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NASAA Series 65 Uniform Investment Adviser Law Exam

3. Client Investment Recommendations and Strategies: practice questions

Our Series 65 bank has 128 questions on this topic. Here are 5 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

An adviser's client questionnaire shows a high willingness to take risk, but the client has no emergency savings and large credit card debt. The adviser should:

  1. Rely on the questionnaire score alone
  2. Weigh the client's limited ability to bear losses and address the debt and cash reserve first
  3. Decline to give any advice ever
  4. Recommend leveraged ETFs so the client can earn enough to pay off the debt quickly
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B. Weigh the client's limited ability to bear losses and address the debt and cash reserve first — Ability to take risk limits willingness. Paying down high-interest debt and building an emergency fund usually come before investing in risky assets.

Question 2

Which plan type guarantees a specific benefit at retirement and puts the investment risk on the employer?

  1. A defined benefit pension plan
  2. A 401(k) plan
  3. A 403(b) plan
  4. A SEP IRA
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A. A defined benefit pension plan — Defined benefit plans promise a formula-based benefit; the employer must fund it. In defined contribution plans the employee bears the investment risk.

Question 3

An investment policy statement for a retirement plan or client typically sets out:

  1. A guarantee of minimum returns
  2. The adviser's personal trading record and commission schedule
  3. Objectives, risk tolerance, asset allocation guidelines and how investments will be monitored
  4. Only the fees the adviser charges
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C. Objectives, risk tolerance, asset allocation guidelines and how investments will be monitored — An IPS is a written guide for managing the portfolio. For ERISA plans it helps document a prudent process; it guarantees nothing.

Question 4

Annual contributions to a Coverdell education savings account are limited to:

  1. $2,000 per beneficiary
  2. $19,000 per beneficiary
  3. $7,500 per beneficiary
  4. $2,000 per contributor
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A. $2,000 per beneficiary — The $2,000 limit applies per beneficiary from all contributors combined, subject to income phase-outs for contributors; generally contributions stop at 18.

Question 5

An investor who believes markets are efficient is most likely to favor:

  1. Concentrated stock picking
  2. Frequent market timing
  3. Passive index investing
  4. Technical chart trading
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C. Passive index investing — If prices already reflect available information, trying to beat the market adds cost without reliable gain, so low-cost index funds make sense.

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