Exam Weight: ~5 questions (4% of exam)
This unit covers required disclosures to clients (fiduciary foundation, material facts, Form ADV Part 2, brochure delivery, and agency cross transactions), unlawful representations concerning registrations, the performance guarantees prohibition, client contract requirements (assignment, performance-based fees for qualified clients, wrap fees), and correspondence and advertising rules (the Marketing Rule, testimonials, past performance, record retention).
What You'll Learn
- Master the fiduciary disclosure obligation, what makes a fact material, Form ADV Part 2A (Brochure) versus Part 2B (Brochure Supplement), the 48-hour pre-delivery rule and the at-signing alternative with the 5-business-day termination right, the 120-day annual update from fiscal year-end, state brochure rules, the key disclosures required in every advisory relationship, and all six agency-cross conditions, including the distinction between continuing written consent and the separate annual reporting obligation
- Understand the USA's prohibition on misrepresenting what registration means (no approval, no merit review, no qualification by the Administrator), what registrants may and may not say, and how the prohibition applies uniformly to investment advisers, IARs, broker-dealers, agents, and securities
- Learn the blanket prohibition on guaranteeing investment results (specific returns, no-loss promises, particular outcomes), the absence of any client-requested exception, and what is permitted (historical performance with disclaimers, reasonable projections, and money-back guarantees on advisory fees as distinct from performance guarantees)
- Apply the required elements of every advisory contract, the IAA no-assignment-without-consent rule (including the majority-versus-minority partnership change distinction), the IAA performance-fee restriction and its qualified-client exception ($1.4M AUM or $2.7M net worth excluding primary residence under SEC qualified-client thresholds), the IAA prohibition on waiver of client rights, and wrap fee program disclosure requirements
- Know the 2022 SEC Marketing Rule, the definition of advertisement, the seven general prohibitions, conditions on testimonials and endorsements (permitted under both the SEC rule and the current NASAA Model Rule with required disclosures), third-party ratings, performance advertising rules, social media / email / website treatment, and the Administrator's authority over communications under the USA