USA - Business Practices Flashcards by Ben Gurley

Advisory contracts must be _____ and have ______

be in writing and have a defined term

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Prepayment of fees is permitted. T/F

True

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Refund for early terminations are permitted. T/F

True

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If the firm is a partnership, any change in ownership must be _____

communicated promptly to customers

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A change in a majority of partners requires _____

customer consent

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A performance fee is allowed for _______

wealthy clients

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Soft dollar arrangements are allowed as long as the “give backs” benefit the _____

adviser’s clients

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An adviser can also collect _____ fees if they place client funds into a particular mutual fund

12b-1 fees

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You cannot include hedge clauses in an advisory contract that are ______ or hold the adviser _____

unreasonable or hold the adviser harmless for misconduct

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Each client must receive the adviser’s brochure and brochure supplement, also known as Form ADV part ____ and form ADV part _____

2A and 2B

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The brochure and supplement must be delivered either _____ before signing, or if after, the customer has _____ to rescind the contract

48 hours before signing or has 5 days to rescind afterwards

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If there is a material change to the brochure, it must be sent to the customer no later than _____ after fiscal year end

120 days

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An adviser may not take custody of client assets if there is a specific ______ or, if no ____, then if they have not given ______

if there is a specific rule, or if no rule, if they have not given notice

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In order to take custody, adviser must notify the state using form _____

ADV

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Assets held by an adviser must be held by a ______ who must be _______ annually

custodian who must be audited annually

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The IA must file audit results of the custodian within ______

120 days

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Qualified custodians under the NASAA rules are:

FDIC insured deposit taking institutions
registered BDs
registered futures commissions merchants
foreign financial institutions

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“Custody” also pertains to taking more than _____ in advance fees and accounts with full _____

more than $500 in advance fees and accounts with full POA

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If funds received mistakenly are returned within _____, then not considered custody

3 days

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Annual updates to ADV must be filed within _____ of fiscal year end; material changes filed within _____ of event

90 days of year end; 30 days of event (for Fed covered advisers, material change is required “promptly”)

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Under NASAA rules, customer must sign margin agreement ______ after the first trade occurs

promptly

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For discretionary accounts, written authority must be received no later than ______ after verbal authority is given (does not apply to BDs - Fed laws)

10 business days

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For BDs, written authority for discretion must be received ______ to placing trades

prior

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Payment for trades by a customer must be received no later than _____ after the trade date

5 days (S+2)

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If account is frozen, customer can still trade but needs to _____

have the cash deposited up front

A loan amount to a customer with a margin account cannot exceed limits placed by ______

Reg T (for instance, since margin on a LEAP is 75%, then loan cannot exceed 25%)

If a customer wants securities transferred and shipped, must be ______

fully paid

Order tickets must be stamped with time of _____, _____, and ______

time of receipt, time of execution, and time of cancellation (if canceled)

For IAs, orders must show name of person who recommended transaction, name of person who entered the ticket, the ______ of the order, name of account, name of the _____ who will execute the order, and whether or not it is ______

date of the order; name of the BD, and whether is discretionary or not

Limit order display rule states that if a customer places an order with a better price than the market maker, the market maker must ______

display those customer quotes

Order confirms do not need to indicate if the order was ______ or not

solicited or not

On order confirms, _________ must be disclosed

payment for order flow

NASAA does or does not allow a RR to borrow or lend money from a relative?

DOES NOT - not like FINRA

Can IAs lend money to customers? Can BDs?

IAs CANNOT, BDs CAN

IAs and IARs are or are not allowed to open joint accounts with customers?

ARE NOT

An agent ______ charge a higher commission based on performance of recommendations

CANNOT

Disclosure of commission is required on the trade _____

confirm

"Unusual" fees for trades must be disclosed ______

prior to execution

BDs can charge for clerical fees but not for the actual ______

recommendation - then they would become IAs

Fee discounts cannot be made _____

to only select clients

A mutual fund is not considered "no-load" if it has a 12b-1 fee in excess of _____

0.25%

If a customer dies, the account must be _____, all open orders canceled, the date of death must be noted, and must wait for the proper paperwork

the account must be frozen from all removals of assets

If inside information is received by an agent, must be reported to the ______

exchange where the security trades

A new issues of non-exempt securities cannot be sold without a ______

propsectus

Must disclose if a research report distributed to customers is ______

from a third party

IPO allocations can be made to IAs, but they have to buy it for _____

all their clients

For an IPO, BD cannot issue a research report for _____ following the effective date; for add-on offering it is _____

10 days for IPO, 3 days for add-on

IA advertising cannot contain a _______ (BDs can), cannot state that research is given for ____ unless true without condition, and can include recommendation as long as ALL recommendations over the past _____ are included

cannot contain a testimonial; and must include ALL recommendations over the last 1 year

Internet communication for BDs and IAs is NOT considered "transacting business" if it is not _______, contains a legend that lets people know they can only conduct business ______, any individual follow up communication meets all registration requirements, the communication has a "firewall" to meet compliance standards

cannot be specific (must be general) and lets people know they can only do business in their own state or places of registration

Agents cannot share commissions with _____ or _____

unlicensed individuals or licensed individuals at another firm

IAs can pay referrals fees to solicitors but those solicitors must be ______

registered as IARs

An IA can send trades to an affiliated BD as long as it is disclosed and customer has provided _______

written consent

If 2 or more beneficiaries, the differing interest of the beneficiaries must be considered when investing the assets by the trustee. T/F

True

Written consent from the customer must be obtained by settlement date for conflicts of interest where the IA has a _____ from the position of the client or is selling their own assets to the client

has an opposite position from the one being assumed by the client

Privacy notices must be sent initially and then _____

annually

Initial privacy notice must also include a ______ provision

opt-out

A foreign customer must present their _____ and a US _____

passport and a US tax ID

CTR reports must be aggregated over _____ and reported within _____

aggregated over 2 weeks and reported within 15 days

Cyber security procedures must be tested _____

annually

Money transfers must be confirmed with the client, but cannot be done over _____

To offer a promissory note, both the ______ and the _____ must be registered

sales person and the promissory note

Only promissory notes that have maturities of _____ or less, are _______ grade, and are sold in min increments of ______ are exempt from state registration

9 months or less, investment grade, and sold in min amounts of $50,000

Not making required disclosures to customers who buy securities in a ______ is prohibited

bank location

For securities bought at a bank location, the RR must disclose (orally and written) that the account is _____ FDIC insured, the securities are _____ deposits, and they _____ lose value

NOT FDIC insured, NOT deposits, and MAY lose value

The fee for managing _____ may be higher than for ____

equities may be higher than for fixed income

Discretion is allowed to be exercised upon verbal confirmation as long as written confirmation is received within _______

10 business days

Is there a record of subscription orders that must be kept by a BD?

NO - happens directly between the issuer and the shareholder

Can an IA lend money to its officers or employees?

YES