Question

An agent employed at First XYZ Securities produces his own research reports and provides them to a select group of personal clients. The agent has written permission from his employer to engage in this activity, provided the time spent on the project is conducted after working hours. Under the Investment Advisers Act of 1940, if the agent does not charge fees for the research but receives commissions from his employing broker-dealer for trades executed through the firm, A) the agent must register as an investment adviser representative B) the agent must register as an investment adviser because the research is being done after hours C) the broker-dealer must register as an investment adviser and the agent as an investment adviser representative D) neither the agent nor his employing broker-dealer need register as an investment adviser

Answer 1

Answer:

D) neither the agent nor his employing broker-dealer need register as an investment adviser

Explanation:

In the given scenario the agent produces his own research reports and provides them to a select group of personal clients.

He has permission from his employer to do this.

According to the Investment Advisers Act of 1940 the agent will only be excluded from being an investment advisor when he receives special compensation for giving investment advise.

Special compensation is when the agent is paid even when there are no transactions occuring.

In this case it's only when there is a transaction that the agent gets paid a commission. So this is not a special compensation.

As such neither the agent nor his employing broker-dealer need register as an investment adviser.