66-4 Flashcards
Is an adviser to a mutual fund considered an IA under the USA?
No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.
True or False: An adviser to a mutual fund would register in the state where the fund is domiciled.
False. The IA must be registered with the SEC, not a state.
True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.
False. The CEO would be considered an IAR, not an IA.
Is an employee of a securities firm who manages accounts for a fee considered an IAR?
yes
Is an employee of a BD who solicits new customers for an IA considered an IAR?
Yes. Anyone who solicits investment advisory service is considered an IAR.
True or False: An agent for a BD who solicits client trades would not be considered an IAR under the USA.
True. There is no indication that the agent is managing accounts and charging a fee.
Individuals employed by an IA who only perform ____________________ duties are excluded from registration under the USA.
clerical duties
An individual employed by an IA to manage the research dept. would be required to register as an ______ under the USA.
IAR
Is an employee of an IA who answers the telephone and does clerical work considered an IAR?
no
An electronic system used to register investment advisers is called ___________________________________________.
Investment Adviser Registration Depository (IARD).
A surety bond may be required if an investment adviser has _____________ or __________ of client assets.
discretion or custody
In place of a surety bond, the Administrator will accept a deposit of _______ or _____________.
cash or securities
True or False: A successor advisory firm must pay a new filing fee, but need not file a new application.
False. The successor firm must update its application, but not pay a new filing fee.
The application for registration of an agent or IAR becomes effective in _____ days.
30 days
The application for registration of an agent or IAR becomes effective in _____ days.
30 days
IA records must be kept for at least ____ years.
5 years
Investment advisers with custody must have an annual audit done by a(n) ____________________.
independent CPA
If a BD’s net capital falls below the required minimum, it must notify the Administrator within ___ business day(s).
1 day
An IAR has an office in State A and has 4 clients who reside in the state. Is the IAR required to register in State A?
yes, since there is an office in the state
An IAR of a federal covered adviser has an office in State B with 4 clients who live in State B. Where must he register?
Must register in State B since he has an office there
An IAR has no place of business in State A, but has 6 or more individual clients in State A. Where must she register?
She must register in any state where she has 6 or more individual clients (even if she has no office in the state).
An IAR of a federal covered adviser has no office in NY, but has 6 or more clients living in NY. Must he register in NY?
No. IARs of federal covered advisers are only required to register in states in which they have an office.
An IAR of a state-registered IA has no office in NJ, but has 6 or more clients living in NJ. Must she register in NJ?
yes
Identify 2 significant creations that are credited to the National Securities Markets Improvement Act (NSMIA).
Federal Covered Advisers and Federal Covered Securities
Who manages accounts, solicits services, or makes recommendations on behalf of a registered investment adviser?
An investment adviser representative (IAR)
An ___________________________________ is to an investment adviser what an ________ is to a BD.
An investment adviser representative (IAR) is to an investment adviser what an agent is to a BD.
When does the de minimis exemption from registration apply for an IA that has no place of business in a state?
When an IA has no more than 5 non-institutional clients in the state in the previous 12 months
Does the de minimis exemption apply to investment adviser representatives?
yes
IAs with no place of business in a state, and whose clients are ____________ are not required to register in that state.
institutions
What requirements may states impose on IAs that are registered with the SEC?
- File with the state any documents that were filed with SEC, 2. File Consent to Service of Process, 3. Pay state fees
If an IA is registered with the SEC, is registration required in any state in which it intends to do business?
No. The National Securities Markets Improvement Act (NSMIA) exempts federal covered advisers from state registration.
Regardless of assets under management, IAs must register with the SEC if any client is a ______________________________.
registered investment company.
Under the USA, the de minimis exemption limits an IA to no more than ____ clients within the previous _____ months.
5 clients; 12 months
If an IA meets the IA definition in a state, are there any exemptions from registration under the USA?
Yes, no office in the state and a) its clients are institutions or b) 5 or fewer retail clients in the last 12 months
Is there a registration exemption for IARs doing business in a state if employed by an IA registered in another state?
Yes, if the IAR has no office in the state and has 5 or fewer retail clients in the state in the past 12 months.
For how long does the registration of a state-registered adviser remain in effect?
Until December 31, unless renewed by the adviser
IAs file their applications electronically through the ___________________________________.
Investment Adviser Registration Depository (IARD).
Is an IAR who is employed by a federal covered adviser required to register in the state?
Yes. IARs of federal covered advisers must register in any state in which they have a place of business.
An IA must maintain its books and records for a minimum of ____ years.
5 years
If employed by a federal covered IA, is an IAR required to register in all states in which she is conducting business?
No. If the IAR has no place of business in the state, no state registration is required.
True or False: An IA with fewer than 15 retail clients in the past 12 months is exempt from registering under the USA.
False. The USA de minimis exemption for advisers is 5 or fewer individual clients.
True or False: If an adviser’s only clients are insurance companies, it is exempt from SEC registration.
True
What type of information will be found in an investment adviser’s ADV Part I?
Firm name, # of employees, nature of business, history of officers/directors, legal/disciplinary action in past 10 years
Any material changes to Form ADV must be filed ___________.
within 30 days
What types of changes would be considered material changes that require prompt amendment of an adviser’s ADV?
Significant items, such as a name or location change
When are non-material (routine) changes to Form ADV required to be filed?
within 90 days after the end of the IA’s fiscal year.
Identify some non-material (routine) changes to Form ADV.
A change in the number of discretionary accounts or a change in the dollar amount under management by the adviser
When is Form ADV-W filed?
When an adviser withdraws its registration
With what system do IAs file their registration applications?
The Investment Adviser Registration Depository (IARD)
ADV Part I is a disclosure document for use by the _____ and the ________________.
SEC and the Administrator
Who operates the IARD?
FINRA
When an adviser files Form ADV with the SEC, when does registration become effective?
Within 45 days of filing, the SEC will either grant the registration or institute denial proceedings.
When should routine changes to an adviser’s ADV be filed?
Within 90 days of the end of the adviser’s fiscal year
When should significant changes to an adviser’s ADV be filed?
Promptly (within 30 days)
What types of changes would be considered significant changes to the adviser’s ADV?
Change in fees, custody, and the name or location of adviser
When must a federal adviser file an updating amendment to determine continued eligibility for SEC registration?
Within 90 days of the end of the adviser’s fiscal year
Define the local exemption from SEC registration for an IA.
All clients reside in the state where the IA’s office is located, and no advice is given for exchange-listed securities.
For how long does the registration of an adviser registered with the SEC remain in effect?
Until it has been withdrawn, cancelled, or revoked by the SEC.
The IA Act of 1940 requires IAs to retain notices, ads, or other communications circulated to more than _____ clients.
10 clients
The IA Act of 1940 stipulates that any communication directed to more than ____ person(s) is considered advertising.
1 person
Identify the acronym: NRSRO
Nationally Recognized Statistical Ratings Organization
Identify the acronym: IAR
Investment Adviser Representative
What is Form ADV?
The form filed by investment advisers for registration
Identify the acronym: IARD
Investment Adviser Registration Depository
What is Form ADV-W?
The form filed by investment advisers to withdraw registration
What is Form ADV-E?
Form filed by an independent public accountant after auditing the records of an IA maintaining custody of client assets
What’s notice filing?
The process in which information that is filed with the SEC is also filed or shared with the Administrator.
What is the federal law that governs investment advisers?
The Investment Advisers Act of 1940
True or False: An IA firm acquired by a competitor must pay a new filing fee.
False. The purchasing firm must update its application, but a new filing fee is not required.
What form do IAs file to register?
Form ADV
With whom would an IA register if it has $20 million under management and advises an investment company?
Any IA who advises an investment company must register with the SEC.
Where do IAs send their registration forms?
The Investment Adviser Registration Depository (IARD)
What are the minimum educational requirements for those rendering investment advice?
There are no minimums; however, the SEC and Administrator may require disclosure of educational backgrounds.
What is updated at the annual renewal of an IA’s registration?
Assets under management, the number of accounts, clients, employees, and IA representatives
What is Form ADV-NR?
Form required for IAs with general partners who are nonresidents of the U.S.; gives the SEC the right to receive legal papers.
If an IA has $50 million under management and 10 individual clients in FL, is it required to register with the SEC?
No, the IA meets the de minimis exemption under SEC rules (i.e., fewer than 15 clients).
For how long must an IA maintain records?
5 years
Define solicitor.
Any person who, directly or indirectly, solicits any client for, or refers any client to, an IA.
May a solicitor receive compensation from an IA?
Yes, if the IA is registered, a written agreement exists, and a court has not limited the solicitor’s activities.
May an IA use testimonials in its promotional material?
No
Define testimonial.
An advertisement in which an individual recommends the IA’s services based on personal experiences with the firm.
An newly hired investment adviser representative wants to put the initials “IAR” on her business card. Is this allowed?
No. However, she may spell out “Investment Adviser Representative.”
Give some examples of institutional investors.
Banks, S&Ls, insurance or investment companies, investment advisers, or entities with at least $50 million in assets
List some of the records that must be retained by an IA for five years.
Journals, blotters, ledgers, position records, and trade confirmations
True or False: If a new IA’s registration became effective on April 1, it must renew on April 1 of the following year.
False. State registrations expire annually on December 31 and then must be renewed.
True or False: An IA is required to disclose the educational background of all of its IARs to its clients
False
If an IA’s office is in State A, but its only clients are insurance companies, with whom must it register?
With the Administrator in State A. IAs whose only clients are insurance companies are exempt from SEC registration.
What record must an investment adviser maintain regarding its IARs?
The initial application for each IAR
True or False: An Administrator will inspect all advisers’ books and records on an annual basis.
False. Administrators lack the resources to inspect all IAs’ books and records annually.
The publisher of a financial publication that provides personalized advice is considered a(n) __________________.
Investment Adviser
If an IAR has no place of business in a state, he must register in the state if he has more than ____ clients there.
five
When may an investment adviser charge fees that are different from other advisers?
When the fees are disclosed and are determined to be reasonable
True or False: An IA that maintains custody of customer assets must submit to an unannounced annual audit by a CPA.
True. At the completion of the audit, the CPA must file Form ADV-E with the SEC.
Is an adviser required to register in a state in which it has no office, but has accredited investors who reside there?
Yes. Since the USA does not recognize accredited investors as institutional investors, IA registration is required.
Does an IA that only accepts clients with at least $1 million under management need to register?
Yes. There is no exemption on the state or federal level if all of an IA’s clients have $1 million under management.
Investment advisers typically charge fees based on the _____________ over a specified period.
average value
Under the USA, when must a balance sheet be provided to a client?
A balance sheet must be provided if the IA collects prepaid fees of $500 or more, 6 months or more in advance.
True or False: An IA with 5 or fewer retail clients in the state in the past 12 months need not register under the USA.
True. However, this is provided that it has no place of business in the state.
When does an Administrator require an adviser to include its balance sheet in its ADV Part 2?
If the firm has custody of a client’s funds or collects prepaid fees of $500 or more, 6 months or more in advance
If an IA is no longer eligible for SEC registration, it has ____ days to file ADV-W and register at the state level.
180 days
If ABC Advisers has $112 million under management, it must register with ________.
the SEC
True or False: If an IA’s clients are institutions (e.g., banks and BDs), it is exempt from registration under the USA.
True, provided it has no offices in the state
Is an IA always required to include a balance sheet in Part 2 of its Form ADV?
No, balance sheet only required if it collects prepaid fees
Part 2 of Form ADV may be used as the disclosure document that is provided to the IA’s ________.
clients
What is Part 2 of Form ADV?
The portion of an IA’s application that may be used to satisfy the Brochure Rule (disclosure requirement)
If a firm provides advice solely based on U.S. government securities, is it required to register as an IA with the SEC?
No. U.S. government securities advisers are excluded from the IA definition under the IA Act of 1940.
True or False: The manager of an IA’s human resources department is considered an IAR.
False
When an IA initially registers, who is automatically considered registered?
The officers and directors of the advisory firm
True or False: A BD who promotes wrap accounts to its clients would have to register as an IA under the USA.
True. Since the wrap account involves a fee for advice, the BD must register as an IA.
What is required of an IA if there has been a minority change in firm ownership?
Provide written notification to clients and the Administrator
An investment adviser with more than $___________ under management must register with the SEC.
$110 million
Is an IA managing more than $110 million in assets with only insurance companies as clients subject to SEC registration?
No. An SEC exemption is provided to IAs whose only clients are insurance companies.
What is the purpose of an annual updating amendment.
To determine if an IA is eligible for continued SEC registration; it is filed within 90 days of its fiscal year end
What must a federal covered adviser do if its assets under management fall below $90 million?
Withdraw its federal registration and register with a state Administrator(s)
