Chapter 9 M/C Flashcards
A financial adviser whose activities are included under any one of the three tests in SEC release IA-770 is automatically subject to regulation under the Investment Advisers Act of 1940
False. In order to be subject to the Investment Advisers Act of 1940, a person’s activities must fulfill all three of the tests. Moreover, there are several exceptions contained in the act, so it is not automatic that a financial services professional will be subject to it even if his or her activities fulfill all three of these tests.
Because of the broad definition of the term security in the Investment Advisers Act of 1940, most financial advisers at times become involved in providing advice about securities.
True
The compensation test will be met only if the financial adviser charges a fee for providing investment advice.
False. A financial services professional who charges a fee or who receives some other type of compensation, such as a commission from the sale of a security, will meet the compensation test.
Certain persons who receive no compensation for their services may still be considered investment advisers under the Investment Advisers Act of 1940.
Answer
False. The compensation element is one of the three criteria that must be met to subject a person to the registration requirements of the act. The other two criteria are the provision of investment advice and/or analyses of securities and the business standard
Attorneys and accountants are exempt from registration as investment advisers under the Investment Advisers Act of 1940
False. Attorneys and accountants are exempt only if investment advising is solely incidental to the practice of their profession. If not, and if they meet the other tests, they are subject to the act
All investment advisers with assets under management below $100 million must register with state securities regulators rather than the SEC.
False. In addition to advisers in states without investment adviser registration, there are four other categories of advisers who must register with the SEC rather than with state regulators even if they have less than $100 million in assets under management
State-regulated investment advisers are subject to federal regulation relating to fraudulent practices.
True
The national de minimis standard specifies that advisers with assets under management below $100 million can elect to register with state authorities rather than the SEC.
False. The national de minimis standard relates to a level of business activity deemed low enough to exempt an adviser from state registration.
One of the SEC requirements that must be met by a registered investment adviser is to maintain a record of all written communications between the adviser and his or her clients.
True
A registered investment adviser is permitted, in some cases, to charge clients a performance fee.
True
A registered investment adviser may unilaterally assign his or her client responsibilities to another registered investment adviser.
False. An RIA is prohibited from assigning his or her responsibilities to clients to another RIA unless the clients expressly consent to the assignment
A registered investment adviser may not use the initials RIA or the label Registered Investment Adviser after his or her name on a business card or letterhead.
False. Though the use of the initials RIA is prohibited, the SEC does allow the use of the complete phrase Registered Investment Adviser after the practitioner’s name.
The brochure rule requires every registered investment adviser to deliver to each client or prospective client either a copy of Part II of the Form ADV or a narrative brochure containing all of the same information.
True
The antifraud provisions of the Investment Advisers Act of 1940 apply only to investment advisers who must be registered with the SEC
False. The antifraud provisions of the Investment Advisers Act apply to all investment advisers irrespective of whether they are required to be registered with the SEC
In many states, the requirements and procedures for registering as an investment adviser are even more stringent than those at the federal level.
True
