Unit 6 Communication with Clients (10)

If there are changes in a brochure, how many days after fiscal year to send to customers?

120

Material Changes Timeline

90+30 days = 120 daysya

Active Technicians (AT), a state-registered investment adviser serving primarily retail accounts, would be in compliance if it A) filed a brochure with the Administrator, noting that it was available to clients upon request B) sent a copy of Form ADV Part 1A and Part 1B within 120 days of the end of AT's fiscal year C) sent a brochure within 150 days of the end of AT's fiscal year D) did not send an annual brochure to its clients if there was no material change from the previous year

D. The NASAA Model Rule dealing with brochures states that investment advisers do not have to deliver a summary of material changes or a brochure to clients if no material changes have taken place since the last summary and brochure delivery. If a brochure or summary of material changes is required, the delivery date is 120 days after the end of the adviser's fiscal year, not 150 days. If the adviser wishes to use Form ADV, it should use Part 2A and 2B. U6LO4

Which of the following activities would violate the Uniform Securities Act? An investment advisory partnership admits a renowned securities analyst to the partnership without informing its clients of this highly desirable addition. An investment adviser incorporated in California fails to inform its clients of the departure of the chief financial officer, who did not have an equity position in the firm. An investment advisory firm incorporated in Illinois charges clients a share of the capital gains on the basis of a guaranteed performance level above a designated benchmark. An investment advisory firm assigns those accounts that fall to a low level to other firms willing to accept them with the consent of the account holder. A) I and III B) II and III C) I and II D) I, III, and IV

A. Investment advisers who are partnerships must inform their clients of any change in the membership of the partnership within a reasonable period. Unless the question refers to a specific exemption, it is a violation of the USA for an advisory firm to charge on the basis of performance. An investment advisory firm may assign accounts to another firm with the consent of the client. U6LO4

In general, the Administrator would require that a broker-dealer's social media policies A) be limited to defining the responsibilities of supervisory personnel B) be left up to the manager of each branch office C) be committed to writing and communicated firmwide D) be updated at least once every 3 years

C. Although NASAA does not yet have a Model Rule dealing with social media, individual states have developed policies, and most of them mirror FINRA's, which requires that a firm's social media policies be in writing and made known to all in the company. It is not just supervisory personnel who must know the policy; any employee is subject to it. Updating every 3 years is not nearly frequent enough in this dynamically changing industry. U6LO5

According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts, A) the schedule should be made available on the broker-dealer's public website and should be password protected B) fee schedules should only be delivered by hand or postal mail to reduce cyber security threats C) the schedule should be made available on the broker-dealer's public website without requiring any login or password D) as long as the schedule is available in electronic form, it is not necessary to provide a paper version to retail customers

C. Transparency requires that obtaining the fee schedule should be a simple process for retail customers and prospects. That means access without logging in to the broker-dealer's website or needing a password. Paper copies should always be available and cyber security is not a threat because there is no confidential information included. U6LO1

Which of the following would be deemed to be an assignment of an investment adviser's contracts? All of the stock in NLT Advisers, a corporation, is acquired by MMS Advisers, Inc. The Lucky Seven Partnership is an investment adviser with 7 partners. Four of the partners make a fortune and decide to retire. They are replaced by new partners. Albert is an investment adviser. His clients' accounts are automatically debited monthly for his fee. Because of this steady cash flow, his banker readily accepts a pledge of these accounts as collateral for a loan. A) I and III B) II and III C) I and II D) I, II and III

D. It is deemed to be an assignment whenever a majority interest in an adviser changes hands. Pledging a client's contract is considered to be an assignment. U6LO4

Wrap Fee

A type of bundled fee and are specific to investment product. Can be all-inclusive, asset based fees and may include a combo of investment management fees, trading expenses, custody fees and/or adminstrative fees. Wrap Fee Portfolios are also referred to as "Separately managed account" (SMA)

Which of the following statements concerning conflicts of interest under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers are TRUE? Where a conflict of interest exists, an adviser must decline taking on the client. A conflict of interest is defined as anything that may impair the impartiality of the advice being rendered. An investment adviser who receives a fee for investment advice, and whose investment adviser representatives are paid commissions from broker-dealers, presents a conflict of interest that must be disclosed. A) II and III B) I and II C) I and III D) I, II, and III

A. Conflicts of interest could impair the rendering of unbiased and objective advice. This includes, but is not limited to, receiving compensation from sources other than clients' fees (such as a salary or commission from a broker-dealer) as a result of providing investment advice. Such conflicts of interest must be disclosed to a client in writing before the investment advisory contract is signed. U6LO1

A state-registered investment adviser would be permitted to A) make annual delivery of the brochure within 150 days of the end of the fiscal year B) use Part 2 of the Form ADV to satisfy the brochure requirement C) use Part 1 of the Form ADV to satisfy the brochure requirement D) deliver the brochure to a new client within 48 hours of entering into the contract

B. Part 2 of the Form ADV may be used in lieu of a fancy brochure. The brochure must be delivered to a new client no later than the entry of the contract—the 48 hours is a "prior to" entry requirement in order to avoid having to offer a penalty-free withdrawal. The annual delivery must be made within 120 days, not 150. U6LO4

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 include all of the following EXCEPT A) the services to be provided B) whether the contract grants discretionary power to the adviser C) a provision to reduce or waive fees in the case of underperformance D) the formula for computing the fee

C. There is never any case where waivers of this nature would ever be permitted. U6LO4

Disclosure to customers of an investment adviser's control relationships is required in agency transactions principal transactions exempt transactions A) II only B) I and III C) I and II D) I, II, and III

D.

A federal covered investment adviser has decided that it is necessary to increase its fee schedule and charge commissions on securities trades. However, they are going to leave the fee structure in place for existing customers. This information must be A) disclosed in the summary of material changes in the annual updating amendment to the SEC B) disclosed promptly to the Administrator of the state where the IA maintains its principal office C) disclosed promptly to all customers by amending the brochure D) disclosed promptly only to those customers who will be affected by the change through an amended brochure

D. Because this will only affect new clients, the brochure (or Part 2A of the ADV) must be amended to reflect this new method of operation and made available promptly to these clients and to the SEC; it cannot be part of the end-of-year amendments. The state has no cause to receive a copy of a federal covered adviser's brochure. U6LO4

Form ADV Part 2A - The Brochure Rule

Describes the firm

Form ADV Part 2B

Describes the personnel

T or F IA has to send a new brochure if there are no changes.

False

48 hour in advance rule under state law

If brochure is not delivered within 48 hours in advance, clients can get out of contract within 5 days

A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver a copy of the IA's brochure a copy of the solicitor's brochure a copy of the solicitor's script a copy of the IA's Form ADV Part 1 A) I and II B) I and III C) I, II, and IV D) II and IV

Third-party solicitors must provide a copy of the investment adviser's brochure (Form ADV Part 2A), as well as a copy of the solicitor's brochure. The solicitor's script must be approved by the IA, and only the SEC receives a copy of the Form ADV Part 1. U6LO4

charts

limitations and difficulties