Investment Advisor SEC Registration and Regulatory Compliance 2 — Questions and Answers
Question 1: What is the primary purpose of the Investment Advisers Act of 1940?
- To regulate mutual fund expenses
- To regulate the activities of investment advisers and protect advisory clients (Correct answer)
- To establish capital requirements for banks
- To govern securities trading on exchanges
Correct answer: To regulate the activities of investment advisers and protect advisory clients
The Investment Advisers Act of 1940 was enacted to regulate investment advisers and provide protections to their clients through registration and conduct requirements.
Question 2: Under SEC rules, investment advisers must maintain client records for a minimum of how many years?
- 3 years
- 5 years (Correct answer)
- 7 years
- 10 years
Correct answer: 5 years
SEC rules require investment advisers to maintain most records for a minimum of five years, with certain records kept for the life of the firm plus five years.
Question 3: Which SEC rule requires investment advisers to adopt written compliance policies and procedures?
- Rule 205-3
- Rule 206(4)-7 (Correct answer)
- Rule 203A-1
- Rule 204-2
Correct answer: Rule 206(4)-7
SEC Rule 206(4)-7 requires registered investment advisers to adopt and implement written compliance policies and procedures and designate a Chief Compliance Officer.
Question 4: An investment adviser must deliver their Form ADV brochure to a prospective client no later than:
- 30 days after the advisory contract is signed
- At the time of or before entering into an advisory contract (Correct answer)
- 60 days before the contract is signed
- Only upon client request
Correct answer: At the time of or before entering into an advisory contract
Advisers must deliver the ADV Part 2 brochure to clients at or before the time they enter into an advisory agreement.
Question 5: Under the Dodd-Frank Act, family offices are excluded from the definition of investment adviser if they:
- Manage less than $100 million
- Advise only family members and have no public clients (Correct answer)
- Are registered as broker-dealers
- File Form 13F with the SEC
Correct answer: Advise only family members and have no public clients
The Dodd-Frank Act created a family office exclusion for entities that advise only family members, employ no non-family clients, and are not publicly known as investment advisers.
Question 6: Which of the following is considered an 'investment adviser' under the Investment Advisers Act of 1940?
- A newspaper financial columnist
- A firm that manages client portfolios for a fee (Correct answer)
- A bank providing trust services only
- A licensed attorney giving incidental investment advice
Correct answer: A firm that manages client portfolios for a fee
A firm that manages client portfolios for compensation meets all three prongs of the adviser definition: advice, about securities, for compensation.
Investment Advisor SEC Registration and Regulatory Compliance 2
What is the primary purpose of the Investment Advisers Act of 1940?