2024 Edition

FINRA Series 6 Practice Test

Take this free FINRA Series 6 practice exam get an idea of what is on the exam to become a financial investment representative.

The Series 6 exam (Investment Company and Variable Contracts Products Representative Qualification Examination (IR)) tests your competency as an entry-level representative in an investment company and a representative of variable contract products. The exam tests the candidate’s knowledge of critical functions of an investment company and variable contract products such as mutual funds sales and variable annuities in such topics as: Seeks Business for the Broker-dealer from Customers and Potential Customers; Opens Accounts After Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives; Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records; Obtains and Verifies Customers’ Purchase and Sales Instructions; Processes, Completes and Confirms Transactions.

Candidates must pass the Securities Industry Essentials (SIE) exam and the Series 6 exam to obtain registration.

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1.	A registered representative has hired a friend to design a website for his advisory business. Websites such as these are categorized as:
		a. Correspondence
		b. A Tombstone Advertisement
		c. Retail Communications
		d. Generic advertising
Websites are categorized as Retail Communications. It does not matter if an individual or firm creates them; they are considered retail communications under FINRA 2210(c)(1)(A). A tombstone advertisement gives investors basic information about a public offering that will be available in the near future. Correspondence is defined as any electronic or written communication circulated or made available to 25 or less retail investors in any 30 calendar-day period under FINRA 2210(a). Generic advertising pertains to advertising that promotes a particular firm, or securities, but without specific recommendations. Incorrect answer. Please choose another answer.

2.	ACME Invest, Inc. registered with FINRA seven months ago. The company has created a billboard advertisement near the financial district in their city. When must the company file with FINRA advertising regulation?
		a. 10 business days prior to first use
		b. 10 calendar days prior to first use
		c. Within 10 business days of first use
		d. Within 30 business days of first use
New FINRA member firms must file Retail Communications 10 business days prior to first use during their first year of operation. The one-year period begins on the date the FINRA membership is effective in the CRD system. After one year, Retail Communications can be filed within 10 business days of first use or publication under FINRA 2210(c)(1)(A). Incorrect answer. Please choose another answer.

3.	All of the following are exempt from registration under the Securities Act of 1933 EXCEPT:
		a. US 10-year notes
		b. Commercial paper with maturity less than 270 days
		c. Variable life insurance policies
		d. Bankers acceptances with maturity less than 180 days
US government securities such as notes, bonds, and bills are exempt from registration. Commercial Paper is exempt too, provided the term is 270 days or less. Bankers Acceptances are also exempt, provided the term is 180 days or less. The majority of life insurance contracts are also exempt from registration, excluding contracts that carry investment risk, such as variable life and variable annuities. Incorrect answer. Please choose another answer.

4.	Jason is a Series 6 registered representative and is opening a new account. Jason MUST gather all of the following information at the time of account opening EXCEPT:
		a. The customer's choice to reinvest dividends or take them in cash
		b. The customer's name and address
		c. The customer's age
		d. The customer's social security number
All are required to be gathered at the opening of the account except the customer's choice to reinvest capital gains and dividends from their mutual fund investments. This data can be obtained later. Incorrect answer. Please choose another answer.

5.	All of the following retirees may contribute to a 457 plan EXCEPT:
		a. A retired nonprofit executive
		b. A retired city treasurer
		c. A retired state construction worker
		d. A retired Delta Airlines pilot
457 plans are non-qualified, deferred compensation retirement plans offered to state, local government, and some nonprofit employees. Private sector employees do not contribute to 457 plans. Incorrect answer. Please choose another answer.

6.	Which of the following regulations applies to the anti-fraud provisions governing Municipal securities?
		a. The Securities Exchange Act of 1934
		b. The Securities Act of 1933
		c. The Investment Company Act of 1940
		d. SEC Rule 135a
While most Municipal securities are exempt from registration under the Securities Act of 1933, the anti-fraud provisions of the Securities Exchange Act of 1934 still apply to them. The Investment Company Act of 1940 focuses on mutual funds, hedge funds, holding companies, and other types of equity funds. SEC Rule 135c pertains to advertisements. Incorrect answer. Please choose another answer.

7.	Michaela is a long-term client of Jennifer's and has a substantial mutual fund portfolio. Jennifer has explained that the markets may change soon, and a more conservative approach may benefit Michaela. However, Michaela will be traveling and does not want to spend time discussing portfolio adjustments with her advisor. Michaela wants Jennifer to make the necessary adjustments when she feels the time is right; without having to discuss it each time. What does Jennifer need to have on file?
		a. A signed QIB
		b. A signed LOI
		c. A signed ODD
		d. A signed POA
Jennifer needs to have discretionary authority on this account. So, a limited Power of Attorney (POA) form signed by Michaela granting Jennifer discretionary authority to make adjustments on the portfolio is required. An LOI is a letter of instruction that broker-dealers use when receiving instructions from customers. A QIB is a qualified institutional buyer who receives less protection from securities market regulators since they are deemed to be sophisticated investors. An ODD is an options disclosure document published by the OCC (Options Clearing Corporation). It discloses the risks inherent in trading options. Incorrect answer. Please choose another answer.

8.	The NAV of XYZ Balanced Growth Mutual Fund is $12.85. The POP is $13.30. What is the sales charge percentage?
		a. There is not enough information to determine the sales charge.
		b. 6.76%
		c. 3.38%
		d. 1.00%
The sales charge percentage can be calculated by this formula: POP-NAV/POP 13.30 - 12.85 = 0.45. 0.45/13.30 = 3.38% Incorrect answer. Please choose another answer.

9.	Which of the following best describes a 12b-1 fee for an open-end mutual fund?
		a. The front-end load on Class-B shares
		b. The annual marketing or distribution fee
		c. The NAV divided by dividend yield
		d. The breakpoint amount
The 12b-1 fee is the yearly marketing or distribution fee of a fund. It covers the costs of selling mutual fund shares and/or providing services to shareholders. The breakpoint amount is the threshold where mutual fund load fees begin to decrease, as investment size increases. The front-end load is the sales charge on Class A mutual fund shares. Class B mutual fund shares charge a back-end load, not a front-end load. The NAV is the Net Asset Value, and the dividend yield are the total yearly dividends received divided by the NAV of the fund. Incorrect answer. Please choose another answer.

10.	All of the following must be included on a trade confirmation EXCEPT:
		a. The CUSIP number (if one exists)
		b. The address of the broker-dealer
		c. The quantity of security bought or sold
		d. The name of the registered representative that executed the trade
All are required except the name of the representative that executed the trade. The name, address, and phone number of the broker-dealer must be included on the trade confirmation. Incorrect answer. Please choose another answer.

11.	Which of the following is not exempt from registration under the Securities Act of 1940?
		a. GO bonds
		b. Fixed annuities
		c. Revenue Bonds
		d. Secondary equity offerings
Fixed annuities, GO (General Obligation) muni bonds, Revenue Bonds (a type of muni bond) are all exempt from registration. However, secondary offerings of corporate securities are not exempt and require registration. Incorrect answer. Please choose another answer.

12.	Gregory is 63 1/2 years old and wishes to retire at 66. He has been a long-term client and has 95% of his portfolio in equity mutual funds, with a concentration in technology and growth. His portfolio has performed well over the last decade. His concern is that the bull market is maturing. Gregory does not want downside equity volatility to change his retirement plans and will need liquidity in a few years. Which of the following is the best suggestion for him?
		a. Make no changes to the portfolio as the market has been rising steadily for a decade.
		b. Diversify the portfolio with lower beta stock funds, bond funds, and money market funds.
		c. Sell all equity funds and allocate 100% into money market funds.
		d. Buy put options on tech stocks.
Gregory has only 2.5 years to retirement. The best choice is B as there should be more exposure to bonds and a focus on capital preservation versus growth. Lowering the beta of the stock funds could help. Making no changes is too risky, and selling all assets to cash is too conservative. Buying put options is most likely too risky and an inappropriate strategy. Incorrect answer. Please choose another answer.

13.	Regarding variable annuities, which of the following is true?
		a. There are no surrender charges.
		b. There is a guaranteed rate of return.
		c. The income generated is tax-deferred.
		d. The insurance company assumes any investment risk.
Income from variable annuities is tax-deferred until one of two things happens: withdrawals begin, or the death benefit is paid to the investor (whichever comes first). Variable annuities have investment risk that the investor assumes, not the insurance company. There is no guaranteed rate of return in a variable annuity. Incorrect answer. Please choose another answer.

14.	Which of the following is true regarding nonsystematic risk?
		a. Nonsystematic risk can potentially be reduced by owning an index fund ETF.
		b. Nonsystematic risk can be reduced by timing the market properly.
		c. Nonsystematic risk cannot be reduced by diversification.
		d. Nonsystematic risk is not present in an individual stock.
Nonsystematic (unsystematic) risk pertains to the market risk of an individual investment. Diversification can help to mitigate this type of risk. An index fund that owns multiple underlying stocks can reduce this type of risk. Timing the market properly could help with timing risk, but not nonsystematic risk. Incorrect answer. Please choose another answer.

15.	John calls his broker to sell his ABC mutual fund shares on Wednesday at 3 PM. The NAV after the market close on Wednesday for ABC mutual fund was $27.85. The sold price on his confirmation showed $23.67. Upon FINRA review, this trade may be designated as a(n):
		a. Clearly erroneous trade
		b. Rebill
		c. Outlier fill
		d. Discount order fill
Mutual funds have one sell price per day: the NAV. With mutual funds, one buys at the POP and sells at the NAV. The NAV is calculated after 4 PM, once markets close. This trade was executed 15% lower than the NAV price and is clearly a broker-dealer or clearing firm error. This would be designated as a "clearly erroneous trade." A discount order fill is not a widely used term, and is not applicable to the question. A rebill aka cancel/rebill occurs when some portion of the trade is processed incorrectly; for example, when a trade has been debited or credited to the wrong account. An outlier fill simply means a fill (trade execution) that was filled away from current market price but not far enough to be considered a clearly erroneous trade (15% or more away from current market price). This can happen if an order is routed to an exchange that has low liquidity and wider bid/ask prices. Incorrect answer. Please choose another answer.

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