ADVIORS ACT Flashcards
1) Pursuant to Section 202 of the Advisers Act, an “assignment” is defined as any direct or indirect transfer of an investment advisory contract by the assignor of:
a) A majority block of the assignor’s outstanding voting securities.
b) A substantial block of the assignor’s outstanding voting securities.
c) A controlling block of the assignor’s outstanding voting securities.
d) Any change in the percentage of the assignor’s outstanding voting securities.
c) A controlling block of the assignor’s outstanding voting securities.
2) Under the Advisers Act, Section 202(a)(11) definition of an “investment adviser” generally EXCLUDES which THREE? (Choose THREE.)
a) A bank that is not affiliated with an investment company.
b) An accountant performing investment advisory services solely incidental to his or her accounting profession.
c) An Internet website operator who provides only impersonal investment advisory services.
d) A financial adviser whose investment advice relates solely to U.S. Government backed securities.
a) A bank that is not affiliated with an investment company.
b) An accountant performing investment advisory services solely incidental to his or her accounting profession.
d) A financial adviser whose investment advice relates solely to U.S. Government backed securities.
3) The Advisers Act defines a “Supervised Person” as “Any partner, officer, director (or other person occupying a similar status or performing similar functions) or employee of an investment adviser, or other person who ___________.”
a) Has access to nonpublic information regarding any clients’ purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or who is involved in making securities recommendations to clients, or who has
access to such recommendations that are nonpublic.
b) Provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser.
c) Is under the direct supervision of an officer or officers designated by the board of directors or senior management.
d) Provides investment advice, except for persons associated with an investment adviser whose functions are solely clerical or ministerial in nature.
b) Provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser.
4) An investment adviser need NOT be registered, pursuant to Section 203 of the Advisers Act, if its only clients are:
a) Insurance companies.
b) Investment companies.
c) Irrevocable trusts.
d) Defined benefit plans.
a) Insurance companies.
5) Section 204A of the Advisers Act explicitly requires SEC-registered investment advisers to establish, maintain, and enforce written policies and procedures reasonably designed to:
a) Prevent money laundering by clients.
b) Prevent the misuse of material non-public information.
c) Plan and coordinate a business continuity plan in case of disaster.
d) Require supervision of branch offices.
b) Prevent the misuse of material non-public information.
6) Pursuant to Section 205 of the Advisers Act, investment advisory contracts are required to include:
a) A non-assignment clause.
b) Client investment policy questionnaire.
c) A privacy clause prohibiting the misuse of material, non-public information.
d) An arbitration clause.
a) A non-assignment clause.
7) Which category of persons or entities is included in the general restriction on performance based fees?
a) Persons who are not U.S. residents.
b) Section 3(c)(7) private investment companies.
c) Certain knowledgeable employees of the adviser.
d) Family-owned corporations.
d) Family-owned corporations.
8) In general, an investment adviser may NOT enter into an agreement with a client where the adviser is paid on the basis of a share of the capital gains or appreciation of client assets under
management (e.g., “performance-based fees”) UNLESS the client:
a) Owns at least $250,000 in investments.
b) Has an income of $200,000 in each of the two most recent fiscal years (or an income of $300,000 jointly with a spouse) and a reasonable expectation of the same income in the current year.
c) Upon entering into the advisory agreement, has at least $1,100,000 under management with the adviser, or whom the adviser reasonably believes has a net worth (either individually or jointly with a spouse) of at least $2.2 million.
d) Is a natural person that has a net worth of more than $1 million.
c) Upon entering into the advisory agreement, has at least $1,100,000 under management with the adviser, or whom the adviser reasonably believes has a net worth (either individually or jointly with a spouse) of at least $2.2 million.
9) If, after opportunity for notice and hearing, the Commission finds on the record that it is in the public interest and that the investment adviser has committed one of the violations outlined in Section 203(e) of the Advisers Act, the Commission could take any of the following actions EXCEPT:
a) Suspension for a period not to exceed 12 months.
b) Place limitations on the activities, functions, or operations of the investment adviser.
c) Formal censure.
d) Institute Criminal Proceedings.
d) Institute Criminal Proceedings.
10) Pursuant to Rule 203(b)(3)-1 of the Advisers Act, which THREE are deemed to be a “single client”? (Choose THREE.)
a) A corporation, general partnership, limited partnership, limited liability company, trust or other legal organization that receives investment advice based on its investment objectives rather than the individual investment objectives of its shareholders, partners, limited partners, members, or beneficiaries.
b) A parent and adult child who live in separate households.
c) All trusts of which a natural person client and minor children are the only primary beneficiaries.
d) Any relative, spouse, or relative of the spouse of a natural person client who has the same principal residence.
a) A corporation, general partnership, limited partnership, limited liability company, trust or other legal organization that receives investment advice based on its investment objectives rather than the individual investment objectives of its shareholders, partners, limited partners, members, or beneficiaries.
c) All trusts of which a natural person client and minor children are the only primary beneficiaries.
d) Any relative, spouse, or relative of the spouse of a natural person client who has the same principal residence.
11) Rule 204-2 of the Advisers Act explicitly requires the following books and records to be maintained by investment advisers for the requisite five-year period EXCEPT:
a) A record of all communications (or copies thereof) made to third party consultants or administrators regarding compliance functions of the advisory firm.
b) A record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client.
c) All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment adviser as such.
d) All powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser (or copies thereof).
a) A record of all communications (or copies thereof) made to third party consultants or administrators regarding compliance functions of the advisory firm.
12) To be found in violation of Section 206 of the Advisers Act, an investment adviser must, directly or indirectly:
a) Intentionally defraud an existing advisory client.
b) Engage in activity that operates as a fraud or deceit upon any existing advisory client or prospective client.
c) Negligently defraud any existing advisory client or prospective client.
d) Engage in activity that operates as a fraud or deceit upon an existing advisory client.
b) Engage in activity that operates as a fraud or deceit upon any existing advisory client or prospective client.
13) Which activity would most likely be considered a violation of Section 206 of the Advisers Act?
a) An SEC-registered investment adviser that fails to conduct an annual review of its policies and procedures.
b) An investment adviser, while acting as principal for his own account, knowingly selling or purchasing a security from a client after obtaining the informed written consent of the
client.
c) An investment adviser that fails to offset advisory fees against commissions received when causing an ERISA plan client to transact business through an affiliated broker dealer.
d) An investment adviser that pays a solicitation fee to a third party in consideration of client referrals.
a) An SEC-registered investment adviser that fails to conduct an annual review of its policies and procedures.
14) Which attribute was NOT identified as key for a Chief Compliance Officer in the Compliance
Programs Rule?
a) Autonomy from oversight by management to compel employee adherence to policies and procedures.
b) In a position of sufficient seniority and authority to compel employee adherence to policies and procedures.
c) Competent and knowledgeable regarding the Advisers Act.
d) Empowered with full responsibility, authority and resources to develop and enforce policies and procedures.
a) Autonomy from oversight by management to compel employee adherence to policies and procedures.
15) According to the Investment Advisers Act of 1940 Compliance Programs Rule, the annual compliance review must address which of the following?
a) The adequacy of the adviser’s compliance policies and procedures and effectiveness of their implementation.
b) Any deficiency letter from the adviser’s most recent SEC examination.
c) Any Code of Ethics violations.
d) Notification to any client harmed by any violation discovered.
a) The adequacy of the adviser’s compliance policies and procedures and effectiveness of their implementation.
