Sample Question Bank 2- Compliance Mandates Beyond the Advisers Act

Question 1

Which THREE are consistent with Form ADV amendment requirements under the Investment Advisers Act of 1940? (Choose three.)

A. File amendments to Form ADV Part 1 electronically via the IARD system.
B. Update Form ADV Part 1 annually and file within 90 days of adviser’s fiscal
year end.
C. Upload Form ADV Part 2 amendments to the SEC via the IARD system.
D. Amend Form ADV Part 1 within three months of a change in control or in
executive officers.

Answer 1

A. * File amendments to Form ADV Part 1 electronically via the IARD system.
B. * Update Form ADV Part 1 annually and file within 90 days of adviser’s fiscal
year end.
C. * Upload Form ADV Part 2 amendments to the SEC via the IARD system.

Question 2

Which THREE statements are TRUE regarding an SEC-registered investment adviser’s annual review of its policies and procedures? (Choose three.)

A. The annual review should include a determination of the adequacy of the adviser’s policies and procedures.
B. The annual review should assess the effectiveness of the adviser’s policies and procedures.
C. The annual review must be conducted by the adviser’s Chief Compliance Officer.
D. The adviser should keep any records documenting the annual review.

Answer 2

A. * The annual review should include a determination of the adequacy of the adviser’s policies and procedures.
B. * The annual review should assess the effectiveness of the adviser’s policies and procedures.
D. * The adviser should keep any records documenting the annual review.

Question 3

3. Which activity is NOT a retention requirement of the Books and Records Rule
   under the Investment Advisers Act of 1940?

A. Corporate records must be maintained with the attorney of record.
B. Duplicate copies of any electronic records must be maintained.
C. All records must be maintained for the first two years in an appropriate
office of the adviser.
D. All books and records must be maintained and preserved in an easily accessible place for five years from the end of the fiscal year in which the record was created.

Answer 3

A. * Corporate records must be maintained with the attorney of record.

Question 4

Which situation would trigger a violation of the SEC Pay-to-Play Rule?

A. A covered associate makes a campaign contribution of $50 to the
Comptroller for the State of New York.
B. A covered associate makes a $500 campaign contribution to an elected official, who has influence in selecting advisers for a government plan which the covered associate is also soliciting as an advisory client.
C. An investment adviser directs its counsel to make a campaign contribution of $200 to a government elected official responsible for selecting investment advisers.
D. An investment advisory firm pays another registered investment adviser to solicit government clients on its behalf.

Answer 4

B. * A covered associate makes a $500 campaign contribution to an elected official, who has influence in selecting advisers for a government plan which the covered associate is also soliciting as an advisory client.

Question 5

Which TWO examples fall within the SEC’s definition of custody under the Investment Advisers Act of 1940? (Choose two.)

A. An investment adviser inadvertently receives a check drawn by a client made payable to a third party.
B. An investment adviser forwards securities certificates on behalf of its client via overnight delivery.
C. An investment adviser acts as sole trustee of a trust in which the advisory client is beneficiary.
D. An investment adviser inadvertently receives client funds and returns them to the sender within 48 hours of receiving them.

Answer 5

B. * An investment adviser forwards securities certificates on behalf of its client via overnight delivery.
C. * An investment adviser acts as sole trustee of a trust in which the advisory client is beneficiary.

Question 6

Which is NOT required when an investment adviser wants to engage in a riskless principal transaction with a client using an affiliated broker-dealer?
A. Sufficient disclosure to enable the client to give informed consent
B. Approval from the client prior to settlement of the trade.
C. Sufficient Form ADV Part 2 disclosure on principal transactions.
D. All of the above are required.

Answer 6

D. * All of the above are required.

Question 6

Under the Investment Advisers Act of 1940, an investment adviser is restricted from paying referral fees exceeding $1,000 to an unaffiliated promoter UNLESS the adviser complies with which THREE requirements? (Choose three.)

A. The promoter is not subject to statutory disqualification.
B. Any cash fee is paid pursuant to a written agreement.
C. The client must be provided by the adviser or promoter with certain disclosure statements regarding compensation and conflicts of interest.
D. The promoter discloses in writing to each client all disciplinary history with respect to activities regulated under the securities laws.

Answer 6

A. * The promoter is not subject to statutory disqualification.
B. * Any cash fee is paid pursuant to a written agreement.
C. * The client must be provided by the adviser or promoter with certain disclosure statements regarding compensation and conflicts of interest.

Question 7

Adviser has hired a new Chief Compliance Officer (CCO). CCO immediately begins to revise Adviser’s compliance program. However, four of his proposals are rejected by Adviser’s Chief Financial Officer (CFO).
Which of the four rejected proposals would indicate that a critical element of a strong CCO may be weakened?

A. CCO becoming a non-voting member of Best Execution Committee.
B. CCO acting as supervisor for resolving trade errors.
C. CCO having final approval of new promoters.
D. CCO reporting directly to CFO.

Answer 7

D. * CCO reporting directly to CFO.

Question 8

SEC Privacy Rule (Regulation S-P) REQUIRES that an adviser:

A. Maintain safeguarding policies and procedures for all of its service
providers.
B. Ensure that safeguarding of customer records is addressed in the adviser’s Code of Ethics.
C. Adopt written policies and procedures designed to ensure safeguarding of customer records and information.
D. Adopt electronic surveillance to ensure safeguarding of customer records and information.

Answer 8

C. * Adopt written policies and procedures designed to ensure safeguarding of customer records and information.

Question 9

the authority to enforce which TWO of the following for SEC-
registered advisers? (Choose two.)

A. Advisory notice filing.
B. Additional books and records requirements.
C. Investment Adviser Representative registrations.
D. Errors and omissions insurance.

Answer 9

A. * Advisory notice filing.
C. * Investment Adviser Representative registrations.

Question 10

An investment adviser manages accounts for: Mark Brown; Mark’s wife Beth; Beth’s IRA; Brown Industries, a firm entirely owned by Mark; the Brown Industries 401(k) plan; and two educational accounts for each of Mark and Beth’s minor children.

Under the Investment Advisers Act of 1940, how many “clients” (as opposed to accounts) does the adviser have?
A. 2
B. 3
C. 6
D. 7

Answer 10

B. * 3

Question 11

An investment adviser allocates trades by creating an alphabetical list of all clients who will participate in a given trade. On one trade, the adviser will allocate trades to clients whose names begin with A, followed by those whose names begin with B, followed by those whose names begin with C, etc. until all clients own the security or the security is no longer available. On the next trade, the adviser
reverses this process, starting with clients whose names begin with Z, followed by clients whose names begin with Y, etc. A client whose last name begins with M learns of this procedure and complains to the adviser that he is not being treated fairly.

Which statement is correct?
A. The client is not being treated fairly because advisers must use a pro-rata allocation method every time.
B. The client is not being treated fairly because the adviser determined the allocation method in advance.
C. The client is not being treated fairly because he never gets the benefit of being among the first to trade in any security.
D. The client is being treated fairly because he will never be among the last to trade.

Answer 11

C. * The client is not being treated fairly because he never gets the benefit of being among the first to trade in any security.

Question 12

Adviser’s Chief Executive Officer (CEO) receives a letter from a client. The letter accurately notes that Adviser has achieved “40% returns over the past year”. The CEO tells a potential client about this letter on a conference call. The CEO’s reference to the letter is:

A. not considered an advertisement.
B. a prohibited advertisement because it contains a testimonial.
C. a prohibited advertisement because it contains performance data without proper disclosures.
D. a prohibited advertisement because it refers to a client’s experience.

Answer 12

A. * not considered an advertisement.

Question 13

Adviser is being examined by the SEC in September. The SEC Examiner asks Adviser to provide financial records for the year to date. Adviser provides all records for the first two quarters, but informs the examiner that the firm updates its financial records quarterly, and cannot provide trial balances for July and August.
Is the Examiner likely to conclude that Adviser’s books and records are current?

A. Yes, because financial records are not mentioned in the books and records rules of the Investment Advisers Act of 1940.
B. No, because the SEC’s position is that financial records should be updated promptly.
C. Yes, because the Books and Records rule is silent on when records should be updated.
D. No, because the SEC’s position is that financial records should be updated weekly.

Answer 13

B. * No, because the SEC’s position is that financial records should be updated promptly.

Question 14

XYZ Investment Adviser has been found to have engaged in numerous prohibited activities. Which THREE measures may the SEC impose? (Choose three.)

A. Suspension
B. Revocation of registration
C. Censure
D. Criminal indictment

Answer 14

A. * Suspension
B. * Revocation of registration
C. * Censure

Question 15

Adviser provides prospective clients with a list of all profitable securities that were owned by clients since Adviser’s initial registration in 1995, including each such security’s performance.
Which violation has occurred?

A. Advertisement was not submitted to the Financial Industry Regulatory Authority (FINRA).
B. Specific investment recommendations were not presented in a fair and balanced manner.
C. Advertising back-tested performance.
D. Lack of GIPS disclosure.

Answer 15

B. * Specific investment recommendations were not presented in a fair and balanced manner.

Question 16

Rule 206(4)-1 of the Investment Advisers Act of 1940 requires an adviser to provide conflict of interest disclosures or make sure a promoter provides disclosures for which type of client?

A. An investment company client.
B. A prospective client solicited by an outside promoter.
C. A client who receives only impersonal advisory services.
D. A wrap fee program client.

Answer 16

B. * A prospective client solicited by an outside promoter.

Question 17

Which TWO records must be maintained under the recordkeeping requirements of the Advisers Act Compliance Programs Rule? (Choose two.)

A. Records documenting the Chief Compliance Officer’s compensation agreement.
B. A copy of the Chief Compliance Officer’s credentials.
C. Any records created that document the investment adviser’s annual review.
D. A copy of the investment adviser’s policies and procedures.

Answer 17

C. * Any records created that document the investment adviser’s annual review.
D. * A copy of the investment adviser’s policies and procedures.

Question 18

When aggregating proprietary trades with client trades, an investment adviser should, as a best practice:

A. Ensure the adviser’s proprietary trades get preferential treatment.
B. Prepare, before entering into an aggregated order, a written allocation statement.
C. Obtain the compliance officer’s approval within three business days after the day the order was allocated.
D. All of the above.

Answer 18

B. * Prepare, before entering into an aggregated order, a written allocation statement.

Question 19

Which THREE are considered an advertisement under the SEC Advertising Rule?
(Choose three.)

A. A radio segment announcing the new location of adviser firm.
B. An adviser’s quarterly newsletter distributed to current and prospective clients.
C. A reprint of a Wall Street Journal column with comments from several of the adviser’s clients.
D. A graph of the client’s investment performance included on the client’s quarterly performance report.

Answer 19

A. * A radio segment announcing the new location of adviser firm.
B. * An adviser’s quarterly newsletter distributed to current and prospective clients.
C. * A reprint of a Wall Street Journal column with comments from several of the adviser’s clients.

Question 20

Which TWO of the following advisory clients are eligible to be charged a performance-based fee? (Choose two.)

A. An individual with a net worth of $3 million, excluding the primary residence.
B. An individual with $750,000 under the adviser’s management, and a primary residence worth $1.5 million.
C. An individual with $1.5 million under the adviser’s management.
D. A registered investment company with $500,000 under management.

Answer 20

A. * An individual with a net worth of $3 million, excluding the primary residence.
C. * An individual with $1.5 million under the adviser’s management.

Question 21

On which TWO occasions would directing trades to a specific broker-dealer in return for soft dollar products/research fall within the Securities Exchange Act of 1934 Section 28(e) safe harbor? (Choose two.)

A. When there is an agreement in place with the broker-dealer for the adviser to use soft dollar credits in a non-research capacity (e.g., bookkeeping or other administrative functions).
B. When the adviser has investment discretion over the accounts that are traded to generate soft dollar credits.
C. When the research is also used to benefit accounts that are not traded to generate soft dollar credits.
D. When soft dollar credits are generated pursuant to commodity trades placed by the adviser.

Answer 21

B. * When the adviser has investment discretion over the accounts that are traded to generate soft dollar credits.
C. * When the research is also used to benefit accounts that are not traded to generate soft dollar credits.

Question 22

Investment advisers are NOT required to deliver a disclosure brochure to which TWO categories of clients? (Choose two.)

A. High net worth clients.
B. Investment company clients.
C. Clients for whom the adviser provides only financial planning services.
D. Clients for whom the adviser provides only impersonal advisory services for $500 or less per year.

Answer 22

B. * Investment company clients.
D. * Clients for whom the adviser provides only impersonal advisory services for $500 or less per year.

Question 23

Under the SEC Investment Adviser Codes of Ethics Rule, what is an adviser REQUIRED to do?

A. Require annual recertification from each supervised person that they have re-read the adviser’s code.
B. Train all personnel on the policies and procedures contained in the adviser’s code.
C. Impose fines or penalties for violations of the adviser’s code.
D. Require each supervised person to acknowledge in writing receipt of the adviser’s code.

Answer 23

D. * Require each supervised person to acknowledge in writing receipt of the adviser’s code.

Question 23

Which requirement differentiates the Investment Advisers Act from the Investment Company Act Compliance Program Rules?

A. The requirement for the Chief Compliance Officer to meet annually in executive session with the Board.
B. The requirement for an annual review of the compliance program.
C. The design and implementation of written policies and procedures.
D. The requisite level of competency of the Chief Compliance Officer.

Answer 23

A. * The requirement for the Chief Compliance Officer to meet annually in executive session with the Board.

Question 24

Adviser manages securities and non-securities investments for four very wealthy clients. Each client’s portfolio is as follows:
Client 1 - 70% in securities, 10% in cash, 20% in real estate
Client 2 - 60% in securities, 10% in cash, 30% in real estate
Client 3 - 50% in securities, 5% in cash, 45% in real estate
Client 4 - 40% in securities, 5% in cash, 55% in real estate
How many of these clients’ entire portfolios can be included in the calculation of Adviser’s Regulatory Assets Under Management (RAUM)?

A. 1
B. 2
C. 3
D. 4

Answer 24

C. * 3

Question 25

Which example is INSUFFICIENT to support a finding of fraud under the Investment Advisers Act of 1940?

A. Directing trades to a broker that refunds back a portion of client
commissions to the firm.
B. Violating a client’s sector guidelines due to capital appreciation in that particular sector.
C. Allocating trades to benefit those accounts paying the highest fees or the firm’s proprietary account.
D. Paying an adviser’s operating costs with funds received from a broker for client reimbursements.

Answer 25

B. * Violating a client’s sector guidelines due to capital appreciation in that particular sector.

Question 26

Under the Investment Advisers Act of 1940, no person shall be deemed to have failed to reasonably supervise any person when which THREE are TRUE?
(Choose three.)

A. The supervisor reasonably believes the procedures are being followed.
B. A system has been established for applying procedures, which would prevent and detect violations, as practicable.
C. Compliance procedures have been established.
D. The Chief Compliance Officer (CCO) reports directly to the firm’s Chief Executive Officer (CEO).

Answer 26

. * The supervisor reasonably believes the procedures are being followed.
B. * A system has been established for applying procedures, which would prevent and detect violations, as practicable.
C. * Compliance procedures have been established.

Question 27

29. Adviser A hires Portfolio Manager, who had previously been employed by Adviser Z, where Portfolio Manager had single-handedly managed several small-cap value portfolios. In order to advertise Portfolio Manager’s performance at Adviser Z, Adviser A must ensure that:

A. Adviser Z agrees to give Adviser A performance records for all of Portfolio Manager’s clients so that Adviser A has a reasonable basis for the performance of Portfolio Manager.
B. Adviser A only includes the performance of those clients who have moved their accounts to Adviser A.
C. Adviser Z stops offering small cap portfolios.
D. Adviser Z has published GIPS-compliant presentations of its small cap portfolios during Portfolio Manager’s time there.

Answer 27

A. * Adviser Z agrees to give Adviser A performance records for all of Portfolio Manager’s clients so that Adviser A has a reasonable basis for the performance of Portfolio Manager.

Question 28

Adviser is listed as the nation’s third best mid-cap growth adviser in a national ranking by an independent magazine. The ranking includes the manager’s net-of-fee performance numbers. Adviser orders reprints of the article to distribute to prospective clients.
What must Adviser do before distributing the reprints?

A. Disclose previous rankings in the same survey.
B. Add all required performance advertising disclosures.
C. Provide a representative client list.
D. Offer to provide a fully-disclosed performance presentation upon client request.

Answer 28

B. * Add all required performance advertising disclosures.

Question 29

Which activity is considered a principal transaction?

A. A transaction in which an adviser acts as a broker for both an advisory client and an unaffiliated party.
B. Purchase or sale for a client’s account from the adviser’s own account.
C. A trade that is aggregated for a number of advisory accounts.
D. A trade executed between two client accounts managed by the adviser.

Answer 29

B. * Purchase or sale for a client’s account from the adviser’s own account.

Question 30

In determining materiality for purposes of disclosing disciplinary information in Form ADV Part 2, all of the following are considered EXCEPT the:

A. severity of the disciplinary sanctions.
B. proximity of the person to the investment function.
C. nature of the infraction that lead to the disciplinary event.
D. degree of internal control weakness surrounding the event

Answer 30

D. * degree of internal control weakness surrounding the event

Question 31

Which THREE activities are required of advisers under the Investment Advisers Act of 1940 Compliance Programs Rule? (Choose three.)

A. Adopt and implement written policies and procedures.
B. Review past SEC deficiency letters.
C. Review the policies and procedures on an annual basis.
D. Designate a Chief Compliance Officer.

Answer 31

A. * Adopt and implement written policies and procedures.
C. * Review the policies and procedures on an annual basis.
D. * Designate a Chief Compliance Officer.

Question 31

How can a Chief Compliance Officer (CCO) minimize the likelihood of being deemed a supervisor? By ensuring that:

A. Every unit or department head reports compliance breaches directly to the adviser’s CEO.
B. The CCO oversees every unit or department as its designated supervisor.
C. Every unit or department has a formally designated supervisor who is not the CCO.
D. Every unit or department head reports directly to the adviser’s CEO as well as the CCO.

Answer 31

C. * Every unit or department has a formally designated supervisor who is not the CCO.

Question 32

Adviser claims GIPS compliance in its performance marketing pieces but fails to include GIPS-required disclosures. However, all disclosures required by Rule 206(4)-1 are complete and correct. The SEC will likely consider the claim of GIPS compliance to be:

A. Fraudulent.
B. Immaterial.
C. Beyond the scope of its jurisdiction.
D. Adequately mitigated by the disclosures.

Answer 32

A. * Fraudulent.

Question 32

Which THREE are required under directed brokerage disclosures in Form ADV Part 2? (Choose three.)

A. The adviser’s inability to obtain volume discounts.
B. The potential disparity in commissions among clients.
C. The commission schedule of the broker.
D. Conflicts arising from referral arrangements with the directed broker.

Answer 32

A. * The adviser’s inability to obtain volume discounts.
B. * The potential disparity in commissions among clients.
D. * Conflicts arising from referral arrangements with the directed broker.

Question 33

Which TWO does the SEC Codes of Ethics Rule require of a new employee when submitting an Initial Holdings Report? (Choose two.)

A. Holdings and pricing information no older than 90 days from the date of hire.
B. Initial Holdings Report submission within 10 days of becoming an access person.
C. A list of all security holdings whether they are reportable or not for purposes of personal securities transaction reporting.
D. The name of each bank or broker custodian the securities.
38.

Answer 33

B. * Initial Holdings Report submission within 10 days of becoming an access person.
D. * The name of each bank or broker custodian the securities.
38.

Question 34

Which TWO are potential conflicts of interest that must be fully disclosed to clients? (Choose two.)

A. President is married to bond trader at another adviser.
B. President has an unpaid position as membership chair of local charity.
C. President serves on the Board of Directors of a publicly traded company.
D. President follows the same investment advice he gives clients.

Answer 34

C. President serves on the Board of Directors of a publicly traded company.
D. President follows the same investment advice he gives clients.

Question 35

A portfolio manager actively trades securities in her personal account that are also held in client accounts that she manages.
The Chief Compliance Officer is aware of this and should track which TWO potential activities of the portfolio manager, according to best practices? (Choose two.)

A. Effecting agency cross transactions.
B. Taking investment opportunities from a client for the portfolio manager’s benefit.
C. Frontrunning.
D. Failing to provide disclosure in connection with directed brokerage
arrangements.

Answer 35

B. * Taking investment opportunities from a client for the portfolio manager’s benefit.
C. * Frontrunning.

Question 36

Which THREE items must be included on an order memorandum as required by the Books and Records Rule under the Investment Advisers Act of 1940? (Choose three.)

A. Identification of discretionary/non-discretionary authority.
B. Name of the exchange involved.
C. Date the order was entered with the broker.
D. Name of the individual entering the order.

Answer 36

A. * Identification of discretionary/non-discretionary authority.
C. * Date the order was entered with the broker.
D. * Name of the individual entering the order.

Question 37

Which TWO are considered to be best practices when valuing a client’s securities holdings? (Choose two.)

A. Frequent reviews of valuation information to promptly identify any “stale” valuations.
B. Reliance on one of the firm’s Portfolio Managers to determine pricing for illiquid securities.
C. A summary of valuation procedures in the firm’s investment management agreement.
D. Disclosure in Form ADV Part 2 regarding procedures for correction of mispriced securities.

Answer 37

A. * Frequent reviews of valuation information to promptly identify any “stale” valuations.
C. * A summary of valuation procedures in the firm’s investment management agreement.

Question 38

Investment Adviser manages portfolios of illiquid stocks. Adviser permits its access persons to trade in securities also held in client accounts. Adviser collects records of personal transactions at the end of each calendar quarter. Compliance Officer discovers that Portfolio Manager has historically been purchasing securities for her disclosed accounts that rightfully belonged in client accounts. Portfolio Manager is disciplined and affected clients are made whole. Has Adviser met its duty to supervise?

A. Yes, because Portfolio Manager was not a principal of the firm.
B. Yes, because Adviser met all books and records requirements.
C. No, because pre-clearance of all trades is required by the SEC Codes of Ethics Rule.
D. No, because personal trading procedures were inadequate.

Answer 38

D. * No, because personal trading procedures were inadequate.

Question 39

An adviser signs an agreement with a client on January 1 and delivers the disclosure brochure at that time. On March 1, the adviser hires a new Chief Financial Officer (CFO) with no outside affiliations. On July 1, the adviser amends its fee schedule. On October 1, the adviser updates the amount of client assets it manages by $50 million. Form ADV Part 2 is updated immediately after each
event.
When must the investment adviser make actual delivery of an amended brochure?

A. Within 30 days of the adviser hiring a new CFO.
B. Within 60 days of when the adviser amends its fee schedule.
C. Within 120 days of the end of the adviser’s fiscal year.
D. Promptly, after the adviser updates the amount of client assets it manages

Answer 39

C. * Within 120 days of the end of the adviser’s fiscal year.

Question 40

An investment adviser stopped advertising its small cap composite performance in 2004. It must maintain all worksheets used to calculate that performance through year end:

A. 2006
B. 2009
C. 2014
D. 2015

Answer 40

B. * 2009

Question 41

You are the Chief Compliance Officer (CCO) of an SEC-registered investment adviser. Your firm permits sharing nonpublic information with third parties as disclosed in your privacy statement. The client has elected to opt out of the disclosure of information to non-affiliated third parties.
Which request does the SEC Privacy Rule (Regulation S-P) PREVENT you from honoring?

A. A request for the client’s address and phone number from the client’s college alumni association.
B. A request for the client’s address from a firm that is sending out marketing flyers on behalf of the adviser.
C. A request for a list of the client’s pending transactions from the custodian of the client’s account.
D. A subpoena for a copy of the client’s quarterly statement from an attorney representing the client’s ex-spouse.

Answer 41

A. * A request for the client’s address and phone number from the client’s college alumni association.

Question 41

Who determines the designation and compensation of an
investment company’s Chief Compliance Officer (CCO)?

A. Senior management of the investment company.
B. The investment company’s board.
C. The investment company’s CFO.
D. The investment company’s CEO.

Answer 41

B. * The investment company’s board.

Question 42

Sam travels weekly from his Alabama office to Georgia to meet with clients at his vacation home. Under the Investment Advisers Act of 1940, the vacation home would technically be considered:

A. A principal place of business.
B. A place of business.
C. An office of supervisory jurisdiction.
D. A convenient meeting place for his clients.

Answer 42

B. * A place of business.

Question 42

Under the SEC Investment Adviser Codes of Ethics Rule, access persons must obtain pre-approval for which TWO types of personal securities transactions?
(Choose two.)

A. Mutual fund purchases if the adviser acts as adviser for the fund.
B. Participation in private placements.
C. Trades in securities held in clients’ accounts.
D. Acquisition of securities in IPOs.

Answer 42

B. * Participation in private placements.
D. * Acquisition of securities in IPOs.

Question 43

What BEST describes how a wrap fee program charges fees?

A. A brokerage commission based on the number of transactions.
B. Any negotiated fee.
C. A bundled fee covering advice and execution costs.
D. An investment management fee bundled with custody fees.

Answer 43

C. * A bundled fee covering advice and execution costs.

Question 44

An SEC-registered adviser compensates an independent accounting firm in the amount of $1,500 for a client referral. Which TWO statements are TRUE? (Choose two.)

A. Disclosure must reflect the nature of the fee paid to the accounting firm.
B. Potential advisory registration requirements exist for the accounting firm and/or its personnel.
C. Disclosures relating to the arrangement need only be made if material.
D. An oral agreement is sufficient between the adviser and the accounting firm.

Answer 44

A. * Disclosure must reflect the nature of the fee paid to the accounting firm.
B. * Potential advisory registration requirements exist for the accounting firm and/or its personnel.