Friday, October 24, 2008

Who Is An "Investment Adviser"?

Investment Advisers can defined as a person that:
  • Gets paid for their advice or consultation.
  • Advises others regarding the value or suitability of various investments. This can be done directly or through media such as newsletters. OR
  • Creates analysis or reports that offer recommendations or advice. OR
  • Provide advice to others performing financial planning and advisory services.

    Exemptions - Investment advisers that do not need to register with the state. These advisers have clients in the state that are non-public. The clients may solely consist of:
  • Federal Covered Advisers
  • Broker-Dealers
  • Banks and other similar depository institutions
  • Insurance Companies
  • Investment Companies
  • Government Agencies
  • Some others
    The key to this is that the clients are not the general public, so protection is not needed.

    There is also an exemption known as the "De Minimis" Exemption in which advisers with fewer than 6 clients in a state are exempt from registering. This is because there are so few clients that the business in the state is considered minimal.

    Exclusions from the "investment adviser" definition:
  • Employees of investment advisers (because they register instead as Investment Adviser Representatives)
  • Banks and other similar depository institutions
  • Media, so long as they do not provide any specific advice for a specific client in a specific situation
  • Professionals such as lawyers, accountants, teachers, etc.
  • Broker-Dealers, as long as they aren't getting kick-backs, special perks or compensation
  • Federal Covered Advisers (because they are registered as the federal level, so they do not need to register at the state level)

    The information listed above is adapted from a number of sources, but mostly from a Series 63 study program from Please visit PassPerfect for more information about their program. The Series 63 exam has been developed by the NASAA, and you can visit their website HERE. Neither PassPerfect nor the NASAA have reviewed the material presented here for completeness or accuracy. Please visit them to find more information about their programs and exams.

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  • Thursday, October 23, 2008

    Legal / Financial Definition of a "Person"

    I am currently studying for the Series 63 exam. One of the things that you need to understand in preparing for the exam is the definition of a "person". Under the NSMIA (National Securities Markets Improvement Act), a Person is a legal entity with a broad scope. Any of the following can be considered a person under the act:
  • Individuals
  • Corporations
  • Business Trusts
  • Partnerships
  • Associations
  • Trusts
  • Joint Stock Companies and Joint Ventures
  • Governments and Political Subdivisions
  • Unincorporated Organizations
  • Other Entities
    Only "persons" may be allowed to issue securities or trade securities.

    Not included in the exam study materials, but possibly of interest, the following are not defined as "Persons":
  • Cats
  • Robots
  • Action Figures
  • Chairs
  • Other Inanimate Objects

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  • Wednesday, October 22, 2008

    Blue Sky Laws

    State registration laws, also known as "Blue Sky" laws, are enacted by each state in order to protect their citizenry from fraud. These laws, many of which predate the Federal Securities Acts in 1933 and 1934, require brokers, brokerage firms, investment advisers, and securities offerings be registered in the state in which they operate.

    The term "Blue Sky" refers to the nothingness that composes the great blue yonder. It comes from a phrase used in a Supreme Court case Hall vs. Geiger-Jones Co. from 1917. The laws are intended to prevent the fraudulent sale of "Blue Sky" to investors and allow for states to enforce those laws. However, the ability of states to regulate and enforce some securities laws has been limited due to the enactment of the National Securities Markets Improvement Act of 1996. There are some securities that are considered covered and exempt from Blue Sky laws, including those securities listed on the NYSE, AMEX, and NASDAQ, and also many mutual fund shares.

    For more information about Blue Sky Laws, be sure to visit these sites:

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    Tuesday, October 21, 2008

    Futures: A Beginning

    I have been meaning to talk about Futures Contracts for quite some time. I'm not going to go into any depth right this moment, so let this post act as an entry point and introduction to Futures derivatives.
    Forward Contracts are a legal agreement between parties calling for the future delivery of an asset at a pre-arranged negotiated price. Futures Contracts are a standardized form of forward contracts that are able to be traded in a market. By having a standard contact, futures can be easily liquidated without the need for personal negotiation.

    Futures contracts are made between two traders. One trader with a long position is contracted to to pay an agreed price at a specific time, while the other trader with a short position commits to delivering the asset. This contract is often used to hedge against risk of price fluctuation or for speculation. The contracts are typically made on goods in five categories: agricultural commodities, metals and minerals, energy, foreign currencies, and financial futures.

    There is a wealth of knowledge about futures out there that I encourage you to research for yourself. I will try to return to the topic of Futures again in the future.

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    Monday, October 20, 2008

    SIPC - Securities Investor Protection Corporation

    In my current job as a Services Associate, I have recently been fielding a lot of calls by investors asking if their mutual funds are FDIC insured. The FDIC only protects deposits in bank accounts, not securities. While these funds are not protected under the FDIC, I am able to tell them about another protection that is out there known as SIPC protection. Since this seems to be a popular topic, I'd like to touch on it here.

    The SIPC, which is short for the Securities Investor Protection Corporation, is an organization formed by the 1970 Securities Investor Protection Act. It is an organization designed to protect investors in the event of a brokerage firm failure. The SIPC will provide for the orderly dispersal of existing cash and securities from the firm to the investors. In the event that the firm does not have those assets, the SIPC insures up to $500,000 in equities, including up to $100,000 in cash accounts.

    However, the SIPC only protects investors from the brokerage firm holding those securities. It does not protect investors from falling prices of those securities. All investments carry risk, and the SIPC does not insure you against the possibility that a security could decline in value. Also, not all assets are protected: Most mutual funds and equities are protected, but annuties and some other investments may not be protected. That is something that investors may want to consider before making any financial decisions.

    If you would like to learn more about the SIPC, you can visit them HERE.

    Thanks for visiting!

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    Monday, October 6, 2008

    403 (b)(7) Plans

    Here is a quick review about some facts about 403(b)(7) retirement plans. All information should be accurate as of today's date Oct. 6, 2008.

    This retirement plan is used for government, charity, and non-profit organizations. In this plan, pre-tax contributions are made by employees and any employer contributions are tax deductible.
    Contribution Limits For Employers: 100% of participant's compensation or $46,000 and the Exclusion Allowance
    Contribution Limits For Employees: $15,500
    Catch up Contributions for Employees with > 15 years of Service:
  • $5,000
  • $15,000 minus amounts previously excluded from gross income under the "catch up provision"
  • $5,000 X Years Working For Employer - Elective Deferrals

  • Age Limits: Must take RMD by April 1st of achieving age 70.5 or after retirement, whichever is longer.
    Qualified Exceptions for Pre-Mature Distribution include: Death, disability, life expectancy formula, separation from service after age 55, hardship, court order, and medical bills greater that 7.5% of Adjusted Gross Income.
    Loans are allowed on 403(b) plans.

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    Saturday, October 4, 2008

    Uncertainty and Spending

    This week the U.S. Commerce Dept. reported a 4.8% drop in durable goods orders, the worst since September 2001. There is an interesting paragraph in an article I found from Professor J. Bradford DeLong of the University of California at Berkeley. I suggest reading it and asking yourself if you see any parallels with where we could be heading in the near future:

    "The stock market crash of 1929 greatly added to economic uncertainty: no one at the time knew what its consequences were going to be. The natural thing to do when something that you do not understand has happened is to pause and wait until the situation becomes clearer. Thus firms cut back their own plans for further purchase of producer durable goods. Consumers cut back purchases of consumer durables. The increase in uncertainty caused by the stock market crash amplified the magnitude of the initial recession."

    Just something to think about.

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    Wednesday, October 1, 2008

    En Passant: Group Cohesion

    Just a small tip today: Try doing something to pull your group together. Teams often work better when a group feels a sense of belonging. You've got their back, they've got yours. If you all dressed in "team colors" for a day, all wore a goofy hat, or all shouted something together - you may find that your team will work better together. Even if the group all hates the goofy hat, at least it will provide them with a point of common conversation to give them something to talk about with each other.

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