IACCP Question Bank | Questions With Correct Answers Latest (GRADED)

The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may occur: A. Only on a rotational basis B. On a pro rata basis but other allocation methods can be used without violating the Advisers Act C. Only on a pro rata basis D. Based on the trader's good faith discretion - Answer B. On a pro rata basis but other allocation methods can be used without violating the Advisers Act Which of the following should NOT be a factor when evaluating best execution? A. Price B. Transaction costs C. Availability of affiliated brokerage services D. Service and execution capability - Answer C. Availability of affiliated brokerage services Under the safe harbor provided by Section 28(e) of the Securities and Exchange Act of 1934, a "mixed use" product/service, purchased with soft dollars, most likely refers to which of the following: A. A research newsletter used by analysts B. A computer terminal used only to place client trades C. Portfolio management software used to calculate client returns D. A junket to Pebble Beach for golf - Answer C. Portfolio management software used to calculate client returns An adviser's valuation procedures should, practically speaking, be prepared with the LEAST attention to: A. Large cap stocks B. Illiquid investments C. Foreign issues D. Micro cap stocks - Answer A. Large cap stocks Agency cross transactions do NOT require: A. Annual disclosure to advisory clients of the number of agency cross transactions B. Annual disclosure of the total remuneration received by the adviser through agency cross transactions C. Consent from at least two advisory clients D. Disclosures that written consent may be revoked at any time - Answer C. Consent from at least two advisory clients "Bailey disclosure" refers to the concept of advising clients of the effect of directing the adviser to use a particular broker(s). Disclosure about the ramifications of brokerage direction should include: A. Potential conflicts of interest when a directed broker referred the client to the adviser B. Limits on the ability of the adviser to negotiate commissions C. Restrictions on placing directed trades with other client trades D. All of the above - Answer D. All of the above Which of the following statements is FALSE? A. Trade errors must be resolved for the client's benefit. B. Principal transactions require consent prior to settlement. C. Commissions generated from ERISA plan transactions may never be used to generate soft dollars. D. An adviser's fiduciary duty includes allocating investment opportunities fairly and equitably. - Answer C. Commissions generated from ERISA plan transactions may never be used to generate soft dollars. A client directs an adviser to execute securities transactions with ABC Broker. What are adviser's obligation(s) in trading for this client? A. To consider ABC Broker when conducting client's transactions B. To execute all of client's transactions with ABC Broker C. To execute some of client's transactions with ABC Broker regardless of best execution D. To execute all of client's transactions with ABC Broker, consistent with the adviser's duty to achieve best execution - Answer B. To execute all of client's transactions with ABC Broker Some of adviser's clients have directed that certain brokers be used to trade for their accounts. When executing similar transactions for non-directed and directed business, the adviser should: A. Ensure its order of transactions is consistent with its disclosure B. Promise to receive equal execution for non-directed and directed business C. Always execute directed transactions first D. Consider which client's accounts need improved performance - Answer A. ensure its order of transactions is consistent with its disclosure Which of the following statements is FALSE? A. In a soft dollar arrangement, an adviser always receives research services produced by a third party whom the broker-dealer pays. B. Soft dollar arrangements that fail to comply with the Section 28(e) safe harbor are not prohibited under the Investment Advisers Act of 1940. C. Riskless principal transactions may be used to generate soft dollar commissions. D. Soft dollars may not be used to correct trade errors in client accounts. - Answer A. In a soft dollar arrangement, an adviser always receives research services produced by a third party whom the broker-dealer pays. After a trade has been completed, an adviser checking for trade errors should reconcile trade confirmations with which of the following? A. Trade recommendations memorialized in the minutes of a Brokerage Committee meeting. B. A trade order ticket completed after the order was completed. C. A client's investment policy guidelines. D. A trade order ticket completed prior to the execution of the order - Answer D. A trade order ticket completed prior to the execution of the order. The duty of an investment adviser to seek best execution for client securities transactions is derived from which of the following? A. Investment Advisers Act of 1940 Interpretative Releases B. Common Law Fiduciary Principles C. Securities and Exchange Act of 1934 D. The Investment Company Act of 1940 - Answer B. Common Law Fiduciary Principles Prior to entering an aggregated trade order, an adviser should do which of the following pursuant to the SMC No-Action letter? A. Prepare a written allocation statement. B. Obtain the written consent of each client participating in the aggregated order prior to entering each aggregated order. C. Obtain a blanket consent from each client participating in aggregated orders at the inception of the advisory relationship. D. Ensure that an affiliated broker is not used for execution of the aggregated order. - Answer A. Prepare a written allocation statement. When engaging in internal cross transactions (or "cross trading"), where an adviser causes the purchase and sale of securities between two or more client accounts and neither the adviser nor any affiliate receives compensation for effecting the transaction, the adviser should do all of the following EXCEPT: A. Make full disclosure in Form ADV Part 2. B. Ensure that best execution is achieved. C. Obtain the prior written consent of all clients involved in the cross trade. D. Confirm that no client is disfavored by the cross trade. - Answer C. Obtain the prior written consent of all clients involved in the cross trade Dewey Cheatem & Howe Advisers ("DCH") is investment adviser to two hedge funds formed as 3(c)(1) feeder funds. The General Partner of DCH and each of the two funds is XYZ Advisors LP, which owns 100% of DCH and has a 30% ownership interest in each of the two funds. Moreover, an ERISA pension plan has a 5% interest in each of the feeder funds. If DCH wishes to rebalance the allocations of the two funds via an internal cross transaction between the two funds, which of the following is true pursuant to the Gardner Russo No-Action letter? A. DCH has engaged in an agency cross transaction. B. DCH has engaged in a principal transaction. C. DCH has engaged in a prohibited transaction under ERISA. D. DCH has breached its fiduciary duty to the funds. - Answer B. DCH has engaged in a principal transaction. Which THREE persons or firms may be excluded from having to register under the Investment Advisers Act of 1940? (Choose three.) A. Accountants whose advisory services pertain solely to incidental financial planning. B. Persons or firms whose advice and reports are related solely to U.S. government securities. C. Publishers of generally circulated, bona fide newspapers or financial journals. D. Domestic banks and bank holding companies. - Answer B. Persons or firms whose advice and reports are related solely to U.S. government securities. C. Publishers of generally circulated, bona fide newspapers or financial journals. D. Domestic banks and bank holding companies. Which activity is NOT mandated for investment advisers that store required records electronically? A. Providing the SEC with prompt access, retrieval, and reproduction. B. Maintaining copies of all electronically stored records using WORM format. C. Arranging and indexing records to provide easy access and retrieval. D. Developing procedures to preserve and maintain records. - Answer B. Maintaining copies of all electronically stored records using WORM format. The Investment Advisers Act of 1940 defines the scope of the anti-fraud provisions as extending to: A. SEC-registered advisers and foreign advisers with a place of business in the U.S., whether registered or exempt. B. SEC-registered advisers and foreign advisers doing business in the U.S., whether registered or exempt. C. SEC-registered investment advisers. D. All investment advisers, whether registered or exempt. - Answer D. All investment advisers, whether registered or exempt. The fiduciary duty imposed on advisers under the Investment Advisers Act of 1940 can BEST be described as: A. providing equal disclosure to all clients. B. imposing an ERISA fiduciary standard. C. putting the client's interests ahead of the adviser's. D. acting in a custodial capacity. - Answer C. putting the client's interests ahead of the adviser's. Which TWO qualify as a "security" under the Investment Advisers Act of 1940? (Choose two.) A. Commodity futures B. Limited partnership interests C. Fixed annuities D. Variable annuities - Answer B. Limited partnership interests D. Variable annuities In performing due diligence on a potential solicitor, the investment adviser must ensure that the solicitor: A. is not subject to any statutory disqualification. IACCP Master QBank With Complete Solutions 2023. B. is not acting as a solicitor for an unregistered adviser. C. has passed the Series 65 exam. D. is registered in appropriate states. - Answer A. is not subject to any statutory disqualification. An SEC-registered investment adviser is NOT required to disclose "material" disciplinary information in its Form ADV Part 1 after: A. 5 years B. 10 years C. 12 years D. 15 years - Answer B. 10 years Which event would be deemed an assignment of an investment advisory contract? A. An adviser hires a new CEO to replace its current retiring CEO. B. An adviser is purchased by an unaffiliated adviser. C. Any public offering of an adviser's stock. D. An adviser organized as a corporation changes its structure to a partnership. - Answer B. An adviser is purchased by an unaffiliated adviser The Investment Advisers Act of 1940 requires that written investment advisory agreements must address: A. proxy voting. B. assignment of the contract. C. brokerage arrangements. D. fees. - Answer B. assignment of the contract. If an investment adviser becomes ineligible for SEC registration, which document must be filed to terminate its registration? A. Form DRP B. Form ADV-W C. Form ADV Part 2A D. Form U5 - Answer B. Form ADV-W During an examination of XYZ Investment Advisers, the SEC discovers that two of Adviser's portfolio managers have been engaged in frontrunning client accounts. Neither Compliance nor Senior Management had any knowledge of the scheme. If Adviser can show to the SEC's satisfaction that it had developed and enforced procedures reasonably designed to prevent frontrunning, Adviser will be able to claim that, despite the violation, Adviser has met its duty to: A. assist the SEC. B. maintain required books and records. C. eliminate internal control deficiencies. D. supervise. - Answer D. supervise. IACCP Master QBank With Complete Solutions 2023. SEC-registered advisers that have proxy voting authority for clients must do which TWO of the following? (Choose two.) A. Adopt procedures to ensure proxies are voted in the best interest of clients. B. Disclose to clients information about the firm's proxy policies and procedures on Form ADV Part 2. C. Create a proxy voting committee to address conflict situations. D. Provide information to clients on how their proxies were voted. - Answer A. Adopt procedures to ensure proxies are voted in the best interest of clients. D. Provide information to clients on how their proxies were voted. In which THREE circumstances is an adviser deemed to have custody under the SEC Custody Rule? (Choose three.) A. The investment adviser is mistakenly sent a check payable to the client and returns it to the sender within five business days of receipt. B. The investment adviser deducts advisory fees from the client's account with the client's prior written consent. C. The investment adviser takes possession of a check drawn by the client that is payable to a third party. D. The investment adviser acts as one of three or more trustees in regards to an advisory client's account. - Answer A. The investment adviser is mistakenly sent a check payable to the client and returns it to the sender within five business days of receipt. B. The investment adviser deducts advisory fees from the client's account with the client's prior written consent. D. The investment adviser acts as one of three or more trustees in regards to an advisory client's account. An investment advisory firm is closing its business. What should the firm do with its corporate and organizational documents after termination of the firm entity? A. Retain the documents in an easily accessible place of which the SEC has been notified for five years. B. Retain the documents in an easily accessible place of which the SEC has been notified for three years. C. Dispose of the documents in a prudent manner, ensuring the personal identifying information is destroyed. D. Retain the documents for five years, two of which must be in an easily accessible place. - Answer B. Retain the documents in an easily accessible place of which the SEC has been notified for three years. Under the SEC Custody Rule, an adviser is NOT subject to a surprise annual examination by a qualified accounting firm if the: IACCP Master QBank With Complete Solutions 2023. A. adviser directly debits advisory fees from clients' custodial accounts. B. adviser is granted general power of attorney by advisory clients. C. adviser or certain of adviser's employees serve as trustees to advisory clients. D. adviser provides bill-pay services to advisory clients. - Answer A. adviser directly debits advisory fees from clients' custodial accounts. Which situation would trigger a violation of the SEC Pay-to-Play Rule? A. An individual who has become a covered associate within the last three months makes a $1,000 contribution to an elected official, whom the individual is also soliciting as an advisory client. B. An investment adviser makes a contribution of $50.00 to a government elected official responsible for selecting investment advisers. C. An investment adviser directs its counsel to make a contribution of $50.00 to a government elected official responsible for selecting investment advisers. D. An investment advisory firm pays another registered investment adviser to solicit government clients on its behalf. - Answer A. An individual who has become a covered associate within the last three months makes a $1,000 contribution to an elected official, whom the individual is also soliciting as an advisory client. Each person is defined as an "access person" under the SEC Investment Adviser Codes of Ethics Rule EXCEPT: A. any supervised person who has access to nonpublic information regarding any client's purchase or sale of securities. B. any supervised person who makes securities recommendations to clients. C. officers, directors, and partners of a firm whose primary business is providing investment advice. D. any supervised person who trades in securities for their own account. - Answer D. any supervised person who trades in securities for their own account. An investment adviser is required to maintain which THREE records in connection with its code of ethics? (Choose three.) A. An electronic database of access persons' personal trading records. B. A record of violations of the code. C. A list of access persons. D. A copy of each supervised person's acknowledgement of receipt of the code. - Answer B. A record of violations of the code. C. A list of access persons. D. A copy of each supervised person's acknowledgement of receipt of the code. Investment Adviser's President serves on the board of directors of XYZ, a publicly traded company. Adviser has approved the separate employment, established and tested a Chinese Wall to prevent information flowing between Adviser and XYZ, and has adopted a policy that it will not hold XYZ stock in client portfolios. IACCP Master QBank With Complete Solutions 2023. In drafting its client disclosures, must Adviser disclose the President's relationship with XYZ? A. Yes, by disclosing the conflict and Adviser's procedures. B. Yes, but only in the Adviser's code of ethics. C. No, the conflict has been resolved. D. No, Adviser will not recommend XYZ to clients. - Answer A. Yes, by disclosing the conflict and Adviser's procedures. According to the Investment Advisers Act of 1940, every investment adviser is required to prevent illegal insider trading by establishing, maintaining and enforcing written policies and procedures reasonably designed to: A. prevent the misuse of material client information. B. create Chinese Walls. C. prevent the misuse of material nonpublic information. D. create restricted lists and enforce black-out periods. - Answer C. prevent the misuse of material nonpublic information. What does the SEC Investment Adviser Codes of Ethics Rule require access persons to submit? A. An annual holdings report that must be current within 45 days of submission. B. Quarterly transaction reports within 10 days of quarter end. C. A certification that the employee does not hold any private placements. D. A request for pre-approval of all brokers used. - Answer A. An annual holdings report that must be current within 45 days of submission. Adviser A and its president, Jones, conduct investment manager searches for institutional clients. Jones often refers his clients to Adviser B. Adviser B has provided financing for business ventures owned by Jones. Adviser B has also steered brokerage business to a brokerage firm owned by Jones' son. Which action should be taken by Adviser B? A. Adviser B may rely on disclosure in Adviser A's Form ADV about these business dealings. B. None since Jones had made his clients aware of Adviser B's business dealings with Jones and his son. C. None since Adviser A's referrals are not influenced by any of these business dealings. D. Adviser B should disclose these business dealings in its Form ADV Part 2 because they are material conflicts of interest. - Answer D. Adviser B should disclose these business dealings in its Form ADV Part 2 because they are material conflicts of interest. Investment Adviser manages a portfolio for Mr. Jackson, the President of Jackson Industries, a publicly traded company. Mr. Jackson informs Portfolio Manager that IACCP Master QBank With Complete Solutions 2023. the stock price for Jackson Industries will likely decline in value when the quarterly earnings announcement is made. Portfolio Manager shorts Jackson Industries in his personal account and makes a large profit. Adviser did not require pre-clearance of these trades because Adviser does not hold Jackson Industries in client portfolios. Has Adviser failed to meet its duties under the Advisers Act? A. Yes, because Adviser must pre-clear all trades by portfolio managers. B. No, because it was Mr. Jackson who shared nonpublic information. C. Yes, because Adviser reasonably failed to detect insider trading. D. No, because Mr. Jackson suffered no losses. - Answer C. Yes, because Adviser reasonably failed to detect insider trading. According to Investment Company Act of 1940 Rule 3a-4 (Status of Investment Advisory Programs), which TWO activities is an adviser required to do? (Choose two.) A. Notify clients monthly of any investment changes to the model portfolio. B. Notify the client in writing at least quarterly to contact the adviser if suitability information has changed. C. Develop an Investment Policy Statement (IPS) for a client within two weeks of initial investment. D. Make a best effort attempt to contact the client to update suitability information at least annually. - Answer B. Notify the client in writing at least quarterly to contact the adviser if suitability information has changed. D. Make a best effort attempt to contact the client to update suitability information at least annually. Which was NOT identified as a requirement for an investment adviser that intends to allocate an investment opportunity to a proprietary account in a block trade with other client accounts? A. The adviser's compliance officer must approve the order in writing. B. The adviser will prepare, prior to entering the order, a written allocation statement. C. Transaction costs for the order will be shared pro-rata based on each client's participation in the transaction. D. The adviser will identify that the block trade is consistent with its duty to achieve best execution. - Answer A. The adviser's compliance officer must approve the order in writing. To fall within the Section 28(e) safe harbor of the Securities Exchange Act of 1934, which TWO activities are an investment adviser required to do if it pays higher commissions in order to receive soft dollar products? (Choose two.) A. Make a good faith determination that commissions paid are reasonable for products received. B. Make disclosure in Form ADV Part 2 regarding its soft dollar practices. C. Document mixed use allocations in writing. IACCP Master QBank With Complete Solutions 2023. D. Ensure that research is used to benefit all client accounts. - Answer A. Make a good faith determination that commissions paid are reasonable for products received. B. Make disclosure in Form ADV Part 2 regarding its soft dollar practices.