Laws, Regulations & Guidelines Flashcards
7 cards from real IAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Laws, Regulations & Guidelines flashcards as text
Under state securities law, which of the following is an example of a 'fraudulent, deceptive, or manipulative' practice by an IAR?
Answer: Borrowing money from a client without prior written consent from the firm
Borrowing money from clients without proper firm consent is explicitly prohibited as a fraudulent practice under NASAA Model Rules.
The Investment Advisers Act of 1940 requires investment advisers to make which of the following disclosures when acting as a principal in a transaction with an advisory client?
Answer: Written disclosure and client consent before completion of the transaction
Section 206(3) requires written disclosure of the adviser's capacity as principal and written client consent before the transaction is completed.
Which of the following investment advisers is eligible for SEC registration under an exemption despite having less than $100M in AUM?
Answer: An adviser to a registered investment company
Advisers to registered investment companies (mutual funds) are eligible for SEC registration regardless of AUM because they are required to register with the SEC.
An IAR sends a mass email to clients containing a testimonial that praises the IAR's past stock picks. Under current SEC rules, this is:
Answer: Permitted if accompanied by required disclosures about the nature of the testimonial
The SEC's 2021 Marketing Rule permits testimonials in advertising if accompanied by clear and prominent disclosures about any compensation and the limitations of the testimonial.
Under the Uniform Securities Act, which of the following would qualify as an 'investment adviser' subject to registration?
Answer: A certified financial planner who charges fees for comprehensive financial plans including securities recommendations
A CFP charging fees for financial plans that include securities advice meets the three-pronged test: providing advice on securities, as a business, for compensation.
NASAA's Model Rule on unethical business practices prohibits an IAR from doing which of the following?
Answer: Guaranteeing a client against investment losses
Guaranteeing clients against investment losses is an expressly prohibited unethical practice under NASAA Model Rules, as it creates false expectations.
An investment adviser discovers that its chief compliance officer (CCO) has been filing inaccurate Form ADV amendments. Under SEC rules, the adviser's primary obligation is to:
Answer: Correct and refile accurate amendments promptly and implement supervisory controls
An adviser must promptly file corrected Form ADV amendments to ensure clients and regulators have accurate information, and must strengthen supervisory procedures to prevent recurrence.