Practice Test 10 Flashcards
What must be included in an investment advisory contract?
A statement that defines the length of time that the services are contracted for.
Another phrase for no-loan:
no margin
What securities have a no-loan value:
Options that have 9 months or less until expiration.
An assumption that investors are RISK-AVERSE and want to take the LOWEST risk possible in order to obtain a GIVEN RATE of return.
Modern Portfolio Theory
(don’t put all your eggs in one basket)
Three components of Modern Portfolio Theor (MPT)
- Expected return
- Standard deviation
- Correlation
The historical return on the investment weighted by the historical likelihood that the return will occur.
Expected Return
The way MPT measures the risk of an investment by quantifying how much an investment’s returns deviate from the historical average.
Standard Deviation
(the more spread apart the historcal returns, the higher the standard deviation and riskier the investment.)
A graph of optimal portfolios according to Modern Portfolio Theory
Efficient Frontier
When a firm is an adviser to a REGISTERED INVESTMENT COMPANY, who must the firm register with?
Federally with the SEC
How do you get paid on the following securities:
ETF:
Stock:
Mutual Funds:
Fixed Income securities:
ETF: COMMISION
Stock: COMMISION
Mutual Funds: SALES CHARGE
Fixed Income securities: MARK UP-MARK DOWN
What are the three opinions an auditor can have on an issuer’s balance sheet and income statement? Which on is the best and why?
- Qualified
- Adverse
- Unqualified
Qualified means a section was questioned.
Adverse means the auditor believes the finances are untruthful.
Unqualified means there were no reservations.
The result of an IAR sending unencrypted emails with personal identifying information.
A TRAINED IAR may face punishment.
A IA that did not train or failed to supervise may be PENALIZED.
A federal (SEC) covered adviser must register in every state in which they…
have an OFFICE.
Investment advisers cannot make reference to past recommendations unless they…
offer to provide ALL the recommendations the adviser has made in the last year (or two years)
An adviser is permitted to store records on:
- microfilm
- micro fiche
- electronic storage as long as the disks are tamper-evident (write once, read many)
Once investment that trades independently from it’s NAV since it trades on an EXCHANGE
CLOSED-End Funds
A partner of an investment adviser that manages investments in several discretionary accounts.
SUPERVISED PERSON
Storing records on the CLOUD is permitted as long as:
- Documents are accessible within 24 hours to the SEC or state.
- Method of storing records is disclosed on Form ADV
What is BOOK VALUE
The acquisitions cost of an asset MINUS depreciation or amortization.
Who can participate in a private 457 plan?
Non-Governmental employees who are:
- members of a UNION
- hospital workers
- employees of charitable organizations
Define TIME-weighted return.
returns that eliminate biases caused by the inflow or outflow of INVESTOR MONEY; often used to compare the performance of MONEY MANAGERS.
Define DOLLAR-weighted return.
returns that provide a better idea of how an INDIVIDUAL investor has done over TIME by eliminating the biases caused by superior performance in one year or inferior performance in another.
Calculating an advisory fee can be done by calculating…
2% of the average DAILY value of the account of the last THREE MONTHS.
(how fees are calculated must be disclosed in the brochure.)
When is it permitted to publish testimonials? (3 points)
- testimonial is shows as they originally appeared on an independent third party social media site
- are unedited
- the IA or IAR has no direct or indirect influence or control over the site
Three characteristics of a Coverdell Education Savings account:
- Contributions are limited to $2,000 annually
- Taxpayers with income above a stated level are not allowed to make contributions
- Withdrawals are generally tax-free if used for educational purposes
Who may be charged performance based fees?
QUALIFED CLIENTS: institutional or retail client with at least $1.1 million AUM or net worth in excess of $2.2 million
or
Executives, a partner or a knowledgeable employee of the adviser.
What is Form ADV-E used for?
Must be submitted by an independent accountant, not an adviser, within 120 days after completion of a surprise audit WHEN ADVISER HAS CUSTODY OF CLIENT FUNDS OR SECURITIES.
When is a firm EXEMPT from registering with a STATE?
Firm has 5 or fewer clients in a state in which it has NO office.
or
Banks, TRUST companies, INSURANCE companies and employee benefit plans
What is one action that should not be performed within Benchmark Portfolio Management?
reweighting a benchmark portfolio regularly. This action would not effect the actual performance on the benchmark and if it is done to make the portfolio appear to perform better, it would be unethical or likely fraudulent.
How does the DEATH BENEFIT keep up with INFLATION within a Variable Life Insurance policy?
The earnings int he subaccount are added to the guaranteed minimum death benefit each year.
If the subaccount performs poorly, the death benefit may go down but never lower than the guaranteed minimum amount.
What risk is being reduced by investing in tangible assets such as precious metals (gold) or real estate?
INFLATION
An investor is considered to have a securities portfolio when:
The MAYORITY (more than 50%) of total assets are SECURITIES.
