Chapter 4 - State Regulations Governing Investment Advisers and IA Representatives Flashcards
IA exemptions - no place of business in a state and:
- all clients there are financial institutions
- has no more than 5 non-institutional clients in the state w/in the last 12 months
IA exclusions
- IARs
- banks, savings institutions, and trust companies
- lawyers, accountants, teachers, engineers (L.A.T.E.)
- B/Ds and their agents
- publishers of general newspapers, and magazines
- federal covered advisers - advisers registered with SEC do not have to register with state
IAR - individual who works for an IA…
- providing or determining investment advice
- managing accounts
- soliciting advisory services
- managing those who perform these functions
- third-party solicitors may be considered IARs and may be subject to registration w/ state
Form ADV: IAs file via ___.
IARD
Form ADV Part 1 - provides specific disclosure info for SEC and state use including:
- IA name, number of employees, nature of business, address
- education and 10-yr business hx of each partner, officer, or director
- how firm maintains custody of assets
- if principal business consists of investment supervisory service
- number and size of discretionary and non-discretionary accounts
Form ADV Part 2 - client disclosures include:
- conflicts
- services and fees
- soft dollar arrangements
- types of analyses used
- education and business background of those rendering advice (no standard)
- balance sheet if it has custody of client funds/securities or collects prepaid fees of more than $1,200, six months or more in advance (at state level, the prepaid fee trigger is $500)
Form ADV annual renewal (updating amendment) must be filed w/in ___ days of year-end. The ___ year is used for state-covered IAs; ___ year is used for federal-covered IAs. Material changes to registration must be filed w/in ___ days.
90; calendar; fiscal; 30
Form ADV-W (withdrawal)
- full withdrawal (adviser going out of business)
- partial withdrawal (switching regulators)
Form ADV-E
- filed by independent public accountant to report the result of an audit of adviser that has custody of client funds or securities
- must be filed within 120 days
Form ADV-NR (non-residents)
- filed by advisers w/ general partners or managing agents who are non-US residents
- appoints the secretary of the SEC (or state official) as the adviser’s agent for receipt of legal papers
Advisory contracts
- must be in writing
- may not contain exculpatory provisions or mandatory arbitration clauses
- generally prohibit performance fees
- may only be assigned to another adviser with client consent
- must state that all clients will be notified of any change in partners (for partnerships)
Performance fees may be charged to qualified clients with at least ___ under management or more than ___ net worth.
$1.1 million; $2.2 million
Brochure rules (adviser’s written disclosure document) - must be delivered to clients by no later than the ___, and ___ thereafter. If delivered less than __ hours prior to signing, client is allowed to cancel contract w/in ___ business days with no penalty.
signing of the contract; annually; 48; 5
Brochure exclusions
- contracts with registered investment companies
- contracts for impersonal advisory services costing less than $500/yr
Brochure must include:
- adviser’s name, address, website
- firm’s background, business practices, financial information, and AUM
- fees, compensation, and types of clients
- adviser’s code of ethics
- statement that registration is not an indication of skills or expertise
- disciplinary information such as civil and criminal actions that resulted in conviction
- bankruptcies w/in last 10 years
