Federal Securities Acts
It is permitted to "commingle" all customer positions together in one account, as long that there is a record of each customer's individual positions
. However, customer securities positions cannot be commingled with the investment adviser's positions.
Under Rule 147 - Intrastate Offerings - if all of the activity takes place within 1 state (intrastate), only State law applies. To be exempt from Federal registration:
100% of the issue must be offered and sold to residents of that state the issuer has to be a resident of that state for a 9-month period after purchasing the issue, resale is only permitted to residents of that state to claim the exemption, Form 147 must be filed with the SEC at least 10 business days prior to the proposed sale
If the SEC suspends or revokes an adviser's registration under the Investment Advisers Act of 1940, an appeal may be filed in Federal Court within.
60 days
To be a "qualified purchaser" is tougher than being an accredited investor under Regulation D.
A qualified purchaser is an individual or trust with at least $5 million of assets available for investment; or an investment manager or company with at least $25 million of assets available for investment
Class A
An up-front sales charge reduced by breakpoints for larger purchases and no, or very low, annual 12(b)-1 fees.
Making the individual call the adviser to get the "free" report is OK; and making the customer listen to a brief sales pitch to get the report is OK as well.
Cannot make a "free" offer conditional on the client doing work.
Government National Mortgage Association is owned by the U.S. Government. Its issues are exempt from the provisions of the Securities Act of 1933. Small business investment companies are also exempt from the Act's provisions.
For commercial paper to be exempt, its maturity must be 270 days or less. Since the maturity in this question is over 270 days, this issue is non-exempt. Variable annuity contracts are also a non-exempt security that must be registered under the 1933 Act.
In contrast, the futures markets are not subject to Regulation T and have their own margin requirements, which are quite low.
Futures contracts can be purchased on margin.
vestment adviser advertisements are regulated under the Investment Advisers Act of 1940. Testimonials are prohibited in these advertisements. The advertisement cannot purport that graphs, charts, computer programs, etc., can determine which securities to buy or sell, or when to buy or sell
If an offer is made of a list of prior recommendations, it must cover all (not just the best-performing) recommendations made over a minimum of the past 12 months.
Private fund advisers (advisers to hedge funds) with $150 million or more of assets under management (AUM) must register with the SEC. To do so, it must file both Form PF (Private Fund adviser) and Form ADV.
If the private fund adviser has less than $150 million of AUM, it is an "exempt reporting adviser." It must still report to the SEC by filing parts of Form ADV annually, but does not have to register with the SEC by filing Form PF. The intent is to give the SEC (and the public) information about what hedge funds are doing. Broker-dealers file Form BD to register with the SEC. There is no such thing as Form RIA.
An adviser that advertises itself as a "fee only" adviser cannot be compensated from the sale of products that it recommends.
It cannot charge commissions on transactions, nor can it receive 12b-1 fees, which are basically annual commissions paid by a mutual fund to the broker-dealer or advisory firm that placed the customer into the fund
The Investment Advisers Act of 1940 exempts from registration, an adviser that gives advice to insurance companies.
It does not exempt an adviser who gives advice to investment companies (which is true under State law).
Broker-dealer net capital is the firm's liquid net worth (liquid assets minus all liabilities). It is the money that would be left over if all of the firm's liquid assets were converted to cash and this was used to pay off all liabilities.
Minimum net capital amounts for broker-dealers are set under the Securities Exchange Act of 1934. The ratio of debt to net capital is a leverage measure for a broker-dealer, with maximum limits set under the 1934 Act.
Class B
No up-front sales charge; instead a CDSC - Contingent Deferred Sales Charge is imposed that declines towards "0" over 6-7 years; however there are annual 12(b)-1 fees averaging .50%.
The updated Form ADV must be filed each year with the SEC by Federal Covered Advisers - there are no exceptions. The filing is due within 90 days of fiscal year end.
Note that the updating ADV amendment must be filed with NASAA under the same time frame for State-registered advisers.
The records required to be retained by an investment adviser that takes custody include: Cash receipts and disbursements ledger and general ledger Securities received and delivered ledger Purchase and sales ledger (trade ledger) Securities record (a record of each aggregate security position held, broken down by each customer owning part of the position and the physical location of that position) Confirmation copies of all customer trades Customer account statements showing all purchases, sales, securities positions, and cash debits and credits to the account
Note that there is no requirement for beneficiary designations to be retained for customer accounts - in most cases, the beneficiary is named in the will when a customer dies.
The Securities Exchange Act of 1934 requires investment managers that have discretion over $100,000,000 or more of customer assets to file a Form 13F with the SEC.
The Form 13F is filed 45 days after the quarter ending where the adviser, at the end of any month in that quarter, had $100,000,000 or more of customer assets with discretionary authority.
FIXED INCOME In this example, in Year 0, -$15,000 is the initial cash outlay. At the end of Year 1, $8,000 of cash flow is received, discounted to today's present value using the 4% market rate of return = $8,000/1.04 = $7,692.31. At the end of Year 2, $6,000 of cash flow is received, discounted to today's present value using the 4% market rate of return = $6,000/(1.04 x 1.04) = $5,547.34. At the end of Year 3, $3,000 of cash flow is received, discounted to today's present value using the 4% market rate of return = $3,000/(1.04 x 1.04 x 1.04) = $2,666.99.
The NPV is -$15,000 + $7,692.31 + $5,547.34 + $2,666.99 = +$906.64
The transfer of an investment adviser account to another investment adviser must be approved by the customer. However, this situation is different. The advisory client's account is being transferred to another IAR at the same firm. This is not an assignment of the account to another adviser. The customer's contract is with the advisory firm; not the IAR.
The firm can reassign customer accounts to any IAR at the same firm without notifying the customer.
Investment advisory contracts must be in writing under the Investment Advisers Act of 1940; must detail the advisory fee; and must provide for customer approval if the account is assigned to another investment adviser.
There is no disclosure in the advisory contract of the States in which the adviser is registered (though this is disclosed in the Form ADV Part I filed with the SEC).
A private fund adviser (such as a hedge fund adviser) with at least $150 million of AUM (assets under management) is required to register with the SEC.
This is accomplished by filing Form PF - as in Private Fund adviser. In addition, private fund advisers must file Form ADV Parts 1 and 2 with the SEC and update these annually. These are all public documents.
The Investment Advisers Act of 1940 excludes from registration any adviser that only gives advice on
U.S. Government guaranteed securities
Advisers that: manage $100,000,000 or more of assets; or render advice to investment companies;
are not regulated at the State level and must register with the SEC only. One of main intents of the Investment Advisers Act of 1940 was to register advisers to investment companies and place limits on their compensation.
If an investment adviser wishes to use a solicitor to sell its advisory services, it may do so as long as
he adviser is registered with the SEC (Federal Covered adviser) or that State; there is a written agreement between the solicitor and the investment adviser; the solicitor agrees to provide to customers the investment adviser's "Brochure" in compliance with the "Brochure Rule"; the solicitor agrees to provide its own "Brochure" that describes the nature of the relationship between the solicitor and the adviser, and the fact that the adviser is paying the solicitor; and that this may result in a higher cost to the customer. Finally, the adviser must obtain written acknowledgment from the customer, that both brochures were received.
Note that the SEC registers the investment adviser only -
it does not register investment adviser representatives.
The Form ADV Part 1 filed with the SEC includes the
officers of the firm, the States in which the firm is registered, and if the firm is a partnership, a schedule of the partners' names is included; while if the firm is a stock company (privately held) a schedule of the shareholders in included.
To be defined as an "investment adviser," advice must be given relating
securities
