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Flashcards in Textbook 66 Deck (33):


any person engaged in the business of effecting transactions in securities for the account of others



any person regularly engaged in the biz of buying and selling securities as principal for his own account, but does not include a bank, insurance company or an investment company


person associated with an investment adviser

any partner, officer, or director of the investment adviser or any person directly or indirectly controlling or controlled by the investment adviser


supervised person

any partner, officer, director or employee of an investment adviser or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser


professions that are excluded from definition of investment adviser

lawyer, accountant, teacher and engineer


how can a publication be excluded from the definition of investment adviser under federal law?

the publication must (1) be of a general and impersonal nature, in that the advice provided is not adapted to any specific portfolio or any client's particular needs, (2) bona fide, or genuine, in that it contains disinterested commentary and analysis as opposed to promotional material and (3) of general and regular circulation in that it's not time to specific market activity


true or false: an individual may act as both an investment adviser and IAR

true; this is typically the case when the biz is organized as a sole proprietorship


exempt reporting advisers

are investment advisers that are not required to register as an adviser with the U.S. Securities Exchange Commission ("SEC") or state regulators, but must still pay fees and report public information via the Investment Adviser Registration Depository system


Who are federal covered investment advisers?

(1) those required to be registered with the SEC b/c they meet the minimum threshold of assets under management ($110 million), (2) under contract to manage an investment company registered under the Investment Company Act of 1940, and (3) those not registered w/ the SEC b/c they are excluded from the definition of an investment adviser by the Investment Company Act of 1940


It is unlawful for any person to transact business in this state as an investment adviser or as an IAR unless:

(1) he is registered under the Uniform Securities Act or (2) has no place of biz in this state and (2a) his only client in this state are investment companies as defined in the Act of 1940, other investment advisers, federal covered advisers, broker dealers, banks, trust companies, insurance companies, etc. or (2b) during the preceding twelve month period has had no more than five clients


true or false: federal covered IAs exempt from state registration aren't exempt from paying state filing fees and giving notice to the Administrator. The procedure is called notice filing. However, if they only deal with institutions then no notice filing is required



small, mid and large state registration designations

small adviser state registration: < $25 million
mid size state registration: $25-$99.99 million
SEC or state registration: $100-$109.99 million
SEC registration: $110 million or higher


if a person engaged in what three activities, that person is an investment adviser?

(1) provides investment advice, reports or analyses with respect to securities
(2) in the biz of providing advice or analysis AND
(3) receives compensation, directly or indirectly, for these services


special compensation

compensation to the broker dealer or salesperson in excess of that which he or she would be paid for providing a brokerage or dealer service alone


true or false: an IA who advertises to the public the availability of meeting with prospective clients in a hotel, club, seminar or any location in the state is considered to have an office in the state. However, an IAR who contacts existing clients who happen to be in the state and notifies them that he will be passing through the state and will be available to meet is not considered to have an office in the state



true or false: federal covered IAs exempt from state registration aren't exempt from paying state filing fees and giving notice to the administrator. The procedure is called notice filing




the power, directly or indirectly, to direct the management or policies of an investment adviser, whether through ownership of securities, by contract or otherwise


notice filing includes what part of Form ADV?

Part 1A


computing net worth

excess of assets over liabilities but does not include the following: (1) goodwill, (2) patents, (3) copyrights and (4) all other assets of an intangible nature

*furniture used in the office or bookcases in the company research library are considered assets



any partner, officer, director or other individual employed by or associated with an investment adviser that is registered under the Uniform Securities Act


true or false: only an individual can be an investment adviser rep



what is the record retention requirement for investment advisers versus the requirement fro broker dealers

IAs: five years
BDs: three years


three examples of an IA that has custody of client securities

(1) an adviser that holds clients' stock certificates or cash
(2) if the adviser has the authority to withdraw funds or securities from the client's account
(3) acts in any capacity that gives the adviser legal ownership of the client funds or securities


when can you charge a performance fee?

If you have AUM of > $1 million or net worth in excess of $2.1 million


agency cross transaction

the adviser acts as agent for both its advisory client and the party on the other side of the trade. This is permitted as long as the client executes a written consent in advance authorizing the IA to effect this AND the adviser makes the necessary disclosures about commissions, etc.


true or false: in an agency cross transaction the adviser can't recommend the transaction to both parties of the trade



true or false: You can pay a few hundred dollars to a lawyer, accountant or insurance agent for a referral. However, it is prohibited to have the size of the fee based on the size of the client account



items that if received as soft dollar compensation fall under safe harbor

research reports, financial newsletters, analytical software, seminars/conferences w/ appropriate content, and effecting and clearing securities trades


de minimis exception

covered employees can make contributions up to $350 per official or candidate per election in which they can vote or $150 for other elections


state versus federal penalties for enforcement of the Investment Advisers Act of 1940

state: $5,000 and three years imprisonment
federal: $10,000 and five years imprisonment


associated person

any partner, officer or director of the broker dealer, including any employees of the broker dealer except those whose functions are solely clerical or ministerial


securities information processor

any person engaged in the biz of collection or preparing distribution or publication information in respect to transactions


self regulatory organization (SRO)

a national securities exchange or a registered securities association, such as FINRA