s66 QUESTIONS AND ANSWERS| 43 QUESTIONS
According to NASAA's Statement of Policy on Unethical Business Practices, what
information is required to be included in the renewal of an investment advisory
contract?
The investment advisory fee
A statement that no assignment of the contract will be made by the investment
adviser without the consent of the client
A statement regarding the amount of prepaid fees that must be returned if the
contract is terminated
The educational background of each IAR
I and II only
I, II, and III only
I, II, and IV only
I, II, III, and IV Correct Answer: I, II, and III only
NASAA's Statement of Policy on Unethical Business Practices states that the
renewal of an investment advisory contract must include the disclosure of all fees
and services provided, the method for computing the advisory fee, the amount of
prepaid fees to be returned in the event of an early termination of the contract, and
the fact that no assignment of the contract will be made without the client's
consent. There is no requirement to disclose the educational experience of each
investment adviser representative that works with clients. (67517)
Walck Asset Management has $67.5 million in assets under management. Under
the Uniform Securities Act (USA), if Walck transacts business with clients in State
A, it is:
Required to pay an initial and renewal filing fee to State A
Not required to pay any filing fees in State A
Required to pay filing fees in State A only if it has an office in State A
Required only to pay an initial filing fee in State A Correct Answer: Required to
pay an initial and renewal filing fee to State A
Advisers with assets of $110 million or more must register with the federal
government and are known as federal covered advisers. Advisers with assets of
$100 million up to $110 million may register with the federal or state government.
Those with fewer assets generally fall under state jurisdiction. Since the Advisory
firm has assets under management of less than $100 million, it must register with
,State A and pay a registration fee and annual renewal fee, as well as in any state in
which the firm is required to register. (79481)
Under the Uniform Securities Act, which of the following would be EXEMPT
from the definition of an investment adviser?
An insurance company that provides investment advice to clients for a small fee
A company that provides investment advice to nonprofit organizations and
municipalities for a fee
A firm that solely provides advice on municipal bonds for a fee
A trust company that provides investment advice to trust clients for a fee Correct
Answer: A trust company that provides investment advice to trust clients for a fee
A trust company is the only response that is exempt from the definition of an
investment adviser. Under the Uniform Securities Act, the following persons are
exempt from the definition:
Banks, trust companies, or savings institutions
Lawyers, accountants, teachers, and engineers whose advice is incidental to their
profession
Broker-dealers whose advisory services are incidental to their business
Bona fide publishers
Federal covered advisers
Any other person who is designated by the Administrator
According to NASAA provisions, an investment adviser that maintains custody of
a client's funds must:
Notify the client of the location of the funds within 90 days of taking custody
Provide prior verbal notification to the Administrator of its intention to take
custody of the client's funds
Notify the client of the location of the funds within 30 days of taking custody
Be subject to a surprise audit by an independent accountant Correct Answer: Be
subject to a surprise audit by an independent accountant
If an investment adviser maintains custody of its clients' funds, it must provide
prompt written notification as to the location of where the funds are being held as
well as prompt written notification if that location is changed. Choice (b) is
incorrect since an adviser is required to promptly notify the Administrator in
writing when it takes custody. Any audit of the records must be performed by an
independent accountant, not by the Administrator. (88895)
, Every investment advisory contract must be in writing and it must include which of
the following provisions?
A statement that assignment of the contract is prohibited
A statement that defines the length of time for which the services are contracted
A statement that limits the investment adviser's liability to $500,000 per client
A statement that fully explains the percentage of the capital gains that will be
shared with the adviser Correct Answer: A statement that defines the length of
time for which the services are contracted
An investment adviser's contract must be in writing and clearly disclose the
specific length of time that it is in force. Provided customer consent is obtained,
advisory contracts may be assigned to another advisory firm. Advisory contracts
may not include a clause which attempts to limit an adviser's liability. Also, an
adviser is prohibited from sharing in a client's capital gains unless the client is
qualified and meets specific financial criteria. (67615)
If an adviser has custody of customer funds and securities, the submission of Form
ADV-E must be performed by:
The adviser within 120 days after the completion of an audit
The adviser within 90 days after the completion of an audit
An independent accountant within 120 days after the completion of an audit
An independent accountant within 90 days after the completion of an audit Correct
Answer: An independent accountant within 120 days after the completion of an
audit
Submission of Form ADV-E with the SEC is required if the adviser has custody of
client funds and securities. The form must be filed by an independent accountant,
not the adviser, within 120 days after the completion of the audit. (79297)
According to the Investment Advisers Act of 1940, when is an investment adviser
required to provide a balance sheet to its clients?
When the adviser requires the prepayment of a fee that is greater than $500, six
months or more in advance of providing service
When the adviser requires the prepayment of a $500 initial advisory fee
When the adviser requires the prepayment of a fee that is greater than $1,200, six
months or more in advance of providing service
When the adviser has taken custody of the client's funds or securities Correct
Answer: When the adviser requires the prepayment of a fee that is greater than
$1,200, six months or more in advance of providing service
According to NASAA's Statement of Policy on Unethical Business Practices, what
information is required to be included in the renewal of an investment advisory
contract?
The investment advisory fee
A statement that no assignment of the contract will be made by the investment
adviser without the consent of the client
A statement regarding the amount of prepaid fees that must be returned if the
contract is terminated
The educational background of each IAR
I and II only
I, II, and III only
I, II, and IV only
I, II, III, and IV Correct Answer: I, II, and III only
NASAA's Statement of Policy on Unethical Business Practices states that the
renewal of an investment advisory contract must include the disclosure of all fees
and services provided, the method for computing the advisory fee, the amount of
prepaid fees to be returned in the event of an early termination of the contract, and
the fact that no assignment of the contract will be made without the client's
consent. There is no requirement to disclose the educational experience of each
investment adviser representative that works with clients. (67517)
Walck Asset Management has $67.5 million in assets under management. Under
the Uniform Securities Act (USA), if Walck transacts business with clients in State
A, it is:
Required to pay an initial and renewal filing fee to State A
Not required to pay any filing fees in State A
Required to pay filing fees in State A only if it has an office in State A
Required only to pay an initial filing fee in State A Correct Answer: Required to
pay an initial and renewal filing fee to State A
Advisers with assets of $110 million or more must register with the federal
government and are known as federal covered advisers. Advisers with assets of
$100 million up to $110 million may register with the federal or state government.
Those with fewer assets generally fall under state jurisdiction. Since the Advisory
firm has assets under management of less than $100 million, it must register with
,State A and pay a registration fee and annual renewal fee, as well as in any state in
which the firm is required to register. (79481)
Under the Uniform Securities Act, which of the following would be EXEMPT
from the definition of an investment adviser?
An insurance company that provides investment advice to clients for a small fee
A company that provides investment advice to nonprofit organizations and
municipalities for a fee
A firm that solely provides advice on municipal bonds for a fee
A trust company that provides investment advice to trust clients for a fee Correct
Answer: A trust company that provides investment advice to trust clients for a fee
A trust company is the only response that is exempt from the definition of an
investment adviser. Under the Uniform Securities Act, the following persons are
exempt from the definition:
Banks, trust companies, or savings institutions
Lawyers, accountants, teachers, and engineers whose advice is incidental to their
profession
Broker-dealers whose advisory services are incidental to their business
Bona fide publishers
Federal covered advisers
Any other person who is designated by the Administrator
According to NASAA provisions, an investment adviser that maintains custody of
a client's funds must:
Notify the client of the location of the funds within 90 days of taking custody
Provide prior verbal notification to the Administrator of its intention to take
custody of the client's funds
Notify the client of the location of the funds within 30 days of taking custody
Be subject to a surprise audit by an independent accountant Correct Answer: Be
subject to a surprise audit by an independent accountant
If an investment adviser maintains custody of its clients' funds, it must provide
prompt written notification as to the location of where the funds are being held as
well as prompt written notification if that location is changed. Choice (b) is
incorrect since an adviser is required to promptly notify the Administrator in
writing when it takes custody. Any audit of the records must be performed by an
independent accountant, not by the Administrator. (88895)
, Every investment advisory contract must be in writing and it must include which of
the following provisions?
A statement that assignment of the contract is prohibited
A statement that defines the length of time for which the services are contracted
A statement that limits the investment adviser's liability to $500,000 per client
A statement that fully explains the percentage of the capital gains that will be
shared with the adviser Correct Answer: A statement that defines the length of
time for which the services are contracted
An investment adviser's contract must be in writing and clearly disclose the
specific length of time that it is in force. Provided customer consent is obtained,
advisory contracts may be assigned to another advisory firm. Advisory contracts
may not include a clause which attempts to limit an adviser's liability. Also, an
adviser is prohibited from sharing in a client's capital gains unless the client is
qualified and meets specific financial criteria. (67615)
If an adviser has custody of customer funds and securities, the submission of Form
ADV-E must be performed by:
The adviser within 120 days after the completion of an audit
The adviser within 90 days after the completion of an audit
An independent accountant within 120 days after the completion of an audit
An independent accountant within 90 days after the completion of an audit Correct
Answer: An independent accountant within 120 days after the completion of an
audit
Submission of Form ADV-E with the SEC is required if the adviser has custody of
client funds and securities. The form must be filed by an independent accountant,
not the adviser, within 120 days after the completion of the audit. (79297)
According to the Investment Advisers Act of 1940, when is an investment adviser
required to provide a balance sheet to its clients?
When the adviser requires the prepayment of a fee that is greater than $500, six
months or more in advance of providing service
When the adviser requires the prepayment of a $500 initial advisory fee
When the adviser requires the prepayment of a fee that is greater than $1,200, six
months or more in advance of providing service
When the adviser has taken custody of the client's funds or securities Correct
Answer: When the adviser requires the prepayment of a fee that is greater than
$1,200, six months or more in advance of providing service
