Series 6 Test Breakdown
If you are someone interested in providing limited investment advice or selling investment company securities, such as mutual funds, variable annuities, and unit investment trusts (UITs), the Series 6 license is a credential you can use to pursue such a profession. The Series 6 exam is called the Investment Company/Variable Contracts Products Limited Representative Qualification Examination and is used to qualify persons seeking to become registered representatives under the Investment Company Act of 1940. The exam is divided into six sections and heavily weighted on questions that pertain to interactions with customers. There are approximately eight questions on securities markets, investment securities and economic factors; twenty-three questions on securities and tax regulations; eighteen questions on marketing, prospecting, and sales presentations; thirteen on evaluation of customers; twenty-six on product information, including investment company securities and variable contracts; and twelve on opening and servicing customer accounts. Typically, a firm that is a Financial Industry Regulatory Authority (FINRA) member sponsors an individual to take the test. Registration and testing taking usually takes place close to the candidate's place of residence. A sponsoring firm may require a criminal background check before it endorses a candidate.
The Series 6 exam consists of one hundred multiple-choice questions. The questions get progressively harder as the test taker progresses through the test. It is important to prepare for the test by using test booklets and study guides or by visiting training centers to help you become familiar with the subject matter. The questions on the test are straight forward, with only one correct answer each. Each question undergoes a rigorous process to be admitted onto the test, and updates to the test are done periodically to reflect changes in industry standards. The Series 6 exam is computer generated, with random questions given. Exactly one hundred questions contribute to a person's score; however, an additional five questions are given on the test, which are unscored. Each question is worth one point, and it takes a score of 70% to pass the exam. A candidate taking the test should try to answer as many questions as possible to get the highest score.
Series 6 Exam Prep
Although scrap paper is not allowed, a person is allowed to bring a calculator to the test, being that some questions require calculations. One of the great things about this test is that there is no waiting to get the results. As soon as you are done, the computer automatically calculates the number of answers you scored correctly. You will know immediately if you passed or failed the test. You will get a readout of how you performed on each topic area; however, for security reasons, your answers to exact questions are not provided.
A financial background or college degree is not a requirement of the test; however, prerequisite knowledge in investment securities and trading could be beneficial. Success in the field could also be attributed to someone who has an interest in helping people make money and save for the future.
It is important to know that the Series 6 is considered a limited license because the holder is restricted to providing only investment advice on the products licensed to sell. Many times, the holder will be asked to provide advice outside the scope of his or her qualifications, which will then jeopardize his or her license, and he or she could be barred from selling securities again. Many firms will audit the activity of their employees to protect themselves.
To find out more information on the administration of the Series 6 exam, you may contact any of these three agencies: Securities Exchange Commission, FINRA-formerly the National Association of Securities Dealers (NASD)-or the Securities Industry Council.
Series 6 Study Guide
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Series 6 Practice Questions
1. Which type of insurance plan guarantees a minimum cash value and a certain growth rate?
a. Variable universal life insurance
b. Universal life insurance
c. Temporary insurance
d. Term life insurance
2. Which federal Act requires that variable life insurance policies and variable annuities must be registered with the SEC before being sold?
a. Investment Company Act of 1940
b. Investment Advisors Act of 1940
c. Securities Exchange Act of 1934
d. Securities Exchange Act of 1933
3. What type of fee does a mutual fund incur in conjunction with activities reflected in its portfolio turnover rate?
a. Front-end sales load fee
b. Commission fee on trading activity
c. Redemption fee
d. Deferred sales charge
4. Which is a feature of a UTMA account but not of a UGMA account?
a. Cannot be a margin account
b. Re-registration can be extended to age 25
c. Contributions to the account are irrevocable
d. Only one adult can manage the account
5. FINRA Rule 3370 allows a member firm and its registered persons to accept purchase orders from customers when...
a. the customer maintains a margin balance that is sufficient to cover the amount of the purchase order
b. the securities received against payment are valued at more than the amount of the execution
c. the customer has been a client of the member firm for more than two years
d. the securities received against payment are the same amount as the execution
Answers and Explanation
1. B: Universal life. Universal life insurance is a form of permanent insurance. Whole life and universal life guarantee a minimum cash value and a certain growth rate. The policyholder can borrow a maximum of 90% of the cash value, make withdrawals and use the accrued cash value as loan collateral. A variable universal life insurance policy offers a flexible premium and no fixed schedule for paying premiums. It invests the death benefit and cash value into a separate account and may or may not guarantee a minimum death benefit. Temporary insurance policies feature low premiums but cash value does not increase. Beneficiaries are guaranteed a death benefit only if the holder dies during the term of the policy. A Term Life policy, often considered the simplest type of life insurance policy, is a form of temporary insurance that guarantees a death benefit. Term life insurance charges a low monthly premium and does not accrue cash value.
2. D: Securities Exchange Act of 1933. There are four federal Acts governing variable life insurance policies and variable annuities, but it's the Securities Exchange Act of 1933 that requires those policies and annuities to be registered.
- The Investment Company Act of 1940 states that a separate account is its own investment company
- The Investment Advisors Act of 1940 requires registration of money managers and investment advisors
- The Securities Exchange Act of 1933 requires the registration of variable life insurance policies and variable annuities, and that the buyer receives a prospectus before or during the sales presentation.
- The Securities Exchange Act of 1934 requires the seller of variable life insurance or variable annuities to be registered as a broker-dealer.
3. B: Commission fees on trading activities. A fund's portfolio turnover rate measures the frequency of trading in a mutual fund portfolio. A 40% turnover rate means that 40% of the securities in the fund's overall portfolio are traded each year. These trades generate commissions for the broker or institutional trader who transacts the trade, and the fund, like any investor who buys or sells securities, must pay these charges. A front-end sales load fee is a fee a mutual fund investor pays when purchasing shares of the fund. Deferred sales charges are also called "back-end sales load" fees, and would occur when an investor sells shares in the fund. Both front- and back-end load fees are payable to brokers. Some funds are called "no-load" because they charge no sales fees to the fund purchaser. A redemption fee, like a back-end sales load, may be incurred when a shareholder redeems shares, however, redemption fees are charged in order to defray the administrative and paperwork costs associated with the shareholder's redemption, with those fees paid directly to the fund.
4. B: Re-registration can be extended to age 25. Both the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfer to Minor Act (UTMA) regulate custodial accounts for minors. Nearly all US states have adopted UTMA laws, but some states have certain provisions with respect to these types of custodial accounts. A major difference is that re-registration of an UTMA account can be extended to age 25. Nevertheless, common characteristics for both accounts include:
- Opened for the benefit of a minor
- Managed by an adult custodian
- Cannot be a margin account
- Only one adult and one minor can be attached to any one account
- Contributions are irrevocable and indefeasible
- The account will be re-registered in the minor's name once he or she reaches adulthood
5. D: The securities received against payment are the same amount as the execution. FINRA Rule 3370, entitled "Prompt Receipt and Delivery of Securities," outlines the correct procedure for taking orders to purchase securities. The rule states that a member firm, and its registered representatives, can only accept a customer purchase order once it has determined that the customer or its agent have agreed to receive securities against payment in the amount equal to the execution. This rule is also useful in regulating an orderly market with respect to shorting, since the registered representative must determine, prior to accepting a short order, that the security will be delivered or borrowed before the settlement date.
Last Updated: 12/20/2017