CIC Investment Adviser Regulations 2 — Questions and Answers
Question 1: Under the Investment Advisers Act of 1940, which of the following is NOT considered 'investment advice' that triggers registration requirements?
- Recommending specific securities to clients
- Publishing a general-circulation financial newsletter with no individualized advice (Correct answer)
- Providing analysis of securities for compensation
- Managing client discretionary accounts
Correct answer: Publishing a general-circulation financial newsletter with no individualized advice
Publishers of bona fide general-circulation newsletters providing impersonal advice are excluded from the definition of investment adviser under the 'publisher exclusion.'
Question 2: A state-registered investment adviser wants to move to SEC registration. The adviser must demonstrate AUM of at least:
- $25 million
- $50 million
- $100 million
- $110 million (Correct answer)
Correct answer: $110 million
An investment adviser must have at least $110 million in AUM to register with the SEC, though advisers managing $100–$110 million may register with either SEC or states.
Question 3: Which rule under the Advisers Act requires investment advisers to maintain a written code of ethics?
- Rule 204-2
- Rule 206(4)-7
- Rule 204A-1 (Correct answer)
- Rule 203A-1
Correct answer: Rule 204A-1
Rule 204A-1 requires all SEC-registered investment advisers to adopt and enforce a written code of ethics covering personal securities transactions.
Question 4: An investment adviser representative (IAR) who moves from one state to another must:
- Automatically transfer registration via FINRA's CRD system
- File a new Form U4 and meet the new state's requirements (Correct answer)
- Obtain SEC registration before practicing in the new state
- Notify only the former state's securities regulator within 30 days
Correct answer: File a new Form U4 and meet the new state's requirements
IARs must register in each state where they conduct advisory business, requiring a new Form U4 filing that meets the new state's licensing requirements.
Question 5: The 'brochure rule' under the Advisers Act requires advisers to deliver Form ADV Part 2A to prospective clients:
- At least 48 hours before signing an advisory contract, or at signing with a 5-day rescission right (Correct answer)
- Within 10 business days after the client relationship begins
- Only upon client request after the engagement starts
- At the time of each annual update filing
Correct answer: At least 48 hours before signing an advisory contract, or at signing with a 5-day rescission right
Rule 204-3 requires delivery of the brochure at least 48 hours before contract execution, or at signing if the client has a 5-day right to terminate without penalty.
Question 6: Under the Advisers Act, which action by an investment adviser constitutes a violation of the anti-fraud provisions of Section 206?
- Charging a performance fee to a qualified client
- Entering into a written discretionary agreement with an institutional client
- Failing to disclose a material conflict of interest to a client (Correct answer)
- Accepting compensation from a mutual fund for selling its shares to advisory clients
Correct answer: Failing to disclose a material conflict of interest to a client
Section 206 makes it unlawful for any investment adviser to engage in any act or practice that defrauds clients, including omitting material conflicts of interest.
Question 7: Which of the following advisers is EXEMPT from SEC registration under the Advisers Act?
- An adviser with 20 clients managing $95 million in AUM
- An adviser managing a single hedge fund with $180 million in AUM
- A venture capital fund adviser relying on the VC fund adviser exemption (Correct answer)
- An adviser providing services exclusively to ERISA pension plans with combined assets over $200 million
Correct answer: A venture capital fund adviser relying on the VC fund adviser exemption
Advisers solely to venture capital funds may rely on the venture capital fund adviser exemption under Section 203(l) of the Advisers Act.
CIC Investment Adviser Regulations 2
Under the Investment Advisers Act of 1940, which of the following is NOT considered 'investment advice' that triggers registration requirements?