IACCP WEEK 2 EXAM QUESTIONS WITH
DETAILED VERIFIED ANSWERS
OVERVIEW:
(15%) ***Invest Advisers Act of 1940: main thrust was to register advisers to mutual funds
w/ SEC and limit their compensation
o securities Act of 1933 / primary mkt
o securities exchange act of 1934 / secondary mkt
o invest co act of 1940 / invest advisers act of 1940
IA def: "a person who rec's compensation for advising others about securities or about the
advisability of investing in securities"; if a person gives advice about securities, but does
NOT charge a fee, then this person is not an IA!
EXCLUDED - not req'd to register w/ SEC:
- banks or bank hold cos
- lawyers, accountants, engineers or teachers whose performance of such serv is solely incidental
to practice of their profession
- b/ds and their RRs whose advisory serv are solely incidental to sec bus and who rec no special
comp for making recomm
- publishers of bona fide newspapers, mags or fin publications of genl and reg circulation
- any person who advises solely about US govt guaranteed obligations
- family offices ^^
:. any of these excluded persons falls under def of a "federal covered adviser" under State law
and is NOT req'd to register in State as well as NOT being req'd to register w/ SEC
^^ family office exclusion: SEC Rule 202(a)(11)(G)-1 (the "Family Office Rule") 3
requirements:
1- m/ only provide investment advice to clients who are part of that family
,oo all family descendants upto 10 generations removed fr common ancestor and also incl
adopted and foster children, spouses and "spousal equivalents" and former family mbrs, ie,
divorce. Incl key employees of family office, estates and trust est'd for family mbrs and not-for-
profit or charitable inst funded by family clients. Intended to give exclusion to adviser to one
family office - NOT multiple family offices
2- m/b wholly owned by family clients and exclusively controlled by family mbrs or entities - it
canNOT be owned or controlled by key employees
3- canNOT hold itself out as IA - thus it canNOT advertise or mkt itself to non-family clients
EXEMPT:
o intrastate exemption: adviser canNOT give advice to any security listed on a natl securities
exchange since these transaxns occur "interstate"
o adviser to insurance cos is exempt
o Federal exemptions are different than State exemptions: State exemption fr regis for those
advisers w/ NO office in State that give advice to "professional investors" such as banks, trusts,
invest cos and ins cos is MUCH BROADER than Federal exemption
o Federal registration w/ the SEC - only req'd for certain advisers:
- $100+ million of assets: m/ register w/ SEC as "Federal Covered Advisers" and canNOT be
req'd t/b registered in ea State, though they c/req a notice filing
- advisers to investment cos
SEC issued some interpretations:
o SEC interprets that advisers that have btw $100 - $110 mill of AUM have option of Federal
registration (or State)
,o mid-size adviser registration w/ SEC: w/ $25 mill+ of AUM
- NOT req'd to regis in State where it has its prin off, M/ register w/ SEC
- is req'd t/b registered in 15+ States m/choose to register w/ SEC rather than having to register
separately in those 15+ States, truly "interstate"
o Federal covered advisers: no regis req'd w/ State; 2012 Dodd-Frank did away w/ exemption for
larger advisers to private funds/hedge funds - NOW m/make public disclosures about their
operations
o private fund advisers w/ $150 mill+ of assets MUST register w/ SEC: most often advisers to
hedge funds, or private placement offerings under Reg D open to wealthy "qualified" investors
and NOT to genl public and which have < 100 investors per fund; if > 100+, hedge fund
m/register under Invest Co Act of 1940 as mgmt co
o private fund qualified purchaser: ind or trust w/ < $5 mill of assets avail for invest or invest
mgr or co w/ < $25 mill of assets avail for invest
o private fund adviser w/ < $150 mill of assets MUST register in State where is is physically
located and in any State where it solicits or conducts advisory bus: exempt fr SEC regis -
- all AUM are counted, incl non-sec such as commodities or direct invest in RE
- uncalled-for capital commitments are counted, b/c hedge funds are set up as ltd partnerships
and have right to assess partners for more capital if needed
- there is NO limit to # of private funds that c/b advised under exemption but total advised assets
canNOT > $150 mill - all of adviser's clients m/b private funds
o exempt reporting adviser: even if private fund adviser is exempt fr regis w/ SEC b/c < 4150
mill of AUM, it MUST still file rpts w/ SEC as "Exempt Reporting Adviser", m/ give detailed
info about ea private fund they advise
- < $25 mill AUM: MUST regis in State where is is physically located and in any State where it
solicits or conducts advisory bus
- > $25 mill AUM, but < $100 mill AUM: < 15 States, it must regis in ea State; => 15 States, has
, choice of either regis in ea State or regis w/ SEC
- > $100 mill AUM: MUST regis w/ SEC, no State regis - unless "Private Fund Adviser
Exemption"
- Private Fund Adviser > $150 mill AUM: MUST regis w/ SEC, no State regis
- Private Fund Adviser < $150 mill AUM: NO regis w/ SEC, MUST regis in State where it is
physically located and in any State where bus is solicited or conducted; has public disclosure
obligations "Exempt Reporting Adviser"
o no SEC registration of adviser reps: ONLY IAs c/b req'd t/b SEC registered, States req regis of
ea IAR whether assocd w/ "Federal Covered" adviser or State registered adviser
registration procedure: to regis w/ SEC as IA, m/file Form ADV
o ADV Part 1: incl genl info, name, addr, bus name, officer, sharehldrs, phone #, no of
employees, no of clients, total amt AUM; lists all States in which adviser is registered or has
filed a regis
o statutory disqualification - if applicant or its officers:
- h/b suspended or expelled fr any oth SRO
- is subj of SEC order suspending or revoking regis
- by his conduct while assocd w/ firm h/caused that firm's suspension or expulsion
- willfully filed false or misleading application or has omitted to state material facts in app
- h/b convicted of any sec or "money" related offense w/in last 10 years
- h/ temp or perm enjoined fr engaging in sec bus
- is subj of a current court proceeding that is not completed that could cause any of above to
occur
- h/ any unsatisfied judgments or liens, h/filed for bankruptcy, h/b denied by bonding co etc
o ADV Part 2:
- ADV Part 2A "Brochure": (details adviser's bus, fees, disciplinary issues and conflicts of
DETAILED VERIFIED ANSWERS
OVERVIEW:
(15%) ***Invest Advisers Act of 1940: main thrust was to register advisers to mutual funds
w/ SEC and limit their compensation
o securities Act of 1933 / primary mkt
o securities exchange act of 1934 / secondary mkt
o invest co act of 1940 / invest advisers act of 1940
IA def: "a person who rec's compensation for advising others about securities or about the
advisability of investing in securities"; if a person gives advice about securities, but does
NOT charge a fee, then this person is not an IA!
EXCLUDED - not req'd to register w/ SEC:
- banks or bank hold cos
- lawyers, accountants, engineers or teachers whose performance of such serv is solely incidental
to practice of their profession
- b/ds and their RRs whose advisory serv are solely incidental to sec bus and who rec no special
comp for making recomm
- publishers of bona fide newspapers, mags or fin publications of genl and reg circulation
- any person who advises solely about US govt guaranteed obligations
- family offices ^^
:. any of these excluded persons falls under def of a "federal covered adviser" under State law
and is NOT req'd to register in State as well as NOT being req'd to register w/ SEC
^^ family office exclusion: SEC Rule 202(a)(11)(G)-1 (the "Family Office Rule") 3
requirements:
1- m/ only provide investment advice to clients who are part of that family
,oo all family descendants upto 10 generations removed fr common ancestor and also incl
adopted and foster children, spouses and "spousal equivalents" and former family mbrs, ie,
divorce. Incl key employees of family office, estates and trust est'd for family mbrs and not-for-
profit or charitable inst funded by family clients. Intended to give exclusion to adviser to one
family office - NOT multiple family offices
2- m/b wholly owned by family clients and exclusively controlled by family mbrs or entities - it
canNOT be owned or controlled by key employees
3- canNOT hold itself out as IA - thus it canNOT advertise or mkt itself to non-family clients
EXEMPT:
o intrastate exemption: adviser canNOT give advice to any security listed on a natl securities
exchange since these transaxns occur "interstate"
o adviser to insurance cos is exempt
o Federal exemptions are different than State exemptions: State exemption fr regis for those
advisers w/ NO office in State that give advice to "professional investors" such as banks, trusts,
invest cos and ins cos is MUCH BROADER than Federal exemption
o Federal registration w/ the SEC - only req'd for certain advisers:
- $100+ million of assets: m/ register w/ SEC as "Federal Covered Advisers" and canNOT be
req'd t/b registered in ea State, though they c/req a notice filing
- advisers to investment cos
SEC issued some interpretations:
o SEC interprets that advisers that have btw $100 - $110 mill of AUM have option of Federal
registration (or State)
,o mid-size adviser registration w/ SEC: w/ $25 mill+ of AUM
- NOT req'd to regis in State where it has its prin off, M/ register w/ SEC
- is req'd t/b registered in 15+ States m/choose to register w/ SEC rather than having to register
separately in those 15+ States, truly "interstate"
o Federal covered advisers: no regis req'd w/ State; 2012 Dodd-Frank did away w/ exemption for
larger advisers to private funds/hedge funds - NOW m/make public disclosures about their
operations
o private fund advisers w/ $150 mill+ of assets MUST register w/ SEC: most often advisers to
hedge funds, or private placement offerings under Reg D open to wealthy "qualified" investors
and NOT to genl public and which have < 100 investors per fund; if > 100+, hedge fund
m/register under Invest Co Act of 1940 as mgmt co
o private fund qualified purchaser: ind or trust w/ < $5 mill of assets avail for invest or invest
mgr or co w/ < $25 mill of assets avail for invest
o private fund adviser w/ < $150 mill of assets MUST register in State where is is physically
located and in any State where it solicits or conducts advisory bus: exempt fr SEC regis -
- all AUM are counted, incl non-sec such as commodities or direct invest in RE
- uncalled-for capital commitments are counted, b/c hedge funds are set up as ltd partnerships
and have right to assess partners for more capital if needed
- there is NO limit to # of private funds that c/b advised under exemption but total advised assets
canNOT > $150 mill - all of adviser's clients m/b private funds
o exempt reporting adviser: even if private fund adviser is exempt fr regis w/ SEC b/c < 4150
mill of AUM, it MUST still file rpts w/ SEC as "Exempt Reporting Adviser", m/ give detailed
info about ea private fund they advise
- < $25 mill AUM: MUST regis in State where is is physically located and in any State where it
solicits or conducts advisory bus
- > $25 mill AUM, but < $100 mill AUM: < 15 States, it must regis in ea State; => 15 States, has
, choice of either regis in ea State or regis w/ SEC
- > $100 mill AUM: MUST regis w/ SEC, no State regis - unless "Private Fund Adviser
Exemption"
- Private Fund Adviser > $150 mill AUM: MUST regis w/ SEC, no State regis
- Private Fund Adviser < $150 mill AUM: NO regis w/ SEC, MUST regis in State where it is
physically located and in any State where bus is solicited or conducted; has public disclosure
obligations "Exempt Reporting Adviser"
o no SEC registration of adviser reps: ONLY IAs c/b req'd t/b SEC registered, States req regis of
ea IAR whether assocd w/ "Federal Covered" adviser or State registered adviser
registration procedure: to regis w/ SEC as IA, m/file Form ADV
o ADV Part 1: incl genl info, name, addr, bus name, officer, sharehldrs, phone #, no of
employees, no of clients, total amt AUM; lists all States in which adviser is registered or has
filed a regis
o statutory disqualification - if applicant or its officers:
- h/b suspended or expelled fr any oth SRO
- is subj of SEC order suspending or revoking regis
- by his conduct while assocd w/ firm h/caused that firm's suspension or expulsion
- willfully filed false or misleading application or has omitted to state material facts in app
- h/b convicted of any sec or "money" related offense w/in last 10 years
- h/ temp or perm enjoined fr engaging in sec bus
- is subj of a current court proceeding that is not completed that could cause any of above to
occur
- h/ any unsatisfied judgments or liens, h/filed for bankruptcy, h/b denied by bonding co etc
o ADV Part 2:
- ADV Part 2A "Brochure": (details adviser's bus, fees, disciplinary issues and conflicts of
