Series 65: Starting an Investment Advisory Business (1-1 to 1-18)

  1. What is an Investment Adviser (IA), as defined by the Investment Advisers Act of 1940?
    • Must meet the ABC test:
    • -Providing Advice about securities
    • -Being in the Business of giving advice
    • -Being Compensated for the advice
  2. What is an Investment Adviser Representative (IAR)?
    Typically they are employees of the IA.
  3. What is NOT an Investment Adviser (Federal Exclusions)?
    • -Bank or bank holding company
    • -Lawyer, CPA, engineer or teacher
    • -A broker dealer
    • -Publisher of newspaper, magazine or any other publication
    • -Govt securities advisers
    • -Any person designated by the SEC
  4. What is NOT an Investment Adviser (State Exclusions)?
    • -Bank, savings institution or trust company
    • -Lawyer, CPA, engineer or teacher
    • -Borker dealer
    • -Publisher of newspaper, magazine or any other publication
    • -Investment adviser representative
    • -Federal covered advisers
  5. When do Investment Advisers file with Federal vs. State Registration:
    -$30MM or greater?
    -$25MM to $30MM?
    -Less than $25MM?
    • -$30MM or greater: subject to SEC Registration
    • -$25MM to $30MM: SEC or State Registration
    • -Less than $25MM: Subject to State Registration
    • EXCEPTION: IA's to registered investment companies are require to register w/ the SEC.
  6. What form is used to register under the Investment Advisers Act?
    Form ADV (Part I and Part II).
  7. Form ADV Part I?
    • Discloses specific info of interest to regulators:
    • -IA's name, number of employees, form of organization, and nature of business
    • -Name, address, education & business affiliation for past 10 yrs of each partner or officer
    • -How client assets will be custodied
    • -Number and size of accts.
  8. Form ADV Part II?
    • Disclosure document for clients:
    • -Balance sheet
    • -Various services provided
    • -Description of the education & business of officers and people giving advice
    • -Whether the IA acts as a broker or dealer
    • -Description of types of securities
    • -Disclosure of the IA's affiliations w/ other securities professionals
  9. How long does it take for the SEC to grant registration?
    45 days
  10. Registration Amendments: explain
    A registered investment adviser must amend Form ADV anytime information becomes inaccurate. (If changing fees Form ADV must be amended w/in 90 days and notify clients promptly).
  11. Annual Updating Amendment
    Every registered investment adviser must file and annual updating amendment w/in 90 days of the end of each fiscal year.
  12. What is an ADV-W?
    If adviser indicates on Schedule I that it is no longer eligible for registration w/ SEC, the adviser has 90 days to w/draw its federal registration by filing Form ADV-W. (90 day grace period allows adviser time to become properly registered at the state level.)
  13. Wha is Form ADV-E?
    If investment adviser maintains cash or securities he must arrange for annual unannounced audits by an independent accounting firm. The accounting firm submits Form ADV-E on behalf of the investment adviser w/in 30 days of the audit.
  14. What 3 cases provide exclusion from federal registration?
    • 1. An investment adviser whose clients are in same state in which he maintains principal office and does not furnish advice on exchange-traded securities.
    • 2. An investment adviser whose only clients are insurance companies.
    • 3. An adviser who qualifies for the private adviser exemption. (Less than 15 client over past 12 mos, do not hold themselves out to public as investment advisers & are not investment advisers to registered investment companies.
  15. According to SEC Release 1092 who would also be considered investment advisers?
    • Financial Planners
    • Sports & Entertainment Reps
    • Pension Consultants
  16. Give an example of a wrap account.
    The client is charged one flat fee for all their transactions as well as the services of a professional money manager.
  17. True or False: A broker-dealer that offers wrap accounts no longer qualifies for the broker-dealer exclusion from the definition of an investment adviser.
    True: The broker-dealer would be classified as an investment adviser and would need to register. Whether it would need to register at the federal or state level depends on the amount of the assets that it anticipates managing.
Card Set
Series 65: Starting an Investment Advisory Business (1-1 to 1-18)
Test Prep for the Series 65