Age: Late 40s
Profession: Banking     
Education: BS in Business Administration
Tested: October 2006
Score: 71

The Study Method
Al prepared for the exam by taking an exam preparation course and using online quizzer questions. His comment on the quizzer questions was that they were closer to the type of questions that he saw on the actual exam. He also liked the fact that the quizzer questions gave him answers, explanations, hints and references. 

Question Recall
Al recalled exam questions from the following topics/subjects:

1. One question required that he recognize and identify the elements of the "total return" for an investor from a mutual fund. Note: Total return accounts for two categories of return: income and capital appreciation. Income includes interest paid by fixed-income investments, distributions or dividends. Capital appreciation represents the change in the market price of an asset.
   
   
2. A question required that the candidate recognize that round lots (or units that may be made into round lots) were required for good delivery. For example:
   
   A broker-dealer has received an order for 300 shares of XYZ stock. Under the rules for good delivery, which of the following is acceptable?
   1. 1 certificate for 300 shares
   2. 3 certificates for 100 shares
   3. 4 certificates for 75 shares
   4. 6 certificates for 50 shares
   1. I, II, III, IV
   2. I, II, IV
   3. I, II
   4. I, III

Answer: "b".  Good delivery between broker dealers calls for delivery in "round lots" 100 shares. Units that are divisible by 100 or, which may be made into stacks of 100 are good delivery. There is no way to stack 75-share certificates into three stacks of 100.

3. There was a question regarding the types of investments permitted by hedge funds. Note: The question probably requires the candidate to recognize that hedge funds may trade on margin, sell stocks short and write uncovered options positions strategies that are prohibited to mutual funds.
   
   
4. There was a question that required the candidate to recognize the difference between rights and warrants. Another example of this topic appearing
   
   
5. One question, dealing with the limitations on selling, required that he know that a Series 6 RR cannot sell promissory notes (commercial paper). Note: Series 6 RRs may only sell investment company securities by prospectus. 
   
   
6. There were several questions dealing with the differences between open-end and closed-end investment companies. Know these differences.
   
   
7. A candidate needs to be aware of the functions/responsibilities of the underwriter of a mutual fund. The underwriter of a mutual fund is the fund's marketing/distribution arm. The underwriter is registered as a broker-dealer and is compensated by receiving part of the sales charge and pays for advertising and sales literature.
   
   
8. Know that a mutual fund provides its shareholders with semi-annual reports that update the fund's performance. Another example of this topic.
   
   
9. There was a question regarding a "fund of funds." Al couldn't recall the specific nature of the question, but it probably dealt with the investment strategy of a mutual fund that invests exclusively in other mutual funds.
   
   
10. There was also a question regarding a "fund of hedge funds." Such funds if registered are typically closed-end funds. Instead of investing in individual securities, these invest in hedge funds. Often these funds are not registered with the SEC.
    
    
11. There was a "scenario" type question that required the candidate to recognize the types of investments that would be appropriate for a customer in a "defensive" portfolio. Stocks that are considered defensive are issued by companies that cater to the public's needs and wishes. Examples are utility stocks, tobacco company stocks and liquor company stocks. Defensive bonds include government bonds and those municipal and corporate bonds that are considered "investment grade."
    
    
12. Candidates should be aware that, while the ex-dividend date for stocks is two business days before the record date, a mutual fund sets its own ex-dividend date. Note the recurrence of this topic. Keep it in mind.
    
    
13. One question on dollar cost averaging provided all the investment dollars, share prices and number of shares purchased and totaled them but required the candidate to use the numbers presented to compute the dollar cost average (average cost per share). Remember that, by using dollar cost averaging, the investor will always have a lower average cost per share than the average price per share. To compute the Dollar Cost Average (DCA): Divide the total deposits by the number of shares purchased. [Total Investments / Number of shares = DCA.
    
    
14. He needed to be aware of the mutual fund concept of "forward pricing." Note that most exams have a question on this subject.
    
    
15. Know the differences between "accumulation units" and "annuity units" in a variable annuity. This topic appears to be another favorite of the test writers.
    
    
16. A question he remembers dealt with the methods of purchasing an annuity and what kinds of units were purchased. Periodic payment/single-premium deferred and immediate.
    
    
17. A question presented a scenario in which a RR received a phone call from a survivor when the other party to a JTWROS account had passed away. The question asked what the RR could do in response to the customer's request to sell securities. Execute the order. The fact that one party is deceased is actually irrelevant to the question. Either party in a JTWROS account can give orders.
    
    
18. Who must approve the sales literature of a firm? A principal of the firm.
    
    
19. Know how the earnings in a UGMA/UTMA account are taxed and to whom.
    
    An example:
    A grandmother has opened a UTMA account for her grandson who is now 13 years old. This year, the account earned a total of $2,000. What are the tax implications of these earnings?
    1. $1,700 will be taxed to the grandson at his parent's top bracket
    2. $300 will be taxed to the grandson at his grandmother's tax bracket.
    3. $1,700 will be taxed to the grandson at his own tax bracket.
    4. $300 will be taxed to the grandson at his parents' top bracket
    1. I, II
    2. II, III
    3. III, IV
    4. I, IV

Answer: "c".  Under current tax regulations (2006), the first $1,700 is taxed to a minor child, under the age of 14, at the "kiddie" tax bracket very low. Any unearned income in the account that exceeds $1,700 is taxed to the child at the parents' top bracket. The fact that the grandmother is custodian is irrelevant.

20. Recognize that "breakpoint sales" are unethical and prohibited. Breakpoint sales are defined as sales in which the RR induces an investor to make investments just below the point at which the sales charge would be reduced.
    
    
21. Borrowing from or lending to a client is prohibited unless the client is in the loan business is prohibited. Recognize this. It may appear as a situation-type question.
    
    
22. A candidate should know the dollar amounts of cash/wire orders that will trigger a CTR (cash transaction report). An example:
    
    Under the provisions of the Patriot Act and the Bank Secrecy Act which of the following transactions would require the firm to file a cash transaction report?
    1. Wire orders of more than $10,000
    2. Cash deposits of $10,000 or more
    3. Wire orders of $3,000
    4. Cash deposits of $3,000
    1. I, II
    2. I, IV
    3. II, III
    4. II, IV

Answer: "c".  The reporting requirements are $3,000 for wire orders and $10,000 for cash deposits or withdrawals. These are the cash transaction report triggering totals. The requirements for SARs reports are linked, but not exactly the same.

23. He recalled a question regarding a "pre-hearing conference" and was unsure of the subject. Note: This is a conference, under the FINRA code of procedure, that must be held within 21days of the Department of Enforcement's receipt of the respondent's answer to the complaint.

Advice for Future Exam Candidates
What would he have done differently? He would have started studying earlier doing about 50 questions each evening and would have scheduled his exam closer to the date when he completed the course.

Although Al only made a barely-passing score, he went back to his text after the exam and reviewed the subjects he had encountered. These, he wants to remember for future reference in his business.