SERIES 65 UPDATED COMPREHENSIVE SET
QUESTIONS AND ANSWERS SURE A+
✔✔Dodd-Frank Act & Assets Under Management - ✔✔Large 100MM
Small less than 25
Mid-Size 25-100MM
✔✔Exemption from Investment Adivser registration under USA - ✔✔No place of
business, only clients in state are: BDs, other advisers, Institutional (including employee
benefit plans), temp residents, Limited to 5 or fewer clients, any others admin exempts
by rule
✔✔Form ADV Part 1 - ✔✔information about an adviser's business, ownership, clients,
employees, business practices, affiliations and any disciplinary events
✔✔from adv part 2 - ✔✔series of items that contain disclosure requirements for an
investment adviser's brochure as well as other required supplements
✔✔Brochure Deliver Requirements - ✔✔-required for both state and federal covered
advisers
A. FEDERAL COVERED ADVISERS:
-must be delivered to each client before or at the time an advisory agreement is entered
into with that client
-each year after, within 120 days of end of year, an updated brochure must be delivered
to each client, outlining material changes
-if NO material changes, then the brochure nor the brochure supplement, nor the
summary is required to be sent
B. STATE COVERED ADVISERS:
-same as above, EXCEPT:
-must deliver at least 48 hours before entering into advisory contract or a the time of
entering into the contract, IF the adviser has right to terminate the contract within 5
business days after entering the contract
,✔✔Exemptions from the Brochure Rule: - ✔✔-Contracts with registered investment
companies
-Advisers entering into a contract for impersonal advisory services w/ less than $500 fee
annually
✔✔Custody of Client Funds and Securities - ✔✔AN IA IS CONSIDERED TO HAVE
CUSTODY OF CLIENT FUNDS AND SECURITIES WHEN THE ADVISER HAS THE
ABILITY TO APPROPRIATE THEM.
✔✔Qualified Custodian - ✔✔Bank or savings association that has deposits insured by
FDIC under Federal Deposit Insurance Act, a registered broker-dealer, and a foreign
financial institution that customarily holds financial assets for customers.
✔✔ADV-E - ✔✔Under Rule 206(4)-2 covering advisers that take custody of client funds,
such advisers must submit to an annual surprise audit by an independent public
accountant that verifies the funds and securities held in custody for customers. After
completing the examination, the auditor must sign and file Form ADV-E (as in "Exam")
with the SEC within 120 days.
✔✔Hedge Clause - ✔✔Any legend, clause, or other provision that is likely to lead an
investor to believe that he has in any way waived any right of action he may have.
WAIVERS ARE NEVER PERMITTED
✔✔principal transaction - ✔✔A potential conflict of interest arising when the investment
adviser enters a transaction to by or sell a security on behalf of a client with the
transaction done on a principal basis. Requires disclosure and client consent prior to
settlement.
✔✔Differences between Contracts - federal and state (3) - ✔✔1 - State law requires
contract in writing
2 - State law requries competitive fees, federal law as fair
3. NASAA model rule on performance based fees more stringent
✔✔Contract must disclose - ✔✔Services, term of contract, fee amount or formula,
Calculation of prepaid fees, discretion, no assignment may be made, minority interest
change must be communicated while majority considered assignment
✔✔State Registered IAs must disclose that....(contract) - ✔✔Fee arrangements based
on performance drive riskier investments, even on unrealized gains, periods use to
calculate fee, nature of any index used as comparison. - Do not apply to federal covered
advisers
✔✔Agency Cross Transaction - ✔✔A transaction in which an investment adviser acts as
the agent for both his client and the other party to the transaction. Investment advisers
, are not required to obtain the client's consent for each individual agency cross
transaction, but must have the client's prior consent to engage in such transactions. As
in all transactions, advisers are required to obtain the best possible price and execution
in agency cross transactions. If an affiliate of the adviser brokers such a transaction, it is
still considered an agency cross transaction, just as if the adviser had brokered it.
Agency cross transactions are governed by Rule 206(3)-2 of the Investment Advisers
Act of 1940.
✔✔Cash Referral Fees - ✔✔SEC has not prohibited payment of cash referrals by IAs to
persons who solicit business for them. Four conditions must be met:
- IA must be registered under IAA of 1940
- Solicitor must not be subject to statutory disqualification
- Cash referral fees be paid pursuant to a written agreement
In addition, referral fees must be made in one of three circumstances:
- Payment are for impersonal advisory services
- adviser pays a referral fee to person affiliated with adviser
- Cash referral fees are paid to third party solicitors who are not affiliated with broker
✔✔Section 28(e) Safe Harbor - ✔✔IAs must disclose their safe harbor deals to clients in
Item 12 of Part 2A of Form ADV
✔✔cumulative preferred stock - ✔✔Preferred stock on which undeclared dividends
accumulate until paid; common stockholders cannot receive dividends until cumulative
dividends are paid.
✔✔callable preferred stock - ✔✔Preferred stock that the issuing corporation, at its
option, may retire by paying the call price plus any dividends in arrears.
✔✔convertible preferred stock - ✔✔Preferred stock with an option to exchange it for
common stock at a specified rate.
✔✔ADRs - ✔✔American Depository Receipts. Certificates issued by a bank stating that
a specific number of a company's shares have been deposited with them. These
certificates are denominated in dollars and traded on the American exchanges as if they
were American securities. However, they normally represent stock in companies outside
America.
✔✔preemtive rights - ✔✔allow shareholders to maintain their porportionate interest in
the ownership of the corporation by allowing them to purchase a pro rata share of any
new stock issuance
✔✔warrant - ✔✔Certificate granting owner right to purchase at specified price
QUESTIONS AND ANSWERS SURE A+
✔✔Dodd-Frank Act & Assets Under Management - ✔✔Large 100MM
Small less than 25
Mid-Size 25-100MM
✔✔Exemption from Investment Adivser registration under USA - ✔✔No place of
business, only clients in state are: BDs, other advisers, Institutional (including employee
benefit plans), temp residents, Limited to 5 or fewer clients, any others admin exempts
by rule
✔✔Form ADV Part 1 - ✔✔information about an adviser's business, ownership, clients,
employees, business practices, affiliations and any disciplinary events
✔✔from adv part 2 - ✔✔series of items that contain disclosure requirements for an
investment adviser's brochure as well as other required supplements
✔✔Brochure Deliver Requirements - ✔✔-required for both state and federal covered
advisers
A. FEDERAL COVERED ADVISERS:
-must be delivered to each client before or at the time an advisory agreement is entered
into with that client
-each year after, within 120 days of end of year, an updated brochure must be delivered
to each client, outlining material changes
-if NO material changes, then the brochure nor the brochure supplement, nor the
summary is required to be sent
B. STATE COVERED ADVISERS:
-same as above, EXCEPT:
-must deliver at least 48 hours before entering into advisory contract or a the time of
entering into the contract, IF the adviser has right to terminate the contract within 5
business days after entering the contract
,✔✔Exemptions from the Brochure Rule: - ✔✔-Contracts with registered investment
companies
-Advisers entering into a contract for impersonal advisory services w/ less than $500 fee
annually
✔✔Custody of Client Funds and Securities - ✔✔AN IA IS CONSIDERED TO HAVE
CUSTODY OF CLIENT FUNDS AND SECURITIES WHEN THE ADVISER HAS THE
ABILITY TO APPROPRIATE THEM.
✔✔Qualified Custodian - ✔✔Bank or savings association that has deposits insured by
FDIC under Federal Deposit Insurance Act, a registered broker-dealer, and a foreign
financial institution that customarily holds financial assets for customers.
✔✔ADV-E - ✔✔Under Rule 206(4)-2 covering advisers that take custody of client funds,
such advisers must submit to an annual surprise audit by an independent public
accountant that verifies the funds and securities held in custody for customers. After
completing the examination, the auditor must sign and file Form ADV-E (as in "Exam")
with the SEC within 120 days.
✔✔Hedge Clause - ✔✔Any legend, clause, or other provision that is likely to lead an
investor to believe that he has in any way waived any right of action he may have.
WAIVERS ARE NEVER PERMITTED
✔✔principal transaction - ✔✔A potential conflict of interest arising when the investment
adviser enters a transaction to by or sell a security on behalf of a client with the
transaction done on a principal basis. Requires disclosure and client consent prior to
settlement.
✔✔Differences between Contracts - federal and state (3) - ✔✔1 - State law requires
contract in writing
2 - State law requries competitive fees, federal law as fair
3. NASAA model rule on performance based fees more stringent
✔✔Contract must disclose - ✔✔Services, term of contract, fee amount or formula,
Calculation of prepaid fees, discretion, no assignment may be made, minority interest
change must be communicated while majority considered assignment
✔✔State Registered IAs must disclose that....(contract) - ✔✔Fee arrangements based
on performance drive riskier investments, even on unrealized gains, periods use to
calculate fee, nature of any index used as comparison. - Do not apply to federal covered
advisers
✔✔Agency Cross Transaction - ✔✔A transaction in which an investment adviser acts as
the agent for both his client and the other party to the transaction. Investment advisers
, are not required to obtain the client's consent for each individual agency cross
transaction, but must have the client's prior consent to engage in such transactions. As
in all transactions, advisers are required to obtain the best possible price and execution
in agency cross transactions. If an affiliate of the adviser brokers such a transaction, it is
still considered an agency cross transaction, just as if the adviser had brokered it.
Agency cross transactions are governed by Rule 206(3)-2 of the Investment Advisers
Act of 1940.
✔✔Cash Referral Fees - ✔✔SEC has not prohibited payment of cash referrals by IAs to
persons who solicit business for them. Four conditions must be met:
- IA must be registered under IAA of 1940
- Solicitor must not be subject to statutory disqualification
- Cash referral fees be paid pursuant to a written agreement
In addition, referral fees must be made in one of three circumstances:
- Payment are for impersonal advisory services
- adviser pays a referral fee to person affiliated with adviser
- Cash referral fees are paid to third party solicitors who are not affiliated with broker
✔✔Section 28(e) Safe Harbor - ✔✔IAs must disclose their safe harbor deals to clients in
Item 12 of Part 2A of Form ADV
✔✔cumulative preferred stock - ✔✔Preferred stock on which undeclared dividends
accumulate until paid; common stockholders cannot receive dividends until cumulative
dividends are paid.
✔✔callable preferred stock - ✔✔Preferred stock that the issuing corporation, at its
option, may retire by paying the call price plus any dividends in arrears.
✔✔convertible preferred stock - ✔✔Preferred stock with an option to exchange it for
common stock at a specified rate.
✔✔ADRs - ✔✔American Depository Receipts. Certificates issued by a bank stating that
a specific number of a company's shares have been deposited with them. These
certificates are denominated in dollars and traded on the American exchanges as if they
were American securities. However, they normally represent stock in companies outside
America.
✔✔preemtive rights - ✔✔allow shareholders to maintain their porportionate interest in
the ownership of the corporation by allowing them to purchase a pro rata share of any
new stock issuance
✔✔warrant - ✔✔Certificate granting owner right to purchase at specified price
