Ch 5 Federal Regulations Governing Investment Advisers Flashcards
Define “assignment” as it relates to IA contracts.
The transfer of ownership of a client’s account from one advisory firm to another. Client consent is required.
What must a federal covered adviser do if its assets under management fall below $90 million?
Withdraw its federal registration and register with a state Administrator(s)
Due to SEC Release 1092, what other candidates are included in the expanded IA definition?
Sports and entertainment reps, pension consultants and financial planners
True or False: According to the USA, investment advisers may generally charge performance-based fees.
False. Unless the Administrator deems the client qualified, performance-based fees are prohibited.
For how long does the registration of an adviser that is registered with the SEC remain in effect?
Until it has been withdrawn, cancelled, or revoked by the SEC.
Define testimonial.
An advertisement in which an individual recommends the IA’s services based on personal experiences with the firm.
True or False: A pension consultant being paid to create an asset allocation program for a plan must register as an IA.
True. The consultant must register as an IA since it is providing securities-related advice for compensation.
Under the IA Act of 1940, are banks and bank holding companies excluded from the IA definition?
Yes
True or False: Bank holding companies are excluded from the IA definition under the USA.
False
True or False: Notification to existing clients is required for a minority change in ownership of an IA.
True. However, if a majority change occurs, client consent is required since this would be considered an assignment.
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 solicitor’s activities.
Regardless of assets under management, IAs must register with the SEC if any client is a ______________________________.
registered investment company.
The program where a single fee is charged in lieu of commissions and advisory fees is generally called a ______ program.
wrap program.
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 state registration is required.
If an IA maintains custody of a client’s funds or securities, how often must account statements be provided to clients?
Statements must be sent quarterly.
If a firm provides advice solely based on U.S. government securities, is it required to register as an IA with the SEC?
No. U.S. government securities advisers are excluded from the IA definition under the IA Act of 1940.
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.
An 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.”
True or False: A person soliciting for an IA must annually provide a disclosure regarding the IA’s performance.
False. However, at the time of contact, the solicitor must provide clients with a solicitor disclosure document.
An IA has custody if it inadvertently receives client securities and hasn’t returned them within ____ business days.
3 business days.
If an IA maintains custody of client funds, are unannounced audits required?
Yes. IAs must arrange for unannounced audits on an annual basis.
What is required of an IA to assign an advisory contract to another adviser?
Written permission of the client
Define assignment.
The transfer of an advisory contract by the adviser or any change in the overall management of the advisory firm.
May an IA use testimonials in its promotional material?
No
True or False: IAs are permitted to charge different fees to different clients for the same service.
True. Provided proper disclosure is made, charging clients different fees is permitted.
True or False: An IA maintaining custody of client assets need not notify the Administrator.
False. The Administrator must be notified in writing using Form ADV.
An IA inadvertently receives client funds/securities and doesn’t return them within three business days. Is this custody?
Yes
Define the term custody.
The legal responsibility for, or control over, another person’s assets
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.
True or False: Bank holding companies are not considered IAs under the USA.
False. They are excluded from the definition under the IA Act of 1940, not under the USA.
