Business Practices & Disclosure Flashcards

Investment advisers must promptly update Form ADV when which event occurs?

Answer: The adviser becomes subject to a statutory disqualification (disciplinary event)

Statutory disqualifications (regulatory disciplinary events) are material changes requiring prompt amendment of Form ADV.

The SEC's examination (inspection) program for investment advisers primarily aims to:

Answer: Identify compliance deficiencies and potential violations before they harm investors

SEC examinations are regulatory oversight tools to identify compliance deficiencies and detect potential violations of securities laws.

An investment adviser's compliance program under Rule 206(4)-7 must include:

Answer: Written policies and procedures, a chief compliance officer, and annual reviews

Rule 206(4)-7 requires advisers to adopt written compliance policies and procedures, designate a CCO, and conduct annual reviews of the compliance program.

A side pocket account in a hedge fund:

Answer: Segregates illiquid or hard-to-value assets from the main fund to prevent unfair treatment of redeeming investors

Side pockets segregate illiquid investments so investors who redeem receive liquid assets while illiquid positions are preserved for long-term holders.

The whistleblower provisions of the Dodd-Frank Act provide investment advisers' employees who report violations:

Answer: Potential financial awards and anti-retaliation protections for reporting securities violations to the SEC

Dodd-Frank whistleblower provisions offer financial awards (10-30% of sanctions over $1M) and strong anti-retaliation protections for employees reporting securities violations to the SEC.

The 'custody rule' under the Investment Advisers Act applies when an adviser:

Answer: Has actual custody or deemed custody of client funds or securities

Rule 206(4)-2 applies when an adviser has actual or deemed custody of client assets, requiring independent verification and other safeguards.