IACCP Actual Questions and Correct Answers
Q1
The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may
occur: Only on a rotational basis On a pro rata basis but other allocation methods can be used
without violating the Advisers Act Only on a pro rata basis 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
Q2
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
Q3
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 research newsletter used by analysts A computer terminal used only to place client
trades Portfolio management software used to calculate client returns A junket to Pebble Beach
for golf
Answer: C. Portfolio management software used to calculate client returns
Q4
An adviser's valuation procedures should, practically speaking, be prepared with the LEAST
attention to: Large cap stocks Illiquid investments Foreign issues Micro cap stocks
Answer: A. Large cap stocks
Q5
Agency cross transactions do NOT require: Annual disclosure to advisory clients of the number
of agency cross transactions Annual disclosure of the total remuneration received by the
adviser through agency cross transactions Consent from at least two advisory clients
Disclosures that written consent may be revoked at any time
Answer: C. Consent from at least two advisory clients
,Q6
"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: Potential conflicts of interest when a directed broker referred the client to the adviser
Limits on the ability of the adviser to negotiate commissions Restrictions on placing directed
trades with other client trades All of the above
Answer: D. All of the above
Q7
Which of the following statements is FALSE? Trade errors must be resolved for the client's
benefit. Principal transactions require consent prior to settlement. Commissions generated from
ERISA plan transactions may never be used to generate soft dollars. 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.
Q8
A client directs an adviser to execute securities transactions with ABC Broker. What are
adviser's obligation(s) in trading for this client? To consider ABC Broker when conducting
client's transactions To execute all of client's transactions with ABC Broker To execute some of
client's transactions with ABC Broker regardless of best execution 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
Q9
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:
Ensure its order of transactions is consistent with its disclosure Promise to receive equal
execution for non-directed and directed business Always execute directed transactions first
Consider which client's accounts need improved performance
Answer: A. ensure its order of transactions is consistent with its disclosure
Q10
Which of the following statements is FALSE? In a soft dollar arrangement, an adviser always
receives research services produced by a third party whom the broker-dealer pays. Soft dollar
arrangements that fail to comply with the Section 28(e) safe harbor are not prohibited under
the Investment Advisers Act of 1940. Riskless principal transactions may be used to generate
soft dollar commissions. 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.
, Q11
After a trade has been completed, an adviser checking for trade errors should reconcile trade
confirmations with which of the following? Trade recommendations memorialized in the minutes
of a Brokerage Committee meeting. A trade order ticket completed after the order was
completed. A client's investment policy guidelines. 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.
Q12
The duty of an investment adviser to seek best execution for client securities transactions is
derived from which of the following? Investment Advisers Act of 1940 Interpretative Releases
Common Law Fiduciary Principles Securities and Exchange Act of 1934 The Investment
Company Act of 1940
Answer: B. Common Law Fiduciary Principles
Q13
Prior to entering an aggregated trade order, an adviser should do which of the following
pursuant to the SMC No-Action letter? Prepare a written allocation statement. Obtain the written
consent of each client participating in the aggregated order prior to entering each aggregated
order. Obtain a blanket consent from each client participating in aggregated orders at the
inception of the advisory relationship. Ensure that an affiliated broker is not used for execution
of the aggregated order.
Answer: A. Prepare a written allocation statement.
Q14
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: Make full disclosure in Form ADV Part 2. Ensure that best execution is
achieved. Obtain the prior written consent of all clients involved in the cross trade. 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
Q1
The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may
occur: Only on a rotational basis On a pro rata basis but other allocation methods can be used
without violating the Advisers Act Only on a pro rata basis 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
Q2
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
Q3
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 research newsletter used by analysts A computer terminal used only to place client
trades Portfolio management software used to calculate client returns A junket to Pebble Beach
for golf
Answer: C. Portfolio management software used to calculate client returns
Q4
An adviser's valuation procedures should, practically speaking, be prepared with the LEAST
attention to: Large cap stocks Illiquid investments Foreign issues Micro cap stocks
Answer: A. Large cap stocks
Q5
Agency cross transactions do NOT require: Annual disclosure to advisory clients of the number
of agency cross transactions Annual disclosure of the total remuneration received by the
adviser through agency cross transactions Consent from at least two advisory clients
Disclosures that written consent may be revoked at any time
Answer: C. Consent from at least two advisory clients
,Q6
"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: Potential conflicts of interest when a directed broker referred the client to the adviser
Limits on the ability of the adviser to negotiate commissions Restrictions on placing directed
trades with other client trades All of the above
Answer: D. All of the above
Q7
Which of the following statements is FALSE? Trade errors must be resolved for the client's
benefit. Principal transactions require consent prior to settlement. Commissions generated from
ERISA plan transactions may never be used to generate soft dollars. 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.
Q8
A client directs an adviser to execute securities transactions with ABC Broker. What are
adviser's obligation(s) in trading for this client? To consider ABC Broker when conducting
client's transactions To execute all of client's transactions with ABC Broker To execute some of
client's transactions with ABC Broker regardless of best execution 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
Q9
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:
Ensure its order of transactions is consistent with its disclosure Promise to receive equal
execution for non-directed and directed business Always execute directed transactions first
Consider which client's accounts need improved performance
Answer: A. ensure its order of transactions is consistent with its disclosure
Q10
Which of the following statements is FALSE? In a soft dollar arrangement, an adviser always
receives research services produced by a third party whom the broker-dealer pays. Soft dollar
arrangements that fail to comply with the Section 28(e) safe harbor are not prohibited under
the Investment Advisers Act of 1940. Riskless principal transactions may be used to generate
soft dollar commissions. 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.
, Q11
After a trade has been completed, an adviser checking for trade errors should reconcile trade
confirmations with which of the following? Trade recommendations memorialized in the minutes
of a Brokerage Committee meeting. A trade order ticket completed after the order was
completed. A client's investment policy guidelines. 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.
Q12
The duty of an investment adviser to seek best execution for client securities transactions is
derived from which of the following? Investment Advisers Act of 1940 Interpretative Releases
Common Law Fiduciary Principles Securities and Exchange Act of 1934 The Investment
Company Act of 1940
Answer: B. Common Law Fiduciary Principles
Q13
Prior to entering an aggregated trade order, an adviser should do which of the following
pursuant to the SMC No-Action letter? Prepare a written allocation statement. Obtain the written
consent of each client participating in the aggregated order prior to entering each aggregated
order. Obtain a blanket consent from each client participating in aggregated orders at the
inception of the advisory relationship. Ensure that an affiliated broker is not used for execution
of the aggregated order.
Answer: A. Prepare a written allocation statement.
Q14
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: Make full disclosure in Form ADV Part 2. Ensure that best execution is
achieved. Obtain the prior written consent of all clients involved in the cross trade. 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
