Series 66 – Uniform Combined State Law Exam Professional Development & Standards 2

Question 1

An agent places frequent trades in a client's discretionary account, mainly to generate commissions and with little regard for the client's objectives. This is best described as:

Accepted Answer

Churning

Answer

Churning is excessive trading in a customer's account to generate commissions, judged by the trading's size and frequency relative to the client's objectives.

Question 2

Which of the following is considered a dishonest or unethical practice for an investment adviser?

Accepted Answer

Recommending a security without reasonable grounds to believe it is suitable

Answer

Recommending securities without a reasonable basis for suitability violates the standards in the NASAA unethical practices rules.

Question 3

An agent learns of a large customer buy order and buys the same stock for their own account first. This practice is called:

Accepted Answer

Front running

Answer

Trading ahead of a customer order to benefit from the expected price move is front running, a prohibited practice.

Question 4

Which statement to a client is prohibited?

Accepted Answer

"I guarantee you will not lose money on this investment."

Answer

Guaranteeing a client against loss or promising a specific result is a prohibited and misleading practice.

Question 5

An agent may share in the profits or losses of a customer's account only if:

Accepted Answer

The agent's share is proportional to their financial contribution, with written authorization from the firm and the customer

Answer

Profit/loss sharing requires prior written approval by firm and customer, and the agent's share must be proportional to their capital contribution.

Series 66 – Uniform Combined State Law Exam Practice Test

Series 66 – Uniform Combined State Law Exam Practice Test

Series 66 – Uniform Combined State Law Exam Professional Development & Standards 2