1 IAs who have custody of client funds must maintain a minimum of $35K.
i) The Administrator may require a firm to post a bond if in possession of client funds
ii) OR administrator may accept an appropriate deposit of cash
b) If IA does not maintain custody of funds, then only $10K
c) IA that have a prepayment amount of $500 or more months in advance, must maintain a positive net worth at all times
d) Filing fee
i) Required of IA’s
ii) Not required if the firm is a successor ( a merger or firm taken over by another firm)
e) Effective within 30 days
f) The Administrator may deny the IA’s application is any partner, officer, director, or a person directly or indirectly controlling the IA, if they commit:
i) Is insolvent either because the firm’s liabilities exceed its assets or it cannot meet its obligations.
ii) Failed to reasonably supervise its agents or employees
iii) Once registered as an IA all of the officers, partners, and directors are registered as IARs
g) Renewal on the 31 of Dec.
h) There are two situations where an IA is exempt from state registration
i) If the IA 1) has no place of business in the state and 2) has only institutional clients in the state
//make a card for institutional clients
ii) If the IA 1) has no place of business in the state and 2) during the preceding 12 months, has had no more than 5 non-institutional clients.
2 Registration as an IAR
a) IARs must file an application that includes
//make a card for what you have
b) There is no provision for the administrator to require a bond of an IAR in the USA
c) They have to take and pass the series 65/66
i) If the IA is a company, then the partners or officers must pass

3 IAR regulation
a) Brochure Rule
i) An IA must provide his clients with a written disclosure document (brochure)
ii) It must contain the same info as part II of the ADV form, in any form, but the info needs to be there.
b) Initial delivery
i) The IA must deliver to each client either A) not less than 48 hours prior to entering into any investment advisory contract with a client, or B) at the time of entering into an advisory contract, if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.
(1) Doesn’t apply to contracts with ICs or contracts for impersonal advisory service
c) Annual offer to deliver
i) The IA must deliver, without charge, his brochure to his clients
(1) Upon request
(2) Not required in the case of contracts with ICs or impersonal advisory services requiring a payment of less than $200
d) Contracts
i) USA contracts need to be in writing and should contain:
(a) The IA may not charge an unreasonable advisory fee
(2) The services to ne provided
(3) The term of the contract
(4) The advisory fee
(5) The formula for computing the fee
(6) The amount if any prepaid fee to be returned in the event of contract termination
(7) The advisor may not assign the contract to another person with our the client’s consent
e) Performance Fees
i) Usually prohibited
ii) If more that 5mil under management or clients with more that 1mil in net assets.
iii) Must take capitol losses into account as well as cap gains
f) Changes in IA partnerships
i) If structured as a partnership, the contract must state that the IA must make clients aware of any management changes
g) Exculpatory clauses (forgiving, or hedge clauses) may not relieve the IA or the IAR of any violations of the USA or other security law
h) If the administrator prohibits it, the IA may not have custody of client’s securities or funds.
i) If the Admin doesn’t prohibit it, they may take possession, but must still inform the admin
i) Records must be kept for at least 5 years, and generally for the first 2 in the primary office
j) Discretionary accounts
i) IAs must receive written authorization for a discretionary account within 10 business after placing the first order
(1) Price/time exception applies
k) Cross agency transactions
i) A transaction that takes place btwn two clients of the same IA
ii) Usually the IA would have to disclose this potential conflict of interest, but can obtain blanket authorization
(1) The IA must disclose any potential conflicts (in writing)
(2) All compensation the IA may gain must be disclosed
(3) The client must be sent an annual report of all agency cross transactions
(4) The client must be notified that he may revoke the blanket authorization at any time
(5) The advisor may not advise both sides to take the trade
l) Principal transactions
i) These require authorization
4 IA acting ethically
a) IAs must adhere to suitability requirements
i) Can’t churn
b) An IA must disclose, in writing, any potential conflicts of interest that could impair the rendering of unbiased and objective advice, including:
i) Any additional compensation agreements
ii) Charging an advisory fee when a commission will be received
c) Communications
i) No guarantees
ii) Advertising
(1) IA advertising may not
(a) Contain a testimonial of any kind
(b) Represent that any chart or graph, or formula used, can in and of itself be used to may investment decisions
(c) State that any report or service is free of charge, unless it really is free of charge
(d) Contain any untrue statement of material fact or be false in anyway
(e) Refer, directly or indirectly, to any recommendations of the IA that were, or would have been, profitable
(i) You can list all recommendations in the last 12 mo.
1. Must list name
2. Date
3. Nature of the recommendation
4. The market price at the time
5. The price at which the recommendation was to be acted on
6. And the current market price of the security
(f) Misleading statements
(i) It is improper to misrepresent the nature of the services being offered or fees charged
(ii) Or to omit a material fact
(iii) In reports, it is illegal to misrepresent someone else’s recommendations or reports as your own
1. Not applicable for “research”
d) Have to keep customer’s information confidential
i) Extends to handling customer funds
ii) It is unethical to borrow or loan funds to a client, unless your client is a broker-dealer, an affiliate of the IA, or a financial institution engaged in loaning funds

5 The administrator cares about every security that changes hands
a) Even in the case of a right, option, or warrant.
b) Not an offer of sale:
i) Gifts, generally aren’t an offer or a sale (except where value can be demanded in addition to the gift)
ii) A bona fide pledge or loan
iii) A stock dividend
iv) Exchanges of security in mergers, reclassifications, or consolidations
v) Exchanges of securities in connection with bankruptcies]

6 Jurisdiction
a) The administrator has jurisdiction over a person who sells or offers to sell a security when:
i) An offer to sell is made and accepted in the state
ii) An offer to buy is made and accepted in the state
b) An offer to buy or sell:
i) If it originates in the state
ii) Or is directed by the offeror to the state
c) Acceptance
i) Is communicated in the state to the person making the offer and
ii) Has not previously been communicated to the offeror, orally or on writing, outside the state
/*for both acceptance and offers, interstate the offering or accepting parties have to reasonably believe the other party is located in a specific state, or the state is defaulted to the offeror’s home state * /
7 Published offers
a) An offer to by or sell is NOT made in a state when:
i) The offer is published in a magazine or newspaper that is not published in the state
ii) When the offer is published in a magazine or newspaper that is published in the that, but has 2/3 of it’s readership outside of the state
b) Radio or television broadcasts are considered offers only in the state in which the broadcast originates.

8 Administrator tools
a) Investigations
i) the administrator has the ability to initiate investigations, either inside or outside of the state to determine if any person has or is about to violate any rules or reg.
(1) may require written statements or publish information concerning violations of the USA
ii) during an investigation, an Administrator may:
(a) may only act in another state on the approval of the other state’s Administrator
(2) administer oaths and affirmations
(3) subpoena witnessed and compel their attendance
(a) may apply to a court to compel a subpoena, and threaten jail time
(4) take evidence
(5) require the production of documents
b) If it appears that someone is about to commit a crime the Admin may issue:
i) cease and desist order.
(1) Can be issued with, or without a formal hearing
ii) Judicial review of orders
(1) Any orders may be appealed by the subject of the orders for judicial review for a period of 60 days
iii) Injunction (force compliance in court)
(a) A court may appoint a receiver or conservator for the defendants assets
(b) May not require the Admin to post a bond
(2) Permanent or temp
(3) Restraining order
(4) Writ of mandamus
(5) And order of rescission, restitution, or disgorgement
iv) Criminal proceedings
(1) When a case is so willful that it’s remanded to the state’s attorney
(2) The max under the USA is a $5,000 fine and/or 3 years in jail
(a) A person found guilty of violating the USA has to PROVEN to have knowingly broke the law
(3) 5 year statute of limitations
v) Civil proceedings
(1) Where the clients can seek justice
(2) The plaintiff may sue for:
(a) The consideration paid for the security
(b) Interest at the state mandated rate from the date of payment
(c) Attorneys’ fees and reasonable costs
(d) less any income from the security
(3) If the broker was unlicensed the client may sue for:
(a) Consideration paid for the advice
(b) Any loss due to the advice
(c) Interest at the state mandated rate from the date the consideration was paid
(d) Costs and attorneys’ fees
(e) less any income received from the security
(4) 3 year statute of limitations
(5) Letter of rescission:
(a) If any wrong doing is found to have occurred, the party involved, may offer a letter of rescission to the buyer / seller to take back the security + interest less any income received from the security
(b) The receiver has 30 days to respond