Wednesday, March 3, 2010

The WRONG way to approach test questions

If you don't have our ExamCram Online Test prep for the Series 65 or 66, get it. Be sure to work the Power Quizzes, too, which is where the newest questions show up first. As you work through practice questions, try to avoid a common tendency that I just noticed again this morning. First, let's look at the practice question my customer is determined to get wrong:

Which of the following investments is exempt from the anti-fraud provisions of the Uniform Securities Act?
A. Treasury note
B. Federal covered security
C. Whole life insurance
D. None of the choices listed

My customer is convinced that "nothing is ever exempt from the anti-fraud provisions of the Uniform Securities Act." And that is almost true. However, if the thing in question is not a security, then it IS exempt from everything contained in the Uniform SECURITIES Act. Is whole life insurance (or a fixed annuity) a "security"? No. So whole life insurance/fixed annuities are exempt from the anti-fraud provisions of the Uniform SECURITIES Act. A T-note and a federal covered security are still securities, so even though they don't have to be registered, the people who sell them are subject to anti-fraud rules. Mislead me when selling IBM or a T-note, and you are subject to anti-fraud rules.
Why didn't my customer just pick "C"? Because he doesn't want to cooperate with the question. Rather than play along, he decided that whole life insurance is not an investment; therefore, the answer is D.
Hmm. If the question says "which of the following investments . . . " you can safely assume that it's not an arguable point whether all choices are investments--they are. Even if you wanted to make the argument, how could you? Where do you find the definition of "an investment" in any of the securities laws you've had to study? Is a fixed annuity an investment? I think so. Is it a security? No. Is a house a security? No. Is it an investment? Many people would say that it is.
But, why are you arguing? There is no one at the testing center with whom you can argue. You have to play along with the questions, or come back and try it again in 30 days.


  1. so is the answer c or is it d?

  2. C. Whole life insurance, like a fixed annuity, is not a security, so it's not covered by the Uniform Securities Act. All SECURITIES are subject to anti-fraud rules under the Uniform Securities Act. The exam is likely to be this tricky on several questions. Thanks.