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