Investment advisers

Question 1

what is an investment adviser (IA)

Answer 1

an investment adviser (IA) is a person (firm) that engages in the business of advising others, either directly or indirectly, through analysis, publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, and charges a separate fee for such services.

Question 2

what is the release IA-1092 exactly?

Answer 2

Release IA-1092 is a document issued by the Securities and Exchange Commission (SEC) in consultation with state regulators to provide guidance and further clarify the definition of an investment adviser (IA). It clarifies the activities that qualify as providing advice about securities, as well as the compensation that triggers the need for registration as an IA.

Question 3

What are other persons who can be considered investment advisers?

Answer 3

Financial planners who develop tax or estate plans for clients, and may recommend securities to implement the plan, would generally fall under the definition of an investment adviser.

Pension consultants who provide advice as to the types of funding media available to provide plan benefits and may recommend investment in specific securities or other investments would be considered investment advisers.

Sports or entertainment representatives who offer investment advice or invest client assets in securities would also be considered investment advisers.

Question 4

what is a fiduciaries?

Answer 4

Those who act on behalf of and in the interests of their clients

Question 5

who is considered a fiduciary?

Answer 5

IAs, Other examples of fiduciaries include executors, trustees, guardians, and custodians

Question 6

Who is excluded from the definition of IA

Answer 6

Investment advisers representatives
Lawyers, accountants, teachers, engineers (LATE)
Broker-dealers and their agents
Banks, savings institutions, and trust companies
Publishers
Federal covered investment advisers

Question 7

IA institutional exemption

Answer 7

This exemption applies to an investment adviser that has no place of business in the state and has only institutional clients in the state. Institutional clients include:

Registered investment companies
Other investment advisers
Federal covered advisers
Broker-dealers
Banks or trust companies
Savings and loan associations
Insurance companies
Employee benefit plans with assets of at least $1,000,000
Governmental entities, including governmental agencies

A firm that meets the institutional exemption for an investment adviser is still considered an IA in the state, however the firm does not have to register in that specific state as an investment adviser.

Question 8

Retail Customer (De Minimis) Exemption

Answer 8

an investment adviser that has no place of business in the state and during the preceding 12 months, has had fewer than 6 (also stated as no more than 5) non-institutional clients in the state.

Question 9

Do private fund advisors need to register with the state if they have assets of 150 million or more?

Answer 9

No Advisers who provide services to qualifying private funds, which are funds with assets under management of $150 million or more, are not required to register with the state. Instead, they must register with the SEC by filing parts of form ADV and form PF, and are exempt from state registration requirements.

Question 10

Do private fund advisors need to register with the state if they have assets of less than 150 million?

Answer 10

Advisers to private funds with less than $150 million in AUM are required to register in the state where they are physically located, and in any state where they solicit or conduct advisory business.

Question 11

How often do PFAs have to file form ADV with SEC?

Answer 11

Annually

Question 12

What types of customers are exempt from the state registration requirement for investment advisers and their representatives according to the SEC?

Answer 12

Advisers and their representatives whose only customers are SEC-registered qualifying private funds are also not required to register with the state.

Question 13

Who is the IA regulated under if they have $110 million or more in Assets Under Management?

Answer 13

SEC only (Federal covered advisers)

Question 14

Who is the IA regulated under if they have $100 million or more, but less than $110 million in Assets Under Management?

Answer 14

Investment adviser has choice to register with the state or SEC

Question 15

Who is the IA regulated under if they have Less than $100 million in Assets Under Management?

Answer 15

State only

Question 16

Who is the IA regulated under if they have a Private Fund Adviser with less than $150 million in Assets Under Management?

Answer 16

State, but must file parts of ADV with SEC as “Exempt Reporting Adviser”

Question 17

Who is the IA regulated under if they have a Private Fund Adviser with $150 million or more in Assets Under Management?

Answer 17

SEC only (must file form PF along with form ADV)

Question 18

Who is the IA regulated under if they have Investment advisers providing services to investment companies?

Answer 18

SEC only

Question 19

What is the Buffer Zone?

Answer 19

An adviser registered with the SEC can keep their registration if their assets under management fall below $100 million, and can go as low as $90 million before having to register with the state(s).

Question 20

When can an IA chooses to register with the SEC?

Answer 20

if less than $100 million and are required to register in 15 or more states and have at least 25 million AUM

Question 21

When a firm regiister with the SEC as a federal covered advisor?

Answer 21

A firm acting as an investment adviser for a registered investment company, regardless of their assets under management, must register with the SEC as a federal covered adviser.

Question 22

When a firm regiister with the SEC as a federal covered advisor?

Answer 22

A firm acting as an investment adviser for a registered investment company, regardless of their assets under management, must register with the SEC as a federal covered adviser.

Question 23

what is a family office exclusion

Answer 23

The office may only provide advice to family members.
The office must be completely owned and controlled by family members
The office cannot advertise itself to the public as an investment adviser

Question 24

Do Federal covered advisers need to register with state?

Answer 24

Federal covered advisers are not required to register with states under federal regulations, but they need to file a notice with the state and pay annual notice filing fees

Question 25

Are Federal covered advisors considered IAs

Answer 25

They are excluded from the definition of investment adviser under the USA.

Question 26

explain the process of IA registration

Answer 26

When an investment adviser applies for registration, they have to provide the same information as the standardized application. The Administrator may accept standardized applications filed through the IARD. As part of the registration process, officers or partners of the adviser may be required to pass an exam if they work in an advisory role.

Question 27

What is Part 1A of form ADV

Answer 27

Part 1A is in a checklist format and requires detailed information about the investment advisory firm. Specific information about the IA in Part 1A includes:

Name and address of the investment adviser firm
Address for the principal office
Structure of the investment adviser business
Investment adviser’s method of business
Business practices
Custody of funds
Disciplinary events
Location of books and records
States in which the investment adviser is already registered or intends to be registered in

Question 28

what is part 1b in form adv?

Answer 28

Part 1B is specific to information required by state securities administrators. A federal covered IA firm is not required to complete Part 1B.

Question 29

what is form adv part 2 contain?

Answer 29

Form ADV Part 2 is a written description of an investment adviser’s services and practices, which must be written in plain English. Part 2A includes details about the firm’s business practices, services, strategies, and conflicts of interest. Part 2B, or the brochure supplement, contains information about the adviser’s representatives, including their background, experience, and any legal or disciplinary issues relevant to clients.

Question 30

What is the min net worth form IAs who have custody of client assets

Answer 30

$35,000 and file an audited balance sheet with the State Administrator

Question 31

IAs that only have discretionary authority over client assets must maintain a min net worth of?

Answer 31

10,000 and file an unaudited balance sheet with the state administrator

Question 32

What should the IA do if their net worth falls below the required amount?

Answer 32

The firm must notify the administrator by close of the next bus day. Upon notification the firm must file a financial report with the admin by close of business the following bus day.

Question 33

when must IAs maintain a positive net worth and file an audited balance sheet?

Answer 33

When they accept prepayment of more than 500 per client, 6 or more months in advance

Question 34

what does the admin require the firm to do if IA has custody of or discretionary auth over client assets.

Answer 34

They must post a surety bond or deposit of cash or securities.