Chapter 2 Answers and Explanations

1. A – Customer service rep who is paid bonuses based on how clients rate his service. Someone working for an investment adviser who performs only clerical (think “secretary”) or ministerial (think “customer service”) duties does not need to register as an investment adviser representative. The moment they begin providing advice to the customers of that investment adviser for compensation, however, they would very likely be considered an IAR. All the other professionals mentioned in the question, even though their fee is calculated differently from one another, still receive a fee for providing investment advice. The stockbroker would be exempt from registration only if his sole compensation was transaction-related commissions.

2. B – The IAR works for the adviser. The key distinguishing factor between an investment adviser and an investment adviser representative is that the IAR works for the investment adviser. Hence, they’re called the firm’s representative. IARs very often do provide investment advice based on their own unique preferences, research, and beliefs, but do so under the investment adviser’s supervision. There are no net capital requirements for IARs like there are for the firm that employs them.

3. D – I, II, and IV. Someone who performs clerical duties would not meet the definition of an IAR and therefore would not need to register as such. Someone who works as an agent for a broker-dealer (think “stockbroker”) does not need to register if his or her advice is given incidentally, as part of helping the customer conduct a transaction. If they were to receive compensation for providing investment advice that was not specifically tied to completing transactions, then they would likely have to register. Lastly, an IAR is exempt from having to register in a state where t