Chapter 5 Flashcards
Ch 5 FEDERAL REGULATIONS GOVERNING INVESTMENT ADVISERS
When must federal covered investment advisers renew their registration?
Within 90 days of their fiscal year-end by filing an updating amendment to Form ADV, including financial statements.
What are performance-based fees?
Compensation that’s based on a share of capital gains or capital appreciation in client accounts.
Who are considered qualified clients for performance-based fees?
Those with at least $1.1 million under management or more than $2.2 million in net worth.
What must an IA do if it changes its partners?
Notify the Administrator and its clients.
Where must an IAR of a federal covered adviser register?
In any state(s) in which she has a place of business.
How do investment advisers register?
By filing Form ADV.
What is the registration requirement for IAs managing less than $100 million in assets?
They must register with the state.
What is the registration option for IAs managing between $100 million and $110 million in assets?
They may register with the SEC or state.
What is the registration requirement for IAs managing $110 million or more in assets?
They must register with the SEC.
Who must register with the SEC regardless of their level of assets under management?
Advisers to investment companies.
If a client provides her IAR with a username and password, what does this imply?
The IAR has limited discretion over the account and does not require the IA to maintain custody.
What does it mean if a client authorizes an IAR to withdraw funds and/or securities?
The IAR is considered to have full discretion over the account and the IA has custody.
What are exempt reporting advisers (ERAs)?
Advisers to private funds with less than $150 million in assets under management.
What is the registration requirement for exempt reporting advisers?
They are exempt from SEC registration but must notice file with the state Administrator(s) and pay a filing fee.
What are private funds commonly referred to as?
Hedge funds.
Under which sections of the Investment Company Act of 1940 can private funds be exempt?
- Section 3(c)(1) (less than 100 investors)
- Section 3(c)(7) (only sold to qualified clients with at least $5 million of investable assets)
Does an IAR leaving her advisory firm constitute assignment of client contracts?
No.
What are the conditions for performance-based advertisements?
They are allowed as long as they’re not misleading and are justified with appropriate records.
What is required for storing books and records using cloud services?
Regulators must be given notice within 24 hours and have cost-free access.
