IACCP Exam Flashcards
(33 cards)
Investment Adviser per Section 202(a)(11)
Any person or firm that, for compensation is engaged in the business of providing advice to others or issuing reports or analyses regarding securities.
Compensation
Element 1 of “Investment Adviser” definition
Economic benefit, whether in the form of an advisory fee, some other fee relating to the total services rendered, a commission or combination
Engaged in the business
Element 2 of “Investment Adviser” definition
1) Holds themselves out as an investment adviser
2) Receives compensation for providing advice
3) Frequency/specificity
Advising others about Securities - what counts as securities?
(Element 3a of “Investment Adviser” definition)
Security advice:
- stocks
- bonds
- mutual funds
- limited partnerships
- commodity pools
NOT security advice:
- real estate
- coins
- precious metals
- commodities
ALSO ADVICE ON SECURITIES:
- advice about market trends
- advice about selection and retention of other advisers
- advice on advantages of investing in securities vs other types of investments
- providing a selective list of securities
- asset allocation advice
Advising Others (Element 3b of "Investment Adviser" definition)
1) A general partner of a limited partnership that provides advice with respect to the investments of partnership assets IS advising others (the limited partners) even where the general partner may have legal title to these assets
2) A wholly-owned corporate subsidiary exclusively advising the parent or another wholly owned corporate subsidiary would NOT be advising “others.”
Investment Banking (Element 3c of "Investment Adviser" definition)
Persons whose activities are limited to advising issuers concerning the structuring of their securities offerings (although such advice may technically be about securities).
Non-US Clients
Element 3d of “Investment Adviser” definition
The Act is silent regarding whether the clients must be U.S. persons. The SEC takes the position that a U.S. person providing advice exclusively to non-U.S. persons would still be subject to the Act
9 Exclusions from the “Investment Adviser” Definition
1) Banks & Bank Holding Companies
2) Lawyers, Accountants, Engineers, and Teachers
3) Brokers and Dealers (i. solely incidental, ii. no special compensation)
4) Publishers
5) Government Securities
6) Credit Rating Agencies
7) Family Offices
8) Government/Political Subdivisions
9) Non-US Advisers
Family Office Exclusion
Investment Adviser Definition
Managing wealth or affairs for a single family is excluded IF:
1) provides advice on to family clients
2) is wholly owned by family clients and exclusively controlled by family member/family entities
3) does not hold oneself out to the public as an IA
Family Member (per Family Office Exclusion/Investment Adviser Definition)
All lineal descendants (including adopted children, stepchildren, foster children) of a common ancestor (no more than 10 generations removed from the youngest generation) and the descendants’ spouses/spousal equivalents
Family Client (per Family Office Exclusion/Investment Adviser definition)
The family office’s clients generally may include family members; key employees; any non-profit or charitable organization funded exclusively by family clients; any estate of a family member, former family member, key employee, or subject to certain conditions, a former key employee; certain family client trusts; and any company wholly owned by and operated for the sole benefit of family clients.
Who Must Register
Who must register
A firm that falls under the investment adviser definition and is not eligible for an exclusion unless it is:
1) prohibited from registering federally due to size but is registered with State
2) qualifies for an exception from the registration requirement
Small Advisers (Who must register)
<25m cannot unless Wyoming
Mid-Sized Advisers
Who must register
$25-100 million AUM - NY/Wyoming must register with the SEC
Non-US Advisers Registration
Who must register
- Advisers whose principal office is not in the US are allowed to register
- Non-US Advisers giving advice to US clients must register with the SEC unless an exemption from registration is available
7 Exceptions to Prohibitions for AUM test
Who must register
1) Adviser to Investment Companies
2) Advisers to Business Development Companies ($25m+)
3) Pension Consultants providing advisory services to employee benefits plans that has $200m in assets (Adviser does not need that AUM just assets in the benefits plans)
4) Related Advisers - Advisers that control, are controlled by, or are under common control of an SEC
5) Newly-Formed Advisers - Advisers that expect to hit $100m within 120 days of registering
6) Multi-State Advisers - Advisers who would need to register in 15 states or more
7) Internet Advisers - certain advisers providing advice through an interactive website may register
State Laws that Apply to SEC Registered Advisers
- anti-fraud
- supply SEC registration to the state
- pay state licensing/renewal fees
- license persons giving advice on behalf of the adviser if that person has a place of business in the state
Federal Laws that apply to State-Registered advisors
SEC can enforce section 206 for any state registered adviser who violates it.
Exemptions from Registration (8)
1) Intrastate Advisers
2) Advisers to Insurance Companies
3) Foreign Private Adviser
4) Charitable Organizations and Plans
5) Commodity Trading Advisers
6) Private Fund Advisers
7) Venture Capital Advisers
8) Advisers to Small Business Investment Companies
Intrastate Advisers
Exemptions from Registration
1) All clients in the state of their principal office
2) Do not give advice about securities on any national exchange.
Foreign Private Adviser
Exemptions from Registration
1) Has no place of business in the US
2) Has fewer than 15 clients in the US
3) AUM for US clients < $25m
4) Does not hold itself out generally to the public
Natural Persons
Counting Clients/Private Investor Exception
1) A person + their child
2) A person + relative/spouse/spousal equivalent/relative of spousal equivalent living in the same primary residence
3) accounts/trusts which the persons described above are the only primary beneficiary of
Counting Clients - Corps
Counting Clients/Private Investor Exception
A corporation, general/limited partnership, LLC, trust, legal org that receives investment advice based on its investment objects (rather than individual investment objectives of its owners)
Private Funds
Counting Clients/Private Investor Exception
1) Look through: An adviser must count both its direct clients AND each investor in any private fund it advises
2) No double counting: An adviser may treat a single investor who invests in multiple of their private funds as ONE
3) Nominal Holders: look through for persons who are holders of a security issued by a private fund to count as investor of the private fund
Ex: holders of the securities of any feeder fund in a master-feeder arrangement may be deemed to be the investors of the master fund
