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 wit hout violating the Advisers Act C. Only on a pro rata basis D. Based on the trader's good faith discr...
IACCP Master Questions Bank | 170
Questions | 40 Pages | 100% Correct Answers
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 without violating
the Advisers Act
C. Only on a pro rata basis
D. Based on the trader's good faith discretion Correct 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 Correct 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 Correct 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 Correct 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 Correct 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 Correct 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. Correct 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 Correct 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 Correct 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. Correct
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 Correct
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 Correct 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. Correct 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. Correct 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. Correct 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. Correct 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?
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Classroom. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $12.49. You're not tied to anything after your purchase.
