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S 66 > Ch. 5 > Flashcards

Ch. 5 Flashcards

1
Q

Identify the acronym: NRSRO

A

Nationally Recognized Statistical Ratings Organization

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2
Q

T/F: Under the IA Act of 1940, performance fees are allowed for persons who are not residents of the US.

A

T

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3
Q

The IA Act of 1940 requires IAs to retain notices, ads, or other communications circulated to more than _______ clients.

A

10

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4
Q

For how long does the registration of an advisor that is registered with the SEC remain in effect?

A

Until it has been withdrawn, cancelled, or revoked by the SEC

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5
Q

Define the term custody.

A

The legal responsibility for, or control over, another persons assets

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6
Q

What is the federal law that governs investment advisers?

A

The Investment Advisers Act of 1940

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7
Q

Under the IA Act of 1940, are banks and bank holding companies excluded from the IA definition?

A

Yes

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8
Q

The program where a single fee is charged in lieu of commissions and advisory fees is generally called a ______ program.

A

Wrap

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9
Q

When assigning an IA contract to another IA, ______ ________ must be obtained from the client prior to assignment.

A

When assigning an IA contract to another IA, written consent must be obtained from the client prior to assignment.

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10
Q

An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?

A

No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment

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11
Q

Define “assignment” as it relates to IA contracts.

A

The transfer of ownership of a clients account from one advisory firm to another. Client consent is required.

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12
Q

Is an IAR who is employed by a federal covered adviser required to register in the state?

A

Yes. IARs of federal covered advisers must register in any state in which they have a place of business.

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13
Q

Identify the acronym: RIA

A

Registered Investment Adviser

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14
Q

T/F: An IA that has full discretion over a clients account at a separate BD is considered to have custody.

A

T

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15
Q

Regardless of assets under management, IAs must register with the SEC if any client is a ______________.

A

Registered investment company.

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16
Q

If an IA has $20 million under management and advises an investment company, with whom must it register?

A

Any IA that advises an investment company must register with the SEC (regardless of its AUM)

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17
Q

T/F: The wrap fee brochure must disclose that it may cost less to purchase the IAs services separately.

A

T

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18
Q

Does a solicitor for an IA provide securities recommendations?

A

No. Solicitors only solicit new clients; they do not recommend or approve transactions

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19
Q

May a solicitor receive compensation from an IA?

A

Yes, if the IA is registered, a written agreement exists, and a court has not limited the solicitors activities.

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20
Q

Define testimonial.

A

An advertisement in which an individual recommends the IAs services based on personal experiences with the firm.

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21
Q

When an IA has custody, with whom are the assets held?

A

Assets are held by a qualified custodian. Clients must be notified of custodians name, address, and manner of holding.

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22
Q

T/F: IAs are permitted to charge different fees to different clients for the same service.

A

T; provided proper disclosure is made, charging clients different fees is permitted

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23
Q

When is a pension consultant required to register as an investment adviser?

A

When it is being paid to provide securities related investment advice.

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24
Q

Under the IA Act of 1940, an IA may charge performance fees to clients with at least $_____ under management.

A

$1,100,000

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25
Q

For an IA to act as both an adviser and BD, what must be disclosed to clients before trades are effected?

A

The fact that the IA may be collecting both advisory fees and commissions

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26
Q

May investment advisers advertising refer to testimonials?

A

Yes. Provided the testimonial is not misleading and certain disclosures are made.

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27
Q

T/F: Bank holding companies are excluded from the IA definition under the USA.

A

F

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28
Q

T/F: A person soliciting for an IA must annually provide a disclosure regarding the IAs performance.

A

F; however, at the time of contact, the solicitor must provide clients with a solicitor disclosure document

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29
Q

Is an organization that provides ratings of securities and is nationally known considered an IA Under the USA?

A

No

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30
Q

If a firm provides advice solely based on US government securities, is it required to register as an IA with the SEC?

A

No. US government securities advisers are excluded from the IA definition under the IA Act of 1940.

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31
Q

An IA is created as a sole proprietorship is then converted to a partnership. This is considered client contract ________.

A

Assignment

32
Q

Before an IA may assign a clients contract to another advisory firm, it must obtain the ______ _________.

A

Clients consent

33
Q

If ABC Advisers has $112 million under management, it must register with ________.

A

The SEC

34
Q

An investment adviser with more than $_________ under management must register with the SEC.

A

$110 million

35
Q

An adviser is registered with the SEC under the Investment Advisers Act of 1940. What is the firm considered?

A

A federal covered advisor.

36
Q

T/F: If an advisers only clients are insurance companies, it is exempt from the SEC registration.

A

T

37
Q

The rule governing the disclosure requirement of an IA to its clients is referred to as the ________ Rule.

A

Brochure

38
Q

An IA is established as a partnership and two of its fiber partners retire. Is this considered an assignment?

A

No, since it is only a minority change of partners. A majority must retire for it to be considered an assignment.

39
Q

If an advisor exercises full discretionary control over a clients account, does this constitute custody?

A

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

40
Q

If an IA is in possession of checks drawn by its client and made payable to third parties, how may custody be avoided?

A

By ensuring that it forwards the check within three business days

41
Q

Under the IA Act of 1940, an IA may charge performance fees to clients with a net worth of at least $__________.

A

$2,200,000

42
Q

T/F: Bank holding companies are not considered IAs under the USA.

A

F; they are excluded from the definition under the IA Act of 1940, not under the USA.

43
Q

T/F: According to the IA Act of 1940, delivery of a disclosure document is required for all IA contracts.

A

F; a brochure is not required for investment company contracts or impersonal advisory services priced below $500

44
Q

What is required of an IA if the firm goes through a majority change in ownership?

A

The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided

45
Q

According to the USA, all investment advisory contracts must be in _______ form.

A

Written

46
Q

T/F: A pension consultant that advises a plan regarding the accountant it should hire must register as an IA.

A

F; IA registration is not required if a consultant provides incidental advice that is not securities related.

47
Q

T/F: A pension consultant being paid to create an asset allocation program for a plan must register as an IA.

A

T; the consultant must register as an IA since it is providing securities related advice for compensation

48
Q

Is an IA permitted to use testimonials in its promotional material?

A

Yes. Provided the testimonial is not misleading and certain disclosures are made.

49
Q

Define the local exemption from SEC registration for an IA.

A

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.

50
Q

An IA has custody of it inadvertently receives client securities and hasn’t returned them within ______ business days.

A

3

51
Q

Define impersonal advisory services.

A

Services costing less than $500 per year that are not tailored to meet the investment objectives of a specific client

52
Q

What just a federal covered adviser do if it’s assets under management fall below $90 million?

A

Withdraw its federal registration and register with a state administrator(s)

53
Q

Will a client always pay lower fees in a wrap account?

A

No. Depending on the frequency of the clients trading, he may ultimately pay more than if the fees are paid separately

54
Q

T/F: Bank holding companies are not considered IAs under the IA Act of 1940.

A

T

55
Q

The IA Act of 1940 considered an communications that is directed to more than _____ person(s) to be advertising.

A

One

56
Q

A client had just learned that his account will now be handled by another IAR. Is this considered an assignment?

A

No. Control of the account has not changed simply based on an IAR leaving the firm.

57
Q

T/F: An IA may offer discounted fees to clients if proper disclosure is made in its brochure and Form ADV.

A

T

58
Q

T/F: According to the USA, investment advisers may generally charge performance based fees.

A

F; unless the administrator seems the client qualified, performance based fees are prohibited.

59
Q

What is required of an IA to assign an advisory contract to another adviser?

A

Written permission of the client.

60
Q

A newly hired investment adviser representative wants to put the initials “IAR” on her business card. Is this allowed?

A

No. However, she may spell out “Investment Adviser Representative”

61
Q

If an IA maintains custody of client funds, are unannounced audits required?

A

Yes. IAs must arrange for unannounced audits on an annual basis.

62
Q

An IA manages more that $110 million in assets and has only insurance companies as clients. Is SEC registration required?

A

No. An SEC exemption is provided to IAs whose only clients are insurance companies

63
Q

Is registration with the SEC required of an adviser that manages $87 million of assets?

A

No. An established FCA must register with the Adminstrator if the AUM falls below $90 million

64
Q

T/F: Notification to existing clients is required for a minority change in ownership of an IA.

A

T; however, if a majority change occurs, client consent is required since this would be considered an assignment

65
Q

If an IA maintains custody of a clients funds or securities, how often must account statements be provided to clients?

A

Statements must be sent quarterly

66
Q

If a pension consultant advises a plan regarding the law firm it should hire, must the consultant register as an IA?

A

No. IA registration is not required since the consultant is providing incidental advice that is not securities related

67
Q

Due to SEC Release 1092, what other candidates are included in the expanded IA definition?

A

Sports and entertainment reps, pension consultants and financial planners

68
Q

T/F: Am IA maintaining custody of client assets need not notify the administrator.

A

F; the administrator must be notified in writing using Form ADV

69
Q

If employed by a federal covered IA, is an IAR required to register in all states in which she is conducting business?

A

No. If the IAR has no place of business in the state, no registration is required

70
Q

Define assignment.

A

The transfer of an advisory contract by the adviser or any change in the overall management of the advisory firm.

71
Q

Define investment supervisory services.

A

The giving of continuous advice as to the investment of funds on the basis of the individual needs of each client

72
Q

Is an exculpatory provision in an advisory contract permitted?

A

No. An exculpatory provision would serve to absolve an adviser from blame or liability and is prohibited

73
Q

Define solicitor.

A

Any person who, directly or indirectly, solicits any client for, or refers any client to, an IA.

74
Q

An IA inadvertently revives client funds/securities and doesn’t return them within three business days. Is this custody?

A

Yes

75
Q

When an adviser files Form ADV with the SEC, when does registration become effective?

A

Within 45 days of filing, the SEC will either grant the registration or institute denial proceedings.

S 66 (12 decks)

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