Chapter 6 Part 4

Question 1

also must maintain other records, including A record of all personal

Answer 1

securities transactions of the investment adviser or any investment adviser representative. The record must show the name and quantity of the security, the price, the date of the transaction, whether the security was purchased or sold, and the name of the bank or broker-dealer through which the transaction was effected

Question 2

also must maintain other records, including Under the Brochure Rule, a copy of

Answer 2

each written disclosure statement and amendment sent to clients, along with written acknowledgments of receipt from clients

Question 3

also must maintain other records, including All documents needed to demonstrate the calculation of the

Answer 3

performance or rate of return for managed accounts or securities recommendations

Question 4

also must maintain other records, including A copy of the Investment Adviser Codes of Ethics as well as records of any violations of

Answer 4

these codes and how the violations were resolved

Question 5

If an investment adviser has custody or possession of securities or funds of clients, the adviser must prepare and maintain the following additional records

Answer 5

A journal showing all purchases, sales, receipts, and deliveries of securities, and all other debits and credits for the accounts; A separate ledger for each client showing all purchases, sales, receipts, and deliveries of securities, the date and price of each transaction, and all debits and credits; Copies of confirmations sent to clients; A record for each security in which a client has a position showing the name of the client, the amount of the client’s interest, and the location of the security

Question 6

Look out for the

Answer 6

journal, blotter, and ledger. These are documents that must be maintained and produced on demand for the regulators

Question 7

an investment adviser that provides investment, supervisory, or management services to a client must prepare and maintain

Answer 7

records for each client indicating the securities purchased and sold, and the date, quantity, and price of each transaction AND Records of each security in which clients have a position and the amount of each client’s interest

Question 8

Both investment advisers and broker-dealers must keep

Answer 8

trade blotters-daily records of all purchases and sales of securities. The trade blotter should contain all the relevant information about a transaction, including the name and amount of the securities, the unit value and total value of the transaction, the trade date, the account for which the trade was executed, and the person (or entity) from which the securities were bought or to whom the securities were sold

Question 9

Lifetime Records

Answer 9

Partnership agreements, articles of incorporation, charters, minute books, and stock certificate books are lifetime records. These records must be maintained for at least three years after the business is closed. An investment adviser no longer in business must arrange for its books and records to be preserved for the requisite time and will need to provide the SEC with written notification of the address where the records will be maintained.

Question 10

Records may be stored on microfilm, microfiche, or similar media. The records may also be stored electronically, provided the storage system meets the following requirements

Answer 10

There must be reasonable safeguards to make sure the records are not destroyed or altered. For example, records stored on a CD-ROM should be tamper-evident so that any attempt to alter them would be readily apparent. Access should be limited to authorized personnel, SEC staff, and examiners. Any reproduction of the original records obtained from an electronic storage system must be accurate and legible. The records must be arranged and indexed in a way that provides for easy retrieval

Question 11

an investment adviser has custody of client funds and securities when it

Answer 11

possesses these assets or has the ability to appropriate them

Question 12

The Advisers Act requires investment advisers with custody to Deposit each client’s funds in a

Answer 12

“separate account with a qualified custodian. The accounts
must be maintained either in the client’s name or in the name of the adviser as agent or trustee. Records must be kept for each account showing where it is maintained, all deposits and withdrawals, and the amount of each client’s ownership in the account”

Question 13

The Advisers Act requires investment advisers with custody to Notify each client, in

Answer 13

writing, of the place and manner in which the funds and securities will be maintained. Clients must also be notified of subsequent changes.

Question 14

The Advisers Act requires investment advisers with custody to Send to each client, at least quarterly,

Answer 14

an itemized statement of all the funds, securities, and transactions effected in the account.

Question 15

The Advisers Act requires investment advisers with custody to Arrange an unannonnced

Answer 15

“annual examination by an independent public accountant to verify
the amount of funds and securities. The accountant must file Form ADV-E with the SEC within 120 days following the examination. If required, the accountant must also file this form with the state regulators”

Question 16

An adviser who receives client’s assets by mistake may legally avoid having custody by

Answer 16

returning the assets to the customer within three business days

Question 17

All advisers must disclose to clients any

Answer 17

matcrial legal or disciplinary actions that have occurred within the preceding 10 years. Remember, any legal or disciplinary event that reflects negatively on an adviser’s integrity would need to be disclosed

Question 18

an exception to the disclosure requirement is available for

Answer 18

SrO proceedings resulting in a fine of $2,500 or less. For example, if a firm is fined $1,000 by FINrA for a record-keeping violation, no disclosure is necessary

Question 19

If the financial condition of the investment adviser may impair its ability to meet its commitments to clients, the IA must make appropriate disclosure to its clients. The disclosures are specifically required when an investment adviser

Answer 19

has discretionary authority over client accounts; Has custody of client funds or securities; requires prepayment of fees of more than $1,200, sLx months or more in advance. Failure to make the required disclosures is considered fraudulent.

Question 20

A solicitor is any person who

Answer 20

directly or indirectly, solicits any client for, or refers any client to, an investment adviser