Investment Advisor SEC Registration and Regulatory Compliance 3

Question 1

Which SEC rule governs the custody of client assets by investment advisers?

Accepted Answer

Rule 206(4)-2

Answer

Rule 206(4)-2 (the Custody Rule) governs how registered investment advisers must handle and safeguard client funds and securities.

Question 2

An investment adviser that has custody of client assets must undergo what type of annual examination?

Accepted Answer

A surprise examination by an independent public accountant

Answer

Under the SEC Custody Rule, advisers with custody of client assets must arrange for an annual surprise examination by an independent public accountant to verify client assets.

Question 3

Performance-based fees are generally permissible for investment advisers only when charged to:

Accepted Answer

Qualified clients meeting specific net worth or AUM thresholds

Answer

Under SEC Rule 205-3, performance-based fees are permitted only for 'qualified clients' who meet minimum net worth ($2.2 million) or AUM ($1.1 million) thresholds.

Question 4

Which regulatory body oversees the registration of investment adviser representatives at the state level?

Accepted Answer

State securities regulators (NASAA members)

Answer

State securities regulators, operating under the framework of NASAA, oversee the registration and regulation of investment adviser representatives at the state level.

Question 5

Under the National Securities Markets Improvement Act (NSMIA), mid-sized advisers with AUM between $25 million and $100 million:

Accepted Answer

Generally register only with their state

Answer

NSMIA generally requires mid-sized advisers with AUM between $25 million and $100 million to register with state regulators rather than the SEC.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor SEC Registration and Regulatory Compliance 3