USA - Business Practices Flashcards
Advisory contracts must be _____ and have ______
be in writing and have a defined term
Prepayment of fees is permitted. T/F
True
Refund for early terminations are permitted. T/F
True
If the firm is a partnership, any change in ownership must be _____
communicated promptly to customers
A change in a majority of partners requires _____
customer consent
A performance fee is allowed for _______
wealthy clients
Soft dollar arrangements are allowed as long as the “give backs” benefit the _____
adviser’s clients
An adviser can also collect _____ fees if they place client funds into a particular mutual fund
12b-1 fees
You cannot include hedge clauses in an advisory contract that are ______ or hold the adviser _____
unreasonable or hold the adviser harmless for misconduct
Each client must receive the adviser’s brochure and brochure supplement, also known as Form ADV part ____ and form ADV part _____
2A and 2B
The brochure and supplement must be delivered either _____ before signing, or if after, the customer has _____ to rescind the contract
48 hours before signing or has 5 days to rescind afterwards
If there is a material change to the brochure, it must be sent to the customer no later than _____ after fiscal year end
120 days
An adviser may not take custody of client assets if there is a specific ______ or, if no ____, then if they have not given ______
if there is a specific rule, or if no rule, if they have not given notice
In order to take custody, adviser must notify the state using form _____
ADV
Assets held by an adviser must be held by a ______ who must be _______ annually
custodian who must be audited annually
The IA must file audit results of the custodian within ______
120 days
Qualified custodians under the NASAA rules are:
- FDIC insured deposit taking institutions
- registered BDs
- registered futures commissions merchants
- foreign financial institutions
“Custody” also pertains to taking more than _____ in advance fees and accounts with full _____
more than $500 in advance fees and accounts with full POA
If funds received mistakenly are returned within _____, then not considered custody
3 days
Annual updates to ADV must be filed within _____ of fiscal year end; material changes filed within _____ of event
90 days of year end; 30 days of event (for Fed covered advisers, material change is required “promptly”)
Under NASAA rules, customer must sign margin agreement ______ after the first trade occurs
promptly
For discretionary accounts, written authority must be received no later than ______ after verbal authority is given (does not apply to BDs - Fed laws)
10 business days
For BDs, written authority for discretion must be received ______ to placing trades
prior
Payment for trades by a customer must be received no later than _____ after the trade date
5 days (S+2)
If account is frozen, customer can still trade but needs to _____
have the cash deposited up front
A loan amount to a customer with a margin account cannot exceed limits placed by ______
Reg T (for instance, since margin on a LEAP is 75%, then loan cannot exceed 25%)
If a customer wants securities transferred and shipped, must be ______
fully paid
Order tickets must be stamped with time of _____, _____, and ______
time of receipt, time of execution, and time of cancellation (if canceled)
For IAs, orders must show name of person who recommended transaction, name of person who entered the ticket, the ______ of the order, name of account, name of the _____ who will execute the order, and whether or not it is ______
date of the order; name of the BD, and whether is discretionary or not
Limit order display rule states that if a customer places an order with a better price than the market maker, the market maker must ______
display those customer quotes
Order confirms do not need to indicate if the order was ______ or not
solicited or not
On order confirms, _________ must be disclosed
payment for order flow
NASAA does or does not allow a RR to borrow or lend money from a relative?
DOES NOT - not like FINRA
Can IAs lend money to customers? Can BDs?
IAs CANNOT, BDs CAN
IAs and IARs are or are not allowed to open joint accounts with customers?
ARE NOT
An agent ______ charge a higher commission based on performance of recommendations
CANNOT
Disclosure of commission is required on the trade _____
confirm
“Unusual” fees for trades must be disclosed ______
prior to execution
BDs can charge for clerical fees but not for the actual ______
recommendation - then they would become IAs
Fee discounts cannot be made _____
to only select clients
A mutual fund is not considered “no-load” if it has a 12b-1 fee in excess of _____
0.25%
If a customer dies, the account must be _____, all open orders canceled, the date of death must be noted, and must wait for the proper paperwork
the account must be frozen from all removals of assets
If inside information is received by an agent, must be reported to the ______
exchange where the security trades
A new issues of non-exempt securities cannot be sold without a ______
propsectus
Must disclose if a research report distributed to customers is ______
from a third party
IPO allocations can be made to IAs, but they have to buy it for _____
all their clients
For an IPO, BD cannot issue a research report for _____ following the effective date; for add-on offering it is _____
10 days for IPO, 3 days for add-on
IA advertising cannot contain a _______ (BDs can), cannot state that research is given for ____ unless true without condition, and can include recommendation as long as ALL recommendations over the past _____ are included
cannot contain a testimonial; and must include ALL recommendations over the last 1 year
Internet communication for BDs and IAs is NOT considered “transacting business” if it is not _______, contains a legend that lets people know they can only conduct business ______, any individual follow up communication meets all registration requirements, the communication has a “firewall” to meet compliance standards
cannot be specific (must be general) and lets people know they can only do business in their own state or places of registration
Agents cannot share commissions with _____ or _____
unlicensed individuals or licensed individuals at another firm
IAs can pay referrals fees to solicitors but those solicitors must be ______
registered as IARs
An IA can send trades to an affiliated BD as long as it is disclosed and customer has provided _______
written consent
If 2 or more beneficiaries, the differing interest of the beneficiaries must be considered when investing the assets by the trustee. T/F
True
Written consent from the customer must be obtained by settlement date for conflicts of interest where the IA has a _____ from the position of the client or is selling their own assets to the client
has an opposite position from the one being assumed by the client
Privacy notices must be sent initially and then _____
annually
Initial privacy notice must also include a ______ provision
opt-out
A foreign customer must present their _____ and a US _____
passport and a US tax ID
CTR reports must be aggregated over _____ and reported within _____
aggregated over 2 weeks and reported within 15 days
Cyber security procedures must be tested _____
annually
Money transfers must be confirmed with the client, but cannot be done over _____
To offer a promissory note, both the ______ and the _____ must be registered
sales person and the promissory note
Only promissory notes that have maturities of _____ or less, are _______ grade, and are sold in min increments of ______ are exempt from state registration
9 months or less, investment grade, and sold in min amounts of $50,000
Not making required disclosures to customers who buy securities in a ______ is prohibited
bank location
For securities bought at a bank location, the RR must disclose (orally and written) that the account is _____ FDIC insured, the securities are _____ deposits, and they _____ lose value
NOT FDIC insured, NOT deposits, and MAY lose value
The fee for managing _____ may be higher than for ____
equities may be higher than for fixed income
Discretion is allowed to be exercised upon verbal confirmation as long as written confirmation is received within _______
10 business days
Is there a record of subscription orders that must be kept by a BD?
NO - happens directly between the issuer and the shareholder
Can an IA lend money to its officers or employees?
YES
