Unit 9: Regulation of Investment Advisers Including State-Registered and Federal Covered Advisers

Question 1

Person

Answer 1

anyone or entity that is not a minor, deceased, or legally incompetent.

Question 2

Investment Advisor

Answer 2

A person who (1) gives securities advise to others (2) as regular business activity (3) and is compensated for doing so.

Question 3

“Giving advice”

Answer 3

Can be positive or negative, but the investment must be a security
NOT advice:
-commodities
-collectibles
-metals
-real estate

Question 4

“regular business activity”

Answer 4

it is a recurring activity, and they hold themselves out to the public as doing so.

Question 5

“compensated for advice”

Answer 5

can be direct or indirect fees or commissions.

Question 6

Investment counsel

Answer 6

Principal business activity must be giving investment advice, and must provide on-going account management

Question 7

SEC Release IA 1092

Answer 7

Investment Advice is expanded to include Planners, Consultants, and Sports Agents IF advice is a part of their business

Question 8

Excluded/Exempted from IA

Answer 8

excluded are not included in definition, but exempt are included, but not subject to it.

Question 9

USA, 7 exclusions to IA

Answer 9

1. Bank, holding, savings, or trust company (NOT S&L Assoc/foreign bank)
2. LATE w/ incidental advice
3. B/D/agent w/ incidental advice
4. Publisher with general and regular circulation
5. IAR employed by IA
6. Federally covered
7. Any exclusions by Administrator

Question 10

Federal Exemptions to IA

Answer 10

Intrastate advisors
Advisors to insurance companies

Question 11

Exemptions to IA, state law

Answer 11

1. IA with no place of business, registered in another state, and only clients are B/Ds, other IAs, Institutional, snowbirds, 5 fewer regular clients in T12
   -holding self out to public in that state means you have a place of business

Question 12

Private Fund Advisor

Answer 12

Hedge fund advisors typically register with SEC, but the fund itself does not.

Question 13

Advisor to private fund exemptions

Answer 13

-AUM under $150M
-foreign fund without place in US and AUM under $25M
-solely with VC funds

Question 14

Private Fund

Answer 14

not owned by more than 100 persons and
-3c1: no public offering, shareholders must be accredited
-3c7: qualified purchasers, no public offerings, no limit on persons

Question 15

Qualified person under USA

Answer 15

$1.1M AUM or $2.2M household LNW

Question 16

Federally Covered IA

Answer 16

Registered with SEC, does not need state registration
Must register with SEC if:
-$100-110M AUM
-Mutual fund manager
excluded from IA 1940 if advice is limited to govt securities

Question 17

IA AUM criteria

Answer 17

if increases past threshold, has 90 days to register with SEC
if falls past threshold, has 180 days to go back to state registration.

Question 18

Form ADV

Answer 18

Part 1A- Includes supervised people and business practices
Part 1B- if already SEC registered
Part 2A- Narrative brochure about firm
Part 2B- supplement on supervised people

Question 19

Form ADV updates

Answer 19

annually, every Dec 31st, has 90 days

Question 20

Form ADV-W

Answer 20

for voluntary withdrawing registration

Question 21

Form ADV Part 1

Answer 21

Exempt advisors must fill out

Question 22

Pension managers with less than $200M AUM

Answer 22

Prohibited from registering with SEC

Question 23

Change in successor firm

Answer 23

requires new Form ADV, cannot use amendment

Question 24

Substantial prepayment of fees

Answer 24

Over $500 and 6 months or more in advance

Question 25

Financial requirement for IA

Answer 25

Discretion= $10K
Custody= $35K
Surety= $35K
if none of the above, then still need positive net worth.

Question 26

State registered IA financial requirements

Answer 26

Must follow criteria for state their principal office is in.
Books/records also, 2 years in office, 5 years easily accessible

Question 27

If IA falls below financial requirements

Answer 27

Must notify Admin by the next EOD, then file detailed report the next day.
Must obtain surety bond for difference.

Question 28

Written policies and procedures

Answer 28

Must have them
CCO must review annually

Question 29

USA Registration effective

Answer 29

noon 30 days after filing

Question 30

Articles of Incorporation held

Answer 30

for 3 years after termination of enterprise

Question 31

Consent to service of process

Answer 31

supplied at registration and remains on file permanently
-every legal/natural person must file one so that Admin can accept legal papers on behalf of registrants.

Question 32

test of providing advice

Answer 32

is one portion of IA definition, does not make someone an IA on its own

Question 33

Recommending Securities in newspaper

Answer 33

does not make them IA since the recommendation is not client specific

Question 34

IF substantial prepayment of fees

Answer 34

then Balance Sheet is filed in Part 2 of Form ADV

Question 35

Annual update to Form ADV filed

Answer 35

within 90 days of advisers fiscal YE

Question 36

Investment Advisers to Investment companies must

Answer 36

register with SEC, regardless of their size
-therefore, does not need to register with the state

Question 37

Intrastate exemption does NOT apply if IA has a

Answer 37

private fund as a client