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ChFC HS 300: Financial Planning: Process and Environment > Ch.9 - The Regulation of Financial Advisors > Flashcards

Ch.9 - The Regulation of Financial Advisors Flashcards

1
Q

What law or Act controls the regulation of a financial advisor?

A

Investment Advisors Act of 1940

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2
Q

What are the 3 things that will have to be in place for the Investment Advisors Act of 1940 to apply?

IA-770
(ABC)

A
  1. Advice: The person gives advice about securities
  2. Business: The person is in a business that provides securities
  3. Commission: The person is being paid fees/commission/etc.
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3
Q

True or false.
Both, fees for advice as well as commissions on securities, count as compensation under the Investment Advisors Act of 1940?

A

True

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4
Q

If you are required to register with the state, are you required to register with the SEC?

A

No

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5
Q

True or false.

A bank or bank holding company is considered an investment advisor.

A

False

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6
Q

Is someone who only performs incidental investment services (e.g. Lawyer, engineer, teacher, or accountant) considered an investment advisor?

A

No

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7
Q

Is a broker or dealer performing services outside of their practice, and gets no special compensation, considered an investment advisor?

A

No

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8
Q

Is someone that gives advice only on US government securities considered an investment advisor?

A

No

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9
Q

An investment advisor whose clients reside in their home state and they don’t provide advice on securities listed on the national exchange, do they have to register with the SEC?

A

No

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10
Q

An investment advisor who’s clients are only insurance companies, do they have to register with the SEC?

A

No

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11
Q

Does an investment advisor who has less than 15 clients within 12 month span have to register with the SEC?

A

No

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12
Q

An investment advisor who is a director, employee, or volunteer of a charity required to register with the SEC?

A

No

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13
Q

Does a commodity trading advisor not acting as an investment advisor required to register with the SEC?

A

No

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14
Q

Advisors with less than $100 million assets under management has to register with the…

A

state.

The state determines this every year

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15
Q

Who are the 6 groups of advisors that must register with the SEC?

A

– Advisers under an investment company that is registered.
– If your office is in Wyoming or outside of the US
– Rating organizations that are registered as advisers (Moody’s)
– Internet investment advisors
– Pension consultants that have more than $50 million in assets
– Startup advisers that are expected to be eligible for registration with the SEC within 120 days

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16
Q

If a financial advisor is subject to the SEC regulation, they are responsible for the following…
(RBCLRFA)

A 
SEC Responsibilities
Registartion
Brochures
Contracts
Labels
Recordkeeping
Fees 
Avoiding fraud
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17
Q

Advisers are required to comply with the Investment Advisors Act of 1940 and become a registered investment advisor by completing…

A

Form ADV.

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18
Q

Under Form ADV, fees are charged are based on…

A

the assets under management.

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19
Q

What are the two parts under Form ADV?

A

Part I – general information regarding the applicant/clients

Part II – types of services/fees/transactions

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20
Q

Registered Investment Advisors must comply with an 18-step…

A

recordkeeping requirement.

FYI

  1. Journal requirement
  2. Ledger requirement
  3. Securities purchased record
  4. Retention of canceled checks
  5. Retention of pain/unpaid bills
  6. Retention of trial balance and financial statements
  7. Retention of written communication
  8. Records of discretionary account
  9. Evidence of discretionary authority
  10. Retention of written agreements
  11. Retention of communications recommending specific securities
  12. Code of ethics
  13. Access persons
  14. Retention of written disclosure documents
  15. Retention of disclosure documents
  16. Record of rate-of-return calculation
  17. Books and records pertaining to political contributions
  18. Development, maintenance, and review of policies and procedures
21
Q

How long must advisers retain cancel checks, financial statements, and bank statements?

A

5 years.

22
Q

Registered Investment Advisors must retain written communication and written agreement sent to…

A

clients/prospects.

23
Q

If the recordkeeping requirements are violated, what type of penalties are available as a repercussion?

A

Civil and criminal

24
Q

Investment advisors must have policies reducing the likelihood of…

A

insider trading.

25
Q

Developing a written policy, communicate the policies to the employees, assign responsibilities to supervisors, and establish a monitoring mechanism are all requirements to prevent…

A

insider trading

26
Q

A registered investment advisor is prohibited from assigning client responsibilities to another advisor. However, under what conditions can the assignment of responsibilities take place?

A

With the clients consent

27
Q

Advisers cannot use ________ after name. But they can use ________.

A

RIA

Registered investment advisor

28
Q

At a federal level, is an advisor required to take an exam?

A

No

29
Q

The “brochure rule” requires delivery of a disclosure statement to both…

A

clients/prospects.

30
Q

Brochure disclosure statements must be provided in _________ and with __ hours of entering into an investment advisory agreement

A

writing

48

31
Q

The anti-fraud provisions indicate that the investment advisor has a _________________ duty to the client.

A

fiduciary

32
Q

Anti-fraud provisions apply to ________, regardless of whether they are registered with the SEC.

A

all investment advisors

33
Q

Conflicts of interest are extensively addressed under the…

A

anti-fraud provisions.

34
Q

Most states impose more extensive registration requirements then those at the…

A

federal level.

35
Q

Many states require a minimum amount of capital before…

A

approving registration.

36
Q

The Investment Advisors Act prohibits purchases or sales of securities without certain _____________ to clients.

A

disclosures

37
Q

A ________ organization is one that is authorized to regulate the conduct and activities of their own members.

A

self-regulatory

38
Q

A self-regulatory organization is subject to oversight by the…

A

government.

39
Q

Financial planners do not have a separate…

A

self-regulatory organization.

40
Q

Registered Investment Advisors are regulated by the…

A

SEC.

41
Q

Examples of Self-Regulatory Organizations (SROs)

A 
NYSE
AMEX
CBOE
NASDAQ
FINRA
42
Q

Is the FDIC considered a self-regulatory organization?

A

No

43
Q

An advisor may be a fiduciary even without __________ over the client’s assets.

A

discretionary control

44
Q

Breach of fiduciary duty can lead to…

A

– Civil/criminal lawsuit

– Disciplinary action by professional society

45
Q

Registered Investment Advisor, CFP professional ChFC holder, or CFA charter holder or anyone making security recommendations are all considered…

A

fiduciaries

46
Q

An Insurance agent, registered representative commission-only planner, or an Instructor on educational information; Are all considered…

A

non-fiduciaries

47
Q

What is the purpose of IA-1092

A

Reaffirmed IA-770 (ABC qualifications rule for Investment Advisers Act and brought attention to Anti-fraud provisions)

48
Q

How is AUM defined

A 
Per Sec. 203(a)(2)
Is account a securities portfolio?
Is portfolio composed of >=50% securities (cash is a security)
Is it regularly managed?
Sum of Account Balances
49
Q

What 3 state provisions carry-over to an SEC-registered advisor

A

Anti-fraud provisions
State required Document filings
State required licensing fees

ChFC HS 300: Financial Planning: Process and Environment (12 decks)

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