The Series 65 test, also known as the Uniform Investment Adviser Law Examination, is a challenging and comprehensive assessment for men and women who want to enter this exciting and rapidly growing field of finance. This exam consists of 130 questions, 10 of which do not contribute to the final score but are pretest questions, used to develop future versions of the exam. The exam must be completed within 180 minutes.
The standards for the Series 65 test are high. In order to pass, candidates must answer at least 72 percent of the questions correctly. Scores are available immediately after completion of the exam.
The Series 65 test has four main content areas:
- The economic factors and business information content area (19 items, 14 percent of the test) covers basic economic concepts, financial reporting, quantitative methods, and types of risk.
- The section on investment vehicle characteristics (31 items, 24 percent) addresses cash and cash equivalents, fixed income securities, the methods used to determine the value of fixed income securities, equity securities, the methods used to determine the value of equity securities, pooled investments, methods used to determine the value of pooled investments, derivative securities, alternative investments, and insurance-based products.
- The Series 65 test content area on client investment recommendations and strategies (40 items, 31 percent) covers types of clients, client profiles, capital market theory, portfolio management styles and strategies, portfolio management techniques, tax considerations, retirement plans, ERISA issues, special types of accounts, trading securities, and performance measurements.
The laws, regulations, and guidelines section, including Prohibition on Unethical Business Practices (40 items, 3 percent), reviews state and federal securities acts and related rules and regulations, and ethical practices and fiduciary obligations.
Series 65 Test Practice Questions
1. How does a change in the money supply affect the prime interest rate?
a. An increase in the money supply leads to an increase in the prime interest rate
b. A decrease in the money supply leads to a decrease in the prime interest rate
c. An increase in the money supply leads to a decrease in the prime interest rate
d. The money supply does not affect the prime interest rate
2. Which statistic is considered a leading indicator of economic activity?
a. Average number of weekly claims for unemployment compensation
b. Average duration of unemployment
c. Level of industrial production
d. Level of personal income
3. Which accounting method shows higher profits during times of inflation?
a. Last-in, first-out
b. Cash basis
c. Accrual accounting
d. First-in, first-out
4. Which piece of documentation is NOT required when forming a limited partnership?
a. Signed subscription agreement
b. Appointment of trustee
c. Certificate of Limited Partnership
d. Partnership agreement
5. An individual can ensure control over the assets in a trust during his lifetime by…
a. putting assets in a simple trust
b. establishing a living trust
c. establishing a revocable trust
d. creating a testamentary trust
1. C: An increase in the money supply leads to a decrease in the prime interest rate. The prime interest rate is the rate commercial banks charge for unsecured loans to their most credit-worthy customers. It’s based on the Federal Funds (or Discount) Rate, which is the interest rate charged by the New York Federal Reserve Bank for short-term loans to member banks. The federal government uses the Federal Funds Rate to regulate the money supply. When the money supply increases due to an increase in the Federal Funds Rate, the prime interest rate goes down. When the money supply is reduced, the prime interest rate increases.
2. A: Average number of weekly claims for unemployment compensation. Leading economic indicators help investors gauge the general health of the economy, and include claims for unemployment compensation as well as the Gross Domestic Product, indices such as the Consumer Price Index, Producer Price Index, Consumer Confidence Index and other macro-economic statistics. They generally show either a decrease in activity before a recession or an increase in activity after expansion. Lagging indicators, such as the average duration of unemployment or the prime rate, reflect that a change in the economic cycle has occurred. Current indicators, such as levels of industrial production or personal income, measure current changes in the business cycle.
3. D: First-in, first-out. During times of inflation, using the first-in, first-out (FIFO) method provides the lowest inventory cost, which shows a higher profit. With FIFO, the cost of goods sold is determined by the items which have been in inventory the longest. Conversely, the last-in, first-out (LIFO) method uses the newest inventory items to determine the cost of goods sold. In an economy with higher inflation, the cost of goods sold would be higher, and profits lower. Using cash basis accounting, transactions are entered when payment is received, or made. In accrual accounting, transactions are entered when the transaction occurs, and not necessarily when payment occurs.
4. B: Appointment of trustee. Limited partnerships have a general partner(s), often responsible for managing the activities of the partnership, and limited partners, who are essentially investors who share in the profits and losses of the partnership. A limited partnership requires a partnership agreement signed by the general partners, a certificate of limited partnership filed with the state in which the partnership does business, and a subscription agreement signed by each of the limited partners. A trustee is not necessary in the formation of a limited partnership.
5. B: Establishing a living trust. A living trust places a person’s assets into a trust while he is alive, with that person (the trustee) maintaining control over the assets until they die. The living trust allows a successor trustee to then carry out the trustee’s wishes. A testamentary trust, or will trust, is established after the death of the person per instructions in a will. A simple trust is a trust that distributes earned income in the year it is earned. A revocable trust gives the person who creates the trust the right to revoke the trust. Living trusts can be established as revocable living trusts.