Bob Eder's Blog: STUDY FOR YOUR SECURITIES EXAMS

February 18, 2024
Series 6 Exam candidates should expect that several Series 6 Exam questions deal with FINRA and SEC rules on proper communications with retail customers and keeping written records of such communications. The Record-Keeping Rules state that a brokerage firm has an obligation to keep written records of advertising material sent to customers by its registered reps. Such records must be in writing or electronic form, and be signed and dated by a registered principal of the broker/dealer.

But many reps do not know that the brokerage firm is also bound to keep records of all communications, even those that are sent or received through social media, such as Facebook, Twitter, et al.

Yes, the Record-Keeping Rule covers communications with customers through social media, e-mail, digital messaging, and all other website and internet platforms. (These communications are known as "off channel.")

That this is an important topic on the Series 6 Exam is underscored by an SEC Press Release dated February 9, 2024, announcing that the SEC has discovered serious violations of the Record-Keeping Rule by 16 firms, and listing the names of the firms which the SEC has fined more than $81 million in total.

Here's what the SEC stated about these 16 firms:

"The SEC’s investigations uncovered pervasive and longstanding uses of unapproved communication methods, known as off-channel communications, at all 16 firms. As described in the SEC’s orders, the broker-dealer firms admitted that, from at least 2019 or 2020, their employees communicated through personal text messages about the business of their employers. The investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records, some of the firms likely deprived the SEC of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior managers."

https://www.sec.gov/news/press-releas...

In this Press Release, the SEC is stating that the penalized firms allowed their registered reps and I.A. reps to use digital means and/or social media to contact and communicate with their clients, yet the firms kept no written records of the nature of these communications, what was said, or how it was presented.

Bob Eder devotes Chapter One of his Study for the Series 6 Exam to Communications with retail customers and discusses the obligations of the Record-Keeping Rules throughout the text.

Study for the Series 6 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Study for the Series 6 Exam on Amazon.

See Bob Eder's Author Page on Amazon.com.

See Bob Eder's Author's Page on Goodreads.

For questions about Bob Eder's Study for the Series 6 Exam, or questions in general about the Series 6 Exam, or about the Record-Keeping Rules, simply email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.

Please consider reviewing Bob Eder's Study for the Series 6 Exam on both Amazon and Goodreads. Your review is important!

From time to time, we use this blog to talk about the Record-Keeping Rule that requires both investment advisers and broker/dealers to create and maintain written records of all communications received from and directed to retail customers and clients. Record-Keeping is certainly reflected in NASAA's Test Specifications for the Series 65 Exam. See Section IV (G), especially Subsection 5 (5.1 through 5.3) which covers communications with customers through social media, e-mail, digital messaging, and all other website and internet platforms. (These communications are known as "off channel.")

That this is an important topic on the Series 65 Exam is underscored by an SEC Press Release dated February 9, 2024, announcing that the SEC has discovered serious violations of the Record-Keeping Rule by 16 firms, and the names of the firms which the SEC has fined more than $81 million in total.

Here's what the SEC stated about these 16 firms:

"The SEC’sinvestigations uncovered pervasive and longstanding uses of unapprovedcommunication methods, known as off-channel communications, at all 16 firms. Asdescribed in the SEC’s orders, the broker-dealer firms admitted that, from atleast 2019 or 2020, their employees communicated through personal text messagesabout the business of their employers. The investment adviser firms admittedthat their employees sent and received off-channel communications related torecommendations made or proposed to be made and advice given or proposed to begiven. The firms did not maintain or preserve the substantial majority of theseoff-channel communications, in violation of the federal securities laws. Byfailing to maintain and preserve required records, some of the firms likelydeprived the SEC of these off-channel communications in various SECinvestigations. The failures involved employees at multiple levels ofauthority, including supervisors and senior managers."

https://www.sec.gov/news/press-releas...

In this Press Release, the SEC is stating thatthe penalized firms allowed their registered reps and I.A. reps to use digital meansand/or social media to contact and communicate with their clients, yet the firms kept nowritten records of the nature of these communications, or what wassaid, or how it was presented.

Here is the link to NASAA's Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Digital Communications, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 
See Bob Eder's Author Page on Amazon.com.
Please consider reviewing Bob Eder's  Study for the Series 65 Exam  and posting your review on both Amazon and Goodreads. Your review is important!

 

NASAA, the North American Securities Administrators Association, publishes Test Specifications for the Series 65 Exam, and in Section IV (H) (6) (6.2) includes Succession Planning. By Succession Planning we mean planning for the changing of the guard when senior or key executives of an advisory firm resign, retire or pass away. 

What will happen to the advisory firm in the event of such happenings? Will the firm simply wither up and disappear? That would  be disastrous for the clients of such firm. They would be abandoned by their advisers, and forced to fend for themselves for management of their savings or the investment of their retirement nest egg. To prevent such damage to clients, each investment adviser or advisory firm should create in writing a detailed succession plan.

Here's is  what Bob Eder, author of Study for the Series 65 Exam, says about Succession Planning:

SuccessionPlanning                                                                  IV (H) (6) (6.2)

Successionplanning is important for every investment adviser and investment advisory firmbecause investments of clients will be put at risk if an adviser or advisory firm suddenlygoes out of business without proper notice, thereby resultingin forcing clients to handle and manage portfolios on their own.

Important Steps in CreatingSuccession Plans                         IV(H) (6) (6.2)

These are the important steps when crafting a succession plan for an investment advisory firm:

1.                1.     identify key personnel who will play importantroles in the future and keep them informed about the firm's succession planning.

2.                2.     consult with present employees in an open fashion, and then definein writing the jobs of key personnel, specifying the functions that each keyemployee should play in the advisory firm in the future.

3.                  3.    create a timeline when succession of management willprobably occur, such as when present senior officers will want to retire.

4.                  4.     establish a training program for key personnelwho probably will constitute the future executive team on how and when successionwill come about.

Here is the link to NASAA's Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Succession Planning, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 
See Bob Eder's Author Page on Amazon.com.
Please consider reviewing Bob Eder's  Study for the Series 65 Exam  and posting your review on both Amazon and Goodreads. Your review is important!

NASAA, the North American Securities Administrators Association, publishes Test Specifications for the Series 65 Exam, and in Section IV (H) (6) (6.2) includes Succession Planning. By Succession Planning we mean planning for the changing of the guard when senior or key executives of an advisory firm resign, retire or pass away. 

What will happen to the advisory firm in the event of such happenings? Will the firm simply wither up and disappear? That would  be disastrous for the clients of such firm. They would be abandoned by their advisers, and forced to fend for themselves for management of their savings or the investment of their retirement nest egg. To prevent such damage to clients, each investment adviser or advisory firm should create in writing a detailed succession plan.

Here's is  what Bob Eder, author of Study for the Series 65 Exam, says about Succession Planning:

SuccessionPlanning                                                                  IV (H) (6) (6.2)

Successionplanning is important for every investment adviser and investment advisory firmbecause investments of clients will be put at risk if an adviser or advisory firm suddenlygoes out of business without proper notice, thereby resultingin forcing clients to handle and manage portfolios on their own.

Important Steps in CreatingSuccession Plans                         IV(H) (6) (6.2)

These are the important steps when crafting a succession plan for an investment advisory firm:

1.                1.     identify key personnel who will play importantroles in the future and keep them informed about the firm's succession planning.

2.                2.     consult with present employees in an open fashion, and then definein writing the jobs of key personnel, specifying the functions that each keyemployee should play in the advisory firm in the future.

3.                  3.    create a timeline when succession of management willprobably occur, such as when present senior officers will want to retire.

4.                  4.     establish a training program for key personnelwho probably will constitute the future executive team on how and when successionwill come about.

Here is the link to NASAA's Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Succession Planning, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 
See Bob Eder's Author Page on Amazon.com.
Please consider reviewing Bob Eder's  Study for the Series 65 Exam  and posting your review on both Amazon and Goodreads. Your review is important!

One of the common misunderstandings of "living trusts" is that a person who sets up the trust, i.e., the "grantor," obtains sizeable and valuable tax benefits. This is not correct. The purpose of setting up a living or "revocable trust" is to provide an easier way to transfer assets to beneficiaries upon the death of the grantor, not to obtain tax benefits either for the grantor or for the beneficiaries.

The subject of Trusts is contained in the Series 6 Content Outline published by FINRA, indicating that questions on living trusts are contained on the Series 6 exam. (See FINRA Series 6 Content Outline Section 2.2.)

Bob Eder discusses Trusts and Estates in his Study for the Series 6 Exam. Here is a sample of Bob Eder's treatment of Living Trusts:

Trust Accounts (2.2)


One of the most common trusts that is fairly easy to set up is the living trust. An owner of assets or mutual funds sets up a trust, then puts shares of mutual funds into the trust to fund it. The assets remain the property of the person who sets it up (i.e., the "grantor"), regardless of who is named as the beneficiary. Only upon the death of the grantor do the assets in the trust pass to the beneficiaries. Note that during the life of the grantor, income taxes still are assessed against him or her. A living trust is not a device to escape paying taxes on the income or dividends accruing in the trust. Why, then, if there are no tax benefits, set up a living trust? It allows assets owned by the grantor to be easily passed to the beneficiaries without first being tied up in probate proceedings in court.

Study for the Series 6 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Study for the Series 6 Exam on Amazon.

See Bob Eder's Author Page on Amazon.com.

See Bob Eder's Author's Page on Goodreads.

For questions about Bob Eder's Study for the Series 6 Exam, or questions in general about the Series 6 Exam, or about Trusts and Estates, simply email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.

Please consider reviewing Bob Eder's Study for the Series 6 Exam on both Amazon and Goodreads. Your review is important!

Planning to take the Series 6 exam to qualify as a FINRA-registered representative able to sell investment companies and variable products? Then make sure you study the provisions of SEC Regulation D which governs the offerings of private placements. Oh? You didn't think that the Series 6 would include questions on private placements? Then read on . . .


Section 1.2 of FINRA's Content Outline for the Series 6 includes a chunk on the provisions of Regulation D. This regulation sets forth conditions under which an issuer may offer a new issue privately, i.e., without making an offering available to the general public. Regulation D consists of nine sub-rules, 500 through 508, that establish conditions and definitions.

Rule 506 is especially important because it lists the conditions for an unlimited amount of securities to be offered. It allows only a limited number of unaccredited investors, but does allow accredited investors to be unlimited in number.

Therefore, Series 6 applicants, make sure you can define who is an accredited investor and who is not. Know the number limit on unaccredited investors. Know what Regulation D allows and what it prohibits.

You can see why the Series 6 can pose problems for those taking it, especially if they go into the exam unprepared on the above.

Be cautious on which Series 6 texts or study books you choose. Make sure that they cover the items in FINRA's Content Outline, including private placements.

For your assistance, Bob Eder's book places the numbered sections of FINRA's Content Outline next to major paragraphs.

Bob Eder's study text, Study for the Series 6 Exam, explains Regulation D and private placements, including practice questions.

Bob Eder's book, Study for the Series 6 Exam, is available from Amazon in either paperback or e-book versions.

Here is the link to Study for the Series 6 Exam on Amazon.

Here is the link to FINRA's Content Outline. Take note of Section 1.2, dealing with Regulation D and private placements.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.

P.S. Bob Eder very much appreciates reviews of readers. Please review Study for the Series 6 Exam. Your opinion matters!

Here is an important rule to study and know for anyone planning to take the Series 6 Exam.

FINRA Rule 3110 (b) (4) requires supervision of all correspondence both incoming and outgoing. It covers the review of incoming and outgoing written correspondence involving retail customers and internal communications relating to a broker/dealer's investment banking or securities business.

Note as important that this rule also covers electronic communications, both incoming and outgoing.

A registered principal of a broker/dealer must review and approve or disapprove all:

(a) incoming and outgoing written (including electronic) correspondence to properly identify and handle in accordance with firm procedures, customer complaints, instructions, funds and securities, and communications that are of a subject matter that require review under FINRA rules and federal securities laws; and

(b) internal communications that require review under FINRA rules and federal securities laws.

A registered principal must do the reviewing of correspondence and internal communications and must show his/her approval by signature and date in writing, either electronically or on paper in written form. This rule implies that records be kept of all approval/disapprovals of communications coming in or going out. These records must be easily accessible to FINRA and other securities authorities, and may be kept in either physical or electronic form.

So here's a true-or-false question exercise on FINRA Rule 3310:

1. a registered principal of ABC Broker/Dealer must approve all outgoing correspondence, but need not approve mail coming in if marked confidential. True or false?

2. approval by a registered principal of ABC Broker/Dealer need not be in writing, but each disapproval must be recorded in writing and must indicate reasons why disapproved. True or false?

3. a registered principal of XYZ Broker/Dealer must approve all correspondence coming in or going out, but need not approve communications that are in digital or electronic form. True or false?

4. a registered principal of XYZ Broker/Dealer need not approve communications coming in or going out provided that these communications concern only investment companies or mutual funds. True or false?

5. some internal communications between registered representatives of a broker/dealer may need to be approved depending on subject matter if they involve certain FINRA rules or federal securities laws. True or false?

Answer Key: (1) false; (2) false; (3) false; (4) false; (5) true.

Bob Eder discusses Rules on Correspondence in his Study for the Series 6 Exam.

Here is the link to FINRA's Content Outline for the Series 6 Exam. See the references to Correspondence with the Public in FINRA's Series 6 Content Outline, Section 1.1.









Study for the Series 6 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Study for the Series 6 Exam on Amazon.

See Bob Eder's Author Page on Amazon.com.

For questions about Bob Eder's Study for the Series 6 Exam, or questions in general about the Series 6 Exam, or about Correspondence with the Public, simply email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.

The Securities Industry Essentials (SIE) Exam is a necessary first step if you plan to sit for many securities exams, including the Series 6 and Series 7 exams. If you do intend to sit for the SIE Exam, make sure that you know about self-regulatory organizations (SRO's), what they are, who they are, and what their purpose is.

FINRA publishes a Content Outline for the SIE Exam, and Section 1.1.2 specifically talks about Self-Regulatory Organizations(SRO's), indicating that you should expect to see questions about SRO's on your exam.

Bob Eder discusses SRO's in his Study for the Securities Industry Essentials (SIE) Exam. Here is a sample of Bob Eder's treatment:

Self-Regulatory Organizations (1.1.2)

Under the SEC's control, and reporting to the SEC, are the several self-regulatory organizations called SRO's. The theory behind this organization is that the SEC cannot regulate the day-to-day practices of participants in the markets as well as organizations that are made up of member broker/dealers themselves, thus the "self-regulatory" part. These SRO's include the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), the Municipal Securities Rulemaking Board (MSRB), and the largest of all, the Financial Industry Regulatory Authority (FINRA). Each of the SRO's has direct responsibility over its own members, in accord with the wishes of the SEC. For example, the CBOE makes rules, disciplines, and supervises its members who trade options on the exchange.

Here is a Bob Eder question on SRO's:

All of the following are SRO's except:

a. NASAA

b. CBOE

c. FINRA

d. MSRB

The answer is (a). NASAA stands for North American Securities Administrators Association and is the organization consisting of the various securities administrators for the states and some other government entities. NASAA is not a self-regulatory organization. However, FINRA, the MSRB and the CBOE are self-regulatory organizations (SRO's) and are made up of broker/dealers for the purpose of self governance and self regulation.

Here is the link to FINRA's Content Outline for the SIE Exam. See the references to Self-Regulatory Organizations(SRO's) in Section 1.1.2.

Study for the Securities Industry Essentials (SIE) Exam is available from Goodreads and Amazon in both paperback and Kindle e-book versions.

For questions about Bob Eder's Study for the Securities Industry Essentials (SIE) Exam, or questions in general about the SIE Exam, or about Self-Regulatory Organizations(SRO's), feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.

P.S. Please consider reviewing Bob Eder's Study for the SIE Exam on Goodreads. Your opinion matters!

NASAA publishes a Test Specifications for the Series 65 exam, and Section III (C) (1) (1.1) of these Test Specifications includes Capital Asset Pricing Model (CAPM). Therefore, since CAPM is included, candidates for the Series 65 Exam need to know and study CAPM. A good test of whether you know what CAPM is about is to write a paragraph and see if you can explain it.

Bob Eder in his Study for the Series 65 Exam discusses CAPM in Chapter 8 on Portfolio Management. Here is a sample of Bob Eder's treatment of CAPM:

"The theoryof Capital Asset Pricing Model attempts to establish the likely return of aportfolio, using the portfolio's beta, the expected return of the whole market,and the risk-free return of a T-bill. To arrive at a likely return, the CAPMsubtracts the risk-free return, e.g., an average of the return on Treasurybills, say, for the last five years, from the expected return of the wholemarket. Then CAPM multiplies this net return by the beta of one's portfolio.The result is the expected return of the portfolio."

Here is the link to NASAA's Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Capital Asset Pricing Model (CAPM), feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 
See Bob Eder's Author Page on Amazon.com.

NASAA's Test Specifications for the Series 65 Exam list Digital Assets in Section II (N) (2), and mention characteristics, definition, and risks. This listing means that you might see questions about Digital Assets on your Series 65 Exam.

Bob Eder in his Study for the Series 65 Exam discusses Digital Assets, and here is a sample of his treatment:

DigitalAssets                                                                                                  II(N) (2)

By "digital assets," we mean assets thathave no physical existence, other than being stored, listed and traded on a computeror computerized network and which have unique or sui generischaracteristics. Digital assets include crypto currencies, tokens, and digitalcoins. Digital assets also include film, videos and audios. Basically, the common element is thatdigital assets don't exist in physical form, or in the case of crypto, tokens and coins, do not haveintrinsic value other than in one's mind or being listed in the virtual realmof cyber space. 

Here is the link to NASAA's Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Digital Assets, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 
See Bob Eder's Author Page on Amazon.com.