Series 66 Exam Episode 3 Client/Customer Investment Recommendations and Strategies

Thirty questions in every Series 66 examination (30%) will test principles governing investment recommendations and investment strategies. These thirty questions will cover the following eleven components: (1) Type of Client/Customer o Individual, natural person, sole proprietorship o Business entities (e.g., general partnership, limited partnership, limited liability company, corporations (both C and S)) o Trusts and estates o Foundations and charities (2) Client/Customer Profile o Financial goals and objectives o Current and future financial situation (e.g., cash flow, balance sheet, existing investments, tax situation, social security and pensions) o Risk tolerance o Nonfinancial investment considerations (e.g., values, attitudes, experience, demographics, life events, behavioral finance) o Client data gathering (e.g., client identification, questionnaires, interviews) o Time horizon (3) Capital Market Theory o Investment theories, models, and hypotheses (e.g., capital asset pricing model, modern portfolio theory, efficient market hypothesis) (4) Portfolio Management Strategies, Styles and Techniques o Strategies (e.g., strategic asset allocation, tactical asset allocation) o Styles (e.g., active, passive, growth, value, income, capital appreciation) o Techniques (e.g., diversification, sector rotation, dollar-cost averaging, puts, calls, leveraging, volatility management) (5) Tax Considerations o Income tax fundamentals, individual (e.g., capital gains, qualified dividends, tax basis, marginal tax bracket, alternative minimum tax, pension and retirement plan distributions, government benefit implications) o Income tax fundamentals, corporations, trusts, and passthrough entities o Wealth transfer, Estate tax and gift tax fundamentals (6) Retirement Plans o Individual retirement accounts (e.g., traditional, Roth) o Solo 401(k) (e.g., traditional, Roth) o Qualified retirement plans (e.g., 401(k) plans, 403(b) plans) Page 11 o Nonqualified retirement plans (e.g., deferred-compensation plans, 457 plans, executive bonus plans) (7) Employee Retirement Income Security Act (“ERISA”) Issues o Fiduciary issues (e.g., investment choices, ERISA § 404(c)) o Investment policy statement o Prohibited transactions (8) Special Types of Accounts o Education related (e.g., 529 plans, Coverdell accounts) o Uniform Transfers to Minors Act (“UTMA”) and Uniform Gifts to Minors Act (“UGMA”) o Health savings accounts, flexible spending accounts (9) Ownership and Estate Planning Techniques o Methods of ownership transfer (e.g., joint tenants with rights of survivorship, tenants in common, tenancy by the entirety) o Pay on death and transfer on death o Beneficiary designation o Trusts and wills o Qualified domestic relations order o Donor advised funds (10) Trading Securities o Terminology (e.g., bids, offers, quotes, market orders, limit or stop orders, short sales, cash accounts, margin accounts, principal or agency trades, payment for order flow) o Roles of broker-dealers, custodians, market makers, and exchanges o Costs of trading securities (e.g., commissions, markups, bid/ask spread, best execution) (11) Portfolio Performance Measures o Returns (e.g., risk-adjusted, time-weighted, dollar-weighted, annualized, total, holding period, internal rate of return, expected, inflation-adjusted, after tax) o Current yield o Relevant benchmarks