Series 66 Ethics Drill – Key Concepts

🧾 Series 66 Ethics Drill – Key Concepts
📘 Sharpen Your Ethical Reasoning for the Series 66 Exam

The Series 66 exam places a strong emphasis on ethical conduct, fiduciary responsibility, and recognizing inappropriate practices. These topics show up across multiple questions—often framed as “What should the adviser do?” or “Which action is prohibited?”

Here’s a quick but powerful ethics drill to help you master what’s testable and critical.

🎯 1. Fiduciary vs. Suitability – Know the Standard

Series 66 = Fiduciary Standard

• You must act in the best interest of the client.
• It’s not enough that the investment is suitable—it must also be in the client’s best interest and free from conflict (or conflict must be fully disclosed).

✅ Drill:
Q: Can an IAR recommend a proprietary fund with higher fees if a lower-cost, better-performing alternative exists?
🅰 Only if the conflict is fully disclosed and the recommendation still serves the client’s best interest.

🎯 2. Fraudulent vs. Unethical vs. Dishonest

Understand these distinctions:

✅ Drill:
Q: Telling a client their money is “guaranteed” in the stock market =
🅰 Fraudulent – There are no guarantees in equity investments.

🎯 3. Consent Requirements

• Borrowing money from a client: Prohibited unless the client is a bank or affiliate
• Sharing profits/losses: Requires written consent from both the client and the firm
• Third-party trading authority: Requires written authorization

✅ Drill:
Q: Can an agent share in profits with a long-term client who verbally agrees?
🅰 No. Must be in writing and approved by the firm.

🎯 4. Conflicts of Interest – Disclosure is Key

Conflicts must be:

• Identified clearly
• Disclosed before the recommendation is made
• Managed or avoided if they compromise objectivity

✅ Drill:
Q: An IAR receives commissions for recommending certain mutual funds. Must this be disclosed?
🅰 Yes, before or at the time of the recommendation.

🎯 5. Custody and Misuse of Funds

Custody = Holding client funds or securities

• Requires notification to the administrator
• Must comply with audit, net capital, and safekeeping rules

✅ Drill:
Q: If an adviser receives pre-signed checks from a client “just in case,” does that count as custody?
🅰 Yes. Even unused access can be interpreted as custody.

🎯 6. Testimonials and Advertising Rules

• Testimonials were historically prohibited, but are now permitted if they meet new SEC rules (e.g., disclosures, no misleading statements).
• Advertisements must be:
  • Fair and balanced
  • Free of guarantees or false performance claims
  • Not include “past performance guarantees future results” language

✅ Drill:
Q: Can an adviser use a client’s review on their website?
🅰 Yes, if disclosures are made and it follows updated marketing rule standards.

🎯 7. Churning and Trading Practices

• Excessive trading to generate commissions = Churning
• Requires understanding account objectives, not just ability to trade
• Discretionary accounts need written authorization

✅ Drill:
Q: An agent makes frequent trades in a retired client’s account with no growth objective. Churning?
🅰 Yes, if the trades benefit the agent more than the client.

📋 Quick Reference: Red Flag Phrases (Unethical/Illegal)

• “You can’t lose”
• “Guaranteed returns”
• “I’ll make that decision for you” (without discretionary authority)
• “No need for disclosure”
• “It’s a secret opportunity”
• “Sign this and I’ll fill it out later”

✅ Final Ethics Quiz (Rapid Fire)

1. Is it okay to backdate a client form to speed up processing?
🅰 No – dishonest practice

2. Can an IAR act as a trustee for a client?
🅰 Only if disclosed and approved by the firm (conflict of interest)

3. Can you recommend an investment you own personally?
🅰 Yes, but disclose your ownership

4. Can an agent promise to make up a client’s loss out-of-pocket?
🅰 No – guarantees are prohibited

5. Must you disclose a disciplinary event that occurred 10 years ago?
🅰 Yes – material disciplinary history must be disclosed

🎓 Get more Series 66 ethics drills, simulations, and cheat sheets at:
👉 https://finra-exam-mastery.com

Remember: Client first, full disclosure, no shortcuts.
That’s how you pass the ethics section—and the Series 66.