Series 66 Study Guide

Series 66 Exam - Mastering Investment Recommendations

Modern Portfolio Theory

As money management developed over the last century, analysts began to shift their focus from the returns available from individual investments to the returns available from an entire portfolio. This approach became known as modern portfolio theory. Modern portfolio theory is based on the concept that investors are risk adverse. Through diversification of investments and asset classes, portfolios can be constructed with higher levels of expected return for each unit of risk assumed. Asset classes are divided into three main categories, stocks, bonds, and, cash and cash equivalents. Portfolio managers, through modern portfolio theory, can construct portfolios based on various allocations over the three main asset classes whose return will be the greatest given each unit of risk.

Series 66 Exam - Mastering The Role Of The Investment Adviser

The Role of the Investment Adviser

An investment adviser charges a fee for his or her services for advising clients as to the value of securities or for making recommendations as to which securities should be purchased or sold. Unlike a broker dealer, the investment adviser has a contractual relationship with his or her clients and must always adhere to the highest standards of professional conduct.

Additional Compensation for an Investment Adviser

In addition to the fees charged by an investment adviser, an investment adviser may also:

Series 66 Exam - Understanding Broker Dealer And Agent Registration

Prior to conducting business in any state, a broker dealer must be properly registered or exempt from registration in that state. The first test when deciding if the broker dealer must register is determining if the firm has an office in the state. If the firm maintains an office within the state it must register with that state. An agent must register in their state of residence even if their firm is located in another state.

Example:
An agent who lives in New Jersey and who commutes to their office in New York must register in both New Jersey and New York.

Series 66 Exam - Understanding Laws And Regulations

Introduction

The state securities administrator has the authority to enforce all of the provisions of the Uniform Securities Act (USA) within their state. The state securities administrator may deny, revoke, or suspend the registration of a security, an agent, or a firm. The administrator may also revoke an exemption from registration, subpoena and investigate any registrant, and amend rules as required. The North American Securities Administrators Association or NASAA is the oldest investor protection organization in the country and represents the interest of all of the state securities administrators. NASAA also writes policies and administers the series 63, 65, and 66 exams.