Chapter 1 Practice Question Answers

1. 1. Answer B. While assets under management are a measure used to determine whether or not someone is required to register with the SEC or simply with their state, it doesn’t determine if someone is an adviser or not. Whether or not someone actually provides advice and whether or not they receive compensation directly related to that advice are definitely measures of whether someone is an adviser. Someone’s job description does affect whether or not they’re considered an investment adviser; if giving advice simply occurs as something incidental to another job (such as being a lawyer or teacher), then the person would not be required to register as an investment adviser.
2. 2. Answer: D. While the publishers of general newspapers, newsletters, and magazines are not required to register as investment advisers, publishers of newsletters that focus specifically on security analysis and recommendations based on clients’ individual situations must register as investment advisers. The lawyer, professor, and personal finance author do not need to register since any investment advice they give is secondary to their primary role.
3. 3. Answer: D. All choices are considered exceptions to who must register at the state level as an investment adviser. Investment adviser representatives register as such, not as investment advisers. Investment advisers with more than $110 million are required to register on a federal level. The publisher of a general interest magazine is not considered an investment adviser. Banks and savings institutions are not required to register as investment advisers.
4. 4. Answer: C. If an adviser’s assets are under $100 million, they are mostly likely required to register on a state level. The de minimis rule allows advisers with no more than five clients in a state to avoid registration. Advisers working with only institutional clients are not required to register as investment advisers.
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