Unit 6 & 7 Flashcards
Are there any exemptions from the brochure rule?
There are two exemptions from the brochure rule. The first is if the client is an investment company. The other is if the advice being rendered is impersonal and the charge is less than $500 ($500 as well under the USA) per year.
Under the NASAA Model Custody Rule, an investment adviser would be permitted to take or have custody of any securities or funds of any client if
It is unlawful for any investment adviser to take or have custody of any securities or funds of any client if
the Administrator, by rule, does not prohibits custody; or
in the absence of rule, the investment adviser notified the Administrator that he has or may have custody.
It is true that there is a minimum net worth or bond required, but that is not part of NASAA’s Custody Rule—those requirements are found in Model Rule 202(d)-1, NASAA’s Minimum Financial Requirements for Investment Advisers.
What would decreate a company’s working capital?
Paying off a long-term debt (like a 15-yr bond). You take current cash and pay down a long-term debt. Declaring a stock-dividend has no effect on working capital because stock is given, not cash.
What is the payout order or a corporate liquidation?
1) secured claims like mortgage bonds, equipment trust certificates, and collateral trust bonds; 2) unpaid wages; 3) taxes; 4) unsecured liabilities (debentures) and general creditors; 5) subordinated debt; 6) preferred stockholders; and 7) common stockholders.
What is an agency cross transaction?
In an agency cross tx, an IA affiliated with, or under the control of, a BD represents both sides of a tx. Therefore, in addition to the advisory fee, commissions are earned. When executing an agency cross transaction, prior written approval from the client is required. Agency cross transactions are prohibited when the securities in the transaction have been recommended to both parties by the adviser
What is an example of an unethical business practice for an UW syndicate member?
Under NASAA’s Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, it is considered unethical for a member of the UW Syndicate to withold shares from the IPO and sell them later at a profit
What are some examples of forms of custody?
Authority to withdraw funds or securities from the custodian or automatic deduction for fee payments are forms of custody.
When a brokder-dealer registers with a state, who else is registered?
. At the time the broker-dealer is registered, officers, directors, or partners of the firm who act as agents will be automatically registered as agents.
Does an advisor that gives advice to registered investment companies have to register with the SEC as a federally covered advisor?
Yes
Who is allowed to share in the profits of a client’s account?
Sometimes agents, never IARs
Investment adviser representatives are not allowed to share in the capital appreciation or depreciation of their customers’ accounts in the same manner as agents.
In what case would an IA need the client’s consent before completing a transaction?
When the IA acts as a principal with an advisory client.
In the case of broker-dealers, disclosure of capacity on the trade confirmation, but not consent, is needed.
What is an example of an action that an Investment Advisor must disclose?
Legal and disciplinary action successfully brought against an investment adviser must be disclosed to customers, as well as disciplinary actions that resulted in a fine in excess of $2,500. Convictions for a misdemeanor or felony involving securities or money within the past 10 years must also be disclosed.
When does a BD need to disclose the capacity it acts in a trade (agent vs. principal)?
On the trade confirmation. Client consent is not needed beforehand.
what is the relationship between duration and price volatility?
The longer the duration, the greater the price volatility.
What is duration?
Duration is the measure of a bond’s sensitivity to a change in the interest rates. The longer the duration, the greater the change in a bond’s price w/ respect to interest rate changes.
