Incorrect questions Flashcards
(39 cards)
What is a deferred compensation plan?
nonqualified, funded with after tax dollars, do not require immediate funding
for highly compensated individuals
allow tax deferral until funds are received
assets of employer until distributed, participants can lose it if employer dissolves
According to Reg BI, when can ‘advisor’ be used?
when one is registered as an agent of a BD AND an IAR of an IA
What is taxation like for limited partnerships?
flow-through entity, all profits and losses are taxed to individual limited partners and the business pays NO TAX on its income
What is probate?
administering deceased person’s will or estate of a person without a will. There are fees associated with court costs, lawyers, etc.
holding assets as community property, JTWROS, TOD avoid probate
What are differences between the NYSE and Nasdaq?
NYSE: DMM, centralized, auction
Nasdaq: multiple market makers per stock, decentralized dealer market, more liquidity
What is the Sharpe Ratio and what does it measure?
actual return-risk free return/standard dev.
higher sharpe ratio means that an investment offers more return per risk unit
What is the Dividend Discount Model?
The current value of a stock should reflect its future dividends discounted to present value. If current price is less than discounted value, it is considered a bargain
Mostly valuable for REITS, utilities, and other companies that pay consistent dividends
What is the Consent to Service of Process?
It appoints the State Administrator as the attourney for handling noncriminal complaints. Required for State Registration
What is the IA de minimis exemption?
IA Act of 1940: IA does not have to register in a state if they have no place of business there and if there are less than 6 resident retail clients there in the past 12 months
Institutional clients ( banks, insurance companies, mutual funds, or other financial institutions) do not count
ONLY APPLIES TO IAS, NOT B/DS
What securities are exempt under the USA?
Government/Gov-related
* us gov
* munis
* foreign gov with diplomatic relations with us
* agency (GNMA, FNMA, FHLMC)
* public utilities regulated by state/fed
* railroad and common carriers
Bank/Financial Institutions
* issued by banks/savings/trust companies(companies must be regulated at state/fed level)
* credit unionsunsurance companies (except variable contracts)
Non-Profits/Charities
* religious(church bonds) educational, charitable
Commercial paper/Short-term debt
* maturity of 9mo/270 days or less
* working capital purposes
* rated highly
Employee Benefit Plans
* pensions/profit-sharing
* stock purchase, savings plans
Exchange Listed
* federally covered, listed on major exchanges
* investment companies (Open end mutual fund, closed end, uits)
Not subject to state registration or state advertising filing laws
What transactions are exempt under USA?
- secondary market trades, occasional
- unsolicited
- institutional investor transactions
- private placements (no more than 10 non-institutional in the state in 12 mo, no solicitation/ads)
- fiduciary transactions
- transactions between issuers and underwriters as a firm commitment
- intrastate offerings (rule 147 and USA)
- pre-organization (<10 subscribers)
When does an agent’s registration become effective according to the USA?
at noon on the 30th day after filing the application
According to the USA, who is a person?
any legal entity (individuals, business entities) but NOT a minor, deceased, or incapacitated person
What is a surety bond and when is it required?
financial guarantee to ensure compliance, some states allow a cash/securities deposit instead
* B/Ds may need one as part of state registration process (carrying min net cap $250k, introducing firms $50k, market makers $100k) Indebtedness ratio: liabilities cannot exceed 15x net capital: aggregate indebtedness/net cap
* Agents need to post bond if they have discretionary authority or custody of funds
* IAs may need a bond if they have custody, have discretion, and do not meet min net capital requirements ($35k for custody, $10k for discretionary auth only)
Who is exempt from registering as an agent under the USA?
- person representing muni issuer and selling securities to the public (since securities are exempt)
What are the differences in fed and state laws surrounding Private placements
Fed: Reg D of Securities Act of 1933- may not be offered to more than 35 non-accredited investors
USA: transaction involves </= 10 persons with no limit on institutional accounts
commissions may not be paid for soliciting noninstitutional buyers, noninstitutuional buyers are purchasing for investment purposes, not for resale
What are the ADV forms besides part 1, 2 and 3, and when are they required?
ADV-E (examination): IA maintaining custody of funds, independent public accountant suprise audits annually, ADV is given to accountant to submit to regulators with audit report
ADV-H (hardship): extension for filing an amendment in circumstances beyond their control
ADV-W (withdrawal): filed by advisors that want to withdraw registration to register with different regulator (state reg-> FCA
What is ADV Part 1?
basic info on IAs business, ownership, regulatory
filed when registering with SEC or State Administrators
Annual Update filed annually
Amendments filed promptly (30 days)
Part 1A: general info
Part 1B specific to state-registration
What is ADV Part 2?
business practices, conflicts of interest, fees
required at time of registration, given to clients and prospective clients
filed annually
Part 2A: Firm Brochure- services, fees, compensation,
2B: brochure supplement- adviser’s personnel info
What is ADV Part 3?
Form CRS, help clients understand the relationship in plain language
filed with registration
updated annually
provided to retail clients
When must an IA register with SEC vs State Administrators?
AUM>$110m register with SEC and notice file with states
$100m<AUM<$110m: state or SEC
(if aum exceeds $110m form ADV-W must be filed with state and refile ADV with fed
AUM<$100m: state only
if registered in 15 or more states, they can register as FCA (SEC reg)
How long is Form 144 good for, and how much restricted stock can be sold?
Under Rule 144, someone who intends to sell restricted or control securities must file Form 144,which is good for 90 days
over 90 days, they can sell greater of 1% total shares outstanding or average weekly trading volume over the past 4 weeks
According to FINRA, what is an institutional investor?
large entities that purchase securities using pooled money, or any account with total assets of at least $50m
Who is considered an accredited investor?
financial institutions, pensions, development companies, and individuals who’ve attained CFP, S7, S65 designations
entities with $5m in assets
individuals with net worth of $1m or make $200k/yr for the last two years ($300k if married)
