Series 65
Investment advisers may need to post a surety bond of _____ under USA
$35,000
an investment adviser with custody of customer funds or securities to have a minimum net worth in the amount of
$35,000
Exemption from IA registration
- Advisers who deal exclusively with broker-dealers. - Advisers who deal exclusively with insurance companies. - Advisers who deal exclusively with investment companies. - Advisers who have no more than 5 clients in that state in a 12-month period
The SEC has the power to...
- The SEC may conduct investigations. - The SEC may subpoena witnesses and administer oaths. - The SEC may make and issue rules. - Issue cease and desist orders. - refer evidence to the attorney general for possible criminal prosecution.
The SEC may suspend trading
- The SEC may suspend all trading on a specific exchange for up to 90 days. - The SEC may summarily suspend trading on a particular nonexempt security for up to 10 days.
A risk free portfolio has a correlation coefficient of...
-1.0... two securities with a perfect negative correlation
Under the Securities Act of 1933, which of the following transactions is(are) exempt?
-Private transactions not involving the issuer or a broker-dealer -Issuer transactions that do not involve a public offering - Sales or offers limited to accredited investors
A bond purchased at $900 with a 5% coupon and a 5-year maturity has a current yield of:
1,000 * .05 = 50 / 900 = 5.56%
You file an amended ADV promptly when
1. Change in management 2. State of location 3. Form of business
Forward contract risks
1. liquidity 2. creditworthiness of the buyer
criminal penalties
3 years in jail or $5,000 in fines
discounted cash flow
A method of valuing an investment, particularly debt securities, by calculating what future cash returns will be worth at the time they are received, based on estimates of future inflation and interest rates is known as
performance based fees
A performance-based fee must be based on capital gains minus capital losses, include both realized and unrealized gains and losses and must reflect a time period of no less than 12 months. above the minimum net worth requirements of $2.1 million
federal covered securities?
A security quoted on the Nasdaq Stock Market. Shares of an investment company registered under the Investment Company Act of 1940. An offering in a security exempt from registration under the Securities Act of 1933. A security that has a federally imposed exemption from state securities registration.
sell stop order
A sell stop order is typically used to protect a profit or limit a loss on a security the investor has already purchased at a higher price. A sell stop order is always placed at a price that is below the current market price.
buy stop order
A stop order to buy is always set at a price that is higher than the current market price. Conversely, a stop order to buy is always placed at a price that is higher than the current price and is used to protect a short sale.
Preservation of capital
Bank CDs
If a client provides no financial information but a check a... Broker dealer should.... Investment advisor should...
Broker dealer should accept only unsolicited orders IA should decline the clients because they have a fiduciary responsibility and cannot act without financial information
DPP
Cannot be actively traded in the secondary market. Written verification of minimum net worth
Municipal Bonds taxation
Dividends are not taxable Capital gains distributions are taxable
REIT
Does not pass through losses to investors Traded in secondary market
appropriate investments for a qualified plan
GIC's (guaranteed investment contracts) and investment grade corporate bonds (A or higher rated bonds)
Not subject to AMT
GO bonds
Gift tax
Gifts of $14,000 per person per year can be given without a tax liability. Gifts in excess of $14,000 per person per year may be subject to tax. The donor, not the recipient, is responsible for any tax liability. The tax rate increases with the size of the gift.
registration may be cancelled if
If an agent dies, is declared mentally incompetent, or mail is returned with no forwarding address, registration will be canceled.
grantor trusts
If the grantor has the power to revoke the trust, he is treated as the owner of the trust. If the grantor or a non-adverse party can control the beneficial enjoyment of the trust, he is treated as the owner of the trust. If the grantor can receive income from the trust, he is treated as the owner of the trust.
Capital Asset Pricing Model
Investors hold diversified portfolios Investors can borrow and lend at the risk-free rate There is a perfect capital market
retirement plans required to establish vesting, funding, and eligibility requirements?
Keogh, profit sharing, pension
Form K-1
Legal entities that pass through income or loss... S Corp and an LLC
Short-term interest rates are more volatile than long-term rates.
Long-term bond prices react more than short-term bond prices given a change in interest rates.
Tactical asset allocation
Market timing: Tactical asset allocation, which attempts to capitalize on short-term market swings, is a market timing strategy. Active management intentionally deviates from the normal asset mix to take advantage of market opportunities.
Bankruptcy Priority
Mortgage bondholders Wages Taxes Stock
securities that are exempt from the registration and advertising filing requirements
Municipal bonds. Common stock listed on the NYSE. Church bonds.
irrevocable trusts
Provide estate liquidity. Insurance proceeds are removed from the estate of the insured for tax purposes.
ETFs
Registers with SEC under investment company act of 1940 as a: Unit investment trust or an open ended company. lower expenses than mutual funds. ETFs can be purchased throughout the trading day. real-time quotes are available for ETFs.
Schedule C
Sole proprietorships
The SEC financial requirements for IAs
Technically doesn't have any
No knowledge of criminal violation
The maximum penalty for criminal violations is $5,000 and/or 3 years imprisonment. However, no prison sentence can be imposed if the person can prove he had no knowledge of the rule being violated.
beta
The measurement that compares a stock's price history to the movement of a total market index for the same period is known as beta
the risk-free rate of interest?
The rate of interest earned on short-term U.S. Treasury securities
Monte Carlo simulation.
The statistical method used to determine the return profile of a security or portfolio that recreates potential outcomes by generating random values based on the risk and return characteristics of the securities themselves is known as the:
Time weighted returns
Time-weighted returns are used to evaluate the performance of portfolio managers separate from the influence of additional investor deposits or withdrawals. Dollar-weighted return is more commonly used for evaluating investor performance.
stop order
To protect the profit on a long position. To prevent loss in a short position.
Who is exempt from offering a prospectus
Treasury notes and private placements are exempt.
dollar falls, exports
U.S. exports are likely to rise.
NOT and IA
Under the Investment Advisers Act of 1940, the following are excluded from the definition of investment adviser: banks or bank holding companies; publishers of bona fide publications of general and regular circulation, such as newspapers and magazines; persons advising about government issues; and persons whose advice is incidental to their profession and for which they receive no separate compensation.
securities exemption rule
When an issuer's stock is listed on the NYSE, any security it issues that is equal to or senior to that stock is a federal covered security and exempt from registration with any state.
market-maker
a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market.
Duration is
a measure of a bond's volatility with respect to a change in interest rates.
keogh plan (tax) (cost basis)
all payouts are fully taxable whatever is made on a self employed / individual basis (no interest)
kiddie tax
applies to unearned income only such as that received in an UTMA account
The antifraud provisions of the Investment Advisers Act of 1940
apply to all conduct that concerns the integrity of the client relationship from an advisory standpoint. As far as actual securities transactions, those are covered under the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934
Preorganization certificates
are limited to a maximum of 10 subscribers
Exchange-traded notes (ETNs)
are unsecured debt securities generally issued by financial institutions such as banks. Prices can be impacted by changes in the issuer's credit rating, even though the value of the underlying securities has not changed. Like exchange-traded funds (ETFs) or other exchange-traded products, they can be bought or sold during normal exchange trading hours
Strategic asset allocation
believe the market is perfectly efficient and stock prices reflect all available information
SEC Release IA-1092
clarify the activities that would subject a person to regulation under the Investment Advisers Act of 1940.
An exchange specialist
dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks
deferred compensation, non-qualified and payroll reduction
don't have to abide by rules (nondiscrimination), not exempt from tax, special benefits to retain key employees (maximum benefit to older employees= defined benefit). in deferred comp benefits are often forfeited if leave company
ADV- w (withdraw)
filed within 180 days of year end becomes effective on... SEC --> 60th day State--> 30th day
Contract obligating both parties
forward contract: not traded on an exchange
buy stop order
goes into effect when a price exceeds "specified price) -to acquire a long position as a stock breaks through resistance. -to protect against loss in a short position. -to protect a profit in a short position. - Buy stop orders are placed above the market and as prices increase, the stops are hit creating additional buying. (accelerate rise in a bull market)
Coordination
going to be offered in multiple states, SEC registration is required
net worth does not include as assets
goodwill, franchise rights, patents, copyrights, marketing rights, all other assets of intangible nature; home, home furnishings, automobile(s), and any other personal items not readily marketable in the case of an individual
The penalty for withdrawals from a 401(k) plan taken before age 59½ is waived
in the cases of death, disability, qualified domestic relations orders (QDROs), medical expenses, certain period payments, and corrections of excess contributions.
Financial leverage
is the use of debt capital. (debt to equity ratio)
ADV Part 2A
it describes the investment adviser's fees, investment policies, and types of investments made.
Growth companies
low dividend payout ratios. potential investment return from capital gains rather than income. high earnings retention ratio. high PE
Customer identification programs (CIPs)
maintained by financial institutions such as banks and broker-dealers (BDs) by the USA PATRIOT Act to prevent the financing of terrorist operations and money laundering
when dealers act as principals they charge
mark ups not commissions
private placement
may be offered to no more than 10 except (financial institutions or BDs)
the adviser's clients are investment companies registered under the Investment Company Act of 1940.
must register with SEC 3.3.2
tax treatment when rolled from 401 to IRA
no current tax but withdrawls are taxed as as ordinary income
registration of a state (USA) investment adviser becomes effective?
noon on the 30th day after filing
Broker dealers may need to post a surety bonds of ___ under USA
not more than deemed by the SEC
Among the differences between a Coverdell Education Savings Account and Section 529 plans are:
one has adjusted gross income limits, the other does not. one has contribution limits set by federal law, the other by the individual state. if the money is not used, money reverts back to the donor in one and to the beneficiary in the other.
Limited partners
passive investors
Cash referral fees
permitted but must be disclosed to client
variable life insurance policy tax implications
policy loan of 95% of cash value has no implications. death benefit has no income tax but may be subject to estate tax
client seeking income
preferred stock is the best choice
Material information change
promptly file
Passive investment style
rebalancing
trusts that avoid probate
revocable and living trusts
The sharpe ratio uses
risk free return, standard deviation, and actual rate of return
LIBOR
short term rates
complex trust
should be used when someone wants two trust features ex. 1. charity 2. beneficiares
The purpose of the Investment Advisers Act of 1940
standards at the federal level for the regulation of investment advisers.
advance/decline line
technical analysis
Finders fees are the responsibility of who to disclose to the client
the IA
Internal Rate of Return
the earnings rate required to reach a specified future value
BETA
the measure of volatility compared to the overall market
"investment counsel"
the principal business of the person is as an investment adviser and a substantial part of the business is providing investment supervisory services (i.e., continuous advice for individual client portfolios). A firm whose exclusive business is placing clients' assets into model portfolios.
If a solicitation is made for something other than impersonal advisory services, or an IA hires third party recruits
the solicitor must receive a signed statement from the client verifying receipt of both the adviser's brochure and solicitor's disclosure document at the time of, or before, entering into a contract and ascertain whether the solicitor has complied with the agreement.
negotiable CDs
unsecured time deposits MM instrument that pays semi-annual interest
registration of a federal investment adviser becomes effective how many days after filing?
within 45 days
Non material information change
within 90 days of end of fiscal year
