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CFP PREP COURSE QUESTIONS AND ANSWERS
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CFP PREP COURSE QUESTIONS AND ANSWERS
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CFP PREP COURSE QUESTIONS AND ANSWERSNASDAQ DUTIES: Advertising regulation/investment companies. (define it) - Answers -
Another FINRA task is evaluating members' advertising and communications regarding
securities to ensure that they are fair, accurate, and not misleading. These include
advertisements for mutual funds and variable annuities in newspapers, magazines,
electronic media, and other sales literature such as direct marketing materials.
ARBITRATION - Answers -an impartial person or panel hears the issues as presented
by both parties, studies the evidence, and then decides how the issues should be
resolved. Arbitration is final and binding, subject to review by a court only on a very
limited basis.
FINRA regulates... - Answers -those involved in the sale of securities
SEC regulates... - Answers -regulates those who offer investment advice (as well as the
actual offering and sale of securities).
Any planner or broker-dealer who wishes to sell securities must register with... -
Answers -FINRA
Who would be required to register with both the SEC (or state depending upon the
amount of AUM) and FINRA? - Answers -An adviser receiving commissions from both
securities sales and fees for investment advice
FINRA's registration and licensing requirements also apply to... - Answers -registered
representatives of broker-dealers.
The registration process for REGISTERED REPRESENTATIVESS with FINRA involves
several steps: - Answers -1. Pass the Securities Industry Essentials (SIE) exam.
Introduced in 2018, the SIE exam is an introductory exam that assesses a candidate's
knowledge of basic securities industry concepts, such as types of products and their
risks, securities market structures, regulatory agencies and their functions, and
prohibited practices.
2. Associate with a broker or dealer.
3. Register with FINRA through the broker or dealer and complete a background and
information check using Form U-4.
4. Pass the appropriate FINRA Series licensing exams (explained later in this section).
5. Receive a Central Registration Depository (CRD) number and documentation for the
securities licenses held. This CRD documentation provides important background data
when an individual registers to sell securities in a state other than their state of
residence.
,6. As a FINRA licensee, complete annual continuing education requirements through
her brokers or dealers. This continuing education is known as the firm element; courses
are related to the profession and securities products. A FINRA licensee must also meet
additional continuing education requirements, known as the regulatory element, at
regular intervals. These courses cover ethics, compliance, and sales practices.
Firm Element - Answers -A type of Continuing Education required for REGISTERED
REPRESENTATIVES where courses are related to the profession and securities
products.
Regulatory Element Continuing Education - Answers -Additional Continuing Education
Requirements whose course cover ETHICS, COMPLIANCE, and SALES PRACTICES.
PROFESSOR'S NOTE: FINRA REGISTRATION - Answers -FINRA registration is
nontransferable. A registered person who leaves one member firm to join another firm
must terminate registration at the first firm on Form U-5 and reapply for registration with
the new employing member firm on Form U-4. If a person terminates the registration
with one firm, the individual must register with another firm within two years, or the
individual will be required to requalify for the license.
Licensing exams and the types of securities each license authorizes the individual to
sell (SERIES) include: - Answers -SERIES 6: This entitles the holder to sell all open-end
investment companies (mutual funds), variable annuities, variable life insurance, and
initially offered (not secondary) unit investment trusts.
Series 7. This is the broadest license and entitles the holder to sell any security,
including individual stocks and exchange-traded funds.
Series 24. Any person actively engaged in managing a member's securities or
investment banking business (e.g., supervising, soliciting, and conducting business) or
in training persons associated with the member must qualify by examination and
register with FINRA as a general securities principal. A Series 7 or Series 62
qualification is a prerequisite for this license.
Series 63. This is the Uniform Securities Agent State Law Examination. State securities
laws require individuals to pass a qualification exam to sell securities within their states.
Almost all states require individuals to pass the Series 63 exam as a condition of state
registration.
Series 65. This entitles the holder to provide investment advice to clients within the
holder's primary state of residence. Note that the CFP Board has entered into a
reciprocity agreement with many state securities departments permitting a waiver of this
examination if the individual is a CFP® certificant.
Series 66. This is the Uniform Combined State Law Examination, which combines the
Series 63 license requirements with the Series 65 license requirements. An individual
who holds this license may provide investment advice (and sell securities) to any client
in any state. Series 66 candidates must pass the Series 7 exam before they can qualify
to register for their Series 66 exam.
,SERIES 6: - Answers -his entitles the holder to sell all open-end investment companies
(mutual funds), variable annuities, variable life insurance, and initially offered (not
secondary) unit investment trusts.
SERIES 7: - Answers -This is the broadest license and entitles the holder to sell any
security, including individual stocks and exchange-traded funds.
SERIES 24: - Answers -Any person actively engaged in managing a member's
securities or investment banking business (e.g., supervising, soliciting, and conducting
business) or in training persons associated with the member must qualify by
examination and register with FINRA as a general securities principal. A Series 7 or
Series 62 qualification is a prerequisite for this license.
SERIES 63: - Answers -This is the Uniform Securities Agent State Law Examination.
State securities laws require individuals to pass a qualification exam to sell securities
within their states. Almost all states require individuals to pass the Series 63 exam as a
condition of state registration.
SERIES 65: - Answers -This entitles the holder to provide investment advice to clients
within the holder's primary state of residence. Note that the CFP Board has entered into
a reciprocity agreement with many state securities departments permitting a waiver of
this examination if the individual is a CFP® certificant.
SERIES 66: - Answers -This is the Uniform Combined State Law Examination, which
combines the Series 63 license requirements with the Series 65 license requirements.
An individual who holds this license may provide investment advice (and sell securities)
to any client in any state. Series 66 candidates must pass the Series 7 exam before
they can qualify to register for their Series 66 exam.
PROFESSOR'S NOTE: LICENSES REQUIRED FOR VARIABLE PRODUCTS -
Answers -A planner who wishes to sell variable contracts, such as variable life
insurance or variable annuities, must hold a FINRA Series 6 or Series 7 registration
(and, in most states, a Series 63 or Series 66 registration) as well as the particular
state's variable insurance license.
What is a BANK and what do they do? - Answers -It's an organization chartered by the
federal or a state government to do any of the following: Accept deposits and,
depending on the type of account, pay interest on deposits Make various types of loans
Invest customer funds in securities Honor instruments drawn on accounts Issue
cashier's checks Provide safe-deposit boxes
National banks are subject to regulation by three independent federal agencies: -
Answers -1. Office of the Comptroller of the Currency (OCC). This agency charters,
supervises, and regulates national banks and federal branches of foreign banks located
in the United States.
, 2. Federal Reserve Board. This group makes monetary policy, which is discussed in
Module 7 of this course.
3. Federal Deposit Insurance Corporation (FDIC). The FDIC insures deposits in U.S.
banks and savings and loan associations against bank failures.
Office of the Comptroller of the Currency (OCC) - Answers -This agency charters,
supervises, and regulates national banks and federal branches of foreign banks located
in the United States.
FEDERAL RESERVE BOARD - Answers -This group makes monetary policy.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) - Answers -The FDIC
insures deposits in U.S. banks and savings and loan associations against bank failures.
PROFESSOR'S NOTE: BANKS - Answers -State-chartered banks are subject to
regulation by state banking commissions or departments. Additionally, the FDIC
supervises state banks that are not members of the Federal Reserve System.
Federal Deposit Insurance Corporation (FDIC) (EXPANDED NOTES) - Answers -All
individuals are entitled to FDIC insurance for a deposit at a U.S. financial institution.
Such insurance protects deposits that are payable in the United States but not
overseas. In addition, only cash and cash-equivalent deposits (e.g., a certificate of
deposit) are covered by FDIC insurance; securities, mutual funds, and other types of
investments are not afforded such protection. Money market mutual funds offered by
investment companies (not the same as money market deposit accounts) are also
denied FDIC coverage.
The basic FDIC-insured amount of a depositor is... - Answers -$250,000
Deposits maintained in different categories of legal ownership are ___________
insured. - Answers -**SEPARATELY
Accordingly, a depositor can have more than $250,000 of FDIC insurance coverage in a
single institution if the funds are owned in different ownership categories. The most
common ownership categories are single (or individual) ownership, joint (or joint
tenancy) ownership, retirement account (e.g., IRA) ownership, and revocable trust
ownership (the $250,000 limit is per beneficiary with this type of ownership).
TEST TIP: FDIC COVERAGE LIMITS PER ACCOUNT - Answers -Be aware that
deposits maintained in different categories of legal ownership are separately insured.
Therefore, an individual may have more than the $250,000 FDIC insurance limit in a
single institution.
EXAMPLE Sherri has the following assets, some of which are on deposit at a bank:
Assets
Ownership
Savings account (Main Bank) Checking account (Main Bank)
Money market mutual fund (Main Bank Securities)
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