Series 65
Uniform Investment Adviser Law Examination.
Getting Started: Exam Essentials
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NASAA Series 65, Uniform Investment Adviser Law Examination — key terms, tricks & tips
Everything from the course in one searchable place: 259 entries. Use it to review before a practice test or look up a word you forgot.
259 results
NASAA
North American Securities Administrators Association.
Getting Started: Exam Essentials
IAR
Investment Adviser Representative.
Getting Started: Exam Essentials
Pre-test questions
Unscored exam questions, indistinguishable from scored ones.
Getting Started: Exam Essentials
Prometric
Testing centers where the exam is administered.
Getting Started: Exam Essentials
75%
Minimum passing score for the Series 65 exam.
Getting Started: Exam Essentials
180 minutes
Total time allotted for the Series 65 exam.
Getting Started: Exam Essentials
Series 65 Exam Overview & Structure
To remember the four content areas: 'E.I.C.L.' - Economics, Investments, Client recommendations, Laws.
Getting Started: Exam Essentials
Series 65 Exam Overview & Structure
Memorize the four main content areas and their approximate weightings. The exam often tests your understanding of which topics fall into each category, not just the specific facts within them.
Getting Started: Exam Essentials
Series 65 Exam Overview & Structure
Underestimating the importance of 'Laws, Regulations, and Guidelines' (30% of the exam).
Getting Started: Exam Essentials
Series 65 Exam Overview & Structure
Neglecting the 'Economic Factors and Business Information' section, even though it's the smallest percentage.
Getting Started: Exam Essentials
Series 65 Exam Overview & Structure
Not practicing with timed exams to simulate the 180-minute time limit.
Getting Started: Exam Essentials
Active Learning
Engaging with material through self-quizzing, explaining, or problem-solving.
Getting Started: Exam Essentials
Passive Review
Rereading or highlighting without deep engagement or recall.
Getting Started: Exam Essentials
Study Schedule
A structured plan allocating time for specific topics and review.
Getting Started: Exam Essentials
Time Management
Efficient allocation of time during study and the actual exam.
Getting Started: Exam Essentials
Practice Exam
Simulated tests to familiarize with format and identify weak areas.
Getting Started: Exam Essentials
Performance Analysis
Reviewing practice exam results to understand strengths and weaknesses.
Getting Started: Exam Essentials
Study Strategies & Test-Taking Tips for the Series 65
For 'Active Learning,' think 'ACT': Apply, Connect, Teach. If you can apply it, connect it, or teach it, you're actively learning!
Getting Started: Exam Essentials
Study Strategies & Test-Taking Tips for the Series 65
The exam often includes scenario-based questions that require applying multiple concepts. Don't just memorize facts; understand how they interact in real-world investment advisory situations. Keywords like 'best course of action' or 'most appropriate' signal application questions.
Getting Started: Exam Essentials
Study Strategies & Test-Taking Tips for the Series 65
Only rereading notes or textbooks without active recall.
Getting Started: Exam Essentials
Study Strategies & Test-Taking Tips for the Series 65
Not taking full-length practice exams under timed conditions.
Getting Started: Exam Essentials
Study Strategies & Test-Taking Tips for the Series 65
Ignoring performance analysis on practice exams, just looking at the score.
Getting Started: Exam Essentials
Business Cycle
Fluctuations in economic growth over time.
Economic Foundations & Analysis
Expansion
Period of increasing economic activity.
Economic Foundations & Analysis
Contraction
Period of declining economic activity; recession.
Economic Foundations & Analysis
Leading Indicator
Changes before the economy; predicts future.
Economic Foundations & Analysis
Coincident Indicator
Changes with the economy; real-time snapshot.
Economic Foundations & Analysis
Lagging Indicator
Changes after the economy; confirms past trends.
Economic Foundations & Analysis
GDP
Total value of goods/services produced.
Economic Foundations & Analysis
Inflation
General increase in prices and fall in purchasing power.
Economic Foundations & Analysis
Economic Cycles & Indicators Explained
To remember the indicators, think 'L-C-L': Leading (predicts), Coincident (current), Lagging (confirms). Like a traffic light: Green (Leading - go invest!), Yellow (Coincident - proceed with caution), Red (Lagging - stop and assess damage).
Economic Foundations & Analysis
Economic Cycles & Indicators Explained
The exam often tests your ability to categorize specific economic data points as leading, lagging, or coincident indicators. Memorize common examples for each category, such as 'new orders for durable goods' (leading) vs. 'average duration of unemployment' (lagging).
Economic Foundations & Analysis
Economic Cycles & Indicators Explained
Confusing leading indicators with lagging indicators, especially when analyzing market trends.
Economic Foundations & Analysis
Economic Cycles & Indicators Explained
Assuming all economic cycles are of the same duration or intensity.
Economic Foundations & Analysis
Economic Cycles & Indicators Explained
Relying on a single indicator rather than looking at a broad range of data points.
Economic Foundations & Analysis
Microeconomics
Study of individual economic units and markets.
Economic Foundations & Analysis
Macroeconomics
Study of the economy as a whole.
Economic Foundations & Analysis
Scarcity
Unlimited wants versus limited resources.
Economic Foundations & Analysis
Opportunity Cost
Value of the next best alternative foregone.
Economic Foundations & Analysis
Demand
Quantity consumers will buy at various prices.
Economic Foundations & Analysis
Supply
Quantity producers will sell at various prices.
Economic Foundations & Analysis
Equilibrium
Price where quantity demanded equals supplied.
Economic Foundations & Analysis
Basic Economic Principles & Theories
Think 'MICRophone' for MICRO (small, individual voice) and 'MACROscope' for MACRO (big picture, whole view).
Economic Foundations & Analysis
Basic Economic Principles & Theories
The exam often tests your ability to distinguish between microeconomic and macroeconomic factors affecting investment decisions. Be prepared to identify whether an event (e.g., a company's earnings report vs. GDP growth) falls under micro or macro.
Economic Foundations & Analysis
Basic Economic Principles & Theories
Confusing microeconomic events (like a single company's performance) with macroeconomic trends (like inflation).
Economic Foundations & Analysis
Basic Economic Principles & Theories
Forgetting that opportunity cost is always about the *next best* alternative, not all alternatives.
Economic Foundations & Analysis
Basic Economic Principles & Theories
Assuming that a change in price shifts the demand/supply curve, rather than just moving along the curve.
Economic Foundations & Analysis
Income Statement
Reports revenue, expenses, and net income over a period.
Economic Foundations & Analysis
Balance Sheet
Shows assets, liabilities, and equity at a specific point.
Economic Foundations & Analysis
Statement of Cash Flows
Details cash inflows and outflows from operations, investing, and financing.
Economic Foundations & Analysis
Assets
Economic resources owned by a company.
Economic Foundations & Analysis
Liabilities
Financial obligations owed by a company.
Economic Foundations & Analysis
Owner's Equity
Residual value belonging to the owners after liabilities.
Economic Foundations & Analysis
Net Income
A company's total earnings or profit.
Economic Foundations & Analysis
Operating Activities
Cash flows from normal business operations.
Economic Foundations & Analysis
Financial Statements & Reporting Analysis
Imagine 'I B C' for Income, Balance, Cash. Each statement is a different lens for viewing a company's financial health.
Economic Foundations & Analysis
Financial Statements & Reporting Analysis
The exam often tests your ability to identify which statement provides specific information. For example, 'Where would you find a company's retained earnings?' (Balance Sheet) or 'Which statement shows a company's profitability over a quarter?' (Income Statement).
Economic Foundations & Analysis
Financial Statements & Reporting Analysis
Confusing the purpose of each statement (e.g., thinking the balance sheet shows profitability).
Economic Foundations & Analysis
Financial Statements & Reporting Analysis
Ignoring the statement of cash flows, especially for growth companies with negative net income.
Economic Foundations & Analysis
Financial Statements & Reporting Analysis
Relying solely on one financial statement without considering the others or qualitative factors.
Economic Foundations & Analysis
Mean
The average of a set of numbers.
Economic Foundations & Analysis
Standard Deviation
Measures the dispersion of data around the mean; common risk measure.
Economic Foundations & Analysis
Correlation
Measures the linear relationship between two variables (-1 to +1).
Economic Foundations & Analysis
Regression Analysis
Statistical method to model relationships between variables for prediction.
Economic Foundations & Analysis
Time Value of Money
A dollar today is worth more than a dollar in the future.
Economic Foundations & Analysis
Present Value (PV)
The current worth of a future sum of money.
Economic Foundations & Analysis
Future Value (FV)
The value of an asset or cash at a specified date in the future.
Economic Foundations & Analysis
Annuity
A series of equal payments or receipts occurring over a specified number of periods.
Economic Foundations & Analysis
Quantitative Methods for Investment Analysis
Think 'TVM' for 'Today's Value Matters'. It reminds you that money's value changes over time, making present and future value calculations essential.
Economic Foundations & Analysis
Quantitative Methods for Investment Analysis
The Series 65 exam frequently tests the interpretation of standard deviation as a measure of risk or volatility. Be prepared to compare investments based on their standard deviations and understand that a higher standard deviation implies higher risk.
Economic Foundations & Analysis
Quantitative Methods for Investment Analysis
Confusing correlation with causation; correlation shows relationship, not cause.
Economic Foundations & Analysis
Quantitative Methods for Investment Analysis
Ignoring the impact of inflation when performing TVM calculations for long-term goals.
Economic Foundations & Analysis
Quantitative Methods for Investment Analysis
Using the wrong measure of central tendency (e.g., mean instead of median for skewed data).
Economic Foundations & Analysis
Cash Equivalent
Highly liquid, short-term investment, easily convertible to cash.
Understanding Investment Vehicles
Common Stock
Represents ownership in a corporation with voting rights.
Understanding Investment Vehicles
Preferred Stock
Equity with fixed dividends, priority over common stock.
Understanding Investment Vehicles
Bond
A debt security representing a loan; pays interest and principal.
Understanding Investment Vehicles
Capital Appreciation
Increase in the value of an asset over time.
Understanding Investment Vehicles
Dividend
A portion of company earnings paid to shareholders.
Understanding Investment Vehicles
Coupon Payment
Periodic interest payment made to bondholders.
Understanding Investment Vehicles
Maturity Date
Date when a bond's principal is repaid to the investor.
Understanding Investment Vehicles
Cash, Equities & Debt Securities Deep Dive
To remember the order of claims: 'CASH' for Creditors, then Assets, then Stockholders (Preferred, then Common) in liquidation.
Understanding Investment Vehicles
Cash, Equities & Debt Securities Deep Dive
The exam frequently tests the order of claims in liquidation: secured creditors first, then unsecured creditors (including bondholders), then preferred stockholders, and finally common stockholders. Remember that common stockholders are residual claimants.
Understanding Investment Vehicles
Cash, Equities & Debt Securities Deep Dive
Confusing the rights of common vs. preferred stockholders (especially voting rights).
Understanding Investment Vehicles
Cash, Equities & Debt Securities Deep Dive
Underestimating interest rate risk for bonds, particularly long-term bonds.
Understanding Investment Vehicles
Cash, Equities & Debt Securities Deep Dive
Not understanding that cash equivalents, while low risk, lose purchasing power to inflation.
Understanding Investment Vehicles
Net Asset Value (NAV)
Per-share value of a fund's assets minus liabilities.
Understanding Investment Vehicles
Open-End Fund
Fund that continuously issues and redeems shares.
Understanding Investment Vehicles
Load Fund
Mutual fund that charges a sales commission.
Understanding Investment Vehicles
No-Load Fund
Mutual fund with no sales charge.
Understanding Investment Vehicles
Expense Ratio
Annual operating expenses as a percentage of assets.
Understanding Investment Vehicles
Authorized Participant (AP)
Large institution creating/redeeming ETF shares.
Understanding Investment Vehicles
Creation Unit
Large block of ETF shares exchanged with APs.
Understanding Investment Vehicles
Intraday Liquidity
Ability to buy/sell throughout the trading day.
Understanding Investment Vehicles
Pooled Investments: Mutual Funds & ETFs
Think 'M' for Mutual Fund and 'Market Close' (NAV). Think 'E' for ETF and 'Exchange Traded' (intraday pricing).
Understanding Investment Vehicles
Pooled Investments: Mutual Funds & ETFs
The Series 65 exam often tests the differences in trading, pricing, and fees between mutual funds and ETFs. Remember that mutual funds are priced once daily at NAV, while ETFs trade like stocks at market prices throughout the day.
Understanding Investment Vehicles
Pooled Investments: Mutual Funds & ETFs
Confusing mutual fund NAV with ETF market price fluctuations.
Understanding Investment Vehicles
Pooled Investments: Mutual Funds & ETFs
Assuming all ETFs are passively managed or all mutual funds are actively managed.
Understanding Investment Vehicles
Pooled Investments: Mutual Funds & ETFs
Overlooking the impact of brokerage commissions for frequent ETF traders.
Understanding Investment Vehicles
Derivative
Financial contract whose value is derived from an underlying asset.
Understanding Investment Vehicles
Option
Right, but not obligation, to buy/sell an asset at a strike price.
Understanding Investment Vehicles
Call Option
Gives the holder the right to buy the underlying asset.
Understanding Investment Vehicles
Put Option
Gives the holder the right to sell the underlying asset.
Understanding Investment Vehicles
Futures Contract
Standardized agreement to buy/sell an asset at a future date.
Understanding Investment Vehicles
Forward Contract
Customized, OTC agreement to buy/sell an asset at a future date.
Understanding Investment Vehicles
Alternative Investment
Non-traditional asset class (e.g., private equity, hedge funds).
Understanding Investment Vehicles
Hedge Fund
Private investment fund using complex strategies for returns.
Understanding Investment Vehicles
Derivative Securities & Alternative Investments
DARE to be different! Derivatives And Alternatives are Risky and Exotic. Remember that for the exam!
Understanding Investment Vehicles
Derivative Securities & Alternative Investments
The exam emphasizes suitability for complex products. For derivatives and alternatives, always consider the client's financial sophistication, risk tolerance, liquidity needs, and investment objectives. Know that options premiums are paid upfront.
Understanding Investment Vehicles
Derivative Securities & Alternative Investments
Confusing the obligation of futures/forwards with the right of options.
Understanding Investment Vehicles
Derivative Securities & Alternative Investments
Underestimating the leverage and potential for significant losses in derivatives.
Understanding Investment Vehicles
Derivative Securities & Alternative Investments
Recommending alternative investments to clients without sufficient liquidity or risk tolerance.
Understanding Investment Vehicles
Term Life Insurance
Coverage for a specific period, no cash value.
Understanding Investment Vehicles
Permanent Life Insurance
Lifelong coverage, builds cash value.
Understanding Investment Vehicles
Fixed Annuity
Guaranteed principal and interest rate.
Understanding Investment Vehicles
Variable Annuity
Investment in subaccounts, market risk.
Understanding Investment Vehicles
Cash Value
Savings component in permanent life insurance.
Understanding Investment Vehicles
Annuitization
Converting annuity balance into income payments.
Understanding Investment Vehicles
Insurance-Based Products & Their Features
L.I.F.O. for Annuities: Last In, First Out (meaning earnings are taxed first). Think of it like a stack of money – the last money you put in (earnings) is the first money the IRS takes a slice of!
Understanding Investment Vehicles
Insurance-Based Products & Their Features
The exam often tests the tax treatment of insurance products. Remember that life insurance death benefits are generally income tax-free, but annuity withdrawals during accumulation are LIFO (earnings first) and subject to a 10% penalty before 59½. Key phrase: 'tax-deferred growth, not tax-free growth'.
Understanding Investment Vehicles
Insurance-Based Products & Their Features
Confusing the tax treatment of life insurance death benefits (generally tax-free) with annuity withdrawals (taxable on earnings).
Understanding Investment Vehicles
Insurance-Based Products & Their Features
Recommending variable annuities to risk-averse clients who cannot tolerate market fluctuations.
Understanding Investment Vehicles
Insurance-Based Products & Their Features
Overlooking surrender charges and liquidity issues when recommending annuities, especially for clients who may need access to their funds soon.
Understanding Investment Vehicles
Structured Product
Complex investment combining traditional securities with derivatives.
Understanding Investment Vehicles
REIT (Real Estate Investment Trust)
Company owning/financing income-producing real estate; trades like stock.
Understanding Investment Vehicles
Commodity
Basic good used in commerce, interchangeable with others of its type.
Understanding Investment Vehicles
Private Equity
Funds investing directly in private companies or taking public ones private.
Understanding Investment Vehicles
Principal-Protected Note (PPN)
Structured product guaranteeing initial investment if held to maturity.
Understanding Investment Vehicles
Issuer Credit Risk
Risk that the issuer of a security may default on its obligations.
Understanding Investment Vehicles
Advanced Investment Vehicle Concepts
For 'REITs': R-eal E-state I-nvestment T-rusts... Remember 'Rent Every Inch Together' – they collect rent and share it!
Understanding Investment Vehicles
Advanced Investment Vehicle Concepts
The exam often tests the characteristics of REITs, especially the 90% income distribution rule and their tax treatment (dividends are generally taxed as ordinary income). For structured products, focus on understanding the combination of components and the inherent issuer credit risk.
Understanding Investment Vehicles
Advanced Investment Vehicle Concepts
Assuming principal protection in structured products eliminates all risk; issuer credit risk remains.
Understanding Investment Vehicles
Advanced Investment Vehicle Concepts
Underestimating the illiquidity and high fees associated with hedge funds and private equity.
Understanding Investment Vehicles
Advanced Investment Vehicle Concepts
Confusing the tax treatment of REIT dividends with qualified stock dividends.
Understanding Investment Vehicles
Client Profiling
Gathering investor info for suitable recommendations.
Client Strategies & Portfolio Management
Risk Tolerance
Investor's psychological willingness to take risk.
Client Strategies & Portfolio Management
Risk Capacity
Investor's financial ability to absorb losses.
Client Strategies & Portfolio Management
Modern Portfolio Theory (MPT)
Optimizing portfolios through diversification.
Client Strategies & Portfolio Management
Systematic Risk
Market-wide, non-diversifiable risk.
Client Strategies & Portfolio Management
Unsystematic Risk
Specific company/industry risk, diversifiable.
Client Strategies & Portfolio Management
Capital Asset Pricing Model (CAPM)
Model for expected return based on systematic risk.
Client Strategies & Portfolio Management
Beta (β)
Measure of an asset's volatility relative to market.
Client Strategies & Portfolio Management
Client Profiling & Capital Market Theory
CAPM: 'C'alculates 'A'll 'P'ossible 'M'arket returns using Beta!
Client Strategies & Portfolio Management
Client Profiling & Capital Market Theory
The exam frequently tests the distinction between risk tolerance and risk capacity. Remember that an adviser's primary duty is to ensure suitability, which often means prioritizing a client's financial capacity to take risk over their emotional willingness. Also, know that diversification eliminates unsystematic risk, but not systematic risk.
Client Strategies & Portfolio Management
Client Profiling & Capital Market Theory
Confusing risk tolerance with risk capacity; they are distinct concepts.
Client Strategies & Portfolio Management
Client Profiling & Capital Market Theory
Believing diversification eliminates all investment risk (it only eliminates unsystematic risk).
Client Strategies & Portfolio Management
Client Profiling & Capital Market Theory
Failing to update client profiles regularly, leading to outdated recommendations.
Client Strategies & Portfolio Management
Strategic Asset Allocation
Long-term target asset mix based on client profile.
Client Strategies & Portfolio Management
Tactical Asset Allocation
Short-term adjustments to asset mix based on market views.
Client Strategies & Portfolio Management
Active Management
Attempting to beat a benchmark through security selection.
Client Strategies & Portfolio Management
Passive Management
Replicating a market index, typically with lower fees.
Client Strategies & Portfolio Management
Diversification
Reducing risk by combining various asset types.
Client Strategies & Portfolio Management
Portfolio Rebalancing
Adjusting a portfolio back to its target asset allocation.
Client Strategies & Portfolio Management
Core-Satellite Approach
Combines passive core with active satellite investments.
Client Strategies & Portfolio Management
Efficient Market Hypothesis
Theory that market prices reflect all available information.
Client Strategies & Portfolio Management
Portfolio Management Strategies & Construction
Remember 'APART' for portfolio management steps: Allocate, Plan, Actively/Passively Manage, Rebalance, Track.
Client Strategies & Portfolio Management
Portfolio Management Strategies & Construction
The Series 65 exam often tests the *primary purpose* of different strategies. For example, asset allocation's primary purpose is to manage risk and return, while rebalancing's primary purpose is to maintain the target risk profile. Know the 'why' behind each strategy.
Client Strategies & Portfolio Management
Portfolio Management Strategies & Construction
Confusing tactical asset allocation (short-term adjustments) with strategic asset allocation (long-term targets).
Client Strategies & Portfolio Management
Portfolio Management Strategies & Construction
Believing that diversification eliminates all risk, rather than reducing specific (unsystematic) risk.
Client Strategies & Portfolio Management
Portfolio Management Strategies & Construction
Neglecting to rebalance, which can lead to a portfolio drifting significantly from its intended risk profile.
Client Strategies & Portfolio Management
Qualified Plan
Meets ERISA, tax-advantaged, strict rules.
Client Strategies & Portfolio Management
Non-Qualified Plan
No ERISA, flexible, less tax-advantaged.
Client Strategies & Portfolio Management
Traditional IRA
Pre-tax contributions, tax-deferred growth, taxable withdrawals.
Client Strategies & Portfolio Management
Roth IRA
After-tax contributions, tax-free growth, tax-free withdrawals.
Client Strategies & Portfolio Management
401(k)
Employer-sponsored defined contribution plan for private sector.
Client Strategies & Portfolio Management
403(b)
Retirement plan for non-profits and public schools.
Client Strategies & Portfolio Management
529 Plan
Tax-advantaged savings for education expenses.
Client Strategies & Portfolio Management
HSA
Health Savings Account, triple tax advantage for medical costs.
Client Strategies & Portfolio Management
RMD
Required Minimum Distribution from retirement accounts.
Client Strategies & Portfolio Management
Retirement Plans & Special Investment Needs
To remember the difference, think: 'Q' for 'Qualified' means 'Quite good' tax benefits and 'Quite regulated'. 'Non-Q' for 'Non-Qualified' means 'No' special tax benefits, 'No' ERISA rules.
Client Strategies & Portfolio Management
Retirement Plans & Special Investment Needs
Remember that the SECURE Act 2.0 changed the age for Required Minimum Distributions (RMDs) to 73 for those who turn 72 after December 31, 2022. For those born in 1960 or later, the RMD age is 75. The exam often tests the current RMD age, so be precise.
Client Strategies & Portfolio Management
Retirement Plans & Special Investment Needs
Confusing the tax treatment of Traditional vs. Roth IRA contributions and withdrawals.
Client Strategies & Portfolio Management
Retirement Plans & Special Investment Needs
Incorrectly stating the current RMD age or contribution limits for various plans.
Client Strategies & Portfolio Management
Retirement Plans & Special Investment Needs
Failing to consider a client's full financial picture (e.g., other assets, liabilities, goals) when recommending a retirement strategy.
Client Strategies & Portfolio Management
Capital Gain
Profit from selling an asset for more than its purchase price.
Client Strategies & Portfolio Management
Capital Loss
Loss from selling an asset for less than its purchase price.
Client Strategies & Portfolio Management
Ordinary Income
Income taxed at standard marginal tax rates.
Client Strategies & Portfolio Management
Qualified Dividend
Dividend taxed at favorable long-term capital gains rates.
Client Strategies & Portfolio Management
Tax-Loss Harvesting
Selling investments at a loss to offset capital gains.
Client Strategies & Portfolio Management
Sharpe Ratio
Measures risk-adjusted return by comparing return to risk.
Client Strategies & Portfolio Management
Cost Basis
Original value of an asset for tax purposes.
Client Strategies & Portfolio Management
Taxation, Performance & Investment Strategies
Think 'S.O.L.D.' for Short, Ordinary, Long, Discounted. Short-term gains are taxed at Ordinary rates, while Long-term gains are Discounted (preferential rates).
Client Strategies & Portfolio Management
Taxation, Performance & Investment Strategies
Memorize the distinction between short-term (held 1 year or less, ordinary income tax) and long-term (held more than 1 year, preferential capital gains tax) capital gains. This is a frequently tested concept.
Client Strategies & Portfolio Management
Taxation, Performance & Investment Strategies
Confusing ordinary income tax rates with long-term capital gains tax rates for different types of investment income.
Client Strategies & Portfolio Management
Taxation, Performance & Investment Strategies
Failing to consider the impact of inflation when evaluating nominal investment returns.
Client Strategies & Portfolio Management
Taxation, Performance & Investment Strategies
Ignoring risk-adjusted performance metrics, leading to a skewed view of an investment's true value.
Client Strategies & Portfolio Management
Alternative Investments
Non-traditional assets like hedge funds, private equity, real estate.
Client Strategies & Portfolio Management
Structured Products
Debt instruments linked to an underlying asset, customized risk/return.
Client Strategies & Portfolio Management
Concentrated Portfolio
Investing in a small number of high-conviction securities.
Client Strategies & Portfolio Management
Charitable Remainder Trust (CRT)
Gifting assets to charity, receiving income, then charity gets remainder.
Client Strategies & Portfolio Management
Behavioral Biases
Systematic errors in thinking that affect investment decisions.
Client Strategies & Portfolio Management
Advanced Client Recommendations
For 'Advanced Strategies,' think 'CATS': **C**oncentrated portfolios, **A**lternatives, **T**actical allocation, **S**tructured products. These are the complex tools!
Client Strategies & Portfolio Management
Advanced Client Recommendations
The exam frequently tests suitability for complex products like options, annuities, and alternative investments. Focus on matching product features (liquidity, risk, fees) to client profile (age, risk tolerance, financial sophistication, time horizon). Pay close attention to the 'accredited investor' definition for certain alternatives.
Client Strategies & Portfolio Management
Advanced Client Recommendations
Recommending complex products without fully assessing client's understanding and risk tolerance.
Client Strategies & Portfolio Management
Advanced Client Recommendations
Failing to disclose all fees, risks, and illiquidity associated with advanced strategies.
Client Strategies & Portfolio Management
Advanced Client Recommendations
Not coordinating with other professionals (e.g., tax advisors, attorneys) for integrated solutions.
Client Strategies & Portfolio Management
Securities Act of 1933
Regulates primary market, new issues, and prospectus disclosure.
Laws, Regulations & Ethical Conduct
Securities Exchange Act of 1934
Regulates secondary market, trading, and established the SEC.
Laws, Regulations & Ethical Conduct
Investment Advisers Act of 1940
Federal law regulating investment advisers and their practices.
Laws, Regulations & Ethical Conduct
Blue Sky Laws
State laws regulating the offering and sale of securities within a state.
Laws, Regulations & Ethical Conduct
Federal Preemption
Federal law overrides state law in specific regulatory areas.
Laws, Regulations & Ethical Conduct
NSMIA (1996)
National Securities Markets Improvement Act; introduced federal preemption.
Laws, Regulations & Ethical Conduct
Federal Covered Adviser
Investment adviser registered with SEC, typically over $110M AUM.
Laws, Regulations & Ethical Conduct
Securities Acts: State & Federal Overview
Think of the '33 Act as 'Primary' (first) and the '34 Act as 'Secondary' (second). The '40 Acts are for the 'Professionals' (IAs) and the 'Pooled' (ICs) money.
Laws, Regulations & Ethical Conduct
Securities Acts: State & Federal Overview
The exam often tests the specific thresholds for federal vs. state registration. Remember that an Investment Adviser with $110 million or more in AUM is generally SEC-registered (federal covered), while those under $100 million are state-registered. The $100M-$110M range is a 'buffer zone' where state registration is usually required unless an exception applies.
Laws, Regulations & Ethical Conduct
Securities Acts: State & Federal Overview
Confusing the primary market (new issues) with the secondary market (trading existing issues).
Laws, Regulations & Ethical Conduct
Securities Acts: State & Federal Overview
Incorrectly identifying whether an adviser is state or federally regulated based on AUM.
Laws, Regulations & Ethical Conduct
Securities Acts: State & Federal Overview
Believing preemption means states have no authority over federal covered entities (they still have anti-fraud powers).
Laws, Regulations & Ethical Conduct
Investment Adviser (IA)
Person who provides advice about securities for compensation as a business.
Laws, Regulations & Ethical Conduct
Investment Adviser Representative (IAR)
Individual who works for an IA and performs advisory functions.
Laws, Regulations & Ethical Conduct
ABC Test
Advice, Business, Compensation – criteria for defining an IA.
Laws, Regulations & Ethical Conduct
Assets Under Management (AUM)
Total market value of assets an IA manages for clients.
Laws, Regulations & Ethical Conduct
De Minimis Exemption
Exemption for IAs with no office and <=5 retail clients in a state.
Laws, Regulations & Ethical Conduct
Exclusion
Not considered an IA, thus not subject to registration requirements.
Laws, Regulations & Ethical Conduct
Exemption
Meets IA definition but is not required to register.
Laws, Regulations & Ethical Conduct
Uniform Securities Act
Model law for state securities regulation.
Laws, Regulations & Ethical Conduct
IA/IAR Registration, Exemptions & Exclusions
Remember 'L.A.T.E.' for professionals excluded from IA definition: Lawyers, Accountants, Teachers, Engineers. Their advice is incidental!
Laws, Regulations & Ethical Conduct
IA/IAR Registration, Exemptions & Exclusions
Memorize the AUM threshold for SEC vs. state registration: $100 million is the key number. Below $100M, state; $100M+, SEC. Also, know the L.A.T.E. exclusion and the 'de minimis' rule (no office, 5 or fewer retail clients).
Laws, Regulations & Ethical Conduct
IA/IAR Registration, Exemptions & Exclusions
Confusing an 'exclusion' (not an IA at all) with an 'exemption' (is an IA but doesn't need to register).
Laws, Regulations & Ethical Conduct
IA/IAR Registration, Exemptions & Exclusions
Forgetting the 'no place of business' part of the de minimis exemption; it's not just about client count.
Laws, Regulations & Ethical Conduct
IA/IAR Registration, Exemptions & Exclusions
Incorrectly applying the $100M AUM threshold for SEC vs. state registration, especially the buffer rule.
Laws, Regulations & Ethical Conduct
Fiduciary Duty
Highest standard of care, client's best interest.
Laws, Regulations & Ethical Conduct
Churning
Excessive trading for commission generation.
Laws, Regulations & Ethical Conduct
Unauthorized Trading
Executing trades without client permission.
Laws, Regulations & Ethical Conduct
Front-running
Trading ahead of client orders for personal gain.
Laws, Regulations & Ethical Conduct
Misrepresentation
Making false statements of material fact.
Laws, Regulations & Ethical Conduct
Omission
Failing to disclose material facts.
Laws, Regulations & Ethical Conduct
Conflict of Interest
Personal interest influencing professional judgment.
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Market Manipulation
Spreading false info to influence prices.
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Fiduciary Duty & Prohibited Practices
F-I-D-U-C-I-A-R-Y: F-irst I-nterest D-ue U-nto C-lient, I-nform A-ll R-isks, Y-es!
Laws, Regulations & Ethical Conduct
Fiduciary Duty & Prohibited Practices
The exam frequently tests the distinction between the suitability standard (broker-dealers) and the fiduciary standard (investment advisers). Remember: IAs/IARs are always fiduciaries. Also, be precise about what constitutes 'material' information that requires disclosure.
Laws, Regulations & Ethical Conduct
Fiduciary Duty & Prohibited Practices
Confusing the fiduciary standard with the suitability standard.
Laws, Regulations & Ethical Conduct
Fiduciary Duty & Prohibited Practices
Believing that disclosing a conflict of interest automatically absolves all responsibility.
Laws, Regulations & Ethical Conduct
Fiduciary Duty & Prohibited Practices
Underestimating the importance of documenting client communications and disclosures.
Laws, Regulations & Ethical Conduct
Custody
Holding client funds/securities or having authority to obtain possession.
Laws, Regulations & Ethical Conduct
Qualified Custodian
Bank, broker-dealer, or trust company holding client assets.
Laws, Regulations & Ethical Conduct
Form ADV Part 2A
The 'Brochure' providing detailed information about the IA firm.
Laws, Regulations & Ethical Conduct
Form ADV Part 2B
The 'Brochure Supplement' providing information about IARs.
Laws, Regulations & Ethical Conduct
Principal Transaction
IA buying from or selling to a client from its own account.
Laws, Regulations & Ethical Conduct
Agency Cross Transaction
IA acting as broker for both buyer and seller in same transaction.
Laws, Regulations & Ethical Conduct
Commingling
Mixing client funds with the adviser's own funds.
Laws, Regulations & Ethical Conduct
Custody, Disclosure & Communication Rules
CUSTODY: C-ustodian (qualified), U-nderstand rules, S-tatements (direct), T-rust (build), O-versight (audit), D-isclose, Y-es to client protection!
Laws, Regulations & Ethical Conduct
Custody, Disclosure & Communication Rules
The exam often tests the definition of custody and the specific requirements for qualified custodians and client statements. Remember that an annual surprise audit by an independent public accountant is required for IAs with custody under the Investment Advisers Act of 1940.
Laws, Regulations & Ethical Conduct
Custody, Disclosure & Communication Rules
Failing to recognize that temporary possession of client checks or stock certificates constitutes custody.
Laws, Regulations & Ethical Conduct
Custody, Disclosure & Communication Rules
Not understanding that client statements must come directly from the qualified custodian, not just the adviser.
Laws, Regulations & Ethical Conduct
Custody, Disclosure & Communication Rules
Omitting disclosure of fees, commissions, or conflicts of interest, assuming they are minor.
Laws, Regulations & Ethical Conduct
Marketing Rule
SEC Rule 206(4)-1 governing IA advertising.
Laws, Regulations & Ethical Conduct
Supervision
System to prevent and detect violations by employees.
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Cybersecurity
Protecting electronic systems and data from threats.
Laws, Regulations & Ethical Conduct
Hypothetical Performance
Simulated investment results, requiring specific disclosures.
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Testimonial
Statement by a client about their experience with an IA.
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Endorsement
Statement by a non-client recommending an IA.
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Incident Response Plan
Pre-defined actions for handling a cybersecurity breach.
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Advertising, Supervision & Cybersecurity Best Practices
For compliant advertising, think 'TRUTH': **T**ruthful, **R**easonable, **U**nbiased, **T**imely, **H**onest.
Laws, Regulations & Ethical Conduct
Advertising, Supervision & Cybersecurity Best Practices
The exam often tests the principle that state advertising rules for IAs, while often similar to federal rules, can sometimes be more stringent. Always remember that state-registered IAs must adhere to their specific state's regulations, which may include filing requirements for advertisements.
Laws, Regulations & Ethical Conduct
Advertising, Supervision & Cybersecurity Best Practices
Assuming federal advertising rules automatically supersede all state-specific requirements for state-registered IAs.
Laws, Regulations & Ethical Conduct
Advertising, Supervision & Cybersecurity Best Practices
Failing to disclose the hypothetical nature or gross-of-fees status of performance data in advertisements.
Laws, Regulations & Ethical Conduct
Advertising, Supervision & Cybersecurity Best Practices
Believing that having written supervisory procedures is sufficient without actively implementing and enforcing them.
Laws, Regulations & Ethical Conduct