Laws, Regulations & Guidelines Flashcards

Under SEC rules, investment advisers must deliver Form CRS (Client Relationship Summary) to retail investors at which point in the relationship?

Answer: Before or at the time of entering into an advisory contract

Form CRS must be delivered to retail investors before or at the time of entering into an advisory agreement, ensuring they understand the relationship upfront.

Under the Investment Advisers Act, which of the following is an example of 'scalping' as a prohibited manipulative practice?

Answer: An adviser recommending a security to clients immediately after purchasing it personally to benefit from the anticipated price increase

Scalping occurs when an adviser buys a security and then recommends it to clients, profiting from the price increase caused by client buying — a violation of fiduciary duty.

An investment adviser representative who has been convicted of a felony involving fraud is subject to which consequence under the Uniform Securities Act?

Answer: An automatic bar from association with any investment adviser

A felony conviction for fraud is a statutory disqualification under the Uniform Securities Act, barring the individual from association with a registered investment adviser.

Which of the following describes the 'pay-to-play' rules applicable to investment advisers under SEC Rule 206(4)-5?

Answer: Advisers are prohibited from managing government funds for 2 years after making contributions to certain government officials who can influence the hiring decision

SEC Rule 206(4)-5 imposes a 2-year 'time-out' on receiving compensation for managing government entity assets after certain political contributions are made to officials in a position to influence adviser selection.

Under the Uniform Securities Act, a state securities administrator has the authority to conduct which of the following actions against an investment adviser without advance notice?

Answer: Issue a summary stop order or summary suspension pending a hearing

State administrators may issue summary stop orders or emergency suspensions without prior notice when necessary to protect the public, subject to a prompt post-action hearing.

Which of the following is a required element of a written investment advisory contract under SEC rules?

Answer: A provision prohibiting assignment of the contract without client consent

Section 205 of the Investment Advisers Act requires that advisory contracts include a provision prohibiting assignment without client consent, protecting clients from unauthorized transfers of their accounts.

Under NASAA's model rules, an investment adviser that inadvertently takes custody of client funds (e.g., receives a client check not yet forwarded to a custodian) must:

Answer: Return the funds or forward them to the custodian within 3 business days

NASAA Model Rules require advisers that inadvertently receive client funds to return or forward them to the appropriate party within 3 business days to avoid triggering full custody obligations.