Books & records

Question 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:

Answer 1

A controlling block of the assignor’s outstanding voting securities.

Question 2

Under the Advisers Act, Section 202(a)(11) definition of an “investment adviser” generally EXCLUDES which THREE?

Answer 2

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.

Question 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 ___________.”

Answer 3

Provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser.

Question 4

An investment adviser need NOT be registered, pursuant to Section 203 of the Advisers Act, if
its only clients are:

Answer 4

Insurance Companies.

Question 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:

Answer 5

Prevent the misuse of material non-public information.

Question 6

Pursuant to Section 205 of the Advisers Act, investment advisory contracts are required to include:

Answer 6

A non-assignment clause.

Question 7

Which category of persons or entities is included in the general restriction on performance based fees?

Answer 7

Family-owned corporations.

Question 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:

Answer 8

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.

Question 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:

Answer 9

Institute Criminal Proceedings.

Question 10

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:

Answer 10

A record of all communications (or copies thereof) made to third party consultants or administrators regarding compliance functions of the advisory firm.

Question 10

Pursuant to Rule 203(b)(3)-1 of the Advisers Act, which THREE are deemed to be a “single client”?

Answer 10

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.

Question 11

To be found in violation of Section 206 of the Advisers Act, an investment adviser must, directly or indirectly:

Answer 11

Engage in activity that operates as a fraud or deceit upon any existing advisory client or prospective client.

Question 12

Which activity would most likely be considered a violation of Section 206 of the Advisers Act?

Answer 12

An SEC-registered investment adviser that fails to conduct an annual review of its policies and procedures.

Question 13

Which attribute was NOT identified as key for a Chief Compliance Officer in the Compliance Programs Rule?

Answer 13

Autonomy from oversight by management to compel employee adherence to policies and procedures.

Question 14

According to the Investment Advisers Act of 1940 Compliance Programs Rule, the annual compliance review must address which of the following?

Answer 14

The adequacy of the adviser’s compliance policies and procedures and effectiveness of their implementation.

Question 14

Which is NOT required by either the Investment Advisers Act of 1940 Compliance Programs Rule or the Books and Records Rule?

Answer 14

Amend corporate documents evidencing designation of the CCO position.

Question 15

Pursuant to Rule 38a-1 of the Investment Company Act, which is NOT required to be included in the annual report to a mutual fund Board of Directors?

Answer 15

Documentation of each procedural review conducted.

Question 16

Pursuant to Section 215 of the Advisers Act, an investment advisory contract may NOT:

Answer 16

Contain any condition or stipulation binding a person to waive compliance with any provision of the Advisers Act.

Question 16

Section 208 of the Advisers Act prohibits an SEC-registered investment adviser from using the term “Investment Counsel” to describe its business UNLESS:

Answer 16

Its principal business consists of acting as an investment adviser and a substantial part of its business consists of rendering investment supervisory
services.

Question 17

All of the following requirements must be fulfilled by an SEC-registered investment adviser in order to effect agency cross transactions for an advisory client pursuant to Rule 206(3)-2 of the
Advisers Act, EXCEPT:

Answer 17

The investment adviser must offset the commission charged to an advisory client for the agency cross transaction against the advisory fee received from the client.

Question 18

Which would LEAST likely be considered a violation of SEC advertising rules pursuant to Rule
206(4)(1) of the Advisers Act PRIOR TO MAY 2021?

Answer 18

A publication containing a statement that the investment adviser is registered
with the Securities and Exchange Commission.

Question 19

Which is NOT an example of a qualified custodian for purposes of satisfying the SEC “Custody” rule?

Answer 19

An insurance company registered in the state(s) where it principally conducts business

Question 20

Which example would NOT be considered custody under Rule 206(4)-2 of the Advisers Act?

Answer 20

Having limited power of attorney over a client account to execute securities transactions.

Question 21

PRIOR TO MAY 2021, in order for an adviser to pay a cash fee, directly or indirectly, to a solicitor, which requirement must be in place?

Answer 21

The cash fee must be paid pursuant to a written agreement with the solicitor to which the adviser is a party.

Question 22

If an adviser has proxy voting authority with respect to client securities, the adviser must:

Answer 22

Adopt and implement written policies and procedures to ensure proxies are voted in the best interests of clients.

Question 23

SEC-registered investment advisers must disclose which THREE of the following to clients?

Answer 23

A) Custody of client’s funds or securities.
B) A financial condition that is reasonably likely to impair the ability of the adviser to meet contractual commitments to clients.
C) Required prepayment of advisory fees of more than $1200. from clients, six months or more in advance.