Series 66 Quiz – Investment Recommendations and Ethics

🧾 Series 66 Quiz – Investment Recommendations and Ethics
📘 Test Your Knowledge on Fiduciary Duty, Suitability, and Client-Focused Recommendations

Understanding investment recommendations and ethics is crucial for anyone preparing for the Series 66 exam. This quiz will test your grasp of fiduciary responsibility, suitability standards, and professional conduct—all essential for success on the exam and in your advisory career.

🎯 Question 1: Fiduciary Duty

Which of the following actions best reflects a fiduciary’s obligation to a client?

A) Recommending a fund with the highest commissions
B) Selecting an investment that benefits the adviser’s employer
C) Prioritizing the client’s interests over the adviser’s own
D) Recommending an investment based solely on past performance

✅ Answer: C) Prioritizing the client’s interests over the adviser’s own

Explanation:
A fiduciary must always act in the best interest of the client, placing client needs above personal or firm interests.

🎯 Question 2: Suitability Standards

A registered investment adviser recommends a high-yield bond fund to a retired client living on a fixed income. This action is likely:

A) Suitable, since high-yield bonds pay more income
B) Unsuitable, because high-yield bonds have high risk
C) Required under fiduciary duty
D) Mandated by the SEC

✅ Answer: B) Unsuitable, because high-yield bonds have high risk

Explanation:
A retired client on a fixed income typically has a low risk tolerance. High-yield (junk) bonds carry significant credit risk and are generally not suitable unless explicitly aligned with the client’s profile.

🎯 Question 3: Conflicts of Interest

Which of the following must be disclosed to a client?

A) The adviser’s education history
B) The adviser’s personal investment gains
C) The adviser’s compensation for using certain products
D) The adviser’s marital status

✅ Answer: C) The adviser’s compensation for using certain products

Explanation:
Any conflict of interest, including compensation arrangements that may influence the adviser’s recommendations, must be fully disclosed to clients.

🎯 Question 4: Ethical Violations

Which of the following is an example of an ethical violation under the Series 66 rules?

A) Recommending municipal bonds to a tax-sensitive client
B) Sharing client information with a colleague for a joint account
C) Front-running a large client order
D) Using a third-party custodian for client funds

✅ Answer: C) Front-running a large client order

Explanation:
Front-running—executing a trade ahead of a client’s large order for personal gain—is a serious ethical violation and is strictly prohibited under state and federal regulations.

🎯 Question 5: Investment Policy Statements (IPS)

An adviser creates an IPS for a client. What is its primary purpose?

A) To define future market conditions
B) To explain the fee structure
C) To outline the client’s goals and constraints
D) To evaluate competing advisers

✅ Answer: C) To outline the client’s goals and constraints

Explanation:
An Investment Policy Statement (IPS) serves as a roadmap for managing the client’s investments, including objectives, time horizon, risk tolerance, and constraints.

🎯 Question 6: Soft Dollar Arrangements

An investment adviser receives research from a brokerage firm in exchange for directing client trades to that firm. This is known as:

A) A selling agreement
B) A fee-for-service model
C) A soft dollar arrangement
D) A wrap fee program

✅ Answer: C) A soft dollar arrangement

Explanation:
A soft dollar arrangement involves receiving non-monetary benefits (like research or analytics) in exchange for directing brokerage business. These must be disclosed to clients.

🎯 Question 7: Discretionary Authority

Before exercising discretion over a client account, an investment adviser representative must:

A) Obtain verbal approval from the client
B) File a Form ADV Part 2A
C) Receive written authorization from the client
D) Notify FINRA

✅ Answer: C) Receive written authorization from the client

Explanation:
Written authorization is required before an adviser may exercise discretion in making investment decisions on a client’s behalf.

🚀 Score Breakdown

• 6–7 Correct: ✅ Excellent – You’re well prepared on ethics and fiduciary duty.
• 4–5 Correct: ⚠️ Good, but review suitability standards and disclosure rules.
• 0–3 Correct: ❌ Needs Review – Focus on fiduciary obligations, conflicts of interest, and IPS basics.

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Sharpen your ethics knowledge and pass the Series 66 with confidence!