Practice question on the Roth IRA

Let's see if you're ready for a question based on the changes to the Roth IRA account in 2010:

An individual filing singly and earning $201,500 in 2010 is able to do which of the following?
I. make a non-deductible contribution to a new Roth IRA
II. make a maximum deductible contribution to an existing Roth IRA
III. make a maximum non-deductible contribution to an existing Roth IRA
IV. convert a Traditional IRA account to a Roth IRA after paying taxes on the account balance

A. I, III
B. III, IV
C. I, II, III
D. IV

EXPLANATION: as I wrote in another post, the only thing that changes for Roth IRAs in 2010 is that an individual who makes what the IRS considers a high income can convert a Traditional IRA to a Roth IRA after paying ordinary income tax rates on the entire balance. Can he also contribute to the Roth? No. And no one ever makes deductible contributions to a Roth IRA. The answer is . . . d

The Administrator

The Series 65 and Series 66 are obsessed with the Uniform Securities Act. You will see tons of questions about securities registration and registration/exemptions for agents, advisers, etc. You will also see challenging questions about what the Administrator can and can't do, or what he would or would not do given various made-up little scenarios. For example, the following question should look pretty similar to something you'll see on your exam:

Under the Uniform Securities Act, the Administrator may bring an action in a court of law to force an agent to
A. resign from the firm
B. retake his exam
C. return money to a client
D. none of the choices listed

EXPLANATION: the true bad boys in the business often blow off Administrative orders, which are outside the realm of criminal complaints. For example, Chrisopher Maltasanti might not become overly concerned about the New Jersey Bureau of Securities' little "cease and desist order," even if he would probably quake in his boots over an arrest warrant from the FBI. So, if somebody is thumbing his nose at the Administrator, the Administrator can bring an action in court to request that the judge help to get the person's attention. The judge, if persuaded that it's necessary and in the public interest, can then issue a court order designed to convince the person breaking the rules to comply with the Administrator's cease & desist order. The Uniform Securities Act says [verbatim] "upon a proper showing by the [Administrator] the court may enter an order of rescission, restitution or disgorgement directed to any person who has engaged in any act constituting a violation of any provision of this act, or any rule or order hereunder." The "rescission, restitution or disgorgement" tells us that the answer is "C." To illustrate how this might play out, let's say that an unregistered adviser engages in some self-dealing in which he charges clients "management fees" in order to put them into "securities" of various deadbeat companies he owns, and no disclosure is provided that he owns the companies or how much debt they've accumulated with no hope of profits, and all clients lose big money. Happens all the time, believe it or not. And when it happens, the Administrator could file a civil action asking the court to issue an order that forces the shady guy to give back his advisory fees and give the clients their original money plus interest. The fact that the guy will NEVER be granted a securities registration of ANY kind is a foregone conclusion, by the way.

Investment adviser advertising

If you have the Pass the 65 ExamCram Online Test Prep, you may be pleasantly surprised at the testing center when you see questions very similar to what you've studied. Notice how I say "very similar," which is not the same thing as "exactly the same." Yesterday I saw questions using a few terms I've never heard of, and I am simply not able to recall all four answer choices to 140 questions, many of them so long one has to scroll just to read them. And, I only saw 140 questions out of an unknown number in the test bank. I would think there are at least 5,000 questions in that test bank, but I have no way of knowing that. I do know that I've taken the 65 four times over the past 10 years or so, and I only see one or two verbatim repeats across all those trips to the testing center. Then again, I know the style the test questions come in, I know the outline, and I know how to stretch the imagination to anticipate the weird questions that could show up based on what I've seen and on what customers report through the messy process of feedback. So, it's an art form, not a science, but I really think you'll be amazed by two things at the testing center when you take your Series 65 or 66 exam:
1) many of the questions will seem very familiar and
2) many of them won't.
That's why you have to be a good test-taker. You have to use test-taking skills to minimize the mistakes that people often make on questions they really sorta' know, and to maximize the number of right answers you get on questions you really sorta' don't.

Let's enjoy a fun practice question that should look fairly similar to the stuff NASAA throws at you on the Series 65 or 66 exam:

Nancy Needlemeyer taught finance classes at a large university for 11 years and this year started a financial planning business set up as a single-member LLC. Nancy's Series 65 exam requirement is waived upon request by the Administrator, and she files Form ADV with the state promptly and makes payment through IARD. Which of the following may Nancy indicate on her advertising pieces?
A. Stated fees are non-negotiable
B. I have been certified by the Administrator to offer financial planning services in the state
C. I have 11 years in the financial services industry
D. All choices listed

EXPLANATION: if advisory fees are negotiable, that has to be disclosed, and the same is true if the fees are non-negotiable. Regulators don't certify--they accept registrations. She was not in the financial services industry--she was a college professor/instructor/what have you.


ANSWER: a

What's so hard about the Series 65?

I can only take the Series 65 about once every 2 years, so as time goes on it gets easier to start believing the claims that some customers try to sell me about how they "saw all kinds of questions they'd never seen before" and how "crazy all the test questions were." However, I just got back from the testing center myself and while there was a handful of surprise questions, I was amazed at how closely the Pass the 65 ExamCram Online Test Prep questions track the real deal. No, I did not get a 100% because NASAA can ask anything they want about the US Tax Code, and even my CPA would not have known the answers to a couple taxation questions that I saw. I'm sure I also made a few simple mistakes, just as I do when taking my own questions (I only get a 96% or 98% on my own GoNoGo exams--seriously). But question after question, I was amazed and relieved to see simple points about investment adviser registration, securities features, investment risks, Roth IRA's, etc. In fact, I'm not sure how anyone could study the full package, especially with the ExamCram Online Test Prep, and not pass that test. The only explanations for a failing grade that make any sense at this point are: 1) lack of study time, 2) massive text anxiety, or 3) a wicked combination thereof.

If you don't already have it, get the Pass the 65 ExamCram Online Test Prep and take one or both GoNoGo exams at www.passthe65.com under "Am I ready to take my exam?"

Or through publications or writings

Here's a good practice question on registration issues for investment advisers:

Diane Davis receives detailed financial information from 19 individuals residing in four states and emails financial plans to them based on the data supplied to her by email. If she charges just $189 per year for this service
A. she does not meet the definition of "investment adviser" due to the amount of compensation
B. she must register with the SEC
C. she meets the definition of "investment adviser"
D. she does not meet the definition of investment adviser because she does not meet with any clients in any of the four states

EXPLANATION: she receives compensation to provide financial plans based on specific situations. Whether she meets face-to-face or advises people "through publications or writings" is not what's relevant. The relevant point is that she gives advice specific to each client and receives compensation for doing so. Don't confuse what Diane is doing with somebody else who might be writing a newsletter on investing that goes out to paid subscribers. Diane is not writing articles--she is advising clients without having to shower or put on make-up. That's all. Also, Diane would have to be in 30+ states to claim federal eligibility. She has no assets under continuous, supervisory management, so she can't reach the $25 million threshold.



ANSWER: C

Blogging for dollars

Everyone taking the Series 66 is also already a Series 7-licensed stockbroker or will soon become one, assuming there are no felony convictions in the recent past or any misdemeanors involving fraud or other "money crimes" to report on Form U-4. Therefore, FINRA rules shape your daily business life. They are also part of the Series 65 exam, so those candidates have to know about them, even if they never get a Series 6 or 7 and become subject to FINRA's awesome powers to ruin careers or protect investors, depending on your perspective.

As I found out here at Google's "blogspot," setting up a blog is amazingly easy these days. You just give it a name, choose a template and start posting whatever it is you want to say. I'm not sure why so many blogs degenerate into rants and personal assaults on people the blogger has never and will never meet, but bashing the president of the United States is within the blogger's 1st Amendment rights. Recommending that readers purchase securities or stop by the branch office for an IRA checkup is a whole nuther thing entirely. FINRA has a notice to members (10-06) that everyone should read. Turns out, if you're an agent for, say, Morgan Stanley, Morgan Stanley has to worry about all kinds of things connected to your blog, facebook, etc. First, your static blog posts that mention anything about your firm's business or securities in general is likely considered "advertising" by FINRA, and advertising is subject to pre-approval and record retention by the firm. If you're recommending securities, FINRA's suitability rules apply. Is the variable annuity you're pushing suitable to all followers of your blog? If not, that could be a problem, especially if they buy what you're recommending and end up losing money. Facebook allows you to put up static posts, but also allows you to chat in real-time. While "extemporaneous" commentary on a website or during any public appearance does not--and cannot--be pre-approved, it does have to be monitored by compliance, a group not generally known for their sense of humor.
So, before you launch a blog or post a stock recommendation on your Facebook wall, please read the FINRA notice 10-06, and please proceed carefully, letting your compliance officers know exactly what you're up to online.

Can anyone pass the new Series 65?

In case you're wondering if anyone can pass the "new Series 65" with the new concepts added and the higher passing score, please take a look at an email I just got from a rather elated customer:

Thank you thank you thank you!! Passed the 65 with a 79 the first time. Oops. Must have studied too hard. Great author, great study materials equal great results! Yeehaa!

That score of 79 tells me a few things. First, the customer was not ready to stand up and teach a class on any aspect of the Series 65. Second, the test was REALLY HARD to study for and pass. And, three, he made it happen, anyway. In other words, when somebody gets a 92% on the Series 65, I can't take much credit for that--that person is a braniac. When someone gets a 79%, I know that they performed at a higher level than they thought possible and put in a huge amount of work. So, if you don't plan on getting a 92% on your natural abilities, I suggest you do as this customer did and work your tail off.