FINRA Series 6 Investment Company and Variable Contracts Products Representative Examination flashcards

A regulation requiring the delivery of a fund's prospectus to an investor at or prior to the confirmation of sale, providing essential information about the investment.

• Mandated by the Securities Act of 1933.
• Applies to mutual funds, variable annuities, and new issue securities.
• Ensures investors receive full disclosure before completing a purchase.

Memory trick: Prospectus Present, Before Payment's Sent.

Orders for mutual fund shares are executed at the next calculated Net Asset Value (NAV) or Public Offering Price (POP) after the order is received.

• NAV/POP is typically calculated once daily, at market close.
• Ensures fair pricing for all investors.
• Eliminates intraday speculation for mutual funds.

Memory trick: Forward Pricing: Future Value, Not Past.

A client's instruction to withdraw funds from a variable annuity, typically requiring a written and signed request.

• Written authorization is paramount.
• Protects against unauthorized redemptions.
• Processed by the insurance company.

Memory trick: Verbal desire, written acquire.

To find the number of shares purchased, divide the total investment amount by the Public Offering Price (POP) per share.

• POP already includes the sales charge.
• NAV is not directly used for share count in a loaded fund purchase.
• Total investment is the numerator, POP is the denominator.

Memory trick: Money in, POP out, shares you will shout.

The method by which mutual fund shares are purchased or redeemed, where the price is based on the next calculated Net Asset Value (NAV) after the order is received.

• Applies to mutual funds.
• Orders received before the NAV calculation cutoff (usually 4 PM ET) are priced at that day's NAV.
• Orders received after the cutoff are priced at the next business day's NAV.

Memory trick: NAV's Next Value, Not Now!

Redemption requests for variable annuities are priced using forward pricing, meaning the next calculated NAV after the request is received.

• NAV is typically calculated at the end of each business day.
• Requests received after the market close are priced the next day.
• Proceeds must be paid within 7 calendar days.

Memory trick: Redeem Riches? Next NAV, Not Now.

A document sent to a client detailing the specifics of a mutual fund transaction.

• Mandated by FINRA Rule 2232.
• Includes purchase/sale details.
• Must disclose sales charges.

Memory trick: Confirm the trade, charge is displayed.

A privilege that allows mutual fund investors to combine current investments with new purchases to qualify for a lower sales charge breakpoint.

• Applies to investments within the same fund family.
• The lower sales charge applies to new purchases.
• Value of existing holdings and new purchases are aggregated.

Memory trick: ROA: Reach a higher Amount, get a lower Rate.

Transfers of funds between subaccounts within a variable life insurance policy or variable annuity are generally tax-free events.

• Allows investors to reallocate assets without tax consequences.
• Some contracts may impose limits on free transfers or small administrative fees.
• This is a key advantage of the tax-deferred nature of variable contracts.

Memory trick: Subaccount Swap? Sweetly Tax-Free!

Upon the death of a variable annuity owner, the registered representative must notify the insurance company to initiate the claims process for the designated beneficiary.

• Death benefit typically bypasses probate.
• Beneficiaries have payout options (lump sum, annuitization, stretch IRA).
• The value of the death benefit may be higher than the current account value.

Memory trick: Death's Door? Declare to Insurer, Deploy Docs.

A sales charge deducted when mutual fund shares are redeemed, typically decreasing to zero the longer the shares are held.

• Also known as a 'back-end load'.
• Commonly associated with 'B' shares.
• Designed to discourage short-term trading and compensate for upfront expenses.

Memory trick: CDSC: Charge Deferred, Surrender's Cost.

Moving funds between investment options (subaccounts) within the same variable annuity contract.

• Uses forward pricing (next unit value).
• Generally not a taxable event.
• Not subject to new sales charges.

Memory trick: Internal moves, future values prove.

Upon surrender of a variable annuity, any gain above the cost basis is taxed as ordinary income, but the 10% early withdrawal penalty is waived if the owner is over 59½.

• LIFO (Last-In, First-Out) tax treatment.
• Gains are taxed as ordinary income.
• No 10% penalty if over 59½.

Memory trick: Gain is income, age saves the fine.

A guarantee within a variable annuity contract that ensures, upon the annuitant's death, beneficiaries receive at least the amount invested (adjusted for withdrawals) or the current account value, whichever is higher.

• Bypasses probate if a beneficiary is named.
• Earnings are taxable to the beneficiary as ordinary income.
• Guarantees a minimum payout, protecting against market downturns.

Memory trick: Death Benefit: Your 'Best' of account value or contributions, tax 'ouch' on gains.

Transfers of assets between subaccounts within a variable annuity are generally not considered taxable events, allowing for tax-deferred growth and portfolio rebalancing.

• Gains are tax-deferred until withdrawal.
• Allows for rebalancing without immediate tax consequences.
• A key benefit of variable annuities.

Memory trick: Variable annuities offer a shield for your gains, letting you move money around without the taxman's gaze until you cash out.

The sales charge percentage is calculated by dividing the sales charge amount by the Public Offering Price (POP).

• Sales Charge = POP - NAV.
• Sales Charge % = Sales Charge / POP.
• FINRA limits maximum sales charge to 8.5% of POP.

Memory trick: Sales Charge is part of the 'POP' price, so divide by POP.

Any written communication from a customer alleging a grievance must be forwarded to a principal for review and potential reporting, even if resolved.

• Applies to all written communications (email, letter, fax).
• Principal review is mandatory.
• Firm must maintain records of complaints.

Memory trick: Written Complaints always go 'UP' to the Principal.

A document sent to a client after a mutual fund transaction, detailing key aspects of the purchase or sale.

• Must include date, quantity, price, and sales charge.
• Must show Public Offering Price (POP) and Net Asset Value (NAV).
• Does NOT include ongoing fund characteristics like expense ratio.

Memory trick: Confirmation shows 'WHAT you BOUGHT and for HOW MUCH', not the fund's 'OVERHEAD'.