Series 66 Exam Test Breakdown
The Series 66 exam, otherwise known as the Uniform Combined State Law Examination, is similar to the Series 65 exam in that it is criterion based. This means that the candidate is expected to meet a minimum required competency in order to perform the job sufficiently. The questions on the test are assembled by level of difficulty and content area. There are a total of 110 questions, although only 100 questions are counted toward the final grade. The additional ten questions are pretest questions and do not count. To pass the exam, seventy-five of the one hundred questions need to be answered correctly within the two and a half hours given to take the test. Upon entering the testing center, each candidate is asked to provide some form of identification. The testing site provides scratch paper and calculators if needed. The FINRA has instituted a waiting period if the candidate does not pass the test; however the applicant may take another exam, such as the Series 65, immediately once the U10 form is submitted.
Many times, a security broker will take the Series 66 in addition to the Series 7 exam because he or she is interested in charging commission on the securities bought and sold for clients in addition to charging fees for services. The Series 66 license is only valid with a Series 7 designation. This means that the Series 7 is a corequisite exam for the Series 66. The Series 66 exam contains topics covered in the Series 63 and Series 65 exams without duplication of the Series 7. Generally, for those persons with the Series 7 license, the Series 66 exam is easier to pass than the Series 65. Topics on the test cover federal laws and Security Exchange Commission (SEC) releases, general business practices, administrative procedures, questions on the Uniform Securities Act (blue sky laws), securities registration and exemption, investment vehicles, financial profiles, savings plans, and portfolio management and analysis. The exam was designed with the easier questions at the beginning of the test with progressively difficult questions in the middle of the exam and test questions get easier toward the end of the exam once again.
The Series 66 exam costs $145 to take. With good study habits a candidate can study for the exam by using many free resources and self-study materials, so it may not be necessary to invest in taking a training course to prepare for the test. Nationwide Prometric testing centers provide the test, so check the Web site for the closest center.
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1. Which is not part of the criteria in the Investment Company Act of 1940 requirement for an investment fund to be considered a mutual fund?
a. A minimum of 100 investors
b. A minimum of $100,000 in seed money
c. Must have sponsors, a board of directors, investment advisors, transfer agents and custodians
d. Must maintain a diversified portfolio that follows the 75-5-10 rule
2. What must happen before a mutual fund can assess 12B-1 fees to customers?
a. The fees must be approved by the SEC
b. A majority vote from the board of directors
c. A majority vote from the Board of Directors and the shareholders
d. Fees must be stated in the fund prospectus
3. Which type of investment sells bonds to investors as equity stakes?
a. Unit investment trust
b. Contractual plan
c. Face amount certificate
d. Front-end load contractual plan
4. Money market securities must mature in how many months?
5. Which type of settlement option for a variable annuity allows the annuitant to make withdrawals in any amount he chooses?
a. Unit refund life annuity
b. Joint and last survivor
c. Random withdrawal
d. Life with period certain
Answers and Explanations
1. D: Must maintain a diversified portfolio that follows the 75/5/10 rule. In addition to FINRA (regulator of the 75/5/10 rule), fund companies must conform to the Investment Company Act of 1940. The Act regulates and classifies investment companies. In addition, the Act specifies the criteria an investment fund must fulfill in order to be considered a mutual fund; at least 100 investors and $100,000 in seed money, and a five-part structure that includes sponsors, a Board of Directors, investment advisors, transfer agents, and custodians.
2. C: Majority vote from the board of directors and the shareholders. A 12B-1 fee can be assessed in a back-end load, a front-end load, a load on both ends and even a no-load fund. Approval and renewal of a 12B-1 fee requires a majority vote from the board and shareholders combined. When a fund performs its own underwriting or sponsoring, it can pay distribution costs by assessing 12B-1 fees to customers. These fees cover expenses such as printing and disseminating sales literature, creating and mailing prospectuses, hiring sales representatives, and performing any other task associated with finding new investors.
3. A: Unit investment trust. Unit investment trusts (UITs) are bond investments sold to investors as equity stakes. Unlike mutual funds, UITs are fixed trusts which hold a portfolio of bonds, but like mutual funds, the equity stakes are redeemable at the investor's request. A UIT does not actively trade its investments; it adheres to a buy and hold policy. When the bonds in a UIT portfolio mature, they aren't replaced. A contractual plan, also called a periodic payment plan, allows an investor to purchase, in increments, into a plan trust that buys shares of a mutual fund. Face amount certificates are purchased at a specific face value and then redeemed at a later date for a greater value. A front-end load contractual plan can charge fees as high as 50% in the first year, with lower fees during subsequent years, averaging out to 9% by the time the contract expires.
4. C: 13. Money market securities must mature in 13 months or less, and the average maturity within the portfolio cannot exceed 90 days. Money market mutual fund prospectuses contain a warning that the federal government does not guarantee or insure the securities, and a statement declaring money market securities maintain a worth of $1 per share, with no guarantee of this value moving forward. In other words, past performance does not guarantee future results. Money market portfolios contain securities graded within the top two investment ratings by Standard & Poor's and Moody's. At least 95% of these securities have the highest rating.
5. C: Random withdrawal. Under a random withdrawal settlement option, the annuitant makes withdrawals of any amount. The annuitant decides on the number of withdrawals, and if he dies before receiving all of the payments, they're transferred to a beneficiary. In a joint and last survivor settlement option, the annuity pays monthly installments over the life of the annuitant and another person. Payments continue until both parties die. In a life with period certain settlement option, the annuitant is guaranteed payments for either the majority of his remaining life or a set number of years. If the annuitant dies before the set number of years expires, the remaining payments are made to a beneficiary.
Last Updated: 12/20/2017