S66 Unit 2: Chpts 5-7

Under the IA Act of 1940, an IA may charge performance fees to clients with at least $___________ under management.

$1,000,000

Federal Covered Adviser: Exclusions from Definition (7)

1. Banks and bank holding companies (federal savings banks, foreign banks, credit unions, and savings and loan associations are NOT excluded) 2. Professionals whose investment advice is incidental to the practice of their profession (LATE): Lawyers, Accountants, Teachers, and Engineers 3. Broker-dealers and their representatives 4. Publishers of regular and general circulation publications 5. U.S. government securities advisers 6. Credit rating agencies 7. Family offices

Federal Covered Adviser: Registration Process (4)

1. File Form ADV Part 1 and Part 2 through the IARD 2. File a consent to service of process 3. Pay a registration fee 4. Meet SEC minimum financial requirement and/or post a fidelity bond

Federal Covered Adviser: Recordkeeping (2)

1. Five years in an easily accessible location with the first-two years in the appropriate office 2. Lifetime records (plus three years): Articles of incorporation, Partnership agreements, Stock certificate books, and Minutes from board meetings

Define testimonial

An advertisement in which an individual recommends the IA's services based on personal experiences with the firm.

Define Solicitor.

Any person who, directly or indirectly, solicits any client for, or refers any client to, an IA.

When an IA has custody, with whom are the assets held?

Assets are held by a qualified custodian. Clients must be notified of custodian's name, address, and manner of holding.

Which of the following statements is TRUE according to the Business Standard Test referred to in SEC Release 1092? I. A person is in the business of providing advice if the person holds him- or herself out to be in the business of providing advice II. A person is not in the business of providing advice if the advice given occurs rarely or in isolated nonperiodic instances III. A person is in the business of providing advice if separate or additional compensation is received for providing investment advice. A. I and III only B. I, II, and III C. I only D. I and II only

B. I, II, and III SEC Release 1092 refers to the three pronged test that must be met if a person is going to fall under the definition of an investment adviser. The three prongs are advice, compensation and the business standard. To meet the business standard, a person must provide advice about securities with some regularity receive compensation for the advice or analysis provided, or hold oneself out to be in the business of providing advice.

Selling away is allowed if an agent completes which of the following steps? I. Provides oral or written notification to her supervisor II. Provides written notification to her firm III. Receives her firms written permission IV. Notifies the state securities Administrator or SEC A. I only B. II and III only C. I and III only D. I, III, and IV only

B. II and III only A registered representative who wants to sell securities outside of her normal course of employment must first notify her firm in writing about the proposed transactions and must receive her firm's written permission. The notice must describe the proposed private securities transactions in detail. If the firm approves the representative's activities, then it is responsible for supervising the transactions and must record them in its books and records.

Failing to annually update an IAR's Form U4 is: A. Fraudulent B. Unethical C. Both D. Neither

B. Unethical Because there isn't any "harm"

Federal Covered Adviser: Segregation

Customer cash and securities are required to be segregated

According to the Investment Advisers Act of 1940, which of the following individuals would need to register as an investment adviser? A. An attorney who determines the fair market value of the assets inside of an estate B. An accountant who recommends a tax-advantage strategy when reviewing a client's tax return C. A broker-dealer D. An individual who sells a market timing newsletter that advisees clients when to buy a sell exchange-traded options

D. An individual who sells a market timing newsletter that advisees clients when to buy a sell exchange-traded options Broker-dealers are excluded from the definition of an investment adviser, as are certain professionals, such as attorneys, and engineers, whose advice is incidental to their profession. An individual who sells a market timing newsletter is selling securities-related advice that is not incidental.

True or False: According to the IA Act of 1940, delivery of a disclosure document is required for all IA contracts.

False. A brochure is not required for investment company contracts or impersonal advisory services priced below $500.

List some examples of fiduciaries

IARs, executors of estates, custodians of UTMA/UGMA accounts, trustees, and pension plan administrators

What duties does an IAR have according to the "know your customer" rules?

Make a reasonable inquiry into a customer's background and provide suitable advice based on known information.

Identify the acronym: NRSRO

Nationally Recognized Statistical Ratings Organziation

Is an exculpatory provision in an advisory contract permitted?

No. An exculpatory provision would serve to absolve an adviser from blame or liability and is prohibited.

A client has just learned that his account will now be handled by another IAR. Is this considered an assignment?

No. Control of the account has not changed simply based on an IAR leaving the firm.

What forms of soft-dollar compensation are NOT acceptable? (6)

Rent, travel expense reimbursement, hardware, furniture, entertainment, meals

What forms of soft-dollar compensation are acceptable? (3)

Research reports, seminars, software used to provide analysis

Define the local exemption from SEC registration for an IA.

The IA's client reside in the state in which its office is located and its advice is not related to exchange-listed securities

Define assignment.

The transfer of an advisory contract by the adviser or any change in the overall management of the advisor firm.

True or False: An IA that has full discretion over a client's account at a separate BD is considered to have custody.

True

True or False: Under the IA Act of 1940, performance fees are allowed for persons who are not residents of the U.S.

True

True or False: IAs are permitted to charge different fees to different clients for the same service.

True. Provided proper disclosure is made, charging clients different fees is permitted.

Identify the acronym: UPIA

Uniform Prudent Investor Act

When an adviser files Form ADV with the SEC, when does registration become effective?

Within 45 days of filing, the SEC will either grant the registration or institute denial proceedings.

Is office furniture (e.g., a desk chair) included in an IA's net worth?

Yes, provided it is fully owned by the IA.

Regardless of assets under management, IAs must register with the SEC if any client is a(n) ______________________________.

investment company

The IA Act of 1940 considers any communication that is directed to more than ___ person(s) to be advertising.

one

According to the USA, all investment advisory contracts must be in _______ form.

written

Federal Covered Adviser: Forms of Compensation (4)

1. Hourly Fees 2. Fee plus commissions 3. Percentage of assets under management 4. Performance-based fees (e.g. fulcrum fee)

Federal Covered Adviser: Exemptions from Registration (5)

1. Local exemption--All clients are residents of the state where the adviser's office is located and it gives no advice on exchange-listed companies 2. Insurance exemption--All clients are insurance companies 3. Private fund advisers exemption 4. Venture capital adviser exemption 5. Foreign private adviser exemption

Due to the SEC Release 1092, what other candidates are included in the expanded IA definition? (3)

1. Sports and entertainment reps 2. Pension consultants 3. Financial planners

The IA Act of 1940 requires IAs to retain notices, ads, or other communications circulated to more than _____ clients.

10

Under the IA Act of 1940, an IA may charge performance fees to clients with a net worth of at least $___________.

2,100,000

Federal Covered Adviser: Definition

A person (usually a firm, rather than an individual that, for compensation, engages in the business of advising others as to the value of securities or the advisability of purchasing or selling securities. The firm is required to register with the SEC.

Define fiduciary

A person who acts on behalf of another, which gives rise to a relationship of trust and confidence.

Action Advisers creates financial plans for clients. It generally implements these plans through Packaged Products Producers (PPP), a limited broker-dealer owned by Action. PPP offers a mix of mutual funds and variable annuities, but does not engage in transactions involving individual stocks or bonds. What information must be disclosed to Action's advisory clients? A. A state that the implementation of client financial plans may be limited because of the incomplete product selection available through PPP B. PPP's monthly net capital position C. A statement that the plans implemented using only mutual funds and annuities will not be able to sufficiently offer diversification for most clients D. A statement that the plan will probably have subpar performance due to the limited investment choices offered by PPP

A. A state that the implementation of client financial plans may be limited because of the incomplete product selection available through PPP According to the SEC Release IA-1092, an IAR/RR who intends to implement a plan using only products offered by a given broker-dealer must inform the client that the plan's implementation may be limited as a result. The IAR/RR should also disclose that PPP is a subsidiary of Action, since this a conflict of interest. Mutual funds may provide sufficient diversification for many clients.

According to NASAA's Statement of Policy on Unethical Business Practices, which of the following business practices would NOT be considered unethical? A. An investment adviser disclosing to potential clients that all of the employees have MBAs from an Ivy League School B. A fee-only financial planner borrowing securities from a client C. An investment adviser lending funds to a client to purchase private placements since the investor's funds are not liquid D. Sending a client a research report prepared by a partner at the investment adviser's previous firm without proper disclosure

A. An investment adviser disclosing to potential clients that all of the employees have MBAs from an Ivy League School If all the employees of an investment adviser have MBAs from an Ivy League school, this may be disclosed to potential clients. An investment advisor may not: 1. Misrepresent to a prospective client the qualifications of the investment adviser or any employee of the investment adviser 2. Borrow money or securities from a client unless the client is a broker-dealer or a financial institution engaged in the business of lending funds 3. Lend money to a client unless the investment adviser is in a financial institution (e.g., a bank) normally engaged in that business 4. Send research reports prepared by a third party without proper discloser to clients

An IAR has very little experience in the industry, but has a client enter his office with assets totaling $45 million. After completing a client profile, the IAR determines that the client has a high risk tolerance and her objective is capital appreciation. What should the IAR do in this situation? A. Consider consulting with a seasoned IAR or manager since he has little industry experience B. Build a portfolio that consists of stocks to meet the client's needs C. Research different stocks and then put together the portfolio D. Obtain permission from the State Administrator since the account exceeds $2.1 million

A. Consider consulting with a seasoned IAR or manager since he has little industry experience When an investment adviser representative opens an account with a significant amount of money, he should be familiar with his firm's policies and procedures. In a situation like this, the IAR may not have enough industry experience to recommend the appropriate investments. For this reason, it may be best if the inexperience representative solicits the assistance of a seasoned IAR or manager.

Which TWO of the following transactions would NOT be considered an unethical business practice by a broker-dealer? I. Buying a security on one exchange and selling it on another to take advantage of a price difference II. Effecting a transaction in a security on behalf of clients for the purpose of acting as an agent for both buyer and seller III. Effecting a transaction in a security on behalf of clients for the purpose of increasing the trading volume of the security IV. Effecting a transaction in a security with other broker-dealers for the purpose of increasing or decreasing price A. I and II B. II and III C. I and III D. II and IV

A. I and II It is considered an unethical business practice for a broker-dealer to effect transactions in a security for manipulative or deceptive purposes. Choices (III) and (IV) are examples of these types of transactions. A broker-dealer may effect an agency transaction with two clients where they represent both the buyer and the seller. Also, arbitrage is an acceptable practice (taking advantage of price differences).

Ben is an agent of a broker-dealer. One of Ben's clients is going on a business trip and wants to add a pharmaceutical stock to her portfolio, but is unsure of which one of three stocks to choose. The client fears that the most appropriate time to buy may occur during her trip. Which of the following orders may Ben accept without written discretionary authority? I. "Buy 500 shares of SureCure whenever you think the price is right" II. "Enter a market order to buy 500 shares of SureCure whenever you think it's appropriate." III. "Buy 500 shares of whichever pharmaceutical stock seems to be the best value when the market opens on Monday" A. I and II only B. I, II, III C. III only D. None of the above

A. I and II only Broker-dealers and their agents are prohibited from exercising discretionary authority in a customer's account without first obtaining written authority from the customer, except when the customer provides verbal discretion to select the price and/or time of the transaction. For the exception to apply, the customer must specify all other details of the trade, including whether to buy or sell, the specific security, and the amount/quantity. In choices (I) and (II), the agent is free to choose the price or time; therefore, written discretionary authority is not required. In choice (III), the agent is also determining the specific security to be purchased and therefore he must obtain written discretionary authority.

According to the Investment Advisers Act of 1940, the definition of an investment adviser includes which of the following choices? I. Pension consultants II. Broker-dealers III. Bank holding companies IV. U.S. government securities advisers A. I only B. I and II only C. I, II, and III only D. I, II, and IV only

A. I only Pension consultants may provide securities-related advice as an integral part of other financial services and may be considered investment advisers under SEC Release 1092. The other choices are all specifically excluded from the definition of an investment adviser under the 1940 ACT.

An adviser charges its clients a fee that's based on the dollar value of assets under management. The firm has seen the value of assets under management increase over the last 12 months due to its successful asset allocation model. One of the clients, whose account increased in value during this period, contacts the firm to complain that the fee he is being charged increased and that he never signed a contract which allows for a performance-based fee. Which of the following statements is TRUE? A. The adviser's fee percentage that is based on assets under management did not change; therefore, no violation has occurred. B. The adviser has committed a violation by charging the client a higher fee. C. Although no violation has occurred, the adviser engaged in an unethical business practice. D. The client would be permitted to cancel the contract since the adviser did not disclose the correct method it used to calculate its fees.

A. The adviser's fee percentage that is based on assets under management did not change; therefore, no violation has occurred. The adviser is not charging a performance-based fee in this question. Under the Investment Advisers Act of 1940, an advisory contract may provide for compensation based on the total value of a fund or account over a definite period. The dollar amount received by the adviser increased, not because the fee percentage increased, but due to the assets or total value of the account increasing. For this reason, no violation has occurred. If the fee percentage increased due to the performance of the account (a performance based fee), it would be allowed only if this information was properly disclosed and the account was held by a qualified client.

When sharing in the profits of a customer's account, whose approval is required? A. The client's B. The SEC's C. The Administrator's D. This practice is prohibited and unethical

A. The client's The client and the broker-dealer carrying the account are required to approve any account in which both the agent and the customer share in the profits and losses. The sharing must be proportionate to the capital at risk. Of the choices given, the client is the only correct answer.

If an IA has $20mm under management and advises an investment company, with whom must it register?

An IA that advises an investment company must register with the SEC (regardless of its AUM).

Which of the following persons would be considered an investment adviser under the Investment Advisers Act of 1940? A. A brokerage firm that offers advice but is compensated solely through commission income B. A brokerage firm that offers wrap accounts to its customers C. A fee-based financial planning firm that only provides advice on U.S. government securities and fixed annuities D. A lawyer who provides estate planning and tax advice to a group of elderly customers and their children

B. A brokerage firm that offers wrap accounts to its customers Any firm that offers wrap accounts is considered an investment adviser. The Investment Advisers Act of 1940 specifically excludes a lawyer, accountant, engineer, or teacher whose rendering of investment advice is solely incidental to the practice of her profession. Also excluded are broker-dealers who offer advice but receive no special (additional) compensation for this service. Choice (c) is excluded from the definition of adviser since the firm is giving advice related solely to direct obligations of the United States government (an exclusion) and nonsecurities such as fixed annuities (another exclusion).

An investment adviser has recently published an advertisement that is directed to accredited investors and states that it is a fee-only adviser. Which of the following fees received by the adviser will cause the advertisement to be misleading? A. An hourly charge which is associated with creating a financial plan B. Any 12b-1 fees on mutual fund shares sales C. An annual fee that is based on assets under management D. A flat fee for providing advice regarding the construction of an investment portfolio

B. Any 12b-1 fees on mutual fund shares sales Under the Investment Company Act of 1940, 12b-1 fees are asset based charges that are collected by broker-dealers to compensate their registered representatives who are involved in mutual fund shares sales. Collecting 12b-1 fees will cause a conflict with the advertisement since these fees are not assessed for creating a plan or providing advice. All of the other fees are acceptable according to the advertisement.

Which of the following advisory fees is prohibited? A. Charging a fee based on a percentage of an account's balance as the first of each month B. Charging a fee of 5% on the highest value of the account each month C. A $5,000 fee for creating a financial plan D. Charging a client an hourly rate for managing the account

B. Charging a fee of 5% on the highest value of the account each month Advisory fees must be appropriate for the service being provided. Charging a flat fee, regardless of how much management has been provided by the adviser, is prohibited. Investment advisers are allowed to charge flat fees for creating financial plans, as well as hourly fees or fees that are based on assets under management, provided they're not excessive for the service being provided. Charging a 1% fee based on assets under management is roughly the industry average; however, charging 5% is most likely prohibited under both state and federal law.

Kyle and Christina have been friends since high school. Christina is an agent of a broker-dealer, while Kyle is a wealthy musician. Together they open a joint brokerage account. They each deposit $30,000 and agree to split any profits equally. What are the regulations for this arrangement? A. It is acceptable as long as Kyle agrees to it in writing and releases Christina from all liability B. It is acceptable if Kyle, Christina, and Christina's broker-dealer agree to it in writing C. It is acceptable if Kyle and Christina's broker-dealer agree to it in writing; however, since Christina is an agent, she does not need to agree in writing D. This arrangement is never acceptable

B. It is acceptable if Kyle, Christina, and Christina's broker-dealer agree to it in writing In order to share in a customer's account, an agent must obtain permission from her employer and the customer. Since the agent will be investing, she is also considered a customer and will also be required to give permission. Additionally, profits and losses must be shared proportionately, based on the amounts both parties contribute to the account.

An IA receives rebates from a broker-dealer for placing client orders with the broker-dealer. Such rebates may be used by the IA for all the following purposes, EXCEPT: A. Attending an industry seminar out of state B. Paying the salary of a new assistant to help in processing customer orders C. Acquiring research reports from the broker-dealer D. Acquiring software to fun Monte Carlo simulations

B. Paying the salary of a new assistant to help in processing customer orders Rebates or soft dollars may be used to acquire or pay for services or other expenses that assist the adviser in rendering investment advice. Paying the salary of an employee does not benefit the adviser's clients and soft dollars may not be used for that purpose. The other choices are expenses for items that can be used in providing advice to clients.

An investment adviser representative and a client have similar financial resources, investment goals, and risk tolerance. However, although the IAR recommends penny stocks as a small part of her client's portfolio, she would never consider investing in such securities herself. Which of the following statements is TRUE? A. As long as the recommendations to her clients are suitable for them, it does not matter what the IAR chooses to include in her portfolio B. The IAR should tell her client that the recommendation is inconsistent with her own investment policy C. An IAR is not allowed to reveal to a client wat is in her personal portfolio D. Penny stocks are never suitable investments

B. The IAR should tell her client that the recommendation is inconsistent with her own investment policy An investment adviser whos personal investing is inconsistent with recommendations made to clients generally has an obligation to disclose this customers.

An investment adviser's (IA's) only client is a 3(c)(1) fund that has $110 million in assets under management (AUM). Which of the following statements regarding the registration requirements of the IA is TRUE? A. The investment adviser is federally covered and must register with the SEC by filing FORM ADV Parts 1 and 2 with the IARD B. The investment adviser is an exempt reporting adviser (ERA) and is not required to register with the SEC, but must notice file with the state administrator(s) and pay a fee C. The investment adviser is regulated under the Uniform Securities Act and must register with the state Administrator(s) by filing Form ADV Parts 1 and 2 with the IARD D. The investment adviser is required to register with either the state Administrator(s) or the SEC

B. The investment adviser is an exempt reporting adviser (ERA) and is not required to register with the SEC, but must notice file with the state administrator(s) and pay a fee The IA is an exempt reporting adviser (ERA) and is exempt from registration, but must notice file with the state Administrator(s) and pay a filing fee. ERAs are exempt from registration with the SEC if they manage private funds that have less than $150 million in AUM. Private funds are typically referred to as hedge funds. Unlike mutual funds, private funds are exempt from SEC registration if they have 100 or fewer investors. This exemption for private funds is provided in Section 3(c)(1) of the Investment Company Act of 1940.

The following persons would be allowed to trade the account of an incapacitated individual, EXCEPT: A. A joint tenant B. A court-appointed conservator C. a relative named in a living will D. The holder of a durable power of attorney

C. A relative named in a living will A living will is related to medical decisions that may need to be made in the event of an individual's incapacity. All the other choices would allow the individual to trade in the account of an incapacitated person, providing proper documentation is provided. A durable power of attorney gives someone the authority to make financial and healthcare decisions on another's behalf should that person become incapacitated.

Without discretionary authority, an agent may execute a client's order if the client specifies which two of the following details? I. The price of execution II. The particular security to be bought or sold III. Whether to buy or sell IV. The time the trade should be executed A. I and II B. I and III C. II and III D. II and IV

C. II and III As long as the client has specified the action (whether to buy or sell), the amount, and the specific asset to be bought or sold, an agent may determine the time and/or price to execute a client's order, without prior written discretionary authorization.

An investment adviser may store its books and records on electronic media if: A. It discloses the format type to the regulators B. It also makes separate paper copies and stores them separately C. It provides immediate access to the books and records D. It discloses to all clients that electronic media storage is used

C. It provides immediate access to the books and records Using a form of electronic media storage is acceptable provided the records are readily accessible and copies may be created. Electronic records must also be nonerasable, nonrewritable, and tamper-evident.

An investment adviser representative sends a letter to a group of prospective clients that contains a coupon for a free financial plan. The investment adviser must: A. Keep a list of the customers' zip codes B. Only keep a copy of the address of each prospective client C. Keep a copy of the letter and the coupon D. Keep a copy of the response of each client

C. Keep a copy of the letter and the coupon When an investment adviser representative sends an advertisement to a prospective customer, it must be preapproved and kept on file for a minimum of five years. If any service is described as free, it must be free with no other required purchase. Keeping only the customers addresses is not sufficient since the advertisement was not retained.

ABC Investment Advisers purchases quarterly research reports from XYZ Brokerage and sends the report to clients. Which of the following statements, if printed on the research reports, would violate NASAA guidelines on Unethical Business Practices of Investment Advisers? A. This report is provided to you courtesy of ABC Investment Advisers B. ABC Investment Advisers uses this and other information from XYZ Brokerage in determining its investment recommendations C. This research report was created for your benefit by ABC Investment Advisers D. ABC Investment Advisers does not necessarily endorse the recommendations of XYZ Brokerage contained in this report

C. This research report was created for your benefit by ABC Investment Advisers Choice (c) gives the impression that the third-party research report was actually created by ABC. This would be a misleading statement.

An investment adviser (IA) only has one client. The IA is NOT provided an exemption from the registration requirements of the Investment Advisers Act of 1940 based on which of the following clients? A. A Section 3(c)(1) private fund that has $110 million of assets under management B. An insurance company C. A venture capital fund D. A Section 3(c)(7) private fund that has $200 million of assets under management

D. A Section 3(c)(7) private fund that has $200 million of assets under management If an IA is managing a private fund that has less than $150 million of AUM, it's exempt from registration as an IA. Private funds are also referred to as hedge funds and are exempt under Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940. Section 3(c)(1) is available to hedge funds that has 100 or fewer owners, while Section 3(c)(7) is available to hedge funds that limit their purchasers to qualified clients (i.e., clients with $5 million of investable assets). If an IA is managing a private fund with $200 million of AUM, it must register with the SEC as a federal covered adviser. If an IA's only client is an insurance company or venture capital fund, the IA is exempt from registration, regardless of the client's AUM.

Chris is a customer who has very little understanding of financial markets. Chris has custodial power over his children's accounts and is concerned that his lack of investment experience could hurt his children's investment returns. He is considering allowing a third party to assume control of the accounts through a limited power attorney. Under the UPIA, which of the following statements is true? A. This practice is prohibited in all cases B. This practice is prohibited unless the custodian obtains the written consent of each child C. Custodians may delegate discretion only to licensed advisers and/or attorneys D. Custodians may delegate discretion to any competent person

D. Custodians may delegate discretion to any competent person Under the UPIA, a custodian is permitted to delegate investment functions to any competent third party. Minors have no say in this decision. Note: In the past, the UPIA specifically prohibited a custodian from delegating discretion to third party. This is no longer the case.

According to the Investment Advisers Act, a financial planner's compensation may consist of which of the following choices? I. An hourly fee II. An overall fee for developing a financial plan III. Commissions on insurance products A. I and II only B. I and III only C. II and III only D. I, II, and III

D. I, II, and III According to SEC Release 1092, the compensation a financial planner receives may consist of fees and/or commissions.

Which of the following would NOT be an important consideration when conducting a capital needs assessment for a client? A The rate of inflation B. The client's future anticipated earnings C. The client's life expectancy and retirement needs D. The amount of anticipated volatility in the marketplace

D. The amount of anticipated volatility in the marketplace A capital needs assessment analyzes a client's future goals and needs. Retirement planning, college funding, and the risk of death before meeting a savings goal are all considered. A client's life expectancy, the rate of inflation, and her earnings will all affect the capital needs assessment. Market volatility may influence the securities on which recommendations are based, but not the capital needs assessment.

Ace Financial Consulting is a registered investment adviser specializing in financial planning. Although Ace's IARs are experience and knowledgeable, they have many clients with complex tax issues. Ace has a consulting agreement with Block & Tackle, a local law firm that specializes in taxation. Block & Tackle is paid a fee whenever Ace calls them in to consult on the tax issues in a complex financial plan. Which of the following statements is TRUE? A. If Block & Tackle is not registered as an investment adviser, it would be required to obtain a waiver from the state Administrator to operate in this advisory capacity B. If Block & Tackle receives cash compensation from Ace, it must follow the rules for cash solicitors under the Investment Advisers Act C. This arrangement is appropriate provided Block & Tackle is compensated directly by the advisory clients on whose plans it provides advice D. This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser

D. This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser It is perfectly appropriate for an investment adviser to consult other qualified professionals to ensure that their advice is accurate and in the client's best interest. Block & Tackle need not register as an investment adviser as long as it does not hold itself out to the public as an investment adviser, and as long as it provides investment advice incidental to its normal law practice.

Why would an investment adviser perform a capital needs analysis for a client? A. To determine how much income the client will need at retirement B. To determine how to best reduce the client's tax liability C. To determine how much disposable income the client has available to purchase insurance D. To determine how much insurance the client needs in order to fund future financial goals

D. To determine how much insurance the client needs in order to fund future financial goals A capital needs analysis is used to determine the amount of insurance a client needs to purchase today in order to fund her future financial goals. For example, if the client dies prematurely and the value of her investments are not sufficient to pay for her child's college education, life insurance is needed to fund the difference.

Federal Covered Adviser: Custody (4)

Established when the adviser: 1. Accepts customer securities 2. Inadvertently receives customer securities and holds them for more than three business days 3. Accepts third-party checks and holds them for more than three business days 4. Has full discretion Note: Advisers may avoid having custody by using a broker-dealer to hold their clients' cash and securities

True or False: A person soliciting for an IA must annually provide a disclosure regarding the IA's performance.

False. However, at the time of contact, the solicitor must provide clients with a solicitor disclosure document.

True or False: A mutual fund asset allocation program requires a special wrap program disclosure document.

False. These programs charge a percentage of assets to manage a portfolio of no-load mutual funds.

True or False: According to the USA, investment advisers may generally charge performance-based fees.

False. Unless the Administrator deems the client qualified, performance-based fees are prohibited.

If employed by a federal covered IA, is an IAR required to register in all states in which she is conducting business?

No. If the IAR has no place of business in the state, no state registration is required.

Federal Covered Adviser: Discretionary Authority

Oral discretion may be given to an adviser for up to 10 business days

Define impersonal advisory services.

Services costing less than $500 per year that are not tailored to meet the investment objectives of a specific client.

For an IA to act as both an adviser and broker-dealer, what must be disclosed to clients before trades are effected?

The fact that the IA may be collecting both advisory fees and commissions.

What is required of an IA if the firm goes through a majority change in ownership?

The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.

Define investment supervisory services

The giving of continuous advice as to the investment of funds on the basis of the individual needs of each client.

Define the term custody.

The legal responsibility for, or control over, another person's assets.

Define "assignment" as it relates to IA contracts.

The transfer of ownership of a client's account from one advisory firm to another. Client consent is required.