Business Practices & Disclosure Flashcards

Fee-only investment advisers are compensated:

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

Fee-only advisers receive compensation exclusively from clients (flat fees, hourly fees, or AUM percentages) with no commissions or third-party payments.

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

Answer: Annually and to prospective clients before or at contract signing

Advisers must deliver an updated Form ADV Part 2A annually and to new clients before or when entering the advisory agreement.

The term 'wrap fee program' refers to:

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

Wrap fee programs bundle advisory, brokerage execution, and custodial services into a single comprehensive fee, typically charged as a percentage of AUM.

When advertising investment performance, advisers must:

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

SEC advertising rules prohibit misleading performance presentations and require fair, complete, and not misleading performance advertising.

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

Answer: Delivers a written disclosure of the solicitation arrangement to referred clients

Cash solicitation arrangements require the solicitor to deliver a written disclosure describing the arrangement and compensation to referred clients.

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

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

Form CRS provides retail investors a standardized, concise summary of services, fees, conflicts, disciplinary history, and conversation starters in plain language.