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Flashcards in Series 63 Deck (69)
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1

Investment Advisers Act of 1940

- IAA of 1940 regulates federally covered advisers
- If registered with the SEC, IAs must comply with federal rules for financial and bonding requirements
- IA's subject to state registration would be subject to requirements placed upon them by the state in which it maintains its principal place of business

2

USA and Administrators min financial requirements

- Administrator may require min financial requirements for advisers, whether or not they have custody of clients' funds or securities.
- Surety Bonds are required of IAs who have custody or exercise discretion
- Administrator may inspect any Adviser's records without prior notice, within and outside its state.

3

Surety Bonds

- Surety bond is posted by a registrant to cover the cost of possible legal actions arising from violating the USA
- cash or securities may be accepted in lieu of bond

4

Definition of IA under the USA

- lawyers, accountants and teachers are specifically excluded
- to meet definition of IA, must satisfy all 3 parts of the ABC test:
- Providing Advice about securities
- Providing these services as a Business
- Receiving Compensation for these services

5

How long to maintain books and records according to USA?

- IA firms must keep books and records for 5 years and broker-dealers for 3 years

6

Primary goal of a custodian under the UPIA

- Under the UPIA, fiduciaries (such as custodians) are supposed to invest the portfolio in a way that is suitable given objectives of the account beneficiaries

7

IAs and providing balance sheets

- IAs who have custody of client assets, or receive substantial prepayment of advisory fees or have discretion, are required to provide an audited annual balance sheet to clients

8

Provisions for Canadian B/D

- Canadian B/D may conduct business with existing clients who are temporarily in a state

9

Permissible uses of soft-dollars do not include:

- compliance or admin assistance
- advertising or marketing
- travel expenses
- meals or entertainment
- salaries, overhead expenses

10

Agent transacting in another state

- an agent may transact business in a state in which he is not currently registered under certain circumstances.
- The employing B/D must be registered in the state and the individual must be registered in at least one other state.

11

Under USA, when do registrations expire?

- registrations expire at the end of each calendar year

12

Statute of limitations on taking action to recover damages

- within 3 years of occurrence or 2 years of discovery, whichever comes first

13

Powers of Admin during investigation

- subpoena records and witnesses
- initiate criminal liability action
- suspend or revoke a registration, provided reasons are cited for such action and the opportunity for a hearing is provided

14

Selling Away is permitted if

- a registered rep can sell outside normal course of employment if first, notifying her firm in writing and receiving her firm's written permission. The notice must describe the proposed transaction in detail.

15

Administrator Jurisdiction

- an administrator has jurisdiction over any offer that originates, is directed into, received or accepted in its stated. It does not matter where the payment was made

16

Penalty for willfully violating SEC rules

- any person who willfully violates the Securities Act of 1933 or SEC rules and regulations is subject to a fine of up to $10,000, imprisonment for up to five years, or both.

17

IAR

- according to the USA, any person who solicits investment advisory service is considered an IAR.

18

What is required of an IA if the firm goes through a majority change in ownership?

- the firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.

19

Form for IAs to register

Form ADV

20

Consent to Service of Process

- a document that irrevocably appoints the Administrator as the a registered person's attorney for the service of legal papers
- allows customers who have a complain to file directly on the Administrator

21

Call Limits for cold calls

- telephone cpa bans cold calls during hours of 8am to 9pm
- agents may not call prospective clients before 8am and after 9pm

22

Providing a prospectus

- will be listed: 25 days
- will not be listed and is not an IPO: 40 days
- will not be listed and is an IPO: 90 days

23

Section 504 Private Placement

- securities issued under Section 504 of Reg D are NOT federal covered securities

24

de minimis exemption for advisers under the USA for exemption from registration

- 1: has no place of business in the state and only advises institutions
- 2: has no place of business in the state and directs communications to no more than 5 non-institutional clients within 12 consecutive months

25

Prompt filings of amendments to Form ADV

- considered to be filed promptly if filed within 30 days

26

Administrator taking disciplinary action

- must provide prior written notice
- an opportunity for a hearing
- and written findings of fact and conclusions of law when taking disciplinary action against a person
- the Admin's order can be appealed if the person file a petition in state court within 60 days

27

delivery of disclosure document

- an investment adviser must deliver a disclosure document at least 48 hours prior to signing the contract, or at the time of contract with the customer having five days to rescind the contract

28

Registration by Qualification

- used when either a security's federal registration has already become effective or when no federal registration will be filed - as would be the case for offerings made in one state only

29

Registration by Coordination

- a security may be registered by coordination if the same offering is being registered under the Securities Act of 1933
- typically used by an issuer that is conducting an IPO of securities that will not be listed on an exchange and that needs to register its securities at both the state and federal level

30

Renewal of an investment advisory contract

- an investment advisory contract may not be assigned without a client's consent
- any action that causes a change in the adviser's management, organizational structure, or control is considered an assignment
- if a partnership, the death, resignation or retirement of a minority of the partners does not a constitute a change of control