IAs Flashcards
(41 cards)
What’s the ABC test to define an IA?
Advice about securities, provided as a
Business, receiving
Compensation
What’s an IAR?
Anyone at IA who makes recommendations, solicits sale of services or supervises those who do.
When would IAs have to post a Surety Bond?
If they have custody of funds or securities, or discretionary authority AND
they don’t meet minimum financial requirements
What’s baseline requirement of IA registration?
All must be registered by SEC or one or more states
List five criteria for being a Federal Covered Adviser under Investment Advisers Act 1940:
- AUM >$110m
- Adviser to registered investment co (mutual fund)
- Do business in 15 or more states
- From Wyoming
- Pensions consultants to plans with assets >$200m
If an affiliate of a Federal Covered Adviser considered to be Federally Covered?
Yes if principal office is the same
What’s the grace period for a newly formed Adviser that believes it will become Federally Covered?
120 days
What’s the Brochure Rule?
Disclosures in plain English which must be delivered 48 hours before entering contract or at time of contract when contract can be cancelled within five days without penalty.
Can have different brochures for different types of clients
Two types of client who do NOT need to receive brochure?
- Those paying less than $500/year for impersonal services only
- Investment companies
What’s the basic rule on IA registration in a state?
If ineligible for Federal registration, must register in a state unless exempt or excluded from definition of being an IA.
What constitutes custody of client funds/securities?
- Ownership or access
- Discretionary authority
- Inadvertently holding for longer than 3 days
What must an IA do if it has custody?
- Inform Administrator
- Use qualified custodian
- provide written notice to clients
- send quarterly statements
What are minimum financial requirements for IAs?
Net worth (assets less liabilities):
Custody: $35k
Limited discretion: $10k
Prepaid fees over $500: positive net worth
Record keeping requirement for IAs?
Five years easily accessible
First two in office
Who apart from Federal Covered advisors are excluded from state registration as IA?
- IARs
- Banks, S&Ls, Trust Co’s
- professionals whose advice is incidental and not specifically compensated
- BDs and their agents (no special adviser comp)
- Publishers (general circulation and impersonal advice)
When must Federal Covered Advisors notice file in a state?
- they have a place of business in state
- six or more non-institutional clients in state
Who regulates IARs?
State level. Must register in at least one state (office).
Exempt from further states if satisfies de minimis provision of 5 clients or fewer.
What does state law demand of IA agreements with clients?
Written contracts which cannot waive compliance with 1949 Act, and which cannot be assigned without consent
To whom may IAs charge performance fees?
List 4
- Registered investment companies
- Qualified clients with $1m under management with an adviser or $2m net worth excluding home
- Non US residents
- Knowledgable individuals associated with IA (officer, partner etc)
As fiduciaries, what’s conflict of interest standard for IAs?
Affirmative duty of good faith - conflicts of interest fully disclosed at or before any transaction.
Abstain if disclosure doesn’t obviate IA putting their interest first.
What can soft dollars be used for?
Benefit of client - research reports, software, access to analysts or data, conference fees
What CANNOT soft dollars be used for?
General operating expenses or travel.
No hardware.
What’s rule on IAs and IARs around borrowing/lending to clients?
Generally prohibited unless it’s a financial institution involved in business of making loans, is an affiliate of IA or is a BD.
What’s rule on discretion for IAs?
Can be verbal for 10 days but must then become written.
