Friday, January 30, 2009

Adviser Registration

As much as I enjoy writing about exam topics, I'm convinced that I can provide the biggest benefit by breaking down potential exam questions. Many candidates under-utilize test-taking strategies, and many simply don't know that the multiple choice format always has a weakness that can be exploited. The easiest structure for you to defeat is the "roman numeral" or "multiple-multiple" format. With process of elimination, we can filet the following seemingly hard question. First, you take a crack at it. Then, I'll give you my take.

Which of the following represent(s) an accurate statement(s) concerning the registration of investment advisers?
I. an investment adviser may not be organized as a sole proprietor
II. an investment adviser may not conduct business at a private residence
III. Form ADV is used for either federal or state registration
IV. Form ADV Part 1 must be updated annually
A. I only
B. II only
C. III, IV only

Step one is to look at how the roman numerals have been distributed--what could you eliminate that would quickly eliminate one or two choices? Basically, once you decide on "I," you either eliminate A and D, or you eliminate B and C. Either the answer has a "I" in it, or it doesn't, right?
So, what about the statement that advisers can't operate as sole proprietors, implying that they must be partnerships, LLC's, or corporations? Did anyone ever try to hammer that point home? An adviser can't operate as a sole proprietor? Why not? It's untrue. Check out a Form ADV, and you'll see spaces to indicate whether the adviser is a sole proprietor. So, "I" is out, knocking out anything with a "I" in it. A and D are gone.
Now, your answer either has a "II" in it, or it doesn't. Does an adviser have to have a business address, or could a sole proprietor operate from a residence? Again, a cursory familiarity with Form ADV will show you that the form asks if the address given is, in fact, a private residence. And, why not? If you're just managing a few portfolios, why couldn't you enter trades through one computer in your basement, den, attic, etc.?
So, if "II" is false, B is eliminated, and the answer to the question has to be "C." To double check that "III" and "IV" are true statements, go to and view a PDF of the paper-based Form ADV Part I. You'll quickly see that there are 4 boxes to be checked at the top. One is to indicate that you're filing with the SEC. One indicates you're filing with a state regulator. The next two boxes indicate that this is the annual update or that this is an "other than annual amendment" to report a major change that has occured rendering the information on file inaccurate or incomplete.
Try to use test-taking strategies to gain the upper hand on these annoying test questions. Use the part of the question that you know to eliminate the wrong answers. If you eliminate one answer, you go from a 25% chance of success to 33.3%. If you eliminate two wrong answers, you sit 50-50, which is pretty good when guessing. What happens when you elminate three answer choices?
Move on to the next question.

No comments:

Post a Comment