Are flashcards effective for the Series 66 exam?

Yes. Flashcards use active recall — retrieving an answer from memory — which research shows is one of the most effective ways to make information stick, especially in short sessions over several days.

What topics do the Series 66 flashcards cover?

All four NASAA content areas: economic factors and business information; investment vehicle characteristics; client investment recommendations and strategies; and laws, regulations, and guidelines, including the prohibition on unethical business practices.

How should I study with these flashcards?

Mix the modes: flip to learn, type to test recall, match for speed, and quiz to check yourself. Spend the most time on the law and client strategies sections — together they are 75% of the exam.

Do I need the Series 7 to use these flashcards?

No — the flashcards are free for anyone. Note that to obtain a license through the Series 66 you must also pass the Series 7; the two are corequisites, but either exam can be taken first.

Are the Series 66 flashcards free?

Yes — 100% free, all four study modes, no paywall and no sign-up.

What standard does an IA/IAR owe clients?

A fiduciary duty of full and fair disclosure — act in the client's best interest and disclose (and where possible eliminate) all material conflicts of interest.

What three statutes underpin Series 66 Section IV?

The Uniform Securities Act (USA), the Investment Advisers Act of 1940, and NSMIA. Section IV is ~45% of the exam and the top failure-driver.

IA vs. BD vs. IAR vs. agent: which are firms?

An Investment Adviser (IA) and a Broker-Dealer (BD) are firms (entities). An IAR and an agent are the natural persons who work for them.

What is the ABC test for IA status?

You're an IA only if all three prongs are met: you give Advice on securities, you are in the Business of doing so, and you receive Compensation. Drop any prong and you're excluded.

What does the LATE exclusion cover?

Lawyers, Accountants, Teachers, and Engineers are excluded from IA status, but only while advice is incidental and not separately compensated. The exclusion vanishes if they charge a fee for the advice itself.

What standard governs a BD/agent?

Suitability and the SEC's Regulation Best Interest (Reg BI), a best-interest standard at the point of recommendation. Reg BI is NOT the same as fiduciary duty.

Is Reg BI the same as fiduciary duty?

No. Reg BI is a best-interest standard for BDs/agents at recommendation; fiduciary duty (IA/IAR) is broader, requiring ongoing full and fair disclosure of all conflicts.

How does an IAR register?

An IAR is a natural person who registers with the state via Form U4. Agents (RRs) also register via Form U4 at the state level.

Under NSMIA, who regulates an adviser — SEC or state?

One or the other, never both for registration; AUM decides which. NSMIA split adviser oversight between the SEC and the states and created federal-covered securities.

What is the AUM buffer band for IA registration?

90/100/110: SEC-eligible at $100M, mandatory SEC registration at $110M, and must drop to state registration only if AUM falls below $90M. The $100M-$110M band is the adviser's choice.

At what AUM must an adviser register with the SEC?

Mandatory SEC (federal-covered) registration is required once AUM reaches $110M. Between $100M and $110M, the adviser may choose SEC or state.

When must an SEC-registered adviser drop to state?

Only when AUM falls below $90M. The $90M floor gives a buffer so advisers near $100M don't bounce between regulators.

Does a federal-covered adviser owe the state anything?

Yes — it files a notice filing and pays a fee in states where it does business. A trap answer says it owes the state nothing; the state keeps anti-fraud and notice-filing authority.

What is the de minimis exemption?

An IA/IAR is exempt from state registration if it has five or fewer retail clients in 12 months AND no place of business in that state. It applies to advisers only.

Does de minimis apply to BDs and agents?

No. There is no de minimis for BDs or agents — even one retail client triggers registration. It is an adviser-only exemption.

What is the Howey test?

A four-part test for a security: an investment of money in a common enterprise with an expectation of profit from the efforts of others. Per the 2023 outline it reaches digital assets/crypto.

Are variable annuities securities?

Yes — variable annuities and variable life are securities (their value depends on a separate account). Fixed annuities and whole life are NOT securities.

Are fixed annuities securities under Series 66?

No. Fixed annuities and whole life insurance are not securities. Only variable annuities and variable life qualify (Howey-style investment risk).

Exempt security vs. exempt transaction?

An exempt security is exempt because of WHAT IT IS; an exempt transaction is exempt because of HOW or BY WHOM it is sold. Decide the security first, then the transaction.

Exclusion vs. exemption — what's the difference?

An exclusion means the law's definition was never met (e.g., a LATE professional). An exemption means the definition WAS met but registration is released. Swapping them is a common failure point.

Does 'exempt' mean exempt from fraud?

No. Exempt never means exempt from fraud. The Administrator's anti-fraud authority applies to every security and transaction, registered or exempt.

Give examples of exempt securities.

US government/agency, municipal, bank/S&L, insurer, and nonprofit issues, money-market instruments, and commercial paper under 9 months / $50K+ / top-3 rated. Exempt because of what they are.

Give examples of exempt transactions.

Isolated non-issuer trades, unsolicited customer orders, fiduciary/sheriff sales, and sales to institutional buyers. Exempt because of how or by whom they're sold.

What is a federal-covered security?

A security preempted from state registration by NSMIA — e.g., exchange-listed securities, investment-company (mutual fund) shares, and Reg D Rule 506 offerings. States keep only anti-fraud and notice filing.

Is an unsolicited order exempt? What kind?

Yes — an unsolicited customer order is an exempt transaction (exempt by how/by whom it's sold, not by what the security is).

What three powers does the Administrator hold?

The Administrator may deny/suspend/revoke registrations, issue cease-and-desist orders without a prior hearing, and subpoena witnesses and records across state lines.

Is lack of experience grounds to deny registration?

Lack of experience alone is NOT grounds to deny. However, lack of experience combined with other factors can support a denial.

When does registration by qualification become effective?

At noon of the 30th day after filing. The exam interchanges this number, so memorize 'noon of the 30th day.'

How fast must a hearing be granted after a request?

A hearing must be granted within 15 days of a written request. A final order may then be appealed within 60 days.

How long to appeal a final order of the Administrator?

60 days. (Compare: a hearing must be granted within 15 days of a written request.)

What is the USA criminal penalty (5-5-3 mnemonic)?

Max $5,000 fine and 3 years in prison, with a 5-year statute of limitations. Don't confuse the 3-year max sentence with the 5-year SOL.

What is the criminal penalty under the Advisers Act of 1940?

Up to a $10,000 fine and 5 years in prison, with a 5-year statute of limitations. (USA is the lower $5,000 / 3 years.)

What is the civil statute of limitations under the USA?

The sooner of three years from the sale/advice OR two years from discovery of the violation.

What is a rescission offer and the client's deadline?

A violating firm offers to buy back the security plus interest. The client has 30 days to accept, or the right to rescission lapses.

Who is excluded from the USA definition of 'person'?

A 'person' is any entity or individual EXCEPT a deceased individual, a minor, or someone declared mentally incompetent.

What consent does a principal transaction require?

Written client consent on each individual trade. A principal transaction is the IA trading from its own account with a client; blanket consent is NOT allowed.

What consent does an agency cross transaction require?

Blanket, prospective consent with disclosure is permitted. The IA arranges both sides of the trade. Don't let a stem use one blanket consent to cover principal trades.

What are soft dollars under Section 28(e)?

An adviser uses client brokerage commissions to obtain research and brokerage services that benefit clients. Items like office furniture or rent are NOT permissible soft-dollar uses.

Can soft dollars buy office furniture?

No. Section 28(e) soft dollars cover research and brokerage services that benefit clients only — not office furniture, rent, or overhead.

What does having custody require of an IA?

Use of a qualified custodian, plus heightened rules. Inadvertently-received client funds must be returned within three business days to avoid being deemed to have custody.

What is a qualified custodian?

A bank, broker-dealer, or similar institution authorized to hold client assets when an adviser has custody of client funds or securities.

What are the two ways to satisfy the brochure rule?

Deliver Form ADV Part 2 at least 48 hours before the contract, OR deliver it at signing if the client gets a 5-business-day penalty-free right to withdraw.

An IAR delivers ADV Part 2 at signing — is that OK?

Yes, under the alternative prong, but the client must get the right to terminate the advisory contract without penalty within 5 business days of signing.

When do existing clients get the updated brochure?

Within 120 days of the IA's fiscal year-end (deliver the updated brochure or a summary of material changes).

What form is the IA brochure?

Form ADV Part 2 — the plain-English disclosure brochure delivered to advisory clients under the brochure rule.

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Series 66 Flashcards

What standard does an IA/IAR owe clients?: A fiduciary duty of full and fair disclosure — act in the client's best interest and disclose (and where possible eliminate) all material conflicts of interest.
What three statutes underpin Series 66 Section IV?: The Uniform Securities Act (USA), the Investment Advisers Act of 1940, and NSMIA. Section IV is ~45% of the exam and the top failure-driver.
IA vs. BD vs. IAR vs. agent: which are firms?: An Investment Adviser (IA) and a Broker-Dealer (BD) are firms (entities). An IAR and an agent are the natural persons who work for them.
What is the ABC test for IA status?: You're an IA only if all three prongs are met: you give Advice on securities, you are in the Business of doing so, and you receive Compensation. Drop any prong and you're excluded.
What does the LATE exclusion cover?: Lawyers, Accountants, Teachers, and Engineers are excluded from IA status, but only while advice is incidental and not separately compensated. The exclusion vanishes if they charge a fee for the advice itself.
What standard governs a BD/agent?: Suitability and the SEC's Regulation Best Interest (Reg BI), a best-interest standard at the point of recommendation. Reg BI is NOT the same as fiduciary duty.
Is Reg BI the same as fiduciary duty?: No. Reg BI is a best-interest standard for BDs/agents at recommendation; fiduciary duty (IA/IAR) is broader, requiring ongoing full and fair disclosure of all conflicts.
How does an IAR register?: An IAR is a natural person who registers with the state via Form U4. Agents (RRs) also register via Form U4 at the state level.
Under NSMIA, who regulates an adviser — SEC or state?: One or the other, never both for registration; AUM decides which. NSMIA split adviser oversight between the SEC and the states and created federal-covered securities.
What is the AUM buffer band for IA registration?: 90/100/110: SEC-eligible at $100M, mandatory SEC registration at $110M, and must drop to state registration only if AUM falls below $90M. The $100M-$110M band is the adviser's choice.
At what AUM must an adviser register with the SEC?: Mandatory SEC (federal-covered) registration is required once AUM reaches $110M. Between $100M and $110M, the adviser may choose SEC or state.
When must an SEC-registered adviser drop to state?: Only when AUM falls below $90M. The $90M floor gives a buffer so advisers near $100M don't bounce between regulators.
Does a federal-covered adviser owe the state anything?: Yes — it files a notice filing and pays a fee in states where it does business. A trap answer says it owes the state nothing; the state keeps anti-fraud and notice-filing authority.
What is the de minimis exemption?: An IA/IAR is exempt from state registration if it has five or fewer retail clients in 12 months AND no place of business in that state. It applies to advisers only.
Does de minimis apply to BDs and agents?: No. There is no de minimis for BDs or agents — even one retail client triggers registration. It is an adviser-only exemption.
What is the Howey test?: A four-part test for a security: an investment of money in a common enterprise with an expectation of profit from the efforts of others. Per the 2023 outline it reaches digital assets/crypto.
Are variable annuities securities?: Yes — variable annuities and variable life are securities (their value depends on a separate account). Fixed annuities and whole life are NOT securities.
Are fixed annuities securities under Series 66?: No. Fixed annuities and whole life insurance are not securities. Only variable annuities and variable life qualify (Howey-style investment risk).
Exempt security vs. exempt transaction?: An exempt security is exempt because of WHAT IT IS; an exempt transaction is exempt because of HOW or BY WHOM it is sold. Decide the security first, then the transaction.
Exclusion vs. exemption — what's the difference?: An exclusion means the law's definition was never met (e.g., a LATE professional). An exemption means the definition WAS met but registration is released. Swapping them is a common failure point.
Does 'exempt' mean exempt from fraud?: No. Exempt never means exempt from fraud. The Administrator's anti-fraud authority applies to every security and transaction, registered or exempt.
Give examples of exempt securities.: US government/agency, municipal, bank/S&L, insurer, and nonprofit issues, money-market instruments, and commercial paper under 9 months / $50K+ / top-3 rated. Exempt because of what they are.
Give examples of exempt transactions.: Isolated non-issuer trades, unsolicited customer orders, fiduciary/sheriff sales, and sales to institutional buyers. Exempt because of how or by whom they're sold.
What is a federal-covered security?: A security preempted from state registration by NSMIA — e.g., exchange-listed securities, investment-company (mutual fund) shares, and Reg D Rule 506 offerings. States keep only anti-fraud and notice filing.
Is an unsolicited order exempt? What kind?: Yes — an unsolicited customer order is an exempt transaction (exempt by how/by whom it's sold, not by what the security is).
What three powers does the Administrator hold?: The Administrator may deny/suspend/revoke registrations, issue cease-and-desist orders without a prior hearing, and subpoena witnesses and records across state lines.
Is lack of experience grounds to deny registration?: Lack of experience alone is NOT grounds to deny. However, lack of experience combined with other factors can support a denial.
When does registration by qualification become effective?: At noon of the 30th day after filing. The exam interchanges this number, so memorize 'noon of the 30th day.'
How fast must a hearing be granted after a request?: A hearing must be granted within 15 days of a written request. A final order may then be appealed within 60 days.
How long to appeal a final order of the Administrator?: 60 days. (Compare: a hearing must be granted within 15 days of a written request.)
What is the USA criminal penalty (5-5-3 mnemonic)?: Max $5,000 fine and 3 years in prison, with a 5-year statute of limitations. Don't confuse the 3-year max sentence with the 5-year SOL.
What is the criminal penalty under the Advisers Act of 1940?: Up to a $10,000 fine and 5 years in prison, with a 5-year statute of limitations. (USA is the lower $5,000 / 3 years.)
What is the civil statute of limitations under the USA?: The sooner of three years from the sale/advice OR two years from discovery of the violation.
What is a rescission offer and the client's deadline?: A violating firm offers to buy back the security plus interest. The client has 30 days to accept, or the right to rescission lapses.
Who is excluded from the USA definition of 'person'?: A 'person' is any entity or individual EXCEPT a deceased individual, a minor, or someone declared mentally incompetent.
What consent does a principal transaction require?: Written client consent on each individual trade. A principal transaction is the IA trading from its own account with a client; blanket consent is NOT allowed.
What consent does an agency cross transaction require?: Blanket, prospective consent with disclosure is permitted. The IA arranges both sides of the trade. Don't let a stem use one blanket consent to cover principal trades.
What are soft dollars under Section 28(e)?: An adviser uses client brokerage commissions to obtain research and brokerage services that benefit clients. Items like office furniture or rent are NOT permissible soft-dollar uses.
Can soft dollars buy office furniture?: No. Section 28(e) soft dollars cover research and brokerage services that benefit clients only — not office furniture, rent, or overhead.
What does having custody require of an IA?: Use of a qualified custodian, plus heightened rules. Inadvertently-received client funds must be returned within three business days to avoid being deemed to have custody.
What is a qualified custodian?: A bank, broker-dealer, or similar institution authorized to hold client assets when an adviser has custody of client funds or securities.
What are the two ways to satisfy the brochure rule?: Deliver Form ADV Part 2 at least 48 hours before the contract, OR deliver it at signing if the client gets a 5-business-day penalty-free right to withdraw.
An IAR delivers ADV Part 2 at signing — is that OK?: Yes, under the alternative prong, but the client must get the right to terminate the advisory contract without penalty within 5 business days of signing.
When do existing clients get the updated brochure?: Within 120 days of the IA's fiscal year-end (deliver the updated brochure or a summary of material changes).
What form is the IA brochure?: Form ADV Part 2 — the plain-English disclosure brochure delivered to advisory clients under the brochure rule.
What is churning?: Excessive trading in a client's account primarily to generate commissions for the rep. A prohibited and unethical practice.
What is front-running?: Trading for one's own account ahead of a client's known large (block) order to profit from the expected price move. Prohibited.
What is selling away?: An agent effecting private securities transactions outside the supervision of their broker-dealer. A prohibited practice.
Can an agent guarantee a client against loss?: No. Guaranteeing a client against loss is a prohibited practice, as are market manipulation via wash trades or matched orders.
How long may an IA/IAR act on oral discretion?: For the first 10 business days while the signed written power of attorney is en route. After that, written authority must be in hand.
Can an agent/BD ever trade on oral discretion?: No. An agent/BD may never trade on discretion until written authority is in hand. The 10-day oral grace period is for IA/IAR only — a classic role-swap trap.
When may an agent borrow money from a client?: Only if the client is in the lending business (e.g., a bank). Otherwise borrowing from a client is prohibited.
May an agent share in a client's account?: Only with written BD approval and in proportion to the agent's own contribution. An IAR may NEVER share in a client's account.
May an IAR share in a client's account?: No — an IAR may never share in a client's account. (An agent can, with written BD approval and proportional contribution.)
What new topics did the 2023 Series 66 outline add?: Exploitation of vulnerable adults, IAR continuing education, business continuation/succession planning, and cybersecurity/data protection — areas older prep often under-covers.
What is exploitation of vulnerable adults?: Financial abuse of senior or impaired clients. A 2023-added topic with reporting and account-hold provisions to protect at-risk investors.
Whose ethical standards are stricter — NASAA or FINRA?: NASAA's. NASAA's ethical standards are stricter than FINRA's, and the exam favors manipulation and conflict-of-interest scenarios.
First decision step in any Series 66 vignette?: Decide capacity (the actor) first: IA/IAR (fiduciary) vs. BD/agent (Reg BI/suitability). The exam swaps the actor to bait misapplication of the wrong standard.
How should you read an 'EXCEPT' / exemption stem?: Read it twice for double negatives, rephrase positively, then pick the most complete best answer — not the first technically-true option.
Does a digital asset/crypto count as a security?: It can — per the 2023 outline, a digital asset meeting the Howey test (investment in a common enterprise expecting profit from others' efforts) is a security.
Which standard requires eliminating conflicts where possible?: The fiduciary duty (IA/IAR). A fiduciary must put the client first and disclose and, where possible, eliminate conflicts. Several adviser conflicts require specific client consent.
How does JTWROS pass assets at death?: In joint tenants with right of survivorship, the deceased owner's share passes automatically to the surviving owner(s), bypassing probate. It does not go to the decedent's estate.
How does TIC pass assets at death?: In tenants in common, each owner holds a divisible fractional interest that passes to that owner's estate at death, not to the surviving co-owner(s). Owners may hold unequal percentages.
What is tenancy by the entirety (TBE)?: A joint ownership form limited to married spouses that requires both spouses' consent to transact or transfer. It also offers creditor protection against one spouse's individual debts.
Which account types allow TOD registration?: Transfer on death registration is available only on individual and JTWROS accounts. It names beneficiaries who receive assets outside probate.
What is an UTMA/UGMA account?: A custodial account that is an irrevocable gift to a minor, managed by a custodian until the minor reaches the state age of majority. Earnings may trigger the kiddie tax.
Can an UTMA/UGMA gift be revoked?: No. A custodial gift is irrevocable once made; the assets belong to the minor and must be turned over at the age of majority. The custodian cannot take them back.
What standard governs fiduciary accounts?: The prudent-investor standard, which requires care, skill, and diversification judged at the portfolio level rather than security by security, plus adherence to any governing document.
Who bears investment risk: DB vs DC plan?: In a defined-benefit plan the employer bears investment risk and promises a set benefit. In a defined-contribution plan (401(k), 403(b), 457) the employee bears the investment risk.
What are the financial factors in a client profile?: Income, net worth, tax bracket, and liquidity needs. These quantify the client's ability to take risk and absorb losses.
Name key non-financial profile factors.: Age, time horizon, risk tolerance, dependents, and (added in 2023) ESG or religious screening preferences. These shape willingness to take risk and product selection.
What are the three pillars of a client profile?: Objectives, constraints, and risk tolerance. You must gather all three before making any recommendation.
Common investment objectives tested on Series 66: Growth, income, preservation of capital, and speculation. The recommendation must match the client's stated objective.
What are common client constraints?: Time horizon, liquidity needs, tax status, and legal or unique circumstances. Constraints limit which otherwise-suitable products can be recommended.
Suitability trap: long bond for an 85-year-old?: Unsuitable. An illiquid, long-dated product does not match an elderly client's short time horizon. Match product liquidity and term to the client's horizon and tolerance.
What does Modern Portfolio Theory (MPT) hold?: Combining imperfectly (less than perfectly) correlated assets reduces overall portfolio risk for a given expected return. Diversification is the core benefit.
What is the efficient frontier?: The set of portfolios offering the maximum expected return for each level of risk. Portfolios below the frontier are inefficient; none lie above it.
Which risk does diversification remove?: Diversification removes unsystematic (company-specific) risk but cannot remove systematic (market) risk. Beta measures the systematic risk that remains.
State the CAPM formula.: Required return = Rf + beta x (Rm - Rf), where Rf is the risk-free rate and (Rm - Rf) is the market risk premium. It prices an asset for its systematic risk.
What does a beta above 1.0 indicate?: The security or portfolio is more volatile than the overall market. A beta below 1.0 means it is less volatile than the market.
What is the market risk premium?: The excess return investors demand over the risk-free rate for bearing market risk: (Rm - Rf). It is multiplied by beta in CAPM.
EMH weak form: what fails?: Prices reflect all past price data, so technical analysis (chart/price-history based) cannot consistently produce excess returns.
EMH semi-strong form: what fails?: Prices reflect all publicly available information, so fundamental analysis of public data cannot consistently beat the market.
EMH strong form: what does it claim?: Prices reflect all information, public and non-public (inside). Under it, even insider information cannot produce consistent excess returns.
Strategic vs tactical asset allocation: Strategic allocation sets long-term target weights and rebalances back to them. Tactical allocation makes short-term shifts to exploit perceived market opportunities.
What is a contrarian investing style?: Buying out-of-favor assets and selling popular ones, betting against prevailing market sentiment. It assumes the crowd overshoots.
What is dollar-cost averaging?: Investing a fixed dollar amount at regular intervals, buying more shares when prices are low and fewer when high, lowering the average cost per share over time.
Active vs passive management: Active management seeks to beat a benchmark through selection/timing. Passive (indexing) seeks to match a benchmark at lower cost.
What does the Sharpe ratio measure?: Risk-adjusted return using total risk: (portfolio return - risk-free rate) / standard deviation. Higher is better per unit of total risk.
What does standard deviation measure?: Total risk (variability of returns). It feeds the Sharpe ratio. Higher standard deviation means greater dispersion of returns.
Sharpe vs Treynor ratio inputs: Sharpe divides excess return by standard deviation (total risk); Treynor divides excess return by beta (systematic risk). Use Treynor for well-diversified portfolios.
What does bond duration measure?: A bond's price sensitivity to interest-rate changes. Higher duration means greater interest-rate risk. Duration is not the same as maturity.
Traditional IRA tax treatment: Contributions may be tax-deductible and grow tax-deferred; withdrawals are taxed as ordinary income. RMDs begin at age 73 under SECURE Act 2.0.
Roth IRA tax treatment: Contributions are after-tax (not deductible), grow tax-free, and qualified withdrawals are tax-free. The owner has no lifetime RMDs.
When do RMDs begin?: At age 73 under SECURE Act 2.0 for traditional retirement accounts. Roth IRAs have no required minimum distributions during the owner's lifetime.
What plan type is a 403(b) for?: Employees of nonprofit and tax-exempt organizations (e.g., schools, hospitals, churches). It is a defined-contribution plan like a 401(k).
Who uses a 457 plan?: Employees of state and local governments (and some nonprofits). It is a defined-contribution deferred-compensation plan.
What does ERISA govern?: Private-sector employer retirement plans. It requires an investment policy, vesting schedules, and fiduciary standards; it does not cover government or church plans.
What is ERISA 404(c)?: A provision giving fiduciaries liability relief when participants direct their own investments among a diversified menu of options, with adequate information provided.
Key features of a 529 plan: State-sponsored education savings with high contribution limits and tax-free growth for qualified education expenses. There is no age limit on use of funds.
Coverdell ESA contribution limit and age rule: Contributions cap near $2,000 per year per beneficiary, and funds generally must be used by age 30. It covers qualified K-12 and higher-education expenses.
What is an HSA's tax advantage?: Paired with a high-deductible health plan, an HSA is triple-tax-advantaged: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Total return components: Total return = income (dividends/interest) plus capital appreciation, relative to the amount invested. It captures both yield and price change.
What is real return?: Nominal return minus the inflation rate. It measures the change in actual purchasing power, not just dollar gains.
Time-weighted vs dollar-weighted return: Time-weighted return judges the manager by ignoring client cash flows. Dollar-weighted return (IRR) reflects the client's actual experience including deposits and withdrawals.
Which return measure judges the manager?: Time-weighted return, because it strips out the timing and size of client deposits and withdrawals, which the manager does not control.
Long-term vs short-term capital gains: Long-term gains apply to assets held more than one year and get preferential rates. Short-term gains (held one year or less) are taxed at ordinary income rates.
How are net capital losses used?: Net losses offset capital gains, then up to $3,000 of ordinary income per year. Any remainder is carried forward to future years.
State the wash-sale rule.: A capital loss is disallowed if a substantially identical security is bought within 30 days before or after the loss sale (a 61-day window). The disallowed loss adjusts the new basis.
Cost basis of gifted securities: The recipient takes the donor's carryover basis (the donor's original cost). This preserves the unrealized gain for the recipient.
Cost basis of inherited securities: Inherited securities receive a stepped-up basis to fair market value at the date of death, reducing future taxable gain for the heir.
What is IRMAA?: Income-Related Monthly Adjustment Amount: higher Medicare premiums driven by higher income. It surfaces in retirement distribution-planning items.
What is the kiddie tax?: A rule taxing a minor's unearned (investment) income above a threshold at the parents' marginal rate, often relevant to UTMA/UGMA account earnings.
What roughly is this section's exam weight?: Client Investment Recommendations and Strategies is about 30% of the Series 66, the second-largest section behind the Laws/Regulations content.
Holding period return definition: The total return earned over the entire time an investment is held, combining income and price change relative to the purchase price.
Defined-benefit plan: who promises what?: The employer promises a specified retirement benefit (often based on salary and years of service) and bears the investment risk to fund that promise.
401(k) plan classification: A defined-contribution plan where the employee directs contributions and bears the investment risk; the eventual benefit depends on contributions and investment results.
Suitability: what comes before any recommendation?: Gathering the complete client profile (objectives, constraints, risk tolerance, and financial/non-financial facts). You cannot recommend without it.
What is annualized return?: A return expressed on a yearly basis so periods of different lengths can be compared. It standardizes performance to an annual rate.
Required return and systematic risk link (CAPM): CAPM says required return compensates only for systematic (non-diversifiable) risk via beta; unsystematic risk earns no premium because it can be diversified away.
Suitability best-answer wording strategy: Many items have two defensible answers. Eliminate clearly unsuitable choices first, then pick the most complete answer fitting the client's stated horizon and risk tolerance.
Are Roth IRA contributions tax-deductible?: No. Roth contributions are made with after-tax dollars. The benefit comes later as tax-free qualified withdrawals and no owner RMDs.
529 vs Coverdell: contribution limits: 529 plans have high contribution limits and no annual federal cap on growth; Coverdell ESAs cap near $2,000 per year per beneficiary with an age-30 use rule.
Is a variable annuity a security?: Yes. Its value floats with a separate account, so the client bears market risk — making it a security that requires a securities license to sell.
Is a fixed annuity a security?: No. The insurer guarantees the rate and bears the investment risk, so it is NOT a security and needs no securities license.
Is an indexed (equity-indexed) annuity a security?: No. It is a fixed product that credits a guaranteed floor plus a share of an index's gain; the insurer bears the risk, so it is NOT a security — a classic exam trap.
Variable life vs. whole life: which is a security?: Variable life is a security because its cash value is invested in a separate account at the holder's risk. Whole life has fixed cash value and is NOT a security.
What is the dividing line for security vs. non-security?: Who bears the investment risk. If the client bears market risk (separate account), it's a security; if the insurer or bank bears it, it's not.
Common stock: key traits and liquidation rank: Carries voting rights and the largest growth potential, but ranks last in a liquidation. It is perpetual with residual ownership.
How does preferred stock behave relative to interest rates?: Like a bond — its price moves inversely with interest rates. It pays a fixed dividend and has priority over common stock.
What is cumulative preferred stock?: Preferred stock on which missed (skipped) dividends accrue and must be paid in full before any common dividend is paid.
What is participating preferred stock?: Preferred stock that shares in extra company profits beyond its stated fixed dividend rate.
What is convertible preferred stock?: Preferred stock that can be swapped (converted) into a set number of the issuer's common shares.
Rights vs. warrants: term and strike price: Rights are short-term (weeks), letting holders buy at a discount to keep proportional ownership. Warrants are long-term (years) sweeteners with a strike set above the current market price.
What is an ADR?: An American Depositary Receipt — a U.S.-dollar-denominated receipt representing shares of a foreign company. It exposes the holder to currency risk.
ISOs vs. NQSOs: tax treatment: ISOs (incentive stock options) are qualifying and can trigger AMT exposure. NQSOs (non-qualified) are taxed as ordinary income at exercise.
Fundamental vs. technical analysis: Fundamental analysis uses financial statements, ratios, and dividend models to estimate intrinsic value. Technical analysis charts price and volume for trends, support, and resistance.
Yield ladder for a premium bond: Nominal > current > YTM > YTC. The premium price drags every yield below the coupon rate.
Yield ladder for a discount bond: YTC > YTM > current > nominal — the reverse of a premium bond. At par, all four yields are equal.
How do you calculate current yield?: Annual coupon divided by the bond's current market price. It is the one yield you may actually have to compute on the exam.
Bond at $1,200, 6% coupon: current yield?: $60 $\div$ $1,200 = 5.0%. Since it trades at a premium, the ranking is nominal 6.0% > current 5.0% > YTM > YTC.
What does duration measure?: A bond's price sensitivity to interest-rate changes — NOT its time to maturity. Longer maturity and lower coupon both raise duration.
Which bond is more rate-sensitive: high or low coupon?: The lower-coupon bond has higher duration and is more sensitive to interest-rate changes (given the same maturity).
What is convexity?: The curvature in the price-yield relationship that refines duration's estimate for large interest-rate moves.
Bond prices and yields: what relationship?: They move inversely. When interest rates rise, bond prices fall, and vice versa.
How is an open-end (mutual) fund priced?: It continuously issues redeemable shares priced once daily at NAV. The public pays the POP (NAV plus any front-end sales charge).
What is NAV?: Net asset value — a fund's assets minus liabilities, divided by shares outstanding, calculated once per day.
What is the POP of a front-load mutual fund?: Public offering price = NAV plus the front-end sales charge.
How does a closed-end fund trade?: It issues a fixed share count that trades on an exchange at a market price that can be above or below NAV.
Class A mutual fund shares: fee profile: Front-end load, reduced by breakpoints, a letter of intent, or rights of accumulation. Best for large investments and long horizons.
Class B mutual fund shares: fee profile: Back-end contingent deferred sales charge (CDSC) that declines to zero over years. Suited to smaller amounts held long-term.
Class C mutual fund shares: fee profile: Level load with an ongoing 12b-1 fee and no front-end load. Best for short holding periods.
What is a breakpoint?: An investment-dollar threshold at which a Class A fund's front-end sales charge is reduced.
What is a letter of intent (LOI)?: A nonbinding pledge to invest enough within 13 months to earn a breakpoint discount on Class A shares.
What are rights of accumulation (ROA)?: A feature letting an investor's prior fund holdings count toward reaching a breakpoint on new purchases.
What is a 12b-1 fee?: An annual asset-based fee for distribution and marketing, most prominent in level-load Class C shares.
What is a UIT?: A unit investment trust — a fixed, unmanaged portfolio of securities with a set termination date.
ETF vs. ETN: key difference: An ETF tracks an index and trades intraday. An ETN is an unsecured debt note, adding issuer credit risk on top of index risk.
What % must a REIT distribute, and how taxed?: At least 90% of taxable income to keep pass-through status. Dividends are generally taxed as ordinary income, not qualified.
Why are leveraged/inverse ETFs unsuitable long-term?: They reset daily, so returns compound away from the index over time — making them unsuitable as long-term holds.
What is the hedge fund fee model?: 2-and-20: 2% of assets plus 20% of profits, often above a hurdle rate. They also impose lock-up periods.
3(c)(1) vs. 3(c)(7) hedge fund exemptions: 3(c)(1) allows up to 100 investors; 3(c)(7) requires all investors be qualified purchasers. Both keep the fund private (unregistered).
What is a hurdle rate?: The minimum return a hedge-fund manager must beat before earning the performance (incentive) fee.
What is a lock-up period?: A period during which hedge-fund investors cannot redeem (withdraw) their capital.
What is a DPP?: A direct participation program — a pass-through vehicle whose income, gains, and losses flow to investors individually. It is illiquid.
What is a structured product?: A security packaging a bond with a derivative; returns depend on a reference asset and carry the issuer's credit risk.
What is a SPAC?: A special-purpose acquisition (blank-check or blind-pool) company that raises IPO cash to acquire an unidentified target later. Added to the 2023 outline.
What is carried interest?: A fund or venture-capital manager's share of profits, generally taxed at favorable capital-gains rates.
Futures vs. options: obligation: A futures contract obligates both parties to transact at a set price and date. An option grants a right, not an obligation.
What are accumulation units?: The measure of a variable annuity owner's interest during the pay-in (accumulation) phase, when growth is tax-deferred.
What are annuity units?: A fixed number of units set at annuitization whose dollar value floats with separate-account performance relative to the AIR.
What is the AIR?: Assumed interest rate — the benchmark return for a variable annuity payout. Beating it raises the check; lagging it lowers the check.
How are annuity withdrawals taxed?: LIFO — earnings (gains) come out first, taxed as ordinary income, with a 10% penalty if taken before age 59 $\frac{1}{2}$ .
What is a 1035 exchange?: A tax-free swap of one annuity or life insurance policy for another under IRC Section 1035, with no current tax.
What does the exclusion ratio determine?: The portion of each annuitized payment that is a tax-free return of the original cost basis; the rest (earnings) is taxable.
How are annuity earnings taxed once annuitized?: Only the earnings portion of each check is taxable as ordinary income; the cost-basis portion (set by the exclusion ratio) is tax-free.
Term vs. whole vs. universal vs. variable life: Term = pure protection, no cash value. Whole = fixed cash value. Universal = flexible premium. Variable = cash value in a separate account and IS a security.
Can digital assets/crypto be securities?: Yes. Per the 2023 outline, digital assets and crypto can be securities if they meet the Howey test (investment contract analysis).
Is a bank CD a security?: No. The bank bears the investment risk and guarantees the return, so a bank CD is a non-security.
What is the Howey test used for?: Determining whether an instrument is a security — an investment of money in a common enterprise with an expectation of profit from others' efforts.
What did the 2023 Series 66 outline ADD?: ADRs, preferred-stock types, money-market instruments, employee stock options, SPACs, non-traded REITs, and digital assets.
What did the 2023 outline REMOVE?: Viatical settlements and investment real estate were removed from the Investment Vehicle Characteristics outline.
Does a variable annuity payout rise if returns beat the AIR?: Yes. The annuity unit value floats versus the AIR — if separate-account returns exceed the AIR, the check rises; if they lag, it falls.
Is a non-traded REIT liquid?: No. Non-traded REITs are non-liquid (added in the 2023 outline). They don't trade on an exchange, unlike traded REITs.
Most-missed sub-bucket of this section?: Insurance-based products and annuities. Over-study accumulation vs. annuity units, the AIR, the exclusion ratio, and the indexed-annuity-is-not-a-security trap.
Rule of 72 — what does it estimate?: Approximate years to double money = 72 $\div$ annual rate. At 8%, money doubles in ~9 years. Rearranged, 72 $\div$ years = the approximate rate.
$2,000 grows to $8,000 in 10 years — rate (Rule of 72)?: Money doubled twice (2k→4k→8k), so each double took ~5 years. $72 \div 5 \approx 14.4\%$ compounded annual return.
Present value (PV) — definition: Today's worth of a future sum, discounted at a required rate. Higher discount rate or longer time horizon = lower PV. Answers 'how much to deposit now to reach a future goal.'
Future value (FV) — definition: What a present sum grows to over time at a given compound rate. FV rises with a higher rate or longer time horizon; it is the mirror image of present value.
Time value of money — core idea: A dollar today is worth more than a dollar in the future because it can be invested to earn a return. Underlies PV, FV, NPV, and IRR calculations.
Net present value (NPV) — definition: PV of all expected cash inflows minus the initial investment (cost). Positive NPV = invest; negative = reject. NPV = PV of cash flows − purchase price.
NPV greater than zero — what it means: The investment's internal rate of return exceeds the required rate of return, so the security is attractively priced (a buy). PV of inflows exceeds the price paid.
NPV less than zero — what it means: The IRR is below the investor's required rate of return; the price paid exceeds the PV of future cash flows. The investment should be rejected.
Internal rate of return (IRR) — definition: The discount rate that makes NPV equal zero. It is the security's expected annualized return; compare it to the required rate to decide buy/sell.
When NPV = 0, what is true about IRR?: The IRR exactly equals the required (discount) rate of return. For a bond, this happens when its yield to maturity equals the discount rate.
IRR of 6.32% vs required return of 6% — NPV sign?: Positive. Because IRR (6.32%) exceeds the required rate (6%), NPV is greater than zero, signaling an attractive investment.
IRR of 5.75% vs required return of 6% — NPV sign?: Negative. The IRR (5.75%) is below the required rate (6%), so NPV is less than zero and the investment should be rejected.
Which security has an easily determinable IRR?: A bond held to maturity — its IRR is the yield to maturity, computable from price, coupon, and maturity. Equity cash flows are uncertain, so IRR is hard to determine.
Difference between PV and NPV represents what?: The initial cost (purchase price) of the investment. NPV = present value of future cash flows minus that upfront cost.
Discounted cash flow (DCF) — when to buy a security?: Buy when the security's market price is below the present value of its discounted future cash flows (i.e., it is undervalued / NPV is positive).
Yield to maturity (YTM) — definition: The total annualized return earned if a bond is held to maturity, accounting for coupon income plus any gain or loss versus par. It is the bond's IRR.
Coupon 7% bond priced to yield 5.4% — premium or discount?: Premium. The bond yields less than its coupon, so its price is above par because its fixed 7% coupon beats the lower market yield.
Inverse price-yield relationship for bonds: Bond prices and market interest rates move in opposite directions. When new bonds offer higher coupons, existing lower-coupon bonds fall in price (and vice versa).
Present value of a perpetuity — formula: PV = annual payment $\div$ discount rate. A $40,000 perpetual scholarship at 4% requires $40,000 $\div$ 0.04 = $1,000,000 endowment.
Endow $40,000/year at 4.2% — lump sum needed?: $40,000 $\div$ 0.042 $\approx$ $952,381. Perpetuity PV = payment divided by the rate of return.
Bond paying $100/yr at par, discount rate 10% — NPV?: Zero. At par, the coupon yield (10%) equals the discount rate (10%), so PV of cash flows equals the price and NPV is zero.
Mean (arithmetic) — definition: The simple average: sum of all returns divided by the number of observations. A measure of central tendency used to summarize portfolio returns.
Returns +16%, +5%, −4%, +12%, +8% — arithmetic mean?: Sum = 37%; divide by 5 = 7.4% arithmetic mean. It adds all observations and divides by the count.
Median — definition: The middle value when observations are ranked in order (or the average of the two middle values). A measure of central tendency less skewed by outliers than the mean.
Mode — definition: The value that occurs most frequently in a data set. One of the three measures of central tendency along with mean and median.
Measures of central tendency — which three?: Mean, median, and mode. Standard deviation is NOT central tendency — it measures dispersion (spread) around the mean.
Standard deviation — what it measures: How much an investment's returns fluctuate around their average — a measure of total risk/volatility. Higher standard deviation means greater variability and risk.
68-95-99.7 rule — one standard deviation: In a normal distribution, ~68% of returns fall within $\pm 1$ standard deviation of the mean, ~95% within $\pm 2$ , and ~99.7% within $\pm 3$ .
Mean 12%, range −2% to +26% covers 68% — std dev?: One standard deviation = 14% (12% $\pm$ 14%). The $\pm 1$ SD band captures ~68% of outcomes in a normal distribution.
Return 8.7%, std dev 14.6%, 95% probability range?: $\pm 2$ standard deviations: 8.7% $\pm$ 29.2%, i.e., roughly -20.5% to +37.9%. 95% of returns fall within two SDs of the mean.
Beta — definition: A measure of a security's systematic (market) risk — its volatility relative to the overall market. The market itself has a beta of 1.0.
Beta of 1.2 — interpretation: The security is 20% more volatile than the market. If the market rises or falls 10%, the security is expected to move ~12%.
Beta of 0.85, market falls 10% — portfolio change?: Expected to fall about 8.5% ( $0.85 \times 10\%$ ). A beta below 1.0 means lower volatility than the market.
Beta less than 1.0 — meaning: The security is less volatile than the market; it moves less than the market in both directions. Defensive stocks (utilities) typically have low betas.
Beta against what benchmark?: Beta is measured against the overall market, typically the S&P 500. The benchmark market index has a defined beta of 1.0.
Beta of zero — what kind of security?: A security uncorrelated with the market, such as a risk-free T-bill. Its return doesn't move with market swings.
Alpha — definition: The portion of return above (or below) what beta/the market would predict — a measure of risk-adjusted excess return, often crediting the manager's skill.
XYZ beta 1.0 returns 12%; ABC beta 1.4 returns 18.8% — ABC alpha?: Expected ABC return = $1.4 \times 12\% = 16.8\%$ ; actual 18.8% gives alpha = +2.0%. Alpha is actual return minus beta-predicted return.
CAPM — what it computes: Capital Asset Pricing Model gives expected return = risk-free rate + beta $\times$ (market return - risk-free rate). It prices an asset for its systematic risk.
Risk-free rate — what is used as the proxy?: The yield on short-term U.S. Treasury bills (90-day T-bills). It represents return with virtually no default or market risk.
Sharpe ratio — what it measures: Risk-adjusted return per unit of total risk: (portfolio return - risk-free rate) $\div$ standard deviation. Used to evaluate an active manager's performance.
Sharpe vs. beta-based measures — which risk?: Sharpe uses standard deviation (total risk); beta-based measures (like Treynor/alpha) use systematic risk only. Sharpe suits non-diversified portfolios.
Systematic vs. unsystematic risk: Systematic (market) risk affects all securities and can't be diversified away (measured by beta). Unsystematic (business-specific) risk can be reduced through diversification.
Business cycle — four phases in order: Expansion, peak, contraction (recession), and trough — then recovery back to expansion. GDP rises in expansion and falls in contraction.
Recession — common definition: Two or more consecutive quarters of declining real GDP. A prolonged, severe contraction lasting 18+ months or with sharp GDP drops is a depression.
Leading economic indicators — examples: Predict future activity: stock prices (S&P 500), building permits, new orders for durable goods, initial jobless claims, and money supply (M2).
Lagging economic indicators — examples: Confirm a trend after it occurs: average duration of unemployment, corporate profits, and the prime rate charged by banks.
Coincident economic indicators — examples: Move with the overall economy: industrial production, nonfarm payrolls/employment, and personal income. They show the economy's current state.
GDP — definition: Gross Domestic Product: the total market value of all final goods and services produced within a country in a year. Real GDP is adjusted for inflation.
CPI — what it measures: The Consumer Price Index tracks the average change in prices of a basket of consumer goods/services — the primary gauge of inflation.
Inflation vs. deflation — investor impact: Inflation erodes purchasing power and hurts fixed-income (bond) values; deflation is a general decline in prices that can signal recession and raise real debt burdens.
Monetary policy — who and what tools?: Conducted by the Federal Reserve. Tools: open market operations (buying/selling Treasuries), the discount rate, and reserve requirements to control money supply and rates.
Fed open market operations — tightening: The Fed sells Treasuries, draining reserves from banks, shrinking the money supply, and pushing interest rates up to slow the economy or fight inflation.
Discount rate — definition: The interest rate the Federal Reserve charges member banks for short-term loans. Raising it tightens credit; lowering it eases credit.
Federal funds rate — definition: The rate banks charge each other for overnight loans of reserves. It is the most volatile short-term rate and a key Fed policy target.
Fiscal policy — who and what?: Conducted by Congress and the President through government spending and taxation. Cutting taxes or raising spending stimulates the economy (Keynesian view).
Money supply — M1 vs M2: M1 = currency plus checking/demand deposits (most liquid). M2 = M1 plus savings accounts, retail money-market funds, and small time deposits.
Normal (positive) yield curve — shape and meaning: Upward sloping: long-term rates exceed short-term rates. It is the typical curve, reflecting compensation for longer-maturity risk.
Inverted yield curve — meaning: Short-term rates exceed long-term rates (downward slope). Often viewed as a recession warning and usually signals tight monetary policy.
Prime rate — definition: The base rate banks charge their most creditworthy corporate customers for loans. It is a lagging indicator that tracks Fed policy.
Strong vs. weak U.S. dollar — trade effect: A strong dollar makes imports cheaper but U.S. exports costlier abroad (hurting exporters); a weak dollar boosts exports but makes imports more expensive.
Balance of payments — definition: A record of all economic transactions between a country and the rest of the world. A trade deficit (imports > exports) is a major component of a payments deficit.

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By Career EmployerUpdated Jun 18, 2026

200+ free Series 66 flashcards — 4 ways to study

Series 66 Flashcard of the DayNew daily

The classic card. Do you know this one?

Click Study Flashcards above to open the flashcard hub — hundreds of Series 66 cards you can flip, match, type, or quiz yourself on. Every card is drawn from the four NASAA content areas, so you study exactly what the exam tests.^[1] Pair them with our free practice exam, study guide.

Series 66 Flashcard Study Modes

Most flashcard sites give you one thing: a card to flip. Ours has four modes so you can both learn the material and prove you know it — the difference between recognizing an answer and recalling it under pressure.

Flip (Study) — the classic card. Flip term ↔ definition, shuffle the deck, and mark each card “Got it” or “Still learning.”
Match (Game) — a timed game: pair each term to its definition as fast as you can. Great for cementing vocabulary.
Type (Recall) — read the definition and type the term. Typing forces true active recall instead of passive recognition.
Quiz (Test) — multiple-choice questions generated from the cards, so you can self-test exactly like exam day.

Free Series 66 flashcards from Career Employer — active recall for the NASAA Uniform Combined State Law exam

Why Flashcards Work for the Series 66

Flashcards aren’t busywork — they’re built on active recall: pulling an answer out of memory strengthens it far more than re-reading notes. Pair that with spacing — short sessions across several days rather than one cram — and you retain more in less time. Used alongside our practice exam and study guide, flashcards turn review time into measurable progress.

Series 66 Flashcards by Topic

The cards are organized by the four NASAA content areas. Weight your study toward the heaviest ones — the law and ethics section alone is 45% of the exam:^[1]

Series 66 flashcards by NASAA content area
NASAA content area	% of exam
Laws, regulations & guidelines (incl. unethical practices)	45%
Client recommendations & strategies	30%
Investment vehicle characteristics	17%
Economic factors & business information	8%

How to Get the Most Out of These Flashcards

Start early, review daily. Begin flashcards as you cover each area, not the week before — a few minutes a day beats one marathon session.
Use Type and Quiz, not just Flip. Recognizing the right answer is easy; recalling and choosing it is the real test.
Drill your weakest area. Pick a single content-area deck and grind it until the Match time drops and the Quiz score climbs.
Mirror the exam weighting. Spend the most time on the law and client strategies — together they’re 75% of the test.
Then prove it. When the cards feel easy, confirm with a full practice exam — aim for 80%+ before exam day.

Series 66 Flashcards FAQ

Hundreds of free Series 66 flashcards, organized across the four NASAA content areas tested on the exam. They're free to use with no account required.

References

1.NASAA. “Series 66 Exam Content Outline.” NASAA.org. ↑
2.FINRA. “Series 66 — Uniform Combined State Law Exam.” FINRA.org. ↑
3.U.S. Securities and Exchange Commission. “Commission Interpretation Regarding Standard of Conduct for Investment Advisers (Release IA-5248).” SEC.gov. ↑
4.U.S. Securities and Exchange Commission. “Investment Advisers Act of 1940 (compiled).” GovInfo.gov. ↑

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