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Series 63 > Chapters 3/4 > Flashcards

Chapters 3/4 Flashcards

1
Q

Info included in the initial application filed w/ a state

A

-Applicant’s name, address for the last five years, and financial condition, and employment history for the last 10 years
- Type of business to be conducted
- Other business activities
- Criminal history
- Settlements of $15M or more
- Whether a bonding company has every dealt w/ the person
- Qualifications and business history of any partner, officer, director, or other person in a controlling position

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2
Q

Window for material information to be amended

A

Generally 30 days.

Keep in mind, that BDs, agents, IAs, and IARS’ registrations expire on December 31. This means to renew the registrations that must be done at least 30 days in advance- December 1.

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3
Q

True or false: An Administrator may require a person attempting to obtain registration to publish an announcement of the application in a newspaper?

A

True

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4
Q

Consent to Service of Process

A

A document that appoints the Administrator as a registered person’s attorney for the service of legal papers. This form gives the Administrator power of attorney to receive and process non-criminal legal complaints. Only required to be filed during the initial registration.

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5
Q

Substituted Consent to Service of Process

A

The benefit of a Substituted Consent to Service of Process
arises when a seller in one state directs an offer into a second state either in violation of the laws of the
second state or fraudulently. Under a Substituted Consent, the purchaser may sue the seller in the
purchaser’s state and then bring an action on the judgment in the seller’s state.

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6
Q

True or false: If an application for registration is withdrawn or denied, the Administrator must give the filing fee back?

A

False, not necessarily.

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7
Q

What happens to a filing fee if two registered firms merge or one is acquired?

A

The renewing filing fee will be paid by only one of the firms.

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8
Q

True or false: An Administrator can require applicants to take an exam?

A

True

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9
Q

Surety bond

A

A promise by one party to take responsibility for another party’s debts if the borrower defaults. In the case of Series 63, a surety bond may be used if a registrant violates the USA. The bond must be maintained for as long as the registrant is in business and for three years thereafter. The bonding requirement IS NOT required if the BD’s net capital or IA’s net worth exceeds the minimum set by the Administrator. Also, BDs can post cash or securities instead of buying bonds.

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10
Q

Effective date

A

A person’s registration becomes effective at noon on the 30th day after the filing of the application. As stated earlier, Administrator’s can push this number of days up or back. Under USA, all registrations expire on December 31.

Ex: If firm A completes all of the requirements for registration and filed its application w/ the Administrator on May 1, when will it become effective?

A: May 1 + 30 = May 31

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11
Q

Forms and systems used for registration of BDs, agents, IAs, and IARs:

A

BDs:
Form: Form BD
System: Central Registration Depository (CRD)
Agents:
Form: Form U4
System: CRD
IAs:
Form: Form ADV
System: Investment Adviser Registration Depository (IARD)
IARs:
Form: Form U4
System: IARD through the CRD

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12
Q

Central Registration Depository (CRD)

A

A computerized database that contains info about BDs and their agents. Info includes which states a person is registered, any disciplinary problems or complaints.

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13
Q

Investment Adviser Registration Depository (IARD)

A

An electronic filing system that facilitates IA registration, regulatory review, and public disclosure of info.

  • Although FINRA doesn’t control IAs, they developed and operate the IARD
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14
Q

State registration of BDs requirements

A
  • Net capital
  • Advertising and Sales Literature
    -Sales seminars
    • Correspondence
  • Maintenance requirements
  • Order Memorandums
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15
Q

Net capital requirements for BDs

A

Administrators may require BDs to maintain a minimum amount of net capital provided that it does not exceed the SEC’s requirement. BDs w/ higher trading frequency often have higher net capital requirements.

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16
Q

What is required when a BD falls below the net capital requirement?

A

They must report the deficiency within one business day and also obtain a surety bond to make up for the deficiency.

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17
Q

Advertising and literature requirements for BDs

A

Any advertisement or piece of writing that deals w/ registered securities and is delivered to current or potential clients must be filed w/ the Administrator. Any form of advertisement must be fair and balanced. Advertisements CANNOT predict or project investment performance, guarantee a loss, imply that past performance will represent future results, or exaggerate forecasts.

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18
Q

True or false: A firm’s website is not considered advertisement?

A

False

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19
Q

Disclosure that NASAA requires to be made for any electronic documents:

A

“Clarity of text in this document may be affected by the size of the screen on which it is displayed.”

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20
Q

Sales seminars requirements for BDs

A

A principal of the firm must pre-approve all guest speakers and written materials in a seminar. If an agent regularly conducts seminars, the principal should occasionally attend.

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21
Q

Correspondence requirements for BDs

A

There must be a recordkeeping process for any form of business correspondence- especially for complaints.
- All records are subject to examination by the Administrator at any time, both inside and outside of the state

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22
Q

How long must advertising, correspondence, confirmations, and trade tickets be kept by a firm?

A

3 years. For the first two years they must be kept in an easily observable location.

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23
Q

Order memorandums/Order tickets

A

Records of transactions in a BDs customers’ accounts. These must include:
- Account #, date of entry, date of execution
- Time and price of execution
- Instructions, modifications, or cancelation
- Terms and conditions
- The person who recommended the order (if it was solicited)
- Whether the order was executed on a discretionary basis
- The BD or bank that executed the order

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24
Q

Trade confirmations

A

Confirmations sent to a customer after a trade is executed. These MUST be sent by the settlement date (when the order is completed).
- Records for both trade tickets and confirmations can be stored electronically.

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25
Q

Examples of entities that are not BDs

A
  • Agents
  • Issuers
  • Financial institutions
  • A person that has no place of business in the state AND only transacts business w/ issuers, BDs, financial institutions, or institutional clients.
  • A person that has no place of business AND is registered where the person has their place of business AND only conducts business w/ existing retail clients who are not residents of the state
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26
Q

True or false: Agents can be affiliated w/ more than one firm?

A

True, but only if the Administrator’s authorization is received. Also, if the person is splitting commissions w/ another person(s), the other person(s) must also be registered.

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27
Q

Functions unregistered personnel w/ a BD can perform:

A
  • Extending invitations to events that will be conducted by registered personnel
  • Inquiring whether a prospective customer wishes to discuss investments w/ a registered person
  • Inquiring whether someone wants to receive investment literature from the firm
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28
Q

Agent exemptions from state registration

A
  1. An agent’s application for registration is pending, they can engage in transactions for up to 60 days
  2. A person can engage in securities transactions w/ an existing client who is temporarily visiting a state where the agent is not registered.
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29
Q

WSP

A

A day-to-day guide to stay within regs. Every broker-deal must ensure they’re updated periodically and enforced. A BD must perform an internal audit on offices of supervisory jurisidction at least once a year and all other branch-offices at least once every three years.

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30
Q

Material changes the force someone to update their U4

A
  • New registration in a different state
  • Changing legal name
  • Change in residential or business address
  • Violation of federal, state, or SRO laws/rules
  • Becoming the subject of a regulatory proceeding
  • Being involved in any legal proceedings
  • Being the subject of a consumer complaint
  • Being terminated
  • Declaring bankruptcy
  • Engaging in outside business activities
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31
Q

Rules for Canadian BDs

A

If BDs are Canadian and fully registered in Canada, they are exempt from some provisions of USA. First, if they contact an existing client who is on vacation in America, that’s permitted. Second, these BDs are permitted to effect transactions w/ or for an existing client who’s located in a state if the trades are effected in a Canadian, self-directed, tax-advantaged retirement account for which the person is a holder or contributor. These BDs CANNOT solicit new clients in a state & MUST be a member of an SRO or Canadian stock exchange. The Canadian BD must also notify the state administrator that they are doing business in their state.

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32
Q

What is the recordkeeping length for blotters, GLs, and customer statements?

A

Six years

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33
Q

What is the recordkeeping length for Articles of Incorporation, Partnership Agreements, Stock Certificate Books, and Minutes from Board Meetings?

A

Lifetime

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34
Q

Once a BD and its agents become properly registered they can begin opening these types of accounts:

A
  • New customer accounts
  • Individual accounts
  • Joint accounts
    -Transfer on Death (TOD) accounts
  • Margin accounts
  • Options accounts
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35
Q

What must firms collect from customers opening new customer accounts

A
  • Name
    -Address
    -Telephone #
    -Tax ID
  • DOB
    -Occupation
  • Whether the customer is an associated person of a BD
  • Financial info
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36
Q

True or false: The BD must always collect a customer’s financial info and occupation and can make a good faith effort for their name, address, telephone #, tax ID, and DOB?

A

False, BDs must always obtain at least the customer’s name, address, tax ID, and DOB. The BD must make a good faith effort to obtain the rest of the info. BDs MUST KEEP THIS INFO FOR MIN OF 6 YEARS.

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37
Q

Client relationship summary (Form CRS)

A

Provides retail investors w/ info about the nature of their relationship w/ a BD or IA. CRS must be <= 2 pages.
- New retail investors must receive a copy of Form CRS by no later than the time they open a brokerage account, place an order, or receive a new recommendation for an account type, securities
transaction, or investment strategy.
- CRS should be filed w/ the CRD or IARD

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38
Q

Individual accounts

A

An account opened by and for one person. Only the person that opened the account may trade in the account unless written approval of a third party.

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39
Q

Two types of accounts that can be opened for minors

A

Uniform Transfers to Minors Act (UTMA) and UGMA

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40
Q

Joint accounts

A

Established when two or more persons have ownership rights to an account. Info must be collected from all persons during account opening. Once the account is opened, any owner may buy or sell assets w/o the consent of the co-owners.
- Two types of joint accounts are Joint Tenants w/ Right of Survivorship (JTWROS) and Joint Tenants in Common (JTC)

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41
Q

Transfer on Death (TOD)

A

If an account owner dies, the account passes to the designated beneficiary(s). The only document required to transfer the assets to the beneficiary is the death certificate.

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42
Q

Margin accounts

A

Recall, cash accounts require clients to pay for all security trades in full, whereas w/ a margin account a client may only pay a portion of the purchase price.

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43
Q

Reg T

A

This governs margin accounts. Reg T states customers who buy securities on margin must deposit 50% of the initial purchase price (a BD may have stricter rules).

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44
Q

What are the 3 documents that are signed to open a margins account

A
  • Credit agreement: Customer acknowledges that they will repay loan. This doc states the terms. THIS DOCUMENT IS REQUIRED.
  • Hypothecation agreement: This doc states that the customer pledges the securities to the brokerage firm and gives the firm the right the repledge the securities to secure a loan. THIS DOCUMENT IS REQUIRED.
  • Loan consent agreement: Givens the brokerage the right to lend the customer’s securities. BDs lend to clients who are seeking shorts. THIS DOCUMENT IS OPTIONAL.
45
Q

True or false: NASAA mandates that margin account docs be signed after the first transaction?

A

True

46
Q

Option Accounts

A

Since options are considered risky, a Registered Options Principal (ROP) must approve all options customers. Every BD should have WSP for options trading. An options account agreement should be created, if a customer refuses to sign it, this should be noted. The customer should sign and return the doc within 15 days of their account being approved.

47
Q

True or false: A supervisor must approve every options order ticket?

A

False.

48
Q

SIPC

A

An industry-funded, non-profit (not apart of the government) insurance entity that provides insurance coverage for the customers of brokerage firms in the event that the firms become insolvent; however, it doesn’t protect the customers against market losses or employee misconduct. SIPC covers securities that are registered in street name. Maximum insurance for customers (retail and institutional) is $500k, which no more than $250k may be for cash holdings.

49
Q

What does SIPC not apply to

A
  • Securities not in street name
  • Commodities accounts
  • Other BDs that have securities in the possession of a failed BD
  • Personal accounts of senior officers of the firm
50
Q

SIPC procedures

A

If a broker-dealer declares bankruptcy, a trustee is appointed by a federal court. The trustee is required to notify the broker-dealer’s customers of the firm’s insolvency and handle the liquidation. Securities that are in the possession of the failed broker-dealer will be distributed to customers. If there are insufficient securities in the possession of the failed broker-dealer, the securities on hand will be distributed to the claimants on a proportionate basis. Customers who have claims that exceed the maximum dollar limits of SIPC coverage will rank with other general creditors for the balance of their claims.

51
Q

True or false: Once an agent leaves a BD, their registration becomes inactive immediately?

A

True

52
Q

True or false: If a BD’s client moves to a new state, the firm must register in the new state before the client moves?

A

True, AGENTS DONT HAVE TO REGISTER W/ A BROKER-DEALER BEFORE A CLIENT MOVES TO A NEW STATE BUT A CLIENT DOES

53
Q

Form ADV Part 1

A

This form MUST be completed by all IAs that are registering w/ SEC or any state. Info about an adviser’s name, # of employees, business, ownership, clients, employees, business practices, affiliations, and any disciplinary events of the adviser or its employees.

This form should also list:
- How the IA will maintain custody of client assets
-Name, address, education, and 10 year business history of all partners, officers, or directors
- The # of discretionary or non-discretionary accounts
- Whether the IA’s business will consist of investment supervisory services

54
Q

Investment supervisory services

A

The giving of continuous advice regarding the
investment of funds on the basis of the specific needs of each client.

55
Q

Form ADV Part 1(B)

A

Must be completed by all advisers registering w/ a state securities authority. This form provides additional details required by state securities authorities and contains additional disclosure
reporting pages (DRPs), including those related to criminal, regulatory, or civil judicial issues

56
Q

Form ADV Part 2

A

This form must be filed w/ either the state or the SEC. Part 2 consists of a series of items that contain disclosure requirements for an investment adviser’s brochure as well as other required supplements.

57
Q

Form ADV Part 2A

A

Requires firms to provide clients w/ disclosure documents that disclose their overall business as well as actual or potential conflicts of interest. Firms w/ different types of clients may have different brochures. The brochure must include:
- The adviser’s name, website, and the date of the brochure.
- A statement that registration doesn’t imply a certain skill level
- A description of the advisory firm
- Fees and compensation
- Any disciplinary actions
- The adviser’s code of ethics
- Soft-dollar arrangements
- Whether the firm has been subject to bankruptcy in the last 10 years
- Financial info

58
Q

When must an IA deliver the brochure

A

A state-registered IA must deliver the brochure by 48 hours of entering into a contract w/ a client OR if the client can terminate the contract w/o penalty the brochure can be delivered within five business days.

A federally covered advisor must deliver the brochure either before or at the time it enters the contract.

59
Q

True or false: Federally covered advisors must provide brochures to registered investment companies?

A

False

60
Q

True or false: True or false: IAs (both state and federal) must provide a brochure to clients whose contracts are only for impersonal advisory services where they pay < $500 per year.

A

False

61
Q

Impersonal advisory services

A

Providing financial advice that’s not tailored to a client’s specific
objectives or doesn’t consist of statistical info w/ opinions as to the investment merits of specific securities.

62
Q

True or false: Annually, an adviser must provide their clients w/ an updated brochure a maximum of 120 days after the IAs fiscal YE?

A

True

63
Q

Form ADV Part 2B

A

The same clients who receive a brochure must also receive a brochure supplement. The brochure is like a resume. The brochure supplement must disclose whether any of these people have other business activities or receive fees or compensation for selling financial products.
- If the material covered in the supplement covers the material in the brochure, there is no need for a separate document.

64
Q

True or false: If an IA verbally diminishes the importance of a brochure or alters its content, that’s prohibited and considered misleading?

A

True

65
Q

How often must IAs renew their registration w/ the SEC or Administrators?

A

IAs registered w/ SEC: within 90 days of their fiscal YE

IAs registered w/ state: within 90 days of calendar YE

66
Q

IAs ineligible for federal registration

A

IAs that have > $100MM AUM

67
Q

Limited discretion vs full discretion

A

Limited discretion: Allows an adviser to enter orders to buy/sell but CANNOT remove money/securities from an account.

Full discretion: Givens an adviser the authority to enter into buy/sell orders, remove money/securities from an account, and also write checks.

68
Q

Oral discretion

A

For full discretion, written authority must be granted. However, for limited discretion, authorization can be provided orally. 10 business days after receiving oral discretion, the IA must receive written authorization or else the oral discretion will become void.

69
Q

True or false: Oral discretion applies to BDs?

A

False, oral discretion only applies to IAs. BDs MUST receive written authorization.

70
Q

Custody

A

Having legal responsibility of another person’s assets. An adviser has custody when it’s in possession of a client’s funds/securities, full discretion, and/or inadvertently received possession of funds/securities and hasn’t returned them within 3 business days.

71
Q

True or false: The Administrator has the authority to decide whether an IA can hold custody of a client’s securities?

A

True. IAs must notify the Administrator when or before they take possession of a client’s securities.

72
Q

Steps IAs must take once they take possession of a client’s securities

A
  1. Provide immediate written notification to the Administrator using form ADV
  2. Use a qualified custodian to hold the funds and securities in a separate account
  3. Provide written notification to all client’s that are involved
  4. Send quarterly account statements to all clients involved
    • If the account statements are sent by a qualified custodian, the IA must verify they were sent.
    • If the account statements are sent directly by the IA, an independent must perform an audit at YE.
73
Q

NASAA minimum financial requirements

A

If the IA has custody of client assets: min fin requirement (net worth) = $35,000

If adviser has limited discretionary authority over client accounts (but not custody): min fin requirement = $10,000

If IA has prepaid fees > $500, six months or more in advance: min fin requirement = positive net worth at all times

  • Each state can set their own min fin requirements provided they are stricter than NASAA’s
74
Q

True or false: If IAs are in compliance w/ min fin requirements, the Administrator may waive the surety bond obligation?

A

True

75
Q

True or false: If an IA is headquartered in State A but opens a branch in State B, they must adhere to min fin requirements of State B?

A

False

76
Q

Business Continuity Plan (BCP)

A

Essentially a disaster plan that’s required for IAs and BDs. Must be a written plan. Plan must be reviewed and approved annually. At a minimum, a BCP should cover:
- Data backup and recovery
- Financial and operational assessments
- Alternative communications between firms and customers
- Alternative communications between firms and employees
- Alternative physical location of employees
- Communication w/ regulators

77
Q

Additional material IAs disclose to their clients?

A
  • Any material legal or disciplinary actions that have occurred within the last 10 years
  • ## A financial condition that affects the IAs ability to meet client commitments
78
Q

State-registered IA recordkeeping requirements

A

All state-registered IAs must keep records for 5 years unless otherwise directed by an Administrator. For the first two years, they must be stored in an easily accessible location.

79
Q

Examples of persons who are not IAs

A
  • IARs
  • Financial institutions
  • Professionals whose investment advice is incidental to the practice of their profession (memorize LATE): lawyers, accountants, teachers, and engineers.
  • BDs
  • Publishers (usually referring to newspapers or finance journals)
  • Federally covered advisors
  • All other person(s) designated by the Administrator.
80
Q

Definition of Investment Advisor (IA)

A

A person that gives securities-related advice as a regular part of business and receives compensation for this service.
- The individuals who work for the IA are considered IARs. IARs work
for IAs; they’re not the firm.

81
Q

True or false: BDs that offer wrap accounts must register as IAs and treat clients as advisory clients?

A

True

82
Q

Wrap accounts

A

Charges clients a single fee for investment advice, execution of transactions, asset allocation, and administrative services.

83
Q

2 situations where a federally covered adviser is required to perform notice filing

A
  1. When a federally covered adviser has a place of business in a state
  2. When a federally covered adviser has no place of business in the state, but has six or more non-institutional clients that reside in the state
84
Q

2 situations where an IA is exempt from state registration

A
  1. When the IA has no place of business in the state and the IA’s clients are solely institutional investors (generally assets of >= $1MM)
  2. When the IA has no place of business in the state and the IA doesn’t directly communicate w/ more than 5 non-institutional clients in the state for 12 consecutive months. (a.k.a de minimis exemptions) THIS ONLY APPLIES TO IAs.
85
Q

True or false: IARs are regulated at the federal level?

A

False, Investment adviser representatives are not regulated by the SEC at the federal level; instead, they’re regulated by Administrators at the state level.

86
Q

Steps an IAR must take to become registered

A
  • File an application
  • File a Consent to Service of Process
  • Pay a filing fee
  • File a U4 (often done by the firm)
87
Q

Scenarios where an IAR is exempt from registration

A
  • Have no place of business in the state
  • Don’t direct solicitations to more than 5 non-institutional clients who are residents of the state within 12 consecutive months (a.k.a de minimis exemptions)
88
Q

Soliciter/promoter

A

A person who receives either cash (fee) or non-cash (reduction in commission charges) for referring clients to an IA, but is not directly affiliated w/ the IA. Accountants are common examples of solicitors. According to Inveestment Adivsor Act, solicitors are not required to register as IAs, however, according to USA, most states require solicitors to register as either IAs or IARs. Solicitors must disclose to investors if they’re pay more than $1M in a 12-month period as well as any material conflicts of interest.

89
Q

Steps an IA must take to become registered

A
  • File ADV forms through IARD
  • File Consent to Service of Process
  • Pay registration fee
  • Meet min fin requirements and/or post surety bond
90
Q

Federally Covered Advisers (FCAs)

A

FCAs are only required to register w/ the SEC. FCAs include:
- IAs w/ $110MM or more in AUM
-IAs to registered investment companies (ex: mutual funds) (must register w/ SEC regardless of AUM)
- IAs that provide advisory services in 15 or more states
- IAs to business development companies
- IAs to private funds (a.k.a hedge funds) w/ assets >= $150MM
- Advisers that operate exclusively through an interactive website
- Pension consults that provide advice to employee benefit plans w/ assets of at least $200MM
- Newly formed advisers that reasonably believe that they will become eligible for federal registration within 120 days of formation.

91
Q

True or false: An IA w/ AUM of $100MM-$110MM must register w/ SEC?

A

False, they may register w/ SEC or state

92
Q

Registration requirements for IARs of FCAs

A

IARs of FCAs are only required to be registered by the state. An IAR must register in each state they have an office.

93
Q

When will the SEC suspend someone’s registration?

A

The SEC has the ability to suspend the IAs registration for up to 12 months if:
- IA created misleading or purposefully false materials
- Been convicted within the previous 10 years of a felony or misdemeanor involving securities
- Been permanently or temporarily prohibited by court order from acting as an IA, underwriter, broker, dealer, IB, or insurance company.
- Willfully violated or is unable t comply w/ any provision of federal securities law
- Willfully aided another person’s security violation or failed to supervise properly
- Been subject to an order of the Commission suspending the person from being associated w/ an IA

94
Q

Investment Advisory Contracts

A

State law requires that these contracts be in writing but federal law doesn’t require it.

95
Q

SEC rules for ALL investment advisory contracts

A
  1. There CANNOT be provisions that claims to waive compliance w/ the Advisers Act or any of its rules.
  2. IAs CANNOT assign it clients’ contracts w/o their consent
  3. Performance-based fees GENERALLY AREN’T permitted but on occasion its accepted for certain clients.
96
Q

Assignment

A

The direct or indirect transfer of an advisory contract by the adviser, or the transfer of a controlling block of the investment adviser’s outstanding voting securities by a security holder of the advisory firm. An IA must obtain the client’s consent for the contract to be transferred to another adviser. If an IA is set up as a partnership and a majority of the partners die or resign, client’s must consent for the contract to be transferred. The death/resignation of a minority of the partners requires the IA to notify clients within a reasonable period.

97
Q

Fulcrum fee

A

A fee that has a base fee and a performance fee that increases or decreases relative to the performance of a client’s portfolio as compared to a benchmark (ex: S&P). The benchmark index must be comprised of securities with similar risks and objectives as those in the client’s portfolio.

98
Q

Exceptions to the prohibition of advisory fees

A

These types of clients may be charged a performance-based fee:
- Registered investment companies
- Qualified clients that have >= $1.1MM under mgmt w/ the adviser of have more than $2.2MM net worth
- Clients who ARE NOT US residents
- Knowledgeable individuals associated with the investment adviser, such as an executive officer, director, trustee, general partner, or non-clerical employee who has participated in the investment activities of the adviser for at least 12 months

99
Q

True or false: State and federal laws regarding the prohibition of advisory fees are the same?

A

True

100
Q

Federal requirements of custody of client funds

A
  1. IAs are required to deposit funds of each client into a separate account w/ a qualified custodian
  2. Provide each client w/ written notification of the place and manner in which the funds and securities will be maintained
  3. Send each client a quarterly statement
  4. Arrange an unannounced annual examination by an independent CPA to verify the amount of funds and securities. The accountant must file Form-ADV-E w/ the SEC within 120 days of the exam. The accountant may also have to file this form w/ the state regulators.
101
Q

True or false: If an IA registers w/ SEC and the AUM falls below $90MM, it’s required to withdraw its federal registration and register at the state level

A

True

102
Q

True or false: FCA is exempt from filing fee?

A

False

103
Q

When are IAs and IARs required to file for state registration?

A

It has an office in a state OR more than 5 non-institutional clients in a state

104
Q

Under the Uniform Securities Act, which of the following persons automatically becomes registered as an investment adviser representative when the investment adviser’s registration becomes effective?

A

Only those officers, directors, and partners with management responsibilities

105
Q

True or false: Under the USA, it’s unlawful for any registered investment adviser to employ an investment advisor representative unless the IAR is also registered?

A

True

106
Q

Under Uniform Securities Act (USA), a person is defined as an investment adviser if it conducts a business of providing advice on all of the following securities, EXECPT:
A. Governmnet securities
B. FCSs
C. Mutual funds
D. Fixed annuities

A

D. A firm is considered an investment adviser if it meets the three-prong A-B-C definition (A = advice, B = business, C = compensation). However, an IA’s advice must pertain to securities. Of the answers provided, only fixed annuities are not defined as securities. A person that provides advice related fixed annuities doesn’t meet the definition of an investment adviser.

107
Q

An investment adviser must maintain a record of any communication including that which appears on its social media site for what period of time?
A. Five years from the date of the last entry
B. A minimum of 2 years
C. A maximum of 3 years
D. As long as the adviser is registered

A

A. Investment advisers are required to maintain books and records for at least five years from the date of the last entry. The first two years, records must be maintained in the principle office of the adviser, after which they may be stored in an easily accessible location for three years.

108
Q

An individual is an investment adviser representative of a state-registered investment adviser. Under the Uniform Securities Act, even if the IAR has no place of business in the state, registration is required if her clients include which of the following?
A. 8 accredited investors
B. An employee benefit plan
C. A mutual fund
D. Another IA

A

A. If an investment adviser’s clients are limited to investment companies (mutual funds), employee benefit plans, and other investment advisers, the adviser (and its IARs) is exempt from registration under the USA. However, accredited investors can include wealthy individual investors. To do business with more than five of these clients, registration is required.

Series 63 (7 decks)

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