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Series 66 > State Regulations Governing Investment Advisers and IA Representatives > Flashcards

State Regulations Governing Investment Advisers and IA Representatives Flashcards

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1
Q

Is a certified public accountant who provides tax advice considered an IA under the USA?

A

No, CPAs are excluded from the IA definition.

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2
Q

True or False: A publisher of a financial magazine is considered an IA under the USA.

A

False. Publishers of newspapers/magazines are excluded from the IA definition.

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3
Q

Is an attorney who exclusively provides estate planning services considered an IA under the USA?

A

No. Provided the attorney’s advice is incidental to his profession, he is excluded from the IA definition.

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4
Q

True or False: A BD making recommendations about investing in various securities is an IA under the USA.

A

False. Since the BD is not charging a fee for the advice, it is excluded from the IA definition.

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5
Q

True or False: According to the USA, a BD providing asset allocation plans to its clients for a fee is an IA.

A

True. Since the BD is receiving specific compensation for its advice, it is considered an IA.

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6
Q

True or False: The USA defines a bank providing investment recommendations to its clients as an IA.

A

False. Banks are excluded from the IA definition.

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7
Q

True or False: The USA classifies an agent of a BD who also manages wrap accounts as an IA.

A

No. IAs are firms, not individuals.

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8
Q

Is an adviser to a mutual fund considered an IA under the USA?

A

No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.

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9
Q

Is an employee of a securities firm who manages accounts for a fee considered an IAR?

A

Yes

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10
Q

Individuals employed by an IA who only perform ____________________ duties are excluded from registration under the USA.

A

Individuals employed by an IA who only perform clerical/ministerial duties are excluded from registration under the USA.

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11
Q

Is an employee of an IA who answers the telephone and does clerical work considered an IAR?

A

No

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12
Q

A surety bond may be required if an investment adviser has _____________ or __________ of client assets.

A

A surety bond may be required if an investment adviser has discretion or custody of client assets.

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13
Q

In place of a surety bond, the Administrator will accept a deposit of _______ or _____________.

A

In place of a surety bond, the Administrator will accept a deposit of cash or securities.

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14
Q

True or False: A successor advisory firm must pay a new filing fee, but need not file a new application.

A

False. The successor firm must update its application, but not pay a new filing fee.

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15
Q

The application for registration of an agent or IAR becomes effective in _____ days.

A

The application for registration of an agent or IAR becomes effective in 30 days.

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16
Q

The application for withdrawal of registration of an agent or IAR becomes effective in _____ days.

A

The application for withdrawal of registration of an agent or IAR becomes effective in 30 days.

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17
Q

What form is used to notify Administrators that an IA is maintaining custody of client assets?

A

Form ADV

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18
Q

Investment advisers with custody must have an annual audit done by a(n) ____________________.

A

Investment advisers with custody must have an annual audit done by a(n) independent CPA.

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19
Q

An IAR has an office in State A and has 4 clients who reside in the state. Is the IAR required to register in State A?

A

Yes, since the IAR has an office in State A. The client number is not relevant because of the office location.

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20
Q

An IAR of a federal covered adviser has an office in State B with 4 clients who live in State B. Where must he register?

A

He must register in State B since he has an office in the state. The number of clients is not relevant.

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21
Q

What type of advice may lawyers, accountants, teachers and engineers provide and not be considered an IA?

A

Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.

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22
Q

May the Administrator set minimum net worth requirements for IAs?

A

Yes, but no state may impose a requirement that exceeds the requirement of the IA’s home state.

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23
Q

If an adviser has check-writing privileges in a client’s account, does this constitute custody?

A

Yes. Full discretionary control (having the ability to remove funds from the client’s account) is considered custody.

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24
Q

As it applies to a BD or IA, what does the term “exclusion” mean in the USA?

A

Exclusion signifies that a person does not meet the definition of a BD or IA in the state.

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25
Q

Who manages accounts, solicits services, or makes recommendations on behalf of a registered investment adviser?

A

An investment adviser representative (IAR)

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26
Q

What may an investment adviser do with full discretion, but not with limited discretion?

A

Withdraw money from the account

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27
Q

An ___________________________________ is to an investment adviser what an ________ is to a BD.

A

An investment adviser representative (IAR) is to an investment adviser what an agent is to a BD.

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28
Q

Does the de minimis exemption apply to investment adviser representatives?

A

Yes

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29
Q

Does the de minimis exemption apply to BDs that have no place of business in a state?

A

No. The de minimis exemption only applies to IAs and IARs.

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30
Q

IAs with no place of business in a state, and whose clients are ____________ are not required to register in that state.

A

IAs with no place of business in a state, and whose clients are institutions are not required to register in that state.

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31
Q

What requirements may states impose on IAs that are registered with the SEC? 3

A
  1. File with the state any documents that were filed with SEC,
  2. File Consent to Service of Process,
  3. Pay state fees
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32
Q

If an IA is registered with the SEC, is registration required in any state in which it intends to do business?

A

No. The National Securities Markets Improvement Act (NSMIA) exempts federal covered advisers from state registration.

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33
Q

Under the USA, all IA contracts must be __________ and must disclose __________ provided and related ______.

A

Under the USA, all IA contracts must be in writing and must disclose services provided and related fees.

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34
Q

For how long does the registration of a state-registered adviser remain in effect?

A

Until December 31, unless renewed by the adviser

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35
Q

IAs file their applications electronically through the ___________________________________.

A

IAs file their applications electronically through the Investment Adviser Registration Depository (IARD).

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36
Q

Is there a limit to the amount of net worth the Administrator may require of an IA?

A

Yes. The Administrator may not set a requirement that exceeds the IA’s home state.

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37
Q

What type of advice may lawyers, accountants, teachers, and engineers provide and not be considered an IA?

A

Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.

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38
Q

If an IA contract stipulates cancellation penalties, a brochure must be provided ____ hours before the contract signing.

A

If an IA contract stipulates cancellation penalties, a brochure must be provided 48 hours before the contract signing.

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39
Q

In general, does the USA allow an adviser to charge performance-based fees?

A

No. However, such fee arrangements may be permitted by rule or order of the Administrator.

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40
Q

What type of information will be found in an investment adviser’s ADV Part I? 5

A
  1. Firm name,
  2. # of employees,
  3. nature of business,
  4. history of officers/directors,
  5. legal/disciplinary action in past 10 years
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41
Q

Any material changes to Form ADV must be filed ___________.

A

Any material changes to Form ADV must be filed promptly (within 30 days).

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42
Q

When are non-material (routine) changes to Form ADV required to be filed?

A

Routine items require an amendment within 90 days after the end of the IA’s fiscal year.

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43
Q

Identify some non-material (routine) changes to Form ADV.

A
  1. A change in the number of discretionary accounts or 2. a change in the dollar amount under management by the adviser
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44
Q

When is Form ADV-W filed?

A

When an adviser withdraws its registration

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45
Q

With what system do IAs file their registration applications?

A

The Investment Adviser Registration Depository (IARD)

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46
Q

ADV Part I is a disclosure document for use by the _____ and the ________________.

A

ADV Part I is a disclosure document for use by the SEC and the Administrator.

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47
Q

Who operates the IARD?

A

FINRA

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48
Q

When should routine changes to an adviser’s ADV be filed?

A

Within 90 days of the end of the adviser’s fiscal year

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49
Q

When should significant changes to an adviser’s ADV be filed?

A

Promptly (within 30 days)

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50
Q

When must a federal adviser file an updating amendment to determine continued eligibility for SEC registration?

A

Within 90 days of the end of the adviser’s fiscal year.

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51
Q

True or False: An IA must physically deliver its brochure to clients at least annually.

A

False. At a minimum, the IA must (in writing) offer to deliver its brochure annually.

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52
Q

Identify the acronym: IAR

A

Investment Adviser Representative

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53
Q

What is Form ADV?

A

The form filed by investment advisers for registration

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54
Q

Identify the acronym: IARD

A

Investment Adviser Registration Depository

55
Q

What is Form ADV-W?

A

The form filed by investment advisers to withdraw registration

56
Q

What is Form ADV-E?

A

Form filed by an independent public accountant after auditing the records of an IA maintaining custody of client assets

57
Q

What’s notice filing?

A

The process in which information that is filed with the SEC is also filed or shared with the Administrator.

58
Q

What form do IAs file to register?

A

Form ADV

59
Q

Where do IAs send their registration forms?

A

The Investment Adviser Registration Depository (IARD)

60
Q

What is updated at the annual renewal of an IA’s registration? 5

A
  1. Assets under management,
  2. the number of accounts,
  3. the number of clients,
  4. the number of employees, and
  5. the number of IA representatives
61
Q

Is an accountant defined as an IA?

A

No. Accountants are excluded from the IA definition if their advice is incidental to their business.

62
Q

Identify the acronym: LATE

A

Lawyers, Accountants, Teachers and Engineers—these are the professionals excluded from the IA definition.

63
Q

If a BD is promoting wrap accounts, does it need to register as an IA?

A

Yes. Selling wrap accounts is considered advisory service which requires registration.

64
Q

Give some examples of institutional investors. 6

A
  1. Banks,
  2. S&Ls,
  3. insurance companies
  4. investment companies,
  5. investment advisers, or
  6. entities with at least $50 million in assets
65
Q

List some of the records that must be retained by an IA for five years. 5

A
  1. Journals,
  2. blotters,
  3. ledgers,
  4. position records, and
  5. trade confirmations
66
Q

True or False: If a new IA’s registration became effective on April 1, it must renew on April 1 of the following year.

A

False. State registrations expire annually on December 31 and then must be renewed.

67
Q

True or False: An IA is required to disclose the educational background of all of its IARs to its clients.

A

False

68
Q

If an IA’s office is in State A, but its only clients are insurance companies, with whom must it register?

A

With the Administrator in State A. IAs whose only clients are insurance companies are exempt from SEC registration.

69
Q

True or False: A person being compensated for providing clients with advice about securities is a broker-dealer.

A

False. This person is considered an investment adviser.

70
Q

What record must an investment adviser maintain regarding its IARs?

A

The initial application for each IAR

71
Q

True or False: An Administrator will inspect all advisers’ books and records on an annual basis.

A

False. Administrators lack the resources to inspect all IAs’ books and records annually.

72
Q

All investment advisory contracts must be in writing and include the ______________ for which services are contracted.

A

All investment advisory contracts must be in writing and include the length of time for which services are contracted.

73
Q

The publisher of a financial publication that provides personalized advice is considered a(n) __________________.

A

The publisher of a financial publication that provides personalized advice is considered a(n) investment adviser.

74
Q

When may an investment adviser charge fees that are different from other advisers?

A

When the fees are disclosed and are determined to be reasonable

75
Q

True or False: An IA that maintains custody of customer assets must submit to an unannounced annual audit by a CPA.

A

True. At the completion of the audit, the CPA must file Form ADV-E with the SEC.

76
Q

Is an adviser required to register in a state in which it has no office, but has accredited investors who reside there?

A

Yes. Since the USA does not recognize accredited investors as institutional investors, IA registration is required.

77
Q

Does an IA that only accepts clients with at least $1 million under management need to register?

A

Yes. There is no exemption on the state or federal level if all of an IA’s clients have $1 milllion under management.

78
Q

If an IA is no longer eligible for SEC registration, it has ____ days to file ADV-W and register at the state level.

A

If an IA is no longer eligible for SEC registration, it has 180 days to file ADV-W and register at the state level.

79
Q

An IA’s brochure must have the same information that appears in what part of Form ADV?

A

Part 2 of Form ADV

80
Q

True or False: If an IA’s clients are institutions (e.g., banks and BDs), it is exempt from registration under the USA.

A

True. However, this is provided that it has no place of business in the state.

81
Q

Part 2 of Form ADV may be used as the disclosure document that is provided to the IA’s ________.

A

Part 2 of Form ADV may be used as the disclosure document that is provided to the IA’s clients.

82
Q

What is Part 2 of Form ADV?

A

The portion of an IA’s application that may be used to satisfy the Brochure Rule (disclosure requirement)

83
Q

In lieu of an IA-prepared brochure, what document may be delivered to IA clients?

A

Part 2 of Form ADV

84
Q

True or False: An adviser is required to deliver only ADV Part 2 when entering into a wrap fee program with a client.

A

False. For wrap accounts, the SEC requires IAs to provide clients with a special disclosure (ADV Part 2A-Appendix 1).

85
Q

True or False: The manager of an IA’s human resources department is considered an IAR.

A

False. The manager’s responsibilities do not include providing advice about securities or managing accounts.

86
Q

When an IA initially registers, who is automatically considered registered?

A

The officers and directors of the advisory firm

87
Q

What is required of an IA if there has been a minority change in firm ownership?

A

Provide written notification to clients and the Administrator

88
Q

What is the purpose of an annual updating amendment.

A

To determine if an IA is eligible for continued SEC registration; it is filed within 90 days of its fiscal year end

89
Q

Is an employee of a BD who solicits new customers for an IA considered an IAR?

A

Yes. According to the USA, any person who solicits investment advisory service is considered an IAR.

90
Q

Is the publisher of a newspaper required to register as an investment adviser?

A

No. Publishers are excluded from the IA definition if the newspaper has general circulation and gives impersonal advice.

91
Q

Is an IA always required to include a balance sheet in Part 2 of its Form ADV?

A

No. A balance sheet is required if the IA collects prepaid fees or has discretion.

92
Q

List the four categories of professionals who are excluded from the IA definition.

A

Lawyers, accountants, teachers, and engineers (remember L, A, T, E)

93
Q

True or False: An adviser to a mutual fund must register in the state in which the fund is domiciled.

A

False. A federal covered adviser must be registered with the SEC, not a state.

94
Q

True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.

A

False. The CEO is considered an IAR, not an IA.

95
Q

True or False: An agent of a BD who solicits client trades is not considered an IAR under the USA.

A

True. There is no indication that the agent is managing accounts and charging a fee.

96
Q

An individual employed by an IA to manage the research department is required to register as an ____ under the USA.

A

An individual employed by an IA to manage the research department is required to register as an IAR under the USA.

97
Q

The electronic system used to register investment advisers is the __________ _______ ____________ ________________.

A

The electronic system used to register investment advisers is the Investment Adviser Registration Depository (IARD).

98
Q

IA records must be kept for at least ____ years.

A

IA records must be kept for at least five years.

99
Q

If a BD’s net capital falls below the required minimum, it must notify the Administrator within ___ business day(s).

A

If a BD’s net capital falls below the required minimum, it must notify the Administrator within one business day.

100
Q

An IAR has no place of business in State A, but has six or more individual clients in State A. Where must she register?

A

She must register in any state in which she has six or more individual clients (even if she has no office in the state).

101
Q

An IAR of a federal covered adviser has no office in NY, but has six clients who live in NY. Must he register in NY?

A

No. IARs of federal covered advisers are only required to register in states in which they have an office.

102
Q

An IAR of a state-registered IA has no office in NJ, but has six clients who live in NJ. Must she register in NJ?

A

Yes. IARs of state-regulated IAs register where they have an office and where they have six or more individual clients.

103
Q

When does the de minimis exemption from registration apply for an IA that has no place of business in a state?

A

When an IA has no more than five non-institutional clients who are residents of the state (measured over 12 months)

104
Q

Under the USA, the de minimis exemption limits an IA to no more than ____ clients within the previous ___ months.

A

Under the USA, the de minimis exemption limits an IA to no more than five clients within the previous 12 months.

105
Q

If an IA meets the IA definition in a state, when is it exempt from registration under the USA?

A

If it has no office in the state and it has institutional clients only OR five or fewer retail clients in the last 12 months

106
Q

Is there a registration exemption for IARs doing business in a state if employed by an IA registered in another state?

A

Yes, if the IAR has no office in the state and has five or fewer retail clients in the state in the past 12 months.

107
Q

An IA must maintain its books and records for a minimum of ____ years.

A

An IA must maintain its books and records for a minimum of five years.

108
Q

True or False: An IA with fewer than 15 retail clients in the past 12 months is exempt from registering under the USA.

A

False. The USA de minimis exemption for advisers is five or fewer individual clients.

109
Q

What types of changes are considered material changes that require prompt amendment of an adviser’s Form ADV?

A

Significant items, such as a name or location change

110
Q

What types of changes are considered significant changes for an adviser’s Form ADV?

A

Change in fees, custody, and the name or location of adviser

111
Q

True or False: An IA firm that is acquired by a competitor must pay a new filing fee.

A

False. The purchasing firm must update its application, but paying a new filing fee is not required.

112
Q

What is the minimum educational requirements for any person who renders investment advice?

A

There is no minimum; however, the SEC and Administrator may require disclosure of educational backgrounds.

113
Q

What is Form ADV-NR?

A

Form required for IAs with general partners who are non-U.S. residents; gives the SEC the right to receive legal papers

114
Q

For how long must an IA maintain records?

A

FIve years

115
Q

An IAR with no place of business in a state must register in the state if he has more than ____ retail clients there.

A

An IAR with no place of business in a state must register in the state if he has more than five retail clients there.

116
Q

Investment advisers typically charge fees that are based on the _______ _____ over a specified period.

A

Investment advisers typically charge fees based on the average value over a specified period.

117
Q

Under the USA, when must an IA provide a balance sheet to a client?

A

A balance sheet must be provided if the IA collects prepaid fees of $500 or more, six months or more in advance.

118
Q

True or False: An IA with five or fewer retail clients in the state in the past 12 months must register under the USA.

A

False. No registration is required as long as the IA has no place of business in the state.

119
Q

When does an Administrator require an adviser to include its balance sheet in its ADV Part 2?

A

If the firm has custody of a client’s funds or collects prepaid fees of $500 or more, six months or more in advance

120
Q

True or False: A BD that promotes wrap accounts to its clients must register as an IA under the USA.

A

True. Since the wrap account involves a fee for advice, the BD must register as an IA.

121
Q

What is not disclosed in the investment policy statement?

A

The advisor’s compensation. The statement does include the goals, objectives, and responsibilities of the advisor.

122
Q

What document will an IA regularly provide to clients to notify them of the location of their securities?

A

The client’s account statement

123
Q

If an IA has custody or discretion, it must include a ________ ______ with its Form ADV and brochure.

A

If an IA has custody or discretion, it must include a balance sheet with its Form ADV and brochure.

124
Q

Under the Investment Advisers Act of 1940, when must an IA renew its registration?

A

Within 90 days from the IA’s fiscal year-end

125
Q

Give some examples of qualified custodians.

A
  1. Broker-dealers,
  2. banks and
  3. trust companies.
  4. IAs may also be custodians, but usually are not.
126
Q

Under the IA Act of 1940, when must a balance sheet be provided to a client?

A

A balance sheet must be provided if the IA collects prepaid fees of $1,200 or more, six months or more in advance.

127
Q

When does the SEC require an adviser to include its balance sheet in its ADV Part 2?

A

If the firm has custody of a client’s funds or collects prepaid fees of $1,200 or more, six months or more in advance

128
Q

An annual updating admendment of Form ADV is filed with the SEC within __ days of the adviser’s fiscal year end.

A

An annual updating admendment of Form ADV is filed with the SEC within 90 days of the adviser’s fiscal year end.

129
Q

Describe a wrap account.

A

An account that charges the client a single fee that covers transaction execution and account management

130
Q

When and by whom is Form ADV-E filed?

A

It is filed within 120 days from the completion of an audit of the IA’s books; filed by the auditor.

131
Q

How are advisory fees most commonly charged?

A

As a percentage of assets under management over a specific period

132
Q

An IA is required to deliver the brochure to its clients by no later than the __________ of the contract.

A

An IA is required to deliver the brochure to its clients by no later than the signing of the contract.

133
Q

If an IA delivers a brochure at the time of contract signing, clients must be given ____ days to cancel without penalty.

A

If an IA delivers a brochure at the time of contract signing, clients must be given five days to cancel without penalty.

134
Q

What is a client’s right if an IA does not deliver the required brochure 48 hours prior to the signing of the contract?

A

The client may terminate the contract without penalty within five business days from the signing of the contract.

Series 66 (12 decks)

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