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Laws and Regulations > Registration of BD's IA's and Agents > Flashcards

Registration of BD's IA's and Agents Flashcards

1
Q

Who does Broker-Dealer Register With

A

SEC

and

states where they

have an office
or
have residential clients.
(if they only have institutional clients they don’t have to register in that state)

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2
Q

Net Capital Requirements

A

SEC sets how much financial liquidity they need in order to operate their business

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3
Q

Focus Reports

A

The report Broker-Dealers File to show their net capital

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4
Q

States increasing capital requirements

A

No state may require a broker dealer to have a higher capital requirement than SEC

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5
Q

Where do agents of Broker-dealers register

A 
In the states they:
-Work
-Live
      and 
-Have Clients
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6
Q

How Do Broker-Dealers Register

A

B/D file an application with the state Admin,

Pay the registration fee

File Consent to Service of Process

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7
Q

Consent to Service of Process

A

an agreement where the B/D agrees that any resident with in that state who wishes to sue the B/D can serve those papers to the state admin instead of them so that the state admin is in the loop as well

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8
Q

How Do Agents Register

A

Steps:

1) Pass the required exam
2) Submit application
3) Submit form ADV part 1A and 1B
4) Submit filing fee (No Capital Requirements Allowed)
5) Submit consent to service of process

Registration effective 30 days from last required submission

No fingerprints required

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9
Q

Does passing the exam grant a license

A

no the state admin does

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10
Q

Agent Changing Broker-Dealers

A

Registration licenses are not transferable if you wish to leave one Firm and work for another one.

Old employer would fill out and submit a U5 Form (this terminates their registration with that firm)

New employer and the agent would fill out and submit a U4 Form
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11
Q

U5 Form

A

when an agent changes broker-dealers

the old employer fill out U5 form

this terminates their registration with that firm

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12
Q

U4 Form

A

when an agent changes broker-dealers

the new employer and agent fill out U4 form

this transfers registration of agent to new broker-dealer

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13
Q

Rush Order

A

The administrator may allow registrations to become effective in less than 30 days

Any registration that was granted in less than 30 days is a rush order

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14
Q

Investment Advisor - who to Register with

A
  • If AUM greater than $110 million AUM = SEC Registration
  • If in between 100 and 110 million IA can choose SEC or State

If federally registered IA’s assets fall to less than$90 million AUM they must file ADVW and have 180 days to register in the states.

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15
Q

IA’s Capital Requirements

A

Custody Of Clients Assets -

-State Advisors without custody
of clients assets = $10,000

-State Advisors with custody
Of client assets = $35,000

-All federally registered advisors = No capital requirement

  If state advisor falls below required capital they are required to notify the administrator by end of the next business day. 
   Then they have one more business day to file financial reports or to post a bond

If the Advisor has more than 1 state they are registering in and they have different capital requirements then the advisor only has to fulfill the capital requirement of the state they are a resident of.

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16
Q

Custody of Client Funds

A

You have custody IF any of the following apply:

1) Means you have physical control of clients Funds
2) You have the ability to withdraw funds or securities from a clients account
3) Partnership or other arrangement giving legal ownership

Can deduct fees upon notice

Inadvertently receives check made payable to client and not returned in 72 hours

17
Q

FREE CARD

A

FREE CARD

18
Q

Is State Advisor Required To Register In a State?

A

an office in that state
OR
have no clients but they solicit themselves
OR
If they have helped more than 5 residential clients in 12 months in that state
= Yes they must register in that state

If they only serve institutions = they don’t need to register

19
Q

Is SEC Registered Adviser Required To Register With the States?

A

NO NEVER required to register within the state

Agents still have their filing requirements though (they have to pay their state fees)

20
Q

Amendments and updates to form ADV

A

Must file annual ADV within 90 days of FYE stating their AUM

They must also report changes in their:
	- Name
	- Location
	- Recordkeeping
	- Disciplinary History
	- Custody (holding clients Assets)
ADV Part E (used by IA's who have custody of clients asset
21
Q

Agents Of Issuers

If an agent represents and are selling any of the following do they need to register

A

Represents - Securities - Is registration required
US Government - Bill Notes Bonds - NO
State Government - Bonds - NO
Corporation - Commercial Paper - NO
Corporation - 401k no comp - NO
Corporation - Stock / Franchises - NO

22
Q

Control Persons Within an IA

A

Officers Partners and Directors

Anyone who can vote 25% or more on decisions or has 25% ownership of the IA

Chief portfolio managers are NOT control people

23
Q

Activities You Can Do While Registration Is Pending:

A

They may not engage in any activity that would require them to have a license.

  • Post trades to client account (they are just doing a data input activity)
  • Send Invitations to seminars
  • Assist in preparing research
  • Ask prospects if they would like to speak with a registered agent
24
Q

Sports and Entertainment Representatives Must register if:

A

They provide advice covering investments, taxes, budgeting, etc…

25
Q

Annual Registration Renewals

A

All state registrations expire December 31st of every year

Must file an application for renewal and pay fee

NO consent to service of the process requires

If registration is granted on December 1st must renew at the end of the month

26
Q

If an IA recommends to clients a specific Broker Dealer:

A

This is OK and common practice.

BD Fee’s don’t have to be the lowest but they need to be fair and reasonable and inline with the services requested by the clients and the IA.

If the IA gets a cut of the BDs fee it must be disclosed to client.

27
Q

Qualified Custodian

A

The broker-dealer or bank that hold the client’s money/assets for them

NOT a saving and loan, and not a credit Union

They safeguard assets
They send confirmations
They send statements

The IA must send invoices to clients when they charge them their quarterly fee’s

28
Q

If you charge fees in advance

A

State requirement = $500 or more means you have custody of clients assets and you must provide a balance sheet to your clients

Federal Advisor = $1200 or more means you have custody of clients assets and you must provide a balance sheet to your clients

Balance sheet must be sent to the client along with any material impact to the IA’s financial condition

29
Q

How Fees Can Be Charged

A

1) % of AUM
2) Flat Fee
3) Hourly
4) Subscription
5) Commission on products

The person receiving the advice doesn’t have to be the one paying the fee

30
Q

Agency Cross Transaction

A

The Investment Advisor has the buyer and seller of security as clients and are receiving fees and possibly commissions from both parties.

The IA may not solicit both sides. They can tell one of them to buy and one of them to sell. One side must be unsolicited. One of the sides needs to come to the advisor not him coming to them.

The authority to do agency cross transactions must be in writing and the person giving the authorization can pull it verbally

31
Q

Vacations Second Homes Moving

A

While a client is traveling a registered person can do business with that individual for 30 days while they are in that state vacationing

If the client takes residency in that state the registered rep must file in that state and can continue doing business with that client while their registration is pending

Snowbirds - you can continue to do business with them and not register if they still file taxes and have drivers license in their home state where you are registered but once either one changes you must register in the snowbird vacation state.

32
Q

Soft Dollar Compensation

Non-cash compensation

A

Safe harbor(things that are ok)

- Research and newsletter
- Portfolio management
- Seminars

NOT in safe harbor (not Ok)

- Rent
- Telephone
- Internet
- Laptops/ Computers

If receiving safe harbor soft comp it must be disclosed to the client

33
Q

Can IA’s Transfer Clients To Another IA

A

IA must get the client’s consent.

If they want to sell their account they must also get clients consent

34
Q

IA’s Record Retention Requirements

A

IA’s must keep records for 5 years:
- Material provided to 2 or more persons under state law
(10 or more people at the federal level)
- Customers Accounts
- Power of Attorney
- Advisory contracts and agreements

Laws and Regulations (5 decks)

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