Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
69 Cards in this Set
- Front
- Back
|
What is the Act that is the primary source for federal statute regarding all rules and regulations governing Investment Advisors at the Federal level?
|
Investment advisors act 40
|
|
|
Who and what does the Investment Advisors Act of 1940 regulate at the Federal level?
|
Regulate advice
Publications Reports prepared & distributed by Investment Advisors |
|
|
What is a person called that receives compensation for advising others about securities or about the advisability of investing in securities?
|
Investment Advisor
|
|
|
Which of the following ways can an IA receive compensation for services:
1. Mgmt Fees 2. Wrap Fees 3. Commissions 4. Hourly Rates A. 1, 2, 3 B. ALL C. 2, 3, 4 D. 2 & 3; unless you are a manager |
B
An IA can be compensated in any form of economic benefit |
|
|
What percentage would an IA's total sales and revenues before tax for the three most recent years have to represent advisory services not including investment company clients in order to be considered "Primarily engaged in the business"?
|
more than 50% of total sales and revenues before tax for the most recent three fiscal years not including investment company clients
|
|
|
What are the one of two circumstances in which an Investment Advisor must satisfy in order to be considered a Federal Covered Advisor?
|
1. Advisor to a Registered Investment Company
2. Manage an investment portfolio of $25 million or more |
|
|
When is an Investment Advisor registered with the SEC only and when would they be registered at the state level?
|
Federal Covered Advisor = SEC only
manage less than 25 million must register with the state level |
|
|
What form must be filed with the SEC in order for an Investment Advisor to become a Federal Covered Advisor?
|
Form ADV
|
|
|
What information must be included on the "Form ADV" when registering with the SEC to become a Federal Covered Advisor?
|
Info about the basis of compensation and the names of the officers and directors
|
|
|
What is the rule for the amount of time spent in prison that would automatically deny someone to become a Federal Covered Advisor with the SEC?
|
1 or more years in prison
|
|
|
If the information in the Form ADV becomes in accurate how long do you have to file an amended Form ADV?
|
Immediate if the change is material or within 90 days of the end of the advisors fiscal year if the change is not material
|
|
|
Which of the following would require prompt filing of an amended Form ADV with the SEC as a Federal Covered Investment Advisor?
1. Name and/or location 2. Control and/or takeover 3. Disciplinary actions 4. Custody A. ALL B. 1 2 & 3 C. 2 & 3 D. 2 3 & 4 |
A. ALL
|
|
|
What is the usual amount of time in which the SEC grants registration after filing form ADV to be considered a Federal Covered Advisor?
|
within 45 days
|
|
|
Would a geologist be a person who is excluded from the definition of an investment advisor if they incidentally gave advisory services?
|
NO
|
|
|
Under the Investment Advisors Act of 1940 is a person who gives advice or services related to only US government securities considered an Investment advisor?
|
No
they are excluded from the definition |
|
|
When would a broker-dealer be excluded from the Investment Advisor Act of 1940?
|
If their advisory services were incidental to the conduct of business of the BD and receives no special compensation for the services
|
|
|
Under the Investment Advisory Act of 1940 if the advisor ONLY has clients who are insurance companies would they need to register as an investment advisor?
|
No
|
|
|
Which of the following are considered associated persons of an IA under the Investment Advisors Act of 1940?
1. Shareholders of the IA 2. Officers & partners of the IA 3. clerical employees of the IA 4. employee providing advice to clients of the IA A. 1 & 2 B. 3 & 4 C. 1 & 3 D. 2 & 4 |
D.
Associated persons - 1. Officers partners and directors 2. employees providing advice to clients of the IA |
|
|
When is the cut off time period in which an Investment Advisor that is registered under the IA Act 40 must file an Annual Updating Amendment to their registration with the SEC and how do they do this?
|
Must be done within 90 days after the end of the fiscal year of the investment advisory firm electronically
|
|
|
What are the three ways in which the SEC can revoke and IA's registration?
|
1. Willful misstatements in an SEC filing
2. Failure to reasonably supervise employees 3. Insolvency |
|
|
Under the Investment Advisors Act of 1940 what are the 3 requirements that must be met in order to maintain records electronically and how is this different then the USA?
|
1. can be read
2. copies can be made 3. duplicate copy is stored in separate location *USA requires that if kept electronically they cannot be altered |
|
|
What is the difference in the amount of time that all books and records must be maintained from the end of the fiscal year in which the entry was made under the IA Act 40 & USA?
|
IA Act 40 - 5 years
USA - determined by administrator or federal law |
|
|
Under the Investment Advisers Act of 1940, is it required that the contract be writing? USA?
|
IA Act 40 - DOES NOT require the contract to be in writing; allows oral contracts
USA - HAS to be in WRITING |
|
|
When are Investment Advisors under the 1940 Act allowed to charge performance based fees instead of total asset fees?
|
If they are working with a qualified client - 1.5 million net worth or $750,000 managed assets (*old: 1 mil/.5 mil)
|
|
|
Under the 1940 Act what is required when there are any changes in fees in a clients account?
|
must have client sign a revised contract showing the change in fees
|
|
|
What is Part II of Form ADV/ The Brochure also known as?
|
Written disclosure statements
|
|
|
If information on the form ADV becomes in accurate an amended form ADV must be filed. For material changes it must be filed immediately but if the change is not material what is the deadline for filing an amended Form ADV?
|
WITHIN 90 days of the end of the advisors fiscal year if the change is NOT material
|
|
|
Would a change in compensation for a federal covered advisor be considered a material fact and how long does one have to file an amended form ADV?
|
change in compensation would be considered a material fact
file amended form ADV immediately |
|
|
Under the USA does an investment advisor need to be registered if they are only giving advice related to US government securities?
|
YES - under the USA an advisor must register with the state is giving advice on just US securities
under the IA Act 1940 the advisor does not have to register with the federal government and would be excluded from the definition of an IA |
|
|
If an investment advisor only has clients within the state of their principal office and they do not provide business for securities listed on the National exchange are they considered an IA under the Federal law of the IA Act of 1940?
|
no they would be exempt
|
|
|
If a notice, circular, advertisement, or other communication is sent out to ____ or more persons it must be kept on the record and books by the IA under the IA Act of 1940.
|
10
|
|
|
Under the IA recordkeeping rules of the IA Act of 1940 a memorandum of each order must be kept on the books and records and must include 5 things. What are they?
|
-terms and conditions of order
-name of person who recommended the transaction -acct # (name is not needed) -date -name of B/D or bank who executed order |
|
|
Under the IA recordkeeping rules of the IA Act of 1940 would a log of telephone calls need to be kept for the records?
|
no but
checkbooks bank record bills relating to business communication regarding investments ledgers -assets liabilities reserves capital income and expenses |
|
|
Do journal of cash receipts and disbursements and other records of original entry have to be kept by the IA under the recordkeeping rules of the IA Act of 1940?
|
YES
**this will show up on test! |
|
|
When must an IA under the IA Act of 1940 maintain a record showing the name of the customer, amount of interest, and location of security?
|
if they have custody or possession of securities or funds of a customer
|
|
|
Generally how are investment advisor fees based on?
|
percentage of the total value of the fund averaged over a period of time
cannot do performance based fees UNLESS it is for a qualified client |
|
|
Under the IA Act of 40 the IA must define the periods used to measure performance for compensation in the contract. The performance of the account must be compared to what?
|
securities index; usually S&P 500 index
|
|
|
When an IA uses performance based fees for a qualified client what securities index do they usually use to measure the performance of the account for compensation?
|
S&P 500 index
|
|
|
When an IA uses performance based fees for a qualified client is the performance calculated after or before deducting advisory fees and expenses?
|
After!
|
|
|
Under the IA Act of 40 in regards to written disclosure statements, the advisor must provide clients with written disclosure statements no less than ____ hours prior to entering into such contract OR what right does the client have?
|
48 hours PRIOR
OR client can terminate contract within 5 business days after entering contract |
|
|
Under the IA Act of 40, how often do brochures have to be DELIVERED or OFFERED to existing customers whether or not the advisor has custody of the client funds? Who is the exception and does not need to receive a brochure?
|
annually at least
investment company contract or another impersonal existing or prospective client where general and not individual advice is given |
|
|
What document can satisfy the Brochure Rule? Does the Brochure need to be filed with the SEC?
|
Part II Form ADV
no! |
|
|
What kind of contract allows for hedge clauses?
|
hedge clauses are prohibited
|
|
|
Under the IA Act of 40 the investment advisors must disclose in writing when they act as a B/D in any capacity at what point? What is the difference between the USA disclosure requirements for an IA when acting in capacity of a B/D?
|
before completion of first transaction
IA Act 40 = IA must obtain written consent from client USA = IA just has to disclose in wiring but does not need written consent from client |
|
|
Under the IA Act of 40, an IA is exempt from the written disclosure requirements when acting as a B/D as well if it is a public distribution of written or oral statements. What constitutes a public distribution?
|
35 or more person who PAY for materials
|
|
|
What do you call a transaction where the investment advisor acts as a B/D for BOTH the advisory client and the another person on the other side of the transaction?
|
agency cross
|
|
|
Under the IA Act of 1940, an agency transaction is permitted by an IA if they are acting in the best interest of the advisory client regarding _____ and they receive ____ consent from the client which means they understand two things ______________________ & ______________________.
|
Price
Written 1. receives commission from both parties 2. potential exists for conflicts of interest |
|
|
In agency cross transactions the IA must send a written statement annually to both clients which informs them of two totals for that period. What are they?
|
total agency cross transactions in that period
commissions received in that period |
|
|
Under the IA Act of 40 can the IA recommend the transaction to both the buyer and the seller when it is an agency cross transaction?
|
NO
|
|
|
Under the IA Act of 40 if an IA has an agency cross relationship with client what can they do if they wanted to revoke consent for such transactions?
|
client can give written notice to IA
|
|
|
Under the IA Act of 40, When acting as an IA and/or agent, do you have to disclose if your personal security transactions are inconsistent with the advice given to clients?
|
agent - you NEVER have to disclose whether or not your own personal transactions are inconsistent or not with the advice that you are giving under the IA Act of 40
IA- if your personal transactions are inconsistent with the advice you are giving you are required to disclose it with you client |
|
|
How often must IAs review all written policies and procedures in place forbidding the use of non-public information as well as other provisions of the Act under the IA Act of 1940?
|
required to review it annually and keep written copy on hand
|
|
|
If an IA is acting as a insurance agent with a client and there were no other means of business would the IA Act of 1940 apply? What if the insurance agent was not an IA, would the IA Act of 1940 apply then?
|
Yes for IA acting as an insurance agent
NO to an insurance agent |
|
|
Under the IA Act of 40 can IAs use testimonials in their advertisements?
|
NO
|
|
|
Under the IA Act of 40, what is the rule regarding any advertisement by an IA that promotes a service will be provided free of charge?
|
it must be without any coniditions
|
|
|
Under the IA Act of 40, if an IAs advertisement refers to past recommendations that were profitable unless they the advisor meets what two circumstances?
|
OFFERS to furnish a list of all recommendations made within the last year ad the ad must state "it should not be assumed that the recommendations made in the future will be profitable or equal the performance of the securities in the list provided"
|
|
|
What is any notice, circular, letter or other written communication sent to more that one person or any publication, radio, or television which offers analyses to be used in determining which security to buy or sell, and when , known as under the IA Act of 40?
|
advertisement
|
|
|
What does the USA and NASAA statement say concerning the regulation of IAs in regards to advertising?
|
the IA Act 40 must be followed
|
|
|
Under the IA Act of 40, if an IA has custody of client funds and securities, how often must the IA provide each client with an itemized statement at the minimum? Is it the same for accounts that are very active?
|
Min quarterly
active in the last month then it must be sent monthly |
|
|
Under the IA Act of 40, who must IAs arrange with to have an unannounced examination to verify clients funds and securities in custody and how often must this be done?
|
IAs must arrange with an Independent CPA at least once a year
|
|
|
In what form must the IA notify the client of the location and manner of their funds and securities Under the IA Act of 40 when full custody is granted?
|
must notify each client in writing and give prompt written notice if the location changes
|
|
|
If a client is going to be out of town and gives the IA temporary authorization to write checks out of the clients check book to pay the custodial fees ONLY for the account would this be considered custody of the clients funds?
|
YES
|
|
|
Does prepayment of advisory fees mean that the IA has custody of the clients account?
|
NO
|
|
|
What is a person that attempts to sell advisory services for an IA OR refers clients to an IA for a fee?
|
solicitor
|
|
|
What is the difference between an affiliated solicitor and an unaffiliated solicitor?
|
Affiliated - partner, officer, director, employee of advisor where cash fee is paid IF complete disclosure of relationship is made to client
Unaffilaited - performs duties consistent with instructions of advisor; delivers IA discloure statement and disclosure document with solicitor; Written and/or oral agreement is entered into the client must have received a signed and DATED acknowledgement saying that they have received both disclosure documents |
|
|
Which of the following apply to the relationship of an IA and payments for a solicitor?
I. Advisor does not have to be registered with SEC II. Solicitor is not subject to SEC suspension or limitations III. there has to be a written agreement disclosing the business background of both IA and the solicitor IV. the client does not have to know how much the solicitor is paid |
II. is correct
I. advisor MUST be register with the SEC III. written disclosure document ONLY has to have the IAs background NOT the solicitors background IV. the compensation that the solicitor will receive and the advisory fee must be stated in the written disclosure |
|
|
The term "Investment Counsel" may not be use by an IA registered at the federal level unless which of the following criteria are met:
I. 50% or more of total revenue comes from investment supervisory services II. advisors principal business consists of being an investment advisor II. Must be worth at least $25 million IV. Provides services in more than one state A. All B. I, II, & IV C. I & II B. I, II, & III |
C.
In order for an investment advisor to use the term investment counsel they must meet both I & II criteria |
|
|
When a wrap fee is charged what must clients receive in writing that includes the IA fees, any IA interest in client transactions, and the IA's balance sheet?
|
Schedule H of Form ADV
|
|
|
Which of the following is not true of an IA if they are going to exercise voting authority with respect to a clients securities?
I. must have custody of clients funds/securities II. must have written policies or procedures requiring the IA to act in the best interest of the client III. Disclose to clients that they may obtain information as to how the IA voted IV. Upon request of a client furnish a copy of the IA's policies and procedures |
I. is not true
|
