Unit 7 Flashcards
What are waivers? Are waivers ever permitted?
U7LO1
Waivers are additions to the contract with a client where the advisor attempts to waive the implied fiduciary responsibility.. No
What is a hedge clause?
U7LO1
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
What are allowed types of performance based ocmpensation?
U7LO1
- 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
When are referral payments allowed?
U7LO1
- 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
To make cash payments to solicitors, the agreement must:
U7LO1
- 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
What would fall under 28(e)’s safe harbor?
U7LO1
- REsearch reports
- financial newsletters and trade journals
- quantitatie analytical software
- sminars or conferences with appropriate content
- effecting and clearing securities trades
What would fall outside 28(e)’s safe harbor?
U7LO1
-telephone lines
-office furniture and computeres
-travel expenses
-rent
software that doesn’t directly relate to securities analysis
payment of training courses
internet
What is directed brokerage?
U7LO1
Asking or permitting. clients to send trades to a specific broker-dealer for execution. This must be disclosed.
What are three things that an advisor must do if they directly deduct fees from a clients account:
- written authorization
- notice of fee deduction
- Notice of safeguards
What is considered custody?
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,
What does an advisor need to do when they take custody?
promptly notify the Administrator by immediately updating form ADV
If an IA has custody, how often must they send statements?
At least Quarterly
What form is required when an advisor has custody?
Form ADV-E. This form contains info about the surprise audit and the advisor
What is time or price discretion?
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
When is oral discreitionary trading permitted
Within 10 days of the first discretionary transaction`