Part 1 Cards Flashcards
the Administrator has the authority to
Issue stop orders and review standard registration forms… not approve new issues.
During the cooling-off period, the Administrator reviews registration statements and may issue stop orders. The Administrator does not approve securities; she only clears them for distribution to the public.
U5LO2
When a state-registered IA maintains custody of client funds and securities. On Thursday, the chief financial officer of the firm informs the chief compliance officer that their net worth is $31,578. Under the provisions of the Uniform Securities Act, the firm would
Send a detailed financial report to the Administrator by the close of business Monday.
A state-registered investment adviser who maintains custody of client assets must maintain net worth of at least $35,000 or a bond of the same amount (not both). If the net worth should fall below the minimum, by the close of the next business day after discovery (Friday in our example), notice of the deficiency must be sent to the Administrator of the state in which the principal office of the adviser is located. Then, by the close of business the day after that (Monday in our example), a detailed financial report, including the number of clients served by the adviser, must be sent to the Administrator. The firm would need to increase their net worth, not the bond.
U1LO5
If the net worth should fall below the minimum, what is the next sequence of events?
- By the close of the next business day, notice of the deficiency must be sent to the Administrator of the state in which the principal office of the adviser is located.
- Then, by the close of business day after that, a detailed financial report, including the number of clients served by the adviser, must be sent to the Administrator
Summary:
- After the net worth falls below minimum, the next business day notice must be sent to the Administrator of the principal office
- Then, by the close of the business after, a detailed report must be sent to the Administrator.
When an Administrator issues a final order, an agent subject to the order may
- obtain a review of the order in an appropriate court of law
- request that additional evidence be presented to the court
An agent subject to a final order of an Administrator has the right to have the order reviewed by an appropriate court in the state. If the court finds that the circumstances warrant such action, additional evidence may be submitted by any party to the case. An agent subject to an order must file for a judicial review of the Administrator’s final order within 60 days.
U5LO4
How long may an agent subject to an order file fir a judicial review of the Administrator’s final order?
60 days
The de minimis exemption applies when, during the preceding twelve-month period, the IAR has had no more than 5 retail clients. How might that be phrased?
- No more than 5
- Five or fewer
- Fewer than six
NOT 6 or fewer!
What must be included in an Investment adviser’s advisory contract?
- Whether the contract grants discretionary powers
- The term of the contract
- A clause preventing assignment without consent
- The formula used for computing the fee
Securities exempt from registration requirements include
- U.S government securities,
- securities issued by foreign governments who the US has diplomatic relations
- any securities issued by savings and loan or building and loan associations
- Insurance companies
- Credit unions
Typical broker-dealer fees as part of a fee disclosure document do not include
- Commissions
- Markups and markdowns
- Advisory fee for these firms that are also registered as investment advisers
The following securities are exempt from registration under the USA EXCEPT
A)stock of a bank holding company traded on the OTC Link
B)stock issued by an insurance company traded on the Nasdaq Stock Market
C)bonds traded on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX])
D)bonds issued by the City of Winnipeg
A)
Bank securities are exempt from state registration, but those of nonexempt bank holding companies are not
The Uniform Securities Act invests the Administrator with many powers over the activities of agents and broker-dealers. What are they?
- Issuing subpoenas to persons residing outside the Administrator’s state
- Issuing cease and desist orders without a hearing
- Conducting investigations of broker-dealers residing outside the Administrator’s state
What is not a power of the Administrator?
Suspending an agent’s registration without an opportunity for a hearing
Under the USA, no suspension or revocation may take place without an opportunity for a hearing.
U5LO2
Form ADV components
- the form of business organization
- the basis on which the adviser will be compensated
- the name of the adviser’s business
What is not a component of the Form ADV?
the personal securities holdings of the principals of the firm
The recordkeeping requirements established by the Administrator for out-of-state investment advisers wishing to register in his state are subject to the limitations of
For state-registered investment advisers, requirements set by the Administrator are subject to the limitations of the requirements set by the Administrator of the adviser’s home state. Covered advisers don’t register in any state, only with the SEC (and come under the SEC’s requirements set forth in the Investment Advisers Act of 1940).
U1LO5
What is the rule regarding Broker-dealer/Agents and the use of written discretionary authorization?
Written discretion authority has been received by the broker-dealer before executing the first discretionary transaction
No broker-dealer or any of its employees shall exercise any discretionary power in any customer’s account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer. It is an investment adviser who may act with oral consent for a period of 10 days from the initial discretionary trade.
U7LO2
What is the rule regarding IAs/IARs and the use of written discretionary authorization?
Written discretion or oral authority has been received by the broker-dealer within 10 days of the initial discretionary transaction
It is an investment adviser who may act with oral consent for a period of 10 days from the initial discretionary trade.
The Administrator in Texas has jurisdiction over an offer of securities made
- on a radio program originating in Texas
- on a radio program originating in Oklahoma
- in a newspaper circulated in Texas but published in Oklahoma
1 only.
The Administrator does not have jurisdiction over an offer made in a TV or radio broadcast that originated outside of the state. The same is true for a newspaper published outside the state.
U5LO1
An adviser who has custody of client securities or funds must do what of the following?
- submit to a surprise audit of client accounts by an independent accountant each year
- provide an audited balance sheet to the Administrator each year and include a balance sheet with his disclosure statement (brochure) to all prospective clients
- send monthly statements to clients on the status of their accounts
1 and 2………3 would be correct if it said “Quarterly” not monthly
An adviser (NOT BROKER DEALER) who has custody must submit to an annual surprise audit by an independent accountant and include an audited balance sheet with Part 2A of Form ADV, which must be filed with the Administrator and also forms the basis of the information that must be contained in the disclosure brochure. Other requirements include segregation of client securities, deposit of client funds into separate bank accounts, written notification to clients of the location of their property, and quarterly (not monthly) reports to clients on their accounts.
U7LO2
An investment adviser is eligible to register with the SEC if it
Anticipates acquiring at least $100 million in assets under management within the next 120 days
IAs must have at least $100 million in AUM in order to register with the SEC. If it is reasonable to expect reaching that level within the next 120 days, SEC registration is allowable now. One of the exceptions that would permit small and mid-size advisers to register with the SEC is if they would have to register in at least 15 states, not 10.
U1LO5
A state securities Administrator may do all of the following except
A)issue an injunction after a hearing
B)require the use of specific forms
C)issue a subpoena to registrants who are out of state
D)issue interpretive opinions
A. An administrator cannot issue an injunction after a hearing
A state securities Administrator may not issue injunctions, which are issued by courts, not administrative agencies. Administrators may require specific forms to be used, issue subpoenas to registrants who are out of state, and issue interpretive opinions.
U5LO2
Under the Uniform Securities Act, the sale of stock of a state bank is exempt from which of the following?
- Prospectus requirements
- Antifraud provisions
- Registration requirements
1 and 2.
Both the Uniform Securities Act and the Securities Act of 1933 exempt securities issued by banks, trusts, or savings and loans. While the security is exempt under both acts from registration and prospectus delivery requirements, it is never exempt from the antifraud provisions of the acts.
U4LO3
Under the Uniform Securities Act, an offer to sell includes all of the following EXCEPT
A) a solicitation of an offer to buy a security for value
B) an offer of a warrant to purchase or subscribe to another security
C) a distribution of a stock dividend in lieu of a cash dividend
D) an attempt to offer to dispose of a security for value
C) a distribution of a stock dividend in lieu of a cash dividend
Under the Uniform Securities Act, an offer to sell includes every attempt or offer to dispose of, or solicitation or an offer to buy, a security for value. If a corporation distributes a stock dividend instead of a cash dividend, and the shareholder is not required to make any payment, then issuance of the stock dividend does not constitute an offer to sell.
U5LO1
Which of the following items is NOT required under the customer identification program (CIP)?
A)Physical address
B)Date of birth
C)Visa details for non-citizens
D)Sex
D)Sex
The CIP does not ask if the account holder is male or female.
U18LO2
NASAA’s custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within how many business days?
3 business days.
NASAA’s custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within 3 business days. When it comes to checks, it depends on how the check is drawn. If made out to the investment adviser, it must be returned; if made out to a third party (usually the executing broker-dealer), it must be forwarded to that third party. In either case, the time limit is 3 business days (might be shown as 72 hours on the exam).
U7LO2
Small cap stocks have a market cap between
$300 million to $2 billion
Mid cap stocks have a market cap between
Mid-cap stocks are those with a market capitalization between $2 billion and $10 billion.
Large cap stocks have a market capitalization between
10 billion or more.
Under the Investment Advisers Act of 1940, the records that must be maintained by an investment adviser may be kept in which of the following forms?
- Hard copy
- Microfilm
- Computer disk
1, 2, and 3
The Investment Advisers Act of 1940 provides for the storage of records in several ways. Records may be kept in hard copy, or the hard copy may be microfilmed or microfiched. Records originated on computer may be stored electronically.
U1LO5
For a preorganization subscription to be an exempt transaction what are the requirements?
There may be no more than 10 subscribers
No payment may be made by any subscriber
No commission may be paid to anyone for soliciting potential subscribers
The offer CAN be advertised.
U4LO3
Which of the following transactions are exempt?
- XYZ Corp., a local manufacturing firm, sells its common stock to several local individual accredited investors on an infrequent or isolated basis.
- Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation’s 5-year fixed-income securities, rated AAA by Standard & Poor’s, on a regular basis to selected members of his large retail client base.
- Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation’s securities to a high-net worth client on an unsolicited basis.
- Alexander Wimpton had his sizable portfolio of stocks and bonds sold by the administrator of his estate upon his death.
3 and 4. Unsolicited transaction… and estate’s executor are both exempt transactions.
Unsolicited secondary market transactions and those made by an estate’s executor are exempt transactions; the net worth of the client is immaterial. While the AAA bonds may be an exempt security, soliciting regular transactions (unless with institutional buyers) is not an exempt transaction. XYZ Corp., a local manufacturing firm, is an issuer of the common stock. Had it been a nonissuer transaction on an isolated basis, the transaction would have been exempt and the accredited investor status of the clients is meaningless here.
U4LO3
What are allowable investments in an IRA
There are certain coins minted by the U.S. Treasury that are eligible for inclusion in an IRA - US Government issued silver eagles. No life insurance is allowed (though annuities, both fixed and variable, are allowed), and collectibles, such as art and stamps, are prohibited.
U24LO1
An investment adviser representative who makes extensive use of third-party research to formulate portfolio recommendations to clients
The adviser need not disclose that fact to the clients
It is not necessary to disclose what sources an IAR uses as the basis for recommendations. If the third-party research is distributed to clients, proper attribution is required.
U7LO4
If someone disclaims an IRA and it goes to the contingent beneficiaries, does the client have to begin taking RMDs?
Yes.
If the IRA is disclaimed, the assets would then go to the contingent beneficiaries , but they would have to begin taking RMDs over a 10-year period.
Which of the following statements correctly describe similarities between exchange-traded funds and closed-end investment companies?
- There are a limited number of outstanding shares.
- They are traded on registered stock exchanges.
- They trade at prices that are not dependent upon but close to their net asset value.
- Investors pay commissions to purchase and liquidate their positions.
2 and 4.
Both exchange-traded funds and closed-end investment companies are traded on exchanges; therefore, investors pay a commission when purchasing and liquidating shares. Only closed-end investment companies have a limited number of shares. Closed-end funds may trade at significant premiums or discounts from their NAV, while ETFs rarely stray far from NAV.
U14LO8
Did the NSMIA take away power of the states to regulate federal covered advisers, except in the case of a violation of the antifraud statues?
Yes.
In the Howey decision, the U.S. Supreme Court held that in order for an investment contract to be considered a security, it must represent
an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others
In the Howey decision, the U.S. Supreme Court held that a security must represent an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.
U4LO1
The Administrator of a state securities department conducted a hearing regarding misconduct by an investment adviser registered at the state level. The Administrator required the adviser, as well as several clients who had lodged complaints against the adviser, to take a sworn oath that their testimony was true. Does the Administrator have the power to require sworn oaths?
The USA empowers Administrators to administer oaths. Sworn oaths typically occur in conjunction with hearings.
U5LO2
Is there a time limit on what criminal proceedings you must disclose?
Even though the Administrator’s power to deny a registration is limited to convictions within the past 10 years, not only any conviction of a felony or securities-related misdemeanor, but even an arrest or charge for one must be disclosed without any time limitation.
