Books and records requirements and custody-of-client-funds rules for investment advisers tested on the Series 65 and 66 exams.
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- What must an adviser do if it has custody of client funds or securities?
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Hold them with a qualified third-party custodian or maintain detailed custodial records.- What is the primary purpose of an investment adviser's books and records?
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To demonstrate compliance with applicable securities laws and SEC regulations.- Which individuals may perform advisory services on behalf of an adviser?
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Only registered investment adviser representatives (IARs).- How often must clients receive account statements when an adviser has custody?
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At least quarterly, from the custodian or verified by an independent accountant.- What is prohibited when advertising investment performance?
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Showing past returns without presenting complete performance history, risk factors, and fees.- Which fees must be disclosed in writing before an advisory relationship begins?
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All fees, including management fees, performance fees, and any other charges.- What record must exist for each discretionary account?
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Written authorization from the client granting discretionary trading authority.- When transferring client assets to a new custodian, what must be documented?
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Written notice to the client before the transfer; confirmation after transfer is complete.- What must be disclosed before offering a wrap-fee account?
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All fees included, services provided, and any conflicts of interest related to the arrangement.- How must client funds be safeguarded if held by an adviser?
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In a separate account with a qualified custodian; never commingled with adviser assets.- What must an adviser's chief compliance officer review annually?
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Policies and procedures to ensure compliance with all applicable securities rules.- What independent verification is required when an adviser has custody?
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Either an annual surprise audit or annual certification by an independent accountant.- What information must Form ADV Part 2A contain?
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Services offered, investment strategies, fees, conflicts of interest, and disciplinary history.- What does custody mean under SEC Rule 206(4)-2?
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Having direct or indirect access to client funds or securities, or authority to withdraw them.- Can an adviser use a non-qualified custodian for client funds?
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No; client funds must be held by a qualified custodian as defined by the SEC.
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