CIC - Certified Investment Counselor Investment Adviser Regulations Questions and Answers

Question 1

An investment adviser representative (IAR) at a federally covered investment adviser firm is preparing a new advertising campaign. According to the SEC's Marketing Rule (Rule 206(4)-1), which of the following practices is explicitly prohibited?

Accepted Answer

Presenting gross performance data without also presenting net performance data.

Answer

The SEC Marketing Rule (Rule 206(4)-1) prohibits presenting gross performance results unless net performance is also presented with at least equal prominence. While testimonials from compensated clients and third-party ratings are permissible, they are subject to strict disclosure requirements. Live, extemporaneous communications are generally excluded from the definition of an advertisement.

Question 2

An investment adviser is deemed to have 'custody' of client assets under the Investment Advisers Act of 1940 under all of the following scenarios EXCEPT:

Accepted Answer

The adviser provides advice on assets held at an independent qualified custodian where the adviser has no authority to withdraw funds.

Answer

An adviser is generally not deemed to have custody if client assets are maintained with a qualified custodian and the adviser's only authority is to provide investment advice. Having the ability to withdraw funds, holding client securities directly, or having the authority to deduct fees are all examples that trigger the custody rule's requirements, such as surprise annual examinations and specific custodial account setups.

Question 3

A prospective client is reviewing an investment adviser's Form ADV Part 2. Which of the following pieces of information is the client LEAST likely to find in this document?

Accepted Answer

A complete list of every security the adviser has recommended in the past year.

Answer

Form ADV Part 2, the 'brochure,' provides clients with narrative information about an advisory firm. It includes details on services, fees, business practices, conflicts of interest, and the backgrounds of key personnel, including disciplinary history. It does not, however, contain a transactional list of all past recommendations.

Question 4

Under the Investment Advisers Act of 1940, an investment adviser's fiduciary duty is composed of which two primary obligations?

Accepted Answer

Duty of Care and Duty of Loyalty.

Answer

The SEC has consistently interpreted the fiduciary duty of an investment adviser under the Advisers Act to consist of a duty of care and a duty of loyalty. The duty of care includes providing advice in the client's best interest, and the duty of loyalty requires the adviser to put the client's interests first and disclose all material conflicts of interest.

Question 5

A Chartered Investment Counselor (CIC) is employed by a large advisory firm and manages portfolios for high-net-worth individuals. The firm changes its ownership structure when a majority of its shares are acquired by a new parent company. Under the Investment Advisers Act of 1940, what is the consequence of this event regarding the firm's advisory contracts?

Accepted Answer

The change constitutes an 'assignment' of the contracts, requiring client consent to continue the advisory relationship.

Answer

The Investment Advisers Act of 1940 specifies that an advisory contract cannot be assigned to another party without the consent of the client. A change in the controlling interest of an advisory firm is considered an assignment. Therefore, the firm must obtain consent from its clients to continue the advisory relationships under the new ownership.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC - Certified Investment Counselor Investment Adviser Regulations Questions and Answers