FINRA Uniform Investment Adviser Law 3

Question 1

Which of the following persons would be classified as an 'investment adviser representative' (IAR) under state law?

Accepted Answer

A supervised person who makes investment recommendations to clients

Answer

An IAR is a supervised person of an investment adviser who makes investment recommendations, manages client accounts, or solicits advisory clients.

Question 2

An investment adviser charges a performance-based fee. Under the Uniform Securities Act, this fee arrangement is generally permissible only for:

Accepted Answer

Clients with at least $1 million under management or $2.1 million net worth

Answer

Performance-based fees are allowed only for 'qualified clients'—generally those with $1 million under the adviser's management or a net worth exceeding $2.1 million.

Question 3

Under the Investment Advisers Act of 1940, which document must SEC-registered advisers file that contains detailed information about their advisory business, ownership, and disciplinary history?

Accepted Answer

Form ADV

Answer

Form ADV is the uniform registration document that SEC-registered investment advisers must file, covering business practices, ownership, fees, conflicts, and disciplinary history.

Question 4

An investment adviser wishes to use a client's name and performance results as a testimonial in advertising. Under the Uniform Securities Act, this practice is:

Accepted Answer

Prohibited because client testimonials are misleading

Answer

Traditional investment adviser advertising rules prohibited testimonials because they are inherently misleading and do not represent all clients' experiences; however, note that the SEC updated federal rules in 2021 to allow testimonials with conditions.

Question 5

A state-registered investment adviser must update its Form ADV at least:

Accepted Answer

Annually within 90 days of fiscal year-end

Answer

State-registered investment advisers must file an annual updating amendment to Form ADV within 90 days after the end of their fiscal year.

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Uniform Investment Adviser Law 3