Series 65 Exam
The North American Securities Administrators Association (NASAA) offers the Uniform Investment Adviser Law Examination (known as Series 65). The assessment is for people who are working towards meeting the criteria to become an investment adviser representative.
20 questions on economics and analysis, as follows:
- Basic economic concepts (4 questions)
- Recognize elements of a business’s financial records to settle on investment worth and show
- comprehension of quantitative ways of assessment (2 questions)
- Investments (7 questions)
- Recognize risks – includes definitions, market impact, businesses and individual investments (7 questions)
26 questions on investment vehicles, as follows:
- Assess cash and cash equivalents (2 questions)
- Assess fixed income securities (5 questions)
- Assess equity securities (7 questions)
- Assess investment company securities (5 questions)
- Distinguish derivative securities, including pros and cons (2 questions)
- Show that you comprehend distinctive aspects of international investing (3 questions)
- Show that you comprehend real estate partnerships and investment trusts (REITs) and variable annuities (2 questions)
39 questions on investment recommendations and strategies, as follows:
- Recognize and assess a financial profile and come up with an appropriate investment policy and plan (12 questions)
- Show that you comprehend portfolio management methods, styles, and techniques – includes fixed income and equities (8 questions)
- Show your familiarity with basic tax issues (5 questions)
- Identify kinds of retirement plans and associated issues (6 questions)
- Define basic terms and concepts of trading securities (4 questions)
- Calculate performance (4 questions)
45 questions on legal and regulatory guidelines, including prohibition on unethical business practices, as follows:
- Show your comprehension of pertinent securities acts and associated rules and regulations (20 questions)
- Show that you will use ethical practices and meet fiduciary responsibilities (NASAA Model Rule on Unethical Business Practices of Investment Advisers and Federal Covered Advisers, Uniform Securities Act, and Investment Advisers Act of 1940, Securities Exchange Act of 1934, Uniform Prudent Investors Act) (25 questions)
Candidates need a minimum of 89 items (or 68.5%) right to get a passing score. After the test is finished, candidates receive their scores right away.
Series 65 Exam Mutual Funds
Series 65 Exam Practice Questions
1. Which type of action is not allowed under the Employee Retirement Income Security Act (ERISA)?
A. A trustee delegating investment management responsibilities
B. A transaction where the trustee of the plan receives personal compensation<
C. Defraying plan expenses
D. Providing benefits to account beneficiaries
2. Which of the following fits within the definition of a security?
A. Commodities traded on an exchange
C. Treasury stock
D. Condominiums for personal residence
3. What type of investment account automatically transfers ownership to the surviving account owners upon the death of one of the account owners?
A. Tenants in common
B. Partnership account
C. Joint tenants with right of survivorship
D. Custodial account
4. When must a new account be approved by a principal of the broker-dealer?
A. The account is a discretionary account
B. The account is a margin account
C. At the end of each year
D. Before, or shortly after, the first transaction in the account
5. Which is not used to calculate a bond’s return on investment?
A. Coupon yield
B. Face value at the time of sale
C. Current price
D. Par value
1. B: A transaction where the trustee of the plan receives personal compensation. The Employee Retirement Income Security Act (ERISA) is a set of federal laws that establishes the minimum protection standards for retirement and health plans that private employers provide to employees. ERISA prohibits a trustee of a retirement plan from performing any action that is in the self-interest of the trustee. Additionally, a trustee may not engage in transactions for the plan with anyone who has a conflict of interest with the plan, or receive personal compensation from anyone working with the plan in connection with transactions. The trustee is also responsible for making sure that no prohibited transactions occur with a party-in-interest. Prohibited transactions with a party-in-interest include sales; exchanges or leasing of property; lending money or extending credit; furnished goods, services or facilities; transfers of assets of the plan; and transfers of real or personal property to the plan by a party-in-interest.
2. C: Treasury stocks. A security is a financial instrument that represents a monetary value. There are a broad range of securities in both the equity and debt sectors. Treasury stock is equity shares held in an enterprise’s treasury, either repurchased from the open market or never issued at all. Other securities include notes, bonds, debentures, evidence of indebtedness, certificates of interest in a profit-sharing agreement, collateral trust certificates, preorganization certificates, transferable shares, investment contracts, voting trust certificates, security futures, certificates of deposit for a security, fractional undivided interests in oil/gas/mineral rights, puts/calls/straddles/options/privileges on a security, certificates of deposit or group or indexes of securities, and puts/calls/straddles/options/privileges entered into on a national exchange relating to foreign currency. The definition of security does not include insurance or annuity contracts where an insurance company will pay out a fixed sum as a lump sum payment or in installments, interest from a retirement plan, collectibles, commodities, condominiums for personal residence, and currency.
3. C: Joint tenants with right of survivorship. In a Joint Tenants with Right of Survivorship (JTWROS) account, all holders (tenants) enjoy an equal right to the account’s assets and survivorship rights to the value of a share held by a fellow tenant who dies. The after-death adjustment would maintain equal share ownership among the surviving tenants. A Tenants In Common (TIC) vehicle provides multiple tenants ownership of property, however, unlike a JWTROS, a tenant’s share in a TIC, upon his death, becomes part of the tenant’s estate, and can be passed to a beneificiary outside of the TIC. Partnerships consist of an unincorporated association between two or more individuals. Each partner’s share of the account and how the partner’s share will be distributed upon their death is determined by the partnership agreement. In a custodial account, the beneficiary has ownership of the account and the custodian only executes trades for the account.
4. D: Before or shortly after the first transaction in the account. A principal of the broker-dealer firm must approve all new accounts, however, all paperwork required to establish the account must be completed before approval can be granted. The client must submit a new account form, which includes the client’s name; date of birth; address; business and residence phone numbers; social security or tax ID number; occupation; employer; business; citizenship; legal age; estimated income and net worth; investment objectives; bank and brokerage references; whether the client is employed by another FINRA member; how the account was acquired; whether the customer is an officer, director, or more than 10% stockholder of a publicly traded company; the name and occupation of anyone authorized access to the account; and the signatures of the investment adviser and the principal of the form. The client must also provide mailing instructions. Some broker-dealers require a signature card.
5. B: Face value at the time of sale. The face, or par, value at the time of sale is used to calculate a bond’s nominal yield, but not the return on investment. Total return on investment is the yield and growth earned from that investment, and the return on a bond investment is the difference between the current price and the par value of the bond. A bond’s coupon, or nominal, yield is printed on the bond’s face and is a fixed percentage of its value. The current yield is determined by dividing the coupon yield by the investment’s current price. The current yield measures the bond’s payment as it relates to market price. Bond prices and yields have an inverse relationship. A bond’s yield to maturity is the value of the bond assuming it’s held until maturity.