Notice Filing vs. State Registration

Notice filing is a topic that often confuses people studying for the Series 63 Uniform Securities Agent State Law exam or the Series 65 Uniform Continue reading

Notice filing is a topic that often confuses people studying for the Series 63 Uniform Securities Agent State Law exam or the Series 65 Uniform Investment Adviser Law exam or the Series 66 Uniform Combined State Law exam. Some mistakenly assume that notice filing is the same as state registration. While there are some similarities, notice filing and state registration are different and the Series 63, Series 65 and Series 66 exams require that you understand the distinction.

So what is notice filing, and how does it work?

To understand the concept of a notice filing, it’s important to know a bit about the entities to which it applies: federal covered advisers and federal covered securities. First, let’s look at federal covered advisers. A federal covered adviser is an SEC-registered adviser that offers investment advice in exchange for compensation. Any adviser with assets under management of $110 million must register as a federal covered adviser.

When it comes to registration, advisers are not subject to double registration, meaning that an investment adviser registered with the SEC does not need to register with any state, and an adviser that is required to register with a state does not register with the SEC. For federal covered advisers, this makes life easier because a federal covered adviser only needs to go through the rigorous registration process one time. Instead of registering in a state, on Form ADV that it files with the SEC, a federal covered adviser lists any states in which it will either have an office or more than five retail clients in a twelve-month period. The SEC then gives notice to the administrator in any state noted on the adviser’s form ADV that the adviser intends to do business in that state. This is a notice filing: a simple heads-up to the state administrator that the advisor will be doing business in its state. Depending on the requirements of the given state, the adviser may be asked to file additional paperwork and pay a fee before offering advice to clients in the state. But, happy day, the adviser gets to skip the state registration process.

Now let’s discuss notice filing for federal covered securities. What is a federal covered security? Well, many of the securities that the average investor is likely to own are federal covered securities. For example, any security traded on an exchange like the NYSE or NASDAQ is a federal covered security. Additionally, securities issued by investment companies that are registered under the Investment Company Act of 1940, such as mutual funds and closed-end funds, are federal covered securities. A federal covered security must be registered with the SEC, but the issuing company is not required to register it with any state. Instead, the issuer must note on its registration statement any state in which it intends to sell the security. The SEC then notifies the administrator of each noted state of the issuer’s intention to sell in that state. Sound familiar? It should because this is also a notice filing: a simple shout-out by the SEC to the state administrator that the security will be sold in its state. Typically the issuer is then required to submit its SEC registration documents to the administrator and pay a filing fee, but, and this is a biggie, the issuer does not need to go through the demanding state registration process in order to sell its securities in the state.

So it’s actually pretty simple. A federal covered security or adviser is registered once with the big boys at the SEC. After that, it’s all smooth sailing. No need for further registration, just a simple notice given to states in which the security will be sold or the adviser will offer investment advice.

Now that you’ve learned the difference between notice filing and state registration, let’s do a practice question to get you ready for the Series 63, Series 65 or Series 66 exam:

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Spencer Investments is a federal covered investment adviser doing business in Oregon. The Administrator in Oregon requires a notice filing. Does this mean Spencer Investments must register in Oregon as well as with the SEC?

A. No. What it means is that Spencer needs to request that the SEC send the Oregon Administrator a copy of Spencer’s Form ADV, and Spencer needs to pay a notice filing fee to the Oregon Administrator.
B. Yes. Spencer does business in Oregon, so it must register in Oregon.
C. Spencer Investments does not have to register in Oregon but does need to fill out and file all the paperwork for registration so the Oregon Administrator is on “notice” regarding Spencer’s business in Oregon.
D. Yes. The Oregon requirements for registration may be more stringent than the SEC’s, so Spencer must comply with them to do business in Oregon.

Correct Answer: A.
No. What it means is that Spencer needs to request that the SEC send the Oregon Administrator a copy of Spencer’s Form ADV, and Spencer needs to pay Oregon a notice filing fee. A notice filing for an investment advisor is not a registration but means the registration papers Spencer Investments filed with the SEC are shared with the Oregon Administrator, and the Oregon Administrator receives a filing fee.

Solomon Live Web Classes Coming Soon….

Solomon Exam Prep’s Live Web Classes give you the opportunity to learn from and interact with an instructor in real time, from the comfort of your own home or office. Our instructors are experts and focus their classes on the aspects that will be most valuable in helping you pass your exam.

Classes are taken online via computer, tablet or smart phone. Internet access is required. The sessions are recorded and made available for later viewing if your schedule prevents you from attending all of the sessions.

Classes coming up in March and April:
Series 7 Top-Off: March 28th & 29th, 10:30 am – 3 pm ET
Series 24: March 30th – April 3rd, 2:30 – 4:30 ET
Series 63: April 2nd, 2 – 3:30 pm ET & April 3rd, 12:00 – 3:30 pm ET
Series 65: March 30th – April 3rd, 12:00 – 3:30 pm ET
Series 66: March 30th – April 3rd, 12:00 – 3:30 pm ET

April Study Question of the Month

Submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card. Continue reading

Submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.

Question

 

 

 

 

 

 

When inherited, the basis of a depreciated asset is?
 
A. Stepped up
B. Stepped down
C. Carried over
D. Carried under
 
Answer: B. Typically, when an asset is inherited, the value of the asset has increased since it was purchased and the heir gets to “step up” (raise) the basis of the inherited property to the fair market value at the date of death. So, for example, if Grandpa bought shares of XYZ  for $1,000 in the previous century, and the shares are worth $1 million on the date of Grandpa’s death, the basis for tax purposes is stepped up to $1 million to the lucky recipient. This means that capital gain escapes any federal taxation. 
The basis “step-up” rule can become a “step-down” rule as well. So if an asset’s value has declined and someone inherits the asset, for the sake of taxes, the basis of the asset is stepped down (lowered) to the fair market value on the date of the owner’s death. This loss of basis can be avoided by the owner selling any depreciated property before death, so he or she can reap the tax losses.

Height of Federal Reserve Chairperson an Economic Indicator?

Anyone studying for the FINRA Securities Industry Essentials (SIE) exam or the Series 65 Investment Adviser exam must learn about economic indicators such as interest rates (leading), inflation (lagging) and GDP (coincident). Continue reading

Anyone studying for the FINRA Securities Industry Essentials (SIE) exam or the Series 65 Investment Adviser exam must learn about economic indicators such as interest rates (leading), inflation (lagging) and GDP (coincident). Observers have noted that interest rates under tall Federal Reserve chairpersons, such as Paul Volcker (6’7”), have been higher than under short chairpersons, such as Janet Yellen (5’3”). According to the Washington Post, Yellen lost her job to the taller Jerome Powell because President Trump did not think the diminutive Yellen was tall enough for the job. Solomon Exam Prep has helped thousands of people of all heights pass securities licensing exams including the Series 3, 6, 7, 24, 26, 27, 28, 50, 51, 52, 53, 63, 65, 66, 79, 82, 99 and SIE exams. finra , securities, SIEexam, Series65,Series7, interestrates

October Study Question of the Month

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card. Continue reading

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 7Series 62, Series 65Series 79, Series 82, and Series 99.

 

 

 

 

 

What is the holding period for restricted securities issued by a company that files reports with the SEC?
 
A. Six months
B. Nine months
C. Twelve months

D. Securities issued by a company that files with the SEC are never restricted

Answer: A. Rule 144 requires purchasers of restricted securities to hold them for a certain amount of time before they sell them. If the issuer is a company that files reports with the SEC, the holding period is six months. If the issuer is a non-reporting company, the holding period is 12 months.

July Study Question of the Month

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card. Continue reading

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 6Series 7Series 62Series 65,  Series 66,  Series 82, and Series 99.

 

 

 

 

 

Bob owns convertible preferred stock in BigCo. Which of the following is a taxable event for Bob?
 
A. He converts it into common stock
B. Due to a corporate restructuring, he receives additional shares
C. He receives a cash dividend that is less than the amount that the share price declined last quarter

D. Due to a corporate merger, his shares are exchanged for shares in LargerCo

Answer: C. Receiving a dividend (even a qualified dividend) is a taxable event. When a company merges with another company, it may give its shareholders stock in a new company in exchange for the stock they currently hold. This is usually not a taxable event, meaning the shareholder does not have to pay taxes on the new shares at the time of the exchange. Moreover, if the company gives shares of common or preferred stock to shareholders because of a corporate restructuring or bankruptcy, this is also not a taxable event. Additionally, the conversion of convertible preferred stock (or bonds) to common stock is not a taxable event.

March Study Question of the Month

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card. Continue reading

Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.

Question

Relevant to the Series 65 and Series 66.

 

 

 

 

 

Tammy analyzes the history of trading volume on the stock of company XYZ. She believes she finds a pattern which will predict an increase in the stock price of XYZ. Tammy plans to make trades using her strategy to make a profit. Tammy:

A. believes in the strong form of the efficient market hypothesis

B. believes in the weak form of the efficient market hypothesis

C. believes in the semistrong form of the efficient market hypothesis

D. does not believe in any form of the efficient market hypothesis

Answer: D. By thinking she can profit on information she discovered by examining the historical trading volume of XYZ stock, Tammy does not believe in any form of the efficient market hypothesis (EMH), which in general asserts that all available information is already reflected in a stock’s price. The weak form of the EMH asserts that a stock’s price already reflects all information that can be derived from market trading data, such as historical trading volume. The semistrong form asserts that all market trading data and all other publicly available information on the company, such as earnings reports, is reflected in a stock’s price. The strong form asserts all historical data and all company information – both publicly available and privately known only to insiders- is reflected in a stock’s price.

Financial Exploitation of Vulnerable Adults: New Tools for Firms, Courtesy of FINRA

On February 5th, FINRA officially adopted a pair of new provisions designed to empower firms to identify and assist elderly and disabled customers who may be victims of financial exploitation. Continue reading

On February 5th, FINRA officially adopted a pair of new provisions designed to empower firms to identify and assist elderly and disabled customers who may be victims of financial exploitation. One amends the rules around collecting customer information, and the other lets a firm take action in response to unusual account activity.

These changes could soon show up on multiple exams, including the Series 6, 7, 24, 26, 27, 28, 65, 66, and of course the upcoming SIE exam.

The “Trusted Contact Person”

In your future career in securities, you may have an elderly or disabled customer who begins making decisions that don’t appear to be in his best interest. Maybe you can’t get ahold of him to ask about unusual transactions on his account. But if the transactions appear to be legally authorized by the customer, is there anything you can do about your suspicions?

Yes. These new rule changes help you help this customer in two ways. First, you’re more likely to have someone close to the customer who you can reach out to. From now on, when a firm collects or updates a customer’s personal information it must try to get the name and contact information of a trusted contact person. The firm has a limited ability to share information with the trusted contact person to address certain situations that may indicate that the customer is vulnerable.

For example, if the firm can’t contact the customer, it could ask the trusted contact person about her whereabouts. Depending on the situation, this could be as simple as confirming that the contact information you have for the customer is still accurate. If the firm reasonably suspects a more serious problem, it can also ask questions to help determine whether poor health may be interfering with the customer’s ability to protect her own interests. In this type of situation, the firm can also ask for information about any legal guardian or power of attorney the customer might have.

Temporary Protective Holds

The other new provision lets a member firm put a temporary hold on an account if there is a reasonable belief that an elderly or disabled customer is being exploited. This type of hold can be placed if the following conditions are met:

  • One of the individuals authorized to transact business on the account is:
    • At least 65 years of age
    • At least 18 years of age and has a mental or physical condition that keeps him from protecting his own interests
  • The member firm has a reasonable belief that the customer may be the victim of financial exploitation.
  • If the reasonable belief only applies to certain transactions (as opposed to all activity on the account), only those transactions should be blocked. Other account activity should continue to be allowed.

The member firm does not need definite knowledge of a specific, diagnosed disability, or any other kind of detailed medical information about the customer. The condition doesn’t even have to be permanent. A customer temporarily hospitalized for surgery could fit the definition, as long as there is reason to believe this is keeping her from being able to protect her own interests.

Financial exploitation is defined broadly for these purposes. Such exploitation can consist of “taking, withholding, appropriation, or use” of assets in the customer’s account, whether cash or securities. The reasonable belief can be in regard to past, present, or future exploitation. It can involve unusual actions that the customer supposedly took, or it can involve actions taken by someone else “through the use of a power of attorney, guardianship, or any other authority.” It can involve suspicion of intimidation, trickery, a combination of the two, or any other form of “undue influence” over the vulnerable person.

Required Follow-Up

When this kind of temporary hold is placed on an account, the firm must follow up in several ways. The firm has two business days to notify all parties authorized to transact business on the affected account, as well as the customer’s trusted contact person. If the firm has a reasonable belief that an individual is involved in the exploitation, that individual is excluded from the notification requirement, even if it is the trusted contact person. The notification must disclose the temporary hold and the reason for it.

Another way that the firm must follow up is with an internal review of what the reasonable belief of exploitation was based on. This review must be opened as soon as the hold is placed. It is important that the review be completed promptly, because it may affect the length of the hold.

Initially, the temporary hold may be placed for up to 15 business days. The firm is allowed to grant an extension of up to 10 more business days, but only if the internal review is completed and finds that the belief was in fact reasonable. (On the other hand, if the internal review finds that the belief was not reasonable, the hold would likely be ended immediately.)

The member firm can extend the hold further if a court or state agency (such as Adult Protective Services) orders or requests it. A request from a state agency need not be formal. It could be as simple as the agency asking for an extended hold to give them more time to investigate. Such a request should be carefully documented so that the firm can show that the extension is allowed.

Each member firm must have written procedures specifying who within the firm is authorized to place, remove, or extend this kind of hold. Only an associated person whose job function is supervisory, legal, or compliance-related can be authorized to place this kind of hold. All records related to such a hold must be retained for the default period of six years.

Continue to rely on Solomon Exam Prep for up-to-date information of interest to takers of the Series 6, 7, 24, 26, 27, 28, 65, 66, SIE, and other securities exams.