Federal vs State Law Flashcards
Federal investment adviser
Any person who for compensation engages in the business of advising others as to the value of securities or the advisability of investing in securities or, as part of a regular business, issues analyses or reports concerning securities
Exclusions from the definition of a federal investment advisor
- Banks
- Lawyers, accountants, teachers, engineers
- Broker- dealers
- Publisher of any bona dude newspaper, news magazine, or other publication of general circulation
- Any person whose advice relates solely to securities issued or guaranteed by the u.s. government
Exemptions from the definitions of federal investment advisers
- The private fund adviser exemption is available for advisers with less than 150$ million in assets under management for private equity funds
- The only clients are insurance companies
- Intrastate business only and does not furnish advice with respect to securities listen in any national securities exchange, and do not have any private funds as clients
Registration of federal investment advisers
File form ADV w/ SEC and pay initial and renewal fees based on their fiscal year.
Effective within 45 days
No net worth requirements
No Surety bonds
Withdrawal of registration is on 60th day
Successor firm pays fee
No registration of IAR
Record keeping of federal investment advisers
Kept readily accessible for 5 years
Fines of federal Investment advisers
10,000 and five years in jail
Custody of federal investment advisers
Kept by a qualified custodian
An audited balance sheet is required if advisers takes advance fees of more than 1200, six months or more in advance, but not when the adviser maintains custody
Performance fees of federal investment advisors
Prohibited unless:
- Contract with investment company
- Certain clients with Atleast 1 million under management or a net worth in excess of 2.1 million
Statue of limitations for civil action of fed IA
Sooner of 3 years after the sale or 1 year after discovery
Definition of a person via federal IA
Natural person or company
Advertisement requirements of federal IA
No filing with SEC
Private placement exempt of federal IA
Sold to up to 35 non accredited investors under rule 506(b)
Exclusively accredited investors under rule 506 (c)
Federal - miscellaneous
No assignment of the advisory contract may be made without clients consent (same for state)
Federal - miscellaneous
Adviser if a partnership, must notify the client of any change in the membership of the partnership within a reasonable period of time (same for state)
Federal - miscellaneous
Term investment counsel may not be used unless:
- Principal business is investment advice
- Substantial portion of their service is providing investment supervisory services
Federal - miscellaneous
Insolvency is NOT a cause for revocation
Federal - miscellaneous
$110 million or more under management registers with SEC
100$-110$ million can register with SEC or state
Federal - miscellaneous
Register renewal for IAs within 90 days of fiscal year
Federal - miscellaneous
Register as an IAR only if a place of business; no de minimis
Federal - miscellaneous
Employee benefit plans 5$ million -institution
State investment adviser
Any person who for compensation engages in the business of advising others as to the value of securities or the advisability of investing in securities or, as part of a regular business, issues analyses or reports concerning securities
State exclusions from above definition
- Banks
- L A T E
- Broker dealers
- Publisher of any bona fide newspapers, new magazine, newsletter, or other publication that does not consist of rendering of advice on the basis of the specific investment situation of each client
- IARs
Exemption from definition of state investment advisers
- Private fund adviser exemption more restrictive than federal law
- Adviser has no place of business within that state and
A. The only clients are institutions such as investment companies, banks & trust companies, insurance companies, broker dealers and other investment advisers, 1$ million or larger employee benefit plans, governmental agency or instrumentalities or
B. Does not direct communications to more than 5 clients in the state during the previous 12 months
State IA registration
File form ADV w/ the administrator and pay initial and renewal fees. Effective at noon of 30th day
Net worth / surety bonds required (custody or discretion)
Withdrawal of registration is on 30th day successors firm pays no fee until renewal
Registration automatically registers any adviser representative who is a partner, officer, director or similar in status
State IA record keeping
Generally three years for broker - dealers and five years for IAs
State IA fines/penalties
5000$ and three years in jail
State investment advisor - custody of customer funds/securities
If not prohibited in the state
Requires minimum net worth or surety bond of 35,000$
Audited balance sheet would be required if adviser takes fees of more than 500$ six or more months in advance or the adviser maintains custody
State investment adviser performance fees
Must make risk incentive statement and other disclosures
Prohibited unless:
1. Contract with investment company
2. Certain clients with Atleast 1$ million under management or net worth in excess of 2.1$ million
Statue of limitations for civil action of state investment adviser
Dinner of three years after the sale or two years after discovery
Person under state IA
An individual, a corporation, an association, a joint stock company a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government or a political subdivision of a government
Filing of advertisements for state investment advisers
No filing for exempt securities or transactions, otherwise filed with the administrator
Private placement exemption for State exemption
Up to 10 offers within the state over a 12-month period .
Term accredited investor is meaningless
Institutions are not counted nor restricted
State adviser - miscellaneous
An investment adviser representative is an associated person of an advisor firm (not clerical) who:
- Makes recommendations or otherwise gives advice
- Manages accounts of clients
- Solicits or negotiates for the sale of advisory service
- Supervises any of above
State adviser - miscellaneous
Insolvency is a cause for revocation
State adviser - miscellaneous
Registration renewal for all securities professions is on December 31
State adviser - miscellaneous
Register in the state of retail clients resident in the state: subject to five or fewer de minimis
State adviser - miscellaneous
Employee benefit plans 1$ million - institution
