How to answer state registration questions on the Series 63, Series 65, and Series 66

Read Solomon Exam Prep’s expert guide for answering state registration questions on the Series 63, 65, and 66 exams. Continue reading

If you’re planning to take the NASAA Series 63Series 65, or Series 66 exam, you can expect to see questions about when broker-dealers and their securities agents need to register in a particular state. You can also expect to see questions about when investment advisers and investment adviser representatives need to register in a state. Instead of feeling intimidated when confronted with such questions, you should relax, smile, and feel confident. That’s because if you follow the simple rules that we’re about to describe, you should get each of these questions right.

Broker-Dealers and Their Agents

First let’s deal with questions about state registration for broker-dealers (BDs) and their agents. Rule number one here is that when a U.S.-based BD or one of its agents has an office located in a state, that BD or agent must register in the state. It does not matter which types of clients a BD or BD agent with an office in a state has or what types of securities those clients buy from the BD or agent. A BD or agent with an office in a state must register in that state. Period.  

What about a BD or BD agent that doesn’t have an office in a state? If a BD or BD agent without an office in a state has any non-institutional clients in that state, the BD or agent must register there. However, if the BD or agent without an office in a state has only institutional clients in the state, no registration in that state is required. Institutional clients include the issuers of securities involved in a specific transaction; other broker-dealers; and institutional buyers, which are big-money entities such as banks, insurance companies, mutual funds, and pension and profit-sharing plans.   

Key takeaway:

So when presented with a question about whether a specific broker-dealer or one of its agents must register in a given state or states, there are two potential questions to ask yourself. The first question is: “Does the broker-dealer or BD agent have an office in the state?” If the answer is yes, it’s simple: the BD or agent must register in that state. End of questions. However, if the answer is no, move on to the second question: “Does the BD or BD agent have any non-institutional clients in the state?” If the answer is yes, the BD or agent must register in the state; if the answer is no, they do not need to register in the state.

Here’s a flowchart to help you remember the question-answering process:

Investment Advisers and Their Representatives

Now let’s look at the general state registration requirements for investment advisers and investment adviser representatives. The following rules do not apply to a federal covered adviser, which is an adviser that is to register with the SEC and not any states. If the investment adviser has an office in the state, it must register there. If the investment adviser doesn’t have an office in a state but has had more than five non-institutional clients in the state during the past twelve months, it also must register there. The rules are the same for investment adviser representatives, including investment adviser representatives who work for federal covered advisers.  

Key takeaway:

So if you see a question about investment adviser or investment adviser representative state registration, the first question to ask yourself is: “Does the IA or IAR have an office in the state?” If the answer is yes, you know the IA or IAR has to register there. If the answer is no, move on to the second question: “Has the IA or IAR had more than five non-institutional clients in the state during the preceding twelve months?” If the answer is yes, they must register in the state; if the answer is no, they don’t need to register in the state.  

Here’s another flowchart to help you with this type of question:

Remember that if an investment adviser registers with the SEC, it is a federal covered adviser and does not need to register in any state. Instead, a federal covered adviser must notice file to provide investment advice to residents of that state. When it comes to notice filing requirements for federal covered advisers, follow the same thought process as that described above. If the federal covered adviser has an office in a state, it must notice file there. If it has no office in the state but it has had more than five non-institutional clients in the state in the past twelve months, the firm must also notice file there.  

Practice question

Simple, right? So let’s put the suggested thought process into practice by looking at a question like one you may see on your exam.  

XYZ Broker Dealer has its main office in State A. It also has offices in States B and C. ABC has non-institutional clients in states A and B, but it only has institutional clients in State C. It does not have an office in State D, but it has three non-institutional clients there. In which states does XYZ need to register? 

A. State A only  

B. States A and B only  

C. States A, B, and C only  

D. States A, B, C, and D  

Remember the process to follow when you see questions about where a BD must register. There are two possible questions to address as part of that process.  

First question: Does the broker-dealer have an office in a state? Answer: XYZ has offices in each of States A, B, and C. Recall that if the answer the first question is “yes, the BD has an office in the state”, then the BD must register in that state. So XYZ needs to register in States A, B, and C.   

If the answer to the first question is no, as it is for State D, you move on to the second question: Does the BD have any non-institutional clients in the state? XYZ has non-institutional clients in State D, so the answer is yes to that question. If the answer to the second question is yes, this means the BD must register in the state. Thus, XYZ has to register in State D as well as States A, B, and C. So Choice D is the correct answer.  

So now you’re an expert, and you’re one step closer to passing your Series 63, Series 65, or Series 66 exam!

Solomon Exam Prep has helped thousands pass their securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82 and 99.

Broker-Dealer vs. Investment Adviser: What’s the Difference?

Do your customers know the difference between an IA and BD? Do you know the importance of this distinction and how it may affect your registration status? Continue reading

Do your customers know the difference between an investment adviser and broker-dealer? Do you know the importance of this distinction and how it may affect your registration status? 

Investment Adviser or Broker-Dealer at work.

For many retail customers, the difference between an investment adviser (IA) and a broker-dealer (BD) may not seem important. A customer may have received an investment recommendation from a BD, or owned securities through an IA account. However, which kind of firm you work for is important for knowing which services you may provide, how you may provide them, and which qualification exams you must pass.

Investment Advisers

Investment advisers are usually firms, though they can be an individual operating as a sole proprietor, whose primary business is providing investment advice, and who are paid for the advice itself. Investment adviser representatives (IARs) are individuals who work for IAs and advise the IA’s clients on the IA’s behalf. IAs and IARs are not “stockbrokers” and cannot directly buy or sell securities for their customers. While many have IA accounts through which they own stocks, mutual funds, and other securities, in fact these are accounts an IA opens on the customer’s behalf with a BD. 

Broker-Dealers

Broker-dealers are usually firms, though they can be an individual operating as a sole proprietor, that execute securities transactions for customers. An individual who is employed by a BD to handle customer accounts is called an “agent of a broker-dealer” on some exams, or a “registered representative” (RR) on others. BDs can offer investment advice incidental to their work with customers but cannot be compensated for the advice itself. If a BD acts as an intermediary between a buyer and a seller, then the BD can charge a commission on the trade. If a BDs buys or sells from its own inventory, then the BD makes money by charging a markup on securities that they sell and taking a markdown on securities that they buy.

So, if you’re an IAR, you… 
  • …can provide advice
  • …can be paid for that advice
  • …cannot execute trades
  • …cannot charge commissions or markups on your customer’s trades
If you’re a BD agent (also known as a registered representative), you…
  • …can provide advice
  • …cannot be paid for that advice
  • …can execute trades
  • …can charge commissions or markups on your customer’s trades

Testing and Licensing

Finally, many firms, especially larger ones, maintain both IA and BD registrations. When working for these “dual registrants,” you may be asked to qualify as an IAR, BD agent, or both, depending on your role.

In fact, an increase in dual registrations is one of the note-worthy trends Solomon discusses in our recent white paper, “Optimizing On-Boarding in 2021: 7 Key Trends for the Securities Industry,” available for download from this blog post

To become an agent of a broker-dealer (registered representative), you must pass the Securities Industry Essentials (SIE), and a “top-off” exam such as the Series 6 or Series 7, and for state registration usually the Series 63. To become an IAR, you must pass either the Series 65, or, if you work for a dually registered firm, the SIE, the Series 7, and the Series 66.

Testing integrity in times of COVID-19

Test candidates are bound by guidelines that prohibit cheating or using any unfair means during the exam. Continue reading

On July 13, 2020, FINRA and NASAA responded to the pandemic testing challenge posed by in-person test centers with Prometric’s ProProctor, an online testing service, for certain qualifications exams. The exams for which online testing is permitted are the FINRA Securities Industry Essentials (SIE), Series 6, Series 7 and the NASAA Series 63, Series 65, and Series 66 exams. Read more about the announcement here

Curious about what the ProProctor online testing experience looks like? Click here to find out.

It is interesting to note that although the exams are proctored remotely, candidates are still bound by guidelines that prohibit cheating or using any unfair means during the exam. The checks that have been put in place especially for remote testing are as follows:

  • Candidates are required to provide a 360° view of his/her workstations and surrounding environment;
  • A camera (external or embedded) is required during the course of the exam. If an embedded camera is used, a large free-standing mirror is also required in order to reflect unseen areas;
  • Candidates are asked to participate in a visual person check (including a sleeve, pocket and glasses check);
  • While the exam is in progress, candidates are prohibited from leaving, moving out of or obstructing the camera view while the exam is in progress without prior authorization from the proctor; and
  • Additional requirements that are listed in the ProProctor User Guide.

Warning: a candidate found cheating in an online test will be subject to the same disciplinary actions that he/she would be subject to in a physical test, and if found guilty, can be permanently barred from the broker-dealer industry.

Upcoming Series 63, 65 and 66 Changes

The North American Securities Administrators Association (NASAA) has announced that it will implement updates to the Series 63, Series 65 and Series 66 examinations on July 1, 2016. What has changed? Continue reading

The North American Securities Administrators Association (NASAA) has announced that it will implement updates to the Series 63, Series 65 and Series 66 examinations on July 1, 2016.

The changes are aimed at better aligning the skills and knowledge required by professionals in the securities industry.

The new exam outlines are similar to the current exam outlines, but some significant changes have been made.

What has changed?

Series 63                                                         

  1. The weighting of the exam sections has been modified to put more emphasis on the registration of broker-dealers over investment advisers
  2. Several new topics have been added which reflect an emphasis on communications with customers and cyber-security. Specifically, the following topics have been added or amended:
  • Exceptions for foreign B-Ds
  • B-D supervision of agents
  • Prospectus delivery requirements
  • Types of customer accounts
  • B-D and agent commissions
  • Cyber-security and data protection
  • Outside securities accounts
  • Due diligence for B-Ds
  • Regulation A amendment
  • Regulation D amendment

Series 65                                                         

  1. The weighting of the exam sections has been modified to put slightly more emphasis on the characteristics of investment vehicles and slightly less emphasis on rules and regulations.
  2. Several new topics have been added which expand the types of investment products and add regulations on electronic communications, cyber-security, pay-to-play and anti-money laundering. Specifically, the following topics have been added or amended:
  • Valuation of equity securities
  • Real estate investments
  • Viatical and life settlements
  • Structured products
  • Commodities and precious metals
  • QDROs
  • High frequency trading
  • Regulation A amendment
  • Regulation D amendment
  • Electronic communications and social media
  • B-D and agent commissions
  • Cyber-security and data protection
  • Pay-to-play rule
  • Anti-money laundering
  • Business continuity plans

Series 66                                                         

  1. The passing score has been lowered from 75% to 73%.
  2. The weighting of the exams sections has been modified to put slightly more emphasis on the characteristics of investment vehicles and slightly less emphasis on rules and regulations
  3. Several new topics have been added which expand the types of investment products and add regulations on electronic communications, cyber-security, pay-to-play and anti-money laundering. Specifically, the following topics have been added or amended:
  • Valuation of equity securities
  • Technical analysis
  • Real estate investments
  • Viatical and life settlements
  • Structured products
  • Commodities and precious metals
  • QDROs
  • High frequency trading
  • Regulation A amendment
  • Regulation D amendment
  • Electronic communications and social media
  • B-D and agent commissions
  • Cyber-security and data protection
  • Pay-to-play rule
  • Anti-money laundering

How will this affect my Solomon Exam Prep products?

Solomon Exam Prep will be updating all products offered for the NASAA exams. For those students that currently have materials and are testing after July 1, 2016, we have added an addendum to their Resources folder (located on their student account), that includes all rule changes and updates.

Our Online Exam Simulator has already been adjusted to reflect the new changes, so students will see an option to take full exams structured prior to July 1 or after July 1 – this will allow for any and all students to utilize our products regardless of their anticipated exam date. We are always adding new questions to our database and that will be reflected in the Online Exam Simulator.

In the coming weeks we will also be releasing a new/ updated digital Study Guide that will reflect the upcoming changes. Any current students will have the option of having their digital Study Guide changed to the new edition at that time, or they can continue to study with our current edition and the supplied addendum.

If you have any questions about the changes or our materials, please do not hesitate to call our office at 503.601.0212 or email info@solomonexamprep.com.

Study Question of the Month – April

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 63, 65, and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 63, Series 65, and Series 66):

Jenny is an administrative assistant who mans the phones over the lunch hour for a broker-dealer. She occasionally takes orders while the sales staff is on lunch, but does not solicit orders. She is not compensated directly for the orders she takes. Which of the following is true under the Uniform Securities Act?

Answers:

A. Jenny does not need to register if she only takes unsolicited orders.

B. Jenny does not need to register since her job function is mostly clerical in nature.

C. Jenny needs to register as an agent for the broker-dealer.

D. Jenny does not need to register because she is not compensated for the orders she takes.

Correct Answer: C. Jenny needs to register as an agent for the broker-dealer.

Rationale: Even though Jenny’s job is clerical in nature, if she takes orders, even unsolicited orders, she must register as an agent for the broker-dealer. Interestingly, she is allowed to read off bond quotes or stock prices over the phone and she may access account information without having to register as an agent.

Congratulations! This month’s winner is Jessi B.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Testimonial Tuesday: February 10, 2015 Edition

“I passed my Series 63 today with an 85% and Series 6 two weeks back with an 80%…” Continue reading

“I passed my Series 63 today with an 85% and Series 6 two weeks back with an 80%. I was very nervous, but studying was made easy with Solomon Exam Prep; their simple Plain English explanations helped fight that legalese on the Series 63 especially. I totally owe this to the Solomon team, their awesome question bank, and friendly staff. “Ask the Professor” is prompt in answering all your queries. I’m definitely recommending their program to my employer.”  

-Priya R., PA

 — Read more reviews here: Solomon Exam Prep Reviews —

Testimonial Tuesday: October 21, 2014 Edition

“I’ve been using Solomon Exam Preparation materials for my last four Series tests: the Series 82, Series 63, Series 79 and just recently the Series 7. My scores on these tests were 88, 90, 88 and 90…” Continue reading

“I’ve been using Solomon Exam Preparation materials for my last four Series tests: the Series 82, Series 63, Series 79 and just recently the Series 7.  My scores on these tests were 88, 90, 88 and 90.  The Solomon texts were comprehensive and easy to read; everything you need to know is in there.  But there is so much material that these exams cover that you have to read the texts several times over and take as many practice quizzes and tests as you can until you score in the mid 80’s.  Then go in for the test.  That’s what I did.  I went in scoring in the mid 80’s on practice exams and “peaked” at higher scores while taking the actual tests.  You can’t do any better than Solomon.  I highly recommend them.”

-Michael McGregor, FOCUS Investment Banking, Charlotte, NC

 

Read more reviews here: Solomon Exam Prep Reviews