Unit 10 | Regulation of Investment Adviser Representatives Flashcards
Which of the following individuals would be defined as an investment adviser representative?
A. Melinda, one of the firm’s research analysts who has no contact with public clients
B. Johnny, an employee who makes cold calls soliciting new advisory clients
C. Mel, who prepares client account statements
D. Jane, who is the firm’s VP of HR services
B. One of the functions that makes a supervised person an IAR is soliciting for new business. Research personnel are not considered lARs unless they have client relationships. Mel’s job is purely clerical, and even though Jane is a vice president, the HR department is unrelated to anything to do with giving investment advice.
Under the Uniform Securities. Act, which of the following is not required to register as an investment adviser representative?
A. A director of a state-registered investment advisory firm who determines specific recommendations for clients
B. An associate in an SEC-registered investment advisory firm who has a place of business in the state and manages the account of only one individual client
C. A clerk employed by a state-registered investment advisory firm
D. A vice president of a state-registered investment advisory firm who supervises employees who solicit clients for the firm
C. Clerical and ministerial (administrative) personnel are expressly excluded from the definition of investment adviser representative. Specifically included in the definition are directors, officers, partners, associates, and employees of state-registered advisers who carry out investment advisory or solicitation functions or supervise those functions. Also included in the definition are persons who perform similar roles for SEC-registered advisers and have a place of business in the state. Once there is a place of business in the state, the de minimis rule no longer applies.
Which of the following individuals would be required to register with the Administrator of a state?
A. Walter, who represents a state-registered adviser, has no place of business in the state and only serves existing clients who vacation there.
B. May, who represents a covered adviser, has no place of business in the state and has 38 clients who reside in the state.
C. Aliza, who represents a state-registered adviser, has no place of business in the state and had fewer than six individual clients who were residents of the state during the past 12 months.
D. Joe, who represents a covered adviser, has a place of business in the state and had four retail clients who were residents of the state during the past 12 months.
D. Once an IAR maintains a place of business in a state, they must register in that state regardless of the number of clients-such is the case with Joe. Walter need not register because he qualifies for the snowbird exemption. May qualifies for the exemption as an IAR of a federally covered investment adviser. She is only required to register in those states where she maintains a place of business. Aliza qualifies for the de minimis exemption (fewer than six is the same as five or fewer).
Which of the following would be permitted to register as an investment adviser representative?
A. A corporation
B. An individual
C. A partnership
D. All of these
B | Only individuals (natural persons) are eligible to register as IARs. If the question asked about registering as an investment adviser, the correct answer would have been all of the above.
LO 10.a
An individual representing a state-registered investment adviser would not qualify for the de minimis exemption in a state if, over a 12-month period, she had
A. five retail clients.
B. five or fewer retail clients.
C. fewer than six retail clients.
D. six or fewer retail clients.
D | Because the maximum is five retail clients in 12 months, choice D, with six clients, is over the limit. Notice that “fewer than six” and “five or fewer” mean the same thing.
LO 10.b
When an investment adviser registers in a new state, which of the following are automatically registered as lARs?
A. Any employee who is functioning as an IAR in at least one state
B. Officers, partners, and directors of the firm who are functioning as lARs
C. Clerical employees stuffing the envelopes with research reports
D. Any employee who will be soliciting clients for the adviser
B. As we just stated, the “automatic registration” provision applies to those officers, partners, and directors of the lA who are already lARs in at least one state
Zack is an IAR with Unicorn Investment Advisers (UIA), an investment adviser registered in State W. Zack has accepted an employment offer from Elite Research Associates (ERA), an investment adviser registered in State W. What are the notification requirements to the State W Administrator?
A. Zack is the only person who notifies the Administrator.
B. UIA is the only person who notifies the Administrator.
C. ERA is the only person who notifies the Administrator.
D. UIA and ERA notify the Administrator.
D. This is a bit sneaky. We’ve just told you to remember the “I” in IAR resembles the number “1,” so only one person must notify. We’ve also stated that if the IAR represents a state-registered investment adviser, the lA does the notification. In this specific instance, because two lA firms are involved, each must notify the Administrator: UIA that Zack is no longer under their control and ERA that Zack now is. This example shows how every rule has an exception.
When an investment adviser representative’s permanent residence address changes, updates must be made to the information on file with the regulatory bodies. The proper procedure to be followed is
A. file a Form U4 within 30 days.
B. file a Form U4 within 45 days.
C. file a Form U5 within 30 days.
D. file a Form U5 within 45 days.
A. Amendments are made to Form U4 and must be filed within 30 days. Form U5 is for terminations.
Registration of an investment adviser automatically confers registration on
A. officers of the firm who are functioning as lARs.
B. partners of the firm who are functioning as lARs.
C. directors of the firm who are functioning as lARs.
D. all of the above.
D | Section 202 of the Uniform Securities Act states that registration of an investment adviser automatically constitutes registration of any investment adviser representative who is a partner, officer, director, or a person occupying a similar status or performing similar functions.
LO 10.c
Angelo is registered as an agent for Rentable Investment Brokers (RIB). The firm has just registered as an investment adviser to offer wrap fee programs to its customers. If Angelo wishes to offer this program to his clients, he will have to apply for registration as an investment adviser representative on an amended
A. Form ADV.
B. Form BD.
C. Form U4.
D. Form U5.
C | Even though Angelo has already filed a Form U4 when he became an agent, he now must file another Form U4, amending the original application to indicate this new requested registration. Form US is for termination, and the ADV and BD are for the firms, not individuals.
LO 10.c
