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Questions and Answers
If you change your fees as an IA, you have to give your updated brochure to current clients.
If you change your fees as an IA, you have to give your updated brochure to current clients.
False
Industrial stocks are:
Industrial stocks are:
A registered representative who wants to sell securities outside of her normal course of employment must first notify her firm:
A registered representative who wants to sell securities outside of her normal course of employment must first notify her firm:
_ and _ are valued each day, at the close of market, based on their net asset value.
_ and _ are valued each day, at the close of market, based on their net asset value.
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Dividends are taxed as _ at the investor's tax rate.
Dividends are taxed as _ at the investor's tax rate.
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What is the difference between fraud and unethical practices?
What is the difference between fraud and unethical practices?
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Form _ is required for any investor that acquires more than _% of the common stock of a reporting company.
Form _ is required for any investor that acquires more than _% of the common stock of a reporting company.
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Schedule 13D must be filed within _ days of acquiring the stock.
Schedule 13D must be filed within _ days of acquiring the stock.
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With whom must Schedule 13D be filed?
With whom must Schedule 13D be filed?
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What is the next step if a state regulated IA falls below the minimum financial requirements?
What is the next step if a state regulated IA falls below the minimum financial requirements?
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What are the three options for a spouse inheriting her deceased husband's IRA?
What are the three options for a spouse inheriting her deceased husband's IRA?
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Shares of an REIT are allowed in an IRA.
Shares of an REIT are allowed in an IRA.
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Value stocks tend to have high ______ and low ______, ______, and ______.
Value stocks tend to have high ______ and low ______, ______, and ______.
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A person employed by an issuer is required to register under the USA when making a sale of a _ security to a _ investor.
A person employed by an issuer is required to register under the USA when making a sale of a _ security to a _ investor.
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What is alpha in investment terminology?
What is alpha in investment terminology?
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What is the rule of 72 used for?
What is the rule of 72 used for?
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Future value of mo______ey formula is: P______ = P0(1+r)^_
Future value of mo______ey formula is: P______ = P0(1+r)^_
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Funds of hedge funds are liquid and can be redeemed at the end of the trading day.
Funds of hedge funds are liquid and can be redeemed at the end of the trading day.
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Employees of issuers are considered agents.
Employees of issuers are considered agents.
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Who are the affiliates of an IA?
Who are the affiliates of an IA?
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What does modern portfolio theory focus on?
What does modern portfolio theory focus on?
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A cash withdrawal from a life insurance policy is done via _
A cash withdrawal from a life insurance policy is done via _
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According to IA act of '40, when must an access person submit their personal security holdings?
According to IA act of '40, when must an access person submit their personal security holdings?
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The IA act of '40 requires an access person to submit a transaction report no later than _ days after the end of each _.
The IA act of '40 requires an access person to submit a transaction report no later than _ days after the end of each _.
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What must be included in the access person's report regarding his security holdings?
What must be included in the access person's report regarding his security holdings?
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What does the administrator require an IA to file with its initial ADV?
What does the administrator require an IA to file with its initial ADV?
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What action must a FCA take if they transact business with six or more retail clients in any state?
What action must a FCA take if they transact business with six or more retail clients in any state?
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Investing in different countries is considered sector rotation.
Investing in different countries is considered sector rotation.
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The Investment Company Act of '40 regulates minimum rates of return.
The Investment Company Act of '40 regulates minimum rates of return.
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Under the USA, _ is not required to be on a customer confirmation, but _ is.
Under the USA, _ is not required to be on a customer confirmation, but _ is.
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What statements must a website advertisement include according to NASAA?
What statements must a website advertisement include according to NASAA?
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What must be disclosed if performance-based fees are allowed?
What must be disclosed if performance-based fees are allowed?
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Registration of an agent is only valid as long as they are associated with the BD.
Registration of an agent is only valid as long as they are associated with the BD.
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A third-party solicitor must register as an IAR under the act of '40.
A third-party solicitor must register as an IAR under the act of '40.
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What must an investment adviser do to act as a broker for both parties to a transaction?
What must an investment adviser do to act as a broker for both parties to a transaction?
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What does market risk refer to?
What does market risk refer to?
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Who is considered an accredited investor?
Who is considered an accredited investor?
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Under the USA, who is an institutional investor?
Under the USA, who is an institutional investor?
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A BD can use testimonials as long as they disclose if a fee was paid for them.
A BD can use testimonials as long as they disclose if a fee was paid for them.
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What is capital needs analysis used for?
What is capital needs analysis used for?
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A structured product usually consists of a debt instrument and a derivative.
A structured product usually consists of a debt instrument and a derivative.
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What is required for a BD to post a surety bond?
What is required for a BD to post a surety bond?
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What must an adviser include regarding investment tools developed?
What must an adviser include regarding investment tools developed?
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What is systematic rebalancing?
What is systematic rebalancing?
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When developing a plan for a client, what is more important - current interest rates or approximate inflation rate?
When developing a plan for a client, what is more important - current interest rates or approximate inflation rate?
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Sales literature for exempt securities is subject to filing requirements of the USA.
Sales literature for exempt securities is subject to filing requirements of the USA.
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What is a liquidity ratio that measures both short term and long term debt?
What is a liquidity ratio that measures both short term and long term debt?
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What is disclosed on a bond confirmation?
What is disclosed on a bond confirmation?
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Under the Investment Company Act of 1940, shareholders are entitled to current information about the composition of the fund's portfolio.
Under the Investment Company Act of 1940, shareholders are entitled to current information about the composition of the fund's portfolio.
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REITs must generate at least _% of their income from investing in real property and distribute at least _% of their income to shareholders.
REITs must generate at least _% of their income from investing in real property and distribute at least _% of their income to shareholders.
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What is the only part of a futures contract that is not standardized?
What is the only part of a futures contract that is not standardized?
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Forward contracts can be offset.
Forward contracts can be offset.
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What is a good way to hedge against systematic risks?
What is a good way to hedge against systematic risks?
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What is a 'certificate of interest' considered?
What is a 'certificate of interest' considered?
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What is one important thing that must be included on an order ticket for an IA?
What is one important thing that must be included on an order ticket for an IA?
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The administrator may only cite reasons in state law to disqualify a person from registration.
The administrator may only cite reasons in state law to disqualify a person from registration.
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What happens if the administrator revokes a firm's registration?
What happens if the administrator revokes a firm's registration?
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Study Notes
Regulatory Compliance and Actions
- A state-regulated Investment Adviser (IA) must notify the state administrator the day after falling below minimum financial requirements, followed by a financial condition statement submission the next day.
- Employees of an issuer must register under the Uniform Securities Act (USA) when selling a non-exempt security to a retail investor.
Inheritance Options for IRAs
- A spouse can transfer her deceased husband's IRA to her own, treat it as an inherited IRA, or utilize the 5-year rule for distributions if the husband was under 70.5 years of age.
Securities and Investments
- Shares of Real Estate Investment Trusts (REITs) are permitted in Individual Retirement Accounts (IRAs), but oil futures are not allowed.
- Value stocks typically exhibit high earnings per share (EPS), low price-to-earnings (P/E) ratios, low price-to-book values, and high dividend yields.
Financial Concepts
- Alpha represents the difference between actual return and expected return.
- The Rule of 72 assists in estimating the time required for an investment to double, while the future value of money is calculated using the formula ( P_n = P_0(1+r)^n ).
Fund Liquidity and Fees
- Funds of hedge funds are illiquid and cannot be redeemed at day's end. Closed-end funds do not offer redeemable shares, while open-ended funds allow fractional share purchases.
- Performance-based fees for advisers must disclose potential risks, emphasizing that they might induce clients into taking excessive risks.
Reporting and Record Keeping
- An Adviser must file a personal securities holdings report within ten days of becoming an access person and update it at least every 12 months. Transaction reports need to be filed within 30 days after each calendar quarter.
- The IA Act of 1940 mandates that investment advisers maintain records of clients sent advertisements if the number is ten or fewer.
Investment Advisers and Clients
- Investment advisers must disclose their relationship if executing transactions through an affiliated broker-dealer using Form ADV II.
- If an investment adviser changes their fees, an updated brochure is not required for current clients, but new clients must receive it.
Risk and Performance Measurement
- Market risk denotes daily fluctuations in security prices, while a systematic rebalancing strategy restores original asset allocation over time.
- The Capital Asset Pricing Model (CAPM) defines risk through return deviation, utilizing beta and alpha in its calculations.
Client and Investor Status
- Accredited investors are defined as individuals with an annual income exceeding $200,000 or a net worth of at least $1 million, including senior officers of the issuer.
- Institutional investor classification is at the discretion of state administrators.
Investment Derivatives
- Structured products consist of a debt instrument paired with a derivative, while options can hedge against systematic risks.
- Non-qualified annuity payments adhere to a mixed taxation pattern when disbursed.
Federal Regulations and Compliance
- Not all federally exempt securities are exempt under USA regulations.
- Disclosures during sales involving a broker-dealer's stock must include the nature of the relationship prior to transactions.
Investment Company Act
- Under the Investment Company Act of 1940, shareholders do not have rights to current portfolio information.
Tender Offers and Securities
- A tender offer is considered a proposal to buy, not an offer of securities, and does not require the same regulatory scrutiny.
Other Key Facts
- REITs are mandated to generate at least 75% of income from real property investments and must distribute 90% of income to shareholders annually.
- A credit spread indicates the yield difference between various bonds compared to Treasury securities of similar maturity.
Miscellaneous
- The statute of limitations for criminal acts under the USA is five years.
- The process of buying and selling securities to maintain original asset allocation is known as systematic rebalancing, which can significantly affect investment performance.
Changes to Regulations
- Following a change in employment, registration validity is only maintained while associated with a broker-dealer. If moving to another firm, the original employer must file Form U5.
- An investment adviser wishing to broker transactions for both parties must disclose their capacity and obtain written consent from clients involved.
General Investment Strategies
- Dollar-cost averaging results in average costs per share being lower than the average price when stock prices fluctuate, enhancing investment returns.
- Dividends are taxed as ordinary income at the investor's tax rate, typically not exceeding 20%.
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Description
Test your knowledge on regulatory compliance regarding investment advisers, inheritance options for IRAs, and key concepts in securities and investments. This quiz covers essential financial principles that every investor should understand.
