Monday, December 7, 2009

Series 65 - Likely Test Question

A customer who recently passed his Series 65 exam reports that he saw a question similar to the following:

There is a federally covered advisor with an office in state A, who has clients in state A. He also has 3 non-institutional clients in state B and 3 non-institutional clients in state C. He has 3 more clients in state X and wants to have custody of the clients' accounts in state X. In which states does he have to register?

A. A only
B. A, B, C and X
C. A and X only
D. None, because he is federally registered

My explanation:
The answer is D because this is a federal covered adviser. They notice file in State A, where they have an office. They do NOT need to notice file in State B, State C, or State X because they aren't soliciting new business there (holding out as advisers) and have no more than 5 non-institutional clients. Even if they had more than 5 non-institutional clients in those states, they would not register there; they would only notice file there. Custody has nothing to do with this question. As a federal covered adviser, they'll meet the SEC's net capital requirements under IA Act of 1940. The only authority the states have over SEC-registered advisers is anti-fraud and notice filing authority.


  1. Hello,
    I have a question:
    I am planning on joining a company. I went for the interview and was given an offer to join or not.

    I did some research at home, and I came up with a lot of negative stuff about the company.
    I was reading about how it has some MLM or "pyramid scheme." The interviewer was even mentioning to me that later on, when I'm experienced enough, I can go out and hire other people. They do the work, and I take small portion of their a certain extent.
    Is that illegal? I thought a lot of brokerage firms have something like that.
    Do you recommend I stay away from this company?

  2. Hi, Daniel.
    I doubt you want to work for an MLM program, unless you really love to recruit people. Does the company start with a "P" or a "W" by any chance?
    Nothing illegal about over-rides. But if your livelihood depends on recruiting every bartender, mechanic, and blue jeans salesperson into your organization, I think you'll be disappointed seeing how few of them can sell, how few of them can pass the exam, and how few of them can do both.

  3. Hello,
    Yes, the company does start with a "W." I also know the "P" company.
    I didn't know much about it. I know the one before it had some problems.

    Anyways, it's tough looking for a job. Especially because of the job market. It's also the end of the year.
    Is there anything I can do with a Series 7 and 63 other than sales (cold-calling and door-to-door).
    I've applied for positions at banks, but for some reason, I doubt a Series 7/63 will do anything.

    What do you think?

  4. All financial services companies end up having some problems. The MLM is just a different business model--it's for high-energy sales types with BIG vision and drive, never wavering. I wouldn't shy away from banks--even the small branches around here have investment specialists who will talk to customers about IRA's, mutual funds, etc. Those investment people have their Series 7 or 6 and 63. What about all the big insurance companies, who also have RIAs and BD affiliates--NMFN, AllState, State Farm, Country, MetLife, etc.? I myself hate to sell and have to force myself to make ANY "dials" for my company. I just have a natural aversion to the process, but if you like to sell, you'll eventually get an opportunity. There is huge turnover in this industry--eventually, you'll get hired.