Overview Flashcards
Investment advisor Representative is any partner, officer, or other individual associated with an investment advisor who:
Makes recommendations or gives advice regarding securities, manages accounts or portfolios of clients, determines which recommendations or advice should be given, solicits/offers or negotiates the sale of investment advisor and services, supervises employees who perform any of these functions
Which is NOT a security
Fixed annuities, life insurance (term, while, universal), endowments, commodity futures contracts, an IRA/Keogh plan
Agents, issuers, and banks are not:
Broker dealers
Federal covered securities: require notice filing, consent to service of process, and payment of the fee?
Yes, if issued by a mutual fund. No, if issued by listed company (New York Stock Exchange, NASDAQ)
File Application (CRD or IARD) details:
Effective on the 30th day after filing, expires annually on December 31. Updated annually at renewal, amendments for material changes are filed promptly (30 days)
Consent to service of process
Filed once, not renewed. Grants administrator power of attorney to receive and process non-criminal legal complaints
Filing fee is paid (including successor firms?):
Paid annually. For successor firms, application must be filed, no additional filing fee for remainder of year)
Unacceptable soft dollar arrangements include:
Payment for marketing, travel expenses, meal and entertainment, salaries, accounting and licensing fees, computer terminals, correction of trading errors
To register with the SEC (or state), IAs must:
File Form ADV Pt. 1 and 2 through IARD (operated by FINRA)
Federal (IAA Act of 1940) exclusions from IA Definition:
Banks or bank holding companies (NOT SandLs or IA subsidiaries of banks or investment companies), professionals (lawyer, accountant,teacher, engineer), B-Ds and their REPS, bona fide publisher, US Government Securities Advisers
State exclusions from IA Definition (different ones)
Banks, S&ls, trust companies (NOT bank holding companies), B-Ds and their AGENTS, IARs, Federal Covered Advisers
State exclusions from IA Registration:
No place of business in state, institutional exemption, fewer than >5 non institutional clients over past 12 months
Federal exclusions from IA Registration:
Local exemption [all clients are resident of state] (remember no advice on EXCHANGE LISTED securities), insurance exemption, private funds with
US Mail or Telephone jurisdiction:
Two states max (originating state and state to which it is directed) NO forwarded mail
Television or radio jurisdiction:
One state only (state in which the camera/microphone is located)
Newspaper or magazine jurisdiction:
One state or no state (state in which the newspaper/magazine is published, unless more than two thirds of the circulation is outside the state)
Statute of limitations on taking action to recover damages made in violation of state registration:
Within three years of occurrence or two years of discovery, whichever comes first
One of the most common uses for a bypass trust:
Pass assets from the second deceased parents to his children
Both an offer and the sale:
Warrants, rights, gift of assessable stock (need disclosure of material facts)
State/Fed penalties
3 years/$5,000 state
5 years/$10,000 fed
5 for criminal violations (e.g. Fraud, state and fed)
Schedule 13D
Owners of more than 5% of company equity
Schedule 13F
Exercises discretion over $100,000,000+ must file on quarterly basis
Expected return (modern portfolio theory)
Possible return on the investment weighted by the likelihood that it will be realized
Futures details
Standardized quantity, variable quantity (as agreed), non-personal, may be offset
Forwards details
Variable quantity (as agreed), OTC traded with negotiable terms, personal, may NOT be offset
Which two types of insurance have fixed premiums?
Whole life and variable life (not universal or variable universal)
ERISA provisions apply to:
401 (k), 403 (b), SEP, SIMPLE
After tax dollar funded:
Non-qualified variable annuities, universal life policies, 529 plans
When looking up tax consequences of trading securities within a trust, trustee should look at:
Other taxable income generated by the trust
Investment advisor is required to record and keep a record of every transaction and security for a client account within:
10 days of the end of the quarter, excluding direct obligations of the US government
Which securities may have the registration denied or revoked by the administrator?
Nonprofit, exchange listed, investment contract for employee benefit plans
Withdraw cash value from life insurance vs. take loan tax consequences:
Withdraw= return of premiums first (FIFO), then taxable earnings Loan= tax-free
Exception as an agent (as a broker dealer/issuer):
Broker dealer capacity: never
Issuer: exempt transactions only
Non-qualified annuity penalties/RMD structure
10% penalty for withdrawal before 59.5 (tax deferred earnings are subject to penalty, cost basis is tax-free). No RMD.
Qualified annuity penalties/RMD structure
10% penalty before 59.5 (100% subject to penalty). RMD by 70.5.
A nonspouse who inherits an IRA when the decedent died before age 70 1/2 may withdraw the entire account by:
Over his expected lifetime, by the end of five years, or a lump sum distribution
Universal life insurance:
All premiums deposited in general account. Flexible premiums and/or death benefit. Also has cash value that grows at minimum interest rate and an actual rate that can be higher. Good for unpredictable income.
Requests for materials from an IA must be met within:
7 days
Under USA, any transaction involving ‘x’ is private placement:
No more than 10 persons
Whole life insurance:
Premium payments are invested in the general account. Guarantees owners cash value and provides fixed guaranteed death benefit.
Sector rotation - when economy is headed towards recovery, best asset classes:
Tech, industrials, cyclicals
Sector rotation - when economy is headed towards recession, best asset classes:
Consumer staples, utilities, service, financial
Variable life insurance policy notes:
Included in the estate of the deceased, not taxable to the beneficiary. Beneficiary may elect to receive the death benefit as an annuity. There is a minimum guaranteed death benefit. Withdrawal of cash value is FIFO (tax-free return of premiums first).
Firms let maintain custody of cost where assess must satisfy these guidelines:
1) customer funds must be segregated
2) location of assets must be disclosed in writing
3) Records must be audited annually
NASAAs model requires an advisor to file a balance sheet whenever:
1) advisor requires the pre-payment of fees in excess of $500, six or more months in advance
2) adviser maintains custody (full discretion)
A top-heavy retirement plan is:
Any nonqualified plan in which highly compensated employees may participate without limit of income (deferred compensation plans)
Testamentary trust:
Used when donor wishes to control trust assets during her lifetime. Executor will before yes to fund trust with assets within the estate. Does not avoid probate.
Living (inter vivos) trust advantages:
Avoids probate, control of assets
When to send a balance sheet (fed/state):
Fed: only if collecting/soliciting a prepaid fee of >$1,200
State: maintaining custody, and above but with $500
Money Purchase Plan:
Defined benefit plan in which employer must make mandatory contributions (tax deductible)
When must Form 8-K be filed?
4 days after occurrence of event
Alpha is defined as:
Difference between the expected return of an investment and it’s actual return
An investment advisor must give a client or prospective client a disclosure document (usually Form ADV Part 2) at least:
48 hours before or at the time of opening (unless clients are investment companies/impersonal services for
Reports must be made to the state administrator within:
10 business days from the end of the quarter
The most important factor when attempting to diversify a stock portfolio is:
Correlation
Retention requirements for the maintenance of books and records of investment advisor/broker dealers are:
5 for IA, 3 for BD (2 years in easily accessible location for both)
Stating to a client that the offering price of a security is the current market price is prohibited if:
The broker-dealers the only marketmaker in that security
An investment advisor that wishes to act as a principal for its own account must:
1) disclose the capacity in which it is acting prior to the completion of the transaction
2) obtain the clients written consent
This rule does not apply to broker-dealers when they are not acting as investment advisors
Canadian BD can effect transactions for Canadian clients who are temporarily in US if:
They register with the appropriate state. Agent handling account must register as well.
If agent discovers she has inadvertently sold an unregistered non exempt security, she can:
1) repurchase security through offer of rescission
2) pay customer 6% interest (or max legal rate) less dividend/interest income received [must respond within 30 days or right to sue is waived]
State admins have jurisdiction over securities transactions that are:
1) directed to their state
2) originate in their state
3) paid for in their state
Accredited investor thresholds:
Annual income of $200,000 ($300,000 with spouse) or minimum net worth of $1,000,000
Qualified client threshold:
AUM of at least $1,000,000 or net worth of $2,000,000
Roth IRA characteristics:
Funded with after tax dollars. Qualified distributions held more than five years may be withdrawn tax free after 59.5
When advertising on the Internet, an agent of the broker-dealer must disclose:
1) name of affiliated BD and of BD that reviewed/approved content
2) fact that agent is working within scope granted by BD
3) legend stating he will not conduct business unless registered or exempt
Listed securities are considered:
Federal covered securities and exempt from registration with the administrator. They are not subject to notice filing.
Which federal covered securities are subject to notice filing?
Investment companies and Rule 506 companies (Reg D)
Closed-end management company characteristics:
1) shares not redeemable-no fractionals
2) usually traded in open market/exchange
3) commission/markup charged (common, preferred, bonds)
Short-term, corporate, fixed income securities such as commercial paper and bankers acceptance may qualify as an exempt security if:
1) minimum denomination of $50,000
2) rated and one of the three highest rating categories by a nationally recognized statistical rating organization
3) maximum maturity is nine months
CAPM measures risk using:
Beta for systematic, Alpha for non-systematic
NASAA Recordkeeping Requirements includes retention of all documents the IA files (state and fed) regarding:
Registration applications, fingerprint cards, amendments, renewal filings, correspondence
Written materials defined as written materials distributed to:
35 or more persons who pay
Felony vs. misdemeanor:
Felony: General court martial, at least 1 year/$1,000
Misdemeanor: special court martial,
Inherited securities cost basis:
FMV of securities, automatic long term holding period
An SROs penalty for minor rule violations is:
Fine of $2,500 or less
IS registration renewal is required by (fed/state):
Fed: within 90 days of advisers fiscal year end
State: expire at end of calendar year and then must be renewed
Form ADV-H, NR, W
H - seeking exemption for temporary hardship
NR - Nonresident general partner
W - seeking partial or full withdrawal
Capital needs analysis used to:
Determine how much insurance the client need to fund future financial goals
When the rules for exempt securities overlap:
The more restrictive rule applies. Securities can be exempt under federal but not state and vice versa
An agent not registered in the state has how many days to do so:
60
Advantage of Coverdell over 529:
Custodian has a greater control over the investments, not just college
Zero coupon advantages:
They can be purchased at a deep discount, no reinvestment risk, no tax liability at maturity
Criminal, Regulatory, Civil Judicial Action DRP:
Felony or misdemeanor charges, SEC or state or foreign financial regulatory authority, civil court
Trustee is responsible for reporting income, gains, and losses of the trust on the form:
1041
Form 1065 and K-1 used by:
Partnerships
Form 1040 is used for:
Personal tax returns
True or false: USA classifies agent of a BD who also manages wrap account as an IA
False. IAs are firms, NOT individuals
Is an adviser to a mutual fund considered an IA under USA?
No, mutual fund advisers are federally covered
In state law, individuals representing issuers and affecting securities trades are NOT deemed agents if;
It involves exempt transactions/securities
Federal covered securities are:
Listed securities (NASDAQ, NYSE). these are NOT subject to notice filing
