Unit 6 Flashcards
BROKER DEALERS must always indicate their CAPACITY on the trade confirmation sent no later than completion of the trade settlement date
Client consent can be oral or written in must be obtained before completion of the transaction settlement.
INVESTMENT ADVISOR disclosure of CAPACITY.
Disclosure and client requirements because of conflicts of interest:
The client receives full written disclosure as to the capacity in which the advisor proposes to act.
Client consent is obtained and can be oral or written and may be obtained before or after the execution of the trade but prior to completion of the transaction (trade settlement date)
Investment Adviser acting as BD
Adviser is not acting as BD if no extra compensation is involved.
Agency cross transactions
Definition
Permitted?
Recommendation Rules
The advisor or IAR acting on behalf of the firm acts as agent for both its advisory client and the party on the other side of the train.
Permitted with state and federal law with written consent in advance for each transaction. Written consent has disclosures.
Must also provide a written trade confirmation that includes statement of the nature of the transaction, the date and if requested the time of the transaction, and the source and amount of any remuneration to be received by the IA or IAR
The advisor may not recommend the transaction to both parties of the trade.
Disclosure must be made to all current clients and prospective clients regarding material disciplinary action
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Broker Dealer Fees
Model fee disclosure schedule.
What is not included in the fee disclosure documents?
*Fees must be disclosed to clients.
Not included in fee disclosures:
- commissions
- markups and markdowns
- advisory fees
(Those fees are made in other documents, not the fee disclosure schedule)
Performance Guarantees
Guaranteed securities are guaranteed by a party other than the issuer for a principal and interest or dividend.
Performance cannot be a guarantee.
No guarantees against loss
Performance based compensation is unless an exception is granted (and specified on the exam)
***If justified, a broker dealer but not associated person of the firm may correct of bona fide error
Investment advisory contract
Describes the primary relationship between a client and the investment advisor.
Assignment
When did advisory firm is sold the contracts of the clients get assigned. Clients must approve the new firm managing their money.
Waivers are never permitted.
No types of waivers or waiving anything
Buy-and-hold clients are not suitable for a wrap fee account
Don’t do enough trading to benefit
Firm brochure delivery requirement
- must be given to each client before or at the time in advisory agreement is entered into with the client. If no changes, no brochure needs to be sent after.
- if material changes, a brochure must be sent within 120 days of the end of the fiscal year.
- disciplinary action is the only reason an interim brochure would be sent
Brochure delivery exemptions
- contracts with an investment company registered under the investment company act.
- advisers entering into a contract providing solely for a personal advisory services (publishers of market letters )
Form 2 A Delivery Requirment (State and Federal)
State Registered Adviser - at least 48 hours in advance unless the contract calls for a penalty free termination.
Federal Covered Adviser - no later than at the time of entering into the advisory agreement
