Vocab (63)

Question 1

Agency Cross Transaction

Answer 1

is a transaction in which an investment advisor acts as the broker for both their client and the other party.

Question 2

Assessable Stock

Answer 2

Stock which gives the issuer the right to demand additional capital from the holder

Question 3

Commodity Futures

Answer 3

is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future

Question 4

Consent to Service of Process

Answer 4

is an agreement whereby actions arising from violations of the USA may be initated against the individual executing the consent

Question 5

De Minimis

Answer 5

Registration for an IA is exempt if they are De Minimis (Has no more than five non-institutional clients in the state within the last 12 months)

Question 6

Discretionary Authority

Answer 6

Representative can determine price and time. Need discretionary authority when determining the action

Question 7

Durable Power of Attorney

Answer 7

“The BD is considered to have discretion over the client’s account and to have custody of the client assets.
The agent has the authority to manage the grantor’s finances if that person becomes incapacitated”

Question 8

Effective Date

Answer 8

The effective date is granted by the Administrator and represents the date on which the securities can be sold publicly. A security’s registration expires one year after its effective date. Assuming an applicant has submitted all required documentation, its registration becomes effective at noon on the 30th day after filing with the state. The Administrator does have the power to grant an earlier effective date, and may defer the effective date until the 30th day after the filing of any amendment to the initial application.

Question 9

Endowment Policy

Answer 9

is essentially a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term

Question 10

Enjoin

Answer 10

instruct or urge (someone) to do something

Question 11

Exculpatory Provision

Answer 11

“is a provision added to an investment advisory contract or agreement which typically discharges the adviser from liability unless the adviser has been grossly negligent or has engaged in reckless or willful misconduct, illegal acts, or acts outside the scope of its authority

These provisions are not allowed in an adviser’s contract”

Question 12

Fiduciary Transaction

Answer 12

Those involvoing a trustee, administrator, executor, or sheriff

Question 13

FORM ADV

Answer 13

form is used to notify Administrators that an IA is maintaining custody of client assets

Question 14

Indemnity Agreement

Answer 14

is a contract that ‘holds a business or company harmless’ for any burden, loss, or damage. An indemnity agreement also ensures proper compensation is available for such loss or damage

Question 15

Injunction

Answer 15

an authoritative warning or order

Question 16

Investment Advisers Act of 1940

Answer 16

regulates federal covered advisers. If registered with the SEC, IAs must comply with federal rules regarding financial requirements and bonding requirements. Investment advisers that are subject to state registration would be subject to the requirements placed upon them by the state in which it maintains its principal place of business.

Question 17

Notice Filing

Answer 17

Although exempt from state registration, issuers of investment company shares (mututal funds) and private placements under Regulation D Rule 506 are subject to Notice Filing with the Administrator

Question 18

NSMIA

National Securities Markets Imporvement Act

Answer 18

“probits states from requiring the registration of federal covered securities ad federal covered advisers

Federal law which defines where the federal reg stops and state reg starts”

Question 19

Risk-averse

Answer 19

disinclined or reluctant to take risks

Question 20

Show Cause Agreement

Answer 20

is a type of court order that requires one or more of the parties to a case to justify, explain, or prove something to the court. … The use of an order to show cause instead of a notice of motion does not affect the parties’ burden of proof on the underlying motion

Question 21

Snowbirds

Answer 21

“live in cold wesather states in summer and warmer states in the winter
BD would have to register in both states but for college students they would only need to be registered in their hometown”

Question 22

Soft Dollar

Answer 22

are a means of paying brokerage firms for their services through commission revenue, as opposed to through hard-dollar direct payments. … Many investors believe that buy-side firms should pay expenses out of their own profits. As a result, the use of hard-dollar compensation is becoming more common

Question 23

Solicitors

Answer 23

“IA’s are allowed to hire solicitors and pay them a fee in order to obtain new clients. Under the Investment Advisers Act, the adviser hiring the solicitor must follow certain guidelines. The solicitor must not be subject to outstanding SEC orders suspending or barring the solicitor’s activities. The adviser must disclose the nature of the relationship between the adviser and the solicitor and any additional compensation paid because of this relationship. If officers, directors, or employees of the adviser are acting as solicitors, this must be disclosed

May be required to register with the Administrator”

Question 24

Surety Bond

Answer 24

is posted by a registrant to cover the cost of possible legal actions arising from violating the USA. Some broker-dealers and investment advisers may be granted a waiver for the surety bond. A deposit of cash or securities may be accepted in lieu of the bond, but the amount and type of securities will be determined by the Administrator

Question 25

The Brochure Rule

Answer 25

"the rule governing the disclosure reequirement of an IA to its clients permits advisers to give a disclosure brochure to clients at the time they enter into contracts. For federal covered advisers, the brochure must be given to clients even if the advisory contract with the client is oral. IAs or IARs are not required to provide a brochure to registered investment companies or clients whose contracts are for limited impersonal advisory services for which the client pays less than $500 per year. Under the USA, clients may be given the brochure at the time the contract is signed, as long as they have five business days to cancel the contract without penalty. Otherwise, the brochure must be given to a client 48 hours prior to the signing of the contract."

Question 26

The Consent to Service of Process

Answer 26

Appoints the state Administrator to serve as the applicant's attorney for the purpose of receiving and processing noncriminal complaints. It is required of all registrants when they file for registration in a state.

Question 27

Tombstone Ad

Answer 27

when a group of underwriters is offering securities for sales fo ran issuer, the sydicate will announce the offering in the papers by the way of a tombstone ad. The tombstone will provide a description of the securities, the names of the underwriters and where a prospectus may be obtained

Question 28

Uniform Prudent Investor Act

Answer 28

"Used by advisors as a guide when implementing financial plans; it’s based on the Modern Portfolio Theroy and emphasizes the trade-off between risk and reward The Act looks at the portfolio as a whole and makes an assessment as to the risk/reward trade-off of the investments selected when determining if an asset mix is acceptable for a given account. The standard of prudence is applied to the whole portfolio as opposed to individual investments"

Question 29

Viatical

Answer 29

"Viatical Investment Refers to the purchase of an interest in an insurance policy covering an individual’s life Since its unknown when the insured will die and since the funds invested are not readily accessible on demand, NASAA has established specific suitability requirements for viatical investments Viatical investors must either be accredited investors (according to Regulation D) or meet one of the following two standards: Minimum net worth of at least $150,000 (not including their residence) and an annual income of $100,000 or Minimum net worth of at least $250,000 (not including their residence) Viatical Notes: Investments are speculative and highly risky Great likelihood of fraud since due to the difficulty of predicting when a person will die "