6 Federal Acts Flashcards
Under the Investment Advisers Act of 1940, all of the following statements are true regarding an investment adviser that takes custody of clients funds EXCEPT the investment adviser
[A] must send an itemized statement to each customer at least quarterly.
[B] must be audited on a surprise basis, at least annually.
[C] must segregate each customer’s funds.
[D] need not comply with the custody rules if the firm is also registered as a broker-dealer.
[D] need not comply with the custody rules if the firm is also registered as a broker-dealer.
Regardless of whether or not an investment advisory firm is also registered as a broker-dealer, they must still comply with all of the disclosure rules when they take custody of clients fund and/or securities.
Chapter 6: Section
An IA would be required to deliver a disclosure document to which of the following?
[A] financially sophisticated retail clients
[B] those who only want impersonal investment advice
[C] those who are registered investment companies
[D] those who are business development companies
[A] financially sophisticated retail clients
Financially sophisticated retail clients must receive a brochure. Delivery is not required to the other clients included in the test question.
Chapter 6: Section
Which of the following BEST represents the procedure for a Federal Covered Advisory Firm whose assets under management (AUM) fall below the levels specified by federal regulators and the Investment Advisers Act of 1940?
[A] The firm must immediately register via Qualification in all of the states in which the firm does business.
[B] The firm must promptly notify all clients that performance of investments was so poor that a change in registration is required.
[C] The firm must immediately cease providing advisory services until proper regulatory jurisdiction is established.
[D] The firm must promptly amend its filings with the SEC and await ruling by the SEC as to whether the firm still remains eligible for registration at the federal level.
[D] The firm must promptly amend its filings with the SEC and await ruling by the SEC as to whether the firm still remains eligible for registration at the federal level.
A firm whose assets under management fall below those specified by federal regulators as a requirement to be considered a federal covered advisory must promptly amend their filings with the SEC, including Form ADV, and await ruling by the SEC as to whether the firm remains eligible for registration at the federal level. The firm would only have to register by qualification if the SEC removes the firm’s eligibility for federal registration. Notification of clients would only be required if the firm’s registration status changed, and changes in assets under management are not always directly related to poor performance (e.g., a large client could leave the firm). The firm should await SEC rulings and can continue to operate while doing so.
Chapter 6: Section
An IAR has several clients who own Kimbo Inc. shares. One client contacts her today and tells her that an issue has come upon and he has an immediate cash need. The IAR recommends selling 5,000 Kimbo shares to meet this need. Before she places this order, she calls another client who is already long Kimbo shares to see if the client is interested in owning 5,000 more shares. This client agrees to purchasing more shares. Given this scenario, is an agency cross of Kimbo shares performed by the IAR for these two clients a valid option?
[A] An agency cross by the IAR would not be permitted in this situation.
[B] An agency cross is a valid option for the IAR but should be vetted by the IAR’s supervisor before proceeding.
[C] The IAR can proceed with an agency cross but anti-fraud provisions limit it to 2,000 shares in one trade.
[D] The selling client contacted the IAR for her advice, so an agency cross is a valid option as it meets the client’s need.
[A] An agency cross by the IAR would not be permitted in this situation.
Under the anti-fraud provisions in the Investment Advisers Act of 1940, investment advisers are prohibited from effecting an agency cross if the adviser recommends the transaction to both the buyer and seller. In this scenario, the IAR recommended selling Kimbo shares to one client and recommended buying Kimbo shares to another. Therefore, the IAR cannot proceed with an agency cross.
Chapter 6: Section
A solicitor is paid a cash fee for attempting to sell advisory services for a Federal Covered Investment Adviser. Since the solicitor is not directly affiliated with the IA the solicitor is required to provide a separate written disclosure document that must include which of the following?
I. The name of the solicitor and investment adviser
II. . The name of the broker-dealer where the IA executes its trades
III. The compensation arrangements between the solicitor and the IA
IV. The complete business background and qualifications of the solicitor
[A] I & III
[B] I & IV
[C] I, II & III
[D] I, II, III, IV
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
Chapter 6: Section
