Part 1 Flashcards
Federal Cover advisor obligation in state where it has office
- It must notify the administrator of its SEC registration
- It must pay state-required filing fees
Blue Sky laws (USA) pertains NOT to
The regulation of securities trading in other countries
It DOES pertain to:
a. The registration of securities within states
b. The registration of securities salespeople in a state
c. The registration of securities transaction in a state
Excluded from definition of an invst. advisor if solely incidental to the business in which they are engaged?
a. Industrial engineer
Insurance business that exclusively provides advice on FI annuity
Need not to register under securities law uc they are only insurance products
Consent of service process
Right to administrator to process complaints against a registrant
Prepayment of advice fee for SEC registered firms
Must include a balance sheet with their brochure. More than 1200, 6 or more months in advance.
LATE
Lawyers, Accountants, teachers, and engineers giving investment advice incidental to their profession are excluded.
State registered remain state registered if at the end of the year as assets less than 100mil
If it goes up in the middle of the year, not important. Filing is in the new year so still state registered if there is short-term AUM increase
IA registration takes effect
noon of the 30th day. If April 15, then May 15.
Not automatically
and if amendment is filed, then 30 days after the amendment.
IA excluded publication:
General (not time to time) and impersonal
bona fide, containing disinterested commentary without promotional material
Registered in CA and no office in Oregon
Exempt to register in Oregon if:
1. No more than 5 clients who are residents of Oregon (de minimis exemption.
Three ways to say this:
a. Fewer than 6
b. five or fewer
c. No more than 5
App to register IAR within state (ADV) as sole proprietorship no need to:
Articles of incorporation
State may require federal covered advisor
Copy of IA’s form and and filing fee
IA to private fund wishes to qualify for exemption under USA when fund has no more than 100 investors
Every investor must have either $1 mil in asses managed by IA or net worth excluding primary home of $2.1 mil
The 100 or less investors is technically known as advising a 3(c)(1) issuer.
Private funds not apply to
Leveraged ETF
They do apply to;
a. Venture capital fund
b. Hedge fund
c. Issuer that would be an investment company
If advising insurance companies ini state X
only required to register in state x
If insurance agent prepares financial plans/prdoducts
Must register
XYZ is registered in all 50 states but principle office in state C and branch in A. State U administer wishes to examine financial records
CAN’t examine those records located in state U (cuz there is no place of business and therefore, no records)
Can do:
-do so during normal business hours without prior notice
-Ask administrator of state C to perform the exam
-ask FINRA to perform the exam
IA can borrow from those that are in the business of lending
Does not include mortgage broker who helped the advisor negotiate mortgage terms for its office building
Includes banks, brokerages, and savings and loan associations.
Cycle; furniture (durable goods)
Buy less during recession and more during expansions
IRR not used to valuate:
Common stocks
It is a discount rate that makes future value of an investment equal to its present value. There has to be a maturity date or some ending date to compute FV so stocks do not fall into that.
Intrastate exemption does not apply to IA with a private fund as a client.
If residing and. having an office in the same state as the client.
Disclosures in firm’s brochure, exemption
If the client is an investment company and if the client is a person receiving impersonal advice for which the annual fee is less than $500.
Broker dealer registration: Registered in state M but no office in state N,
Would not be defined as broker dealer in state N if:
-Its only clients are insurances
-Occasionally engage in firm commitment underwriting with issuers based in state N.
business with I, other broker dealers, and issuers. No de minimis exemption. Any solicitation requires registration.
Securities act of 1933 would not apply to:
Fixed annuities and other fixed insurance contracts (cause they are non-security)
-Applies to NYSe stocks, bonds of foreign govs, and stocks and bonds issued by insurance firms.
USA though exempts NYSE and foreign govs offerigns.
Investment advisor subject to registration in the state.
Unless the adviser is federal covered, any adviser with a place of business in the state, no matter to whom the advice is sold, is required to register with the state. An adviser with no place of business in the state is only exempt if the advice is given to certain institutional-type clients, such as insurance companies and banks, not individuals, wealthy or not. Since fixed annuities are not securities, advising on them does not require registration. Remember, if any of your clients are registered investment companies, you must be a federal covered adviser making registration with state non-applicable.
After investigation started by the admin to revoke IA’s registration
-IA can not elect to withdraw its registration (cause investigation is already started)
Other things are true:
-Admin must point to specific facts of law violated
-IA has a right to a hearing
-Appeal might be filed with 60 days of the final order
When selling nonexempt security while thinking it was exempt, BD offers to buy it back
This is legal and is called rescission. When no intent to fraud, Rescission is the return of the customer’s money plus interest, less any income received from the investment.
If net worth fall below min. req. they must
a. Notify admin by the close of COB on the day after discovery
b. File a report of its financial condition with the admin no late than the COB on the day after notif.
If one state considers felony, the other state registering IAR considers it just misdemeanor ,
The record always shows felony and therefore, is a statuary disqualification.
federal covered securities
include shares of an investment company registered with the SEC under the Investment Company Act of 1940
Working capital
Current assets-current liabilities
affected by calling a portion of bonds in par value. you pay cash for bond (long term liability) them. Taking out a short tem loan increases CL but the borrowed money is CA equal amount so no change. Paying bill same effect.
Balance sheet ratios
debt/asset. liabilities, and retained earnings all belong to BS.
Wash trades
Simultaneous selling and repurchasing of the same security for the purpose of generating the appearance of trading activity and increasing price.
MODEL CUSTODY RULE, IA is permitted to take or have custody of securities or funds of any client
notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state’s rules
Gross profit (revenue minus COGS).
When depreciation is related to production of sales, then counted in the calculations. However, most of the time it is not by NASAA. we dont add admin or misc. expense or taxes in the formula.
Soft dollar provision
Section 28(e) of the Securities Exchange Act of 1934 provides a safe harbor for research and brokerage services provided in exchange for directed transactions. Clearance and settlement of trades is a qualifying brokerage service.
Anyone who represents an issuer in effecting transactions between the underwriter and the issuer
is excluded from the definition of agent under the Uniform Securities Act
IA to investment companies
Investment advisers that act as advisers to investment companies registered under the Investment Company Act of 1940, regardless of their size, are required to register with the SEC
