Series 66 Exam Simulation – Advanced Scenarios

🧾 Series 66 Exam Simulation – Advanced Scenarios
📘 Challenge Yourself with Complex, Exam-Style Case Questions

The Series 66 exam tests your ability to apply state securities law and investment adviser principles in real-world settings. Below is a simulation with 6 advanced-level questions. These scenarios are designed to mirror the format, complexity, and reasoning you’ll need to master for the real exam.

🎯 1. Investment Adviser Fiduciary Conflict

Scenario:
Maria is a newly licensed investment adviser representative (IAR) at a boutique advisory firm. She receives an offer from a mutual fund company to cover her travel expenses to an industry conference, in exchange for promoting their fund to her clients.

Question:
Which of the following best describes how Maria should proceed?

A) Accept the offer and disclose the conflict after recommending the fund.
B) Accept the offer only if the fund is suitable for her clients.
C) Decline the offer or fully disclose the potential conflict to clients before making any recommendation.
D) Accept the offer as long as the advisory firm signs off on the arrangement.

✅ Answer: C) Decline the offer or fully disclose the potential conflict to clients before making any recommendation.

Explanation:
Advisers must avoid or fully disclose conflicts of interest. Accepting benefits tied to specific recommendations without disclosure is a breach of fiduciary duty.

🎯 2. Uniform Securities Act – Registration Exemption

Scenario:
A California-based adviser with $85 million AUM has no physical office in Texas. They have 6 individual clients in Texas, all of whom they advise remotely.

Question:
Under the Uniform Securities Act, what must the adviser do?

A) Register federally only
B) Register in Texas
C) Rely on the de minimis exemption
D) Register in both California and Texas

✅ Answer: B) Register in Texas

Explanation:
The de minimis exemption allows up to 5 non-institutional clients in a state without registration. Once the adviser has 6 or more, state registration is required unless another exemption applies.

🎯 3. Suitability and Portfolio Management

Scenario:
A retired couple with a low risk tolerance and a need for regular income is advised to invest 60% in growth stocks, 20% in small-cap funds, and 20% in international equities.

Question:
Which of the following is the most appropriate regulatory classification of this recommendation?

A) Aggressive growth
B) Balanced and income-focused
C) Suitable for risk-averse investors
D) Unsuitable and a potential breach of fiduciary duty

✅ Answer: D) Unsuitable and a potential breach of fiduciary duty

Explanation:
The portfolio is overly aggressive for clients with low risk tolerance and income needs. Recommending such a portfolio may be deemed unsuitable and could violate fiduciary obligations.

🎯 4. Misrepresentation and Fraud

Scenario:
An IAR tells a prospective client, “This municipal bond is guaranteed to never lose value, and you’ll always get your principal back, no matter what.”

Question:
Which of the following best characterizes the IAR’s statement?

A) Sales puffery
B) Permissible if the bond is AAA-rated
C) Fraudulent misrepresentation
D) Suitable communication under the Uniform Securities Act

✅ Answer: C) Fraudulent misrepresentation

Explanation:
Claims of guaranteed safety or no risk are considered fraudulent unless backed by an actual guarantee (e.g., U.S. Treasury). Municipal bonds carry market and credit risk and are not guaranteed in this way.

🎯 5. Advisory Fees and Performance-Based Compensation

Scenario:
A client has $2.5 million in net worth and requests a performance-based fee structure tied to how well their portfolio performs relative to the S&P 500.

Question:
Which of the following is TRUE under current regulations?

A) Performance-based fees are always prohibited.
B) The adviser may offer this fee structure to this client.
C) Only institutional clients may receive performance-based fee arrangements.
D) The adviser must request SEC permission before offering this structure.

✅ Answer: B) The adviser may offer this fee structure to this client.

Explanation:
Clients with $1M+ in AUM or $2.1M+ in net worth are considered qualified clients under the Investment Advisers Act and can be charged performance-based fees.

🎯 6. Custody Rules and Safeguards

Scenario:
An adviser deducts quarterly advisory fees directly from client accounts and also maintains physical custody of client stock certificates in a locked file cabinet in their office.

Question:
What is the adviser’s regulatory obligation under NASAA rules?

A) No custody exists; no action is needed.
B) Adviser must register with FINRA.
C) Adviser must maintain net capital of $100,000 and notify the administrator of custody.
D) Adviser must obtain client consent before every fee deduction.

✅ Answer: C) Adviser must maintain net capital of $100,000 and notify the administrator of custody.

Explanation:
Under NASAA Model Rule, custody includes holding client funds or securities. The adviser must notify the administrator, meet financial requirements (like $100K net capital), and undergo surprise audits.

🚀 Final Tips for Advanced Series 66 Questions

• Always ask: Is this action in the best interest of the client?
• Know your fiduciary duties, conflict disclosures, and registration thresholds cold.
• Master the Uniform Securities Act, especially its exemptions and antifraud provisions.

🎓 Want full-length Series 66 simulations?
Access complete exam prep, case questions, and video tutorials at
👉 https://finra-exam-mastery.com

You’re ready for the advanced scenarios — now master them under pressure!