RIA Business Practices & Disclosure

Question 1

Fee-only investment advisers are compensated:

Accepted Answer

Only by clients through advisory fees, with no third-party compensation

Answer

Solely through product commissions

Answer

Through a combination of fees and commissions

Answer

By the investment companies whose products they recommend

Question 2

An investment adviser's Form ADV Part 2A must be delivered to clients:

Accepted Answer

Annually and to prospective clients before or at contract signing

Answer

Only upon request

Answer

Only when the client opens an account

Answer

Every five years or when regulations change

Question 3

The term 'wrap fee program' refers to:

Accepted Answer

A bundled fee covering advisory, brokerage, and administrative services for a single periodic charge

Answer

A fee for gift-wrapping financial documents

Answer

Fees that are gradually reduced over time

Answer

Performance-based fee arrangements

Question 4

When advertising investment performance, advisers must:

Accepted Answer

Comply with SEC rules prohibiting misleading advertising, including cherry-picking results

Answer

Show only their best-performing accounts

Answer

Use only gross (pre-fee) performance numbers

Answer

Avoid showing any historical performance

Question 5

An investment adviser using a solicitor to refer clients must ensure the solicitor:

Accepted Answer

Delivers a written disclosure of the solicitation arrangement to referred clients

Answer

Is a licensed securities broker

Answer

Has at least 5 years of experience

Answer

Has no prior regulatory violations

Question 6

The primary purpose of the Form CRS (Client Relationship Summary) is to:

Accepted Answer

Provide retail investors a brief, plain-language summary of the adviser's services, fees, and conflicts

Answer

Replace Form ADV entirely

Answer

Register new investment advisers

Answer

Disclose only broker-dealer information