Finra Investment Company and Variable Contracts Products Representative (Series-6) Exam Questions

Finra Investment Company and Variable Contracts Products Representative Exam Objectives

1. 1

   1.0 Seeks Business for the Broker-Dealer from Customers and Potential Customers (24%)

   • 1.11  Contacts current and potential customers in person and by telephone, mail and electronic
   • 1.2means; develops promotional and advertising materials and seeks appropriate approvals to
   • 1.3distribute marketing materials
   • 1.4
   • 1.5Knowledge of:
   • 1.6Standards and required approvals of public communications
   • 1.7Types of communications (e.g., retail, institutional, correspondence)
   • 1.8Seminars, lectures and other group forum requirements
   • 1.9Product specific advertisements and disclosures
   • 1.10Investment company products and variable contracts
   • 1.11FINRA Rules
   • 1.12Communications with the Public
   • 1.13Communications with the Public About Variable Life Insurance and Variable Annuities
   • 1.14Use of Investment Companies Rankings in Retail Communications
   • 1.15Requirements for the Use of Bond Mutual Fund Volatility Ratings
   • 1.16Members’ Responsibilities Regarding Deferred Variable Annuities
   • 1.17SEC Rules and Regulations
   • 1.18Securities Act of 1933
   • 1.19Section 5 Prohibitions Relating to Interstate Commerce and the Mails
   • 1.20Section 12 Civil Liabilities Arising in Connection with Prospectuses and Communications
   • 1.21135a Generic Advertising
   • 1.22135b Materials Not Deemed an Offer To Sell or Offer To Buy Nor a Prospectus
   • 1.23Investment Company Sales Literature
   • 1.24Advertising by an Investment Company as Satisfying Requirements of Section 10
   • 1.25Summary Prospectuses for Open-End Management Investment Companies
   • 1.26Securities Exchange Act of 1934
   • 1.2715c2-12 Municipal Securities Disclosure
   • 1.28Investment Company Act of 1940  
   • 1.2934b-1 Sales Literature Deemed To Be Misleading
   • 1.30MSRB Rule
   • 1.31Advertising
   • 1.322  Describes investment products and services to current and potential customers with the
   • 1.33intent of soliciting business
   • 1.34Knowledge of:
   • 1.35Prospectus requirements (e.g., timeliness of information, preliminary prospectus (red herring), final prospectus)
   • 1.36Process for bringing new issues to market (e.g., due diligence, registration statement, preliminary prospectus, final prospectus, underwriting agreement, selling group agreement, blue-sky laws and procedures)
   • 1.37Official statements, preliminary official statements (POS), notice of sale for municipal securities
   • 1.38Regulation D offerings
   • 1.39Intrastate offering and securities transactions exempted from registration, including Section 3(a)(11) of the Securities Act of 1933 and Rule 147 thereunder
   • 1.40FINRA Rules
   • 1.41Networking Arrangements Between Members and Financial Institutions
   • 1.42Tape Recording of Registered Persons by Certain Firms
   • 1.43SEC Rules and Regulations  
   • 1.44Securities Act of 1933
   • 1.45Section 2(b) Consideration of Promotion of Efficiency, Competition, and Capital Formation
   • 1.46Section 3 Exempted Securities
   • 1.47Section 17 Fraudulent Interstate Transactions
   • 1.48Communications Not Deemed a Prospectus
   • 1.49Securities Exchange Act of 1934
   • 1.5010b-3 Employment of Manipulative and Deceptive Devices by Brokers or Dealers
   • 1.5115c2-8 Delivery of Prospectus
   • 1.5217a-3 Records To Be Made by Certain Exchange Members, Brokers and Dealers
   • 1.53Regulation D Rules Governing the Limited Offer and Sale of Securities Without Registration Under the
   • 1.54Securities Act of 1933
   • 1.55Use of Regulation D
   • 1.56Definitions and Terms Used in Regulation D
   • 1.57General Conditions to be Met
   • 1.58Filing of Notice of Sale
   • 1.59Exemption for Limited Offerings and Sales of Securities Not Exceeding $5,000,000
   • 1.60Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering
   • 1.61Disqualifying Provision Relating to Exemptions under Rules 504 and 506
   • 1.62Insignificant Deviations from a Term, Condition or Requirement of Regulation D
2. 2

   2.0 Opens Accounts After Obtaining and Evaluating Customers Financial Profile and Investment Objectives (16%)

   • 2.11  Informs customers of the types of accounts and provides disclosures regarding various
   • 2.2account types and restrictions
   • 2.3Knowledge of:
   • 2.4Types of accounts (e.g., prime brokerage, advisory or fee-based)
   • 2.5Account registration types (e.g., tenants in common (TIC), community property, sole proprietorship, partnership, unincorporated associations)
   • 2.6Requirements for opening customer accounts
   • 2.7Retirement plans and other tax advantaged accounts
   • 2.8Transfers, rollovers, eligibility, distribution strategies and taxation (e.g., types of allowable contributions, distribution options, taxation of distribution at retirement, age restrictions for distributions, permissible investments)
   • 2.9Employer-sponsored plans and ERISA (e.g., 457, defined benefit, profit-sharing, stock options and stock purchase, non-qualified deferred compensation programs)
   • 2.10Wealth events (e.g., inheritance)
   • 2.11Account registration changes and internal transfers
   • 2.12FINRA Rules
   • 2.13Customer Account Information
   • 2.14Authorization Records for Negotiable Instruments Drawn from a Customer’s Account
   • 2.15Approval and Documentation of Changes in Account Name or Designation
   • 2.16Employee Retirement Income Security Act of 1974 (ERISA)
   • 2.172  Obtains and updates customer information and documentation, including required legal
   • 2.18documents, and identifies and escalates suspicious activity
   • 2.19Knowledge of:
   • 2.20Customer screening (e.g., customer identification program (CIP), know your customer (KYC), domestic or foreign residency and/or citizenship, corporate insiders, employees of broker-dealers or self-regulatory organizations (SROs))
   • 2.21Information security and privacy regulations (e.g., initial privacy disclosures to customers, opt-out notices, disclosure limitations, exceptions)
   • 2.22Account authorizations (e.g., power of attorney (POA), trust documents, corporate resolutions, trading authority, discretionary account documents)
   • 2.23FINRA Rule
   • 2.24Know Your Customer
   • 2.25Discretionary Accounts
   • 2.26SEC Rules and Regulations
   • 2.27Regulation S-P Privacy of Consumer Financial Information and Safeguarding Personal Information
   • 2.283  Makes reasonable efforts to obtain customer investment profile information including, but not limited to, the customer's other security holdings, financial situation and  needs, tax status and investment objectives
   • 2.29Knowledge of:
   • 2.30Essential facts regarding customers and customer relationships
   • 2.31Financial factors relevant to assessing a customer’s investment profile
   • 2.32Security holdings, other assets and liabilities, annual income, net worth, tax considerations
   • 2.33Other considerations (e.g., age, marital status, dependents, employment, investment experience, home ownership and financing, employee stock options, insurance, liquidity needs)
   • 2.34Investment objectives (e.g., preservation of capital, income, growth, speculation)
   • 2.35Reasonable-basis, customer-specific and quantitative care obligations
   • 2.36Investment strategies and recommendations to hold
   • 2.37FINRA Rules
   • 2.38Suitability
   • 2.392
   • 2.401
   • 2.411
   • 2.42Recommended Strategies
   • 2.432
   • 2.441
   • 2.451
   • 2.46Components of Suitability Obligations
   • 2.47Requirements for the Use of Investment Analysis Tools
   • 2.48SEC Rules and Regulations
   • 2.49Securities Act of 1934
   • 2.5015l-1 Regulation Best Interest
   • 2.5117a-14 Form CRS, for Preparation, Filing and Delivery of Form CRS
   • 2.52MSRB Rule
   • 2.53Suitability of Recommendations and Transactions
   • 2.544  Obtains supervisory approvals required to open accounts
   • 2.55Knowledge of:
   • 2.56Required review, approvals and documentation for account opening and maintenance
   • 2.57Physical receipt, delivery and safeguarding of cash or cash equivalents, checks and securities
   • 2.58Circumstances for refusing or restricting activity in an account or closing accounts
   • 2.59FINRA Rules
   • 2.60Supervision
   • 2.61Supervisory Control System
   • 2.62MSRB Rule
   • 2.63Supervision
3. 3

   3.0 Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records (50%)

   • 3.11  Provides customers with information about investment strategies, risks and rewards, and communicates relevant market, investment and research data to customers
   • 3.2Knowledge of:
   • 3.3Customer-specific factors that generally affect the selection of products (i.e., customer’s investment profile, including the customer’s risk tolerance, investment time horizon and investment objectives, liquidity needs)
   • 3.4Portfolio or account analysis and its application to product selection (e.g., diversification, concentration, volatility, potential tax ramifications)
   • 3.5Portfolio theory (e.g., alpha and beta considerations, Capital Asset Pricing Model (CAPM))
   • 3.6Fundamental analysis of financial statements and types of financial statements included in an annual report, importance of footnotes, material risk disclosures and key terms (e.g., assets, liabilities, capital, cash flow, income)
   • 3.7Balance sheet and methods of inventory valuation: last-in, first-out (LIFO), first-in, first-out (FIFO) and methods of depreciation
   • 3.82  Reviews and analyzes customers' investment profiles and product options to determine that investment recommendations meet applicable standards
   • 3.9Knowledge of:
   • 3.10Types and characteristics of underlying securities
   • 3.11Equity securities
   • 3.12Debt securities
   • 3.13Options
   • 3.14Treasury securities
   • 3.15S. government agencies securities
   • 3.16Other types of debt securities and money market instruments, including but not limited to: corporate commercial paper, brokered certificates of deposit (CDs) and banker’s acceptances
   • 3.17Tax treatment
   • 3.18Conduit or pipeline theory, required distribution of income and realized capital gains
   • 3.19Capital gains and losses, dividend distributions (qualified and non-qualified), wash sales, holding periods
   • 3.20Determination of net long-term and short-term gains or losses
   • 3.21Packaged products
   • 3.22Investment companies, exchange-traded funds (ETFs), unit investment trusts (UITs)
   • 3.23Types of mutual funds: equity, fixed-income, money market, interval
   • 3.24Structure of investment companies (e.g., open-end and closed-end funds)
   • 3.25Difference between retail and institutional money market
   • 3.26Fund objectives (e.g., value, growth, income, balanced, international, sector, life cycle)
   • 3.27Characteristics of:
   • 3.28Open-end funds (e.g., net asset value (NAV); forward pricing; offering price; exchange privileges within families of funds; fees and expenses: no load, load (front-end, back-end), distribution fees, management fees, nature of 12b-1 fees)
   • 3.29Closed-end funds: distributed in primary market at initial public offering (IPO) price, traded in secondary market
   • 3.30Sales practices (e.g., dollar-cost averaging (DCA), computing sales charge, breakpoints, market timing, late trading)
   • 3.31Redemption (e.g., redemption price, payout or withdrawal plans, conversion privilege, restrictions, contingent deferred sales charge, tenders)
   • 3.32Tax treatment of mutual funds
   • 3.33Reinvestment of dividend income and capital gains distributions
   • 3.34Fees, charges, and expenses
   • 3.35Variable life insurance and annuity contracts
   • 3.36Characteristics and insurance features (e.g., minimum guarantees, death benefits, living benefits, riders)
   • 3.37Separate accounts (e.g., purpose, management of portfolio, investment policies, performance of account)
   • 3.38Valuation of a variable annuity contract (e.g., accumulation units, surrender value, annuitization units)
   • 3.39Purchasing or exchanging variable annuities (e.g., immediate annuity, charges, fees, penalties, right of accumulation (ROA), waiver of premium)
   • 3.40Annuitization: types of election, variable payout, assumed interest rate, relationship between assumed interest rate and actual rate of return
   • 3.41Tax treatment of variable annuity contracts during accumulation period and annuity period and taxation at surrender of contract
   • 3.42General characteristics of municipal fund securities
   • 3.43Purpose and characteristics of specific types of municipal fund securities:
   • 3.44Municipal fund securities including 529 college savings plans, local government investment pools (LGIPs), ABLE accounts
   • 3.45Change in beneficiary, rollovers, ownership, tax consequences of unqualified withdrawals
   • 3.46FINRA Rules
   • 3.47Variable Contracts of an Insurance Company
   • 3.48Investment Company Securities
   • 3.49SEC Rules and Regulations
   • 3.50Securities Exchange Act of 1934
   • 3.5115g-1 Exemptions for Certain Transactions
   • 3.52Investment Company Act of 1940
   • 3.53Section 2(a) General Definitions
   • 3.54Section 6 Exemptions
   • 3.55Section 8 Registration of Investment Companies
   • 3.56Section 8(b) Registration of Investment Companies
   • 3.57Section 10 Affiliations or Interest of Directors, Officers and Employees
   • 3.58Section 11 Offers of Exchange
   • 3.59Section 12 Functions and Activities of Investment Companies
   • 3.6012b-1 Distribution of Shares by Registered Open-End Management Investment Company
   • 3.61Section 13(a) Changes in Investment Policy (Prohibited actions for registered investment companies)
   • 3.62Section 16(a) Board of Directors (Election of directors)
   • 3.63Section 18 Capital Structure
   • 3.64Section 19 Dividends
   • 3.6519a-1 Written Statement to Accompany Dividend Payments by Management Companies
   • 3.6619b-1 Frequency of Distribution of Capital Gains
   • 3.67Section 22 Distribution, Redemption, and Repurchase of Redeemable Securities
   • 3.6822c-1 Pricing of Redeemable Securities for Distribution, Redemption and Repurchase
   • 3.6922d-1 Exemption from Section 22(d) to Permit Sales of Redeemable Securities at Prices Which
   • 3.70Reflect Sales Loads Set Pursuant to a Schedule
   • 3.7122d-2 Exemption from Section 22(d) for Certain Registered Separate Accounts
   • 3.7222e-1 Exemption from Section 22(e) During Annuity Payment Period of Variable Annuity
   • 3.73Contracts Participating in Certain Registered Separate Accounts
   • 3.74Section 23 Distribution and Repurchase of Securities: Closed-End Companies
   • 3.75Section 30 Periodic and Other Reports; Reports of Affiliated Persons
   • 3.76Section 35 Unlawful Representations and Names
   • 3.7735d-1 Investment Company Names
   • 3.78Section 36 Breach of Fiduciary Duty
   • 3.79Section 37 Larceny and Embezzlement
   • 3.80MSRB Rules
   • 3.81Definition of Municipal Fund Securities
   • 3.82Reporting of Information on Municipal Fund Securities
   • 3.833  Provides required disclosures regarding investment products and their characteristics, risks, services and expenses
   • 3.84Knowledge of:
   • 3.85Required disclosures on specific transactions (e.g., material aspects of investments, statement of additional information, material events, control relationships)
   • 3.86Types of investment risk (e.g., call, systematic and nonsystematic, reinvestment, timing)
   • 3.87Types of investment returns (e.g., tax-exempt interest, return of capital)
   • 3.88Costs and fees associated with investments (e.g., markups, commissions, net transactions, share classes, non-discretionary fee-based accounts, surrender charges, 12b-1 fees, mortality and expense charges in variable products, soft dollar arrangements)
   • 3.89Tax considerations (e.g., unification of gift and estate taxes, lifetime exclusion, annual gift limit, taxation of securities received as a gift, inheritance of securities)
   • 3.90Market analysis considerations (e.g., market sentiment, market indexes, market momentum, available funds)
   • 3.91FINRA Rule
   • 3.92Financial Exploitation of Specified Adults
   • 3.934  Communicates with customers about account information, processes requests and retains documentation
   • 3.94Knowledge of:
   • 3.95Customer confirmations and statements, including components, timing, mailings to third parties, and exceptions
   • 3.96Account value, profits and losses, realized and unrealized
   • 3.97Customer account records (e.g., updating for change of address, sending required notifications, investment objectives)
   • 3.98Books and records retention requirements
   • 3.99Account closure procedures
   • 3.100FINRA Rules
   • 3.101Customer Account Statements
   • 3.102Customer Confirmations
   • 3.103Educational Communication Related to Recruitment Practices and Account Transfers
   • 3.104Books and Records Requirements
   • 3.105Customer Account Transfer Contracts
   • 3.106SEC Rules and Regulations
   • 3.107Securities Exchange Act of 1934
   • 3.10810b-10 Confirmation of Transactions
   • 3.10917a-4 Records To Be Preserved by Certain Exchange Members, Brokers and Dealers
   • 3.11017a-8 Financial Recordkeeping and Reporting of Currency and Foreign Transactions
   • 3.111MSRB Rules
   • 3.112Books and Records To Be Made by Brokers, Dealers, and Municipal Securities Dealers and Municipal Advisors
   • 3.113Preservation of Records
   • 3.114Confirmation, Clearance, Settlement and Other Uniform Practice Requirements with Respect to Transactions with Customers
   • 3.115Customer Account Transfers
4. 4

   4.0 Obtains and Verifies Customers Purchase and Sales Instructions; Processes, Completes and Confirms Transactions (24%)

   • 4.11  Provides current quotes
   • 4.2Knowledge of:
   • 4.3Orders, offerings and transactions in customer accounts
   • 4.4Trade execution activities
   • 4.5Best execution obligations
   • 4.6FINRA Rule
   • 4.7Best Execution and Interpositioning
   • 4.8SEC Rules and Regulations
   • 4.9Securities Exchange Act of 1934
   • 4.1015g-4 Disclosure of Compensation to Brokers or Dealers
   • 4.112  Processes and confirms customers’ transactions pursuant to regulatory requirements and informs customers of delivery obligations and settlement procedures
   • 4.12Knowledge of:
   • 4.13Delivery requirements and settlement of transactions
   • 4.14Information required on an order ticket (e.g., symbol, account number, price)
   • 4.15Use of automated execution systems
   • 4.16FINRA Rules
   • 4.17Adjustment of Open Orders
   • 4.18Other Trading Practices
   • 4.19Series Uniform Practice Code
   • 4.20SEC Rules and Regulations
   • 4.21Securities Exchange Act of 1934
   • 4.2215c6-1 Settlement Cycle
   • 4.23Federal Reserve
   • 4.24Regulation T Credit by Brokers and Dealers
   • 4.25MSRB Rule
   • 4.26Uniform Practice
   • 4.273  Informs the appropriate supervisor and assists in the resolution of discrepancies, disputes, errors and complaints
   • 4.28Knowledge of:
   • 4.29Erroneous reports, errors, cancels and rebills
   • 4.30Requirements for addressing customer complaints and consequences of improper handling of complaints
   • 4.31Methods of formal resolution (e.g., arbitration, mediation, litigation)
   • 4.32Form U4 reporting requirements
   • 4.33FINRA Rules
   • 4.34Records of Written Customer Complaints
   • 4.35Reporting Requirements
   • 4.36Series Investigations and Sanctions
   • 4.37Series Code of Arbitration Procedure for Customer Disputes
   • 4.38Series Code of Arbitration Procedure for Industry Disputes
   • 4.39Series Code of Mediation Procedure