Wednesday, March 11, 2009

Test-Taking Strategy

You have to use whatever advantages the exam gives you. The test does not involve any fill-in-the-blank, short-answer, or essay questions. That means that you don't have to use the more difficult skill of recall. You only have to use the much easier skill of recognition. Of course, the exam can use lots of synonyms, so even recognition will fail you on some questions, which is why you have to resort to process of elimination at that point. If you don't see the word you were hoping to see among the four answer choices, you can use logic and reasoning to start eliminating the wrong answers. You might only eliminate two answer choices, but that raises your odds from 25% to 50%. And, if you only have to use this method of extreme test-taking on, say, 50 questions, you'll probably get 25 or more of them right, and that is often the difference between being among the 66% of candidates who pass the test that day and the 33% who wish they had.
Of course, we now have to apply it to a potential exam question:

Which of the following types of contractual provisions may exist between an adviser and a client?
A. waiver of compliance
B. exculpatory provision
C. performance-based compensation for certain institutional investors
D. none of the above

Wow, maybe it's the earliness of the hour, but I was just hit with a flash of recognition myself--these exams bite! No wonder some of you are a little cranky. Anyway, we still have to use the advice given above to try to gain the upper hand on this question. A "contractual provision" just means that an investment adviser has the client sign an agreement/contract that spells out what the adviser will do for the client, how much the adviser will charge, how they figure that charge, whether the adviser has discretion to place trades, etc. In that contract, can an adviser have the client sign a waiver that allows the adviser to do something that does not comply with securities rules and regulations? Probably not, right? So, we eliminate "A," waiver of compliance. What if you don't know what an "exculpatory provision" is? You might be in trouble. Or, you might be a creative and analytical thinker who says (quietly at the testing center, please), "Well, 'culpability' has to do with blame or fault. 'Ex-' means without. So the adviser has the client sign a provision that whatever happens, the adviser is without fault." No way. So, we eliminate "B," exculpatory provision. Now we either determine that "C" is okay, or we choose "D."
Careful now. Too many people feel the momentum now and jump straight to "D." We can't afford that luxury. Choice "C" is saying that it's okay to charge performance-based compensation for certain institutional investors. Is that true? Yes. Why would the test want us to know that the usual prohibition against sharing capital gains/appreciation is actually okay in some cases? It likes to see us sweat. Whatever its reasons, the answer is "C."
Exhausting, isn't it? Oh well. The Series 65 and 66 exams are just a weeding out process. They want to flunk about 33% of all test takers on any given day. Of course, many of those 33% come back in 30 days or so and join the 66% who pass. Brutal, yes. Frustrating, surely. And, as much as I've grown to hate the phrase, unfortunately, it is what it is.

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