The Series 6 is a tough exam, especially for those who find it is their first introduction to the world of securities. In this article, we'll give you six additional easy tips on how to approach the information and proven techniques for studying for and taking the test. Let's get started!
Tip #1: Remember that 70% is the passing grade for the Series 6 exam. If a candidate focuses his or her preparation energies on the portions of the test that will have the greatest number of questions, the odds are much greater of a first-time pass.
The questions on the exam are randomly selected for subject matter to meet the percentages prescribed in the Financial Industry Regulatory Authority (FINRA) outline. There is no subject-matter pattern. The questions are however, selected for each person by level of difficulty. The first questions are those that have been statistically shown to be less difficult and that most candidates got right. The questions then become more difficult until midway through the test, when the level of difficulty drops steadily until the final question. Illustrated graphically, this would be a classic "bell curve," with the smallest portion of the questions – the most difficult questions – at the top of the curve.
Tip #2: If a person gets all the easy and moderate questions right, they will pass. Read each question and all the answers thoroughly before making a decision. Don't rush to select the first answer that "looks" right. For example, consider the following question and answers:
Question 1: Under 2013, what is the maximum allowable contribution for an individual into an Individual Retirement Account (IRA) per year?
D. 100% of earned income to a maximum of $5,500.
Explanation: If a person answering the question didn't read all the answers, then they probably missed the question. In the year this article was written the limits were $5,500, but it will change from year to year so you should familiarize yourself with the most recent contribution limits. Choice B is wrong because the question doesn't provide an age. Only if the question had stipulated that the individual was over 50 would choice B have been correct. Do not read anything into the questions! Choice C is incorrect for similar reasons. There is no mention in the question of a spousal IRA. D is the correct answer, but a candidate who didn't read that far would have missed this question.
Tip #3: While studying for the exam, approach material as if you had been given the task of writing a test question on each subject. Using this approach to study will focus your attention on the essential information and help to prepare you for the questions you'll confront.
Consider the following bit of information: Under the Investment Company Act of 1940, there are three classifications of investment companies: Face Amount Certificate Companies, Unit Investment Trusts and Management Investment Companies.
Notice that there are three classifications of investment companies, and recall that the Series 6 exam always has four choices for each question, but the structure of the question could be in the A, B, C, D format, or in the Roman Numeral (I, II, II, IV) format. Let's try a couple of questions.
Question 2: Under the Investment Company Act of 1940, which of the following are classifications of investment companies?
I. Face Amount Certificate Companies
II. Insurance Companies
III. Unit Investment Trusts
IV. Management Investment Companies
A. I, II, III and IV
B. II, III and IV
C. I, III and IV
D. III and IV
Explanation: The answer is C, but the point of the exercise is to recognize how material such as this can be structured in a question. By the way, questions very much like this one, on this subject, have frequently been reported from the actual exam.
If we took the same information about the three classifications of investment companies and put it in another format, it could look like this:
Question 3: All of the following are classifications of investment companies under the Investment Company Act of 1940, except:
A. Face Amount Certificate Companies
B. Insurance Companies
C. Unit Investment Trusts
D. Management Investment Companies
A little practice with this study technique will pay great dividends.
Tip #4: Don't spend too much of your preparation time memorizing formulas. Most people who take the Series 6 report one to three questions requiring the use of a calculator, so there are certainly a few math questions in the test. (The testing center will loan you a calculator for use in the exam, along with pencils and scratch paper.) It is tempting for many students to spend a great amount of their energy and preparation time in memorizing formulas, but don't be one of them. Recognize concepts instead. Work through the essential formulas in your practice questions so that you'll understand the concept. Memorization should not be your primary study technique.
From interviews with those who have taken the exam, the following formulas are those most frequently reported as requiring the use of a calculator:
Hint: Municipal bonds tend to be attractive to those in the higher tax brackets. One of the professions that is associated with higher tax brackets is the medical profession. To remember which formula to use, ask the doctor – the MD, that is. When the question provides the municipal yield: Divide (Municipal Divide). Obviously, if the question doesn't provide the municipal yield, one doesn't divide, one multiplies.
Many people report that the questions regarding mutual fund pricing are "word" questions rather than math questions. An example of this is:
Question 4: A Registered Representative explains to a customer that the net asset value (NAV) of a mutual fund is $21.85/share and the ask price is $23./share, which means that the sales charge is 5%. The customer is confused and asks how this is computed. The RR should respond that:
A. The sales charge is calculated as a percentage of the NAV.
B. The sales charge is the reciprocal of the NAV.
C. The sales charge is calculated as a percentage of the ask.
D. The sales charge depends on the demand in the marketplace.
Explanation: Yes, the sales charge is calculated as a percentage of the ask price. But this also gives us an opportunity to illustrate another test-taking technique. When two of the answers for an A, B,C, D question are exactly opposite, you can generally eliminate the others. In this instance, we could have immediately eliminated choices B and D. Then, of course, one must recognize the formula.
Tip #5: Use the "true or false" method in the process of elimination. When confronted by a Roman numeral (I, II, III, IV etc.) question, your first step should be the process of elimination. Try each numbered response by asking "true or false?"
When you discover an answer that a response cannot be part of the right answer, look at the A, B, C, D choices. If the "wrong" answer is in one of the lettered choices, eliminate that choice. Often you'll find that you can eliminate two choices!
Then, compare the remaining choices to determine whether they are both correct. In most cases, they will be. Those who write the exam use the Roman numeral format when they want the candidate to find more than one choice. For example:
Question 5: Which of the following is included in computing the expense ratio for a mutual fund?
I. Advertising and Sales Literature Expenses
II. Investment Advisor's Fees
III. Custodian's Fees
IV. Transfer Agent Fees
A. I, II and III
B. II, III and IV
C. I, II and IV
D. II and IV
Explanation: Advertising and sales literature are not included in the computation of a fund's expense ratio. These expenses are paid by the underwriter, which receives part of the sales charge.
Now, using the tip: If you just knew one item, that the underwriter pays for all distribution expenses, you'd have immediately eliminated choices A and C, because Roman I is in both of those choices. In this case, you'd also need to know that the other three items are definitely a part of a fund's expense ratio calculation, but you'd have only have had to say "false" to Roman I to eliminate two possible choices.
Tip #6: In case of emergency, break glass! This tip is only for use if you encounter a question and are forced to guess. If the question is a Roman numeral question and all four responses seem to be correct, if all four choices are one of the available answers, choose that response. If the question is in the A, B, C, D format and the answer "all the above" appears, and you're forced to guess, pick "all the above." Interviews with people who've taken the test successfully indicate that these tactics work well when questions are on the subject of rules.
A few words on scheduling your test:
- If you are taking a class, give yourself two or three days after the class before sitting for the exam. Use this time to do as many questions as possible.
- Don't schedule any other tests on the same day. Many people are required to take the Series 6 and the Series 63. Give yourself every opportunity to pass both of these. The study methods are very different. Take a couple of days after the Series 6 to sit for the Series 63.