66 Kap Flashcards
when an investment advisor acts in the capacity of a principal, what is needed from the client
consent
under the dodd frank wall street reform and consumer protection act, who is required to register as an investment advisor in a particular state
an advisor who manages client accounts with less than 100 million
what effect does the filing of a lawsuit have on an application with the administrator for a particular state.
nothing
can an adminstrator deny registration if illegal activity is conducted in the state
yes
when an individual registered with a BD has a change of residence, an amended u4 must be filed
within 30 days
who can be agents
only individuals can be agents. A person who sells securites for a BD is an agent.
what do identity thieves do
borrow money in the name of the compromised individual. They don’t lend it.
criminal penalties for violations of uniform securities act
5000 fine, 3 years prison, or both
can an adminstrator issue an injunction
no
a brochure or summary of material changes, if any must be delivered to all clients within
120 days of the end of the advisers fiscal year
the brochure delivery requirement does not apply to investment companies or clients who are
serbiced on an impersonal basis, such as a newsletter with an annual cost that must be less than 500
profits and losses may be shared even if no financial contribution from agent occurs
yes as long as the agent has the consent of the customer and the employing BD
For federal covered investment advisers, a prepayment in excess of $1,200 and for periods of 6 months or more in advance (substantial prepayment) requires the adviser
to submit an annual audited balance sheet as part of its ADV Part 2 (and brochure).
When an investment adviser ceases to exist, either through going out of business or being succeeded by another firm (as is the case here), it is their responsibility to
ensure that articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor be preserved until at least 3 years after termination of the enterprise.
ADV Part 2A is
the brochure that investment advisers must deliver to clients; it describes the investment adviser’s fees, investment policies, and types of investments made.
recordkeeping requirements for agents or IARs?
no
The term “investment counsel” can be used by investment advisers
may be used by any adviser that meets two standards: the adviser performs investment supervisory services, and the adviser provides advice as the primary business of the firm. No other special qualifications or registrations are needed.
To be in the business of rendering investment advice, a person must
a person must regularly provide advice about securities and must be compensated for giving such advice. Those whose earnings are based on securities transactions are broker-dealers and/or agents
The release establishes 3 criteria in defining an investment adviser
First, the person must provide advice, reports, or analyses concerning securities. Second, the person must be in the business of providing securities-related advice or analyses. Third, the person must receive compensation. Investment advising does not have to be the person’s principal business. They need only hold themselves out as advisers and provide investment advice on a frequent or regular basis.
Wills, estates, and trusts in relation to being called an investment advisor
Wills, estates, and trusts are not securities, so any advice given on them does not make one an investment adviser
Compensation may take the form of, but is not limited to
fees, subscriptions, salaries, or commissions. Any economic benefit, whether paid directly or indirectly for the investment advice, meets the test.
Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration?
I. Foreign investment advisers with fewer than 15 clients per year who do not hold themselves out as investment advisers to the public and have less than $25 million in AUM in the United States
II. Investment advisers who conduct all of their business in 1 state and who do not provide advice on securities listed on an exchange and have no private funds as clients
III. Investment advisers whose only clients are banks
1 and 2
However, if an agent provides investment advice outside the scope of employment at the broker-dealer
must be registered
If an adviser reports on its annual updating amendment that it has less than $90 million under management and it is not otherwise eligible to register with the SEC, it must withdraw from SEC registration within
180 days of the adviser’s fiscal year-end by filing Form ADV-W.
The NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an adviser who does not have custody of customer funds or securities but has discretionary power over customer accounts to have a minimum net worth of
10000
Under the NASAA Model Rule on financial requirements for investment advisers, investment advisers who have custody of customer funds are usually required to have a net worth in the amount of
35000
Investment adviser records, including copies of advertisements, must be kept for at least
5 years from the end of the fiscal year in which the record originated
Under the Advisers Act, as modified by the Dodd-Frank Act, advisers are exempt from SEC registration if they
they manage less than $100 million in assets and have no investment company clients.
The annual updating amendment to Form ADV must be filed within
90 days of fiscal year end
Although venture capital funds are included in the general definition of private funds, unlike the private equity fund
there is no ceiling on the size of the fund before the adviser loses the exemption. Advisers to VC funds are exempt from registration
Both the Investment Company Act of 1940 (applicable here because this is a covered adviser) and the NASAA Model Rule on Recordkeeping require that investment advisers maintain certain records, such as partnership agreements and corporate articles of incorporation, for a period of no less than
3 years
A consent to service of process required by an Administrator is
an agreement whereby a registrant will be bound by any legal action or subpoena served on the Administrator as if it had been served on the registrant
Under the Dodd-Frank Bill, until a pension fund manager has at least
200 Million in AUM, registration with the states is required. Once the $200 million level is reached, SEC registration becomes an option.
advisers who must provide audited balance sheets to clients for whom they maintain custody
state registered investment
An investment adviser to a private fund wishes to qualify for the exemption offered under the Uniform Securities Act when the fund has no more than 100 investors. In order to qualify,
every investor must have either at least $1 million in assets managed by the investment adviser, or a net worth, excluding the value of the primary residence, in excess of $2.1 million
An investment adviser with no office in the state would be exempt from registration in the state if the adviser renders advice to no more than
5 noninstitutional clients
Under the Investment Advisers Act of 1940, which of the following are excluded from the definition of an investment adviser?
definition: banks or trust companies;
publishers of bona fide publications of general circulation (newspapers and magazines); persons advising about certain securities (U.S. government or agency issues);
broker-dealers not receiving special compensation for giving advice;
LATE
Once a broker-dealer handles wrap fee accounts
it loses the exclusion from the definition of investment adviser. Therefore, the firm must be registered with either the state or the SEC. Any agents handling these accounts would be registered as investment adviser representatives.
_____who have custody of clients’ securities are required to provide audited balance sheets to their clients.
state registered investment advisors
The Uniform Securities Act defines any individuals associated with an investment adviser as investment adviser representatives if they
manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities, including any partner, officer, or director who offers advice concerning securities. Persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the above activities are investment adviser representatives.
Clerical and ministerial personnel are specifically excluded from the definition of
investment advisor
Under Section 202(a) of the Uniform Securities Act, registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a
partner, officer, or director, or a person occupying a similar status or performing similar functions.
Under the Uniform Securities Act, registrations must be renewed every
dec 31
A broker-dealer, investment adviser, or agent who has discretion over or, in the case of broker-dealers and advisers, custody of funds or securities may be required to
post a bond
The license of an agent expires when she ceases to be employed by the broker-dealer or issuer for whom she was previously licensed. who needs to notify the administrator
Both the agent and the former broker-dealer are required to notify the Administrator promptly.
Under the Uniform Securities Act, broker-dealers must register in any state where they
engage in securities transactions with individual investors.
Unregistered personnel may be paid a bonus as long as it is
not directly related to any specific sales activity.
A person is exempt from the definition of broker-dealer if
there is no office in the state and offers are directed to institutional clients or existing individual clients who are not residents of that state.
When an agent with one broker-dealer resigns and affiliates with another
both broker-dealers and the agent must notify the Administrator of the change in registration. Notification is accomplished by filing Forms U5 and U4 with FINRA’s CRD.
The Uniform Securities Act defines an agent as
any individual (other than a broker-dealer) who represents a broker-dealer in effecting securities transactions.
A broker-dealer must be registered in every state where it sells or offers to sell securities, unless an exemption is available
If a broker-dealer has no office in a particular state and no business is done in that state other than with institutional clients, registration there is not required.
Under the Uniform Securities Act, a consent to service of process must accompany which of the following?
An agent’s initial registration application
Revocation of the registration of that agent’s broker-dealer will result in
cancellation of that agent’s effective registration.
As long as a broker-dealer does not have an office in the state
it is possible to qualify for exclusion from the definition of BD
Registration of a broker-dealer automatically constitutes registration of any
agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.
Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments
the clock starts over again with the filing of those amendments. Broker-dealers have financial requirements, and the Administrator has a maximum of 1 year after termination to initiate any actions.
The USA specifies that all records, including electronic communications (emails), must be maintained for a minimum of
for investment advisors its
3 years
5 years
Firms that maintain net capital in excess of minimum requirements may be exempted
from the requirement of posting surety bonds. Agents exercising discretion over client accounts may be required to post a surety bond.
Under the Uniform Securities Act, the Administrator may require a broker-dealer to post a surety bond of
an amount not in excess of that set by the SEC
An agent may conduct business in a state in which he is not registered if an existing client is visiting in that state or if the client has moved to the state within
the past 30 days
For BDs registered in more than one state (who are not SEC-registered and, in this question, one must assume they are not), meeting the requirements of their “home” state, in this case Colorado, is
is sufficient anywhere they are registered. However, one of the things the Administrator does not do is approve or disapprove of the recordkeeping method used. If the firm was SEC-registered, then all it would have to do is meet the SEC’s requirements.
Agents must be registered in every state in which they do business. An agent is not
automatically registered in a state just because his employer is registered in that state.
Every agent, broker-dealer, investment adviser, and investment adviser representative registration expires
each year on December 31.
The Securities Exchange Act of 1934 was designed to regulate
securities transactions, securities markets, and securities firms that trade in the secondary market.
Those employed to open new accounts are defined
agents
Fingerprints are not a specific requirement of the
uniform securities act
he USA specifically excludes who from definition of BD
agent/issuers and banks, international or domestic
An individual who is convicted of, or has pleaded guilty or no contest to, any felony or certain misdemeanors in the previous
10 years (120 months) is subject to statutory disqualification.
Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state that is the
domicile of a client placing an order.
is there deminimus exception for broker dealers
no
Whenever an individual begins or ends employment with a state-registered investment adviser, the investment adviser
must notify the administrator
A performance-based fee must be based on
capital gains minus capital losses, include both realized and unrealized gains and losses and must reflect a time period of no less than 12 months.
The Form ADV-E (E for surprise Examination) must be completed by investment advisers that have
custody of client funds or securities and that are subject to an annual surprise examination.
Under the NASAA Model Rule on Custody Requirements for Investment Advisers, if an investment adviser has custody of customer funds and securities, how often must the adviser send the customer a statement of account activity?
quarterly
An agent may borrow funds from a client who is in
business of lending money.(like a bank)
matched order
The unethical business practice of purchasing and selling a security for the purpose of creating an appearance of market activity
Under the Investment Advisers Act of 1940, an adviser who has custody of a client’s funds must
notify a client when the client’s funds are moved to another location
segregate client’s funds and keep them identified by client
keep funds deposited in accounts containing only client funds
be subject to a surprise audit performed at least annually by an independent accountant
send clients’ statements at least once every 3 months showing balances
Sharing of commissions by agents of two unrelated firms is
prohibited
The requirement for reports of beneficial ownership is that
anyone who becomes the owner of more than 5% of a security registered under the Securities Exchange Act of 1934 must file a report within 10 days;
Under the Investment Advisers Act of 1940, a cash referral fee may be paid by an IA
when a written agreement providing certain disclosures has been entered into between the IA and the third party
“Custody” means
possession even if temporary
The currency reporting threshold for cash and equivalent instruments is over
10000
When using the process of registration by coordination under the Uniform Securities Act, issuers shall simultaneously submit to the state, the documents filed with the SEC under
the securities act of 1933
Securities sold under Regulation D of the Securities Act of 1933 are
are private placements and, under the NSMIA, are considered federal covered securities.
talk about all 3 filing method
Coordination is the method used for nonexempt companies that are registering with the SEC. Qualification is for intrastate registration of those companies not registered with the SEC. Notice filing is the procedure whereby federal covered investment companies notify the states in which they want to issue shares and to whom they must pay a fee.
Under the National Securities Markets Improvement Act of 1996, which of the following describe federal covered securities?
The list includes most securities exempt from registration under the federal Securities Act of 1933 (those issued by the U.S. government and state and local governments). In addition, it includes a number of securities registered with the SEC, primarily those traded on the exchanges and Nasdaq, as well as investment companies registered under the Investment Company Act of 1940.
For a private placement to remain an exempt transaction under the Uniform Securities Act
the offer may be directed to no more than 10 individuals during any 12-month period.
exempt transactions include
Sales to institutions, or sales by fiduciaries, or unsolicited transactions are all exempt.
Registration statements are usually effective for a period of
1 year from the effective date and may not be withdrawn during this period if any of the securities of the issuer of the same class are still outstanding.
The burden of proof for claiming eligibility for an exemption falls to the
person claiming the exemption.
federal covered securites include
securities issued by open or closed end investment company, unit investment trust, or face amount certificate company , that is registered under invest co act of 1940
securites listed on nyse and other stock exchanges. any security equal in seniority(rights or warrents) or bonds and preferred stock
securities of provisions rule 506B and 506 c of regulation D
if fed says they don’t have to register with state
exempt securities
us and canadian gov and muni securites
foreign gov securities
banks
insurance company securities
public utlity and common carrier securites
federal covered securites
non profits
employee benefif plans
comerical paper
exempt transactions
isolated non issuer transactions
unsolicited brokerage transactions
underwriter transactions
court appointed guardians
institutional investor transactions
limited offering transactiones (private placement)
preoganization certificates
transactions with existing shareholders
nonissuer transactions by pledgees
An issue done solely within one state (intrastate offering) is registered using
qualification
A transaction pursuant to an offer by an issuer to no more than 10 noninstitutional persons in the state would qualify as a private placement and would be exempt. However,
unlike a preorganization certificate, the subscribers do pay for their purchases. All the other transactions are exempt.
A private placement will lose its exemption if those who sell the offering are
paid commissions on sales to noninstitutional clients.
Municipal bonds, exempt securities under the Securities Act of 1933, are also federal covered securities with one significant exception:
if the issuer is a political entity in this state and it is sold to a resident of this state, it is not considered a federal covered security in this state.
Commercial paper may qualify as an exempt security if the minimum denomination is
$50,000, has a maturity of not more than 270 days, and is rated in one of the three highest rating categories by a nationally recognized rating agency.
Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences?
Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription.
It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate.
Which of the following statements regarding the differences between Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act of 1933 are TRUE?
Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot.
Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings.
Accredited investors are
financial institutions, wealthy persons meeting specific requirements, and (for a particular issue) persons involved in the management of the issuer.
State securities Administrators may deny, by rule or order,
an exemption to an exempt transaction under the USA unless the security involved is covered by a federal exemption.
Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states?
coordination
The Uniform Securities Act requires that a consent to service of process be filed for the registration of
investment advisers and broker dealers
Under the USA, when a security is registered, the registration is valid for
1 year after the effective date.
Issuers wishing to avail themselves of the private placement exemption offered under Regulation D of the Securities Act of 1933 must file a Form D with the SEC no later than
15 days after the first sale.
Assessable stock is a stock that is
issued below its par or stated value.
There are several ways that a securities professional’s registration can be terminated. Nonpunitive termination of a securities professional’s registration could be done through
cancelation and withdrawal
Activities that originate in a state, are directed into a state, or are accepted in a state fall under the jurisdiction of
the Administrator of each of those states.
Any person who violates the act or SEC rules is subject to a fine of up to
$10,000 and/or a prison term of up to 5 years. Note that this is different than the Uniform Securities Act, which provides for penalties of 3 years and $5,000.
Under the USA, the lawsuit for recovery of damages must commence within the sooner of
3 years of occurrence of the offense or 2 years of its discovery.
Under the broadcast and publishing exceptions, the Administrator does not have jurisdiction if the offer is made in
in a TV or radio broadcast originating outside the state or in a newspaper published outside the state. Furthermore, if a newspaper is published inside a state but more than 2/3 of its circulation is outside the state, the Administrator does not have jurisdiction.
Differences between static and interactive content on social media include
Static content requires preapproval. Interactive content can be reused by others and can be commented on by others. Both static and interactive content can be changed by its originator, but static can only be changed by its originator and interactive by the originator or others.
A popular tool used by analysts is discounted cash flow (DCF). Most use this tool to evaluate
the present value of future cash flows to determine an appropriate current value.
One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that
the CIP requires date of birth while the regulators only require proof of legal age
