General Disclosures and Conduct for Broker-Dealers and Investment Advisers

Vocabulary flashcards covering mandatory disclosures, conflicts of interest, internet communications, capacity disclosures, agency cross transactions, and third-party research rules.

Four General Disclosures

The disclosures required of broker-dealers, investment advisers, agents, and IARs: conflicts of interest, internet-related disclosures, disclosure of capacity, and third-party research.

Conflict of Interest

A conflict between the private interests and the official responsibilities of a person in a position of trust, arising when a financial professional could personally benefit from a client interaction.

Proprietary Investment or Service

A security, product, or service developed by a company that is generally only available through that company, such as Fidelity's Portfolio Advisory Service.

Unsolicited Trade

A transaction initiated by a customer without influence from a financial professional, where broker-dealers are not held to a fiduciary duty.

Fiduciary Duty

The requirement for a professional to hold another person's interest above their own in all matters, which investment advisers must adhere to at all times.

Brochure

The document where an investment adviser must disclose permanent, ongoing conflicts of interest to clients.

1997 NASAA Order on Internet Communications

A regulatory order establishing that registered persons communicating online are not considered to be "transacting business" in a state if specific disclosure, supervisory, and non-specific communication conditions are met.

Trade Confirmation

A document sent to investors by settlement (typically the first business day after trade execution) indicating the capacity—agency or principal—in which a broker-dealer executed a transaction.

Principal Transaction Pre-Disclosure

The mandatory disclosure an investment adviser must provide during a recommendation and before trade execution if the recommended security will be sold out of the adviser's own inventory.

Agency Cross Transaction

A transaction in which an investment adviser matches or "crosses" two of their own clients on the same trade.

One-Sided Recommendation Rule

The NASAA requirement for an agency cross transaction specifying that a trade recommendation may be made to only one of the two participating clients.

Agency Cross Annual Disclosure

A yearly document provided to all participating clients detailing the total number of agency cross transactions performed and the total compensation received in connection with them.

Third-Party Research Disclosure

The key NASAA requirement obligating registered persons who provide analyst research reports to disclose the source and never imply that the research is their own.