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Series 66 > Federal and State Registration of IA > Flashcards

Federal and State Registration of IA Flashcards

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Series 66 flashcards
1
Q

The federal legislation that defines the term investment adviser and requires persons that fall within the definition to register with the SEC.

A

INVESTMENT ADVISERS ACT OF 1940

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2
Q

Under the __________, investment advisers who are registered with the SEC under the Investment Act of 1940 do not register with the state securities Administrators.

A

National Securities Markets Improvement Act of 1996 (NSMIA)

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3
Q

Two primary purposes of the Investment Advisers Act:

A
  • Regulation of persons in the business of giving investment advice
  • Establishment of standards of ethical business conduct for the industry
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4
Q

Persons associated with the investment advisers whose functions are________ or are not included in the meaning of the term

A

clerical

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5
Q

What is the difference between associated person and supervised person?

A

The supervised person includes all employees, even those who perform clerical functions and are not required to become registered.

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6
Q

Release IA-1092, in short, identifies as an ______ _______ anyone who:
•Provides investment advice, reports, or analyses with respect to securities

  • Is in the business of providing advice or analysis
  • Receives compensation, directly or indirectly, for these services
A

investment adviser

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7
Q

No matter what the source (even indirect), all____________ must always be disclosed to the client.

A

compensation

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8
Q

6 Primary Exclusions from the definition of an investment adviser under FEDERAL law:

  1. bank
  2. Lawyer, _______, Teacher, Engineer
  3. Broker-Dealer
  4. Publishers
  5. Gives advice only related to govt securities
  6. Any nationally recognized statistical rating organization, like _____ & _____ or _____’s
A
  1. Accountant

6. Standard & Poor’s, Moody’s

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9
Q

Primary Exclusions from the definition of an investment adviser under STATE law:

  1. bank
  2. Lawyer, _______, Teacher, Engineer
  3. Broker-Dealer who receives no special compensation
  4. Publishers
  5. Investment Adviser Representatives
  6. ______ covered adviser
  7. Any person excluded by the IAA of 1940
  8. Any other person the Administrator specifies is excluded
A
  1. Accountant

6. Federally

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10
Q

True or False: An individual may act as both an investment adviser and an investment adviser representative.

A

True

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11
Q

An individual or a firm can start a registered investment adviser firm by filing an _______ form with the state or with the SEC

A

ADV

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12
Q

A _______ ______ program is a program under which a client is charged a specified fee or fees for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and execution of client transactions.

A

wrap fee

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13
Q

A broker-dealer who offers a wrap fee program must register as an ______ _______ because a wrap fee includes charges for providing investment advice.

A

investment adviser

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14
Q

True or False: When there is no separate charge for advice, the firm is not considered to be an investment adviser.

A

True

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15
Q

Investment advisers must disclose the amount of compensation received, or to be received, from any ____ ______ in connection with recommendations made to a client.

This would include compensation from any broker-dealer, issuer, and nonsecurities entity (e.g., insurance companies, realtors, coin dealers).

A

third party

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16
Q

To meet the definition of an investment adviser under the Uniform Securities Act, which of the following must apply?

  1. _____ must be received
  2. _____ must be provided regarding securities
  3. _____ must be part of a regular business
A
  1. Compensation must be received.
  2. Advice must be provided regarding securities.
  3. Advice must be part of a regular business.
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17
Q

An accountant provides investment advice on a more than incidental basis (typically regarded as more than ____ client contacts per year).

A

10

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18
Q

Although broker-dealers are generally exempt from having to register as investment advisers, the exemption is not available if the broker-dealer imposes a separate_____ for account management or advice.

A

fee

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19
Q

______ ______ are regulated by the Comptroller of the Currency, not the SEC, and therefore are excluded from the definition of advisor under the Investment Advisor Act of 1940.

A

Commercial banks

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20
Q

Wills, estates and trusts are not securities so any advice given on them does not make one an investment adviser.

Look for the term “________ financial plan” because that always includes securities advice and, as long as a fee is charged, even when the advice is not followed, registration as an IA (or perhaps IAR) is required.

A

comprehensive

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21
Q

Wrap fee programs may only be offered by ___ or _____.

A

IAs or IARs

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22
Q

Excluded from the definition of investment adviser are financial institutions, publishers, investment adviser representatives, and certain professionals, including broker-dealers, whose advice is incidental to their profession and who are not ________ for it.

A

compensated

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23
Q

FEDERAL LAW - REGISTRATION EXEMPTION OF INVESTMENT ADVISER:
________ Advisers:
Advisers whose clients are residents of the state in which the adviser has its principal office AND who do not give advice dealing with securities listed on any national exchange.

A

Intrastate Advisers

*The Investment Advisers Act of 1940 exempts this class of investment adviser from registration requirements.

24
Q

FEDERAL LAW - REGISTRATION EXEMPTION OF INVESTMENT ADVISER:

Advisers to Insurance Companies are _____ from the registration requirements under federal law for investment advisers.

A

exempt

25
Q

FEDERAL LAW - REGISTRATION EXEMPTION OF INVESTMENT ADVISER:
There are three exemptions for Private Fund Advisers who are exempt from the registration requirements under Federal Law:
- _____ fund adviser exemption
- _____ private advisers exemption
- _____capital fund exemption

A

Private Fund Adviser Exemption - less than $150M in assets (determined quarterly)

Foreign Private Advisers (less than $25M and 15 clients)

Venture Capital Fund Exemption

26
Q

The definition of private fund is:

1) No more than ____ shareholders
2) No _____ offering

A

1) no more than 100 shareholders

2) no public offering

27
Q

______ means exclusion from a definition; _______ means not subject to registration

A

Exclusion means exclusion from a definition; Exemption means not subject to registration

28
Q

Federal covered investment advisers are investment advisers registered with the ______. The most tested examples are:

  • Min threshold of $110M
  • Those under contract to manage an investment company registered under the Act of 1940, regardless of the number of assets under management
  • Those not registered with the SEC because they are excluded from the definition
A

SEC

29
Q

_____ eliminated state registration requirements for federal covered advisers, largely based upon assets under mgmt.

A

NSMIA

30
Q

____-_____ has created three thresholds for investment advisers:

1) Large Advisers
2) Mid-Size Advisers
3) Small Advisers

A

Dodd-Frank

31
Q

Large Investment Advisers are at least $____M or more - state registration is not required

A

$100 Million

32
Q

Small Investment Advisers are less than $___M - registration with the SEC is prohibited; registration with the state is required

A

$25 Million

33
Q

Mid-Size Investment Advisers

  • At least $____ M, but not more than $____M
  • Prohibited from SEC registration and must register with the state
A

$25 Million, but not more than $100M

34
Q

STATE LAW - REGISTRATION EXEMPTION OF INVESTMENT ADVISER:
The Investment Advisers exempt from registration with the state Administrator are those who have no place of business in the state but are registered in another state, provided their only clients in the state are:
1) ______-______ registered under the act
2) Other ________ advisers
3) Institutional Investors
4) Existing clients who are not residents
5) Limited to ____ or fewer clients

A

1) broker-dealers registered under the ct
2) other investment advisers
3) institutional investors
4) existing clients who are not residents
5) limited to 5 or fewer clients

35
Q

Federal covered investment advisers exempt from state registration are not exempt from paying state filing fees and giving notice to the Administrator. The procedure followed is called ______ _______.

A

Notice Filing

36
Q

If a federal covered adviser oly deals with institutions, other IAs, other BDs and so forth, _____ _____ is not required.

A

Notice Filing

37
Q

An investment adviser registered under state law whose assets reach $_____M under management has ____ days to register with the SEC.

A

$110M/90 days

38
Q

A federal covered investment adviser whose assets under management fall below $____M no longer qualifies for SEC registration and has ____ days to register with the states.

A

$90M/180 days

39
Q

There are only two differences regarding Private Fund Adviser Exemption under State Law vs Federal Law:

Under state law, all investors must be “qualified clients” - they must have either at least $___M in assts managed by the investment adviser or net worth of $____M

A

$1M / $2.1M

40
Q

Which of the following is NOT an exempt transaction?
A) Isolated nonissuer transactions.
B) Transactions made on behalf of an estate.
C) Initial public offerings.
D) Transactions under Regulation D.

A

Transaction exemptions exist for isolated nonissuer transactions, estate transactions, and private placement transactions under Regulation D. Initial public offerings are nonexempt and subject to the Administrator’s jurisdiction.

Reference: 2.8.2 in the License Exam Manual

41
Q

The industry is concerned about the protection of both firm and customer data. It would be acceptable to store this information

1) on a cloud-based server
2) in paper form
3) on computer disks
4) on microfiche

A

As long as the proper protections are taken, any of these are acceptable as a storage medium for customer and firm records.

Reference: 3.23.2 in the License Exam Manual

42
Q

The head of research for your firm has just prepared a very positive report on DEF Industries, Inc. The report will be placed on the firm’s Website later today, and copies will be mailed to clients for whom the security is deemed appropriate. Tonight this analyst will be appearing on CNBC and will be describing why he has issued this strong buy recommendation. As an investment adviser representative, you would:

A) not be permitted to contact your clients until it was determined that the report was general public knowledge.

B) be permitted to contact your clients with this recommendation tomorrow.

C) be permitted to contact your clients with this recommendation right now.

D) be required to send your clients to the firm’s Website before making any comments regarding this security.

A

C) be permitted to contact your clients with this recommendation right now.

A firm’s internal research is not considered inside information. Clients may be contacted as soon as the IAR has access to the report. What is prohibited would be for the IAR to purchase this stock personally before release of the report and then contact clients.

Reference: 2.10.1.3 in the License Exam Manual

43
Q

The Administrator would _______ an agent’s registration in the event of death or mental incompetence of the registrant. Failure to locate an agent, such as mail being returned without a forwarding address, is also a cause for cancellation. Cancellation carries no connotation of wrongdoing; the Administrator may ______ a registration for violations.

A

cancel; revoke

44
Q

There are 3 primary expenses involved with brokerage accounts that are NOT included in the fee disclosure template. Those are:

1) ___________;
2) markups and markdowns; and
3) advisory fees for those firms that are also registered as investment advisers.

A

Not included in the fee disclosure documents are:

1) Commissions
2) Markups and Markdowns
3) Advisory Fees for those firms that are also registered as investment advisers

There are other documents where those disclosures are made.

**what is most important on the exam is that all of the fees must be disclosed

45
Q

The concept of performance-based compensation only applies to ________ ______ .

A

Investment advisers

It is permissible for individual clients with a net worth of at least $2.1 million, or at least $1 million in assets under management in an account with that adviser. In most cases, the performance bonus kicks in when the account in question outperforms a stated benchmark.

46
Q

All investment advisers registered under the Investment Advisers Act of 1940 are _______ covered advisers

A

federal covered advisers

47
Q

An adviser’s financial impairment must be_______ to clients if the adviser has discretion or has custody or requires prepayment of more than $______ in fees,____ or more months in advance. Legal or disciplinary action taken against an adviser by a court or a regulatory authority within the past ten years must be disclosed to clients in any case. Note also that by requiring prepayment of over $1,200 in fees, six or more months in advance, an adviser is required to include an audited balance sheet with Part 2 of Form ADV, which must be filed with the SEC and made part of the adviser’s disclosure brochure.

A

disclosed; $1,200; six

48
Q

Any investment adviser that has _______ authority or _____ of client funds or securities, or requires or solicits substantial prepayment of ______, must disclose any financial condition that is reasonably likely to impair their ability to meet contractual commitments to their clients.

A

discretionary, custody, fees

49
Q

The Investment Company Act of 1940 does not require registration of third-party solicitors. However, for those advisers who are not ________covered, under most conditions, the USA would require that solicitors be registered as IARs.

A

federal covered

50
Q 
Under the USA, each of the following is specifically excluded from the definition of a broker-dealer EXCEPT an:
A) investment adviser.
B) international bank.
C) issuer.
D) agent.
A

A) investment adviser.

The USA specifically excludes agent/issuers and banks, international or domestic, from the definition of a broker-dealer. Investment advisers also may have to register as broker-dealers if their method of operation requires it.

Reference: 2.3.1.1 in the License Exam Manual

51
Q

The currency reporting threshold for cash and equivalent instruments is over $_______. These transactions must be reported on a CTR (currency transaction report) (FinCEN Form 112). The Form 112 is electronically filed with the Department of the Treasury.

A

$10,000

52
Q

Sale”, used interchangeably with “sell”, is defined in the Uniform Securities Act as any contract of sale, any contract to sell, and any disposition of a security or interest in a security. The sale of a corporate bond is a sale with or without a warrant attached and involves the disposition of an interest in a security of the issuer. Because the distribution of the warrant is conditional upon the purchase of the bond, the acquisition of the warrant is considered to be a sale.

A

2.12.1.1 in the License Exam Manual

53
Q

A _____ _____program is a program under which a client is charged a specified fee or fees for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and execution of client transactions. A broker-dealer who offers a wrap fee program must register as an investment adviser because a wrap fee includes charges for providing investment advice. This is in contrast to the traditional brokerage account where each service is paid for separately. When there is no separate charge for advice, the firm is not considered to be an investment adviser.

A

wrap fee

54
Q

It is an _________ practice for an agent of a broker-dealer to effect securities transactions not recorded on the books of the employing broker-dealer unless prior written authorization is secured.

A

unethical

55
Q

Recordkeeping requirements for broker-dealers are ______ years and partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of an investment adviser and of any predecessor, shall be maintained in the principal office of the investment adviser and preserved until at least _____ years after termination of the enterprise. There are no recordkeeping requirements for agents or IARs.

A

three; three

Reference: 3.8.1 in the License Exam Manual

56
Q

Third-party solicitors must provide a copy of the investment adviser’s brochure (Form ADV Part 2), as well as a copy of the ________ brochure.

A

solicitor’s

Series 66 (9 decks)

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