Financial Services Regulations and Requirements Flashcards
SEC
Regulates investment advisors and their activities under the Investment Advisors Act (IAA) of 1940
Who is required to register with the state?
RIAs with LESS THAN 100M AUM.
-May need to register in multiple states
-If no provisions for registration, advisors can register with SEC
Define an Investment Advisor
Three pronged (must do ALL three)
-Remember: Advice, Business, Compensation
-1) Provides Advice or issues reports or analysis regarding securities
-2) A person who is in the Business of providing such services
-3) A person who provides such services for Compensation
Exceptions and exemptions from IA filing
BLAT
- Bank
-Lawyer, Accountant, Engineer, or Teacher
-BD whose performance of advisory services is solely incidental to his conduct as a BD who receives no special comp for the advice
- A publisher of a bona fide newspaper or financial publication in general or regular circulation
- A person whose advice is limited to securities issued and guaranteed by the US gov.
-An INTRAstate advisor in unlisted securities (all clients in one state)
-An advisor whose only clients are insurance companies
-A family office
What is the SEC definition of a Family Office
-Provides IA to family members, includes charities and trusts established by family members and entities wholly owned and controlled by family members
-Is wholly owned and controlled by family members
-Does not hold itself out to the public as an advisor
How does an IA register with the SEC?
- Files an ADV form with the SEC
- Pays filing fees of $150 (min.)
3) Submits ADV Part 1 and Schedule I updates annual
Form ADV Part 1:
General Information:
-Applicant
-Background of applicant
-Locations
-Form of business
-Disciplinary action
-Investment philosophy
What is ADV Part 2?
Part 2: Brochures:
-Nature of business structure and relationships
-Information about fees
-Services
-Conflicts of interest
-Methods of analysis and investment strategies
-Risk of loss
-Brokerage practices and other sign. matters such as disciplinary condition
Will contain up to 18 separate disclosure items
The Wrap Brochure Rules
Requires RIAs to identify whether any related persons are portfolio managers and if any conflicts are present.
The Final Rule
Requires an RIA whose Brochure has materially changed since the last annual updating to deliver to each of it’s clients (unless exempt) a Material Changes Summary WITHIN 120 DAYS AFTER THE END OF THE FISCAL YEAR
When does the Brochure need to be delivered to a new client?
-Before or at the time the RIA enters into the advisory agreement with the client
-This is part of the Final Rule
What is form CRS?
-A uniform disclosure document prescribed by the SEC
-Intended to enhance investors protection by providing succinct and relevant information to retail investors
Closing the Advisory Practice
-An investment advisor ceases operations by filing form ADV-W
-Records must be kept for not less than 5 years from the end of the fiscal year of the last recorded entry.
FINRA Qualification Exams
-Required to become registered
-Must pass qualifying exams administered by FINRA to demonstrate competence in particular securities activities
-Must pass prior to engaging in those areas of the business
Securities Industry Essentials (SIE)
-Introductory-level exam assesses a candidate’s knowledge of the basic securities industry information
-Includes concepts fundamental to working in the industry
-Prereq for the other service exams
Series 6
Can sell:
-mutual funds
-unit investment trust (primary offerings only)
- Variable life insurance
-Variable annuities
Series 7
Can sell all securities EXCEPT commodities and certain options
Series 63
Meets requirements to be licensed in states other than state of residence
Series 65
Registered Investment Advisors (state requirement)
Series 66
-Uniform Combined State Law Exam
-Combines Series 63 & 65
What is the FINRA Registration Procedure?
- Associates with broker-dealer firm
- Registers with FINRA through a B/D on Form u-4
- Passes appropriate exams
- Central Registration Depositary (CRD) System makes registration with FINRA uniform among states
To sell variable contracts…
The representative must hold both:
- a Services 6 or 7 license
-a variable state life insurance license
When you must report to FINRA:
Must be notified in writing promptly if the firm or a registered employee is involved in any of the following:
-Violated any provision of securities law
-Subject to a written customer compliant alleging theft, misappropriation of funds, or forgery
-Is named as a defendant or respondent in any legal proceeding alleging violations of the Securities Act brought by a regulatory authority
-Is indicted, convicted, or pleads guilty to any criminal offense
