final Flashcards
brochure rules
2a(describes firm)
2b(Personal)
delivered with in 48 hours before or at time of contract which allows for 5 days of penalty free withdrawal(client)( state law)
(Fed)brochure updated annually within 120 days after fiscal year
if any changes- you need deliver in 120 days free brochure or summary of changes
if no changes no need to send.
prepayment- more than 1200 for federal
more than 500 for state.
Must include balance sheet with brouchure if these 2 ^ apply
Balance sheet required for state if custody
not federal
in brocuhure you have to disclose legal or disiplanary action within the past 10 years
exemptions- if client is investment company
impersonal investment advise
part 1a annual amendment must be sent to the sec or administrator with in
90 days after the end of the fiscal year
Third-party solicitors must provide a copy of the
copy of the investment adviser’s brochure (Form ADV Part 2A), as well as a copy of the solicitor’s brochure.
The solicitor’s script must be approved by the IA, and only the SEC receives a copy of the Form ADV Part 1.
private fund exemption state law
no more than 100 investors
all investors must be qualified(1 million in assets management or nw of 2.1 mill)
private fund exemption foreign
no place of business in united states
fewer than 15 clients in the us
less than 25 mill in assets
does not hold oneself out to the public as IA
exemption for investment advisors to venture capital funds
limited leverage
no redemption rights
represents itself as venture capital fund
not registered under Investment co act of 1940
positive margin
The rate of return on the investment exceeds the interest cost on the borrowed money.
The yield to call computation involves knowing
the amount of interest payments to be received, the length of time to the call, the current price, and the call price.
family balance sheet includes
assets and liabilities, not income
family income statement includes
income and expenses
The longer the duration of a bond
the more volatile (sensitive to interest rate changes) it will be.
When a partial withdrawal is made from an annuity, the earnings are considered to be taken out
LIFO
bonus annuity
offer a bonus
What is the purpose of the Securities Exchange Act of 1934?
It regulates the persons involved in the secondary market.
what dividends are not considered qualified
reit
when a policy is sold through the life settlement process, what happens
the insured receives more than the cash value, but less than the face amount of the policy
are lottery winnings considered earned income
no
sec has jurisdiction over
exchanges, sros
bds, IAS and associated persons
who may be required to by the administrator to post surity bonds
agent with discretion
bd with custody discretion
IA with custody or diescetion
are wills estates and trusts securities
no
administrator can determine min or max net worth requirements for IAs and bds
min
if the ia does not exercise discretion or maintain custody, no surity bond is required
Agent who exercise discrtion may need a surety bond but not a min net worth
form adv E
must be completed by investment advisors tht have custody of client funds or securities and that are subject to an annual surprise examination.
loaning money to a client is prohibited unless
the IA is a financial institution engaged in the business of loaning funds or the client is an affiliate of the IA.
interest on foreign is taxed
fed
state
local
notification with state vs federal advisors
only state are required to notifiy when employment terminated or begun
fed covered is responsiblity of IAR.
investment advisory contract must include
serivce to be provided
Term of contract
amount of advisor fee or foruma used
amount of any prepaid fee to be returned if terminated
whether contract grants discretionary power
no assignment
must notify if minority change in partnership
term covered account does not apply to
institutional customers ike banks pension funds or investment companies
does zero coupon bond usually have higher duration
yes unless maturity is really soon
current assets include
cash, ar, inventory
current liabilities include
ap,wages payable, dividends payable, and short term debt
securities act of 1934 and sales of new issues with credit
the act bans the use of credit in purchasing new issues for the first 30 days from the date of issue
disclosure with disiplinary actions and monetary amount
legal and disciplinary action successfully brought against an IA must be disclosed as well as disciplinary actions that resulted in a fine in excess of 2500.
convictions for a misdemeanor or felony involving securities or money within the past 10 years must also be disclosed.
a variable life insurance plan may charge a max sales charge of
9% over a period not to exceed 20 years
is a warrant a derivative
no
when are options securies
options are always securities regardless of the underlying asset.
under USA BDS and agents are not IAS when
if their performance is soley incidental to the conduct of the brokerage business and no special compensation is received for advisory services
recommendations of securities purchases are indiental. and don’t qualify unless fees are charged for advice.
investment research is not indicental
expected return
RFR + (Market return- RFR) *beta
when an investment advisor ceases to exist whose responsibility is it to preserve docs
the original company has to hold for 3 years.
how kiddie tax works
earned income is on kids tax rate
unearned income(dividends or interest) in excessof 2,100 is taxed at trust rate
difference between agents and advisors for de minimus
agent must register in the state if they do any business, regardless of the number of investors. Solicited or unsolicited
technician looking at volume
a price increase on heavy volume is bullish
variable life conversion policy
anytime during first 24 months, policy can be changed to whole life
using same issue date and age
face amount stays the same
SERP
nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees
a private foundation must
pay out each year an amount equal to 5% of its net investment assets in qualifying distributions
what is a covered security
anything equal to or senior to common stock
working capital=
current assets- current liabilities
coupon and duration
higher coupon, lower duration
low coupon high duration
who is considered accredited
institutional investors (insurance companies, bank
person or married net worth excluding house exceeds 1 mill
individual with income 200 k single or 300k joint
employee benefit plancharity/corp/partnership exceeding 5 mill
books and records
ias - must maintain records for 5 years- 2 in principal office
BDS 3/2
exclusions from investment advisors fed or state
bank, savings, trust companies (both)
Bank owned subsidiary is not excluded (both)
incidental advise(LATE) (BOTH)
Broker dealers if no special compensation(fees). They can make recommendations. They only get paid if they make a trade. Can’t be paid for advise(wrap fee program) (BOTH)
Publishers of general and regular circulation(can’t be based on market events) (b0th)
Advise soley on government securites(IA of 1940)
Investment advisor rep(USA)
Federal covered investment advisors(USA)
exempt from sec registration
1.intrastate advisors-all clients and offices in one state
1a no advise on listed securities on national exchanges
1.b not clients are private funds
2.only clients are insurance companies
state exemptions IA
de minimus- no office in state and fewer than 6 clients in 12 month
no place of business and only deals with institutions(banks, insurance cos, investment cos,employee benefit plans with at least 1 million in assets, BDS, other investment advisors
snowbird
Sec or state amount
110 or more-sec
less than 100- state (unless required to register in 15 or more states, manage registered investment co) expect to reach 100 million within 120 days.
between 100 and 110, you have choice
what is the buffer rule
once you are registered with sec, if book goes under 90 million then you need to register with state.
Buffer is 20 million
pension consultants rule
once they reach 200 million they have to choice to be sec registered
federal covered advisors and states
don’t have to register but may pay filing fees.
ADV part 1 a includes
business name and form of organization
past 5 years of control persons(25% or greater voting)
educational background
nature of business
Balance sheet
discretion
how do you get paid
criminal record
portion of business devoted to providing investment advise
consent to service of process
form adv part 1 b(state advisors only)
pay filing fee
registration effective noon 30th day(USA)
Registration effective 45 day (SEC)
State expires every dec 31rst unless you renew it
2.annual update adv- 90 days fiscal years end both
pay renewal fee with this
amended adv promptly if
change in management
state of location
change of form of business
Withdrawl adv w (30 day state
60 day sec)
exempt reporting advisors (ERAS) does what
file a adv part 1 (don’t answer all questions) but do not have to do adv part 2
successor firm rule IA
new firm because of merger, aquisition or sale
new application filed, effective for remainder of year
no additional filing fees
net worth requirements IA
only for state
- Discretion only, no custody- 10000
- custody of dunds-35,000 unless having custody due to direct fee deduction or advising pooled investments subject to surprise annual audit.
you can put up surety bond or marketable securites of 35k instead of net worth
Notify admin when below req net worth by end of next business day
file financial report with admin within one business day of giving notice including statement of number of accounts
only need to meet requirements of the state where principal office located
Sec meets sec requirements
disclosure of financial impairment IA
- has discretion or custody
prepayment more than 500 six months more in advance(state)
prepayment 1200 fees six months or more in advance (SEC)
recordkeeping requirements IA
maintain books are records easily accessible for 5 years, first 2 years at principal office
partnership agreement, articles of incorp, charters and minute books
must be preserved untial at least 3 years after termination of enterprise
exclusion for IAR
clerical or administrative
impersonal advice
research analyst if no advisory clients
exemptions from IAR state
de minimus
snowbird
covered advisor means
federal
IARS with federal covered advisors only register in state where
IAR maintains place of business
IAR registration *
U4- felony or securities related misdemeanor consent service of process filing fee/renewal pass test effective 30th non expire every dec 31
no new
no bonding
no recordkeeping except amend u4 if change in address
Termination procedures IAR
withdraw agent
IAR with state , IA notifies administrator
IAR fed- IAR notifies administrator
Effective 30 days after withdraw- state has one year jurisdiction
agent and bd must notify promptly
BDS usually registers with
both sec and state
BD Exclusions state and federal law
agents
issuers
bank ,savings, trust co
internet broker dealers-only general information
No office in the state and limit clients to issuers of security, other bds, or institutional investors
no office in state who directs offers to existing clients who are not residents of the state
BD exemption
Canadian broker dealers(soley with existing clients)
can
Intrastrate broker dealers. Only operate in one state and all clients are in one state
Agent exclusion
clerical
silent partner
outside associated person
representing issuers in effecting transactions that are exempt(USA)
effecting transactions issued by exempt issuers(banks,governments, and 3 others(lem)
work for company where employees can purchase stock of co. Agents help with that but they arent agents as long as they are not paid for sale.
agent exemption
if BD is exempt
snowbird
client moves (if bd is not registered in state) you lost client
NO DEMINIMUS
How Bd and agents register procedure
form BD form U4 method of business background and history convictions 10 years felonies and securities related misdemeanors financial condition\ consent to service of process
pass exam
effective noon 30 day
expires dec 31
Termination for Agent
notification by both agent and broker dealer
effective 30 days after , admin maintains jurisdiction for one year
record keeping for BDS and agents
assessable for 3 years, 2 in principle office
material changes(move to new location) prompt notice(amend BD)
financial requirements BDS
min net capital
cannot be higher than what sec requires
agent registration
citizenship
usa does not require fingerprints
if bd gets registration revoked, get new bd by 2 years(new u4)
agent registered with multiple bds?
only if affiliated or ok by administrator
securities exemptions (need to fill in more)
us government and agency state and local municipal bonds intrastrate(147) short term debt- max maturity 270 days exempt issuer securities like 1. us gov muni canadian gov foreign national gov banks avings trust cos insurance cos public utility charitible fed coverned(exchange listed) nasdaq traded, invest cos, private placement
exempt transactions (BULL)
-private placements
2.accredited investor
2a institutional investor
2b employee benefit plan(state law 1mill, fed 5 million
2c insider of the issuer
2d individual or joint with net worth greater than 1 million, excluding house or earnings 200k single 300k joint for past 2 years
must file form d within 15 days of sale
preorganization certificates(usa)
private restricted to 10 offers in any 12 consecutive month.
USA says no person can lawfully offer or sell any security in this state unless
security is registered under USA
Security or transaction is exempt from registration
security is federally covered
