Chapter 7 Part 4

Question 1

investment supervisory services represent the

Answer 1

continuous advice related to the investment of funds and given on the basis of individual client needs

Question 2

the initials RIA (Registered Investment Adviser) and iAR (Investment Adviser Representative) may

Answer 2

not be used in client communications

Question 3

The use of the term financial planner by someone who is engaged solely in selling products may be

Answer 3

a deceptive practice under tbe USA

Question 4

The SEC does not specify a system for allocating trades, but it does state that advisers must

Answer 4

“treat all
clients fairly and equitably. Favoring one client or group of clients over others is prohibited. The adviser should adopt a set program or formula for allocating trades among different clients on a nondiscriminatory basis”

Question 5

Another concern of the SEC is an adviser’s practice of bunching orders. Many advisers bunch

Answer 5

(aggregate) orders to obtain volume discounts on execution costs. The shares received as a result of these bunched orders must also be allocated fairly

Question 6

If clients impose limitations on how advisers may execute securities trades on their behalf, such as by directing the firm to use a specific broker dealcr to execute their securities transactions, the adviser has an obligation to

Answer 6

disclose fully the effects of these limitations to the client

Question 7

An agency cross trade occurs when an invcst1nent adviser

Answer 7

acts as a broker for its client and for another person on the other side of the transaction. rules governing agency cross trades are the same for state and federal regulators

Question 8

Agency cross transactions are not permitted if the investment adviser recommends the transaction to

Answer 8

both the buyer and the seller-one side of the trade must be unsolicited

Question 9

For cross trades to be effected, the following conditions must be met The advisory client must provide

Answer 9

written consent authorizing the investment adviser to effect agency cross transactions. Before obtaining written consent, the investment adviser must provide a written disclosure that there may be a potential connict of interest

Question 10

For cross trades to be effected, the following conditions must be met The investment adviser must send the client a

Answer 10

Written confirmation, no later than the completion of the transaction, that includes: The nature of the transaction; The date the transaction occurred; An offer to provide, on request, the time when the transaction took place; the source and amount of any other compensation received by the investment adviser in connection with the transaction

Question 11

For cross trades to be effected, the following conditions must be met The investment adviser must send to each client, at least annually, a

Answer 11

written disclosure identifying: The total number of agency cross trades effected during the period; The total amount of commissions received by the investment adviser during the period

Question 12

For cross trades to be effected, the following conditions must be met Each written disclosure and confirmation must include a

Answer 12

conspicuous statement that the client’s written consent allowing agency cross transactions may be revoked at any time by giving written notice to the investment adviser

Question 13

Principal and cross trades are a standard patt of business for

Answer 13

a broker-dealer and, therefore, the same disclosure rules do not apply. Clients will be aware of the capacity in which the broker-dealer executed the trade because all client confirmations are required to indicate this information

Question 14

When an investment adviser buys or sells securities for its own account at its own risk, it has effected

Answer 14

a principal trade

Question 15

ln order to effect a principal trade, an investment adviser must Receive a

Answer 15

written, revocable consent from a client authorizing the adviser to act as principal for its own account after a written disclosure is provided to the client explaining: The circumstances under which the adviser may engage in principal trades, and The significance of conflicts with its clients as a result of the trades

Question 16

ln order to effect a principal trade, an investment adviser must Prior to the execution of each principal trade

Answer 16

Inform the client, orally or in writing, of the capacity in which it may act with respect to this trade, and Obtain consent from the client, orally or in writing, lo act as principal for its own account

Question 17

ln order to effect a principal trade, an investment adviser must Send to each client, at least annually, a

Answer 17

written disclosure identifying the total number of principal trades executed during the period, including the date and price of the transactions

Question 18

ln order to effect a principal trade, an investment adviser must Provide written disclosure and confirmation, which includes a

Answer 18

conspicuous statement that the client’s written consent allowing principal trades may be revoked at any time by giving written notice to the investment adviser