IA's and IAR's and B/D's Flashcards
State Registration of an Investment Advisor becomes effective when
at noon the 30th day after the application was filed
Federal Registration of an Investment Advisor becomes effective when
within 45 days after the application is filed.
An administrator can cancel the registration if the investment advisor is
1.) no longer in business
2.) no longer existence
3.) court finds the IA mentally incompetent; or
4.) investment advisor cannot be located after reasonable search
Registration as an IA and IAR expires
on DECEMBER 31st of every year.
Must Pay a fee to renew
IA’s filing to withdraw state registration will become effective
30 days after filing withdrawal with the state administrator, unless disciplinary actions are pending
Cannot withdraw to avoid disciplinary actions
State administrators have jurisdiction to initiate disciplinary proceedings for how long after an IA withdraws its registration
1 year after withdrawal
What form do B/D’s file with the SEC to become registered?
FORM BD
What form do IA’s file to become registered?
Form ADV
Form ADV-W to withdraw
Investment Advisor Definition
Advice as a regular Business for Compensation
“ABC Rule”
Exclusions from registering as an IA
- IAR’s
- LATE Professionals (incidental to their work)
- BD’s and Agents (no advisory fees/wrap fees, commission only)
- Media programs if general advice
- Fed Covered Advisors - Excluded from state registration
- Banks and savings institutions
Exemptions from State Registration IA’s
- Vacation rule - no registration if engagign current clients visiting a state + no office in state
- Institution rule- no registration if only engaging institutions + no office in state
- De minimums rule - no registration if 5 or fewer retail clients in a state + no office in state
- Private Fund Advisors
IAR registration form and withdrawal form
U4 - registration
U5 - Withdrawal
Who files the U4 and U5 if the IAR is representing a federal covered IA?
- If representing Fed Covered IA = filed by IAR
Who files the U4 and U5 if the IAR is representing a state IA?
- If representing state IA = filed by IA
Exemptions from state registration B/Ds
- Agents, issuers, and banks
- Vacation rule
- Institution rule
- Canadian (limited registration)
IA’s MUST register as a Federal Covered Advisor (with SEC) when:
AUM exceeds $110M
Where does a BD need to register?
In a state where they have an office OR a state where they have more than 1 retail client. Note, BD registration has nothing to do with dealing with institutional clients.
Why is a bank, savings institutions, or trust company not considered a BD?
Because they are subject to their own laws.
How do you register as a BD?
Submit Form BD
Consent to Service of Process
Pay Fees
Publish an annoucement of registration
Meet minimum financial, bonding, and recordkeeping requirements
What is consent to service of process?
Allows the Administrator to receive and process non-criminal securities related complaints against the applicant
When does BD registration become effective? When must it be renewed?
Noon, 30 days after filing. Dec 31
If a BD has all of its offices / retail clients in State A, but broadcasts radio and TV ads that reach residents of State A, B, and C, where must BD register?
Only state A
If a BD does business with a client that resides in State A but lives in State B for 3 months, where must the BD register?
State A
Where do (BD) agents need to register?
In any state where the agent originates an offer or directs an offer.
If you work for an issuer of exempt securities or exempt transactions do you need to register as Agent? For example, if you work the Gov’t and sell US Treasuries to retail clients
No
How to register as an Agent?
Submit U4
Consent to Service of Process
Pay filing fees
Bonding may be required but no financial or net worth requirements
When is an Agent’s registration effective? When must it renew?
Noon, 30 days after filing. Dec 31
If an agent wants to terminate their registration in a state, who notify the admin?
All parties must notify – Agent, old firm, new firm (if applicable)
Consent to Service of Process is for what kind of lawsuits? Meaning, a lawsuit against an agent can proceed with notice to admin instead of to the agent?
Securities related civil actions – Ex. Civil Action for a USA violation
What is an Investment Advisor (IA)?
Any person (typically a firm) who provides securities related advice. In the ordinary course of business and for COMPENSATION
When does a natural person register as a IA?
If the IA is a sole proprietorship (would register as both IA and IAR)
If a BD offers a wrap or managed account that sells brokerage services and advice for a single what must they register as?
Both BD and IA
Who is excluded as a IA under USA?
Banks, agents, LATE professionals
Where do IAs register?
They register at the state level if they have an office or more than 5 retail clients in that state.
They register at the Federal Level if they have ~100m in AUM or are registered in more 15 or more states.
When must IA register with a state?
They register at the state level if :
they have an office in the state
OR
more than 5 retail clients in that state.
When MUST an IA register at the Federal Level (SEC) as a federal covered advisor
When they have $110M or More AUM
When MAY an IA register at the Federal level?
they can register with the SEC if they have:
$100M -$110M in AUM
or
are registered in 15 or more states
How does an IA register at the state level?
Submit ADV
Consent to service of process
Pay Filing Fees
Meet minimum financial, bonding and recordkeeping minimums.
How must a IA submit their file for state registration?
Electronically
If an IA is registered in multiple states, what minimum financial, bonding, and recordkeeping requirements do they follow?
Their home states
When does a IA’s registration become effective? When must they renew?
Noon, 30 days after filing/
must renew on Dec 31 annually
If a IA has below 90m in AUM what must they register as?
State level
If a IA is federally covered, in what states do they have to notice file?
A state where they have 1 office or more than 5 retail clients.
Where can a Federally covered IA do business?
all states
If you are an IAR for a State Registered IA where do you have register?
Any state where the IA is registered
If you are an IAR for a Federally covered IA where do you have register?
Any state where the IAR has office space.
How does an IAR register?
Submit u4
Consent to service of process
Pay filing fees
Are there financial requirements for a IAR to register?
No
If an IAR of a state-registered IA is terminated who gives notice to the Administrator?
The IA Firm submits U5
If an IAR of a federally covered IA is terminated who gives notice to the Admin?
the IAR
In what instance does a Federally Covered Agent not have to notice file?
If they have no business in the state and the adviser’s only clients in the state are investment companies, other investment advisers, BDs, banks, trusts companies, insurance companies, employee benefit plans, governments
If you are a company and no place of business in a state and your only clients are other BDs, institutions, and / or your only clients in the state are there temporarily do you have to register as a BD in that state?
No
records must be preserved for how long by broker-dealers ?
3 years (easily accessible for 2 years)
although it is required to keep all records relating to customers, there are no requirements to keep copies of a customer’s ?
although it is required to keep all records relating to customers, there are no requirements to keep copies of a customer’s ?
an employee of an issuer is not an agent when representing ?
an issuer if the issue is exempt from registration
federal covered investment advisers
advisers registered with the SEC
if, at the time of filing the annual updating amendment to the Form ADV by an SEC-registered IA, the reported AUM is less than $90 million, it is necessary for the investment adviser to withdraw its SEC registration and register with the appropriate state(s) within ?
180 days
if a state-covered adviser’s reported AUM exceed $110 million, registration with the SEC must take place within ?
90 days
De Minimus exemption
an exemption from registration is offered to an investment adviser who does not maintain a place of business in the state and limits its business to five or fewer retail clients who are legal residents in the state during the preceding 12 months
Form ADV Part 1A
Information about the IA
Form ADV Part 1B
asks additional questions required by state securities authorities
Form ADV Part 2A
Investment Advisor Brochure
Contains customer related information - including compensation etc
Form ADV Part 2B
requires advisers to create brochure supplements containing information about certain supervised persons
Exceptions for BD Agents
he only exceptions that apply to a person working for a BD effecting securities transactions is in reference to WHO they sell to:
1.) Non-Resident Customer (30 day)
-RR can continue to service customer even if he is not registered as an agent in the state in which the customer is temporarily located.
-Time frame is 30 days or less
2.) New Resident Customer (60 day)
-RR is not considered an agent in customers new state for a period of 60 days.
-RR must file an application to register in the new state within 10 business days of whichever is later:
+A transaction w/ the client in the new state
+The discovery by the RR of the clients change in residence
3 Conditions for BD Agent Exceptions
1.) Exception does not apply if RR is ineligible to register in the new state
2.) RR must be registered with a registered securities association (FINRA) and at least 1 state
3.) RR’s BD must be registered in the new state
A person who represents the issuer of certain _____________ _________ is not an agent.
Exempt Securities
A person who represents an issuer in an __________ ____________ is not an agent.
Exempt Transactions
A person who represents an issuer selling only to ___________ ________________ or in a ___________ ___________________ under the Securities Act of 1933 is not an agent.
Qualified Purchasers / Private Placement
Other terms for Administrator
1.) Commission
2.) Commissioner
3.) Secretary
Surety Bond
- An agent with discretionary authority over client funds or securities may be required by the Admin to post this
- Used to cover some of the damages that result from legal action against the agent or the firm
- Admin has some discretion in the $ amount
- Most common amount is $10,000
Grounds for denying an application for registration as an agent.
Filing incomplete application or one that contains a false or misleading statement
- Willfully violating or failing to comply w/ any provision of the USA
- Being convicted of any misdemeanor involving any aspect of the securities business, or any felony, within the last 10 years
- Having been enjoined (prohibit) by a court from participating in the securities business
- Found to have violated any federal securities or commodities law or such laws in another state
- Engaging in dishonest or unethical practices in the securities business
- Not being qualified on the basis of such factors as training, experience or knowledge of the securities business
- Failing to pay proper filing fee
***Admin can’t deny solely on basis of lack of experience if applicant is otherwise qualified
**Agent must have been convicted, not just accused
BD Acting for the Account of Others (a Broker)
Acting in an Agent Capacity
- Matching buyers and sellers
- Paid by commissions
Who is NOT a Broker-Dealer?
1.) A bank, savings institution or trust company’
2.) An Issuer
3.) An Agent
4.) A person that has no place of business in the state and deals only with BD’s, Institutional Investors (banks, insurance companies, investment companies, pension plans and other financial Institutions) or the issuer of the security involved in the transaction
5.) A person who has no place of business in a state (but who is licensed in a state in which it does have a place of business) and who offers and sells securities in the state only with existing customers in the state who are not residents of the state is not considered a BD
Institutional BD Exemption
A firm is NOT a BD in a state as long as it has no place of business in the state and only works with Institutions
NO TIME FRAME
Example:
ABC BD is registered in Nebraska. It does work with other BD’s in Iowa, without having an office in Iowa. ABC BD is NOT a BD in Iowa and it doesn’t have to register in the state of Iowa
Non-Resident BD Exemption (Retail Customer BD Exception)
A firm is NOT a BD in a state as long as it has no place of business in the state and only works with existing customers who are non-residents of the other state they are in.
NO TIME FRAME
Example:
ABC BD is registered in Nebraska. Their customer, Jane, lives in Nebraska but she is in Iowa visiting her great aunt Wilma. ABC BD does business with Jane only while in Iowa. ABC BD is not a BD in Iowa and it doesn’t have to register in Iowa.
When is a firm a BD registered in a state?
As soon as they have an office in the state and/or retail (non-institutional) customer who lives in that state.
In other words:
- A BD firm must be registered in a state where the firm has an office
- A BD firm must be registered in a state where it has a retail customer who lives in that state
- A BD firm must be registered in a state where the firm has an office AND a retail customer who lives in that state
Office of Supervisory Jurisdiction (OSJ)
Office of a BD where any of the following occur:
- Order execution
- Approval of new accounts
- Approval of retail communications
- Review of customer orders
The Supervisor of a Broker Dealer
- Oversees the review and approval process for all new accounts, all transactions and all customer communications
- Monitor outside activities of BD agents
- Handle customer complaints
- Must pass the required FINRA supervisory exams (Series 24 or 26)
_ Must be registered in the state as an agent
Any partner, officer or director of a BD at the time it is granted registration, is…
automatically registered as an agent of the BD
Books and Records for Broker-Dealers
- Most records must be retained for at least 3 years and can be kept in any manner as long as they can be readily copied and printed
- Must be kept in an easily accessible location for the first 2 years
Records that must be kept on file at a BD for 6 years:
-Principal designation records
- Records of original entry
- Trade blotters
Lifetime retention records
- Stock certificate books
- Partnership papers
- Articles of Incorporation
- Minutes of BOD meetings
Investment Advisor Book and Record Retention Rule
Must generally keep records for 5 years
One of the most common ways to determine whether a new financial instrument qualifies as a security.
- Has 3 elements
1. An investment of money
2. in a common enterprise, with
3. the expectation of profits from the efforts of a 3rd party - If all 3 are present, the instrument is deemed to be an investment contract and is subject to federal and state securities laws
Unusual securities subject to state securities law
- Pyramid schemes/Ponzi schemes
- Multilevel distributorship arrangements
- Merchandise marketing schemes
- Whiskey warehouse receipts
- Viaticals
