Financial Service Regulations Flashcards
When must you present the brochure?
48 hours before an investment advisory contract is signed OR at the time of signing
If you put CFP or CFA on form ADV what else do you have to put?
The minimum qualifications required to obtain those
Does compensation go on ADV?
Yes - any compensation that may be earned from providing products and services
Where would other business activities that involve substantial pay be disclosed?
Form ADV
Would expenses be listed on form ADV?
Yes any expenses the client may incur - 12b 1 fees, sales loads
Public Censure
punishable written reproach of the respondent’s behavior published in press release or other form of publicity selected by the DEC
Private Censure
unpublished written reproach issued to a censured respondent
-would happen before public censure
Non Administrative Order
DEC may order remedial education or work
Interim Suspension
temporary sanction does NOT preclude the CFP board from imposing final sanction
Does an interim suspension preclude CFP from imposing final sanction?
No
If you have a series 6 and obtain life and annuity licenses, can you sell variables?
Yes
Are Blue Sky Laws federal or state?
State
What can you sell with series 6?
Mutual Funds, Variable Annuities, Variable LI, UIT, Muni Fund Securities like 529 and LGIP
Can you sell stocks with series 6?
No - cant sell stocks bonds or etfs
What license do you need to sell securities at the state level
Series 7 and 63
What does Series 63 test cover
principals of state securities regulation
Can a CFP or CFP substitute for series 65?
Yes most states will allow this
Who regulates form ADV?
The SEC
If you forget to provide form ADV who would you be in trouble with?
The SEC
Who are exempted under the definition of investment advisor?
-Accountants or lawyers whose investment advice is “solely incidental” to the practice of their profession.
-Publishers of financial publications that have regular and general circulation
-Banks that are not investment companies
-Persons whose advice relates only to securities issued or guaranteed by the U.S. government
The Investment Advisers Act of 1940
requires that PERSONS or FIRMS advising others about securities investment must REGISTER WITH SEC. (who else had to register in the 40s)
MALPRACTICE
The Securities Investor Protection Act of 1970
is designed to protect individual investors from losses as a result of BROKERAGE FAILURES (what happened in 1970?)
The Securities Act of 1933
provides for protection from misrepresentation, deceit, and other FRAUD in the SALE OF NEW SECURITIES
3 Prong Test
-PROVIDES GENERAL OR SPECIFIC ADVICE 🗣️
-IN THE BUSINESS OF OFFERING INVESTMENT ADVICE 👨💼
-RECEIVES COMPENSATION 💰
Investment Advisor Act of 1940 states you need a license from what organization?
FINRA
Purpose of Investment Advisor Act of 1940
protect the public from MALPRACTICE by paid Advisors
RIAS with less than $110 million AUM register with who
Their state
RIAS with over 110 mil in AUM register with who
SEC
Are you required to disclose compensation as specific dollar amounts or percentages?
No - unless the client requests it
When a CFP® professional files a single bankruptcy and denies that it demonstrates an inability to manage responsibly their financial affairs what happens
the factual basis for the denial is submitted to CFP Board and the Complaint for Single Bankruptcy will proceed to a HEARING
If you’re an RR but you’re also registered as at an Insurance firm what type of compensation would you likely receive?
Not fee only - you’re more than likely making commission at the insurance firm
Could you potentially purchase a home from a client?
Yes but there is a material conflict of interest that may impair the CFP® professional’s ability to offer objective advice, and the CFP® professional must DISCLOSE and manage this conflict of interest
Brokerage Firms
firms that charge a fee or commission for executing buy and sell orders submitted by another firm or individual
Transfer agent
person or company who maintains the records of registered securities
Clearing agencies
facilitate the validation, delivery and settlement of securities transactions
Who does the Investment Advisor Act of 1940 regulate?
Investment Advisors
Investment Advisor act of 1940 defines securities as
stocks, bonds, mutual funds, certificates of deposit, limited partnership ownership interests, variable LI, variable annuity
Who oversees FINRA?
the SEC
Who do you become licensed with to sell securities?
FINRA
What does FINRA do
PROTECTS INVESTORS and market integrity, and ADMINISTERS EXAMS and LICENSES for those who sell securities
RIAs under act of 1940 are held to what standard vs. those who are just registered to sell securities with FINRA
RIAs are held to a FIDUCIARY standard while if you’re just registered to sell securities with FINRA you’re just held to a SUITABILITY standard
RIAs are held to what standard of conduct?
Fiduciary
If you’re not registered as an RIA but you sell securities what standard applies?
Suitability
What is another name for ADV part 2B
the brochure
How often must you file ADV part 1?
every year
What is in ADV Part 1?
General business information
What is included in ADV part 2B?
background information, educational history, business experience, professional designations
Fees are located in what part of ADV?
2A
Who investigates RIA violations
The SEC
SEC Criminal penalty limits
criminal penalty or imprisonment up to 5 years
Who can the SEC penalize?
An individual or entity
Is the penalty always the exact amount of gain that resulted?
No it can be a set amount or the gain that resulted from the violation
What act is an offering of securities registered under?
The Securities act of 1933 which makes sense because that act is about fraudulent new issues
A new issue is registered under the securities act of 1933 and what else?
State securities laws
RIAs must comply with the rules of what act?
Investment Advisor Act of 1940
Violations are categorized in what type of system?
3 tiered system - if it cant be classified under the 3 tiers the SEC can impose criminal penalty and up to 5 years in jail
What securities issues are exempted?
-its listed on NYSE, American or Midwest stock exchange
- its issued by a BANK or SAVINGS institution
-think EXempeted EXchange
Covered securities subject to regulation by whom
only Federal
Securities NOT “covered” regulated by whom
federal and state regulation including registration and review
Blue Sky Laws
state laws that protect against fraudulent sales practices
41 states require registration how
state level registration and a broker dealer, registered rep, and security must be registered in the state they want to sell
Registered rep passes what exam
series 63 and be registered in that state
Revoking the license of a broker dealer or salesperson would fall under what (state specific)
Blue Sky Laws
Other names for Securities act of 1933
Truth in securities law
the paper act
Objectives of securities act of 1933
-Investors receive INFO about securities being offered for sale
-prohibits deceit, misrepresentations or other fraud
What is the goal of registering securities
disclosure of important financial information
What act defines a security?
Act of 1933
What act determines when and how a security can be sold to public?
Act of 1933
What securities dont need to be registered?
-private offerings to limited # of persons or institutions
-offerings of limited size
-intrastate offerings
-muni state and federal securities
Do munis need to be registered?
No
Securities act of 1934 created what
SEC
SEC registers, regulated and oversees 4 things:
Brokerage firms, transfer agents, clearing agencies, SROs
Non FINRA SROs
NYSE, American Stock exchange, NASDAQ
Sarbannes Oxley expanded SEC regulation to what
auditors and lawyers
Broker
any person engaged in the biz of effecting transactions in securities for others
How do you determine if someone is a broker?
look at the activities the person or business performs
Dealer
person engaged in biz of buying and selling securities for THEIR OWN ACCOUNT, through a broker or otherwise
-dealer deals from their own stash
Trader buys and sells securities for whom
themselves
A broker is a what and a dealer is a what
broker is an agent
dealer is a principal
What would happen first, public or private censure?
Private
Order of discipline
- Order continuing education
- Private Censure
- Public Censure
- Suspension for a period of time
- Permanently revoke CFP
What 2 ways can you satisfy the brochure rule?
Provide ADV part 2 or
Provide an actual brochure with that information
The 3 prong test to define an advisor is part of what act?
Investment Advisor Act of 1940
How many days for reporting to client bankruptcy or public discipline?
90 days
