Series 63: Unit 5 Key Concepts

Advertising/sales literature filing requirement

The Administrator may require advertising or sales literature for nonexempt securities in non-exempt transactions to be pre-approved, filed before or with first use, filed after use, or not filed at all

Physical mailings

Any mailed offer, including mass mailings, is considered an offer in both the state it is sent from and the state it is received.

mailed confirms

The mailing of a confirmation to a state does NOT give the Administrator in that state jurisdiction over the transaction.

Definition of an advertisement

For IAs, any written communication sent to more than one person is an advertisement and is subject to advertising rules (e.g., content, filing, and record-keeping requirements)

websites

• A firm’s website is considered advertising and must be retained.

• The site must state that the firm can only do business in a state if properly registered there.

• However, having a website alone does not require registration; registration is required only if the firm follows up with advice or offers into that state.

30 second bank ad exemption

A bank can run a radio or TV ad for up to 30 seconds without having to provide FDIC disclosures that securities are not bank products and are not FDIC insured.

Testimonials

• BDs and federal covered IAs are permitted to use testimonials.

• The rules will vary by state for state registered investment advisers

Verbal but not voice mail

Agents may accept verbal orders (i.e., orders need not be in writing), but orders cannot be accepted through voicemail.

IA Marketing Rule - Returns

IA ads may not show gross performance without presenting net, after-fee performance with equal prominence.

Social media - Static vs. interactive content

• Static social media content is treated as advertising and may require principal approval and filing.

• Interactive content, which allows user participation, must be monitored for compliance.

“Likes” = testimonials

• Many state regulators interpret a social media “like” as a testimonial.

• The critical element here is to know it is considered a testimonial rather than a solicitation.

Prior approval for posts

Agent posts of fee schedules or performance data on social media are retail communications and require prior approval.

Form ADV Part 1

Info for regulators, check the box/fill in the blank

Form ADV Part 2

• disclosures for clients in plain English

• Part 2A (Brochure): Describes the adviser’s services, fees, conflicts of interest, and other key info

• Part 2B (Brochure Supplement): Provides qualifications and disciplinary history of individual IARs

Form ADV Part 3

• Form CRS: Summarizes the client, outlining the nature of the relationship with the financial professional

• BDs and their agents must also provide customers with a Form CRS (Customer Relationship Summary) at account opening

Custody requirements

A state-registered IA with custody must maintain a $35,000 net worth and file an audited balance sheet with the Administrator

Advisory fees

• Advisory fees must be reasonable compared with similar services of other IAs, and clients do not vote on fee changes

• Fee changes are not material and are reported in the annual updating amendment filed within 90 days of the fiscal year-end

Access persons

any supervised person who has access to nonpublic client trading or recommendation information; this typically includes all directors, officers, and partners.

maintenance call

• occurs when the stock price falls to (original price × 50 percent) ÷ 0.75

• For example, if a customer buys 1,000 shares of ABC at $60.00 per share, the maintenance margin call would occur when ABC trades at $40.00 = ($60.00 x 50%) / 0.75.

options account paperwork

• The ODD must be delivered at or before account approval

• the signed options agreement must be returned within 15 days, or the client is limited to closing transactions.