Unit #1 - Regulation of Investment Advisers, Including State-Registered and Federal Covered Advisers
Which of the following statements are TRUE? 1. The Uniform Securities Act is not the actual law of any state or territory of the United States. 2. The National Securities Markets Improvement Act of 1996 requires states and the federal government to have identical registration requirements. 3. The state securities Administrator has responsibility for the enforcement and administration of a state's securities law. A)I and III B)II and III C)I and II D)I, II, and III
A) 1 & 3 *The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. The NSMIA's purpose is to eliminate dual registration, not to require identical laws.
Under the Uniform Securities Act, investment advisers are exempt from registration in a state where they have no office if they direct business communications with no more than 5 retail clients within A)12 months B)30 days C)2 years D)6 months
A) 12 months *If investment advisers have no office in a state, they are not defined as investment advisers and are exempt from registration if either of the following conditions applies: their only clients within the state are other investment advisers or broker-dealers, financial institutions (banks, savings and loans, trusts), institutional investors (certain pension funds, insurance companies, investment companies), or government agencies or other political entities; and they have no more than 5 clients within the state in a 12-month period (de minimis exemption).
Both the Investment Advisers Act of 1940 and SEC Release IA-1092 specifically exclude from the definition of "investment adviser" certain persons who provide investment advice solely incidental to the practice of their profession. Which of the following would NOT by definition qualify for this exclusion? 1. An accountant who provides high-tax-bracket clients with a useful chart showing them how to compute the tax-equivalent yield for municipal bonds 2. A divorce attorney who, after obtaining settlements for clients, provides them with a list of suggested investment alternatives encouraging them to be prudent with their newfound wealth 3. A university professor who provides investment advice for a substantial fee to fewer than 15 clients during any consecutive 12-month period, none of whom is an investment company 4. An economist who consults with very large corporate employee benefit plans on how to best invest their funds A)III and IV B)I and II C)I and IV D)II and III
A) 3 & 4 *The university professor loses the exclusion as soon as the advice is no longer incidental to the practice of the profession (which it clearly is here, regardless of the number of clients). The list of professions qualifying for the exclusion does not include an economist, who in this case would be included in the definition as a pension consultant. The key to remember is the acronym "LATE"—lawyer, accountant, teacher, and engineer.
Although many advisers to private funds are exempt from registration, larger ones generally register with the SEC. SEC-registered investment advisers with at least $150 million in private fund assets under management use which form to report information about the private funds that they manage? A)Form PF B)Form D C)Form ADV Part 1A D)Form 13F
A) Form PF * Logically enough, the letters, PF stand for private fund and that is the form used. The ADV Part 1A is used by any investment adviser registering with the SEC (or the states); it is not unique to private funds. Form 13F applies to any institutional investor with discretion over $100 million or more in certain equity securities. Those are on a list published by the SEC and are called, "13F securities". Form D is used under Rule 506 for private placements and has nothing to do with investment advisers.
Under the Uniform Securities Act, which of the following must register with the state securities Administrator? A)Investment advisers with a place of business in the state and less than $100 million in assets under management B)Investment advisers to an investment company registered under the Investment Company Act of 1940 C)Investment advisers who have $100 million or more under management D)Investment advisers without an office in the state whose clients are exclusively insurance companies
A) Investment advisers with a place of business in the state and less than $100 million in assets under management *Under the USA, an investment adviser with a place of business in the state must register with the state securities Administrator, regardless of who the clients are, unless they are federal covered advisers. Advisers without an office in the state, or whose clients are exclusively insurance companies, are not defined as investment advisers in that state under the USA. An adviser who manages an investment company that is registered under the Investment Company Act of 1940 or who has $100 million or more under management, are federal covered investment advisers that do not register with the states. Once the $100 million level is reached, the adviser has the choice of state or SEC registration until hitting $110 million.
States may require investment advisers who are registered with the SEC to do each of the following EXCEPT A)maintain net capital requirements B)pay state notice filing fees C)file a consent to service of process D)file any documents with the state that are filed with the SEC
A) Maintain net capital requirements. *The state may require federal covered advisers to pay notice filing fees, provide a consent to service of process, and submit copies of documents filed with the SEC, but cannot determine net worth or net capital requirements for federal covered IAs. The Administrator can require minimum net worth for state registered advisers, but under the NSMIA, cannot do so for federal covered ones.
The responsibility for administering the Investment Advisers Act of 1940 lies with A)the SEC B)the Investment Advisers Association (IAA) C)FINRA D)the Administrator
A) The SEC *The Investment Advisers Act of 1940 is federal law, and that comes under the jurisdiction of the SEC.
Which of the following firms would be a federal covered adviser? A)ABC Money Managers, a partnership with $112 million under management B)DEF Fund Managers, a corporation managing an unregistered hedge fund with $20 million in assets C)XYZ Broker-Dealer with custody over $50 million of clients' invested assets D)GHI Consultants, a sole proprietorship managing $15 million belonging to high-net-worth individuals
A)ABC Money Managers, a partnership with $112 million under management *The structure of the adviser is irrelevant; if assets under management equal $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered, regardless of size. The hedge fund is an unregistered fund, so the rule does not apply. A broker-dealer is excluded from the definition of investment adviser if investment advice is incidental to its business. Custody has nothing to do with giving advice.
Which of the following is NOT considered to be in the business of investment advising? A)Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only B)An insurance agent who provides investment advice regularly, but such advice represents a small portion of her business C)A person who prepares reports about securities in general D)A financial planner who provides advice on many types of financial instruments, including securities, and receives commissions on the sale of life insurance
A)Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only *Please note that this question is not asking "who is an investment adviser?" It is asking about one of the 3 prongs - being in the "business". The insurance agent who discusses the merits of whole life insurance does not sell investment advice or securities, only insurance policies. The insurance agent does not hold herself out as an adviser nor does she provide advice on securities. If a person advertises as one who provides investment advice or engages in providing investment advice or analyses on a regular basis (even if not the person's principal business activity), the person is considered in the business of giving investment advice. If the person receives any compensation that represents a clearly definable charge, commission, or fee for such advice (whether paid separately or not), she is considered in the business. If the person engages in other financial activities in connection with the advice, it cannot be used to avoid the business standard.
Serenity Strategic Investments (SSI) is an investment adviser registered in four states. SSI's most previous annual updating amendment showed AUM of $108 million. Six months later, a favorable market resulted in SSI's AUM growing to $120 million. Unfortunately, several large clients left, so at the end of SSI's year, its AUM was down to $94 million. Which of the following statements is CORRECT? A)SSI remains state-registered because its AUM is less than $100 million. B)SSI may remain SEC registered as long as AUM is at $90 million or more. C)SSI must become registered with SEC within 90 days of exceeding $110 million. D)SSI has the choice of remaining state-registered or registering with the SEC.
A)SSI remains state-registered because its AUM is less than $100 million. *The key to answering this question is remembering that, for purposes of SEC registration, it is the AUM (technically known as the RAUM - Regulatory AUM) shown on the annual updating amendment to the Form ADV that is the determining factor. We are told that SSI is state registered, something permitted when reported AUM is $108 million, although it was eligible to register with the SEC. The mid-year increase has no effect on registration, only that at the end of the year. Because SSI will report $94 million on the next annual update, it will remain state registered and does not have the option to register with the SEC because its AUM is below $100 million. The only time the $20 million buffer down to $90 million enables an investment adviser to remain registered with the SEC is just that—the IA is already registered with the SEC and can stay there.
Which of the following would NOT be considered an investment adviser under Release IA-1092? A)The president of an investment club who provides research and advice to the members of his club on a regular basis as an integral part of his duties B)A retired banker who solicits business and advises former clients on a monthly basis as to the specific investment merits of banking securities and receives compensation for his services C)A pension consultant who advises a defined contribution plan on alternative methods of funding the plan and the relative merits of a selected list of investment managers D)An agent for an athlete who negotiates contracts for a baseball player, as well as advises the client on securities, but does not have discretionary authority over the athlete's securities account
A)The president of an investment club who provides research and advice to the members of his club on a regular basis as an integral part of his duties *The president of the investment club does not meet all 3 of the required elements in the definition of an investment adviser as outlined in Release IA-1092. The investment club president is neither in the business of providing advice nor does he receive compensation for his services. Agents for athletes are considered investment advisers if they include investment recommendations as part of their services, whether or not they have discretion over the funds.
The term exempt reporting adviser refers to A)advisers that rely on either the venture capital fund adviser exemption or the private fund adviser exemption B)broker-dealers who are considered investment advisers solely because they offer wrap fee accounts C)advisers whose only clients are insurance companies D)advisers who are registered on the state level, but who file their Form ADVs through the IARD
A)advisers that rely on either the venture capital fund adviser exemption or the private fund adviser exemption *Exempt reporting advisers (ERAs) are defined as investment advisers, but, because they either are private fund advisers or advise venture capital funds, 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—hence the name exempt reporting advisers.
Under the Uniform Securities Act, an investment adviser is exempt from registration if he has no place of business in a state and his only clients are any of these EXCEPT A)individuals meeting the accredited investor standard B)investment companies C)other investment advisers D)broker-dealers
A)individuals meeting the accredited investor standard *Provided his clients are institutional investors and the adviser has no place of business in a state, he is not required to register as an investment adviser. Other than the de minimis or snowbird exemptions, there are no other cases where an IA serving individuals would not have to register.
An individual registered as an agent with ABC broker-dealer has an independent financial planning practice. Hourly fees are charged for developing financial plans, and if the client wishes, he refers transactions to ABC broker-dealer and is paid commissions for products sold. The Investment Advisers Act of 1940 requires A)that the financial planner register as an adviser but not the broker-dealer B)neither the financial planner nor ABC is required to register as an investment adviser. C)that ABC register as an investment adviser because it sells securities D)that ABC register as an investment adviser but not the financial planner
A)that the financial planner register as an adviser but not the broker-dealer *The agent is receiving compensation for rendering advice. A broker-dealer is exempt from registering as an investment adviser unless it receives special compensation (typically a fee) for the advice.
One of the exemptions from registration under state and federal law applies to investment advisers to private funds. One characteristic of all private funds is that A)they are not registered as investment companies B)they have no more than 100 investors C)they have assets of less than $150 million D)their advisers are exempt from filing reports on Form ADV
A)they are not registered as investment companies *Private funds lose that distinction if they become registered as investment companies under the Investment Company Act of 1940. It is the adviser to a private fund who has a limitation on the amount of AUM, not the fund. In some cases, specifically when using the 3(c)(7) exemption, there is no limit to the number of investors. In many cases, the advisers to these funds, although exempt from registration, are considered exempt reporting advisers and must file a Form ADV Part 1 answering most of the questions on the Form.
Under the Investment Advisers Act of 1940, who is not excluded from the definition of investment adviser when their investment advice is solely incidental to the individual's profession? A)Engineers B)Insurance agents C)Attorneys D)Teachers
B) Insurance Agents *The persons excluded from the definition of investment adviser when advice is provided solely incidental to their profession include lawyers (attorneys), accountants, engineers, and teachers. Insurance agents are not included in this group and are not excluded from the definition.
Which of the following individuals does not come under the supervisory regimen of an investment adviser? A)A CFA® preparing the firm's research reports B)The CPA engaged to perform the annual audit C)An individual in the mailroom who has fewer than 6 retail advisory clients D)A financial planner registered with the firm as an IAR, but maintaining a separate financial planning practice as an independent contractor
B) The CPA engaged to perform the annual audit *The annual audit must be performed by an independent accountant. Therefore, this CPA would have no advisory responsibilities requiring supervision. Independent contractors registered as IARs are supervised just as would be any other IAR. Research reports carry the name of both the firm and the preparer and need adequate supervision. If the mailroom person has clients (the number isn't relevant because there is obviously an office in the state), registration as an IAR is required.
Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the U.S. government is A)required to be a registered agent in the state B)not required to be a registered investment adviser in the state C)required to be a registered investment adviser representative in the state D)required to be a registered investment adviser in the state
B) not required to be a registered investment adviser in the state. *This question is referring to a federal covered adviser. The futures contracts are not securities, but, of course, the U.S. government securities are. However, the Investment Advisers Act of 1940 specifically excludes from the definition of "investment adviser" a person whose securities advice is confined to securities issued or guaranteed by the Treasury. The fact that this person is excluded under the Investment Advisers Act of 1940 makes that person federal covered under the NSMIA and not subject to state regulation as an investment adviser.
Under the Investment Advisers Act of 1940, which of the following investment advisers is NOT exempt from federal registration? A)ABC Advisers, with offices in 4 states, deals exclusively with insurance companies. B)All of Paula's clients are private funds and she has total assets under management of $200 million with less than $25 million of that belonging to foreign investors. C)Marie maintains her only office in Paris, France, deals with fewer than 15 clients (none of whom is a registered investment company) in private funds advised by Marie, has AUM in the United States of less than $25 million, and does not hold herself out as an investment adviser in the United States. D)All of John's clients reside in his home state, and John offers no advice on any exchange-listed securities. He manages $50 million in assets and none of his clients are private funds.
B)All of Paula's clients are private funds and she has total assets under management of $200 million with less than $25 million of that belonging to foreign investors. *The exemptions from the SEC registration requirement under the Advisers Act include advisers who render no advice on any exchange-listed security and whose clients are all in a single state and certain foreign advisers who do not hold themselves out as investment advisers and have fewer than 15 clients per year. In order to qualify for the private fund adviser exemption, total AUM must be less than $150 million. There is also an exemption for investment advisers, regardless of the number of states where offices are maintained, who limit their clientele to insurance companies.
Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser? A)A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities B)Bank that offers investment counseling to its high-net-worth customers C)Antiques dealer who receives a fee for advising customers as to the value of antiques and rare coins D)Publisher that receives a yearly subscription fee for a newsletter that provides nonspecific investment advice
B)Bank that offers investment counseling to its high-net-worth customers *A broker-dealer who receives fees for investment recommendations is an investment adviser because that fee is considered special compensation relating to securities advice. The antiques dealer provides non-securities-related advice. Publishers may provide generic investment advice without registering as investment advisers. Commercial bankers are excluded from the definition of an investment adviser.
With respect to the recordkeeping rules under the USA, which of the following statements is NOT correct? A)Investment advisers must maintain copies of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the adviser for a minimum of 5 years. B)Following termination of the business, investment advisers organized as corporations must maintain copies of their articles of incorporation for a minimum of 5 years. C)Broker-dealers must maintain records of trade blotters for a minimum of 3 years. D)Broker-dealers must maintain records of electronic communications for a minimum of 3 years.
B)Following termination of the business, investment advisers organized as corporations must maintain copies of their articles of incorporation for a minimum of 5 years. *Partnership articles and any amendments thereto, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor must be maintained in the principal office of the investment adviser and preserved until at least 3 years after termination of the enterprise. Emails are treated as any other communication: 3 years for broker-dealers and 5 years for investment advisers.
Gibraltar Investment Advisers opened for business last week. Because of the clients brought over from previous affiliations of their IARs, they have started with $94 million under management for various individual and corporate clients. They also signed a contract to manage an additional $10 million for a wealthy individual. Gibraltar will begin managing that individual's portfolio at the beginning of the next calendar quarter. Which of the following best describes Gibraltar's investment adviser registration requirements? A)Gibraltar need not register as an investment adviser because it will manage funds for an institutional investor. B)Gibraltar would be eligible to register at the federal level. C)Gibraltar must register with the state(s) and then, within 90 days of the receipt of the additional $10 million, must register with the SEC. D)Gibraltar's only option is to register at the state level because it currently manages less than $100 million in client funds.
B)Gibraltar would be eligible to register at the federal level. *If an investment adviser anticipates having at least $100 million under management within its first 120 days, it is eligible to become a federal covered adviser by registering with the SEC. Even though Gibraltar will have AUM in excess of $100 million by the beginning of the next quarter, registration with the SEC is not mandatory until AUM reach $110 million. That the advisory will manage some institutional funds does not exempt the organization from investment adviser registration.
Which of the following does NOT meet the compensation test for defining investment advisers under SEC Release 1A-1092? A)An insurance agent sells a life insurance policy and receives a commission on that policy. During the sale of the insurance policy, the agent provides some securities investment advice. B)Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do. C)Subscription payments are received by a publisher of a newsletter providing impersonal securities-related advice. D)A real estate agent advertises that she will give free advice regarding investing the proceeds from the sale of any home she lists.
B)Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do. *Compensation may take the form of, but is not limited to, fees, payments for subscriptions, salaries, or commissions. Compensation does not have to be direct. The commission on the insurance policy is considered indirect compensation covering the investment advice given by the insurance agent. The same logic holds for the real estate agent - she doesn't give advice unless you list your home with her. Nothing in the neighbor's advice involves compensation.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, an investment adviser must register with the SEC if it A)its only place of business is outside of the United States, deals with fewer than 15 U.S.-based clients, and has less than $25 million in AUM in the United States B)has $35 million in client assets invested in cash or money market funds and $75 million of client assets invested in long-term bonds under management C)would be required to register in 15 or more states D)limited its clients to insurance companies only
B)has $35 million in client assets invested in cash or money market funds and $75 million of client assets invested in long-term bonds under management * An adviser with $110 million or more in assets under management, regardless of the asset class, must register with the SEC. Advisers whose only clients are insurance companies are exempt from registration with the SEC. There is an exemption for foreign advisers who have fewer than 15 clients in the United States, and their AUM in the United States is less than $25 million. When an investment adviser is required to register in 15 or more states, it is eligible, but not required to register with the SEC
A federal covered investment adviser is a person A)registered under the Uniform Securities Act B)registered, or excluded from the definition, under the Investment Advisers Act of 1940 C)exempt from regulation under the Securities Exchange Act of 1934 D)registered with North American Securities Administrators Association (NASAA)
B)registered, or excluded from the definition, under the Investment Advisers Act of 1940 *A federal covered investment adviser refers to a natural person or firm registered under the Investment Advisers Act of 1940 or excluded from the definition of investment adviser under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state or federal registered, do not register with NASAA.
Under the provisions of the Uniform Securities Act, it is NOT necessary for an investment adviser to register when it A)is headquartered in a state where it conducts most of its business with broker-dealers only B)has a place of business in the state but deals exclusively with federal covered advisers C)has no place of business in the state and deals with savings and loan associations only D)has a place of business in the state but has conducted business with 3 individual investors during the preceding 12 consecutive months
C) Has no place of business in the state and deals with savings and loans associations only. *An adviser who has no place of business in the state and deals only with savings and loan associations is not required to register with the state securities Administrator. An adviser with a place of business in the state must register with the Administrator whether clients are exclusively broker-dealers or federal covered advisers and regardless of the number of clients.
The SEC requires investment advisers registered under the Investment Advisers Act of 1940 to maintain certain books and records for a minimum of A)1 year B)3 years C)5 years D)6 years
C) 5 years. *Investment advisers must keep most records for 5 years from the end of the fiscal year in which the record was created. The first 2 years, the records must be kept easily accessible in the principal office of the IA. Broker-dealers have a requirement of 3 years rather than 5 years.
What is the official designation of the person or agency that enforces the USA in each state? A)Transfer agent B)Registrar C)Administrator D)Issuer
C) Administrator *The USA specifies that a state's securities Administrator has the authority to enforce the act in that state. A transfer agent is the person or corporation responsible for recording the names and holdings of registered security owners.
The Investment Advisers Act of 1940 requires every registered investment adviser to have a chief compliance officer (CCO). This individual would be responsible for ensuring compliance with the firm's Code of Ethics by all of these EXCEPT A)investment adviser representatives employed by the firm B)investment adviser representatives who are independent contractors C)a nonaffiliated broker-dealer through whom the majority of the firms trades are executed D)clerical and ministerial employees of the firm
C) a nonaffiliated broker-dealer through whom the majority of the firms trades are executed *The CCO is responsible for compliance with the firm's Code of Ethic by every employee, registered or not, and any nonemployee who is registered with the firm, such as independent contractors. Broker-dealers the investment advisory firm uses for trade execution are beyond the scope of the IA's supervision.
The document that gives the Administrator the right to process complaints against a registrant is known as A)a durable power of attorney B)a writ of habeas corpus C)a consent to service of process D)an injunction
C) consent to service of process *The consent to service of process gives the Administrator the right to process legal complaints against the applicant.
Under the Investment Advisers Act of 1940, which of the following would be excluded from the definition of an investment adviser? A)The publisher of an investment advisory newsletter that plans issues based on market events B)A broker-dealer that managed clients' portfolios for a fee C)A bank that charged a fee for providing investment advice D)An individual who made recommendations regarding which types of securities would meet a client's investment objectives but who did not recommend specific securities
C)A bank that charged a fee for providing investment advice *A blanket exclusion from the definition of investment adviser applies to most banks. Broker-dealers are excluded only if the advice is within the scope of their brokerage business and they receive no special compensation, such as an additional fee, for that advice. Publishers must have general, regular circulation to be excluded under the Advisers Act. Publishing based on market events would not qualify. Advice relating to types of securities is specific enough to qualify as investment advice, even if mention of particular securities is avoided.
Under the Investment Advisers Act of 1940, which of the following is included in the definition of an investment adviser? A)A bank that advertises to the public that it offers a complete line of trust services B)A professional research analyst who holds himself out to the public as an expert in trading the Euro and other foreign currencies C)A lawyer who advertises to the public that he offers comprehensive legal and investment advice to high-net-worth individuals D)A research service that offers advice on the value of gold
C)A lawyer who advertises to the public that he offers comprehensive legal and investment advice to high-net-worth individuals *A lawyer who advertises to the public that he offers comprehensive legal and investment advice to high-net-worth individuals falls within the definition of an investment adviser because he offers investment services as an integral part of his practice.
Under current law, which of the following would NOT be required to register as an investment adviser in a state? A)A person who limits advisory services exclusively to issuers of securities in that state while maintaining no office therein B)A person whose home office is in the state and who manages less than $90 million in assets C)A person who deals exclusively with broker-dealers in that state, but maintains no place of business within the boundaries of the state D)A person who has directed advice relating to securities to 6 individuals in that state within the past 12 months, even though he has no place of business within the state
C)A person who deals exclusively with broker-dealers in that state, but maintains no place of business within the boundaries of the state *The exemption from registration for those who have no office in the state and only deal with issuers applies to broker-dealers, not to investment advisers. Persons having no place of business in a state are generally limited to having fewer than 6 retail (individual) residents of that state as clients within any 12 month period before being required to register, (the de minimis exemption). Unless an exception applies, investment advisers who have less than $100 million in AUM must register on the state level. Once they reach $100 million of assets under management, they have the choice of state or SEC registration. Once $110 million is reached, the only choice is registration with the SEC. Once registered with the SEC, if the AUM falls below $90 million, the adviser can no longer remain SEC registered and must register on the state level.
Which of the following activities is most likely to be considered by the SEC as meeting the business standard element in the definition of an investment adviser? A)Issuing reports on macroeconomic conditions B)Advertising investment services but receiving no separate compensation for the services C)Advertising investment services to the public and providing them routinely D)Giving specific investment advice only on rare and isolated occasions
C)Advertising investment services to the public and providing them routinely *Routinely providing investment services meets the business standard element, which the SEC described as giving advice such that it constitutes a business activity conducted with some regularity. In addition, offering services through advertising suggests that the adviser is publicly in the business of offering investment advice. Giving advice on the economy (macroeconomic conditions) is not equivalent to giving advice on specific investment recommendations, and therefore is not a covered activity under the Investment Advisers Act of 1940.
Which of the following are required for an initial application for registration as an investment adviser? 1. A consent to service of process 2. A fee 3. Disclosure as to whether the applicant will have discretionary powers over client funds and/or securities 4. Disclosure as to whether the applicant will have custody of client funds or securities A)I and II B)I, II, and IV C)I, II, III, and IV D)II only
C)I, II, III, and IV *An initial application must contain a consent to service of process and a fee, and it must disclose whether the applicant will have discretionary powers over, or custody of, client funds and/or securities.
Under the Uniform Securities Act, requirements for registration as an investment adviser in a state include which of the following? The Administrator may require an announcement of the application for registration in one or more newspapers in the state. Minimum financial requirements for federal covered advisers with a place of business in the state who have custody of customer funds and/or securities, or have discretionary authority over customer accounts. For those needing a surety bond, it must provide that any customer who can prove a violation is entitled to collect against the bond. A)I, II, and III B)II and III C)I and II D)I and III
D) 1 & 3 *A published announcement may be required by the Administrator. The Administrator may not impose any financial requirements upon federal covered advisers (other than to pay a fee when notice filing). The USA has specific wording requiring that customers who can prove they were the subject of a violation by the IA are entitled to collect against the bond.
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. file Form ADV with his current brokerage firm 3. notify his current brokerage firm and receive permission to operate independently from the firm as a registered investment adviser 4. do nothing and begin performing investment advisory services without regard to his current brokerage firm A)II and IV B)II and III C)I and IV D)I and III
D) 1 & 3 *Any registered person acting on behalf of a brokerage firm must receive that firm's permission to act as a registered investment adviser apart from the control of the brokerage firm. A brokerage firm may deny a registered person's ability to start his own advisory firm if the brokerage firm deems it to be a conflict of interest. An individual or a firm can start a registered investment adviser firm by filing an ADV form with the state or with the SEC. A person working for a registered investment adviser would have to pass either a Series 65 or Series 66 exam to become a registered investment adviser representative. It is important to recognize the difference between the firm (the registered investment adviser) and the person working for the firm in giving investment advice (the registered investment adviser representative).
Under the Uniform Securities Act, which of the following are NOT considered investment advisers or investment adviser representatives in this state? An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. United Trust Company of America An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state A)I, II, III, and IV B)I and II C)IV only D)II and IV
D) 2 & 4 *An agent for a broker-dealer advising customers for a fixed fee, stated as a percentage of the customer's assets under management, is acting as an investment adviser representative. An individual who sells advisory services for AAA Advisers, Inc., is an investment adviser representative. A trust company is not an investment adviser under the USA. An investment adviser with no office in the state and does business exclusively with other investment advisers located in that state is also excluded as an investment adviser under the USA.
Included in the Investment Advisers Act of 1940 are a number of different recordkeeping requirements. Wealth Preservation Specialists is a covered adviser that is organized as a partnership. If the firm were to dissolve, partnership agreements must be kept for A)the lifetime of the firm B)5 years after the dissolution C)5 years from the date of organization D) 3 years after the dissolution
D) 3 years after the dissolution *Both the Investment Company Act of 1940 (applicable here because this is a covered adviser) and the NASAA Model Rule on Recordkeeping require that investment advisers maintain certain records, such as partnership agreements and corporate articles of incorporation, for a period of no less than 3 years after dissolution.
Kapco Advisers, a federal covered investment adviser operating on a calendar-year basis, published a list of recommended securities in January 2015. A copy of this must be maintained until at least A)December 31, 2017 B)January 31, 2017 C)January 31, 2020 D)December 31, 2020
D) December 31st, 2020 *Investment adviser records, including copies of advertisements, must be kept for at least 5 years from the end of the fiscal year in which the record originated—in this case, 5 years from the end of 2015.
Harrison is a Certified Financial Planner (CFP®) with an office in the state and a telephone directory listing under the category "Financial Planners." Harrison has, for fees, written more than 100 comprehensive financial plans for various individual clients. However, only 20% of the plans' content entails advice regarding securities and investments. Which of the following statements best describes Harrison's status as an investment adviser under the USA? A)Harrison is not required to register as an investment adviser because he holds a recognized financial planning credential. B)Harrison is required to register as an investment adviser because he holds a recognized financial planning credential. C)Harrison is not required to register as an investment adviser because his securities advice is purely incidental to his overall planning activities. D)Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner.
D)Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner. *Under the Uniform Securities Act, an investment adviser is a person, corporation, partnership, or sole proprietorship who, in the regular course of business, advises others as to the advisability of selling securities. Harrison holds himself out as a financial planner and normally includes a section on investments in his plans. Furthermore, Harrison is compensated for his services—yet another standard of the definition, investment adviser. Under the USA, certain recognized professional designations are exempt from having to qualify by passing the licensing exam but not from registration.
A registered broker-dealer offers investment advice as an incidental part of its commission business. One of its agents charges for investment advice as a freelance investment adviser outside the scope of his employment at the firm. Which of the following statements are TRUE? The broker-dealer must register as an investment adviser. The agent must register as an investment adviser. The agent need not register as an investment adviser. The broker-dealer need not register as an investment adviser. A)I and II B)I and III C)III and IV D)II and IV
D)II and IV *Broker-dealers who offer advice as an incidental part of their commission business are not required to register as investment advisers. However, if an agent provides investment advice outside the scope of employment at the broker-dealer, he must be registered
ABC Advisers changes its name to XYZ Advisers and also changes its location. Under the Investment Advisers Act of 1940, it must A)amend Form ADV in advance B)notify FINRA within seven days C)notify the Administrator D)amend Form ADV promptly
D)amend Form ADV promptly *If information on certain parts of Form ADV becomes out of date, a federal covered adviser must file a prompt amendment with the SEC (a state-registered adviser would have to do the same with the Administrator under the USA). Information requiring immediate amendment includes name, address, telephone number, organization type changes (corporation, sole proprietorship, and partnership), degree of control over clients' funds, sources of funding, management organization, or any information relating to disclosure to clients. If any other information on the form changes (nonmaterial information), the SEC requires the form to be amended within 90