Series 66 Challenge Questions – Intermediate Level

🧾 Series 66 Challenge Questions – Intermediate Level
📘 Sharpen Your Skills with Scenario-Based Questions for the Real Exam

Below are 10 intermediate-level Series 66 challenge questions designed to help you bridge the gap between basic definitions and full exam difficulty. These questions test your ability to apply regulatory rules, client suitability, and fiduciary principles in realistic situations—just like the actual Series 66 exam.

✅ Instructions

• Read each scenario carefully
• Choose the best answer based on the Uniform Securities Act, NASAA rules, and ethical standards
• Answers and explanations follow at the end

🔢 Challenge Questions

1. An investment adviser representative (IAR) notices that a client has been withdrawing large sums of money unexpectedly. The client seems confused on recent calls. What should the IAR do?

A) Freeze the account immediately
B) Inform the client’s family
C) Notify a supervisor or compliance
D) Sell all risky investments in the portfolio

2. An IAR wants to recommend a limited partnership that pays a large commission to reps. It’s not suitable for most clients. What is the best course of action?

A) Recommend it to high-net-worth clients only
B) Recommend it with full disclosure of commissions
C) Only recommend it to accredited investors
D) Avoid recommending it due to a potential conflict of interest

3. Under the Uniform Securities Act, which of the following persons is excluded from the definition of investment adviser?

A) A bank that charges a fee for managing portfolios
B) A lawyer who gives investment advice as part of estate planning
C) A financial planner compensated for advice
D) A publisher offering customized investment advice to subscribers

4. A state securities administrator believes an IAR has violated the act. What is the first step before taking disciplinary action?

A) Immediate suspension
B) Cease-and-desist order without a hearing
C) Notification and opportunity for a hearing
D) Civil lawsuit

5. A broker-dealer executes a trade in its own inventory account and charges a commission. This is:

A) A prohibited practice
B) A riskless principal trade
C) A markup transaction
D) Misleading unless properly disclosed

6. A client who is subject to AMT wants to invest in municipal bonds. Which of the following should the IAR be most concerned about?

A) State tax exemptions
B) Liquidity
C) Call protection
D) Private activity bonds

7. Which of the following is NOT considered unethical under NASAA rules?

A) Borrowing money from a long-time client who is a bank officer
B) Guaranteeing a client will not lose money
C) Failing to disclose a conflict of interest in writing
D) Recommending the same portfolio to every client

8. A federal covered adviser has offices in three states and clients in ten. How many states can require state registration?

A) One
B) None
C) All three where offices exist
D) All ten

9. An investment adviser’s brochure (ADV Part 2A) must be provided:

A) Within 10 days after the contract is signed
B) Prior to or at the time of entering the contract
C) Only if the client requests it
D) Annually to all clients regardless of changes

10. Which of the following clients may be charged performance-based fees?

A) A client with $500,000 in AUM
B) A trust with $2 million in assets
C) A corporate account with $1 million in investments
D) A couple with $2.5 million in net worth, excluding primary residence

🧠 Answer Key & Explanations

1. ✅ C – Always escalate suspicious or concerning client behavior to compliance. You cannot act unilaterally.
2. ✅ D – Even if disclosed, unsuitable recommendations tied to high commissions create a conflict and should be avoided.
3. ✅ B – Lawyers offering advice as part of their profession are excluded if advice is incidental.
4. ✅ C – Due process under the Act requires notification and an opportunity for a hearing.
5. ✅ D – Trading from inventory and charging a commission is misleading unless disclosed. It should be either a markup (principal) or commission (agency), not both.
6. ✅ D – Private activity bonds may lose tax exemption under AMT rules.
7. ✅ A – Borrowing from a client who is in the business of lending (like a bank officer) may be allowed with written approval.
8. ✅ B – Federal covered advisers are exempt from state registration, but states can require notice filings in states where offices exist.
9. ✅ B – Brochure delivery is required prior to or at the time of entering into an advisory contract.
10. ✅ D – Only qualified clients (over $1M AUM or $2.2M net worth excluding primary residence) may be charged performance fees.

📊 Scoring Guide

• 9–10 Correct: You’re exam-ready – excellent grasp of nuance and rule application.
• 7–8 Correct: Solid understanding, just refine ethics and registration edge cases.
• 5–6 Correct: Revisit core areas like brochure rules, suitability, and NASAA ethics.
• Below 5: Focus on mastering Uniform Securities Act concepts and IAR obligations.

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