Term
| What must IAs disclose in writing BEFORE advice is rendered regarding material conflicts of interest? |
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Definition
1. Charging fee when commission also being charged.
2. If IAR or IA is holding a recommended security.
3. Charging performance-based fees causing advisor to trade more
4. Must disclose all forms of compensation when related to a trade or recommendation - including vacations, bonuses, and 12B-1 fees if they get kicked back to IA or IAR.
5. If IA or IAR owns real estate that a REIT we are recommending is buying or selling.
6. Soft dollar arrangements that include software services like reports, applications and real-time quotes (but NOT payment of the salary of an analyst because that is hard dollars) |
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Term
| Manipulative and deceptive practices include: |
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Definition
1. effecting a transaction with no beneficial ownership change.
2. Creating a falxe appearance of active trading unless an order is a bona fide agency cross (where same BD represents buyer and seller in same transaction) |
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Term
| What is an unreasonable advisory fee? |
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Definition
| 2% assets under management and/or 20% of performance-based fees. |
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Term
| What is an affiliate of an IA? |
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Definition
| A person who directly controls or is controlled by an IA. |
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Term
| If a customer complains in writing what versus oral? |
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Definition
| A response has to be given to a written complaint. |
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Term
| Omitting material information is… |
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Definition
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Term
| When a customer delivers securities to a BD, what must the customer receive? |
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Definition
| A written receipt immediately. |
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Term
| Account statements must be sent to clients at least… |
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Definition
| a. Monthly; b. Quarterly; c. Anually |
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Term
| How often must a CPA verify client funds and in what manner? |
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Definition
| a. Once per year, unannounced; b. Once per year, scheduled; c. every two years, unannounced; d. every two years, scheduled. |
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Term
| If IA net worth falls below minimum requirement, when does it notify administrator? |
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Definition
| a. promptly; b. within 10 days; c. 5 days; d. next day. |
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Term
| An IA must preferve all books and records how many years? |
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Definition
| a. three years; b. ten years from end of fiscal year; c. five years from end of fiscal year; d. 4 years. (first 2 years have to be kept at the office) |
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Term
| What is an affiliate of an IA? |
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Definition
| An affiliate is a person who directly or indirectly controls or is controlled by an Investment Advisor. |
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Term
| What is the threshold for unreasaonable fees? |
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Definition
| Anything over 2% of assets and 20% of performance based fees. |
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Term
| When an IA has custody because it advises pooled investment vehicles, what records must be kept? |
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Definition
| Audited financial statements; Who audited; and copy of audit agreement. |
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Term
| How is discretionary authority different for a BD versus an IA? |
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Definition
| BDs must get prior written discretionary authority unless just time and price; IAs can get verbal then in 10 days get it in writing. |
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Term
| If you want to share in profits or losses with a client, what has to happen, and how is it different from FINRA rules? |
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Definition
| Both the BD and the client must approve in writing. FINRA requires that profit sharing be in proportion - but that is not required by NASAA. |
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Term
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Definition
| Buying and selling to create appearance of active trading. It's also called a matched order. |
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Term
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Definition
| Buying securities over and over without beneficial interest |
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Term
| What do you have to do when you disclose a third party research report? |
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Definition
| Disclose that someone else created it. |
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Term
| When can you borrow money from a client? |
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Definition
| Even if a relative, must meet three rules: client is a B-D, affiliate of the IA, or financial instution engaged in lending. In FINRA, some relatives can borrow - this is a trick question, in this test, the answer is no and it has to be those three. |
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Term
| How is comingle rule different for Agents? |
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Definition
| For Agents, no comingling with agent assets. For BD, no comingle with BD assets. |
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Term
| Investment advisors are fiduciaries. When do they need discret. Auth? |
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Definition
| For IA and IAR, ten days after receiving oral discretionary authority. **different for BDs - they need it before. |
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Term
| What form does IA use to notify Administrator that it has custody of funds? |
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Definition
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Term
| If you compare a product to a CD, what must you make sure? |
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Definition
| Full disclosure - not FDIC insured, not guaranteed, etc. There risks that need to be disclosed. |
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Term
| If client needs funds for a specific time, like three years to pay a debt, what should they invest in? |
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Definition
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Term
| What is the primary difference between NASAA rules for Broker Dealers versus those for IAs? |
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Definition
| IAs have fiduciary responsibility; Brokers and agents have suitability responsibility. |
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Term
| What does IPPDRR stand for? |
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Definition
| Identify; protect; detect; respond; recover |
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Term
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Definition
| If you are an agent, you can sell an offering outside the BD platform unless the BD approves. |
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Term
| What are issuer exclusions in the definition of agent? YOU MUST KNOW THIS LIST. |
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Definition
If you work for an issuer and effect these transactions, you do not need to register as an agent. Issuer Exclusions include:
-us gov; munis; Canadian gov. securities; banks; promissory notes; investment contracts HOWEVER DO NOT INCLUDE INSURANCE COS AND FED SAV AND LOANS. You would have to register as an agent if you were going to sell securities issued by an insurance company or federal savings and loan. Don't get confused with "exempt security" list where Insur Cos and Federal Sav and Loans are exempt but are not on this list which applies only to issuer exclusions. |
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Term
| What do you need to close open orders after a client has died? |
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Definition
| In order to cancel open orders, you need physical proof like a death certificate. Just hearing it over the phone is not enough to cancel an open order. i.e., husband calls in |
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Term
| What are Agent issuer exempt transactions? |
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Definition
| Isolated non-issuer transactions (i.e. I bought or sold QQQ); transactions in certain covered securities sold in a private placement or to a qualified investor; transactions with investing employees or partners or directors of the issuer (no commission paid) |
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Term
| If an IA has offices in multiple states, how does it satisfy the minimum net worth requirement? |
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Definition
| It must abide by rules in the principal place of business - this will satsify other states. |
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Term
| If BD services are provided at a financial institution that takes retail client deposits, what must occur? |
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Definition
| Must be separate physical location from where deposits are taken; must be goverened by written agreements that include compensation arrangements; on account opening make clear not FDIC insured and risk exists including loss of principal. |
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Term
| What must confirmations and statements say if a bank is offering BD services? |
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Definition
| Must clealy indicate on account statements that BD services provided by BD. |
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Term
| If a BD is making a public offering is it ok to hold some securities back? |
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Definition
| Must make a bona fide (good faith) effort to sell all the securities. You cannot hold any back and sell at a higher price later. This would be failing to make a bona fide full offer. |
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Term
| What does segregation of funds mean? |
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Definition
| Must segregate securities and cash separate from those of the firm. |
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Term
| When a memo to buy or sell is written, what must be included: |
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Definition
| Name of BD executing order; Person who recommended trade; Person placing order. |
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Term
| When must you furnish a prospectus for a new issue? |
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Definition
| No later than transaction confirmation due date. |
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Term
| Does the prospectus rule apply to both secondary trades and mutual fund share trades? |
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Definition
| No, just mutual funds (open ended funds). |
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Term
| If the IA is going to take custody of a client's funds, what must the IA do? |
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Definition
| Notify the administrator and determine that the admin has not prohibited this ractice. |
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Term
| When does time and price discretion expire? |
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Definition
| on that day. Time and price is the only exception. |
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Term
| How long is time and price exception good for? |
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Definition
|
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Term
|
Definition
| Placing an order ahead of others when a large buy order is ocurring. |
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Term
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Definition
| Placing an order prior to the release of insider information. |
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Term
| When must you get a margin agreement in place? |
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Definition
| promptly after first transaction. |
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Term
| IAs requiring prepayment of more than 1,200 in fees per client 6 months or more in advance must |
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Definition
| Provide an audited balance sheet for the most recent fiscal year in the form ADV brochure. Threshold for states or NASAA it's $500. $1,200 is under the 1940 Act. TRICK QUESTION |
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Term
| What must you have in place before pledging securities of a customer for lending purposes? |
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Definition
| Shall not hypothicate (pledging customer securities for a loan in the customer's margin account) without written consent. |
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Term
| What must the IA disclose when entering into or extending a contract? |
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Definition
| STAARi nights: Services; Term; Advisory Fees; Assignment; Return fee for non performance; If discretion given. |
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Term
| In connection with soliciting investment company shares, what must you disclose if you discuss current yield or income? |
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Definition
| Stating or implying current yield or income without disclosing the fund's most recent average annual return, calculated using the SECs calculation for one, five and 10 year periods and fullyl explaining the difference between current yield and total return. |
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Term
| How to determining churning |
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Definition
|
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Term
| How long should partnership agreements and articles of incorporation be kept after closure? |
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Definition
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Term
| What is the exception to the discretion rule for IAs? |
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Definition
| Time and price only does not require authorization. |
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Term
| When does dicretionary authority not need to be in writing prior to action? |
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Definition
| Time and price only does not require written authorization. |
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Term
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Definition
| Total annual costs / account average balance. No set percentage, but if it rises above 20% could be deemed excessive. |
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Term
|
Definition
| Total Value of annual purchases /account average monthly balance. Not a universal ratio - based on individual situation. |
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Term
| You can never guarantee against losses |
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Definition
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Term
| How often must an IA deliver a privacy policy to a customer? |
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Definition
| Upon engagement, then annually. |
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Term
| Explain how discretion is different for IAs versus BDs. |
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Definition
| Within 10 business days after first transaction, must have in writing. For BDs and agents, you need discretion first. |
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Term
| NASAA Part 2A requirements supplemental |
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Definition
| within 120 days of fy if any changes. If client pays less than 500 fees or only receives impersonal advice. Don't have to give to investment companies or Bus dev. Companies. |
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Term
| NASAA Part 2A requirements initial delivery |
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Definition
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Term
| Can agents split commissions with other agents? |
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Definition
| Yes, if employed by the same BD. |
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Term
| When is it ok to loan money to a client? |
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Definition
| You can't loan money to a client even if a relative, unless the IA is a financial institution in the business of loaning funds or the client is an affiliate of the IA. |
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Term
| If you receive commissions does that make you an agent? |
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Definition
| you effect purchases and sales. Receipt of commissions is not required. Effecting sales are (but of course you would charge commissions) |
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Term
| Regarding solicitation of sales… |
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Definition
| You must disclose breakpoints, LOIs, sales charges, loads, etc. |
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