Communications with Clients and Prospects

Question 1

Material Facts

Answer 1

A material fact is any piece of information that a potential investor relies upon when deciding whether or not to invest.

Any information, whether directly related to the security or not, that the investor considers as part of the investment decision is a material fact.

Historical, or Projected performance is considered Material Fact

Question 2

Material Facts - define

Answer 2

Material facts include all information that may influence a client’s investment decisions. This includes information that may impact the client’s decision to purchase or sell a security as well as information that may impact the volume of a particular security the client may choose to buy or sell.

An historical fact is a material fact if it is likely to influence the decision

Question 3

Fraud - misleading information

Answer 3

It is fraudulent for any securities professional to provide dishonest or misleading information regarding their knowledge, expertise, experience, or training to their clients.

Question 4

Commitment to Agreement of Provision of Services

Answer 4

The Uniform Securities Act prohibits a broker-dealer or agent from committing to providing a service to a customer without in fact providing it. In addition, the Uniform Securities Act prohibits a broker-dealer or agent from agreeing to perform services for its clients that it is not qualified to perform.

Question 4

Adviser Relationship to Client - Documentation

Answer 4

The Uniform Securities Act requires that the relationship between an investment adviser and its clients be memorialized in a contract unless the Administrator has specifically waived this requirement.

1. Must outline specific fee structure
2. Prohibit adviser from transferring the account to another party
3. the investor adviser must disclose at least 49 hours prior to finalizing the contract any relevant legal activities occurring in the last ten years in which it has been involved.

Question 5

Investment Recommendations

Answer 5

Must ask customers…

Current Finances
Investment Goals
Investment Stability

USA prohibits advisers from recommending securities inconsistent with the client’s objectives

Question 6

Informing Clients of Investor Advisers Benefit

Answer 6

Investment advisers are required to inform their clients if they are recommending that the clients take any action that is likely to benefit the investment adviser.

Question 7

Disclosure of Third Party Analysis

Answer 7

Investment advisers are required to inform clients any time they rely on reports prepared by third parties. This means that an investment adviser cannot take credit for analysis performed by someone else and must reveal the source of any analysis performed by others, and upon which the investment adviser relies, to the client.

The exception to this prohibition is when the investment relies upon documentation prepared by a third party that is merely statistical.

Question 8

Communications

Answer 8

All communications must include any relevant information necessary to ensure that the communication is not misleading.

Question 9

Market Price

Answer 9

A market price only exists if the average going price for the security is out of the broker-dealer’s control.

Question 10

Responsiveness to Clients

Answer 10

Reasonable period of time to provide requested information the client is due.

Must respond to any written complaints

Question 11

Investment Advisers Qualifications

Answer 11

Investment advisers may not withhold material information regarding qualifications, services, or fees from its clients or potential clients.

Question 13

Negotiation of Advisory Contracts

Answer 13

Investment advisers are prohibited from entering into a contract with a client in which the client agrees to excuse the investment adviser from complying with one or more of its obligations. USA or Investment Advisers Act of 1940