Chapter5: Handling Client Funds

Question 0

Requirements of IA custody over client accounts

Answer 0

Keep each clients securities segregated and in safe keeping, do not commingle client funds with IA’s funds, keep accounts named as trustee or agent, keep records for each withdrawal, notify clients in writing of any changes to clients account, send quarterly itemized statements, arrange unannounced visit from independent public accountant who files with SEC

Question 1

Custody of funds

Answer 1

If IA has the ability to withdraw funds from a clients account

Question 2

Uniform securities act Custody

Answer 2

Same as SEC but accountant files with state administrator

Question 3

Discretionary Powers

Answer 3

IA must obtain proper discretionary power from client; only oral discretionary orders are permitted in the 10 days following the first transaction in a client account; written authority required; iA may use discretion over time and price of execution of a trade.

Question 4

Prudent person rule

Answer 4

Places more emphasis on income preservation than on income and growth, and looks at each investment to see if it was suitable; in 1994 act was created, updated to take into account portfolio theory into account; fiduciary investors can take advantage of diversification and risk-reward trade offs and manage portfolio as a whole.