s66 quizzes: federal securites acts
Which investment adviserMUST register with the SEC? An investment adviser with assets of: $1,000,000 $100,000,000 $110,000,000 all investment advisers must register with the SEC, regardless of their assets
$110,000,000 Investment advisers are only required to register with the SEC if their assets under management are $100,000,000 or more - however, the SEC has issued an interpretation that advisers that have between $100-$110 million of assets under management have the option of registering with the SEC. Once the adviser hits $110 million or more of assets under management, has no choice and must register with the SEC.
Under the Investment Advisers Act of 1940, required records must be retained for: 1 Year 2 Years 3 Years 5 Years
5 years The Investment Advisers Act of 1940 requires that records be maintained for 5 years. Note that NASAA has the same 5 year rule for State-registered advisers. (Also note that broker-dealer record retention rules are set under the Securities Exchange Act of 1934 and are generally 3 years, with the exception of customer account statements, which must be retained for 6 years.)
To be defined as a diversified management company, the maximum percentage of the portfolio's assets that can be invested in a single issuer is: 5% 10% 25% 75%
5% To be defined as a "diversified" management company, the fund must have at least 75% of its assets invested in securities; with no more than 5% of assets invested in a single issuer; with no holding representing more than 10% of the voting stock of that issuer.
Under Rule 147, intrastate offeringscannot be resold out of state for how long after the sale date? 3 months 6 months 9 months 12 months
6 months Rule 147 requires that resale of securities sold under the intrastate exemption be restricted to intrastate only for 6 months following first sale. Thereafter, they can be resold interstate.
Under the Investment Advisers Act of 1940, if the SECsuspends or revokes the registration of an investment adviserregistered, an appeal may be filed in Federal Court within how many days? 30 days 60 days 90 days 120 days
60 days 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.
Which of the following persons MUST register as an investment adviser? An executor who recommends securities investments for an estate A bank trust department that recommends securities investments for its accounts A broker-dealerthat recommends securities investments to its customers A newsletter publisher that makes specific securities recommendations to customers
A newsletter publisher that makes specific securities recommendations to customers Executors of estates are lawyers, and they are excluded from the definition of an investment adviser if they take no separate compensation for rendering advice. Similarly, banks are excluded from the definition, as are broker-dealers that do not charge separately for advice. A person who issues reports about securities is considered to be an investment adviser by the SEC. For years, the SEC has chased subscription investment newsletters to register as investment advisers - the newsletters claim that they are excluded under the "general circulation publication" exclusion; the SEC claims that they are not a "general circulation newsletter," but rather are circulated only to those buying their investment advice, and thus they should register!
An investment adviser has an institutional customer that wishes to sell 5,000 shares of ABC Stock. The adviser believes that ABC Stock would be a suitable investment for another institutional client. The adviser wishes to arrange a trade between the 2 institutions at the current market price, for which the adviser would charge a token fee. Because there will be no brokerage commissions, the institutional customers will get a better execution price. Which statement is TRUEabout this? A) This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client B) This is not permitted because of the conflict of interest that exists if an investment adviser that recommends a transaction as a fiduciary then acts as the broker, executing that transaction for a fee C) This is permitted because both of the customers are getting a better execution than if they went to the market for a fill D) This is not permitted because a fee is being charged
A) This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client The best answer is A. This is an agency cross transaction. If an investment adviser wishes to effect an agency cross transaction for a customer, it cannot have recommended the transaction to both the buyer and the seller - which is the case here. To effect the transaction, the adviser must obtain written consent of the customer; must disclose the remuneration that will be received from the transaction; and must send the customer an annual statement identifying the total number of agency cross transactions effected by the adviser and the remuneration received.
Which of the following is permitted in an investment adviser'sadvertising under SEC rules? A chart showing the previous year's performance of 30% total return, indicating that the trend will continue A computer simulation that shows a guaranteed 20% total return A testimonial from a customer, where the customer has given written permission for the testimonial's use An offer of a list of the investment adviser's prior recommendations, with their performance, over the last year
An offer of a list of the investment adviser's prior recommendations, with their performance, over the last year Performance charts can be used in advertising; but they cannot indicate that the trend will continue - since this may not be the case! One cannot guarantee returns, making ChoiceBincorrect. Testimonials are prohibited in advertising under the Investment Advisers Act of 1940, making Choice Cwrong. Offering a list of the adviser's prior recommendations is permitted in advertising; however actually listing specific recommendations in advertising in not permitted.
When is an Investment Adviser obligated to deliver an updated Brochure to an existing client? Annually, within 120 days of fiscal year end Annually, within 120 days of fiscal year end, if there are material changes Semi-annually, within 65 days of the fiscal mid-year date and 120 days of fiscal year end Semi-annually, within 65 days of the fiscal mid-year date and 120 days of fiscal year end, if there are material changes
Annually, within 120 days of fiscal year end, if there are material changes An IA is only required to provide an updated Brochure to a client annually, within 120 days of fiscal year end, if there are any material changes from the last Brochure delivered. The exception here is if the IA has been subject to a disciplinary action, in which case an amended Brochure must be delivered to clients promptly, describing the material facts of the disciplinary action.
Under the Investment Advisers Act, of 1940, required information in the registration application for an investment adviser includes: A) employees of the investment adviser B) officers, directors, and non-participating shareholders of the investment adviser C) remuneration of all officers and directors and non-participating shareholders of the investment adviser D) record of any disciplinary actions taken during the past 15 years by regulatory organizations against persons associated with the investment adviser
B) officers, directors, and non-participating shareholders of the investment adviser The best answer is B. Under the Investment Advisers Act of 1940, registration applications name the officers, directors and shareholders of the investment adviser. The names of the investment adviser's employees are not included. The remuneration of the officers and directors is not disclosed. Any disciplinary actions taken against the adviser by a self-regulatory organization must be disclosed in the registration application (there is no time limitation on this).
Which of the following records of an investment adviser that takes custody of customer funds is NOTrequired to be retained under the provisions of the Investment Advisers Act of 1940? Cash receipts and disbursements journal Statement of financial position Customer account statements Beneficiary designations for each customer account
Beneficiary designations for each customer account 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.
Which of the following is NOT a form of compensation to an investment adviser? Soft dollar arrangements Commissions Wrap fees Bid-ask spreads
Bid-ask spreads The bid-ask spread is earned by the market marker in a security; it is not earned by the adviser. Forms of compensation to an adviser are commissions earned on portfolio trades performed; management fees earned; wrap fees earned; and so-called "soft dollar" arrangements, for example where investment research is given free to the investment adviser by a brokerage firm in return for the adviser directing its portfolio trades to that broker.
Under the Investment Advisers Act of 1940, if an investment adviserwishes to renew an advisory contract which will allow it to start taking prepaid advisory fees of $1,200 or more, 6 months in advance of rendering services, which of the following statements is TRUE? A) A revised "Brochure" must be sent to each of the adviser's customers B) The adviser's customers must be given a "Brochure" at least 48 hours prior to contract renewal; and then decide during that time frame whether or not they wish to accept the terms of the new contract. C) The investment adviser must file a Form ADV2A and balance sheet with the SECpromptly, and must make the revised "Brochure" available to its customers D) The investment adviser is prohibited from changing the terms of the advisory contract.
C) The investment adviser must file a Form ADV2A and balance sheet with the SECpromptly, and must make the revised "Brochure" available to its customers If the adviser wishes to renew an advisory contract with a customer where the terms of the contract are changed, this requires that a revised "Brochure" be given to that customer. However, if, for the first time, the adviser will accept $1,200 or more of prepaid fees 6 months or more in advance of services rendered, then the adviser must file an ADV Part 2A with an audited balance sheet promptly.
Under the "Brochure Rule," existing customers of an investment adviser MUST: A) receive a "Brochure" at least quarterly only if there are material changes B) receive a "Brochure" at least quarterly whether or not there are material changes C) receive a "Brochure" at least annually only if there are material changes D) receive a "Brochure" at least annually whether or not there are material changes
C) receive a "Brochure" at least annually only if there are material changes New customers of the investment adviser must receive the "Brochure" at or prior to entering into an advisory contract. Existing customers must be sent an updated "Brochure" at least annually if there are material changes. As an alternative, the customer can be sent the "Summary of Material Changes" section of the current brochure along with the offer of the revised Brochure.
An investment adviserthat has filed a Form ADV with the SEC may say that he or she is: A) approved by the Securities and Exchange Commission B) certified by the Securities and Exchange Commission C) registered with the Securities and Exchange Commission D) endorsed by the Securities and Exchange Commission
C) registered with the Securities and Exchange Commission It cannot be stated that "registration" means that either the SEC or the State Administrator approves of the adviser, or endorses, recommends, or certifies the adviser. It can be stated that the adviser is "registered."
Which "soft dollar" remuneration arrangement between an investment adviser and a broker-dealer is prohibited? A) The broker-dealer providing free asset allocation software to the adviser in return for the adviser directing trades to that broker-dealer B) The broker-dealer providing free research reports to the adviser in return for the adviser directing trades to that broker-dealer C) The broker-dealer providing free market timing software to the adviser in return for the adviser directing trades to that broker-dealer D) The broker-dealer providing the services of an on-site research analyst to the adviser in return for the adviser directing trades to that broker-dealer
D) The broker-dealer providing the services of an on-site research analyst to the adviser in return for the adviser directing trades to that broker-dealer "Soft dollar" arrangements between a broker-dealer and either a mutual fund or an investment adviser work as follows: In return for the mutual fund or investment adviser directing its trades to that broker-dealer at full commission rates, the broker-dealer provides "free" services to the mutual fund or investment adviser such as asset allocation software, free research, and market timing software. The SEC permits this as long as the "free services" provided benefit all of the fund's shareholders, or the investment adviser's customers, equally. The SEC feels that these "soft dollar" payments allow smaller research firms to remain in existence, since they can market their services to mutual funds in return for commissions paid by the fund (and ultimately paid by that fund's shareholders). However, these arrangements cannot be used to pay for salaries, hotel and rental car costs, personal travel or entertainment.
Investment companies that are defined under the Investment Company Act of 1940 include: Mutual funds, exchange traded funds, and unit trusts Face amount certificate companies, management companies, and unit trusts Diversified funds, non-diversified funds, and specialty funds Income funds, growth funds, and balanced funds
Face amount certificate companies, management companies, and unit trusts The 3 types of investment companies defined under the Investment Company Act of 1940 are: Face amount certificate companies Unit trusts Management companies Face amount certificate companies are basically obsolete. A unit trust is the structure used for fixed bond trusts and variable annuities. Management companies are mutual funds and exchange traded funds.
An exempt reporting adviser must file: Form PF with the SEC Form BD with the SEC Form ADV with the SEC Form RIA with the SEC
Form ADV with the SEC 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.
Which of the following records of an investment adviser that takes custody of customer funds are required to be retained under the provisions of the Investment Advisers Act of 1940? I Cash receipts and disbursements journal II Statement of financial position III Customer account statements IV Beneficiary designations for each customer account
I Cash receipts and disbursements journal II Statement of financial position III Customer account statements 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.
Which of the following are considered to be "compensation" to an investment adviser under the Investment Advisers Act of 1940? I Commissions paid to the investment adviser for executing recommended securities transactions II Commissions paid to the adviser on recommended insurance purchases III Payments made by the issuer to the adviser for recommending the issuer's securities IV Profits on securities positions held by the adviser where the adviser recommended those securities to its customers
I Commissions paid to the investment adviser for executing recommended securities transactions II Commissions paid to the adviser on recommended insurance purchases III Payments made by the issuer to the adviser for recommending the issuer's securities Advisers' compensation is defined broadly and includes payments received from the sale of advisory services; payments received for referring customers to other advisers or broker-dealers; commission payments received for executing customer portfolio trades through an affiliated broker-dealer; commission payments received for selling that customer non-securities products like insurance or real estate; and payments made by issuers to the adviser to recommend that issuer's securities (though this is illegal, it is still compensation to the adviser). Profits on securities positions held by the adviser are specifically excluded from adviser compensation.
Which of the following issuers MUSTreport to the SECunder the Securities Exchange Act of 1934? I Corporations II Investment Companies III Municipalities IV Federal Agencies
I Corporations II Investment Companies Only corporations and investment companies (which are either corporations or trusts) file annual and semi-annual reports with the SEC. Municipal and federal issuers are exempt from the Act of 1934.
Which of the following are defined as "investment companies" under the Investment Company Act of 1940? I Face-Amount Certificate Company II Unit Investment Trust III Management Company IV Mineral Leasehold Holding Company
I Face-Amount Certificate Company II Unit Investment Trust III Management Company The Investment Company Act of 1940 defines 3 types of investment companies; face-amount certificate, unit investment trust, and management companies
To be registered with the SEC as an investment adviser, which of the following are required? I Filing of Form ADV Part 1 II Filing of Form ADV Part 2 III Filing of a consent to service of process IV Filing of registration information for each representative
I Filing of Form ADV Part 1 II Filing of Form ADV Part 2 To register with the SEC as an investment adviser, Form ADV Part 1 and Part 2 must be filed. The SEC only registers firms as advisers; it does not register the firm's representatives, making Choice IV incorrect. A consent to service of process is only filed for State registration, not for SEC registration.
Investment advisersthat have separate broker-dealer entities are permitted to accept which of the following compensation items? I Fixed annual fees II Fees based on a percentage of assets under management III Commissions based on trades IV Fees based on the capital appreciation of the securities in the portfolio
I Fixed annual fees II Fees based on a percentage of assets under management III Commissions based on trades Investment advisers cannot accept fees based on performance unless the client has at least $1,000,000 of assets under management or a $2,100,000 net worth. (Note: The dollar threshold for qualified customers is adjusted upwards for inflation every 5 years. The next adjustment is scheduled for mid-2021.) Fixed annual fees, wrap fees, fees based on a percentage of assets under management, and commissions on trades where the adviser has a separate broker-dealer entity, are all permitted compensation items.
A private fund adviser must file: I Form PF with the SEC II Form BD with the SEC III Form ADV with the SEC IV Form RIA with the SEC
I Form PF with the SEC III Form ADV 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. Broker-dealers file Form BD to register with the SEC. There is no such thing as Form RIA.
Which statements are TRUEregarding the payment of fees by registrants? I Registrants with the SEC are required to pay a filing fee II Registrants with the SEC are not required to pay a filing fee III Registrants with the State are required to pay a filing fee IV Registrants with the State are not required to pay a filing fee
I Registrants with the SEC are required to pay a filing fee III Registrants with the State are required to pay a filing fee To register with either the SEC or the State requires payment of a filing fee.
Which of the following are covered under the Securities Exchange Act of 1934? I Registration of broker-dealers II Registration of investment advisers III Registration of insiders IV Registration of securities information processors
I Registration of broker-dealers III Registration of insiders IV Registration of securities information processors Federal registration of investment advisers comes under the Investment Advisers Act of 1940. The Securities Exchange Act of 1934 requires the registration of exchanges, member firms, salespersons, transfer agents, clearing organizations, securities depositories and securities information processors. It also requires that "insiders" (officers, directors and holders of 10% or more of a publicly held company) file notices with the SEC.
To determine if a person is "in the business" of giving investment advice under the Investment Advisers Act of 1940, which of the following are considered? I That the individual regularly gives advice on securities II That more than 50% of the individual's earnings are derived from making investment recommendations III That the individual receives compensation for giving advice on securities
I That the individual regularly gives advice on securities III That the individual receives compensation for giving advice on securities To be "in the business" of giving investment advice, this must be a regular activity of the firm or person; and the advice must be rendered about securities; and that person must be compensated for giving such advice.
If an investment adviserwishes to use a paid solicitor, under the Investment Advisers Act of 1940, which of the following statements are TRUE? I The solicitor must provide the customer with a copy of the investment adviser's brochure II The solicitor cannot be subject to statutory disqualification under the Securities Acts III The solicitor must disclose to the customer any additional costs of providing advisory services, due to the nature of the relationship between the solicitor and the investment adviser IV The solicitor must register with the SECas an investment adviser
I The solicitor must provide the customer with a copy of the investment adviser's brochure II The solicitor cannot be subject to statutory disqualification under the Securities Acts III The solicitor must disclose to the customer any additional costs of providing advisory services, due to the nature of the relationship between the solicitor and the investment adviser If an investment adviser uses a paid solicitor, there must be a written agreement between the solicitor and the adviser. The solicitor must provide the customer with a copy of the adviser's "Brochure" in addition to a copy of the solicitor's "Brochure," The solicitor must disclose to the customer any additional costs that the customer will pay due to the use of a solicitor. The solicitor cannot be a person subject to statutory disqualification under the Securities Acts - e.g., convicted of a money or securities related offense within the past 10 years, expelled by FINRA, currently under suspension by FINRA, etc. There is no requirement for the solicitor to register with the SEC; only the investment adviser is registered with the SEC. However, in most States, the solicitor must be registered either as an adviser or as an adviser representative.
If an investment adviseris recommending that a customer buy a security, that the adviser will sell to the customer out of its own inventory, which of the following statements are TRUE? I This is a "principal transaction" II This is an "agency cross transaction" III This transaction is permitted only if the customer is informed of the circumstances and consents to the transaction IV This transaction is prohibited
I This is a "principal transaction" III This transaction is permitted only if the customer is informed of the circumstances and consents to the transaction If an investment adviser is recommending that a customer buy a security that the adviser will sell to the customer out of its inventory (or vice-versa), this is a principal transaction (the adviser is the "principal," buying the security into its own investment portfolio, or selling the security to the customer from its own investment portfolio). If the adviser is going to act as the principal in a transaction recommended to a customer, it must disclose this fact to the customer prior to the completion of the transaction, and must obtain the consent of the customer to the transaction.
Under IA-1092, which of the following are defined as "giving advice about securities"? A person who: I advises on the selection of an investment adviser II prepares a list of securities that may be purchased without making specific recommendations III prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance IV charts the price movements of stocks and distributes them to subscribers
I advises on the selection of an investment adviser II prepares a list of securities that may be purchased without making specific recommendations III prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance Charting of the price movements of stock is not "investment advice." An investment adviser, under the Investment Advisers Act of 1940, is "a person who receives compensation for advising others about securities, or about the advisability of investing in securities." Under the SEC's interpretations, a person who prepares a "list" of securities is making an implicit recommendation of these securities and is giving advice; a person who prepares asset allocation plans is also giving advice (if one of the assets included is securities). Furthermore, a person who recommends investment advisers is also one who gives advice! A person who prepares and distributes charts of stock price movements is not giving advice. Note, however, that if this information is used by the preparer to determine which securities to buy or sell, it would be considered to be "investment advice."
In order for an investment adviserto charge a "performance fee" under the Investment Advisers Act of 1940, the customer must have: I at least $1,000,000 of assets to invest II a net worth of at least $1,000,000 III at least $2,100,000 of assets to invest IV a net worth of at least $2,100,000
I at least $1,000,000 of assets to invest IV a net worth of at least $2,100,000 The Investment Advisers Act of 1940 prohibits a performance fee unless the customer has at least $1,000,000 invested with the adviser; or has a net worth of at least $2,100,000. (Note: The dollar threshold for qualified customers is adjusted upwards for inflation every 5 years. The next adjustment is scheduled for mid-2021.)
The sale of a new issue of securities by a State chartered bank is: I exempt from registration with the SEC II subject to registration with the SEC III exempt from registration in the StateIV subject to registration with the State
I exempt from registration with the SEC III exempt from registration in the StateIV subject to registration with the State Securities issued by banks (but NOT bank holding companies) are exempt from both Federal and State registration. Remember, banks are already extensively regulated at both the Federal and State level, so to require registration of their securities is considered to be overkill.
Which of the following are NOTrequired to register as investment advisersunder the Investment Advisers Act of 1940? Persons who give advice: I on U.S. Government securities II solely to insurance companies III solely to investmentcompanies IV to customers within one State, where the investment adviser is a resident of that State
I on U.S. Government securities II solely to insurance companies IV to customers within one State, where the investment adviser is a resident of that State 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). The Investment Advisers Act of 1940 also exempts from registration advisers who only give advice on U.S. Government securities; and advisers who wholly operate within one State, trading securities only in that State. Because such an "intrastate adviser" does not conduct business across State lines, the SEC does not have jurisdiction. For the SEC to have jurisdiction over an adviser, the adviser must operate "interstate."
Which of the following individuals will be denied federal registration as an investment adviser? A person who: I was suspended from FINRA II caused a suspension of a firm for which he formerly worked III was imprisoned for 2 years for counterfeiting IV is the subject of a current court proceeding that might cause the person's suspension if found guilty
I was suspended from FINRA II caused a suspension of a firm for which he formerly worked III was imprisoned for 2 years for counterfeiting Statutory Disqualification of an individual from becoming an investment adviser will occur if the applicant or its officers: has been suspended or expelled from another Self Regulatory Organization; is the subject of an SEC order suspending or revoking registration; while associated with a firm caused that firm's suspension or expulsion; willfully filed a misleading or false application; has been convicted of any securities or money related fraud within the past 10 years; or has been temporarily or permanently enjoined from engaging in the securities business. Also, any person who has a criminal record and has spent 1 year or more in prison will be denied registration. Note that the current court proceeding is not a reason for statutory disqualification unless that individual is actually found to be guilty.
Which of the following are covered under the Securities Exchange Act of 1934? I Registration of new issues II Registration of broker-dealers III Registration of insiders IV Registration of securities information processors
II Registration of broker-dealers III Registration of insiders IV Registration of securities information processors Registration of new issues comes under the Securities Act of 1933, which regulates new issue offerings. The Securities Exchange Act of 1934 requires the registration of exchanges, member firms, salespersons, transfer agents, clearing organizations, securities depositories and securities information processors. It also requires that "insiders" (officers, directors and holders of 10% or more of a publicly held company) file notices with the SEC.
Under the Investment Advisers Act of 1940, the SEC policy regarding emails maintains that: I business related emails are required to be recorded and maintained II both business related and personal emails are required to be recorded and maintained III records must be retained for 3 years IV records must be retained for 5 years
II both business related and personal emails are required to be recorded and maintained IV records must be retained for 5 years SEC rules require that both personal and business emails must be retained by investment advisers as a required record. Their view is that it is too easy for someone to send a business email from a personal electronic device or vice-versa. All records must be retained for 5 years under the Act.
Under IA-1092, an investment adviseris defined as a person who: I makes advice about securities his principal activity II makes advice about securities his regular activity III is compensated directly for services rendered IV is compensated directly or indirectly for services rendered
II makes advice about securities his regular activity IV is compensated directly or indirectly for services rendered To be defined as an investment adviser under IA-1092, the rendering of advice must be a regular activity - it does not have to be the "principal" activity. To be defined as an adviser, this person must be compensated for rendering advice about securities - and compensation is very broadly defined as the receipt of anything of value - either directly or indirectly - for giving advice about investing in securities.
The Investment Company Act of 1940requires that which of the following register with the SECas an investment company? Management companies Investment advisers Investment managers Investment counsels
Management companies The Investment Company Act of 1940 requires that investment companies (management companies, unit investment trusts and face amount certificate companies) register with the SEC.
Under the Investment Advisers Act of 1940, which statement is TRUEabout the acceptance of prepaid advisory fees by an investment adviser? The fees must be refunded in full with interest if the contract is cancelled prematurely The fees cannot amount to more than 6 months' payment in advance Prepaid fees in excess of $1,200 require that the adviser's balance sheet be included in the "Brochure" Acceptance of a prepaid fee constitutes taking "custody" of customer funds
Prepaid fees in excess of $1,200 require that the adviser's balance sheet be included in the "Brochure" Prepaid advisory fees are permitted, as long as they are detailed in the advisory contract; and there is a refund of such fees (pro-rated based on the amount of time left to the contract) if the contract is canceled prematurely. There is no restriction on the amount of prepaid fees that can be accepted - but remember that under the Statement of Policy on unethical practices, adviser fees must be similar to those charged by other advisers for comparable services. If an adviser accepts $1,200 or more of prepaid fees, for 6 months or more of service in advance, then a balance sheet must be included in the "Brochure" given to customers (the "Brochure" is Part 2A of Form ADV). Acceptance of prepaid fees is not the same as taking custody of customer funds or securities.
"Small Dollar Offerings" are given an exemption from registration under the Securities Act of 1933under the provisions of: Regulation A Regulation B Regulation C Regulation D
Regulation A Under Regulation A - Small Dollar Offerings - an issuer can sell up to $50,000,000 of securities within a 12-month period under an exemption from registration.
A broker-dealer MUSTmaintain physical possession of which of the following? Securities issued by municipalities Securities traded in an omnibus trading account Securities held as collateral for derivative trading components Securities that are unregistered and non-exempt
Securities held as collateral for derivative trading components When securities are purchased for a customer by a broker-dealer, they can be held in custody of the broker-dealer (or the broker-dealer's clearing firm); or they can be held by a custodian bank; or they can be transferred and shipped to the customer (some customers still want to put physical certificates under their mattresses!) However, if a customer buys a derivative security (such as a CMO created from underlying mortgage backed pass through securities), he or she cannot get the underlying physical security - it must be held in custody.
Which of the following is disclosed in Form ADV Part 1? Investment policies of the adviser Type of investments made by the adviser Investment practices of the adviser States in which the adviser is registered
States in which the adviser is registered The ADV Part 1 is the basic registration information filed with the SEC - such as name of firm, address, phone number, officers, shareholders, States where the adviser is registered, etc. The ADV Part 2 is broken down into 2 parts. Part 2A is the "Brochure" that must be delivered to customers. It describes the investment adviser's policies, fees, education, types of investments, types of clients, method of analysis used, conflicts of interest, etc. Part 2B is the "Brochure Supplement" which details the educational and work background of the key personnel who make investment decisions or manage accounts.
An independent investment adviseris talking to a brokerage firm's research analyst about XYZ company. The analyst tells the adviser that she is going to issue a report stating that the company will miss its revenue projections. The adviser was planning to add the stock to her portfolio. What should the adviser do? The adviser cannot act on the information because it is "inside information" The adviser must purchase the stock as planned The adviser can change her mind about buying the stock The adviser must report the conversation to the State Administrator
The adviser can change her mind about buying the stock The adviser was planning to buy the stock; and the analyst thinks the stock isn't a good investment right now. There is no "inside information" here, so the adviser can take the opinion of the analyst and change her decision to buy the stock. Note, however, that if the adviser and the research analyst worked for the same parent company, then the answer would change. The restrictions on "trading ahead of a research report" would apply to all employees of the parent company and the stock could not be purchased or sold prior to the public release of the report.
An investment adviser representative's friend provides him with a list of 10 prospective clients. The representative agrees to pay his friend a referral fee for each person on the list that opens an account with the adviser. Which statement is TRUE? The arrangement is permitted without restriction The arrangement is permitted only if it is in writing between the investment adviser and the friend The arrangement is permitted only if it is in writing between the investment adviser and the friend and the arrangement is disclosed in writing to any customer opening an account The arrangement is prohibited
The arrangement is permitted only if it is in writing between the investment adviser and the friend and the arrangement is disclosed in writing to any customer opening an account An investment adviser that pays a referral fee to another individual for finding new clients comes under SEC Rule 206(4)-3 covering solicitors. An investment adviser can only pay a solicitor if there is a written agreement between the adviser and the solicitor. The investment adviser must give the customer its brochure and the solicitor's brochure, in which the referral fee arrangement must be disclosed.
A new issue offering to a maximum of 35 non-accredited investors that has not been registered with the SEC is: exempt under Regulation A exempt under Regulation D exempt under Rule 144 not exempt and must be registered
exempt under Regulation D Regulation D of the Securities Act of 1933 allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" investors under this exemption and still be considered a private placement.
A Federal covered investment adviser registered under the Investment Advisers Act of 1940 wants to include an exculpatory clause in the advisory contract. Which statement is TRUEabout this? The clause is permitted because this is a Federal covered adviser The clause is permitted because it is beneficial to the client The clause is prohibited and unenforceable under Federal and State law The clause is prohibited because it denies the adviser the right to pursue claims against the client
The clause is prohibited and unenforceable under Federal and State law An "exculpatory" clause seeks to limit the adviser's liability for gross negligence or for acting in bad faith, and is not enforceable in a court of law. The adviser will always be liable for gross negligence, acting in bad faith or for violating any State or Federal law. Writing in a contract that the adviser is not liable for these is meaningless.
Under the Investment Advisers Act of 1940, all of the following are requirements for a family office to be excluded from the definition of an Investment Adviser EXCEPT: The family office must only provide investment advice to clients who are part of that family The family office must be wholly owned by family clients and exclusively controlled by family members or entities The family office cannot hold itself out as an investment adviser The family office must have less than $100 million of assets under management
The family office must have less than $100 million of assets under management The Investment Advisers Act of 1940 excludes "family offices" from the definition of an investment adviser, so they are not required to register. Regarding the "family office" exclusion, extremely wealthy persons often set up a "family" office to manage the finances of family members (think of very wealthy persons like Bill Gates or Jeff Bezos, where the family office would manage the assets of their spouses, children, parents, etc.). As part of its work, the family office often gives investment advice, and the employees of the family office are compensated, so they would fall into the "dragnet" of Investment Adviser registration. Because these are wealthy, "sophisticated," individuals, they are not in need of the "protection" given by SEC IA registration. The Investment Advisers Act includes a rule that details when these "family offices" will be excluded from the definition of an Investment Adviser, so no SEC registration is required. Under SEC Rule 202(a)(11)(G)-1 (the "Family Office Rule"), there are 3 basic requirements that must be met for the exclusion: The family office must only provide investment advice to clients who are part of that family. The family office must be wholly owned by family clients and exclusively controlled by family members or entities - it cannot be owned or controlled by the key employees (though key employees can make investments). The family office cannot hold itself out as an investment adviser - thus it cannot advertise or market itself to non-family clients. Note that there is no asset size test for this exclusion.
Under the Investment Advisers Act of 1940, which of the following statements is FALSEabout the acceptance of prepaid advisory fees by an investment adviser? The fees must be detailed in writing in the advisory contract The fees cannot amount to more than 6 months' payment in advance Prepaid fees in excess of $1,200 require that the adviser's balance sheet be included in the "Brochure" A refund of prepaid fees must be given if the contract is cancelled prematurely
The fees cannot amount to more than 6 months' payment in advance Prepaid advisory fees are permitted, as long as they are detailed in the advisory contract; and there is a refund of such fees if the contract is canceled prematurely. There is no restriction on the amount of prepaid fees that can be accepted - but remember that under the Statement of Policy on unethical practices, adviser fees must be similar to those charged by other advisers for comparable services. If an adviser accepts $1,200 or more of prepaid fees, for 6 months or more of service in advance, then a balance sheet must be included in the "Brochure" given to customers (the "Brochure" is Part 2A of Form ADV). Acceptance of prepaid fees is not the same as taking custody of customer funds or securities.
An insurance agent refers potential clients to an investment adviser and receives a referral fee from the adviser for each client that signs an advisory contract. Which statement is TRUE? The insurance agent must disclose the fact that he or she will receive a referral fee at the time of the referral The investment adviser must disclose the fact that the insurance agent received a referral fee after the customer signs the advisory contract The insurance agent is only required to disclose that he or she will receive the referral fee if the customer has purchased an insurance policy from that agent The investment adviser is not obligated to disclose that a referral fee was paid to the insurance agent
The insurance agent must disclose the fact that he or she will receive a referral fee at the time of the referral Regarding the payment of referral fees, this is covered under the Investment Advisers Act of 1940. Rule 206(4)-3 prohibits an adviser from paying a fee to a solicitor (any person who solicits a client for, or refers a client to, an investment adviser) unless "a copy of the adviser's disclosure statement and a copy of the agreement between the adviser and the solicitor are provided to the prospective client at the time of the referral." Thus, the insurance agent must give this written disclosure to the client at the time that the referral is being made. In addition, the adviser must obtain a signed and dated acknowledgment, stating that the new client has received these disclosures from the solicitor.
Under the Investment Advisers Act of 1940 to satisfy the requirements of the "Brochure Rule," customers who wish to buy advisory services must receive a copy of the brochure: at least 48 hours prior to entering into an advisory contract at, or prior to, entering into an advisory contract within 48 hours of entering into an advisory contract within 10 days of entering into an advisory contract
at, or prior to, entering into an advisory contract The "Brochure Rule" obligates an investment adviser to give a potential customer the disclosure document (Part 2A of Form ADV) and the Brochure Supplement (Part 2B of Form ADV) at or prior to entering into a contract to provide advisory services.
If the SECsends a deficiency letterto the issuer regarding an issue in registration, which of the following statements are TRUE? I Disclosure in the registration documents is not complete II The issuer must file an amendment with the SEC to cure the deficiency III The 20-day cooling off period starts again once the amendment is filed IV The SEC can issue subsequent deficiency letters after amendments are reviewed
all An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective. Once the amendment is filed, the 20-day cooling off period starts counting again from the beginning. If the SEC finds that there is not adequate disclosure after the amendment is filed, it can issue subsequent deficiency letters. Thus, the registration for the issue may never "go effective."
Which of the following securities is (are) exempt under the Securities Act of 1933? I U.S. Treasury Bills II General Obligation Bonds III Water Authority Bonds issued by the city of Rochester, Minnesota
all Exempt securities under the Securities Act of 1933 include U.S. Government securities (such as Treasury bills); and municipal securities (such as general obligation bonds and revenue bonds - a water authority bond issue is a revenue bond).
An investment advisercharges a fee for an overall financial plan. Which of the following facts must be disclosed to the customer? I The adviser will receive a commission on recommended U.S. Government securities transactions II The adviser will receive a commission on recommended equity securities transactions III The adviser will receive a commission on recommended life insurance transactions IV The adviser will receive a commission on recommended real estate transactions
all If an investment adviser is being paid by someone other than the customer in a recommended transaction, this is a conflict of interest that must be disclosed to the customer. It makes no difference if the payment is coming from recommending a security, insurance or real estate investment to that customer.
Under the Investment Advisers Act of 1940, an investment adviserMUSTinform its customers if it will be compensated by which of the following? I The issuer for recommending its securities to the adviser's clients II A broker-dealerfor recommending the use of that firm to execute portfolio transactions of the adviser's clients III An insurance company for the recommendation of insurance products to the adviser's clients
all If an investment adviser receives compensation from anyone other than the customer; related to the rendering of advisory services to that customer; this must be disclosed to the customer. If the investment adviser recommends the use of a broker-dealer to effect recommended trades, (which it will do if the broker-dealer compensates the adviser for these trades); it must inform the customer that any broker-dealer can perform these transactions. The customer does not have to effect these trades through the broker-dealer favored by the investment adviser.
If a solicitor works for an investment adviser, selling that firm's advisory services to customers, then the customer MUST: I be given the investment adviser's brochure II be given the solicitor's brochure III sign an acknowledgment of receipt of the brochure(s)
all If an investment adviser wishes to use a solicitor to sell its advisory services, it may do so as long as the adviser is registered with the SEC; 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.
An investment adviserthat wishes to pay a solicitora fee for bringing in new client money: I must be registered under the Act II must have a written agreement with the solicitor III cannot pay a fee to a solicitor that is subject to statutory disqualification under the Securities Exchange Act of 1934 or that is subject to an order, judgment, or decree under the Uniform Securities Act IV must obtain a written acknowledgement from the customer that he or she received both the investment adviser's and the solicitor's disclosure documents
all Investment advisers may hire solicitors to find them new business and can pay for the solicitation. To do so, the investment adviser must be registered (either with the SEC as a Federal Covered adviser or with the State); the adviser must have a written agreement with the solicitor; the adviser cannot pay the solicitor if the solicitor has violated the Securities Laws; and any client brought in by the solicitor must get a copy of both the investment adviser's brochure and the solicitor's brochure (this must be acknowledged in writing by the client).
Which of the following are national securities exchanges that MUSTregister with the SEC? I NYSE II AMEX(NYSE American) III PHLX IV CBOE
all The Securities Exchange Act of 1934 requires that each national securities exchange register with the SEC. Such exchanges include the NYSE, AMEX (NYSE American), CBOE, PHLX, etc. These exchanges become "self-regulatory organizations" under SEC oversight. They must have their rules approved by the SEC; and they enforce their own rules under SEC oversight.
Which statements are TRUEregarding advisory contracts under the Investment Company Act of 1940? I Advisory contracts must be in writing II Advisory contracts must be approved by a majority vote of the outstanding shares III Advisory contracts can be terminated by a majority vote of the Board of Directors IV Advisory contracts can be terminated by a majority vote of the outstanding shares
all Under the Investment Company Act of 1940, investment advisory contracts between the fund and the adviser must be in writing and must be approved by a majority vote of the outstanding shares. Termination of the contract is permitted with either a majority vote of the Board of Directors; or a majority vote of the outstanding shares.
Under the Securities Exchange Act of 1934, registration with the SECas a broker-dealermay be revoked if the broker-dealer fails to: I maintain minimum net capital II send its financial statements to customers III be audited annually
all Under the Securities Exchange Act of 1934, broker-dealers must maintain minimum net capital; must send their financial statements to customers semi-annually; and must be audited annually. Failure to comply with these will result in the broker-dealer's registration being revoked.
12b-1fees are assessed by investment companies: when shares are purchased when shares are redeemed when shares are exchanged as shares are held
as shares are held SEC Rule 12b-1 allows management companies to charge against total net assets, an annual fee for the cost of soliciting new investors to the fund. In reality, though the fee is expressed as an annual percentage of total net assets, it is imposed pro-rata for every day that the investor holds the shares.
The States in which an investment adviser is registered would: be found in Form ADV Part 1 be found in Form ADV Part 2 be found in both Form ADV Part 1 and Form ADV Part 2 not be found in either Form ADV Part 1 or Form ADV Part 2
be found in Form ADV Part 1 The ADV Part 1 is the basic registration information filed with the SEC - such as name of firm, address, phone number, officers, shareholders, States where the adviser is registered, etc. The ADV Part 2 is broken down into 2 parts. Part 2A is the "Brochure" that must be delivered to customers. It describes the investment adviser's policies, fees, education, types of investments, types of clients, method of analysis used, conflicts of interest, etc. Part 2B is the "Brochure Supplement" which details the educational and work background of the key personnel who make investment decisions or manage accounts.
All of the following are EXCLUDED from the definition of an investment adviserunder the Investment Advisers Act of 1940 EXCEPT: teachers lawyers biologists engineers
biologists Excluded from the definition of an investment adviser under the Investment Advisers Act of 1940 are accountants, lawyers, teachers and engineers who give advice that is incidental to their professional practice and who do not charge separately for such advice. Biologists (and geologists) are not on the list of excluded persons.
The "Brochure Rule" applies to: oral advisory contracts only written advisory contracts only both oral and written advisory contracts neither oral nor written advisory contracts
both oral and written advisory contracts The SEC states that the "Brochure Rule" applies to both oral and written advisory contracts. Note that this does conflict with the Investment Adviser Act of 1940's requirement that advisory contracts be in writing; but this is a later rule, written by someone who wanted the broadest interpretation possible.
The "Brochure Rule" applies to: oral advisory contracts only written advisory contracts only discretionary advisory contracts only both oral and written advisory contracts
both oral and written advisory contracts The SEC states that the Brochure Rule applies to both oral and written advisory contracts. Note that this does conflict with the Investment Adviser Act of 1940's requirement that advisory contracts be in writing; but this is a later rule, written by someone who wanted the broadest interpretation possible.
Under IA-1092, all of the following are considered to be investment advisers EXCEPT: pension consultants estate planners advisers to athletes advisers to entertainers
estate planners IA-1092 specifically includes pension consultants and advisers to entertainers and athletes as investment advisers that must register. It makes no mention of estate planners.
The term "mutual fund" is the common name for a(n): open-end management company closed-end management company fixed unit investment trust non-fixed unit investment trust
open-end management company A mutual fund continuously issues and redeems its common shares - so it is an "open-end" management company.
A $25,000,000 offering of limited partnership units is being made under Rule 506. So far, 25 people have been solicited to make an investment of a minimum of $500,000. A potential client is interested, but she only has $200,000 available for investment. The client should be told that she: will be permitted to become a limited partner with the lower investment amount can become a limited partner if she invests $200,000 and signs a recourse note for the remaining $300,000 can become a limited partner with the lower investment amount if she qualifies as an accredited investor cannot become a limited partner
cannot become a limited partner Rule 506 is the main private placement rule under Regulation D. It permits the offering of any dollar amount of securities to a maximum of 35 non-accredited investors and an unlimited number of accredited (wealthy) investors. Regulation D offerings typically have high investment minimums to keep out unsophisticated, unqualified, unwealthy individuals. Here, the minimum investment amount is set by the sponsor at $500,000. If you don't have that much to invest, you are shut out.
An indication of interestfor a new stock offering is normally taken: before the 20 day cooling off period during the 20 day cooling off period after the 20 day cooling off period either before, during, or after the 20 day cooling off period
during the 20 day cooling off period An indication of interest is taken during the 20 day cooling off period before a new issue's registration becomes effective. The underwriters use the indications collected as one of the determinants for pricing the issue (this happens at the very end of the cooling off period).
If a firm maintains both a bid and ask quote in the secondary market, it is acting as a: market maker broker-dealer specialist floor broker
market maker A market maker maintains a bid-ask quote in a security, with the profit to the firm being the spread between the bid and ask quotes. A market maker is a dealer in securities. A specialist (now called the DMM - Designated Market Maker) on an exchange has a dual function - the specialist can act either as a dealer or as a broker, matching customer orders for a commission. A broker-dealer has a similar dual function. A floor broker acts as agent only, executing trades for customers as a broker on an exchange floor.
A publicly held corporation has 100,000,000 shares outstanding. A wealthy investor that buys 8,000,000 shares of the company as a passive investor: must file a 13d report with the SEC must file a 13g report with the SEC must file a 13f report with the SEC is not required to file a report with the SEC
must file a 13g report with the SEC The best answer is B. If a 5% or greater holding is accumulated in a publicly held company, and the purchaser does not intend to exercise control over that company (that is, will be a passive investor), then a 13g filing is made with the SEC. If the purchaser intends to exercise control, then a 13d filing is made.
A private fund adviser with less than $150 million of assets under management: must register with the SEC must report to the SEC must register with, and report to, the SEC is neither required to register with, nor report to, the SEC
must report to the SEC Private fund advisers (advisers to hedge funds) with $150 million or more of assets under management (AUM) must register with the SEC. 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.
Which of the following activities are allowed prior to the filing of a registration statement? I Solicitations of indications of interest II Solicitations of orders III Sending a preliminary prospectus IV Publishing a tombstone announcement I and II III and IV I, II, III, IV None of the above
none Prior to the filing of a registration statement for a new issue, nothing can be done. Once the registration statement is filed, a preliminary prospectus can be sent; indications of interest can be accepted; and a "tombstone" announcement can be published. Once the registration is effective, orders can be accepted if customers receive the final prospectus, at or prior to, confirmation of sale.
If an investment adviser maintains an account that will hold customer securities positions at a broker-dealer, but the broker-dealer does not know who the individual customers are, this is a(n): violation of Federal law prime brokerage account omnibus account discretionary account
omnibus account Investment advisers that take custody will typically open a brokerage account to hold all customer securities positions. If the investment adviser opens an "omnibus account," then the clients' funds and securities are held together in 1 account, where the broker-dealer does not know the identity of the IA's clients. In such an arrangement, it is the responsibility of the IA to send out customer account statements and trade confirmations, since the broker-dealer does not know who the individual customers are. Prime brokerage is used by hedge funds, where the hedge fund uses a clearing "prime broker" to settle all trades and maintain custody of the positions. However, the prime broker agrees to accept trade executions from a list of broker-dealers given up by the hedge fund. In this way, a hedge fund can route its trade executions to differing brokers in return for getting research and investment insight from those firms.
Under the Investment Advisers Act of 1940, if an investment adviserhas an impaired financial condition, this must be disclosed to customers: by all investment advisers only by investment advisers that take custody of customer funds; or those that accept prepaid advisory fees of $1,200 or more only if the investment adviser files for bankruptcy only if the investment adviser is also a broker-dealer
only by investment advisers that take custody of customer funds; or those that accept prepaid advisory fees of $1,200 or more The best answer is B. Disclosure of an impaired financial condition to customers by an investment adviser is only required where the investment adviser already has his "hands in the customer's pocket," and thus, could use the customer's monies to help the firm through its financial difficulties! Thus, this disclosure is required only if the adviser takes custody of client funds or securities; or if the adviser accepts prepaid advisory fees of $1,200 or more, 6 or more months in advance of rendering services.
The Investment Advisers Act of 1940 EXEMPTS from registration: persons who give advice solely to insurance companies persons who give advice solely to investment companies persons who give advice solely to depository institutions All of the above
persons who give advice solely to insurance companies The Investment Advisers Act of 1940 exempts from registration advisers who solely render advice to insurance companies. The "idea" is that an insurance company is a professional investor that will not tolerate being overcharged by an investment adviser, therefore such advisers are not required to register with the SEC. The Uniform Securities Act (State law) extends this exemption to most "professional investors" such as investment companies and banks. Note that the Investment Advisers Act of 1940 does not permit such an exemption for advisers who give advice to investment companies, banks, etc.
All of the following statements are true regarding an investment adviserwishing to take custody of client funds or securities EXCEPT: Form ADV Part 2A must be provided to the customer the investment adviser must be audited, on a surprise basis, at least annually customers must receive account statements at least quarterly prior permission from the SECmust be obtained
prior permission from the SECmust be obtained if an investment adviser wishes to take custody of client funds or securities, Part 2A of Form ADV (which is given to customers as a disclosure document) must be provided to the customer. All customer funds must be maintained in a bank account or securities account that is separate from the adviser's personal accounts. Customers must receive notification of the name and location where the funds and securities are being held. Customers must receive account statements at least quarterly. Finally, the adviser must be audited, on a surprise basis, at least annually - with a copy of the audit report filed with the SEC. Note, however, that there is no requirement for prior permission of the SEC for an adviser to take custody of customer funds or securities.
The Code of Ethics required to be written and adhered to by each investment adviser must cover all of the following topics EXCEPT: insider trading front running trading ahead of research short selling
short selling The Investment Advisers Act of 1940 requires that investment advisers adopt a written Code of Ethics that covers permitted and prohibited actions on the part of its officers and employees. The Code of Ethics must specifically cover the prohibited practices of front running customer orders, the "trading ahead of research prohibition" and the insider trading laws, since the larger investment advisers are in a position to obtain information about issuers that is not generally available to the public, and they cannot trade on this information until it is publicly released. Short selling is a legal practice of speculating on the price of a security declining and is not unethical.
All of the following are disclosed in Form ADVPart 2A EXCEPT: investment policies of the adviser type of investments made by the adviser investment practices of the adviser states in which the adviser is registered
states in which the adviser is registered The Form ADV Part 2 is broken down into Part 2A, which details the adviser's business, analytic methods, types of clients, assets under management, fees, conflicts of interest, etc. Part 2A must include a balance sheet of the firm if it will take custody of customer funds or securities; or will accept $1,200 or more of prepaid fees, 6 months or more in advance of services rendered. This is the "Brochure" that must be given to customers at, or prior to, entering into an advisory contract. Part 2B is the "Brochure Supplement" that must be delivered to new customers at the same time as Part 2A. Part 2B details the educational and work background of the key personnel who set investment strategy or manage accounts. The ADV Part 1 is the basic registration information filed with the SEC - such as name of firm, address, phone number, officers, shareholders, States where the adviser is registered, etc.
An advertisement published by an investment adviser may contain a(n): chart that, by itself, gives buy and sell signals for different securities paid testimonial from a well-known celebrity that is a long-term customer of the firm offer to furnish, free without charge, a list of the best performing recommendations made by the adviser in the past month telephone number to call to get a list of all recommendations made by the adviser over the past 2 years
telephone number to call to get a list of all recommendations made by the adviser over the past 2 years Investment 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.
