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Series 66 > 66-5 > Flashcards

66-5 Flashcards

1
Q

What form is used to notify Administrators that an IA is maintaining custody of client assets?

A

Form ADV

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2
Q

What document, regularly provided to clients, will IAs use to notify clients of the location of their securities?

A

The client’s account statement

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3
Q

If an IA has custody or discretion, it must include a _________________ with their Form ADV and brochure.

A

balance sheet

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4
Q

True or False: According to the USA, investment advisers may generally charge performance-based fees.

A

False. Unless the Administrator deems the client qualified, performance-based fees are prohibited.

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5
Q

True or False: An IA that has full discretion over a client’s account at a separate BD is considered to have custody.

A

True

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6
Q

Before an IA may assign a client’s contract to another advisory firm, it must obtain _________________________.

A

the client’s consent

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7
Q

According to the USA, all investment advisory contracts must be in __________ form.

A

written form

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8
Q

Firms must keep client information confidential unless disclosure is authorized by the _______ or a ___________________.

A

the client or a regulatory authority

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9
Q

If an adviser has check-writing privileges in a client’s account, does this constitute custody?

A

Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.

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10
Q

If an IA maintains custody of a client’s funds or securities, how often must account statements be provided to clients?

A

quarterly

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11
Q

If an IA maintains custody of client funds, are unannounced audits required?

A

Yes. IAs must arrange for unannounced audits on an annual basis.

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12
Q

An IA inadvertently receives client funds/securities and doesn’t return them within 3 business days. Is this custody?

A

yes

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13
Q

True or False: An IA maintaining custody of client assets need not notify the Administrator.

A

False. The Administrator must be notified in writing using Form ADV.

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14
Q

When an IA has custody, with whom are the assets held?

A

Assets are held by a qualified custodian. Clients must be notified of custodian’s name, address, and manner of holding.

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15
Q

Define “assignment” as it relates to IA contracts.

A

The transfer of ownership of a client’s account from one advisory firm to another. Client consent is required.

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16
Q

May an adviser release account information to the spouse of a client?

A

no, not without written authorization

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17
Q

Under the USA, all IA contracts must be __________ and must disclose __________ provided and related ______.

A

Under the USA, all IA contracts must be in writing and must disclose services provided and related fees.

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18
Q

What is required of an IA if the firm goes through a majority change in ownership?

A

The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.

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19
Q

An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?

A

No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment.

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20
Q

In general, does the USA allow an adviser to charge performance-based fees?

A

No. However, such fee arrangements may be permitted by rule or order of the Administrator.

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21
Q

What is required of an IA to assign an advisory contract to another adviser?

A

written permission from the client

22
Q

If an adviser exercises full discretionary control over a client’s account, does this constitute custody?

A

yes

23
Q

An IA has custody if it inadvertently receives client securities and hasn’t returned them within ____ business days.

A

three

24
Q

Is an exculpatory provision in an advisory contract permitted?

A

No. An exculpatory provision would serve to absolve an adviser from blame or liability and is prohibited.

25
Q

True or False: Notification to existing clients is required for a minority change in ownership of an IA.

A

True. However, if a majority change occurs, client consent is required since this would be considered an assignment. ,but not in a minority change

26
Q

True or False: Under the IA Act of 1940, performance fees are allowed for persons who are not residents of the U.S.

A

True

27
Q

Define the term custody.

A

The legal responsibility for, or control over, someone’s assets

28
Q

Define assignment.

A

The transfer of an advisory contract by the adviser or any change in the overall management of the advisory firm.

29
Q

A client has just learned that his account will now be handled by another IAR. Is this considered an assignment?

A

No

30
Q

An IA established as a partnership has 2 out of its 5 partners retire. Is this considered an assignment?

A

No, since only a minority of the partners have changed. A majority would have to retire to be considered an assignment.

31
Q

Under the IA Act of 1940, an IA may charge performance fees for clients with at least $_________ under management.

A

$1 million

32
Q

Under the IA Act of 1940, an IA may charge performance fees for clients with a net worth of at least $____________.

A

$2 million

33
Q

When is a pension consultant required to register as an investment adviser?

A

When it is being paid to provide securities-related investment advice

34
Q

If a pension consultant advises a plan regarding the law firm it should hire, must the consultant register as an IA?

A

No. IA registration is not required since the consultant is providing incidental advice that is not securities-related.

35
Q

True or False: A pension consultant that advises a plan regarding the accountant it should hire must register as an IA.

A

False. IA registration is not required since the consultant is providing incidental advice that is not securities-related.

36
Q

True or False: A pension consultant being paid to create an asset allocation program for a plan must register as an IA.

A

True. The consultant must register as an IA since it is providing securities-related advice for compensation.

37
Q

For an IA to act as both an adviser and broker-dealer, with what must clients be provided before trades are effected?

A

The fact that the IA may be collecting both advisory fees and commissions

38
Q

True or False: A person soliciting for an IA must annually provide a disclosure regarding the IA’s performance.

A

False. However, at the time of contact, the solicitor must provide clients with a solicitor disclosure document.

39
Q

An IA created as a sole proprietorship is converted to a partnership. This is considered __________ of client contracts.

A

assignment

40
Q

True or False: An IA may offer discounted fees to clients if proper disclosure is made in its brochure and Form ADV.

A

True

41
Q

All investment advisory contracts must be in writing and include the ______________ for which services are contracted.

A

length of time

42
Q

An adviser is registered with the SEC under the Investment Advisers Act of 1940. What is the firm considered?

A

A federal covered adviser

43
Q

Under the Investment Advisers Act of 1940, how long does an IA have to renew its registration?

A

90 days from the IA’s fiscal year-end

44
Q

Give some examples of typically qualified custodians.

A

Broker-dealers, banks and trust companies. IAs may be custodians, but usually are not.

45
Q

True or False: IAs are permitted to charge different clients different fees for the same service.

A

True. Provided proper disclosure is made, charging clients different fees is permitted.

46
Q

If a federal covered adviser has more than ____ clients in a state, a notice filing is required by the Administrator.

A

five

47
Q

Under the IA Act of 1940, when must a balance sheet be provided to a client?

A

A balance sheet must be provided if the IA collects prepaid fees of $1,200 or more, 6 months or more in advance.

48
Q

When does the SEC require an adviser to include its balance sheet in its ADV Part 2?

A

If the firm has custody of a client’s funds or collects prepaid fees of $1,200 or more, 6 months or more in advance

49
Q

Does an IA have custody when it is in possession of checks drawn by its client and made payable to third parties?

A

No. The IA does not have custody if it forwards the check within 24 hours.

50
Q

Give examples of candidates included in the expanded IA definition due to SEC Release IA-1092.

A

Sports and entertainment reps, pension consultants and financial planners

51
Q

Is registration with the SEC required of an adviser that manages $87 million of assets?

A

No. An established FCA must register with the state Administrator if the AUM falls below $90 million.

Series 66 (12 decks)

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