Laws, Regulations & Guidelines Flashcards

Under NASAA Model Rules, an investment adviser is required to maintain its books and records for a minimum of how many years?

Answer: 5 years

NASAA Model Rules generally require investment advisers to retain books and records for a minimum of 5 years.

Which of the following advisory fee arrangements is considered presumptively unethical under NASAA guidelines?

Answer: Performance fee for non-qualified clients

Performance-based fees for non-qualified clients (those without sufficient net worth or income) are presumptively unethical under NASAA guidelines.

Under the Investment Advisers Act of 1940, Section 206 prohibits investment advisers from doing all of the following EXCEPT:

Answer: Charging fees based on a percentage of assets under management

AUM-based percentage fees are a permissible and common compensation structure; Section 206 prohibits fraud, deception, and undisclosed principal transactions.

An investment adviser representative (IAR) changes employment from one registered investment adviser to another. What must occur for the IAR to continue working legally?

Answer: The new employer must file an amendment to its Form ADV and the IAR must be properly associated

When an IAR changes firms, the new employer must amend its Form ADV to associate the IAR, and registration in applicable states must be updated before the IAR provides advisory services.

Which of the following BEST describes the 'custody rule' for investment advisers under SEC Rule 206(4)-2?

Answer: Advisers with custody must notify the SEC and meet specific safekeeping requirements including surprise audits

Rule 206(4)-2 requires advisers with custody of client assets to notify the SEC, use qualified custodians, and submit to annual surprise audits by an independent public accountant.

A wrap fee program must be disclosed using which specific disclosure document?

Answer: Form ADV Part 2A Appendix 1

Wrap fee programs require a separate brochure — Form ADV Part 2A Appendix 1 — that details the wrap fee arrangement, services included, and conflicts of interest.

Under the Dodd-Frank Act, which category of investment advisers was required to switch from SEC to state registration?

Answer: Mid-sized advisers with $25M–$100M in AUM

Dodd-Frank required mid-sized advisers ($25M–$100M AUM) who are not eligible for SEC registration to switch to state registration, except in states without investment adviser regulation.