Investment Advisory Practices Flashcards
What is not pertinent when opening an account, a client’s educational or financial background?
Educational background
If a client gives little information when opening an account, what securities may an agent recommend to the client?
Only securities that are suitable based on the information the client did provide
What is soft-dollar compensation?
Non cash compensation paid by a BD to an IA for directing securities transactions.
What forms of soft-dollar compensation are acceptable?
Research reports, seminars, software used to provide analysis
What forms of soft-dollar compensation are NOT acceptable?
Rent, travel expense reimbursement, hardware, furniture, entertainment, meals
True or False: IAs have a fiduciary responsibility to clients and must obtain best execution on directed transactions.
True
True or False: Under the Uniform Prudent Investor Act (UPIA), an IA’s main objective should be risk avoidance.
False. The UPIA indicates that advisers are responsible for managing risk, not avoiding risk.
IAs have greater responsibility to their clients than BDs. This is referred to as the IA’s ___________ responsibility.
IAs have greater responsibility to their clients than BDs. This is referred to as the IA’s fiduciary responsibility.
True or False: A mutual fund asset allocation program requires a special wrap program disclosure document.
False. These programs charge a percentage of assets to manage a portfolio of no-load mutual funds.
Identify the acronym: UPIA
Uniform Prudent Investor Act
Describe a soft-dollar arrangement between an IA and a BD.
An IA directs client transactions to a specific BD in return for research and brokerage services.
To be allowed, a soft-dollar arrangement must benefit ____________.
To be allowed, a soft-dollar arrangement must benefit the client.
Identify some permissible uses of soft-dollar arrangements.
Soft dollars are permitted for obtaining research reports, software, and fees for attending conferences/seminars.
What are some of the examples of items that cannot be covered by a soft-dollar arrangement?
Advertising, travel expense reimbursement, meals and entertainment, and computers
True or False: An agent must always have reasonable grounds for recommending a particular security.
True