Series 6 Lessons Audio Lessons for the FINRA Series 6 Exam

Series 6 Lesson 9 Mutual Funds pt 2 Series 6 Lesson 9 Mutual Funds pt 2 Fund of Funds = a mutual fund that holds shares of many other funds Principal Protected Funds = These funds are focused on protecting the investor’s principal. They take many steps in order to keep everything stable. These can be expensive. Every mutual fund will have a prospectus that can help you understand their strategy, such as what kinds of investments they go after or what kind of strategies they employ. It is a good place to start when comparing mutual funds. They will often show the historical performance of the fund over time as a way to show what investors might expect in the future. They always have the disclaimer “past results are not predictive of future results”. All funds have different expenses that are usually deducted from the proceeds. Some funds have a sales expense. This is detailed in the prospectus. Capital appreciation happens when a mutual fund goes up in value. The mutual fund will pay out dividend on all the stock and bonds that are part of the fund. They will also give capital gains dividends to shareholders if they can. After fulfilling these requirements, the fund is then compared to where it was when it started to calculate the net asset value. If you start with $15 per share and end at $17 per share, that is $2 in capital appreciation. You also have to take any applicable taxes into consideration. Fees can either be classified as A-shares, which charge fees up front or B-shares, which charge fees when you sell. Some funds charge a percentage fees called 12b-1 fees. C-shares do not charge an upfront fee, but they have high 12b-1 fees. A shares: long term with over $50,000 B shares: mid or long term with a small investment C shares: short term investor with less than $500,000 to invest Series 6 Lesson 9 Breakpoints The more that you invest, you can qualify for breakpoints, which is a reduction in the sales charge. The more you invest, the more you can save, based on different breakpoints. When you want to cash in your shares, this is known as redeeming your shares. When you do this, you get the NAV per share, minus any charges if they are A-shares. This will require a signature under certain conditions: -If the redemption is over $75,000. -If the redemption is to someone other than the registered shareholder -If the redemption is sent to an address other than the address of record. Some funds will charge a redemption fee if you try to redeem them during the first year. They want you to hold onto your investment. Investors can also set up an automatic withdrawal plan. They can get a fixed periodic payment, such as $500/month or a certain percentage every so often, quarterly, etc. You can say that you want to sell X number of shares every so often, or you can have it withdrawn over a specific amount of time, two years, etc. A mutual fund has a Board of Directors. They establish investment policy, they appoint other people oversight positions, establish policies about capital gains and dividends, and review/approve 12b-1 plans. They oversee operations, but do not make the investment decisions themselves, just like any normal company. The investment adviser/portfolio manager is appointed by the BOD. He or she is the one who actually manages the fund’s investments according to the fund’s stated policies. They are paid a percentage of the fund’s net assets. The custodian is a bank that holds all of the assets of the mutual fund, such as cash and securities. They are the container for all of the fund’s securities. The transfer agent is the party that issues shares of the mutual fund to buyers and redeems shares from sellers. They distribute dividends to investors. Mutual fund shareholders are like normal company shareholders and so they get to vote about matters of fund business, such as when there are changes in investment strategies, changes in fees,

Series 6 Lesson 8 Mutual Funds pt 1 Series 6 Lesson 8 Mutual Funds pt 1 is our first discussion on Mutual Funds This is a big investment portfolio that can give as many shares as investors want to buy. The shares of the fund do not change value when investors buy shares. Shares become more valuable when the securities in the portfolio give out income. There is no guarantee that the securities will gain in value. These funds are strongly diversified and run by a professional investment advisor. This helps people invest without too much effort. Advantages: -You have the expertise of a professional investor. -It is easy to diversify -You can liquidate some part of it without losing diversity -It is simpler on taxes -It is easier to keep records about -Easier to purchase -Automatic reinvestments of capital gains Ways that Mutual Funds Diversify -Different kinds of industries -Types of investments instruments -Types of securities issuers -Different geographic areas Types of Mutual Funds Equity Funds: These focus in investing in equity securities. Growth Funds: Invest in companies that are aggressively growing. They have high prices, but can bring in high returns. Value Funds: These have a low price, but offer low returns. Blend Funds: In the middle between value and growth funds. Growth and Income Funds: A mix of some stocks that are growing and some that provide dependable income. International Funds: Invests in companies outside the U.S. Global Funds: Funds in the U.S. and in other countries. Bond Funds: Collections of bonds together. Treasury funds have low risk/yield and corporate bond funds have high risk/high yield. These are taxable. Tax-Exempt Bond Fund: These are collections of municipal bonds. Money Market Mutual Funds: Tax free, very low returns. Keeps a stable value. Specialized Fund: These funds specialize in a certain strategy, just one industry or group. Asset Allocation Funds: These funds will allocate your funds on your behalf. Precious Metals Funds: Invests in precious metals, such as gold, silver, and platinum. Hedge Funds: These are funds that are only available to accredited investors that have over $1 million in net worth and makes more than $200,000 per year. If they are married, they can pool their net worth and they have to make at least $300,000 per year. Hedge funds use diverse, high-risk strategies, which means that people need to have some money in the bank. They are illiquid. They cannot be sold for at least a year. They charge high management fees and about 20% of the gains. Even if you are non-accredited investors can buy mutual funds that invest in hedge funds. We also offer lessons for: The Series 7 Exam https://gumroad.com/l/ILYu The Series 22 Exam https://series6lessons.com/series-22-exam/ The Series 63 Exam https://series6lessons.com/series-63-exam-lessons/ The Life Health Insurance Exam https://series6lessons.com/insurance-lessons/ The SIE Exam (Securities Industries Essentials Exam) https://series6lessons.com/finra-sie/ Click on any of them to find out more

Series 6 Lesson 7 Time Horizon In Series 6 Lesson 7 we discuss Time Horizon Time Horizon You have to think about the time horizon of your investments. The longer the time horizon the more volatility the person who is investing can withstand. The longer you have, the more you a risk and vice versa. If you only have a few years, it is probably good to stay out of the stock market, but if you have a longer timeframe, the stock market can be a better choice, because you can withstand more volatility. If you are a young investor trying to invest so that you will have retirement money, they can take more risks that will have ups and downs, because they have more time to recoup potential losses. If you are older and are using investments for income, you will need to have lower-risk investments. Three Major Factors Investment objective Time Horizon Risk Tolerance U.S. Treasury Bonds These are very safe, but also low yield. There is no risk of default and you are going to get the entire amount at maturity. There are different categories of bonds based on how much time you have. Short term = T-Bills. Mid term = T-Notes Long term = T-Bonds. T-STRIPS are bought at a deep discount and then they make money when the bond matures by getting the face value back. ($500 price, then matures to $1000). Non-Marketable Government Securities Series EE Bonds: Purchased at a discount and redeemed at their face value when they mature. The taxes can be deferred until maturity or they can be converted into HH Bonds. Series HH Bonds: These can only be purchased by converting Series EE Bonds at maturity. They pay semi-annual interest, and they can be redeemed for their face value at any time. I-Bonds This is issued by the U.S. Treasury, which means that it is backed and exempt from state and local income taxes. It has a guaranteed rate, which can rise if inflation rises. The interest is added to the value of the bond, which means taxes can be deferred. If you use the proceeds for education costs, then the income is tax free. (Has to be within the same year as the redemption of the bonds) All of these types of bonds are “non-marketable”, which means that they cannot be traded. That is why they are sometimes called “Savings Bonds” Municipal Bonds A municipality is any state or local government. (school district, park districts, etc) These are bond issued by these governments. They pay tax-free interest to investors. This means that they pay lower rates than corporate bonds, but you will still probably come out ahead, because you do not have to pay taxes. You can be taxed by other governments that did not issue the bond, but not by the issuing government. Mortgage Backed Securities Mortgages are pooled together and packaged and then sold to investors. These investors get interest and principal payments from that pool. These debts are eventually paid off and might even be paid off earlier than scheduled, which is known as prepayment risk. GNMA is the Government National Mortgage Association, sometimes Ginne Mae. If you buy a pass-through certificate from GNMA, you get a mortgage-backed security that is backed by the U.S. Treasury. FNMA is sometimes called Fannie Mae and if you buy through them, the U.S. Treasury is not required to bail out investors, but it can choose to do so. CMO This is a collateralized mortgage obligation It also gets value from mortgages and mortgage-backed securities that are called tranches, which are grouped by when they mature. (become amortized) REMIC This is a Real Estate Mortgage Investment Conduit. This is another kind of mortgage backed pass-through vehicle. They are separated into different risk classes, not different maturity classes. Money Market Securities Money market are debt securities, not including stock, that are going to mature in a year or less. These are securities that are highly liquid. They pay short-term interest rates,

Series 6 Lesson 6 Investment Objectives Series 6 Lesson 6 You need to spend time getting to know your customer so that you understand what kind of recommendations you should make. Recommendations that are based on knowledge of the customer are said to be suitable. You have to use reasonable diligence in getting to know your customer and establishing the “essential facts” before making recommendations. You need to understand the customer’s investment profile, including things like: their goals, needs, time constraints, tolerance for risk, age, other investments, liquidity needs, investment experience, etc. A recommendation is a communication that could reasonably be seen as suggesting that a customer do something or refrain from doing something coming from either a person or a software program, when it has to do with a security or an investment strategy. It is not a recommendation if a broker-dealer simply explains investment strategies in general without suggesting a specific one. Both the recommendation to sell or the recommendation to hold are considered official recommendations. For a suggestion to be suitable, the agent has to be diligent in understanding the potential risks and rewards associated with a specific security and must determine that that security must be suitable for at least some investors. Then the broker-dealer must do enough research to make sure the investment is suitable for that specific customer. You also have to make sure that the number of transactions that you are suggesting makes sense given this particular customer’s investment profile. If a customer does not provide all the information requested, the broker-dealer has to decide if they have enough information to go on, using his or her best professional judgement. Broker-dealers must also act a fiduciary, which means they always must act in the customer’s best interests and not in their own. You should not recommend something based on a higher commission for yourself at the expense of the customer, for example. This does not mean that you always have to recommend the least expensive investment, but it does mean that it has to make sense. Investment Objectives = what does your customer want to accomplish with this investment? income (bonds) high yield (municipal bonds/funds) growth (common stock/stock funds) portfolio diversification (bonds tock, money market) preserving capital, Government/Treasury, Ginnie Mae liquidity (money market funds) speculation (options, high-yield bonds, precious metals) Growth vs Aggressive Growth Aggressive growth investments are international funds, sector funds (like healthcare, financial services, etc.) and funds from emerging markets. Are you playing offense or defense? If you are going to be an aggressive investor, you need to have the following things: steady employment, a long time horizon, good cash flow to invest, and a high tolerance for risk. You will more likely invest in stocks and in mutual funds, though not all stocks are equally aggressive. Blue chip stocks are relatively stable, but low cap stocks are more aggressive. It is also more offensive to invest in luxuries and unproven technologies that may or may not take off. If they do, you stand to make a lot of money, but if they don’t, you may lose everything. A defensive investor will invest in stocks that sell things that will survive an economic downturn, things that are essential rather than luxuries. These can include food, clothing, and healthcare products. We also offer lessons for: The Series 63 Exam The Series 22 Exam The SIE Exam (Securities Industries Essentials Exam) The Series 7 Exam The Life Health Insurance Exam click on any of them to find out more

Series 6 Lesson 5 Lesson 5: Unit 1, Part IV In Series 6 Lesson 5 we cover Debt Securities Debt Securities (Bonds) Companies let other people buy up their debt without having to give them voting rights in their company or paying them dividends. You simply have to pay them the interest on the loan and make regular payments. Unlike stock, the people who buy these are not part owners of the company. They are simply lenders looking to make some money on interest. The bond is bought, all the money is paid upfront and all the money is due again with interest by the end of the term/maturity date. Most bonds have a par value of $1,000. A company’s common stock + preferred stock + debt securities = capital structure Annual dividend divided by the market price = yield Inverse relationship = when one thing goes up, the other goes down, such as if a price goes one way, the yield goes the other way. Bond’s prices can fluctuate, regardless of the face value. This happens because the interest rate on the bond will fluctuate throughout the life of the bond. You want to hold if the rate is above the coupon rate (printed rate) and you might want to sell if the the rate falls lower. Current Yield = Annual interested divided by the bond price A bond that is trading below the par value is called a discount bond. A bond that has a current yield that is lower than the coupon rate, you have a premium bond. Bonds have different investment grades, given on two systems: Standard and Poor’s and Moody’s. In S and P’s, the best you can get is an AAA rating and the worst you can get is a BBB rating. Anything lower than that is a called a junk bond. In Moody’s system, the highest rating is Aaa and the lowest Baa. Anything lower than that is also a junk bond, that presents a significant risk. There would be substantial doubt as to the soundness of the company’s finances and it probably would not be a good investment. Series 6 Lesson 5 Many companies create a sinking fund, which is a low-risk, slow-growing fund that provides security for bonds that it issues. This helps increase its bond rating, which encourages more people to invest. Secured bonds are backed up by specific assets or collateral. If the person who took out the bond defaults, then the borrower can repossess the collateral. Buying a bond that is only based on good faith means that you are buying what is called a debenture, which is considered a general creditor that is below secured bondholders in getting money paid out if a company has to liquidate. You can also be a subordinated debenture, which has an even lower claim on corporate assets. An income bond is a kind of bond that only pays income if a company has income. They are often created by companies coming out of bankruptcy and offered an attractive discount in order to offset their risk. A convertible bond can be converted into a certain number of shares of the company’s common stock at will. When they choose to do that, they get a conversion price, which is how much each share of stock will cost. They can then take the face value of the bond and purchase an according number of shares of stock with that money. We should also Point out that if you are interested in the Professional education bundle it is available HERE And if you are interested in our Series 7 Lessons they may be found HERE Series 6 Lesson 4 is about Investment Vehicles

Series 6 Lesson 4 is about Investment Vehicles Series 6 Lesson 4 Investment Vehicles Lesson discusses Investment Vehicles This are different ways you can suggest people invest their money. Each carries a different level of risk vs. reward. Series 6 Lesson 4 covers Equity Investments: The investor buys equity in a company, which means they own a certain percentage of the company and are given that percentage of the profits. This is a high-risk security, because if the company does not do well, the person will not make much money. Common Stock: The investor buys shares of a company. They can make money if their shares appreciate in value or if they are paid dividends when the company is doing well. Different stocks carry different amounts of risk. Many stocks can be quite volatile. The investor has limited liability that is only equal to the number of shares you own. If the company goes bankrupt, the creditors cannot came after the stockholders. Shareholders can transfer their shares to others, both by selling them or by giving them away. Companies have transfer agents, who oversee the transfer of shares and who can reissue your stock certificates if you lose them in return for a fee. A registrar, another financial institution, makes sure all the numbers are adding up correctly. Shareholders have the right to inspect the books/records of the company. Stock can also pay dividends if the Board of Directors for a company declares them. This usually happens if things are going well for the company. The more stock you own, the greater the dividends are going to be. Stock owners also have what is called a pre-emptive right. This means if new shares of stock are going open to the public, the existing stock holders have the right to purchase their proportion of the new shares before others get to buy them. This means that they get the chance to maintain the percentage of the company that they own so that their own shares are not “watered down”. You can enjoy a subscription right as a stock holder, which allows you to buy new stock below the regular market price for the period of a few weeks. Another stock term is a warrant, which a certificate that lets you buy a specific stock at a certain guarded price. You can wait for the stock to become much more valuable and then purchase that stock at the best price to make a lot of money. American Depository Receipt: (ADR) This is a receipt given to someone against shares of foreign stock that is simply held in a bank. You can invest in foreign companies but instead buy through an ADR, which trades on the American system so that you don’t have worry about exchange rates when actually purchasing the shares and time differences in distant European or Asian markets. You have to worry about currency exchange risk, which means that when you are collecting dividends, those are still issued in the foreign currency, Euros or Yen, or whatever else, and if the exchange rate is not favorable to the dollar, you may end up losing out. Preferred Stock: This kind of stock pays a fixed income stream, but its actually still an equity position. Unlike regular stock, it does not rise in value when a company’s profits increase. It does not have the same risk as common stock, but it also does not have the same potential rewards that common stock can offer. It is called preferred stock, because these shares are given preferred treatment if the company has to be liquidated. The preferred shareholders get their dividends all paid out before any of the common stock holders get any of their money. Unlike common stock, it has its rate of return printed right on it (3% or 5%, etc.) This is a percentage of the par value of the stock. If that were $1,000, a 3% stock would pay $30 per share per year. Measuring Yield There are two things you need to take into consideration: growth (capital appreciation) and income (dividends). Growth means that your shares grow in value.

Series 6 Lesson 3 Know your Customer Rule! In Series 6 Lesson 3 we talk about your know your customer rule an essential tenent of investment management! Sales Blotter This is a daily record that shows all the movements of cash and securities that a broker-dealer is responsible for during the business day. “Ledger” is another word for “record”. You are expected to keep ledgers of just about everything you do: Assets vs. liability’s Income vs. Expenses Movements of all cash and securities within each customer account. Types of Account Ownership: Individual account: Owned by one person TOD (Transfer on Death) Account: Passes directly to a beneficiary on the death of the account holder without having to go to a probate court. (A TOD agreement has to be signed with a broker-dealer). A second “contingent beneficiary” may be named. Trading authorization: Someone else has power of attorney over your account. Joint Account: Two or more people own. If you have the right of survivorship, the assets pass to the survivor if one person dies. Joint Tenants in Common: If one person dies, that person’s assets go to the person’s estate, not to the other tenant or tenants. Custodial Accounts: An adult opening an account on behalf of a minor. The adult is the nominal owner and the minor is the beneficial owner. The account can be set up as an UGMA or UTMA (Uniform Gifts to Minors/Uniform Transfers to Minors Act) so that the money can be gifted to the minor when he or she comes of age. There can only be one custodian per account of this type. Gifts cannot be taken back once given. Trust Account: An account for the benefit of another with stipulations on it, such as how much can be withdrawn in a year, what types of investments can be made with the account, etc. The grantor is the person who creates the trust and sets down the rules that are set down in a document, called the trust agreement. Estate Accounts: An account created after a person passes away, which requires a great deal of supporting documentation, such as a tax ID, a death certificate, and court documents. This estate holds the deceased person’s assets until they can be dispersed. Discretionary Accounts: An account where the broker-dealer is allowed to buy and sell at his or her discretion, while still collecting a commission. The customer would have to sign a discretionary authorization form. Guardian Accounts: This is created for a minor when his guardians become mentally incompetent or die. A person has to act as that person’s guardian until they come of age or recover. Business Accounts: An investment account opened by a corporation or partnership. You will have to look at the founding documents of the corporation or partnership to see who has authority to conduct business in their behalf. Anti-Money Laundering (AML) Every broker-dealer is required to enact AML measures under the Bank Secrecy Act. This act requires all financial institution to keep detailed records, which are subject to being audited. They are required to report any suspicious activity to the treasury department, and these are filed away as Suspicious Activity Reports. (SAR-SF). The USA Patriot Act makes it a legal requirement for all broker-dealers to monitor activity that could be related to money laundering. You have to look at individual transactions, but also at patterns of transactions for suspicious activity. More specific records have to be kept for transfers over $3000 and cash transactions over $10,000. This is a way to combat money laundering, which funds criminal organizations and terrorists groups. This means that these organizations are trying to make money that has been obtained from illegal sources look like it has been obtained from legitimate sources. Three layers of laundering: Placement: Money is moved into the system. Layering: A confusing set of transactions is made to hide the money trail

What is the Series 6 Exam? Series 6 Lesson 1. This podcast is an introduction to what is required to pass the FINRA Series 6 Exam. In Series 6 Lesson 1 we cover: What is the FINRA Exam? FINRA = Financial Industry Regulatory Authority, Inc. It is the self-regulating body for setting standards and regulation for financial professionals. The FINRA exam is an essential part of becoming a successful financial professional. Requirements to Take the Exam You must be sponsored by a FINRA member firm. The firm must fill out Form U4 (Uniform Application for Securities Industry Registration or Transfer) The firm must pay the examination fee through FINRA’s Central Registration Depository (CRD) Find a a Prometric Testing Center in the United States, Canada, Mexico, or their territories (https://securereg3.prometric.com/Welcome.aspx) Series 6 Lessons The Series 6 Lessons is a podcast for those preparing to take this exam. It consists of portions of the audio lessons designed to help the student prepare and pass for the series 6 Exam. The series 6 Exam is an entry level exam allowing those who pass the exam and work for a firm licensed to sell investment company products and variable contract products. The FINRA Series 6 Exam assesses the competency of an entry-level representative to perform their job as an investment company and variable contracts products representative. Candidates must pass the Securities Industry Essentials (SIE) exam and the Series 6 exam to obtain the Investment Company and Variable Contracts Products registration For the SIE Exam refer to the SIE Podcast available on Apple Podcasts The next exam the Finance Professional will want to pass would probably be the Series 7 Exam. Table of Contents Lesson 1: Exam Overview (25:06) Lesson 2: (27:26) Lesson 3: (25:59) Lesson 4: (25:10) Lesson 5: (25:30) Lesson 6: (22:35) Lesson 7: (26:40) Lesson 8: (25:03) Lesson 9: (25:01) Lesson 10: (26:18) Lesson 11: (26:10) Lesson 12: (26:52) Lesson 13: (25:11) Lesson 14: (25:06) Lesson 15: (25:01) Lesson 16: (25:15) Lesson 17: (25:50) Lesson 18: Review 1 (26:29) Lesson 19: Review 2 (27:38) Lesson 20: Review 3 (25:03)

Series 6 Lessons The Series 6 Lessons is a podcast for those preparing to take this exam. It consists of portions of the audio lessons designed to help the student prepare and pass for the series 6 Exam. The series 6 Exam is an entry level exam allowing those who pass the exam and work for a firm licensed to sell investment company products and variable contract products. The FINRA Series 6 Exam assesses the competency of an entry-level representative to perform their job as an investment company and variable contracts products representative. Candidates must pass the Securities Industry Essentials (SIE) exam and the Series 6 exam to obtain the Investment Company and Variable Contracts Products registration For the SIE Exam refer to the SIE Podcast available on Apple Podcasts The next exam the Finance Professional will want to pass would probably be the Series 7 Exam. Table of Contents Lesson 1: Exam Overview (25:06) Lesson 2: (27:26) Lesson 3: (25:59) Lesson 4: (25:10) Lesson 5: (25:30) Lesson 6: (22:35) Lesson 7: (26:40) Lesson 8: (25:03) Lesson 9: (25:01) Lesson 10: (26:18) Lesson 11: (26:10) Lesson 12: (26:52) Lesson 13: (25:11) Lesson 14: (25:06) Lesson 15: (25:01) Lesson 16: (25:15) Lesson 17: (25:50) Lesson 18: Review 1 (26:29) Lesson 19: Review 2 (27:38) Lesson 20: Review 3 (25:03)

Series 6 Lesson 18 Review pt. 1 Series 6 Lesson 18 Review pt. 1 the next 3 lessons will be a review of the full Series 6 Audio Course. Under FINRA regulations, you are not allowed to disclose the contents of the FINRA exam to any other person. It must be kept completely confidential to maintain the integrity of the test. When a broker-dealer hires a securities agent, they have to fill out a U4 Form. The agent must do everything he or she can to make sure that all information on the form is completely accurate. You cannot omit any past convictions/problems. It has several sections, including you name, address, etc, your 5-year history of your residences, a 10-year employment history, and information about any legal trouble that you have had. You also have to submit fingerprints in order to complete a background check. You do not have to disclose your marital status or your education history. Form U5 is used to terminate a registered representative. It outlines the cause of the termination. These are entered into FINRA’s BrokerCheck system. This form can be filled out for any reason, whether there was an infraction, or the person is simply retiring or is taking a different job in another industry. The broker-dealer has to fill this out within 30 days of the termination. An agent's registration is not transferred from one firm to the next. If you leave one firm, you will need to go ahead and fill out another U4 Form. Registered representatives have to complete continuing education requirements, including a regulatory element requirement and a firm element requirement. The regulatory element means that they have to participate in a training exercise within 120 after a person’s 2nd registration anniversary of your initial registration date and then again every three years after that. If he or she does not do this, their registration will fall into inactive status, and they will not be able to conduct any business. The firm element is written training that firms developed that needs to be completed every year. It covers overall investment features and risk factors, suitability and ethical sales practices, and regulatory requirements that apply to that person’s duties. Each year, every firm needs to certify to FINRA that all of its employees have complied with the regulatory requirements. They also have membership fees that are based on the number of registered representatives that are employed by the firm. Series 6 Lesson 18 Review pt. 1 We also offer lessons for: The Series 7 Exam https://gumroad.com/l/ILYu The Series 22 Exam https://series6lessons.com/series-22-exam/ The Series 63 Exam https://series6lessons.com/series-63-exam-lessons/ The Life Health Insurance Exam https://series6lessons.com/insurance-lessons/ The SIE Exam (Securities Industries Essentials Exam) https://series6lessons.com/finra-sie/ Click on any of them to find out more

Series 6 Lesson 17 FINRA Regulations Series 6 Lesson 17 FINRA Regulations is this lessons topic. Under FINRA regulations, you are not allowed to disclose the contents of the FINRA exam to any other person. It must be kept completely confidential to maintain the integrity of the test. When a broker-dealer hires a securities agent, they have to fill out a U4 Form. The agent must do everything he or she can to make sure that all information on the form is completely accurate. You cannot omit any past convictions/problems. It has several sections, including you name, address, etc, your 5-year history of your residences, a 10-year employment history, and information about any legal trouble that you have had. You also have to submit fingerprints in order to complete a background check. You do not have to disclose your marital status or your education history. Form U5 is used to terminate a registered representative. It outlines the cause of the termination. These are entered into FINRA’s BrokerCheck system. This form can be filled out for any reason, whether there was an infraction, or the person is simply retiring or is taking a different job in another industry. The broker-dealer has to fill this out within 30 days of the termination. An agent's registration is not transferred from one firm to the next. If you leave one firm, you will need to go ahead and fill out another U4 Form. Registered representatives have to complete continuing education requirements, including a regulatory element requirement and a firm element requirement. The regulatory element means that they have to participate in a training exercise within 120 after a person’s 2nd registration anniversary of your initial registration date and then again every three years after that. If he or she does not do this, their registration will fall into inactive status, and they will not be able to conduct any business. The firm element is written training that firms developed that needs to be completed every year. It covers overall investment features and risk factors, suitability and ethical sales practices, and regulatory requirements that apply to that person’s duties. Each year, every firm needs to certify to FINRA that all of its employees have complied with the regulatory requirements. They also have membership fees that are based on the number of registered representatives that are employed by the firm. Series 6 Lesson 17 FINRA Regulations We also offer lessons for: The Series 7 Exam https://gumroad.com/l/ILYu The Series 22 Exam https://series6lessons.com/series-22-exam/ The Series 63 Exam https://series6lessons.com/series-63-exam-lessons/ The Life Health Insurance Exam https://series6lessons.com/insurance-lessons/ The SIE Exam (Securities Industries Essentials Exam) https://series6lessons.com/finra-sie/ Click on any of them to find out more

Series 6 Lesson 15 Registration and Disclosure Series 6 Lesson 15 Registration and Disclosure is what this lesson is about. Stock that is sold under a private placement is not registered and so it is considered restricted. Investors will have to hold it for a certain period of time before selling it. If the sale is less than 5,000 shares and $50,000, it can be sold with reporting. A transaction that small is not big enough to interest the regulators. When helping people buy and sell securities, you need to do your due diligence to make sure they are not trying to get around restrictions by dealing in restricted stock. These restricted stocks can be sold without restriction, however, to institutional investors, such as banks, insurance companies, etc. These sorts of buyers have over $100 million in store. Registration and disclosure are supposed to help protect investors. Whether something is protected by the SEC, people can still face civil liabilities if they mislead or misrepresent pertinent facts about investments. You can sue other parties for damages through the civil courts who have done this. You have to prove that you were deceived and that you could not have know better through your diligent efforts. The Security and Exchange Act of 1934 broadened the scope of the Act of 1933. It included anti-fraud provisions that apply to any person and any security. It means that anyone who lies or omits the truth when trying to buy and sell securities will be subject to legal action. This act officially created the SEC as the ultimate regulatory authority. Other regulatory institutions, such as FINRA, NASDAQ, and CBOE have to register with the SEC. When all of these SROs want to change a rule, it has to be sanctioned by the SEC. These organizations can exercise statutory disqualification, which means they can deny firms entry to their organization if they feel they are not well qualified enough. The Maloney Act made it so that national securities organizations have to register with the SEC. Only the NASD was actually required to do so under the act. The Howey Decision was a landmark Supreme Court case that determined that investment contracts are considered securities. They are an investment of money in a common enterprise, with the expectation of profits, and derived through the efforts of others. If something is not a security, such as a fixed annuity, a whole/term life insurance policy, or commodities futures contracts, they are not subject to anti-fraud statues. A variable annuity is still a security, but a fixed annuity is not, because it is basically an insurance contract that is backed by the company’s general account. A broker is a middleman, who charges a commission in order to help you buy or sell a security. They do not have any inventory. A dealer is directly involved, who wants to sell you some of his own stock or to buy some of another person’s stock. You always have to disclose whether you were the broker or the dealer in a transaction. Firms can act as either a broker or a dealer and often function in a variety of capacities. Large companies register their offerings on a form called the S-1. Investment companies fill out a more complex form, the Form N-1A that does two things: It registers them under the Investment Company Act of 1940 and registers their shares of securities under the Securities Act of 1933. In your company’s prospectus, you should include a section called the Statement of Additional Information (SAI). The SEC requires the following things to be in the SAI: the fund’s history, the fund policies on things like borrowing and issuing, detailed information about officers, advisers, directors and any other related entities, information on brokerage allocation, audited financial statements, and a detailed description of portfolio securities. The SAI is usually posted on a company’s website and you must disclose how to obtain it in the prospectus.

Series 6 Lesson 16 Communications Series 6 Lesson 16 Communications is the topic of this lesson. Communications with the public have to be approved/monitored by a principal and copies have to be kept. Communication to retail investors have to be pre-approved and copies have to kept, but also, they have to be filed with FINRA. Correspondence is any written/electronic communication that is made available to 25 or fewer retail investors within a 30-day period. It does not have to be pre-approved or filed with FINRA. Institutional communications are those only made available to institutional investors. Retail communications are those made available to more than 25 retail investors in a 30-day period. When you file copies of communications with FINRA, you have to provide the date of first use, the name, title, and CRD number of the principal approving it, and the date the approval was given. Communications about variable contracts have even more standards applied to them. The customer has to understand that they are being offered variable life insurance, regardless of what the official title of the product is, and not a mutual fund, and that it does not have good short-term liquidity. The tax ramifications also have be to fully explained to the customer. FINRA stipulates that mutual funds can only use fund rankings in their communications if they were issued by an official ranking entity that does not have a conflict of interest. These include Lippers, Barron’s and Zacks Investment Research. If you have a ranking from an official source, you still have to use all of the usual disclaimers and disclose the source of the ranking data. You also have to explaining the rating system, such as stars or something similar. Bonds are also rated according to their volatility, and this can be disclosed as well as long as you include a prospectus along with the sales literature. Some firms use investment analysis tools, programs that are meant to simulate future results. These are only meant as predictions and may or may not come true. If these results are used, you have to disclose the criteria and methods used, including the limits of the tool. That results must vary with each user and that the results are hypothetical. Under FINRA rules, you will need to notify your employer of any work you are doing outside the firm. This is to help make sure there are no conflicts of interest. FINRA wants to supervise all the activities of its registered representatives. Selling away means that you engage in a transaction even after you were told that it was not approved by your employer. FINRA and the SEC accommodate those who are called away for military service. While they are away, their license is placed on inactive status. Their continuing education requirements are waived, along with their dues and assessments. The two-year expiration period does not apply. They can still earn commissions but cannot perform any duties of a registered representative while on inactive status. If you are telemarketing, you will need to abide by certain rules. Never call before 8 a.m. or after 9 p.m. in a person’s local time zone unless you have express permission. Check any established “do-not-call” lists, including the firm’s and that FTC’s You have to disclose your purpose, your employer, and your company’s contact information. You must honor people’s requests to be put on the do-not-call list. If any of your employees have previously worked for a disciplined firm, who was busted by the SEC or something similar, you are required to record and store their conversations for up to three years. When filling out a new account form, a person will be asked if they are associated with a member firm. If they are, your firm has to notify the person’s employer that you are opening up the account. The employer can also request copies of confirmations, statements, and other pertinent information.

Series 6 Lesson 13 Code of Procedure Series 6 Lesson 13 Code of Procedure is this lessons topic. FINRA has a Code of Procedure (COP) that can be used to investigate violations of its law. It gives FINRA the power to “suspend, expel, bar, and censure” those under its jurisdiction who have violated the rules. A person who has violated the rules will be notified of the infraction and will be asked to respond in writing. These requests must be met within 25 days. You will be required to cooperate with the investigation and produce any documentation that is required of you. If you do not respond or cooperate in the process, a decision will be made without your input, known as a default decision. You can file an appeal to the National Adjudicatory Council (NAC), then to the SEC, and finally to federal courts. You will have to come up with legal fees, however. You can choose not to dispute the charges, which is called Acceptance, Waiver, and Consent. You will sign a waiver that you will accepted the decision handed down. For a minor rule violation, you will likely be fined, but the maximum amount is still quite low. You will also get a letter of censure in your file. The following actions happen for major violations: Censure Fine Suspension, which is temporary Expulsion, which means the firm is kicked out Barred, a person is permanently banned. Disputes between brokers and member firms are settled through an arbitration process, which means that there is only one chance and no appeals. They cannot go to civil court. It is a faster and cheaper process than civil court and can be initiated up to six years after the inciting event. A non-public arbitrator is one that is an industry professional. A public arbitrator is a person who is not a financial industry professional. They are also not immediately related to anyone who is. For a claim of $50,000 or less, FINRA will appoint a public arbitrator, or it can be qualified for simplified arbitration, where the director of arbitration takes in all the facts and makes a ruling. For $50,000 to $100,000, FINRA will appoint a public arbitrator, unless both parties agree to having three (two public and one non-public). For greater amounts, or those which are not seeking monetary damages, the default is three arbitrators, (two public and one non-public) unless both parties agree to having one. Arbitration should take less than 30 business days. The arbitrators then give out a document called an award, which details a summary of the incident, the findings of the arbitrators, the damages sought and the damages awards. These documents are publicly available. The person has 30 days in which to pay the damages. If they do not pay, FINRA will punish them and then report them to collection agencies. FINRA firms and members are required to report any charges or convictions with 30 days. These will be reported by the BrokerCheck system. Members can try to have their bad records expunged by going through the courts and providing documentation. Series 6 Lesson 13 Code of Procedure We also offer lessons for: The Series 7 Exam https://gumroad.com/l/ILYu The Series 22 Exam https://series6lessons.com/series-22-exam/ The Series 63 Exam https://series6lessons.com/series-63-exam-lessons/ The Life Health Insurance Exam https://series6lessons.com/insurance-lessons/ The SIE Exam (Securities Industries Essentials Exam) https://series6lessons.com/finra-sie/ Click on any of them to find out more

Series 6 Lesson 12 Secondary Markets Series 6 Lesson 12 Secondary Markets is this podcasts subject. The secondary market is for people to buy and sell securities to each other. The “first market” they are sold at is called the auction market. The main part of this is the New York Stock Exchange (NYSE), but there are also regional exchanges in Chicago, Boston, Philadelphia and San Francisco. The second market is known by the names Over the Counter Market (OTC) or the negotiated market. This market shares round lots of 100 shares of stock and is done at individual computers and devices instead of a physical building. NASDAQ is one such market. If a stock does not trade on NASDAQ, it will not be as liquid or desirable. The 3rd market is when there is an OTC transaction of a NYSE-listed security. The 4th market is direct institutional trading. GDP is the gross domestic product or the total output of the economy. If it is increasing, the economy is growing and vice versa. The economy goes through a series of growing and shrinking actions called the business cycle: expansion, peak, contraction, trough, recovery. A downward turn is known as a recession, and a longer recession becomes a depression. Inflation is when prices rise too quickly. It is measured by the consumer price index, (CPI) which surveys prices customer are paying for common goods, such as groceries, gas, and clothing and compares them. This is known as “too many dollars chasing too many goods”. The opposite of inflation is deflation where goods become too cheap and businesses cannot make a profit. The Federal Reserve Board is always raising and lowering the interest rate in order to grow or shrink the economy as a way to keep it closer to a state of balance. This is known as monetary policy. They can also change the reserve requirement, which is the amount of money that banks are required to keep in reserve. This changes the amount of money that banks have available to lend, etc. They can also change the discount rate, which is the rate that the Federal Reserve charges to banks that borrow from it. Banks lends money to each other at the fed funds rate. The banks will then pass the higher or lower costs to their customers. Fiscal policy refers to what the President and Congress do to affect the economy. To grow the economy, they can cut taxes and increase government spending. If they want to shrink the economy, they can increase taxes and cut government spending. The Call money rate is the rate broker-dealers pay when borrowing money on behalf of their margin clients. The prime rate is the rate at which the best qualified corporate clients get when borrowing money. There are certain ways to invest that are known as tax advantaged. These are often used for retirement savings. Taxes usually eventually come due, but they can be deferred for a long time. For profit companies offer 401k plans and schools/charities offer 403b plans. It is a tax-sheltered annuity. They indicate how much of their paycheck should go into the account. It gives you a tax break now and saves for retirement later. The employer usually matches the contribution up to a certain amount. One type is called an IRA or Individual Retirement Account. There are several kinds of these. A traditional IRA can be contributed to by anyone who is 70.5 years old or younger. You can put up to 100% of your earned income into the account. If you are past 50, you can contribute more. Contributions are pre-tax, which means that they are tax deductible from your income, which reduces the burden. If you take out money from your IRA before 50.5 years old, you will take a 10% penalty. There is also a penalty of 6% if you overfund your IRA. A Roth IRA is made with after-tax, non-deductible contributions. The money comes out tax free after age 59.5 and you have had the account for at least five years. If your income gets over a certain threshold,

Series 6 Lesson 11 Investment Risk Series 6 Lesson 11 Investment Risk is the topic covered in this lesson. In a savings account, the only risk is that your money will lose purchasing power. This is known as purchasing power risk that comes from inflation. These affect fixed-income investments the most, because the amount remains the same, while the purchasing power of the money may decline. Capital risk means investing money and possibly losing your investment. Systematic risk is something that affects securities in general, such as natural disasters. Interest rate risk means that there is a risk that your interest rate will change, making you lose value of your securities. The longer a bond’s duration, the more chance it has for the interest to change. Unsystematic risk is something that affects only certain bonds or sectors. This sometimes comes because government regulates a particular sector or industry and so it only affects that part of the market. This is one of the reasons it is a good idea to diversify your investments. If all of your investments are in the same industry, an unsystematic risk will cause a much larger effect on your investments. A business risk happens when you invest in a company. This means you do not know how the business is going to perform. They may become obsolete, they might experience a labor strike, or they might be crushed by a large competitor. Legislative/Regulatory risk means that laws or regulations can change that negatively impact your investments. Natural event risk is the risk from things like storms and sickness outbreaks. Call risk is the risk that a bond will be called up sooner than expected when interest rates are down. Prepayment risk happens during mortgage-backed securities when the mortgages that are backing it are paid back sooner than expected. Extension risk means that it sometimes takes longer for people to pay off than expected. Currency exchange risk comes if you are trading with other currencies besides the dollar, because the strength of currencies can change relative to each other. Political risk comes from investing in developing/emerging markets where financial markets are underdeveloped/immature and so are more volatile than established markets. Credit risk means that there is a risk that the bond issuer will not be able to pay the interest or return the principal and so may default on the loan. Liquidity risk means that some investments are easy to turn into cash, such money market securities, and some investments are not, such as selling real estate, which takes a long time to liquidate. Opportunity cost is how much the cost of a missed opportunity is going to cost you. If you could have made a 4% profit on a transaction, but you passed it up, this is a 4% opportunity cost. IPO = Initial public offering, which is the first time a company sells stock to investors. Securities are issued to customers in the primary market and then they are traded among investors in the secondary market. Often, they are sold for a lower price on the primary market and then sold for a higher price on the secondary market. Those who create an IPO have to file a registration statement with the SEC. This shows what is going to be told to investors in the prospectus. It needs to give a thorough overview of the company and its history, and be written in plain, understandable language. Investors have to be able to understand the potential risks and rewards of investment. If not, the company can get a deficiency letter from the SEC and be required to revise their materials. After the registration statement has been filed, there is a cooling off (waiting) period of at least 20 days. The company can gather statements of interest during this time, but they cannot yet sell anything to anyone. They can send out draft prospectus documents that do not include the effective date or the final public offering price (POP).

Series 6 Lesson 10 Annuities Series 6 Lesson 10 Annuities are covered in this lesson This is an investment sold by an insurance company that promises a minimum rate of return or allows the investor to allocate payments to different mutual funds that invest in stock and bond markets. They pay out regular payments throughout the rest of the investor’s life, or they can take out money in lump sums as needed. They are often used as part of retirement plans. Three kinds: fixed, indexed, and variable. A fixed annuity promises a minimum rate of return in exchange for a large payment once, or a series of smaller payments over time. These are known as purchase payments. This is good for someone who needs safe money, but the rate of return is not good. An indexed annuity gets a minimum rate of return, but can get a higher rate of return if a certain index, such as the S&P 500, has a good year. There is often a cap on how much more a person can get from this kind of annuity. A variable annuity does not promise a particular rate of return. The rate can fluctuate The investor bears the risk rather than relying on the insurance company to guarantee a certain rate of return. People who own these can vote about decisions dealing with the annuity. Annuities are pretty complex and so a person has a 10-day grace period in order to change their mind about purchasing annuities. (Free-look period) They provide a death benefit so that when the person dies, their beneficiary will receive a benefit paid out from the annuity. For a deferred annuity, a person purchases the annuity and then waits for some time to receive payments. If the person wants to receive payments right away, they would buy an immediate annuity. When payments are made out, several things are deducted, such as the sales charge, the administrative fee, and the state premium tax. Life only annuities are only good for a person’s life and don’t pay out to another beneficiary upon their death. You usually get the largest monthly payout with these annuities. A period certain annuity will be paid out no matter what for a certain time period. The person can name a beneficiary and the annuity will make regular payments until the term runs out. There is also an either/or option called life with period certain. If you have a 15 year period and then die after a year, the annuity will continue for the remaining 14 years. The joint with last survivor gives the smallest monthly payment, because they have to pay out for the life of annuitant or his or her survivors. Annuities have two phases: the accumulation period (pay-in) and the annuity period (pay-out). In the accumulation period, you either make one very large payment or you can make a series of smaller payments over time. Every time you make a payment, you get annuity units. The payment is created based on the annuitant’s age, the value of the account, the person’s gender, and the settlement option chosen. You will not have a health exam. An insurance company separates its investments into two accounts: the general account and the separate account. Investments from the general account has a certain guaranteed rate of return. Investments from the separate account deal with the stock and bond markets, where there is a great degree of risk and fluctuation. Life Insurance Term life insurance is basically renting life insurance for a certain time period. You will pay a low monthly premium. If the insured person dies within the period, there is a death benefit for a beneficiary, such as a spouse or other family member. At the end of the term, the insured person can renew their coverage if they want. Because he is older, the premiums will likely go up. It does not build up any cash value over time. Whole life insurance is like buying instead of renting. It builds up cash value over time and it does not an expiration date. The insurance company guarantees a minimum cash value that will be paid o...

Series 6 Lesson 2 This Series 6 lesson 2 covers Types of Investments Series 6 Lesson 2 delves into Bank deposits are backed by the FDIC, which the insurance from the federal government. This money is not at risk. The rewards/interest on this kind of investment are low. Money that is invested with a broker-dealer is not backed by any government institution. The potential rewards/interest/dividends on these kinds of investments are potentially much higher. Broker-dealers help clients invest in securities, such as stocks, bonds, and mutual funds. This kind of money is always at risk to some degree. Opening an investment account is highly regulated by the federal government. Company Books The term “books” is used for records of financial transactions. Originally, these books were physical records, but now, they are mostly electronic. CPAs use accounting software to quickly generate reports, etc. These kinds of books are relatively simple. Broker-dealers also have to keep books and they are much more complex. Broker-Dealer Records Things that have to be recorded: All client correspondence, all buy and sell orders, all deposits and withdrawals, etc. These things are all stipulated under the Securities Exchange Act of 1934 and other FINRA rules. All records have to be kept at least three years and sometimes up to six years. Records much be made available to FINRA or SEC workers when they are performing an audit. The records must be stored on a non-erasable, non-rewritable format, such as optical disks or magnetic tape/microfilm. Companies also need to provide means for an auditor to access and read all records, such as computers or film readers. Records need to be labeled with the time and date. Customer Accounts FINRA requires that broker-dealers keep records about each customer, including the following information: Name Residence Name of Customer’s Representative, if applicable Signature of the principal Those with Power of Attorney if the Customer is a Business Signatures of those with Power of Discretion for Discretionary Accounts Taxpayer Identification Number (TIN), such as a Social Security Number Customer Occupation and Employer Address Customer FINRA Membership Status Eligibility Information (Financial Status, etc.) Once you have obtained the customer’s information, you have to provide a copy of it to them so that they can verify that it is accurate. Customers must be asked if the interest and dividend checks should be sent to him or her directly or to be credited to a specific account. Sometimes, people simply want their profits to be reinvested back into the mutual fund or stock in order to keep growing their investment until they are ready to cash out. Customer information needs to be updated and verified on a regular basis to make sure that you are operating on the most current information. Many factors can change your decision makings, such as a change in finances, familial status, employment status, etc. Broker-dealers make recommendations to customers, but they never invest or spend money without the customer’s approval. The customer must always provide written authorization before any transaction can be completed. Once a year, each member receives a notice with the FINRA BrokerCheck hotline number and the FINRA website address, a statement that says that the customer can get a brochure explaining BrokerCheck. BrokerCheck provides registration and disclosure information about broker-dealers, agents, and principals. If an agent has been suspended for any sort of misdeed, this will be recorded in BrokerCheck. Any written complaints from customers have to be acted upon and the all records of such correspondence and responses must be kept under FINRA rules. Transferring Funds Customers are allowed to transfer funds from one broker-dealer to another and both sides are required to expedite this process by...