Financial reporting (HAR §16-39-437)
Investment advisers must file an annual financial report within 90 calendar days following the end of the investment adviser’s fiscal year. The type of financial statements required is as follows:
Hawaii investment advisers with custody or discretionary authority
Audited
financial statements.
Hawaii investment advisers without custody or discretionary authority
Financial statements that are verified by a duly authorized officer and notarized. The Investment Adviser Verification Form is available for your use.
Out-of-state investment advisers
A copy of the
most recent financial report or statement, if any, that the investment adviser has filed with the state where it maintains its principal place of business.
Financial statements may be uploaded via our Securities Online Portal or emailed to our general email mailbox: [email protected].
Offer of ADV or brochure (HAR §16-39-439)
Investment advisers must furnish each advisory client and prospective client with a written disclosure statement that complies with the provisions of the Investment Advisers Act,
17 CFR §275.204-3. Investment advisers must also deliver annually, within 120 days after the end of its fiscal year, a current brochure to its clients
Privacy Policy
Under the Gramm-Leach-Bliley Act (GLBA), investment advisers are required to adopt written policies for handling confidential personal information and the proper
distribution of those written policies. More information regarding GLBA can be found in NASAA’s Privacy Policy for State Advisers.
In order for an investment adviser to be compensated with a performance fee, what must be disclosed in writing?
The periods that will be used to measure performance and their significance in the computation of the fee, that the fee arrangement is based on both unreeled appreciation and realized capital gains, the nature and significance of any index used as a comparative measure and the reason why the adviser believes the use of any comparative index is appropriate
A hedge fund offers to provide a minimum level of trades to a broker-dealer in return for receiving below-market office space from the broker-dealer. Which statement is true?
This is an unethical practice unless it is disclosed on the Form ADV filing with the Administrator
A Registered Investment Adviser is also a registered representative that manages a clients account. The customer is paying a fixed annual advisory fee and is paying a commission for each execution of a recommend trade, both of which has been disclosed to the customer. Which statement is true?
The account may be charged both the advisory fee and a commission on each trade and it is not an unethical practice
Investment Advisers are prohibited from:
Assigning a customer's contract without permission, charging commissions on trades effected for the client and changing partnership management without notifying clients
Which of the following must be included in a n investment advisory contract under NASAA rules?
The fact that prepaid fees will not be returned if the contract is terminated early, the fact that assignment of the contract is only permitted with customer consent and whether the contract grants discretionary authority to the adviser
An investment adviser that is about to retire sells his business to another advisory firm. What is true?
Each customer of the retiring investment adviser must give prior approval for their account to be moved to the acquiring firm
Under NASAA rules, within 120 days of the fiscal year end, the customer must be given a copy of the:
Form ADV Part 2 only if there are material changes
Which State-registered investment adviser MUST report that it takes custody on Form ADV?
An adviser that directly deducts management fees each quarter from client accounts.
Under the Uniform Securities Act, if the Administrator prohibits an investment adviser from taking custody of customer funds or securities, the investment adviser would be permitted to:
buy securities for a customer who has given a limited power of attorney to the adviser specifically for that purpose
Under NASAA rules, if a customer wishes to trade a margin account prior to returning the signed margin agreement, such an action is:
permitted only if the customer returns the signed margin agreement promptly
An agent has a client with an individual account at a broker-dealer. The client has purchased an aggressive growth stock at the recommendation of the agent. The agent learns that the company will miss its earnings target by $1 per share. The client is out of town and can't be reached. The agent should:
continue to hold the shares
A lawyer, representing one of your clients who has an individual account, calls and tells you that he has just been given trading authorization to effect securities transactions for the customer. He places an order to buy $10,000 worth of a stock which trades on the NYSE. Which statement is true?
You can call the customer and ask him if he wants to buy the $10,000 worth of stock and upon his verbal authorization, you can submit the order
A client is in the process of opening a new account at a broker-dealer. The client has told the agent that her investment objective is capital preservation. When performing the suitability determination, the client refuses to disclose net worth and previous trading experience. The client also wants the agent to enter trades in the account without specific direction from the client, but has not yet returned a signed power
of attorney. The representative is:
Not permitted to enter an order in the account until the power of attorney is received
A customer invests $100,000 and opens a discretionary account with an agent specifying an investment objective of long-term growth. The agent decides that it is best to diversify and spreads the monies among a number of
income funds within the same fund family. Which statement is TRUE?
The agent acted inappropriatley and fraudulently
A Registered Investment Adviser has discretionary control over 50 accounts that range in value from $200,000 to $1,500,000. She receives a free due diligence trip from a real estate limited partnership sponsor to inspect a
property in Florida. She is enthusiastic about the investment potential and purchases a $50,000 real estate limited partnership unit in the property for each of her accounts. The RIA disclosed the fact that she received the free trip to each of her customers before making the purchases. Which statement is TRUE?
This is unethical because the adviser did not determine the suitability of the investment for each account
All of the following are violations under the Uniform Securities Act EXCEPT:
failure to sufficiently describe all facts and risks about a transaction
A market maker in ABCD stock is currently quoting the stock in the OTCBB at: $42.00 Bid (500 shares); $43.00 Ask (1,000 shares)
If the market maker receives a customer order to sell 800 shares of ABCD at $42.50, the market maker:
Must update its quote to: $42.00 Bid (500 Shares); $42.50 (800 Shares)
Which of the following information MUST be included on a customer confirmation?
Whether a payment for order flow was made, the customer name, account number and price of execution
An investment adviser would be allowed to lend money to a customer in which of the following situations?
The customer is a partner in the advisory firm who needs a cash distribution from the firm to meet required minimum tax payments due
Prior to effecting a transaction for a customer, an agent is obligated to disclose:
If the commission to be charged will be higher than normal
Which statements areTRUE about an adviser offering discounted rates?
An investment adviser is permitted to offer a discount from standard rates to selected categories of customers and The investment adviser can offer the discount as long as the fact that discounts are offered is disclosed in the Form ADV Part 2A
The CEO of a publicly traded company is a large client of an investment adviser representative. The CEO, who is a
member of the prestigious River Rocks Country Club, tells the IAR that he will refer other club members to the IAR if the IAR will give the referred clients a discount, and will give the CEO the same discounted rate. Which statement is TRUE about this situation?
The IAR can offer the discount as long as the fact that non-club members pay a higher fee is disclosed in the Form ADV Part 2A
Under the Uniform Securities Act, which of the following actions by an agentis (are) prohibited during a sales presentation?
Predicting specific future investment results and omitting facts that can influence the investment decision.
Which statement may be made by an agent about a new securities issue that is being registered by qualification?
"The security is being registered in the State"
A representative is making a presentation to a married couple, ages 75 and 77, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy
an equity indexed annuity (EIA). Which statement made by the representative would NOT be misleading and fraudulent?
"EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company"
An agent is soliciting customer orders for a new non-exempt issue that has been registered. The top officers of this company were previously associated with XYZ Company, a highly successful firm in the same industry. That firm's success was attributed to these individuals. Under the Uniform Securities Act, which statements by the agent are permitted?
"The top officers of this new firm were previously at XYZ Company" and "These top officers were responsible for the rapid growth of XYZ Company over the past 3 years"
Michael Michaelson has an MBA in finance and has taught classes at a local college for the past 15 years. He has decided to use his knowledge and acumen in the private sector and registers in the State as an investment adviser. His business will be creating financial plans and implementing them for clients. Michael requests a waiver from the State Administrator from having to pass the Series 65/66 exam based on his
educational and teaching background and receives it. He registers as an IA in the State. He wishes to publish an advertisement for his new business. Michael can state which of the following in the advertisement?
"My fee schedule, which is non-negotiable, is comparable to that charged by other advisers that do not have my extensive finance background"
All of the following actions by an investment adviser are violations of the Uniform Securities Act EXCEPT the adviser:
discloses the risks of the investment, but the client loses as a result of the advice
An investment adviser is marketing an unproven asset allocation program to customers that has not been validated by
real-world testing. The adviser believes that the program works well and tells this to potential buyers, but has no data to support this claim. If the adviser sells this program to customers, then the adviser:
has committed an unethical business practice
Jack Jones has been an IAR with a registered investment adviser for 10 years. He is
leaving to start his own advisory business as a sole proprietor. He has hired an advertising firm to create a radio spot for his new firm. The account manager recommends that they use one of his largest clients - the managing partner of a prominent law firm in town - to give a testimonial about Jack. The lawyer agrees and records the following: "I have been a client of Jack Jones for the past 10 years. My investments with Jack have reliably produced superior returns and he has always acted
ethically and with integrity." The use of this testimonial in a radio advertisement is:
prohibited under the provisions of the Investment Advisers Act of 1940
An agent that is employed by Merrill Lynch believes that the stock of the parent company (Bank of America), which has been trading at new lows on the NYSE, is ready for a rebound.
She wants to recommend it to her customers. Which statement is TRUE about doing so?
This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation and This is permitted only if existence of the relationship is disclosed in writing on the confirmation
Which of the following are prohibited under the Uniform Securities Act?
Effecting a public offering of unregistered non-exempt securities and Failing to tell a customer that a transaction will incur larger than normal expenses
A research analyst and an investment adviser both work for the same parent company. They are friends outside of the office and meet for dinner
to "catch up." The investment adviser tells the research analyst that she is planning to buy ABC Corp. stock. The research analyst tells her that she has been following that company as well and is going to issue a favorable research report on the stock. Which statement is TRUE about the investment adviser's planned purchase of the stock?
The investment adviser cannot make the planned purchase of the stock until the research report is
released
A research analyst at a member firm has issued a buy recommendation on ABC stock. The analyst has an existing securities account at his member firm and places an order to buy ABC shares, 6 days after the release of the recommendation. Which statement is TRUE?
The analyst can buy the stock
Under the Uniform Securities Act, an "Internet Communication" by a Broker-Dealer will not be deemed to be "transacting business" in the State where the communication was received if all of the following conditions are met EXCEPT:
the communication must prominently disclose, with a link, the name of the State Administrator to whom complaints can be forwarded by
the recipient of the communication
In order for an Internet Communication of a Broker-Dealer Agent NOT to be considered to be an offering of securities in a State, which statement is FALSE?
The Administrator retains responsibility for reviewing and approving the content of any Internet Communication
An agent of a broker-dealer publishes a web page that offers a free suitability determination to each customer that fills out a form electronically. Furthermore, if the customer agrees to open an account, the site states that: "The first month of trading will be free." Which statement is TRUE regarding this communication?
This communication is permitted only if
the broker-dealer and the agent are registered in each State where a customer completes the Web form
An agent of a broker-dealer puts up a website that promotes the benefits of dollar cost averaging, including the caveat that it is suitable for investors only if they can maintain their periodic payments regardless of economic conditions and that it requires a long-term investment time horizon. If the website is viewed by an individual in another State where both the broker-dealer and agent are not registered, which of the following disclosures are required on the site in order not to be in violation of the Uniform Securities Act in that State?
"The broker-dealer or agent may only transact business in the State if registered in the State or if exempted or excluded from registration" and "Follow ups or individualized responses to persons in the State that involve either effecting or attempting to effect transactions in securities will not be made absent compliance with State registration requirements or an applicable exemption or exclusion
Under NASAA rules, advertisements by investment advisers:
cannot contain testimonials and can unconditionally make an offer of free services
An investment adviser representative manages a large portfolio for a wealthy customer, age 65. The portfolio contains a large holding of British securities and the adviser is worried that the British Pound may appreciate against the U.S. dollar. Which statement is TRUE regarding the use of currency futures to hedge against this risk?
The Prudent Man Rule does not specify the types of investments that can be used, so futures could be suitable as a hedging instrument
The fiduciary engaged in the administration of a trust finds that, under the directions of the trust document, there is a conflict of interest relating to a proposed investment. Under the provisions of the Prudent Investor Act, the fiduciary:
should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment
The purchase of a security on one exchange and the simultaneous sale of the same security on another exchange is:
Arbitrage and not considered to be a fraudulent transaction
Under the NASAA Statement of Policy, an agent of a broker-dealer that has discretionary authority would NOT be subject to the prohibition on excessive trading of a customer account as long as the:
account is a non-managed fee based account
A customer has placed an order to buy 1,000 shares of ABC stock at the closing market price. In order to get the customer a lower execution price, the agent places an order to sell 100,000 shares of ABC at the end of the day. This is known as:
All of the following are unethical practices under NASAA rules EXCEPTan:
agent's
assistant accepts a sell order from a customer without notifying the agent
A customer enters a bank branch where he has a savings account and is approached by the branch manager who asks: "Are you interested in earning a higher rate of return than we offer on our savings accounts? Let me introduce you to our securities representative." If the customer opens a securities account, which disclosures are required to be made?
Securities products are not insured by the Federal Deposit Insurance Corporation, Securities products are not deposits or other obligations of financial institution and Securities products are subject to investment risks, including possible loss of principal
Which of the following business practices does NOT violate the Uniform Securities Act?
Recommending the services of a particular investment adviser to a customer
Which of the following is prohibited in a margin account?
Selling short securities that cannot be borrowed by settlement
An agent is permitted to use the term "approved" when discussing his or her registration with a customer:
if the agent solely states that such approval relates only to the agent meeting the Administrator's qualification requirements
A Registered Investment Adviser wishes to prepare an
advertisement that shows a satisfied customer stating "I made over 20% last year with my investment adviser; and I will make 20% this year." Which statement is TRUE?
This advertisement can't be used
An investment adviser representative wants to share in the gain and loss of a customer account. Under NASAA rules, this is:
A customer has a free credit balance at a broker-dealer. The customer makes a verbal request over the phone that the broker-dealer pay the amount of the balance immediately, in check form. Which statement is TRUE?
The request should be honored
Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following is (are) prohibited business practices?
Sharing gains in an account between an agent and a customer and Sharing inside information between an agent and a customer
A customer account that has a high level of trading activity, accompanied by high commission costs and inferior investment
performance is permitted under the Uniform Securities Act:
if the trades are consistent with the customer's investment objectives and needs
An agent is contacted by a new client that is moving his account from another broker-dealer because he suffered a large loss. The new customer is 80 years old, has $25,000 of annual income and has
$117,000 of equity in his home. The customer's investment portfolio consists of $25,000 in a speculative stock mutual fund. This holding was originally worth $140,000. The BEST recommendation to the customer is to:
sell that fund and buy another fund in the same family of funds
An investment adviser has 3 managing partners and 3
investment adviser representatives. All of the partners have completed the Certified Financial Planner (CFP) program and received the designation. The 3 IARs have been enrolled in a CFP preparation course and are scheduled to take the next CFP exam. The IA publishes an advertisement that states: "All of our partners are Certified Financial Planners." This advertisement is:
permitted since it is true
A customer who has routinely traded securities through your firm has placed an order to buy a security that is only listed on the Malaysian Stock Exchange. To effect the transaction, your firm must use a correspondent broker-dealer located in Malaysia that charges large special handling fees to cover Malaysian securities transfer taxes. Which statement is TRUE?
The
broker-dealer must notify the customer of the additional charges prior to executing the transaction
Under NASAA rules, it is prohibited for an agent to:
make a recommendation to a customer without first inquiring about the customer's investment objectives and needs