Practice Quiz

FINRA Series 63 (NASAA)

Category - Series 63

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Which of the following compensation arrangements between an investment adviser and an individual client with a net worth of $600,000 would be disallowed?
  1. The client agrees to pay the investment adviser an hourly fee of $60.00.
  2. The investment adviser will receive 0.1% of the total value of the client’s assets under management as of the end of each month.
  3. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.
  4. All of the above are legitimate compensation arrangements between and investment adviser and an individual client with a net worth of $600,000.
Explanation
Answer: C - A compensation arrangement between an investment adviser and an individual client with a net worth of $600,000 that stipulates the adviser will receive 0.1% of the gross capital gains earned on the portfolio would be disallowed. An investment adviser of an individual client cannot be compensated with a share of the capital gains earned on the portfolio unless that client has a net worth of at least $1.5 million or has at least $750,000 invested through that investment adviser.
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