Chapter 6 Part 3

Question 1

registered representatives are entitled to the exclusion if they provide advice

Answer 1

under the knowledge and control of the broker-dealer.

Question 2

A conflict of interest arises when registered representatives of a broker-dealer provide investment advismy seivices that are outside the scope of their duties as registered representatives. These representatives acting as advisers must

Answer 2

disclose to all investment advisory clients that the advisory services they provide are separate from their employment with the broker-dealer

Question 3

firms offering wrap accounts must register as

Answer 3

investment advisers and must treat them as advisory accounts. In practice, most of the firms that offer wrap accounts do so through affiliates or subsidiaries that are registered investment advisers

Question 4

An exclusion is available for publishers of

Answer 4

any bona fide newspaper, news magazine, or other financial publication of general and regular circulation. To be considered general, the publication may not contain promotional material, be tailored to the specific needs of a client, or be timed to specific events affecting the securities industry. Even though some newsletters offer impersonal investment advice, if the publications are not in general circulation, the newsletter writers may need to register as investment advisers

Question 5

U.S. Government Securities Advisers

Answer 5

“To be excluded from the IA definition, a person must
provide advice or issue analyses and reports related solely to U.S. government securities. However, this exclusion does not apply to advice concerning municipal securities or securities issued by foreign governments”

Question 6

Local Exemption

Answer 6

“An investment adviser whose clients are all residents of the state in which the adviser maintains its principal office and the adviser does not provide advice on exchange-traded securities
is exempt from federal registration”

Question 7

Insurance Exemption

Answer 7

An investment adviser whose only clients are insurance companies

Question 8

What docs it mean for an investment adviser to be holding itself out? An

Answer 8

An adviser holds itself out to the public if it seeks additional clients through word of mouth, print or Internet-based advertising, or any other means. A firm identifying itself as an investment adviser in any communication that it knows will reach potential advisory clients (such as through business cards, letterhead, a Web site, a mass mailing, a trade show display, etc.) is sufficient to eliminate the private adviser exemption

Question 9

An investment adviser’s registration remains in effect unless the registration has been

Answer 9

been withdrawn, cancelled, or revoked by the SEC. The SEC also has the authority to suspend an investment adviser’s registration for up to 12 months

Question 10

These actions may be taken if the investment adviser or any person associated with the adviser Willfully made or caused any required report or application filed with the Commission to be

Answer 10

false or misleading with regard to any material fact, or omitted any material fact Has been convicted within the previous

Question 11

These actions may be taken if the investment adviser or any person associated with the adviser Has been convicted within the previous

Answer 11

10 years of a misdemeanor involving securities, misappropriation of funds, or any felony

Question 12

These actions may be taken if the investment adviser or any person associated with the adviser Is permanently or temporarily prohibited by

Answer 12

court order from acting as an investment adviser, underwriter, broker, dealer, or as an affiliated person of an investment company, bank, or insurance company

Question 13

These actions may be taken if the investment adviser or any person associated with the adviser Has willfully violated or is unable to

Answer 13

comply with any provision of federal securities law

Question 14

These actions may be taken if the investment adviser or any person associated with the adviser Has willfully aided another person’s

Answer 14

violation of federal securities law or has failed to reasonably supervise a person who commits a violation

Question 15

These actions may be taken if the investment adviser or any person associated with the adviser ls subject to an order of the

Answer 15

Commission barring or suspending the person from being associated with an investment adviser

Question 16

also must maintain other records, including A record of all discretionary accounts and

Answer 16

all powers of attorney from clients granting such authorization

Question 17

also must maintain other records, including All written agreements between

Answer 17

the investment adviser and clients

Question 18

also must maintain other records, including A record of every securities transaction in a

Answer 18

client’s account (excluding direct obligations of the U.S. government). This must be donewithin 10 days of the end of the quarter in which the transaction took place

Question 19

also must maintain other records, including A memorandum (order ticket) of

Answer 19

each order to purchase or sell a security

Question 20

also must maintain other records, including A copy of each notice, circular, advertisement, or other communication that is circulated to

Answer 20

10 or more persons. If the communication recommends the purchase or sale of a specific security but does not state the reason for the recommendation, a memorandum must be prepared indicating the reason.