Question of the Week

In your initial meeting with an investment advisor representative (IAR), she fails to provide you with the ADV Part II as per the brochure rule. She then goes on to talk about the advisory firm, which of the following statements made by her would be considered as fraudulent?

a) Our firm’s investment style follows that of efficient market theory
b) Once you sign a contract with our firm, it can be terminated within 3 days without penalty
c) Our firm requires that all of our advisors are certified financial planners (CFP)
d) You should research our firm’s disciplinary history through the SEC and NASD

Answer:

The correct answer is b):

The investment advisor representative (IAR) can tell the prospective client all of the following statements above, with the exception of termination within 3 days without penalty. Per the Brochure Rule, since the IAR failed to provide the prospective client with the written disclosure statement (ADV Part II) at the initial meeting, the client must be given 5 days to terminate the contract without penalty.