Uniform Combined State Law Examination
The Series 66 exam combines the content of the Series 63 (Uniform Securities Agent State Law) and Series 65 (Uniform Investment Adviser Law) into a single examination. It qualifies individuals to act as both securities agents and investment adviser representatives at the state level. The Series 66 requires the Series 7 as a co-requisite -- you must pass or have passed the Series 7 to have your Series 66 registration become effective. This exam is the most efficient path for professionals who need dual agent and adviser registrations.
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Content Outline
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Key Concepts
Under the Uniform Securities Act (USA), a broker-dealer is any person engaged in the business of effecting transactions in securities for the account of others or for its own account. An agent is any individual (other than a broker-dealer) who represents a broker-dealer or issuer in effecting or attempting to effect securities transactions.
An investment adviser is any person who, for compensation, engages in the business of advising others about securities. An investment adviser representative (IAR) is an individual who makes recommendations, manages accounts, or determines which recommendations should be given on behalf of an investment adviser. Understanding these definitions is critical because registration requirements and exemptions depend on how a person or entity is classified.
The state securities Administrator has broad authority to enforce state securities laws. The Administrator can issue cease and desist orders without prior notice or hearing when in the public interest. The Administrator can also deny, suspend, or revoke registrations of securities, broker-dealers, agents, investment advisers, and IARs -- but only after providing notice, opportunity for a hearing, and written findings of fact.
The Administrator can subpoena witnesses and documents, administer oaths, and apply for injunctions in court. However, the Administrator cannot impose jail sentences (only courts can do that) and cannot make rules that conflict with federal law. The Administrator's orders are subject to judicial review.
Subtopics
Key Concepts
Investment advisory contracts must be in writing and disclose the fee structure clearly. Common fee arrangements include assets under management (AUM) fees (a percentage of managed assets, typically 0.5% to 2%), hourly fees, flat fees, and performance-based fees (allowed only for qualified clients under the Investment Advisers Act).
Advisory contracts cannot include provisions that waive the adviser's fiduciary duty, assign the contract without client consent, or guarantee against loss. Contracts must specify the services to be provided, the fee amount and how it is calculated, whether the adviser has discretionary authority, and the term and termination provisions. Prepaid fees exceeding a certain threshold (typically $500 for six or more months in advance) require additional protections.
Investment advisers and their representatives are prohibited from engaging in several specific activities. Guaranteeing performance or guaranteeing against loss is always prohibited -- advisers cannot promise specific returns or assure clients they will not lose money.
Sharing in profits or losses of a client's account is prohibited unless the adviser contributes capital proportionately and obtains written consent. Commingling client funds with the adviser's own funds is prohibited. Advisers cannot engage in front running (trading for their own account ahead of client orders), use misleading advertising, or exercise discretion without proper written authorization. All material conflicts of interest must be disclosed to clients.
Study Tips for the Series 66 Exam
- Prioritize Section 2 -- it is the majority of the exam. At 55%, "Investment Advisory Practices and Ethics" covers more than half the questions. Thoroughly understand fiduciary duties, prohibited activities, disclosure requirements, and advisory contract rules.
- Master the Uniform Securities Act definitions. Many questions hinge on correctly identifying who is a broker-dealer, agent, investment adviser, or IAR. Know the exclusions and exemptions for each category cold.
- Know the Administrator's powers and limitations. Understand what the Administrator can and cannot do -- particularly that cease and desist orders can be issued without a hearing, but denials and revocations require notice and opportunity for hearing.
- Study exempt securities and transactions separately. Exempt securities (like federal covered securities and government bonds) are always exempt. Exempt transactions (like isolated non-issuer transactions) exempt the transaction, not the security itself.
- Leverage your Series 7 knowledge. Since the Series 7 is a co-requisite, use your existing knowledge of products and markets as a foundation. The Series 66 adds state law and advisory practice layers on top of that foundation.
- Pace yourself -- 1.4 minutes per question. With 110 questions in 150 minutes, time management matters. Read each question carefully, but do not spend more than two minutes on any single question. Flag and revisit difficult ones.
Practice Questions
Test your knowledge with these Series 66-style questions. Click an answer to check if you are correct.
1. Under the Uniform Securities Act, the state Administrator may issue a cease and desist order:
Correct: C. The Administrator has the authority to issue cease and desist orders without prior notice or hearing when it is in the public interest and there is reason to believe a violation has occurred or is about to occur. This is a summary action designed to provide immediate protection. Denial, suspension, or revocation of registration, however, requires notice and opportunity for hearing.
2. An investment adviser representative wants to share in the profits and losses of a client's account. Under what conditions is this permitted?
Correct: B. An IAR may share in the profits and losses of a client's account provided that the sharing is proportionate to the IAR's capital contribution and the client provides written consent. Disproportionate sharing arrangements create conflicts of interest and are prohibited.
3. Which of the following is an exempt transaction under the Uniform Securities Act?
Correct: B. An isolated non-issuer transaction (an infrequent, non-recurring transaction between private parties where the issuer does not receive proceeds) is exempt from registration under the Uniform Securities Act. This exempts the transaction but not the security itself -- antifraud provisions still apply.
4. An investment adviser with custody of client assets must:
Correct: C. Under the custody rule, investment advisers who have custody of client funds or securities must undergo an annual surprise examination conducted by an independent public accountant to verify client assets. This protects clients from potential misappropriation. The adviser must also maintain client assets with a qualified custodian and provide clients with account statements.
5. A federal covered adviser is required to do which of the following at the state level?
Correct: B. Under the National Securities Markets Improvement Act (NSMIA), federal covered advisers (those registered with the SEC, typically with $100 million or more in AUM) are not required to register with states, but they must file notice filings and pay applicable fees. States retain the authority to enforce antifraud provisions and require notice filings, but cannot impose additional registration requirements on federal covered advisers.
Related Exams
The Series 66 combines content from these exams and requires the Series 7 as a co-requisite.
General Securities Representative
Required co-requisite for the Series 66. The Series 7 qualifies you to sell a broad range of securities products and is a prerequisite for your Series 66 registration to become effective.
Uniform Investment Adviser Law
An alternative to the Series 66 if you only need investment adviser registration and do not need agent registration. Does not require the Series 7 as a co-requisite.