Series 66 Practice Test
When building an investment portfolio, it is generally recommended that an asset allocation process be used to increase the portfolio diversification and reduce risk. Which of the following is least likely to be considered an asset class? A) Cash and cash equivalents B) Stock C) Mutual funds D) Bonds
Mutual Funds
A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2019 without having to pay gift taxes? A) An unlimited amount because a gift occurs only when he irrevocably changes the beneficiary B) $75,000 C) $15,000 D) $150,000
75000
Which of the following would probably be an acceptable hedge clause under SEC interpretations? A) A clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, or communications disruptions B) "It is understood that we will expend our best efforts in the supervision of the portfolio, but we assume no responsibility for action taken or omitted in good faith if negligence, willful or reckless misconduct, or violation of applicable law is not involved." C) A hedge clause that seeks to limit liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished D) "Kapco Advisers shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care."
A clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, or communications disruptions
All of the following activities comply with the requirements for agency cross transactions EXCEPT A) after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer B) an adviser sends an annual statement to clients that reveals the total number of agency cross transactions for the client and the total amount of commissions the adviser received from those transactions C) a client consents (in writing) to the adviser's dual role in the transaction as both adviser to the client and broker to the other party D) before obtaining a client's written consent in an agency cross transaction, the adviser must disclose that it will receive commissions from both parties and that the transactions involve a conflict of interest
A) after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer
When an agent transfers employment from a broker-dealer registered with the SEC to a broker-dealer registered solely in this state A) the agent, the former broker-dealer, and the current broker-dealer must all notify the Administrator B) only the agent and the SEC-registered broker-dealer must notify the Administrator promptly C) only the agent must notify the Administrator promptly D) only the agent and the state-registered broker-dealer must notify the Administrator
A) the agent, the former broker-dealer, and the current broker-dealer must all notify the Administrator
Which of the following investment companies registered under the Investment Company Act of 1940 can include senior securities in its capital structure? A) Face-amount certificate companies B) Unit investment trusts C) Closed-end management investment companies D) Open-end management investment companies
Closed-end management investment companies
An investment advisory contract is considered assigned if an adviser formed as A) a corporation with 2 officers and adds 5 officers B) a partnership with 5 partners and adds 2 partners C) a corporation with 5 officers and adds 2 officers D) a partnership with 2 partners and adds five partners
D) a partnership with 2 partners and adds five partners If an advisory firm is formed as a partnership and there is a change in the majority of partners, this is considered to be an involuntary assignment to the new partnership. In this case, client approval is required. U6LO4
With regard to a state-registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that A) it must be delivered to all new clients B) if requested by a client, it must be sent within 5 days of the request C) it must be delivered not later than 48 hours after entering into an advisory agreement with a new client D) it is filed through the IARD system
D) it is filed through the IARD system
Jake Aaron is registered as an agent with ABC Securities, a broker-dealer registered with the SEC doing business in 34 states. In addition, Aaron has his own investment advisory business, Jake's Money Advisers, and is registered with the SEC. To comply with all appropriate regulations, which of the following would have to be stated on the business card for Jake's Money Advisers? Jake Aaron, RIA Jake's Money Advisers, RIA Jake's Money Advisers, registered investment adviser Securities offered through ABC Securities A) III and IV B) I, III, and IV C) I and III D) II and IV
Jake's Money Advisers, registered investment adviser Securities offered through ABC Securities
When a broker-dealer engages in a customer transaction from its own account, which of the following statements are TRUE? Partners of the broker-dealer are trading in their personal accounts. The broker-dealer is trading from its inventory with customers. The broker-dealer must disclose its capacity as a principal in the transaction. The broker-dealer must disclose its capacity as agent in the transaction. A) I and IV B) I and III C) III and IV D) II and III
The broker-dealer is trading from its inventory with customers. The broker-dealer must disclose its capacity as a principal in the transaction.
Which of the following statements regarding the alternative minimum tax is TRUE? A) The tax bracket will determine whether the regular tax or the alternative tax is paid. B) The excess of the alternative tax over the regular tax is added to the regular tax. C) The alternative minimum tax is added to the regular tax. D) The lesser of the regular tax or the alternative tax is paid.
The excess of the alternative tax over the regular tax is added to the regular tax.
If the current risk-free rate is 5%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of 1.5? A) 12.5% B) 10% C) 15% D) 11.5%
The expected return = 5% + (10% - 5%) × 1.5 = 5% + (5% x 1.5) = 5% + 7.5% = 12.5%.
Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer? A) The securities are exempt under the Uniform Securities Act. B) The agent will receive no compensation. C) The transactions are authorized in writing by the broker-dealer before execution of the transactions. D) The customer is a member of the agent's immediate family.
The transactions are authorized in writing by the broker-dealer before execution of the transactions.
According to the Investment Advisers Act of 1940, under which of the following circumstances is an exculpatory provision acceptable in a contract between an investment adviser and its clients? A) This provision is prohibited under all circumstances. B) The client has received written disclosure of this provision and has signed a written acceptance prior to any transaction. C) The client is purchasing government securities only. D) The client is a broker-dealer.
This provision is prohibited under all circumstances.
An employer-sponsored retirement plan that pays a specific benefit to participants at their normal retirement age is A) a defined benefit plan B) a section 401(k) plan C) a supplemental employee retirement plan D) a defined contribution plan
a defined benefit plan
An agent who carefully evaluates a client's risk tolerance, financial situation, and investment objectives engages in an unethical practice when he: A) underestimates a company's interest rate risk as a result of cautious accounting practices recently adopted by the company B) automatically recommends securities that are highly regarded by other agents in the office C) buys or sells securities with exceptionally high commissions or transaction costs D) fails to discuss a company's working capital position (because the client does not want to be bothered by details) if the securities are fundamentally suitable for his portfolio
automatically recommends securities that are highly regarded by other agents in the office
Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client if the Administrator has not prohibited this practice if the investment adviser has notified the Administrator that it has custody only as long as the adviser does not also have discretionary authority over the account A) I only B) II and III C) I and III D) I and II
if the Administrator has not prohibited this practice if the investment adviser has notified the Administrator that it has custody
The Investment Company Act of 1940 states that: A) it is unnecessary for the prospectus to disclose the management fee B) an investment company must have $5 million capital before its securities can be offered to the public C) no more than 50% of the board of directors of an investment company may be officers or employees of the company or investment advisers to the company D) open-end companies may issue common stock only
open-end companies may issue common stock only
During the analysis of XYZ stock, a technical analyst concludes that XYZ's support level has been broken. Being a technician, the most appropriate decision should be to A) rate the stock as a buy. B) purchase additional shares of the stock. C) rate the stock as a hold. D) rate the stock as a sell.
rate the stock as a sell.
You have a client who sold her $5 million whole life insurance policy through a life settlement broker. If she dies 2 years later, A) her estate can invoke the right of rescission and receive the policy proceeds minus the sale proceeds. B) the new owner receives the $5 million death benefit. C) the insurance broker must return all commissions to the insurance company. D) the insurance company is not obligated to pay the death benefit because she no longer owns the policy.
the new owner receives the $5 million death benefit.
The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if results do not reflect the deduction of fees actual market conditions during the referenced period are not disclosed the advertisement did not reflect performance for a minimum period of 3 years the advertisement did not disclose that it applied to only a specific group of clients
1. 2. 4.
A corporate bond that pays interest semiannually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%? A) $1,221.17 B) $1,144.31 C) $922.78 D) $1,051.23
922.78 How did we calculate that? We used tool that you won't have available at the test center (a financial calculator), but there is a great tool you will have - common sense. When a bond has a yield to maturity that is greater than its coupon rate, the bond must be selling at a discount and that only leaves one possible answer. The only way to get a 10% return on an 8% bond is to buy it at a price below par.
Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they conduct business? A Certified Financial Planner who prepares financial plans and whose only compensation is commissions An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients A broker-dealer with extensive business in the state A mutual fund company with offices and clients in the state A) I only B) I, II, III, and IV C) I and II D) III and IV
A Certified Financial Planner who prepares financial plans and whose only compensation is commissions An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients
Which of the following statements concerning conflicts of interest under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers are true? Where a conflict of interest exists, an adviser must decline taking on the client. A conflict of interest is defined as anything that may impair the impartiality of the advice being rendered. An investment adviser who receives a fee for investment advice, and whose investment adviser representatives are paid commissions from broker-dealers, presents a conflict of interest that must be disclosed. A) I and III B) I, II, and III C) I and II D) II and III
A conflict of interest is defined as anything that may impair the impartiality of the advice being rendered. An investment adviser who receives a fee for investment advice, and whose investment adviser representatives are paid commissions from broker-dealers, presents a conflict of interest that must be disclosed.
Form PF must be filed by A) SEC-registered advisers with at least $150 million in private fund assets under management B) state-registered private fund managers, regardless of the amount of assets under management C) SEC-registered advisers with no more than $150 million in private fund assets under management D) SEC-exempt reporting advisers
A) SEC-registered advisers with at least $150 million in private fund assets under management
Under the Uniform Securities Act, which of the following is NOT cause for disciplinary review action by the state securities Administrator? A) Tom, a registered investment adviser, fails to disclose that he recently filed for bankruptcy protection. B) Joe files an application for registration as an investment adviser and omits the fact that he was convicted of fraud 12 years ago. C) The ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors. D) Ed is suspended from conducting business in the securities industry for a period of 6 months by FINRA.
C) The ABC Advisory Group, a registered investment adviser, employs several investment adviser representatives as independent contractors.
Which of the following is required to register as an investment adviser with the state securities Administrator? A) The author of a book on money and banking that was sold to residents of the state in which it is published B) A newly formed investment advisory firm with $145 million in assets under management C) A person with no office in the state whose only advisory clients are investment companies and banks in the state D) An investment advisory firm that opens an office in the state with less than $100 million in assets under management
D) An investment advisory firm that opens an office in the state with less than $100 million in assets under management
A 47-year-old investor purchases a single premium deferred variable annuity from the ABC Insurance Company with an initial premium payment of $25,000. Six years later, a 1035 exchange is made to an annuity offered by the XYZ Insurance Company when the value of the account is $35,000. Seven years later, the account has a current value of $50,000 and the investor withdraws $20,000. The tax consequence of this withdrawal is A) no tax until the withdrawal exceeds $25,000. B) ordinary income tax on $15,000. C) ordinary income tax on $20,000 plus a 10% penalty. D) ordinary income tax on $20,000.
D) ordinary income tax on $20,000.
A management investment company owns portfolio securities with a current market value of $100 million. The company owes $10 million for securities purchased but not yet paid for and accrued management fees of $5 million. If there are 2,611,437 shares outstanding and the current asking price of the shares is $36.38 per share, it would be correct to state that this investment company is A) selling at a discount. B) an open-end investment company. C) selling at NAV. D) selling at a premium.
D) selling at a premium.
Terry Bolton opens a UTMA for each of his sons, Josh, age 12, and Drake, age 14. Under current tax regulations (2020 and beyond), after deductions and exemptions, how will the income in the UTMAs be taxed? Josh's income is taxed at his tax rate. Drake's income is taxed at his tax rate. Josh's income in excess of $2,200 is taxed at Terry's marginal tax rate. Drake's income in excess of $2,200 is taxed at Terry's marginal tax rate. A) II and III B) I and IV C) III and IV D) I and II
Josh's income in excess of $2,200 is taxed at Terry's marginal tax rate. Drake's income in excess of $2,200 is taxed at Terry's marginal tax rate
An investment adviser is preparing an advertisement. Which of the following would be acceptable? An endorsement on radio or TV from a celebrity who is a client of the firm Identifying his best investment recommendations for the past 6 months Offering to provide his investment recommendations for the past 12 months Promoting his system of charts and formulas while mentioning their limitations and difficulties A) I and IV B) III and IV C) II and III D) I and II
Offering to provide his investment recommendations for the past 12 months Promoting his system of charts and formulas while mentioning their limitations and difficulties
NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed? Transaction-based compensation, such as commissions on recommended securities 12b-1 trails on no-load mutual funds in the client's portfolio Expenses reimbursed by third-party sources Compensation-sharing arrangements between the investment adviser and its representatives
Transaction-based compensation, such as commissions on recommended securities 12b-1 trails on no-load mutual funds in the client's portfolio Expenses reimbursed by third-party sources
Registration as an investment adviser or investment adviser representative under the Uniform Securities Act is required of A) an agent of a broker-dealer who recommends model portfolios to clients in exchange for them executing their trades through him B) a tax attorney who, as an incidental part of his tax practice, recommends that his high-tax-bracket clients investigate the use of municipal bonds in their portfolios C) an economics professor at a local community college who gives lectures in the evenings to public groups about portfolio analysis for which he charges a nominal fee D) an officer of a trust company handling investments for trust accounts
an economics professor at a local community college who gives lectures in the evenings to public groups about portfolio analysis for which he charges a nominal fee
Under the Investment Advisers Act of 1940, cash payment to a broker-dealer from an investment adviser in return for client referrals is A) not permitted under any circumstances B) permitted only if the investment adviser and broker-dealer are affiliated C) permitted if the investment adviser makes certain disclosures to the clients and meets other requirements D) permitted with no restrictions
permitted if the investment adviser makes certain disclosures to the clients and meets other requirements
An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the USA, it is true to state that this individual A) is not defined as an investment adviser representative because he is only making cold calls B) would be defined as an investment adviser representative C) does not need supervision because he is only making cold calls D) would be permitted to use the term investment counsel
would be defined as an investment adviser representative
