Unit 6 - Regulatory Requirements, Financial Institutions, Professional Conduct, and Fiduciary Responsibility Flashcards Preview

CFP 1 - Fundamentals and Ethical Considerations > Unit 6 - Regulatory Requirements, Financial Institutions, Professional Conduct, and Fiduciary Responsibility > Flashcards

Flashcards in Unit 6 - Regulatory Requirements, Financial Institutions, Professional Conduct, and Fiduciary Responsibility Deck (22):

Name the parts of the CFP Board's Standards of Professional Conduct

Code of Ethics
Rules of Conduct
Practice Standards
Disciplinary Rules
Candidate Fitness Standards


Describe the Investment Advisors Act of 1940

This act provided for the federal registration of investment advisors for the SEC as a regulatory and administrative body governing this work.


Describe the 2011 Dodd-Frank Wall Street Reform and Consumer Protection act.

This act changed the IIA of 1940. Advisors with assets under management of 100 million or more will continue to Register with the SEC. Advisors with assets of 100 million or less will generally be required to register as an investment advisor with the state in which they maintain clients.


Name the three criteria described in the IAA of 1940 outlining who must register as an investment advisor.


A Person who provides ADVICE or issues reports or analysis regarding securities

A person who is in the BUSINESS of providing such services

A person who provides such services for COMPENSATION


Who are excluded from the definition of an investment advisor?

-A Lawyer, accountant, teacher, or engineer whose performance of advisory services is solely incidental to the practice of there profession. (Known as the solely incidental exception)

-A broker or dealer whose performance is solely incidental to her conduct as a broker or dealer who receive no special compensation for the advice. (Known as the Broker Dealer Exception)

-A Bank or Bank holding company

-A publisher of a bona fide newspaper or financial publication of general or regular publication

-A Person who's advice is limited to securities issued and guaranteed by the US Govt


Who are exempt from the definition of an investment advisor?

-A Private Advisor who, during the course of the preceding twelve months, had fewer than 15 clients and who does not hold themselves out generally to the public as an investment advisor. (Know as the holding out Rule) Even if the private advisor has fewer than 15 clients but holds themselves out as an investment advisor to the public, they must register.

-An intrastate advisor for unlisted securities

-An Advisor who's only clients are insurance companies.


How long must an RIA keep financial records?

Not less than 5 years from the end of the fiscal year of the last entry that is recorded with respect to that record (account)


How do you register as an RIA with the SEC?

1. File form ADV with the SEC
2. Pay a filing fee
3. Submit ADV part I annually


Facts about ADV form II

- Must deliver no less than 48 hours before entering into any investment advisory contract with the client, or, the client has the right to terminate the contract without penalty for a period of 5 business days.

- Deliver a written narrative with the same detailed information as ADV Part II to the client within the same time frame. Most advisors merely deliver there ADV Part II.


The Securities Act of 1933

This Act requires the registration of new issues of the securities or issues in the primary securities market. Deals with IPO's


The Securities Exchange act of 1934

The Act extended the regulation of the securities to the secondary market or exchanges. The act also established the SEC as the primary regulatory body overseeing the sale and purchase of securities by a potential investor.


The investment Advisors act of 1940

Requires certain persons to register with the SEC as RIA's. This act also prohibits misstatements or misleading omissions of material facts and fraudulent acts and practices in connection with the purchase and sale of securities during the conduct of an investment advisory business.


The McCarran Ferguson Act of 1945

Federal registration that made it clear that insurance was to be regulated at the state level, so long as the states implemented and executed this regulation adequately.


The Maloney Act of 1938

Brought the OTC market under the regulation of the SEC and the called for self-regualtion of OTC securities dealers.


The Federal Bankruptcy Act of 1938

requires a court-appointed trustee to oversee the affairs of a firm for which bankruptcy charges have been filed. This act provides for the liquidation of hopelessly troubled firms and provides for the reorganization of troubled firms that might be able to survive.


The Secrities Investor Protection Act of 1970

Established the SIPC to insure investors against losses arising from the failure of any brokerage firm. Membership in SIPC is voluntary, although most BD's are members and pay a separate premium.


Insider Trading and Securities Fraud Enforcement Act of 1988

This Act specified what constitutes the insider trading of securites and stiffened the penalties for engaging in such trading. Under the Act, for insider trading to occur, there must be action taken related to material, nonpublic information.


How can you terminate registration with the SEC?

Fiule form ADV-W. The form must be files as soon as possible after the investment adviser ceases to practice.



In July 2007 NASD and the Member regulation, enforcement and arbitration functions of the NYSE combined.

FINRA is a self regulatory agency (SRO)

SEC has delegated the day to day oversight of BD's to FINRA. BD's and reps must register with FINRA if the wish to sell securities.


Series License explianations

Series 6 - Holder may sell open end investment companies (mutual Funds), Variable abbuitities, variable life insurance, and initially offered UIT's

Series 7 - Holder may sell any security, including stocks and ETF's. Braodest license

Series 63 - Uniform Securities Agent State Law Examination. Many states require individuals to pass a qualification exam to sell securiities in their states

Series 65 - Allows holder to provide incestment advice to clients within the holders primary state of residence.

Series 66 - Combines the Series 63 and Series 65 license requirements into one examination


What licenses must a planner hold to sell Variable annuity or variable life contracts?

Series 6 or 7 and a variable state insurance license.



Chartered by Federal or state government, to do any or all of the following.
-Accept Deposits, and pay interest depeinding on the type of account

-Make various types of loans

-Invest customer funds in secruities

-Honor instruments drawn on accounts

-Issue cashiers checks

-provide safe deposit boxes