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The SMC Capital, Inc. No-Action Letter (September 5, 1995) states that trade allocations may occur: A. Only on a rotational basis B. On a pro rata basis but other allocation methods can be used wi... thout violating the Advisers Act C. Only on a pro rata basis D. Based on the trader's good faith discretion - ANSWER B. On a pro rata basis but other allocation methods can be used without violating the Advisers Act Which of the following should NOT be a factor when evaluating best execution? A. Price B. Transaction costs C. Availability of affiliated brokerage services D. Service and execution capability - ANSWER C. Availability of affiliated brokerage services Under the safe harbor provided by Section 28(e) of the Securities and Exchange Act of 1934, a "mixed use" product/service, purchased with soft dollars, most likely refers to which of the following: A. A research newsletter used by analysts B. A computer terminal used only to place client trades C. Portfolio management software used to calculate client returns D. A junket to Pebble Beach for golf - ANSWER C. Portfolio management software used to calculate client returns An adviser's valuation procedures should, practically speaking, be prepared with the LEAST attention to: A. Large cap stocks B. Illiquid investments C. Foreign issues D. Micro cap stocks - ANSWER A. Large cap stocks Agency cross transactions do NOT require: A. Annual disclosure to advisory clients of the number of agency cross transactions B. Annual disclosure of the total remuneration received by the adviser through agency cross transactions C. Consent from at least two advisory clients D. Disclosures that written consent may be revoked at any time - ANSWER C. Consent from at least two advisory clients "Bailey disclosure" refers to the concept of advising clients of the effect of directing the adviser to use a particular broker(s). Disclosure about the ramifications of brokerage direction should include: A. Potential conflicts of interest when a directed broker referred the client to the adviser B. Limits on the ability of the adviser to negotiate commissions C. Restrictions on placing directed trades with other client trades D. All of the above - ANSWER D. All of the above Which of the following statements is FALSE? A. Trade errors must be resolved for the client's benefit. B. Principal transactions require consent prior to settlement. C. Commissions generated from ERISA plan transactions may never be used to generate soft dollars. D. An adviser's fiduciary duty includes allocating investment opportunities fairly and equitably. - ANSWER C. Commissions generated from ERISA plan transactions may never be used to generate soft dollars. A client directs an adviser to execute securities transactions with ABC Broker. What are adviser's obligation(s) in trading for this client? A. To consider ABC Broker when conducting client's transactions B. To execute all of client's transactions with ABC Broker C. To execute some of client's transactions with ABC Broker regardless of best execution D. To execute all of client's transactions with ABC Broker, consistent with the adviser's duty to achieve best execution - ANSWER B. To execute all of client's transactions with ABC Broker Some of adviser's clients have directed that certain brokers be used to trade for their accounts. When executing similar transactions for non-directed and directed business, the adviser should: A. Ensure its order of transactions is consistent with its disclosure B. Promise to receive equal execution for non-directed and directed business C. Always execute directed transactions first D. Consider which client's accounts need improved performance - ANSWER A. ensure its order of transactions is consistent with its disclosure Which of the following statements is FALSE? A. In a soft dollar arrangement, an adviser always receives research services produced by a third party whom the broker-dealer pays. B. Soft dollar arrangements that fail to comply with the Section 28(e) safe harbor are not prohibited under the Investment Advisers Act of 1940. C. Riskless principal transactions may be used to generate soft dollar commissions. D. Soft dollars may not be used to correct trade errors in client accounts. - ANSWER A. In a soft dollar arrangement, an adviser always receives research services produced by a third party whom the broker-dealer pays. After a trade has been completed, an adviser checking for trade errors should reconcile trade confirmations with which of the following? A. Trade recommendations memorialized in the minutes of a Brokerage Committee meeting. B. A trade order ticket completed after the order was completed. C. A client's investment policy guidelines. D. A trade order ticket completed prior to the execution of the order - ANSWER D. A trade order ticket completed prior to the execution of the order. The duty of an investment adviser to seek best execution for client securities transactions is derived from which of the following? A. Investment Advisers Act of 1940 Interpretative Releases B. Common Law Fiduciary Principles C. Securities and Exchange Act of 1934 D. The Investment Company Act of 1940 - ANSWER B. Common Law Fiduciary Principles Prior to entering an aggregated trade order, an adviser should do which of the following pursuant to the SMC No-Action letter? A. Prepare a written allocation statement. B. Obtain the written consent of each client participating in the aggregated order prior to entering each aggregated order. C. Obtain a blanket consent from each client participating in aggregated orders at the inception of the advisory relationship. D. Ensure that an affiliated broker is not used for execution of the aggregated order. - ANSWER A. Prepare a written allocation statement. When engaging in internal cross transactions (or "cross trading"), where an adviser causes the purchase and sale of securities between two or more client accounts and neither the adviser nor any affiliate receives compensation for effecting the transaction, the adviser should do all of the following EXCEPT: A. Make full disclosure in Form ADV Part 2. B. Ensure that best execution is achieved. C. Obtain the prior written consent of all clients involved in the cross trade. D. Confirm that no client is disfavored by the cross trade. - ANSWER C. Obtain the prior written consent of all clients involved in the cross trade Dewey Cheatem & Howe Advisers ("DCH") is investment adviser to two hedge funds formed as 3(c)(1) feeder funds. The General Partner of DCH and each of the two funds is XYZ Advisors LP, which owns 100% of DCH and has a 30% ownership interest in each of the two funds. Moreover, an ERISA pension plan has a 5% interest in each of the feeder funds. If DCH wishes to rebalance the allocations of the two funds via an internal cross transaction between the two funds, which of the following is true pursuant to the Gardner Russo No-Action letter? A. DCH has engaged in an agency cross transaction. B. DCH has engaged in a principal transaction. C. DCH has engaged in a prohibited transaction under ERISA. D. DCH has breached its fiduciary duty to the funds. - ANSWER B. DCH has engaged in a principal transaction. Which THREE persons or firms may be excluded from having to register under the Investment Advisers Act of 1940? (Choose three.) A. Accountants whose advisory services pertain solely to incidental financial planning. B. Persons or firms whose advice and reports are related solely to U.S. government securities. C. Publishers of generally circulated, bona fide newspapers or financial journals. D. Domestic banks and bank holding companies. - ANSWER B. Persons or firms whose advice and reports are related solely to U.S. government securities. C. Publishers of generally circulated, bona fide newspapers or financial journals. D. Domestic banks and bank holding companies. Which activity is NOT mandated for investment advisers that store required records electronically? A. Providing the SEC with prompt access, retrieval, and reproduction. B. Maintaining copies of all electronically stored records using WORM format. C. Arranging and indexing records to provide easy access and retrieval. D. Developing procedures to preserve and maintain records. - ANSWER B. Maintaining copies of all electronically stored records using WORM format. The Investment Advisers Act of 1940 defines the scope of the anti-fraud provisions as extending to: A. SEC-registered advisers and foreign advisers with a place of business in the U.S., whether registered or exempt. B. SEC-registered advisers and foreign advisers doing business in the U.S., whether registered or exempt. C. SEC-registered investment advisers. D. All investment advisers, whether registered or exempt. - ANSWER D. All investment advisers, whether registered or exempt. The fiduciary duty imposed on advisers under the Investment Advisers Act of 1940 can BEST be described as: A. providing equal disclosure to all clients. B. imposing an ERISA fiduciary standard. C. putting the client's interests ahead of the adviser's. D. acting in a custodial capacity. - ANSWER C. putting the client's interests ahead of the adviser's. Which TWO qualify as a "security" under the Investment Advisers Act of 1940? (Choose two.) A. Commodity futures B. Limited partnership interests C. Fixed annuities D. Variable annuities - ANSWER B. Limited partnership interests D. Variable annuities In performing due diligence on a potential solicitor, the investment adviser must ensure that the solicitor: A. is not subject to any statutory disqualification. B. is not acting as a solicitor for an unregistered adviser. C. has passed the Series 65 exam. D. is registered in appropriate states. - ANSWER A. is not subject to any statutory disqualification. An SEC-registered investment adviser is NOT required to disclose "material" disciplinary information in its Form ADV Part 1 after: A. 5 years B. 10 years C. 12 years D. 15 years - ANSWER B. 10 years Which event would be deemed an assignment of an investment advisory contract? A. An adviser hires a new CEO to replace its current retiring CEO. B. An adviser is purchased by an unaffiliated adviser. C. Any public offering of an adviser's stock. D. An adviser organized as a corporation changes its structure to a partnership. - ANSWER B. An adviser is purchased by an unaffiliated adviser The Investment Advisers Act of 1940 requires that written investment advisory agreements must address: A. proxy voting. B. assignment of the contract. C. brokerage arrangements. D. fees. - ANSWER B. assignment of the contract. If an investment adviser becomes ineligible for SEC registration, which document must be filed to terminate its registration? A. Form DRP B. Form ADV-W [Show More]

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