DEFINITION of 'Series 6'
Series 6 is a securities license entitling the holder to register as a limited representative and sell mutual funds, variable annuities and insurance premiums. Holders of the Series 6 license are not permitted to sell corporate or municipal securities, direct participation programs and options.
BREAKING DOWN 'Series 6'
In order to obtain the Series 6 license, candidates must pass the Investment Company/Variable Contracts Products Limited Representative (Series 6) exam. The Series 6 exam is administered by the Financial Industry Regulatory Authority (FINRA) (formerly the National Association of Securities Dealers (NASD)), and covers topics on mutual funds, variable annuities, securities and tax regulations, retirement plans and insurance products. A passing grade is achieved by correctly answering at least 70 of 100 questions correctly within two hours and 15 minutes.
Candidates must be sponsored by a member of FINRA or a self-regulatory organization (SRO) in order to write the exam. Upon receiving a passing grade, candidates must then register with FINRA through their sponsoring firms in order to transact authorized securities.
As outlined by FINRA in 2015, the Series 6 exam covers four specific sections:
- Regulatory fundamentals and business development
- Ability to evaluate customers’ financial information and identify investment objectives and recommendations
- Ability to open, maintain, transfer and close accounts and retains appropriate account records
- Ability to obtain, verify, and confirm customer purchase and sale instructions
The test costs $100, and if not passed, must wait 30 days before starting again.
The test follows a ‘bell curve’ shape in difficulty, starting out relatively simple, becoming difficult in the middle, and then progressively getting easier again.
Series 6 Functions Explained
Section 1 requires the examinee to have knowledge of the following:
- General industry regulations, including SEC, SRO, and state requirements
- Registration, qualification, continuing education, and termination of employment of associated persons
- Permitted activities for registered and non-registered associated persons
- Product definitions and classifications
- Required approvals and content standards of public communications: retail communications, institutional communications, correspondence, research reports, telephone solicitations
- Appropriate use of professional designations
- Content and delivery of prospectuses, Statement of Additional Information (SAI), and other offering documents
- Networking arrangements
- Regulations related to marketing and prospecting
- Initial privacy disclosures to customers
- Definitions of retail communications, institutional communications and correspondence, including categorization of public appearances, seminars and related sales literature and advertising
- Regulations regarding communications with the public
- Standards and approval of communications
Section 2 requires the examinee to have knowledge of the following:
- Essential facts regarding customers and customer relationships
- The financial and personal profiles of customers inlcuding age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance
- Reasonable-basis suitability, customer-specific suitability and quantitative suitability
- Investment profile and strategies
- Types of investment returns, for example, dividends, capital gains, return of capital
- Securities markets, including exchange markets, over-the-counter (OTC)/negotiated markets and new issue markets
- Fair dealings with customers and appropriate business conduct
- FINRA’s cash and non-cash compensation regulations
- Insider trading and prohibited activities
- Capitalization, pricing, secondary market trading, and redeemability
- Other investment types, including but not limited to: Exchange Traded Funds (ETFs) and hedge funds
- Variable annuities, deferred variable annuities and variable life insurance policies
- Tax considerations
- Definitions, characteristics, and concepts of products, types of accounts, and plans
- Price and yield terms, for example, bid, ask, NAV, premium and par
- Investment risk factors for credit, currency, inflation, interest rates, liquidity, market risk, social and political risk, reinvestment and market timing
- Concept of risk/reward and the effects of diversification
- Types of investment strategies
Section 3 requires the examinee to have knowledge of the following:
- Account registration types, for example JTWROS and UGMA
- Distribution elections
- Customer screening like the Customer Identification Program (CIP) and determining whether a customer is an associated person of another broker-dealer
- Account authorizations and legal documents including power of attorney, authorized account user, discretionary accounts, Transfer on Death (TOD), beneficiary forms
- Customer account record maintenance
- Transferring customer accounts between broker-dealers
- Account registration changes and internal transfers
- Delivery of annual reports and notices of corporate actions, for example, proxy statements
- Anti-Money Laundering (AML) compliance procedures, program, and reporting
- Circumstances for notifying FinCEN or refusing or restricting activity in an account and/or closing accounts
Section 4 requires the examinee to have knowledge of the following:
- Customer complaint procedures
- Arbitration procedures
- Investigations and sanctions
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