Fed and State Reg of Advisers (Brochure Rule) Flashcards Preview

Series > Fed and State Reg of Advisers (Brochure Rule) > Flashcards

Flashcards in Fed and State Reg of Advisers (Brochure Rule) Deck (25):
1

Which of the following statements is (are) TRUE concerning wrap fee programs under the Uniform Securities Act?

1. Wrap fee disclosure documents must be filed with the Administrator.
2. Nonmaterial changes to wrap fee disclosure documents must be filed with the Administrator within 90 days of fiscal year end.
3. Amendments must be filed promptly with the Administrator if the disclosure document becomes inaccurate in any material way.
4. The disclosure document must contain the information required by Appendix 1 of Form ADV Part 2A.

1. Wrap fee disclosure documents must be filed with the Administrator.
2. Nonmaterial changes to wrap fee disclosure documents must be filed with the Administrator within 90 days of fiscal year end.
3. Amendments must be filed promptly with the Administrator if the disclosure document becomes inaccurate in any material way.
4. The disclosure document must contain the information required by Appendix 1 of Form ADV Part 2A.

Wrap fee disclosure documents must be filed with the Administrator and must contain the information required by Appendix 1 of Form ADV Part 2A. Amendments must be filed promptly with the Administrator if the disclosure document becomes inaccurate in any material way. Nonmaterial changes to wrap fee disclosure documents must be filed with the Administrator within 90 days of fiscal year end.

2

Under the USA, an investment adviser's current clients must be delivered a brochure

A) quarterly if the adviser has both discretion and custody
B) within 48 hours of renewal
C) annually whether or not the adviser has custody or discretion
D) annually​, but only​ if the adviser has neither custody nor discretion

C) annually whether or not the adviser has custody or discretion

Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients,(except those who are exempt from the brochure delivery requirements {impersonal advise costing less than $500 per year and investment companies registered under the Investment Company Act of 1940}), within 120 days of the end of the adviser's fiscal year. Custody or discretion is irrelevant to this question. Under the USA, all advisory contracts, both initial and renewal, must be in writing.

3

According to the Uniform Securities Act, the investment adviser brochure must include the business backgrounds of:

A) all employees of the adviser.
B) an affiliated broker/dealer.
C) institutional clients.
D) each member of the investment committee or group that determines general investment advice to be given to clients.

D) each member of the investment committee or group that determines general investment advice to be given to clients.

The business background of these key individuals must be included in Part 2B of Form ADV and in the disclosure brochure. The business background of other employees, affiliated broker/dealers, and institutional clients need not be included in the brochure.

4

An agent opening a wrap account for a wealthy client may tell the customer that:

A) wrap fees may result in higher costs than separate charges for advice, management, and transactions.
B) wrap account managers will generally outperform index funds.
C) wrap fees generally result in higher costs than separate charges for advice, management, and transactions.
D) wrap fees always result in lower costs than separate charges for advice, management, and transactions.

A) wrap fees may result in higher costs than separate charges for advice, management, and transactions.

When prospecting for new wrap accounts, agents are required to disclose to customers that wrap fees may result in higher costs than separate charges for advice, management, and transactions if the client is not able to use all of the services included. For those clients that are able to make use of all of the services provided, the costs will generally be lower than the cost of buying them piecemeal. Future performance of managed accounts may not be stated or implied.

5

All of the following statements regarding the disclosure investment adviser brochure rule of the Uniform Securities Act are true EXCEPT:

A) the disclosure brochure must contain essentially the same information as is contained in Form ADV, Part 2A and, if applicable Part 2B.
B) the disclosure brochure must be signed by an officer or partner of the firm.
C) the brochure rule permits advisers to deliver the disclosure brochure when the client enters the contract, providing the client is allowed to cancel the contract without penalty within 5 business days.
D) the disclosure brochure must be delivered no later than 48 hours before entering into an advisory contract for there to be no requirement to offer a 5-day refund right.

B) the disclosure brochure must be signed by an officer or partner of the firm.

An officer or partner of the firm need not sign the disclosure brochure. The investment adviser's disclosure brochure must contain the relevant information from Form ADV Part 2A and, for those where it applies, Part 2B. The rule does permit advisers to deliver the brochure when the client enters the contract, providing the client is allowed to cancel the contract without penalty within 5 business days; otherwise, the brochure must be delivered no later than 48 hours before entering into an advisory contract.

6

Which of the following statements regarding the Investment Advisers Act of 1940 and the adviser’s brochure are CORRECT?

A) Each client must receive the brochure no later than the entering into the advisory contract.
B) Each client must receive the brochure no later than 48 hours after entering into the advisory contract.
C) Advisers must deliver the brochure to clients for whom they offer impersonal advisory service only when the annual charge does not reach $500.
D) Annual delivery of a summary of material changes relieves the adviser of the obligation to deliver a brochure.

A) Each client must receive the brochure no later than the entering into the advisory contract.

SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year. If there are no material changes, a brochure does not have to be sent. The summary includes an offer to provide a copy of the updated brochure and information on how the client may obtain it. There is no 48-hour rule under federal law as there is for state law and, in any event, that law has a 48-hour in advance requirement. Only when the charge for the impersonal advice is $500 per annum or more is there a requirement to deliver the brochure.

7

Under federal law, the brochure rule requires:

A) a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year.
B) delivery no later than 48 hours before entering into an investment advisory contract.
C) delivery no later than 5 business days after the formalizing of the advisory.
D) prior delivery of the Form 2A and 2B.

A) a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year.

SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year. If there are no material changes, a brochure does not have to be sent. The ADV Part 2A and 2B may be used as the brochure.

8

Which of the following statements regarding the Investment Adviser Act of 1940 and the adviser’s brochure are CORRECT?

A) Annual delivery of a summary of material changes relieves the adviser of the obligation to deliver a brochure.
B) Each client must receive the brochure no later than the entering into the advisory contract.
C) Each client must receive the brochure no later than 48 hours after entering into the advisory contract.
D) Advisers must deliver the brochure to clients for whom they offer impersonal advisory service only when the annual charge does not reach $500.

B) Each client must receive the brochure no later than the entering into the advisory contract.

SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year. If there are no material changes, a brochure does not have to be sent. The summary includes an offer to provide a copy of the updated brochure and information on how the client may obtain it. There is no 48-hour rule under federal law as there is for state law and, in any event, that law has a 48-hour in advance requirement. Only when the charge for the impersonal advice is $500 per annum or more is there a requirement to deliver the brochure.

9

What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure?

A) Only unsolicited orders may be accepted until the signed receipt is received.
B) Proceed with the account, but make a supervisory person aware of this.
C) Proceed with the account; the signature is not required.
D) Don't do anything with the account until the customer's signature acknowledging receipt of the brochure is received.

B) Proceed with the account, but make a supervisory person aware of this.

Although it is true that there is no legal requirement for a client to sign acknowledging receipt of the brochure, if it is the adviser's practice, the account may proceed, but only with notice to the appropriate supervisory person.

10

Under the Investment Advisers Act of 1940, an investment adviser is required to

A) furnish an audited balance sheet each year to customers
B) maintain a bond for an amount based on the assets under management
C) furnish a statement of the total dollar amounts of securities bought and sold each year to customers
D) provide each advisory client with a brochure or a summary of material changes within 120 days of the end of its fiscal year

D) provide each advisory client with a brochure or a summary of material changes within 120 days of the end of its fiscal year

SEC rules require that a brochure containing summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. The summary itself may be sent with instructions as to how to receive the entire brochure if the client desires. If there are no material changes, a brochure does not have to be sent. The balance sheet is only required when the IA requires or charges a substantial prepayment of fees. Bonding requirements apply only to state registered investment advisers.

11

Under the brochure rule of the Investment Advisers Act of 1940:

A) each client must be offered a written disclosure statement at least 48 hours before signing a contract.
B) each client must be offered a written disclosure statement at the time of signing the contract.
C) each client must be delivered a written disclosure statement no later than 48 hours after signing the contract.
D) each client must be delivered a written disclosure statement no later than at the time of agreement to contract for the adviser's services.

D) each client must be delivered a written disclosure statement no later than at the time of agreement to contract for the adviser's services.

No agreement between an investment adviser and a client may commence without delivery of the adviser's brochure. SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year. If there are no material changes, a brochure does not have to be sent.

12

Under the Investment Advisers Act of 1940, a registered investment adviser who provides investment advisory services to individuals must:

A) avoid the control or custody of client funds and securities.
B) have a net worth of $100,000.
C) sell only listed securities.
D) provide each client with a disclosure statement or brochure no later than when entering into the advisory agreement.

D) provide each client with a disclosure statement or brochure no later than when entering into the advisory agreement.

The brochure rule requires that each client be given a written disclosure statement by the adviser no later than the time of entering into the advisory agreement. It may consist of a copy of Part 2A and 2B of Form ADV or another document providing similar information. SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year. If there are no material changes, a brochure does not have to be sent.

13

Which of the following statements regarding the brochure delivery requirements of the Investment Advisers Act of 1940 are TRUE?

1. The brochure must be updated each time Part 1A of Form ADV is updated.
2. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500.
3. A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year.

2. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500.
3. A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year.

Because the information in the brochure is derived from Part 2A of the Form ADV, changes to Part 1A will not necessarily apply to items that are important to the client. Therefore, stating that the brochure must be updated whenever there is a change to Part 1A would not be correct. SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser’s fiscal year. If there are no material changes, a brochure does not have to be sent. The brochure delivery requirements do not apply to customers that are investment companies or for clients of impersonal services (those that do not purport to meet the investment objectives or needs of specific clients), as long as the cost of the service is less than $500 per year.

14

Jim Thomas contracts with XYZ Advisory Services for the design of a financial plan and investment advice. He pays an up-front fee when the contract is signed and receives XYZ's disclosure brochure at that time. After 3 days, Jim decides to cancel the investment advisory service with XYZ. According to the Uniform Securities Act, which of the following statements is TRUE?

A) The advisory firm must cancel the contract but can keep a proportionate amount of the fee as compensation for services performed by the cancellation date.
B) The advisory firm must cancel the contract and return all fees collected.
C) The advisory firm must cancel the contract but may keep all fees collected.
D) The contract is binding, and XYZ has no obligation to return any fees collected.

A) The advisory firm must cancel the contract but can keep a proportionate amount of the fee as compensation for services performed by the cancellation date.

Because the brochure was delivered at the time of the signing of the contract, the client may cancel without penalty within 5 business days. The firm must return all of the up-front fees collected except for an amount that is proportionate to the time advisory services were rendered. This is commonly known as the 48-hour rule because any time the client does not receive the adviser's brochure at least 48 hours prior to entering into the contract, this refund right is in effect.

15

According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are TRUE?

1. It must be filed with the state Administrator.
2. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, six or more months in advance.
3. Certain minimum business and education qualifications must be met before an investment adviser can file.
4. It may be used to satisfy the brochure requirements of the act.

2. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, six or more months in advance.
4. It may be used to satisfy the brochure requirements of the act.

An investment adviser required to register with the SEC under the Investment Advisers Act of 1940 must submit its Form ADVs to the SEC. In some cases, the Form ADV will also be filed with the state Administrator, but that is state law, not a federal requirement. A balance sheet must be submitted with Part 2 if the adviser receives "substantial" prepayments of fees. Part 2 may be used as an investment adviser's disclosure brochure to clients.

16

The Investment Advisers Act of 1940 requires delivery of a brochure containing information about the adviser's background and business practices in all of the following situations EXCEPT:

1. when the service provided is an individual supervisory service.
2. when the client is an investment company.
3. when the contract is for an impersonal advisory service requiring payment of less than $500.
4. when the client is an individual with a net worth of more than $1 million.

2. when the client is an investment company.
4. when the client is an individual with a net worth of more than $1 million.

A disclosure brochure is not required to be delivered if the client is a registered investment company, or if the advisory service is of an impersonal nature and costs less than $500. A brochure is required when the service provided is an individual supervisory service, and the client's net worth has no bearing on brochure delivery requirements.

17

Which of the following statements about wrap fee arrangements is NOT true?

1. Information on Appendix 1 of Form ADV Part 2A must also be contained in client disclosure documents.
2. Non-material changes to wrap fee disclosure must be disclosed to the Administrator within 90 days of fiscal year end.
3. Material changes must be filed promptly with the Administrator.
4. Wrap fee disclosure statements need not be filed with the Administrator.

4. Wrap fee disclosure statements need not be filed with the Administrator.

Wrap fee disclosure statements must be filed with the Administrator; all of the other statements listed are correct regarding wrap fee program regulations.

18

An investment adviser compensated for a client's participation in a wrap fee program must provide the client with a written disclosure statement containing:

A) at least the information required by Appendix 1 of Form ADV Part 2A, even if another adviser has already furnished such a statement on the program to the client.
B) at least the information in Form ADV Part 2A.
C) only the services and fees of the program.
D) at least the information required by Appendix 1 of Form ADV Part 2A, but not if another adviser has already furnished such a statement on the program to the client.

D) at least the information required by Appendix 1 of Form ADV Part 2A, but not if another adviser has already furnished such a statement on the program to the client.

The required disclosure statement for wrap fee programs must contain at least the information in Appendix 1 of Form ADV Part 2A, but duplicates need not be provided to clients who have already received the required disclosure on that program from another adviser.

19

Wrap fee accounts would tend to be most suitable for investors who follow a:

A) passive approach to investing.
B) buy and hold philosophy.
C) strategic approach to the market.
D) tactical approach to investing.

D) tactical approach to investing.

Because one of the key benefits to the wrap fee program is the elimination of transaction fees (commissions), it is most suitable for those who are active traders, such as those who take a tactical approach to investing. The other three choices engage in far less trading activity potentially not being able to take full advantage of all of the benefits of the wrap program.

20

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client:

1. if the Administrator has not prohibited this practice.
2. if the investment adviser has notified the Administrator that it has custody.
3. as long as the adviser does not also have discretionary authority over the account.

1. if the Administrator has not prohibited this practice.
2. if the investment adviser has notified the Administrator that it has custody.

The Administrator may prohibit advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing that the adviser has custody.

21

The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, there are instances where the Act grants an exemption if the client is

1. a broker/dealer
2. an insurance company
3. an investment company
4. a person receiving impersonal advice for which the annual fee is less than $500

3. an investment company
4. a person receiving impersonal advice for which the annual fee is less than $500

There are two exemptions from the brochure rule. The first is if the client is an investment company. The other is if the advice being rendered is impersonal and the charge is less than $500 ($500 as well under the USA) per year.

22

An investment adviser prepares a slick advertising piece containing the relevant information from the firm's Form ADV – Part 2. One of the firm's IARs secures a contract with a new client and presents the brochure at that time. While explaining the terms of their agreement, the IAR mentions that the client may withdraw within the first 48 hours without any penalty. Upon returning to the office, the IAR realizes that he forgot to have the client sign a receipt for the disclosure document. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers,

A) there is a violation because the brochure must be delivered at least 48 hours prior to entering into the contract.
B) there is no violation as long as the customer signs a waiver agreeing to these terms.
C) the IAR has acted in an unethical manner by giving incorrect information regarding the penalty-free withdrawal privilege
D) there is a violation because the IAR failed to obtain the signed receipt.

C) the IAR has acted in an unethical manner by giving incorrect information regarding the penalty-free withdrawal privilege

The problem here is that the client has five days to withdraw, not 48 hours. Under Rule 203(b)-1 of the Uniform Securities Act, an investment adviser, or investment adviser representative must deliver the brochure to an advisory client or prospective advisory client not less than 48 hours prior to entering into any investment advisory contract with such client or prospective client; or at the time of entering into any such contract, if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract. A signed receipt is not necessary and waivers are never allowed.

23

A federal covered investment adviser has decided that it is necessary to increase its fee schedule and charge commissions on securities trades. However, they are going to leave the fee structure in place for existing customers. This information must be:

1. disclosed promptly to all customers by amending the brochure.
2. disclosed promptly only to those customers who will be affected by the change through a new brochure.
3. disclosed in the summary of material changes in the annual updating amendment to the SEC.
4. disclosed promptly to the Administrator of the state where the IA maintains its principal office.

2. disclosed promptly only to those customers who will be affected by the change through a new brochure.
3. disclosed in the summary of material changes in the annual updating amendment to the SEC.

Because this will only affect new clients, the brochure (or Part 2A of the ADV), must be amended to reflect this new method of operation and made available to these clients and to the SEC at the end of the year. The state has no cause to receive a copy of a federal covered adviser’s brochure.

24

With regard to a state registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that

A) it must be delivered to all new clients
B) it is filed through the IARD system
C) it must be delivered not later than 48 hours after entering into an advisory agreement with a new client
D) if requested by a client, it must be sent within 5 days of the request

B) it is filed through the IARD system

The Investment Adviser Registration Depository (IARD) is an electronic filing system that facilitates investment adviser registration, regulatory review, and the public disclosure information of investment adviser firms. The IARD is used for filing Form ADV Parts 1 and 2. If the "brochure" is not delivered at least 48 hours before, (not after), the signing of the agreement, the client has a 5-day penalty-free withdrawal right. Annually, the Part 2 (brochure), or a summary of material changes, must be delivered within 120 days of the end of the adviser's fiscal year, (unless there have been no material changes). The brochure does not have to be delivered to all clients; those purchasing impersonal advice for less than $500 per year are exempted. There is also an exemption for delivery to investment company clients, but that would not apply here because if the adviser had any of those, it would have to be federal covered rather than state registered.

25

Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must

A) send a copy of its brochure, or a summary of the changes, within 7 days of receiving a request from a client
B) send a copy of its brochure, or a summary of the changes, to all clients within 120 days of the end of its fiscal year
C) send a copy of its brochure, or a summary of the changes, to all clients within 90 days of the end of its fiscal year
D) send a copy of its brochure, or a summary of the changes, to all clients within 60 days of the end of its fiscal year

B) send a copy of its brochure, or a summary of the changes, to all clients within 120 days of the end of its fiscal year

Whether the firm is a state- or federal-covered investment adviser, if there have been material changes, a copy of the IA's brochure, or a summary of the changes, must be sent to all clients no later than 120 days after the close of the IA's fiscal year.

Decks in Series Class (76):