QUESTION BANK -EXAM SAMPLE QUESTIONS

Question 1

1. Which THREE types of clients can be charged performance-based fees under the
   Investment Advisers Act of 1940? (Choose three.)

A. Natural persons having $500,000 under management with the adviser.
B. Mutual funds having more than $1 million in managed assets.
C. Clients with at least $1.1 million under management with the adviser or a minimum net worth of $2.2 million.
D. Hedge funds established under Investment Company Act Section 3(c)(7)(exemption for private funds).

Answer 1

B, C, D

B. * Mutual funds having more than $1 million in managed assets.
C. * Clients with at least $1.1 million under management with the adviser or a minimum net worth of $2.2 million.
D. * Hedge funds established under Investment Company Act Section 3(c)(7)(exemption for private funds).

Question 2

2. Which THREE activities should TYPICALLY require a review and possible changes to a firm’s written policies and procedures according to the SEC?
   (Choose three.)

A. Rulemaking and regulatory changes.
B. Replacing a retiring portfolio manager.
C. Changes in a firm’s business activities.
D. Compliance issues within the firm.

Answer 2

a, c, d

A. * Rulemaking and regulatory changes
C. * Changes in a firm’s business activities.
D. * Compliance issues within the firm.

Question 3

3. When trading for a client’s account, Investment Adviser accidentally instructed the
   broker to buy 1000 shares of Y at $1.00 per share when Adviser actually wanted to buy 1000 shares of X at $1.00 per share. Adviser realizes its mistake the next day, when Y is trading for $0.95 per share and X is trading for $1.05 per share.

Adviser must sell Y and buy for the client:

A. $950 worth of X
B. $1,000 worth of X
C. $1,050 worth of X
D. $1,100 worth of X

Answer 3

c

C. * $1,050 worth of X

Question 4

4. Which TWO types of supervised persons are also considered access persons?
   (Choose two.)

A. Back office personnel who input client new account information into the firm’s client management programs and enter trades, but do not talk to clients.
B. Third-party service provider who provides exception reporting to the RIA.
C. Passive directors and officers of the RIA.
D. Persons serving as directors of an affiliate of the adviser.

Answer 4

A, C

A. * Back office personnel who input client new account information into the firm’s client management programs and enter trades, but do not talk to clients.
C. * Passive directors and officers of the RIA.

Question 5

5. Under the Compliance Program Rule, it is a best practice to create which TWO of
   the following records? (Choose two.)

A. Appointment of board members.
B. Amendments to written policies and procedures.
C. Written policies and procedures.
D. Written report of corrective actions taken per annual review.

Answer 5

B, C

B. * Amendments to written policies and procedures.
C. * Written policies and procedures.

Question 6

6. A Chief Compliance Officer (CCO) who has supervisory responsibility has adopted
   procedures “reasonably designed” to prevent and detect violations of the securities laws. A system is in place for applying those procedures and the CCO has reasonably discharged those supervisory responsibilities in accordance with the procedures. The CCO was not aware that a supervised person was not complying with the procedures.

If the SEC were to conduct an investigation, what would be the MOST likely outcome?

A. The CCO will be deemed to have failed reasonably to supervise
B. The CCO shall be suspended from future activity in a supervisory capacity.
C. The CCO shall not be deemed to have failed to reasonably supervise.
D. The CCO shall be deemed to have failed to adequately assess the risk exposure for the firm.

Answer 6

C. * The CCO shall not be deemed to have failed to reasonably supervise.

Question 7

7. In Form ADV Part 1, who is NOT considered a “high net worth individual”?

A. A qualified purchaser.
B. An individual with a net worth of $1 million.
C. A couple with a net worth of $2 million, excluding their home.
D. An individual with $1 million assets under management

Answer 7

B. * An individual with a net worth of $1 million.

Question 8

8. Sam Jones is the Chief Investment Officer and Chief Executive Officer of Smith Family Advisers, LLC. Smith Family Advisers, LLC currently manages $250 million in securities. All of the clients of Smith Family Advisers, LLC are members of the Smith family, and prior to last year, the firm was entirely owned by members of the Smith family. Last year, in recognition of Sam’s long service and sound advice, the managing members of Smith Family Advisers, LLC gave Sam a 5% interest in Smith Family Advisers, LLC.

Is Smith Family Advisers, LLC required to register with the SEC?

A. Yes, because Sam is not a member of the Smith family.
B. No, because Sam owns less than 25% of Smith Family Advisers.
C. Yes, because Sam is listed as a “Control Person” on Schedule A.
D. No, because an investment adviser holding itself out as a “family office” is not required to register even if it has non-family owners.

Answer 8

A. * Yes, because Sam is not a member of the Smith family.

Question 9

9. Which THREE reasons make it important for an investment adviser to maintain updated client suitability information? (Choose three.)

A. It prevents litigation resulting from aggressive investment techniques.
B. It aids the investment adviser in detecting and preventing money laundering activities.
C. It facilitates the investment adviser in meeting its regulatory obligations
D. It assists the investment adviser in meeting its fiduciary obligations.

Answer 9

B, C, D

B. * It aids the investment adviser in detecting and preventing money laundering activities.
C. * It facilitates the investment adviser in meeting its regulatory obligations
D. * It assists the investment adviser in meeting its fiduciary obligations.

Question 10

10. Which are TWO accepted components of best execution? (Choose two.)

A. Gifts sent to advisers by broker-dealers.
B. Referral arrangements with broker-dealers.
C. Commission rates.
D. Financial stability of the broker-dealer.

Answer 10

C, D

C. * Commission rates.
D. * Financial stability of the broker-dealer.

Question 11

11. Adviser markets performance data for 1990 to present. In 2005 Adviser decides to stop marketing performance of 1990 to 1995. Adviser’s record destruction policy should provide that records supporting 1993 performance:

A. must be maintained for five years after the firm goes out of business.
B. may be destroyed in 2006 for those accounts whose performance was not advertised.
C. may be destroyed in 2006 for all accounts.
D. may be destroyed in 2011 for all accounts.

Answer 11

D. * may be destroyed in 2011 for all accounts.

Question 12

12. Which TWO are EXCLUDED or EXEMPTED from the definition of “investment adviser” under the Investment Advisers Act of 1940? (Choose two.)

A. An adviser to a registered investment company.
B. An adviser providing advice solely to insurance companies.
C. A publisher of a bona fide newsletter.
D. A pension consultant for $65 million of ERISA plan assets.

Answer 12

B, C

B. * An adviser providing advice solely to insurance companies.
C. * A publisher of a bona fide newsletter.

Question 13

13. When using an outside promoter to obtain clients, the investment adviser is required to take which step at the time of the promotional activity?

A. Provide a copy of the client’s last custodial statement listing all marketable securities.
B. Obtain a statement from the client supplying the name and address of the previous investment adviser.
C. Compile a written description of the client’s investment objectives.
D. Disclose or have reasonable belief that the promoter discloses that cash or non-cash compensation was provided for the promotional activity, if applicable.

Answer 13

D. * Disclose or have reasonable belief that the promoter discloses that cash or non-cash compensation was provided for the promotional activity, if applicable.

Question 14

14. An investment adviser’s status as a “fiduciary” is derived from:
    A. industry best practice.

B. U.S. Supreme Court case law.
C. the SEC examination program.
D. SEC enforcement actions.

Answer 14

B. * U.S. Supreme Court case law.

Question 15

15. Adviser is answering a Request for Proposal from a prospective institutional client. The Request for Proposal asks Adviser to provide performance data for one account of a comparable size as the prospective institutional client and in the same style being considered by the prospective institutional client. Adviser replies
    by providing an appropriate client’s most recent performance report. The client’s report shows performance gross of fees and only shows the previous three years of performance.

Has Adviser violated the marketing rule of the Advisers Act?

A. Yes, because responses to Requests for Proposals are advertisements.
B. No, because the reply was provided in good faith.
C. Yes, because the Request for Proposal did not specifically request
performance gross of fees and did not request performance for a specific time period.
D. Yes, because advertisements can only be delivered to current clients.

Answer 15

C. * Yes, because the Request for Proposal did not specifically request performance gross of fees and did not request performance for a specific time period.

Question 16

18. Under which TWO circumstances is an investment adviser required to register with the SEC? (Choose two.)

A. Acting as adviser to a registered investment company.
B. Acting as an adviser solely to church pension plans.
C. Acting as a pension consultant to $40 million in client assets.
D. Providing investment advice exclusively through an interactive website.

Answer 16

a, d

A. * Acting as adviser to a registered investment company.

D. * Providing investment advice exclusively through an interactive website.

Question 16

17. Doug is a trader for an investment advisory firm. Doug shares a residence with his wife, son, daughter and retired mother. Doug and his wife do not have any investment accounts.
    Which TWO family members will have to give Doug quarterly transaction reports to submit? (Choose two.)

A. Doug’s wife because she manages a municipal bond portfolio for a state pension plan.
B. Doug’s son who has an employee-directed 401(k) plan whose investment options include only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper.
C. Doug’s mother because she holds only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper in her brokerage account.
D. Doug’s daughter because her only investments are in her employer’s stock which is received through an Employee Stock Ownership Plan.

Answer 16

b, c

B. * Doug’s son who has an employee-directed 401(k) plan whose investment options include only open-end funds, high quality short-term corporate debt, blue chip stocks and U.S. government paper.

C. * Doug’s mother because she holds only open-end funds, high quality short-term

Question 17

19. According to the SEC Books and Records Rule, which length of time must advisers who use performance data in their advertisements maintain the advertisements and all data supporting the performance figures?

A. Five years after the adviser goes out of business
B. Five years after the end of the fiscal year in which the
advertisement/performance was last disseminated.
C. Six years after the end of the fiscal year in which the
advertisement/performance was last disseminated.
D. Ten years after the end of the fiscal year in which the
advertisement/performance was last disseminated.

Answer 17

B. * Five years after the end of the fiscal year in which the
advertisement/performance was last disseminated.

Question 18

16. Adviser is actively looking for state and local government clients. According to the SEC Pay-to-Play Rule, which THREE would be considered a covered associate (rather than simply an access person) and therefore be subject to the Pay-to-Play prohibitions? (Choose three.)

A. The marketing manager for Adviser.
B. Individuals who solicit government clients for Adviser
C. The spouse of the CEO of Adviser.
D. A political action committee that is controlled by the CEO of Adviser.

Answer 18

A, B, D

A. * The marketing manager for Adviser.
B. * Individuals who solicit government clients for Adviser
D. * A political action committee that is controlled by the CEO of Adviser.

Question 19

20. Great Big Holding Company is the sole owner of two large financial services firms:
    Great Big Adviser (an SEC-registered adviser) and Great Big Broker. Great Big Adviser is the sole owner of Little Insurance and Great Big Broker is the sole owner of Little Tax Prep.
    * Frank is the President of Little Insurance and Vice President of Great Big Holding Company.
    * Tim is the President of Great Big Broker and President of Little Tax Prep.
    * Jeff is President of Great Big Adviser and a registered representative of Great Big Broker.
    * Greg is the President of Little Tax Prep and an investment adviser
    representative of Great Big Adviser.

According to the Glossary in the Form ADV instructions, Frank, Tim, Jeff, and Greg are all “related persons” of Great Big Adviser.
Which person is NOT an “advisory affiliate” of Great Big Adviser?

A. Jeff
B. Frank
C. Greg
D. Tim

Answer 19

D. * Tim

Question 20

21. Traders 1, 2, 3, and 4 use Broker A for 5-15% of their trades, while Trader 5 uses Broker A for 60% of his trades. An investigation by Compliance discovers that Broker A has regularly paid for repairs and maintenance on Trader 5’s sports car.
    However, it appears that Trader 5’s use of Broker A is consistent with obtaining best execution. The firm’s Brochure does not contain any disclosure concerning the receipt of gifts.

If Adviser’s code of ethics does not have a prohibition on accepting gifts from brokers, has Trader 5 violated the Adviser’s fiduciary duties to its clients?

A. Yes, because all Advisers must have a gift policy.
B. Yes, because the receipt of expensive gifts and concomitant conflicts of interest should be disclosed to clients.
C. No, because Trader 5 obtained best execution despite the conflicts of interest.
D. No, because the Advisers Act does not prohibit the receipt of expensive gifts from brokers even if it is a conflict of interest.

Answer 20

B. * Yes, because the receipt of expensive gifts and concomitant conflicts of interest should be disclosed to clients.

Question 21

22. What are advisers required to report to the Financial Crimes Enforcement Division (FinCEN)?

A. A potential client’s refusal to provide personally identifying information.
B. Frequent transactions that are not consistent with client’s objectives or net worth.
C. One cash transaction OR two or more related cash transactions totaling more than $10,000.
D. Each instance in which clients request a copy of their anti-money laundering file.

Answer 21

C. * One cash transaction OR two or more related cash transactions totaling more than $10,000.

Question 22

23. Which TWO examples fall within the definition of an “advertisement”? (Choose two.)

A. A notice, circular, letter or other written communication addressed to more than one person.
B. Any endorsement or testimonial for which an investment adviser provides compensation.
C. Oral communications between the adviser and a client or prospective client.
D. Communications tailored to meet the individual needs or circumstances of a person.

Answer 22

a, b

A. * A notice, circular, letter or other written communication addressed to more than one person.
B. * Any endorsement or testimonial for which an investment adviser provides compensation.

Question 23

24. Which THREE of the following advisers are exempt from SEC registration?
    (Choose three.)

A. An adviser whose only clients are mutual funds.
B. * A UK-based adviser whose only client is a private fund with 12 U.S. Investors.
C. * A US-based adviser whose only client is a private fund with $100 million Regulatory Assets Under Management (RAUM).
D. * An adviser whose only clients are venture capital funds.

Answer 23

B, C, D

B. * A UK-based adviser whose only client is a private fund with 12 U.S. Investors.
C. * A US-based adviser whose only client is a private fund with $100 million Regulatory Assets Under Management (RAUM).
D. * An adviser whose only clients are venture capital funds.

Question 24

25. The annual review requirement under the Investment Company Act Compliance
    Programs Rule requires which TWO actions? (Choose two.)

A. A fund must review its service providers’ policies and procedures annually.
B. The Chief Compliance Officer must submit a report documenting the review to the fund board.
C. The Chief Compliance Officer must submit a report documenting the review to the service providers.
D. A fund board must conduct the annual review.

Answer 24

A, B

A. * A fund must review its service providers’ policies and procedures annually.
B. * The Chief Compliance Officer must submit a report documenting the review to the fund board.

Question 25

26. How can an investment adviser address material conflicts of interest as they relate to proxy voting?

A. Instruct portfolio manager to vote proxies in accordance with management direction.
B. Appoint an investment analyst to vote proxies on behalf of clients.
C. Delegate responsibility for voting proxies to an adviser who has a business relationship with a board member of a company.
D. Delegate responsibility for voting proxies to a proxy voting service.

Answer 25

D. * Delegate responsibility for voting proxies to a proxy voting service.

Question 26

27. If an investment adviser has proxy voting authority, which record is NOT required to be maintained?

A. Evidence of annual offer of proxy policies and procedures.
B. Records of votes cast on behalf of clients.
C. Proxy statements received for client securities.
D. Records of written requests for proxy voting information.

Answer 26

A. * Evidence of annual offer of proxy policies and procedures.

Question 27

28. An adviser manages portfolios that include both unaffiliated mutual funds and equities. The adviser creates a composite, which includes mutual fund performance that the adviser knows was calculated on a gross-of-fee basis.
    What must the adviser do?

A. Ensure compliance with Investment Advisers Act of 1940 requirements.
B. Submit the advertisement to The Financial Industry Regulatory Authority (FINRA) for review.
C. Disclose that the mutual fund performance was not calculated by the adviser.
D. Ensure compliance with Investment Company Act of 1940 requirements.

Answer 27

A. * Ensure compliance with Investment Advisers Act of 1940 requirements.

Question 28

29. Amendments to Regulation S-P regarding privacy require any adviser that maintains or otherwise possesses consumer report information for a business purpose to:

A. cease and desist from possessing consumer report information in the future.
B. maintain records of the disposal process for the consumer report
information.
C. properly dispose of the information while protecting it against unauthorized access.
D. maintain the consumer report information for a period of five years.

Answer 28

C. * properly dispose of the information while protecting it against unauthorized access.

Question 29

30. What is the PRIMARY reason the SEC requires investment advisers to file an annual updating amendment to Form ADV Part 1A?

A. To pay renewal fees for the adviser and the investment adviser
representatives.
B. To reaffirm eligibility for the investment adviser to remain registered with the SEC.
C. To report any material changes in the investment adviser that occurred during the year.
D. To monitor the increase and/or decrease in the number of clients being advised.

Answer 29

B. * To reaffirm eligibility for the investment adviser to remain registered with the SEC.

Question 30

33. An investment adviser manages performance-based and asset-based fee accounts. Trade allocation of IPO shares could result in which TWO potential conflicts of interest? (Choose two.)

A. Scalping
B. Frontrunning
C. Preferential treatment of certain clients
D. Higher fees

Answer 30

C, D

C. * Preferential treatment of certain clients
D. * Higher fees

Question 31

34. Adviser is registered with the SEC, has its principal place of business in a state that registers investment adviser representatives, and employs three portfolio managers: Tom, Larry and Bill. All of Adviser’s clients reside in that state.
    Tom manages corporate accounts exclusively.
    Larry manages 50 corporate accounts and also manages the personal portfolios of the presidents of 30 of the corporations whose corporate accounts he manages. Larry imposes a minimum account size of $1.5 million for these personal portfolios.
    Bill specializes in providing management services to individuals with a net worth of $1 million or less. He manages 100 portfolios with a median value of $250,000.

The state may require investment adviser representative registration of:

A. Bill only
B. Tom, Larry and Bill
C. No one
D. Larry and Bill

Answer 31

A. * Bill only

Question 32

31. An investment adviser has uncovered a trade error resulting from a block trade.
    Which activity is considered a breach of fiduciary duty?

A. The adviser uses soft dollars to correct the error.
B. The adviser only notifies fee-paying clients of the error.
C. The adviser utilizes an agency cross-transaction to remedy the error.
D. The adviser reimburses each client for accrued interest resulting from the error.

Answer 32

A. * The adviser uses soft dollars to correct the error.

Question 33

36. In developing written policies and procedures, which TWO factors must an investment adviser consider? (Choose two.)

A. Complexity and types of clients.
B. Actual and potential conflicts of interest.
C. Compensation and benefit arrangements for mid-level staff.
D. Knowledge and competency of senior management.

Answer 33

A, B

A. * Complexity and types of clients.
B. * Actual and potential conflicts of interest.

Question 34

35. All financial institutions including investment advisers must fulfill which THREE requirements regarding compliance with OFAC? (Choose three.)

A. Freeze or reject all funds and transactions of persons on the SDN List or otherwise subject to an OFAC administered sanctions program.
B. Notify OFAC within 10 days of any blocked or rejected transactions.
C. File by September 30th of each year a comprehensive report on all blocked property held as of June 30 of the current year.
D. Immediately cease communications with any person who appears on the SDN list.

Answer 34

A, B, C

A. * Freeze or reject all funds and transactions of persons on the SDN List or otherwise subject to an OFAC administered sanctions program.
B. * Notify OFAC within 10 days of any blocked or rejected transactions.
C. * File by September 30th of each year a comprehensive report on all blocked property held as of June 30 of the current year.

Question 34

32. Which TWO statements accurately describe an adviser’s obligations regarding trade errors? (Choose two.)

A. * Adviser must not use soft dollars to correct error.
B. Adviser has 30 days to correct the error.
C. Adviser must notify clients of the error before notifying the broker.
D. * Adviser must make the client whole.

Answer 34

a, d

A. * Adviser must not use soft dollars to correct error.
D. * Adviser must make the client whole.

Question 35

37. An investment adviser’s code of ethics requires a complete report of each firm’s access person’s securities holdings, at the time the person becomes an access person and at least how frequently thereafter?

A. Annually
B. Quarterly
C. Monthly
D. Any time the access person acquires additional holdings

Answer 35

A. * Annually

Question 36

38. Which is NOT prohibited by Rule 206(4)-1?

A. Discussion of composite performance.
B. An implied statement that the calculation or presentation of performance results in the advertisement has been approved or reviewed by the the SEC.
C. Inclusion of a material statement of fact that the adviser does not have a reasonable basis for believing.
D. Discussion of potential benefits of an investment strategy without disclosure of material risks or material limitations associated with such strategy.

Answer 36

A. * Discussion of composite performance.

Question 37

39. Under the Investment Company Act Rule 17j-1 regarding personal investment activities of investment company personnel, which statement is TRUE regarding the code of ethics of an adviser to a mutual fund?

A. The mutual fund’s Chief Compliance Officer must be the person responsible for enforcing the adviser’s code as it relates to the fund.
B. The adviser’s code must be distributed to shareholders of the mutual fund.
C. The adviser’s code must be summarized in the mutual fund’s Statement of Additional Information.
D. The mutual fund’s board of directors must approve the adviser’s code.

Answer 37

D. The mutual fund’s board of directors must approve the adviser’s code.

Question 38

40. Investment Advisory Firm A refers a client to Investment Advisory Firm B for A fee.
    Which TWO types of disclosures would Firm A be required to provide to the client?
    (Choose two.)

A. A written copy of Firm B’s code of ethics.
B. A brief statement of any material conflicts of interest on the part of Firm A.
C. A copy of Firm B’s Form ADV Part 2.
D. The material terms of any compensation arrangement, including a description of the compensation provided or to be provided, directly or indirectly, to Firm A.

Answer 38

B, D

B. * A brief statement of any material conflicts of interest on the part of Firm A.
D. * The material terms of any compensation arrangement, including a description of the compensation provided or to be provided, directly or indirectly, to Firm A.

Question 39

41. What is NOT required of a fund under the Investment Company Act Compliance Programs Rule (Rule 38a-1)?

A. The annual review of the policies and procedures must be approved by the board of directors.
B. The policies and procedures must provide for oversight of the fund’s service providers.
C. The designation of the Chief Compliance Officer must be approved by the board of directors.
D. The policies and procedures must be approved by the board of directors.

Answer 39

A. * The annual review of the policies and procedures must be approved by the board of directors.

Question 40

42. Adviser is owned by Local Bank. All of Adviser’s clients use Local Bank to custody the assets in their advisory accounts. Pete is Chief Operating Officer (COO) of both Adviser and Local Bank.

Which statement is TRUE? Adviser is:

A. not required to get a surprise annual audit but Local Bank is required to get a surprise annual audit.
B. not required to get a surprise annual audit but Local Bank is required to provide an internal control report.
C. required to get a surprise annual audit and Local Bank is required to provide an internal control report.
D. required to get a surprise annual audit but Local Bank is not required to provide an internal control report.

Answer 40

C. * required to get a surprise annual audit and Local Bank is required to provide an internal control report.

Question 41

43. According to the SEC Investment Adviser Codes of Ethics Rule, all are requirements for access persons EXCEPT to:

A. Obtain the investment adviser’s approval before investing in certain types of securities.
B. Periodically report their securities holdings to the Chief Compliance Officer or other designated person.
C. Report personal securities transactions on a quarterly basis.
D. Obtain the investment adviser’s approval prior to accepting any gifts.

Answer 41

D. Obtain the investment adviser’s approval prior to accepting any gifts.

Question 42

44. An investment adviser claims in its disclosure brochure that: “The information in this brochure has been approved by the SEC.”

Which provision under the Investment Advisers Act of 1940 is violated by this claim?

A. The Brochure Rule
B. Fiduciary duty
C. The Codes of Ethics Rule
D. The Anti-fraud Rule

Answer 42

D. * The Anti-fraud Rule

Question 43

45. Which TWO factors are considered mandatory provisions to be included in advisory contracts, if an adviser, as a matter of best practice, chooses to enter into written advisory contracts with its clients? (Choose two.)

A. Earned, unpaid fees are not due upon termination of contract.
B. Disclosure of changes in the general partners of the partnership.
C. Inclusion of a hedge clause.
D.”No Assignment” clause without client consent.

Answer 43

B, D

B. * Disclosure of changes in the general partners of the partnership.
D. * “No Assignment” clause without client consent.

Question 44

46. Which situation is considered eligible “research” under the SEC’s guidance on soft dollars?

A. A subscription to a well known business newspaper.
B. Maintenance on computer terminals used for research.
C. Proprietary reports from brokers on client-held securities.
D. Dinners with securities analysts.

Answer 44

C. * Proprietary reports from brokers on client-held securities.

Question 45

47. Adviser manages small-cap, large-cap and fixed income portfolios. In a quarterly newsletter to be sent to all clients and a few prospective clients, Adviser discusses the performance of certain securities in each portfolio.

What must Adviser do in order to distribute the newsletter?

A. Disclose that Adviser does not imply that it is currently recommending these securities.
B. Ensure that the securities are listed in a manner that is fair and balanced.
C. No additional disclosure is needed since a newsletter is not an
advertisement.
D. Disclose the criteria used to select the single best security.

Answer 45

B. * Ensure that the securities are listed in a manner that is fair and balanced.

Question 46

48. Under the SEC Investment Adviser Codes of Ethics Rule, all are reportable securities EXCEPT:

A. Exchange listed securities
B. Money market funds
C. Proprietary mutual funds
D. Foreign issuers

Answer 46

B. * Money market funds

Question 47

49. Which action would result in an investment adviser having custody under the Investment Advisers Act of 1940?

A. Returning inadvertently received stock certificates within three business days.
B. Having sole check writing authority over a client’s non-managed account.
C. Billing for management fees by sending an invoice directly to a client.
D. Accepting a check made payable to a third party.

Answer 47

B. * Having sole check writing authority over a client’s non-managed account.

Question 48

50. An SEC-registered adviser must provide a Form ADV Part 2A Firm Brochure to which TWO clients? (Choose two.)

A. A mutual fund registered under the Investment Company Act of 1940 to which the SEC-registered adviser provides sub-advisory services.
B. A subscriber to the SEC-registered adviser’s monthly newsletter.
C. The general partner of a hedge fund to which the SEC-registered adviser provides portfolio management services.
D. A 401K plan to which the SEC-registered adviser provides pension consulting services.

Answer 48

C, D

C. * The general partner of a hedge fund to which the SEC-registered adviser provides portfolio management services.

D. * A 401K plan to which the SEC-registered adviser provides pension consulting services.