NASAA

Under NASAA model recordkeeping rules, an adviser generally keeps records for:

1. A.Ten yearsTen years is longer than the model rule requires and is more typical of other industries' retention schedules. The advisory standard is five years, with the first two in an easily accessible place.
2. B.Five yearsCorrect - the five-year retention rule.
3. C.One yearA single year would leave examiners unable to reconstruct an advisory relationship, since problems often surface long after the advice was given. The retention period is five years, and the two-year accessibility requirement sits inside it.
4. D.Three yearsThree years is a real retention figure in the securities rules, which is why it is the most tempting wrong answer here, but it is not the adviser standard under the NASAA model. For an investment adviser the period is five years.

Why: Advisers must retain required records for five years, the first two in an easily accessible place.

Under NASAA net-worth rules, higher minimum capital is generally required for advisers that have:

1. A.Fewer than 5 clientsClient count drives the de minimis registration analysis, not the net-worth requirement. Minimum financial requirements scale with what the adviser can do to client assets, so a firm with five clients and custody faces the higher bar while one with hundreds of non-discretionary clients does not.
2. B.No clientsAn adviser with no clients holds no client assets and exercises no authority over them, so there is nothing for a capital cushion to protect against. The requirement rises with exposure to client property, and here there is none.
3. C.Custody of client assetsCorrect - custody demands more capital.
4. D.A small officeOffice size, headcount, and physical footprint have no bearing on minimum net worth. The rule keys on the adviser's authority over client assets, so a two-person firm holding client funds faces a higher requirement than a large firm that neither has custody nor exercises discretion.

Why: Advisers with custody face higher minimum net-worth requirements than those with only discretionary authority.

Under NASAA custody rules, an adviser with custody generally must undergo:

1. A.Registration as a bankBanks are among the entities that may serve as qualified custodians, which is the thread of truth here. But the adviser is not asked to become a bank; it must submit to an independent verification of the client assets it holds.
2. B.A daily auditDaily auditing would be ruinously expensive and would defeat the design of the safeguard. The examination works because it is annual and unannounced, so the adviser cannot prepare for it; frequency is not what gives it force.
3. C.No examination everHolding client assets is the circumstance that most calls for outside verification, not one that excuses it. Certain narrow exceptions exist, such as an adviser deemed to have custody solely because it deducts fees under specified conditions, but the general rule is the opposite of never.
4. D.An annual surprise examination by an independent accountantCorrect - the surprise-exam safeguard.

Why: An adviser with custody generally must have an annual surprise examination by an independent accountant, subject to exceptions.

An adviser must retain required records (advertisements, communications) for:

1. A.One weekA week would not survive a single examination cycle. Retention periods are measured in years precisely so that regulators can reconstruct what an adviser told clients long after the fact.
2. B.Twenty yearsTwo decades overshoots the requirement. The general NASAA retention period is five years, with the earlier portion kept readily accessible in the adviser's principal office, and nothing extends that to twenty.
3. C.NeverAdvertisements and client communications are among the first items examiners ask for, which is why they carry a defined retention period. Discarding them immediately would make the recordkeeping rule unenforceable.
4. D.About five yearsCorrect - the five-year retention rule.

Why: NASAA rules generally require records be kept for five years.