Economics + Business
15%of exam
Investment Vehicles
25%of exam
Client Strategies
30%of exam
Laws + Ethics
30%of exam
Quick Facts
- Questions
- 130 scored
- Total items
- 140 total
- Time
- 180 min
- Pass
- 92/130
- Format
- Multiple choice
- Sponsor
- Not required
- Corequisite
- None
- Fee
- $187
Systematic vs Unsystematic
Systematic
- Marketwide
- Cannot diversify away
- Beta measures
Unsystematic
- Company specific
- Diversifiable
- Business risk
Market vs issuer
Indicators
- GDP
- Economic output
- CPI
- Consumer inflation
- Unemployment
- Lagging labor measure
- Building permits
- Leading construction signal
- Yield curve
- Rate expectations
- Credit spreads
- Default risk pricing
- Trade deficit
- Imports exceed exports
Financial Reporting
- Balance sheet
- Assets, liabilities, equity
- Income statement
- Revenue minus expenses
- Cash flow
- Operating cash movement
- Audited
- CPA examined
- Accrual
- Earned, not collected
- 10-K
- Annual SEC filing
- Prospectus
- Offering disclosure
Analytics
- NPV
- Discounted net value
- IRR
- Discount rate solution
- Mean
- Average return
- Median
- Middle value
- Beta
- Market sensitivity
- Alpha
- Excess return
- Sharpe
- Risk-adjusted return
- Correlation
- Return relationship
Risk
- Systematic
- Marketwide risk
- Unsystematic
- Company-specific risk
- Interest-rate
- Bond price risk
- Inflation
- Purchasing-power loss
- Liquidity
- Cannot sell quickly
- Opportunity cost
- Forgone alternative
- Business risk
- Issuer operations risk
Bond Rates
Rates up | prices down
Inverse relationshipDuration magnifiesCoupon fixedYield adjusts
Mutual Fund vs ETF
Mutual fund
- Forward NAV
- Redeemable shares
- End-day pricing
ETF
- Intraday trading
- Market price
- Exchange listed
NAV vs market
Product Picker
- Need voting ownership→Common stock(Equity)
- Need fixed dividend→Preferred(Hybrid)
- Need interest income→Bond(Debt)
- Need tax-free income→Municipal(Muni)
- Need daily NAV→Mutual fund(Open-end)
- Need intraday basket→ETF(Exchange)
- Need insurer guarantee→Fixed annuity(Insurance)
- Need market subaccounts→Variable annuity(Security)
Fixed Income
- Treasury
- Federal debt
- Agency
- Government-sponsored debt
- Corporate bond
- Company borrowing
- Municipal bond
- State/local debt
- GO bond
- Tax-backed muni
- Revenue bond
- Project-backed muni
- TIPS
- Inflation-indexed principal
- Duration
- Rate sensitivity
Fund Pricing
Mutual NAV | ETF market
Forward pricingIntraday tradingPremium/discount
Fixed vs Variable Annuity
Fixed
- General account
- Insurer risk
- Not security
Variable
- Separate account
- Client risk
- Security product
Guarantee vs market
Equity
- Common
- Voting ownership
- Preferred
- Fixed dividend
- Convertible
- Exchange feature
- Restricted stock
- Resale limits
- Dividend
- Issuer payout
- Book value
- Accounting equity
- P/E
- Price divided earnings
- Technical
- Price pattern analysis
Funds
- Mutual fund
- Open-end NAV
- Closed-end
- Market-priced shares
- ETF
- Intraday basket
- UIT
- Fixed portfolio
- Hedge fund
- Private pooled fund
- REIT
- Real estate pool
- 12b-1
- Distribution fee
- Breakpoint
- Load discount
Alternatives
- ETN
- Issuer debt note
- Leveraged fund
- Magnified daily return
- Inverse fund
- Opposite daily return
- Structured product
- Packaged payoff
- Limited partnership
- Pass-through vehicle
- Commodity
- Physical asset exposure
- Digital asset
- Crypto-related exposure
Insurance Products
- Fixed annuity
- Insurer guarantee
- Variable annuity
- Separate account risk
- Indexed annuity
- Index-linked crediting
- Term life
- Temporary death benefit
- Whole life
- Permanent cash value
- Universal life
- Flexible premium policy
- Variable life
- Securities subaccounts
Domain Weights
15 | 25 | 30 | 30
Economics 15Vehicles 25Strategies 30Law 30
Strategic vs Tactical
Strategic
- Long-term mix
- Policy driven
- Rebalanced
Tactical
- Short-term shift
- Market views
- Timing risk
Policy vs timing
Strategy Picker
- Long-term target mix→Strategic allocation(Policy)
- Short-term market tilt→Tactical allocation(Timing)
- Reduce company risk→Diversification(Unsystematic)
- Fixed periodic investing→DCA(Volatility)
- Need tax efficiency→After-tax return(Taxable)
- Need estate transfer→TOD(Beneficiary)
Client Profile
- Objective
- Goal of account
- Risk tolerance
- Loss comfort
- Time horizon
- Investment period
- Liquidity need
- Cash timing
- Tax status
- Bracket and account
- Net worth
- Assets minus liabilities
- Experience
- Investment familiarity
- Values
- Nonfinancial preferences
JTWROS vs TIC
JTWROS
- Survivor owns
- Avoids probate
- Equal interests
TIC
- Estate receives
- Probate possible
- Unequal interests
Survivor vs estate
Account Picker
- Minor owns assets→UGMA/UTMA(Custodial)
- Survivor should inherit→JTWROS(Probate avoided)
- Separate estate shares→TIC(No survivorship)
- Education savings→529 plan(Qualified costs)
- Medical savings→HSA(Health expenses)
- Employer retirement→401(k)(Qualified plan)
Portfolio Theory
- MPT
- Efficient diversification
- CAPM
- Expected return model
- EMH
- Prices reflect information
- Strategic
- Long-term allocation
- Tactical
- Short-term tilts
- Active
- Manager selection
- Passive
- Index tracking
- DCA
- Periodic fixed investing
Tax + Retirement
- Capital gain
- Sale profit
- Qualified dividend
- Preferential tax rate
- Tax basis
- Cost for taxes
- Traditional IRA
- Pretax growth
- Roth IRA
- After-tax growth
- 401(k)
- Employer plan
- QDRO
- Divorce plan order
- AMT
- Parallel tax system
Accounts + Estate
- JTWROS
- Survivor gets all
- TIC
- Proportional estate share
- TBE
- Spousal ownership
- TOD
- Transfer at death
- UGMA
- Minor custodial gift
- UTMA
- Minor custodial transfer
- 529
- Education savings
- HSA
- Health savings
Adviser Test
Advice plus business plus compensation
AdviceBusinessCompensationAll three
State vs Federal Adviser
State adviser
- State registered
- Administrator oversight
- State filings
Federal covered
- SEC registered
- Notice files
- State antifraud
Registration vs notice
Law Picker
- New securities issue→1933 Act(Disclosure)
- Secondary market trading→1934 Act(SEC)
- Investment adviser conduct→Advisers Act(Fiduciary)
- Investment company rules→Company Act(Funds)
- State registration issue→USA(Blue sky)
- Private placement exemption→Reg D(Exempt)
Adviser Registration
- IA
- Advice for compensation
- IAR
- Adviser representative
- State adviser
- State registered
- Federal covered
- SEC registered
- Notice filing
- State SEC notice
- Form ADV
- Adviser disclosure
- Brochure
- Client disclosure document
- U4
- Representative filing
Fiduciary Duties
Care knows | loyalty discloses
Reasonable basisBest executionConflict disclosureClient consent
Agent vs IAR
Agent
- Represents broker-dealer
- Effects transactions
- Commission role
IAR
- Represents adviser
- Gives advice
- Fee role
Sales vs advice
Securities Law
- 1933 Act
- Primary offerings
- 1934 Act
- Secondary trading
- 1940 Advisers
- Adviser regulation
- 1940 Company
- Fund regulation
- USA
- State securities law
- Blue sky
- State regulation
- Reg D
- Private offering
- Administrator
- State regulator
Broker vs Adviser
Broker-dealer
- Transaction business
- Agency/principal
- Commissions/spreads
Adviser
- Advice business
- Fiduciary duty
- Fees/compensation
Transaction vs advice
Ethics
- Fiduciary
- Client first
- Duty care
- Reasonable advice basis
- Duty loyalty
- Conflict disclosure
- Custody
- Asset access control
- Discretion
- Trading authority
- Soft dollars
- Research benefit
- Pay to play
- Political contribution risk
- Reg S-P
- Privacy protection
Care vs Loyalty
Care
- Reasonable inquiry
- Suitable advice
- Best execution
Loyalty
- Client first
- Conflict disclosure
- Informed consent
Competence vs conflicts
Prohibited Conduct
- Guarantees
- Promise against loss
- Churning
- Excessive trading
- Insider trading
- MNPI misuse
- Selling away
- Unapproved securities activity
- Commingling
- Mixed client assets
- Forgery
- Unauthorized signature
- Market manipulation
- Artificial price activity
- Performance fraud
- Misleading returns
Common Traps
Score Trap
92 scored correct ≠ Not 92 total
Sponsorship Trap
No sponsor needed ≠ Registration still required
Adviser Test
Advice plus compensation ≠ Incidental advice excluded
Federal Covered
SEC registers adviser ≠ States notice file
Fiduciary Trap
Disclose conflicts ≠ Cannot waive duty
Guarantee Trap
No loss guarantees ≠ Past returns not promises
Bond Math
Rates rise ≠ Bond prices fall
Diversification
Reduces unsystematic risk ≠ Not systematic risk
Annuity Trap
Fixed is insurance ≠ Variable is security
Ownership Trap
JTWROS survivor ≠ TIC estate
Last Minute
- 1.Weights: 15/25/30/30
- 2.130 scored; 140 total
- 3.Passing score: 92/130
- 4.No SIE or sponsor
- 5.Passing alone gives no license
- 6.Adviser = ABC test
- 7.Federal covered notice-files states
- 8.IAR registration is state-based
- 9.Fiduciary = care plus loyalty
- 10.Rates up; bonds down
- 11.Diversification cuts unsystematic risk
- 12.Mutual funds forward-price NAV
- 13.ETF trades intraday
- 14.Fixed annuity not security
- 15.Variable annuity is security
- 16.No guarantees against loss
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