Interviews - Dave

Location: California
Age: Mid-30s
Profession: Broker
College major: Finance

The Study Method
Dave is a securities professional who took the exam twice in the last 10 years. While making a temporary career change, his license expired, and he was forced to take the exam a second time. Consequently, he had a little bit of an advantage while studying, as he had some clue as to what to expect on the exam. Overall, he felt the experience was positive and did not study countless hours. Dave's study time was average, and his experience is one that the average securities professional should be able to identify with.

Exam Question Recall

  • Sharing gains and losses with clients. He recalls that knowing the difference between full and limited discretionary authority is a good thing to know.
     
  • Who can a broker borrow money from? The answer is no one, unless the person (a client) is specifically engaged in the regular business of lending, i.e., a mortgage banker or loan professional.
     
  • Dave remembered a question pertaining to whether a spouse of a client whose name is not listed on the account can enter orders or withdraw funds from an account while their significant other is away. The answer is no. The spouse of an account holder cannot enter an order, or withdraw money if he or she is NOT listed as a signer on an account.
     
  • Dave also recalled a question about whether an investment adviser can own a stock while issuing a report or advice concerning the equity. The answer would be no, unless there is specific disclosure of such. In addition, it would be unethical (and fraudulent) for an investment adviser to issue a report recommending buying a security, while he/she is selling the equity in his/her own account.
     
  • He recommended that prospective Series 63 candidates know terms like pegging, painting the tape and churning.

 

Look Out!
Pegging:

The practice of buying large amounts of an underlying commodity or security close to the expiration date of a derivative. This is done to encourage a favorable move in market price.
An investor writing a put option would practice pegging so that he or she will not be required, due to lowering prices, to purchase the underlying security or commodity from the option holder. The goal is to have the option expire worthless so that the premium initially received by the writer is protected.
Painting the Tape:
An illegal action by a group of market manipulators buying and/or selling a security among themselves to create artificial trading activity, which, when reported on the ticker tape, lures in unsuspecting investors as they perceive an unusual volume.
After causing a movement in the security, the manipulators hope to sell at a profit.
Churning:
An unethical practice employed by some brokers to increase their commissions by excessively trading in a client\'s account. This practice violates the NASD (now known as FINRA) Fair Practice Rules. It is also referred to as "twisting".

A period of heavy trading with few sustained price trends and little movement in stock market indexes. Another negative result for the client is being stuck with higher tax bills.

 

  • There was a question about what to do with a complaint, should a customer issue one. The answer would be an agent should immediately notify his/her compliance department, which should then expressly reply to the customer.
     
  • Dave also remembered a question regarding suitability.

Exam Tips and Tricks
The SEC defines suitability as:

When a broker recommends that a client buy or sell a particular security, that broker must have a reasonable basis for believing that the recommendation is suitable for the client. In making this assessment, the broker must consider the client\'s risk tolerance, other security holdings, financial situation (income and net worth), financial needs and investment objectives.

 

  • There could also be a question on fictitious quotes and whether they are fraudulent. The answer is yes; they are fraudulent - and also a violation of the USA.

Final Words of Advice
While Dave did not study too much for the exam (one week as he recalled), he thought it would be wise for those planning on taking the test to spend much more time preparing. He also recommended taking as many practice exams as possible.

He stated, "Going into the test confidently will help immensely ... if you find yourself sweating it before you begin, chances are you are not well prepared."

We agree Dave!

Vicki


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