CRPC MODULE 9 QUESTIONS AND
ANSWERS
SecuritiesjcandjcExchangejcCommissionjc(SEC)jc-jcanswer--
ThejcprimaryjcfederaljcregulatoryjcauthorityjcisjcthejcSEC.jcCreatedjcbyjcthejcSecuritiesjcandj
cExchangejcActjcofjc1934,jcthejcSEC'sjcmissionjcisjctojcprotectjcinvestorsjcandjcmaintainjcinte
grityjcinjcthejcsecuritiesjcmarkets.jcAsjcsuch,jcthejccommissionjcrequiresjcpublicjccompaniesj
ctojcdisclosejcmaterialjcinformationjctojcthejcpublicjcsojcinvestorsjchavejcajccommonjcsourcejc
ofjcinformationjcandjcthereforejccanjcdecidejcforjcthemselvesjcifjctheyjcwantjctojcinvestjcinjctho
sejccompanies.jcThejcSECjcalsojcoverseesjckeyjcparticipantsjcinjcthejcsecuritiesjcworld,jcincl
udingjcstockjcexchanges,jcbroker-
dealers,jcinvestmentjcadvisers,jcmutualjcfunds,jcandjcpublicjcutilityjcholdingjccompanies.jcR
egardingjcinvestmentjcadvisers,jcthosejcadvisersjcmanagingjcclients'jcassetsjcofjc$100jcmill
ionjcorjcmorejc(perjcthejcDodd-
FrankjcAct)jcregisterjcwithjcthejcSECjc(thosejcwithjclessjcthanjc$100jcmillionjcregisterjcwithjcth
ejcstatejcinjcwhichjctheyjcconductjcbusiness),jcandjcthejcSECjcrequiresjcinvestmentjcadviserjc
records,jcincludingjcelectronicjcmail,jcbejcmaintainedjcforjcfivejcyears.jcThejcSECjcinterpretsj
cfederaljcsecuritiesjclaws,jcamendsjcexistingjcrules,jcproposesjcnewjcrules,jcandjchasjcenfor
cementjcauthorityjcagainstjcindividualsjcandjccompaniesjcthatjcviolatejcsecuritiesjclaws.
ThejcSecuritiesjcActjcofjc1933jc-jcanswer--
Thisjcactjcappliesjctojcmostjcnew,jcpubliclyjcissuedjcsecurities.jcItsjcpurposejcisjctojcrequirejcth
ejc"registration"jcofjcsecuritiesjcwithjcthejcSecuritiesjcandjcExchangejcCommissionjc(SEC)jc
byjcprovidingjcfulljcdisclosurejcinjcthejcregistrationjcstatementjcofjcthejcsecuritiesjcthatjcthejcis
suerjcorjcvendorjcwasjcaboutjctojcissue.jcIfjcthejcSECjcfindsjcmisleading,jcincomplete,jcorjcina
ccuratejcinformation,jcitjcwilljcdelayjcthejcofferingjcuntiljcthejcregistrationjcstatementjcisjccorre
cted.jcAlljcnewjcissuesjcmustjcbejcaccompaniedjcbyjcajcprospectusjcAlljcnewjcissuesjcmustjcb
ejcaccompaniedjcbyjcajcprospectus,jcajcdetailedjcsummaryjcofjcthejcregistrationjcstatement.j
cThejcprospectusjcusuallyjccontainsjcajclistjcofjcdirectorsjcandjcoffices,jctheirjcstockholdings,j
cstockjcoptions,jcandjcsalaries.jcItjcalsojcincludesjcajcdescriptionjcofjcthejccompany'sjcpropert
iesjcandjcbusiness,jcajcdescriptionjcofjcthejcsecuritiesjcbeingjcofferedjcforjcsale,jcandjcfinanci
aljcstatementsjccertifiedjcbyjcindependentjcaccountants.jcInjcaddition,jcitjclistsjcthejcunderwri
ters,jcthejcpurposejcandjcusejcofjcthejcfundsjctojcbejcreceivedjcfromjcthejcoffering,jcandjcanyjcot
herjcreasonablejcinformationjcinvestorsjcneedjcbeforejcbuyingjcthejcsecurities.jcItjcalsojcincl
udesjcajcgeneraljcantifraudjcprovisionjcthatjcprohibitsjcdeceit,jcmisrepresentation,jcandjcoth
erjcfraudjcinjcthejcsalesjcofjcsecurities.jcProvidingjcfalsejcorjcmisleadingjcinformationjcorjcfailu
rejctojcdisclosejcalljcmaterialjcfactsjcrelevantjctojcanjcinvestmentjcresultsjcinjcthejcviolationjcofjc
thejcact,jcforjcwhichjcofficersjcofjcthejccompanyjcandjcotherjcexpertsjcpreparingjcthejcregistrat
ionjcstatementjcorjcprospectusjccanjcbejcsued.jcWhilejcthisjcinformationjcisjcrequiredjctojcbejc
accurate,jcthejcSECjcdoesjcnotjcguaranteejcitsjcaccuracy.
Notjcalljcissuesjcrequirejcregistration.
ThejcSecuritiesjcExchangejcActjcofjc1934jc-jcanswer--
Thisjcact,jcwhichjcestablishedjcthejcSecuritiesjcandjcExchangejcCommissionjcandjcgavejcitjc
enforcementjcpowersjcforjcthisjcact,jcaimedjctojcregulatejcsecuritiesjctransactionsjconjcbothjc
organizedjcexchangesjcandjcinjcover-the-
,counterjcmarkets.jcThisjcactjcforbidsjcmarketjcmanipulation,jcdeception,jcmisrepresentatio
njcofjcfacts,jcandjcfraudulentjcpractices.jcItjcrequiresjcmostjcbroker-
dealersjcandjctransferjcagents,jcclearingjcagencies,jcandjcself-
regulatoryjcorganizationsjc(includingjcsecuritiesjcexchanges)jctojcregisterjcwithjcthejcSEC.jc
Injcthisjcway,jcthejcSECjcsupervisesjcandjcregulatesjcmanyjcaspectsjcofjcexchanges.jcItjcalsoj
crequiresjcmanyjcissuersjcofjcsecuritiesjctojcprovidejcongoingjcinformationjcaboutjctheirjcbusi
nessjcaffairsjcbyjcfilingjcquarterlyjcfinancialjcstatementsjcwithjcthejcSEC,jcsendingjcannualjcr
eportsjctojcshareholders,jcandjcfilingjc10-
Kjcreportsjc(whichjchavejcmorejcfinancialjcinformationjcthatjcthejcannualjcreports),jcwithjcthejc
SECjcannually.jcFurther,jcitjcmadejcsubjectjctojclawjcthejctradingjcactivitiesjcofjccorporatejcdir
ectorsjcandjcofficersjc("insiders"),jcwhojcwerejcviewedjcasjcprincipaljcvillainsjcinjcthejcmarketjc
debaclejcofjc1929.jcInjcthejclastjctwojcdecades,jcthejcSECjchasjcwidenedjcthejcinterpretationjc
ofjcanjcinsiderjctojcincludejcanyonejchavingjcinformationjcthatjcwasjcnotjcpublicjcknowledge.jc
ThisjcactjcalsojcgavejcthejcFederaljcReservejcBoardjcofjcGovernorsjcresponsibilityjcforjcsettin
gjcmarginjcrequirementsjcwhenjcbuyingjcsecurities.
ThejcInvestmentjcAdvisersjcActjcofjc1940jc-jcanswer--
ThejcInvestmentjcAdvisersjcActjcofjc1940jcwrotejcintojclawjcthejcfiduciaryjcdutyjcowedjcbyjcinv
estmentjcadvisersjctojctheirjcclients.jcThisjcactjcrequiresjcinvestmentjcadvisersjctojcregisterjc
withjcthejcSECjcbyjcfilingjcFormjcADV.jcItjcalsojccontainsjccertainjcprohibitionsjcregardingjcad
vertisingjcpracticesjcandjccertainjcrequirementsjcforjcdisclosure.jcCurrently,jcinvestmentjca
dvisersjcwithjcoverjc$100jcmillionjcAUMjcregisterjcwithjcthejcSEC,jcandjcalljcotherjcinvestment
jcadvisersjcregisterjcatjcthejcstatejclevel.
ThejcInvestmentjcCompanyjcActjcofjc1940jc-jcanswer--
ThejcInvestmentjcCompanyjcActjcofjc1940jcsubjectsjcbothjcthejcstructurejcandjcthejcoperatio
nsjcofjcmutualjcfundsjctojcdetailedjcregulation.jcMutualjcfundsjcbelongjctojcajcclassjcofjcinvest
mentjccompaniesjcdefinedjcinjcthejc1940jcactjcasjc"managementjccompanies,"jcwhichjcarejcf
urtherjcclassifiedjcasjceitherjcdiversifiedjcorjcnondiversified.jcThejcactjcalsojcrequiresjcmutua
ljcfundsjctojcmaintainjcdetailedjcbooksjcandjcrecordsjconjcthejcsecuritiesjcowned,jctojcusejcajcc
ustodianjctojcsafeguardjcthejcsecurities,jcandjctojcsendjcsemiannualjcandjcannualjcreportsjct
ojcbothjcthejcSECjcandjcshareholders.jcThejcactjcalsojcrequiresjcthatjcproceedsjcfromjcredee
medjcsharesjcbejcsentjctojcshareholdersjcwithinjcsevenjcdaysjcofjcthejcredemption.
ThejcSecuritiesjcInvestorjcProtectionjcActjcofjc1970jc-jcanswer--
ThisjcactjcestablishedjcthejcSecuritiesjcInvestorjcProtectionjcCorporationjc(SIPC)jctojcovers
eejcthejcliquidationjcofjcbrokeragejcfirmsjcandjctojcinsurejcinvestors'jcaccountsjcupjctojcajcmax
imumjcvaluejcofjc$500,000jc(ofjcwhichjconlyjcupjctojc$250,000jccanjcbejccashjcbalances)jcinjct
hejccasejcofjcbankruptcyjcofjcajcbrokeragejcfirm.jcThisjccorporationjcwasjcsetjcupjcinjcrespons
ejctojcthejcproblemsjcencounteredjcbyjcbrokeragejcfirmsjcinjcthejclatejc1960s,jcwhenjchighjcvo
lumejccausedjcajcback-
officejcpaperjccrunchjcleadingjctojcbankruptciesjcandjcsubsequentjcinvestorjclosses.jcWhilej
cthejcSIPCjcinsuresjcbrokeragejcaccounts,jcitjcdoesjcnotjccoverjcmarketjclossesjcsufferedjcw
hilejcwaitingjctojcgetjcsecuritiesjcfromjcajcbankruptjcbrokeragejcfirm.jcItjcalsojcdoesjcnotjccoverj
clossesjcduejctojcinvestmentjcfraudjcandjcshouldjcnotjcbejcthoughtjcofjcasjcthejcsecuritiesjcworl
djcequivalentjcofjcthejcFederaljcDepositjcInsurancejcCorporation.jcThejccostjcofjcthisjcinsuran
cejcisjcpaidjcbyjcmembersjcofjcSIPC.jcAlljcbrokersjcandjcdealersjcthatjcarejcregisteredjcwithjcth
ejcSECjcandjcalljcmembersjcofjcnationaljcsecuritiesjcexchangesjcmustjcbejcmembersjcofjcSIP
C.
, EmployeejcRetirementjcIncomejcSecurityjcActjcofjc1974jc(ERISA)jc-jcanswer--
ERISAjcwasjcenactedjctojcstemjccompanyjcretirementjcplanjcabusesjcandjctojcmakejcsurejcth
atjcemployeesjcwerejcprotectedjcandjcthatjctheyjcwouldjcbejcpaidjcanyjcpromisedjcbenefits.jc
ERISAjcsetjcstandardsjcforjcparticipation,jcvesting,jcfunding,jcreporting,jcandjcdisclosure,jca
ndjcitjcalsojcestablishedjcthejcPensionjcBenefitjcGuarantyjcCorporationjc(PBGC).jcERISAjcr
equiresjcthatjcanyonejcgivingjcinvestmentjcadvicejctojcajccompanyjcretirementjcplanjcmustjcb
ejcajcfiduciary.
Whatjcisjcthejc5jcpartjctestjctojcdecidejcifjcanjcadviserjcisjcunderjcthejcfiduciaryjcstandard?jc-
jcanswer--
1.jcTheyjcrenderedjcadvicejcasjctojcthejcvaluejcofjcsecuritiesjcorjcotherjcproperty,jcorjcmadejcre
commendationsjcasjctojcthejcadvisabilityjcofjcinvestingjcin,jcpurchasing,jcorjcsellingjcsecuriti
esjcorjcotherjcproperty
2.jcTheyjcrenderedjcthisjcadvice/recommendationsjconjcajcregularjcbasis
3.jcAnyjcadvicejcprovidedjcwasjcpursuantjctojcajcmutualjcagreementjcorjcunderstanding,jcwit
hjcthejcplanjcorjcplanjcfiduciary
4.jcThejcadvicejcwouldjcservejcasjcajcprimaryjcbasisjcforjcinvestmentjcdecisionsjcwithjcrespec
tjctojcplanjcassets
5.jcThejcadvicejcwouldjcbejcindividualizedjcbasedjconjcthejcparticularjcneedsjcofjcthejcplanjcorj
cIRA
Becausejcalljcfivejccriteriajcmustjcbejcmetjcunderjcthisjcrule,jcmanyjcadvisersjcarejcnotjcneces
sarilyjcconsideredjcfiduciaries.jcForjcexample,jcthejcsecondjcrequirementjcisjcthatjcanyjcadvi
cejcmustjcoccurjconjcajc"regular"jcbasis.jcIfjcajcclientjccamejctojcanjcadviserjcforjcadvice,jcrolledj
coverjctheirjcaccountjcintojcanjcIRA,jcandjcpurchasedjcajcproduct,jcthejcadviserjcwouldjcnotjcb
ejcconsideredjcajcfiduciaryjcunderjcthisjcrulejcbecausejcadvicejcwasjcnotjcbeingjcofferedjconjc
ajcregularjcbasis—
itjcwasjcanjcisolatedjcevent.jcEvenjcanjcinvestmentjcprofessionaljchiredjcbyjcajccompanyjcforjc
ajcone-
timejcassessmentjcofjcitsjcretirementjcplanjcandjcinvestmentsjcwouldjcnotjcbejcconsideredjcaj
cfiduciaryjcunderjcthisjctest,jcnojcmatterjchowjcmuchjcmoneyjcwasjcinvolved.jcFiduciaryjcstatu
sjccanjcalsojcbejcavoidedjcbyjcclaimingjcthatjcthejcpartiesjcdidjcnotjchavejcajc"mutualjcagreeme
nt"jcorjcthatjcthejcadvicejcwouldjcnotjcnecessarilyjcservejcasjcthejc"primary"jcbasisjcforjcmakin
gjcinvestmentjcdecisions.
Onejccanjcseejcthatjctherejcarejcnumerousjcloopholes,jcandjcitjcisjcveryjceasyjctojcavoidjcbeing
jcajcfiduciaryjcunderjcthisjcstandard.
SecuritiesjcActsjcAmendmentsjcofjc1975jcandjcMayjcDayjc-jcanswer--
ThisjcactjcdirectedjcthejcSECjctojcsupervisejcthejcdevelopmentjcofjcajcnationaljcsecuritiesjcm
arket.jcThejcassumptionjcbehindjcthisjcactjcwasjcthatjcanyjcnationaljcmarketjcwouldjcextensiv
elyjcusejccomputersjcandjcelectronicjccommunications.jcItjcalsojcprohibitedjcfixedjccommiss
ionsjconjcpublicjctransactions,jcwhichjcfostersjcgreaterjccompetitionjcandjcmorejcefficientjcpri
ces.jcMayjcDayjcisjcthejcnamejcgivenjcthejctojcthejcdayjcinjc1975jcwhenjccommissionjcratesjcw
erejcnojclongerjcsetjcbyjcthejcNYSEjcandjcfirmsjcwerejcfreejctojcsetjctheirjcownjccommissionjcra
tes.
Gramm-Leach-
BlileyjcActjcofjc1999jcandjcCommodityjcFuturesjcModernizationjcActjcofjc2000jc-jcanswer--
ThisjcactjcisjcalsojcknownjcasjcthejcFinancialjcServicesjcModernizationjcAct,jcandjcitjcdealtjcwit
hjcwaysjcthatjcfinancialjcinstitutionsjchandlejcthejcprivatejcinformationjcofjcindividuals.jcItjcisjcb
ANSWERS
SecuritiesjcandjcExchangejcCommissionjc(SEC)jc-jcanswer--
ThejcprimaryjcfederaljcregulatoryjcauthorityjcisjcthejcSEC.jcCreatedjcbyjcthejcSecuritiesjcandj
cExchangejcActjcofjc1934,jcthejcSEC'sjcmissionjcisjctojcprotectjcinvestorsjcandjcmaintainjcinte
grityjcinjcthejcsecuritiesjcmarkets.jcAsjcsuch,jcthejccommissionjcrequiresjcpublicjccompaniesj
ctojcdisclosejcmaterialjcinformationjctojcthejcpublicjcsojcinvestorsjchavejcajccommonjcsourcejc
ofjcinformationjcandjcthereforejccanjcdecidejcforjcthemselvesjcifjctheyjcwantjctojcinvestjcinjctho
sejccompanies.jcThejcSECjcalsojcoverseesjckeyjcparticipantsjcinjcthejcsecuritiesjcworld,jcincl
udingjcstockjcexchanges,jcbroker-
dealers,jcinvestmentjcadvisers,jcmutualjcfunds,jcandjcpublicjcutilityjcholdingjccompanies.jcR
egardingjcinvestmentjcadvisers,jcthosejcadvisersjcmanagingjcclients'jcassetsjcofjc$100jcmill
ionjcorjcmorejc(perjcthejcDodd-
FrankjcAct)jcregisterjcwithjcthejcSECjc(thosejcwithjclessjcthanjc$100jcmillionjcregisterjcwithjcth
ejcstatejcinjcwhichjctheyjcconductjcbusiness),jcandjcthejcSECjcrequiresjcinvestmentjcadviserjc
records,jcincludingjcelectronicjcmail,jcbejcmaintainedjcforjcfivejcyears.jcThejcSECjcinterpretsj
cfederaljcsecuritiesjclaws,jcamendsjcexistingjcrules,jcproposesjcnewjcrules,jcandjchasjcenfor
cementjcauthorityjcagainstjcindividualsjcandjccompaniesjcthatjcviolatejcsecuritiesjclaws.
ThejcSecuritiesjcActjcofjc1933jc-jcanswer--
Thisjcactjcappliesjctojcmostjcnew,jcpubliclyjcissuedjcsecurities.jcItsjcpurposejcisjctojcrequirejcth
ejc"registration"jcofjcsecuritiesjcwithjcthejcSecuritiesjcandjcExchangejcCommissionjc(SEC)jc
byjcprovidingjcfulljcdisclosurejcinjcthejcregistrationjcstatementjcofjcthejcsecuritiesjcthatjcthejcis
suerjcorjcvendorjcwasjcaboutjctojcissue.jcIfjcthejcSECjcfindsjcmisleading,jcincomplete,jcorjcina
ccuratejcinformation,jcitjcwilljcdelayjcthejcofferingjcuntiljcthejcregistrationjcstatementjcisjccorre
cted.jcAlljcnewjcissuesjcmustjcbejcaccompaniedjcbyjcajcprospectusjcAlljcnewjcissuesjcmustjcb
ejcaccompaniedjcbyjcajcprospectus,jcajcdetailedjcsummaryjcofjcthejcregistrationjcstatement.j
cThejcprospectusjcusuallyjccontainsjcajclistjcofjcdirectorsjcandjcoffices,jctheirjcstockholdings,j
cstockjcoptions,jcandjcsalaries.jcItjcalsojcincludesjcajcdescriptionjcofjcthejccompany'sjcpropert
iesjcandjcbusiness,jcajcdescriptionjcofjcthejcsecuritiesjcbeingjcofferedjcforjcsale,jcandjcfinanci
aljcstatementsjccertifiedjcbyjcindependentjcaccountants.jcInjcaddition,jcitjclistsjcthejcunderwri
ters,jcthejcpurposejcandjcusejcofjcthejcfundsjctojcbejcreceivedjcfromjcthejcoffering,jcandjcanyjcot
herjcreasonablejcinformationjcinvestorsjcneedjcbeforejcbuyingjcthejcsecurities.jcItjcalsojcincl
udesjcajcgeneraljcantifraudjcprovisionjcthatjcprohibitsjcdeceit,jcmisrepresentation,jcandjcoth
erjcfraudjcinjcthejcsalesjcofjcsecurities.jcProvidingjcfalsejcorjcmisleadingjcinformationjcorjcfailu
rejctojcdisclosejcalljcmaterialjcfactsjcrelevantjctojcanjcinvestmentjcresultsjcinjcthejcviolationjcofjc
thejcact,jcforjcwhichjcofficersjcofjcthejccompanyjcandjcotherjcexpertsjcpreparingjcthejcregistrat
ionjcstatementjcorjcprospectusjccanjcbejcsued.jcWhilejcthisjcinformationjcisjcrequiredjctojcbejc
accurate,jcthejcSECjcdoesjcnotjcguaranteejcitsjcaccuracy.
Notjcalljcissuesjcrequirejcregistration.
ThejcSecuritiesjcExchangejcActjcofjc1934jc-jcanswer--
Thisjcact,jcwhichjcestablishedjcthejcSecuritiesjcandjcExchangejcCommissionjcandjcgavejcitjc
enforcementjcpowersjcforjcthisjcact,jcaimedjctojcregulatejcsecuritiesjctransactionsjconjcbothjc
organizedjcexchangesjcandjcinjcover-the-
,counterjcmarkets.jcThisjcactjcforbidsjcmarketjcmanipulation,jcdeception,jcmisrepresentatio
njcofjcfacts,jcandjcfraudulentjcpractices.jcItjcrequiresjcmostjcbroker-
dealersjcandjctransferjcagents,jcclearingjcagencies,jcandjcself-
regulatoryjcorganizationsjc(includingjcsecuritiesjcexchanges)jctojcregisterjcwithjcthejcSEC.jc
Injcthisjcway,jcthejcSECjcsupervisesjcandjcregulatesjcmanyjcaspectsjcofjcexchanges.jcItjcalsoj
crequiresjcmanyjcissuersjcofjcsecuritiesjctojcprovidejcongoingjcinformationjcaboutjctheirjcbusi
nessjcaffairsjcbyjcfilingjcquarterlyjcfinancialjcstatementsjcwithjcthejcSEC,jcsendingjcannualjcr
eportsjctojcshareholders,jcandjcfilingjc10-
Kjcreportsjc(whichjchavejcmorejcfinancialjcinformationjcthatjcthejcannualjcreports),jcwithjcthejc
SECjcannually.jcFurther,jcitjcmadejcsubjectjctojclawjcthejctradingjcactivitiesjcofjccorporatejcdir
ectorsjcandjcofficersjc("insiders"),jcwhojcwerejcviewedjcasjcprincipaljcvillainsjcinjcthejcmarketjc
debaclejcofjc1929.jcInjcthejclastjctwojcdecades,jcthejcSECjchasjcwidenedjcthejcinterpretationjc
ofjcanjcinsiderjctojcincludejcanyonejchavingjcinformationjcthatjcwasjcnotjcpublicjcknowledge.jc
ThisjcactjcalsojcgavejcthejcFederaljcReservejcBoardjcofjcGovernorsjcresponsibilityjcforjcsettin
gjcmarginjcrequirementsjcwhenjcbuyingjcsecurities.
ThejcInvestmentjcAdvisersjcActjcofjc1940jc-jcanswer--
ThejcInvestmentjcAdvisersjcActjcofjc1940jcwrotejcintojclawjcthejcfiduciaryjcdutyjcowedjcbyjcinv
estmentjcadvisersjctojctheirjcclients.jcThisjcactjcrequiresjcinvestmentjcadvisersjctojcregisterjc
withjcthejcSECjcbyjcfilingjcFormjcADV.jcItjcalsojccontainsjccertainjcprohibitionsjcregardingjcad
vertisingjcpracticesjcandjccertainjcrequirementsjcforjcdisclosure.jcCurrently,jcinvestmentjca
dvisersjcwithjcoverjc$100jcmillionjcAUMjcregisterjcwithjcthejcSEC,jcandjcalljcotherjcinvestment
jcadvisersjcregisterjcatjcthejcstatejclevel.
ThejcInvestmentjcCompanyjcActjcofjc1940jc-jcanswer--
ThejcInvestmentjcCompanyjcActjcofjc1940jcsubjectsjcbothjcthejcstructurejcandjcthejcoperatio
nsjcofjcmutualjcfundsjctojcdetailedjcregulation.jcMutualjcfundsjcbelongjctojcajcclassjcofjcinvest
mentjccompaniesjcdefinedjcinjcthejc1940jcactjcasjc"managementjccompanies,"jcwhichjcarejcf
urtherjcclassifiedjcasjceitherjcdiversifiedjcorjcnondiversified.jcThejcactjcalsojcrequiresjcmutua
ljcfundsjctojcmaintainjcdetailedjcbooksjcandjcrecordsjconjcthejcsecuritiesjcowned,jctojcusejcajcc
ustodianjctojcsafeguardjcthejcsecurities,jcandjctojcsendjcsemiannualjcandjcannualjcreportsjct
ojcbothjcthejcSECjcandjcshareholders.jcThejcactjcalsojcrequiresjcthatjcproceedsjcfromjcredee
medjcsharesjcbejcsentjctojcshareholdersjcwithinjcsevenjcdaysjcofjcthejcredemption.
ThejcSecuritiesjcInvestorjcProtectionjcActjcofjc1970jc-jcanswer--
ThisjcactjcestablishedjcthejcSecuritiesjcInvestorjcProtectionjcCorporationjc(SIPC)jctojcovers
eejcthejcliquidationjcofjcbrokeragejcfirmsjcandjctojcinsurejcinvestors'jcaccountsjcupjctojcajcmax
imumjcvaluejcofjc$500,000jc(ofjcwhichjconlyjcupjctojc$250,000jccanjcbejccashjcbalances)jcinjct
hejccasejcofjcbankruptcyjcofjcajcbrokeragejcfirm.jcThisjccorporationjcwasjcsetjcupjcinjcrespons
ejctojcthejcproblemsjcencounteredjcbyjcbrokeragejcfirmsjcinjcthejclatejc1960s,jcwhenjchighjcvo
lumejccausedjcajcback-
officejcpaperjccrunchjcleadingjctojcbankruptciesjcandjcsubsequentjcinvestorjclosses.jcWhilej
cthejcSIPCjcinsuresjcbrokeragejcaccounts,jcitjcdoesjcnotjccoverjcmarketjclossesjcsufferedjcw
hilejcwaitingjctojcgetjcsecuritiesjcfromjcajcbankruptjcbrokeragejcfirm.jcItjcalsojcdoesjcnotjccoverj
clossesjcduejctojcinvestmentjcfraudjcandjcshouldjcnotjcbejcthoughtjcofjcasjcthejcsecuritiesjcworl
djcequivalentjcofjcthejcFederaljcDepositjcInsurancejcCorporation.jcThejccostjcofjcthisjcinsuran
cejcisjcpaidjcbyjcmembersjcofjcSIPC.jcAlljcbrokersjcandjcdealersjcthatjcarejcregisteredjcwithjcth
ejcSECjcandjcalljcmembersjcofjcnationaljcsecuritiesjcexchangesjcmustjcbejcmembersjcofjcSIP
C.
, EmployeejcRetirementjcIncomejcSecurityjcActjcofjc1974jc(ERISA)jc-jcanswer--
ERISAjcwasjcenactedjctojcstemjccompanyjcretirementjcplanjcabusesjcandjctojcmakejcsurejcth
atjcemployeesjcwerejcprotectedjcandjcthatjctheyjcwouldjcbejcpaidjcanyjcpromisedjcbenefits.jc
ERISAjcsetjcstandardsjcforjcparticipation,jcvesting,jcfunding,jcreporting,jcandjcdisclosure,jca
ndjcitjcalsojcestablishedjcthejcPensionjcBenefitjcGuarantyjcCorporationjc(PBGC).jcERISAjcr
equiresjcthatjcanyonejcgivingjcinvestmentjcadvicejctojcajccompanyjcretirementjcplanjcmustjcb
ejcajcfiduciary.
Whatjcisjcthejc5jcpartjctestjctojcdecidejcifjcanjcadviserjcisjcunderjcthejcfiduciaryjcstandard?jc-
jcanswer--
1.jcTheyjcrenderedjcadvicejcasjctojcthejcvaluejcofjcsecuritiesjcorjcotherjcproperty,jcorjcmadejcre
commendationsjcasjctojcthejcadvisabilityjcofjcinvestingjcin,jcpurchasing,jcorjcsellingjcsecuriti
esjcorjcotherjcproperty
2.jcTheyjcrenderedjcthisjcadvice/recommendationsjconjcajcregularjcbasis
3.jcAnyjcadvicejcprovidedjcwasjcpursuantjctojcajcmutualjcagreementjcorjcunderstanding,jcwit
hjcthejcplanjcorjcplanjcfiduciary
4.jcThejcadvicejcwouldjcservejcasjcajcprimaryjcbasisjcforjcinvestmentjcdecisionsjcwithjcrespec
tjctojcplanjcassets
5.jcThejcadvicejcwouldjcbejcindividualizedjcbasedjconjcthejcparticularjcneedsjcofjcthejcplanjcorj
cIRA
Becausejcalljcfivejccriteriajcmustjcbejcmetjcunderjcthisjcrule,jcmanyjcadvisersjcarejcnotjcneces
sarilyjcconsideredjcfiduciaries.jcForjcexample,jcthejcsecondjcrequirementjcisjcthatjcanyjcadvi
cejcmustjcoccurjconjcajc"regular"jcbasis.jcIfjcajcclientjccamejctojcanjcadviserjcforjcadvice,jcrolledj
coverjctheirjcaccountjcintojcanjcIRA,jcandjcpurchasedjcajcproduct,jcthejcadviserjcwouldjcnotjcb
ejcconsideredjcajcfiduciaryjcunderjcthisjcrulejcbecausejcadvicejcwasjcnotjcbeingjcofferedjconjc
ajcregularjcbasis—
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