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Flashcards in 66 Key Concepts Deck (12):

SEC registration for and investment advisor requires the filing of form Adv. Adv part one consists of what?

Basic information about the advisor (name, address, business name, officers, phone number and shareholders)

Also lists all states in which advisor has filled for registration

Also asks for answers to disqualifying questions, i.e: been suspended by FINRA or SEC?


SEC registration for and investment advisor requires the filing of form Adv. Adv part two consists of what?

Gives descriptive info about the advisory firm and may be used by the advisor as the document given to potential customers to satisfy the "brochure rule".


ADV Part 2 is broken into two halves what are they?

2a the Brochure and 2b the brochure supplement


ADV part 2A the brochure covers what? 18 sections very difficult

•business contact info
•summery of material changes from last annual update
•description of advisors business, including services offered, assets under management and area of specialty
•fees disclosures- including fee schedule and if fees are negotiable along with other fees clients may incur
•prepaid fee disclosure- if fees are charged in advance, advisor must explain how they are calculated
•other compensation disclosure, brokerage commissions and conflicts associated with those.
•performance fee disclosure - only allowed for wealthy investors however it must be disclosed potential conflicts of interest as well
•types of clients- the advisor handles along with requirements for opening and maintaing and account
•analytical methods and investment strategies- list of strategies used and associated risks involved
•legal and disciplinary action taken against the advisor
•material relationships with others in the industry and conflicts of interest this causes
•use of sub advisors- description of compensation and associated conflicts and resolutions
•a description of and advisors code of ethics
•financial interest in securities recommended- or if the advisor invests In the same securities it recommends
•method of broker selection for advisors trades
•soft dollar practices disclosure- if the firm receives discounts on research from a broker in exchange for directing trades at full commission to that broker this must be disclosed
• compensation paid for client referrals- if advisor rewards brokers for referrals with that persons portfolio trades it must be disclosed
•directed brokerage referral- if an advisor permits this practice for a rebate on commission charged it must be documented that best execution may not be achieved
•trade aggregation policy disclosure- explanation of their policy along with statement that advisors who do not aggregate trades may incur higher costs
•frequency of review of clients accounts
•paid client referral disclosure-disclosure if the advisor compensates any person for referrals along with nature of compensation
•advisor taking custody disclosure-must state that clients will receive statements from custodian and must be reviewed
•discretionary authority disclosure. If advisor has authority over customers accounts
•proxy voting disclosure
•if advisor requires fees of $1200 or more 6 months in advanced must include balanced audit sheet of previous fiscal year
•impaired financial condition disclosure


Form ADV 2b "brochure supplement"
Includes what? 6 parts difficult

•name of supervised persons
•education level of each supervised person (including formal education and business background)
•not required but allowed- professional designations
•disciplinary action taken against each supervised person
•outside business activities of supervised persons
•supervisor over each supervised person


Any person who has spent up to how long in prison will be denied ADV registration with the sec?

1 year


ADV-w form would be filed when?

When an advisor ceases operations the w stands for withdrawal form


Basic records to be kept by advisor to maintain registration are what?

Cash receipts and disbursements ledger
Order ticket copies
Copies of all communications sent and received by the advisor.
Copies of all advertisement, notices, circulars, ect. Distributed to 10 or more ppl.
Signed acknowledgment by customers of receipt of brochure


Records to be kept by an advisor if custody is taken of clients funds or securities include what?

Securities received and delivered ledger
Purchase and sales ledger (trade ledger)
Securities record
Confirmation copies of all customer trades
Customer account statements


All records required under ADV filling must be kept for how long?

Five years with the past two years worth immediately accessible for inspection


Sec "brochure rule" states what?

Every new client receive a copy of the ADV part 2a and 2b. It must be signed dated and returned at or prior to entering into a advisory agreement. Electronic delivery if the brochure IS ALLOWED


IA-770 was issued in 1981 established the "3 pronged test" when it comes to establishing who is and who is not an investment advisor. What are the three prongs?

A. Does the person give advise about a security?
B. Is this person "in the business" of giving advise about securities?
C. Does this person get compensated in any way for advise given on a security?