Tag: Series 65

Solomon Exam Prep Launches Investment Adviser Representative CE

Solomon’s NASAA-approved IAR CE courses are now available for investment adviser representatives who must complete the new CE requirement for 2022. Continue reading

Solomon Exam Prep is excited to announce the launch of its Investment Adviser Representative Continuing Education (IAR CE). All Solomon IAR CE courses are approved by the North American Securities Administrators Association (NASAA) and earn credit to fulfill the new, annual CE requirement for IARs (Investment Adviser Representatives).

About Solomon IAR CE

As a leader in securities exam prep, including the NASAA Series 63, Series 65, and Series 66, Solomon brings the same level of expertise to creating high quality IAR CE content. Course content is delivered in self-paced online modules accessible on any web-enabled device, so you can study when and where you like. Short, engaging modules use a read-and-quiz format that results in higher retention for better learning. Plus, the user-friendly platform allows you to easily jump into the course and start learning.  
 
Solomon’s on-demand courses can be purchased individually, or through a membership to the entire course library to complete all your IAR CE in one place. The Solomon IAR CE platform helps guide course selection for you so that you know you are taking the right number of credits in the required course categories.  
 
Curious about Solomon’s IAR CE courses? Explore the Solomon IAR CE course library.

Solomon investment adviser representative CE course platform
Solomon IAR CE course platform

IAR CE FAQs (frequently asked questions)

Solomon has compiled some of the most common frequently asked questions about the new IAR CE requirement and how Solomon IAR CE works: 

Why is there a new CE requirement for IARs? 

CE courses are designed to keep a financial professional up to date on industry developments, current regulations, and ethical standards. NASAA received support from state regulators and the securities industry for the creation of a CE program to ensure that IARs, like broker-dealer agents, insurance agents, certified financial planners, and real estate agents, maintain or expand their level of knowledge and competence throughout their careers. 

Who must complete IAR CE? 

Every investment adviser representative (IAR) registered in a jurisdiction that adopts the NASAA model rule is subject to the CE requirement. The requirement applies to all registered IARs of both state-registered and federal-covered investment advisers. IARs must meet the CE requirements of any state in which the IAR is registered. 

When do IARs need to start complying with the CE program? 

Compliance starts in the 2022 calendar year in states that have adopted the model rule with an effective date of January 1, 2022. To view the states that adopted the new CE requirement, see the NASAA website or the Solomon IAR CE webpage. CE credits must be reported by the end of each calendar year. Newly registered IARs must meet the annual IAR CE requirement by the end of the first full calendar year following the year in which they first become registered. 

How many courses do I have to take? 

You have to complete 12 credits of CE coursework per year. Six of the 12 credits must be in the Products and Practices category. The other six credits must be in the Ethics and Professional Responsibility category, at least three of which must specifically be about ethics. The category that each course belongs to is indicated in the Solomon IAR CE course library. All Solomon courses are at least one credit. 

Where can I take NASAA-approved courses? 

NASAA has approved several vendors to provide IAR CE courses, including Solomon Exam Prep. All of the courses in the Solomon IAR CE library have passed an approval process with NASAA and Prometric, the course management vendor. 

How are the courses delivered? 

Solomon Exam Prep’s IAR CE courses are delivered online and are self-paced, so students can study when and where they like. 

Do I have to pass an assessment to complete a course? 

Yes, every course has an assessment that is at least 10 questions in length. In Solomon IAR CE courses, the assessment is broken up into shorter assessments that appear throughout the course, instead of a single assessment at the end of the course. You must pass assessments with a score of 100%, and you have an unlimited number of attempts. You may also be asked to complete a satisfaction survey as part of the course activities.

If I earn more than 12 IAR CE credits in a calendar year, can I carry over extra credits to the next year? 

No, credits earned beyond the 12 required credits do not carry over into a subsequent year. 

What happens if I do not complete the IAR CE requirement by the end of the calendar year? 

You will be required to pay the registration renewal fee, and CRD will set your IAR CE status to “CE Inactive.” This status will appear in the Investment Adviser Public Disclosure (IADP) and in BrokerCheck. You can continue to do business; however, if IAR CE is not completed by the end of the subsequent year, you will not be able to renew your registration. An IAR that is CE Inactive will hold that status in all states where the CE rule is effective following adoption of the model. If a state has not yet adopted the CE model rule, the CE program will have no impact on the registration status of the IARs registered with that state – the current registration practices will remain the same. 

Do I need to make up missed CE credits? 

Yes. If you complete courses in the current year, those credits will first apply to the previous year if you hadn’t completed 12 credits in the previous year. Once the missing credits for the previous year have been completed, then additional courses taken in the current year will apply to the current year’s requirement. Remember that any excess credits completed in a year will not carry forward to the next year. 

Who reports course completion? 

The course provider (i.e. Solomon Exam Prep) reports course completion to FINRA, NASAA’s vendor for program tracking. IARs should still keep a record of their completed courses for their own records. Solomon Exam Prep will distribute a course completion notice, once credits are reported, for this reason. 

Is there a reporting fee? 

Yes, the reporting fee, also known as the roster fee, is $3 per credit hour. For Solomon IAR CE courses, the reporting fee is included in the cost of the course or membership. Solomon submits the reporting fee and course completion information to FINRA, the manager of NASAA’s CE reporting database. 

How do I make sure my completion of the annual IAR CE requirement is shown in FINRA’s CE reporting database? 

The course provider (i.e. Solomon Exam Prep) is responsible for reporting successful completion information to both the IAR and to FINRA. To do this, Solomon must collect the IAR’s CRD number, and first and last names. The IAR is responsible for communicating this information to Solomon when prompted. The IAR is also responsible for ensuring they receive documentation of courses completed and keeping track of the number of CE credits awarded for each course. 
 
For more information about IAR Continuing Education, visit the NASAA FAQs page.

View Solomon IAR CE Courses

Disclaimer: NASAA does not endorse any particular provider of CE courses. The content of the course and any views expressed are our own and do not necessarily reflect the views of NASAA or any of its member jurisdictions.

Wisconsin Adopts Continuing Education Requirement for Investment Adviser Representatives

Wisconsin is the latest state to adopt the new NASAA continuing education requirement for investment adviser representatives. Continue reading

On January 24th, Wisconsin became the latest state to adopt NASAA’s new continuing education requirements for Investment Adviser Representatives.

Starting in 2022, every investment adviser representative (IAR) registered in a jurisdiction that has adopted the NASAA model rule will be subject to the CE requirement. The requirement applies to all registered IARs of both state-registered and federal-covered investment advisers.

Affected IARs will have to complete 12 credits of CE coursework each year. Six credits must be about product knowledge and industry practices, called Products and Practices CE. The other six credits must be about ethical and regulatory obligations, called Ethics and Professional Responsibility CE, and at least three of these must specifically be about ethics.

For Wisconsin and other states that adopt the CE requirement this year, the requirement will go into effect on January 1, 2023. For states that adopted the CE requirement last year (Maryland, Mississippi, and Vermont), it is currently in effect.

Solomon Exam Prep’s NASAA-approved IAR CE courses will be available soon. To stay informed, visit the Solomon website and join our Continuing Education email list.

Get Updates About IAR CE

Disclaimer: NASAA does not endorse any particular provider of CE courses. The content of the course and any views expressed are our own and do not necessarily reflect the views of NASAA or any of its member jurisdictions.

Solomon Approved as Investment Adviser Representative CE Provider

As a leader in securities exam prep, Solomon Exam Prep will offer courses for IARs to complete the new NASAA IAR CE requirement. Continue reading

If you’re an Investment Adviser Representative (IAR) who will need to complete the new North American Securities Administrator Association (NASAA) IAR Continuing Education (CE) requirement starting in 2022, Solomon Exam Prep is an approved IAR CE provider! Solomon will be launching several of its planned CE courses soon.

What is the NASAA IAR CE requirement? 

Starting in 2022, investment adviser representatives will be subject to a requirement that broker-dealer representatives have long been familiar with: Continuing Education. These courses are designed to keep a financial professional up to date on industry developments, current regulations, and ethical standards. Every IAR registered in a jurisdiction that adopts the NASAA model rule will be subject to its CE requirements. The mandatory CE program will apply to all registered IARs of both state-registered and federal-covered investment advisers. IARs will be required to meet the CE requirements of any state in which the IAR is registered. These requirements mandate: 

    • 12 credits of CE coursework per year. One credit is at least 50 minutes of instruction.
    • Courses may be in person or online.
    • 6 of the 12 credits must be about product knowledge and industry practices. NASAA calls this Products and Practices Continuing Education. IARs who are dually registered as broker-dealer agents are exempt from the Products and Practices CE if they complete their FINRA CE requirements.
    • The other 6 credits must be about ethical and regulatory obligations. At least 3 of these must be specifically about ethics. NASAA calls this Ethics and Professional Responsibility Continuing Education.
So far, the following states have adopted the IAR CE requirement for 2022: 
    • Maryland
    • Mississippi
    • Vermont 


Adoption of the IAR CE requirement is pending in Michigan, Nevada, and Wisconsin, but implementation may not occur until January 1, 2023. For the latest information on which states have adopted the requirement, see the NASAA website or the Solomon IAR CE webpage. 

For more information about NASAA IAR Continuing Education, see these FAQs.

Solomon IAR CE Courses

Solomon Exam Prep will soon be launching its on-demand IAR CE courses, which will be available individually or as part of a full membership to the entire course library. IARs who are required to complete CE in 2022 will be able to take all the required 12 credits of CE coursework via the Solomon website.

Solomon has helped thousands of IARs pass their NASAA licensing exams with our innovative learning system, including the Series 63, Series 65, and Series 66. We are extending the same level of commitment to delivering quality IAR CE courses, and we look forward to supporting IARs as they navigate this new CE requirement.
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Jeremy Solomon
Solomon president and co-founder

Disclaimer: NASAA does not endorse any particular provider of CE courses. The content of the course and any views expressed are our own and do not necessarily reflect the views of NASAA or any of its member jurisdictions. 
 

Be sure to get the latest updates about Solomon’s IAR CE courses by joining our email list! Sign up on the  Solomon website here or click the button below.

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Solomon Poll: Inflation Expectations for 2022

What are inflation and inflation expectations, and why are they important? Learn what these terms mean and the results of the latest Solomon poll. Continue reading

Can you predict what the economic future of the U.S. will be next month? How about next year? If you’re not sure, Solomon Exam Prep suggests you look at leading indicators, which are economic measures that have been found to anticipate a change in the economy. They are also tested subjects on securities licensing exams such as the FINRA Securities Industry Essentials (SIE) exam and the NASAA Investment Adviser (Series 65) exam. 
 
One important leading indicator is inflation. So, we asked Solomon LinkedIn followers to predict whether the rate of inflation in 2022 will increase, decrease, or stay the same. According to the poll, a whopping 81% of respondents believe that inflation will increase in 2022. Ten percent predict that inflation will stay the same, and nine percent think it will decrease.  
 
For securities licensing exams, leading indicators are important to understand because they are believed to have predictive power, and therefore, allow economists to see what the economic future may hold. That is why Solomon Exam Prep study guides for the Securities Industry Essentials (SIE), Series 7, Series 65, and Series 66 all discuss inflation. So, what exactly is inflation and why does it occur? 

What is inflation and why does it happen?

Inflation means an increase in the prices of goods and services and a decline in the purchasing power of a currency. It can be understood as a part of business cycles, which are fluctuations in the economy. A business cycle has four phases. The first phase, expansion, is characterized by an increase in economic activity and above-average economic growth. In this phase, the production of goods rises and unemployment falls. Lenders make credit more available because they believe businesses and people will be able to repay their loans. Available credit means lower interest rates, which fuels expansion, resulting in more jobs. 
  
The expansion phase feels good because jobs are plentiful, and wages rise. But a risk of the expansion phase is the possibility of inflation because increasing wages and available credit tend to boost prices.  Inflation can result when demand for goods and services outstrips their supply. This usually occurs near the end of an expansionary phase, when too much money is chasing too few goods. Inflation can occur because of:

    • High consumer confidence in the economy
    • An economy that has reached its production potential
    • Excess money in the economy
    • Increases in wages and other production costs, such as a rise in commodity prices

What does inflation mean for investors?

With rising prices come rising interest rates. For example, if the cost of living is increasing at 5%, as measured by the Consumer Price Index (CPI), investors will be unwilling to purchase a bond paying 4% and lose purchasing power. Lenders will need to raise interest rates to keep up with inflation. 
  
In an inflationary environment, investors may be less inclined to make long-term investments. The possibility that a long-term bond or other long-term investment will not keep up with inflation may drive investors to short-term and variable-rate bonds. Unfortunately, to grow, many businesses, especially capital-intensive companies such as oil and gas refineries, airlines, and telecommunications companies need to borrow for the long-term. As a result, an inflationary environment can reduce business investment and cause an economic downturn.

What are inflation expectations?

To return to the Solomon LinkedIn poll – does it matter what people think will happen with inflation in the future? The short answer is yes, and there’s even a term for this: inflation expectations. Inflation expectations refer to the rate at which people and businesses expect prices to rise in the future. Inflation expectations are important because they can actually affect the real rate of inflation. For example, if everyone expects prices to increase by two percent over the next year, then businesses will likely raise their prices by two percent or more, and workers will want comparable salary increases.  
 
If the Solomon LinkedIn poll results are any indication, inflation expectations for the next year are that prices will increase. Do you agree that 2022 will see a rise in the rate of inflation? Comment below to share your thoughts on the topic. 
 
Follow Solomon on LinkedIn for more polls, industry updates, study tips, and more!

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How to Pass the NASAA Series 65 Exam

What is the Series 65 exam and how should you prepare for it? Read Solomon Exam Prep’s guide to the NASAA Series 65 exam. Continue reading

What does the NASAA Series 65 allow me to do?

The Series 65, also known as the Uniform Investment Adviser Law Examination, qualifies individuals to give investment advice for a fee. Investment adviser representatives (IARs) use their knowledge to give financial advice and help clients build investment portfolios. IARs might provide general investment advice or recommend a client to invest in a specific security. IARs can also manage client accounts and supervise other IARs.

The organization that creates the test—the North American Securities Administrators Association, or NASAA—works to protect investors in every state, territory, the District of Columbia, Canada, and Mexico. Requiring investment adviser representative candidates to pass the Series 65 is a key tool in the NASAA’s investor protection arsenal. Regulators want to make sure people who are giving investment advice in their state or jurisdiction are competent and will behave legally and ethically.

About the Exam

The Series 65 exam consists of 130 scored and 10 unscored multiple-choice questions covering the four sections of the NASAA Series 65 exam outline. The 10 additional unscored questions are ones that the exam committee is trying out. These are unidentified and are distributed randomly throughout the exam. NASAA updates its exam questions regularly to reflect the most current rules and regulations.

Note: Scores are rounded down to the lowest whole number (e.g. 71.9% would be a final score of 71%–not a passing score for the Series 65 exam).

Topics Covered on the Exam

The NASAA divides the Series 65 exam into four sections:

The Series 65 exam covers many topics including the following:

    • Economics
    • Financial reporting
    • Quantitative methods
    • Risks
    • Cash investments
    • Fixed income
    • Equities
    • Pooled investments, such as mutual funds, ETFs, and REITs
    • Derivatives
    • Alternatives
    • Annuities and other insurance-based investments
    • Client types
    • Client profiles
    • Capital market theory
    • Portfolio management
    • Taxes
    • Retirement plans
    • ERISA
    • Special accounts, such as college savings plans
    • Trading securities
    • Performance measures
    • State and federal securities acts and regulations
    • Ethical practices and fiduciary obligations

Question Types on the Series 65

The Series 65 exam consists of multiple-choice questions, each with four options. You will see these question structures:

Closed Stem Format:

This item type asks a question and gives four possible answers from which to choose.

Which of the following actions might the Federal Reserve take if it wishes to stimulate the economy?

    1. Buy Treasuries
    2. Raise the discount rate
    3. Raise the bank reserve requirements
    4. Raise the margin requirements
Incomplete Sentence Format:

This kind of question has an incomplete sentence followed by four options that present possible conclusions.

A recession is a protracted period of decline in the national economy, typically defined as:

    1. More than two quarters of decreasing GDP
    2. More than two quarters of decline in the housing market
    3. More than two quarters of shrinking M1
    4. More than two quarters of a falling PPI
“EXCEPT” Format:

This type requires you to recognize the one choice that is an exception among the four answer choices presented.

All of the following are tools that the Federal Reserve uses to implement monetary policy except:

    1. Open market operations
    2. Discount window lending
    3. Altering bank reserve requirements
    4. Altering the value of the dollar
Fill-in-the-Blank Format:

This question type has a missing word or phrase, which you must select from the four options provided.

A situation in which short-term securities pay higher yields than long-term securities is considered a(n) _____ yield curve.

    1. Normal
    2. Inverted
    3. Flat
    4. Barbell
Complex Multiple-Choice (“Roman Numeral”) Format:

For this question type, you see a question followed by two or more statements identified by Roman numerals. The four answer choices represent combinations of these statements. You must select the combination that best answers the question.

A stronger dollar benefits which group?

    1. U.S. exporters
    2. U.S. importers
    3. U.S. investors who want to invest in foreign assets
    4. Overseas investors who want to invest in U.S. assets
    1. I and II
    2. II and III
    3. III and IV
    4. I and IV

This format is also used in items that ask you to rank or order a set of items from highest to lowest (or vice versa), or to place a series of events in the proper sequence.

Order the following from lowest to highest:

    1. Broker call rate
    2. Federal funds rate
    3. Prime rate
    4. Discount rate
    1. I, IV, III, I
    2. III, II, I, IV
    3. IV, III, I, II
    4. II, IV, I, III

How to Study for the Series 65

Follow Solomon Exam Prep’s proven study system:
    • Read and understand. It’s simple: read the Solomon Study Guide, carefully. The Series 65 is a knowledge test, not an IQ test. Many students read the Study Guide two or three times before taking the exam. To increase your ability to focus while reading, or as an alternative to reading, listen to the Solomon Audiobook, which is a word-for-word reading of the Solomon Study Guide.
    • Answer practice questions in the Solomon Exam Simulator. When you’re done with a chapter in the Study Guide, take 4 – 6 chapter quizzes in the Solomon Online Exam Simulator. Use these quizzes to give yourself practice and to find out what you need to study more. Make sure you read and understand the question rationales. When you’re finished reading the entire Study Guide, review your handwritten notes once more. Then, and only then, start taking full practice exams in the Exam Simulator. Aim to pass at least six full practice exams and try to get your average score to at least an 80; when you reach that point, you are probably ready to sit for the Series 65 exam.
Use these effective study strategies:
    • Take handwritten notes. As you read the Study Guide, take handwritten notes and review your notes every day for 10 to 15 minutes. Studies show that the act of taking handwritten notes in your own words and then reviewing them strengthens learning and memory.
    • Make flashcards. Making your own flashcards is another powerful and proven method to reinforce memory and strengthen learning. Solomon also offers digital flashcards for the Series 65 exam.
    • Research. Research anything you do not understand. Curiosity = learning. Students who take responsibility for their own learning by researching anything they do not understand get a deeper understanding of the subject matter and are much more likely to pass.
    • Become the teacher. Studies show that explaining what you are learning greatly increases your understanding of the material. Ask someone in your life to listen and ask questions. If you don’t have anyone, explain it to yourself. Studies show that helps almost as much as explaining to an actual person (see Solomon’s recent post to learn more about this strategy!).
Take advantage of Solomon’s supplemental tools and resources:
    • Use all the resources. The Resources folder in your Solomon student account has helpful information, including a detailed study schedule that you can print out – or use the online study schedule and check off tasks as you complete them.
    • Watch the Video Lecture. This provides a helpful review of the key concepts in each chapter after reading the Solomon Study Guide. Take notes to help yourself stay focused.
  • Good practices while studying:
    • Take regular breaks. Studies show that if you are studying for an exam, taking regular walks in a park or natural setting significantly improves scores. Walks in urban areas or among people did not improve test scores.
    • Get enough sleep during the period when you are studying. Sleep consolidates learning into memory, studies show. Be good to yourself while you are studying for the Series 65: exercise, eat well, and avoid activities that will hurt your ability to get a good night’s sleep.

You can pass the NASAA Series 65! It just takes work and determination. Solomon Exam Prep is here to support you on your journey to becoming a registered Investment Adviser Representative.

For more helpful securities exam-related content, study tips, and industry updates, join the Solomon email list. Just click the button below:

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How to Calculate Gains and Losses on Exercised Options

Options are a common topic on the Series 6, Series 7, Series 65, Series 66, and SIE exams. Read our guide to calculating gains and losses on exercised options. Continue reading

Options are a topic that many taking the Series 6, Series 7, Series 65, Series 66, and SIE exams have to deal with. One of the biggest problems that students have with options questions occurs when they are asked to calculate gains and losses on exercised options. As long as you understand a few basic points, these types of questions can be a breeze and definitely nothing to lose sleep over.  

First of all, let’s remind ourselves of what an option is.  An option is a contract between two parties that gives the buyer of the contract the right to buy or sell an underlying asset to the other party in the future for a specific price. The specific price is called the “exercise” or “strike” price.  The seller of the option, on the other hand, is obligated to buy or sell, at the strike price. The option to buy is a “call” option, the option to sell is a “put” option.   

To calculate gains and losses on exercised options, you first need to understand what is happening as a result of an options transaction.  When an option is exercised, that means its holder chooses to either buy or sell the underlying security at the strike price. With an exercised call option, the holder purchases shares of the underlying security from the options seller; with an exercised put option, the holder sells shares of the underlying security to the options seller. The sale in each case occurs at the option’s strike price.

Buying – Exercised Call Option

When a call options holder exercises her option by purchasing the underlying shares, she must add the cost of those shares to the premium she paid to obtain the option in the first place. This sum represents the option holder’s total money spent as a result of her options transaction. If the option holder then elects to sell the underlying securities she’s just purchased at their current market price, the money she receives from the sale will be money she takes in. To calculate her gain or loss, subtract the money she paid out from the money she took in. It’s as simple as that. 

So, if, for instance, Marie paid $200 in premiums to purchase a call option with a strike price of $20 and then exercised the option by purchasing 100 shares of the underlying stock, the money she spent as a result of her options transaction will be $2,200 ($200 premium paid + $2,000 purchase price for underlying securities). If she then sells those 100 shares at the market price of $25, she will receive $2,500 in sales proceeds. Subtracting the money she spent from the amount she received will result in a $300 gain ($2,500 sale proceeds – $2,000 purchase price – $200 premium paid = $300 gain.)

Buying – Exercised Put Option

In order for a put options holder to exercise his option, he must have 100 shares of the underlying security to sell to the options seller. That means he needs to go out in the market and purchase shares at their market price. The money he pays for those securities plus the premium he paid to purchase his put option in the first place represents money spent as a result of his options transaction. The options holder will then sell those 100 shares to the options seller at the strike price. When he does this, he receives the sale proceeds. Subtracting the money spent on the put from the sale proceeds will result in the put investor’s gain or loss.   

So, if, for instance, Pierre paid $300 in premiums to purchase a put option with a strike price of $30 and then purchases 100 shares of the underlying stock when its market price drops to $25, he will have spent $2,800 as a result of his options transaction ($300 premium + $2,500 purchase price for underlying shares). He will then sell those 100 shares to the options seller at their strike price of $30 and take in $3,000 from his sale. Thus, Pierre will make a total of $200 on his options transaction ($3,000 sale proceeds - $300 premium – $2,500 purchase price = $200 gain). 

Selling an Option

Now let’s look at gains or losses from the perspective of an options seller. Remember that when someone sells an option, he receives the premium from the options buyer. If the option expires unexercised, the seller gets to keep his entire premium received, which represents his maximum potential gain. If the option is exercised, he will either be required to sell shares of the underlying security to the option holder in the case of a call option or buy shares from the option holder in the case of a put option. Each of an exercised call or an exercised put option transaction is made at the option’s strike price.

Selling – Exercised Call Option

When a call option is exercised, the option seller must obtain 100 shares of the underlying stock to sell to the options holder. To do so, he will have to purchase the shares at their current market price, which will be higher than the option’s strike price. He will then sell them to the option holder at the strike price. The money he takes in from the sale is added to the premiums he received when shorting the option, and this totals the money he takes in as part of his options transaction. The money he paid to obtain the underlying securities is the money he pays out. Subtracting the money he pays out from the money he takes in results in his overall gain or loss.

For example, let’s say Michael sells a call option with a strike price of $50 and receives premiums totaling $500. If the option is exercised, and Mike purchases the underlying shares at $55, he will have paid out $5,500 as a result of his options transaction. At the same time, he will have received $5,500 ($500 premium + $5,000 strike price). Thus, Mike will break even on this transaction; money taken in will be equal to money paid out.

Buying – Exercised Put Option

When a put option is exercised, the option seller must purchase 100 shares of the underlying security from the options holder at the strike price. This represents money the options seller pays out. The options holder has already received the premium when she sold the option, and after purchasing the 100 shares, she can sell them for their current market price. The combination of the seller’s sale proceeds and the premium received represents money taken in. Subtracting money paid out from money taken in will result in the investor’s gain or loss. 

Let’s say Maribel shorts a put option and receives premiums totaling $400. The option has a strike price of $40, and the option holder exercises it when the underlying stock is trading at $35. This means Maribel is obligated to pay $4,000 total for the 100 underlying shares. This is money she pays out. She has already taken in $400, and if she chooses to sell the underlying stock at its current market price, she will take in an additional $3,500 in sales proceeds. This means she will receive a total of $3,900 from his options transaction ($3,500 sale proceeds + $400 premium) and paid out a total of $4,000. As a result, she has lost $100 on his options transaction ($3,900 money in – $4,000 money out = -$100).

As long as you understand what is occurring when an option is exercised, calculating gains and losses is as simple as comparing the money the investor takes in to the money she pays out. Calculating gains and losses on exercised options requires an understanding of the transaction and some simple math. Follow the guidance above and you will be able to correctly answer this type of question on your securities licensing exam.

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What Are QIBs and Accredited Investors? What’s the Difference?

If you’re studying for securities licensing exams, such as the SIE or the Series 7, then you should understand the terms “accredited investor” and “QIB.” Continue reading

If you’ve been studying for the Series 7, 6, 14, 22, 24, 65, 79, or 82, or the Securities Industry Essentials (SIE), then you’ve had to learn about Regulation D private placements and Rule 144A sales. Regulation D private placements are securities offerings that are exempt from the normal SEC registration process and in many cases are sold only to “accredited investors” or limit the involvement of investors who are not accredited. Rule 144A sales are sales of unregistered securities to large institutional investors known as “qualified institutional buyers” or QIBs for short. 
 
You may have wondered about the difference between accredited investors and QIBs. On the surface, these may seem similar. Each refers to a category of investor with resources and/or knowledge above and beyond the average retail investor. So why not just have one standard for buyers under both Rule 144A and Regulation D? After all, the purpose of both Regulation D and Rule 144A is the same: to allow wealthier and more sophisticated investors easier access to investments that may be too risky for the average investor.  
 
To begin to answer this question, we have to start with the fact that wealth and sophistication fall on a spectrum. Investors aren’t neatly divided between small retail investors and huge financial institutions that move millions around without blinking an eye. 

Accredited Investors

You could think of accredited investors as a middle ground between these two extremes. Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement. There are many ways to qualify as an accredited investor but they all have one thing in common, which is that the SEC believes they indicate an ability to take on risks that regulators believe are unsuitable for most retail investors.

Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement.

All of the following are considered accredited investors:
  • Banks, broker-dealers, investment advisers, insurance companies, and investment companies
  • Corporations, trusts, partnerships, and LLCs with more than $5 million in assets
  • Most employee benefit plans with more than $5 million in assets
  • The issuer’s directors, executive officers, and general partners
  • If the issuer is a privately owned fund, (such as a hedge fund), a knowledgeable employee of the fund, which means an employee with at least 12 months’ experience working on the fund’s investment activities
  • Individuals with income of $200,000 in each of the last two years, or $300,000 in combination with a spouse or spousal equivalent such as a domestic partner
  • Individuals with a net worth more than $1 million, alone or with a spouse or spousal equivalent, not including primary residence
  • Individuals who hold any of these three designations in good standing:
    • Licensed General Securities Representative (Series 7)
    • Licensed Investment Adviser Representative (Series 65)
    • Licensed Private Securities Offerings Representative (Series 82)
  • Any firm where all owners are accredited investors (e.g., venture capital firms)
  • Any other entity with more than $5 million in investments that was not formed specifically to qualify as an accredited investor; the purpose of this category is to include entities that don’t neatly fit into any of the above categories, such as:
    • Native American tribes
    • Labor unions
    • Government bodies, including those of foreign governments
    • Investment funds created by government bodies
    • New types of business entities that may be introduced by new laws

An accredited investor that is not an individual—such as a business, governmental, or nonprofit entity—is sometimes called an institutional accredited investor (IAI).

Qualified Institutional Buyers

QIBs are a narrower group of large institutional investors. A QIB is a large institutional investor that owns at least $100 million worth of securities, not counting securities issued by its affiliates. For registered broker-dealers, the threshold is lower, just $10 million. A bank must also have a net worth of at least $25 million in order to be considered a QIB. 
 
If a firm has discretionary authority to invest securities owned by a QIB, those securities count toward whether the firm itself is considered a QIB. So if a broker-dealer has $9 million worth of securities in its own accounts, and holds $1 million worth of securities in a discretionary account belonging to a QIB, then the broker-dealer is itself a QIB.  

Common examples of QIBs include broker-dealers, insurance companies, investment companies, pension plans, and banks. However, any corporation, partnership, or LLC could qualify as a QIB. So can an IAI that owns at least $100 million in securities. Individuals can never be QIBs, regardless of their assets or financial sophistication.

Individuals can never be QIBs, regardless of their assets or financial sophistication.

Rule 144A allows QIBs to buy unregistered securities at any time, and freely trade these shares to other QIBs. In effect, QIBs can trade unregistered shares among themselves with almost the same ease as trading registered shares. Selling unregistered securities to anyone other than a QIB commonly requires a the seller to hold the securities for a period of up to 12 months. 

A QIB will virtually always meet the criteria to be an accredited investor, whereas an accredited investor may fall well short of QIB status.

Over time, other securities laws and regulations have made use of these two well-known categories. For example, in 2019 the SEC gave issuers more flexibility to test the waters with potential investors before deciding whether to go through with a public offering. When deciding which investors were sophisticated enough to receive test-the-waters communications, the SEC limited these communications to QIBs and institutional accredited investors. Additionally, references to institutional accredited investors have become more common, such as when the SEC revamped its rules around integration of offerings in March 2021.  
 
Know your QIBs from your accredited investors and be ready to pass your securities exam with Solomon Exam Prep.

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Solomon Pass Probability™ Now Available for the FINRA Series 82

Everyone would like to feel confident when they take their securities exam, but how do you know if you’re ready for test day? Solomon Exam Prep can help – with Pass Probability™. Continue reading

Everyone would like to feel confident when they take their securities exam, but how do you know if you’re ready for test day? Solomon Exam Prep can help! With Pass Probability™, now available for the FINRA Series 82 exam, Solomon takes the guesswork out of deciding when to sit for your exam.

Pass Probability™ is Solomon Exam Prep’s innovative technology that measures your readiness to pass your securities exam. Once you take five practice exams in the Solomon Exam Simulator, the Pass Probability™ tool calculates the probability that you will pass your test, with a percentage out of 100.

"A securities licensing exam is hard work and high stakes. Your enemy is uncertainty. Solomon's industry-leading Pass Probability™ feature is based on the results of thousands of Solomon securities students and uses a proprietary algorithm to reduce uncertainty. So you can enter the exam room with confidence."
Jeremy Solomon
Co-founder and President of Solomon Exam Prep

Remediation Reporting

But what should you do if you take five practice exams, and the Solomon algorithm determines that you are not ready to take your exam? This is where Solomon’s brand-new feature, the Remediation Report, comes in.

The Remediation Report is an individualized report outlining how to focus your efforts BEFORE taking your exam. It provides an added level of customized study support – sent right to your email.

The Remediation Report gives you:
  • Summary of current study progress 
  • Personalized recommendations on areas for growth 
  • Study tips for the homestretch 
  • Reminders about student support elements 

In addition to the Series 82, Solomon Pass Probability™ and Remediation Reports are currently available for the following exams: SIE, Series 6, Series 7, Series 63, Series 65, Series 66, and Series 79. 

Solomon Exam Prep Offers Powerful New AI Feature: Remediation Reporting

Learn about the Solomon Remediation Report, a new analytical feature designed to help students pass their securities licensing exams the first time. Continue reading

Solomon Exam Prep is delighted to announce an advanced analytical feature called a Remediation Report. The Solomon system analyzes a student’s five most recent practice exams and determines whether a student is ready to take his or her exam. If Solomon AI determines that a student is not ready to sit for their exam, then it creates an individual report with personalized guidance on how to remediate and prepare to pass. This custom Remediation Report is sent to the Solomon student’s email inbox.

The Solomon Remediation Report is connected to the Solomon Pass Probability tool, the industry-leading measure of a security exam prep student’s readiness to pass an exam. Solomon Pass Probability is based on thousands of student data points. Once a Solomon student has taken at least five practice exams, the Solomon Pass Probability feature is activated, and the Pass Probability metric is available in the student’s dashboard. The Solomon Remediation Report provides an additional level of customized study support by helping students focus their efforts and remediate before they sit for their exam.

Solomon Pass Probability and Remediation Reports are currently available for the following exams: SIE, Series 6, Series 7, Series 63, Series 65, Series 66, Series 79, and Series 82.

To learn about all the features of the Solomon Exam Prep learning system, watch the video overview.

The Power of Explaining: A Study Strategy Backed by Research

If you’re studying for the SIE, Series 65, Series 7, or another securities licensing exam, try this evidence-based study strategy. Continue reading

Updated June 23, 2022
Solomon Exam Prep’s learning system is built on understanding how people learn. Solomon is always looking for new ways to help our students learn more effectively and pass their securities exams.  

Research from Dr. Tania Lombrozo of UC Berkeley, published in the journal Trends in Cognitive Science, shows that explaining a new concept to another person is an enormously helpful learning technique. When you explain an unfamiliar concept to another person, your brain makes crucial learning connections. However, many people don’t have a person around them that is ready to listen to their new knowledge. Thus, Dr. Lombrozo recommends self-explanation, which is the practice of explaining concepts to yourself in order to better understand them.

Why does explaining work?

Dr. Lombrozo found that the positive effects of self-explanation can be attributed to the generalization process. Explaining requires you to put new information in the context of “prior beliefs,” which makes you generalize the information. In doing so, you’re forced to pick out what is most necessary for understanding the concept. In thinking about how to explain something, you in fact learn more about the thing itself!  

Dr. Lombrozo describes an experiment by psychologists Amsterlaw and Wellman that demonstrates the power of explaining in understanding. In Amsterlaw and Wellman’s experiment, they administered logic tests to children under various conditions. During the course of the experiment, the children were split into groups. One group would answer, and then they would be asked to explain the correct answer once it was revealed. A comparison group did the same, but only for half the problems. The third group was a control group and gave no explanation at all.

According to Amsterlaw and Wellman, “children in the explanation condition significantly outperformed the comparison and control groups….” In other words, explaining increased their understanding.

How to use this strategy for licensing exams:

What does this mean if you’re studying for the Series 65 or the Series 7 or some other securities licensing exam? Solomon Exam Prep suggests finding someone in your life who will listen to you explain topics from your securities exam prep. The person you choose doesn’t need to have any knowledge of securities. The person just needs to be a good listener. Even better, someone who will ask questions.

What if you don’t have anyone who can do that for you? Well, as Dr. Lombrozo showed, the practice of self-explanation is also helpful and will increase your understanding of the material you’re trying to learn.

Other recommended study strategies include:  

    • Listen to the Solomon Audiobook while you read the Solomon Study Guide.
    • As you read the Study Guide and watch the Solomon Video Lectures, take notes by hand.
    • When practicing in the Solomon Exam Simulator, read and re-read the question at least twice. 
    • If you answer a question correctly, explain to yourself why it was correct before reading the question rationale.  
    • If you answer a question incorrectly, read the rationale carefully. Explain to yourself what the right answer is, and why. Write down the explanation in your notes. 
    • Study with a partner. Trade off testing each other on concepts and asking for an explanation.  

Visit the Solomon Exam Prep  website to explore study materials for 21 different 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.