Unit 2: Regulation of Investment Adviser Representatives Flashcards
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
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 for new advisory clients
C. Mel, who prepares client account statements
D. Jane, who is the firm’s VP of HR services
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
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 for new advisory clients
C. Mel, who prepares client account statements
D. Jane, who is the firm’s VP of HR services
Answer: B. One of the functions making a supervised person an IAR is soliciting for new business. Research personnel are not considered IARs unless they have client relationships. Mel’s job is purely clerical and, even though Jane is a vice president, the HR department is far removed from anything to do with giving investment advice.
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
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
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
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
Answer: C. Clerical and ministerial (administrative) personnel are specifically 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 who supervise those functions. Also included in the definition are persons who perform similar functions for SEC-registered advisers and who have a place of business in the state.
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
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 in the state.
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 6 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 4 retail clients who were residents of the state during the past 12 months.
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
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 in the state.
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 6 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 4 retail clients who were residents of the state during the past 12 months.
Answer: D. Even though he represents a federal covered adviser, once an IAR maintains a place of business in a state, Joe must register in that state regardless of the number of clients. Walter need not register because he qualifies for the snowbird exemption. May qualifies for the exemption as an IAR of a federal 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 6 is the same as 5 or fewer).
Important note: Even if May’s employer had a place of business in the state, she would not have to register because she, the IAR, doesn’t. Of course, her employer, being federal covered, doesn’t register in any states.
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
Wealth Management Experts (WME) is an investment adviser registered in State X, the location of its only offices. During the past 12 months, WME has directed investment advice to 6 individual clients in State Y. This means that WME
A. is required to register in State Y because it has exceeded the de minimis limit
B. is not required to register in State Y because it is within the de minimis limit
C. does not need to register in State Y if that state has a reciprocal licensing arrangement with State X
D. would be required to register in State Y as soon as advice was directed to a single retail client
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
Wealth Management Experts (WME) is an investment adviser registered in State X, the location of its only offices. During the past 12 months, WME has directed investment advice to 6 individual clients in State Y. This means that WME
A. is required to register in State Y because it has exceeded the de minimis limit
B. is not required to register in State Y because it is within the de minimis limit
C. does not need to register in State Y if that state has a reciprocal licensing arrangement with State X
D. would be required to register in State Y as soon as advice was directed to a single retail client
Answer: A. What is the de minimis exemption? It is available to an investment adviser who does not maintain a place of business in the state and limits its business to 5 or fewer retail clients who are legal residents in the state during the preceding 12 months. That would make A the correct answer because 6 is above the limit of 5. There is no such thing as a reciprocal licensing arrangement between states. How would things change if the question was worded to say that there were 6 clients, 3 of whom were retail and the other 3 insurance companies? In that case, no registration would be required because the retail clients are within the de minimis limit, and there is no limit on the number of institutional clients an investment adviser can have in a state without the need to register (as long as there is no place of business in the state).
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
An IAR 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. 5 retail clients
B. 5 or fewer retail clients
C. fewer than 6 retail clients
D. 6 or fewer retail clients
U2LO2: Identify exclusions and exemptions under the Investment Advisers Act of 1940 and the Uniform Securities Act.
An IAR 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. 5 retail clients
B. 5 or fewer retail clients
C. fewer than 6 retail clients
D. 6 or fewer retail clients
Answer: D. Because the maximum is 5 retail clients in a 12-month period, choice D with 6 clients is over the limit. Notice that, “fewer than 6” and “5 or fewer” mean the same thing.
U2LO3: Describe the investment adviser representative registration requirements and process, post registration filings, and business activities.
When an investment adviser registers in a new state, who of the following is automatically registered as IARs?
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 IARs
C. Clerical employees stuffing the envelopes with research reports
D. Any employee who will be soliciting clients for the adviser
U2LO3: Describe the investment adviser representative registration requirements and process, post registration filings, and business activities.
When an investment adviser registers in a new state, who of the following is automatically registered as IARs?
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 IARs
C. Clerical employees stuffing the envelopes with research reports
D. Any employee who will be soliciting clients for the adviser
Answer: B. As we just stated, the “automatic registration” provision applies to those officers, partners, and directors of the IA who are already IARs in at least one state.
Important note: For those of you who have taken a FINRA exam, you know there is a supervisory level of registration—registered principal. No such gradations apply under NASAA rules. So, no matter how high ranking the officer of the investment advisory firm, that individual registers as an IAR. Therefore, anytime you see reference made to your supervisor, remember, that person is an IAR just like you.
U2LO3: Describe the investment adviser representative registration requirements and process, post registration filings, and business activities.
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 also 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
U2LO3: Describe the investment adviser representative registration requirements and process, post registration filings, and business activities.
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 also 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
Answer: D. This is bit sneaky. We’ve just told you to remember the “I” in IAR resembles the number 1 so only one person must notify. We also stated that if the IAR represents a state-registered investment adviser, the IA does the notification. In this specific instance, because two IA firms are involved, each of them must notify the Administrator; UIA that Zack is no longer under their control and ERA that Zack now is. This is just an example of how every rule has an exception.
U2LO3: Describe the investment adviser representative registration requirements and process, post registration filings, and business activities.
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
U2LO3: Describe the investment adviser representative registration requirements and process, post registration filings, and business activities.
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
Answer: A. Amendments are made to the Form U4 and must be filed within 30 days. The Form U5 is for terminations.
