Study Materials Flashcards
(105 cards)
1
Q
investment advisers comp
A
tied to the value of the customer’s account - so if their assets grow then the adviser gets more money
2
Q
Investment Advisers Act of 1940
A
applies limitations on the minimum capital and bonding requirements by the Administrator
3
Q
Agent - under the Uniform Securities Act
A
an individual who represents a foreign government in selling securities issued by that government is NOT considered an ‘agent’ under the USA and isn’t required to register with the Administrator
4
Q
max penalty for conviction of a criminal offense under the USA
A
$5,000 and/or 3 years in prison FOR EACH VIOLATION COMMITTED
5
Q
Writs
A
Administrator can’t issue writs
admin has power to make changes to orders as defined in the USA though
6
Q
Incidental advice
A
broker-dealer agents primary role is to help clients buy and sell securities - some degree of investment advice tends to play in to this since the securities are sposed to be suitable to their circumstances
important thing here is as long as its incidental to their work - and they are being compensated for the advice - then the broker-dealer doesn’t need to register as an investment adviser
following groups can provide investment advice that is incidental to their biz w/o registering: Lawyers Accountants Teachers Engineers
any profession not on that list has to register (ie Actuaries)
7
Q
Affiliated person of an investment company
A
officer, director, partner, or direct associate of an investment company
any owner of at least 5% of all outstanding company shares
8
Q
Filing method for issuing new securities
A
condition for registration by filing that neither an issuer nor any subs have defaulted on indebtedness for borrowed money since the end of the last fiscal year
9
Q
Brochures
A
impersonal advisory services costing less than $200 don’t need to be accompanied by a brochure
10
Q
Broker-dealers comp
A
commissions based on clients making trades - paid independently from the performance of the client’s account
11
Q
Filing fees for investment adviser representatives
A
due at time of registration as well as annually on December 31, regardless of the time of initial registration
so if you register in June you have pay filing fees in June and December of that year - and then annually in december from then on
12
Q
Soft Dollar Compensation
A
allowable stuff must benefit the client
so research would be allowable
a cell phone, computer or vacation for the adviser isn’t allowed
not permissible soft dollar compensation:
- overhead expenses not permissible
- initial training of new personnel not permissible
13
Q
Securities
A
fixed annuities and life insurance not considered securities
14
Q
Administrators and Federal Covered Advisers
A
Admins typically don’t have jurisdiction over federal covered advisers but do when fraud is committed in a securities transaction
15
Q
Agents representing broker-dealers and their registration with states
A
Don’t have to be registered with the state if
- they have no place of business in the state and their only clients are institutional investors
- registered in another state, the client in question has had an acct with the BD for at least 30 days prior to the transaction, and the agent has either worked with that client before OR is applying for registration in the state they live in
16
Q
Civil suit by an investor when sold an unregistered security by an unregistered agent
what is max amount can sue for?
A
Price paid for security
+interest
+court costs/attorney fees
-income received on the security
17
Q
De minimis Exemption for registration
A
no place of business in the state AND no more than five non-institutional customers in the state
THERE IS NO DE MINIMIS EXCEPTION FOR BROKER DEALERS
18
Q
Uniform Prudent Investor Act
A
specifies that virtually any category of securities can be appropriate but fiduciary care needs to be taken in recommending securities from a given category
also:
- prudence is applied to each portfolio and not by separate securities
- the risk-to-reward tradeoff is critical
- portfolio diversification is critically important
19
Q
security in violation - SEC can suspend trading for how long?
A
up to 10 days
20
Q
Painting the tape
A
market manipulation where multiple parties knowingly trade a security heavily among themselves to generate artificial trading volumes
21
Q
Registration by coordination
A
coordinates state and federal filings of a securities issue
used primarily by companies registering securities for first time with SEC, and they want to register their securities with certain states at the same time
Have to file at federal level first - state level registrations happen after that and use much of same paperwork
**Registration at state level becomes effective when the federal registration becomes effective so long as it has been on file with the state for at least ten days
22
Q
Administrator of a state powers to protect investors
A
can issue orders against those who violate securities rules, can investigate violations inside and outside the state, and can issue subpoenas
CAN’T sentence someone to go to jail - they aren’t a court of law
Can reject the registration of a security as long as in the public interest and there are grounds for the action
- doesn’t matter if the security is or isn’t registered with the SEC
- doesn’t matter if the issuer is or isn’t in the administrators state
23
Q
Selling away
A
violation that involves soliciting a client to purchase a security or investment not otherwise available through your firm
24
Q
Maximum penalty for conviction of a criminal offense under the USA
A
$5,000 and/or 3 years in prison FOR EACH VIOLATION COMMITTED
25
Market maker
kind of dealer that buys and sells securities from its own inventory
lists bids and offers on securities
does not have a fiduciary duty to its customers
DEALER not a broker
highly unlikely to be a sole proprietorship
26
Regulation A+
Regulation A+ allows an issuer to sell up to $50 million in securities during a 12-month period without having to follow the standard registration process under the Securities Act of 1933. Issuers are still required to file an offering circular with the SEC, however.
up to $50 million during 12 months w/out registering - do need an offering circular for the SEC though
27
Power of attorney and family members
Registered IARs can't have POA over non-related clients (ability to pay bills and other financial services) without being deemed that they have custody over that clients assets - which requires minimum capital requirements and independent audits as well
if an IAR has POA of their mother or some other family member, including step relationships, that's not considered custody under the Rule 102(e)(1)-1 of the USA
trick to remember here is that an IAR is considered to have custody if they can write checks an such from a clients account - loophole is family members
28
Investment Adviser not allowed to do what when promoting business
can't annualize ST performance to imply future returns
can't tout history of best-performing stock picks (need to say winners and losers if want to do this)
can't use client testimonials
29
Commingling
agent deposits money from a client into its own brokerage account
30
Churning
pressuring clients to trade more to pocket commissions
31
FINRA Rule 5110, "Listed Securities"
what must a security be capable of trading on to meet this definition
National securities exchanges identified in Securities Act Rule 146
Markets registered with the SEC under Section 6 of the Exchange Act
Offshore markets designated under SEC Regulation S
32
Employees that need to be registered
administrative tasks don't but any giving advice or order related work does
so an employee that takes unsolicited orders would need to be registered
33
What is acting in "principal capacity" when doing transactions
a broker-dealer effecting transactions in securities from its own inventory on its own behalf
know as effecting principal trades or entering principal orders
34
Federal covered securities include:
- nationally traded securities
- investment company securities
- securities sold to qualified purchasers
- securities sold in certain exempt offerings
35
IARs and State registration
required to even if the adviser firm is only registered with the SEC
also, if the adviser firm is doing biz in other states where there are six or more non-institutional clients, then the IAR must register in those other states as well
36
Titles and leases payments
typically non-issuer transactions since usually tied to land rights for natural resources
37
The Agent and disclosure to clients
agents determine what info is material and should be given to client on a timely basis
38
Agency cross transactions
considered a conflict of interest but are permitted with certain requirements
IA earns fees for advising clients, also earns commissions acting as a BD for the non-adviser client on the other side of the transaction
this has to be disclosed to clients
adviser needs prior written consent from clients and must disclose role as BD on both sides
disclosed potential conflict of interest
at or before completion of agency cross transaction the adviser must send the client a written confirmation that includes
1. stmt of nature of transaction
2. date and time of transaction
3. source an amt of any remuneration received by the adviser of transaction
39
Securities Exchange Act of 1934
federal regulation that dictates how people may act in the securities market, including broker-dealers
sometimes called the "People Act."
40
updating U4 for inaccurate info must be done within
10 or 30 days, depending on type of amendment
with in 30 days of learning change, becomes 10 days if amendment involves a statutory disqualification
change of home address, customer complaints, criminal disclosure, regulatory disciplinary actions, civil judicial actions, terminations, and financial judgments
41
Accredited investors
net worth of $1mm or more
| gross income of at least $200k in each of last 2 years
42
Submitting an electronic U4, how quickly do you need to submit other info
once submitted, FINRA may make registration effective pending receipt of fingerprints
have 30 days to get fingerprints to FINRA then
if it takes longer than 30 days then the registration is considered inactive
43
Investment advisers required to maintain records required by Administrator for period of at least
5 years in total
first 2 years they must be in the IA's principal place of business
44
'qualified clients' and investment adviser fees
only time an investment adviser can share in the gains/losses of a customer is if the client is a qualified client and the adviser makes certain disclosures in the advisory contract
qualified client characteristics
- over $1mm in assets with investment adviser
or
- at least $2mm in documentable net worth (excluding primary residence)
45
what jobs are considered investment advisers
Portfolio managers
financial planners
research report providers
all considered investment advisers if they get paid for their services
46
when you're an agent registered in the state - joint accounts with family are
allowed but written permission is required
profits can be shared in whatever manner the parties decide
47
Investment Advisers and Investment Adviser Representatives
can they get performance based fees
typically no
exceptions to that rule for:
- high net worth individuals
- qualified purchasers
- registered investment companies
- business development companies
- private investment companies
- key employees of an investment advisory firm such as officers, directors, and investment adviser representatives
- clients w/at least $1mm at the firm - 'qualified clients'
- 'qualified purchasers' - individuals and family-owned corps w/$5mm or corps with $25mm
- non-residents of the US
**broker-dealers can't charge performance-based fees - theirs are only commission
48
Letter of recission
offer to buy back the security from the client, with interest and plus or minus any gain or loss the client incurred
49
Securities Investor Protection Act of 1970
protects investors' assets from insolvency related to the bankruptcy of or financial troubles of member firms
50
Broker dealer agent
person who represents the broker dealer
OR
an agent of an issuer
51
SEC has how many days to review a BD filed application
45 days
Securities Exchange Act of 1934, Section 15
SEC must take action w/in 45 days - either grant registration or institute proceedings to determine whether registration should be denied
52
Selling dividends
prohibited to do
can't tell a client to buy a stock b/c of upcoming dividend
called selling dividends
dividend is factored into stock price
stock price will fall by amount of dividend on ex-dividend date
53
BD or IA disclosing client info to third parties
allowed to do it if they've provided clients with privacy policies initially and annually
need to give client option to opt out of that information sharing
if client doesn't opt out then you can give info to third parties
54
Issuer transaction
buying shares from the issuer of the shares
an investor buying shares of a mutual fund is an issuer transaction b/c they're buying from the mutual fund itself
55
Non-issuer transaction
buying or selling shares not from or to the issuer of those shares
a mutual fund selling shares from its portfolio is generally a non-issuer transaction since they'd sell them into the broader market - unlikely they'd be selling them back to the original issuer
these are non-exempt transactions
56
Administrator jurisdiction
over transactions from which an offer to buy or sell a security was made in their state
57
State regulator's ability to disallow an exemption from state registration
if an issuer whose securities are exempt from registration - ie a gov entity guarantees payments - then a state admin may not be able to require registration
58
Investment advisers with only insurance companies as clients
excused from registering as registered investment adviser with the SEC
rule from Investment Adviser Act of 1940
59
qualified custodian
when a financial institution stores client funds and securities in safekeeping
60
Assessable stock
can be assessed fees for future improvements
extremely rare today but some still out there
a gift of assessable stock is considered to involve an offer and sale
61
Successor firm registration and filing fees
when a registered BD files an application for registration of a successor firm for the unexpired portion of the year, there is no filing fee
62
investment advisers allowed to borrow money from a client if the client is
a broker dealer
an affiliate of the investment adviser
a financial institution engaged in the biz of loaning funds
unethical to borrow money from just an ordinary client - doesn't matter how long they've been a client either
63
investment advisers and custody
securities?
it's considered custody when an investment adviser receives client's securities, even to forward to a qualified custodian - that's prohibited if the IA isn't a qualified custodian
64
futures contracts on commodities
futures contracts on commodities AREN'T considered securities
65
Banks and registration as a BD
they're exempt from registration as a BD with both FINRA and the state as long as it doesn't offer brokerage services
66
Mutual funds and qualified custodians
mutual fund transfer agents are sufficiently qualified to meet the safe-keeping requirements for custody of client funds so a separate qualified custodian wouldn't be necessary for an IA to take custody of client funds
67
best filing method for an intra-state offering
registration by qualification
b/c it's an offering w/in the state
68
Registration by Qualification securities become effective when?
become effective when the Administrator says they are effective
69
Registration by Filing
as it relates to mutual funds and unit investment trusts
need to file a reg stmt under the Securities Act of 1933 for the offering
registration must have occurred with the Admin w/in the previous 24 months w/no subsequent material changes
compliance with material terms of prior registrations must not have changed
70
NASAA recommended net capital requirements
$35K for advisers w/custody over client assets, except those that only have custody for deducting fees and managing pooled investments
$10K for advisers w/o custody over client assets, but have discretionary authority over transactions in their clients accounts
positive net worth at all times for any adviser that accepts prepayment of client fees six or more months in advance, and for more than $500 per customer
if an IA doesn't meet the net capital requirements they're required to notify the state securities administrator by the close of biz the next biz day
71
dual registration for both agents and IARs
only permitted in some states
always permitted if the firms are affiliated w/each other
when permitted, separate registrations must be filed by each broker-dealer
72
Solicitors and registration
to be a solicitor, the USA says you must be registered as an IAR
USA does have a provision that allows state Admins to permit solicitors to not register if they see fit
73
Federal covered security
listed on NYSE, ASE, or Nasdaq
sales to qualified purchasers (persons w/$25mm in investments, family owned cos w/$5mm in investments, natural persons w/$5mm in investments, and trusts where everyone in it is a qualified purchaser)
74
Three pronged test for being an investment adviser under SEC Release 1A-1092
1. providing investment advice
2. business of providing investment advice (advertise that you do it, will do it regularly)
3. receive compensation for that advice
as an IA can be compensated in cash or soft-dollar arrangements - can't be compensated in vacations or anything other than cash that can only benefit the adviser
75
Newspapers Administrator makes applicants publish announcements
USA Section 202
Admin may by rule or order require an applicant for initial registration to publish an announcement in one or more specified newspapers published in the state
76
Statutes of limitation concerning an investor's ability to sue violators of the USA
either w/in 2 years after discovery
or
3 years after the contract of sale or the rendering of investment advice, whichever comes first
77
Rule 17f-2 of the Securities Exchange Act
principals, officers, and certain employees of member firms must be fingerprinted
remember it b/c of the f in the rule
78
NASAA has declared it unethical for agents or broker-dealers to split or pay commissions
it is a violation to split commissions with agents that do not work for the same broker-dealer, or for a broker-dealer under the same common control
commissions charged by agents and broker-dealers must be reasonable and justifiable compared to the services performed
79
how long do BDs have to provide prospectuses to investors that buy a new issue in the secondary market that will be listed on a stock exchange or Nasdaq
Investors that purchase a new issue in the secondary market within 25 days of the effective date of the issue must be provided with a copy of the final prospectus
80
how long does the registration of securities last
registration remains effective for one year from the effective date
81
how long does registration for investment advisers, IARs, BDs, and agents last?
until midnight of Dec. 31st of the year for which the registration is filed - if a renewal isn't file the reg is considered revoked
82
investment adviser representative and transfer of registration
they aren't allowed to do it
IAs, BDs, and federal covered advisers can file an application for a successor for the unexpired portion of a year, and in that case there's no filing fee, but IARs can't do it
83
how many non-instit investors can a private placement have to be considered an exempt transaction
under the Uniform Securities Act of 1956, a private placement can't have more than ten non-institutional investors
the seller must believe that the non-instit buyers are purchasing for investment purposes, and no commission can be paid for soliciting non-institutional buyers
84
Profit sharing arrangements
what does an agent of a member BD need to do in order to get in one with a client
must obtain written authorization from their employer
must obtain written authorization from the customer
agent can only share in the profits and losses to and extent that is proportionate w/their personal financial contribution to the account - exception is if the acct belongs to an immediate family member
85
broker that carries customer accounts
minimum net capital requirement?
$250,000
86
broker that introduces customer accounts and receives securities
minimum net capital requirement?
$50,000
87
municipal securities brokers' broker
minimum net capital requirement?
$150,000
88
Dealer
minimum net capital requirement?
$100,000
89
A person does not need to register as an agent of an issuer if either of the following is true
- security is being sold only to employees of the issuer and the agent ISN'T PAID for any solicitations made in the state, or
- security meets a specified exemption, or
- transaction is exempt
90
Securities exemptions where a person does not need to register as an agent of an issuer
```
US government securities
munis
foreign gov securities
bank securities
commercial paper, and
investment contracts for employee stock purchase or savings plans
```
91
federal covered adviser is what
NOT an investment adviser
they're registered with the SEC but they aren't considered an investment adviser, diff category
92
cease and desist orders
given by Administrator to stop the activities of securities professionals
allow the Admin to take action immediately w/o a hearing, although they can do a C&D order after a hearing as well
93
Administrator ability to deny exemptions
Admins can deny any transaction exemption but only certain types of securities exemptions
Admin can deny a non-profit organization exemption w/prior notice, opportunity for a hearing, and written findings of fact
Admin can't deny a federal covered security, can't deny a security issued by a foreign government, or a security issued by an insurance company
94
fees for research reports
Investment advisers are permitted to charge fees for research reports
BDs may do so if dually registered (registered as both an IA and a BD)
95
Exemptions from having to file state registration as an investment adviser
IARs are exempt
Bank, savings institution, or trust company exempt
Lawyer, accountant, teach, engineer who's advice is incidental are exempt
BD or its agents if provision of investment advice is inicidental
publishers of news
federally covered IAs
96
most appropriate response for an IA if experiencing a conflict of interest
disclose the conflict and obtain a written consent from the client
97
when permissible for agents to share in gains or losses of client accounts
super rare but can do with prior written approval by client and the agent's BD
98
Issuers wishing to register a security by filing must meet what requirement
total net worth of at least $4mm
or
total net worth of at least $2mm and net pretax income for at least 2 of the 3 prior years
99
Punitive orders by a state Administrator
cease and desist
suspension
revocation
denial
100
Form ADV-W
the withdrawal form for investment advisors
101
Form BD-W
withdrawal form for BDs
102
Form U-5
used to terminate agents and investment adviser representatives
103
Cancellation Order
used when a person dies, goes out of business, is declared mentally incompetent, or can't be located
104
Who has to follow fiduciary standards?
put the interest of the client first
Registered investment advisors must
Attorneys and CPAs both need to too
Registered representatives (RR) don't generally, they have to follow FINRA 'suitability' rules instead
105
how much time does a BD or IA have to remedy late payment of fees to the Administrator?
10 days after receipt of the notice
