66-5 Flashcards
What form is used to notify Administrators that an IA is maintaining custody of client assets?
Form ADV
What document, regularly provided to clients, will IAs use to notify clients of the location of their securities?
The client’s account statement
If an IA has custody or discretion, it must include a _________________ with their Form ADV and brochure.
balance sheet
True or False: According to the USA, investment advisers may generally charge performance-based fees.
False. Unless the Administrator deems the client qualified, performance-based fees are prohibited.
True or False: An IA that has full discretion over a client’s account at a separate BD is considered to have custody.
True
Before an IA may assign a client’s contract to another advisory firm, it must obtain _________________________.
the client’s consent
According to the USA, all investment advisory contracts must be in __________ form.
written form
Firms must keep client information confidential unless disclosure is authorized by the _______ or a ___________________.
the client or a regulatory authority
If an adviser has check-writing privileges in a client’s account, does this constitute custody?
Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.
If an IA maintains custody of a client’s funds or securities, how often must account statements be provided to clients?
quarterly
If an IA maintains custody of client funds, are unannounced audits required?
Yes. IAs must arrange for unannounced audits on an annual basis.
An IA inadvertently receives client funds/securities and doesn’t return them within 3 business days. Is this custody?
yes
True or False: An IA maintaining custody of client assets need not notify the Administrator.
False. The Administrator must be notified in writing using Form ADV.
When an IA has custody, with whom are the assets held?
Assets are held by a qualified custodian. Clients must be notified of custodian’s name, address, and manner of holding.
Define “assignment” as it relates to IA contracts.
The transfer of ownership of a client’s account from one advisory firm to another. Client consent is required.
May an adviser release account information to the spouse of a client?
no, not without written authorization
Under the USA, all IA contracts must be __________ and must disclose __________ provided and related ______.
Under the USA, all IA contracts must be in writing and must disclose services provided and related fees.
What is required of an IA if the firm goes through a majority change in ownership?
The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.
An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?
No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment.
In general, does the USA allow an adviser to charge performance-based fees?
No. However, such fee arrangements may be permitted by rule or order of the Administrator.
What is required of an IA to assign an advisory contract to another adviser?
written permission from the client
If an adviser exercises full discretionary control over a client’s account, does this constitute custody?
yes
An IA has custody if it inadvertently receives client securities and hasn’t returned them within ____ business days.
three
Is an exculpatory provision in an advisory contract permitted?
No. An exculpatory provision would serve to absolve an adviser from blame or liability and is prohibited.
True or False: Notification to existing clients is required for a minority change in ownership of an IA.
True. However, if a majority change occurs, client consent is required since this would be considered an assignment. ,but not in a minority change
True or False: Under the IA Act of 1940, performance fees are allowed for persons who are not residents of the U.S.
True
Define the term custody.
The legal responsibility for, or control over, someone’s assets
Define assignment.
The transfer of an advisory contract by the adviser or any change in the overall management of the advisory firm.
A client has just learned that his account will now be handled by another IAR. Is this considered an assignment?
No
An IA established as a partnership has 2 out of its 5 partners retire. Is this considered an assignment?
No, since only a minority of the partners have changed. A majority would have to retire to be considered an assignment.
Under the IA Act of 1940, an IA may charge performance fees for clients with at least $_________ under management.
$1 million
Under the IA Act of 1940, an IA may charge performance fees for clients with a net worth of at least $____________.
$2 million
When is a pension consultant required to register as an investment adviser?
When it is being paid to provide securities-related investment advice
If a pension consultant advises a plan regarding the law firm it should hire, must the consultant register as an IA?
No. IA registration is not required since the consultant is providing incidental advice that is not securities-related.
True or False: A pension consultant that advises a plan regarding the accountant it should hire must register as an IA.
False. IA registration is not required since the consultant is providing incidental advice that is not securities-related.
True or False: A pension consultant being paid to create an asset allocation program for a plan must register as an IA.
True. The consultant must register as an IA since it is providing securities-related advice for compensation.
For an IA to act as both an adviser and broker-dealer, with what must clients be provided before trades are effected?
The fact that the IA may be collecting both advisory fees and commissions
True or False: A person soliciting for an IA must annually provide a disclosure regarding the IA’s performance.
False. However, at the time of contact, the solicitor must provide clients with a solicitor disclosure document.
An IA created as a sole proprietorship is converted to a partnership. This is considered __________ of client contracts.
assignment
True or False: An IA may offer discounted fees to clients if proper disclosure is made in its brochure and Form ADV.
True
All investment advisory contracts must be in writing and include the ______________ for which services are contracted.
length of time
An adviser is registered with the SEC under the Investment Advisers Act of 1940. What is the firm considered?
A federal covered adviser
Under the Investment Advisers Act of 1940, how long does an IA have to renew its registration?
90 days from the IA’s fiscal year-end
Give some examples of typically qualified custodians.
Broker-dealers, banks and trust companies. IAs may be custodians, but usually are not.
True or False: IAs are permitted to charge different clients different fees for the same service.
True. Provided proper disclosure is made, charging clients different fees is permitted.
If a federal covered adviser has more than ____ clients in a state, a notice filing is required by the Administrator.
five
Under the IA Act of 1940, when must a balance sheet be provided to a client?
A balance sheet must be provided if the IA collects prepaid fees of $1,200 or more, 6 months or more in advance.
When does the SEC 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 $1,200 or more, 6 months or more in advance
Does an IA have custody when it is in possession of checks drawn by its client and made payable to third parties?
No. The IA does not have custody if it forwards the check within 24 hours.
Give examples of candidates included in the expanded IA definition due to SEC Release IA-1092.
Sports and entertainment reps, pension consultants and financial planners
Is registration with the SEC required of an adviser that manages $87 million of assets?
No. An established FCA must register with the state Administrator if the AUM falls below $90 million.
