IAR Laws, Regulations & Guidelines 3

Question 1

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

Accepted Answer

5 years

Answer

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

Question 2

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

Accepted Answer

Performance fee for non-qualified clients

Answer

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

Question 3

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

Accepted Answer

Charging fees based on a percentage of assets under management

Answer

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

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

IAR Practice Test

IAR Practice Test

IAR Laws, Regulations & Guidelines 3