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Series 66 > Session 3 > Flashcards

Session 3 Flashcards

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Series 66 flashcards
1
Q

Two primary purposes of the Investment Adviser Act of 1940 are:

A

1- the regulation of persons, natural/legal, in the business of giving investment advice
2- the establishment of standards of ethical business conduct for the industry

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2
Q

Investment Adviser Act of 1940

A

is a federal legislation that defines the term investment adviser and requires persons that fall within the definition to register with the SEC OR with the states does business with

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3
Q

Broker

A

is any person engaged in the business of effecting transactions in securities for accounts of others

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4
Q

Dealer

A

is any person regularly engaged in the business of buying and selling securities as principal for his own acct (NOT INCLUDING BANK< INVESTMENT COMPANY OR INSURANCE COMPANY)

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5
Q

What three organizations aren’t included in the definition of dealer?

A

1- bank
2- investment company
3- insurance company

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6
Q

Fiduciary

A

is a person legally appointed and authorized to hold assets in trust for another person…fiduciary manages the assets for the benefit of the other person rather than for his or her own profits.

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7
Q

Person Associated with an Investment Adviser

A

any partner. officer or director of the investment adviser or an person directly or indirectly controlling or controlled by the investment adviser

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8
Q

Supervised Person

A

any person associated with an investment adviser plus the cleric clerical functions and aren’t require to become registered

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9
Q

Investment Adviser

A

is any person who, for compensation, engages in the business of advising other as to the value of securities or the advisability of investing in securities or issues analyses or reports concerning securities

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10
Q

Release IA-1092 IDs an investment adviser as the following (3)

A

1-provide investment advice, reports or analyses with respect to securities
2-is in the business of providing advice or analyses
3-received compensation, directly or indirectly, for these service

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11
Q

Financial Planners

A

make recommendations regarding a person’s financial resources or perform analyses that concern securities are investment adviser if the services are performed for business or compensation

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12
Q

Pension Consultants

A

who advise employee benefit plans on the selection, performance and retention of investment a mangers to be investment advisers

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13
Q

Sports and Entertainment Representatives

A

perform advice related to investments, tax planning, budgeting and money management to celebrities and athletes

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14
Q

In the business of Providing Advice if you meet these two points:

A

1-gives advice on a regular basis such a that it constitutes a business activity conducted with some regularity (frequency of the activity isn’t the only factor)
2- advertises investment advisory service and presents himself to the public as an investment adviser

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15
Q

6 Exclusions from Investment Advisers under Federal Law (6)

A

1- any holding bank
2- lawyer, accountant, teacher or engineer whose advice incidental to the practice of the profession
3- any BD whose performance of such service is solely incidental to the conduct of his business as a broker or dealer who receives no special compensation
4- publisher of any bona fide newspaper, new magazine, or business/publication of general and regular circulation
5- Any person whose advice, analyses or reports are related only to securities that are direct/guaranteed obligations of US or US Gov’t sponsored corps
6- Any nationally recognized statistical rating organization (as long as they don’t recommend an action)

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16
Q

Special Compensation

A

is compensation to the BD or salesperson in excess of that which he or she would be paid for providing a brokerage or dealer service alone

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17
Q

8 Exclusions from Investment Advisers under State Law

A

1- Banks, Saving Institutions and trust companies
2- lawyer, accountant, teacher or engineer whose advice incidental to the practice of the profession
3-any BD whose performance of such service is solely incidental to the conduct of his business as a broker or dealer who receives no special compensation (wrap fee)
4-publisher of any bona fide newspaper, new magazine, or business/publication of general and regular circulation
5-Investment adviser rep
6- any person who is federal covered adviser
7-any person excused by Investment Adviser Act of 1940
8-any other person that Administrator specifies

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18
Q

Under the Investment Advisers Act of 1940, can a unregistered investment adviser to use the mail for his business?

A

NO

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19
Q

Who are exemption from the registration requirements under Federal Law?

A

1- Intrastate Advisers
2- Advisers to Insurance Companies
3- Private Fund Advisers

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20
Q

Intrastate Advisers

A

advisers whose clients, not including investment advisers to private funds, are residents of the state in which the adviser has its principle office and place of business and who don’t give advice dealing with securities on national exchange

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21
Q

Advisers to Insurance Companies

A

advisers whose only clients are insurance companies are exempt

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22
Q

Private Fund Advisers

A

1- an exemption for advisers solely to private funds with less than 150 million in assets under management in the US
2- an exemption for certain non US advisers with no place of business in the US and minimal assets under management (less than $25 Million) attributable to US clients and investors
3- An exemption for advisers solely to venture capital funds

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23
Q

Dodd- Frank Act define private fund as

A

an issuer that would be an investment company, as defined in section 3 of the investment company act of 1940, but for section 3(c)(1) or 3(c)(7)

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24
Q

Section 3(c)(1)

A

issuer is one whose outstanding securities are beneficially owned by not more than 100 persons and which is not making and doesn’t presently propose to make an IPO of its securities

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25
Q

Section 3(c)(7)

A

is one whose outstanding securities are owned by persons who, at the time of acquisition of such securities, are qualified purchasers (at least $5 mill for individuals and 25 mill investments for business) and doesn’t propose to go public

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26
Q

Foreign Private Advisers is defined in the Dodd Frank Act as any investment adviser than (4)

A

1- has no place of business in the US
2- has fewer than 15 clients and investors in the US in private funds advised by the adviser
3- has aggregate assets under management attributable to clients/investors in the US in the US in private funds advised by the adviser of less than 25 mill
4-doesn’t hold itself out to the public in the US as an investment adviser or act as an investment adviser to an investment company

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27
Q

The rules define a venture capital fund as a private fund that:

A

1- has limited leverage
2- doesn’t, except in certain limited circumstances, offer its investors redemption rights or other similar liquidity rights
3- represents itself as a venture capital to investors
4- is not registered under the Investment Company Act of 1940

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28
Q

Exempt Reporting Advisers (ERAs)

A

are exempt from registration…they are required to complete and electronically file reports using the IARD system on certain amended items set forth in Form ADV

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29
Q

Federal Covered Investment Advisers?

A

1- those required to be registered or registered as an investment adviser with the SEC bc they meet the minimum threshold of assets under management (110Mil)
2-those under contract to manage Investment Company who fall in line with the act regardless of AUM
3- those not registered with the SEC bc they are excluded from the definition of an investment adviser by the Investment Adviser Act of 1940

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30
Q

Large Investment Advisers

A

those advisers with at lest 100 million or more in assets under management are eligible for SEC registration; once the AUM hit 110mill must register

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31
Q

Small Investment Advisers

A

advisers that manage assets of less than 25 million must be registered with the state

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32
Q

Exemptions to Small Investment Advisers to registering with the state?

A

1- the investment adviser is an adviser to an investment company registered under the Investment Company Act of 1940
2- Seeking registration in more than 15 states

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33
Q

How many states would the investment adviser need to be actively registered in before they must register with the SEC?

A

15

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34
Q

Mid-size Advisers

A

are those whose AUM is between 25 and 100 million must register with the State

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35
Q

Mid -size Advisers will register with the SEC when:

A

1- if the adviser is not required to be registered as an investment adviser with the securities administrator of the state where principal office is located
2- if registered, the adviser wouldn’t be subject to examination as an investment adviser by that securities Administrator
3- if the adviser is required to register in 15 or more states
4- the adviser elect to take advantage of the buffer

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36
Q

Exceptions Under Dodd-Frank from the prohibition on registration: (6)

A

1- pension consultant with 200 in AUM
2- Mid size advisers with at least 100 million in AUM, but less than 110 who elect to register with the SEC
3-Investment advisers affiliated with an adviser already registered with the SEC
4-Investment advisers expecting to be eligible for SEC registration with 120 days of filing form adv
5- multistate investment adviser
6- internet adviser

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37
Q

20 Million Buffer

A

since funds constantly move in and out from investment advisers there is a buffer just in case so you don’t have to spend registering fees and paperwork once you achieve a certain status

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38
Q

Time Measurement for AUM

A

are based on annual updating amendment

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39
Q

How many days does the Investment Adviser have to withdraw from the SEC and register with appropriate state?

A

180 days

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40
Q

How many days does the Investment Adviser have to register with SEC?

A

90 days

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41
Q

Advisers exempt from registration with the state Administrator are those who have no place of business in the state, but are registered in another state provided their only clients in the state are:

A

1- BD registered under the act
2-other investment advisers
3-Instituional investors
4- existing clients who aren’t residents
5- limited to five or fewer clients of resident of the state
6-any others the administrator exempts by rule or order

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42
Q

De minimis exemption

A

limited to five or fewer clients of resident of the state

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43
Q

Investment Advisers use Forms ADV to:

A

1- Register with the SEC
2- Register with one or more state securities authorities
3- amend those registration

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44
Q

Investment Adviser Registration Depository (IARD)

A

is an electronic filing system that facilitates investment adviser registration, regulatory review and the public disclosure info of investment adviser firms

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45
Q

Form ADV Part 1A:

A

ask number of questions about the investment adviser, it business practices, the persons who own and control the firm and the persons who provide investment advice on behalf of the firm

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46
Q

Form ADV Part 1B:

A

asks additional questions required by state securities authorities. Investment advisers who are registered with the SEC don’t have to complete

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47
Q

Form ADV Part 2A:

A

requires advisers to create brochures containing info about the advisory firm..applies to every investment adviser that register with SEC and most states

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48
Q

Form ADV Part 2B:

A

requires advisers to create brochures supplements containing info about certain supervised persons…applies to every investment adviser that register with SEC and most states

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49
Q

A controlled person is defined as owning what percentage under the Investment Company Act and Adviser Act?

A 
ICA= More than 25%
AA= 25% or more
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50
Q

Form ADV Part 1 Contains info about the IA including (9):

A

1-location of principal office
2-Location of books and records
3-form of business org
4-method of business
5-other business activities
6- maintaining custody of customer assets or exercising discretions
7-details relating to all control persons
8- disciplinary history
9-for state registered IAs, states in which the IA intends to or is already registered

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51
Q

Form ADV Part 2A contains:

A

1- compensation arrangements
2-types of clients
3- types of investments
4- types of strategies employed (buy and hold, growth value)
5-Mehtods of analysis used (tech or fundamental)
6-Educatinal and business background of those whose render advice
7-an audited BS

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52
Q

Form ADV must be update?

A

Annually within 90 days

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53
Q

Amendment for Material Changes for form ADV that must be changed promptly: (8)

A

1- Change of the registrant’s name
2- Change in the principal business location
3- Change in the location of books and records
4- Change to the contact person preparing the form
5- Change in organizational structure
6- Information provided in the brochure becomes materially inaccurate
7- Change to any of the questions regarding disciplinary actions
8- Change in policy regarding custody of the customer funds and/or securities

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54
Q

Fees for Form ADV:

A

there is an annual renewal and initial fee

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55
Q

What is the effective date of registration with the SEC Investment Adviser and State registered investment advisers?

A

SEC- 45th day after filing of a complete application

State- at noon of the 30th day

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56
Q

Form ADV-W

A

is filled out when an adviser no longer desires to engage in business.

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57
Q

How many days until the Effective date of Form ADV-W with the SEC and State Registered?

A

SEC- 60 days after filing

State- 30 days

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58
Q

Investment Counsel defined two criteria within the Investment Advisers Act of 1940 that describes the IA nature of business?

A

1- IA principal business must be giving investment advice

2- Provide investment supervisory Services

59
Q

An Investment Adviser to be consider an investment counsel must provide continuous and regular supervisory or management service with respect to an account if: (3)

A

1- IA has discretionary authority over and provide ongoing supervisory and management services to the account
2- don’t have discretionary authority BUT have the responsibility to make recommendations based upon clients needs and if accepted by the client IA is responsible for placing the trades
3- you are compensated based on the average value of the clients assets you manage over a specified period of time

60
Q

You aren’t considered an IA investment counsel if you receive compensation based on average value of clients assets if you:

A

1- are compensated based on the time spent with a client during a client visit
2- are paid a retainer based on % of assets covered by a financial plan

61
Q

You don’t provide continuous and regular supervisory or management service for an account if you:

A

1- provide market timing recommendations, but no ongoing management responsibilities
2- Provide only impersonal investment advice
3- making an initial asset allocation, without continuous and regular monitoring and reallocation
4- provide advice on an intermittent or periodic basis or on a specific date

62
Q

Substantial Prepayment fees dollar amounts for federal covered adviser and are defined in the USA

A

Federal Covered would be consider 1,200 per client in a 6 month period or more
USA- is more than 500 in a six month or more in advance

63
Q

Any federal covered IA who requires or solicits clients for substantial prepayments of fees must provide a clients with?

A

a balance sheet with the adviser’s ADV Part 2a for the adviser’s most recent fiscal year

64
Q

Balance sheet requirements for state registered advisers?

A

must be presented wit brochure for an state-registered investment adviser who require or solicits for substantial prepayments of fees
In addition if the securities are held elsewhere must have an audited BS with their ADV Part 2A

65
Q

Disclosure of Financial Impairment

A

any investment adviser that has discretionary authority or custody of clients funds/securities or solicits substantial prepayment fees must disclose any financial condition that impair ability to meet contractual commitments

66
Q

Specific Financial Requirements for State-Registered Advisers

A

an adviser who has custody of clients funds or securities or has discretion over a client’s account to post a surety bond or maintain a min net worth

67
Q

Section 222 of Investment Adviser Act of 1940

A

states that when it comes to federal covered advisers, any financial or bond requirement requirements as well as rules relating to recordkeeping are solely under federal jurisdiction

68
Q

Failure for an Investment adviser to maintain min net worth

A

By the close of the next business day mist notify the Administrator and at the close of the next business day file a financial report with the Adminstrator…adviser must obtain a bond rounded up to nearest 5,000 interval

69
Q

Does office furniture make it into the computation of net worth?

A

NO

70
Q

Investment Adviser Representative (IAR)

A

means any partner, officer, director or other individual employed by or associated with an investment adviser that is registered or required to be registered under USA (NATURAL PERSON)

71
Q

For both Federal and State the following would be defined as a IAR: (5)

A

1- makes any recommendations or otherwise renders advice regarding securities
2- manages accounts or portfolios of clients
3- determines which recommendation or advice regarding securities should be given
4- Solicits, offers or negotiates fro the sale o or sells investment advisory servicers
5- Supervises employees who performs any of the foregoing

72
Q

Is the registration of an IAR effective if they are not employed by an investment adviser?

A

They are NOT

73
Q

Financial Requirements of IAR

A

there is none…but bankruptcy is a cause for denial or revocation of registration

74
Q

Exclusion from the definition of an IAR

A

would be if their role only clerical duties or those activities that are solely incidental to the investment advisory service offered

75
Q

De minimis Exemption for IAR

A

no need for state registration in the state in a 12 month period where their was no more than 5 retail clients

76
Q

IAR Termination Procedures for state-registered advisers and federal covered advisers?

A

For state registered advisers: the FIRM must notify the Administrator
For Federal Covered Adviser- the IAR must notify the Administrator

77
Q

Books and Records required by Federal and State Laws are the same but with:

A

The NASAA Model rules requires a copy of when the martial is distributed to two or more person, not 10 like the federal law

78
Q

Scalping

A

is the practice whereby an investment adviser, before the publishing of a securities recommendation, trades on the anticipated short run market activity that may result from the recommendation

79
Q

Time period for maintained of records for Investment Advisers Act of 1940 and USA?

A

Investment advisers books and records be maintained in a readily accessible place for five years and within 2 years must be in principle office

80
Q

Record retention for investment adviser and broker dealers?

A

Investment advisers is 5 years

Broker Dealers is 3 years

81
Q

Rule 204A-1 Investment Adviser Code of Ethics (only for federal covered advisers)

A

1- copy of the investment adviser’s code of ethnics adopted and implemented pursuant to the investment adviser act of 1940
2- a record of any violation of the code of ethics and of any action taken as a result of the violation
3-a record of all written acknowledgments for each person who is currently or within past 5 years supervised the investment adviser
4- must go over periodically a report of their personal securities transactions with adviser’s chief compliance officer

82
Q

Personal Trading Procedures of employees (4)

A

1- Prior written approval before access persons can place a personal securities transaction
2- Maintenance of lists of issuers of securities that the advisory firm is analyzing or recommending for clients transactions (can personally trade those issuers)
3- Maintenance of restricted lists of issuers about which the advisory firms has inside info
4- Advisory advice must be given to clients before the FA can act on them

83
Q

Access Person is define as the following two points:

A

1- has access to nonpublic info regarding any clients’’ purchase regarding any client’s purchases or sale of securities or nonpublic info regarding the portfolio holds of any reportable fund
2- is involved in making securities recommendations to clients or whos has access to such recommendations are nonpublic

84
Q

5 Key points within Part 2 of ADV contained in both the brochure and supplements:

A 
1- Narrative Format
2- Plain English
3-Disclosure Obligation as Fiduciary
4- Full and Truthful Disclosure
5- Filing
85
Q

Narrative Format

A

the IA must respond to each item in Part 2 and answer each and if its not applicable to your business must state that (18 questions for Federal Covered and 19 for state)

86
Q

Plain English

A

should be written in short sentence, use everyday words, active voice, use tables, avoid legal jargon, avoid multiple negative terms

87
Q

Disclosure Obligations as a Fiduciary

A

under federal/state law, the IA must make full disclosure to their clients of all material facts relating to the advisory relationship

88
Q

Full and Truthful Disclosure

A

all info in the brochure must not omit material facts

89
Q

Where must the IA file the brochures?

A

should be filed through the IARD system unless filed federal covered or in process

90
Q

What must be on the cover page of the brochure?

A

state name, business address contact info, website address and date of the brochure

91
Q

The brochure supplement must disclose the following six categories:

A 
1- Cover Page
2- Educational background and business experience
3- Disciplinary Info
4- Other Business activities
5- Additional compensation
6- Supervision
92
Q

Supervised Persons included in the brochure supplement are:

A

1-Any supervised person who formulates investment advice for a client and has direct client contact
2- Any supervised person who has discretionary authority over a client’s assets, even if the supervised person has no direct client contact

93
Q

Wrap Fee Programs

A

is a program under which a client is charged a specified fee, or fees, not based directly on transactions in a client’s account, for investment advisory services and for execution of client transaction

94
Q

Where is the wrap fee disclosed to clients?

A

in Part 2A, Appendix 1

95
Q

Some of the required disclosures under Appendix 1 are :

A

1- amount of the wrap fee charged for the program
2- whether the fees are negotiable
3- the portion of the total fee paid to persons providing advice to clients
4- the services provided under the program
5-a statement that the program may cost the client more or less than purchasing the service separately
6-a description of the nature of any fees that the client may pay
7- how the portfolio mangers pick and chose their securities

96
Q

Are buy and hold clients appreciate for wrap fee accounts?

A

no

97
Q

Delivery Requirements of brochures for SEC Registered Advisers

A

a firm brochure must be delivered to each client before or at the time an advisory agreement is entered into with that client and every year after at the end of the fiscal year plus 120 days

98
Q

If there is no material change does a brochures need to me sent out to clients?

A

NO for federal IA but state registered IS must ask the corresponding states

99
Q

Delivery Requirements of brochure for State-Registered Advisers

A

Are general the same except for adviser must submit brochure at least 48 hours before entering into an advisory contract

100
Q

Exemptions to the Brochure Rule

A

1- Contracts with a registered investment company

2- Advisers entering into a contract providing solely for impersonal advisory services

101
Q

When should Brochures be updated?

A

1- each year at the time of filing annual updating amendment

2- promptly, whenever any info in the brochure becomes materially inaccurate

102
Q

If the fees change or AUM changes under an IA does the brochure has to update midyear?

A

Only if something changes of material then these changes must be made

103
Q

What are federal covered advisers requirements for filing amendments to their brochures?

A

must be filed electronically through IARD, but not the brochure supplements with the SEC, they must be filed

104
Q

What are state covered advisers requirements for filing amendments to their brochures?

A

both brochures and brochures supplements will be filed with state authorities through IARD

105
Q

NASAA and Investment Adviser Act of 1940 difference in model for custody of customer’s funds and securities?

A

1-Safekeeping required

2- Fee deduction

106
Q

Safekeeping for NASAA both Investment Adviser Act of 1940?

A

1- must be qualified custodian
2- must give notice to your clients
3- (NASAA) in the absence of a rule prohibiting custody, the IA notifies Administrator promptly w/ a form ADV that the IA has or may have custody

107
Q

Statements of securities that are held in custody must be sent to clients by qualified custodian or adviser how frequently?

A

QUARTERLY

108
Q

NASAA model rule with Fee deductions when the advisory has custody must have the following safeguards:

A

1- written authorization- to deduct fees
2- Notice of fee deduction
3- Notice of safeguards

109
Q

Form ADV-E

A

is used as a cover page for a certificate of accounting of securities and funds of which the investment adviser has custody (has both info about the adviser and the surprise exam report) ANNUALLY

110
Q

What are three required disclosures that must be made to clients and prospects:

A

1- State or regulatory proceeding in which the adviser or management person was found to have violated rules/ status that led to denial, suspension of the firm’s registration
2- Courting proceedings against the firm or management person pertain to an investment related activity or felony
3- SRO proceedings in which the adviser or management person cause the business to lose registration or firm/individual was barred, suspended of fined more than 2,500

111
Q

Hedge Clauses

A

is when an adviser gets the client to sign paperwork to wave client’s rights (never allowed)

112
Q

Disclosure and client consent for principal or agency transactions (2):

A

1- an adviser may obtain client consent to a principal or agency transaction after execution but before settles
2-adviser isn’t acting as a broker is the adviser rec no compensation (other than its advisory fee) for effecting a particular agency transaction between advisory clients

113
Q

SEC defines advertisement as any publication that offers to more than one person: (3)

A

1- any analysis, report or publication concerning securities
2- any, graph chart, formula or other device to be used in making any determination concerning securities
3-any other investment advisory service with regards to securities

114
Q

It is unlawful for an Investment adviser to publish and advertisement that:

A

1- Make use of testimonials
2- represents or implies that the adviser is approved by the SEC or Administrator
3-Make reference to past profitable stocks without taking into account the losers you have picked
4-represents any graph, table, chart, etc…that is being used to determine which securities to buy/sell
5- represents that a report, analysis or other service such as tax prep, was provided without charge
6- fails to disclose any ownership position in securities being recommended by the IA

115
Q

3 Major Difference between Federal and State law with investment advisory contracts?

A

1- USA contract must be in writing…Federal written or oral
2- USA requires fees to be competitive… federal needs to be reasonable
3- Performance based compensations federal is more stringent

116
Q

State and Federal act agree on the following for investment advisory contracts must disclose: (7)

A

1- the service to be provided
2- the terms of the contract
3- the amount of the advisory fee or the formula of the fee
4-the amount of calculation of the amount of any prepaid fee to be returned in the event of contract cancellation
5-whether the contract grants discretionary power
6- that no assignment of the contract may be made by the adviser without the consent of the client
7- if in partnership, any change to a minority interest in the firm will be communicated to advisory clients within a reasonable period of time

117
Q

Performance fees are allowed in contracts when:

A

1- a natural person or company that immediately after entering into the contract has at least 1 million under management of the IA
2- natural person or company that the IA has a reason to believe that entering into a contract the net worth is 2.1 million
3- Natural person who is an officer or director of the IA of one of their IAR who has been employed in the industry for 12 months

118
Q

Performance fee for State registered advisers would be allowed if the following is disclosed in writing:

A

1- that the fee arrangement may create an inventive for IA to take more risk
2- IA may receive increased compensation with regard to unrealized appreciation as well as realized gains
3- the periods that will be used to measure investment performance thought the contract and their significance in the computation of the fee
4-the nature of any index that will be used as a measure

119
Q

Fulcrum Fee

A

is a fee average of a time period that moves in proportion to the investment performance in relation to the performance of a specified securitized index

120
Q

Agency Cross Transaction

A

the adviser acts as the agent for both the advisory client and the party on the other side of the trade

121
Q

In a Agency Cross transaction the advisory client must sign a document BEFORE the trade stating the following:

A

1-the adviser is receiving commissions on both ends
2- there is a potential for conflict of interest
3- on at least annual basis, the adviser will create a statement or summary of the account to discuss amount of trades/commissions
4-the transaction can be cancelled at anytime

122
Q

In an Agency Cross Transaction the clents will be sent a statement that addresses the following:

A

1-a statement of the nature of the transaction
2- thedate, time(if asked) the transaction took place
3- the source and amount of $ received

123
Q

SEC allows the following four referrals fees plus they must be 3 circumstances:

A

1-Investment adviser be registered under the Adviser Act
2-Prohibits payment of cash referral fees to a solicitor who is subject to a statutory disqualification
3-cash referral to be paid pursuant to a written agreement to which the IA is a party

124
Q

The 3 circumstances that allow cash referrals fee until SEC ruling:

A

1- payments are for the provision of impersonal advisory service
2- is the advisers pays a referral fee to a person affiliated with the adviser
3- may be paid involves 3rd party solicitors who are not personas affiliated with the adviser

125
Q

The 3rd Party solicitor for cash fee referrals must have the following disclosures made:

A

1- Unless for impersonal advisory service, the fact that it is a third party must be disclosed
2- Adviser is responsible for the script

126
Q

Soft Dollars

A

is the practice of allocating certain amount of commission dollars to pay for research component

127
Q

Section 28 (E) Safe Harbor

A

provides that a person who exercises investment discretion with respect to an account will not be deemed to have acted unlawfully or have breach fiduciary duty by not finding the lowest commission

128
Q

Client referrals and disclosures

A

Everything must be disclosed to clients

129
Q

If an IA agrees to claim voting of clients securities (proxies) what must be disclosed on Part 2a of form ADV?

A

1- whether clients can have a say
2- how the IA address conflicts of interests
3- how the clients can receive info on how IA voted
4- how the client can get firm’s proxies policies

130
Q

2004 Investment Adviser Act Amendment for all SEC registered?

A

These IA must adopt and implement written policies and procedures designed to prevent violation of the federal securities laws annually and it responsiblitiy of the CCO

131
Q

Rule 206(4)- 7

A

it is unlawful for an IA registered with the SEC to provide advice investment advice unless the adviser has adopted and implemented written policies and procedures to avoid violation of Investment Adviser Act

132
Q

SEC rule with IA making political contributions:

A

are prohibited from accepting compensation for advisory services to a gov’t agency for two years after the advisory firm makes a contribution from a person in power

133
Q

De Minimis Exception for political contributions

A

$350 per official or candidate per election in which they can vote
$150 for other elections

134
Q

Covered Associated for political contributions (3)

A

1- general partner, managing member officer with a similar status of function
2- an employee who solicits a gov’t entity for the IA
3- any political action committee controlled by the IA

135
Q

New Hire Exception for Political contributions

A

contributions more than 6 months before onboard doesn’t make a difference, but if person’s role is to solicit clients than it goes back 2 yrs

136
Q

Returned Contribution Exceptions (3)

A

1- the IA must realize the mistake until 4 months of the contribution
2- contribution not over 350
3- contributor must obtain a return within 60 calendar day of date of discovery

137
Q

Who enforces the Investment Adviser Act of 1940?

A

Only the SEC (no SROs)

138
Q

If the SEC suspects a violation of the law or its rules, it may take the following actions:

A

1- subpoena witnesses
2- Acquire evidence
3- Subpoena Books and records
4- Administer oaths
5- go to the appropriate court to obtain injunction enjoining a person from continued activity until the results of a hearing
6- refer to the appropriate court for criminal prosecution

139
Q

SEC seeks criminal penalties include:

A

1- max fine of 10,000
2- imprisonment for 5 years
3- both

140
Q

Covered Account (2)

A

1- an account that a financial institution offers or maintain that involves or is designed to permit multiple payments or transactions
2-any other account that the financial institution offers or maintains for which there is a reasonably foreseeable risk to customer or the safety and soundness of the financial institution

141
Q

Privacy- Regulation S-P

A

requires that firms take ID theft seriously and have adequate safeguards in form of privacy policies to protect nonpublic personal info from unauthorized access or use

142
Q

When must regulation S-P be given to clients?

A

Annually and when the account is opened

143
Q

Purpose of Business Continuity and Succession Plans

A

is in the event of a disaster critical business functions can still be worked on

Series 66 (8 decks)

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