Module 5: Regulatory Requirements and Financial Institutions

Question 1

According to the Dodd Frank Wall Street Reform and Consumer Protections Act, what are the different sizes of Investment Advisors (and how must they register)?

Answer 1

Small Adviser - Less than $25m must register with the state
Midsized Advisers - Between $25m and $100m, must register with the state where it has a principal office
Large Advisers - Over $100m and must register with SEC

Question 2

Who must register as an Investment Adviser

Answer 2

Anyone who is:

• Providing Advice
• Is in the business of providing services
• Someone who is compensated for such services

Question 3

Who is EXCLUDED from the definition of an investment advisor?

Answer 3

• LATE (Lawers, Accountant, Teachers and Engineers), who’s performance is incidental
• Broker Dealer whose performance is incidental
• A Bank or bank holding company
• A publisher of a bona fide newspaper or financial publication of general or regular publication
• a person whose advice is limited to securities issued and guaranteed by the U.S government

Question 4

Who is EXEMPT from the requirement to register as an investment advisor?

Answer 4

• an intrastate adviser of unlisted securities
• An adviser whose only clients are insurance companies
• Foreign private advisers
• Charitable Organizations and plans
• Commodity trading advisers
• Private fund advisers
• Venture Capital Advisers
• Advisers to small business investment companies

Question 5

The Broker Dealer Exception Rules

Answer 5

• Solely Incidental
• Special Compensation (must only receive commissions, markups, and markdowns)
• Bundled Fees - is considered special compensation
• Seperate or identifiable charges - if the brokerage charges a separate fee for investment advice

Question 6

Investment Adviser Registration

Answer 6

• Registration must be submitted electronically through a filing system called the Investment Adviser Registration Depository.
• Within 45 days, the SEC must grant registration.
• The advisor submits a Form ADV Part I schedule annually
• To terminate registration, investment adviser must file Form ADV-W

Question 7

Key Disclosure Document

Answer 7

• Part 2A of Form ADV/the adviser’s brochure

- 48 hours prior to entering into any written or oral investment advisory contract

Question 8

The Securities Act of 1933

Answer 8

Applies to most new, publicly issued securities. All new issues must be accompanied by prospectus

Question 9

The Glass-Steagall Act of 1933

Answer 9

Prohibited the financial institutions from consolidating and offering any combination of traditional commercial banking, investment banking and insurance

Question 10

The Securities Exchange Act of 1934

Answer 10

Created the SEC, extends regulations to existing securities.

Question 11

The Maloney Act of 1938

Answer 11

Created a self-regulatory organization of OTC securities dealers

Question 12

The Federal Bankruptcy Act of 1938

Answer 12

This act provides for the liquidation of hopelessly troubled firm and provides for the reoganization of troubled firms that might be able to survive

Question 13

The Investment ADvisers Act of 1940

Answer 13

Wrote into law the fiduciary duty owed by investment advisers to their clients. The act defines an investment adviser as we know ABC.

Question 14

The Investment Company Act of 1940

Answer 14

SEC can regulate certain financial products like mutual funds.

Question 15

McCarran-Ferguson Act of 1945

Answer 15

States are the legislators on insurance products

Question 16

The Securities Investor Protection Act of 1970

Answer 16

SIPC - maximum value of $500,000 of which only $250,000 can be cash balances

Question 17

The Insider Trading and Securities Fraud Enforcement Act of 1988

Answer 17

Specified what constitutes the insider trading of securities and stiffened the penalties for engaging in such trading.

Question 18

Gramm-Leach-Bliley Act of 1999

Answer 18

Private information protection act and getting rid of the Glass-Steagal Act

Question 19

The USA PATRIOT Act of 2001

Answer 19

Requires broker-dealers, among others, to have internal policies and procedures to combat terrorism.

Question 20

The Sarbanes-Oxely Act of 2002

Answer 20

Set new standards for Public Accounting by creating the Public Company Accounting Oversight Board

Question 21

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Answer 21

Created the Consumer Protection Financial Bureau

Question 22

FINRA conduct rules

Answer 22

• Market Regulation
• Member Regulation
• Enforcement
• Dispute Resolution (arbitration and mediation)
• Advertising regulation/investment companies

Question 23

Registered Representatives registration process

Answer 23

• Pass the Securities Industry Essentials Exam
• Associate with a broker/dealer
• Register with FINRA through broker and complete background and information check using For U-4
• Pass the appropriate FINRA Series Licensing exams
• Receive a Central Registration Depository (CRD) number and documentation for the securities licenses held
• Complete annual continuing education requirements through her brokers or dealers

Question 24

Series 6

Answer 24

Can sell:

• mutual funds
• Variable Annuities
• Variable Life Insurance
• and Initially offered Unit investment trusts

Question 25

Series 7

Answer 25

Entitles the holder to sell any security, including indiviaul stocks and ETF’s

Question 26

SEries 24

Answer 26

To be able to be a principal

Question 27

Series 63

Answer 27

State securities law to allow individuals to sell securities within their state

Question 28

Series 65

Answer 28

Entitles holder to provide investment advice to clients.

Question 29

Series 66

Answer 29

A combination of the 63 and the 65

Question 30

Three agencies that National Banks are subject to regulation by

Answer 30

Office of Comprtoller of the Currency (OCC), Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC)