection than institutional clients. If the question refers to an individual, that will always be a retail client.

Making amendment UNDEr investment advisor act 1940

The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) and also requires nonmaterial amendments within 90 days of the end of the adviser's fiscal year.

Audited balance sheets

It is only state-registered investment advisers who must provide audited balance sheets to clients for whom they maintain custody. In order to be considered a substantial prepayment of fees, state laws require that they be more than $500 for 6 or more months in advance.

Uniform Securities Act

Model act that state securities laws are based on. Designed to prevent fraud and maintain faith in capital markets through registration of securities, agents, broker-dealers, and investment advisers. Main purpose is to provide necessary protection to investors.

Bank Holding Company

Organized to invest and manage other corporations. A holding company whose primary asset is a commerical bank. -Any Lawyer, Accountant, Teacher, or Engineer (L.A.T.E. exclusion) whose advice is incidental to the practice of his profession is exclusion. -A broke dealer whose preformance of services is solely incedental to the conduct of its business as a broker-dealer and who receives no special compensation (such as when offering wrap fee programs) is excluded. The exclusion also applies to agents of broker-dealers.

Retail client

Regardless of the assets involved, a trust account, unless one for an employee benefit plan with at least $1 million in assets, is considered a retail rather than institutional client. Once the investment adviser goes over the de minimis limit of 5, registration with the state is required. Regardless of the assets involved, institutional clients, such as insurance companies, banks and government instrumentalities, do not count toward the de minimis limit.

Form PF must be filed by

SEC-registered advisers with at least $150 million in private fund assets under management

Dodd-Frank Act 2010

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 of investment advisers with the states and the SEC. Investment advisers are not required to register at both state and federal levels.

Securities

Stocks, bonds, mutual funds, limited partnerships

Powers of Administrator

The Administrator can determine minimum, not maximum, net capital for broker-dealers (but not in excess of SEC requirements) and, for investment advisers, net worth. If the investment adviser does not exercise discretion (or maintain custody), no surety bond is required. Agents who exercise discretion may need a surety bond, but not a minimum net worth.

Federal Law Exemptions

The Investment Advisers Act of 1940 exempts the following from the registration requirement of the Act: -Intrastate Advisers (Only within one state) -Adivdsers who's only clients are insurance companies are exempt *****(How about when only clients are banks? that exemption applies under state law, but not under federal law).

State Law Exemptions

The Uniform Securities Act exempts from registration certain persons who, although fall into definition of an investment adviser, do not have to register as such in the state. Investment advisors exempt from registration from state administrator are those who have no place of business in the state but are registered in another state, provided that their only clients in the state are: -broker-dealers registered under the act. -insititutional investors -existing clients who are not residents but are temporarily in the state. -limited to 5 or fewer cleints, other than ones above, resident in the state during the preceding 12 months. -Any others the Administrator exempts by rule or order.

Annual Updating (Federal Advisor)

The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal-year end.

A state-registered investment adviser suddenly incurs a liability that materially affects its net worth, causing it to drop below the required minimum. Which of the following statements is TRUE?

The​ ​investment adviser must notify the Administrator​ by the close of business on the following business day​.

Exemption for Investment Advisers to Venture Capital Funds

Venture

On last year's annual updating amendment filed with the SEC, Alpha Investment Advisers indicated that it had more than $140 million in assets under management. Due to a reduction in the size of the firm, this year's annual updating amendment shows that assets under management have fallen to the $75 million level and are expected to remain there. Which of the following actions are required for Alpha?

Withdraw from SEC registration within 180 days of thr advisers fiscal year end.

Institution Defintion

Would include banks, trust companies, savings and loan associations, insurance companies, investment companies, employee benefit plans with assets of not less than $1,000,000 and governmental agencies or instrumentalities. Not included in the term "person"

Continuous and Regular Supervisory or Management Services

You can provide CONTINOUS and regular supervisory or management services with respect to an account if: 1) You have discretionary authority over and provide ongoing supervisory or management services with respect to the account 2)you do not have discretionary authority over the account, but you have an ongoing responsibility to select or make recommendations, based on needs of the client, as to specific securities or other investments the account may purchase. You do NOT Provide continous and regular supervisory if you: 1) provide market timing recommendations, but have no other ongoing management responsibilities 2) provide only impersonal investment advice 3) Make an initial asset allocation, without continuous and regular monitoring 4) Provide advice on an intermittent or periodic basis (such as upon client request)

Consent to Service of Process

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

The National Securities Markets Improvement Act of 1996 (NSMIA)

defined the term "federal covered adviser"

According to the Investment Advisers Act of 1940, how can records of the investment adviser's business be stored during the first 2 years?

in written form on site On microfilm on site On magnetic tape or computer on site