Chapter 2

Question 1

State-Registered IA’s Post-Registration Requirements include:

Answer 1

Net Capital requirements
Financial Reports
Recordkeeping

Question 2

Net Capital requirements:
Must meet __________ requirements (Cannot exceed Investment Advisers Act of 1940)

Answer 2

State requirements

Question 3

Financial Reports
Must be filed as required by the _________
_________ promptly if change occurs

Answer 3

State, Updated

Question 4

Advisers must keep client records on file:
client records & marketing: keep for ______ years
Lifetime records: partnership articles, incorporation articles, charters, minute books, stock certificate books (keep for 3 years after the firm closes)

Answer 4

5 years

Question 5

Audits
Subject to audits in registered __________, if deemed to be in public interest
Administrator may ________ any records deemed useful
Federal covered advisers (FCAs) can only be audited in the principal office state

Answer 5

Registered State
May Examine

Question 6

Bond or Insurance for IAs with Custody or Discretionary Authority
May be required to post _________ bond

Answer 6

Surety Bond

Question 7

Renewing Registration & Updating Form ADV
State-registered IAs and Non-Federal Agents/BDs: ________ registration & pay fee by _________ each year
FCAs: pay the annual filing fee to the _____________
All IAs: update Form ADV within ______ days of fiscal year-end
Material changes: update promptly for FCAs, within ______ days for state IAs

Answer 7

Renew, Dec 31st
Administrator
90 days
30 days for IAs

Question 8

IARs simply _______ registration and _______ any CE requirements.

Answer 8

Renew, meet

Question 9

Broker-Dealer Agent post registration requirements include:
Firms must keep Form _____ current
_______ registration & pay fee annually
Complete annual ____ requirements

Answer 9

U4 current
Renew registration
CE requirements

Question 10

Broker-Dealer requirements for Recordkeeping:
Client trade records and marketing literature on file for ______ years.
(The first 2 years in an easily accessible place)
Records related to client account information must be kept for ______ years.

Answer 10

On file for 3 years
Kept for 6 years

Question 11

A renewal consent to service of process with the Administrator is only filed with the __________ registration application.

Answer 11

Initial Registration

Question 12

Agents & IARs must disclose all ____________ facts to prospects and clients. _____________ facts can be omitted.

Answer 12

Material, Immaterial

Question 13

Important client disclosure:
Third-party research reports or recommendations
Compensation arrangements
Material conflicts of interest
BD ownership, affiliation, or control by issuer
Individuals & firms involved in transactions or advice
Professionals role in the transaction

Answer 13

BD’s must respond to formal written requests or complaints
Agents cannot respond directly, must submit written complaints to compliance/supervisor

Question 14

In an investment advisory contract the name of any issuers that the investment adviser is ___________ by, affiliated with, or under common control of is not required to be disclosed.

Answer 14

Owned

Question 15

Normally, the adviser cannot take advisory fees for management of assets and commissions on recommended transactions, since this is a conflict of interest. However, if the conflict of interest is ______________ to the customer in advance of the purchase, and the customer still wishes to buy the security, then this is permitted.

Answer 15

Disclosed

Question 16

Sharing in a customer account is an unethical practice under the NASAA Statement of Policy UNLESS:

Answer 16

The manager approves of the arrangement in writing

Question 17

The sharing of commissions is ___________ between individuals as long as both are licensed at the same broker-dealer.

Answer 17

Allowed

Question 18

Form CRS ______________ the relationship between an investment adviser and a new client. Form CRS is part ____ of Form ADV.

Answer 18

Summarizes, Part 3

Question 19

Any changes to an advisory contract are a material change that must be filed as a Form _____ update with the State within ______ days. Additionally, since this is a contract between the customer and the investment adviser, both parties must _________ to any changes.

Answer 19

Form ADV, 30 DAYS, AGREEE

Question 20

True or False: A Registered Investment Adviser uses a solicitor to refer clients and pays the solicitor for each client referred, the solicitor does NOT have to be registered as an investment adviser representative in the State.

Answer 20

False. The Solicitor does need to be registered in the State.

Question 21

A state registered investment adviser _________ include testimonials in its advertisement.

Answer 21

Cannot

Question 22

An email sent to three clients ___________ be considered an advertisement for both a state-registered and a federal-covered adviser.

Answer 22

Would

Question 23

A federal covered adviser _____ pay someone to provide a testimonial that is then included in an advertisement.

Answer 23

Can

Question 24

A federal covered adviser can use performance results in its advertisements if it ______ cherry pick information.

Answer 24

Doesn’t

Question 25

A graph can be used in a broker-dealer’s advertisement if it is accompanied by a __________ that the graph alone cannot help someone to make an investment decision.

Answer 25

Statement.

Question 26

A federal covered adviser can use testimonials in its advertisements if the use is in no way ___________ and other SEC-enforced ____________ are met.

Answer 26

Misleading, Standards

Question 27

Filing of a renewal consent to service of process with the Administrator is only filed with __________ registration applications.

Answer 27

Initial

Question 28

Hypothetical performance information as it relates to federal covered advisers is not considered advertisement if it is shared on __________.

Answer 28

Request

Question 29

General Educational information that does NOT refer to the advisory services of the adviser is NOT considered _____________.

Answer 29

Advertisement Commentary on the market is also not considered an advertisement, again, as long as it does not reference the investment advisers services or performance.

Question 30

Investment advisers are required to maintain all records for a period of at least:

Answer 30

5 years

Question 31

An updated amendment to Form ADV must be filed by an investment adviser with the SEC:

Answer 31

Within 90 days of the firm’s fiscal year end

Question 32

Investment advisers and Investment Adviser representatives are ______________ from advertisements of testimonials for an IA or their representatives about their services.

Answer 32

Prohibited

Question 33

IA’s and IAR’s are prohibited from advertising past recommendations, unless the IA or IAR provides a list of all recommendations he or she has made for at least _____ months.

Answer 33

12 months As well as a statement that any past success is no guarantee of future results.

Question 34

When a federal covered adviser compares performance results of portfolios it must do so in _____ year, _____ year, or 10 year periods.

Answer 34

1 year, 5 years, 10 years

Question 35

If a client is compensated for writing a testimonial, the adviser must __________ the compensation in the advertisement.

Answer 35

Disclose

Question 36

If the advertisement includes gross performance, it must also include ______ performance,

Answer 36

Net

Question 37

If the adviser includes extracted portfolio performance in an advertisement, it must also provide information about the _________ portfolio.

Answer 37

Entire

Question 38

Investment advisers and IAR’s are compensated based on a __________ of assets under management.

Answer 38

Percentage. Fees for assets under management

Question 39

The State Administrator has the power to __________ a federal covered adviser.

Answer 39

Audit Because of federal supremacy, the State Administrator cannot require anything of a federal covered adviser that is already covered under the IA Act of 1040. The State Administrator can, however, audit any adviser, federal covered or not, who does business in the State.

Question 40

The “Brochure Rule” ___________ an IA to give a potential customer the disclosure document (Part 2A) and the Brochure Supplement (Part 2B) at or prior to entering into a contract to provide advisory services.

Answer 40

Obligates

Question 41

A state registered investment adviser is not allowed to use _____________ provided to the firm by its client, tout history of best-performance stock picks, or annualized short-term performance to imply future returns.

Answer 41

Testimonials

Question 42

The following CANNOT be accepted on a soft-dollar basis: Overhead-related expenses, such as office space, administrative or clerical labor, or furniture. Compensation for referrals Salaries Cell phones and computers Anything that benefits the adviser but not the clients

Question 43

A broker-dealer advertisement can only contain an offer to sell securities if those securities are registered or ___________ from registration in the state where the advertisement originated and the states in which the advertisement was received.

Answer 43

Exempt

Question 44

NASAA regulations state that simply delivering a prospectus to a client does not count as “full and fair disclosure.” It is the responsibility of the broker-dealer or agent involved in the transaction to make sure that the full disclosure has been provided.

Question 45

To prevent ________ picking information, advisors must present all related portfolios, or only present related portfolios that do not show higher performance than if all portfolios were presented.

Answer 45

Cherry