Module 5: Regulatory Requirements and Financial Institutions Flashcards
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)?
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
Who must register as an Investment Adviser
Anyone who is:
- Providing Advice
- Is in the business of providing services
- Someone who is compensated for such services
Who is EXCLUDED from the definition of an investment advisor?
- 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
Who is EXEMPT from the requirement to register as an investment advisor?
- 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
The Broker Dealer Exception Rules
- 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
Investment Adviser Registration
- 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
Key Disclosure Document
- Part 2A of Form ADV/the adviser’s brochure
- 48 hours prior to entering into any written or oral investment advisory contract
The Securities Act of 1933
Applies to most new, publicly issued securities. All new issues must be accompanied by prospectus
The Glass-Steagall Act of 1933
Prohibited the financial institutions from consolidating and offering any combination of traditional commercial banking, investment banking and insurance
The Securities Exchange Act of 1934
Created the SEC, extends regulations to existing securities.
The Maloney Act of 1938
Created a self-regulatory organization of OTC securities dealers
The Federal Bankruptcy Act of 1938
This act provides for the liquidation of hopelessly troubled firm and provides for the reoganization of troubled firms that might be able to survive
The Investment ADvisers Act of 1940
Wrote into law the fiduciary duty owed by investment advisers to their clients. The act defines an investment adviser as we know ABC.
The Investment Company Act of 1940
SEC can regulate certain financial products like mutual funds.
McCarran-Ferguson Act of 1945
States are the legislators on insurance products
The Securities Investor Protection Act of 1970
SIPC - maximum value of $500,000 of which only $250,000 can be cash balances
The Insider Trading and Securities Fraud Enforcement Act of 1988
Specified what constitutes the insider trading of securities and stiffened the penalties for engaging in such trading.
Gramm-Leach-Bliley Act of 1999
Private information protection act and getting rid of the Glass-Steagal Act
The USA PATRIOT Act of 2001
Requires broker-dealers, among others, to have internal policies and procedures to combat terrorism.
The Sarbanes-Oxely Act of 2002
Set new standards for Public Accounting by creating the Public Company Accounting Oversight Board
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Created the Consumer Protection Financial Bureau
FINRA conduct rules
- Market Regulation
- Member Regulation
- Enforcement
- Dispute Resolution (arbitration and mediation)
- Advertising regulation/investment companies
Registered Representatives registration process
- 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
Series 6
Can sell:
- mutual funds
- Variable Annuities
- Variable Life Insurance
- and Initially offered Unit investment trusts
