Series 65 Part 1
Record Keeping Requirements for Maintaining book of business at principal office is how many years?
2 years
Can't receive compensation for advisory services to a gov. Entity -->
2 years after contribution *Political Contributions "Pay to Play" Rules
A social media term meaning that securities firm links to a third-party sit & indicates that it endorse the content on that site is called
Adoption *someone else created it
Johnny, an employee who makes cold calls soliciting new advisory clients would be considered an?
Advisory client
Even though an issuer of a federal covered security (ex. fortune 500 listed on NYSE) doesn't have to notice file, the company can not make:
misrepresentations during an offer made in any state. This would violate the antifraud provisions act of USA.
In order to be in compliance with the rules, an investment adviser would have to disclose that the firm was acting in a principal capacity when:
purchasing shares directly from advisory clients
An adviser may obtain client consent to a principal or agency transaction after execution but prior to:
settlement of the transaction & an adviser is not "acting as broker" within the meaning of the acts if the adviser receives no compensation for effecting transaction between advisory clients.
The minimum net worth for an IA exercising discretion is
$10,000
Federal Penalties:
$10,000 & 5 years in jail
IA exercising Discretion needs: ___________________ Net Worth or _______________.
$10,000 Net Worth or Surety Bond
BCP or Business Continuity Plan should be based off of:
1- the size of the firm 2- the number of locations of the firm 3-the types of services provided
Exempt Transactions under the USA: Preorganization certificates, maximum of __________ subscribers
10
If an investment adviser representative commits a criminal violation of the Uniform Securities Act, she is subject to legal action for
5 years after the alleged violation Maximum prison sentence is 3 years !
An agent may appeal a final order or revocation order of the state Administrator but a written petition must be filed with the appropriate court within
60 days *of the entry of Administrator's order
Ex. The National Basketball Association is considered a ___________ and would be able to open an account.
A Person
What is an issuer?
A Person who ISSUES, DISTRIBUTES or PROPOSES to issue a security.
According to the Uniform Securities Act, which of the following persons must register with the state Administrator?
A person who represents a non-exempt issuer in sales to the public *Non-Exempt issuer= not exempt from registration
When a security is being registered under coordination, all of the following are required:
A)payment of the appropriate fee B)prompt filing with the Administrator of any amendments filed with the SEC C)a description of the proposed use of the proceeds of the underwriting
Which of the following securities is NOT exempt from the registration and sales literature filing requirements of the USA? A. Shares of investment companies registered under the Investment Company Act of 1940 B. Shares of the Nasdaq Stock Market C. AAA rated Promissory Notes of $100k that mature in 300 days D. Bonds issued by Saskatchewan, Canada
A. Shares of investment companies registered under the Investment Company Act of 1940 -Federal Reg B. Shares of the Nasdaq Stock Market - Federal Reg C. AAA rated Promissory Notes of $100k that mature in 300 days D. Bonds issued by Saskatchewan, Canada - EXEMPT
This ADV includes: business name, org, past 5 yr business, education background, nature of business, balance sheet, authority, compensation arrangement, criminal record, business investment advice, consent to service (no renewals)
ADV Part 1 A
This ADV is for State Registered Advisers only
ADV Part 1 B
Rule 501 defines:
Accredited Investor
A secretary who accepts customers' securities orders is considered to be an:
Agent
Research reports Software Services for benefit of clients Seminar registration fees are considered:
Allowable Soft Dollar payments under Section 28e of Securities Exchange Act of 1934
Who can: -Enforce ALL antifraud provisions as well as violations of the USA -Issue Cease & Desist Order for suspected improper activity Without or without prior hearing (cease & desist before or after a hearing) -If cease & desist order is ignored, can apply to courts for an injunction -Summary orders to postpone or suspend until final determination is reached -No prior notice or hearing -Must hold hearing within 15 days of written request -May investigate & subpoena in any state where registered, whether or not firm has an office in the state
An Administrator
Which of the following is defined as a security under the USA?
An investment contract
If a state-covered IA meets the bonding, net worth, or recordkeeping requirements of the IA's home state, it suffices for:
Any other state in which the IA is registered. Federal-covered IA's meet SEC requirements only.
Client consent needs to happen when?
Before completion of the transaction
Written disclosure to client needs to happen when?
Before completion of the transaction
Investment Advisers are held to HIGHER standards than:
Broker Dealers
Who transacts securities, compensation is commission & markups/markdowns?
Broker Dealers & Broker dealer agents
-Transactions with clients (retail or institutional) -Underwriting new issues -Market-making are functions of a:
Broker-Dealer
A person representing a broker-dealer engaged in business of effecting securities transactions for accounts of others (broker) or for own account (dealer) is a:
Broker-Dealer
Who generally registers with BOTH SEC & State(s) in which they do business?
Broker-Dealer
The Administrator, with proper notice, may examine the financial records of which of the following persons registered in his state?
Broker-dealers and investment advisers
What would the Administrator do if mailings of a registrant were returned with no forward address?
Cancel the registration
Any economic benefit received from any source: fees, commissions, retainer, soft dollars is considered:
Compensation
ALL registrations of persons expire on the first
December 31st after registration, with ANNUAL renewal after that. Registration of securities is effective for one year from the registration date.
State registration expires:
December 31st unless renewed
Select the Asset (AAPL), the Action (buy/sell) and the Amount(100 shares) (3 As)
Definition of investment discretion If an A is missing = Discretionary account Requires: Written authorization prior to 1st Trade (B-Ds)
B-D acting as agent or as principal needs to:
Disclose this to clients
Investment Adviser acting as principal or agent in purchase or sale of recommended securities needs to:
Disclose this to clients
LATE, Lawyers, Accountants, Teachers & Engineers are:
EXCLUDED from the definition of an IA as long as advice is incidental to the practice of profession.
NASAA (state law) defines a substanstial prepayment of fees to be more than $500 6 or more months in advance. While $800 and $5,000 are certainly more than $500, they cover a shorter period than 6 months.
Ex. $800 covering entire contract year is considered substantial vs. $3,000 in the next month or quarter
An investment company has entered into a contract with an investment adviser. The investment adviser seeks to have an exculpatory provision included in the contract. According to the Investment Advisers Act of 1940, which of the following statements is TRUE?
Exculpatory provisions are prohibited in any contract
An individual may act as both as an:
IA & IAR
When an investment adviser representative (IAR) begins or terminates employment with a state-registered investment adviser, only the ___________ must notify the Administrator promptly.
IA (Investment Adviser/Employer)→ Administrator (promptly)
The purchase of which of the following securities by an investment adviser for its own account would MOST likely involve a conflict of interest?
Initial public offerings
________________are often available only in limited amounts. If such offerings are available to the adviser and are also suitable for accounts of certain customers, these customers should be given priority.
Initial public offerings (IPOs)
Person who gives advice, charges a fee/compensation, and the compensation are fees or other charges based on AUM is considered to be a:
Investment Adviser
An individual SUPERVISED by investment advisers -Partners, officers, directors (with active role) -Employees & associates making recommendations, managing accounts, soliciting advisory services -Indv. supervisor Research Analysts- if no advisory clients
Investment Adviser Representative (IAR)
Who is an individual associated with an IA, including those who supervise IARs.
Investment Adviser Representative (IAR)
Currently, registration with the SEC is mandatory (not optional) for any investment adviser managing a registered investment company (open or closed-end). Ex. CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board
It is optional for: 1. pension consultants once their AUM reach $200 million; 2. small and mid-size advisers who would be required to register in 15 or more states; and 3. those advisers with at least $100 million in AUM, but not $110 million in AUM.
Which of the following statements is TRUE regarding the Consent to Service of Process?
It is used for receiving and processing noncriminal complaints.
The legal authority to regulate securities activities that take place in the state is:
Jurisdiction
One acct sells shares to another acct at the same time/ same price is called a:
Matched Order Ex. of Market Manipulation -Creates the false Impression of account activity
According to the National Securities Markets Improvement Act (NSMIA), state Administrators are allowed to set:
Minimum financial requirements not to exceed those set by the SEC
Political Contribution $250
Municipal Financial professional
Preferred method of fee schedule, template to be used for B-D?
NASAA Model Fee Disclosure Schedule
Who requires disclosure of: -Incentive for greater risk-taking -Compensation may be on unrealized gains -Why index was chosen
NASAA- North American Securities Administrators Association
A security that NEEDS to be registered is a:
NON EXEMPT SECURITY NonExempt Securities→ Registered → Coordination → Qualification
These are NOT _________: 1-Insurance or endowment policy, annuity contract 2-Retirement Plan (IRA or 401k) 3-Collectibles 4- Commodities (precious, metals, grains, soybeans, corn) 5- Condominiums used as personal residency (not resort rentals) 6-Currency
NOT Securities *& **Not regulated by State securities law
Clerical, Admin, Individual providing impersonal investment advice and research analysts are
NOT an Investment Adviser Representative & Excluded from the term IAR
Material Changes require _____ notice to the Administrator.
PROMPT
This ADV must be completed by all advisers registering with the SEC or any State securities authority.
Part 2 A *think A for ALL registrations, advisers provide narrative to firm
An individual wishing to register as an agent with a broker-dealer may have to
Pass an Examination & post a bond
What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure?
Proceed with the account, but make a supervisory person aware of this.
Recommending BOTH sides during Agency Cross Transactions to advisory clients to save them substantial commission is:
Prohibited actions by registered IA *No, only recommend to buyer or only seller
Clients must receive a statement _________________ if they have funds in their account.
Quarterly
If a Advice is in Violation of the USA, the Rights of client:
Recover advisory fees, losses on recommendations, court, legal fees, interest minus income received
30 days notice: if buyer receives offer of rescission & fails to accept or reject within 30 days, may not sue is called the:
Right of Rescission
A)bonds issued by the District of Columbia B)securities issued by a credit union authorized to do business in the state C)bonds issued by a Canadian province Are
Securities under Section 402 that are granted an exemption from the registration and advertising filing requirements of the USA Act. **corporate debentures would need to register
No using Material inside information after stop or limit order is place, effecting transactions off the books of the agent's employing BD without prior written permissions, this practice is sometimes called:
Selling Away
1-Reimbursement for travel expenses to seminars 2- Furniture, equipment, rent Are NOT considered:
Soft Dollar Payments, NOT protected under Section 2
If MMM has principal office in State A and is also registered in State B,C &D, MMM would have to meet net worth or bonding requirements of which state?
State A
James Stillman is an investment adviser representative with Rock, Feller, and Standard (RFS), a covered adviser with its principal office in State O. Stillman works out of an office in State P and has 4 retail clients there. In addition, Stillman has 25 retail clients in State D, 6 retail clients in State M, and 1 retail client in State O. Stillman would be required to register as an investment adviser representative in
State P *Please note that, as long as an IAR with a covered adviser does not maintain a place of business in a state, there is no numerical limit on the number of clients he can have and still be exempt from registering in that state.
An issuer is nonexempt (not exempt) from registering securities in the __________ it was sold.
State it was sold.
An agent exercising discretion (cannot have custody) may have to post a:
Surety Bond
According to the National Securities Markets Improvement Act (NSMIA), state Administrators are allowed to set Minimum financial requirements not to exceed those set by:
THE SEC
Supervised person's U4-
Tenure of Individual
This law requires issued securities to be registered in the state:
The "Blue Sky" law
This law requires: 1-State registration of broker-dealers and agents 2- State registration of investment advisers and investment adviser representatives
The "Blue Sky" law
Which act covers for the financial regulation in the US?
The Dodd-Frank Act
This act eliminates the duplication of state & federal securities regulation.
The National Securities Markets Improvement Act of 1996 (NSMIA)
An adviser who manages $140 million in assets is recommending the sale of Nasdaq-listed securities to a client. Which of the following statements is TRUE?
The adviser is a federal covered adviser and exempt from state registration, and the securities are federal covered securities and exempt from state registration
Under the Uniform Prudent Investor Act, which choice BEST explains the level of care a trustee must exercise when managing a trust?
The objectives of the trust as a whole should be taken into consideration when making investment decisions *not just consider beneficiaries; however, must pay attention to beneficiaries' total assets.
An investment adviser representative (IAR) who works for a federal covered investment adviser has engaged in trading that was considered excessive in regard to both the size and frequency of the trades. According to NASAA's model rule, who is responsible in this situation?
The rules would apply to both the IAR and IA
The owner of a small investment advisory practice has decided to close her firm. The adviser currently has a sizable surety bond posted with the state Administrator and the owner wants to use these funds for personal reasons. The adviser is required to maintain the bond with the Administrator for:
Three years following the firm's withdrawal date
Annuities with fixed payouts are NOT securities but what annuities are?
Variable
This represents the purchase of the rights to the death benefit from an individual's life insurance policy.
Viatical Investment or Life Settlement
Annual updating amendment to Form ADV - "Annual Updating Amendment" ? Show? Requires?
Within 90 days of fiscal year's end Show assets under management (AUM) to verify continued SEC registration; must have at least $90 million in AUM Payment of appropriate renewal fees
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, the contract between an investment adviser and its clients shall be in
Writing
Jim is a director and is soliciting commitments from public investors for which he will earn compensation. Does Jim have to register as an agent?
Yes
A transactional exemption would be offered when a sale is made by
a court-appointed guardian for a minor
6 or fewer clients is:
above the de minimus exemption limit
Individuals functioning as agents must be registered with an
active broker-dealer in order for their registrations to be valid.
The term exempt reporting adviser refers to
advisers that rely on either the venture capital fund adviser exemption or the private fund adviser exemption **They are exempt from registration on either the state or federal level. However, even though they are exempt from registration, they must file certain portions of Form ADV
A type of fraud using social media where the fraudsters pretend to be member of a group, sometimes using respected leaders of the group to spread the word about the scheme is known as
affinity fraud
A federally chartered credit union is domiciled in Texas. The credit union is making an offering of securities in Nebraska. To comply with the Uniform Securities Act's exclusion from the definition of agent, any individual offering the security in Nebraska could not sell without being an:
agent
There is no way for an individual to represent a broker-dealer in a securities sales function without being an:
agent
Best execution, does not always require lowest commissions, must consider:
all services being rendered *Recognize limitations of own capabilities
A PERSON IS:
an individual, natural person, corporation, partnership, association, company, trust.
IAR registration only required in states where that individual has a place of business. Place of business of IAR means:
an office, or location held to general public to meet & communicate with clients
ADV needs to be updated:
annually, within 90 days after end of fiscal year
An exempt security, is not exempt from the:
antifraud provisions of the USA.
Securities Professionals Cannot infer or imply __________
approval of qualifications by any regulatory body or Disclaimer on prospectus in RED.
Lenders are permitted by other:
banks & broker-dealers
In a nonissuer transaction, the proceeds of the trade do not:
benefit or go to the issuer
Buying and selling securities is the job of the:
broker-dealer
An associated person is any officer or person in a control position to the broker-dealer or any employee of the broker-dealer, except for
clerical or ministerial employees.
A private placement will lose its exemption if those who sell the offering are paid
commissions on sales to noninstitutional clients.
Common Issuers of securities are:
companies or government (federal, state, municipal gov. & their agencies)
A person not charging a fee for financial plan, but is receiving commission on the sold insurance policy because that was part of the financial plan for the individual is considered:
compensation for investment advice
ALL professionals file a _______________ of process as a permanent part of their registration.
consent to service
No one can solicit sales during the ____ period, but indications of interest can be solicited with a red herring.
cooling-off period
Nasdaq securities and mutual funds are federal covered securities and exempt from state registration requirements like:
coordination and qualification but may require notice filing
Political Contribution De minimus: $350 →
covered employee
Exemptions Under state law include:
de minimis: no place of business in states 5 clients in 12 months & snowbird (vacationing client)
Under the Uniform Securities Act, prepaid advisory fees must be:
detailed in the advisory contract & in excess of $500 for 6 months or more of service require the adviser's balance sheet to be included in the brochure
An Administrator may restrict the activities of a registered agent who is
determined to have become insolvent.
In a Nonissuer transaction the proceeds of the sale do not go:
directly or indirectly to the entity. Ex. NY Stock Exchange or Nasdaq stock market (Person other than the issuer)
Continuous and regular supervisory or management services include having:
discretionary authority & regular supervisory or management services to the account or no discretionary authority over the account but you have ongoing responsibility to select or make recommendations based upon the needs of the client.
Unless there's an appearance of fraud, the Administrator does not have the power to prevent the sale of a:
federal covered security
The term "exempt transaction" includes sales by
fiduciaries, private placements and isolated nonissuer transactions.
A "purported gift" is:
generally defined as any transfer of property (including cash) by a partnership or foreign corporation, other than a transfer for fair market value, to a person who is not a partner in the partnership or a shareholder of the foreign corporation
A sale DOES NOT include:
gifts of non-assessable stock
The Uniform Securities Act defines a guaranteed security as one where the payment of interest and principal (bond) or dividend (stock) is:
guaranteed by a party other than the issuer
Consent of the client before completion of a trade made between the firm and a client must be made when an investment adviser will be acting
in the capacity of a principal or agent *with advisery client
What's an advisory client?
including investment companies, private funds and managed accounts for which an Adviser serves as an investment adviser or sub-adviser, renders investment advice, makes investment decisions or places orders through its trading department.
Disclose personal trades if:
inconsistent with advice given to client, or investment adviser benefits from client acting on recommendation
Hal owns a successful plumbing business. If he engages in a substantial amount of short-term trading in stocks for his own benefit, he would be considered an:
individual investor
With no place of business in the state, the IA can have an unlimited number of:
institutional clients without registering Ex. banks, hedge funds, mutual funds, REITs, insurance companies, pension funds
A person must meet the 3 three-pronged test as an ________________.
investment adviser
A person who assists pension plans in the selection of portfolio managers is an:
investment adviser
Broker-dealers and mutual fund companies are not
investment adviser representatives under the Uniform Securities Act.
As used in the regulations, the term impersonal investment advice means
investment advisory services provided by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts impersonal
Under the Investment Advisers Act of 1940, it is legal for an investment adviser to
keep the commission on a mutual fund sale when the client who purchased the shares has already paid for investment advice, with disclosure reduce a client's advisory fee by any commissions earned on mutual fund sales to that client b/c mutual funds are not negotiable
Both tipper & tippee are held:
liable Ex. Reg Representative & BD may also be liable → knowingly bought or sold asset when client shared they had inside information & Bounty $money is given to informant, whistleblower.
Matched Orders & Washed Trades are prohibited practices under USA and are considered forms of:
market manipulation
A radio or television program is considered to originate in the state where the:
microphone or television camera is located
No rebating commissions on:
mutual funds
A person that manages portfolios and assets for its clients is NOT
necessarily and IAR- this could be a firm (IA) or BD not an IAR.
The Securities Act of 1933 was designed to provide regulation in the:
new issue market.
State- Registered IA's qualify for exemption under: de minimis rule which means:
no place of business in state & 5 or fewer retail clients
If client gives All 3 A's Asset, Action , Amount this is a:
non-discretionary account
If a broker-dealer purchases 100,000 shares of common stock from an individual investor, this is a:
nonissuer transaction
A trade between two investors for IBM stock on the New York Stock Exchange (a secondary market trade) would be an example of a:
nonissuer transaction.
All IAR's must be registered in at least:
one state
Administrator retains jurisdiction for:
one year
Political Contribution $150 per election
other elections (outside state)
The burden of providing an exemption or an exception from definition falls on the:
person claiming it
Rebating commissions on mutual fund sales is
prohibited
USA requires fees to be competitive whereas Federal law requires them to be
reasonable
One way in which the penalty for a civil infraction differs from that for a criminal one is that in the civil case, the guilty party cannot
receive a jail sentence
If a BD has an office in a state, it must:
register
Impersonal investment advice (market newsletters), market timing recommendations (buy or sell), no management responsibilities is not considered:
regular and continuous management to account *investment counsel
Nonsecurity investments are not:
regulated by state law
Included among the powers of the Administrator is the ability to
request the court to appoint a receiver to freeze the bank accounts of a broker-dealer who is the subject of an injunction NOT deny the registration of a securities professional, if doing so is in the public interest- there needs to be another issue too.
If a person is not excluded or exempt than, registration is:
required
Another word for individual is a:
retail client
Among the actions the Administrator is authorized to take against a person's registration are
revocation, bar, or restriction of activity.
ADRs, bonds, stocks (equities), rights, warrants, swaps, variable annuities, viatical investments, REITs, interests in oil & gas drilling programs, collateral trust certificates, interest in farmland, options on futures and commodities are ALL:
securities
In order for a security to lawfully be sold or offered under the USA, it must meet at least one of the following requirements EXCEPT
that it is registered with the SEC (because it can registered with the STATE/USA)
Wayne LTD is a B-D with offices in New Jersey. They place an ad for new securities in New Jersey Gazette. Appx. 55% of NJ Gazette's readership is in Delaware. Under what jurisdiction would this ad lie with?
the Administrator of New Jersey because 55% is less than 2/3 & it originated in NJ. IF 75% read it in Delaware, jurisdiction would be in Delaware.
Although not foolproof, the existence of an available SEC registration statement greatly reduces
the likelihood that a deal like this is a scam. *It's a good thing
An investment adviser has devised a charting system and wishes to advertise this fact in order to obtain additional clients. To do so, the USA would require a statement as to:
the limitations of and difficulties involved in using this system
The NASAA Model Rule on Business Continuity and Succession Planning requires that every investment adviser shall establish, implement, and maintain written procedures relating to a business continuity and succession plan. The Rule requires that
the plan shall be reasonable in relation to the IA's business model and size.
It has been a great year at Capital Funding, Inc., an SEC-registered broker-dealer that is also registered in 22 states. The company decides to share its good fortune with employees by paying a year-end bonus equal to 31% of annual salary. In order for clerical personnel to receive this bonus,
they must be employees of the broker-dealer.
Only state facts- no approvals. Ex. LMN Securities, a B-D registered with the SEC in more than a dozen states, has just become a member of the NYSE. IT would be permitted for LMN to tell it's customers that:
they're now members of the NYSE (*not add testimonial, approval etc)
The Administrator may only consider what is on the person's record and consider the crime uner the statutes of the state:
where it occured.
The Uniform Securities Act defines a guaranteed security as one
where the payment of interest and principal (bond) or dividend (stock) is guaranteed by a party other than the issuer. *The one thing not guaranteed is a profit (capital gain).
Canada renews when?
1st of December
A contract of sale A contract to sell The disposition for value of an interest in a security A warrant (for common stock of the issuer) given with the purchase of a bond are examples of the term:
"sale"
Defalcator Investment Planning (DIP) has $175 million in AUM and has offices in States A, K, and R. DIP would be required to provide a balance sheet as part of its brochure if it charged fees of
$1,500 for the next year's advisory service. *$1,200, 6 or more months in advance. **at least 6 months of service to count
Transparent Investment Advisers (TIA) is registered in 3 states and has $55 million in assets under management. TIA maintains custody of customer securities. TIA's chief financial officer reports that the net worth of the firm has suddenly fallen to $28,000. This would require TIA to obtain a surety bond in the amount of :
$10,000. *Needs $7k, but pays in increments of $5k.
An investment adviser who maintains custody of customer funds and securities discovers that it's net worth is only $23,000. Even though the adviser only needs net worth of $35,000, this would require immediate surety bonding in the amount of:
$15,000 (because they round to the nearest $5,000)
Under the NASAA Model Rule on financial requirements for investment advisers, investment advisers who have custody of customer funds are usually required to have a net worth in the amount of
$35,000
IA maintaining custody of Customer Funds/Securities need:
$35,000 net worth or a Surety Bond. (USA)
State Penalties:
$5,000 & 3 years in jail
Under the Uniform Securities Act, violations of the act may result in criminal penalties of up to
$5,000 or 3 years in jail Statute of limitations is 5 years
The brochure, ADV Part 2 does not have to be delivered to all clients; those purchasing impersonal advice for less than:
$500 per year are exempted.
What removes the exclusion from "LATE" as giving investment advice?
**Charging the advice REMOVES the exclusion.
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to lend money to a:
- bank that is a client of the advisory firm & borrow money from a mortgage broker who is an advisory client of the firm
Which TWO of the following persons are required to register as agents according to the Uniform Securities Act?
-A life insurance salesperson who solicits sales in separate account products -A branch manager of a brokerage firm who supervises several salespersons who are engaged in the sale of securities
Except as limited by the Securities Exchange Act of 1934, the state securities Administrator may require, by rule or order, that broker-dealers make or maintain which of the following records?
-Account ledgers -Correspondence -Papers and memoranda -Blotters and books
All cases- final order of the Administrator
-Appropriate prior notice -Opportunity given for a hearing -Written findings of fact and conclusions of law
B-D's do NOT have to disclose these fees:
-Commissions -Markups & markdowns -Advisory fees (these 3 are disclosed in other documents)
Antifraud Provisions apply to the following:
-Exempt Securities -Exempt Transactions -Registered Securities -Advice on Securities -Not on Sale or Advice with non securities (corn, lead, copper, collectables, gems)--> not covered under antifraud provisions law **only covers securities
Representatives are allowed to borrow funds from clients that are actively engaged in the business of loaning money or affiliates of the investment adviser. Examples include:
-Financial institutions (e.g., banks and broker-dealers) regularly lend money; therefore, borrowing from them is permitted. -A subsidiary NOT family members
3 three-pronged test includes:
-Gives advice on securities -Does so as a regular part of business activity - Receives compensation for performing activity
Typical fees of a B-D include:
-Issuance of a stock certificate -Account transfer -Wiring Fees -Margin account interest -Postage & handling -Annual account fee -Safekeeping certificates
An administrator may Deny suspend or revoke a license if:
-It must be in the public interest & one of the following must have occurred: -Filing false or misleading application -Any felony or securities-related misdemeanor conviction within the last 10 yrs -Willful violation of the USA's ethical trade practices -Court injunction/administrative order -Disciplinary action by other securities authorities within the last 10 years -Dishonest, unethical practice -Firm's failure to Supervise employees -Failure to Pay Fees -Insolvency -The applicant is not qualified on the basis of such factors as training, experience, and knowledge of the securities business. -The Administrator may not deny solely on the basis of lack of experience if the applicant is qualified by training, knowledge or both.
Under the USA, it's unlawful for any person to offer or sell an unregistered security in a state unless:
-It's registered under the Act - The security or transaction is exempted from registration under the Act or it's -a federal covered security
An agent mistakenly sold an unregistered, nonexempt security to a customer. Which of the following actions should the broker-dealer take?
-Offer to buy the security back from the customer -Offer to pay interest at an annual rate determined by the Administrator, less income paid, from the date the security was purchased = Right of rescission
Disclosure of number of shares offered by each state is not required to State Administrator. Only:
-Other states in which registration statement has been filed -Amount of securities offered in the state -Any adverse ruling entered in connection with the offering by a state regulatory
Define Agent:
-Register representative -Individuals representing Broker Dealer in effecting or attempting to effect purchases or sales of securities -Individuals representing an issuer in effecting or attempting to effect purchases or sales of securities
Private Placements are an exempt transaction under the USA that's restricted to:
-Restricted to 10 offers in 12 months other than to institutional clients -No immediate resale of purchase (6 month lock) except for institutions -No Compensation paid on sales to non-institutional (retail) buyers
These securities are no longer regulated by the States, created by NSMIA and are exempt from state regulation because they are Federally covered securities:
-Securities listed on the U.S exchanges (NYSE, Nasdaq, etc) -Certain Regulation D offerings (private placements) -Municipal securities issued outside the state -Securities issued by registered investment companies (mutual funds)
Federal covered & State registered IA Contracts need to include:
-Services to be provided -Duration of the contract -Advisory fee -Formula for computing advisory fee -Amount of prepaid fee returned if contract is terminated -Whether discretion is granted -No waiver of fees for underperformance -Assignment only with consent -Notification to clients of changes in advisory partnerships -Only when the change is to a minority interest If a majority interest changes, it is assignment (consent needed)
The Administrator would not have jurisdiction if the offer were made by:
-Television, radio broadcast originated outside of the state 2- bona fide newspaper or periodical published outside of the state 3- Newspaper published inside the state but 2/3 of it's circulation was outside of the state.
Criminal Penalties of USA:
-Willful violation of the USA -Fines to $5,000 jail up to 3 years, or both -Statute of limitations is 5 years for fraudulent activity -60 days to appeal final order -Appeal does NOT act as a stay unless ruled otherwise by the court
An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state
-upon discovery that the broker-dealer's license had been suspended in another state -upon discovery of new facts unknown to the Administrator at the time of the broker-dealer's initial registration
Filing fees for registering securities are effective for:
1 year from effective date
In general, registration statements for securities are effective for:
1 year from the effective date
Which of the following statements is (are) TRUE?
1- A person included in the definition of an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular basis as a business headquartered in a state, is subject to payment of filing fees required by the state Administrator. 2- Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration. *A federal covered adviser may be subject to payment of state filing fees.
Sales of viatical investments can be made only to suitable investors. Which TWO of the following investors are considered suitable?
1- An accredited investor under Regulation D 2- Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000 *not including their residence
Unlike an investment adviser, there are no ongoing recordkeeping requirements for IAR's. Annual renewal is on _______ & requires ___________ and if material changes update form _____within ______ days.
1- December 31st 2- payment of fees 3- U4 4-within 30 days
Under which of the following circumstances can an Administrator initiate a suspension or revocation proceeding against a broker-dealer registered in the state?
1- On discovery that the broker-dealer's license had been suspended in another state 2- On the conviction of a violation of the Securities Exchange Act of 1934 *Only 1 year after the broker-dealer has withdrawn its registration
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser shall obtain client consent before completion of the transaction!!! In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements:
1- The client receives full written disclosure as to the capacity in which the adviser proposes to act 2- Consent of the client Both of these are required before the completion of the transaction.
Under the Investment Advisers Act of 1940, which of the following is (are) excluded from the definition of investment adviser?
1- The publisher of a financial newsletter on a paid subscription basis, which contains only general securities recommendations 2- Persons whose investment advice relates solely to issues distributed or guaranteed by the U.S. government
According to NASAA Model Rule 502(c), regarding contents of investment advisory contracts, an advisory contract would include which of the following choices? Hint: clauses are ok but waivers are not.
1- The term of the contract 2- A non assignment clause 3- A clause requiring the adviser to notify clients of any change in membership if the firm is a partnership
What makes someone a federal covered investment adviser?
1- Those registered with the SEC ($100mill AUM) 2- Those under contract to manage an investment company registered under the Investment Company Act of 1940 (& mutual fund- regardless of AUM) 3- Those not registered with SEC because they're excluded by definition of an investment adviser by the Investment Advisers Act of 1940. Advice limited solely to securities issued by the US government or one of it's agencies.
Cash referral fees to solicitors under Investment Advisers Act of 1940 Must have:
1- Written agreement (disclose conflicts of interests) -Description of activities & compensation -Agreement to brochure -The IA receives acknowledge from documents been received -3rd party solicitors for covered advisers are not required to be registered as IAR
Third party solicitors for an investment adviser must be in compliance with the Investment Advisers Act of 1940,
1- compensation may not be sales related 2- the solicitor must not be subject to statutory disqualification
Under Antifraud, it's unlawful for any person who directs advice as an investment adviser to:
1- employ any device, scheme or defraud the other person 2- to engage inany act, practice, or course of business which operates or would operate as a fraud or deciet upon other person * Same with B-D + make any untrue statement of material fact or omit material
Sam wants to start his own registered investment adviser firm, independent of the brokerage firm where he is registered as an agent. He plans to provide financial planning services, which will include investment advice as an integral part of his business. Sam must
1- file with either the state securities Administrator or with the Securities Exchange Commission as a registered investment adviser by filing the appropriate Form ADV 2- notify his current brokerage firm and receive permission to operate independently from the firm as a registered investment adviser
Firm policies for social media should be:
1- firmly established in writing & communicated firm-wide 2- be precise 3- clearly define employees responsibilities 4- explain how they are to be monitored on each electronic platform
The industry is concerned about the protection of both firm and customer data. It would be acceptable to store this information
1- on a cloud-based server 2- in paper form 3- on computer disks 4- on microfiche
The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if:
1- results do not reflect the deduction of fees 2- actual market conditions during the referenced period are not disclosed 3- the advertisement did not reflect performance for a minimum period of 1 year 4- the advertisement did not disclose that it applied to only a specific group of clients
Investment Adviser & B-D always have authorization of
1- time & price (for day) 2- Day order
Which of the following securities are exempt from registration requirements under the Uniform Securities Act?
1-Issues of U.S.-based insurance companies authorized to conduct business in the state 2- NYSE traded issues *Federal 3- Issues of nonprofit religious organizations 4- Commercial paper meeting certain requirements
A state-registered investment adviser offers wrap fee programs to certain clients. Which of the following statements about wrap fee arrangements is true?
1-Material changes to wrap fee programs must be filed promptly with the Administrator. 2-Nonmaterial changes to wrap fee programs must be disclosed to the Administrator within 90 days of fiscal year end. 3-Information on Appendix 1 of Form ADV Part 2A must also be contained in client disclosure documents. NOT True: makikng discolsoures to the sSEC
Under which of the following circumstances can an Administrator initiate a suspension or revocation proceeding against a broker-dealer registered in the state?
1-On discovery that the broker-dealer's license had been suspended in another state 2-On the conviction of a violation of the Securities Exchange Act of 1934
Under the Securities Act of 1933, when registering securities with the SEC, who must sign the registration statement?
1-The chief executive officer (CEO) 2-A majority of the board 3-The chief financial officer (CFO)
One of your clients has called you to discuss an interesting investment opportunity discovered on one of the LinkedIn groups she participates in. Which of the following factors might increase the likelihood that this is a scam?
1-The purchase money must be wired to an offshore account 2-One of the members of the group is a principal in the company being offered 3-Bonus shares are offered for recruiting friends into the deal
According to NASAA Model Rule 502(c), regarding contents of investment advisory contracts, an advisory contract would include which of the following choices?
1-The term of the contract 2-A nonassignment clause 3-A clause requiring the adviser to notify clients of any change in membership if the firm is a partnership
NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed?
1-Transaction-based compensation, such as commissions on recommended securities 2- 12b-1 trails on no-load mutual funds in the client's portfolio 3- Expenses reimbursed by third-party sources
In conducting investigations, the Administrator may
1-require a person to file a statement in writing and under oath 2- publish information of any violation over the vigorous objections of a violator 3- make investigations both inside the state and in other states to determine whether violations of the USA have occurred in his state Not determine violations of other states
Causes listed in the Uniform Securities Act that could lead to the revocation of the registration of a broker-dealer would include 1-the conviction of a principal officer for a securities-related crime 2-the firm had no employees 3-the firm was unable to meet its obligations as they came due
1-the conviction of a principal officer for a securities-related crime & 3-the firm was unable to meet its obligations as they came due & insolvency but no rule for # of employees by broker-dealer
Which of the following are exempt transactions? 1. A nonissuer transaction with a bank in a Nasdaq traded security? 2. An unsolicited request from an existing client to purchase a nonexempt security 3. The sale of an unregistered security in a private, nonpublicly advertised transaction to 10 noninstutional purchasers over a period not exceeding 12 months. 4. The sale of unlisted securities by a trustee in bankruptcy.
1. A nonissuer transaction with a bank in a Nasdaq traded security? 2. An unsolicited request from an existing client to purchase a nonexempt security 3. The sale of an unregistered security in a private, nonpublicly advertised transaction to 10 noninstutional purchasers over a period not exceeding 12 months. 4. The sale of unlisted securities by a trustee in bankruptcy.
BD & Agent Registration include:
1. Citizenship 2. State registration (USA) does not require fingerprints 3. Registration in suspense when BD inactive 4. Surety bond required if maintaining discretion 5. Multiple registrations - affiliated or ok by Administrator
Sale Does NOT Include:
1. Gifts of non-assessable stock 2. Stock dividend or stock split (if no payment) -Stock dividend. Own:100 shares 2% stock dividend - 102 shares -NOT considered a sale if EVERYONE received it. Same w/ Stock Split 3. Bona fide pledge or loan (use stock as collateral); or 4. Act resulting from approved merger or business reorganization
Fraud is intentional. It has 3 parts:
1. Misrepresentation of a material fact (it has to matter) 2. Reliance on the misrepresentation 3. Injury or harm occurring as a result of the misrepresentation Always unethical (against the law) but not all unethical activities are fraudulent- accidentally breaking the law. *Ex. Intentionally misstating a company's net income to a potential investor is both: Fraudulent & Unethical.
New Firm/ Acquisition/Merger requires:
1. NEW Application filed (effective for remainder of year) 2. No additional filing fees
IAR Registration Effective Date:
1. Not solely on passing exam 2. Not until granted registration by state- notification to the firm 3. Can perform clerical duties
If a Sale is in Violation of the USA, the Rights of buyer are:
1. Recover $ money + reasonable interest (or state's legal rate) - income received during period 2. Court costs & attorney fees, but not damages
In conducting an investigation the Administrator or any officer designated by him has the power to:
1. Require statements in writing, under oath relating to investigation 2. publish and make public the facts being investigated 3. subpoena witnesses & compel their attendance & testimony 4. take evidence and require the production of books, papers, correspondence
Unlike coordination, where the effective date is triggered by ______, a registration by qualification becomes effective whenever the _____________ so orders.
1. The SEC 2.The state Administrator
No unauthorized disclosure of confidential client information is allowed unless:
1. The client has consented 2. The information is required by a court order (divorce, IRS) 3. The account is joint with spouse
Broker Dealer Disclosure of Fees:
1. Typically disclosed when a customer account is opened 2. Must be up-to-date 3. Fee Changes (with B-D Ex. $75 to have an acct open at the B-D) 4. Typically at least 30 days in advance 5. Methods use: email, postal mail, or website 6. Disclosure method used: Chart, List, Table, Narrative
Unlike BDs, IAs can use oral authorization for discretion for:
10 business days after initial discretionary trade. After that, written only.
As an investment adviser, you are required to record and keep a record of every transaction in a security for a client's account within: ______ days of the end of each quarter excluding...
10 days of the end of each quarter, excluding direct obligations of the U.S. government
State version of Regulation D, limits private placements to no more than
10 non-institutional investors -Purchases made for investment purpose only -No commission paid for soliciting non-institutional investors
An agent is soliciting investors for a private placement. Under the Uniform Securities Act, this is an exempt transaction as long as the agent doesn't offer the securities to more than:
10 retail investors during a 12-month period
Private funds, a 3(c)(1) issuer is one whose outstanding securities are beneficially owned by not more than:
100 persons and no public offering
If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within
15 days
A firm can qualify for SEC registration if the adviser is registered in ___ or more states.
15 or more
According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are TRUE? 1-It must be filed with the state Administrator. 2- A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, 6 or more months in advance. 3-Certain minimum business and education qualifications must be met before an investment adviser can file. 4-It may be used to satisfy the brochure requirements of the act. hint* Federal (investment advisers act)
2&4 2- A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, 6 or more months in advance. 4-It may be used to satisfy the brochure requirements of the act. **1 is state required
After filing a registration statement with the SEC, a ____ day ____ period begins.
20 day cooling-off period (before the registration becomes effective)
Under state & federal law, a person is deemed to be in control of an IA with an ownership level of at least:
25%
BD records must be kept for
3 Years
Company records, such as corporate charters or partnership agreements, must be maintained in the principal office of the IA or BD and preserved until at least: ______ years after termination of the enterprise.
3 years
GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of
3 years
Preserve agreements for ________ years after termination of the enterprise?
3 years
Administrator has the power to shorten period of registration which takes place normally in:
30 days
Under USA, a person may take initiative and request withdrawal of registration. This is effective:
30 days after Administrator receives it (hold jurisdiction for 1 year) **FINRA's jurisdiction is 2 years
According to the Investment Advisers Act of 1940, personal security transactions by an access person must be reported no later than:
30 days after the end of each calendar quarter
Regulation D allows you to sell to more investors (how many?) and you don't have to register with SEC or State.
35 investors
According to NASAA's Prohibited Conduct of IAs, IARs, and federal covered IAs, Model Rule, publicly distributed, written materials are defined as any written materials distributed to:
35 or more persons who pay for the materials
IA records must be kept for
5 years
Record Keeping Requirements for Maintaining book of business is how many years?
5 years
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately. Ex. Sending a written acknowledgment to the client that the complaint has been received
Under the Uniform Securities Act, which of the following persons is a broker-dealer in State B?
A broker-dealer that is registered in State A, where its only office is located, and has only three retail clients who are residents of State B *no de minimus exception for B-D
What ends litigation?
A final order but this may not be issued with out the administrator giving proper notice, granting opportunity for a hearing & providing findings of face and conclusions of law.
Investment Counsel:
A firm whose business is placing their client's assets into model portfolios that are monitored on a daily basis. 1- investment advice given, adviser must provide supervisory services
Which of the following investment advisers would be permitted to use the term "investment counsel"?
A firm whose exclusive business is placing clients' assets into model portfolios
An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep?
A statement, signed by the client, that both the IA's and solicitor's brochures were received **When a third-party solicitor engaged by an investment adviser makes contact with a potential client, that client must acknowledge, in writing, the receipt of the brochures of both the adviser and the solicitor
Advertisement published on the effective date (one that simply identifies the security, the price & the underwriters) is not considered a prospectus nor a offering is a:
A tombstone advertisement
What's printed to generate interest, not a prospectus or offerings?
A tombstone advertisement
The state securities regulator, is the person responsible for not only administering & enforcing the securities laws in a state, but educating investors as well. They are known as a:
Administrator
Securities that are registered through qualification may only be sold once the registration has been declared effective by the:
Administrator Ex. Intrastate offerings
Securities need to be registered with the:
Administrator, may be sold in an exempt transaction, that it is an exempt or federal covered security
All of the following securities are exempt from registration provisions of the USA except: A. An issue of a savings & loan association authorized to conduct business in the state B. a U.S Treasury bill maturing in 52 weeks C. a bond issued by a company that has common stock listed on the NYSE D. common stock listed on the Vancouver Stock Exchange
A. An issue of a savings & loan association authorized to conduct business in the state - Exempt issuer B. a U.S Treasury bill maturing in 52 weeks - Exempt from State & Federal C. a bond issued by a company that has common stock listed on the NYSE - Federal covered/ Exempt D. common stock listed on the Vancouver Stock Exchange (VSE)
The Administrator has power over any offer to buy or sell that: -Originated in the Administrator's state CA -Was Directed to the Administrator State OH -Was Accepted in the Administrators state NJ Who has jurisdiction?
ALL 3 Administrator's have jurisdiction **However, the Administrator does not have jurisdiction merely because a check was mailed or certificates were sent from the Administrator's state. Ex. IL, no administrator's jurisdiction **clerical/administrative function, NO jurisdiction
Administrators CANNOT make:
APPROVALS
Which of the following securities is NOT exempt from the registration and advertising requirements of the USA? A. Shares of Commonwealth Edisin, a regulated public utility holding company B. Securities issued by the nonprofit Carnegie Endowment for Peace C. Securities issued by a bank that is a member of the Federal Reserve System D. Variable Annuity contract issued by Metrodential Insurance Company, licensed to do business in the state.
A. Shares of Commonwealth Edisin, a regulated public utility holding company B. Securities issued by the nonprofit Carnegie Endowment for Peace (charity) C. Securities issued by a bank that is a member of the Federal Reserve System D. Variable Annuity contract issued by Metrodential Insurance Company, licensed to do business in the state. - Have to register!
These are all considered a __________ investor under 501 Regulation D: -a bank, insurance company, investment company, or employee benefit plan valued in excess of $5 million -a wealthy person, in some cases -partners, officers, and directors of the issuer for a particular issue
ACCREDITED INVESTOR
Exempt reporting Advisers (ERAs) file a Form:
ADV Part 1 (they don't answer all of the questions) but do not have to prepare a Form ADV Part 2.
This ADV must be completed by advisers registering with a state securities Authority only (NOT required by SEC) - asks additional questions required by state securities
ADV Part 1 B
-Client executives a written consent prospectively authorizing these transactions -Written disclosure to client before completion of the transaction -Recommend the trade to both parties -Representing both sides of the trade is necessary to disclose in a:
Agency cross transaction
-Exclusions representing BD: Clerical & admin personnel & Board member or capital contribution (silent partner) -USA representing issuers -Individual who represent an issuer ineffective transactions -In securities issued by one of the 5 specified exempt issuers With employees of the issuer & no compensation received are NOT an:
Agent:
Individuals representing a broker-dealer in effecting securities transactions are:
Agents
Individuals employed by broker-dealers to handle their customer orders to buy/sell securities are:
Agents (ex. Insurance company agents need to register)
Who can Deny, Suspend Cancel or Revoke Registerations?
An Administrator ** Cannot deny registration only based on public's best interest or lack of qualification
An: -Attempt to solicit purchase -Attempt to dispose of security or interest in security for value $ -Sale of rights, warrants, or convertible security is an _________
An Offer of the underlying stock
Under the Uniform Securities Act, which of the following would be included in the definition of an investment adviser representative?
An employee whose only role is soliciting new investment advisory clients for the firm
Registration by coordination would most likely be used by which one of the following issuers?
An initial public offering
Registration by coordination would most likely be used to register what type of offering?
An initial public offering
Individuals employed by investment advisers to give advice to clients are _______. After ______ advises a client about security, the ____ contacts B-D where client maintains brokerage acct
Investment Adviser Representative (IAR)
Testimonials are strictly prohibited for:
Investment Advisers
These are examples of _______: -Proprietary products (Merrill Lynch likes Blackrock) -Incentives from program sponsors (trips, etc.) -Financial interest in recommended security (sister is CEO) -Favorable research report after bringing company public -Goldman Sachs doing a favorable research report on other company needs to disclose conflict of interest
B-D conflicts of interest
Who should conduct annual compliance reviews, recognize the necessity for interim reviews in light of such events, including changes in business arrangements and regulatory developments. And there is no specific experience requirement that they must fulfill; however, they should be knowledgeable in securities law.
Chief Compliance Officer
Beth Jamison is an agent and an IAR for Consolidated Wealth Planning, a FINRA member broker-dealer and SEC-registered investment adviser. An advisory client purchases 300 shares of RMBN and the sale is made from Consolidated's inventory. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers,
Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation
-Agents (state term for registered representative) -Issuers -Bank, savings institution, or trust company -Internet Broker-dealers (Robinhood site)- may only make available general information, not specific advice or recommendations -BD with NO office in state who limits clients to ISSUERS of security, other B-D's, or Institutional investors ("IBI" issuer/BD/institution) -Person with no office in state who directs offers to existing clients who are not residents of the state Are excluded from being a:
Broker-Dealer
A person effecting security transactions in securities for the accounts of others or for it's own account is a:
Broker-Dealer
An agent terminates his association with broker-dealer A and begins to work for broker-dealer B. Under the Uniform Securities Act, which of the following must take place?
Broker-dealer A must notify the Administrator. Broker-dealer B must notify the Administrator. The agent must notify the Administrator. B-D(s) & Agents must notify the Administrator!
EXCESSIVELY trading/acct activity Financial resources, objectives, & character of the account is called:
Churning
Which of the following statements regarding investment adviser compliance rules is TRUE?
Compliance procedures should be designed to prevent violations, as well as detect existing violations.
A security may be registered by __________________ if the same offering is being registered under the Securities Act of 1933.
Coordination
State & SEC registration for securities not federally covered are registration through:
Coordination
Which of the following objectives best describes how an adviser can ensure that she properly performs her fiduciary duty when directing securities transactions for clients?
Obtaining the best execution
XYZ corporation has been in business for over 20 year. They determine that a public offering in their home state & neighboring states is appropriate. Which method of security registration would most likely be used to register this initial public offering?
Coordination *multiple states, SEC registration is necessary which = simultaneous registration between SEC & the states
1- Up to greater of almost $2 mill (indexed) or 300% profit made/loss avoided (TREBLE/triple damages→ civil penalty) 2- 20 year jail term are:
Criminal Penalties
procedures for disposing storage devices is called:
Cyber disposal
Written policies, procedures, or training programs -Safeguarding client information -Red flags for identity theft Exs. of:
Cybersecurity compliance program
-double authentication methods be used to protect data -the adviser use off site servers -all data must be properly encrypted ARE:
Cybersecurity measures
Jane is an agent registers in States A & B. While sitting in her office in State A, she contacts a client who lives in State B with recommendation to buy ABC stock. The client agrees to make the purchase. Jurisdiction here would belong to:
C. both the State A & State B Administrators (offer originated in State A & accepted in State B)
If underwriters or the issuer are still attempting to distribute unsold shares, effectiveness of registration may be extended until ALL shares are sold. What May be amended after the effective date to increase offering size if price and commissions remain unchanged?
Can INCREASE # shares but CAN'T ADJUST Price of Share/Offering Price or Commission/Concession
If a person is in the business of comparing the performance of one adviser against others for compensation registration as an _________ is required.
IA (Investment Adviser)
Who: 1-Holds customer cash or securities 2- Has Authority to disburse funds from bank account without client's consent 3-Automatic fee payments considered custody
IA, Examples of Customer funds & Securities
1.Banks, savings institutions, and trust companies (under state law) 2.Professionals providing incidental advice (LATE) 3.Broker-Dealers, if no special compensation 4.Publishers (general and regular circulation) 5. Persons advising solely on Government securities 6. Investment adviser representatives (USA) 7. Federal covered investment advisers (USA) Are all:
Excluded from Registering as Investment Advisers as they don't need to register under Investment Advisers Act of 1940
These are example of _____________ under Securities Act of 1933: US Treasuries Municipal Securities Railroad Equipment Trusts
Exempt Securities
These are examples of ________________: US Government & Agency securities (GMNA) State & Local municipal bonds Intrastate offerings under Rule 147 Offerings of a limited size
Exempt Securities
*Someone who solicits new business/advisory clients is an:
IAR
When an IA begins or terminates employment with a Federally covered IA investment adviser, only the ___________ must notify the Administrator promptly.
IAR gives notice to → Administrator.
A state-registered investment adviser would be permitted to use Part 2 of the
Form ADV to satisfy the brochure requirement
If an adviser no longer wishes to engage in business, they need to file a:
Form ADV-W , 60 days for federal, 30 for state *Administrator will retain jurisdiction for 1 year
Jim is an agent of a broker-dealer who has received an employment offer from another broker-dealer. If Jim resigns from his present firm, his registration will be terminated through the filing of:
Form U5
The _____ case decided for an Instrument to be a security it must: 1- Investment of money 2- in a common enterprise (person offering inv., third party, other investor) 3- the expectation of profits 4- derived primarily from the efforts of a person other than the investor. *Resort Condo- rent $
Howey Case
What case decided what a security is?
Howey Case
Excluded by definition and exemption means not subject to registration. Ex. Which of the following would NOT qualify for an exemption from registration under the Investment Advisers Act of 1940? A. A person whose only advisory clients are insurance companies B. A person whose only offices are in a single state, whose only clients are residents of that state, and who does not render advice on securities C. A person who only gives advice to venture capital funds D. An accountant whose advice is incidental to her accounting business and for which no separate fee is charged.
D. An accountant whose advice is incidental to her accounting business and for which no separate fee is charged. -Excluded by definition AB,&C are all exemptions
Ransomware is:
DATA Kidnapping Exs. Attacker encrypts the victim's data -Demand payment for the decryption key
Investment Adviser Conflicts of Interest Need to be:
Disclosed! 1- Disclose ownership in recommended securities 2- Disclose gifts or incentives associated with the recommended product
Time or price is not:
Discretion
State Registered Net Worth Requirements for Investment Advisers:
Discretion only (no custody) $10,000 Custody of funds/securities: $35,000 - unless has custody for fee deduction & pooled investment vehicles only/subject to annual audit Surety bond: $35,000 accepted in lieu of net worth **If you dip below $35k min, net worth, Notify Administrator by end of next business day Wed→ Fri end of day**If they don't have Discretion or Custody of client's accounts they don't need to meet net worth requirements
USA defines the word State as commonwealth, territory or possession of the United States, including the:
District of Columbia & Puerto Rico, Canadian Provinces, Mexico NOT British Virgin Islands
Offering period may begin on the ___________ date which means sales can now be solicited, but the firm must use a final prospectus.
Effective Date
Expiration date of a security's registration is one year after it's:
Effective Date Ex. HCI Company's public offering of seccurities became effective on January 14, 2000. When will it expire? January 14, 2001 NOT Dec. 31st!
Withdrawal, Use Form ADV-W for STATE / USA:
Effective on 30th day
Withdrawal -Use Form ADV-W for Federal/SEC:
Effective on the 60th day
Paying a filing fee for Fed Registration is effective when?
Effective within 45 days
1.Short Term Notes/Debt Obligation -Promissory Notes (commercial paper) → Exempt -Max maturity→ 9 Months or less -Minimum $50,000 denomination 3 highest ratings 2. US government & agencies 3. Municipalities 4. Canadian province issue bonds they don't have to be registered under the USA State level→ EXEMPT 5. Foreign National governments with diplomatic relations 6. Banks, savings, institutions & trust companies 7. Insurance Companies (stocks, bonds, NOT variable contracts) 8. Regulated public companies & common carriers 9. Charitable, religious & nonprofit organizations under the USA are all:
Exempt Securities (not subject to registration, but agent selling them needs to register)
A transaction executed by a bona fide pledgee An unsolicited nonissuer transaction with a retail investor A transaction by a trustee involved in a bankruptcy is an:
Exempt Transaction
A security that's not registered can only be sold in an:
Exempt Transaction **otherwisethe sale's prohibited
-USA: Canadian Broker-Dealers limited registration -Solely w/ existing Canadian clients temporarily resident in this state -Canadian resident in this state in her RRSP -Securities Exchange Act of 1934: Intrastate (one state) broker-dealers are:
Exempt from registering as a B-D
Unsolicited or private placement or financial institution is an example of a:
Exempt transaction
A nonissuer transaction of a security that is regularly quoted on the OTC Bulletin Board would not qualify as an
Exempt transaction but a security quoted on Nasdaq would
Under the USA, it is unlawful for an investment adviser to deceive a person when not providing advice to that person.
FALSE **can't judge a social interaction with no content of giving investment advice.
Compensation-sharing arrangements between the investment adviser and its representatives must be disclosed. T/F
FALSE, it's an internal matter
Federal regulation always supersede state rules.
False
If a security is registered with the SEC, it doesn't need to be registered with the state(s). T/F.
False, being registered or exempt under fedearl law doesn't effect the state requirements and vice versa.
Transactions with intrastate manufacturing companies are NOT exempt from registration. T/F.
False, need to register Because the offering only includes one state, it does not fall under the jurisdiction of the Securities and Exchange Commission (SEC). Therefore, it does not need to be registered with the SEC. The offering does, however, fall under the jurisdiction of state regulators.
These are ____________: -Exchange-listed securities -Nasdaq traded security -Investment companies registered under the Investment Company Act -Securities or transactions exempted under the Securities Act of 1933
Federal Covered Exempt Securities
KAPCO Advisers is registered as an IA with the SEC. Their only office is in New Jersey and all IARs are registered there. IAR Claire has 10 clients who reside in Ohio; IAR Sean has 6 clients who live in Kentucky; and IAR Felicia has 3 clients who are Georgia residents. In addition, Felicia conducts a quarterly presentation at the Augusta, Georgia National Golf Club where she discusses current market developments. The seminar is restricted to club members only. Which of the following is CORRECT?
Felicia must register in Georgia. **seminars are conducted regularly so they include a "place of business"
Trustees, administrators, executors or sheriff's can be a ___________. Some of the stock you inherited as executor wasn't registered in your state, do you have to register?
Fidicuary. No.
1-Have Reasonable & Independent basis for Investment Advice 2- Act in client's best interest 3- Suitability (usually unsuitable- blanket recommendations) 4- Client's interest comes first 5- Best execution, does not always require lowest commissions, must consider all services being rendered 6- Recognize limitations of own capabilities This falls under what responsibilities?
Fiduciaries
Disclose if ever been convicted or even just arrested, charged, no time limit, for any felony or securities related misdemeanor (financial) on:
File Form U4
*IAR's & Agents are with BD's & advisers which means they're not subject to:
Financial Inspections (only B-D's & IAs)
According to SEC Release IA 1092 added these as Investment Advisers:
Financial Planners, Pension Consultants, Sports & Entertainment Representatives Ex. a person who assists pension plans in the selection of portfolio managers is an IA.
Under the NASAA Recordkeeping Requirements for Investment Advisers Model Rule, all electronic communications and their amendments must be maintained by the adviser for how long if distributed directly or indirectly and to how many persons?
Five years if sent to two or more persons
For a new issuance of securities, when is a prospectus required to be delivered to purchasers?
For primary and, potentially, secondary market transactions. When investors buy securities in the primary market, they're always required to be provided with a prospectus. However, if investors buy stock in the secondary market shortly after a primary market issuance (e.g., 25 days following an IPO), they must also receive a prospectus.
File Form: ____ -Discretion over $100 mill or more of 13 F securities -45 days after end of ea quarter
Form 13 F
If a prospective client wanted to know what type of investment strategies are employed by an investment adviser, that information would be found in the advisers:
Form ADV Part 2A **more specific to investment adviser
IAR Termination Procedures:
IAR- with state IA, IA notifies→ Administrator IAR- with Federal Covered IA. The IAR → notifies Administrator Effective 30 days after receipt of application to withdraw, but Administrator retains jurisdiction for one year Agent of BD quits→ Agent & BD notify→ Administrator
With regard to a state-registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that it is filed through the:
IARD system
Supervisors only need to register when those they supervise are
IARs NOT clerical staff
What's an example of an issuer transaction? Why?
IPO (initial public offering) because the proceeds of the sale go to the issuer
When, if ever, would a broker-dealer be required to register as an investment adviser?
If it charges distinct fees for investment advice or management
When can an agent of a broker-dealer and a client share in an account?
If the agent has proportion risk in the account. And the agent needs approval from the client & supervisor of the B-D **share proportionately
Which of the following statements is TRUE regarding the civil liability provisions of the Uniform Securities Act?
If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied (fined).
If an agent participates in a joint account with a client, the agent may:
Initiate transactions in the account, distributions payable to all parties in a joint account. **share proportionately in gains & losses
Person or organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment & lower commissions. Bank, credit union, insurance company is a:
Institutional Investor
Banks, Hedge Funds, Mutual Funds, REITS, Insurance Companies, Pension Funds are examples of:
Institutional Investors/Clients
Residents of the state in which it's issued/issuing company needs to be registered is:
Intrastate Offerings
Rule 147 defines:
Intrastate Offerings
Registers in 1 state & sells securities in 1 state: 80% rule; 50% employees; 100% residents, 6-month resale rule is the:
Intrastate offerings under Rule 147
1. Providing Advice about securities 2. Providing theses services as a Business 3. Receiving Compensation for these services is an:
Investment Adviser
A person, usually a firm vs individual that for compensation, engages in business of providing others with securities-related advice, reports or analysis, & who satisfies the 3 parts of the ABC test is an:
Investment Adviser
Advertisements include any notice, circular, letter, website, or other written communication addressed to more than one person/chart/formula used in making investment decisions as an:
Investment Adviser
Written communication addressed to more than one person/chart/formula used in making investment decisions should NOT be published, circulated or distributed if it's inconsistent with federal rules by an:
Investment Adviser
An individual who act solely as an IAR, is excluded from the definition:
Investment Adviser (IA)
Any partner, officer, director or other individual who is associated with an investment adviser is a:
Investment Adviser Representative
One who: -Makes recommendations regarding securities -Manages accounts or portfolios of clients - Determines which recommendations or what advice should be given -Solicits, offers or negotiates sale of IA services -Supervises employees who perform any of these functions is a?
Investment Adviser Representative
Which of the following persons is specifically excluded under the USA (state law) but NOT the Investment Adviser of 1940 (federal law)?
Investment Adviser Representative Needs to be federally registered
This provides an exemption from registration for all securities professionals when dealing with: vacationing client. Subject to 30 day rule for change of residence.
Snowbird Rule
A)The publisher of an investment advisory newsletter that plans issues based on market events B)An individual who made recommendations regarding which types of securities would meet a client's investment objectives but who did not recommend specific securities D)A broker-dealer that managed clients' portfolios for a fee are all:
Investment Advisers *A bank that charges a fee for providing investment advice is excluded
The Federal law that governs the investment adviser registration is:
Investment Advisers Act of 1940
Financial Planners, Pension consultants & Sports & Entertainment representatives are:
Investment Advisers according to the Investment Advisers Act of 1940
Federal covered securities include those issued by investment companies registered under the:
Investment Company Act of 1940
Term to describe a Mutual fund manager or investment fund manager, Business of giving investment advice on portfolio. Can only be used by an IA whose principal business consists of rendering investment advice & a substantial portion of his advisory business involves investment supervisory services (investments)/ continuous.
Investment Counsel
Wrap Fee Program
Investment advisory & brokerage execution transaction for a single "wrapped" fee.
Any person who issues or proposes to issue any security is an:
Issuer
Who are required to pay filing fees at the time of initial registration and renewal?
Issuers
An investment adviser representative is required to make disclosure to the client when: 1- the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale 2- transactions recommended to the client are inconsistent with those for the IAR's own account
It would be unusual that all clients with the same objectives would purchase or have recommended for purchase the same securities.
Exclusion of definition of an Investment Adviser because their advice is incidental to their practice:
LATE- NOT IA's: Lawyer Accountant Teacher Engineer **Economists are not excluded
Is the Administrator permitted to: Cancel the registration of a federal covered security?
No
Is the Administrator permitted to: Prohibit the sale of a federal covered security in the state?
No The SEC & Federal gov supersede the state's government. State administrator can't take away the right.
NO DISCRETION OR CUSTODY=
No Surety
If a federal covered investment adviser wishes to sell his business to another advisory firm, which of the following statements is TRUE?
No approvals are required. However, the advisory contracts will be assigned and that cannot happen without client consent.
Lucy administers a plan that permits employees of ABC to purchase registered common shares as part of her regular duties, is Lucy considered an agent?
No because it's a clericle position and regular function in her HR dept.
NO _________ prospectus (or sticky notes) → pure form /online delivery
No highlighting or other alteration
A bank is selling 500million shares to another B-D. Does this transaction need to be registered?
No, Exempt Transaction as an Institutional Transaction
Paying a filing fee for State Registration is effective when?
Noon on the 30th day
Administrators may require issuers of federal covered securities to file copies of documents that have been submitted to the SEC and may require issuer to a pay fee to the state, this process is called:
Notice Filing *Ex. mutual funds
Although federal covered securities are exempt from traditional registration, as a registered investment company, ex. a closed-end investment company registered under the Investment Company Act of 1940, you should expect it to have to ________.
Notice file
Registration is not through notice filing but through ______________ and must contain the following information:
Notification (or filing) 1-A statement of eligibility 2- Issuer's name, address and form of organization 3-A statement describing the offering 4-A copy of prospectus filed with the SEC
When an investment adviser registers in a new state, who of the following is automatically registered?
Officers, parnters, directors of the firm who are functions as IAR's.
An investment adviser is registered and located State A. One of the IAR's has three non-institutional clients and one institutional client in State B. A different IAR has four non-institutional clients in State B. If the investment adviser does NOT have an office in State B, who must register in that state?
Only the investment adviser - Total of 7 clients Notice that all persons (the IA and IARs) need to be registered in State A.
Change in management, state of location, or form of business requires the IA to file an amended Form ADV file:
Promptly
A local company whose shares will be sold within the state (Intrastate) would most likely register by?
Qualification
Registration is effective when ordered by the Administrator in the case of registration by _____________.
Qualification
Performance-based compensation is only allowed for a:
Qualified Client -Min. AUM (for indv & spouse) -Executive officers or IAR's of the adviser
What solicits indications of buyer interest, and acquaints investors with essential facts concerning the new issue?
Red herring
An individual with a place of business in State A manages client assets on behalf of a covered investment adviser. This individual wishes to expand his client base by working 1 day per week out of the firm's office in State B. Which of the following actions must this individual take to practice within that particular state?
Register as an investment adviser representative in State B.
Which type of registration of a security is more complex and includes more information about the issuer, officers, directors, copies of every prospectus , letter, advertisement and balance sheet of profits & loss for last three years?
Registration by Qualification
Allows public companies to offer & sell w/out registering
Regulation A Offerings
Governs private placement offerings:
Regulation D Offering
1. Initial & annual notice to customers: Customers have ongoing relationship 2. Initial notice only to consumers: Consumers obtain a product or service & have no further contact with firm 3. Opt-out methods must be easy: Writing a letter is not, an email is easy Ex. opt out box This falls under regulation:
Regulation S-P
Firms must adopt policies & procedures to address the protection of nonpublic personal information, protect against cybersecurity, this regulation is called:
Regulation S-P
The resale of unregistered securities in the public market are:
Rule 144 Offerings
-Institutional investors -Employee benefit plans over $5 mill -Insider of the issuer *Individual with own or joint (with spouse) net worth greater than A$1 mill (excluding the net equity of residence) earnings over $200k for past 2 years/ joint $300,000 & expected this year (test) -File a Form D within 15 days of sale
Rule 501- accredited investor:
What are these? 1- USA requires notification to administrator, unless state law prohibits custody 2- Must be segregated marked to identify ownership 3- Written notice to client of location & prompt notification of changes 4- Complete & accurate records of deposits and account activity 5- Quarterly itemized statement to customer 6- Qualified custodian- bank or non-affiliated broker-dealer 7-If no qualified custodian: Arrange for Annual surprise independent audit & complete Form ADV-E 8- IA not keeping custody, NASAA requires certificates & funds inadvertently sent returned within three business days (third-party checks forwarded to third party within three business days)
Rules - IF IA holds custody of funds
AUM of $110 million or more requires registration with the __________.
SEC as a federally covered adviser.
Required to Register with __________ if: 1. Clients in 15 or more states 2. Manage a registered investment company 3. Expect to reach $100 million within 120 days 4. *20 million buffer ($90 mill or higher) 5. . Pension consultant ($200 million is eligible)
SEC, Federal
One of the roles of a broker dealer is underwriting (distributing) shares of new securities for issuers. When they do that, they generally earn a ________ which is the difference bwetten the public offering price & what they pay the issuer.
SPREAD
A federal-covered IA falling below $90 mil must register with the
STATE
Less < $100 mill AUM requires _____ registeration.
STATE
A -Transfer of value -Bonus of warrants of stock (ex. Buying a Ford truck & get a Ford Stock=bonus) is a _________.
Sale
According to NASAA provisions, an investment adviser that maintains custody of a client's funds must:
Schedule an independent annual audit
According to NASAA provisions, an investment adviser that maintains custody of a client's funds must:
Schedule an independent annual audit & notify where the funds are held promptly through written notification to administrator and if location of the funds change
What is "The Paper Act", the Truth in Securities Act & the Prospectus Act- regulates the issuing of corporate securities sold to the public.
Securities Act of 1933
To avoid unnecessary duplication of examinations, the Administrator may cooperate with the securities administrators of other states, the SEC, and any national securities exchange or association registered under the:
Securities Exchange Act of 1934
An investment contract. Any piece of securitized paper that can be traded for value. Under USA this includes: Note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust cert, preorg. Cert or subscription, transferable share, cert of interest, participation in oil, gas or mining title or lease in payments. This is a:___________________________
Security
A properly licensed agent in Illinois, Missouri, and Iowa has a client who moves from Illinois to Michigan on July 1, 2014. On September 1 of that year, the agent sells him 100 shares of a nonexempt security in a nonexempt transaction. On October 1, 2015, the client discovers that the agent's firm never licensed him in Michigan and that the agent is subject to civil liability to the purchaser. The statute of limitations for this sale runs out on:
September 1, 2017 Hint: 2 years after discovery or 3 year years after date of sale. Date of sale came first. Because discovery would be October 1st, 2017
Which of the following is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser?
State licensing fee
This Must be within 2 years of discovery or 3 years of violation whichever occurs first
Statute of limitations Ex. Illegal Sale Made 2015 Discovered 2017 → 3 years when violation occurs is 2018 OR 2017 + 2yrs: 2019 of discovery **violation came first
This is used to deny effectiveness to, or suspend or revoke the effectiveness of any registration statement. This applies to securities only not representatives such as B-Ds, agents & IAR's.
Stop Order
The Uniform Securities Act invests the Administrator with many powers over the activities of agents and broker-dealers. Which of the following actions does NOT fall within the Administrator's powers?
Suspending an agent's registration without an opportunity for a hearing
It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities.T/F
TRUE
Under USA: Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. T/F
TRUE
A broker-dealer is registered in State W, but its principal, and only place of business, is in State L. Which of the following statements regarding the ability of the Administrator to perform an onsite examination is CORRECT?
The Administrators of both State L and State W may perform unannounced onsite examinations during normal business hours. *In those cases where there is no place of business in the state, as in this question, the examination takes place at the principal office where the Administrator will view records pertaining to clients residing in State W.
An investment adviser has begun to experience difficulties in collecting fees from the accounts of clients that do not elect to have the fees deducted directly from their accounts. To compensate for this, the firm decides to raise its fees and require a larger up-front deposit from all new accounts for the upcoming year. To reward its current clients, the adviser waives the fee increase and does not change the terms of their contracts. What must the adviser do in this situation?
The IA must make all necessary changes and promptly file amendments to its Form ADV *no change to current clients contract so they don't need to be notified.
Because of failing economic conditions, KAPCO Advisers, an adviser (IA) with slightly less than $120 million in assets under management, lays off a registered investment adviser representative. In this case, who would notify the state Administrator of the termination?
The IAR
An IAR intends to recommend speculative debt offerings to some of her more aggressive accounts. Since the IAR specializes in equity investments, she plans to use an outside fixed-income expert to help in the selection process. In this situation, which of the following statements is TRUE under the UPIA?
The IAR may delegate her investment decision-making authority. UPIA: now permits fiduciaries to delegate investment responsibilities to competent third parties (e.g., accountants, attorneys, or securities professionals with different expertise).
Registration by coordination is used in conjunction with which of the following Acts?
The Securities Act of 1933
Registration by coordination is used in conjunction with which of the following Acts?
The Securities Act of 1933 *An issuer that uses registration by coordination must also register the same offering with the SEC under the Securities Act of 1933 -coordinate between States & SEC
Gibraltar Advisers is a federal covered investment adviser with offices in 13 states. However, Nancy, a Gibraltar employee who solicits accounts for Gibraltar out of an office in one of those states, is required to complete the NASAA examination and register at the state level. Why might this occur?
The Uniform Securities Act requires investment adviser representatives employed by federal covered advisers, including solicitors, to register at the state level, regardless of whether the firm is required to register at the state level, as long as the IAR has a place of business in the state. IARs must register in each state in which they have a place of business including solicitors!
An agent has been given the login and password for a client's account. The client has provided written authorization for the agent to login and place trades in the client's account. This activity is considered:
Unacceptable, since it likely violates the terms of service of the broker-dealer's online account access system.
An investment adviser has $57.5 million under management. Among the firm's clients is a small, in-house family of funds whose shares are currently offered exclusively to the adviser's clients. What is the firm's status for registration requirements?
The firm must register as an investment adviser with the SEC. *regardless of the small AUM, this is an investment company subject to SEC registration requirements
If an investment adviser files an initial registration with a state on June 30, which of the following statements regarding the filing fee to be paid is TRUE?
The full year's fee must be paid. *Then pay again on Dec 31st
Who files registration statement with the SEC?
The issuer
What's the name of the agreement in which an adviser discloses it's obligation to keep customer information confidential?
The non-disclosure agreement (NDA)
What information may an issuer change by amending its registration statement after it receives an effective date?
The number of shares
Issuers include:
US State, local or foreign governments, corporations & partnerships because they can issue or propose to issue a security,.
Blue Sky Laws are under the
USA, blue print or template customized for each state to suit it's own needs.
An Administrator can Deny, Suspend or Revoke a Security's Registration, It must be in the public interest and:
The registration statement is inaccurate, misleading, or incomplete; An officer of the issuer has been convicted of a securities-related crime (10 years) The security is subject to court injunction The offering is deemed fraudulent The offering expenses or fees are excessive or unreasonable The registration has been revoked by the Administrator of another state All cases- final order of the Administrator Appropriate prior notice Opportunity given for a hearing Written findings of fact and conclusions of law Cancellation of Registration (non-punitive) Registration has ceased to do business, is deceased, or declared mentally incompetent Administrator retains jurisdiction for one year
An investment adviser representative was just appointed by a trustee to manage the assets of a small trust. The IAR has analyzed the trust's current portfolio and is recommending that the assets be reallocated. According to the Uniform Prudent Investor Act, the IAR's main focus when investing the trust's assets should be:
The trade-off between risk and reward
An agent represents a broker-dealer that is headquartered in State A, but has offices in numerous states. The Administrator of State B has revoked the broker-dealer's registration, causing the firm to close that office. One of the agent's clients has moved to State B and the agent wants to continue to do business with her. According to the Uniform Securities Act, which of the following statements is TRUE?
This is not acceptable and neither the broker-dealer nor any of its agents may conduct business in State B.
Which of the following choices would NOT meet the definition of an exempt transaction?
Transactions between an issuer and retail investors *this transaction is not exempt from registeration
A purchaser of a security where a violation of the USA occurred may recover the original purchase price plus legal costs and interest, less any earnings already received. T/F
True
A security that's exempt from federal registration may need to register under the USA. T/F
True
An adviser who ceases business continues to be responsible for the maintenance and preservation of certain records, such as corporate charters and minute books, for three years after termination of the enterprise. T/F
True
Books and records must be maintained in an easily accessible place for no less than five years from the end of the last fiscal year in which an entry was made. t/F
True
Books and records must be maintained in the principal office of the adviser for the first two years from the origination date. T/F
True
Copies of all investment letters, advertisements, or communications to 10 or more persons must be preserved for five years from the end of the fiscal year of the publication date. T/F
True
True/False. Cannot Make Guarantees to minimize losses or assure profit.
True
UNETHICAL, to minimize losses or assure profit. True/False
True
An exempt security is subject to the antifraud provisions of the USA.
True, all securities are subject to ant-fraud provisions.
Variable annuities are securities. True or False.
True. Dependent on investment performance.
Registration is accomplished by:
U4
Unsuitable recommendations Splitting commissions, unless w/ appropriately registered personnel of same or affiliated firms- the Administrator can make an exception. Notification to clients not required Misleading or untrue statements Repeating rumors Promising services can't deliver Sharing customer profits or losses Written consent of client & BD Permissible sharing only applies to agents, never to BD, IA's or IARs Borrowing from customers or lending money to customers (unless in lending business or an affiliate) Banks are ok, bank office not Mortgage banks are ok, mortgage brokers no Not even from family 8. Written complaints→ contact supervisor 9. Larger than ordinary commissions without disclosure 10. No Front running (placing your own trade BEFORE clients) 11. Use of third party reports without disclosure Ex. Morningstar report → Credit to 3rd party 12. Deliberately failing to follow customer instructions 13. Misrepresenting the status of customer accounts 14. Withholding shares of an oversubscribed IPO 15. Failing to refer to Qualified professional (no specific tax advice, refer client to CPA or attorney) These are examples of:
UNETHICAL business practice
These are qualities of what act? 1-Fiduciaries as IA/IAR are required to use skill & caution when making investment decisions with other people's money 2-Applied to any investment as part of the total portfolio rather than to individual investments 3-Trade-Off in all investments between risk & return --primary fiduciary consideration 4-Fiduciaries can invest in anything that plays an appropriate role in achieving the risk/return objectives of the trust & meets requirements of prudent investing. 5-Diversify Diversify→ reduces risk (prudent thing to do) 6-Delegation of investment functions is permitted, use safeguards.
Uniform Prudent Investors Act (UPIA)
IA State registers with
Uniform Securities Act (USA) State law. Not considered advisers under state law.
Which case identifies whether an investment is a security? Hint: Describes the 4 part test.
W.J Howey Co 1-An investment of money 2- In a common enterprise 3- With the expectation of profits 4- Solely from the efforts of others
Result in No Change of beneficial ownership of the shares is called:
Wash Trades Ex. of Market Manipulation -Creates the false Impression of account activity
In the securities industry, the term "discretionary" refers to an
account in which the agent has the power to decide which securities to buy or sell without customer authorization for those specific trades *An agent must choose the action, size (amount), security
Which of the following is TRUE regarding a state Administrator's authority?
With certain limited exceptions, the Administrator has authority over any transaction made in the state where officiating. &The Administrator may issue subpoenas or otherwise conduct inspections of records in states other than where officiating if circumstances warrant. Such inspections may be made if the Administrator deems doing so to be in the public's interest. A person's license can only be suspended when it is in the public interest AND a specific provision of the act or rules has been violated. Only in the case of a transaction involving a federal covered security does the Administrator not have the power to void the exemption.
Is the Administrator permitted to: Investigate fraud in the sale of a federal covered security?
Yes, because No one is exempt from anti-fraud provisions. If they find fraud they can prohibit sale of security in the state.
An investment adviser representative has been given a client's username and password in order to access her brokerage account. The client wants the IAR to have the ability to execute trades and withdraw cash to pay the client's bills. Does this constitute discretion?
Yes, since the IAR is able to withdraw funds and execute trades.
An agent of a B-D solicits unregistered promissory notes. The agent claims the promissory notes are not securities and do not need to be registered. The Administrator disagrees and would issuer a:
a cease & desist order against the agent *this stops the agent to continue to solicit the purchase of unregistered securities
A successor firm to a broker-dealer (BD) or IA does not pay:
a fee until the renewal date.
Who's NOT A Person or a "NON- Person":
a minor a dead person, or someone declared mentally incompetent.
If a broker-dealer purchases 100,000 shares of common stock from an individual investor, this is
a nonissuer transaction In a nonissuer transaction, the proceeds of the trade do not benefit or go to the issuer.
Under the Uniform Securities Act, the term broker-dealer would include
a person with no office in the state who directs offers to no more than 5 individual residents of the state in any 12-month period Although a person has no office in the state, offers are directed to residents of the state. Under the USA, this person is defined as a broker-dealer. There is no de minimis exemption for broker-dealers. A person is exempt from the definition of broker-dealer if there is no office in the state and offers are directed to institutional clients or existing individual clients who are not residents of that state. The agent is merely selling his own stock as would any other individual; that does not make one a broker-dealer.
Tim, Jim, and Kim are equal partners in TJK Investment Advisers, a general partnership. Tim decides to sever his relationship with the other partners and work for a different firm. When, if at all, must the clients of TJK be notified of Tim's departure? TJK must notify its clients of Tim's departure within:
a reasonable period after his severance from the firm.
A broker-dealer sends an email to all of its clients stating that anyone purchasing at least 100 shares of an IPO that has just become effective will receive, at no additional cost, a bonus of 10 shares of a Nasdaq traded stock. Under the Uniform Securities Act, delivery of this stock to a qualifying client would represent
a sale
The following statements may be made by an issuer selling securities to the public that are registered with the Administrator: The Administered has cleared this issue for sale to the public The Administrator may not:
approve or disapprove of securities or affirm merits of a security
Institution includes:
banks, trust companies, savings & loan associations, investment companies and insurance companies, gov agencies aka as 'a person'
Under the Uniform Securities Act, the Administrator may deny an application for registration as an investment adviser:
because the applicant was suspended from membership on a Canadian stock exchange & when the applicant files an incomplete application
A nonissuer transaction is where the issuer does not:
benefit, directly or indirectly. Ex., The sale of an outstanding security on the New York Stock Exchange A trade between two investors for IBM stock on the New York Stock Exchange (a secondary market trade) would be an example of a nonissuer transaction.
The prohibited practice of an investment adviser placing the same security in the accounts of all of the firm's clients is known as:
blanket recommendations
If justified, a broker-dealer but not an associated person of the firm may correct a:
bona fide error *there'd be concern if the associated person was concealing individual misconduct
Agency cross transaction Represents:
both sides of a trade involving an advisory client
n order for an agent to borrow from another registered person, they both must be registered with the same
broker-dealer
Securities Exchange Act of 1935 - Federal act regulating:
broker-dealers & associated persons
In lieu of a surety bond, the Administrator may accept deposits of:
cash or securities
Pending IAR's registration, individual cannot as as IAR they can only do:
clerical work
FIG, an investment adviser registered in 6 states from tame to time acts as a principal in trades recommended to advisory clients. Under the USA, FIG must receive consent of the:
clients & disclose it's capacity no later than completion of the trade.
Broker-Dealers must always indicate their capacity on the trade confirmation no later than:
completion of the trade, settlement date. They will indicate if they acted as broker & always disclose amount of commission & principal (markup/markdown)
When acting in the capacity of IA (or IAR), that is, when making recommendations or advising a client to purchase (or sell) a security, any transaction in which the firm is a principal requires
consent from the client prior to the completion of the trade.
A) A ____________________ does not need to be supplied each time a registrant's registration is renewed. C) Investment advisers and investment adviser representatives must file a __________________ of process to become registered. D) A __________________ of process makes legal process served on the Administrator as legally binding as process served on the registrant personally.
consent to service
John was convicted 5 years ago of failure to pay child support, a misdemeanor in his home state. John would now like to register as an IAR in a neighboring state where that crime is considered a felony. Under the Uniform Securities Act, the Administrator of the neighboring state will
disregard that conviction when determining John's qualifications for registration. *recognizing state where John committed the act
Administrator can: Cancellation of Registration (non-punitive) for those that cease to:
do business, is deceased, or declared mentally incompetent
Sharon Smith is an investment adviser representative with Highwater Advisers, a federal covered investment adviser with its principal office in State X. Sharon provides advisory services to a bank located in State X, a state in which she has no place of business. Under current regulations, because Sharon has no place of business in State X, she
does not have to register as an IAR in State X. **The key is that Sharon is an IAR for a covered IA. When that is the case, the IAR is only required to register in states where she (the IAR) maintains a place of business.
The Administrator maintains jurisdiction over a license that has been withdrawn for a period of 1 year after the
effective date of the withdrawal, even for a broker-dealer (not 2 years)
A)Isolated nonissuer transactions B)Transactions with pension or profit-sharing trusts C)Unsolicited nonissuer transactions are:
exempt from registration
According to the USA, Bonds issued by a government-regulated common carrier are:
exempt from registration
Advisers whose only clients are insurance companies are:
exempt from registration under the Federal Law
Intrastate Advisers (only within one state), to a private fund, whose clients are residents of the state in which it's principal office & only place of business is who are NOT giving advice on securities are:
exempt from registration under the Federal Law
Any solicited sale to an individual client, even of a properly registered security, is not an
exempt transaction.- It's a regular transaction. This is not exempt from regulatory requirements like filing and registering
Anytime a customer deposits securities with a BD, a receipt for those certificates must be:
issued promptly
State X issues bonds as a way of borrowing money so the state government can function. The state is the:
issuer of the bonds This would be an: issuer transaction because the proceeds of the sale of the bonds would go to State X.
Stop orders are against:
issuers
Anti-virus Web filtering Firewalls Back-up data often are a:
layered approach to Cybersecurity
Charting Systems used by IA's need to indicate that there are:
limitations & difficulties inherent using such programs
Holly Cavendish is an IAR with Remington, Fairchild, and Hume, a federal covered investment adviser. Holly's manager tells her that he will be busy for a couple of hours working on completing the Form ADV-E. This tells Holly that her firm
maintains custody of customer funds and or securities. The Form ADV-E (E for surprise Examination) must be completed by investment advisers that have custody of client funds or securities and that are subject to an annual surprise examination.
A broker dealer providing liquidity publishing quotes in the Nasdaq market place is also referred to as a:
market maker
Areas of concern for protecting customer data would include a vendor:
misusing, or inadequately protecting, confidential customer information & a vendor possibly failing adequately to protect confidential customer information after its relationship with the firm is terminated
The agreement between an investment adviser and client is the advisory contract. To be in compliance with the law, contracts under the USA differ from those under the Investment Advisers Act of 1940 in that they
must be in writing **Federal law permits oral contracts
Gold, rental real estate & stamps are considered:
non-securities
An investment adviser representative, who also receives commissions as an agent at a brokerage firm, has opened an account with a client whose net worth is $200,000. The customer wants the account aggressively traded and wishes the investment adviser to be compensated based on the account's performance. In this account, payment on a performance basis is:
not permissible
If ABC Brokers, Inc., has its registration as a broker-dealer canceled, individuals registered as agents of ABC may
not sell any securities because their registrations are only effective when associated with a registered broker-dealer
Federal covered advisers must make a __________ with the state if they have a place of business in the state or have 6 or more clients in that state in a 12 month period, regardless of place of business.
notice filing *not required for advisers dealing only with institutions, other IA's & BDs
A Purported gift of accessible stock is a:
offer & sale
Any security given or delivered with bonus on account & sold for value, a purported gift of assessable stock is and:
offer & sale
Under the USA, which of the following is considered a broker-dealer in a state? XYZ broker-dealer with an:
office in the state whose only clients are insurance companies **Wherever the office is!
Regional Financial Services, LLC, is registered as an investment adviser in States A, B, C, and D. They have just filed an application for registration in State E. Registration of this investment adviser in State E automatically confers registration as an IAR in State E on
officers, partners, and directors of the firm who will be functioning in State E as IARs
Due to health reasons, Danny has decided to withdraw his registration as an agent. The withdrawal will take effect
on the 30th day after filing of the Form U5 unless the Administrator determines an earlier date
The USA describes activities to have take in place in the state as any offer to buy or sell a security as well as any acceptance of the offer if the offers:
originated in the the Administrator's state is directed to the Administrator's state is accepted in the Administrator's state
The IA gives what form to the independent public accountant that, in compliance with the Investment Advisers Act of 1940 or applicable state law, examines client funds and securities in the custody of the investment adviser?
orm ADV-E (E for surprise Examination)
NOT ISSUER:
participation in, OIL, GAS, MINING TITLES OR LEASES
Broker-Dealer is a:
person engaged in business of executing securities transactions.
States exclude from the definition of broker-dealer those broker-dealers who have no:
place of business in the state & y our only clients are other BDs, institutions, issuers.
Under current law, which of the following would NOT be required to register as an investment adviser in a state? A person who deals exclusively with broker-dealers in that state, but maintains no
place of business within the boundaries of the state
Rule 506 is relevant for:
private placement, Regulation D or exempt transactions
Advisor, Officer, rep CANNOT give political contribution:
prohibited to do business w/ that government for 2 years after that contribution
Amendments for material changes, file:
promptly
Before a person can be a customer, the person is a:
prospect
Under the USA, a guaranteed security is protected by someone other than the issuer against loss of all of these: -interest on debt securities -principal repayment at maturity on debt securities -dividends on equity securities *guarantees income from the security (dividends & interest) and payment of principal. They do not:
provide against market loss or principal on equity issues
Strategic Capital Asset Managers (SCAM) is an investment adviser registered with the SEC. Registration as an investment adviser representative would be required of an employee who
provides recommendations on securities to the firm's bank clients.
Two missing items from the preliminary prospectus (red herring) are the:
public offering price & the effective date (these details aren't yet finalized in the preliminary stage)
An order ticket does not need to include the price of the security at the time the order was__________
received (Price of the security at the time of receipt) It only needs to include price at EXECUTION, agent's info & time of entry.
Under the USA, a solicitor for an investment advisory firm who is paid a fee for his services must:
register as an IAR
WME an investment adviser registered in state X, in the past 12 months has direct investment advice to 6 individual clients in state Y. WME is required to:
register in State Y because it exceed de minimus limit.
Joe, who is a federal covered adviser, has a place of business in the state, only 4 retail clients who are residents of the state in the past 12 months. Joe needs to:
register in the state since has a place of business in the state.
If a car dealer, offers $1,000 in bonds as incentive, this would be considered a bonus and becomes a securities sale and falls under jurisdiction of the state Administrator. The car dealer would have to:
register with the state as a broker-dealer
A local or state government unit is exempt from:
registeration
Solicitors for state-registered advisers who are associated with or employees of the IA must be
registered IAR
Nobody Walks Motor Company, a licensed automobile dealer, is running a promotion offering anyone who purchases a car over the weekend to receive a $1,000 corporate bond at no additional cost. Under the Uniform Securities Act, in order to make this offer, Nobody Walks Motor Company must be:
registered as a broker-dealer in the state. The USA states that "any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing is considered to constitute part of the subject of the purchase and to have been offered and sold for value."
If you advertize on the interenet you don't have to be:
registered in the state. However, if you follow-up with advice (IAR) or offering securities *agent) you have to register.
Under the USA, it's unlawful for any person to offer or sell a security in a state unless the security is:
registered or exempt from registeration
All of the following are defined in the Uniform Securities Act: Issuer Broker-Dealer Investment Adviser NOT:
registered representative (that's federal law)
Cease & Desist orders are against:
registered securities professionals *with or without a hearing
A single retail client in a state for a B-D means
registration in that state is required * no de minimus exemption
An agent's registration is only in effect while he is employed by a broker-dealer that has an effective
registration in the state.
MaryBeth Williamson is the CEO of MBW Software Associates. MBW is having an offering of common stock to investors on an intrastate basis. Williamson has been telling potential investors that the registration of the stock indicates approval by the state. Under the Uniform Securities Act, she is committing misrepresentation of
registration. Stating that a securities offering has been approved by a regulatory body is misrepresentation of the registration of the security.
Insurance, endowment contracts, annuities that promised to pay fixed income, IRA, Keogh plans, commodities, futures contracts, currencies, art, collectibles, condos are NOT:
securities
Investment advisers are compensated for giving advice, whereas the role of the broker-dealer executes
securities transactions
Options on real estate is NOT considered a:
security (REITs are)
An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several that she feels are equally suitable for the client, but one of the companies is offering a trip for 2 to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent
should pack her bags for the trip; she earned it *She disclosed it!
Unregistered personnel may be paid a bonus as long as it is not directly related to any
specific sales activity
It is state-registered investment advisers who must meet the net worth (or capital) requirements of the:
state in which their principal office is located.
An registered investment company & NYSE securities are exempt from registration on the:
state level
Federal covered advisers are advisers with federally imposed exemptions from:
state registration as investment advisers
Nasdaq is exempt from registration with the:
states as it's federally covered
If an issuer is nonexempt (not exempt from registering), it must generally register securities in the:
states where they will be sold
Backgrounds, profiles, wall information are examples of
static content/information *remains unchanged until person changes it, FB, Twitter & Linkedin are interactive content
Someone who pleads guilty to market manipulation 5 years ago is subject to:
statutory disqualification
PPI, headquartered in State J, has sent an announcement to a number of b-d's in the state promoting 8% promissory notes as a high interest non-security alternative bank CD. The compliance offer of your firm forwards this to the State J Administrator. The Administrator would issue a:
stop order against PPI after giving the opportunity for a hearing (PPI is an issuer/firm)
To register with the state securities Adminstrator a person must:
submit an application, provide a consent to service of process, pay filing fees, post a bond & take or pass exam
ADMINISTRATOR may appoint an officer who has the power to:
subpoena records, administer oaths, or require production of documents and books
The process of an administrator may order, without going through the hearing process, a postponement or suspension of a registration pending final determination of any proceeding based upon actions described previously is known as acting:
summarily
Each of the following would be excluded from the definition of agent EXCEPT a sales assistant who is authorized to:
take orders from existing clients only **ANYONE who is taking orders.
IAR's must be adequately supervised. Who administers the policies for preventing violation of federal & state securities laws?
the Chief Compliance Office (CCO)
Termination procedures: If IA is Fed registered:
the IAR must notify the Administrator of Termination
KAPCO Securities is a broker-dealer registered with the SEC doing business throughout the Midwest. KAPCO must meet the net capital requirements of
the SEC, even if one or more of the states in which they are registered has a higher net capital standard
If an advisory client receives a margin call from activity in his brokerage account, securities owned in the advisory account may be used by:
the affiliated broker-dealer to meet the margin deficiency. Ex. ABC Advisers, Inc., a federal covered investment adviser is a wholly owned subsidiary of ABC Corporation, a holding company that also owns ABC Securities, a full-service broker-dealer that is a member of the New York Stock Exchange and FINRA. One of the clients of ABC Advisers calls his IAR to explain that he has just received a margin call in his ABC Securities account. Under these circumstances, it would NOT be prohibited for the IAR to use securities owned in the advisory account to obtain a loan for this client because the 2 firms are affiliated.
*Agent of a broker-dealer begins or terminates employment, both:
the agent and the broker-dealer must promptly notify the Administrator. Notice to the SEC is not required.
An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act,
the agent is describing a guaranteed security
Termination procedures: If IA is State registered:
the firm/IA must notify the Administrator of Termination
Under coordination, the statement of the maximum and minimum proposed offering prices and the maximum underwriting compensation must be filed at least 2 full business days before the effective date, not with
the initial filing
SEC registration doesn't mean:
the security is federally covered
An Administrator has jurisdiction over an offer to sell securities if it is made in a newspaper published out of state
under no circumstances *outside of state or which is published in the state but 2/3 of it's circulation is outside= no jurisdiction
When the conditions of a stop order have led to the better and are being lifted the order has been:
vacated
The 30 day rule applies for when the actual residence/ID changes and the client is no longer
vacationing
An agent or B-D doesn't need to register in the state if the client is:
vacationing and only temporarily in that state