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Series 66 > Ch 4 State Regulations Governing Investment Advisers and IA Representatives > Flashcards

Ch 4 State Regulations Governing Investment Advisers and IA Representatives Flashcards

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Series 66 flashcards
1
Q

True or False: An agent of a BD who solicits client trades is not considered an IAR under the USA.

A

True. There is no indication that the agent is managing accounts and charging a fee.

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2
Q

In lieu of an IA-prepared brochure, what document may be delivered to IA clients?

A

Part 2 of Form ADV

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3
Q

An individual employed by an IA to manage the research department is required to register as an ____ under the USA.

A

IAR - Investment Adviser Representative

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4
Q

When may an investment adviser charge fees that are different from other advisers?

A

When the fees are disclosed and are determined to be reasonable

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5
Q

True or False: An IA with fewer than 15 retail clients in the past 12 months is exempt from registering under the USA.

A

False. The USA de minimis exemption for advisers is five or fewer individual clients.

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6
Q

What type of advice may lawyers, accountants, teachers, and engineers provide and not be considered an IA?

A

Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.

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7
Q

Individuals employed by an IA who only perform ____________________ duties are excluded from registration under the USA.

A

clerical/ministerial duties

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8
Q

In general, does the USA allow an adviser to charge performance-based fees?

A

No. However, such fee arrangements may be permitted by rule or order of the Administrator.

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9
Q

True or False: The USA defines a bank providing investment recommendations to its clients as an IA.

A

False. Banks are excluded from the IA definition.

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10
Q

The application for withdrawal of registration of an agent or IAR becomes effective in _____ days.

A

30 days.

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11
Q

An IA is required to deliver the brochure to its clients by no later than the __________ of the contract.

A

signing of the contract.

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12
Q

Any material changes to Form ADV must be filed ___________.

A

promptly (within 30 days).

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13
Q

True or False: An Administrator will inspect all advisers’ books and records on an annual basis.

A

False. Administrators lack the resources to inspect all IAs’ books and records annually.

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14
Q

What is Part 2 of Form ADV?

A

The portion of an IA’s application that may be used to satisfy the Brochure Rule (disclosure requirement)

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15
Q

Does the de minimis exemption apply to BDs that have no place of business in a state?

A

No. The de minimis exemption only applies to IAs and IARs.

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16
Q

With what system do IAs file their registration applications?

A

The Investment Adviser Registration Depository (IARD)

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17
Q

How are advisory fees most commonly charged?

A

As a percentage of assets under management over a specific period

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18
Q

True or False: According to the USA, a BD providing asset allocation plans to its clients for a fee is an IA.

A

True. Since the BD is receiving specific compensation for its advice, it is considered an IA.

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19
Q

True or False: An IA is required to disclose the educational background of all of its IARs to its clients.

A

False

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20
Q

An ___________________________________ is to an investment adviser what an ________ is to a BD.

A

investment adviser representative (IAR) is to an investment adviser what an agent is to a BD.

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21
Q

Identify the acronym: IAR

A

Investment Adviser Representative

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22
Q

IA records must be kept for at least ____ years.

A

five years.

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23
Q

Is an adviser to a mutual fund considered an IA under the USA?

A

No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.

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24
Q

When does the SEC require an adviser to include its balance sheet in its ADV Part 2?

A

If the firm has custody of a client’s funds or collects prepaid fees of $1,200 or more, six months or more in advance

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25
Q

What form do IAs file to register?

A

Form ADV

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26
Q

True or False: A person being compensated for providing clients with advice about securities is a broker-dealer.

A

False. This person is considered an investment adviser.

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27
Q

IAs file their applications electronically through the ___________________________________.

A

Investment Adviser Registration Depository (IARD).

28
Q

If an IA is no longer eligible for SEC registration, it has ____ days to file ADV-W and register at the state level.

A

180 days

29
Q

When should significant changes to an adviser’s ADV be filed?

A

Promptly (within 30 days)

30
Q

What may an investment adviser do with full discretion, but not with limited discretion?

A

Withdraw money from the account

31
Q

What is a client’s right if an IA does not deliver the required brochure 48 hours prior to the signing of the contract?

A

The client may terminate the contract without penalty within five business days from the signing of the contract.

32
Q

When and by whom is Form ADV-E filed?

A

It is filed within 120 days from the completion of an audit of the IA’s books; filed by the auditor.

33
Q

List the four categories of professionals who are excluded from the IA definition.

A

Lawyers, accountants, teachers, and engineers (remember L, A, T, E)

34
Q

True or False: A successor advisory firm must pay a new filing fee, but need not file a new application.

A

False. The successor firm must update its application, but not pay a new filing fee.

35
Q

Does the de minimis exemption apply to investment adviser representatives?

A

Yes

36
Q

What is the minimum educational requirements for any person who renders investment advice?

A

There is no minimum; however, the SEC and Administrator may require disclosure of educational backgrounds.

37
Q

What is Form ADV-E?

A

Form filed by an independent public accountant after auditing the records of an IA maintaining custody of client assets

38
Q

If a BD is promoting wrap accounts, does it need to register as an IA?

A

Yes. Selling wrap accounts is considered advisory service which requires registration.

39
Q

If an IA contract stipulates cancellation penalties, a brochure must be provided ____ hours before the contract signing.

A

48 hours

40
Q

True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.

A

False. The CEO is considered an IAR, not an IA.

41
Q

Is there a registration exemption for IARs doing business in a state if employed by an IA registered in another state?

A

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.

42
Q

What form is used to notify Administrators that an IA is maintaining custody of client assets?

A

Form ADV

43
Q

List some of the records that must be retained by an IA for five years.

A

Journals, blotters, ledgers, position records, and trade confirmations

44
Q

What is updated at the annual renewal of an IA’s registration?

A

Assets under management, the number of accounts, clients, employees, and IA representatives

45
Q

What type of information will be found in an investment adviser’s ADV Part I?

A

Firm name, # of employees, nature of business, history of officers/directors, legal/disciplinary action in past 10 years

46
Q

Under the USA, are banks and bank holding companies excluded from the IA definition?

A

No. Banks, savings institutions and trust companies are excluded, but bank holding companies are not.

47
Q

If a BD’s net capital falls below the required minimum, it must notify the Administrator within ___ business day(s).

A

one business day.

48
Q

If an IA has custody or discretion, it must include a ________ ______ with its Form ADV and brochure.

A

balance sheet

49
Q

If an IA meets the IA definition in a state, when is it exempt from registration under the USA?

A

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

50
Q

For how long does the registration of a state-registered adviser remain in effect?

A

Until December 31, unless renewed by the adviser

51
Q

When does the de minimis exemption from registration apply for an IA that has no place of business in a state?

A

When an IA has no more than five non-institutional clients who are residents of the state (measured over 12 months)

52
Q

Who operates the IARD?

A

FINRA

53
Q

If an adviser has check-writing privileges in a client’s account, does this constitute custody?

A

Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.

54
Q

True or False: An IA that maintains custody of customer assets must submit to an unannounced annual audit by a CPA.

A

True. At the completion of the audit, the CPA must file Form ADV-E with the SEC.

55
Q

Describe a wrap account.

A

An account that charges the client a single fee that covers transaction execution and account management

56
Q

What is not disclosed in the investment policy statement?

A

The advisor’s compensation. The statement does include the goals, objectives, and responsibilities of the advisor.

57
Q

An IA’s brochure must have the same information that appears in what part of Form ADV?

A

Part 2 of Form ADV

58
Q

True or False: An adviser is required to deliver only ADV Part 2 when entering into a wrap fee program with a client.

A

False. For wrap accounts, the SEC requires IAs to provide clients with a special disclosure (ADV Part 2A-Appendix 1).

59
Q

What is Form ADV-W?

A

The form filed by investment advisers to withdraw registration

60
Q

When are non-material (routine) changes to Form ADV required to be filed?

A

Routine items require an amendment within 90 days after the end of the IA’s fiscal year.

61
Q

The application for registration of an agent or IAR becomes effective in _____ days.

A

30 days.

62
Q

What requirements may states impose on IAs that are registered with the SEC?

A
  1. File with the state any documents that were filed with SEC, 2. File Consent to Service of Process, 3. Pay state fees
63
Q

Is the publisher of a newspaper required to register as an investment adviser?

A

No. Publishers are excluded from the IA definition if the newspaper has general circulation and gives impersonal advice.

64
Q

Is a certified public accountant who provides tax advice considered an IA under the USA?

A

No, CPAs are excluded from the IA definition.

65
Q

When an IA initially registers, who is automatically considered registered?

A

The officers and directors of the advisory firm

Series 66 (21 decks)

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