Series 66 Exam
The North American Securities Administrators Association (NASAA) offers the Uniform Combined State Law Examination (known as Series 66) for certification purposes. The Series 66 test is taken by people who are working to meet the criteria to become licensed as either an agent (AG) or an investment adviser (IA). Every state uses this test as part of the criteria for AG and/or IA. The test is not the only requirement for licensing, but it is part of the process.
Candidates will be given 150 minutes to finish 110 multiple-choice items. Of these, ten items are not scored; these are pre-trial items which may be used on future exams. Candidates will not know which items are scored and which are not.
The content of Series 66 exam is broken down as follows:
20 questions on investment analysis, recommendations, and strategies, as follows:
- Show comprehension regarding quantitative ways to evaluate investments (3-4)
- Determine investment performance (2)
- Determine and evaluate a client’s financial profile to create an appropriate investment policy and plan (6)
- Identify kinds of retirement plans and associated issues (2)
- Recognize risks – includes definitions, market impact, businesses, and personal investments (2-3)
- Show comprehension of portfolio management strategies, styles, and techniques – including fixed income and equities (3-4)
80 questions on legal and regulatory guidelines, including prohibition on unethical business practices, as follows:
- Show comprehension of pertinent state securities acts and related rules and regulations (37)
- 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,
- NASAA Statements of Policy on Dishonest and Unethical Business Practices by Broker-Dealers and Agents, Uniform Securities Act, Investment Advisers Act of 1940, Securities Exchange Act of 1934, Securities Act of 1933, and Uniform Prudent Investors Act (43)
The final result will be based on the test as a whole, and candidates will get the score right after finishing. The minimum score required for passing the Series 66 test changes occasionally, so candidates will need to check to see where the current standard has been set. If a candidate is unsuccessful in taking the test, he or she may take it again a second and third time after waiting thirty days. If unsuccessful on all three tries, the candidate will need to wait 180 days before all other attempts.
Free Series 66 Practice Test Questions
1. In a limited partnership, which statement best describes the exposure to liability for a general partner and a limited partner?
Both limited and general partners are liable for all debts incurred by the partnership
Only limited partners are liable for debts incurred by the partnership
Limited partners are not liable for any debts incurred by the partnership
Limited partners are liable for debts incurred by the partnership, but only to the extent of their original investment
2. All of the following are true regarding S-Corporations except…
A. S Corps avoid double taxation by passing income, losses and deductions to individual shareholders
B. an S-Corp may have more than one class of stock
C. individual shareholders pay taxes on flow-through income at their individual income tax rates
D. there may be no more than 100 shareholders
3. The maximum number of members of a Limited Liability Corporation is…
D. there is no maximum number
4. You are a financial adviser meeting a new client for the first time. Which of the following are important and appropriate non-financial investment considerations to discuss with the client?
A. I and II only
B. I, II and III only
C. III only
D. I, II, III and IV
5. You are a financial adviser meeting a new client for the first time. The client would like to invest $100,000 in a mutual fund, but refuses to discuss some of his personal financial information, such as his tax situation or existing investments. As best practice, you should…
A. invest the client’s money as they desire
B. place the trade and try to get the information from the client later
C. explain to the client you cannot help him without having an understanding of his current financial information
D. ask the client to sign a letter stating that you tried to obtain such information from him, and then go ahead with the trade
1. D: Limited partners are liable for debts incurred by the partnership, but only to the extent of their original investment. Limited partnerships consist of both general and limited partners. General partners retain all management control and have unlimited liability for all debt incurred by the partnership. Limited partners, however, have no management authority and are responsible for debt incurred by the partnership, but only to the extent of their original investment.
2. B: An S-Corp may have more than one class of stock. An S Corporation is one that is organized under subchapter S of the Internal Revenue Code. It is established for small businesses. An S Corporation is not permitted to have more than one class of stock, however it can have two or more types within a class. It may have both voting and non-voting common stock, for instance. S-Corps are considered “pass-through tax entities,” in which income, losses, deductions and credits are passed on to shareholders who then report such items on their personal federal tax returns. Shareholders pay tax on the flow-through income based on their own individual tax rates. The maximum number of shareholders permitted in an S Corporation is 100.
3. D: There is no maximum number. A Limited Liability Corporation (LLC) is a type of business structure, allowed by state statutes, in which owners have limited personal liability over the debt and actions of the corporation. They also allow for a more flexible management structure than a corporation, and the pass-through of taxes to the owners, who are called members. LLCs can have an unlimited number of members, including corporations as well as individuals. In most cases, banks and insurance companies cannot be LLCs.
4. D: I, II, III and IV. All of these variables – values, attitude, experience and demographics – are important non-financial investment considerations that should be discussed with a new client, since they frame the client’s views on investing. A new client’s risk tolerance is also an important non-financial consideration that is appropriate to discuss before making any investment recommendations.
5. A: As long as a trade is not illegal, and there’s no reason to suspect the client is involved in any illegal activity, you should follow the client’s instructions.