CIC - Certified Investment Counselor Investment Adviser Regulations Questions and Answers

Question 1

An investment adviser representative (IAR) at a federally covered investment adviser firm is preparing a new advertising campaign.
According to the SEC's Marketing Rule (Rule 206(4)-1), which of the following practices is explicitly prohibited?

Accepted Answer

Presenting gross performance data without also presenting net performance data.

Answer

Including a testimonial from a current client who is being compensated.

Answer

Using a third-party rating in an advertisement with proper disclosures.

Answer

Discussing the firm's investment philosophy in a live, extemporaneous radio interview.

Question 2

An investment adviser is deemed to have 'custody' of client assets under the Investment Advisers Act of 1940 under all of the following scenarios EXCEPT:

Accepted Answer

The adviser provides advice on assets held at an independent qualified custodian where the adviser has no authority to withdraw funds.

Answer

The adviser holds the client's securities directly in a separate account.

Answer

The adviser has the authority to withdraw funds from the client's account.

Answer

The adviser has the ability to deduct advisory fees directly from the client's account.

Question 3

A prospective client is reviewing an investment adviser's Form ADV Part 2. Which of the following pieces of information is the client LEAST likely to find in this document?

Accepted Answer

A complete list of every security the adviser has recommended in the past year.

Answer

The adviser's fee schedule and compensation arrangements.

Answer

The educational and business background of key advisory personnel.

Answer

Information about any material disciplinary actions taken against the adviser.

Question 4

Under the Investment Advisers Act of 1940, an investment adviser's fiduciary duty is composed of which two primary obligations?

Accepted Answer

Duty of Care and Duty of Loyalty.

Answer

Duty of Confidentiality and Duty of Competence.

Answer

Duty of Best Execution and Duty of Suitability.

Answer

Duty of Disclosure and Duty of Impartiality.

Question 5

A Chartered Investment Counselor (CIC) is employed by a large advisory firm and manages portfolios for high-net-worth individuals. The firm changes its ownership structure when a majority of its shares are acquired by a new parent company. Under the Investment Advisers Act of 1940, what is the consequence of this event regarding the firm's advisory contracts?

Accepted Answer

The change constitutes an 'assignment' of the contracts, requiring client consent to continue the advisory relationship.

Answer

The contracts are automatically terminated and must be renegotiated.

Answer

The firm must notify clients in writing, but no consent is required.

Answer

There is no impact on the advisory contracts as long as the CIC remains the portfolio manager.

Question 6

An investment adviser with $150 million in assets under management (AUM) must register with which regulatory authority and update its primary registration document, Form ADV, how frequently?

Accepted Answer

The SEC; at least annually and more frequently for material changes.

Answer

FINRA; whenever there is a material change.

Answer

The state securities administrator; biannually.

Answer

The MSRB; only upon request from a regulator.