Ch5

May a state Administrator require filing of advertisements or sales literature?

Yes, unless the security or transaction is exempt

Which firms are subject to ad filing requirements?

Broker-dealers and investment advisers

When may ads for non-exempt securities be required to be filed?

When sold in non-exempt transactions

What ad filing methods may an Administrator require?

Pre-approval, filing before use, concurrent filing, filing after use, or no filing

Does a mass mailing give the Administrator jurisdiction?

Yes, each letter is considered an offer into the state

Does mailing a trade confirmation create state jurisdiction?

No, confirmations do not create jurisdiction

What is considered an advertisement for an IA?

Any written communication to more than one person

Are IA advertisements subject to recordkeeping rules?

Yes, content, filing, and recordkeeping rules apply

May broker-dealers use testimonials?

Yes, broker-dealers may use testimonials

May federal covered IAs use testimonials?

Yes, federal covered IAs may use testimonials

Do testimonial rules vary for state-registered IAs?

Yes, testimonial rules vary by state

Is an IA’s website considered advertising?

Yes, IA websites are advertisements

Must old versions of websites be retained?

Yes, both old and new versions must be kept

Does having a website alone trigger registration?

No, advertising alone does not require registration

When does website activity trigger registration?

When follow-up advice or offers are made in a state

How long may a bank run an ad without FDIC disclosures?

Up to 30 seconds

When are FDIC disclosures required in ads?

When ads exceed 30 seconds

May agents accept verbal trade orders?

Yes, verbal orders are permitted

May agents accept orders via voicemail?

No, voicemail orders are prohibited

May IA ads show gross performance only?

No, gross performance may not be shown without net performance

How must net performance be presented?

Net performance must be equally prominent as gross

What is static social media content?

Content that remains posted and visible to all users

Is static social media content considered advertising?

Yes, it is advertising and subject to approval

What is interactive social media content?

Content allowing comments, likes, or participation

Must interactive social media be monitored?

Yes, interactive content must be monitored for compliance

How do regulators treat social media “likes”?

Many states view likes as testimonials

Are likes considered solicitations?

No, likes are testimonials, not solicitations

Do social media posts require prior approval?

Yes, when they include fees or performance

Are social media posts retail communications?

Yes, they are retail communications

What are the main parts of Form ADV?

Parts 1, 2, and 3

What information is included in Form ADV Part 1?

Regulatory information for administrators

What is disclosed in Form ADV Part 2A?

Adviser services, fees, and conflicts

What is disclosed in Form ADV Part 2B?

IAR background and disciplinary history

What is Form ADV Part 3?

Form CRS summarizing the client relationship

Must broker-dealers provide Form CRS?

Yes, at account opening

What is the IA brochure?

A plain-English disclosure document for clients

Does the IA brochure include client SSNs?

No, SSNs are not included

What must an IA with custody file with the Administrator?

An audited balance sheet

Must advisory fees be reasonable?

Yes, fees must be reasonable and not excessive

Are fee changes considered material events?

No, fee changes are not material

When must fee changes be reported?

In the annual amendment within 90 days of fiscal year-end

Who is considered an access person?

A supervised person with access to nonpublic client information

Which roles are typically access persons?

Directors, officers, and partners

What is the initial margin requirement for purchases?

50% of the purchase price

How does margin affect investment returns?

Gains and losses are magnified 2x

Does market movement affect the debit balance?

No, it affects equity, not the debit balance

What formula determines a maintenance margin call price?

(Original price × 50%) ÷ 0.75

Is buying call options bullish or bearish?

Bullish

Is buying put options bullish or bearish?

Bearish

What option protects a long stock position?

A protective put

What option strategy generates income on a long stock?

Writing a covered call

What is a straddle?

Buying or selling a call and put on the same stock

What does a long straddle bet on?

Volatility

What does a short straddle bet on?

Stability

What is a collar strategy?

Buying a put and writing a call to protect gains

What is intrinsic value of an option?

Difference between strike price and market value

Can intrinsic value be negative?

No, intrinsic value cannot be negative

How is call option intrinsic value calculated?

Market price minus strike price

How is put option intrinsic value calculated?

Strike price minus market price

When does an option have no intrinsic value?

When the strike price equals market price