Unit 14 Flashcards
What hedge clauses may not be used for
Disclaiming statements that are inherently misleading
Terms the UPIA specifically uses when describing fiduciary duty
Skill and caution
Compensation details that must be disclosed
- The method of computing compensation
- Refunding of prepaid fees
- The type of compensation (hourly fees, fees based on AUM, commissions, etc.)
- Any incentives or other compensation from the issuer of securities recommended
Exceptions to performance fee prohibition
- Person that immediately after entering into the contract has at least $1.1 million under the management of the investment adviser
- Person that immediately prior to entering into the contract has a net worth exclusive of the primary residence in excess of $2.2 million
- An officer or director of the investment adviser or one of their IARs who has been employed in the industry at least 12 months
Fulcrum fee
Performance-based fee that adjusts based on how well a fund performs relative to a benchmark index.
What investment adviser describes in Form ADV
- The products, research, and services
- Whether clients may pay commissions higher than those obtainable from other brokers in return for the research, products, and services
- Whether research is used to service all accounts or just those accounts paying for it
- Any procedures that the adviser used during the last fiscal year to direct client transactions to a particular broker
Two major benefits of using a custodian
- Because the custodian is sending the quarterly reports to the client, that administrative burden is lifted from the investment adviser
- There is no requirement for a surprise annual audit by an independent accountant
Each time a fee is directly deducted from a client account, the adviser must do what
- Send the qualified custodian notice of the amount of the fee to be deducted from the client’s account
- Send the client an invoice itemizing the fee
Audit records that must be kept by state-registered advisers who have custody (3)
- The date(s) of the audit
- A copy of the audited financial statements
- 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
Minimum net worth of investment adviser to have custody
$35,000
When filing of Form ADV-E is required
Investment adviser, rather than custodian, has custody of customer funds
Discretion includes authority to decide which 3 things
- Security
- Number of shares or units
- Whether to buy or sell
An order is not discretionary if all three “A’s” are already stated by customer. What are three A’s
Activity
Amount
Asset
The only time a broker-dealer can hypothecate (pledge as collateral) customer securites
Broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction in the client’s margin account
When financial institutions must electronically file a currency transaction report (CTR)
When cash transactions exceed $10,000
Which decisions do not require any discretionary authority (2)
- Time
- Price
Blanket recommendations
Unethical practice where investment adviser recommends the same security to most or all clients without regard to individual suitability
What SEC Release IA-1092 warns against
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
How often an investment adviser who falls under the requirements of Section 13(f) must file form 13F
Quarterly
Is sending complaints by email or text considered a written complaint
Yes
Selling Away
Connecting investors to deals outside of the broker-dealer’s capacity without prior authorization (Movie at the party story)
Where disclosures that a broker-dealer is not affiliated with a bank or saving institution are not required
- Radio broadcasts of 30 seconds or less
- electronic signs, including billboard-type signs that are electronic, time and temperature signs
- Signs, such as banners and posters, when used only as location indicators
Result of Treble damages
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
If SEC elects to pursue criminal action penalties would include what
Potential jail time with max sentence 20 years
Chinese Wall
Term used to describe the procedures followed by these firms to insulate information from reaching the wrong hands by creating a wall between departments
What MNPI stands for
Material nonpublic inside information
Matched Orders
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
Example of Wash Trade
An investor buying in one brokerage account and simultaneously selling through another
Wash sale
When a person sells a security and repurchases it within 30 days prior to or after the sale
What Regulation S-P requires
Firms take identity theft seriously and have adequate safeguards
Consumer vs Customer
Consumer purchases a product one time and then terminates relationship. Customer has ongoing relationship
Recission
Legal remedy that allows a party to cancel a contract and return to the position they were in before the contract was made
If a company appoints a CCO (Chief Compliance Officer), does it need to have another company do an independent review
No
When NASAA policy permits oral discretionary powers to IAs and their representatives
Written authorization form is returned within 10 days of first trade being made
What an advisor must do when it has custody of client accounts (2)
- Notify a client when the client’s funds are moved to another location.
- Segregate client’s funds and keep them identified by client.
Are advisors required to disclose “all” personal transactions to clients
No
Who delivers actual securities to clients
Broker-dealer
When itemized account statement must be sent to clients in a custodial account
Every three months
What soft-dollar compensations permissible under the safe harbor provisions of Section 28(e)
Seminars, research, and financial planning software
Can you borrow money from a bank that is the agent’s client
No
Arbitrage
The practice of buying on one exchange and selling on another to take advantage of market disparities (Legal)
When is exculpatory provision acceptable in a contract
Never
