Chapter 6 Part 1

Question 1

Advisers Act is that its definition of an investment adviser

Answer 1

giving advice, as a regular part of its business, for compensation

Question 2

federal covered advisers Investment advisers with

Answer 2

$110 million or more in assets under management (iAs with assets of $100 million up to $110 million under management may register with either the SEC or the states.)

Question 3

federal covered advisers Advisers to registered

Answer 3

investment companies

Question 4

federal covered advisers Advisers that provide advisory services in

Answer 4

15 or more states

Question 5

federal covered advisers Advisers that are not regulated or required to be regulated as investment advisers in the state in

Answer 5

which they have their principal office and place of business (With the exception of Wyoming, all other states, as well as the District of Columbia and Puerto Hico, require the registration of state investment advisers. Advisers whose principal office is in Wyoming are regulated by the SEC.)

Question 6

federal covered advisers Nationally recognized

Answer 6

Statistical rating Organizations (NRSrOs)(e.g., Moody’s or S&P)

Question 7

federal covered advisers Pension consultants providing advice to

Answer 7

employee henefit plans that have assets of at least $200 million

Question 8

federal covered advisers Affiliates of federal registered IAs, if

Answer 8

the principal office and place of business of the affiliate is the same as that of the SEC-registered adviser

Question 9

federal covered advisers Newly formed advisers that reasonably believe

Answer 9

within 120 days of formation that they will become eligible for federal registration

Question 10

federal covered advisers Private

Answer 10

Funds Advisers-Advisers who act solely as an adviser to private funds and have assets under management in the United States of$150 million or more.

Question 11

Any firm that withdraws its registration has the right to

Answer 11

initiate the registration process again

Question 12

persons defined as investment advisers that are exempt from registration are still subject to the

Answer 12

anti fraud provisions of the Investment Advisers Act

Question 13

to register, an investment adviser must

Answer 13

file an application called Form ADV with the SEC. The adviser docs this electronically through the Investment Adviser Hegistration Depository (iARD). The IArD system is operated by FlNrA. However, FINrA does not regulate investment advisers. Within 45 days of the filing, the SEC will either grant registration or institute proceedings to determine whether registration should be denied. lfthe registration is denied, the applicant must be notified of the grounds for denial and be provided with an opportunity for a hearing

Question 14

Brochure Rule requires

Answer 14

“advisers to provide each client with a written disclosure document. For federal covered advisers, the brochure n1ust be given to clients at or prior to the client entering into the contract.
This requirement applies to written as well as oral contracts”

Question 15

An adviser’s brochure may be

Answer 15

Part 2 of Form ADV or a specially prepared brochure that contains substantially the same information. The brochure must include specific information

Question 16

you are not required to provide a brochure

Answer 16

To registered investment companies, or If the client contract is limited to impersonal advisory services for which the client pays less than $500 per year

Question 17

Wrap account clients typically receive

Answer 17

investment advice, execution of transactions, asset allocation, and administrative services all wrapped together for a single fee, usually based on the size of the assets in the account. The client’s funds are placed with an investment adviser selected by the brokerage firm. The adviser then executes transactions on the client’s behalf through the sponsoring broker-dealer. Either the adviser or the broker-dealer will have discretion over the account

Question 18

The SEC requires the delivery of a special wrap fee program disclosure brochure instead of the regular brochure. This special brochure emphasizes the disclosure of the following information

Answer 18

“The amount of the wrap fee, the services provided for that fee, and whether the fee is negotiable; The nature of any fees the client might pay in addition to the wrap fee; Factors that bear upon the cost of the program in relation to the cost of the same services purchased separately; How portfolio managers are chosen; Information about the client that is communicated to the portfolio manager and any restrictions
placed on client contact with the manager”

Question 19

If a registered representative recommends a wrap fee program and receives compensation as a result of a client’s participation, SEC rules require the wrap fee brochure to disclose that

Answer 19

Persons recommending the program will be compensated; The amount of compensation may be more than the amount the representative would receive if the client participated in other programs of the sponsor or paid separately for investment advice and other services; The representative may have a financial incentive to recommend the program over other programs or services.

Question 20

If a client is offered a choice between a traditional asset-based fee (fee plus commissions) and a wrap fee

Answer 20

both alternatives must be disclosed in writing and explained to the client