s65 unit 1
Searching Out New Growth (SONG) is a venture capital fund. As such, all of the following statements are true EXCEPT A) SONG must have less than $150 million in assets in the fund B) SONG only issues securities which are, except in extraordinary circumstances, non-redeemable C) SONG's investment adviser is exempt from registration D) SONG is not registered under the Investment Company Act of 1940
A Although venture capital funds are included in the general definition of private funds, unlike the private equity fund, there is no ceiling on the size of the fund before the adviser loses the exemption. Advisers to VC funds are exempt from registration. The funds themselves do not register with the SEC under the Investment Company Act of 1940 (and don't register with the states as well). These investments do not offer ready liquidity.
Which of the following persons must register as an investment adviser under the Uniform Securities Act? A) An investment adviser whose advice is limited to securities issued or guaranteed by the U.S. government and who has 3 places of business in the state B) An investment adviser who only serves institutional clients and whose only office is in this state C) An investment adviser representative with no place of business in the state who has dealt with 7 retail clients during the most recent 12 month period D) An accountant who makes no pretense of providing investment advisory services but gives incidental advice to clients as a small part of accounting services provided
B The Uniform Securities Act requires those defined as investment advisers to register with the state. Accountants are excluded when their advice is incidental to their profession and no additional compensation is charged. Advisers whose only advice is on securities issued or guaranteed by the government are excluded from the definition of investment adviser under the Investment Advisers Act of 1940. This means they are federal covered investment advisers, not required to register with the Administrator even with offices in the state. As long as there is an office in the state, unless the adviser is federal covered (as described in the previous sentence), there is no exemption from registration in that state. The IAR has exceeded the de minimis limits and would have to register in the state, but as an IAR, not as an IA.
Serenity Strategic Investments (SSI) is an investment adviser registered in four states. SSI's most previous annual updating amendment showed AUM of $108 million. Six months later, a favorable market resulted in SSI's AUM growing to $120 million. Unfortunately, several large clients left, so at the end of SSI's year, its AUM was down to $94 million. Which of the following statements is CORRECT? A) SSI must become registered with SEC within 90 days of exceeding $110 million. B) SSI remains state-registered because its AUM is less than $100 million. C) SSI may remain SEC registered as long as AUM is at $90 million or more. D) SSI has the choice of remaining state-registered or registering with the SEC.
B The key to answering this question is remembering that, for purposes of SEC registration, it is the AUM (technically known as the RAUM - Regulatory AUM) shown on the annual updating amendment to the Form ADV that is the determining factor. We are told that SSI is state registered, something permitted when reported AUM is $108 million, although it was eligible to register with the SEC. The mid-year increase has no effect on registration, only that at the end of the year. Because SSI will report $94 million on the next annual update, it will remain state registered and does not have the option to register with the SEC because its AUM is below $100 million. The only time the $20 million buffer down to $90 million enables an investment adviser to remain registered with the SEC is just that—the IA is already registered with the SEC and can stay there.
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the Release, which of the following would be included in the definition? I. Commercial banks offering comprehensive financial planning for their high-net-worth clients II. Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment-grade bonds or large-cap stocks as market conditions dictate III. Persons who receive a nominal fee for assisting employee benefit plan administrators select investment managers for the plan's assets IV. Lawyers who prepare trust agreements for clients with large securities holding with a goal of minimizing estate taxes A) I and II B) II and IV C) II and III D) I and IV
C Once the entertainment agent makes investment decisions for a client who is paying fees for overall services rendered, that agent now comes under the IA-1092 definition of investment adviser. Similarly, any person who is compensated for giving investment-related advice to employee benefit plans is considered a pension consultant and is required to register under IA-1092. Banks are never IAs, and the lawyer is merely doing legal and tax work.
An investment adviser to a private fund wishes to qualify for the exemption offered under the Uniform Securities Act when the fund has no more than 100 investors. In order to qualify, A) neither the private fund adviser nor any of its advisory affiliates have been convicted of a felony within the past 12 years B) the fund's outstanding securities are owned exclusively by persons who, at the time of acquisition of such securities, are individuals with at least $5 million in investments C) every investor must have either at least $1 million in assets managed by the investment adviser, or a net worth, excluding the value of the primary residence, in excess of $2.1 million D) the private fund adviser must have less than $110 million in private fund assets under management
C The 100 or less investors is technically known as advising a 3(c)(1) issuer. In that case, all the investors must be qualified by meeting the net worth or assets managed by the adviser as stated. The $5 million is the requirement under federal law for an adviser seeking the federal exemption for a 3(c)(7) fund, which is not limited to 100 investors. Conviction of a felony within the past 10 years, not 12, will generally make one a "bad actor" and cause the exemption to be forfeited. Private fund advisers must keep the AUM under $150 million, not $110 million.
The responsibility for administering the Investment Advisers Act of 1940 lies with A) FINRA B) the Administrator C) the SEC D) the Investment Advisers Association (IAA)
C The Investment Advisers Act of 1940 is federal law, and that comes under the jurisdiction of the SEC.
All of the following statements regarding the registration of an investment adviser in a state are true EXCEPT A) if the investment adviser is not an individual, any officer or partner active in the advisory business is automatically registered as an investment adviser representative B) the adviser's registration expires on December 31 each year C) the initial application must include a consent to service of process along with Form ADV and the appropriate fees D) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process
D The consent to service is a permanent document that remains on file with the Administrator; it need not be resubmitted for yearly renewal. The initial application for registration must include a consent to service of process along with Form ADV and the appropriate fees. If the investment adviser is not an individual, all officers or partners of the business entity that play an active role in the giving or supervision of giving advice are automatically registered as IARs.
Under the Uniform Securities Act, which of the following must register with the state securities Administrator? A) Investment advisers who have $100 million or more under management B) Investment advisers to an investment company registered under the Investment Company Act of 1940 C) Investment advisers without an office in the state whose clients are exclusively insurance companies D) Investment advisers with a place of business in the state and less than $100 million in assets under management
D Under the USA, an investment adviser with a place of business in the state must register with the state securities Administrator, regardless of who the clients are, unless they are federal covered advisers. Advisers without an office in the state, or whose clients are exclusively insurance companies, are not defined as investment advisers in that state under the USA. An adviser who manages an investment company that is registered under the Investment Company Act of 1940 or who has $100 million or more under management, are federal covered investment advisers that do not register with the states. Once the $100 million level is reached, the adviser has the choice of state or SEC registration until hitting $110 million.
Under the Uniform Securities Act, all of the following are exempt from state registration as investment advisers EXCEPT A) financial planners who provide fee-based investment advisory services to clients B) investment adviser representatives C) investment advisers with no office in the state who only advise employee benefit plans with assets of more than $1 million D) publishers of financial publications that are not addressed to clients' specific individual investment situations
A Financial planners who provide fee-based investment advisory services to the public generally must register with their state securities Administrator, as long as their total assets under management are less than $100 million. Investment advisers with no office in the state, who only advise employee benefit plans with assets of more than $1 million, need not register with state securities Administrators. Investment adviser representatives do not register as investment advisers but as investment adviser representatives. Financial publishers who do not publish specific investment advice are exempt from state registration.
Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser? A) ABC Money Managers, a partnership with $115 million under management B) JKL Pension Consultants, a management firm providing services to employee benefit plans, and currently has $179 million under management C) GHI Consultants, a sole proprietorship, managing $82 million belonging to high-net-worth individuals D) DEF Fund managers, a corporation managing an unregistered hedge fund with $10 million in assets
A It makes no difference what the structure of the adviser is. As long as the assets under management are $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered, regardless of size. The hedge fund is an unregistered fund, so the rule does not apply to it. Pension consultants are not eligible for SEC registration until their AUM reaches $200 million.
A federal covered IA files a petition for bankruptcy. The firm must A) do nothing until the court decides the disposition of the firm's assets B) notify the SEC immediately C) notify the Administrator immediately D) notify all of its clients immediately
B As a federal covered investment adviser, the responsible regulatory body is the SEC.
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) AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities B) Amalgamated Bank C) 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 D) St. Amelia's college endowment fund
C An investment adviser with no place of business in the state is not exempt from registration with the state when making recommendations to individual accredited investors who are residents of that state, even when the securities being recommended are exempt from registration. The Uniform Securities Act exempts investment advisers with no place of business in the state who deal with certain institutional customers such as banks, insurance companies, investment management companies, and employee benefit plans with assets in excess of $1 million. College endowments and other nonprofit organizations also carry exempt status, but not wealthy individuals. An adviser advising an issuer on the quality of potential underwriters does not fall within the definition of investment adviser under the Uniform Securities Act and is therefore exempt from registration.
Under the NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, investment advisers who have discretionary powers but NOT custody of customer funds are usually required to have a net worth in the amount of A) $50,000.00 B) $35,000.00 C) $10,000.00 D) $5,000.00
C The NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an adviser who does not have custody of customer funds or securities but has discretionary power over customer accounts to have a minimum net worth of $10,000.
An investment adviser is registered in States A and B with its principal office in State B. The Administrator of State A can request to see A) sales records relating to clients who are residents of State B 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) advertisements run in State A
D 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, that is good everywhere.
