STC SERIES 66 PRACTICE TEST UPDATED QUESTIONS AND
ANSWERS GRADED A+
✔✔Custody of Funds and Securities by Adviser - ✔✔Holding client funds or securities,
directly or indirectly, or having authority to obtain possession of them.
✔✔An advisor is not considered to have custody of funds or securities if - ✔✔They
inadvertently obtained securities or funds or forwards third party checks within 3
business days
✔✔If an investment advisor has custody of clients funds it must - ✔✔Notify
administrator in writing, appoint a qualified custodian, notify clients of the same of the
custodian, ensure that clients receive quarterly statements
✔✔Minimum financial requirements for IAs - ✔✔State administrator where the IAs home
office is located determines requirements, no other state can impose a higher
requirement, minimum requirement is 35,000 for custody and 10,000 for discretionary
only, when a deficiency occurs must report within 1 business day.
✔✔IA record keeping requirements (USA) - ✔✔Maintain books, record and
correspondence for 5 years, appropriate office for first 2 years
✔✔The following must be maintained by an IA - ✔✔Checkbooks and bank statements,
written agreements with clients, ledgers and trial balances, all written communications
received and sent, copies of POW, copies of advertisements send to 2 or more persons,
political contributions, written complains
✔✔AUM of more than $110 million - ✔✔Federal covered advisor, must register with
SEC
✔✔AUM between $100 and $110 million - ✔✔IA may choose to register with SEC or
state administrator
✔✔AUM between $25 and $100 million - ✔✔-Mid sized adviser--must register with state
administrator(s)
✔✔AUM of less than $25 million - ✔✔Small advisor, must register with state
administrator
✔✔Federal covered advisors - ✔✔Regardless of AUM, the following must register with
the SEC
- advisors to investment companies, BDCs, advisors not regulated by the state in which
they have their principal office, pension consultants, internet advisors, advisors to
private funds, new advisors that will be eligible for registration within 120 days, multi
state advisors
,✔✔SEC release 1092 - ✔✔Sports and entertainment representatives, pension
consultants, and financial consultants are now persons who provide investment advice
to their clients are investment advisers and subject to the Investment Adviser Act.
✔✔Exclusions from the IA definitions (State) - ✔✔Banks, saving institutions, trust
companies (not bank holding companies, LATE professionals, BDs and their agents,
publishers of newspapers or periodicals, IARs, federal covered advisors, any other
person designated by an administrator
✔✔Exclusions from the IA definition (federal) - ✔✔Banks or bank holding companies,
Late professionals, BDs and their RRs, publishers, Us government securities advisor,
Credit rating agencies, family offices that manage wealth, any other person designated
by SEC
✔✔Exemptions from IA registration (State) - ✔✔Advisor has no plans of business in the
state and clients are only specific institutional clients OR no more then 5 non
institutional clients within 12 months
✔✔Exemptions from IA registration (Federal) - ✔✔Intrastate advisors, advisors to
insurance companies, private fund advisors, venture capital advisors, foreign private
advisors
✔✔For a state registered IA and it's IARs - ✔✔State registration is required for IAs if it
has an office in the state or more then 5 non institutional clients in the state , and if they
have an office in the theta or more that 5 non institutional clients for IARs
✔✔For a federal covefed IA and It's IARs - ✔✔An IA doesn't need to register but an IAR
need to register if they have an office in the state
✔✔Continuing education (CE) for IARs - ✔✔12 credits by end of calendar year (6 of
regulatory and ethics, 6 from products and practices)
✔✔Performance fees - ✔✔The IA act of 1940 generally prohibits performance based
fees unless of fulcrum fees or certain arrangements
✔✔Fulcrum fees - ✔✔Involves averaging the advisors fee over a specific period, and
increasing or decreasing the fee, proportionately with the investment performance of the
company or fund in relation to the investment record of the appropriate index
✔✔Performance fees (arrangements with) - ✔✔Non U.S. clients, qualified clients (1.1 in
AUM or 2.2 net worth), qualified purchasers, registered investment companies, BDCs,
hedge funds
, ✔✔Wrap fee program - ✔✔any program for which a client is charged an advisory
service fee that is not based directly on transactions in the client's account and that
covers the costs of the advice and execution of the client's transactions. If a wrap
account is sponsored by a BD the firm is required to register as an investment advisor
✔✔Solicitors - ✔✔A person who directly or indirectly solicits any client for, or refers any
client to, an IA. Relationship much be disclosed, don't have to register nur state
registration May be required
✔✔Non-affiliated solicitors - ✔✔Must provide a advisor brochure and a written
disclosure documents, an advisor must receive signed acknowledgment from clients
that both documents have been received
✔✔IA advertising and record keeping rules - ✔✔An advisor is not required to maintain
the names and addresses of the recipients if it's sent to more than 10 persons
✔✔Standards for advisor advertising - ✔✔An advertisement may not refer to past
recommendations unless the advertisement lists all of the recommendations made by
the advisor in the last year, refer any service as free, use the abbreviation of RIA or IAR,
performance advertising is prohibited if it fails to disclose the possibility of a loss
✔✔IA record keeping requirements (SEC) - ✔✔Required to maintain books and records
for 5 years, in the principal office for first 2 years and and in an easy accessible place
for the balance of 5 years, if registration is withdrawn records are kept for an additional
3 years
✔✔Fudiciary duty of BDs - ✔✔Provide suitable recommendations to their clients
✔✔Investment advisors have a duty to - ✔✔Act in the best interest of their clients
✔✔Uniform Prudent Investor Act (UPIA) - ✔✔Examines the trade off between risk and
reward, analyzes the portfolio as a whole rather than focusing on individual securities,
recognized the need for diversification, places no categorical restrictions on investments
✔✔Soft Dollar Arrangements - ✔✔an IA may pay higher commissions for trade
execution in return for "soft dollars" if used to acquire services that will benefit its
advisory clients. Must be disclosed on for ADV part 2 or brochure
✔✔Acceptable uses for soft dollar arrangements - ✔✔Research reports, analysis,
market data, seminars, software use to provide analysis,
✔✔Fraud typically has three parts - ✔✔Misrepresentation of material fact, reliance on
the misrepresentation, injury or harm occurring as a result of the misrepresentation
(fraud is intentional)
ANSWERS GRADED A+
✔✔Custody of Funds and Securities by Adviser - ✔✔Holding client funds or securities,
directly or indirectly, or having authority to obtain possession of them.
✔✔An advisor is not considered to have custody of funds or securities if - ✔✔They
inadvertently obtained securities or funds or forwards third party checks within 3
business days
✔✔If an investment advisor has custody of clients funds it must - ✔✔Notify
administrator in writing, appoint a qualified custodian, notify clients of the same of the
custodian, ensure that clients receive quarterly statements
✔✔Minimum financial requirements for IAs - ✔✔State administrator where the IAs home
office is located determines requirements, no other state can impose a higher
requirement, minimum requirement is 35,000 for custody and 10,000 for discretionary
only, when a deficiency occurs must report within 1 business day.
✔✔IA record keeping requirements (USA) - ✔✔Maintain books, record and
correspondence for 5 years, appropriate office for first 2 years
✔✔The following must be maintained by an IA - ✔✔Checkbooks and bank statements,
written agreements with clients, ledgers and trial balances, all written communications
received and sent, copies of POW, copies of advertisements send to 2 or more persons,
political contributions, written complains
✔✔AUM of more than $110 million - ✔✔Federal covered advisor, must register with
SEC
✔✔AUM between $100 and $110 million - ✔✔IA may choose to register with SEC or
state administrator
✔✔AUM between $25 and $100 million - ✔✔-Mid sized adviser--must register with state
administrator(s)
✔✔AUM of less than $25 million - ✔✔Small advisor, must register with state
administrator
✔✔Federal covered advisors - ✔✔Regardless of AUM, the following must register with
the SEC
- advisors to investment companies, BDCs, advisors not regulated by the state in which
they have their principal office, pension consultants, internet advisors, advisors to
private funds, new advisors that will be eligible for registration within 120 days, multi
state advisors
,✔✔SEC release 1092 - ✔✔Sports and entertainment representatives, pension
consultants, and financial consultants are now persons who provide investment advice
to their clients are investment advisers and subject to the Investment Adviser Act.
✔✔Exclusions from the IA definitions (State) - ✔✔Banks, saving institutions, trust
companies (not bank holding companies, LATE professionals, BDs and their agents,
publishers of newspapers or periodicals, IARs, federal covered advisors, any other
person designated by an administrator
✔✔Exclusions from the IA definition (federal) - ✔✔Banks or bank holding companies,
Late professionals, BDs and their RRs, publishers, Us government securities advisor,
Credit rating agencies, family offices that manage wealth, any other person designated
by SEC
✔✔Exemptions from IA registration (State) - ✔✔Advisor has no plans of business in the
state and clients are only specific institutional clients OR no more then 5 non
institutional clients within 12 months
✔✔Exemptions from IA registration (Federal) - ✔✔Intrastate advisors, advisors to
insurance companies, private fund advisors, venture capital advisors, foreign private
advisors
✔✔For a state registered IA and it's IARs - ✔✔State registration is required for IAs if it
has an office in the state or more then 5 non institutional clients in the state , and if they
have an office in the theta or more that 5 non institutional clients for IARs
✔✔For a federal covefed IA and It's IARs - ✔✔An IA doesn't need to register but an IAR
need to register if they have an office in the state
✔✔Continuing education (CE) for IARs - ✔✔12 credits by end of calendar year (6 of
regulatory and ethics, 6 from products and practices)
✔✔Performance fees - ✔✔The IA act of 1940 generally prohibits performance based
fees unless of fulcrum fees or certain arrangements
✔✔Fulcrum fees - ✔✔Involves averaging the advisors fee over a specific period, and
increasing or decreasing the fee, proportionately with the investment performance of the
company or fund in relation to the investment record of the appropriate index
✔✔Performance fees (arrangements with) - ✔✔Non U.S. clients, qualified clients (1.1 in
AUM or 2.2 net worth), qualified purchasers, registered investment companies, BDCs,
hedge funds
, ✔✔Wrap fee program - ✔✔any program for which a client is charged an advisory
service fee that is not based directly on transactions in the client's account and that
covers the costs of the advice and execution of the client's transactions. If a wrap
account is sponsored by a BD the firm is required to register as an investment advisor
✔✔Solicitors - ✔✔A person who directly or indirectly solicits any client for, or refers any
client to, an IA. Relationship much be disclosed, don't have to register nur state
registration May be required
✔✔Non-affiliated solicitors - ✔✔Must provide a advisor brochure and a written
disclosure documents, an advisor must receive signed acknowledgment from clients
that both documents have been received
✔✔IA advertising and record keeping rules - ✔✔An advisor is not required to maintain
the names and addresses of the recipients if it's sent to more than 10 persons
✔✔Standards for advisor advertising - ✔✔An advertisement may not refer to past
recommendations unless the advertisement lists all of the recommendations made by
the advisor in the last year, refer any service as free, use the abbreviation of RIA or IAR,
performance advertising is prohibited if it fails to disclose the possibility of a loss
✔✔IA record keeping requirements (SEC) - ✔✔Required to maintain books and records
for 5 years, in the principal office for first 2 years and and in an easy accessible place
for the balance of 5 years, if registration is withdrawn records are kept for an additional
3 years
✔✔Fudiciary duty of BDs - ✔✔Provide suitable recommendations to their clients
✔✔Investment advisors have a duty to - ✔✔Act in the best interest of their clients
✔✔Uniform Prudent Investor Act (UPIA) - ✔✔Examines the trade off between risk and
reward, analyzes the portfolio as a whole rather than focusing on individual securities,
recognized the need for diversification, places no categorical restrictions on investments
✔✔Soft Dollar Arrangements - ✔✔an IA may pay higher commissions for trade
execution in return for "soft dollars" if used to acquire services that will benefit its
advisory clients. Must be disclosed on for ADV part 2 or brochure
✔✔Acceptable uses for soft dollar arrangements - ✔✔Research reports, analysis,
market data, seminars, software use to provide analysis,
✔✔Fraud typically has three parts - ✔✔Misrepresentation of material fact, reliance on
the misrepresentation, injury or harm occurring as a result of the misrepresentation
(fraud is intentional)
