CIC - Certified Investment Counselor Securities Law and Regulatory Compliance Questions and Answers Flashcards

Which SEC rule requires investment advisers to adopt written policies and procedures reasonably designed to prevent violations of the Advisers Act?

Answer: Rule 206(4)-7

SEC Rule 206(4)-7 requires registered investment advisers to adopt and implement written compliance policies and procedures and to review them annually.

The SEC's Regulation Best Interest (Reg BI) applies primarily to:

Answer: Broker-dealers making recommendations to retail customers

Reg BI requires broker-dealers to act in the best interest of retail customers when making investment recommendations, establishing a standard higher than suitability.

Under the Investment Advisers Act, an investment adviser is prohibited from charging a performance fee to a client unless the client is a:

Answer: Qualified client meeting net worth or AUM thresholds

Performance-based fees under the Advisers Act are only permitted with 'qualified clients' who meet minimum net worth or AUM thresholds set by SEC rules.

The Investment Advisers Act's 'custody rule' (Rule 206(4)-2) requires advisers with custody of client assets to:

Answer: Maintain assets at a qualified custodian and in most cases undergo a surprise annual audit

Rule 206(4)-2 requires that client assets be held at qualified custodians and that advisers with custody undergo surprise examinations by an independent public accountant.

An investment adviser who receives soft dollars (research and brokerage services) in exchange for client commissions must:

Answer: Disclose the arrangement to clients and ensure it falls within the Section 28(e) safe harbor

Section 28(e) of the Securities Exchange Act provides a safe harbor for soft dollar arrangements if the products or services received assist in investment decision-making and are properly disclosed.

ERISA fiduciary standards apply to investment advisers who manage assets in:

Answer: Qualified retirement plans such as 401(k) and pension funds

ERISA imposes strict fiduciary duties—including prudent investor and exclusive benefit rules—on advisers managing assets in covered employee benefit plans.