Crunch Time : Chapter 5 Flashcards
What must federal covered investment advisers do within 90 days of their fiscal year-end?
File an updating amendment to Form ADV, including financial statements
This ensures compliance with federal regulations regarding registration renewal.
Who may investment advisers charge performance-based fees?
Qualified clients with at least $1.1 million under management or more than $2.2 million in net worth
Performance-based fees are compensation based on a share of capital gains or appreciation in client accounts.
What must an IA that’s a partnership do if it changes its partners?
Notify the Administrator and its clients
This is to maintain transparency and regulatory compliance.
In which states must an IAR of a federal covered adviser register?
Only in the state(s) where she has a place of business
This limits the registration requirement to relevant jurisdictions.
How do investment advisers (IAs) register?
By filing Form ADV
Form ADV is the standard registration form for investment advisers.
What is the asset threshold for IAs that must register with the state?
Less than $100 million in assets
IAs managing this amount are subject to state regulations.
What options do IAs managing between $100 million and $110 million have for registration?
They may register with the SEC or state
This provides flexibility in regulatory compliance.
What is the registration requirement for IAs managing $110 million or more in assets?
Must register with the SEC
This is in accordance with federal regulations.
Who must register with the SEC regardless of their asset levels?
Advisers to investment companies
This requirement ensures oversight of investment companies.
What happens if a client provides an IAR with a username and password for account access?
The IA does not need to maintain custody; the IAR has limited discretion
Limited discretion means the IAR can enter trades but does not have custody of the account.
What does it mean for an IAR to have full discretion over an account?
The IAR can withdraw funds/securities and the IA has custody over the customer’s assets
Full discretion requires adherence to custody rules.
What are advisers to private funds with less than $150 million in AUM classified as?
Exempt reporting advisers (ERAs)
ERAs are not required to register with the SEC but must notify state Administrators.
What must exempt reporting advisers do despite being exempt from SEC registration?
Notice file with state Administrator(s) and pay a filing fee
This maintains a level of oversight at the state level.
What are private funds also known as?
Hedge funds
Private funds are exempt from registration under the Investment Company Act of 1940.
Under what sections of the Investment Company Act of 1940 can private funds be exempt?
Section 3(c)(1) and Section 3(c)(7)
Section 3(c)(1) applies to funds with less than 100 investors; Section 3(c)(7) to those sold only to qualified clients.
Does an IAR leaving her advisory firm constitute assignment of client contracts?
No
This protects client contracts from being automatically reassigned.
What is required for performance-based advertisements?
They must not be misleading and be justified with appropriate records
This ensures transparency and accountability in advertising.
What are the requirements for storing books and records using cloud services?
Regulators must be given notice within 24 hours and have cost-free access
This is important for regulatory compliance and oversight.
