Series 66 - Chapter 1: Investment Advisers, Registration & IARs

Vocabulary flashcards covering core definitions, registration rules, form types, exemptions, and net capital requirements from Series 66 Chapter 1 notes.

Investment Adviser

A business that gives advice or analysis about securities, is in the business of providing that advice, and receives compensation for that advice.

ABC Test

A three-pronged test used to identify an investment adviser, standing for Advice, Business, and Compensation.

Investment Adviser Representative (IAR)

An individual employee of an investment adviser firm who performs advisory services, manages client portfolios, solicits business, or supervises employees performing these functions.

Federal Covered Adviser (FCA)

An investment adviser registered with the SEC rather than with individual state administrators.

AUM Registration Threshold (SEC Required)

An investment adviser with more than $110 million AUM must register with the SEC as a federal covered adviser.

AUM Registration Threshold (State General)

An investment adviser with less than $100 million AUM generally registers with the individual states.

AUM Registration Buffer Zone

An adviser with $100 million to $110 million AUM has the choice to register with either the SEC or state administrators.

Business Development Company (BDC)

A company for which mid-sized advisers with $25 million to $100 million AUM must register with the SEC.

Notice Filing

The requirement for a federal covered adviser to submit copies of Form ADV and pay filing fees to a state administrator when it has a place of business or more than 5 non-institutional clients in that state.

De Minimis Exception (Investment Adviser)

An exemption from state registration for an adviser with no place of business in the state and 5 or fewer retail clients in that state during the preceding 12 months.

De Minimis Exception (IAR of State-Registered Adviser)

An exemption from state registration for an IAR who has no office in that state and 5 or fewer non-institutional clients there during the previous 12 months.

Institutional Client State Exemption

An exception allowing an adviser with no place of business in a state to avoid state registration if it exclusively serves institutional clients such as banks, broker-dealers, investment companies, trusts, insurance companies, and employee benefit plans with at least $1 million in assets.

IARD (Investment Adviser Registration Depository)

The electronic filing system used by investment advisers for state registration.

Form ADV

The multi-part registration filing used by investment advisers to register and provide mandatory disclosures to regulators and clients.

Form ADV Part 1

The section of Form ADV containing general information about the adviser, including business nature, principals, office locations, services, custody, records locations, and regulatory/disciplinary history.

Form ADV Part 2A

The firm's client brochure disclosing fee structures, advisory services offered, investment analysis methods, disciplinary history, conflicts of interest, and management backgrounds.

Form ADV Part 2B

The brochure supplement containing background information about individual IARs who work with clients, including education, employment experience, disciplinary history, outside business activities, and compensation sources.

Form CRS

The Client Relationship Summary required to be delivered to new clients summarizing the relationship and services between the client and the firm.

Form U4

The uniform application form filed by investment adviser representatives to register, disclosing residential, employment, criminal, civil, bankruptcy, and customer complaint history.

Form U5

The uniform termination notice form filed when an investment adviser representative leaves a firm.

Form ADV-W

The official form filed by an investment adviser to withdraw its registration.

Consent to Service of Process

A permanent legal consent filed with registration applications that authorizes the state securities administrator to receive legal process on behalf of the applicant.

Audited Balance Sheet Requirement

A financial filing required with Form ADV Part 2A if an adviser maintains custody of client assets, exercises discretionary authority over client accounts, or collects prepaid fees of more than $500 (state) or $1,200 (federal) at least 6 months in advance.

Successor Firm

A firm that takes over another firm's assets and operations (e.g., following financial insolvency), which is exempt from paying a new filing fee upon initial application but must renew registration by the end of the year.

NASAA Net Capital Requirement (Custody)

The recommended minimum net capital of $35,000 for state-registered investment advisers maintaining custody of client assets.

NASAA Net Capital Requirement (Discretion)

The recommended minimum net capital of $10,000 for state-registered investment advisers with discretionary authority over client accounts who do not have custody.

Net Capital Deficiency Procedure

The requirement that an adviser falling below minimum net capital must notify the state administrator by the close of the next business day and submit a detailed financial report (trial balance, un-segregated funds, client debit balances, total client accounts) by the close of the second business day.