Chapter 1 Flashcards
Which of the following would NOT be considered a federal covered adviser under the provisions of the Uniform Securities Act (as Amended 1956), the National Securities Markets Improvement Act of 1996, the Investment Advisers Act of 1940 and the Dodd-Frank Wall Street Reform and Consumer Protection Act?
A. Titan Partners, the adviser for a Mutual Fund, which holds $16 million in assets
B. R & P Partners, which manages $350 million for wealthy individuals
C. F & L Bank, which holds $150 million in non-institutional client assets
D. S Investments, which manages $22 million for the Kingsford Mutual Fund
C. F & L Bank, which holds $150 million in non-institutional client assets
The federal government and the states have divided the responsibility for regulating investment advisers. In general, an adviser be must registered with either the SEC or with one or more states, but not both. The basis for the federal-state division is usually assets under management (AUM). Advisers with assets of $110 million or more must register with the SEC, while those with assets under $100 million fall under state jurisdiction. Advisers managing between $100 million and $110 million may elect to be regulated by the state(s) in which they conduct business or by the SEC.
According to the Uniform Securities Act and NASAA’s Model Rule on Investment Adviser Recordkeeping Requirements, which of the following are true regarding an investment adviser’s books and records?
I Regulators can spot check an IA’s books and records
II Regulators must give IAs 2 business days notice before conducting a books and records inspection
III Records must be kept in an easily accessible location for 2 years
IV Records must be kept in an readily accessible location for 5 years
A. I and IV
B. II and IV
C. II and III
D. I and III
A. I and IV
The Administrator is permitted to spot check a firm’s records and is not required to provide prior notice of an upcoming inspection. IAs must keep all required records in an readily accessible location for at least 5 years from the end of the fiscal year in which the last entry in the record was made; the most recent 2 years must be kept in the IA’s principal office. Broker-Dealers retain most records for 3 years, the first 2 years in an easily accessible location.
The Administrator may require broker-dealers or investment advisers to file all the following information, EXCEPT:
A. Periodic financial reports
B. Sales and advertising literature for futures contracts
C. Sales and advertising literature for American Depository Receipts (ADRs)
D. Sales and advertising literature for Direct Participation Programs (DPPs)
B. Sales and advertising literature for futures contracts
Futures contracts are not securities, and the Administrator may only require filing of sales and advertising literature for securities.
If permitted by the Administrator, when does an investment adviser’s registration become effective?
A. On the 30th day of the month
B. Promptly
C. On the 30th day after filing
D. Immediately
C. On the 30th day after filing
Once an investment adviser has submitted everything required for registration, its registration becomes effective on the 30th day after filing. However, the Administrator has the authority to specify an earlier effective date, or he/she may defer the effective date until the 30th day after the filing of any amendment.
A broker-dealer who has no office in a state, would not need to register in the state, when:
A. Serving existing retail customers who are temporarily in the state
B. Trading for retail customer’s accounts in that state
C. Serving only 3 wealthy non-institutional customers in that state
D. Serving existing retail customers who are now residents of the state
A. Serving existing retail customers who are temporarily in the state
Which of the following are not considered IARs?
I Amy, who effects transactions for institutional customers in State A, where her firm does not have an office
II Joe, who works for a federal covered adviser and solicits investment advisory services to customers in State B, without having an office in State B
III Ricky, who works for an adviser located and registered in State C and supervises other investment advisor representatives in State C
IV Mary, who works for a federal covered adviser and solicits investment advisory services to customers in State D, where her firm has an office
A
II and III
B
I and II
C
III and IV
D
I and IV
B. I and II
Since Amy is effecting transactions for customers she is acting as an agent of a broker-dealer, not an IAR. Joe works for a federal covered adviser, and since he does not have a place of business in the state, he does not have to be registered in the state. If a federal covered adviser has an office in a state, the IARs who work out of that office need to be registered with the state. Ricky supervises IARs in State C, and needs to be registered in that state as an IAR. Finally, Mary works for a federal covered adviser with an office in State D, so Mary must register in State D as an IAR.
A conviction within the last 10 years for which of the following is not grounds for denying an agent or IAR’s registration?
A Securities felony B Securities misdemeanor C Any misdemeanor D Any felony
C
Any misdemeanor
Fine Brokerage Services is engaged in the business of effecting transactions in securities for the accounts of others. Fine has a place of business in State A, but not in State B. In State A, its clients include thousands of retail and institutional investors. In State B, its clients include only broker-dealers and institutional investors. In which of the following state(s) is Fine Brokerage Services required to register as a broker-dealer? A State B only B State A only C Neither State A nor State B D Both State A and State B
B
State A only
The Uniform Securities Act (USA) defines a broker-dealer as a person engaged in the business of effecting transactions in securities for the accounts of others or for its own account. Therefore, Fine Line Brokerage Services meets the definition of a broker-dealer according to the USA unless a specific exemption from the definition applies. The implication of meeting the definition of a broker-dealer in a particular state is that the firm generally must register as a broker-dealer. There are a number of persons that are specifically excluded from the definition of a broker-dealer under the USA. The following are NOT broker-dealers, even when they buy and sell securities as a business: a bank, savings institution or trust company; an issuer; an agent; a person that has no place of business in the state and deals only with broker-dealers, and institutional investors. This last exclusion allows out-of-state BDs to do business in a state without registration if they deal only with institutions. For example, Fine Line must register in State A, since they have a place of business there, but not in State B. As long as Fine Line deals only with broker-dealers and institutions, it is not considered a broker-dealer in State B, assuming it has no place of business in State B.
Which two of the following persons would be considered an agent under the Uniform Securities Act?
I An insurance saleswoman who sells variable annuities
II An insurance saleswoman who sells traditional products only
III A CFO who represents an issuer in an underwriting negotiation with an investment banker
IV A brokerage firm sales assistant who accepts unsolicited orders
A
I and III
B
I and II
C
I and IV
D
III and IV
C
I and IV
Insurance company representatives who sell variable products are considered agents under the USA. Any employee of a brokerage firm who may effect transactions with a retail customer is considered an agent, regardless of title. Employees of issuers who only deal with investment bankers are not considered agents.
Check Answer
Which one of the following is exempt from the definition of an agent under the USA?
A
An individual who represents a broker-dealer in effecting transactions in municipal securities with retail investors
B
An individual who works for an issuer and sells securities only to institutions
C
An individual who represents a broker-dealer in effecting transactions in municipal securities with institutional investors
D
An individual who represents
B
An individual who works for an issuer and sells securities only to institutions
An individual who represents an issuer in effecting exempt transactions, such as transactions with institutions, is not considered an agent. An individual who represents an issuer and effects transactions for the issuer’s securities only with employees of the issuer is exempted from the definition of an agent only if they receive no “transactional compensation”; in the example given here, the individual received a commission, so they are not eligible for the exemption. Any individual effecting securities transactions on behalf of a broker-dealer is generally considered an agent.
Which of the following would be required to register as an investment adviser in State X?
A
A firm with no office in the state that conducts business with five or fewer non-institutional customers
B
A firm with $24.4 million in assets under management and no office in the state that deals only with institutions
C
A firm with $121 million in assets under management and an office in the state that deals only with large pension plans
D
A firm with $66.7 million in assets under management and an office in the state that deals only with three institutional customers
D
A firm with $66.7 million in assets under management and an office in the state that deals only with three institutional customers
Firms with no offices in the state that deal with institutions only or conduct business with five or fewer non-institutional customers within a 12-month period are not required to register as investment advisers in that state. The firm with $121 million in assets is incorrect since this firm would be considered a federal covered adviser and would not be required to register in State X.
Of the following choices, which one would be considered an agent?
A
A sales secretary who solicits and accepts orders from clients
B
An individual representing an issuer of exempt securities, like a security issued by the U.S. Government
C
A broker-dealer’s managing partner who does not engage in securities transactions
D
An individual representing an issuer of securities in an exempt transaction
A
A sales secretary who solicits and accepts orders from clients
A sales secretary whose duties are administrative only is not an agent. A secretary, sales assistant, or other clerical person who is authorized to take sales orders over the phone, or otherwise accept customer orders, is considered an agent.
Which of the following would be cause for the State Administrator to deny a registration resulting from the non-payment of the proper application filing fee? A If paid in excess B If not paid within 30 days C If not paid by December 31 D If not paid immediately and with original application
B
If not paid within 30 days
Under the Uniform Securities Act, an agent's registration is effective until: A 1 year from the effective date B June 30th each year C December 31st each year D 5 years from the effective date
C
December 31st each year
According to the Uniform Securities Act, an agent must always be registered in a state where he/she transact securities business, unless he/she: A Meets the minimum net capital requirements B Is exempted from registration C Posts a surety bond D Sells only non-exempt securities
B
Is exempted from registration
