IAR Stuff questions with complete solutions|
(393 questions)| 174 pages| Graded A
Which of the following statements describes a person who provides investment
advice on a regular basis but does not charge fees, yet would be considered an
adviser under Release IA-1092?
A)A wealthy college professor who gives free lectures on sound investment
practices and makes specific securities recommendations based on a quantitative
model he has developed.
B)The Secretary of the U.S. Treasury who, as part of his official duties, comments
on conditions in the financial markets and their future investment implications.
C)A financial planner who sold his business and spends his time consulting with
pension plans on whether to retain or hire new investment managers based on their
performance. He does not charge fees; however, those managers retained as a
result of his recommendations routinely provide him with noncash benefits such as
vacations, computers, and office space.
D)A retired chief investment officer of a well-known investment management
company who, without compensation, writes a column in a general circulation
newspaper commenting on the value of investing in equity securities; many readers
find his advice useful and become clients of his former investment management
company. Correct Answer: C)A financial planner who sold his business and
spends his time consulting with pension plans on whether to retain or hire new
investment managers based on their performance. He does not charge fees;
however, those managers retained as a result of his recommendations routinely
provide him with noncash benefits such as vacations, computers, and office space.
If an individual is in the business of providing advice and receives any economic
benefit, such benefit is considered compensation under Release IA-1092. Since the
financial planner is in the business of giving advice to pension plans, actually
provides that advice, and is compensated for it, he meets all three elements in the
definition of an adviser. The noncash benefit, as in this case, need not come
directly from the beneficiary of the services to be considered compensation. The
college professor, the chief investment officer, and the Secretary of the Treasury
do not receive separate compensation, nor are they in the business of providing
investment advice.
,The Uniform Securities Act provides an exemption from registration as an
investment adviser for which of the following persons who have no place of
business in the state?
Advisers who deal exclusively with broker-dealers.
Advisers who deal exclusively with insurance companies.
Advisers who deal exclusively with investment companies.
Advisers who have no more than 5 clients in that state in a 12-month period.
A)I only.
B)I, II and III.
C)I and III.
D)I, II, III and IV. Correct Answer: D)I, II, III and IV.
Investment advisers who have no place of business in the state are exempt from
registration provided their clients are broker-dealers, other advisers, insurance
companies, institutions, or government agencies. Also exempt are those advisers
who have 5 or fewer clients in a 12-month period. All of these exemptions are lost
when the adviser has a place of business in the state.
Stanford Securities, Inc., is a registered broker-dealer in 22 states. Stanford has just
created a wholly owned subsidiary, Stanford Advisers, Inc., and expects to have at
least $100 million in assets under management within the next 45 days. Stanford
Advisers, Inc.:
A)will not have to register in any state.
B)must register in each state in which they intend to offer advisory services.
C)must register in each state in which they maintain an office.
D)will only have to register in the state in which Stanford Advisers, Inc., maintains
their principal office. Correct Answer: A)will not have to register in any state.
Unlike broker-dealers, where there is no such concept as federal covered, a new
investment adviser that reasonably expects to reach the $100 million minimum
threshold within 120 days of the initial filing of the Form ADV invariably registers
with the SEC as a federal covered investment adviser and, therefore, does not
register in any state.
Jim Thompson has recently joined an investment advisory firm as a financial
professional in the principal business of rendering investment advice for a fee
through offering investment supervisory services. Under the Investment Advisers
Act of 1940, Jim is considered which of the following?
,A)Investment expert.
B)Investment counsel.
C)RIA.
D)Prudent expert. Correct Answer: B)Investment counsel.
The term "investment counsel" may only be used if an adviser is in the principal
business of acting as an investment adviser and a substantial amount of business
comes from providing investment supervisory services. The term "investment
expert" is misleading terminology and the designation RIA is not allowed.
It is unlawful for an investment adviser:
To share in the profits of an account in relation to the amount of time devoted to
the account.
To unilaterally transfer an account to another firm if the assets fall below a
minimum level.
To take custody of a client's securities and funds, in the absence of a rule on
custody by the state Administrator.
To fail to disclose the departure of a general partner of an investment advisory
partnership who only had a minority interest in the firm.
A)I, II and III.
B)I and IV.
C)I and II.
D)I, II and IV. Correct Answer: D)I, II and IV.
An investment adviser cannot share in the profits of an account based on time
devoted and may not assign an account without the written permission of the
client. An investment adviser organized as a partnership must disclose to clients
when any partner, minority interest or not, departs from the firm.
When, if ever, would a broker-dealer be required to register as an investment
adviser?
A)Never.
B)If it charges distinct fees for investment advice or management.
C)Always.
D)If it is not registered with the SEC. Correct Answer: B)If it charges distinct fees
for investment advice or management.
, Although broker-dealers are generally exempt from having to register as
investment advisers, the exemption is not available if the broker-dealer imposes a
separate fee for account management or advice.
Which of the following persons are investment advisers subject to state
registration?
A)Any other person that the Administrator excludes by rule or order.
B)A federal covered investment adviser.
C)A financial planner or other person that provides investment advisory services to
others for compensation.
D)A publisher of a bona fide newspaper, news magazine, or business or financial
publication of general and regular circulation. Correct Answer: C)A financial
planner or other person that provides investment advisory services to others for
compensation.
A financial planning firm or other person that, as an integral component of other
financially related services, provides investment advisory services for
compensation is an investment adviser. A publisher of a bona fide newspaper,
news magazine, or business or financial publication of general and regular
circulation, a federal covered investment adviser, or any other person that the
Administrator specifies by rule or order, are excluded from the definition of an
investment adviser.
The title of "Investment Counsel" can be used in advertising for investment
advisers who provide:
A)generic and impersonal investment advice.
B)legal and investment advice.
C)occasional investment advice while practicing law.
D)specific investment advice on a continuous basis. Correct Answer: D)specific
investment advice on a continuous basis.
Using the title of Investment Counsel is allowed if an adviser gives specific
investment advice on a continuous basis. The adviser must dedicate the majority of
his time to providing investment advice.
After publishing a favorable report on a stock, an analyst was asked to appear on a
television program to discuss the reasons for the bullish recommendation. Which
(393 questions)| 174 pages| Graded A
Which of the following statements describes a person who provides investment
advice on a regular basis but does not charge fees, yet would be considered an
adviser under Release IA-1092?
A)A wealthy college professor who gives free lectures on sound investment
practices and makes specific securities recommendations based on a quantitative
model he has developed.
B)The Secretary of the U.S. Treasury who, as part of his official duties, comments
on conditions in the financial markets and their future investment implications.
C)A financial planner who sold his business and spends his time consulting with
pension plans on whether to retain or hire new investment managers based on their
performance. He does not charge fees; however, those managers retained as a
result of his recommendations routinely provide him with noncash benefits such as
vacations, computers, and office space.
D)A retired chief investment officer of a well-known investment management
company who, without compensation, writes a column in a general circulation
newspaper commenting on the value of investing in equity securities; many readers
find his advice useful and become clients of his former investment management
company. Correct Answer: C)A financial planner who sold his business and
spends his time consulting with pension plans on whether to retain or hire new
investment managers based on their performance. He does not charge fees;
however, those managers retained as a result of his recommendations routinely
provide him with noncash benefits such as vacations, computers, and office space.
If an individual is in the business of providing advice and receives any economic
benefit, such benefit is considered compensation under Release IA-1092. Since the
financial planner is in the business of giving advice to pension plans, actually
provides that advice, and is compensated for it, he meets all three elements in the
definition of an adviser. The noncash benefit, as in this case, need not come
directly from the beneficiary of the services to be considered compensation. The
college professor, the chief investment officer, and the Secretary of the Treasury
do not receive separate compensation, nor are they in the business of providing
investment advice.
,The Uniform Securities Act provides an exemption from registration as an
investment adviser for which of the following persons who have no place of
business in the state?
Advisers who deal exclusively with broker-dealers.
Advisers who deal exclusively with insurance companies.
Advisers who deal exclusively with investment companies.
Advisers who have no more than 5 clients in that state in a 12-month period.
A)I only.
B)I, II and III.
C)I and III.
D)I, II, III and IV. Correct Answer: D)I, II, III and IV.
Investment advisers who have no place of business in the state are exempt from
registration provided their clients are broker-dealers, other advisers, insurance
companies, institutions, or government agencies. Also exempt are those advisers
who have 5 or fewer clients in a 12-month period. All of these exemptions are lost
when the adviser has a place of business in the state.
Stanford Securities, Inc., is a registered broker-dealer in 22 states. Stanford has just
created a wholly owned subsidiary, Stanford Advisers, Inc., and expects to have at
least $100 million in assets under management within the next 45 days. Stanford
Advisers, Inc.:
A)will not have to register in any state.
B)must register in each state in which they intend to offer advisory services.
C)must register in each state in which they maintain an office.
D)will only have to register in the state in which Stanford Advisers, Inc., maintains
their principal office. Correct Answer: A)will not have to register in any state.
Unlike broker-dealers, where there is no such concept as federal covered, a new
investment adviser that reasonably expects to reach the $100 million minimum
threshold within 120 days of the initial filing of the Form ADV invariably registers
with the SEC as a federal covered investment adviser and, therefore, does not
register in any state.
Jim Thompson has recently joined an investment advisory firm as a financial
professional in the principal business of rendering investment advice for a fee
through offering investment supervisory services. Under the Investment Advisers
Act of 1940, Jim is considered which of the following?
,A)Investment expert.
B)Investment counsel.
C)RIA.
D)Prudent expert. Correct Answer: B)Investment counsel.
The term "investment counsel" may only be used if an adviser is in the principal
business of acting as an investment adviser and a substantial amount of business
comes from providing investment supervisory services. The term "investment
expert" is misleading terminology and the designation RIA is not allowed.
It is unlawful for an investment adviser:
To share in the profits of an account in relation to the amount of time devoted to
the account.
To unilaterally transfer an account to another firm if the assets fall below a
minimum level.
To take custody of a client's securities and funds, in the absence of a rule on
custody by the state Administrator.
To fail to disclose the departure of a general partner of an investment advisory
partnership who only had a minority interest in the firm.
A)I, II and III.
B)I and IV.
C)I and II.
D)I, II and IV. Correct Answer: D)I, II and IV.
An investment adviser cannot share in the profits of an account based on time
devoted and may not assign an account without the written permission of the
client. An investment adviser organized as a partnership must disclose to clients
when any partner, minority interest or not, departs from the firm.
When, if ever, would a broker-dealer be required to register as an investment
adviser?
A)Never.
B)If it charges distinct fees for investment advice or management.
C)Always.
D)If it is not registered with the SEC. Correct Answer: B)If it charges distinct fees
for investment advice or management.
, Although broker-dealers are generally exempt from having to register as
investment advisers, the exemption is not available if the broker-dealer imposes a
separate fee for account management or advice.
Which of the following persons are investment advisers subject to state
registration?
A)Any other person that the Administrator excludes by rule or order.
B)A federal covered investment adviser.
C)A financial planner or other person that provides investment advisory services to
others for compensation.
D)A publisher of a bona fide newspaper, news magazine, or business or financial
publication of general and regular circulation. Correct Answer: C)A financial
planner or other person that provides investment advisory services to others for
compensation.
A financial planning firm or other person that, as an integral component of other
financially related services, provides investment advisory services for
compensation is an investment adviser. A publisher of a bona fide newspaper,
news magazine, or business or financial publication of general and regular
circulation, a federal covered investment adviser, or any other person that the
Administrator specifies by rule or order, are excluded from the definition of an
investment adviser.
The title of "Investment Counsel" can be used in advertising for investment
advisers who provide:
A)generic and impersonal investment advice.
B)legal and investment advice.
C)occasional investment advice while practicing law.
D)specific investment advice on a continuous basis. Correct Answer: D)specific
investment advice on a continuous basis.
Using the title of Investment Counsel is allowed if an adviser gives specific
investment advice on a continuous basis. The adviser must dedicate the majority of
his time to providing investment advice.
After publishing a favorable report on a stock, an analyst was asked to appear on a
television program to discuss the reasons for the bullish recommendation. Which
