Ch. 5 Flashcards
Identify the acronym: NRSRO
Nationally Recognized Statistical Ratings Organization
T/F: Under the IA Act of 1940, performance fees are allowed for persons who are not residents of the US.
T
The IA Act of 1940 requires IAs to retain notices, ads, or other communications circulated to more than _______ clients.
10
For how long does the registration of an advisor that is registered with the SEC remain in effect?
Until it has been withdrawn, cancelled, or revoked by the SEC
Define the term custody.
The legal responsibility for, or control over, another persons assets
What is the federal law that governs investment advisers?
The Investment Advisers Act of 1940
Under the IA Act of 1940, are banks and bank holding companies excluded from the IA definition?
Yes
The program where a single fee is charged in lieu of commissions and advisory fees is generally called a ______ program.
Wrap
When assigning an IA contract to another IA, ______ ________ must be obtained from the client prior to assignment.
When assigning an IA contract to another IA, written consent must be obtained from the client prior to assignment.
An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?
No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment
Define “assignment” as it relates to IA contracts.
The transfer of ownership of a clients account from one advisory firm to another. Client consent is required.
Is an IAR who is employed by a federal covered adviser required to register in the state?
Yes. IARs of federal covered advisers must register in any state in which they have a place of business.
Identify the acronym: RIA
Registered Investment Adviser
T/F: An IA that has full discretion over a clients account at a separate BD is considered to have custody.
T
Regardless of assets under management, IAs must register with the SEC if any client is a ______________.
Registered investment company.
If an IA has $20 million under management and advises an investment company, with whom must it register?
Any IA that advises an investment company must register with the SEC (regardless of its AUM)
T/F: The wrap fee brochure must disclose that it may cost less to purchase the IAs services separately.
T
Does a solicitor for an IA provide securities recommendations?
No. Solicitors only solicit new clients; they do not recommend or approve transactions
May a solicitor receive compensation from an IA?
Yes, if the IA is registered, a written agreement exists, and a court has not limited the solicitors activities.
Define testimonial.
An advertisement in which an individual recommends the IAs services based on personal experiences with the firm.
When an IA has custody, with whom are the assets held?
Assets are held by a qualified custodian. Clients must be notified of custodians name, address, and manner of holding.
T/F: IAs are permitted to charge different fees to different clients for the same service.
T; provided proper disclosure is made, charging clients different fees is permitted
When is a pension consultant required to register as an investment adviser?
When it is being paid to provide securities related investment advice.
Under the IA Act of 1940, an IA may charge performance fees to clients with at least $_____ under management.
$1,100,000
For an IA to act as both an adviser and BD, what must be disclosed to clients before trades are effected?
The fact that the IA may be collecting both advisory fees and commissions
May investment advisers advertising refer to testimonials?
Yes. Provided the testimonial is not misleading and certain disclosures are made.
T/F: Bank holding companies are excluded from the IA definition under the USA.
F
T/F: A person soliciting for an IA must annually provide a disclosure regarding the IAs performance.
F; however, at the time of contact, the solicitor must provide clients with a solicitor disclosure document
Is an organization that provides ratings of securities and is nationally known considered an IA Under the USA?
No
If a firm provides advice solely based on US government securities, is it required to register as an IA with the SEC?
No. US government securities advisers are excluded from the IA definition under the IA Act of 1940.
An IA is created as a sole proprietorship is then converted to a partnership. This is considered client contract ________.
Assignment
Before an IA may assign a clients contract to another advisory firm, it must obtain the ______ _________.
Clients consent
If ABC Advisers has $112 million under management, it must register with ________.
The SEC
An investment adviser with more than $_________ under management must register with the SEC.
$110 million
An adviser is registered with the SEC under the Investment Advisers Act of 1940. What is the firm considered?
A federal covered advisor.
T/F: If an advisers only clients are insurance companies, it is exempt from the SEC registration.
T
The rule governing the disclosure requirement of an IA to its clients is referred to as the ________ Rule.
Brochure
An IA is established as a partnership and two of its fiber partners retire. Is this considered an assignment?
No, since it is only a minority change of partners. A majority must retire for it to be considered an assignment.
If an advisor exercises full discretionary control over a clients account, does this constitute custody?
Yes. Full discretionary control (having the ability to remove funds from the clients account) is considered custody.
If an IA is in possession of checks drawn by its client and made payable to third parties, how may custody be avoided?
By ensuring that it forwards the check within three business days
Under the IA Act of 1940, an IA may charge performance fees to clients with a net worth of at least $__________.
$2,200,000
T/F: Bank holding companies are not considered IAs under the USA.
F; they are excluded from the definition under the IA Act of 1940, not under the USA.
T/F: According to the IA Act of 1940, delivery of a disclosure document is required for all IA contracts.
F; a brochure is not required for investment company contracts or impersonal advisory services priced below $500
What is required of an IA if the firm goes through a majority change in ownership?
The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided
According to the USA, all investment advisory contracts must be in _______ form.
Written
T/F: A pension consultant that advises a plan regarding the accountant it should hire must register as an IA.
F; IA registration is not required if a consultant provides incidental advice that is not securities related.
T/F: A pension consultant being paid to create an asset allocation program for a plan must register as an IA.
T; the consultant must register as an IA since it is providing securities related advice for compensation
Is an IA permitted to use testimonials in its promotional material?
Yes. Provided the testimonial is not misleading and certain disclosures are made.
Define the local exemption from SEC registration for an IA.
The IAs clients reside in the state in which it’s office is located and it’s advice is not related to exchange listed securities.
An IA has custody of it inadvertently receives client securities and hasn’t returned them within ______ business days.
3
Define impersonal advisory services.
Services costing less than $500 per year that are not tailored to meet the investment objectives of a specific client
What just a federal covered adviser do if it’s assets under management fall below $90 million?
Withdraw its federal registration and register with a state administrator(s)
Will a client always pay lower fees in a wrap account?
No. Depending on the frequency of the clients trading, he may ultimately pay more than if the fees are paid separately
T/F: Bank holding companies are not considered IAs under the IA Act of 1940.
T
The IA Act of 1940 considered an communications that is directed to more than _____ person(s) to be advertising.
One
A client had just learned that his account will now be handled by another IAR. Is this considered an assignment?
No. Control of the account has not changed simply based on an IAR leaving the firm.
T/F: An IA may offer discounted fees to clients if proper disclosure is made in its brochure and Form ADV.
T
T/F: According to the USA, investment advisers may generally charge performance based fees.
F; unless the administrator seems the client qualified, performance based fees are prohibited.
What is required of an IA to assign an advisory contract to another adviser?
Written permission of the client.
A newly hired investment adviser representative wants to put the initials “IAR” on her business card. Is this allowed?
No. However, she may spell out “Investment Adviser Representative”
If an IA maintains custody of client funds, are unannounced audits required?
Yes. IAs must arrange for unannounced audits on an annual basis.
An IA manages more that $110 million in assets and has only insurance companies as clients. Is SEC registration required?
No. An SEC exemption is provided to IAs whose only clients are insurance companies
Is registration with the SEC required of an adviser that manages $87 million of assets?
No. An established FCA must register with the Adminstrator if the AUM falls below $90 million
T/F: Notification to existing clients is required for a minority change in ownership of an IA.
T; however, if a majority change occurs, client consent is required since this would be considered an assignment
If an IA maintains custody of a clients funds or securities, how often must account statements be provided to clients?
Statements must be sent quarterly
If a pension consultant advises a plan regarding the law firm it should hire, must the consultant register as an IA?
No. IA registration is not required since the consultant is providing incidental advice that is not securities related
Due to SEC Release 1092, what other candidates are included in the expanded IA definition?
Sports and entertainment reps, pension consultants and financial planners
T/F: Am IA maintaining custody of client assets need not notify the administrator.
F; the administrator must be notified in writing using Form ADV
If employed by a federal covered IA, is an IAR required to register in all states in which she is conducting business?
No. If the IAR has no place of business in the state, no registration is required
Define assignment.
The transfer of an advisory contract by the adviser or any change in the overall management of the advisory firm.
Define investment supervisory services.
The giving of continuous advice as to the investment of funds on the basis of the individual needs of each client
Is an exculpatory provision in an advisory contract permitted?
No. An exculpatory provision would serve to absolve an adviser from blame or liability and is prohibited
Define solicitor.
Any person who, directly or indirectly, solicits any client for, or refers any client to, an IA.
An IA inadvertently revives client funds/securities and doesn’t return them within three business days. Is this custody?
Yes
When an adviser files Form ADV with the SEC, when does registration become effective?
Within 45 days of filing, the SEC will either grant the registration or institute denial proceedings.
