Unit 7 Flashcards

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1
Q

What are waivers? Are waivers ever permitted?

U7LO1

A

Waivers are additions to the contract with a client where the advisor attempts to waive the implied fiduciary responsibility.. No

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2
Q

What is a hedge clause?

U7LO1

A

A waiver. Ex: “We assume no responsibility for action taken or omitted in good faith… “ or “Results are not guaranteed…”. Most of the time these are not allowed. Might be allowed if limiting liability for things outside the advisors control like war

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3
Q

What are allowed types of performance based ocmpensation?

U7LO1

A
  • if a person or company has at least $1.1 million under management
  • if a person or company has a net worth (excluding residence) in excess of $2.2m
  • a person that is an officer or direct of the investment advisor on one who has been employed in the industry at least 12 months
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4
Q

When are referral payments allowed?

U7LO1

A
  • The IA must be registered under the advisors act
  • The solistor can’t be subject to crimes within the last 10 years
  • The cash refer; fee is paid pursuant to a written agreement
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5
Q

To make cash payments to solicitors, the agreement must:

U7LO1

A
  • be in writing
  • provide for disclose of any affiliations
  • provide that no one has statutory disqualification
  • follow a scrip approved by the advisor
  • both the advisor and solicitor brochure are delivered
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6
Q

What would fall under 28(e)’s safe harbor?

U7LO1

A
  • REsearch reports
  • financial newsletters and trade journals
  • quantitatie analytical software
  • sminars or conferences with appropriate content
  • effecting and clearing securities trades
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7
Q

What would fall outside 28(e)’s safe harbor?

U7LO1

A

-telephone lines
-office furniture and computeres
-travel expenses
-rent
software that doesn’t directly relate to securities analysis
payment of training courses
internet

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8
Q

What is directed brokerage?

U7LO1

A

Asking or permitting. clients to send trades to a specific broker-dealer for execution. This must be disclosed.

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9
Q

What are three things that an advisor must do if they directly deduct fees from a clients account:

A
  1. written authorization
  2. notice of fee deduction
  3. Notice of safeguards
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10
Q

What is considered custody?

A

If a n IA receives a customer check made payable to an unrelated third party, they must be FORWARDED to the 3rd party, not returned to the client,

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11
Q

What does an advisor need to do when they take custody?

A

promptly notify the Administrator by immediately updating form ADV

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12
Q

If an IA has custody, how often must they send statements?

A

At least Quarterly

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13
Q

What form is required when an advisor has custody?

A

Form ADV-E. This form contains info about the surprise audit and the advisor

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14
Q

What is time or price discretion?

A

Client says “buy xx of ABCD and get the best price you can”. For oral approval, the transaction must happen that day. Otherwise the instruction must be written

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15
Q

When is oral discreitionary trading permitted

A

Within 10 days of the first discretionary transaction`

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16
Q

What are Currently Transaction Reports?

A

The department of US treasury requires this report for cash transactions over $10k. Must be filed within 15 days.

Structuring is when someone intinitiannly designs deposits to fall below the $10k radar.