Unit 6 Flashcards
When is Completion of a Transaction
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the day the trade settles—the second business day afterr the trade is made.
When does an advisor need to obtain client consent?
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Before or after execution but prior to settlement of the trade
What is an agency cross transaction?
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the IAR acts as agent forth the advisory client and the party on the other side of the trade.
This is only allowed if the client gives written consent and the advisor discloses:
- that he’ll be getting commission from both sides of the trade
- potential conflict of interest
- Annually, the advisor must send a statement showing these transactions
- the arrangement can be terminated at any time
- no transaction is effected when the the transaction was recommended to both a seller and purchaser
Once the trade is completed, the advisor must provide a written trade confirmation including:
- statement of the nature of the transaction
- The date of transaction
- The source and amount of commission
What required disclosures are included in the brochure?
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Past 10 years of
- State or regulatory proceedings where the advisor violated rules that led to denial, suspension or revocation of registration
- Court proceedings pertaining to investment related activity or any felony
- SRO proceedings where an advisor caused the business to lose it’s registration or be barred, suspended, fined over $2500, expelled.
What are examples of failures to disclose material information?
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- advisor doesn’t disclose fees
- advisor doesn’t disclose affiliation with a broker dealer
- advisor doesn’t disclose when they might not be able to meet contractual commitments (pre paying clientS)
- fails to use the average price paid when allocating securities
- Material legal action must be disclosed to existing clients
What are disclosures of conflicts of interest?
U6LO1
- offering a house fund (mutual fund where the underwriter or advisor is affiliated with the broker-dealer)
- offering a limited partnership offering (DPP) where sponsor is affiliated with the BD
- Program sponsors (like insurance companies) provide incentives or rewards
- When advisor has a financial interest in the security
- A broker dealer going public and putting it’s own shares in discretionary accounts
- A broker dealer publishing favorable research after underwriting the issuer’s stock
What are required disclosure of fees?
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- insurance of a stock certificate
- transferring an account
- Wiring funds
- margin account interest
- account maintenance fees
- safekeeping of funds/securities
- late settlement fees
- Postage and handling
How can you misrepresent your security registration?
U6LO2
By saying the administrator APPROVED it – you must say you are a registered investment advisor representative of XYZ Investment Advisor
The same goes for a registered security transaction. Don’t say approved, affirmed, passed, etc
Investment Advisory Contracts must include:
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- The services to be provided, including custody if appropriate
- the term
- fee (USA required competitive fees, Fed requires reasonable fees)
- amount of prepared fee
- if there is discretionary power
- noassignment without consent – ex, if company is sold
- if the advisor is in a partnership, any change to the firm is communicated
- performance based compensation is prohibited
USA requires written contract, Fed is written or oral
When does a change in partnership result in the clients needing to be notified?
U6LO4
- if the minority of partners changes, clients must be notified
- changes in shares don’t mean clients need to be notified
- if there is a change to a majority of partners, client permission needs to be obtained
What is Form ADV Part 2?
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Three parts:
Part 2A: Firm Brochure
Part 2A Appendix 1: Wrap Fee Program Brochure
Part 2B: Brochure Supplement
What is on Form ADV Part 2B
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Specific info about the personal
- Cover page
- Educational background
- Disciplinary info
- other business activities
- Additional comp
- Supervision
What is a wrap fee program?
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a client is charged a specific fee that is not based directly on the transactions in the account or on investment advice.
When must the brochure be updated?
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Annually
or when the info changes
Part2A is the brochure that must be delivered to clients of all Its within ___ days of the end of the fiscal year
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120
