Contract Review & Negotiation Flashcards
7 cards from real Series 66 – Uniform Combined State Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Contract Review & Negotiation flashcards as text
An investment adviser's majority owner sells a controlling block of the firm's voting securities to a third party. What must the adviser generally obtain from clients under its advisory contracts?
Answer: Client consent, because a change of control is treated as an assignment
A transfer of a controlling block of an adviser's voting securities is an assignment that requires client consent.
An advisory agreement states that the client waives any rights or claims under federal and state securities laws. How is this clause generally treated?
Answer: Void and potentially a fraudulent or misleading practice
Hedge clauses that waive antifraud protections are void and can themselves be deceptive.
Which fee arrangement is generally prohibited for a client who is NOT a qualified client?
Answer: A fee equal to 20% of capital appreciation in the account
Fees based on a share of capital gains or appreciation are performance-based and are generally limited to qualified clients.
Which provision must a written investment advisory contract include under the state model rules?
Answer: A statement that the contract may not be assigned without the client's consent
Advisory contracts must provide that no assignment may occur without client consent, along with services, fees, and term.
An adviser charges one client 1.0% and another similar client 0.75% of assets. Is this permissible?
Answer: Yes, if fees are negotiated and properly disclosed without fraud
Advisory fees are negotiable and may differ among clients if disclosed in Form ADV and not deceptive.
A state-registered adviser requires clients to prepay more than $1,200 in fees six or more months in advance. What is typically required?
Answer: Disclosure of financial condition, such as a balance sheet
Large long-term prepayments trigger financial disclosure or balance sheet requirements to protect clients.
A client terminates an advisory agreement halfway through a quarter after paying fees quarterly in advance. What should the adviser do?
Answer: Refund the unearned, prorated portion of the prepaid fee
Fees paid in advance must be refunded pro rata for the period not served.
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