Unit 14

Question 1

What hedge clauses may not be used for

Answer 1

Disclaiming statements that are inherently misleading

Question 2

Terms the UPIA specifically uses when describing fiduciary duty

Answer 2

Skill and caution

Question 3

Compensation details that must be disclosed

Answer 3

1. The method of computing compensation
2. Refunding of prepaid fees
3. The type of compensation (hourly fees, fees based on AUM, commissions, etc.)
4. Any incentives or other compensation from the issuer of securities recommended

Question 4

Exceptions to performance fee prohibition

Answer 4

1. Person that immediately after entering into the contract has at least $1.1 million under the management of the investment adviser
2. Person that immediately prior to entering into the contract has a net worth exclusive of the primary residence in excess of $2.2 million
3. An officer or director of the investment adviser or one of their IARs who has been employed in the industry at least 12 months

Question 5

Fulcrum fee

Answer 5

Performance-based fee that adjusts based on how well a fund performs relative to a benchmark index.

Question 6

What investment adviser describes in Form ADV

Answer 6

1. The products, research, and services
2. Whether clients may pay commissions higher than those obtainable from other brokers in return for the research, products, and services
3. Whether research is used to service all accounts or just those accounts paying for it
4. Any procedures that the adviser used during the last fiscal year to direct client transactions to a particular broker

Question 7

Two major benefits of using a custodian

Answer 7

1. Because the custodian is sending the quarterly reports to the client, that administrative burden is lifted from the investment adviser
2. There is no requirement for a surprise annual audit by an independent accountant

Question 8

Each time a fee is directly deducted from a client account, the adviser must do what

Answer 8

1. Send the qualified custodian notice of the amount of the fee to be deducted from the client’s account
2. Send the client an invoice itemizing the fee

Question 9

Records that must be kept by state-registered advisers who have custody

Answer 9

1. The date(s) of the audit
2. A copy of the audited financial statements
3. Evidence of the mailing of the audited financial statements to all limited partners, members, or other beneficial owners within 120 days of the end of its fiscal year

Question 10

Minimum net worth of investment adviser to have custody

Answer 10

$35,000

Question 11

When filing of Form ADV-E is required

Answer 11

Investment adviser, rather than custodian, has custody of customer funds

Question 12

Discretion includes authority to decide which 3 things

Answer 12

1. Which security
2. The number of shares or units
3. Whether to buy or sell

Question 13

An order is not discretionary if all three “A’s” are already stated by customer. What are three A’s

Answer 13

Activity
Amount
Asset

Question 14

The only time a broker-dealer can hypothecate (pledge as collateral) customer securites

Answer 14

Broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction in the client’s margin account

Question 15

When financial institutions must electronically file a currency transaction report (CTR)

Answer 15

When cash transactions that exceed $10,000

Question 16

Which decisions do not require any discretionary authority (2)

Answer 16

1. Time
2. Price

Question 17

Blanket recommendations

Answer 17

Unethical practice where investment adviser recommends the same security to most or all clients without regard to individual suitability

Question 18

What SEC Release IA-1092 warns against

Answer 18

Fffecting transactions in which the adviser has a personal interest in a manner that could result in preferring his own interest to that of his advisory clients

Question 19

How often an investment adviser who falls under the requirements of Section 13(f) must file form 13F

Answer 19

Quarterly

Question 20

Is sending complaints by email or text considered a written complaint

Answer 20

Yes

Question 21

Selling Away

Answer 21

Connecting investors to deals outside of the broker-dealer’s capacity without prior authorization (Movie at the party story)

Question 22

Where disclosures that a broker-dealer is not affiliated with a bank or saving institution is not required

Answer 22

1. Radio broadcasts of 30 seconds or less
2. electronic signs, including billboard-type signs that are electronic, time and temperature signs
3. Signs, such as banners and posters, when used only as location indicators

Question 23

Result of Treble damages

Answer 23

Guilty party could be fined up to three times any ill-gotten gains or up to three times any losses avoided by using inside information to get out before a market drop

Question 24

If SEC elects to pursue criminal action penalties would include what

Answer 24

Potential jail time with max sentence 20 years

Question 25

Chinese Wall

Answer 25

Term used to describe the procedures followed by these firms to insulate information from reaching the wrong hands by creating a wall between departments

Question 26

What MNPI stands for

Answer 26

Material nonpublic inside information

Question 27

Matched Orders

Answer 27

When an order is entered with knowledge that a matching order on the opposite side of the transaction has been or will be entered for the purpose of creating a false sense of trading volume

Question 28

Example of Wash Trade

Answer 28

An investor buying in one brokerage account and simultaneously selling through another

Question 29

Wash sale

Answer 29

When a person sells a security and repurchases it within 30 days prior to or after the sale

Question 30

What Regulation S-P requires

Answer 30

Firms take identity theft seriously and have adequate safeguards

Question 31

Consumer vs Customer

Answer 31

Consumer purchases a product one time and then terminates relationship. Customer has ongoing relationship

Question 32

Recission

Answer 32

Legal remedy that allows a party to cancel a contract and return to the position they were in before the contract was made

Question 33

If a company appoints a CCO (Chief Compliance Officer), does it need to have another company do an independent review

Answer 33

No

Question 34

When NASAA policy permits oral discretionary powers to IAs and their representatives

Answer 34

Written authorization form is returned within 10 days of first trade being made