An investment adviser that manages assets in a wrap account must disclose to any customer the

Under the Investment Advisers Act of 1940, which of the following statements is TRUE? An investment adviser is defined as a person who gives advice about

stocks in an index fund and receives compensation for this advice

Which of the following persons is EXCLUDED from registration as an investment adviser under the Investment Advisers Act of 1940?

A person who renders advice only on U.S. Government securities

Who would be defined as an investment adviser under the Investment Advisers Act of 1940?

An attorney who gives advice to clients about investments for an additional fee

Under the Investment Advisers Act of 1940, which of the following are requirements for a family office to be excluded from the definition of an Investment Adviser?

1. The family office must only provide investment advice to clients who are part of that family.
2. The family office must be wholly owned by family clients and exclusively controlled by family members or entities - it cannot be owned or controlled by the key employees (though key employees can make investments).
3. The family office cannot hold itself out as an investment adviser - thus it cannot advertise or market itself to non-family clients.

Investment advisers with assets of $110,000,000 or more must register

Which of the following statements are TRUE regarding an investment adviser rendering advice solely to an investment company? The investment adviser

Is exempt from registering with the State but must register with the SEC

Private Fund Advisers must register with the SEC if their assets under management are at least

must register with the SEC once assets under management reach $150 million

An investment adviser is a private fund adviser that is not required to register with the SEC. In order to maintain its exempt adviser status, it can only solicit investors who are

All of the following are "federal covered" advisers, an adivser:

• with $400,000,000 of assets under management
  
• to an investment company with $400,000,000 of assets
  
• to an investment company with $40,000,000 of assets

Under the Investment Advisers Act of 1940, which of the following persons is exempt from registration with the SEC?

An investment adviser whose only clients are insurance companies

Under the Investment Advisers Act of 1940, all of the following are exempt or excluded from registration as investment advisers EXCEPT persons who give advice

To other investment advisers

An investment adviser will NOT be required to be registered with the SEC if the

• adviser's only clients are insurance companies
• adviser is located in only 1 State and all of the adviser's clients reside in that State

Investment advisers that manage under $100,000,000 of assets are subject to

Investment advisers can be required 

to be registered in each State

Investment advisers can be required 

to be registered with the SEC

Investment adviser representatives can be required 

to be registered in each State

Investment advisers with assets of less than $100,000,000 

are required to register in each State

Investment advisers with assets of $100,000,000 

are required to be registered with the SEC

Investment adviser representatives associated with advisers with assets of less than $100,000,000 

can be required to be registered in each State

Licensing of investment adviser representatives occurs at the

Under the Investment Advisers Act of 1940, after receiving an investment adviser application, the SEC must grant a registration to an investment adviser; or start a proceeding denying registration, within how many days?

Investment adviser registration applications filed with the Securities and Exchange Commission must be granted; or a proceeding started to deny registration; within 45 days of filing.

Which statements are TRUE regarding the payment of fees by registrants?

To register with either the SEC or the State requires payment of a filing fee.

Which of the following are included in the Form ADV filed to register as an investment adviser with the SEC?

• Compensation to be received
• Conflict of interest disclosure
• Whether the adviser has discretion
• The firm's business history

The States in which an investment adviser is registered would

be found in Form ADV Part 1

Under the Investment Advisers Act of 1940, which of the following are included in the Form ADV Part 1 filed with the SEC?

• A list of the officers of the advisory firm
• A list of the shareholders of the advisory firm
• The States in which the advisory firm is registered

Which statement is TRUE about the education of investment adviser key employees who establish investment strategy or manage client accounts?

Education and work background are disclosed on Form ADV Part 2B

A private fund adviser must file

An investment adviser to a hedge fund with $200 million of AUM has invested 50% of fund assets in gold, anticipating a stock market decline and flight to safety by investors. The investment adviser must register

An exempt reporting adviser must file

Form ADV only with the SEC

Under SEC rules established by NSMIA, an individual that files a registration application will be denied if the applicant has

served 1 year or more in jail

An investment adviser representative has recently passed her Series 7 and Series 66 exams. Which of the following statements can she make to potential clients regarding these registrations?

"I am now registered with FINRA and the State"

An investment adviser registered with the SEC under the Investment Advisers Act of 1940 changes from an S Corporation to a C Corporation. Which statement is TRUE?

An amendment to Form ADV must be filed promptly with the SEC

The annual renewal filed with the SEC by an investment adviser is an amendment to

Form ADV Part 1 and Part 2 if there are any changes to the brochure

Under the Investment Advisers Act of 1940, if the SEC suspends or revokes the registration of an investment adviser registered, an appeal may be filed in Federal Court within how many days?

An investment adviser can call itself an "investment counsel" if the

adviser's principal business is rendering investment supervisory services

An investment advisory contract states that the annual fee will be "½% of the market value of all assets under management," payable quarterly. All of the following statements are true under the Investment Advisers Act of 1940

• this statement cannot be made orally; it must be in writing
• the arrangement cannot be changed without customer consent
• a brochure must be delivered to the customer at, or prior to, entering into the contract

Which statements are TRUE regarding the following? "The adviser shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care."

This is an example of a hedge clause in an investment advisory contract . This clause is misleading and fraudulent. 

A Federal covered investment adviser registered under the Investment Advisers Act of 1940 wants to include an exculpatory clause in the advisory contract. Which statement is TRUE about this?

The clause is prohibited and unenforceable under Federal and State law

All of the following provisions would be found in an advisory contract 

• the term of the contract
• the requirement for customer approval if the contract is to be assigned to someone else
• notification to customers if there is a change in the composition of the advisory partnership

Which of the following is an acceptable hedge clause found in an investment advisory contract?

"The Adviser shall not be responsible for losses caused by conditions or events beyond its control such as war, strikes, natural disasters, communications disruptions, etc."

Which of the following actions taken by an investment adviser would require consent of the adviser's existing customers?

• The investment adviser and its accounts are acquired by a larger, more prestigious firm
• The investment adviser wishes to retire and transfer its accounts to another investment adviser
  

Investment advisers that have a broker-dealer entity are permitted to accept which of the following compensation items?

• Commissions on trades effected for clients
• Annual fees based on a percentage of assets under management
• Annual fees based on a fixed dollar amount

An Investment Adviser Representative (IAR) is also a commissioned agent at a brokerage firm. The IAR has a young client who has a $250,000 account. The client has been trading the account aggressively himself and has been successful in the strategy. The customer now wants the IAR to take over the management of the account, with the IAR to be compensated on a performance basis. The IAR should tell this young client that the account

cannot be traded on a performance basis.  Performance fees are only allowed for wealthy clients (at least $1,000,000 invested; or a minimum $2,100,000 net worth) under the Investment Advisers Act of 1940 - so this client does not qualify. The account cannot be traded on a performance basis - a commission or fixed fee arrangement must be established.

An adviser that charges a performance fee to clients MUST disclose that such a fee arrangement:

gives the adviser the incentive to be more aggressive with the customer's asset management than if a fixed fee were charged

Under the Investment Advisers Act of 1940, if an adviser accepts prepaid advisory fees of $1,200 or more, 6 months or more in advance of services rendered, each new client MUST

receive a copy of the adviser's balance sheet

If an investment adviser, for the first time, takes a $1,200 prepaid advisory fee, more than 6 months in advance of services rendered

an ADV Part 2A along with a balance sheet must be filed by the adviser promptly

The "Brochure Rule" applies to

both oral and written advisory contracts

An investment adviser is selling a Wrap Account where the assets are held in custody of the advisory firm. The Wrap Fee Brochure must include

• information on investment advisory fees
• information on participation or interest in client transactions
• the balance sheet of the investment adviser

Under the Investment Advisers Act of 1940 to satisfy the requirements of the "Brochure Rule," customers who wish to buy advisory services must receive a copy of the brochure

at, or prior to, entering into an advisory contract

An investment adviser representative has solicited a new client over the phone to purchase advisory services, but no sale results and she takes no further action. The IAR knows this individual, who she has met at her kid's school PTA meetings. The IAR has no more interaction with the potential client, but at the next PTA meeting, the potential client tells the IAR that she has thought about it and is ready to sign the agreement right there. The IAR has a contract form in her briefcase, but does not have the brochure. Which statement is TRUE?

The investment adviser representative cannot have the customer sign the contract unless a brochure is delivered at the same time

Under the Investment Advisers Act of 1940, if there are material changes, existing customers of investment advisers MUST be sent a revised "Brochure" at least

Under the Investment Advisers Act of 1940, if an investment adviser wishes to renew an advisory contract which will allow it to start taking prepaid advisory fees of $1,200 or more, 6 months in advance of rendering services, which statement is TRUE?

The investment adviser must file a Form ADV Part 2A and balance sheet with the SEC promptly

Delivery of the brochure under the "Brochure Rule" is NOT required for

• impersonal advisory services requiring payment of less than $500 annually
• advisory contracts with investment companies

An investment adviser believes that its sophisticated customers need better access to the IPOs of companies that are in their early rapid growth phase. The adviser enters into a contract with a finder to locate promising issuers. The adviser will give the finder a fee equal to 20% of the amount invested in each issuer by the adviser's customers. The finder is not an employee of the adviser and is not registered with the SEC or in any State. Which statement is TRUE?

The finder, by locating potential sellers of securities for the adviser for a fee, is considered to be a solicitor and this must be disclosed on Form ADV Part 2A

An investment adviser representative's friend provides him with a list of 10 prospective clients. The representative agrees to pay his friend a referral fee for each person on the list that opens an account with the adviser. Which statement is TRUE?

The arrangement is permitted only if it is in writing between the investment adviser and the friend and the arrangement is disclosed in writing to any customer opening an account

Which statements are TRUE about the solicitor's brochure under the Investment Advisers Act of 1940?

• It must disclose the specific dollar fee, or percentage of advisory fee paid by the customer, that the solicitor will earn for referring the customer
• It must disclose that the solicitor will be compensated for referring the client to the investment adviser
  
• The customer must sign that he or she received the solicitor’s brochure

Under the Investment Advisers Act of 1940, a solicitor that contacts a customer to purchase the services of an investment adviser must, upon entering into a written contract

obtain a signed and dated statement from the customer acknowledging receipt of both the adviser's brochure and the solicitor's brochure

If a solicitor works for an investment adviser, selling that firm's advisory services to customers, then the customer MUST

• be given the investment adviser’s brochure
  
• be given the solicitor’s brochure
  
• sign an acknowledgment of receipt of the brochure(s)
  

The use of a third party solicitor by an Investment Adviser

• is permitted if there is a written agreement between the solicitor and investment adviser
• is not permitted if the solicitor is subject to statutory disqualification as defined under the Investment Advisers Act of 1940
• requires that the solicitor be registered as either an investment adviser or an investment adviser representative in that State

An investment adviser that wishes to pay a cash referral fee to a broker-dealer in return for each of the broker-dealer's customers that signs an advisory contract with that firm

can only do so if the existence of the referral fee arrangement is disclosed at the time that the advisory contract is signed

Under the Investment Advisers Act of 1940, if an investment adviser has an impaired financial condition, this must be disclosed to customers

only by investment advisers that take custody of customer funds; or those that accept prepaid advisory fees of $1,200 or more

If an investment adviser maintains an account that will hold customer securities positions at a broker-dealer, but the broker-dealer does not know who the individual customers are, this is a(n)

Under the provisions of the Investment Advisers Act of 1940, if an adviser takes custody of customer funds or securities, account statements MUST be sent to the customer

All of the following statements are true regarding the requirement that an independent public accountant verify the amount of customer funds and securities held in custody by an investment adviser, as required by the Investment Advisers Act of 1940

• audit must be conducted at least annually
• audit must be completed on a surprise basis
• auditor must file a Form ADV-E with the SEC within 120 days of completing the exam

An advertisement is being prepared by an investment adviser whose principal business is rendering advice to customers. Which of the following statements are TRUE?

Showing past performance is allowed but testimonials are prohibited

Under the Investment Advisers Act of 1940, an investment adviser's advertising

• can show past performance as long as it is not deliberately selective in which clients' results are shown
• cannot use specific client names when showing performance unless the client approves
• must make reference to market conditions during the period shown
• must have a disclaimer stating that past performance does not predict future results
  

A Registered Investment Adviser uses past performance in an advertisement. The results shown must be based on

Investment income after the deduction of management fees and expenses

An investment adviser is permitted to identify the name of an existing customer in communications to potential new clients if which of the following consents?

An investment adviser makes an offer to send, by mail, a "free" analysis covering his top 50 stock picks in an advertisement. In order for an individual to get the report, the adviser could require that individual to

telephone the adviser and listen to a brief sales pitch before taking the mailing information

An advertisement published by an investment adviser may contain a(n)

telephone number to call to get a list of all recommendations made by the adviser over the past 2 years

A Registered Investment Adviser has been in business for 15 years. The adviser, who trades options, uses graphs and charts during a presentation to a client that show that the adviser made a 30% return over the past 5 years. The adviser tells the client that because of this, it is probable that he will make at least a 15% return for any new accounts. The statement by the adviser is

not permitted because it is misrepresenting that there is no risk in trading options

Under the Investment Advisers Act of 1940, copies of all advertising, notices and circulars must be retained if distributed to at least

10 people over the last 5 years

An investment adviser is recommending that a customer buy a security that the adviser will sell to the customer from its own portfolio. Which statement is TRUE?

This is a "principal transaction" and is permitted only if the customer is informed of the circumstances and consents to the transaction

Under the Investment Advisers Act of 1940, if an investment adviser wishes to effect an agency cross transaction for a customer, which of the following statements are TRUE?

• Agency cross transactions cannot have been recommended to both the buyer and seller by the investment adviser
• Each client must be sent an annual statement identifying the total number of agency cross transactions effected; and the remuneration received by the adviser for these transactions
• To effect an agency cross transaction, written consent from the client must be obtained

Which of the following records of an investment adviser that takes custody of customer funds are required to be retained under the provisions of the Investment Advisers Act of 1940?

• Cash receipts and disbursements ledger and general ledger
• Securities received and delivered ledger
• Purchase and sales ledger (trade ledger)
• Securities record (a record of each aggregate security position held, broken down by each customer owning part of the position and the physical location of that position)
• Confirmation copies of all customer trades
• Customer account statements showing all purchases, sales, securities positions, and cash debits and credits to the account

An investment adviser is NOT required to keep a record of each person to whom a communication is sent if the communication is sent to more than how many persons?

The Investment Advisers Act of 1940 requires that records be maintained for how many years?

The SEC policy regarding emails maintains that

both personal and business related e-mails are required to be recorded and maintained

A Federal Covered Adviser registered with the SEC holds a meeting with its employees and verbally warns them about the prohibited practice of trading ahead of large customer orders that are likely to have a market impact. The firm has not yet included this prohibition in its policies and procedures manual, but intends to do so in the near future. Which statement is TRUE?

The Investment Advisers Act of 1940 has been violated because the firm did not have written policies and procedures covering "front running" by its employees

A Registered Investment Adviser plans on offering options strategies as part of his services. For this added investment strategy, he will charge .6% of assets monthly. This information is added to the RIA's disclosure statement and the RIA tells all of his clients of the fees orally in seminars. Each of his clients signs an agreement regarding the options strategies and fees.

The actions taken by the RIA are permitted because clients got full disclosure of all strategies and fees and agreed to such in writing

Investment advisers, without exception, are prohibited from

placing the interests of the advisory firm ahead of those of the customer when making recommendations

Violations of the Investment Advisers Act of 1940 are punishable by which of the following?

Fines of up to $10,000; and up to 5 years in jail

Under the Investment Advisers Act of 1940, to determine if a person is "in the business" of giving investment advice, which of the following statements are TRUE?

• The individual regularly gives advice on securities
• The advice is rendered about securities
• The individual receives compensation for giving advice on securities

Which of the following individuals is "in the business" of rendering investment advice under the Investment Advisers Act of 1940?

A financial planner who advertises as charging no fee for the financial plan and who only takes commissions on recommended trades

Which of the following persons is defined as an "investment adviser" under SEC Release IA-770?

A financial planner who charges no fee for a financial plan and who takes commissions on recommended securities transactions

A person who is in the business of giving advice about which of the following is defined as an "investment adviser" under SEC Release IA-770?

stocks, options, and bonds NOT real estate

Under SEC Investment Adviser Release 1092, which of the following statements are TRUE about the "in the business" test?

To be considered to be "in the business," giving advice about securities must occur with regularity at the firm. A person who gives isolated, non-periodic advice is not considered to be "in the business".

Under IA-1092, to be considered to be "in the business," the rendering of investment advice must be

a regular activity of the adviser. To be "in the business" of giving investment advice, this must be a "regular activity" of the firm; not the sole activity or the principal activity.

All of the following are considered to be compensation to an investment adviser EXCEPT

tax preparation fees that are paid to an advisory firm that is also a certified public accountant

Under IA-1092, which of the following are defined as "giving advice about securities"? A person who

• advises on the selection of an investment adviser
• prepares a list of securities that may be purchased without making specific recommendations
• prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance

Under SEC Release IA-1092, which of the following would be required to register with the SEC as investment advisers?

Investment adviser Release IA-1092 specifically includes advisers to entertainers and athletes, and advisers to pension plans, as investment advisers that must register with the SEC. In addition, the SEC in this release, states that a financial planner that provides general financial planning for a fee comes under the definition and must register with the SEC. It makes no difference whether or not the financial planner takes commissions on recommended trades - if this person gives general "non-specific" advice for a fee, he or she is still considered to be an "investment adviser" that must register.

Under SEC Release IA-1092, which of the following are specifically included under the definition of an "investment adviser"?

• Pension consultants
• Advisers to entertainers
• Advisers to athletes

An individual who is a registered representative with a broker-dealer prepares financial plans for customers under the supervision of the broker-dealer and does not charge for the plans. The individual takes commissions on transactions that result from the implementation of the recommendations included in the plans. Under SEC Release IA-1092

neither the individual nor the broker-dealer need register with the SEC as an investment adviser representative and an investment adviser, respectively

An investment adviser representative (IAR) prepares an investment plan for a customer and explains to the customer that he places trades through ABC broker-dealer with whom the IAR has a soft dollar relationship. The customer tells the IAR that he wants ½ of the trades placed through DEF broker-dealer. The IAR should

place ½ the trades with ABC broker-dealer and ½ the trades with DEF broker-dealer

An investment adviser charges a fee for an overall financial plan. Which of the following facts must be disclosed to the customer?

• The adviser will receive a commission on recommended U.S. Government securities transactions
• The adviser will receive a commission on recommended equity securities transactions
• The adviser will receive a commission on recommended life insurance transactions
• The adviser will receive a commission on recommended real estate transactions

Administration of the Investment Advisers Act of 1940 is done by

SEC, The Investment Advisers Act of 1940 is administered by the SEC. FINRA only regulates broker-dealers, not investment advisers. The CFTC (Commodities Futures Trading Commission) regulates the commodities and futures markets. NASAA is the North American Securities Administrators Association. Each State Administrator administers the Uniform Securities Act - the State "Blue Sky Laws" that require registration of broker-dealers, their agents, non-federal covered advisers, and investment adviser representatives, in each State where they deal with the public.

Which of the following is required by the Investment Advisers Act to disclose their background and any conflicts of interest?

What does the Investment Advisers Act require?

Which of the following is defined as an investment adviser under the Investment Advisers Act of 1940?

Which of the following are not required to register as investment advisers under the Investment Advisers Act of 1940 persons who give advice?