Ch. 4 Flashcards
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, six months or more in advance.
T/F: An Administrator will inspect all advisors books and records on an annual basis.
False. Administrators lack the resources to inspect all IA‘s books and records annually. 
An IA is required to deliver the brochure to his clients by no later than the____Of the contract.
Signing
Does the de minimus exemption apply to investment advisor representatives?
Yes
Under the USA, are banks and bank holding companies excluded from the IA definition?
No. Banks, savings institutions and trust companies are excluded, but bank holding companies are not.
If a BD’s net capital falls below the required minimum, it must notify the administrator within___business days.
One
Is there a registration exemption for IAR’s doing business in a state is employed by and IA registered in another state?
Yes, if the IAR has no office in the state and has five or fewer retail clients in the state in the past 12 months.
T/F: an advisor to a mutual fund must register in the state in which the fund is domiciled.
False. A federal covered advisor must be registered within the SEC, not a state.
Individuals employed by an IA, who only perform______duties are excluded from registration under the USA.
Clerical/ministerial
As it applies to a BD or IA, what does the term “exclusion” mean in the USA?
Exclusion signifies that a person does not meet the definition of a BD or IA in the state.
Is an employee of a BD, who solicits new customers for an IA considered an IAR?
Yes. According to the USA, any person who solicits investment advisory service is considered an IAR.
T/F: the manager of an IA is human resource department is considered an IAR.
False. The managers responsibilities do not include providing advice about securities or managing accounts.
How are advisory fee is most commonly charged?
As a percentage of assets under management over a specific period.
When does the SEC require an advisor to include it’s balance sheet and it’s ADV part two?
If the firm has custody of a clients funds or accepts prepaid fees of $1200 or more, six months or more in advance.
IAs file their applications Electronically through the______.
Investment Advisor registration depository
Identify some nonmaterial/routine changes to form ADV.
A change in the number of discretionary accounts, or a change in the dollar amount under management by the advisor.
An IAR of a state registered IA has no office in New Jersey, but has six clients who live in New Jersey. Must you register in New Jersey?
Yes. IARs of a state regulated IA register, where they have an office and where they have six or more individual clients.
Under the USA, the de minimus exemption limits an IA to know more than___clients within the previous___months.
Five; 12
List the four categories of professionals who are excluded from the IA definition.
Lawyers, accountants, teachers, and engineers remember LATE
May the administrator set minimum net worth requirements for IA?
Yes, but no state may impose a requirement that exceeds the requirement of the IAs home state.
If an IA meets the IA definition in a state, when is it exempt from registration under the USA?
If it has no office in the state, and it has institutional clients only or five or fewer retail clients in the last 12 months
In place of a surety bond, the administrator will accept a deposit of_____or_______.
Cash; securities
For how long does the registration of state registered advisors remain in effect?
Until December 31, unless renewed by the advisor
Is an advisor to a mutual fund considered an investment advisor under the USA?
No, mutual fund advisors are federally covered and are excluded from the investment advisor Definition at the state level.
In general, does the USA allow an advisor to charge performance-based fees?
No. However, such fee arrangements may be permitted by rule or order of the administrator.
T/F: the USA classifies an agent of a BD, who also manages wrap accounts as an investment advisor.
No. Investment advisors are firms, not individuals.
An _________is to an investment advisor What an_____is to a BD.
Investment advisor representative; investment advisor
Any material changes to form ADV must be filed________.
Promptly within 30 days
List some of the records that must be retained by an investment advisor for five years.
Journals, blotters, ledgers, position, records, and trade confirmations
And investment advisor representative has an office in State a and has four clients who reside in the state. Is the investment advisor representative required to register and state a?
Yes, since the investment advisor representative has an office in State A. The client number is not relevant because of the office location.
T/S: an investment advisor with five or fewer retail client in the state in the past 12 months must register under the USA.
False. No registration is required as long as the investment advisor has no place of business in the state.
Who operates the IARD?
FINRA
Is the publisher of a newspaper required to register as an investment advisor?
No. Publishers are excluded from the investment advisor definition if the newspaper has a general circulation and gifts impersonal advice.
What is part two of form ADV?
The portion of an investment advisors application that may be used to satisfy the brochure rule/disclosure requirement.
What’s notice filing?
The process in which information that is filed with the SEC is also filed or shared with the administrator.
T/off: a publisher of financial magazine is considered an investment advisor under the USA
False. Publishers of newspaper/magazines are excluded from the IA definition.
Part two of form ADV may be used as a disclosure document that is provided to the IAs ______.
Clients
What document will an investment advisor regularly provide to his clients to notify them of the location of their securities?
The client account statement
Does the D minimus exemption apply to BD’s that have no place of business in a state?
No. The dominion miss exemption only applies to investment advisors and investment advisor representatives
What form do investment advisors file to register?
Form ADV
What types of changes are considered material changes that require prompt amendment of advisors form ADV?
Significant items, such as name or location change
When is form ADV – W filed?
When an advisor withdraws, it’s registration
If an investment advisor and is registered with the SEC, is registration required in any state in which intense to do business?
No. The national security’s market’s improvement act exempts federal covered advisors from state registration.
When was the federal advisor file and updating amendment to determine continued eligibility for SEC registration?
Within 90 days of the end of the advisers fiscal year.
T/off: a BD making recommendations about investing in various securities is an investment advisor under the USA.
False. Since the BD is not charging a fee for the advice, it is excluded from the IA definition.
For how long must an IA maintain records?
Five years
If an investment advisor is no longer eligible for SEC registration, it has____days to file ADV – W and register at the state level.
180 days
Is an IA always required to include a balance sheet and part two of its form ADV?
No. Abound she is required if the investment advisor collects, prepaid fees or has discretion.
What type of information will be found an investment advisors ADV part one?
Firm name, number of employees, nature of business, history of officer/directors, legal/disciplinary action in the past 10 years
Describe a wrap account.
An account that charges the client a single fee, that covers transaction execution, and account management
Investment advisors typically charge fees that are based on the_____ ____over a specified period.
Average value
Under the USA, all investment advisor contracts must be_____and must disclose_____provided and related____.
In writing; services; related fees
T/F: an investment advisor firm that is acquired by competitor, must pay a new filing fee.
False. The purchasing for must update its application, but paying a new fee is not required.
And investment advisor must maintain his books and records for a minimum of____years.
Five years
Identify the acronym: IARD
Investment advisor registration depository
What made an investment advisor do with full discretion, but not with limited discretion?
Withdraw money from the account
When and by whom is form ADV – E filed?
It is filed within 120 days from the completion of an audit of the investment advisors books; filed by the auditor.
Identify the acronym: IAR
Investment advisor representative
And IAR has no place of business in state a, but has six or more individual clients in state a. where must she register?
She must register in any state in which she has six or more individual clients, even if she has no office in the state
When are nonmaterial/routine changes to form ADV required to be filed?
Routine items require an amendment within 90 days after the end of the investment advisors fiscal year
What requirements me states impose on investment advisors that are registered with the SEC?
- file with the state, any documents that were filed with the SEC, 2. file consent to service of process, 3. pay state fees
Under the USA, when must an investment advisor, provide a balance sheet to a client?
A balance sheet must be provided if the investment advisor, Calex prepaid fees of $500 or more, six months or more in advance.
T/F: the CEO of an advisory firm who establishes investment policy for the firm, must register as an investment advisor.
Foss. The CEO is considered an investment advisor representative, not an investment advisor.
An individual employed by an investment advisor to manage. The research department is required to register as an ______ under the USA.
Investment advisor representative
What is the minimum educational requirements for any person who renders investment advice?
There is no minimum; however, the SEC an administrator may require disclosure of educational background.
And IAR of a federal covered advisor has no office in New York, but has six clients who live in New York. Must he register in New York?
No. Investment advisor representatives of federal covered advisers are only required to register and states in which they have an office.
In lieu of, an IA, prepared brochure, what document may be delivered to IA clients?
Part two of form ADV
T/F: and advisors required to deliver only ADV part two when entering into a wrap fee program with a client.
False. For wrap accounts, the SEC requires I is to provide clients with special disclosure, ADV part 2A– appendix one.
When does an administrator require an advisor to include its balance sheet and its ADV part two?
If the firm has custody of a clients funds or collects prepaid fees of $500 or more, six months or more in advance
Investment advisors with custody, must have an annual audit done by a________.
Independent CPA
T/F: An IA must physically deliver It’s brochure to clients at least annually.
False. At a minimum, the investment advisor must in writing, offer to deliver It’s brochure annually.
Investment advisors with no place of business and estate, and his clients are_________are not required to register in that state.
Institutions
An annual updating amendment of form ADV is filed with the SEC within ___days of the advisors fiscal year end.
90 days
Does an investment advisor that only accepts clients with at least $1 million under management need to register?
Yes. There is no exemption on the state or federal level If all an investment advisors clients have $1 million under management.
T/F: if a new investment advisors registration became effective on April one, it must renew on April 1of the following year.
False. State registration’s expire annually on December 31 and then must be renewed.
When should significant changes to an advisors ADV be filed?
Promptly within 30 days
If an advisor has check writing privileges in a client account, does this constitute custody?
Yes. Full discretionary, control, or having the ability to remove fun from the client account is considered custody.
The publisher of a financial publication that provides personalized advice is considered a or an________.
Investment advisor
T/F: according to the USA, a BD providing asset allocation plans to his clients for a fee is an investment advisor.
True. Since the BD is receiving specific compensation for his advice, it’s considered an IA.
Give some examples of institutional investors.
Thanks, S&L’s, insurance or investment companies, investment advisors, or entities with at least $50 million in assets.
T/F:A BD that promotes wrap accounts to his clients, must register as an IA under the USA.
True. Since the wrap account involves a fee for advice, the BD must register as an IA.
T/S: an IA with fewer than 15 retail client in the past 12 months is exempt from registering under the USA.
False. Do USA di minimus exemption for advisors is five or fewer individual clients
What type of advice, my lawyers, accountants, teachers and engineers, provide, and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
Is there a limit to the amount of net worth of administrator may require of an IA?
Yes. The administrator may not set a requirement that exceeds the IAs home estate.
What record must an investment advisor maintain regarding its IARs?
The initial application for each IAR
T/F: an IA is required to disclose the educational background of all of its IAR’s to clients.
False
T/S: a successor advisory, for must pay a new filing fee, but need not file a new application
False. The successor, firm us updated application, but not pay a new filing fee.
When should routine changes to an advisors ADV be filed?
Within 90 days of the end of the advisers fiscal year.
And IAR, with no place of business in the state must register in the state if he has more than___retail clients there.
Five
What is the clients right If an investment advisor does not deliver the required brochure 48 hours prior to the signing of the contract?
The client may terminate the contract without penalty within five business days from the signing of the contract.
If an IA’s office is in state a, but it’s only clients our insurance companies, with whom must it register?
With the administrator and state a period IAs whose only clients are insurance companies are exempt from SEC registration
What is updated at the annual renewal of an IAs registration?
Assets under management, the number of accounts, clients, employees, and IA representatives
Under the investment advisors act of 1940, when must an investment advisor renew it’s registration?
Within 90 days from the investment, advisors, fiscal year end.
If a BD is promoting wrap accounts, does it need to register as an IA?
Yes. Selling wrap accounts is considered advisory service which requires registration.
Is an accountant defined as an IA?
No. Accountants are excluded from the IA definition if their advice is incidental to their business.
What is required of an IA if there has been a minority change in firm ownership?
Provide written notification to clients and the administrator
IA records must be kept for at least_____years.
Five
Is an advisor required to register in a state in which it has no office, but has accredited investors who reside there?
Yes. Since the USA does not recognize accredited, investors as institutional investors, IA registration is required.
T/F: a person being compensated for providing clients with advice about securities is a broker dealer.
False. This person is considered an investment advisor.
The electronic system used to register investment advisors is the_______________.
Investment Advisor registration depository
If an IA has custody or discretion, it must include a_____ ____with it’s form ADV and brochure.
Balance sheet
What is form ADV – E?
Form filed by an independent public accountant after auditing the records of an IA, maintaining custody of client assets
The application for withdrawal for registration of an agent or IAR becomes effective in_____days.
30 days
ADV part one is the disclosure document for use by the _______ and the ______.
SEC; administrator
An IA is brochure must have the same information that appears and what part of form ADV?
Part two of form ADV
What is form ADV?
The form filed by investment advisors for registration
T/S: an agent of a BD, who solicit client trades, is not considered an IAR under the USA
True. There is no indication that the agent is managing accounts and charging a fee.
Surety bond may be required if an investment advisor has_______or_____of client assets.
Discretion; custody
All investment advisory contracts must be in writing and include the____for which services are contracted
Length of time
If an investment advisor, contract, stipulates, cancellation penalties, a brochure must be provided ____Hours before the contract signing.
48
When me and investment advisor charge fees that are different from other advisors?
When the fees are disclosed and are determined to be reasonable
T/F: if an investment advisors clients are institutions such as banks and BD’s, it is an exempt from registration under the USA.
True. However, this is provided that it has no place of business in the state.
The application for registration of an agent or IAR becomes effective in_____days.
30 days
And IAR of a federal covered advisor has an office in State b with four clients who live in State b. Where must she register?
She must register in State b since she has an office in the state. The number of clients is not relevant.
What is form ADV – NR?
Form required for investment advisors with general partners who are non-US residents; gives the SEC the right to receive legal papers
What is not disclosed in the investment policy statement?
The advisers compensation. The statement does include the goals, objectives, and responsibilities of the advisor.
T/S: the USA defines a bank providing investment recommendations to its clients as an IA.
False. Banks are excluded from the IA definition.
Where do IAs Send their registration forms?
The investment advisor registration depository.
With what system do investment advisors file the registration application?
The investment advisor registration depository
What is the purpose of an annual updating amendment.
To determine if an IA is eligible for continued SEC registration; it is filed within 90 days of his fiscal year end
What form is used to notify administrators that an IA is maintaining custody of clients assets?
Form ADV
What type of advice may lawyers, accountants, teachers and engineers, provide, and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
Is a certified public accountant who provides tax advice considered an IA under the USA?
No, CPAs are excluded from the IA definition.
What types of changes are considered significant changes for an advisers form ADV?
Change in fees, custody, and the name or location of advisor
When an IA initially registered, who is automatically considered registered?
The officers and directors of the advisory firm
Who manages accounts, solicits services, or makes recommendations on behalf of a registered investment advisor?
An investment advisor representative
T/F: An IA that maintains custody of customer assets must submit to an unannounced annual audit by a CPA.
True. At the completion of the audit, the CPA must file form ADV-E with the SEC.
When does the de minimus exemption from registration apply for an IA that has no place of business in a state?
When an IA has no more than five non institutional clients who are residents of the state measured over 12 months
Is an employee of a securities firm who manages accounts for a fee considered an IAR?
Yes
Identify the acronym: LATE
Lawyers, accountants, teachers, and engineers (excluded from the IA definition)
Is an attorney who exclusively provides estate planning services considered an IA under the USA?
No. Provided the attorneys advice is incidental to his profession, he is excluded from the IA definition.
What is Form ADV-W?
The form filed by investment advisors to withdraw registration
Give some examples of qualified custodians.
BDs, banks and trust companies. IAs may also be custodians, but are usually not.
If an IA delivers a brochure at the time of contract signing, clients must be given _______ days to cancel without penalty.
Five
Is an employee of an IA who answers the telephone and does clerical work considered an IAR?
No
