Investment Advisers (IA), IARs, Exemptions, Federal vs State (Cards ~111–220)

What is prequalifying?

Communicating with customers to determine interest or eligibility for securities offerings

Who must register if they prequalify clients?

Anyone who prequalifies must be registered

Who is responsible for safeguarding client assets?

The broker-dealer

What does consent to service of process mean?

Agreement to accept civil service related to securities matters

Does consent to service include criminal actions?

No

Can firms share commissions with unregistered employees?

No

How may firms compensate all employees with commissions?

Through pooled commissions paid as a bonus

When must a broker-dealer register in a state?

If it has an office or a resident retail client in the state

Can an agent register in a state where the firm is not registered?

No

Can agents sell exempt securities without registration?

No

Must agents register to sell to institutional clients?

Yes

How long may an agent continue business after a client moves states?

60 days

What regulatory actions cause statutory disqualification?

SEC, Administrator, or SRO bars

What must an agent do after a client moves states?

Register in the new state within 60 days or stop business

Are active officers automatically registered?

Yes, when the firm registers

When must a CEO pass an exam to sell securities?

If not previously registered in the state

When must a firm register as an Investment Adviser?

When offering financial planning or advice for compensation

Managing assets for a fee requires what registration?

Investment Adviser (IA)

What compensation triggers IA registration?

Cash or non-cash (special compensation)

What is special compensation?

Non-cash items like gifts or gratuities

When is pro bono advice exempt from IA registration?

When no compensation of any kind is received

What is the minimum number of people required to form an IA?

One

What is notice filing?

State notification that an adviser is federally covered

When must notice filing fees be paid?

By December 31 annually

What does dually registered mean?

Broker-dealer and Investment Adviser

Who must register as an IAR?

Individuals soliciting or giving investment advice

What does an IAR do?

Solicits clients and provides advice

Who registers IARs?

States only

When must telemarketers register as IARs?

When selling advisory services

Who notifies the Administrator when an IAR leaves?

The IAR (federal) or firm (state-registered)

Who sets bonding and net worth requirements?

Federal or state regulators depending on registration

What may be used instead of a surety bond?

Cash or marketable securities

When may Administrators require surety bonds?

When firms have custody or discretion

Are IARs subject to bonding requirements?

No

Can states set financial requirements for agents?

No

When may states set IA net worth requirements?

When IAs have custody or discretion

Are limited partnership interests securities?

Yes

What is a robo-adviser considered?

An Investment Adviser

How long must IA supervision records be kept?

Five years

Minimum IA net worth for discretion only?

$10,000

Minimum IA net worth with custody?

$35,000

When can BD/IA act as broker without disclosures?

When no advisory relationship exists

Does FINRA register IAs?

No

Must broker-dealers keep tax returns?

No

Fee-based accounts are inappropriate for whom?

Buy-and-hold investors

What are examples of pooled accounts?

Mutual funds, ETFs, pension funds, REITs

When does an IA have custody of pooled funds?

When it has access or legal ownership

What entity is excluded from IA regulation?

Family office

What defines a family office?

Advises only one family and is family-controlled

When must an IA register with a state?

If it has an office or more than 5 retail clients

How long to switch from state to federal IA registration?

90 days

How long to switch from federal to state IA registration?

180 days

Are IARs subject to net worth rules?

Never

When must IAs register federally?

At $110 million AUM

What AUM triggers federal registration for pension advisers?

$200 million

Where do investment company advisers register?

Federal level

When must solicitors for federal IAs register?

When compensated in any way

Are fixed annuities securities?

No

Are equity-indexed annuities securities?

No

How does the USA treat foreign securities?

As securities

Are commodities futures securities?

No

What securities are federally covered?

Exchange-listed, mutual funds, Reg D

Can issuers amend offering size after effectiveness?

Yes

Can issuers change offering price?

No

Are mutual funds registered at the state level?

No

Which Canadian securities are exempt?

Canadian government and municipal bonds

Is commercial paper exempt?

Yes, if short-term, large denomination, and highly rated

What securities are exempt from state registration?

Municipal bonds, US Treasuries, bank securities, commercial paper, exchange-listed securities, federal private placements

Are unlisted stocks federally covered?

No

Must unlisted stocks be registered at the state level?

Yes

Are agents required to register in exempt transactions?

Yes

What three conditions must be met for pre-organization certificates to be exempt?

No commissions, no payment, and 10 or fewer subscribers

What happens if subscribers pay for pre-organization certificates?

The exemption is lost

Why is an IPO not an exempt non-issuer transaction?

The issuer receives proceeds

What is a non-issuer transaction by a pledgee?

Sale after borrower default on pledged securities

Which financial institutions qualify for exempt transactions?

Banks, savings institutions, trust companies

Are fiduciary transactions exempt?

Yes, if court-appointed

Are IRAs securities?

No

Are precious metals securities?

No

When are commodity futures securities?

Only if the underlying asset is a security

Are listed options securities?

Yes

Which insurance products are securities?

Variable life and variable annuities

What is factoring?

Issuing receivable-backed promissory notes

What qualifies as a USA private placement?

Offered to 10 or fewer non-institutional investors in 12 months

What must be included in an SEC registration statement?

Business description, insiders, underwriters, proceeds, legal issues, financials

Are retirement plans securities?

No, but they often hold securities

Are mutual funds federally covered?

Yes

Which foreign municipal securities are exempt?

Canadian municipal bonds

How many non-accredited investors may participate in Reg D offerings?

35

What state registration method is used for one state?

Qualification

What registration method is used for multiple states?

Coordination

Are equity-indexed annuities securities?

No

Must personal bankruptcies be disclosed?

Yes, if within 10 years

Is bankruptcy a statutory disqualification?

No

Who files Form U-5 when an agent leaves?

Both agent and firm

Which form is filed to terminate agent registration?

Form U-5

Which form is filed to join a new firm?

Form U-4

Can agents transact business during firm transition?

No, except personal trades

Must agents notify clients when changing firms?

No

What may a terminated agent still trade?

Personal account only