Series 65

Question 1

Who created the Series 65?

Answer 1

North American Securities Administrators Association (NASAA).

Question 2

What is an administrator as used by the Uniform Securities Act of 1956?

Answer 2

Administrator is the office or agency that has the complete responsibility for administering the securities law of the state.

Question 3

What is an investment advisor?

Answer 3

Any person who, for compensation, engages in the business of advising others, either directly or indirectly (through publications or writings) as to the value of securities or the advisability of investing in, purchasing or selling securities or who, for compensation as part of regular business, issues or promulgates analysis or reports concerning securities.

Keep in mind, a security is a stock (and keep in mind what is not a stock). Commodities are not stocks.

Any person who gives advice (positive or negative, specific or general) or issues reports or analyses concerning specific securities meets the criterion of providing advice.

Remember, must be registered in at least one state (unless investments are ONLY federally covered investments).

Question 4

Who is not a person?

Answer 4

A minor
A deceased person
A mentally incompetent person

Question 5

What is the impact of SEC Release IA-1092?

Answer 5

Expands the definition of of investment adviser under Investment Act of 1940 to include financial planners, pension consultants, and others who offer investment advise as part of their financial practice.

Question 6

Who is excluded from the definition of Investment adviser (in other words, who is an investment adviser but need not register)?

Answer 6

A bank and bank holding company, savings institution or trust company.

Lawyer, accountant, teacher, or engineer (LATE).

Publishers of any boba dude newspaper, news magazine or business of financial publication of general and regular circulation. Must be general and impersonal, disinterested, nothing specific or targeted.

Certain individuals employed by the investment adviser.

Federal covered adviser.

Anyone the Administrator specified as excluded.

Question 7

Who is exempt from registration?

Answer 7

Intrastate adviser with no investment listed on any national exchange.

Advisers whose only clients are insurance companies.

IAs to private funds (note, a private fund loses that status once it registers as an investment company).

Question 8

What are private fund advisers?

Answer 8

Solely to private funds and have less than $150 million under management.

Non US advisers and have less than $25 million under management.

Advisers solely to venture capital funds.

Regardless, must file form ADV part 1.

Question 9

Generally speaking, what are the four parts of Form ADV consist of?

Answer 9

Part 1A - information needed by regulators

Part 1B - state registered IA

Part 2A - used by clients

Part 2B - tells about who manages the firm

Question 10

How long must an IA keep records?

Answer 10

Five years from the end of the year in which the record was originally generated.

Question 11

When must registration be updated?

Answer 11

If material, promptly

If immaterial, within 90 days of the end of the fiscal year

Question 12

Who is an investment adviser representative?

Answer 12

An IAR is any person (natural person) who is a partner, officer, director or other individual employed by or associated with an investment adviser and is registered or required to be registered under the USA. No matter how high up the person is.

Only register with the states.

Keep in mind, if have a place of business in the state, then must register in that state.

1. offering advice concerning securities
2. managing client accounts or portfolios
3. determining securities recommendations for representatives to disseminate
4. supervising personnel engaged in advisory activities but not directly dealing with the public

An agent of a broker-dealer is not an IAR.

Question 13

Name some exceptions to registration for an IAR.

Answer 13

1. De Minimis - No place of business in the state and has no more than 5 retail clients in the state. Look for the word retail.
2. Snowbird exception.
3. 203A exception - meaning those performing as IARs for federal covered advisers. If see covered, keep in mind not required to register.

But also keep in mind, a person has to be registered in at least one state! Must be where the IAR has a business, not where the clients are.

Question 14

When and what must be filed if material changes occur for an IAR?

Answer 14

Within 30 days on Form U4.

Question 15

How long must an IA keep records?

Answer 15

5 years. The records must be kept in the principal office of the firm for the first 2 years and are subject to SEC examination at any time.

Question 16

How long must an IA firm that is closing keep its corporate charter?

Answer 16

When an investment adviser ceases to exist, either through going out of business or being succeeded by another firm (as is the case here), it is their responsibility to ensure that articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor be preserved until at least three years after termination of the enterprise.

Question 17

When must an IA provide audited balance sheet?

Answer 17

When the IA maintains custody of the client’s assets.

Question 18

What is the fiduciary responsibility of an IA and IAR?

Answer 18

Fiduciary duty: To put their clients’ need ahead of their own.

Waivers of this duty are never permitted.

Question 19

What are the four components that must be included in the flyer if using a solicitor?

Answer 19

Name of the solicitor

Name of the IA

Nature of the relationship between solicitor and IA

Fact that solicitor will receive compensation

Question 20

What are the three As to determine discretion?

Answer 20

Amount
Asset
Activity

Question 21

What is a credit spread?

Answer 21

A credit spread refers to the difference between yields of bonds with similar maturities but different ratings.

Wider spreads generally indicate a concern about the economy (investors are seeking the safety of the Treasury issue) while narrow spreads generally indicate economic optimism.

Question 22

What does a significant increase in the importing of goods indicate on the strength of the dollar?

Answer 22

A significant increase in imports represents a large outflow of U.S. dollars which results in a negative trade balance. As this builds, the value of the dollar falls against those currencies who have a positive trade balance.

Question 23

What is inertial inflation?

Answer 23

Inertial inflation means that a change in the inflation rate is not expected until some kind of economic event “shakes things up” and causes the rate to move up or down.

Question 24

What happens when the US dollar increases with respect to other currencies?

Answer 24

When the value of the U.S. dollar rises in relation to other currencies, exported products become more expensive in those foreign markets and are less competitive. On the other hand, imported products become less expensive in U.S. markets and are more competitive.

Question 25

What is gross margin?

Answer 25

Gross margin is computed by subtracting the cost of goods sold (COGS) from the net sales (or revenues) and dividing the remainder by the net sales.