Unit 13: Communications with Customers and Prospects Flashcards
Acting as principal/agency
B/D must disclose by settlement, including commission if agency, or markup/down if principal
If IA is acting as principal
prior to completion of transaction:
-client gets written disclosure,
-client provides oral/written consent.
IA effecting transaction between advisory clients
permitted if there is no extra compensation
Agency cross transaction
IA acts as broker for both their client and the other party.
-must disclose both commissions, COI, furnish history of transactions, any related disciplinary history
-must still get best price
-can only be solicited for one party
Form CRS (client relationship summary)
delivered to client:
IA- at or before advisory contract
B/D- at or before a recommendation, order, or opening of account
-any updates to form must be sent to clients within 30 days
Form CRS prohibited
-cannot misrepresent registration (either for the professional, or a security)
-no guarantees against loss
-no guarantees on a security
IA contract
Same at State/Fed except:
-State requires it in writing
-State requires fees to be competitive, Fed requires “reasonable” fees
-State performance based comp criteria is stricter
waivers/hedging language
is never permitted
Change in partners
must notify clients
-INTERNAL discipline does not require client notification
Advisors Brochure (Form ADV Part 2)
Part 2A- Firm brochure, appendix 1 wrap fee
Part 2B- Supervised persons- those who formulate advice and have discretionary authority.
Must be in narrative format, plain english, fiduciary obligations, full and truthful,
Wrap fee
-not for buy and hold clients
-low risk for churning (advisor earns same fee no matter how many trades)
Advisor brochure delivery
made by or before advisory agreement is made
-under USA, must be 48 hours before agreement
-Investment companies and periodicals are exempt from delivering brochures
Updating brochures
must be updated annually, or promptly when any material changes.
Must file within 90 days of YE, and deliver within 120 days.
Static content
remains as is until changed by author
Interactive content
has input from author and viewer
Electronic communication
has same policies for all written and hard copy communication
Entanglement VS adoption
In entanglement, firm is producing content
Adoption, firm is endorsing content created by third party. will be at risk from any policy violations
Advertising must be fair and balanced
no:
-nonfactual data,
-conjecture
-exaggerated claims
-undermining prospectus/disclosures
Not considered a recommendation if:
-website with library of research
-search engine to research reports
-stock screener (as long as does not bias securities of interest)
-optional email subscription for particular securities
Is considered recommendation if:
-customer specific communication to purchase
-email to customers recommending a sector with attached recommendations
-a recommendation list generated from portfolio analysis tool
-B/D tech data-mines client data to send recommendations to client
IA Marketing Rule applies to:
-offering services to prospects, or new services to existing clients
-endorsements with cash or noncash compensation
-using third party info
-communication to investors in a private fund
-texting and chat rooms
If investment strategy including a charting system (technical analysis)
it must be disclosed the difficulties and limitations with the program.
Testimonials and Endorsements are permitted if:
-if client, then disclosed
-if compensation was provided
-any COI
-promoter: the person making the testimony. must have written agreement if over de minimis comp $1000 in T12.
-referencing past performance OK if disclosed correctly
Social Media Training
B/D is required to have some type of training for agents prior to using social media
